As filed
with the Securities and Exchange Commission on July 29, 2009
1933 Act File
No.
1940 Act File No.
811-21815
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
N-2
(Check
appropriate box or boxes)
x REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE
AMENDMENT NO.
POST-EFFECTIVE
AMENDMENT NO.
|
x
|
REGISTRATION
STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. NO.
6
|
PNC
Absolute Return TEDI Fund LLC
(Exact
name of Registrant as specified in Charter)
PNC
Capital Advisors, Inc.
Two
Hopkins Plaza
Baltimore,
Maryland 21201
(Address
of principal executive offices)
Registrant’s
Telephone Number, including Area Code: (800) 239-0418
Jennifer
E. Vollmer
PNC Legal
Department
1600
Market Street, 28th
Floor
Philadelphia,
PA 19103
(215)
585-5082
(name and
address of agent for service)
Copies
to:
S.
Elliott Cohan, Esq.
Kramer
Levin Naftalis & Frankel LLP
1177
Avenue of the Americas
New York,
New York 10036
APPROXIMATE
DATE OF PROPOSED PUBLIC OFFERING:
AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF
THIS
REGISTRATION STATEMENT
If any
securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box x
It is
proposed that this filing will become effective when declared effective pursuant
to Section 8(c).
CALCULATION
OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
|
TITLE
OF SECURITIES BEING REGISTERED
|
AMOUNT BEING
REGISTERED(1)
|
PROPOSED
MAXIMUM
OFFERING
PRICE PER UNIT
|
PROPOSED MAXIMUM
AGGREGATE OFFERING
AMOUNT(1)
|
AMOUNT OF
REGISRATION FEE(2)
|
|
Limited
liability Company Interests
|
$95,998.28
|
1,000
|
$95,998,284.69
|
$10,158.83
|
|
(1)
|
Amount
of unsold limited liability company interests registered on form N-2
declared effective June 30, 2006 (333-128723) as permitted by Rule 415
(a)(b) under the Securities Act of
1933.
|
|
(2)
|
Registration
fee previously paid in connection with the registration of unsold limited
liability company interests.
|
The
Registrant has also executed this Registration Statement, in its capacity as
managing member of PNC Absolute Return Cayman Fund LDC, on behalf of PNC
Absolute Return Cayman Fund LDC. The members of the Board of Directors of the
PNC Absolute Return Master Fund LLC have also executed this Registration
Statement.
The
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The
Prospectus is dated August 1, 2009
PNC
ABSOLUTE RETURN TEDI FUND LLC
Limited
Liability Company Interests
The PNC
Absolute Return TEDI Fund LLC (the “Fund”) is Delaware limited liability company
registered under the Investment Company Act of 1940, as amended (the “1940
Act”), as a closed-end, non-diversified management investment company. The Fund
is designed for investment by tax-exempt investors, including 401(k) plans and
individual retirement accounts (“IRAs”), which are referred to in this
prospectus as “tax-deferred investors.”
The Fund
will invest substantially all of its investable assets in PNC Absolute Return
Cayman Fund LDC, a Cayman Islands limited duration company with the same
investment objective as the Fund (the “Offshore Fund”). The Offshore Fund will
in turn invest substantially all of its investable assets in PNC Absolute Return
Master Fund LLC, a Delaware limited liability company with the same investment
objective as the Fund and the Offshore Fund (the “Master Fund”). The Offshore
Fund, which is not an investment company registered under the 1940 Act, will
serve solely as an intermediate entity through which the Fund will invest in the
Master Fund. The Offshore Fund will make no independent investment decisions and
has no investment or other discretion over the investable assets. The Fund’s
investment objective is to seek capital appreciation by investing substantially
all of its assets, through its indirect investment in the Master Fund, in a
portfolio of investment vehicles, typically referred to as hedge funds
(“Investment Funds”), managed pursuant to various alternative investment
strategies. The Investment Funds in which the Master Fund will invest are
subject to special risks. See “Types of Investments and Related
Risks.”
This
prospectus applies to the offering of limited liability company interests of the
Fund (the “Interests”). The Interests are offered in a continuous offering at
net asset value, plus any applicable sales load, as described in this
prospectus. Interests will be sold only to investors qualifying as “Eligible
Investors” as described in this prospectus. Each investor is required to make a
minimum initial investment of $75,000. No person who is admitted as a member of
the Fund will have the right to require the Fund to redeem any
Interest.
The
Interests have no history of public trading, will not be traded on any
securities exchange or any other market and are subject to substantial
restrictions on transferability and resale.
If you
purchase an Interest in the Fund, you will become bound by the terms and
conditions of the Limited Liability Company Agreement of the Fund (the “LLC
Agreement”). A copy of the LLC Agreement is attached as Appendix A to this
prospectus.
This
prospectus sets forth information that you should know about the Fund before
investing. You are advised to read this prospectus carefully and to retain it
for future reference. This prospectus includes information required to be
included in a prospectus and statement of additional information. Additional
information about the Fund, including annual and semi-annual reports and other
shareholder information, is available without charge by writing to the Fund c/o
SEI Investments Global Funds Services, One Freedom Valley Drive, Oaks, PA 19456,
by calling (800) 239-0418 or on the U.S. Securities and Exchange
Commission’s (“SEC”) website (www.sec.gov). These reports also are available on
the Fund’s website at www.pncalternativefunds.com.
The
SEC has not approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
|
Price to Public(1)
|
Sales Load(2)
|
Proceeds to the Fund(3)
|
||||||||||
|
Per
$75,000 minimum initial investment
|
$ | 75,000 | $ | 2,250 | $ | 72,750 | ||||||
|
Total
|
$ | 100,000,000 | $ | 3,000,000 | $ | 97,000,000 | ||||||
|
(1)
|
The
Fund previously registered $100,000,000 of Interests, and no additional
Interests are being registered in connection with this Prospectus.
Consequently, the listed information relates to those Interests already
registered. The minimum initial investment in Interests by an investor is
$75,000. Subsequent investments must be at least
$10,000.
|
|
(2)
|
Assumes
a sales load of 3%. Investments generally are subject to a sales load of
up to 3%, subject to waiver and adjustment for certain types of investors.
See “Subscriptions for Interests.”
|
|
(3)
|
Total
proceeds to the Fund assume that all Interests will be sold in a
continuous offering and the maximum sales load incurred. The proceeds may
differ from those shown if other than the maximum load is paid on average
and/or additional Interests are
registered.
|
PNC Fund
Distributor LLC is the distributor of the Interests (the “Distributor”) on a
best-efforts basis, subject to various conditions. Investors may purchase
Interests through the Distributor or through broker-dealers and intermediaries
that have entered into selling agreements with the Distributor.
|
Not
FDIC Insured
|
May
Lose Value
|
No
Bank Guarantee
|
The
Interests are not deposits or obligations of, or guaranteed or endorsed by, PNC
Bank, any bank or other insured depository institution and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency.
The
Interests are subject to substantial restrictions on transferability and resale
and may not be transferred or resold except as permitted under the LLC Agreement
and in compliance with federal and state securities laws.
This
prospectus will not constitute an offer to sell or the solicitation of an offer
to buy, and no sale of Interests will be made in any jurisdiction in which the
offer, solicitation or sale is not authorized or to any person to whom it is
unlawful to make the offer, solicitation or sale. No person has been authorized
to make any representations concerning the Fund that are inconsistent with those
contained in this prospectus. Prospective investors should not rely on any
information not contained in this prospectus. Prospective investors should not
construe the contents of this prospectus as legal, tax or financial advice. Each
prospective investor should consult his, her or its own professional advisers as
to the legal, tax, financial or other matters relevant to the suitability of an
investment in the Fund for the investor.
FOR
A DISCUSSION OF CERTAIN RISK FACTORS AND SPECIAL CONSIDERATIONS WITH RESPECT TO
OWNING THE INTERESTS, SEE “TYPES OF INVESTMENTS AND RELATED RISKS” AND “OTHER
RISKS” BEGINNING ON PAGE 21 OF THIS PROSPECTUS.
TABLE
OF CONTENTS
Structural Diagram
.......................................................................................................................................................................................................................................................................1
Glossary
........................................................................................................................................................................................................................................................................................2
Summary
.......................................................................................................................................................................................................................................................................................6
Summary of Fees and Expenses
..............................................................................................................................................................................................................................................13
Financial Highlights
..................................................................................................................................................................................................................................................................14
Use of Proceeds
.........................................................................................................................................................................................................................................................................15
The Fund’s Structure
................................................................................................................................................................................................................................................................16
Investment Program
..................................................................................................................................................................................................................................................................18
Types of Investments and Related Risks
..............................................................................................................................................................................................................................21
Other Risks
.................................................................................................................................................................................................................................................................................36
Limits of Risk Disclosures
........................................................................................................................................................................................................................................................39
Investment Policies and Restrictions
.....................................................................................................................................................................................................................................39
Management of the Fund
.........................................................................................................................................................................................................................................................41
The Manager
..............................................................................................................................................................................................................................................................................45
Investment Management Agreements
...................................................................................................................................................................................................................................46
The Adviser
................................................................................................................................................................................................................................................................................48
Investment Advisory Agreement
............................................................................................................................................................................................................................................50
Codes of Ethics
...........................................................................................................................................................................................................................................................................52
Voting
...........................................................................................................................................................................................................................................................................................52
Brokerage
.....................................................................................................................................................................................................................................................................................53
Administrator
..............................................................................................................................................................................................................................................................................55
Custodian
....................................................................................................................................................................................................................................................................................56
Escrow Agent
.............................................................................................................................................................................................................................................................................57
Fund Expenses
...........................................................................................................................................................................................................................................................................57
Capital Accounts and Allocations
..........................................................................................................................................................................................................................................59
Conflicts of Interest
...................................................................................................................................................................................................................................................................63
Subscriptions For Interests
......................................................................................................................................................................................................................................................67
Outstanding Securities
.............................................................................................................................................................................................................................................................70
Control Persons
.........................................................................................................................................................................................................................................................................70
Redemptions, Repurchases and Transfers of Interests
......................................................................................................................................................................................................70
Certain Tax Considerations
......................................................................................................................................................................................................................................................74
Erisa Considerations
.................................................................................................................................................................................................................................................................77
Additional Information and Summary of Limited Liability
Company Agreement
...........................................................................................................................................................78
Reports To Members
................................................................................................................................................................................................................................................................79
Fiscal Year
..................................................................................................................................................................................................................................................................................80
Accountants and Legal Counsel
............................................................................................................................................................................................................................................80
Inquiries
......................................................................................................................................................................................................................................................................................80
Financial Statements
.................................................................................................................................................................................................................................................................80
Appendix A
– Limited Liability Company Agreement
A-1
Appendix B
– Investor Qualifications B-1
Appendix C
– Privacy Notice C-1
Appendix D
– Performance Information
D-1
This
diagram and the accompanying text are intended as a simplified illustration of
the master-feeder structure of which the Fund forms a part. Please refer to the
body of this prospectus for a more complete discussion of the Fund and its
investment program, as well as details regarding the fees, expenses and risks to
which an investment in the Interests is subject.
As
further described in this prospectus, the Fund is a feeder fund in a
master-feeder structure. The Fund will invest substantially all of its
investable assets into the Offshore Fund with the same investment objective as
the Fund. The Offshore Fund will in turn invest all of its investable assets
into the Master Fund with the same investment objective as the Fund and the
Offshore Fund. The Master Fund will invest principally in Investment Funds
managed by third-party investment managers (“Investment Managers”) who employ a
variety of alternative investment strategies. The Master Fund will have
investors other than the Fund. PNC Absolute Return Fund LLC, which is available
to taxable investors, will also invest in the Master Fund.
The
following is a glossary of terms used throughout this prospectus and their
definitions. This glossary is set forth solely for the purpose of ease of
reference. The terms summarized or referenced in this glossary are qualified in
their entirety by the prospectus itself.
|
1940 Act
|
Investment
Company Act of 1940, as amended.
|
|
Administration
Agreements
|
Separate
administration agreements entered into between (i) the Fund and the
Administrator, (ii) the Master Fund and the Administrator and
(iii) the Offshore Fund and the Administrator, pursuant to which the
Administrator provides administrative services to the Fund, the Master
Fund and the Offshore Fund, as applicable. Each of the Administration
Agreements is referred to as an “Administration
Agreement.”
|
|
Administrative
Fee
|
Aggregate
fee payable to the Administrator pursuant to the Administration Agreements
for: (i) services rendered by the Administrator to the Fund, at an
annual rate of 0.25% of the Fund’s net assets, plus an additional $15,000
annually, and (ii) services rendered by the Administrator to the
Master Fund, at an annual rate of 0.20% of the Master Fund’s net
assets.
|
|
Administrator
|
PNC
Capital Advisors, Inc.
|
|
Adviser
|
Ramius
Fund of Funds Group LLC (formerly known as Ramius HVB Partners,
LLC).
|
|
Advisers
Act
|
Investment
Advisers Act of 1940, as amended.
|
|
Advisory
Agreement
|
Agreement
entered into among the Manager, the Adviser and the Master Fund, pursuant
to which the Adviser has responsibility, subject to the supervision of the
Manager and the Master Fund’s Board, for formulating a continuing
investment program for the Master
Fund.
|
|
Alternative
Transaction
|
Possible
ways in which the master-feeder structure of which the Fund forms a part
could be modified in order to address any patent infringement issues
potentially caused by the Patent
Application.
|
|
Asset Coverage
Requirement
|
A
1940 Act requirement that the value of a registered investment company’s
total indebtedness may not exceed one-third of the value of its total
assets, including the indebtedness, measured at the time the investment
company incurs the indebtedness.
|
|
Benchmark
Return
|
A
non-cumulative return, determined from the first date of the fiscal year,
except if a Member’s initial capital contribution is made after the
beginning of the fiscal year, the Benchmark Return is instead determined
from such initial contribution date. The Benchmark Return as of any
accounting date equals the average of the rates for the generic
three-month LIBOR as of the last day of each of the four immediately
preceding calendar quarters, as published by Bloomberg,
L.P.
|
|
BHC Act
|
The
Bank Holding Company Act of 1956, as
amended.
|
|
Board
|
The
Board of Directors of the Fund.
|
2
|
CFC
|
Controlled
foreign corporation, as defined in Section 957(a) of the
Code.
|
|
Code
|
Internal
Revenue Code of 1986, as amended.
|
|
Code of
Ethics
|
Code
of ethics adopted by each of the Fund, the Master Fund, the Manager, the
Adviser and the Distributor.
|
|
Co-Investors
|
The
Master Fund, or an Investment Fund in which the Master Fund participates
and/or Other Client Accounts. Each of the Co-Investors is referred to as a
“Co-Investor.”
|
|
Custodian
|
SEI
Private Trust Company.
|
|
Derivatives
|
Financial
instruments that derive their performance, at least in part, from the
performance of an underlying asset, index or interest rate. Derivatives
include transaction in
Derivatives..
|
|
Distributor
|
PNC
Fund Distributor LLC.
|
|
DOL
|
U.S.
Department of Labor.
|
|
ERISA
|
Employee
Retirement Income Security Act of 1974, as
amended.
|
|
ERISA
Plan
|
Employee
benefit plan subject to ERISA.
|
|
Escrow
Agent
|
SEI
Private Trust Company.
|
|
Exchange
Act
|
Securities
Exchange Act of 1934, as amended.
|
|
Fund
|
PNC
Absolute Return TEDI Fund LLC.
|
|
Incentive
Fee
|
Fee
payable to the Manager equal to 10% of the net profits of each Member in
excess of such Member’s Loss Carryforward Amount and the Benchmark
Return.
|
|
Incentive
Period
|
Period
with respect to which the Incentive Fee is charged, which may be composed
of one or more consecutive fiscal periods and which generally corresponds
to a fiscal year.
|
|
Independent
Directors
|
Directors
who are not “interested persons” as defined under Section 2(a)(19) of
the 1940 Act.
|
|
Initial Closing
Date
|
The
initial closing date for subscriptions for
Interests.
|
|
Initial
Payment
|
In
respect of the Promissory Note, the first of two payments to be made by
the Fund to a Member whose Interest has been accepted for
repurchase.
|
|
Interests
|
Limited
liability company interests of the Fund offered pursuant to this
prospectus.
|
|
Investment
Funds
|
Investment
vehicles, typically referred to as hedge funds, in which the Master Fund
invests.
|
|
Investment
Managers
|
Third-party
investment managers of the Investment
Funds.
|
3
|
IRAs
|
Individual
retirement accounts (each, an “IRA”).
|
|
IRS
|
Internal
Revenue Service.
|
|
LLC
Agreement
|
Limited
Liability Company Agreement of the Fund, as
amended.
|
|
Loss Carryforward
Amount
|
Amount
which for each Member commences at zero and, for each Incentive Period, is
increased by the net losses allocated to such Member’s capital account for
such Incentive Period or is reduced (but not below zero) by the net
profits allocated to such Member’s capital account for such Incentive
Period. A Member’s Loss Carryforward Amount will be proportionately
adjusted with respect to any contributions, transfers, distributions and
repurchases applicable to the Member’s capital
account.
|
|
Manager
|
PNC
Capital Advisors, Inc.
|
|
Management
Agreements
|
Two
separate investment management agreements entered into (i) between
the Fund and the Manager and (ii) between the Master Fund and the
Manager, pursuant to which the Manager is responsible for formulating a
continuing investment program for the Master Fund. Each of the Management
Agreements is referred to as a “Management
Agreement.”
|
|
Management
Fee
|
Quarterly
fee of 0.3125% (1.25% on an annualized basis) of the Master Fund’s net
assets payable to the Manager by the Master
Fund.
|
|
Master
Fund
|
PNC
Absolute Return Master Fund LLC, a Delaware limited liability company
registered as a closed-end, non-diversified management investment company,
which the Fund, through the Offshore Fund, invests substantially all of
its investable assets and which has the same investment objective as the
Fund and the Offshore Fund.
|
|
Master Fund’s
Board
|
The
Board of Directors acting in its capacity as the board of directors of the
Master Fund.
|
|
Members
|
Investors
that acquire Interests.
|
|
Notice
Date
|
Date
by which a Member choosing to tender an Interest for repurchase must do
so.
|
|
Offshore
Fund
|
PNC
Absolute Return Cayman Fund LDC, a Cayman Islands limited duration company
with the same investment objective as the
Fund.
|
|
Other Client
Accounts
|
Investment
Funds and other accounts, other than the Master Fund, managed by the
Investment Managers.
|
|
PFIC
|
Passive
foreign investment company, as defined in Section 1297 of the
Code.
|
|
Plan
|
ERISA
Plan or a plan or other arrangement such as an IRA or Keogh plan subject
to Section 4975 of the Code (collectively, “Plans”).
|
|
PNC
|
The
PNC Financial Services Group, Inc.
|
|
Policies
|
The
Adviser’s proxy voting policies and
procedures.
|
4
|
Post-Audit
Payment
|
In
respect of the Promissory Note, the second and final payment to be made by
the Fund to a Member whose Interest has been accepted
for repurchase.
|
|
Private
Fund
|
Prior
to its reorganization into a master-feeder structure, PNC Absolute Return
Fund LLC, a privately-offered fund registered under the 1940 Act that
utilized a multi-manager, multi-strategy
investment approach.
|
|
Promissory
Note
|
Promissory
note that the Fund will give to each Member whose Interest has been
accepted for repurchase, entitling the Member to be paid an amount equal
to the value, determined as of the Valuation Date, of the repurchased
Interest.
|
|
SEC
|
United
States Securities and Exchange
Commission.
|
|
Securities
Act
|
Securities
Act of 1933, as amended.
|
|
Sub-Administration
Agreement
|
Sub-administration
agreement entered into between the Administrator and the Sub-Administrator
pursuant to which the Sub-Administrator assists the Administrator in
providing administrative services to the Fund, the Offshore Fund and the
Master Fund.
|
|
Sub-Administrator
|
SEI
Investments Global Funds Services.
|
|
Tax-deferred
investors
|
401(k)
plans and IRAs, which provide tax deferral for their
beneficiaries.
|
|
Tax-Exempt
Investors
|
U.S.
persons generally exempt from taxation in the United States, including
401(k) plans and IRAs.
|
|
UBTI
|
Unrelated
business taxable income, as defined in Sections 512 through 514 of the
Code.
|
|
UDFI
|
Unrelated
debt-financed income, as defined in Section 514 of the
Code.
|
|
U.S. Government
securities
|
Debt
securities issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities.
|
|
Valuation
Date
|
Date
on which the Interests will be valued for
repurchase.
|
5
SUMMARY
This
is only a summary of the key features of the Fund and Interests offered by this
prospectus. This summary does not contain all of the information that a
prospective investor should consider before investing in the Fund. Before
investing, a prospective investor in the Fund should carefully read the more
detailed information appearing elsewhere in this prospectus and the terms and
conditions of the LLC Agreement, each of which should be retained by any
prospective investor.
|
The Fund
|
The
Fund is a limited liability company organized under the laws of the State
of Delaware and registered under the 1940 Act as a closed-end,
non-diversified management investment company. Interests offered by the
Fund are subject to substantial limits on transferability. The Fund is
designed for investment by tax-exempt and tax-deferred
investors.
|
|
The
Fund invests substantially all of its investable assets into the Offshore
Fund. The Offshore Fund, in turn, invests substantially all of its
investable assets in the Master Fund. See “the Fund’s
Structure.”
|
|
The
Fund intends to afford Members, through an indirect investment in the
Master Fund, access to a variety of Investment Funds, the benefits of
reduced risk through diversification and the benefits of professional
portfolio management. The Fund is an appropriate investment only for those
investors that can tolerate a high degree of risk and do not require a
liquid investment.
|
|
Each
of the Fund and the Master Fund has claimed an exclusion from the
definition of the term “commodity pool operator” under the Commodity
Exchange Act, as amended, and therefore is not subject to registration or
regulation as a commodity pool under the Commodity Exchange Act.
Notwithstanding non-diversified status, the Fund, through its indirect
investment in the Master Fund, intends to have a broad exposure to a
number of Investment Funds. In addition, due to restrictions imposed by
the BHC Act, the Master Fund is subject to limitations with respect to
investments in any one Investment Fund. See “Other Risks—Banking
Regulation.”
|
|
The
assets of the Master Fund are actively managed and the Members bear both
an asset-based fee and a performance-based incentive fee, which is paid to
the “Manager.
|
|
The
Master Fund has investors other than the Fund. PNC Absolute Return Fund
LLC, which is available to taxable investors, also invests in the Master
Fund. See “Structural Diagram.”
|
|
Man-Glenwood
Lexington TEI, LLC, or an affiliate thereof, a non-affiliated investment
company, has filed a patent application relating to a structure that
interposes a Cayman Islands entity between a registered investment company
and an underlying master fund (the “Patent Application”). The Patent
Application may impose additional costs on the Fund and cause the Fund to
incur losses that may be borne by Members. See “Other Risks—Man-Glenwood
Patent Application.”
|
6
|
Investment
Program
|
The
Fund’s, the Offshore Fund’s and the Master Fund’s investment objective is
to seek capital appreciation.
|
|
The
Fund intends to achieve its investment objective by investing
substantially all of its investable assets, through the Offshore Fund, in
the Master Fund. The Master Fund intends to achieve its investment
objective principally by investing in Investment Funds (including
primarily unregistered investment funds, as well as registered investment
companies to the extent permitted under Section 12(d) of the 1940 Act
and the rules and regulations thereunder) managed by Investment Managers
who employ a variety of alternative investment strategies with a
Small-Capitalization Focus. Alternative investment strategies allow the
Investment Managers the flexibility to leverage, sell short and hedge
positions to take advantage of perceived inefficiencies across the global
capital markets, and are referred to as “alternative investment
strategies” in contrast to the investment programs of “traditional”
registered investment companies, such as mutual funds. See
“Types of Investments and Related Risks: Types of Investments, Investment
Strategies and Related Risks.”
|
|
The
Master Fund intends to invest in a portfolio of Investment Funds, each of
which typically invests in one or more absolute return strategies that
tend to exhibit substantially lower volatility (as measured by standard
deviation) than the average common stock trading on a U.S. exchange or an
index of stocks, such as the S&P 500. Additionally, many of these
Investment Funds have historically shown relatively low (in some cases
negative) correlation to each other, as well as low to negative
correlation to broad equity and bond indices. Therefore, a fund of hedge
funds, such as the Master Fund, focusing on the absolute return sector
seeks to generate positive absolute returns over a market cycle with
relatively low volatility.
|
|
The
Master Fund’s policy to invest in Investment Funds is not a fundamental
investment policy. The Master Fund may change this investment policy upon
not less than 60 days’ prior written notice to
Members.
|
|
For
purposes of the Master Fund’s investment restrictions and its investment
limitations under the 1940 Act, the Master Fund will not “look through” to
the underlying investments of any Investment Funds in which the Master
Fund invests, since such Investment Funds are generally not registered
under the 1940 Act, and therefore are generally not subject to the Master
Fund’s investment limitations or the other investment limitations under
the 1940 Act.
|
|
The
Offering
|
Interests
are offered in a continuous offering at net asset value, plus any
applicable sales load. See “Subscriptions for Interests.” Interests will
be sold only to investors qualifying as “Eligible Investors” as described
in this prospectus. See Appendix B.
Each
investor is required to make a minimum initial investment of $75,000 and
the minimum additional investment is $10,000. See “Subscriptions for
Interests.”
|
|
Risk
Factors
|
The
Fund’s, the Offshore Fund’s and the Master Fund’s investment
|
7
|
|
program
is speculative and entails substantial risks. The Fund’s performance will
depend upon the performance of the Investment Funds in the Master Fund’s
portfolio and the Adviser’s ability to effectively select Investment Funds
and allocate and reallocate the Master Fund’s assets among them. Investors
should not commit money to the Fund unless they have the resources to
sustain the loss of their entire investment in the Fund. The following is
a summary of some of the more significant risks of investing in the
Fund. Other risks and more details of the risks summarized
below are discussed in this prospectus under “Types of Investments and
Related Risks” and “Other Risks.”
|
|
Risks Related to Types of
Investments and Investment Strategies. Although the Master Fund
intends to form a portfolio designed to achieve non-market directional
returns with low volatility, the Investment Funds selected by the Master
Fund may invest and trade in a wide range of instruments and markets,
which may have an unanticipated effect, and may digress from their
expected investment strategies. The Investment Funds may invest in all
manner of securities and financial instruments, including but not limited
to equities, fixed income investments, options, futures, swaps and other
Derivatives. Such investments may be illiquid and highly leveraged, or
subject to extreme volatility.
|
|
In
addition, the Investment Funds may use a wide range of investment
techniques that may involve certain risks and result in significant
losses. The Investment Funds may use leverage, which also entails risk.
See “Types of Investments and Related
Risks.”
|
|
Investment Fund Strategy
Risk. The Master Fund and the Fund are subject to Investment Fund
strategy risk. Strategy risk refers to the failure or deterioration of
investment or trading techniques employed within or across strategies,
such that some or all Investment Managers employing such techniques may
suffer significant losses. For a more detailed summary of these strategies
and their related risks, see “Types of Investments and Related
Risks—Investment Strategies and Related Risks.” There can be no assurance
that the Investment Managers will succeed in any of these
strategies.
|
|
Non-Diversified Status.
As a non-diversified investment company, the Master Fund’s investment
portfolio may be subject to greater risk and volatility than if the Master
Fund were subject to the diversification requirements under the 1940 Act.
See “Types of Investments and Related
Risks.”
|
|
Lack of Liquidity of
Interests. The Fund is intended for long-term investors. Investors
should not invest in the Fund if they need a liquid investment. Interests
in the Fund will not be traded on any securities exchange, are not
expected to trade on any other market, and are subject to substantial
restrictions on transferability and resale. There is no secondary trading
market for the Interests and none is expected to develop. The Interests
are therefore not readily marketable. The transferability of Interests
will be subject to certain restrictions contained in the LLC Agreement and
may be affected by restrictions imposed under applicable securities laws
with regard to restricted investments. See “other Risks: Limited
Liquidity; Repurchase of Interests; Transfer
Limitations.”
|
8
|
Investment Fund Interests
Generally Illiquid; Lack of Liquidity of Master Fund. The interests
in the Investment Funds in which the Master Fund will invest will
generally be illiquid and, consequently, the Master Fund may be
illiquid. In addition, restrictions on withdrawals from the Investment
Funds may result in the Fund having to suspend or postpone repurchase
offers to Members. See “Investment Program: Risks of Fund of Hedge Funds
Structure.”
|
|
In
addition, as a result of delays in the Master Fund’s ability to withdraw
from an Investment Fund, the Master Fund may need to borrow money to fund
new investments in Investment Funds or to meet repurchase requests from
the Fund. A portion of the proceeds of the offering of the Interests may
be used to pay down any outstanding borrowing which the Master Fund may
incur to fund new investments and for other purposes, as described under
“Use of Proceeds.”
|
|
In-Kind Distributions by
Investment Funds. Investment Funds may be permitted to distribute
securities, which are typically illiquid, in-kind to investors, including
the Master Fund. The Master Fund expects that in the event of an in-kind
distribution, it will typically receive securities that are illiquid or
difficult to value. In such circumstances, the Adviser would seek to
dispose of these securities in a manner that is in the best interest of
the Master Fund. See “Investment Program: In-kind Distribution
by Investment Funds.”
|
|
Inability to Invest in
Investment Funds. The Master Fund may make additional investments
in or withdrawals from Investment Funds only at certain times according to
limitations set out in the governing documents of the Investment Funds. As
a result, the Master Fund from time to time may have to invest some of its
assets temporarily in high-quality fixed income securities, money market
securities, money market funds or repurchase agreements, or hold cash or
cash equivalents. During this time, the Master Fund’s assets will not be
used to pursue the Master Fund’s investment objective. See “Investment
Program: Inability to Invest in Investment
Funds.”
|
|
Fluctuations in Value.
The value of the Master Fund’s net assets (and, accordingly, the value of
the Fund’s investment in the Master Fund through the Offshore Fund) will
fluctuate primarily based on the fluctuation in the value of the
Investment Funds in which it invests. To the extent an Investment Fund
engages in the use of leverage, short sales and the purchase and sale of
Derivatives, the Investment Fund’s portfolio may appreciate or depreciate
at a greater rate than if such techniques were not
used.
|
|
Multiple Levels of Fees and
Expenses. Each Investment Manager generally will charge the Master
Fund, as an investor in an Investment Fund, an asset-based fee, and some
or all of the Investment Managers will receive performance-based fees. The
Manager will also receive an asset-based fee and may receive a
performance-based incentive fee. By investing in Investment Funds
indirectly through the Fund, an investor in the Fund (as an investor in
the Master Fund through the Offshore Fund) will bear asset-based and
performance-based fees at the Master Fund level in addition to any
asset-based and performance-based fees at the Investment Fund level. Thus,
an investor in the Fund may be subject
|
9
|
to
higher operating expenses than it would if it invested in another
closed-end fund with a different investment focus. See “Investment
Program: Risk of Fund and Hedge Funds
Structure.”
|
|
Investment Funds Not
Registered. The Investment Funds generally will not be registered
as investment companies under the 1940 Act and the Master Fund, as an
investor in these Investment Funds, will not have the benefit of the
protections afforded by the 1940 Act to investors in registered investment
companies. Although the Adviser will periodically receive information from
each Investment Fund regarding its investment performance and investment
strategy, the Adviser may have little or no means of independently
verifying this information. Investment Funds are not contractually or
otherwise obligated to inform their investors, including the Master Fund,
of details surrounding proprietary investment strategies. In addition, the
Master Fund and the Adviser have no control over the Investment Funds’
investment management, brokerage, custodial arrangements or operations and
must rely on the experience and competency of each Investment Manager in
these areas.
|
|
Other Risks.
Prospective investors in the Fund should review carefully the discussion
under the captions “Types of Investments and Related Risks” and “Other
Risks” for other risks associated with the Fund and the Investment
Managers’ styles of investing. Only investors that understand the nature
of the investment, do not require more than limited liquidity in the
investment and have sufficient resources to sustain the loss of their
entire investment should make an investment in the
Fund.
|
|
Board of
Directors
|
The
Board of Directors has overall responsibility for the management and
supervision of the operations of the Fund (in such capacity, the “Board”)
and the Master Fund (in such capacity, the “Master Fund’s Board”). The
Offshore Fund does not have a board of directors. See “Board of Directors”
and “Voting.”
|
|
The
Manager
|
The
Manager, a corporation formed under the laws of the State of Maryland,
serves as the investment manager of the Fund and Master Fund. . In
addition, the Manager oversees the management of the day-to-day operations
of the Fund and the Master Fund. For its services, the Master
Fund pays the Management Fee and Incentive Fee to the
Manager. See “The Manager.”
The
Manager may pay a portion of the Management Fee to entities that assist in
the distribution of Interests and that may be affiliated with the Manager.
These payments will be in addition to the direct sales load paid by
investors. See “Management Fee’ and “Subscriptions for Interests:
Distribution Arrangements and Sales
Loads.”
|
|
The
Adviser
|
The
Adviser, a limited liability company organized under the laws of Delaware,
is the investment adviser of the Master Fund. For its services, the
Adviser receives one-half of the Management Fee and Incentive Fee from the
Manager. See “The Adviser” and “Investment Advisory
Agreement.”
|
10
|
Administrator
|
The
Administrator serves as the administrator to the Fund, the Offshore Fund
and the Master Fund. For its services, the Administrator
receives an annual fee of $15,000 plus 0.25% of the Fund’s net assets from
the Fund and 0.20% of the Master Fund’s net assets from the Master
Fund. See “Fund Expenses” and
“Administrator.”
|
|
Custodian
|
The
Custodian provides custodial services to the Fund, the Offshore Fund and
the Master Fund. For its services, the Custodian receives a fee
at an annual rate of 0.01% from the Master Fund. See
“Custodian.”
|
|
Escrow
Agent
|
The
Escrow Agent serves as escrow agent with respect to subscription monies
received from prospective investors and monies held pending payment to
Members in connection with repurchases of Interests. For its services, the
Escrow Agent receives an annual fee from the Fund. See “Fund Expenses” and
“Escrow Agent.”
|
|
Distributor
|
The
Distributor serves as distributor of the Interests on a best-efforts
basis, subject to various conditions. See “Subscriptions for
Interests.”
|
|
Expenses
|
The
Manager will provide, or will arrange at its expense for the provision of,
certain management and administrative services to the Fund, the Offshore
Fund and the Master Fund. The Fund, the Offshore Fund and the Master Fund
each will pay its own expenses. Fees and expenses borne by the
Master Fund will be indirectly borne by the Fund and Members and fees and
expenses borne by the Fund will be indirectly borne by
Members. See “Summary of Fund Expenses and “Fund
Expenses.”
|
|
Incentive
Fee
|
In
addition to the Management Fee, the Fund pays the Manager the Incentive
Fee. The Manager will pay the Adviser one-half of the Incentive Fee it
receives. See “Incentive Fee.”
|
|
Subscription for
Interests
|
The
minimum initial investment in the Fund from each investor is $75,000, and
the minimum additional investment in the Fund is
$10,000.
|
|
The
Interests will be offered at net asset value, plus any applicable sales
load. The specific amount of the sales load will depend on the size of the
investment in the Fund, as follows:
|
|
•
|
3%
on the first $500,000 of any
investment;
|
|
•
|
2%
on the amount of any investment that exceeds $500,000, but is less than $1
million; and
|
|
•
|
1%
on the amount of any investment that exceeds $1
million.
|
See “Subscriptions for
Interests—Distribution Arrangements and Sales Loads.”
|
Eligibility
|
Prospective
investors must certify that they are qualified clients within the meaning
of Rule 205-3 under the Advisers Act. A “qualified client” means a person
or a company (other than an investment company) that has a net worth of
more than $1.5 million, or that meets certain other qualification
requirements.
|
|
Because
the Fund is designed for investment by tax-exempt investors,
investors must be one of the following: (1) a pension,
profit-sharing, or
|
11
|
other
employee benefit trust that is exempt from taxation under
Section 501(a) of the Internal Revenue Code of 1986, as amended (the
“Code”), by reason of qualification under Section 401 of the Code;
(2) an employee benefit plan or other program established pursuant to
Sections 403(b), 408(k) or 457 of the Code; (3) a deferred
compensation plan established by a corporation, partnership, non-profit
entity or state and local
government, or government-sponsored program, in each case, which is
generally exempt from U.S. federal income tax; (4) a foundation,
endowment or other organization that is exempt from taxation under
Section 501(c) of the Code (other than an organization exempt under
Section 501(c)(1)); (5) an IRA (including regular IRA, spousal
IRA for non-working spouse, Roth IRA and rollover IRA); or (6) a
state college or
university.
|
|
Investors
who meet the qualifications set forth above are referred to in this
prospectus as “Eligible Investors.” Existing Members subscribing for
additional Interests will be required to qualify as “Eligible Investors”
at the time of the additional subscription. See “Subscriptions for
Interests: Eligible Investors.”
|
|
The
qualifications required to invest in the Fund will appear in the investor
application that must be completed by each prospective investor and are
also set out in Appendix B to the
prospectus.
|
|
Transfer
Restrictions
|
The
Interests are subject to substantial restrictions on
transferability. See “Redemptions, Repurchases and Transfers of
Interests: Transfers of Interests.”
|
|
Redemptions and Repurchases of
Interests by the Fund
|
No
Member will have the right to require the Fund to redeem its Interest (or
any portion of its Interest). The Fund may from time to time offer to
repurchase Interests, in whole or in part, pursuant to written tenders by
Members.
|
|
The
Fund has the right to repurchase Interests if the Board determines that
the repurchase is in the best interest of the Fund or upon the occurrence
of certain events specified in the LLC Agreement, including, but not
limited to, attempted transfers in violation of the transfer restrictions
described above. See “Redemptions, Repurchases and Transfers of
Interests.”
|
|
The
Fund charges a repurchase fee of 1.00% on repurchases of Interests that
have been held less than 180 days.
|
|
Summary of
Taxation
|
The
Fund and the Master Fund intend to operate so that each will be treated as
a partnership for U.S. federal income tax purposes. Assuming that each of
the Fund and the Master Fund is treated as a partnership, neither the Fund
nor the Master Fund will be subject to U.S. federal income
tax.
|
|
The
Offshore Fund will be treated as a corporation for U.S. federal income tax
purposes. An investment in the Fund should therefore not give rise to
unrelated business taxable income (“UBTI”) for a Member, provided that the
Member does not borrow to finance its investment in the Fund. Prospective
investors are urged to consult their tax advisers concerning potential tax
consequences of an investment in the Interests. See “Certain Tax
Considerations.”
|
12
No
broker-dealer, salesperson, or other person is authorized to give an investor
any information or to represent anything not contained in this prospectus. As a
prospective investor, you must not rely on any unauthorized information or
representations that anyone provides to you. This prospectus is an offer to sell
or a solicitation of an offer to buy the securities it describes, but only under
the circumstances and in jurisdictions where and to persons to which it is
lawful to do so. The information contained in this prospectus is current only as
of the date of this prospectus. The Fund is required to supplement this
prospectus to disclose any material change in the information provided
herein.
The
Investment Funds in which the Master Fund will invest may pursue various
investment strategies and are subject to special risks. The Interests will not
be listed on any securities exchange and it is not anticipated that a secondary
market for the Interests will develop. The Interests will also be subject to
substantial restrictions on transferability and may not be transferred except as
permitted under the LLC Agreement and in compliance with federal and state
securities laws. The Interests will not be redeemable at an investor’s option
nor will they be exchangeable for interests of any other fund because the Fund
is a closed-end investment company. As a result, an investor may not be able to
sell or otherwise liquidate its Interest. The Interests are appropriate only for
those investors who can tolerate a high degree of risk and do not require a
liquid investment.
The
following table summarizes the aggregate expenses of the Fund and the Master
Fund and is intended to assist Members and potential Members in understanding
the various costs and expenses that they will bear, directly or indirectly, by
investing in the Fund. The expenses associated with investing in a “fund of
hedge funds,” such as the Fund, are generally higher than those associated with
investing in other types of funds that do not invest primarily in other
pooled-investment vehicles. This is because the investors in a fund of hedge
funds indirectly bear a portion of the fees and expenses, including
performance-based fees, charged at the Investment Fund level. The fees
associated with an Investment Fund will generally include an investment
management fee ranging from 1% to 2.5% (annualized) of the net asset value of
the Master Fund’s investment in such Investment Fund, and performance-based fees
generally ranging from 10% to 25% of the Master Fund’s share of the net profits
earned by the Investment Funds. In addition, Investment Funds typically will
charge their investors, including the Master Fund, expenses incurred in
connection with the Investment Funds’ operations. Such expenses, which vary
among Investment Funds, may be significant and will increase the total cost of
the Master Fund’s investment in the Investment Funds.
|
Member
Transaction Fees
|
|
||
|
Maximum
sales load (as a percentage of the offering price)(1)
|
|
3.00
|
%
|
|
Repurchase
fee (as a percentage of the amount repurchased)(2)
|
|
1.00
|
%
|
|
Annual Expenses (as a
percentage of net assets attributable to Interests)
|
|
||
|
Management
Fee(3)(4)
|
|
1.25
|
%
|
|
Other
Expenses(5)
|
|
4.30
|
%
|
|
Acquired
Fund Fees and Expenses(6)
|
|
7.08
|
%
|
|
|
|||
|
Total
Annual Expenses(7)
|
|
12.63
|
%
|
|
(1)
|
In
connection with initial and additional investments, investors may be
charged, on a fully disclosed basis, a sales load of up to 3% of the
amounts transmitted in connection with their subscriptions. Sales loads
are payable to the Distributor and will be deducted from a prospective
Member’s subscription amount. Sales loads will vary depending upon the
amount of each subscription. The sales load is subject to waiver and
adjustment for certain types of investors. See “Subscriptions for
Interests—Distribution Arrangements and Sales
Loads.”
|
|
(2)
|
The
Fund charges a repurchase fee of 1.00% on repurchases of Interests that
have been held less than 180 days. The fee will be deducted from the
repurchase proceeds due to the Member who tendered its Interest for
repurchase, and cannot be paid separately. The fee will be credited to the
assets of the Fund.
|
|
(3)
|
The
Master Fund pays a 1.25% asset based Management Fee to the Manager, and
the Fund as an investor in the Master Fund will bear its pro rata share of the
Management Fee. See “Management Fee” for a more complete discussion of the
Management Fee.
|
13
|
(4)
|
For
fiscal year ended March 31, 2009, no Incentive Fee was earned.
Therefore, no Incentive Fee is reflected in this amount. Generally, at the
end of each Incentive Period, an Incentive Fee of 10% of the net profits,
if any, of each Member in excess of the Loss Carryforward Amount and the
Benchmark Return, will be debited from the Member’s capital account and
paid to the Manager. The Benchmark Return as of any accounting date equals
the average of the rates for the generic three-month LIBOR as of the last
day of each of the four immediately preceding
calendar quarters. The Incentive Fee and the Loss Carryforward Amount,
each for a given Incentive Period, will be adjusted with respect to any
contributions, transfers, distributions and repurchases applicable to the
Member’s capital account for that Incentive Period or portion thereof. See
“Incentive Fee” for a more complete discussion of the Incentive
Fee.
|
|
(5)
|
Other
Expenses reflect the actual ordinary operating expenses of the Fund as of
its most recent fiscal year end, the Administrative Fee, escrow fees and
expenses, expenses in connection with the offering of Interests, and the
Fund’s share of all expected ordinary expenses of the Master Fund, other
than the Management Fee.
|
|
(6)
|
Members
also indirectly bear a portion of the asset-based fees, performance or
incentive fees or allocations and other expenses incurred by the Master
Fund as an investor in the Investment Funds. The “Acquired Fund Fees
and Expenses” reflect the estimated aggregate amount of the fees and
expenses of the Investment Funds during the prior fiscal year and may
substantially change over time and, therefore, significantly affect
“Acquired Fund Fees and Expenses.” In addition, the Investment Funds held
by the Master Fund will also change, further impacting the calculation of
the “Acquired Fund Fees and Expenses.” Generally, asset-based fees payable
to Investment Managers of the Investment Funds will range from 1% to 2.5%
(annualized) of the net asset value of the Master Fund’s investment in the
Investment Fund. In addition, some of the Investment Funds charge
performance-based incentive allocation or fee, which generally range
from 10% to 20% of an Investment Fund’s net profits, although it is
possible on occasion that such ranges may be higher for certain
Investment Funds.
|
|
(7)
|
As
a result of voluntary waivers and expense reimbursements by the Manager,
the “Total Annual Expenses” were 9.60% (including Acquired Fund Fees
and Expenses) and 2.52% (excluding Acquired Fund Fees and Expenses). The
voluntary waivers and reimbursements may be terminated at any time at the
option of the Manager.
|
For a
more complete description of the various fees and expenses of the Fund and the
Master Fund, see “Fund Expenses,” “Management Fee,” “Incentive Fee,”
“Administrator” and “Subscriptions for Interests.”
Example
The
following example is based on the fees and expenses set forth above. The example
should not be considered a representation of future expenses. Actual expenses
may be greater or less than those shown, and the Fund’s actual rate of return
may be more or less than the hypothetical 5% return assumed in the example. The
Fund cannot provide assurance that it will achieve a 5% return, or any return,
on its investments. A greater rate of return than that used in the example would
increase the amount of certain fees and expenses borne by the Fund. If the
Benchmark Return exceeds 5%, the dollar amount of expenses (which for purposes
of the example is assumed to include the Incentive Fee) could be significantly
higher because of the Incentive Fee. See “Incentive Fee” for a more complete
discussion of the Incentive Fee.
You would
pay the following fees and expenses on a $1,000 investment, assuming a 5% net
annual return:
|
1
year(1)
|
|
3
years
|
|
5
years
|
|
10
years
|
|
$153
|
|
$371
|
|
$557
|
|
$911
|
|
(1)
|
Includes
a sales load of $30 which may be imposed on new and additional
subscriptions.
|
The table
below sets forth selected financial information that has been derived from the
Fund’s audited, consolidated financial statements which have been audited by
Deloitte & Touche LLP, the Fund’s independent registered public
accounting firm, whose report, along with the most recent audited, consolidated
financial statements, is incorporated herein by reference. The information
should be read in conjunction with those
14
consolidated financial statements and notes thereto, which are
incorporated herein by reference, in the Fund’s Annual Report. A free copy of
the Fund’s Annual Report may be obtained by calling 1-800-239-0418.
|
For
the Fiscal
Year
Ended
March 31, 2009
|
|
For the Fiscal
Year
Ended
March 31, 2008
|
For the Fiscal
Year Ended
March 31, 2007*
|
||||||
|
Net
asset value, beginning of period
|
$
|
4,466,574
|
|
$
|
2,824,695
|
$
|
0
|
||
|
Net
investment income
|
$
|
(100,594)
|
|
(96,095
|
)
|
(49,628
|
)
|
||
|
Net
gains or losses on securities (both realized and
unrealized)
|
$
|
(732,744)
|
|
152,974
|
157,823
|
||||
|
|
|||||||||
|
Total
from investment operations
|
$
|
(833,338)
|
|
56,879
|
108,195
|
||||
|
|
|||||||||
|
Net
asset value, end of period
|
$
|
3,733,236
|
|
$
|
4,466,574
|
$
|
2,824,695
|
||
|
|
|||||||||
|
Total
Investment Return(1):
|
(18.68)
|
%
|
3.01
|
%
|
3.85
|
%
|
|||
|
Total
Investment Return after incentive fee(1)
|
(18.68)
|
%
|
3.01
|
%
|
3.50
|
%
|
|||
|
|
|||||||||
|
Ratios
to Average Net Assets:
|
|
||||||||
|
Net
investment loss ratio
|
|
||||||||
|
Net
investment loss, before waivers and reimbursement
|
(5.45)
|
%
|
(5.70
|
)%
|
(10.16
|
)%
|
|||
|
Net
investment loss, net of waivers and reimbursement
|
(2.42)
|
%
|
(2.40
|
)%
|
(3.59
|
)%
|
|||
|
Expense
ratio before incentive fee
|
|
||||||||
|
Operating
expenses, before waivers and reimbursement(2)
|
5.55
|
%
|
5.77
|
%
|
9.56
|
%
|
|||
|
Operating
expenses, net of waivers and reimbursement(2)
|
2.52
|
%
|
2.47
|
%
|
2.99
|
%
|
|||
|
Expense
ratio, net of waivers and reimbursement, after incentive
fee
|
|||||||||
|
Expense
ratio, net of waivers and reimbursement
|
2.52
|
%
|
2.47
|
%
|
2.99
|
%(3)
|
|||
|
Incentive
fee
|
0.00
|
%
|
0.00
|
%
|
0.51
|
%(4)
|
|||
|
|
|||||||||
|
Expense
ratio, net of waivers and reimbursements after
incentive
fee
|
2.52
|
%
|
2.47
|
%
|
3.50
|
%(3)
|
|||
|
|
|||||||||
|
Portfolio
turnover rate
|
11.39
|
%(5)
|
14.22
|
%(5)
|
35.12
|
%(5)
|
|||
|
|
|||||||||
|
*
|
The
Fund was capitalized on May 10, 2006 and commenced investment
operations on July 1, 2006.
|
|
(1)
|
Total
return is calculated for all members taken as a whole. A member’s return
may vary from these returns based on the timing of capital
transactions.
|
|
(2)
|
Does
not include expenses of the Investment Funds in which the Master Fund
invests. The expense ratio (expense and incentive fee ratio) is calculated
for all members taken as a whole. The computation of such ratios based on
the amount of expenses and incentive fee assessed to a member’s capital
may vary from these ratios based on the timing of capital transactions.
