SECURITIES ACT FILE NO. 333-45166
INVESTMENT COMPANY ACT FILE NO. 811-10113
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
PRE-EFFECTIVE AMENDMENT NO. 1 |X|
POST-EFFECTIVE AMENDMENT NO. |_|
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. __ | |
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PW JUNIPER CROSSOVER FUND, L.L.C.
(Exact Name of Registrant as Specified in its 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) 713-9036
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
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box |_|
It is proposed that this filing will become effective when declared effective
pursuant to Section 8(c).
If appropriate, check the following box:
|_| This [post-effective] amendment designates a new effective date
for a previously filed [post-effective amendment] [registration statement].
|_| This form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is - ______.
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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TITLE OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED AGGREGATE OFFERING AMOUNT REGISTRATION FEE
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<S> <C> <C>
Limited Liability Company Interests $275,000,000 $72,600*
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The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. NO
PERSON MAY SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion, Dated October 19, 2000
PROSPECTUS
PW JUNIPER CROSSOVER FUND
Limited Liability Company Interests
INVESTMENT OBJECTIVE. PW Juniper Crossover Fund, L.L.C. (the "Fund")
is a newly formed limited liability company registered under the Investment
Company Act of 1940 as a non-diversified, closed-end management investment
company. The Fund's investment objective is to seek long-term capital
appreciation. (continued on following page)
Investing in the Fund's limited liability company interests (the
"Interests") involves a high degree of risk. See "RISK FACTORS" beginning on
page 20.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
_____________________
Total
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Offering Amount................................. $250,000,000(1)
Sales Load (2).................................. $7,500,000
Proceeds to the Fund............................ $242,500,000
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(1) The Fund has registered for sale an additional $25,000,000 of Interests. If
the entire $275,000,000 of Interests are sold, the aggregate Sales Load
would be $8,250,000 and aggregate Proceeds to the Fund would be
$266,750,000.
(2) The minimum investment in the Fund is $25,000. Investments of less than
$500,000 will be subject to a sales load of 3%; investments of $500,000 or
more, but less than $1.0 million, will be subject to a sales load of 2%;
and investments of $1.0 million or more will be subject to a sales load of
1%. No sales load will be charged to the types of investors listed under
"Plan of Distribution."
PaineWebber Incorporated ("PaineWebber") acts as the distributor of the Fund's
Interests on a best efforts basis, subject to various conditions. The Fund also
may distribute Interests through other brokers or dealers. The Fund will sell
Interests only to Qualified Investors (as defined herein). PaineWebber expects
to deliver the Interests to investors on or about November __, 2000, or such
earlier or later date as PaineWebber may determine. The Fund will pay
organizational and offering expenses estimated at $500,000 from the proceeds of
the offering. The Fund will pay a shareholder servicing fee to PaineWebber and
to other brokers or dealers that have entered into shareholder servicing
agreements with the Fund at the annual rate of 0.40% of the outstanding
Interests owned by their customers. PaineWebber or its affiliates may pay from
their own resources additional compensation to brokers or dealers in connection
with the sale and distribution of the Interests or servicing of investors. See
"Plan of Distribution."
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PaineWebber Incorporated
October ___, 2000
<PAGE>
(continued from previous page)
INVESTMENT PORTFOLIO. The Fund will invest primarily in equity and
equity-related securities of public and private health sciences companies
worldwide, with an emphasis on companies in the biotechnology and
pharmaceuticals sectors. The Fund may invest in securities of both established
and emerging companies, the securities of which may be denominated in foreign
currencies. The Fund will invest in publicly marketable securities ("public
securities") and up to 30% of its assets (measured at the time of purchase) in
non-marketable securities ("private securities") (substantially all of which are
expected to be in biotechnology companies), although the percentage of private
securities may increase (and the percentage of public securities may decrease)
as public securities are sold or if private securities increase in value.
Private securities typically will be purchased in negotiated transactions and
will include, among others, common stock, so-called P.I.P.E.s (private
investments in public equities), convertible preferred stock, convertible
preferred debt, bridge loans with certain equity components and warrants. The
companies issuing private securities will include developmental stage companies,
some of which previously may not have sold securities to the public. The
companies whose private securities may be purchased are referred to in this
prospectus as "Portfolio Companies." To fully realize the anticipated value of
the private securities, the Fund will be dependent upon an exit strategy which
may include a public offering by, or merger or sale of, one or more Portfolio
Companies, the successful completion of which cannot be assured.
INVESTMENT ADVISER. The Fund's investment adviser is PW Juniper
Management, L.L.C. (the "Adviser"), which is a newly created joint venture
between PW Fund Advisor, L.L.C. ("PWFA") and OrbiMed Advisors Inc. ("OrbiMed").
RESTRICTIONS ON TRANSFER. With very limited exceptions, Interests are
not transferable and liquidity will be provided only through limited semi-annual
repurchase offers, which will be made in the Board's sole discretion. See
"Redemptions, Repurchases of Interests and Transfers."
REPURCHASE OF INTERESTS. To provide a limited degree of liquidity to
investors, the Fund from time to time may offer to repurchase up to 10% of its
outstanding 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 Adviser expects that it
will recommend to the Board that the Fund offer to repurchase from investors in
September 2001 and, thereafter, twice each year, in March and September. The
Fund's Limited Liability Company Agreement (the "LLC Agreement") provides that
the Fund will be dissolved if it has not commenced a tender offer for at least
10% of its outstanding Interests within a period of two years after an investor
requests that the Fund do so. See "Redemptions, Repurchases of Interests and
Transfers--Repurchases of Interests."
PWFA FEE AND INCENTIVE ALLOCATION. The Fund will pay PWFA a monthly
fee (the "PWFA Fee") at an annual rate of 1.35% of the Fund's net assets for the
month, excluding assets attributable to PWFA's capital account, the Adviser's
capital account and the Special Advisory Account (defined herein). The Adviser
also is entitled to receive from the capital account of each investor an annual
incentive allocation of 20% of the net profits that otherwise would be credited
to the investor's capital account (the "Incentive Allocation"). For purposes of
calculating the Incentive Allocation, net profits will be determined by taking
into account net realized gain or loss and the net change in unrealized
appreciation or depreciation of securities positions, provided that, except in
limited circumstances (namely upon a tender or transfer of Interests), any
unrealized appreciation in private securities will be taken into account only to
the extent of unrealized depreciation in private securities. The Incentive
Allocation will be made only with respect to net profits that exceed any net
losses previously debited to the account of an investor which have not been
offset by any net profits subsequently credited to the account of such investor.
This is sometimes known as a "high water mark" calculation. The Incentive
Allocation structure presents risks that are not present in funds without an
incentive allocation. The overall amounts payable by the Fund and its investors
will be higher than those paid by most other registered investment companies,
but generally similar to those paid by many private hedge funds with similar
investment policies. See "Management of the Fund--Incentive Allocation."
SHAREHOLDER SERVICING FEE. The Fund will pay a shareholder servicing
fee to PaineWebber Incorporated ("PaineWebber") and to other brokers or dealers
that have entered into shareholder servicing agreements with the Fund at the
annual rate of 0.40% of the outstanding Interests owned by their customers.
INVESTOR QUALIFICATIONS. Interests are offered only to investors who
have a net worth (with their spouses) of more than $1,500,000 or who otherwise
meet the standard for a Qualified Investor. The minimum investment is $25,000.
See "Investor Qualifications."
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This prospectus concisely provides the information that a prospective
investor should know about the Fund before investing. You are advised to read
this prospectus carefully and to retain it for future reference. Additional
information about the Fund, including a statement of additional information
("SAI") dated October ___, 2000, has been filed with the Securities and Exchange
Commission. The SAI is available upon request and without charge by writing the
Fund at the address above or by calling (800) 486-2608. The SAI is incorporated
by reference into this prospectus in its entirety. The table of contents of the
SAI appears on page 48 of this prospectus. The SAI, and other information about
the Fund, is also available on the SEC's website (http://www.sec.gov). The
address of the SEC's Internet site is provided solely for the information of
prospective investors and is not intended to be an active link.
Interests are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
You should rely only on the information contained in this prospectus.
The Fund has not authorized anyone to provide you with different information.
The Fund is not making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary............................................................7
Summary of Fund Expenses.....................................................20
Risk Factors.................................................................21
Use of Proceeds..............................................................30
Investment Objective and Principal Strategies................................30
Management of the Fund.......................................................35
Investor Qualifications......................................................39
Redemptions, Repurchases of Interests and Transfers..........................39
Calculation of Net Asset Value...............................................42
Capital Accounts.............................................................43
Taxes........................................................................46
Plan of Distribution.........................................................47
General Information..........................................................48
Table of Contents............................................................49
Appendix A--Limited Liability Company Agreement..............................A-1
Appendix B--Investor Certification...........................................B-1
Appendix C--Investment Record................................................C-1
<PAGE>
PROSPECTUS SUMMARY
This is only a summary. This summary may not contain all of the
information that you should consider before investing in the Fund. You should
review the more detailed information contained in this prospectus and in the
Statement of Additional Information (the "SAI").
The Fund............................. PW Juniper Crossover Fund, L.L.C. (the
"Fund") is a newly formed limited
liability company organized as a
non-diversified, closed-end management
investment company registered under the
Investment Company Act of 1940 (the
"Investment Company Act"). The Fund's
investment adviser is PW Juniper
Management, L.L.C. (the "Adviser"). See
"General Information."
Investment Objective
and Principal Strategies........... The Fund's investment objective is to
seek long-term capital appreciation. The
Fund will invest primarily in equity and
equity-related securities of public and
private health sciences companies
worldwide, with an emphasis on companies
in the biotechnology and pharmaceuticals
sectors. Health sciences companies
include those companies principally
engaged in the development, production
or distribution of products or services
related to scientific advances in health
care, including biotechnology,
diagnostics, managed health care,
medical equipment and supplies, and
pharmaceuticals. At the time of
investment, 50% or more of the company's
sales, earnings or assets will be or
will be expected to be derived from or
dedicated to health science. The Fund
may invest in securities of both
established and emerging companies, the
securities of which may be denominated
in foreign currencies. The Fund will
invest in publicly marketable securities
("public securities") and up to 30% of
its assets (measured at the time of
purchase) in non-marketable securities
("private securities").
The Fund may invest in public securities
of issuers of any capitalization. Of its
public securities, the Fund expects to
invest principally in the public
securities of large capitalization
public companies and, to a lesser
extent, small and medium-sized public
companies, that is, those with market
capitalizations that do not exceed $5
billion. The common stock of these
companies may trade over-the-counter, on
the Nasdaq SmallCap Market, the Nasdaq
National Market, the New York Stock
Exchange, the American Stock Exchange or
on other markets. Many of these
companies only recently may have become
public companies, and may have a
relatively small proportion of their
outstanding common stock publicly
traded. The Fund may invest up to 60% of
its assets in the securities of foreign
issuers, including those in emerging
markets.
Private securities typically will be
purchased in negotiated transactions and
will include, among others, common
stock, so-called P.I.P.E.s (private
investments in public equities),
convertible preferred stock, convertible
preferred debt, bridge loans with
certain equity components and warrants.
Substantially all of the companies
issuing private securities are expected
to be biotechnology companies; these
companies will include developmental
stage companies, some of which
previously may not have sold securities
to the public. The companies whose
private securities may be purchased are
referred to in this prospectus as
"Portfolio Companies."
The Fund's investments in Portfolio
Companies typically will be between $1
and $10 million in size, depending on a
variety of factors including anticipated
risk and return and likelihood of
follow-on investments. When analyzing
companies, the Adviser will focus on
opportunities similar to these:
o private companies that the Adviser
believes have achievable near-term
goals and may complete an initial
public offering ("IPO") or elicit
interest as an acquisition target
within a few years after investment
o public companies that the Adviser
believes need to be restructured
and refinanced, including companies
that have failed late stage
clinical trial and need capital to
redesign the trial or to advance
another product
o merger and acquisition funding
where the Adviser believes that
there are several unrelated
publicly traded companies with
valuable technologies that are not
adequate to support an entire
company, but which the Adviser
believes can be combined
effectively
o spinouts of large biotechnology or
pharmaceutical companies
o strategies where biotechnology
companies license multiple products
and intellectual property within a
particular disease area and then
focus on development of the
acquired product line
o research and development limited
partnerships, where the Adviser
believes the technology is
sufficiently promising
Private securities are expected to
constitute a significant portion of the
Fund's total assets over time. Private
securities may exceed 30% of the value
of the Fund's net assets as the result
of the Fund's sale of public securities,
the depreciation of public securities,
the possible appreciation of private
securities, or the Fund's repurchase of
Interests. To fully realize the
anticipated value of the private
securities, the Fund will be dependent
upon an exit strategy which may include
a public offering by, or merger or sale
of, one or more Portfolio Companies, the
successful completion of which cannot be
assured. See "Investment Objective and
Principal Strategies."
The Adviser.......................... The Adviser is a newly created joint
venture between PW Fund Advisor, L.L.C.
("PWFA") and OrbiMed Advisors Inc.
("OrbiMed"). A team of investment
professionals employed by OrbiMed will
manage the Fund's investment portfolio
on behalf of the Adviser under the
oversight of PWFA's personnel.
The Fund has entered into an investment
advisory agreement (the "Investment
Advisory Agreement") with the Adviser
which is effective for an initial term
expiring October 11, 2002, which may be
continued in effect from year to year
thereafter if its continuation is
approved annually by the Board. The
Board may terminate the Investment
Advisory Agreement on 60 days' prior
written notice to the Adviser.
OrbiMed, a registered investment adviser
under the Investment Advisers Act of
1940, as amended (the "Advisers Act"),
is controlled by Samuel D. Isaly, its
President. As of September 30, 2000,
OrbiMed and its affiliates managed
assets of approximately $2 billion.
The Fund's portfolio will be managed by
a team of investment professionals
employed by OrbiMed who have substantial
experience in investing in the
biotechnology and pharmaceutical
sectors. See "Appendix C --Investment
Record". PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE.
PWFA is an indirect, wholly-owned
subsidiary of Paine Webber Group Inc.
("PW Group"), and is registered as an
investment adviser under the Advisers
Act. On July 12, 2000, PW Group and UBS
AG ("UBS") announced that they had
entered into an agreement and plan of
merger pursuant to which PW Group will
merge into a wholly-owned subsidiary of
UBS. If all required approvals and
conditions of the agreement are obtained
and satisfied, PW Group and UBS expect
to complete the transaction in the
fourth quarter of 2000. UBS, with
headquarters in Zurich, Switzerland, is
an internationally diversified
organization with operations in many
areas of the financial services
industry.
PWFA and its affiliates provide
investment advisory services to
registered investment companies, private
investment funds and individual
accounts, and, as of September 30, 2000
had approximately $490 billion of assets
under control and $75.9 billion of
assets under management.
PWFA Fee.............................. PWFA provides certain administrative
services to the Fund, including, among
other things, providing office space and
other support services to the Fund. In
consideration for such services, the
Fund will pay PWFA a monthly fee (the
"PWFA Fee") at the annual rate of 1.35%
of the Fund's net assets for the month,
excluding assets attributable to PWFA's
capital account, the Adviser's capital
account and the Special Advisory Account
(defined below). The PWFA Fee will be
paid to PWFA out of the Fund's assets,
and debited against the investors'
capital accounts. A portion of the PWFA
Fee will be paid by PWFA to OrbiMed.
Incentive Allocation................. Generally on December 31st each year,
commencing in 2001, an amount equal to
20% of the net profits, if any, that
would otherwise be credited to an
investor's capital account for the
period instead will be credited to the
account of the Adviser. This Incentive
Allocation will be made only with
respect to net profits that exceed any
net losses previously debited to the
account of the investor which have not
been offset by any net profits
subsequently credited to the investor's
account. This is sometimes known as a
"high water mark" calculation.
For purposes of calculating the
Incentive Allocation, net profits will
be determined by taking into account net
realized gain or loss and the net change
in unrealized appreciation or
depreciation of securities positions,
provided that, except in limited
circumstances (namely upon a tender or
transfer of Interests), any unrealized
appreciation in private securities will
be taken into account only to the extent
of unrealized depreciation in private
securities. Any unrealized appreciation
in private securities will be taken into
account for purposes of calculating the
Fund's net asset value for additional
sales and repurchases of Interests and
determining the amount of the PWFA Fee
and shareholder servicing fee payable
and the Incentive Allocation to which
the Adviser is entitled when an
investor's Interests are repurchased or
transferred.
The Adviser holds a non-voting Special
Advisory Member interest (the "Special
Advisory Account") in the Fund solely
for the purpose of receiving the
Incentive Allocation with respect to
each investor. The Adviser may withdraw
any Incentive Allocation credited to its
Special Advisory Account at any time
through the last business day of the
month following the date on which an
Incentive Allocation was made.
Investors who tender or transfer their
Interests will be subject to an
Incentive Allocation at the time the
Fund repurchases their Interests or at
the time of transfer. In these
instances, the Incentive Allocation will
be calculated taking into account all
unrealized appreciation on private
securities and will be adjusted
appropriately in the case of partial
redemptions.
The Incentive Allocation structure
presents certain risks that are not
present in funds without an incentive
allocation. The overall amounts payable
by the Fund and its investors will be
higher than those paid by most other
registered investment companies, but
generally similar to those paid by many
private hedge funds with similar
investment policies. See "Management of
the Fund--Incentive Allocation."
Shareholder Servicing Fee............ The Fund will pay a shareholder
servicing fee to PaineWebber
Incorporated ("PaineWebber") and to
other brokers or dealers that have
entered into shareholder servicing
agreements with the Fund at the annual
rate of 0.40% of the outstanding
Interests owned by their customers.
Borrowing............................ The Fund is authorized to borrow money
to meet repurchase requests and for cash
management purposes. While borrowings
are outstanding for these purposes, the
Fund will be permitted to reinvest the
proceeds of the sale of securities or
new sales of Interests. If the Fund
borrows to finance repurchases of
Interests, the interest expense on that
borrowing will negatively affect
investors who do not tender their
Interests into a repurchase offer by
increasing the Fund's expenses and
reducing any net investment income.
The Fund will not borrow money until the
proceeds of the offering are
substantially invested in furtherance of
the Fund's investment objective. The
Fund is not permitted to borrow if,
immediately after such borrowing, it
would have an asset coverage (as defined
in the Investment Company Act) of less
than 300%. See "Risk Factors - Leverage;
Borrowing" and "Investment Objective and
Principal Strategies - Borrowing; use of
leverage."
Special Investment Techniques........ The Fund may use derivative instruments
to hedge portfolio risks, for cash
management purposes and for non-hedging
purposes in pursuit of its investment
objective. The derivatives employed may
relate to a specific security or to the
Fund's portfolio as a whole.
The Fund may sell securities short, lend
portfolio securities and enter into
foreign currency transactions, each in
pursuit of its investment objective.
Investor Qualifications.............. Interests will be sold only to investors
who have a net worth of more than
$1,500,000 (with their spouses) or who
otherwise meet the requirements for a
"qualified client" as defined in Rule
205-3 under the Advisers Act ("Qualified
Investors"). Before you may invest in
the Fund, your financial advisor or
sales representative will require a
certification from you that you are a
Qualified Investor and that you will not
transfer your Interests except in the
limited circumstances permitted in the
Fund's limited liability company
agreement (the "LLC Agreement"). (The
form of investor certification that you
will be asked to sign is attached to
this prospectus as Appendix B.) If your
investor certification is not received
and accepted by the Distributor by the
Initial Closing Date (defined below),
your order will not be accepted. If you
attempt to transfer your Interests in
violation of the LLC Agreement, the
transfer will not be permitted and will
be void. See "Investor Qualifications."
Investor Suitability................. AN INVESTMENT IN THE FUND INVOLVES A
CONSIDERABLE AMOUNT OF RISK. Because it
is possible that you may lose some or
all of your investment, you should not
invest in the Fund unless you can afford
a total loss of your investment. Before
making your investment decision, you
should (i) consider the suitability of
this investment with respect to your
investment objectives and personal
situation and (ii) consider factors such
as your personal net worth, income, age,
risk tolerance and liquidity needs.
The Offering......................... The Fund is offering $250,000,000 in
Interests through PaineWebber, the
Fund's distributor and other brokers or
dealers. See "Plan of Distribution."
PaineWebber may accept orders for any
lesser amount. PaineWebber or its
affiliates may pay from their own
resources additional compensation to
brokers or dealers in connection with
the sale and distribution of the
Interests or servicing of investors.
PaineWebber expects to deliver the
Interests to investors on or about
November __, 2000 (the "Initial Closing
Date"), or such earlier or later date as
PaineWebber may determine. Pending the
Initial Closing Date and prior to the
receipt of the investor certification,
investor funds will be held in escrow.
Distribution Policy.................. The Fund has no present intention of
making periodic distributions of its net
income or gains, if any, to investors.
The amount and times of distributions,
if any, will be determined in the sole
discretion of the Board. Whether or not
r distributions are made, investors will
be required each year to pay applicable
federal and state income taxes on their
allocable share of the Fund's taxable
income, and will have to pay these taxes
from sources other than Fund
distributions. See "Risk
Factors--Distributions to investors and
payment of tax liability."
Unlisted Closed-End Structure;
Limited Liquidity and
Transfer Restrictions............. The Fund has been organized as a
closed-end management investment
company. Closed-end funds differ from
open-end management investment companies
(commonly known as mutual funds) in that
investors in a closed-end fund do not
have the right to redeem their Interests
on a daily basis. To meet daily
redemption requests, mutual funds are
subject to more stringent regulatory
limitations than closed-end funds. In
particular, a mutual fund generally may
not invest more than 15% of its assets
in illiquid securities. The Fund
believes that unique investment
opportunities exist in the market for
private investments in the health
sciences sector. However, these
investments are often illiquid, and an
open-end fund's ability to make illiquid
investments is limited. For this reason,
the Fund is organized as a closed-end
fund.
