As filed with the U.S. Securities and Exchange Commission on
June 19, 2000
Investment Company Act File No. 811-_____
-----------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
| | Amendment No. __
-------------------------
PW HEALTH SCIENCES FUND, L.L.C.
(Exact name of Registrant as specified in Charter)
1285 Avenue of the Americas
New York, New York 10019-6028
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code:
(212) 713-2000
-------------------------
MARK D. GOLDSTEIN, ESQ.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019-6028
(Name and address of agent for service)
Copy to:
STUART H. COLEMAN, ESQ.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
-------------------------
<PAGE>
This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. However, 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
interests in the Registrant.
<PAGE>
MEMORANDUM NO:
PW HEALTH SCIENCES FUND, L.L.C.
PAINEWEBBER
THE INTERESTS IN PW HEALTH SCIENCES FUND, L.L.C. (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
APPENDICES 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 LIABILITY COMPANY AGREEMENT OF THE FUND, THE 1933 ACT AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION
OF 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 THE FUND'S INTERESTS OR PASSED
UPON THE ADEQUACY OF THE DISCLOSURE IN THIS MEMORANDUM. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
JUNE 2000
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS.............................................................1
THE FUND....................................................................14
STRUCTURE...................................................................14
INVESTMENT PROGRAM..........................................................14
TYPES OF INVESTMENTS AND RELATED RISK FACTORS...............................17
ADDITIONAL RISK FACTORS.....................................................29
PERFORMANCE INFORMATION.....................................................33
THE DIRECTORS...............................................................33
THE MANAGER.................................................................35
VOTING......................................................................36
CONFLICTS OF INTEREST.......................................................36
BROKERAGE...................................................................39
FEES AND EXPENSES...........................................................40
CAPITAL ACCOUNTS AND ALLOCATIONS............................................43
ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES AND OTHER
EXPENDITURES..............................................................45
APPLICATION FOR INTERESTS...................................................47
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS.........................48
TAX ASPECTS.................................................................52
ERISA CONSIDERATIONS........................................................64
ADDITIONAL INFORMATION AND SUMMARY OF LLC AGREEMENT.........................68
APPENDIX A - LIMITED LIABILITY COMPANY AGREEMENT OF PW HEALTH SCIENCES
FUND, L.L.C..............................................................A-1
APPENDIX B--DESCRIPTION OF THE INVESTMENT FUNDS AND CERTAIN
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 Limited Liability Company Agreement (the "LLC Agreement") and the
Investor Application Form, each of which should be read carefully and retained
for future reference.
THE FUND: PW Health Sciences Fund, L.L.C. (the "Fund")
is a newly formed Delaware limited liability
company 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 fund. The Fund is similar
to an unregistered private investment fund in
that (i) its underlying 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
("Investors"), and will be restricted as to
transfer and (iii) the Investors' capital
accounts in the Fund will be subject to both
and an asset-based fee and an incentive-based
allocation.
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") with investment
programs that emphasize investments in the
health sciences sector, which includes
companies involved in the following
sub-sectors: biotechnology; drug delivery;
health care services, including HMOs,
physician practice management companies,
hospitals and home care; health care
information systems; hospital services;
managed care; medical technology; and
pharmaceuticals. These Investment Managers
are expected to invest principally in equity
securities, and to a lesser extent in debt
securities, of both established and emerging
companies. A substantial portion of their
portfolios generally is expected to be
comprised of securities of U.S. companies,
although a portion of their portfolios may
include securities of foreign companies, some
of which may be denominated in foreign
currencies.
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; interviews of
the management team; and whether the
Investment Manager has a substantial personal
investment in the investment program. Not all
these factors will be considered with respect
to each Investment Manager and other criteria
may be considered.
Investment Managers generally conduct their
investment programs through unregistered
investment vehicles, which have investors
other than the Fund, and in other registered
investment companies (collectively, the
"Investment Funds"). The Fund currently
intends to invest its assets primarily in 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 or managing member and the
Fund is the sole limited partner or the only
other member. (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 generally 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. However, to permit
it to invest more of its assets in desirable
Investment Funds, the Fund may purchase
without limitation non-voting securities of
Investment Funds that are not advised by a
Subadviser or, as to these Investment Funds,
contractually forego its right to vote on any
matter that requires the approval of the
investors. The Fund may invest a majority of
its assets in non-voting securities of the
Investment Funds. See "ADDITIONAL RISK
FACTORS--Special Risks of Multi-Manager
Structure."
The Manager anticipates that, after the first
closing, it will invest substantially all of
the Fund's assets in the Investment Funds set
forth and described in Appendix B. No
assurance can be given that the Manager will
allocate the Fund's assets to all of these
Investment Funds. The Manager anticipates
investing in other Investment Funds in the
future and that the allocations of the Fund's
assets among Investment Funds will change.
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
and trade 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. Some or
all of the Investment Managers 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 sell securities short
and 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 and may
invest in illiquid and restricted securities,
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, if any, 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. An investment
in the Fund should be viewed only as part of
an overall investment program. 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.
Initially, the Fund's assets are expected to
be invested among four Investment Managers.
The concentration of the Fund's assets among
a small number of Investment Managers may
expose the Fund greater risk than if a larger
number of Investment Managers were selected.
The Investment Managers' emphasis in
securities of health sciences-related
companies presents certain risks that may not
exist to the same degree as in other types of
investments. These securities, 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
health sciences-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."
One or more of the Investment Managers may
invest a substantial portion of their assets
in smaller capitalization companies,
including micro cap companies. The prices of
these securities may be subject to more
abrupt or erratic market movements than
larger, more established companies, because
they typically are traded in lower volume and
the issuers are more subject to changes in
earnings and prospects. See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS--Equity
Securities."
The Investment Managers may invest without
limitation in restricted and illiquid
securities, which presents certain risks. See
"TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Restricted and Illiquid Securities."
One or more of the Investment Managers may
invest a substantial portion of their assets
in foreign securities without regard to
market capitalization. See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS--Foreign
Securities."
An Investment Manager's use of leverage,
short sales and derivative transactions, in
certain circumstances, can result in
significant losses. See "TYPES OF INVESTMENTS
AND RELATED RISK FACTORS."
Each Investment Manager generally will charge
the Fund an asset-based fee and some or all
of the Investment Managers will receive
incentive-based allocations. The asset-based
fees of the Investment Managers are expected
to range from 1% to 2% and the
incentive-based allocations of the Investment
Managers are expected to range from 15% to
20% of net profits.
The incentive-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 incentive-based
allocation. In addition, because the
incentive-based allocation is calculated on a
basis that includes unrealized appreciation
of an Investment Fund's assets, the
allocation may be greater than if it were
based solely on realized gains.
In addition, the Manager will charge the Fund
an asset-based fee and will receive an
incentive-based allocation, which gives rise
to similar risks. See "SUMMARY OF TERMS--Fees
and Expenses" and "--Incentive Allocation."
The Fund is a newly formed entity and has no
operating history upon which investors can
evaluate the performance of the Fund. The
Manager, however, has experience in managing
private investment funds that have investment
programs that are similar to the Fund's
investment program.
Some Investment Managers may be newly
organized and therefore may have no, or only
limited, operating histories. However, the
Manager will endeavor to select Investment
Managers whose principals will have
substantial experience managing investment
programs that emphasize investments in the
health sciences sector.
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, an
Investor may not be able to liquidate its
interest in the Fund for up to two years. The
Manager expects that it will recommend to the
Directors (as hereinafter defined) that the
Fund offer to repurchase interests from
Investors in December 2001 and, thereafter,
twice each year, near mid-year and year-end.
See "SUMMARY OF TERMS--Transfer Restrictions"
and "--Repurchases of Interests by the Fund."
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.
INVESTING IN A MULTI-MANAGER FUND, SUCH AS
THE FUND, INVOLVES ADDITIONAL SPECIAL RISKS,
INCLUDING THE FOLLOWING:
The Investment Funds will not be registered
as investment companies under the 1940 Act
and, therefore, the Fund will not be able to
avail itself of the protections of the 1940
Act with respect to the Investment Funds.
Although the Manager will receive detailed
information from each Investment Manager
regarding its historical performance and
investment strategy, in most cases the
Manager has little or no means of
independently verifying this information. An
Investment Manager may use proprietary
investment strategies that are not fully
disclosed to the Manager, which may involve
risks under some market conditions that are
not anticipated by the Manager. For
information about an Investment Fund's net
asset value and portfolio composition, the
Manager will be dependent on information
provided by the Investment Funds, which if
inaccurate could adversely affect the
Manager's ability to manage the Fund's
investment portfolio in accordance with its
investment objective and to value accurately
the Fund's interests.
An Investor who met the conditions imposed by
the Investment Managers, including investment
minimums that may be considerably higher than
the Fund's stated minimum investment, could
invest directly with the Investment Managers.
By investing in the Investment Funds
indirectly through the Fund, the Investor
bears two layers of asset-based fees and
incentive-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
incentive-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 the Manager and 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.
Since the Fund may make additional
investments in the Investment Funds only at
certain times pursuant to limitations set
forth in the governing agreements of the
Investment Funds, the Fund from time to time
may have to invest some of its assets in
money market securities pending investment in
Investment Funds.
To the extent the Fund purchases non-voting
securities of, or contractually foregoes the
right to vote in respect of, an Investment
Fund, it will not be able to vote on matters
that require the approval of investors in the
Investment Fund, including a matter that
could adversely affect the Fund's investment
in it.
Each Investment Fund is permitted to redeem
its securities in-kind. Thus, upon the Fund's
withdrawal of all or a portion of its
interest in an Investment Fund, the Fund may
receive securities that are illiquid or
difficult to value. In such circumstances,
the Manager would seek to dispose of these
securities in a manner that is in the best
interests of the Fund.
Like an investment in the Fund, investments
in the Investment Funds generally will be
illiquid and some of the Investment Funds
will not permit withdrawals at the same time
as the Fund. As a result, the liquidity of
the Fund's interests may be adversely
affected and the Fund may manage its
investment program differently than if it
were able to withdraw moneys from each
Investment Fund at the same time it desires
to provide liquidity to its Investors.
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
Managing Member.
The Fund's Board of Directors (the "Board"
and its members, the "Directors") has overall
responsibility 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."
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, as of March 31,
2000, have approximately $452 billion of
client assets and approximately $73 billion
of assets under management.
PLACEMENT PaineWebber Incorporated acts as the
AGENT: 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' financial
advisors 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, the
INTEREST: Investment Managers and their affiliates 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
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 these
services, the Fund will pay the Manager a
management fee generally on a monthly basis
at the annual rate of 1% of the Fund's net
assets for the month, 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 Investors' capital accounts.
PFPC Inc. (the "Administrator") performs
certain administration, accounting and
investor services for the Fund and other
investment funds sponsored or advised by PW
Group or its affiliates. In consideration for
these services, the Fund and the other
investment funds will pay the Administrator
an annual fee calculated based upon their
aggregate average net assets, subject to a
minimum monthly fee, and will reimburse the
Administrator for certain of the
Administrator's expenses.
The 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 computing the Fund's net asset
value, including valuation services provided
by third parties; costs of insurance;
organizational and registration expenses;
certain offering costs; and expenses of
meetings of the Board and Investors.
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."
PLACEMENT FEE: Investors purchasing interests in the Fund
may be charged a placement fee of up to 2% of
the Investor's capital contribution. The
placement fee will not constitute assets of
the Fund. See "FEES AND EXPENSES--Placement
Fee."
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 Investors
at the end of each fiscal period in
accordance with their respective Fund
percentages for such period. Each Investor's
Fund percentage will be determined by
dividing as of the start of a fiscal period
the balance of the Investor's capital account
by the sum of the balances of the capital
accounts of all Investors of the Fund. See
"CAPITAL ACCOUNTS AND ALLOCATIONS--Allocation
of Net Profits and Net Losses."
INCENTIVE ALLOCATION: Generally, at the end of the 12-month period
following the admission of an Investor to the
Fund, and at the end of each fiscal year
thereafter, an amount equal to 5% of the net
profits, if any, that would otherwise be
credited to the Investor's account for such
period will instead be credited to the
account of the Manager. This allocation (the
"Incentive Allocation") will be made only
with respect to net profits that exceed any
net losses previously debited to the account
of such Investor which have not been offset
by any net profits subsequently credited to
the account of the Investor. See "CAPITAL
ACCOUNTS AND ALLOCATIONS--Incentive
Allocation."
APPLICATION FOR Both initial and additional applications for
INTERESTS: interests by eligible investors may be
accepted at such times as the Fund may
determine, subject to the receipt of cleared
funds on or before the acceptance date set by
the Fund. After the initial closing, initial
applications and additional capital
contributions will generally be accepted
monthly. The Fund reserves the right to
reject any application for interests in the
Fund. Generally, the minimum initial
investment in the Fund is $250,000. For
employees or directors of the Manager and its
affiliates, and members of their immediate
families, and, in the sole discretion of the
Board, attorneys or other professional
advisors engaged on behalf of the Fund, 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 applications for interests at any
time. See "APPLICATION FOR
INTERESTS--Eligible Investors."
INITIAL CLOSING The initial closing date for applications for
DATE: interests in the Fund is July 26, 2000. The
Fund, in its sole discretion, may accelerate
or postpone the closing date.
TRANSFER Interests in the Fund may be transferred only
RESTRICTIONS: by (i) operation of law pursuant to the
death, bankruptcy, insolvency or dissolution
of an Investor 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 Investors
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."
REPURCHASES OF No Investor will have the right to require
INTERESTS BY THE the Fund to redeem the Investor's interest in
FUND: the Fund. The Fund from time to time may
offer to repurchase interests pursuant to
written tenders by Investors. These
repurchases will be made at such times and on
such terms as may be determined by the Board,
in its complete and exclusive discretion. The
Manager expects that it will recommend to the
Board that the Fund offer to repurchase
interests from Investors in December 2001
and, thereafter, twice each year, near
mid-year and year-end. In addition, the Fund
may repurchase an interest in the Fund or
portion thereof of an Investor or any person
acquiring an interest or portion thereof from
or through an Investor 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 LLC Agreement provides that the Fund
shall be dissolved if the interest of any
Investor that has submitted a written
request, in accordance with the terms of the
LLC 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 Investor 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.
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,
including employee benefit plans, Individual
Retirement Accounts and 401(k) and Keogh
Plans (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 Investor
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"). In addition, an
Investor that is a charitable remainder trust
will not be exempt from Federal tax for any
year in which it has UBTI. The Fund will
provide to tax-exempt Investors such
accounting information as such Investors
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
LLC Agreement. See "ADDITIONAL INFORMATION
AND SUMMARY OF LIMITED LIABILITY COMPANY
AGREEMENT--Term, Dissolution and
Liquidation."
REPORTS TO The Fund will furnish to Investors as soon as
INVESTORS: practicable after the end of each taxable
year such information as is necessary for
Investors to complete Federal and state
income tax or information returns, along
with, any other tax information required by
law. 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. See
"ADDITIONAL RISK FACTORS--Special Risks of
Multi-Manager Structure." The Fund also will
send to Investors 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 Investors.
<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 liability
company under the laws of Delaware on April 28, 2000, 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.
STRUCTURE
The Fund is a specialized investment vehicle that combines many of the features
of a private investment fund with those of a closed-end investment company.
Private investment funds are unregistered, commingled asset pools that may be
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 or
managing members of these entities typically are compensated through asset-based
fees and incentive-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 funds,
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
incentive-based, fees.
The Fund is similar to private investment funds in that its underlying 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. In addition, Investors will be subject to
asset-based fees and incentive-based allocations.
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 Investment
Managers with investment programs that emphasize investments in the health
sciences sector, which includes companies involved in the following sub-sectors:
biotechnology; drug delivery; health care services, including HMOs, physician
practice management companies, hospitals and home care; health care information
systems; hospital services; managed care; medical technology; and
pharmaceuticals. These Investment Managers invest principally in equity
securities, and to a lesser extent in debt securities, of both established and
emerging companies. A substantial portion of their portfolios generally is
comprised of securities of U.S. companies, although a portion of their
portfolios may include securities of foreign companies, some of which may be
denominated in foreign currencies.
The Manager's research staff assists in the selection of Investment Managers
using its database of asset managers to narrow the universe of potential
candidates. 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; interviews of the management team; and whether the Investment
Manager has a substantial personal investment in the investment program. Not all
these factors will be considered with respect to each Investment Manager and
other criteria may be considered.
As part of its diligence process, the Manager conducts a review of the
Investment Manager, its investment process and organization, and conducts
interviews with references and industry sources to complete its determination.
Once an asset manager is selected as an Investment Manager, the Manager will
continue to review the Investment Manager. See "APPENDIX B--Description of the
Investment Funds and Certain Performance Information."
Investment Managers generally conduct their investment programs through the
Investment Funds. The Fund currently intends to invest its assets primarily in
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 or managing member and the Fund is the sole limited partner or
the only other member. The Manager generally 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. However,
to permit it to invest more of its assets in desirable Investment Funds, the
Fund may purchase without limitation non-voting securities of Investment Funds
that are not advised by a Subadviser or, as to these Investment Funds,
contractually forego its right to vote on any matter that requires the approval
of the investors. The Fund may invest a majority of its assets in non-voting
securities of the Investment Funds. See "ADDITIONAL RISK FACTORS--Special Risks
of Multi-Manager Structure."
The Manager anticipates that, after the first closing, it will invest
substantially all of the Fund's assets in the Investment Funds set forth in
Appendix B. A brief description of the investment strategies of these Investment
Funds, and their performance, is set forth in Appendix B. However, no assurance
can be given that the Manager will allocate the Fund's assets to all of these
Investment Funds. The Manager anticipates investing in other Investment Funds in
the future and that the allocations of the Fund's assets among Investment Funds
will change. Allocations among Investment Funds may not be equally weighted.
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 and trade 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. Some or all of the Investment Managers 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 sell securities
short and 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 and may
invest in illiquid and restricted securities, which also entails risk. See
"TYPES OF INVESTMENTS AND RELATED RISK FACTORS--Leverage," "--Short Sales"
and"--Special Investment Instruments and Techniques."
Each Investment Manager may invest, for defensive purposes or otherwise, some or
all of its assets in high quality fixed income securities and money market
instruments, or may hold cash or cash equivalents in such amounts as the
Investment Manager deems appropriate under the circumstances. Pending allocation
of the offering proceeds (which, because some Investment Funds may accept
investments only at quarterly or longer intervals, may be for several months),
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 Investors. 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 HEALTH
SCIENCES SECTOR, AS WELL AS ITS INVESTMENTS IN SMALL AND MICRO CAP COMPANIES,
USE OF LEVERAGE, SHORT SALES AND DERIVATIVE TRANSACTIONS, ITS LIMITED
DIVERSIFICATION AND THE LIMITED LIQUIDITY OF SOME OF ITS PORTFOLIO SECURITIES,
IN CERTAIN CIRCUMSTANCES, CAN RESULT IN OR CONTRIBUTE TO 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 health sciences 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. An 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, if any, to their underlying securities.
HEALTH SCIENCES SECTOR
The Fund's emphasis on Investment Managers that invest a substantial portion of
their assets in securities of health sciences-related companies presents certain
risks that may not exist to the same degree as in other types of investments.
Securities of companies in this sector, in general, tend to be highly volatile
as compared to other types of investments. Since the portfolios of the
Investment Managers are focused on investing in the securities of health
sciences-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 health sciences-related, many of
those entities share common characteristics which may affect the Investment
Manager's investment. For example, many health sciences companies are subject to
substantial governmental regulations that can affect their prospects. Changes in
governmental policies may have a material effect on the demand for particular
products and services. Regulatory approvals (often entailing lengthy application
and testing procedures) also may be required before new drugs and certain
medical devices and procedures can be introduced. Many health sciences companies
have products and services that are subject to the risks of rapid obsolescence
caused by progressive scientific and technological advances. The enforcement of
patent, trademark and other intellectual property laws will affect the value of
many of these companies. Some or all of the Investment Managers may invest in
securities of emerging growth companies in these industries, which may offer
limited products or services or which are at the research and developmental
stage with no marketable or approved products or technologies and, thus, have no
earnings or have experienced losses. While they generally will make these
investments based on a belief that actual or anticipated products or services
will produce future earnings, if an anticipated event is delayed or does not
occur, or if investor perceptions about a company change, the company's stock
price may decline sharply and its securities may become less liquid.
EQUITY SECURITIES
An 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. Investment Managers also may invest in depositary receipts
relating to foreign securities. See "--Foreign Securities" below. Equity
securities fluctuate in value in response to many factors, including the
activities and financial condition of individual companies, the business market
in which individual companies compete and general market and economic
conditions.
The Investment Managers generally 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 some of these smaller companies may be subject to more abrupt or
erratic market movements than larger, more established companies, because they
typically are traded in lower volume and the issuers typically are more subject
to changes in earnings and prospects. The Investment Managers may purchase
securities in all available securities trading markets, including initial public
offerings and the aftermarket.
The Investment Managers' investments in equity securities may include securities
that are listed on securities exchanges as well as unlisted securities that are
traded over-the-counter. Equity securities of companies traded over-the-counter
may not be traded in the volumes typically found on a national securities
exchange. Consequently, an Investment Manager may be required to dispose of such
securities over a longer (and potentially less favorable) period of time than is
required to dispose of the securities of listed companies.
FOREIGN SECURITIES
Although the Investment Managers are expected to invest principally in equity
securities of publicly traded U.S. companies, they 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 an 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.
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 held by Investment Funds advised by Subadviser
will be 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 the 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.
FIXED-INCOME SECURITIES
The Investment Managers may invest in fixed-income securities. The Investment
Managers typically 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).
The Investment Managers 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 Investment 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 CURRENCY TRANSACTIONS
An 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
An 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, many of which may 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 only apply to the Investment Funds that
are 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
Some or all of the Investment Managers 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. 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 an Investment Fund's portfolio. A short sale of a
security involves the theoretical 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 an Investment Fund.
Reverse repurchase agreements are a form of leverage which also may increase the
volatility of an Investment Fund's 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.
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") and
Standard & Poor's 100 Index, listed on national securities exchanges or traded
in the over-the-counter market for hedging purposes and to pursue its investment
objective. A stock index fluctuates with changes in the market values of the
stocks that comprise the index. Accordingly, successful use by the Investment
Manager of options on stock indexes will be subject to the Investment Manager's
ability to predict correctly movements in the direction of the stock market
generally or segments thereof. This requires different skills and techniques
than forecasting changes in the price of individual stocks.
WARRANTS. Warrants are derivative instruments that permit, but do not obligate,
the holder to subscribe for other securities. Warrants do not carry with them
the right to dividends or voting rights with respect to the securities that they
entitle the holder to purchase, and they do not represent any rights in the
assets of the issuer. As a result, warrants may be considered more speculative
than certain other types of investments. In addition, the value of a warrant
does not necessarily change with the value of the underlying securities or
commodities, and a warrant ceases to have value if it is not exercised prior to
its expiration date.
SWAP AGREEMENTS. Some or all of the Investment Managers may enter into equity,
interest rate, index and currency rate swap agreements on behalf of the
Investment Funds. These transactions are entered into in an attempt to obtain a
particular return when it is considered desirable to do so, possibly at a lower
cost than if the Investment Manager had invested directly in the asset that
yielded the desired return. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than a year. In a standard swap transaction, two parties agree to exchange
the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments, which may be adjusted for
an interest factor. The gross returns to be exchanged or "swapped" between the
parties are generally calculated with respect to a "notional amount," i.e., the
return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Equity index swaps involve the
exchange by an Investment Fund with another party of cash flows based upon the
performance of an index or a portion of an index of securities which usually
includes dividends.
The Investment Managers may purchase cash-settled options on equity index swaps.
A cash-settled option on a swap gives the purchaser the right, but not the
obligation, in return for the premium paid, to receive an amount of cash equal
to the value of the underlying swap as of the exercise date. These options
typically are purchased in privately negotiated transactions from financial
institutions, including securities brokerage firms.
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.
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 to the extent permitted by the 1940 Act.
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 Subadvisers 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 Subadvisers
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 U.S. Government Securities may
be purchased without limitation. For purposes of this Investment
Restriction, the Investment Funds are not considered part of an industry.
The Fund will invest in Investment Funds that may concentrate their
investments in one or more industries.
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 INCENTIVE-BASED ALLOCATIONS
Each Investment Manager generally will charge the Fund an asset-based fee and
some or all of the Investment Managers will receive incentive-based allocations.
The asset-based fees of the Investment Managers are expected to range from 1% to
2% and the incentive-based allocations of the Investment Managers are expected
to range from 15% to 20% of net profits.
The incentive-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 incentive-based allocation. In addition, because the incentive-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. See "CAPITAL ACCOUNTS AND
ALLOCATIONS--Incentive Allocation."
In addition, the Manager will charge the Fund an asset-based fee and will
receive an incentive-based allocation, which gives rise to similar risks. See
"FEES AND EXPENSES" and "CAPITAL ACCOUNTS AND ALLOCATIONS--Incentive
Allocation."
BORROWING MONEY FOR REPURCHASES
The Fund may borrow money for temporary or emergency purposes or in connection
with repurchases of, or tenders for, the Fund's interests. If the Fund borrows
money, its net assets value may be subject to greater fluctuation until the
borrowing is repaid.
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 a 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."
LACK OF OPERATING HISTORY
The Fund is a newly formed entity and has no operating history upon which
investors can evaluate the performance of the Fund. The Manager, however, has
experience in managing private investment funds that have investment programs
that are similar to the Fund's investment program.
Some Investment Managers may be newly organized and therefore may have no, or
only limited operating histories. However, the Manager will endeavor to select
Investment Managers whose principals have substantial experience managing
investment programs that emphasize investments in the health sciences sector.
LIQUIDITY RISKS
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 Investor interests from time to time, an Investor
may not be able to liquidate its interest in the Fund for up to two years. The
Manager expects that it will recommend to the Board that the Fund offer to
repurchase interests from Investors in December 2001 and, thereafter, twice each
year, near mid-year and year-end. See "REDEMPTIONS, REPURCHASES OF INTERESTS AND
TRANSFERS."
DISTRIBUTIONS TO INVESTORS AND PAYMENT OF TAX LIABILITY
The Fund does not intend to make periodic distributions of its net income or
gains, if any, to Investors. Whether or not distributions are made, Investors
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
Board.
SPECIAL RISKS OF MULTI-MANAGER STRUCTURE
The Investment Funds will not be registered as investment companies under the
1940 Act and, therefore, the Fund will not be able to avail itself of the
protections of the 1940 Act with respect to the Investment Funds. Although the
Manager will receive detailed information from each Investment Manager regarding
its historical performance and investment strategy, in most cases the Manager
has little or no means of independently verifying this information. An
Investment Manager may use proprietary investment strategies that are not fully
disclosed to the Manager, which may involve risks under some market conditions
that are not anticipated by the Manager. For information about an Investment
Fund's net asset value and portfolio composition, the Manager will be dependent
on information provided by the Investment Funds, which if inaccurate could
adversely affect the Manager's ability to manage the Fund's investment portfolio
in accordance with its investment objective and to value accurately the Fund's
interests.
Initially, the Fund's assets are expected to be invested among four Investment
Managers. The concentration of the Fund's assets among a small number of
Investment Managers may expose the Fund to greater risk than if a larger number
of Investment Managers were selected.
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 the Fund's stated
minimum investment. By investing in investment vehicles indirectly through the
Fund, the Investor bears two layers of asset-based fees and incentive-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 incentive-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 the Manager and 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.
To the extent the Fund holds non-voting securities of, or contractually foregoes
the right to vote in respect of, an Investment Fund, it will not be able to vote
on matters that require the approval of the limited partners of the Investment
Fund, including a matter that could adversely affect the Fund's investment in
it.
Since the Fund may make additional investments in the Investment Funds only at
certain times pursuant to limitations set forth in the governing agreements of
the Investment Funds, the Fund from time to time may have to invest some of its
assets temporarily in money market securities, possibly for several months.
Each Investment Fund is permitted to redeem its securities in-kind. Thus, upon
the Fund's withdrawal of all or a portion of its interest in an Investment Fund,
the Fund may receive securities that are illiquid or difficult to value. In such
circumstances, the Manager would seek to dispose of these securities in a manner
that is in the best interests of the Fund.
Like an investment in the Fund, investments in the Investment Funds generally
will be illiquid. The governing instruments of each Investment Fund likely will
have provisions similar to those of the Fund restricting both the
transferability of an investor's interest and the ability of any investor to
withdraw its investment in certain circumstances. Some Investment Funds will not
permit withdrawals at the same time as the Fund. As a result, the liquidity of
the Fund's interests may be adversely affected and the Fund may manage its
investment program differently than if it were able to withdraw moneys from each
Investment Fund at the same time it desires to provide liquidity to its
Investors.
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 incentive-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.
The Fund may be required to indemnify certain of the Investment Funds and their
Investment Managers from any liability, damage, cost or expense arising out of,
among other things, certain acts or omissions relating to the offer or sale of
the Fund's interests.
PERFORMANCE INFORMATION
Appendix B contains performance information for the Investment Funds that
currently are under consideration. No assurance can be given that the Manager
will allocate the Fund's assets to all of these Investment Funds. Investment
Funds are subject to change and may not be equally weighted. The Investment
Managers of these Investment Funds may manage other accounts, including other
unregistered investment vehicles, that have substantially similar investment
programs. The performance of these accounts may differ materially from the
performance of the Investment Funds described in Appendix B.
THE DIRECTORS
The Board has overall responsibility 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 Board exercises the same powers, authority and responsibilities on
behalf of the Fund as are customarily exercised by the board of directors of a
registered investment company organized as a corporation.
