As filed with the Securities and Exchange Commission on July 2, 2013.
1940 Act File No. 811-22815
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
| ¨ | REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
| x | Amendment No. 1 |
EXCELSIOR PRIVATE MARKETS FUND III (TE), LLC
Exact Name of Registrant as Specified in Charter
100 Federal Street, Boston, MA 02110
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
Registrant’s Telephone Number, including Area Code (866) 921-7951
Marina Belaya, Esq.
114 West 47th Street
NY8-114-09-02
New York, NY 10036
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
Copy to:
Timothy F. Silva, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
EXPLANATORY NOTE
This Registration Statement of Excelsior Private Markets Fund III (TE), LLC (the “Registrant” or the “Fund”) has been filed by Registrant pursuant to Section 8(b) of the Investment Company Act of 1940, as amended (the “1940 Act”). Limited liability company interests in the Registrant (“Interests”) are not being registered under the Securities Act of 1933, as amended (the “Securities Act”), and will be issued solely in private placement transactions that do not involve any “public offering” within the meaning of Section 4(a)(2) of the Securities Act. Investments in the Registrant may only be made by entities or persons that are (i) ”accredited investors” within the meaning of Regulation D under the Securities Act and (ii) “qualified clients” as defined in Rule 205-3 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Fund is designed for investment primarily by tax-exempt and tax-deferred investors. This Registration Statement does not constitute an offer to sell, or the solicitation of any offer to buy, interests in the Registrant.
EXCELSIOR PRIVATE MARKETS FUND III (TE), LLC
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement of Excelsior Private Markets Fund III (TE), LLC contains the following documents:
Facing Sheet
Explanatory Note
Contents of Registration Statement
Part A
Part B
Part C
Signature Page
Exhibit Index
Exhibits
| 1 |
PART A
Responses to all or a portion of certain Items required to be included in Part A of this Registration Statement are omitted pursuant to Paragraph 3 of Instruction G of the General Instruction to Form N-2.
ITEMS 1-2.
Omitted pursuant to Paragraph 3 of Instruction G of the General Instructions to Form N-2.
ITEM 3. FEE TABLE AND SYNOPSIS
The fee table below is intended to assist investors in the Fund (“Investors”) in understanding the various costs and expenses that the Fund expects to incur, and that Investors can expect to bear, directly or indirectly, by investing in the Fund. This fee table is based on estimated expenses of the Fund for the fiscal year ending March 31, 2014, and assumes that the Fund raises $85 million in total capital commitments from Investors to the Fund (the “Commitments”), that 30% of total Commitments are drawn down in the first year, and that 40% of drawn-down Commitments are invested in the Portfolio Funds (as defined below) in the first year (after the initial closing).
| Investor Transaction Expenses | ||||
| Maximum Sales Load (as a percentage of offering price)(1) | 2.50 | % | ||
| Minimum Sales Load (as a percentage of offering price) | 0.00 | % | ||
| Make-Up Payment Rate (initial closing)(2) | 0.00 | % | ||
| Make-Up Payment Rate (subsequent closings)(2) | 8.00 | % | ||
| Annual Expenses (as a percentage of net assets attributable to Interests) | ||||
| Management Fee(3) | 1.50 | % | ||
| Interest Payments on Borrowed Funds | 0.00 | % | ||
| Other Expenses(4) | 0.39 | % | ||
| Acquired Fund (Master Fund and Portfolio Funds) Fees and Expenses(5) | 4.83 | % | ||
| Total Annual Expenses | 6.72 | % |
| (1) | In connection with the initial and additional purchases of Interests, investors may be charged a placement fee (sales load) (the “Placement Fee”) of up to 2.50% of the investment amount. The Placement Fee will be waived for certain types of investors. |
| (2) | A “make-up” payment at a rate of 8% may be charged to investors making a Commitment to the Fund after the initial closing. The 8% annualized rate is calculated based on the percentage of Investor Commitments previously drawn down by the Fund and applied over the period of time since such draw-downs. For example, if the Fund has drawn down 20% of Commitments from Investors participating in the initial closing and holds a second closing six months after the date of such drawdowns, an Investor participating in the second closing who commits $100,000 would pay a “make-up” payment at 4% (an annualized rate of 8%) multiplied by 20% of such commitment amount (or $20,000 x 4% = $800). The amount of the make-up payments will be paid to and retained as assets of the Fund. |
| (3) | Includes the investment advisory fee (the “Advisory Fee”) payable by Excelsior Private Markets Fund III (Master), LLC (the “Master Fund”), a Delaware limited liability company that is also registered under the 1940 Act, to Bank of America Capital Advisors LLC (the “Investment Adviser”) and the management fee payable by the Fund (the “Management Fee”) to the Investment Adviser. However, neither the Advisory Fee nor the Management Fee rate is payable based on a percentage of net assets. Rather, the Advisory Fee and Management Fee rates are based on investments by the Master Fund during the current fiscal year. More specifically, the Advisory Fee is a quarterly fee payable at the annual rate of 1.0% as follows: (i) during the period from the initial closing until the fifth anniversary of the final closing (the “Commitment Period”), based on the total capital commitments (the “Underlying Commitments”) entered into by the Master Fund with respect to investments in underlying funds (the “Portfolio Funds”); and (ii) beginning on the fifth anniversary of the final closing and thereafter, based on the net asset value (“NAV”) of the Master Fund. In accordance with the terms of a separate agreement between the Investment Adviser and the Fund (the “Management Agreement”), the Management Fee is calculated and paid by the Fund quarterly in arrears in an amount which is determined by applying the annual rate of 0.50% as follows: (i) during the Commitment Period, based on the portion of the Master Fund’s Underlying Commitments attributable to the Fund (based on the Fund’s commitments to the Master Fund relative to those of the other feeder funds invested in the Master Fund), and (ii) beginning on the fifth anniversary of the final closing and thereafter, based on the NAV of the Fund. For the purposes of this fee table, the amount of Underlying Commitments has been estimated because the Master Fund has not yet commenced operations. Note: A carried interest of 5% payable to the Investment Adviser is not included because no carried interest is expected for the fiscal year ending March 31, 2014. See Item 9.1(f) “Advisory Fees” and Item 9.1(f) “Allocation of Profit and Loss; Distributions.” If the Advisory Fee rate and/or Management Fee rate were expressed as a percentage of the Fund’s net assets rather than as described above, the rate could be higher than the figure expressed in the fee table above at certain times during the Commitment Period. This is because, during the Commitment Period the Master Fund may make Underlying Commitments at a rate faster than it calls or invests capital in the underlying investments. |
| 1 |
| (4) | Based on estimated expenses for the fiscal year ending March 31, 2014. Includes the direct expenses of the Fund (other than the Management Fee). Also includes offering and organizational expenses up to a maximum of $500,000 for the combined organizational expenses of the Fund, the Master Fund, the Offshore Fund (as defined below) and the Taxable Investor Feeder (as defined below) that invests in the Master Fund, which are non-recurring items. Does not include the fees and expenses of the Portfolio Funds in which the Fund intends to invest in, based upon the anticipated net proceeds from this offering. |
| (5) | Includes the Fund’s share of the ordinary operating expenses of the Master Fund (other than the Advisory Fee of the Master Fund, which is included as a separate line item) that are expected to be borne by the Fund, and the expected fees and expenses of the Portfolio Funds, each for the fiscal year ending March 31, 2014, based upon the anticipated net proceeds from this offering. Fees and expenses of Portfolio Funds are based on expected fees and expenses and range from 0.2% to 15.99%. Future Portfolio Funds’ fees and expenses may be higher or lower because certain fees are based on the performance of the Portfolio Funds, which may fluctuate over time. Performance-based fees are not included because no performance-based fees are expected to be paid during the first year of the Fund’s operations. Performance-based fees or allocations paid to a manager of a Portfolio Fund (a “Portfolio Fund Manager”) by a Portfolio Fund generally range between 20% to 30% of the net capital appreciation (if any) in the assets managed by the Portfolio Fund Manager. |
The purpose of the table above and the examples below is to assist prospective Investors in understanding the various costs and expenses Investors in the Fund will bear directly or indirectly.
Example 1
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
| You would pay the following expenses on a $1,000 investment, assuming a 5% annual return: | $ | 92 | $ | 187 | $ | 279 | $ | 510 | ||||||||
Example 2
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
| You would pay the following expenses on a $50,000 investment, assuming a 5% annual return: | $ | 4,581 | $ | 9,356 | $ | 13,927 | $ | 25,508 | ||||||||
The Examples above are based on the fees and expenses set forth above. It 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 greater or less than the hypothetical 5% return assumed in the examples. The Examples assume participation in the initial closings and do not include any 8% “make-up” payment which may be assessed at subsequent closings if amounts have been drawn down prior to such closings.
The Investment Adviser generally bears all of its own costs incurred in providing investment advisory services to the Master Fund and management services to the Fund.
The Advisory Fee will be computed as a percentage of the Master Fund’s Underlying Commitments (or, after the fifth anniversary of the final closing of the Fund, as a percentage of the Master Fund’s net asset value) as of the start of business on the last business day of the prior quarter and will be due and payable in arrears after the end of that quarter. “Net assets” means 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.
| 2 |
The Fund bears its own expenses, the expenses of the Offshore Fund (defined below), and indirectly through its investment in the Master Fund, a pro rata portion of the Master Fund’s fees and expenses not otherwise borne by the Investment Adviser, including, but not limited to: all investment-related expenses (including, but not limited to, fees paid directly or indirectly to Portfolio Fund Managers, 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 and prospective investments, including all costs and expenses incurred in connection with its investments in Portfolio Funds, transfer taxes and premiums, taxes withheld on foreign dividends); any non-investment related interest expense; fees and disbursements of any attorneys and accountants engaged on behalf of the Fund; audit and tax preparation fees and expenses; administrative expenses and fees; custody and escrow fees and expenses; the costs of an errors and omissions/directors and officers liability insurance and a fidelity bond; the Advisory Fee and the Management Fee payable to the Investment Adviser; fees and travel-related expenses of the board of managers of the Master Fund who are not employees of the Investment Adviser or any affiliate of the Investment Adviser; all costs and charges for equipment or services used in communicating information regarding the Fund’s and/or the Master Fund’s transactions among the Investment Adviser and any custodian or other agent engaged by the Fund and/or the Master Fund; all extraordinary expenses; and such other expenses as may be approved from time to time by the Board of Managers of the Fund (the “Board” or “Managers”).
The Fund, through its investment in the Master Fund, indirectly bears the fees and expenses of each of the Portfolio Funds in connection with their operations. The categories of expenses generally will be similar to the categories of expenses incurred by the Fund and the Master Fund, but the nature and extent of the Portfolio Funds expenses are expected to vary substantially and may include other categories. The Portfolio Fund Managers generally charge asset-based management fees to, and receive performance-based compensation if the Portfolio Funds achieve certain profit levels, generally in the form of “carried interest” allocations of profits from, the Portfolio Funds, which effectively will reduce the investment returns of the Portfolio Funds. These expenses, fees, and allocations will be in addition to those incurred by the Fund and the Master Fund. As an investor in Portfolio Funds, the Master Fund will bear its pro rata share of the expenses and fees of the Portfolio Funds and will also be subject to performance allocations to the Portfolio Fund Managers. The Fund will pay its pro rata share of these expenses and fees by virtue of its investment in the Master Fund. Generally, the Portfolio Funds are expected to have management fees of approximately 1.0% to 2.5% of the relevant Portfolio Fund’s commitment and carried interest allocations of 20% to 30% of the Portfolio Fund’s profits. Specific timing and priority of allocations and distributions will vary among the Portfolio Funds.
ITEMS 3.2 and 4 THROUGH 7.
Omitted pursuant to Paragraph 3 of Instruction G of the General Instructions to Form N-2.
ITEM 8. GENERAL DESCRIPTION OF THE REGISTRANT.
Description of the Fund
Excelsior Private Markets Fund III (TE), LLC (the “Fund” or the “Registrant”) is a limited liability company organized under the laws of the State of Delaware on March 18, 2013 and is registered under the 1940 Act as a closed-end non-diversified management investment company. The Fund invests all or substantially all of its assets in the Excelsior Private Markets Fund III (Offshore), LDC, (the “Offshore Fund”), a Cayman Islands limited duration company with the same investment objective as the Fund. The Offshore Fund in turn invests all or substantially all of its assets in the Excelsior Private Markets Fund III (Master), LLC, a Delaware limited liability company that is also registered under the 1940 Act, as part of a “master/feeder” structure. The Master Fund has the same investment objective and substantially the same investment policies and restrictions as those of the Fund and the Offshore Fund, as further described below. References to the Fund’s investments, which are all made through the Master Fund, also implicitly include investment through the Offshore Fund.
The Offshore Fund makes no independent investment decisions and has no investment or other discretion over the Fund’s investable assets. The Offshore Fund is interposed between the Fund and the Master Fund and serves as an intermediate entity so that any income generated by the Master Fund is not ultimately recognized by Investors as unrelated business taxable income (“UBTI”). The Offshore Fund is treated as a corporation under the taxation laws of the United States. Any income received by the Offshore Fund is distributed to the Fund as dividend income. UBTI should therefore not flow through the Offshore Fund to an Investor provided that the Investor does not itself incur indebtedness to finance its investment in the Fund. See Item 23 “Certain Tax Considerations.”
The Fund will offer and sell units of limited liability company interests in the Fund (the “Interests”) in minimum denominations of $50,000 (subject to the discretion of the Board to accept lesser amounts) to prospective Investors who are (A) “accredited investors” as defined in Regulation D under the Securities Act, (B) “qualified clients” as defined in Rule 205-3 under the Advisers Act (see Item 10.1), and (C) 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 (collectively, “Eligible Investors”) in private placement transactions that do not involve any “public offering” within the meaning of Section 4(a)(2) of, and/or Regulation D under, the Securities Act. The anticipated aggregate offering size for the Master Fund is approximately $150 million (or higher, in the discretion of the Investment Adviser), with the minimum aggregate offering size set at $50 million (or lower, in the discretion of the Investment Adviser with the approval of the Board).
| 3 |
The Fund may offer Interests through multiple closings, which are anticipated to occur over a period of up to one year following the initial closing, provided that the Board may extend such period. An Investor participating in a closing that occurs after the initial closing may be required to pay a “make-up” amount to the Investors that invested prior to the admission of such additional Investor. Such a “make-up” payment will be calculated by applying the annualized rate of 8% to the percentage of Investor Commitments previously drawn down by the Fund and applied over the period of time since such draw-downs. The amount of the make-up payments will be paid to and retained as assets of the Fund.
A separate feeder fund, Excelsior Private Markets Fund III (TI), LLC (the “Taxable Investor Feeder”), has been established for investments by entities that are subject to U.S. federal income tax. The Taxable Investor Feeder invests substantially all of its assets in the Master Fund. In addition, other feeder funds that invest in the Master Fund alongside the Fund may be established from time to time. Such other feeder funds may be established for different investors with different terms and conditions. Bank of America Capital Advisors LLC serves as the investment adviser and management services provider of the Fund. Prospective investors whose subscriptions to purchase Interests are accepted by the Fund will become Investors by being admitted as members of the Fund.
The minimum Commitment to the Fund is $50,000, although the Fund reserves the right to accept Commitments of lesser amounts in its discretion.
The Fund has not yet identified all of the potential investments that will ultimately be made (through the Master Fund, as described below) with the Commitments. The Investor’s full Commitment will not be immediately invested. The Fund will, through the Master Fund, invest in Portfolio Funds as Commitments are drawn. Commitments may be drawn down at any time, by the Fund making a capital call upon at least ten (10) business days’ prior written notice (including email) to either the Investor or the Investor’s designee. Although there is no set schedule for calling capital, it is estimated that capital calls will be scheduled in the following manner (subject to the Fund’s discretion to make capital calls at different times and in different amounts):
Year 1: 30%
Year 2: 25%
Year 3: 25%
Year 4: 20%
Year 5: 0%
The above schedule is subject to change. For example, the Fund may extend the schedule or any capital call, or may determine not to draw the full amount of the Commitment. Any amounts drawn (except for cash reserved to cover Fund expenses) will be invested within approximately six (6) months of the drawdown date (such investments may take the form of a binding legal commitment). Interests will be issued to an Investor each time capital is contributed by such Investor to the Fund. Interests will be issued at the net asset value of the Fund as calculated in accordance with the Fund’s valuation procedures.
Investors understand that by agreeing to invest in the Fund, each is making an irrevocable commitment to the Fund of the entire amount of the Commitment, which will be drawn down over time. Even though not all of the Commitment will be requested immediately, if there is a capital call, Investors are committing to make funds available within the time designated. Investors should understand that if a capital call is received, they will have to either immediately transfer additional funds to their account at Bank of America Corporation (“Bank of America”) or immediately direct Bank of America to liquidate investments in their account and to transfer them to the Fund to honor the Commitment.
Should an Investor default on a Commitment, the Fund may, in the Investment Adviser’s sole discretion, charge a defaulting Investor with the expenses and losses incurred by the Fund resulting from the sale of positions due to the default of such Investor. Such charge may be incurred by specially allocating such expenses and losses to the capital account (the “Capital Account”) maintained on the books of the Fund for the defaulting Investor. In addition, the Fund may, in the Investment Adviser’s sole discretion, take other actions with respect to defaulting Investors, including without limitation: (i) borrowing funds to cover defaulted capital calls, at a rate established with a third party lender or using the Fund’s internal capital at a rate of 8% per annum, and causing the defaulting Investor to bear such interest and other costs associated with such borrowing, and/or (ii) excluding defaulting Investors from participating in future capital calls.
| 4 |
Term
The Fund will remain in existence for a period of ten years, subject to two two-year extensions, which may be approved by the Board, and further extensions to be approved by a majority-in-interest of the Investors thereafter.
Investment Objective
The investment objective of the Fund is to provide attractive long-term returns to Investors. The Fund seeks to achieve this objective through investments in a diversified portfolio of professionally managed private equity Portfolio Funds and select Direct Investments in portfolio companies. The Fund, through the Offshore Fund and the Master Fund, will primarily invest in newly formed private equity Portfolio Funds. The Master Fund may also invest, on an opportunistic basis, in secondary investments in private equity Portfolio Funds acquired from investors in such Portfolio Fund (each, a “Secondary Investment”) and directly in portfolio companies alongside Portfolio Funds or the other fund of funds vehicles managed by the Investment Adviser or its affiliates (each, a “Direct Investment”).
In pursuing its investment objective, the Fund will invest substantially all of its assets in the Offshore Fund, which in turn invests all or substantially all of its assets in the Master Fund. The Offshore Fund and the Master Fund have the same investment objective and substantially the same investment policies and restrictions as those of the Fund. This form of investment structure is commonly known as a “master/feeder” structure. The Investment Adviser serves as investment adviser of the Master Fund and provides management services to the Fund. Neither the Fund nor the Investment Adviser guarantees any level of return or risk on investments and there can be no assurance that the investment objective will be achieved.
Investment Process
The Investment Adviser employs a disciplined approach to identifying attractive investment opportunities with significant upside potential. This approach is based on multiple criteria including current market conditions, the economic outlook over the investment period, the quality and continuity of the professional team, prior funds’ performance and investment style. The Investment Adviser continually monitors and refines its investment evaluation methods based on the evolution of the private equity markets, developing investment themes by sector, focus or geography. By focusing on these themes, the Investment Adviser is able to quickly address potential opportunities.
The Investment Adviser applies a highly structured investment evaluation process in its analysis of investment opportunities. Key elements of this process involve sourcing investment opportunities, applying selection criteria, performing investment due diligence and negotiating terms, and extensive oversight and monitoring of investments.
Sourcing Investment Opportunities. The Investment Adviser has developed many relationships in the private equity industry since it was formed in 1998. In addition, the Investment Adviser intends to benefit from the historic and current investment relationships of its affiliates. The Investment Adviser frequently learns of a Portfolio Fund Manager’s plans for raising capital six to nine months before such effort is formally launched. As part of its fund selection process, the Investment Adviser maintains a calendar of prospective investments that at any given time projects expected capital-raising activities within the next twelve to eighteen months. While the Investment Adviser’s and its affiliates’ historic relationships provide the bulk of deal flow, the Investment Adviser’s position within the industry provides deal flow from relationships with leading placement agents, leads provided within the Bank of America network and unsolicited submissions. The Investment Adviser thus sees a significant portion of the opportunities in the market each year, regardless of whether it has previously invested with the Portfolio Fund Manager.
Secondary Investment opportunities can arise from a variety of sources. The Investment Adviser has developed a network of placement agents who specialize in connecting sellers of private equity fund interests with buyers. In addition, the Portfolio Fund Managers on occasion let their limited partners know that another limited partner is interested in selling their interest in a particular fund. In some instances limited partners in particular funds have preferential rights to acquire an interest because of right of first refusal provisions in the Portfolio Fund Manager’s limited partnership agreements. Private fund interests are not freely tradable in the manner of public securities, and secondary transfers of interests are typically subject to the consent of the Portfolio Fund Managers. Sourcing and closing Secondary Investments requires the ability to negotiate acceptable terms with both sellers and the Portfolio Fund Managers.
Sourcing Direct Investments is an extension of the extensive historic relationships held with these managers. Certain of the Portfolio Funds with which the Investment Adviser has a relationship may offer to the Master Fund the opportunity to co-invest in select individual deals alongside the Portfolio Fund. The Investment Adviser’s assessment of these opportunities will depend significantly on the due diligence performed by the Portfolio Fund Manager. However, in some instances, the company’s management team as well as the relevant financial and operational data will be made available to the Investment Adviser as part of its due diligence process.
| 5 |
Selection Criteria and Process. Through its analysis, the Investment Adviser regularly updates its universe of potential Portfolio Fund Managers of private equity investment products and reviews this list periodically with the Investment Adviser’s Private Equity Real Estate Investment Committee. The target investments for the Master Fund selected from this universe frequently may be Portfolio Fund Managers that have a previous investing relationship with the Investment Adviser and/or its affiliates. This provides the Investment Adviser with institutional knowledge of how a firm creates value and manages its affairs under different circumstances and through different markets and economic cycles. In reviewing this information for the purpose of evaluating potential investments, the Investment Adviser also takes into account several screening factors, including:
| · | whether a private equity firm’s relevant prior funds have consistently performed in the top quartile when measured against its peers of like vintage based upon industry data; and |
| · | whether, based on a qualitative assessment of a Portfolio Fund Manager, (a) there have been no material changes to the Portfolio Fund Manager’s personnel that could reasonably be expected to adversely affect such firm’s ability to successfully execute on its strategy, (b) the Portfolio Fund Manager’s current investment strategies are consistent with those that contributed to such Portfolio Fund Manager’s historic results, and (c) the Portfolio Fund Manager has acceptable quality and customary timeliness in its financial reporting to investors. |
Manager selection is a critical element of any investment process. Regardless of the asset class, investors commonly seek to invest capital with Portfolio Fund Managers that have historically performed in the top quartile when measured against their peers. Private equity is an asset class that relies on people to create value. It is an inefficient market that is highly dependent upon the skill of individuals to source attractive investment opportunities, create effective financial structures, execute on a business plan and time a successful exit from an investment.
Due Diligence and Terms of Agreements. Once an opportunity has been identified and is deemed to fit into the portfolio being constructed for the Master Fund, the Investment Adviser performs extensive due diligence on the Portfolio Fund Manager and the proposed Portfolio Fund. This due diligence focuses on evaluation of the Portfolio Fund Manager’s management, investment strategy, investment process and track record. Key aspects of the due diligence process include meetings with the Portfolio Fund Manager, reference checks, background investigations (where appropriate) and extensive financial modeling. The reference checks typically include discussions with portfolio company management, other investors and additional professionals who have worked with the principals of the firm being reviewed.
In addition, a member of the Investment Adviser, in conjunction with counsel, will lead the negotiation of investment terms and documents with each potential Portfolio Fund. The Investment Adviser’s staff understands what constitutes true “market provisions” and seeks to ensure that each document provides adequate protection for investors.
Managing Investments and Investor Reporting. The Investment Adviser maintains an ongoing management and monitoring program for investments it makes on behalf of the Master Fund. This serves as the foundation for the Investment Adviser to provide detailed communications to investors regarding portfolio performance and trends. All investment activity at the Portfolio Fund level is tracked and captured in the accounting system on a real time basis. This provides the Investment Adviser with the ability to track the investments down to the portfolio company level. Regardless of investment activity, all Portfolio Funds are evaluated on a quarterly basis. Utilizing reports provided by the Portfolio Funds, the Investment Adviser reviews each investment in the portfolio of the Portfolio Funds. This process is supplemented by discussions with the Portfolio Fund Managers and attendance at annual meetings where the portfolio companies’ performance and resulting valuations are discussed in detail.
Investment Allocation Approach
The Investment Adviser will seek to achieve the Fund’s investment objective by pursuing a strategy of investing the assets of the Fund, through the Offshore Fund and the Master Fund, primarily in investments in Portfolio Funds. The Master Fund may also invest, on an opportunistic basis, in Secondary Investments and Direct Investments. In the aggregate, Secondary Investments will be limited to 50% of the Master Fund’s capital commitments and Direct Investments will be limited to 10%. It is expected that under ordinary circumstances the Fund will commit at least 85% of Commitments through the Master Fund in Portfolio Funds.
Portfolio Funds may include private equity funds that pursue investment strategies in buyouts, venture capital and special situations (distressed debt, mezzanine, natural resources, opportunistic real estate, royalties and other non-traditional private equity strategies perceived to be attractive by the Investment Adviser). Such funds often have a focus on one or more industry, country, region or investment-related themes. Such funds seek to generate returns primarily through long-term capital appreciation; however at times some Portfolio Funds may generate some current income and short-term capital appreciation.
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Buyout. The Fund, through its investment in the Offshore Fund and the Master Fund, will focus its buyout investments in Portfolio Funds that specialize in various industries, capitalization sizes and value creation strategies of the buyout and growth equity sectors. These sectors represent the largest area of investment within the private equity asset class. According to Thomson Reuters Venture Economics data as of September 30, 2012, buyouts have accounted for approximately 62% of the capital that has been raised in private equity since 1985. Sponsor firms investing capital in the buyout and growth equity sectors tend to acquire companies that have established markets and current revenue streams. They typically seek to create value for investors by growing or improving the profitability of the businesses they acquire and often use leverage as a tool to magnify the benefits to investors. Portfolio Fund Managers participating in the buyout and growth equity sectors utilize a wide variety of investment strategies in their efforts to create value. These strategies may involve a focus on:
| • | Growth opportunities; |
| • | Consolidation plays in fragmented industries; |
| • | Spin-offs; |
| • | Public to private transactions; |
| • | Under-managed businesses; or |
| • | Turnaround situations. |
Buyout Portfolio Fund Managers also tend to segment themselves according to the size of investments that they make. Consequently, the fund size or the amount of commitments that a sponsor firm raises for a particular fund often is a proxy for the size of investments that a firm will make. This is because the sponsor firms themselves look to build diversified portfolios and typically target equity investments that are less than 15% of their aggregate commitments. Buyout Portfolio Fund Managers can be categorized in three broad groups: large-market buyout; middle-market buyout; and small-market buyout.
| • | Portfolio Fund Managers participating in large-market buyouts typically are investing a minimum of $250 million to $1.5 billion or more of equity in individual transactions. Companies that support this level of investment typically have at least $1 billion in revenue, and are frequently one of the leaders in the industry in which they participate. Funds raised to support large market buyout strategies generally have in excess of $5 billion of committed capital. |
| • | Investments in the middle-market buyout segment produce a broad range of investment opportunities. Investments typically vary from as little as $50 million to as much as $300 million, in companies that have as little as $50 million in revenue to as much as $1 billion. Typically, investment opportunities in the middle-market segment involve companies that are the leaders in their respective markets. Funds raised to support middle-market buyout strategies generally have between $1 billion and $5 billion of committed capital. |
| • | The small-market buyout segment tends to involve investments of $10 million to $75 million of equity in companies that have less than $50 million in revenue. Funds raised to support small-market buyout strategies typically have less than $1 billion of committed capital. This segment is generally considered the most risky segment within the buyout sector because companies of this size tend to be more vulnerable to macro-economic factors and customer concentration risks. |
Special Situations. The Fund’s special situations investments will focus on Portfolio Funds targeting distressed debt, mezzanine, natural resources, opportunistic real estate, royalties and other non-traditional investments. According to Thomson Reuters Venture Economics data as of September 30, 2012, these types of funds, in the aggregate, have accounted for approximately 22% of the capital that has been raised in private equity since 1985.
The Investment Adviser believes that special situation funds provide additional diversification benefits for the Fund. While deploying capital over a period of time similar to traditional private equity funds, the cash distribution streams from special situation funds may vary and in some instances may be accelerated and/or contractually stipulated. Examples would include mezzanine funds where the Fund, through the Offshore Fund and the Master Fund, may receive cash derived from periodic scheduled interest payments or royalty funds where the Fund, through the Offshore Fund and the Master Fund, receives cash from royalty payments stipulated for a specific period of time. Special situation funds may also include elements of trading strategies such as distressed debt, or funds where the Fund, through the Offshore Fund and the Master Fund, may receive payment streams derived from the income generated by real assets such as is the case with natural resources and opportunistic real estate funds.
The Investment Adviser expects to apply consistent underwriting guidelines for all investments, including special situation funds. It believes that special situation funds can provide various benefits to investors, including the potential for capital efficiency improvement, which may occur when cash flow received in the early years of the Fund’s life is used to offset Investor Commitments.
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Venture. The Fund, through the Offshore Fund and the Master Fund, will focus its allocation to venture capital in underlying investments that tend to focus on businesses in the technology or life sciences industries. According to Thomson Reuters Venture Economics data as of September 30, 2012, this sector is the second largest individual segment of the private equity industry, accounting for approximately 16% of the capital raised in the private equity asset class since 1985.
The venture sector can be generally defined by three stages: (1) seed investments in companies that have not yet proven the viability of their business concept; (2) early-stage companies which have proven the viability of their business concept but require additional development time and capital before beginning revenue-generating activities; and (3) late-stage companies that are typically generating revenue but require additional capital to accelerate growth opportunities and further their business plan. Portfolio Funds that specialize in the venture sector typically focus on companies with high growth potential. Unlike the buyout sector, leverage is rarely used in connection with venture investments. The Fund’s venture investments will primarily concentrate on Portfolio Funds that focus on early-stage and late-stage portfolio companies.
Secondary Investments. Secondary Investments are often defined as the purchase of an interest in an existing fund where a current investor is seeking liquidity. The Investment Adviser believes that properly executed Secondary Investments can enhance the risk/return dynamics of the Fund due to:
| · | the transparency available to the buyer, as investments in the Portfolio Fund are at least partially, if not fully, identified and known, |
| · | discounts commonly applied to the purchase price (typically determined by reference to the Portfolio Fund’s net asset value) due to the relative illiquidity of the assets for sale, |
| · | the acceleration of the capital call process, and |
| · | the potential for nearer-term liquidity, as the assets are typically more mature than assets of a primary investment in the same sector. |
Direct Investments.