You will not be able to redeem your
Interests on a daily basis because the
Fund is a closed-end fund. In addition,
with very limited exceptions, the Fund's
Interests are not transferable and
liquidity will be provided only through
limited repurchase offers described
below. An investment in the Fund is
suitable only for investors who can bear
the risks associated with the limited
liquidity of the Interests and should be
viewed as a long-term investment. See
"Risk Factors--Limited liquidity."
Repurchase of Interests.............. No investor will have the right to
require the Fund to redeem the
investor's Interest in the Fund. The
Fund from time to time may offer to
repurchase up to 10% of its outstanding
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
Adviser expects that it will recommend
to the Board that the Fund offer to
repurchase Interests from investors in
September 2001 and, thereafter, twice
each year, in March and September. If a
repurchase offer is oversubscribed by
investors, the Fund will repurchase only
a pro rata portion of the Interests
tendered by each investor. In addition,
the Fund may repurchase all or part of
an Interest if, among other reasons, the
Adviser determines that it would be in
the best interests of the Fund to do so.
See "Redemptions, Repurchases of
Interests and Transfers--No right of
redemption or transfer" and
"--Repurchases of Interests."
The LLC Agreement provides that the Fund
will be dissolved if it has not
commenced a tender offer for at least
10% of its outstanding Interests within
a period of two years after an investor
requests that the Fund do so. (The LLC
Agreement is attached hereto as Appendix
A.)
Taxation............................. Most closed-end investment companies
elect to be taxed as registered
investment companies under the Internal
Revenue Code of 1986, as amended (the
"Code"). The Fund will not make this
election and instead will seek to be
treated as a partnership for Federal
income tax purposes. 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, 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 "Risk Factors--Tax risk"
below.
ERISA Plans And Other
Tax-Exempt Entities.................. Investors subject to the Employee
Retirement Income Security Act of 1974,
as amended ("ERISA"), and other
tax-exempt entities, including employee
benefit plans, Individual Retirement
Accounts and 401(k) and Keogh Plans, 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 Code. Because the Fund
may use leverage, a tax-exempt investor
may incur income tax liability to the
extent the Fund's transactions are
treated as giving rise to unrelated
business taxable income. Charitable
remainder trusts may not purchase
Interests.
Risk Factors......................... An investment in the Fund involves a
high degree of risk. These include the
risks of:
o loss of capital
o investing in a fund that has no
operating history and that must
compete for a potentially limited
number of desirable investments
o investing in developing companies
o investing in securities that are
illiquid and volatile
o investing in illiquid shares of an
unlisted closed-end fund
o investing in the health sciences
and related industries, whose
companies may be subject to a high
degree of government regulation,
making these companies susceptible
to changes in government policy and
failures to secure, or
unanticipated delays in securing,
regulatory approvals
o concentrating in a small number of
industry sectors and maintaining a
"non-diversified" portfolio
o investing in small companies
o investing in securities of non-U.S.
issuers, including those located in
developing countries
o investing in a fund that may sell
securities short
o investing in a fund that uses
derivatives for hedging and
non-hedging purposes
o investing in a fund that does not
make periodic distributions;
investors will be required to pay
applicable taxes on their
respective share of the Fund's
taxable income
o investing in a fund that seeks to
be treated for tax purposes as a
partnership, but could be taxable
as a corporation, thus subjecting
its distributions to two levels of
taxation
o investing in a fund that has an
Adviser who has conflicts of
interests
o investing in a fund that will bear
an incentive allocation
o investing in a fund many of whose
assets will be priced in the
absence of a readily available
market and may be priced based on
estimates of fair value, which may
prove to be inaccurate; these
valuations will be used to
calculate the incentive allocation,
fees payable to the Adviser, the
shareholder servicing fee and the
price at which repurchases are made
o investing in a fund where the
proceeds necessary to fund
repurchases may need to be
borrowed, thus increasing the
volatility of the Fund's net asset
value for non-tendering investors
ACCORDINGLY, THE FUND SHOULD BE
CONSIDERED A SPECULATIVE INVESTMENT, AND
YOU SHOULD INVEST IN THE FUND ONLY IF
YOU CAN SUSTAIN A COMPLETE LOSS OF YOUR
INVESTMENT.
See "Risk Factors."
<PAGE>
SUMMARY OF FUND EXPENSES
The following table illustrates the expenses and fees that the Fund
expects to incur and that investors can expect to bear.
<TABLE>
<CAPTION>
<S> <C>
Investor Transaction Expenses
Sales load(1) (percentage of purchase amount)............... 3.00%
Maximum redemption fee...................................... none
Annual Expenses (except for any interest expense,
as a percentage of net assets attributable to Interests)
PWFA Fee................................................... 1.35%
Incentive Allocation....................................... 20% of net profits(2)
Shareholder servicing fees................................. 0.40%
Other expenses............................................. 0.30%
-----
Total annual expenses (other than incentive allocation
and interest expense)...................................... 2.05%
=====
--------
</TABLE>
(1) Investments of less than $500,000 will be subject to a sales load of 3%;
investments of $500,000 or more, but less than $1 million, will be subject
to a sales load of 2%; investments of $1 million or more will be subject to
a sales load of 1% . No sales load will be charged to the types of
investors listed under "Plan of Distribution."
(2) The Incentive Allocation, based on net profits, will be charged in respect
of each investor's capital account in the Fund. For purposes of calculating
the Incentive Allocation, net profits will be determined by taking into
account net realized gain or loss and the net change in unrealized
appreciation or depreciation of securities positions, provided that, except
in limited circumstances (namely upon a tender or transfer of Interests),
any unrealized appreciation in private securities will be taken into
account only to the extent of unrealized depreciation in private
securities. The Incentive Allocation will be made only with respect to net
profits that exceed any net losses previously debited to the account of an
investor which have not been offset by any net profits subsequently
credited to the account of such investor. See "Management of the Fund -
Incentive Allocation."
The purpose of the table above is to assist you in understanding the
various costs and expenses you would bear directly or indirectly as an investor
in the Fund. The annual "Other expenses" shown above are estimated, based on net
assets of the Fund of $250 million, and include expenses of approximately
$500,000 incurred in connection with the initial organization of the Fund. For a
more complete description of the various costs and expenses of the Fund, see
"Management of the Fund."
<TABLE>
<CAPTION>
EXAMPLE
1 YEAR 3 YEARS
------- ---------
<S> <C> <C>
You would pay the following expenses, including an incentive
allocation, on a $1,000 investment, assuming a 5% annual $55.73 $108.97
return:
</TABLE>
The example does not present actual expenses and should not be
considered a representation of future expenses. Actual expenses may be greater
or less than those shown. The Fund's organizational and offering expenses are
not reflected in the example. Moreover, the Fund's actual rate of return may be
greater or less than the hypothetical 5% return shown in the example. If the
actual rate of return exceeds 5%, the dollar amounts could be significantly
higher as a result of the Incentive Allocation.
RISK FACTORS
STOCK PRICES FLUCTUATE
Apart from the specific risks identified below, the Fund's investments
may be negatively affected by the broad investment environment in the U.S. and
international securities markets. That investment environment is influenced by,
among other things, interest rates, inflation, politics, fiscal policy, current
events, competition, productivity and technological and regulatory change.
Therefore, as with any fund that invests in stocks, the Fund's net asset value
will fluctuate. You may experience a significant decline in the value of your
investment and could lose your entire investment. The Fund should be considered
a speculative investment, and you should invest in the Fund only if you can
sustain a complete loss of your investment.
NEWLY ORGANIZED FUND AND ADVISER
The Fund is a newly organized investment company and the Adviser is a
newly organized investment adviser, each with no previous operating history.
Although OrbiMed and the Fund's team of portfolio managers have substantial
experience investing in the biotechnology and pharmaceutical sectors, the Fund
may not succeed in meeting its objective, and the Fund's net asset value may
decrease.
INVESTMENT IN COMPANIES DEPENDENT UPON NEW SCIENTIFIC DEVELOPMENTS AND
TECHNOLOGIES
The Fund plans to invest primarily in the stock of health sciences
companies, with an emphasis on companies in the biotechnology and
pharmaceuticals sectors. The value of its Interests may be susceptible to
factors affecting health sciences and related industries and to greater risk and
market fluctuation than an investment in a fund that invests in a broader range
of portfolio securities. The specific risks faced by health sciences companies
include:
o rapidly changing science and technologies
o products that may quickly become obsolete
o exposure to a high degree of government regulation, making these
companies susceptible to changes in government policy and
failures to secure, or unanticipated delays in securing,
regulatory approvals
o scarcity of management, technical, scientific, research and
marketing personnel with appropriate training
o the possibility of lawsuits related to patents and intellectual
property
o changing investor sentiments and preferences with regard to
health sciences sector investments (which are generally perceived
as risky)
INVESTMENTS IN SMALL COMPANIES
Although the Fund may invest in companies of any capitalization, the
Fund plans to invest a substantial amount of its assets in equity securities of
small and medium-sized capitalization companies. These investments may present
greater opportunity for growth, but there are specific risks associated with
investments in small companies, which include:
o poor corporate performance because of less experienced
management, limited product lines, undeveloped markets and/or
limited financial resources
o less predictable returns because of shorter operating histories,
less publicly available information and little or no research by
the investment community
o reduced or zero liquidity because of small market capitalizations
and absence of exchange listings or dealers willing to make a
market
o increased share price volatility because, in periods of investor
uncertainty, investor sentiment may favor large, well-known
companies over small, lesser-known companies
o reliance, in many cases, on one or two key individuals for
management
INVESTMENTS IN PORTFOLIO COMPANIES
In addition to the risks associated generally with investments in the
health sciences sector and in small companies, the Fund will be subject to the
additional risks in respect of its investments in private securities of
Portfolio Companies which include:
o very limited liquidity of the private securities, because of
legal or contractual limitations on resales
o lack of a public market into which the Fund could sell the
securities of Portfolio Companies
o dependence on an exit strategy, such as an IPO or sale of a
business, which may not occur to realize the anticipated value of
an investment
o dependence on managerial assistance provided by other investors
and the willingness of other investors or third parties to
provide additional financial support to the Portfolio Company
VALUATION OF PRIVATE SECURITIES
Depending on the specific facts and circumstances of an investment in a
Portfolio Company, there may not be a reasonable basis to revalue it for a
substantial period of time after the Fund's investment. If a Portfolio Company
does not complete an IPO or a sale to, or merger with a public company, there
may never be a public market benchmark for valuing the investment and it may be
very difficult for the Fund to dispose of its investment, or it may be possible
to dispose of the investment only at a substantial loss. It is possible that the
fair value attributed to the investment may not accurately reflect its actual
value and, consequently, the net asset value at which Interests may have been
sold or repurchased, or upon which the Incentive Allocation may have been based,
may not reflect the actual values of the Fund's portfolio. In addition, the
Fund's net asset value may change substantially in a short time as a result of
developments at the companies in which the Fund invests. Changes in the Fund's
net asset value may be more pronounced and more rapid than with other funds
because of the Fund's emphasis on private securities. The Fund's net asset value
may change materially from day to day, including during the time between the
date a repurchase offer is mailed and the due date for tendering Interests, and
during the period immediately after a repurchase is completed.
AVAILABILITY OF INVESTMENT OPPORTUNITIES IN PRIVATE SECURITIES
The business of identifying investments of the types contemplated by
the Fund is competitive, and involves a high degree of uncertainty. Furthermore,
the availability of investment opportunities in private securities generally
will be subject to market conditions as well as, in some cases, the prevailing
regulatory or political climate. Accordingly, there can be no assurance that the
Fund will be able to identify attractive Portfolio Companies in the future.
LIMITED LIQUIDITY
The Fund is a closed-end investment company designed primarily for
long-term investors. Interests in the Fund will not be traded on any securities
exchange or other market. With very limited exceptions, Interests are not
transferable and liquidity will be provided only through limited semi-annual
repurchase offers. 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 Adviser expects that it will recommend to the Board that the
Fund offer to repurchase Interests from investors in September 2001 and,
thereafter, twice each year, in March and September. The LLC Agreement provides
that the Fund will be dissolved if it has not commenced a tender offer for at
least 10% of its outstanding Interests within a period of two years after an
investor requests that the Fund do so. See "Redemptions, Repurchases of
Interests and Transfers."
The Fund will offer to purchase only a small portion of its Interests,
and there is no guarantee that you will be able to sell all of the Interests
that you desire to sell in any particular repurchase offer. If a repurchase
offer is oversubscribed by investors, the Fund will repurchase only a pro rata
portion of the Interests tendered by each investor. The potential for pro-ration
may cause some investors to tender more Interests for repurchase than they wish
to have repurchased.
The Fund's repurchase policy will have the effect of decreasing the
size of the Fund over time from what it otherwise would have been. Therefore, it
may force the Fund to sell assets it otherwise would not sell. It also may
reduce the investment opportunities available to the Fund and cause its expense
ratio to increase. In addition, because of the limited market for the Fund's
investments in private securities, the Fund may be forced to sell its publicly
traded securities to meet cash requirements for repurchases. This may have the
effect of substantially increasing the Fund's ratio of illiquid investments to
liquid investments for the remaining investors.
LEVERAGE; BORROWING
The Fund is authorized to borrow money to meet repurchase requests and
for cash management purposes. While borrowings are outstanding for these
purposes, the Fund will be permitted to reinvest the proceeds of the sale of
securities or new sales of Interests and, thus, may employ leverage. To the
extent that the Fund uses leverage, the value of its net assets will tend to
increase or decrease at a greater rate than if no leverage were employed. If the
Fund's investments decline in value, the loss will be magnified if the Fund has
borrowed money to make its investments.
If the Fund does not generate sufficient cash flow from operations, it
may not be able to repay borrowings, or it may be forced to sell investments at
disadvantageous times to repay borrowings. The Fund's performance may be
adversely affected if it is not able to repay borrowings (because of the
continuing interest expense) or if it is forced to sell investments at
disadvantageous times in order to repay borrowings. The Fund likely will sell
its more liquid assets first to repay borrowings, thus increasing its
concentration in private securities. As the percentage of the Fund's portfolio
invested in private securities increases, the associated risk described under
"Investments in small companies" and "Investments in Portfolio Companies" will
increase.
The Investment Company Act provides that the Fund may not borrow for
any purpose if, immediately after doing so, it will have an "asset coverage" of
less than 300%. This could prevent the Fund from completing its repurchase
offers. For this purpose, an "asset coverage" of 300% means that the Fund's
total assets equal 300% of the total outstanding principal balance of
indebtedness. Lenders may require the Fund to agree to more restrictive asset
coverage requirements as a condition to providing credit to the Fund, and also
may limit the extent to which the Fund may hold illiquid securities, reducing
the Fund's investment flexibility. The Fund also may be forced to sell
investments on unfavorable terms if market fluctuations or other factors reduce
its asset level below what is required by the Investment Company Act or the
Fund's loan agreements.
The rights of any lenders to the Fund to receive payments of interest
or repayments of principal will be senior to those of the holders of the Fund's
Interests, and the terms of any borrowings may contain provisions that limit
certain activities of the Fund. Payments of interest and fees incurred in
connection with borrowings will increase the Fund's expense ratio and will
reduce any income the Fund otherwise would have available. The Fund's obligation
to make interest or principal payments on borrowings may prevent the Fund from
taking advantage of attractive investment opportunities.
RELIANCE ON KEY PERSONNEL OF THE ADVISER
The Fund's ability to identify and invest in attractive opportunities
is dependent upon OrbiMed's team of portfolio managers. If one or more of them
were to leave OrbiMed, the Adviser may not be able to hire qualified
rreplacements, or may require an extended time to do so. This could prevent the
Fund from achieving its investment objective.
INCENTIVE ALLOCATION
The right to the Incentive Allocation may give the Adviser reason to
select investments for the Fund that are riskier or more speculative than it
would select if it were paid only the PWFA Fee. In addition, since the Incentive
Allocation is generally calculated based on unrealized as well as realized gain
on securities positions, the amount of the Incentive Allocation ordinarily will
be greater in any period than if it were based solely on realized gains.
The amount of the Incentive Allocation will be based in part on the
valuation of the Fund's private investments. Until a Portfolio Company completes
an IPO or is acquired by a public company, the value of an investment in that
company must be estimated by the Adviser using fair value techniques under the
direction of, and following procedures approved by, the Fund's Board. See
"Calculation of Net Asset Value." The Incentive Allocation structure could give
the Adviser an incentive to select a higher fair value for the Fund's private
securities than it otherwise would. The Incentive Allocation to which a
tendering or transferring investor will be subject will include all unrealized
appreciation on the Fund's private securities and will be adjusted appropriately
in the case of partial redemptions.
For an explanation of the Incentive Allocation calculation, see the
section in this prospectus entitled "Management of the Fund - Incentive
Allocation."
CONCENTRATION; NON-DIVERSIFIED STATUS
The assets of the Fund will consist almost entirely of health sciences
companies within or related to the biotechnology and pharmaceuticals sectors.
Since the Fund's portfolio will be concentrated in securities of a small number
of companies or in securities of companies in a single industry, the risk of any
investment decision is increased. The Adviser will seek to reduce the
company-specific risk, as opposed to sector-specific risk, of the Fund's
portfolio by investing in more than one company in a particular sector.
The Fund is classified as a "non-diversified" management investment
company under the Investment Company Act. This means that the Fund may invest a
greater portion of its assets in a limited number of issuers than would be the
case if the Fund were classified as a "diversified" management investment
company. Accordingly, the Fund may be subject to greater risk with respect to
its portfolio securities than a "diversified" fund because changes in the
financial condition or market assessment of a single issuer may cause greater
fluctuation in the value of its Interests.
RESTRICTED AND ILLIQUID SECURITIES
The Fund intends to invest up to 30% of its assets (measured at the
time of purchase) in private securities, which will be restricted securities and
illiquid. Over time it is likely that the percentage of the Fund's assets
invested in restricted and illiquid securities will exceed considerably 30% as a
result, among other things, of sales of public securities and the possible
appreciation of private securities. Restricted securities are securities that
may not be resold to the public without an effective registration statement
under the Securities Act of 1933 (the "Securities Act") or, if they are
unregistered, may be sold only in a privately negotiated transaction or pursuant
to an exemption from registration.
Restricted and other illiquid investments involve the risk that the
securities cannot be sold at the time desired by the Fund or at prices
approximating the value the Fund has determined. Difficulty in selling illiquid
investments could impair the Fund's ability to meet repurchase requests or to
pay its fees and expenses (including the PWFA Fee).
INVESTMENTS IN FOREIGN SECURITIES
The Fund plans to invest in the securities of foreign companies.
Investments in foreign securities face specific risks, which include:
o unfavorable changes in currency rates and exchange control
regulations
o restrictions on, and costs associated with, the exchange of
currencies and the repatriation of capital invested abroad
o reduced availability of information regarding foreign companies
o foreign companies may be subject to different accounting,
auditing and financial standards and to less stringent reporting
standards and requirements
o reduced liquidity as a result of inadequate trading volume and
government-imposed trading restrictions
o the difficulty in obtaining or enforcing a judgment abroad
o increased market risk due to regional economic and political
instability
o increased brokerage commissions and custody fees
o securities markets which are subject to a lesser degree of
supervision and regulation by competent authorities
o foreign withholding taxes
o delays in settling securities transactions
o the threat of nationalization and expropriation
o an increased potential for corrupt business practices in certain
foreign countries
EMERGING MARKET RISK
Because the Fund may purchase securities of companies worldwide, it
may purchase securities of issuers located in developing countries. Developing
countries have economic structures that are generally less diverse and mature,
and political systems that are less stable, than those of developed countries.
The markets of developing countries may be more volatile than the markets of
more mature economies. Many developing countries providing investment
opportunities for the Fund have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
EUROPEAN ECONOMIC AND MONETARY UNION (EMU)
Certain European countries have entered into EMU in an effort, among
other things, to reduce barriers between countries, increase competition among
companies, reduce government subsidies in certain industries and reduce or
eliminate currency fluctuations among these countries. EMU established a single
common European currency (the "euro") that was introduced on January 1, 1999 and
is expected to replace the existing national currencies of all EMU participants
by July 1, 2002. Certain securities (beginning with government and corporate
bonds) were redenominated in the euro, and are listed, trade and make dividend
and other payments only in euros. Although EMU generally is expected to have a
beneficial effect, it could affect the Fund negatively in a number of
situations, including as follows:
o If the transition to the euro, or EMU as a whole, does not
proceed as planned, the Fund's investments could be adversely
affected. For example, sharp currency fluctuations, exchange rate
volatility and other market disruptions could occur.
o Withdrawal from EMU by a participating country also could have a
negative effect on the Fund's investments, for example, if
securities redenominated in euros are transferred back into that
country's national currency.
USE OF DERIVATIVES
The Fund may use derivative instruments to hedge portfolio risk, for
cash management purposes and for non-hedging purposes in pursuit of its
investment objective. Investing in derivative investments involves numerous
risks. For example:
o the underlying investment or security might not perform in the
manner that the Adviser expects it to perform, which could make
an effort to hedge unsuccessful
o the company issuing the instrument may be unable to pay the
amount due on the maturity of the instrument
o certain derivative investments held by the Fund may trade only in
the over-the-counter markets or not at all, and can be illiquid
o derivatives may change rapidly in value because of their inherent
leverage
All of this can mean that the Fund's net asset value may change more
often and to a greater degree than it otherwise would. The Fund has no
obligation to enter into any hedging transactions.
