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As Filed with the Securities and Exchange Commission on March 28, 1996.
Investment Company Act File No. 811-
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. ___
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AH&H PARTNERS FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in charter)
60 State Street, Boston, Massachusetts 02109
(Address of Principal Executive Offices) (Zip Code)
(617) 371-3900
(Registrant's Telephone Number, including Area Code)
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HARRY E. WELLS, III
MANAGING GENERAL PARTNER
AH&H Partners Fund Limited Partnership
60 State Street, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
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Copies to:
Pamela J. Wilson, Esq.
HALE AND DORR
60 State Street
Boston, MA 02109
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AH&H PARTNERS FUND LIMITED PARTNERSHIP
Cross Reference Sheet Showing Location in
Prospectus of Information Required by Items
of the Registration Form
PART I
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUS
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(1) Cover Page Inapplicable
(2) Inside Front and Outside
Back Cover Page Inapplicable
(3) Fee Table and Synopsis Expense Information
(4) Financial Highlights Inapplicable
(5) Plan of Distribution Inapplicable
(6) Selling Shareholders Inapplicable
(7) Use of Proceeds Inapplicable
(8) General Description of the General Description of the
Registrant Registrant; Investment
Objective and Policies;
Investment Restrictions; Risk
Factors; Partnership
Interests, Long-Term Debt, and
Other Securities
(9) Management Redemptions; Management;
Investment Adviser;
Partnership Interests, Long-
Term Debt, and Other
Securities
(10) Capital Stock, Long-Term Debt Redemptions; Partnership
and Other Securities Interests, Long-Term Debt, and
Other Securities
(11) Defaults and Arrears on Senior Inapplicable
Securities
(12) Legal Proceedings Legal Proceedings
(13) Table of Contents of the Statement Inapplicable
of Additional Information
(14) Cover Page (Statement of Additional Inapplicable
Information)
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(15) Table of Contents Inapplicable
(16) General Information and History General Description of the
Registrant
(17) Investment Objective and Policies Investment Objective and
Policies; Investment
Restrictions; Risk Factors
(18) Management Management
(19) Control Persons and Principal Inapplicable
Holders of Securities
(20) Investment Advisory and Other Investment Adviser; Brokerage
Services Allocation and Other
Practices; Independent
Auditors
(21) Brokerage Allocation and Other Broker Allocation and Other
Practices Practices
(22) Tax Status Tax Status
(23) Financial Statements Report of Independent Public
Accountants
PART II
The information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part II of this Registration Statement.
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AH&H PARTNERS FUND LIMITED PARTNERSHIP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
AH&H Partners Fund Limited Partnership (the "Partnership") was organized
on June 8, 1990 as a Massachusetts limited partnership and is registered with
the Securities and Exchange Commission as a closed-end, non-diversified
management investment company. The Partnership operates under the Investment
Company Act of 1940 (the "1940 Act") as an interval fund. The Partnership's
interests are not registered under the Securities Act of 1933.
Part I contains all of the information required by Parts A and B of Form
N-2 ("Form N-2") of the 1940 Act. There is no separate statement of
additional information. Attached as Part II is all of the information
required by Part C of Form N-2.
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EXPENSE INFORMATION
The purpose of the following information is to help the Limited Partners
(the "Limited Partners") of AH&H Partners Fund Limited Partnership, (the
"Partnership") understand the various fees and expenses they will bear,
directly or indirectly, when they purchase limited partnership interests
("Interests") in the Partnership. The table reflects Limited Partner
transaction expenses and annual operating expenses for the fiscal year ended
December 31, 1995.
LIMITED PARTNER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)........ None
Redemption Fees (as a percentage of amount redeemed).. 1.0%(1)
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE TO INTERESTS)
Management Fees(2).................................... 1.0%
Performance Allocation(3)............................. 2.16%
Interest Payments on Borrowed Funds................... 0.0%
Other Expenses(4)..................................... 0.40%
(1) If a Limited Partner has been a Partner for less than one year on the
date on which the Limited Partner's Interest is redeemed, a fee equal to
1% of the redemption proceeds may be imposed. If the Limited Partner has
been a Partner for more than one year but less than two years at the time
of redemption, a fee equal to 0.50% of the redemption proceeds may be
imposed.
(2) The Partnership pays a quarterly Management Fee equal to 0.25% of the
Partnership's Net Asset Value.
(3) Reflects aggregate performance allocations made to the Capital
Accounts of Limited Partners with respect to the fiscal year ended
December 31, 1995. The Performance Allocation for the current fiscal
year, if any, depends upon the investment performance of the
Partnership. For a discussion of the method for determining the
Performance Allocation, see "Investment Advisory General Partner -
Performance Allocation."
(4) Other expenses paid by the Partnership include accounting, legal and
brokerage fees. Adams, Harkness & Hill, Inc. ("AH&H"), the
Partnership's investment advisor and Advisory General Partner (as
described below under "Investment Advisory General Partner"), pays all
of the remaining "Other Expenses" of the Partnership. For the
Partnership's fiscal year ending December 31, 1995, total "Other
Expenses" of the Partnership, including those paid by AH&H, were equal to
0.68% of the Partnership's net assets attributable to Interests. As of
January 1, 1996, the Partnership is responsible for paying all of its
"Other Expenses" except for accounting and custodial fees, and certain
operational expenses and expenses associated with admitting new Partners
and redeeming Partnership Interests. AH&H is responsible for paying
these remaining "Other Expenses." See "Investment Advisor - Expenses"
below.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return: $10.50 $32.76 $56.82 $125.77
THE EXAMPLE IS DESIGNED FOR INFORMATION PURPOSES ONLY, AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR RETURN. ACTUAL PARTNERSHIP
EXPENSES AND RETURN WILL VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER
THAN THOSE SHOWN.
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GENERAL DESCRIPTION OF THE REGISTRANT
The Partnership is a closed-end, non-diversified management investment
company formed as a Massachusetts limited partnership on June 8, 1990. The
Agreement of Limited Partnership of the Partnership, dated June 8, 1990 was
amended and restated on September 13, 1990, April 1, 1992 and January 1, 1996
(as amended and restated, the "Partnership Agreement"). Since its inception,
the Partnership has served as an investment fund. Interests in the
Partnership are not publicly offered. At December 31, 1995, the Partnership
had net assets of $40,100,000.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Partnership is capital appreciation.
The Partnership seeks to achieve its objective primarily through the
purchase, sale and ownership of common stocks which are listed on the New
York Stock Exchange (NYSE), regional stock exchanges such as the Boston,
Midwest and Pacific Stock Exchanges, the American Stock Exchange (AMEX) and
the NASDAQ over-the-counter market. Such common stocks may be issued by
companies with all levels of capitalization. The Partnership may also invest
up to 25% of its Net Asset Value (as determined on the last day of the
immediately preceding fiscal quarter) in "short" positions. There is no
guarantee the Partnership will achieve its objective.
While the Partnership's assets will be invested primarily in publicly
traded domestic common stocks, the Partnership may, pursuant to the
Partnership Agreement, invest in any instrument that is typically considered
to be a Security. According to the Partnership Agreement, these instruments
include, without limitation, equities, debt, convertible equity and debt,
trust receipts, mortgages, bank instruments, certificates representing
interests, partnership and joint-venture interests, currencies, commodities,
annuities, options, warrants, and futures. The Partnership may also invest
in foreign securities. The Partnership's ability to invest in the foregoing
Securities is subject to the investment restrictions described below. The
Partnership's investment practices involve certain risks. See "Risk Factors"
below.
The Securities in which the Partnership invests are not required to be
rated by any rating organization. The Partnership will invest in Securities
that the Advisory General Partner deems to be consistent with the
Partnership's investment objective. The Advisory General Partner will
analyze potential investments for the Partnership and make investment
decisions based on such analysis.
The Partnership does not intend to invest more than 25% of the value of
its total assets in the securities of issuers primarily engaged in any one
industry. This limitation, however, does not apply to U.S. Government
obligations, repurchase agreements secured by such obligations or to bank
money-market instruments.
During periods when the Advisory General Partner deems it necessary, the
Partnership may hold or invest all or part of its assets in cash and in
domestic and foreign money market instruments, including without limitation,
governmental obligations, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate debt securities and repurchase
agreements.
The investment objective and policies of the Partnership as described
above and investment practices of the Partnership as described below may be
changed by the Managing General Partners without the approval of the Limited
Partners.
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INVESTMENT PRACTICES
COMMON STOCKS. Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits of the
corporation, if any, without preference over any other shareholder or class
of shareholders, including holders of such entity's preferred stock and other
senior equity. Common stock usually carries with it the right to vote and
frequently an exclusive right to do so.
PREFERRED STOCKS. Fixed-rate preferred stocks have fixed dividend
rates. They can be perpetual, with no maturity date, or issued with a fixed
maturity date. Certain issues of preferred stock are convertible into other
equity securities. Perpetual preferred stocks provide a fixed dividend
throughout the life of the issue, with no mandatory retirement provisions,
but may be callable. Sinking fund preferred stocks provide for the
redemption of a portion of the issue on a regularly scheduled basis with, in
most cases, the entire issue being retired at a future date. The value of
fixed rate preferred stocks can be expected to vary inversely with interest
rates.
Adjustable rate preferred stocks have a variable dividend rate which is
determined periodically, typically quarterly, according to a formula based on
a specified premium or discount to the yield on particular U.S. Treasury
securities, typically the highest base-rate yield of one of three U.S.
Treasury securities: the 90-day Treasury bill; the 10-year Treasury note; and
either the 20-year or 30-year Treasury bond or other indices. The premium or
discount to be added to or subtracted from this base-rate yield is fixed at
the time of issuance and cannot be changed without the approval of the
holders of the adjustable rate preferred stock. Some adjustable rate
preferred stocks have a maximum and a minimum rate and in some cases are
convertible into common stock.
CONVERTIBLE SECURITIES. Convertible securities may include corporate
notes or preferred stock but are ordinarily long-term debt obligations of the
issuer convertible at a stated exchange rate into common stock of the issuer.
As with all debt securities, the market value of convertible securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the
convertible security tends to reflect the value of the underlying common
stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock.
However, the extent to which such risk is reduced depends in large measure
upon the degree to which the convertible security sells above its value as a
fixed income security.
WARRANTS AND STOCK PURCHASE RIGHTS. Warrants and stock purchase rights
are securities permitting, but not obligating, their holder to subscribe for
other securities on, or on or before, a fixed date in the future at a
predetermined price. Generally, warrants and stock purchase rights do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not
represent any rights in the assets of the issuer. As a result, an investment
in warrants and stock purchases rights may be considered to entail greater
investment risk than certain other types of investments. In addition, the
value of warrants and stock purchase rights do not necessarily change with
the value of the underlying securities, and they cease to have value if they
are not exercised on or prior to their expiration date. Investment in
warrants and stock purchase rights increases the potential profit or loss to
be realized from the investment of a given amount of the Partnership's assets
as compared with an investment of the same amount in the stock which
underlies such warrants or stock purchase rights.
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DEBT SECURITIES. The Partnership may invest in debt securities
(including bonds, notes, bills and debentures). Capital appreciation in debt
securities in which the Partnership invests may arise as a result of
favorable changes in relative interest rate levels and/or in the
creditworthiness of issuers. The Partnership may also earn income on such
debt securities. There is no requirement with respect to the credit rating,
maturity or duration of debt securities in which the Partnership may invest.
Debt securities in which the Partnership may invest are subject to the risk
of an issuer's inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price volatility due to
such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (market risk).
Particular debt securities will be selected based upon credit risk analysis
of potential issuers, the characteristics of the security and interest rate
sensitivity of the various debt issues available with respect to a particular
issuer and analysis of the anticipated volatility and liquidity of the
particular debt instruments.
REPURCHASE AGREEMENTS. The Partnership may engage in repurchase
agreements with broker-dealers, banks and other financial institutions. A
repurchase agreement is a contract pursuant to which the Partnership, against
receipt of securities of at least equal value, agrees to advance a specified
sum to the financial institution which in turn agrees to reacquire the
securities at a mutually agreed upon time and price. Repurchase agreements,
which are usually for periods of one week or less, enable the Partnership to
invest its cash reserves at fixed rates of return. To minimize the risk of
loss, the Partnership will enter into repurchase agreements only with
financial institutions considered by the Advisory General Partner to be
creditworthy under guidelines adopted by the Managing General Partners. If
an institution enters an insolvency proceeding, the resulting delay in
liquidation of the securities serving as collateral could cause the
Partnership some loss, as well as legal expense, should the value of the
securities decline prior to liquidation.
WHEN-ISSUED AND DELAYED DELIVERY PURCHASES. The Partnership may make
contracts to purchase securities on a "when-issued" or "delayed delivery"
basis. Pursuant to such contracts, delivery and payment for the securities
occurs at a date later than the customary settlement date. The payment
obligation and the interest rate on the securities will be fixed at the time
the Partnership enters into the commitment, but interest will not accrue to
the Partnership until delivery of and payment for the securities. Although
the Partnership would generally purchase securities on a when-issued or
delayed delivery basis with the intention of actually acquiring the
securities for its portfolio (or for delivery pursuant to options or futures
contracts it has entered into) and not for leverage purposes, the Partnership
could dispose of a security prior to settlement if the Advisory General
Partner deemed it advisable. The purchase of securities on a when-issued or
delayed delivery basis involves a risk of loss if the value of the security
to be purchased declines prior to the settlement date. This risk is in
addition to the risk of a decline in value of the Partnership's other assets.
Furthermore, when such purchases are made through a dealer, the dealer's
failure to consummate the sale may result in the loss to the Partnership of
an advantageous yield or price.
SECURITIES LOANS. The Partnership may seek to obtain additional income
by making secured loans of its portfolio securities with a value of up to 33
1/3% of its total assets. In such transactions, the borrower pays to the
Partnership an amount equal to any dividends or interest received on loaned
securities. The Partnership retains all or a portion of the interest
received on investment of cash collateral or receives a fee from the
borrower. All securities loans will be made pursuant to agreements requiring
that the loans be continuously secured by collateral in cash or short-term
debt obligations at least equal at all times to the market value of the
loaned securities. The Partnership may pay reasonable finders',
administrative and custodial fees in connection with loans of its portfolio
securities. Although voting rights or rights to consent accompanying loaned
securities pass to the borrower, the Partnership retains the right to call
the loans at
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any time on reasonable notice, and it will do so in order that the securities
may be voted by the Partnership with respect to matters materially affecting
the Partnership's investment. The Partnership may also call a loan in order
to sell the securities involved. Lending portfolio securities involves risks
of delay in recovery of the loaned securities or, in some cases, loss of
rights in the collateral should the borrower commence an action relating to
bankruptcy, insolvency or reorganization. Accordingly, loans of portfolio
securities will be made only to borrowers considered by the Advisory General
Partner to be creditworthy under guidelines adopted by the Managing General
Partners.
SHORT SALES. The Partnership may from time to time sell securities
short. A short sale is a transaction in which the Partnership would sell
securities it does not own (but has borrowed) in anticipation of a decline in
the market price of the securities. When the Partnership makes a short sale,
the proceeds it receives from the sale will be held on behalf of a broker
until the Partnership replaces the borrowed securities. To deliver the
securities to the buyer, the Partnership arranges through a broker to borrow
the securities and, in so doing, the Partnership will become obligated to
replace the securities borrowed at their market price at the time of
replacement, whatever the price may be. The Partnership may have to pay a
premium to borrow the securities and must pay any dividends or interest
payable on the securities until they are replaced.
The Partnership's obligation to replace the securities borrowed in
connection with a short sale will be secured by collateral deposited with the
broker that consists of cash or liquid, high grade debt securities. In
addition, the Partnership will place in a segregated account an amount of
cash, or liquid, high grade debt securities equal to the difference, if any,
between (1) the market value of the securities sold at the time they were
sold short and (2) any cash, or liquid, high grade debt securities deposited
as collateral with the broker in connection with the short sale (not
including the proceeds of the short sale). Until it replaces the borrowed
securities, the Partnership will maintain the segregated account daily at a
level so that (1) the amount deposited in the account plus the amount
deposited with the broker (not including the proceeds from the short sale)
will equal the current market value of the securities sold short and (2) the
amount deposited in the account plus the amount deposited with the broker
(not including the proceeds from the short sale) will not be less than the
market value of the securities at the time they were sold short. Short sales
by the Partnership involve certain risks and special considerations.
Possible losses from short sales differ from losses that could be incurred
from a purchase of a security, because losses from short sales may be
unlimited, whereas losses from purchases can equal only the total amount
invested.
OPTIONS ON SECURITIES AND SECURITIES INDICES. The Partnership may write
and purchase call and put options on securities and securities indices.
A call option written by the Partnership obligates the Partnership to
sell specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. All call
options written by the Partnership are covered, which means that the
Partnership will own the securities subject to the option so long as the
option is outstanding. The purpose of writing covered call options is to
realize greater income than would be realized on portfolio securities
transactions alone. However, in writing covered call options for additional
income, the Partnership may forego the opportunity to profit from an increase
in the market price of the underlying security. A put written by the
Partnership would obligate the Partnership to purchase specified securities
from the option holder at a specified price if the option is exercised at any
time before the expiration date. All put options written by the Partnership
would be covered, which means that the Partnership would have deposited in a
segregated account cash or liquid, high grade debt securities with a value at
least equal to the exercise price of the put option. The purpose of writing
such options is to generate additional income for the Partnership. However,
in return for the option premium, the Partnership accepts the risk that it
may be required to purchase the underlying
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securities at a price in excess of the market value at the time of purchase.
In addition, a written call or put option may be covered by maintaining cash
or liquid, high grade debt securities in a segregated account or by entering
into an offsetting forward contract and/or by purchasing an offsetting option
which, by virtue of its exercise price or otherwise, reduces the
Partnership's net exposure on its written position. The Partnership may
terminate its obligations under an exchange traded call or put option written
by the Partnership by purchasing an option identical to the one it has
written. Obligations under over-the-counter options may be terminated only
by entering into an offsetting transaction with the counter party to such
option. Such purchases are referred to as "closing purchase transactions."
The Partnership may also write (sell) covered call and put options on
any securities index. Options on securities indices are similar to options
on securities, except that the exercise of securities index options requires
cash payments and does not involve the actual purchase or sale of securities.
In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market
rather than price fluctuations in a single security. The Partnership may
cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. The Partnership may cover call and put options
on a securities index by maintaining cash or liquid, high grade debt
securities with a value equal to the exercise price in a segregated account
with its custodian.
The Partnership may purchase put and call options on any securities in
which it may invest or options on any securities index based on securities in
which it may invest. The Partnership will purchase such options on
securities that are listed on securities exchanges or traded in the
over-the-counter market. The Partnership would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it has purchased. The Partnership would normally purchase call
options in anticipation of an increase in the market value of securities of
the type in which it may invest. The purchase of a call option would entitle
the Partnership, in return for the premium paid, to purchase specified
securities at a specified price at any time during the option period. The
Partnership would ordinarily realize a gain if, during the option period, the
value of such securities exceeded the sum of the exercise price, the premium
paid and transaction costs. Otherwise, the Partnership would realize either
no gain or a loss on the purchase of the call option. The Partnership would
normally purchase put options in anticipation of a decline in the market
value of securities in its portfolio ("protective puts") or in securities in
which it may invest. The purchase of a put option would entitle the
Partnership, in exchange for the premium paid, to sell specified securities
at a specified price during the option period. The purchase of protective
puts is designed to offset or hedge against a decline in the market value of
the Partnership's securities. Put options may also be purchased by the
Partnership for the purpose of affirmatively benefiting from a decline in the
price of securities which it does not own. The Partnership would ordinarily
realize a gain if, during the option period, the value of the underlying
securities decreased below the exercise price sufficiently to more than cover
the premium and transaction costs. Otherwise, the Partnership would realize
either no gain or a loss on the purchase of the put option. Gains and losses
on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying portfolio securities.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that
a liquid secondary market on an options exchange will exist for any
particular exchange-traded option or at any particular time. If the
Partnership is unable to effect a closing purchase transaction with respect
to covered options it has written, the Partnership will not be able to sell
the underlying securities or dispose of assets held in a segregated account
until the options expire or are exercised. Similarly, if the Partnership is
unable to effect a closing sale transaction with respect to options it has
purchased, it would have to exercise the options in
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order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may
be insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation ("OCC") may
not at all times be adequate to handle current trading volume; or (vi) one or
more exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market on that
exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by the OCC
as a result of trades on that exchange would continue to be exercisable in
accordance with their terms. The Partnership may purchase and sell both
options that are traded on exchanges and options traded over-the-counter.
The market for over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations.
Transactions by the Partnership in options on securities and securities
indices will be subject to limitations established by security exchanges,
boards of trade or other trading facilities governing the maximum number of
options in each class which may be written or purchased by a single investor
or group of investors acting in concert, regardless of whether the options
are written or purchased on the same or different exchanges, boards of trade
or other trading facilities or are held or written in one or more accounts or
through one or more brokers. Thus, the number of options which the
Partnership may write or purchase may be affected by options written or
purchased by other investment advisory clients of the Advisory General
Partner. An exchange, board of trade or other trading facility may order
the liquidation of positions found to be in excess of these limits, and it
may impose certain other sanctions. The writing and purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The successful use of protective puts for hedging purposes
depends in part on the Advisory General Partner's ability to predict future
price fluctuations and the degree of correlation between the options and
securities markets.
FOREIGN CURRENCIES. The Partnership may invest in foreign currencies
and in securities quoted or denominated in foreign currencies. The
Partnership may also invest in securities denominated or quoted in
currency baskets including the European Currency Unit ("ECU"). The specific
amounts of currencies comprising the ECU may be adjusted by the Council of
Ministers of the European Union from time to time to reflect changes in
relative values of the underlying currencies.
Currency exchange rates may fluctuate significantly over short periods
of time causing, together with other factors, the Partnership's Net Asset
Value to fluctuate as well. Such fluctuations can be substantial and there
have been substantial devaluations of foreign currencies against the U.S.
dollar in the past. Currency exchange rates generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investing in different countries, actual or anticipated changes in
interest rates and other complex factors, as seen from an international
perspective. Currency exchange rates can be affected unpredictably by
intervention by the United States or foreign governments or central banks, or
the failure to intervene, or by currency controls or political developments
in the United States or abroad. To the extent that a substantial portion of
the Partnership's total assets, adjusted to reflect the Partnership's net
position after giving effect to currency transactions, is in or quoted or
denominated in the currencies of foreign countries, the Partnership will be
more susceptible to the risk of adverse economic and political developments
within those countries.
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The Partnership is authorized to engage in a variety of foreign currency
management techniques including forward foreign currency exchange contracts,
options on currencies and futures contracts.
The Partnership may purchase or sell forward foreign currency exchange
contracts to seek to increase total return when the Advisory General Partner
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Partnership's
portfolio. In addition, the Partnership may enter into forward foreign
currency exchange contracts in order to hedge against a decline in the U.S.
dollar value of its foreign currency denominated or quoted portfolio
securities or the income anticipated to be earned on such portfolio
securities. The Partnership may engage in cross-hedging by using forward
contracts in a currency different from that in which the hedged security is
denominated or quoted if the Advisory General Partner determines that there
is a pattern of correlation between the two currencies.
If the Partnership enters into a forward foreign currency exchange
contract to sell foreign currency to increase total return or to buy foreign
currency for any purpose, the Partnership will be required to place cash or
liquid, high grade debt securities in a segregated account with the
Partnership's custodian in an amount equal to the value of the Partnership's
total assets committed to the consummation of the forward contract. If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account so that the value of the
account will equal the amount of the Partnership's commitment with respect to
the contract.
Forward foreign currency exchange contracts are subject to the risk that
the counterparty to such contract will default on its obligations. Since a
forward contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive the Partnership of unrealized profits or the
benefits of a currency hedge, increase transaction costs or force the
Partnership to cover its purchase or sale commitments, if any, at the current
market price. The Partnership will not enter into a forward contract unless
the Advisory General Partner determines that there is a reasonably low
likelihood of default by the counterparty to the contract.
The Partnership may purchase and sell (write) put and call options on
currencies for the purpose of protecting against declines in the U.S. dollar
value of foreign portfolio securities and anticipated payments of principal
and interest on such securities and against increases in the U.S. dollar cost
of foreign securities to be acquired. The Partnership may use options on
currency to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different currency
with a pattern of correlation. As with other kinds of option transactions,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. In the event of exchange
rate movements adverse to the Partnership's position, the Partnership may
forfeit the entire amount of the premium plus related transaction costs. In
addition, the Partnership may purchase call or put options on currency to
seek to increase total return when the Advisory General Partner anticipates
that the currency will appreciate or depreciate in value, but the securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Partnership's portfolio. Options on
currencies to be written or purchased by the Partnership will be traded on
U.S. and foreign exchanges or over-the-counter.
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STRUCTURED SECURITIES. The Partnership may invest in structured notes,
bonds or debentures, the value of the principal of and/or interest on which
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, may result in
the loss of the Partnership's investment. Structured securities may be
positively or negatively indexed, so that appreciation of the Reference may
produce an increase or decrease in the interest rate or value of the security
at maturity. In addition, the change in interest rate or the value of the
security at maturity may be a multiple of the change in the value of the
Reference. Consequently, structured securities entail a greater degree of
market risk than other types of debt obligations. Structured securities may
also be more volatile, less liquid and more difficult to accurately price
then less complex fixed income investments.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To hedge against
changes in interest rates, securities prices or currency exchange rates or to
seek to increase total return, the Partnership may purchase and sell various
kinds of futures contracts and purchase and write call and put options on any
of such futures contracts. The Partnership will engage in futures and
related options transactions only for bona fide hedging purposes as defined
in regulations of the Commodity Futures Trading Commission or to seek to
increase total return to the extent permitted by such regulations.
The Partnership may not purchase or sell futures contracts or purchase
or sell related options to increase total return, except for closing purchase
or sale transactions, if immediately thereafter the sum of the amount of
initial margin deposits and premiums paid on the Partnership's outstanding
positions in futures and related options entered into for the purpose of
seeking to increase total return would exceed 5% of the market value of the
Partnership's net assets. These transactions involve brokerage costs,
require margin deposits and, in the case of contracts and options obligating
the Partnership to purchase securities or currencies, require the Partnership
to segregate liquid, high grade debt securities with a value equal to the
amount of the Partnership's obligations.
While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other
risks. Thus, while the Partnership may benefit from the use of futures and
options on futures, unanticipated changes in interest rates, securities
prices or currency exchange rates may result in a poorer overall performance
of the Partnership than if it had not entered into any futures contracts or
options transactions. The loss incurred by the Partnership in writing
options on futures is potentially unlimited and may exceed the amount of the
premium received.
Futures markets are highly volatile and the profitability of the
Partnership's trading in futures to increase total return will depend on the
ability of the Advisory General Partner to correctly analyze the futures
markets. In addition, because of the low margin deposits normally required
in futures trading, a relatively small price movement in a futures contract
may result in substantial losses to the Fund. Further, futures contracts and
options on futures may be illiquid, and exchanges may limit fluctuations in
futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection
may not be obtained and the Partnership may be exposed to risk of loss.
Perfect correlation between the Partnership's futures positions and portfolio
positions will be impossible to achieve.
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FOREIGN SECURITIES. The Partnership will invest in securities of both
domestic and foreign issuers. Investments in foreign securities offer
potential benefits not available from investments solely in securities of
domestic issuers but also involve certain significant risks that are not
typically associated with investment in domestic securities. There may be
less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers are not generally subject to accounting,
auditing and financial reporting standards comparable to those applicable to
domestic issuers. Foreign securities markets may have substantially less
trading volume and be subject to less government supervision than U.S.
securities markets, and securities of many foreign issuers may be less liquid
and more volatile than securities of comparable domestic issuers. In
addition, there is generally less government regulation of securities
exchanges, securities dealers, and listed and unlisted companies in foreign
countries than in the United States.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods during which a portion of the assets of the Partnership is
uninvested and no return is earned thereon. Inability of the Partnership to
make intended security purchases due to settlement problems could cause the
Partnership to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result
either in losses to the Partnership due to subsequent declines in value of
the portfolio securities or, if the Partnership has entered into a contract
to sell the securities, could result in possible liability to the purchaser.
Costs associated with transactions in foreign securities are generally higher
than costs associated with transactions in U.S. securities.
In addition, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, imposition of
withholding or other foreign taxes on dividend or interest payments (or, in
some cases, capital gains) which would reduce the Partnership's total return
on such investments and the amounts available for distribution to Partners,
limitations on the removal of funds or other assets of the Partnership and
political or social instability or diplomatic developments which could affect
investments in those countries. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position. The securities markets,
values of securities, yields and risks associated with securities markets in
different countries may change independently of each other.
PORTFOLIO TURNOVER. In general, the Partnership intends to purchase and
hold securities for capital appreciation and not to trade in securities for
short-term gain. However, the Partnership's annual portfolio turnover rate
may exceed 100%. A high portfolio turnover rate involves higher
transactional expenses for the Partnership. The Partnership's portfolio
turnover rate is calculated by dividing the lesser of sales or purchases of
portfolio securities by the average monthly value of the Partnership's
portfolio securities. For purposes of this calculation, portfolio securities
exclude securities having a maturity when purchased of one year or less.
Notwithstanding the foregoing, the Advisory General Partner may, from time
to time, make short-term investments when it believes such investments are in
the best interest of the Partnership.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental policies that may
not be changed without the approval of the holders of a majority of Interests
in the Partnership. A majority of Interests in the Partnership for this
purpose means (i) more than 50% of the outstanding Interests of the
Partnership or (ii) 67% or more of the outstanding Interests represented at a
meeting where more than 50% of the outstanding Interests of the Partnership
are represented, whichever is less ("Majority Partnership Vote"). Under these
restrictions, the Partnership may not:
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1. Borrow money or issue senior securities except that the
Partnership may borrow money or issue senior securities to the extent
permitted by the Investment Company Act of 1940, as amended (the "1940
Act").
2. Underwrite securities issued by other persons, except to the
extent that in connection with the disposition of its portfolio
investments it may be deemed to be an underwriter under the federal
securities laws.
3. Purchase or sell real estate, although the Partnership may
purchase securities of issuers which deal in real estate, securities
which are secured by interests in real estate and securities
representing interests in real estate.
4. Purchase or sell commodities or commodity contracts, except that
the Partnership may purchase or sell financial futures contracts and
related options.
5. Make loans, except by the purchase of debt obligations in which
the Partnership may invest consistent with its investment policies, by
entering into repurchase agreements, through the lending of its
portfolio securities, or through loans to its Limited Partners that are
not affiliated persons in accordance with the provisions of the
Partnership Agreement.
6. Invest 25% or more of the value of its total assets in the
securities of issuers primarily engaged in any one industry, provided
that this limitation does not apply to obligations issued or guaranteed
as to interest and principal by the U.S. Government or its agencies or
instrumentalities or to repurchase agreements secured by such
obligations or to bank money-market instruments.
With respect to the investment restriction regarding borrowing, it
should be noted that the 1940 Act has certain restrictions with which the
Partnership will comply.
Pursuant to the Partnership Agreement, the Partnership shall not,
without the approval of the holders of 75% of the outstanding Interests of
the Partnership, do any of the following:
1. Purchase any securities if to do so would require any of
the Managing General Partners or the Advisory General Partner (as
described below under "Investment Advisory General Partner ") to
register under the Commodity Exchange Act.