Direct Investments are those investments made by the Master Fund directly into portfolio companies alongside Portfolio Funds or underlying funds of other funds of funds vehicles managed by the Investment Adviser or its affiliates. Direct Investments may represent a maximum of 10% of capital commitments. These opportunities will be pursued on an opportunistic basis to take advantage of the Investment Adviser’s historic relationships with top tier funds. As with any underlying portfolio company, the Investment Adviser will be relying on the Portfolio Fund manager for due diligence on Direct Investment opportunities. The Investment Adviser believes Direct Investments may have the potential to enhance the risk/return dynamics of the Fund through a lower cost structure, as typically the Portfolio Fund will not charge fees or carry on Direct Investments. Additionally, Direct Investments may provide an avenue for additional exposure to the investments of access-constrained funds in which primary fund-level allocations are limited.
Portfolio Construction
The Investment Adviser will seek to identify at least eight to fifteen investments within four to five years of the Fund’s initial closing. During the periods prior to the Master Fund’s being fully invested, the Master Fund’s portfolio will be more concentrated and the return of the Fund and the Master Fund will be based on fewer Portfolio Funds. The Fund and the Master Fund will leverage the relationships established by the Investment Adviser among private equity Portfolio Fund Managers to gain access to attractive Portfolio Funds. The Investment Adviser will employ a proactive, disciplined and diligent investment process by which prospective Portfolio Funds will be sourced, reviewed and selected.
The Investment Adviser will seek to tactically over-weight or under-weight the Master Fund’s allocation to the various private equity strategies perceived by the Investment Adviser to be more or less attractive from an expected risk and return perspective. Tactical allocations are influenced by a value-oriented perspective with regards to capital flows within a private equity strategy, valuations for new investments to be made by Portfolio Funds, risk within transaction structures, expectations for change within a strategy over the near-term and perceived attractiveness for a private equity strategy. The exposures to specific private equity strategies will also be influenced by the Investment Adviser’s analysis of the Portfolio Fund Managers.
Although the Investment Adviser may target specific strategies, regions or industries for investment, the Investment Adviser will not compromise on the caliber of the Portfolio Fund Managers pursued for investment in order to make an allocation to a targeted strategy. The chart below presents the expected private equity strategy allocations for the Master Fund in the current market environment relative to the long-term capital flows in private equity.
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| Private Equity Strategy Allocation1 | ||||
| Strategy | Fund Target Weight | Long-Term Market Weight | ||
| Buyout/Growth Capital | 50%-80% | 70% | ||
| Venture Capital | 10%-20% | 15% | ||
| Special Situations | 10%-30% | 15% | ||
| Anticipated Geographic Allocation | ||||
| Region | Allocation | |||
| North America | 50%-80% | |||
| Europe | 20%-40% | |||
| Asia | 5%-25% | |||
| Other | 0%-15% | |||
___________________________________
| 1 | There can be no assurance that the positions created by the Portfolio Funds selected for the Master Fund will create a portfolio with the allocations described above. Beyond the investment restrictions set forth in the limited partnership agreements (or other organizational documents) of the Portfolio Funds, the Investment Adviser does not control and does not have influence on the investment activity of the Portfolio Fund Managers investing the capital of the Portfolio Funds. |
Secondary Investments and Direct Investments do not constitute a separate allocation, rather the Portfolio Fund or company interest acquired shall be categorized according to the sector and geographic factors referenced above.
Investment Policies and Restrictions
The Fund has adopted certain fundamental investment restrictions, which cannot be changed without the vote of a majority of the Fund’s outstanding voting securities (as defined by the 1940 Act). 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-issued securities) of issuers engaged in any single industry. In applying the Fund’s 25% limitation on investment in a single industry, the Fund will consider the investment strategies of the Portfolio Funds with respect to specific industry-oriented investment strategies. The Fund will not, however, apply the industry concentration policy on a look-through basis. For the avoidance of doubt, this 25% limitation on investment in a single industry does not restrict or limit: (i) the Fund’s authority to pursue its investment objective by investing substantially all of its assets in the Master Fund (or another investment company that has the same investment objective and substantially the same investment policies as the Fund) or (ii) the Fund’s or the Master Fund’s authority to invest 25% or more of the value of its total assets in Portfolio Funds. |
| 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, and (b) the Fund may borrow money from banks for temporary or emergency purposes. |
| 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, except that it may purchase and sell foreign currency, options, futures and forward contracts, including those related to indexes, and options on indices, and may invest in commodity pools and other entities that purchase and sell commodities and commodity contracts. |
| 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 that invest or deal in real estate. |
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The investment objective of the Fund is also fundamental and may not be changed without a vote of a majority of the Fund’s outstanding voting securities.
Under the 1940 Act, the vote of a majority of the outstanding voting securities of an investment company, such as the Fund, means the vote, at an annual or a special meeting of the security holders of the Fund duly called, (A) of 67% or more of the voting securities present at the meeting, if the holders of more than 50% of the outstanding voting securities of the Fund are present or represented by proxy or (B) of more than 50% of the outstanding voting securities of the Fund, whichever is less.
While it is in the current master/feeder structure, with respect to its own investment restrictions, the Fund will “look through” to the Master Fund’s investments (through the Offshore Fund). The Master Fund has fundamental investment restrictions that are substantially the same as those of the Fund. These investment restrictions may not be changed by the Master Fund without the vote of a majority of the outstanding voting securities of the Master Fund. The investment restrictions and other policies described herein do not apply to Portfolio Funds. If a percentage restriction is adhered to at the time of an investment or transaction, a later change in percentage resulting from a change in the values of investments or the value of the Fund’s or the Master Fund’s total assets, unless otherwise stated, will not constitute a violation of such restriction or policy. With respect to these investment restrictions and other policies, the Fund will not look through the Portfolio Funds to their underlying securities.
The Master Fund may engage in borrowing to cover Fund expenses, to “bridge” capital contributions or to cover Investor defaults. The Master Fund may borrow from an affiliate, subject to regulatory approvals, or a third-party, pursuant to a credit facility. The Master Fund may borrow in advance of a closing with Investors to permit it to make initial capital contributions to Portfolio Funds or at a later date to fulfill ongoing commitments. Thus, the Master Fund may be leveraged prior to closing or thereafter. Drawdowns from Investors or distributions from Portfolio Funds may be used to fulfill obligations (including, but not limited to, the payment of any interest due) under any credit facility. In the event the Master Fund does not have sufficient commitments to pay its borrowings in full, it is possible that the Master Fund would default on its borrowing or its commitments to a Portfolio Fund or Portfolio Funds, and unless another source of funds is obtained, Investors in the Fund could be adversely affected. In addition, private equity acquisitions by Portfolio Funds will generally include significant leverage at the portfolio company level. Such leverage can increase the return on an investment, but it also creates additional risk because, in the event that decreases in value cause the investment to be worth less than the amount borrowed, the investment can be lost. However, there is no guarantee that the Master Fund will borrow or that a credit facility will be available for the Master Fund.
The 1940 Act requires a registered investment company to satisfy an asset coverage requirement of 300% if its indebtedness, including amounts borrowed, measured at the time the investment company incurs the indebtedness. 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).
Risk Factors
The Fund’s investment program is speculative and entails substantial risks. Because the Fund will invest substantially all of its assets in the Master Fund (through the Offshore Fund) in pursuit of its investment objectives, the risks associated with an investment in the Fund are in effect the risks of investing in the Master Fund. As stated above, the Master Fund, the Offshore Fund and the Fund have the same investment adviser and have substantially the same investment objectives, policies and strategies. Accordingly, except for specific references to the contrary, all references to the Fund, its investments or its investment portfolio in this summary of risk factors refer to the combined risks relating to the investments by the Fund, the Offshore Fund and the Master Fund, and all references to the Investment Adviser refer to the Investment Adviser as the investment adviser of the Fund and the Master Fund, unless the context suggests otherwise. In considering participation in the Fund, the prospective Investors should be aware of certain risk factors, which include the following:
1. Business and Market Risks
The Fund’s investment portfolio will consist of Portfolio Funds which will hold securities issued primarily by privately held companies, and operating results for the portfolio companies in a specified period will be difficult to predict. Such investments involve a high degree of business and financial risk that can result in substantial losses.
Buyout Funds. Buyout transactions may result in new enterprises that are subject to extreme volatility, require time for maturity and may require additional capital. In addition, they frequently rely on borrowing significant amounts of capital, which can increase profit potential but at the same time increase the risk of loss. Leveraged companies may be subject to restrictive financial and operating covenants. The leverage may impair the ability of these companies to finance their future operations and capital needs. Also, their flexibility to respond to changing business and economic conditions and to business opportunities may be limited. A leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money was not used. Although these investments may offer the opportunity for significant gains, such buyout investments involve a high degree of business and financial risk that can result in substantial losses, which risks generally are greater than the risks of investing in public companies that may not be as leveraged.
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Venture Funds. Venture capital funds primarily invest in private companies that have limited operating history, are attempting to develop or commercialize unproven technologies or to implement novel business plans or are not otherwise developed sufficiently to be self-sustaining financially or to become public. Although these investments may offer the opportunity for significant gains, such investments involve a high degree of business and financial risk that can result in substantial losses, which risks generally are greater than the risks of investing in public companies that may be at a later stage of development.
Special Situations. The Fund may invest in Portfolio funds that are focused primarily on special situations such as distressed debt, mezzanine, natural resources, opportunistic real estate, royalties and other non-traditional investments. Although these investments may offer the opportunity for significant gains, such investments involve a high degree of business and financial risk that can result in substantial losses, which risks generally are greater than the risks of investing in public companies that may be at a later stage of development.
2. Lack of Operating History
The Fund is a newly formed entity and has no operating history upon which prospective Investors can evaluate its performance. The investment program of the Fund should be evaluated on the basis that there can be no assurance that the Investment Adviser’s assessment of the short-term or long-term prospects of investments will prove accurate or that the Fund will achieve its investment objectives. Past performance of the Portfolio Fund Managers is no indication of future performance.
3. Dependence on the Investment Adviser
To the extent that the Fund invests its assets in the Master Fund (through the Offshore Fund), the Fund’s performance depends upon the performance of the Master Fund, which, in turn, will depend on the performance of the Portfolio Fund Managers with which the Master Fund invests, and the Investment Adviser’s ability to select, allocate and reallocate effectively the Master Fund’s assets among Portfolio Funds. The Investment Adviser’s success may be affected by key individuals on the private equity investment management team (the “Portfolio Management Team”) joining or leaving the team and the loss of key personnel could have a material adverse effect on the performance of the Master Fund and therefore the Fund. The performance of the Investment Adviser’s prior investments is not necessarily indicative of the Fund’s future results and the performance of the Portfolio Fund Managers’ prior investments is not necessarily indicative of any Portfolio Fund’s future results.
4. Investment in Junior Securities
Although the Portfolio Funds may invest in securities that are relatively senior within a portfolio company’s capital structure, it is expected that the Portfolio Funds will invest primarily in securities that are among the more junior securities in a portfolio company’s capital structure and, thus, subject to the greatest risk of loss. Generally, there will be no collateral to protect an investment once made.
5. Leveraged Investments
A Portfolio Fund’s investments, depending upon its strategy, may be in companies whose capital structures are highly leveraged. Such investments involve a high degree of risk in that adverse fluctuations in the cash flow of such companies, or increased interest rates, may impair their ability to meet their obligations, which may accelerate and magnify declines in the value of any such portfolio company investments in a down market.
6. Limited Transferability of Interests
There will be no public market for the Interests, and none is expected to develop. Furthermore, there are substantial restrictions upon the transferability of Interests under the Limited Liability Company Agreement of the Fund (the “Operating Agreement”) and applicable securities laws. An investment in the Fund should be considered illiquid.
7. Diversification of Investments
The Fund is a “non-diversified” investment company. Thus, there are no percentage limitations imposed by the 1940 Act on the percentage of the Fund’s assets that may be invested in the securities of any one issuer. However, the Fund generally will not commit more than 25% of the value of total Commitments by Investors (measured at the time of the Commitment) in the securities of a single Portfolio Fund. The Investment Adviser believes that this approach helps to reduce overall investment risk.
8. Concentration of Portfolio Fund Investments
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Each Portfolio Fund will participate in a limited number of investments and may seek to make several investments in one industry or one industry segment. As a result, each Portfolio Fund’s investment portfolio could become highly concentrated, and the performance of a few holdings may substantially affect its aggregate return. Furthermore, to the extent that the capital raised is less than the targeted amount, a Portfolio Fund may invest in fewer portfolio companies and thus be less diversified. Various Portfolio Funds may invest in the same portfolio companies and this could result in even less diversification at the Fund level.
9. Risks Associated with Secondary Market Investments
Competition for Secondary Market Investment Opportunities. Many institutional investors, including other fund-of-funds entities, as well as existing investors of private equity funds may seek to purchase secondary interests of the same private equity fund which the Fund may also seek to purchase. In addition, many top-tier private equity managers have become more selective by adopting policies or practices that exclude certain types of investors, such as fund-of-funds. These managers may also be partial to secondary interests being purchased by existing investors of their funds with whom they have existing relationships. In addition, some secondary opportunities may be conducted pursuant to a specified methodology (such as a right of first refusal granted to existing investors or a so-called “Dutch auction,” where the price of the investment is lowered until a bidder bids and that first bidder purchases the investment, thereby limiting a bidder’s ability to compete for price) which can restrict the availability of such opportunity for the Fund. No assurance can be given that the Fund will be able to identify investment opportunities that satisfy the Fund’s investment objectives and desired diversification goals or, if the Fund is successful in identifying such investment opportunities, that the Fund will be permitted to invest, or invest in the amounts desired, in such opportunities.
Nature of Secondary Market Investments. The Fund may acquire secondary interests in existing private equity funds primarily from existing investors in such funds (and not from the issuers of such investments). Because the Fund will not be acquiring such interests directly from the issuers, it is generally not expected that the Fund will have the opportunity to negotiate the terms of the interests being acquired or other special rights or privileges. There can be no assurance as to the number of investment opportunities that will be presented to the Fund. In addition, valuation of such private equity funds interests may be difficult, as there generally will be no established market for such investments or for the privately-held portfolio companies in which such funds may own securities. Moreover, the purchase price of interests in such funds will be subject to negotiation with the sellers of the interests and there is no assurance that the Fund will be able to purchase interests at attractive discounts to NAV, or at all. The overall performance of the Fund will depend in large part on the acquisition price paid by the Fund for its secondary interests, the structure of such acquisitions and the overall success of the private equity Portfolio Fund.
Pooled Secondary Market Investments. The Fund may have the opportunity to acquire a portfolio of private equity fund interests from a seller, on an “all or nothing” basis. In some such cases, certain of the private equity fund interests may be less attractive than others, and certain of the investment managers managing such funds may be more familiar to the Fund than others or may be more experienced or highly regarded than others. In such cases, it may not be possible for the Fund to carve out from such purchases those investments which the Investment Adviser considers (for commercial, tax legal or other reasons) less attractive.
Contingent Liabilities Associated With Secondary Market Investments. In the cases where the Fund acquires an interest in a private equity fund through a secondary transaction, the Fund may acquire contingent liabilities of the seller of the interest. More specifically, where the seller has received distributions from the relevant private equity fund and, subsequently, that private equity fund recalls one or more of these distributions, the Fund (as the purchaser of the interest to which such distributions are attributable and not the seller) may be obligated to return the monies equivalent to such distribution to the private equity fund. While the Fund may, in turn, make a claim against the seller for any such monies so paid to the private equity fund, there can be no assurances that the Fund would prevail on such claim.
Risk of Early Termination. The governing documents of the private equity Portfolio Funds are expected to include provisions that would enable the general partner, the manager, or a majority in interest (or higher percentage) of their limited partners or members, under certain circumstances, to terminate such funds prior to the end of their respective stated terms. Early termination of a private equity fund in which the Fund is invested may result in (i) the Fund having distributed to it a portfolio of immature and illiquid securities, or (ii) the Fund’s inability to invest all of its capital commitments as anticipated, either of which could have a material adverse effect on the performance of the Fund.
10. Direct Investments
The Master Fund may make co-investments on an opportunistic basis. There can be no assurance that the Master Fund will be given co-investment opportunities, or that any co-investment offered to the Master Fund would be appropriate or attractive to the Master Fund. Due diligence will be conducted on co-investment opportunities; however, the Investment Adviser may not have the ability to conduct the same level of due diligence applied to Portfolio Fund investments. In addition, the Investment Adviser may have little opportunities to negotiate the terms of such co-investments. The Master Fund generally will rely on the Portfolio Fund manager or sponsor offering such co-investment opportunity to perform most of the due diligence on the relevant portfolio company and to negotiate co-investment terms.
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11. Illiquidity; Lack of Current Distributions
An investment in the Fund should be considered illiquid. In addition, the Fund, indirectly through its investment in the Offshore Fund and the Master Fund, will acquire privately offered interests in Portfolio Funds. Transfers of interests and withdrawals within Portfolio Funds will be severely restricted. It is uncertain as to when profits, if any, will be realized. Losses on unsuccessful investments may be realized before gains on successful investments are realized. The return of capital and the realization of gains, if any, generally will occur only upon the partial or complete disposition of an underlying investment by a Portfolio Fund. While an investment may be sold at any time, it is not generally expected that this will occur for a number of years after the initial investment. Before such time, there may be no current return on the investment.
Due to the pattern of cash flows in private equity funds and the illiquid nature of their investments, Investors typically will see negative returns in the Fund’s early stages; in particular it can take several years for Portfolio Fund investments to be realized during which time management fees will be continued to be drawn from committed capital and certain underperforming investments may be written down or written off. Then as investments are able to realize liquidity events, such as a sale or initial public offering, positive returns will be realized if the Portfolio Fund is successful in achieving its investment strategy.
12. Absence of Regulatory Oversight
The Portfolio Funds will not be registered as investment companies under the 1940 Act, and the Fund, as an indirect investor in these Portfolio Funds, will not have the benefit of the protection afforded by the 1940 Act to investors in registered investment companies (which, among other protections, require investment companies to have a majority of disinterested directors, require securities held in custody at all times to be individually segregated from the securities of any other person and marked to clearly identify such securities as the property of such investment company, and regulate the relationship between the adviser and the investment company).
13. Tax Laws Subject to Change
It is possible that the current federal, state, local, or foreign income tax treatment accorded an investment in the Fund will be modified by legislative, administrative, or judicial action in the future. The nature of additional changes in federal or non-U.S. income tax law, if any, cannot be determined prior to enactment of any new tax legislation. However, such legislation could significantly alter the tax consequences and decrease the after tax rate of return of an investment in the Fund. Potential Investors therefore should seek, and must rely on, the advice of their own tax advisers with respect to the possible impact on their investments of recent legislation, as well as any future proposed tax legislation or administrative or judicial action.
14. In-Kind Distributions
Portfolio Funds may make in-kind distributions to the Master Fund, and the Master Fund may make in-kind distributions to the Fund. Particularly in the event of a dissolution of a Portfolio Fund, such distributions may contain securities which are not marketable. While the general policy of the Fund will be to liquidate such investment and distribute proceeds to the Investors, under certain circumstances when deemed appropriate by the Board, an Investor may receive in-kind distributions from the Fund.
15. Projections
Projected operating results of a company in which a Portfolio Fund invests normally will be based primarily on financial projections prepared by each company’s management. In all cases, projections are only estimates of future results that are based upon information received from the company and assumptions made at the time the projections are developed. There can be no assurance that the results are set forth in the projections will be attained, and actual results may be significantly different from the projections. Also, general economic factors, which are not predictable, can have a material effect on the reliability of projections.
16. Carried Interest
The carried interest held by the general partner, manager or equivalent of a Portfolio Fund may create an incentive for the Investment Adviser or a Portfolio Fund Manager to make high risk portfolio investments in hope of achieving a larger return for the holder of the carried interest. The Portfolio Fund Manager (or an affiliate) of each Portfolio Fund will receive carried interest allocations to which it is entitled, irrespective of the performance of the other Portfolio Funds and the Fund generally. Accordingly, a Portfolio Fund Manager (or affiliate) with positive performance may receive carried interest from the Master Fund, which is borne indirectly by Investors, even if the Master Fund’s and the Fund’s overall returns are negative.
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17. Need for Follow-On Investments
Following its initial investment in a given portfolio company, a Portfolio Fund may decide to provide additional funds to such portfolio company or may have the opportunity to increase its investment in a successful portfolio company. There is no assurance that a Portfolio Fund will make follow-on investments or that a Portfolio Fund will have sufficient funds to make all or any of such investments. Any decision by a Portfolio Fund not to make follow-on investments or its inability to make such investments (i) may have a subsequent negative effect on a portfolio company in need of such an investment, (ii) result in a lost opportunity for a Portfolio Fund to increase its participation in a successful operation, or (iii) result in a loss of certain anti-dilution protection.
18. Non-U.S. Investments
The Fund may invest (indirectly through the Offshore Fund and the Master Fund) in a Portfolio Fund that is organized outside of the United States or a Portfolio Fund may invest in portfolio companies that are organized or have substantial sales or operations outside of the United States. Such investments may be subject to certain additional risk, due to, among other things, potentially unsettled points of applicable governing law, the risks associated with fluctuating currency exchange rates, capital repatriation regulations, the application of complex U.S. and foreign tax rules to cross-border investments and imposition of foreign taxes on the Fund and/or the Investors.
19. Independent Counsel
No independent counsel has been retained to represent the interests of the Investors. None of this Registration Statement, the Fund’s Confidential Private Offering Memorandum or the Fund’s Operating Agreement has been reviewed by any attorney on behalf of the Investors. Legal counsel to the Fund and Investment Adviser does not represent any Investor.
20. Increased Regulatory Scrutiny and Reporting
In the environment following the market events of 2008 and 2009, the Fund and the Investment Adviser expect increased scrutiny by government regulators, investigators, auditors and law enforcement officials regarding, among other things, the identities and sources of funds of investors in private investment funds. In that connection, in the future the Fund may become subject to additional obligations, such as reporting requirements regarding its investors. Each Investor will be required to provide to the Fund such information as may be required to enable the Fund to comply with all applicable legal or regulatory requirements, and each Investor will be required to acknowledge and agree that the Fund may disclose such information to governmental and/or regulatory or self-regulatory authorities to the extent required by applicable law or regulation and may file such reports with such authorities as may be required by applicable law or regulation. If required by applicable law, regulation or interpretation thereof, the Fund may suspend all activity with respect to an Investor’s account with the Fund, including suspending the Investor’s right to redeem funds or assets from the Fund pending the Fund’s receipt of instructions regarding the Investor’s account from the appropriate governmental or regulatory authority.
21. Private Offering Exemption
This offering has not been registered under the Securities Act, in reliance on the exemptive provisions of Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder. Section 18(b)(4)(D) of the Securities Act, added by the National Securities Markets Improvement Act of 1996, preempts state registration of transactions in securities exempt pursuant to “rules and regulations issued by the SEC under Section 4(a)(2) of the Securities Act.” Preemption therefore applies to transactions exempt under Regulation D, but not to transactions exempt under Section 4(a)(2) alone. Because of the lack of uniformity among the state’s securities laws and their general complicated nature, the Fund has chosen not to incur the expense and burden of reviewing exemptions under each state’s laws, but rather rely on the uniform exemption provided by Regulation D.
No assurance can be given that the offering currently qualifies or will continue to qualify under the exemptive provisions of Regulation D because of, among other things, the adequacy of disclosure and the manner of distribution, the timeliness of filings, the existence of similar offerings in the past or in the future, or the retroactive change of any securities law or regulation. If the Regulation D exemption is lost, the Fund may not be able to avail itself of other state exemptions and successful claims or suits for rescission may be brought and successfully concluded for failure to register these offerings or for acts or omissions constituting offenses under the Exchange Act, or applicable state securities laws.
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22. Manager Liability
In certain circumstances each Portfolio Fund is expected to receive the right to appoint a representative to the board of directors of the companies in which it invests. Serving on the board of directors of a portfolio company exposes the Portfolio Fund’s representatives, and ultimately the Portfolio Fund, to potential liability. Although portfolio companies often have insurance to protect directors and officers from such liability, not all portfolio companies may obtain such insurance, which may be insufficient if obtained.
23. Public Company Holdings
A Portfolio Fund’s investment portfolio may contain securities issued by publicly held companies. Such investments may subject the Portfolio Fund to risks that differ in type or degree from those involved with investments in privately held companies. Such risks include, without limitation, greater volatility in the valuation of such companies, increased obligations to disclose information regarding such companies, limitations on the ability of the Portfolio Fund to dispose of such securities at certain times, increased likelihood of shareholder litigation against such companies’ board members, and increased costs associated with each of the aforementioned risks.
24. Delayed Schedule K-1s
The Fund expects to be unable to provide final Schedule K-1s to Investors for any given tax year until after April 15 of the following year. Investors should be prepared for a substantial delay in receiving final Schedule K-1s. The final Schedule K-1s will not be available until the Master Fund has received tax-reporting information from its Portfolio Funds necessary to prepare final Schedule K-1s. Investors will likely be required to obtain extensions of the filing dates for their U.S. federal, state, and local income tax and information returns. Investors will be responsible for any and all costs and fees incurred by them in connection with obtaining the tax extensions and information. Each prospective Investor should consult with its own adviser as to the advisability and tax consequences of an investment in the Fund. Portfolio Funds and their portfolio companies may engage in business, otherwise derive income from, and in general be subject to taxing authority in numerous state, local, and foreign jurisdictions. Investors, by virtue of their participation in the Fund, may be subject to tax payment and reporting obligations in such jurisdictions under their widely varying rules and regulations. Each Investor should consult an independent adviser regarding how an investment in the Fund may affect his, her, or its state, local, and foreign tax payment and reporting obligations.
25. Risks of Private Equity Investments Generally
The investments made by the Portfolio Funds will entail a high degree of risk and in most cases be highly illiquid and difficult to value. Unless and until those investments are sold or mature into marketable securities they will remain illiquid. In addition to the extent a Portfolio Fund focuses on venture capital investments the companies in which the Portfolio Fund will invest may be in a conceptual or early stage of development, may not have a proven operating history, may offer services or products that are not yet developed or ready to be marketed or that have no established market, may be operating at a loss or have significant fluctuations in operating results, may be engaged in a rapidly changing business, may require substantial additional capital to support their operations to finance expansion or to maintain their competitive position, or otherwise may have a weak financial condition. As a general matter, companies in which the Portfolio Fund invests may face intense competition, including competition from companies with far greater financial resources; more extensive research, development, technological, marketing and other capabilities; and a larger number of qualified managerial and technical personnel.
Neither the Master Fund nor the Fund will obtain or seek to obtain any control over the management of any portfolio company in which any Portfolio Fund may invest. The success of each investment made by a Portfolio Fund will largely depend on the ability and success of the management of the portfolio companies in addition to economic and market factors.
26. Capital Contributions
The Master Fund has not yet identified all of the potential investments that it will make with the Commitments it receives from the Fund. The Investor’s full Commitment will not be immediately invested. The Fund (through its investment in the Offshore Fund and the Master Fund) will invest in Portfolio Funds as Commitments are drawn (generally within 6 months of any drawdown). It may take a significant amount of time to fully draw down the Commitments. The Fund’s performance will only include the Commitments that have been drawn-down, thus an Investor’s individual performance may be lower than the performance of the Fund.
27. Default
The Master Fund, in general, will not always contribute the full amount of the Fund’s commitment to a Portfolio Fund at the time of its admission to the Portfolio Fund. Instead, the Master Fund may be required to make incremental contributions pursuant to capital calls issued from time to time by the Portfolio Fund. If the Master Fund defaults on its commitment or fails to satisfy capital calls in a timely manner then, generally, it will be subject to significant penalties, including the complete forfeiture of the Master Fund’s investment in the Portfolio Fund. Any failure by the Master Fund to make timely capital contributions in respect of its commitments may (i) impair the ability of the Master Fund, and in turn the Fund to pursue its investment program, (ii) force the Master Fund to borrow, (iii) cause the Master Fund, and, indirectly, the Fund and the Investors to be subject to certain penalties from the Portfolio Funds (including the complete forfeiture of the Master Fund’s investment in a Portfolio Fund), or (iv) otherwise impair the value of the Master Fund’s investments (including the complete devaluation of the Master Fund, and in turn the Fund).
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Similarly, Investors will not contribute the full amount of their Commitments to the Fund at the time of their admission. Investors will be required to make incremental contributions pursuant to capital calls issued from time to time, by the Fund. Unlike the Portfolio Funds, the Fund will have limited recourse in retrieving un-drawn Commitments in the instance that an Investor defaults on a Commitment. An Investor, or Investors, that default(s) on his/her/its/their Commitment to the Fund may cause the Master Fund to, in-turn, default on its commitment to a Portfolio Fund. Thus the Fund, and especially the non-defaulting Investors, will bear the penalties of such default (as outlined above, including, but not limited to, the complete forfeiture of the Master Fund’s investment in a Portfolio Fund and the complete devaluation of the Master Fund, and in turn the Fund). While the Investment Adviser has taken steps to mitigate this risk, including seeking Commitments from Investors that exceed the commitments that are made to the Portfolio Funds, there is no guarantee that such measures will be sufficient or successful.
28. Recall of Distributions
The Master Fund and the Fund may be subject to terms of the Portfolio Funds which permit the recall of distributions to meet Portfolio Fund obligations. In the event funds are recalled for this purpose, the Fund may in turn require Investors to return amounts previously distributed to them.
29. Limited Investment Opportunities
In sourcing investment opportunities, the Fund will leverage the relationships established by the Investment Adviser and its affiliates among private equity Portfolio Fund Managers to gain access to attractive Portfolio Funds. However, as registered investment companies, the Master Fund and the Fund will be required to make certain public disclosures and regulatory filings regarding their operations, financial status, portfolio holdings, etc. While these filings are designed to enhance investor protections, private equity Portfolio Fund Managers may view such filings as contrary to their business interests and deny access to the Master Fund, but may permit other, non-registered funds or accounts, managed by the Investment Adviser or its affiliates, to invest. As a result, the Fund may not be invested in certain private equity funds that are held by other unregistered funds or accounts managed by the Investment Adviser or its affiliates, even though those private equity funds are consistent with the Fund’s investment objective. In addition, certain provisions of the 1940 Act prohibit the Master Fund and the Fund from engaging in transactions with the Investment Adviser; however, unregistered funds also managed by the Investment Adviser are not prohibited from the same transactions. As a result, the Master Fund and the Fund, due to their status as registered investment companies, may be ineligible to participate in certain opportunities that will be available to unregistered investment companies advised by the Investment Adviser.
30. Competition for Investment Opportunities
Many institutional investors, including other fund-of-funds entities, may seek to invest in many of the same Portfolio Funds in which the Master Fund may also seek to invest. Some of those Portfolio Funds may limit the number of investors and the amount of capital they raise, which may limit or eliminate the ability of the Master Fund to invest in those Portfolio Funds.
In addition, numerous investors will be competing with the Portfolio Funds for desirable investment opportunities. Because of this competition, the Portfolio Funds might not be able to participate in attractive investments that would otherwise be available to them. In addition, competition for investments may also increase the pre-money value of prospective portfolio companies, which may adversely affect investment returns.
