AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 2001
INVESTMENT COMPANY ACT FILE NO. _____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2
(Check Appropriate Box or Boxes)
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/ / Amendment No.____
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GAM AVALON MULTI-GLOBAL, L.P.
(Exact name of registrant as specified in charter)
135 EAST 57TH STREET
NEW YORK, NEW YORK 10022
(Address of Principal Executive Offices)
-----------------------------
(212) 407-4600
(Registrant's Telephone Number, Including Area Code)
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JOSEPH J. ALLESSIE, Esq.
GLOBAL ASSET MANAGEMENT (USA) INC.
135 EAST 57TH STREET
NEW YORK, NEW YORK 10022
(Name and Address of Agent For Service)
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Copies to:
Christopher M. Wells, Esq.
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
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This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. However, partnership
interests in the Registrant are not being registered under the Securities Act of
1933, as amended (the "1933 Act"), since such interests will be issued solely in
private placement transactions which do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may
be made only by individuals or entities which are "accredited investors" within
the meaning of Regulation D under the 1933 Act. This Registration Statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
partnership interests in the Registrant.
------------------------------
<PAGE>
GAM AVALON MULTI-GLOBAL, L.P.
CROSS REFERENCE SHEET
NO. DESCRIPTION LOCATION
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PART A--INFORMATION REQUIRED IN A PROSPECTUS
Item 1. Outside Front Cover Not Applicable
Item 2. Inside Front and Outside Back Cover Not Applicable
Item 3. Fee Table and Synopsis Summary of Terms
Item 4. Financial Highlights Not Applicable
Item 5. Plan of Distribution Not Applicable
Item 6. Selling Shareholders Not Applicable
Item 7. Use of Proceeds Not Applicable
Item 8. General Description of the Registrant Outside Front Cover Page;
Summary of Terms; Structure;
Investment Program
Item 9. Management The Directors, The General Partner
Item 10. Capital Stock, Long-Term Debt and Other Capital Accounts and Allocations
Securities
Item 11. Defaults and Arrears on Senior Securities Not Applicable
Item 12. Legal Proceedings Not Applicable
Item 13. Table of Contents of the Statement of Not Applicable
Additional Information
PART B--INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item 14. Cover Page Cover Page
Item 15. Table of Contents Table of Contents
Item 16. General Information and History Not Applicable
Item 17. Investment Objective and Policies Investment Program;
Types of Investments and Related Risk
Factors; Investment Restrictions;
Additional Risks Relating to
the Funds' Structure
Item 18. Management The Directors; Conflicts of Interest
Item 19. Control Persons and Principal Holders of The General Partner; Item 28
Securities
Item 20. Investment Advisory and Other Services The General Partner;
The Investment Consultant; Fees and
Expenses; Summary of Partnership Agreements
Item 21. Brokerage Allocation and Other Practices Conflicts of Interest
Item 22. Tax Status Tax Aspects
Item 23. Financial Statements Not Applicable
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PART C--OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
GLOBAL ASSET MANAGEMENT
GAM
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GAM AVALON MULTI-GLOBAL, L.P.
GAM AVALON MULTI-EUROPE, L.P.
GAM AVALON MULTI-TECHNOLOGY, L.P.
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PRIVATE PLACEMENT MEMORANDUM
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GAM AVALON MULTI-GLOBAL, L.P., GAM AVALON MULTI-EUROPE, L.P. and GAM AVALON
MULTI-TECHNOLOGY, L.P. (each a "Fund") are private investment limited
partnerships registered under the Investment Company Act as closed-end,
non-diversified, management investment companies. The Funds are multi-manager
funds that seek to achieve capital appreciation over the long-term by allocating
their assets among a select group of investment managers with special expertise
investing in the respective sector of each Fund.
Units in the Funds are not registered or approved for sale in any jurisdiction.
The Funds are not offering units in the Funds for sale in any jurisdiction where
such offer or sale is not permitted. Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or passed on the accuracy or adequacy of this Private Placement
Memorandum. Any representation to the contrary is a criminal offense.
UNITS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED BY, OR
ENDORSED BY ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE AMOUNT
INVESTED. THE NET ASSET VALUE OF THE FUNDS WILL FLUCTUATE.
This Private Placement Memorandum provides information that you should know
before investing in the Funds. You should read this Private Placement Memorandum
carefully and retain it for future reference.
For the information of:
______________________ Number_______________
January 2001
<PAGE>
THE UNITS OF GAM AVALON MULTI-GLOBAL, L.P., GAM AVALON MULTI-EUROPE, L.P.
AND GAM AVALON MULTI-TECHNOLOGY, L.P. WHICH ARE DESCRIBED IN THIS PRIVATE
PLACEMENT MEMORANDUM HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT"), OR THE SECURITIES LAWS OF ANY
OF THE STATES OF THE UNITED STATES. THE OFFERINGS CONTEMPLATED BY THIS PRIVATE
PLACEMENT MEMORANDUM WILL BE MADE IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT FOR OFFERS AND SALES OF SECURITIES
WHICH DO NOT INVOLVE ANY PUBLIC OFFERING, AND ANALOGOUS EXEMPTIONS UNDER STATE
SECURITIES LAWS.
THIS PRIVATE PLACEMENT MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF UNITS OF THE
FUNDS IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE IS NOT
AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OR SALE. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS
CONCERNING THE FUNDS THAT ARE INCONSISTENT WITH THOSE CONTAINED IN THIS PRIVATE
PLACEMENT MEMORANDUM. PROSPECTIVE INVESTORS SHOULD NOT RELY ON ANY INFORMATION
NOT CONTAINED IN THIS PRIVATE PLACEMENT MEMORANDUM.
THIS PRIVATE PLACEMENT MEMORANDUM IS INTENDED SOLELY FOR THE USE OF THE
PERSON TO WHOM IT HAS BEEN DELIVERED FOR THE PURPOSE OF EVALUATING A POSSIBLE
INVESTMENT BY THE RECIPIENT IN THE UNITS OF THE FUNDS DESCRIBED HEREIN, AND IS
NOT TO BE REPRODUCED OR DISTRIBUTED TO ANY OTHER PERSONS (OTHER THAN
PROFESSIONAL ADVISERS OF THE PROSPECTIVE INVESTOR RECEIVING THIS DOCUMENT).
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS PRIVATE
PLACEMENT MEMORANDUM AS LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE
INVESTOR SHOULD CONSULT HIS OR HER OWN PROFESSIONAL ADVISERS AS TO THE LEGAL,
TAX, FINANCIAL OR OTHER MATTERS RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN
THE FUNDS FOR SUCH INVESTOR.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THESE SECURITIES ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
LIMITED PARTNERSHIP AGREEMENT OF EACH FUND, THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE>
TABLE OF CONTENTS
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PAGE
KEY FEATURES......................................................................................................1
SUMMARY OF TERMS..................................................................................................2
GLOSSARY OF SELECTED TERMS.......................................................................................11
THE FUNDS........................................................................................................13
STRUCTURE........................................................................................................13
INVESTMENT PROGRAM...............................................................................................14
TYPES OF INVESTMENTS AND RELATED RISK FACTORS....................................................................18
INVESTMENT RESTRICTIONS..........................................................................................26
ADDITIONAL RISK FACTORS RELATING TO THE FUNDS' STRUCTURE........................................................27
THE DIRECTORS....................................................................................................30
THE GENERAL PARTNER..............................................................................................32
THE INVESTMENT CONSULTANT........................................................................................34
CONFLICTS OF INTEREST............................................................................................35
PERFORMANCE INFORMATION..........................................................................................38
FEES AND EXPENSES................................................................................................38
CAPITAL ACCOUNTS AND ALLOCATIONS.................................................................................41
SUBSCRIPTION FOR UNITS...........................................................................................43
REPURCHASES AND TRANSFERS OF UNITS...............................................................................45
TAX ASPECTS......................................................................................................49
ERISA CONSIDERATIONS.............................................................................................57
SUMMARY OF PARTNERSHIP AGREEMENTS................................................................................58
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APPENDIX A: LIMITED PARTNERSHIP AGREEMENT
APPENDIX B: PERFORMANCE INFORMATION
<PAGE>
KEY FEATURES
The GAM Avalon Funds are newly formed, private, multi-manager investment
limited partnerships that differ from a typical registered open-end investment
company, or mutual fund, in several key respects:
o Access to Portfolio Managers: Each Fund offers investors access to a
carefully selected, diversified group of money managers, many of whom
do not currently manage mutual funds offered to the general public.
o Aggressive Investment Strategies: Each Fund may allocate its assets to
money managers that use more aggressive investment strategies,
involving potentially greater risks and returns, than a typical mutual
fund.
o Diversification of Risk: Each Fund seeks to reduce overall portfolio
risk by allocating its assets among several money managers using
different investment strategies and styles which are not necessarily
correlated to each other.
o Hedged Investment Strategies: The Funds will seek to use money
managers that use "hedge" and "arbitrage" strategies that tend to be
less correlated with the general performance of stock and bond
markets. However, such strategies may not be successful, and the Funds
may incur losses.
o Performance Based Fees: Each Fund may pay portfolio managers both
fixed fees, calculated as a percentage of assets under management, and
performance-based fees or allocations, calculated as a percentage of
profits generated by each portfolio manager. Such arrangements are
typical in the hedge fund industry, and may provide greater incentives
to portfolio managers, although they may also create an incentive to
make riskier investments.
o Limited Liquidity: Investors may not redeem or transfer their Units of
the Funds in the same manner as a mutual fund. Each Fund may make
periodic offers to repurchase a portion of its outstanding Units and
expects under ordinary market conditions to offer to repurchase Units
effective June 30 and December 31 of each year commencing June 30,
2001.
o Taxation as Partnership: Investors must pay income tax each year on
their proportionate share of the net income and gains of each Fund,
but will not receive annual distributions from the Funds. Investors
will likely be required to request extensions of time to file their
personal income tax returns.
<PAGE>
SUMMARY OF TERMS
The following summary is qualified entirely by the detailed information
appearing elsewhere in this Private Placement Memorandum and by the terms and
conditions of each Fund's Limited Partnership Agreement (the "Partnership
Agreement"), each of which should be read carefully by each investor and
retained for future reference.
The Funds GAM AVALON MULTI-GLOBAL, L.P.
GAM AVALON MULTI-EUROPE, L.P. and
GAM AVALON MULTI-TECHNOLOGY, L.P.
(each a "Fund" and collectively the
"Funds") are newly formed, private
investment limited partnerships,
organized under the laws of the State of
Delaware and registered under the
Investment Company Act of 1940,
as amended (the "1940 Act"), as closed-
end, non-diversified, management
investment companies.
INVESTMENT OBJECTIVES GAM AVALON MULTI-GLOBAL, L.P. seeks to
achieve long-term capital appreciation
with diversification of risk from
investments in financial markets
worldwide.
GAM AVALON MULTI-EUROPE, L.P. seeks to
achieve long-term capital appreciation
with diversification of risk from
investments in European financial
markets.
GAM AVALON MULTI-TECHNOLOGY, L.P. seeks
to maximize capital appreciation over the
long-term with diversification of risk
from investments in securities of
companies operating in the information
technology industry or related industries
making significant use of such
technology.
MULTI-MANAGER Investment Program Each Fund will seek to
achieve its objective by allocating its
assets among a professionally selected
group of investment vehicles which employ
a variety of investment techniques and
strategies and are managed by highly
skilled portfolio managers (the
"Portfolio Managers") with expertise
investing in the relevant investment
category or sector.
GENERAL PARTNER GLOBAL ASSET MANAGEMENT (USA)
Inc. (the "General Partner") will select
the Portfolio Managers and allocate the
assets of the Funds among them from time
to time based upon an evaluation of each
Portfolio Manager.
The General Partner is part of the Global
Asset Management Group, which manages
approximately $13 billion worldwide and
has related
<PAGE>
entities in London, Zurich,
Hong Kong, New York, Tokyo, Bermuda,
Dublin, the Isle of Man, Sydney, Berlin
and Kuwait. The General Partner is an
indirect subsidiary of UBS A.G., a Swiss
bank.
INVESTMENT CONSULTANT GAM International Management Limited, a
limited company organized under the laws
of the United Kingdom (the "Investment
Consultant"), serves as the Investment
Consultant to the Funds. The Investment
Consultant assists the General Partner
in identifying and performing due
diligence on Portfolio Managers,
especially those located in Europe. The
Investment Consultant is an affiliate
of the General Partner and an indirect
subsidiary of UBS A.G., a Swiss bank.
Selection of Portfolio Managers The General Partner reviews a wide range
of factors in evaluating each Portfolio
Manager, including:
o past investment performance during
various market conditions
o investment strategies and processes used
o risk management procedures
o correlation of results with other
Portfolio Managers
o reputation, experience and training of
key personnel
o personal investment by principals of
the Portfolio Manager in the investment
program
The Funds currently intend to invest their
assets primarily in unregistered
investment partnerships, which have
investors other than the Funds, and in
other registered investment companies
(collectively, the "Portfolio Funds"). The
Funds also may invest a portion of their
assets directly pursuant to investment
advisory agreements, granting Portfolio
Managers discretionary investment
authority on a managed account basis. In
addition, the Funds may invest in a
separate investment vehicle created for a
Portfolio Manager in which the Portfolio
Manager serves as general partner and a
Fund is the sole limited partner.
(Portfolio Managers for which such an
investment vehicle is formed, and
Portfolio Managers who manage assets
directly on a managed account basis, are
collectively referred to as
"Sub-Advisers".) The Funds may invest
directly in liquid investments, including
securities, futures, forward contracts,
money market instruments and other liquid
assets under the management of the General
Partner or the Investment Consultant,
pending allocation or reallocation of
investments to Portfolio Funds or in order
to ensure that sufficient cash is
available for repurchases of Units.
The General Partner will monitor the
performance of each Portfolio
<PAGE>
Manager. The General Partner may
reallocate the assets of each Fund among
that Fund's Portfolio Managers, terminate
existing Portfolio Managers and select
additional Portfolio Managers.
INVESTMENT STRATEGIES USED BY The Portfolio Managers may invest and
PORTFOLIO MANAGERS trade in a wide range of instruments and
markets in accordance with the investment
objective of each Fund. These
investments and markets may include, but
are not limited to, domestic and foreign
equity securities and equity-related
instruments, including options and
warrants, and fixed income and other
debt-related instruments. Portfolio
Managers will not be limited in the
markets (either by location or type, such
as large capitalization, small
capitalization or non-U.S. markets) in
which they invest or the investment
disciplines that they may employ (such as
value or growth or bottom-up or top-down
analysis).
Each Portfolio Manager may use various
investment techniques for hedging and
non-hedging purposes. For example, each
Portfolio Manager may sell securities
short and purchase and sell options and
futures contracts and engage in other
derivative transactions, subject to
certain limitations described elsewhere in
this Private Placement Memorandum. Each
Portfolio Manager may use leverage, which
also entails risk. As unregistered private
investment funds, the Portfolio Funds may
engage in more aggressive investment
strategies, involving greater risk, than
typical mutual funds.
RISK FACTORS The Funds' investment programs are
speculative and involve substantial risks,
some of which are discussed below. No
assurance can be given that the Funds'
investment objectives will be achieved.
MULTI-MANAGER FUNDS: The performance of
each Fund will depend on the ability of
the General Partner to select Portfolio
Managers and Portfolio Funds, and on the
success of the Portfolio Managers in
managing the assets of each Fund allocated
to them.
INVESTMENTS OUTSIDE UNITED STATES:
Investments by the Funds, particularly GAM
Avalon Multi-Global, L.P. and GAM Avalon
Multi-Europe, L.P., in foreign financial
markets, including markets in developing
countries, present political, regulatory
and economic risks which are significant
and which may differ in kind and degree
from the risks presented by investments in
the United States. These may include
changes in foreign currency exchange
rates, greater price volatility,
substantially less liquidity, controls on
foreign investment, and limitations on
repatriation of invested capital. The
exposure of these Funds to developing
country financial markets may involve
greater risk than investment in a
portfolio investing only in developed
country financial markets.
<PAGE>
EMPHASIS ON TECHNOLOGY SECTOR: The
emphasis of GAM Avalon Multi-Technology,
L.P. on the technology sector presents
risks that may not be present in other
types of investments. The prices of
technology stocks tend to be very volatile
relative to other types of investments.
Companies in the technology sector tend to
be dependent on the development of new
products and services that may not be
successful. Concentration of the
investments of this Fund in technology
companies may involve greater risk than
investment in a more diversified
portfolio.
AGGRESSIVE INVESTMENT STRATEGIES: Each
Portfolio Manager may use investment
strategies that involve greater risks than
the strategies used by typical mutual
funds, including short sales, leverage and
derivative transactions. Although many of
the Portfolio Managers will use hedged
strategies, there is no assurance that
hedged strategies will protect against
losses or perform better than unhedged
strategies, and some Portfolio Managers
may use long-only or short-only
strategies.
LIMITED DIVERSIFICATION: Although each
Fund will seek to diversify risk by
allocating assets among different
Portfolio Managers, each Fund is a
non-diversified investment company. There
are no percentage limitations on the
portion of the assets of each Fund that
may be invested in the securities of any
one issuer. As a result, the investment
portfolio of each Fund may be subject to
greater risk and volatility than if
investments had been made in the
securities of a broader range of issuers.
FEES: The Funds will incur advisory fees
to the Portfolio Managers in addition to
the fees payable to the General Partner.
Each Portfolio Manager will receive both a
fixed management fee and a
performance-based fee or allocation. Such
arrangements may create incentives for
Portfolio Managers to engage in riskier
transactions on behalf of the Funds. Each
Fund may incur performance-based fees to
some Portfolio Managers even though the
performance of other Portfolio Managers or
the Fund as a whole in a given year is
negative. By investing in Portfolio Funds
indirectly through the Funds, the investor
bears a proportionate share of the fees
and expenses of the Funds and, indirectly,
similar expenses of the Portfolio Funds.
Investors could avoid the additional level
of fees at the Fund level by investing
directly with the Portfolio Managers,
although in many cases access to these
Portfolio Managers may be limited or
unavailable.
LIMITED LIQUIDITY: Limited partnership
interests in the Funds
<PAGE>
("Units") will not be traded on any
securities exchange or other market and
are subject to substantial restrictions
on transfer. The Funds may offer to
repurchase a portion of
the outstanding Units from time to time,
but are not required to do so.
NO REGISTRATION OF PORTFOLIO FUNDS: The
Portfolio Funds generally will not be
registered as investment companies under
the 1940 Act and, therefore, the Funds
will not be entitled to all of the
protections of the 1940 Act with respect
to the Portfolio Funds.
PORTFOLIO FUND LIMITATIONS: The General
Partner will not be able to control or
monitor the activities of the Portfolio
Funds. Portfolio Funds may restrict
redemptions of their interests under
certain circumstances. Since the Funds may
make additional investments in Portfolio
Funds only at certain times pursuant to
limitations set forth in the partnership
agreements or other documents governing
the Portfolio Funds, the Funds from time
to time may have to invest some of their
assets temporarily in money market
securities.
MANAGEMENT The General Partner will be responsible
for the selection of the Portfolio
Managers and the allocation of the assets
of each Fund among the Portfolio Managers,
based in part upon advice received from
the Investment Consultant.
The General Partner, to the fullest extent
permitted by applicable law, has
irrevocably delegated to a group of
individuals (the "Directors") its rights
and powers to manage and control the
business affairs of the Funds, including
the exclusive authority to oversee and to
establish policies regarding the
management, conduct and operation of the
business of each Fund.
SELLING AGENT GAM SERVICES INC., an affiliate of the
General Partner (the "SELLING AGENT"),
acts as Selling Agent for the Funds. The
Selling Agent may appoint additional
placement agents ("Placement Agents") to
assist in the placement of Units.
CONFLICTS OF INTEREST The investment activities of the
General Partner, the Investment
Consultant, the Portfolio Managers and
their affiliates for their own accounts
and the other accounts they manage may
give rise to conflicts of interest which
may disadvantage the Funds. The Funds'
operations may give rise to other
conflicts of interest. See "Conflicts of
Interest."
FEES AND EXPENSES Each Fund will pay the General
Partner a monthly management fee
at the annual rate of 2% of the Fund's net
assets (each a "MANAGEMENT FEE"). A
portion of the Management Fee may be paid
to Placement
<PAGE>
Agents who assist in the
placement of Units. The General Partner,
and not the Funds, will be responsible for
the fees of the Investment Consultant.
PFPC Inc. (the "ADMINISTRATOR") performs
certain administration, accounting and
investor services for the Funds and the
Portfolio Funds managed by the
Sub-Advisers, if any. In consideration for
these services, the Funds will pay the
Administrator an annual fee calculated
based upon the average net assets of each
Fund and each Portfolio Fund managed by a
Sub-Adviser, if any, subject to a minimum
monthly fee, and will reimburse the
Administrator for certain of the
Administrator's expenses.
Each Fund will bear all expenses incurred
in its business, including, but not
limited to: all costs and expenses related
to portfolio transactions and positions
for the Fund's account; establishment of
any Portfolio Funds managed by
Sub-Advisers; legal fees; accounting fees;
costs of insurance; organizational and
registration expenses; certain offering
costs; and expenses of meetings of
Directors and Limited Partners. The
Portfolio Funds will bear all expenses
incurred in the business of the Portfolio
Funds, which are similar to those expenses
incurred by the Funds in the business of
the Funds.
Each Portfolio Manager generally will
charge the Fund whose assets it manages an
asset-based fee, and some or all of the
Portfolio Managers will receive
performance-based fees or allocations. The
asset-based fees of the Portfolio Managers
are expected to range from 1% to 2% of net
assets each year and the performance-based
allocations of the Portfolio Managers are
expected to range from 15% to 25% of net
profits each year.
Sales Charges The Selling Agent or Placement
Agents, as the case may be, will receive a
front-end sales charge in an amount up to
5% of the gross investment by each
investor in each Fund, subject to a
minimum sales charge of 1%. The specific
amount of such sales charge is dependent
upon the size of each individual
investment, as set forth below:
up to $99,999 5%
$100,000 - $299,999 4%
$300,000 - $599,999 3%
$600,000 - $999,999 2%
$1,000,000 and over 1%
Sales charges may be adjusted or waived at
the sole discretion of the
<PAGE>
Selling Agent or Placement Agents, as the
case may be, and will be waived for
employees of the Selling Agent and
Placement Agents and certain related
persons. The sales charge will be
added to a prospective investor's
subscription amount and will not
constitute part of a Partner's capital
contribution to the Fund or part of the
assets of the Fund.
ELIGIBLE INVESTORS Only investors who are eligible investors
as defined herein and in the Funds'
subscription documents may purchase Units.
Among other required qualifications,
each prospective investor will be
required to certify as to its status as an
"accredited investor" as defined in
Regulation D under the 1933 Act, and that
such investor (and certain of the owners
of equity in such investor, in certain
instances) (i) immediately after the
time of the subscription, has at least
$750,000 under the discretionary
investment management of the General
Partner and its affiliates, or (ii) at the
time of subscription, has a net worth of
more than $1.5 million, or (iii) at the
time of subscription, is a "qualified
purchaser" as defined in Section 2(a)
(51)(A) of the 1940 Act (a "Qualified
Purchaser"). Eligible investors may
invest in the Funds through an
Individual Retirement Account (IRA).
The General Partner reserves the right to
reject subscriptions in its absolute
discretion.
SUBSCRIPTION FOR UNITS Both initial and additional subscriptions
for Units by eligible investors may be
accepted at such times as the General
Partner may determine, subject to the
receipt of cleared funds on or before
the acceptance date set by the General
Partner. Funds received but not cleared
prior to such acceptance date shall be
held in escrow pending the next acceptance
date. After the initial closing, initial
subscriptions and additional capital
contributions will generally be accepted
monthly. The Funds reserve the right
to reject any subscription for Units.
Each Unit represents a capital
commitment of $100 at the initial closing.
Units will be issued at their net asset
value per Unit at subsequent
closings. Generally, the minimum initial
investment in each Fund is $50,000,
and the minimum additional investment is
$5,000. For employees or directors of the
General Partner and its affiliates, and
members of their immediate families,
and, in the sole discretion of the General
Partner, other investors, the minimum
initial investment is $25,000. The
Funds may vary the investment minimums
from time to time. The Funds may suspend
subscriptions for Units at any time.
INITIAL CLOSING DATE The initial closing date for subscriptions
of Units is expected to be January 26,
2001. The General Partner, in its sole
discretion, may delay for a period of up
to 90 days the initial closing date of a
Fund, including, but not limited to, if
the General Partner determines that a
threshold level of assets has not been
raised to permit the Fund to
<PAGE>
allocate its assets among an appropriate
number of Portfolio Managers.
TRANSFER RESTRICTIONS Units may be transferred only
by (i) operation of law pursuant to the
death, bankruptcy, insolvency or
dissolution of a Limited Partner or (ii)
with the written consent of the General
Partner, which may be withheld in its sole
and absolute discretion.
REPURCHASES OF UNITS BY THE FUND No Limited Partner will have the right
(HOW TO REDEEM UNITS) to require any Fund to redeem the Limited
Partner's Units.
Each Fund from time to time may offer to
repurchase Units pursuant to written
tenders by Partners. These repurchases
will be made at such times and on such
terms as may be determined by the
Directors. In determining whether the
Funds should repurchase Units from
Partners pursuant to written tenders, the
Directors will consider the recommendation
of the General Partner. The General
Partner expects that generally, beginning
in 2001, it will recommend to the
Directors that each Fund offer to
repurchase Units from Partners two times
each year, in June and December. When each
Fund does determine to offer to repurchase
Units, it is expected that notice of such
offer will be provided to Partners of each
Fund not less than 45 days prior to the
date of such repurchase, and that Partners
wishing to accept such offer will be
required to accept such offer not less
than 15 days prior to the date of such
repurchase. A Fund may also repurchase
Units if the General Partner determines
that it would be in the best interests of
the Fund. See "Repurchases and
Transfers--No Right of Redemption" and
"--Repurchases of Units." The Partnership
Agreement of each Fund provides that the
Fund shall be dissolved if the Units held
by any Limited Partner that has submitted
a written request, in accordance with the
terms of the Partnership Agreement, to
tender all of the Units held by such
Partner for repurchase by such Fund has
not been repurchased within a period of
two years of such request.
BORROWING BY THE FUNDS Subject to the respective
Partnership Agreement and provisions of
applicable law, each Fund reserves the
right to arrange for a line or lines of
credit and to make borrowings thereunder
as may be deemed necessary by the General
Partner in its sole discretion for the
management of such Fund's business
activities.
FUTURE INTERESTS Each Fund reserves the right to
issue additional classes of units in the
future subject to fees, charges,
redemption rights, and other
characteristics different from those of
the Units offered in this Private
Placement Memorandum.
<PAGE>
SUMMARY OF TAXATION Each Fund should be treated as a
partnership and not as an association
taxable as a corporation for U.S. Federal
income tax purposes. Accordingly, the Funds
should not be subject to Federal income
tax, and each Limited Partner will be
required to report on his or her own annual
tax return his or her distributive
share of each Fund's taxable income or
loss. For the Funds to complete their tax
reporting requirements, they must receive
information on a timely basis from the
Portfolio Managers. A Portfolio Manager's
delay in providing this information
will delay a Fund's preparation of tax
information to investors, which is likely
to cause Limited Partners to seek
extensions on the time to file their tax
returns. The Funds do not expect to be
able to provide estimates of each Limited
Partner's taxable income before the due
date for filing extensions and paying
estimated taxes. Limited Partners are
encouraged to consult their tax advisor
concerning how such delayed reporting may
affect them.
ERISA PLANS AND OTHER TAX-EXEMPT Investors subject to the Employee
ENTITIES Retirement Income Security Act of 1974, as
amended ("ERISA"), and other tax-exempt
entities (each a "tax-exempt" entity) may
purchase Units. The assets of each Fund
should not be considered to be "plan
assets" for purposes of ERISA's fiduciary
responsibility and prohibited transaction
rules or similar provisions of the
Internal Revenue Code of 1986, as amended
(the "Code"). The Portfolio Managers may
use leverage in connection with their
trading activities. Therefore, a
tax-exempt Limited Partner may incur
income tax liability with respect to its
share of the net profits from such
leveraged transactions to the extent they
are treated as giving rise to "unrelated
business taxable income" ("UBTI"). The
Funds will provide to tax-exempt Limited
Partners such accounting information as
such Partners require to report their UBTI
for income tax purposes. Investment in the
Funds by tax-exempt entities requires
special consideration. Trustees or
administrators of such entities are urged
to review carefully the matters discussed
in this Private Placement Memorandum.
TERM Each Fund's term is perpetual unless the
Fund is otherwise dissolved under the
terms of its Partnership Agreement.
REPORTS TO PARTNERS Each Fund will furnish to its Partners as
soon as practicable after the end of
each taxable year such information as
is necessary for Partners to complete
Federal and state income tax or information
returns, along with any other tax
information required by law. Each Fund
also will send to Partners a semi-annual
and an audited annual report generally
within 60 days after the close of the
period for which the report is being made,
or as otherwise required by the 1940
Act. Quarterly reports from the General
Partner regarding the operations of each
Fund during each quarter also will be sent
to Partners.
<PAGE>
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GLOSSARY OF SELECTED TERMS
--------------------------------------------------------------------------------
"1933 Act" -- the Securities Act of 1933 and the rules, regulations and
orders thereunder, as amended from time to time, or any successor law.
"1940 Act" -- the Investment Company Act of 1940 and the rules, regulations
and orders thereunder, as amended from time to time, or any successor law.
"Advisers Act" -- the Investment Advisers Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
"Administrator" -- PFPC Inc.
"Capital Account" -- the capital account maintained for each Limited
Partner in a Fund.
"CFTC" -- the U.S. Commodity Futures Trading Commission.
"Code" -- the Internal Revenue Code of 1986, as amended, and as hereafter
amended from time to time, or any successor law.
"Custodian" -- PFPC Trust Company.
"Directors" - the persons to whom the General Partner has delegated the
authority to control the management of a Fund.
"ERISA" -- the U.S. Employee Retirement Income Security Act of 1974, as
amended.
"Fund" -- each of GAM Avalon Multi-Global, L.P., GAM Avalon Multi-Europe,
L.P., and GAM Avalon Multi-Technology, L.P.
"GAM Client" - another client of the General Partner or one of its
affiliates.
"General Partner" -- Global Asset Management (USA) Inc.
"Independent Director" -- a Director of any Fund who is not an "interested
person" as defined in the 1940 Act.
"Investment Consultant" - GAM International Management Limited.
"IRS" -- the U.S. Internal Revenue Service.
"Limited Partner" - an investor in a Fund.
"Management Fee" -- the monthly management fee payable to the General
Partner.
<PAGE>
"Multi-Manager" -- an investment strategy involving the allocation of
assets among several investment managers using different investment styles.
"Partnership Agreement" -- the Limited Partnership Agreement of each Fund.
"Placement Agent" - a broker or other intermediary appointed by the Selling
Agent to assist in the placement of Units.
"Portfolio Fund" - an investment partnership or fund in which a Fund
invests a portion of its assets.
"Portfolio Manager" -- an individual or entity responsible for managing a
portion of the assets of a Fund, either directly or through a Fund's investment
in a Portfolio Fund. The term Portfolio Managers includes the Sub-Advisers.
"Private Placement Memorandum" -- this Private Placement Memorandum of GAM
Avalon Multi-Global, L.P., GAM Avalon Multi-Europe, L.P., and GAM Avalon
Multi-Technology, L.P.
"Qualified Purchaser" -- a qualified purchaser as defined in Section
2(a)(51)(A) of the 1940 Act.