2. Carry on any operations or conduct regular business as a
broker/dealer.
3. Knowingly perform any act which would subject any Limited
Partner to liability as a general partner in any jurisdiction.
4. Make investments constituting greater than 25% of the
Partnership's net asset value (as determined on the last day of the
immediately preceding fiscal quarter) in "short" positions.
REDEMPTIONS
The Partnership offers to redeem Interests held by Limited Partners in
accordance with Rule 23c-3 under the 1940 Act on each March 31, June 30,
September 30 and December 31. Limited Partners receive a written notice
setting forth the terms of each offer. The Partnership will offer to redeem
such percentage of Interests as a majority of the Managing General Partners
determine to be in the best interests of the Partnership, which in no event
will be less than the minimum or more than the maximum
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allowed by Rule 23c-3. It is currently expected that the Partnership will
offer to redeem up to 25% in the aggregate of the outstanding Interests on
each redemption date. The redemption price will be the pro rata share of the
Net Asset Value of the Partnership represented by the Interests accepted for
redemption as of the redemption date. Any accrued performance fees will be
taken into account when determining Net Asset Value for purposes of
determining redemption payments.
Requests for redemption must be submitted to the Advisory General
Partner at least ten calendar days prior to March 31, June 30, September 30
or December 31, as applicable. Such requests may be withdrawn or modified by
the submitting Limited Partner at any time prior to March 31, June 30,
September 30 or December 31, as applicable, by submitting a written
withdrawal or modification to the Advisory General Partner. The Partnership
shall pay redemption proceeds within five days of the redemption offer. In
the event that a redemption offer is oversubscribed, the Partnership will
redeem tendered Interests pro rata on the basis of the Capital Account
balances represented by the tendered Interests.
The Managing General Partners may, by majority vote (including a
majority of those who are not "interested persons" as defined in the 1940
Act), suspend or postpone a redemption offer but only (i) for periods during
which the NYSE or any other market on which securities held by the
Partnership are principally traded is closed or trading is restricted, except
over weekends and holidays, (ii) for any period during which an emergency
exists and disposal of securities is impractical or during which it is
impractical for the Partnership to calculate net asset value, or (ii) for
other periods as the SEC may permit.
Under the Partnership Agreement, certain redeeming Limited Partners will
pay a redemption fee if the redemption is made on March 31, June 30, or
September 30, rather than December 31. If the redeeming Limited Partner has
been a Limited Partner for one year or less as of the redemption date, such
Limited Partner will pay a redemption fee equal to 1% of the redemption
proceeds. Such fee is .50% of redemption proceeds if the redeeming Limited
Partner has been a Limited Partner for more than one year but not more than
two years as of the redemption date. No fee is payable by Limited Partners
that have been Limited Partners for more than two years as of the redemption
date. The redemption fees are payable to the Partnership and are to cover
the Partnership's costs in making the redemptions. The Partnership will not
make any distributions of redemption proceeds to a Limited Partner to the
extent such Limited Partner's Capital Account would have a negative balance
as a result. Limited Partners receiving redemption proceeds in excess of
their positive Capital Account balances must return the excess to the
Partnership.
Under the Partnership Agreement, the Advisory General Partner may, in
its sole discretion, require any Limited Partner to tender its whole Interest
for redemption on any March 31, June 30, September 30 or December 31 if such
Limited Partner does not maintain a minimum amount in his or her Capital
Account as determined from time to time by the Managing General Partners.
The Managing General Partners shall provide ninety days notice to the Limited
Partners prior to the effectiveness of any new minimum Capital Account
requirement.
The Partnership currently intends to finance redemptions with cash
reserves and, if necessary, with the proceeds of the sales of portfolio
securities. The proceeds from the issuance of additional Interests may also
be used to finance redemption payments. The need to dispose of portfolio
securities to meet redemption requests may result in the Partnership
disposing of portfolio investments at a time disadvantageous to the
Partnership. The amount of assets under the Partnership's management may
decrease as a result of redemptions if there are not additional capital
contributions to the Partnership to
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offset such redemptions. Such a decrease in assets may impair the
Partnership's ability to take advantage of investment opportunities and
increase the remaining Limited Partners' pro rata shares of the Partnership's
expenses.
The Partnership's policy with respect to scheduled redemptions as
described above is fundamental. Therefore, any amendment of such policy will
require a Majority Partnership Vote.
RISK FACTORS
RISKS RELATING TO THE PARTNERSHIP
GENERAL. The Partnership is a closed-end, non-diversified management
investment company designed primarily as a long-term investment and not as a
trading vehicle. Due to the uncertainty inherent in all investments, there
can be no assurance that the Partnership will achieve its investment
objective. Because the Partnership is a closed-end investment company
operating as an interval fund, Limited Partners do not have the right to
cause the Partnership to redeem their Interests at any time. Instead, the
Partnership will, on each March 31, June 30, September 30 and December 31,
offer to redeem, subject to certain conditions, Interests representing up to
25% of the Net Asset Value of the Partnership.
MANAGEMENT; RELIANCE ON THE ADVISORY GENERAL PARTNER. The Managing
General Partners are vested with the sole authority to manage the business
and affairs of the Partnership and may delegate any of such authority to the
Advisory General Partner. The Advisory General Partner, a registered
investment advisor, also serves as the Partnership's investment advisor. The
Limited Partners will have no right to participate in the management or
conduct of the affairs of the Partnership, and their ability to take action
or withhold consent with respect to Partnership business is confined to
certain matters specified by law or by the Partnership Agreement. The
Limited Partners may vote on (i) the election or, in certain cases, removal
of Managing General Partners, (ii) the approval or termination of any
investment management agreement or underwriting contract, (iii) the approval
or ratification of accountants, (iv) the admission of additional Advisory
General Partners, (v) certain amendments to the Partnership Agreement, (vi)
termination or dissolution of the Partnership, (vii) amendments to the
Partnership's fundamental investment policies, and (viii) such other matters
as the 1940 Act and the Massachusetts Uniform Limited Partnership Act, as
amended (the "Partnership Act") require be approved by the Limited Partners.
The Managing General Partners have delegated authority to manage
investments on behalf of the Partnership to the Advisory General Partner
pursuant to an investment management agreement between the Partnership and
AH&H dated as of January 1, 1996 (the "Management Agreement"). The success
of the Partnership's trading activities, therefore, depends almost entirely
on the ability of the Advisory General Partner to select securities as well
as to predict accurately and take advantage of rises and declines in the
securities market.
CONFLICTS OF INTEREST. Although AH&H, the Partnership's investment
advisor, will devote as much time as it deems necessary to the affairs of the
Partnership, AH&H will devote substantial efforts and expense to the business
of other partnerships or ventures. AH&H may sponsor additional
securities-related ventures, investment advisor activities and/or
partnerships in the future, including undertaking dealings which are
competitive with the Partnership. AH&H and its affiliates will also act as
investment advisor for other individuals and investors. Any of the foregoing
ventures may involve conflicts of interest with the Partnership. In
addition, the Partnership and the Limited Partners could be adversely
affected by financial and other difficulties encountered by AH&H as a result
of such other undertakings. General fiduciary standards apply to a general
partner of a limited partnership to resolve
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conflicts of interest and to prevent unfairness by the General Partners in
any transactions with the Partnership. AH&H will also be subject to the
requirements of the 1940 Act and the Investment Advisory Act of 1940.
However, litigation to enforce the rights of Limited Partners under the
Partnership Agreement might prove to be prohibitively expensive.
REDEMPTIONS; SECURITIES RISKS; LIMITED TRANSFERABILITY OF INTERESTS.
Pursuant to restrictions contained in the Partnership Agreement and in the
1940 Act, Partners will not be permitted to have their Interests in the
Partnership redeemed any time they desire. Subject to their right to redeem
Interests, Limited Partners should be aware of the long-term nature of their
investment in the Partnership. Interests will not be registered under the
Securities Act of 1933 or under applicable state law, and no such
registrations are contemplated by the Partnership. Each Limited Partner will
be required to represent, among other things, that Interests are being
acquired for the purchaser's own account for investment purposes and not with
a view to resale or distribution. It is not anticipated that any public or
private market for the resale of the Interests will develop. Moreover, the
transfer of the Interests is generally prohibited under the Partnership
Agreement. Accordingly, Limited Partners who do not wish, or are not
financially able, to remain as Limited Partners for a substantial period of
time are advised against investment in the Partnership.
INVESTMENT AND ECONOMIC RISKS
RISKS OF PARTICULAR INVESTMENTS. Investment by the Partnership will be
subject to all of the risks attendant to any investment in equity securities.
In addition to the factors discussed elsewhere, investments may decline in
value for any number of reasons over which the Partnership may have no
control, including factors pertaining to particular portfolio securities,
such as the market for the issuer's products or services, sources of supply,
technological changes within the issuer's industry, the availability of
additional capital and labor and other similar conditions. The Partnership
is authorized to invest in a wide variety of securities and other instruments
and to engage in various investment management practices. Such securities,
instruments and practices involve risks that may differ from and be greater
than risks associated with investments in equity securities.
RISK OF INVESTING IN COMPANIES WITH SMALL MARKET CAPITALIZATIONS. The
Partnership may invest without limitation in the securities of issuers with
small or medium market capitalizations. While companies with small or medium
size market capitalizations can offer greater growth potential than larger,
more mature, better known firms, investing in the securities of such
companies also involves greater risk. Historically, the equity securities of
companies with smaller market capitalizations have been more volatile in
price than securities of companies with greater capitalizations. Among the
reasons for the greater price volatility are the less certain growth
prospects of small and medium sized firms, the lower degree of liquidity in
the markets for such stocks and the greater sensitivity of small and medium
sized companies to changing economic conditions. The values of stocks of
smaller and medium capitalization companies may fluctuate independently of
prices of stocks of companies with greater or lesser public market
capitalizations. The stocks of such companies may decline in price as market
prices of large company stocks rise, or rise in price as large company stock
prices decline. Furthermore, the securities of small and medium
capitalization companies may trade less frequently and with less volume than
securities of companies with larger public market capitalizations.
INVESTMENT IN ILLIQUID SECURITIES. The Partnership may invest without
limit in securities for which there is not a significant trading market or
that are purchased directly from issuers. Such investments may be illiquid
and involve a high degree of business and financial risk that can result in
substantial losses. Because of the absence of active or regulated trading
markets for these investments, and because of the difficulties in determining
market values accurately, the Partnership may take longer to liquidate these
positions than would be the case for publicly listed securities. The prices
realized on the resale of said
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securities could be less than those originally paid by the Partnership.
Further, companies whose securities are not publicly listed may not be
subject to public disclosure and other investor protection requirements
applicable to publicly traded securities.
INVESTMENT CONCENTRATION. The Partnership may invest up to 25% of its
total assets in securities of issuers in the same industry and, except for
the foregoing limitation, there is no limitation on the Partnership's
investment in individual issuers. Because the Partnership has the ability to
concentrate its investments in a relatively small number of companies and
industries, the overall negative impact on the Partnership of adverse
developments with respect to a single issuer or industry in which the
Partnership is extensively invested could be considerably greater than if the
Partnership were not permitted to concentrate its investments to such an
extent.
DEBT SECURITIES. The Partnership may invest in debt securities,
including unrated securities or securities rated in the lowest rating
categories by statistical rating organizations. The market value of debt
securities will vary directly in response to changes in interest rates and
the financial condition of the issuer. During periods of declining interest
rates, the value of such securities generally increases, and when interest
rates rise, the value generally declines. These changes in market value
would be reflected in the Partnership's Net Asset Value. Debt obligations
rated below investment grade are speculative with respect to the capacity to
pay interest and repay principal in accordance with the terms of such
obligations. While generally providing greater income than investments in
higher quality obligations, non-investment grade obligations involve a
greater risk of loss of principal and income, including the possibility of
default or bankruptcy of the issuers of such obligations, and have greater
price volatility, especially during periods of economic uncertainty or
change. The market values of lower quality debt obligations tend to reflect
individual developments of the issuer to a greater extent than do higher
quality obligations, which react primarily to fluctuations in the general
level of interest rates. In addition, lower quality debt obligations tend to
be more sensitive to economic conditions and generally have more volatile
prices than higher quality obligations.
RISKS OF DERIVATIVE TRANSACTIONS. The Partnership's transactions, if
any, in options, futures, options on futures, structured securities and
currency forward contracts involve certain risks, including a possible lack
of correlation between changes in the value of hedging instruments and the
portfolio assets being hedged, the potential illiquidity of the markets for
derivative instruments, the risks arising from the margin requirements and
related leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if AH&H is incorrect in
its expectation of fluctuations in securities prices or currency prices.
RISKS ASSOCIATED WITH SHORT SALES. The investment strategy of the
Partnership may involve the short sale of Securities. The Partnership may
make investments constituting up to 25% of its Net Asset Value in "short"
positions. To the extent that the Partnership engages in short sales, the
Partnership borrows securities from a broker and sells the borrowed
securities. The Partnership is obligated to redeliver the securities sold
short and will be subject to the risk of loss in the event that the market
value of the securities sold short plus related transaction costs exceeds the
proceeds to the Partnership from the short sale. The 1940 Act requires the
Partnership to maintain collateral in a segregated account at least equal to
the market value of the securities which have been sold short. Additionally,
the Federal Reserve Board regulations and stock exchange rules to which the
executing brokers are subject (the "Margin Rules") require that the
Partnership maintain an adequate margin and adequate collateral to secure its
obligations. Therefore, cash and securities are pledged to secure the short
sale obligations and, in the event of an increase in the market value of the
common stock, cash or convertible securities will be transferred to the
brokerage account in order to meet such obligations. To the extent permitted
by the
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1940 Act, the Partnership is authorized to engage in "naked" short sales
(i.e., the short positions will not necessarily be fully hedged by the
simultaneous purchase of a sufficient number of convertible securities).
PERFORMANCE ALLOCATION. The Advisory General Partner will receive a
Performance Allocation if the Partnership achieves a benchmark level of
return. The Performance Allocation may create an incentive for AH&H to make
investments that are riskier or more speculative than would be the case in
the absence of a performance fee. The Advisory General Partner will receive
a Performance Allocation from the Partnership based upon both unrealized
appreciation as well as realized gains in the Partnership's portfolio.
Comparable services may be available at fees which do not include a
performance feature, and such fees may be lower.
LOSS ON LIQUIDATION AND TERMINATION. In the event of liquidation and
termination of the Partnership, the proceeds, if any, realized from the
liquidation of assets will be distributed to the Partners, but only after
satisfaction of the claims of creditors. The ability of Limited Partners to
participate in the proceeds, if any, therefrom will depend on the amount of
funds so realized and the claims to be satisfied therefrom.
TAX RISKS
PARTNERSHIP STATUS. The Partnership presently intends to operate so
that it is properly treated under the Internal Revenue Code of 1986, as
amended (the "Code") as a partnership that is not a publicly-traded
partnership. If the Partnership were deemed to be an association taxable as
a corporation or a publicly-traded partnership it would be taxable as a
corporation and the Limited Partners would not be entitled to deduct
Partnership losses, if any. In addition, the Partnership would pay taxes as
a corporation and the Limited Partners would be taxed as stockholders of a
corporation. Tax liabilities of the Partnership would reduce the amount of
assets in the Partnership, thereby reducing the capability of the Partnership
to take advantage of investment opportunities and would also reduce the
amounts available for allocations to the Partners' Capital Accounts.
However, the Partnership could avoid paying federal income tax if it were
able to satisfy the conditions for treatment as a regulated investment
company under the Code and would consider qualifying for such treatment if it
would otherwise be taxable as a corporation.
TAX ALLOCATIONS. If the allocation of Partnership income, gains and
losses were determined not to have substantial economic effect for tax
purposes, such items would be reallocated among the Partners in proportion to
their respective Interests in the Partnership as determined by the IRS or the
courts. In addition, due to the requirements governing tax allocations of
Partnership gain or loss, it is possible that, under certain conditions,
Partners may be allocated gains or losses for tax purposes which may be
greater or less than the economic increase or decrease in the value of their
Interests in the Partnership during the corresponding fiscal period. See
"Federal Income Tax Considerations" below.
POSSIBLE TAX CHANGES. All of the statements contained in this
registration statement as to Federal income tax aspects are based upon the
provisions of the Code and administrative and judicial interpretations
thereunder in existence on the date hereof. No assurance can be given that
legislative, administrative or judicial changes will not occur which would
modify those statements. Any changes may or may not be retroactive with
respect to transactions completed prior to the effective date of the changes.
Federal tax legislation is presently being considered that would change tax
rates applicable to long-term capital gains and effect other significant tax
law changes. Prospective investors should consult their own tax advisers
regarding the effect of such changes on their own individual tax situations
and any effects on a possible investment in the Partnership.
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The Partnership is relying upon "grandfather" provisions of the
regulations under the Code applicable to publicly traded limited partnerships
that permit the Partnership to be taxed as a partnership while having up to
500 partners. Such "grandfather" provisions currently expire in 2005.
Unless the Code or the regulations thereunder are revised, the Partnership
will need to consider what actions, including termination of the Partnership,
will be appropriate when the grandfather provisions expire.
MANAGEMENT
The Managing General Partners of the Partnership are responsible for the
overall management of the Partnership. In addition to the obligations of the
Advisory General Partner under the Management Agreement, the Advisory General
Partner has authority to act in its sole discretion as described in the
Partnership Agreement to, among other things, admit additional Limited
Partners, accept additional capital contributions from Limited Partners and
consent or withhold consent to any disposition of Interests by Limited
Partners.
The Managing General Partners and their principal occupations during the
past five years are set forth below. Managing General Partners who are
"interested persons" of the Partnership or of the Advisory General Partner
as defined in the 1940 Act are denoted by an asterisk (*).
Name, Address Principal Occupation(s)
and Age During Past 5 Years
Harry E. Wells, III* Managing Director, AH&H
(age 54)
Nelson S. Gifford Principal, Fleetwing Capital (investment
(age 65) company); Member of Board of Directors
of Boston Edison and John Hancock Mutual
Life Insurance Company; Chairman of the
Board of Trustees of Tufts University
(until 1995); Former Member of Board of
Directors of Bank of Boston
Richard H. Rhoads Chairman, New England Business Service
(age 65) (producer of standardized business forms)
The Managing General Partners do not currently anticipate establishing
an advisory board, executive committee, audit committee, nominating committee
or investment committee.
COMPENSATION OF MANAGING GENERAL PARTNERS
The Managing General Partners have the right to establish their
compensation from time to time. Currently, the Partnership pays an annual
Managing General Partner's fee of $5,000 to each Managing General Partner who
is not affiliated with AH&H. Managing General Partners affiliated with AH&H
will receive no compensation from the Partnership.
The following table sets forth certain information with respect to the
estimated compensation to be paid by the Partnership to each Managing General
Partner of the Partnership who is not affiliated with AH&H for the fiscal
year ended December 31, 1996.
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Pension or Total
Retirement Compensation
Benefits from
Aggregate Accrued Partnership
Compensation as Part of Estimated and Other
from Partnership Annual Benefits Funds
Name of Person Partnership Expenses Upon Retirement in Complex
Harry E. Wells, III $0 $0 $0 $0
Nelson S. Gifford $5,000 $0 $0 $5,000
Richard H. Rhoads $5,000 $0 $0 $5,000
As of December 31, 1995, no person owned beneficially or of record 5% or
more of outstanding Partnership Interests.
INVESTMENT ADVISER
Adams, Harkness & Hill, Inc., a Massachusetts corporation with its
principal place of business at 60 State Street, Boston, Massachusetts 02109
is the Partnership's investment advisor. AH&H also serves as the
Partnership's Advisory General Partner.
AH&H was formed in 1969 by a merger of Weston W. Adams & Company
(established in 1937) and Harkness & Hill (established in 1952). AH&H does
not currently serve as an investment advisor to any other investment
companies. As of December 31, 1995, AH&H had approximately $40,100,000 in
assets under management in its capacity as investment advisor to the
Partnership and its other advisory clients.
Under the terms of the Management Agreement, the Partnership has
retained AH&H to provide overall investment advice, to manage the investment
of the Partnership's assets and, in AH&H's sole discretion, to purchase and
sell the portfolio securities for the Partnership either on its own or
through brokers in furtherance of the Partnership's investment objective.
AH&H is responsible for obtaining, compiling and evaluating research and
data. AH&H also maintains all books and records that the 1940 Act requires.
Under the Management Agreement, the Partnership pays all costs and expenses
incurred in connection with the management of the Partnership's account
assets with AH&H, including but not limited to all costs of purchasing,
selling, and carrying securities, interest on borrowings, brokerage costs and
custodial fees. AH&H pays compensation to all Managing General Partners of
the Partnership that are affiliated with AH&H.
MANAGEMENT FEE
Under the Management Agreement, AH&H receives the Management Fee on a
quarterly basis equal to 0.25% of the Net Asset Value of the Partnership
(determined before the allocation of any fees under the Management
Agreement). The Management Fee is calculated as of the last day of each
calendar quarter and paid within 30 days thereafter.
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PERFORMANCE ALLOCATION
In addition to the Management Fee discussed above, the Management
Agreement provides for a Performance Allocation calculated on the following
basis. Certain terms used in the discussion of the Performance Allocation
are defined in the accompanying Partnership Agreement. The Performance
Allocation may create an incentive for AH&H to make investments that are
riskier or more speculative than would be the case without a performance
based fee. The Performance Allocation includes not only realized capital
gains but also unrealized gains which may later be reversed.
The Performance Allocation provides for the sharing of income and
realized and unrealized capital gain (net of realized and unrealized capital
losses) of the Partnership with AH&H in excess of a base return (equal to
6.0% per annum) plus an amount to compensate for prior periods during which
the Partnership did not achieve such return. As of each December 31, the
Partnership shall transfer from the Capital Accounts of the Partners to the
Capital Account of the Advisory General Partner in the aggregate an amount
equal to fifteen percent (15%) of the amount, if any, by which (x) the sum of
the changes in the Adjusted Net Asset Value (as described under "Partnership
Interests, Long-Term Debt, and Other Securities--Capital Accounts") of the
Partnership as of each Valuation Date (there are normally four Valuation
Dates each year) in the Performance Allocation Period (a one year period)
over the Net Asset Value as of the immediately preceding Valuation Date
exceeds (y) the sum of (A) the Shortfall, if any, for the immediately
preceding Performance Allocation Period plus (B) the sum of the Base Amounts
for Valuation Periods included in the Performance Allocation Period ending on
such Performance Allocation Date.
"Base Amount" means 1.5% of the Net Asset Value of the Partnership
(exclusive of assets attributable to AH&H) as of the first day of such
Performance Allocation Period, subject to certain adjustments.
"Shortfall" means, with respect to any Performance Allocation Period,
the amount, if any, by which (i) the sum of the Base Amounts for Valuation
Periods included in such Performance Allocation Period exceeds (ii) the sum
of the adjustments made to Capital Accounts on each Valuation Date in such
Performance Allocation Period.
Each Partner is allocated a portion of the Partnership's Performance
Allocation equal to such Partner's "Allocation Amount." A Partner's
Allocation Amount is defined in the Partnership Agreement as fifteen percent
(15%) of the amount, if any, by which (x) the sum of the adjustments to such
Partner's Capital Account, net of the portion of the Management Fee
allocated to such Partner's Capital Account, as of Valuation Dates included
in the Performance Allocation Period ending on such Performance Allocation
Date exceeds (y) the sum of (A) such Partner's Shortfall, if any, for the
immediately preceding Performance Allocation Period plus (B) the sum of such
Partner's Base Amounts for Valuation Periods included in the Performance
Allocation Period ending on such Performance Allocation Date. For purposes
of computing a Shortfall for a Partner who has been a Partner for less than
one year, the period beginning on such Partner's admission to the Partnership
and ending on the Performance Allocation Date shall be treated as the
Performance Allocation Period.
In the event that the sum of the Partners' Allocation Amounts is greater
than the Partnership's Performance Allocation, the Performance Allocation is
allocated among the Partners pro rata on the basis of Allocation Amounts. In
the event that the sum of the Allocation Amounts is less than the
Partnership's Performance Allocation, then the Limited Partners are not
charged for the difference.
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For any three-month Valuation Period, a Partner's "Base Amount" will
equal 1.5% of his opening Capital Account balance for the Performance
Allocation Period that includes the Valuation Period. For purposes of
determining a Partner's Base Amount for a particular Valuation Period,
however, the Partner's opening Capital Account balance is (a) increased by
any "Shortfall" of the Partner for the prior Performance Allocation Period,
(b) increased by contributions made by the Partner during the Valuation
Period or during prior Valuation Periods included in the applicable
Performance Allocation Period and (c) reduced by distributions made to the
Partner for prior Valuation Periods included in the applicable Performance
Allocation Period. In general, a Partner's "Shortfall" for a particular
Performance Allocation Period is the amount, if any, by which the sum of the
Partner's Base Amounts for Valuation Periods included in the Performance
Allocation Periods exceeds the net Book Profit (as described under
"Partnership Interests, Long-Term Debt, and Other Securities--Capital
Accounts") allocated to the Partner as of Valuation Dates included in the
Performance Allocation Period. In determining a Partner's Shortfall for a
particular Performance Allocation Period, however, (x) the Partner's Base
Amounts for the period are increased by the amount of any Shortfall the
Partner had for the prior Performance Allocation Period, and (y) the
Shortfall is reduced by redemptive distributions made to the Partner for the
period beginning on the last day of the Performance Allocation Period and
ending on the day before the close of the next Performance Allocation Period.
In the event that the Partnership liquidates on a date other than
December 31, than such liquidation date will be a Performance Allocation
Date. On such Performance Allocation Date, a Performance Allocation will be
determined in an amount equal to the excess, if any, of (i) the Performance
Allocation that would have been due the Advisory General Partner as of such
date if the period beginning on the first day of the prior Performance
Allocation Period and ending on such date were a single Performance
Allocation Period during which no Performance Allocation were paid over (ii)
any Performance Allocation paid as of the prior Performance Allocation Date.
Corresponding adjustments are made in determining the Allocation Amount of
each Partner.
EXPENSES. In addition to making distributions and redemptions, the
General Partners are authorized to pay out of the assets of the Partnership
all taxes, if any, imposed on the Partnership and all expenses of operating
the Partnership (other than accounting and custodial fees and expenses),
including the Management Fee and Performance Allocations, and expenses with
respect to buying, owning, holding and selling Securities on behalf of the
Partnership (including but not limited to brokerage expenses). The General
Partners are authorized to pay out of the assets of the Partnership all
reasonable and necessary legal fees and expenses incurred by the General
Partners in performing their duties on behalf of the Partnership. The
Advisory General Partner will pay (not out of the Partnership's assets) all
accounting and custodial fees and certain expenses of the Partnership in
connection with the operation of the business (including the preparation of
the financial reports and other information described above), including all
costs and expenses associated with the admission of additional Partners and
redemption of Partnership Interests. The Partnership does not expect to have
any employees or consultants other than the Managing General Partners and the
Advisory General Partner, both in its capacity as a general partner and as
the investment advisor.
PORTFOLIO MANAGER. Henry E. Wells, III, of AH&H is primarily
responsible for the day-to-day management of the Partnership's portfolio
since the organization of the Partnership. Mr. Wells is a Managing Director
of AH&H and has been AH&H's Director of Research since 1981.
OTHER TERMS OF MANAGEMENT AGREEMENT. The Management Agreement shall
remain in force until January 1, 1998 and shall continue for periods of one
year thereafter, but only so long as such continuance is specifically
approved at least annually (a) by the vote of a majority of the Managing
General Partners of the Partnership who are not interested persons (as
defined in the 1940 Act) of the Partnership and have no financial interest in
the Management Agreement, cast in person at a meeting called for the
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purpose of voting on such approval and (b) by a vote of a majority of the
Managing General Partners of the Partnership or a majority of the outstanding
Interests. The Management Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any penalty, by
the Managing General Partners of the Partnership, by the vote of a majority
of the outstanding Interests, or by AH&H. The Management Agreement shall
automatically terminate in the event of its assignment.
The Management Agreement provides that the Partnership indemnify AH&H
from any liability except a loss resulting from wilful misfeasance, bad faith
or gross negligence by AH&H in the performance of AH&H's duties under the
Management Agreement or from reckless disregard by AH&H of its obligations
under the Management Agreement.
CUSTODIAN. AH&H will maintain custody of the Partnership's assets.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Pursuant to the Management Agreement, AH&H may effect securities
transactions itself on behalf of the Partnership. AH&H will receive
commissions for such services. During the fiscal years ended December 31,
1993, 1994 and 1995, the Partnership paid brokerage fees to AH&H equal to
$153,000. $139,600 and $156,000, respectively. During the fiscal year ended
December 31, 1995, the brokerage commissions paid by the Partnership to AH&H
equalled 100% of aggregate brokerage commissions paid by the Partnership
during such fiscal year. During such fiscal year, 100% of the Partnership's
aggregate dollar amount of transactions involving the payment of commissions
were effected through AH&H.
AH&H is responsible for decisions to buy and sell securities for the
Partnership, the selection of brokers and dealers to effect the transactions
and the negotiation of brokerage commissions, if any. As noted above, AH&H
may effect transactions itself on behalf of the Partnership.
In placing orders for portfolio securities of the Partnership, AH&H will
use its best efforts to obtain prompt execution of orders at the most
favorable prices reasonably attainable. This means that AH&H will use its
best efforts to seek to execute each transaction at a price and commission,
if any, which provide the most favorable total cost or proceeds reasonably
attainable under the circumstances. While AH&H generally seeks reasonably
competitive spreads or commissions, the Partnership will not necessarily be
paying the lowest spread or commission available. Within the framework of
the policy of using its best efforts to obtain the most favorable price and
efficient execution, AH&H will consider research and research-related
services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Partnership, AH&H or AH&H's other clients.
Such research and investment services are those which brokerage houses
customarily provide to institutional investors and include statistical and
economic data and research reports on particular companies and industries.
Commission rates are established pursuant to negotiations with the broker
based on the quality and quantity of execution services provided by the
broker or dealer in the light of generally prevailing rates. AH&H's policy
is to pay higher commissions to brokers for particular transactions than
might be charged if a different broker had been selected, on occasions when,
in AH&H's opinion, this policy furthers the objective of obtaining best price
and execution. In addition, AH&H is authorized to pay higher commissions on
brokerage transactions for the Partnership to brokers in order to secure
research and investment services described above, subject to the primary
consideration of using its best efforts to obtain the most favorable price
and efficient execution under the circumstances and subject to review by the
Partnership's Managing General Partners from time to time as to the extent
and continuation of this practice. The allocation of orders among brokers
and the commission rates paid are reviewed periodically.
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Purchases and sales of securities on a securities exchange will be
effected through brokers who charge a commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, AH&H and its affiliates. In order for AH&H or
its affiliates to effect any portfolio transactions for the Partnership, the
commissions, fees or other remuneration received by AH&H or its affiliates
must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange
during a comparable period of time. This standard would allow AH&H or its
affiliates to receive no more than the remuneration which would be expected
to be received by an unaffiliated broker in a commensurate arm's length
transaction. Furthermore, the Managing General Partners of the Partnership,
including a majority of the Managing General Partners who are not "interested
persons" as defined by the 1940 Act, have adopted procedures which are
reasonably designed to provide that any commissions, fees or other
remuneration paid to AH&H or its affiliates are consistent with the foregoing
standard.