The Directors are not required to contribute to the capital of the Fund or hold
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
*E. Garrett Bewkes, Jr. Mr. Bewkes is a director of, and prior to
c/o PaineWebber Incorporated December 1995 was a consultant to, PW Group,
1285 Avenue of the Americas and recommenced service as a consultant to PW
New York, New York 10019 Group in May 1999. Prior to 1988, he was
Age 73 Chairman of the Board, President and Chief
Executive Officer of American Bakeries
Company. Mr. Bewkes is a director of
Interstate Bakeries Corporation. Mr. Bewkes
also is a director or trustee of 38 other
investment companies for which PaineWebber
Incorporated or its affiliates serves as
investment adviser.
Meyer Feldberg Mr. Feldberg is Dean and Professor of
c/o Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to 1989,
New York, New York 10027 he was President of the Illinois Institute of
Age 58 Technology. Dean Feldberg is a director of
Primedia, Inc. (publishing), Federated
Department Stores Inc. (operator of
department stores) and Revlon, Inc.
(cosmetics). Dean Feldberg also is a director
or trustee of 36 other investment companies
for which PaineWebber Incorporated or its
affiliates serves as investment adviser.
George W. Gowen Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May
New York, New York 10017 1994, he was a partner in the law firm of
Age 70 Fryer, Ross & Gowen. Mr. Gowen also is a
director or trustee of 36 other investment
companies for which PaineWebber Incorporated
or its affiliates serves as investment
adviser.
The Directors serve on the Board for terms of indefinite duration. 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, subject to
waiver of notice, and may be removed either by vote of two-thirds of the
Directors not subject to the removal vote or vote of the Investors holding not
less than two-thirds of the total number of votes eligible to be cast by all
Investors. 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 Investors. The Directors may call a
meeting of Investors 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
Investors cease to constitute a majority of the Directors then serving. If no
Director remains to manage the business of the Fund, the Manager may manage and
control the Fund, but must convene a meeting of Investors 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 $5,000 and per
meeting fees of $500, or $250 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 $6,000 during the coming year, and that, together
with compensation paid to them by other registered investment companies advised
by affiliates of the Manager, Messrs. Feldberg and Gowen each will receive
aggregate annual compensation from all such companies of approximately $160,000
for such year. The Directors do not receive any pension or retirement benefits
from the Fund.
THE MANAGER
The Manager is the Fund's Managing Member. 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, as of March 31, 2000, have approximately $452
billion of client assets and $73 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. Before the
commencement of the Fund's operations, 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 or its designee 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 at such other place
as designated by the Manager.
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 incentive allocation arrangement between the Fund and
the Manager, as the foregoing are set forth in the LLC Agreement, was initially
approved by the Board, including each Independent Director, and by vote of
Investors holding interests in the Fund on May 10, 2000. 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 Board, 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 Board;
(3) if, after May 10, 2001, 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 Board and, in
either case, approved by a majority of the Independent Directors by
vote cast at a meeting called for such purpose; or
(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 LLC Agreement or otherwise constituting an
"assignment" within the meaning of the 1940 Act.
VOTING
Each Investor will have the right to cast a number of votes based on the value
of such Investor's respective capital account at any meeting of Investors called
by the Directors or Investors holding at least a majority of the total number of
votes eligible to be cast by all Investors. Investors 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 and
approval of the Fund's auditors. Except for the exercise of their voting
privileges, Investors 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. In addition, the
Manager, its affiliates, and any of their respective officers, directors,
partners, members or employees, may invest for their own accounts in various
investment opportunities, including in investment partnerships, private
investment companies or other investment vehicles in which the Fund will have no
interest.
The Manager or its affiliates may determine that an investment opportunity in a
particular investment vehicle is appropriate for a particular PWFA Client or for
itself or its officers, directors, partners, members or employees, but not for
the Fund. Situations may arise in which the Manager, its affiliates or PWFA
Clients have made investments which would have been suitable for investment by
the Fund but, for various reasons, were not pursued by, or available to, the
Fund. The investment activities of the Manager, its affiliates and any of their
respective officers, directors, partners, members or employees may disadvantage
the Fund in certain situations, if, among other reasons, the investment
activities limit the Fund's ability to invest in an investment vehicle.
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' financial
advisors, 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.
Additionally, these entities, at their discretion, may charge Investors
placement fees of up to 2% of the purchase price of Fund interests being
purchased. See "FEES AND EXPENSES" and "CAPITAL ACCOUNTS AND
ALLOCATIONS--Incentive Allocation."
PaineWebber Incorporated or its affiliates may provide brokerage, investment
banking and other financial or advisory services from time to time to one or
more accounts or entities managed by the Investment Managers or their
affiliates, including the Investment Funds. These relationships could preclude
the Fund from engaging in certain transactions and could constrain the Fund's
investment flexibility. (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
or investment vehicle managed by, or enter into relationships with, 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 that will be 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
Investors 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, the Subadviser will
attempt to aggregate, place and allocate orders on a basis that it 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. These situations may be based on, among other things: (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. These 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.
The Fund, the Manager and PaineWebber Incorporated each have adopted, and any
new Subadviser will adopt, a code of ethics under Rule 17j-1 of the 1940 Act
that permits its personnel, subject to the codes, to invest in securities,
including securities that may be purchased or held by the Fund. These codes of
ethics can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-202-942-8090. These codes are available on
the EDGAR database on the SEC's Internet site at http://www.sec.gov, and also
may be obtained, after paying a duplicating fee, by electronic request at the
following E-mail address: [email protected], or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102.
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. The Manager understands
that each Investment Manager will seek to obtain the best price and execution
for portfolio transactions and may allocate brokerage business to brokers that
provide it with supplemental research, reports and other market information in
the same manner and subject to the same requirements as a Subadviser as
described below.
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 of brokers in executing
transactions in portfolio securities.
Following the principle of seeking best price and execution, a Subadviser may
place brokerage business on behalf of the Fund 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 Investment Fund. In
addition, not all of the supplemental information is used by the Subadviser in
connection with the Investment 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 Investment Fund.
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 these services, the Fund will pay the Manager
a management fee generally on a monthly basis at the annual rate of 1% of the
Fund's net assets for the month, 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 as of the start of business on the first business day
of the period to which the Fee relates, after adjustment for any capital
contributions effective on such date, and will be payable in arrears. The Fee
will be charged in each period to the capital accounts of all Investors in
proportion to their capital accounts at the beginning of such period.
The Administrator performs certain administration, accounting and investor
services for the Fund and other investment funds sponsored or advised by PW
Group or its affiliates. In consideration for these services, the Fund and such
other funds 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 aggregate
net assets of such other funds, subject to a minimum monthly fee, and will
reimburse the Administrator for out-of-pocket expenses.
In addition, the capital accounts of Investors may be subject to an Incentive
Allocation depending upon the investment performance of the Fund. See "CAPITAL
ACCOUNTS AND ALLOCATIONS--Incentive Allocation."
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:
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, if any, and with the selection of
Investment Managers, including due diligence and travel-related
expenses;
o the costs and expenses of holding meetings of the Board and any
meetings of Investors that are regularly scheduled, permitted or
required to be held under the terms of the LLC 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 Manager or the Directors;
o all costs and expenses of preparing, setting in type, printing and
distributing reports and other communications to Investors;
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 portfolios, including valuation services provided by third
parties;
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 Board.
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 $250,000.
Before a recent change to the guidelines followed by the American Institute of
Certified Public Accountants applicable to the Fund, the Fund would have been
able to amortize the organizational expenses over a 60-month period. Because of
that change, however, the organizational expenses now must be expensed as
incurred. To achieve a more equitable distribution of the impact of those
expenses among the Investors, an amount equal to the organizational expenses
incurred by the Fund will be allocated among and credited to or debited against
the capital accounts of all Investors based on the percentage that an Investor's
contributed capital to the Fund bears to the total capital contributed to the
Fund by all Investors as of the relevant allocation date. An initial allocation
of organizational costs will be made as of the first date on which capital
contributions of Investors are made. These allocations will thereafter be
adjusted as of each date, through and including December 31, 2000, on which
additional capital is contributed to the Fund by Investors. The Fund also will
bear certain ongoing offering costs associated with any periodic offers of Fund
interests. Offering costs cannot be deducted by the Fund or the Investors.
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 incentive-based allocations from the Investment
Funds, which effectively will reduce total distributions from the Investment
Funds to the Fund.
PLACEMENT FEE
In connection with initial and additional purchases of Fund interests, Investors
may be charged by PaineWebber Incorporated and its Financial Advisors, as well
as third party securities dealers and other industry professionals, placement
fees of up to 2% of the Investor's capital contribution, in their sole
discretion. The placement fee will be added to the purchase price and will not
constitute assets of the Fund. See "APPLICATION FOR INTERESTS--Application
Terms."
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Fund will maintain a separate capital account for each Investor, which will
have an opening balance equal to such Investor's initial contribution to the
capital of the Fund. Each Investor'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 Investor to the capital of the Fund, plus any
amounts credited to such Investor's capital account as described below.
Similarly, each Investor's capital account will be reduced by the sum of the
amount of any repurchase by the Fund of the interest or portion of the interest
of such Investor, plus the amount of any distributions to such Investor which
are not reinvested, plus any amounts debited against such Investor's capital
account as described below. To the extent that any debit would reduce the
balance of the capital account of any Investor 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 Investor 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 Investor.
Capital accounts of Investors 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 the first
to occur of (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 Investor, (4) the day as of which the Fund admits a substituted
Investor to whom an interest or portion of an interest of an Investor has been
transferred (unless there is no change in beneficial ownership) or (5) the day
as of which any amount is credited to or debited from the capital account of any
Investor other than an amount to be credited to or debited from the capital
accounts of all Investors in accordance with their respective Fund percentages.
A Fund percentage will be determined for each Investor as of the start of each
fiscal period by dividing the balance of such Investor's capital account as of
the commencement of such period by the sum of the balances of all capital
accounts of all Investors 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 Investors
as of the last day of each fiscal period in accordance with Investors'
respective Fund 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 of interests, and adjusted to exclude the amount of any "key man" and
other insurance premiums or proceeds to be allocated among the capital accounts
of the Investors and any items to be allocated among the capital accounts of the
Investors other than in accordance with the Investors' respective Fund
percentages.
Allocations for Federal income tax purposes generally will be made among the
Investors so as to reflect equitably amounts credited or debited to each
Investor's capital account for the current and prior fiscal years.
INCENTIVE ALLOCATION
So long as the Manager provides Advice and Management to the Fund, the Manager
will be entitled to an incentive-based allocation (the "Incentive Allocation"),
charged to the capital account of each Investor as of the last day of each
"allocation period," of 5% of the amount by which any "allocated gain" during an
"allocation period" exceeds the positive balance in the Investor's "loss
recovery account." The Incentive Allocation will be credited to the capital
account of the Manager.
For purposes of calculating the Incentive Allocation, "allocated gain" means the
excess of the balance of the Investor's capital account at the end of an
"allocation period," after giving effect to allocations other than the Incentive
Allocation, but before giving effect to any distributions and repurchases of
interests by the Fund or debits to such capital account to reflect any item
(other than management fees) not chargeable ratably to all Investors, over the
balance of the Investor's capital account at the start of such "allocation
period." Consequently, any Incentive Allocation to be credited to the Manager
will be increased by a portion of the amount of any net unrealized appreciation,
as well as net realized gains, allocable to an Investor.
An Incentive Allocation will be charged only with respect to any "allocated
gain" in excess of the positive balance of a "loss recovery account" maintained
for each Investor. A "loss recovery account" is a memorandum account maintained
by the Fund for each Investor, which has an initial balance of zero and is (1)
increased after the close of each "allocation period" by the amount of any
negative performance for such Investor during such "allocation period," and (2)
decreased (but not below zero) after the close of each "allocation period" by
the amount of any allocated gain for such Investor during such "allocation
period." Any positive balance in an Investor's "loss recovery account" would be
reduced as the result of a repurchase or certain transfers with respect to the
Investor's interest in the Fund in proportion to the reduction of the Investor's
capital account attributable to the repurchase or transfer.
An "allocation period" as to each Investor is a period commencing on the
admission of such Investor to the Fund and ending at the close of business on
the first to occur of (1) the last day of the twelfth complete calendar month
since the admission of such Investor to the Fund, (2) the last day of a fiscal
year subsequent to an Investor having been admitted to the Fund for 12 complete
calendar months, and the last day of each fiscal year thereafter, (3) the day as
of which the Fund repurchases any interest or portion of an interest of such
Investor, (4) the day as of which the Fund admits as a substitute Investor a
person to whom the interest or portion of the interest of such Investor has been
transferred, (5) the day as of which the authority of the Manager to provide
Advice and Management is terminated, (6) the day preceding any day as of which
such Investor becomes a Special Investor (as defined below), or (7) the day on
which such Investor ceases to be a Special Investor. The measurement of any
Incentive Allocation for an "allocation period" must take into account any
negative performance from a prior allocation period to the extent reflected in
the "loss recovery account." Therefore, the Incentive Allocation for any
allocation period after the initial 12-month period in effect is a reflection of
the extent to which cumulative performance achieved with respect to an
Investor's account since such Investor's admission to the Fund exceeds the
highest previous level of performance achieved through the close of any prior
allocation period.
After the close of each allocation period with respect to each Investor, and
subject to certain limitations, the Manager may withdraw up to 100% of the
Incentive Allocation, computed on the basis of unaudited data, that was credited
to the Manager's capital account and debited from the Investor's capital account
with respect to such allocation period. The Fund will pay any balance, subject
to audit adjustments, within 30 days after the completion of the audit of the
Fund's books.
The Manager, in its sole discretion, may reduce or waive the Incentive
Allocation for Investors who are key employees or directors of the Manager and
its affiliates, and members of their immediate families, and attorneys or other
professional advisors engaged on behalf of the Fund, and members of their
immediate families (collectively, "Special Investors").
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 Investor will be debited against the capital account of such
Investor as of the close of the fiscal period during which the Fund paid such
obligation, and any amounts then or thereafter distributable to such Investor
will be reduced by the amount of such taxes. If the amount of such taxes is
greater than any such distributable amounts, the Investor and any successor to
the Investor's interest is required to pay to the Fund, upon demand of the Fund,
the amount of such excess.
RESERVES
Appropriate reserves may be created, accrued and charged against net assets for
contingent liabilities as of the date any such contingent liabilities become
known to the Manager or the Board. Reserves will be in such amounts, subject to
increase or reduction, which the Board or the Manager 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 Investors 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
Investors, the amount of such reserve, increase, or decrease shall instead be
charged or credited to those investors who, as determined by the Board, were
Investors 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. Investment Managers may employ valuation policies that are different from
those used by the Fund to value the portfolio securities of the Investment Funds
managed by the Subadvisers.
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, before
the close of securities markets in the U.S. Foreign exchange rates also are
determined before 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, these
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.
APPLICATION FOR INTERESTS
APPLICATION TERMS
Both initial and additional applications 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 applications
on a more frequent basis. The Fund reserves the right to reject any application
for interests in the Fund. After the initial closing, initial applications and
additional capital contributions generally will be accepted monthly. Generally,
the minimum required initial contribution to the capital of the Fund from each
investor is $250,000. For employees or directors of the Manager and its
affiliates, and members of their immediate families, and, in the sole discretion
of the Manager, attorneys or other professional advisors engaged on behalf of
the Fund, 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. Investors may be charged a placement fee.
See "FEES AND EXPENSES--Placement Fee." The initial closing date for
applications for interests in the Fund is July 26, 2000. The Fund, in its sole
discretion, may accelerate or postpone the closing date. 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. Prospective Investors that are charitable remainder trusts will be
required to make certain representations contained in a supplemental certificate
to be provided. 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 Investor will be payable in
cash, and all contributions must be transmitted by such time and in such manner
as is specified in the application of the Fund. Initial and any additional
contributions to the capital of the Fund will be payable in one installment and
will be due before the proposed acceptance of the contribution, although the
Fund may accept, in its discretion, an application before its receipt of cleared
funds.
Each new Investor will be obligated to agree to be bound by all of the terms of
the LLC Agreement. Each potential Investor also will be obligated to represent
and warrant in the application, 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 Investor 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 Investor 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 being
purchased 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 purchase, has at least $750,000
under the discretionary investment management of PW Group and its affiliates or
subsidiaries, (ii) at the time of purchase, has a net worth of more than $1.5
million, or (iii) at the time of purchase, is a "qualified purchaser" as defined
in Section 2(a)(51)(A) of the 1940 Act (a "Qualified Purchaser"). Existing
Investors who purchase additional interests in the Fund and transferees of
interests in the Fund may be required to represent that they meet the foregoing
eligibility criterion at the time of the additional purchase. The relevant
Investor qualifications will be set forth in an application to be provided to
prospective Investors, which must be completed by each prospective Investor.
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION
No Investor 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 Fund from time to time may offer to repurchase interests pursuant to written
tenders by Investors. These repurchases will be made at such times and on such
terms as may be determined by the Board, in its complete and exclusive
discretion. In determining whether the Fund should repurchase interests or
portions thereof from Investors pursuant to written tenders, the Board will
consider the recommendation of the Manager. The Manager expects that generally,
beginning in 2001, it will recommend to the Board that the Fund offer to
repurchase interests from Investors twice each year, near mid-year and year-end.
The Directors also will consider the following factors, among others, in making
such determination:
o whether any Investors 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 Board will determine that the Fund repurchase interests or portions thereof
from Investors pursuant to written tenders only on terms they determine to be
fair to the Fund and to all Investors or persons holding interests acquired from
Investors as applicable. When the Board determines that the Fund will repurchase
interests in the Fund or portions thereof, notice will be provided to each
Investor describing the terms thereof, and containing information Investors
should consider in deciding whether and how to participate in such repurchase
opportunity. Investors who are deciding whether to tender their interests or
portions thereof during the period that a repurchase offer is open may ascertain
an estimated net asset value of their interest in the Fund from the Manager
during such period.
The LLC Agreement provides that the Fund shall be dissolved if the interest of
any Investor 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 Investors by the Fund may be
made, in the discretion of the Board, 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 Investors.
The amount due to any Investor whose interest or portion thereof is repurchased
will be equal to the value of the Investor's capital account or portion thereof
based on the estimated 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
Investor's capital account (including the Incentive Allocation) as of such date.
Payment of the purchase price pursuant to a tender of interests will consist of,
first, cash and/or securities valued at net asset value in accordance with the
LLC Agreement and distributed to tendering Investors 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, without
approval by the Board, will bear 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 over (b) the cash payment. The note would be delivered to the
tendering Investor promptly after the expiration date and would be payable
generally no later than 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 Investors 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, and instead of liquidating portfolio holdings, may borrow money to
finance repurchases of interests.
The Fund may repurchase an interest in the Fund or portion of an interest of an
Investor or any person acquiring an interest or portion thereof from or through
an Investor 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 an Investor;
o ownership of such an interest by an Investor 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 Investors to an undue risk of adverse tax or other
fiscal consequences;
o any of the representations and warranties made by an Investor 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, as determined by the
Manager, for the Fund to repurchase such an interest or portion
thereof.
TRANSFERS OF INTERESTS
No person may become a substituted Investor without the written consent of the
Manager, which consent may be withheld for any reason in the Manager's sole and
absolute discretion. Investor interests may be transferred only (i) by operation
of law pursuant to the death, bankruptcy, insolvency or dissolution of an
Investor 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 in limited circumstances. Notice to the Fund of any proposed transfer must
include evidence satisfactory to the Fund 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 purchase, has
at least $750,000 under the discretionary investment management of PW Group and
its affiliates or subsidiaries, (ii) at the time of purchase, has a net worth of
more than $1.5 million, or (iii) at the time of purchase, is a Qualified
Purchaser, and must be accompanied by a properly completed application. In
addition to the foregoing, no Investor 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 Investor transferring less than its entire interest,
is at least equal to the amount of the Investor's initial capital contribution.
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 an Investor 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 LLC
Agreement, but will not be entitled to the other rights of an Investor unless
and until such transferee becomes a substituted Investor as provided in the LLC
Agreement. If an Investor transfers an interest or portion thereof with the
approval of the Manager, under the policies established by the Board, the Fund
will promptly take all necessary actions to admit such transferee or successor
to the Fund as an Investor. Each Investor 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 interest.
By purchasing an interest in the Fund, each Investor has agreed to indemnify and
hold harmless the Fund, the Directors, the Manager, each other Investor 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 Investor in violation of these provisions or any
misrepresentation made by such Investor in connection with any such transfer.
TAX ASPECTS
The following is a summary of certain aspects of the income taxation of the Fund
and its Investors which should be considered by a prospective Investor. 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
which is not a "publicly traded partnership" for Federal income tax purposes.
This summary of certain aspects of the Federal income tax treatment of the 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 (possibly with retroactive effect). Except as otherwise noted
below, 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 INVESTOR 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 Investor is urged to consult its own counsel
regarding the acquisition of interests in the Fund.
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 Investors.
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 Investors to the extent of the Fund's current or accumulated earnings and
profits; and Investors 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 an entity that is properly classified as a partnership, the Fund is not
itself subject to Federal income tax. For income tax purposes, each Investor
will be treated as a partner of the Fund and, as such, will be taxed upon its
distributive share of each item of the Fund's income, gain, loss and deductions
for each taxable year of the Fund ending with or within the Investor's taxable
year. Each item will have the same character to an Investor, and will generally
have the same source (either United States or foreign), as though the Investor
realized the item directly. Investors must report these items regardless of the
extent to which, or whether, the Fund or Investors 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 LLC Agreement, the Fund's net
capital appreciation or net capital depreciation for each fiscal period is
allocated among the Investors 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 LLC 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 Investors 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 Investor's capital account for the current and prior fiscal
years.
Under the LLC 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 Investor to the extent that the
Investor's capital account exceeds its Federal income tax basis in its interest
in the Fund. 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 Investors would be increased.
An Investor admitted to the Fund other than as of January 1 of a fiscal year
will be allocated its distributive share of the Fund's tax items at the end of
such fiscal year based on its pro rata share of the Fund's capital. Such
allocation does not account for the possibility of a subsequent reallocation in
the following year to the Manager in respect of the initial Incentive
Allocation. The Manager, in its discretion, may attempt to minimize any negative
tax consequences which may result to an Investor from the foregoing, including
by utilizing special allocations of the Fund's tax items. However, there is no
assurance that any such attempt will successfully minimize any negative tax
consequence resulting to an Investor from the initial Incentive Allocation.
TAX ELECTIONS; RETURNS; TAX AUDITS. The Code provides for optional adjustments
to the basis of partnership property upon distributions of partnership property
to a partner and transfers of partnership interests, including by reason of
death, provided that a partnership election has been made pursuant to Section
754. Under the LLC Agreement, at the request of an Investor, 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 Fund's tax items on the Fund's tax
returns, and all Investors 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 Fund level in a single proceeding
rather than by individual audits of the Investors. The Manager is designated as
the Fund's "Tax Matters Partner" in the LLC Agreement. As such, it has
considerable authority to make decisions affecting the tax treatment and
procedural rights of all Investors. In addition, the Tax Matters Partner has the
authority to bind certain Investors to settlement agreements and the right on
behalf of all Investors to extend the statute of limitations relating to the
Investors' tax liabilities with respect to the Fund's tax items.
TAX CONSEQUENCES TO A WITHDRAWING INVESTOR
An Investor 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 Investor and such Investor's adjusted tax basis in its interest
in the Fund. Such capital gain or loss will be short-term or long-term depending
upon the Investor's holding period for its interest in the Fund. However, a
withdrawing Investor will recognize ordinary income to the extent such
Investor's allocable share of the Fund's "unrealized receivables" exceeds the
Investor'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 Investor. An Investor receiving a cash nonliquidating
distribution will recognize income in a similar manner only to the extent that
the amount of the distribution exceeds such Investor's adjusted tax basis in its
interest in the Fund.
As discussed above, the LLC Agreement provides that the Manager may specially
allocate items of Fund capital gain, including short-term capital gain, to a
withdrawing Investor 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 Investor recognizing capital gain, which may
include short-term gain, in the Investor's last taxable year in the Fund,
thereby reducing the amount of long-term capital gain recognized during the
taxable year in which it receives its liquidating distribution upon withdrawal.
DISTRIBUTION OF PROPERTY
A partner's receipt of a distribution of property from a partnership is
generally not taxable. However, under Section 731 of the Code, a distribution
consisting of marketable securities generally is treated as a distribution of
cash (rather than property) unless the distributing partnership is an
"investment partnership" within the meaning of Section 731(c)(3)(C)(i) and the
recipient is an "eligible partner" within the meaning of Section
731(c)(3)(C)(iii). The Fund will determine at the appropriate time whether it
qualifies as an "investment partnership." Assuming it so qualifies, if an
Investor is an "eligible partner", which term should include an Investor whose
contributions to the Fund consisted solely of cash, the recharacterization rule
described above would not apply.
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 constructive 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, entered into by the Fund 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 Investor, may be subject to restrictions on their deductibility.
See "Deductibility of Fund Investment Expenditures by Noncorporate Investors"
below. Moreover, gain recognized from certain "conversion transactions" will be
treated as ordinary income.1
------------------
1 Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is
attributable to the time value of the net investment in the
transaction. The enumerated transactions are (i) the holding of any
property, whether or not actively traded, and entering into a contract
to sell such property, or substantially identical property, at a price
determined in accordance with such contract, but only if such property
was acquired and such contract was entered into on a substantially
contemporaneous basis, (ii) certain straddles, (iii) generally any
other transaction that is marketed or sold on the basis that it would
have the economic characteristics of a loan but the interest-like
return would be taxed as capital gain or (iv) any other transaction
specified in the Regulations.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES. The amount of gain or loss
on securities denominated in a foreign currency frequently will be affected by
the fluctuation in the value of such foreign currencies relative to the value of
the dollar. Generally, gains or losses with respect to investments in common
stock of foreign issuers will be taxed as capital gains or losses at the time of
the disposition of such stock. However, under Section 988 of the Code, gains and
losses on the acquisition and disposition of foreign currency (e.g., the
purchase of foreign currency and subsequent use of the currency to acquire
stock) will be treated as ordinary income or loss. Moreover, under Section 988,
gains or losses on disposition of debt securities denominated in a foreign
currency to the extent attributable to fluctuation in the value of the foreign
currency between the date of acquisition of the debt security and the date of
disposition will be treated as ordinary income or loss. Similarly, gains or
losses attributable to fluctuations in exchange rates that occur between the
time the taxpayer accrues interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the taxpayer
actually collects such receivables or pays such liabilities may be treated as
ordinary income or ordinary loss.
As indicated above, the Fund through the Investment Funds may acquire foreign
currency forward contracts, enter into foreign currency futures contracts and
acquire put and call options on foreign currencies. See "TYPES OF INVESTMENTS
AND RELATED RISK FACTORS - Foreign Currency Transactions." Generally, foreign
currency regulated future contracts and option contracts that qualify as
"Section 1256 Contracts" (see "Section 1256 Contracts" below), will not be
subject to ordinary income or loss treatment under Section 988. However, if the
Fund acquires currency futures contracts or option contracts that are not
Section 1256 Contracts, or any currency forward contracts, any gain or loss
realized by the Fund with respect to such instruments will be ordinary, unless
(i) the contract is a capital asset in the hands of the Fund and is not a part
of a straddle transaction and (ii) the Fund 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. Pursuant to Temporary Regulations, the Fund may be eligible to elect
to establish one or more mixed straddle accounts for certain of its mixed
straddle trading positions. The mixed straddle account rules require a daily
"marking to market" of all open positions in the account and a daily netting of
gains and losses from positions in the account. At the end of a taxable year,
the annual net gains or losses from the mixed straddle account are recognized
for tax purposes. The application of the Temporary Regulations' mixed straddle
account rules is not entirely clear. Therefore, there is no assurance that a
mixed straddle account election by the Fund 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. 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. These rules may also terminate the running of the holding
period of "substantially identical property" held by the taxpayer.
Gain or loss on a short sale will generally not be realized until such time that
the short sale is closed. However, if the Fund holds a short sale position with
respect to stock, certain debt obligations or partnership interests that has
appreciated in value and then acquires property that is the same as or
substantially identical to the underlying property, the Fund generally will
recognize gain on the date it acquires such property as if the short sale were
closed on such date with such property. Similarly, if the Fund holds an
appreciated financial position with respect to stock, certain debt obligations
or partnership interests and then enters into a short sale with respect to the
same or substantially identical property, the Fund 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. The subsequent 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 INVESTORS' SECURITIES POSITIONS. The Service may
treat certain positions in securities held, directly or indirectly, by an
Investor and its indirect interest in similar securities held by the Fund as
"straddles" for Federal income tax purposes. The application of the "straddle"
rules in such a case could affect an Investor'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 properly allocable to property
held for investment"). Investment interest is not deductible in the current year
to the extent that it exceeds the taxpayer's "net investment income," consisting
of net gain and ordinary income derived from investments in the current year
less certain directly connected expenses (other than interest or short sale
expenses). For this purpose, any long-term capital gain is excluded from net
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 an Investor, and the investment interest
limitation would apply to a noncorporate Investor's share of the interest and
short sale expenses attributable to the Fund's operation. In such case, a
noncorporate Investor 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. An Investor 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 Investor 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 INVESTORS.
Investment expenses (e.g., investment advisory fees) of an individual, trust or
estate are deductible only to the extent that such expenses exceed 2% of
adjusted gross income.2 Further, in the case of an Investor that is a
partnership having 100 or more partners and which has elected to be treated as
an "electing large partnership," 70% of such deductions will be disallowed,
although the remaining deductions generally will be allowed at the partnership
level and will not be subject to the 2% floor that would otherwise be applicable
to individual Investors. In addition, the Code further restricts the ability of
an individual with an adjusted gross income in excess of a specified amount, for
2000, $128,950 or $64,475 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.