SHORT SELLING
Short selling is a speculative investment technique that involves
expenses to the Fund and the following additional risks:
o while the potential gain on a short sale is limited, the loss is
theoretically unlimited
o it can increase the effect of adverse price movements on the
Fund's portfolio
o the Fund may not be able to close out a short portion at any
particular time or at the desired price
o the Fund may be subject to a "short squeeze" when other short
sellers desire to replace a borrowed security at the same time as
the Fund, thus increasing the price the Fund may have to pay for
the security and causing the Fund to incur losses on the position
o if the market for small capitalization companies becomes
illiquid, the Fund may be unable to obtain securities to cover
short positions
CONFLICTS OF INTEREST
PWFA and OrbiMed, or their affiliates, provide investment advisory and
other services to various entities. PWFA and OrbiMed are parties to a joint
venture that advises funds with similar objectives and management policies. PWFA
and OrbiMed and certain of the investment professionals who are principals of or
employed by PWFA or OrbiMed or their affiliates also carry on substantial
investment activities for their own accounts, for the accounts of family members
and for other accounts (collectively, with the other accounts advised by PWFA,
OrbiMed and their affiliates, "Other Accounts"). The Fund has no interest in
these activities. As a result of the foregoing, PWFA and OrbiMed and the
investment professionals who, on behalf of the Adviser, will manage the Fund's
investment portfolio will be engaged in substantial activities other than on
behalf of the Adviser, may have differing economic interests in respect of such
activities, and may have conflicts of interest in allocating their time and
activity between the Fund and Other Accounts. Such persons will devote only so
much as in their judgment is necessary and appropriate.
There also may be circumstances under which PWFA or OrbiMed will cause
one or more of their Other Accounts to commit a larger percentage of their
respective assets to an investment opportunity than to which the Adviser will
commit the Fund's assets. There also may be circumstances under which PWFA or
OrbiMed will consider participation by their Other Accounts in investment
opportunities in which the Adviser does not intend to invest on behalf of the
Fund, or vice versa.
PWFA or its affiliates may have an interest in other accounts managed
by OrbiMed ("OrbiMed Accounts") on terms different than an interest in the Fund.
In addition, OrbiMed may receive research products and services in connection
with the brokerage services that PWFA and its affiliates may provide from time
to time to one or more OrbiMed Accounts or to the Fund. The OrbiMed Accounts may
charge fees and may be subject to incentive allocations that are lower than the
fees and allocations to which the Fund is subject.
TAX RISK
The Fund expects to be treated as a partnership for Federal income tax
purposes. If it were determined that the Fund should be treated as an
association or a publicly traded partnership taxable as a corporation, 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.
Because the Fund may borrow money, a tax-exempt investor may incur
income tax liability to the extent the Fund's transactions are treated as giving
rise to unrelated business taxable income or so-called "UBTI".
DISTRIBUTIONS TO INVESTORS AND PAYMENT OF TAX LIABILITY
The Fund has no present intention of making 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 these taxes from sources other than Fund distributions. The amount
and times of distributions, if any, will be determined in the sole discretion of
the Board.
USE OF PROCEEDS
The Fund will invest the net proceeds of the offering in accordance
with the Fund's investment objective and policies and principal strategies as
soon as practicable after the closing of the offering. Based on current market
conditions, the Adviser expects the Fund will be fully invested within one year.
The Adviser believes that, under current market conditions, it would be able to
invest up to approximately $250 million in accordance with the Fund's objective,
policies and strategies in this time frame. Although the Fund expects to invest
at least 80% of its total assets in securities of health sciences companies
within one year, it may take substantially longer to reach the Fund's target of
investing 30% of its assets in private securities. This lengthy investment
period reflects the fact that: (i) the Adviser plans to spend considerable time
researching prospective investments; and (ii) the companies in which the Fund
plans to invest will be primarily health sciences companies which may have
limited amounts of securities available for purchase. Pending the full
investment of the proceeds of the offering in equity securities of health
sciences companies, the proceeds of the offering will be invested in short-term,
high quality debt securities. The Adviser will be eligible to receive its full
Incentive Allocation from the commencement of the Fund's operations. The Fund
will pay organizational and offering expenses estimated to be $500,000 from the
proceeds of the offering.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
LONG-TERM CAPITAL APPRECIATION
The Fund's investment objective is to seek long-term capital
appreciation. Current income is not an objective. No assurance can be given that
the Fund will achieve its investment objective.
THE FUND MAY CHANGE ITS INVESTMENT STRATEGIES
The Fund's investment objective is a fundamental policy and may not be
changed without the approval of investors. Please see the SAI for additional
fundamental policies of the Fund. The Fund's principal investment policies and
strategies are listed below. The Fund may change any of these non-fundamental
investment policies and strategies, and may change the definition of small and
medium-sized companies, if the Fund's Board believes doing so would be
consistent with the Fund's investment objective of long-term capital
appreciation.
INVESTING IN THE HEALTH SCIENCES SECTOR
The Fund will invest primarily in equity and equity-related securities
of public and private health sciences companies worldwide, with an emphasis on
companies in the biotechnology and pharmaceuticals sectors. Health sciences
companies include those companies principally engaged in the development,
production or distribution of products or services related to scientific
advances in health care, including biotechnology, diagnostics, managed health
care, medical equipment and supplies, and pharmaceuticals. At the time of
investment, 50% or more of the company's sales, earnings or assets will be or
will be expected to be derived from or dedicated to health sciences. These
investments involve many risks, which include those described under "Risk
Factors." Equity and equity-related securities include common stocks, securities
convertible into or exchangeable for common stocks, rights and warrants to
purchase common stocks, partnership interests and depository receipts
representing an ownership interest in equity securities. The Fund also may
invest in fixed-income securities, such as non-convertible debt securities, or
preferred stocks, including those rated below investment grade (so-called "junk
bonds"), where the Adviser believes they provide opportunities for capital gain.
You should be aware that the market values of many below investment
grade securities tend to be more sensitive to economic conditions than are
higher rated securities. These securities generally are considered by nationally
recognized statistical rating organizations ("Ratings Agencies") to be
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally to
involve more credit risk than securities in the higher rating categories. The
Fund's SAI describes the securities ratings assigned by the Rating Agencies in
"Appendix A--Rating Categories."
The Fund may invest in securities of both established and emerging
companies, the securities of which may be denominated in foreign currencies. The
Fund will invest in public securities and up to 30% of its assets (measured at
the time of purchase) in private securities (substantially all of which are
expected to be in biotechnology companies), although the percentage of private
securities may increase (and the percentage of public securities may decrease)
as public securities are sold or if private securities increase in value.
Private securities typically will be purchased in negotiated transactions and
will include, among others, common stock, so-called P.I.P.E.s (private
investments in public equities), convertible preferred stock, convertible
preferred debt, bridge loans with certain equity components and warrants.
The Fund may invest in public securities of issuers of any
capitalization. Of its public securities, the Fund expects to invest principally
in the public securities of large capitalization public companies and, to a
lesser extent, small and medium-sized public companies, that is, those with
market capitalizations that do not exceed $5 billion. The common stock of these
companies may trade over-the-counter, on the Nasdaq SmallCap Market, the Nasdaq
National Market, the New York Stock Exchange, the American Stock Exchange or on
other markets. Many of these companies only recently may have become public
companies, and may have a relatively small proportion of their outstanding
common stock publicly traded.
The Fund's investments in private securities of Portfolio Companies
typically will be between $1 and $10 million in size, depending on a variety of
factors including anticipated risk and return and likelihood of follow-on
investments. When analyzing companies, the Adviser will focus on opportunities
similar to these:
o private companies that the Adviser believes have achievable
near-term goals and may complete an IPO or elicit interest as an
acquisition target within a few years after investment
o public companies that the Adviser believes need to be
restructured and refinanced, including companies that have failed
late stage clinical trial and need capital to redesign the trial
or to advance another product
o merger and acquisition funding where the Adviser believes that
there are several unrelated publicly traded companies with
valuable technologies that are not adequate to support an entire
company, but which the Adviser believes can be combined
effectively. In these cases, the Fund will seek to provide this
type of consolidation financing where the Adviser believes such
action is scientifically, strategically and financially feasible.
o spinouts of large biotechnology or pharmaceutical companies; that
is, companies that have "spun-out" non-core assets into new
companies to attract independent financing opportunities
o strategies where biotechnology companies license multiple
products and intellectual property within a particular disease
area and then focus on development of the acquired product line.
The Fund will seek to invest in these companies where the Adviser
believes the in-licensed assets are meaningful, the strategy is
sound, and the management has a track record of executing the
in-licensing and drug development strategy.
o research and development limited partnerships, where the Adviser
believes the technology is sufficiently promising
The Fund may invest in securities of non-U.S. issuers. The Fund may
invest directly in foreign securities or it may invest through depositary
receipts, which are certificates issued by a bank or other financial institution
that evidence the right to receive the underlying foreign security. Investments
in non-U.S. securities involve certain risks in addition to those of health
sciences companies generally. These risks are discussed under "Risk
Factors--Investments in foreign securities." The Fund may not invest more than
60% of its total assets in the securities of non-U.S. issuers.
The limitations on the percentage of the Fund's total assets that may
be invested in private securities and securities of non-U.S. issuers apply at
the time of investment by the Fund. The Fund will not be required to reduce its
investments in these securities if a percentage limit is exceeded as a result of
changes in the value of the Fund's portfolio securities or repurchases of its
Interests.
BORROWING; USE OF LEVERAGE
The Fund is authorized to borrow money to meet repurchase requests and
for cash management purposes. While borrowings are outstanding for these
purposes, the Fund will be permitted to reinvest the proceeds of the sale of
securities or new sales of Interests. The use of borrowings involves a high
degree of risk. See "Risk Factors - Leverage; Borrowing." The Fund generally
intends to borrow money only in these limited circumstances.
The Investment Company Act prohibits the Fund from borrowing for any
purpose if, immediately after such borrowing, it will have an "asset coverage"
of less than 300%. For this purpose, an "asset coverage" of 300% means that the
Fund's total assets equal 300% of the total outstanding principal balance of
indebtedness. Lenders may require the Fund to agree to more restrictive asset
coverage requirements as a condition to providing credit to the Fund, and also
may limit the extent to which the Fund may hold illiquid securities, reducing
the Fund's investment flexibility. The Fund also may be forced to sell
investments on unfavorable terms if market fluctuations or other factors reduce
the asset level below what is required by the Investment Company Act or the
Fund's loan agreements.
DERIVATIVES
The Fund may use financial instruments, known as derivatives, for the
purposes of hedging portfolio risk, cash management and for non-hedging
purposes. A derivative is generally defined as an instrument whose value is
derived from, or based upon, some underlying index, reference rate (such as
interest rates or currency exchange rates), security, commodity or other asset.
The Fund will use a specific type of derivative only after consideration of,
among other things, how the derivative instrument serves the Fund's investment
objective and the risk associated with the instrument.
The Fund may buy or sell put or call options on transferable
securities or indices of securities. The Fund's options strategies may include
the purchase of puts and the simultaneous writing of calls having different
strike prices to place a "collar" on a portion of the Fund's asset value. The
Fund may buy or sell these options if they are traded on options exchanges or in
over-the-counter markets. However, the Fund will only enter into transactions
with broker-dealers that are reputable financial institutions which (i)
specialize in these types of transactions, (ii) make markets in these options,
or (iii) are participants in over-the-counter markets. A put option gives the
purchaser of the option the right to sell, and obligates the writer of the put
option to buy, the underlying security at a stated exercise price at any time
prior to the expiration of the option. Similarly, a call option gives the
purchaser of the option the right to buy, and obligates the writer of the call
option to sell, the underlying security at a stated exercise price at any time
prior to the expiration of the option.
The Adviser will consider changes in foreign currency exchange rates
in making investment decisions about non-U.S. securities. As one way of managing
exchange rate risk, the Fund may enter into forward currency exchange contracts
(agreements to purchase or to sell U.S. dollars or non-U.S. currencies at a
future date). A forward contract may help reduce the Fund's losses on securities
denominated in a currency other than U.S. dollars, but it also may reduce the
potential gain on the securities depending on changes in the currency's value
relative to the U.S. dollar. See "Certain Portfolio Securities and Other
Operating Policies - Foreign Securities" in the SAI.
SHORT SELLING
The Fund may sell securities short. To effect a short sale, the Fund
will borrow the security from a brokerage firm, or other permissible financial
intermediary, and make delivery to the buyer. The Fund 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 Fund, which would result in a loss or gain,
respectively. See "Risk Factors--Short selling."
POTENTIAL FOR LARGE POSITIONS AND CONTROLLING INTERESTS
As a non-diversified investment company, the Fund faces few regulatory
restrictions on the proportion of its total assets it may invest in the
securities of any one company, or on the proportion of its total assets it
allocates to control interests in companies. However, the Fund does not intend
to invest more than 10% of its total assets in the securities of any one
company. The Fund may own a controlling interest in one or more companies, and
it (or it and other funds or accounts managed by the Adviser) may own up to 100%
of certain companies. However, the Fund does not intend to invest more than 15%
of its total assets in controlling interests of companies. Market fluctuations
could cause these limits to be exceeded.
DEFENSIVE MEASURES
The Fund, from time to time, may take temporary defensive positions in
cash or short-term debt securities that are inconsistent with its principal
strategies in an attempt to moderate extreme volatility caused by adverse
market, economic, or other conditions. This could prevent the Fund from
achieving its investment objective.
OTHER
The Fund may enter into repurchase agreements with commercial banks
and broker-dealers as a short-term cash management tool. The Fund also may lend
portfolio securities. If entered into, the income earned from these practices
can be used to offset the Fund's expenses. The Fund does not intend to use these
practices in a manner that would adversely affect its ability to achieve its
investment objective. Repurchase agreements and stock lending involve certain
risks that are described in the SAI.
MANAGEMENT OF THE FUND
GENERAL
The Fund's Board provides broad oversight over the affairs of the
Fund.
The Adviser serves as the Fund's investment adviser, subject to the
ultimate supervision of and subject to any policies established by the Fund's
Directors, pursuant to the terms of the Investment Advisory Agreement. Pursuant
to the Investment Advisory Agreement, the Adviser is responsible, subject to the
supervision of the Directors, for formulating a continuing investment program
for the Fund. The Investment Advisory Agreement provides that, as the Fund's
investment adviser, the Adviser shall be entitled to be the Special Advisory
Member of the Fund. In such capacity, the Adviser is entitled to receive the
Incentive Allocation.
The Adviser is a joint venture between PWFA and OrbiMed. Within the
joint venture, the Adviser will employ a team of OrbiMed's investment
professionals to manage the Fund's investment portfolio and will employ PWFA
personnel to oversee their activities.
OrbiMed, a registered investment adviser under the Advisers Act, is
controlled by Samuel D. Isaly, its President. As of September 30, 2000, OrbiMed
and its affiliates managed assets of approximately $2 billion.
PWFA is an indirect, wholly-owned subsidiary of PW Group, and is
registered as an investment adviser under the Advisers Act. On July 12, 2000, PW
Group and UBS announced that they had entered into an agreement and plan of
merger pursuant to which PW Group will merge into a wholly-owned subsidiary of
UBS. If all required approvals and conditions of the agreement are obtained and
satisfied, PW Group and UBS expect to complete the transaction in the fourth
quarter of 2000. UBS, with headquarters in Zurich, Switzerland, is an
internationally diversified organization with operations in many areas of the
financial services industry.
PWFA and its affiliates provide investment advisory services to
registered investment companies, private investment funds and individual
accounts, and, as of September 30, 2000, had approximately $490 billion of
assets under control and $75.9 billion of assets under management.
PORTFOLIO MANAGEMENT
The Fund's portfolio will be managed by a team of investment
professionals employed by OrbiMed, including Samuel D. Isaly, Sven H. Borho,
Carl L. Gordon and Michael B. Sheffery. 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.
In March 1989, Mr. Isaly co-founded Mehta and Isaly Asset Management,
Inc. ("Mehta and Isaly"), 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 1998, Mehta and Isaly was renamed OrbiMed
Advisors Inc.
Mr. Isaly earned a B.A. degree from Princeton University and a M.Sc.
in Economics from the London School of Economics.
Mr. Borho studied undergraduate business administration at Bayreuth
University in Germany and received a M.Sc. in Economics from the London School
of Economics. He started his career at Mehta and Isaly in 1991 as a Senior
Analyst covering European pharmaceutical firms and biotechnology companies
worldwide. In 1998, Mr. Borho joined Mr. Isaly as one of the founders of
OrbiMed.
Dr. Gordon was a Fellow at the Rockefeller University from 1993 to
1995. He received a Ph.D. from the Massachusetts Institute of Technology in
molecular biology in 1993 and an undergraduate degree from Harvard College in
1987. From 1987 until 1988, Dr. Gordon worked at the biotechnology company,
Imclone Systems. Dr. Gordon was with Mehta and Isaly from 1995 through 1997,
where he was a Senior Analyst covering biotechnology. In 1998, he joined Mr.
Isaly as one of the founders of OrbiMed.
Dr. Sheffery was Head of the Laboratory of Gene Structure and
Expression at Memorial Sloan-Kettering Cancer Center. He received his doctorate
in biochemistry and undergraduate degrees from Princeton University. Dr.
Sheffery worked at Mehta and Isaly in 1996 and 1997, where he was a Senior
Analyst covering the biotechnology industry. In 1998, he joined Mr. Isaly as one
of the founders of OrbiMed.
The team of investment professionals employed by OrbiMed have
substantial experience in investing in the biotechnology and pharmaceutical
sectors. See "Appendix C --Investment Record." PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.
PWFA FEE
The Fund will pay a monthly fee to PWFA for certain administrative
services at an annual rate of 1.35% of the Fund's net assets for the month,
excluding assets attributable to PWFA's capital account, the Adviser's capital
account and the Special Advisory Account. The overall amounts payable by the
Fund and its investors, consisting of the PWFA Fee, Incentive Allocation and
shareholder servicing fee, will be higher than those paid by most other
registered investment companies, but generally similar to those paid by many
private hedge funds with similar investment policies. PWFA will pay a portion of
the PWFA Fee to OrbiMed.
INCENTIVE ALLOCATION
In addition to the PWFA Fee, the Adviser, in its capacity as the
Special Advisory Member, is entitled to receive the Incentive Allocation.
Generally, on December 31st each year, commencing in 2001, an amount equal to
20% of the net profits, if any, that would otherwise be credited to an
investor's capital account for the period instead will be credited to the
account of the Adviser. For purposes of calculating the Incentive Allocation,
net profits will be determined by taking into account net realized gain or loss
and the net change in unrealized appreciation or depreciation of securities
positions, provided that, except in limited circumstances (namely upon a tender
or transfer of Interests), any unrealized appreciation in private securities
will be taken into account only to the extent of unrealized depreciation in
private securities. All unrealized appreciation on private securities will be
taken into account when calculating the Incentive Allocation to which a
tendering or transferring investor will be subject and will be adjusted
appropriately in the case of partial redemptions. The Incentive Allocation will
be made only with respect to net profits that exceed any net losses previously
debited to the account of an investor which have not been offset by any net
profits subsequently credited to the account of such investor. This is sometimes
known as a "high water mark" calculation. The Incentive Allocation will be
credited to the Adviser's Special Advisory Account. The Adviser will be under no
obligation to return any Incentive Allocation previously allocated by the Fund.
The calculation of the Incentive Allocation is complex. The Fund encourages you
to consult with your tax or legal adviser regarding this calculation.
The Adviser may tender for repurchase in connection with any
repurchase offer made by the Fund any Interests in its capital account that it
holds in its capacity as an investor in the Fund. The Adviser also is entitled
to withdraw its Interest from its Special Advisory Account at any time through
the last business day of the month following the date on which an Incentive
Allocation was made.
Very few investment advisers to registered investment companies
receive an Incentive Allocation similar to that to which the Adviser is
entitled.
OTHER EXPENSES OF THE FUND
The Fund will bear all expenses incurred in the business of the Fund
other than those specifically required to be borne by PWFA. 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, shareholder servicing fees, margin
fees, transfer taxes and premiums and taxes withheld on foreign
dividends;
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 the costs and expenses of holding any meetings of any investors
that are regularly scheduled, permitted or required to be held
under the terms of the LLC Agreement, the Investment Company 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, including all travel-related expenses and other costs
associated with due diligence performed, in connection with the
analysis, purchase and sale of Portfolio Companies;
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 Adviser or the Board;
o all costs and expenses of preparing, setting in type, printing
and distributing reports, repurchase notices, 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 portfolio, including appraisals and 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 Fund will reimburse the Adviser for any of the above expenses that
it pays on behalf of the Fund.
ADMINISTRATOR AND CUSTODIAN
PFPC Inc., the Fund's administrator (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, not to exceed on an annual basis
0.15%, and will reimburse the Administrator for out-of-pocket expenses.
PFPC Trust Company, the Fund's custodian and an affiliate of the
Administrator, acts as custodian for the Fund's assets.
INVESTOR QUALIFICATIONS
Interests in the Fund are offered only to investors who are "qualified
clients" as such term is defined in Rule 205-3 under the Advisers Act, as that
rule may be amended from time to time. Currently, qualified clients include
natural persons and companies (other than investment companies) that have a net
worth (together, in the case of a natural person, with assets held jointly with
a spouse) of more than $1,500,000, or who meet the standard for a "qualified
purchaser" in the Investment Company Act and the rules thereunder. Qualified
clients also include certain knowledgeable employees who participate in PWFA's
investment activities. All of these persons are referred to in this prospectus
as "Qualified Investors." You must complete and sign an investor certification
before you may invest. If your investor certification is not received and
accepted by PaineWebber by the Initial Closing Date, your order will not be
accepted. The form of this investor certification is included as Appendix B to
this prospectus. The Fund will not be obligated to sell to brokers or dealers
any Interests that have not been placed with Qualified Investors.