31. Economic Conditions
Changes in economic conditions, including, for example, interest rates, inflation rates, industry conditions, competition, technological developments, trade relationships, political and diplomatic events and trends, tax laws and innumerable other factors, can substantially and adversely affect the business and prospects of the Portfolio Funds and the Fund. These conditions are not within the control of the Investment Adviser or the Portfolio Fund Managers.
32. Portfolio Company Risks
Portfolio companies in which the Portfolio Funds invest will be subject to the risk that a proposed service or product cannot be developed successfully with the resources available to the enterprise. There can be no assurance that the development efforts of any portfolio company will be successful or, if successful, will be completed within the budget or time originally estimated. Additional funds may be necessary to complete such development, to achieve market acceptance, to support expansion or to achieve or maintain competitive positions. The portfolio companies may not be able to obtain such funds on favorable terms, or at all.
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Many of the portfolio companies of a Portfolio Fund may operate at a loss or with highly erratic operating results. Such companies may face intense competition, including competition from companies with much greater financial resources, much more extensive development, production, marketing and service capabilities and a much larger number of qualified managerial and technical personnel. The Investment Adviser anticipates that the Fund (through the Master Fund and the Portfolio Funds) will be making significant investments in companies in a number of sectors, some of which are rapidly changing, and such companies may face increased risks of product or service obsolescence. There can be no assurance that any particular portfolio company will succeed.
33. Currency Risks
The Fund’s investments that are denominated in currencies other than the U.S. dollar are subject to the risk that the value of the particular currency will change in relation to one or more other currencies. As a result, the Fund could realize a net loss on an investment, even if there were a gain on the underlying investment before currency losses were taken into account. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. The Investment Adviser may try to hedge these risks by investing in foreign currencies, forward foreign currency exchange contracts, or any combination thereof, but there can be no assurance that such strategies will be effective.
34. Multiple Tiers of Expenses
An Investor who meets the conditions imposed by a Portfolio Fund Manager, including minimum initial investment requirements that may, in many cases, be substantially higher than those imposed by the Fund, could invest directly in the Portfolio Fund or with its Portfolio Fund Manager. By investing in Portfolio Funds indirectly through the Fund, the Offshore Fund and the Master Fund, an Investor bears a pro rata portion of the asset-based fees and other expenses of the Fund, a pro rata portion of the asset-based fees and expenses of the Master Fund and also indirectly bears a pro rata portion of the asset-based fees, and other expenses borne by the Master Fund as an investor in Portfolio Funds.
35. Lack of Portfolio Information
The Investment Adviser receives detailed information from each Portfolio Fund Manager regarding the investment performance and investment strategy of Portfolio Funds. The Investment Adviser may have little or no means of independently verifying information provided by Portfolio Funds of their Portfolio Fund Managers and thus, may not be able to ascertain whether Portfolio Funds are adhering to their disclosed investment strategies and their investment and risk management policies.
36. Investing in a Master/Feeder Fund
The Fund pursues its investment objective by investing in the Master Fund (through the Offshore Fund). The Fund does not have the right to withdraw its investment in the Master Fund. Interests in the Master Fund also may be held by investors other than the Fund. These investors may include other investment funds, including investment companies that, like the Fund, are registered under the 1940 Act, and other types of pooled investment vehicles. When investors in the Master Fund vote on matters affecting the Master Fund, the Fund could be outvoted by other investors. The Fund also may be indirectly adversely affected otherwise by other investors in the Master Fund. Other feeder funds invested in the Master Fund may offer interests to their respective investors, if any, that have costs, expenses and other terms that differ from those of the Fund. Thus, the investment returns for investors in other funds that invest in the Master Fund may differ from the investment return of investors in the Fund.
37. Investing through the Offshore Fund
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 Investors.
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ITEM 9. MANAGEMENT.
ITEM 9.1(a)
The Role of the Board
The Board is expected to oversee the management and operations of the Fund. As is the case with virtually all investment companies (as distinguished from operating companies), service providers to the Fund, primarily the Investment Adviser, have responsibility for the day-to-day management and operation of the Fund. For example, the Investment Adviser will have responsibility with respect to the investment of the Fund's assets in accordance with the Fund's investment policies and restrictions and provides the Fund with certain management, administrative and other services. The Board is not expected to have responsibility for the day-to-day management of the Fund, and its oversight role will not make the Board a guarantor of the Fund's investments or activities.
The Board is expected to appoint various individuals of the Investment Adviser as officers of the Fund with responsibility to monitor and report to the Board on the Fund's operations. In conducting its oversight, the Board will receive regular reports from these officers and from other senior officers of the Investment Adviser regarding the Fund's operations. For example, the Chief Financial Officer of the Fund is expected to provide reports as to financial reporting matters, the Fund's portfolio manager will periodically report as to the Fund's investment activities and performance. Some of these reports will be provided as part of scheduled Board meetings, which typically will be held quarterly in person, and will involve the Board's review of recent Fund operations. From time to time one or more members of the Board may also interact informally with management between scheduled Board meetings to discuss various topics.
Board Structure, Leadership
The Board is expected to structure itself in a manner that it believes allows it to perform its oversight function effectively. All of the Fund’s Managers, including the Chairman of the Board, will be Independent Managers, which are Managers that are not affiliated with the Investment Adviser. The Board is expected to establish two standing committees: an Audit Committee and a Nominating Committee.
The Independent Managers are expected to engage their own independent counsel to advise them on matters relating to their responsibilities in connection with the Fund. The Board is expected to determine that its structure, in which all of the Managers, including the Chairman of the Board, are Independent Managers, is appropriate in view of the significant services that the Investment Adviser provides to the Fund and potential conflicts of interest that may arise from the Fund's relationship with the Investment Adviser.
Board Oversight of Risk Management
As part of its oversight function, the Board will receive and review various reports relating to risk management. Because risk management is a broad concept comprised of many different elements (including, among other things, investment risk, valuation risk, credit risk, compliance and regulatory risk, business continuity risk and operational risk), Board oversight of different types of risks is handled in different ways. For example, the full Board could receive and review reports from senior personnel of the Investment Adviser (including senior compliance, financial reporting and investment personnel) or their affiliates regarding various types of risks, such as operational, compliance and investment risk, and how they are being managed. The Audit Committee may participate in the oversight of risk management in certain areas, including meeting with the Fund's Chief Financial Officer and with the Fund's independent public auditors to discuss, among other things, annual audits of the Fund's financial statements and the auditor's report thereon and the auditor's annual report on internal control.
Board of Managers and Officers
Any vacancy on the Board may be filled by the remaining Managers, except to the extent the 1940 Act requires the election of Managers by the Investors. The Fund’s officers are appointed by the Managers and oversee the management of the day-to-day operations of the Fund under the supervision of the Board. All of the officers of the Fund are directors, officers or employees of the Investment Adviser or its affiliates. Certain of the Managers identified below are not affiliated with the Investment Adviser, or its affiliates and are not “interested persons” as defined under Section 2(a)(19) of the 1940 Act of either the Fund or the Investment Adviser (such Managers, the “Independent Managers”). The Managers and officers of the Fund also may be directors and officers of other investment companies managed or advised by the Investment Adviser. To the fullest extent allowed by applicable law, including the 1940 Act, the Operating Agreement indemnifies the Managers and officers for all costs, liabilities and expenses that they may experience as a result of their service as such.
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Information regarding the Board, including brief biographical information, is set forth below.
Independent Managers
| Name, Address, and Age | Position with the Fund | Term of Office and Length of Time Served | Principal Occupation During Past 5 Years |
Number of Funds in Fund Complex* Overseen |
Other Directorships Held During Past 5 Years |
| Alan Brott c/o Bank of America Capital Advisors LLC 100 Federal Street Boston, MA 02110 Age: 70 |
Manager | Term – Indefinite; Length – Since Inception | Consultant, since October 1991; Associate Professor, Columbia University Graduate School of Business, since 2000; Former Partner of Ernst & Young | 5 | Grosvenor Registered Multi-Strategy Fund; Stone Harbor Investment Funds (3 funds) and Emerging Markets Income Fund |
John C. Hover II c/o Bank of America Capital Advisors LLC |
Manager | Term – Indefinite; Length – Since Inception | Former Executive Vice President of U.S. Trust Company (retired since 2000). | 6 | Tweedy, Browne Fund, Inc. |
| Victor F. Imbimbo c/o Bank of America Capital Advisors LLC 100 Federal Street Boston, MA 02110 Age: 59 |
Manager | Term – Indefinite; Length – Since Inception | President and CEO of Caring Today, LLC, the publisher of Caring Today Magazine, the leading information resource within the family caregivers market (2006 to present); Former Executive Vice President of TBWA\New York and Former President for North America with TBWA\WorldHealth, a division of TBWA Worldwide, where he directed consumer marketing program development for healthcare companies primarily within the pharmaceutical industry. | 6 | Vertical Branding, Inc. |
Stephen V. Murphy c/o Bank of America Capital Advisors LLC |
Manager | Term – Indefinite; Length – Since Inception | President of S.V. Murphy & Co. Inc., an investment banking firm (1/91 to present). | 6 | The First of Long Island Corporation; The First National Bank of Long Island; Bowne & Co., Inc. |
Thomas G. Yellin c/o Bank of America Capital Advisors LLC |
Manager | Term – Indefinite; Length – Since Inception | President of The Documentary Group, since June 2006; Former President of PJ Productions, from August 2002 to June 2006; Former Executive Producer of ABC News from August 1989 to December 2002. | 5 | Grosvenor Registered Multi-Strategy Fund |
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* The “Fund Complex” consists of the Fund, the Master Fund, the Taxable Investor Feeder, Excelsior Private Markets Fund II (Master), LLC, Excelsior Private Markets Fund II (TI), LLC, Excelsior Private Markets Fund II (TE), LLC, Excelsior Multi-Strategy Hedge Fund of Funds, LLC, Excelsior Multi-Strategy Hedge Fund of Funds (TI 2), LLC, Excelsior Venture Partners III, LLC, Excelsior Buyout Investors, LLC and UST Global Private Markets Fund. Set forth below is the name and certain biographical information for the Fund’s other executive officers, as reported by them to the Fund.
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Officers of the Fund
| Name, Address, and Age | Position With the Fund | Term of Office and Length of Time Served | Principal Occupation During Past 5 Years |
Number of Portfolios in Fund Complex* Overseen |
| James D. Bowden Bank of America Capital Advisors LLC 100 Federal Street Boston, MA 02110 Age: 58 |
President/CEO | Term – Indefinite; Length – Since Inception | Managing Director and Senior Vice President of Bank of America Capital Advisors LLC (since 1998). | N/A |
| Matthew J. Ahern Bank of America Capital Advisors LLC 100 Federal Street Boston, MA 02110 Age: 43 |
Senior Vice President | Term – Indefinite; Length – Since Inception | Senior Vice President and Director, Alternative Investment Asset Management, Bank of America Capital Advisors LLC (12/02 to present). | N/A |
Steven L. Suss |
Treasurer/Chief Financial Officer | Term – Indefinite; Length – Since Inception | Managing Director, GWIM Alternative Investments Group, Bank of America (7/07 to present); Senior Vice President of Bank of America Capital Advisors LLC (7/07 to present); Director, Chief Financial Officer and Treasurer (10-07 to (4/10) and Senior Vice President (6/07 to 4/10) of U.S. Trust Hedge Fund Management, Inc.; Director (4/07 to 5/08), Senior Vice President (7/07 to 5/08), and President (4/07 to 6/07) of UST Advisers, Inc.; Senior Vice President of U.S. Trust’s Alternative Investment Division (4/07 to 6/07); Chief Financial Officer and Chief Compliance Officer, Heirloom Capital Management, L.P. (5/02 to 9/06). | N/A |
| Marina Belaya Bank of America 114 W. 47th Street New York, NY 10036 Age: 45 |
Secretary | Term – Indefinite; Length – Since Inception | Assistant General Counsel, Bank of America (7/07 to present); Vice President and Senior Attorney of U.S. Trust (2/06 to 6/07); Vice President, Corporate Counsel, Prudential Financial (4/05 to 01/06); Associate, Schulte Roth & Zabel LLP (09/02 to 03/05). | N/A |
Fred Wofford |
Chief Compliance Officer | Term – Indefinite; Length – Since April 2011 | Compliance Risk Executive, GWIM Alternative Investments, Bank of America (6/08 to present); Compliance Risk Executive, Columbia Management Advisors and the Columbia Funds, Bank of America (6/05 to 6/08); Head of Operations, Liberty Asset Management (now Banc of America Investment Advisors, Inc.) and the Liberty All-Star Funds, Bank of America/Fleet (3/03 to 5/05). | N/A |
Manager Compensation
The following table sets forth certain information regarding the estimated compensation to be received by the Independent Managers for the fiscal year ending March 31, 2014 from the Fund and the “Fund Complex.” No compensation is paid by the Fund to Managers who are “interested persons,” as defined by the 1940 Act, of the Fund.
| (1) Name of Person, Position | (2) Aggregate Compensation from the Fund* | (3) Pension or Retirement Benefits Accrued as Part of Fund Expenses | (4) Estimated Annual Benefits Upon Retirement | (5) Total Compensation from Fund Complex Paid to Managers** | ||||||||||||
| Alan Brott, Manager | $ | 40,000 | 0 | 0 | $ | 120,000 | ||||||||||
| John C. Hover II, Manager | $ | 40,000 | 0 | 0 | $ | 142,000 | ||||||||||
| Victor F. Imbimbo, Manager | $ | 40,000 | 0 | 0 | $ | 141,000 | ||||||||||
| Stephen V. Murphy, Manager | $ | 40,000 | 0 | 0 | $ | 142,000 | ||||||||||
| Thomas G. Yellin, Manager | $ | 40,000 | 0 | 0 | $ | 120,000 | ||||||||||
* Estimated for the fiscal year ending March 31, 2014.
** The total compensation estimated to be paid to such persons by the Fund and Fund Complex for the fiscal year ending March 31, 2014. The parenthetical number represents the number of investment companies (including the Fund) from which such person receives compensation.
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Currently, the Independent Managers are each paid an annual retainer of $40,000. The Independent Managers also will be reimbursed for out-of-pocket expenses in connection with providing services to the Fund. The Board is not expected to have a compensation committee.
Committees
The Board is expected to form an Audit Committee composed of all of the Independent Managers, the functions of which will be: (1) to oversee the Fund’s accounting and financial reporting policies and practices, its internal controls and, as the Audit Committee may deem necessary or appropriate, the internal controls of certain of the Fund’s service providers; (2) to oversee the quality and objectivity of the Fund’s financial statements and the independent audit of those statements; (3) to assist the Board in selecting the Fund’s independent registered public accounting firm, to directly supervise the compensation and performance of such independent registered public accountants and generally to act as a liaison between the independent registered public accountants and the Board; and (4) to review and, as appropriate, approve in advance non-audit services provided by such independent registered public accountants to the Fund, the Investment Adviser, and, in certain cases, other affiliates of the Fund.
The Board is expected to form a Nominating Committee composed of all of the Independent Managers, whose function, subject to the oversight of the Board, will be to select and nominate persons for elections or appointment by the Board as managers of the Fund. The Nominating Committee will act in accordance with the Fund’s nominating committee charter.
Information about Each Manager’s Qualifications, Experience, Attributes or Skills
The Board believes that each of the Managers has the qualifications, experience, attributes and skills (“Manager Attributes”) appropriate to their continued service as Managers of the Fund in view of the Fund's business and structure. In addition to a demonstrated record of business and/or professional accomplishment, each of the Managers has served on boards for organizations other than the Fund and has significant board experience. In addition, in their service to the Fund and other registered investment companies in the Fund Complex they have gained substantial insight as to the operation of the Fund and have demonstrated a commitment to discharging their oversight responsibilities as Managers. The Board annually conducts a "self-assessment" wherein the performance of the Board and the effectiveness of the Board's committee structure is reviewed.
In addition to the information provided in the charts above, below is certain additional information concerning each particular Manager and certain of their Manager Attributes. The information provided below, and in the chart above, is not all-inclusive. Many Manager Attributes involve intangible elements, such as intelligence, work ethic, the ability to work together, to communicate effectively, to exercise judgment, to ask incisive questions, and to manage people and problems or to develop solutions. In conducting its annual self-assessment, the Board has determined that the Managers have the appropriate Manager Attributes.
Victor F. Imbimbo, Jr. has substantial senior executive experience with a number of entities, as well as significant board experience, including board experience with a public company and with other registered investment companies.
Stephen V. Murphy has substantial investment banking and corporate finance experience, as well as significant board experience, including board experience with a public company and with other registered investment companies.
John C. Hover II has substantial senior executive experience, including his position (until 2000) as an Executive Vice President of a company that was later acquired by an affiliate of the Investment Adviser. Mr. Hover also has significant board experience, including board experience with other registered investment companies.
Alan Brott has substantial knowledge and experience in financial accounting, as well as significant Board experience, including board experience with other registered investment companies.
Thomas G. Yellin has substantial senior executive experience, as well as significant board experience, including board experience with other registered investment companies.
ITEM 9.1(b)
Investment Adviser
Bank of America Capital Advisors LLC, 100 Federal Street, Boston, Massachusetts 02110, will serve as the Investment Adviser to the Master Fund, provide management services to the Fund and serve as the Special Member of the Fund for purposes of participating in the carried interest.
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The Investment Adviser was created in 1998 principally to serve as an investment manager and advisor for third-party investors and Bank of America affiliates desiring investments in the private equity asset class. The Investment Adviser is registered as an investment adviser under the Advisers Act.
The Investment Adviser is part of Global Wealth & Investment Management (“GWIM”), a division of Bank of America that provides qualified clients with a range of alternative asset products. GWIM is the wealth and investment management division of Bank of America, which serves, among others, affluent, wealthy, ultra wealthy and institutional clients. As of December 31, 2012, GWIM entities managed total client assets of $698.0 billion, which includes assets under discretionary management and certain non-discretionary wrap assets.
Bank of America, a Delaware corporation headquartered in Charlotte, North Carolina, is a bank holding company and a financial holding company and is one of the world’s largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk-management products and services. Bank of America services more than 59 million consumer and small business relationships with more than 6,100 retail banking offices and more than 4 million small business owners through a suite of online products and services. The company serves clients in more than 150 countries and has relationships with 99 percent of the U.S. Fortune 500 companies and 83 percent of the Fortune Global 500. Bank of America stock is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.
Investment Advisory Agreement
The Investment Adviser, subject to supervision by the Board, has overall responsibility for the investment selection, management and operation of the Fund, pursuant to an investment advisory agreement between the Master Fund and the Investment Adviser (the “Investment Advisory Agreement”).
In consideration for the services provided under the Investment Advisory Agreement, the Master Fund pays the Investment Adviser the Advisory Fee, a quarterly fee of 0.25% (1.00% on an annualized basis) as follows: (i) during the period from the initial closing until the fifth anniversary of the final closing, based on the total Underlying Commitments; and (ii) beginning on the fifth anniversary of the final closing and thereafter, based on the net asset value of the Master Fund. So long as substantially all of the assets of the Fund are invested in the Master Fund, the Fund will not pay the Investment Adviser a separate fee under the Investment Advisory Agreement. The Fund does, however, due to its investment in the Master Fund, bear its proportionate percentage of the Advisory Fee paid to the Investment Adviser by the Master Fund.
The Investment Advisory Agreement was initially approved by the Board (including a majority of the Independent Managers) at a meeting called for the purpose of such approval and held in person on April 15, 2013. The Investment Advisory Agreement is effective as of July 1, 2013 and terminable without penalty, on 60 days’ prior written notice: by the Board; by vote of a majority (as defined by the 1940 Act) of the outstanding voting securities of the Fund; or by the Investment Adviser. After the initial term of two (2) years, the Investment Advisory Agreement may continue in effect from year to year if such continuance is approved annually by either the Board or the vote of a majority (as defined by the 1940 Act) of the outstanding voting securities of the Fund; provided that in either event the continuance is also approved by a majority of the Independent Managers by vote cast in person at a meeting called for the purpose of voting on such approval. The Investment Advisory Agreement also provides that it will terminate automatically in the event of its “assignment,” as defined by the 1940 Act and the rules thereunder. The Investment Advisory Agreement also provides that if the Investment Advisory Agreement is terminated, for any reason, the Investment Adviser (or an affiliate) will still be entitled to collect the carried interest, if any, for any investments made during the term of the Investment Advisory Agreement.
The Investment Advisory Agreement provides that, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations to the Fund, the Investment Adviser and any member, director, officer or employee thereof, or any of their affiliates, executors, heirs, assigns, successors or other legal representatives, will not be liable to the Fund for any error of judgment, for any mistake of law or for any act or omission by such person in connection with the performance of services to the Fund. The Investment Advisory Agreement also provides for indemnification, to the fullest extent permitted by law, by the Fund or the Investment Adviser, or any member, director, officer or employee thereof, and any of their affiliates, executors, heirs, assigns, successors or other legal representatives, against any liability or expense to which such person may be liable which arise in connection with the performance of services to the Fund, provided that the liability or expense is not incurred by reason of the person’s willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations to the Fund.
A discussion regarding the basis for the approval by the board of managers of the Master Fund of the Investment Advisory Agreement between the Investment Adviser and the Master Fund will be available in the Master Fund’s semi-annual report for the six month period ending September 30, 2013.
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The Advisory Fee is separate from and in addition to the carried interest of 5%, which the Investment Adviser will receive as a Special Member of the Fund. (See “Allocation of Profit and Loss; Distributions” below.)
Management Agreement
The Investment Adviser will also provide various management and administrative services to the Fund pursuant to the Management Agreement between the Fund and the Investment Manager. These services include: providing office space and other support services to the Fund; maintaining and preserving certain records of the Fund; preparing and filing various materials with state and federal regulators; supervising services provided by the Fund’s administrator, transfer agent and custodian; reviewing and arranging for payment of the Fund’s expenses; reviewing subscription documents submitted by prospective Investors; preparing communications and quarterly reports to Investors; and coordinating the preparation of materials relating to meetings of the Board of Directors and meetings of Investors. Under the Management Agreement, the Investment Adviser also is responsible for the investment of the cash reserves of the Fund. In consideration for these services provided under the Management Agreement, the Fund pays the Investment Adviser the Management Fee, which is calculated and paid quarterly in arrears in an amount which is determined by applying the annual rate of 0.50% as follows: (i) during the period from the initial closing until the fifth anniversary of the final closing, based on the portion of the Master Fund’s Underlying Commitments attributable to the Fund (based on the Fund’s commitments to the Master Fund relative to those of the other feeder funds invested in the Master Fund), and (ii) beginning on the fifth anniversary of the final closing and thereafter, based on the net asset value of the Fund.
At a meeting held in person on April 15, 2013, the Board, including a majority of the Independent Managers, approved the Fund’s Management Agreement with the Adviser. The Independent Managers were assisted in their review of this matter by independent legal counsel and met in an executive session with such counsel separate from representatives of the Adviser.
Advisory and Management Fee Limitation
The Fund does not anticipate that the combined: (i) Advisory Fee payable by the Master Fund with respect to the Fund’s interest in the Master Fund and (ii) Management Fee applicable to the Fund, in the aggregate, will exceed the amount that would have been payable using the annual rate of 1.50% of total Commitments from Investors, measured over the life of the Fund. The Investment Adviser will waive or reduce its Advisory Fee and/or Management Fee to the extent necessary to ensure that such combined Advisory Fee and Management Fee rate does not exceed the amount that would have been payable using the annual rate of 1.50% of total Commitments from Investors, measured over the life of the Fund. For the avoidance of doubt, any such fee waiver or reduction will not impact the Investment Adviser’s right to receive a carried interest.
ITEM 9.1(c)
Portfolio Management
The Portfolio Management Team is responsible for the day-to-day management of the Fund and serves as the day-to-day interface with Portfolio Fund Managers. The Portfolio Management Team and other senior private equity investment personnel also have responsibility for managing private equity investments made on behalf of third-party investors, sourcing new investment opportunities, performing due diligence on all new investment opportunities and monitoring existing investments.
The senior leadership of the Portfolio Management Team includes James D. Bowden, Matthew J. Ahern, and Seema Chetal, whose biographies are listed below. They are supported by a team of associates and analysts, whose biographies are also listed below.
James D. Bowden, Managing Director and Executive Vice President of the Investment Adviser. Mr. Bowden has been involved with the private equity industry for the last eighteen years. He joined the Investment Adviser in 1998 to form the group and to manage Bank of America’s private equity fund of funds business. In that capacity he has acted as the primary investment strategist for various private placement offerings and client advisory activities associated with the private equity asset class. He has led private placement capital raising activities, directed investment origination and has ongoing management and administration responsibilities for the business. He has served as a member of the Investment Adviser’s investment committee since 1998. In addition, Mr. Bowden assists GWIM professionals with the marketing and fundraising efforts for BAC’s private equity fund of funds products. He is a frequent speaker before private equity industry groups and asset management organizations concerning issues associated with investing in private equity, and was formerly a member of the Advisory Board of Private Equity Center of the American Graduate School of International Management. Mr. Bowden’s career covers a variety of private equity, commercial banking and management consulting positions. From 1993 to 1998, he served as the manager of the Chicago office of Corporate Credit Examination Services for Continental Bank, where he had responsibility for the independent oversight of the Private Equity Investing and Midwest Commercial Banking Division. He continued in that capacity after Continental Bank merged with BAC, until he joined the Investment Adviser. From 1988 to 1993, Mr. Bowden was a Managing Consultant in the Financial Advisory Services practice of Coopers & Lybrand, specializing in corporate turnarounds. His career focused on commercial lending and problem loan workouts prior to joining Coopers & Lybrand, with work at Continental Bank from 1985 to 1988, Citicorp from 1980 to 1985 and American National Bank of Chicago from 1977 to 1980. He received his M.B.A. and B.B.A. from the University of Michigan in 1977 and 1975, respectively. Mr. Bowden is a Certified Public Accountant.
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Matthew J. Ahern, Senior Vice President and Director of the Investment Adviser. Mr. Ahern joined the Investment Adviser in 2004 via Fleet Bank’s Private Equity Portfolio (“PEP”) Funds group, which he joined in 2002. Mr. Ahern works jointly with Mr. Bowden as the chief investment strategist of the Investment Adviser. In addition, his responsibilities include sourcing and evaluating potential private equity investments, as well as actively managing numerous general partner relationships for the benefit of third party investors. Mr. Ahern has been a member of the Investment Adviser’s investment committee since 2006 and currently serves as a director on the board of Ethertronics which is a portfolio company of Excelsior Venture Partners. Mr. Ahern also has a leading role in assessing the performance of, and providing key analysis regarding, the Investment Adviser’s current and prospective underlying funds and direct investments. Prior to joining Fleet Bank, Mr. Ahern was a Director of Capitalyst Ventures, a seed stage venture capital fund with offices in Boston and Washington D.C., where he led the firm’s investment strategy efforts and was a member of the investment committee. Prior to launching that firm, he spent a year as a Financial Analyst in an M.B.A. private equity training program at HarbourVest Partners. Mr. Ahern holds a B.A. from Boston University and an M.B.A. in Entrepreneurship and Finance from Babson College, summa cum laude.
Seema Chetal, Director and Vice President of the Investment Adviser. Ms. Chetal is a Senior Portfolio Manager and Team Leader for Private Equity and Real Asset Investments at Bank of America Merrill Lynch Wealth Management, which she joined in March of 2005. She has 20 years of experience in private debt and equity investments, including fund and direct investments. Her current responsibilities include researching and sourcing investment ideas, investing in private equity, asset and special situation funds, publishing investment strategy papers and presenting investment ideas and solutions to clients. Previously, she worked as an investment consultant, reviewing and negotiating leveraged financings and mergers and acquisitions. In her prior positions Citigroup and GE Capital, she invested proprietary capital in direct equity deals and leveraged loans and also invested in private equity and venture capital funds. Ms. Chetal received an M.B.A. from Columbia Business School where she was elected to Beta Gamma Sigma Honor Society. She received a Masters in Accounting and International Finance from Delhi School of Economics and a Bachelors in Commerce (Honors) from IP College, Delhi University. She also holds a certificate from the Institute of Cost and Works Accountants, India.
Mark J. Bonner, Jr., Controller and Vice President of the Investment Adviser. Mr. Bonner joined the Investment Adviser in 2006 and is responsible for managing the private equity and real estate operations of the Investment Adviser’s investment products. His responsibilities include financial reporting, tax reporting, business due diligence and operational matters for the Investment Adviser. Prior to joining Bank of America, Mr. Bonner spent approximately two years as the Management Company and International Subsidiaries Accounting Manager of Advent International Corporation (“Advent”), a global private equity firm. Prior to Advent, Mr. Bonner spent approximately five years with PricewaterhouseCoopers in the Audit and Assurance Group, serving clients in the financial services industry. Mr. Bonner received a BS in Accounting from the State University of New York at Geneseo.
Emily J. DeGrado, Vice President of the Investment Adviser. Ms. DeGrado joined the Investment Adviser in 2012. Her responsibilities include sourcing and evaluating prospective primary and secondary private equity and real estate fund investment opportunities, as well as managing and monitoring the Investment Adviser’s existing investments. Ms. DeGrado has over eight years of experience in the private equity industry. Prior to joining the Investment Adviser, she was most recently a vice president with Providence Equity Partners, a global private equity firm specializing in investments in media, communications, education and information services. From 2005 to 2009 she worked as a private equity consultant for Cambridge Associates, where she advised pensions, endowments and foundations, and family offices on their private equity and venture capital portfolios. Before joining Cambridge Associates, Ms. DeGrado completed an internship as a private equity and venture capital analyst with the Pennsylvania State Employees’ Retirement System. Ms. DeGrado graduated summa cum laude from Messiah College with a B.S. in Economics.
James R. Liljedahl, Vice President of the Investment Adviser. Mr. Liljedahl joined the Investment Adviser in 2006. His responsibilities include the sourcing and evaluation of prospective primary and secondary fund investment opportunities within the buyout, venture capital, and opportunistic real estate sectors and actively managing numerous general partner relationships. In this capacity Mr. Liljedahl performs in-depth due diligence on prospective investments eventually summarizing those activities in an investment memorandum and presenting the findings to the Investment Adviser’s investment committee. Additionally, Mr. Liljedahl is responsible for performing ongoing monitoring of investments, culminating in the preparation and distribution of periodic quarterly reports to investors. Mr. Liljedahl has also authored a number of papers related to the effects of broader macroeconomic factors on the private equity environment and conducted research on return dynamics and portfolio construction. In total Mr. Liljedahl has nine years of alternative investment experience. Prior to joining the Investment Adviser, Mr. Liljedahl was an accounting manager within the Alternative Investments Group at Investors Bank and Trust, where he was responsible for the monitoring, accounting, valuation and reporting for a number of alternative investment funds. Mr. Liljedahl holds a B.A. in Physics from The College of the Holy Cross.