The waivers consist of voluntary payments made by the
Manager.
|
|
(3)
|
Annualized.
|
|
(4)
|
Not
annualized.
|
|
(5)
|
Portfolio
turnover represents the Master Fund’s portfolio
turnover.
|
Proceeds
of the sale of Interests, excluding the amount of any sales loads paid by
investors and net of the Fund’s ongoing fees and expenses, are invested by the
Fund in the Offshore Fund, and then by the Offshore Fund in the Master Fund, no
later than the business day following the acceptance by the Fund of the proceeds
as a contribution to the capital of the Fund. The Master Fund will invest such
proceeds as soon as practicable after each
15
subscription date, in
accordance with the Fund’s and the Master Fund’s investment objective and
strategies and consistent with market conditions and the availability of
suitable investments. See “Types of Investments and Related Risks—Risks of Fund
of Hedge Funds Structure—Inability to Invest in Investment Funds” for a
discussion of certain limitations applicable to the Master Fund’s ability to
make investments in Investment Funds. See also “Other Risks—Availability of
Investment Opportunities” for a discussion of the timing of Investment Funds’
subscription activities, market conditions and other considerations relevant to
the timing of Master Fund’s investments generally.
Pending
investment by the Master Fund in Investment Funds pursuant to the
Fund’s, the Offshore Fund’s and the Master Fund’s investment objective and
strategies, the Master Fund may invest temporarily some or all of those proceeds
in high-quality fixed income securities, money market instruments, money market
funds, repurchase agreements or cash and cash equivalents. Although the Master
Fund will invest proceeds in accordance with the Master Fund’s investment
objective as soon as practicable, consistent with market conditions and the
availability of suitable investments, there are no limitations on the length of
time during which the Master Fund may make temporary investments. The Master
Fund will pay the full amount of the Management Fee and the Fund will pay the
full amount of any Incentive Fee even while the Master Fund’s assets are
invested only in temporary investments.
The Fund,
the Offshore Fund and the Master Fund may maintain a portion of the proceeds in
cash to meet operational needs. The Master Fund may be prevented from achieving
its objective during any time in which the Master Fund’s assets are not
substantially invested in accordance with its principal investment strategies. A
portion of the proceeds may also be used to pay down outstanding borrowings
which the Master Fund may incur, from time to time, in connection with its
investment activities, for temporary cash management purposes, to meet
repurchase requests or for temporary or emergency purposes, as described under
“Types of Investments and Related Risks—Types of Investments, Investment
Strategies and Related Risks—Borrowing.”
The Fund
is registered under the 1940 Act as a closed-end, non-diversified management
investment company. The Fund was organized as a limited liability company under
the laws of Delaware on August 4, 2005. The Fund’s principal office is
located at c/o PNC Capital Advisors, Inc., Two Hopkins Plaza, Baltimore,
Maryland 21201.
The Fund
invests substantially all of its investable assets into the Offshore Fund, a
Cayman Islands limited duration company with the same investment objective as
the Fund. The Offshore Fund, in turn, invests substantially all of its
investable assets in the Master Fund.
The
Master Fund is a separate registered, closed-end, non-diversified management
investment company with the same investment objective as the Fund and the
Offshore Fund. The Master Fund was organized as a limited liability company
under the laws of Delaware on August 4, 2005. The Master Fund is a “fund of
hedge funds” that provides a means for investors to participate in investment
funds that pursue a variety of alternative investment strategies.
The
multi-level master-feeder structure, in which the Fund invests in the Master
Fund through the Offshore Fund, is intended to achieve certain economies of
scale for the Fund and a broader diversification of the Investment Fund
portfolio. Notwithstanding the opportunity for greater diversification, the Fund
and the Master Fund are “non-diversified” investment companies for purposes of
the 1940 Act, which means that they are not subject to limitations under the
1940 Act on the percentage of their assets that may be invested in the
securities of any one issuer. See “Types of Investments and Related
Risks—General.”
There is
no assurance that the economies of scale or diversification will be achieved.
However, it is expected that, over time, the fees and expenses of the Fund as
part of the multi-level master-feeder structure will be substantially the same
as or less than if the Fund invested in the Master Fund directly, or invested
directly into Investment Funds.
The Fund
may redeem all or a portion of its shares in the Offshore Fund and thereby
withdraw from the Master Fund, if the Board determines that it is in the best
interest of the Fund to do so. If the Fund so withdraws, the Board will consider
what action might be taken, including investing the assets in the Fund, through
the Offshore Fund, into a pooled investment entity other than the Master Fund,
or retaining an investment adviser to invest the
16
Fund’s
assets directly in accordance with its investment objectives. A withdrawal of
the Fund’s assets from the Master Fund may affect the Fund’s investment
performance.
The
Offshore Fund is not registered under the 1940 Act, nor are its securities
registered under the Securities Act. The Offshore Fund will serve as a conduit
entity through which the Fund will invest in the Master Fund, and
the
Offshore Fund has no investment or other discretion over its assets. Because the
Offshore Fund will be treated as a corporation for U.S. federal income tax
purposes, an investment in the Fund should not give rise to UBTI for a Member,
provided that the Member does not borrow to finance its investment in the
Fund.
The
Offshore Fund is organized under the laws of the Cayman Islands as a limited
duration company. Such an entity is exempt from the licensing and ownership
requirements applicable to companies established in the Cayman Islands which
conduct business domestically and, as such, may carry on activities in the
Cayman Islands only in furtherance of its overseas (non-Cayman Islands)
activities. The Offshore Fund has a duration of thirty years, as required by
Cayman Islands law, and has two members: the Fund, which serves as the managing
member and holds all of the voting shares in the Offshore Fund, and the Manager,
which holds only a nominal non-voting interest in the Offshore Fund. The
articles of association of the Offshore Fund grant the Fund complete and
exclusive authority to manage and control the business and affairs of the
Offshore Fund. Because the Fund controls all day-to-day management
responsibilities of the Offshore Fund, the decisions of the Offshore Fund are
effectively controlled by the Fund’s Board.
As a
limited duration company organized in the Cayman Islands, the Offshore Fund
offers limited liability to its members. Under Cayman Islands law, the liability
of the Fund, in its capacity as a member of the Offshore Fund, is limited to the
amount contributed, or agreed to be contributed, by the Fund to the capital of
the Offshore Fund. In exceptional circumstances, a Cayman Islands court may
ignore the separate legal personality of the Offshore Fund, including in the
case of fraud, where the device of incorporation is used for an illegal or
improper purpose, and where the Offshore Fund can be regarded as a mere agent of
a member. As a result, the Fund, as the Offshore Fund’s sole voting member,
would be directly liable, to the full extent of its assets, for the Offshore
Fund’s liabilities.
As the
Offshore Fund’s managing member, the Fund will perform a function equivalent to
that of a board of directors in a U.S. corporation. Under Cayman Islands law, a
managing member of a company may be liable for breaches of fiduciary duty owed
to the company’s other members. As the Fund is also the sole voting member of
the Offshore Fund, the possibility of a claim for a breach of fiduciary duty
owed to the Offshore Fund’s members is limited. Such a claim could, however, be
brought by PCA, the Offshore Fund’s only other member. As a managing member, the
Fund also may be liable for breaches of fiduciary duty owed to the Offshore
Fund’s third-party creditors, but only in exceptional circumstances where the
Offshore Fund would be insolvent or nearly insolvent.
The
Offshore Fund is not subject to regulation under the 1940 Act. However, because
its management and operations are controlled by the Fund, which is subject to
regulation under the 1940 Act, the lack of direct regulation of the Offshore
Fund under the 1940 Act is not expected to create additional risks to the Fund
or Members.
Persons
deemed to be affiliated with the Offshore Fund are the Fund, PNC Absolute Return
Fund LLC, the Master Fund, PCA and PNC and its affiliates.
The Fund
is similar to a private investment fund in that, through its indirect investment
in the Master Fund (through the Offshore Fund), it will be actively managed, and
Interests will be sold in relatively large minimum denominations to high net
worth individual and institutional investors. In addition, the Investment
Managers of the Investment Funds and the Manager of the Master Fund are entitled
to receive performance-based fees. The Fund will pay the Incentive Fee and will
bear, indirectly, the performance-based fees of the Investment Managers. Unlike
many private investment funds, however, the Fund, as a registered closed-end
investment company, offers Interests without limiting the number of Eligible
Investors that can participate in its investment program and may publicly
promote the sale of Interests. The structure of the Fund is designed to permit
sophisticated investors that have a high tolerance for investment risk to
participate, through the Offshore Fund, in the Master Fund’s active investment
program without making the more substantial minimum capital commitment that is
required by many private investment funds and without subjecting the Fund to the
limitations on the number of investors and the manner of offering faced by many
of those funds.
17
Investment
Objective
The
Fund’s, the Offshore Fund’s and the Master Fund’s investment objective is to
seek capital appreciation.
The Fund
intends to achieve its investment objective by investing substantially all of
its investable assets in the Offshore Fund, which has the same investment
objective as the Fund. The Offshore Fund will, in turn, invest substantially all
of its investable assets in the Master Fund. The Master Fund intends to achieve
its investment objective principally by investing in Investment Funds managed by
third-party Investment Managers who employ a variety of alternative investment
strategies. These investment strategies allow the Investment Managers the
flexibility to leverage, sell short and hedge positions to take advantage of
perceived inefficiencies across the global capital markets, and are referred to
as “alternative investment strategies” in contrast to the investment programs of
“traditional” registered investment companies, such as mutual funds.
Traditionally, investment companies have generally been characterized by
long-only investment strategies and limits on the use of leverage. Because
Investment Funds following alternative investment strategies (whether hedged or
not) are often described as “hedge funds,” the Master Fund’s investment program
can be broadly referred to as a fund of hedge funds.
The
assets of the Fund will consist only of securities issued by the Offshore Fund
and cash, and the assets of the Offshore Fund will consist only of securities
issued by the Master Fund and cash. The Offshore Fund may issue its securities
to other funds that offer their shares to investors. Likewise, other
offshore type funds may invest their assets in the Master Fund.
The
Adviser may, pending investment of the Master Fund’s assets in Investment Funds
or to maintain the liquidity necessary to meet repurchase requests or for
operational needs, cause the Master Fund to hold cash or cash equivalents or
invest temporarily in high-quality fixed income securities, money market
instruments, money market funds and repurchase agreements. In addition, the
Master Fund may make temporary investments and hold cash or cash equivalents in
anticipation of, or in response to, adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows.
The
Master Fund’s policy to invest in Investment Funds is not a fundamental
investment policy. The Master Fund may change this investment policy upon not
less than 60 days’ prior written notice to Members.
The
Master Fund intends to invest in a portfolio of Investment Funds, each of which
typically invests in one or more absolute return strategies that tend to exhibit
substantially lower volatility (as measured by standard deviation) than the
average common stock trading on a U.S. exchange or an index of stocks, such as
the S&P 500. Additionally, many of these Investment Funds have
historically shown relatively low (in some cases negative) correlation to each
other, as well as low to negative correlation to broad equity and bond indices.
Therefore, a fund of hedge funds, such as the Master Fund, focusing on the
absolute return sector seeks to generate positive absolute returns over a market
cycle with relatively low volatility.
Investment
Philosophy
The
Master Fund’s investment process involves a top-down approach to assess the
financial climate of each of the strategies under consideration. The Adviser
allocates the Master Fund’s capital first by strategy and then by Investment
Manager in order to meet the Master Fund’s investment objective.
The
Adviser believes that the Master Fund’s strategy of investing primarily in
Investment Funds that utilize alternative investment strategies creates
opportunities to participate in alternative methods of investing that may earn
attractive risk-adjusted returns. These private, unregistered funds generally
are not subject to regulatory restrictions and limitations on the use of
leverage and the ability to sell securities short.
Because
alternative investment strategies may be risky, the Adviser believes it is
prudent for the Master Fund generally to invest through Investment Funds
organized as limited partnerships or other limited liability investment
vehicles. This structure limits the effect that losses incurred by any one
Investment Fund will have on the assets of the Master Fund by limiting the
Master Fund’s amount at risk to the amount invested in that Investment
Fund.
The
Master Fund intends to invest its capital among several Investment Managers,
forming a multi-strategy, diversified investment portfolio designed to achieve
non-market directional returns with low volatility. The Adviser
18
allocates
the Master Fund’s capital among various Investment Managers that utilize
alternative investment strategies. The Adviser seeks to form a portfolio that
has low correlation to the broad equity and fixed income markets. Generally, the
Investment Managers’ investment methods may include, but are not limited to,
convertible arbitrage, fixed income arbitrage, hedged equity, long/short equity,
managed futures and credit-based, event-driven
and
global macro investing. For a more detailed summary of these strategies, see
“Types of Investments and Related Risks—Investment Strategies and Related
Risks.”
The
Adviser and its affiliates have extensive experience and expertise with
alternative investment strategies and Investment Managers and have evaluated
numerous Investment Funds representing many categories of alternative
investments and utilizing various investment strategies. They also have
extensive experience in directly managing alternative investment strategies. The
Adviser believes that this combination of evaluation expertise and direct
investment experience enables it to understand the opportunities and risks
associated with investing in the Investment Funds. For a more complete
description of the experience of the personnel of the Adviser who are
responsible for the day-to-day management of the Master Fund’s portfolio. See
“The Adviser.”
Investment
Manager Selection
After
identifying successful Investment Managers in a chosen investment strategy, the
Adviser thoroughly evaluates each Investment Manager. The Adviser has developed
strict criteria for evaluating, selecting and monitoring Investment Managers.
The Adviser’s extensive evaluation process targets primarily those Investment
Managers who successfully meet the following criteria:
Clearly-Defined
Investment Strategy and Process. After the Adviser determines that a
specific strategy will help meet the Master Fund’s investment objective under
the current economic conditions, it targets Investment Managers that utilize
that specific investment strategy. The Adviser gives priority to a
clearly-defined strategy and process.
Superior
Long-Term Investment Experience. The Adviser seeks Investment Managers
who have a history of solid performance. Investment Managers who have
demonstrated the ability to generate consistent returns across different
economic climates will receive a higher evaluation than Investment Managers who
have produced superior returns in one market environment. The Adviser also
conducts a statistical analysis of an Investment Fund’s performance and
evaluates the growth potential and size of such Investment Fund.
Alignment of
Interests. The Adviser reviews the Investment Managers’ risk management
processes and the amount of personal capital that such Investment Managers
invest in the entities they operate. Such a review helps determine whether the
Investment Managers have appropriate personal exposure for proper alignment of
interests.
Once
selected, the performance and strategy of each Investment Manager is
continuously reviewed, and new Investment Managers are identified and considered
on an ongoing basis. In addition, the allocation of the Master Fund’s capital
among Investment Managers is constantly monitored and adjusted, based on
performance results, partial results, changed economic conditions and other
relevant factors.
The
identity and number of Investment Managers may change over time. The Adviser may
cause the Master Fund to withdraw from or invest in different Investment Funds
without prior notice to or the consent of the Members. The Adviser reserves the
right to alter or modify some or all of the Master Fund’s investments in
Investment Funds in light of available investment opportunities, and to take
advantage of changing market conditions, if the Adviser concludes that such
alterations or modifications are consistent with the goal of achieving
above-average returns to investors, subject to what the Adviser considers an
acceptable level of risk and further subject to the limitations of the Master
Fund’s investment restrictions. The ability of the Adviser to make withdrawals
from Investment Funds may be limited because Investment Funds do not issue
redeemable securities and their interests are generally illiquid. Consequently,
a withdrawal from an Investment Fund may take several months or longer to
complete. See “Types of Investments and Related Risks—Risks of Fund of Hedge
Funds Structure—Investment Fund Interests Generally Illiquid; Lack of Liquidity
of Master Fund.”
Portfolio
Construction
The
Adviser intends to limit the Master Fund’s investments in any one Investment
Fund in the Master Fund’s portfolio to less than 5% of any class of voting
securities and less than 25% of the total equity (including subordinated debt)
of such Investment Fund.
19
Investments
by the Master Fund are subject to certain fundamental and non-fundamental
restrictions and certain investment limitations imposed by the 1940
Act. See “Investment Policies and Restrictions.” For purposes of the
Master Fund’s investment restrictions and its investment limitations under the
1940 Act, the Master Fund will not “look
through” to the underlying investments of any Investment Funds in which the
Master Fund invests, since such Investment Funds are generally not registered
under the 1940 Act, and therefore are generally not subject to the Master Fund’s
investment limitations or the other investment limitations under the 1940
Act.
Each of
the Fund and the Master Fund has claimed an exclusion from the definition of the
term “commodity pool operator” under the Commodity Exchange Act, as amended, and
therefore is not subject to registration or regulation as a commodity pool under
the Commodity Exchange Act.
Risk
Management and Monitoring of Investments
As noted above, unregistered investment
funds typically have greater flexibility than traditional registered investment
companies as to the types of securities the unregistered funds hold, the types
of trading strategies used, and, in some cases, the extent to which leverage is
used. The Investment Managers selected by the Adviser have full discretion,
without the Adviser’s input or input from the Master Fund’s Board, to purchase
and sell securities and other investments for their respective Investment Funds
consistent with the relevant investment advisory agreements, limited liability
company agreements or other governing documents of the Investment Funds. The
Investment Funds are generally not limited in the markets in
which they invest, either by location or type, such as U.S. or non-U.S., large
capitalization or small capitalization, or the investment discipline that they
may employ, such as value or growth or bottom-up or top-down analysis. These
Investment Funds may invest and trade in a wide range of securities and other
financial instruments and may pursue various investment strategies and
techniques for both hedging and non-hedging purposes. The Investment Funds may
invest and trade in all manner of assets and financial instruments. The
Investment Funds may also sell securities short, purchase and sell option and
futures contracts and enter into other Derivatives, subject to certain
limitations described elsewhere in this prospectus. The use of one or more of
these techniques may be an integral part of the investment program of an
Investment Fund and involves certain risks. The Investment Funds may use
leverage, which also entails risk. See “Types of Investments and Related
Risks.”
The
Adviser monitors the risks of individual Investment Funds and the portfolio in
the aggregate. The primary goal of this process with respect to individual
Investment Funds is to determine the degree to which the Investment Funds are
performing as expected and to gain early insight into factors that might call
for an increase or decrease in the allocation of the Master Fund’s assets among
those Investment Funds. With respect to aggregate portfolio monitoring, the
Adviser will endeavor to monitor, to the best of its ability, the Master Fund’s
aggregate exposures to various alternative investment strategies and to various
aggregate risks.
The
Adviser monitors the operation and performance of an Investment Fund as
frequently as it believes is appropriate in light of the strategy followed by
the Investment Manager and prevailing market conditions. The Adviser solicits
such information from the Investment Manager and other sources, such as prime
brokers, as it deems necessary to properly assess the relative success or
failure of an Investment Fund. The Adviser conducts reviews with Investment
Managers and the Adviser’s network and analyzes data, such as quality control
charts. The Adviser may make periodic assessments of the degree to which
multiple Investment Funds are making substantially similar trades, which might
reduce the diversification of the Master Fund’s portfolio. The Adviser may
monitor changes in leverage, personnel, market behavior, expenses, litigation,
capital resources, economic conditions and other factors, as appropriate and to
the extent the information is available to the Adviser.
Based on
the Adviser’s assessment of factors such as (i) the degree to which the
Investment Manager is pursuing an investment strategy consistent with its stated
policy; (ii) whether and to what degree the focus, incentives and
investment strategy of the Investment Manager have changed; and
(iii) whether the investment strategy employed remains consistent with the
objectives of the Master Fund, the Adviser may periodically adjust the Master
Fund’s allocations among Investment Funds.
20
General
The
Fund’s investment program entails substantial risks. The Fund invests
substantially all of its investable assets in the Master Fund (through the
Offshore Fund) and will not invest directly in any investments other than the
Offshore Fund. The value of the Fund’s net assets will fluctuate in response to
fluctuations in the value of the Investment Funds in which the Master Fund
invests. The investments of the Investment Funds are subject to special
risks.
This section discusses the investments made by Investment Funds or that, where
specifically stated, may be made directly by the Master Fund, and the principal
risks that the Adviser and the Manager believe are associated with those
investments. The impact of a particular risk on an Investment Fund will, in
turn, have a corresponding impact on the Fund via its indirect investment in the
Master Fund. The Fund has made every reasonable effort to include below
disclosure about all the principal risks associated with an investment in the
Fund. Nevertheless, such disclosure may not be exhaustive and may not include a
discussion of every possible risk affecting an investment.
All
securities investing and trading activities risk the loss of capital. Although
the Adviser attempts to moderate these risks, no assurance can be given that the
Master Fund’s investment activities will be successful or that Members will not
suffer losses. To the extent that the portfolio of an Investment Fund is
concentrated in securities of a single issuer or issuers in a single industry,
the risk of any investment decision made by the Investment Manager of such
Investment Fund is increased.
General
economic and market conditions, such as interest rates, availability of credit,
inflation rates, economic uncertainty, changes in laws, and national and
international political circumstances may affect the success of the Fund’s and
the Master Fund’s activities. These factors may affect the level and volatility
of security prices and liquidity of the Master Fund’s investments. Unexpected
volatility or lack of liquidity could impair the Fund’s profitability or result
in its suffering losses.
The Fund
and the Master Fund are “non-diversified” investment companies for purposes of
the 1940 Act, which means that they are not subject to limitations under the
1940 Act on the percentage of their assets that may be invested in the
securities of any one issuer. Also, there are no requirements under the 1940 Act
that the investments of the Investment Funds be diversified. As a result, the
Master Fund’s investment portfolio may be subject to greater risk and volatility
than if the Master Fund were subject to the diversification requirements under
the 1940 Act. Further, the Investment Funds may, in some cases, concentrate
their investments in a single industry or group of related industries. Due to
restrictions imposed by the BHC Act, the Adviser intends to limit the Master
Fund’s investments in any one Investment Fund to less than 5% of any class of
voting securities and less than 25% of the total equity (including subordinated
debt) of such Investment Fund. See “Other Risks—Banking
Regulation.”
Types
of Investments, Investment Strategies and Related Risks
Investment
Funds may utilize various types of investments and investment strategies,
including those described below. Where specifically stated, the Adviser, on
behalf of the Master Fund, may also utilize such investments and strategies. It
is possible that an Investment Fund or the Master Fund may make an investment
that is not described below, which would be subject to its own particular
risks.
Equity
Securities
Investment
Funds may hold long and short positions in common stocks, preferred stocks and
convertible securities of U.S. and non-U.S. issuers. Investment Funds also may
invest in depositary receipts or shares relating to non-U.S. securities. See
“Non-U.S. Securities.” Equity securities fluctuate in value, often based on
factors unrelated to the fundamental economic condition of the issuer of the
securities, including general economic and market conditions, and these
fluctuations can be pronounced. Investment Funds may purchase securities in all
available securities trading markets and may invest in equity securities without
restriction as to market capitalization.
Common Stocks.
Common stocks are shares of a corporation or other entity that entitle
the holder to a pro rata share of the
profits, if any, of the entity without preference over any other shareholder or
claim of shareholders, after making required payments to holders of the 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.
21
Preferred Stocks.
Preferred stock
generally has a preference as to dividends and upon the event of liquidation,
over an issuer’s common stock, but it ranks junior to debt securities in an
issuer’s capital structure. Preferred stock generally pays dividends in cash (or
additional shares of preferred stock) at a defined rate, but unlike interest
payments on debt securities, preferred stock dividends continue to accrue, but
are payable only if declared by the issuer’s board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer’s common stock until all unpaid preferred stock dividends
have been paid. Preferred stock may also be subject to optional or mandatory
redemption provisions.
Convertible
Securities. Convertible securities are bonds, debentures, notes,
preferred stocks or other securities that may be converted into or exchanged for
a specified amount of common stock of the same or different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest that is generally paid or
accrued on debt or a dividend that is paid or accrued on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics, in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation
in value than the underlying common stock due to their fixed income
characteristics and (3) provide the potential for capital appreciation if
the market price of the underlying common stock increases.
The value
of a convertible security is a function of its “investment value” (determined by
its yield in comparison with the yields of other securities of comparable
maturity and quality that do not have a conversion privilege) and its
“conversion value” (the security’s worth, at market value, if converted into the
underlying common stock). Changes in interest rates influence the investment
value of a convertible security, with investment value declining as interest
rates increase and increasing as interest rates decline. The credit standing of
the issuer and other factors may also have an effect on the convertible
security’s investment value. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the conversion
value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value. Generally, the
conversion value decreases as the convertible security approaches maturity. To
the extent the market price of the underlying common stock approaches or exceeds
the conversion price, the price of the convertible security will be increasingly
influenced by its conversion value. A convertible security generally will sell
at a premium over its conversion value by the extent to which investors place
value on the right to acquire the underlying common stock while holding a fixed
income security.
A
convertible security may be subject to redemption at the option of the issuer at
a price established in the convertible security’s governing instrument. If a
convertible security held by an Investment Fund is called for redemption, the
Investment Fund will be required to permit the issuer to redeem the security,
convert it into the underlying common stock or sell it to a third party. Any of
these actions could have an adverse effect on an Investment Fund’s ability to
achieve its investment objective, which, in turn, could result in losses to the
Master Fund and the Fund.
Bonds
and Other Fixed Income Securities
Investment
Funds may invest in bonds and other fixed income securities, both U.S. and
non-U.S., and may take short positions in these securities. Investment Funds
will invest in these securities when they offer opportunities for capital
appreciation (or capital depreciation in the case of short positions) and may
also invest in these securities for temporary defensive purposes and to maintain
liquidity. Fixed income securities include, among other securities: bonds, notes
and debentures issued by U.S. and non-U.S. corporations; debt securities issued
or guaranteed by the U.S. Government or one of its agencies or instrumentalities
(“U.S. Government securities”) or by a non-U.S. government; municipal
securities; and mortgage-backed and asset backed securities. These securities
may pay fixed, variable or floating rates of interest, and may include zero
coupon obligations. Fixed income securities are subject to the risk of the
issuer’s inability to meet principal and interest payments on its obligations
(i.e., credit risk) and are subject to price volatility resulting from, among
other things, interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (i.e., market
risk).
U.S.
Government securities in which the Investment Funds may invest include, but are
not limited to, direct U.S. Treasury bonds, notes and bills, as well as the
obligations of the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government
22
National
Mortgage Association, Federal National Mortgage Association, Federal Financing
Bank, General Services Administration, Student Loan Marketing Association,
Central Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Farm Credit Banks and Maritime Administration. Obligations of certain
U.S. Government agencies and instrumentalities are supported by the full faith
and credit of the U.S. Treasury; others are supported by the issuer’s right to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the issuer’s obligations; still others are
backed solely by the issuer’s credit. The U.S. Government may not provide
support
to a U.S. Government-sponsored issuer unless it is required to do so by law. The
Adviser does not expect that the Investment Funds will invest in U.S. Government
securities to a significant extent on a routine basis.
Investment
Funds may invest in both investment grade and non-investment grade debt
securities (commonly referred to as junk bonds). Non-investment grade debt
securities in the lowest rating categories may involve a substantial risk of
default or may be in default. Adverse changes in economic conditions or
developments regarding the individual issuer are more likely to cause price
volatility and weaken the capacity of the issuers of non-investment grade debt
securities to make principal and interest payments than issuers of higher-grade
debt securities. An economic downturn affecting an issuer of non-investment
grade debt securities may result in an increased incidence of default. In
addition, the market for lower grade debt securities may be thinner and less
active than for higher-grade debt securities.
Mortgage-Backed
Securities
Investment
Funds may invest in mortgage-backed securities. The investment characteristics
of mortgage-backed securities differ from traditional debt securities. Among the
major differences are that interest and principal payments on mortgage-backed
securities are made more frequently, usually monthly, and that principal may be
prepaid at any time because the underlying loans or other assets generally may
be prepaid at any time. The adverse effects of prepayments may indirectly affect
the Master Fund and, therefore, the Fund in two ways. First, particular
investments may experience outright losses, as in the case of an interest-only
security in an environment of faster than expected actual or anticipated
prepayments. Second, particular investments may underperform relative to hedges
that the Investment Funds may have entered into for these investments, resulting
in a loss to the Investment Fund. In particular, prepayments (at par) may limit
the potential upside of many mortgage-backed securities to their principal or
par amounts, whereas their corresponding hedges often have the potential for
large losses.
Investment
Funds may also invest in structured notes, variable rate mortgage-backed
securities, including adjustable-rate mortgage securities, which are backed by
mortgages with variable rates, and certain classes of collateralized mortgage
obligation derivatives, the rate of interest payable under which varies with a
designated rate or index. The value of these investments is closely tied to the
absolute levels of such rates or indices, or the market’s perception of
anticipated changes in those rates or indices. This introduces additional risk
factors related to the movements in specific indices or interest rates that may
be difficult or impossible to hedge, and which also interact in a complex
fashion with prepayment risks.
Non-U.S.
Securities
Investment
Funds may invest in securities of non-U.S. issuers and in depositary receipts or
shares (of both a sponsored and non-sponsored nature), such as American
Depositary Receipts, American Depositary Shares, Global Depositary Receipts or
Global Depositary Shares, which represent indirect interests in securities of
non-U.S. issuers. Sponsored depositary receipts are typically created jointly by
a foreign private issuer and a depositary. Non-sponsored depositary receipts are
created without the active participation of the foreign private issuer of the
deposited securities. As a result, non-sponsored depositary receipts may be
riskier than depositary receipts of a sponsored nature. Non-U.S. securities in
which Investment Funds may invest may be listed on non-U.S. securities exchanges
or traded in non-U.S. over-the-counter markets. Investments in non-U.S.
securities are subject to risks generally not present in the United States.
These risks include: varying custody, brokerage and settlement practices;
difficulty in pricing of securities; less public information about issuers of
non-U.S. securities; less governmental regulation and supervision over the
issuance and trading of securities than in the United States; the lack of
availability of financial information regarding a non-U.S. issuer or the
difficulty of interpreting financial information prepared under non-U.S.
accounting standards; less liquidity and more volatility in non-U.S. securities
markets; the possibility of expropriation or nationalization; the imposition of
withholding and other taxes; adverse political, social or diplomatic
developments; limitations on the movement of funds or other assets between
different countries;
23
difficulties
in invoking legal process abroad and enforcing contractual obligations; and the
difficulty of assessing economic trends in non-U.S. countries. Moreover,
governmental issuers of non-U.S. securities may be unwilling to repay principal
and interest due, and may require that the conditions for payment be
renegotiated. Investment in non-U.S. countries typically also involves higher
brokerage and custodial expenses than does investment in U.S.
securities.
Other
risks of investing in non-U.S. securities include changes in currency exchange
rates (in the case of securities that are not denominated in U.S. dollars) and
currency exchange control regulations or other non-U.S. or U.S. laws or
restrictions, or devaluations of non-U.S. currencies. A decline in the exchange
rate would reduce the value of certain Investment Funds’ non-U.S. currency
denominated portfolio securities irrespective of the performance of the
underlying investment. An Investment Fund may also incur costs in connection
with conversion between various currencies.
The risks
associated with investing in non-U.S. securities may be greater with respect to
those issued by companies located in emerging industrialized or less developed
countries. Risks particularly relevant to emerging markets may include higher
dependence on exports and the corresponding importance of international trade,
greater risk of inflation, greater controls on foreign investment and
limitations on repatriation of invested capital, increased likelihood of
governmental involvement in and control over the economies, governmental
decisions to cease support of economic reform programs or to impose centrally
planned economies, and less developed corporate laws regarding fiduciary duties
of officers and directors and protection of investors.
Forward Currency Contracts.
An Investment Fund may enter into forward currency exchange contracts for
hedging and non-hedging purposes in pursuing its investment objective. Forward
currency exchange contracts are transactions involving an Investment Fund’s
obligation to purchase or sell a specific currency at a future date at a
specified price. Forward currency exchange contracts may be used by an
Investment Fund for hedging purposes to protect against uncertainty in the level
of future non-U.S. currency exchange rates, such as when an Investment Fund
anticipates purchasing or selling a non-U.S. security. This technique would
allow the Investment Fund to “lock in” the U.S. dollar price of the
security. An Investment Fund may also use forward currency exchange contracts to
attempt to protect the value of the Investment Fund’s existing holdings of
non-U.S. securities. Imperfect correlation may exist, however, between an
Investment Fund’s non-U.S. securities holdings and the forward currency exchange
contracts entered into with respect to those holdings. An Investment Fund may
use forward currency exchange contracts for non-hedging purposes in seeking to
meet its investment objective, such as when the Investment Manager anticipates
that particular non-U.S. currencies will appreciate or depreciate in value, even
though the Investment Fund’s investment portfolio does not then hold securities
denominated in those currencies.
Generally,
Investment Funds are subject to no requirement that they hedge all or any
portion of their exposure to non-U.S. currency risks, and there can be no
assurance that hedging techniques will be successful if used.
Distressed
Securities
Certain
of the companies in whose securities the Investment Funds may invest may be in
transition, out of favor, financially leveraged or troubled, or potentially
troubled, and may be or have recently been involved in major strategic actions,
restructurings, bankruptcy, reorganization or liquidation. These characteristics
of these companies can cause their securities to be particularly risky, although
they also may offer the potential for high returns. These companies’ securities
may be considered speculative, and the ability of the companies to pay their
debts on schedule could be affected by adverse interest rate movements, changes
in the general economic climate, economic factors affecting a particular
industry or specific developments within the companies. An Investment Fund’s
investment in any instrument is subject to no minimum credit standard and a
significant portion of the obligations and preferred stock in which an
Investment Fund may invest may be less than investment grade (commonly referred
to as junk bonds), which may result in the Master Fund’s experiencing greater
risks than it would if investing in higher rated instruments.
Foreign
Currency Transactions
Investment
Funds may engage in foreign currency transactions for a variety of purposes,
including to fix in U.S. dollars, between trade and settlement date, the value
of a security an Investment Fund has agreed to buy or sell, or to hedge the U.S.
dollar value of securities the Investment Fund already owns, particularly if the
Investment Manager expects a decrease in the value of the currency in which the
foreign security is denominated.
24
Foreign
currency transactions may involve, for example, the purchase of foreign
currencies for U.S. dollars or the maintenance of short positions in foreign
currencies, which would involve an Investment Fund agreeing to exchange an
amount of a currency it did not currently own for another currency at a future
date in anticipation of a decline in the value of the currency sold relative to
the currency the Investment Fund contracted to receive in the exchange.
An Investment Manager’s success in these transactions will depend principally on
its ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar.
Money
Market Instruments
Each
Investment Fund may invest, for defensive purposes or otherwise, some or all of
an Investment Fund’s assets in high-quality fixed income securities, money
market instruments and money market funds, or hold cash or cash equivalents in
such amounts as the Investment Manager deems appropriate under the
circumstances. The Master Fund also may invest in these instruments, pending the
investment of assets in the Investment Funds or to maintain liquidity necessary
to effect repurchase of Interests. Money market instruments are high-quality,
short-term fixed income obligations, which generally have remaining maturities
of one year or less, and may include U.S. Government securities, commercial
paper, certificates of deposit and bankers’ acceptances issued by domestic
branches of United States banks that are members of the Federal Deposit
Insurance Corporation.
Repurchase
Agreements
The
Master Fund may invest temporarily in repurchase agreements transactions.
Repurchase agreements are transactions under which the buyer acquires ownership
of securities, and the seller agrees, at the time of the sale, to repurchase the
securities on a mutually agreed upon date and price thereby determining the
yield during the holding period. If the seller of a repurchase agreement fails
to repurchase the security in accordance with the terms of the agreement, the
buyer may incur a loss to the extent that the proceeds it realizes on the sale
of the security are less than the repurchase price. An Investment Fund may also
engage in repurchase agreement transactions, including a “continuing contract”
or “open” repurchase agreement under which the seller has a continuing
obligation to repurchase the underlying obligation from the Investment Fund on
demand and the effective interest rate is negotiated on a daily
basis.
Reverse
Repurchase Agreements
The
Investment Funds may enter into reverse repurchase agreements. Reverse
repurchase agreements involve a sale of a security by an Investment Fund to a
bank or securities dealer and the Investment Fund’s simultaneous agreement to
repurchase the security for a fixed price (reflecting a market rate of interest)
on a specific date. These transactions involve a risk that the other party to a
reverse repurchase agreement will be unable or unwilling to complete the
transaction as scheduled, which may result in losses to the Investment Fund.
Reverse repurchase agreements also involve the risk that the market value of the
portfolio security sold by the Investment Fund may decline below the price of
the securities the Investment Fund is obligated to purchase. Reverse repurchase
transactions are a form of leverage that may also increase the volatility of an
Investment Fund’s investment portfolio.
Initial
Public Offerings
The
Investment Funds may purchase securities of companies in initial public
offerings or shortly after those offerings are complete. Special risks
associated with these securities may include a limited number of shares
available for trading, lack of a trading history, lack of investor knowledge of
the issuer, and limited operating history. These factors may contribute to
substantial price volatility for the shares of these companies. The limited
number of shares available for trading in some initial public offerings may make
it more difficult for an Investment Fund to buy or sell significant amounts of
shares without an unfavorable effect on prevailing market prices. In addition,
some companies in initial public offerings are involved in relatively new
industries or lines of business, which investors may not widely understand. Some
of these companies may be undercapitalized or regarded as developmental stage
companies, without revenues or operating income, or the near-term prospects of
achieving revenues or operating income.
25
Small-Capitalization
Issuers
Investment
Funds may invest in small-capitalization companies. Investments in
small-capitalization companies often involve significantly greater risks than
the securities of larger, better-known companies because they may lack the
management expertise, financial resources, product diversification and
competitive strengths of larger companies. The prices of the securities of
small-capitalization companies may be subject to more abrupt or erratic market
movements than larger, more established companies, as these securities typically
trade in lower volume
and the issuers typically are more prone to changes in earnings and prospects.
In addition, when selling large positions in small-capitalization securities,
the seller may have to sell holdings at discounts from quoted prices or may have
to make a series of small sales over a period of time.
Leverage
Some or
all of the Investment Funds may make margin purchases of securities and, in
connection with these purchases, borrow money from brokers and banks for
investment purposes. This practice, which is known as “leverage,” is speculative
and involves certain risks. The Adviser does not currently anticipate that the
Master Fund will engage directly in transactions involving leverage to a
significant extent. The Master Fund may, however, borrow money in connection
with its investment activities, for temporary cash management purposes, to meet
repurchase requests or for temporary or emergency purposes. See “—Borrowing.”
Neither the Fund nor the Offshore Fund will leverage their investments. In
general, the use of leverage by Investment Funds or the Master Fund may increase
the volatility of the Investment Funds or the Master Fund.
Trading
equity securities on margin involves an initial cash requirement representing at
least a percentage of the underlying security’s value. Borrowings to purchase
equity securities are typically secured by the pledge of those securities.
Investment Funds may also finance securities purchases through the use of
reverse repurchase agreements with banks, brokers and other financial
institutions. Although leverage will increase investment returns if an
Investment Fund earns a greater return on the investments purchased with
borrowed funds than it pays for the use of those funds, the use of leverage will
decrease the return on an Investment Fund if the Investment Fund fails to earn
as much on investments purchased with borrowed funds as it pays for the use of
those funds. The use of leverage will in this way magnify the volatility of
changes in the value of an investment in the Investment Funds. In the event that
an Investment Fund’s equity or debt instruments decline in value, the Investment
Fund could be subject to a “margin call” or “collateral call,” under which the
Investment Fund must either deposit additional collateral with the lender or
suffer mandatory liquidation of the pledged securities to compensate for the
decline in value. In the event of a sudden, precipitous drop in value of an
Investment Fund’s assets, the Investment Fund might not be able to liquidate
assets quickly enough to pay off its borrowing. Money borrowed for leveraging
will be subject to interest costs that may or may not be recovered by return on
the securities purchased. The Investment Fund may be required to maintain
minimum average balances in connection with its borrowings or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest
rate.
Section 18
of the 1940 Act requires a registered investment company to satisfy an asset
coverage requirement of 300% of its indebtedness, including amounts borrowed,
measured at the time the investment company incurs the indebtedness (the “Asset
Coverage Requirement”). This requirement means that the value of the investment
company’s total indebtedness may not exceed one-third the value of its total
assets (including the indebtedness). This limit does not apply to the majority
of the underlying Investment Funds in which the Master Fund invests so the
Master Fund’s portfolio may be exposed to the risk of highly leveraged
investment programs of certain Investment Funds and thus increase the volatility
of the value of Interests.
In
seeking “leveraged” market exposure in certain investments and in attempting to
increase overall returns, an Investment Fund may purchase options and other
synthetic instruments that do not constitute “indebtedness” for purposes of the
Asset Coverage Requirement. These instruments may nevertheless involve
significant economic leverage and may, in some cases, involve significant risks
of loss.
Short
Sales
An
Investment Fund may attempt to limit its exposure to a possible market decline
in the value of its portfolio securities through short sales of securities that
its Investment Manager believes possess volatility characteristics similar to
those being hedged. An Investment Fund may also use short sales for non-hedging
purposes to pursue its
26
investment
objectives if, in the Investment Manager’s view, the security is over-valued in
relation to the issuer’s prospects for earnings growth. Short selling is
speculative in nature and, in certain circumstances, can substantially increase
the effect of adverse price movements on an Investment Fund’s portfolio. A short
sale of a security involves the risk of an unlimited increase in the market
price of the security that can in turn result in an inability to cover the short
position and a theoretically unlimited loss. There can be no assurance that
securities necessary to cover an Investment Fund’s short position will be
available for purchase.
An
Investment Fund may make “short sales against-the-box,” in which it will sell
short securities it owns or has the right to obtain without payment of
additional consideration. If an Investment Fund makes a short sale
against-the-box, it will be required to set aside securities equivalent in kind
and amount to the securities sold short (or securities convertible or
exchangeable into those securities) and will be required to hold those
securities while the short sale is outstanding. An Investment Fund will incur
transaction costs, including interest expenses, in connection with initiating,
maintaining and closing out short sales against-the-box.
Borrowing
The Fund
will not borrow money for any purpose. The Master Fund may borrow money in
connection with its investment activities, for temporary cash management
purposes, to meet repurchase requests or for temporary or emergency purposes.
The use of borrowings for investment purposes involves a high degree of risk.
The Master Fund generally intends to borrow money only in limited circumstances
when attractive investment opportunities are available and sufficient cash or
other liquid resources are not otherwise available, or where the Adviser
believes it would not be prudent to sell existing portfolio holdings. The Master
Fund anticipates that such borrowing will be on a short-term basis and not
substantial. The Master Fund will repay any borrowing incurred using the first
available funds, including proceeds from withdrawals from Investment Funds or
proceeds from the offering of Interests, in order to minimize the interest
expense and other borrowing costs. If the Master Fund borrows to finance
repurchases, interest on that borrowing will negatively affect Members who do
not have all of their Interests repurchased by the Fund, by increasing the
Master Fund’s expenses and reducing any net investment income.
The
Master Fund is not permitted to borrow for any purposes if, immediately after
such borrowing, it would fail to comply with the Asset Coverage Requirement
under the 1940 Act. In addition, under Section 18 of the 1940 Act, the
Master Fund may not declare distributions, or purchase its securities (including
through repurchase offers) if, immediately after doing so, it would have an
asset coverage of less than 300% of the total outstanding principal balance of
indebtedness. Thus, the Master Fund must limit its borrowings and leverage
practices to the
extent
necessary to permit the repurchase of securities pursuant to any offer by the
Master Fund to repurchase interests, at such times and on such terms as may be
determined by the Master Fund’s Board, in its sole discretion, without causing
the Master Fund to have an asset coverage of less than 300%.
To the
extent that the Master Fund borrows money in connection with its investment
activities, the value of its net assets will tend to increase or decrease at a
greater rate than if no borrowing occurred due to the resultant leverage. If the
Master Fund’s investments decline in value, Members’ loss will be magnified if
the Master Fund has borrowed money to make investments.
If the
Master Fund does not generate sufficient cash flow from operations, it may not
be able to repay borrowings, or the Master Fund may be forced to sell
investments at disadvantageous times in order to repay borrowings. While
borrowings are outstanding, the continued interest expense might adversely
affect performance and may prevent the Master Fund from taking advantage of
attractive investment opportunities. Performance could also be negatively
impacted if the Master Fund was forced to sell investments to repay borrowings
(including borrowings incurred to finance repurchases). Such sales could also
increase the Master Fund’s portfolio turnover rate.
The
rights of any lenders to the Master Fund to receive payments of interest or
payments of principal will be senior to those of its members (including the
Offshore Fund), and the terms of any borrowings may contain provisions that
limit certain activities of the Master Fund, including distributions (if any) to
its members. Interest payments and fees incurred in connection with borrowings
will increase the Master Fund’s expense ratio and will reduce any income the
Master Fund otherwise has available for distributions.
27
Investment
Strategies and Related Risks
The
Master Fund and the Fund are subject to Investment Fund strategy risk. Strategy
risk refers to the failure or deterioration of investment or trading techniques
employed within or across strategies, such that some or all Investment Managers
employing such techniques may suffer significant losses. Losses associated with
strategy risk may result from excessive concentration by multiple Investment
Managers in the same or similar trading positions. Likewise, broad events or
market dislocations, particularly those accompanied by illiquidity, may
adversely affect a wide range of Investment Funds in certain strategies. Many of
the trading or investment strategies employed by Investment Funds are
speculative and involve substantial risks.
The
Master Fund diversifies its holdings among broad categories of investment
strategies utilized by Investment Managers, some of which are described below.
These listed strategies are not intended to represent all of the Master Fund’s
portfolio but to provide examples. The Master Fund may add, delete or modify
categories of investment strategies at its discretion. There can be no assurance
that the Investment Managers will succeed in any of these
strategies.
Convertible/Capital
Structure Arbitrage. Convertible arbitrage is designed to capitalize on
the relationship between a convertible security (convertible bonds, convertible
preferred stock and warrants) and its underlying equity security. A typical
position will involve the purchase of the convertible security and the short
sale of the underlying common stock. This hedged position can be constructed to
take advantage of a bullish, neutral or bearish market outlook. Capital
structure arbitrage attempts to profit from differentials within corporate bond,
equity and derivatives markets.
Credit-Based.
This strategy aims to generate return via positions in the credit-sensitive
sphere of the fixed income markets. The strategy generally involves the purchase
of corporate bonds with hedging of the interest exposure. Investment Managers
can generally purchase any type of security in the capital structure, including
securities of companies suffering financial distress. These instruments can
include a myriad of securities such as corporate bonds, mortgages, suppliers’
claims and bank loans. Credit and other derivatives are used to establish the
portfolio and for hedging purposes. The portfolios in this strategy normally
have low interest rate exposure. Leverage tends to be low to
moderate.
Event-Driven.
This strategy generally involves investments in securities of companies involved
in mergers, acquisitions or other special situations that alter a company’s
financial structure or operating strategy, such as restructuring, liquidations,
spin-offs, etc. Risk management and hedging techniques are employed to protect
the portfolio from transactions that fail to materialize. In addition,
accurately forecasting the timing of a transaction is an important element
impacting the realized return. The use of leverage varies
considerably.
Fixed Income
Arbitrage. Fixed income arbitrage is a strategy that seeks to profit by
exploiting pricing inefficiencies between related fixed income securities while
neutralizing exposure to interest rate risk. The term fixed income arbitrage is
a generic description for a variety of strategies involving investment in fixed
income instruments, whereby Investment Managers attempt to exploit relative
mispricings between related sets of fixed income securities. Types of fixed
income hedging trades include, but are not limited to, yield-curve arbitrage,
corporate versus treasury yield spreads, municipal bond versus treasury yield
spreads and cash versus futures.
Hedged
Equity. Hedged equity includes strategies that invest in global equity
markets, both long and short, with a strong focus on capital preservation and
alpha generation. The strategies employed by Investment Managers in this
portfolio can be driven by fundamental or quantitative security selection, both
within sectors or across sectors, but without a significant beta exposure in the
portfolio.
Long/Short
Equity. The long/short equity strategy seeks to realize returns from a
combination of equity value changes and direct movements in the share markets.
Returns are generated through active stock picking and control of the level of
investment. The capital market dependence of the investments included in this
group may at any time be net long or net short. While concentrations may arise
in individual portfolios, minimum overlaps between the individual alternative
investment strategies are desirable in order to achieve diversification.