Brokerage transactions with AH&H or its affiliates are also subject to
such fiduciary standards as may be imposed upon AH&H or its affiliates by
applicable law.
The research and investment services provided by brokers and dealers to
AH&H for purposes of investing the Partnership's portfolio assets are used by
AH&H in connection with all of its investment activities, and some of such
services obtained in connection with the execution of transactions for the
Partnership may be used in managing other investment accounts. Conversely,
brokers furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets are far larger
than the Partnership, and the services furnished by such brokers may be used
by AH&H in providing investment management for the Partnership.
Within the framework of the policy of obtaining the most favorable price
and efficient execution, AH&H will consider research and research-related
services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Partnership, AH&H or AH&H's other clients.
The Partnership has not acquired securities of its regular brokers or
dealers during the fiscal year ended December 31, 1995.
PARTNERSHIP INTERESTS, LONG-TERM DEBT, AND OTHER SECURITIES
REMOVAL OF LIMITED PARTNERS
The Advisory General Partner has the right, in its sole discretion, to
require any Limited Partner to tender such Limited Partner's Interest as a
whole for redemption on any March 31, June 30, September 30 or December 31 if
such Limited Partner does not maintain a minimum amount in its Capital
Account as will be determined from time to time by the Managing General
Partners and notified to the Limited Partners. No minimum Capital Account
requirement will be effective unless the Limited Partners have received at
least 90 days advance notification. After redemption of its whole Interest,
the Limited Partner will have no continuing right or interest in the
Partnership except to receive payment of such Limited Partner's positive
Capital Account balance.
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CAPITAL ACCOUNTS
A separate Capital Account ("Capital Account") will be established for
each Partner in an initial amount equal to such Partner's original capital
contribution. Each Partner's Capital Account will be increased by the amount
of additional cash contributed by the Partner to the Partnership and the
Partner's pro rata share of any positive allocations and will be decreased by
the amount of cash and the fair market value of Securities or other property
distributed to the Partner, net of liabilities secured by distributed
property, and by the Partner's pro rata share of any negative allocations.
The Partners' Capital Accounts will be adjusted on each Valuation Date.
On each such date, the Partnership will determine its Net Asset Value
decreased by the amount of contributions to, and increased by the amount of
distributions by, the Partnership since the prior Valuation Date ("Adjusted
Net Asset Value"). If the Partnership's Adjusted Net Asset Value as of a
particular Valuation Date has decreased relative to its Net Asset Value as of
the prior Valuation Date (such period beginning on the prior Valuation Date
and ending on the applicable Valuation Date being a "Valuation Period"), the
Partners' Capital Accounts will then be reduced by the amount of such
decrease (such amount being the "Book Loss" for the Valuation Period ending
on the applicable Valuation Date) pro rata based upon the balances in those
accounts immediately prior to the applicable Valuation Date.
If the Partnership's Adjusted Net Asset Value has increased relative to
its Net Asset Value as of the prior Valuation Date, the amount of such
increase (such amount being the "Book Profit" for the Valuation Period ending
on the applicable Valuation Date) will be credited to the Partners' Capital
Accounts pro rata based upon the balances in those accounts immediately
before the applicable Valuation Date.
TAX ALLOCATION OF PROFITS, GAINS AND LOSSES
The Partnership will establish a Tax Account ("Tax Account") for each
Partner with an initial balance equal to such Partner's original capital
contribution. The Tax Account of each Partner reflects the adjustments to
such Partner's Capital Account described above (other than the special
adjustments at each Valuation Date to take account of the increase or
decrease in the Partnership's Adjusted Net Asset Value), except that a
Partner's Tax Account is reduced by the Partnership's basis in, rather than
the value of, securities distributed to the Partner. In addition, the Tax
Account is increased by allocations of Partnership income (both taxable and
tax-exempt) and gain, and is decreased by allocations of Partnership loss,
deduction and certain non-deductible expenditures.
Ordinary income and loss (other than Management Fees, which are
specially charged to the Partners' Capital and Tax Accounts) generally are
allocated to all Partners PRO RATA in proportion to Capital Account balances.
A capital gain realized during any period within a fiscal year of the
Partnership that commences on the day following a Valuation Date and
continues through the next successive Valuation Date (an "Accounting Period")
shall be allocated at the end of the fiscal year (A) first to those Partners
whose Interests were completely redeemed on the Valuation Date on which the
Accounting Period ends in proportion to the respective Positive Disparities
of such Partners, and (B) then to those Partners whose Interests in the
Partnership were completely redeemed on a subsequent Valuation Date during
the fiscal year in proportion to the respective Positive Disparities of such
Partners. For purposes of clause (B) of the preceding sentence, in the event
that there are multiple subsequent Valuation Dates during the fiscal year on
which the Interests of one or more Partners were completely redeemed, the
allocation of capital gain shall be made separately with respect to each such
Valuation Date in chronological order. Capital gain remaining after the
above allocations have been made shall be allocated to the remaining Partners
who were Partners during such period to the extent of and in proportion to
the respective Positive Disparities of such Partners.
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Capital loss realized during any Accounting Period within a fiscal year
of the Partnership shall be allocated at the end of the fiscal year (A) first
to those Partners whose Interests were completely redeemed on the Valuation
Date on which the Accounting Period ends in proportion to the respective
Negative Disparities of such Partners, and (B) then to those Partners whose
Interests in the Partnership were completely redeemed on a subsequent
Valuation Date during the fiscal year in proportion to the respective
Negative Disparities of such Partners. For purposes of clause (B) of the
preceding sentence, in the event that there are multiple subsequent Valuation
Dates during the fiscal year on which the Interests of one or more Partners
were completely redeemed the allocation of capital loss shall be made
separately with respect to each such Valuation Date in chronological order.
Capital loss remaining after the forgoing allocations have been made shall be
allocated to the remaining Partners who were Partners during such period to
the extent of and in proportion to the respective Negative Disparities of
such Partners.
If after the foregoing allocations of capital gain and capital loss,
above, there remains capital gain and/or capital loss realized between any
Valuation Date and the next succeeding Valuation Date to be allocated, the
remaining net capital gain or net capital loss, as the case may be, shall be
allocated among all Partners who were Partners during such period in the
ratio that each Partner's Capital Account balance bears to the balance of the
Capital Accounts of all Partners.
DISTRIBUTIONS
The General Partners may reinvest Partnership income and realized gains
except to the extent necessary to make required redemptions. Except with
respect to redemptions as described below, the General Partners have complete
discretion in the timing and amounts, if any, of distributions made prior to
liquidation of the Partnership. Any such distributions (other than with
respect to redemptions as described below) shall be made pro rata to the
Partners in proportion to their respective Capital Account balances as of the
last Valuation Date.
DISSOLUTION
Upon the termination and dissolution of the Partnership, the assets will
be applied and distributed (i) first, to the debts and liabilities of the
Partnership and the expenses of liquidation (other than loans and advances
from Partners), (ii) second, to the establishment of such reserves as the
Advisory General Partner deems necessary, to be held in escrow pending
disbursement, (iii) third, to the payment of loans or advances by the
Partners to the Partnership, (iv) fourth, to the payment of any Management
Fee due the Advisory General Partner and (v) fifth, to the payment to the
Partners of their positive Capital Account balances after all Capital Account
adjustments are made for the taxable year in which the dissolution and
termination occurs. Any Partner with a deficit in his Capital Account
following such a distribution will be required to restore the amount of such
deficit to the Partnership.
TERM AND EARLY TERMINATION OF THE PARTNERSHIP
The term of the Partnership commenced on June 8, 1990 and will continue
until the first to occur of the following events:
(a) the Managing General Partners have determined to liquidate and
dissolve and not to reconstitute the Partnership;
(b) the dissolution, bankruptcy or withdrawal of the sole remaining
Managing General Partner or Advisory General Partner without the
appointment of a successor;
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(c) December 31, 2050;
(d) 75% in Interest of the Limited Partners elect to dissolve; or
(e) there occurs an event requiring termination under law.
The Partnership may be required to terminate in 2005 in order to avoid
taxation as a corporation. See "Tax Status - Partnership Status."
LIABILITY AND INDEMNIFICATION OF GENERAL PARTNERS
The General Partners of the Partnership are liable under governing state
law for all general obligations of the Partnership (except as described below
with respect to claims of Limited Partners) to the extent not paid by the
Partnership. The Partnership Agreement provides that the General Partners
will not be liable for the return of Capital Contributions by the Limited
Partners or any other amounts in the Limited Partners' Capital Accounts
except as required by law.
The Partnership Agreement provides that no General Partner will have any
liability to the Partnership or to any Partner for any loss suffered by the
Partnership which arises out of any action or inaction of such General
Partner except with respect to matters as to which the subject General
Partner has been finally adjudicated in a decision on the merits to be liable
by reason of wilful misfeasance, gross negligence, bad faith or reckless
disregard of duty. Each General Partner, each officer, director, partner,
employee or agent thereof and each officer of the Partnership (if any) are
entitled to indemnification by the Partnership against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims sustained
by it in connection with the Partnership and by reason of being or having
been in such position, including fees incurred in connection with defense of
any action, unless such person's or entity's actions or inactions have been
finally adjudicated in a decision on the merits to constitute wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty. In
the event that a matter is disposed of without an adjudication, then the
subject person or entity will be entitled to indemnification if (i) at least
a majority of the Managing General Partners who are not involved in the
action or a similar action and who are not "interested persons" as defined in
the 1940 Act approve such indemnification based upon a review of available
facts or (ii) an opinion of counsel is obtained stating that such
indemnification would not protect the subject person or entity from any
liability to the Partnership to which they would otherwise be subject.
MANAGEMENT AND CONDUCT
The Managing General Partners have overall responsibility for the
management of the Partnership's business. If at any time there is more than
one Managing General Partner, the Managing General Partners will act by
consent of a majority in number of the Managing General Partners present at a
meeting at which a quorum is present. Notwithstanding the foregoing, the
1940 Act requires the approval of a specific percentage of Managing General
Partners that are not "interested persons" of the Partnership as defined by
the 1940 Act for certain actions. The Partnership will not take such
actions, therefore, unless the 1940 Act required approval is obtained. The
Managing General Partners may delegate responsibility to the Advisory General
Partner.
The 1940 Act also requires that Limited Partners have the right to vote
to elect or, in certain cases, to remove Managing General Partners, to
approve or terminate any investment management agreement, to approve or
ratify accountants for the Partnership, to change any fundamental investment
policy,
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objective or restriction and on certain other matters. The Partnership
Agreement also provides that certain actions cannot be undertaken without
Limited Partner consent (e.g. certain amendments to the Partnership Agreement
and admitting additional Advisory General Partners).
DISSOLUTION, BANKRUPTCY, ETC. OF GENERAL PARTNER
In the event of dissolution, withdrawal or bankruptcy of a General
Partner, the remaining General Partner(s) (if at that time there is more than
one General Partner) may continue the business of the Partnership. In such
event, the interest of the withdrawn General Partner will be converted to
that of a Limited Partner. In the event of the bankruptcy, dissolution or
withdrawal of the sole remaining Managing General Partner, the Advisory
General Partner will call a meeting of Limited Partners to be held within 90
days for the purpose of determining whether or not to elect one or more
Managing General Partners who, with the assent of the Advisory General
Partner, will continue the Partnership. During the interim period, the
Advisory General Partner will operate the Partnership. If the Limited
Partners decide not to elect any Managing General Partners at the meeting,
the Partnership will be dissolved and its affairs wound up. The Advisory
General Partner may withdraw or retire upon 60 days prior notice to the
Managing General Partners and the Limited Partners; however, such retirement
or withdrawal is not effective until the Managing General Partners have
elected a new Advisory General Partner or have approved the dissolution of
the Partnership. A Managing General Partner may withdraw as a General
Partner upon notice delivered to the Advisory General Partner.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
No Limited Partner will be personally liable for the obligations of the
Partnership except to the extent required by law. All Partners will be
required to restore any deficits in Capital Accounts after the liquidation of
the Partnership.
The Advisory General Partner may require any Limited Partner that does
not have a certain minimum amount in its Capital Account to redeem such
Limited Partner's whole Interest in the Partnership effective as of any March
31, June 30, September 30 or December 31.
The Limited Partners will receive certain financial and other
information regarding the Partnership's operations as at March 31, June 30,
September 30 and December 31 of each year.
TRANSFERABILITY OF LIMITED PARTNERSHIP INTERESTS
No Limited Partner may sell, exchange, assign, encumber, transfer or
dispose of all or any part of such Limited Partner's interest in the
Partnership without the consent of the Advisory General Partner. An assignee
of a Limited Partner's interest may not become a substitute Limited Partner,
unless such substitute Limited Partner executes a document signifying his
agreement to be bound by all of the terms of the Partnership Agreement and
such substitute Limited Partner is admitted as such by the Advisory General
Partner under conditions specified by it.
See "Restrictions On Transfer" below for additional restrictions and
conditions arising under federal and state securities laws and relating to
proposed transfers of Limited Partnership interests.
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ADMISSION OF NEW GENERAL PARTNERS
The Managing General Partners may at any time admit one or more
additional Managing General Partners subject to the 1940 Act requirement that
at least a majority of the Managing General Partners be elected by the
Limited Partners. The Advisory General Partner may admit one or more
additional Advisory General Partners with the consent of all of the Limited
Partners.
CONFIDENTIALITY
Each Partner agrees not to disclose to third parties any confidential
information relating to the operation of the Partnership and its Partners.
AMENDMENTS
The Partnership Agreement may be amended only by written instrument
executed by the Advisory General Partner and approved by Limited Partners
holding at least 75% of the Interests (subject to certain exceptions), except
that the Partnership's redemption policy and certain of its investment
policies may be amended by a Majority Partnership Vote. In addition, the
Advisory General Partners may without the consent of the Limited Partners
amend: (1) Schedule A thereto to reflect the admission of any new Partner,
the acceptance of additional capital contributions from existing Partners,
the withdrawal of capital by existing Partners or any change in a Partner's
interest in the Partnership, (2) the tax allocation provisions to the extent
that, in the opinion of counsel to the Partnership, such amendment is
recommended to seek to cause the allocations to comply with the Regulations
issued under Sections 704(b), 704(c) and 706 of the Code, and (3) any
provision recommended by counsel to be deleted or added to comply with any
Federal or state securities law or regulation.
RESTRICTIONS ON TRANSFER
An investor in the Partnership must bear the economic risk of an
investment in the Partnership for an indefinite period of time because the
Interests have not been and will not be registered under either the
Securities Act of 1933 or applicable state securities acts, and therefore
cannot be sold unless they are subsequently registered under the Securities
Act of 1933 and such acts or an exemption from such registration is
available. Each person acquiring an Interest will be required to represent
that he is purchasing it for his own account for investment purposes and not
with a view to resale or distribution, and to agree not to sell such Interest
without registration under applicable Federal and state securities laws,
unless there are available exemptions thereunder. A notation will be made on
the records of the Partnership that the sale and transferability of the
Interests are restricted. The Advisory General Partner will require, among
other things, that before a Limited Partner's Interest is transferred, the
transferor deliver to the Advisory General Partner an opinion of counsel
satisfactory to the Advisory General Partner to the effect that the transfer
will not violate Federal or state securities laws, and such Limited Partner
will then be responsible for paying said counsel's fees for the opinion.
Such an opinion cannot be obtained unless either such Interest is registered
under such laws or an exemption from registration exists. Information will
not be made public to permit the resale of the Interests pursuant to Rule 144
under the Act or any similar provisions of state securities acts. Limited
Partners have no right to require the Partnership to effect any such
registration. No market currently exists for the Interests and it is
unlikely that a market for such disposition will exist at any time in the
future. Investors who do not intend to, or who are not financially able to,
remain as Limited Partners for a substantial period of time are advised
against investment in the Partnership.
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VOTING RIGHTS
The voting rights of the Limited Partners are described in "Risk Factors
- - Management; Reliance on AH&H".
LIABILITY TO FURTHER CALLS OR ASSESSMENTS
The Interests are not subject to further calls or assessments by the
Partnership, except as provided under "Rights and Obligations of Limited
Partners."
PREEMPTIVE RIGHTS
The Interests have no preemptive rights.
CONVERSION RIGHTS
The Interests have no conversion rights.
REDEMPTION PROVISIONS
See "Redemptions". In addition to the foregoing, in the event that any
Limited Partner withdraws for any reason, such Limited Partner's Interests
may be redeemed by the Partnership in full.
SINKING FUND PROVISIONS
The Partnership does not have a sinking fund for the Interests.
MATERIAL OBLIGATIONS OR POTENTIAL LIABILITIES OF PARTNERS
General Partners may be liable for the obligations of the Partnership in
accordance with the Partnership Act and the Partnership Agreement. Limited
Partners have no liability for obligations of the Partnership in accordance
with the Partnership Act and the Partnership Agreement. The Limited
Partners, however, are responsible for any negative balances in their Capital
Accounts.
TAX STATUS
The following discussion summarizes certain federal income tax matters
applicable to the Partnership and the Limited Partners. It is not a general
summary of tax law and does not include a complete analysis of provisions of
the Code which might apply to the Partnership or the Limited Partners. It
also does not discuss any aspect of state, local or foreign taxation. An
investment in the Partnership may affect the tax liabilities of a Limited
Partner in different ways depending on such factors as the Limited Partner's
sources and levels of income, the nature of his or her investment portfolio,
and the nature and amount of his or her deductions unrelated to the
Partnership. Accordingly, the following analysis is not intended as a
substitute for careful tax planning, particularly since the income tax
consequences of an investment in the Partnership are complex and certain of
these consequences will not be the same for all taxpayers. ACCORDINGLY,
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO FEDERAL, STATE AND LOCAL, AND ANY FOREIGN TAXES WITH SPECIFIC
REFERENCE TO THEIR OWN TAX SITUATIONS.
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This summary of tax considerations is based on the Code, regulations
promulgated thereunder and published rulings and court decisions
all as in effect on the date of this Memorandum. Significant changes
to a number of federal income tax laws are presently being considered.
No assurance can be given that future legislative or administrative
changes or court decisions will not significantly modify the statements
expressed herein. In addition, a number of tax matters discussed
herein raise questions that have not been definitively answered by statutes,
rulings, regulations, or court decisions. Any future legislative or
administrative changes or court decisions may or may not be retroactive with
respect to transactions completed prior to the dates of such changes or
decisions.
PARTNERSHIP STATUS
No ruling has been requested from the IRS with respect to the
classification of the Partnership as a partnership for federal income tax
purposes. However, for the reasons set forth below, the Partnership intends
to continue to take the position that it is properly treated as a partnership
for federal income tax purposes that is not subject to tax as a publicly
traded partnership.
Generally, an organization such as the Partnership will be treated as a
partnership if it lacks at least two of the following four corporate
characteristics: (1) continuity of life, (2) centralization of management,
(3) limited liability and (4) free transferability of interests, AND is not a
publicly traded partnership.
Regulations under Section 7701 of the Code provide that a partnership
formed pursuant to the Revised Uniform Limited Partnership Act is presumed to
lack continuity of life. Accordingly, because the Partnership is formed
under the Partnership Act (which conforms with the Revised Uniform Limited
Partnership Act in all material respects), the Partnership should lack the
corporate characteristic of continuity of life. In addition, since the
Partnership Agreement provides that a Limited Partner may transfer his or her
interest in the Partnership only with the prior written consent of the
Advisory General Partner, which may be granted or withheld in its sole
discretion, the Partnership should lack the corporate characteristic of free
transferability of interests.
It is possible that future modifications of the regulations regarding
partnership classification or future legislative changes, judicial holdings
or administrative rulings or pronouncements will contain a more stringent
test for partnership status that would result in the classification or
reclassification of the Partnership as an association taxable as a
corporation.
Section 7704 of the Code treats certain publicly traded partnerships as
corporations. Because it is not anticipated that interests in the
Partnership will be traded on an established securities market or be readily
tradable on a secondary market (or the substantial equivalent thereof), and
because the Partnership is expected to comply with one of the "safe harbors"
promulgated by the IRS to ensure that it is not treated as a publicly traded
partnership, the Partnership is not expected to be a publicly traded
partnership. The Partnership currently expects to rely on a safe harbor for
certain private placements, which is available to the Partnership under
current regulations at least through December 31, 2005, provided that no
partnership interests are issued in transactions required to be registered
under the Securities Act of 1933, the Partnership either does not have more
than 500 partners (also including as partners certain persons indirectly
owning interests through partnerships, grantor trusts and S corporations) or
satisfies a minimum unit offering (and resale) price requirement, and the
Partnership does not add a substantial new line of business after December 4,
1995. For taxable years beginning after December 31, 2005, this private
placement safe harbor will continue to be available only if the Partnership
does not have more than 100 partners at any time during its taxable year.
The Partnership will take into account the facts and the law in effect at
that time in evaluating what actions, if any, should then be taken. For
example, it is possible that
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the Partnership may then be required to impose more restrictive limits on
redemptions or take other steps to avoid treatment as a publicly traded
partnership.
If the Partnership were treated as a corporation for federal income tax
purposes, income of the Partnership would not "flow through" to the Partners.
Instead, the Partnership would be required to pay federal income tax on its
taxable income at corporate tax rates, thereby reducing the amount of cash,
if any, available to be distributed to the Partners. Similarly, any losses
incurred by the Partnership would not "flow through" to the Partners and
could not be used by the Partners to offset their income from other sources.
In addition, distributions from the Partnership could be treated as ordinary
taxable income to the Partners, regardless of the source from which they were
generated. Finally, a change in the federal income tax status of the
Partnership from a partnership to a corporation could be treated as a taxable
event, creating federal income tax liabilities for the Limited Partners in
certain situations. If the Partnership were treated as a corporation under
the Code, it would consider seeking to avoid entity-level taxation by
qualifying as a regulated investment company, which might require significant
changes in some of its investment practices.
TAXATION OF PARTNERS
No federal income tax is imposed on a partnership as an entity.
Instead, the partnership's income, gains, losses, deductions and credits
"flow through" to the partners. Each partner must include his or her share
of partnership income in his or her tax return whether or not any actual cash
distribution is made to such partner during the taxable year. Thus, a
partner's tax liability may exceed the cash distributed to him or her in a
particular year. If the Partnership does not make sufficient cash
distributions, Limited Partners may be required to pay all or a portion of
the tax liability attributable to their shares of taxable income from the
Partnership with funds from other sources.
Cash distributions from a partnership are not necessarily equivalent to
partnership income as determined for income tax purposes or as determined
under generally accepted accounting principles, and they are not taxable when
received except to the extent that they exceed the partner's tax basis in his
or her partnership interest. Generally, the tax basis of a limited partner's
interest in a partnership is equal to the cost of such interest, reduced by
the partner's share of partnership distributions and losses, and increased by
the partner's share of partnership income and his or her share of partnership
liabilities.
A partner is entitled to deduct his or her share of partnership losses,
subject to certain limitations. The Advisory General Partner does not
anticipate that the activities of the Partnership will generate a material
amount of net losses for tax purposes. However, there can be no assurance
that this will be the case. Limitations that may apply to a Limited
Partner's ability to deduct his or her share of the Partnership's losses, if
any, include a basis limitation under Section 704(d) of the Code, passive
loss limitations under Section 469 of the Code, at-risk limitations under
Section 465 of the Code, investment interest limitations under Section 163(d)
of the Code, and limitations on the deductibility of an individual's
miscellaneous itemized deductions under Section 67 of the Code (the "Section
67 Limitations"). Limited Partners are urged to consult their own tax
advisors with specific reference to their own situations.
If the management fee were treated as an investment expense, an
individual Partner's share of this fee (as well as possibly other Partnership
operating expenses), would be subject to the Section 67 Limitations.
However, the Advisory General Partner believes that the Partnership will
trade securities with sufficient frequency to be treated as a trader for tax
purposes. In that case, payment of the management fee probably would be
characterized as a business expense deductible under Section 162 of the Code,
and not as an investment expense subject to the Section 67 Limitations.
Nevertheless, the characterization of
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the Partnership as a trader or investor is a question of fact, and it is
possible that the IRS will disagree with the Advisory General Partner's
treatment of the Partnership as a trader.
It should also be noted that there is a risk that the IRS will claim
that Performance Allocations to the Advisory General Partner should be
treated as fees for federal income tax purposes. If such a claim were
successful, these allocations to the Advisory General Partner could be
subject to the Section 67 Limitations. Under Section 707(a)(2) of the Code,
if a partner performs services for a partnership and there is a related
direct or indirect allocation and distribution to such partner, such
allocation and distribution may, pursuant to regulations to be prescribed, be
recharacterized as a fee if the transaction is properly characterized as a
transaction between the partnership and a partner acting other than in his
capacity as a member of the partnership. Regulations promulgated under
Section 707 of the Code do not currently address under what circumstances
payments to a partner will be treated as disguised payments for services, and
there can be no assurance that the IRS will not claim that these allocations
should be treated as fees. Because of the uncertainty as to the application
of the Section 67 Limitations to entities such as the Partnership,
prospective individual Partners are urged to consult with their tax advisors
regarding the potential impact of this provision on their personal tax
situations.
Net profits or net losses of the Partnership will be allocated in
accordance with the Partnership Agreement. Section 704(b) of the Code, and
the regulations thereunder, provide that a partnership's allocations of
income, gain, deduction, loss or credit (or items thereof), other than those
financed by nonrecourse indebtedness and other than allocations pursuant to
Section 704(c) of the Code, must have "substantial economic effect." If an
allocation does not have substantial economic effect, the item will be
reallocated in accordance with the partner's interest in the Partnership.
The regulations indicate that an allocation of loss or deduction financed by
nonrecourse indebtedness can never have substantial effect, but that such an
allocation will nonetheless be allowed for federal income tax purposes if
certain requirements are met.
The Partnership Agreement contains provisions intended to comply with
the requirements of the Treasury Regulations under Section 704(b) of the Code
including the requirements relating to the allocation of losses and
deductions financed by nonrecourse indebtedness. In addition, the
Partnership Agreement contains provisions intended to comply with the
requirements of Section 704(c). Section 704(c) provides that income, gain,
loss, and deduction with respect to certain property will be shared among the
partners so as to take account of the variation between the basis of the
property to the partnership and its fair market value (due to the
contribution of property to the partnership by a partner, or the admission of
a new partner or the occurrence of other events that result in the "book-up"
or "book-down" of the partners' capital accounts).
TREATMENT OF GAINS AND LOSSES FROM SECURITIES TRADING
The Partnership does not expect to act as a dealer with respect to its
securities and options or other derivative transactions, in that the
Partnership will buy and sell securities for its own account. The
Partnership expects to take the position on the Partnership's annual
information return that, due to the frequency and nature of the Partnership's
transactions in Securities, the Partnership is a trader of securities rather
than an investor. Generally, gains or losses realized by a trader or an
investor on the sale or other disposition of securities are treated as
capital gains or losses. However, if the Partnership were characterized as
an investor rather than a trader, the deductibility of fees and expenses paid
by the Partnership would be limited in the hands of individual Limited
Partners by the Section 67 Limitations.
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These general principles may apply differently to some of the
Partnership's activities with respect to short sales, option trading and
other hedging techniques. In the event that the Partnership engages in
straddle transactions involving securities, certain limitations will apply to
the Partnership's ability to deduct losses realized, if any, and the holding
period for purposes of determining whether capital gain or loss is long-term
or short-term may be suspended or otherwise modified. Wash sale rules may
also result in the disallowance of losses where stock or securities sold or
otherwise disposed of are replaced with substantially identical stock or
securities within a 61 day period beginning 30 days before and ending 30 days
after the date of such sale or other disposition.
If the Partnership enters into certain options or futures contracts
governed by Section 1256 of the Code, gain or loss may be required to be
recognized at the close of each taxable year, even if there is no sale or
other disposition of the contracts, and such gain or loss will generally be
treated as 40% short-term capital gain or loss and 60% long-term capital gain
or loss. In addition, certain transactions in foreign currency,
foreign-currency denominated bonds, foreign currency forward contracts or
other foreign currency derivatives may give rise to ordinary income or loss
rather than capital gain or loss.
TREATMENT OF DISTRIBUTIONS, WITHDRAWALS AND SALES.
Cash distributions will not result in taxable income to a Limited
Partner to the extent they do not exceed such Limited Partner's adjusted tax
basis in his or her partnership interest, but will reduce such adjusted
basis. Distributions of cash in excess of such adjusted basis will result in
the recognition of capital gain to the extent of such excess, provided that
the Limited Partner is not deemed to be a "dealer" with respect to his or her
partnership interest, except that ordinary income treatment will apply to the
portion of any gain which is attributable to (i) such Limited Partner's
distributive share of income of the Partnership up to the date of the
distribution, (ii) certain accrued interest and discount items, and (iii)
certain investments in foreign securities. Gain recognized in connection
with the sale or exchange of a partnership interest will be treated the same
way, and loss recognized in connection with such a sale or exchange will be
treated as capital loss.
ALTERNATIVE MINIMUM TAX
The Code imposes an alternative minimum tax (at rates of 26% and 28% of
alternative minimum taxable income for noncorporate taxpayers, and 20% of
alternative minimum taxable income for corporations), which is imposed only
to the extent that it exceeds the taxpayer's regular income tax. Alternative
minimum taxable income is the taxpayer's taxable income for the taxable year,
determined with certain adjustments and increased by items of tax preference.
Alternative minimum tax is not imposed on a partnership as such, but each
Limited Partner must include his or her share of the Partnership's items of
adjustment and tax preference items in computing his or her own alternative
minimum tax liability.
It is not generally expected that the operations of the Partnership will
give rise to significant adjustments or items of tax preference that would
cause a Limited Partner to materially increase his alternative minimum tax
liability. Nevertheless, the activities of the Partnership could cause a
Limited Partner to incur a significantly higher alternative minimum tax in
certain limited circumstances. Because the effect of the alternative minimum
tax varies depending upon each Limited Partner's particular tax and financial
position, each prospective investor is advised to consult with his or her own
tax advisor concerning the particular effect of the alternative minimum tax
on him or her.
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UNRELATED BUSINESS TAXABLE INCOME FOR TAX-EXEMPT ENTITIES
Section 511 of the Code imposes a tax on the unrelated business taxable
income of certain tax-exempt entities. Unrelated business taxable income
("UBTI") is defined as income from a trade or business that is not
substantially related (aside from the need of the entity for income or funds
or the use it makes of profits derived from such trade or business) to the
entity's tax-exempt business and is regularly carried on. A tax-exempt
entity subject to such tax must pay tax on UBTI (including its share of UBTI
derived from partnership activities) in excess of $1,000 in any tax year at
tax rates that would apply to the entity if it were not exempt from taxation.
Dividends, interest, and capital gain realized on the sale of property
held for investment, which are the likely sources of income from the
Partnership, are generally excluded from UBTI, except to the extent that such
income is derived from or attributable to property that is subject to
"acquisition indebtedness." The IRS has recently announced that short sales
of publicly traded securities will not be treated as giving rise to
"acquisition indebtedness" so that income derived from such transactions will
not be UBTI. However, the Advisory General Partner anticipates that the
Partnership will maintain margin accounts in connection with certain
activities, which to the extent they represent a borrowing of money generally
give rise to acquisition indebtedness. In such event, a portion of any
income or gain derived from property subject to such acquisition indebtedness
would constitute UBTI and would subject a tax-exempt entity subject to tax
under Section 511 to a tax liability. If a tax-exempt entity subject to tax
under Section 511 were to incur debt in connection with, or relating to, its
acquisition of its partnership interest, UBTI would also result.