----------------
2 However, Section 67(e) of the Code provides that, in the case of a
trust or an estate, such limitation does not apply to deductions or
costs which are paid or incurred in connection with the administration
of the estate or trust and would not have been incurred if the property
were not held in such trust or estate. The Federal Court of Appeals for
the Sixth Circuit, reversing a Tax Court decision, has held that the
investment advisory fees incurred by a trust were exempt (under Section
67(e)) from the 2% of adjusted gross income floor on deductibility. The
Service, however, has stated that it will not follow this decision
outside of the Sixth Circuit. Investors that are trusts or estates
should consult their tax advisers as to the applicability of this case
to the investment expenses that are allocated to them.
Pursuant to Temporary Regulations issued by the Treasury Department, these
limitations on deductibility should not apply to a noncorporate Investor'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
Investor'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 incentive-based allocations as not
being subject to the foregoing limitations on deductibility, there can be no
assurance that the Service will 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 Investors 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 an Investor'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 CERTAIN FOREIGN EQUITY 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 an Investor 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
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 Investors of their proportionate share of the foreign taxes
paid or incurred by the Fund that Investors will be required to include in their
income. The Investors generally will be entitled to claim either a credit
(subject, however, to various limitations on foreign tax credits), or, if they
itemize their deductions, a deduction (subject to the limitations generally
applicable to deductions) for their share of such foreign taxes in computing
their Federal income taxes. An Investor that is tax exempt will not ordinarily
benefit from such credit or deduction.
UNRELATED BUSINESS TAXABLE INCOME
Generally, an exempt organization (such as an employee benefit plan, Individual
Retirement Account or 401(k) or Keogh Plan) 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 an investor.3
------------------
3 With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net
investment income." The rate of the excise tax for any taxable year may
be reduced to 1% if the private foundation meets certain distribution
requirements for the taxable year. A private foundation will be
required to make payments of estimated tax with respect to this excise
tax.
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 of its transactions, such as the purchase of securities on
margin. Based upon a published ruling issued by the Service which generally
holds that income and gain with respect to short sales of publicly traded stock
does not constitute income from debt-financed property for purposes of computing
UBTI, the Fund will treat its short sales of securities as not involving
"acquisition indebtedness" and therefore not generating UBTI.4 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.
----------------
4 Moreover, income realized from option writing and futures contract
transactions generally would not constitute UBTI.
The percentage of capital gain from securities with respect to which there is
"acquisition indebtedness" at any time during the 12-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 Fund's debt-financed
property is taken into account. Thus, for instance, a percentage of capital
losses from debt-financed securities, based on the debt/basis percentage
calculation described above, would offset gains treated as UBTI.
Since the calculation of the 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,5 it is impossible to predict what percentage
of the Fund's income and gains will be treated as UBTI for an Investor 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).
------------------
5 The calculation of a particular exempt organization's UBTI would also be
affected if it incurs indebtedness to finance its investment in the Fund.
An exempt organization is required to make estimated tax payments with
respect to its UBTI.
To the extent that the Fund generates UBTI, the applicable Federal tax rate for
such an Investor 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 substantiate, to the satisfaction of the
Service, the method used to calculate its UBTI. The Fund will be required to
report to an Investor 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.6 However, a charitable remainder trust will not be exempt from
Federal income tax under Section 664(c) of the Code for any year in which it has
UBTI. A title-holding company will not be exempt from tax if it has certain
types of UBTI. Moreover, the charitable contribution deduction for a trust under
Section 642(c) of the Code may be limited for any year in which the trust has
UBTI. A prospective Investor should consult its tax adviser with respect to the
tax consequences of receiving UBTI from the Fund. See also "ERISA
CONSIDERATIONS."
-------------------
6 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 Investor should consult its tax adviser in this
regard.
CERTAIN ISSUES PERTAINING TO SPECIFIC EXEMPT ORGANIZATIONS
PRIVATE FOUNDATIONS. Private foundations and their managers are subject to
excise taxes if they invest "any amount in such a manner as to jeopardize the
carrying out of any of the foundation's exempt purposes." This rule requires a
foundation manager, in making an investment, to exercise "ordinary business care
and prudence" under the facts and circumstances prevailing at the time of making
the investment, in providing for the short-term and long-term needs of the
foundation to carry out its exempt purposes. The factors which a foundation
manager may take into account in assessing an investment include the expected
rate of return, both income and capital appreciation, the risks of rising and
falling price levels, and the needs for diversification within the foundation's
portfolio.
In order to avoid the imposition of an excise tax, a private foundation may be
required to distribute on an annual basis its "distributable amount," which
includes, among other things, the private foundation's "minimum investment
return," defined as 5% of the excess of the fair market value of its
nonfunctionally related assets (defined to include 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 Investor 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
liquid 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 "TAX
ASPECTS--Unrelated Business Taxable Income" and "ERISA CONSIDERATIONS."
ENDOWMENT FUNDS. Investment managers of endowment funds should consider whether
the acquisition of an interest in the Fund 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 funds 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.
LEGISLATIVE PROPOSALS
There have been proposals initiated by the Clinton Administration and Congress
that would affect the tax consequences described herein. It is not possible to
predict at this time the extent to which any of these proposals will be enacted
by Congress and, if enacted, what their final form and effective dates will be.
In addition, other proposals could be enacted that would change the tax
consequences described herein of an investment in the Fund. Prospective
Investors should consult their own tax advisers regarding the status of these
proposed changes and the effect, if any, on their investment in the Fund.
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 tax laws differ in the treatment of
limited liability companies such as the Fund. A few jurisdictions may impose
entity level taxes on a limited liability company if it is found to have
sufficient contact with that jurisdiction. Such taxes are frequently based on
the income and capital of the entity that is allocated to the jurisdiction.
Although there can be no assurance, except as noted below, the Fund intends to
conduct its activities so that it will not be subject to entity level taxation
by any state or local jurisdiction.
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. An
Investor'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 an Investor'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 Investor is a resident.
The Fund should not be subject to the New York City unincorporated business tax,
which is not imposed on an entity taxed as a partnership which purchases and
sells securities for its "own account." By reason of a similar "own account"
exemption, it is also expected that a nonresident individual Investor 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 Investor
will not be subject to New York City earnings tax on nonresidents with respect
to his or her investment in the Fund.
Individual Investors who are residents of New York State and New York City
should be aware that the New York State and New York City personal income tax
laws limit the deductibility of itemized deductions for individual taxpayers at
certain income levels. This limitation would likely apply to an Investor'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.7 Each of the New York State and New York City corporate taxes are
imposed, in part, on the corporation's taxable income or capital allocable to
the relevant jurisdiction by application of the appropriate allocation
percentages. Moreover, a non-New York corporation which does business in New
York State may be subject to a New York State license fee. A corporation which
is subject to New York State corporate franchise tax solely as a result of being
a limited partner in a New York partnership may, under certain circumstances,
elect to compute its New York State corporate franchise tax by taking into
account only its distributive share of such partnership's income and loss. There
is currently no similar provision in effect for purposes of the New York City
general corporation tax.
--------------
7 New York State, but not New York City, generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a
partnership doing business in New York and (ii) has a tax basis in such
limited partnership interest not greater than $1 million.
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.
Each prospective corporate Investor should consult its tax adviser with regard
to the New York State and New York City tax consequences of an investment in the
Fund.
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 LLC AGREEMENT
The following is a summary description of additional items and of select
provisions of the LLC 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 LLC Agreement contained in
Appendix A.
LIABILITY OF INVESTORS
Investors in the Fund will be members of a limited liability company as provided
under Delaware law. Under Delaware law and the LLC Agreement, an Investor will
not be liable for the debts, obligations or liabilities of the Fund solely by
reason of being an Investor, except that the Investor may be obligated to make
capital contributions to the Fund pursuant to the LLC Agreement, to repay any
funds wrongfully distributed to the Investor. However, the Manager may require
an Investor to contribute to the Fund, whether before or after the Fund's
dissolution or after the Investor ceases to be an Investor, such amounts as the
Manager deems necessary to meet the Fund's debts, obligations or liabilities
(not to exceed for any Investor, the aggregate amount of any distributions,
amounts in connection with a repurchase of all or a portion of the Investor's
interests and any other amounts received by the Investor from the Fund during or
after the fiscal year to which any debt, obligation or liability of the Fund is
incurred).
DUTY OF CARE OF THE BOARD AND THE MANAGER
The LLC Agreement provides that neither the Directors nor the Manager (including
certain of its affiliates, among others) shall be liable to the Fund or any of
the Investors for any loss or damage occasioned by any act or omission in the
performance of their respective services as such in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
The LLC Agreement also contains provisions for the indemnification, to the
extent permitted by law, of the Directors and the Manager (including certain of
its affiliates, among others) by the Fund, but not by the Investors
individually, against any liability and expense to which any of them may be
liable which arises in connection with the performance of their activities on
behalf of the Fund. None of these persons will be personally liable to any
Investor for the repayment of any balance in such Investor's capital account or
for contributions by such Investor 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 LLC
Agreement do not provide for indemnification of a Director or the Manager 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 LLC AGREEMENT
The LLC Agreement may be amended with the approval of (i) the Board, 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,
allocations thereto and the modification of events causing dissolution of the
Fund may not be made without the consent of any Investors adversely affected
thereby or unless each Investor has received notice of such amendment and any
Investor objecting to such amendment has been allowed a reasonable opportunity
to tender its entire interest for repurchase by the Fund.
POWER OF ATTORNEY
By purchasing an interest in the Fund, each Investor 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 liability company under Delaware law or signing all
instruments effecting authorized changes in the Fund or the LLC Agreement and
conveyances and other instruments deemed necessary to effect the dissolution or
termination of the Fund.
The power-of-attorney granted in the LLC 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 Investor'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
Board for admission to the Fund as substitute Investors.
TERM, DISSOLUTION AND LIQUIDATION
The Fund will be dissolved:
o upon the affirmative vote to dissolve the Fund by both (1) the Board
and (2) Investors holding at least two-thirds of the total number of
votes eligible to be cast by all Investors;
o upon the expiration of any two-year period which commences on the date
on which any Investor has submitted to the Fund a written request in
accordance with the LLC Agreement, to tender its entire interest for
repurchase by the Fund if such Investor's interest has not been
repurchased during such period;
o at the election of the Manager;
o upon the failure of Investors 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 Manager, or a liquidator
under appointment by the Board, 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
Investors, including actual or anticipated liquidation expenses, (2) next to
satisfy debts owing to the Investors, and (3) finally to the Investors
proportionately in accordance with the balances in their respective capital
accounts. Assets may be distributed in-kind on a pro rata basis if the Board or
liquidator determines that such a distribution would be in the interests of the
Investors in facilitating an orderly liquidation.
REPORTS TO INVESTORS
The Fund will furnish to Investors as soon as practicable after the end of each
taxable year such information as is necessary for such Investors to complete
Federal and state income tax or information returns, along with any other tax
information required by law. The Fund will send to Investors 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 Investors.
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 787 Seventh Avenue, New York, New York 10019.
Stroock & Stroock & Lavan LLP, New York, New York, acts as legal counsel to the
Fund.
Schulte Roth & Zabel LLP, New York, New York, acts as legal counsel to the
Manager and its affiliates. Each of such counsel from time to time may serve as
counsel to one or more Investment Managers.
CUSTODIAN
PFPC Trust Company (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 purchase and redemption 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
* * * * *
All potential Investors in the Fund are encouraged to consult appropriate legal
and tax counsel.
<PAGE>
APPENDIX A
LIMITED LIABILITY COMPANY AGREEMENT OF
PW HEALTH SCIENCES FUND, L.L.C.
THIS LIMITED LIABILITY COMPANY AGREEMENT of PW Health Sciences Fund,
L.L.C. (the "Fund") is dated and effective as of May 10, 2000 by and among the
Organizational Member, the Manager and each person hereinafter admitted to the
Fund and reflected on the books of the Fund as a Member.
W I T N E S S E T H :
WHEREAS, the Fund heretofore has been formed as a limited liability
company under the Delaware Limited Liability Company Act, pursuant to the
Certificate dated as of April 26, 2000 and filed with the Secretary of State of
the State of Delaware on April 28, 2000;
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants hereinafter set forth, it is hereby agreed as follows:
-------------------------------------------------------------------------------
ARTICLE I
DEFINITIONS
-------------------------------------------------------------------------------
For purposes of this Agreement:
ADVICE AND MANAGEMENT means those services provided to the Fund by the
Manager pursuant to Section 3.4(b) hereof.
ADVISERS ACT means the Investment Advisers Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
AFFILIATE means affiliated person as such term is defined in the 1940
Act.
AGREEMENT means this Limited Liability Company Agreement, as amended
and/or restated from time to time.
ALLOCATION CHANGE means, with respect to each Member for each
Allocation Period, the difference between:
(1) the sum of (a) the balance of such Member's Capital Account as of
the close of the Allocation Period (after giving effect to all
allocations to be made to such Member's Capital Account as of
such date other than any Incentive Allocation to be debited
against such Member's Capital Account), plus (b) any debits to
such Member's Capital Account during the Allocation Period to
reflect any actual or deemed distributions or repurchases with
respect to such Member's Interest, plus (c) any debits to such
Member's Capital Account during the Allocation Period to reflect
any Insurance premiums allocable to such Member, plus (d) any
debits to such Member's Capital Account during the Allocation
Period to reflect any items allocable to such Member's Capital
Account pursuant to Section 5.6 hereof other than Management
Fees; and
(2) the sum of (a) the balance of such Member's Capital Account as of
the commencement of the Allocation Period, plus (b) any credits
to such Member's Capital Account during the Allocation Period to
reflect any contributions by such Member to the capital of the
Fund, plus (c) any credits to such Member's Capital Account
during the Allocation Period to reflect any Insurance proceeds
allocable to such Member.
If the amount specified in clause (1) exceeds the amount
specified in clause (2), such difference shall be a POSITIVE
ALLOCATION CHANGE, and if the amount specified in clause (2)
exceeds the amount specified in clause (1), such difference shall
be a NEGATIVE ALLOCATION CHANGE.
ALLOCATION PERIOD means, with respect to each Member, the period
commencing as of the date of admission of such Member to the Fund and ending at
the close of business on the first to occur of the following:
(1) the last day of the twelfth complete calendar month since the
admission of such Member to the Fund;
(2) the last day of a Fiscal Year subsequent to a Member having been
admitted to the Fund for 12 complete calendar months, and the
last day of each Fiscal Year thereafter;
(3) the day as of which the Fund repurchases any Interest or portion
of an Interest of such Member;
(4) the day as of which the Fund admits as a substituted Member a
person to whom the Interest (or a portion thereof) of such Member
has been Transferred (unless there is no change in beneficial
ownership);
(5) the day as of which the authority of the Manager to provide
Advice and Management is terminated pursuant to Section 3.4(a)
hereof;
(6) the day preceding any day as of which such Member becomes a
Special Member; or
(7) the day on which such Member ceases to be a Special Member.
BOARD means the Board of Directors established pursuant to Section 2.6
hereof.
CAPITAL ACCOUNT means, with respect to each Member, the capital
account established and maintained on behalf of each Member pursuant to Section
5.3 hereof.
CAPITAL PERCENTAGE means a percentage established for each Member as
of each Expense Allocation Date. The Capital Percentage of a Member on an
Expense Allocation Date shall be determined by dividing the amount of capital
contributed to the Fund by the Member pursuant to Section 5.1 hereof by the sum
of the capital contributed to the Fund by each Member pursuant to Section 5.1
hereof on or prior to such Expense Allocation Date. The sum of the Capital
Percentages of all Members on each Expense Allocation Date shall equal 100%.
CAPITAL CONTRIBUTION means the contribution, if any, made, or to be
made, as the context requires, to the capital of the Fund by a Member.
CERTIFICATE means the Certificate of Formation of the Fund and any
amendments thereto as filed with the office of the Secretary of State of the
State of Delaware.
CLOSING DATE means the first date on or as of which a Member other
than the Organizational Member or the Manager is admitted to the Fund.
CODE means the United States Internal Revenue Code of 1986, as amended
and as hereafter amended from time to time, or any successor law.
DELAWARE ACT means the Delaware Limited Liability Company Act (6
DEL.C.ss.18-101, ET SEQ.) as in effect on the date hereof and as amended from
time to time, or any successor law.
DIRECTOR means each natural person listed on Schedule I hereto who
serves on the Board and any other natural person who, from time to time,
pursuant hereto shall serve on the Board. Each Director shall constitute a
"manager" of the Fund within the meaning of the Delaware Act.
EXPENSE ALLOCATION DATE means the Closing Date, and thereafter each
day on or before December 31, 2000, as of which a contribution to the capital of
the Fund is made pursuant to Section 5.1 hereof.
FISCAL PERIOD means the period commencing on the Closing Date, and
thereafter each period commencing on the day immediately following the last day
of the preceding Fiscal Period, and ending at the close of business on the first
to occur of the following dates:
(1) the last day of a Fiscal Year;
(2) the day preceding any day as of which a contribution to the
capital of the Fund is made pursuant to Section 5.1;
(3) the day as of which the Fund repurchases any Interest or portion
of an Interest of any Member;
(4) the day as of which the Fund admits a substituted Member to whom
an Interest (or portion thereof) of a Member has been Transferred
(unless there is no change of beneficial ownership); or
(5) any other day as of which this Agreement provides for any amount
to be credited to or debited against the Capital Account of any
Member, other than an amount to be credited to or debited against
the Capital Accounts of all Members in accordance with their
respective Fund Percentages.
FISCAL YEAR means the period commencing on the Closing Date and ending
on the first December 31st following the Closing Date, and thereafter each
period commencing on January 1 of each year and ending on December 31 of each
year (or on the date of a final distribution pursuant to Section 6.2 hereof),
unless the Directors shall designate another fiscal year for the Fund that is a
permissible taxable year under the Code.
FORM N-2 means the Fund's Registration Statement on Form N-2 filed
with the Securities and Exchange Commission, as amended from time to time.
FUND means the limited liability company governed hereby, as such
limited liability company may from time to time be constituted.
FUND PERCENTAGE means a percentage established for each Member on the
Fund's books as of the first day of each Fiscal Period. The Fund Percentage of a
Member for a Fiscal Period shall be determined by dividing the balance of the
Member's Capital Account as of the commencement of such Fiscal Period by the sum
of the Capital Accounts of all of the Members as of the commencement of such
Fiscal Period. The sum of the Fund Percentages of all Members for each Fiscal
Period shall equal 100%.
INCENTIVE ALLOCATION means, with respect to any Member, other than a
Special Member, 5% (and, as respects a Special Member, such percentage as the
Manager shall have agreed with such Special Member) of the amount, determined as
of the close of each Allocation Period with respect to such Member, by which
such Member's Positive Allocation Change for such Allocation Period, if any,
exceeds any positive balance in such Member's Loss Recovery Account as of the
most recent prior date as of which any adjustment has been made thereto.
INDEPENDENT DIRECTORS means those Directors who are not "interested
persons" of the Fund as such term is defined in the 1940 Act.
INSURANCE means one or more "key man" insurance policies on the life
of any principal of a member of the Manager or any other insurance policy, the
benefits of which are payable to the Fund.
INTEREST means the entire ownership interest in the Fund at any
particular time of a Member or other person to whom an Interest or portion
thereof has been transferred pursuant to Section 4.3 hereof, including the
rights and obligations of such Member or other person under this Agreement and
the Delaware Act.
INVESTED CAPITAL means, with respect to any Member, the amount of such
Member's aggregate Capital Contributions to the Fund, decreased by any
withdrawals (through repurchases pursuant to Section 4.4 hereof) made by such
Member pursuant to Section 4.4 hereof other than withdrawals of aggregate Net
Capital Appreciation (for this purpose, any amounts withdrawn shall first be
applied against Net Capital Appreciation, if any).
INVESTMENT FUNDS means unregistered pooled investment vehicles and
registered investment companies that are advised by an Investment Manager or
Subadviser.
INVESTMENT MANAGERS means portfolio managers among which the Fund
deploys some or all of its assets.
LOSS RECOVERY ACCOUNT means a memorandum account to be recorded in the
books and records of the Fund with respect to each Member, which shall have an
initial balance of zero and which shall be adjusted as follows:
(1) As of the first day after the close of each Allocation Period for
such Member, the balance of the Loss Recovery Account shall be
increased by the amount, if any, of such Member's Negative
Allocation Change for such Allocation Period and shall be reduced
(but not below zero) by the amount, if any, of such Member's
Positive Allocation Change for such Allocation Period.
(2) The balance of the Loss Recovery Account shall be reduced (but
not below zero) as of the first date as of which the Capital
Account balance of any Member is reduced as a result of
repurchase or transfer with respect to such Member's Interest by
an amount determined by multiplying (a) such positive balance by
(b) a fraction, (i) the numerator of which is equal to the amount
of the repurchase or transfer, and (ii) the denominator of which
is equal to the balance of such Member's Capital Account
immediately before giving effect to such repurchase or transfer.
No transferee of any Interest shall succeed to any Loss Recovery
Account balance or portion thereof attributable to the transferor unless the
Transfer by which such transferee received such Interest did not involve a
change of beneficial ownership.
MANAGEMENT FEE means the fee paid to PWFA out of the Fund's assets,
and debited against Members' Capital Accounts, for PWFA Services.
MANAGER means PW Fund Advisor, L.L.C. or any successor thereto. The
Manager shall constitute a "manager" of the Fund within the meaning of the
Delaware Act. The Manager also shall constitute a "member" of the Fund within
the meaning of the Delaware Act and shall have an Interest.
MEMBER means the Manager and any person who shall have been admitted
to the Fund as a member (including any person who is a Special Member) until the
Fund repurchases the entire Interest of such person pursuant to Section 4.4
hereof or a substitute Member who is admitted to the Fund pursuant to Section
4.3 hereof, in such person's capacity as a member of the Fund. For purposes of
the Delaware Act, the Members shall constitute a single class or group of
members.
NEGATIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.
NET ASSETS means the total value of all assets of the Fund, less an
amount equal to all accrued debts, liabilities and obligations of the Fund,
calculated before giving effect to any repurchases of Interests.
NET CAPITAL APPRECIATION means, with respect to any Member, the
excess, if any, of the aggregate amount credited to such Member's Capital
Account under clause (ii) of paragraph (c) of Section 5.3 hereof over the
aggregate amount debited to such Member's Capital Account under clause (ii) of
paragraph (d) of Section 5.3 hereof.
NET PROFIT OR NET LOSS means the amount by which the Net Assets as of
the close of business on the last day of a Fiscal Period exceed (in the case of
Net Profit) or are less than (in the case of Net Loss) the Net Assets as of the
commencement of the same Fiscal Period (or, with respect to the initial Fiscal
Period of the Fund, at the close of business on the Closing Date), such amount
to be adjusted to exclude:
(1) the amount of any Insurance premiums or proceeds to be allocated
among the Capital Accounts of the Members pursuant to Section 5.5
hereof;
(2) any items to be allocated among the Capital Accounts of the
Members on a basis which is not in accordance with the respective
Fund Percentages of all Members as of the commencement of such
Fiscal Period pursuant to Sections 5.6 and 5.7 hereof; and
(3) Organizational Expenses allocated among the Capital Accounts of
the Members pursuant to Section 5.11 hereof.
1940 ACT means the Investment Company Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
1934 ACT means the Securities Exchange Act of 1934 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
ORGANIZATIONAL EXPENSES means the expenses incurred by the Fund in
connection with its formation, its initial registration as an investment company
under the 1940 Act, and the initial offering of Interests.
ORGANIZATIONAL MEMBER means Norman E. Sienko, Jr.
PERSON means any individual, entity, corporation, partnership,
association, limited liability company, joint-stock company, trust, estate,
joint venture, organization or unincorporated organization.
POSITIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.
PWFA means PW Fund Advisor, L.L.C., or any successor thereto.
PWFA SERVICES means such management and administrative services as
PWFA or its affiliates shall provide to the Fund pursuant to a separate written
agreement with the Fund as contemplated by Section 3.10(a) hereof.
RELATED PERSON means, with respect to any person, (i) a relative,
spouse or relative of a spouse who has the same principal residence as such
person, (ii) any trust or estate in which such person and any persons who are
related to such person collectively have more than 50% of the beneficial
interests (excluding contingent interests) and (iii) any corporation or other
organization of which such person and any persons who are related to such person
collectively are beneficial owners of more than 50% of the equity securities
(excluding directors' qualifying shares) or equity interests.
SECURITIES means securities (including, without limitation, equities,
debt obligations, options, and other "securities" as that term is defined in
Section 2(a)(36) of the 1940 Act) and any contracts for forward or future
delivery of any security, debt obligation, currency or commodity, all manner of
derivative instruments and any contracts based on any index or group of
securities, debt obligations, currencies or commodities, and any options
thereon.
SPECIAL MEMBER means such Members as the Manager shall determine from
time to time, in its sole discretion, to be key employees, or directors of the
Manager and its affiliates, and members of their immediate families, and
attorneys or other professional advisors engaged on behalf of the Fund, and
members of their immediate families.
SUBADVISERS means those Investment Managers for which a separate
investment vehicle has been created in which the Investment Manager serves as
general partner or managing member and the Fund is the sole limited partner or
the only other member and those Investment Managers who manage the Fund's assets
directly or through a separate managed account.
TAX MATTERS PARTNER means the Manager designated as "tax matters
partner" of the Fund pursuant to Section 8.17 hereof.
TRANSFER means the assignment, transfer, sale or other disposition of
all or any portion of an Interest, including any right to receive any
allocations and distributions attributable to an Interest.
VOTING INTEREST means with respect to a Member the number of votes
equivalent to such Member's Fund Percentage as of the record date for a meeting
of Members.
-------------------------------------------------------------------------------
ARTICLE II
ORGANIZATION; ADMISSION OF MEMBERS; BOARD
-------------------------------------------------------------------------------
2.1 FORMATION OF LIMITED LIABILITY COMPANY.
The Organizational Member and any person designated by the Board
hereby are designated as authorized persons, within the meaning of the Delaware
Act, to execute, deliver and file all certificates (and any amendments and/or
restatements thereof) required or permitted by the Delaware Act to be filed in
the office of the Secretary of State of the State of Delaware. The Board shall
cause to be executed and filed with applicable governmental authorities any
other instruments, documents and certificates which, in the opinion of the
Fund's legal counsel, may from time to time be required by the laws of the
United States of America, the State of Delaware or any other jurisdiction in
which the Fund shall determine to do business, or any political subdivision or
agency thereof, or which such legal counsel may deem necessary or appropriate to
effectuate, implement and continue the valid existence and business of the Fund.
2.2 NAME.
The name of the Fund shall be "PW Health Sciences Fund, L.L.C." or
such other name as the Board hereafter may adopt upon (i) causing an appropriate
amendment to the Certificate to be filed in accordance with the Delaware Act and
(ii) sending notice thereof to each Member. The Fund's business may be conducted
under the name of the Fund or, to the fullest extent permitted by law, any other
name or names deemed advisable by the Board.
2.3 PRINCIPAL AND REGISTERED OFFICE.
The Fund shall have its principal office at the principal office of
the Manager, or at such other place designated from time to time by the Board.
The Fund shall have its registered office in the State of Delaware at
1013 Center Road, Wilmington, New Castle County, Delaware 19805-1297, and shall
have Corporation Service Company as its registered agent at such registered
office for service of process in the State of Delaware, unless a different
registered office or agent is designated from time to time by the Board in
accordance with the Delaware Act.
2.4 DURATION.
The term of the Fund commenced on the filing of the Certificate with
the Secretary of State of the State of Delaware and shall continue until the
Fund is dissolved pursuant to Section 6.1 hereof.
2.5 BUSINESS OF THE FUND.
(a) The business of the Fund is to purchase, sell (including short
sales), invest and trade in Securities, and to engage in any financial or
derivative transactions relating thereto or otherwise. Discrete portions of the
Fund's assets (which may constitute, in the aggregate, all of the Fund's assets)
may be invested in general or limited partnerships, limited liability companies
and other pooled investment vehicles which invest and trade in Securities, or
managed in separate accounts which invest and trade in Securities, some or all
of which may be advised by one or more Subadvisers. The Manager, on behalf of
the Fund, may execute, deliver and perform all contracts, agreements and other
undertakings and engage in all activities and transactions as may in the opinion
of the Manager be necessary or advisable to carry out the Fund's business and
any amendments to any such contracts, agreements and other undertakings, all
without any further act, vote or approval of any other person, notwithstanding
any other provision of this Agreement.
(b) The Fund shall operate as a closed-end, management investment
company in accordance with the 1940 Act and subject to any fundamental policies
and investment restrictions set forth in the Form N-2.
2.6 THE BOARD.
(a) The Organizational Member hereby designates those persons listed
on Schedule I who shall agree to be bound by all of the terms of this Agreement
to serve as Directors on the initial Board. The Board may, subject to the
provisions of paragraphs (a) and (b) of this Section 2.6 with respect to the
number of and vacancies in the position of Director and the provisions of
Section 3.3 hereof with respect to the election of Directors by Members,
designate any person who shall agree to be bound by all of the terms of this
Agreement as a Director. The names and mailing addresses of the Directors shall
be set forth in the books and records of the Fund. The number of Directors shall
be fixed from time to time by the Directors but, at the Closing Date, shall not
be fewer than three.