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Michael R. Smith, CFA, Vice President of the Investment Adviser. Mr. Smith joined the Investment Adviser in 2010. His responsibilities include sourcing and evaluating primary and secondary private equity and real estate fund opportunities. Additionally, Mr. Smith executes ongoing portfolio management responsibilities through the active monitoring of the Investment Adviser’s investments. Mr. Smith first joined Bank of America in 2008 as a member of the Consulting Services Group Domestic Equity team. Prior to joining Bank of America, Mr. Smith began his career in 2006 with Pyramis Global Advisors, a global asset management firm. Mr. Smith graduated cum laude from the University of Florida with a B.S. in Business Administration. He is a CFA charterholder.
Matthew Kim, Assistant Vice President. Mr. Kim joined the Investment Management Team in 2009. His responsibilities include evaluating primary and secondary private equity investments and maintaining limited partner communications on behalf of both discretionary and non-discretionary pools of capital. Mr. Kim has worked in the private equity industry for over four years. Prior to joining the Bank of America, Mr. Kim held an Analyst role in Cambridge Associates, a leading investment advisor serving endowments, foundations, corporate, and governmental clients. Prior to Cambridge Associates, Mr. Kim held an Investment Analyst role in a seed stage venture capital fund headquartered in Australia. Mr. Kim graduated cum laude from the School of Management at Boston University with a B.S. in Business Administration with concentrations in Finance and Entrepreneurship.
Alexander Levy, Assistant Vice President. Mr. Levy is an Assistant Vice President of Bank of America Corporation, and has over four years of private equity industry experience. His primary responsibilities include evaluating primary and secondary private equity fund investment opportunities across buyout, growth equity, venture capital, mezzanine, and commercial real estate strategies. Mr. Levy joined Bank of America as an Analyst in 2008, following his internship with BAC’s commercial real estate group. Mr. Levy graduated cum laude from Boston University with a B.S. in Business Administration, and served as Co-Head of the BSBA Private Equity Club. Mr. Levy has passed CFA Level I.
Part B of this Registration Statement includes additional information about the Portfolio Managers’ compensation, other accounts managed by the Portfolio Managers and the Portfolio Managers’ ownership of securities in the Fund.
ITEM 9.1(d)
Administrator
The Fund has entered into an Administration Agreement (the “Administration Agreement”) with JD Clark & Company (the “Administrator”), under which the Administrator performs certain services for the Fund, including, among other things: (i) maintaining the register of Investors of the Fund; (ii) preparing Schedule K-1s and supplemental schedules; (iii) calculating and disseminating the NAV of the Fund; (iv) preparing and maintaining the Fund’s financial and accounting records and statements; (v) calculating any Advisory Fees and/or carried interest due; and (vi) preparing, sending, and following up on any drawdown notices to Investors.
ITEM 9.1(e)
Custodian
UMB Fund Services, Inc. (the “Custodian”) serves as the custodian of the assets of the Fund, and may maintain custody of such assets with domestic and foreign subcustodians (which may be banks, trust companies, securities depositories and clearing agencies). Assets of the Fund are not held by the Investment Adviser or commingled with the assets of other client accounts, except to the extent that securities may be held in the name of the Custodian or a subcustodian in a securities depository, clearing agency or omnibus client account. The Custodian’s principal business address is 803 W. Michigan Street, Milwaukee, Wisconsin 53233.
ITEM 9.1(f)
The following summarizes the amounts and types of fees payable by the Fund and the treatment of fund expenses in connection with the operation of the Fund.
Placement Fees (Sales Load)
In connection with the subscription, certain Investors shall be required to pay a placement fee to Merrill, Lynch, Pierce, Fenner & Smith Incorporated (the “Placement Agent”), which serves as Placement Agent of the Fund as follows:
| Purchase Amount | Placement Fee | |
| $50,000 < $150,000 | 2.50% | |
| $150,000 < $500,000 | 2.00% | |
| $500,000 < $1,000,000 | 1.50% | |
| $1,000,000+ | up to 1.00% |
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There is no placement fee for purchases of Interests by or on behalf of accounts for which the Investment Adviser or one of its affiliates (including the Placement Agent) acts in a fiduciary, advisory, custodial or similar capacity.
To receive a placement fee waiver in accordance with the above provisions, Investors must, at the time of purchase, give the Placement Agent sufficient information to permit confirmation of the qualification. Placement fee amounts, if any, are in addition to the Commitments made and are due upon acceptance by the Fund.
Advisory Fees
In consideration of the advisory and other services provided by the Investment Adviser, the Master Fund will pay the Investment Adviser at the annual rate of 1.0% as follows: (i) during the period from the initial closing until the fifth anniversary of the final closing, based on the total Underlying Commitments; and (ii) beginning on the fifth anniversary of the final closing and thereafter, based on the net asset value of the Master Fund.
Management Fees
In consideration for the services provided under the Management Agreement, the Fund will pay the Investment Adviser the Management Fee, which is calculated and paid quarterly in arrears in an amount which is determined by applying the annual rate of 0.50% as follows: (i) during the period from the initial closing until the fifth anniversary of the final closing, based on the portion of the Master Fund’s Underlying Commitments attributable to the Fund (based on the Fund’s commitments to the Master Fund relative to those of the other feeder funds invested in the Master Fund), and (ii) beginning on the fifth anniversary of the final closing and thereafter, based on the net asset value of the Fund.
Carried Interest
In addition to the fees described above, the Investment Adviser will receive a carried interest of 5% (See “Allocation of Profit and Loss; Distributions” below).
Fund Expenses
The Fund bears all of its own expenses, including without limitation: all Management Fees payable to the Investment Adviser as well as the carried interest applicable to the Investment Adviser; the expenses of the Offshore Fund; and its pro rata portion of all of the Master Fund’s fees and expenses (which will be borne through the Fund’s investment in the Offshore Fund); accounting, audit and tax preparation fees and expenses; administrative expenses and fees; legal fees and expenses, custody and escrow fees and expenses; the costs of any errors and omissions/directors and officers liability insurance or any fidelity bond; all costs and charges for equipment or services used in communicating information regarding the Fund’s transactions among the Investment Adviser and any custodian or other agent engaged by the Fund; interest expenses; any extra ordinary expenses; and such other expenses as may be approved from time to time by the Board.
The Master Fund bears all of its own expenses, including without limitation: all investment related expenses (including, but not limited to, fees paid directly or indirectly to the Portfolio Funds or their managers, 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, transfer taxes and premiums, taxes withheld on foreign dividends and, if applicable in the event the Master Fund utilizes an investment account, 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); all expenses (including financing, due diligence, travel and other costs) related to the acquisition, holding, monitoring and disposition of the Portfolio Funds (including expenses associated with potential investments or dispositions that are not consummated); all costs and expenses associated with the establishment of investment accounts; any non-investment related interest expense; fees and disbursements of any attorneys and accountants engaged by the Master Fund; audit and tax preparation fees and expenses of the Master Fund; administrative expenses and fees; custody and escrow fees and expenses; the costs of an errors and omissions/directors and officers liability insurance policy and a fidelity bond; the fee payable to the Investment Adviser; fees and travel expenses of Managers; all costs and charges for equipment or services used in communicating information regarding the Master Fund’s transactions among the Investment Adviser and any custodian or other agent engaged by the Master Fund; and any extraordinary expenses. Drawdowns from Investors or distributions from Portfolio Funds may be used to fulfill obligations (including, but not limited to, the payment of any interest due) under any credit facility.
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In addition, the Fund will bear its organizational expenses, and expenses relating to the offering and sale of units of Interests; provided that to the extent such organizational and offering expenses when aggregated with those of the Master Fund and the Taxable Investor Feeder exceed $500,000, the excess amount over $500,000 will be borne by the Investment Adviser.
Generally, the Portfolio Funds are expected to have management fees of approximately 1.0% to 2.5% of the Portfolio Fund’s commitments and carried interest allocations of 20% to 30% of the Portfolio Fund’s profits. Specific timing and priority of allocations and distributions will vary among the Portfolio Funds.
Except as set forth herein or in another agreement between the Fund or the Master Fund and the Investment Adviser, the Investment Adviser will bear all of its costs incurred in providing services to the Fund and the Master Fund.
Allocation of Profit and Loss; Distributions
The Fund maintains on its books a separate Capital Account for each Investor that contributes capital to the Fund. The initial balance of an Investor’s Capital Account will equal the amount of the initial drawdown of the Investor’s Commitment to the Fund and will be adjusted to reflect any additional drawdowns and distributions. The net profits or net losses of the Fund are credited to or debited against the Capital Accounts of each Investor as of the end of each fiscal period in accordance with their respective investment percentages for the period. Each Investor’s investment percentage is determined each fiscal period in a manner reflecting the distribution provisions of the Operating Agreement.
Distributions from the Fund are made as follows: (i) to the members of the Fund (including the Investors and the Investment Adviser in its capacity as a special member of the Fund) until they have received a 125% return of all drawn Commitments and (ii) then a 95%/5% split between the members and the Investment Adviser, respectively. The Investment Adviser will not receive any of the carried interest that it may have earned until after the fourth anniversary of the final closing (the anticipated time frame in which all, or substantially all, of the Commitments that the Fund intends to invest will have been drawn). For example, assume an Investor makes Commitments of $100,000, of which 90% is drawn by the Fund. Then the Investor will need to receive $112,500 ($90,000 x1.25) in distributions before any carried interest is withheld. After that investor receives the $112,500 in distributions, all future distributions will be split between the investors (95%) and the Investment Adviser’s carried interest (5%).
At the election of the Investment Adviser, the Master Fund may retain or recall for reinvestment proceeds received by the Master Fund from the Portfolio Funds up to an amount equal to the greater of (a) the total expenses incurred by the Master Fund through the date of calculation or (b) 20% of the Master Fund’s pro rata share of the Underlying Commitments. Amounts so retained will not be included in the calculation of an Investor’s contributed capital. Separate from and in addition to any amounts retained or recalled for reinvestment by the Master Fund, in the event that funds are returned to the Fund by a Portfolio Fund (through the Offshore Fund and the Master Fund) which are subject to reinvestment in such Portfolio Fund, the Investment Adviser may, in its discretion, hold such amounts or distribute such amounts to the Investors. If such amounts are distributed to the Investors, each Investor’s unfunded Commitment will be increased by the amount of funds so returned.
Net Asset Valuation
Each of the Fund and the Master Fund will compute its NAV as of the last business day of each quarter after the Master Fund has received reports from the managers of the Portfolio Funds related to that quarter and at such other times as deemed appropriate by the Board on the advice of the Investment Adviser. To determine NAV of the Fund, the Fund relies on information from the Master Fund, which, in turn, receives such information from the Portfolio Funds. In determining its NAV, the Master Fund will value its investments as of such quarter-end. The NAV of the Fund will equal the value of the total assets (including the value of indirect investments in Portfolio Funds through the Master Fund), less all of the liabilities, including accrued fees and expenses. The NAV of the Fund may be calculated on a unitized basis by dividing the NAV of the Fund by the number of outstanding units of Interest. To the extent that the Fund invests in the Master Fund, the Fund’s NAV will be directly affected and related to the Master Fund’s NAV. To the extent that the Fund has assets and liabilities other than its investment in the Master Fund, such assets and liabilities will be valued as described herein.
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The Board has approved procedures pursuant to which the Master Fund and the Fund will value their investments. The Board has delegated to the Investment Adviser general responsibility for determining, in accordance with such procedures, the value of such investments. The Value of the Company’s assets will be based on information reasonably available at the time the valuation is made and that the Company believes to be reliable. In general, the value of the Master Fund’s interests in Portfolio Funds will be based primarily on information provided to the Investment Adviser by the Portfolio Funds or, as applicable, the Portfolio Fund Managers. While the Investment Adviser may rely on the information provided to it by the managers of the Portfolio Funds, the Investment Adviser must maintain an effective monitoring process and internal controls to comply with these Procedures and the Company’s stated accounting policies. The valuation procedures of the Master Fund and the Fund are substantially similar. Specifically, the Investment Adviser generally will value the Master Fund’s investment in the Portfolio Funds using the “practical expedient” in accordance with Certification Topic ASC 820 of the Financial Accounting Standards Board (“ASC 820”) as of each quarter end, based on the valuation provided to the Investment Adviser by the Portfolio Fund (or the manager thereof on behalf of the Portfolio Fund) in accordance with the Portfolio Fund’s, or its manager’s, as applicable, own valuation policies. To the extent the Investment Adviser is either unable to utilize the practical expedient under ASC 820 (for example, because a Portfolio Fund does not report a quarter-end value to the Master Fund within the time necessary to determine the Master Fund’s NAV), or where the Investment Adviser determines that use of the practical expedient is not appropriate as it will not result in a price that represents the current value of the Portfolio Fund, the Investment Adviser will make a fair value determination of the value of the Master Fund’s interest in the Portfolio Fund. In determining fair value of a Portfolio Fund for which the practical expedient is not applicable or appropriate, the Investment Adviser shall, in the exercise of good faith, determine a valuation of the interest in the Portfolio Fund that represents the amount the Master Fund could reasonably expect to receive from the Portfolio Fund if the Master Fund were able to redeem its interests in the Portfolio Fund in an orderly manner at that time.
In making a fair valuation determination, the Investment Adviser will consider the most recent reported value by the Portfolio Fund as well as any other factors it believes may be relevant, which may include one or more of the following: (i) the Portfolio Fund’s valuation policies and practices and the Portfolio Fund’s history with valuation issues, such as whether the Master Fund has experienced any valuation issues with the Portfolio Fund in the past; (ii) the type of investment securities held by the Portfolio Fund and whether there may be factors not reflected in the valuations supplied by the Portfolio Fund, such as material changes in the business or operations of the issuer, including the discontinuance of operations or an important component of operations or the commencement of insolvency or reorganization proceedings of a portfolio company owned by the Portfolio Fund, or any market for its securities; (iii) the pricing obtained in new rounds of financing by the underlying investments of the Portfolio Fund, particularly financing obtained in significant amounts from new unrelated investors; (iv) any relevant operational or non-investment issues that may affect the Portfolio Fund, such as bankruptcies or other issues of custodians or other service providers; (v) the value of publicly traded securities, if any, held by the Portfolio Fund; (vi) the valuation of the same investments held by different Portfolio Funds or third parties independent of the Investment Adviser; and (vii) any other information, factor or set of factors that may affect the valuation of the Master Fund’s investment in the Portfolio Fund. Other adjustments may occur from time to time.
In addition, the Investment Adviser will conduct a due diligence review of the valuation methodology used by each Portfolio Fund and will seek to maintain close relationships with the Portfolio Fund Managers through written and telephone communication and in-person meetings. Representatives of the Investment Adviser plan to regularly attend Portfolio Fund investor meetings. To keep abreast of each Portfolio Fund’s activities, the Investment Adviser will review their periodic reports as well as the reports of the underlying portfolio companies in which the Portfolio Funds invest, to the extent which such underlying company reports are made available. The Investment Adviser monitors the continuing appropriateness of the valuation methodology being used for the Fund’s and the Master Fund’s investments.
Prospective Investors should be aware that there can be no assurance that the valuation of interests in Portfolio Funds as determined under the procedures described above will in all cases be accurate to the extent that the Master Fund, the Fund and the Investment Adviser do not generally have access to all necessary financial and other information relating to the Portfolio Funds to determine independently the NAVs of the Master Fund’s interests in those Portfolio Funds. The results of the Investment Adviser’s fair valuation of securities whose market value is not readily ascertainable will be based upon the Investment Adviser’s assessment of the fair value of such securities and their issuers on the recommendation of the Investment Adviser and, therefore, are the result of the Board’s interpretation.
Investments valued at fair value by the Investment Adviser will be subject to a new valuation determination upon the next quarterly valuation of the Master Fund and the Fund and shall be submitted to the Board for their ratification. The Investment Adviser will periodically review its valuation determinations with the Master Fund’s and the Fund’s auditor and respond to any inquiries by such auditor regarding the Investment Adviser’s valuation methodologies. To the extent the Master Fund or the Fund purchases or holds securities, other than interests in Portfolio Funds, those securities will be valued in accordance with the Master Fund’s and the Fund’s valuation procedures. These procedures provide that:
Liquid Securities. Fund investments, other than Portfolio Funds, are valued according to the following procedures:
| (i) | Equity Securities. Domestic exchange traded equity securities (other than options) will be valued at their last sale prices as reported on the exchanges where those securities are primarily traded. If no sales of a security are reported on a particular day, the security will be valued based on its bid price for a security held long, or its ask price for a security held short, as reported by those exchanges. Securities traded primarily on NASDAQ will be valued at the NASDAQ Official Closing Price (“NOCP”). If no NOCP is available, the security will generally be valued at the latest bid price as reported on NASDAQ. |
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In the absence of such sales or quotations, other publicly offered securities will be valued at their bid prices (or asked prices in the case of securities held short) as obtained from one or more dealers making markets for those securities.
| (ii) | Debt Securities. Debt securities may be valued in accordance with the procedures described in (i) above. In addition, debt securities may be valued by a pricing service approved by the Board, which employs a matrix to determine valuations for normal institutional size trading units. The matrix can take into account various factors including, without limitation, bids, yields, spreads, and/or other market data and specific security characteristics (e.g., credit quality, maturity and coupon rate). The Investment Adviser will monitor the reasonableness of valuations provided by the pricing service. Debt securities with remaining maturities of 60 days or less will, absent unusual circumstances, be valued at amortized cost. |
| (iii) | Financial Futures, Forward Foreign Currency Contracts and Options. Financial futures will generally be valued at the latest reported sales price. Forward foreign currency contracts will generally be valued using market quotations from a widely used quotation system that reflects the current cost of covering or off-setting the contract. Exchange-traded options will generally be valued at the latest reported sale price on the exchange on which they trade. If there is no reported sale for an option on the Valuation Date, the option will generally be valued at the mean between the latest bid and asked prices. Over-the-counter options will generally be valued using the mean between the latest bid and asked prices. |
| (iv) | Foreign Exchange Rates. All assets and liabilities initially expressed in foreign currencies will be converted into U.S. dollars using foreign exchange rates compiled as of 4:00 p.m. London time. Trading in foreign securities generally is completed, and the values of foreign securities are determined, prior to the close of the securities markets in the U.S. Foreign exchange rates are also determined prior to such close. |
Illiquid Securities. On a quarterly basis, for illiquid securities for which no market quotations are available (other than interests in Portfolio Funds) and for which independent appraisals of current value can readily be obtained, valuations will be based on such appraisals. Otherwise, valuation (other than interests in Portfolio Funds) will remain at cost except that original cost valuation will be adjusted, upon approval by the Board on the advice of the Investment Adviser, in the following circumstances:
| (i) | a meaningful secondary market is established for an illiquid security, in which event valuation will be on the basis of that price, with due regard for market liquidity; or |
| (ii) | a meaningful private or public investment, merger or acquisition is subsequently consummated at a different price for the security, in which event valuation will be on the basis of such price. |
Other Fair Valuations. In instances where there is reason to believe that the valuation of a security or other investment valued pursuant to the procedures described above does not represent the current value of such security or investment, or when a security or investment cannot be valued pursuant to the procedures described above, the Investment Adviser shall fair value the investment and such fair value will be submitted to the Board for its ratification. The following factors, as relevant, may be taken into account in determining fair value:
| (i) | the nature and price (if any) of the investment and the nature and expected duration of the event, if any, giving rise to the valuation issue; |
| (ii) | whether market quotations for the investment are available, pricing history of the security and trading volumes on markets, exchanges or among dealers; |
| (iii) | information as to any transactions or offers with respect to the security; |
| (iv) | volatility of the security or a related index; |
| (v) | possible valuation methodologies that could be used to determine the fair value of the investment, including valuation by reference to other financial instruments, including trading in similar securities, depository receipts, derivative instruments, closed-end or exchange-traded fund trading or exchange-traded baskets of securities; |
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| (vi) | cost of the investment and, for restricted securities, any discount from the market value of unrestricted securities of the same class at the time of purchase and the existence of a shelf registration for restricted securities; |
| (vii) | changes in interest rates; |
| (viii) | government actions or pronouncements or other news events; |
| (ix) | analyst reports; |
| (x) | fundamental analytical data and internal models; |
| (xi) | whether other portfolios serviced by the Investment Adviser or its affiliates hold the same or similar investments and the method used to value the investments in those portfolios; |
| (xii) | whether the issuer of the investment has other securities outstanding and, if so, how those securities are valued; |
| (xiii) | the extent to which the fair value to be determined for the investment will result from the use of data or formulae produced by third parties independent of the Investment Adviser; |
| (xiv) | the liquidity or illiquidity of the market for the investment; and |
| (xv) | any other relevant factors or considerations. |
Investments valued by the Investment Adviser and ratified by the Board pursuant to these fair valuation procedures shall be carried at such valuation until a market quotation becomes available or the Board otherwise approves a change in valuation methodology on the recommendation of the Investment Adviser.
Prospective Investors should be aware that situations involving uncertainties as to the value of portfolio positions could have an adverse effect on the NAV of the Master Fund and/or the Fund if the judgments of the Board, the Investment Adviser and/or Portfolio Fund Managers should prove incorrect.
ITEM 9.1(g) Not Applicable.
ITEM 9.2 Not Applicable.
ITEM 9.3
Before the commencement of the Fund’s operations, the Investment Adviser (or an affiliate of the Investment Adviser) may be deemed to control the Fund. As sole member of the Fund, Steven L. Suss may be deemed to be a control person of the Fund. However, Mr. Suss shall withdraw from the Fund immediately preceding the commencement of operations of the Fund.
ITEM 10. CAPITAL STOCK, LONG-TERM DEBT, AND OTHER SECURITIES.
ITEM 10.1.
The Fund is organized as a limited liability company under the laws of the State of Delaware and intends to be classified as a partnership for income tax purposes. The beneficial interest in the Fund shall be divided into interests (the “Interests”). The number of Interests in the Fund shall be unlimited. All Interests issued by the Fund shall be fully paid and nonassessable, except to the extent of any unfunded capital commitments. Interest holders shall have no preemptive or other rights to subscribe to any additional Interests or other securities issued by the Fund. The Fund will establish on its books a separate Capital Account in respect of each member of the Fund (i.e., the Investors and the Investment Adviser in its capacity as a special member of the Fund). Net profits and net losses of the Fund for each quarter are allocated on the last business day of that quarter (or at such other times as the Board, in its discretion, may determine) among the Capital Accounts maintained for members in proportion to the relative balances in such Capital Accounts. The Fund will make distributions as received from Portfolio Funds in accordance with Capital Accounts distributions. An investment in the Fund involves substantial restrictions on liquidity and its Interests are not freely transferable. There is no market for the Interests, and no market is expected to develop. Consequently, Investors may be unable to redeem or liquidate their Interests.
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Investors in the Fund must be “accredited investors,” as defined in Rule 501(a) of Regulation D under the Securities Act, and “qualified clients” as defined in Rule 205-3 under the Advisers Act. The Investment Adviser may decline to admit any Investor. Interests may not be purchased by nonresident aliens, foreign corporations, foreign partnerships, foreign trusts or foreign estates, all as defined in the Code. Investors generally will be required to represent to the Fund that such Investor:
| · | is investing in the Fund for its own account, for investment purposes only, and not with a view to distributing Interests; |
| · | is a sophisticated Investor capable of evaluating the risks and merits of an investment in the Fund; |
| · | has had access to sufficient information needed to make an investment decision about the Fund; |
| · | can tolerate illiquidity, which is characteristic of privately placed securities in general and this investment in particular; |
| · | satisfies the standards of an “accredited investor” as set forth in Regulation D under the Securities Act; and |
| · | satisfies the “qualified client” standards of Rule 205-3 under the Advisers Act. |
Summary of Operating Agreement
The following is a summary description of additional items and of select provisions of the Operating Agreement. The description of such items and provisions is not definitive and reference should be made to the complete text of the form of Operating Agreement contained as an exhibit.
Liability of Investors
Investors of the Fund will be members of a limited liability company as provided under Delaware law. Under Delaware law and the Operating Agreement, an Investor will be liable for the debts and obligations of the Fund only to the extent of its capital commitments and any contributions to the capital of the Fund (plus any accretions in value thereto prior to withdrawal) and an Investor, in the discretion of the Board, may be obligated to satisfy withholding tax obligations with respect to such Investor.
Duty of Care
The Operating Agreement provides that neither the Managers nor, if applicable, the Investment Adviser (including certain of its affiliates, among others) shall be liable to the Fund or any of its Investors for any loss or damage occasioned by any act or omission in the performance of their respective services as such in the absence of willful misconduct, bad faith, gross negligence or reckless disregard of their duties. The Operating Agreement also contains provisions for the indemnification, to the extent permitted by law, of the Managers by the Fund, but not by the Investors individually, against any liability and expense to which any of them may be liable which arises in connection with the performance of their activities on behalf of the Fund. A Manager will not be personally liable to any Investor for the repayment of any balance in such Investor’s Capital Account or for contributions by such Investor to the capital of the Fund or by reason of any change in the federal or state income tax laws applicable to the Fund or its Investors. The rights of indemnification and exculpation provided under the Operating Agreement do not provide for indemnification of a Manager for any liability, including liability under federal securities laws that, 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.
Dissolution and Liquidation
The Fund will be dissolved upon the occurrence of any of the following:
| · | the expiration of its term, except as otherwise extended pursuant to the Operating Agreement; |
| · | upon the affirmative vote by the Managers, subject, to the extent required by the 1940 Act, to the consent of the Investors; |
| · | the sale or other disposition at any one time of all or substantially all of the assets of the Fund; and |
| · | dissolution required by operation of law. |
Upon the occurrence of any event of dissolution, the Managers or a liquidator acting as such under appointment by the Managers is charged with winding up the affairs of the Fund and liquidating its assets. Net profits or net losses during the fiscal period including the period of liquidation will be allocated as described in the Operating Agreement.
Upon the dissolution of the Fund, its assets are to be distributed to its members in accordance with the positive balance in their respective Capital Accounts, after providing for all obligations of the Fund.
| 31 |
Voting
Each Investor has the right to cast a number of votes equal to the number of Interests held by such Investor at a meeting of Investors called by the Managers. Investors will be entitled to vote on any matter on which shareholders of a registered investment company organized as a corporation would normally be entitled to vote, including the election of Managers, approval of the Fund’s agreement with any investment adviser to the Fund, and certain other matters, to the extent that the 1940 Act requires a vote of Investors on any such matters. Except for the exercise of their voting privileges, Investors 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.
Reports to Investors
The Fund will furnish to Investors, as soon as practicable after the end of each taxable year, such information as is necessary for them to complete their U.S. federal income tax or information returns, along with any other tax information required by law. The Fund will not be able to provide final K-1s to Investors for any given tax year until significantly after April 15 of the following year. The Fund will provide Schedule K-1s as soon as practicable after it receives all necessary information.
Fiscal Year
The Fund’s fiscal year for financial reporting purposes is the 12-month period ending on March 31. The Fund’s taxable year is the 12-month period ending December 31.
ITEM 10.2. Not applicable.
ITEM 10.3 Not applicable.
ITEM 10.4.
The Fund intends to be classified as a partnership and not as an association taxable as a corporation for federal tax purposes or a “publicly traded partnership” taxable as a corporation. Accordingly, the Fund should not be subject to federal income tax, and each Investor will be required to report on its own annual tax return such Investor’s share of the Fund’s taxable income or loss.
If it were to be determined that the Fund should be treated as an association or a publicly traded partnership taxable as a corporation, the taxable income of the Fund would be subject to corporate income tax and any distributions of profits from the Fund would be treated as dividends.
ITEM 10.5.
After the date of filing of this Registration Statement, the Interests will be issued to Investors in the Fund.
ITEM 10.6. Not applicable.
ITEM 11. Not applicable.
ITEM 12. Not applicable.
ITEM 13. Not applicable.
| 32 |
PART B
Part B of this Registration Statement should be read in conjunction with Part A. Capitalized terms used in this Part B and not otherwise defined have the meanings given them in Part A of this Registration Statement.
ITEM 14. Not applicable.
ITEM 15. Not applicable.
ITEM 16. Not applicable.
ITEM 17. INVESTMENT OBJECTIVE AND POLICIES.
Part A of this Registration Statement contains basic information about the investment objective, policies and limitations of the Fund.
ITEM 18. MANAGEMENT.
Information about the Managers and officers of the Fund, their roles in the management of the Fund, the compensation of the Managers, and the committees of the Fund is included in Part A of this Registration Statement.
The Investment Adviser and its affiliates (and the directors/trustees, officers and employees) may buy and sell securities or other investments for their own accounts, and may have conflicts of interest with respect to investments made on behalf of the Fund. As a result of differing trading and investment strategies or constraints, positions may be taken by these parties that are the same, different from or made at different times from positions taken for the Fund. To lessen the possibility that the Fund will be adversely affected by this personal trading, the Fund and the Investment Adviser has each adopted a code of ethics (each, a “Code of Ethics”) in compliance with Section 17(j) of the 1940 Act that restrict securities trading in the personal accounts of investment professionals and others who normally come into possession of information regarding the Fund’s portfolio transactions. The Codes of Ethics for the Fund and the Investment Adviser can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. The Code of Ethics also is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov, and copies may be obtained, after paying a duplicating fee, by e-mail at publicinfo@sec.gov or by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-0102.
The Investment Adviser and its affiliates will not purchase securities or other property from, or sell securities or other property to, the Fund except that the Fund may, in accordance with rules under the 1940 Act, engage in transactions with accounts that are affiliated with the Fund as a result of common officers, directors/trustees, advisers or managing general partners. These transactions would be effected in circumstances in which the Investment Adviser determined that it would be appropriate for the Fund to purchase and another client to sell, or the Fund to sell and another client to purchase, the same security or instrument on the same day.
Personnel of the Investment Adviser serve as portfolio managers to certain clients and registered and unregistered investment companies that may utilize an investment program that is substantively similar to that of the Fund. In addition, the Investment Adviser currently serves, or may in the future serve, as investment advisers to other registered investment companies, unregistered investment companies or accounts (including proprietary accounts), some of which provide for incentive compensation (such as performance fees). Consequently, the Investment Adviser’s investment management activities may present conflicts between the interests of the Fund and those of the Investment Adviser, and, potentially, among the interests of various accounts managed by the Investment Adviser principally with respect to allocation of investment opportunities among similar strategies.
Future investment activities of the Investment Adviser and its affiliates and its principals, partners, director/trustees, officers or employees may give rise to conflicts of interest other than those described above.