"Regulations" -- the regulations adopted by the U.S. Department of Treasury
under the Code.
"SEC" -- the U.S. Securities and Exchange Commission.
"Selling Agent" -- GAM Services Inc.
"Sub-Adviser" -- a Portfolio Manager responsible either (i) for directly
managing a portion of the assets of a Fund in a managed account or (ii) for
managing a special purpose investment vehicle, the general partner of which is
the Portfolio Manager and the sole limited partner of which is a Fund.
"UBTI" - "unrelated business taxable income" as defined under the Code.
"Unit" - a limited partnership interest in a Fund.
<PAGE>
GAM AVALON MULTI-GLOBAL, L.P.
GAM AVALON MULTI-EUROPE, L.P.
GAM AVALON MULTI-TECHNOLOGY, L.P.
--------------------------------------------------------------------------------
THE FUNDS
--------------------------------------------------------------------------------
GAM AVALON MULTI-GLOBAL, L.P., GAM AVALON MULTI-EUROPE, L.P. AND GAM AVALON
MULTI-TECHNOLOGY, L.P. are registered under the 1940 Act as closed-end,
non-diversified, management investment companies. GAM Avalon Multi-Technology,
L.P. was formed as a limited partnership under the laws of Delaware on June 7,
2000, and GAM Avalon Multi-Europe, L.P. and GAM Avalon Multi-Global, L.P. were
formed as limited partnerships under the laws of Delaware on August 22, 2000.
The Funds have no operating history. The Funds' principal office is located at
135 East 57th Street, New York, New York 10022, and their telephone number is
(212) 407-4600.
The General Partner is responsible for selecting the Portfolio Managers to
manage the investments of each Fund. The General Partner is part of the Global
Asset Management Group, which was founded and started managing multi-manager
investment portfolios for clients in 1983.
--------------------------------------------------------------------------------
STRUCTURE
--------------------------------------------------------------------------------
The Funds are specialized multi-manager private investment partnerships
that combine many of the features of a private investment partnership with those
of a registered closed-end investment company. Private investment partnerships
are unregistered, commingled asset pools that may be leveraged, managed
aggressively and offered in large minimum denominations, often over $1 million,
through private placements to a limited number of high net worth individual and
institutional investors. The general partners of these partnerships typically
are compensated through asset-based fees and performance-based fees or
allocations. Closed-end investment companies are 1940 Act registered pools
typically organized as corporations or business trusts that usually are managed
more conservatively than most private investment partnerships, subject to
relatively modest minimum investment requirements (often less than $2,000), and
publicly offered to a broad range of investors. The advisers to these companies
typically are compensated through asset-based, but not performance-based, fees.
The Funds are similar to private investment partnerships in that their
investment portfolios may be actively managed and Units will be sold in
comparatively large minimum denominations in private placements solely to high
net worth individuals and institutional investors, whose capital accounts will
be subject to asset-based fees.
<PAGE>
-------------------------------------------------------------------------------
INVESTMENT PROGRAM
-------------------------------------------------------------------------------
The Funds are multi-manager funds which seek to achieve their objectives by
deploying their assets primarily among a professionally selected group of
investment vehicles which employ a variety of investment techniques and
strategies and are managed by highly skilled Portfolio Managers who invest
primarily in, or who have particular expertise with respect to, the investment
category or sector focus of each Fund. The investment objective and strategies
of each Fund are summarized below:
o GAM AVALON MULTI-GLOBAL, L.P.: This Fund's investment objective is to
achieve long-term capital appreciation with diversification of risk
from investments in financial markets worldwide. This Fund will use
Portfolio Managers using a wide range of investment styles, that may
include investments in options, futures and other financial
derivatives, distressed securities, and emerging markets, in addition
to investment strategies emphasizing more traditional investments such
as stocks and bonds. This Fund will not seek to emphasize any
particular country, region, industry or sector, but will seek to
allocate its assets among a diverse group of Portfolio Managers using
different investment styles whose performance is not expected to be
correlated with each other.
o GAM AVALON MULTI-EUROPE, L.P.: This Fund's investment objective is to
achieve long-term capital appreciation with diversification of risk
from investments in primarily European financial markets. This Fund
will seek to take advantage of the recent growth of financial markets
in Europe and the recent emergence of new investment management talent
in Europe by allocating its assets to Portfolio Managers using a
variety of different investment management styles in different markets
in Europe. The Fund will not emphasize any particular countries or
markets in Europe, and will allocate its assets both to Portfolio
Managers based in Europe that invest in securities and financial
markets both within and outside Europe, and to Portfolio Managers
based outside Europe that invest primarily in European markets. Due to
its emphasis on Portfolio Managers based or investing primarily in
Europe, the performance of this Fund will tend to be affected to a
greater extent by economic and political developments in Europe.
o GAM AVALON MULTI-TECHNOLOGY, L.P.: This Fund's investment objective is
to maximize capital appreciation over the long-term with
diversification of risk from investments in securities of companies
operating in the information technology industry or related industries
making significant use of such technology, including those companies
operating in the fields of computer hardware and software,
telecommunications, Internet and e-commerce, consumer electronics and
electronic components. The majority of such companies are likely to
operate in North America, although investments may also be made in
other markets. The performance of this Fund will tend to be affected
to a greater extent by general increases or decreases in the market
prices of stocks in the technology sector.
<PAGE>
The Portfolio Managers selected to manage assets for a Fund may use a wide
range of investment strategies and styles, including some of the styles
described below. Portfolio Managers may also use different styles not listed
below, or they may combine different elements of different styles listed below.
o Hedge Strategies - Investment in stocks, bonds or other financial
instruments while simultaneously using short sales, futures, options
or other instruments in an effort to protect against the potential
adverse effects of general movements in market prices. Hedge
strategies include long-short or market neutral strategies, which seek
to develop a balanced portfolio of both long and short positions in
stocks or other instruments.
o Directional Strategies - Investing in stocks, bonds or other financial
instruments in an effort to take advantage of anticipated trends in
general market prices or prices of specific investments. Directional
strategies may emphasize long term investments or short term trading,
and include:
o long-only strategies - purchasing securities without hedging
market risks.
o market timing - buying and selling securities based upon
anticipated general movements in market prices.
o value investing - investing in companies based on views as to the
value of their underlying assets.
o growth investing - investing in companies based upon views as to
their potential future earnings.
o sector investing - investing in specific industries or sectors of
the economy.
o global investments - investing in international financial
markets.
o macro investments - investing based upon views as to global
macroeconomic trends.
o emerging markets - investing in developing countries.
o junk bonds - investing in debt securities rated below investment
grade.
o distressed securities - investing in companies experiencing
financial difficulties.
o managed futures - investing in global futures and forward
markets.
<PAGE>
o short selling - selling borrowed securities in anticipation of
decreases in the market prices of the securities borrowed.
o Relative Value or Arbitrage Strategies - Investing in long and short
positions in related securities or other instruments in an effort to
take advantage of perceived discrepancies in the market prices for
such instruments. Relative value and arbitrage strategies include:
o pairs trading - long and short positions in securities of
different companies in the same industry.
o convertible arbitrage - offsetting long and short positions in
convertible bonds or preferred stocks and the underlying common
stocks into which they are convertible.
o risk or merger arbitrage - offsetting long and short positions in
securities of companies which are involved in a merger, tender
offer, reorganization, bankruptcy or other extraordinary
corporate transaction.
o fixed income or interest rate arbitrage - offsetting long and
short positions in financial instruments likely to be affected by
changes in interest rates.
The General Partner, with the advice of the Investment Consultant, will
select Portfolio Managers for each Fund and allocate the assets of each Fund
among its respective Portfolio Managers. The General Partner reviews a wide
range of factors in evaluating each Portfolio Manager, including:
o past investment performance during various market conditions
o investment strategies and processes used
o risk management procedures
o correlation of results with other Portfolio Managers
o reputation, experience and training of key personnel
o personal investment by principals of the Portfolio Manager in the
investment program
As part of its due diligence process, the General Partner conducts a
comprehensive review of each Portfolio Manager, its investment process and
organization. The General Partner conducts on-site interviews of the Portfolio
Manager's personnel as well as interviews with third party references and
industry sources.
Portfolio Managers generally are granted complete discretion over the
investment of the assets allocated to them, and conduct their investment
programs through Portfolio Funds. The Funds currently intend to invest their
assets primarily in Portfolio Funds, which may include both unregistered private
investment partnerships and registered mutual funds, and entities organized in
either the United States or other countries. The Funds also may invest their
assets
<PAGE>
directly pursuant to investment advisory agreements, granting Portfolio
Managers discretionary investment authority to invest a portion of the assets of
a specific Fund on a managed account basis. The Funds may also create a separate
investment vehicle for a Portfolio Manager in which the Portfolio Manager serves
as general partner and a Fund is the sole limited partner.
The General Partner may cause the Funds to invest a portion of their assets
directly in liquid assets in a portfolio managed by the General Partner or
Investment Consultant, which portfolio may include stocks, bonds, futures
contracts, currency forward contracts, money market instruments and other liquid
assets. Such direct investments may comprise a significant percentage of each
Fund's assets during the early operational stage of each Fund, while the General
Partner is determining the optimal allocation of assets among Portfolio
Managers, or if a Fund receives proceeds from subscriptions for Units at a time
when the Fund is unable to invest in desired Portfolio Funds. For example, the
General Partner or Investment Consultant may elect to invest a portion of the
assets of a Fund in futures or forward contracts in order to hedge all or a
portion of the assets of the Fund managed by a particular Portfolio Manager
against risks related to general movements in market prices, interest rates or
currency exchange rates. The General Partner or Investment Consultant may also
elect to invest a portion of the assets of a Fund in futures contracts in order
to track the performance of general market indices pending investment of
proceeds of subscriptions for Units in Portfolio Funds.
Under ordinary circumstances, the General Partner expects to allocate the
assets of each Fund among six to 20 Portfolio Managers. However, during the
early stage of operations of each Fund, or if a Fund does not raise a threshold
level of assets, it may not be possible for various reasons to allocate the
assets of each Fund among all of the Portfolio Managers selected by the General
Partner.
The General Partner will allocate not more than 40% of any Fund's assets to
any Portfolio Fund that is advised by a Sub-Adviser, and will limit each Fund's
investment in any Portfolio Fund that is not advised by a Sub-Adviser to less
than 5% of the Portfolio Fund's voting securities. However, to permit it to
invest more of its assets in desirable Portfolio Funds, a Fund may purchase
without limitation non-voting securities of Portfolio Funds that are not advised
by a Sub-Adviser or, as to these Portfolio Funds, contractually forego its right
to vote on any matter that requires the approval of the limited partners. A Fund
may invest a majority of its assets in non-voting securities of the Portfolio
Funds.
The General Partner will evaluate regularly each Portfolio Manager to
determine whether its investment program is consistent with the investment
objective of the relevant Fund and whether its investment performance is
satisfactory. The General Partner may reallocate a Fund's assets among Portfolio
Managers, terminate existing Portfolio Managers and select additional Portfolio
Managers, subject to the condition that selection of a new Sub-Adviser requires
approval of a majority (as defined in the 1940 Act) of a Fund's outstanding
voting securities, unless such Fund receives an exemption from certain
provisions of the 1940 Act.
Unregistered investment funds, such as the Portfolio Funds, typically
provide greater flexibility than traditional registered investment companies, or
"mutual funds", in the types of securities they may own, the types of trading
strategies they may employ, and, in some cases, the amount of leverage they may
use. The Portfolio Managers selected by the General Partner may
<PAGE>
invest and trade in a wide range of instruments and markets, including, but not
limited to, domestic and foreign equities and equity-related instruments,
including options and warrants, and fixed income and other debt-related
instruments. Portfolio Managers whose investment strategies are generally
consistent with the investment objectives of a Fund will not be limited in the
markets (either by location or type, such as large capitalization, small
capitalization or non-U.S. markets) in which they invest or the investment
disciplines that they may employ (such as value or growth or bottom-up or
top-down analysis).
Each Portfolio Manager may use various investment techniques for hedging
and non-hedging purposes. For example, each Portfolio Manager may sell
securities short and purchase and sell options and futures contracts and engage
in other derivative transactions, subject to certain limitations. The use of
these techniques will be an integral part of their investment programs, and
involves certain risks to the Funds. Each Portfolio Manager may use leverage,
which also entails risk.
Each Portfolio Manager may invest, for defensive purposes or otherwise,
some or all of its assets in high quality fixed income securities and money
market instruments, or may hold cash or cash equivalents in such amounts as the
Portfolio Manager deems appropriate under the circumstances. Pending allocation
of the offering proceeds, and thereafter, from time to time, the Funds also may
invest in these instruments.
Additional information about the types of investments that are expected to
be made by the Portfolio Managers, their investment practices and related risk
factors is provided below. Except as otherwise indicated, the Funds' investment
policies and restrictions are not fundamental and may be changed without a vote
of the Limited Partners.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
--------------------------------------------------------------------------------
All securities investments risk the loss of capital. The value of each
Fund's total net assets should be expected to fluctuate. Due to the types of
investments and investment strategies to be used by Portfolio Managers,
fluctuations in the net asset value of the Funds may be more volatile than is
typical for most mutual funds.
This section describes some of the investments and investment strategies
likely to be used by Portfolio Managers and some of the related risks.
RISKS OF INVESTING IN GLOBAL AND EMERGING MARKETS
The performance of the Funds, especially GAM Avalon Multi-Global, L.P. and
GAM Avalon Multi-Europe L.P., is subject to special risks relating to
investments outside the United States, including fluctuations in foreign
currency exchange rates and future economic and political developments in other
countries.
Foreign securities in which the Portfolio Managers may invest may be listed
on foreign securities exchanges or traded in foreign over-the-counter markets.
Foreign securities markets
<PAGE>
generally are not as developed or efficient as those in the United States.
Securities of some foreign issuers are less liquid and more volatile than
securities of comparable U.S. issuers. Similarly, volume and liquidity in most
foreign securities markets are less than in the United States and, at times,
volatility of prices can be greater than in the United States. The Funds will be
subject to risks of possible adverse political and economic developments,
seizure or nationalization of foreign deposits, or adoption of governmental
restrictions which might adversely affect or restrict the payment of principal
and interest on foreign securities to investors located outside the country of
the issuer, whether from currency blockage or otherwise. Since foreign
securities often are purchased with and payable in currencies of foreign
countries, their value may be affected favorably or unfavorably by changes in
currency rates and exchange control regulations.
To the extent that investment is made in emerging markets, the political,
regulatory and economic risks inherent in investments in emerging markets'
securities are significant and may differ in kind and degree from the risks
presented by investments in the world's major securities markets. These may
include greater price volatility, substantially less liquidity, controls on
foreign investment and limitations on repatriation of invested capital.
RISKS OF TECHNOLOGY SECTOR
The emphasis of GAM Avalon Multi-Technology, L.P. on Portfolio Managers
that invest primarily in securities of technology-related companies presents
certain risks that may not exist to the same degree as in other types of
investments. Technology stocks, in general, tend to be highly volatile as
compared to other types of investments. Since the investments of this Fund's
Portfolio Managers are concentrated in securities of technology-related
companies, the investment risk is greater than if the portfolios were invested
in a more diversified manner among various sectors.
Many technology companies in different industries share common
characteristics, and may present greater opportunities for capital appreciation,
but also may involve greater risks:
o Many are smaller and less seasoned companies.
o Many have limited product lines, markets, or financial resources.
o Many depend on key personnel.
o Many are more strongly affected by worldwide scientific or
technological developments.
o Many depend on the development of new products and services that may
not be economically successful or may quickly become outdated.
o Many offer products or services that are subject to governmental
regulation and may be affected adversely by governmental policies.
o Many have no earnings or have experienced losses.
HEDGE STRATEGIES
The Portfolio Managers may engage in a wide range of investment and
trading strategies described below. Many of these strategies are sometimes
referred to as "hedge" or "arbitrage" strategies, because they use short sales,
futures and other derivatives in an effort to protect assets
<PAGE>
from losses due to general declines in international financial markets. However,
there can be no assurances that the hedging and arbitrage strategies used by the
Portfolio Managers will be successful in avoiding losses, and hedged positions
may perform less favorably in generally rising markets than unhedged positions.
Furthermore, no assurance can be given that Portfolio Managers will employ
hedging strategies with respect to all or any portion of a given Portfolio
Fund's assets.
EQUITY SECURITIES
Each Portfolio Manager's investment portfolio may include long and short
positions in common stocks, preferred stocks and convertible securities of U.S.
and foreign issuers. Each Portfolio Manager also may invest in depositary
receipts relating to foreign securities. See "Foreign Securities" below. Equity
securities fluctuate in value, often based on factors unrelated to the value of
the issuer of the securities. Each Portfolio Manager may invest in equity
securities without restriction as to market capitalization, including securities
issued by smaller capitalization companies, including micro cap companies. The
prices of the securities of smaller companies may be subject to more abrupt or
erratic market movements than larger, more established companies, because these
securities typically are traded in lower volume and the issuers typically are
more subject to changes in earnings and prospects. Each Portfolio Manager may
purchase securities in all available securities trading markets.
FIXED-INCOME SECURITIES
Each Portfolio Manager may invest in fixed-income 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).
Each Portfolio Manager may invest in both investment grade and
non-investment grade debt securities, including high yield bonds and distressed
securities. Non-investment grade debt securities are generally considered to be
speculative with respect to the issuer's capacity to pay interest and repay
principal. Non-investment grade debt securities in the lowest rating categories
may involve a substantial risk of default or may be in default. Distressed
securities are securities issued by companies that are involved in bankruptcy or
insolvency proceedings or experiencing other financial difficulties. The
performance of investments in distressed securities may be adversely affected to
a greater extent by specific economic developments affecting an issuer, or by a
general economic downturn, than investment in securities of issuers not facing
such difficulties Foreign Currency Transactions
Each Portfolio Manager may engage in foreign currency transactions for a
variety of purposes, including to fix in U.S. dollars the value of a security
the Portfolio Manager has agreed to buy or sell, or to hedge the U.S. dollar
value of securities the Portfolio Manager already owns.
<PAGE>
Each Portfolio Manager's success in these transactions will depend principally
on its ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar.
MONEY MARKET INSTRUMENTS
Each Portfolio Manager may invest, for defensive purposes or otherwise,
some or all of its assets in high quality fixed-income securities, money market
instruments, and money market mutual funds, or hold cash or cash equivalents in
such amounts as the Portfolio Manager deems appropriate under the circumstances.
Pending allocation of the offering proceeds and thereafter, from time to time,
the Funds also may invest in these instruments. In addition, each Fund
anticipates that a portion of its assets shall be kept in cash, money market
securities or other liquid assets in order to enable the Funds to accommodate
requests for repurchases by each Fund of its Units. 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, bankers' acceptances and
repurchase agreements.
NON-DIVERSIFIED STATUS
The classification of each of the Funds as a "non-diversified" investment
company means that the percentage of each Fund's assets that may be invested in
the securities of a single issuer is not limited by the 1940 Act. A
"diversified" investment company is required by the 1940 Act generally, with
respect to 75% of its total assets, to invest not more than 5% of such assets in
the securities of a single issuer. Since a relatively high percentage of each
Fund's assets may be invested in the securities of a limited number of issuers,
some of which will be within the same industry, each Fund's portfolio securities
may be more sensitive to changes in the market value of a single issuer and to
events affecting a particular industry or market segment. Borrowing and Leverage
Subject to each Partnership Agreement and provisions of applicable law,
each Fund reserves the right to arrange for a line or lines of credit and to
make such borrowings thereunder as may be deemed necessary by the General
Partner in its sole discretion for the management of such Fund's business
activities.
The Portfolio Managers may borrow money from brokers and banks for
investment purposes. Borrowing for investment purposes, which is known as
"leverage," is a speculative investment technique and involves substantial
risks. Although leverage will increase investment returns if a Portfolio Fund
earns a greater return on the investments purchased with borrowed funds than it
pays for the use of such funds, using leverage will decrease investment returns
if such Portfolio Fund fails to earn as much on such investments as it pays for
the use of the funds. Using leverage, therefore, will magnify the volatility of
the value of a Portfolio Fund's investment portfolio. If the Portfolio Manager's
equity or debt instruments decline in value, the Portfolio Manager could be
required to deposit additional collateral with the lender or suffer mandatory
liquidation of the pledged securities to compensate for the decline in value. In
the event of a sudden, precipitous drop in a Portfolio Fund's assets, whether
resulting from changes in market value or from redemptions, the Portfolio
Manager might not be able to liquidate assets
<PAGE>
quickly enough to pay off its borrowing. Money borrowed for leveraging will be
subject to interest costs. The Portfolio Manager also may be required to
maintain minimum average balances in connection with its borrowings or to pay a
commitment or other fee to maintain a line of credit.
The 1940 Act limits the amount an investment company can borrow. The value
of an investment company's total indebtedness may not exceed one-third the value
of its total assets, including such indebtedness, measured at the time the
investment company incurs the indebtedness. This limit does not apply to
Portfolio Funds that are not managed by Sub-Advisers and, therefore, the Funds'
portfolios may be highly leveraged and the volatility of the price of their
Units may be great. To obtain "leveraged" market exposure in certain investments
and to increase overall return, a Portfolio Manager may purchase options and
other instruments that do not constitute "indebtedness" for purposes of the 1940
Act limitations. These instruments nevertheless may involve significant economic
leverage and, therefore, in some cases, may involve significant risks of loss.
INITIAL PUBLIC OFFERINGS
Each Portfolio Manager may purchase securities of companies in initial
public offerings. Special risks associated with these securities may include a
limited number of shares available for trading, unseasoned trading, lack of
investor knowledge of the company, and limited operating history. These factors
may contribute to substantial price volatility for the shares of these
companies. The limited number of shares available for trading in some initial
public offerings may make it more difficult for a Portfolio Fund to buy or sell
significant amounts of shares without an unfavorable impact on prevailing market
prices. Some companies in initial public offerings are involved in relatively
new industries or lines of business, which may not be widely understood by
investors. Some of these companies may be undercapitalized or regarded as
developmental stage companies, without revenues or operating income, or the
near-term prospects of achieving them.
SHORT SALES
A Portfolio Manager may attempt to limit exposure to a possible market
decline in the value of its portfolio securities through short sales of
securities that the Portfolio Manager believes possess volatility
characteristics similar to those being hedged. In addition, Portfolio Managers
may use short sales for non-hedging purposes to profit from anticipated declines
in prices of securities which in the view of the Portfolio Managers are
overvalued. To effect a short sale, a Portfolio Manager will borrow a security
from a brokerage firm, or other intermediary, to make delivery to the buyer. The
Portfolio Manager then is obligated to replace the borrowed security by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the Portfolio Manager sold the
security. A short sale of a security involves the risk of an unlimited increase
in the market price of the security, which could result in an inability to cover
the short position and thus a theoretically unlimited loss. There can be no
assurance that securities necessary to cover the short position will be
available for purchase.
<PAGE>
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve a sale of a security to a bank or
securities dealer and the Portfolio Manager's simultaneous agreement to
repurchase the security for a fixed price, reflecting a market rate of interest,
on a specific date. These transactions involve a risk that the other party to a
reverse repurchase agreement will be unable or unwilling to complete the
transaction as scheduled, which may result in losses to the Funds. Reverse
repurchase agreements are a form of leverage which also may increase the
volatility of the investment portfolios of Portfolio Funds.
SPECIAL INVESTMENT TECHNIQUES
Each Portfolio Manager may use a variety of special investment techniques
to hedge its investment portfolio against various risks or other factors that
generally affect the values of securities and for non-hedging purposes. These
techniques may involve the use of derivative transactions. The techniques the
Portfolio Managers may employ may change over time as new instruments and
techniques are introduced or as a result of regulatory developments. Certain of
the special investment techniques that the Portfolio Managers may use are
speculative and involve a high degree of risk, particularly when used for
non-hedging purposes. Derivatives
The Portfolio Managers may invest in, or enter into, derivatives. These are
financial instruments which derive their performance from the performance of an
underlying asset, index or interest rate. Derivatives can be volatile and
involve various types and degrees of risk, depending upon the characteristics of
the particular derivative. Derivatives may entail investment exposures that are
greater than their cost would suggest, meaning that a small investment in a
derivative could have a large potential impact on the performance of a Fund. The
Funds could experience losses if derivatives do not perform as anticipated, or
are not correlated with the performance of other investments which they are used
to hedge, or if the Portfolio Manager is unable to liquidate a position because
of an illiquid secondary market. The market for many derivatives is, or suddenly
can become, illiquid. Changes in liquidity may result in significant, rapid and
unpredictable changes in the prices for derivatives.
OPTIONS AND FUTURES
The Portfolio Managers may invest in options and futures contracts. The
Portfolio Managers also may invest in so-called "synthetic" options or other
derivative instruments written by broker-dealers or other 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
Funds bear the risk that the counterparty that wrote the option will be unable
or unwilling to perform its obligations under the option contract. Such options
may also be illiquid and, in such cases, a Portfolio Manager may have difficulty
closing out its position.
The Portfolio Managers may purchase and sell call and put options in
respect of specific securities, and may write and sell covered or uncovered call
and put options. A call option gives the purchaser of the call option, in return
for a premium paid, the right to buy the security underlying the option from the
writer of the call option at a specified exercise price. A put
<PAGE>
option gives the purchaser of the put option, in return for a premium, the right
to sell the underlying security to the writer of the put option at a specified
price. A covered call option is a call option with respect to which a Portfolio
Manager owns the underlying security. A covered put option is a put option with
respect to which a Portfolio Manager has segregated cash or liquid securities to
fulfill the obligation undertaken. The purchaser of a put or call option runs
the risk of losing his entire investment in a relatively short period of time if
the option is not exercised. The uncovered writer of a call option is subject to
a risk of loss should the price of the underlying security increase, and the
uncovered writer of a put option is subject to a risk of loss should the price
of the underlying security decrease.
Although none of the Funds will be a commodity pool, certain derivatives
are subject to the rules of the Commodity Futures Trading Commission ("CFTC").
Some or all of the Portfolio Managers may invest in futures contracts and
currency forward contracts, and options on such contracts, for hedging purposes
or speculative purposes. However, the Funds may not invest directly in futures
contracts and options on futures if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such contracts,
other than for bona fide hedging purposes, exceed 5% of the liquidation value of
each Fund's assets, after taking into account unrealized profits and unrealized
losses on such contracts and options; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount may
be excluded in calculating the 5% limitation. If applicable CFTC rules change,
these percentages may change or different conditions may be applied to each
Fund's use of certain derivatives.
The Portfolio Managers may enter into futures contracts in U.S. domestic
markets or on exchanges located outside the United States. Foreign markets may
offer advantages such as trading opportunities or arbitrage possibilities not
available in the United States. Foreign markets, however, may have greater risk
potential than domestic markets. For example, some foreign exchanges are
principal markets, so that no common clearing facility exists and an investor
may look only to the broker or counterparty for performance of the contract.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the CFTC. The Funds may not be able to invest in
certain foreign futures and option contracts that have not been approved for
sale by U.S. persons
No assurance can be given that a liquid market will exist for any
particular futures contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
The Portfolio Managers may purchase and sell stock index futures contracts,
interest rate futures contracts, currency futures and other commodity futures. A
stock index future obligates a Portfolio Manager to pay or receive an amount of
cash based upon the value of a stock index at a specified date in the future,
such as the Standard & Poor's 500 Composite Stock Price Index, Nasdaq High
Technology Index, or similar foreign indices. An interest rate future obligates
a Portfolio Manager to purchase or sell an amount
<PAGE>
of a specific debt security at a future date at a specific price. A currency
future obligates a Portfolio Manager to purchase or sell an amount of a specific
currency at a future date at a specific price. Some or all of the Portfolio
Managers may also purchase and sell call and put options on stock indexes.
WARRANTS
Warrants are derivative instruments that permit, but do not obligate, the
holder to purchase other securities. Warrants do not carry with them any right
to dividends or voting rights. A warrant ceases to have value if it is not
exercised prior to its expiration date.
SWAP AGREEMENTS
The Portfolio Managers may enter into equity, interest rate, index and
currency rate swap agreements. Swap agreements are two-party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to more than a year. In a standard swap transaction, two parties agree to
exchange the returns earned on specified assets, such as the return on, or
increase in value of, a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. A swap contract may not be assigned without the
consent of the counterparty, and may result in losses in the event of a default
or bankruptcy of the counterparty.
To achieve investment returns equivalent to those achieved by an investment
adviser in whose investment vehicles the Funds could not invest directly,
perhaps because of its investment minimum or its unavailability for direct
investment, a Fund may enter into swap agreements under which that Fund may
agree, on a net basis, to pay a return based on a floating interest rate, such
as LIBOR, and to receive the total return of the reference investment vehicle
over a stated time period. A Fund may seek to achieve the same investment result
through the use of other derivatives in similar circumstances.
LENDING PORTFOLIO SECURITIES
The Portfolio Managers may lend securities from their portfolios to
brokers, dealers and other financial institutions needing to borrow securities
to complete certain transactions. A Fund might experience a loss if the
institution with which the Portfolio Manager has engaged in a portfolio loan
transaction breaches its agreement with the Portfolio Manager. Restricted and
Illiquid Investments
Although each Portfolio Manager will invest primarily in publicly traded
securities, the Funds and each Portfolio Manager may also invest in restricted
securities and other investments which are illiquid. Restricted securities are
securities that may not be sold to the public without an effective registration
statement under the 1933 Act, or, if they are unregistered, may be sold only in
a privately negotiated transaction or pursuant to an exemption from registration
under the 1933 Act.
Where registration is required to sell a security, a Portfolio Manager may
be obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the Portfolio
Manager may be permitted to sell a security under an
<PAGE>
effective registration statement. Portfolio Managers may be unable to sell
restricted and other illiquid securities at the most opportune times.
The Funds' investments in unregistered Portfolio Funds are themselves
illiquid and subject to substantial restrictions on transfer. The Funds will
typically have only limited rights to withdraw its investment in an unregistered
Portfolio Fund. The illiquidity of these interests may adversely affect the
Funds were they required to sell the interests at an inopportune time.
--------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
For purposes of the Funds' investment restrictions and certain investment
limitations under the 1940 Act, each Fund will look through any Portfolio Fund
created specifically for investment by such Fund and managed by a Sub-Adviser,
if any, to its underlying assets, but will not look through a Portfolio Fund
which is not managed by a Sub-Adviser.
The Funds have adopted the following investment restrictions as fundamental
policies, which cannot be changed with respect to a given Fund without approval
by holders of a majority (as defined in the 1940 Act) of such Fund's outstanding
voting securities. The Funds may not:
o Issue senior securities, except that, to the extent permitted by the
1940 Act, (a) the Sub-Advisers, if any are engaged, may borrow money
to finance portfolio transactions and engage in other transactions
involving the issuance by a Fund of "senior securities" representing
indebtedness, and (b) a Fund may borrow money from banks for temporary
or emergency purposes or in connection with repurchases of, or tenders
for, such Fund's Units.
o Underwrite securities of other issuers, except insofar as a Fund may
be deemed an underwriter under the 1933 Act in connection with the
disposition of its portfolio securities.
o Make loans, except through purchasing fixed-income securities, lending
portfolio securities or entering into repurchase agreements in a
manner consistent with the Funds' investment policies or as otherwise
permitted under the 1940 Act.
o Purchase, hold or deal in real estate, except that the Funds may
invest in securities that are secured by real estate, or securities
issued by companies that invest or deal in real estate or real estate
investment trusts.
o Invest in commodities, except that the Funds may purchase and sell
foreign currencies, commodity futures and forward contracts and
related options.
o Invest more than 25% of the value of any Fund's total assets in the
securities of issuers in any single industry, except that U.S.