(b) Each Director shall serve as a Director for the duration of the
term of the Fund, unless his or her status as a Director shall be sooner
terminated pursuant to Section 4.1 hereof. If any vacancy in the position of a
Director occurs, the remaining Directors may appoint a person to serve in such
capacity, so long as immediately after such appointment at least two-thirds of
the Directors then serving would have been elected by the Members. The Directors
may call a meeting of Members to fill any vacancy in the position of Director,
and shall do so within 60 days after any date on which Directors who were
elected by the Members cease to constitute a majority of the Directors then
serving as Directors.
(c) If no Director remains, the Manager shall promptly call a meeting
of the Members, to be held within 60 days after the date on which the last
Director ceased to act in that capacity, for the purpose of determining whether
to continue the business of the Fund and, if the business shall be continued, of
electing the required number of Directors. If the Members shall determine at
such meeting not to continue the business of the Fund or if the required number
of Directors is not elected within 60 days after the date on which the last
Director ceased to act in that capacity, then the Fund shall be dissolved
pursuant to Section 6.1 hereof and the assets of the Fund shall be liquidated
and distributed pursuant to Section 6.2 hereof.
2.7 MEMBERS.
The Board may admit one or more Members as of the beginning of each
calendar month or at such other times as the Board may determine. Members may be
admitted to the Fund subject to the condition that each such Member shall
execute an appropriate signature page of this Agreement or of the Fund's
application pursuant to which such Member agrees to be bound by all the terms
and provisions hereof. The Board, in its absolute discretion, may reject
applications for Interests in the Fund. The admission of any person as a Member
shall be effective upon the revision of the books and records of the Fund to
reflect the name and the contribution to the capital of the Fund of such
additional Member. Each of the Manager and the Organizational Member hereby is
admitted as a Member on the date hereof.
2.8 ORGANIZATIONAL MEMBER.
Upon the admission to the Fund of any additional Member pursuant to
Section 2.7, the Organizational Member shall withdraw from the Fund as the
Organizational Member and shall be entitled to the return of his Capital
Contribution, if any, without interest or deduction, and shall cease to be a
member of the Fund.
2.9 BOTH DIRECTORS AND MEMBERS.
A Member may at the same time be a Director and a Member, in which
event such Member's rights and obligations in each capacity shall be determined
separately in accordance with the terms and provisions hereof and as provided in
the Delaware Act.
2.10 LIMITED LIABILITY.
Except as otherwise provided under applicable law, no Member or
Director shall be liable personally for the Fund's debts, obligations or
liabilities, whether arising in contract, tort or otherwise, solely by reason of
being a member or manager of the Fund, except that a Member may be obligated to
make capital contributions to the Fund pursuant to this Agreement and to repay
any funds wrongfully distributed to such Member. Notwithstanding any other
provision of this Agreement, the Manager, in its sole discretion, may require a
Member to contribute to the Fund, at any time or from time to time, whether
before or after the dissolution of the Fund or after such Member ceases to be a
member of the Fund, such amounts as are requested by the Manager to meet the
Fund's debts, obligations or liabilities (not to exceed for any Member the
aggregate amount of any distributions, amounts paid in connection with a
repurchase of all or a portion of such Member's Interest and any other amounts
received by such Member from the Fund during or after the Fiscal Year in which
any debt, obligation or liability of the Fund arose or was incurred); PROVIDED
HOWEVER, that each Member shall contribute only his pro rata share of the
aggregate amount requested based on such Member's Invested Capital in the Fiscal
Year in which the debt, obligation or liability arose or was incurred as a
percentage of the aggregate Invested Capital of the Fund in such Fiscal Year;
and PROVIDED FURTHER that the provisions of this Section 2.10 shall not affect
the obligations of Members under Section 18-607 of the Delaware Act.
-------------------------------------------------------------------------------
ARTICLE III
MANAGEMENT
-------------------------------------------------------------------------------
3.1 MANAGEMENT AND CONTROL.
(a) Management and control of the business of the Fund shall be vested
in the Board, which shall have the right, power and authority, on behalf of the
Fund and in its name, to exercise all rights, powers and authority of managers
under the Delaware Act and to do all things necessary and proper to carry out
the business of the Fund and its duties hereunder, including, without
limitation, the power to engage the Manager to provide Advice and Management to
the Fund. No Director shall have the authority individually to act on behalf of
or to bind the Fund except within the scope of such Director's authority as
delegated by the Board. The parties hereto intend that, except to the extent
otherwise expressly provided herein, (i) each Director shall be vested with the
same powers, authority and responsibilities on behalf of the Fund as are
customarily vested in each director of a Delaware corporation and (ii) each
Independent Director shall be vested with the same powers, authority and
responsibilities on behalf of the Fund as are customarily vested in each
director of a closed-end management investment company registered under the 1940
Act that is organized as a Delaware corporation who is not an "interested
person" of such company as such term is defined in the 1940 Act. During any
period in which the Fund shall have no Directors, the Manager shall continue to
provide Advice and Management to the Fund.
(b) Each Member agrees not to treat, on his personal return or in any
claim for a refund, any item of income, gain, loss, deduction or credit in a
manner inconsistent with the treatment of such item by the Fund. The Board shall
have the exclusive authority and discretion to make any elections required or
permitted to be made by the Fund under any provisions of the Code or any other
revenue laws.
(c) Members (other than the Manager) shall have no right to
participate in and shall take no part in the management or control of the Fund's
business and shall have no right, power or authority to act for or bind the
Fund. Members shall have the right to vote on any matters only as provided in
this Agreement or on any matters that require the approval of the holders of
voting securities under the 1940 Act or as otherwise required in the Delaware
Act.
(d) The Board may delegate to any person, including the Manager, even
if such delegation is greater than the power given to the Manager pursuant to
Section 3.4 hereof, any rights, power and authority vested by this Agreement in
the Board to the extent permissible under applicable law.
3.2 ACTIONS BY THE BOARD.
(a) Unless provided otherwise in this Agreement, the Board shall act
only: (i) by the affirmative vote of a majority of the Directors (which majority
shall include any requisite number of Independent Directors required by the 1940
Act) present at a meeting duly called at which a quorum of the Directors shall
be present (in person or, if in person attendance is not required by the 1940
Act, in person or by telephone) or (ii) by unanimous written consent of all of
the Directors without a meeting, if permissible under the 1940 Act.
(b) The Board may designate from time to time a Chairman who shall
preside at all meetings. Meetings of the Board may be called by the Chairman or
any two Directors, and may be held on such date and at such time and place as
the Board shall determine. Each Director shall be entitled to receive written
notice of the date, time and place of such meeting within a reasonable time in
advance of the meeting. Notice need not be given to any Director who shall
attend a meeting without objecting to the lack of notice or who shall execute a
written waiver of notice with respect to the meeting. Directors may attend and
participate in any meeting by telephone, except where in person attendance at a
meeting is required by the 1940 Act. A majority of the Directors then in office
shall constitute a quorum at any meeting.
(c) The Board may designate from time to time agents and employees of
the Fund who shall have the same powers and duties on behalf of the Fund
(including the power to bind the Fund) as are customarily vested in officers of
a Delaware corporation, and designate them as officers of the Fund.
3.3 MEETINGS OF MEMBERS.
(a) Actions requiring the vote of the Members may be taken at any duly
constituted meeting of the Members at which a quorum is present. Meetings of the
Members may be called by the Board or by Members holding a majority of the total
number of votes eligible to be cast by all Members, and may be held at such
time, date and place as the Board shall determine. The Board shall arrange to
provide written notice of the meeting, stating the date, time and place of the
meeting and the record date therefor, to each Member entitled to vote at the
meeting within a reasonable time prior thereto. Failure to receive notice of a
meeting on the part of any Member shall not affect the validity of any act or
proceeding of the meeting, so long as a quorum shall be present at the meeting.
Only matters set forth in the notice of a meeting may be voted on by the Members
at a meeting. The presence in person or by proxy of Members holding a majority
of the total number of votes eligible to be cast by all Members as of the record
date shall constitute a quorum at any meeting. In the absence of a quorum, a
meeting of the Members may be adjourned by action of a majority of the Members
present in person or by proxy without additional notice to the Members. Except
as otherwise required by any provision of this Agreement or of the 1940 Act, (i)
those candidates receiving a plurality of the votes cast at any meeting of
Members shall be elected as Directors and (ii) all other actions of the Members
taken at a meeting shall require the affirmative vote of Members holding a
majority of the total number of votes eligible to be cast by those Members who
are present in person or by proxy at such meeting.
(b) Each Member shall be entitled to cast at any meeting of Members a
number of votes equivalent to such Member's Voting Interest. The Board shall
establish a record date not less than 10 nor more than 60 days prior to the date
of any meeting of Members to determine eligibility to vote at such meeting and
the number of votes which each Member will be entitled to cast thereat, and
shall maintain for each such record date a list setting forth the name of each
Member and the number of votes that each Member will be entitled to cast at the
meeting.
(c) A Member may vote at any meeting of Members by a proxy properly
executed in writing by the Member and filed with the Fund before or at the time
of the meeting. A proxy may be suspended or revoked, as the case may be, by the
Member executing the proxy by a later writing delivered to the Fund at any time
prior to exercise of the proxy or if the Member executing the proxy shall be
present at the meeting and decide to vote in person. Any action of the Members
that is permitted to be taken at a meeting of the Members may be taken without a
meeting if consents in writing, setting forth the action taken, are signed by
Members holding a majority of the total number of votes eligible to be cast or
such greater percentage as may be required in order to approve such action.
3.4 ADVICE AND MANAGEMENT.
(a) Among its powers, the Board shall have the power to engage the
Manager to provide Advice and Management to the Fund under its general
supervision, subject to the initial approval thereof prior to the Closing Date
by the Organizational Member. The Board also delegates to the Manager the rights
and powers expressly given to the Manager under this Agreement. The authority of
the Manager granted under this Section 3.4 shall become effective upon such
initial approval and shall terminate: (i) if any period of 12 consecutive months
following the first 12 consecutive months of the effectiveness of such authority
shall conclude without the approval of the continuation of such authority by (A)
the vote of a majority (as defined in the 1940 Act) of the outstanding Voting
Interests of the Fund or (B) the Board, and in either case, approval by a
majority of the Independent Directors by vote cast in person at a meeting called
for such purpose; (ii) if revoked by the Board or by vote of a majority (as
defined in the 1940 Act) of the outstanding Voting Interests of the Fund, in
either case with 60 days' prior written notice to the Manager; or (iii) at the
election of the Manager with 60 days' prior written notice to the Board. The
authority of the Manager to provide Advice and Management pursuant to this
Section 3.4 shall automatically terminate upon the occurrence of any event in
connection with the Manager, its provision of Advice and Management, this
Agreement or otherwise constituting an "assignment" within the meaning of the
1940 Act. If the authority of the Manager under this Section 3.4 is terminated
as provided herein, the Board may appoint, subject to the approval thereof by a
majority of the Independent Board and by vote of a majority (as defined in the
1940 Act) of the outstanding Voting Interests of the Fund, a person or persons
to provide Advice and Management to the Fund, and shall cause the terms and
conditions of such appointment to be stated in an agreement executed on behalf
of the Fund and such person or persons. Notwithstanding anything in this
Agreement to the contrary, upon receiving the requisite approval set forth in
the preceding sentence, the Fund, and a person designated by the Board, shall
have the power and authority to enter into such agreement without any further
act, vote or approval of any Member.
(b) So long as the Manager has been and continues to be authorized to
provide Advice and Management, it shall have, subject to any policies and
restrictions set forth in any current offering memorandum issued by the Fund,
this Agreement, the Form N-2 or the 1940 Act, or adopted from time to time by
the Board and communicated in writing to the Manager, full discretion and
authority (i) to manage the assets and liabilities of the Fund and (ii) to
manage the day-to-day business and affairs of the Fund. In furtherance of and
subject to the foregoing, the Manager, except as otherwise provided in this
Agreement, shall have full power and authority on behalf of the Fund:
(1) to purchase, sell, exchange, trade and otherwise deal in and with
Securities and other property of the Fund and to loan Securities
of the Fund;
(2) to do any and all acts and exercise all rights with respect to
the Fund's interest in any person, firm, corporation, partnership
or other entity, including, without limitation, voting interests
of the Investment Funds;
(3) to enter into agreements with the Investment Funds irrevocably to
forego the Fund's right to vote its interests or shares of the
Investment Funds;
(4) to enter into agreements with the Investment Funds that provide
for, among other things, the indemnification by the Fund of the
Investment Funds and the Investment Managers to the same or
different extent as provided for in respect of the Manager, and
to terminate such agreements;
(5) to open, maintain and close accounts with brokers and dealers, to
make all decisions relating to the manner, method and timing of
Securities and other investment transactions, to select and place
orders with brokers, dealers or other financial intermediaries
for the execution, clearance or settlement of any transactions on
behalf of the Fund on such terms as the Manager considers
appropriate, and to grant limited discretionary authorization to
such persons with respect to price, time and other terms of
investment and trading transactions;
(6) to borrow from banks or other financial institutions and to
pledge Fund assets as collateral therefor, to trade on margin, to
exercise or refrain from exercising all rights regarding the
Fund's investments, and to instruct custodians regarding the
settlement of transactions, the disbursement of payments to
Members with respect to repurchases of Interests and the payment
of Fund expenses, including those relating to the organization
and registration of the Fund;
(7) to issue to any Member an instrument certifying that such Member
is the owner of an Interest;
(8) to call and conduct meetings of Members at the Fund's principal
office or elsewhere as it may determine and to assist the Board
in calling and conducting meetings of the Board;
(9) to engage and terminate such attorneys, accountants and other
professional advisors and consultants as the Manager may deem
necessary or advisable in connection with the affairs of the Fund
or as may be directed by the Board;
(10) to engage and terminate the services of persons other than the
Subadvisers (the engagement of which shall be the subject to
Section 3.4(b) (15)) to assist the Manager in providing, or to
provide under the Manager's control and supervision, Advice and
Management to the Fund at the expense of the Manager and to
terminate such services;
(11) to assist in the preparation and filing of any required tax or
information returns to be made by the Fund;
(12) as directed by the Board, to commence, defend and conclude any
action, suit, investigation or other proceeding that pertains to
the Fund or any assets of the Fund;
(13) if directed by the Board, to arrange for the purchase of (A)
Insurance, or (B) any insurance covering the potential
liabilities of the Fund or relating to the performance of the
Board or the Manager, or any of their principals, directors,
officers, members, employees and agents;
(14) to execute, deliver and perform such contracts, agreements and
other undertakings, and to engage in such activities and
transactions as are, in the opinion of the Manager, necessary and
appropriate for the conduct of the business of the Fund, without
the act, vote or approval of any other Member or person; and
(15) (A) to direct the formulation of investment policies and
strategies for the Fund using a multi-asset and multiple manager
strategy whereby some or all of the Fund's assets may be
committed from time to time by the Manager to Investment Funds or
to the discretionary management of one or more Subadvisers, the
selection of which shall be subject to the approval of a majority
(as defined in the 1940 Act) of the Fund's outstanding voting
securities, unless the Fund receives an exemption from the
provisions of the 1940 Act requiring such approval, (B) to enter
into agreements with the Subadvisers that provide for, among
other things, the indemnification by the Fund of the Subadvisers
to the same or different extent as provided for in respect of the
Manager, and to terminate such agreements, (C) to authorize the
payment of fees and allocations of profits to Subadvisers
pursuant to their respective governing documents and any rebates
or reductions of such fees or allocations which shall be for the
benefit of the Fund and (D) to identify appropriate Subadvisers,
assess the most appropriate investment vehicles (general or
limited partnerships, separate managed accounts or other
investment vehicles (pooled or otherwise)) that invest or trade
in Securities, and determine the assets to be committed to each
Subadviser and invested through the Subadviser, which investments
shall be subject in each case to the terms and conditions of the
respective governing documents used by the Subadviser.
3.5 CUSTODY OF ASSETS OF THE FUND.
The physical possession of all funds, Securities or other property of
the Fund shall at all times, be held, controlled and administered by one or more
custodians retained by the Fund in accordance with the requirements of the 1940
Act.
3.6 BROKERAGE.
In the course of selecting brokers, dealers and other financial
intermediaries for the execution, clearance and settlement of transactions for
the Fund, the Manager may agree to such commissions, fees and other charges on
behalf of the Fund as it shall deem reasonable under the circumstances, taking
into account all such factors as it deems relevant (including the quality of
research and other services made available to it even if such services are not
for the exclusive benefit of the Fund and the cost of such services does not
represent the lowest cost available) and shall be under no obligation to combine
or arrange orders so as to obtain reduced charges unless otherwise required
under the Federal securities laws. The Manager, subject to such procedures as
may be adopted by the Board, may use Affiliates of the Manager as brokers to
effect the Fund's Securities transactions and the Fund may pay such commissions
to such brokers in such amounts as are permissible under applicable law.
3.7 OTHER ACTIVITIES OF MEMBERS (INCLUDING THE MANAGER) AND DIRECTORS.
(a) Neither the Directors nor the Manager shall be required to devote
full time to the affairs of the Fund, but shall devote such time as may
reasonably be required to perform their obligations under this Agreement.
(b) Any Member (including the Manager) or Director or Affiliate
thereof may engage in or possess an interest in other business ventures or
commercial dealings of every kind and description, independently or with others,
including, but not limited to, acquisition and disposition of Securities,
provision of investment advisory or brokerage services, serving as directors,
officers, employees, advisors or agents of other companies, partners of any
partnership, members of any limited liability company, or trustees of any trust,
or entering into any other commercial arrangements. No Member shall have any
rights in or to such activities of any other Member or Director, or any profits
derived therefrom.
3.8 DUTY OF CARE.
(a) The Directors and the Manager, including any officer, director,
member, principal, employee or agent of the Manager, shall not be liable to the
Fund or to any of its Members for any loss or damage occasioned by any act or
omission in the performance of such person's services under this Agreement,
unless it shall be determined by final judicial decision on the merits from
which there is no further right to appeal that such loss is due to an act or
omission of such person constituting willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's duties hereunder.
(b) A Member not in breach of any obligation hereunder or under any
agreement pursuant to which the Member subscribed for an Interest shall be
liable to the Fund, any other Member or third parties only as required by the
Delaware Act or otherwise provided in this Agreement.
3.9 INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Fund shall, subject to
Section 3.9(b) hereof, indemnify each Director (including for this purpose their
executors, heirs, assigns, successors or other legal representatives), the
Manager (including for this purpose each affiliate, officer, director, member,
partner, principal, employee or agent of the Manager or a member thereof, and
the executors, heirs, assigns, successors or other legal representatives of each
of the foregoing, and of any person who controls or is under common control, or
otherwise is affiliated, with the Manager or any member thereof, and their
executors, heirs, assigns, successors or other legal representatives), and the
Tax Matters Partner (including for this purpose its successor) against all
losses, claims, damages, liabilities, costs and expenses, including, but not
limited to, amounts paid in satisfaction of judgments, in compromise, or as
fines or penalties, and reasonable counsel fees, incurred in connection with the
defense or disposition of any action, suit, investigation or other proceeding,
whether civil or criminal, before any judicial, arbitral, administrative or
legislative body, in which such indemnitee may be or may have been involved as a
party or otherwise, or with which such indemnitee may be or may have been
threatened, while in office or thereafter, by reason of being or having been a
Director, Manager or the Tax Matters Partner, as the case may be, of the Fund or
the past or present performance of services to the Fund by such indemnitee,
except to the extent such loss, claim, damage, liability, cost or expense shall
have been finally determined in a non-appealable decision on the merits in any
such action, suit, investigation or other proceeding to have been incurred or
suffered by such indemnitee by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of such
indemnitee's office. The rights of indemnification provided under this Section
3.9 shall not be construed so as to provide for indemnification of an indemnitee
for any liability (including liability under federal securities laws which,
under certain circumstances, impose liability even on persons that act in good
faith) to the extent (but only to the extent) that such indemnification would be
in violation of applicable law, but shall be construed so as to effectuate the
applicable provisions of this Section 3.9 to the fullest extent permitted by
law.
(b) Expenses, including reasonable counsel fees, so incurred by any
such indemnitee (but excluding amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties), may be paid from time to time by the Fund
in advance of the final disposition of any such action, suit, investigation or
proceeding upon receipt of an undertaking by or on behalf of such indemnitee to
repay to the Fund amounts so paid if it shall ultimately be determined that
indemnification of such expenses is not authorized under Section 3.9(a) hereof;
PROVIDED, HOWEVER, that (i) such indemnitee shall provide security for such
undertaking, (ii) the Fund shall be insured by or on behalf of such indemnitee
against losses arising by reason of such indemnitee's failure to fulfill his or
its undertaking, or (iii) a majority of the Directors (excluding any Director
who is seeking advancement of expenses hereunder) or independent legal counsel
in a written opinion shall determine based on a review of readily available
facts (as opposed to a full trial-type inquiry) that there is reason to believe
such indemnitee ultimately will be entitled to indemnification.
(c) As to the disposition of any action, suit, investigation or
proceeding (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an adjudication or a decision on the merits by a court, or by
any other body before which the proceeding shall have been brought, that an
indemnitee is liable to the Fund or its Members by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office, indemnification shall be
provided pursuant to Section 3.9(a) hereof if (i) approved as in the best
interests of the Fund by a majority of the Directors (excluding any Director who
is seeking indemnification hereunder) upon a determination based upon a review
of readily available facts (as opposed to a full trial-type inquiry) that such
indemnitee acted in good faith and in the reasonable belief that such actions
were in the best interests of the Fund and that such indemnitee is not liable to
the Fund or its Members by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of such
indemnitee's office, or (ii) the Directors secure a written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry) to the effect that such indemnitee acted
in good faith and in the reasonable belief that such actions were in the best
interests of the Fund and that such indemnitee is not liable to the Fund or its
Members by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of such indemnitee's
office.
(d) Any indemnification or advancement of expenses made pursuant to
this Section 3.9 shall not prevent the recovery from any indemnitee of any such
amount if such indemnitee subsequently shall be determined in a decision on the
merits in any action, suit, investigation or proceeding involving the liability
or expense that gave rise to such indemnification or advancement of expenses to
be liable to the Fund or its Members by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of such indemnitee's office. In any suit brought by an indemnitee to
enforce a right to indemnification under this Section 3.9 it shall be a defense
that, and in any suit in the name of the Fund to recover any indemnification or
advancement of expenses made pursuant to this Section 3.9 the Fund shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met the applicable standard of conduct set forth in this Section 3.9. In
any such suit brought to enforce a right to indemnification or to recover any
indemnification or advancement of expenses made pursuant to this Section 3.9,
the burden of proving that the indemnitee is not entitled to be indemnified, or
to any indemnification or advancement of expenses, under this Section 3.9 shall
be on the Fund (or any Member acting derivatively or otherwise on behalf of the
Fund or its Members).
(e) An indemnitee may not satisfy any right of indemnification or
advancement of expenses granted in this Section 3.9 or to which he, she or it
may otherwise be entitled except out of the assets of the Fund, and no Member
shall be personally liable with respect to any such claim for indemnification or
advancement of expenses.
(f) The rights of indemnification provided hereunder shall not be
exclusive of or affect any other rights to which any person may be entitled by
contract or otherwise under law. Nothing contained in this Section 3.9 shall
affect the power of the Fund to purchase and maintain liability insurance on
behalf of any Director or other person.
3.10 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as PWFA (or its affiliates) provides PWFA Services to the
Fund, it shall be entitled to receive such fees as may be agreed to by PWFA and
the Fund pursuant to a separate written agreement, which, notwithstanding
anything in this Agreement to the contrary, may be entered into by the Fund, and
the Manager on behalf of the Fund, without any further act, vote or approval of
any Member.
(b) The Board may cause the Fund to compensate each Director for his
or her services hereunder. In addition, the Fund shall reimburse the Directors
for reasonable out-of-pocket expenses incurred by them in performing their
duties under this Agreement.
(c) The Fund shall bear all expenses incurred in the business of the
Fund other than those specifically required to be borne by the Manager or its
members hereunder or under any other agreement. Expenses to be borne by the Fund
include, but are not limited to, the following:
(1) all costs and expenses 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 and taxes withheld on foreign dividends and indirect
expenses from investments in Investment Funds;
(2) all costs and expenses associated with the organization and
registration of the Fund, offering costs and the costs of
compliance with any applicable Federal or state laws;
(3) the costs and expenses of holding any meetings of Members that
are regularly scheduled, permitted or are required to be held by
this Agreement, the 1940 Act or other applicable law;
(4) fees and disbursements of any attorneys, accountants, auditors
and other consultants and professionals engaged on behalf of the
Fund;
(5) the costs of a fidelity bond and any liability insurance obtained
on behalf of the Fund, the Manager or the Directors;
(6) any fees payable to PWFA or its affiliates for PWFA Services;
(7) 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;
(8) all costs and expenses of preparing, setting in type, printing
and distributing reports and other communications to Members;
(9) 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, including valuation services
provided by third parties;
(10) all charges for equipment or services used for communications
between the Fund and any custodian, or other agent engaged by the
Fund;
(11) fees payable to custodians and persons providing administrative
services to the Fund; and
(12) such other types of expenses as may be approved from time to time
by the Board.
The Manager shall be entitled to reimbursement from the Fund for any
of the above expenses that it pays on behalf of the Fund.
(d) The Fund from time to time, alone or in conjunction with other
accounts for which the Manager, or any Affiliate of the Manager, acts as general
partner, managing member or investment adviser, may purchase Insurance in such
amounts, from such insurers and on such terms as the Board shall determine.
-------------------------------------------------------------------------------
ARTICLE IV
TERMINATION OF STATUS OF DIRECTORS;
TRANSFERS AND REPURCHASES
-------------------------------------------------------------------------------
4.1 TERMINATION OF STATUS OF A DIRECTOR.
The status of a Director shall terminate if the Director (i) shall
die; (ii) shall be adjudicated incompetent; (iii) shall voluntarily withdraw as
a Director (upon not less than 90 days' prior written notice to the other
Directors, unless the other Directors waive such notice); (iv) shall be removed
under Section 4.2; (v) shall be certified by a physician to be mentally or
physically unable to perform his duties hereunder; (vi) shall be declared
bankrupt by a court with appropriate jurisdiction, file a petition commencing a
voluntary case under any bankruptcy law or make an assignment for the benefit of
creditors; or (vii) shall have a receiver appointed to administer the property
or affairs of such Director.
4.2 REMOVAL OF THE DIRECTORS.
Any Director may be removed either by (a) the vote or written consent
of at least two-thirds of the Directors not subject to the removal vote or (b)
the vote or written consent of Members holding not less than two-thirds of the
total number of votes eligible to be cast by all Members.
4.3 TRANSFER OF INTERESTS OF MEMBERS.
(a) An Interest or portion thereof of a Member may be Transferred only
(i) by operation of law pursuant to the death, bankruptcy, insolvency or
dissolution of such Member or (ii) with the written consent of the Board (which
may be withheld in its sole and absolute discretion). In addition, the Board may
not consent to a Transfer of an Interest or a portion thereof of a Member unless
the person to whom such Interest is transferred (or each of such person's equity
owners if such a person is a "private investment company" as defined in Rule
205-3(d)(3) under the Advisers Act, an investment company registered under the
1940 Act, or a business development company as defined under the Advisers Act)
is a person whom the Board believes meets the requirements of paragraph (d)(1)
of Rule 205-3 under the Advisers Act or successor rule thereto, or is otherwise
exempt from such requirements. If any transferee does not meet such investor
eligibility requirements, the Fund reserves the right to redeem its Interest. If
the Board does not consent to a Transfer by operation of law, the Fund shall
redeem the Interest from the Member's successor. In addition to the foregoing,
no Member shall be permitted to Transfer its Interest or portion thereof unless
after such Transfer the balance of the Capital Account of each of the transferor
and the transferee is at least equal to the amount of the transferor's initial
Capital Contribution. Any permitted transferee shall be entitled to the
allocations and distributions allocable to the Interest so acquired and to
Transfer such Interest in accordance with the terms of this Agreement, but shall
not be entitled to the other rights of a Member unless and until such transferee
becomes a substituted Member. If a Member Transfers an Interest or portion
thereof with the approval of the Board, the Fund shall promptly take all
necessary actions so that each transferee or successor to whom such Interest or
portion thereof is Transferred is admitted to the Fund as a substituted Member.
The admission of any transferee as a substituted Member shall be effective upon
the execution and delivery by, or on behalf of, such substituted Member of
either a counterpart of this Agreement or an instrument that constitutes the
execution and delivery of this Agreement. Each transferring Member and
transferee agrees to pay all expenses, including attorneys' and accountants'
fees, incurred by the Fund in connection with such Transfer. Upon the Transfer
to another person or persons of a Member's entire Interest, such Member shall
cease to be a member of the Fund.
(b) Each transferring Member shall indemnify and hold harmless the
Fund, the Directors, the Manager, each other Member and any Affiliate of the
foregoing against all losses, claims, damages, liabilities, costs and expenses
(including legal or other expenses incurred in investigating or defending
against any such losses, claims, damages, liabilities, costs and expenses or any
judgments, fines and amounts paid in settlement), joint or several, to which
such persons may become subject by reason of or arising from (i) any Transfer
made by such Member in violation of this Section 4.3 and (ii) any
misrepresentation by such Member in connection with any such Transfer.
4.4 REPURCHASE OF INTERESTS.
(a) Except as otherwise provided in this Agreement, no Member or other
person holding an Interest or portion thereof shall have the right to withdraw
or tender to the Fund for repurchase of that Interest or portion thereof. The
Board may from time to time, in its complete and exclusive discretion and on
such terms and conditions as it may determine, cause the Fund to repurchase
Interests or portions thereof pursuant to written tenders. In determining
whether to cause the Fund to repurchase Interests or portions thereof pursuant
to written tenders, the Board shall consider the following factors, among
others:
(1) whether any Members have requested to tender Interests or
portions thereof to the Fund;
(2) the liquidity of the Fund's assets;
(3) the investment plans and working capital requirements of the
Fund;
(4) the relative economies of scale with respect to the size of the
Fund;
(5) the history of the Fund in repurchasing Interests or portions
thereof;
(6) the condition of the securities markets; and
(7) the anticipated tax consequences of any proposed repurchases of
Interests or portions thereof.