PARTNERSHIP TAX RETURNS
Although a partnership does not pay federal income tax, it must file
federal income tax information returns, which may be audited by the IRS. If
the Partnership were audited, the audit could result in the disallowance of
deductions for Partners' shares of Partnership items and could result in an
audit of a Limited Partner's individual tax return, with adjustments to
non-Partnership items in such return, and in the imposition of interest and
penalties.
If Partnership items are disputed, the Advisory General Partner as "tax
matters partner" for the Partnership will represent the Partnership in a
unified proceeding. All Limited Partners will be informed of such
proceedings by the tax matters partner and may participate in the
proceedings. All Limited Partners, including those who fail to participate,
will be bound by any extension of the statutory period of limitations on
assessments attributable to adjustments of partnership items.
NON-U.S. PERSONS
The Partnership may not be a suitable investment for non-U.S. persons
(including nonresident aliens) because investment in the Partnership would
cause such investors to be deemed to be engaged in a U.S. trade or business
and to become fully subject to U.S. tax on their shares of the Partnership's
taxable income that is effectively connected with its U.S. trade or business
(generally, all of its income will be treated as "effectively connected") and
proceeds from the redemption of Partnership Interests. The Partnership would
be required to withhold U.S. tax (and pay such tax to U.S. tax authorities)
at the highest applicable federal income tax rate on the amount of its
taxable income that is effectively connected with its U.S. trade or business
and that is allocable to its non-U.S. partners, which would reduce the
amounts otherwise distributable to such partners. Non-U.S. partners would be
entitled to credit such withheld taxes against their U.S. federal income tax
liability and would be required to file U.S. federal income tax returns.
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INDEPENDENT AUDITORS
Creelman & Smith, P.C. has been selected as the independent auditors of
the Partnership. Creelman & Smith, P.C. will provide audit and accounting
services to the Partnership. The financial statements of the Partnership
included in this Registration Statement have been audited by Creelman &
Smith, P.C. for the periods indicated in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
LEGAL PROCEEDINGS
None.
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
Attached to the Financial Statements.
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FINANCIAL STATEMENTS
Statement of Assets and Liabilities - Audited - As of December 31, 1995
Statement of Operations - Audited - As of December 31, 1995
Statement of Changes in Net Assets - Audited - As of December 31, 1995 and 1994
Notes to Financial Statements
Statement of Assets and Liabilities - Audited - As of December 31, 1994
Statement of Operations - Audited - As of December 31, 1994
Statement of Changes in Net Assets - Audited - As of December 31, 1994 and 1993
Notes to Financial Statements
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PART II
OTHER INFORMATION
FINANCIAL STATEMENTS
The following financial statements are included in this Registration
Statement:
Report of Independent Public Accountants
Statement of Assets and Liabilities - Audited - As of December 31, 1995
Statement of Operations - Audited - As of December 31, 1995
Statement of Changes in Net Assets - Audited - As of December 31, 1995
and 1994
Notes to Financial Statements
Report of Independent Public Accountants
Statement of Assets and Liabilities - Audited - As of December 31, 1994
Statement of Operations - Audited - As of December 31, 1994
Statement of Changes in Net Assets - Audited - As of December 31, 1994
and 1993
Notes to Financial Statements
EXHIBITS
a. Third Amended and Restated Agreement of Limited Partnership of AH&H
Partners Fund Limited Partnership dated January 1, 1996.
b. Not Applicable.
c. Not Applicable.
d. Not Applicable.
e. Not Applicable.
f. Not Applicable.
g. Investment Management Agreement between AH&H Partners Fund Limited
Partnership and Adams, Harkness & Hill, Inc. dated January 1, 1996.
h. Not Applicable.
i. Not Applicable.
j. Custodian Agreement between AH&H Partners Fund Limited Partnership
and Adams, Harkness & Hill, Inc. dated January 1, 1996.
k. Not Applicable.
l. Not Applicable.
m. Not Applicable.
n. Auditor's Consent.
o. Not Applicable.
p. Not Applicable.
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OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be
incurred in connection with the filing of this Registration Statement.
Registration fee $ 1,000
Fees and expenses of qualification
under state securities laws $ 5,000
Accounting fees and expenses $10,000
Legal fees and expenses $40,000
Miscellaneous $10,000
TOTAL $66,000
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
NUMBER OF HOLDERS OF SECURITIES
As of December 31, 1995, there were 97 Limited Partners and one General
Partner.
INDEMNIFICATION
It is the Partnership's policy to indemnify the General Partners and any
officers, directors, partners, employees or agents thereof and any officer of
the Partnership to the maximum extent permitted by Article 10 of the
Partnership's Third Amended and Restated Agreement of Limited Partnership (as
set forth below).
ARTICLE 10 OF THE PARTNERSHIP'S THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP READS AS FOLLOWS:
Article 10. INDEMNIFICATION.
A. No General Partner shall have any liability to the
Partnership or to any Partner for any loss suffered by the
Partnership which arises out of any action or inaction of any
General Partner except with respect to any matter as to which such
General Partner shall have been finally adjudicated in a decision
on the merits to be liable to the Partnership or its Partners by
reason of wilful misfeasance, gross negligence, bad faith or
reckless disregard of such General Partner's duties under this
Agreement. Each General Partner, each officer, director, partner,
employee or agent of a General Partner and each officer of the
Partnership (the "Covered Persons") shall be indemnified by the
Partnership against any losses, judgments, liabilities, expenses
and amounts paid in settlement of any claims sustained by it in
connection with the Partnership, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees reasonably incurred by any
Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before
any court or administrative or legislative body, in which such
Covered Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or
having been such a General
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Partner or any other person serving in the capacities referenced
above, except with respect to any matter as to which such Covered
Person's actions or failure to act shall have been finally
adjudicated in a decision on the merits to constitute wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered
Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time
by the Partnership in advance of the final disposition of any such
action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Covered Person to repay amounts so paid to the
Partnership if it is ultimately determined that indemnification of
such expenses is not authorized under this provision, provided that
(a) such Covered Person shall provide security for his undertaking,
(b) the Partnership shall be insured against losses arising by
reason of such Covered Person's failure to fulfill his undertaking,
or (c) a majority of the Managing General Partners who are
disinterested persons (as defined in Article 10(b)(1)) and who are
not interested persons (as that term is defined in the Investment
Company Act) (provided that a majority of such Managing General
Partners then in office act on the matter), or independent legal
counsel in a written opinion, shall determine, based on a review of
readily available facts (but not a full trial-type inquiry), that
there is reason to believe such Covered Person ultimately will be
entitled to indemnification.
B. As to any matter disposed of (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 was brought, that such
Covered Person's actions or failure to act constituted wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office,
indemnification shall be provided if (i) approved as in the best
interests of the Partnership, after notice that the matter involves
such indemnification, by at least a majority of the Managing
General Partners who are disinterested persons and are not
interested persons (as defined in the Investment Company Act)
(provided that a majority of such Managing General Partners then in
office act on the matter), upon a determination, based upon a
review of readily available facts (but not a full trial-type
inquiry) that such Covered Person acted in good faith in the
reasonable belief that such Covered Person's action was in the best
interests of the Partnership and such Covered Person's actions or
failure to act did not constitute wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of such Covered Person's office, or (ii) there has been
obtained an opinion in writing of independent legal counsel, based
upon a review of readily available facts (but not a full trial-type
inquiry) to the effect that it appears that such indemnification
would not protect such Covered Person against any liability to
which such Covered Person would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. Any
approval pursuant to this Article 10(b) shall not prevent the
recovery from any Covered Person of any amount paid to such Covered
Person in accordance with this Article as indemnification if such
Covered Person is subsequently adjudicated by a court of competent
jurisdiction not to have been liable by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office.
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C. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article 10, the term
"Covered Person" shall include such person's heirs, executors and
administrators, and a "disinterested person" is a person against
whom none of the actions, suits or other proceedings in question or
another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this
Article shall affect any rights to indemnification to which
personnel of the Partnership, other than General Partners and
officers, and other persons may be entitled by contract or
otherwise under law, nor the power of the Partnership) to purchase
and maintain liability insurance on behalf of any person.
BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISORY GENERAL PARTNER
AH&H is an investment bank that provides securities research, brokerage
and trading services to various business clients.
LOCATION OF ACCOUNTS AND RECORDS
AH&H is maintaining physical possession of the books and records of the
Partnership that the 1940 Act requires be maintained. Such books and records
are maintained at AH&H's principal place of business at 60 State Street,
Boston, MA 02109.
MANAGEMENT SERVICES
Not Applicable.
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SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston,
and The Commonwealth of Massachusetts, on the 28th day of March, 1996.
AH&H PARTNERS FUND LIMITED PARTNERSHIP
BY: /s/ Henry E. Wells, III
------------------------------------
Henry E. Wells, III
Managing Director
Adams, Harkness & Hill, Inc.,
Advisory General Partner of AH&H
Partners Fund Limited Partnership
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AH&H PARTNERS FUND LIMITED PARTNERSHIP
REPORT ON FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Report on Financial Statements
For the year ended December 31, 1995
C O N T E N T S
PAGE
----
Report of Independent Auditors 3
Investment Portfolio
as of December 31, 1995 4-5
Statement of Assets and Liabilities
as of December 31, 1995 6
Statement of Operations
for the year ended December 31, 1995 7
Statement of Changes in Net Assets
for the years ended December 31, 1995 and 1994 8
Notes to Financial Statements 9-11
2
<PAGE>
CREELMAN SMITH, P.C.
CERTIFIED
PUBLIC
ACCOUNTANTS
To the General Partner and Limited Partners of
AH&H Partners Fund Limited Partnership
Boston, Massachusetts
REPORT OF INDEPENDENT AUDITORS
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets, present fairly, in all material respects, the financial
position of The AH&H Partners Fund Limited Partnership (the Partnership) at
December 31, 1995, the results of its operations and the changes in its net
assets for each of the periods indicated, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
/s/ Creelman & Smith, P.C.
Creelman & Smith, P.C.
Certified Public Accountants
Boston, Massachusetts
January 24, 1996
330 Congress Street, Boston, Massachusetts 02210 (617) 542-4114
3
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Investment Portfolio
As of December 31, 1995
<TABLE>
<CAPTION>
INDUSTRY AND COMPANY SHARES VALUE
- -------------------- ---------- ------------
<S> <C> <C>
EQUITY SECURITIES - COMMON STOCK 90%
COMMUNICATIONS 7.9%
Natural Microsystems Corp. 44,800 $ 1,366,400
Pinnacle Systems 72,000 1,782,000
------------
3,148,400
CONSUMER 19.5%
CompUSA, Inc. 94,600 2,944,425
Duracraft Corp. 117,500 2,952,187
One Price Clothing Stores 212,625 637,875
Softkey International, Inc. 52,150 1,205,969
------------
7,740,456
CONTRACT MANUFACTURING 5.2%
ACT Manufacturing 185,000 2,058,125
FACTORY AUTOMATION 5.4%
Parametric Technology Corp. 32,300 2,147,950
INTERNET 11.7%
CMG Information Services 50,000 4,643,750
MEDICAL 12.0%
Imnet Systems 120,790 2,464,116
Rexall Sundown, Inc. 105,000 2,310,000
------------
4,774,116
SEMICONDUCTORS 5.0%
Aseco Corp. 119,820 1,977,030
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Investment Portfolio (Continued)
As of December 31, 1995
<TABLE>
<CAPTION>
INDUSTRY AND COMPANY SHARES VALUE
- -------------------- ---------- ------------
<S> <C> <C>
SOFTWARE 23.3%
Cheyenne Software 70,000 1,828,750
FTP Software 65,000 1,885,000
Progress Software 57,500 2,156,250
Softdesk Corporation 77,500 1,530,625
Symantec Corporation 79,000 1,836,750
------------
9,237,375
Total common stock (Cost $28,834,627) 35,727,202
------------
PRIVATE HOLDINGS 2.3%
Aimtech Corp. 166,667 500,001
Auburn Farms 100,000 100,000
Sys-tech Solutions 2,777 277,700
------------
Total private holdings (Cost $849,930) 877,701
------------
CASH AND EQUIVALENTS 7.7%
Fidelity US Treasury Income Fund 3,058,805 3,058,805
------------
Total Investment Portfolio - 100%
(Cost $32,743,362) $39,663,708
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Statement of Assets and Liabilities
As of December 31, 1995
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $32,743,362) $39,663,708
Cash 100
------------
Total assets 39,663,808
------------
LIABILITIES
Accrued management fees 84,422
Accrued capital withdrawals 3,020,605
------------
Total liabilities 3,105,027
------------
NET ASSETS $36,558,781
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Statement of Operations
For the year ended December 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 29,525
Interest 351,638
Settlement income 137,547
------------
518,710
Expenses:
Management fee $313,107
Amortization of organization costs 10,857
Other expenses 1,243 325,207
-------- ------------
Net investment income 193,503
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT TRANSACTIONS
Net realized gain from investments 4,716,800
Net unrealized appreciation on investments
during the period 2,478,320
------------
Net gain on investment transactions 7,195,120
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $7,388,623
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income (loss) $ 193,503 $ (12,264)
Net realized gain from investment
transactions 4,716,800 3,377,721
Net unrealized appreciation (depreciation) on
investment transactions during the period 2,478,320 (89,436)
----------- -----------
Net increase in net assets resulting from
operations 7,388,623 3,276,021
----------- -----------
Contributions to capital 5,461,500 2,620,901
Withdrawals from capital (3,994,412) (1,063,234)
----------- -----------
INCREASE IN NET ASSETS 8,855,711 4,833,688
Net assets at beginning of period 27,703,070 22,869,382
----------- -----------
NET ASSETS AT END OF PERIOD $36,558,781 $27,703,070
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Notes to the Financial Statements
As of December 31, 1995
1 - SIGNIFICANT ACCOUNTING POLICIES
The AH&H Partners Fund Limited Partnership (the "Partnership"), a
Massachusetts Limited Partnership was organized on June 8, 1990 and amended
and restated on September 13, 1990 and April 1, 1992. The Partnership was
formed, and has operated since its inception, as an investment fund.
Interests in the Partnership are not publicly offered.
Adams, Harkness & Hill, Inc., a Massachusetts Corporation, serves as
Managing General Partner (the General Partner). The General Partner must
maintain a capital account balance equal to the lesser of 1% of the sum of
all the positive capital account balances of all the Partners or the
greater of $500,000 or 0.2% of the sum of the positive capital account
balances of all the Partners.
The policies described below are followed consistently by the Partnership in
preparation of its financial statements in conformity with generally
accepted accounting principles.
SECURITY VALUATION
Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is
valued at the mean between the closing bid and asked prices. Securities for
which market quotations are not readily available are valued at "fair value"
as determined in good faith by the general partner.
FOREIGN SECURITIES
The value of foreign securities is converted into U.S. dollars at the rate
of exchange prevailing on the date of valuation. Purchases and sales of
foreign securities, as well as income and expenses relating to such
securities, are converted at the prevailing rate of exchange on the
respective date of such transaction.
SECURITIES SOLD SHORT
The Partnership is engaged in selling securities short, which obligates the
Partnership to replace a security borrowed by purchasing the same security
at the current market value. The Partnership would incur a loss if the
price of the security increases between the date of the short sale and the
date on which the Partnership replaces the borrowed security. The
Partnership would realize a gain if the price of the security declines
between those dates.
9
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Notes to the Financial Statements (Continued)
As of December 31, 1995
1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade-date basis. Securities
gains or losses are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend date or, for certain foreign
dividends, as soon as the Partnership becomes aware of the dividends.
Interest income, including original issue discount, where applicable,
is recorded on the accrual basis, except for bonds trading "flat", in which
case interest is recorded when received.
ORGANIZATION COSTS
Organization costs associated with the formation of the Partnership were
capitalized and have been amortized over a 60 month period beginning the
first month of operation.
FEDERAL AND STATE INCOME TAXES
No federal or state income tax is imposed on the Partnership as an entity.
The Partnership's income, gains, losses, deductions and credits flow through
to the partners. Each partner must include his or her share of partnership
income in his or her tax returns.
2 - INVESTMENT ADVISORY AGREEMENTS AND TRANSACTIONS WITH AFFILIATED PERSONS
The Partnership has an investment advisory agreement with the General
Partner. Certain individuals who are executive officers and directors of
the General Partner are also Limited Partners of the Partnership.
For the year ended December 31, 1995 the General Partner received fees of
$313,107 for investment and advisory services under the agreement. The fee
is paid quarterly and is computed on a sliding fee basis for capital
accounts opened prior to January 1, 1991 and 1% annually for accounts opened
subsequent to December 31, 1990. In addition, the Partnership Agreement
provides for a performance allocation from the Limited Partners to the
General Partner, equal to 15% of the investment return which exceeds a
cumulative 6% annual return, calculated separately for each Limited Partner.
The performance allocation, if there is one, is determined after the close
of the calendar year. The performance allocation from the Limited Partners
to the General Partner for the year ended December 31, 1995 amounted to
$853,352.
3 - INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of investment securities (excluding short
term investments) for the year ended December 31, 1995 aggregated
$31,062,476 and $25,144,747, respectively.
10
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Notes to the Financial Statements (Continued)
As of December 31, 1995
4 - SETTLEMENT INCOME
The Partnership was a member of a class action law suit, filed by
stockholders against a company in which the Partnership made a previous
investment. During the year ended December 31, 1995, the Partnership
received $137,547 of income in connection with the settlement of the suit.
5 - SIGNIFICANT SUBSEQUENT EVENT
The Partnership agreement provides for a Partnership termination date of
December 31, 2000. This will be amended in connection with the
Partnership's filing of a Form N-2 Registration Statement in 1996 with the
Securities and Exchange Commission, registering as a closed-end,
non-diversified management investment company. The Partnership proposes to
operate under the Investment Company Act of 1940 as an interval fund that is
treated as a Partnership. The Partnership will not be treated as a publicly
traded partnership under the Internal Revenue Code.
11
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Report on Financial Statements
For the year ended December 31, 1994
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Report on Financial Statements
For the year ended December 31, 1994
C O N T E N T S
PAGE
----
Report of Independent Auditors 3
Investment Portfolio
as of December 31, 1994 4-5
Statement of Assets and Liabilities
as of December 31, 1994 6
Statement of Operations
for the year ended December 31, 1994 7
Statement of Changes in Net Assets
for the years ended December 31, 1994 and 1993 8
Notes to Financial Statements 9-11
2
<PAGE>
CREELMAN SMITH, P.C.
CERTIFIED
PUBLIC
ACCOUNTANTS
To the General Partner and Limited Partners of
AH&H Partners Fund Limited Partnership
Boston, Massachusetts
REPORT OF INDEPENDENT AUDITORS
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and the related
statements of operations and of changes in net assets, present
fairly, in all material respects, the financial position of The AH&H
Partners Fund Limited Partnership (the Partnership) at December 31,
1994, the results of its operations and the changes in its net
assets for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management;
our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation.
We believe that our audits, which included confirmation of
securities at December 31, 1994 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed
above.
/s/ Creelman & Smith, P.C.
Creelman & Smith, P.C.
Certified Public Accountants
Boston, Massachusetts
December 21, 1995
330 Congress Street, Boston, Massachusetts 02210 (617) 542-4114
3
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Investment Portfolio
As of December 31, 1994
<TABLE>
<CAPTION>
INDUSTRY AND COMPANY SHARES VALUE
- -------------------- ------- ------
<S> <C> <C>
EQUITY SECURITIES - COMMON STOCK 76.4%
COMMUNICATIONS 7.5%
Digidesign 40,000 $ 990,000
Infosoft International 30,100 1,057,263
Pinnacle Systems 10,000 150,000
----------
2,197,263
CONSUMER 23.7%
CML Group, Inc. 41,400 419,175
CompUSA, Inc. 100,000 1,500,000
Duracraft Corp. 40,000 1,275,000
Little Switzerland, Inc. 31,900 167,475
One Price Clothing Stores 212,625 1,674,422
Softkey International, Inc. 50,000 1,275,000
TJX Companies, Inc. 40,000 625,000
----------
6,936,072
FACTORY AUTOMATION 8.6%
Parametric Technology Corp. 39,200 1,352,400
Wonderware Corp. 35,000 1,181,250
----------
2,533,650
FINANCIAL 4.2%
Concord Holding Corp. 19,500 273,000
State Street Boston Corp. 32,400 927,450
----------
1,200,450
MEDICAL 2.3%
Hologic, Inc. 44,700 670,500
NETWORKING 9.4%
Chipcom Corp. 37,500 1,875,000
Xircom, Inc. 50,000 887,500
----------
2,762,500
SEMICONDUCTORS 13.8%
Aseco Corp. 178,820 1,698,790
Asyst Technologies, Inc. 100,000 2,350,000
----------
4,048,790
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Investment Portfolio (Continued)
As of December 31, 1994
<TABLE>
<CAPTION>
INDUSTRY AND COMPANY SHARES VALUE
- -------------------- ------ -----
<S> <C> <C>
SOFTWARE 4.8%
VMark Software 80,000 1,420,000
WASTE MANAGEMENT 2.1%
Biomedical Waste Systems 346,550 628,122
-----------
Total common stock (Cost $17,874,304) 22,397,347
-----------
PRIVATE HOLDINGS 5.6%
Aimtech Corp. 166,667 500,001
Imnet Private Holdings 6,425 899,500
Sys-tech Solutions 250,000 250,000
-----------
Total private holdings (Cost $1,649,500) 1,649,501
-----------
CASH AND EQUIVALENTS 18.0%
Fidelity US Treasury Income Fund 5,261,463 5,261,463
-----------
Total Investment Portfolio - 100%
(Cost $24,785,267) $29,308,311
-----------
-----------
SECURITIES SOLD SHORT (1.9%)
Bisys Group, Inc. 13,550 $ 299,794
Quad Systems Corp. 20,000 255,000
(Cost $473,776)
$ 554,794
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Statement of Assets and Liabilities
As of December 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $24,785,267) $29,308,311
Cash 100
Receivable for investments sold 1,331,151
Dividends receivable 5,184
Organization costs, (net of amortization of $61,524) 10,858
-----------
Total assets 30,655,604
-----------
LIABILITIES
Payable for investments purchased 1,733,418
Accrued management fees 61,087
Accrued capital withdrawals 603,235
Securities sold short at value
(proceeds receivable $473,776) 554,794
-----------
Total liabilities 2,952,534
-----------
NET ASSETS $27,703,070
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Statement of Operations
For the year ended December 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends $ 66,416
Interest 150,829
----------
217,245
Expenses:
Management fee $214,901
Amortization of organization costs 14,477
Other expenses 131 229,509
-------- ----------
Net investment loss (12,264)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT TRANSACTIONS
Net realized gain from investments 3,377,721
Net unrealized depreciation on investments
during the period (89,436)
----------
Net gain on investment transactions 3,288,285
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $3,276,021
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss $ (12,264) $ (84,739)
Net realized gain from investment
transactions 3,377,721 2,215,820
Net unrealized appreciation (depreciation) on
investment transactions during the period (89,436) 1,117,820
------------ -----------
Net increase in net assets resulting from
operations 3,276,021 3,248,901
------------ -----------
Contributions to capital 2,620,901 2,415,719
Withdrawals from capital (1,063,234) (2,678,339)
------------ -----------
INCREASE IN NET ASSETS 4,833,688 2,986,281
Net assets at beginning of period 22,869,382 19,883,101
------------ -----------
NET ASSETS AT END OF PERIOD $27,703,070 $22,869,382
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Notes to the Financial Statements
As of December 31, 1994
1 - SIGNIFICANT ACCOUNTING POLICIES
The AH&H Partners Fund Limited Partnership (the "Partnership"), a
Massachusetts Limited Partnership was organized on June 8, 1990 and
amended and restated on September 13, 1990 and April 1, 1992. The
Partnership was formed, and has operated since its inception, as an
investment fund. Interests in the Partnership are not publicly offered.
Adams, Harkness & Hill,Inc., a Massachusetts Corporation, serves as
Managing General Partner (the General Partner). The General Partner
must maintain a capital account balance equal to the lesser of 1% of the
sum of all the positive capital account balances of all the Partners or
the greater of $500,000 or 0.2% of the sum of the positive capital
account balances of all the Partners.
The policies described below are followed consistently by the
Partnership in preparation of its financial statements in conformity
with generally accepted accounting principles.
SECURITY VALUATION
Portfolio securities which are traded on U.S. or foreign stock exchanges
are valued at the most recent sale price reported on the exchange on
which the security is traded most extensively. If no sale occurred, the
security is valued at the mean between the closing bid and asked prices.
Securities for which market quotations are not readily available are
valued at "fair value" as determined in good faith by the general
partner.
FOREIGN SECURITIES
The value of foreign securities is converted into U.S. dollars at the
rate of exchange prevailing on the date of valuation. Purchases and
sales of foreign securities, as well as income and expenses relating to
such securities, are converted at the prevailing rate of exchange on the
respective date of such transaction.
SECURITIES SOLD SHORT
The Partnership is engaged in selling securities short, which obligates
the Partnership to replace a security borrowed by purchasing the same
security at the current market value. The Partnership would incur a
loss if the price of the security increases between the date of the
short sale and the date on which the Partnership replaces the borrowed
security. The Partnership would realize a gain if the price of the
security declines between those dates.
9
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Notes to the Financial Statements (Continued)
As of December 31, 1994
1 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade-date basis. Securities
gains or losses are determined on the identified cost basis. Dividend
income is recorded on the ex-dividend date or, for certain foreign
dividends, as soon as the Partnership becomes aware of the dividends.
Interest income, including original issue discount, where applicable, is
recorded on the accrual basis, except for bonds trading "flat", in which
case interest is recorded when received.
ORGANIZATION COSTS
Organization costs associated with the formation of the Partnership have
been capitalized and are being amortized over a 60 month period
beginning the first month of operation.
FEDERAL AND STATE INCOME TAXES
No federal or state income tax is imposed on the Partnership as an
entity. The Partnership's income, gains, losses, deductions and credits
flow through to the partners. Each partner must include his or her
share of partnership income in his or her tax returns.
2 - INVESTMENT ADVISORY AGREEMENTS AND TRANSACTIONS WITH AFFILIATED
PERSONS
The Partnership has an investment advisory agreement with the General
Partner. Certain individuals who are executive officers and directors
of the General Partner are also Limited Partners of the Partnership.
For the year ended December 31, 1994 the General Partner received fees
of $214,901 for investment and advisory services under the agreement.
The fee is paid quarterly and is computed on a sliding fee basis for
capital accounts opened prior to January 1, 1991 and 1% annually for
accounts opened subsequent to December 31, 1990. In addition, the
Partnership Agreement provides for a performance allocation from the
Limited Partners to the General Partner, equal to 15% of the investment
return which exceeds a cumulative 6% annual return, calculated
separately for each Limited Partner. The performance allocation, if
there is one, is determined after the close of the calendar year. The
performance allocation from the Limited Partners to the General Partner
for the year ended December 31, 1994 amounted to $253,373.
3 - INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of investment securities (excluding
short term investments) for the year ended December 31, 1994 aggregated
$18,422,369 and $20,075,746, respectively.
10
<PAGE>
AH&H PARTNERS FUND LIMITED PARTNERSHIP
Notes to the Financial Statements (Continued)
As of December 31, 1994
4 - SIGNIFICANT SUBSEQUENT EVENT
The Partnership agreement provides for a Partnership termination date of
December 31, 2000. This will be amended in connection with the
Partnership's filing of a Form N-2 Registration Statement in 1996 with
the Securities and Exchange Commission, registering as a closed-end,
non-diversified management investment company. The Partnership proposes
to operate under the Investment Company Act of 1940 as an interval fund
that is treated as a Partnership. The Partnership will not be treated
as publicly traded partnership under the Internal Revenue Code.
11
<PAGE>
EXHIBIT A
______________________________
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
AH&H PARTNERS FUND LIMITED PARTNERSHIP
______________________________
As of January 1, 1996
<PAGE>
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
AH&H PARTNERS FUND LIMITED PARTNERSHIP
A MASSACHUSETTS LIMITED PARTNERSHIP
TABLE OF CONTENTS
Heading/
Article Page
-------- ----
Defined Terms............................................... 1
Organization of the Partnership............................. 8
Article 1. Name of the Partnership................... 8
Article 2. Purposes and Powers of the Partnership.... 8
Article 3. Term of the Partnership................... 10
Article 4. Principal Place of Operation.............. 10
Article 5. Fiscal Year............................... 11
Partners and Their Rights and Obligations................... 11
Article 6. Capital Contributions..................... 11
Article 7. Admission of New Partners; Additional
Capital Contributions Prom Existing
Partners.................................. 12
Article 8. Management................................ 15
Article 9. Liability of Partners..................... 22
Article 10. Indemnification........................... 22
Article 11. Withdrawal or Retirement
of General Partner........................ 25
Article 12. Transferability of a Limited
Partner's Interest; Substituted
Limited Partners; Withdrawal of a
Limited Partner........................... 27
Capital Accounts, Tax Allocations and Distributions......... 28
Article 13. Capital Accounts.......................... 28
Article 14. Tax Allocations........................... 33
Article 15. Distributions Prior to Liquidation........ 37
Article 16. Removal of Limited Partners............... 39
Termination................................................. 40
Article 17. Dissolution............................... 40
Article 18. Termination............................... 40
Miscellaneous............................................... 42
Article 19. Certain Limitations on Withdrawal
and Dissolution........................... 42
Article 20. Portfolio Valuation....................... 43
Article 21. Books and Records......................... 44
-i-
<PAGE>
Heading/
Article Page
-------- ----
Article 22. Financial Reports......................... 44
Article 23. Inspection of Books and Records........... 45
Article 24. Partner's Investment Intent
and Transfer of Interests................. 45
Article 25. Amendments................................ 46
Article 26. Prohibition of Certain Transfers;
Tax Elections............................. 48
Article 27. General Provisions........................ 48
-ii-
<PAGE>
THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP made and
entered into as of the 1st day of January, 1996, by and among Adams, Harkness
& Hill, Inc., a Massachusetts corporation, as Advisory General Partner, the
Managing General Partners whose names appear on SCHEDULE A attached hereto
and the Persons whose names appear on SCHEDULE A attached hereto as Limited
Partners.
W I T N E S S E T H:
WHEREAS, Harry. E. Wells III, as the initial limited partner, and the
Advisory General Partner formed AH&H PARTNERS FUND LIMITED PARTNERSHIP (the
"Partnership") pursuant to an Agreement of Limited Partnership dated June 8,
1990 (the "Original Agreement"); and
WHEREAS, as of September 13, 1990, the Original Agreement was restated in
the form of an Amended and Restated Agreement of Limited Partnership of the
Partnership, reflecting, among other things, the withdrawal of Harry E. Wells
III as the initial limited partner; and
WHEREAS, the Second Amended and Restated Agreement of Limited Partnership
was adopted as of the 1st day of April 1992 (the "Second Amended Agreement");
and
WHEREAS, the Second Amended Agreement has been amended on certain
occasions to reflect the admission or withdrawal of certain persons as
limited partners of the Partnership; and
WHEREAS, the Limited Partners and the Advisory General Partner desire to
amend and restate the Second Amended Agreement and to continue the
Partnership in accordance with the terms of this Third Amended and Restated
Agreement of Limited Partnership.