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION OR TRANSFER
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, and none is expected to
develop. With very limited exceptions, Interests are not transferable and
liquidity will be provided only through limited semi-annual repurchase offers,
which will be made in the Board's sole discretion. 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.
Tendering or transferring investors will be subject to an Incentive
Allocation in respect of the amounts repurchased by the Fund or transferred, as
the case may be.
REPURCHASES OF INTERESTS
The Fund from time to time may offer to repurchase up to 10% of its
outstanding Interests pursuant to written tenders by investors (other than the
Adviser in its capacity as the Special Advisory Member). 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 Fund's Board will consider the recommendation of the Adviser. The
Adviser expects that it will recommend to the Fund's Board that the Fund offer
to repurchase Interests from its investors in September 2001 and, thereafter,
twice each year, in March and September. 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 Adviser during such period. If a repurchase offer is oversubscribed by
investors, the Fund will repurchase only a pro rata portion of the Interests
tendered by each investor.
The LLC Agreement provides that the Fund will be dissolved if it has
not commenced a tender offer for at least 10% of its outstanding Interests
within a period of two years after an investor requests that the Fund do so. See
"Summary of LLC Agreement--Term, Dissolution and Liquidation" in the SAI.
DETERMINATION OF REPURCHASE PRICE
The repurchase price payable in respect of repurchased Interests 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.
Any unrealized appreciation in private securities will be taken into account for
purposes of calculating the Incentive Allocation when an investor's Interests
are repurchased or transferred. The Fund's net asset value may change materially
between the date a tender offer is mailed and the due date, and it also may
change materially shortly after a tender is completed. The method by which the
Fund calculates its net asset value is discussed under the caption "Calculation
of Net Asset Value" and additional risks are discussed under "Risk
Factors--Limited liquidity."
PAYMENT
Under normal conditions, the Fund intends to repurchase its Interests
for cash. However, the Fund the right to pay for all or a portion of its
repurchased Interests with an in-kind distribution of a portion of its portfolio
securities. The Fund might distribute stock of a company in-kind if the Fund's
position is large relative to the company's market capitalization or trading
volume and the Fund believes that selling its position would adversely affect
the price received on the sale or the value of the Fund's remaining position in
that company. Investors would incur expenses in connection with disposing of any
securities distributed by the Fund and would be subject to market risk in
respect of these securities until the investor disposes of them. The Fund will
not make in-kind payments with private securities. Before redeeming any
securities in-kind, the Fund would consider the fairness of this practice to
remaining investors. Payment of the purchase price pursuant to a tender of
Interests will be made promptly after the expiration date of the tender offer.
The Fund will not impose any charges on a repurchase of Interests.
PRO RATA PURCHASES OF INTERESTS IN THE EVENT OF AN OVERSUBSCRIBED TENDER OFFER
If a tender offer by the Fund is oversubscribed, the Fund may, but is
not required to, tender for additional Interests, but only up to a maximum
amount of two percent of the outstanding Interests of the Fund. If the Fund
determines not to repurchase additional Interests beyond the repurchase offer
amount, or if an investor tenders an amount of Interests greater than that which
the Fund is entitled to purchase, the Fund will repurchase the Interests
tendered on a pro rata basis.
If pro-ration is necessary, the Fund will send a notice of pro-ration
to the brokers and dealers of tendering investors on the business day following
the due date. The amount of Interests each investor asked to have repurchased
will be reduced by the same percentage. If any Interests that you wish to have
repurchased by the Fund are not repurchased because of pro-ration, you will have
to wait until the next tender offer, and your repurchase request will not be
given any priority over other investors' requests at this later date. Thus,
there is a risk that the Fund may not purchase all of the Interests you wish to
have repurchased in a given period or in any subsequent period. In anticipation
of the possibility of pro-ration, some investors may tender more Interests than
they wish to have repurchased in a particular repurchase period, thereby
increasing the likelihood of pro-ration. There is no assurance that the Fund
will repurchase as much of your Interests as you wish to have repurchased.
CONSEQUENCES OF REPURCHASE OFFERS
The Fund believes that repurchase offers generally will be beneficial
to the Fund's investors, and typically will be funded from available cash or
sales of portfolio securities. However, payment for repurchased Interests may
require the Fund to liquidate portfolio holdings earlier than the Adviser
otherwise would liquidate such holdings, potentially resulting in losses, and
may increase the Fund's portfolio turnover. The Adviser 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. If the Fund borrows to finance repurchases, interest on that
borrowing will negatively affect investors who do not tender their Interests
into a repurchase offer by increasing the Fund's expenses and reducing any net
investment income. To the extent the Fund finances repurchase proceeds by
selling Fund investments, the Fund will hold a larger proportion of its total
assets in highly illiquid securities. Also, the sale of securities to fund
repurchases could reduce the market price of those securities, which in turn
would reduce the Fund's net asset value.
Repurchase of the Fund's Interests will tend to reduce the amount of
outstanding Interests and, depending upon the Fund's investment performance, its
net assets. A reduction in the Fund's net assets will tend to increase the
Fund's expense ratio. In addition, the repurchase of Interests by the Fund may
be a taxable event to investors.
CALCULATION OF NET ASSET VALUE
The Fund will compute its net asset value as of the close of business
of each "fiscal period" (as defined under "Capital Accounts"). Securities owned
by the Fund will be valued at current market prices. If reliable market prices
are unavailable (e.g., in the case of certain private securities), securities
will be valued at fair value as determined under the direction of, and in
accordance with, procedures approved by the Fund's Board. Private securities
will be valued at fair value pursuant to the Fund's valuation procedures. In
such situations, the Fund's investment will be revalued in a manner that the
Adviser, following procedures approved by the Board, determines best reflects
its fair value. When the Fund holds restricted securities of a class that has
been sold to the public, fair valuation would often be market value less a
discount to reflect contractual or legal restrictions limiting resale. Fair
value represents a good faith approximation of the value of an asset and will be
used where there is no public market or possibly no market at all for a
company's securities. The fair values of one or more assets, in retrospect, may
not be the prices at which those assets could have been sold during the period
in which the particular fair values were used in determining the Fund's net
asset value. As a result, the Fund's issuance or repurchase of its Interests at
a time when it owns securities that are valued at fair value may have the effect
of diluting or increasing the economic interest of existing investors. Fair
values assigned to the Fund's investments also will affect the amount of the
PWFA Fee, shareholder servicing fee and Incentive Allocation. See "Risk Factors
- Incentive Allocation." All fair value determinations by the Adviser are
subject to ratification by the Board.
The Adviser and the Board will consider numerous factors in
establishing a fair value for private securities. Factors that relate to the
securities of a Portfolio Company will include the cost of the security; the
last available quoted price or traded price, if any, for the security;
fundamental analytical data relating to transactions in comparable securities;
relationships among various securities and industry-specific indices and
evaluation of the forces which influence the market in which the security is
purchased and sold; the size of the Fund's position and the liquidity of the
market for the security; recent purchases and sales (including new issuances) of
the company's securities; pricing by dealers in similar securities; reported
prices and the extent of public trading in similar financial instruments of the
issuer or comparable securities; pending public offerings by the company; and
contractual and regulatory restrictions on the Fund's disposition of the
security. Factors that relate to a Portfolio Company itself will include its
financial position and results of operations, including their variance from
projections; the company's business and financial plan; its ability to obtain
needed financing; changes in economic conditions affecting the company; pending
reorganization activity; changes in management; changes in contracts with major
customers and distributors; and changes in the market affecting the company's
products and services. Certain developments, such as changes in senior
management of a company or its capital structure, or removal of legal or
contractual restrictions on sale, will cause the Adviser to review the valuation
of a company's securities. In addition, a combination of developments that are
individually less significant also may cause a review of valuation. In making
determinations, the Adviser and Board will rely in many cases on information
provided by OrbiMed.
Expenses of the Fund, including the PWFA Fee, the Incentive
Allocation, the shareholder servicing fee and the costs of any borrowings, are
taken into account for the purpose of determining net asset value. See "Risk
Factors - Incentive Allocation."
CAPITAL ACCOUNTS
GENERAL
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 distributions, if any, to such investor
which are not reinvested, plus any amounts debited against such investor's
capital account. 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 Adviser; 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 Adviser 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 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.
The Fund will maintain a Special Advisory Account for the Adviser
solely for the purpose of receiving the Incentive Allocation, as described
above.
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 (but not the Special Advisory Account) 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 insurance 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. Under
the Fund's LLC Agreement, the Adviser 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 the Special Advisory Member and to a
withdrawing investor, in either case to the extent that its capital account
exceeds it Federal income tax basis in its Interest.
ALLOCATION OF SPECIAL ITEMS--ORGANIZATIONAL EXPENSES, CERTAIN WITHHOLDING TAXES
AND OTHER EXPENDITURES
The Fund's organizational and offering expenses are estimated at
$500,000. Before a recent change to the guidelines as adopted by the American
Institute of Certified Public Accountants, 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 Initial Closing Date These
allocations will thereafter be adjusted as of each date on which additional
capital is contributed to the Fund by its investors through and including, the
date which is six months after the Initial Closing Date.
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 Adviser or the Board. Reserves will be in such amounts,
subject to increase or reduction, which the Board or the Adviser 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.
VOTING
Each investor will have the right to cast a number of votes based on
the value of such investor's capital account relative to all capital accounts of
investors at any meeting of investors called by the Board 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 Adviser to provide advisory services to the Fund 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.
TAXES
The Fund has not sought a ruling from the Internal Revenue Service
(the "Service") or any other Federal, state or local agency with respect to any
of the tax issues affecting the Fund, nor has it obtained an opinion of counsel
with respect to any tax issues other than the characterization of the Fund as a
partnership for Federal income tax purposes.
The discussion below 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.
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.
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.
The Regulations specifically provide that the fact that a partnership
does not qualify for the safe harbors is disregarded for purposes of determining
whether interests in a partnership are readily tradable on a secondary market,
or the substantial equivalent thereof. Rather, in this event, the partnership's
status is examined under a general facts and circumstances test set forth in the
Regulations. Counsel to the Fund has rendered its opinion that, under this
"facts and circumstances" test, and based upon the anticipated operations of the
Fund as well as the legislative history to Section 7704 and the text of the
Regulations, Interests in the Fund will not be readily tradable on a secondary
market, or the substantial equivalent thereof, and, therefore, the Fund will not
be treated as a publicly traded partnership taxable as a corporation.
Neither of the opinions of counsel described above, however, is
binding on the Service or the courts. If it were determined that the Fund should
be treated as an association or a publicly traded partnership taxable as a
corporation for Federal income tax purposes, as a result of a successful
challenge to such opinions by the Service, changes in the Code, the Regulations
or judicial interpretations thereof, a material adverse change in facts, or
otherwise, the taxable income of the Fund would be subject to corporate income
tax when recognized by the Fund; distributions of such income, other than in
certain redemptions of Fund Interests, would be treated as dividend income when
received by the 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.
As an entity taxable 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 generally will 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. For a more detailed discussion of certain aspects of the
income taxation of the Fund and its investments under Federal and state law, see
"Tax Aspects" in the SAI.
PLAN OF DISTRIBUTION
GENERAL
PaineWebber acts as the distributor of the Fund's Interests on a best
efforts basis, subject to various conditions. The Fund also may distribute
Interests through brokers or dealers with which it has entered into distribution
agreements. The Fund is not obligated to sell to a broker or dealer any
Interests that have not been placed with Qualified Investors. PaineWebber
expects to deliver the Interests to the investors on or about the Initial
Closing Date, or such earlier or later date as PaineWebber may determine. The
Fund will pay a servicing fee to PaineWebber and to each broker or dealer that
is not affiliated with the Fund or PaineWebber and that has entered into a
shareholder servicing agreement with the Fund at the annual rate of 0.40% of the
net asset value of the outstanding Interests owned by their customers.
PaineWebber or its affiliates may pay from their own resources additional
compensation to brokers or dealers in connection with the sale and distribution
of the Interests or servicing of investors.
Neither PaineWebber nor any other broker or dealer is obligated to buy
from the Fund any of the Interests.
Once a prospective investor's order is received, a confirmation will
be sent to the investor. Thereafter, the investor's brokerage account will be
debited for the purchase amount, which will be deposited into an escrow account
set up at PNC Bank Corp. (the "Escrow Agent") for the benefit of the investors.
Any interest collected on the funds will be paid to investors on the Initial
Closing Date.
The Fund has agreed to indemnify PaineWebber and its affiliates and
certain other persons against certain liabilities under the Securities Act.
PURCHASE TERMS
Sales of Interests will be made only to Qualified Investors who have
completed and returned an investor certification, and whose investor
certification has been accepted, before the Initial Closing Date. Investors will
pay to PaineWebber a sales load of 3% for investments of less than $500,000; 2%
for investments of $500,000 or more, but less than $1 million; 1% for
investments of $1 million or more. No sales load will be charged in respect of
purchases of Interests by employees or directors of the Adviser and its
affiliates, Board members and 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 from each investor is
$25,000. The Fund may vary the investment minimum from time to time.
The LLC Agreement is annexed as Appendix A to this prospectus and each
new investor will be bound by all of its terms by executing the investor
certification form included as Appendix B to this prospectus.
ADDITIONAL SALES
From time to time, the Fund may sell additional Interests to Qualified
Investors. In deciding whether to commence sales, the Fund will take into
account all factors it considers relevant, including market conditions and the
cash available to it for investment.
SHAREHOLDER SERVICING FEE
The Fund intends to pay compensation to selected brokers and dealers
that are not affiliated with the Fund or PaineWebber that hold Interests for
their customers in accordance with several shareholder servicing agreements
between the Fund and the brokers and dealers. The shareholder servicing fee is
payable monthly at an annual rate of 0.40% of the net asset value of outstanding
Interests held by the brokers and dealers for their customers (prorated for
shorter periods). The brokers and dealers will provide customary investor
services, including responding to investor questions about the Fund and
assisting the Fund in administering repurchases. Shareholder servicing fees will
accrue as an expense of the Fund.
GENERAL INFORMATION
The Fund is registered under the Investment Company Act as a
closed-end, non-diversified management investment company. The Fund was formed
as a limited liability company under the laws of the State of Delaware on August
29, 2000 and has no operating history. The Fund's address is c/o PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York 10019 and its
telephone number is (212) 713-2000.
<PAGE>
TABLE OF CONTENTS
PAGE
Additional Investment Policies...........................................3
Repurchase and Transfers Of Interests...................................10
Directors...............................................................12
Code of Ethics..........................................................15
Investment Advisory Services............................................15
Conflicts of Interest...................................................16
Tax Aspects.............................................................19
ERISA Considerations....................................................33
Brokerage...............................................................35
Auditors and Legal Counsel..............................................36
Custodian...............................................................36
Summary of LLC Agreement................................................36
Other Information.......................................................39
Financial Statements....................................................41
Report of Independent Auditors..........................................42
Statement of Assets and Liabilities.....................................43
Statement of Operations.................................................43
Notes to Financial Statements...........................................44
Appendix A-Rating Categories...........................................A-1
<PAGE>
APPENDIX A
PW JUNIPER CROSSOVER FUND, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT of PW Juniper Crossover Fund,
L.L.C. (the "Fund") is dated and effective as of October 11, 2000 by and among
the Organizational Member, PWAdmin 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 August 29, 2000 and filed with the Secretary of State of
the State of Delaware on August 29, 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:
ADVISER means PW Juniper Management, L.L.C. or any successor thereto.
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,
thereafter, each period commencing as of the day following the last day of the
preceding Allocation Period with respect to such Member, and ending at the close
of business on the first to occur of the following:
(1) December 31, 2001 and, thereafter, December 31st of each
succeeding year;
(2) the date of a final distribution pursuant to Section 6.2 hereof;
(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); or
(5) the day as of which the status of the Adviser as the Special
Advisory Member is terminated pursuant to Section 4.1(a) hereof.
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 Special Advisory Member 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, through and including the date which is six months after the Closing Date,
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, 20% of the
amount, determined as of the close of each Allocation Period with respect to
such Member (appropriately adjusted for any partial repurchases or partial
Transfers of Interests), 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, with the following adjustments:
(1) Solely for the purpose of calculating the Incentive Allocation
and Loss Recovery Account with respect to any Member, as of the
close of an Allocation Period described in paragraph (1) of the
definition thereof, the Fund's Net Assets and Net Profit or Net
Loss and a Member's share of Net Profit or Net Loss, Capital
Account and Positive or Negative Allocation Change shall be
determined by excluding from the calculation thereof the amount
of any unrealized appreciation in the Fund's private securities
in excess of the amount of any unrealized depreciation in the
Fund's private securities.
(2) Solely for the purpose of calculating the Incentive Allocation
with respect to any Member, as of the close of an Allocation
Period described in paragraphs (2), (3), (4) or (5) of the
definition thereof with respect to such Member, there shall be
included any unrealized appreciation in the Fund's private
securities for all purposes relevant to such calculation.
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 Adviser 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 the Special Advisory Member, or other person to
whom an Interest or portion thereof has been transferred pursuant to Section 4.4
hereof, including the rights and obligations of such Member or other person
under this Agreement and the Delaware Act.
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 PWAdmin out of the Fund's assets,
and debited against Members' Capital Accounts, for PWAdmin Services.
MEMBER means any person who shall have been admitted to the Fund as a
member until the Fund repurchases the entire Interest of such person pursuant to
Section 4.6 hereof or a substitute Member who is admitted to the Fund pursuant
to Section 4.4 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 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; 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 Mitchell A. Tanzman.
PERSON means any individual, entity, corporation, partnership,
association, limited liability company, joint-stock company, trust, estate,
joint venture, organization or unincorporated organization.
PORTFOLIO COMPANY means a company issuing private securities.
POSITIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.
PRIVATE SECURITIES means Securities purchased by the Fund that are
restricted securities because they are not registered under the Securities Act
of 1933, as amended (excluding securities that may be resold pursuant to Rule
144A under said Act).
PWADMIN means PW Fund Advisor, L.L.C., or any successor thereto.
PWAdmin shall constitute a "manager" of the Fund within the meaning of the
Delaware Act. PWAdmin also shall constitute a "member" of the Fund within the
meaning of the Delaware Act and shall have an Interest.
PWADMIN SERVICES means such administrative services as PWAdmin or its
affiliates shall provide to the Fund pursuant to a separate written agreement
with the Fund as contemplated by Section 3.8(a) hereof.
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 ADVISORY ACCOUNT means a Capital Account established and
maintained on behalf of the Special Advisory Member pursuant to Section 5.3(e)
hereof to which amounts are credited under Section 5.8(a) hereof.
SPECIAL ADVISORY MEMBER means the Adviser in its capacity as the
investment adviser to the Fund.
TAX MATTERS PARTNER means the Member 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.
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ARTICLE II
ORGANIZATION; ADMISSION OF MEMBERS; BOARD
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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 Juniper Crossover 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
PWAdmin, 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. PWAdmin, in the exercise
of its administrative functions 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 PWAdmin be necessary or
advisable to carry out the administration of 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.
(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 4.2 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, PWAdmin 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 an instrument
pursuant to which such Member agrees to be bound by all the terms and provisions
hereof. The Board, in its absolute discretion, may reject requests to purchase
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 PWAdmin and the Organizational Member hereby is admitted as a Member on
the date hereof.
2.8 SPECIAL ADVISORY MEMBER.
Upon signing this Agreement, the Adviser shall be admitted to the Fund
as the Special Advisory Member, subject to due approval, in accordance with the
requirements of the 1940 Act, of the Investment Advisory Agreement. The Interest
of the Special Advisory Member shall be non-voting. If at any time the
Investment Advisory Agreement between the Fund and the person then serving as
Adviser terminates, the Board shall admit as a substitute Special Advisory
Member, upon its signing this Agreement, such person as may be retained by the
Fund to provide investment advisory services pursuant to an Investment Advisory
Agreement, subject to the due approval of such Investment Advisory Agreement in
accordance with the requirements of the 1940 Act.
2.9 ORGANIZATIONAL 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.
2.10 BOTH DIRECTORS AND MEMBERS.
A Member may at the same time be a Director and a Member, or a Special
Advisory Member 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.
2.11 LIMITED LIABILITY.
Except as otherwise provided under applicable law, no Member, Director
or Special Advisory Member 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, PWAdmin, in the exercise
of its administrative functions on behalf of the Fund, 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 PWAdmin, in its exercise of its
administrative functions on behalf of the Fund, 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 Capital Account in the Fiscal Year in which the debt,
obligation or liability arose or was incurred as a percentage of the aggregate
Capital Accounts 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 objective and business of the Fund and its duties hereunder. 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 Adviser shall continue to serve as investment adviser to the
Fund and PWAdmin shall continue to provide the PWAdmin Services 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 PWAdmin, and the Adviser if it should become a
Member, other than the Special Advisory Member) 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 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 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.
3.5 OTHER ACTIVITIES OF MEMBERS (INCLUDING PWADMIN), DIRECTORS AND THE
ADVISER.
(a) None of the Directors, PWAdmin nor the Adviser 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 and
any other agreement they may have with the Fund.
(b) Any Member (including PWAdmin), Director or the Adviser, or
Affiliate of any of them, 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, Director, the Adviser
or Affiliates of any of them, or any profits derived therefrom.
3.6 DUTY OF CARE.
(a) The Directors, PWAdmin, including any officer, director, member,
partner, principal, employee or agent of PWAdmin, and the Adviser, including any
officer, director, member, principal, employee or agent of the Adviser and each
of their affiliates, 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.