Borrowed capital may be used; however, the net market exposure should be less
than 100% on average in both directions. The returns of this strategy are
cyclical and increase as equity markets rise. Long/short equity Investment
Managers may concentrate on specific sectors or show higher exposure levels than
hedged equity Investment Managers, so that
28
their
return expectancy and volatility is higher. This strategy is more closely
correlated with the share markets than other strategies.
Global
Macro. Under this strategy, positions are acquired in interest, currency,
share and commodity markets on the basis of the Investment Manager’s assessment
of the macroeconomic situation and the anticipated behavior of the market.
Movements in these markets are determined by changes in the dynamics of the
global economy, political events or by global supply and demand for commodities
and capital. Investment Managers who employ this strategy use a large number of
financial instruments within the market sectors, including securities, commodity
futures, futures, options, swaps and other derivatives. Borrowed capital is
employed to a moderate or high degree. The performance of portfolios that are
managed according to this strategy is dependent on market trends, price
movements
and the relative strength of the global economy. In comparison with other
strategies, global macro is characterized by higher return expectations and
volatility. Its correlation with the share markets is low.
Managed
Futures. Under this strategy, Investment Managers trade on the global
financial, currency and commodity markets using forward transactions, either on
a systematic basis or at the free discretion of the Investment Managers. Futures
contracts are bought and sold immediately or on a forward basis, according to
the expectations of the Investment Managers as to price movements in the
respective markets. Investment Managers who employ a systematic approach make
their decisions on the basis of information (primarily of a technical or
mathematical nature) specific to prices and markets, while Investment Managers
who trade at their own discretion pursue a fundamental approach. This strategy
involves an average to moderate degree of borrowing. Compared to other
strategies, the managed futures strategy offers higher return expectations and
volatility.
Special
Investment Instruments and Techniques
Investment
Funds may utilize a variety of special investment instruments and techniques
described below to hedge the portfolios of the Investment Funds against various
risks, such as changes in interest rates or other factors that affect security
values, or for non-hedging purposes in seeking to achieve an Investment Fund’s
investment objective. The Adviser, on behalf of the Master Fund, may also use
these special investment instruments and techniques for either hedging or
non-hedging purposes. These strategies may be executed through Derivatives. The
instruments used and the particular manner in which they are used may change
over time as new instruments and techniques are developed or regulatory changes
occur. Certain of these special investment instruments and techniques are
speculative and involve a high degree of risk, particularly in the context of
non-hedging transactions.
Derivatives.
Investment Funds may invest in, or enter into, Derivatives. Derivatives can be
volatile and involve various types and degrees of risk, depending upon the
characteristics of a particular Derivative and the portfolio of the Investment
Fund as a whole. Derivatives permit an Investment Manager to increase or
decrease the level of risk of an investment portfolio, or change the character
of the risk, to which an investment portfolio is exposed in much the same way as
the Investment Manager can increase or decrease the level of risk, or change the
character of the risk, of an investment portfolio by making investments in
specific securities. Derivatives may entail investment exposures that are
greater than their cost would suggest, meaning that a small investment in
Derivatives could have a large potential effect on performance of an Investment
Fund. The Investment Manager’s use of Derivatives may include total return
swaps, options and futures designed to replicate the performance of a particular
Investment Fund or to adjust market or risk exposure.
If an
Investment Fund invests in Derivatives at inopportune times or incorrectly
judges market conditions, the investments may lower the return of the Investment
Fund or result in a loss. An Investment Fund also could experience losses if
Derivatives are poorly correlated with its other investments, or if the
Investment Fund is unable to liquidate the position because of an illiquid
secondary market. The market for many Derivatives is, or suddenly can become,
illiquid. Changes in liquidity may result in significant, rapid and
unpredictable changes in the prices for Derivatives.
Options and
Futures. Investment Funds may utilize options and futures contracts and
so-called “synthetic” options or other Derivatives written by broker-dealers or
other permissible financial intermediaries. Options transactions may be effected
on securities exchanges or in the over-the-counter market. When options are
purchased over-the-counter, the Investment Fund’s portfolio bears the risk that
the counterparty that wrote the option will be unable or unwilling to perform
its obligations under the option contract. Options may also be illiquid and, in
such cases, the Investment Fund may have difficulty closing out its position.
Over-the-counter options also may include options on baskets of specific
securities.
29
Investment
Funds may purchase call and put options on specific securities, and may write
and sell covered or uncovered call and put options for hedging purposes in
pursuing the investment objectives of the Investment Funds. A put option gives
the purchaser of the option the right to sell, and obligates the writer to buy,
the underlying security at a stated exercise price, typically at any time prior
to the expiration of the option. A call option gives the purchaser of the option
the right to buy, and obligates the writer to sell, the underlying security at a
stated exercise price, typically at any time prior to the expiration of the
option. A covered call option is a call option with respect to which the seller
of the option owns the underlying security. The sale of such an option exposes
the seller during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or to
possible continued holding of a security that might otherwise have been sold to
protect against depreciation
in the market price of the security. A covered put option is a put option with
respect to which cash or liquid securities have been placed in a segregated
account on the books of or with a custodian to fulfill the obligation
undertaken. The sale of such an option exposes the seller during the term of the
option to a decline in price of the underlying security while depriving the
seller of the opportunity to invest the segregated assets.
Investment
Funds may close out a position when writing options by purchasing an option on
the same security with the same exercise price and expiration date as the option
that it has previously written on the security. In such a case, the Investment
Fund will realize a profit or loss if the amount paid to purchase an option is
less or more than the amount received from the sale of the option.
Investment
Funds may enter into futures contracts in U.S. markets or on exchanges located
outside the United States. Non-U.S. markets may offer advantages such as trading
opportunities or arbitrage possibilities not available in the United States.
Non-U.S. markets, however, may have greater risk potential than U.S. markets.
For example, some non-U.S. exchanges are principal markets in which no common
clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits realized could be
eliminated by adverse changes in the exchange rate, and the Master Fund or an
Investment Fund could incur losses as a result of those changes. Transactions on
non-U.S. exchanges may include both commodities that are traded on U.S.
exchanges and those that are not. Unlike trading on U.S. commodity exchanges,
trading on non-U.S. commodity exchanges is not regulated by the U.S. Commodity
Futures Trading Commission.
Engaging
in transactions in futures contracts involves risk of loss to the Master Fund or
the Investment Fund that could adversely affect the value of the Investment
Fund’s and the Master Fund’s net assets. There can be no assurance that a liquid
market will exist for any particular futures contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified periods
during the trading day. Futures contract prices could move to the limit for
several consecutive trading days with little or no trading, preventing prompt
liquidation of futures positions and potentially subjecting the Master Fund or
the Investment Funds to substantial losses. Successful use of futures also is
subject to the Adviser’s or an Investment Manager’s ability to predict correctly
movements in the direction of the relevant market, and, to the extent the
transaction is entered into for hedging purposes, to determine the appropriate
correlation between the transaction being hedged and the price movements of the
futures contract.
Positions
of the SEC and its staff may require the Adviser or an Investment Manager to
segregate permissible liquid assets in connection with their options and
commodities transactions in an amount generally equal to the value of the
underlying option or commodity. The segregation of these assets will have the
effect of limiting the Adviser’s or the Investment Manager’s ability otherwise
to invest those assets. While the Investment Funds may engage in transactions
involving options and commodities, the Master Fund will not directly engage in,
nor will it segregate assets in connection with, such transactions.
Call and Put
Options on Securities Indices. Investment Funds may purchase and sell
call and put options on stock indices listed on national securities exchanges or
traded in the over-the-counter market for hedging purposes and non-hedging
purposes in seeking to achieve the investment objectives of the Investment
Funds. A stock index fluctuates with changes in the market values of the stocks
included in the index. Successful use of options on stock indexes is subject to
the Investment Manager’s ability to predict correctly movements in the direction
of the stock market generally or of a particular industry or market segment,
which requires different skills and techniques from those involved in predicting
changes in the price of individual stocks.
30
Warrants and
Rights. Investment
Funds may invest in warrants and rights. Warrants and rights may be purchased
separately or may be received as part of a unit or attached to securities
purchased. Warrants are Derivatives that permit, but do not obligate, their
holder to subscribe for other securities or commodities. Rights are similar to
warrants, but normally have a shorter duration and are offered or distributed to
shareholders of a company. Warrants and rights do not carry with them the right
to dividends or voting rights with respect to the securities that they entitle
the holder to purchase, and they do not represent any interest in the assets of
the issuer. As a result, warrants and rights may be more speculative than
certain other types of equity-like securities. In addition, the values of
warrants and rights do not necessarily change with the values of the underlying
securities or commodities and these instruments cease to have value if they are
not exercised prior to their expiration dates.
Swap
Agreements. Investment Funds may enter into equity, interest rate, index
and currency rate swap agreements in order to obtain a particular return when it
is desirable to do so, possibly at a lower cost than if the Investment Fund had
invested directly in the asset that yielded the desired return. Swap agreements
are two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than a year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments, which may be adjusted for an interest factor. The gross returns to
be exchanged or “swapped” between the parties are generally calculated with
respect to a “notional amount,” that is, the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a particular
non-U.S. currency, or in a “basket” of securities representing a particular
index.
Most swap
agreements entered into by an Investment Fund would require the calculation of
the obligations of the parties to the agreements on a “net basis.” Consequently,
current obligations (or rights) under a swap agreement generally will be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the “net
amount”). The risk of loss with respect to swaps is limited to the net amount of
interest payments that the Investment Fund is contractually obligated to make.
If the other party to a swap defaults, the Investment Fund’s risk of loss
consists of the net amount of payments that the Investment Fund contractually is
entitled to receive.
To
achieve investment returns equivalent to those achieved by an Investment Manager
in whose Investment Fund the Master Fund could not invest directly, perhaps
because of its investment minimum or its unavailability for direct investment,
the Master Fund may enter into swap agreements under which the Master Fund may
agree, on a net basis, to pay a return based on a floating interest rate, and to
receive the total return of the reference Investment Fund over a stated time
period. The Master Fund may seek to achieve the same investment result through
the use of other Derivatives in similar circumstances.
Lending Portfolio
Securities. Investment Funds may lend their securities to brokers,
dealers and other financial institutions needing to borrow securities to
complete certain transactions. The Investment Fund remains entitled to payments
in amounts equal to the interest, dividends or other distributions payable in
respect of the loaned securities, which affords the Investment Fund an
opportunity to earn interest on the amount of the loan and on the loaned
securities’ collateral. The Investment Fund receives collateral for the loan
consisting of cash, U.S. Government securities or irrevocable letters of credit
that will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The Investment Fund may
experience loss if the institution with which the Investment Fund has engaged in
a portfolio loan transaction breaches its agreement with the Investment
Fund.
When-Issued and
Forward Commitment Securities. Investments Funds may purchase securities
on a “when-issued” basis and may purchase or sell securities on a “forward
commitment” basis in order to hedge against anticipated changes in interest
rates and prices. These transactions involve a commitment by an Investment Fund
to purchase or sell securities at a future date (ordinarily one or two months
later). The price of the underlying securities, which is generally expressed in
terms of yield, is fixed at the time the commitment is made, but delivery and
payment for the securities takes place at a later date. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery to the Investment Fund. When-issued
securities and forward commitments may be sold prior to the settlement date. If
an Investment Fund disposes of the right to acquire a when-issued security prior
to its acquisition or disposes of its right to deliver or receive against a
forward commitment, it may incur a gain or loss. The risk exists that securities
purchased on a when-issued basis may not be delivered and that the purchaser of
securities sold by an Investment Fund on a forward basis will not honor its
purchase obligation. In such cases, an Investment Fund or the Master Fund may
incur a loss.
31
Restricted and
Illiquid Investments. Investment Funds may invest a portion of the value
of their total assets in restricted securities and other investments that are
illiquid. The Master Fund may likewise, without limitation, invest in such
securities and investments. The Investment Funds in which the Master Fund
invests will themselves generally be illiquid. See also “—Risks of Fund of Hedge
Funds Structure—Investment Fund Interests Generally Illiquid; Lack of Liquidity
of Master Fund.” Restricted securities are securities that may not be sold to
the public without an effective registration statement under the Securities Act
or that may be sold only in a privately negotiated transaction or pursuant to an
exemption from registration.
When
registration is required to sell a security, an Investment Fund may be obligated
to pay all or part of the registration expenses, and a considerable period may
elapse between the decision to sell and the time the Investment Fund may be
permitted to sell a security under an effective registration statement. If
adverse market conditions were to develop during this period, an Investment Fund
might obtain a less favorable price than the price that prevailed when the
Investment Fund decided to sell. Investment Funds may be unable to sell
restricted and other illiquid securities at the most opportune times or at
prices approximating the value at which they purchased the
securities.
Counterparty
Credit Risk. The markets in which the Investment Funds effect their
transactions may be “over-the-counter” or “interdealer” markets. The
participants in these markets are typically not subject to credit evaluation and
regulatory oversight as are members of “exchange based” markets. To the extent
an Investment Fund invests in swaps, Derivatives or synthetic instruments, or
other over-the-counter transactions in these markets, the Investment Fund may
take a credit risk with regard to parties with which it trades and also may bear
the risk of settlement default. These risks may differ materially from those
involved in exchange-traded transactions, which generally are characterized by
clearing organization guarantees, daily marking-to-market and settlement, and
segregation and minimum capital requirements applicable to intermediaries.
Transactions entered into directly between two counterparties generally do not
benefit from these protections, which in turn may subject the Investment Fund to
the risk that a counterparty will not settle a transaction in accordance with
its terms and conditions because of a dispute over the terms of the contract or
because of a credit or liquidity problem. Such “counterparty risk” is increased
for contracts with longer maturities when events may intervene to prevent
settlement. The ability of the Investment Funds to transact business with any
one or any number of counterparties, the lack of any independent evaluation of
the counterparties or their financial capabilities, and the absence of a
regulated market to facilitate settlement, may increase the potential for losses
by the Master Fund.
Control
Positions. Investment Funds may take control positions in companies. The
exercise of control over a company imposes additional risks of liability for
environmental damage, product defects, failure to supervise and other types of
liability related to business operations. In addition, the act of taking a
control position, or seeking to take such a position, may itself subject an
Investment Fund to litigation by parties interested in blocking it from taking
that position. If those liabilities were to arise, or such litigation were to be
resolved adverse to the Investment Funds, the investing Investment Funds likely
would suffer losses on their investments.
Risks
of Fund of Hedge Funds Structure
Following
are the principal risks that relate to the fund of hedge funds investment
approach:
Investment Funds
Not Registered. The Investment Funds generally will not be registered as
investment companies under the 1940 Act. The Master Fund, as an investor in
these Investment Funds, will not have the benefit of the protections afforded by
the 1940 Act to investors in registered investment companies.
Although
the Adviser will receive information from each Investment Fund regarding its
investment performance and investment strategy, the Adviser may have little or
no means of independently verifying this information. An Investment Fund may use
proprietary investment strategies that are not fully disclosed to the Adviser,
which may involve risks under some market conditions that are not anticipated by
the Adviser. The performance of the Master Fund and, therefore, the Fund,
depends on the success of the Adviser in selecting Investment Funds for
investment by the Master Fund and the allocation and reallocation of Master Fund
assets among those funds.
Availability of
Information. For the Fund and the Master Fund to complete their tax
reporting requirements and for the Fund to provide an audited annual report to
Members, they must receive timely information from the Investment Funds. An
Investment Fund’s delay in providing this information could delay the Fund’s
preparation of
32
tax
information for investors, which could require Members to seek extensions of the
time to file their tax returns or could delay the preparation of the Fund’s
annual report.
Multiple Levels
of Fees and Expenses; Duplicative Transaction Costs. An investor in the
Fund could invest directly in the Investment Funds if the Investment Fund’s
eligibility conditions were met. By investing in the Investment Funds indirectly
through the Fund as an investor in the Master Fund (through the Offshore Fund),
an investor bears a portion of the Management Fee, the Incentive Fee, the
Administrative Fee and other expenses at the Fund and the Master Fund level, and
also indirectly bears a portion of the asset-based fees, performance-based fees
and other
expenses borne by the Master Fund as an investor in the Investment Funds. This
layering of fees often occurs in master-feeder structures of this
type.
Generally,
asset-based fees payable to Investment Managers will range from 1% to 2%
(annualized) of the net asset value of the Master Fund’s investment in the
Investment Fund, and performance-based fees will generally range from 10% to 25%
of the Master Fund’s share of the net profits earned by the Investment Fund.
Each Investment Manager will receive any performance-based fees to which it is
entitled irrespective of the performance of the other Investment Managers and
the Master Fund generally. As a result, an Investment Manager with
positive performance may receive compensation from the Investment Fund, and thus
indirectly from the Fund and its Members, even if the Master Fund’s overall
returns are negative.
Investment
Managers make investment decisions of the Investment Funds independently of each
other so that, at any particular time, one Investment Fund may be purchasing
shares of an issuer whose shares are being sold at the same time by another
Investment Fund. Investing by Investment Funds in this manner will cause the
Master Fund to indirectly incur certain transaction costs without accomplishing
any net investment result.
Inability to
Invest in Investment Funds. Because the Master Fund may make additional
investments in or withdrawals from Investment Funds only at certain times
according to limitations set out in the governing documents of the Investment
Funds, the Master Fund from time to time may have to invest some of its assets
temporarily in high-quality fixed income securities, money market instruments,
money market funds or repurchase agreements, or hold cash or cash equivalents.
During this time that the Master Fund’s assets are not invested in Investment
Funds, that portion of the Master Fund’s assets will not be used to pursue the
Master Fund’s investment objective. In addition, the Master Fund pays the full
amount of the Management Fee and the Fund pays the full amount of any Incentive
Fee even while the Master Fund’s assets are invested only in temporary
investments.
Investment Fund
Interests Generally Illiquid; Lack of Liquidity of Master Fund. The
interests in the Investment Funds in which the Master Fund invests are generally
illiquid and, consequently, the Master Fund may be illiquid. The Master Fund may
make investments in, or withdrawals from, the Investment Funds only at certain
times specified in the governing documents of the Investment Funds. The Master
Fund typically is able to dispose of Investment Fund interests that it has
purchased only on a periodic basis such as monthly, quarterly, semi-annually or
over longer periods with specified advance notice requirements and, if adverse
market conditions develop during any period in which the Master Fund is unable
to sell Investment Fund interests, the Master Fund might obtain a less favorable
price than that which prevailed when it decided to buy or sell. In addition,
Investment Funds may impose certain restrictions on withdrawals, such as
lock-ups, gates, or suspensions of withdrawal rights for an indefinite period of
time in response to market turmoil or other adverse conditions (such as those
experienced by many hedge funds since late 2008). During such periods the Master
Fund may not withdraw all or part of its interest in the Investment Fund, or may
withdraw only by paying a penalty.
Some of
the Investment Funds may hold a portion of their investments, in particular
investments that are illiquid, in so-called designated investments, side pockets
or side cars. Side pockets are sub-funds within the Investment Funds
that create a structure to invest in illiquid and/or hard to value securities
and are valued independently from the general portfolio with distinct
allocation, distribution and redemption terms. Side cars are separate legal
entities created to similarly hold a portion of an Investment Fund’s assets in
order to facilitate realization of value or liquidation of such assets. The
liquidation of side pockets or side cars occurs over a much longer period than
that applicable to the Investment Funds’ general portfolio. Were the Master Fund
to seek to liquidate its investment in an Investment Fund which maintains some
of its investments in a side pocket or side car, the Master Fund might not be
able to fully liquidate its investment without delay, which could be
considerable, during which time, the value of its investment would fluctuate. In
addition, if an Investment Fund establishes a side
33
pocket or
side car prior to the Master Fund’s investing in the Investment Fund, it may not
be exposed to the performance of the Investment Funds held in the side pocket or
side car.
There may
be times when the Adviser intends to withdraw all or a portion of the Master
Fund’s investment in an Investment Fund but cannot immediately do so even when
other investors in the Investment Fund are able to withdraw. The Fund may need
to suspend or postpone repurchase offers to Members if the Master Fund is not
able to dispose of Investment Fund interests in a timely manner, thus affecting
negatively the Members’ liquidity.
In
addition, as a result of delays in the Master Fund’s ability to withdraw from an
Investment Fund, the Master Fund may need to borrow money to fund new
investments in Investment Funds or to meet repurchase requests from the Fund. A
portion of the proceeds of the offering of the Interests may be used to pay down
any outstanding borrowing which the Master Fund may incur to fund new
investments and for other purposes, as described under “Use of
Proceeds.”
In-Kind
Distributions by Investment Funds. Investment Funds may be permitted to
distribute securities in kind to investors, including the Master Fund. The
Master Fund expects that in the event of an in-kind distribution, it will
typically receive securities that are illiquid or difficult to value. In such
circumstances, the Adviser would seek to dispose of these securities in a manner
that is in the best interest of the Master Fund. However, the Adviser may not be
able to dispose of these securities at favorable prices or at all, which would
have an adverse effect on the Master Fund’s performance, or at favorable times,
which may adversely affect the Master Fund’s ability to make other
investments.
Valuation.
Certain securities in which the Investment Funds invest may not have a
readily ascertainable market price and will be valued by the Investment
Managers. Although the Adviser will conduct a due diligence review of the
valuation methodology utilized by the Investment Funds and will monitor all
Investment Funds and compare their monthly results with those of peer hedge fund
managers, the valuations provided by the Investment Managers generally will be
conclusive with respect to the Master Fund. The Master Fund may, however, change
such valuations if there is a clearly discernible reason not to trust their
accuracy or there are other reasons to believe that such valuations do not
reflect the fair value of the Investment Funds. For a detailed description of
the valuation process and the Adviser’s due diligence, see “Capital Accounts and
Allocations—Net Asset Valuation.” Reliance upon such valuations will occur even
though an Investment Manager may face a conflict of interest in valuing the
securities, as their value will affect the Investment Manager’s
compensation.
The
Adviser is required to consider all relevant information available at the time
the Master Fund values its portfolio. However, in most cases, the Adviser will
have limited ability to confirm independently the accuracy of the valuations
received from an Investment Fund because the Adviser does not generally have
access to all necessary financial and other information relating to the
Investment Funds to determine independently the Investment Funds’ net asset
values. The Fund will rely on the net asset value reported by the Master Fund in
determining its own net asset value.
In
addition, the net asset values or other valuation information received by the
Adviser from the Investment Funds may be subject to revision through the end of
each Investment Fund’s annual audit. Such adjustments or revisions, whether
increasing or decreasing the net asset value of the Master Fund and, therefore,
also the net asset value of the Fund, at the time they occur, because they
relate to information available only at the time of the adjustment or revision,
will not affect the amount of the repurchase proceeds of the Fund received by
Members who had their Interests repurchased and received their repurchase
proceeds prior to such adjustments.
Securities
Believed to Be Undervalued or Incorrectly Valued. Securities that an
Investment Manager believes are fundamentally undervalued or incorrectly valued
may not ultimately be valued in the capital markets at prices and/or within the
time frame the Investment Manager anticipates. As a result, the Master Fund may
lose all or substantially all of its investment in an Investment Fund in any
particular instance.
Dilution.
If an Investment Manager limits the amount of capital that may be contributed to
an Investment Fund from the Master Fund, or if the Master Fund declines to
purchase additional interests in an Investment Fund, continued sales of
interests in the Investment Fund to others may dilute the returns for the Master
Fund from the Investment Fund.
34
Investments in
Non-Voting Stock. The Master Fund may elect to
hold its interest in an Investment Fund in non-voting form. Additionally, the
Master Fund may choose to limit the amount of voting securities it holds in any
particular Investment Fund and may, as a result, hold substantial amounts of
non-voting securities in a particular Investment Fund. To the extent the Master
Fund holds non-voting securities of an Investment Fund, it will not be able to
vote on matters that require the approval of the investors in the Investment
Fund. This restriction could diminish the influence of the Master Fund in an
Investment Fund and adversely affect its investment in the Investment Fund,
which could result in unpredictable and potentially adverse effects on the Fund
and the Members.
Misconduct by
Investment Managers. There is a risk of misconduct by Investment
Managers. When the Adviser invests the Master Fund’s assets with an Investment
Manager, the Master Fund does not have custody of the assets or control over
their investment. Therefore, there is always the risk that the Investment
Manager could divert or abscond with the assets, inaccurately or fraudulently
report the Investment Fund’s value, fail to follow agreed upon investment
strategies, provide false reports of operations, or engage in other misconduct.
The Investment Managers with whom the Adviser invests the Master Fund’s assets
are generally private and have not registered their securities or investment
advisory operations under federal or state securities laws. This lack of
registration, with the attendant lack of regulatory oversight, may enhance the
risk of misconduct by the Investment Managers. There also is a risk that
governmental or other authorities may take regulatory actions against Investment
Managers, which may expose investors such as the Master Fund, which have placed
assets with such Investment Managers, to losses.
Custody
Risk. Custody of the Master Fund’s assets will be held in accordance with
the requirements of Section 17(f) of the 1940 Act and the rules thereunder,
which require, among other things, that such assets be held by certain qualified
banks or companies and in compliance with certain specified conditions. However,
the Investment Funds are not required to, and may not, hold custody of their
assets in accordance with those requirements. As a result, bankruptcy or fraud
at institutions, such as brokerage firms or banks, or administrators, into whose
custody those Investment Funds have placed their assets could impair the
operational capabilities or the capital position of the Investment Funds and
may, in turn, have an adverse impact on the Fund and the Master
Fund.
Litigation and
Enforcement Risk. Investment Managers might accumulate substantial
positions in the securities of a specific company and engage in a proxy fight,
become involved in litigation or attempt to gain control of a company. Under
such circumstances, the Master Fund conceivably could be named as a defendant in
a lawsuit or regulatory action. There have been a number of widely reported
instances of violations of securities laws through the misuse of confidential
information, diverting or absconding with Investment Fund assets, falsely
reporting Investment Fund values and performance, and other violations of the
securities laws. Such violations may result in substantial liabilities for
damages caused to others, for the disgorgement of profits realized and for
penalties. Investigations and enforcement proceedings are ongoing, and it is
possible that the Investment Managers may be charged with involvement in such
violations. If that were the case, the performance records of the Investment
Managers would be misleading. Furthermore, if the entity in which the Master
Fund invested engaged in such violations, the Master Fund could be exposed to
losses.
Offshore Fund Not
Registered. The Offshore Fund is not a registered investment company and
will not be subject to the investor protections of the 1940 Act, nor are the
Offshore Fund’s securities registered under the Securities Act. The Fund, by
investing in the Offshore Fund, will not have the protections offered to
investors in registered investment companies. The Fund, however, will control
the Offshore Fund, making it unlikely that the Offshore Fund will take action
contrary to the interests of Members.
Changes in United
States and/or Cayman Islands Law. If there are changes in the laws of the
United States and/or the Cayman Islands, under which the Fund and the Offshore
Fund, respectively, are organized, so as to result in the inability of the Fund
and/or the Offshore Fund to operate as set forth in this prospectus, there may
be a substantial effect on Members. For example, if Cayman Islands law changes
such that the Offshore Fund must conduct business operations within the Cayman
Islands, or pay taxes to the Cayman Islands, Members would likely suffer
decreased investment returns. If Cayman Islands law, which requires a limit for
a limited duration company’s existence of thirty years, were to change such
that, at the end of thirty years, the Fund could not replace the Offshore Fund
with another identical limited duration company, the structure of the Fund would
be affected, potentially adversely. Such changes could also result in the
inability of the Fund to operate on a going-forward basis, resulting in the
Fund’s being liquidated.
35
Regulatory
Change. The regulation of the U.S. and non-U.S. securities and futures
markets and investment funds such as the Fund and the Master Fund has undergone
substantial change in the recent years, and such change is expected to continue
for the foreseeable future. For example, the regulatory and tax environment for
Derivatives in which Investment Managers may participate is evolving, and
changes in the regulation or taxation of Derivatives may materially adversely
affect the value of the Derivatives held by the Investment Funds and the ability
of the Investment Funds to pursue their trading strategies. Similarly, the
regulatory environment for leveraged investors and for hedge funds generally is
evolving. The effect of regulatory change on the Fund and the Master Fund, while
impossible to predict, could be substantial and adverse.
The Fund
relies on a position taken by the staff of the SEC with respect to a
non-affiliated investment company allowing a structure whereby the Fund will
invest in the Master Fund via the Offshore Fund. To the extent that the views of
the SEC staff, which do not represent the views of the SEC itself, were to
change, the structure of the Fund’s investment in the Master Fund could be
adversely affected, possibly affecting the treatment of unrelated business
taxable income.
Lack of
Transparency. Investment Funds may, consistent with applicable law, not
disclose the contents of their portfolios. This lack of transparency may cause
the Master Fund to be unable to determine the levels of ownership in certain
asset classes in the Investment Funds.
Investing
in the Fund will involve risks other than those associated with investments made
and investment strategies used by the Master Fund and the Investment Funds,
including those described below:
Man-Glenwood
Patent Application
Man-Glenwood
Lexington TEI, LLC, or an affiliate thereof, a non-affiliated investment
company, filed a patent application relating to a structure that interposes a
Cayman Islands entity between a registered investment company and an underlying
master fund. In the event that the patent application is granted and it is
determined that the master-feeder structure of which the Fund forms a part
infringes on the patent, the Fund’s Board of Directors may determine to have the
Master Fund enter into a licensing agreement pursuant to which the master-feeder
structure may continue to operate without infringing on the patent. Such a
licensing agreement will likely impose additional costs, in the form of
licensing fees and other costs, on the Master Fund, the Fund and the Members. If
a mutually agreeable license cannot be negotiated, then the Fund’s Board of
Directors will be required to determine how to modify the master-feeder
structure in order to address any patent infringement, including, among others,
(i) a complete liquidation of the master-feeder structure, including the
Fund; (ii) a liquidation of the Fund and any related entity, while leaving
the master-feeder structure of the Master Fund and any other feeder fund that
invests in the Master Fund intact; (iii) the collapse of the master-feeder
structure of the Fund and the Master Fund so that the Fund owns the Investment
Funds directly; or (iv) the replacement of the Fund with a new
master-feeder structure and the transfer of the Members (and the Fund’s assets
attributable to Members) to the new structure. The Fund may bear costs and
expenses of modifying the master-feeder structure, and incur losses that would,
in turn, be borne by the Members. There can be no assurance that these costs,
expenses and losses will not have a material adverse effect on the Fund and on
the Members’ investment in the Fund.
Incentive
Fee Arrangements
The
performance-based fee paid to each Investment Manager and the Incentive Fee may
create an incentive for the Investment Managers or the Adviser, who receive a
portion of the Incentive Fee from the Manager, to make investments that are
riskier or more speculative than those that might have been made in the absence
of the performance-based fee or the Incentive Fee.
“Master-Feeder”
Structure—Other Investors in the Master Fund
The
Master Fund may accept investments from feeder funds in addition to the two
feeder funds currently being offered. . Since each feeder fund can set its own
transaction minimums, feeder-specific expenses, and other conditions, one feeder
fund could offer access to the Master Fund on more attractive terms, or could
experience better performance, than another feeder fund. The actions of larger
feeder funds may harm smaller feeder funds. To the extent that other
feeder funds tender for a significant portion of their interests, the assets of
the Master Fund
36
portfolio may decrease.
The resulting reduction in the Master Fund’s asset base could limit the ability
of the Adviser to successfully implement the investment program of the Master
Fund and could have a material adverse effect on the Fund. Furthermore, the
resulting reduction in the Master Fund’s asset base could cause the Fund’s
expense ratio to increase to the extent contributions to the Master Fund’s
portfolio do not offset the cash outflows. Members will not receive notification
of other feeder funds’ repurchase requests and, therefore, may not have the
opportunity to redeem their Interests in the Fund prior to or at the same time
as the feeder fund that is requesting to have its interests
repurchased.
Availability
of Investment Opportunities
The
business of identifying and structuring investments of the types contemplated by
the Fund, the Offshore Fund and the Master Fund is competitive and involves a
high degree of uncertainty. The availability of investment opportunities
generally will be subject to various factors, including, but not limited to, the
investment strategies of the Investment Funds available, the timing of such
Investment Funds’ subscription and redemption activities relative to those of
the Master Fund, liquidity concerns, as well as market conditions and the
prevailing regulatory or political climate. However, the Manager and the Adviser
will always act in good faith and make allocations fairly, given the relevant
circumstances. No assurance can be given that the Master Fund will be able to
identify and complete attractive investments in the future or that it will be
able to invest fully its subscriptions. Similarly, identification of attractive
investment opportunities by Investment Funds is difficult and involves a high
degree of uncertainty. Even if an attractive investment opportunity is
identified by an Investment Manager, an Investment Fund may not be permitted to
take advantage of the opportunity to the fullest extent desired. Investment
vehicles sponsored, managed or advised by the Manager, the Adviser and their
affiliates may seek investment opportunities similar to those the Fund, the
Offshore Fund and the Master Fund may be seeking, and none of these parties has
an obligation to offer any opportunities it may identify to the Fund, the
Offshore Fund and the Master Fund.
Inadequate
Return; Potential Loss of Investment
No
assurance can be given that the returns on the Fund’s investments will be
commensurate with the risk of investment in the Fund. Investors should not
commit money to the Fund unless they have the resources to sustain the loss of
their entire investment in the Fund. No guarantee or representation is made that
the Master Fund’s and the Investment Funds’ investment programs will be
successful.
Limited
Liquidity; Repurchases of Interests; Transfer Limitations
The Fund
is a closed-end, non-diversified, management investment company designed
primarily for long-term investors. Investors should not invest in the Fund if
they need a liquid investment. The Interests are considerably less liquid than
shares of funds that trade on a stock exchange or shares of open-end investment
companies. Interests in the Fund will not be traded on any securities exchange,
are not expected to trade on any other market, and are subject to substantial
restrictions on transferability and resale. There is no secondary trading market
for the Interests and none is expected to develop. The transferability of
Interests will be subject to certain restrictions contained in the LLC Agreement
and may be affected by restrictions imposed under applicable securities laws.
Subject to very limited exceptions, a Member will not be permitted to transfer
an Interest without the written consent of the Board. The Board will consent to
a transfer of an Interest only if it has determined, after consultation with
counsel, that the transfer will not cause the Fund to be treated as a “publicly
traded partnership” taxable as a corporation. The Interests are, therefore, not
readily marketable. Because the Fund is a closed-end investment company, its
Interests will not be redeemable at the option of Members, and they will not be
exchangeable for interests of any other fund.
The
Board, in its complete and absolute discretion, may cause the Fund to offer or
make repurchase offers for outstanding Interests at their net asset value. In
extreme cases, the Fund may not be able to complete repurchases if the Master
Fund is unable to repurchase a portion of the Fund’s interest in the Master
Fund, held through the Offshore Fund, due to the Master Fund’s holding of
illiquid investments. There will be a substantial period of time between the
date as of which Members must submit a request to have their Interests
repurchased and the date they can expect to receive payment for their Interests
from the Fund. Members that have Interests accepted for repurchase will bear the
risk that the Fund’s net asset value may fluctuate significantly between the
time that the Members submit their repurchase requests and the date as of which
the Interests are valued for purposes of the repurchase. Further, repurchases of
Interests, if any, may be suspended or postponed in the sole discretion of the
Board.
37
Consequently,
an investment in the Fund is suitable only for investors that can bear the risks
associated with the limited liquidity of the Interests and the underlying
investments of the Fund. See “Redemptions, Repurchases and Transfers of
Interests.”
Reporting
Requirements
Members
who beneficially own Interests that constitute more than 5% or 10% of the Fund’s
Interests will be subject to beneficial ownership reporting requirements under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the
rules promulgated thereunder. These provisions include requirements to file
certain reports with the SEC. The Fund has no obligation to file such reports on
behalf of such Members or to notify Members
that such reports are required to be made. Members who may be subject to these
requirements should consult with their legal advisers.
Potential
Significant Effect of the Performance of a Limited Number of
Investments
The
Adviser expects that the Master Fund generally will participate in multiple
investments. The Master Fund may, however, make investments in a limited number
of Investment Funds, and Investment Funds may make investments in a limited
number of portfolio companies. In either instance, these limited number of
investments may have a significant effect on the performance of the Master Fund
and, therefore, the Fund.
Banking
Regulation
The BHC
Act, together with the rules and regulations of the Board of Governors of the
Federal Reserve System, currently impose certain restrictions on the ability of
bank holding companies and their subsidiaries to own equity securities of
certain issuers. The Manager, is a subsidiary of PNC, a financial holding
company regulated by the Federal Reserve System under the BHC Act. As of
June 30, 2009, PNC Investment Corp., an affiliate of PNC and the Manager,
owned 3.1% of the Interests in the Fund and 45.5% of the interests in PNC
Absolute Return Fund LLC, which is another feeder fund that invests in the
Master Fund, and owned 41.6% of the Master Fund.
PNC
intends to hold any indirect interest it may have in the Master Fund in reliance
on the authority provided by Section 4(c)(7) of the BHC Act. Under
Section 4(c)(7), a bank holding company may own up to 100% of the shares of
an investment company that that is solely engaged in investing in securities and
that itself does not own or control, directly or indirectly, more than 5% of the
outstanding shares of any class of voting securities or 25% or more of the total
equity (including subordinated debt) of any company. A “company” for this
purpose would include any underlying Investment Fund, and therefore the Master
Fund’s investments in each Investment Fund will be subject to these
limitations.
Neither
PNC nor the Manager expects that the restrictions imposed by the BHC Act will
adversely impact the investment operations of the Fund or the Master
Fund.
PNC
as Lender to Issuers of Securities in which the Master Fund Invests
The
Adviser will not cause the Master Fund to make loans to or receive loans from
PNC or its affiliates. PNC or its affiliates may lend to issuers of securities
that are owned by the Master Fund or that are owned by the Investment Funds, or
to affiliates of those issuers, or may receive guarantees from the issuers of
those securities. In making and administering such loans, PNC or its affiliates
may take actions against those issuers, including, but not limited to,
restructuring a loan, foreclosing on the loan, requiring additional collateral
from an issuer, charging significant fees and interest to the issuer, placing
the issuer in bankruptcy, or demanding payment on a loan guarantee, any of which
may be contrary to the interests of the Master Fund. If that happens, the
security issued by the borrower or the guarantor or the affiliate that is owned
by the Master Fund or the Investment Funds may lose some or all of its
value.
The
Adviser will not cause the Master Fund to invest in an issuer of securities
which the Adviser knows to have a lending relationship with PNC or its
affiliates. However, neither PNC nor its affiliates provide the Adviser with
access to information concerning PNC’s or its affiliates lending customers and,
therefore, the Adviser may, in fact, without the Adviser’s knowledge, cause the
Master Fund to invest in the securities of a PNC’s or its affiliates lending
client.
38
The above
discussion of the various risks associated with the Fund, the Offshore Fund, the
Master Fund and the Interests is not, and is not intended to be, a complete
enumeration or explanation of the risks associated with an investment in the
Fund. Prospective investors should read this entire prospectus and the LLC
Agreement and consult with their own advisers before deciding whether to invest
in the Fund. In addition, as the Fund’s investment program changes or develops
over time, an investment in the Fund may be subject to risk factors not
described in this prospectus.
In view
of the risks noted above, the Fund should be considered a speculative
investment, and investors should invest in the Fund only if they can sustain a
complete loss of their investment. No guarantee or representation
is made
that the investment program of the Fund, the Offshore Fund, the Master Fund or
any Investment Fund will be successful, that the various Investment Funds
selected will produce positive returns or that the Fund will achieve their
investment objective.
The
Fund’s, the Offshore Fund’s and the Master Fund’s investment objective is
non-fundamental. The Fund’s and the Offshore Fund’s investment objective may be
changed by the Board (also acting for the Offshore Fund) without Member
approval. The Fund will give Members at least a 60-days’ prior written notice of
any such change. The Master Fund’s investment objective may be changed by the
Master Fund’s Board without the approval of the Master Fund’s members. The
Master Fund will give its members at least a 60-days’ prior written notice of
any such change.
The Fund
has adopted certain fundamental investment restrictions and changing these
restrictions will require the vote of a majority of the Fund’s outstanding
voting securities, as defined in Section 2 of the 1940 Act. Within the
limits of the Fund’s fundamental policies, the Fund’s management has reserved
freedom of action.
The
Fund’s fundamental investment restrictions are as follows:
(1) The
Fund will not invest 25% or more of the value of its total assets in the
securities, other than U.S. Government securities or other cash equivalents, of
issuers engaged in any single industry. For purposes of this restriction, the
Fund’s investments in the Offshore Fund and the Master Fund and directly or
indirectly in the Investment Funds, are not deemed to be an investment in a
single industry.
(2) The
Fund will not issue senior securities representing stock, except that, to the
extent permitted by the 1940 Act, (a) the Fund may borrow money from banks,
brokers and other lenders, to finance portfolio transactions and engage in other
transactions involving the issuance by the Fund of “senior securities”
representing indebtedness, (b) the Fund may borrow money from banks for
cash management purposes, temporary or emergency purposes or to fulfill
repurchase requests, and (c) the Fund may enter into derivative
transactions, such as total return swaps or options in accordance with the 1940
Act and the interpretations of that Act.
(3) The
Fund will not underwrite securities of other issuers, except insofar as the Fund
may be deemed an underwriter under the Securities Act, in connection with the
disposition of its portfolio securities.
(4) The
Fund will not make loans of money or securities to other persons, except through
purchasing fixed income securities, lending portfolio securities or entering
into repurchase agreements in a manner consistent with the Fund’s investment
policies.
(5) The
Fund will not purchase or sell commodities or commodity contracts, nor will it
sell futures or options on commodities.
(6) The
Fund will not purchase, hold or deal in real estate, except that it may invest
in securities that are secured by real estate or that are issued by companies or
Investment Funds that invest or deal in real estate.
None of
the Fund’s fundamental investment restrictions prevent the Fund from investing
substantially all of its assets in the securities of another registered
investment company (in a master-feeder structure) with the same investment
objective as the Fund. The Fund presently invests substantially all of its
investable assets in the Master
39
Fund
through the Offshore Fund, and each of the Offshore Fund and the Master Fund
have the same investment objective as the Fund. The Offshore Fund and the Master
Fund have adopted the same fundamental investment restrictions as the Fund;
changing these restrictions will require the approval of a majority of the
outstanding voting securities of the Offshore Fund and the Master Fund,
respectively. If the Fund were to withdraw from the Offshore Fund and the Master
Fund and invest its assets directly, the Fund’s fundamental investment
restrictions would apply directly to the Fund’s investments (or any account
consisting solely of Fund assets).
For
purposes of the Fund’s policy regarding the underwriting of securities, the Fund
will not make an in-kind distribution of the shares of the Offshore Fund to
Members.
In
addition, the Fund has adopted certain non-fundamental investment restrictions,
which are listed below, and these restrictions may be changed by the Board
without prior approval of Members.
(a) The
Fund will not invest 25% or more of the value of its total assets in the
securities, other than U.S. Government securities or other cash equivalents, of
issuers engaged in any single industry or group of industries; provided,
however, that the Fund will concentrate its investments, directly or through its
investment in the Offshore Fund and the Master Fund, in Investment Funds managed
pursuant to various alternative investment strategies, but will not invest 25%
or more of the value of its total assets in Investment Funds that, in the
aggregate, have investment programs that focus on investing in any single
industry or group of industries. For purposes of this restriction, the Fund’s
investments in the Offshore Fund and the Master Fund and, directly or indirectly
in the Investment Funds, are not deemed to be an investment in a single industry
or group of industries.
(b) The
Fund will not have on loan at any given time portfolio securities representing
more than one-third of the Fund’s total net asset value.
(c) The
Fund will not borrow money from brokers and lenders other than banks, nor will
it borrow through reverse repurchase agreements. The Fund will not borrow from
the Manager, the Adviser or their affiliates.
(d) As
long as the Fund operates as a feeder fund within a master-feeder structure, the
Fund will not leverage its investments or borrow money.
(e) As
long as the Fund operates as a feeder fund within a master-feeder structure, the
Fund will not engage in borrowing, lending, purchasing or selling commodities or
commodity contracts, or purchasing or selling futures or options on
commodities.
(f) As
long as the Fund operates as a feeder fund within a master-feeder structure, the
Fund will not make direct investments and will invest only in securities issued
by a master fund with the same investment objective as the Fund.
The
Offshore Fund has adopted the same non-fundamental investment restrictions as
the Fund, and these restrictions may be changed by the Board (acting for the
Offshore Fund) without prior approval of Members.
In
addition, with the exception of the non-fundamental restrictions enumerated in
(d), (e) and (f) above, the Master Fund has adopted the same
non-fundamental investment restrictions as the Fund, and these restrictions may
be changed by the Master Fund’s Board without prior approval of the Master
Fund’s members.
The
Fund’s, the Offshore Fund’s and the Master Fund’s fundamental and
non-fundamental investment restrictions do not apply to the activities and
transactions of the Investment Funds in which the assets of the Fund, the
Offshore Fund and the Master Fund are invested. In applying the fundamental and
non-fundamental investment restrictions and other policies described in this
prospectus, the Fund, the Offshore Fund and the Master Fund will not aggregate
their investments and transactions with those of the underlying Investment
Funds. Therefore, with respect to Investment Funds, the Fund, the Offshore Fund
and the Master Fund will not “look through” to the investments and transactions
of the Investment Funds. The Adviser anticipates directly managing the assets of
the Fund and the Master Fund only for temporary cash management purposes, or in
the event of in-kind distributions from Investment Funds. In addition, if a
percentage restriction or policy is met at the time of an investment or
transaction, a later change in percentage resulting from a change in the values
of investments or the value of the Fund’s total assets, unless otherwise stated
in this prospectus, will not constitute a deviation from the restriction or
policy.
40
Except as
otherwise indicated, the Fund, the Offshore Fund and the Master Fund may change
their investment objectives and any of their policies, restrictions, strategies,
and techniques if the respective Board of Directors believes doing so is in the
best interests of the Fund, the Offshore Fund, the Master Fund and the
Members.
Board
of Directors
The Board
of Directors has overall responsibility for the management and supervision of
the operations of the Fund and the Master Fund. Directors will not contribute to
the capital of the Fund or the Master Fund in their capacity as Directors, but
may subscribe for Interests as Members, subject to the eligibility requirements
described in this prospectus. The Offshore Fund does not have a board of
directors. The Offshore Fund has two members, the Fund and the Manager (which
holds only a nominal, non-voting interest). The Fund is the managing member of
the Offshore Fund, and the members have delegated day-to-day management and
general oversight responsibilities of the Offshore Fund to the Fund. The
Offshore Fund therefore is effectively controlled by the Board.
Directors
serve on the Board or the Master Fund’s Board for terms of indefinite duration.
A Director’s position in that capacity will terminate if the Director is
removed, resigns or is subject to various disabling events such as death,
incapacity or bankruptcy. A Director may resign, subject to giving 90 days’
prior written notice to the other Directors if such resignation is likely to
affect adversely the tax status of the Fund or the Master Fund. A Director may
be removed by vote of two-thirds (2/3) of the Directors serving on the
Board or the Master Fund’s Board, as applicable, not subject to the removal
vote. In addition, a Director serving on the Board may be removed by a vote of
Members holding not less than two-thirds (2/3) of the total number of votes
eligible to be cast by all Members. In the event of any vacancy in the position
of a Director, the remaining Directors serving on the Board or the Master Fund’s
Board, as applicable, may appoint an individual to serve as a Director, so long
as immediately after the appointment at least two-thirds (2/3) of the
Directors then serving on the Board or the Master Fund’s Board, as applicable,
would have been elected by the Members or the Master Fund’s members, as
applicable. In addition, any vacancy in the position of Directors may be filled,
if required by Section 16 of the 1940 Act which governs changes in the
board of directors, by a plurality of the vote at a meeting of Members or the
Master Fund’s members, as applicable, at which a quorum is present in person or
by proxy. See also “Voting.” The Board or the Master Fund’s Board may call a
meeting of Members or the Master Fund’s members, as applicable, to fill any
vacancy in the position of a Director, and must do so within 60 days after any
date on which Directors who were elected by Members or the Master Fund’s
members, as applicable, cease to constitute a majority of the respective Board
of Directors then serving.
Directors
and Officers
The
Manager will oversee the management of the day-to-day operations of the Fund and
the Master Fund under the supervision of the Board and the Master Fund’s Board,
as applicable. The Manager, subject to approval by the Board and the Master
Fund’s Board, as applicable, has the authority to appoint officers to assist in
the day-to-day management of the Fund’s and the Master Fund’s
operations.
The majority of Directors of the Board
and the Master Fund’s Board are not affiliated with the Manager or its
affiliates and are not “interested persons” as defined under
Section 2(a)(19) of the 1940 Act (the “Independent Directors”). The
Directors and officers of the Fund and the Master Fund are also directors and
officers of other investment companies managed, advised, administered or
distributed by the Manager or its affiliates. The address of the Directors is
c/o PNC Capital Advisors, Inc., Two Hopkins Plaza, Baltimore, MD 21201. A list
of the Directors and officers of the Fund and the Master Fund and a brief
statement of their present positions and principal occupations during the past
five years are set out below.