The Board shall cause the Fund to repurchase Interests or portions
thereof pursuant to written tenders only on terms fair to the Fund and to all
Members (including persons holding Interests acquired from Members), as
applicable.
(b) The Board may cause the Fund to repurchase an Interest or portion
thereof of a Member or any person acquiring an Interest or portion thereof from
or through a Member if the Board determines or has reason to believe that:
(1) such an Interest or portion thereof has been transferred in
violation of Section 4.3 hereof, or such an Interest or portion
thereof has vested in any person by operation of law as the
result of the death, dissolution, bankruptcy or incompetency of a
Member;
(2) ownership of such an Interest by a Member 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;
(3) continued ownership of such an Interest may be harmful or
injurious to the business or reputation of the Fund, the Manager
or the Directors, or may subject the Fund or any of the Members
to an undue risk of adverse tax or other fiscal consequences;
(4) any of the representations and warranties made by a Member in
connection with the acquisition of an Interest or portion thereof
was not true when made or has ceased to be true; or
(5) it would be in the best interests of the Fund, as determined by
the Board, for the Fund to repurchase such an Interest or portion
thereof.
(c) Repurchases of Interests or portions thereof by the Fund shall be
payable in cash or in part by promissory note, in each case without interest,
unless the Board, in its discretion, determines otherwise, or, in the discretion
of the Board, in Securities (or any combination of Securities and cash) of
equivalent value. All such repurchases shall be subject to any and all
conditions as the Board may impose and shall be effective as of a date set by
the Board after receipt by the Fund of all eligible written tenders of Interests
or portion thereof. The amount due to any Member whose Interest or portion
thereof is repurchased shall be equal to the estimated value of such Member's
Capital Account or portion thereof as applicable as of the effective date of
repurchase, after giving effect to all allocations to be made to such Member's
Capital Account as of such date.
-------------------------------------------------------------------------------
ARTICLE V
CAPITAL
-------------------------------------------------------------------------------
5.1 CONTRIBUTIONS TO CAPITAL.
(a) The minimum initial contribution of each Member (other than the
Manager) to the capital of the Fund shall be $250,000 ($25,000 for employees or
directors of the Manager and its affiliates, and members of their immediate
families, and, in the sole discretion of the Board, attorneys or other
professional advisors engaged on behalf of the Fund, and members of their
immediate families) or such other amount as the Board may determine from time to
time. The amount of the initial contribution of each Member shall be recorded on
the books and records of the Fund upon acceptance as a contribution to the
capital of the Fund. The Directors shall not be entitled to make voluntary
contributions of capital to the Fund as Directors of the Fund, but may make
voluntary contributions to the capital of the Fund as Members.
(b) The Members may make additional contributions to the capital of
the Fund, effective as of such times as the Board in its discretion may permit,
but no Member shall be obligated to make any additional contribution to the
capital of the Fund except to the extent provided in Section 5.7 hereof.
(c) Except as otherwise permitted by the Board, (i) initial and any
additional contributions to the capital of the Fund by any Member shall be
payable in cash or in such Securities that the Board, in its absolute
discretion, may agree to accept on behalf of the Fund, and (ii) initial and any
additional contributions in cash shall be payable in readily available funds at
the date of the proposed acceptance of the contribution. The Fund shall charge
each Member making a contribution in Securities to the capital of the Fund such
amount as may be determined by the Board not exceeding 2% of the value of such
contribution in order to reimburse the Fund for any costs incurred by the Fund
by reason of accepting such Securities, and any such charge shall be due and
payable by the contributing Member in full at the time the contribution to the
capital of the Fund to which such charges relate is due. The value of
contributed Securities shall be determined in accordance with Section 7.3 hereof
as of the date of contribution.
5.2 RIGHTS OF MEMBERS TO CAPITAL.
No Member shall be entitled to interest on his or its contribution to
the capital of the Fund, nor shall any Member be entitled to the return of any
capital of the Fund except (i) upon the repurchase by the Fund of a part or all
of such Member's Interest pursuant to Section 4.4 hereof, (ii) pursuant to the
provisions of Section 5.7(c) hereof or (iii) upon the liquidation of the Fund's
assets pursuant to Section 6.2 hereof. No Member shall be liable for the return
of any such amounts. No Member shall have the right to require partition of the
Fund's property or to compel any sale or appraisal of the Fund's assets.
5.3 CAPITAL ACCOUNTS.
(a) The Fund shall maintain a separate Capital Account for each
Member.
(b) Each Member's Capital Account shall have an initial balance equal
to the amount of cash and the value of any Securities (determined in accordance
with Section 7.3 hereof) constituting such Member's initial contribution to the
capital of the Fund.
(c) Each Member's Capital Account shall be increased by the sum of (i)
the amount of cash and the value of any Securities (determined in accordance
with Section 7.3 hereof) constituting additional contributions by such Member to
the capital of the Fund permitted pursuant to Section 5.1 hereof, plus (ii) any
amount credited to such Member's Capital Account pursuant to Sections 5.4
through 5.7 or 5.11 hereof.
(d) Each Member's Capital Account shall be reduced by the sum of (i)
the amount of any repurchase of the Interest, or portion thereof, of such Member
or distributions to such Member pursuant to Sections 4.4, 5.10 or 6.2 hereof
which are not reinvested, plus (ii) any amounts debited against such Member's
Capital Account pursuant to Sections 5.4 through 5.7 and 5.11 hereof.
(e) If all or a portion of an Interest is transferred in accordance
with the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred Interest.
5.4 ALLOCATION OF NET PROFIT AND LOSS.
As of the last day of each Fiscal Period, any Net Profit or Net Loss
for the Fiscal Period shall be allocated among and credited to or debited
against the Capital Accounts of the Members in accordance with their respective
Fund Percentages for such Fiscal Period.
5.5 ALLOCATION OF INSURANCE PREMIUMS AND PROCEEDS.
(a) Any premiums payable by the Fund for Insurance purchased pursuant
to Section 3.10(d) hereof shall be apportioned evenly over each Fiscal Period or
portion thereof falling within the period to which such premiums relate under
the terms of such Insurance, and the portion of the premiums so apportioned to
any Fiscal Period shall be allocated among and debited against the Capital
Accounts of each Member who is a member of the Fund during such Fiscal Period in
accordance with such Member's Fund Percentage for such Fiscal Period.
(b) Proceeds, if any, to which the Fund may become entitled pursuant
to such Insurance shall be allocated among and credited to the Capital Accounts
of each Member who is a member of the Fund during the Fiscal Period in which the
event which gives rise to recovery of proceeds occurs in accordance with such
Member's Fund Percentage for such Fiscal Period.
5.6 ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES.
(a) If the Fund incurs a withholding tax or other tax obligation with
respect to the share of Fund income allocable to any Member, then the Board,
without limitation of any other rights of the Fund or the Board, shall cause the
amount of such obligation to be debited against the Capital Account of such
Member when the Fund pays such obligation, and any amounts then or thereafter
distributable to such Member shall be reduced by the amount of such taxes. If
the amount of such taxes is greater than any such distributable amounts, then
such Member and any successor to such Member's Interest shall pay to the Fund as
a contribution to the capital of the Fund, upon demand of the Fund, the amount
of such excess. The Fund shall not be obligated to apply for or obtain a
reduction of or exemption from withholding tax on behalf of any Member that may
be eligible for such reduction or exemption; provided, that in the event that
the Fund determines that a Member is eligible for a refund of any withholding
tax, the Fund may, at the request and expense of such Member, assist such Member
in applying for such refund.
(b) Except as otherwise provided for in this Agreement and unless
prohibited by the 1940 Act, any expenditures payable by the Fund, to the extent
determined by the Board to have been paid or withheld on behalf of, or by reason
of particular circumstances applicable to, one or more but fewer than all of the
Members, shall be charged to only those Members on whose behalf such payments
are made or whose particular circumstances gave rise to such payments. Such
charges shall be debited from the Capital Accounts of such Members as of the
close of the Fiscal Period during which any such items were paid or accrued by
the Fund.
5.7 RESERVES.
(a) Appropriate reserves may be created, accrued and charged against
Net Assets and proportionately against the Capital Accounts of the Members for
contingent liabilities, if any, as of the date any such contingent liability
becomes known to the Manager or the Board, such reserves to be in the amounts
which the Board in its sole discretion deem necessary or appropriate. The Board
may increase or reduce any such reserves from time to time by such amounts as it
in its sole discretion deems necessary or appropriate. The amount of any such
reserve, or any increase or decrease therein, shall be proportionately charged
or credited, as appropriate, to the Capital Accounts of those parties who are
Members at the time when such reserve is created, increased or decreased, as the
case may be; PROVIDED, HOWEVER, that if any such individual reserve item,
adjusted by any increase therein, exceeds the lesser of $500,000 or 1% of the
aggregate value of the Capital Accounts of all such Members, the amount of such
reserve, increase, or decrease instead shall be charged or credited to those
parties who were Members at the time, as determined by the Board in its sole
discretion, of the act or omission giving rise to the contingent liability for
which the reserve was established, increased or decreased in proportion to their
Capital Accounts.
(b) If at any time an amount is paid or received by the Fund (other
than contributions to the capital of the Fund, distributions or repurchases of
Interests or portions thereof) and such amount exceeds the lesser of $500,000 or
1% of the aggregate value of the Capital Accounts of all Members at the time of
payment or receipt and such amount was not accrued or reserved for but would
nevertheless, in accordance with the Fund's accounting practices, be treated as
applicable to one or more prior Fiscal Periods, then such amount shall be
proportionately charged or credited, as appropriate, to those parties who were
Members during such prior Fiscal Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of this Section
5.7 to be charged or credited to a party who is no longer a Member, such amount
shall be paid by or to such party, as the case may be, in cash, with interest
from the date on which the Board determines that such charge or credit is
required. In the case of a charge, the former Member shall be obligated to pay
the amount of the charge, plus interest as provided above, to the Fund on
demand; PROVIDED, HOWEVER, that (i) in no event shall a former Member be
obligated to make a payment exceeding the amount of such Member's Capital
Account at the time to which the charge relates; and (ii) no such demand shall
be made after the expiration of three years from the date on which such party
ceased to be a Member. To the extent that a former Member fails to pay to the
Fund, in full, any amount required to be charged to such former Member pursuant
to paragraph (a) or (b), whether due to the expiration of the applicable
limitation period or for any other reason whatsoever, the deficiency shall be
charged proportionately to the Capital Accounts of the Members at the time of
the act or omission giving rise to the charge to the extent feasible, and
otherwise proportionately to the Capital Accounts of the current Members.
5.8 INCENTIVE ALLOCATION.
(a) So long as the authority to provide Advice and Management under
Section 3.4 hereof shall remain effective, the Incentive Allocation shall be
debited against the Capital Account of each Member (other than the Manager) as
of the last day of each Allocation Period with respect to such Member and the
amount so debited shall be credited simultaneously to the Capital Account of the
Manager, or, subject to compliance with the 1940 Act and the Advisers Act, to
the Capital Accounts of such Members as have been designated in any written
notice delivered by the Manager, to the Fund within 90 days after the close of
such Allocation Period.
(b) Within 30 days after the close of each Allocation Period with
respect to each Member, the Manager may withdraw up to 100% of the Incentive
Allocation (computed on the basis of unaudited data) that was credited to the
Capital Account of the Manager, and debited from such Member's Capital Account
with respect to such Allocation Period. The Fund shall pay the Manager the
undrawn balance, if any, of such Incentive Allocation (subject to audit
adjustments) within 30 days after the completion of the audit of the Fund's
books. Any amount of such Incentive Allocation not withdrawn by the Manager
pursuant to the first sentence of this Section 5.8(b) shall be deemed reinvested
in the Fund by the Manager.
5.9 TAX ALLOCATIONS.
For each Fiscal Year, items of income, deduction, gain, loss or credit
shall be allocated for income tax purposes among the Members in such a manner as
to reflect equitably amounts credited or debited to each Member's Capital
Account for the current and prior Fiscal Years (or relevant portions thereof).
Allocations under this Section 5.9 shall be made pursuant to the principles of
Sections 704(b) and 704(c) of the Code, and in conformity with Treasury
Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e)
promulgated thereunder, as applicable, or the successor provisions to such
Section and Regulations. Notwithstanding anything to the contrary in this
Agreement, there shall be allocated to the Members such gains or income as shall
be necessary to satisfy the "qualified income offset" requirement of Treasury
Regulations Section 1.704-1(b)(2)(ii)(d).
If the Fund realizes capital gains (including short-term capital
gains) for Federal income tax purposes for any Fiscal Year during or as of the
end of which one or more Positive Basis Members (as hereinafter defined)
withdraw from the Fund pursuant to Articles IV or VI hereof, the Board may elect
to allocate such gains as follows: (i) to allocate such gains among such
Positive Basis Members, PRO RATA in proportion to the respective Positive Basis
(as hereinafter defined) of each such Positive Basis Member, until either the
full amount of such gains shall have been so allocated or the Positive Basis of
each such Positive Basis Member shall have been eliminated and (ii) to allocate
any gains not so allocated to Positive Basis Members to the other Members in
such manner as shall reflect equitably the amounts credited to such Members'
Capital Accounts.
As used herein, (i) the term "Positive Basis" shall mean, with respect
to any Member and as of any time of calculation, the amount by which the total
of such Member's Capital Account as of such time exceeds its "adjusted tax
basis," for Federal income tax purposes, in its Interest as of such time
(determined without regard to any adjustments made to such "adjusted tax basis"
by reason of any transfer or assignment of such Interest, including by reason of
death and without regard to such Member's share of the liabilities of the Fund
under Section 752 of the Code), and (ii) the term "Positive Basis Member" shall
mean any Member who withdraws from the Fund and who has a Positive Basis as of
the effective date of its withdrawal but such Member shall cease to be a
Positive Basis Member at such time as it shall have received allocations
pursuant to clause (i) of the preceding sentence equal to its Positive Basis as
of the effective date of its withdrawal.
5.10 DISTRIBUTIONS.
(a) The Board, in its sole discretion, may authorize the Fund to make
distributions in cash or in kind at any time to all of the Members on a PRO RATA
basis in accordance with the Members' Fund Percentages. Notwithstanding anything
to the contrary in this Agreement, a Member may be compelled to accept a
distribution of any asset in kind from the Fund despite the fact that the
percentage of the asset distributed to the Member exceeds the percentage of that
asset which is equal to the percentage in which the Member shares in
distributions from the Fund.
(b) The Board may withhold taxes from any distribution to any Member
to the extent required by the Code or any other applicable law. For purposes of
this Agreement, any taxes so withheld by the Fund with respect to any amount
distributed by the Fund to any Member shall be deemed to be a distribution or
payment to such Member, reducing the amount otherwise distributable to such
Member pursuant to this Agreement and, if appropriate, reducing the Capital
Account of such Member.
(c) Notwithstanding anything to the contrary contained herein, none of
the Directors or the Members (including the Manager), nor any other person on
behalf of the Fund, shall make a distribution to the Members on account of their
interest in the Fund if such distribution would violate the Delaware Act or
other applicable law.
5.11 ALLOCATION OF ORGANIZATIONAL EXPENSES.
(a) As of the first Expense Allocation Date, Organizational Expenses
shall be allocated among and debited against the Capital Accounts of the Members
in accordance with their respective Capital Percentages on such Expense
Allocation Date.
(b) As of each Expense Allocation Date following the first Expense
Allocation Date, all amounts previously debited against the Capital Account of a
Member pursuant to this Section 5.11 on the preceding Expense Allocation Date
will be credited to the Capital Account of such Member, and Organizational
Expenses then shall be re-allocated among and debited against the Capital
Accounts of all Members in accordance with their respective Capital Percentages
on such Expense Allocation Date.
-------------------------------------------------------------------------------
ARTICLE VI
DISSOLUTION AND LIQUIDATION
-------------------------------------------------------------------------------
6.1 DISSOLUTION.
(a) The Fund shall be dissolved at any time there are no Members,
unless the Fund is continued in accordance with the Delaware Act, or upon the
occurrence of any of the following events:
(1) upon the affirmative vote to dissolve the Fund by both (i) the
Board and (ii) Members holding at least two-thirds of the total
number of Voting Interests eligible to be cast by all Members;
(2) upon the failure of Members to approve of successor Directors at
a meeting called by the Manager in accordance with Section 2.6(c)
hereof when no Director remains to continue the business of the
Fund;
(3) upon the expiration of any two-year period which commences on the
date on which any Member has submitted a written notice to the
Fund requesting to tender such Member's entire Interest for
repurchase by the Fund if such Member has not been permitted to
do so at any time during such period;
(4) upon the determination by the Manager to dissolve the Fund; or
(5) as required by operation of law.
Dissolution of the Fund shall be effective on the day on which the
event giving rise to the dissolution shall occur, but the Fund shall not
terminate until the assets of the Fund have been liquidated in accordance with
Section 6.2 hereof and the Certificate has been canceled.
6.2 LIQUIDATION OF ASSETS.
(a) Upon the dissolution of the Fund as provided in Section 6.1
hereof, the Board, acting directly or through a liquidator it selects, shall
promptly liquidate the business and administrative affairs of the Fund, except
that if the Board is unable to perform this function, a liquidator elected by
Members holding a majority of the total number of votes eligible to be cast by
all Members shall promptly liquidate the business and administrative affairs of
the Fund. Net Profit and Net Loss during the period of liquidation shall be
allocated pursuant to Article V hereof. The proceeds from liquidation shall,
subject to the Delaware Act, be distributed in the following manner:
(1) in satisfaction (whether by payment or the making of reasonable
provision for payment thereof) of the debts and liabilities of
the Fund, including the expenses of liquidation (including legal
and accounting expenses incurred in connection therewith), but
not including debt and liabilities to Members, up to and
including the date that distribution of the Fund's assets to the
Members has been completed, shall first be paid on a PRO RATA
basis;
(2) such debts, liabilities or obligations as are owing to the
Members shall be paid next in their order of seniority and on a
PRO RATA basis; and
(3) the Members shall be paid next on a PRO RATA basis the positive
balances of their respective Capital Accounts after giving effect
to all allocations to be made to such Members' Capital Accounts
for the Fiscal Period ending on the date of the distributions
under this Section 6.2(a)(3).
(b) Anything in this Section 6.2 to the contrary notwithstanding, but
subject to the priorities set forth in Section 6.2(a) above, upon dissolution of
the Fund, the Board or other liquidator may distribute ratably in kind any
assets of the Fund; PROVIDED, HOWEVER, that if any in-kind distribution is to be
made (i) the assets distributed in kind shall be valued pursuant to Section 7.3
hereof as of the actual date of their distribution and charged as so valued and
distributed against amounts to be paid under Section 6.2(a) above, and (ii) any
profit or loss attributable to property distributed in-kind shall be included in
the Net Profit or Net Loss for the Fiscal Period ending on the date of such
distribution.
-------------------------------------------------------------------------------
ARTICLE VII
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
-------------------------------------------------------------------------------
7.1 ACCOUNTING AND REPORTS.
(a) The Fund shall adopt for tax accounting purposes any accounting
method which the Board shall decide in its sole discretion is in the best
interests of the Fund. The Fund's accounts shall be maintained in U.S. currency.
(b) After the end of each taxable year, the Fund shall furnish to each
Member such information regarding the operation of the Fund and such Member's
Interest as is necessary for Members to complete Federal and state income tax or
information returns and any other tax information required by federal or state
law.
(c) Except as otherwise required by the 1940 Act, or as may otherwise
be permitted by rule, regulation or order, within 60 days after the close of the
period for which a report required under this Section 7.1(c) is being made, the
Fund shall furnish to each Member a semi-annual report and an annual report
containing the information required by the 1940 Act. The Fund shall cause
financial statements contained in each annual report furnished hereunder to be
accompanied by a certificate of independent public accountants based upon an
audit performed in accordance with generally accepted accounting principles. The
Fund may furnish to each Member such other periodic reports as it deems
necessary or appropriate in its discretion.
7.2 DETERMINATIONS BY THE BOARD.
(a) All matters concerning the determination and allocation among the
Members of the amounts to be determined and allocated pursuant to Article V
hereof, including any taxes thereon and accounting procedures applicable
thereto, shall be determined by the Board (either directly or by the Manager
pursuant to delegated authority) unless specifically and expressly otherwise
provided for by the provisions of this Agreement or as required by law, and such
determinations and allocations shall be final and binding on all the Members.
(b) The Board may make such adjustments to the computation of Net
Profit or Net Loss or any components (withholding any items of income, gain,
loss or deduction) comprising any of the foregoing as it considers appropriate
to reflect fairly and accurately the financial results of the Fund and the
intended allocation thereof among the Members.
7.3 VALUATION OF ASSETS.
(a) Except as may be required by the 1940 Act, the Board shall value
or have valued any Securities or other assets and liabilities of the Fund (other
than assets invested in Investment Funds) as of the close of business on the
last day of each Fiscal Period or more frequently, in the discretion of the
Board, in accordance with such valuation procedures as shall be established from
time to time by the Board and which conform to the requirements of the 1940 Act.
Assets of the Fund that are invested in Investment Funds managed by the
Subadvisers shall be valued in accordance with the terms and conditions of the
respective agreements of the Investment Funds. Assets of the Fund invested in
Investment Funds not managed by the Subadvisers shall be valued 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. In
determining the value of the assets of the Fund, no value shall be placed on the
goodwill or name of the Fund, or the office records, files, statistical data or
any similar intangible assets of the Fund not normally reflected in the Fund's
accounting records, but there shall be taken into consideration any items of
income earned but not received, expenses incurred but not yet paid, liabilities,
fixed or contingent, the unamortized portion of any organizational expenses and
any other prepaid expenses to the extent not otherwise reflected in the books of
account, and the value of options or commitments to purchase or sell Securities
or commodities pursuant to agreements entered into prior to such valuation date.
(b) The value of Securities and other assets of the Fund and the net
worth of the Fund as a whole determined pursuant to this Section 7.3 shall be
conclusive and binding on all of the Members and all parties claiming through or
under them.
-------------------------------------------------------------------------------
ARTICLE VIII
MISCELLANEOUS PROVISIONS
-------------------------------------------------------------------------------
8.1 AMENDMENT OF LIMITED LIABILITY COMPANY AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this Agreement
may be amended, in whole or in part, with the approval of (i) the Board
(including the vote of 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 Interests of the Fund.
(b) Any amendment that would:
(1) increase the obligation of a Member to make any contribution to
the capital of the Fund;
(2) reduce the Capital Account of a Member other than in accordance
with Article V; or
(3) modify the events causing the dissolution of the Fund;
may be made only if (i) the written consent of each Member adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each Member has received written notice of
such amendment and (B) any Member objecting to such amendment has been afforded
a reasonable opportunity (pursuant to such procedures as may be prescribed by
the Board) to tender his or her entire Interest for repurchase by the Fund.
(c) By way of example only, the Board at any time without the consent
of the Members may:
(1) restate this Agreement together with any amendments hereto which
have been duly adopted in accordance herewith to incorporate such
amendments in a single, integrated document;
(2) amend this Agreement (other than with respect to the matters set
forth in Section 8.1(b) hereof) to effect compliance with any
applicable law or regulation or to cure any ambiguity or to
correct or supplement any provision hereof which may be
inconsistent with any other provision hereof, provided that such
action does not adversely affect the rights of any Member in any
material respect; and
(3) amend this Agreement to make such changes as may be necessary or
desirable, based on advice of legal counsel to the Fund, 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.
(d) The Board shall give written notice of any proposed amendment to
this Agreement (other than any amendment of the type contemplated by clause (1)
of Section 8.1(a) hereof) to each Member, which notice shall set forth (i) the
text of the proposed amendment or (ii) a summary thereof and a statement that
the text thereof will be furnished to any Member upon request.
8.2 SPECIAL POWER OF ATTORNEY.
(a) Each Member hereby irrevocably makes, constitutes and appoints the
Manager and each of the Directors, acting severally, and any liquidator of the
Fund's assets appointed pursuant to Section 6.2 hereof with full power of
substitution, the true and lawful representatives and attorneys-in-fact of, and
in the name, place and stead of, such Member, with the power from time to time
to make, execute, sign, acknowledge, swear to, verify, deliver, record, file
and/or publish:
(1) any amendment to this Agreement which complies with the
provisions of this Agreement (including the provisions of Section
8.1 hereof);
(2) any amendment to the Certificate required because this Agreement
is amended or as otherwise required by the Delaware Act; and
(3) all other such instruments, documents and certificates which, in
the opinion of legal counsel to the Fund, from time to time may
be required by the laws of the United States of America, the
State of Delaware or any other jurisdiction in which the Fund
shall determine to do business, or any political subdivision or
agency thereof, or which such legal counsel may deem necessary or
appropriate to effectuate, implement and continue the valid
existence and business of the Fund as a limited liability company
under the Delaware Act.
(b) Each Member is aware that the terms of this Agreement permit
certain amendments to this Agreement to be effected and certain other actions to
be taken or omitted by or with respect to the Fund without such Member's
consent. If an amendment to the Certificate or this Agreement or any action by
or with respect to the Fund is taken in the manner contemplated by this
Agreement, each Member agrees that, notwithstanding any objection which such
Member may assert with respect to such action, the attorneys-in-fact appointed
hereby are authorized and empowered, with full power of substitution, to
exercise the authority granted above in any manner which may be necessary or
appropriate to permit such amendment to be made or action lawfully taken or
omitted. Each Member is fully aware that each Member will rely on the
effectiveness of this special power-of-attorney with a view to the orderly
administration of the affairs of the Fund.
(c) This power-of-attorney is a special power-of-attorney and is
coupled with an interest in favor of the Manager and each of the Directors,
acting severally, and any liquidator of the Fund's assets, appointed pursuant to
Section 6.2 hereof, and as such:
(1) shall be irrevocable and continue in full force and effect
notwithstanding the subsequent death or incapacity of any party
granting this power-of-attorney, regardless of whether the Fund,
the Board or any liquidator shall have had notice thereof; and
(2) shall survive the delivery of a Transfer by a Member of the whole
or any portion of such Member's Interest, except that where the
transferee thereof has been approved by the Board for admission
to the Fund as a substituted Member, this power-of-attorney given
by the transferor shall survive the delivery of such assignment
for the sole purpose of enabling the Board or any liquidator to
execute, acknowledge and file any instrument necessary to effect
such substitution.
8.3 NOTICES.
Notices which may or are required to be provided under this Agreement
shall be made, if to a Member, by regular mail, hand delivery, registered or
certified mail return receipt requested, commercial courier service, telex,
telecopier or other electronic means, or, if to the Fund, by registered or
certified mail, return receipt requested, and shall be addressed to the
respective parties hereto at their addresses as set forth on the books and
records of the Fund (or to such other addresses as may be designated by any
party hereto by notice addressed to the Fund in the case of notice given to any
Member, and to each of the Members in the case of notice given to the Fund).
Notices shall be deemed to have been provided when delivered by hand, on the
date indicated as the date of receipt on a return receipt or when received if
sent by regular mail, commercial courier service, telex or telecopier. A
document that is not a notice and that is required to be provided under this
Agreement by any party to another party may be delivered by any reasonable
means.
8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors, assigns, executors,
trustees or other legal representatives, but the rights and obligations of the
parties hereunder may not be Transferred or delegated except as provided in this
Agreement and any attempted Transfer or delegation thereof which is not made
pursuant to the terms of this Agreement shall be void.
8.5 APPLICABILITY OF 1940 ACT AND FORM N-2.
The parties hereto acknowledge that this Agreement is not intended to,
and does not set forth the substantive provisions contained in the 1940 Act and
the Form N-2 which affect numerous aspects of the conduct of the Fund's business
and of the rights, privileges and obligations of the Members. Each provision of
this Agreement shall be subject to and interpreted in a manner consistent with
the applicable provisions of the 1940 Act and the Form N-2.
8.6 CHOICE OF LAW; ARBITRATION.
(a) Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, the parties expressly agree that all the terms and
provisions hereof shall be construed under the laws of the State of Delaware,
including the Delaware Act, without regard to the conflict of law principles of
such State.
(B) EACH MEMBER AGREES TO SUBMIT ALL CONTROVERSIES ARISING BETWEEN OR
AMONG MEMBERS OR ONE OR MORE MEMBERS AND THE FUND IN CONNECTION WITH THE FUND OR
ITS BUSINESSES OR CONCERNING ANY TRANSACTION, DISPUTE OR THE CONSTRUCTION,
PERFORMANCE OR BREACH OF THIS OR ANY OTHER AGREEMENT, WHETHER ENTERED INTO PRIOR
TO, ON OR SUBSEQUENT TO THE DATE HEREOF, TO ARBITRATION IN ACCORDANCE WITH THE
PROVISIONS SET FORTH BELOW. EACH MEMBER UNDERSTANDS THAT:
(1) ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
(2) THE PARTIES ARE WAIVING THEIR RIGHTS TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO JURY TRIAL;
(3) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS;
(4) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND A PARTY'S RIGHT TO APPEAL OR TO
SEEK MODIFICATION OF RULINGS BY ARBITRATORS IS STRICTLY LIMITED;
AND
(5) A PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
(C) CONTROVERSIES SHALL BE DETERMINED BY ARBITRATION BEFORE, AND ONLY
BEFORE, AN ARBITRATION PANEL CONVENED BY THE NEW YORK STOCK EXCHANGE, INC.