3.7 INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Fund shall, subject to
Section 3.7(b) hereof, indemnify each Director (including for this purpose their
executors, heirs, assigns, successors or other legal representatives), the
Adviser (including for this purpose each affiliate (including PWAdmin), officer,
director, member, partner, principal, employee or agent of the Adviser 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 Adviser 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, the Adviser 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, or the past or present performance of services to the Fund by
PWAdmin, 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 3.7 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 3.7 to
the fullest extent permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred by any
such indemnitee (but excluding amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties), may be paid from time to time by the 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 3.7(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 3.7(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 3.7 shall not prevent the recovery from any indemnitee of any such
amount if such indemnitee subsequently shall be determined in a decision on the
merits in any action, suit, investigation or proceeding involving the liability
or expense that gave rise to such indemnification or advancement of expenses to
be liable to the 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 3.7 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 3.7 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 3.7. In
any such suit brought to enforce a right to indemnification or to recover any
indemnification or advancement of expenses made pursuant to this Section 3.7,
the burden of proving that the indemnitee is not entitled to be indemnified, or
to any indemnification or advancement of expenses, under this Section 3.7 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 3.7 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 3.7 shall
affect the power of the Fund to purchase and maintain liability insurance on
behalf of any Director or other person.
3.8 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as PWAdmin (or its affiliates) provides PWAdmin Services
to the Fund, it shall be entitled to receive such fees as may be agreed to by
PWAdmin 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, 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 Adviser pursuant
to the Investment Advisory Agreement or by PWAdmin pursuant to a separate
written agreement with the Fund as contemplated by Section 3.8(a) hereof.
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;
(2) all costs and expenses associated with the organization,
operation 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, including all travel-related expenses and other costs
associated with the negotiation and due diligence performed in
connection with the analysis, purchase and sale of Portfolio
Companies;
(5) the costs of a fidelity bond and any liability insurance obtained
on behalf of the Fund, the Adviser or the Directors;
(6) any fees payable to PWAdmin or its affiliates for PWAdmin
Services;
(7) all costs and expenses of preparing, setting in type, printing
and distributing reports and other communications to Members;
(8) 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 appraisal and valuation
services provided by third parties;
(9) all charges for equipment or services used for communications
between the Fund and any custodian, or other agent engaged by the
Fund;
(10) fees payable to custodians and persons providing administrative
services to the Fund; and
(11) such other types of expenses as may be approved from time to time
by the Board.
The Adviser and PWAdmin shall be entitled to reimbursement from the
Fund for any of the above expenses that either pays on behalf of the Fund.
(d) The Fund from time to time, alone or in conjunction with other
accounts for which the Adviser, or any Affiliate of the Adviser, 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 ADVISER AND DIRECTORS;
TRANSFERS AND REPURCHASES
------------------------------------------
4.1 TERMINATION OF STATUS OF THE ADVISER.
The status of the Adviser as the Special Advisory Member shall
terminate if the Investment Advisory Agreement with the Adviser terminates and
the Fund does not enter into a new Investment Advisory Agreement with the
Adviser, effective as of the date of such termination.
4.2 TERMINATION OF STATUS OF 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 4.3; (v) shall be certified by a physician to be mentally or
physically unable to perform his duties hereunder; or (vi) shall have a receiver
appointed to administer the property or affairs of such Director.
4.3 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.
4.4 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. 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, PWAdmin, 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 4.4 and (ii) any
misrepresentation by such Member in connection with any such Transfer.
4.5 TRANSFER OF INTERESTS OF SPECIAL ADVISORY MEMBER.
The Adviser may not Transfer its Interest as the Special Advisory
Member.
4.6 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 Adviser may tender its Interest or a portion thereof as a
Member or Special Advisory Member of the Fund under Section 4.6(a) hereof.
(c) If the Adviser's status as Special Advisory Member is terminated
pursuant to Section 4.1 hereof, it (or its trustee or other legal
representative) may, by written notice to the Board within 60 days of the
effective date of such termination, tender to the Fund for repurchase all or any
portion of its Capital Account. Not later than 30 days after the receipt of such
notice, the Board shall cause such tendered portion of the Capital Account to be
repurchased by the Fund for cash.
(d) 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 4.4 hereof, or such an Interest or portion
thereof has vested in any person by operation of law as the
result of the death, dissolution, bankruptcy or incompetency of a
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 Adviser
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.
(e) 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
PWAdmin and the Adviser) to the capital of the Fund shall be the amount set
forth, from time to time, in the Fund's Form N-2 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 otherwise provided herein.
(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 4.6 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 the provisions of
this Article V.
(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 4.6, 5.10 or 6.2 hereof
which are not reinvested, plus (ii) any amounts debited against such Member's
Capital Account pursuant to the provisions of this Article V.
(e) The Fund shall maintain a Special Advisory Account for the Adviser
in its capacity as Special Advisory Member to which amounts shall be credited
pursuant to Section 5.8 hereof. The Special Advisory Account shall have an
initial balance of zero.
(f) 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 3.8(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, and any other
Fund items, to the extent determined by the Board to have been paid or incurred
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 expenditures or items are paid or incurred or
whose particular circumstances gave rise to such expenditures or items. 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 PWAdmin 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 Adviser serves as the Special Advisory Member of
the Fund, the Incentive Allocation shall be debited against the Capital Account
of each Member (other than PWAdmin and the Adviser) as of the last day of each
Allocation Period with respect to such Member and the amount so debited shall be
credited to the Special Advisory Account, or, subject to compliance with the
1940 Act and the Advisers Act, to the Capital Accounts of such Members as have
been designated in any written notice delivered by the Adviser to the Fund
within 90 days after the close of such Allocation Period.
(b) By the last business day of the month following the date on which
any amounts are credited to the Special Advisory Account pursuant to Section
5.8(a) above, the Special Advisory Member may withdraw up to 100% of any such
amounts (computed on the basis of unaudited data) that were credited to the
Special Advisory Account. Within 30 days after the completion of the audit of
the Fund's books for the year in which any such amounts were credited to the
Special Advisory Account, the Fund shall pay to the Special Advisory Member any
additional amounts determined to be owed to the Special Advisory Member based on
the audit, and the Special Advisory Member shall pay to the Fund any excess
amounts that were credited to the Special Advisory Account.
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.
Notwithstanding anything to the contrary in the foregoing, if the Fund
realizes taxable gains (including short-term capital gains) for Federal income
tax purposes in any Fiscal Year with respect to which any amounts are credited
to the Special Advisory Account under Section 5.8(a) hereof, the Board (at the
request of the Special Advisory Member) may specially allocate such gains to the
Special Advisory Member up to an amount by which the sum total of any such
credited amounts exceeds the Special Advisory Member's "adjusted tax basis"
(determined without regard to any allocation to be made pursuant to this
paragraph) in its Interest as of the time it withdraws any such credited amounts
under Section 5.8(b) hereof.
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 PWAdmin), 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 PWAdmin 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 Interest for repurchase
by the Fund if the Fund has not commenced a tender offer within
such two-year period for at least 10% of the Fund's outstanding
Interests;
(4) upon the determination by the Adviser 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
liquidate, in an orderly manner, 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 liquidate, in an orderly manner, 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;
(3) the Special Advisory Member shall next be paid any balance in the
Special Advisory Account after giving effect to the Incentive
Allocation, if any, to be made pursuant to Section 5.8 hereof;
and
(4) the 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)(4).
(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 PWAdmin, to the
extent consistent with its administrative functions, 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 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. 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, 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) PWAdmin (to the extent consistent with its administrative
functions) 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 or the Special Advisory
Account 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 (except an amendment contemplated in Section 8.1(c)(2) hereof)
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, and PWAdmin 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 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
PWAdmin 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 PWAdmin 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 AND THE SPECIAL ADVISORY MEMBER AGREE 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 (including PWAdmin),
Directors, the Special Advisory Member 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. PWAdmin hereby is designated as the "tax
matters partner" under the Code for the Fund.
<PAGE>
THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS
ENTIRETY BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSES SET FORTH
IN SECTION 8.6 ON PAGES 33-34 AND THE CONFIDENTIALITY CLAUSES SET FORTH IN
SECTION 8.11 ON PAGE 35.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ORGANIZATIONAL MEMBER:
/S/ MITCHELL A. TANZMAN
---------------------------------------
Mitchell A. Tanzman
PW FUND ADVISOR, L.L.C.:
By:____________________________________
Name:
Title: Authorized Person
PW JUNIPER MANAGEMENT, L.L.C.
By:____________________________________
Name:
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>
PLEASE COMPLETE AND MAIL THIS CERTIFICATION TO YOUR
PAINEWEBBER FINANCIAL ADVISOR
WITHIN 5 BUSINESS DAYS OF RECEIPT.
APPENDIX B
PW JUNIPER CROSSOVER FUND
INVESTOR CERTIFICATION
This certificate relates to PW Juniper Crossover Fund, L.L.C. (the
"Fund") and is given to you with respect to a potential investment in the Fund.
I hereby certify that I am: (A) a natural person, who either
individually or together with my spouse has a net worth* in excess of $1.5
million (the "Net Worth Requirement"); (B) an irrevocable trust that meets the
Net Worth Requirement; (C) a revocable trust and each grantor of the trust meets
the Net Worth Requirement; (D) an employee benefit plan (a "Plan") that meets
the Net Worth Requirement; (E) a participant-directed Plan and the person making
the investment meets the Net Worth Requirement; (F) a corporation, partnership,
limited liability company or other entity that meets the Net Worth Requirement
that is not (i) a registered investment company, (ii) an entity which is
excluded from the definition of Investment Company under Section 3(a) of the
Investment Company Act of 1940 based on Section 3(c)(1) because it is a
non-publicly offered entity whose securities are beneficially owned by not more
than 100 persons, or (iii) a business development company; or (G) an entity
referred to in clause F(i), (ii) or (iii) above, not formed for the specific
purpose of investing in the Fund and each equity owner meets the Net Worth
Requirement. I AM NOT A CHARITABLE REMAINDER TRUST.
I understand that it may be a violation of state and federal law for
me to provide this certification if I know that it is not true. I have read the
prospectus of the Fund, including the investor qualification and investor
suitability provisions contained therein. I understand that an investment in the
Fund involves a considerable amount of risk and that some or all of the
investment may be lost. I understand that an investment in the Fund is suitable
only for investors who can bear the risks associated with the limited liquidity
of the investment and should be viewed as a long-term investment.
I am aware of the Fund's incentive allocation and limited provisions
for transferability and withdrawal and have carefully read and understand the
"Incentive Allocation" and "Redemptions, Repurchases of Interests and Transfers"
provisions in the prospectus.
I am NOT (A) a non-resident alien or (B) a foreign corporation,
foreign partnership, foreign trust or foreign estate (as those terms are defined
in the Internal Revenue Code of 1986, as amended, including income tax
regulations (the "Code")) for purposes of U.S. Federal income taxation. I agree
to notify the Fund within 60 days of the date that I become a foreign person or
entity. I further certify that my name, U.S. tax identification number, home
address (in the case of an individual) and business address (in the case of an
entity), as they appear in your records, are true and correct. I understand that
these certifications, which are made under penalty of perjury, may be disclosed
to the Internal Revenue Service by the Fund and that any false statement
contained in this paragraph could be punished by fine and/or imprisonment.
If I am the fiduciary executing this Investor Certificate on behalf of
a Plan (the "Fiduciary"), I represent and warrant that I have considered the
following with respect to the Plan's investment in the Fund and have determined
that, after review of such considerations, the investment is consistent with the
Fiduciary's responsibilities under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"): (i) the fiduciary investment standards under
ERISA in the context of the Plan's particular circumstances; (ii) the
permissibility of an investment in the Fund under the documents governing the
Plan and the Fiduciary; and (iii) the risks associated with an investment in the
Fund and the fact that I will be unable to redeem the investment. However, the
Fund may repurchase the investment at certain times and under certain conditions
set forth in the prospectus.
I understand that the Fund and its affiliates are relying on the
certification and agreements made herein in determining my qualification and
suitability as an investor in the Fund. I understand that an investment in the
Fund is not appropriate for, and may not be acquired by, any person who cannot
make this certification, and agree to indemnify you and hold harmless from any
liability that you may incur as a result of this certification being untrue in
any respect.
BY SIGNING BELOW, I HEREBY EXECUTE, AS A MEMBER, AND AGREE TO BE BOUND
BY THE TERMS OF THE FUND'S LIMITED LIABILITY COMPANY AGREEMENT (THE
"AGREEMENT"), INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSE IN SECTION 8.6 ON
PAGES 33-34 OF THE AGREEMENT AND ITS POWER OF ATTORNEY PROVISIONS, A FORM OF
WHICH IS SET FORTH IN APPENDIX A TO THE PROSPECTUS. I HAVE READ THE AGREEMENT
AND, TO THE EXTENT I BELIEVE IT NECESSARY, HAVE CONSULTED WITH MY TAX AND LEGAL
ADVISORS AND UNDERSTAND ITS TERMS.
Signature: ________________________________________ Date: ___________
Print Name: ________________________________________
Financial Advisor Name: ________________________________________
Financial Advisor Telephone Number: ________________________________________
- - - - - - - - -
PaineWebber Account Number
- - - - - - - - -
SSN/TAX ID Number
* As used herein, "net worth" means the excess of total assets at fair
market value, including home, over total liabilities. For the purpose of
determining "net worth," the principal residence owned by an individual shall be
valued at either (A) cost, including the cost of improvements, net of current
encumbrances upon the property, or (B) the appraised value of the property as
determined by an institutional lender, net of current encumbrances upon the
property.
ATTENTION FINANCIAL ADVISOR: Please return certifications with ORIGINAL
SIGNATURES (NO FAXES) to your Branch Manager.
<PAGE>
APPENDIX C
INVESTMENT RECORD
This Appendix contains the investment record for accounts managed by
OrbiMed Advisors Inc., its affiliates or their predecessors ("OrbiMed"). The
investment record has not been audited and does not comply with the standards
established by the Association of Investment Management and Research (AIMR).
Table I contains composite performance information for all accounts
managed by OrbiMed pursuant to an investment program similar to that which will
be used to manage the public securities of the type expected to be held in the
Fund. This information reflects the deduction of the actual fees, allocations
and expenses paid by these accounts. This information has not been adjusted to
reflect the Fund's proposed expenses (which are expected to be higher than those
charged to the accounts) and the payment of a sales charge which would have
reduced the performance shown. The composite includes the private securities
which are included in Table II. PROSPECTIVE INVESTORS SHOULD RECOGNIZE THAT
THERE ARE CERTAIN DIFFERENCES BETWEEN THE INVESTMENT POLICIES OF THE FUND AND
THOSE OF THE ACCOUNTS WHOSE PERFORMANCE IS INCLUDED IN TABLE I. AMONG THE
DIFFERENCES IS THAT THE FUND EXPECTS TO INVEST A GREATER PROPORTION OF ITS
ASSETS IN PRIVATE SECURITIES. FUTURE PERFORMANCE OF THE FUND WILL DIFFER FROM
THE PERFORMANCE OF THESE ACCOUNTS. THESE ACCOUNTS ARE NOT SUBJECT TO THE SAME
INVESTMENT RESTRICTIONS AND LIMITATIONS AS THE FUND AND SOME ARE NOT SUBJECT TO
LIMITATIONS IMPOSED UNDER THE INVESTMENT COMPANY ACT OF 1940. WERE THESE
RESTRICTIONS AND LIMITATIONS APPLICABLE TO THESE ACCOUNTS, THEIR PERFORMANCE
MIGHT HAVE BEEN ADVERSELY AFFECTED.
Table II contains information for all private securities purchased by
OrbiMed for accounts over which it has investment discretion. Except in respect
of the pro-forma internal rate of return ("IRR"), which reflects a 20%
reduction, this information does not reflect payment of any fees, expenses and
incentive allocations, and, if reflected, these amounts would reduce the stated
IRR. Unrealized gain/(loss) reflects the fair value of the investment as
determined by OrbiMed pursuant to its valuation policies, which may be different
than those adopted by the Fund's Board. This table is intended to illustrate the
types of investments which OrbiMed has made.
THE TABLES SHOULD BE READ IN CONJUNCTION WITH THE NOTES THERETO. PAST
PERFORMANCE AND HISTORICAL IRRS ARE NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS. INVESTING IN THE FUND INVOLVES A HIGH DEGREE OF RISK. YOU CAN LOSE
MONEY.
The OrbiMed investment record in recent years occurred during a period
of strong stock market performance, especially in the health sciences sector,
which cannot be assumed over the long-term.
Performance, IRR and other information included in these tables has
been obtained or derived from information provided by OrbiMed and not by the
Investment Adviser, PaineWebber or any of their affiliates, each of which does
not warrant the accuracy or completeness of the information provided by OrbiMed.
Information about the S&P 500 Index and the Lipper Health/Biotechnology Funds
Index has been obtained or derived from sources believed to be reliable but is
not warranted as to accuracy or completeness. Neither the Investment Adviser,
PaineWebber nor any of their affiliates has independently verified and is not
responsible for this information, and neither OrbiMed nor the Investment
Adviser, PaineWebber or any of their affiliates is responsible for information
about the S&P 500 Index or the Lipper Health/Biotechnology Funds Index. TABLE I
TABLE I
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
ANNUALIZED COMPOSITE PERFORMANCE RECORD OF THE ORBIMED ACCOUNTS (a)(b)
Lipper
OrbiMed Health/Biotechnology
Accounts (c)d) S&P 500 Index (e) Funds Index (f)
--------------- ----------------- ---------------------
<S> <C> <C> <C>
1 Year 126.74% 16.31% 45.09%
3 Years 42.98% 20.69% 26.40%
5 Years 35.82% 24.04% 24.86%
10 Years 27.13% 19.49% (g)
Since Inception 25.89% 17.15% (g)
(August 17, 1989)
Total Return 1170.91% 474.09% (g)
Since Inception
</TABLE>
<TABLE>
<CAPTION>
COMPOSITE PERFORMANCE RECORD OF THE ORBIMED ACCOUNTS (a)
Lipper
OrbiMed Health/Biotechnology
Accounts (c)d) S&P 500 Index (e) Funds Index (f)
--------------- ----------------- ---------------------
<S> <C> <C> <C>
2000(h) 88.69% 4.11% 36.28%
1999 28.19% 21.04% 10.35%
1998 24.07% 28.58% 26.00%
1997 13.01% 33.36% 20.52%
1996 17.79% 22.96% 12.92%
1995 53.34% 37.58% 46.60%
1994 (4.54)% 1.32% 4.16%
1993 22.66% 10.06% 1.53%
1992 2.26% 7.62% (9.78)%
1991 42.23% 30.47% n/a
1990 5.40% (3.09)% n/a
1989(i) 15.59% 3.47% n/a
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
a. The performance information is for accounts managed by OrbiMed ("OrbiMed
Accounts") and has been generated by applying an investment philosophy and
methodology that is similar to that which is expected to be used to manage
the public securities of the type expected to be held in the Fund. Future
investments, however, will be made under different economic conditions and
likely will 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 discussed herein.
b. All returns are through August 31, 2000.
c. The performance, which reflects total return consisting of capital
appreciation and dividends or income, if any, received in respect of the
investment, for each period is the performance a full period investor in
the OrbiMed Accounts would have received, weighted by the average of the
beginning and end of month assets of each Account. The performance
information reflects the deduction of the actual expenses, allocations and
fees paid by the OrbiMed Accounts, but not the expenses associated with an
investment in the Fund, which are expected to be higher, or the payment of
a sales charge. At all times under consideration, assets of the OrbiMed
Accounts were between $2.4 million and $2.4 billion. The composite
performance record is comprised of one OrbiMed Account from August 1989
through December 1992 increasing to ten OrbiMed Accounts after January
2000.
d. For the period August 17, 1989 through December 31, 1997, Mehta and Isaly
Asset Management, Inc. ("Mehta and Isaly") acted as manager of the OrbiMed
Accounts. OrbiMed Advisors LLC, an affiliate of OrbiMed, was formed upon
the dissolution of Mehta and Isaly in December 1997, and has acted,
together with its affiliates, as the manager of the OrbiMed Accounts since
January 1, 1998.
e. The S&P 500 Index is an unmanaged index and is considered to be
representative of the U.S. large cap stock market as a whole. The
performance data for the S&P 500 Index assumes the reinvestment of all
dividends, but does not deduct any fees or expenses. The Fund and the
OrbiMed Accounts do not restrict their investments to securities included
in the S&P 500 Index.
f. The Lipper Health/Biotechnology Funds 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 healthcare, medicine and biotechnology. The performance data for
the Lipper Health/Biotechnology Funds Index includes reinvestment of all
dividends declared by such mutual funds and deducts any fees or expenses of
such mutual funds. The Fund and the OrbiMed Accounts do not restrict their
investments to securities included in the Lipper Health/Biotechnology Funds
Index.
g. Inception date of the Index was January 1992.
h. Returns for 2000 are for the period January 1, 2000 through August 31,
2000. Returns for all other periods, other than 1989, are for the full
calendar year.
i. Returns for 1989 are for the period August 17, 1989 through December 31,
1989.
<PAGE>
TABLE II-A(A)
PRIVATE SECURITIES PURCHASED BEFORE, OR COMPLETELY SOLD AFTER, JANUARY 1, 2000
(UNAUDITED)
INVESTORS IN THE FUND WILL
NOT HAVE THE OPPORTUNITY TO PARTICIPATE IN ANY RETURN ON THESE INVESTMENTS.