41
|
INDEPENDENT
DIRECTORS
|
||||||||
|
Name
and Age
|
|
Position with the
Fund
and the
Master Fund and
Length
of
Time
Served(1)
|
|
Principal Occupation(s)
in
the Past 5 Years
|
|
Number
of
Portfolios
in
Fund Complex(2)
Overseen
by
Director
|
|
Other Directorships
Held
by Director
|
|
L.
White Matthews, III—63
|
|
Director
Since
inception to present
|
|
Retired;
Chairman, Ceridian Corporation, 2006 to present.
|
|
10
registered investment companies consisting of 14
portfolios
|
|
Director,
Matrixx Initiatives, Inc. (pharmaceuticals); Director, Imation Corp. (data
storage products).
|
|
Edward
D. Miller, Jr.—66
|
|
Director
Since
inception to present
|
|
Dean
and Chief Executive Officer, Johns Hopkins Medicine, January 1997 to
present.
|
|
10
registered investment companies consisting of 14
portfolios
|
|
Director,
Bradmer Pharmaceuticals Inc. (pharmaceuticals).
|
|
John
R. Murphy—75(3)
|
|
Director
and Chairman
of
the Board
Since
inception to present
|
|
Vice
Chairman, National Geographic Society, March 1998 to
present.
|
|
10
registered investment companies consisting of 14
portfolios
|
|
Director,
Omnicom Group, Inc. (media and marketing services); Director, Sirsi Dynix
(technology).
|
|
Thomas
L. Owsley—68
|
|
Director
Since
inception to present
|
|
Retired
since August 2004; President, Chief Executive Officer and Chief Operating
Officer, Crown Central Petroleum Corporation, 2003 to August 2004; Senior
Vice President, General Counsel and Corporate Secretary, Crown Central
Petroleum Corporation, 2001 to 2003.
|
|
10
registered investment companies consisting of 14
portfolios
|
|
None.
|
|
George
R. Packard, III—77
|
|
Director
Since
inception to present
|
|
President,
U.S.-Japan Foundation, July 1998 to present.
|
|
10
registered investment companies consisting of 14
portfolios
|
|
None.
|
42
|
“INTERESTED”
DIRECTORS(4)
|
||||||||
|
Name
and Age
|
|
Position with the
Fund
and the
Master Fund and
Length of
Time
Served(1)
|
|
Principal Occupation(s)
in
the Past 5 Years
|
|
Number
of
Portfolios
in
Fund Complex(2)
Overseen
by
Director
|
|
Other Directorships
Held
by Director
|
|
Decatur
H. Miller—76
|
|
Director
Since
inception to present
|
|
Retired.
|
|
10
registered investment companies consisting of 14
portfolios
|
|
None.
|
|
OFFICERS
WHO ARE NOT DIRECTORS
|
||||
|
Name
and Age
|
|
Position Held with
Fund and Length of
Time
Served(1)
|
|
Principal
Occupation(s)
in
the Past 5 Years
|
|
Kevin
A. McCreadie—48
|
|
President
Since
inception
to present
|
|
President
and Chief Executive Officer, PCA, since March 2004; Chief Investment
Officer of PCA since 2002; Chief Investment Officer of PNC Asset
Management Group since 2007; Executive Vice President of PNC Bank,
N.A. since 2007; Partner of Brown Investment Advisory & Trust
Company, 1999-2002.
|
|
George
L. Stevens—58
|
|
Assistant
Vice President and Chief Compliance Officer
Since
2008 to present
|
|
Director-
CCO Services, Beacon Hill Fund Services, Inc. (distributor services, chief
compliance officer services and/or chief financial officer services) since
2008; Vice President, Citi Fund Services Ohio, Inc.
1995-2008.
|
|
Jennifer
E. Spratley—40
|
|
Treasurer
Since September 2007 Vice President Since March 2008
|
|
Treasurer,
PCA since September 2007; Unit Leader, Fund Accounting and Administration,
SEI Investments Global Funds Services 2005-2007; Fund Accounting Director,
SEI Investments Global Funds Services 1999-2007.
|
|
Jennifer
Vollmer—37
|
|
Secretary
Since
inception to present
|
|
Senior
Counsel, The PNC Financial Services Group, Inc. since March 2007;
Secretary, PCA, since 2001; Vice President, PCA,
2001-2007..
|
|
Savonne
L. Ferguson—35
|
|
Assistant
Secretary
Since
inception to present
|
|
Vice
President, PCA since September 2007; Assistant Vice President, PCA
2002-2007.
|
|
(1)
|
The
term of office for a Director is indefinite, until he or she resigns, is
removed or a successor is elected and
qualified.
|
|
(2)
|
The
Fund Complex consists of registered investment companies that have a
common investment adviser with the Fund and Master
Fund.
|
43
|
(3)
|
From
August 1, 2007 through September 28, 2007, Citigroup Inc. became
a “controlling person,” for 1940 Act purposes, of the Fund’s distributor.
Because Mr. Murphy owns shares of stock in Citigroup, Inc. he was an
interested Director of the Company during that limited
period.
|
|
(4)
|
The
Interested Director is considered to be an interested person, as defined
by the 1940 Act, because of his relationship with an affiliate of PCA.
Mr. Miller may be deemed an “Interested” Director because he is a
co-trustee of a trust for which an affiliate of PCA also acts as
co-trustee.
|
The
Fund’s Board and the Master Fund’s Board has each formed three committees: an
Audit Committee, a Nominating and Compensation Committee and a Pricing and
Valuation Committee. The Audit Committee and the Nominating and Compensation
Committee are composed of the Fund’s and the Master Fund’s five Independent
Directors, L. White Matthews, III, Edward D. Miller, Jr., John R. Murphy, Thomas
L. Owsley, and George R. Packard, III. The Pricing and Valuation Committee is
composed of all of the Fund’s and Master Fund’s Directors, including L. White
Matthews, III, Edward D. Miller, Jr., Decatur H. Miller, John R. Murphy, Thomas
L. Owsley, and George R. Packard, III.
The
functions of the Audit Committee are to: (1) oversee the accounting and
financial reporting process of the Fund and the Master Fund; (2) oversee
the quality and integrity of the Fund’s and the Master Fund’s financial
statements and the independent audit of the financial statements;
(3) oversee the compliance with legal and regulatory requirements that
relate to the Fund’s and the Master Fund’s accounting, financial reporting and
independent audits; (4) review and evaluate the qualifications,
independence and performance of the auditors prior to the engagement of the
audits; and (5) serve as liaison between the auditors and the Board and the
Master Fund’s Board. The Committee may perform other tasks, as the Board and the
Master Fund’s Board deem necessary and appropriate from time to time. The
Chairman of the Audit Committee is John R. Murphy, and L. White Matthews,
III serves as the Audit Committee Financial Expert. The Audit Committee met
three times during the fiscal year ended March 31, 2009.
The
functions of the Nominating and Compensation Committee are to: (1) identify
and recommend candidates for nomination for the election or appointment of
Directors to the Fund and the Master Fund and for membership on the Fund’s and
the Master Fund’s Board committees; (2) receive and evaluate
recommendations by Members of candidates for Board positions (forwarded by
correspondence, including a resume of the candidate, by mail or courier to the
Fund’s and/or Master Fund’s Secretary for the attention of the Chairman of the
Nominating and Compensation Committee, PNC Absolute Return TEDI Fund LLC, Two
Hopkins Plaza, Baltimore, MD 21201); (3) periodically evaluate the
functioning and composition of the Board, the Master Fund’s Board and their
committees and recommend appropriate changes with respect thereto;
(4) annually review compensation payable to Independent Directors and make
recommendations to the Board and the Master Fund’s Board; (5) consider and
oversee the selection of independent legal counsel employed by the Board and the
Master Fund’s Board and annually evaluate legal counsel’s independence under
applicable regulations; and (6) consider and evaluate the Directors’ and
officers’ liability and errors and omissions insurance coverage maintained by
the Fund and the Master Fund. The Chairman of the Nominating and Compensation
Committee is Edward D. Miller, Jr. The Nominating and Compensation Committee met
four times during the fiscal year ended March 31, 2009.
The
function of the Pricing and Valuation Committee is to assist the Board and the
Master Fund’s Board in their review of the calculation of the Fund’s and the
Master Fund’s net asset value. In that capacity, the responsibilities of the
Pricing and Valuation Committee include: (1) to review, and propose
revisions to, the Fund’s and Master Fund’s valuation procedures; (2) to
provide oversight with respect to the valuation of the Fund’s and the Master
Fund’s securities; (3) to review valuation methodologies, valuation
determinations and periodic reports and, as appropriate, recommend changes in
valuation methodologies to the Board and the Master Fund’s Board; (4) to
make determinations with regard to valuation overrides; (5) to review
certain valuations and pricing-related issues; and (6) to provide oversight
with respect to pricing errors and compliance, in order to ensure that
appropriate procedures and internal controls are in place to address valuation
issues. The Committee may perform other tasks assigned to it by the Board and
the Master Fund’s Board. The Chairman of the Pricing and Valuation Committee is
George R. Packard, III. The Pricing and Valuation Committee met three times
during the fiscal year ended March 31, 2009.
44
Director
Ownership of Securities
As of
December 31, 2009, no Director was the beneficial owner of any securities
in the Fund or any other registered investment companies overseen by the
Director within the same family of investment companies as the
Fund.
As of
March 31, 2009, no Independent Director and no immediate family member of
any Independent Director was the beneficial owner or owner of record of an
interest in either the Manager, the Adviser, the Distributor or in any person
directly or indirectly controlling, controlled by, or under common control with
the Manager, Adviser or Distributor.
Compensation
The
following table shows information regarding the compensation received by the
Directors of the Fund and the Master Fund and the aggregate compensation paid to
them by all registered investment companies for which the Manager, the Adviser
or their affiliates serve as an investment adviser or manager for the period
beginning upon commencement of the Fund’s and the Master Fund’s operations
through March 31, 2009. Neither the Fund nor the Master Fund pays any
compensation to officers or Directors who are otherwise compensated by the
Manager for serving in such capacity.
|
Name
of Director
|
|
Aggregate
Compensation
from the Fund(1)
|
|
Pension or Retirement
Benefits
Accrued
(as
Part of
Fund
Expenses)
|
|
Estimated Annual
Benefits
Upon
Retirement
|
|
Total Compensation
From
the Fund and the
Fund Complex(2) Paid
to
Directors
|
||||
|
L.
White Matthews, III
|
|
$
|
1,886
|
|
$
|
0
|
|
$
|
0
|
|
$
|
77,520
|
|
Decatur
H. Miller
|
|
$
|
1,886
|
|
$
|
0
|
|
$
|
0
|
|
$
|
78,520
|
|
Edward
D. Miller, Jr.
|
|
$
|
1,886
|
|
$
|
0
|
|
$
|
0
|
|
$
|
77,520
|
|
John
R. Murphy
|
|
$
|
2,186
|
|
$
|
0
|
|
$
|
0
|
|
$
|
98,520
|
|
Thomas
L. Owsley
|
|
$
|
1,886
|
|
$
|
0
|
|
$
|
0
|
|
$
|
78,520
|
|
George
R. Packard, III
|
|
$
|
1,841
|
|
$
|
0
|
|
$
|
0
|
|
$
|
74,020
|
|
(1)
|
The
Fund paid each Director an annual fee of $1,000, plus $500 for any special
meetings attended. The compensation shown includes the pro rata portion of
the fees the Master Fund pays each Director for attending Board meetings
of the Master Fund.
|
|
(2)
|
The
Fund Complex consists of 10 registered investment companies that have a
common investment adviser with the Fund and Master
Fund.
|
The
Directors do not receive any fees from the Fund for attending regular Board
meetings; however, the Fund pays each Director $500 for each special or
telephonic meeting if such meeting is called solely for the Fund. In addition, the Master
Fund pays each Director an annual fee of $6,500 plus $710 for each regular
meeting attended. The Master Fund pays the Chairman of the Board an additional
annual fee of $3,333 for his services in such capacity.
The
Directors do not receive any fees for attending committee meetings. Directors
will be reimbursed by the Fund and the Master Fund for their travel expenses
related to meetings of the Board or the Master Fund’s Board, as
applicable.
The
Manager is the investment manager of the Fund and the Master Fund. The Manager
is registered as an investment adviser under the Advisers Act and is a
corporation formed under the laws of the State of Maryland. The Manager is a
wholly-owned subsidiary of PNC. PNC is one of the nation’s largest diversified
financial services organizations, based on assets, with businesses engaged in
retail banking, corporate and institutional banking, asset
45
management
and global fund services. Pursuant to the authority and responsibilities granted
to it under the Master Fund’s Limited Liability Company Agreement, the Manager
will retain all rights, duties and powers to manage the
affairs
of the Master Fund that may not be delegated under Delaware law, and that are
not otherwise delegated by the Manager to the Master Fund’s Board or assumed by
the Adviser pursuant to the terms of the Investment Advisory
Agreement.
Pursuant
to the authority and responsibilities granted to it under the LLC Agreement, the
Manager will also oversee the day-to-day operations of the Fund under the
supervision of the Board. In this role, the Manager will be responsible, among
other things, for: (i) approving the acceptance of initial and additional
subscriptions from investors on behalf of the Fund; (ii) making
determinations whether future subscriptions should be accepted;
(iii) making determinations regarding transfers of Interests;
(iv) acting as tax matter partner of the Fund; and (v) managing and
overseeing the general administrative and operational aspects of the Fund. The
Manager may be removed as the Fund’s manager under the LLC Agreement by the vote
or written consent of Members holding not less than 80% of the total number of
votes eligible to be cast by all Members.
Pursuant
to its agreement with the Fund and Master Fund, the Manager provides, or will
arrange at its expense to provide, certain management and administrative
services to the Fund and the Master Fund. Among those services are: providing
office space and other support services; maintaining and preserving certain
records; preparing and filing various materials with state and U.S. federal
regulators; providing legal and regulatory advice in connection with management
and administrative services; and reviewing and arranging for payment of the
Fund’s and the Master Fund’s expenses.
In
addition to the authority and responsibilities granted to it under the LLC
Agreement and the Master Fund’s Limited Liability Company Agreement, the Manager
has also entered into an investment management agreement with the Fund and a
separate investment management agreement with the Master Fund (each, a
“Management Agreement” and together, “Management Agreements”). The Management
Agreements provide that the Manager is responsible, subject to the supervision
of the Master Fund’s Board, for formulating a continuing investment program for
the Master Fund. The Manager is authorized to make all decisions regarding the
Master Fund’s purchases and withdrawals of interests in Investment Funds. The
Manager has delegated these responsibilities to the Adviser pursuant to the
Investment Advisory Agreement, but retains oversight authority, responsibility
for conducting an economic overview and analysis of the Master Fund’s
activities, communicating with the Adviser regarding market trends and assisting
with setting investment parameters. The Manager is also responsible for
reviewing the Adviser’s investment decisions, ensuring compliance with the
Master Fund’s stated investment strategy and recommending changes of advisers to
the Master Fund’s Board.
The
Management Agreement between the Fund and the Manager became effective as of
July 20, 2007, and was continued by the Board on May 14, 2009. The
Management Agreement will continue in effect from year to year if the
continuance is approved annually by (i) the vote of a majority of the
Fund’s Independent Directors cast in person at a meeting called for the purpose
of voting on the approval and (ii) the Board or the vote of a majority of
the outstanding voting securities of the Fund. The Management Agreement between
the Fund and the Manager may be terminated at any time, without payment of any
penalty, by the Board or by the vote of a majority of the outstanding voting
securities of the Fund on 60 days’ written notice to the Manager. The Manager
may terminate the Management Agreement between the Fund and the Manager at any
time, without payment of any penalty, upon 90 days’ written notice to the
Fund.
The
Management Agreement between the Master Fund and the Manager became effective as
of July 20, 2007, and will continue in effect from year to year if the
continuance is approved annually by (i) the vote of a majority of the
Master Fund’s Independent Directors cast in person at a meeting called for the
purpose of voting on the approval and (ii) the Master Fund’s Board or the
vote of a majority of the outstanding voting securities of the Master Fund. The
Management Agreement between the Master Fund and the Manager was last continued
by the Master Fund’s Board on May 14, 2009. The Management Agreement between the
Master Fund and the Manager may be terminated at any time, without payment of
any penalty, by the Master Fund’s Board or by the vote of a majority of the
outstanding voting securities of the Master Fund on 60 days’ written notice to
the Manager. To the extent the Fund, as an investor in the Master Fund through
the Offshore Fund, votes on the approval or termination, the Fund will seek
46
voting
instructions from Members and will vote its interest in the Master Fund
proportionately in accordance with the
votes cast by Members. The Manager may terminate the Management Agreement
between the Master Fund and the Manager at any time, without payment of any
penalty, upon 90 days’ written notice to the Master Fund.
Each
Management Agreement provides that it will terminate automatically in the event
of its “assignment,” as defined by the 1940 Act and the rules under that
Act.
The
Management Agreements provide that, in the absence of willful misfeasance, bad
faith, or gross negligence of its obligations to the Master Fund, the Manager
will not be liable to the Fund, the Master Fund or their members for any error
of judgment, for any mistake of law or for any other act or omission in the
course of, or connected with, the performance of services to the Master Fund.
The Management Agreements also provide for indemnification, to the fullest
extent permitted by law, by the Fund and the Master Fund of the Manager, or any
partner, director, officer, principal, employee or agent of, or any person who
controls, is controlled by or is under common control with, the Manager, and any
of their affiliates, executors, heirs, assigns, successors or other legal
representatives, against any liability or expense to which the person may be
liable that arises in connection with the performance of services to the Master
Fund, so long as the liability or expense is not incurred by reason of the
person’s willful misfeasance, bad faith or gross negligence of
duty.
A
discussion of the basis of the Board’s and the Master Fund Board’s approval of
the Management Agreementscan be found in the Fund’s shareholder report for the
semi-annual period ended September 30.
Management
Fee
In
addition, the Manager may pay a portion of the remaining Management Fee to
entities that assist in the distribution of Interests and may be affiliated with
the Manager. These payments will be in addition to the direct sales loads paid
by investors. See “Subscriptions for Interests—Distribution Arrangements and
Sales Loads.”
The
Manager may waive, at its sole discretion, up to one-half of the Management Fee.
There is no other limit on the amount of the Management Fee the Manager may
waive. Any waiver would be for the benefit of all Members, as well as other
investors in the Master Fund, on an equal and pro rata basis. There can be
no assurance that the Manager will waive any portion of the Management
Fee.
For its
services to the Master Fund, the Manager is paid, and the Fund as an indirect
investor in the Master Fund will bear its pro rata share of, the
Management Fee. The Management Fee will be computed based on the net assets of
the Master Fund as of the end of business on the last business day of each
quarter including assets attributable to the Manager and before giving effect to
any repurchases of Interest by the Master Fund that have not settled as of the
end of the quarter, after adjustment for any subscriptions effective on that
date, and will be due and payable in arrears within five business days after the
end of such quarter. Net assets for these purposes mean the total value of all
assets of the Master Fund, less an amount equal to all accrued debts,
liabilities and obligations of the Master Fund.
The
Manager earned the following total fees from the Master Fund as the Fund’s
pro rata share of the
total fee for the periods indicated:
|
Fiscal
Year Ended March 31,
|
|
Fees(1)
|
|
2009
|
|
$54,412.78
|
|
2008
|
|
$52,323.42
|
|
2007
|
|
$22,964.28
|
|
(1)
|
For
the period July 1, 2006 through March 31, 2007, the Fund paid $22,964.28
of the management fee payable by the Master Fund to the Manager and the
Manager voluntarily waived management fee and/or reimbursed the Fund’s
expenses of $90,896. For the fiscal years ended March 31, 2008 and March
31, 2009, the Manager voluntarily waived the management fee and/or
reimbursed the Fund’s expenses of $132,738 and
125,624, respectively.
|
47
Incentive
Fee
In
addition to Fund’s pro rata share of the Management Fee, the Fund pays the
Manager an Incentive Fee for each Incentive Period. For these purposes, an
Incentive Period will generally correspond to a fiscal year, but may vary with
respect to Members. An Incentive Period may be composed of one or more
consecutive fiscal periods, as discussed in “Capital Accounts and
Allocations—Capital Accounts.” The Incentive Fee is equal to 10% of each
Member’s net profits in excess of such Member’s Loss Carryforward Amount (before
any accruals for Incentive Fees). The Incentive Fee will be calculated on a
basis that includes realized and unrealized appreciation of assets and may be
greater than if they were based solely on realized gains.
The
Manager received the following total fees payable by the Fund for the periods
indicated:
|
Fiscal
Year Ended March 31,
|
|
Fees
|
|
2009
|
|
$ 0.00
|
|
2008
|
|
$ 0.00
|
|
2007
|
|
$9,482.63
|
The
Adviser, a limited liability company organized under the laws of Delaware, is
the investment adviser of the Master Fund. The Adviser is registered as an
investment adviser under the Advisers Act. The Adviser is jointly owned by
Ramius LLC (formerly Ramius Capital Group, LLC), a limited liability company
organized under the laws of Delaware, and HVB, a German corporation. The
Adviser’s offices are located at 599 Lexington Avenue, 19th Floor, New York, NY
10022. The Adviser is the vehicle for a strategic partnership between HVB and
its affiliates and Ramius to combine their respective fund of hedge funds
businesses but is managed exclusively by Ramius. The strategic partnership
closed on December 31, 2004.
Following
the Business Combination Agreement between HVB and UniCredit S.p.A. and the
conclusion of the public tender offer by UniCredit S.p.A. to all shareholders of
HVB on November 17, 2005, UniCredit S.p.A has a 93.93% stake in HVB thus making
HVB and its affiliates a member of the “UniCredit Group.” HVB is the second
largest private bank in Germany with 5% market share, over 26,000 employees, 680
branches and over 4 million customers. The UniCredit Group holds the leading
position in the economic hub of Italy, Germany, Austria and Central and Eastern
Europe with over 140,000 employees, 7,000 branches and over 28 million
customers.
Ramius is
the managing member of the Adviser and is an investment management firm that
specializes in utilizing alternative asset class strategies. Ramius has been
involved in providing discretionary investment management services to U.S. and
international private investors, domestic pension funds, foundations,
corporations, insurance companies and other fiduciaries since 1994. Ramius’
managing member is C4S & Co., LLC.
Ramius
LLC and Cowen Group, Inc. (the "Cowen Group") and certain other parties have
recently entered into a Transaction Agreement and Agreement and Plan of Merger
and certain related agreements pursuant to which it is contemplated that Cowen
Group and Ramius will jointly form a new company (the "New Company"), (ii) a
newly formed subsidiary of the New Company will acquire substantially all of the
assets and assume substantially all of the liabilities of Ramius LLC (as well as
acquire the fifty percent interest in the Adviser currently owned by HVB), and
(iii) through a reverse merger the Cowen Group will become a wholly-owned
subsidiary of the New Company. Upon the consummation of such transactions (the
"Transactions"), Ramius LLC will own approximately 66 percent of the interests
in the New Company, HVB will own 4.9% and the remainder will be owned by the
shareholders of Cowen Group. Upon completion of the Transactions, Ramius, the
Adviser and its affiliates' management and staff will continue to manage
day-to-day operations for Ramius and the Adviser, including making all decisions
regarding the day-to-day management of the Master Fund's portfolio. Ramius LLC
has informed the Fund that the Transactions will not involve any change in the
management personnel of the Adviser or its affiliates.
48
The
day-to-day management of the Master Fund’s portfolio will be the responsibility
of the Adviser’s Investment Management Committee, which is made up of the
following individuals:
Thomas W.
Strauss is a Managing Member of Ramius and a member of its Executive
Committee. Mr. Strauss is also Chief Executive Officer of the Adviser, the
General Partner and Investment Manager for Ramius’ multi-manager business, and a
member of its Investment Management Committee. Mr. Strauss joined the Adviser in
1995. Mr. Strauss was the former President of Salomon Brothers and Vice Chairman
of Salomon Inc. Over the course of his career, he was a former Board member of:
The Governors of the American Stock Exchange, the Chicago Mercantile Exchange,
the Public Securities Association, the Securities Industry Association, and The
Federal Reserve Intl. Capital Markets Advisory Committee. Mr. Strauss graduated
from the University of Pennsylvania with a Bachelor of Arts degree in
Economics.
Stuart
Davies is a
Managing Director and Chief Investment Officer of the Adviser, the General
Partner and Investment Manager for Ramius’ multi-manager
business. Mr. Davies joined the firm in January 2009. Prior to
joining Ramius, Mr. Davies was a Managing Director and Global Head of
Investments at Ivy Asset Management in New York and was a member of Ivy’s
Executive Committee and Investment Committee. Earlier in Mr. Davies’
career, he was a member of the International Investment Committee of Coronation
Fund Manager and also spent three years at Nedcor Investment Bank International,
a subsidiary of Old Mutual Plc, as Head of the Investment Team. Mr.
Davies started his career in 1992 with Deloitte and Touche in both their audit
and corporate finance divisions. Mr. Davies graduated from the
University of Cape Town with a Bachelor of Commerce and Post Graduate Diploma in
Accounting. He is also a Chartered Accountant and a Chartered
Financial Analyst.
Vikas
Kapoor is a Managing Director and Head of Risk Management and Portfolio
Construction of the Adviser, the General Partner and Investment Manager for
Ramius’ multi-manager business. Mr. Kapoor joined the firm in June 2008. Prior
to joining Ramius, Mr. Kapoor was a Managing Director at Arden Asset Management
focusing on portfolio construction and risk management, and was a member of
Arden’s Investment Committee and Management Committee. Earlier in Mr.
Kapoor’s career, he was Managing Director of Deutsche Bank’s Absolute Return
Strategies Group where he headed the Quantitative Analysis and Application
Group. Mr. Kapoor received an M.S. in Computational Finance from Carnegie Mellon
University in 2003, an M.B.A. in Finance with Honors from the Tulane University
in New Orleans in 1996 and a B.Tech. in Mechanical Engineering from Regional
Engineering College, Kurukshetra, India in 1991.
Brian
Briskin is a Managing Director at the Adviser, the General Partner and
Investment Manager for Ramius’ multi-manager business. Mr. Briskin is
responsible for underlying manager selection, due diligence, and portfolio and
risk management activities. Prior to joining Ramius in April 2007, Mr. Briskin
was a Managing Director at Focus Investment Group from February 2000 through
March 2007. Specifically, Mr. Briskin worked as a member of the Asset Management
Committee responsible for underlying manager selection, due diligence, and
portfolio management. From 1996 to 2000, Mr. Briskin worked as a Portfolio
Research Analyst at Neuberger Berman in New York. Mr. Briskin received a M.B.A.
in Finance from The Zicklin School of Business at Baruch College in 1999, and
received a B.A. from The State University of New York at Oneonta in Business
Economics in 1992. Mr. Briskin received his Chartered Financial Analyst
designation from the CFA Institute in 2002.
Hiren
Patel is a Managing Director at the Advisor and Head of the Portfolio
Solutions Group which designs customized portfolios for large institutional
clients and is the primary interface between Ramius Fund of Fund's portfolio
management and business development efforts. Previously, as a Senior Portfolio
Manager, he was responsible for manager selection, due diligence, portfolio
management and risk assessment activities across a variety of investment
strategies. Mr. Patel joined the Firm in February 1998.
Prior to
joining Ramius, Mr. Patel was a Senior Consultant in the Securities Industry
Consulting Group at Price Waterhouse where he was primarily responsible for
providing strategy, technology and operations consulting services to
international and domestic commercial banks interested in forming broker/dealer
subsidiaries. During the earlier part of his tenure at Price Waterhouse, Mr.
Patel was engaged in a variety of strategy, market research, financial and
technology consulting projects involving multi-national financial services
firms. Mr. Patel received an M.B.A. in Finance from Virginia Tech in 1992
and a B.S. in Finance from Virginia Tech in 1990.
49
Portfolio
Manager Compensation Structure
Compensation
for the portfolio managers is a combination of a fixed salary and a
discretionary bonus. The Adviser pays the portfolio managers’
compensation in cash. The discretionary bonus is not tied directly to
the performance or the value of assets of the registrant or any other fund
managed by the Adviser. The amount of salary and bonus paid to the
portfolio managers is based on a variety of factors, including the financial
performance of the Adviser, execution of managerial responsibilities, quality of
client interactions and teamwork support. As part of their
compensation, portfolio managers also have 401k plans that enable employees to
direct a percentage of their pre-tax salary and bonus into a tax-qualified
retirement plan. In addition, senior portfolio managers receive
discretionary, non-voting equity-based compensation, a portion of which is
reinvested into the Adviser’s flagship fund-of-hedge funds product, and which is
determined, in part, based on the profits earned by the Adviser. All
portfolio managers are also eligible to participate in profit-sharing plans
created for employees of the Adviser, pursuant to which a fixed dollar amount of
profit sharing is paid in equal amounts to such employees.
Other
Accounts Managed by the Portfolio Manager and Potential Conflicts of
Interest
The
following table provides information relating to other accounts managed by the
Investment Management Committee, which is responsible for the day-to-day
management of the Master Fund’s portfolio, for the fiscal year ended
March 31, 2009.
|
|
Number of
Accounts
Managed
|
|
Number
of
Accounts
Managed with
Performance-
Based
Advisory
Fees
|
|
Total
Assets
|
|
Total Assets
Managed
with
Performance-
Based
Advisory
Fees
|
|||
|
Thomas
W. Strauss, Vikas Kapoor, Brian Briskin, Hiren Patel, Stuart
Davies*
|
|
|
|
|
||||||
|
Registered
investment companies
|
|
2
|
|
2
|
|
$
|
153,259,980
|
|
$
|
153,259,980
|
|
Other
pooled investment vehicles
|
|
24
|
|
21
|
|
$
|
1,321,681,325
|
|
$
|
1,181,873,307
|
|
Other
accounts
|
|
11
|
|
10
|
|
$
|
654,266,757
|
|
$
|
516,931,128
|
|
*
|
All
portfolio managers work together as a management team, and no individual
portfolio manager is solely responsible for an
account.
|
The
Adviser and its affiliates may carry on investment activities for their own
accounts, for the accounts of their employees (and their families) and for other
accounts in which the Master Fund has no interest. The Adviser and its
affiliates also provide investment management services to other clients,
including other collective investment vehicles. The Adviser and its affiliates
may give advice and recommend securities to other managed accounts or investment
funds which may differ from advice given to, or securities recommended or bought
for, the Master Fund, even though their investment programs may be the same or
similar.
Certain
inherent conflicts of interest arise from the fact that the Adviser and its
affiliates generally carry on other investment activities in which the Fund will
have no interest.
Security
Ownership of Portfolio Manager
As of
March 31, 2009, no portfolio manager was the beneficial owner of any
securities in the Fund or the Master Fund.
The
Investment Advisory Agreement among the Manager, the Adviser and the Master Fund
(the “Advisory Agreement”) provides that the Adviser is responsible, subject to
the supervision of the Manager and the Master Fund’s Board, for formulating a
continuing investment program for the Master Fund. The Adviser makes all
decisions regarding the Master Fund’s purchases and withdrawals of interests in
Investment Funds. The Adviser
50
does not
provide separate investment advisory services to the Fund or the Offshore Fund.
However, the Fund and the Offshore Fund, as investors in the Master Fund,
benefit from the services that the Adviser provides to the Master
Fund.
The
Advisory Agreement became effective as of June 30, 2006, and was continued
by the Master Fund’s Board on May 14, 2009 for a 12-month period beginning June
30, 2009. The Advisory Agreement will continue in effect from year to year if
the continuance is approved annually by (i) the vote of a majority of the
Master Fund’s Independent Directors cast in person at a meeting called for the
purpose of voting on the approval and (ii) the Master Fund’s Board or the
vote of a majority of the outstanding voting securities of the Master
Fund.
The
Advisory Agreement may be terminated (i) by the Manager at any time,
without the payment of any penalty, (ii) by the Manager’s recommendation
to, and by a vote of a majority of, the Master Fund’s Board or by vote of a
majority of the outstanding voting securities of the Master Fund on 60 days’
written notice to the Adviser or (iii) by the Adviser at any time, without
the payment of any penalty, on 60 days’ prior written notice to the Manager. The
Advisory Agreement provides that it will terminate automatically in the event of
its “assignment,” as defined by the 1940 Act.
To the
extent the Fund, as an investor in the Master Fund through the Offshore Fund,
votes on the approval or termination of the Advisory Agreement, the Fund will
seek voting instructions from Members and will vote its interest in the Master
Fund proportionately in accordance with the votes cast by Members.
The
Advisory Agreement provides that, in the absence of willful misfeasance, bad
faith, or gross negligence, the Adviser will not be liable to the Master Fund or
its members for any error of judgment, for any mistake of law or for any other
act or omission in connection with the performance of services to the Master
Fund. The Adviser does not represent that any level of performance will be
achieved. The Advisory Agreement also provides for indemnification, to the
fullest extent permitted by law, by the Master Fund of the Adviser, or any
officer, director, partner, principal, employee or agent of, or any person who
controls, is controlled by or is under common control with, the Adviser, and any
of their affiliates, executors, heirs, assigns, successors or other legal
representatives, against any liability or expense to which the person may be
liable that arises in connection with the performance of services to the Master
Fund, so long as the liability or expense is not incurred by reason of the
person’s willful malfeasance, bad faith or gross negligence of
duty.
A
discussion of the basis of the Master Fund Board’s approval of the Advisory
Agreement, can be found in the Fund’s shareholder report for the semi-annual
period ended September 30.
Compensation
Paid by the Manager to the Adviser
In
consideration of the investment advisory services that the Adviser provides to
the Master Fund, the Manager pays an amount equal to one-half of the Management
Fee to the Adviser. The Adviser bears all of its own costs incurred in providing
investment advisory services to the Master Fund. The Adviser received the
following fees from the Manager as the Fund’s pro rata share of the total
fee for the periods indicated:
|
Fiscal
Year Ended March 31,
|
|
Fees
|
|
2009
|
|
$27,206.39
|
|
2008
|
|
$26,161.71
|
|
2007
|
|
$11,482.14
|
51
In
addition to its share of the Management Fee, the Adviser is also paid one-half
of the Incentive Fee as described in the section entitled “Incentive Fee.” The
Adviser received the following Incentive Fee paid by the Manager for the periods
indicated:
|
Fiscal
Year Ended March 31,
|
|
Fees
|
|
2009
|
|
$0.00
|
|
2008
|
|
$0.00
|
|
2007
|
|
$4,741.32
|
The Fund,
the Master Fund, the Manager, the Adviser and the Distributor have each adopted
a code of ethics (“Code of Ethics”) as required by Rule 17j-1 under the 1940 Act
and Rule 204A-1 under the Advisers Act. The Code of Ethics establishes
procedures for personal investing and restricts certain transactions. Employees
subject to the Code of Ethics may invest in securities for their personal
investment accounts, including making investments in the securities of
Investment Funds that may be purchased or held by the Master Fund, subject to a
number of restrictions and controls. Each Code of Ethics is available on the
SEC’s website at www.sec.gov. In addition, each Code of Ethics can be reviewed
and copied at the SEC’s Public Reference Room in Washington, DC. Information on
the operation of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. Copies of each Code of Ethics may be obtained, after paying a
duplicating fee, by electronic request at the following e-mail address:
www.publicinfo@sec.gov, or by writing the SEC’s Public Reference Section,
Washington, DC 20549-0102.
Member
Voting Rights
Each
Member has the right to cast a number of votes based on the value of the
Member’s investment percentage at a meeting of Members called by the Board or by
Members holding at least a majority of the total number of votes eligible to be
cast. Members will be entitled to vote on any matter on which shareholders of a
registered investment company organized as a corporation would be entitled to
vote, including certain elections of Directors and on certain other matters.
Notwithstanding their ability to exercise their voting privileges, Members in
their capacity as such are not entitled to participate in the management or
control of the Fund’s business and may not act for or bind the
Fund.
Whenever
the Fund as an investor in the Offshore Fund is requested to vote on matters
pertaining to the Offshore Fund, the Fund will seek voting instructions from the
Members on such matters and, if required, will hold a meeting of the Members,
and the Fund will vote its shares in the Offshore Fund for or against such
matters proportionately to the instructions received from the Members. Thus, the
Fund will effectively “pass through” its voting rights to the Members. The Fund
shall vote Interests for which it receives no voting instructions in the same
proportion as the Interests for which it receives voting
instructions.
In
addition, whenever the Fund as an investor in the Master Fund, through the
Offshore Fund, is requested to vote on matters pertaining to the Master Fund,
the Offshore Fund will pass voting rights to the Fund. The Fund will seek voting
instructions from the Members on such matters and, if required, will hold a
meeting of the Members, and the Fund will vote its interest in the Master Fund,
through the Offshore Fund, for or against such matters proportionately to the
instructions received from the Members. Thus, the Offshore Fund will not vote on
Master Fund matters requiring a vote of Master Fund members without the
instruction of the Members. The Fund shall vote Interests for which it receives
no voting instructions in the same proportion as the Interests for which it
receives voting instructions. Members of the Fund will not be able to vote on
the termination of the Offshore Fund’s or the Master Fund’s business, which may
be determined by the Offshore Fund and Master Fund, respectively, without Member
approval.
52
Proxy
Voting Policies and Procedures
The Fund
will invest substantially all of its assets in the Master Fund (via the Offshore
Fund), which in turn will invest in the securities of Investment Funds, which
generally issue non-voting securities. On occasion, however, the Master Fund may
receive notices from the Investment Funds seeking the consent of holders in
order to materially change certain rights within the structure of the security
itself or change material terms of the Investment Fund’s articles of
association, limited partnership agreement, limited liability company operating
agreement, or similar agreement with investors. To the extent that the Master
Fund receives notices or proxies from Investment Funds (or receives proxy
statements or similar notices in connection with any other portfolio
securities), the Master Fund’s Board has delegated proxy voting responsibilities
with respect to the Master Fund’s portfolio securities to the Manager, as a part
of the general management of the Master Fund, subject to the Master Fund’s
Board’s continued
oversight.
The Manager is permitted to delegate and has further delegated this
responsibility to the Adviser. The Master Fund’s Board has directed that proxies
must be voted consistent with the best interest of the Master Fund and its
interest holders. The Manager and the Adviser present to the Master Fund’s Board
their policies, procedures and guidelines for voting proxies at least annually,
and notify the Master Fund’s Board promptly of material changes to any of these
documents, and no less than annually the Manager reports to the Master Fund’s
Board a record of each proxy voted with respect to the Master Fund’s portfolio
securities during the year.
The
Adviser has implemented its own proxy voting policies and procedures
(“Policies”). The Adviser’s general policy is to vote proxies in a manner that
serves the best interest of the Adviser’s client (including the Master Fund), as
determined by the Adviser in its discretion, taking into account the following
factors: (1) the impact on the value of the returns of the Investment Fund;
(2) the attraction of additional capital to the Investment Fund;
(3) the alignment of the interests of the Investment Fund’s management with
the interest of the Investment Fund’s beneficial owners, including establishing
appropriate fees for the Investment Fund’s management; (4) the costs
associated with the proxy; (5) the impact on redemption or withdrawal
rights; (6) the continued or increased availability of portfolio
information; and (7) industry and business practices.
The
Policies address, among other things, conflicts of interest that may arise
between the interests of the Master Fund and the interests of the Adviser and
its affiliates. The Policies describe the way in which the Adviser resolves
conflicts of interest. To resolve conflicts, the Adviser’s portfolio manager is
responsible for determining whether each proxy is for a routine matter or is
otherwise covered by the Policies. For all proxies identified as routine or
otherwise covered by the Policies, the portfolio manager votes in accordance
with the Policies. For proxies that are not routine, are not covered by the
Policies or for which the portfolio manager wishes to vote contrary to the
Policies, the proxy will be submitted to the Adviser’s Proxy Committee to
determine whether any conflict of interest exists. If a conflict exists, the
portfolio manager votes proxies in accordance with the Proxy Committee’s
decision.
Under
certain circumstances, the Adviser may abstain from voting or affirmatively
decide not to vote, if the Adviser determines that it is in the Master Fund’s
best interest. In making such determination, the Adviser will consider
(i) the costs associated with exercising the proxy and (ii) any legal
restrictions on trading resulting from the exercise of the proxy.
A copy of
the Policies is available without charge, upon request, by calling
(800) 239-0418. The Fund and the Master Fund are required to file Form
N-PX, with the complete proxy voting record for the twelve months ended
June 30, no later than August 31 of each year. Once filed, the Forms
N-PX will be available: (i) without charge, upon request, by calling
(800) 239-0418; or (ii) by visiting the SEC’s website at
www.sec.gov.
The
Master Fund
The
Master Fund anticipates that it will execute many of its transactions directly
with the Investment Funds and that such transactions ordinarily will not be
subject to brokerage commissions. In some instances, however, the Master Fund
may incur expenses in connection with effecting its portfolio transactions,
including the payment of brokerage commissions or fees payable to Investment
Funds or parties acting on behalf of, or at the direction of, Investment Funds.
The Master Fund will typically have no obligation to deal with any broker or
group of brokers in executing transactions.
53
The
Master Fund (and the Fund, as an indirect investor in the Master Fund) will bear
any commissions or spreads in connection with its portfolio transactions. In
selecting brokers and dealers to effect transactions on behalf of the Master
Fund, the Adviser will seek to obtain the best price and execution for the
transaction, taking into account factors such as price, size of order,
difficulty of execution and the operational facilities of a brokerage firm and
the firm’s risk in positioning a block of securities. While the Adviser
generally will seek reasonably competitive commission rates, the Master Fund
will not necessarily be paying the lowest commission available on each
transaction. In executing portfolio transactions and selecting brokers or
dealers, the Adviser will seek to obtain the best overall terms available for
the Master Fund. The Adviser will evaluate the overall reasonableness of
brokerage commissions paid based upon its knowledge of available information as
to the general level of commission paid by other institutional investors for
comparable services.
The Fund
paid no brokerage commissions during the fiscal years ended March 31, 2007,
2008 and March 31, 2009, nor were any such commissions paid to any
affiliated broker-dealer during such period.
The
Investment Funds
Each
Investment Manager is responsible for placing orders for the execution of
portfolio transactions and the allocation of brokerage for any Investment Fund
it manages. Transactions on U.S. stock exchanges and on some non-U.S. stock
exchanges involve the payment of negotiated brokerage commissions. On the great
majority of non-U.S. stock exchanges, commissions are fixed. No stated
commission is generally applicable to securities traded in over-the-counter
markets, but the prices of those securities include undisclosed commissions or
markups.
The
Adviser expects that each Investment Manager will generally select brokers and
dealers to effect transactions on behalf of its Investment Fund substantially as
described below, although the Adviser can give no assurance that an Investment
Manager will adhere to, and comply with, the described practices. The Adviser
generally expects that, in selecting brokers and dealers to effect transactions
on behalf of an Investment Fund, an Investment Manager will seek to obtain the
best price and execution for the transactions, taking into account factors such
as price, size of order, difficulty of execution and operational facilities of a
brokerage firm and the firm’s risk in positioning a block of securities. Subject
to appropriate disclosure, however, Investment Managers of Investment Funds that
are not investment companies registered under the 1940 Act may select brokers on
a basis other than that outlined above and may receive benefits other than
research or that benefit the Investment Manager or the Investment Manager’s
other clients rather than its Investment Fund. The Adviser may consider the
broker selection process employed by an Investment Manager as a factor in
determining whether to invest in its Investment Fund. Each Investment Manager
generally will seek reasonably competitive commission rates, but will not
necessarily pay the lowest commission available on each
transaction.
The
Investment Funds may effect portfolio transactions through the Manager, the
Adviser or their respective affiliates (or a firm in which the Manager, the
Adviser or their respective affiliates may have an interest) as broker or
riskless principal if an Investment Manager not affiliated with the Manager, the
Adviser or their respective affiliates makes the investment decision and refers
the transactions to the Manager, the Adviser or their respective affiliates. The
Investment Funds may also effect portfolio transactions with broker-dealers,
banks, or other companies acting as principal or agent, in which the Manager,
the Adviser or their respective affiliates have an investment. Any fees that the
Master Fund will bear as a result of such portfolio transactions will not be
reduced or offset to reflect the transaction fees or profits obtained by the
Manager, the Adviser or their respective affiliates. Portfolio transactions
effected through the Manager, the Adviser or their respective affiliates will be
done so in accordance with Section 17(e) of the 1940 Act and
Rule 17e-1 thereunder which govern affiliate transactions. However, the
Adviser will not influence the Investment Managers’ broker selection process and
will not consider an Investment Manager’s use of a broker affiliated with the
Manager and/or the Adviser in making investment allocation decisions on behalf
of the Master Fund.
The
Investment Managers may also invest in securities or other assets or contracts,
even though an affiliate of the Manager, the Adviser or a company in which an
affiliate of the Manager or the Adviser has an interest, is acting or has acted
as an underwriter, syndicate or selling group member, adviser, dealer, placement
agent or in other capacities in respect of those securities, assets or
contracts.
Consistent
with seeking best price and execution, an Investment Manager may place brokerage
orders with brokers that may provide the Investment Manager and its affiliates
with supplemental research, market and statistical information, including advice
as to the value of securities, the advisability of investing in, purchasing or
54
selling
securities, and the availability of securities or purchasers or sellers of
securities, and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. The expenses of an Investment Manager are not necessarily reduced
as a result of the receipt of this supplemental information, which may be useful
to the Investment Manager or its affiliates in providing services to clients
other than an Investment Fund. In addition, not all of the supplemental
information is used by the Investment Manager in connection with an Investment
Fund in which the Master Fund invests. Conversely, the information provided to
the Investment Manager by brokers and dealers through which other clients of the
Investment Manager and its affiliates effect securities transactions may be
useful to the Investment Manager in providing services to an Investment Fund.
In
addition to its role as Manager, PCA serves as administrator to the Fund, the
Offshore Fund and the Master Fund. Under the terms of the administration
agreements entered into between (i) the Fund and the Administrator,
(ii) the Master Fund and the Administrator and (iii) the Offshore Fund
and the Administrator (each, an “Administration Agreement” and together,
“Administration Agreements”), the Administrator is responsible, directly or
through its agents, for providing administrative, accounting, investor and
recordkeeping services for the Fund, the Offshore and the Master Fund. Such
services include, among other things: convening and calling all meetings of the
Board and the Master Fund’s Board and preparing the minutes of such meetings;
providing general secretarial services and keeping the books and records of the
Fund, the Offshore Fund and the Master Fund; paying all fees and expenses of the
Fund, the Offshore Fund and the Master Fund; and supervising the activities of
the Sub-Administrator. Further, with respect to the Fund, the Administrator is
responsible, directly or through its agents, for the provision of personal
Member services and account maintenance services to Members, such as handling of
inquiries regarding the Fund; assisting in the enhancement of relations and
communications between Members and the Fund; assisting in the maintenance of
Members’ accounts with the Fund; assisting in the maintenance of Fund records
containing Member information, such as changes of address; and providing other
information and Member liaison services at the Fund’s request.
Each
Administration Agreement may be terminated by either party to the respective
agreement at the end of its term upon not less than 90 days’ prior written
notice.
In
consideration of the administrative services provided to the Fund, the Fund will
pay the Administrator a fee at an annual rate of 0.25% of the Fund’s net assets,
plus an additional $15,000 annually. In addition, in consideration of the
administrative services provided to the Master Fund, the Master Fund will pay
the Administrator a fee at an annual rate of 0.20% of the Master Fund’s net
assets (together, the “Administrative Fee”). The Administrative Fee will accrue
monthly and will be paid quarterly out of the Fund’s and the Master Fund’s
respective assets, including assets attributable to the Manager and before
giving effect to any repurchases of Interest by the Master Fund that have not
settled as of the end of the quarter. The Fund as an indirect investor in the
Master Fund will bear its pro
rata share of the Administrative Fee paid by the Master Fund. The Fund
and the Master Fund, respectively, will reimburse the Administrator for
out-of-pocket expenses relating to services provided to the Fund and the Master
Fund. The parties may, from time to time, renegotiate the Administrative
Fee.
The
Administrator may waive, at its sole discretion, all or a portion of the
Administrative Fee payable by the Fund. Any waiver would be for the benefit of
all Members on an equal and pro rata basis. There can be
no assurance that the Administrator will waive any portion of the Administrative
Fee payable by the Fund.
The
Administrator may pay a portion of the Administrative Fee to entities that
provide the Fund with ongoing investor services.
The
Administration Agreements provide that the Administrator will not be liable to
the Fund, the Offshore Fund, the Master Fund or to Members for any liabilities
or expenses except those arising out of willful misfeasance, bad faith or gross
negligence in the performance of the duties of the Administrator or its agents
or those arising by reason of reckless disregard of the duties of the
Administrator or its agents. In addition, under the Administration Agreements,
the Fund, the Offshore Fund and the Master Fund will agree to indemnify the
Administrator from and against any and all liabilities and expenses whatsoever
arising out of the Administrator’s actions under the
55
Administration
Agreements, other than liability and expense arising out of the Administrator’s
willful misfeasance, bad faith or gross negligence or reckless disregard of
duties.