Each Investor has the right to cast a number of votes equal to the number of Interests held by such Investor at a meeting of Investors called by the Fund’s Managers. Investors will be entitled to vote on any matter on which shareholders of a registered investment company organized as a corporation would be entitled to vote, including certain elections of a Manager and approval of the Investment Advisory Agreement, in each case to the each case to the extent that voting by shareholders is required by the 1940 Act. Notwithstanding their ability to exercise their voting privileges, Investors in their capacity as members of the Fund are not entitled to participate in the management or control of the Fund’s business, and may not act or bind the Fund.
| B-1 |
The Fund, through its investment in the Master Fund, may limit its investment position (combined with other investment positions of certain of its affiliates) in any one Portfolio Fund to less than 5% of the Portfolio Fund’s outstanding voting securities, absent an order of the SEC (or assurances from the SEC staff) under which the Fund’s contribution and withdrawal of capital, through its investment in the Master Fund, from a Portfolio Fund in which the Fund, through its investment in the Master Fund, and certain of its affiliates hold 5% or more of the outstanding interests will not be subject to various 1940 Act prohibitions on affiliated transactions. The Fund is not required to adhere to this 5% investment limitation to the extent that it relies on certain SEC rules that provide exemptions from the 1940 Act provisions on affiliated transactions. However, to facilitate investments in smaller Portfolio Funds deemed attractive by the Investment Adviser, the Fund may purchase, through its investment in the Master Fund, non-voting securities of, or waive its right to vote its interests in, Portfolio Funds. Although the Fund may hold non-voting interests, the 1940 Act and the rules and regulations thereunder may nevertheless require the Fund to limit its position, aggregated with the positions of certain of its affiliates, in any one Portfolio Fund, if investments in a Portfolio Fund by the Fund and certain of its affiliates will equal or exceed 25% of the Portfolio Fund’s assets, or such lower percentage limit as may be determined by the Fund in consultation with its counsel. These restrictions may be changed by the Board, subject to the limitations of applicable laws, rules or interpretations thereof.
The Fund does not presently intend to invest, through its investment in the Master Fund, in Portfolio Funds managed by the Investment Adviser or any of its affiliates; however, it may do so in the future, subject to obtaining such exemptions from the 1940 Act as may be necessary.
Proxy Voting Policies and Procedures. Under the 1940 Act, the Board has a right and an obligation to vote proxies relating to the Fund’s securities as part of their general fiduciary obligations to the Fund and its Investors. Because of its investments in the Master Fund, the Fund generally does not receive proxy solicitations. However, the Board has adopted the proxy voting policies and procedures of the Investment Adviser as the Fund’s proxy voting policies and procedures. Subject to the Board’s oversight, the Fund has delegated responsibility to vote any proxies the Fund may receive to the Investment Adviser. The Investment Adviser’s general policy is to vote proxy proposals, amendments, consents or resolutions relating to the Fund in a manner that serves the best interests of the Fund. A copy of the Investment Adviser’s proxy voting policies and procedures is attached as Appendix A to this Part B.
ITEM 19. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of the date of this Registration Statement, no officer or Manager of the Fund currently owns any of the outstanding Interests in the Fund.
Before the commencement of the Fund’s operations, Bank of America Capital Advisors LLC, 100 Federal Street, Boston, MA 02110 may be deemed to control the Fund. As the sole member of the Registrant, Steven L. Suss is deemed to be a control person of the Registrant. In addition, by virtue of Mr. Suss being an officer of the Investment Adviser, the Investment Adviser may be deemed a control person of the Registrant. However, Mr. Suss shall withdraw from the Fund immediately preceding the commencement of operations of the Fund and, thus, at such time, the Investment Adviser would no longer be deemed a control person of the Registrant. For purposes of this item, “control” means (1) the beneficial ownership, either directly or through one or more controlled companies, of more than 25 percent of the voting securities of a company; (2) the acknowledgment or assertion by either the controlled or controlling party of the existence of control; or (3) an adjudication under Section 2(a)(9) of the 1940 Act, which has become final, that control exists.
ITEM 20. INVESTMENT ADVISORY AND OTHER SERVICES.
Information of the investment management and other services provided for or on behalf of the Fund is contained in Part A of this Registration Statement.
PricewaterhouseCoopers LLP serves as the independent registered public accounting firm of the Fund.
Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, 02109, acts as counsel to the Fund, the Investment Adviser and certain of its affiliates.
Walkers, Walker House, 87 Mary Street George Town, Grand Cayman KY1-9001, Cayman Islands serves as legal counsel to the Offshore Fund.
Stroock & Stroock & Lavan LLP acts as counsel to the Independent Managers.
The Fund is registered under the 1940 Act as a closed-end management investment company. The Fund was formed as a limited liability company under the laws of the State of Delaware on March 18, 2013. The Fund’s principal place office is located at 100 Federal Street, Boston, MA 02110. The telephone number is (866) 921-7951.
| B-2 |
ITEM 21. PORTFOLIO MANAGEMENT.
In addition to that provided below, other information may be found in Item 9 of Part A of this Registration Statement.
James D. Bowden
|
Registered Investment Companies Managed |
Pooled Vehicles Managed |
Other Accounts Managed | ||||||||
|
Number |
Total Assets | Number | Total Assets | Number | Total Assets | |||||
|
2 |
$246,612,111 | 24 | $2,227,065,648 | 0 | N/A | |||||
|
Registered Investment Companies Managed |
Pooled Vehicles Managed |
Other Accounts Managed | ||||||||
|
Number
with |
Total Assets with Performance- Based Fees |
Number with Performance- Based Fees |
Total Assets with Performance- Based Fees |
Number with Performance- Based Fees |
Total Assets with Performance- Based Fees | |||||
|
2 |
$248,612,111 | 17 | $1,800,683,148 | 0 | N/A | |||||
Matthew J. Ahern
|
Registered
Investment |
Pooled Vehicles Managed |
Other Accounts Managed | ||||||||
|
Number |
Total Assets | Number | Total Assets | Number | Total Assets | |||||
|
4 |
$460,232,111 | 25 | $2,313,625,648 | 0 | N/A | |||||
|
Registered Investment Companies Managed |
Pooled Vehicles Managed |
Other Accounts Managed | ||||||||
|
Number
with |
Total Assets with Performance- Based Fees |
Number with Performance- Based Fees |
Total Assets with Performance- Based Fees |
Number with Performance- Based Fees |
Total Assets with Performance- Based Fees | |||||
|
4 |
$312,627,111 | 18 | $1,837,243,148 | 0 | N/A | |||||
Real, potential or apparent conflicts of interest may arise should members of the Portfolio Management Team have day-to-day portfolio management responsibilities with respect to more than one fund. Portfolio Management Team members manage other accounts with investment strategies similar to the Fund and the Master Fund, and may in the future manage other accounts with such strategies, including other investment companies, pooled investment vehicles and separately managed accounts. Fees earned by the Investment Adviser may vary among these accounts and Portfolio Management Team members may personally invest in these accounts. These factors could create conflicts of interest because the Portfolio Management Team members may have incentives to favor certain accounts over others that could result in other accounts outperforming the Fund and the Master Fund. A conflict may also exist if a Portfolio Management Team member identifies a limited investment opportunity that may be appropriate for more than one account, but the Master Fund is not able to take full advantage of that opportunity due to the need to allocate that opportunity among multiple accounts. In addition, a Portfolio Management Team member may execute transactions for another account that may adversely impact the value of securities held by the Master Fund. However, the Investment Adviser believes that these risks are mitigated by the fact that accounts with like investment strategies managed by the Portfolio Management Team members are generally managed in a similar fashion and the Investment Adviser has a policy that seeks to allocate opportunities on a fair and equitable basis.
Investment Opportunities May Be Allocated to Investment Adviser Affiliates. Affiliates of the Investment Adviser may be interested in some of the same investment opportunities as the Investment Adviser. Accordingly, an affiliate of the Investment Adviser may make an investment that would otherwise be appropriate for the Fund. As among the Fund (investing through the Master Fund) and the Investment Adviser’s other fund-of-funds vehicles or other clients, investment opportunities presented to the Investment Adviser will be allocated in a fair and equitable manner among the Investment Adviser’s existing clients, taking into consideration the investment objectives and terms of such clients and any legal, tax or regulatory considerations specific to such clients. Opportunities that are suitable for more than one of the Investment Adviser’s fund-of-funds vehicles, including the Fund, or other clients and for which there is insufficient capacity to fulfill each fund-of-funds vehicle’s or other client’s need, will be allocated among such clients pro rata in proportion to its amount available to invest in such opportunity, subject to any legal, tax and regulatory considerations of each client. For example, certain clients of the Investment Adviser are subject to the Bank Holding Company Act and therefore may not be able to make an investment that the Master Fund is able to make. There can be no assurance that the Fund will be offered any specific investment opportunities that come to the attention of the Investment Adviser’s affiliates.
| B-3 |
The Master Fund may invest in Portfolio Funds in which the Investment Adviser and/or its affiliates (including, to the extent permitted by applicable law, other fund-of-funds products that have been or may be established by the Investment Adviser and/or its affiliates) has an investment, and the Investment Adviser and/or its affiliates may invest in Portfolio Funds in which the Fund has made an investment. The Investment Adviser has adopted procedures governing the co-investment in securities acquired in private placements with certain clients of the Investment Adviser.
The Investment Adviser is not obligated, however, to invest for the Fund in any Portfolio Fund that Bank of America, or its affiliates, may acquire for its or their own accounts if the Investment Adviser concludes that it is not in the best interests of the Fund to acquire a position in such Portfolio Fund. The Investors in the Fund will not benefit from investments made by Bank of America and its other affiliates.
Each member of the Portfolio Management Team is a senior executive from business units within GWIM. As such, the compensation packages for the members on the Portfolio Management Team are composed of the same components used with all Bank of America senior executives: base salary, annual incentive performance bonus and equity awards. There is no direct link between any member’s specific compensation and the Fund’s or the Master Fund’s investment performance.
In determining the base salaries, Bank of America intends to be competitive in the marketplace and ensure salaries are commensurate with each member’s experience and ultimate responsibilities within each member’s respective business unit. Bank of America regularly evaluates base salary levels with external industry studies and analysis of industry trends.
Each Portfolio Management Team member’s annual bonus and equity awards are discretionary awards distributed after measuring each member’s contributions against quantitative and qualitative goals relative to their individual business responsibilities. Quantitative goals are relative to the individual’s business unit, and are not directly related to the performance of the Fund, the Master Fund or any other portfolio relative to any benchmark, or to the size of the Fund or the Master Fund. An example of a quantitative measure is associate turnover ratio. Qualitative measures may include staff management and development, process management (e.g., adherence to internal and external policies), business management and strategic business input to the business platform.
As of the date of this Registration Statement, no member of the Portfolio Management Team owns Interests in the Fund.
ITEM 22. BROKERAGE ALLOCATION AND OTHER PRACTICES.
Each Portfolio Fund Manager is directly responsible for placing orders for the execution of portfolio transactions for the Portfolio Fund that it manages and for the allocation of brokerage. Transactions on U.S. stock exchanges and on some foreign stock exchanges involve the payment of negotiated brokerage commissions. On many foreign stock exchanges, commissions are fixed. No stated commission is generally applicable to securities traded in over-the-counter markets, but the prices of those securities include undisclosed commissions or mark-ups. In selecting brokers and dealers to execute transactions on behalf of a Portfolio Fund, it is expected that each Portfolio Fund Manager will generally 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, the scope and quality of brokerage services provided, and the firm’s risk in positioning a block of securities. Although it is expected that each Portfolio Fund Manager generally will seek reasonably competitive commission rates, a Portfolio Fund Manager will not necessarily pay the lowest commission available on each transaction. The Portfolio Fund Managers will typically have no obligation to deal with any broker or group of brokers in executing transactions in portfolio securities.
Brokerage practices adopted by Portfolio Fund Managers with respect to Portfolio Funds may vary and will be governed by each Portfolio Fund’s organizational documents.
Consistent with the principle of seeking best price and execution, a Portfolio Fund Manager may place orders for a Portfolio Fund with brokers that provide the Portfolio Fund Manager and its affiliates with supplemental research, market and statistical information, including advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, and furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. The expenses of the Portfolio Fund Managers are not necessarily reduced as a result of the receipt of this supplemental information, which may be useful to the Portfolio Fund Managers or their affiliates in providing services to clients other than the Portfolio Funds. In addition, not all of the supplemental information is necessarily used by a Portfolio Fund Manager in connection with the Portfolio Fund it manages. Conversely, the information provided to a Portfolio Fund Manager by brokers and dealers through which other clients of the Portfolio Fund Manager or its affiliates effect securities transactions may be useful to the Portfolio Fund Manager in providing services to the Portfolio Fund.
Based on representations in the Portfolio Funds’ offering documents, the Fund generally believes that Portfolio Funds will follow practices similar to those described above. The Fund has no control over Portfolio Fund brokerage arrangements or operations and there is a risk of Portfolio Fund misconduct.
| B-4 |
ITEM 23. CERTAIN TAX CONSIDERATIONS.
U.S. Federal Income Tax Considerations
The following is a summary of certain aspects of the U.S. federal income taxation of the Fund and its Investors which should be considered by a prospective Investor. The Fund has not sought a ruling from the Internal Revenue Service (the “IRS”) or any other U.S. federal, state or local agency, nor has it obtained an opinion of counsel with respect to any of the tax issues affecting the Fund.
This summary of certain aspects of the federal income tax treatment of the Fund is based upon the Code, judicial decisions, Treasury Regulations (the “Regulations”), rulings and other administrative pronouncements all as in effect on the date hereof, all of which are subject to change (possibly with retroactive effect). Except as otherwise noted below, this summary does not discuss the impact of various proposals to amend the Code which could change certain of the tax consequences of an investment in the Fund. This summary also does not discuss all of the tax consequences that may be relevant to a particular Investor, to all Investors that acquire Interests other than for cash, to all Investors that are not United States persons within the meaning of the U.S. federal income tax laws, or to certain Investors subject to special treatment under the federal income tax laws, such as banks and certain other financial institutions, insurance companies, trusts, securities brokers or dealers, and, except as explicitly discussed below, tax-exempt organizations.
THIS SUMMARY IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED AS, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL TAX CONSEQUENCES AND ANY OTHER POTENTIAL TAX CONSEQUENCES UNDER THE LAWS OF ANY STATE, LOCALITY OR OTHER RELEVANT TAXING JURISDICTION ARISING FROM THE HOLDING OR DISPOSAL OF INTERESTS IN THE FUND.
This summary 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 Investors of the Fund, given the anticipated nature of the activities of the Fund, the Offshore Fund, the Master Fund and the Portfolio Funds. In some cases, the activities of an Investor other than the investment in the Fund may affect the tax consequences to such Investor of an investment in the Fund. The discussion below assumes that the Investors are U.S. persons that are generally exempt from taxation in the United States, including 401(k) plans and IRAs. Such Investors are referred to in this Registration Statement as “Eligible Investors,” and also as “Tax-Exempt Investors.”
Classification of the Fund and the Master Fund
The Investors will receive an opinion from Wilmer Cutler Pickering Hale and Dorr LLP, counsel to the Fund, that the Fund, as it is constituted on the date of the opinion, will be classified as a partnership and not as an association taxable as a corporation for U.S. federal income tax purposes. Similarly, based upon the provisions of the Code and the Treasury Regulations, as currently in effect, the Master Fund expects that it will be classified as a partnership and not as an association taxable as a corporation for U.S. federal income tax purposes.
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 Investors, with the result that the tax consequences to an Investor of owning Interests will generally be the same as the tax consequences of directly owning shares of the Offshore Fund.
The Fund and/or Master Fund could fail to qualify as a partnership for U.S. federal income tax purposes in future years as a result of a variety of developments including, without limitation, (i) modifications of the law governing the classification of entities as partnerships and (ii) characterization of the Fund and/or Master Fund as a “publicly traded partnership” as a result of the volume and nature of contributions of capital and redemptions and transfers of interests in the Fund and/or Master Fund. While there can be no assurance, the Fund and the Master Fund each expects that it will not be characterized as a publicly traded partnership for U.S. federal income tax purposes in future years based upon its anticipated ability to either (i) qualify for a safe harbor or (ii) be able to satisfy a general facts and circumstances test under applicable Treasury Regulations. Failure to qualify as a partnership would result in the Fund and/or Master Fund (as the case may be) being treated as a corporation for U.S. federal income tax purposes. As a corporation, the Fund or Master Fund (as the case may be) would generally be subject to an entity-level U.S. federal income tax, and distributions made by the Fund or Master Fund (as the case may be) 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%.
| B-5 |
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 Investment Adviser 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 Portfolio 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 or 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.
On May 18, 2010, Congressman Doggett introduced in the U.S. House of Representatives a bill entitled the “International Tax Competitiveness Act of 2010,” which if enacted as proposed, may adversely affect the Fund. The bill would treat as a U.S. corporation certain foreign corporations that have aggregate gross assets of $50 million or more at any time during the taxable year or any preceding taxable year, whether such assets are held directly or indirectly, if (1) the assets of the foreign corporation consist primarily of assets that are managed on behalf of investors and (2) the decisions about how to invest the assets are made in the U.S. If such a provision is enacted and applies to the Offshore Fund, the Fund would cease to be a tax-efficient vehicle for its shareholders because the Offshore Fund would become subject to U.S. federal corporate income tax on its worldwide income. However, as proposed, the provision would become effective only for taxable years beginning on or after two years from the date of enactment, so there would be some time during which the structure of the Fund could be changed in response to a change in the law.
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 and the Fund 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 and the Fund to potential future tax liability in the event the Cayman Islands enacted a law imposing taxes on the Offshore Fund.
ITEM 24. FINANCIAL STATEMENTS.
The Fund will issue a complete set of financial statements on a semi-annual basis prepared in accordance with generally accepted accounting principles.
| B-6 |
PROXY VOTING POLICIES AND PROCEDURES
ALTERNATIVE INVESTMENT ADVISORS
Banc of America Investment Advisors, Inc.
Bank of America Capital Advisors, LLC
U.S. Trust Hedge Fund Management, Inc.
(Collectively, “AI Advisors”)
Applicability: Section 1.7 – Proxy Voting Policy
Area of Focus: Portfolio Management
Date Last Reviewed: May 2012
Applicable Regulations
| · | Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) |
| · | SEC Form N-PX |
| · | Department of Labor Interpretive Bulletin 08-2 |
| · | Rule 30b1-4 under the Investment Company Act of 1940, as amended (the “1940 Act”) |
| · | Institutional Shareholder Services, Inc. (SEC No Action Letter dated September 15, 2004) |
Explanation/Summary of Regulatory Requirements
An SEC-registered investment adviser that exercises voting authority over clients’ proxies must adopt written policies and procedures that are reasonably designed to ensure that proxies are voted in the best economic interests of clients. An adviser’s policies and procedures must address how the adviser resolves material conflicts of interest between its interests and those of its clients. An investment adviser must comply with certain record keeping and disclosure requirements with respect to its proxy voting responsibilities. In addition, an investment adviser to Employee Retirement Income Security Act (“ERISA”) accounts has an affirmative obligation to vote proxies for an ERISA account, unless the client expressly retains proxy voting authority.
Policy
In cases where the Adviser has been delegated voting authority over Clients’2 securities, such voting will be in the best economic interests of the Clients.
Procedures for Achieving Compliance
The Adviser generally invests on behalf of its Clients in limited partnership interests, limited liability company interests, shares or other equity interests issued by private funds (“Underlying Funds”). The voting rights of investors in Underlying Funds generally are rights of contract set forth in the limited liability company agreement, the limited partnership agreement and other governing documents of the Underlying Funds.
The Adviser may also invest on behalf of its Clients in high quality, short-term instruments for cash management purposes and may be authorized to acquire securities of private companies. Securities held by a Client that are not Underlying Fund interests are referred to as “Direct Investments”.
_______________________
2 As used in this policy, “Clients” include private investment funds (“Private Funds”) exempt from the definition of an investment company pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940, as amended (the “1940 Act”), closed-end investment companies (“RICs”) registered under the 1940 Act, business development companies electing to be subject to certain portions of the 1940 Act, Private Funds that are “plan assets” under the Employee Retirement Income Security Act of 1974, as amended (“Plan Asset Funds”) and other institutional and high net worth investors (“Managed Accounts”). For the purposes of this policy, Clients do not include Private Funds or RICs that are sub-advised by third parties if the sub-adviser has been delegated the authority to vote proxies.
Appendix A - 1
On rare occasions, a Client may hold securities distributed to it by an Underlying Fund as an “in kind” distribution. Generally, in such circumstances the Adviser will liquidate these Direct Investments on the day received, but may continue to hold a security longer when deemed in the best interest of the Client. The Adviser may vote a proxy in the event a proxy vote be solicited for shareholders of record during the limited time that the Client held the security prior to the security’s liquidation.
For hedge fund Clients, it is the Alternative Investment group’s3 (“AI”) policy to waive its Clients’ voting rights related to their investments in Underlying Funds by the Adviser sending a written notification of waiver to each Underlying Fund at the time of investment, or at a reasonable time thereafter. Under no circumstances shall this notification be sent after any Client, in conjunction with other Clients or affiliates of AI, holds 5% of the outstanding interests in an Underlying Fund.
For private equity Clients, except with respect to Adverse Measures (as defined below), in determining how AI should vote a security, AI Portfolio Management shall:
| · | recommend against adoption of a measure if AI Portfolio Management determines in its discretion that such measure, if adopted: |
| · | would result in the affected Client holding a security in violation of such Client’s investment objective(s), policies or restrictions; or |
| · | has a reasonable probability of materially diminishing the economic value and/or utility of the related security in the hands of such Client over the anticipated holding period of such security; and |
| · | recommend adoption of a measure if AI Portfolio Management in its discretion determines that such measure, if adopted: |
| · | would not result in the affected Client holding a related security in violation of such Client’s investment objective(s), policies or restrictions; and |
| · | has a reasonable probability of enhancing the economic value and/or utility of the related security in the hands of such AI Client over the anticipated holding period of such security. |
As described above, most votes cast by the Adviser on behalf of Clients will relate to the voting of limited partnership interests, limited liability company interests, shares or similar equity interests in Underlying Funds in which Clients invest. Such votes are typically by written consent and no investor meeting is generally called. Although determining whether or not to give consent may not be considered to be “proxy voting”, such action is governed by this Proxy Voting Policy. It is also anticipated that frequently an Underlying Fund will request the Client either to vote in favor of measures that reduce the rights, powers and authority, and/or increase the duties and obligations, associated with the security in question (“Adverse Measures”) or to redeem its interests in the Underlying Fund.
It is expected that AI Portfolio Management will ordinarily recommend voting a security in favor of an Adverse Measure only if:
| · | AI Portfolio Management believes that voting for the Adverse Measure is the only way to continue to hold such security, and that there is a reasonable probability that the benefits that would be conferred on the affected Client by continuing to hold such security would outweigh the adverse effect(s) of such Adverse Measure (e.g., increased fees, reduced liquidity); and |
| · | Adoption of such Adverse Measure would not result in the Client holding the related security in violation of its investment objective(s), policies or restrictions. |
Conflicts of Interest:
AI Portfolio Management is under an obligation to (a) be alert to potential conflicts of interest on the part of AI, be mindful of other potential conflicts of interest as they pertain to affiliates of the Adviser or in his or her own personal capacity, with respect to a decision as to how a proxy should be voted, and (b) bring any such potential conflict of interest to the attention of AI Legal who, together with AI Portfolio Management, will determine if a potential conflict exists and in such cases contact the AI Conflicts Officer for resolution. The Adviser will not implement any decision to vote a proxy in a particular manner until the Conflicts Officer has:
_______________________
3 The Alternative Investments group (“AI”) includes the Adviser and various operating groups that support the Adviser and products within the Global Wealth and Investment Management division of Bank of America Corporation.
Appendix A - 2
| · | determined whether AI (or AI personnel) are subject to a conflict of interest in voting such proxy; and, if a conflict exists, |
| · | assessed whether such conflict is material or not; and, if material, |
| · | addressed the material conflict in a manner designed to serve the best interests of the affected AI Client. |
Notice to Clients:
AI will deliver a copy of the Adviser’s Form ADV Part 2A to current and prospective Clients. The referenced document contains a summary of AI’s proxy voting policies and procedures.
Responses to Client Requests:
AI will, upon the reasonable request of a current or prospective Client, provide such current or prospective Client with a copy of the then current version of this Policy.
AI will, upon the reasonable request of a current Client, provide notification of how AI voted proxies on behalf of such Client during the prior one year period.
AI will track proxy policy and proxy voting record requests it receives from current and prospective Clients.
Supervision
The heads of the AI Portfolio Management teams are responsible for supervising the implementation of this policy. In addition, the appropriate AI Investment Committee(s) is responsible for overseeing the implementation of this policy.
Escalation
AI associates must promptly report all unapproved exceptions to this policy to their supervisor, who will report the unapproved exception to the appropriate AI Investment Committee(s) and the AI Compliance Executive, who together will determine the remedial action to be taken, if any. The Compliance Executive will report all exceptions to the Chief Compliance Officer.
The Chief Compliance Officer will report any exception that is not resolved to his or her satisfaction, that cannot be resolved, or that otherwise suggests a material internal compliance controls issue, to AI Senior Management and the boards of directors for RICs, if applicable.
The Adviser may deviate from this policy only with written approval, upon review of the relevant facts and circumstances, from the Chief Compliance Officer.
Monitoring/Oversight
AI Compliance is responsible for monitoring compliance with this policy on an ongoing basis. As needed, but not less than annually, AI Compliance will request from Portfolio Management a list of all proxies voted during a given period. AI Compliance will examine the way AI has voted and compare to the AI Proxy Policy to ensure that AI has been consistent with this policy. Evidence of the review will be kept via a Compliance Monitoring Checklist.
Recordkeeping
Records should be retained for a period of not less than six years. Records should be retained in an appropriate office of AI for the first three years. Examples of the types of documents to be maintained as evidence of AI’s compliance with this policy may include:
| · | Portfolio Management Memorandum Describing Proxy Vote Request |
| · | AI Investment Committee meeting minutes |
| · | Proxy Voting Record |
| · | Records Required for Form N-PX (RICs Only) |
| · | Other documents as prescribed in Rule 204(2)(c)-17 |
Appendix A - 3
PART C
OTHER INFORMATION
Part C of this Registration Statement should be read in conjunction with Parts A and B. Capitalized terms used in this Part C and not otherwise defined have the meanings given them in Parts A and B of this Registration Statement.
ITEM 25. FINANCIAL STATEMENTS AND EXHIBITS.
| 1. | Registrant has no assets and financial statements are omitted. |
| 2. | Exhibits. |
| (a)(i) | Certificate of Formation* |
| (a)(ii) | Limited Liability Company Agreement, filed herewith. |
| (b) | Not applicable. |
| (c) | Not applicable. |
| (d) | See Item 25(2)(a) |
| (e) | Not applicable. |
| (f) | Not applicable. |
| (g) | Management Agreement, filed herewith. |
| (h) | Placement Agency Agreement, filed herewith. |
| (i) | Not applicable. |
| (j) | Custodian Services Agreement, filed herewith. |
| (k)(i) | Administration, Accounting and Investor Servicing Agreement, filed herewith. |
| (k)(ii) | Escrow Agreement, filed herewith. |
| (k)(iii) | Master/Feeder Agreement, filed herewith. |
| (l) | Not applicable. |
| (m) | Not applicable. |
| (n) | Not applicable. |
| (o) | Not applicable. |
| (p) | Not applicable. |
| (q) | Not applicable. |
| (r)(i) | Code of Ethics of Registrant, filed herewith. |
| (r)(ii) | Code of Ethics of Investment Adviser, filed herewith. |
| (r)(iii) | Code of Ethics of Placement Agent, filed herewith. |
* Previously filed with the Registrant’s Registration Statement on form N-2 with the Securities and Exchange Commission on March 26, 2013.
ITEM 26. MARKETING ARRANGEMENTS.
Not applicable. Interests will be issued solely in transactions not involving any “public offering” within the meaning of Section 4(a)(2) of the Securities Act.
ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Not applicable.
| C-1 |
ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of Interests, the Registrant expects that no person will be directly or indirectly under common control with the Registrant.
ITEM 29. NUMBER OF HOLDERS OF SECURITIES.
Set forth below is the number of record holders as of July 2, 2013, of each class of securities of the Registrant:
|
Title of Class |
Number of Record Holders | |
| Limited Liability Company Interests | 1 |
ITEM 30. INDEMNIFICATION.
Registrant’s Operating Agreement contains provisions limiting the liability, and providing for indemnification, of the Registrant’s Managers and officers under certain circumstances. The Registrant hereby undertakes that it will apply the indemnification provision of the Operating Agreement in a manner consistent with Release 40-11330 of the Securities and Exchange Commission under the 1940 Act so long as the interpretation of Section 17(h) and 17(i) of the 1940 Act remains in effect.
Registrant, in conjunction with the Investment Adviser and Registrant’s Board of Managers, maintains insurance on behalf of any person who is an Independent Manager, officer, employee, or agent of Registrant, against certain liability asserted against him or her and incurred by him or her or arising out of his or her position. Registrant will not pay that portion of the premium, if any, for insurance to indemnify any such person for any act for which Registrant itself is not permitted to indemnify.
ITEM 31. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Information regarding any other business, profession, vocation or employment of a substantial nature in which each executive officer and manager of the Investment Adviser is, or at any time during the past two fiscal years has been, engaged is set forth in Part B of this Registration Statement and/or incorporated by reference to the Form ADV filed by the Investment Adviser with the SEC pursuant to the Advisers Act. The principal business address of the Investment Adviser is 100 Federal Street, Boston, MA 02110.
ITEM 32. LOCATION OF ACCOUNTS AND RECORDS.
All applicable accounts, books and documents required to be maintained by the Registrant by Section 31(a) of the 1940 Act and the Rules promulgated thereunder are in the possession and custody of the Registrant’s administrator, JD Clark & Company, located at 2225 Washington Boulevard, Suite 300, Ogden, Utah 84401-1409, with the exception of certain documents which are in the possession and custody of the Investment Adviser, located at 100 Federal Street, Boston, MA 02110. Registrant is informed that all applicable accounts, books and documents required to be maintained by registered investment advisers are in the custody and possession of the Investment Adviser.
ITEM 33. MANAGEMENT SERVICES.
Not applicable.
ITEM 34. UNDERTAKINGS.
Not applicable.
| C-2 |
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York and the State of New York on the 2nd day of July, 2013.