<TABLE>
<CAPTION>
Average
Holding Realized Unrealized Estimated
Company(b) Period* (yrs.) Aggregate Investment Gain/(Loss)(c) Gain/(Loss) (d) IRR(e)
---------------------------- --------------- -------------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Cambridge Antibody Technology Group, 3.3 3,801,000 $3,923,188 - 22.2%
Plc.
Procept Inc. 0.9 1,425,000 (649,946) - -66.2%
Praecis Pharmaceuticals, Inc. 4.4 1,499,993 - $24,475,628 91.3%
Tularik, Inc. 3.4 5,000,000 - 11,687,500 41.0%
AMRAD Corporation, Ltd. 1.8 3,694,843 152,829 - 2.4%
Zonagen, Inc. 0.4 200,000 252,764 - 678.3%
Caliper Technologies Corp. 2.9 21,633,343 5,300,187 22,415,490 108.9%
Ontogeny Inc./Curis Inc. 3.5 2,500,000 1,734,351 742,516 22.0%
Alexion Pharmaceuticals, Inc. 2.5 2,325,000 11,402,494 5,835,000 113.1%
Signal Pharmaceuticals, Inc./Celgene 3.0 2,000,000 - 7,740,101 70.2%
Corp.
Lynx Therapeutics, Inc. 1.1 3,000,000 (348,741) - -10.8%
Orchid Biosciences, Inc. 1.7 10,750,000 - 99,816,562 196.6%
Abgenix, Inc. 2.1 2,999,997 36,226,952 45,098,944 315.6%
Aquila BioPharmaceuticals, Inc. 2.1 2,060,350 1,107,531 - 23.2%
NetGenics, Inc. 1.6 4,500,000 - 150,000 3.0%
Enzon, Inc. 0.9 1,543,750 2,424,599 4,209,375 285.4%
Maxim Pharmaceuticals, Inc. 0.1 3,024,990 16,863,714 - (f)
Intrabiotics Pharmaceuticals, Inc. 1.8 1,000,000 - 2,500,007 102.7%
Triangle Pharmaceuticals, Inc. 1.0 3,250,000 1,407,171 - 47.4%
Arena Pharmaceuticals, Inc. 0.8 3,894,066 - 34,586,766 661.8%
Titan Pharmaceuticals, Inc. 0.7 1,444,150 3,454,794 - 461.3%
Aronex Pharmaceuticals, Inc. 0.4 1,312,500 1,489,192 - 489.7%
Cell Therapeutics, Inc. 0.7 1,000,000 18,999,765 - (f)
Biotransplant Inc. 0.4 1,520,000 547,344 - 112.3%
NPS Pharmaceuticals, Inc. 0.5 1,440,000 3,043,128 - (f)
Genta Incorporated 0.6 600,000 834,600 - 345.5%
Discovery Laboratories, Inc. 1.1 4,198,346 - 14,809,912 295.4%
TOTAL $91,617,328 $108,863,398 $274,067,801 101.2%
----------------------------------------------------------------------------------------------------------------------------------
Estimated Pro-forma IRR 80.9%(g)
</TABLE>
<PAGE>
TABLE II-B(A)
PRIVATE SECURITIES PURCHASED AFTER JANUARY 1, 2000 AND NOT SOLD TO DATE
(UNAUDITED)
INVESTORS IN THE FUND WILL NOT HAVE THE OPPORTUNITY TO PARTICIPATE IN ANY OF THE
RETURNS ON THESE INVESTMENTS.
<TABLE>
<CAPTION>
Month Aggregate Realized Unrealized
Company(b) Purchased Investment Gain/(loss)(c) Gain/(loss)(d)
------- --------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Adolor, Corp. January $4,350,002 - $ 530,000
Ciphergen Biosystems, Inc. February 999,999 - -
LJL Biosystems Inc./ Molecular
Devices Corp. February 4,999,500 - 6,291,984
Orphan Medical, Inc. February 10,120,000 - 4,269,375
Repligen Corp March 3,139,500 - (386,750)
Acadia Pharmaceuticals, Inc. May 5,000,000 - -
Physiome Sciences, Inc. May 4,000,000 - -
Insmed, Inc. May 2,000,000 4,597,544
Memory Pharmaceuticals Corp. June 5,000,000 - -
CombiMatrix Corp. July 4,999,995 - -
Geneva Proteomics Inc. July 2,000,004
--------- --------- -----------
TOTAL $46,609,000 0 $15,302,153
</TABLE>
Notes:
a. As of August 31, 2000, except as noted. Excludes any accounts as to which
OrbidMed does not have full investment discretion.
b. The order of companies is based on date of first investment, earliest
presented first.
c. Realized gain/(loss) reflects cash proceeds from the investment's sale.
d. Unrealized gain/(loss) does not reflect amounts actually received in
respect of the investment and is based on values attributed to the
investment by OrbiMed. Valuations are provided by OrbiMed pursuant to its
valuation policies, which may not be the same policies adopted by the
Fund's Board. These valuations are subjective in nature, as there is no
uniform standard for valuing private companies, and reflect OrbiMed's best
judgment as to the fair value of the investment. Factors considered by
OrbiMed when valuing securities include, among others, levels at which
subsequent equity financings are made by third-party financial buyers and
the price at which publicly registered equity securities of the company, if
any, trade. These valuations may not reflect actual values at which such
investments may be ultimately realized. Other valuation methods may have
produced different, and perhaps lower, valuations. OrbiMed has not obtained
independent third-party valuations of these securities positions.
e. Internal Rate of Return ("IRR") is a common analytical tool used to take an
investment that may produce cash flows over time and evaluate the returns
on the investment taking into account the varying times at which the
investment is made and varying the times at which cash is received from the
investment. Technically, it is the discount rate that makes the net present
value of the received and anticipated cash flows from an investment equal
its current cost. IRR does not take into account any expenses, allocations
and fees associated with the investment other than the amount invested,
which would have reduced the IRR. IRR is different than, and should not be
confused with, annualized return. The IRR calculation takes into account
unrealized gain/(loss) which, as described in note (d) above, results from
a subjective valuation of the investment (which is why the IRR is deemed to
be "estimated"). Other methods of calculating IRR may have produced
different, and perhaps lower, IRRs. PAST INTERNAL RATES OF RETURN ARE NO
GUARANTEE OF FUTURE INTERNAL RATES OF RETURN. FUTURE INVESTMENTS WILL BE
MADE UNDER DIFFERENT ECONOMIC CONDITIONS AND WILL INCLUDE DIFFERENT
INVESTMENTS. PROSPECTIVE INVESTORS SHOULD RECOGNIZE THAT THERE ARE
SIGNIFICANT DIFFERENCES BETWEEN THE PRESENTATION OF AN ANNUALIZED RATE OF
RETURN AND AN INTERNAL RATE OF RETURN. AN INVESTMENT IN THE FUND INVOLVES A
HIGH DEGREE OF RISK. YOU MAY LOSE MONEY.
f. Greater than 1,000%
g. Pro-forma IRR is the IRR reduced by 20%.
<PAGE>
=====================================================================
PW JUNIPER CROSSOVER FUND
Limited Liability Company Interests
----------------------
PROSPECTUS
October __, 2000
----------------------
PAINEWEBBER INCORPORATED
------------------------
<PAGE>
=====================================================================
SUBJECT TO COMPLETION, DATED OCTOBER 19, 2000
PW Juniper Crossover Fund
October __, 2000
STATEMENT OF ADDITIONAL INFORMATION
1285 Avenue of the Americas
New York, New York 10019
(212) 713-9036
toll-free (800) 486-2608
This Statement of Additional Information ("SAI") is not a prospectus.
This SAI relates to and should be read in conjunction with the prospectus of PW
Juniper Crossover Fund, L.L.C. (the "Fund"), dated October __ , 2000. A copy of
the prospectus may be obtained by contacting the Fund at the telephone numbers
or address set forth above.
The information in this SAI is not complete and may be changed. The
Fund may not sell these securities until the registration statement filed with
the Securities and Exchange Commission (the "SEC") is effective. This SAI is not
an offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Additional Investment Policies...............................................3
Repurchases and Transfers Of Interests......................................10
Directors...................................................................12
Code of Ethics..............................................................15
Investment Advisory Services................................................15
Conflicts of Interest.......................................................16
Tax Aspects.................................................................19
ERISA Considerations........................................................33
Brokerage...................................................................35
Auditors and Legal Counsel..................................................36
Custodian...................................................................36
Summary of LLC Agreement....................................................36
Other Information...........................................................39
Financial Statements........................................................41
Report of Independent Auditors..............................................42
Statement of Assets and Liabilities.........................................43
Statement of Operations.....................................................43
Notes to Financial Statements...............................................44
Appendix A--Rating Categories...............................................A-1
<PAGE>
ADDITIONAL INVESTMENT POLICIES
The investment objective and principal investment strategies of the
Fund, as well as the principal risks associated with the Fund's investment
strategies, are set forth in the prospectus. Certain additional investment
information is set forth below.
FUNDAMENTAL POLICIES
The Fund's stated fundamental policies, which may only be changed by
the affirmative vote of a majority of the outstanding voting securities of the
Fund ("Interests"), are listed below. For the purposes of this SAI, "majority of
the outstanding voting securities of the Fund" means the vote, at an annual or
special meeting of securityholders 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 the Fund are present or represented by proxy;
or (b) of more than 50% of the outstanding voting securities of the Fund,
whichever is the less. The Fund may not:
o Issue senior securities, except to the extent permitted by
Section 18 of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
o Underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of
1933 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.
o Purchase, hold or deal in real estate, except that the Fund may
invest in securities that are secured by real estate, or issued
by companies that invest or deal in real estate or real estate
investment trusts.
o Invest in commodities or commodity contracts, except that the
Fund may purchase and sell foreign currency, options, futures and
forward contracts, including those related to indexes, and
options on indexes.
o Invest in the securities of any one industry, except the health
sciences industry (and except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities), if as a
result 25% or more of the Fund's total assets would be invested
in the securities of such industry. The Fund will concentrate its
investments in securities of companies in the health sciences
industry, which includes the biotechnology and pharmaceuticals
industries.
With respect to these investment restrictions, and other policies
described in this SAI, 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 Investment Company Act) of the
Fund's outstanding voting securities.
CERTAIN PORTFOLIO SECURITIES AND OTHER OPERATING POLICIES
FOREIGN SECURITIES
GENERAL. The Fund may invest in equity and fixed-income securities of
foreign issuers and in depositary receipts, such as American Depositary Receipts
and American Depositary Shares (collectively, "ADRs"), Global Depositary
Receipts and Global Depositary Shares ("GDRs") and other forms of depositary
receipts. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs are receipts issued outside the United States typically by
non-United States banks and trust companies that evidence ownership of either
foreign or domestic securities. Generally, ADRs in registered form are designed
for use in the United States securities markets and GDRs in bearer form are
designed for use outside the United States.
These securities may be purchased through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary. A depositary may establish an unsponsored
facility without participation by the issuer of the deposited security. Holders
of unsponsored depositary receipts generally bear all the costs of such
facilities, and the depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through voting rights to the holders of such
receipts in respect of the deposited securities.
Foreign securities in which the Fund may invest may be listed on
foreign securities exchanges or traded in foreign over-the-counter markets or
may be purchased in private placements and not be publicly traded. Investments
in foreign securities are affected by risk factors generally not thought to be
present in the U.S. These factors are listed in the prospectus under "Risk
Factors--Investments in foreign securities."
As a general matter, the Fund will not hedge against foreign currency
risks, including the risk of changing currency exchange rates, which could
reduce the value of certain of the Fund's foreign currency denominated portfolio
securities irrespective of the underlying investment. However, from time to
time, the Fund may enter into forward currency exchange contracts ("forward
contracts") for hedging purposes and non-hedging purposes to pursue its
investment objective. Forward contracts are transactions involving the Fund's
obligation to purchase or sell a specific currency at a future date at a
specified price. Forward contracts may be used by the Fund for hedging purposes
to protect against uncertainty in the level of future foreign currency exchange
rates, such as when the Fund anticipates purchasing or selling a foreign
security. This technique would allow the Fund to "lock in" the U.S. dollar price
of the security. Forward contracts also may be used to attempt to protect the
value of the Fund's existing holdings of foreign securities. There may be,
however, imperfect correlation between the Fund's foreign securities holdings
and the forward contracts entered into with respect to such holdings. Forward
contracts also may be used for non-hedging purposes to pursue the Fund's
investment objective, such as when PW Juniper Management, L.L.C. (the "Adviser")
anticipates that particular foreign currencies will appreciate or depreciate in
value, even though securities denominated in such currencies are not then held
in the Fund's investment portfolio. See "Additional Investment Policies--Certain
Portfolio Securities and Other Operating Policies--Special Investment
Techniques."
EUROPEAN ECONOMIC AND MONETARY UNION ("EMU"). For a number of years,
certain European countries have been seeking economic unification that, among
other things, would reduce barriers between countries, increase competition
among companies, reduce government subsidies in certain industries, and reduce
or eliminate currency fluctuations among these European countries. The Treaty on
European Union (the "Maastricht Treaty") set out a framework for the European
Economic and Monetary Union ("EMU") among the countries that comprise the
European Union ("EU"). EMU established a single common European currency (the
"euro") that was introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1, 2002. EMU took
effect for the initial EMU participants on January 1, 1999. Certain securities
issued in participating EU countries (beginning with government and corporate
bonds) were redenominated in the euro, and are listed, trade, and make dividend
and other payments only in euros.
No assurance can be given that EMU will take effect, that all the
changes planned for the EU can be successfully implemented or that these changes
will result in the economic and monetary unity and stability intended. There is
a possibility that EMU will not be completed, or will be completed but then
partially or completely unwound. Because any participating country may opt out
of EMU within the first three years, it is also possible that a significant
participant could choose to abandon EMU, which would diminish its creditability
and influence. Any of these occurrences could have adverse effects on the
markets of both participating and non-participating countries, including sharp
appreciation or depreciation of the participants' national currencies and a
significant increase in exchange rate volatility, a resurgence in economic
protectionism, an undermining of confidence in the European markets, an
undermining of European economic stability, the collapse or slowdown of the
drive toward European economic unity, and/or reversion of the attempts to lower
government debt and inflation rates that were introduced in anticipation of EMU.
Also, withdrawal from EMU by an initial participant could cause disruption of
the financial markets as securities redenominated in euros are transferred back
into that country's national currency, particularly if the withdrawing country
is major economic power. Such developments could have an adverse impact on the
Fund's investments in Europe generally or in specific countries participating in
EMU. Gains or losses from euro conversion may be taxable to Fund shareholders
under foreign or, in certain limited circumstances, U.S. tax laws.
FIXED-INCOME SECURITIES
The Fund may invest in fixed-income securities. The Adviser will
invest in these securities when their yield and potential for capital
appreciation are considered sufficiently attractive and also may invest in these
securities for defensive purposes and to maintain liquidity. Fixed-income
securities include bonds, notes and debentures issued by corporations and U.S.
Government Securities. These securities may pay fixed, variable or floating
rates of interest, and may include zero coupon obligations. Fixed-income
securities are subject to the risk of the issuer's inability to meet principal
and interest payments on its obligations (i.e., credit risk) and are subject to
the risk of price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness or financial condition of the issuer
and general market liquidity (i.e., market risk). Certain portfolio securities,
such as those with interest rates that fluctuate directly or indirectly based on
multiples of a stated index, are designed to be highly sensitive to changes in
interest rates and can subject the holders thereof to extreme reductions of
yield and possibly loss of principal.
The Fund 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 (a "Rating Agency") in one of the four highest rating categories
or, if not rated by any Rating Agency, have been determined by the Adviser to be
of comparable quality.
The Fund's investments in non-investment grade debt securities
(so-called "junk bonds"), including convertible debt securities, are considered
by the Rating Agencies to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. Non-investment grade
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
securities to make principal and interest payments than is the case for higher
grade securities. In addition, the market for lower grade securities may be
thinner and less liquid than for higher grade securities. See "Appendix
A--Rating Categories" for a description of securities ratings of below
investment grade securities.
MONEY MARKET INSTRUMENTS
The Fund 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 Adviser deems appropriate under the circumstances. The Fund also may
invest in these instruments pending allocation of the offering proceeds. Money
market instruments are high quality, short-term fixed-income obligations, which
generally have remaining maturities of one year or less, and may include U.S.
Government Securities, commercial paper, certificates of deposit and bankers'
acceptances issued by domestic branches of United States banks that are members
of the Federal Deposit Insurance Corporation, and repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of a security to a bank
or securities dealer and the simultaneous agreement to repurchase the security
for a fixed price, reflecting a market rate of interest, on a specific date.
These transactions involve a risk that the other party to a reverse repurchase
agreement will be unable or unwilling to complete the transaction as scheduled,
which may result in losses to the Fund. Reverse repurchase agreements are a form
of leverage which also may increase the volatility of the Fund's investment
portfolio.
SPECIAL INVESTMENT TECHNIQUES
The Fund may use a variety of special investment techniques to hedge a
portion of its investment portfolio against various risks or other factors that
generally affect the values of securities, for cash management and for
non-hedging purposes to pursue the Fund's investment objective. These techniques
may involve the use of derivative transactions. The techniques the Fund 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 Fund may use are speculative and involve a high degree of
risk, particularly when used for non-hedging purposes. It is possible that any
hedging transaction may not perform as anticipated and that the Fund may suffer
losses as a result of its hedging activities.
DERIVATIVES. Derivatives can be volatile and involve various types and
degrees of risk, depending upon the characteristics of the particular derivative
and the portfolio as a whole. Derivatives permit the Fund to increase or
decrease the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Fund can increase or decrease
the level of risk, or change the character of the risk, of its portfolio by
making investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in derivatives could
have a large potential impact on the Fund's performance.
If the Fund 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 its derivatives were
poorly correlated with its other investments, or if the Fund were unable to
liquidate its position because of an illiquid secondary market. The market for
many derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
derivatives.
OPTIONS. The Fund may engage in options transactions. The Fund 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. These options also may be
illiquid and, in such cases, the Fund may have difficulty closing out its
position. Over-the-counter options purchased and sold by the Fund also may
include options on baskets of specific securities.
The Fund may purchase and sell call and put options in respect of
specific securities, and may write and sell covered or uncovered call and put
options.
A covered call option, which is a call option with respect to which
the Fund owns the underlying security, that is sold by the Fund exposes the Fund
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or to possible
continued holding of a security that might otherwise have been sold to protect
against depreciation in the market price of the security. A covered put option,
which is a put option with respect to which the Fund has segregated cash or
liquid securities to fulfill the obligation undertaken, that is sold by the Fund
exposes the Fund during the term of the option to a decline in price of the
underlying security while depriving the Fund of the opportunity to invest the
segregated assets.
The Fund 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 Fund 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 Fund would ordinarily make
a similar "closing sale transaction," which involves liquidating the Fund's
position by selling the option previously purchased, although the Fund would be
entitled to exercise the option should it deem it advantageous to do so.
WARRANTS. Warrants are derivative instruments that permit, but do not
obligate, the holder to subscribe for other securities. Warrants do not carry
with them the right to dividends or voting rights with respect to the securities
that they entitle the holder to purchase, and they do not represent any rights
in the assets of the issuer. As a result, warrants may be considered more
speculative than certain other types of investments. In addition, the value of a
warrant does not necessarily change with the value of the underlying securities
or commodities, and a warrant ceases to have value if it is not exercised prior
to its expiration date.
CURRENCY SWAPS. The Fund may enter into currency swaps for both
hedging and non-hedging purposes. Currency swaps involve the exchange of rights
to make or receive payments in specified currencies. Since currency swaps are
individually negotiated, the Fund expects to achieve an acceptable degree of
correlation between its portfolio investments and its currency swap positions.
Currency swaps usually involve the delivery of the entire principal value of one
designated currency in exchange for another designated currency. Therefore, the
entire principal value of a currency swap is subject to the risk that the other
party to the swap will default on its contractual delivery obligations. The use
of currency swaps is a highly specialized activity which involves special
investment techniques and risks. If the Adviser is incorrect in its forecasts of
market values and currency exchange rates, the Fund's performance will be
adversely affected. The Fund will not enter into any currency swap unless the
credit quality of the unsecured senior debt or the claims-paying ability of the
other party thereto is considered to be investment grade by the Adviser. If
there is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. See
"Additional Investment Policies--Certain Portfolio Securities and Other
Operating Policies--Foreign Securities."
CALL AND PUT OPTIONS ON SECURITIES INDEXES. The Fund may purchase and
sell call and put options on stock indexes 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 Fund of options on stock indexes will be subject to the Adviser's ability
to predict correctly movements in the direction of the stock market generally or
segments thereof. This requires different skills and techniques than forecasting
changes in the price of individual stocks.
LENDING PORTFOLIO SECURITIES
The Fund may lend securities from its portfolio to brokers, dealers
and other financial institutions needing to borrow securities to complete
certain transactions. The Fund continues to be entitled to payments in amounts
equal to the interest, dividends or other distributions payable on the loaned
securities which affords the Fund an opportunity to earn interest on the amount
of the loan and on the loaned securities' collateral. Loans of portfolio
securities may not exceed 33-1/3% of the value of the 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 it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES
To reduce the risk of changes in securities prices and interest rates,
the Fund may purchase securities on a forward commitment, when-issued or delayed
delivery basis, which means delivery and payment take place a number of days
after the date of the commitment to purchase. The payment obligation and the
interest rate receivable with respect to such purchases are fixed when the Fund
enters into the commitment, but the Fund does not make payment until it receives
delivery from the counterparty. The Fund will commit to purchase such securities
only with the intention of actually acquiring the securities, but the Fund 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, when-issued or delayed delivery basis when the Fund 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 Fund on a forward basis will not
honor its purchase obligation. In such cases, the Fund may incur a loss.