In
accordance with the terms of the Administration Agreements, the Administrator
has retained SEI Investments Global Funds Services, whose principal business is
located at One Freedom Valley Drive, Oaks, PA, 19456, as a sub-administrator
pursuant to a sub-administration agreement (the “Sub-Administration Agreement”).
The Sub-Administrator assists the Administrator in providing administrative
services to the Fund, the Offshore Fund and the Master Fund, including, but not
limited to, the preparation of regulatory filings and compliance with all
requirements of applicable securities laws, subject to the supervision of the
respective Board of Directors. The Sub-Administrator calculates the values of
the assets of the Fund and the Master Fund and generally assists on all aspects
of the Fund’s, the Offshore Fund’s and the Master Fund’s administration and
operation. The Sub-Administrator will generally supply and maintain office
facilities (which may be in its own offices), statistical and research data,
data processing
services, clerical, accounting, bookkeeping and recordkeeping services
(including, without limitation, the maintenance of such books and records as are
required pursuant to record-keeping requirements under the 1940 Act, except as
maintained by the Administrator), internal auditing, executive and
administrative services; prepare reports to Members; coordinate the preparation
and filing of tax returns; supply financial information and supporting data for
reports to and filings with the SEC and various state Blue Sky authorities;
supply supporting documentation for meetings of the Board and the Master Fund’s
Board; provide monitoring reports and assistance regarding compliance with the
Fund’s and the Master Fund’s limited liability company agreements, investment
objectives and policies and with federal and state securities laws; arrange for
appropriate insurance coverage; calculate net asset values, net income and
realized capital gains or losses; negotiate arrangements with, and supervise and
coordinate the activities of, agents and others to supply services; establish
and maintain bank, custodian and other accounts; maintain a list of Members and
generally perform all actions related to the issuance, repurchase and transfer
of Interests, including the processing of subscription documentation and
evaluating compliance with investor eligibility guidelines; accept payment for
the Interests; compute and disseminate the net asset value of the Fund in
accordance with the LLC Agreement; prepare for review the annual financial
statements of the Fund and the Master Fund, as well as quarterly reports
regarding the Fund’s and the Master Fund’s performance and net asset value; and
perform additional services, as agreed upon, necessary in connection with the
administration of the Fund, the Offshore Fund and the Master
Fund.
The
Administrator will pay the Sub-Administrator out of its Administrative Fee a
quarterly sub-administrative fee. The Administrator is responsible for the
payment of the sub-administrative fee. The sub-administrative fee is not an
additional expense of the Fund or the Master Fund. Either party may terminate
the Sub-Administration Agreement at the end of the initial three-year term or
any successive one-year term upon not less than 90 days’ prior
notice.
SEI
Private Trust Company, whose principal business address is One Freedom Valley
Drive, Oaks, PA 19456, serves as the custodian of the Fund’s, the Offshore
Fund’s and the Master Fund’s assets pursuant to custodian services agreements
with the Fund, the Offshore Fund and the Master Fund, and may maintain custody
of such assets with U.S. sub-custodians and foreign custody managers (which may
be banks, trust companies, securities depositories and clearing agencies),
subject to policies and procedures approved by the Board and the Master Fund’s
Board. Under the terms of the custodian services agreements, the Custodian
maintains a separate account in the name of the Fund, the Offshore Fund and the
Master Fund, holds and transfers portfolio securities on account of the Fund,
the Offshore Fund and the Master Fund, accepts receipts and makes disbursements
of money on behalf of the Fund, the Offshore Fund and the Master Fund, collects
and receives all income and other payments and distributions on account of the
Fund’s, the Offshore Fund’s and the Master Fund’s securities, maintains the
Master Fund’s subscription agreements from investments made in the Investment
Funds, and makes periodic reports to the Board and the Master Fund’s Board
concerning the Fund’s, the Offshore Fund’s and the Master Fund’s
operations.
In
consideration of the custodian services, the Master Fund will pay the Custodian,
and the Fund as an indirect investor in the Master Fund will bear its pro rata share of, a fee at
an annual rate of 0.01% of the Master Fund’s net assets. The fee will accrue
monthly and will be paid quarterly out of the Master Fund’s assets, including
assets attributable to the Manager and before giving effect to any repurchases
of Interest by the Master Fund that have not
56
settled
as of the end of the quarter. The Fund and the Master Fund will also reimburse
the Custodian for out-of-pocket expenses.
Under the
terms of the escrow agreement, the Escrow Agent has established a non-interest
bearing escrow account in the name of the Fund and will promptly deposit in the
escrow account funds remitted by prospective investors in connection with
subscriptions for Interests. In the event a prospective investor is not admitted
to the Fund as a Member, the Escrow Agent will promptly issue a refund to such
investor in the amount of the investor’s remitted principal balance. In
addition, the escrow account will hold funds equal to the value of Interests
that have been accepted for repurchase and that the Fund has transferred into
the escrow account prior to their payment to Members. The Fund has contracted
with UMB Fund Services, Inc., at the request of the Escrow Agent, to provide
certain recordkeeping services with respect to the escrow accounts. The Escrow
Agent will be responsible for providing the Fund with periodic account
statements and for making distributions to the Fund upon each subscription date
and to Members in connection with repurchases. The Fund will reimburse the
Escrow Agent for out-of-pocket expenses.
Fees and
expenses borne by the Master Fund (and thus indirectly by the Fund and Members)
include:
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•
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All
expenses related to the Master Fund’s investment program (other than the
Adviser’s own costs), including, but not limited
to:
|
|
•
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The
Master Fund’s share of fees paid and expenses reimbursed to Investment
Managers (including management fees, performance-based fees and redemption
or withdrawal fees, however titled or
structured);
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•
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All
costs and expenses directly related to portfolio transactions and
positions for the Master Fund’s account, such as direct and indirect
expenses associated with the Master Fund’s investments, including its
investments in Investment Funds (whether or not
consummated);
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|
•
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All
costs and expenses related to enforcing the Master Fund’s rights in
respect of such investments;
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•
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Transfer
taxes and premiums;
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•
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Taxes
withheld on non-U.S. income;
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•
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Fees
for data and software providers;
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•
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Research
expenses;
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•
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Brokerage
commissions, if applicable in connection with temporary or cash management
investments;
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•
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Line
of credit and commitment fees and interest expense on loans and debit
balances;
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•
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Borrowing
charges on securities sold short;
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•
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Dividends
on securities sold but not yet purchased;
and
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•
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Margin
fees;
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•
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Fees
and out-of-pocket expenses of the
Custodian;
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•
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The
Management Fee;
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•
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Operational
expenses, including, but not limited
to:
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•
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Attorneys’
fees and disbursements;
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|
•
|
Fees
and disbursements to accountants and tax professionals and expenses
related to the Master Fund’s annual audit and tax return
preparation;
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57
|
•
|
The
portion of the Administrative Fee and the Administrator’s out-of-pocket
expenses paid by the Master Fund;
|
|
•
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The
costs of errors and omissions, directors’ and officers’ liability
insurance and a fidelity bond;
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|
•
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The
costs of preparing and mailing reports and other communications, including
proxy, tender offer correspondence or similar materials, to the Master
Fund’s members;
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|
•
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Fees
and travel expenses of Directors relating to meetings of the Master Fund’s
Board and committees thereof;
|
|
•
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Fees
and travel expenses of the Chief Compliance Officer;
and
|
|
•
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Any
extraordinary expenses, including indemnification
expenses.
|
Fees and
expenses borne by the Fund (and thus indirectly by Members)
include:
|
•
|
Operational
expenses, including, but not limited
to:
|
|
•
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Any
interest expense;;
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|
•
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Attorneys’
fees and disbursements;
|
|
•
|
Fees
and disbursements to accountants and expenses related to the Fund’s annual
audit;
|
|
•
|
The
Administrative Fee and the Administrator’s out-of-pocket expenses paid by
the Fund;
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•
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Escrow
fees and related expenses;
|
|
•
|
The
costs of errors and omissions, directors’ and officers’ liability
insurance and a fidelity bond;
|
|
•
|
The
costs of preparing and mailing reports and other communications, including
proxy, tender offer correspondence or similar materials, to
Members;
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|
•
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Fees
and travel expenses of Directors relating to meetings of the Board and
committees thereof;
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•
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Fees
and travel expenses of the Chief Compliance Officer;
and
|
|
•
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Any
extraordinary expenses, including indemnification
expenses;
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|
•
|
The
ongoing offering costs incurred in connection with the periodic offers of
Interests; and
|
|
•
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The
Incentive Fee, if any.
|
The
performance-based fee will be calculated on a basis that includes realized and
unrealized appreciation of assets and may be greater than if they were based
solely on realized gains.
The
Offshore Fund has minimal expenses, and the Manager has agreed to bear all
operational expenses of the Offshore Fund.
Investment
Funds will bear various expenses in connection with their operations similar to
those incurred by the Fund and the Master Fund. Investment Managers generally
will assess asset-based fees to and receive performance-based fees from the
Investment Funds (or their investors), which effectively will reduce the
investment return of the Investment Funds. These expenses and fees will be in
addition to those incurred by the Fund and the Master Fund themselves. As an
indirect investor in the Investment Funds, the Fund will bear its proportionate
share of the expenses and fees of the Investment Funds, including any
performance-based fees payable to the Investment Managers.
58
Capital
Accounts
The Fund
maintains a separate capital account for each Member (including the Manager, the
Adviser or any of their respective affiliates to the extent any of them
contributes capital to the Fund as a Member). Each such capital account will
have an opening balance equal to the Member’s initial contribution to the
capital of the Fund and will be increased by the sum of any additional
contributions by the Member to the capital of the Fund, plus any amounts
credited to the Member’s capital account as described below. Each Member’s
capital account will be reduced by the sum of the amount paid to the Member on
any repurchase by the Fund of an Interest, or portion of an Interest, held by
the Member, plus the amount of any distributions to the Member that are not
reinvested, plus any amounts debited from the Member’s capital account as
described below.
Capital
accounts of Members are adjusted as of the close of business on the last day of
each of the Fund’s fiscal periods. Fiscal periods begin on the day after the
last day of the preceding fiscal period and end at the close of the Fund’s
business on the first to occur of the following: (1) the last day of a
fiscal year of the Fund; (2) the last day of a taxable year of the Fund;
(3) the day preceding any day on which a contribution to the capital of the
Fund is made; (4) any day on which the Fund repurchases any Interest or
portion of an Interest; (5) the day on which a substituted Member is
admitted; (6) any day on which any amount is credited to or debited from
the capital account of a Member other than an amount to be credited to or
debited from the capital account of all Members in accordance with their
“investment percentages;” or (7) the last day of a fiscal period of the
Master Fund. The Fund
will
calculate an “investment percentage” for each Member as of the start of each
fiscal period by dividing the balance of the Member’s capital account as of the
commencement of the period by the sum of the balances of all capital accounts of
all Members as of that date.
The
Fund’s indirect share of the Management Fee will decrease the value of the
Fund’s investment in the Offshore Fund, and, as a consequence, will be reflected
in the Members’ capital accounts (including the capital accounts of the Adviser
and the Manager or any of their respective affiliates to the extent any of them
holds an Interest) as a reduction to net profits or an increase to net losses
credited to or debited from such capital accounts.
Allocation
of Net Profits and Net Losses
Net
profits or net losses of the Fund for each of its fiscal periods will be
allocated among and credited to or debited from the capital accounts of all
Members as of the last day of the fiscal period in accordance with Members’
investment percentages for the fiscal period. Net profits or net losses will be
measured as the net change in the value of the net assets of the Fund, including
any net unrealized appreciation or depreciation of the Fund’s investment in the
Offshore Fund, realized income and gains or losses in respect of the Fund’s
investment in the Offshore Fund and accrued expenses of the Fund, before giving
effect to any repurchases by the Fund of Interests or portions of Interests, and
excluding the amount of any items to be allocated among the capital accounts of
the Members other than in accordance with the Members’ investment percentages.
The amount of net profits, if any, allocated to a Member may be reduced by the
Member’s share of the Manager’s Incentive Fee. Allocations for U.S. federal
income tax purposes generally will be made among the Members so as to reflect
equitably the amounts credited or debited to each Member’s capital account for
the current and prior fiscal years.
Allocation
of Special Items—Certain Withholding Taxes and Other Expenditures
Withholding
taxes or other tax obligations incurred by the Fund that are attributable to any
Member will be debited from the capital account of that Member as of the close
of the fiscal period during which the Fund paid those obligations, and any
amounts distributable at or after that time to the Member (if any) will be
reduced by the amount of those taxes. If the amount of those taxes is greater
than the distributable amounts, then the Member and any successor to the
Member’s Interest is required to pay upon demand to the Fund, as a contribution
to the capital of the Fund, the amount of the excess. The Fund is not obligated
to apply for or obtain a reduction of or exemption from withholding tax on
behalf of any Member, although in the event that the Fund determines that a
Member is eligible for a refund of any withholding tax, it may, at the request
and expense of the Member, assist the Member in applying for the
refund.
59
Any
expenditures payable by the Fund, to the extent paid or withheld on behalf of,
or by reason of particular circumstances applicable to, one or more but fewer
than all of the Members, will generally be charged to only those Members on
whose behalf the payments are made or whose circumstances gave rise to the
payments. These charges will be debited to the capital accounts of the
applicable Members as of the close of the fiscal period during which the items
were paid or accrued by the Fund.
Reserves
Appropriate
reserves may be created, accrued and charged against net assets and
proportionately against the capital accounts of the Members for contingent
liabilities as of the date the contingent liabilities become known to the Fund.
Reserves will be in such amounts (subject to increase or reduction) that the
Fund may deem necessary or appropriate. The amount of any reserves and any
increase or decrease in them will be proportionately charged or credited, as
appropriate, to the capital accounts of those investors who are Members at the
time when the reserves are created, increased or decreased, except that, if the
reserves, or any increase or decrease in them, exceeds the lesser of $500,000 or
1.0% of the aggregate value of the capital accounts of all those Members, the
amount of the reserve, increase or decrease may instead be charged or credited
to those investors who were Members at the time, as determined by the Fund, of
the act or omission giving rise to the contingent liability for which the
reserve was established, increased or decreased in proportion to their capital
accounts at that time.
Net
Asset Valuation
The Fund
and the Offshore Fund will compute their net asset value as of the last business
day of each “fiscal period” (as defined under “—Capital Accounts”). Such
computation is expected to occur on a monthly basis and other times at the
Board’s discretion. In determining its net asset value, the Fund and the
Offshore Fund will value their investments as of such fiscal period-end. The net
asset value of the Fund and the Offshore Fund will equal the
value of
the assets of the Fund and the Offshore Fund, respectively, less all of each
entity’s respective liabilities, including accrued fees and expenses. The value
of a Member’s capital account will equal the net asset value of the Fund,
multiplied by such Member’s investment percentage. The assets of the Fund will
consist of its interest in the Offshore Fund. In computing its net asset value,
the Fund will value its interest in the Offshore Fund at the value of the
Offshore Fund’s interest in the Master Fund, and the Offshore Fund will value
its interest in the Master Fund at the net asset value provided by the Master
Fund to the Offshore Fund and the Fund.
The net
asset value of the Master Fund will equal the value of the total assets of the
Master Fund less all of its liabilities, including accrued fees and expenses.
The Master Fund’s Board has approved procedures pursuant to which the Master
Fund will value its investments in Investment Funds at fair value. In accordance
with these procedures, fair value as of each fiscal period-end ordinarily will
be the value determined as of such fiscal period-end for each Investment Fund in
accordance with the Investment Fund’s valuation policies and reported at the
time of the Master Fund’s valuation. As a general matter, the fair value of the
Master Fund’s interest in an Investment Fund will represent the amount that the
Master Fund could reasonably expect to receive from an Investment Fund if the
Master Fund’s interest were redeemed at the time of valuation, based on
information reasonably available at the time the valuation is made and that the
Master Fund believes to be reliable. In the event that an Investment Fund does
not report a fiscal period-end value to the Master Fund on a timely basis, the
Master Fund would determine the fair value of such Investment Fund based on the
most recent value reported by the Investment Fund, as well any other relevant
information available at the time the Master Fund values its portfolio. Using
the nomenclature of the hedge fund industry, any values reported as “estimated”
or “final” values will reasonably reflect market values of securities for which
market quotations are available or fair value as of the Master Fund’s valuation
date.
Prior to
investing in any Investment Fund, the Adviser will conduct a due diligence
review of the valuation methodology utilized by the Investment Fund, which as a
general matter will utilize market values when available and will otherwise
utilize principles of fair value that the Adviser reasonably believes to be
consistent with industry practice and compatible with the valuation methods used
by the Master Fund for valuing its own investments. The Adviser is required to
make an affirmative determination that using the valuation methodology of the
Investment Fund to value the Master Fund’s investment in such Fund is not
inconsistent with the Adviser’s and the Master Fund Board’s fiduciary
obligations under the Advisers Act and the 1940 Act. Prior to investing in any
Investment Fund, the Adviser will also confirm that the Investment Fund is
obligated to inform its investors, in a timely fashion, of any material changes
to its valuation methodology.
60
The
Master Fund’s valuation procedures require the Adviser to consider all relevant
information available at the time the Master Fund values its portfolio. The
Adviser and/or the Master Fund’s Board will consider such information and may
conclude in certain circumstances that the information provided by the
Investment Manager of an Investment Fund does not represent the fair value of
the Master Fund’s interests in the Investment Fund.
As part
of its consideration of all relevant information, the Adviser monitors all
Investment Funds and compares the individual monthly results of each Investment
Fund with that of other hedge fund managers that use the same type of investment
strategy. In the unusual circumstance where an Investment Fund’s performance is
not in line with its peer group, the Adviser will contact the Investment Manager
and attempt to find a logical and reasonable explanation for the disparity in
returns. Any outlying results, either positive or negative, are followed up with
the Investment Manager to determine the cause and to see if further review of
the situation is required. If, based on relevant information available to the
Adviser at the time the Master Fund values its portfolio, the Adviser concludes
that the value provided by the Investment Fund does not represent the fair value
of the Master Fund’s interests in the Investment Fund, the Adviser will take
steps to recommend a fair value for the Master Fund’s interests in the
Investment Fund to the Master Fund’s Board for its consideration.
Although
the procedures approved by the Master Fund’s Board provide that the Adviser will
review the valuations provided by the Investment Managers to the Investment
Funds, neither the Adviser nor the Master Fund’s Board will be able to confirm
independently the accuracy of valuations provided by such Investment Managers
(which are unaudited). The Adviser does not generally have access to all
necessary financial and other information relating to the Investment Funds,
including information about the securities in which the Investment Funds invest
or their valuation, in order to determine independently the Investment Funds’
net asset values.
The
Master Fund’s interest in an Investment Fund is valued at an amount equal to the
Master Fund’s capital account in the Investment Fund which issued such interest,
as determined pursuant to the instrument governing such issuance.
As a general matter, the governing instruments of the Investment Funds in which
the Master Fund invests provide that any securities or investments which are
illiquid, not traded on an exchange or in an established market or for which no
value can be readily determined, will be assigned such fair value as the
respective Investment Managers may determine in their judgment based on various
factors. Such factors depend on the type of security being valued and include,
but are not limited to, aggregate dealer quotes or independent appraisals. Such
valuations may not be indicative of what actual fair market value would be in an
active, liquid or established market. Prospective investors should be aware that
Investment Managers may face a conflict of interest in valuing the Investment
Fund’s securities because the values given to the securities will affect the
Investment Managers’ compensation.
Although
redemptions of interests in Investment Funds are subject to advance notice
requirements, Investment Funds will typically make available net asset value
information to holders which will represent the price at which, even in the
absence of redemption activity, the Investment Fund would have effected a
redemption if any such requests had been timely made or if, in accordance with
the terms of the Investment Fund’s governing documents, it would be necessary to
effect a mandatory redemption. Following procedures adopted by the Master Fund’s
Board, in the absence of specific transaction activity in interests in a
particular Investment Fund, the Master Fund would consider whether it was
appropriate, in light of all relevant circumstances, to value such a position at
its net asset value as reported at the time of valuation, or whether to adjust
such value to reflect a premium or discount to net asset value. In accordance
with generally accepted accounting principles and industry practice, the Master
Fund may not always apply a discount in cases where there was no contemporaneous
redemption activity in a particular Investment Fund. In other cases, as when an
Investment Fund imposes extraordinary restrictions on redemptions, or when there
have been no recent transactions in Investment Fund interests, the Master Fund
may determine that it was appropriate to apply a discount to the net asset value
of the Investment Fund. Any such decision would be made in good faith, and
subject to the review and supervision of the Master Fund’s Board.
The
valuations reported by the Investment Managers of the Investment Funds, upon
which the Master Fund calculates its fiscal period-end net asset value, may be
subject to later adjustment, based on information reasonably available at that
time. For example, fiscal year-end net asset value calculations of the
Investment Funds are audited by those funds’ independent auditors and may be
revised as a result of such audits. Other adjustments may occur from time to
time. Such adjustments or revisions, whether increasing or decreasing the net
asset value of the Master Fund at the time they occur, because they relate to
information available only at the time of the adjustment or revision, will not
affect the amount of the repurchase proceeds of the Fund received by Members
whose Interests
61
were repurchased
prior to such adjustments and who received their repurchase proceeds. As a
result, to the extent that such subsequently adjusted valuations from the
Investment Managers or revisions to net asset value of an Investment Fund
adversely affect the Master Fund’s net asset value, the outstanding Interests
will be adversely affected by prior repurchases to the benefit of Members whose
Interests were repurchased at a net asset value higher than the adjusted amount.
Conversely, any increases in the net asset value of the Interests resulting from
such subsequently adjusted valuations will be entirely for the benefit of the
outstanding Interests and to the detriment of Members whose Interests were
previously repurchased at a net asset value per Interest lower than the adjusted
amount. The same principles apply to the purchase of Interests. New Members may
be affected in a similar way.
The
procedures approved by the Master Fund’s Board provide that, where deemed
appropriate by the Adviser and consistent with the rules governing valuation of
portfolio securities under the 1940 Act, investments in Investment Funds may be
valued at cost. Cost would be used only when cost is determined to best
approximate the fair value of the particular security under consideration. For
example, cost may not be appropriate when the Master Fund is aware of sales of
similar securities to third parties at materially different prices or in other
circumstances where cost may not approximate fair value (which could include
situations where there are no sales to third parties). In such a situation, the
Master Fund’s investment will be revalued in a manner that the Adviser, in
accordance with procedures approved by the Master Fund’s Board, determines in
good faith best reflects approximate market value. The Master Fund’s Board will
oversee the valuation policies utilized by the Adviser as to their fairness to
the Master Fund and consistency with the Master Fund’s valuation
procedures.
To the
extent the Adviser invests the assets of the Master Fund in securities or other
instruments that are not investments in Investment Funds, the Master Fund will
generally value such assets as described below. Securities traded on one or more
of the U.S. national securities exchanges, the Nasdaq Stock Market or the OTC
Bulletin Board will be valued at their last composite sale prices as reported at
the close of trading on the exchanges or markets where such securities are
traded for the business day as of which such value is being determined.
Securities traded on
a foreign securities exchange will generally be valued at their last sale price
on the exchange where such securities are primarily traded. If no sales of
particular securities are reported on a particular day, the securities will be
valued based on their composite bid prices for securities held long, or their
composite ask prices for securities held short, as reported by the appropriate
exchange, dealer, or pricing service. Redeemable securities issued by a
registered open-end investment company will be valued at the investment
company’s net asset value per share. Other securities for which market
quotations are readily available will generally be valued at their bid prices,
or ask prices in the case of securities held short, as obtained from the
appropriate exchange, dealer, or pricing service. If market quotations are not
readily available, securities and other assets will be valued at fair value as
determined in good faith in accordance with procedures approved by the Master
Fund’s Board.
In
general, fair value represents a good faith approximation of the current value
of an asset and will be used when there is no public market or possibly no
market at all for the asset. The fair values of one or more assets may not be
the prices at which those assets are ultimately sold. In such circumstances, the
Adviser and/or the Master Fund’s Board will reevaluate its fair value
methodology to determine, what, if any, adjustments should be made to the
methodology.
Debt
securities will be valued in accordance with the Master Fund’s valuation
procedures, which generally provide for using a third-party pricing system,
agent, or dealer selected by the Adviser, which may include the use of
valuations furnished by a pricing service that employs a matrix to determine
valuations for normal institutional size trading units. The Master Fund’s Board
will oversee the Adviser’s process for monitoring the reasonableness of
valuations provided by any such pricing service. Debt securities with remaining
maturities of 60 days or less, absent unusual circumstances, will be valued at
amortized cost, so long as the Master Fund’s Board determines that such
valuations represent fair value.
Assets
and liabilities initially expressed in foreign currencies will be converted into
U.S. dollars using foreign exchange rates provided by a pricing service. Trading
in foreign securities generally is completed, and the values of such securities
are determined, prior to the close of securities markets in the United States.
Foreign exchange rates are also determined prior to such close. On occasion, the
values of securities and exchange rates may be affected by events occurring
between the time as of which determination of such values or exchange rates are
made and the time as of which the net asset value of the Master Fund is
determined. When such events materially affect the values of securities held by
the Master Fund or its liabilities, such securities and liabilities may be
valued at fair value as determined in good faith in accordance with procedures
approved by the Master Fund’s Board.
62
The
Adviser or its affiliates act as investment adviser to other clients that may
invest in securities for which no public market price exists. Valuation
determinations by the Adviser or its affiliates for other clients may result in
different values than those ascribed to the same security owned by the Master
Fund. Consequently, the fees charged to the Master Fund and other clients may be
different, since the method of calculating the fees takes the value of all
assets, including assets carried at different valuations, into
consideration.
Expenses
of the Master Fund, including the Management Fee and the costs of any
borrowings, are accrued on a monthly basis on the day net asset value is
calculated and taken into account for the purpose of determining net asset
value.
Situations
involving uncertainties as to the value of portfolio positions could have an
adverse effect on the Master Fund’s net assets if the determinations by the
Master Fund’s Board, the Adviser, or Investment Managers to the Investment Funds
should prove incorrect. Also, Investment Managers will only provide
determinations of the net asset value of Investment Funds on a monthly basis.
The Adviser typically receives information from the Investment Managers as of
month-end, within fifteen business days after month-end. Therefore, it will not
be possible to determine the net asset value of the Master Fund more
frequently.
The
Manager is an asset management firm and its parent company, PNC (together with
their affiliates and subsidiaries) are involved in a broad spectrum of financial
services and asset management activities. Affiliates of the Manager are engaged
in businesses, including merchant banking, investment banking, brokerage,
investment advisory and asset management, and other similar activities that may
conflict with the interests of the Master Fund,
the
Offshore Fund, the Fund or the Members in the ordinary course of business.
Affiliates of the Manager and PNC may invest in and have other relationships
with the Investment Funds in which the Fund will invest that may give rise to
potential conflicts. Affiliates of the Manager may, for example, enter into
transactions, as principal, with any of the Investment Funds, including
derivative transactions, or perform routine broker-dealer transactions. Other
relationships may include, but are not limited to, lending transactions in which
the affiliate provides financing, serving as agent or prime broker and the
provision of general financial advisory services to an Investment Fund. In
addition, situations may arise in which an affiliate believes that, to protect
its own commercial interests, it may be necessary to take action with respect to
an Investment Fund, and therefore detrimental to investors in such Investment
Fund, and therefore detrimental to members of the Fund.
The
Adviser also engages in activities which may conflict with the interests of the
Master Fund, the Offshore Fund, the Fund or the Members.
In
addition, the Investment Managers of the Investment Funds to which the Master
Fund allocates its assets, and their affiliates may have clients, businesses and
interests in addition to managing the assets of the Investment Funds. The
discussion below sets out certain conflicts of interest that may arise;
conflicts of interest not described below may also exist. Neither the Manager
nor the Adviser can give any assurance that any conflicts of interest will be
resolved in favor of the Master Fund, the Offshore Fund, the Fund or the
Members. In acquiring an Interest, a Member will be deemed to have acknowledged
the existence of potential conflicts of interest relating to the Manager, the
Adviser and the Investment Managers, and to the Fund’s operating in the face of
those conflicts.
Transactions
by the Adviser and the Manager
The
Adviser, the Manager or their respective affiliates may pursue acquisitions of
assets and businesses and identification of investment opportunities in
connection with their existing businesses or a new line of business without
first offering the opportunity to the Fund or the Master Fund. Such an
opportunity could include a business that competes with the Fund, the Master
Fund or an Investment Fund in which the Master Fund has invested or proposes to
invest.
Compensation
for Services
The
Manager, the Adviser or their respective affiliates may seek to perform
investment banking and other financial services for, and will receive
compensation from, Investment Funds, the sponsors of Investment Funds, companies
in which Investment Funds invest, or other parties in connection with
transactions related to those investments or otherwise. This compensation could
include financial advisory fees, as well as underwriting or
63
placement
fees, financing or commitment fees and brokerage fees. Investment banking and
other financial services compensation will not be shared with the Fund, the
Master Fund or Members and may be paid before the Fund realizes a return on its
investment. The Manager, the Adviser or their respective affiliates may have an
incentive to cause investments to be made, managed or realized in seeking to
advance the interests of a client other than the Master Fund or to earn
compensation. The Manager, the Adviser or their respective affiliates may also
act as prime broker for Investment Funds.
Asset
Management Activities
The
Adviser, the Manager or their respective affiliates conduct a variety of asset
management activities, including sponsoring or advising both registered and
unregistered investment funds. Those activities may also include managing assets
of employee benefit plans that are subject to ERISA and related regulations. The
Manager’s investment management activities may present conflicts if the Fund or
the Master Fund and these other investment or pension funds either compete for
the same investment opportunity or pursue investment strategies counter to each
other.
Voting
Rights in Investment Funds
From time
to time, sponsors of Investment Funds may seek the approval or consent of an
Investment Fund’s investors in connection with certain matters. In such a case,
the Adviser will have the right to vote in its discretion the interest in the
Investment Fund held by the Master Fund, on behalf of the Master Fund. The
Adviser will consider only those matters it considers appropriate in taking
action with respect to the approval or consent. Business relationships may exist
between the Adviser and its affiliates, on the one hand, and the Investment
Managers and affiliates of the Investment Funds, on the other hand, other than
as a result of the Master Fund’s investment
in the Investment Funds. As a result of these existing business relationships,
the Adviser may face a conflict of interest acting on behalf of the Master
Fund.
The
Master Fund may, for regulatory reasons, limit the amount of voting securities
it holds in any particular Investment Fund, and may as a result hold substantial
amounts of non-voting securities in a particular Investment Fund. The Master
Fund’s lack of ability to vote may result in a decision for an Investment Fund
that is adverse to the interests of the Fund and the Members. In certain
circumstances, the Master Fund may waive voting rights or elect not to exercise
them, such as to achieve compliance with U.S. bank holding company laws and
federal securities laws.
Client
Relationships
The
Manager, the Adviser, and their respective affiliates have existing and
potential relationships with a significant number of sponsors and managers of
Investment Funds, corporations and institutions. In providing services to its
clients and the Master Fund, the Manager and the Adviser may face conflicts of
interest with respect to activities recommended to or performed for the clients,
the Master Fund, the Fund, the Members and/or the Investment Funds. In addition,
these client relationships may present conflicts of interest in determining
whether to offer certain investment opportunities to the Master
Fund.
Confidential
Information
Due to
the relationship with various third parties, affiliates of the Manager or the
Adviser may have access to information regarding the Investment Funds in which
the Master Fund invests. Members should be aware, however, that the Manager and
the Adviser will generally be unable to access such information due to
confidentiality, “Ethical Wall” or other legal considerations. As a result, the
Manager and the Adviser may sometimes make investment decisions different than
those they would make if they had such access, and such decisions may result in
a material loss to the Fund. The Manager’s and the Adviser’s affiliates are not
required to, and are generally prohibited from, affording the Manager or the
Adviser access to all relevant information they may possess.
The
Manager or the Adviser may from time to time come into possession of
confidential information relating to an Investment Fund which the Manager and
the Adviser will not use for the benefit of the Fund, due to confidentiality
concerns or legal considerations. In addition, the Adviser may also develop
analyses or opinions of one or more Investment Funds, and buy or sell interests
in one or more Investment Funds, on behalf of other “funds of hedge funds”
operated by the Adviser but not on behalf of the Fund. The Adviser regards its
analyses as proprietary and confidential, and will not disclose its opinions or
purchase and sale activities regarding any Investment Fund except to investors
in the periodic reports distributed by the Adviser.
64
Incentive
Fee and Performance-Based Fees of Investment Managers
Investment
Managers may receive performance-based fees in the event that the relevant
Investment Fund generates net profits. Likewise, the Adviser may receive a
portion of the Incentive Fee if the Fund generates net profits. The fact that
the performance-based fees and the Incentive Fee are payable or made out of net
profits may create an incentive for an Investment Manager or the Adviser to make
investments that are riskier and more speculative than they otherwise would make
in the absence of such performance-based compensation.
Related
Funds
Personnel
of the Adviser, the Manager and their respective affiliates provide advisory
services to various other funds that utilize an investment program that is
substantially similar to that of the Fund and the Master Fund. Conflicts of
interest may arise for the Adviser or the Manager in connection with certain
transactions involving investments by the Master Fund in Investment Funds, and
investments by other funds advised by the Adviser, or sponsored or managed by
the Manager, in the same Investment Funds. Conflicts of interest may also arise
in connection with investments in the Fund by other funds advised or managed by
the Adviser, the Manager or their respective affiliates. Such conflicts could
arise, for example, with respect to the timing, structuring and terms of such
investments and the disposition of them. The Adviser or an affiliate may
determine that an investment in an Investment Fund is appropriate for a
particular client or for itself or its officers, directors, members or
employees, but that the investment is not appropriate for the Master Fund.
Situations also may arise in which the Adviser or an affiliate, or their
clients, have made investments that would have been suitable for investment by
the Master Fund but, for
various reasons, were not pursued by, or available to, the Master Fund. The
investment activities of the Adviser, its affiliates and any of their respective
officers, directors, members or employees may disadvantage the Master Fund in
certain situations, if among other reasons, the investment activities limit the
Master Fund’s ability to invest in a particular Investment Fund.
Management
of the Fund and the Master Fund
Personnel
of the Adviser, the Manager and their affiliates will devote such time as the
Adviser, the Manager and their affiliates, in their discretion, deem necessary
to carry out the operations of the Fund, the Offshore Fund and the Master Fund
effectively. Officers and employees of the Manager and its affiliates will also
work on other projects for PNC and its other affiliates (including other clients
served by the Manager and its affiliates) and conflicts of interest may arise in
allocating management time, services or functions among the
affiliates.
Other
Clients Advised by Investment Managers of the Investment Funds
Conflicts
of interest may arise from the fact that the Investment Managers of the
Investment Funds and their affiliates generally will be carrying on substantial
investment activities for other clients, including other investment funds, in
which the Master Fund will have no interest. The Investment Managers may have
financial incentives to favor certain of such accounts over the Investment
Funds. Any of their proprietary accounts and other customer accounts may compete
with the Investment Funds for specific trades, or may hold positions opposite to
positions maintained on behalf of the Investment Fund. The investment advisers
of the Investment Funds may give advice and recommend securities to, or buy or
sell securities for, an Investment Fund in which the Master Fund has invested,
which advice or securities may differ from advice given to, or securities
recommended or bought or sold for, other accounts and customers even though
their investment objectives may be the same as, or similar to, those of the
Investment Fund in which the Master Fund is invested.
Allocation
of Investment Opportunities by Investment Managers
Each
Investment Manager of an Investment Fund will evaluate a variety of factors that
may be relevant in determining whether a particular investment opportunity or
strategy is appropriate and feasible for the relevant Investment Fund and
accounts under management at a particular time, including, but not limited to,
the following: (i) the nature of the investment opportunity taken in the
context of the other investments at the time; (ii) the liquidity of the
investment relative to the needs of the particular entity or account;
(iii) the availability of the opportunity (i.e., size of obtainable
position); (iv) the transaction costs involved; and (v) the investment
or regulatory limitations applicable to the particular entity or account.
Because these considerations may differ, the investment activities of an
Investment Fund, on the one hand, and the managed accounts, on the other hand,
may differ considerably from time to time. In addition, the fees and expenses of
the Investment Fund may differ from those of the other managed accounts.
Accordingly, prospective Members should note that the future performance of an
Investment Fund and its Investment Manager’s other accounts will
vary.
65
“Soft
Dollar” Payments
The
Investment Manager will select the brokers utilized by the Investment Funds. Any
Investment Manager may engage in “soft dollar” practices whether or not such
practices fall within the soft dollar safe harbor established by
Section 28(e) of the Exchange Act which permits the payment of a brokerage
commission amount in excess of the amount that would have been charged by
another broker or dealer, as long as such amount was determined in good faith to
be reasonable in relation to the value of the services provided. Thus, an
Investment Manager may receive “brokerage and related services” covered by such
safe harbor as well as office space, overhead expense reimbursement, and similar
benefits not covered by such safe harbor. In doing so, the Investment Managers
may pay higher commissions than those charged by brokers that do not provide
such services or benefits.
Proprietary
Trading
Each
Investment Manager and its principals, officers, employees, and affiliates, may
buy and sell securities or other investments for their own accounts and may have
actual or potential conflicts of interest with respect to investments made on
behalf of the Master Fund or an Investment Fund. As a result of differing
trading and investment strategies or constraints, principals, officers,
employees, and affiliates of the Investment Manager may take positions that are
the same, different, or made at a different time than positions taken for the
Investment Fund.
Participation
in Investment Opportunities
The
Adviser will consider the Master Fund for all appropriate investment
opportunities available to it. Similarly, the Adviser anticipates that each
Investment Manager will consider participation by the Master Fund, or an
Investment Fund in which the Master Fund participates, in all appropriate
opportunities that are also under consideration by the Investment Funds and
other accounts managed by the Investment Managers, other than the Master Fund
(“Other Client Accounts”), that pursue investment programs similar to that of
the Master Fund. Circumstances may arise, however, under which the Adviser or an
Investment Manager will cause its Other Client Accounts to commit a larger
percentage of their assets to an investment opportunity than to which they will
commit assets of the Master Fund or an Investment Fund. Circumstances may also
arise under which an Investment Manager will consider participation by its Other
Client Accounts in investment opportunities in which they do not to invest on
behalf of the Master Fund or an Investment Fund, or vice versa.
Certain
investment activities conducted by the Manager, the Adviser, or the Investment
Managers for the Other Client Accounts may be disadvantageous to the Master
Fund. These situations may arise as a result of, among other things:
(1) legal restrictions on the combined size of positions that may be taken
for the Master Fund, or an Investment Fund in which the Master Fund participates
and/or Other Client Accounts (collectively, “Co-Investors” and, individually, a
“Co-Investor”), limiting the size of the Master Fund’s or an Investment Fund’s
position; (2) legal prohibitions on the Co-Investors’ participating in the
same instruments; (3) the difficulty of liquidating an investment for a
Co-Investor when the market cannot absorb the sale of the combined positions;
and (4) the determination that a particular investment is warranted only if
hedged with an option or other instrument and the availability of those options
or other instruments is limited.
The
Manager, the Adviser, each Investment Manager, and their respective principals,
officers, employees and affiliates, may buy and sell securities or other
investments for their own accounts and may face conflicts of interest with
respect to investments made on behalf of the Master Fund or an Investment Fund
in which the Master Fund participates. As a result of differing trading and
investment strategies or constraints, principals, officers, employees and
affiliates of the Investment Manager may take positions that are the same,
different from or made at different times than positions taken for the Master
Fund or an Investment Fund.
The
Manager, the Adviser, the Investment Managers or their respective affiliates may
from time to time provide investment advisory or other services to private
investment funds and other entities or accounts managed by the Adviser or its
affiliates. In addition, Investment Managers or their affiliates may from time
to time receive research products and services in connection with the brokerage
services that affiliates of the Adviser may provide to one or more Investment
Funds or the Master Fund.
Other
Matters
An
Investment Manager may from time to time cause an Investment Fund to effect
certain principal transactions in securities with one or more Other Client
Accounts, subject to certain conditions. For example, these transactions may be
made in circumstances in which the Investment Manager determined it was
appropriate for the
66
Investment
Fund to purchase and an Other Client Account to sell, or the Investment Fund to
sell and an Other Client Account to purchase, the same security or instrument on
the same day. Future investment activities of the Investment Managers, or their
affiliates, and the principals, partners, directors, officers or employees of
the foregoing, may give rise to additional conflicts of interest.
The
Adviser, its affiliates and their directors, officers and employees, may buy and
sell securities or other investments for their own accounts, including interests
in Investment Funds, and may have conflicts of interest with respect to
investments made by the Adviser on behalf of the Master Fund. As a result of
differing trading and investment strategies or constraints, directors, officers
and employees of the Adviser or its affiliates may take positions that are the
same, different from or made at different times from positions taken for the
Master Fund. To lessen the possibility that this personal trading will adversely
affect the Master Fund, the Master Fund, the Manager and the Adviser each
adopted a Code of Ethics that restricts securities trading in the personal
accounts of investment professionals and others who normally come into
possession of information regarding the Master Fund’s portfolio transactions.
See “Codes of Ethics.”
The
Adviser and its affiliates will not purchase securities or other property from,
or sell securities or other property to, the Fund, the Offshore Fund or the
Master Fund. Future investment activities of the Manager, the Adviser
and their respective affiliates and their principals, partners, directors,
officers or employees may give rise to conflicts of interest other than those
described above.
Subscription
Terms
Subscriptions
for Interests are accepted as of the first business day of each calendar month.
A prospective investor must submit to the Fund a completed investor application
together with payment in the full amount of the subscription no later than at
the close of business (5:00 p.m. Eastern time) on the third business day
prior to the applicable subscription date. Although the Fund may accept, in its
sole discretion, a subscription prior to actual receipt of payment, an investor
may not become a Member until payment has been received. Any amounts received in
advance of the subscription date will be placed in a non-interest bearing escrow
account with the Escrow Agent prior to their investment in the
Fund.
The Fund
reserves the right to reject, in its sole discretion, any subscription. The Fund
also reserves the right, in its sole discretion, not to accept future
subscriptions at any time and from time to time.
The
minimum initial investment in the Fund from each investor is $75,000, and the
minimum additional investment in the Fund is $10,000. The Fund may reduce these
minimum initial and additional investment amounts with respect to individual
investors or classes of investors (for example, with respect to certain key
employees, officers or directors of the Fund, the Master Fund, the Adviser, the
Manager or their affiliates). The Fund may accept investments for any lesser
amount under certain circumstances, including where an investor has significant
assets under the management of the Manager or its affiliate, in the case of
regular follow-on investments and other special circumstances that may
arise.
The Fund
may, in its discretion, repurchase a Member’s entire Interest if the Member’s
capital account balance in the Fund, as a result of repurchase or transfer
requests by the Member, falls below $50,000 in order to help prevent operational
inefficiencies and expense with respect to account administration. There may be
instances in which the Fund may choose not to repurchase a Member’s entire
Interest despite such capital account balance shortfall, including cases in
which it is anticipated that the Member’s capital account balance will only
temporarily fall below $50,000, the Member’s capital account balance taken
together with the Member’s investments through related accounts exceeds $50,000,
the Member has significant assets under management of the Manager or its
affiliate, and in other special circumstances.
Except as
otherwise permitted by the Board, Members must make initial and aadditional
contributions to the capital of the Fund in cash, and transmit all contributions
by the time and in the manner that is specified in the subscription documents of
the Fund. Initial and additional contributions to the capital of the Fund will
be payable in one installment. Although the Fund may accept contributions of
securities in the sole discretion of the Board, the
67
Fund has
no intention at present of accepting contributions of securities. If the Fund
chooses to accept a contribution of securities, the securities would be valued
in the same manner as the Fund values its other assets.
Each new
Member must agree to be bound by all of the terms of the LLC Agreement by
signing an investor application. Each potential investor must also represent and
warrant in the investor application, among other things, that the investor is an
“Eligible Investor” as described below and is purchasing an Interest for its own
account, and not with a view to the distribution, assignment, transfer or other
disposition of the Interest.
Eligible
Investors
Each
prospective investor in the Fund must certify to the Fund to being a “qualified
client” within the meaning of Rule 205-3 under the Advisers Act. A “qualified
client” means a company (other than an investment company) that has a net worth
of more than $1.5 million, or that meets certain other qualification
requirements.
Because
the Fund is designed for investment by tax-exempt investors, investors must be:
(1) a pension, profit-sharing, or other employee benefit trust that is
exempt from taxation under Section 501(a) of the Internal Revenue Code of
1986, as amended (the “Code”), by reason of qualification under Section 401
of the Code; (2) an employee benefit plan or other program established
pursuant to Sections 403(b), 408(k) or 457 of the Code; (3) a deferred
compensation plan established by a corporation, partnership, non-profit entity
or state and local government, or government-sponsored
program, in each case, which is generally exempt from U.S. federal income tax;
(4) a foundation, endowment or other organization that is exempt from
taxation under Section 501(c) of the Code (other than an organization
exempt under Section 501(c)(1)); (5) an IRA (including regular IRA,
spousal IRA for non-working spouse, Roth IRA and rollover IRA); or (6) a
state college or university.
Investors
who meet the qualifications set forth above are referred to in this prospectus
as “Eligible Investors.”
Existing
Members subscribing for additional Interests will be required to qualify as
Eligible Investors at the time of each additional subscription.
Distribution
Arrangements and Sales Loads
The
Distributor is a wholly-owned subsidiary of Foreside Financial Group, LLC and
maintains its principal office at 10 High Street, Boston, MA 02110. Interests
may be purchased through the Distributor or through broker-dealers and
intermediaries that have entered into selling agreements with the
Distributor.
Pursuant
to the Distribution Agreement between the Fund and the Distributor, the
Distributor serves in its capacity on a best-efforts basis, subject to various
conditions. The Distributor may solicit orders for Interests on behalf of the
Fund and will engage in any activities it deems appropriate in connection with
the promotion and sale of the Interests. Neither the Distributor nor any other
broker-dealer or intermediary is obligated to buy any Interests from the Fund.
The Distributor does not intend to make a market in the Interests. The Fund has
agreed to indemnify the Distributor and its affiliates against certain
liabilities, including certain liabilities arising under the Securities
Act.
The
Distributor will generally be entitled to receive a sales load from each
investor purchasing an Interest. The specific amount of the sales load will
depend on the size of the investment in the Fund, as follows:
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•
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3%
on the first $500,000 of any
investment;
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•
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2%
on the amount of any investment that exceeds $500,000, but is less than $1
million; and
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•
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1%
on the amount of any investment that exceeds $1
million.
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The sales
load is “stepped up”, meaning that an investor who makes a $600,000 investment
in the Fund will pay a 3% sales load on $500,000 of its investment and a 2%
sales load on $100,000 of its investment.
The sales
load will be deducted from a prospective Member’s subscription amount; it will
not constitute a capital contribution made by the Member to the Fund nor part of
the assets of the Fund.
Interests
purchased by the following investors are not subject to any sales
load:
(1) the
Manager or its affiliates;
68
(2) the
Distributor;
(3)
present or former officers, managers, directors, registered representatives and
employees (and the “immediate family” of any such person, which term encompasses
such person’s spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons- and daughters-in-law, aunts, uncles,
nieces and nephews and relatives by virtue of a remarriage (step-children,
step-parents, etc.) as well as siblings of such person’s spouse and a spouse of
such person’s siblings) of the Fund, the Master Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees;
(4)
purchasers for whom the Manager or the Distributor or one of their affiliates
acts in a fiduciary, advisory, custodial, or similar capacity;
(5)
purchasers that use proceeds from an account for which the Manager or one of its
affiliates acts in a fiduciary, advisory, custodial, or similar capacity, to
purchase Interests;
(6)
brokers, dealers, and agents who have a sales agreement with the Distributor,
and their employees (and the immediate family members of such
individuals);
(7)
broker-dealers, investment advisers or financial planners that have entered into
an agreement with the Distributor and that purchase Interests for (i) their
own accounts, or (ii) the accounts of eligible clients and that charge a
fee to the client for their services; and
(8) clients
of such investment advisers or financial planners described in (7) above
that place trades for the clients’ own accounts if such accounts are linked to
the master account of the investment adviser or financial planner on the books
and records of a broker-dealer or agent that has entered into an agreement with
the Distributor.