NOW, THEREFORE, in consideration of the mutual promises and agreements
made herein, the parties, intending to be legally bound, hereby agree as
follows:
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified below. The singular shall
include the plural and the masculine gender shall include the feminine, the
neuter and vice versa, as the context requires.<PAGE>
<PAGE>
"Accountants" means the certified public accountants of the Partnership
as may be selected by the Managing General Partners from time to time.
"Act" means the Massachusetts Uniform Limited Partnership Act (M.G.L.
Ch. 109), as amended from time to time, and any successor to such Act. Any
reference to any section of the Act shall mean such section as in effect on
the date hereof and shall, as appropriate, refer to any additional,
replacement or substitute section of the Act or any successor act pertaining
to the subject matter thereof.
"Additional Limited Partner" means any Person admitted to the
Partnership pursuant to Article 6 or Article 7 as of a date after
December 31, 1995 and shown as a Limited Partner on the books and
records of the Partnership.
"Adjusted Net Asset Value" means, as of any Valuation Date, the
Partnership's Net Asset Value as of such Valuation Date (without reduction
for any distributions as of such Valuation Date or any advisory fees payable
by the Partnership as of such Valuation Date that are allocable to the
Partners' Capital Accounts as of such Valuation Date) adjusted by (x)
subtracting the amount of Capital Contributions made since the prior
Valuation Date and (y) adding the amount of money and the fair market value
of Securities distributed since the prior Valuation Date (including money and
Securities distributed as of the prior Valuation Date but excluding money and
Securities distributed as of the applicable Valuation Date).
"Advisory Fees and Allocations" means the fees paid or reallocations made
to the Advisory General Partner pursuant to the Investment Management
Agreement.
"Advisory General Partner" means AH&H, in its capacity as advisory
general partner of the Partnership, and/or any other Person that becomes a
successor or additional Advisory General Partner of the Partnership as
provided herein, in such Person's capacity as a advisory general partner of
the Partnership.
"Affiliate" means, when used with reference to a specified Person, (i)
any other Person directly or indirectly owning, controlling or holding with
power to vote 5% or more of the outstanding voting securities of such Person,
(ii) any other Person 5% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power to vote by such
Person, (iii) any other Person directly or indirectly controlling, controlled
by or under common control with such Person, or (iv) any officer, director,
partner or employee of such Person.
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"Agreement" means this Third Amended and Restated Agreement of Limited
Partnership, as originally executed, and as amended, modified, supplemented
or restated from time to time, as the context requires.
"AH&H" means Adams, Harkness & Hill, Inc., a Massachusetts corporation.
"Allocation Deficit" means, with respect to any Managing General Partner
or Limited Partner for any Performance Allocation Period, the amount, if any,
by which (i) the sum of such Partner's Base Amounts for Valuation Periods
included in such Performance Allocation Period exceeds (ii) the sum of the
adjustments made to such Partner's Capital Account pursuant to Article 13(d)
of the Partnership Agreement, as of Valuation Dates included in such
Performance Allocation Period.
"Applicable Percentage" has the meaning assigned thereto from time to
time in the Investment Management Agreement.
"Base Amount" means, with respect to any Partner for any Valuation Period
included in a particular Performance Allocation Period, the Applicable
Percentage of the balance in such Partner's Capital Account as of the first
day of such Performance Allocation Period (as determined after all
allocations and distributions made to such Partner as of dates prior to such
first day have been charged or credited thereto, as the case may be, but
before any Capital Contributions made by such Partner as of such first day
have been credited thereto), computed, solely for purposes of this
definition, with the following adjustments:
(a) there shall be added to such Partner's opening Capital Account
balance for such Performance Allocation Period any Shortfall of such
Partner for the immediately preceding Performance Allocation Period
(computed, except as provided in clause (c) below, without regard
to any adjustments to such Shortfall on account of distributions to
such Partner during the applicable Performance Allocation Period);
(b) for such Valuation Period, there shall be added to such Partner's
opening Capital Account balance for such Performance Allocation
Period all Capital Contributions made by such Partner during such
Valuation Period and during any prior Valuation Period included in
such Performance Allocation Period; and
(c) upon each distribution to such Partner as of a date during such
Valuation Period, there shall be subtracted, for purposes of
determining such Partner's Base Amounts
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for subsequent Valuation Periods included in such Performance
Allocation Period, from such Partner's opening Capital Account
balance for such Performance Allocation Period (as determined after
taking into account all prior adjustments thereto made on account of
any Shortfall of such Partner for the immediately preceding
Performance Allocation Period pursuant to clause (a), any prior
Capital Contributions made by such Partner during such Performance
Allocation Period pursuant to clause (b) and any distributions made
to such Partner as of prior dates during such Performance Allocation
Period pursuant to this clause (c) an amount equal to such
distribution.
"Book Loss" means, for any Valuation Period, the amount, if any, by which
(i) the Partnership's Net Asset Value as of the immediately preceding
Valuation Date (after the payment of all Fixed Management Fees payable as of
such preceding Valuation Date but before any distributions as of such
preceding Valuation Date) exceeds (ii) the Partnership's Adjusted Net Asset
Value as of the Valuation Date included in such Valuation Period.
"Book Profit" means, for any Valuation Period, the amount, if any, by
which (i) the Partnership's Adjusted Net Asset Value as of the Valuation Date
included in such Valuation Period exceeds (ii) the Partnership's Net Asset
Value as of the immediately preceding Valuation Date (after payment of all
Fixed Management Fees but before any distributions as of the preceding
Valuation Date.
"Business Day" means any day that is not a Saturday, Sunday or legal
holiday in Boston, Massachusetts and on which all securities exchanges on
which Securities owned by the Partnership trade are open.
"Capital Account" means, with respect to any Partner, the Capital Account
established and maintained for such Partner pursuant to Article 13.
"Capital Contribution" means, at any specified time, the total amount of
money and the fair market value of any property contributed to the
Partnership by all the Partners or any class of Partners or any one Partner,
as the case may be (or the predecessor holders of the Interest of such
Partners or Partner).
"Certificate" means the Certificate of Limited Partnership as originally
filed on behalf of the Partnership with the Secretary of the Commonwealth
pursuant to the Act, and as amended, modified, supplemented or restated from
time to time, as the context requires.
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"Closing" means any closing of the sale of one or more Interests in the
Partnership (or portions thereof) to one or more Additional Limited Partners
pursuant to Article 6 or Article 7.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision of any predecessor or successor law).
"Commonwealth" means the Commonwealth of Massachusetts.
"Fixed Management Fee" means the portion, if any, of the Advisory Fees
and Allocations which is determined on a basis other than the investment
performance of the Partnership.
"General Partners" means the Managing General Partners and the Advisory
General Partner or Partners.
"Interest" means the interest of a Partner in the Partnership as
determined under this Agreement. Reference to a majority or a specified
percentage of Interests of the Limited Partners means Limited Partners whose
combined Capital Account balances represent over 50% or such specified
percentage of the aggregate Capital Account balances of all Limited Partners,
except that for purposes of any matter contemplated by Article 8(f), a
majority of Interests of the Limited Partners shall mean (A) Limited Partners
whose combined Capital Account balances represent 67% or more of the
Interests present at a duly called meeting of Partners if the Limited
Partners whose Capital Account balances represent 50% or more of the
aggregate Capital Account balances of the Limited Partners are present at
such meeting or (B) Limited Partners whose Capital Account balances
represents more than 50% of the aggregate Capital Account balances of all
Limited partners, whichever is less.
"Investment Advisor" means AH&H, in its capacity as investment advisor to
the Partnership, or any replacement or additional investment advisor as
selected by the Managing General Partners in accordance with Article 8(a) of
this Agreement and the Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and the rules and regulations of the Securities and Exchange
Commission thereunder, as the same may be amended from time to time and shall
include, as applicable, any exemptive order from the requirements of the
Investment Company Act granted to the Partnership by the Securities and
Exchange Commission.
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"Investment Management Agreement" means the Investment Management
Agreement between the Partnership and the Investment Advisor, including any
and all amendments and renewals thereof and all successors thereto and any
other investment management agreement with any Investment Advisor.
"Limited Partner" means any Person who is a limited partner of the
Partnership as shown on the books and records of the Partnership (including
Additional Limited Partners and Substituted Limited Partners) at the time of
reference thereto, in such Person's capacity as a limited partner of the
Partnership.
"Managing General Partner" means any person who is a managing general
partner of the Partnership as shown on the books and records of the
Partnership at the time of reference thereto, in such person's capacity as a
managing general partner of the Partnership.
"Net Asset Value" shall have the meaning used in Article 20.
"Opening Date" shall mean each January l, April 1, July 1, and October 1
before the dissolution of the Partnership and any other dates selected by the
Advisory General Partner.
"Partner" means any General Partner or Limited Partner.
"Partnership" means the limited partnership formed and continued by and
governed under and pursuant to this Agreement, as said limited partnership
may from time to time be constituted.
"Performance Allocation Date" has the meaning assigned thereto in the
Investment Management Agreement.
"Performance Allocation Period" has the meaning assigned thereto in the
Investment Management Agreement.
"Performance Allocation" means that portion, if any, of the Advisory Fees
and Allocations determined on the basis of the investment performance of the
Partnership during any Performance Allocation Period.
"Person" means any individual, corporation, partnership, trust,
unincorporated organization or association, or other entity.
"Securities" shall have the meaning as set forth in Article 2(a) hereof.
"Securities Act" means the Securities Act of 1933, as amended and in
effect from time to time and any successor thereto.
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"Shortfall" means, with respect to any Partner for any Performance
Allocation Period, the amount, if any, of such Partner's Allocation Deficit
for such Performance Allocation Period, computed with the following
adjustments:
(a) in computing such Partner's Allocation Deficit for such Performance
Allocation Period, there shall be added to the sum of such Partner's
Base Amounts for Valuation Periods included in such Performance
Allocation Period the amount of such Partner's Shortfall, if any,
for the immediately preceding Performance Allocation Period (taking
into account all adjustments to such prior Shortfall pursuant to
clause (b) on account of distributions to such Partner); and
(b) for each distribution to such Partner pursuant to Article 15(b) as
of a date during the period beginning on the Performance Allocation
Date closing such Performance Allocation Period and ending on the
date immediately preceding the next Performance Allocation Date,
there shall be subtracted from such Partner's Allocation Deficit for
such Performance Allocation Period (as determined after reducing
such Allocation Deficit pursuant to this clause (b) for all
distributions, in the order made, to such Limited Partner pursuant
to Article 15(b) as of prior dates during the period beginning on
the Performance Allocation Date closing such Performance Allocation
Period and ending on the date immediately preceding the next
Performance Allocation Date) all distributions, in the order made,
to such Partner pursuant to Article 15(b) as of prior dates during
the period beginning on the Performance Allocation Date closing such
Performance Allocation Period and ending on the next following
Performance Allocation Date).
"Substituted Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to the provisions of Article 12 and
shown as a Limited Partner on the books and records of the Partnership.
"Tax Account" means, with respect to any Partner, the Tax Account
established and maintained for such Partner pursuant to Article 13.
"Treasury Regulations" means the Income Tax Regulations promulgated under
the Code. References to specific sections of the Treasury Regulations shall
be to such sections as amended, supplemented or superseded by Treasury
Regulations currently in effect.
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"Valuation Date" means (i) the calendar day immediately preceding each
Opening Date before the final liquidation of the Partnership (or, at the
election of the Advisory General Partner, if any such day is not a Business
Day, on the Business Day immediately preceding the day which otherwise would
be the applicable Valuation Date) and (ii) the date as of which the
Partnership is liquidated.
"Valuation Period" means each period ending on a Valuation Date and
beginning on the day after the immediately preceding Valuation Date.
"Withdrawal" means, (i) in the case of a Partner who is a natural person,
the death of such Partner or the adjudication that such Partner is
incompetent, (ii) in the case of a Partner that is not a natural person, the
occurrence of any event described in Section 23(7) through Section 23(10) of
the Act, and (iii) in the case of any General Partner, the occurrence of any
event described in Section 23(4) or Section 23(5) of the Act.
ORGANIZATION OF THE PARTNERSHIP
Article 1. NAME OF THE PARTNERSHIP. The Partnership shall continue to
conduct its operations under the name of "AH&H Partners Fund Limited
Partnership."
Article 2. PURPOSES AND POWERS OF THE PARTNERSHIP.
(a) The Partnership has been organized for the purpose of seeking
capital appreciation through its trading activities in Securities as
described below, and to engage in all activities and transactions as
the Managing General Partners may deem necessary or advisable in
connection therewith, including, without limitation:
(i) To invest in, purchase or otherwise acquire and hold, sell,
trade, transfer, exchange or otherwise dispose or realize upon
securities of any and all types and descriptions (whether or
not readily marketable or subject to a resale restriction in
the absence of an effective registration statement under the
Securities Act, or an exemption from such registration
requirement) including, but not limited to, shares of capital
stock, preferred stock, bonds, notes, debentures, convertible
equity securities, convertible debt instruments, trust
receipts, mortgages, evidences of indebtedness, certificates
of deposit, certificates of interest or participation in any
profit-sharing agreements,
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partnership or joint venture interests (including limited
partnership interests), collateral trust certificates, voting
trust certificates, currencies, commodities, fixed and/or
variable annuities, options, certificates, receipts, warrants,
futures contracts and other instruments representing rights to
receive, purchase, sell or subscribe for any of the foregoing
or representing any other rights or interest therein or in any
other property or assets, and any and all other interests,
certificates, instruments and documents whether now known or
hereafter devised which are or may hereafter be commonly known
or referred to as securities (all such items being herein
collectively referred to as Securities);
(ii) To sell Securities short and to cover such sales;
(iii) To sell or otherwise convey all or substantially all, or part,
of the Securities or other assets or property of the
Partnership;
(iv) To possess, transfer, mortgage, pledge, hypothecate, create or
suffer the creation of security interests in, or otherwise
effect transactions in and with, and to exercise all rights,
powers, privileges and other incidents of ownership and
possession with respect to, Securities held or owned by the
Partnership with the intention of preserving, protecting,
improving or enhancing the value thereof;
(v) To borrow or raise moneys and, from time to time, to issue,
accept, endorse, and execute promissory notes, drafts, bills
of exchange, warrants, bonds, debentures and other negotiable
or non-negotiable instruments and other evidences of
indebtedness, to borrow money for the purpose of paying the
purchase price of Securities, to finance the purchase of
Securities by securing the payment of any indebtedness by the
mortgage, pledge, conveyance, assignment in trust of, or the
creation of a security interest in, the whole or any part of
any property of the Partnership, whether at the time owned or
thereafter acquired;
(vi) To engage in arbitrage transactions, including, without
limitation, risk arbitrage, "riskless" arbitrage, hedge
arbitrage, option arbitrage,
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international securities arbitrage and currency arbitrage in
connection with international securities arbitrage;
(vii) To the extent permitted by applicable law, to make loans to
one or more Limited Partners the repayment of which is
secured by a pledge of that Partner's Capital Account balance
and which must be repaid in full, with interest, on the next
Opening Date; and to have all other powers available to it as
a limited partnership under the Act and under the laws of
other jurisdictions in connection with the conduct of its
business and to carry out the purposes of the Partnership,
except as and to the extent expressly limited or prohibited
by this Agreement; and
(viii) To enter into, make and perform all contracts agreements and
other undertakings and to do all things necessary, advisable,
incidental or convenient to the carrying out of any of the
foregoing purposes and powers and for carrying out the intent
of this Agreement.
Notwithstanding the foregoing, the Partnership (A) shall not engage in any
activity in which a closed-end, non-diversified management investment company
registered under the Investment Company Act may not engage and (B) shall not,
unless consented to by 75% in Interest of the Limited Partners, (i) purchase
any Securities if to do so would require any General Partner or the
Partnership to register under the Commodity Exchange Act, (ii) carry on any
operations or conduct regular business as a broker-dealer, (iii) knowingly
perform any act which would subject any Limited Partner to liability as a
general partner in any jurisdiction, or (iv) make investments constituting
greater than 25% of the Partnership's Net Asset Value in "short" positions
(said Net Asset Value being determined as of the preceding Valuation Date).
Article 3. TERM OF THE PARTNERSHIP. The Partnership commenced on June
8, 1990 and shall continue until December 31, 2050 unless terminated earlier
pursuant to Article 17.
Article 4. PRINCIPAL PLACE OF OPERATION. The office of the Partnership
shall be at 60 State Street, Boston, Massachusetts 02109 or at such other
place or places, from time to time, as may be specified in a notice given by
the Advisory General Partner to all the Limited Partners and the Managing
General Partners. For purposes of the Act, the Advisory General Partner
shall initially be the Partnership's agent for service of process. The
Managing
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General Partners may appoint a successor agent for service of process from
time to time.
Article 5. FISCAL YEAR. The fiscal year of the Partnership shall be the
period ending on December 31st of each year, or if permitted by the
Commissioner of Internal Revenue, such other fiscal year as the Managing
General Partners shall determine from time to time but only with the consent
of a majority in Interest of the Limited Partners.
PARTNERS AND THEIR RIGHTS AND OBLIGATIONS
Article 6. CAPITAL CONTRIBUTIONS.
(a) Each Partner has contributed to the Partnership the amount of cash
set forth beside his or its name on SCHEDULE A hereto. Except as
specifically provided in this Article 6 or elsewhere in this
Agreement or in the Act, no Managing General Partner or Limited
Partner will be required to make any further contribution of cash or
other property to the Partnership.
(b) All Capital Contributions shall be made in cash.
(c) Upon any admission of one or more Additional Limited Partners to the
Partnership, additional Capital Contribution to the Partnership by
one or more existing Limited Partners or adjustment to the Partners'
Capital Accounts pursuant to Article 13, the Advisory General
Partner shall contribute to the capital of the Partnership cash in
such amount, if any, as is necessary for the Advisory General
Partner's Capital Account balance to equal the lesser of (i) l% of
the sum of the positive Capital Account balances of all of the
Partners or (ii) the greater of (a) $500,000 or (b) 0.2% of the sum
of the positive Capital Account balances of all of the Partners.
For as long as the Advisory General Partner retains its status as
such, it shall not liquidate its Interests held by it as Advisory
General Partner or accept any distribution if the Interests held
by the Advisory General Partner would thereby be less than the
amounts set forth in the preceding sentence. There shall not be any
minimum Capital Contribution requirements from the Managing General
Partners.
(d) Except as otherwise provided herein, and subject to applicable law
with respect to the rights of creditors of the Partnership, no
Partner shall have any right to demand or receive the return of his
Capital Contribution or Capital Account. No Partner shall be
entitled to
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interest on his Capital Contribution or on the balance in his
Capital Account. No Limited Partner or Managing General Partner
shall have the right to receive property other than cash in return
for his Capital Contribution or Capital Account.
(e) Any Partner with a deficit in his Capital Account following the
distribution of proceeds in liquidation of the Partnership or his
entire interest in the Partnership shall be required to restore the
amount of such deficit to the Partnership by the end of the taxable
year of liquidation, or within ninety (90) days after the date of
such liquidation, whichever is later, which amount shall be applied
first to the payment of any then outstanding debts and liabilities
of the Partnership, and any excess shall be paid to the Partners in
proportion to their then respective positive Capital Account
balances. This provision shall not inure to the benefit of creditors
of the Partnership who extend nonrecourse loans to the Partnership.
Article 7. ADMISSION OF NEW PARTNERS: ADDITIONAL CAPITAL CONTRIBUTIONS
FROM EXISTING PARTNERS.
(a) The Managing General Partners may at any time admit, subject to the
provisions of this Agreement, one or more additional Managing
General Partners. The Advisory General Partner may on any Opening
Date admit one or more additional Advisory General Partners but only
with the consent of all of the Limited Partners.
(b) The names and addresses of the General Partners and the Interests
initially owned by each of them are set forth on SCHEDULE A to this
Agreement. The General Partners are listed separately as Managing
General Partners and the Advisory General Partner. The Managing
General Partners shall determine the number of persons to serve
as Managing General Partners; provided that initially there shall be
three Managing General Partners. Except as the Managing General
Partners shall otherwise determine, there shall not be any minimum
Capital Contribution required of a Managing General Partner. If at
any time a Managing General Partner resigns, is removed, dies,
becomes bankrupt or incapacitated, or retires, the remaining
Managing General Partners shall, within 90 days, call a meeting of
Managing General Partners for the purpose of determining to continue
the Partnership, without dissolution, and, in their discretion (but
subject to the requirements of Article 8(m) hereof) to elect an
additional Managing General
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Partner or Managing General Partners to serve until their successors
are duly elected and admitted, or for the purpose of reducing the
number of Managing General Partners. Pending such determination to
continue the Partnership, the Partnership will continue without
dissolution. Only individuals may act as Managing General Partners,
and all General Partners who are individuals shall act as Managing
General Partners. Any General Partner which is a corporation,
partnership, trust, joint venture or association shall act as a
Advisory General Partner. Except as expressly provided in this
Agreement to the contrary, a Advisory General Partner as such shall
take no part in the management, conduct or operation of the
Partnership's business (other than in a capacity as Investment
Advisor) and shall have no authority in its capacity as a Advisory
General Partner to act on behalf of the Partnership or to bind the
Partnership except at the direction of the Managing General
Partners.
(c) Subject to applicable Federal and state securities and other laws,
with the consent of the Advisory General Partner, any Partner may
make an additional Capital Contribution to the Partnership on any
Opening Date. A Partner making such an additional Capital
Contribution shall provide written notice to the Advisory General
Partner at least ten (10) business days before the effective date of
the contribution stating the intended amount and effective date.
The amount of permitted contribution on any Opening Date shall be as
determined by the Advisory General Partner in its sole discretion.
The additional Capital Contribution shall be paid to the Partnership
no later than the close of business on the Opening Date. The
Advisory General Partner may designate, by providing written notice
to all Limited Partners at least fifteen (15) business days before
an Opening Date, a minimum dollar amount for additional Capital
Contributions. If such designation is made, such amount shall remain
the minimum until it is changed by a subsequent notice, and the
Advisory General Partner need not, but may, accept any additional
Capital Contribution from a Limited Partner for any amount which
is less than the minimum then in effect.
(d) As of any Opening Date, the Advisory General Partner, in its sole
discretion, may admit Additional Limited Partners upon the
contribution to the Partnership of an amount to be determined by the
Advisory General Partner.
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(e) The Advisory General Partner may require, as a condition to the
admission of an Additional Limited Partner or to the acceptance of
an additional Capital Contribution from an existing Limited Partner,
that such Additional Limited Partner or such existing Partner, make
such representations and warranties and execute such instrument or
instruments as the Advisory General Partner may deem necessary or
desirable in connection therewith. Without limiting the foregoing,
in the case of admission of an Additional Limited Partner, the
Advisory General Partner shall require such new partner to execute a
written acceptance of all of the terms and provisions of this
Agreement.
(f) After the admission of an Additional Limited Partner or the
acceptance of an additional Capital Contribution from an existing
Limited Partner, the Advisory General Partner shall make any
required filings under applicable law and shall amend SCHEDULE A to
reflect such admission or additional Capital Contribution.
(g) The admission of an Additional Limited Partner or the acceptance of
an additional Capital Contribution from one or more existing
Partners shall not cause the dissolution or termination of the
Partnership.
(h) Notwithstanding any other provision of this Agreement and except as
required by the Act, the Advisory General Partner shall not permit
any Limited Partner to make an additional Capital Contribution (and
no Limited Partner shall be entitled to make such an additional
Capital Contribution) or admit any Additional Limited Partner to
the Partnership if such contribution or admission (i) would require
the Partnership to register the Interests under the Securities Act,
the Securities Exchange Act of 1934 or any state securities laws,
unless a majority of the Managing General Partners determine that
such registration is in the best interest of the Partnership, or
(ii) would cause the Partnership to be classified as an association
taxable as a corporation or a publicly traded partnership for
Federal income tax purposes.
Article 8. MANAGEMENT.
(a) Subject to the terms of this Agreement, the Act and the Investment
Company Act, the Partnership shall be managed by the Managing
General Partners, who will have complete and exclusive control over
the management, conduct and
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operation of the Partnership's business, and, except as otherwise
specifically provided in this Agreement, the Managing General
Partners shall have the rights, powers and authority, on behalf of
the Partnership and in its name, to exercise all of the rights,
powers and authority of partners of a partnership without limited
partners under the Act. Without limiting the generality of the
foregoing, the Managing General Partners shall have all of the
powers and rights of a general partner under the Act including,
without limitation, the power on behalf and in the name of the
Partnership:
(i) To purchase (long, short or any combination thereof), or
otherwise acquire Securities and to hold, mortgage, pledge,
sell, exchange or otherwise dispose of Securities and any
other personal property; to make payment therefor in any
lawful manner; and to exercise, as owner or holder of any
Securities, any and all rights, powers and privileges in
respect thereof, including the assignment of proxies;
(ii) To lend money or Securities or to borrow money or Securities
for lawful Partnership purposes, and to give security
therefor upon such terms as the Managing General Partners
deem proper for the benefit of the Partnership;
(iii) To take any and all action and make any and all elections, as
is permitted for the Managing General Partners in this
Agreement;
(iv) To reform the Partnership in or to license or qualify the
Partnership to transact business in one or more jurisdictions
other than the Commonwealth if the Managing General Partners
determine that such action would be in the best interest of
the Partnership;
(v) To perform any act, to engage in any kind of activity, and to
execute, amend, deliver and perform contracts and other
instruments of any kind necessary to, or in connection with
or convenient or incidental to, the accomplishment of the
purposes of the Partnership, so long as said activities and
contracts may be lawfully carried on or performed by a
partnership under applicable laws and in accordance with this
Agreement;
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(vi) If there is a determination by the Internal Revenue Service,
which in the opinion of counsel is likely to be sustained by
a court of competent jurisdiction, or if at any time in the
opinion of counsel there is a substantial risk that the
Partnership will or, at some future date, would be classified
as an association taxable as a corporation or a publicly
traded partnership for federal income tax purposes, the
Managing General Partners may take such steps as they deem
necessary or desirable to minimize the adverse tax
consequences of such classification including, without
limitation, to amend this Agreement to the extent necessary
to ensure that the Partnership will be classified as a
partnership that is not a publicly traded partnership or to
cause the Partnership or a successor entity to qualify as a
"regulated investment company" under the Code or to liquidate
the Partnership in a prompt and orderly fashion, all as
determined by the Managing General Partners in their sole
discretion;
(vii) To maintain accounts (including margin accounts) with brokers
and dealers; and to open, maintain and close bank accounts
and draw checks or other orders for the payment of moneys,
with such signatories as the Managing General Partners shall
determine from time to time;
(viii) To retain attorneys, accountants, consultants, custodians,
transfer agents and other independent contractors;
(ix) To execute in the name of and on behalf of the Partnership:
(1) the Investment Management Agreement between the
Partnership and AH&H and to execute such other investment
management or advisory agreement with any other investment
advisor selected by the Managing General Partners in
accordance with this Agreement; (2) any and all partnership
agreements, certificates, instruments and any documents
required by any buyer or seller from time to time in
connection with the acquisition, sale or ownership of any
Securities; and (3) any and all agreements and other
documents committing the Partnership with respect to options,
futures, puts, calls, trades on margin, borrowing from banks
and/or brokers, and otherwise using credit balances, lines of
credit, and overdraft privileges; and
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(x) To maintain one or more offices within or without the
Commonwealth.
To the extent permitted under the Act and the Investment Company Act, the
Managing General Partners shall be entitled to delegate any such rights and
powers to the Advisory General Partner. The Managing General Partners may
contract on behalf of the Partnership with one or more banks, trust
companies, investment advisers or other Persons for the performance of such
functions as the Managing General Partners may determine, but subject always
to the Managing General Partners' continuing supervision, including, but not
by way of limitation, the investment and reinvestment of all or part of the
Partnership's assets and execution of portfolio transactions, and any or all
administrative functions. Subject to the provisions of the Investment
Company Act, the Advisory General Partner or an Affiliate of a General
Partner may act as an investment adviser to the Partnership and shall be
compensated for such services in accordance with the terms of the Investment
Management Agreement which may be executed by the Partnership and the
Advisory General Partner or any such Affiliate. The Managing General
Partners may also appoint agents to perform such other duties on behalf of
the Partnership as the Managing General Partners deem desirable.
(b) The Managing General Partners shall not be obligated to do or
perform any act or thing in connection with the Partnership not
expressly set forth herein. Each General Partner will devote such
time as such General Partner deems appropriate to the activities of
the Partnership and shall not be required to devote any minimum
amount of time to the affairs of the Partnership. Subject to the
requirements of the Investment Company Act, each of the Managing
General Partners, the Advisory General Partner or any of their
respective Affiliates may, for its own account, enter into, engage
in and conduct any business or ventures, independently or with
others, including without limiting the generality of the foregoing,
any business dealing with Securities, whether or not competitive
with the Partnership, and neither the Partnership, nor the Partners
thereof as such, shall have any right in and to such independent
ventures or the profits derived therefrom.
(c) The Managing General Partners may cause title to all or any portion
of the assets of the Partnership, including, without limitation,
title to the Securities, to be held in the name of a nominee or
trustee, in street name or in such other manner as the Managing
General Partners may, from time to time, deem advisable.
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(d) Except as otherwise expressly provided herein, in all matters
relating to or arising out of the conduct of the operation of the
Partnership, the decision of a majority in number of the Managing
General Partners present at a meeting of the Managing General
Partners at which a quorum is present shall be the decision of the
Partnership; provided, however, with respect to any matter that the
Investment Company Act requires the approval of a specified
percentage of the Managing General Partners who are not "interested
persons" of the Partnership or requires the approval of the Limited
Partners, the decision of the Partnership shall be determined in
accordance with such requirements.
(e) Except as otherwise required by the Investment Company Act, at any
meeting of the Managing General Partners, a majority of the Managing
General Partners present in person or by telephone shall constitute
a quorum. Except as otherwise expressly required by the Investment
Company Act, the Managing General Partners may also act by a written
instrument signed by a majority of the Managing General Partners.
No single Managing General Partner shall have authority to act on
behalf of the Partnership or to bind the Partnership unless
appropriately authorized by the required vote of the Managing
General Partners. The Managing General Partners may elect a
Chairman who shall preside at meetings and such other agents or
officers of the Partnership as they may deem advisable to conduct
its business affairs.
(f) Except as provided in this Agreement, no Limited Partner who is not
also a General Partner shall take any part in the control or
management of the operation of the Partnership, nor shall any
Limited Partner (other than a Limited Partner who is also a General
Partner and is acting in his capacity as a General Partner) have any
authority or power to act for or on behalf of the Partnership in any
respect whatsoever. Under the circumstances provided by the
Investment Company Act, the Limited Partners shall have the right to
vote on the following matters relating to the business of the
Partnership, which vote shall in any case be taken at a meeting of
the Partners called and held pursuant to the provisions hereof:
(1) the election of Managing General Partners of the
Partnership when so required pursuant to Article 8(m) or the removal
of a Managing General Partner when permitted by the Investment
Company Act;
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(2) the approval or termination of any Investment Management
Agreement or underwriting contract (which may be with the Advisory
General Partner or an affiliate of the Advisory General Partner);
(3) the approval or ratification of Accountants;
(4) changes in any fundamental investment objective, policy
or restriction to the extent such approval is required by the
Investment Company Act; and
(5) Any other matters that the Investment Company Act
requires to be approved by the Limited Partners of the Partnership.