EXCELSIOR PRIVATE MARKETS FUND III (TE), LLC
|
By: |
/s/ Steven L. Suss | |
| Name: Steven L. Suss | ||
| Title: Chief Financial Officer |
EXCELSIOR PRIVATE MARKETS FUND III (MASTER), LLC
|
By: |
/s/ Steven L. Suss | |
| Name: Steven L. Suss | ||
| Title: Chief Financial Officer |
| C-3 |
EXHIBIT INDEX
| (a)(ii) | Limited Liability Company Agreement |
| (g) | Management Agreement |
| (h) | Placement Agency Agreement |
| (j) | Custodian Services Agreement |
| (k)(i) | Administration, Accounting and Investor Servicing Agreement |
| (k)(ii) | Escrow Agreement |
| (k)(iii) | Master/Feeder Agreement |
| (r)(i) | Code of Ethics of Registrant |
| (r)(ii) | Code of Ethics of Investment Adviser |
| (r)(iii) | Code of Ethics of Placement Agent |
LIMITED LIABILITY COMPANY AGREEMENT
OF
EXCELSIOR PRIVATE MARKETS FUND III (TE), LLC
TABLE OF CONTENTS
| Page | |
| ARTICLE I. DEFINITIONS | 1 |
| ARTICLE II. GENERAL PROVISIONS | 4 |
| 2.1 Formation | 4 |
| 2.2 Name | 5 |
| 2.3 Purpose | 5 |
| 2.4 Principal Place of Business | 5 |
| 2.5 Registered Office and Registered Agent | 5 |
| 2.6 Term | 6 |
| 2.7 Title to Company Property | 6 |
| 2.8 No State Law Partnership | 6 |
| 2.9 No Liability of Members | 6 |
| ARTICLE III. CAPITAL STRUCTURE AND MEETINGS | 6 |
| 3.1 Members | 6 |
| 3.2 Capital Structure | 6 |
| 3.3 Changes to Capital Structure | 7 |
| 3.4 No Management Responsibility | 7 |
| 3.5 No Authority to Act | 7 |
| 3.6 No Preemptive Rights | 7 |
| 3.7 Redemption or Repurchase Rights | 8 |
| 3.8 Member Meetings | 8 |
| 3.9 Place of Members’ Meetings | 8 |
| 3.10 Notice of Members’ Meetings | 8 |
| 3.11 Waiver of Notice | 8 |
| 3.12 Record Dates | 9 |
| 3.13 Voting Record | 9 |
| 3.14 Voting; Quorum of Members; Vote Required | 9 |
| 3.15 No Consent Required | 11 |
| 3.16 Limitations on Requirements for Consents | 11 |
| 3.17 Informal Action by Members | 11 |
| 3.18 Voting by Ballot | 11 |
| 3.19 No Cumulative Voting | 11 |
| 3.20 Representations and Warranties of Members; Indemnification | 12 |
| ARTICLE IV. MANAGEMENT OF COMPANY | 13 |
| 4.1 Board of Managers | 13 |
| 4.2 RESERVED | 14 |
| 4.3 Resignation by a Manager | 14 |
| 4.4 Removal of a Manager; Designation of a Successor Manager | 14 |
| 4.5 Incapacity of a Manager | 14 |
| (i) |
| 4.6 Continuation | 15 |
| 4.7 Board of Managers Powers | 15 |
| 4.8 Annual and other Regular Meetings of the Board of Managers | 18 |
| 4.9 Special Meetings of the Board of Managers | 18 |
| 4.10 Notice of Meetings of the Board of Managers | 18 |
| 4.11 Quorum for Board of Managers Meetings | 19 |
| 4.12 Manner of Acting for Board of Managers | 19 |
| 4.13 Written Consent by Board of Managers | 19 |
| 4.14 Participation by Electronic Means by Board of Managers | 19 |
| 4.15 Committees of Managers | 19 |
| 4.16 Manager Presumption of Assent | 19 |
| 4.17 Manager Power to Bind Company | 19 |
| 4.18 Liability of the Managers | 19 |
| 4.19 Reliance by Third Parties | 20 |
| 4.20 Appointment of Auditors | 20 |
| 4.21 Contracts with Affiliates | 20 |
| 4.22 Obligations of the Managers | 20 |
| 4.23 Other Business of Managers | 20 |
| 4.24 Limitations on Board of Managers and Appropriate Officers | 20 |
| ARTICLE V. MANAGEMENT COMPANY | 21 |
| 5.1 The Management Company | 21 |
| ARTICLE VI. OFFICERS | 21 |
| 6.1 Appropriate Officers | 21 |
| 6.2 Election of Officers | 22 |
| 6.3 Voting Securities Owned by the Company | 22 |
| 6.4 Chairman of the Board of Managers | 22 |
| 6.5 President | 22 |
| 6.6 Vice Presidents | 23 |
| 6.7 Secretary | 23 |
| 6.8 Treasurer | 23 |
| 6.9 Assistant Secretaries | 23 |
| 6.10 Assistant Treasurers | 24 |
| 6.11 Other Officers | 24 |
| ARTICLE VII. CONTRIBUTIONS TO CAPITAL | 24 |
| 7.1 Closings and Capital Contributions | 24 |
| 7.2 Return of Capital | 25 |
| 7.3 Recycling | 26 |
| 7.4 Liability of the Members and the Managers | 26 |
| ARTICLE VIII. DISTRIBUTIONS, CAPITAL ACCOUNTS AND ALLOCATIONS | 26 |
| 8.1 Percentage Interests | 26 |
| 8.2 Distributions | 26 |
| 8.3 Valuation | 27 |
| (ii) |
| 8.4 Capital Accounts | 27 |
| 8.5 Negative Capital Accounts | 28 |
| 8.6 Allocations to Capital Accounts | 28 |
| 8.7 Tax Allocations | 29 |
| 8.8 Determinations by the Managers | 29 |
| 8.9 Tax Matters Partner | 29 |
| 8.10 Allocation of Expenses/Defaulting Members | 30 |
| ARTICLE IX. COMPANY EXPENSES | 30 |
| 9.1 Company Expenses | 30 |
| ARTICLE X. INDEMNIFICATION | 31 |
| 10.1 Indemnification | 31 |
| ARTICLE XI. WITHDRAWALS OF MEMBERS; TRANSFERS OF MEMBERSHIP INTERESTS | 32 |
| 11.1 Withdrawals of Members | 32 |
| 11.2 Transfers of Membership Interests | 33 |
| 11.3 Effect of Transfers | 34 |
| 11.4 Transfer Indemnity | 34 |
| 11.5 Substituted Members | 34 |
| 11.6 Effect of Death, Etc. | 35 |
| 11.7 Transfers by Special Member | 35 |
| ARTICLE XII. ACCOUNTING | 35 |
| 12.1 Books and Records | 35 |
| 12.2 Annual Reports to Current Members | 36 |
| 12.3 Accounting; Tax Year | 36 |
| 12.4 Filing of Tax Returns | 36 |
| 12.5 Determinations Binding | 37 |
| ARTICLE XIII. DISSOLUTION AND TERMINATION | 37 |
| 13.1 Dissolution | 37 |
| 13.2 Liquidation | 37 |
| 13.3 Termination | 38 |
| ARTICLE XIV. POWER OF ATTORNEY | 38 |
| 14.1 Power of Attorney | 38 |
| 14.2 Irrevocability | 38 |
| 14.3 Priority of Agreement | 39 |
| 14.4 Exercise of Power | 39 |
| ARTICLE XV. MISCELLANEOUS | 39 |
| 15.1 Amendments | 39 |
| 15.2 Certificate of Formation | 39 |
| 15.3 Delaware Law | 40 |
| (iii) |
| 15.4 Counterparts | 40 |
| 15.5 Binding upon Successors and Assigns | 40 |
| 15.6 Notices | 40 |
| 15.7 Severability | 40 |
| 15.8 Entire Agreement | 40 |
| 15.9 Headings, Etc. | 40 |
| 15.10 Waiver of Partition | 41 |
| 15.11 Survival of Certain Provisions | 41 |
| 15.12 Confidentiality | 41 |
| (iv) |
LIMITED LIABILITY COMPANY AGREEMENT
OF
EXCELSIOR PRIVATE MARKETS FUND III (TE), LLC
This LIMITED LIABILITY COMPANY AGREEMENT (the “Agreement”) of Excelsior Private Markets Fund III (TE), LLC, a Delaware limited liability company (the “Company”), is made as of the ___ day of July, 2013, by and among the Organizational Member, the Managers and those Persons hereinafter admitted as Members and has been executed for the purpose of providing for the operation of the Company pursuant to the provisions of the Delaware Limited Liability Company Act.
Accordingly, in consideration of the mutual covenants contained herein, the Members agree as follows:
ARTICLE
I.
DEFINITIONS
As used herein, the following terms shall have the following meanings and all such terms which relate to accounting matters shall be interpreted in accordance with generally accepted accounting principles in effect from time to time except as otherwise specifically provided herein:
“Act” means the Delaware Limited Liability Company Act, as from time to time amended.
“Additional Closing” shall have the meaning specified in Section 7.1(a).
“Additional Closing Dates” shall have the meaning specified in Section 7.1(a).
“Affiliate” shall have the meaning ascribed to such term in the Investment Company Act.
“Agreement” means this Limited Liability Company Agreement of the Company as originally executed and as amended, modified, supplemented or restated from time to time.
“Applicable Rate” shall mean a rate per annum equal, at the time of determination, to the sum of (i) the highest “prime rate” then published in the “Money Rates” section of The Wall Street Journal and (ii) two percent (2%).
“Appropriate Officer” shall mean an officer of the Company appointed in accordance with Section 4.7(d) who has not resigned, been removed or become incapacitated.
“Board of Managers” shall mean those natural persons who at any given time are serving as Managers of the Company in accordance with this Agreement.
| 1 |
“Business Day” shall mean any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to be closed.
“Capital Accounts” shall have the meaning specified in Section 8.4.
“Capital Contribution” shall mean, with respect to any Member, the amount contributed by such Member to the capital of the Company pursuant to this Agreement.
“Carried Interest” shall have the meaning specified in Section 8.2(a)(ii).
“Cause” means willful or gross neglect of duties; committing fraud, misappropriation or embezzlement in the performance of duties on behalf of the Company; conviction of a felony involving a crime of moral turpitude; or willfully engaging in conduct materially adverse to the Company.
“Closing” shall have the meaning specified in Section 7.1(a).
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provision of succeeding law).
“Company” means Excelsior Private Markets Fund III (TE), LLC, a Delaware limited liability company.
“Confidential Information” shall have the meaning set forth in Section 15.12.
“Defaulting Member” shall have the meaning specified in Section 7.1(d).
“Disinterested Manager” shall mean any member of the Board of Managers that is not an “interested person” of the Company as such term is defined in the Investment Company Act, as the same may be amended from time to time.
“Final Closing Date” shall have the meaning specified in Section 7.1(a).
“Fiscal Year” means the 12-month period ending on March 31, unless the Board of Managers shall designate another fiscal year for the Company.
“40 Act Majority of Members” means the lesser of (a) the holders of 67% or more of the outstanding Units present at a meeting of the Members at which a Majority in Interest of the Members is present in person or by proxy or (b) a Majority in Interest of the Members.
“Incapacity” shall mean, as to any Person, the entry of an order for relief in a bankruptcy proceeding, entry of an order of incompetence or insanity or the death, dissolution or termination (other than by merger or consolidation), as the case may be, of such Person.
“Indemnified Liabilities” shall have the meaning specified in Section 10.1(a).
“Indemnified Person” shall have the meaning specified in Section 10.1(a).
| 2 |
“Initial Closing” shall have the meaning specified in Section 7.1(a).
“Investment Company Act” shall mean the Investment Company Act of 1940, as amended.
“Majority in Interest of the Members” means Members who in the aggregate own more than 50% of the outstanding Units.
“Management Agreement” shall mean the agreement between the Company and the Management Company that provides for the provision of management services by such person to the Company and the payment therefore as in effect from time to time.
“Management Company” shall mean Bank of America Capital Advisors LLC, a Delaware limited liability company, or any successor management company to the Company.
“Manager” shall mean a member of the Board of Managers of the Company. Each Manager shall be a “manager” within the meaning of the Act, afforded the limitation of liability accorded to Managers hereunder.
“Master Fund” shall mean Excelsior Private Markets Fund III (Master), LLC, a Delaware limited liability company.
“Member” means any Person admitted to the Company as a member of the Company pursuant to the provisions of this Agreement and named as a member of the Company in the books and records of the Company, including any Person admitted as a Substituted Member, in such Person’s capacity as a member of the Company. “Members” means two or more Persons acting in their capacity as members of the Company.
“Membership Interest” shall mean a Member’s rights and interest in the Company, including such Member’s Percentage Interest.
“Memorandum” shall mean that confidential private placement memorandum of the Company, as amended and/or supplemented from time to time.
“Offshore Fund” shall mean Excelsior Private Markets Fund III (Offshore), LDC, a Cayman Islands limited duration company, or any other “offshore fund” in which the Company may invest all or substantially all of its assets from time to time, as determined by the Board of Managers in its sole and absolute discretion.
“Organizational Member” shall mean Steven L. Suss.
“Percentage Interest” has the meaning specified in Section 8.1.
“Person” means any natural person, individual, corporation, partnership, trust, estate, limited liability company, custodian, unincorporated organization or association or other entity.
| 3 |
“Special Member” shall mean Bank of America Capital Advisors LLC, a Delaware limited liability company, or any other Person who, at such time, serves as the special member of the Company.
“Subscription Agreement” shall mean the subscription agreement entered into by the Member to acquire a Membership Interest.
“Substituted Member” means any Person admitted to the Company as a Member pursuant to the provisions of Section 11.5 and shown as a Member in the books and records of the Company.
“Supermajority of Members” means Members who in the aggregate own more than 67% of the outstanding Units.
“Target Capital Account” means the Capital Account of a Member as of the end of each fiscal year, increased by any amount that such Member is obligated to restore under this Agreement, is treated as obligated to restore under Treasury Regulations Section 1.704-1(b)(2)(ii)(c), or is deemed obligated to restore under the penultimate sentences of Treasury Regulations Section 1.704-2(g)(1) and (i)(5).
“Tax Matters Partner” shall have the meaning specified in Section 8.9.
“Transfer” shall have the meaning specified in Section 11.2(a).
“Treasury Regulations” shall mean the income tax regulations, including temporary regulations, promulgated under the Code, as the same may be amended hereafter from time to time (including corresponding provisions of succeeding income tax regulations).
“Underlying Funds” shall mean the private equity funds invested in by the Company, both directly and indirectly through its investment in the Master Fund (through the Offshore Fund).
“Units” shall mean the unlimited number of common equity interests of the Company and are the increment by which Interests of Members are measured; and include fractions of Units as well as whole Units.
ARTICLE
II.
GENERAL PROVISIONS
2.1 Formation. Excelsior Private Markets Fund III (TE), LLC was formed as a limited liability company under the laws of the State of Delaware by the filing of the Certificate of Formation on March 18, 2013 pursuant to the Act. The Company and the Members hereby discharge the organizer and Organizational Member of the Company, and the organizer and Organizational Member shall be indemnified by the Company and the Members from and against any expense or liability incurred by the organizer or Organizational Member by reason of having been the organizer or Organizational Member of the Company. Except as expressly provided herein to the contrary, the rights and obligations of the Members and the administration and termination of the Company shall be governed by the Act. The Organizational Member shall withdraw from the Company immediately preceding the commencement of operation of the Company.
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2.2 Name. The name of the Company is “Excelsior Private Markets Fund III (TE), LLC.” The name of the Company may be changed from time to time by the Board of Managers in its sole discretion.
2.3 Purpose. The purposes of the Company are to identify, acquire, hold, manage and dispose of interests in Underlying Funds and other investments, directly or through its investment in the Master Fund and the Offshore Fund, as applicable, in accordance with the terms of this Agreement and the Memorandum and to engage in any other activities which may be directly or indirectly related or incidental thereto or for the furtherance or accomplishment of the preceding purposes or of any other purpose permitted by the Act and the Investment Company Act. The Company shall have all power and authority to enter into, make and perform all contracts and other undertakings and to engage in all activities and transactions and take any and all actions necessary, appropriate, desirable, incidental or convenient to or for the furtherance or accomplishment of the above purposes or of any other purpose permitted by the Act and the Investment Company Act or the furtherance of any of the provisions herein set forth and to do every other act and thing incident thereto or connected therewith, including, without limitation, investment of funds of the Company pending their utilization or disbursement, and any and all of the other powers that may be exercised on behalf of the Company by the Board of Managers pursuant to this Agreement. The Company shall not be limited as to the number or types of Underlying Funds, or the amount invested in particular Underlying Funds, and may invest within and outside the United States without restriction. The Company may, in the sole and absolute discretion of the Board of Managers, invest all or substantially all of the Company’s assets in the Offshore Fund, which in turn invests all or substantially all of its assets in the Master Fund.
2.4 Principal Place of Business. The Company shall maintain its office and principal place of business at, and its business shall be conducted from, 100 Federal Street, Boston, Massachusetts 02110 or such place or places inside or outside the United States as the Board of Managers may determine.
2.5 Registered Office and Registered Agent. The address of the Company’s registered office and registered agent for service of process in the State of Delaware is National Corporate Research, Ltd., 615 South DuPont Highway, in the City of Dover, County of Kent, Delaware 19901. The address of the Company’s registered office and registered agent for service of process in the State of Delaware of the Company may be changed from time to time by the Board of Managers.
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2.6 Term. The Company will terminate and dissolve as set forth herein on the earlier of the tenth anniversary of the Final Closing Date, or the dissolution prior thereto pursuant to the provisions hereof; provided, however, that the Board of Managers may extend the time of termination and dissolution beyond the tenth anniversary of the Final Closing Date (i) for up to two successive periods of up to two years per extension in the sole discretion of the Board of Managers and without the approval of the Members, and thereafter, (ii) for such further period as may be necessary to permit orderly liquidation, with the approval of the Members, by the vote of a Majority in Interest of the Members.
2.7 Title to Company Property. All property owned by the Company, whether real or personal, tangible or intangible, shall be owned by the Company as an entity, and no Member or Manager individually, shall have title to or any interest in such property.
2.8 No State Law Partnership. The Members intend that the Company not be deemed to be a partnership (including a limited partnership) or joint venture under the Act and that no Member be deemed to be a partner or joint venturer of any other Member for any purposes other than applicable tax laws. This Agreement may not be construed to suggest otherwise. Notwithstanding the foregoing, the Members intend that the Company shall be treated as a partnership for tax purposes.
2.9 No Liability of Members. All debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member.
ARTICLE
III.
CAPITAL STRUCTURE AND MEETINGS
3.1 Members. The name, address and the amount of the initial Capital Contributions 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. From time to time, the books and records of the Company shall be amended to reflect the name, address and Capital Contribution of each Member (including, as permitted by this Agreement, adding the name, address and Capital Contribution of each additional Member who is admitted or becomes a Substituted Member pursuant to a Transfer of Units and deleting the name, address and Capital Contribution of Persons ceasing to be Members). The Members shall have the management and voting rights set forth in this Agreement and provided under the Act and the Investment Company Act and shall have all rights to any allocations and to any distributions as may be authorized and set forth under this Agreement and under the Act.
3.2 Capital Structure.
(a) Subject to the terms of this Agreement, the Company is authorized to issue common equity interests in the Company designated as “Units,” which shall constitute an unlimited number of limited liability company interests under the Act. Other than as set forth in this Agreement, each Unit shall be identical in all respects with each other Unit. Units may be subdivided into such number of equal, undivisible shares as the Appropriate Officers may determine. The relative rights, powers, preferences, duties, liabilities and obligations of Members shall be as set forth herein.
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(b) The Company shall issue Units to any Person at the net asset value per Unit as calculated in accordance with the Company’s valuation procedures adopted by the Board of Managers and in exchange for either capital contributions or the provision of property, services or otherwise, as may be determined by the Board of Managers. The number of Units issued to Members shall be listed in the membership records of the Company, which shall be amended from time to time by the Company as required to reflect issuances of Units to new Members, changes in the number of Units held by Members and to reflect the addition or cessation of Members. The number of Units held by each Member shall not be affected by any (i) issuance by the Company of Units to other Members or (ii) change in the Capital Account of such Member (other than such changes to reflect additional Capital Contributions from such Member in exchange for new Units). Subject to the requirements of the Investment Company Act, the Company is authorized to issue options or warrants to purchase Units, restricted Units, Unit appreciation rights, phantom Units and other securities convertible, exchangeable or exercisable for Units, on such terms as may be determined by the Board of Managers or a duly authorized committee thereof.
(c) Unless otherwise determined by the Board of Managers in its sole discretion, the issued and outstanding Units shall not be represented by certificates.
3.3 Changes to Capital Structure. Additional Persons may be admitted as Members, and additional Units or other equity interests may be created and issued from time to time; the terms of admission or issuance may provide for the creation of different classes, groups or series of membership interests having different rights, powers and duties, which rights, powers and duties may be senior, pari passu or junior to the rights, powers and duties of the Units, as determined by the Board of Managers. Any creation of any new class, group or series of units or other equity interests shall be reflected in a supplemental exhibit to this Agreement indicating such rights, powers and duties.
3.4 No Management Responsibility. No Member, in such capacity, shall participate in the management or control of the business of or transact any business for the Company, but may exercise the voting rights and powers of a Member set forth in this Agreement. All management responsibility is vested in the Board of Managers or any person delegated such responsibility. The Members hereby consent to the taking of any action by the Board of Managers and Appropriate Officers contemplated under this Agreement or otherwise permitted under the Act.
3.5 No Authority to Act. No Member, in such capacity, shall have the power to represent, act for, sign for, or bind the Company, except for the Management Company to the extent expressly set forth herein. All authority to act on behalf of the Company is vested in the Board of Managers. The Members consent to the exercise by the Board of Managers of the powers conferred on them under this Agreement or otherwise permitted under the Act.
3.6 No Preemptive Rights. Holders of Units will have no preemptive rights with respect to the issuance of any membership or other equity interest in the Company or any other securities of the Company convertible into, or carrying rights or options to purchase any such membership or other equity interest.
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3.7 Redemption or Repurchase Rights. Except as otherwise provided in this Agreement, the Company shall not redeem or repurchase any Member’s Units and no Member shall have the right to withdraw from the Company or to receive any return of any Capital Contribution.
3.8 Member Meetings. Unless required by the Act or other applicable law, the Company is not required to hold annual or other regular meetings of Members. Special meetings of the Members may be called to consider any matter requiring the consent of all or any of the Members pursuant to this Agreement and as otherwise determined by the Board of Managers. Special meetings of the Members may be called by the Board of Managers or by a Supermajority of Members.
3.9 Place of Members’ Meetings. The Board of Managers may designate any place, either within or outside of the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the Managers. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal executive offices of the Company. Members may participate in a meeting in person, by proxy or by means of a conference telephone or similar communications equipment by which all persons participating in the meeting can hear and speak to each other at the same time, and any such participation in a meeting shall constitute presence in person of such Member at such meeting.
3.10 Notice of Members’ Meetings.
(a) Written notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose for which the meeting is called shall be delivered not less than ten days nor more than ninety days before the date of the meeting, either personally, by facsimile, electronic mail or by postal mail, by or at the direction of the Board of Managers or Members calling the meeting to each Member of record entitled to vote at such meeting.
(b) Notice to Members, if mailed by post, shall be deemed delivered as to any Member when deposited in the United States mail, addressed to the Member, with postage prepaid, but, if two successive letters mailed to the last-known address of any Member are returned as undeliverable, no further notices to such Member shall be necessary until another address for such Member is made known to the Company. Notice to Members, if by facsimile or by electronic mail, shall be deemed delivered upon receipt of a confirmation of transmission when delivered.
(c) At an adjourned meeting, the Company may transact any business which might have been transacted at the original meeting without additional notice.
3.11 Waiver of Notice.
(a) When any notice is required to be given to any Member of the Company under the provisions of this Agreement, a waiver thereof in writing signed by the Person entitled to such notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of such notice.
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(b) By attending a meeting, a Member:
(i) Waives objection to lack of notice or defective notice of such meeting unless the Member, at the beginning of the meeting, objects to the holding of the meeting or the transacting of business at the meeting; and
(ii) Waives objection to consideration at such meeting of a particular matter not within the purpose or purposes described in the meeting notice unless the Member objects to considering the matter when it is presented.
3.12 Record Dates. For the purpose of determining the Members who are entitled to vote or act at any meeting or any adjournment thereof, or who are entitled to participate in any distribution, or for the purpose of any other action, the Managers may fix a date and time not more than ninety (90) days prior to the date of any meeting of Members or other action as the date and time of record for the determination of Members entitled to vote at such meeting or any adjournment thereof or to be treated as Members of record for purposes of such other action, and any Member who was a Member at the date and time so fixed shall be entitled to vote at such meeting or any adjournment thereof or to be treated as a Member of record for purposes of such other action, even though he has since that date and time disposed of his Units, and no Member becoming such after that date and time shall be so entitled to vote at such meeting or any adjournment thereof or to be treated as a Member of record for purposes of such other action.
3.13 Voting Record. The Person having charge of the membership records of the Company shall make, at least two days before such meeting of Members, a complete record of the Members entitled to vote at each meeting of Members or any adjournment thereof, with the address of each. The record, for a period of two days prior to such meeting, shall be kept on file at the principal executive offices of the Company, and shall be subject to inspection by any Member for any proper purpose germane to the meeting at any time during usual business hours; provided, however, that such Member shall have made a demand to view such records not less than 5 business days after receipt of notice of such meeting, properly delivered to the Company and setting forth in reasonable detail the purpose for which such Member desires to view such information. The original membership records shall be the prima facie evidence as to who are the Members entitled to examine the record or transfer books or to vote at any meeting of Members.
3.14 Voting; Quorum of Members; Vote Required. Except as otherwise set forth herein, each Member shall be entitled to one vote per Unit and a proportionate fractional vote for each fractional Unit upon all matters upon which Members have the right to vote based upon the Units of the Company as set forth in the membership records of the Company as of the applicable record date. The presence, in person or by proxy, of Members owning more than 50% of the Units at the applicable record date for the action to be taken constitutes a quorum for the transaction of business. If a quorum is present, the affirmative vote, in person or by proxy, of the owners of more than 50% of the Units then outstanding and represented in person or by proxy at the meeting and entitled to vote on the subject matter shall be the act of the Members, unless the vote of a greater proportion or number or voting by classes is required by the Act, the Investment Company Act or this Agreement. If a quorum is not represented at any meeting of the Members, such meeting may be adjourned by an Appropriate Officer or the Managers.
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The Members shall have the following voting rights:
(a) to the extent required by the Investment Company Act or as otherwise provided for herein, the right to elect members of the Board of Managers by the Majority In Interest of the Members;
(b) as provided herein, the right to remove Managers for Cause by the affirmative vote of a Supermajority of Members at a meeting of Members duly called for such purpose;
(c) to the extent required by the Investment Company Act, the right to approve any proposed investment advisory agreement or to disapprove and terminate any such existing agreement by the affirmative vote of a 40 Act Majority of Members; provided, however, in the case of approval that such agreement is also approved by a majority of Managers who are not parties to such contract or “interested persons” of any such party as such term is defined in the Investment Company Act, as the same may be amended from time to time;
(d) to the extent required by the Investment Company Act, the right to ratify the appointment of the independent accountants of the Company by the affirmative vote of more than 50% of the Units then outstanding and represented in person or by proxy at the meeting and entitled to vote; provided, however, that such appointment is approved by a majority of the Disinterested Managers;
(e) to the extent required by the Investment Company Act, the right to terminate the Company’s independent accountants by the affirmative vote of a 40 Act Majority of Members;
(f) to the extent provided in Section 2.6 hereof, the right to approve the extension of the time of termination and dissolution of the Company by the affirmative vote of a Majority in Interest of the Members;
(g) to the extent required by the Investment Company Act, the right to consent to the dissolution of the Company pursuant to Section 13.1 by the affirmative vote of the Majority In Interest of the Members;
(h) to the extent required by Section 13.2, the selection of a liquidator by the affirmative vote of a Majority in Interest of the Members;
(i) to the extent required by Section 15.1, the right to approve certain amendments to this Agreement by the affirmative vote of a Majority in Interest of the Members; and
(j) so long as the Company is subject to the provisions of the Investment Company Act, the right to approve any other matters that the Investment Company Act requires to be approved by the Members by the affirmative vote of Members as specified in the Investment Company Act.
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3.15 No Consent Required. Notwithstanding the foregoing, no vote, approvals, or other consent shall be required of the Members to amend this Agreement in any of the following respects: (i) to reflect any change in the amount or character of the Capital Contribution of any Member; (ii) to admit an additional Member or a Substituted Member or withdraw a Member in accordance with the terms of this Agreement; (iii) to correct any false or erroneous statement, or to make a change in any statement in order that such statement shall accurately represent the agreement among the Members in this Agreement; (iv) to reflect any change that is necessary to qualify the Company as a limited liability company under the laws of any state or that is necessary or advisable in the opinion of the Board of Managers to assure that the Company will not be treated as a publicly traded partnership or otherwise treated as a corporation for federal income tax purposes; (v) to reflect any change in the name or principal place of business of the Company; (vi) to make any other change or amendment that does not require the vote, approval or consent of Members under the Investment Company Act, the Act or expressly hereunder, provided that such change or Amendment has been approved by a majority of the Board of Managers and a majority of the Disinterested Managers.
3.16 Limitations on Requirements for Consents. Notwithstanding any other provisions of this Agreement, but subject to the requirements of the Investment Company Act, in the event that counsel for the Company or counsel designated by Members holding not less than 10% of the Units owned by all Members shall have delivered to the Company an opinion to the effect that either the existence of a particular consent right or particular consent rights, or the exercise thereof, will violate the provisions of the Act or the laws of the other jurisdictions in which the Company is then formed or qualified, will adversely affect the limited liability of the Members, or will adversely affect the classification of the Company as a partnership for federal or state income tax purposes, then notwithstanding the other provisions of this Agreement, the Members shall no longer have such right, or shall not be entitled to exercise such right in the instant case, as the case may be.
3.17 Informal Action by Members. Any action that may be taken by Members at a meeting of Members may be taken without a meeting without prior notice and without a vote if consent in writing setting forth the action to be taken is signed by the Members holding not less than the minimum percentage of Units that would be necessary to authorize or take such action at a meeting at which all the Members were present and voted, with prompt written notice thereof delivered to all Members. Written consent by the Members has the same force and effect as a vote of such Members held at a duly held meeting of the Members and may be stated as such in any document.
3.18 Voting by Ballot. Voting on any question or in any election may be by voice vote unless the presiding officer shall order or any Member shall demand that voting be by ballot.
3.19 No Cumulative Voting. No Members shall be entitled to cumulative voting in any circumstance.
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3.20 Representations and Warranties of Members; Indemnification.
(a) Each Member hereby represents and warrants to the Company and each other Member as follows:
(i) In each case to the extent applicable, such Member is duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. All requisite actions necessary for the due authorization, execution, delivery and performance of this Agreement by such Member have been duly taken.
(ii) Such Member has duly executed and delivered this Agreement. This Agreement constitutes a valid and binding obligation of such Member enforceable against such Member in accordance with its terms (except as may be limited by bankruptcy, insolvency, or similar laws of general application and by the effect of general principles of equity, regardless of whether considered at law or in equity).
(iii) Such Member’s authorization, execution, delivery and performance of this Agreement does not and will not (i) conflict with, or result in a breach, default or violation of (A) to the extent applicable, the certificate or articles of incorporation, by-laws or other organizational documents of such Member, (B) any material contract or agreement to which that Member is a party or is otherwise subject, or (C) any law, order, judgment, decree, writ, injunction or arbitration award to which that Member is subject; or (ii) require any consent, approval, or authorization from filing, or registration with or notice to, any governmental authority or other Person, other than those that have already been obtained.
(iv) Such Member is familiar with the proposed business, financial condition, properties, operations and prospects of the Company, the Offshore Fund and the Master Fund, and has asked such questions and conducted such due diligence concerning such matters and concerning its acquisition of any membership interests as it has desired to ask and conduct, and all such questions have been answered to its full satisfaction. Such Member has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Company. Such Member understands that owning membership interests involves various risks, including the restrictions on transferability set forth in this Agreement, lack of any public market for such membership interests, the risk of owning its membership interests for an indefinite period of time and the risk of losing its entire investment in the Company. Such Member is able to bear the economic risk of such investment; is acquiring its membership interests for investment and solely for its own beneficial account and not with a view to or any present intention of directly or indirectly selling, transferring, offering to sell or transfer, participating in any distribution or otherwise disposing of all or a portion of its membership interests.