The Fund
offers a right of accumulation. Under this right, the amount of a Member’s each
additional investment in the Fund will be aggregated with the amount of the
Member’s initial investment and any additional investments in determining the
applicable sales load at the time of the additional investment. The right of
accumulation also permits an investor’s investment in the Fund to be combined
with investments made by the investor’s spouse, or for individual accounts
(including IRAs and retirement savings plans under Section 403(b) of the
Code), joint accounts of such persons, and for trust or custodial accounts on
behalf of their children who are minors. A fiduciary can count all Interests
purchased for a trust, estate or other fiduciary account (including one or more
employee benefit plans of the same employer) that has multiple accounts. The
Distributor will aggregate the amount of each additional investment in the Fund
with the amount of the Member’s initial investment and any other investments, if
currently owned, to determine the applicable sales load. The reduced sales load
will apply only to current purchases. For purposes of determining the sales load
for an investment in the Fund, the right of accumulation privileges do not apply
to investments in other funds managed by the Manager or its
affiliates.
An
investor must request the reduced sales load or waiver of sales load when making
an investment.
The
Distributor may reallow a portion of the sales load to selling brokers and
dealers with whom it has agreements. In addition, the Distributor or its
affiliates may pay from their own resources additional compensation, either at
the time of sale or on an on-going basis, to brokers and dealers in connection
with the sale and distribution of the Interests or servicing of investors and
for referrals of such brokers and dealers.
The
Manager may pay a portion of the Management Fee to entities that assist in the
distribution of Interests and may be affiliated with the Manger. These payments
will be in addition to the direct sales loads paid by
investors.
69
|
Title
of class
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Amount Authorized
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Amount Held by
Registrant
for
its Account
|
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Amount Outstanding as of June 30, 2009
Exclusive
of Amount Shown under
“Amount Held by Registrant for its Account”
|
|
Limited liability company interests
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Unlimited
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N/A
|
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$4,001,715.31
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For
purposes of the 1940 Act, any person who owns directly or through one of more
controlled companies more than 25% of the voting securities of a company is
presumed to “control” such company.
As of
June 30, 2009, PNC Bank, N.A, an affiliate of PNC and the Manager, held of
record, in a fiduciary or representative capacity for its customers, 53.6% of
the outstanding limited liability company interests in the Fund and may be
deemed to be the beneficial owner of these interests, for purposes of the
federal securities laws, because PNC Bank, N.A possessed sole or shared voting
or investment power with respect to such interests. PNC Bank, N.A does not,
however, have any economic interest in such interests, which are held solely for
the benefit of its customers.
As of June 30, 2009, PNC Investment Corp., an
affiliated of PNC and the Manager held 3.1% of the outstanding limited liability
company interests in the Fund.
As of
June 30, 2009, The Oak Hill Fund owned 43.4% of the outstanding limited
liability company interests in the Fund.
As of
June 30, 2009, the Directors and officers of the Fund and the Master Fund,
as a group, owned less than one percent of the outstanding limited liability
company interests in the Fund.
No
Right of Redemption
No Member
or other person holding an Interest (as discussed herein, “Interests” includes
portions of an Interest) acquired from a Member, will have the right to require
the Fund to redeem the Interest. No public market for Interests exists, and none
is expected to develop in the future. In addition, transfers and redemptions of
Interests will be limited so as to ensure that the Fund will not be treated as a
“publicly traded partnership” for U.S. federal tax purposes. Consequently,
Members may not be able to liquidate their investment other than as a result of
repurchases of Interests by the Fund, as described below.
Repurchases
of Interests
The Fund
may from time to time repurchase Interests from Members in accordance with
written tenders by Members at those times, in those amounts, and on such terms
and conditions as the Board may determine in its sole discretion. Each such
repurchase offer may be limited and will generally apply to 5% to 25% of the net
assets of the Fund. In determining whether the Fund should offer to repurchase
Interests from Members, the Board will consider a variety of factors. The Board
expects that the Fund will offer to repurchase Interests from Members
semi-annually. The Board will consider the recommendation of the Manager and
will also consider the following factors, among others, in making its
determination:
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whether
any Members have requested to tender Interests to the
Fund;
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the
liquidity of the Fund’s assets;
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•
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the
investment plans and working capital and reserve requirements of the
Fund;
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70
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the
relative economies of scale of the tenders with respect to the size of the
Fund;
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•
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the
history of the Fund in repurchasing Interests;
and
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•
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any
anticipated tax consequences to the Fund of any proposed repurchases of
Interests.
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The
Fund’s assets will consist primarily of its indirect interest in the Master
Fund, which will be held through the Offshore Fund. Therefore, in order to
finance the repurchase of Interests pursuant to tender offers, the Fund may find
it necessary to redeem all or a portion of its shares in the Offshore Fund and
cause the Offshore Fund to liquidate a corresponding portion of the Offshore
Fund’s interest in the Master Fund. The Fund will cause the Offshore Fund to
liquidate its interest in the Master Fund by passing a resolution in the Fund’s
capacity as managing member of the Offshore Fund. In order to liquidate its
interest in the Master Fund, the Offshore Fund (which is effectively controlled
by the Fund’s Board) must accept repurchase offers made by the Master Fund and
distribute the proceeds of such repurchases to the Fund. The Fund will not
conduct a repurchase offer for Interests unless the Master Fund simultaneously
conducts a repurchase offer for interests in the Master Fund and repurchases the
interests of the Offshore Fund.
The
Master Fund’s Board expects that the Master Fund will conduct repurchase offers
on a semi-annual basis in order to permit the Fund to meet its obligations under
its repurchase offers. However, there are no assurances that the Master Fund’s
Board will, in fact, decide to undertake such a repurchase offer, and
consequently that the Fund will be able to finance the repurchase of Interests.
The Fund cannot make a repurchase offer larger than the corresponding repurchase
offer made by the Master Fund. The Master Fund will make repurchase offers, if
any, to all of its investors, including the Offshore Fund, on the same terms,
and this feature may affect the size of the Master Fund’s repurchase offers.
Subject to the Master Fund’s investment restriction with respect to borrowings,
the Master Fund may borrow money to finance its repurchase obligations pursuant
to any such repurchase offer.
The LLC
Agreement provides for the dissolution of the Fund if any Member that has
submitted a written request, in accordance with the terms of the LLC Agreement,
to tender its entire Interest for repurchase by the Fund has not been given the
opportunity to so tender within a period of two years after the request (whether
pursuant to a single repurchase offer or multiple consecutive offers within the
two-year period). A Member wishing the Fund to
repurchase such Member’s entire Interest must tender at each
subsequent tender offer the Member’s entire remaining Interest in order for the
two year provision to apply.
The Fund
will repurchase Interests from Members pursuant to written tenders on terms and
conditions that the Board determines to be fair to the Fund and to all Members
or persons holding Interests acquired from Members. The value of a Member’s
Interest that is being repurchased will be equal to the value of the Member’s
capital account (or the portion of it being repurchased) as of the date of the
repurchase, after giving effect to all allocations that are made as of that
date. When the Board determines that the Fund will repurchase Interests, the
Fund will provide notice to Members describing the terms of the offer,
containing information Members should consider in deciding whether to
participate in the repurchase opportunity and containing information on how to
participate. Members deciding whether to tender their Interests during the
period that a repurchase offer is open may obtain the net asset value of their
Interests by contacting the Fund during the period.
Repurchases
of Interests from Members by the Fund may be paid, at the discretion of the
Fund, in cash, or by the distribution of securities in kind or partly in cash
and partly in kind. The Fund, however, expects not to distribute securities in
kind except in the unlikely event that making a cash payment would result in a
material adverse effect on the Fund or on Members not tendering Interests for
repurchase. Repurchases will be effective after receipt and acceptance by the
Fund of all eligible written tenders of Interests from Members. Any in-kind
distribution of securities will be valued in accordance with the LLC Agreement
and will be distributed to all tendering Members on a proportional
basis.
The Fund
charges a repurchase fee of 1.00% on repurchases of Interests that have been
held less than 180 days. The fee will be deducted from the repurchase proceeds
due to the Member who tendered its Interest for repurchase, and cannot be paid
separately. The fee will be credited to the assets of the Fund, and is designed
to offset the brokerage commissions, market impact, and other costs associated
with fluctuations in Fund asset levels and cash flow caused by short-term
holding of Interests. From time to time, the Fund may waive or modify the
repurchase fee for certain categories of investors. The Fund reserves the right
to modify the terms of or terminate
71
this fee
at any time. The fee is not a deferred sales charge, is not a commission paid to
the Manager, the Adviser or their affiliates, and does not benefit such persons
in any way.
The Fund
may have to effect a withdrawal from the Master Fund (via the Offshore Fund) to
pay for the Interests being repurchased, and, in turn the Master Fund may have
to effect withdrawals from the Investment Funds to pay for the repurchase of the
interest in the Master Fund. Due to liquidity restraints associated with the
Master Fund’s investments in the Investment Funds, the Fund expects to employ
the following repurchase procedures:
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If
the Board elects to offer to repurchase Interests, the Fund will send each
Member a repurchase offer that explains the terms and conditions of the
repurchase. The Fund will send the repurchase offer to Members at least 20
business days prior to the date on which the Member must notify the Fund
that the Member has elected to tender Interests to the
Fund.
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•
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A
Member choosing to tender an Interest for repurchase must do so by the
notice date (the “Notice Date”), which generally will be the last calendar
day of the third month prior to the month containing the date as of which
Interests are to be repurchased. Interests will be valued as of the
valuation date (the “Valuation Date”), which is generally expected to be
the last business day of June or December. For example, a Notice Date for
a repurchase offer having a December 31 Valuation Date would be
September 30.
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Promptly
after the Notice Date, the Fund will give to each Member whose Interest
has been accepted for repurchase a promissory note (the “Promissory Note”)
entitling the Member to be paid an amount equal to the value, determined
as of the Valuation Date, of the repurchased
Interest.
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•
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Members
tendering their Interests should note that they will remain Members in the
Fund, with respect to the Interest tendered and accepted for purchase by
the Fund, through the Valuation Date of the offer to repurchase
Interests.
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The
Promissory Note, which will be non-interest bearing and non-transferable,
is expected to contain terms providing for payment at two separate
times.
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The
initial payment in respect of the Promissory Note (the “Initial Payment”)
will be in an amount equal to at least 90% of the estimated value of the
repurchased Interest, determined as of the Valuation Date. The Initial
Payment will be made as of the later of (i) a period of within 30
days after the Valuation Date, or (ii) if the Master
Fund has requested withdrawal of its capital from any Investment Funds in
order to fund the repurchase of the Fund’s interests in the Master Fund,
within ten business days after the Master Fund has received at least 90%
of the aggregate amount withdrawn by the Master Fund from the Investment
Funds.
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The
second and final payment in respect of the Promissory Note (the
“Post-Audit Payment”) will be in an amount equal to the excess, if any, of
(i) the value of the repurchased Interest, determined as of the
Valuation Date and based upon the results of the annual audit of the
Fund’s financial statements for the year in which the Valuation Date
occurs, over (ii) the Initial Payment. The Manager anticipates that
the annual audit of the Fund’s financial statements will be completed
within 60 days after the end of each fiscal year of the Fund and that the
Post-Audit Payment will be made promptly after the completion of the
audit. A Member will continue to receive an allocation of profits and
losses until the Promissory Note is paid in its
entirety.
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If
modification of the Fund’s repurchase procedures as described above is deemed
necessary to comply with regulatory requirements, the Board will adopt revised
procedures reasonably designed to provide Members substantially the same
liquidity for Interests as would be available under the procedures described
above.
Upon its
acceptance of tendered Interests for repurchase, the Fund will maintain daily on
its books a segregated account consisting of (1) cash, (2) liquid
securities or (3) interests in Investment Funds that the Master Fund has
requested be withdrawn (or any combination of them), in an amount equal to the
aggregate estimated unpaid dollar amount of the Promissory Notes issued to
Members tendering Interests.
Payment
for repurchased Interests may require the Fund to withdraw from the Offshore
Fund, and the Offshore Fund from the Master Fund, which in turn may be required
to liquidate portfolio holdings in Investment Funds earlier than the Adviser
would otherwise have caused these holdings to be liquidated, potentially
resulting in losses, and may increase the Master Fund’s investment related
expenses as a result of higher portfolio turnover rates.
72
The
Adviser intends to take measures, subject to policies as may be established by
the Board, to attempt to avoid or minimize potential losses and expenses
resulting from the repurchase of Interests.
A Member
tendering for repurchase only a portion of the Member’s Interest will be
required to maintain a capital account balance of at least $50,000 after giving
effect to the repurchase. If a Member tenders an amount that would cause the
Member’s capital account balance to fall below the required minimum, the Fund
reserves the right to reduce the amount to be repurchased from the Member so
that the required minimum balance is maintained or to repurchase the Member’s
entire Interest in the Fund.
The Fund
may repurchase an Interest of a Member or any person acquiring an Interest from
or through a Member without consent or other action by the Member or other
person, provided the Fund conducts the repurchase in a non-discriminatory
manner. Such repurchases will occur, if the Fund in its sole discretion
determines that:
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the
Interest has been transferred or has vested in any person other than by
operation of law as the result of the death, bankruptcy, insolvency,
adjudicated incompetence or dissolution of the
Member;
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•
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ownership
of the Interest by a Member or other person is likely to cause the Fund to
be in violation of, or require registration of any Interest under, or
subject the Fund to additional registration or regulation under, the
securities, commodities or other laws of the United States or any other
relevant jurisdiction;
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continued
ownership of the Interest by a Member may be harmful or injurious to the
business or reputation of the Fund, the Board, the Manager, the Adviser or
any of their affiliates, or may subject the Fund or any Member to an undue
risk of adverse tax or other fiscal or regulatory
consequences;
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any
of the representations and warranties made by a Member or other person in
connection with the acquisition of an Interest was not true when made or
has ceased to be true; or
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•
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it
would be in the best interest of the Fund for the Fund to repurchase the
Interest.
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In the
event that the Manager, the Adviser or any of their respective affiliates holds
an Interest or portion of Interest in the capacity of a Member, the Interest or
a portion of it may be tendered for repurchase in connection with any repurchase
offer made by the Fund.
Transfers
of Interests
A Member
may transfer its Interests only (i) by operation of law as a result of the
death, bankruptcy, insolvency, adjudicated incompetence or dissolution of the
Member or (ii) under certain limited circumstances, with the written
consent of the Board, which may be withheld in its sole discretion.
Under the
LLC Agreement, the Board may consent to a transfer only if:
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the
Fund consults with legal counsel to the Fund and counsel confirms that the
transfer will not cause the Fund to be treated as a “publicly traded
partnership” taxable as a corporation or be subject to any other adverse
tax or regulatory treatment;
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•
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the
transferring Member has been a Member for at least six
months;
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•
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the
proposed transfer is to be made on a Valuation
Date;
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•
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the
transfer is one in which the tax basis of the Interest in the hands of the
transferee is determined, in whole or in part, by reference to its tax
basis in the hands of the transferring
Member;
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•
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the
transferee is an Eligible Investor (see Subscriptions For Interests;
Eligible Investors); and
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•
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the
entire Interest of the Member is transferred to a single transferee or, in
the case of multiple transferees, after the transfer of a portion of an
Interest, the balance of the Capital Account of each transferee and the
remaining balance of the Capital Account of the transferor (if any) is
each not less than $50,000 or such lesser amount as the Board may
determine in its sole discretion.
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Notice of
a proposed transfer of an Interest must also be accompanied by a properly
completed investor application in respect of the proposed
transferee.
A Member
transferring an Interest may be charged reasonable expenses, including
attorneys’ and accountants’ fees, incurred by the Fund in connection with the
transfer.
73
No person
may become a substituted Member without the written consent of the Board, which
consent may be withheld for any reason in its sole discretion. Any transferee
acquiring an Interest by operation of law as the result of the bankruptcy,
insolvency or dissolution of a Member or otherwise, will be entitled to the
allocations and distributions allocable to the Interest so acquired, to transfer
the Interest in accordance with the terms of the LLC Agreement, but will not be
entitled to the other rights of a Member unless and until the transferee becomes
a substituted Member as specified in the LLC Agreement. If a Member transfers an
Interest with the approval of the Board, the Fund will promptly take all
necessary actions so that each transferee or successor to which the Interest is
transferred is admitted to the Fund as a Member.
In
subscribing for an Interest, a Member agrees to indemnify and hold harmless the
Fund, the Manager, the Board, the Adviser, each other Member and any of their
affiliates against all losses, claims, damages, liabilities, costs and expenses
(including legal or other expenses incurred in investigating or defending
against any losses, claims, damages, liabilities, costs and expenses or any
judgments, fines and amounts paid in settlement), joint or several, to which
those persons may become subject by reason of or arising from any transfer made
by that Member in violation of these provisions or any misrepresentation made by
that Member or a substituted Member in connection with any such
transfer.
Cayman
Islands Tax Considerations
The
Government of the Cayman Islands, will not, under existing legislation, impose
any income, corporate or capital gains tax, estate duty, inheritance tax, gift
tax or withholding tax upon the Offshore Fund or its members. The Cayman Islands
are not party to any double taxation treaties.
The
Offshore Fund has applied for and can expect to receive an undertaking from the
Governor-in-Council of the Cayman Islands that, in accordance with section 6 of
the Tax Concessions Law (1999 Revision) of the Cayman Islands, for a period of
20 years from the date of the undertaking, no law which is enacted in the Cayman
Islands imposing any tax to be levied on profits, income, gains or appreciations
shall apply to the Offshore Fund or its operations and, in addition, that no tax
to be levied on profits, income, gains or appreciations or which is in the
nature of
estate duty or inheritance tax shall be payable (i) on the shares,
debentures or other obligations of the Offshore Fund or (ii) by way of the
withholding in whole or in part of a payment of dividend or other distribution
of income or capital by the Offshore Fund to its members or a payment of
principal or interest or other sums due under a debenture or other obligation of
the Offshore Fund.
Although
such undertakings are routinely granted, if the Offshore Fund does not receive
the undertaking, the tax treatment of the Offshore Fund, the Fund and the
Members will, under current Cayman Islands law, be the same as it would have
been if the Offshore Fund had received the undertaking. However, failure to
obtain the undertaking could expose the Offshore Fund, the Fund and the Members
to potential future tax liability in the event the Cayman Islands enacted a law
imposing taxes on the Offshore Fund.
U.S.
Federal Income Tax Considerations
The
summary below outlines certain significant U.S. federal income tax principles
that are likely to apply to the Fund, the Offshore Fund and the Master Fund, as
well as to Members of the Fund, given the anticipated nature of the activities
of the Fund, the Offshore Fund, the Master Fund and the Investment Funds. In
some cases, the activities of a Member other than the investment in the Fund may
affect the tax consequences to such Member of an investment in the Fund. The
discussion below assumes that the Members are U.S. persons that are generally
exempt from taxation in the United States, including 401(k) plans and IRAs,
which are referred to in this prospectus as “tax-deferred investors”
(“Tax-Exempt Investors”).
The
discussion of federal income tax matters contained herein is based on existing
law as contained in the Code, Treasury regulations, administrative rulings and
court decisions as of the date of this prospectus. No assurance can be given
that future legislation, administrative rulings or court decisions will not
significantly modify the conclusions set forth in this summary. Each prospective Tax-Exempt Investor
is urged to consult with its tax adviser concerning the potential tax
consequences of an investment in the Fund.
74
Classification of
the Fund and the Master Fund. The Fund and the Master Fund have received
opinions of counsel from Davis Polk & Wardwell to the effect that the Fund
and the Master Fund, respectively, will be treated as a partnership, and not as
a corporation, for U.S. federal income tax purposes. Each of these opinions will
be based on the conclusion that, because of the significant restrictions
relating to transfers and redemptions of Interests and interests in the Master
Fund, respectively, neither the Fund nor the Master Fund will constitute a
“publicly traded partnership” for U.S. federal income tax purposes.
Opinions of counsel, however, have no binding effect on the Internal Revenue
Service (“IRS”) or the courts.
If either
the Fund or the Master Fund were treated as a corporation for U.S. federal
income tax purposes, it would be subject to U.S. federal income tax, and
applicable U.S. state and local taxes, at the entity level, and distributions
made by it out of its earnings and profits would be treated as dividends for
U.S. federal income tax purposes. Any dividend distribution by the Master Fund
to the Offshore Fund would be subject to U.S. withholding tax at the rate of
30%.
Assuming
that each of the Fund and the Master Fund is treated as a partnership for U.S.
federal income tax purposes, neither the Fund nor the Master Fund will be
subject to U.S. federal income tax. Rather, the Master Fund’s items of income,
gain, loss, deduction and credit will be allocated to its partners, including
the Offshore Fund, and the Master Fund’s partners, including the Offshore Fund,
will generally be treated for U.S. federal income tax purposes as if they had
derived their shares of those items directly. Similarly, the Fund’s items of
income, gain, loss, deduction and credit will be allocated to the Members, with
the result that the tax consequences to a Member of owning Interests will
generally be the same as the tax consequences of directly owning shares of the
Offshore Fund.
Classification
and Taxation of the Offshore Fund. The Offshore Fund will be treated as a
corporation for U.S. federal income tax purposes. The Offshore Fund will invest
substantially all of its investable assets in the Master Fund, and substantially
all of the Offshore Fund’s income will consist of its share of the Master Fund’s
income, gains, losses, deductions and credits.
In
general, the Manager expects that the Master Fund will not derive a substantial
amount of income that is treated as effectively connected with a U.S. trade or
business (“effectively connected income”). Because the Master Fund will not
control the Investment Funds, however, it can make no assurances with respect to
the amount of effectively connected income that it may derive. The Offshore Fund
(i) will be liable for U.S. federal income tax in respect
of its share of the Master Fund’s net effectively connected income, at the same
rates as are applicable to U.S. corporations (currently, 35%) and (ii) will
be subject to U.S. branch profits tax at a flat rate of 30% on its “dividend
equivalent amount,” as defined in Section 884 of the Code, attributable to
its share of the Master Fund’s effectively connected income.
Assuming
that such income does not constitute effectively connected income, the Offshore
Fund’s share of U.S. source dividends, U.S. source interest (other than
“portfolio interest,” interest on bank deposits and original issue discount on
certain short-term obligations) and certain other U.S. source “fixed and
determinable annual or periodical income” derived by the Master Fund will be
subject to U.S. withholding tax at the rate of 30%. While U.S. source “portfolio
interest,” interest on bank deposits and original issue discount on certain
short-term obligations are exempt from this withholding tax, there can be no
assurance that all of the Master Fund’s U.S. source interest income will qualify
for one of these exemptions.
Tax-Exempt
Investors. Davis Polk & Wardwell delivered an opinion to the
Fund to the effect that a Tax-Exempt Investor will not recognize UBTI solely as
a consequence of an investment in the Fund, provided that the Tax-Exempt
Investor’s acquisition of its Interest in the Fund is not debt-financed, within
the meaning of Section 514 of the Code. The Fund does not intend to seek a
ruling from the IRS with respect to whether a Tax-Exempt Investor’s income from
the Fund may be treated as UBTI. In the event that a Tax-Exempt Investor’s
income from the Fund is treated as UBTI, the Fund will make an offer to
repurchase Interests.
Section 511
of the Code generally subjects Tax-Exempt Investors to taxation with respect to
UBTI. UBTI generally does not include dividends, interest or gains from the
sale, exchange or other disposition of property other than inventory or property
held primarily for sale to customers in the ordinary course of a trade or
business. However, UBTI includes “unrelated debt-financed income,” as defined in
Section 514 of the Code (“UDFI”), even if that income would not otherwise
constitute UBTI. UDFI includes (i) any income derived from property to the
extent that there is acquisition indebtedness outstanding with respect to the
property during the taxable year and (ii) income
75
derived
from the sale or other disposition of property to the extent that there was
acquisition indebtedness outstanding with respect to the property during the
twelve-month period ending with the date of the sale or other disposition. Under
Section 512(c) of the Code, a Tax-Exempt Investor is required to include in
computing its UBTI its share of income of any partnership of which it is a
member to the extent that such income would be UBTI if earned directly by the
Tax-Exempt Investor.
Under the
foregoing rules, if a Tax-Exempt Investor’s acquisition of an Interest in the
Fund is debt-financed, then all or a portion of such Tax-Exempt Investor’s
income attributable to such Interest will be included in UBTI. The Fund’s only
asset will be an interest in the Offshore Fund, and the Fund will not enter into
any acquisition indebtedness with respect to this interest. Both the Master Fund
and the Investment Funds are likely to derive income that, if earned directly by
a Tax-Exempt Investor, would constitute UBTI. However, the Offshore Fund is
treated as a corporation, rather than as a partnership, for U.S. federal income
tax purposes. Under Sections 511 through 514 of the Code, a Tax-Exempt Investor
is generally not required to include in income as UBTI any income derived from a
corporation in which it is a shareholder, even if the corporation derives income
that would be UBTI if earned directly by the Tax-Exempt Investor. Exceptions to
this rule applicable to investments by Tax-Exempt Investors in certain foreign
insurance companies and to interest, annuity, royalty or rent payments received
by Tax-Exempt Investors from certain controlled entities do not apply to the
Offshore Fund. Moreover, the Fund, and therefore the Tax-Exempt Investors,
should not be treated as deriving UBTI as a consequence of
(i) Section 269 of the Code, which provides for a disallowance of tax
benefits if any person acquires control of a corporation for the principal
purpose of evading or avoiding U.S. federal income tax by securing the benefit
of any deduction, credit or other allowance that such person would not otherwise
enjoy or (ii) any similar disallowance provision. As a result, a Tax-Exempt
Investor’s income from the Fund should not be treated as debt-financed income
under the UBTI rules by reason of the Master Fund’s or any Investment Fund’s
borrowing or purchasing securities on margin.
For U.S.
federal income tax purposes, the Offshore Fund will be a controlled foreign
corporation (“CFC”) of which the Fund will be a “United States shareholder,” as
defined in Section 951(b) of the Code. In addition, the Offshore Fund will
be a passive foreign investment company (“PFIC”) within the meaning of
Section 1297 of the Code. A Tax-Exempt Investor will not be subject to tax
under the CFC rules or the PFIC rules if it is not otherwise taxable under the
UBTI provisions with respect to the ownership of its Interest in the Fund (i.e.,
because its investment in the Fund is debt-financed).
Under
proposed Treasury Regulations, U.S. beneficiaries of any Tax-Exempt Investor
that is a trust (other than a tax-exempt employees’ trust described in
Section 401(a) of the Code) would generally be treated for purposes of the
PFIC rules as owning their proportionate shares of such Tax-Exempt Investor’s
indirect interest in the Offshore Fund. Although it is not clear that such a
result was intended, this constructive ownership rule might be applied so as to
treat a U.S. beneficiary of a Tax-Exempt Investor that is an IRA described in
Section 408(a) of the Code as the owner of the IRA’s indirect interest in
the Offshore Fund. If a U.S. beneficiary of an IRA or other trust (such as a
charitable remainder trust) were treated as the owner of an interest in the
Offshore Fund, such U.S. beneficiary could be subject to adverse tax
consequences under the PFIC rules.
Tax-Exempt
Investors that are private foundations should consult their tax advisers about
the excise tax consequences to them of an investment in the Fund.
A
Tax-Exempt Investor may be required to report, on IRS Form 926, transfers of
cash by the Fund to the Offshore Fund if (i) immediately after such
transfer such Tax-Exempt Investor owns a 10% or greater indirect interest in the
Offshore Fund (determined by applying certain attribution rules) or
(ii) the Tax-Exempt Investor’s share of the amount of cash transferred by
the Fund during the twelve-month period ending on the date of the transfer
exceeds $100,000. Failure to file Form 926 as required may result in substantial
penalties. Tax-Exempt Investors are urged to consult their tax advisers
concerning the information reporting requirements relating to their investments
in the Fund.
Treasury
regulations generally require a direct or indirect participant in any
“reportable transaction” to disclose its participation to the IRS on IRS Form
8886. For purposes of the disclosure rules, a U.S. person that owns at least 10%
of the voting power of a CFC, may be treated as a participant in a reportable
transaction in which the relevant foreign corporation participates. It is
possible that the Offshore Fund will be treated as engaging in one or more
reportable transactions and, in that case, the Fund and the Tax-Exempt Investors
could be treated as participating in those transactions under the foregoing
rule. Failure to comply with the reporting requirements gives
76
rise
to substantial penalties. Certain states, including New York, may also have
similar disclosure requirements. Tax-Exempt Investors should consult their tax
advisers to determine whether they are required to file Form 8886 in respect of
such transactions.
Authorization
Regarding Disclosure of Tax Structure. Notwithstanding any other
statement in this prospectus, the Manager and its advisers authorize each Member
and each of its employees, representatives or other agents, from and after the
commencement of any discussions with any such party, to disclose to any and all
persons without limitation of any kind the tax treatment and tax structure of
the Master Fund, the Offshore Fund or the Fund and any transaction entered into
by the Master Fund, the Offshore Fund or the Fund and all materials of any kind
(including opinions or other tax analyses) relating to such tax treatment or tax
structure that are provided to such Member, except for any information
identifying the Manager, the Master Fund, the Offshore Fund or the Fund or
(except to the extent relevant to such tax structure or tax treatment) any
nonpublic commercial or financial information.
Persons
who are fiduciaries with respect to assets of an employee benefit plan subject
to ERISA (an “ERISA Plan”), or a plan or other arrangement such as an IRA or
Keogh plan subject to Section 4975 of the Code (“Plan,” or together with
ERISA Plans, “Plans”) should consider, among other things, the matters described
below in determining whether to cause the Plan to invest in the
Fund.
ERISA
imposes general and specific responsibilities on persons who are “fiduciaries”
for purposes of ERISA with respect to an ERISA Plan, including prudence,
diversification, prohibited transaction and other standards. In determining
whether a particular investment is appropriate for an ERISA Plan, a fiduciary of
an ERISA Plan must comply with rules adopted by the U.S. Department of Labor
(the “DOL”), which administers the fiduciary provisions of ERISA. Under those
rules, the fiduciary of an ERISA Plan must: (1) give appropriate
consideration to, among other things, the role that the investment plays in the
Plan’s portfolio, taking into account whether the investment is designed
reasonably to further the Plan’s purposes; (2) examine the risk and return
factors associated with the investment; (3) assess the portfolio’s
composition with regard to diversification, as well as the liquidity and current
return of the total portfolio relative to the anticipated cash flow needs of the
Plan; (4) evaluate income tax consequences
of the investment and the projected return of the total portfolio relative to
the Plan’s funding objectives; and (5) consider limitations imposed by
ERISA on the fiduciary’s ability to delegate fiduciary responsibilities to other
parties.
Before
investing the assets of an ERISA Plan in the Fund, a fiduciary should determine
whether such an investment is consistent with his, her or its fiduciary
responsibilities as set out in the DOL’s regulations. The fiduciary should, for
example, consider whether an investment in the Fund may be too illiquid or too
speculative for its ERISA Plan, and whether the assets of the Plan would be
sufficiently diversified if the investment is made. If a fiduciary of an ERISA
Plan breaches his, her or its responsibilities with regard to selecting an
investment or an investment course of action for the Plan, the fiduciary may be
held personally liable for losses incurred by the Plan as a result of the
breach.
Regulations
promulgated by the DOL provide that, because the Fund is registered as an
investment company under the 1940 Act, the underlying assets of the Fund will
not be considered to be “plan assets” of ERISA Plans investing in the Fund for
purposes of ERISA’s fiduciary responsibility and prohibited transaction rules.
As a result, (1) neither the Manager, the Adviser nor any of the Investment
Managers will be fiduciaries with respect to those Plans within the meaning of
ERISA, such that these parties will no be subject to ERISA’s fiduciary standards
described above in their activities and (2) transactions involving the
assets and investments of the Fund, the Offshore Fund, the Master Fund and the
Investment Funds will not be subject to the provisions of ERISA or
Section 4975 of the Code, which might otherwise constrain the management of
these entities.
The
Manager may require an ERISA Plan proposing to invest in the Fund to represent:
that it, and any fiduciaries responsible for its investments, are aware of and
understand the Fund’s investment objective, policies and strategies; and that
the decision to invest Plan assets in the Fund was made with appropriate
consideration of
77
relevant
investment factors with regard to the Plan and is consistent with the duties and
responsibilities imposed upon fiduciaries with regard to their investment
decisions under ERISA.
Certain
prospective Plan investors may currently maintain relationships with the Manager
or the Adviser or with other entities that are affiliated with the Manager or
the Adviser. Each of the Manager or the Adviser and their affiliates may be
deemed to be a party in interest or disqualified person (as defined in ERISA and
the Code, respectively) to and/or a fiduciary of any Plan to which it provides
investment management, investment advisory or other services. ERISA and the Code
prohibit Plan assets to be used for the benefit of a party in interest and also
prohibit a Plan fiduciary from using its position to cause the Plan to make an
investment from which it or certain third parties in which the fiduciary has an
interest would receive a fee or other consideration. Plan investors should
consult with counsel to determine if participation in the Fund is a transaction
that is prohibited by ERISA or the Code. A fiduciary of a Plan investing in the
Fund may be required to represent: that the decision to invest in the Fund was
made by it as a fiduciary that is independent of the Manager or the Adviser, and
their affiliates; that it is duly authorized to make such investment decision;
and it has not relied on any individualized advice or recommendation of the
Manager, the Adviser, or their affiliates, as a primary basis for the decision
to invest in the Fund and that its investment in the Fund will not result in a
non-exempt prohibited transaction under ERISA or Section 4975 of the
Code.
The
provisions of ERISA and Section 4975 of the Code are subject to extensive
and continuing administrative and judicial interpretation and review. The
discussion contained in this prospectus, is, of necessity, general and may be
affected by future publication of DOL regulations and rulings. Potential Plan
investors should consult with their legal advisers regarding the consequences
under ERISA and the Code of the acquisition and ownership of
Interests.
THE
FOLLOWING IS A SUMMARY DESCRIPTION OF ADDITIONAL ITEMS AND OF SELECT PROVISIONS
OF THE LLC AGREEMENT THAT MAY NOT BE DESCRIBED ELSEWHERE IN THIS PROSPECTUS. THE
DESCRIPTION OF THESE ITEMS AND PROVISIONS IS NOT DEFINITIVE AND REFERENCE SHOULD
BE MADE TO THE COMPLETE TEXT OF THE LLC AGREEMENT WHICH IS ATTACHED AS APPENDIX
A TO THIS PROSPECTUS.
Member
Interests
Persons
who purchase Interests in the offering being made hereby will be
Members.
Liability
of Members
Under
Delaware law and the LLC Agreement, each Member will be liable for the debts,
obligations and liabilities of the Fund only to the extent of any contributions
to the capital of the Fund (plus any accretions in value thereto) and a Member,
in the sole discretion of the Board, may be obligated to return to the Fund
amounts distributed to the Member in accordance with the LLC Agreement in
certain circumstances where after giving effect to the distribution, certain
liabilities of the Fund exceed the fair market value of the Fund’s
assets.
Duty
of Care of Directors
The LLC
Agreement provides that a Director shall not be liable to the Fund or any of the
Members for any loss or damage occasioned by any act or omission in the
performance of the Director’s services as such in the absence of willful
misfeasance, bad faith or gross negligence of the duties involved in the conduct
of the Director’s office. The LLC Agreement also contains provisions for the
indemnification, to the extent permitted by law, of a Director by the Fund (but
not by the Members individually) against any liability and expense to which the
Director may be liable which arise in connection with the performance of the
Director’s activities on behalf of the Fund. Directors shall not be personally
liable to any Member for the repayment of any positive balance in the Member’s
capital account or for contributions by the Member to the capital of the Fund or
by reason of any change in the federal or state income tax laws applicable to
the Fund or its investors. The rights of indemnification and exculpation
provided under the LLC Agreement shall not be construed so as to provide for
indemnification of a Director for any liability (including liability under
federal securities laws which, under certain circumstances, impose liability
even on persons that act in good faith), to the extent (but only to the extent)
that such
78
indemnification
would be in violation of applicable law, but shall be construed so as to
effectuate the applicable provisions of the LLC Agreement to the fullest extent
permitted by law.
Amendment
of the LLC Agreement
The LLC
Agreement may generally be amended, in whole or in part, with the approval of
the Board (including a majority of the Independent Directors if required by the
1940 Act), and without the approval of the Members, unless the approval of
Members is required by the 1940 Act. However, certain amendments to the LLC
Agreement involving capital accounts and allocations thereto may not be made
without the written consent of any Member adversely affected thereby or unless
each Member has received written notice of the amendment and any Member
objecting to the amendment has been allowed a reasonable opportunity (pursuant
to any procedures as may be prescribed by the Board) to tender its entire
Interest for repurchase by the Fund.
Power
of Attorney
By
subscribing for an Interest in the Fund, each Member will appoint each of the
Directors his or her attorney-in-fact for purposes of filing required
certificates and documents relating to the formation and maintenance of the Fund
as a limited liability company under Delaware law or signing all instruments
effecting authorized changes in the Fund or the LLC Agreement and conveyances
and other instruments deemed necessary to effect the dissolution or termination
of the Fund. The power-of-attorney granted under the LLC Agreement executed by
each Member (which each Member will do by virtue of signing an investor
application) is a special power-of-attorney and is coupled with an interest in
favor of each Director and as such shall be irrevocable and will continue in
full force and effect notwithstanding the subsequent death or incapacity of any
Member granting the power-of-attorney, and shall survive the transfer by a
Member of all or any portion of an Interest, except that where the transferee
thereof has been approved by the Board for admission to the Fund as a substitute
Member, or upon the withdrawal of a Member from the Fund pursuant to a periodic
tender or otherwise, this power-of-attorney given by the transferor shall
terminate.
Term,
Dissolution And Liquidation
The Fund
shall be dissolved by an affirmative vote by: (1) the Board or
(2) Members holding at least two-thirds (2/3) of the total number of
votes eligible to be cast by all Members; or upon the expiration of any two year
period that commences on the date on which any Member has submitted a written
notice to the Fund requesting to tender its entire Interest for repurchase by
the Fund if that Interest has not been repurchased by the Fund; or upon the
failure of Members to elect successor Directors at a meeting called by the
Manager when no Director remains to continue the business of the Fund; or as
required by operation of law. Upon the occurrence of any event of dissolution,
the Board or the Manager, acting as liquidator under appointment by the Board
(or another liquidator, if the Board does not appoint the Manager to act as
liquidator or is unable to perform this function) are charged with winding up
the affairs of the Fund and liquidating its assets. Net profit or net loss
during the period including the period of liquidation will be allocated as
described in the section titled “Capital Accounts and Allocations—Allocation of
Net Profits and Net Losses.” Upon the liquidation of the Fund, its assets would
be distributed (1) first to satisfy the debts, liabilities and obligations
of the Fund (other than debts to Members) including actual or anticipated
liquidation expenses, (2) next to repay debts owing to the Members, and
(3) finally to the Members proportionately in accordance with the balances
in their respective capital accounts. Assets may be distributed in-kind on a
pro rata basis if the
Board or liquidator determines that the distribution of assets-in-kind would be
in the interests of the Members in facilitating an orderly
liquidation.
The Fund
will furnish to Members as soon as practicable after the end of each taxable
year such information as is necessary for them to complete U.S. federal and
state income tax or information returns, along with any other tax information
required by law. An Investment Manager’s delay, however, in providing this
information could delay the Fund’s preparation of tax information for investors,
which might require Members to seek extensions of the time to file their tax
returns, or could delay the preparation of the Fund’s annual report. The Fund
will send to Members an unaudited semi-annual and an audited annual report
within 60 days after the close of the period covered by the report, or as
otherwise required by the 1940 Act. The Fund will also send to Members reports
regarding the Fund’s operations during each quarter.
79
For
accounting purposes, the Fund’s fiscal year is the 12-month period ending on
March 31. The Fund’s taxable year is the 12-month period ending
December 31.
Deloitte &
Touche LLP, whose principal business address is 111 South Wacker Drive, Chicago,
IL 60606, has been selected as the independent registered public accounting firm
for the Fund and the Master Fund and in such capacity will audit the Fund’s and
the Master Fund’s annual financial statements and financial
highlights.
When
available, the Fund will furnish, without charge, a copy of its annual and
semi-annual reports to Members.
Kramer
Levin Naftalis & Frankel LLP, whose principal business address is 1177
Avenue of the Americas, New York, NY 10036, serves as legal counsel to the Fund
and the Master Fund. Maples and Calder, whose principal business address is P.O.
Box 309 GT, Ugland House, South Church Street, Grand Cayman, Cayman Islands,
serves as legal counsel to the Offshore Fund.
Inquiries
concerning the Fund and Interests (including information concerning
subscription, transfer and repurchase procedures) should be directed
to:
PNC
Absolute Return TEDI Fund LLC
c/o PNC
Capital Advisors, Inc.
Two
Hopkins Plaza
Baltimore,
MD 21201
The Fund
issues audited, consolidated financial statements on an annual basis prepared in
accordance with generally accepted accounting principles. The Fund’s audited,
consolidated financial statements as of and for the period ended March 31,
2009, and the report of the independent registered public accounting firm
thereon, are incorporated herein by reference to the Fund’s Annual Report filed
with the SEC on June 9, 2009. Copies of the Fund’s annual and semi-annual
reports are available, without charge, by writing to the Fund c/o SEI
Investments Global Funds Services, One Freedom Valley Drive, Oaks, PA 19456, by
calling (800) 239-0418 or on the SEC’s website www.sec.gov.
80
Appendix
A
PNC
ABSOLUTE RETURN TEDI FUND LLC
LIMITED
LIABILITY COMPANY AGREEMENT
August 4,
2005
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Page
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Article I. Definitions
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A-1
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Section 1.1.
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ADMINISTRATIVE
SERVICES
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A-1
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Section 1.2.
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ADMINISTRATOR
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A-1
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Section 1.3.
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ADVISER
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A-1
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Section 1.4.
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ADVISERS
ACT
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A-1
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Section 1.5.
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AFFILIATE
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A-1
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Section 1.6.
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AGREEMENT
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A-1
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Section 1.7.
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BENCHMARK
RETURN
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A-1
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Section 1.8.
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BOARD
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A-2
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Section 1.9.
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CAPITAL
ACCOUNT
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A-2
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Section 1.10.
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CERTIFICATE
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A-2
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Section 1.11.
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CHAIRMAN
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A-2
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Section 1.12.
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CLOSING
DATE
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A-2
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Section 1.13.
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CODE
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A-2
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Section 1.14.
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COMPANY
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A-2
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Section 1.15.
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DELAWARE
ACT
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A-2
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Section 1.16.
|
|
DIRECTOR
|
|
A-2
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|
Section 1.17.
|
|
DISTRIBUTOR
|
|
A-2
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Section 1.18.
|
|
FISCAL
PERIOD
|
|
A-2
|
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Section 1.19.
|
|
FISCAL
YEAR
|
|
A-2
|
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Section 1.20.
|
|
FORM N-2
|
|
A-3
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Section 1.21.
|
|
INCENTIVE
FEE
|
|
A-3
|
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Section 1.22.
|
|
INCENTIVE
PERIOD
|
|
A-3
|
|
Section 1.23.
|
|
INDEPENDENT
DIRECTORS
|
|
A-3
|
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Section 1.24.
|
|
INTEREST
|
|
A-3
|
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Section 1.25.
|
|
INVESTMENT
FUNDS
|
|
A-3
|
|
Section 1.26.
|
|
INVESTMENT
MANAGERS
|
|
A-3
|
|
Section 1.27.
|
|
INVESTMENT MANAGEMENT
AGREEMENT
|
|
A-3
|
|
Section 1.28.
|
|
INVESTMENT
PERCENTAGE
|
|
A-3
|
|
Section 1.29.
|
|
LOSS CARRYFORWARD
AMOUNT
|
|
A-3
|
|
Section 1.30.
|
|
MANAGEMENT
FEE
|
|
A-4
|
|
Section 1.31.
|
|
MANAGER
|
|
A-4
|
|
Section 1.32.
|
|
MASTER
FUND
|
|
A-4
|
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Section 1.33.
|
|
MEMBER
|
|
A-4
|
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Section 1.34.
|
|
NET ASSETS
|
|
A-4
|
|
Section 1.35.
|
|
NET PROFITS OR NET
LOSSES
|
|
A-4
|
|
Section 1.36.
|
|
NOTICE
DATE
|
|
A-4
|
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Section 1.37.
|
|
1940 ACT
|
|
A-4
|
|
Section 1.38.
|
|
OFFSHORE
FUND
|
|
A-4
|
|
Section 1.39.
|
|
ORGANIZATIONAL
MEMBER
|
|
A-4
|
|
Section 1.40.
|
|
PERSON
|
|
A-4
|
|
Section 1.41.
|
|
PROMISSORY
NOTE
|
|
A-4
|
|
Section 1.42.
|
|
PROSPECTUS
|
|
A-5
|
|
Section 1.43.
|
|
SECURITIES
|
|
A-5
|
|
Section 1.44.
|
|
TAXABLE
YEAR
|
|
A-5
|
|
Section 1.45.
|
|
TRANSFER
|
|
A-5
|
|
Section 1.46.
|
|
VALUATION
DATE
|
|
A-5
|
i
|
|
|
Page
|
||
|
Article II. ORGANIZATION;
ADMISSION OF MEMBERS
|
|
A-5
|
||
|
Section 2.1.
|
|
Formation of Limited Liability
Company.
|
|
A-5
|
|
Section
2.2.
|
|
Name
|
|
A-5
|
|
Section
2.3.
|
|
Principal and Registered
Office
|
|
A-5
|
|
Section
2.4.
|
|
Duration
|
|
A-5
|
|
Section
2.5.
|
|
Objective and Business of the
Company
|
|
A-6
|
|
Section
2.6.
|
|
Board of
Directors
|
|
A-6
|
|
Section
2.7.
|
|
Members
|
|
A-6
|
|
Section
2.8.
|
|
Distribution
Fees
|
|
A-7
|
|
Section
2.9.
|
|
Limited
Liability
|
|
A-7
|
|
Article III. MANAGEMENT
|
|
A-7
|
||
|
Section
3.1.
|
|
Management and
Control
|
|
A-7
|
|
Section
3.2.
|
|
Actions by the Board of
Directors
|
|
A-8
|
|
Section
3.3.
|
|
Meetings of
Members
|
|
A-8
|
|
Section
3.4.
|
|
Custody of Assets of the
Company
|
|
A-9
|
|
Section
3.5.
|
|
Other Activities of Members, the
Manager and Directors
|
|
A-9
|
|
Section
3.6.
|
|
Duty of
Care
|
|
A-9
|
|
Section
3.7.
|
|
Indemnification
|
|
A-9
|
|
Section
3.8.
|
|
Fees, Expenses and
Reimbursement
|
|
A-11
|
|
Article IV. TERMINATION OF STATUS
OF MANAGER AND DIRECTORS, TRANSFERS AND REPURCHASES
|
|
A-12
|
||
|
Section
4.1.
|
|
Termination of Status of the
Manager
|
|
A-12
|
|
Section
4.2.
|
|
Termination of Status of a
Director
|
|
A-13
|
|
Section
4.3.
|
|
Removal of the
Directors
|
|
A-13
|
|
Section
4.4.
|
|
Removal of the
Manager
|
|
A-13
|
|
Section
4.5.
|
|
Transfer of Interests of
Members
|
|
A-13
|
|
Section
4.6.
|
|
Repurchase of
Interests
|
|
A-14
|
|
Article V. CAPITAL
|
|
A-16
|
||
|
Section
5.1.
|
|
Contributions to
Capital
|
|
A-16
|
|
Section
5.2.
|
|
Rights of Members to
Capital
|
|
A-16
|
|
Section
5.3.
|
|
Capital
Accounts
|
|
A-16
|
|
Section
5.4.
|
|
Allocation of Net Profits and Net
Losses
|
|
A-17
|
|
Section
5.5.
|
|
Allocation of Insurance Premiums
and Proceeds
|
|
A-17
|
|
Section
5.6.
|
|
Allocation of Certain
Expenditures
|
|
A-17
|
|
Section
5.7.
|
|
Reserves
|
|
A-17
|
|
Section
5.8.
|
|
Allocation of Organizational
Expenses
|
|
A-18
|
|
Section
5.9.
|
|
Tax
Allocations
|
|
A-18
|
|
Section
5.10.
|
|
Distributions
|
|
A-19
|
|
Section 5.11.
|
|
Withholding
|
|
A-19
|
|
Article VI. DISSOLUTION AND
LIQUIDATION
|
|
A-19
|
||
|
Section
6.1.
|
|
Dissolution
|
|
A-19
|
|
Section
6.2.
|
|
Liquidation of
Assets
|
|
A-20
|
|
Article VII. ACCOUNTING,
VALUATIONS AND BOOKS AND RECORDS
|
|
A-20
|
||
|
Section
7.1.
|
|
Accounting and
Reports
|
|
A-20
|
|
Section
7.2.
|
|
Determinations by the Board of
Directors
|
|
A-21
|
|
Section
7.3.
|
|
Valuation of
Assets
|
|
A-21
|
|
Article VIII. MISCELLANEOUS
PROVISIONS
|
|
A-21
|
||
|
Section
8.1.
|
|
Amendment of Limited Liability
Company Agreement
|
|
A-21
|
|
Section
8.2.
|
|
Special Power of
Attorney
|
|
A-22
|
|
Section
8.3.
|
|
Notices
|
|
A-23
|
|
Section
8.4.
|
|
Agreement Binding Upon Successors
and Assigns
|
|
A-23
|
|
Section
8.5.
|
|
Applicability of 1940 Act and
Form N-2
|
|
A-23
|
ii
|
Section
8.6.
|
|
Choice of Law;
Arbitration
|
|
A-23
|
|
Section
8.7.
|
|
Not for Benefit of
Creditors
|
|
A-24
|
|
Section
8.8.
|
|
Consents
|
|
A-24
|
|
Section
8.9.
|
|
Merger and
Consolidation
|
|
A-24
|
|
Section
8.10.
|
|
Pronouns
|
|
A-25
|
|
Section
8.11.
|
|
Confidentiality
|
|
A-25
|
|
Section
8.12.
|
|
Severability
|
|
A-25
|
|
Section
8.13.
|
|
Filing of
Returns
|
|
A-25
|
|
Section
8.14.
|
|
Tax Matters
Partner
|
|
A-25
|
|
Section 8.15.
|
|
Section 754 Election; Mandatory
Basis Adjustments
|
|
A-26
|
iii
LIMITED
LIABILITY COMPANY AGREEMENT
OF
PNC
ABSOLUTE RETURN TEDI FUND LLC
A
Delaware Limited Liability Company
Dated as
of August 4, 2005
Two
Hopkins Plaza, Baltimore, Maryland 21201
(410)
237-5100
THIS
LIMITED LIABILITY COMPANY AGREEMENT of PNC Absolute Return TEDI Fund LLC (the
“Company”) is dated as of August 4, 2005 by and among PNC Capital Advisors,
Inc. as the manager (“PCA” or the “Manager”), and Mercantile Bankshares
Corporation as Organizational Member and those persons hereinafter admitted as
Members.