(g) Subject to the limitations contained herein, the General Partners
are authorized to pay out of the assets of the Partnership all
legal, printing and other fees and expenses of operating and
maintaining the Partnership and of conducting the business of the
Partnership including, without limitation, all taxes, if any,
imposed on the Partnership and all expenses with respect to buying,
owning, holding and selling the Securities, including brokerage
expenses and legal fees and all other expenses relating to the
operation of the Partnership. Notwithstanding the foregoing, the
Advisory General Partner will pay (i) all of the accounting and
custodial fees and expenses incurred by the Partnership from and
after the effective date of this Agreement in connection with the
ongoing operation of the Partnership (including without limitation,
the fees and expenses associated with the preparation and furnishing
of reports to the Partners), (ii) all of the expenses of the
Partnership in connection with offerings of Interests from and after
the effective date of this Agreement and (iii) all of the expenses
of the Partnership in connection with redemptions of Interests from
and after the effective date of this Agreement.
(h) The Limited Partners acknowledge that decisions regarding
investments or potential investments involve the exercise of
judgment and the risk of loss. The Limited Partners authorize the
General Partners to exercise judgment in making decisions, including
without limitation, decisions to invest, decisions not to invest and
decisions as to the holding and disposing of investments. The
General Partners are authorized to reinvest all interest income and
cash dividends paid or declared on Securities held in the
Partnership's investment portfolio; provided, however, that the
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General Partners may not reinvest interest income or dividends to
the extent that such funds are needed to make the distributions
required by this Agreement.
(i) Any obligation of a Partner to return money or other property paid
or distributed in violation of this Agreement or of applicable law
may be compromised by the General Partners without the consent of
the Limited Partners.
(j) The Partners acknowledge that the Advisory General Partner has
contributed certain amounts to the Partnership to enable the
Partnership to pay, or to reimburse Partners for the payment of, the
Partnership's legal fees and expenses in connection with the
organization and syndication of the Partnership and that the
Partnership has made the election allowed by Section 709(b) of the
Code with respect to all of its organizational expenses. The
Advisory General Partner shall be allocated all book and tax items
of the Partnership resulting from the use of such contributions
by the Partnership to pay such legal fees and expenses,
notwithstanding the fact that the Advisory General Partner has been
reimbursed for a portion of such expenses pursuant to the Second
Amended Agreement. Neither the contributions to be made by the
Advisory General Partner nor the special allocations to be made
to the General Partner pursuant to this Section 8(j) shall be taken
into account in determining the balance in the Advisory General
Partner's Tax Account or Capital Account for purposes of Articles
6(d), 11(f), 13(c), 13(d) and 13(e) and Articles 14 and 15.
(k) Subject to the rights of the Advisory General Partner set forth in
Article 6, a General Partner may also become a Limited Partner
without obtaining the consent of the Limited Partners and thereby
become entitled to all the rights of a Limited Partner to the extent
of the Limited Partnership interest so acquired. Such event shall
not, however, be deemed to reduce or otherwise affect any of the
General Partner's liability hereunder as a General Partner.
Termination of a person's status as a General Partner shall not
affect his status, if any, as a Limited Partner. A General Partner
shall not be entitled to any special payment from the Partnership
as a result of the termination of his status as General Partner.
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(l) A Managing General Partner shall have no further right or power to
act as a Managing General Partner (except to execute any amendment
to this Agreement to evidence his withdrawal) if he:
(1) dies, becomes bankrupt or is incapacitated;
(2) voluntarily retires upon not less than 90 days' written notice
to the other Managing General Partners or the Advisory General
Partner unless such notice is waived;
(3) is removed (i) by the other Managing General Partners pursuant
to a vote taken at a meeting of the Managing General Partners
held in accordance with the provisions of Article 8(e) or (ii)
by the Limited Partners in accordance with the Investment
Company Act; or
(4) fails to be elected at a meeting of Limited Partners called for
such purpose, provided that such withdrawal shall not occur
until his successor has been duly elected and admitted to the
Partnership as a Managing General Partner, and provided,
further, that the failure of any Managing General Partner to be
reelected shall not cause a dissolution of the Partnership and
the business and operations of the Partnership shall be
continued by all remaining and successor Managing General
Partners.
(m) Between meetings of Partners, the Managing General Partners may
elect one or more additional Managing General Partners to fill
vacancies (whether or not created by an increase in the number of
Managing General Partners) in the number of Managing General
Partners. The number of Managing General Partners shall be fixed
from time to time by the Managing General Partners but shall be not
less than one. Subject to the provisions of Article 8(l), each
Managing General Partner shall serve as a Managing General Partner
until the next meeting of Partners called for the election of
Managing General Partners and until his respective successor is
duly elected and admitted. If at any time more than a majority of
the Managing General Partners serving as such shall not have been
elected at a meeting of Partners, then the Managing General Partners
shall as promptly as possible and in any event within 60 days cause
a meeting of Partners to be held for the purpose
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of electing Managing General Partners (unless the Securities and
Exchange Commission shall by order extend such period) consistent
with the requirements of the Investment Company Act.
(n) Managing General Partners may receive compensation for their
services as Managing General Partners (as determined by the Managing
General Partners from time to time) and will be reimbursed for all
reasonable out-of-pocket expenses incurred in performing their
duties hereunder.
(o) The Advisory General Partner shall perform all duties imposed on a
"tax matters partner" of the Partnership by Sections 6221 through
6232 of the Code and shall make any and all filings as may be
necessary or appropriate in order to comply with any Securities Laws
(as defined in Article 24).
Article 9. LIABILITY OF PARTNERS.
(a) The General Partners shall have liability for the repayment,
satisfaction and discharge of the debts, liabilities and obligations
of the Partnership only as and to the extent provided by the Act
applicable to a general partner of a limited partnership which has
filed a Certificate thereunder.
(b) No Limited Partner, as such, shall be personally liable for the
obligations of the Partnership except to the extent provided by the
Act or by the deficit restoration provisions of Article 6(e).
Article 10. INDEMNIFICATION.
(a) No General Partner shall have any liability to the Partnership or to
any Partner for any loss suffered by the Partnership which arises
out of any action or inaction of any General Partner except with
respect to any matter as to which such General Partner shall have
been finally adjudicated in a decision on the merits to be liable to
the Partnership or its Partners by reason of wilful misfeasance,
gross negligence, bad faith or reckless disregard of such General
Partner's duties under this Agreement. Except with respect to the
obligations set forth in Sections 6(c) and (e), each General
Partner, each officer, director, partner, employee or agent of a
General Partner and each officer of the Partnership (the "Covered
Persons") shall be indemnified by the Partnership against any
losses,
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judgments, liabilities, expenses and amounts paid in settlement of
any claims sustained by it in connection with the Partnership,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees
reasonably incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have
been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter,
by reason of being or having been such a General Partner or any
other person serving in the capacities referenced above, except with
respect to any matter as to which such Covered Person's actions or
failure to act shall have been finally adjudicated in a decision on
the merits to constitute wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office. Expenses, including counsel
fees so incurred by any such Covered Person (but excluding amounts
paid in satisfaction of judgments, in compromise or as fines or
penalties), may be paid from time to time by the Partnership in
advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Partnership if it is
ultimately determined that indemnification of such expenses is not
authorized under this provision, provided that (a) such Covered
Person shall provide security for his undertaking, (b) the
Partnership shall be insured against losses arising by reason of
such Covered Person's failure to fulfill his undertaking, or (c) a
majority of the Managing General Partners who are disinterested
persons (as defined in Article 10(b)(1)) and who are not interested
persons (as that term is defined in the Investment Company Act)
(provided that a majority of such Managing General Partners then in
office act on the matter), or independent legal counsel in a written
opinion, shall determine, based on a review of readily available
facts (but not a full trial-type inquiry), that there is reason to
believe such Covered Person ultimately will be entitled to
indemnification.
(b) As to any matter disposed of (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 was brought, that such Covered Person's actions
or
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failure to act constituted wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office, indemnification shall be
provided if (i) approved as in the best interests of the
Partnership, after notice that the matter involves such
indemnification, by at least a majority of the Managing General
Partners who are disinterested persons and are not interested
persons (as defined in the Investment Company Act) (provided that a
majority of such Managing General Partners then in office act on the
matter), upon a determination, based upon a review of readily
available facts (but not a full trial-type inquiry) that such
Covered Person acted in good faith in the reasonable belief that
such Covered Person's action was in the best interests of the
Partnership and such Covered Person's actions or failure to act did
not constitute wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such
Covered Person's office, or (ii) there has been obtained an opinion
in writing of independent legal counsel, based upon a review of
readily available facts (but not a full trial-type inquiry) to the
effect that it appears that such indemnification would not protect
such Covered Person against any liability to which such Covered
Person would otherwise be subject by reason of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. Any approval pursuant to
this Article 10(b) shall not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in accordance with
this Article as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to
have been liable by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
(1) The right of indemnification hereby provided shall not
be exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article 10, the term
"Covered Person" shall include such person's heirs, executors and
administrators, and a "disinterested person" is a person against
whom none of the actions, suits or other proceedings in question or
another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this
Article shall affect any rights to indemnification to which
personnel
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of the Partnership, other than General Partners and officers, and
other persons may be entitled by contract or otherwise under law,
nor the power of the Partnership to purchase and maintain liability
insurance on behalf of any person.
Article 11. WITHDRAWAL OR RETIREMENT OF GENERAL PARTNERS.
(a) Subject to the Advisory General Partner's giving to each of the
Managing General Partners and Limited Partners at least sixty (60)
days' prior written notice of its intention to retire after the
close of any calendar month, the Advisory General Partner may retire
from the conduct of the operation of the Partnership as of the close
of such specified calendar month; provided, however, that no such
withdrawal or retirement of the Advisory General Partner shall be
effective until the Managing General Partners have selected in
accordance with the terms of the Agreement a new Advisory General
Partner or have approved the dissolution of the Partnership. A
Managing General Partner may withdraw as a General Partner from the
Partnership upon delivery of notice to such effect delivered to the
Advisory General Partner or on such later date specified in such
notice.
(b) In the event of the Withdrawal or retirement of any General Partner,
such General Partner shall cease immediately to be a General Partner
and the full extent of his or its Interest in the Partnership shall
be converted to that of a Limited Partner therein (with the same
Capital Account as such General Partner had prior to his Withdrawal
or retirement), with the same rights granted a Limited Partner by
this Agreement. Neither the estate nor the representatives of such
converting General Partner shall have any interest whatsoever as a
General Partner in the Partnership.
(c) In the event of the Withdrawal or retirement of a General Partner,
the remaining General Partner(s) (if at that time there is more than
one General Partner) may continue the business and affairs of the
Partnership until the end of the term of the Partnership. The right
to continue the business of the Partnership shall not, without the
consent of AH&H or its legal representative, include the right to
use the name "AH&H" in any name under which the Partnership has done
or will do business.
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(d) In the event that no Managing General Partner shall remain for the
purposes of electing whether to continue the business of the
Partnership as provided in this Article 11, then the Advisory
General Partner shall promptly call a meeting of the Limited
Partners to be held within 90 days of the date the last Managing
General Partner ceased to act in such capacity for the purpose of
determining whether to elect one or more successor Managing General
Partners who, if elected, and upon the assent of the Advisory
General Partner, will continue the business of the Partnership. For
the period of time from the date when the last acting Managing
General Partner shall have ceased to serve in such capacity until
the date of admission of one or more successor Managing General
Partners (if elected), the Advisory General Partner shall continue
the business and operations of the Partnership without dissolution
and shall be permitted to engage in the management, conduct and
operation of the business of the Partnership and, otherwise, to
exercise during such period all of the powers of the Managing
General Partners hereunder. If at the meeting called by the Advisory
General Partner pursuant to the foregoing provisions of this Article
11(d) the Partners shall determine not to elect one or more
successor Managing General Partners, then the Partnership shall
dissolve in accordance with Article 17 hereof and the assets of the
Partnership shall be distributed on dissolution pursuant to Article
18 hereof.
(e) In the event of the Withdrawal or retirement of the then sole
remaining General Partner, the Partnership shall be liquidated as
provided in Article 18 unless all of the Limited Partners consent to
designate one or more successor General Partners within 90 days of
such Withdrawal or retirement. Any such designee shall be admitted
as a successor General Partner only upon agreeing to be bound by the
provisions of this Agreement. The admission of such a successor
General Partner shall occur, and for all purposes shall be deemed to
have occurred, prior to the Withdrawal or retirement of its
predecessor.
(f) Upon its admission to the Partnership, a successor Advisory General
Partner shall contribute cash in such amount to the Partnership as
is necessary for the sum of the Advisory General Partners' Capital
Account balances to equal at least the lesser of (i) 1% of the sum
of the positive Capital Account balances of all of the Partners or
(ii) the greater of (a) $500,000 or (b) 0.2% of the
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sum of the positive Capital Account balances of all of the Partners.
A successor Advisory General Partner or its predecessor shall make
such amendments to the Certificate and this Agreement and file for
recordation such amendments or other documents or instruments as are
necessary to reflect the termination of the interest of the
predecessor as a General Partner and the fact that the successor is
a successor Advisory General Partner, all without the consent of the
Limited Partners.
(g) A General Partner that Withdraws, retires or assigns its entire
Interest in the Partnership shall remain liable for obligations and
liabilities incurred by it before the effective time of its
Withdrawal, retirement or assignment, but shall not be liable as a
General Partner for any obligation or liability incurred on account
of the activities of the Partnership from and after the time such
Withdrawal, retirement or assignment shall have become effective.
Article 12. TRANSFERABILITY OF A LIMITED PARTNER'S INTEREST; SUBSTITUTED
LIMITED PARTNERS; WITHDRAWAL OF A LIMITED PARTNER
(a) No Limited Partner may voluntarily sell, assign, pledge, encumber,
hypothecate or otherwise transfer, including without limitation, a
transfer by will or the laws of intestacy (collectively, a
"disposition") all or any part of his or its Interest in the
Partnership without the prior written consent of the Advisory
General Partner in its sole discretion. Upon the Withdrawal of
any individual Limited Partner, the Advisory General Partner may,
subject to the requirements of the Investment Company Act, at its
election, redeem all of that Limited Partner's Interest from the
estate of the Limited Partner on any Opening Date and may treat such
Limited Partner as having tendered the Limited Partner's entire
Interest for purposes of Article 15(b). Any purported disposition
of an Interest (or portion thereof or interest therein) that is not
made in compliance with this Agreement shall be null and void and of
no force or effect whatsoever.
(b) A transferee of all or any part of a Limited Partner's Interest
shall be admitted to the Partnership as a Substituted Limited
Partner only upon (i) the written consent of the Advisory General
Partner, which consent the Advisory General Partner may withhold for
any reason
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or no reason and may give subject to such terms and conditions as
the Advisory General Partner, in its sole discretion, may determine,
and (ii) compliance with the provisions of Article 24.
(c) In determining whether or not to consent to any proposed disposition
or proposed admission of a Substituted Limited Partner, the Advisory
General Partner may request such information from the parties to
such proposed disposition or from such proposed Substituted Limited
Partner as the Advisory General Partner, in its sole discretion,
considers relevant to its determination. Persons from whom
information is requested pursuant to this Article 12 shall furnish
the requested information to the Advisory General Partner.
(d) In the event of the Withdrawal of any Limited Partner, his or its
legal representatives shall have the status of an assignee of the
Limited Partner, unless and until the Advisory General Partner
shall, in its sole discretion, permit such legal representatives to
become a Substituted Limited Partner. The Withdrawal of a Limited
Partner shall not dissolve the Partnership if, on the date of such
Withdrawal, there remains at least one Limited Partner that is not a
General Partner. Nothing in this Article 12 shall otherwise affect
any rights or liabilities of the Partner who has Withdrawn that
arose prior to such Withdrawal.
CAPITAL ACCOUNTS, TAX ALLOCATIONS AND DISTRIBUTIONS
Article 13. CAPITAL ACCOUNTS.
(a) CAPITAL ACCOUNTS. The Partnership shall establish for each Partner
a capital account for income tax accounting purposes ("Tax Account")
and a capital account for Partnership accounting purposes ("Capital
Account"). The initial balance of a Partner's Tax Account and
Capital Account shall be the amount of cash contributed to the
Partnership by the Partner and shall be adjusted as provided in this
Article.
(b) ADJUSTMENTS TO TAX ACCOUNTS. The initial balance of the Tax Account
of each Partner shall be:
(i) Increased by (a) any cash contributed to the Partnership by
the Partner in addition to the initial Capital Contribution
made by the Partner;
(b) the Partner's distributive share of Partnership
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taxable income and gains; and (c) the Partner's distributive
share of Partnership income exempt from Federal income
taxation; and
(ii) Decreased by (a) the amount of cash and the Partnership's
adjusted basis in other property distributed to the Partner;
(b) the Partner's distributive share of Partnership taxable
losses and deductions; and (c) the Partner's distributive
share of Partnership expenditures that are not deductible by
the Partnership in computing its taxable income or loss and
that are not properly treated as capital expenditures.
(c) ADJUSTMENTS TO CAPITAL ACCOUNTS. The initial balance of the Capital
Account of each Partner shall be:
(i) Increased by (a) any cash contributed to the Partnership by
the Partner in addition to the initial Capital Contribution
made by the Partner, and (b) the positive adjustments to such
Partner's Capital Account in accordance with Article 13(d),
13(e) and 13(f) below (including positive adjustments that
have been made pursuant to Article 13(d) and 13(e) of the
predecessor Second Amended Agreement); and
(ii) Decreased by (a) the amount of cash and the fair market value
of other property distributed to such Partner; (b) the
portion of the Advisory Fees and Allocations allocated
pursuant to Article 13(e) below; and (c) the negative
adjustments to such Partner's Capital Account in accordance
with Article 13(d) and 13(f) below (including negative
adjustments that have been made pursuant to Article 13(d) and
13(e) of the predecessor Second Amended Agreement).
(d) ADJUSTMENTS TO CAPITAL ACCOUNTS AS OF VALUATION DATES. As of each
Valuation Date, the Partnership shall determine its Adjusted Net
Asset Value and allocate the Book Loss or Book Profit, as the case
may be, for the Valuation Period that includes such Valuation Date
in accordance with this Article 13(d).
(i) Subject to Article 13(e), a Book Loss for any Valuation
Period shall be charged to the Partners' Capital Accounts pro
rata based upon the balances in such Capital Accounts
immediately before the applicable Valuation Date.
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(ii) Subject to Article 13(e), a Book Profit for any Valuation
Period shall be credited to the Partners' Capital Accounts
based upon the balances in such Capital Accounts immediately
before the applicable Valuation Date.
(e) ALLOCATION OF ADVISORY FEES AND ALLOCATIONS. Notwithstanding Article
13(d), the special rules set forth in this Article 13(e) shall
govern the allocation of the Partnership's Advisory Fees and
Allocations.
(i) On each Valuation Date, the Fixed Management Fee payable on
or prior to such Valuation Date shall be allocated among the
Capital Accounts of each General and Limited Partners pro
rata based upon their Capital Account balances on such
Valuation Date.
(ii) Any Performance Allocation due to the Advisory General
Partner from the Partnership shall be satisfied by the
reallocation and transfer to the Capital Account of the
Advisory General Partner from the Capital Account of each
General Partner and Limited Partner the amounts determined as
set forth below:
(A) Any Performance Allocation shall be allocated to each
General and Limited Partner as of such Performance
Allocation Date in an amount equal to such Partner's
Allocation Amount. A General Partner's and Limited
Partner's Allocation Amount as of any Valuation Date
shall mean fifteen percent (15%) of the amount, if any,
by which (x) the sum of the adjustments to such
Partner's Capital Account pursuant to Article 13(d), net
of the portion of the Fixed Management Fee allocated to
such Partner's Capital Account pursuant to Article
13(e)(i), as of Valuation Dates included in the
Performance Allocation Period ending on such Performance
Allocation Date exceeds (y) the sum of (A) such
Partner's Shortfall, if any, for the immediately
preceding Performance Allocation Period plus (B) the sum
of such Partner's Base Amounts for Valuation Periods
included in the Performance Allocation Period ending on
such Performance Allocation Date. For purposes of
computing a Shortfall for a Partner who has been a
Partner for less than one year, the period beginning
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on such Partner's admission to the Partnership and
ending on the Performance Allocation Date shall be
treated as the Performance Allocation Period. Any
reallocation and transfer to the Advisory General
Partner's Capital Account from the Capital Account of a
General Partner or Limited Partner as of a Performance
Allocation Date pursuant to this Article 13(e)(ii) shall
be made from allocations of Book Profit to such General
Partner or Limited Partner pursuant to Article 13(d) as
of the Valuation Dates included in the Performance
Allocation Period in reverse chronological order.
(B) Notwithstanding the foregoing, a General Partner's or
Limited Partner's Allocation Amount as of any
Performance Allocation Date occurring other than in
December shall mean (x) fifteen percent (15%) of the
amount, if any, by which (A) the sum of the adjustments
to such Partner's Capital Account pursuant to Article
13(d), net of the portion of the Fixed Management Fee
allocated to such Partner's Capital Account pursuant to
Article 13(e)(i), as of Valuation Dates included in the
period beginning on the first day of the immediately
preceding Performance Allocation Period (or the date of
the Partner's admission to the Partnership) and ending
on such Performance Allocation Date (without reduction
for any such amounts, if any, as were allocated to the
Partner pursuant to this Article 13(e)(ii) as of the
immediately preceding Performance Allocation Date)
exceeds (B) the sum of (1) such Partner's Shortfall for
the second preceding Performance Allocation Period plus
(2) the sum of such Partner's Base Amounts for Valuation
Periods included in the period beginning on the first
day of the immediately preceding Performance Allocation
Period and ending on such Performance Allocation Date
(treating such period as a single Performance Allocation
Period for purposes of computing such Partner's Base
Amounts for Valuation Periods included in such period),
minus (y) the amount, if any, that was reallocated and
transferred from such Partner's Capital Account to the
Advisory General Partner's Capital Account pursuant to
this Article
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13(e)(ii) as of the immediately preceding Performance
Allocation Date. Any reallocation and transfer to the
Advisory General Partner's Capital Account from the
Capital Account of a General Partner or Limited Partner
as of a Performance Allocation Date pursuant to this
Article 13(e)(ii) shall be made from allocations of Book
Profit to such General Partner or Limited Partner
pursuant to Article 13(d) as of the Valuation Dates
included in the Performance Allocation Period in reverse
chronological order.
(C) In the event that the aggregate amount of the Partners'
Allocation Amounts with respect to any Performance
Allocation Period is less than the Performance
Allocation with respect to such Performance Allocation
Period, the remaining portion of the Performance
Allocation shall be allocated to the Advisory General
Partner. In the event that the aggregate amount of the
Partners' Allocation Amounts with respect to any
Performance Allocation Period is more than the
Performance Allocation with respect to such Performance
Allocation Period, the Advisory General Partner shall
adjust the amount of the Performance Allocation i.e.,
allocated and transferred from each Partner's Capital
Account to the Capital Account of the Advisory General
Partner in any manner that the Advisory General Partner
determines to be equitable and, in the absence of such a
determination, pro rata among the Partners on the basis
of their Allocation Amounts.
(f) COMPLIANCE WITH REGULATIONS. Notwithstanding any other provision of
this Agreement to the contrary, the foregoing provisions of Article
13 shall be construed so as to comply with the provisions of
Treasury Regulation 1.704-1.
Article 14. TAX ALLOCATIONS. Subject to Article 14(e) and 14(f) below
and the terms of the Investment Management Agreement, all items of income,
gain, loss and deduction (including items of income or gain which are not
subject to Federal income taxation and items which are not deductible or
properly treated as capital
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expenditures for Federal income tax purposes) shall for tax purposes be
allocated among the Partners as follows:
(a) Except as otherwise provided in paragraph (c) below, Profit or Loss
(as defined below) which properly relates to an Accounting Period
shall be allocated to all Partners in proportion to their respective
Capital Account balances (determined on the basis of Capital Account
balances as of the beginning of the applicable Accounting Period).
(b) After all adjustments to Capital Accounts under Article 13(c) have
been made for the applicable Accounting Period and after all the
allocations under Article 13(e) and paragraph (a) above have been
made (but prior to making adjustments to take account of
distributions under Articles 15 and 18 made as of the same time or
as a result of the same event giving rise to such allocation), the
extent to which a Partner's Capital Account exceeds his Tax Account
("Positive Disparity") or the extent to which a Partner's Capital
Account is less than his Tax Account ("Negative Disparity") shall
be determined. Capital Gain and Capital Loss shall then be
allocated as follows:
(i) CAPITAL GAIN.
(A) A Capital Gain realized during any Accounting Period
within a fiscal year of the Partnership that commences
on the day following a Valuation Date and continues
through the next successive Valuation Date shall be
allocated at the end of the fiscal year (A) first to
those Partners whose Interests were completely redeemed
on the Valuation Date on which the Accounting Period
ends in proportion to the respective Positive
Disparities of such Partners, and (B) then to those
Partners whose Interests in the Partnership were
completely redeemed on a subsequent Valuation Date
during the fiscal year in proportion to the respective
Positive Disparities of such Partners. For purposes of
clause (B) of the preceding sentence, in the event that
there are multiple subsequent Valuation Dates during
the fiscal year on which the Interests of one or more
Partners were completely redeemed, the allocation of
Capital Gain shall be made separately with respect to
each such Valuation Date in chronological order.
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(B) Capital Gain remaining after the allocations under
Article 14(b)(i)(A) have been made shall be allocated to
the remaining Partners who were Partners during such
period to the extent of and in proportion to the
respective Positive Disparities of such Partners.
(ii) CAPITAL LOSS
Capital Loss realized between any Valuation Date and the next
succeeding Valuation Date shall be allocated among the
Partners who were Partners during such period on the
following basis:
(A) Capital Loss realized during any Accounting Period
within a fiscal year of the Partnership's that commences
on the day following a Valuation Date and continues
through the next successive Valuation Date shall be
allocated at the end of the fiscal year (A) first to
those Partners whose Interests were completely redeemed
on the Valuation Date on which the Accounting Period
ends in proportion to the respective Negative
Disparities of such Partners, and (B) then to those
Partners whose Interests in the Partnership were
completely redeemed on a subsequent Valuation Date
during the fiscal year in proportion to the respective
Negative Disparities of such Partners. For purposes of
clause (B) of the preceding sentence, in the event that
there are multiple subsequent Valuation Dates during the
fiscal year on which the Interests of one or more
Partners were completely redeemed the allocation of
Capital Loss shall be made separately with respect to
each such Valuation Date in chronological order.
(B) Capital Loss remaining after the allocations under
Article 14(c)(ii)(A), have been made shall be allocated
to the remaining Partner who were Partners during such
period to the extent of and in proportion to the
respective Negative Disparities of such Partners.
(iii) NET CAPITAL GAIN OR NET CAPITAL LOSS. If after the foregoing
allocations of Capital Gain and Capital Loss, above, there
remains Capital Gain and/or Capital Loss realized between any
Valuation Date
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and the next succeeding Valuation Date to be allocated, the
remaining Net Capital Gain or Net Capital Loss, as the case
may be, shall be allocated among all Partners who were
Partners during such period in the ratio that each Partner's
Capital Account balance (after all allocations pursuant to
Article 13(c)) bears to the balance of the Capital Accounts
of all Partners (after all allocations pursuant to Article
13(c)).
(c) If the Capital Gain allocated pursuant to Article 14(b)(i) is
insufficient to eliminate the Positive Disparity attributable to the
Capital Accounts of all Partners (including the General Partners)
whose Interests are completely redeemed during the fiscal year, or
the Capital Loss allocated pursuant to Article 14(b)(ii) is
insufficient to eliminate the Negative Disparity attributable to the
Capital Accounts of all Partners (including any General Partner)
whose Interests are completely redeemed during the fiscal year, then
Profit (and if necessary, items of income) which properly relates to
an Accounting Period shall first be allocated, pro rata, to those
Partners whose Capital Accounts have a Positive Disparity remaining
after the allocation pursuant to Article 14(b)(i) to the extent
necessary to eliminate such remaining Positive Disparity, or Loss
(and if necessary, items of deduction) which properly relates to an
Accounting Period shall first be allocated, pro rata, to those
Partners whose Capital Accounts have a Negative Disparity remaining
after the allocation pursuant to Article 14(b)(ii) to the extent
necessary to eliminate such remaining Negative Disparity.
(d) For purposes of this Article 14, the following terms shall have the
following meanings:
(i) "Accounting Period" shall mean the fiscal year of the
Partnership or, to the extent required, any period of shorter
duration from the end of the last preceding Accounting Period
until any of the Valuation Dates referred to in Article
13(d), above.
(ii) "Capital Gain" or "Capital Loss' shall mean the gain or loss
recognized by the Partnership for Federal income tax purposes
attributable to a capital asset, including the gain or loss
attributable to a regulated futures contract, as
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defined by Section 1256 of the Code, and any other asset the
recognition of gain or loss with respect to which, for
Federal income tax purposes, is not dependent upon the sale
or other disposition thereof.
(iii) "Net Capital Gain" shall mean the excess of Capital Gain over
Capital Loss.
(iv) "Net Capital Loss" shall mean the excess of Capital Loss over
Capital Gain.
(v) "Profit" or "Loss" shall mean the net income or net loss of
the Partnership (other than Capital Gain or Capital Loss), as
determined in accordance with the principles employed by the
Partnership for Federal income tax purposes, exclusive of any
organizational or syndication expenses that are specially
allocated to the General Partner pursuant to Article 8(j) and
without reduction for any fees under the Investment
Management Agreement.
(e) ACCOUNTING CONVENTIONS. To determine possible varying interests of
Partners during a taxable year, the Partnership shall use the
interim closing of the books method, and all profit, gain or loss
(including each item of income or expense) shall be allocated as
realized or accrued by the Partnership.
(f) COMPLIANCE WITH CODE AND REGULATIONS. Notwithstanding any
provisions of this Agreement to the contrary, the foregoing
provisions of Article 14 shall be construed so as to comply with the
provisions of Section 706 of the Code and the Treasury Regulations
thereunder and Treasury Regulation Section 1.704-1.
Article 15. DISTRIBUTIONS PRIOR TO LIQUIDATION.
(a) Except as provided in this Article 15, the Managing General Partners
shall have complete discretion in the timing and amounts, if any, of
distributions made prior to liquidation of the Partnership. Any
distributions not provided for in this Article 15 shall be made pro
rata to the Partners in proportion to their respective Capital
Account balances as of the last Valuation Date.