Government Securities may be purchased without limitation, and except
that GAM Avalon Multi-Technology L.P. will invest greater
<PAGE>
than 25% of its assets in the technology sector. For purposes of this
Investment Restriction, Portfolio Funds are not considered part of an
industry.
Under the 1940 Act, the vote of a majority of the outstanding voting
securities of an investment company, such as one of the Funds, means the vote,
at the annual or a special meeting of the security holders of such company duly
called, (A) of 67% or more of the voting securities present at such meeting, if
the holders of more than 50% of the outstanding voting securities of such
company are present or represented by proxy; or (B) of more than 50% of the
outstanding voting securities of such company, whichever is less.
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 a Fund's total assets, unless otherwise stated,
will not constitute a violation of such restriction or policy.
The Funds' investment objectives are fundamental and may not be changed
without the vote of a majority (as defined by the 1940 Act) of the relevant
Fund's outstanding voting securities.
-------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS
RELATING TO THE FUNDS' STRUCTURE
-------------------------------------------------------------------------------
ASSET-BASED FEES AND PERFORMANCE-BASED ALLOCATIONS
Each Portfolio Manager generally will charge the Funds an asset-based fee
and some or all of the Portfolio Managers will receive performance-based fees or
allocations. The asset-based fees of the Portfolio Managers are expected to
range from 1% to 2% of net assets each year and the performance-based fees or
allocations of the Portfolio Managers are expected to range from 15% to 25% of
net profits each year.
The performance-based allocation that will be received by a Portfolio
Manager may create an incentive for the Portfolio Manager to make investments
that are riskier or more speculative than those that might have been made in the
absence of the performance-based allocation. Because the performance-based
allocation is calculated on a basis that includes realized and unrealized
appreciation of a Portfolio Fund's assets, the allocation may be greater than if
it were based solely on realized gains.
TAX RISKS
Counsel to the Funds has rendered an opinion that each of the Funds will be
classified as a partnership and not as an association taxable as a corporation
for Federal income tax purposes. Counsel to the Funds has rendered its opinion
that, under a "facts and circumstances" test set forth in regulations adopted by
the U.S. Treasury Department, the Funds will not be treated as "publicly traded
partnerships" taxable as corporations. If it were determined that any of the
Funds should be treated as an association or publicly traded partnership taxable
as a corporation,
<PAGE>
the taxable income of such Fund would be subject to corporate income tax and
distributions of profits from the Fund would be treated as dividends.
LIQUIDITY RISKS
Units in the Funds will not be traded on any securities exchange or other
market and are subject to substantial restrictions on transfer. Although the
Funds may offer to repurchase Units from time to time, a Limited Partner may not
be able to dispose of Units in the Funds. The General Partner expects that
generally, beginning in 2001, it will recommend to the Directors that the Funds
offer to repurchase Units from Partners two times each year, in June and
December. See "Repurchases and Transfers." Valuation of Portfolio Funds
The valuation of the Funds' investments in Portfolio Funds will ordinarily
be determined based upon valuations provided by the Portfolio Managers for such
Portfolio Funds. Although the General Partner will review the valuation
procedures used by all Portfolio Managers, the General Partner and Directors
will not be able to confirm the accuracy of valuations provided by Portfolio
Managers. In the event of an error in the determination of the value of an
investment in a Portfolio Fund, the net asset value of a Fund may be inaccurate.
DISTRIBUTIONS TO LIMITED PARTNERS AND PAYMENT OF TAX LIABILITY
The Funds do not intend to make periodic distributions of net income or
gains, if any, to Limited Partners. Whether or not distributions are made, each
Limited Partner will be required each year to pay applicable Federal and state
income taxes on his or her respective share of the taxable income of each Fund,
and if insufficient distributions are made to pay such taxes, will have to pay
such taxes from sources other than Fund distributions. The amount and times of
any distributions will be determined in the sole discretion of the Directors.
Investors will likely be required to request extensions of time to file
their personal income tax returns. The Funds do not expect to be able to provide
estimates of each Limited Partner's taxable income before the due date for
filing extensions and paying estimated taxes. Limited Partners should consult
their tax advisor concerning how such delayed reporting may affect them.
SPECIAL RISKS OF MULTI-MANAGER STRUCTURE
The Portfolio Funds will not be registered as investment companies under
the 1940 Act and, therefore, the Funds will not be able to avail themselves of
the protections of the 1940 Act with respect to the Portfolio Funds.
The General Partner will not be able to control or monitor the activities
of the Portfolio Managers on a continuous basis. A Portfolio Manager may use
investment strategies that differ from its past practices and are not fully
disclosed to the General Partner, and that involve risks under some market
conditions that are not anticipated by the General Partner. Some Portfolio
Managers may have limited operating histories.
<PAGE>
An investor who met the conditions imposed by the Portfolio Managers could
invest directly with the Portfolio Managers, although in many cases access to
these Portfolio Managers may be limited or unavailable. By investing in
investment vehicles indirectly through the Funds, the investor bears asset-based
fees and performance-based allocations at the Portfolio Fund level and an
additional asset-based management fee at the Fund level. In addition, the
investor bears a proportionate share of the fees and expenses of the relevant
Fund (including operating costs, distribution expenses and administrative fees)
and, indirectly, similar expenses of the Portfolio Funds.
Each Portfolio Manager will receive any performance-based allocations to
which it is entitled irrespective of the performance of the other Portfolio
Managers and the Funds generally. Accordingly, a Portfolio Manager with positive
performance may receive compensation from a Fund, and thus indirectly from
investors, even if that Fund's returns as a whole are negative.
Investment decisions of the Portfolio Funds are made by the Portfolio
Managers entirely independently of each other. As a result, at any particular
time, one Portfolio Fund may be purchasing shares of an issuer whose shares are
being sold by another Portfolio Fund. Consequently, a Fund could incur
indirectly transaction costs without accomplishing any net investment result.
The Funds may elect to hold non-voting securities in Portfolio Funds, or
they may waive the right to vote in respect of a Portfolio Fund. In such cases,
the Funds will not be able to vote on matters that require the approval of the
limited partners of the Portfolio Fund, including a matter that could adversely
affect a Fund's investment.
Since the Funds may make additional investments in the Portfolio Funds only
at certain times pursuant to limitations set forth in the partnership agreements
of the Portfolio Funds, the Funds may be required from time to time to invest a
significant portion of their assets in money market securities or other liquid
assets pending investment in Portfolio Funds.
Each Portfolio Fund is permitted to redeem its limited partnership
interests in-kind. Thus, upon a Fund's withdrawal of all or a portion of its
interest in a Portfolio Fund, that Fund may receive securities that are illiquid
or difficult to value. Irrespective of any receipt of such illiquid securities
by a Fund, payment for repurchases of Units by such Fund shall be made in cash.
Portfolio Funds may suspend redemptions or withdrawals under certain
circumstances.
For each Fund to complete its tax reporting requirements, it must receive
information on a timely basis from the Portfolio Managers. A Portfolio Manager's
delay in providing this information will delay the Funds' preparation of tax
information to their investors, which will require investors in the Funds to
seek extensions on the time to file their tax returns.
A non-corporate investor's share of each Fund's investment expenses
(including management and advisory fees at the Fund and Portfolio Fund levels)
may be subject to certain limitations on deductibility for regular Federal
income tax purposes and may be completely disallowed for purposes of determining
the non-corporate investor's alternative minimum tax liability.
<PAGE>
A Fund may agree to indemnify certain of the Portfolio Funds and Portfolio
Managers from any liability, damage, cost or expense arising out of, among other
things, certain acts or omissions relating to the offer or sale of Units.
-------------------------------------------------------------------------------
THE DIRECTORS
--------------------------------------------------------------------------------
The business affairs of each Fund are managed under the general supervision
of its Directors. In each case, the Fund's General Partner, to the fullest
extent permitted by applicable law, has irrevocably delegated to the Directors
of that Fund its rights and powers to manage and control the business affairs of
that Fund, including the complete and exclusive authority to oversee and to
establish policies regarding the management, conduct and operation of that
Fund's business. The Directors exercise the same powers, authority and
responsibilities on behalf of a Fund as are customarily exercised by the
directors of a registered investment company organized as a corporation. The
General Partner retains only those rights, powers and duties that may not be
delegated under Delaware law. The General Partner will remain as the general
partner of each Fund and will continue to be liable as such.
The Directors are not general partners of the Funds and, accordingly, have
no liability as such. The Directors may contribute to the capital of the Funds
and hold Units in the Funds. A majority of the Directors of each Fund are not
"interested persons" (as defined in the 1940 Act) of the Fund (collectively, the
"Independent Directors") and perform the same functions for each Fund as are
customarily exercised by the non-interested directors of a registered investment
company organized as a corporation.
The Directors will initially be the same for all three Funds. Brief
biographical information regarding each Director and executive officers is set
forth below. Each Director who is deemed to be an "interested person" of the
Funds, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
<S> <C>
Name, Address and Age Principal Occupation(s) During Past Five Years
Dr. Burkhard Poschadel (54)* Group Chief Executive Officer, Global Asset Management Limited, March 2000
Chairman and Director to present. Dr. Poschadel received a Ph.D. in Economics from the
12 St. James's Place University of Hamburg/Freiburg. He was appointed Chief Executive Officer
London SWlA 1NX of the GAM Group in March 2000, and has been a long time employee of UBS
England AG. Dr. Poschadel served as the Head of Human Resources of UBS Private
Banking from 1998-2000 and served as the Global Head of Research and
Portfolio Management from 1994-1997. He is a director of ten GAM Funds.
<PAGE>
George W. Landau (80) Senior Advisor, Latin America, The Coca Cola Company, Atlanta, GA, 1988 to
Director present. Director, GAM Funds, Inc., 1994 to present. President, Council
2601 South Bayshore Drive of Advisors, Latin America, Guardian Industries, Auburn Hills, MI, 1993 to
Suite 1109 present. Director, Emigrant Savings Bank, New York, NY, 1987 to present.
Coconut Grove, FL 33133 Director, seven Credit Suisse Asset Management (CSAM) funds, formerly known
as BEA Associates, New York, NY, 1989 to present. Director, Fundacion
Chile, Santiago, Chile, 1992 to present. Former President of the Council
for the Americas and Americas Society, 1985-1993. Former Ambassador to
Venezuela, Chile and Paraguay. He is a director of ten GAM Funds.
Robert J. McGuire (63) Attorney/Consultant, Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C.,
Director 1998 to present. Director, GAM Funds, Inc., 1998 to present. Director,
1085 Park Avenue Emigrant Savings Bank, 1999 to present. Director, one Credit Suisse Asset
New York, NY 10128 Management (CSAM) fund, formerly known as BEA Associates, New York, NY,
1998 to present. President / Chief Operating Officer, Kroll Associates,
1989-1997. He is a director of ten GAM Funds.
Roland Weiser (70) Chairman, Intervista business consulting, 1984 to 1990. Director, GAM
Director Funds, Inc., 1988 to present. Director, GAM Diversity Fund and Unimed
86 Beekman Road Pharmaceuticals, Inc., 1989-1999. Former Senior Vice President
Summit, NJ 07901 (International), Schering Plough Corporation. He is a director of 11 GAM
Funds.
Kevin J. Blanchfield (45) Chief Operating Officer and Treasurer and Assistant Vice
Vice President and Treasurer President/Treasurer Secretary, Global Asset Management (USA) Inc., GAM
Global Asset Management (USA) Inc. Investments, Inc. and GAM Services Inc., 1993 to present. Senior Vice
135 East 57th Street President, Finance and Administration, Lazard Freres & Co., 1991-1993.
New York, NY 10022
Joseph J. Allessie (35) General Counsel and Corporate Secretary, Global Asset Management (USA)
Secretary Inc., GAM Investments Inc., and GAM Services Inc., 1999 to present.
Global Asset Management (USA) Inc. Regulatory Officer to State of New Jersey, Department of Law and Public
135 East 57th Street Safety, Bureau of Securities, 1993-1999.
New York, NY 10022
</TABLE>
With respect to each of the Funds, a Director's position in that
capacity will terminate if such Director is removed, resigns or is subject to
various disabling events such as death or incapacity. A Director may resign upon
90 days' prior written notice to the other Directors, and may be removed either
by vote of two-thirds of the Directors not subject to the removal vote or vote
of the Partners holding not less than two-thirds of the total number of votes
eligible to be cast by all Partners. In the event of any vacancy in the position
of a Director, the remaining Directors may appoint an individual to serve as a
Director, so long as immediately after such appointment at least two-thirds of
the Directors then serving would have been elected by the Partners. The
Directors may call a meeting of Partners to fill any vacancy in the position of
a Director, and must do so within 60 days after any date on which Directors who
were elected by the Partners cease to constitute a majority of the Directors
then serving. If no Director remains to manage the business of the relevant
Fund, the General Partner may manage and control such
<PAGE>
Fund, but must convene a meeting of Partners within 60 days for the purpose of
either electing new Directors or dissolving that Fund.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Each Independent Director of a Fund receives annual compensation from that
Fund of $3,000 per year plus $500 (in the aggregate for all Funds) for each
meeting of the Board of Directors attended ($250 in the case of telephonic
meetings). Each Director is reimbursed by the Fund of which he or she is a
Director for travel expenses incurred in connection with attendance at Board of
Directors meetings. The officers and interested Directors of the Fund do not
receive any compensation from the Funds.
The name, position(s) and information related to the expected compensation
of each of the Directors in the coming fiscal year are as follows.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate Pension or Retirement Estimated Annual Total Compensation
Name and Position(s) Compensation from Benefits Accrued as Benefits upon from the Funds and
Held with each Fund each Fund Part of Fund Expenses Retirement the Fund Complex
_______________________ ________________ ______________________ _____________________ ____________________________
Burkhard Poschadel $0 N/A N/A $0
Director & President
George W. Landau $3,667 N/A N/A $40,000 from 10
Director investment companies
Robert J. McGuire $3,667 N/A N/A $40,000 from 10
Director investment companies
Roland Weiser $3,667 N/A N/A $41,000 from 11
Director investment companies
</TABLE>
--------------------------------------------------------------------------------
THE GENERAL PARTNER
--------------------------------------------------------------------------------
The General Partner will select the Portfolio Managers and allocate the
assets of the Funds among them. The General Partner will evaluate regularly each
Portfolio Manager to determine whether its investment program is consistent with
the relevant Fund's investment objective and whether its investment performance
is satisfactory. The General Partner may reallocate a specific Fund's assets
among the Portfolio Managers, terminate existing Portfolio Managers and select
additional Portfolio Managers, subject to the condition that selection of a new
Sub-Adviser requires approval of a majority (as defined in the 1940 Act) of that
Fund's outstanding voting securities, unless that Fund receives an exemption
from certain provisions of the 1940 Act. The General Partner will perform its
duties subject to any policies established by the Directors. The General
Partner, which was formed as a Delaware corporation on October 25,
<PAGE>
1989, is an indirect, wholly-owned subsidiary of UBS A.G., a Swiss bank, and is
registered as an investment adviser under the Advisers Act.
The offices of the General Partner are located at 135 East 57th Street, New
York, New York 10022, and its telephone number is 212-407-4600. As of December
31, 2000, the General Partner and the Selling Agent owned all of the outstanding
Units in each of the Funds (thereby controlling each of the Funds) and were the
only persons known by the Funds to own, of record or beneficially, 5% or more of
the outstanding Units in any Fund. The General Partner or its designee maintains
each Fund's accounts, books and other documents required to be maintained under
the 1940 Act at 135 East 57th Street, New York, New York 10022 or such other
location as may be designated by the Funds.
Investment decisions for the Funds are made by a team of portfolio managers
of the General Partner and Investment Consultant, and no person is primarily
responsible for making recommendations to the team.
The authority of the General Partner to serve or act as investment adviser,
and be responsible for the day-to-day management of the Funds, and payment of
the Management Fee to the General Partner, as set forth in the Partnership
Agreement, was initially approved by the Directors, including each Independent
Director, and by vote of Partners holding Units on October 25, 2000. The
authority of the General Partner to act as investment adviser and manage the
affairs of the Funds will terminate with respect to a specific Fund under the
following circumstances:
1. if revoked by (A) vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of such Fund or (B) the Directors,
in either case with 60 days' prior written notice to the General
Partner;
2. at the election of the General Partner, with 60 days' prior written
notice to the Directors of such Fund;
3. if, after October 25, 2002, any period of 12 consecutive months shall
conclude without the approval of the continuation of such authority by
(A) the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Fund or (B) the Directors and,
in either case, approved by a majority of the Independent Directors by
vote cast at a meeting called for such purpose;
4. to the extent required by the 1940 Act, upon the occurrence of any
event in connection with the General Partner, its provision of
investment advisory services to the Funds, the Partnership Agreement
or otherwise constituting an "assignment" within the meaning of the
1940 Act; or
5. if the General Partner ceases to be General Partner of a Fund.
The General Partner also may withdraw, or be removed by a Fund, as a
General Partner. If the General Partner gives notice to a Fund of its intention
to withdraw, it will be required to remain as a General Partner for one year, or
until such earlier date as a successor General Partner is approved by such Fund,
if, in the opinion of counsel to such Fund, earlier withdrawal is likely
<PAGE>
to cause such Fund to lose its partnership tax classification or as otherwise
required by the 1940 Act. At the request of such Fund, the General Partner will
remain as a General Partner of that Fund for a period of six months if that Fund
has terminated the authority of the General Partner to act as investment adviser
and manage the affairs of that Fund, unless a successor General Partner to the
General Partner is earlier approved by that Fund.
--------------------------------------------------------------------------------
THE INVESTMENT CONSULTANT
--------------------------------------------------------------------------------
GAM International Management Limited, a limited company organized under the
laws of the United Kingdom, serves as the Investment Consultant to the Funds and
the General Partner. The Investment Consultant assists the General Partner in
identifying and performing due diligence on Portfolio Managers and Portfolio
Funds, especially those located in Europe. The General Partner may also delegate
to the Investment Consultant the authority to manage directly a portion of the
assets of a Fund. The Investment Consultant is an affiliate of the General
Partner and an indirect subsidiary of UBS A.G., a Swiss bank.
The offices of the Investment Consultant are located at 12 St. James's
Place, London SW1A 1NX, United Kingdom and its telephone number is
011-44-20-7493-9990.
The authority of the Investment Consultant to act as sub-adviser to the
General Partner was initially approved by the Directors, including each
Independent Director, and by vote of Partners holding Units on October 25, 2000.
The authority of the Investment Consultant to act as sub-adviser to the General
Partner will terminate with respect to a specific Fund under the following
circumstances:
1. if terminated by (A) vote of a majority (as defined in the 1940 Act)
of the outstanding voting securities of such Fund or (B) the
Directors, in either case with 60 days' prior written notice to the
General Partner and Investment Consultant;
2. at the election of the Investment Consultant, with 60 days' prior
written notice to the General Partner and the Directors of such Fund;
3. if, after October 25, 2002, any period of 12 consecutive months shall
conclude without the approval of the continuation of such authority by
(A) the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Fund or (B) the Directors and,
in either case, approved by a majority of the Independent Directors by
vote cast at a meeting called for such purpose;
4. to the extent required by the 1940 Act, upon the occurrence of any
event constituting an "assignment" of the Investment Advisory
Agreement between the General Partner and the Funds within the meaning
of the 1940 Act; or
5. if the General Partner ceases to be General Partner of a Fund or to
provide investment advisory services to a Fund.
<PAGE>
VOTING
With respect to each Fund, each Partner will have the right to cast a
number of votes based on the value of such Partner's capital account at any
meeting of Partners called by the Directors or Partners holding at least a
majority of the total number of votes eligible to be cast by all Partners.
Limited Partners will be entitled to vote on any matter on which shareholders of
a registered investment company organized as a corporation would be entitled to
vote, including selection of Directors, approval of the authority of the General
Partner to act as investment adviser and manage the affairs of such Fund, and
approval of such Fund's auditors. Except for the exercise of their voting
privileges, Limited Partners will not be entitled to participate in the
management or control of a Fund's business, and may not act for or bind a Fund.
--------------------------------------------------------------------------------
CONFLICTS OF INTEREST
--------------------------------------------------------------------------------
THE GENERAL PARTNER
The General Partner and its affiliates manage the assets of registered
investment companies, private investment funds and individual accounts
(collectively, "GAM Clients"). The Funds have no interest in these activities.
In addition, the General Partner, its affiliates, and any of their respective
officers, directors or employees, may invest for their own accounts in various
investment opportunities, including in investment partnerships, private
investment companies or other investment vehicles in which the Funds will have
no interest.
The General Partner or its affiliates may determine that an investment
opportunity in a particular investment vehicle is appropriate for a particular
GAM Client or for itself or its officers, directors, partners, members or
employees, but not for a Fund.
Situations may arise in which the General Partner, its affiliates or GAM
Clients have made investments which would have been suitable for investment by a
Fund but, for various reasons, were not pursued by, or available to, such Fund.
The investment activities of the General Partner, its affiliates and any of
their respective officers, directors or employees may disadvantage a given Fund
in certain situations, if among other reasons, the investment activities limit
that Fund's ability to invest in an investment vehicle.
The officers or employees of the General Partner will be engaged in
substantial activities other than on behalf of the General Partner and may have
conflicts of interest in allocating their time and activity between the General
Partner and GAM Clients. The General Partner and its officers and employees will
devote so much of their time to the affairs of the General Partner as in their
judgment is necessary and appropriate.
GAM Services Inc. (the "SELLING AGENT") acts as the selling agent for the
Funds, and will bear its own costs associated with its activities as placement
agent. The General Partner and the Selling Agent intend to compensate securities
dealers and other industry professionals acting as
<PAGE>
Placement Agents for the Fund for their ongoing servicing of clients with whom
they have placed Units. Such compensation will be based upon a formula that
takes into account the amount of client assets being serviced.
Affiliates of the General Partner, including UBS A.G., UBS Warburg, LLC,
PaineWebber, Inc. and J.C. Bradford & Co., may provide brokerage and other
services from time to time to one or more accounts or entities managed by the
Portfolio Managers or their affiliates, including the Portfolio Funds.
The General Partner, its affiliates or GAM Clients may have an interest in
an account managed by, or enter into relationships with, a Portfolio Manager or
its affiliates on terms different than an interest in a Fund. In addition, the
Portfolio Managers may receive research products and services in connection with
the brokerage services that affiliates of the General Partner may provide from
time to time to one or more other managed accounts or to a Fund.
ALLOCATION OF INVESTMENT OPPORTUNITIES BY PORTFOLIO MANAGERS
Each Portfolio Manager may manage accounts for other clients in addition to
the account of a Fund or a Portfolio Fund, and will have complete discretion as
to how to allocate investment opportunities among its managed accounts. A
Portfolio Manager may cause its other managed accounts to commit a larger
percentage of their assets to an investment opportunity than a Fund or a
Portfolio Fund. Different accounts may have different investment objectives or
liquidity needs, or be subject to different regulatory constraints or other
considerations.
Each Portfolio Manager and its principals, officers, employees and
affiliates may buy and sell securities or other investments for their own
accounts and may have actual or potential conflicts of interest with respect to
investments made on behalf of a Fund or a Portfolio Fund. As a result of
differing trading and investment strategies or constraints, positions may be
taken by principals, officers, employees and affiliates of the Portfolio Manager
that are the same, different or made at a different time than positions taken
for a Fund or a Portfolio Fund.
Except in accordance with applicable law, no Sub-Adviser is permitted to
buy securities or other property from, or sell securities or other property to,
a Fund or a Portfolio Fund managed by the Sub-Adviser. Similar restrictions may
not apply to Portfolio Funds which are not managed by Sub-Advisers. Future
investment activities of the Portfolio Managers and their affiliates,
principals, partners, directors, officers or employees may give rise to
additional conflicts of interest.
CODE OF ETHICS
Each of the Funds, as well as the General Partner, has adopted a Code of
Ethics pursuant to Rule 17j-1 under the 1940 Act. Each Code of Ethics
establishes standards for personal securities transactions by associated persons
and investment personnel, as defined under the Code of Ethics. All associated
persons are prohibited from engaging in, or recommending, any securities
transaction which involves any actual or potential conflict of interest, or any
abuse of an associated person's position of trust and responsibility.
<PAGE>
Associated persons are required to report all personal securities
transactions to a compliance officer within 24 hours. All associated persons are
prohibited from buying and selling the same securities within a 60 day period,
unless a compliance officer waives such restriction.
Associated persons who are also deemed investment personnel, generally
defined under the Code of Ethics as any person who, in connection with his or
her regular functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by an investment adviser, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales, are prohibited from: recommending securities transactions by
any Fund without disclosing his or her interests; divulging current and
anticipated portfolio transactions with respect to any Fund to anyone unless it
is properly within his or her duties to do so; participating in initial public
offerings or private placements which present conflicts of interest with a Fund;
accepting a gift exceeding $100 from any person that does business with or on
behalf of any GAM entity; and engaging in any securities transaction for his or
her own benefit or the benefit of others, including a Fund, while in possession
of material, non-public information concerning such securities. In addition, all
investment managers and investment related staff are required to pre-notify a
compliance officer of any personal dealings in securities which they intend to
carry out and are not permitted to deal personally in securities within seven
working days of carrying out any transaction in the same security on behalf of
any Fund they manage.
The Code of Ethics provides for various penalties for violations, and any
material violation of the Code of Ethics is reported to the Board of Directors
of the relevant Fund. Each Board of Directors also reviews the administration of
the Code of Ethics on an annual basis.
A copy of the Code of Ethics of the Funds can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Details on the operation
of the Public Reference Room can be obtained by calling the Commission at (202)
942-8090. A copy of the Code of Ethics may also be obtained from the EDGAR
Database on the Commission's website, www.sec.gov. A copy of the Code of Ethics
may be obtained, after paying a duplicating fee, by electronic request to
"[email protected]" or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
BROKERAGE ALLOCATION
Each Portfolio Manager has complete discretion to select the brokers for
the execution of its portfolio investment transactions. In selecting brokers,
Portfolio Managers may consider a wide range of factors, including seeking to
obtain the best price and execution for the transactions, taking into account
factors such as price, size of order, difficulty of execution and operational
facilities of a brokerage firm. A Portfolio Manager will not necessarily pay the
lowest commission available on each transaction.
A Portfolio Manager may place brokerage business with brokers that provide
the Portfolio Manager and its affiliates with supplemental research, market and
statistical information, including advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of
<PAGE>
securities, and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts as well as other services. The information and services received by
the Portfolio Manager from brokers will be used in connection with the
management of all accounts managed by each Portfolio Manager, and will not be
used for the exclusive benefit of the Funds or a Portfolio Fund.
Each Portfolio Manager may execute portfolio brokerage transactions through
its affiliates, affiliates of the General Partner, and one or more Placement
Agents or their affiliates, in each case subject to compliance with the 1940
Act. The General Partner is an indirect wholly owned subsidiary of UBS AG. Among
the affiliates of UBS AG are various broker-dealers, including UBS Warburg LLC,
PaineWebber Inc. and J.C. Bradford & Co., which are investment banks and
broker-dealers, and UBS Warburg Futures Inc., a futures commission merchant and
broker-dealer.
--------------------------------------------------------------------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
Appendix B contains composite performance information for all managed
accounts and funds managed by the General Partner and/or the Investment
Consultant and their affiliates which have been managed in a substantially
similar manner as the General Partner expects to use to manage each Fund.
Investors should not assume the performance of each Fund will be similar to
those of the composites, as investments were made under different economic
conditions and include different Portfolio Funds and portfolio securities.
Certain Portfolio Funds which contributed to the performance of the funds and
managed accounts represented in the composites will not be available to the
Funds, as certain Portfolio Funds are not available to U.S. investors, such as
the Funds.
The composite performance is not that of any Fund and should not be relied
upon as an indication of the future performance of any of the Funds.
The performance information has not been verified by a third party and does
not comply with the standards established by the Association of Investment
Management and Research (AIMR).
Please refer to Appendix B for additional information relative to the
limitations of the performance information.
--------------------------------------------------------------------------------
FEES AND EXPENSES
--------------------------------------------------------------------------------
The General Partner provides certain management and administrative services
to the Funds, including, among other things, providing office space and other
support services to the Funds. In consideration for the services of the General
Partner, each of the Funds will pay the General Partner a monthly management fee
at the annual rate of 2% of such Fund's net assets
<PAGE>
(the "Management Fee"). Net assets means the total value of all assets of a
Fund, less all accrued debts, liabilities and obligations of that Fund,
calculated before giving effect to any repurchases of Units. The Management Fee
will be computed based on the net assets of a Fund as of the end of business on
the last business day of each month, and will be due and payable in arrears
within five business days after the end of the month. The Management Fee will be
charged in each fiscal period to the capital accounts of all Limited Partners in
proportion to their capital accounts at the beginning of such fiscal period.
The General Partner, and not the Funds, will be responsible for the fees of
the Investment Consultant. A portion of the Management Fee may be paid to
Placement Agents assisting in the placement of Units.
The Administrator performs certain administrative, accounting and investor
services for the Funds and Portfolio Funds managed by Sub-Advisers, if any. In
consideration for these services, each of the Funds will pay the Administrator
an annual fee based on: (i) the average net assets of such Fund, subject to a
minimum monthly fee, and (ii) the average net assets of each Portfolio Fund
managed by a Sub-Adviser, if any, subject to a minimum monthly fee, and will
reimburse the Administrator for out-of-pocket expenses.
The Selling Agent and Placement Agents which it appoints will be entitled
to receive a front-end sales charge in an amount up to 5% of the gross
investment by each investor in each Fund, subject to a minimum sales charge of
1%. The specific amount of such sales charge is dependent upon the size of each
individual investment, as set forth below:
up to $99,999 5%
$100,000 - $299,999 4%
$300,000 - $599,999 3%
$600,000 - $999,999 2%
$1,000,000 and over 1%
Sales charges may be adjusted or waived at the sole discretion of the
Selling Agent or Placement Agents, as the case may be, and are expected to be
waived for employees of the Selling Agent and Placement Agents and certain
related persons. The sales charge will be added to each prospective investor's
subscription amount, and will not constitute part of a Partner's capital
contribution to a Fund or part of the assets of the Fund.
The Funds, the General Partner and the Selling Agent will indemnify, to the
extent permitted by law, each Placement Agent against any liability and expense
to which it may be liable in connection with the offering of Units of the Funds
in the absence of the Placement Agent's willful misfeasance, bad faith or gross
negligence.
Each Fund will bear all expenses incurred in its business other than those
specifically required to be borne by the General Partner. Expenses to be borne
by each Fund include, but are not limited to, the following:
o all costs and expenses directly related to portfolio transactions and
positions for the Fund's account, including, but not limited to,
brokerage commissions, research fees,
<PAGE>
interest and commitment fees on loans and debit balances, borrowing
charges on securities sold short, dividends on securities sold short
but not yet purchased, custodial fees, margin fees, transfer taxes and
premiums, taxes withheld on foreign dividends and indirect expenses
from investments in investment funds;
o all costs and expenses associated with the organization and
registration of the Fund, certain offering costs and the costs of
compliance with any applicable Federal or state laws;
o all costs and expenses associated with the organization of Portfolio
Funds managed by Sub-Advisers, if any, and with the selection of
Portfolio Managers, including due diligence and travel-related
expenses;
o the costs and expenses of holding any meetings of any Partners that
are regularly scheduled, permitted or required to be held under the
terms of the Partnership Agreement, the 1940 Act or other applicable
law;
o fees and disbursements of any attorneys, accountants, auditors and
other consultants and professionals engaged on behalf of the Fund;
o the fees of custodians and other persons providing administrative
services to the Fund;
o the costs of a fidelity bond and any liability insurance obtained on
behalf of the Fund, the General Partner or the Directors of the Fund;
o all costs and expenses of preparing, setting in type, printing and
distributing reports and other communications to Limited Partners;
o all expenses of computing the Fund's net asset value, including any
equipment or services obtained for the purpose of valuing the Fund's
investment portfolio;
o all charges for equipment or services used for communications between
a Fund and any custodian, or other agent engaged by the Fund; and
o such other types of expenses as may be approved from time to time by
the Directors of a given Fund other than those required to be borne by
the General Partner.