WHEREAS,
the Company has heretofore been formed as a limited liability company under the
Delaware Limited Liability Company Act pursuant to an initial Certificate of
Formation (the “Certificate”) dated and filed with the Secretary of State of
Delaware on August 4, 2005;
NOW,
THEREFORE, for and in consideration of the foregoing and the mutual covenants
hereinafter set forth, it is hereby agreed as follows:
Definitions
For
purposes of this Agreement:
A-1
(a) the
last day of a Fiscal Year;
(b) the
last day of a Taxable Year;
(c) the
day preceding the date on which a contribution to the capital of the Company is
made;
(d) the
day on which a substitute member is admitted;
(e) the
day on which the Company repurchases any Interest, or portion of an Interest, of
a Member;
(f) any
day on which any amount is credited to, or debited against, the Capital Account
of a Member, other than an amount to be credited to, or debited against, the
Capital Account of all Members in accordance with their respective Investment
Percentages; or
(g) the
last day of a fiscal period of any Master Fund.
A-2
A-3
(a) the
amount of any insurance premiums or proceeds to be allocated among the Capital
Accounts of the Members pursuant to Section 5.5 hereof;
(b) any
items to be allocated among the Capital Accounts of the Members on a basis that
is not in accordance with the respective Investment Percentages of all Members
as of the commencement of such Fiscal Period pursuant to Section 5.6 and
Section 5.7 hereof; and
(c)
Monthly reimbursement of organizational expenses allocated among the Capital
Accounts of the Members pursuant to Sections 3.8 and 5.8 hereof.
ORGANIZATION;
ADMISSION OF MEMBERS
A-4
The Board
shall execute and file in accordance with the Delaware Act any amendment to the
Certificate and shall execute and file with applicable governmental authorities
any other instruments, documents and certificates that, in the opinion of the
Company’s legal counsel, may from time to time be required by the laws of the
United States of America, the State of Delaware or any other jurisdiction in
which the Company shall determine to do business, or any political subdivision
or agency thereof, or that such legal counsel may deem necessary or appropriate
to effectuate, implement and continue the valid existence and business of the
Company.
The name
of the Company shall be PNC Absolute Return TEDI Fund LLC or such other name as
the Board may hereafter adopt upon (i) causing an appropriate amendment to
the Certificate to be filed in accordance with the Delaware Act and
(ii) sending notice thereof to each Member.
(a) The
Company shall have its principal office at Two Hopkins Plaza, Baltimore,
Maryland, 21201, or at such other place designated from time to time by the
Board.
(b) The
Company shall have its registered office in Delaware at 2711 Centreville Road,
Suite 400, Wilmington, Delaware, 19808 and shall have Corporation Service
Company as its registered agent for service of process in Delaware, unless a
different registered office or agent is designated from time to time by the
Board.
The term
of the Company commenced on the filing of the Certificate with the Secretary of
State of Delaware and shall continue until the Company is dissolved pursuant to
Section 6.1 hereof.
Section 2.5.
Objective and Business of the Company.
(a) The
objective of the Company is to seek capital appreciation principally through
investing (through the Offshore Fund and the Master Fund) in Investment Funds
managed by Investment Managers who employ a variety of alternative investment
strategies. The business of the Company is to invest, as a feeder fund, all or
substantially all of the Company’s assets, through the Offshore Fund, in the
Master Fund, which has the same investment objective as the Company, as part of
a master-feeder fund structure. In connection with its investment as a feeder
fund in a master-feeder structure, the business of the Company includes
purchasing, selling (including short sales), investing and trading in
Securities, on margin or otherwise, and engaging in any financial or derivative
transactions relating thereto or otherwise. The Company may execute, deliver and
perform all contracts, agreements, subscription documents and other undertakings
and engage in all activities and transactions as may in the opinion of the Board
be necessary or advisable to carry out its objective or business.
(b) The
Company shall operate as a closed-end, non-diversified, management investment
company in accordance with the 1940 Act and subject to any policies and
investment restrictions set forth in the Prospectus.
Section 2.6.
Board of Directors.
(a) Prior
to the Closing Date, the Organizational Member may designate such persons who
shall agree to be bound by all of the terms of this Agreement to serve as the
initial Directors on the Board, subject to the election of such persons prior to
the Closing Date by the Organizational Member. By signing this Agreement or the
signature page of the Company’s investor application or certification, a Member
admitted on the Closing Date shall be deemed to have voted for the election of
each of the initial Directors to the Board. After the Closing Date, the Board
may, subject to the provisions of paragraphs (a) and (b) of this
Section 2.6 with respect to the number of, and vacancies in, the position
of Director and the provisions of Section 3.3 hereof with respect to the
election of Directors to the Board by Members, designate any person who shall
agree to be bound by all of the terms of this Agreement as a Director. The names
and mailing addresses of the Directors shall be set forth in the books and
records of the Company. The number of Directors shall be fixed from time to time
by the Board.
A-5
(b) Each
Director shall serve on the Board for the duration of the term of the Company,
unless his or her status as a Director shall be sooner terminated pursuant to
Section 4.2 hereof. In the event of any vacancy in the position of
Director, the remaining Directors serving on the Board may appoint an individual
to serve in such capacity, so long as immediately after such appointment at
least two-thirds (2/3) of the Directors then serving would have been
elected by the Members. The Board may call a meeting of Members to fill any
vacancy in the position of Director, and shall do so within 60 days after any
date on which Directors who were elected by the Members cease to constitute a
majority of the Directors then serving on the Board.
(c) In
the event that no Director remains to continue the business of the Company, the
Manager shall promptly call a meeting of the Members, to be held within 60 days
after the date on which the last Director ceased to act in that capacity, for
the purpose of determining whether to continue the business of the Company and,
if the business shall be continued, of electing the required number of Directors
to the Board. If the Members shall determine at such meeting not to continue the
business of the Company or if the required number of Directors is not elected
within 60 days after the date on which the last Director ceased to act in that
capacity, then the Company shall be dissolved pursuant to Section 6.1
hereof and the assets of the Company shall be liquidated and distributed
pursuant to Section 6.2 hereof.
Section 2.7.
Members.
The Board
expects to admit Members as of the first business day of each calendar month.
Members may be admitted to the Company subject to the condition that each such
Member shall execute and deliver the Company’s investor application or
certification pursuant to which such Member agrees to be bound by all the terms
and provisions hereof and that the minimum initial capital contribution, as
required by Section 5.1, has been deposited with the Company’s escrow
agent. The Board may in its sole discretion reject any subscription for
Interests. The Board may, in its sole discretion, suspend subscriptions for
Interests at any time. The admission of any Person as a Member shall be
effective upon the revision of the books and records of the Company to reflect
the name and the contribution to the capital of the Company of such additional
Member.
Section 2.8.
Distribution Fees.
(a) A
Member may be charged a distribution fee when a Distributor is used to sell such
Member’s Interest in the amount and as set forth in the Prospectus.
(b) The
distribution fee will be deducted from a prospective Member’s subscription
amount; it will not constitute a capital contribution made by the Member to the
Company nor part of the assets of the Company and may be adjusted or waived as
described in the Prospectus.
Section 2.9.
Limited Liability.
Except as
provided under applicable law, including capital contribution obligations, a
Member shall not be liable for the Company’s debts, obligations and liabilities
in any amount in excess of such Member’s contributions to the capital of the
Company (plus such Member’s share of undistributed profits and assets). Except
as provided under applicable law, a Director shall not be liable for the
Company’s debts, obligations and liabilities.
MANAGEMENT
Section
3.1. Management and Control.
(a)
Management and control of the business of the Company shall be vested in the
Board, which shall have the right, power and authority, on behalf of the Company
and in its name, to exercise all rights, powers and authority of “manager” as
defined under the Delaware Act (but is not the same as the term “Manager” as
defined in this Agreement) and to do all things necessary and proper to carry
out the objective and business of the Company and their duties hereunder. No
Director shall have the authority individually to act on behalf of or to bind
the Company except within the scope of such Director’s authority as delegated by
the Board. The parties hereto intend that, except to the extent otherwise
expressly provided herein, (i) each Director shall be vested with the same
powers, authority and responsibilities on behalf of the Company as are
customarily vested in each director of a Delaware corporation and (ii) each
Independent Director shall be vested with the same powers, authority and
responsibilities on behalf of the Company as are customarily vested in each
A-6
|
|
director of a closed-end management investment
company registered under the 1940 Act that is organized as a Delaware
corporation who is not an “interested person” (as such term is defined in
the 1940 Act) of such company. During any period in which the Company
shall have no Directors, the Manager shall have the authority to manage
the business and affairs of the Company. The Manager will oversee the
day-to-day management of the Company and, subject to the approval of the
Board, has the authority to: approve the acceptance of initial and
subsequent subscriptions on behalf of the Company; determine whether
future subscriptions should be accepted; make determinations on the
transfer of Interests; and manage and oversee the general administrative
and operational aspects of the
Company.
|
(b)
Members shall have no right to participate in and shall take no part in the
management or control of the Company’s business and shall have no right, power
or authority to act for or bind the Company. Members shall have the right to
vote on any matters only as provided in this Agreement or on any matters that
require the approval of the holders of voting securities under the 1940 Act or
as otherwise required in the Delaware Act.
(c) The
Board may delegate to a committee or to any other person any rights, power and
authority vested by this Agreement in the Board to the extent permissible under
applicable law.
(d) The
Company will file a tax return as a partnership for U.S. federal income tax
purposes. Except as otherwise specifically provided herein, all decisions for
the Company relating to tax matters including, without limitation, whether to
make any tax elections, the positions to be made on the Company’s tax returns
and the settlement or further contest or litigation of any audit matters raised
by the Internal Revenue Service or other taxing authority, will be made by the
Board. All actions (other than ministerial actions) taken by the Manager, as
designated in this Section 3.1 and Section 3.2 below, will be subject
to the approval of the Board. Each Member agrees not to treat, on its own income
tax return or any claim for a tax refund, any item of income, gain, loss,
deduction or credit in a manner inconsistent with the treatment of such item by
the Company.
Section
3.2. Actions by the Board of Directors.
(a)
Unless provided otherwise in this Agreement, the Board shall act only:
(i) by the affirmative vote of a majority of the Directors (including the
vote of a majority of the Independent Directors, if required by the 1940 Act)
present at a meeting duly called at which a quorum of the Directors shall be
present (in person or, if in person attendance is not required by the 1940 Act,
by telephone) or (ii) by unanimous written consent of all of the Directors
without a meeting, if permissible under the 1940 Act.
(b) The
Board may designate from time to time a Chairman who shall preside at all
meetings. Meetings of the Board may be called by the Chairman or by any two
Directors, and may be held on such date and at such time and place as the Board
shall determine. Each Director shall be entitled to receive written notice of
the date, time and place of such meeting within a reasonable time in advance of
the meeting. Notice need not be given to any Director who shall attend a meeting
without objecting to the lack of notice or who shall execute a written waiver of
notice with respect to the meeting. Directors may attend and participate in any
meeting by telephone except where in person attendance at a meeting is required
by the 1940 Act. A majority of the Directors shall constitute a quorum at any
meeting.
(c) The
Board may designate from time to time agents and employees of the Company who
shall have the same powers and duties on behalf of the Company (including the
power to bind the Company) as are customarily vested in officers of a Delaware
corporation, and designate them as officers of the Company.
Section 3.3.
Meetings of Members.
(a)
Actions requiring the vote of the Members may be taken at any duly constituted
meeting of the Members at which a quorum is present. Meetings of the Members may
be called by the Board or by Members holding a majority of the total number of
votes eligible to be cast by all Members, and may be held at such time, date and
place as the Board shall determine. The Board shall arrange to provide written
notice of the meeting, stating the date, time and place of the meeting and the
record date therefor, to each Member entitled to vote at the meeting within a
reasonable time prior thereto. Failure to receive notice of a meeting on the
part of any Member shall not affect the validity of any act or proceeding of the
meeting, so long as a quorum shall be present at the meeting, except as
otherwise required by applicable law. Only matters set forth in the notice of a
meeting may be voted on by the Members at a meeting. The presence in person or
by proxy of Members
A-7
|
|
holding a majority of the total number of votes
eligible to be cast by all Members as of the record date shall constitute
a quorum at any meeting. In the absence of a quorum, a meeting of the
Members may be adjourned by action of a majority of the Members present in
person or by proxy without additional notice to the Members. Except as
otherwise required by any provision of this Agreement or of the 1940 Act,
(i) those candidates receiving a plurality of the votes cast at any
meeting of Members shall be elected as Directors and (ii) all other
actions of the Members taken at a meeting shall require the affirmative
vote of Members holding a majority of the total number of votes eligible
to be cast by those Members who are present in person or by proxy at such
meeting.
|
(b) Each
Member shall be entitled to cast at any meeting of Members a number of votes
equivalent to such Member’s Investment Percentage as of the record date for such
meeting. The Board shall establish a record date not less than 10 nor more than
90 days prior to the date of any meeting of Members to determine eligibility to
vote at such meeting and the number of votes that each Member will be entitled
to cast thereat, and shall maintain for each such record date a list setting
forth the name of each Member and the number of votes that each Member will be
entitled to cast at the meeting.
(c) A
Member may vote at any meeting of Members by a proxy properly executed in
writing by the Member and filed with the Company before or at the time of the
meeting. A proxy may be suspended or revoked, as the case may be, by the Member
executing the proxy by a later writing delivered to the Company at any time
prior to exercise of the proxy or if the Member executing the proxy shall be
present at the meeting and decide to vote in person. Any action of the Members
that is permitted to be taken at a meeting of the Members may be taken without a
meeting if consents in writing, setting forth the action taken, are signed by
Members holding a majority of the total number of votes eligible to be cast or
such greater percentage as may be required in order to approve such
action.
Section 3.4.
Custody of Assets of the Company.
The
physical possession of all funds, Securities or other properties of the Company
shall at all times be held, controlled and administered by one or more
custodians retained by the Company in accordance with the requirements of the
1940 Act. The Manager will have no responsibility, other than that associated
with the oversight and supervision of custodians retained by the Company, with
respect to the collection of income or the physical acquisition or safekeeping
of the funds, Securities or other assets of the Company, all duties of
collection, physical acquisition or safekeeping being the sole obligation of
such custodians.
(a)
Neither the Manager nor any Director shall be required to devote its full time
to the affairs of the Company, but shall devote such time as may reasonably be
required to perform its obligations under this Agreement.
(b) Any
Member, Manager or Director, and any Affiliate of any Member, Manager or
Director, may engage in or possess an interest in other business ventures or
commercial dealings of every kind and description, independently or with others,
including, but not limited to, acquisition and disposition of Securities,
provision of investment advisory or brokerage services, serving as directors,
officers, employees, advisors or agents of other companies, partners of any
partnership, members of any limited liability company, or trustees of any trust,
or entering into any other commercial arrangements. No Member, Manager or
Director shall have any rights in or to such activities of any other Member,
Manager or Director, or any profits derived therefrom.
Section 3.6.
Duty of Care.
(a) The
Manager and Directors shall not be liable to the Company or to any of its
Members for any loss or damage occasioned by any act or omission in the
performance of their services under this Agreement, unless it shall be
determined by final judicial decision on the merits from which there is no
further right to appeal that such loss is due to an act or omission of such
Manager or Director constituting willful misfeasance, bad faith, or gross
negligence of the duties involved in the conduct of such Manager’s or Director’s
office.
(b)
Members not in breach of any obligation hereunder or under any agreement
pursuant to which the Member subscribed for an Interest shall be liable to the
Company, any Member or third parties only as provided under the Delaware
Act.
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Section 3.7.
Indemnification.
(a) To
the fullest extent permitted by law, the Company shall, subject to
Section 3.7(b) hereof, indemnify the Manager and Adviser (including for
this purpose each officer, director, member, partner, principal, employee or
agent of, or any Person who controls, is controlled by or is under common
control with, the Manager or Adviser or partner of the Manager or Adviser and
their respective executors, heirs, assigns, successors or other legal
representatives), its officers and each Director (and his respective executors,
heirs, assigns, successors or other legal representatives) (each such person an
“indemnitee”) against all losses, claims, damages, liabilities, costs and
expenses, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise, or as fines or penalties, and reasonable counsel fees,
incurred in connection with the defense or disposition of any action, suit,
investigation or other proceeding, whether civil or criminal, before any
judicial, arbitral, administrative or legislative body, in which such indemnitee
may be or may have been involved as a party or otherwise, or with which such
indemnitee may be or may have been threatened, while in office or thereafter.
Except to the extent that such loss, claim, damage, liability, cost or expense
shall have been finally determined in a judicial decision on the merits from
which no further right to appeal may be taken in any such action, suit,
investigation or other proceeding to have been incurred or suffered by such
indemnitee by reason of willful misfeasance, bad faith, breach of fiduciary duty
or gross negligence of the duties involved in the conduct of such indemnitee’s
office. The rights of indemnification provided under this Section 3.7 shall
not be construed so as to provide for indemnification of a Director for any
liability (including liability under federal securities laws which, under
certain circumstances, impose liability even on persons that act in good faith)
to the extent (but only to the extent) that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
applicable provisions of this Section 3.7 to the fullest extent permitted
by law.
(b)
Expenses, including reasonable counsel fees, so incurred by any such indemnitee
(but excluding amounts paid in satisfaction of judgments, in compromise, or as
fines or penalties), may be paid from time to time by the Company in advance of
the final disposition of any such action, suit, investigation or proceeding upon
receipt of an undertaking by or on behalf of such indemnitee to repay to the
Company amounts so paid if it shall ultimately be determined that
indemnification of such expenses is not authorized under this Section 3.7;
provided, that (i) such indemnitee shall provide security for such
undertaking, (ii) the Company shall be insured by or on behalf of such
indemnitee against losses arising by reason of such indemnitee’s failure to
fulfill such undertaking, or (iii) a majority of the Directors (excluding
any Director who is either seeking advancement of expenses hereunder or is or
has been a party to any other action, suit, investigation or proceeding
involving claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for advancement of expenses hereunder) or
independent legal counsel in a written opinion determines based on a review of
readily available facts (as opposed to a full trial-type inquiry) that there is
reason to believe such indemnitee ultimately will be entitled to
indemnification.
(c) As to
the disposition of any action, suit, investigation or proceeding (whether by a
compromise payment, pursuant to a consent decree or otherwise) without an
adjudication or a decision on the merits by a court, or by any other body before
which the proceeding shall have been brought, that an indemnitee is liable to
the Company or its Members by reason of willful misfeasance, bad faith, breach
of fiduciary duty or gross negligence of the duties involved in the conduct of
such indemnitee’s office, indemnification shall be provided pursuant to
Section 3.7(a) hereof if:
(i)
approved as in the best interests of the Company by a majority of the Directors
(excluding any Director who is either seeking indemnification hereunder or is or
has been a party to any other action, suit, investigation or proceeding
involving claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for indemnification hereunder) upon a
determination based upon a review of readily available facts (as opposed to a
full trial-type inquiry) that such indemnitee acted in good faith and in the
reasonable belief that such actions were in the best interests of the Company
and that such indemnitee is not liable to the Company or its Members by reason
of willful misfeasance, bad faith, breach of fiduciary duty or gross negligence
of the duties involved in the conduct of such indemnitee’s office,
or
(ii) the
Board secures a written opinion of independent legal counsel based upon a review
of readily available facts (as opposed to a full trial-type inquiry) to the
effect that such indemnification would not protect such indemnitee against any
liability to the Company or its Members to which such
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indemnitee would otherwise be subject by reason of
willful misfeasance, bad faith, breach of fiduciary duty or gross
negligence of the duties involved in the conduct of such indemnitee’s
office.
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(d) Any
indemnification or advancement of expenses made pursuant to this
Section 3.7 shall not prevent the recovery from any indemnitee of any such
amount if such indemnitee subsequently is determined in a final judicial
decision on the merits in any action, suit, investigation or proceeding
involving the liability or expense that gave rise to such indemnification or
advancement of expenses to be liable to the Company or its Members by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee’s office. In (i) any suit
brought by an indemnitee (or other person entitled to indemnification hereunder)
to enforce a right to indemnification under this Section 3.7 it shall be a
defense that, and (ii) in any suit in the name of the Company to recover
any indemnification or advancement of expenses made pursuant to this
Section 3.7 the Company shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee under this Section 3.7 has not met
the applicable standard of conduct set forth in this Section 3.7. In any
such suit brought to enforce a right to indemnification or to recover any
indemnification or advancement of expenses made pursuant to this
Section 3.7, the burden of proving that the indemnitee is not entitled to
be indemnified, or to any indemnification or advancement of expenses, under this
Section 3.7 shall be on the Company (or any Member acting derivatively or
otherwise on behalf of the Company or its Members).
(e) An
indemnitee may not satisfy any right of indemnification or advancement of
expenses granted in this Section 3.7 or to which such indemnitee may
otherwise be entitled except out of the assets of the Company, and no Member
shall be personally liable with respect to any such claim for indemnification or
advancement of expenses.
(f) The
rights of indemnification provided hereunder shall not be exclusive of or affect
any other rights to which any person may be entitled by contract or otherwise
under law. Nothing contained in this Section 3.7 shall affect the power of
the Company to purchase and maintain liability insurance on behalf of the
Manager, any Director, the Adviser or other person.
Section 3.8.
Fees, Expenses and Reimbursement.
(a) So
long as the Administrator provides Administrative Services to the Company, it
shall be entitled to receive reasonable and customary fees for such services as
well as out-of-pocket expenses as may be agreed to by the Administrator and the
Company pursuant to a separate written agreement.
(b) As
consideration for providing advisory services to the Master Fund, and for so
long as the Manager provides such advisory services to the Master Fund, the
Manager shall be entitled to receive the Incentive Fee in respect of Incentive
Period; provided, however, that an Incentive Fee will only be charged when the
Net Profit exceeds both the Member’s Loss Carryforward Amount and the Benchmark
Return.
(c) The
Board may cause the Company to compensate each Director for his or her services
rendered in connection with the Company. In addition, the Directors shall be
reimbursed by the Company for reasonable out-of-pocket expenses incurred by them
in performing their duties under this Agreement.
(d) The
Company shall bear all expenses related to its investment program and
operations, including, but not limited to, the Incentive Fee; fees and expenses
of the Administrator; any interest expense; attorney’s fees and disbursements
associated with preparing and updating offering materials and with qualifying
prospective investors; fees and disbursements of any accountants engaged by the
Company, and expenses related to the annual audit of the Company;
record-keeping, custody and escrow fees and expenses; the costs of errors and
omissions/directors’ and officers’ liability insurance and a fidelity bond; the
costs of preparing and mailing reports and other communications, including
proxy, tender offer correspondence or similar materials, to Members; fees and
travel expenses of Directors relating to meetings of the Board and committees
thereof; and any extraordinary expenses, including indemnification expenses as
provided in this Agreement.
The
Offshore Fund will bear its allocable portion of the operating expenses of the
Master Fund and expenses of the Master Fund’s investment in the Investment
Funds, including, but not limited to, fees paid and expenses reimbursed to
Investment Funds or Investment Managers (including management fees, performance
or incentive fees or allocations and redemption or withdrawal fees, however
titled or structured); all costs and expenses directly related to portfolio
transactions and positions for the Master Fund’s account such as direct and
indirect expenses associated with the Master Fund’s investments, including its
investments in Investment Funds (whether or not
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consummated),
and enforcing the Master Fund’s rights in respect of such investments; transfer
taxes and premiums; taxes withheld on non-U.S. dividends; fees for data and
software providers; research expenses; professional fees (including, without
limitation, the fees and expenses of consultants, attorneys and experts); if
applicable in connection with temporary or cash management investments,
brokerage commissions, interest and commitment fees on loans and debit balances,
borrowing charges on securities sold short, dividends on securities sold but not
yet purchased and margin fees; any non-investment-related interest expense;
attorneys’ fees and disbursements; fees and disbursements of any accountants
engaged by the Master Fund, and expenses related to the annual audit of the
Master Fund; record-keeping and custody fees and expenses; the costs of errors
and omissions/directors’ and officers’ liability insurance and a fidelity bond;
the Management Fee; the costs of preparing and mailing reports and other
communications to the Master Fund’s investors; expenses in connection with the
ongoing offering of the Master Fund’s interests; fees and travel expenses of
directors relating to meetings of the Master Fund’s Board of Directors and
committees thereof; all costs and charges for equipment or services used in
communicating information regarding the Master Fund’s transactions; and any
extraordinary expenses, including indemnification expenses.
(e)
Subject to procuring any required regulatory approvals, from time to time the
Company may, alone or in conjunction with other accounts for which the Manager,
or any of its affiliates, acts as general partner or investment adviser,
purchase insurance in such amounts, from such insurers and on such terms as the
Board shall determine.
(f) The
expenses incurred by the Manager in connection with the Company’s formation,
initial registration as an investment company under the 1940 Act, and the
initial offering of Interests of the Company will be reimbursed to the Manager
from the assets of the Company. The Company will only be obliged to reimburse
organizational expenses and offering costs for twelve months after the Closing
Date and if after such time such costs remain unpaid to the Manager, the Manager
will bear the remaining portion of such expenditures. If such expenditures are
paid in full prior to the twelfth month then, during the remainder of the twelve
month period, newly admitted Members, and existing Members that subscribe for
additional Interests, will be allocated a proportionate share of the amount
previously reimbursed to the Manager, and those Members who bore the previously
reimbursed expenditures will be credited with a proportionate share of the
expenditures allocated to such newly admitted or existing Members. Expenses
incurred in connection with the ongoing offering of Interests of the Company
will be borne by the Company.
(g) In
consideration of the services provided by the Manager to the Master Fund under
the Investment Management Agreement, the Master Fund will pay the Manager a
quarterly fee of 0.3125% of the Master Fund’s net assets (the “Management Fee”).
The Offshore Fund, through its investment in the Master Fund, will bear its
allocable portion of the Management Fee. In its sole discretion, the Manager
shall be entitled to reduce the Offshore Fund’s share of the Management Fee, and
such reduction will be for the benefit of all Members.
TERMINATION
OF STATUS OF MANAGER AND DIRECTORS, TRANSFERS AND REPURCHASES
Section 4.1.
Termination of Status of the Manager.
The
status of the Manager as investment manager under the Investment Management
Agreement between the Company and the Manager shall be terminated at any time,
(i) by the Company on 60 days’ written notice to the Manager, without the
payment any penalty, by a vote of a majority of the entire Board or by vote of a
majority of the outstanding voting securities of the Company; or (ii) upon
90 days’ written notice by the Manager. The status of the Manager as investment
manager of the Master Fund shall be terminated if the Investment Management
Agreement between the Master Fund and the Manager terminates and the Master Fund
does not enter into a new investment management agreement with the Manager,
effective as of the date of such termination. The Investment Management
Agreement will automatically and immediately terminate in the event of its
assignment by the Manager, provided that an assignment to a successor to all or
substantially all of the Manager’s business or to a wholly-owned subsidiary of
such successor which does not result in a change of actual control of the
Manager’s business shall not be deemed to be an assignment for the purposes of
the Investment Management Agreement.
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Section 4.2.
Termination of Status of a Director.
The
status of a Director shall terminate if the Director, pursuant to Delaware law,
is removed, resigns or is subject to various disabling events such as death,
incapacity or bankruptcy. A Director may resign, subject to giving 90 days’
prior written notice to the other Directors if such resignation is likely to
affect adversely the tax status of the Company.
Section 4.3.
Removal of the Directors.
Any
Director may be removed either by (a) the vote or written consent of at
least two-thirds (2/3) of the Directors not subject to the removal vote or
(b) the vote or written consent of Members holding not less than two-thirds
(2/3) of the total number of votes eligible to be cast by all
Members.
Section 4.4.
Removal of the Manager.
The
Manager may be removed as Manager under this Agreement by the vote or written
consent of Members holding not less than 80% of the total number of votes
eligible to be cast by all Members.
Section 4.5.
Transfer of Interests of Members.
(a) An
Interest of a Member may be transferred only (i) by operation of law
pursuant to the bankruptcy, insolvency or dissolution of such Member or
(ii) under certain limited circumstances with the written consent of the
Board (which may be withheld in its sole discretion).
(b) The
Board may not consent to a Transfer unless:
(i) (x)
the Company consults with legal counsel to the Company and counsel confirms that
the Transfer will not cause the Company to be treated as a “publicly traded
partnership” taxable as a corporation or be subject to any other adverse tax or
regulatory treatment and (y) the following conditions are met: (i) the
Transferring Member has been a Member for at least six (6) months;
(ii) the proposed Transfer is to be made on a Valuation Date; and
(iii) the Transfer is one in which the tax basis of the Interest in the
hands of the transferee is determined, in whole or in part, by reference to its
tax basis in the hands of the Transferring Member (e.g., certain Transfers to
affiliates);
(ii) (x)
the person to whom the Interest is Transferred (or each of the person’s
beneficial owners if such a person is a “private investment company” as defined
in paragraph (d)(3) of Rule 205-3 under the Advisers Act) is a person whom the
Board believes meets the requirements of paragraph (d)(1) of Rule 205-3 under
the Advisers Act or any successor rule thereto and (y) the person to whom
the Interest is Transferred is one of the following: (A) a pension,
profit-sharing, or other employee benefit trust that is exempt from taxation
under Section 501(a) of the Code by reason of qualification under
Section 401 of the Code; (B) an employee benefit plan or other program
established pursuant to Sections 403(b), 408(k) or 457 of the Code; (C) a
deferred compensation plan established by a corporation, partnership, non-profit
entity or state and local government, or government-sponsored program, in each
case, which is generally exempt from U.S. federal income tax; (D) a
foundation, endowment or other organization that is exempt from taxation under
Section 501(c) of the Code (other than an organization exempt under
Section 501(c)(1)); (E) an individual retirement account (“IRA”)
(including a regular IRA, spousal IRA for non-working spouse, Roth IRA and
rollover IRA); or (F) a state college or university; and
(iii) the
entire Interest of the Member is Transferred to a single transferee or, in the
case of multiple transferees, after the Transfer of a portion of an Interest,
the balance of the Capital Account of each transferee and the remaining balance
of the Capital Account of the transferor (if any) is each not less than $50,000
or such lesser amount as the Board may determine in its sole
discretion.
(c) Any
transferee that acquires an Interest by operation of law as the result of the
bankruptcy, insolvency or dissolution of a Member, shall be entitled to the
allocations and distributions allocable to the Interest so acquired and to
Transfer such Interest in accordance with the terms of this Agreement, but shall
not be entitled to the other rights of a Member unless and until such transferee
becomes a substituted Member. Once a Member obtains the approval of the Board
and satisfies the other requirements to transfer its Interests, the Board shall
promptly take all necessary actions so that the transferee to whom such Interest
is transferred is admitted to the Company as a Member.
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(d) In no
event, however, will any transferee or assignee be admitted as a Member without
the consent of the Board, which may be withheld in its sole discretion. Any
pledge, transfer, or assignment not made in accordance with this
Section 4.5 shall be void.
(e) The
admission of any transferee as a substituted Member will be effective upon the
execution and delivery by, or on behalf of, the substituted Member of this
Agreement or an instrument that constitutes the execution and delivery of this
Agreement. Each Member and transferee agrees to pay all expenses, including
attorneys’ and accountants’ fees, incurred by the Company in connection with any
Transfer. If a Member Transfers its entire Interest as a Member, it will not
cease to be a Member unless and until the transferee is admitted to the Company
as a substituted Member in accordance with this Section 4.5.
(f) Each
Member shall indemnify and hold harmless the Company, the Directors, the
Manager, each other Member and any Affiliate of the foregoing against all
losses, claims, damages, liabilities, costs and expenses (including legal or
other expenses incurred in investigating or defending against any such losses,
claims, damages, liabilities, costs and expenses or any judgments, fines and
amounts paid in settlement), joint or several, to which such persons may become
subject by reason of, or arising from, (i) any Transfer made by such Member
in violation of this Section 4.5 and (ii) any misrepresentation by
such Member in connection with any such Transfer.
Section 4.6.
Repurchase of Interests.
(a)
Except as otherwise provided in this Agreement, no Member or other person
holding an Interest or portion thereof shall have the right to withdraw or
tender to the Company for repurchase that Interest or portion thereof. The Board
from time to time, in its sole discretion and on such terms and conditions as it
may determine, may cause the Company to repurchase Interests or portions thereof
pursuant to written tenders. However, the Company shall not offer to repurchase
Interests on more than two occasions during any Taxable Year unless it has
received an opinion of counsel to the effect that such more frequent offers
would not cause any adverse tax consequences to the Company or Members. In
determining whether to cause the Company to repurchase Interests pursuant to
written tenders, the Board shall consider the recommendation of the Manager, and
shall also consider the following factors, among others:
(i)
whether any Members have requested to tender Interests or portions thereof to
the Company;
(ii) the
liquidity of the Company’s assets (including fees and costs associated with
withdrawing from Investment Funds);
(iii) the
investment plans and working capital and reserve requirements of the
Company;
(iv) the
relative economies of scale with respect to the size of the
Company;
(v) the
history of the Company in repurchasing Interests; and
(vi) the
anticipated tax consequences of any proposed repurchases of
Interests.
The Board
shall cause the Company to repurchase Interests or portions thereof pursuant to
written tenders only on terms fair to the Company and to all Members (including
persons holding Interests acquired from Members), as applicable.
(b) A
Member tendering for repurchase only a portion of the Member’s Interest will be
required to maintain a Capital Account balance of at least $50,000 after giving
effect to the repurchase. If a Member tenders an amount that would cause the
Member’s Capital Account balance to fall below the required minimum, the Manager
reserves the right to reduce the amount to be repurchased from the Member so
that the required minimum balance is maintained or to repurchase the Member’s
entire Interest in the Company.
(c)
Repurchases pursuant to Company tender offers shall be effective after receipt
and acceptance by the Company of all eligible written tenders of Interests from
Members and, unless otherwise determined by the Board from time to time,
including as a result of changes in applicable law or the interpretation
thereof, shall be subject to the following repurchase procedures:
(i)
Members choosing to tender an Interest for repurchase must do so by the
applicable Notice Date. Generally, the Notice Date will be the last calendar day
of the third month prior to the month containing the date as of which Interests
are to be repurchased. (For example, the Notice Date for a repurchase offer
having a December 31 repurchase date would be September 30.) Interests
(or portions
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thereof) will be valued as of the Valuation Date
(which date, unless otherwise determined by the Board, shall be the last
business day of the month in which such Interests are to be
repurchased);
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(ii)
Promptly after the Notice Date, the Company will give to each Member whose
Interest has been accepted for repurchase a Promissory Note entitling the Member
to be paid an amount equal to the value, determined as of the Valuation Date, of
the repurchased Interest;
(iii) The
Promissory Note, which will be non-interest bearing and non-transferable, is
expected to contain terms providing for payment at two separate
times;
(iv) The
initial payment in respect of the Promissory Note (the “Initial Payment”) will
be in an amount equal to at least 90% of the estimated value of the repurchased
Interest, determined as of the Valuation Date. The Initial Payment will be made
as of the later of (1) a period of within 30 days after the Valuation Date,
or (2) if the Master Fund has requested withdrawals of its capital from any
Investment Funds in order to fund the repurchase of the Company’s interests in
the Master Fund (through the Offshore Fund), within ten business days after the
Master Fund has received at least 90% of the aggregate amount withdrawn from
such Investment Funds; and
(v) The
second and final payment in respect of the Promissory Note (the “Post-Audit
Payment”) will be in an amount equal to the excess, if any, of (1) the
value of the repurchased Interest, determined as of the Valuation Date and based
upon the results of the annual audit of the Company’s financial statements for
the year in which the Valuation Date occurs, over (2) the Initial Payment.
The Manager anticipates that the annual audit of the Company’s financial
statements will be completed within 60 days after the end of each Fiscal Year
and that the Post-Audit Payment will be made promptly after the completion of
the audit.
(vi)
Although the amounts required to be paid by the Company under the Promissory
Note will generally be paid in cash, the Company may under certain limited
circumstances pay all or a portion of the amounts due by an in-kind distribution
of securities.
(d)
Notwithstanding anything in the foregoing to the contrary, the Board, in its
discretion, may pay all or any portion of the repurchase price in marketable
Securities (or any combination of marketable Securities and cash) having a
value, determined as of the date of repurchase, equal to the amount to be
repurchased.
All
repurchases of Interests shall be subject to any and all conditions as the Board
may impose in its sole discretion. The amount due to any Member whose Interest
or portion thereof is repurchased shall be equal to the audited value of such
Member’s Capital Account or portion thereof, as applicable, as of the Valuation
Date, after giving effect to all allocations to be made to such Member’s Capital
Account as of such date.
(e) The
Board may, in its sole discretion, elect to impose charges on Members who submit
their Interest for repurchase.
CAPITAL
Section 5.1.
Contributions to Capital.
(a) The
minimum initial contribution of each Member to the capital of the Company shall
be $75,000, subject to the discretion of the Manager to accept initial
investments in lesser amounts. The amount of the initial contribution of each
Member shall be recorded on the books and records of the Company upon acceptance
as a contribution to the capital of the Company.
(b) The
Members may make additional contributions to the capital of the Company of at
least $10,000 (subject to the discretion of the Manager to accept additional
contributions in lesser amounts), effective as of such times as the Manager, in
its discretion, may permit, subject to Section 2.7 hereof, but no Member
shall be obligated to make any additional contribution to the capital of the
Company except to the extent provided in Section 5.7 hereof.
(c)
Except as otherwise permitted by the Board, (i) initial and any additional
contributions to the capital of the Company by any Member shall be payable in
cash, and (ii) initial and any additional contributions in cash shall be
payable in readily available funds.
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Section 5.2.
Rights of Members to Capital.
No Member
shall be entitled to interest on any contribution to the capital of the Company,
nor shall any Member be entitled to the return of any capital of the Company
except (i) upon the repurchase by the Company of a part or all of such
Member’s Interest pursuant to Section 4.6 hereof or (ii) upon the
liquidation of the Company’s assets pursuant to Section 6.2 hereof. Except
as specified in the Delaware Act, or with respect to distributions or similar
disbursements made in error, no Member shall be liable for the return of any
such amounts. No Member shall have the right to require partition of the
Company’s property or to compel any sale or appraisal of the Company’s
assets.
Section 5.3.
Capital Accounts.
(a) The
Company shall maintain a separate Capital Account for each Member.
(b) Each
Member’s Capital Account shall have an initial balance equal to the amount of
cash constituting such Member’s initial contribution to the capital of the
Company.
(c) Each
Member’s Capital Account shall be increased by the sum of (i) the amount of
cash constituting additional contributions by such Member to the capital of the
Company permitted pursuant to Section 5.1 hereof, plus (ii) all
amounts credited to such Member’s Capital Account pursuant to Section 5.4
through Section 5.8 hereof.
(d) Each
Member’s Capital Account shall be reduced by the sum of (i) the amount of
any repurchase of the Interest, or portion thereof, of such Member or
distributions to such Member pursuant to Section 4.6, Section 5.10,
Section 5.11 or Section 6.2 hereof that are not reinvested (net of any
liabilities secured by any asset distributed that such Member is deemed to
assume or take subject to under Section 752 of the Code), plus
(ii) any amounts debited against the Member’s Capital Account pursuant to
Section 5.4 through Section 5.8 hereof.
(e) In
the event all or a portion of the Interest of a Member is Transferred in
accordance with the terms of this Agreement, the Transferee will succeed to the
Capital Account of the Transferor to the extent of the Transferred Interest or
portion of an Interest.
(f) No
Member will be required to pay the Company or any other Member any deficit in
such Member’s Capital Account upon dissolution of the Company or
otherwise.
Section 5.4.
Allocation of Net Profits and Net Losses.
As of the
last day of each Fiscal Period, any Net Profits or Net Losses for the Fiscal
Period shall be allocated among and credited to or debited against the Capital
Accounts of the Members in accordance with their respective Investment
Percentages for such Fiscal Period.
Section
5.5. Allocation of Insurance Premiums and
Proceeds.
(a) Any
premiums payable by the Company for insurance purchased pursuant to
Section 3.8(d) and Section 3.8(e) above shall be apportioned evenly
over each Fiscal Period or portion thereof falling within the period to which
such premiums relate under the terms of such insurance, and the portion of the
premiums so apportioned to any Fiscal Period shall be allocated among and
debited against the Capital Accounts of each Member who is a member of the
Company during such Fiscal Period in accordance with such Member’s Investment
Percentage for such Fiscal Period.
(b)
Proceeds, if any, to which the Company may become entitled pursuant to such
insurance shall be allocated among and credited to the Capital Accounts of each
Member who is a member of the Company during the Fiscal Period in which the
event that gives rise to recovery of proceeds occurs in accordance with such
Member’s Investment Percentage for such Fiscal Period.
Section 5.6.
Allocation of Certain Expenditures.
Except as
otherwise provided for in this Agreement and unless prohibited by the 1940 Act,
any expenditures payable by the Company, to the extent determined by the Board
to have been paid or withheld on behalf of, or by reason of particular
circumstances applicable to, one or more but fewer than all of the Members,
shall be charged to
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only
those Members on whose behalf such payments are made or whose particular
circumstances gave rise to such payments. Such charges shall be debited from the
Capital Accounts of such Members as of the close of the Fiscal Period during
which any such items were paid or accrued by the Company.
Section 5.7.
Reserves.
(a)
Appropriate reserves may be created, accrued and charged against Net Assets and
proportionately against the Capital Accounts of the Members for contingent
liabilities, if any, as of the date any such contingent liability becomes known
to the Manager or the Board. Such reserves will be in the amounts that the
Board, in its sole discretion, deems necessary or appropriate. The Board may
increase or reduce any such reserves from time to time by such amounts as the
Board, in its sole discretion, deems necessary or appropriate. The amount of any
such reserve, or any increase or decrease therein, shall be proportionately
charged or credited, as appropriate, to the Capital Accounts of those parties
who are Members at the time when such reserve is created, increased or
decreased, except that if any such individual reserve item, adjusted by any
increase therein, exceeds the lesser of $500,000 or 1% of the aggregate value of
the Capital Accounts of all such Members, then the amount of the reserve,
increase or decrease may instead be charged or credited to those parties who
were Members at the time, as determined by the Board in its sole discretion, of
the act or omission giving rise to the contingent liability for which the
reserve was established, increased or decreased in proportion to their Capital
Accounts at that time.
(b) If at
any time an amount is paid or received by the Company (other than contributions
to the capital of the Company, distributions or repurchases of Interests or
portions thereof) and such amount exceeds the lesser of $500,000 or 1% of the
aggregate value of the Capital Accounts of all Members at the time of payment or
receipt and such amount was not accrued or reserved for but would nevertheless,
in accordance with the Company’s accounting practices, be treated as applicable
to one or more prior Fiscal Periods, then such amount shall be proportionately
charged or credited, as appropriate, to those parties who were Members during
such prior Fiscal Period or Periods.
Section 5.8.
Allocation of Organizational Expenses.
The
Manager will allocate among the Members a monthly expense to reimburse the
Manager for the Company’s organizational expenses and offering costs, as
described in Section 3.8(f).
Section 5.9.
Tax Allocations.
(a) For
each Fiscal Year, items of income, deduction, gain, loss or credit shall be
allocated for income tax purposes among the Members in such manner as to reflect
equitably amounts credited or debited to each Member’s Capital Account for the
current and prior fiscal years (or relevant portions thereof). Allocations under
this Section 5.9 shall be made pursuant to the principles of Sections
704(b) and 704(c) of the Code, and in conformity with Treasury Regulations
Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e) promulgated
thereunder, as applicable, or the successor provisions to such Section and
Regulations. Notwithstanding anything to the contrary in this Agreement, there
shall be allocated to the Members such gains or income as shall be necessary to
satisfy the “qualified income offset” requirements of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d).
(b) If
the Company realizes capital gains (including short-term capital gains) for U.S.
federal income tax purposes for any Fiscal Year during or as of the end of which
the Interests of one or more Positive Basis Members (as hereinafter defined) are
repurchased by the Company pursuant to Article IV, the Manager may elect to
allocate net gains as follows:
(i) to
such Positive Basis Members, in proportion to the Positive Basis (as hereinafter
defined) of each such Positive Basis Member, until either the full amount of the
net gains has been so allocated or the Positive Basis of each Positive Basis
Member shall have been eliminated; and
(ii) any
net gains not so allocated to Positive Basis Members to the other Members in a
manner that equitably reflects the amounts credited to the Members’ Capital
Accounts.
(c) If
the Company realizes capital losses for U.S. federal income tax purposes for any
Fiscal Year during or as of the end of which the Interests of one or more
Negative Basis Members (as hereinafter defined) are repurchased by the Company
under Article IV of this Agreement, the Manager may elect to allocate net losses
as follows:
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(i) to
such Negative Basis Members, in proportion to the Negative Basis (as hereafter
defined) of each Negative Basis Member, until either the full amount of net
losses will have been so allocated or the Negative Basis of each Negative Basis
Member has been eliminated, and
(ii) any
net losses not so allocated to Negative Basis Members, to the other Members in a
manner that reflects equitably the amounts credited to the Members’ Capital
Accounts.
(d) As
used herein, (i) the term “Positive Basis” means, with respect to any
Member and as of any time of calculation, the amount by which the value of its
Interest as of such time exceeds its “adjusted tax basis,” for U.S. federal
income tax purposes, in its Interest as of such time (determined without regard
to any adjustments made to such “adjusted tax basis” by reason of any transfer
or assignment of such Interest and without regard to such Member’s share of the
liabilities of the Company under Section 752 of the Code), and
(ii) the term “Positive Basis Member” means any Member whose Interest is
repurchased by the Company and who has Positive Basis as of the effective date
of the repurchase, but such Member shall cease to be a Positive Basis Member at
such time as it shall have received allocations pursuant to clause (i) of
paragraph (b) equal to its Positive Basis as of the effective date of such
repurchase.
(e) The
term “Negative Basis” means, with respect to any Member and as of any time of
calculation, the amount by which the Member’s “adjusted tax basis,” for U.S.
federal income tax purposes, in the Member’s Interest in the Company as of that
time (determined without regard to any adjustments made to the “adjusted tax
basis” by reason of any Transfer or assignment of the Interest and without
regard to such Member’s share of the liabilities of the Company under
Section 752 of the Code) exceeds the value of its Interest as of such time.
As used in this Section 5.9, the term “Negative Basis Member” means any
Member whose Interest is repurchased by the Company and who has Negative Basis
as of the effective date of the repurchase, but such Member shall cease to be a
Negative Basis Member at such time as it shall have received allocations
pursuant to clause (i) of paragraph (c) equal to its Negative Basis as
of the effective date of such repurchase.
Section 5.10.
Distributions.
The
Board, in its sole discretion, may authorize the Company to make distributions
in cash or in kind at any time to all of the Members on a pro rata basis in
accordance with the Members’ Investment Percentages.
Section 5.11.
Withholding.
(a) The
Board may withhold and pay over to the Internal Revenue Service (or any other
relevant taxing authority) taxes from any distribution to any Member to the
extent required by the Code or any other applicable law.
(b) For
purposes of this Agreement, any taxes so withheld by the Company, or withheld by
any other person, with respect to any amount distributed by the Company to any
Member shall be deemed to be a distribution or payment to such Member pursuant
to this Agreement, reducing the amount otherwise distributable to such Member
pursuant to this Agreement and reducing the Capital Account of such Member. If
the amount of such taxes is greater than any such distributable amounts, then
such Member and any successor to such Member’s Interest shall pay to the Company
as a contribution to the capital of the Company, upon demand of the Board, the
amount of such excess.