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(b) Each Member hereby indemnifies the Company, the Offshore Fund, the Master Fund, the Management Company and their respective Affiliates from and against and agrees to hold the Company, the Offshore Fund, the Master Fund, the Management Company and their respective Affiliates free and harmless from any and all claims, losses, damages, liabilities, judgments, fines, settlements, compromises, awards, costs, expenses or other amounts (including without limitation any attorney fees, expert witness fees or related costs) arising out of or otherwise related to a breach of any of the representations and warranties of such Member as set forth in this Section 3.20.
(c) Such Member shall not transfer, sell, or offer to sell such Member’s Units without compliance with the conditions and provisions of this Agreement;
(d) If such Member assigns all or any part of such Member’s Units, then until such time as one or more assignees thereof are admitted to the Company as a Substituted Member with respect to the entire Interest so assigned, the matters to which any holder thereof would covenant and agree if such holder were to execute this Agreement as a Member shall be and remain true;
(e) Such Member shall notify the Company immediately if any representations or warranties made herein or in any Subscription Agreement should be or become untrue; and
(f) Such Member shall not take any action that would have the effect of causing the Company (i) to be treated as a publicly traded partnership for purposes of Section 7704(b) of the Code or (ii) otherwise to be treated as a corporation for federal income tax purposes.
ARTICLE
IV.
MANAGEMENT OF COMPANY
4.1 Board of Managers. The governing body of the Company shall be the Board of Managers, which shall have the power to control the management and policies of the Company. The maximum number of Managers shall initially be set at five (5), and may be increased or decreased by action of the Board of Managers provided that at no time shall the number of Managers be set at less than three (3) or more than ten (10). The Managers shall be set forth in Schedule A hereto or in the official records of the Company. The Managers shall hold office until their successors are approved and elected, unless they are sooner removed pursuant to Section 4.4, or sooner resign pursuant to Section 4.3 or sooner are incapacitated pursuant to Section 4.5, as the case may be. Managers may succeed themselves in office. No reduction in the number of Managers shall have the effect of removing any Manager from office unless specially removed pursuant to Section 4.4 at the time of such decrease. Subject to the requirements of the Investment Company Act, the Board of Managers may designate successors to fill vacancies created by an authorized increase in the number of Managers, the resignation of a Manager pursuant to Section 4.3, the removal of a member of the Board of Managers pursuant to Section 4.4 or the incapacity of a Manager pursuant to Section 4.5. In the event that no Managers remain, the Management Company shall continue the business of the Company and shall perform all duties of the Managers under this Agreement and shall as soon as practicable call a special meeting of Members for the purpose of approving and electing Managers. When Managers are subject to election by Members, Managers are elected by a plurality of the Units voting at the meeting. Managers may, but need not be, admitted to the Company as Members to act in their capacity as Managers.
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4.2 RESERVED.
4.3 Resignation by a Manager. A Manager may voluntarily resign from the Board of Managers upon the giving of notice thereof to the Company, such resignation to take effect upon receipt of such notice by the Company or such later date as set forth in such notice.
4.4 Removal of a Manager; Designation of a Successor Manager.
(a) Any Manager may be removed either: (i) for Cause by the action of at least two-thirds of the remaining Managers; (ii) by failure to be re-elected by the Members at a meeting of Members duly called by the Managers for such purpose; or (iii) for Cause by the affirmative vote of a Supermajority of Members. In addition to the foregoing, a Manager who is not a Disinterested Manager may be removed by a majority of the remaining Managers in the event such Manager is no longer an employee or officer of the Management Company or an affiliate thereof. The removal of a Manager shall in no way derogate from any rights or powers of such Manager, or the exercise thereof, or the validity of any actions taken pursuant thereto, prior to the date of such removal.
(b) The remaining Managers shall designate a successor Manager to fill any vacancy existing in the number of Managers fixed pursuant to Section 4.1 resulting from removal of a Manager, provided, however, that in the case of a Disinterested Manager, only the remaining Disinterested Managers may designate a successor Disinterested Manager. Any such successor Manager shall hold office until his or her successor has been approved and duly elected.
(c) Any removal of a Manager shall not affect any rights or liabilities of the removed Manager that matured prior to such removal.
4.5 Incapacity of a Manager.
(a) In the event of the Incapacity of a Manager, the business of the Company shall be continued by the remaining Managers. The remaining Managers shall, within 90 days, call a meeting of the Board of Managers for the purpose of designating a successor Manager. Any such successor Manager shall hold such office until his or her successor has been approved and elected by the Members. The Managers shall make such amendments to the certificate of formation and execute and file for recordation such amendments or other documents or instruments as are necessary and required by the Act or this Agreement to reflect the fact that such Incapacitated Manager has ceased to be a Manager and the appointment of such successor Manager.
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(b) In the event of the Incapacity of all Managers, an Appropriate Officer shall as promptly as practicable convene a meeting of Members for the purpose of electing new Managers nominated by the Management Company. Upon the Incapacity of a Manager, the Manager shall immediately cease to be a Manager.
(c) Any such termination of a Manager shall not affect any rights or liabilities of the Incapacitated Manager that matured prior to such Incapacity.
4.6 Continuation. In the event of the withdrawal, removal, Incapacity or retirement of a Manager, the Company shall not be dissolved and the business of the Company shall be continued by the remaining Managers.
4.7 Board of Managers Powers. Subject to the terms hereof, the Board of Managers shall have full and complete discretion in the management and control of the affairs of the Company, shall make all decisions affecting Company affairs and shall have all of the rights, powers and obligations of a managing member of a limited liability company under the Act and otherwise as provided by law. The Board of Managers shall provide overall guidance and supervision with respect to the operations of the Company, shall perform all duties imposed on the directors of registered investment companies by the Investment Company Act, and shall monitor the activities of the Appropriate Officers, the Management Company, the Special Member and any administrator to the Company and distributor of the Company’s securities. Except as otherwise expressly provided in this Agreement, the Board of Managers is hereby granted the right, power and authority to do on behalf of the Company all things which, in its sole judgment, are necessary or appropriate to manage the Company’s affairs and fulfill the purposes of the Company. Any determination as to what is in the interests of the Company made by the Managers in good faith shall be conclusive. In construing the provisions of this Agreement, the presumption shall be in the favor of a grant of power to the Managers. The powers of the Managers include, by way of illustration and not by way of limitation, the power and authority from time to time to do the following:
(a) invest the assets of the Company in such investments as are consistent with the Company’s purpose, including, without limitation, investing all or substantially all of the Company’s assets in the Offshore Fund, which in turn will invest all or substantially all of its assets in the Master Fund;
(b) incur all expenses permitted by this Agreement;
(c) to the extent that funds are available, cause to be paid all expenses, debts and obligations of the Company;
(d) appoint and dismiss (i) such Persons to serve as officers of the Company (“Appropriate Officers”) and (ii) and the Management Company to serve as management company, in each case with such powers and authority as may be provided to such Persons by the Board of Managers or by this Agreement;
(e) employ and dismiss from employment such agents, employees, managers, advisers, accountants, attorneys, consultants and other Persons necessary or appropriate to carry out the business and affairs of the Company, whether or not any such Persons so employed are affiliated persons of any Manager, and to pay such compensation to such Persons as is competitive with the compensation paid to unaffiliated Persons in the area for similar services;
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(f) subject to the indemnification provisions in this Agreement and the provisions of the Tax Matters Partner in this Agreement and under applicable law, pay, extend, renew, modify, adjust, submit to arbitration, prosecute, defend or settle, upon such terms it deems sufficient, any obligation, suit, liability, cause of action or claim, including tax audits, either in favor of or against the Company;
(g) enter into any placement agent agreements, and escrow agreements, with respect to the sale of Units; borrow money and issue multiple classes of senior indebtedness or a single class of interests senior to the Units to the extent permitted by the Investment Company Act and repay, in whole or in part, any such borrowing or indebtedness and repurchase or retire, in whole or in part, any such Interests senior to the Units; and in connection with such loans or senior instruments to mortgage, pledge, assign or otherwise encumber any or all properties or assets owned by the Company, including any income therefrom, to secure such borrowing or provide repayment thereof;
(h) establish and maintain accounts with financial institutions, including federal or state banks, brokerage firms, trust companies, savings and loan institutions or money market funds;
(i) make temporary investments of Company capital in short-term investments;
(j) establish valuation principles and periodically apply such principles to the Company’s investment portfolio;
(k) to the extent permitted by the Investment Company Act, designate and appoint one or more agents for the Company who shall have such authority as may be conferred upon them by the Board of Managers and who may perform any of the duties of, and exercise any of the powers and authority conferred upon, the Board of Managers hereunder including, but not limited to, designation of one or more agents as authorized signatories on any bank accounts maintained by the Company;
(l) prosecute, protect, defend, or cause to be protected and defended, or abandon, any patents, patent rights, copyrights, trade names, trademarks and service marks, and any applications with respect thereto, that may be held by the Company;
(m) take all reasonable and necessary actions to protect the secrecy of and the proprietary rights with respect to any know-how, trade secrets, secret processes or other proprietary information and to prosecute and defend all rights of the Company in connection therewith;
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(n) subject to the other provisions of this Agreement, to enter into, make and perform such contracts, agreements, and other undertakings, and to do such other acts, as it may deem necessary or advisable for, or as may be incidental to, the conduct of the business contemplated by this Agreement, including, without in any manner limiting the generality of the foregoing, contracts, agreements, undertakings, and transactions with any Member, Manager, Appropriate Officer, Special Member or Management Company or with any other person, firm, or corporation having any business, financial, or other relationship with any Member, Manager, Appropriate Officer, Special Member or Management Company, provided, however, such transactions with such Persons and entities (i) shall only be entered into to the extent permitted under the Investment Company Act and (ii) shall be on terms no less favorable to the Company than are generally afforded to unrelated third parties in comparable transactions;
(o) purchase, rent or lease equipment for Company purposes;
(p) purchase and maintain, at the Company’s expense, liability and other insurance to protect the Company’s assets from third party claims; and cause the Company to purchase or bear the cost of any insurance covering any potential liabilities of the Members, Managers, Appropriate Officers, Special Member, Management Company or agents of the Company, or officers, employees, directors, members or partners of the Management Company or any agent of the Company;
(q) cause to be paid any and all taxes, charges and assessments that may be levied, assessed or imposed upon any of the assets of the Company;
(r) make or cause to be made any election on behalf of the Company under the Code and other tax laws and supervise the preparation and filing of all tax and information returns that the Company may be required to file;
(s) take any action that may be necessary or appropriate for the continuation of the Company’s valid existence as a limited liability company under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Members or to enable the Company to conduct the business in which it is engaged;
(t) admit Members to the Company in accordance with Section 7.1; admit an assignee of a Member’s Interest to be a Substituted Member in the Company, pursuant to and subject to the terms of Section 11.5, without the consent of any Member; admit additional Persons as members by creating and issuing Units or other equity interests from time to time with terms of admission or issuance providing for the creation of different classes, groups or series of membership interests having different rights, powers and duties, which rights, powers and duties may be senior, pari passu or junior to the rights, powers and duties of the Units, as determined by the Board of Managers without the consent of Members;
(u) value the assets of the Company from time to time pursuant to and consistent with the policies of the Company with respect thereto as in effect from time to time;
(v) borrow money or otherwise incur indebtedness to fund loans and other investments subject to the provisions of applicable law, including the Investment Company Act and the Agreement; each Member expressly agrees that any such borrowing may be secured by the assets of the Company and that its Capital Account may be pledged by the Company to secure any such borrowing indebtedness
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(w) delegate all or any portion of its rights, powers and authority to any committee or subset of the Board of Managers, or to any Management Company, Special Member, Appropriate Officer or agent of the Company or of any such Person, subject to the control and supervision of the Managers; and
(x) perform all normal business functions, and otherwise operate and manage the business and affairs of the Company, in accordance with and as limited by this Agreement.
4.8 Annual and other Regular Meetings of the Board of Managers. An annual meeting of the Board of Managers shall be held without notice other than this provision. The Board of Managers may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of the annual meeting and any additional regular meetings without notice other than such resolution.
4.9 Special Meetings of the Board of Managers. Special meetings of the Board of Managers may be called by an Appropriate Officer or the Chairman of the Board of Managers, or, if no such Chairman exists, at the request of any two Managers. The person or persons authorized to call special meetings of the Board of Managers may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Managers called by them.
4.10 Notice of Meetings of the Board of Managers. Written notice of any meeting of the Board of Managers shall be given as follows:
(a) By mail to each Manager at the Manager’s mailing address at least five Business Days prior to the meeting; or
(b) By personal delivery, e-mail or facsimile transmission at least three Business Days prior to the meeting to each Manager.
If mailed by post, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid. If notice be given by e-mail or facsimile transmission such notice shall be deemed to be delivered when the e-mail or facsimile transmission is transmitted by the sender.
(c) Any Manager may waive notice of any meeting. The attendance of a Manager at any meeting shall constitute a waiver of notice of such meeting, except where a Manager attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Managers need be specified in the notice or waiver of notice of such meeting.
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4.11 Quorum for Board of Managers Meetings. A majority of the number of Managers shall constitute a quorum for the transaction of business at any meeting of the Board of Managers, but if less than such majority is present at a meeting, a majority of the Managers present may adjourn the meeting from time to time without further notice.
4.12 Manner of Acting for Board of Managers. Except as otherwise required by the Act, the Investment Company Act or this Agreement the act of the majority of the Managers present at a meeting at which a quorum is present shall be the act of the Board of Managers. Each Manager shall be entitled to one vote upon all matters submitted to the Board of Managers.
4.13 Written Consent by Board of Managers. Unless otherwise required by the Investment Company Act, any action required or permitted to be taken at any meeting of the Board of Managers or by a committee thereof may be taken without a meeting, without prior notice and without a vote if the members of the Board of Managers or such committee that would be required to approve such action at a meeting consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Managers or such committee.
4.14 Participation by Electronic Means by Board of Managers. Any Manager may participate in a meeting of the Board of Managers or any committee thereof in person or by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear and speak to each other at the same time. Except for purposes of the Investment Company Act, such participation shall constitute presence in person at the meeting.
4.15 Committees of Managers. By resolution adopted by the Board of Managers, the Board of Managers may designate two or more Managers to constitute a committee, any of which shall have such authority in the management of the Company as the Board of Managers shall designate.
4.16 Manager Presumption of Assent. A Manager of the Company who is present at a meeting of the Board of Managers at which action on any matter taken shall be presumed to have assented to the action taken unless a dissent shall be entered in the minutes of the meeting or unless the Manager files a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Company immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Manager who voted in favor of such action.
4.17 Manager Power to Bind Company. Unless the Board of Managers consists of one Manager, no Manager (acting in his capacity as such) shall have any authority to bind the Company to any third party with respect to any matter except pursuant to a resolution expressly authorizing such action which resolution is duly adopted by the Board of Managers by the affirmative vote required for such matter pursuant to the terms of this Agreement.
4.18 Liability of the Managers. No Manager shall be: (i) personally liable for the debts, obligations or liabilities of the Company, including any such debts, obligations or liabilities arising under a judgment decree or order of a court; (ii) obligated to cure any deficit in any Capital Account; (iii) required to return all or any portion of any Capital Contribution; or (iv) required to lend any funds to the Company.
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4.19 Reliance by Third Parties. Persons dealing with the Company are entitled to rely conclusively upon the power and authority of the Board of Managers, the Appropriate Officers and the Management Company of the Company herein set forth.
4.20 Appointment of Auditors. Subject to the approval or ratification of the Members and the Disinterested Managers, if and to the extent required under the Investment Company Act, the Board of Managers, in the name and on behalf of the Company, is authorized to appoint independent certified public accountants for the Company.
4.21 Contracts with Affiliates. The Board of Managers may, on behalf of the Company subject to approval by a majority of the Managers who do not have an interest in the contract and a majority of the Disinterested Managers and in compliance with the Investment Company Act, enter into contracts for goods or services with any affiliate of a Manager, Member, Appropriate Officer, Special Member, Management Company or any other person, provided that the charges for such goods or services do not exceed those charged by unaffiliated Persons in the area for similar goods and services.
4.22 Obligations of the Managers. The Managers shall devote such time and effort to the Company business as, in their judgment, may be necessary or appropriate to oversee the affairs of the Company.
4.23 Other Business of Managers. Any Manager and any affiliate of any Manager may engage in or possess any interest in other business ventures of any kind, nature or description, independently or with others, whether such ventures are competitive with the Company or otherwise. Neither the Company nor any Member shall have any rights or obligations by virtue of this Agreement or the company relationship created hereby in or to such independent ventures or the income or profits or losses derived therefrom, and the pursuit of such ventures, even if competitive with the business of the Company, shall not be deemed wrongful or improper. Neither the Managers nor any affiliate of any Manager shall be obligated to present any investment opportunity to the Company.
4.24 Limitations on Board of Managers and Appropriate Officers.
(a) Notwithstanding anything expressed or implied to the contrary in this Agreement (other than Article XI), the Board of Managers and the Appropriate Officers shall not authorize or otherwise cause or allow the Company to purchase all or any portion of any Member’s Interest (or any attributes thereof).
(b) Notwithstanding anything expressed or implied to the contrary in this Agreement, the Board of Managers and the Appropriate Officers shall not (i) participate in the establishment of a secondary market (or the substantial equivalent thereof) with respect to the Interests for purposes of Treasury Regulation ss.1.7704-1(d)(1) or (ii) take any action that would have the effect of causing the Company (A) to be treated as a publicly traded partnership for purposes of Section 7704(b) of the Code or (B) otherwise to be treated as a corporation for federal income tax purposes.
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ARTICLE
V.
MANAGEMENT COMPANY
5.1 The Management Company. The Board of Managers shall, on behalf of the Company, retain the Management Company to provide various management, administrative and other services to the Company pursuant to the terms of the Management Agreement. The Members acknowledge and agree that, so long as the Management Agreement (or a successor agreement) is in effect, the Board of Managers shall delegate the authority to make such management, administrative and other decisions to the Management Company. Notwithstanding anything herein to the contrary, so long as the Management Agreement (or a successor agreement) is in effect, the Board of Managers shall have no responsibility for making any management or administrative decisions on behalf of the Company that have been so delegated to the Management Company, but shall be responsible for monitoring the performance of the Management Company in accordance with the Management Agreement.
ARTICLE
VI.
OFFICERS
6.1 Appropriate Officers. The day-to-day management and operation of the Company and its business shall be the responsibility of the Appropriate Officers of the Company, subject to the supervision and control of the Board of Managers. The Appropriate Officers shall, subject to the supervision and control of the Board of Managers, exercise all powers necessary and convenient for the purposes of the Company, on behalf and in the name of the Company. Notwithstanding anything to the contrary contained herein, the acts of an Appropriate Officer in carrying on the business of the Company as authorized herein shall bind the Company.
The Appropriate Officers of the Company shall be chosen by the Board of Managers and shall include a President, a Secretary and a Treasurer. The Board of Managers may also choose a Chairman of the Board of Managers (who must be a Manager) and the following additional Appropriate Officers: a Chief Executive Officer, a Chief Financial Officer, a Chief Operating Officer, and one or more Vice Presidents (and, in the case of each Vice President, with such descriptive title, if any, as the Board of Managers shall determine), Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law. The officers of the Company need not be Members of the Company nor, except in the case of the Chairman of the Board, need such officers be Managers of the Company.
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6.2 Election of Officers. The Board of Managers shall elect the officers of the Company who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Managers; and all officers of the Company shall hold office until their successors are chosen and qualified, or until their earlier death, resignation or removal. Any officer elected by the Board of Managers may be removed at any time, with or without Cause, by the affirmative vote of the Board of Managers or upon the Incapacity of such officer. Any vacancy occurring in any office of the Company shall be filled by the Board of Managers. The salaries of all officers of the Company shall be fixed by the Board of Managers. The Board of Managers may delegate such duties to any such officers or other employees, agents and consultants of the Company as the Board of Managers deems appropriate, including the power, acting individually or jointly, to represent and bind the Company in all matters, in accordance with the scope of their respective duties.
6.3 Voting Securities Owned by the Company. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Company may be executed in the name of and on behalf of the Company by the President or any Vice President or any other officer authorized to do so by the Board of Managers and any such officer may, in the name of and on behalf of the Company, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any entity in which the Company may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Company might have exercised and possessed if present. The Board of Managers may, by resolution, from time to time confer like powers upon any other person or persons.
6.4 Chairman of the Board of Managers. The Chairman of the Board of Managers, if there be one, shall preside at all meetings of the Members and of the Board of Managers. The Chairman of the Board of Managers shall be selected from time to time by the Board of Managers. The Chairman of the Board of Managers shall also perform such other duties and may exercise such other powers as may from time to time be assigned by this Agreement or by the Board of Managers.
6.5 President. The President shall, subject to the control of the Board of Managers and, if there be one, the Chairman of the Board of Managers, have general supervision of the business of the Company and shall see that all orders and resolutions of the Board of Managers are carried into effect. The President or, when authorized by this Agreement, the Board of Managers or the President, the other officers of the Company shall execute all bonds, mortgages, contracts, documents and other instruments of the Company. In the absence or disability of the Chairman of the Board of Managers, or if there be none, the President, shall preside at all meetings of the Members and the Board of Managers. Unless the Board of Managers shall otherwise designate, the President shall be the Chief Executive Officer of the Company. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by this Agreement or by the Board of Managers.
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6.6 Vice Presidents. At the request of the President or in the President’s absence or in the event of the President’s inability or refusal to act (and if there be no Chairman of the Board of Managers), the Vice President, or the Vice Presidents if there is more than one (in the order designated by the Board of Managers), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers and duties as the Board of Managers, the Chairman of the Board of Managers or the President from time to time may prescribe. The Vice President shall act under the supervision of the President. If there be no Chairman of the Board of Managers and no Vice President, the Board of Managers shall designate the officer of the Company who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
6.7 Secretary. The Secretary shall attend all meetings of the Board of Managers and all meetings of Members and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Managers when required. The Secretary shall give, or cause to be given, notice of all meetings of the Members and special meetings of the Board of Managers, and shall perform such other duties as may be prescribed by the Board of Managers, the Chairman of the Board of Managers or the President, under whose supervision the Secretary shall act. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the Members and special meetings of the Board of Managers, and if there be no Assistant Secretary, then either the Board of Managers or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Company, if any, and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Secretary may give general authority to any other officer to affix the seal of the Company and to attest to the affixing by such officer’s signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.
6.8 Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Board of Managers. The Treasurer shall disburse the funds of the Company as may be ordered by the Board of Managers, taking proper vouchers for such disbursements, and shall render to the President and the Board of Managers, at its regular meetings, or when the Board of Managers so requires, an account of all transactions as Treasurer and of the financial condition of the Company. If required by the Board of Managers, the Treasurer shall give the Company a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Managers for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Company, in case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer’s possession or under the Treasurer’s control belonging to the Company.
6.9 Assistant Secretaries. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Managers, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary’s disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.
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6.10 Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Managers, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer’s disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Managers, an Assistant Treasurer shall give the Company a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Managers for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Company, in case of the Assistant Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer’s possession or under the Assistant Treasurer’s control belonging to the Company.
6.11 Other Officers. Such other officers as the Board of Managers may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Managers, the Chairman of the Board of Managers or the President. The Board of Managers may delegate to any other officer of the Company the power to choose such other officers and to prescribe their respective duties and powers.
ARTICLE
VII.
CONTRIBUTIONS TO CAPITAL
7.1 Closings and Capital Contributions.
(a) The Company shall have one or more closings (each a “Closing”) at which time Persons may be admitted as Members of the Company pursuant to the terms hereof and existing Members may be offered the opportunity to increase their Capital Contributions. The first Closing (the “Initial Closing”) shall occur on such date as determined by the Managers in their sole discretion and all subsequent Closings (each an “Additional Closing”) shall occur on such date(s) as may be determined by the Managers in their sole discretion (the “Additional Closing Dates”); provided however, that the last Closing shall occur no later than one year after the date of the Initial Closing, which date may be accelerated or extended by the Managers in their sole discretion (the “Final Closing Date”). The books and records of the Company shall be amended following each Closing to reflect the identity of the Members and their respective Capital Contributions.
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(a) Members making an initial Capital Contribution in an Additional Closing may be required, at the Management Company’s sole and absolute discretion, to pay a make-up fee (the “Make-Up Fee”) to the Fund. The amount of such Make-Up Fee will be calculated by applying an annualized rate of 8% per annum to the amount that such Member would have contributed to the Company if such Member had participated in the Initial Closing and made Capital Contributions at such times and in proportionate amounts as existing Members that participated in the Initial Closing (i.e., the percentage of the Member’s capital commitment at the Additional Closing would be the same percentage as the amount of Capital Contributions made by existing Members at the Initial Closing relative to such existing Members’ capital commitments at the Initial Closing). The 8% Make-Up Fee rate will be applied over the period of time since such Capital Contributions were made by such existing Members. Such Make-Up Fee payment shall not be treated as Capital Contributions and shall not reduce the amount of the contributing Member’s Capital Contribution.
(b) Capital Contributions by the Members shall be made in dollars by wire transfer of federal funds to an account or accounts of the Company as specified by the Company or in such other manner as the Company may direct. No Member shall be entitled to any interest or compensation by reason of his, her or its Capital Contribution or by reason of being a Member. No Member shall be required to lend any funds to the Company. Subject to the terms and conditions contained herein, the Company may at any time call for contributions to the capital of the Company at such times and in such amounts (not to exceed the amount of each Member’s capital commitment to the Company) as the Management Company determines in its sole discretion, provided that the Company will give each Member at least ten (10) Business Days’ prior written notice (which may be given by e-mail) as to the due date for and amount of each such capital contribution.
(c) Except as expressly set forth in this Agreement, a Member may not make less than the full amount of its Capital Contribution called by the Management Company pursuant to Section 7.1(c). In the event any Member fails to pay any amount which it is required to pay to the Company on or before the date when such amount is due and payable, a written notice of default shall be given to such Member by the Company. If the full amount of the required contribution to the capital of the Company is not received by the Company within fifteen (15) days after the giving of such notice of default, such Member shall be deemed to be in default hereunder (a “Defaulting Member”) and the Company will, to the extent allocable and permitted under applicable law, allocate expenses, penalties, costs, liabilities or obligations incurred by the Company, as a result of the Member defaulting, to the Defaulting Member pursuant to Section 8.10. In addition, the Company (or the Management Company as its delegate) may, at its discretion, take other actions with respect to a Defaulting Member, including, without limitation, (i) borrowing funds to cover defaulted Capital Contribution at a rate established with a third-party lender or using the Company’s internal capital at a rate of 8% per annum, and causing the Defaulting Member to bear such interest and other costs associated with such borrowing, (ii) excluding a Defaulting Member from future capital calls, and/or (iii) any other actions as may be available under applicable law.
(d) Members shall be required to pay a commitment fee to the placement agent in accordance with the terms of such Member’s Subscription Agreement. Any commitment fee amounts are in addition to the commitment made and are due upon acceptance by the Company.
7.2 Return of Capital. Except as expressly provided in the Agreement, no Member shall be entitled to withdraw any part of its Capital Contribution, to receive interest or other earnings on its Capital Contributions, or to receive any distributions from the Company, nor shall any Member have priority over any other Member either as to the return of such Member’s capital or as to profits, losses or distributions.
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7.3 Recycling.
(a) To the extent the Master Fund is authorized to retain or recall for reinvestment proceeds received by the Master Fund from the Underlying Funds, the Company may retain or recall such amounts as the Management Company, in its sole discretion, deems necessary or desirable to facilitate such reinvestment (which may include the payment of fees or expenses of the Master Fund, as well as investment in Underlying Funds).
(b) Amounts retained pursuant to Section 7.3(a) shall not be included in the calculation of a Member’s Capital Contribution. Separate from and in addition to any amounts retained or recalled for reinvestment by the Company, in the event that amounts are distributed to the Members as a result of funds being returned to the Master Fund by an Underlying Fund which are subject to reinvestment in such Underlying Fund, each Member’s unfunded Capital Contribution will be increased by the amount of funds so returned.
7.4 Liability of the Members and the Managers. Except for the obligations hereunder and under the Subscription Agreements, the liability of the Members shall be limited to the maximum extent permitted by the Act. If a Member is required under the Act to return to the Company or pay, for the benefit of creditors of the Company, amounts previously distributed to such Member, the obligation of such Member to return or pay any such amount to the Company shall be the obligation of such Member and not the obligation of the Managers. The liability of the Managers shall be limited to the maximum extent permitted by the Act.
ARTICLE
VIII.
DISTRIBUTIONS, CAPITAL ACCOUNTS AND ALLOCATIONS
8.1 Percentage Interests. There shall be established for each Member on the books of the Company a percentage interest, which shall be determined by (i) dividing the amount of such Member’s Capital Contributions by the sum of the Capital Contributions of all the Members and (ii) multiplying such quotient by 100 (the “Percentage Interest”). The sum of the Percentage Interests shall equal 100. The Percentage Interests of the Members shall be set forth on the books and records of the Company, as adjusted from time to time by the Managers to reflect the Members’ Capital Contributions.
8.2 Distributions.
(a) The Company shall make distributions of available cash (net of reserves that the Managers deem reasonable) or other net investment proceeds to the Members at such times and in such amounts as determined by the Managers in their sole discretion in accordance with the Members’ respective Percentage Interests at the time of such distribution. Subject to Section 13.2 regarding liquidating distributions, such distributions will be paid, to the Members in the following order of priority:
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(i) First, to the Members (including the Special Member) pro rata in accordance with their respective Capital Contributions until aggregate distributions to each Member under this Section 8.2(a)(i) equal 125% of its Capital Contributions;
(ii) Thereafter, (A) ninety-five percent (95%) to the Members (including the Special Member) pro rata in accordance with their respective Capital Contributions, and (B) five percent (5%) to the Special Member (the “Carried Interest”); provided, however, that any distribution under this Section 8.2(a)(ii)(B) payable to the Special Member prior to the fourth anniversary of the Final Closing Date shall be retained by the Company until such date, at which time, notwithstanding anything in this Agreement to the contrary, such retained distributions shall be paid one hundred percent (100%) to the Special Member.
(b) Distributions pursuant to this Section 8.2 shall take the form of cash only.
8.3 Valuation. The value of any asset of the Company shall be determined in good faith in the sole discretion of the Board of Managers based upon all available relevant information. The Board of Managers shall be entitled to rely on any valuations provided to it by the Underlying Funds and/or the Management Company, but shall not be bound by such valuations.
8.4 Capital Accounts. A capital account (“Capital Account”) shall be established and maintained on the Company’s books with respect to each Member, in accordance with the provisions of Treasury Regulations Section 1.704-1(b), including the following:
(a) Each Member’s Capital Account shall be increased by: (i) the amount of that Member’s Capital Contribution; (ii) the amount of income or gain allocated to that Member; and (iii) any other increases required by the Treasury Regulations.