REPURCHASES AND TRANSFERS OF INTERESTS
REPURCHASES
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 accordance
with the provisions of applicable law. In determining whether the Fund should
repurchase Interests or portions thereof from investors pursuant to written
tenders, the Fund's Board 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 Adviser during such period. If a repurchase offer is oversubscribed by
investors, the Fund will repurchase only a pro rata portion of the Interests
tendered by each investor.
INVOLUNTARY REPURCHASES
The Fund may repurchase an Interest 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, the Adviser
or the Directors, 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 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 Board, for the Fund to repurchase such an Interest or portion
thereof.
The Adviser may tender for repurchase in connection with any
repurchase offer made by the Fund any Interest that it holds in its capacity as
an investor. The Adviser also is entitled to withdraw its interests from its
Special Advisory Account (as defined herein under "Summary of LLC
Agreement--Investor Interests") at the times described under "Management of the
Fund--Incentive Allocation" in the Fund's prospectus.
TRANSFERS OF INTERESTS
No person may become a substituted investor without the written
consent of the Board, which consent may be withheld for any reason in the
Board's sole and absolute discretion. 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 Board, 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 transferee meets any
requirements imposed by the Fund with respect to investor eligibility and
suitability.
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
Fund's Limited Liability Company Agreement (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 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.
The LLC Agreement provides that each investor in the Fund has agreed
to indemnify and hold harmless the Fund, the Directors, PW Fund Advisor, L.L.C.
("PWFA"), 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.
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 Investment Company 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 Investment Company Act, is
indicated by an asterisk.
<TABLE>
<CAPTION>
Name, (Age) and
Address Position(s) Held
During the Past 5 Years with Fund Principal Occupation(s)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*E. Garrett Bewkes, Jr. (74) Director Mr. Bewkes is a director of, and prior to
c/o PaineWebber Incorporated December 1995 was a consultant to, PW Group and
1285 Avenue of the Americas recommenced service as a consultant to PW Group
New York, New York 10019 in May 1999. Prior to 1988, he was 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 42
other investment companies for which PaineWebber
Incorporated or its affiliates serves as investment adviser.
Meyer Feldberg (58) Director Mr. Feldberg is Dean and Professor of Management
c/o Columbia University of the Graduate School of Business, Columbia
101 Uris Hall University. Prior to 1989, he was President of
New York, New York 10027 the Illinois Institute of 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 39 other investment companies for
which PaineWebber Incorporated or its affiliates
serves as investment adviser.
George W. Gowen (71) Director 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 Fryer,
Ross & Gowen. Mr. Gowen also is a director or
trustee of 39 other investment companies for
which PaineWebber Incorporated or its affiliates
serves as investment adviser.
----------
* "Interested Person", as defined in the Investment Company Act.
</TABLE>
<PAGE>
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,
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. The Directors
will render assistance to investors on the question of the removal of Directors
in the manner required by Section 16(c) of the Investment Company Act. 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.
COMPENSATION
Total Compensation from
Aggregate Compensation Fund and Fund Complex
Name and Position with Fund From the Fund** Paid to Board Members
--------------------------- ------------- -------------------------
E. Garrett Bewkes, Jr. N/A N/A
Director
Meyer Feldberg $7,000 $172,731 (39)*
Director
George W. Gowen $7,000 $172,731 (39)*
Director
---------------------
* Represents the number of separate portfolios comprising the investment
companies in the Fund complex, including the Fund, for which the Board
member serves.
** Estimated for the fiscal year ending December 31, 2000.
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. The Directors do not receive any pension or retirement benefits from
the Fund.
CODE OF ETHICS
The Alternative Investments Group of PaineWebber Incorporated
("PaineWebber") has adopted a code of ethics under Rule 17j-1 of the Investment
Company Act that applies to the Fund, the Adviser and PaineWebber and permits
covered personnel, subject to the code, to invest in securities, including
securities that may be purchased or held by the Fund. The code 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. The code is 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.
INVESTMENT ADVISORY SERVICES
THE ADVISER
The Directors have engaged the Adviser to provide investment advice
to, and manage the day-to-day business and affairs of, the Fund, in each case
under the ultimate supervision of and subject to any policies established by the
Board, pursuant to an investment advisory agreement entered into between the
Fund and the Adviser, dated as of October 11, 2000 ( the "Investment Advisory
Agreement").
The Adviser was formed as a Delaware limited liability company on
August 29, 2000 and will be registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), before the
commencement of the Fund's operations. The offices of the Adviser 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 Adviser
owned 99% of the outstanding Interests in the Fund (thereby controlling the
Fund) and was the only person to own of record or beneficially 5% or more of the
outstanding Interests in the Fund. The Adviser or its designee maintains the
Fund's accounts, books and other documents required to be maintained under the
Investment Company Act at 1285 Avenue of the Americas, New York, New York 10019.
The Adviser is a joint venture between PWFA and OrbiMed Advisors Inc.
("OrbiMed"). PWFA is the managing member of the Adviser and oversees the
Adviser's provision of investment advice and day-to-day management to the Fund.
OrbiMed provides the Adviser with use of and access to such of its personnel,
research and facilities as the Adviser requires to manage the Fund's investment
portfolio, and these individuals have the sole responsibility, subject only to
the oversight of the Adviser and the Board, for the investment advisory services
provided to the Fund.
Pursuant to the Investment Advisory Agreement, the Adviser is
responsible, subject to the supervision of the Directors, for formulating a
continuing investment program for the Fund. The Investment Advisory Agreement
was approved by the Fund's full Board and by the Directors who are not
"interested persons" (as defined by the Investment Company Act), of the Fund or
the Adviser at a meeting held in person on October 11, 2000, and also was
approved on such date by the Fund's Organizational Member, as defined in the LLC
Agreement. The Investment Advisory Agreement is terminable without penalty, on
60 days' prior written notice by the Fund's Board, by vote of a majority (as
defined in the Investment Company Act) of the outstanding voting securities of
the Fund, or by the Adviser. The initial term of the Investment Advisory
Agreement expires on October 11, 2002. However, the Investment Advisory
Agreement may be continued in effect from year to year thereafter if its
continuance is approved annually by either the Fund's Board or the vote of a
majority (as defined by the Investment Company Act) of the outstanding voting
securities of the Fund, provided that, in either event, the continuance also is
approved by a majority of the Directors who are not "interested persons" of the
Fund or the Adviser by vote cast in person at a meeting called for the purpose
of voting on such approval. The Investment Advisory Agreement also provides that
it will terminate automatically in the event of its "assignment" (as defined in
the Investment Company Act).
The Investment Advisory Agreement provides that, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations to the Fund, the Adviser and any director, officer or employee
thereof, or any of their affiliates, executors, heirs, assigns, successors or
other legal representatives, will not be liable to the Fund for any error of
judgment, for any mistake of law or for any act or omission by such person in
connection with the performance of services to the Fund. The Investment Advisory
Agreement also provides for indemnification, to the fullest extent permitted by
law, by the Fund of the Adviser, or any director, officer or employee thereof,
and any of their affiliates, executors, heirs, assigns, successors or other
legal representatives, against any liability or expense to which such person may
be liable which arises in connection with the performance of services to the
Fund, provided that the liability or expense is not incurred by reason of the
person's willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations to the Fund.
CONFLICTS OF INTEREST
PWFA
PWFA and its affiliates manage the assets of registered investment
companies, private investment funds and individual accounts (collectively, "PWFA
Clients"). The Fund has no interest in these activities. PWFA and its officers
or employees who assist PWFA in its oversight of the Adviser will be engaged in
substantial activities other than on behalf of the Adviser and may have
conflicts of interest in allocating their time and activity between the Adviser
and PWFA Clients. PWFA and its officers and employees will devote so much of
their time to the affairs of the Adviser as in their judgment is necessary and
appropriate.
PaineWebber or its affiliates may provide brokerage and other services
from time to time to one or more accounts or entities managed by OrbiMed or one
of its affiliates.
ORBIMED
OrbiMed and certain of the investment professionals who are principals
of or employed by OrbiMed or its affiliates (collectively with OrbiMed, the
"OrbiMed Managers") carry on substantial investment activities for their own
accounts, for the accounts of family members and for other accounts ("OrbiMed
Accounts"). The Fund has no interest in these activities. As a result of the
foregoing, OrbiMed and the investment professionals who, on behalf of the
Adviser, will manage the Fund's investment portfolio will be engaged in
substantial activities other than on behalf of the Adviser, may have differing
economic interests in respect of such activities, and may have conflicts of
interest in allocating their time and activity between the Fund and the OrbiMed
Accounts. Such persons will devote only so much time to the affairs of the
Adviser as in their judgment is necessary and appropriate.
OrbiMed and its affiliates may engage in certain research activities
through which, and its representatives may sit on the boards of certain
companies, as a result of which, the Adviser may acquire confidential or
material non-public information with respect to certain companies. As a result,
the Adviser may be restricted from engaging in transactions involving those
company's securities on behalf of the Fund.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
The Adviser expects to employ an investment program for the Fund that
is substantially similar to the investment program employed by the OrbiMed
Managers for some of the OrbiMed Accounts. Accordingly, as a general matter, the
Adviser will consider participation by the Fund in all appropriate investment
opportunities that are under consideration for investment by the OrbiMed
Managers for the OrbiMed Accounts. There may be, however, circumstances under
which the OrbiMed Managers will cause one or more OrbiMed Accounts to commit a
larger percentage of their respective assets to an investment opportunity than
to which the Adviser will commit the Fund's assets. There also may be
circumstances under which the OrbiMed Managers will consider participation by
the OrbiMed Accounts in investment opportunities in which the Adviser does not
intend to invest on behalf of the Fund, or vice versa.
The Adviser will evaluate for the Fund, and it is anticipated that the
OrbiMed Managers will evaluate for each OrbiMed Account, a variety of factors
that may be relevant in determining whether a particular investment opportunity
or strategy is appropriate and feasible for the Fund or an OrbiMed 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 Fund and the OrbiMed
Accounts in the context of any particular investment opportunity, the investment
activities of the Fund and the OrbiMed Accounts may differ considerably from
time to time. In addition, the fees and expenses of the Fund will differ from
those of the OrbiMed Accounts. Accordingly, prospective investors should note
that the future performance of the Fund and the OrbiMed Accounts will vary.
When the Adviser and the OrbiMed Managers determine that it would be
appropriate for the Fund and one or more OrbiMed Accounts to participate in an
investment opportunity at the same time, they will attempt to aggregate, place
and allocate orders on a basis that the Adviser believes to be fair and
equitable, consistent with its responsibilities under applicable law. Decisions
in this regard are necessarily subjective and there is no requirement that the
Fund participate, or participate to the same extent as the OrbiMed Accounts, in
all trades. However, no participating entity or account will receive
preferential treatment over any other and the OrbiMed Managers will take steps
to ensure that no participating entity or account will be systematically
disadvantaged by the aggregation, placement and allocation of orders.
Situations may occur, however, where the Fund could be disadvantaged
because of the investment activities conducted by the OrbiMed Managers for the
OrbiMed Accounts. Such situations may be based on, among other things, the
following: (1) legal restrictions on the combined size of positions that may be
taken for the Fund and the OrbiMed Accounts, thereby limiting the size of the
Fund's position; (2) the difficulty of liquidating an investment for the Fund
and the OrbiMed Accounts where the market cannot absorb the sale of the combined
positions; and (3) the determination that a particular investment is warranted
only if hedged with an option or other instrument and there is a limited
availability of such options or other instruments. In particular, the Fund may
be legally restricted from entering into a "joint transaction" (as defined in
the Investment Company Act) with the OrbiMed Accounts with respect to the
securities of an issuer without first obtaining exemptive relief from the SEC.
See "Other Matters" below.
The members of the Adviser, and their members, directors, officers,
employees and affiliates, may buy and sell securities or other investments for
their own accounts and may have actual or potential conflicts of interest with
respect to investments made on behalf of the Fund. As a result of differing
trading and investment strategies or constraints, positions may be taken by
members, directors, officers, employees and affiliates of PWFA or OrbiMed, or by
the OrbiMed Managers for the OrbiMed Accounts, 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, the Adviser and its members
are not permitted to buy securities or other property from, or sell securities
or other property to, the Fund. However, the Fund may effect certain principal
transactions in securities with one or more OrbiMed Accounts, except for
accounts in which OrbiMed 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 OrbiMed's or any affiliate's appointment as an investment adviser to
the account. Such transactions would be made in circumstances where the Adviser
has determined it would be appropriate for the Fund to purchase and a OrbiMed
Account to sell, or the Fund to sell and a OrbiMed Account to purchase, the same
security or instrument on the same day.
Future investment activities of PWFA or OrbiMed, or their affiliates,
and the principals, partners, directors, officers or employees of the foregoing,
may give rise to additional conflicts of interest.
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 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. 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 all investors that acquire Interests 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 the
prospectus and this SAI 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.
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.
The Regulations specifically provide that the fact that a partnership
does not qualify for the safe harbors is disregarded for purposes of determining
whether interests in a partnership are readily tradable on a secondary market,
or the substantial equivalent thereof. Rather, in this event the partnership's
status is examined under a general facts and circumstances test set forth in the
Regulations. Counsel to the Fund has rendered its opinion that, under this
"facts and circumstances" test, and based upon the anticipated operations of the
Fund as well as the legislative history to Section 7704 and the text of the
Regulations, interests in the Fund will not be readily tradable on a secondary
market, or the substantial equivalent thereof, and, therefore, the Fund will not
be treated as a publicly traded partnership taxable as a corporation.
Neither of the opinions of counsel described above, however, is
binding on the Service or the courts. If it were determined that the Fund should
be treated as an association or a publicly traded partnership taxable as a
corporation for Federal income tax purposes, as a result of a successful
challenge to such opinions by the Service, changes in the Code, the Regulations
or judicial interpretations thereof, a material adverse change in facts, or
otherwise, the taxable income of the Fund would be subject to corporate income
tax when recognized by the Fund; distributions of such income, other than in
certain redemptions of Fund Interests, would be treated as dividend income when
received by the 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.
As an entity taxable 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 allocated to the Fund
(including from investments in other partnerships) 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 capital depreciation for each accounting 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 Adviser 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. The LLC Agreement provides for an equivalent
special allocation of the Fund's net capital gains, including short-term capital
gain, for Federal income tax purposes to the Special Advisory Member. There can
be no assurance that, if the Adviser 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 Fund tax items at the
end of its year of admission 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 Adviser in respect of the initial
incentive allocation. The Adviser, 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 Fund 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 Adviser, 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 Adviser does not presently intend to
make such election.
The Adviser decides how to report the Fund 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. PWFA 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 Fund 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 Adviser 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 tax 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 expects to act as a trader or investor, and not
as a dealer, with respect to its securities transactions. A trader and an
investor are persons who buy and sell securities for their own accounts. A
dealer, on the other hand, is a person who purchases securities for resale to
customers rather than for investment or speculation.
Generally, the gains and losses realized by a trader or investor on
the sale of securities are capital gains and losses. Thus, subject to the
treatment of certain currency exchange gains as ordinary income and certain
other transactions described below, the Fund expects that its gains and losses
from its securities transactions typically will be capital gains and capital
losses. See "Currency Fluctuations--'Section 988' Gains or Losses" below and
certain other transactions described below.
These capital gains and losses may be long-term or short-term
depending, in general, upon the length of time a particular investment position
is maintained and, in some cases, upon the nature of the transaction. Property
held for more than one year generally will be eligible for long-term capital
gain or loss treatment. The application of certain rules relating to short
sales, to so-called "straddle" and "wash sale" transactions and to "Section 1256
contracts" may serve to alter the manner in which the holding period for a
security is determined or may otherwise affect the characterization as long-term
or short-term, and also the timing of the realization, of certain gains or
losses. Moreover, the straddle rules and short sale rules may require the
capitalization of certain related expenses.
The maximum ordinary income tax rate for individuals is 39.6%, and the
maximum individual income tax rate for long-term capital gains is 20%, unless
the taxpayer elects to be taxed at ordinary rates, although in any case the
actual rate may be higher due to the phase out of certain tax deductions and
exemptions. See "Limitation on Deductibility of Interest" below. The excess of
capital losses over capital gains may be offset against the ordinary income of
an individual taxpayer, subject to an annual deduction limitation of $3,000. For
corporate taxpayers, the maximum income tax rate is 35%. Capital losses of a
corporate taxpayer may be offset only against capital gains, but unused capital
losses may be carried back three years, subject to certain limitations, and
carried forward five years.
The Fund may realize ordinary income from accruals of interest and
dividends on securities. The Fund 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 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 by the
Fund. 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. 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.
<PAGE>
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES. The amount of
gain or loss on securities denominated in a foreign currency frequently will be
affected by the fluctuation in the value of such foreign currencies relative to
the value of the dollar. Generally, gains or losses with respect to investments
in common stock of foreign issuers will be taxed as capital gains or losses at
the time of the disposition of such stock. However, under Section 988 of the
Code, gains and losses on the acquisition and disposition of foreign currency
(e.g., the purchase of foreign currency and subsequent use of the currency to
acquire stock) will be treated as ordinary income or loss. Moreover, under
Section 988, gains or losses on disposition of debt securities denominated in a
foreign currency to the extent attributable to fluctuation in the value of the
foreign currency between the date of acquisition of the debt security and the
date of disposition will be treated as ordinary income or loss. Similarly, gains
or losses attributable to fluctuations in exchange rates that occur between the
time the taxpayer accrues interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the taxpayer
actually collects such receivables or pays such liabilities may be treated as
ordinary income or ordinary loss.
The Fund may acquire foreign currency forward contracts. See
"Additional Investment Policies--Certain Portfolio Securities and Other
Operating Policies--Foreign Securities." Generally, 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 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 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. It is anticipated that the Fund's expenses (including management
fees) will be investment expenses rather than trade or business expenses.
Investment expenses 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.
<PAGE>
Although the Fund intends to treat the incentive allocation as an
allocation and not a fee, and, therefore, as not being subject to the foregoing
limitations on deductibility, there can be no assurance that the Service may not
treat the incentive allocation as an investment expense which is subject to the
limitations.
The consequences of these limitations will vary depending upon the
particular tax situation of each taxpayer. Accordingly, noncorporate investors
should consult their tax advisers with respect to the application of these
limitations.
No deduction is allowed for sales loads paid by an investor to acquire
an Interest in the Fund; instead any such fees will be included in the
investor's adjusted tax basis for its Interest in the Fund.
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 FUND INVESTMENTS. As discussed in more detail
below, 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 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.
CONTROLLED FOREIGN CORPORATIONS. Certain United States Persons who
hold stock in a foreign corporation that is a "controlled foreign corporation"
(a "CFC") for an uninterrupted period of 30 days or more during a taxable year
must include in their income their pro rata share of certain of the CFC's
"Subpart F income" for the year, regardless of whether any portion of such
income is distributed by the CFC to such shareholders. Subpart F income
generally includes income or gain derived from portfolio-type investments, as
well as rents and royalties (other than those derived from the active conduct of
a trade or business, as defined in Treasury regulations). Subpart F income also
includes certain income attributable to the sale of personal property or the
provision of services between the CFC and a related corporation.
A CFC is any non-United States corporation in which "United States
shareholders" own, directly or indirectly, more than 50% of either (a) the total
combined voting power of all classes of voting stock or (b) the total value of
the stock. For this purpose, a "United States shareholder" is a United States
citizen, resident, partnership or domestic corporation that owns, directly or
indirectly, 10% or more of the total combined voting power of all classes of the
corporation's voting stock. As a result, the Fund will be a "United States
shareholder" of any foreign corporation of which it acquires stock (or warrants,
options or convertible debt to acquire stock) with 10% or more of the voting
power, and such corporation will be a CFC if United States shareholders
(including the Fund) own directly or by virtue of certain constructive ownership
rules, more than 50% of the voting power or the value of the stock of such
corporation. In such event, all Fund investors who are United States persons
(including those with a less than 10% indirect interest in a CFC) will be taxed
on their pro rata shares of such CFC's subpart F income.
In addition, gain from the sale of the stock of such CFC to the extent
attributable to the Fund's pro rata shares of such CFC's earnings and profits
while a CFC and while the Fund owned its stock would be recharacterized as a
dividend to the Fund, subject to tax at ordinary income rates with respect to
Fund investors who are United States Persons.
In any event, Subpart F income cannot exceed a corporation's earnings
and profits, so a corporation with an aggregate deficit in earnings will not
have Subpart F income. In addition, Subpart F income does not include income
subject to income tax at a rate more than 90% of the United States federal
corporate income tax rate. Furthermore, Subpart F income and gain from sale of
stock to the extent of earnings and profits during the United States person's
holding period and while a CFC, are treated as deemed dividends and, therefore,
may enable corporate investors holding an indirect interest of 10% or more of a
CFC's voting power, subject to certain limitations, to receive foreign tax
credit for foreign taxes paid by a CFC in respect of such Subpart F income or
earnings. The Fund is not precluded from investing in a foreign Portfolio
Company that may constitute a CFC and generate Subpart F income.
FOREIGN TAX CREDIT. Income received by the Fund from sources outside
the United States may be subject to withholding and other income taxes imposed
by foreign countries. Each non-tax exempt United States Fund investor will be
required to include in its income an amount equal to its allocable share of such
taxes paid and such Fund investor will be entitled, subject to certain
limitations, to credit its portion of these amounts against its United States
federal income tax due, if any, or to deduct its portion from its United States
taxable income, if any. The amount of foreign income taxes that may be credited
against a United States investor's United States federal income tax is generally
limited to the product of such investor's United States federal income tax
liability multiplied by the ratio of such investor's foreign source taxable
income to such investor's world-wide taxable income. For this purpose, the Fund
expects that capital gains allocable to the United States investors will not be
treated as foreign source taxable income. In addition, this limitation must be
applied separately to certain categories of foreign source income, one of which
is foreign source "passive income". For this purpose, foreign "passive income"
includes dividends, interest, capital gains and certain foreign currency gains.