The General Partner will be reimbursed by each Fund for any of the above
expenses that it pays on behalf of such Fund.
The organizational and offering expenses of each Fund are estimated at
$70,000. Each Fund also will bear certain on-goingoffering costs associated with
any periodic offers of Units. Organizational costs incurred to establish each
Fund will be expensed as incurred. Offering costs will be amortized over the
first twelve months of operations of each Fund. Offering costs cannot be
deducted for tax purposes by the offering Fund or its Partners.
Each Portfolio Fund will bear all expenses incurred in its business,
which are similar to those expenses incurred by the Funds. The Portfolio
Managers generally will charge an asset-
<PAGE>
based fee to, and receive performance-based fees or allocations from, the
Portfolio Funds, which effectively will reduce total distributions from the
Portfolio Funds to the Funds.
--------------------------------------------------------------------------------
CAPITAL ACCOUNTS AND ALLOCATIONS
--------------------------------------------------------------------------------
CAPITAL ACCOUNTS
Each Fund will maintain a separate capital account for each Partner, which
will have an opening balance equal to such Partner's initial contribution to the
capital of that Fund. Each Partner's capital account will be increased by the
sum of the amount of cash and, in the sole discretion of the General Partner,
the value of any securities constituting additional contributions by such
Partner to the capital of such Fund, plus any amounts credited to such Partner's
capital account as described below. Similarly, each Partner's capital account
will be reduced by the sum of the amount of any repurchase by such Fund of the
Units of such Partner, plus the amount of any distributions to such Partner
which are not reinvested, plus any amounts debited against such Partner's
capital account as described below. To the extent that any debit would reduce
the balance of the capital account of any Limited Partner below zero, that
portion of any such debit will instead be allocated to the capital account of
the General Partner; any subsequent credits that would otherwise be allocable to
the capital account of any such Limited Partner will instead be allocated to the
capital account of the General Partner in such amounts as are necessary to
offset all previous debits attributable to such Limited Partner.
Capital accounts of Partners are adjusted as of the close of business on
the last day of each fiscal period. Fiscal periods begin on the day after the
last day of the preceding fiscal period and end at the close of business on (1)
the last day of the fiscal year of a Fund, (2) the day preceding the date as of
which a contribution to the capital of a Fund is made, (3) the day as of which a
Fund repurchases any Unit of any Partner, or (4) the day as of which any amount
is credited to or debited from the capital account of any Partner other than an
amount to be credited to or debited from the capital accounts of all Partners in
accordance with their respective partnership percentages. A partnership
percentage will be determined for each Partner as of the start of each fiscal
period by dividing the balance of such Partner's capital account as of the
commencement of such period by the sum of the balances of all capital accounts
of all Partners as of such date.
ALLOCATION OF NET PROFITS AND NET LOSSES
Net profits or net losses of each Fund for each fiscal period will be
allocated among and credited to or debited against the capital accounts of all
Partners of the Fund as of the last day of each fiscal period in accordance with
Partners' respective partnership percentages for such fiscal period. Net profits
or net losses will be measured as the net change in the value of the net assets
of the relevant 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 such Fund of
Units.
<PAGE>
Allocations for Federal income tax purposes generally will be made among
the Partners so as to reflect equitably amounts credited or debited to each
Partner's capital account for the current and prior fiscal years.
ALLOCATION OF WITHHOLDING TAXES
Withholding taxes or other tax obligations incurred by each Fund which are
attributable to any Partner will be debited against the capital account of such
Partner as of the close of the fiscal period during which the Fund in question
paid such obligation, and any amounts then or thereafter distributable to such
Partner will be reduced by the amount of such taxes. If the amount of such taxes
is greater than any such distributable amounts, then the Partner is required to
pay to the relevant Fund as a contribution to the capital of that Fund, upon
demand of that Fund, the amount of such excess.
NET ASSET VALUATION
The net asset value of each Fund and of the Units will be determined by or
at the direction of the General Partner as of the close of business at the end
of any fiscal period in accordance with U.S. generally accepted accounting
principles and the valuation principles set forth below or as may be determined
from time to time pursuant to policies established by the Directors. The net
asset value of each Fund equals the value of the assets of each Fund, less all
of its liabilities, including accrued fees and expenses. The net asset value per
Unit of each Fund equals the net asset value of the Fund divided by the number
of outstanding Units.
The Funds will value interests in Portfolio Funds not managed by the
Sub-Advisers at fair value, which ordinarily will be the value determined by the
Portfolio Manager for each Portfolio Fund in accordance with the policies
established by the relevant Portfolio Fund. Although the General Partner will
review the valuations provided by Portfolio Managers, the General Partner and
the Directors will not be able in most cases to confirm the accuracy of
valuations provided by Portfolio Managers, and do not expect to make any
adjustments to the valuations provided by Portfolio Managers.
To the extent Sub-Advisers are engaged to manage the assets of a Fund, the
Fund will generally value the portfolio securities held by the Investments Funds
managed by the Sub-Advisers as described below:
Domestic exchange traded securities and securities included in the Nasdaq
National Market System will be valued at their last composite sale prices as
reported on the exchanges where such securities are traded. If no sales of such
securities are reported on a particular day, the securities will be valued based
upon their composite bid prices for securities held long, or their composite ask
prices for securities held short, as reported by such exchanges. Securities
traded on a foreign securities exchange will be valued at their last sale prices
on the exchange where such securities are primarily traded, or in the absence of
a reported sale on a particular day, at their bid prices, in the case of
securities held long, or ask prices, in the case of securities held short, as
reported by such exchange. Other securities for which market quotations are
readily available will be valued at their bid prices, or ask prices in the case
of securities held short, as obtained from one or more dealers making markets
for such securities. If market
<PAGE>
quotations are not readily available, securities and other assets will be valued
at fair value as determined in good faith by, or under the supervision of, the
Directors.
Debt securities will be valued in accordance with the procedures described
above, which with respect to such securities may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional size trading units. The Directors will monitor
periodically the reasonableness of valuations provided by any such pricing
service. Debt securities with remaining maturities of 60 days or less, absent
unusual circumstances, will be valued at amortized cost, so long as such
valuation is determined by the Directors to represent fair value.
All assets and liabilities initially expressed in foreign currencies will
be converted into U.S. dollars using foreign exchange rates provided by a
pricing service. Trading in foreign securities generally is completed, and the
values of such securities are determined, prior to the close of securities
markets in the United States. Foreign exchange rates are also determined prior
to such close. On occasion, the values of securities and exchange rates may be
affected by events occurring between the time as of which determination of such
values or exchange rates are made and the time as of which the net asset value
of each Fund is determined. When such events materially affect the values of
securities held by a Fund or its liabilities, such securities and liabilities
may be valued at fair value as determined in good faith by, or under the
supervision of, the Directors of such Fund.
Prospective investors should be aware that situations involving
uncertainties as to the valuation of portfolio positions could have an adverse
effect on a Fund's net assets if the judgments of the Directors or Portfolio
Managers regarding appropriate valuations should prove incorrect. Also,
Portfolio Managers may only provide determinations of the net asset value of
Portfolio Funds on a weekly or monthly basis, in which event it may not be
possible to determine the net asset value of the Funds more frequently.
--------------------------------------------------------------------------------
SUBSCRIPTION FOR UNITS
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SUBSCRIPTION TERMS
Both initial and additional subscriptions for Units in each of the Funds
may be accepted from eligible investors (as described below) at such times as
the General Partner may determine on the terms set forth below. Subscriptions
for Units may be submitted to the General Partner or a Placement Agent. The
Funds may, in the discretion of the General Partner, suspend the offering of
Units at any time or permit subscriptions on a more frequent basis. The Funds
reserve the right to reject any subscription for Units. As part of a continuous
offering after the initial closing, initial subscriptions and additional capital
contributions will generally be accepted monthly.
Each Unit represents a capital commitment of $100 at the initial closing.
After the initial closing, Units will be offered at their net asset value per
Unit. Generally, the minimum required initial contribution to the capital of a
Fund from each investor is $50,000. The minimum
<PAGE>
required subsequent capital contribution is $5,000. For employees or directors
of the General Partner and its affiliates, and members of their immediate
families, and, in the sole discretion of the General Partner, other investors,
the minimum required initial contribution to the capital of a Fund is $25,000.
The Funds may vary the investment minimums from time to time.
The initial closing date for subscriptions of Units is expected to be
January 26, 2001. The General Partner, in its sole discretion, may delay for a
period of up to 90 days the initial closing date of a Fund, including, but not
limited to, if the General Partner determines that a threshold level of assets
has not been raised to permit the Fund to allocate its assets among an
appropriate number of Portfolio Managers. The maximum size of each Fund is not
limited.
Except as otherwise permitted by the Funds, initial and any additional
contributions to the capital of a Fund by any Partner will be payable in cash,
and all contributions must be transmitted, through a Placement Agent or directly
to the General Partner, by such time and in such manner as is specified in the
subscription documents of the Funds. Initial and additional contributions to the
capital of a Fund will be payable in one installment and will be due prior to
the proposed acceptance of the contribution. During the continuous offering
after the initial closing, all initial and additional contributions to each Fund
must be received and cleared prior to the subscription date, generally the first
business day of the following month. Generally, Placement Agents will wire
monies to the Selling Agent or its authorized agent on the last business day of
the month. In order to subscribe, investors must have the requisite amount of
funds available in their accounts with their respective Placement Agent on the
last business day of the month. If an investor's funds are not so available, the
investor's subscription for Units will not be accepted for the current
subscription date.
Each new Limited Partner will be obligated to agree to be bound by all of
the terms of the relevant Partnership Agreement. Each potential investor also
will be obligated to represent and warrant in a subscription agreement, among
other things, that such investor is purchasing Units for its own account, and
not with a view to the distribution, assignment, transfer or other disposition
of such Units.
ELIGIBLE INVESTORS
Each prospective investor will be required to certify that the Units
subscribed for are being acquired directly or indirectly for the account of an
"accredited investor" as defined in Regulation D under the 1933 Act, and
generally that such investor, as well as each of the investor's equity owners
under certain circumstances, (i) immediately after the time of subscription, has
at least $750,000 under the discretionary investment management of the General
Partner and its affiliates, (ii) at the time of subscription, has a net worth of
more than $1.5 million, or (iii) at the time of subscription, is a "qualified
purchaser" as defined in Section 2(a)(51)(A) of the 1940 Act (a "Qualified
Purchaser"). Existing Limited Partners who subscribe for additional Units and
transferees of Units may be required to represent that they meet the foregoing
eligibility criteria at the time of the additional subscription. The relevant
investor qualifications will be set forth in a subscription agreement to be
provided to prospective investors, which must be completed by each prospective
investor.
<PAGE>
SUBSCRIPTION PROCEDURE
PROSPECTIVE INVESTORS MAY SUBSCRIBE FOR UNITS BY COMPLETING, EXECUTING AND
DELIVERING TO (1) THEIR FINANCIAL ADVISOR AT THE RELEVANT PLACEMENT AGENT OR (2)
THE GENERAL PARTNER, C/O PFPC INC., ATTN: INVESTOR SERVICES/GAM MS #F103-01-E,
103 BELLEVUE PARKWAY, WILMINGTON, DE 19809, FAX 302-791-1713, THE FOLLOWING:
1. THE SUBSCRIPTION AGREEMENT, BY WHICH THE PROSPECTIVE INVESTOR
SUBSCRIBES TO PURCHASE UNITS;
2. THE LIMITED PARTNER SIGNATURE PAGE (IN THE FORM CONTAINED IN THE
SUBSCRIPTION BOOKLET) BY WHICH THE PROSPECTIVE INVESTOR WILL EXECUTE
AND AGREE TO BE BOUND BY THE TERMS OF THE PARTNERSHIP AGREEMENT; AND
3. PAYMENT OF THE SUBSCRIPTION AMOUNT (1) THROUGH THEIR ACCOUNT AT THE
RELEVANT PLACEMENT AGENT OR (2) BY CHECK OR WIRE TRANSFER PAYABLE TO
THE ACCOUNT OF AND IN THE NAME OF THE FUND SUBSCRIBED TO. PLEASE SEE
THE SUBSCRIPTION AGREEMENT FOR DETAILS REGARDING WIRE INSTRUCTIONS AND
CHECK WRITING INSTRUCTIONS.
No initial subscription for Units will be accepted by the General Partner
until a validly executed suitability form is on file with the General Partner
and the General Partner is in receipt of cleared funds. The General Partner
reserves the right to reject any subscription in its sole discretion. Funds not
received and cleared prior to the subscription date cannot be invested until the
following subscription date.
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REPURCHASES AND TRANSFERS OF UNITS
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NO RIGHT OF REDEMPTION
No Partner or other person holding Units will have the right to require any
Fund to redeem a Unit. No public market exists for the Units, and none is
expected to develop. Consequently, investors may not be able to liquidate their
investment other than as a result of repurchases of Units by the Funds, as
described below.
REPURCHASES OF UNITS
The Directors of each Fund, from time to time and in their complete and
exclusive discretion, may determine to cause the Fund to repurchase Units from
Partners, including the General Partner, pursuant to written tenders by Partners
on such terms and conditions as the Directors may determine. In determining
whether a Fund should repurchase Units from Partners pursuant to written
tenders, the Directors will consider the recommendation of the General Partner.
The General Partner expects that generally, beginning in 2001, it will recommend
to the Directors that each of the Funds offer to repurchase Units from Partners
two times each year, in
<PAGE>
June and December. The Directors of each Fund also will consider the following
factors, among others, in making such determination:
o whether any Partners have requested to tender Units to such Fund;
o the liquidity of such Fund's assets;
o the investment plans and working capital requirements of such Fund;
o the relative economies of scale with respect to the size of such Fund;
o the history of such Fund in repurchasing Units;
o the condition of the securities markets; and
o the anticipated tax consequences of any proposed repurchases of Units.
The Directors will determine that a Fund repurchase Units from Partners
pursuant to written tenders only on terms they determine to be fair to such Fund
and to all Partners or persons holding Units acquired from Partners. When the
Directors determine that a Fund will repurchase Units, notice will be provided
to each Partner of such Fund describing the terms of the offer, and containing
information Partners should consider in deciding whether and how to participate
in such repurchase opportunity. It is expected that such notice will be provided
to Partners of each Fund not less than 45 days prior to the date of such
repurchase, and that Partners wishing to accept such offer will be required to
accept such offer not less than 15 days prior to the date of such repurchase.
The Partnership Agreement provides that a Fund shall be dissolved if the
Units of any Limited Partner that has submitted a written request to tender all
of the Units held by such Partner for repurchase by such Fund has not been
repurchased within a period of two years of such request.
Repurchases of Units from Partners by a Fund may be made, in the discretion
of the General Partner, in part or in whole for cash or for securities of
equivalent value, and will be effective after receipt by such Fund of all
eligible written tenders of Units from Partners. The amount due to any Partner
whose Units are repurchased will be equal to the value of the Partner's capital
account or portion thereof based on the net asset value of such Fund's assets as
of the effective date of repurchase, after giving effect to all allocations to
be made to the Partner's capital account as of such date. Payment of the
purchase price pursuant to a tender of Units will consist of, first, cash and/or
securities traded on an established securities exchange, valued at net asset
value in accordance with the Partnership Agreement and distributed to tendering
Partners on a pro rata basis, in an aggregate amount equal to at least 95% of
the estimated unaudited net asset value of the Units tendered, determined as of
the expiration date of the tender offer (the "expiration date"). Payment of such
amount will be made promptly after the expiration date (the "cash payment").
Generally, payment pursuant to such a tender also will consist of a promissory
note that bears no interest, is not transferable and entitles the holder thereof
to a contingent payment equal to the excess, if any, of (a) the net asset value
of the Units
<PAGE>
tendered as of the expiration date, determined based on the audited financial
statements of the relevant Fund, over (b) the cash payment. The promissory note
will be delivered to the tendering Partner promptly after the expiration date
and will be payable in cash promptly after completion of the audit of the
financial statements of such Fund. The audit of the financial statements for
each Fund is expected to be completed within 60 days after the end of each
fiscal year of the Funds ended March 31.
The Funds do not impose any charges on a repurchase of Units, although they
may allocate to tendering Partners withdrawal or similar charges imposed by
Portfolio Funds that are not advised by a Sub-Adviser if the General Partner
determined to withdraw from the Portfolio Fund as a result of a tender and such
a charge was imposed on a Fund.
Each Fund intends to maintain daily a segregated account containing
permissible liquid assets in an amount equal to the aggregate amount of the
notes payable to former Partners. Payment for repurchased Units may require a
Fund to liquidate portfolio holdings earlier than the General Partner otherwise
would liquidate such holdings, potentially resulting in losses, and may increase
the Funds' portfolio turnover. The General Partner intends to take measures to
attempt to avoid or minimize such potential losses and turnover.
Each Fund may repurchase Units of a Partner or any person acquiring Units
from or through a Partner if:
o such Units have been transferred or such Units have vested in any
person by operation of law as the result of the death, dissolution,
bankruptcy or incompetency of a Partner;
o ownership of such Units by a Partner or other person will cause the
Fund to be in violation of, or require registration of any Unit 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 Units may be harmful or injurious to the
business or reputation of the Fund or the General Partner, or may
subject the Fund or any Partners to an undue risk of adverse tax or
other fiscal consequences;
o any of the representations and warranties made by a Partner in
connection with the acquisition of Units was not true when made or has
ceased to be true; or
o it would be in the best interests of the Fund for the Fund to
repurchase such an interest.
TRANSFERS OF UNITS
No person may become a substituted Limited Partner without the written
consent of the General Partner, which consent may be withheld for any reason in
the General Partner's sole and absolute discretion. Units may be transferred
only (i) by operation of law pursuant to the death, bankruptcy, insolvency or
dissolution of a Limited Partner or (ii) with the written consent of the
<PAGE>
General Partner, which may be withheld in its sole and absolute discretion and
is expected to be granted, if at all, only under extenuating circumstances, in
connection with a transfer to a family trust or other entity that does not
result in a change of beneficial ownership. Notice to the General Partner of any
proposed transfer must include evidence satisfactory to the General Partner that
the proposed transfer is exempt from registration under the 1933 Act, that the
proposed transferee meets any requirements imposed by the Funds with respect to
investor eligibility and suitability, including the requirement that any
investor, or investor's equity owners in certain circumstances, (i) immediately
after the time of subscription, has at least $750,000 under the discretionary
investment management of the General Partner and its affiliates, (ii) at the
time of subscription, has a net worth of more than $1.5 million, or (iii) at the
time of subscription, is a Qualified Purchaser, and must be accompanied by a
properly completed subscription agreement. In addition to the foregoing, no
Limited Partner will be permitted to transfer any Units unless after such
transfer the balance of the capital account of the transferee, and any Limited
Partner transferring less than its entire number of Units, is at least equal to
the amount of the Limited Partner's initial capital contribution.
Any transferee meeting the eligibility requirements that acquires Units of
a Fund by operation of law as the result of the death, dissolution, bankruptcy
or incompetency of a Limited Partner or otherwise, will be entitled to the
allocations and distributions allocable to the Units so acquired and to transfer
such Units in accordance with the terms of the Partnership Agreement, but will
not be entitled to the other rights of a Limited Partner unless and until such
transferee becomes a substituted Limited Partner as provided in the Partnership
Agreement. If a Limited Partner transfers Units with the approval of the General
Partner, under the policies established by the Directors, the General Partner
will promptly take all necessary actions to admit such transferee or successor
to such Fund as a Limited Partner. Each Limited Partner and transferee is
required to pay all expenses, including attorneys' and accountants' fees,
incurred by such Fund in connection with such transfer. If such a transferee
does not meet the investor eligibility requirements, that Fund reserves the
right to redeem its Units.
By subscribing for Units of a Fund, each Limited Partner has agreed to
indemnify and hold harmless that Fund, its Directors, the General Partner, each
other Limited Partner of such Fund and any affiliate of the foregoing against
all losses, claims, damages, liabilities, costs and expenses, including legal or
other expenses incurred in investigating or defending against any such losses,
claims, damages, liabilities, costs and expenses or any judgments, fines and
amounts paid in settlement, joint or several, to which such persons may become
subject by reason of or arising from any transfer made by such Limited Partner
in violation of these provisions or any misrepresentation made by such Limited
Partner in connection with any such transfer.
The General Partner may not transfer its interest as a General Partner,
except to a person who has agreed to be bound by all of the terms of the
Partnership Agreement and pursuant to applicable law.
<PAGE>
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TAX ASPECTS
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The following is a summary of certain aspects of the income taxation of the
Funds and their Partners which should be considered by a prospective Limited
Partner. The Funds have not sought a ruling from the Internal Revenue Service
(the "IRS") or any other Federal, state or local agency with respect to any of
the tax issues affecting the Funds, nor have they obtained an opinion of counsel
with respect to any tax issues other than the characterization of each of the
Funds as a partnership for Federal income tax purposes.
This summary of certain aspects of the Federal income tax treatment of the
Funds is based upon the Code, judicial decisions, Treasury Regulations (the
"Regulations") and rulings in existence on the date hereof, all of which are
subject to change. This summary does not discuss the impact of various proposals
to amend the Code which could change certain of the tax consequences of an
investment in the Funds. This summary also does not discuss all of the tax
consequences that may be relevant to a particular investor, to investors that
acquire Units other than for cash or to certain investors subject to special
treatment under the Federal income tax laws, such as insurance companies.
EACH PROSPECTIVE LIMITED PARTNER SHOULD CONSULT WITH HIS OR HER OWN TAX
ADVISER IN ORDER FULLY TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE FUNDS.
In addition to the particular matters set forth in this section, tax-exempt
organizations should review carefully those sections of this Private Placement
Memorandum regarding liquidity and other financial matters to ascertain whether
the investment objective of one or more of the Funds is consistent with their
overall investment plans. Each prospective tax-exempt Limited Partner is urged
to consult its own counsel regarding the acquisition of Units.
CLASSIFICATION OF THE FUNDS
The Funds have received an opinion of Coudert Brothers, counsel to the
Funds, that under the provisions of the Code and the Regulations, as in effect
on the date of the opinion, each Fund will be classified as a partnership for
Federal income tax purposes and not as an association taxable as a corporation.
Under the Code, certain "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. Counsel to the Funds has rendered
its opinion that, under a "facts and circumstances" test contained in the
Regulations, and based upon the anticipated operations of the Funds, Units will
not be readily tradable on a secondary market, or the substantial equivalent
thereof, and, therefore, the Funds should not be treated as publicly traded
partnerships taxable as a corporation.
<PAGE>
The opinion of counsel described above, however, is not binding on the IRS
or the courts. If it were determined that any 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 IRS, changes in the Code, the Regulations or judicial
interpretations thereof, a material adverse change in facts, or otherwise, the
taxable income of the relevant Fund would be subject to corporate income tax
when recognized by the Fund; distributions of such income, other than in certain
redemptions of Units, would be treated as dividend income when received by the
Partners to the extent of the Fund's current or accumulated earnings and
profits; and Partners would not be entitled to report profits or losses realized
by the Fund.
As partnerships, the Funds are not themselves subject to Federal income
tax. Each Limited Partner will be taxed upon his or her distributive share of
each item of each Fund's income, gain, loss and deductions allocated to such
Limited Partner (including from investments in other partnerships) for each
taxable year of such Fund ending with or within the Limited Partner's taxable
year. Each item will have the same character to a Limited Partner, and will
generally have the same source (either United States or foreign), as though the
Limited Partner realized the item directly. Limited Partners must report these
items regardless of the extent to which, or whether, the Funds or Limited
Partners receive cash distributions for such taxable year, and thus may incur
income tax liabilities unrelated to any distributions to or from the Funds.
TAX ELECTIONS AND RETURNS; TAX AUDITS
The General Partner decides how to report all partnership items of income,
gain, loss or deduction on each Fund's tax returns, and makes all tax elections
on behalf of each Fund. All Partners are required under the Code to treat all
partnership items consistently on their own returns, unless they file a
statement with the IRS disclosing the inconsistency. In the event the income tax
return of any Fund is audited by the IRS, the tax treatment of the Fund's income
and deductions generally is determined at the partnership level in a single
proceeding rather than by individual audits of the Partners. The General Partner
is designated as the "Tax Matters Partner" for each Fund, and has considerable
authority to make decisions affecting the tax treatment and procedural rights of
all Partners. The General Partner also has the authority to bind Partners to
settlement agreements, and the right on behalf of all Partners to extend the
statute of limitations relating to the Partners' tax liabilities with respect to
Fund items.
TAX CONSEQUENCES TO A WITHDRAWING LIMITED PARTNER
A Limited Partner receiving a cash liquidating distribution from a Fund, in
connection with a complete withdrawal from such Fund, generally will recognize
capital gain or loss to the extent of the difference between the proceeds
received by such Limited Partner and such Limited Partner's adjusted tax basis
in his or her Units. Such capital gain or loss will be short-term or long-term
depending upon the Limited Partner's holding period for his or her Units.
However, a withdrawing Limited Partner will recognize ordinary income to the
extent such Limited Partner's allocable share of such Fund's "unrealized
receivables" exceeds the Limited Partner's basis in such unrealized receivables,
as determined pursuant to the Regulations. For these purposes, accrued but
untaxed market discount, if any, on securities held by such Fund will be treated
as an unrealized receivable with respect to the withdrawing Limited Partner. A
Limited Partner
<PAGE>
receiving a cash nonliquidating distribution will recognize income in a similar
manner only to the extent that the amount of the distribution exceeds such
Limited Partner's adjusted tax basis in his or her Units.
The General Partner may specially allocate items of Fund capital gain,
including short-term capital gain, to a withdrawing Limited Partner to the
extent the withdrawing Partner's liquidating distribution would otherwise exceed
the withdrawing Partner's adjusted tax basis in his or her Units. Such a special
allocation may result in the withdrawing Partner recognizing capital gain, which
may include short-term gain, in the Partner's last taxable year in a Fund,
thereby reducing the amount of long-term capital gain recognized during the tax
year in which the Partner receives a liquidating distribution upon withdrawal.
Distributions of property other than cash, whether in complete or partial
liquidation of a Limited Partner's Units, generally will not result in the
recognition of taxable income or loss to the Limited Partner, except to the
extent such distribution is treated as made in exchange for such Limited
Partner's share of the relevant Fund's unrealized receivables.
TAX TREATMENT OF FUND INVESTMENTS
GENERAL. The Funds, through the Portfolio Funds, expect to act as a trader
or investor, and not as a dealer, with respect to their 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 certain
exceptions, the Funds expect that the gains and losses from their securities
transactions typically will be capital gains and capital losses. These capital
gains and losses may be long-term or short-term depending, in general, upon the
length of time 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. The Funds will also
realize ordinary income from interest and dividends on securities and other
sources.
The maximum ordinary income tax rate for individuals is 39.6%, and the
maximum individual income tax rate for long-term capital gains is generally 20%,
although in any case the actual rate may be higher due to the phase out of
certain tax deductions and exemptions or the application of "alternative minimum
tax" rules. See "Limitations on Deductibility of Interest" and "Deductibility of
Investment Expenses" 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 generally may be carried
back three years, subject to certain limitations, and carried forward five
years.
<PAGE>
LIMITATIONS ON DEDUCTIBILITY OF INTEREST. For non-corporate 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.
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 Funds' activities likely will be
treated as giving rise to investment income for a Limited Partner, and the
investment interest limitation would apply to a non-corporate Limited Partner's
share of the interest and short sale expenses attributable to the Funds'
operation. In such case, a non-corporate Limited Partner would be denied a
deduction for all or part of that portion of his or her distributive share of
the Funds' ordinary losses attributable to interest and short sale expenses
unless it had sufficient investment income from all sources (including the
relevant Fund). A Limited Partner that could not deduct losses currently as a
result of the application of Section 163(d) would be entitled to carry forward
such losses to future years, subject to the same limitation. Where the
investment interest limitation applies to a Fund, the investment interest
limitation would also apply to interest paid by a non-corporate Limited Partner
on money borrowed to finance his or her investment in a Fund. If a Fund's
operations constitute a "trade or business" within the meaning of the Code, that
Fund may take the position that the Section 163(d) limitation on investment
interest will not apply to interest attributable to such Fund's trade or
business operations, although this position is not free from doubt. Whether any
portion of a Fund's operations constitute a trade or business is a question of
fact. 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 INVESTMENT EXPENSES. Investment expenses (e.g., investment
advisory fees) of an individual, trust and estate are deductible only to the
extent that such expenses exceed 2% of adjusted gross income. 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 non-corporate taxpayer in calculating his or her
alternative minimum tax liability.
These limitations on deductibility should not apply to a non-corporate
Limited Partner's share of the expenses of a Fund to the extent that such
expenses are allocable to a Portfolio Fund that is considered to be in a trade
or business within the meaning of the Code. These limitations will apply,
however, to a non-corporate Limited Partner's share of the expenses of a Fund to
the extent that such expenses are allocable to a Portfolio Fund that is not
considered to be in a trade or business within the meaning of the Code. Although
the Funds intend to treat the trade or business related expenses and any
performance-based allocations as not being subject to the foregoing limitations
on deductibility, there can be no assurance that the IRS may not treat such
<PAGE>
items as investment expenses which are subject to the limitations. The
consequences of these limitations will vary depending upon the particular tax
situation of each taxpayer. Accordingly, non-corporate Limited Partners should
consult their tax advisers with respect to the application of these limitations.
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
Funds' securities trading activity generally will not constitute income or loss
from a passive activity. Therefore, passive losses from other sources generally
could not be deducted against a Limited Partner's share of income and gain from
the Funds. Income or loss attributable to investments in partnerships engaged in
a trade or business may constitute passive activity income or loss.
PHANTOM INCOME FROM FUND INVESTMENTS. Pursuant to various "anti-deferral"
provisions of the Code (the "Subpart F," "passive foreign investment company"
and "foreign personal holding company" provisions), certain investments by the
Funds through the Portfolio Funds in certain foreign corporations may cause a
Limited Partner to (i) pay an interest charge on income or gains by a Fund that
are deemed as having been deferred or (ii) recognize ordinary income that, but
for the "anti-deferral" provisions, would have been treated as long-term capital
gain.
FOREIGN TAXES
It is possible that certain dividends and interest received from sources
within foreign countries will be subject to withholding taxes imposed by such
countries. In addition, some foreign countries may impose capital gains taxes on
certain securities transactions involving foreign issuers. Tax treaties between
certain countries and the United States may reduce or eliminate such taxes.