("NYSE") OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (THE "NASD"),
TO THE FULLEST EXTENT PERMITTED BY LAW. THE PARTIES MAY ALSO SELECT ANY OTHER
NATIONAL SECURITIES EXCHANGE'S ARBITRATION FORUM UPON WHICH A PARTY IS LEGALLY
REQUIRED TO ARBITRATE THE CONTROVERSY, TO THE FULLEST EXTENT PERMITTED BY LAW.
SUCH ARBITRATION SHALL BE GOVERNED BY THE RULES OF THE ORGANIZATION CONVENING
THE PANEL, TO THE FULLEST EXTENT PERMITTED BY LAW. JUDGMENT ON ANY AWARD OF ANY
SUCH ARBITRATION MAY BE ENTERED IN THE SUPREME COURT OF THE STATE OF NEW YORK OR
IN ANY OTHER COURT HAVING JURISDICTION OVER THE PARTY OR PARTIES AGAINST WHOM
SUCH AWARD IS RENDERED. EACH MEMBER AGREES THAT THE DETERMINATION OF THE
ARBITRATORS SHALL BE BINDING AND CONCLUSIVE UPON THEM.
(D) NO MEMBER SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO
ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST
ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION OR WHO IS A MEMBER
OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY
CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNLESS AND UNTIL: (I) THE CLASS
CERTIFICATION IS DENIED; OR (II) THE CLASS IS DECERTIFIED; OR (III) THE MEMBER
IS EXCLUDED FROM THE CLASS BY THE COURT. THE FORBEARANCE TO ENFORCE AN AGREEMENT
TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT
EXCEPT TO THE EXTENT STATED HEREIN.
8.7 NOT FOR BENEFIT OF CREDITORS.
The provisions of this Agreement are intended only for the regulation
of relations among past, present and future Members and the Fund. This Agreement
is not intended for the benefit of non-Member creditors and no rights are
granted to non-Member creditors under this Agreement.
8.8 CONSENTS.
Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Fund.
8.9 MERGER AND CONSOLIDATION.
(a) The Fund may merge or consolidate with or into one or more limited
liability companies formed under the Delaware Act or other business entities (as
defined in Section 18-209(a) of the Delaware Act) pursuant to an agreement of
merger or consolidation which has been approved in the manner contemplated by
Section 18-209(b) of the Delaware Act.
(b) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, an agreement of merger or consolidation approved in accordance
with Section 18-209(b) of the Delaware Act may, to the extent permitted by
Section 18-209(b) of the Delaware Act, (i) effect any amendment to this
Agreement, (ii) effect the adoption of a new limited liability company agreement
for the Fund if it is the surviving or resulting limited liability company in
the merger or consolidation, or (iii) provide that the limited liability company
agreement of any other constituent limited liability company to the merger or
consolidation (including a limited liability company formed for the purpose of
consummating the merger or consolidation) shall be the limited liability company
agreement of the surviving or resulting limited liability company.
8.10 PRONOUNS.
All pronouns shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identity of the person or persons, firm or
corporation may require in the context thereof.
8.11 CONFIDENTIALITY.
(a) A Member may obtain from the Fund, for any purpose reasonably
related to the Member's Interest, such information regarding the affairs of the
Fund as is just and reasonable under the Delaware Act, subject to reasonable
standards (including standards governing what information and documents are to
be furnished, at what time and location and at whose expense) established by the
Board.
(b) Each Member covenants that, except as required by applicable law
or any regulatory body, it will not divulge, furnish or make accessible to any
other person the name or address (whether business, residence or mailing) of any
Member (collectively, "Confidential Information") without the prior written
consent of the Board, which consent may be withheld in its sole discretion.
(c) Each Member recognizes that in the event that this Section 8.11 is
breached by any Member or any of its principals, partners, members, directors,
officers, employees or agents or any of its affiliates, including any of such
affiliates' principals, partners, members, directors, officers, employees or
agents, irreparable injury may result to the non-breaching Members and the Fund.
Accordingly, in addition to any and all other remedies at law or in equity to
which the non-breaching Members and the Fund may be entitled, such Members also
shall have the right to obtain equitable relief, including, without limitation,
injunctive relief, to prevent any disclosure of Confidential Information, plus
reasonable attorneys' fees and other litigation expenses incurred in connection
therewith.
(d) The Fund shall have the right to keep confidential from the
Members for such period of time as it deems reasonable any information which the
Board reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the Board in good faith believes is not in
the best interest of the Fund or could damage the Fund or its business or which
the Fund is required by law or by agreement with a third party to keep
confidential.
8.12 CERTIFICATION OF NON-FOREIGN STATUS.
Each Member or transferee of an Interest from a Member that is
admitted to the Fund in accordance with this Agreement shall certify, upon
admission to the Fund and at such other time thereafter as the Board may
request, whether he or she is a "United States Person" within the meaning of
Section 7701(a)(30) of the Code on forms to be provided by the Fund, and shall
notify the Fund within 30 days of any change in such Member's status. Any Member
who shall fail to provide such certification when requested to do so by the
Board may be treated as a non-United States Person for purposes of U.S. Federal
tax withholding.
8.13 SEVERABILITY.
If any provision of this Agreement is determined by a court of
competent jurisdiction not to be enforceable in the manner set forth in this
Agreement, each Member agrees that it is the intention of the Members that such
provision should be enforceable to the maximum extent possible under applicable
law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
8.14 ENTIRE AGREEMENT.
This Agreement (including the Schedule attached hereto which is
incorporated herein) constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto. It is hereby acknowledged and agreed that the
Board, without the approval of any Member may enter into written agreements
("Other Agreements") with Members, executed contemporaneously with the admission
of such Members to the Fund, effecting the terms hereof or of any application in
order to meet certain requirements of such Members. The parties hereto agree
that any terms contained in an Other Agreement with a Member shall govern with
respect to such Member notwithstanding the provisions of this Agreement or of
any application.
8.15 DISCRETION.
To the fullest extent permitted by law, whenever in this Agreement, a
person is permitted or required to make a decision (i) in its "sole discretion"
or "discretion" or under a grant of similar authority or latitude, such person
shall be entitled to consider only such interests and factors as it desires,
including its own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Fund or the Members,
or (ii) in its "good faith" or under another express standard, then such person
shall act under such express standard and shall not be subject to any other or
different standards imposed by this Agreement or any other agreement
contemplated herein or by relevant provisions of law or in equity or otherwise.
8.16 COUNTERPARTS.
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart.
8.17 TAX MATTERS PARTNER. The Manager hereby is designated as the "tax
matters partner" under the Code for the Fund.
THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS
ENTIRETY BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSES SET FORTH
IN SECTION 8.6 ON PAGES 36-37 AND THE CONFIDENTIALITY CLAUSES SET FORTH IN
SECTION 8.11 ON PAGE 38.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ORGANIZATIONAL MEMBER:
/s/ NORMAN E. SIENKO, JR.
---------------------------------
Norman E. Sienko, Jr.
MANAGER:
PW FUND ADVISOR, L.L.C.
By: /s/ DANIEL ARCHETTI
----------------------------
Name: Daniel Archetti
Title: Authorized Person
ADDITIONAL MEMBERS:
Each person who has signed or has
had signed on its behalf a Member
Signature Page, which shall
constitute a counterpart hereof.
<PAGE>
The undersigned understand and agree to the provisions of this Agreement
pertaining to the obligations of Directors.
/s/ E. GARRETT BEWKES, JR.
--------------------------------
E. Garrett Bewkes, Jr., Director
/s/ MEYER FELDBERG
--------------------------------
Meyer Feldberg, Director
/s/ GEORGE W. GOWEN
--------------------------------
George W. Gowen, Director
<PAGE>
SCHEDULE I
DIRECTORS
NAME AND ADDRESS
E. Garrett Bewkes, Jr.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Meyer Feldberg
c/o Columbia University
101 Uris Hall
New York, New York 10027
George W. Gowen
666 Third Avenue
New York, New York 10017
<PAGE>
DESCRIPTION OF THE INVESTMENT FUNDS
AND CERTAIN PERFORMANCE INFORMATION
The Manager anticipates that, immediately after the first closing, it
will invest substantially all of the Fund's assets in the Investment Funds
described in this Appendix. However, no assurance can be given that the Manager
will allocate the Fund's assets to all of these Investment Funds. The Manager
may select other Investment Managers and withdraw the Fund's investment with any
of the Investment Managers described below. The Manager generally will not
advise investors of such events.
A brief description of the investment strategies and historical
performance of these Investment Funds is presented below. This information has
been obtained from and reviewed by the relevant Investment Manager. The
historical performance is based upon the results a full period Investor would
have achieved on an investment made in each Investment Fund for the period
specified. The performance shown is net of fees and expenses and incentive-based
allocations. The performance information does not reflect the payment of a
placement fee and, if reflected, the placement fee would reduce the performance
quoted. The performance information has not been audited and does not comply
with the standards established by the Association of Investment Management and
Research (AIMR).
The following pages describe the investment philosophy and methodology
the Investment Manager of each Investment Fund has used to date, except as
noted, and expects to use to manage the Investment Fund. The performance shown
has been generated by applying this investment philosophy and methodology.
Future investments, however, will be made under different economic conditions
and may include different portfolio securities. The performance record of each
Investment Fund is limited and may not reflect performance in different economic
cycles. Investors should not assume that they will experience returns in the
future, if any, comparable to those discussed herein. In comparing each
Investment Fund's performance to market indices, potential Investors should note
that the indices are highly diversified and represent only unmanaged results of
long investment, while each Investment Fund is not as diversified and an
Investment Fund's portfolio may contain debt and equity investments, foreign
securities, options and futures contracts and other derivatives, and each
Investment Manager may sell securities short and some Investment Managers may
use leverage. Because of the differences among the Investment Funds' investment
strategies and the performance of the equity market indices shown, no such index
is directly comparable to the investment strategy of an Investment Fund.
The Investment Manager's performance information for periods before
those shown, if applicable, and for other accounts is available upon request by
contacting the Manager. The performance tables should be read in conjunction
with the notes thereto.
THE RESULTS OF INDIVIDUAL INVESTMENT MANAGERS DO NOT REPRESENT THE
RESULTS THAT AN INVESTOR IN THE FUND WILL RECEIVE. THE RESULTS THAT AN INVESTOR
IN THE FUND WILL RECEIVE WILL DEPEND, TO A SIGNIFICANT DEGREE, ON THE INVESTMENT
MANAGERS ACTUALLY SELECTED FROM TIME TO TIME AND THE AMOUNT OF THE FUND'S ASSETS
ALLOCATED TO ALL SUCH INVESTMENT MANGERS. INVESTORS IN THE FUND WILL BEAR AN
ADDITIONAL ASSET-BASED FEE AND INCENTIVE-BASED ALLOCATION AND ADDITIONAL
EXPENSES AT THE FUND LEVEL WHICH WILL REDUCE PERFORMANCE.
Information has been obtained or derived from information provided by
the Investment Managers and not by the Manager, who does not warrant its
accuracy or completeness. The Manager has not independently verified and is not
responsible for this information.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<PAGE>
CADUCEUS CAPITAL II, L.P.
----------------------------------------------- ------------ --------- ---------
1998 (a) 1999 2000 (b)
Caduceus Capital II, L.P. (c) 29.2 32.2 41.3
S&P 500 Index (d) 9.2 21.0 (0.8)
Lipper Healthcare/Biotechonology Fund Index(e) 11.9 10.4 8.3
----------------------------------------------- ------------ --------- ---------
Caduceus Capital II, L.P. ("Caduceus") is an unregistered investment
limited partnership whose principal investment objective is capital
appreciation. Caduceus invests primarily in the equity and equity-related
securities of health sciences companies worldwide, with an emphasis on companies
in the biotechnology and pharmaceuticals sectors. Caduceus may invest in
securities of both established and emerging companies. Caduceus' investment
manager expects that generally approximately one-third of the portfolio will be
invested in large capitalization companies and the remainder will be invested in
small capitalization or biotechnology companies. Caduceus seeks to capitalize on
changes in economies and market conditions. To achieve its investment objective
or for hedging purposes, Caduceus engages in short sales, options and futures
transactions and uses leverage.
The investment manager of Caduceus is OrbiMed Advisors LLC
("OrbiMed"). OrbiMed and its affiliates provide investment management services
to registered investment companies, private investment funds, and foreign
entities with aggregate assets in excess of $1.5 billion. OrbiMed manages other
private investment funds with a substantially similar strategy to Caduceus; the
largest such fund, which as a longer period since inception than Caduceus, has
annualized returns that are lower than Caduceus' annualized returns.
Samuel Isaly is the founder of OrbiMed and is the primary portfolio
manager of Caduceus. In March 1989, Mr. Isaly co-founded Mehta and Isaly,
OrbiMed's predecessor, which provided investment ideas to institutional
investors on worldwide health care; undertook cross-border merger, acquisition
and alliances projects in the industry; and provided investment management
services to selected investors. In early 1998, Mr. Isaly formed OrbiMed. Mr.
Isaly has been active in international and health care investing throughout his
career, beginning at Chase Manhattan Bank in 1968. In 1982, his company,
Gramercy Associates, was the first to develop an integrated, worldwide system of
analysis on the 100 leading pharmaceutical companies, with investment
recommendations conveyed to 50 leading financial institutions in the U.S. and
Europe. Gramercy Associates was absorbed into S.G. Warburg & Co., Inc., in 1986,
where Mr. Isaly was Senior Vice President and international equity analyst. For
a time, Mr. Isaly also was associated with Credit Suisse as an analyst of the
European pharmaceutical industry. In all, he has worked as a pharmaceutical and
international investment specialist for 30 years. Mr. Isaly earned a B.A. degree
from Princeton University and a M.S. in economics from the London School of
Economics.
--------------
Notes:
(a) Caduceus commenced operations on July 1, 1998. Returns for Caduceus and
the indices for 1998 are for the period July 1, 1998 through December 31,
1998.
(b) Returns for Caduceus and the indices for 2000 are for the period January
1, 2000 through April 30, 2000.
(c) OrbiMed is entitled to an annual management fee, paid quarterly, of 1% of
Caduceus' net assets and an annual performance allocation of 20% of net
profits. The performance for Caduceus is net of all fees and expenses,
including performance allocations. At all times under consideration, the
assets of Caduceus were between $2 million and $80 million.
(d) The S&P 500 Index is an unmanaged index and is considered to be generally
representative of the US large cap stock market as a whole. The
performance data for the S&P 500 Index assumes the reinvestment of all
dividends, but does not deduct any fees or expenses. Caduceus does not
restrict its investments to securities included in the S&P 500 Index.
(e) The Lipper Healthcare/Biotechnology Fund Index is an equal weighed index
reflecting the performance of 10 actively managed open-end mutual funds
that invest at least 65% of their equity portfolio in shares of companies
engaged in health care, medicine and biotechnology. The performance data
for the Lipper Healthcare/Biotechnology Fund Index includes reinvestment
of all dividends declared by such mutual funds and deducts any fees or
expenses of such mutual funds. Caduceus does not follow an investment
program identical to the mutual funds that comprise the Lipper
Healthcare/Biotechnology Fund Index.
The performance data is set forth solely for the information of prospective
investors in the Fund. The above-data has been obtained from sources believed to
be reliable but which are not warranted as to accuracy or completeness.
<PAGE>
GALLEON HEALTHCARE PARTNERS, L.P
<TABLE>
<CAPTION>
----------------------------------------------- ------------ --------- --------- ---------
1997(a) 1998 1999 2000 (b)
<S> <C> <C> <C> <C>
Galleon Healthcare Partners, L.P.(c) 61.4 30.5 46.7 12.7
S&P 500 Index (d) 29.9 28.6 21.0 (0.8)
Lipper Healthcare/Biotechonology Fund Index(e) 23.8 26.0 10.4 8.3
----------------------------------------------- ------------ --------- --------- ---------
</TABLE>
Galleon Healthcare Partners, L.P. ("Galleon Healthcare") is an
unregistered investment limited partnership whose investment objective is to
achieve capital appreciation primarily through investments in equity securities
and other equity related instruments of healthcare companies. Galleon Healthcare
expects to find investment opportunities in various segments of the healthcare
industry, including healthcare services such as HMOs, physician practice
management, hospitals and home care, healthcare information systems, medical
devices, biotechnology and drug delivery. Galleon Healthcare uses a fundamental,
research intensive approach, which may include direct contact with senior
management and other key employees at companies whose securities are being
considered as potential investments. Investments include long positions in
securities of companies which the investment manager believes to be attractively
valued, with an emphasis on companies likely, in the view of the investment
manager, to achieve earnings above consensus expectations. The portfolio also
includes short positions in securities of companies which, in the view of the
investment manager, are overvalued by the marketplace, with an emphasis on
companies likely to achieve earnings below consensus expectations or showing
deteriorating financial positions. Galleon Healthcare also may use technical
analysis to screen for potential investments and to monitor current positions.
When deemed appropriate by the investment manager, Galleon Healthcare will
engage in short-term trading to take advantage of opportunities in the financial
markets. Galleon Healthcare engages in options transactions to hedge existing
portfolio positions or in furtherance of its objective and may use leverage.
The investment manager of Galleon Healthcare is Galleon Advisors,
L.L.C. ("Galleon Advisors"). Galleon Advisors and its affiliates was formed in
January 1997 and currently provide investment advisory services to private
investment partnerships, offshore funds and separate accounts with aggregate
assets in excess of $3.7 billion.
Raj Rajaratnam is the founder and Managing Member of Galleon Advisors.
Before forming Galleon Advisors, Mr. Rajaratnam was the President and Chief
Operating Officer of Needham & Company, Inc. ("Needham") where he was
responsible primarily for managing the assets of three investment funds. Mr.
Rajaratnam joined Needham in August 1985 as an analyst covering the electronics
sector. He served as the Managing Director of Investment Analysis with overall
responsibility for the firm's technology, healthcare and specialty retailing
investment analysis. In 1989, he was appointed Needham's Chief Operating Officer
and, in 1991, he was appointed its President. Mr. Rajaratnam received an M.B.A.
in Finance from the Wharton School of Business, University of Pennsylvania in
May 1983.
Krishen K. Sud is a member of Galleon Advisors and the primary
portfolio manager of Galleon Healthcare. Mr. Sud joined Galleon Advisors from
Needham, where he was the senior healthcare services analyst and was in charge
of the firm's Healthcare Group, including corporate finance and research. At
Needham, he also managed a portion of the assets of a private investment fund.
Before his tenure at Needham, Mr. Sud was a Vice President in the Corporate
Finance Department at Smith Barney. He received an M.B.A. in Finance from the
Wharton School, University of Pennsylvania in 1984.
--------------
Notes:
(a) Galleon Healthcare commenced operations on April 1, 1997. Returns for
Galleon Healthcare and the indices for 1997 are for the period April 1,
1997 through December 31, 1997.
(b) Returns for Galleon Healthcare and for the indices for 2000 are for the
period January 1, 2000 through April 30, 2000.
(c) Galleon Advisors is entitled to an annual management fee, paid quarterly,
of 1% of Galleon Healthcare's net assets and an annual performance
allocation of 20% of net profits. The performance for Galleon Healthcare
is net of all fees and expenses, including performance allocations. At
all times under consideration, the assets of Galleon Healthcare were
between $5 million and $186 million.
(d) The S&P 500 Index is an unmanaged index and is considered to be generally
representative of the U.S. large cap stock market as a whole. The
performance data for the S&P 500 Index assumes the reinvestment of all
dividends, but does not deduct any fees or expenses. Galleon Healthcare
does not restrict its investments to securities included in the S&P 500
Index.
(e) The Lipper Healthcare/Biotechnology Fund Index is an equal weighed index
reflecting the performance of 10 actively managed open-end mutual funds
that invest at least 65% of their equity portfolio in shares of companies
engaged in health care, medicine and biotechnology. The performance data
for the Lipper Healthcare/Biotechnology Fund Index includes reinvestment
of all dividends declared by such mutual funds and deducts any fees or
expenses of such mutual funds. Galleon Healthcare does not follow an
investment program identical to the mutual funds that comprise the Lipper
Healthcare/Biotechnology Fund Index.
The performance data is set forth solely for the information of prospective
investors in the Fund. The above-data has been obtained from sources believed to
be reliable but which are not warranted as to accuracy or completeness.
<PAGE>
MERLIN BIOMED II, L.P.
----------------------------------------------- ------------ --------- ---------
1998 (a) 1999 2000 (b)
Merlin BioMed, L.P. (c)(d) 45.3 101.9 58.3
S&P 500 Index (e) 12.8 21.0 (0.8)
Lipper Healthcare/Biotechnology Fund Index (f) 12.6 10.4 8.3
----------------------------------------------- ------------ --------- ---------
Merlin BioMed II, L.P. ("Merlin BioMed II"), which began operations in
April 2000, is an unregistered investment limited partnership whose investment
objective is to achieve maximum capital appreciation from investing globally in
public and private companies in the life sciences industries. Merlin BioMed II's
investment objective and strategies are expected to be substantially identical
to Merlin BioMed, L.P. ("Merlin BioMed I"), which commenced operations in 1998
and the performance of which is shown above.
The life sciences industries in which Merlin BioMed II invests include
pharmaceutical, biotechnology, medical device and healthcare services. Merlin
BioMed II's investment approach combines a long-term view of unmet medical needs
with a bottoms-up understanding of technological advances. The stated goal of
Merlin BioMed II is to increase the chances of achieving superior returns while
limiting downside risk. The research approach is heavily science-driven and
focuses primarily on innovation. Merlin BioMed II invests primarily in common
stocks of U.S. and foreign companies. Merlin BioMed II engages in short sales
and invests in securities which are not publicly traded but which its investment
manager expects to be registered for sale to the public or otherwise available
for resale. Additionally, to achieve its investment objective and for hedging
purposes, Merlin BioMed II uses leverage and invests in options and other
financial instruments.
The investment manager of Merlin BioMed II is Merlin BioMed Group.
Merlin BioMed Group currently provides investment advisory services to private
investment partnerships, offshore funds and separately managed accounts with
aggregate assets in excess of $440 million.
Dr. Stuart T. Weisbrod serves as the Chief Investment Officer of
Merlin BioMed Group and the primary portfolio manager of Merlin BioMed II. Dr.
Weisbrod formed Merlin BioMed Group after leaving Oracle Partners, where he was
a Partner focusing on the biotechnology and pharmaceutical sectors. Before his
tenure at Oracle Partners, he was a Partner with Harpel Advisors, where he
focused primarily on the firm's healthcare and cyclical investment activities.
Dr. Weisbrod began his investment career as a securities analyst at Prudential
Bache and subsequently joined Merrill Lynch as a First Vice President. From
1987 to 1993, Dr. Weisbrod was ranked consistently among the top three
biotechnology analysts in the U.S. by Institutional Investor and Greenwich
Associates. He began his investment career as a securities analyst at Prudential
Bache and subsequently joined Merrill Lynch as a First Vice President. Dr.
Weisbrod received a Ph.D. in biochemistry from Princeton University in 1980 and
an M.B.A. in Finance from Columbia University in 1986.
--------------
Notes:
(a) Merlin BioMed I commenced operations on April 1, 1998. Returns for Merlin
BioMed I and the indices for 1998 are for the period April 1, 1998
through December 31, 1998.
(b) Returns for Merlin BioMed I and the indices for 2000 are for the period
January 1, 2000 through April 30, 2000.
(c) The Fund intends to invest in Merlin BioMed II, the investment objective
and strategies of which are expected to be substantially identical to
Merlin BioMed I. Future investments, however, will be made under
different economic conditions and may include different portfolio
securities. The performance information is limited and may not reflect
performance in different economic cycles. Investors should not assume
that they will experience returns in the future, if any, comparable to
those set forth herein or that, in the future, the performance of Merlin
BioMed I and Merlin BioMed II will be identical.
(d) Merlin BioMed I's administrator, an affiliate of Merlin BioMed Group, is
entitled to an annual administration fee, paid quarterly, of 1% of Merlin
BioMed I's net assets and Merlin BioMed Group is entitled to an annual
performance allocation of 20% of net profits. The performance for Merlin
BioMed I is net of all fees and expenses, including performance
allocations. At all times under consideration, the assets of Merlin
BioMed I were between $10 million and $130 million.
(e) The S&P 500 Index is an unmanaged index and is considered to be generally
representative of the U.S. large cap stock market as a whole. The
performance data for the S&P 500 Index assumes the reinvestment of all
dividends, but does not deduct any fees or expenses. Merlin BioMed I and
Merlin BioMed II do not restrict their investments to securities included
in the S&P 500 Index.
(f) The Lipper Healthcare/Biotechnology Fund Index is an equal weighted index
reflecting the performance of 10 actively managed open-end mutual funds
that invest 65% of their equity portfolio in shares of companies engaged
in health care, medicine and biotechnology. The performance data for the
Lipper Healthcare/Biotechnology Fund Index includes reinvestment of all
dividends declared by such mutual funds and deducts any fees or expenses
of such mutual funds. Merlin BioMed I and Merlin BioMed II do not follow
an investment program identical to the mutual funds that comprise the
Lipper Healthcare/Biotechnology Fund Index.
The performance data is set forth solely for the information of prospective
investors in the Fund. The above-data has been obtained from sources believed to
be reliable but which are not warranted as to accuracy or completeness.
<PAGE>
PEQUOT HEALTHCARE FUND, L.P.
----------------------------------------------- ------------ --------- ---------
1998 (a) 1999 2000 (b)
Pequot Healthcare Fund, L.P. (c) 26.4 157.1 4.2
S&P 500 Index (d) 28.6 21.0 (0.8)
Lipper Healthcare/Biotechnology Fund Index (e) 26.0 10.4 8.3
----------------------------------------------- ------------ --------- ---------
Pequot Healthcare Fund, L.P. ("Pequot Healthcare") is an unregistered
investment limited partnership whose investment objective is to achieve superior
capital appreciation through the purchase and sale of securities of companies in
the healthcare industry, such as publicly traded common stocks, stock warrants
and rights, preferred stocks, convertible securities and options to buy and sell
securities. Pequot Healthcare generally invests at least 75% of its assets in
stocks related directly to the healthcare industry and its major subsectors,
including pharmaceuticals, biotechnology, medical technology, managed care and
hospital services and other health services. Pequot Healthcare engages in short
selling as a portfolio hedge or, in appropriate circumstances, in pursuit of its
investment objective. Pequot Healthcare also engages in options transactions and
uses leverage. Pequot Healthcare invests primarily in U.S. equity securities,
but may invest up to 20% of its assets in foreign securities and may trade in
foreign currencies to hedge the currency risk of these securities.
The investment manager of Pequot Healthcare is Pequot Capital
Management, Inc. ("Pequot Capital"). Pequot Capital was spun off, in 1999, from
Dawson-Samberg Capital Management, Inc. ("Dawson Samberg"), which began managing
hedge funds in 1986. Pequot Capital currently provides investment advisory
services to private investment partnerships and offshore funds ("Pequot Family
of Funds") as well as separately managed accounts. Pequot Capital's assets under
management currently exceed $11 billion. The senior investment professionals of
Pequot Capital have been the primary portfolio managers of the Pequot Family of
Funds since the inception of each fund.
Dr. Teena Lerner is the primary portfolio manager of Pequot
Healthcare. Dr. Lerner joined Dawson Samberg in 1996 from Lehman Brothers where
she was a Managing Director and head of the Healthcare Equity Research Group.
From 1989 to 1995, Dr. Lerner was ranked on the Institutional Investor
All-America Research Team, holding the first team position in biotechnology six
of those years. She also is a six-time First Team position holder in
biotechnology. Before her tenure at Lehman Brothers, Dr. Lerner was a Vice
President and Biotechnology Analyst at L.F. Rothschild, Unterberg, Towbin. Prior
to her career on Wall Street, Dr. Lerner was a molecular biologist, and she has
published three papers in the field of retroviral genetics. Dr. Lerner received
a Ph.D. in Molecular Biology from the Rockefeller University. She has an M.B.A.
in Finance from New York University and is a Chartered Financial Analyst. She
received a B.A. in Biology summa cum laude from Brooklyn College.
-----------
Notes:
(a) Pequot Healthcare commenced operations on January 1, 1998.
(b) Returns for Pequot Healthcare and the Indices for 2000 are for the period
January 1, 2000 through April 30, 2000.
(c) Pequot Capital is entitled to an annual management fee, paid quarterly,
of 1% of Pequot Healthcare's net assets and an annual performance
allocation of 20% of net profits. The performance for Pequot Healthcare
is net of all fees and expenses, including performance allocations. At
all times under consideration, the assets of Pequot Healthcare were
between $7 million and $266 million.
(d) The S&P 500 Index is an unmanaged index considered to be generally
representative of the U.S. large cap stock market as a whole. The
performance data for the S&P 500 Index assumes the reinvestment of all
dividends, but does not deduct any fees or expenses. Pequot Healthcare
does not restrict its investments to securities included in the S&P 500
Index.
(e) The Lipper Healthcare/Biotechnology Fund Index is an equal weighted index
reflecting the performance of 10 actively managed open-end mutual funds
that invest at least 65% of their equity portfolio in shares of companies
engaged in heath care, medicine and biotechnology. The performance data
for the Lipper Healthcare/Biotechnology Fund Index includes reinvestment
of all dividends 1999 2000(b) declared by such mutual funds and deducts
any fees or expenses of such mutual funds. Pequot Healthcare will not
follow an investment program identical to the mutual funds that comprise
the Lipper Healthcare/Biotechnology Funds Index.
The performance data is set forth solely for the information of prospective
investors in the Fund. The above-data has been obtained from sources believed to
be reliable but which are not warranted as to accuracy or completeness.