As a consequence, certain United States investors may not be able to claim a
foreign tax credit for the full amount of their proportionate share of foreign
taxes paid by the Fund.
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 This general exemption from
tax does not apply to the UBTI of an exempt organization. UBTI includes
"unrelated debt-financed income," which generally consists of (i) income derived
by an exempt organization, directly or through a partnership, from
income-producing property with respect to which there is "acquisition
indebtedness" at any time during the taxable year, and (ii) gains derived by an
exempt organization, directly or through a partnership, from the disposition of
property with respect to which there is "acquisition indebtedness" at any time
during the 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 may incur "acquisition indebtedness" with respect to certain
of its transactions. 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.
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 indebtedness, if any,
incurred by the Fund 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).
---------------------
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.
4 Moreover, income realized from option writing generally would not
constitute UBTI.
5 The calculation of a particular exempt organization's UBTI would also be
affected if it incurs indebtedness to finance its investment in the Fund.
An exempt organization is required to make estimated tax payments with
respect to its UBTI.
<PAGE>
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 support, 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. Charitable remainder trusts may not purchase Interests. A
title-holding company will not be exempt from tax if it has certain types of
UBTI. A prospective investor should consult its tax adviser with respect to the
tax consequences of receiving UBTI from the Fund. See "ERISA Considerations."
---------------------
6 Certain exempt organizations which realize UBTI in a taxable year will not
constitute "qualified organizations" for purposes of Section
514(c)(9)(B)(vi)(I) of the Code, pursuant to which, in limited
circumstances, income from certain real estate partnerships in which such
organizations invest might be treated as exempt from UBTI. A prospective
tax-exempt Investor should consult its tax adviser in this regard.
<PAGE>
CERTAIN ISSUES PERTAINING TO SPECIFIC EXEMPT ORGANIZATIONS
PRIVATE FOUNDATIONS. Private foundations and their managers are
subject to excise taxes if they invest "any amount in such a manner as to
jeopardize the carrying out of any of the foundation's exempt purposes." This
rule requires a foundation manager, in making an investment, to exercise
"ordinary business care and prudence" under the facts and circumstances
prevailing at the time of making the investment, in providing for the short-term
and long-term needs of the foundation to carry out its exempt purposes. The
factors which a foundation manager may take into account in assessing an
investment include the expected rate of return, both income and capital
appreciation, the risks of rising and falling price levels, and the needs for
diversification within the foundation's portfolio.
In order to avoid the imposition of an excise tax, a private
foundation may be required to distribute on an annual basis its "distributable
amount," which includes, among other things, the private foundation's "minimum
investment return," defined as 5% of the excess of the fair market value of its
nonfunctionally related assets, assets not used or held for use in carrying out
the foundation's exempt purposes, over certain indebtedness incurred by the
foundation in connection with such assets. It appears that a foundation's
investment in the Fund would most probably be classified as a nonfunctionally
related asset. A determination that an interest in the Fund is a nonfunctionally
related asset could conceivably cause cash flow problems for a prospective
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 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 Adviser 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 several 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, as part of the budgetary process,
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, but not
Delaware where the Fund is organized, 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. Investors may be required to file tax returns
in any such jurisdiction. 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." (This exemption may not be
applicable if an entity taxed as a partnership in which the Fund invests
conducts a business in New York City.) By reason of a similar "own account"
exemption, it is also expected that a nonresident individual 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.
<PAGE>
Regulations under both the New York State corporate franchise tax and
the New York City general corporation tax, however, provide an exception to this
general rule in the case of a "portfolio investment partnership," which is
defined, generally, as a partnership which meets the gross income requirements
of Section 851(b)(2) of the Code. New York State (but not New York City) has
adopted regulations that also include income and gains from commodity
transactions described in Section 864(b)(2)(B)(iii) as qualifying gross income
for this purpose. The Fund's qualification as such a portfolio investment
partnership must be determined on an annual basis and with respect to a taxable
year, the Fund may not qualify as a portfolio investment partnership.
A trust or other unincorporated organization which by reason of its
purposes or activities is exempt from Federal income tax is also exempt from New
York State and New York City personal income tax. A nonstock corporation which
is exempt from Federal income tax is generally presumed to be exempt from New
York State corporate franchise tax and New York City general corporation tax.
New York State imposes a tax with respect to such exempt entities on UBTI,
including unrelated debt-financed income, at a rate which is currently equal to
the New York State corporate franchise tax rate, plus the corporate surtax.
There is no New York City tax on the UBTI of an otherwise exempt entity.
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
Investment Company 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 Adviser will not be a fiduciary within the meaning
of ERISA by reason of its authority with respect to the Fund.
The Fund 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 Adviser, PaineWebber or other entities which are
affiliated with the Adviser or PaineWebber. 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.
BROKERAGE
The Adviser is responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. Transactions on U.S. stock
exchanges and on some foreign stock exchanges involve the payment of negotiated
brokerage commissions. On the great majority of foreign stock exchanges,
commissions are fixed. No stated commission is generally applicable to
securities traded in over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups.
In executing transactions on behalf of the Fund, the Adviser seeks to
obtain the best execution for the Fund, 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 Fund with
unaffiliated brokers, the firm's risk in positioning a block of securities.
Although the Adviser generally will seek reasonably competitive commission
rates, the Fund will not necessarily pay the lowest commission available on each
transaction. The Fund will have no obligation to deal with any broker or group
or brokers in executing transactions in portfolio securities. The Fund may
execute portfolio brokerage transactions through PaineWebber or its affiliates,
subject to compliance with the Investment Company Act.
Following the principle of seeking best execution, the Adviser may
place brokerage business on behalf of the Fund with brokers that provide the
Adviser and its affiliates, including the OrbiMed Managers, with supplemental
research, market and statistical information, including advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. The expenses of the Adviser are not necessarily reduced as a result
of the receipt of this supplemental information, which may be useful to the
Adviser and its affiliates in providing services to clients other than the Fund.
In addition, not all of the supplemental information is used by the Adviser in
connection with the Fund. Conversely, the information provided to the Adviser by
brokers and dealers through which other clients of the Adviser and its
affiliates effect securities transactions may be useful to the Adviser in
providing services to the Fund.
Although the Fund cannot accurately predict its portfolio turnover,
the Fund expects that its annual portfolio turnover rate for public securities
generally will not exceed 50%. A turnover rate of 100% is equivalent to the Fund
buying and selling all of the securities in its portfolio once in the course of
a year. A portfolio turnover rate of 100% or more is considered to be high.
Higher portfolio turnover rates usually generate additional brokerage
commissions and transaction costs and the short-term gains realized from these
transactions are taxable to investors at ordinary income tax rates.
AUDITORS AND LEGAL COUNSEL
Ernst & Young LLP serves as the independent auditors 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 Adviser and its affiliates.
CUSTODIAN
PFPC Trust Company (the "Custodian") serves as the primary custodian
of the Fund's assets, and may maintain custody of the Fund's assets with
domestic and foreign subcustodians (which may be banks, trust companies,
securities depositories and clearing agencies) approved by the Directors. Assets
of the Fund are not held by the Adviser or commingled with the assets of other
accounts other than to the extent that securities are held in the name of a
custodian in a securities depository, clearing agency or omnibus customer
account of such custodian. The Custodian's principal business address is Airport
Business Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania
19113.
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 the
Fund's prospectus and this SAI. 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 in the Fund's prospectus.
INVESTOR INTERESTS
Persons who purchase Interests in an offering being made hereby will
be members of the Fund. The Adviser, or its successor as investment adviser of
the Fund, also will be a Special Advisory Member of the Fund. In that regard,
the Fund has established a Special Advisory Account solely for the purpose of
receiving the Incentive Allocation. The interest of the Special Advisory Member
has no right to participate in the income or gains of the Fund, no voting rights
and no right to receive a share of the assets of the Fund upon its liquidation,
except to the extent that the Special Advisory Member has received or is
entitled to receive the Incentive Allocation credited to the Special Advisory
Account and all or a portion of that allocation has not been withdrawn. The
Adviser may not contribute to the Fund as Special Advisory Member.
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. An
investor may be required 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 Fund 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 the 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, PWFA AND THE ADVISER
The LLC Agreement provides that none of the Directors, PWFA or the
Adviser (including certain of their 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, PWFA and the
Adviser (including certain of their 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, PWFA or the Adviser 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 Investment
Company Act, (ii) PWFA, acting in its administrative capacity, or (iii) a
majority, as defined in the Investment Company 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 and by signing the LLC Agreement
(which each investor will do by virtue of signing the investor certification
form attached to the prospectus as Appendix B), each investor will appoint PWFA
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 PWFA 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 Fund's LLC
Agreement, to tender its Interest for repurchase by the Fund
if the Fund has not commenced a tender offer within such
two-year period for at least 10% of the Fund's outstanding
Interests;
o at the election of the Adviser;
o upon the failure of investors to elect successor Directors
at a meeting called by PWFA when no Director remains; or
o as required by operation of law.
Upon the occurrence of any event of dissolution, the Board, acting
directly, 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 --Allocation of
Net Profits and Net Losses" in the prospectus.
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, (3) to the Special Advisory Member
any balance in the Special Advisory Account after giving effect to the Incentive
Allocation, and (4) 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 Investment
Company Act. Quarterly reports from the Adviser 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.
OTHER INFORMATION
From time to time, Fund communications or advertisements may discuss:
the history of inventions and discoveries in biotechnology; causes for the
anticipated global demand for healthcare, such as population growth and aging
and increased prosperity; trends in healthcare spending; reasons why companies
in the health sciences sector may be compelling investments, such as growth in
patented products, new drug introductions, more rapid drug approval times and
the number of medicines in late-stage clinical trials; and the importance of
genomics. Question and answer formats may be used.
<PAGE>
FINANCIAL STATEMENTS
The following comprise the financial statements of the Fund:
o Report of Independent Auditors.
o Statement of Assets and Liabilities.
o Statement of Operations.
o Notes to the Financial Statements.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Investors of
PW Juniper Crossover Fund, L.L.C.
We have audited the accompanying statement of assets and liabilities of PW
Juniper Crossover Fund, L.L.C. as of October 11, 2000 and the related statement
of operations for the period from August 29, 2000 (date of organization) to
October 11, 2000. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PW Juniper Crossover Fund,
L.L.C. as of October 11, 2000, and the results of its operations for the period
from August 29, 2000 to October 11, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
October 17, 2000
<PAGE>
PW JUNIPER CROSSOVER FUND, L.L.C.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 11, 2000
ASSETS
Cash........................................................ $ 1,000,000
LIABILITIES
Accrued organizational expenses............................. 500,000
------------------
------------------
NET ASSETS.................................................... $ 500,000
==================
MEMBERS' CAPITAL--NET ASSETS
Capital Contributions......................................... $ 1,000,000
Accumulated net investment loss............................. (500,000)
------------------
Members' Capital - Net Assets................................. $ 500,000
==================
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM AUGUST 29, 2000 (DATE OF ORGANIZATION) TO OCTOBER 11, 2000
INVESTMENT INCOME............................................. $ -
EXPENSES
Organizational expenses..................................... 500,000
---------------
NET INVESTMENT LOSS........................................... $ (500,000)
===============
See notes to financial statements.
<PAGE>
PW JUNIPER CROSSOVER FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Organization
PW Juniper Crossover Fund, L.L.C. (the "Fund") was organized in the State of
Delaware on August 29, 2000 as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund has had no operations other than those related to organizational matters
and the sale and issuance of $1,000,000 limited liability company interests in
the Fund (the "Interests") to PW Fund Advisor, L.L.C. PW Juniper Management,
L.L.C., the special advisory member of the Fund, is a joint venture between PW
Fund Advisor, L.L.C., the managing member of the joint venture, and OrbiMed
Advisors Inc. PW Fund Advisor, L.L.C. is an indirect, wholly-owned subsidiary of
Paine Webber Group Inc. Personnel of OrbiMed Advisors Inc. will manage the
portfolio of the Fund.
The Fund's investment objective is to seek long-term capital appreciation. The
Fund will invest primarily in equity and equity-related securities of public and
private health sciences companies worldwide, with an emphasis on companies in
the biotechnology and pharmaceuticals sectors.
The Fund may offer from time to time to repurchase up to 10% of the outstanding
Interests pursuant to written tenders by investors. It is expected that this
offer to repurchase will be recommended to occur in March and September of each
year beginning in September 2001.
NOTE 2. Significant Accounting Policies
In accordance with Statement of Position 98-5 of the American Institute of
Certified Public Accountants, the Fund's organizational expenses estimated at
$500,000 have been charged to expense. To achieve an equitable distribution of
the impact of those expenses among 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 bears to the total capital
contributed to the Fund by all investors as of the relevant allocation date. An
initial allocation of organizational expenses will be made as of the first date
on which capital contributions of investors are made (the "Initial Closing
Date"). These allocations will thereafter be adjusted as of each date on which
additional capital is contributed to the Fund by investors through and including
the date which is six months after the Initial Closing Date.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States which may require the use of
management estimates and assumptions. Actual results could differ from those
estimates.
No provision for the payment of Federal, state or local income taxes has been
provided. Each investor is individually required to report on its own tax
returns its distributive share of the Fund's taxable income or loss.
NOTE 3. PWFA Fee and Incentive Allocation
The Administration Agreement provides that the Fund will pay PW Fund Advisor,
L.L.C. a monthly fee at the annual rate of 1.35% of the Fund's net assets ("PWFA
Fee") and the Limited Liability Company Agreement provides for an incentive
allocation, generally on an annual basis, to PW Juniper Management, L.L.C. in
its capacity as the special advisory member, generally equal to 20% of net
profits, which are determined by taking into account net realized gain or loss
and the net change in unrealized appreciation or depreciation of securities
positions, provided that, except in limited circumstances (namely upon a tender
or transfer of interests), any unrealized appreciation in private securities
will be taken into account only to the extent of unrealized depreciation in
private securities. The Incentive Allocation will be made only with respect to
net profits that exceed any net losses previously debited to the account of an
investor which have not been offset by any net profits subsequently credited to
the account of such investor. A portion of the PWFA Fee will be paid to OrbiMed
Advisors Inc.
<PAGE>
APPENDIX A
RATING CATEGORIES
Description of certain ratings assigned by Standard & Poor's Rating
Services ("S&P"), Moody's Investor Services ("Moody's"), and Fitch IBCA, Duff &
Phelps ("Fitch"):
S&P
LONG-TERM ISSUE CREDIT RATINGS
AAA
An obligation rated 'AAA' has the highest rating assigned by S&P. The obligor's
capacity to meet its financial commitment on the obligation is extremely strong.
AA
An obligation rated 'AA' differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A
An obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB
An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation. Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as
having significant speculative characteristics. 'BB' indicates the least degree
of speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB
An obligation rated 'BB' is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated 'B' is more vulnerable to nonpayment than obligations rated
'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
SHORT-TERM ISSUE CREDIT RATINGS
A-1
A short-term obligation rated 'A-1' is rated in the highest category by S&P. The
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
A-2
A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3
A short-term obligation rated 'A-3' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
MOODY'S
DEBT RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
PRIME RATING SYSTEM
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
Leading market positions in well-established industries.
High rates of return on funds employed.
Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
FITCH
INVESTMENT GRADE
AAA
HIGHEST CREDIT QUALITY. 'AAA' ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA
VERY HIGH CREDIT QUALITY. 'AA' ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A
HIGH CREDIT QUALITY. 'A' ratings denote a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB
GOOD CREDIT QUALITY. 'BBB' ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
SPECULATIVE GRADE
BB
SPECULATIVE. 'BB' ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B
HIGHLY SPECULATIVE. 'B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favourable business and economic environment.
CCC, CC, C
HIGH DEFAULT RISK. Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon sustained, favourable business or economic
developments. A 'CC' rating indicates that default of some kind appears
probable. 'C' ratings signal imminent default.
SHORT TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1
HIGHEST CREDIT QUALITY. Indicates the strongest capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally strong
credit feature.
F2
GOOD CREDIT QUALITY. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial
Statements:
Part A: Financial Highlights (not applicable)
Part B: Report of Independent Auditors,
Statement of Assets and Liabilities, Statement of
Operations, Notes to Financial Statements
2. Exhibits:
a. (1) Certificate of Formation*
(2) Certificate of Amendment
(3) Limited Liability Company Agreement
(included as Appendix A to the Fund's
prospectus)
b. Not Applicable
c. Not Applicable.
d. See Item 24 (2) (a) (3)
e. Not Applicable
g. Investment Advisory Agreement
h. Distribution Agreement
j. Custody Agreement
k. (1) Administration Agreement
(2) Administration, Accounting and Investor
Services Agreement
(3) Escrow Agreement
(4) Form of Shareholder Servicing Agreement
l. Opinion and Consent of Stroock & Stroock & Lavan LLP
n. (1) Opinion and Consent of Stroock & Stroock &
Lavan LLP
(2) Consent of Independent Auditors
p. Not Applicable
r. Code of Ethics
s. Powers of Attorney (included as part of the
signature page)
----------------
* Previously filed
<PAGE>
Item 25. Marketing Arrangements: Not Applicable.
Item 26. Other Expenses of Issuance and Distribution:
Registration fees $72,600
Legal fees 184,000
NASD fees 27,900
Blue Sky fees 44,495
Accounting fees 10,000
Printing 160,000
Miscellaneous 1,005
--------
Total $500,000
Item 27. Persons Controlled by or Under Common Control with Registrant: None.
Item 28. Number of Holders of Securities as of October 10, 2000:
TITLE OF CLASS NUMBER OF RECORDHOLDERS
-------------- ------------------------
Limited Liability Company Interests 1
Item 29. Indemnification:
Reference is made to Section 3.7 of the Registrant's Limited Liability
Company Agreement (the "LLC Agreement") included in the prospectus as Appendix A
and to Paragraph 7 of the Registrant's Investment Advisory Agreement
("Investment Advisory Agreement") filed as Exhibit (g) hereto. The Registrant
hereby undertakes that it will apply the indemnification provisions of the LLC
Agreement and Investment Advisory 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 "Investment Company Act"), so long as the
interpretation therein of Sections 17(h) and 17(i) of the Investment Company Act
remains in effect.
The Registrant, in conjunction with the Adviser, the Registrant's
directors and other registered management investment companies managed by the
Adviser 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 Prospectus in the section entitled "Management of the Fund."
Information as to the members and officers of PW Juniper Management, L.L.C. is
included in its Form ADV as filed with the Commission (File No. 801-50833), and
is incorporated herein by reference. 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 OrbiMed Advisors Inc. is included
in its Form ADV as filed with the Commission (File No. 801-34429), and is
incorporated herein by reference.
Item 31. Location of Accounts and Records:
PFPC Inc., the Fund's 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 PW Juniper Management, L.L.C., 1285 Avenue of the
Americas, New York, New York 10019 and OrbiMed Advisors Inc., 767 Third Avenue,
New York, New York 10017.
Item 32. Management Services: Not Applicable.
Item 33. Undertakings:
I. The Registrant undertakes to suspend the offering of Interests
until the prospectus is amended if (1) subsequent to the effective date of its
registration statement, the net asset value of the Fund declines more than ten
percent from its net asset value as of the effective date of the registration
statement or (2) the net asset value of the Fund increases to an amount greater
than its net proceeds as stated in the prospectus.
II. The Registrant undertakes that:
(a) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the
time it was declared effective.
(b) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
III. The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery within two business days of
receipt of a written or oral request, the Registrant's Statement of Additional
Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and 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, State of New York, on the 19th day of
October, 2000.
PW JUNIPER CROSSOVER FUND, L.L.C.
By: /S/ MITCHELL A. TANZMAN
--------------------------
Mitchell A. Tanzman, Principal
Executive Officer
Each of the undersigned Directors of the Fund hereby authorizes each
of Daniel Archetti and Mitchell A. Tanzman, as attorneys-in-fact, to sign on his
behalf in the capacities indicated in this Registration Statement or amendments
thereto (including post-effective amendments) for the Fund and to file the same,
with all exhibits thereto, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registration Statement has been signed
Relow by the following persons in the capacities indicated on October 19, 2000.
Name Title
/S/MITCHELL A. TANZMAN Principal Executive Officer
----------------------------
Mitchell A. Tanzman
/S/ DANIEL ARCHETTI Principal Accounting Officer
----------------------------
Daniel Archetti
/S/ E. GARRETT BEWKES, JR. Director
---------------------------
E. Garrett Bewkes, Jr.
/S/ GEORGE W. GOWEN Director
------------------------
George W. Gowen
/S/ MEYER FELDBERG Director
----------------------------
Meyer Feldberg
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
a. (2) Certificate of Amendment
(3) Limited Liability Company Agreement
(included as Appendix A to the prospectus)
b. Not Applicable
c. Not Applicable
d. See Item 24 (2) (a) (3)
e. Not Applicable
g. Investment Advisory Agreement
h. Distribution Agreement
j. Custody Agreement
k. (1) Administration Agreement
(2) Administration, Accounting and Investor
Services Agreement
(3) Escrow Agreement
(4) Form of Shareholder Servicing Agreement
l. Opinion and Consent of Stroock & Stroock &
Lavan LLP
n. (1) Opinion and Consent of Stroock & Stroock &
Lavan LLP
(2) Consent of Independent Auditors
p. Not Applicable
r. Code of Ethics
s. Powers of Attorney (included on signature page)