The Funds will inform Partners of their proportionate share of the foreign
taxes paid or incurred by the Funds that Partners will be required to include in
their income. The Partners generally will be entitled to claim either a credit,
subject to the limitations discussed below, and provided that, in the case of
dividends, the foreign stock is held for the requisite holding period, or, if
they itemize their deductions, a deduction, subject to the limitations generally
applicable to deductions, for their share of such foreign taxes in computing
their Federal income taxes. A Partner that is tax exempt will not ordinarily
benefit from such credit or deduction.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the Partner's federal tax, before the credit, attributable to the
Partner's total foreign source taxable income. A Partner's share of dividends
and interest from non-U.S. securities generally will qualify as foreign source
income. Generally, the source of income realized upon the sale of personal
property, such as securities, will be based on the residence of the seller. In
the case of a partnership, the determining factor is the residence of the
partner. Thus, absent a tax treaty to the contrary, the gains from the sale of
securities allocable to a Partner that is a U.S. resident will be treated as
derived from U.S. sources, even though the securities are sold in foreign
countries.
<PAGE>
However, in certain circumstances, securities losses realized by a U.S. resident
are recharacterized as foreign source to the extent of certain dividends and
other deemed inclusions of income previously taken into account by that U.S.
resident. Certain currency fluctuation gains, including fluctuation gains from
foreign currency denominated debt securities, receivables and payables, will
also be treated as ordinary income derived from U.S. sources.
The limitation on the foreign tax credit is applied separately to foreign
source passive income, such as dividends and interest. In addition, the foreign
tax credit is allowed to offset only 90% of the alternative minimum tax imposed
on corporations and individuals.
Furthermore, for foreign tax credit limitation purposes, the amount of a
Partner's foreign source income is reduced by various deductions that are
allocated and/or apportioned to such foreign source income. One such deduction
is interest expense, a portion of which generally will reduce the foreign source
income of any Partner who owns (directly or indirectly) foreign assets. For
these purposes, foreign assets owned by the Funds will be treated as owned by
the investors in the Funds and indebtedness incurred by the Funds will be
treated as incurred by investors in the Funds. Because of these limitations,
Partners may be unable to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by the Funds. The foregoing is
only a general description of the foreign tax credit under current law.
Moreover, since the availability of a credit or deduction depends on the
particular circumstances of each Partner, Partners are advised to consult their
own tax advisers.
TAX-EXEMPT INVESTORS
UNRELATED BUSINESS TAXABLE INCOME. Generally, an exempt organization is
exempt from Federal income tax on its passive investment income, such as
dividends, interest and capital gains, whether realized by the organization
directly or indirectly through a partnership in which it is a partner.
This general exemption from tax does not apply to the UBTI of an exempt
organization. Generally, UBTI includes income or gain derived, either directly
or through partnerships, from a trade or business, the conduct of which is
substantially unrelated to the exercise or performance of the organization's
exempt purpose or function. UBTI also includes "unrelated debt-financed income,"
which generally consists of (i) income derived by an exempt organization,
directly or through a partnership, from income-producing property with respect
to which there is "acquisition indebtedness" at any time during the taxable
year, and (ii) gains derived by an exempt organization, directly or through a
partnership, from the disposition of property with respect to which there is
"acquisition indebtedness" at any time during the 12-month period ending with
the date of such disposition.
The Funds, through the Portfolio Funds, expect to incur "acquisition
indebtedness" with respect to certain transactions, such as the purchase of
securities on margin. The calculation of each Fund's "unrelated debt-financed
income" is complex and will depend in large part on the amount of leverage, if
any, used by the Portfolio Funds from time to time. Also, the Funds may,
directly or indirectly, invest in an entity that is engaged in a trade or
business (other than securities trading) and is classified for U.S. tax purposes
as a partnership. Accordingly, it is impossible to predict what percentage of
each Fund's income and gains will be treated as UBTI
<PAGE>
for a Limited Partner which is an exempt organization. An exempt organization's
share of the income or gains of the Funds which is treated as UBTI may not be
offset by losses of the exempt organization either from the Funds or otherwise,
unless such losses are treated as attributable to an unrelated trade or business
(e.g., losses from securities for which there is acquisition indebtedness).
To the extent that the Funds generate UBTI, the applicable Federal tax rate
for such a Limited Partner generally would be either the corporate or trust tax
rate depending upon the nature of the particular exempt organization. An exempt
organization may be required to support, to the satisfaction of the IRS, the
method used to calculate its UBTI. Each Fund will be required to report to a
Partner which is an exempt organization information as to the portion, if any,
of its income and gains from the Funds for each year which will be treated as
UBTI. The calculation of such amount with respect to transactions entered into
by the Funds is highly complex, and there is no assurance that the Funds'
calculation of UBTI will be accepted by the IRS.
A charitable remainder trust will not be exempt from Federal income tax
under Section 664(c) of the Code for any year in which it has UBTI. A
title-holding company will not be exempt from tax if it has certain types of
UBTI. Moreover, the charitable contribution deduction for a trust under Section
642(c) of the Code may be limited for any year in which the trust has UBTI. A
prospective investor should consult its tax adviser with respect to the tax
consequences of receiving UBTI from the Funds. See "ERISA Considerations."
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
return (including 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 Funds would most probably be classified as a nonfunctionally
related asset. A determination that Units are nonfunctionally related assets
could conceivably cause cash flow problems for a prospective Limited Partner
which is a private foundation.
In some instances, the "excess business holdings" provisions of the Code
may prohibit an investment in the Funds by a private foundation. For example, if
a private foundation, either directly or together with a "disqualified person,"
acquires more than 20% of the capital interest
<PAGE>
or profits interest of a 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
Units 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 relevant Fund is
"passive" within the applicable provisions of the Code and Regulations. Although
there can be no assurance, the General Partner believes that each Fund will meet
this 95% gross income test.
A substantial percentage of investments of certain "private operating
foundations" may be restricted to assets directly devoted to their tax-exempt
purposes. Otherwise, generally, rules similar to those discussed above govern
their operations.
QUALIFIED RETIREMENT PLANS. Employee benefit plans subject to the
provisions of ERISA, Individual Retirement Accounts ("IRAs") and Keogh Plans
should consult their counsel as to the implications of such an investment under
ERISA. See "ERISA Considerations."
ENDOWMENT FUNDS. Portfolio Managers of endowment funds should consider
whether the acquisition of Units is legally permissible. This is not a matter of
Federal law, but is determined under state statutes. It should be noted,
however, that under the Uniform Management of Institutional Funds Act, which has
been adopted, in various forms, by a large number of states, participation in
investment partnerships or similar organizations in which funds are commingled
and investment determinations are made by persons other than the governing board
of the endowment fund is allowed.
STATE AND LOCAL TAXATION
In addition to the Federal income tax consequences described above,
prospective investors should consider potential state and local tax consequences
of an investment in the Funds. State and local laws often differ from Federal
income tax laws with respect to the treatment of specific items of income, gain,
loss, deduction and credit. A Partner's distributive share of the taxable income
or loss of the Funds generally will be required to be included in determining
the Partner's reportable income for state and local tax purposes in the
jurisdiction in which the Partner is a resident.
A partnership in which a Fund acquires (directly or indirectly) an interest
may conduct business in a jurisdiction which will subject to tax a Limited
Partner's share of such Fund's income from that business. Prospective investors
should consult their tax advisers with respect to the availability of a credit
for such tax in the jurisdiction in which that Limited Partner is a resident.
The General Partner conducts business in New York City. As a result, the
Funds may be deemed to be doing business in New York State and City. Although
the Funds themselves should not be subject to New York State or City taxation,
certain investors could in certain circumstances become subject to New York
State and City taxation as a result of an investment in the Funds.
<PAGE>
It is the responsibility of each prospective investor to satisfy himself as
to, among other things, the legal and tax consequences of an investment in a
Fund under state law, including the laws of the state(s) of his domicile and his
residence, by obtaining advice from his own tax counsel or other adviser, and to
file all appropriate tax returns that may be required.
--------------------------------------------------------------------------------
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
Funds.
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 any of the Funds, 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 a
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 the fiduciary's
responsibilities with regard to selecting an investment or an investment course
of action for such ERISA Plan, the fiduciary may be held liable for losses
incurred by the ERISA Plan as a result of such breach.
Because the Funds will register as investment companies under the 1940 Act,
the underlying assets of the Funds should not be considered to be "plan assets"
of the ERISA Plans investing in the Funds for purposes of ERISA's (or the
Code's) fiduciary responsibility and prohibited transaction rules. Thus, the
General Partner will not be a fiduciary within the meaning of ERISA by reason of
its authority with respect to the Funds.
The General Partner will require a Benefit Plan which proposes to invest in
any of the Funds to represent that it, and any fiduciaries responsible for such
Plan's investments, are aware
<PAGE>
of and understand the Fund's investment objectives, policies and strategies, and
that the decision to invest plan assets in a Fund was made by the fiduciaries of
the Benefit Plan 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 General Partner or other entities which are affiliated
with the General Partner. 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 Funds
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 Funds 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 Funds.
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 Private Placement 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 Units.
--------------------------------------------------------------------------------
SUMMARY OF PARTNERSHIP AGREEMENTS
--------------------------------------------------------------------------------
The following is a summary description of additional items and of select
provisions of the Partnership Agreements which are not described elsewhere in
this Private Placement Memorandum. The description of such items and provisions
is not definitive and reference should be made to the complete text of the
Partnership Agreements contained in Appendix A.
LIABILITY OF LIMITED PARTNERS
Pursuant to applicable Delaware law, Limited Partners generally are not
personally liable for obligations of a Fund unless, in addition to the exercise
of their rights and powers as Limited Partners, they participate in the control
of the business of that Fund. Any such Limited Partner would be liable only to
persons who transact business with such Fund reasonably believing, based on such
Limited Partner's conduct, that the Limited Partner is a General Partner. Under
the terms of the Partnership Agreements, the Limited Partners do not have the
right to take part in the control of the Funds, but they may exercise the right
to vote on matters requiring approval
<PAGE>
under the 1940 Act and on certain other matters. Although such right to vote
should not constitute taking part in the control of the Funds' business under
applicable Delaware law, there is no specific statutory or other authority for
the existence or exercise of some or all of these powers in some other
jurisdictions. To the extent that the Funds are subject to the jurisdiction of
courts in jurisdictions other than the State of Delaware, it is possible that
these courts may not apply Delaware law to the question of the limited liability
of the Limited Partners.
Under Delaware law and the Partnership Agreement, each Limited Partner may
be liable up to the amount of any contributions to the capital of a Fund (plus
any accretions in value thereto prior to withdrawal) and a Limited Partner may
be obligated to make certain other payments provided for in the Partnership
Agreement and to return to the relevant Fund amounts wrongfully distributed to
him.
DUTY OF CARE OF THE GENERAL PARTNER
The Partnership Agreements provide that the General Partner shall not be
liable to the Funds or any of the Limited Partners for any loss or damage
occasioned by any act or omission in the performance of the General Partner's
services as General Partner in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the General Partner's office. The Partnership Agreements also contain provisions
for the indemnification, to the extent permitted by law, of the General Partner
by the Funds, but not by the Limited Partners individually, against any
liability and expense to which the General Partner may be liable as General
Partner which arise in connection with the performance of its activities on
behalf of the Funds. The General Partner will not be personally liable to any
Limited Partner for the repayment of any positive balance in such Limited
Partner's capital account or for contributions by such Limited Partner to the
capital of a Fund or by reason of any change in the Federal or state income tax
laws applicable to such Fund or its investors. The rights of indemnification and
exculpation provided under the Partnership Agreement do not provide for
indemnification of the General Partner for any liability, including liability
under Federal securities laws which, under certain circumstances, impose
liability even on persons that act in good faith, to the extent, but only to the
extent, that such indemnification would be in violation of applicable law.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Each Partnership Agreement may be amended with the approval of (i) the
Directors, including a majority of the Independent Directors, if required by the
1940 Act, (ii) the General Partner or (iii) a majority, as defined in the 1940
Act, of the outstanding voting securities of the relevant Fund. Certain
amendments involving capital accounts and allocations thereto may not be made
without the consent of any Partners adversely affected thereby or unless each
Limited Partner has received notice of such amendment and any Limited Partner
objecting to such amendment has been allowed a reasonable opportunity to tender
all of his or her Units for repurchase by such Fund. However, the General
Partner may at any time, without the consent of the other Partners of a Fund,
amend the Partnership Agreement to (i) restate the Partnership Agreement, (ii)
effect compliance with any applicable law or regulation, or (iii) make such
changes as may be necessary to assure such 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
<PAGE>
7704(a) of the Code, subject to the requirement that any amendment of the
Partnership Agreement made pursuant to items (ii) or (iii) above must be
approved by the Directors.
POWER OF ATTORNEY
By subscribing for an LP Interest, each Partner will appoint the General
Partner 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 relevant Fund as a limited partnership under Delaware law or
signing all instruments effecting authorized changes in such Fund or the
relevant Partnership Agreement and conveyances and other instruments deemed
necessary to effect the dissolution or termination of such Fund.
The power-of-attorney granted in the Partnership Agreements is a special
power-of-attorney coupled with an interest in favor of the General Partner and
each of the Directors and as such is irrevocable and continues in effect until
all of such Partner's Units have been withdrawn pursuant to a periodic
repurchase or transferred to one or more transferees that have been approved by
the General Partner for admission to the relevant Fund as substitute Partners.
TERM, DISSOLUTION AND LIQUIDATION
A Fund will be dissolved:
o upon the affirmative vote to dissolve such Fund by both (1) the
Directors and (2) Partners holding at least two-thirds of the total
number of votes eligible to be cast by all Partners;
o upon either of (1) an election by the General Partner to dissolve such
Fund or (2) the termination of the General Partner's status as a
general partner of such Fund (other than as a result of a transfer as
provided in the Partnership Agreement), unless (A) as to clause (2)
above, there is at least one other general partner of such Fund who is
authorized to and does carry on the business of such Fund, and (B) as
to either event both the Directors and Partners holding not less than
two-thirds of the total number of votes eligible to be cast by all
Partners shall elect within 60 days after such event to continue the
business of such Fund and a person to be admitted to such Fund,
effective as of the date of such event, as an additional General
Partner has agreed to make such contributions to the capital of such
Fund as are required to be made in the Partnership Agreement;
o upon the failure of Partners to elect successor Directors at a meeting
called by the General Partner when no Director remains; or
o as required by operation of law.
Upon the occurrence of any event of dissolution with respect to any Fund,
the General Partner, or a liquidator, if the General Partner is unable to
perform this function, is charged with winding up the affairs of the Fund and
liquidating its assets. Net profits or net loss during the fiscal period
including the period of liquidation will be allocated as described in the
section titled "Capital Accounts and Allocations--Allocation of Net Profits and
Net Losses."
<PAGE>
Upon the dissolution of a Fund, its assets are to be distributed (1) first
to satisfy the debts, liabilities and obligations of such Fund, other than debts
to Partners, including actual or anticipated liquidation expenses, (2) next to
satisfy debts owing to the Partners, and (3) finally to the Partners
proportionately in accordance with the balances in their respective capital
accounts. Assets may be distributed in-kind on a pro rata basis if the General
Partner or liquidator determines that such a distribution would be in the
interests of the Partners in facilitating an orderly liquidation.
DISPUTES
Under the Partnership Agreement, all controversies among Partners or
between Partners and the Funds are required to be submitted to arbitration in
New York City, in accordance with the commercial arbitration rules of the
American Arbitration Association. The arbitration award shall be final and
binding on the parties, and the Partners are required to waive their right to
seek remedies in court, including the right to a jury trial. Pre-arbitration
discovery is different from and is generally more limited than court
proceedings, the arbitrators' 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. Although U.S. courts have determined
that claimants may be required to arbitrate disputes under certain federal
securities laws, U.S. courts have not determined whether or not claimants may be
required to arbitrate disputes under the 1940 Act.
REPORTS TO PARTNERS
Each Fund will furnish to its Partners as soon as practicable after the end
of each taxable year such information as is necessary for such Partners to
complete Federal and state income tax or information returns, along with any
other tax information required by law. Each Fund will send to its Partners a
semi-annual unaudited report and an audited annual report, in each case prepared
in accordance with U.S. generally accepted accounting principles, within 60 days
after the close of the period for which it is being made, or as otherwise
required by the 1940 Act. Quarterly reports from the General Partner regarding
each Fund's operations during such period also will be sent to Partners.
FISCAL YEAR
The Funds' fiscal year ends on March 31 and its tax year ends on December
31.
ACCOUNTANTS AND LEGAL COUNSEL
PricewaterhouseCoopers, LLP, with a principal place of business at 1177
Avenue of the Americas, New York, New York 10036, serves as the independent
public accountants of the Funds.
Coudert Brothers, 1114 Avenue of the Americas, New York, New York 10036,
acts as counsel to each of the Funds in connection with the offering of Units.
Coudert Brothers also acts as counsel to the General Partner, the Selling Agent
and their affiliates.
<PAGE>
CUSTODIAN
PFPC Trust Company (the "Custodian") serves as the primary custodian of the
assets of the Funds and the Portfolio Funds managed by the Sub-Advisers, and may
maintain custody of such assets with domestic and foreign subcustodians (which
may be banks, trust companies, securities depositories and clearing agencies)
approved by the Directors. Assets of the Funds and Portfolio Funds are not held
by the General Partner or Sub-Advisers, respectively, or commingled with the
assets of other accounts other than to the extent that securities are held in
the name of a custodian in a securities depository, clearing agency or omnibus
customer account of such custodian. The Custodian's principal business address
is 8800 Tinicum Boulevard, 3rd Floor, Suite 200, Philadelphia, Pennsylvania
19153.
INQUIRIES
Inquiries concerning the Funds and Units in the Funds, including
information concerning subscription and withdrawal procedures, should be
directed to:
Global Asset Management (USA) Inc.
135 East 57th Street
New York, New York 10022
Telephone: (888) 526-4262
Telecopier: (212) 407-4710
For additional information contact:
David Anderson, Managing Director
* * * * *
All potential investors in the Funds are encouraged to consult appropriate
legal and tax counsel.
<PAGE>
APPENDIX A
--------------------------------------------------------------------------------
GAM AVALON MULTI-GLOBAL, L.P.
GAM AVALON MULTI-EUROPE, L.P.
GAM AVALON MULTI-TECHNOLOGY, L.P.
--------------------------------------------------------------------------------
LIMITED PARTNERSHIP AGREEMENT
January 2, 2001
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Article I DEFINITIONS.............................................................................................1
Article II ORGANIZATION; ADMISSION OF PARTNERS; DIRECTORS.........................................................5
2.1. FORMATION OF LIMITED PARTNERSHIP.......................................................................5
2.2. NAME...................................................................................................5
2.3. PRINCIPAL AND REGISTERED OFFICE........................................................................5
2.4. DURATION...............................................................................................6
2.5. BUSINESS OF THE FUND...................................................................................6
2.6. GENERAL PARTNER........................................................................................6
2.7. LIMITED PARTNERS.......................................................................................6
2.8. ORGANIZATIONAL LIMITED PARTNER.........................................................................7
2.9. BOTH GENERAL AND LIMITED PARTNER.......................................................................7
2.10. LIMITED LIABILITY......................................................................................7
2.11. DIRECTORS..............................................................................................7
Article III MANAGEMENT; ADVICE AND MANAGEMENT.....................................................................8
3.1. MANAGEMENT AND CONTROL.................................................................................8
3.2. ACTIONS BY DIRECTORS...................................................................................9
3.3. MEETINGS OF PARTNERS...................................................................................9
3.4. ADVICE AND MANAGEMENT.................................................................................10
3.5. CUSTODY OF ASSETS OF THE FUND.........................................................................13
3.6. BROKERAGE.............................................................................................13
3.7. OTHER ACTIVITIES......................................................................................13
3.8. DUTY OF CARE..........................................................................................14
3.9. INDEMNIFICATION.......................................................................................14
3.10. FEES, EXPENSES AND REIMBURSEMENT......................................................................16
Article IV TERMINATION OF STATUS OF GENERAL PARTNER; REMOVAL OF GENERAL PARTNER; TRANSFERS AND REPURCHASES.......18
4.1. TERMINATION OF STATUS OF THE GENERAL PARTNER..........................................................18
4.2. REMOVAL OF GENERAL PARTNER............................................................................19
4.3. TRANSFER OF INTERESTS OF GENERAL PARTNER..............................................................19
4.4. TRANSFER OF INTERESTS OF LIMITED PARTNERS.............................................................19
4.5. REPURCHASE OF INTERESTS...............................................................................20
Article V CAPITAL................................................................................................22
5.1. CONTRIBUTIONS TO CAPITAL..............................................................................22
5.2. RIGHTS OF PARTNERS TO CAPITAL.........................................................................22
5.3. CAPITAL ACCOUNTS......................................................................................23
5.4. ALLOCATION OF NET PROFIT AND LOSS.....................................................................23
5.5. ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES........................................23
5.6. RESERVES..............................................................................................24
<PAGE>
5.7. ALLOCATION TO AVOID CAPITAL ACCOUNT DEFICITS..........................................................24
5.8. ALLOCATIONS PRIOR TO CLOSING DATE.....................................................................25
5.9. TAX ALLOCATIONS.......................................................................................25
5.10. DISTRIBUTIONS.........................................................................................26
Article VI DISSOLUTION AND LIQUIDATION...........................................................................26
6.1. DISSOLUTION...........................................................................................26
6.2. LIQUIDATION OF ASSETS.................................................................................27
Article VII ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS.........................................................28
7.1. ACCOUNTING AND REPORTS................................................................................28
7.2. DETERMINATIONS BY GENERAL PARTNER.....................................................................28
7.3. VALUATION OF ASSETS...................................................................................29
Article VIII MISCELLANEOUS PROVISIONS............................................................................29
8.1. AMENDMENT OF PARTNERSHIP AGREEMENT....................................................................29
8.2. SPECIAL POWER OF ATTORNEY.............................................................................30
8.3. NOTICES...............................................................................................31
8.4. AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.........................................................32
8.5. APPLICABILITY OF 1940 ACT AND FORM N-2................................................................32
8.6. CHOICE OF LAW; ARBITRATION............................................................................32
8.7. NOT FOR BENEFIT OF CREDITORS..........................................................................33
8.8. CONSENTS..............................................................................................33
8.9. MERGER AND CONSOLIDATION..............................................................................33
8.10. PRONOUNS..............................................................................................34
8.11. CONFIDENTIALITY.......................................................................................34
8.12. CERTIFICATION OF NON-FOREIGN STATUS...................................................................35
8.13. SEVERABILITY..........................................................................................35
8.14. ENTIRE AGREEMENT......................................................................................35
8.15. DISCRETION............................................................................................35
8.16. COUNTERPARTS..........................................................................................36
</TABLE>
<PAGE>
GAM AVALON MULTI-GLOBAL, L.P.
GAM AVALON MULTI-EUROPE, L.P.
GAM AVALON MULTI-TECHNOLOGY, L.P.
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT+ of [GAM Avalon Multi-Global, L.P.] [GAM
Avalon Multi-Europe, L.P.] [GAM Avalon Multi-Technology, L.P.], (the "Fund") is
dated as of January 2, 2001 by and among Global Asset Management (USA) Inc., a
Delaware corporation, as the General Partner, GAM Services, Inc. as the
Organizational Limited Partner, and each person hereinafter admitted to the Fund
and reflected on the books of the Fund as a General Partner or as a Limited
Partner.
WITNESSETH:
WHEREAS, the Fund has heretofore been formed as a limited partnership under
the Delaware Revised Uniform Limited Partnership Act, 6 Del. C.ss.ss.17-101 et.
seq., pursuant to an initial Certificate of Limited Partnership (the
"Certificate") filed with the Secretary of State of the State of Delaware [on
June 7, 2000, and amended on August 22, 2000]* [on August 22, 2000];** and
WHEREAS, the parties hereto hereby desire to form and operate the Fund as a
limited partnership under and pursuant to the provisions of the Delaware Act and
agree that the rights, duties and liabilities of the Partners shall be as
provided in the Delaware Act, except as otherwise provided herein; and
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants hereinafter set forth, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement:
"Advice and Management" means those services provided to the Fund by the
General Partner pursuant to Section 3.4(b) hereof.
"Advisers Act" means the Investment Advisers Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
-----------------
+ Each Fund is governed by a separate identical Limited Partnership
Agreement.
* GAM Avalon Multi-Technology, L.P.
** GAM Avalon Multi-Global, L.P. and GAM Avalon Multi-Europe, L.P.
<PAGE>
"Affiliate" means affiliated person as such term is defined in the 1940
Act.
"Agreement" means this Limited Partnership Agreement, as amended and/or
restated from time to time.
"Capital Account" means, with respect to each Partner, the capital account
established and maintained on behalf of each Partner pursuant to Section 5.3
hereof.
"Capital Contribution" means the contribution, if any, made, or to be made,
as the context requires, to the capital of the Fund by a Partner.
"Certificate" means the Certificate of Limited Partnership of the Fund and
any amendments thereto and/or restatements thereof 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 Limited Partner
other than the Organizational Limited Partner 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 Revised Uniform Limited Partnership Act
as in effect on the date hereof and as amended from time to time, or any
successor law.
"Directors" means Dr. Burkhard Poschadel, George W. Landau, Robert J.
McGuire, Roland Weiser or such other natural persons who, from time to time,
pursuant hereto shall become Directors.
"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 the date as of which a contribution to the capital
of the Fund is made by any Partner pursuant to Section 5.1;
(3) the day on which the Fund repurchases all or a portion of the Units of
any Partner pursuant to Section 4.5;
(4) the day as of which the Fund admits a substituted Partner to whom an
Interest (or portion thereof) of a Partner has been Transferred
(unless there is no change of beneficial ownership);
(5) the day as of which any amount is credited to or debited against the
Capital Account of any Partner, other than an amount that is credited
to or debited against the Capital Accounts of all Partners in
accordance with their respective Fund Percentages; or
<PAGE>
(6) December 31, or any other date which constitutes the last day of the
taxable year of the Fund.
"Fiscal Year" means the period commencing on the Closing Date and ending on
March 31, 2001, and thereafter each period commencing on April 1 of each year
and ending on March 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. The taxable year of the Fund shall end on December 31
of each year, or on any other date designated by the General Partner which is a
permitted taxable year end for tax purposes, and need not be the same as the
Fiscal Year.
"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 partnership governed hereby, as such limited
partnership may from time to time be constituted.
"Fund Percentage" means a percentage established for each Partner on the
Fund's books as of the first day of each Fiscal Period. The Fund Percentage of a
Partner for a Fiscal Period shall be determined by dividing the balance of the
Partner's Capital Account as of the commencement of such Fiscal Period by the
sum of the Capital Accounts of all of the Partners as of the commencement of
such Fiscal Period. The sum of the Fund Percentages of all Partners for each
Fiscal Period shall equal 100%.
"General Partner" means Global Asset Management (USA) Inc., a Delaware
corporation, and any other person or persons admitted to the Fund as a general
partner of the Fund, collectively, in their capacities as general partners of
the Fund, and General Partner means any of the General Partners. Where the term
General Partner of the Fund is used and there is more than one general partner,
such term shall refer to each General Partner. If at any time there is more than
one general partner of the Fund, unless otherwise provided herein, any action
allowed to be taken, or required to be taken, by the General Partners may be
taken only with the unanimous approval of all of the General Partners.
"Independent Directors" means those Directors who are not "interested
persons" of the Fund as such term is defined in the 1940 Act.
"Interest" means the entire ownership interest in the Fund at any
particular time of a Partner or other person to whom an Interest or portion
thereof has been transferred pursuant to Section 4.3 or 4.4 hereof, including
the rights and obligations of such Partner or other person under this Agreement
and the Delaware Act.
"Limited Partner" means any person who shall have been admitted to the Fund
as a limited partner (including any person who is a General Partner when acting
in such person's capacity as a limited partner of the Fund) until the Fund
repurchases the entire Interest of such person as a limited partner pursuant to
Section 4.5 hereof or a substitute Limited Partner or Partners are admitted with
respect to any such person's entire Interest as a limited partner pursuant to
Section 4.4 hereof, in such person's capacity as a limited partner of the Fund.
<PAGE>
"Management Fee" means the fee paid to the General Partner out of the
Fund's assets, and debited against Limited Partners' Capital Accounts, as
provided in Section 3.10(a).
"Memorandum" means the Fund's private placement memorandum, as amended from
time to time.
"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 any items to be allocated among the Capital Accounts
of the Partners on a basis which is not in accordance with the respective Fund
Percentages of all Partners as of the commencement of such Fiscal Period
pursuant to Section 5.6 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 Limited Partner" means GAM Services, Inc.
"Partners" means the General Partner(s) and the Limited Partners,
collectively.
"Person" means any individual, entity, corporation, partnership,
association, limited liability company, joint-stock company, trust, estate,
joint venture, organization or unincorporated organization.
"Portfolio Fund" means a registered investment company, unregistered
general or limited partnership, limited liability company or other pooled
investment vehicle in which the Fund has invested and which is advised by a
Portfolio Manager.
"Portfolio Manager" means an individual or entity designated by the General
Partner to manage a portion of the assets of the Fund, either directly or
through the investment by the Fund in a Portfolio Fund. The term Portfolio
Manager includes Sub-Advisers.
"Related Person" means, with respect to any person, (i) a relative, spouse
or relative of a spouse who has the same principal residence as such person,
(ii) any trust or estate in which such person and any persons who are related to
such person collectively have more than 50% of the beneficial interests
(excluding contingent interests) and (iii) any corporation or other organization
of which such person and any persons who are related to such person collectively
are beneficial owners of more than 50% of the equity securities (excluding
directors' qualifying shares) or equity interests.
<PAGE>
"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.
"Sub-Adviser" means a Portfolio Manager responsible either (i) for directly
managing a portion of the assets of the Fund in a managed account or (ii) for
managing a special purpose investment vehicle in which the Portfolio Manager and
the Fund are the sole investors.
"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.
"Unit" means the interest of a Partner in the Fund represented by an
original Capital Contribution of $100 at the initial closing of subscriptions
for interests in the Fund, and with a net asset value determined from time to
time thereafter as provided in Section 7.3.
ARTICLE II
ORGANIZATION; ADMISSION OF PARTNERS; DIRECTORS
2.1. FORMATION OF LIMITED PARTNERSHIP. The parties hereto hereby form the Fund
as a limited partnership under and pursuant to the provisions of the Delaware
Act and agree that the rights, duties and liabilities of the Partners shall be
as provided in the Delaware Act, except as otherwise provided herein. The
General Partner shall execute and file in accordance with the Delaware Act any
amendment to the Certificate and shall execute and file with applicable
governmental authorities any other instruments, documents and certificates
which, in the opinion of the General Partner or 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 ["GAM Avalon Multi-Global, L.P."] ["GAM
Avalon Multi-Europe, L.P."] ["GAM Avalon Multi-Technology, L.P."] or such other
name as the General Partner 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 Partner. The General Partner hereby grants
to the Fund a non-exclusive license to use the name "GAM" in the name of the
Fund for so long as Global Asset Management (USA) Inc. shall remain the General
Partner of the Fund. The Fund hereby acknowledges that it shall not acquire any
legal right or title in or to such name, and agrees to change its name to a name
that does not contain the term "GAM" if Global Asset Management (USA) Inc. shall
cease to be the General Partner of the Fund for any reason.
2.3. PRINCIPAL AND REGISTERED OFFICE. The Fund shall have its principal office
at the principal office of the General Partner, or at such other place as shall
be designated from time to time by the General Partner. The Fund shall have its
registered office in the State of Delaware
<PAGE>
at 1013 Centre Road, Wilmington, New Castle County, Delaware, and shall have
Corporation Service Company as its registered agent for service of process in
the State of Delaware, unless a different registered office or agent is
designated from time to time by the General Partner 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 engage in any financial or derivative
transactions relating thereto. Portions of the Fund's assets (which may
constitute, in the aggregate, all of the Fund's assets) may be invested in
general or limited partnerships and other pooled investment vehicles which
invest and trade in Securities or in separate managed accounts through which the
Fund may invest and trade in Securities, some or all of which may be advised by
one or more Portfolio Managers or Sub-Advisers. The Fund may execute, deliver
and perform all contracts, agreements and other undertakings and engage in all
activities and transactions as the General Partner may deem necessary or
advisable to carry out its objective or business.