(b) As of each Valuation Date in March, June, September and December of
each year (commencing with the Valuation Date in March 1996), the
Partnership shall offer to redeem such percentage of the Interests
in the
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Partnership held by Limited Partners as a majority of the Managing
General Partners shall determine to be in the best interests of the
Partnership, provided that such offer shall not be for less than the
minimum percentage of Interests nor more than the maximum percentage
of Interests that is permitted by the Investment Company Act. The
redemption price shall, unless otherwise permitted by the Investment
Company Act, be the pro rata share on the basis of the Capital
Account balances of Net Asset Value of the Partnership represented
by the Interests accepted for redemption as of the Valuation Date
immediately preceding the Opening Date. Any request to redeem
Interests of a Limited Partner in whole or in part pursuant to this
Article 15(b) must be submitted to the Advisory General Partner at
least 10 calendar days prior to the Valuation Date immediately
proceeding such Opening Date. The Partnership shall comply with
such notice requirements and any other procedural requirements for
the redemption of Interests by the Partnership as shall be necessary
to comply with the Investment Company Act. If the Investment
Company Act shall be amended or interpreted by a court or the
Securities and Exchange Commission at any time to alter the
requirements imposed upon the Partnership to permit redemptions of
the Interests, this Article 15(b) shall be automatically amended to
the extent necessary to comply with such requirements. If Limited
Partners tender for redemption a greater percentage of Interests
than the Partnership has offered to redeem, such tendered Interests
shall be redeemed pro rata on the basis of the Capital Account
balances represented by Interests tendered, unless the Managing
General Partners determine that some other method of allocation is
permitted by the Investment Company Act and is in the best interests
of the Partnership. The Partnership shall not suspend or postpone a
redemption offer except pursuant to a vote of a majority of the
Managing General Partners, including a majority of the Managing
General Partners who are not interested persons of the Partnership
(as defined in the Investment Company Act), and only: (A) for any
period during which the New York Stock Exchange or any other market
in which the Securities owned by the Partnership are principally
traded is closed, other than customary weekend and holiday closings,
or during which trading in such market is restricted; (B) for any
period during which an emergency exists as a result of which
disposal by the Partnership of Securities owned by it is not
reasonably practicable, or during which it is not reasonably
practicable for the Partnership fairly to determine its
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Net Asset Value; or (C) for such other periods as the Securities and
Exchange Commission may by rule or order permit. The Partnership may
deduct from any distribution to a Limited Partner pursuant to this
Article 15(b) a fee to compensate the Partnership for its or its
agent's expenses in connection with such redemption offer on the
following basis (which expenses shall be specifically allocated to
such Limited Partner for federal income tax purposes): if the
applicable Valuation Date is not in December and such Limited
Partner was not a Limited Partner on April 1, 1992 and has been a
Limited partner for two (2) years or less as of such Valuation Date,
such Limited Partner shall pay to the Partnership, out of the
proceeds of such redemption unless waived by the Advisory General
Partner in its sole discretion, a redemption fee equal to (a) if
such Limited partner has been a Limited Partner for one (1) year or
less as of the applicable Valuation Date, one percent (1%) of the
proceeds of such redemption or (b) if such Limited Partner has been
a Limited Partner for more than one (1) year but not more than two
(2) years as of the applicable Valuation Date, one-half of one-half
percent (.50%) of the proceeds of such redemption. A Limited
Partner may not cause a partial redemption of his Interest to the
extent that such Limited Partner's Capital Account balance
immediately after such partial redemption would be less than the
minimum Capital Account requirements established by the Managing
General Partners from time to time.
(c) In its sole discretion under extenuating circumstances, the Advisory
General Partner may at any time remit Partnership funds to or on
behalf of a Limited Partner (provided that such Limited Partner is
not an affiliated person or interested person (as defined in the
Investment Company Act) of the Partnership) as an advance against
the proceeds of a complete or partial redemption of such Limited
Partner's Interest made in accordance with Article 15(b) as of the
next following Opening Date. Such advance shall be a recourse loan
by the Partnership to such Limited Partner secured by such Limited
Partner's Interest, shall bear interest at a commercially reasonable
rate determined by the Advisory General Partner and shall be
repayable in full on the next Opening Date whether or not the
Limited Partner's Interest is redeemed on such Opening Date in
accordance with Article 15(b) of this Agreement.
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(d) Notwithstanding any other provision of this Article: (i) no
distribution may be made pursuant to this Article to the extent the
Advisory General Partner determines that the distribution would be
likely to cause the Partner all or a portion of whose Interest is
being redeemed to have a negative Capital Account balance; and
(ii) any Limited Partner who receives proceeds of a redemption in
excess of such Limited Partner's positive Capital Account balance as
of the time he receives those proceeds shall return the excess to
the Partnership within 10 days after the Managing General Partner
delivers a Notification to him requesting the return of such excess;
(e) Each General Partner may withdraw amounts from its Capital Account
as of any Valuation Date in June or December; provided that all
liabilities, contingent or otherwise, of the Partnership, except any
liability to Partners on account of their Capital Contributions,
have been paid or there remains property of the Partnership, in the
reasonable opinion of the Advisory General Partner sufficient to pay
them; and provided further that a Managing General Partner shall
withdraw amounts from his Capital Account only with the consent of
the Advisory General Partner. The Advisory General Partner may not
withdraw funds pursuant to this paragraph to the extent that such
withdrawal would reduce its Capital Account balance as of the
Opening Date following the applicable Valuation Date below the
lesser of (i) 1% of the sum of the positive Capital Account balances
of all of the Partners as of such Opening Date or (ii) the greater
of (a) $500,000 or (b) 0.2% of the sum of the positive Capital
Account balances of all of the Partners.
Article 16. REMOVAL OF LIMITED PARTNERS. The Advisory General Partner,
in its sole discretion and without the consent of the Limited Partners, may,
effective as of any Valuation Date, require any Limited Partner to tender his
entire Interest as a whole for redemption pursuant to Article 15(b) in the
event that the Limited Partner does not maintain a minimum amount in its
Capital Account as shall be determined from time to time by the Managing
General Partners and notified to the Limited Partners, provided that no new
minimum Capital Account requirement shall be in effective until 90 days after
notice to the Limited Partners.
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TERMINATION
Article 17. DISSOLUTION. The Partnership shall dissolve and terminate
upon the earliest to occur of (i) the expiration of the term specified in
Article 3, (ii) the Withdrawal or retirement of a sole remaining Managing
General Partner or Advisory General Partner unless all of the Limited
Partners appoint a successor Managing General Partner or Advisory General
Partner, as the case may be, in accordance with Article 11, (iii) such time
as the Managing General Partners shall determine, in writing, to liquidate
and dissolve and not to reconstitute the Partnership, (iv) the written
election of at least 75% in Interest of the Limited Partners to liquidate and
dissolve and not to reconstitute the Partnership, or (v) the occurrence of
any event requiring the dissolution of the Partnership under the Act.
Article 18. TERMINATION.
(a) Upon termination of the Partnership, the Partnership shall be
liquidated in an orderly manner. The Advisory General Partner shall
be the liquidator ("Liquidator") to wind up the affairs of the
Partnership pursuant to this Agreement; provided, however, that if
there is no remaining Advisory General Partner, then a majority in
interest of the Limited Partners shall vote to appoint a Liquidator
to act in place of the Advisory General Partner. Immediately prior
to the final distribution of Partnership assets, the Liquidator
shall cause a valuation of the Partnership's investment portfolio to
be made. In connection therewith, the Liquidator is authorized to
convert the non-cash assets of the Partnership into cash to the
extent determined by the Liquidator, in its sole discretion. The
Liquidator is further authorized to sell, exchange or otherwise
dispose of the assets of the Partnership, or (subject to Article
19(b)) to distribute Partnership assets in cash or in kind, or
partly in cash and partly in kind, in such reasonable manner as the
Liquidator shall determine. The Liquidator shall also take all
action necessary to deregister the Partnership under the Investment
Company Act. The expenses incurred by the Liquidator shall be borne
by all the Partners in proportion to their respective Capital
Accounts. The Liquidator shall endeavor to dispose of or distribute
all Partnership assets within six (6) months of termination, but
shall not be bound to do so nor be liable in any way to any Limited
Partner for any loss attributable to any of his acts or omissions
taken in good faith in connection with the winding up of the
Partnership and distribution of the assets. The
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Liquidator may consult with legal counsel and accountants with
respect to winding up the Partnership and distribution of the assets
and shall be justified in acting or omitting to act in accordance
with the advice or opinion of such legal counsel or accountants.
(b) Upon dissolution and termination of the Partnership, its assets
shall be applied in the following order of priority:
(i) To the payment of the debts and liabilities of the
Partnership and the expenses of liquidation;
(ii) To the setting up of any reserves which the Liquidator shall
deem reasonably necessary for contingent or unforeseen
liabilities or obligations of the Partnership or of the
Liquidator arising out of or in connection with the
Partnership or its liquidation (such reserves shall be paid
over by the Liquidator to an escrow agent, to be held by it
for the purpose of disbursing such reserves in payment of any
of the aforementioned contingencies, and at the expiration of
such period as the Liquidator shall deem advisable to
distribute the balance thereafter remaining in the manner
provided in the following subdivisions hereof);
(iii) To the repayment of the balance remaining due on any loans or
advances by the Partners to the Partnership, together with
the interest accrued thereon, if any, but if the amount
available for such repayment shall be insufficient, then to
all of the Partners whose loans or advances have not been
repaid so that each such Partner shall receive the same
percentage of his loan or advance not repaid;
(iv) To the payment of any management fee due the Investment
Advisor under an Investment Management Agreement; and
(v) To the payment to the Partners of their then respective
positive Capital Account balances after all Capital Account
adjustments.
(c) None of the General Partners or their respective assets shall be
subject to any personal liability for repayment of the capital
contributed or amounts, whether positive or negative, in the Capital
Account of any Limited Partner, except to the extent required by
law.
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(d) After the dissolution of the Partnership and the
distribution of its assets, the Liquidator shall execute,
acknowledge and cause to be filed a certificate of cancellation of
the Partnership's Certificate of Limited Partnership.
(e) Within six (6) months after the termination of the
Partnership, the Liquidator shall arrange for the preparation of a
report from the Partnership with respect to final payments on
liquidation and shall furnish to each Limited Partner a copy of
such report upon its completion.
MISCELLANEOUS
Article 19. CERTAIN LIMITATIONS ON WITHDRAWAL AND DISSOLUTION.
(a) Each Partner, including each Limited Partner, shall be
entitled to receive for or on account of any permitted redemption
or withdrawal of such Partner, dissolution of the Partnership or
otherwise only such cash or other property as is expressly provided
in this Agreement in such event, and no Partner shall have any
right to receive the fair value of his or its interest in the
Partnership determined in any manner other than as expressly
provided in this Agreement or to receive any other amount, property
or assets not expressly provided in this Agreement.
(b) Upon a permitted redemption or withdrawal of a Partner or
dissolution of the Partnership and subject to the requirements of
the Investment Company Act, the Advisory Partner may, in its sole
discretion, distribute to any Partner and such Partner shall accept
the distribution of an asset in cash or in kind, or partly in cash
and partly in kind; provided, however, that the Partnership shall
make no distribution in kind to a Limited Partner if such
distribution is in excess of 50% of such Partner's Capital Account
prior to the distribution. With respect to any distribution in kind
by the Partnership, the date of determination of the value (in
accordance with Article 20) of any Securities so distributed shall
be such date as the Advisory General Partner shall, in its sole
discretion, select, which date shall be within ten (10) days of the
date of any such distribution.
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Article 20. PORTFOLIO VALUATION.
(a) As of any Valuation Date and as of the Friday of each
week, the net fair market value of the Partnership's assets ("Net
Asset Value") shall be determined. The Net Asset Value shall
include the total of realized and unrealized profits, gains and
losses, all dividends, interest and other income and shall be net
of all Partnership expenses and deferred costs, whether paid or
accrued (other than those allocable to the General Partner pursuant
to Article 8(j)); in determining the Net Asset Value of the
Partnership for purposes of Article 15(b), the admission of any new
Limited Partners or additional contributions to this Partnership,
Net Asset Value shall be adjusted to reflect an accrual for the
Advisory Fees and Allocations that is payable by the Partnership on
the relevant Valuation Date; provided further that if the relevant
Valuation Date is not a date on which any Performance Allocation is
payable or determined, the Net Asset Value shall be adjusted to
reflect an accrual equal to the Performance Allocation that would
be payable if the relevant Performance Allocation Period ended on
such Valuation Date.
(b) Subject to any procedures as the Managing General Partners
adopt from time to time, the fair market value of Securities held
in the Partnership's investment portfolio shall be determined by
the Advisory General Partner in good faith using reasonable methods
of valuation that are consistent with industry practice. In making
its determination, the Advisory General Partner may, but is not
required to, value Securities at their last closing "bid" price
with respect to a "long" position and their last closing "asked"
price with respect to a short position. In the event that the
transfer of Securities by the Partnership is restricted in any
manner, the Advisory General Partner may, subject to such
procedures as the Managing General Partners shall adopt from time
to time, may value the Securities at such lesser amount as it
deems, in its sole and absolute discretion, reflects the value of
such Securities after taking into account the restrictions
applicable to their transfer by the Partnership.
(c) The value of the Partnership portfolio as of any Valuation
Date shall be reduced by all accrued but unpaid expenses of the
Partnership with respect to the particular valuation period, all as
determined by the Advisory General Partner in its discretion.
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Article 21. BOOKS AND RECORDS. The books and records of the Partnership
shall be kept on an accrual basis and shall be maintained on a basis
appropriate for Federal income tax purposes consistently applied, and shall
show all revenues, costs, expenditures, assets, liabilities, profits and
losses, if any, of the Partnership, as well as all profits, losses, and
gains. Such books and records shall include a copy of the Certificate and
this Agreement and any and all amendments thereto.
Article 22. FINANCIAL REPORTS. The following financial reports and
statements shall be furnished to the Partners:
(i) As soon as available and in any event
(unless the Advisory General Partner has not received
necessary information from third parties) no later than
thirty (30) days prior to the date required for the timely
filing of an individual Partner's Federal income tax return
on a calendar year basis, a report prepared by the
Partnership or its accountants indicating to each Partner
his share in the profits and losses of the Partnership for
such year for Federal income tax purposes.
(ii) As soon as available and in any event within
sixty (60) days after each Valuation Date, financial
statements of the Partnership consisting of a balance sheet
in which the assets are valued in accordance with Article 20
hereof, and a statement of income and statement of cash flow
prepared in accordance with general accepted accounting
principles. The cost of the preparation of such financial
statements shall be paid by the Advisory General Partner and
not out of the Partnership's assets. At such time the
Advisory General Partner shall also provide the Partners
with such narrative and other financial and related
information as it deems appropriate. All such financial
statements and information shall be prepared in accordance
with generally accepted accounting principles consistently
applied but need not be audited.
(iii) Within the time period presented by the
Investment Company Act, such other reports and audited and
unaudited financial statements as shall be required under
the Investment Company Act.
Article 23. INSPECTION OF BOOKS AND RECORDS. The books and records of
the Partnership shall be located at its principal place of business and
shall be available for inspection by the Partners and their authorized
representatives, who may make copies thereof
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and take extracts therefrom during usual business hours in accordance with
the Act. Each Partner shall bear all expenses incurred in any such
examination made for or on his behalf, and covenants that in the exercise of
his rights hereunder, he will cause no unreasonable interference with or
disruption of the business and operations of the Partnership. All decisions
as to accounting principles and elections, whether for book or tax purposes
(and such decisions may be different for each such purpose) shall be made by
the Advisory General Partner.
Article 24. PARTNER'S INVESTMENT INTENT AND TRANSFER OF INTERESTS.
(a) Each of the Partners, by execution of this Agreement,
hereby acknowledges and represents, and any transferee of any
Interest and any Additional Limited Partner or Substituted Partner
by execution of an appropriate supplement to this Agreement shall
be required to acknowledge and represent, that he is acquiring his
respective interest in the Partnership for his own account, for
investment and not with a view to, or in connection with, any sale,
distribution or fractionalization thereof within the meaning of
either (i) the Securities Act, (ii) the Securities Exchange Act of
1934, as amended, or (iii) any applicable state securities laws
which may be or become applicable (said laws in the immediately
preceding clauses (i), (ii) and (iii) being referred to in this
Agreement as "Securities Laws").
(b) No sale, transfer, assignment, exchange or other
disposition or transfer of any Interest in the Partnership may be
made except in compliance with the Securities Laws and rules and
regulations of any governmental authority with jurisdiction over
such disposition, and the Advisory General Partner may require as a
condition of any transfer of such interest that the transferor
and/or the transferee (i) assume all costs incurred by the
Partnership in connection with any transfer, (ii) furnish a written
opinion of legal counsel satisfactory to the Partnership, both as
to such legal counsel and opinion, that the proposed transfer is
exempt from the registration and other applicable provisions of the
Securities Laws and otherwise complies with law, and (iii) execute
such instrument or instruments as the Advisory General Partner may
deem necessary or desirable in connection therewith. Without
limiting the foregoing, in the case of admission of a new Partner,
the Advisory General Partner shall require such new Partner to
execute (and it shall be a
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precondition to such admission that such new Partner execute) a
written acceptance and adoption of all of the terms and provisions
of this Agreement, as then amended.
(c) Any sale, exchange or other disposition or transfer in
contravention of any of the provisions of this Article 24 or other
provisions of this Agreement shall be void and ineffectual, and
shall not bind the Partnership or be recognized by it.
Article 25. AMENDMENTS.
(a) This Agreement may be amended or modified by the Advisory
General Partners with the consent of 75% in Interest of the Limited
Partners, PROVIDED, HOWEVER, that (i) no amendment shall increase
the liability or obligations of any Partner without the written
consent of such Partner, (ii) except as otherwise specifically
provided herein, no amendment shall reduce any Partner's rights to
share in the Partnership's cash flow, net cash proceeds, or
profits, losses and credits without the written consent of such
Partner, (iii) this Article 25 may not be amended without the
consent of all of the Partners and (iv) no consent is required with
respect to an amendment (A) to SCHEDULE A hereto to reflect the
admission of new Partners, additional Capital Contributions by
existing Partners, the redemption of Interests or any change in a
Partner's Interest in the Partnership to the extent authorized
hereby, (B) to the allocation provisions of Articles 13 and 14 to
the extent that, in the opinion of counsel to the Partnership, such
amendment is recommended to ensure that the allocations comply with
Regulations (including any proposed Regulations) issued under
Sections 704(b), 704(c) or 706 of the Code, or (C) to delete or add
any provision recommended by counsel to be so deleted or added by
any state, Federal or other governmental "Blue Sky" or securities
commission, agency or official provided that such amendment does
not adversely affect the Partners.
(b) In addition to any amendments otherwise authorized hereby,
this Agreement may be amended from time to time by the Advisory
General Partners without the consent of any of the Limited Partners
(1) to add to the representations, duties or obligations of the
General Partners or surrender any right or power granted to the
General Partners herein, (2) to cure any ambiguity or correct or
supplement any provisions hereof which may be inconsistent with any
other provision hereof, or correct
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any printing, stenographic or clerical errors or omissions; or (3)
to conform to any safe harbor provisions which would preserve the
substantial economic effect or alternative economic effect
characterization of the allocations of profits and losses; (4) to
provide any necessary information regarding the Limited Partners,
or any additional or successor General Partner; provided, however,
that no amendment shall be adopted pursuant to this Article 25(b)
unless such amendment would not alter the Interest of a Partner in
profits or losses, rights to redemptions or rights to distributions
and such amendment is not materially adverse to the interests of
the Limited Partners, and such amendment would not, in the opinion
of counsel for the Partnership, alter, or result in the alteration
of, the limited liability of the Limited Partners or the status of
the Partnership as a partnership that is not a publicly traded
partnership for federal income tax purposes.
(c) Upon the adoption of any amendment to this Agreement, the
amendment shall be executed by the Advisory General Partner on
behalf of itself and all the Managing General Partners and Limited
Partners and, if required by the Act, an amendment to the
Certificate shall be filed in the proper records of the
Commonwealth and of each jurisdiction in which recordation is
necessary for the Partnership to conduct business or to preserve
the limited liability of the Limited Partners.
Article 26. PROHIBITION OF CERTAIN TRANSFERS; TAX ELECTIONS.
(a) Notwithstanding any other provision of this Agreement, no
sale or exchange of all or any part of any Partner's Interest in
the Partnership may be made if (i) the Interest sought to be sold
or exchanged, when added to the total of all other Interests in the
Partnership sold or exchanged within the period of twelve
consecutive months prior to the proposed date of sale or exchange,
could, in the opinion of tax counsel to the Partnership, result in
the termination of the Partnership under Section 708 of the Code or
the treatment of the Partnership as a publicly traded partnership
under Section 7704 of the Code or (ii) the initial offering price
of each Interest held by any Limited Partner after such transfer
would be less than $20,000. In no event may any Interest be
subdivided for resale into Interests whose initial offering price
would be less than $20,000.
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(b) The Advisory General Partners, in its sole discretion,
shall make all tax elections on behalf of the Partnership. In the
event that the Partnership redeems all or any portion of a
Partner's interest in the Partnership, or a Partner transfers all
or any portion of his interest in the Partnership to a new Partner,
the Partnership (i) shall, if determined by the Managing General
Partners, file an election under Section 754 of the Code (or any
successor statute) so that the basis of the Partnership property
may be adjusted as a result of such redemption or transfer in
accordance with Section 734 or Section 743 of the Code, and (ii) if
such an election is made, shall for tax purposes, so adjust the
basis of the property held by the Partnership. No Partner shall
have the right to demand the benefit of any election under Code
Section 754.
Article 27. GENERAL PROVISIONS.
(a) NOTICE. For the purposes of this Agreement, all notices
given hereunder shall be made in writing either by delivering such
notice in person or by mailing such notice, by registered or
certified mail, return receipt requested, postage and registration
or certification fees prepaid, or by telecopier or other facsimile
transmission (i) if to the Advisory General Partner or the
Partnership, care of Adams, Harkness & Hill, Inc., 60 State Street,
Boston, Massachusetts 02109, Attn: President and (ii) if to any
Managing General Partner or any Limited Partner, at its respective
address set forth below its name on SCHEDULE A attached hereto.
Any party may change its address for purposes of this Article by
written notice given in accordance with this Article 27(a). All
notices will be deemed given three (3) days after mailing the
notice or upon delivery if hand delivered or if sent by telecopier
or by other facsimile transmission.
(b) POWER OF ATTORNEY. Each of the Limited Partners hereby
constitutes and appoints each General Partner and each Managing
General Partner hereby constitutes the Advisory General Partner and
each other Managing General Partner, and each of them, to be its
true and lawful attorney(s) in its name, place and stead, to make,
execute, sign, acknowledge and file:
(i) The Certificate of Limited Partnership filed
pursuant to the Act, this Agreement and any other document,
instrument or agreement contemplated thereby;
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(ii) Any other certificate or instrument which
may be required to be filed by the Partnership under the
laws of the Commonwealth of Massachusetts, or in order to
qualify as a foreign limited partnership doing business in
any other state or jurisdiction as required in connection
with the Partnership business;
(iii) Any and all amendments, modifications or
restatements of the instruments described in the preceding
subparagraphs (i) and (ii), including without limitation,
amendments, modifications or restatements necessary to admit
Partners to the Partnership, to reflect any change in or
transfer of a Partner's interest in the Partnership, or
relating to the admission or increased contribution of a
Partner;
(iv) Any other instruments determined by the
General Partner to be necessary or desirable in connection
with the proper conduct of the business of the Partnership
and cancellation of its Certificate of Limited Partnership
as amended from time to time.
It is expressly understood and intended by each of the Partners that the
grant of the foregoing power of attorney under this Article 27(b) is coupled
with an interest and is irrevocable and shall survive the death or incapacity
of each Partner. Such power of attorney shall survive the delivery of an
assignment or other attempted transfer by any of the Partners of the whole or
any portion of his Partnership interest, except that where an assignee or
transferee of such Interest has been approved as a substitute Limited
Partner, then such power of attorney of the assignor of the Limited Partner
shall survive the delivery of such assignment or transfer for the sole
purpose of enabling the General Partner(s) to execute, acknowledge and file
any and all instruments necessary to effect such substitution. Each Partner
shall execute and deliver to the Advisory General Partner within five (5)
days after receipt of the Advisory General Partner's request therefor such
further designations, powers-of-attorney and other instruments as the
Advisory General Partner deems necessary or appropriate to carry out the
terms of this Agreement.
(c) CONFIDENTIALITY. Each Partner acknowledges that it will
have access to confidential information of the Partnership
concerning its investments, strategies, Partners and related
matters. Each Partner hereby agrees that it will hold all such
information in strict confidence and will not disclose any such
confidential information to third parties.
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(d) ADDITIONAL DOCUMENTS. Each Partner hereby agrees to
execute all certificates, counterparts, amendments, instruments or
documents that may be required by the laws of the various states
and other jurisdictions in which the Partnership operates or
desires to operate to conform with such laws governing limited
partnerships.
(e) COUNTERPARTS. This Agreement or any amendment or
supplement thereto may be signed in any number of counterparts,
each of which shall be an original, but all of which taken together
shall constitute one Agreement.
(f) LOANS AND INTEREST. No interest shall be paid on the
Capital Contributions of the Limited Partners. Nevertheless, any
Limited Partner may make unsecured loans to the Partnership on
terms to which such lending Limited Partner and the General
Partners agree.
(g) NO SPECIFIC SHARE. The Partners shall have no share in or
right to a particular share of the Partnership assets, except as
expressly provided in this Agreement.
(h) TABLE OF CONTENTS AND HEADINGS. The table of contents and
the headings are inserted in this Agreement for convenience only
and shall not control or affect the meaning or construction of any
of the provisions of hereof.
(i) METHOD OF GIVING CONSENT. Any consent required by this
Agreement may be given by: (i) a written approval given by the
approving Partner and received by the Advisory General Partner at,
prior to or subsequent to the doing of the act or thing for which
the approval is solicited; or (ii) the affirmative vote by the
approving Partner to the doing of the act or thing for which the
approval is solicited at any meeting called and held pursuant to
this Article 27(i). Any matter requiring the consent of all or any
of the Partners or Limited Partners pursuant to this Agreement may
be considered at a meeting of the Partners held not less than 7 nor
more than 60 days after notice thereof shall have been given by the
General Partners to all Partners. Such meeting may be called by
the Advisory General Partners or a majority of the Managing General
Partners, in their discretion, at any time and notice therefor
shall be given by the General Partner upon the written request of
66 2/3% in Interest of the Limited Partners. Any such Notification
shall state briefly the purpose, time and place of the meeting.
All such meetings shall be held within or
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outside the Commonwealth at such locations as the Advisory General
Partner may designate. Partners may vote in person or by proxy in
accordance with the procedures reasonably established by the
Advisory General Partners.
(j) RIGHTS AND REMEDIES. Except as otherwise expressly
provided herein, all rights and remedies herein provided shall be
cumulative, shall not exclude any other right or remedy available
under law, and all of such rights and remedies may be exercised and
enforced separately or concurrently and as often as occasion
therefor shall arise. In order to effectuate and carry out the
purposes of this Agreement, the parties hereto shall have the right
to specifically enforce the provisions hereof or to enjoin their
violation.
(k) BINDING ON SUCCESSORS. This Agreement shall be binding
upon and shall inure to the benefit of the parties signatory hereto
and their successors, permitted assigns and legal representatives.
(l) PRINCIPLES OF CONSTRUCTION. This Agreement shall be
construed to the maximum extent possible to comply with all the
provisions of the Investment Company Act and the Act. If,
nevertheless, it shall be determined by a court of competent
jurisdiction that any provision or wording of this Agreement shall
be invalid or unenforceable under the Investment Company Act, the
Act or other applicable law, such invalidity or unenforceability
shall not invalidate the entire Agreement. In that case, this
Agreement shall be construed so as to limit any term or provision
so as to make it enforceable or valid within the requirements of
such law, and, in the event such term or provision cannot be so
limited, this Agreement shall be construed to omit such invalid or
unenforceable provision.
(m) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter
hereof and it supersedes any prior agreement or arrangement between
the parties relative to the subject matter hereof.
(n) APPLICABLE LAW. This Agreement and the rights, powers,
duties and remedies of the Partners with respect to each other
shall be governed and construed in accordance with the laws of the
Commonwealth of Massachusetts.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Third Amended and
Restated Agreement of Limited Partnership as an instrument under seal as of
the day and year first set forth above.
ADVISORY GENERAL PARTNER:
ADAMS, HARKNESS & HILL, INC.
By: /s/Harry E. Wells, III
---------------------------
Harry E. Wells, III
MANAGING GENERAL PARTNER:
/s/Harry E. Wells, III
--------------------------------
Harry E. Wells, III
/s/Nelson S. Gifford
--------------------------------
Nelson S. Gifford
/s/Richard H. Rhoads
--------------------------------
Richard H. Rhoads
LIMITED PARTNERS:
THOSE PERSONS LISTED ON SCHEDULE A
ATTACHED HERETO AS LIMITED PARTNERS
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EXHIBIT G
INVESTMENT MANAGEMENT AGREEMENT
This Agreement, dated as of the 1st day of January 1996, by
and between Adams, Harkness & Hill, Inc., a Massachusetts
corporation (the "Adviser"), and AH&H Partners Fund Limited
Partnership, a Massachusetts limited partnership (the
"Partnership").
WHEREAS, the Partnership wishes to retain the Adviser for the
purposes of managing and investing the assets of the Partnership
in its investment account (the "Account Assets"), and;
WHEREAS, the Adviser wishes to be retained by the Partnership
for such purposes.
NOW, THEREFORE, in consideration of the mutual promises set
forth in this Agreement, the Adviser and the Partnership agree to
be bound on the terms and conditions set forth below.
1. SERVICES AND AUTHORITY OF THE ADVISER. (a) The
Partnership authorizes the Adviser, from time to time and in its
sole discretion, to, and to direct brokers to, sell, purchase
(long, short, or any combination thereof), invest, reinvest,
exchange, retain, deposit or otherwise trade in or dispose of the
Account Assets and such authority shall specifically extend,
without limitation, to option contracts, and to the lending of
money or securities or the borrowing of money or securities for
proper Partnership purposes, and to give security therefor upon
such terms as the Adviser deems proper for the benefit of the
Partnership. The Adviser is further authorized to direct the
manner, method, time and place of such trading and disposition.
This Agreement shall serve as the Partnership's consent and
authority for all such action or non-action taken in the
discretion of the Adviser. The Adviser may, except as provided in
the Third Amended and Restated Agreement of Limited Partnership or
any further amendment or restatement thereof (the "Partnership
Agreement") deal with the Account Assets to the full extent
permitted to the Partnership as owner of the Account Assets
without seeking further consent from the Partnership. The Account
Assets shall include all contributions to capital made by the
partners of the Partnership during the term of this Agreement, and
any undistributed income, proceeds and realized gains from
investment of such assets in excess of all such contributions to
capital. The Partnership shall be responsible for the
determination of any amounts available for distribution to the
Partnership's partners and for making such distributions.
<PAGE>
(b) The Adviser will maintain all books and records
with respect to the Partnership's securities transactions required
by subparagraphs (b)(5), (6), (9) and (10) of the Investment
Company Act of 1940, as amended (the "Investment Company Act"),
and paragraph (f) of Rule 31a-1 under the Investment Company Act
(other than those records being maintained by any custodian or
transfer agent of the Partnership) and preserve such records for
the period prescribed therefor by Rule 31a-2 of the Investment
Company Act.
(c) The Adviser shall also perform such other services
in connection with the management and administration of the
Partnership and the Account Assets as the Managing General
Partners of the Partnership shall reasonably request from time to
time.