<PAGE>
FORM N-2
PW HEALTH SCIENCES FUND, L.L.C.
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 Formation.
(2) Limited Liability Company Agreement.*
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(2).
(e) Not Applicable.
(f) Not Applicable.
(g) See Item 24(2)(a)(2).
(h) Not Applicable.
(i) Not Applicable.
(j) Custodian Services Agreement.
(k) (1) Management and Administration Agreement.
(2) Administration, Accounting and Investor
Services Agreement.
(3) Escrow Agreement.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Code of Ethics of the Registrant, the Manager
and the Placement Agent.
--------------
* See Appendix A of the Confidential Offering Memorandum.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Blue Sky fees and expenses (including fees of
counsel)
Legal and accounting fees and expenses
Printing, engraving and offering expenses
Miscellaneous
-----------
$
===========
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of interests, the Registrant
expects that no person will be directly or indirectly under common control with
the Registrant, except that the Registrant may be deemed to be controlled by PW
Fund Advisor, L.L.C. (the "Manager"), the manager 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
-------------- ------------------------
Interests 1 (The Registrant anticipates
that as a result of the private
offering of interests there will
be more than 100 record holders
of such interests in the future.)
ITEM 29. INDEMNIFICATION
Reference is made to Section 3.9 of the Registrant's Limited Liability
Company Agreement (the "LLC Agreement") filed as Exhibit (a)(2) hereto. The
Registrant hereby undertakes that it will apply the indemnification provision of
the LLC Agreement in a manner consistent with Release 40-11330 of the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), so long as the interpretation therein of Sections 17(h) and
17(i) of the 1940 Act remains in effect.
The Registrant, in conjunction with the Manager, the Registrant's
directors and other registered management investment companies managed by the
Manager or its affiliates, maintains insurance on behalf of any person who is or
was an independent director, officer, employee, or agent of the Registrant, or
who is or was serving at the request of the Registrant as an individual general
partner, director, officer, employee or agent of another managed investment
company, against certain liability asserted against and incurred by, or arising
out of, his or her position. However, in no event will the Registrant pay that
portion of the premium, if any, for insurance to indemnify any such person or
any act for which the Registrant itself is not permitted to indemnify.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or
employment of a substantial nature in which the investment adviser of the
Registrant, and each member, director, executive officer, or partner of any such
investment adviser, is or has been, at any time during the past two fiscal
years, engaged in for his or her own account or in the capacity of member,
director, officer, employee, partner or trustee, is set forth in the
Registrant's Confidential Memorandum in the section entitled "THE MANAGER."
Information as to the members and officers of PW Fund Advisor, L.L.C. is
included in its Form ADV as filed with the Commission (File No. 801-55537), and
is incorporated herein by reference. Information as to the members and officers
of Bond Street Capital, L.L.C. will be filed by amendment.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Administrator maintains certain required accounting related and
financial books and records of the Registrant at 400 Bellevue Parkway,
Wilmington, Delaware 19809. The other required books and records are maintained
by the Manager, c/o PW Fund Advisor, L.L.C., 1285 Avenue of the Americas, New
York, New York 10019.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
<PAGE>
FORM N-2
PW HEALTH SCIENCES FUND, L.L.C.
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 19th day of June, 2000.
PW HEALTH SCIENCES FUND, L.L.C.
By: PW Fund Advisor, L.L.C.
Manager
By: /S/ DANIEL ARCHETTI
--------------------------
Name: Daniel Archetti
Title: Authorized Representative
<PAGE>
FORM N-2
PW HEALTH SCIENCES FUND, L.L.C.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a)(1) Certificate of Formation.
(2) Limited Liability Company Agreement.*
(j) Custodian Services Agreement.
(k)(1) Management and Administration Agreement.
(2) Administration, Accounting and Investor Services Agreement.
(3) Escrow Agreement.
(r) Code of Ethics of the Registrant, the Manager and the
Placement Agent.
--------------
* See Appendix A of the Confidential Offering Memorandum.
<PAGE>
EXHIBIT (a)(1)
CERTIFICATE OF FORMATION
OF
PW HEALTH SCIENCES FUND, L.L.C.
Under Section 18-201 of the Delaware
Limited Liability Company Act
The undersigned, being an authorized person under Section 18-201 of the
Limited Liability Company Act of the State of Delaware, hereby certifies:
FIRST: The name of the limited liability company is PW Health Sciences
Fund, L.L.C. (the "Company").
SECOND: The address of the Company's registered office in the State of
Delaware is Corporation Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle (Zip Code 19805). The name of its registered
agent at such address is Corporation Service Company.
IN WITNESS WHEREOF, the undersigned has signed this Certificate on this
26th day of April, 2000.
MANAGER:
PW FUND ADVISOR, L.L.C.
By: /s/ DANIEL ARCHETTI
----------------------------
Name: Daniel Archetti
Title: Authorized Signature
<PAGE>
EXHIBIT (j)
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of May 10, 2000 by and between PFPC TRUST
COMPANY, a limited purpose trust company incorporated under the laws of Delaware
("PFPC Trust"), and PW HEALTH SCIENCES FUND, L.L.C., a Delaware limited
liability company (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC Trust to provide custodian
services, and PFPC Trust wishes to furnish custodian services, either directly
or through an affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any person duly authorized by the
Fund's Board to give Oral Instructions and Written Instructions
on behalf of the Fund and listed on the Authorized Persons
Appendix attached hereto and made a part hereof, or any amendment
thereto as may be received by PFPC. An Authorized Person's scope
of authority may be limited by the Fund by setting forth such
limitation in the Authorized Persons Appendix.
(d) "BOARD" AND "MEMBERS" shall have the same meanings as set forth
in the Fund's limited liability company agreement (the "Limited
Liability Company Agreement").
(e) "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury book-entry
system for United States and federal agency securities, its
successor or successors, and its nominee or nominees and any
book-entry system maintained by an exchange registered with the
SEC under the 1934 Act.
(f) "CEA" means the Commodities Exchange Act, as amended.
(g) "CODE" means the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
(h) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC Trust
from an Authorized Person or from a person reasonably believed by
PFPC Trust to be an Authorized Person.
(i) "PFPC TRUST" means PFPC Trust or a subsidiary or affiliate of
PFPC Trust Company.
(j) "PROPERTY" means:
(i) any and all securities and other investment items which the
Fund may from time to time deposit, or cause to be
deposited, with PFPC Trust or which PFPC Trust may from time
to time hold for the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PFPC Trust from time to time, from or
on behalf of the Fund.
(k) "SEC" means the Securities and Exchange Commission.
(l) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(m) "SHARES" mean the interests of any series or class of the Fund.
(n) "WRITTEN INSTRUCTIONS" mean written instructions signed by two
Authorized Persons and received by PFPC Trust. The instructions
may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC Trust to provide
custodian services to the Fund, on behalf of each of its
investment portfolios (each, a "Portfolio"), and PFPC Trust
accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where
applicable, will provide PFPC Trust with the following:
(a) certified or authenticated copies of the resolutions of the
Board, approving the appointment of PFPC Trust or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of the Limited Liability Company Agreement;
(d) a copy of the placement agency agreement with respect to the
Shares;
(e) a copy of each Portfolio's administration agreement if PFPC
Trust is not providing the Portfolio with such services;
(f) copies of any shareholder servicing agreements made in
respect of the Fund or a Portfolio; and
(g) certified or authenticated copies of any and all amendments
or supplements to the foregoing.
4. COMPLIANCE WITH LAWS. PFPC Trust undertakes to comply with all applicable
requirements of the Securities Laws and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by PFPC Trust hereunder. Except as specifically set forth herein, PFPC
Trust assumes no responsibility for such compliance by the Fund or any
Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC Trust shall act
only upon Oral Instructions and Written Instructions.
(b) PFPC Trust shall be entitled to rely upon any Oral Instructions
and Written Instructions it receives from an Authorized Person
(or from a person reasonably believed by PFPC Trust to be an
Authorized Person) pursuant to this Agreement. PFPC Trust may
assume that any Oral Instructions or Written Instructions
received hereunder are not in any way inconsistent with the
provisions of organizational documents of the Fund or of any
vote, resolution or proceeding of the Board, or the Members
unless and until PFPC Trust receives Written Instructions to the
contrary.
(c) The Fund agrees to forward to PFPC Trust Written Instructions
confirming Oral Instructions (except where such Oral Instructions
are given by PFPC Trust or its affiliates) so that PFPC Trust
receives the Written Instructions by the close of business on the
same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by PFPC
Trust in no way shall invalidate the transactions or
enforceability of the transactions authorized by the Oral
Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized
Person, PFPC Trust shall incur no liability to the Fund in acting
upon such Oral Instructions or Written Instructions provided that
PFPC Trust's actions comply with the other provisions of this
Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PFPC Trust is in doubt as to any action it
should or should not take, PFPC Trust may request directions or
advice, including Oral Instructions or Written Instructions, from
the Fund.
(b) ADVICE OF COUNSEL. If PFPC Trust shall be in doubt as to any
question of law pertaining to any action it should or should not
take, PFPC Trust may request advice at its own cost from such
counsel of its own choosing (who may be counsel for the Fund, the
Fund's investment adviser or PFPC Trust, at the option of PFPC
Trust).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions
PFPC Trust receives from the Fund, and the advice it receives
from counsel, PFPC Trust shall be entitled to rely upon and
follow the advice of counsel provided that such counsel is
selected with reasonable care. In the event PFPC Trust so relies
on the advice of counsel, PFPC Trust remains liable for any
action or omission on the part of PFPC Trust which constitutes
willful misfeasance, bad faith, negligence or reckless disregard
by PFPC Trust of any duties, obligations or responsibilities set
forth in this Agreement.
(d) PROTECTION OF PFPC TRUST. PFPC Trust shall be protected in any
action it takes or does not take in reliance upon directions,
advice or Oral Instructions or Written Instructions it receives
from the Fund or from counsel and which PFPC Trust believes, in
good faith, to be consistent with those directions, advice or
Oral Instructions or Written Instructions. Nothing in this
section shall be construed so as to impose an obligation upon
PFPC Trust (i) to seek such directions, advice or Oral
Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other provisions
of this Agreement, the same is a condition of PFPC Trust's
properly taking or not taking such action. Nothing in this
subsection shall excuse PFPC Trust when an action or omission on
the part of PFPC Trust constitutes willful misfeasance, bad
faith, negligence or reckless disregard by PFPC Trust of any
duties, obligations or responsibilities set forth in this
Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund and any
Portfolio, which are in the possession or under the control of PFPC
Trust, shall be the property of the Fund. Such books and records shall
be prepared, preserved and maintained as required by the 1940 Act and
other applicable securities laws, rules and regulations. The Fund and
Authorized Persons shall have access to such books and records at all
times during PFPC Trust's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be
provided by PFPC Trust to the Fund or to an authorized representative
of the Fund, at the Fund's expense.
8. CONFIDENTIALITY. PFPC Trust agrees to keep confidential all records of
the Fund and information relating to the Fund and its Members, unless
the release of such records or information is otherwise consented to,
in writing, by the Fund. The Fund agrees that such consent shall not
be unreasonably withheld and may not be withheld where PFPC Trust may
be exposed to civil or criminal contempt proceedings or when required
to divulge such information or records to duly constituted
authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC Trust shall cooperate with the
Fund's independent public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to
ensure that the necessary information is made available to such
accountants for the expression of their opinion, as required by the
Fund.
10. DISASTER RECOVERY. PFPC Trust shall enter into and shall maintain in
effect with appropriate parties one or more agreements making
reasonable provisions for emergency use of electronic data processing
equipment to the extent appropriate equipment is available. In the
event of equipment failures, PFPC Trust, at no additional expense to
the Fund, shall take reasonable steps to minimize service
interruptions. PFPC Trust shall have no liability with respect to the
loss of data or service interruptions caused by equipment failure
provided such loss or interruption is not caused by PFPC Trust's own
willful misfeasance, bad faith, negligence or reckless disregard of
its duties or obligations under this Agreement.
11. RESERVED.
12. COMPENSATION. As compensation for custody services rendered by PFPC
Trust during the term of this Agreement, the Fund, on behalf of each
of the Portfolios, will pay to PFPC Trust a fee or fees as may be
agreed to in writing from time to time by the Fund and PFPC Trust.
13. INDEMNIFICATION. (a) The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PFPC Trust and its affiliates from all
taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky
laws, and amendments thereto) and expenses, including (without
limitation) reasonable attorneys' fees and disbursements,
(collectively, "Losses") arising directly or indirectly from any
action or omission to act which PFPC Trust takes (i) at the request or
on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral Instructions or Written Instructions. Neither PFPC Trust,
nor any of its affiliates, shall be indemnified against any liability
(or any expenses incident to such liability) arising out of PFPC
Trust's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties under this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary,
neither the Fund nor any Portfolio shall be liable to PFPC Trust or
its affiliates for any consequential, special or indirect losses or
damages which PFPC Trust or its affiliates may incur or suffer,
whether or not the likelihood of such losses or damages was known by
the Fund.
14. RESPONSIBILITY OF PFPC TRUST.
(a) PFPC Trust shall be under no duty to take any action on behalf of
the Fund or any Portfolio except as specifically set forth herein
or as may be specifically agreed to by PFPC Trust in writing.
PFPC Trust shall be obligated to exercise care and diligence in
the performance of its duties hereunder, to act in good faith and
to use its best efforts, within reasonable limits, in performing
services provided for under this Agreement. PFPC Trust agrees to
indemnify and hold harmless the Fund from Losses arising out of
PFPC Trust's failure to perform its duties under this Agreement
to the extent such damages arise out of PFPC Trust's willful
misfeasance, bad faith, negligence or reckless disregard of its
duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC Trust shall not be under
any duty or obligation to inquire into and shall not be liable
for (A) the validity or invalidity or authority or lack thereof
of any Oral Instruction or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this
Agreement, and which PFPC Trust reasonably believes to be
genuine; or (B) subject to Section 10 of this Agreement, delays
or errors or loss of data occurring by reason of circumstances
beyond PFPC Trust's control, including acts of civil or military
authority, national emergencies, fire, flood, catastrophe, acts
of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC Trust nor its affiliates shall be liable to the Fund
or to any Portfolio for any consequential, special or indirect
losses or damages which the Fund may incur or suffer by or as a
consequence of PFPC Trust's or its affiliates' performance of the
services provided hereunder, whether or not the likelihood of
such losses or damages was known by PFPC Trust or its affiliates.
15. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. The Fund will deliver or arrange for
delivery to PFPC Trust, all of the Property owned by the
Portfolios, including cash received as a result of the
distribution of Shares, during the period that is set forth in
this Agreement. PFPC Trust will not be responsible for such
Property until actual receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PFPC Trust, acting upon
Written Instructions, shall open and maintain separate accounts
in the Fund's name using all cash received from or for the
account of the Fund, subject to the terms of this Agreement. In
addition, upon Written Instructions, PFPC Trust shall open
separate custodial accounts for each separate Portfolio of the
Fund (collectively, the "Accounts") and shall hold in the
Accounts all cash received from or for the Accounts of the Fund
specifically designated to each separate Portfolio. PFPC Trust
shall make cash payments from or for the Accounts of a Portfolio
only for:
(i) purchases of securities in the name of a Portfolio or PFPC
Trust or PFPC Trust's nominee as provided in sub-section
(j) of this Section and for which PFPC Trust has received
a copy of the broker's or dealer's confirmation or payee's
invoice, as appropriate;
(ii) purchase or redemption of Shares delivered to PFPC Trust;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne
by a Portfolio;
(iv) payment to, subject to Written Instructions, the Members
of an amount equal to the amount of dividends and
distributions stated in the Written Instructions to be
distributed in cash;
(v) payments, upon Written Instructions, in connection with
the conversion, exchange or surrender of securities owned
or subscribed to by the Fund and held by or delivered to
PFPC Trust;
(vi) payments of the amounts of dividends received with respect
to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other proper
Fund purposes.
PFPC Trust hereby is authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian
for the Accounts.
(c) RECEIPT OF SECURITIES; SUBCUSTODIANS.
(i) PFPC Trust shall hold all securities received by it for the
Accounts in a separate account that physically segregates
such securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry
System. All such securities shall be held or disposed of
only upon Written Instructions of the Fund pursuant to the
terms of this Agreement. PFPC Trust shall have no power or
authority to assign, hypothecate, pledge or otherwise
dispose of any such securities or investment, except upon
the express terms of this Agreement and upon Written
Instructions, accompanied by a certified resolution of the
Board, authorizing the transaction. In no case may any
member of the Board, or any officer, employee or agent of
the Fund withdraw any securities.
At PFPC Trust's own expense and for its own convenience,
PFPC Trust may enter into sub-custodian agreements with
other United States banks or trust companies to perform
duties described in this sub-section (c). Such bank or trust
company shall have an aggregate capital, surplus and
undivided profits, according to its last published report,
of at least one million dollars ($1,000,000), if it is a
subsidiary or affiliate of PFPC Trust, or at least twenty
million dollars ($20,000,000) if such bank or trust company
is not a subsidiary or affiliate of PFPC Trust. In addition,
such bank or trust company must be qualified to act as
custodian and agree to comply with the relevant provisions
of the 1940 Act and other applicable rules and regulations.
Any such arrangement will not be entered into without prior
written notice to the Fund.
PFPC Trust shall remain responsible for the performance of all of its
duties as described in this Agreement and shall hold the Fund and each
Portfolio harmless from its own acts or omissions, under the standards
of care provided for herein, or the acts and omissions of any
sub-custodian chosen by PFPC Trust under the terms of this sub-section
(c).
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral
Instructions or Written Instructions and not otherwise, PFPC
Trust, directly or through the use of the Book-Entry System,
shall:
(i) deliver any securities held for a Portfolio against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated
in such Oral Instructions or Written Instructions,
proxies, consents, authorizations, and any other
instruments whereby the authority of a Portfolio as owner
of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are called, redeemed, retired
or otherwise become payable; provided that, in any such
case, the cash or other consideration is to be delivered
to PFPC Trust;
(iv) deliver any securities held for a Portfolio against
receipt of other securities or cash issued or paid in
connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of
any conversion privilege;
(v) deliver any securities held for a Portfolio to any
protective committee, reorganization committee or other
person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets
of any corporation, and receive and hold under the terms
of this Agreement such certificates of deposit, interim
receipts or other instruments or documents as may be
issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Portfolios and take such other steps as shall be stated in
said Oral Instructions or Written Instructions to be for
the purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Fund;
(vii) release securities belonging to a Portfolio to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Fund on behalf of that
Portfolio; provided, however, that securities shall be
released only upon payment to PFPC Trust of the monies
borrowed, except that in cases where additional collateral
is required to secure a borrowing already made subject to
proper prior authorization, further securities may be
released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes
evidencing the loan;
(viii) release and deliver securities owned by a Portfolio in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment
therefor; and pay out moneys of the Fund in connection
with such repurchase agreements, but only upon the
delivery of the securities;
(ix) release and deliver or exchange securities owned by the
Fund in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by the Fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof to PFPC Trust; and
(xi) release and deliver or exchange securities owned by the
Fund for other corporate purposes.
PFPC Trust must also receive a certified resolution
describing the nature of the corporate purpose and the
name and address of the person(s) to whom delivery shall
be made when such action is pursuant to this sub-section
d.
(e) USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to PFPC Trust
certified resolutions of the Board approving, authorizing and
instructing PFPC Trust on a continuous basis, to deposit in the
Book-Entry System all securities belonging to the Portfolios
eligible for deposit therein and to utilize the Book-Entry System
to the extent possible in connection with settlements of
purchases and sales of securities by the Portfolios, and
deliveries and returns of securities loaned, subject to
repurchase agreements or used as collateral in connection with
borrowings. PFPC Trust shall continue to perform such duties
until it receives Written Instructions or Oral Instructions
authorizing contrary actions.
PFPC Trust shall administer the Book-Entry System as follows:
(i) With respect to securities of each Portfolio which are
maintained in the Book-Entry System, the records of PFPC
Trust shall identify by book-entry or otherwise those
securities belonging to each Portfolio. PFPC Trust shall
furnish to the Fund a detailed statement of the Property
held for each Portfolio under this Agreement at least
monthly and from time to time and upon written request.
(ii) Securities and any cash of each Portfolio deposited in the
Book-Entry System will at all times be segregated from any
assets and cash controlled by PFPC Trust in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PFPC Trust and its
sub-custodian, if any, will pay out money only upon
receipt of securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by PFPC Trust which
relate to the Fund's participation in the Book-Entry
System will be open to the inspection of Authorized
Persons at all times during PFPC Trust's regular business
hours, and PFPC Trust will furnish to the Fund all
information in respect of the services rendered as it may
require.
PFPC Trust will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably request from
time to time.
(f) REGISTRATION OF SECURITIES. All Securities held for a Portfolio
which are issued or issuable only in bearer form, except such
securities held in the Book-Entry System, shall be held by PFPC
Trust in bearer form; all other securities held for a Portfolio
may be registered in the name of the Fund on behalf of that
Portfolio, PFPC Trust, the Book-Entry System, a sub-custodian, or
any duly appointed nominees of the Fund, PFPC Trust, Book-Entry
System or sub-custodian. The Fund reserves the right to instruct
PFPC Trust as to the method of registration and safekeeping of
the securities of the Fund. The Fund agrees to furnish to PFPC
Trust appropriate instruments to enable PFPC Trust to hold or
deliver in proper form for transfer, or to register in the name
of its nominee or in the name of the Book-Entry System, any
securities which it may hold for the Accounts and which may be
registered from time to time in the name of the Fund on behalf of
a Portfolio.
(g) VOTING AND OTHER ACTION. Neither PFPC Trust nor its nominee shall
vote any of the securities held pursuant to this Agreement by or
for the account of a Portfolio, except in accordance with Written
Instructions. PFPC Trust, directly or through the use of the
Book-Entry System, shall execute in blank and promptly deliver
all notices, proxies and proxy soliciting materials to the
registered holder of such securities. If the registered holder is
not the Fund on behalf of a Portfolio, then Written Instructions
or Oral Instructions must designate the person who owns such
securities.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of
contrary Written Instructions, PFPC Trust is authorized to take
the following actions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of each Portfolio,
all income, dividends, distributions, coupons, option
premiums, other payments and similar items, included or
to be included in the Property, and promptly advise
each Portfolio of such receipt and credit such income,
as collected, to each Portfolio's custodian account;
(B) endorse and deposit for collection, in the name of the
Fund, checks, drafts, or other orders for the payment
of money;
(C) receive and hold for the account of each Portfolio all
securities received as a distribution on the
Portfolio's securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
securities belonging to a Portfolio and held by PFPC
Trust hereunder;
(D) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed,
or retired, or otherwise become payable on the date
such securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) deliver or cause to be delivered Property against
payment or other consideration or written receipt
therefor in the following cases:
(1) for examination by a broker or dealer selling for
the account of a Portfolio in accordance with
street delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Fund on behalf of a Portfolio or PFPC Trust or
nominee of either, or for exchange of securities
for a different number of bonds, certificates, or
other evidence, representing the same aggregate
face amount or number of units bearing the same
interest rate, maturity date and call provisions,
if any; provided that, in any such case, the new
securities are to be delivered to PFPC Trust.
(B) Unless and until PFPC Trust receives Oral Instructions
or Written Instructions to the contrary, PFPC Trust
shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of each Portfolio;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of each
Portfolio;
(3) hold for the account of each Portfolio all stock
dividends, rights and similar securities issued
with respect to any securities held by PFPC Trust;
and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by the
Code or the Income Tax Regulations of the United
States Treasury Department or under the laws of
any state now or hereafter in effect, inserting
the Fund's name, on behalf of a Portfolio, on such
certificate as the owner of the securities covered
thereby, to the extent it may lawfully do so.
(i) SEGREGATED ACCOUNTS.
(i) PFPC Trust upon receipt of Written Instructions or Oral
Instructions, shall establish and maintain segregated
accounts on its records for and on behalf of each Portfolio.
Such accounts may be used to transfer cash and securities,
including securities in the Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and
any releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies;
and
(B) upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PFPC Trust shall arrange for the establishment of IRA
custodian accounts for such Members holding Shares through
IRA accounts, in accordance with the Fund's Confidential
Memorandum, the Code and such other procedures as are
mutually agreed upon from time to time by and between the
Fund and PFPC Trust.
(j) PURCHASES OF SECURITIES. PFPC Trust shall settle purchased
securities upon receipt of Oral Instructions or Written
Instructions from the Fund or its investment advisers that
specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Portfolio involved; and
(vii) the name of the person from whom or the broker through
whom the purchase was made. PFPC Trust, upon receipt of
securities purchased by or for a Portfolio, shall pay out
of the moneys held for the account of the Portfolio the
total amount payable to the person from whom or the broker
through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such
Oral Instructions or Written Instructions.
(k) SALES OF SECURITIES. PFPC Trust shall settle sold securities upon
receipt of Oral Instructions or Written Instructions from the
Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom
the sale was made;
(vii) the location to which the security must be delivered and
delivery deadline, if any; and
(viii) the Portfolio involved.
PFPC Trust shall deliver the securities upon receipt of the total amount payable
to the Portfolio upon such sale, provided that the total amount payable is the
same as was set forth in the Oral Instructions or Written Instructions. Subject
to the foregoing, PFPC Trust may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) REPORTS; PROXY MATERIALS.
(i) PFPC Trust shall furnish to the Fund the following reports:
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of each Portfolio, listing each
Portfolio securities belonging to each Portfolio with
the adjusted average cost of each issue and the market
value at the end of such month and stating the cash
account of each Portfolio including disbursements;
(C) the reports required to be furnished to the Fund
pursuant to Rule 17f-4 under the 1940 Act; and
(D) such other information as may be agreed upon from time
to time between the Fund and PFPC Trust.
(ii) PFPC Trust shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion or
similar communication received by it as custodian of the
Property. PFPC Trust shall be under no other obligation to
inform the Fund as to such actions or events.
(m) CREDITING OF ACCOUNTS. If PFPC Trust in its sole discretion
credits an Account with respect to (a) income, dividends,
distributions, coupons, option premiums, other payments or
similar items on a contractual payment date or otherwise in
advance of PFPC Trust's actual receipt of the amount due, (b) the
proceeds of any sale or other disposition of assets on the
contractual settlement date or otherwise in advance of PFPC
Trust's actual receipt of the amount due or (c) provisional
crediting of any amounts due, and (i) PFPC Trust is subsequently
unable to collect full and final payment for the amounts so
credited within a reasonable time period using reasonable efforts
or (ii) pursuant to standard industry practice, law or regulation
PFPC Trust is required to repay to a third party such amounts so
credited, or if any Property has been incorrectly credited, PFPC
Trust shall have the absolute right in its sole discretion
without demand to reverse any such credit or payment, to debit or
deduct the amount of such credit or payment from the Account, and
to otherwise pursue recovery of any such amounts so credited from
the Fund. Nothing herein or otherwise shall require PFPC Trust to
make any advances or to credit any amounts until PFPC Trust's
actual receipt thereof. The Fund hereby grants a first priority
contractual possessory security interest in the amount necessary
to secure the return and payment to PFPC Trust of any advance or
credit made by PFPC Trust (including charges related thereto) to
such Account.
(n) COLLECTIONS. All collections of monies or other property in
respect, or which are to become part of the Property (but not the
safekeeping thereof upon receipt by PFPC Trust) shall be at the
sole risk of the Fund. If payment is not received by PFPC Trust
within a reasonable time after proper demands have been made,
PFPC Trust shall notify the Fund in writing, including copies of
all demand letters, any written responses, memoranda of all oral
responses and shall await instructions from the Fund. PFPC Trust
shall not be obliged to take legal action for collection unless
and until reasonably indemnified to its satisfaction. PFPC Trust
also shall notify the Fund as soon as reasonably practicable
whenever income due on securities is not collected in due course
and shall provide the Fund with periodic status reports of such
income collected after a reasonable time.
16. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by PFPC Trust on ninety (90) days' prior
written notice to the other party. In the event this Agreement is
terminated (pending appointment of a successor to PFPC Trust or vote
of the Members of the Fund to dissolve or to function without a
custodian of its cash, securities or other property), PFPC Trust shall
not deliver cash, securities or other property of the Portfolios to
the Fund. It may deliver them to a bank or trust company of PFPC
Trust's choice, having an aggregate capital, surplus and undivided
profits, as shown by its last published report, of not less than
twenty million dollars ($20,000,000), as a custodian for the Fund to
be held under terms similar to those of this Agreement. PFPC Trust
shall not be required to make any such delivery or payment until full
payment shall have been made to PFPC Trust of all of its fees,
compensation, costs and expenses attributable to the relevant
Portfolio(s). PFPC Trust shall have a security interest in and shall
have a right of setoff against the Property of such Portfolio(s) as
security for the payment of such fees, compensation, costs and
expenses.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to
PFPC Trust, at Airport Business Center, 200 Stevens Drive, Lester,
Pennsylvania 19113 (b) if to the Fund, at 1285 Avenue of the Americas,
New York, New York 10019, Attn: Mark D. Goldstein, Esq., or (c) if to
neither of the foregoing, at such other address as shall have been
given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed
to have been given immediately. If notice is sent by first-class mail,
it shall be deemed to have been given five days after it has been
mailed. If notice is sent by messenger, it shall be deemed to have
been given on the day it is delivered.
18. AMENDMENTS. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PFPC Trust may assign its rights and delegate
its duties hereunder to any affiliate (as defined in the 1940 Act) of
PFPC Trust, or PNC Bank Corp., provided that (i) PFPC Trust gives the
Fund thirty (30) days' prior written notice; (ii) the delegate (or
assignee) agrees with PFPC Trust and the Fund to comply with all
relevant provisions of the Securities Laws; and (iii) PFPC Trust and
such delegate (or assignee) promptly provide such information as the
Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof.
22. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter
hereof, provided that the parties may embody in one or more
separate documents their agreement, if any, with respect to
delegated duties and Oral Instructions.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction
or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Pennsylvania and governed by Pennsylvania law, without
regard to principles of conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution
hereof by such party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
PFPC TRUST COMPANY
By:
--------------------------------
Title:
--------------------------------
PW HEALTH SCIENCES FUND, L.L.C.
By:
--------------------------------
Title:
--------------------------------
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
<PAGE>
EXHIBIT (k)(1)
MANAGEMENT AND ADMINISTRATION AGREEMENT
BY AND BETWEEN
PW FUND ADVISOR, L.L.C.
AND
PW HEALTH SCIENCES FUND, L.L.C.
THIS MANAGEMENT AND ADMINISTRATION AGREEMENT (the "Agreement") is made
as of this 10th day of May, 2000, by and between PW Fund Advisor, L.L.C.
("PWFA") and PW Health Sciences Fund, L.L.C. (the "Fund").
WHEREAS, PWFA is in the business of providing, and the Fund wishes
PWFA to provide, certain management and administrative services;
NOW THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:
1. APPOINTMENT OF PWFA.
(a) The Fund hereby appoints, and PWFA hereby accepts
appointment, to serve as the Fund's management company. In such capacity, PWFA
agrees to provide certain management (but not investment management) and
administrative services to the Fund. These services shall include:
(i) the provision of office space, telephone and utilities;
(ii) the provision of administrative and secretarial, clerical
and other personnel as necessary to provide the services
required to be provided under this Agreement;
(iii) the general supervision of the entities which are retained
by the Fund to provide administrative services and custody
services to the Fund;
(iv) the handling of investor inquiries regarding the Fund and
providing investors with information concerning their
investment in the Fund and capital account balances;
(v) monitoring relations and communications between investors
and the Fund;
(vi) overseeing the drafting and updating of disclosure
documents relating to the Fund and assisting in the
distribution of all offering materials to investors;
(vii) maintaining and updating investor information, such as
change of address and employment;
(viii) overseeing the distribution and acceptance of investor
subscription documents and confirming the receipt of such
documents and funds;
(ix) overseeing the provision of investment advice to the Fund
by any Subadviser (as such term is defined in the Fund's
Confidential Memorandum), and monitoring compliance by the
Subadvisers with applicable investment policies and
restrictions of the Fund;
(x) coordinating and organizing meetings of the Fund's
directors (the "Directors");
(xi) preparing materials and reports for use in connection with
meetings of the Directors; and
(xii) reviewing and approving all regulatory filings required
under applicable law.
(b) All other services to be performed, and expenses related
thereto, in the operation of the Fund shall be borne by the Fund.
(c) Notwithstanding the appointment of PWFA to provide services
hereunder, the Directors shall remain responsible for supervising and
controlling the management, business and affairs of the Fund.
2. PWFA FEE; REIMBURSEMENT OF EXPENSES.
(a) In consideration for the provision by PWFA of its services
hereunder, the Fund will pay PWFA a monthly management fee at the annual rate of
1.00% of the Fund's "net assets," excluding assets attributable to PWFA's
capital account (the "Fee"). "Net assets" shall equal 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.
(b) 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 the Fund's
investors in proportion to their capital accounts at the beginning of such
fiscal period. In the event that the Fee is payable in respect of a partial
month, such fee will be appropriately pro-rated.
(c) PWFA is responsible for all costs and expenses associated
with the provision of its services hereunder. The Fund shall pay all other
expenses associated with the conduct of its business, including the costs and
expenses of holding any meetings of the Directors that are regularly scheduled,
permitted or required to be held under the terms of the Fund's amended and
restated limited liability company agreement, the Investment Company Act of
1940, as amended (the "1940 Act"), or other applicable law, and the fees and
disbursements of any attorneys engaged on behalf of the Fund.
3. LIABILITY. PWFA will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund or its investors in
connection with the performance of its duties under this Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on PWFA's
part (or on the part of an officer or employee of PWFA) in the performance of
its duties hereunder or reckless disregard by it of its duties under this
Agreement.
4. EFFECTIVE DATE AND TERMINATION. This Agreement shall become
effective as of the date first noted above, and shall remain in effect for an
initial term of two years from the date of its effectiveness. This Agreement may
be continued in effect from year to year thereafter provided that each such
continuance is approved by the Directors, including the vote of a majority of
the Directors who are not "interested persons" of the Fund, as defined by the
1940 Act. This Agreement may be terminated by PWFA, by the Directors or by vote
of a majority of the outstanding voting securities of the Fund at any time, in
each case upon not less than 60 days' prior written notice. This Agreement shall
also terminate automatically in the event of its "assignment," as such term is
defined by the 1940 Act.
5. ENTIRE AGREEMENT. This Agreement embodies the entire understanding
of the parties. This Agreement cannot be altered, amended, supplemented, or
abridged, or any provisions waived, except by written agreement of the parties.
6. CHOICE OF LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York and the 1940 Act. In the event
the laws of New York conflict with the 1940 Act, the applicable provisions of
the 1940 Act shall control.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PW FUND ADVISOR, L.L.C.
By:
-----------------------------------
Name:
Title:
PW HEALTH SCIENCES FUND, L.L.C.
By: PW FUND ADVISOR, L.L.C.
MANAGER
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT (k)(2)
ADMINISTRATION , ACCOUNTING AND INVESTOR SERVICES AGREEMENT
THIS AGREEMENT is made as of May 10, 2000 by and between PW HEALTH
SCIENCES FUND, L.L.C., a Delaware limited liability company (the "Fund"), and
PFPC INC., a Delaware corporation ("PFPC"), which is an indirect subsidiary of
PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, the Fund is registered as a closed-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to retain PFPC to provide certain
administration, accounting and investor services provided for herein, and PFPC
wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any person duly authorized by the
Fund's Board to give Oral Instructions and Written Instructions
on behalf of the Fund and listed on the Authorized Persons
Appendix attached hereto or any amendment thereto as may be
received by PFPC from time to time. An Authorized Person's scope
of authority may be limited to the extent set forth in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "BOARD" and "MEMBERS" shall have the same meanings as set forth
in the Fund's limited liability company agreement (the "Limited
Liability Company Agreement").
(f) "MANAGER" means PW Fund Advisor, L.L.C.
(g) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from
an Authorized Person or from a person reasonably believed by PFPC
to be an Authorized Person.
(h) "SEC" means the Securities and Exchange Commission.
(i) "SECURITIES LAWS" means the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(j) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person or a person reasonably believed by PFPC to be
an Authorized Person and received by PFPC. The instructions may
be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to provide administration,
accounting and investor services to the Fund, in accordance with the
terms set forth in this Agreement. PFPC accepts such appointment and
agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Board, approving the appointment of PFPC or its affiliates to
provide services and approving this Agreement;
(b) a copy of the Fund's most recent effective registration statement
on Form N-2 under the 1940 Act, as filed with the SEC;
(c) a copy of the Limited Liability Company Agreement;
(d) a copy of any distribution agreement with respect to the Fund;
(e) a copy of any additional administration agreement with respect to
the Fund;
(f) a copy of any investor servicing agreement made with respect to
the Fund; and
(g) copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS.
PFPC undertakes to comply with all applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC
hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Fund or any other party.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions or
Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by PFPC to be an Authorized
Person) pursuant to this Agreement. PFPC may assume that any Oral
Instruction or Written Instruction received hereunder is not in
any way inconsistent with the provisions of organizational
documents or this Agreement or of any vote, resolution or
proceeding of the Board or the Members, unless and until PFPC
receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions and shall endeavor to ensure that
PFPC receives the Written Instructions by the close of business
on the same day that such Oral Instructions are received. The
fact that such confirming Written Instructions are not received
by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral
Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized
Person, PFPC shall incur no liability to the Fund in acting upon
such Oral Instructions or Written Instructions provided that
PFPC's actions comply with the other provisions of this
Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice,
including Oral Instructions or Written Instructions, from the
Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question
of law pertaining to any action it should or should not take,
PFPC may request advice at its own cost from such counsel of its
own choosing (who may, without limitation, be counsel for the
Fund, or PFPC, at the option of PFPC), provided that such counsel
is selected with reasonable care.
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions
PFPC receives from the Fund, and the advice PFPC receives from
counsel selected with reasonable care, PFPC may rely upon and
follow the advice of such counsel. PFPC shall promptly inform the
Fund of such conflict. If PFPC relies on the advice of counsel,
PFPC will remain liable for any action or omission on the part of
PFPC which constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or
Oral Instructions or Written Instructions it receives from the
Fund or from counsel selected with reasonable care and which PFPC
believes, in good faith, to be consistent with those directions,
advice and Oral Instructions or Written Instructions. Nothing in
this section shall be construed so as to impose an obligation
upon PFPC (i) to seek such directions, advice or Oral
Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other provisions
of this Agreement, the same is a condition of PFPC's properly
taking or not taking such action. Nothing in this subsection
shall excuse PFPC when an action or omission on the part of PFPC
constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or
responsibilities set forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund, which are in the
possession or under the control of PFPC, shall be the property of
the Fund. Such books and records shall be prepared and maintained
as required by the 1940 Act and other applicable securities laws,
rules and regulations. The Fund and Authorized Persons shall have
access to such books and records at all times during PFPC's
normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by PFPC to
the Fund or to an Authorized Person, at the Fund's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to the Fund's books of
account;
(ii) records of the Fund's securities transactions; and
(iii) all other books and records as the Fund is required to
maintain pursuant to Rule 31a-1 of the 1940 Act in
connection with the services of PFPC provided hereunder.
(c) Upon termination of this Agreement, PFPC in accordance with the
Fund's reasonable request, shall, in accordance with Written
Instructions, deliver a copy of the books and records pertaining
to the Fund, which are in the possession or under control of
PFPC, to the Fund or any other person designated by the Fund.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Fund and information relating to the Fund and its Members, unless the
release of such records or information is otherwise consented to, in
writing, by the Fund. The Fund agrees that such consent shall not be
unreasonably withheld. The Fund further agrees that, should PFPC be
required to provide such information or records to duly constituted
authorities (who may institute civil or criminal contempt proceedings
for failure to comply), PFPC shall not be required to seek the Fund's
consent prior to disclosing such information.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses,
fiscal year summaries, and other audit-related schedules as the Fund
or such accountants may reasonably request. PFPC shall take all
reasonable action in the performance of its duties under this
Agreement to ensure that the necessary information is made available
to such accountants for the expression of their opinion, as required
by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment
to the extent appropriate equipment is available. In the event of
equipment failures, PFPC shall, at no additional expense to the Fund,
take reasonable steps to minimize service interruptions. PFPC shall
have no liability with respect to the loss of data or service
interruptions caused by equipment failure, provided such loss or
interruption is not caused by PFPC's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties or
obligations under this Agreement.
11. RESERVED.
12. COMPENSATION. As compensation for services rendered by PFPC during the
term of this Agreement, the Fund will pay to PFPC a fee or fees as may
be agreed to in writing by the Fund and PFPC.
13. INDEMNIFICATION.
(a) The Fund agrees to indemnify and hold harmless PFPC and its
affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities
arising under the Securities Laws and any state or foreign
securities and Blue Sky laws, and amendments thereto), and
expenses, including, without, limitation reasonable attorneys'
fees and disbursements (collectively, "Losses") arising directly
or indirectly from any action which PFPC takes or does not take
(i) at the request or on the direction of or in reliance on the
advice of the Fund or (ii) upon Oral Instructions or Written
Instructions. Neither PFPC, nor any of its affiliates, shall be
indemnified against any liability (or any expenses incident to
such liability) arising out of PFPC's or its affiliates own
willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, the
Fund shall not be liable to PFPC or its affiliates for any
consequential, special or indirect losses or damages which PFPC
or its affiliates may incur or suffer, whether or not the
likelihood of such losses or damages was known by the Fund.
14. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Fund except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be
obligated to exercise care and diligence in the performance of
its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services
provided for under this Agreement. PFPC agrees to indemnify and
hold harmless the Fund from Losses arising out of PFPC's failure
to perform its duties under this Agreement to the extent such
damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for
losses beyond its control, provided that PFPC has acted in
accordance with the standard of care set forth above; and (ii)
PFPC shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PFPC
reasonably believes to be genuine; or (B) subject to Section 10
of this Agreement, delays or errors or loss of data occurring by
reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor
difficulties, fire, flood, catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Fund for
any consequential, special or indirect losses or damages which
the Fund may incur or suffer by or as a consequence of PFPC's or
any affiliates' performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was known
by PFPC or its affiliates.
15. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following accounting services:
(i) Journalize investment, capital and income and expense
activities;
(ii) Verify investment buy/sell trade tickets when received from
the Manager in accordance with PFPC's written procedures;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Record and reconcile corporate action activity and all other
capital changes with the Manager;
(vi) Reconcile cash and investment balances of the Fund with the
custodian, and provide the Manager with the beginning cash
balance available for investment purposes.
(vii) Update the cash availability throughout the day as required
by the Manager, including details of cash movements related
to securities and payment of Fund expenses;
(viii) Calculate contractual expenses (e.g. advisory and custody
fees) in accordance with the Fund's Confidential Memorandum;
(ix) Maintain expense budget for the Fund and notify an officer of
the Fund of any proposed adjustments;
(x) Control all disbursements and authorize such disbursements
from the Fund's account at the custodian upon Written
Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Determine applicable foreign exchange gains and losses on
payables and receivables;
(xiv) Interface with global custodian to monitor collection of tax
reclaims;
(xv) Obtain daily security market quotes from independent pricing
services approved by the Manager, or if such quotes are
unavailable, then obtain such prices from the Manager, and in
either case calculate the market value and the
appreciation/depreciation on the Fund's investments;
(xvi) Transmit or otherwise send a copy of the daily portfolio
valuation to the Manager;
(xvii) Compute net asset values monthly;
(xviii) Research and recommend portfolio accounting tax treatment for
unique security types; and
(xix) As appropriate, compute yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average
dollar-weighted maturity in accordance with applicable
regulations.
16. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. PFPC
will perform the following administration services:
(i) Prepare quarterly broker security transactions summaries
including principal and agency transactions and related
commissions;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Fund statistical data as
requested on an ongoing basis;
(iv) Provide to the extent contained in accounting records
materials required for board reporting as may be requested
from time to time;
(v) Prepare for execution and file the Fund's Federal Form 1065
and state tax returns;
(vi) Prepare and file the Fund's Annual and Semi-Annual Reports
with the SEC on Form N-SAR via EDGAR;
(vii) Prepare and coordinate the services of the Fund's printer for
the printing of and filing with the SEC via EDGAR the Fund's
annual and semi-annual shareholder reports;
(viii) Assist in the preparation of registration statements;
(ix) Transmit or otherwise send, to the extent practicable and
feasible, requested detailed information related to the
Members, including admission details, income, capital gains
and losses, and performance detail;
(x) Mail Fund offering materials to prospective investors; and
(xi) Mail quarterly reports of the Manager and Semi-Annual
Financial Statements to investors as well as any other
necessary correspondence.
17. DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following functions:
(i) Maintain the register of Members and enter on such register
all issues, transfers and repurchases of interests in the
Fund;
(ii) Arrange for the calculation of the issue and repurchase
prices of interests in the Fund in accordance with the
Limited Liability Company Agreement and the Fund's
Confidential Memorandum;
(iii) Allocate income, expenses, gains and losses to individual
Members' capital accounts in accordance with applicable tax
laws and with the Fund's Confidential Memorandum;
(iv) Calculate the Incentive Allocation in accordance with the
Fund's Confidential Memorandum and reallocate corresponding
amounts from the applicable Members' accounts to the
Manager's account;
(v) Prepare and mail annually to Members a Form K-1 in accordance
with applicable tax regulations; and
(vi) Mail tender offers to Members for purposes of executing
repurchases.
18. DURATION AND TERMINATION. This Agreement shall be effective on the
date first above written and shall continue in effect for an initial
period of two years. Thereafter, this Agreement, unless terminated,
shall continue automatically for successive terms of one (1) year.
This Agreement may be terminated by either party upon 60 days' prior
written notice to the other party.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed
to have been given immediately. If notice is sent by first-class mail,
it shall be deemed to have been given three days after it has been
mailed. If notice is sent by messenger, it shall be deemed to have
been given on the day it is delivered. Notices shall be addressed (a)
if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809, Attn:
Neal J. Andrews; (b) if to the Fund, at c/o PaineWebber Incorporated,
1285 Avenue of the Americas, New York, New York 10019, Attn: Mark D.
Goldstein, Esq.; or (c) if to neither of the foregoing, at such other
address as shall have been provided by like notice to the sender of
any such notice or other communication by the other party.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
21. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any affiliate (as defined in the 1940 Act) of or
any majority-owned direct or indirect subsidiary of PFPC Inc., or PNC
Bank Corp., provided that (i) PFPC gives the Fund (60) days' prior
written notice; (ii) the delegate (or assignee) agrees with PFPC and
the Fund to comply with all relevant provisions of the Securities
Laws, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by the
delegate (or assignee) hereunder; and (iii) PFPC and such delegate (or
assignee) promptly provide such information as the Fund may request,
and respond to such questions as the Fund may ask, relative to the
delegation (or assignment), including, without limitation, the
capabilities of the delegate (or assignee).
22. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
23. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof.
24. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction
or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution
hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
PFPC INC.
By:
---------------------------
Title:
---------------------------
PW HEALTH SCIENCES FUND, L.L.C.
By:
---------------------------
Title:
---------------------------
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
<PAGE>
EXHIBIT (k)(3)
ESCROW AGREEMENT
THIS AGREEMENT is made as of May 10, 2000, by and between PW HEALTH
SCIENCES FUND, L.L.C., a Delaware limited liability company (the "Fund"), PW
FUND ADVISOR, L.L.C. (the "Manager"), and PFPC INC., a Delaware corporation
which is an indirect subsidiary of PNC Bank Corp. (the "Escrow Agent").
WITNESSETH
WHEREAS, the Fund is registered as a closed-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Fund has retained PFPC Inc. to provide certain
administration, accounting and investor services pursuant to an Administration,
Accounting and Investor Services Agreement dated as of May 10, 2000; and
WHEREAS, the Fund desires that PFPC Inc. also provide services as
escrow agent, as described herein, and PFPC Inc. wishes to provide such
services.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. ACCEPTANCE BY ESCROW AGENT. The Escrow Agent hereby accepts the
appointment as escrow agent hereunder and agrees to act on the terms
and conditions hereinafter set forth.
2. RIGHTS AND RESPONSIBILITIES OF ESCROW AGENT. The acceptance by the
Escrow Agent of its duties hereunder is subject to the following terms
and conditions, which the parties to this Agreement hereby agree shall
govern and control the Escrow Agent's rights, duties, liabilities and
immunities.
(a) The Escrow Agent shall act hereunder as a depositary only, and in
its capacity as such, it shall not be responsible or liable in
any manner whatever for the sufficiency, correctness, genuineness
or validity of any document furnished to the Escrow Agent or any
asset deposited with it.
(b) "Written Instructions" mean written instructions received by the
Escrow Agent and signed by the Manager or any other person duly
authorized by the Manager, or by the Fund's Board (as defined
under the Fund's limited liability company agreement (the
"Limited Liability Company Agreement"), to give such instructions
on behalf of the Fund. The instructions may be delivered by hand,
mail, facsimile, cable, telex or telegram; except that any
instruction terminating this Agreement may be given only by hand
or mail. The Fund shall file from time to time with the Escrow
Agent a certified copy certified by the Manager of each
resolution of its Board authorizing the person or persons to give
Written Instructions. Such resolution shall include certified
signatures of such persons authorized to give Written
Instructions. This shall constitute conclusive evidence of the
authority of the signatories designated therein to act. Such
resolution shall be considered in full force and effect with the
Escrow Agent fully protected in acting in reliance thereon unless
and until it receives written notice from the Manager or the
Board to the contrary.
The Escrow Agent may rely upon and shall be protected for any
action or omission it takes pursuant to Written Instructions if
it, in good faith, believes such Written Instructions to be
genuine. Unless otherwise provided in this Agreement, the Escrow
Agent shall act only upon Written Instructions. The Escrow Agent
shall be entitled to assume that any Written Instruction received
hereunder is not in any way inconsistent with the provisions of
the Limited Liability Company Agreement or this Agreement or of
any vote, resolution or proceeding of the Board, or of the Fund's
members, unless and until the Escrow Agent receives Written
Instructions to the contrary.
(c) The Escrow Agent shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in
good faith and to use its best efforts, within reasonable limits,
in performing services provided for under this Agreement. The
Escrow Agent shall be liable for any damages arising out of its
failure to perform its duties under this Agreement to the extent
such damages arise out of its willful misfeasance, bad faith,
gross negligence or reckless disregard of such duties.
(d) Notwithstanding anything in this Agreement to the contrary,
neither the Escrow Agent nor its affiliates shall be liable to
the Fund or the Manager for any consequential, special or
indirect losses or damages which the Fund may incur or suffer by
or as a consequence of the Escrow Agent's or its affiliates'
performance of the services provided hereunder, whether or not
the likelihood of such losses or damages was known by the Escrow
Agent or its affiliates.
(e) Without limiting the generality of the foregoing or of any other
provision of this Agreement, the Escrow Agent shall not be liable
for losses beyond its control, provided it has acted in
accordance with the standard of care set forth above; and the
Escrow Agent shall not be liable for delays or errors or loss of
data occurring by reason of circumstances beyond its control,
including acts of civil or military authority, national
emergencies, labor difficulties, fire, flood, catastrophe, acts
of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(f) The Fund agrees to indemnify the Escrow Agent and hold it
harmless from and against any tax, charge, loss, liability,
expense (including reasonable attorneys fees and expenses), claim
or demand arising directly or indirectly from any action or
omission to act which the Escrow Agent takes (i) at the request
or on the direction of or in reliance on the advice of the Fund
or (ii) upon Written Instructions; provided, however, that
neither the Escrow Agent, nor any of its affiliates, shall be
indemnified against any liability (or any expenses incident to
such liability) arising out of the Escrow Agent's or its
affiliates own willful misfeasance, bad faith, gross negligence
or reckless disregard of its duties and obligations under this
Agreement. The Fund shall indemnify and hold harmless the Escrow
Agent against and in respect of any liability for taxes and for
any penalties or interest in respect of taxes attributable to the
investment of funds held in escrow by the Escrow Agent pursuant
to this Agreement. Notwithstanding anything in this Agreement to
the contrary, the Fund shall not be liable to the Escrow Agent
for any consequential, special or indirect losses or damages
which the Escrow Agent may incur or suffer, whether or not the
likelihood of such losses or damages was known by the Fund. These
indemnities shall survive the resignation of the Escrow Agent or
the termination of this Agreement.
(g) The Escrow Agent shall have no duties except those specifically
set forth in this Agreement.
(h) The Escrow Agent shall have the right at any time it deems
appropriate to seek an adjudication in a court of competent
jurisdiction as to the respective rights of the parties hereto
and shall not be held liable by any party hereto for any delay or
the consequences of any delay occasioned by such resort to court.
(i) The Escrow Agent shall notify promptly the Manager of any
discrepancy between the amounts set forth on any remittance
advice received by Escrow Agent and the sums delivered to it
therewith.
3. DEFINITIONS. Except as specifically set forth herein, the terms used
in this Agreement shall have the same meaning as set forth in the
Administration, Accounting and Investor Services Agreement among the
parties.
4. DEPOSIT OF ESCROW FUND. The Escrow Agent shall establish an account in
the name of PW Health Sciences Fund, L.L.C., Escrow Account for the
Benefit of Investors (the "Subscription Account") and an account in
the name of PW Health Sciences Fund, L.L.C. Repurchase Account (the
"Repurchase Account") and, together with the Subscription Account, the
"Accounts"). The Escrow Agent shall promptly deposit in the
Subscription Account checks remitted by Potential Investors and made
payable to PW Health Sciences Fund, L.L.C. Potential Investors also
may deposit monies in the Subscription Account by wire transfer
pursuant to instructions provided to them by the Fund or by amounts
wire transferred from brokerage accounts at PaineWebber Incorporated.
Balances on deposit in the Subscription Account will earn interest at
prevailing market rates pursuant to arrangements approved by the Fund.
5. STATEMENTS. During the term of this Agreement, the Escrow Agent shall
provide the Fund with (a) monthly statements containing the beginning
balance in each Account as well as all principal and income
transactions for the statement period and (b) a daily summary of
amounts deposited and the status of available funds. The Fund shall be
responsible for reconciling such statements. The Escrow Agent shall be
forever released and discharged from all liability with respect to the
accuracy of such statements, except with respect to any such act or
transaction as to which the Fund shall, within 90 days after the
furnishing of the statement, file written objections with the Escrow
Agent.
6. DISTRIBUTIONS AND CLOSINGS. Upon Written Instructions, at each closing
of each offering of interests in the Fund, the Escrow Agent will wire
principal balances on deposit in the Subscription Account to the
account designated by the Fund. Such Written Instructions shall be
sent to the Escrow Agent by 2:00 p.m. on the closing date with respect
to each closing. In the event that a Potential Investor who has escrow
funds in the Subscription Account is not admitted into the Fund, upon
Written Instructions, the Escrow Agent shall promptly issue refunds to
the Potential Investor in the amount of the principal balance with
accrued interest. Such refunds shall be made in check form or by wire
transfer to the brokerage account of the Potential Investor at
PaineWebber Incorporated.
7. INTEREST. All interest earned on the escrow funds deposited in the
Accounts hereunder shall be added to and held in the Accounts. With
respect to each closing, pursuant to Written Instructions, within 5
business days the Escrow Agent shall issue interest payments in check
form to each Potential Investor based on his or her individual balance
in the Subscription Account along with a cover letter and to the
Manager based upon its balance in the Subscription Account along with
a cover letter. The Escrow Agent will prepare and send notifications
on Form 1099 for each calendar year.
8. REPURCHASES. The Fund from time to time may wire balances to the
Repurchase Account in connection with periodic repurchases of
interests by the Fund from its members. Upon Written Instructions, the
Escrow Agent shall issue promptly repurchase payments from the
Repurchase Account in check form to the repurchasing member or to the
Manager, as the case may be. Upon Written Instructions, the Escrow
Agent will withhold specified amounts from repurchasing members. Any
interest earned thereon will be credited to the accounts of the Fund.
9. TAX IDENTIFICATION NUMBER. All deposits to the Accounts shall be
subject to the Escrow Agent's receipt of a valid tax identification
number for the Fund, Manager or Potential Investor, as applicable.
10. COMPENSATION. The fee of the Escrow Agent for its services hereunder
shall be paid by the Fund as may be mutually agreed to in writing by
the Fund and Escrow Agent. Notwithstanding the foregoing, standard
account transaction charges will be billed to the Fund as an
out-of-pocket expense.
11. AMENDMENT. This Agreement may not be amended or supplemented, and no
provision hereof may be modified or waived, except by an instrument in
writing, signed by all of the parties hereto.
12. TERMINATION. This Agreement shall continue until terminated by either
party on 60 days prior written notice. Upon the termination of this
Agreement and upon the delivery of the balance of the Accounts to a
successor escrow agent or such other person as may be designated by
Written Instructions, the Escrow Agent shall be released and
discharged of any and all further obligations hereunder.
If no successor Escrow Agent has been designated pursuant to Written
Instructions to receive the balance of the Accounts at the expiration
of the 60-day period, the Escrow Agent shall have no further
obligation hereunder except to hold the escrow funds as a depositary.
Upon written notification by the Fund of the appointment of the
successor, the Escrow Agent shall promptly deliver the balance of the
Accounts to such successor, and the duties of the resigning Escrow
Agent shall thereupon in all respects terminate, and it shall be
released and discharged of any and all further obligations hereunder.
13. EXECUTION. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but such counterparts
together shall constitute one and the same instrument.
14. MISCELLANEOUS. All covenants and agreements contained in this
Agreement by or on behalf of the parties hereto shall bind and inure
to the benefit of such parties and their respective heirs,
administrators, legal representatives, successors and assigns, as the
case may be. The headings in this Agreement are for convenience of
reference only and shall neither be considered as part of this
Agreement, nor limit or otherwise affect the meaning thereof. This
Agreement shall be construed and enforced in accordance with the laws
of Delaware without regard to principles of conflicts of law.
15. NOTICES. All instructions, notices and other communications hereunder
must be in writing and shall be deemed to have been duly given if
delivered by hand or facsimile or mailed by first class, registered
mail, return receipt requested, postage prepaid, and addressed as
follows:
(a) If to the Fund:
PW Health Sciences Fund, L.L.C.
c/o PaineWebber Incorporated
Attn: Mark D. Goldstein, Esq.
1285 Avenue of the Americas
New York, New York 10019
(b) If to the Escrow Agent:
PFPC Inc.
Attn: Neal Andrews
400 Bellevue Parkway
Wilmington, DE 19809
16. PARTIAL INVALIDITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
17. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding among the parties and supersedes all prior agreements
and understandings relating to the subject matter hereof; provided
that, the parties may embody in one or more separate documents their
agreement, if any, with respect to delegated duties and instructions.
<PAGE>
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PW HEALTH SCIENCES FUND, L.L.C.
By: ________________________________
Name: _____________________________
Title: ______________________________
PW FUND ADVISOR, L.L.C.
By: ________________________________
Name: _____________________________
Title: ______________________________
PFPC INC.
By: _______________________________
Name: _____________________________
Title: ______________________________