(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. GENERAL PARTNER.
(a) The General Partner may admit to the Fund any person, who shall agree to be
bound by all of the terms of this Agreement as a General Partner, as an
additional General Partner. The General Partner may admit to the Fund as a
substitute General Partner any person to which it has Transferred its Interest
as the General Partner pursuant to Section 4.3 hereof. Such person shall be
admitted immediately prior to the Transfer and shall continue the business of
the Fund without dissolution. The name and mailing address of the General
Partner and the Capital Contribution of the General Partner shall be reflected
on the books and records of the Fund.
(b) Each General Partner shall serve for the duration of the term of the Fund,
unless it ceases to be a general partner of the Fund pursuant to Section 4.1
hereof.
2.7. LIMITED PARTNERS. The General Partner may, at any time and without advance
notice to or consent from any other Partner, admit any person who shall agree to
be bound by all of the terms of this Agreement as an additional Limited Partner.
The General Partner may in its absolute discretion reject subscriptions for
Units in the Fund. The admission of any person as an additional Limited Partner
shall be effective upon the execution and delivery by, or on behalf of, such
additional Limited Partner of this Agreement or an instrument that constitutes
the execution and delivery of this Agreement. The General Partner shall cause
the books and records of the Fund to reflect the name and the required
contribution to the capital of the Fund of such additional Limited Partner. For
all purposes of the Delaware Act, the Limited Partners shall constitute a single
class or group of limited partners of the Fund.
<PAGE>
2.8. ORGANIZATIONAL LIMITED PARTNER. Upon the admission to the Fund of any
Limited Partner, the Organizational Limited Partner shall withdraw from the Fund
as the Organizational Limited Partner and shall be entitled to the return of its
Capital Contribution, if any, without interest or deduction, and shall cease to
be a limited partner of the Fund.
2.9. BOTH GENERAL AND LIMITED PARTNER. A Partner may be simultaneously a General
Partner and a Limited Partner, in which event such Partner's rights and
obligations in each capacity shall be determined separately in accordance with
the terms and provisions hereof and as provided in the Delaware Act.
2.10. LIMITED LIABILITY. Except as provided under applicable law, a Limited
Partner shall not be liable for the Fund's obligations in any amount in excess
of the Capital Account balance of such Partner, plus such Partner's share of
undistributed profits and assets. In addition, subject to applicable law, a
Limited Partner shall be obligated to return to the Fund amounts distributed to
the Limited Partner in accordance with this Agreement if, after giving effect to
such distribution, the Fund's liabilities exceed the fair value of the Fund's
assets.
2.11. DIRECTORS.
(a) The number of Directors at the Closing Date shall be fixed at four.
Thereafter, the number of Directors shall be fixed from time to time by the
Directors then in office, which number may be greater, or lesser, than four;
provided, however, that no reduction in the number of Directors shall serve to
effect the removal of any Director. The Organizational Limited Partner hereby
approves the delegation by the General Partner to the Directors, pursuant to
Section 3.1 hereof, of certain of the General Partner's rights and powers.
(b) Each Director shall serve for the duration of the term of the Fund, unless
his or her status as a Director shall be sooner terminated pursuant to Section
2.11(d) hereof. If any vacancy in the position of a Director occurs, including
by reason of an increase in the number of Directors as contemplated by Section
2.11(a) hereof, the remaining Directors may appoint an individual to serve in
such capacity, so long as immediately after such appointment at least two-thirds
of the Directors then serving have been approved by the Partners. The Directors
may call a meeting of Partners to fill any vacancy in the position of a
Director, and shall do so within 60 days after any date on which Directors who
were approved by the Partners cease to constitute a majority of the Directors
then serving.
(c) If no Director remains, the General Partner shall promptly call a meeting of
the Partners, 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,
approving the appointment of the requisite number of Directors. If the Partners
shall determine at such meeting not to continue the business of the Fund, or if
the approval of the appointment of the requisite number of Directors is not
approved 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.
<PAGE>
(d) The status of a Director shall terminate if the Director (i) shall die; (ii)
shall be adjudicated incompetent; (iii) shall resign as a Director (upon not
less than 90 days' prior written notice to the other Directors); (iv) shall be
removed; (v) shall be certified by a physician to be mentally or physically
unable to perform his or her duties hereunder; or (vi) shall be determined to be
ineligible to serve as a director of a registered investment company pursuant to
the 1940 Act.
(e) Any Director may be removed by the vote or written consent of Partners
holding not less than two-thirds of the total number of votes eligible to be
cast by all Partners.
ARTICLE III
MANAGEMENT; ADVICE AND MANAGEMENT
3.1. MANAGEMENT AND CONTROL.
(a) The General Partner hereby irrevocably delegates to the Directors, except
for the power to execute documents on behalf of the Fund and to bind the Fund
and except to the extent any such delegation is not permitted under the Delaware
Act and so long as the Fund shall have Directors, its rights and powers to
manage and control the business affairs of the Fund, including without
limitation the complete authority to oversee and to establish policies regarding
the management, conduct and operation of the Fund's business, and to do all
things necessary and proper to carry out the objective and business of the Fund,
including, without limitation, the power to engage the General Partner to
provide Advice and Management, as well as to exercise such other rights and
powers expressly given to the Directors under this Agreement. The parties hereto
intend that, to the fullest extent permitted by law, and except to the extent
otherwise expressly provided herein, (i) each Director shall be vested with the
same powers and authority 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 and authority 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 General Partner shall manage and control the Fund. Each Director
shall be the agent of the General Partner but shall not, for any purpose, be a
Partner. Notwithstanding the foregoing delegation, the General Partner will not
cease to be the general partner of the Fund and will continue to be liable as
such and in no event shall a Director be considered a general partner of the
Fund by agreement, estoppel or otherwise as a result of the performance of his
or her duties hereunder or otherwise. The General Partner retains only those
rights, powers and duties that have not been delegated hereunder. The Directors
may make Capital Contributions and own Units in the Fund.
(b) Global Asset Management (USA) Inc. shall be the designated tax matters
partner for purposes of Section 6231(a)(7) of the Code. Each Partner agrees not
to treat, on his personal return or in any claim for a refund, any item of
income, gain, loss, deduction or credit in a manner inconsistent with the
treatment of such item by the Fund. The tax matters partner 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.
<PAGE>
(c) Limited Partners 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. Limited Partners shall
have the right to vote on any matters only as provided in this Agreement or on
any matters that require the approval of the holders of voting securities under
the 1940 Act.
3.2. ACTIONS BY DIRECTORS.
(a) Unless provided otherwise in this Agreement, the Directors 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 either in person or, if permitted by the 1940 Act, by conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other; or (ii) by unanimous written
consent of all of the Directors without a meeting, if permissible under the 1940
Act.
(b) The Directors may designate from time to time a Chairman of the Directors,
who shall preside at all meetings. Meetings of the Directors may be called by
the General Partner, the Chairman or any two Directors, and may be held on such
date and at such time and place as the Directors 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. A majority of the Directors then in office shall constitute a quorum at
any meeting.
(c) The Directors may appoint from time to time agents and employees of the Fund
who shall have the same powers and duties on behalf of the Fund as are
customarily vested in officers of a Delaware corporation, and designate them as
officers of the Fund by resolution of the Directors specifying their functions.
3.3. MEETINGS OF PARTNERS.
(a) Actions requiring the vote of the Partners may be taken at any duly
constituted meeting of the Partners at which a quorum is present. Meetings of
the Partners may be called by the General Partner, by the affirmative vote of a
majority of Directors then in office, or by Partners holding at least a majority
of the total number of votes eligible to be cast by all Partners, and may be
held at such time, date and place as the General Partner shall determine in the
case of meetings called by the General Partner or the Partners and at such time,
date and place as the Directors shall determine in the case of meetings called
by the Directors. In each case, the General Partner shall provide notice of the
meeting, stating the date, time and place of the meeting and the record date
therefor, to each Partner entitled to vote at the meeting within a reasonable
time prior thereto. Failure to receive notice of a meeting on the part of any
Partner shall not affect the validity of any act or proceeding of the meeting,
so long as a quorum shall be present at the meeting. Except as otherwise
required by applicable law, only matters set forth in the notice of a meeting
may be voted on by the Partners at a meeting. The presence in person or by proxy
of Partners holding a majority of the total number of votes eligible to be cast
by all Partners as of the record date shall constitute a quorum at any meeting.
In the absence of a
<PAGE>
quorum, a meeting may be adjourned to the time or times as determined by the
General Partner without additional notice to the Partners. Except as otherwise
required by any provision of this Agreement or of the 1940 Act, (i) those
candidates receiving a plurality of the votes cast at any meeting of Partners
shall be elected as Directors and (ii) all other actions of the Partners taken
at a meeting shall require the affirmative vote of Partners holding a majority
of the total number of votes eligible to be cast by those Partners who are
present in person or by proxy at such meeting.
(b) Each Partner shall be entitled to cast at any meeting of Partners a number
of votes equivalent to such Partner's Fund Percentage as of the record date for
such meeting. The General Partner shall establish a record date not less than 10
nor more than 60 days prior to the date of any meeting of Partners to determine
eligibility to vote at such meeting and the number of votes which each Partner
will be entitled to cast thereat, and shall maintain for each such record date a
list setting forth the name of each Partner and the number of votes that each
Partner will be entitled to cast at the meeting.
(c) A Partner may vote at any meeting of Partners by a properly executed proxy
transmitted to the Fund at any time at or before the time of the meeting by
telegram, telecopier or other means of electronic communication or other
readable reproduction as contemplated by the provisions relating to proxies
applicable to Delaware corporations now or hereinafter in effect. A proxy may be
suspended or revoked, as the case may be, by the Partner executing the proxy by
a later writing delivered to the Fund at any time prior to exercise of the proxy
or if the Partner executing the proxy shall be present at the meeting and vote
in person. Any action of the Partners that is permitted to be taken at a meeting
of the Partners may be taken without a meeting if consents in writing, setting
forth the action to be taken, are signed by Partners holding a majority of the
total number of votes eligible to be cast or such greater percentage as may be
required under this Agreement to approve such action.
3.4. ADVICE AND MANAGEMENT.
(a) Among their powers, the Directors shall have the power to engage the General
Partner to provide Advice and Management to the Fund under their direction,
subject to the initial approval thereof prior to the Closing Date by the
Directors (including the vote of a majority of the Independent Directors at a
meeting called for such purpose) and by the Organizational Limited Partner. The
Directors also delegate to the General Partner the rights and powers expressly
given to the General Partner under this Agreement. The authority of the General
Partner granted under this Section 3.4 shall become effective upon such initial
approvals and shall terminate: (i) if any period of 12 consecutive months
following the first 12 consecutive months of the effectiveness of such authority
shall conclude without the approval of the continuation of such authority by
either (A) the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund or (B) the Directors, and in either
case, approval by a majority of the Independent Directors by vote cast in person
at a meeting called for such purpose; (ii) if revoked by the Directors or by
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund, in either case with 60 days' prior written notice to the
General Partner; or (iii) at the election of the General Partner with 60 days'
prior written notice to the Directors. The authority of the General Partner to
provide Advice and Management pursuant to this Section 3.4 shall automatically
terminate upon the occurrence of any event in connection with the General
Partner, its provision of Advice and Management, this Agreement or otherwise
which constitutes
<PAGE>
an "assignment" within the meaning of the 1940 Act. If the authority of the
General Partner under this Section 3.4 is terminated as provided herein, the
Directors may appoint, subject to the approval thereof by a majority of the
Independent Directors and by vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of the Fund, a person or persons to provide
Advice and Management to the Fund, and shall cause the terms and conditions of
such appointment to be stated in an agreement executed on behalf of the Fund and
such person or persons. Notwithstanding anything in this Agreement to the
contrary, upon receiving the requisite approval set forth in the preceding
sentence, the Fund, and the General Partner on behalf of the Fund, shall have
the power and authority to enter into such agreement without any further act,
vote or approval of any Partner.
(b) So long as the General Partner has been and continues to be authorized to
provide Advice and Management, it shall have, subject to any policies and
restrictions set forth in any current offering memorandum issued by the Fund,
this Agreement, the Form N-2 or the 1940 Act, or adopted from time to time by
the Directors and communicated in writing to the General Partner, full
discretion and authority (i) to manage the assets and liabilities of the Fund
using a multi-manager investment management strategy as described in the
Memorandum, (ii) to identify and evaluate Portfolio Managers and Portfolio Funds
and to determine the assets of the Fund to be committed to each Portfolio
Manager and Portfolio Fund from time to time (subject to Section 3.4(b)(15) in
the case of Sub-Advisers), in each case subject to the terms and conditions of
the respective governing documents of each Portfolio Manager and Portfolio Fund,
(iii) to invest directly the assets of the Fund in liquid investments pending
allocation or reallocation of such assets in Portfolio Funds or to ensure the
availability of cash as required by the Fund in the ordinary course of its
business, and (iv) to manage the day-to-day business and affairs of the Fund. In
furtherance of and subject to the foregoing, the General Partner, except as
otherwise provided in this Agreement, shall have full power and authority on
behalf of the Fund:
(1) to purchase, sell, exchange, trade and otherwise deal in and
with Securities and other property of the Fund, including
without limitation interests in Portfolio Funds, and to loan
Securities of the Fund;
(2) to do any and all acts and exercise all rights with respect to
the Fund's interest in any person, firm, corporation,
partnership or other entity, including, without limitation,
the voting of limited partnership interests or shares of
Portfolio Funds;
(3) to enter into subscription or other agreements relating to
investments in Portfolio Funds (subject to Section 3.4(b)(15)
in the case of agreements with Sub-Advisers), including
without limitation agreements irrevocably to forego the Fund's
right to vote its interests or shares of the Portfolio Funds;
(4) to enter into agreements with Portfolio Managers and Portfolio
Funds (subject to Section 3.4(b)(15) in the case of agreements
with Sub-Advisers) that provide for, among other things, the
payment of management fees and allocations of profits to
Portfolio Managers and the indemnification by the Fund of
Portfolio Managers and Portfolio Funds to the same or
different extent as provided for in respect of the General
Partner, and to terminate such agreements;
<PAGE>
(5) to open, maintain and close accounts with brokers and dealers,
to make all decisions relating to the manner, method and
timing of Securities and other investment transactions, to
select and place orders with brokers, dealers or other
financial intermediaries for the execution, clearance or
settlement of any transactions on behalf of the Fund on such
terms as the General Partner considers appropriate, and to
grant limited discretionary authorization to such persons with
respect to price, time and other terms of investment and
trading transactions;
(6) to borrow from banks or other financial institutions and to
pledge Fund assets as collateral therefor, to trade on margin,
to exercise or refrain from exercising all rights regarding
the Fund's investments, and to instruct custodians regarding
the settlement of transactions, the disbursement of payments
to Partners with respect to repurchases of Units and the
payment of Fund expenses, including those relating to the
organization and registration of the Fund;
(7) to issue to any Partner an instrument certifying that such
Partner is the owner of Units;
(8) to call and conduct meetings of Partners at the Fund's
principal office or elsewhere as it may determine, and to
assist the Directors in calling and conducting meetings of
the Directors;
(9) to engage and terminate such attorneys, accountants and other
professional advisers and consultants as the General Partner
may deem necessary or advisable in connection with the affairs
of the Fund or as may be directed by the Directors;
(10) subject to Section 3.4(b)(15), to engage the services of
persons, including GAM International Management Limited, to
assist the General Partner in providing, or to provide under
the General Partner's control and supervision, Advice and
Management to the Fund at the expense of the General Partner
and to terminate such services;
(11) to assist in the preparation and filing of any required tax or
information returns to be made by the Fund;
(12) as directed by the Directors, to commence, defend and conclude
any action, suit, investigation or other proceeding
that pertains to the Fund or any assets of the Fund;
(13) if directed by the Directors, to arrange for the purchase of
any insurance covering the potential liabilities of the Fund
or relating to the performance of the Directors or the General
Partner, or any of their principals, directors, officers,
members, employees and agents;
(14) to execute, deliver and perform such contracts, agreements and
other undertakings, and to engage in such activities and
transactions as are necessary and appropriate for the conduct
of the business of the Fund; and
<PAGE>
(15) (A) to commit all or part of the Fund's assets to the
discretionary management of one or more Sub-Advisers, the
selection of which shall be subject to the approval of a
majority (as defined in the 1940 Act) of the Fund's
outstanding voting securities, unless the Fund receives an
exemption from the provisions of the 1940 Act requiring such
approval, (B) to enter into agreements with the Sub-Advisers
that provide for, among other things, the indemnification by
the Fund of the Sub-Advisers to the same or different extent
as provided for in respect of the General Partner, and to
terminate such agreements, and (C) to authorize the payment of
fees and allocations of profits to Sub-Advisers pursuant to
their respective governing documents.
3.5. CUSTODY OF ASSETS OF THE FUND. Notwithstanding anything to the contrary
contained herein, the General Partner shall not have any authority to hold or
have possession or custody of any funds, Securities or other property 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. The General Partner shall have no
responsibility with respect to the collection of income or the physical
acquisition or safekeeping of the funds, Securities or other assets of the Fund,
and all such duties of collection, physical acquisition or safekeeping shall be
the sole obligation of such custodians.
3.6. BROKERAGE. In the course of selecting brokers, dealers and other financial
intermediaries for the execution, clearance and settlement of transactions for
the Fund pursuant to Sections 3.4(b)(5) and (6) hereof, the General Partner may,
subject to such policies as are adopted by the Fund and to the provisions of
applicable law, agree to such commissions, fees and other charges on behalf of
the Fund as it shall deem reasonable in the circumstances, taking into account
all such factors as it deems relevant, including the reliability of the broker,
financial responsibility of the broker, strength of the broker, ability of the
broker to efficiently execute transactions, the broker's facilities, and the
broker's provision or payment of the costs of research and other services which
are of benefit to the Fund and the General Partner and other clients of and
accounts managed by the General Partner, even if the cost of such services does
not represent the lowest cost available. The General Partner shall be under no
obligation to combine or arrange orders so as to obtain reduced charges unless
otherwise required under the Federal securities laws. The General Partner,
subject to such procedures as may be adopted by the Directors, may use
Affiliates of the General Partner as brokers to effect the Fund's Securities
transactions and the Fund may pay such commissions to such brokers in such
amounts as are permissible under applicable law.
3.7. OTHER ACTIVITIES.
(a) The General Partner shall not be required to devote full time to the affairs
of the Fund, but shall devote such time as may reasonably be required to perform
their obligations under this Agreement.
(b) Any Partner, and any Affiliate of any Partner, may engage in or possess an
interest in other business ventures or commercial dealings of every kind and
description, independently or with others, including, but not limited to,
acquisition and disposition of Securities, provision of investment advisory or
brokerage services, serving as directors, officers, employees, advisors or
<PAGE>
agents of other companies, partners of any partnership, members of any limited
liability company, or trustees of any trust, or entering into any other
commercial arrangements. No Partner shall have any rights in or to such
activities of any other Partner, or any profits derived therefrom.
(c) The General Partner, and its members, directors, officers, employees and
beneficial owners, from time to time may acquire, possess, manage, hypothecate
and dispose of Securities or other investment assets, and engage in any other
investment transaction, for any account over which it or they exercise
discretionary authority, including their own accounts, the accounts of their
families, the account of any entity in which it or they have a beneficial
interest or the accounts of others for whom they may provide investment advisory
or other services, notwithstanding the fact that the Fund may have or may take a
position of any kind or otherwise; provided, however, that the General Partner
shall not cause the Fund to purchase any asset from or sell any asset to any
such discretionary account without the consent of the Directors and in
accordance with the 1940 Act.
(d) To the extent that at law or in equity the Directors or the General Partner
have duties (including fiduciary duties) and liabilities relating thereto to the
Fund or to any other Partner, any such person acting under this Agreement shall
not be liable to the Fund or to any other Partner for its good faith reliance on
the provisions of this Agreement. The provisions of this Agreement, to the
extent that they restrict the duties and liabilities of the General Partner or
the Directors otherwise existing at law or in equity, are agreed by the Partners
to replace such other duties and liabilities of such person.
3.8. DUTY OF CARE.
(a) The Directors and the General Partner, including any officer, director,
partner, member, principal, employee or agent of the foregoing, shall not be
liable to the Fund or to any of its Partners 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 such person's duties hereunder.
(b) Limited Partners not in breach of any obligation hereunder or under any
agreement pursuant to which the Limited Partner subscribed for Units shall be
liable to the Fund, any Partner or third parties only as required by the
Delaware Act.
3.9. INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Fund shall, subject to Section
3.9(b) hereof, indemnify each General Partner (including for this purpose each
officer, director, member, partner, principal, employee or agent of, or any
person who controls, a General Partner or a member thereof, and their executors,
heirs, assigns, successors or other legal representatives) and each Director
(and their executors, heirs, assigns, successors or other legal representatives)
(each such person being referred to as an "indemnitee") against all losses,
claims, damages, liabilities, costs and expenses, including, but not limited to,
amounts paid in satisfaction of judgments, in
<PAGE>
compromise, or as fines or penalties, and reasonable counsel fees, incurred in
connection with the defense or disposition of any action, suit, investigation or
other proceeding, whether civil or criminal, before any judicial, arbitral,
administrative or legislative body, in which such indemnitee may be or may have
been involved as a party or otherwise, or with which such indemnitee may be or
may have been threatened, while in office or thereafter, by reason of being or
having been a General Partner or Director of the Fund, or the past or present
performance of services to the Fund by such indemnitee, except to the extent
such loss, claim, damage, liability, cost or expense shall have been finally
determined in a decision on the merits in any such action, suit, investigation
or other proceeding to have been incurred or suffered by such indemnitee by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such indemnitee's office. The
rights of indemnification provided under this Section 3.9 shall not be construed
so as to provide for indemnification of an indemnitee for any liability
(including liability under federal securities laws which, under certain
circumstances, impose liability even on persons that act in good faith) to the
extent (but only to the extent) that such indemnification would be in violation
of applicable law, but shall be construed so as to effectuate the applicable
provisions of this Section 3.9 to the fullest extent permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred by any such
indemnitee (but excluding amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties) may be paid from time to time by the Fund
in advance of the final disposition of any such action, suit, investigation or
proceeding upon receipt of an undertaking by or on behalf of such indemnitee to
repay to the Fund amounts so paid if it shall ultimately be determined that
indemnification of such expenses is not authorized under Section 3.9(a) hereof;
provided, however, that (i) such indemnitee shall provide security for such
undertaking, (ii) the Fund shall be insured by or on behalf of such indemnitee
against losses arising by reason of such indemnitee's failure to fulfill his or
its undertaking, or (iii) a majority of the Independent Directors (excluding any
Director who is either seeking advancement of expenses hereunder or is or has
been a party to any other action, suit, investigation or proceeding involving
claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for 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 Partners by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
such indemnitee's office, indemnification shall be provided pursuant to Section
3.9(a) hereof if (i) approved as in the best interests of the Fund by a majority
of the Independent Directors (excluding any Director who is either seeking
indemnification hereunder or is or has been a party to any other action, suit,
investigation or proceeding involving claims similar to those involved in the
action, suit, investigation or proceeding giving rise to a claim for
indemnification hereunder) upon a determination based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that such indemnitee
acted in good faith and in the reasonable belief that such actions were in the
best interests of the Fund and that such indemnitee
<PAGE>
is not liable to the Fund or its Partners by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of such indemnitee's office, or (ii) the 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
indemnification would not protect such indemnitee against any liability to the
Fund or its Partners to which such indemnitee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such indemnitee's office.
(d) Any indemnification or advancement of expenses made pursuant to this Section
3.9 shall not prevent the recovery from any indemnitee of any such amount if
such indemnitee subsequently shall be determined in a decision on the merits in
any action, suit, investigation or proceeding involving the liability or expense
that gave rise to such indemnification or advancement of expenses to be liable
to the Fund or its Partners by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of such
indemnitee's office. In any suit brought by an indemnitee to enforce a right to
indemnification under this Section 3.9 it shall be a defense that, and in any
suit in the name of the Fund to recover any indemnification or advancement of
expenses made pursuant to this Section 3.9 the Fund shall be entitled to recover
such expenses upon a final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in this Section 3.9. In any such suit
brought to enforce a right to indemnification or to recover any indemnification
or advancement of expenses made pursuant to this Section 3.9, the burden of
proving that the indemnitee is not entitled to be indemnified, or to any
indemnification or advancement of expenses, under this Section 3.9 shall be on
the Fund (or any Partner acting derivatively or otherwise on behalf of the Fund
or its Partners).
(e) An indemnitee may not satisfy any right of indemnification or advancement of
expenses granted in this Section 3.9 or to which he or it may otherwise be
entitled except out of the assets of the Fund, and no Partner shall be
personally liable with respect to any such claim for indemnification or
advancement of expenses.
(f) The rights of indemnification provided hereunder shall not be exclusive of
or affect any other rights to which any person may be entitled by contract or
otherwise under law. Nothing contained in this Section 3.9 shall affect the
power of the Fund to purchase and maintain liability insurance on behalf of any
General Partner, Director or other person.
(g) The General Partner may enter into agreements indemnifying persons providing
services to the Fund to the same extent as set forth in this Section 3.9.
3.10. FEES, EXPENSES AND REIMBURSEMENT.
(a) As consideration for providing Advice and Management, and for so long as the
General Partner shall provide Advice and Management to the Fund, the Fund will
pay the General Partner a monthly management fee at the annual rate of 2% of the
value of each Limited Partner's Capital Account as of the first business day of
each month (the "Management Fee"), which amount shall be charged as of such date
to the Capital Account of each Limited Partner. The Management Fee will be
computed based on the Capital Account of each Limited Partner as of
<PAGE>
the end of business on the last business day of each month, after adjustment for
any subscriptions effective on such date and before giving effect to any
repurchase of Units effective as of such date, and will be due and payable in
arrears within five business days after the end of the month. The General
Partner may waive or reduce the Management Fee calculated with respect to, and
deducted from, the Capital Account of any Limited Partner and may pay all or
part of the Management Fee to third parties for services rendered in connection
with the placement of Units.
(b) The Fund shall compensate each Director for his or her services hereunder as
may be agreed to by the Directors and the General Partner. 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 will deduct from all subscriptions for Units in the Fund, and pay
to GAM Services, Inc. or any selling agent appointed by GAM Services, Inc., a
front-end sales charge in an amount not to exceed 5% of the amount of the
subscription, or such lesser amount as shall be agreed with respect to any
investor from time to time by the General Partner and GAM Services, Inc. or any
such selling agent. The Capital Contribution credited to the Capital Account of
each Partner shall be the net amount invested in the Fund after deduction of
such sales charge.
(d) The Fund shall bear all expenses incurred in the business of the Fund other
than those specifically required to be borne by the General Partner pursuant to
this Agreement. Expenses to be borne by the Fund include, but are not limited
to, the following:
(1) all costs and expenses related to portfolio transactions and
positions for the Fund's account, including, but not limited to,
brokerage commissions, research fees, interest and commitment
fees on loans and debit balances, borrowing charges on Securities
sold short, dividends on Securities sold short but not yet
purchased, custodial fees, margin fees, transfer taxes and
premiums, taxes withheld on foreign dividends, and indirect
expenses from investments in Portfolio Funds;
(2) all costs and expenses associated with the organization and
registration of the Fund, the offering of Units, and compliance
with any applicable Federal or state laws;
(3) all costs and expenses associated with the organization of
Portfolio Funds managed by Sub-Advisers and with the selection of
Portfolio Managers, including due diligence and travel-related
expenses;
(4) the costs and expenses of holding any meetings of any Partners
that are permitted or are required to be held by this Agreement,
the 1940 Act or other applicable law;
(5) fees and disbursements of any attorneys, accountants, auditors
and other consultants and professionals engaged on behalf of the
Fund;
(6) the costs of a fidelity bond and any liability insurance obtained
on behalf of the Fund, the General Partner or the Directors;
<PAGE>
(7) all costs and expenses of preparing, setting in type, printing
and distributing reports and other communications to Limited
Partners;
(8) all expenses of computing the net asset value of the Fund and the
Units, including any equipment or services obtained for the
purpose of valuing the Fund's investment portfolio;
(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 other persons providing
administrative or transfer agent services to the Fund; and
(11) such other types of expenses as may be approved from time to time
by the Directors, other than those required to be borne by the
General Partner.
The General Partner shall be entitled to reimbursement from the Fund for any of
the above expenses that it pays on behalf of the Fund.
ARTICLE IV
TERMINATION OF STATUS OF GENERAL PARTNER;
REMOVAL OF GENERAL PARTNER;
TRANSFERS AND REPURCHASES
4.1. TERMINATION OF STATUS OF THE GENERAL PARTNER.
(a) A General Partner shall cease to be a general partner of the Fund if the
General Partner (i) shall be dissolved or otherwise shall terminate its
existence; (ii) shall voluntarily withdraw as General Partner; (iii) shall be
removed; (iv) shall transfer its entire Interest as General Partner as permitted
under Section 4.3 hereof and such person to which such Interest is transferred
is admitted as a substitute General Partner pursuant to Section 2.6(a) hereof;
or (v) shall otherwise cease to be a general partner of the Fund under Section
17-402(a) of the Delaware Act.
(b) A General Partner may not withdraw voluntarily as a General Partner until
the earliest of (i) one year from the date on which the General Partner shall
have given the Directors written notice of its intention to effect such
withdrawal (or upon lesser notice if, in the opinion of counsel to the Fund,
such withdrawal is not likely to cause the Fund to lose its partnership tax
classification) or as otherwise permitted by the 1940 Act; (ii) the date on
which the authority of the General Partner to provide Advice and Management is
terminated (other than at the election of the General Partner) pursuant to
Section 3.4(a) hereof, unless within 30 days after such termination the
Directors request the General Partner not to withdraw, in which case 180 days
after the date of such termination, unless a successor general partner is
earlier approved by the Fund; and (iii) the date on which one or more persons
shall have agreed to assume the obligations of the General Partner hereunder
with the approval of the Directors and such other approvals as may be required
by the 1940 Act.
<PAGE>
4.2. REMOVAL OF GENERAL PARTNER. Any General Partner may be removed by the vote
or written consent of Partners holding not less than two-thirds of the total
number of votes eligible to be cast by all Partners.
4.3. TRANSFER OF INTEREST OF GENERAL PARTNER. A General Partner may not Transfer
its Interest as the General Partner except to persons who have agreed to be
bound by all of the terms of this Agreement and pursuant to applicable law. By
executing this Agreement, each other Partner shall be deemed to have consented
to any such Transfer permitted by the preceding sentence.
4.4. TRANSFER OF UNITS OF LIMITED PARTNERS.
(a) Units held by a Limited Partner may be Transferred only (i) by operation of
law pursuant to the death, bankruptcy, insolvency or dissolution of such Limited
Partner or (ii) with the written consent of the General Partner (which may be
withheld in the General Partner's sole and absolute discretion). In addition,
the General Partner may not consent to a Transfer of Units of a Limited Partner
unless the person to whom such Units are 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 General Partner 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
such investor's Units. In addition to the foregoing, no Limited Partner shall be
permitted to Transfer such Limited Partner's Units unless after such Transfer
the balance of the Capital Account of the transferee, and of the Limited Partner
Transferring less than the Partner's entire Interest, is at least equal to the
amount of the Limited Partner's initial Capital Contribution. Any permitted
transferee shall be entitled to the allocations and distributions allocable to
the Units so acquired and to Transfer such Units in accordance with the terms of
this Agreement, but shall not be entitled to the other rights of a Limited
Partner unless and until such transferee becomes a substituted Limited Partner.