2. BROKERAGE SERVICES. The Adviser shall have the
authority to select brokers or dealers to execute transactions in
the Partnership's account and to effect securities transactions
itself on behalf of the Partnership. The Partnership understands
and agrees that (i) the Adviser will use its best efforts to
obtain prompt execution of orders at the most favorable prices
reasonably obtainable, (ii) the Adviser will not be obligated to
seek the lowest available transaction cost, but may take into
account the financial stability and reputation of the brokerage
firm and the brokerage services as a broker/dealer, and (iii) if
the Adviser itself effects transactions in securities on behalf of
the Partnership, it will receive commissions for such services,
subject in all cases to the requirements of the Securities Laws,
to its fiduciary duties as general partner of the Partnership and
its fiduciary duties as broker to the Partnership.
3. SERVICE TO OTHER CLIENTS. The Partnership acknowledges
that the Adviser may perform investment advisory services for
other clients. In connection therewith, the Adviser may give
advice or may take action with respect to any of its clients which
may differ from advice given to or the timing and nature of action
taken with respect to the Partnership account. The Adviser shall
not be obligated to purchase or to sell for the Partnership a
position in any security which the Adviser, its principals,
affiliates or employees may acquire for its or their own account
or for the account of any other client if in the sole and absolute
discretion of the Adviser it is not for any reason practical or
desirable to purchase or to sell such security for the
Partnership's account. In addition, to the extent permitted by
law and subject to the Adviser's fiduciary duties to the
Partnership, transactions in securities may be accomplished on
behalf of clients other than the Partnership (but not on behalf of
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<PAGE>
the Adviser itself) prior or subsequent to the time transactions
in the same securities may be effected for or executed by or on
behalf of the Partnership and at prices which may be different
from those prices at which transactions in the same securities are
effected for or executed by or on behalf of the Partnership.
4. LIMITATIONS ON FEES. In the event that applicable
Federal state or local law limits or restricts the payment to the
Adviser of the fees or reallocations contemplated by Section 6 of
this Agreement or commissions on brokerage transactions effected
by the Adviser on behalf of the Partnership, the Adviser agrees to
accept as full payment the portion of such fees, reallocations or
commissions allowed by law.
5. EXPENSES. The Partnership shall pay all costs and
expenses incurred in connection with management of the Account
Assets with the Adviser, including but not limited to all costs of
purchasing, selling, and carrying securities, interest on
borrowings, brokerage costs, and custodial fees.
6. FEES AND ALLOCATIONS. (a) For all services rendered by
the Adviser pursuant to this Agreement, the Adviser shall be
entitled to, and the Partnership shall pay the fees and make the
reallocations from the Partners Capital Accounts provided for in
this Section 6.
(b) The Partnership shall pay the Adviser a quarterly
management fee (the "Management Fee") equal to the twenty-five one
hundredths of one percent (0.25%) of the sum of the Capital
Account balances (determined before any allocation for fees under
this Agreement) of the Partners. The Management Fee shall be
calculated as of March 31, June 30, September 30 and December 31
in each year, and paid from the Account Assets within 30 days
thereof. If this Agreement is terminated pursuant to Section 7
hereof, the Partnership shall pay the Adviser within 30 days of
termination a final Management Fee which shall be prorated through
the effective date of termination.
(c) As of each Performance Allocation Date occurring in
December, the Partnership shall reallocate from the Capital
Accounts of the Partners to the Capital Account of the Adviser an
aggregate amount equal to fifteen percent (15%) of the amount, if
any, by which (x) the sum of the changes in the Adjusted Net Asset
Value of the Partnership as of each Valuation Date in such
Performance Allocation Period over the Net Asset Value as of the
immediately preceding Valuation Date exceeds (y) the sum of
(A) the Shortfall for the immediately preceding Performance
Allocation Period plus (B) the sum of the Base Amounts for
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Valuation Periods included in the Performance Allocation Period
ending on such Performance Allocation Date. As of any Performance
Allocation Date occurring other than in December the Partnership
shall reallocate from the Capital Accounts of the Partners to the
Capital Account of the Adviser an aggregate amount equal to an
amount equal to (x) fifteen percent (15%) of the amount, if any,
by which (A) the sum of the changes in the Adjusted Net Asset
Value of the Partnership as of each Valuation Date in the
Performance Allocation Period over the Net Asset Value as of the
immediately preceding Valuation Date exceeds (B) the sum of (1)
the Shortfall for the second preceding Performance Allocation
Period plus (2) the sum of the Base Amounts for Valuation Periods
included in the period beginning on the first day of the
immediately preceding Performance Allocation Period and ending on
such Performance Allocation Date minus (y) the amount, if any, of
the Performance Fee paid on the immediately preceding Performance
Allocation Date.
7. DURATION AND TERMINATION OF THIS AGREEMENT. This
Agreement shall remain in force until January 1, 1998 and shall
continue for periods of one year thereafter, but only as long as
such continuance is specifically approved at least annually (a) by
the vote of a majority of the Managing General Partners of the
Partnership who are not interested persons (as defined in the
Investment Company Act) of the Partnership and have no financial
interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a
majority of the Managing General Partners of the Partnership or a
majority of the outstanding Limited Partnership Interests. The
aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act and the rules
and regulations thereunder. This Agreement may, on 60 days'
written notice to the other party, be terminated at any time
without the payment of any penalty, by the Managing General
Partners of the Partnership, by the vote of a majority of the
outstanding Limited Partnership Interests, or by the Adviser.
This Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Agreement, the
definitions contained in Section 2(a) of the Investment Company
Act (particularly the definitions of "interested person,"
"assignment" and "majority of the outstanding voting securities"),
as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the Securities and
Exchange Commission by any rule, regulation or order.
8. INDEMNIFICATION. The Partnership understands and agrees
that neither the Adviser nor any of its officers, directors or
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<PAGE>
employees shall have any liability to the Partnership or to any
Partner for any loss suffered by the Partnership which arises out
of any action or inaction of the Adviser, except a loss resulting
from wilful misfeasance, bad faith or gross negligence by the
Adviser in the performance of the Adviser's duties under this
Agreement or from reckless disregard by the Adviser of its
obligations under this Agreement. The Adviser shall be
indemnified by the Partnership against any losses, judgments,
liabilities, expenses, and amounts paid in settlement of any
claims sustained by it in connection with the Partnership, except
for such losses, judgments, liabilities, expenses or amounts paid
in settlement resulting from the Adviser's wilful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
under this Agreement. The Partnership agrees to indemnify the
Adviser to the extent of its Account Assets to the full extent
permitted by the Massachusetts Uniform Limited Partnership Act, as
it may be amended, and as permitted by other applicable provisions
of law. Notwithstanding the above, the Adviser shall not be
indemnified for any losses, liabilities or expenses arising from
or out of an alleged violation of Federal or state securities laws
unless permitted by law.
9. NOTICE; PARTIES. Any notice required to be given
hereunder shall be in writing and shall be sent by registered or
certified first class mail, postage prepaid, with return receipt
requested, to the Adviser or the Partnership at the addresses
indicated below or to such other address as the parties may
hereafter direct in writing. The effective date of such notice
shall be three days after the date of mailing thereof.
10. BINDING EFFECT. This Agreement will be binding upon and
inure to the benefit of the successors, assigns and legal
representatives of the parties hereto.
11. AMENDMENT OF THIS AGREEMENT. No provision of this
Agreement may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination
is sought. No amendment of this Agreement shall be effective
until approved by vote of the holders of a majority of Limited
Partnership Interests and by a majority of the Managing General
Partners of the Partnership, including a majority of the Managing
General Partners of the Partnership who are not interested persons
(as defined in the Investment Company Act) of the Partnership and
have no financial interest in this Agreement, cast in person at a
meeting called for the purpose of voting on such amendment.
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12. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter
hereof.
13. GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the Commonwealth of
Massachusetts.
14. DEFINITIONS. (a) Unless otherwise defined in this
Agreement, all terms used in this Agreement shall have the
meanings set forth in the Partnership Agreement.
(b) The following terms used in this Agreement shall have the
meaning set forth below:
"Allocation Deficit" means, with respect to any Performance
Allocation Period, the amount, if any, by which (i) the sum of the
Base Amounts for Valuation Periods included in such Performance
Allocation Period exceeds (ii) the sum of the changes in the
Adjusted Net Asset Value of the Partnership as of each Valuation
Date in such Performance Allocation Period over the Net Asset
Value of the Partnership as of the immediately preceding Valuation
Date.
"Applicable Percentage" means one percent (1.5%) or, in the
case of any Valuation Period that is of a shorter duration than
three (3) months, the product of one percent (1.5%) and a
fraction, the numerator of which is the number of days that have
elapsed since the prior Valuation Date and the denominator of
which is 90.
"Base Amount" means, with respect to any Valuation Period
included in a particular Performance Allocation Period, the
Applicable Percentage of the Net Asset Value of the Partnership as
of the first day of such Performance Allocation Period (as
determined after all allocations and distributions made as of
dates prior to such first day have been made, but not including
any Capital Contributions made as of such first day), computed,
solely for purposes of this definition, with the following
adjustments:
(a) there shall be added to the Partnership's Net Asset
Value as of the first day such Performance Allocation
Period any Shortfall for the immediately preceding
Performance Allocation Period (computed, except as
provided in clause (c) below, without regard to any
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adjustments to such Shortfall on account of
distributions during the applicable Performance
Allocation Period);
(b) for such Valuation Period, there shall be added to the
Partnership's Net Asset Value as of the first day such
Performance Allocation Period all Capital Contributions
made by Partners during such Valuation Period and during
any prior Valuation Period included in such Performance
Allocation Period; and
(c) upon each distribution to one or more Partners as of a
date during such Valuation Period, there shall be
subtracted, for purposes of determining Base Amounts for
subsequent Valuation Periods included in such
Performance Allocation Period, from the Partnership's
Net Asset Value as of the first day for such Performance
Allocation Period (as determined after taking into
account all prior adjustments thereto made on account of
any Shortfall for the immediately preceding Performance
Allocation Period pursuant to clause (a), any prior
Capital Contributions made by a Partner during such
Performance Allocation Period pursuant to clause (b) and
any distributions made to Partners as of prior dates
during such Performance Allocation Period pursuant to
this clause (c)) an amount equal to such distribution.
"Performance Allocation Date" means (i) each Valuation Date
occurring in December and (ii) the Valuation Date as of which the
Partnership is liquidated.
"Performance Allocation Period" means, except as otherwise
provided herein, each period ending on a Performance Allocation
Date and beginning on the day after the immediately preceding
Performance Allocation Date.
"Shortfall" means, with respect to any Performance Allocation
Period, the amount, if any, of the Allocation Deficit for such
Performance Allocation Period, computed with the following
adjustments:
(a) in computing the Allocation Deficit for such Performance
Allocation Period, there shall be added to the sum of
the Base Amounts for Valuation Periods included in such
Performance Allocation Period the amount of the
Shortfall, if any, for the immediately preceding
Performance Allocation Period (taking into account all
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adjustments to such prior Shortfall pursuant to
clause (b) on account of distributions to Limited
Partners); and
(b) for each distribution to Limited Partners pursuant to
Article 15(b) of the Partnership Agreement as of a date
during the period beginning on the Performance
Allocation Date closing such Performance Allocation
Period and ending on the date immediately preceding the
next Performance Allocation Date, there shall be
subtracted from the Allocation Deficit for such
Performance Allocation Period (as determined after
reducing such Allocation Deficit pursuant to this
clause (b) for all distributions, in the order made, to
Partners pursuant to Article 15(b) of the Partnership
Agreement as of prior dates during the period beginning
on the Performance Allocation Date closing such
Performance Allocation Period and ending on the date
immediately preceding the next Performance Allocation
Date) an amount equal to all distributions, in the order
made, to Managing General or Limited Partners pursuant
to Article 15(b) as of prior dates during the period
beginning on the Performance Allocation Date closing
such Performance Allocation Period and ending on the
next following Performance Allocation Date).
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
ADAMS, HARKNESS & HILL, INC.
By: /s/ Harry E. Wells, III
_____________________________
Address: 60 State Street
Boston, MA 02109
AH&H PARTNERS FUND LIMITED PARTNERSHIP
By: Adams, Harkness & Hill, Inc., its
Advisory General Partner
By: /s/ Harry E. Wells, III
_____________________________
Address: 60 State Street
Boston, MA 02109
-8-
<PAGE>
EXHIBIT J
CUSTODIAN AGREEMENT
AGREEMENT made this January 1, 1996, between AH&H Partners Fund Limited
Partnership (the "Partnership") and Adams, Harkness & Hill, Inc. (the
"Custodian");
WITNESSETH: That in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN: The Partnership hereby employs and appoints
the Custodian as a custodian for the term and subject to the provisions of this
Agreement. The Custodian shall not be under any duty or obligation to require
the Partnership to deliver to it any securities or funds owned by the
Partnership and shall have no responsibility or liability for or on account of
securities or funds not so delivered. The Partnership will deposit with the
Custodian a copy of the Third Amended and Restated Agreement of Limited
Partnership of the Partnership and all amendments thereto (as so amended, the
"Partnership Agreement"), and copies of such votes and other proceedings of the
Partnership as may be necessary for or convenient to the Custodian in the
performance of its duties. For purposes of this Agreement, the term "securities"
shall, as appropriate, include securities and all other assets delivered to and
held by the Custodian on behalf of the Partnership.
2. POWERS AND DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE
PARTNERSHIP HELD BY THE CUSTODIAN: The Custodian shall have and perform the
following powers and duties:
A. SAFEKEEPING -- To keep safely the securities of the Partnership
that have been delivered to the Custodian and, on behalf of the Partnership,
from time to time to receive delivery of securities for safekeeping.
B. MANNER OF HOLDING SECURITIES -- To hold securities of the
Partnership (1) by physical possession of the share certificates or other
instruments representing such securities in registered or bearer form, or (2) in
book-entry form by a Securities System (as said term is defined in Section 2K).
The Custodian will in all cases physically segregate the Partnership's
securities from any securities and
<PAGE>
assets of all others and will mark the Partnership's securities in such manner
as to clearly identify the Partnership's securities as the property of the
Partnership, both upon physical inspection thereof and upon examination of the
books and records of the Custodian.
C. REGISTERED NAME: NOMINEE -- To hold registered securities of the
Partnership (1) in the name or any nominee name of the Custodian or the
Partnership, or in the name or any nominee name of any Agent, or (2) in street
certificate form, so-called, and in any case with or without any indication of
fiduciary capacity.
D. PURCHASES -- Upon receipt of proper instructions, as defined in
Section 2(N), insofar as funds are available for the purpose, to pay for and
receive securities purchased for the account of the Partnership. Such payments
will be made only upon receipt of the securities (1) by the Custodian, or (2) by
a clearing corporation of a national securities exchange of which the Custodian
is a member, or (3) by a Securities System.
E. EXCHANGES -- Upon receipt of proper instructions, to exchange
securities held by it for the account of the Partnership for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event relating to the securities or the issuer
of such securities and to deposit any such securities in accordance with the
terms of any reorganization or protective plan. Without proper instructions, the
Custodian may surrender securities in temporary form for definitive securities,
may surrender securities for transfer into a name or nominee name as permitted
in Section 2C, and may surrender securities for a different number of
certificates or instruments representing the same number of shares or same
principal amount of indebtedness, provided the securities to be issued are to be
delivered to the Custodian, and further provided the Custodian shall at the time
of surrendering securities or instruments receive a receipt or other evidence of
ownership thereof.
F. SALES OF SECURITIES -- Upon receipt of proper instructions, to
make delivery of securities which have been sold for the account of the
Partnership, but only against payment therefor (1) in cash, by a certified
check, bank cashier's check, bank credit, or bank wire transfer, or (2) by
credit to the
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account of the Custodian with a clearing corporation of a national securities
exchange of which the Custodian is a member, or (3) by credit to the account of
the Custodian or an Agent of the Custodian with a Securities System.
G. OTHER -- The Custodian may take any other action with respect to
the Partnership's securities held by the Custodian, provided that the Custodian
has received proper instructions from the Partnership, that such actions are
only for the account of the Partnership and that the Custodian acts in
accordance with the Standard of Care described in Section 4 hereof and with the
requirements of the Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.
H. PROXIES, NOTICES, ETC. -- Promptly to deliver or mail to the
Partnership all forms of proxies and all notices of meetings and any other
notices or announcements affecting or relating to securities owned by the
Partnership that are received by the Custodian, and upon receipt of proper
instructions to execute and deliver or cause its nominee to execute and deliver
such proxies or other authorizations as may be required. Neither the Custodian
nor its nominee shall vote upon any of such securities or execute any proxy to
vote thereon or give any consent or take any other action with respect thereto
(except as otherwise herein provided) unless ordered to do so by proper
instructions.
I. NONDISCRETIONARY DETAILS -- Without the necessity of express
authorization from the Partnership, to attend to all nondiscretionary details in
connection with the sale, exchange, substitution, purchase, transfer or other
dealings with securities of the Partnership held by the Custodian except as
otherwise directed from time to time by the Managing General Partners or
Advisory General Partner of the Partnership.
J. BILLS -- Upon receipt of proper instructions, to pay or cause to
be paid, insofar as funds are available for the purpose, bills, statements, or
other obligations of the Partnership (including, but not limited to, interest
charges, taxes, management fees, compensation to the Managing General Partners
and any employees of the Partnership, and other operating expenses of the
Partnership).
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K. DEPOSIT OF PARTNERSHIP ASSETS IN SECURITIES SYSTEMS -- The
Custodian may deposit and/or maintain securities owned by the Partnership in
(i) The Depository Trust Company, (ii) any book-entry system as provided in
Subpart zero of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR
Part 350, or the book-entry regulations of federal agencies substantially in the
form of Subpart D, or (iii) any other domestic cleaning agency registered with
the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934 which acts as a securities depository and whose use the
Partnership has previously approved in writing (each of the foregoing being
referred to in this Agreement as a "Securities System"). Utilization of a
Securities System shall be in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may deposit and/or maintain Partnership securities,
either directly or through one or more Agents appointed by the Custodian
(provided that any such Agent shall be qualified to act as a custodian of the
Partnership pursuant to the Investment Company Act of 1940 and the rules and
regulations thereunder), in a Securities System provided that such securities
are represented in an account ("Account") of the Custodian or such Agent in the
Securities System which shall not include any assets of the Custodian or Agent
other than assets held as custodian of the Partnership;
2) The records of the Custodian with respect to securities of the
Partnership which are maintained in a Securities System shall identify by book-
entry those securities belonging to the Partnership;
3) The Custodian shall pay for securities purchased for the account
of the Partnership upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the making of an
entry on the record of the Custodian to reflect such payment and transfer for
the account of the Partnership. The Custodian shall transfer securities sold for
the account of the Partnership upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian to reflect such
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transfer and payment for the account of the Partnership. Copies of all advices
from the Securities System of transfers of securities for the account of the
Partnership shall identify the Partnership, be maintained for the Partnership by
the Custodian or an Agent as referred to above, and be provided to the
Partnership at its request. The Custodian shall furnish the Partnership
confirmation of each transfer to or from the account of the Partnership in the
form of a written advice or notice and shall furnish to the Partnership copies
of daily transaction sheets reflecting each day's transactions in the Securities
System for the account of the Partnership on the next business day;
4) The Custodian shall provide the Partnership with any report
obtained by the Custodian or any Agent as referred to above on the Securities
System's accounting system, internal account control and procedures for
safeguarding securities deposited in the Securities System; and the Custodian
and such Agents shall send to the Partnership such reports on their own systems
of internal account control as the Partnership may reasonably request from time
to time.
5) At the written request of the Partnership, the Custodian will
terminate the use of any such Securities System on behalf of the Partnership as
promptly as practicable.
L. OTHER TRANSFERS -- Upon receipt of proper instructions, to
deliver securities, funds and other property of the Partnership to another
custodian of the Partnership.
M. INVESTMENT LIMITATIONS -- In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for the Partnership, the Custodian may assume unless and
until notified in writing to the contrary that proper instructions received by
it are not in conflict with or in any way contrary to any provisions of the
Partnership Agreement or votes or proceedings of the Limited Partners or
Managing General Partners of the Partnership.
N. PROPER INSTRUCTIONS -- Proper instructions shall mean a written
request, direction, instruction or certification signed or initialled on behalf
of the Partnership by one or more person or persons as the Managing General
Partners of the Partnership shall have from time to time authorized, provided,
however, that no such instructions directing the delivery of securities or the
payment of funds to an
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authorized signatory of the Partnership shall be signed by such person. Those
persons authorized to give proper instructions may be identified by the Managing
General Partners by name, title or position and will include at least one
individual empowered by the Managing General Partners to name other individuals
who are authorized to give proper instructions on behalf of the Partnership.
Telephonic or other oral instructions given by any one of the above persons will
be considered proper instructions if the Custodian reasonably believes them to
have been given by a person authorized to give such instructions with respect to
the transaction involved. Oral instructions will be confirmed in writing in the
manner set forth above but the lack of such confirmation shall in no way affect
any action taken by the Custodian in reliance upon such oral instructions.
Proper instructions may relate to specific transactions or to types or classes
of transactions, and may be in the form of standing instructions.
Proper instructions may include communications effected directly between
electro-mechanical or electronic devices or systems, provided that the
Partnership and the Custodian agree to the use of such device or system.
O. SEGREGATED ACCOUNT -- The Custodian shall upon receipt of proper
instructions establish and maintain on its books a segregated account or
accounts for and on behalf of the Partnership, into which account or accounts
may be transferred cash and/or securities of the Partnership, including
securities maintained by the Custodian pursuant to Section 2K hereof, as
mutually agreed from time to time between the Partnership and the Custodian.
P. LIENS, CHARGES, ETC. OF CUSTODIAN -- The Custodian shall have no
power or authority to assign hypothecate, pledge or otherwise dispose of the
Partnership's securities or investments, except pursuant to the direction of the
Partnership and its Advisory General Partner. The securities of the Partnership
held by the Custodian shall not at any time or for any reason be subject to any
lien or charge in favor of the Custodian or any other party claiming through the
Custodian.
Q. INSPECTION OF SECURITIES -- The Custodian will allow the
Partnership's independent public accountants to verify the Partnership's
securities by actual examination at the end of each annual and
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semi-annual fiscal period and on at least one other occasion as chosen by the
accountants during each fiscal year. A certificate of such accountants stating
that an examination of the Partnership's securities has been made and describing
the nature and extent of the examination must be attached to a completed
Form N-17 and filed by the Custodian with the Securities and Exchange Commission
promptly after each examination.
The Custodian also acknowledges that the Partnership's securities shall, at
all times, be subject to inspection by the Securities and Exchange Commission.
R. CUSTODIAN AS BROKER-DEALER -- The provisions of Sections 2(B)
(regarding segregation of the Partnership's securities), 2(D), 2(E), 2(F), 2(G)
and 2(P) do not apply to securities bought for or sold to the Partnership by the
Custodian acting as broker-dealer until the securities have been reduced to the
physical possession of the Custodian and have been paid for by the Partnership.
In such cases, the Custodian acting as broker-dealer will take possession of the
securities at the earliest practical time.
3. POWERS AND DUTIES OF THE CUSTODIAN WITH RESPECT TO ITS ROLE AS
FINANCIAL AGENT: The Partnership hereby also appoints the Custodian as the
Partnership's financial agent. With respect to the appointment as financial
agent, the Custodian shall have and perform the following powers and duties:
A. RECORDS -- To create, maintain and retain such records relating
to its activities and obligations under this Agreement as are required under the
Investment Company Act of 1940 and the rules and regulations thereunder
(including Section 31 thereof and Rules 31a-1 and 31a-2 thereunder) and under
applicable Federal and State tax laws. All such records will be the property of
the Partnership and in the event of termination of this Agreement shall be
delivered to the successor custodian.
B. ACCOUNTS -- To keep books of account and render statements,
including interim monthly and complete quarterly financial statements, or copies
thereof, from time to time as reasonably requested by proper instructions.
C. ACCESS TO RECORDS -- The books and records maintained by the
Custodian pursuant to Sections 3A and 3B shall at all times during the
Custodian's regular business hours be open to
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inspection and audit by officers of, attorneys for and auditors employed by the
Partnership and by employees and agents of the Securities and Exchange
Commission, provided that all such individuals shall observe all security
requirements of the Custodian applicable to its own employees having access to
similar records within the Custodian and such regulations as may be reasonably
imposed by the Custodian.
4. STANDARD OF CARE AND RELATED MATTERS:
A. LIABILITY OF THE CUSTODIAN WITH RESPECT TO PROPER INSTRUCTIONS:
EVIDENCE OF AUTHORITY, ETC. The Custodian shall not be liable for any action
taken or omitted in reliance upon proper instructions believed by it to be
genuine or upon any other written notice, request, direction, instruction,
certificate or other instrument believed by it to be genuine and signed by
the proper party or parties.
The Advisory General Partner of the Partnership shall certify to the
Custodian the names, signatures and scope of authority of all persons authorized
to give proper instructions or any other such notice, request, direction,
instruction, certificate or instrument on behalf of the Partnership, the names
and signatures of the Managing General Partners and any resolutions, votes,
instructions or directions of the Partnership's Managing General Partners or
Limited Partners. Such certificate may be accepted and relied upon by the
Custodian as conclusive evidence of the facts set forth therein and may be
considered in full force and effect until receipt of a similar certificate to
the contrary.
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement.
The Custodian shall be entitled, at the expense of the Partnership, to
receive and act upon advice of (i) counsel regularly retained by the Custodian
in respect of custodian matters, (ii) counsel for the Partnership, or (iii) such
other counsel as the Partnership and the Custodian may agree upon, with respect
to all matters, and the Custodian shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
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B. LIABILITY OF THE CUSTODIAN WITH RESPECT TO USE OF SECURITIES
SYSTEM -- With respect to the securities of the Partnership held by a Securities
System, the Custodian shall be liable to the Partnership only for any loss or
damage to the Partnership resulting from use of the Securities System if caused
by any negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from any failure of the Custodian
or any such agent to enforce effectively such rights as it may have against the
Securities System. At the election of the Partnership, it shall be entitled to
be subrogated to the rights of the Custodian with respect to any claim against
the Securities System or any other person which the Custodian may have as a
consequence of any such loss or damage to the Partnership if and to the extent
that the Partnership has not been made whole for any such loss or damage.
C. STANDARD OF CARE; LIABILITY; INDEMNIFICATION -- The Custodian
shall be held only to the exercise of reasonable care and diligence in carrying
out the provisions of this Agreement, provided that the Custodian shall not
thereby be required to take any action which is in contravention of any
applicable law. The Partnership agrees to indemnify and hold harmless the
Custodian to the extent and subject to the same terms and conditions as the
Advisory General Partner is indemnified in the Partnership Agreement. Without
limiting the foregoing indemnification obligation of the Partnership, the
Partnership agrees to indemnify the Custodian and any nominee in whose name
securities of the Partnership are registered against any liability the Custodian
or such nominee may incur by reason of taxes assessed to the Custodian or such
nominee or other costs, liability or expense incurred by the Custodian or such
nominee resulting directly or indirectly from the fact that securities of the
Partnership are registered in the name of the Custodian or such nominee.
It is also understood that the Custodian shall not be liable for any loss
involving any securities, currencies, deposits or other property of the
Partnership, whether maintained by it, a securities depository, an agent of the
Custodian or a Securities System or for any loss arising from a foreign currency
transaction or contract, where the loss results from a Sovereign Risk or where
the entity maintaining such securities, currencies, deposits or other property
of the Partnership, whether the Custodian, securities depository, an
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agent of the Custodian or a Securities System has exercised reasonable care
maintaining such property or in connection with the transaction involving such
property. A "Sovereign Risk" shall mean nationalization, expropriation,
devaluation, revaluation, confiscation, seizure, cancellation, destruction or
similar action by any governmental authority, de facto or de jure or enactment,
promulgation, imposition or enforcement by any such governmental authority of
currency restrictions, exchange controls, taxes, levies or other charges
affecting the Partnership's property; or acts of war, terrorism, insurrection or
revolution; or any other act or event beyond the Custodian's control.
D. APPOINTMENT OF AGENTS -- The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other bank or trust
company as its agent (an "Agent") to carry out such of the provisions of this
Agreement as the Custodian may from time to time direct, provided, however, that
the appointment of such Agent shall not relieve the Custodian of any of its
responsibilities under this agreement.
E. POWERS OF ATTORNEY -- Upon request, the Partnership shall deliver
to the Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian of its obligations under this Agreement.
5. COMPENSATION OF THE CUSTODIAN: The Custodian shall not receive a fee
or any other compensation for its services hereunder.
6. TERMINATION; SUCCESSOR CUSTODIAN: This Agreement shall continue in
full force and effect until terminated by either party by an instrument in
writing delivered or mailed, postage prepaid, to the other party, such
termination to take effect not sooner than seventy five (75) days after the date
of such delivery or mailing.
In the event of the appointment of a successor custodian, it is agreed that
the securities owned by the Partnership and held by the Custodian shall be
delivered to the successor custodian, and the Custodian agrees to cooperate with
the Partnership in execution of documents and performance of other
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actions necessary or desirable in order to substitute the successor custodian
for the Custodian under this Agreement.
7. AMENDMENT: This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof. No
provision of this Agreement may be amended or terminated except by a statement
in writing signed by the party against which enforcement of the amendment or
termination is sought.
In connection with the operation of this Agreement, the Custodian and the
Partnership may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment to this Agreement.
The section headings in this Agreement are for the convenience of the
parties and in no way alter, amend, limit or restrict the contractual
obligations of the parties set forth in this Agreement.
8. GOVERNING LAW: This instrument is executed and delivered in the
Commonwealth of Massachusetts and shall be governed by and construed according
to the laws of said Commonwealth.
9. NOTICES: Notices and other writings delivered or mailed postage
prepaid to the Partnership addressed to the Partnership at 60 State Street,
Boston, Massachusetts 02109 or to such other address as the Partnership may have
designated to the Custodian in writing, or to the Custodian at 60 State Street,
Boston, Massachusetts 02109, or to such other address as the Custodian may have
designated to the Partnership in writing; shall be deemed to have been properly
delivered or given hereunder to the respective addressee.
10. BINDING EFFECT: This Agreement shall be binding on and shall inure to
the benefit of the Partnership and the Custodian and their respective successors
and assigns, provided that neither party hereto may assign this Agreement or any
of its rights or obligations hereunder without the prior written consent of the
other party.
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11. COUNTERPARTS: This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
AH&H PARTNERS FUND ADAMS, HARKNESS & HILL, INC.
LIMITED PARTNERSHIP
By: /s/ Harry E. Wells, III By: /s/ Harry E. Wells, III
----------------------------- -------------------------------
Name: Harry E. Wells, III Name: Harry E. Wells, III
Title: Managing Director of Title: Managing Director
Adams, Harkness & Hill, Inc
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EXHIBIT N
[Letterhead]
As independent Certified Public Accountants, we hereby consent to the use
of our reports dated December 21, 1995 and January 24, 1996 (and to all
references to our firm) included in or made a part of the initial
Registration Statement of AH&H Partners Fund Limited Partnership on Form N-2.
/s/ Creelman & Smith, P.C.
-----------------------------
Creelman & Smith, P.C.
Certified Public Accountants
Boston, Massachusetts
March 18, 1996