(c) The
Board shall not be obligated to apply for or obtain a reduction of or exemption
from withholding tax on behalf of any Member that may be eligible for such
reduction or exemption. To the extent that a Member claims to be entitled to a
reduced rate of, or exemption from, a withholding tax pursuant to an applicable
income tax treaty, or otherwise, the Member shall furnish the Board with such
information and forms as such Member may be required to complete where necessary
to comply with any and all laws and regulations governing the obligations of
withholding tax agents. Each Member represents and warrants that any such
information and forms furnished by such Member shall be true and accurate and
agrees to indemnify the Company and each of the Members from any and all
damages, costs and expenses resulting from the filing of inaccurate or
incomplete information or forms relating to such withholding taxes.
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DISSOLUTION
AND LIQUIDATION
Section 6.1.
Dissolution.
The
Company shall be dissolved:
(a) upon
the affirmative vote to dissolve the Company by: (i) the Board or
(ii) Members holding at least two-thirds (2/3) of the total number of
votes eligible to be cast by all Members;
(b) upon
the failure of the Members to elect a successor Director at a meeting called by
Manager in accordance with Section 2.6 hereof when no Director remains to
continue the business of the Company;
(c) upon
the expiration of any two year period that commences on the date on which any
Member has submitted a written notice to the Company requesting to tender its
entire Interest for repurchase by the Company, if such Interest has not been
repurchased by the Company; or
(d) as
required by operation of law.
Dissolution
of the Company shall be effective on the later of the day on which the event
giving rise to the dissolution shall occur, but the Company shall not terminate
until the assets of the Company have been liquidated in accordance with
Section 6.2 hereof and the Certificate has been canceled.
Section 6.2.
Liquidation of Assets.
(a) Upon
the dissolution of the Company as provided in Section 6.1 hereof, the Board
shall promptly appoint the Board or Manager as the liquidator and the Board or
Manager shall liquidate the business and administrative affairs of the Company,
except that if the Board does not appoint the Manager as the liquidator or the
Board is unable to perform this function, another liquidator will be elected by
the Board. Net Profits and Net Losses during the period of liquidation shall be
allocated pursuant to Section 5.4 hereof. The proceeds from liquidation
(after establishment of appropriate reserves for contingencies in such amount as
the Board or other liquidator shall deem appropriate in its sole discretion as
applicable) shall be distributed in the following manner:
(i) the
debts, liabilities and obligations of the Company, other than debts to Members,
and the expenses of liquidation (including legal and accounting expenses
incurred in connection therewith), up to and including the date that
distribution of the Company’s assets to the Members has been completed, shall
first be paid on a proportionate basis;
(ii) such
debts, liabilities or obligations as are owing to the Members shall next be paid
in their order of seniority and on a proportionate basis; and
(iii) the
Members shall next be paid on a proportionate basis the positive balances of
their respective Capital Accounts after giving effect to all allocations to be
made to such Members’ Capital Accounts for the Fiscal Period ending on the date
of the distributions under this Section 6.2.
(b)
Anything in this Section 6.2 to the contrary notwithstanding, upon
dissolution of the Company, the Board or other liquidator may distribute ratably
in kind any assets of the Company; provided, however, that if any in-kind
distribution is to be made (i) the assets distributed in kind shall be
valued pursuant to Section 7.3 hereof as of the actual date of their
distribution and charged as so valued and distributed against amounts to be paid
under Section 6.2(a) above, and (ii) any profit or loss attributable
to property distributed in-kind shall be included in the Net Profits or Net
Losses for the Fiscal Period ending on the date of such
distribution.
ACCOUNTING,
VALUATIONS AND BOOKS AND RECORDS
Section 7.1.
Accounting and Reports.
(a) The
Company shall adopt for tax accounting purposes any accounting method that the
Board shall decide in its sole discretion is in the best interests of the
Company. The Company’s accounts shall be maintained in U.S.
currency.
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(b) After
the end of each Taxable Year, the Company shall furnish to each Member such
information regarding the operation of the Company and such Member’s Interest as
is necessary for Members to complete U.S. federal and state income tax or
information returns and any other tax information required by U.S. federal and
state law.
(c)
Except as otherwise required by the 1940 Act, or as may otherwise be permitted
by rule, regulation or order, within 60 days after the close of the period for
which a report required under this Section 7.1 is being made, the Company
shall furnish to each Member an unaudited semi-annual report and an audited
annual report containing the information required by such Act. The Company shall
cause financial statements contained in each annual report furnished hereunder
to be accompanied by a certificate of independent public accountants based upon
an audit performed in accordance with generally accepted accounting principles.
The Company may furnish to each Member such other periodic reports as it deems
necessary or appropriate in its discretion.
Section 7.2.
Determinations by the Board of Directors.
(a) All
matters concerning the determination and allocation among the Members of the
amounts to be determined and allocated pursuant to Article V hereof, including
any taxes thereon and accounting procedures applicable thereto, shall be
determined by the Board unless specifically and expressly otherwise provided for
by the provisions of this Agreement or required by law, and such determinations
and allocations shall be final and binding on all the Members.
(b) The
Board may make such adjustments to the computation of Net Profits or Net Losses,
and the allocation thereof to a Member’s Capital Account, or any components
comprising any of the foregoing as it considers appropriate to reflect fairly
and accurately the financial results of the Company and the intended allocation
thereof among the Members.
Section 7.3.
Valuation of Assets.
(a)
Valuation of Securities and other assets shall be made by the Board in
accordance with the requirements of the 1940 Act and the valuation procedures
adopted by the Board.
(b) The
value of the assets and liabilities shall be determined by reference to the
latest market prices and values available and in further accordance with the
valuation procedures adopted by the Board.
(c) The
value of Securities and other assets of the Company and the net worth of the
Company as a whole determined pursuant to this Section 7.3 shall be
conclusive and binding on all of the Members and all parties claiming through or
under them.
Section 8.1.
Amendment of Limited Liability Company
Agreement.
(a)
Except as otherwise provided in this Section 8.1, this Agreement may be
amended, in whole or in part, with: (i) the approval of the Board
(including the vote of a majority of the Independent Directors, if required by
the 1940 Act) without the Members approval; and (ii) if required by the
1940 Act, the approval of the Members by such vote as is required by the 1940
Act.
(b) Any
amendment that would:
(i)
increase the obligation of a Member to make any contribution to the capital of
the Company;
(ii)
reduce the Capital Account of a Member other than in accordance with Article V;
or
(iii)
modify the events causing the dissolution of the Company;
may be
made only if (i) the written consent of each Member adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such
amendment does not become effective until (A) each Member has received
written notice of such amendment and (B) any Member objecting to such
amendment has been afforded a reasonable opportunity (pursuant to such
procedures as may be prescribed by the Board) to tender its entire Interest for
repurchase by the Company.
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(c) The
power of the Board to amend this Agreement at any time without the consent of
the other Members as set forth in paragraph (a) of this Section 8.1
shall specifically include the power to:
(i)
restate this Agreement together with any amendments hereto that have been duly
adopted in accordance herewith to incorporate such amendments in a single,
integrated document;
(ii)
amend this Agreement (other than with respect to the matters set forth in
Section 8.1(b) hereof) to effect compliance with any applicable law or
regulation or to cure any ambiguity or to correct or supplement any provision
hereof that may be inconsistent with any other provision hereof;
and
(iii)
amend this Agreement to make such changes as may be necessary or advisable to
ensure that the Company will not be treated as an association or a publicly
traded partnership taxable as a corporation as defined in Section 7704(b)
of the Code for U.S. federal income tax purposes.
(d) The
Board shall cause written notice to be given of any amendment to this Agreement
to each Member, which notice shall set forth (i) the text of the proposed
amendment or (ii) a summary thereof and a statement that the text of the
amendment thereof will be furnished to any Member upon request.
Section 8.2.
Special Power of Attorney.
(a) Each
Member hereby irrevocably makes, constitutes and appoints each Director, acting
severally, and any liquidator of the Company’s assets appointed pursuant to
Section 6.2 hereof with full power of substitution, the true and lawful
representatives and attorneys-in-fact of, and in the name, place and stead of,
such Member, with the power from time to time to make, execute, sign,
acknowledge, swear to, verify, deliver, record, file and/or
publish:
(i) any
amendment to this Agreement that complies with the provisions of this Agreement
(including the provisions of Section 8.1 hereof);
(ii) any
amendment to the Certificate required because this Agreement is amended,
including, without limitation, an amendment to effectuate any change in the
membership of the Company; and
(iii) all
such other instruments, documents and certificates that, in the opinion of legal
counsel to the Company, may from time to time be required by the laws of the
United States of America, the State of Delaware or any other jurisdiction in
which the Company shall determine to do business, or any political subdivision
or agency thereof, or that such legal counsel may deem necessary or appropriate
to effectuate, implement and continue the valid existence and business of the
Company as a limited liability company under the Delaware Act.
(b) Each
Member is aware that the terms of this Agreement permit certain amendments to
this Agreement to be effected and certain other actions to be taken or omitted
by or with respect to the Company without such Member’s consent. If an amendment
to the Certificate or this Agreement or any action by or with respect to the
Company is taken in the manner contemplated by this Agreement, each Member
agrees that, notwithstanding any objection that such Member may assert with
respect to such action, the attorneys-in-fact appointed hereby are authorized
and empowered, with full power of substitution, to exercise the authority
granted above in any manner that may be necessary or appropriate to permit such
amendment to be made or action lawfully taken or omitted. Each Member is fully
aware that each Member will rely on the effectiveness of this special
power-of-attorney with a view to the orderly administration of the affairs of
the Company.
(c) This
power-of-attorney is a special power-of-attorney and is coupled with an interest
in favor of each of the Directors and as such:
(i) shall
be irrevocable and continue in full force and effect notwithstanding the
subsequent death or incapacity of any party granting this power-of-attorney,
regardless of whether the Company or Board shall have had notice thereof;
and
(ii)
shall survive the delivery of a Transfer by a Member of the whole or any portion
of such Member’s Interest, except that where the transferee thereof has been
approved by the Board for admission to the Company as a substituted Member or
upon the withdrawal of a Member from the Company pursuant to a periodic tender,
this power-of-attorney given by the transferor shall survive the delivery of
such assignment or withdrawal for the sole purpose of enabling the Board to
execute, acknowledge and file any instrument necessary to effect such
substitution or withdrawal.
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Section 8.3.
Notices.
Notices
that may or are required to be provided under this Agreement shall be made, if
to a Member, by regular mail, or if to the Board or the Manager, by hand
delivery, registered or certified mail return receipt requested, commercial
courier service, telex or telecopier, and shall be addressed to the respective
parties hereto at their addresses as set forth in the books and records of the
Company. Notices shall be deemed to have been provided, when delivered by hand,
on the date indicated as the date of receipt on a return receipt or when
received if sent by regular mail, commercial courier service, telex or
telecopier. A document that is not a notice and that is required to be provided
under this Agreement by any party to another party may be delivered by any
reasonable means.
Section 8.4.
Agreement Binding Upon Successors and
Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors, assigns, executors, trustees or other
legal representatives, but the rights and obligations of the parties hereunder
may not be Transferred or delegated except as provided in this Agreement and any
attempted Transfer or delegation thereof that is not made pursuant to the terms
of this Agreement shall be void.
Section 8.5.
Applicability of 1940 Act and Form N-2.
The
parties hereto acknowledge that this Agreement is not intended to, and does not,
set forth the substantive provisions contained in the 1940 Act and the Form N-2
that affect numerous aspects of the conduct of the Company’s business and of the
rights, privileges and obligations of the Members. Each provision of this
Agreement shall be subject to, and interpreted in a manner consistent with the
applicable provisions of, the 1940 Act and the Form N-2.
Section 8.6.
Choice of Law; Arbitration.
(a)
Notwithstanding the place where this Agreement may be executed by any of the
parties hereto, the parties expressly agree that all the terms and provisions
hereof shall be construed under the laws of the State of Delaware, including the
Delaware Act without regard to the conflict of law principles of such
State.
(b) To
the extent such action is consistent with the provisions of the 1940 Act and any
other applicable law, except as provided in Section 8.11(b) of this
Agreement, each Member agrees to submit all controversies arising between or
among Members or one or more Members and the Company in connection with the
Company or its businesses or concerning any transaction, dispute or the
construction, performance or breach of this Agreement or any other agreement
relating to the Company, whether entered into prior to, on or subsequent to the
date of this Agreement, to arbitration in accordance with the provisions set out
in this
Section 8.6.
EACH MEMBER UNDERSTANDS THAT ARBITRATION IS FINAL AND BINDING ON THE MEMBERS AND
THAT THE MEMBERS IN EXECUTING THIS AGREEMENT ARE WAIVING THEIR RIGHTS TO SEEK
REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL.
(c)
Controversies will be finally settled by, and only by, arbitration in accordance
with the commercial arbitration rules of the American Arbitration Association
(the “AAA”) to the fullest extent permitted by law. The place of arbitration
will be New York, New York. Any arbitration under this Section 8.6 will be
conducted before a panel of three arbitrators. The Member or Members initiating
arbitration under this Section 8.6 will appoint one arbitrator in the
demand for arbitration. The Member or Members against whom or which arbitration
is sought will jointly appoint one arbitrator within 30 business days after
notice from the AAA of the filing of the demand for arbitration. The two
arbitrators nominated by the Members will attempt to agree on a third arbitrator
within 30 business days of the appointment of the second arbitrator. If the two
arbitrators fail to agree on the third arbitrator within the 30-day period, then
the AAA will appoint the third arbitrator within 30 business days following the
expiration of the 30-day period. Any award rendered by the arbitrators will be
final and binding on the Members, and judgment upon the award may be entered in
the supreme court of the state of New York and/or the U.S. District Court for
the Southern District of New York, or any other court having jurisdiction over
the award or having jurisdiction over the Members or their assets. The
arbitration agreement contained in this Section 8.6 will not be construed
to deprive any court of its jurisdiction to grant provisional relief (including
by injunction or order of attachment) in aid of arbitration proceedings or
enforcement of an award. In the event of arbitration as provided in this
Section 8.6, the
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arbitrators
will be governed by and will apply the substantive (but not procedural)
law of Delaware, to the exclusion of the principles of the conflicts of
law of Delaware. The arbitration will be conducted in accordance with the
procedures set out in the commercial arbitration rules of the AAA. If
those rules are silent with respect to a particular matter, the procedure
will be as agreed by the Members, or in the absence of agreement among or
between the Members, as established by the arbitrators. Notwithstanding
any other provision of this Agreement, this Section 8.6(c) will be
construed to the maximum extent possible to comply with the laws of the
State of Delaware, including the Uniform Arbitration Act (10 Del. C.
(S) 5701 et seq.) (the “Delaware Arbitration Act”). If, nevertheless,
it is determined by a court of competent jurisdiction that any provision
or wording of this Section 8.6(c), including any rules of the AAA,
are invalid or unenforceable under the Delaware Arbitration Act or other
applicable law, such invalidity will not invalidate all of this
Section 8.6(c). In that case, this Section 8.6(c) will be
construed so as to limit any term or provision so as to make it valid or
enforceable within the requirements of the Delaware Arbitration Act or
other applicable law, and, in the event such term or provision cannot be
so limited, this Section 8.6(c) will be construed to omit such
invalid or unenforceable provision.
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Section 8.7.
Not for Benefit of Creditors.
The
provisions of this Agreement are intended only for the regulation of relations
among past, present and future Members, Directors, the Manager and the Company.
This Agreement is not intended for the benefit of non-member creditors and no
rights are granted to non-Member creditors under this Agreement.
Section 8.8.
Consents.
Any and
all consents, agreements or approvals provided for or permitted by this
Agreement (including minutes of any meeting) shall be in writing and a signed
copy thereof shall be filed and kept with the books of the Company.
Section 8.9.
Merger and Consolidation.
(a) The
Company may merge or consolidate with or into one or more limited liability
companies formed under the Delaware Act or other business entities pursuant to
an agreement of merger or consolidation that has been approved in the manner
contemplated by Section 18-209(b) of the Delaware Act or may sell, lease or
exchange all or substantially all of the Company property, including its good
will, upon such terms and conditions and for such consideration when and as
authorized by the Board. The Board alone may approve, and Member approval shall
not be required for, any merger or consolidation of the Company or any sale,
lease or exchange of Company property, if such action would not have the effect
of (i) increasing the obligation of a Member to make any contribution to
the capital of the Company, (ii) reducing the Capital Account of a Member
other than in accordance with Article V hereof, or (iii) modifying the
events causing the dissolution of the Company.
(b)
Notwithstanding anything to the contrary contained elsewhere in this Agreement,
an agreement of merger or consolidation approved in accordance with
Section 18-209(b) of the Delaware Act may, to the extent permitted by
Section 18-209(f) of the Delaware Act, (i) effect any amendment to
this Agreement, (ii) effect the adoption of a new limited liability company
agreement for the Company if it is the surviving or resulting limited liability
company in the merger or consolidation, or (iii) provide that the limited
liability company agreement of any other constituent limited liability company
to the merger or consolidation (including a limited liability company formed for
the purpose of consummating the merger or consolidation) shall be the limited
liability company agreement of the surviving or resulting limited liability
company.
Section 8.10.
Pronouns.
All
pronouns shall be deemed to refer to the masculine, feminine, neuter, singular
or plural, as the identity of the person or persons, firm or corporation may
require in the context thereof.
Section 8.11.
Confidentiality.
(a) A
Member may obtain from the Company such information regarding the affairs of the
Company as is just and reasonable under the Delaware Act, subject to reasonable
standards (including standards governing
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what
information and documents are to be furnished, at what time and location
and at whose expense) established by the
Board.
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(b) Each
Member covenants that, except as required by applicable law or any regulatory
body, it will not divulge, furnish or make accessible to any other person the
name and/or address (whether business, residence or mailing) of any Member
(collectively, “Confidential Information”) without the prior written consent of
the Board, which consent may be withheld in its sole discretion.
(c) Each
Member recognizes that in the event that this Section 8.11 is breached by
any Member or any of its principals, partners, members, directors, officers,
employees or agents or any of its affiliates, including any of such affiliates’
principals, partners, members, directors, officers, employees or agents,
irreparable injury may result to the non-breaching Members and the Company.
Accordingly, in addition to any and all other remedies at law or in equity to
which the non-breaching Members and the Company may be entitled, such Members
shall also have the right to obtain equitable relief, including, without
limitation, injunctive relief, to prevent any disclosure of Confidential
Information, plus reasonable attorneys’ fees and other litigation expenses
incurred in connection therewith. In the event that any non-breaching Member or
the Company determines that any of the other Members or any of its principals,
partners, members, directors, officers, employees or agents or any of its
affiliates, including any of such affiliates’ principals, partners, members,
directors, officers, employees or agents should be enjoined from or required to
take any action to prevent the disclosure of Confidential Information, each of
the other non-breaching Members agrees to pursue in a court of appropriate
jurisdiction such injunctive relief.
Section 8.12.
Severability.
If any
provision of this Agreement is determined by a court of competent jurisdiction
not to be enforceable in the manner set forth in this Agreement, each Member
agrees that it is the intention of the Members that such provision should be
enforceable to the maximum extent possible under applicable law. If any
provisions of this Agreement are held to be invalid or unenforceable, such
invalidation or unenforceability shall not affect the validity or enforceability
of any other provision of this Agreement (or portion thereof).
Section 8.13.
Filing of Returns.
The Board
or its designated agent shall prepare and file, or cause the accountants of the
Company to prepare and file, a U.S. federal information tax return in compliance
with Section 6031 of the Code and any required state and local income tax
and information returns for each Taxable Year of the Company.
Section 8.14.
Tax Matters Partner.
(a) The
Manager shall be designated on the Company’s annual federal income tax return,
and have full powers and responsibilities, as the Tax Matters Partner of the
Company for purposes of Section 6231(a)(7) of the Code. In the event the
Manager cannot act as Tax Matters Partner, another Member shall be so
designated. Should any Member other than the Manager be designated as the Tax
Matters Partner for the Company pursuant to Section 6231(a)(7) of the Code,
it shall, and each Member hereby does, to the fullest extent permitted by law,
delegate to the Manager all of its rights, powers and authority to act as such
Tax Matters Partner and hereby constitutes and appoints the Manager as its true
and lawful attorney-in-fact, with power to act in its name and on its behalf,
including the power to act through such agents or attorneys as it shall elect or
appoint, to receive notices, to make, execute and deliver, swear to, acknowledge
and file any and all reports, responses and notices, and to do any and all
things required or advisable, in the Manager’s judgment, to be done by such a
Tax Matters Partner. Any Member designated as the Tax Matters Partner for the
Company under Section 6231(a)(7) of the Code shall be indemnified and held
harmless by the Company from any and all liabilities and obligations that arise
from or by reason of such designation.
(b) Each
person (for purposes of this Section 8.14(b), called a “Pass-Thru Partner”)
that holds or controls an interest as a Member on behalf of, or for the benefit
of, another person or persons, or which Pass-Thru Partner is beneficially owned
(directly or indirectly) by another person or persons, shall, within 30 days
following receipt from the Tax Matters Partner of any notice, demand, request
for information or similar document, convey such notice or other document in
writing to all holders of beneficial interests in the Company holding such
interests through such Pass-Thru Partner. In the event the Company shall be the
subject of an income tax audit by any federal, state or local authority, to the
extent the Company is treated as
A-23
|
|
an
entity for purposes of such audit, including administrative settlement and
judicial review, the Tax Matters Partner shall be authorized to act for,
and its decision shall be final and binding upon, the Company and each
Member thereof. All expenses incurred by the Company or the Tax Matters
Partner in connection with any such audit, investigation, settlement or
review shall be borne by the
Company.
|
Section 8.15.
Section 754 Election; Mandatory Basis
Adjustments.
(a) In
the event of a distribution of Company property to a Member or an assignment or
other Transfer of all or part of the Interest of a Member in the Company, at the
request of a Member, the Manager, in its discretion, may cause the Company to
elect, pursuant to Section 754 of the Code, or the corresponding provision
of subsequent law, to adjust the basis of the Company property as provided by
Sections 734 and 743 of the Code.
(b) In
connection with a repurchase of a Member’s Interest or a distribution to a
Member, such Member shall, at the request of the Manager, provide the Company
with any information necessary to enable the Manager to determine the adjusted
U.S. federal income tax basis of such Member’s Interest immediately prior to
such repurchase or distribution.
(c) In
connection with any Transfer of an Interest, the transferee shall provide the
Company, within 30 days after such Transfer, with the written notice described
in Section 3 of Notice 2005-32, 2005-16 I.R.B. 895 (or any successor
regulation or administrative pronouncement).
[Signature
Page to Follow]
A-24
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.
MANAGER:
|
PNC
CAPITAL ADVISORS, INC.
|
||
|
By:
|
/S/ KEVIN A. MCCREADIE
|
|
|
Name:
Title:
|
Kevin
A. McCreadie
President
|
|
MEMBERS:
Each
person who shall sign the Company’s investor application or certification and
who shall be accepted by the Board to the Company as a Member.
Original
dated as of August 4, 2005 and amended as of October 5,
2007
A-25
Appendix
B
Interests
in the Fund are offered only to certain Eligible Investors. In order to be
eligible to purchase an Interest in the Fund, a prospective investor must
be:
(1) a
“qualified client” as defined in Rule 205-3 under the Investment Advisers Act of
1940, as amended; and
(2) one
of the following: (1) a pension, profit-sharing, or other employee benefit
trust that is exempt from taxation under Section 501(a) of the Internal
Revenue Code of 1986, as amended (the “Code”), by reason of qualification under
Section 401 of the Code; (2) an employee benefit plan or other program
established pursuant to Sections 403(b), 408(k) or 457 of the Code; (3) a
deferred compensation plan established by a corporation, partnership, non-profit
entity or state and local government, or government-sponsored program, in each
case, which is generally exempt from U.S. federal income tax; (4) a
foundation, endowment or other organization that is exempt from taxation under
Section 501(c) of the Code (other than an organization exempt under
Section 501(c)(1)); (5) an IRA (including regular IRA, spousal IRA for
non-working spouse, Roth IRA and rollover IRA); or (6) a state college or
university.
Qualified
Client
The
following persons are “qualified clients” under Rule 205-3 under the Advisers
Act:
(a) a
natural person who or a company that immediately after an initial investment in
the Fund has at least $750,000 under the management of the Manager or the
Adviser;
(b) a
natural person who or a company that has a net worth (together, in the case of a
natural person, with assets held jointly with a spouse) of more than
$1,500,000;
(c) a
natural person who (alone or together with his or her spouse) owns at least
$5,000,000 in investments (as defined by the Securities and Exchange Commission)
(“Investments”);
(d) a
company that owns not less than $5,000,000 in Investments and that is owned
directly or indirectly by or for two or more natural persons who are related as
siblings or spouse (including former spouses), or direct lineal descendants by
birth or adoption, spouses of such persons, the estates of such persons, or
foundations, charitable organizations, or trusts established by or for the
benefit of such persons;
(e) a
trust that is not covered by clause (d) and that was not formed for the
specific purpose of acquiring the Interest, as to which the trustee or other
person authorized to make decisions with respect to the trust, and each settlor
of other person who has contributed assets to the trust, is a person described
in clauses (c), (d) or (f);
(f) an
entity, acting for its own account or the accounts of other persons described in
clauses (c), (d), (e), (f), (g) and/or (h), who in the aggregate owns and
invests on a discretionary basis, not less than $25,000,000 in
Investments;
(g) a
“qualified institutional buyer” as defined in Rule 144A under the Securities Act
(as that term is modified by the limitations imposed thereon by Rule
2a51-1(g)(1) under the 1940 Act;
(h) a
company, regardless of the amounts of its Investments, each of the beneficial
owners of the securities of which is a person described in clauses
(c) through (g); or
(i) a
natural person who immediately prior to an initial investment in the Fund
is:
(A) an
executive officer, director, trustee, general partner, or person serving in a
similar capacity, of the Manager; or
(B) an
employee of the Manager (other than an employee performing solely clerical,
secretarial or administrative functions with regard to the Manager) who, in
connection with his or her regular functions or duties, participates in the
investment activities of the Manager, provided that such employee has been
performing such
B-1
functions
and duties for or on behalf of the Manager, or substantially similar functions
or duties for or on behalf of another company for at least 12
months.
B-2
Appendix
C
PNC
Alternative Investment Funds
The funds
recognize and respect the privacy concerns and expectations of our
customers1.
The funds
provide this notice to you so that you will know what kinds of information the
funds collect and the circumstances in which that information may be disclosed
to third parties who are not affiliated with the funds.
Collection of Customer
Information
The funds
collect nonpublic personal information about customers from the following
sources:
|
•
|
Subscription Documents and
other forms, which may include a customer’s name, address, social
security number, and information about a customer’s net worth, investment
goals and risk tolerance;
|
|
•
|
Account History,
including information about the transactions and balances in a customer’s
accounts; and
|
|
•
|
Correspondence,
written, telephonic or electronic, between a customer and the funds
or service providers to the funds.
|
Disclosure of Customer
Information2
The funds
may disclose all of the information described above to certain third parties who
are not affiliated with the funds under one or more of these
circumstances:
|
•
|
As Authorized—if you
request or authorize the disclosure of the
information.
|
|
•
|
As Permitted by Law—for
example, sharing information with companies who maintain or service
customer accounts for the funds is permitted and is essential for us to
provide members with necessary or useful services with respect to their
accounts.
|
|
•
|
Under Joint
Agreements—the funds may also share information with companies that
perform marketing services on their behalf or to other financial
institutions with whom the funds have joint marketing
agreements.
|
Security of Customer
Information
The funds
require service providers to the funds:
|
•
|
to
maintain policies and procedures designed to assure only appropriate
access to, and use of, information about customers of the funds;
and
|
|
•
|
to
maintain physical, electronic and procedural safeguards that comply with
federal standards to guard nonpublic personal information of customers of
the funds.
|
|
•
|
The
funds will adhere to the policies and practices described in this notice
regardless of whether you are a current or former member of the
funds.
|
Please
call 1-800-239-0418 if you have any questions concerning this notice, or about
the funds in general.
|
1
|
For
purposes of this notice, the terms “customer” or “customers” includes
individuals who provide nonpublic personal information to the funds, but
do not invest in the funds.
|
|
2
|
The
funds do not share information about members who are residents of
California with affiliates of the funds or with unaffiliated companies
under joint marketing agreements.
|
C-1
Appendix
D
The Fund
commenced investment operations on July 1, 2007. Performance prior to that
date is the past performance information of PNC Absolute Return Fund LLC, a
privately-offered fund registered under the Investment Company Act of 1940, as
amended, that utilized a multi-manager, multi-strategy investment approach (the
“Private Fund”). Pursuant to a reorganization transaction that was approved by
the Private Fund’s Board of Directors on August 11, 2005, the Private Fund
was reorganized into a master-feeder structure in which the Master Fund assumes
the Private Fund’s portfolio and the Private Fund becomes a feeder fund of the
Master Fund. The Master Fund thus becomes the Private Fund’s successor. In
addition to the Private Fund, the Fund (through the Offshore Fund) is also a
feeder fund of the Master Fund, as described in this prospectus.
Prior to
the reorganization, PNC Capital Advisors, Inc. served as the Private Fund’s
investment manager. The Manager also serves as the investment manager of the
Master Fund. Prior to the reorganization, Ramius Fund of Funds Group LLC served
as the Private Fund’s investment adviser. The Adviser also serves as the
investment adviser to the Master Fund. The Private Fund, the Master Fund and the
Fund have substantially similar investment objectives, polices and strategies.
The Manager and the Adviser will manage the Master Fund substantially similarly
to the Private Fund. Accordingly, the Fund through its investment in the Master
Fund (via the Offshore Fund) will benefit from substantially similar investment
management as that rendered by the Manager and the Adviser to the Private
Fund.
The
performance information shown is not an indication of how the Fund will perform
in the future. The Fund’s performance in the future may be different from the
past performance of the Private Fund due to factors such as differences in cash
flows, fees, expenses, portfolio size, the number and identity of the Investment
Funds, investment limitations and diversification requirements, if any. All of
these factors could have a negative impact on the Fund’s performance as compared
to the past performance of the Private Fund. In addition, the period covered by
the prior performance information is limited, and may not reflect performance in
different economic cycles.
Prospective
investors should recognize that the fees and expenses of the Fund will differ
from the fees and expenses of the Private Fund. The past performance of the
Private Fund shown in this appendix reflects fees and expenses that are
different from the fees and expenses of the Fund.
The
performance shown for the Fund and Private Fund through March 31, 2009 has
been audited by an independent public accounting firm. Performance following
March 31, 2009 has not been audited and is subject to change. The
performance does not comply with the standards established by the Association of
Investment Management and Research (AIMR).
THE
PERFORMANCE FIGURES PRESENTED ARE THE HISTORICAL PERFORMANCE OF THE FUND AND THE
PRIVATE FUND, THE ASSETS OF WHICH WILL BE, AS A RESULT OF THE REORGANIZATION,
HELD BY THE MASTER FUND, IN WHICH THE FUND (THROUGH THE OFFSHORE FUND) INVESTS
SUBSTANTIALLY ALL OF ITS INVESTABLE ASSETS.
THE
PAST PERFORMANCE OF THE PRIVATE FUND IS NO GUARANTEE OF THE FUTURE RESULTS OF
EITHER THE MASTER FUND OR THE FUND.
|
Net
Monthly Returns
|
|||||||||||||||||||||||||||||||||||||||
|
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sep
|
Oct
|
Nov
|
Dec
|
YTD
|
||||||||||||||||||||||||||
|
2009
|
|
0.72
|
%
|
-0.20
|
%
|
--0.09
|
%
|
0.44
|
%
|
||||||||||||||||||||||||||||||
|
2008
|
|
-1.59
|
%
|
0.91
|
%
|
-1.70
|
%
|
0.83
|
%
|
0.95
|
%
|
-1.49
|
%
|
-1.44
|
%
|
-0.45
|
%
|
-6.36
|
%
|
-7.30
|
%
|
-2.91
|
%
|
-2.48
|
%
|
-21.07
|
%
|
||||||||||||
|
2007
|
|
1.46
|
%
|
1.24
|
%
|
1.18
|
%
|
1.66
|
%
|
2.00
|
%
|
0.90
|
%
|
-0.69
|
%
|
-0.59
|
%
|
1.31
|
%
|
1.14
|
%
|
-0.53
|
%
|
0.09
|
%
|
9.52
|
%
|
||||||||||||
|
2006
|
|
1.60
|
%
|
0.70
|
%
|
0.93
|
%
|
1.67
|
%
|
-0.66
|
%
|
0.58
|
%
|
0.00
|
%
|
0.38
|
%
|
3.88
|
%
|
1.08
|
%
|
1.05
|
%
|
1.04
|
%
|
4.46
|
%
|
||||||||||||
|
2005
|
|
0.07
|
%
|
0.73
|
%
|
-0.02
|
%
|
-0.71
|
%
|
-0.39
|
%
|
0.76
|
%
|
1.29
|
%
|
0.63
|
%
|
0.72
|
%
|
-0.16
|
%
|
0.51
|
%
|
1.07
|
%
|
4.58
|
%
|
||||||||||||
|
2004
|
|
1.01
|
%
|
0.46
|
%
|
-0.22
|
%
|
0.61
|
%
|
-0.11
|
%
|
0.36
|
%
|
0.15
|
%
|
0.07
|
%
|
0.43
|
%
|
0.41
|
%
|
1.44
|
%
|
1.01
|
%
|
5.75
|
%
|
||||||||||||
|
2003
|
|
1.44
|
%
|
0.43
|
%
|
-0.10
|
%
|
1.34
|
%
|
1.31
|
%
|
0.57
|
%
|
-0.06
|
%
|
0.41
|
%
|
0.67
|
%
|
0.92
|
%
|
0.68
|
%
|
0.89
|
%
|
8.83
|
%
|
||||||||||||
D-1
|
Statistical
Data Since Inception
(as
of June 30, 2009)
|
||||
|
Annualized
Return
|
|
1.41
|
%
|
|
|
Average
Monthly Return
|
|
0.13
|
%
|
|
|
Largest
Drawdown
|
|
-21.42
|
%
|
|
|
Months
to Recover
|
|
NA
|
||
|
Annualized
Standard Deviation
|
|
5.44
|
||
|
Annualized
Sharpe Ratio
|
|
-0.20
|
||
|
%
of Positive Months
|
|
68.00
|
%
|
|
The
performance information shown is net of fees and expenses of the Private Fund,
but does not reflect the payment of a sales load or any taxes payable by a
particular investor, which, if reflected, would reduce the performance
shown.
Definitions
Standard Deviation: A
statistical measurement of the dispersion around a fund’s average return over a
specified time period. It describes how widely returns vary over a designated
time period. A higher standard deviation indicates a wider dispersion of past
returns and thus greater historical volatility. Standard deviation does not
indicate how the fund actually performed, but merely indicates the volatility of
its return over time.
Sharpe Ratio: The Sharpe ratio
measures how well a fund is rewarded for the risk it incurs. The higher the
ratio, the better the return per unit of risk taken. It is calculated by
subtracting the risk-free rate from the fund’s annualized average return, and
dividing the result by the fund’s annualized standard deviation. A Sharpe ratio
of 1.0 indicates that the rate of the return is proportional to the risk assumed
in seeking that reward.
Drawdown: The percentage loss
that a fund incurs from its peak net asset value to its lowest value. The
maximum drawdown over a significant period is sometimes employed as a means of
measuring the risk of a vehicle. Usually expressed as a percentage decline in
net asset value.
D-2
PART
C
OTHER
INFORMATION
Item
25. Financial
Statements and Exhibits
(1) Financial
Statements:
Included
in Part A: Consolidated Financial Highlights and the
following financial statements are incorporated by reference to the Registrant's
Annual report for the period ending March 31, 2009, filed with the SEC on June
9, 2009
(i) Report of Independent Registered
Public Accounting Firm, dated May 30, 2009
(ii)Consolidated Statement of Assets
and Liabilities as of March 31, 2009
(iii)Consolidated Statement of
Operations for the period ended March 31, 2009
(iv) Consolidated Statement of Changes
in Members’ Capital dated March 31, 2009
(v) Consolidated statement of Cash
Flows for the year ended March 31, 2009
(vi) Notes to Consolidated Financial
Statements, dated March 31, 2009
(2) Exhibits:
|
(a)(i)
|
Certificate
of Formation(1)
|
|
(a)(ii)
|
Certificate
of Amendment to Registrant’s Certificate of Formation.(4)
|
|
(a)(iii)
|
Limited
Liability Company Agreement(4)
|
|
(b)
|
Not
Applicable
|
|
(c)
|
Not
Applicable
|
|
(d)
|
Incorporated
by reference to Exhibit (a)(ii) above.
|
|
(e)
|
Not
Applicable
|
|
(f)
|
Not
Applicable
|
|
(g)(i)
|
Investment
Management Agreement between Registrant and PNC Capital Advisors, Inc.
(“PCA”) (formerly, Mercantile Capital Advisors, Inc.)(2)
|
|
(g)(ii)
|
Investment
Management Agreement between the Master Fund and PCA(2)
|
|
(g)(iii)
|
Investment
Advisory Agreement among the Master Fund, PCA and Ramius Fund of Funds
Group, LLC (formerly, Ramius HVB Partners, LLC)
(3)
|
|
(h)
|
Distribution
Agreement between Registrant PNC Fund Distributor, Inc. dated March 31,
2009(5)
|
|
(i)
|
Not
Applicable
|
|
(j)
|
Custodian
Services Agreement between Registrant and SEI Private Trust Company(3)
|
|
(k)(i)
|
Administration
Agreement between Registrant and PCA(3)
|
|
(k)(ii)
|
Sub-Administration
Agreement between PCA and SEI Investments Global Funds Services(3)
|
|
(k)(iii)
|
Escrow
Agreement among Registrant, PCA and SEI Private Trust Company(3)
|
|
(l)
|
To
be filed by amendment
|
|
(m)
|
Not
Applicable
|
|
(n)(i)
|
Opinion
and Consent of Davis Polk & Wardwell on tax matters(3)
|
|
(n)(ii)
(n)(iii)
|
To
be filed by amendment
To
be filed by amendment
|
|
(o)
|
Not
Applicable
|
|
(p)
|
Not
Applicable.
|
|
(q)
|
Agreement
Regarding Initial Capital(1)
|
|
(r)(i)
|
Code
of Ethics of Registrant(1)
|
|
(r)(ii)
|
Code
of Ethics of PNC Capital Advisors, Inc.(4)
|
|
(r)(iii)
|
Code
of Ethics of Ramius Fund of Funds Group, LLC (formerly, Ramius HVB
Partners, LLC(1)
|
|
(r)(iv)
|
Code
of Ethics of PNC Fund Distributor, LLC(4)
|
|
(s)(i)
|
Powers
of Attorney(5)
|
|
(s)(ii)
|
Appointment
of Agent for Service of Process(3)
|
|
(1)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 filed
with the SEC on September 30, 2005 (Reg. No. 811-21815,
33-128723).
|
|
(2)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 filed
with the SEC on July 27, 2007 (Reg. Nos. 811-21815,
33-128723).
|
|
(3)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 filed
with the SEC on June 29, 2006 (Reg. Nos. 811-21815,
33-128723).
|
|
(4)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 filed
with the SEC on August 1, 2008 (Reg. Nos. 811-21815,
33-128723).
|
|
(5)
|
Incorporated
by reference to the Registrant’s Registration Statement on Form N-2 filed
with the SEC on June 26, 2009 (Reg. Nos. 811-21815,
33-128723).
|
Item
26. Marketing
Arrangements
Please
refer to Item 25(2)(h) above.
Item
27. Other
Expenses of Issuance and Distribution
Not
applicable.
Item
28. Persons
Controlled By or Under Common Control
The
following entities may be considered to be under common control with the
Registrant at the time of this filing:
PNC
Absolute Return Fund LLC;
PNC
Absolute Return Master Fund LLC;
PNC
Alternative Strategies Fund LLC;
PNC
Alternative Strategies TEDI Fund LLC;
PNC
Alternative Strategies Master Fund LLC;
PNC
Long-Short Fund LLC;
PNC
Long-Short TEDI Fund LLC;
PNC
Long-Short Master Fund LLC
(each
organized under the laws of Delaware); and
PNC
Funds, Inc. (organized under the laws of Maryland)
Each of
these entities has a Board of Directors that is identical in composition to the
Board of Directors of each other entity and the Registrant. PNC Capital
Advisors, Inc’s parent company, PNC Bank, National Association (“PNC Bank”), may
be deemed to be the beneficial owner, for purposes of the federal securities
laws, of PNC Absolute Return Fund, PNC Alternative Strategies Fund and PNC
Long-Short Fund because PNC Bank possesses sole or shared voting power in excess
of 25% of the voting securities of each Fund. PNC Bank does not,
however, have any economic interest in such Shares, which are held solely for
the benefit of its customers. PNC Bank is a wholly-owned subsidiary of The PNC
Financial Services Group, Inc., a financial holding company regulated by the
Board of Governors of the Federal Reserve System. PNC Investment Corp., an
affiliate of PNC, owns in excess of 25% of PNC Absolute Return Fund, PNC
Alternative Strategies Fund and PNC Long-Short Fund.
Item
29. Number
of Holders of Securities
The
following table sets forth the number of record holders of each class of the
Registrant’s securities at May 31, 2009.
|
Title
of Class
|
Number
of
Record
Holders
|
|
Limited
liability company interests
|
15
|
Item
30. Indemnification
Registrant’s
Limited Liability Agreement contains provisions limiting the liability, and
providing indemnification, of the Registrant’s Directors and officers under
certain circumstances.
Registrant
hereby undertakes that it will apply the indemnification provision of the
Registrant’s Limited Liability Company Agreement in a manner consistent with
Release 40-11330 of the SEC under the Investment Company Act of 1940, so long as
the interpretation therein of Sections 17(h) and 17(i) of such Act remains in
effect.
Insofar
as indemnification for liability arising under the Securities Act may be
permitted for directors, officers and controlling persons of the Registrant
pursuant to the provisions described in this Item 30, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item
31. Business
and Other Connections of Investment Adviser
Ramius
Fund of Funds Group, LLC, the Registrant’s investment adviser, acts as
investment adviser or subadviser for other registered investment companies and
investment funds excluded from the definition of investment company under the
Investment Company Act of 1940. The Adviser is also registered as a
commodity pool operator with the U.S. Commodity Futures Trading
Commission. Information as to the directors and officers of the
Adviser, together with a description of any other business, profession,
vocation, or employment of a substantial nature in which the Adviser, and each
director, executive officer, managing member or partner of the Adviser, is or
has been, at any time during the past two fiscal years, engaged in for his or
her own account or in the capacity of director, officer, employee, managing
member, partner or trustee, is included in the Adviser’s Form ADV as filed with
the SEC (File No. 801-60159), and is incorporated herein by
reference.
PNC
Capital Advisors, Inc., the Registrant’s investment manager, acts as investment
adviser or subadviser for a number of other registered investment
companies. Information as to the directors and officers of the
Manager, together with a description of any other business, profession,
vocation, or employment of a substantial nature in which the Manager, and each
director, executive officer, managing member or partner of the Manager, is or
has been, at any time during the past two fiscal years, engaged in for his or
her own account or in the capacity of director, officer, employee, managing
member, partner or trustee, is included in the Manager’s Form ADV as filed with
the SEC (File No. 801-60093), and is incorporated herein by
reference.
Item
32. Location
of Accounts and Records
All
accounts, books and other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and the rules thereunder are maintained at
the offices of:
(1) the
Registrant and PNC Capital Advisors, Inc., the Registrant’s
administrator, at Two Hopkins Plaza, Baltimore, MD 21201;
(2) SEI
Private Trust Company, the Registrant’s custodian, at One Freedom Valley Drive,
Oaks, PA 19456;
(3) SEI
Investments Global Funds Services, the sub-administrator, at One Freedom Valley
Drive, Oaks, PA, 19456; and
(4) SEI
Private Trust Company, the Registrant’s escrow agent, at One Freedom Valley
Drive, Oaks, PA 19456;
Item
33. Management
Services
Not
applicable.
Item
34. Undertakings
1. Not
applicable.
2. Not
applicable.
3. Not
applicable.
4.
(a) The
Registrant undertakes to file, during any period in which offers or sales are
being made, a post-effective amendment to the registration statement (1) to
include any prospectus required by Section 10(a)(3) of the 1933 Act; (2) to
reflect in the prospectus any facts or events after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; (3) and to include any
material information with respect to any plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
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(b)
The Registrant undertakes that, for the purpose of determining any
liability under the 1933 Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of those securities at that time shall
be deemed to be the initial bona fide offering thereof; and to remove from
registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the
offering.
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The
Registrant will not in any way use the Offshore Fund to evade the provisions of
the Investment Company Act. The Master Fund will not in any way use
the Offshore Fund to evade the provisions of the Investment Company Act or the
Advisers Act (e.g.,
Section 205 governing the imposition of performance fees).
The
assets of the Offshore Fund will be maintained at all times in the United States
and they will be maintained at all times in accordance with the requirements of
Section 17(f) of the Investment Company Act.
The
Offshore Fund will maintain duplicate copies of its books and records at an
office located within the United States, and the Commission and its staff will
have access to the books and records consistent with the requirements of Section
31 of the Investment Company Act and the rules thereunder.
The
Offshore Fund will designate its custodian as agent in the United States for
service of process in any suit, action or proceeding before the Commission or
any appropriate court, and the Offshore Fund will consent to the jurisdiction of
the U.S. courts and the Commission over it.
The
Offshore Fund shall refrain from substituting securities of the Master Fund
unless the Commission shall have approved such substitution in the manner
provided in Section 26 of the Investment Company Act.
5. Not
applicable.
6. The
Registrant undertakes to send by first class mail or other means designed to
ensure equally prompt delivery, within two business days of receipt of an oral
or written request, its Statement of Additional Information.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf, and, in its capacity as
managing member of PNC Absolute Return Cayman Fund LDC on behalf of PNC Absolute
Return Cayman Fund LDC, by the undersigned, thereunto duly authorized, in
Baltimore, Maryland, on the 29th day of
July 2009.
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PNC
Absolute Return TEDI Fund LLC
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||
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By:
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*
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|
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Name:
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Kevin
A. McCreadie
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Title:
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President
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Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
|
Signature
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Title
|
Date
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*
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President
(Principal Executive Officer)
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July
29, 2009
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Kevin
A. McCreadie
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||
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*
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Treasurer
(Principal Financial and Accounting Officer)
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July
29, 2009
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Jennifer
E. Spratley
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||
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*
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Director
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July
29, 2009
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Edward
D. Miller, Jr.
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||
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*
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Director
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July
29, 2009
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John
R. Murphy
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||
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*
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Director
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July
29, 2009
|
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George
R. Packard, III
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||
|
*
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Director
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July
29, 2009
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|
L.
White Matthews, III
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||
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*
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Director
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July
29, 2009
|
|
Thomas
L. Owsley
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||
|
*
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Director
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July
29, 2009
|
|
Decatur
H. Miller
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*By:
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/s/
S.
Elliott Cohan
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|
S.
Elliott Cohan
|
|
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as attorney-in-fact
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|
|
*
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Pursuant
to power of attorney filed
herewith.
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SIGNATURES
PNC
Absolute Return Master Fund LLC has duly caused this Registration Statement of
PNC Absolute Return TEDI Fund LLC to be signed on its behalf by the undersigned,
thereunto duly authorized, in Baltimore, Maryland, on the 29th day of
July 2009.
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PNC
Absolute Return Master Fund LLC
|
||
|
By:
|
*
|
|
|
Name:
|
Kevin
A. McCreadie
|
|
|
Title:
|
President
|
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
|
Signature
|
Title
|
Date
|
|
*
|
President
(Principal Executive Officer)
|
July
29, 2009
|
|
Kevin
A. McCreadie
|
||
|
*
|
Treasurer
(Principal Financial and Accounting Officer)
|
July
29, 2009
|
|
Savonne
L. Ferguson
|
||
|
*
|
Director
|
July
29, 2009
|
|
Edward
D. Miller, Jr.
|
||
|
*
|
Director
|
July
29, 2009
|
|
John
R. Murphy
|
||
|
*
|
Director
|
July
29, 2009
|
|
George
R. Packard, III
|
||
|
*
|
Director
|
July
29, 2009
|
|
L.
White Matthews, III
|
||
|
*
|
Director
|
July
29, 2009
|
|
Thomas
L. Owsley
|
||
|
*
|
Director
|
July
29, 2009
|
|
Decatur
H. Miller
|
|
*By:
|
/s/
S.
Elliott Cohan
|
|
S.
Elliott Cohan
|
|
|
as
attorney-in-fact
|
|
|
*
|
Pursuant
to power of attorney filed
herewith.
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