If a Limited Partner Transfers Units with the approval of the General Partner,
the General Partner shall promptly take all necessary actions so that each
transferee or successor to whom such Units is transferred is admitted to the
Fund as a Limited Partner. The admission of any transferee as a substituted
Limited Partner shall be effective upon the execution and delivery by, or on
behalf of, such substituted Limited Partner of this Agreement or an instrument
that constitutes the execution and delivery of this Agreement. Each Limited
Partner and transferee agrees to pay all expenses, including attorneys' and
accountants' fees, incurred by the Fund in connection with such Transfer.
(b) Each Limited Partner shall indemnify and hold harmless the Fund, the General
Partner, the Directors, each other Limited Partner and any Affiliate of the
foregoing against all losses, claims, damages, liabilities, costs and expenses
(including legal or other expenses incurred in investigating or defending
against any such losses, claims, damages, liabilities, costs and expenses or any
judgments, fines and amounts paid in settlement), joint or several, to which
such persons may become subject by reason of or arising from (i) any Transfer
made by such Limited Partner in violation of this Section 4.4 and (ii) any
misrepresentation by such Limited Partner in connection with any such Transfer.
<PAGE>
4.5. REPURCHASE OF INTERESTS.
(a) Except as otherwise provided in this Agreement, no Partner or other person
holding Units shall have the right to withdraw or tender Units to the Fund for
repurchase. The Directors may from time to time, in their complete and exclusive
discretion and on such terms and conditions as the Directors may determine,
cause the Fund to repurchase Units pursuant to written tenders. In determining
whether to cause the Fund to repurchase Units pursuant to written tenders, the
Directors shall consider the following factors, among others:
(1) whether any Partners have requested to tender Units 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 Units;
(6) the condition of the securities markets; and
(7) the anticipated tax consequences of any proposed repurchases of
Units.
The Directors shall cause the Fund to repurchase Units pursuant to written
tenders only on terms fair to the Fund and to all Partners and persons holding
Interests acquired from Partners, as applicable.
(b) Except as set forth in Sections 4.5(c) and (d) hereof, a General Partner may
tender its Units under Section 4.5(a) hereof only if and to the extent that (1)
such repurchase would not cause the value of the Capital Account of the General
Partner to be less than the value thereof required to be maintained pursuant to
Section 5.1(c) hereof, or (2) in the opinion of legal counsel to the Fund, such
repurchase would not jeopardize the classification of the Fund as a partnership
for U.S. Federal income tax purposes.
(c) More than 180 days after termination of the authority to provide Advice and
Management, the General Partner may, by written notice to the Directors, tender
to the Fund all or any portion of its Capital Account, established and
maintained by it as a general partner of the Fund, which it is not required to
maintain pursuant to Section 5.1(c) hereof until it ceases to be a general
partner of the Fund pursuant to Section 4.1(a) hereof. Within 30 days after the
receipt of such notice, the Directors shall cause the tendered portion of such
Capital Account to be repurchased by the Fund for cash.
(d) If a General Partner ceases to be a general partner of the Fund pursuant to
Section 4.1 hereof and the business of the Fund is continued pursuant to Section
6.1(a)(2) hereof, the former General Partner (or its trustee or other legal
representative) may, by written notice to the Directors within 60 days of the
action resulting in the continuation of the Fund pursuant to Section 6.1(a)(2)
hereof, tender to the Fund all or any portion of its Interest. Within 30 days
after the receipt of such notice, the Directors shall cause such Interest to be
repurchased by the
<PAGE>
Fund for cash in an amount equal to the balance of the former General Partner's
Capital Account or applicable portion thereof. If the former General Partner
does not tender to the Fund all of its Interest as permitted by this Section
4.5(d), such Interest shall be thereafter deemed to be and shall be treated in
all respects as the Interest of a Limited Partner.
(e) The General Partner may cause the Fund to repurchase Units of a Limited
Partner or any person acquiring Units from or through a Limited Partner in the
event that the General Partner determines or has reason to believe that:
(1) such Units have been transferred in violation of Section 4.4
hereof, or such Units have vested in any person by operation of
law as the result of the death, dissolution, bankruptcy or
incompetence of a Partner;
(2) ownership of such Units by a Partner or other person will cause
the Fund to be in violation of, or require registration of any
Units under, or subject the Fund to additional registration or
regulation under, the securities or commodities laws of the
United States or any other relevant jurisdiction;
(3) continued ownership of Units may be harmful or injurious to the
business or reputation of the Fund, the Directors or the General
Partner, or may subject the Fund or any of the Partners to an
undue risk of adverse tax or other fiscal consequences;
(4) any of the representations and warranties made by a Partner in
connection with the acquisition of Units 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 General Partner, for the Fund to repurchase such Units.
(f) Repurchases of Units by the Fund shall be payable in cash, without interest,
or, in the discretion of the Directors and subject to any applicable rules, 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 General
Partner may impose and shall be effective as of a date set by the General
Partner after receipt by the Fund of all eligible written tenders of Units. The
amount due to any Partner whose Units are repurchased shall be equal to the net
asset value of the Units repurchased as of the effective date of repurchase,
after giving effect to all allocations to be made to such Partner's Capital
Account as of such date. Notwithstanding anything to the contrary in this
Agreement, and subject to compliance with any applicable rules, a Partner 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 such Partner exceeds
the percentage of that asset which is equal to the percentage in which such
Partner shares in distributions from the Fund.
<PAGE>
ARTICLE V
CAPITAL
5.1. CONTRIBUTIONS TO CAPITAL.
(a) The minimum initial contribution of each Partner to the capital of the Fund
shall be $50,000 ($25,000 for employees or directors of the General Partner and
its affiliates, and members of their immediate families, and, in the sole
discretion of the General Partner, attorneys, accountants or other professional
advisors engaged on behalf of the Fund, and members of their immediate families)
or such other amount as the General Partner may determine from time to time. The
amount of the initial Capital Contribution of each Partner shall be recorded by
the General Partner upon acceptance as a contribution to the capital of the
Fund.
(b) The Limited Partners may make additional contributions to the capital of the
Fund effective as of such times and in such amounts as the General Partner may
permit, but no Limited Partner shall be obligated to make any additional
contribution to the capital of the Fund except to the extent provided in Section
5.6 hereof.
(c) A General Partner may make additional contributions to the capital of the
Fund effective as of such times and in such amounts as it may determine, and
shall be required to make additional contributions to the capital of the Fund
from time to time to the extent necessary to maintain the balance of its Capital
Account at an amount, if any, necessary to ensure that the Fund will be treated
as a partnership for Federal income tax purposes. Except as provided above or in
the Delaware Act, no General Partner shall be required or obligated to make any
additional contributions to the capital of the Fund.
(d) Subject to the provisions of the 1940 Act, and except as otherwise permitted
by the General Partner, (i) initial and any additional contributions to the
capital of the Fund by any Partner shall be payable in cash or in such
Securities that the General Partner, 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 Partner making a
contribution in Securities to the capital of the Fund such amount as may be
determined by the General Partner 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 Partner 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.
(e) The minimum initial and additional contributions set forth in (a) and (b) of
this Section 5.1 may be increased or reduced by the General Partner.
(f) The Fund shall issue additional Units to Partners making additional
contributions. The number of Units shall be determined by dividing the amount of
the additional contribution by the net asset value per Unit as of the date the
contribution is accepted.
5.2. RIGHTS OF PARTNERS TO CAPITAL. No Partner shall be entitled to interest on
such Partner's contribution to the capital of the Fund, nor shall any Partner be
entitled to the return of
<PAGE>
any capital of the Fund except (i) upon the repurchase by the Fund of all or a
portion of such Partner's Units pursuant to Section 4.5 hereof, (ii) pursuant to
the provisions of Section 5.6(b) hereof or (iii) upon the liquidation of the
Fund's assets pursuant to Section 6.2 hereof. No Partner shall be liable for the
return of any such amounts. To the fullest extent permitted by applicable law,
no Partner 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 Partner.
(b) Each Partner's Capital Account shall have an initial balance equal to the
amount of cash and the value of any Securities (determined in accordance with
Section 7.3 hereof) constituting such Partner's initial contribution to the
capital of the Fund.
(c) Each Partner's Capital Account shall be increased by the sum of (i) the
amount of cash and the value of any Securities (determined in accordance with
Section 7.3 hereof) constituting additional contributions by such Partner to the
capital of the Fund permitted pursuant to Section 5.1 hereof, plus (ii) any
amount credited to such Partner's Capital Account pursuant to Sections 5.4
through 5.6 hereof.
(d) Each Partner's Capital Account shall be reduced by the sum of (i) the amount
of any repurchase of the Units of such Partner or distributions to such Partner
pursuant to Sections 4.5, 5.10 or 6.2 hereof which are not reinvested, plus (ii)
any amounts debited against such Partner's Capital Account pursuant to Sections
5.4 through 5.6 hereof.
(e) In the event all or a portion of the Units of a Partner is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent of the transferred Units.
5.4. ALLOCATION OF NET PROFIT AND LOSS. Subject to Section 5.7 hereof, as of the
last day of each Fiscal Period, any Net Profit or Net Loss for the Fiscal Period
shall be allocated among and credited to or debited against the Capital Accounts
of the Partners in accordance with their respective Fund Percentages for such
Fiscal Period.
5.5. 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 Partner, then the General Partner,
without limitation of any other rights of the Fund or the General Partner, shall
cause the amount of such obligation to be debited against the Capital Account of
such Partner when the Fund pays such obligation, and any amounts then or
thereafter distributable to such Partner shall be reduced by the amount of such
taxes. If the amount of such taxes is greater than any such distributable
amounts, then such Partner and any successor to such Partner's Interest shall
pay to the Fund as a contribution to the capital of the Fund, upon demand to the
General Partner, the amount of such excess. A General Partner shall not be
obligated to apply for or obtain a reduction of or exemption from withholding
tax on behalf of any Partner that may be eligible for such reduction or
exemption;
<PAGE>
provided that in the event that the General Partner determines that a Partner is
eligible for a refund of any withholding tax, the General Partner may, at the
request and expense of such Partner, assist such Partner in applying for such
refund.
(b) Except as otherwise provided for in this Agreement and unless prohibited by
the 1940 Act, any expenditures payable by the Fund, to the extent determined by
the General Partner to have been paid or withheld on behalf of, or by reason of
particular circumstances applicable to, one or more but fewer than all of the
Partners, shall be charged to only those Partners on whose behalf such payments
are made or whose particular circumstances gave rise to such payments. Such
charges shall be debited from the Capital Accounts of such Partners as of the
close of the Fiscal Period during which any such items were paid or accrued by
the Fund.
5.6. RESERVES.
(a) Appropriate reserves may be created, accrued and charged against Net Assets
and proportionately against the Capital Accounts of the Partners for contingent
liabilities, if any, as of the date any such contingent liability becomes known
to the General Partner, such reserves to be in the amounts which the General
Partner in its sole discretion deem necessary or appropriate. The General
Partner 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 Partners at the time when such reserve is created,
increased or decreased, as the case may be; provided, however, that if any such
individual reserve item, adjusted by any increase therein, exceeds the lesser of
$500,000 or 1% of the aggregate value of the Capital Accounts of all such
Partners, then the amount of such reserve, increase, or decrease may instead, at
the discretion of the General Partner, be charged or credited to those parties
who were Partners at the time, as determined by the General Partner 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 any amount is required by Section 5.6(a) to be charged or credited to a
party who is no longer a Partner, such amount shall be paid by or to such party,
as the case may be, in cash, with interest from the date on which the General
Partner determines that such charge or credit is required. In the case of a
charge, the former Partner 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 Partner be obligated to make a payment exceeding
the amount of such Partner's Capital Account at the time to which the charge
relates; and (ii) no such demand shall be made after the expiration of three
years from the date on which such party ceased to be a Partner. To the extent
that a former Partner fails to pay to the Fund, in full, any amount required to
be charged to such former Partner pursuant to paragraph (a), the deficiency
shall be charged proportionately to the Capital Accounts of the Partners at the
time of the act or omission giving rise to the charge to the extent feasible,
and otherwise proportionately to the Capital Accounts of the current Partners.
5.7. ALLOCATION TO AVOID CAPITAL ACCOUNT DEFICITS. To the extent that any debits
pursuant to Sections 5.4 through 5.6 hereof would reduce the balance of the
Capital Account of any Limited Partner below zero, that portion of any such
debits instead shall be
<PAGE>
allocated to the Capital Account of the General Partner. Any credits in any
subsequent Fiscal Period which otherwise would be allocable pursuant to Sections
5.4 through 5.6 hereof to the Capital Account of any Limited Partner previously
affected by the application of this Section 5.7 instead shall be allocated to
the Capital Account of the General Partner in such amounts as are necessary to
offset all previous debits attributable to such Limited Partner, pursuant to
this Section 5.7, that have not been recovered.
5.8. ALLOCATIONS PRIOR TO CLOSING DATE. Any net cash profits or any net cash
losses realized by the Fund from the purchase or sale of Securities during the
period ending on the day prior to the Closing Date shall be allocated to the
Capital Account of the General Partner. (No unrealized item of profit or loss
shall be allocated pursuant to this Section 5.8 to the Capital Account of any
Partner.)
5.9. TAX ALLOCATIONS. For each taxable year of the Fund, items of income,
deduction, gain, loss or credit shall be allocated for income tax purposes among
the Partners in such a manner as to reflect equitably amounts credited or
debited to each Partner's Capital Account for the current and prior taxable
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 Partners 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 net capital gains for Federal income tax purposes for
any taxable year during or as of the end of which one or more Positive Basis
Partners (as hereinafter defined) withdraw from the Fund pursuant to Articles IV
or VI hereof, the General Partner may elect to allocate such net gains as
follows: (i) to allocate such net gains among such Positive Basis Partners, pro
rata in proportion to the respective Positive Basis (as hereinafter defined) of
each such Positive Basis Partner, until either the full amount of such net gains
shall have been so allocated or the Positive Basis of each such Positive Basis
Partner shall have been eliminated, and (ii) to allocate any net gains not so
allocated to Positive Basis Partners to the other Partners in such manner as
shall reflect equitably the amounts credited to such Partners' Capital Accounts.
As used herein, (i) the term "Positive Basis" shall mean, with respect to
any Partner and as of any time of calculation, the amount by which the total of
such Partner's Capital Account as of such time exceeds such Partner's "adjusted
tax basis," for Federal income tax purposes, in such Partner's Interest in the
Fund 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 (ii) the term "Positive Basis Partner" shall
mean any Partner who withdraws from the Fund and who has a Positive Basis as of
the effective date of such Partner's withdrawal.
<PAGE>
5.10. DISTRIBUTIONS.
(a) The General Partner may authorize the Fund to make distributions in cash or
in kind at any time to all of the Partners on a pro rata basis in accordance
with the Partners' Fund Percentages.
(b) The General Partner may withhold taxes from any distribution to any Partner
to the extent required by the Code or any other applicable law. For purposes of
this Agreement, any taxes so withheld by the Fund with respect to any amount
distributed by the Fund to any Partner shall be deemed to be a distribution or
payment to such Partner, reducing the amount otherwise distributable to such
Partner pursuant to this Agreement and reducing the Capital Account of such
Partner.
(c) Notwithstanding any provision to the contrary contained in this Agreement,
the Fund and the General Partner on behalf of the Fund shall not make a
distribution to any Partner on account of such Partner's Interest in the Fund if
such distribution would violate Section 17-607 of the Delaware Act or other
applicable law.
ARTICLE VI
DISSOLUTION AND LIQUIDATION
6.1. DISSOLUTION.
(a) The Fund shall be dissolved if at any time there are no Limited Partners or
upon the occurrence of any of the following events:
(1) upon the affirmative vote to dissolve the Fund by both (i) the
Directors and (ii) Partners holding at least two-thirds of the
total number of votes eligible to be cast by all Partners;
(2) upon either of (i) an election by the General Partner to dissolve
the Fund or (ii) a General Partner ceasing to be a general
partner of the Fund pursuant to Section 4.1 hereof (other than in
conjunction with a Transfer of the Interest of a General Partner
permitted by Section 4.3 hereof to a person who is admitted as a
substitute General Partner pursuant to Section 2.6(a) hereof),
unless (a) as to the event set forth in clause (ii) above, there
is at least one other general partner of the Fund who is
authorized to and does carry on the business of the Fund, and (b)
as to either event, both the Directors and the Partners holding
not less than two-thirds of the total number of votes eligible to
be cast by all Partners shall elect within 60 days after such
event to continue the business of the Fund and a person to be
admitted to the Fund, effective as of the date of such event, as
an additional General Partner has agreed to make such
contributions to the capital of the Fund as are required to be
made pursuant to Section 5.1(c) hereof;
(3) upon the failure of Partners to approve successor Directors at a
meeting called by the General Partner in accordance with Section
2.11(c) hereof when no Director remains to continue the business
of the Fund; or
<PAGE>
(4) upon the expiration of any two-year period which commences on the
date on which any Limited Partner has submitted a written notice
to the Fund requesting to tender such Partner's entire Interest
for repurchase by the Fund if such Limited Partner has not been
permitted to do so at any time during such period; or
(5) as required by operation of law.
Dissolution of the Fund shall be effective on the later of the day on which
the event giving rise to the dissolution shall occur or, to the extent permitted
by the Delaware Act, the conclusion of any applicable 60-day period during which
the Directors and Partners may elect to continue the business of the Fund as
provided above, 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.
(b) Except as provided in Section 6.1(a) hereof or in the Delaware Act, the
death, mental illness, dissolution, termination, liquidation, bankruptcy,
reorganization, merger, sale of substantially all of the stock or assets of, or
other change in the ownership or nature of a Partner, the admission to the Fund
of a new Partner, the withdrawal of a Partner from the Fund, or the transfer by
a Partner of such Partner's Interest to a third party shall not cause the Fund
to dissolve.
6.2. LIQUIDATION OF ASSETS.
(a) Upon the dissolution of the Fund as provided in Section 6.1 hereof, the
General Partner shall promptly liquidate the business and administrative affairs
of the Fund, except that if the General Partner is unable to perform this
function, a liquidator elected by Partners holding a majority of the total
number of votes eligible to be cast by all Partners shall promptly liquidate the
business and administrative affairs of the Fund. Net Profit and Net Loss during
the period of liquidation shall be allocated pursuant to Article V hereof.
Subject to the Delaware Act, the proceeds from liquidation (after establishment
of appropriate reserves for all claims and obligations, including all
contingent, conditional or unmatured claims and obligations in such amount as
the General Partner or liquidator shall deem appropriate in its sole discretion
as applicable) shall be distributed in the following manner:
(1) the debts of the Fund, other than debts, liabilities or
obligations to Partners, and the expenses of liquidation
(including legal and accounting expenses incurred in connection
therewith), up to and including the date that distribution of the
Fund's assets to the Partners has been completed, shall first be
paid on a pro rata basis;
(2) such debts, liabilities or obligations as are owing to the
Partners shall be paid next in their order of seniority and on a
pro rata basis; and
(3) the Partners 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 Partners' Capital Accounts
for the Fiscal Period ending on the date of the distributions
under this Section 6.2(a)(3).
<PAGE>
(b) Anything in this Section 6.2 to the contrary notwithstanding, upon
dissolution of the Fund, subject to the Delaware Act and the priorities set
forth in Section 6.2(a), the General Partner 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. Notwithstanding anything to the
contrary in this Agreement, the General Partner may compel a Partner to accept a
distribution of any asset in-kind from the Fund notwithstanding that the
percentage of the asset distributed to the Partner exceeds a percentage of that
asset that is equal to the percentage in which such Partner shares in
distributions from the Fund.
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 General Partner 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 Partner
such information regarding the operation of the Fund and such Partner's Interest
as is necessary for Partners to complete Federal and state income tax or
information returns and any other tax information required by federal or state
law.
(c) Except as otherwise required by the 1940 Act, or as may otherwise be
permitted by rule, regulation or order, within 60 days after the close of the
period for which a report required under this Section 7.1(c) is being made, the
Fund shall furnish to each Limited Partner 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 Partner such other periodic reports as it deems
necessary or appropriate in its discretion.
(d) The General Partner shall notify the Directors of any change in the
membership of the General Partner within a reasonable time after such change.
7.2. DETERMINATIONS BY GENERAL PARTNER.
(a) All matters concerning the determination and allocation among the Partners
of the amounts to be determined and allocated pursuant to Article V hereof,
including any taxes thereon and accounting procedures applicable thereto, shall
be determined by the General Partner 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 Partners.
<PAGE>
(b) The General Partner 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 Partners.
7.3. VALUATION OF ASSETS.
(a) Except as may be required by the 1940 Act, the General Partner shall value
or have valued any Securities or other assets and liabilities of the Fund (other
than assets invested in Portfolio Funds) as of the close of business on the last
day of each Fiscal Period in accordance with such valuation procedures as shall
be established from time to time by the Directors and which conform to the
requirements of the 1940 Act. Assets of the Fund that are invested in Portfolio
Funds managed by Sub-Advisers shall be valued in accordance with the terms and
conditions of the respective agreements of the Portfolio Funds. Assets of the
Fund invested in Portfolio Funds not managed by Sub-Advisers shall be valued at
fair value, which ordinarily will be the net redemption value determined by
their Portfolio Managers in accordance with the policies established by the
relevant Portfolio Fund. In determining the value of the assets of the Fund, no
value shall be placed on the goodwill or name of the Fund, or the office
records, files, statistical data or any similar intangible assets of the Fund
not normally reflected in the Fund's accounting records, but there shall be
taken into consideration any items of income earned but not received, expenses
incurred but not yet paid, liabilities fixed or contingent, 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 net asset value of each Unit as of any date shall equal the net asset
value of the Fund, determined as provided in Section 7.3(a), divided by the
number of outstanding Units on such date.
(c) Subject to the provisions of the 1940 Act, the value of Securities and other
assets of the Fund and the net asset value of the Fund and the Units determined
pursuant to this Section 7.3 shall be conclusive and binding on all of the
Partners and all parties claiming through or under them.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1. AMENDMENT OF PARTNERSHIP AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this Agreement may be
amended, in whole or in part, with the approval of (i) the Directors (including
the vote of a majority of the Independent Directors, if required by the 1940
Act), (ii) the General Partner and (iii) a majority (as defined in the 1940 Act)
of the outstanding voting securities of the Fund.
(b) Any amendment that would:
(1) increase the obligation of a Partner to make any contribution to
the capital of the Fund;
<PAGE>
(2) reduce the Capital Account of a Partner 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 Partner adversely
affected thereby is obtained prior to the effectiveness thereof or (ii) such
amendment does not become effective until (A) each Limited Partner has received
written notice of such amendment and (B) any Limited Partner objecting to such
amendment has been afforded a reasonable opportunity (pursuant to such
procedures as may be prescribed by the General Partner) to tender such Partner's
entire Interest for repurchase by the Fund.
(c) The General Partner, at any time without the consent of the other Partners,
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 Partner 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,
subject, however, to the limitation that any amendment to this
Agreement pursuant to Sections 8.1(c)(2) or (3) hereof shall be
valid only if approved by the Directors (including the vote of a
majority of the Independent Directors, if required by the 1940
Act).
(d) The General Partner shall give prior written notice of any proposed
amendment to this Agreement (other than any amendment of the type contemplated
by clause (1) of Section 8.1(c) hereof) to each Partner, which notice shall set
forth (i) the text of the proposed amendment or (ii) a summary thereof and a
statement that the text thereof will be furnished to any Partner upon request.
(e) The General Partner may, with the approval of the Directors, establish
additional classes or series of interests in the Fund having such rights,
privileges and obligations as shall be determined by the General Partner
consistent with the 1940 Act and the Delaware Act.
8.2. SPECIAL POWER OF ATTORNEY.
(a) Each Partner hereby irrevocably makes, constitutes and appoints the General
Partner 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
<PAGE>
attorneys-in-fact of, and in the name, place and stead of, such Partner, 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, including, without limitation, an amendment to
effectuate any change in the membership of the Fund; 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 partnership under
the Delaware Act.
(b) Each Partner is aware that the terms of this Agreement permit certain
amendments to this Agreement to be effected and certain other actions to be
taken or omitted by or with respect to the Fund without such Partner'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
Partner agrees that, notwithstanding any objection which such Partner may assert
with respect to such action, the attorneys-in-fact appointed hereby are
authorized and empowered, with full power of substitution, to exercise the
authority granted above in any manner which may be necessary or appropriate to
permit such amendment to be made or action lawfully taken or omitted. Each
Partner is fully aware that each Partner will rely on the effectiveness of this
special power-of-attorney with a view to the orderly administration of the
affairs of the Fund.
(c) This power-of-attorney is a special power-of-attorney and is coupled with an
interest in favor of the General Partner 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 General Partner, the
Directors or any liquidator shall have had notice thereof; and
(2) shall survive the delivery of a Transfer by a Partner of the whole or
any portion of such Partner's Interest, except that where the transferee thereof
has been approved by the General Partner for admission to the Fund as a
substituted Partner, this power-of attorney given by the transferor shall
survive the delivery of such assignment for the sole purpose of enabling the
General Partner, the Directors 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 to a Partner by hand delivery, regular mail (registered
or certified mail return receipt
<PAGE>
requested in the case of notice to the General Partner), commercial courier
service, telecopier, or electronic mail (with a confirmation copy by registered
or certified mail in the case of notices to the General Partner by telecopier or
electronic mail), 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 General Partner in the case of notice given to any Partner, and to each of
the Partners in the case of notice given to the General Partner). 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, telecopier or by electronic mail. 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 PARTNERS. EACH PROVISION OF THIS AGREEMENT SHALL BE SUBJECT
TO AND INTERPRETED IN A MANNER CONSISTENT WITH THE APPLICABLE PROVISIONS OF THE
1940 ACT AND THE FORM N-2.
8.6. CHOICE OF LAW; ARBITRATION.
(a) Notwithstanding the place where this Agreement may be executed by any of the
parties hereto, the parties expressly agree that all the terms and provisions
hereof shall be construed under the laws of the State of Delaware, including the
Delaware Act, without regard to the conflict of law principles of such State.
(b) EACH PARTNER AGREES TO SUBMIT ALL CONTROVERSIES ARISING BETWEEN OR AMONG
PARTNERS OR ONE OR MORE PARTNERS 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 PARTNER UNDERSTANDS THAT ARBITRATION IS FINAL
AND BINDING ON THE PARTIES AND THAT THE PARTIES ARE WAIVING THEIR RIGHTS TO SEEK
REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL.
<PAGE>
(c) CONTROVERSIES SHALL BE FINALLY SETTLED BY, AND ONLY BY, ARBITRATION IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION (THE "AAA") TO THE FULLEST EXTENT PERMITTED BY LAW. THE PLACE OF
ARBITRATION SHALL BE NEW YORK, NEW YORK. ANY ARBITRATION HEREUNDER SHALL BE
CONDUCTED BEFORE A PANEL OF THREE ARBITRATORS. THE PARTY OR PARTIES INITIATING
ARBITRATION HEREUNDER SHALL APPOINT ONE ARBITRATOR IN THE DEMAND FOR
ARBITRATION. THE PARTY OR PARTIES AGAINST WHOM ARBITRATION IS SOUGHT SHALL
JOINTLY APPOINT ONE ARBITRATOR WITHIN THIRTY BUSINESS DAYS AFTER NOTICE FROM THE
AAA OF THE FILING OF THE DEMAND FOR ARBITRATION. THE TWO ARBITRATORS NOMINATED
BY THE PARTIES SHALL ATTEMPT TO AGREE ON A THIRD ARBITRATOR WITHIN THIRTY
BUSINESS DAYS OF THE APPOINTMENT OF THE SECOND ARBITRATOR. IF THE TWO
ARBITRATORS FAIL TO AGREE ON THE THIRD ARBITRATOR WITHIN SUCH PERIOD, THEN THE
AAA SHALL APPOINT THE THIRD ARBITRATOR WITHIN THIRTY BUSINESS DAYS FOLLOWING THE
EXPIRATION OF SUCH PERIOD. ANY AWARD RENDERED BY THE ARBITRATORS SHALL BE FINAL
AND BINDING ON THE PARTIES, AND JUDGMENT UPON ANY SUCH AWARD MAY BE ENTERED IN
THE SUPREME COURT OF THE STATE OF NEW YORK AND/OR THE U.S. DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK, OR ANY OTHER COURT HAVING JURISDICTION
THEREOF OR HAVING JURISDICTION OVER THE PARTIES OR THEIR ASSETS. THIS
ARBITRATION AGREEMENT SHALL NOT BE CONSTRUED TO DEPRIVE ANY COURT OF ITS
JURISDICTION TO GRANT PROVISIONAL RELIEF (INCLUDING BY INJUNCTION OR ORDER OF
ATTACHMENT) IN AID OF ARBITRATION PROCEEDINGS OR ENFORCEMENT OF AN AWARD. IN THE
EVENT OF ARBITRATION AS PROVIDED HEREIN, THE ARBITRATORS SHALL BE GOVERNED BY
AND SHALL APPLY THE SUBSTANTIVE (BUT NOT PROCEDURAL) LAW OF DELAWARE, TO THE
EXCLUSION OF THE PRINCIPLES OF THE CONFLICTS OF LAW OF DELAWARE. THE ARBITRATION
SHALL BE CONDUCTED IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE COMMERCIAL
ARBITRATION RULES OF THE AAA. WHERE THOSE RULES ARE SILENT, THE PROCEDURE SHALL
BE AS AGREED BY THE PARTIES, OR IN THE ABSENCE OF SUCH AGREEMENT, AS ESTABLISHED
BY THE ARBITRATORS.
8.7. NOT FOR BENEFIT OF CREDITORS. The provisions of this Agreement are intended
only for the regulation of relations among past, present and future Partners and
the Fund. This Agreement is not intended for the benefit of non-Partner
creditors and no rights are granted to non-Partner 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
partnerships formed under the Delaware Act or other business entities pursuant
to an agreement of merger or
<PAGE>
consolidation which has been approved in the manner contemplated by Section
17-211(b) of the Delaware Act.
(b) Notwithstanding anything to the contrary contained elsewhere in this
Agreement, an agreement of merger or consolidation approved in accordance with
Section 17-211(b) of the Delaware Act may, to the extent permitted by Section
17-211(g) of the Delaware Act, (i) effect any amendment to this Agreement, (ii)
effect the adoption of a new partnership agreement for the Fund if it is the
surviving or resulting limited partnership in the merger or consolidation, or
(iii) provide that the partnership agreement of any other constituent
partnership to the merger or consolidation (including a limited partnership
formed for the purpose of consummating the merger or consolidation) shall be the
partnership agreement of the surviving or resulting limited partnership.
8.10. PRONOUNS. All pronouns shall be deemed to refer to the masculine,
feminine, neuter, singular or plural, as the identity of the person or persons,
firm or corporation may require in the context thereof.
8.11. CONFIDENTIALITY.
(a) A Limited Partner may obtain from the General Partner, for any purpose
reasonably related to the Limited Partner's Interest in the Fund, 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 General Partner.
(b) Each Limited Partner covenants that, except as required by applicable law or
any regulatory body, such Limited Partner will not divulge, furnish or make
accessible to any other person the name or address (whether business, residence
or mailing) of any Limited Partner (collectively, "Confidential Information")
without the prior written consent of the General Partner, which consent may be
withheld in its sole discretion.
(c) Each Partner recognizes that in the event that this Section 8.11 is breached
by any Partner or any of its principals, partners, members, directors, officers,
employees or agents or any of such Partner's affiliates, including any of such
affiliates' principals, partners, members, directors, officers, employees or
agents, irreparable injury may result to the non-breaching Partners and the
Fund. Accordingly, in addition to any and all other remedies at law or in equity
to which the non-breaching Partners and the Fund may be entitled, such Partners
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. If any non-breaching Partner or the Fund
determines that any of the other Partners or any of such Partner's principals,
partners, members, directors, officers, employees or agents or any of such
Partner's affiliates, including any of such affiliates' principals, partners,
members, directors, officers, employees or agents, should be enjoined from or
required to take any action to prevent the disclosure of Confidential
Information, each of the other non-breaching Partners agrees to pursue in a
court of appropriate jurisdiction such injunctive relief.
<PAGE>
(d) The General Partner shall have the right to keep confidential from the
Limited Partners, for such period of time as the General Partner deems
reasonable, any information which the General Partner reasonably believes to be
in the nature of trade secrets or other information the disclosure of which the
General Partner 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 Limited Partner or transferee of
an Interest from a Limited Partner 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 General Partner may request, whether he is a "United
States Person" within the meaning of Section 7701(a)(30) of the Code on forms to
be provided by the Fund, and shall notify the Fund within 30 days of any change
in such Partner's status. Any Limited Partner who shall fail to provide such
certification when requested to do so by the General Partner may be treated as a
non-United States Person for purposes of U.S. Federal tax withholding.
8.13. SEVERABILITY. If any provision of this Agreement is determined by a court
of competent jurisdiction not to be enforceable in the manner set forth in this
Agreement, each Partner agrees that it is the intention of the Partners that
such provision should be enforceable to the maximum extent possible under
applicable law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
8.14. ENTIRE AGREEMENT. This Agreement (including any Schedules attached hereto
which are 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 General Partner, without the
approval of any Limited Partner, may enter into written agreements with Limited
Partners, executed contemporaneously with the admission of such Limited Partners
to the Fund, affecting the terms hereof in order to meet certain requirements of
such Limited Partners. The parties hereto agree that any terms contained in any
such other agreement with a Limited Partner shall govern with respect to such
Limited Partner notwithstanding the provisions of this Agreement.
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
Limited Partners, 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.
<PAGE>
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.
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 [32-33] AND THE CONFIDENTIALITY CLAUSES SET FORTH IN SECTION 8.11 ON
PAGES [34-35].
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GENERAL PARTNER:
GLOBAL ASSET MANAGEMENT (USA) INC.
By: /s/ Kevin J. Blanchfield
------------------------
Name: Kevin J. Blanchfield
Title: Chief Operating Officer
ORGANIZATIONAL LIMITED PARTNER
GAM SERVICES, INC.
By:/s/ David A. Anderson
---------------------------
Name: David A. Anderson
Title: Managing Director - Mutual Funds
DIRECTORS:
/s/ Dr Burkhard Poschadel
------------------
Dr. Burkhard Poschadel
/s/ George W. Landau
------------------
George W. Landau
/s/ Robert J. McGuire
------------------
Robert J. McGuire
/s/ Roland Weiser
------------------
Roland Weiser
LIMITED PARTNERS:
Each person who has signed, or has had signed on such person's behalf, a Limited
Partner Signature Page, which shall constitute a counterpart hereof.
<PAGE>
APPENDIX B
The composite performance information for each of the three investment
programs provided below represents the actual performance, adjusted as described
below, of all managed accounts and funds ("GAM Multi-Manager Funds") managed by
the personnel of either the General Partner, the Investment Consultant or their
affiliates (collectively, the "GAM Multi-Manager Team") using investment
strategies that are substantially similar to those expected to be used to manage
the corresponding GAM Avalon Fund.
THIS INFORMATION IS PROVIDED TO YOU SOLELY TO ILLUSTRATE THE HISTORICAL
PERFORMANCE OF THE GAM MULTI-MANAGER TEAM. THE HISTORICAL PERFORMANCE DOES NOT
INDICATE THE FUTURE PERFORMANCE OF THE GAM AVALON FUNDS. THE COMPOSITE
PERFORMANCE INFORMATION HAS NOT BEEN VERIFIED BY A THIRD PARTY AND DOES NOT
COMPLY WITH THE STANDARDS ESTABLISHED BY THE ASSOCIATION OF INVESTMENT
MANAGEMENT AND RESEARCH (AIMR).
While the General Partner expects to employ an investment program for each
GAM Avalon Fund that is substantially similar to the investment program used by
the GAM Multi-Manager Funds reflected in the corresponding composite, there are
certain important differences and limitations that will affect the performance
results of the GAM Avalon Funds. In particular, you should consider the
following:
o Different Portfolio Managers: The General Partner may select different
Portfolio Managers to manage assets for the GAM Avalon Fund and may
invest in different Portfolio Funds.
o Certain Portfolio Managers Are Not Available: Certain underlying
portfolio managers which contributed to the performance of the GAM
Multi-Manager Funds will not be available to the GAM Avalon Funds
because they are not available to U.S. investors such as the GAM
Avalon Funds.
o Different Investment Restrictions and Policies: Because the GAM Avalon
Funds are registered under the U.S. Investment Company Act of 1940
while the GAM Multi-Manager Funds are not, the GAM Avalon Funds are
subject to certain investment restrictions which do not apply to the
GAM Multi-Manager Funds. Additionally, the policies of the GAM Avalon
Funds may not match exactly those of the GAM Multi-Manager Funds.
o Fees and Expenses Will Differ: The composite performance results
presented for the Multi-Manager Funds reflect the deduction of a 1.76%
annual advisory fee (see Fee Schedule below for further details),
while the GAM Avalon Funds will pay the General Partner an annual
advisory fee of 2% of net assets. Additionally, the other expenses of
the GAM Avalon Funds may be higher than those reflected in the
composite performance results. Higher expenses would reduce
performance.
FOR THE ABOVE REASONS, AND OTHERS, THE COMPOSITE PERFORMANCE INFORMATION IS NOT
INTENDED TO REPRESENT THE EXPECTED PERFORMANCE OF THE GAM AVALON FUNDS.
FUTURE PERFORMANCE OF THE GAM AVALON FUNDS AND THE GAM MULTI-MANAGER FUNDS MAY
DIFFER.
<PAGE>
The following charts and tables set forth the composite performance record of
the GAM Multi-Manager Funds for the periods indicated. The charts and tables
should be read in conjunction with the notes following them.
GAM MULTI-GLOBAL COMPOSITE
PERFORMANCE Q3 2000
PERFORMANCE DECEMBER 31, 1994 - SEPTEMBER 30, 2000
--------------------------------------------------
(see accompanying notes for composite inception and composition information)
[Figures below represent chart in printed piece]
Date Rebased GAM
MSCI World Index Multi-Global Composite
12-31-94 100.00 100.00
01-31-95 98.52 98.81
02-28-95 99.97 99.26
03-31-95 104.81 100.05
04-30-95 108.49 102.00
05-31-95 109.43 103.50
06-30-95 109.42 104.31
07-31-95 114.92 107.73
08-31-95 112.38 112.31
09-30-95 115.67 114.95
10-31-95 113.87 113.44
11-30-95 117.85 115.07
12-31-95 121.32 121.43
01-31-96 123.53 126.16
02-29-96 124.31 125.10
03-31-96 126.40 126.34
04-30-96 129.39 133.51
05-31-96 129.53 134.77
06-30-96 130.21 134.35
07-31-96 125.63 127.64
08-31-96 127.10 130.92
09-30-96 132.10 133.50
10-31-96 133.04 133.86
11-30-96 140.52 138.34
12-31-96 138.30 139.99
01-31-97 139.99 145.98
02-28-97 141.62 151.95
03-31-97 138.84 150.03
04-30-97 143.41 150.43
05-31-97 152.28 153.11
06-30-97 159.90 156.90
07-31-97 167.29 167.50
08-31-97 156.12 169.98
09-30-97 164.63 175.24
10-31-97 155.99 174.20
11-30-97 158.78 171.89
12-31-97 160.74 177.68
01-31-98 165.24 172.27
02-28-98 176.45 178.70
03-31-98 183.92 191.09
04-30-98 185.75 191.21
05-31-98 183.45 192.32
06-30-98 187.83 193.35
07-31-98 187.55 194.03
08-31-98 162.57 178.60
09-30-98 165.47 175.85
10-31-98 180.46 170.83
11-30-98 191.22 175.44
12-31-98 200.59 180.51
01-31-99 205.01 183.27
02-28-99 199.59 184.38
03-31-99 207.93 188.74
04-30-99 216.15 195.05
05-31-99 208.28 196.37
06-30-99 218.03 203.57
07-31-99 217.40 206.80
08-31-99 217.05 207.21
09-30-99 214.97 207.81
10-31-99 226.18 208.38
11-30-99 232.57 228.85
12-31-99 251.42 252.04
01-31-00 237.05 251.52
02-29-00 237.72 267.78
03-31-00 254.18 271.09
04-30-00 243.46 256.72
05-31-00 237.33 256.78
06-30-00 245.35 260.22
07-31-00 238.48 259.96
08-31-00 246.26 265.12
09-30-00 233.20 263.50
Performance Summary
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GAM Multi-Global Composite Performance
------------------------------------------ MSCI World
Gross of Fees %* Net of Fees %** Index %
------------------- ------------------- --------------------
Returns Ended September 30, 2000
---------------------------------
Quarter 3 2000 1.71 1.26 -4.95
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Year to Date 6.44 5.19 -7.25
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Rolling 1 year 29.07 26.80 8.48
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Annual Returns
1999 42.13 39.62 25.34
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
1998 3.41 1.59 24.80
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
1997 29.20 26.92 16.23
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
1996 17.35 15.29 14.00
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
1995 23.60 21.43 21.32
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Compound Annual Growth Rate 20.48 18.35 15.87
---------------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Annualized Standard Deviation 10.35 10.33 13.21
-----------------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Beta 0.41 0.41 1.00
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Sharpe Ratio (using 5% risk free rate) 1.50 1.29 0.82
--------------------------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Does not reflect the payment of investment advisory fees and other expenses.
** Reflects the deduction of the highest advisory fee charged to an account or
fund included in the composite.
<PAGE>
GAM Multi-Global Composite
Performance Q3 2000
Historical Returns
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Quarterly Annual
------------------------------------------- --------------------------------------------
----------- --- ----------- --- ------------
Gross of Net of MSCI World Gross of Net of MSCI World
Ending Fees %* Fees %** Index % Fees %* Fees %** Index %
---------------- ----------- ----------- ------------ ----------- ----------- ------------
9/30/00 1.71 1.26 -4.95
6/30/00 -3.59 -4.01 -3.47
3/31/00 8.04 7.56 1.10
................ ... ........... ... ........... ... ............ ........ ........... ... ........... ... ............
12/31/99 21.82 21.28 16.96 42.13 39.62 25.34
9/30/99 2.54 2.08 -1.40
6/30/99 8.34 7.86 4.86
3/31/99 5.02 4.56 3.66
---------------- --- ----------- --- ----------- --- ------------ -------- ----------- --- ----------- --- ------------
12/31/98 3.11 2.65 21.22 3.41 1.59 24.80
9/30/98 -8.64 -9.05 -11.90
6/30/98 1.63 1.18 2.12
3/31/98 8.02 7.54 14.43
---------------- --- ----------- --- ----------- --- ------------ -------- ----------- --- ----------- --- ------------
12/31/97 1.84 1.39 -2.37 29.20 26.92 16.23
9/30/97 12.19 11.69 2.96
6/30/97 5.04 4.58 15.17
3/31/97 7.65 7.17 0.40
---------------- --- ----------- --- ----------- --- ------------ -------- ----------- --- ----------- --- ------------
12/31/96 5.33 4.86 4.69 17.35 15.29 14.00
9/30/96 -0.19 -0.63 1.45
6/30/96 6.81 6.35 3.01
3/31/ 96 4.51 4.05 4.19
---------------- --- ----------- --- ----------- --- ------------ -------- ----------- --- ----------- --- ------------
12/31/95 6.10 5.63 4.88 23.60 21.43 21.32
9/30/95 10.70 10.20 5.71
6/30/95 4.72 4.25 4.40
3/31/ 95 0.50 0.05 4.81
---------------- --- --- --- -------- --- ---
---------------- --- ----------- --- ----------- --- ------------ -------- ----------- --- ----------- --- ------------
12/31/94
---------------- --- ----------- --- ----------- --- ------------ -------- ----------- --- ----------- --- ------------
------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Does not reflect the payment of investment advisory fees and other expenses.
** Reflects the deduction of the highest advisory fee charged to an account or
fund included in the composite.
Composite Analysis
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996 1995 1994
Number of Portfolios in Composite 3 3 2 1 1 1 1
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
US$ value of Composite ($M) 1447.7 1298.0 946.7 937.1 732.2 641.5 205.8
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
GAM Multi-Global Composite Components
Inception Date
GAM Diversity 12/29/89
GAM World Multi US$ 07/27/98
GAM Multi-Global L.P. 08/02/99
Composite performance is calculated using the asset-weighted performance of the
components on a monthly basis.
<PAGE>
GAM MULTI-EUROPE COMPOSITE
PERFORMANCE Q3 2000
PERFORMANCE DECEMBER 31, 1994 - SEPTEMBER 30, 2000
(see accompanying notes for composite inception and composition information)
[Figures below represent chart in printed piece]
Date MSCI Europe Index GAM Multi-Europe Composite
94-12-31 100.00 100.00
95-01-31 100.09 100.14
95-02-28 100.17 99.82
95-03-31 100.26 99.71
95-04-30 100.35 100.97
95-05-31 100.44 103.30
95-06-30 100.52 104.48
95-07-31 100.61 107.33
95-08-31 100.70 109.68
95-09-30 100.79 109.81
95-10-31 100.88 107.87
95-11-30 100.96 108.98
95-12-31 101.05 111.55
96-01-31 101.14 114.41
96-02-29 101.22 117.16
96-03-31 101.31 120.05
96-04-30 101.40 125.84
96-05-31 101.49 127.50
96-06-30 101.58 128.21
96-07-31 101.67 122.25
96-08-31 101.76 126.12
96-09-30 101.84 128.16
96-10-31 101.93 129.81
96-11-30 102.02 134.48
96-12-31 102.11 138.79
97-01-31 102.20 145.67
97-02-28 102.28 150.55
97-03-31 102.37 151.14
97-04-30 102.45 150.66
97-05-31 102.54 156.73
97-06-30 102.63 162.61
97-07-31 102.72 172.07
97-08-31 102.81 168.65
97-09-30 102.89 171.35
97-10-31 102.98 166.46
97-11-30 103.07 165.25
97-12-31 103.16 170.92
98-01-31 103.25 173.80
98-02-28 103.33 184.39
98-03-31 103.42 209.12
98-04-30 103.50 207.62
98-05-31 103.59 218.50
98-06-30 103.68 211.67
98-07-31 103.77 215.95
98-08-31 103.86 185.37
98-09-30 103.95 176.40
98-10-31 104.03 176.14
98-11-30 104.12 187.27
98-12-31 104.21 191.16
99-01-31 104.30 195.02
99-02-28 104.38 191.44
99-03-31 104.47 191.92
99-04-30 104.56 199.79
99-05-31 104.65 200.33
99-06-30 104.73 206.98
99-07-31 104.82 209.66
99-08-31 104.91 213.59
99-09-30 105.00 208.37
99-10-31 105.09 210.74
99-11-30 105.17 244.41
99-12-31 105.26 271.88
00-01-31 105.35 285.16
00-02-29 105.44 317.99
00-03-31 105.52 325.64
00-04-30 105.61 312.28
00-05-31 105.70 312.08
00-06-30 105.79 319.56
00-07-31 105.88 322.64
00-08-31 105.97 325.14
00-09-30 106.05 320.96
Performance Summary
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GAM Multi-Europe Composite Performance
------------------------------------------ MSCI Europe
Gross of Fees %* Net of Fees %** Index %
------------------- ------------------- --------------------
Returns Ended September 30, 2000
---------------------------------
Quarter 3 2000 0.88 0.44 -7.25
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Year to Date 19.63 18.05 -9.99
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Rolling 1 year 56.79 54.03 5.74
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Annual Returns
1999 44.78 42.23 16.23
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
1998 13.84 11.84 28.91
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
1997 25.35 23.15 24.20
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
1996 26.66 24.43 21.57
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
1995 13.54 11.55 22.13
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Compound Annual Growth Rate 24.68 22.49 17.17
---------------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Annualized Standard Deviation 14.39 14.37 13.25
-----------------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Beta 0.68 0.68 1.00
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Sharpe Ratio (using 5% risk free rate) 1.37 1.22 0.92
---------------------------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
</TABLE>
* Does not reflect the payment of investment advisory fees and other expenses.
** Reflects the deduction of the highest advisory fee charged to an account or
fund included in the composite.
<PAGE>
GAM MULTI-EUROPE COMPOSITE
PERFORMANCE Q3 2000
HISTORICAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Quarterly Annual
-------------------------------------------- ---------------------------------------------
----------- --- ----------- --- -------------
Gross of Net of MSCI Europe Gross of Net of MSCI Europe
Ending Fees %* Fees %** Index % Fees %* Fees %** Index %
---------------- ----------- ----------- ------------- ----------- ----------- -------------
9/30/00 0.88 0.44 -7.25
6/30/00 -1.43 -1.87 -3.09
3/31/00 20.31 19.77 0.14
................ ... ........... ... ........... ... ............. ....... ........... ... ........... ... .............
12/31/99 31.06 30.48 17.47 44.78 42.23 16.23
9/30/99 1.12 0.67 1.24
6/30/99 8.33 7.85 -0.24
3/31/99 0.84 0.40 -2.04
---------------- --- ----------- --- ----------- --- ------------- ------- ----------- --- ----------- --- -------------
12/31/98 8.85 8.37 18.81 13.84 11.84 28.91
9/30/98 -16.29 -16.66 -14.35
6/30/98 1.67 1.22 5.22
3/31/98 22.89 22.35 20.39
---------------- --- ----------- --- ----------- --- ------------- ------- ----------- --- ----------- --- -------------
12/31/97 0.19 -0.25 0.15 25.35 23.15 24.20
9/30/97 5.85 5.38 8.36
6/30/97 8.07 7.59 9.03
3/31/97 9.38 8.90 4.97
---------------- --- ----------- --- ----------- --- ------------- ------- ----------- --- ----------- --- -------------
12/31/96 8.77 8.29 9.69 26.66 24.43 21.57
9/30/96 0.41 -0.03 3.92
6/30/96 7.27 6.80 2.72
3/31/ 96 8.10 7.62 3.82
---------------- --- ----------- --- ----------- --- ------------- ------- ----------- --- ----------- --- -------------
12/31/95 2.03 1.58 3.52 13.54 11.55 22.13
9/30/95 5.57 5.10 4.31
6/30/95 5.25 4.79 6.42
3/31/ 95 0.15 -0.29 6.29
---------------- --- ----------- --- ----------- --- ------------- ------- ----------- --- ----------- --- -------------
12/31/94
---------------- --- ----------- --- ----------- --- ------------- ------- ----------- --- ----------- --- -------------
------------------------------------------------------------------------------------------------------------------------
* Does not reflect the payment of investment advisory fees and other expenses.
** Reflects the deduction of the highest advisory fee charged to an account or
fund included in the composite.
</TABLE>
Composite Analysis
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996 1995 1994
Number of Portfolios in Composite 2 1 1 1 1 1 1
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
US$ value of Composite ($M) 346.4 266.1 173.9 197.3 167.8 124.8 107.0
------------------------------------------------------------------------------------------------------------------------
</TABLE>
GAM Multi-Europe Composite Components
Inception Date
GAM Multi-Europe US$ 10/21/91
GAM Multi-Europe II US$ 03/31/00
Composite performance is calculated using the asset-weighted performance of the
components on a monthly basis.
<PAGE>
GAM Multi-Technology Composite
Performance Q3 2000
Performance May 31, 1999 - September 30, 2000
(see accompanying notes for composite inception and composition information)
[Figures below represent chart in printed piece]
Date NASDAQ OTC GAM Multi-Technology Composite
Composite Index
99-05-31 100.00 100.00
99-06-30 108.73 105.54
99-07-31 106.80 105.81
99-08-31 110.88 109.78
99-09-30 111.16 109.36
99-10-31 120.07 115.48
99-11-30 135.04 129.25
99-12-31 164.71 146.73
00-01-31 159.49 145.9377
00-02-29 190.11 167.4479
00-03-31 185.10 161.2815
00-04-30 156.27 154.4081
00-05-31 137.66 147.0517
00-06-30 160.54 159.2956
00-07-31 152.48 159.7813
00-08-31 170.26 170.1311
00-09-30 148.67 163.4116
Performance Summary
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GAM Multi-Technology Composite
Performance Nasdaq OTC
------------------------------------------ Composite
Gross of Fees %* Net of Fees %** Index %
------------------- ------------------- --------------------
Returns Ended September 30, 2000
Quarter 3 2000 3.04 2.58 -7.39
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Year to Date 12.86 11.37 -9.74
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Rolling 1 year 52.11 49.43 33.74
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Annual Returns
1999 (since inception) 48.26 46.73 64.71
----------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Compound Annual Growth Rate 47.01 44.42 34.55
---------------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Annualized Standard Deviation 21.69 21.66 38.81
-----------------------------
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Beta 0.53 0.53 1.00
----
------------------------------------------------------ ------------------- -- ------------------- -- --------------------
Sharpe Ratio (using 5% risk free rate) 1.94 1.82 0.76
--------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Does not reflect the payment of investment advisory fees and other expenses.
** Reflects the deduction of the highest advisory fee charged to an account or
fund included in the composite.
<PAGE>
GAM Multi-Technology Composite
Performance Q3 2000
Historical Returns
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Quarterly Annual
------------------------------------------- --------------------------------------------
Gross of Net of Nasdaq Gross of Net of Nasdaq
Ending Fees %* Fees %** Index % Fees %* Fees %** Index %
---------------- ----------- ----------- ------------ ----------- ----------- ------------
9/30/00 3.04 2.58 -7.39
6/30/00 -0.79 -1.23 -13.27
3/31/00 10.41 9.92 12.37
................ ... ........... ... ........... ... ............ ........ ........... ... ........... ... ............
12/31/99 34.77 34.17 48.18 48.26 46.73 64.71
9/30/99 4.08 3.62 2.24
6/30/99 5.70 5.54 8.73
------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Does not reflect the payment of investment advisory fees and other expenses.
** Reflects the deduction of the highest advisory fee charged to an account or
fund included in the composite.
COMPOSITE ANALYSIS
2000 1999
Number of Portfolios in Composite 2 1
------------------------------------------------------------------
US$ value of Composite ($M) 48.9 18.79
------------------------------------------------------------------
GAM Multi-Technology Composite Components
Inception Date
GAM Multi-Technology L.P. 05/31/99
GAM Technology Multi-Fund, Inc. (USD) 01/03/00
Composite performance is calculated using the asset-weighted performance of the
components on a monthly basis.
<PAGE>
Explanatory Notes
The GAM Multi-Global composite comprises all managed accounts and funds
managed by Global Asset Management with a Global mandate. The GAM Multi-Europe
composite comprises all managed accounts and funds managed by Global Asset
Management with a European mandate. The GAM Multi-Technology composite comprises
all managed accounts and funds managed by Global Asset Management with a
Technology mandate. All three composites are expressed in US$ terms.
Additionally,
o Performance results are calculated gross and net of investment
management fees (see Fee Schedule below).
o Performance results are calculated on a total return basis and include
all portfolio income, and unrealized and realized capital gains and
losses. Calculations are time weighted to account for periodic
contributions and withdrawals and are geometrically linked. Cash and
cash equivalents are included in total portfolio assets and in the
return calculations. Trade date accounting is used for valuations. For
periods less than one year, rates of return are not annualized.
o The composites shown are aggregations of all managed accounts and
funds having substantially similar investment objectives and
strategies. Composites are size-weighted using beginning of period
values to weight fund returns. There is no minimum asset size below
which an account or fund is excluded from a composite. Accounts and
funds are included in a composite beginning with the first full month
of performance and until the month immediately prior to termination of
the account or fund.
o Beta is a coefficient measuring a portfolio's relative volatility to a
market index, such as the MSCI World Index, MSCI Europe Index or
NASDAQ Composite Index. A portfolio with a Beta greater than 1.0 is
more volatile than the relevant market index, while a portfolio with a
Beta less than 1.0 is less volatile than the relevant market index.
o Compound Annual Growth Rate represents annualized returns. They are
returns for periods longer than one year, which, over a certain period
of time, would produce a fund's total return over that same period.
o Composites are net of trading expenses and withholding taxes on
dividends and interest. Withholding taxes vary depending upon the
country of investment but range between 0% and 30%. Indices are gross
of withholding taxes on dividends.
Fee Schedule
Net performance figures reflect the deduction of administration and
sponsorship fees paid to GAM affiliated entities. Other expenses that may be
incurred in the management of the GAM Multi-Manager Funds will reduce returns.
For each composite, net returns have been calculated by deducting the highest
advisory fee charged to an account or fund included in the composite. Fees
applied are set forth as follows: GAM Multi-Technology Composite 1.76%; GAM
Multi-Europe Composite 1.76% and GAM Multi-Global Composite 1.76%. These consist
of an Investment Management Fee of 0.65%, an Administration Fee of 0.20% and a
Sponsorship Fee of 0.91%. The performance figures do not reflect the deduction
of a placement fee, which if reflected would reduce the performance quoted.
<PAGE>
Future investments will be made under different economic conditions.
Composite performance may not reflect performance in different economic cycles
and you should not assume that any client of GAM actually received such
performance results.
Indices
The MSCI World Index is an unmanaged broad-based index of foreign and
domestic stocks and includes reinvestment of dividends. Investors may not
purchase indices directly.
The MSCI Europe Index is an unmanaged index of 15 European countries and
includes reinvestment of dividends. Investors may not purchase indices directly.
The NASDAQ OTC Composite Index is an unmanaged, market-weighted index of
all over-the-counter common stocks traded on the National Association of
Securities Dealers Automated Quotations System. Investors may not purchase
indices directly.
The performance data for the indices assumes the reinvestment of all
dividends, but does not deduct any fees or expenses. The GAM Multi-Manager Funds
and the GAM Avalon Funds do not restrict their investments to securities
included in the indices.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTORS
SHOULD NOT ASSUME THEY WILL EXPERIENCE COMPARABLE
PERFORMANCE RETURNS AS THOSE DISPLAYED.
NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and exhibits are filed as part of the
Registration Statement.
1. Financial Statements.
* Because the Registrant has no assets, financial statements are omitted.
2. Exhibits:
+ a (1) Certificate of Limited Partnership dated August 22, 2000.
+ (2) Agreement of Limited Partnership dated October 25, 2000.
b Not applicable.
c Not applicable.
+ d See Item 24 (2) (a) (2).
e Not applicable.
f Not applicable.
+ g See Item 24 (2)(a)(2); Investment Consultancy Agreement with GAM
International Management Limited dated October 25, 2000.
+ h Placement Agent Agreement between Prudential Securities and the
Registrant dated December 12, 2000.
i Not applicable.
* j Custodian Services Agreement between Registrant and PFPC Trust Company
dated [ ___________ ].
* k (1) Administration, Accounting and Investor Services Agreement between
Registrant and PFPC Inc. dated [ ___________ ].
* k (2) Escrow Agreement between Registrant and PFPC Inc. dated [
___________ ].
l Not applicable.
m Not applicable.
n Not applicable.
o Not applicable.
p Not applicable.
q Not applicable.
+ r (1) Code of Ethics of Global Asset Management (USA) Inc., as applicable
to its affiliates including GAM Avalon Multi- Global, L.P.
+ (2) Code of Ethics of GAM International Management Limited.
------------------------
+ filed herewith
* to be filed by amendment
<PAGE>
ITEM 25. MARKETING ARRANGEMENTS.
Not Applicable.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Blue Sky fees and expenses (including fees of counsel) $5,000
Legal and accounting fees and expenses $20,000
Printing, engraving and offering expenses $40,000
Miscellaneous $5,000
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
After completion of the private offering of limited partner interests in the
Registrant, the Registrant expects that no person will be directly or indirectly
under common control with the Registrant, except that the Registrant may be
deemed to be controlled by Global Asset Management (USA) Inc. (the "General
Partner"), the general partner of the Registrant. Information regarding the
ownership of the General Partner is set forth in its Form ADV, as filed with the
Securities and Exchange Commission (SEC File No. 801-35671).
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
------------------------------------- -----------------------------
TITLE OF CLASS HOLDERS OF RECORD
------------------------------------- -----------------------------
------------------------------------- -----------------------------
Limited Partnership Interests 1. GAM Services Inc.
------------------------------------- -----------------------------
------------------------------------- -----------------------------
(The Registrant anticipates that
as a result of the private
offering of interests in the
Registrant there will be more
than 100 record holders of such
interests in the future.)
------------------------------------- -----------------------------
ITEM 29. INDEMNIFICATION.
Reference is made to Section 3.9 of the Registrant's Limited Partnership
Agreement (the "Partnership Agreement") filed as Exhibit 2(a) (2) hereto. The
Registrant hereby undertakes that it will apply the indemnification provision of
the Partnership Agreement in a manner consistent with Release 40-11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"), so long as the interpretation therein of Sections 17
(h) and 17 (i) of the 1940 Act remains in effect
The Registrant, in conjunction with the General Partner, the Registrant's
directors and other registered investment management companies managed by the
General Partner 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.
The list required by this Item 30 of officers and directors of the General
Partner, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of the Form ADV filed by the General Partner with the Securities and
Exchange Commission (SEC File No. 801-35671).
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
Fund: GAM Avalon Multi-Global, L.P.
135 East 57th Street
New York, NY 10022
<PAGE>
Administrator: PFPC Inc.
8800 Tinicum Boulevard
3rd Floor, Suite 200
Philadelphia, PA 19153
Custodian: PFPC Trust Company
8800 Tinicum Boulevard
3rd Floor, Suite 200
Philadelphia, PA 19153
General Partner: Global Asset Management (USA) Inc.
135 East 57th Street
New York, NY 10022
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as amended,
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 2nd day of January, 2001.
GAM AVALON MULTI-GLOBAL, L.P.
By Global Asset Management (USA) Inc., General Partner
By: /s/ Joseph J. Allessie
--------------------------------
Joseph J. Allessie
Vice President and Secretary
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- ------------------------
+ a (1) Certificate of Limited Partnership dated August 22, 2000.
+ (2) Agreement of Limited Partnership dated October 25, 2000.
+ g Investment Consultancy Agreement with GAM International
Management Limited dated October 25, 2000.
+ h Placement Agent Agreement between Prudential Securities and
the Registrant dated December 12, 2000.
* j Custodian Services Agreement between Registrant and PFPC Trust
Company dated [ ___________ ].
* k (1) Administration, Accounting and Investor Services Agreement
between Registrant and PFPC Inc. dated [----------- ].
(2) Escrow Agreement between Registrant and PFPC Inc. dated
[ ___________ ].
+ r (1) Code of Ethics of Global Asset Management (USA) Inc., as
applicable to its affiliates including GAM Avalon Multi-
Global, L.P.
+ (2) Code of Ethics of GAM International Management Limited.
------------------------
+ filed herewith
* to be filed by amendment
<PAGE>
REGISTRATION NO. ____
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM N-2
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
------------------------
GAM AVALON MULTI-GLOBAL, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------------------------------
<PAGE>