(b) Each Member’s Capital Account shall be decreased by: (i) the amount of loss or deduction allocated to that Member; (ii) all cash amounts distributed to that Member pursuant to this Agreement, other than any amount required to be treated as a payment for property or services for federal income tax purposes; (iii) the fair market value of any property distributed in kind to that Member (net of any liabilities secured by such distributed property that such Member is considered to assume or take subject to for federal income tax purposes); and (iv) any other decreases required by the Treasury Regulations.
(c) The Company may, at the discretion of the Board of Managers, revalue Company property as permitted under Treasury Regulations Section 1.704-1(b)(2)(iv)(f). In the event of such a revaluation, the Capital Accounts of the Members shall be adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and (g).
(d) All provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with the Code and Treasury Regulations thereunder and shall be interpreted and applied in a manner consistent with such law. The Managers shall make any necessary modifications to this Section 8.4 in the event unanticipated events occur that might otherwise cause this Agreement not to comply with such law or any changes thereto.
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8.5 Negative Capital Accounts. Except as may be required by law, no Member shall be required to reimburse the Company for any negative balance in such Member’s Capital Account.
8.6 Allocations to Capital Accounts.
(a) Subject to other provisions of this Article VIII, for each fiscal year, the Company’s items of income, gain, loss, and deduction shall be allocated among the Members in such a manner that, immediately after giving effect to such allocations, each Member’s Target Capital Account balance, taking into account all contributions by such Member and distributions to such Member, equals, as nearly as possible, the amount of cash, if any, that would be distributed to such Member if (i) all the Company’s assets were sold for cash equal to their respective book values (as determined under Treasury Regulations Section 1.704-(b)(2)(iv)), reduced, but not below zero, by the amount of nonrecourse debt to which such assets are subject, (ii) all the Company’s liabilities (other than nonrecourse liabilities) were paid in full, and (iii) all the remaining cash were distributed to the Members under Section 8.2(a) (disregarding the proviso in Section 8.2(a)(ii)(B)).
(b) Nonrecourse deductions (within the meaning of Treasury Regulations Section 1.704-2(b)(1)), tax credits, and other items the allocation of which cannot have economic effect shall be allocated to the Members in accordance with their respective Capital Contributions.
(c) Regulatory Allocations. The provisions of the Treasury Regulations under Code Section 704(b) relating to qualified income offset, minimum gain chargeback, minimum gain chargeback with respect to partner nonrecourse debt, allocations of nonrecourse deductions, allocations with respect to partner nonrecourse debt, limitations on allocations of losses to cause or increase a Capital Account deficit, and forfeiture allocations with respect to substantially nonvested partnership interests are hereby incorporated by reference and shall be applied to the allocation of income, gain, loss, or deduction in the manner provided in the Treasury Regulations. The Board of Managers may, in its discretion, adjust the subsequent allocations of income, gain, losses, or deduction to prevent distortion of the economic arrangement of the Members, as otherwise described in this Agreement, due to allocations resulting from the preceding sentence.
(d) Transfer of or Change in Membership Interests. The Managers are authorized to adopt any convention or combination of conventions likely to be upheld for federal income tax purposes regarding the allocation and/or special allocation of items of Company income, gain, loss, deduction and expense with respect to a newly issued Membership Interest, a transferred Membership Interest and a redeemed Membership Interest. Upon admission as a Substituted Member, a transferee of a Membership Interest shall succeed to the Capital Account of the transferor Member to the extent it relates to the transferred Membership Interest.
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(e) Certain Expenses. Syndication and organization expenses, as defined in Section 709 of the Code (and, to the extent necessary as determined in the sole discretion of the Managers, any other items) shall be allocated to the Capital Accounts of the Members so that, as nearly as possible, the cumulative amount of such syndication and organization expenses (and other items, if relevant) allocated with respect to each dollar of Capital Contribution for each Member is the same amount.
8.7 Tax Allocations.
(a) Items of Company income, gain, loss, deduction and expense shall be allocated, for federal, state and local income tax purposes, among the Members in the same manner as the Net Profit (and items thereof) and Net Loss (and items thereof) of which such items are components were allocated pursuant to Section 8.6; provided, however, that tax allocations shall be made in accordance with Section 704(c) of the Code and the Treasury Regulations promulgated thereunder, to the extent so required thereby.
(b) Allocations pursuant to this Section 8.7 are solely for federal, state and local income tax purposes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of Net Profit (and items thereof) or Net Loss (and items thereof).
(c) The Members are aware of the tax consequences of the allocations made by this Section 8.7 and hereby agree to be bound by the provisions of this Section 8.7 in reporting their shares of items of Company income, gain, loss, deduction and expense.
8.8 Determinations by the Managers. All matters concerning the computation of Capital Accounts, the allocation of Net Profit (and items thereof) and Net Loss (and items thereof), the allocation of items of Company income, gain, loss, deduction and expense for tax purposes and the adoption of any accounting procedures not expressly provided for by the terms of this Agreement shall be determined by the Managers in their sole discretion. Such determination shall be final and conclusive as to all the Members. Notwithstanding anything express or implied to the contrary in this Agreement, in the event the Managers shall determine, in their sole discretion, that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed in order to effectuate the intended economic sharing arrangement of the Members as reflected in Article VIII, the Managers may make such modification without the approval of Members.
8.9 Tax Matters Partner. The Special Member shall act as “tax matters partner” (the “Tax Matters Partner”) of the Company within the meaning of Section 6231(a)(7) of the Code and in any similar capacity under applicable state or local tax law. All expenses incurred by the Tax Matters Partner shall be paid or reimbursed by the Company. A Member shall promptly notify the Tax Matters Partner of any intention to: (i) file a notice of inconsistent treatment under Section 6222(b) of the Code; (ii) file a request for administrative adjustment of Company items; (iii) file a petition with respect to any Company item or other tax matters involving the Company; or (iv) enter into a settlement agreement with the Secretary of the Treasury with respect to any Company items.
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8.10 Allocation of Expenses/Defaulting Members. The Company will, to the extent allocable and permitted under applicable law, and as determined by the Managers, allocate expenses incurred by the Company, as a result of Members defaulting in their commitments, to those Members that caused the Company to incur such expenses. Pursuant to Section 7.1(d), the Company may also allocate any interest and other expenses incurred as a result of the Company borrowing funds to cover defaults by Members, to those Members that have defaulted on their commitments to the Company.
ARTICLE
IX.
COMPANY EXPENSES
9.1 Company Expenses.
(a) Except as set forth herein or in another agreement between the Company and the Management Company, the Management Company shall bear all of its costs incurred in providing services to the Company.
(b) The Company shall bear: all management fees payable to the Management Company as well as the Carried Interest; its pro rata portion of all of the Master Fund’s fees and expenses (which will be borne through the Company’s investment in the Master Fund) including its pro rata portion of the advisory fee payable by the Master Fund to the Management Company in its capacity as investment adviser to the Master Fund and expenses (including financing, due diligence, travel and other costs) related to the acquisition, holding, monitoring and disposition of the Underlying Funds; accounting, audit and tax preparation fees and expenses; administrative expenses and fees; legal fees and expenses, custody and escrow fees and expenses; the costs of any errors and omissions/directors and officers liability insurance or any fidelity bond; all costs and charges for equipment or services used in communicating information regarding the Company’s transactions among the Management Company and any custodian or other agent engaged by the Company; interest expenses (including, without limitation, non-investment related interest expenses); any extraordinary expenses; and such other expenses as may be approved from time to time by the Board. The Company will also indirectly bear, as a result of its investment in the Master Fund, its pro rata portion of the management fees of the Underlying Funds, as well as carried interest allocations in such Underlying Funds, investment-related expenses and other expenses, including, but not limited to, non-investment related interest expense and fees and disbursements of attorneys and accountants engaged on behalf of the Underlying Fund. Drawdowns from Members or distribution from Underlying Funds may be used to fulfill obligations (including, but not limited to, the payment of any interest due) under any credit facility.
(c) The Company shall bear its organizational expenses, and expenses relating to the offering and sale of Units; provided that to the extent such organizational and offering expenses when aggregated with those of the Master Fund, the Offshore Fund and Excelsior Private Markets Fund III (TI), LLC exceed $500,000, the excess amount over $500,000 shall be borne by the Management Company.
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ARTICLE
X.
INDEMNIFICATION
10.1 Indemnification.
(a) None of the Managers, the Special Member, the Management Company or any of their respective Affiliates, principals, members, shareholders, partners, officers, directors, employees, agents and representatives (each an “Indemnified Person”) shall have any liability, responsibility or accountability in damages or otherwise to any Member or the Company for, and the Company agrees, to the fullest extent permitted by law, to indemnify, pay, protect and hold harmless each Indemnified Person from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, proceedings, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, all reasonable costs and expenses of attorneys, defense, appeal and settlement of any and all suits, actions or proceedings instituted or threatened against the Indemnified Persons or the Company) and all costs of investigation in connection therewith which may be imposed on, incurred by, or asserted against the Indemnified Persons or the Company in any way relating to or arising out of, or alleged to relate to or arise out of, any action or inaction on the part of the Company, on the part of the Indemnified Persons when acting on behalf of the Company or otherwise in connection with the business or affairs of the Company, or on the part of any agents when acting on behalf of the Company (collectively, the “Indemnified Liabilities”); provided that the Company shall not be liable to any Indemnified Person for any portion of any Indemnified Liabilities which results from such Indemnified Person’s willful misconduct, bad faith or gross negligence in the performance of his, her or its duties or by reason of his, her or its reckless disregard of his, her or its obligations and duties. The indemnification rights provided for in this Section 10.1(a) shall survive the termination of the Company or this Agreement. Any indemnification rights provided for in this Section 10.1(a) shall be retained by any removed, resigned or withdrawn Manager, Special Member or Management Company or agent and its constituent Indemnified Persons. Any indemnification rights provided for in this Section 10.1(a) shall also be retained by any Person who has acted in the capacity of officer, director, partner, employee, agent, stockholder or Affiliate of an Indemnified Person after such Persons shall have ceased to hold such positions.
(b) The right of any Indemnified Person to the indemnification provided herein shall be cumulative of, and in addition to, any and all rights to which such Indemnified Person may otherwise be entitled by contract or as a matter of law or equity and shall extend to such Indemnified Person’s successors, assigns and legal representatives.
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(c) The provision of advances from Company funds to an Indemnified Person for legal expenses and other costs incurred as a result of any legal action or proceeding is permissible if (i) such suit, action or proceeding relates to or arises out of, or is alleged to relate to or arise out of, any action or inaction on the part of the Indemnified Person in the performance of its duties or provision of its services on behalf of the Company or otherwise in connection with the business or affairs of the Company; and (ii) the Indemnified Person undertakes to repay any funds advanced pursuant to this Section 10.1(c) in any case in which such Indemnified Person would not be entitled to indemnification under Section 10.1(a). If advances are permissible under this Section (c), the Indemnified Person shall furnish the Company with an undertaking as set forth in clause (ii) of this paragraph and shall thereafter have the right to bill the Company for, or otherwise request the Company to pay, at any time and from time to time after such Indemnified Person shall become obligated to make payment therefore, any and all amounts for which such Indemnified Person believes in good faith that such Indemnified Person is entitled to indemnification under Section 10.1(a). The Company shall pay any and all such bills and honor any and all such requests for payment within sixty days after such bill or request is received by the Company, and the Company’s rights to repayment of such amounts shall be secured by the Indemnified Person’s interest in the Company, if any, or by such other security as the Managers may require. In the event that a final judicial (or binding arbitration) determination is made that the Company is not so obligated in respect of any amount paid by it to a particular Indemnified Person, such Indemnified Person will refund such amount within sixty days of such final determination, and in the event that a final determination is made that the Company is so obligated in respect to any amount not paid by the Company to a particular Indemnified Person, the Company will pay such amount to such Indemnified Person within sixty days of such final determination, in either case together with interest (at the lesser of (x) the Applicable Rate and (y) the maximum rate permitted by applicable law) from the date paid by the Company until repaid by the Indemnified Person or the date it was obligated to be paid by the Company until the date actually paid by the Company to the Indemnified Person.
(d) With respect to the liabilities of the Company, all such liabilities:
(1) shall be liabilities of the Company as an entity, and shall be paid or otherwise satisfied from the Company’s assets; and
(2) except to the extent otherwise required by law, shall not in any event be payable in whole or in part by any Member, Manager, the Special Member, or the Management Company or by any director, officer, trustee, employee, agent, shareholder, beneficiary, member or partner of any of them.
The Board of Managers may cause the Company, at the Company’s expense, to purchase insurance to insure the Indemnified Persons against liability hereunder (including liability arising in connection with the operation of the Company), including, without limitation, for a breach or an alleged breach of their responsibilities hereunder.
ARTICLE
XI.
WITHDRAWALS OF MEMBERS; TRANSFERS OF MEMBERSHIP INTERESTS
11.1 Withdrawals of Members.
(a) A Member may not sell, withdraw, assign or transfer its Membership Interest without the prior written consent of the Managers, which the Managers may withhold in their sole discretion.
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(b) The Board of Managers may (but shall not be required to) terminate the Membership Interest of any Member and cause that Member to withdraw from the Company at any time upon at least five Business Days prior written notice upon a determination by the Managers that the continued participation of that Member in the Company might adversely affect the Company by jeopardizing the treatment of the Company as a partnership for federal income tax purposes, or subject the Company to restrictions or other adverse consequences as a result of applicable laws or regulations. In the event that the Board of Managers terminates a Member’s Membership Interest, that Member shall immediately withdraw from the Company and cease to be a Member of the Company. Such withdrawal shall occur automatically upon termination without the necessity of any further act by the Member or any other Person. The date of termination shall be the effective date of withdrawal of the terminated Member.
(c) The Company shall pay to the terminated Member 90% of the amount of the terminated Member’s Capital Account balance (determined in accordance with the next sentence) within 90 days of termination or as soon thereafter as the Company shall have sufficient funds available and shall pay the remainder upon completion of that year’s audit. The amount of the terminated Member’s Capital Account shall be determined not more than three days prior to the date of termination. Such amounts paid to a terminated Member shall not be entitled to interest for any period after the date of termination.
(d) From and after the effective date of withdrawal of a Member, such withdrawn Member shall cease to be a Member of the Company for all purposes and the Membership Interests of a withdrawn Member shall not be included in calculating the Membership Interests of the Members required to take any action under this Agreement.
11.2 Transfers of Membership Interests.
(a) A Member may not transfer, assign, sell, pledge, hypothecate or otherwise dispose of any of the attributes of his, her or its Membership Interest (collectively, a “Transfer”), in whole or in part, to any Person without the prior written consent of the Board of Managers, which consent the Board of Managers may withhold in its sole discretion, and any attempted Transfer of a Membership Interest shall be null and void ab initio unless effected in accordance with this Article XI.
(b) Notwithstanding Section 11.2(a), the Board of Managers will not unreasonably withhold its consent to the Transfer of a Member’s Membership Interest to a family member, trust, or other similar Person or entity for estate planning purposes.
(c) Conditions to Transfers. The Board of Managers may condition its consent to a Transfer under Section 11.2(a) on the Transfer meeting each of the following conditions:
(i) such Transfer, itself or together with any other Transfers, would not result in the Company being treated as a publicly traded partnership within the meaning of Section 7704(b) of the Code (or failing any safe harbor to avoid such treatment under such Code section or the regulations promulgated thereunder) or otherwise being treated as a corporation for federal income tax purposes;
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(ii) such Transfer does not require the registration or qualification of such Interests pursuant to any applicable federal or state securities or “blue sky” laws;
(iii) such Transfer does not result in a violation of the Investment Company Act or other laws ordinarily applicably to such transactions;
(iv) the transferor and purported transferee each shall have represented to the Managers in writing that such Transfer was not effected through a broker-dealer or matching agent that makes a market in Interests or that provides a readily available, regular and ongoing opportunity to Members to sell or exchange their Interests;
(v) the transferor shall reaffirm, and the purported transferee shall affirm, in writing his, her or its agreement to indemnify as described in Section 11.4;
(vi) no facts are known to the Managers that cause the Managers to conclude that such transfer will have a material adverse effect on the Company; and
(vii) the transferee has agreed in writing to become a Member to and subject to all of the terms, obligations and limitations of this Agreement.
11.3 Effect of Transfers. Upon any Transfer approved by the Board of Managers, the transferee of the transferred Membership Interest shall be entitled to receive the distributions and allocations to which the transferring Member would be entitled with respect to such transferred Membership Interest, but shall not be entitled to exercise any of the other rights of a Member with respect to such transferred Membership Interest, including, without limitation, the right to vote, unless and until such transferee is admitted to the Company as a Substituted Member pursuant to Section 11.5.
11.4 Transfer Indemnity. Each Member hereby agrees to indemnify and hold harmless the Company, the Special Member, the Managers, the Management Company and each other Member (and any successor or assign of any of the foregoing) from and against all taxes, costs, claims, damages, liabilities, losses and expenses (including losses, claims, damages, liabilities, costs and expenses of 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 in contravention of the provisions of this Agreement or any misrepresentation made by such Member in connection with any purported Transfer.
11.5 Substituted Members. No transferee of a transferred Membership Interest shall be admitted as a Member (each such transferee, a “Substituted Member”) until each of the following conditions has been satisfied:
(a) the written consent of the Board of Managers, which may be withheld or granted in the sole and absolute discretion of the Board of Managers;
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(b) the execution and delivery to the Company of a counterpart of this Agreement by the Substituted Member or its agent or attorney-in-fact;
(c) receipt by the Company of other written instruments that are in form and substance satisfactory to the Board of Managers (as determined in its sole discretion), including, without limitation, an opinion of counsel regarding the tax or regulatory effects of such admission;
(d) payment by the Substituted Member to the Company of an amount determined by the Board of Managers to be equal to the costs and expenses incurred in connection with such assignment, including, without limitation, costs incurred in preparing and filing such amendments to this Agreement as may be required;
(e) the updating of the books and records of the Company to reflect the Person’s admission as a Substituted Member; and
(f) any other similar information or documentation as the Managers may request.
11.6 Effect of Death, Etc. The death, retirement, withdrawal, expulsion, disability, Incapacity, incompetency, bankruptcy, insolvency or dissolution of a Member, or the occurrence of any other event under the Act that terminates the continued membership of a Member as a member of the Company, shall not cause the Company to be dissolved and its affairs to be wound up so long as the Company has at least one Member at all times. Upon the occurrence of any such event, the business of the Company shall be continued without dissolution. The legal representatives, if any, of a Member shall succeed as assignee to the Member’s Membership Interest upon death, Incapacity, incompetency, bankruptcy, insolvency or dissolution of a Member, but shall not be admitted as a Substituted Member except under the provisions of Section 11.5 of this Agreement and with the written consent of the Board of Managers, which written consent the Board of Managers may withhold in its sole discretion. The Membership Interests held by such legal representative of a Member shall not be included in calculating the Membership Interests of the Members required to take any action under this Agreement.
11.7 Transfers by Special Member. Notwithstanding Section 11.2(a), the Board of Managers will not unreasonably withhold its consent to the Transfer of the Special Member’s Interest, including the assignment of any distributions, to an Affiliate.
ARTICLE
XII.
ACCOUNTING
12.1 Books and Records. In compliance with Section 31 of the Investment Company Act, the books and records of the Company, and a list of the names and residence, business or mailing addresses and Units of all Members, shall be maintained at the principal executive offices of the Company or such other location as the Board of Managers may approve. The Company shall not be required to provide any documentation or other information to Members except that which it is required to provide under the Investment Company Act, the Act or other applicable law. Each Member shall have the right to obtain from the Company from time to time upon reasonable demand for any proper purpose reasonably related to the Member’s interest as a Member of the Company, and upon paying the costs of collection, duplication and mailing, the documents and other information which the Company is required to provide under the Investment Company Act, the Act or other applicable law. Any demand by a Member pursuant to this section shall be in writing and shall state the purpose of such demand. The Company may maintain such other books and records and may provide such financial or other statements as the Managers or the Appropriate Officers in their discretion deem advisable.
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12.2 Annual Reports to Current Members. As soon as practicable after the end of each Fiscal Year or as soon thereafter as practicable, the Company shall have prepared and distributed to the Members, at the expense of the Company, an annual report containing a summary of the year’s activity and such financial statements and schedules as may be required by law or as the Managers may otherwise determine.
12.3 Accounting; Tax Year.
(a) The books and records of the Company shall be kept on the cash basis or the accrual basis, as determined by the Managers in their sole and absolute discretion. The Company shall report its operations for tax purposes on the cash method or the accrual method, as determined by the Managers in their sole and absolute discretion. The taxable year of the Company shall be the calendar year, unless the Managers shall designate another taxable year for the Company that is a permissible taxable year under the Code.
(b) The books and records of the Company shall be audited by the Company’s independent accountants as of the end of each Fiscal Year, commencing with the first partial Fiscal Year, of the Company.
12.4 Filing of Tax Returns. The Appropriate Officers shall prepare and file, or cause the Company’s accountants to prepare and file, a federal information tax return and any required state and local income tax and information returns for each taxable year of the Company. The Managers have sole and absolute discretion as to whether or not to prepare and file (or cause its accountants to prepare and file) composite, group or similar state, local and foreign tax returns on behalf of the Members where and to the extent permissible under applicable law. Each Member hereby agrees to execute any relevant documents (including a power of attorney authorizing such a filing), to furnish any relevant information and otherwise to do anything necessary in order to facilitate any such composite, group or similar filing. Any taxes paid by the Company in connection with any such composite, group or similar filing shall be treated as an advance to the relevant Members (with interest being charged thereon) and shall be recouped by the Company out of any distributions subsequently made to such relevant Members. Such advances may be funded by Company borrowing. Both the deduction for interest payable by the Company with respect to any such borrowing, and the corresponding income from interest received by the Company from the relevant Members, shall be specifically allocated to such Members.
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12.5 Determinations Binding. Any determination made by the Managers with respect to tax filing or accounting matters shall be final and binding upon the Members and their respective legal representatives and the Members agree to file consistently with such determinations of the Managers.
ARTICLE
XIII.
DISSOLUTION AND TERMINATION
13.1 Dissolution. The Company shall be dissolved upon the occurrence of any of the following:
(a) the expiration of the term of the Company, except to the extent extended pursuant to Section 2.6;
(b) the election by the Managers to dissolve the Company prior to the expiration of its term, subject to the extent required by the Investment Company Act and to the consent of the Members;
(c) the sale or other disposition at any one time of all or substantially all of the assets of the Company; and
(d) a decree of dissolution entered against the Company under the Act.
Dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until the assets of the Company have been distributed as provided in Section 13.2 and the certificate of formation of the Company has been canceled.
13.2 Liquidation. On dissolution of the Company, a liquidator (who shall be selected by the Board of Managers, if still constituted, and otherwise shall be a Person proposed and approved by a Majority in Interest of the Members) shall cause to be prepared a statement setting forth the assets and liabilities of the Company as of the date of dissolution, and such statement shall be furnished to all of the Members. Then, those Company assets that the liquidator determines should be liquidated shall be liquidated as promptly as possible, but in an orderly and business-like manner to maximize proceeds. Assets that the liquidator determines to distribute in kind shall be so distributed in a manner consistent with applicable law. If the liquidator determines that an immediate sale at the time of liquidation of all or part of the Company assets would be unduly disadvantageous to the Members, the liquidator may, either defer liquidation and retain the assets for a reasonable time, or distribute the assets to the Members in kind. The liquidator shall then wind up the affairs of the Company and distribute the proceeds of the Company by the end of the calendar year of the liquidation (or, if later, within 90 days after the date of such liquidation) in the following order or priority:
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(a) to the payment of the expenses of liquidation and to creditors (including Members who are creditors, to the extent permitted by law) in satisfaction of liabilities of the Company other than liabilities for distributions to Members, in the order of priority as provided by law;
(b) to the setting up of any reserves that the liquidator may deem necessary or appropriate for any anticipated obligations or contingencies of the Company or of the liquidator arising out of or in connection with the operation or business of the Company. Such reserves may be paid over by the liquidator to an escrow agent or trustee proposed and approved by the liquidator to be disbursed by such escrow agent or trustee in payment of any of the aforementioned obligations or contingencies and, if any balance remains at the expiration of such period as the liquidator shall deem advisable, to be distributed by such escrow agent or trustee in the manner hereinafter provided; then
(c) to the Members or their legal representatives in accordance with their positive Capital Account Balances.
13.3 Termination. The liquidator shall comply with any requirements of the Act or other applicable law pertaining to the winding up of a limited liability company, at which time the Company shall stand terminated.
ARTICLE
XIV.
POWER OF ATTORNEY
14.1 Power of Attorney. Each Member hereby irrevocably constitutes and appoints each Manager and its designees, as such Member’s true and lawful agents and attorneys-in-fact, with full power and authority in such Member’s name, place, and stead, to make, execute, acknowledge, deliver, swear to, file and record the following documents and instruments in accordance with the other provisions of this Agreement:
(a) this Agreement and a certificate of formation, a certificate of doing business under fictitious name and any other instrument or filing which the Managers consider necessary or desirable to carry out the purposes of this Agreement or the business of the Company or that may be required under the laws of any state or local government, or of any other jurisdiction;
(b) any and all amendments, restatements, cancellations, or modifications of the instruments described in Section 14.1(a);
(c) any and all instruments related to the admission, removal, or withdrawal of any Member; and
(d) all documents and instruments that may be necessary or appropriate to effect the dissolution and termination of the Company, pursuant to the terms hereof.
14.2 Irrevocability. The foregoing power of attorney is coupled with an interest and such grant shall be irrevocable. Such power of attorney shall survive the subsequent Incapacity of any such Member or the Transfer of any or all of such Member’s Membership Interests.
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14.3 Priority of Agreement. In the event of any conflict between provisions of this Agreement or any amendment hereto and any documents executed, acknowledged, sworn to, or filed by any Manager under this power of attorney, this Agreement and its amendments shall govern.
14.4 Exercise of Power. This power of attorney may be exercised by any Manager either by signing separately as attorney-in-fact for each such Member or by a single signature acting as attorney-in-fact for all Members.
ARTICLE
XV.
MISCELLANEOUS
15.1 Amendments. Except as otherwise specified in this Agreement, this Agreement may be amended by the Managers with the approval of a Majority in Interest of the Members; provided that:
(a) no amendment shall, (i) without the approval of the affected Member, change the Capital Contribution of such Member (other than as provided in this Agreement), increase the liability of such Member beyond the liability of such Member set forth in this Agreement, or adversely affect the limited liability of such Member, or (ii) without the approval of all the Members, amend this Section 15.1;
(b) no amendment shall, without the approval of Members having Percentage Interests representing the Percentage Interests specified in any provision of this Agreement required for any action or approval of the Members, amend such provision; and
(c) the Board of Managers, without obtaining the consent of any of the Members, (i) may make any amendment to this Agreement to correct typographical errors or eliminate ambiguities or to make any other immaterial change that would not, as determined by the Board of Managers in good faith, be adverse to any Member not consenting thereto, provided that the Board of Managers shall deliver a copy of each such amendment to each Member at least five Business Days prior to the effectiveness thereof, (ii) may amend the provisions of this Agreement relating to the Company’s tax allocations and cash distributions in order either to insure that the Company’s tax allocations satisfy the requirements of Section 704(b)(2) of the Code or to insure that the Company’s tax allocations satisfy the requirements of Section 514(c)(9)(B)(vi) of the Code, provided that such amendment is not reasonably expected to result in a material adverse change to the Company’s distributions to the Members, and (iii) may amend this Agreement as appropriate to enable Persons that are employee benefit plans to invest in the Company through a group trust or other special purpose vehicle that would become a Member in lieu of direct investments by such Persons.
15.2 Certificate of Formation. On each subsequent change in the Company specified in the Act, the Managers shall to the extent required by the Act cause to be executed and acknowledged an amended certificate of formation pursuant to the provisions of the Act, which will be duly filed as prescribed by Delaware law.
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15.3 Delaware Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted according to, the laws of Delaware (without regard to principles of conflicts of laws) to the extent not preempted by applicable Federal law.
15.4 Counterparts. This Agreement may be executed in counterparts, and all counterparts so executed shall constitute one agreement that shall be binding on all the parties hereto. Any counterpart of this Agreement that has attached to it separate signature pages which altogether contain the signatures of all Members or their attorneys-in-fact shall for all purposes be deemed a fully executed instrument.
15.5 Binding upon Successors and Assigns. Subject to and unless otherwise provided in this Agreement, each and all of the covenants, terms, provisions and agreements herein contained shall be binding upon and inure to the benefit of the successors, successors-in-title, heirs and assigns of the respective parties hereto.
15.6 Notices. Subject to and unless otherwise provided in this Agreement and applicable law, any and all notices, elections, demands or reports permitted or required to be made under this Agreement shall be in writing (including electronic form), and shall be delivered personally, sent by facsimile or e-mail (with a copy by regular mail, if requested in writing by such Member), sent by overnight courier or sent by registered or certified mail, return receipt requested, addressed to that party at the respective address shown on the Company’s books and records, or to such other address as that party shall indicate by proper notice to the Board of Managers, in the same manner as provided above. The date of personal delivery, the date the facsimile or e-mail is sent to the recipient, the date one day after deposit with an overnight courier and the date three days after the date of mailing (by certified mail or by regular mail) as the case may be, shall be the date of such notice.
15.7 Severability. If any provision of this Agreement, or the application thereof, shall for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be effected thereby, but shall be enforced to the maximum extent possible under applicable law.
15.8 Entire Agreement. This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject hereof and supersedes all prior agreements or understandings, written or oral, between the parties with respect thereto.
15.9 Headings, Etc. The headings in this Agreement are inserted for convenience of reference only and shall not affect interpretation of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall include the singular and the plural, and pronouns stated in either the masculine or the neuter genders shall include the masculine, the feminine and the neuter.
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15.10 Waiver of Partition. Except as may otherwise be provided by law in connection with the winding up, liquidation and dissolution of the Company, each Member hereby irrevocably waives any and all rights that it may have to maintain an action for partition of any of the Company’s property.
15.11 Survival of Certain Provisions. All indemnities and reimbursement obligations made pursuant to this Agreement shall survive dissolution and liquidation of the Company until the expiration of the longest applicable statute of limitations (including extensions and waivers) with respect to the matter for which a party would be entitled to be indemnified or reimbursed, as the case may be.
15.12 Confidentiality. In connection with the organization of the Company and its ongoing business, the Members will receive or have access to confidential proprietary information concerning the Company, including, without limitation, portfolio positions, valuations, information regarding potential investments, financial information, trade secrets and the like (the “Confidential Information”), which is proprietary in nature and non-public. No Member, nor any Affiliate of any Member, shall disclose or cause to be disclosed any Confidential Information to any person nor use any Confidential Information for its own purposes or its own account, except in connection with its investment in the Company and except as otherwise required by any regulatory authority, law or regulation, or by legal process. Notwithstanding anything to the contrary herein, each Member (and each employee, representative or other agent of such Member) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of (i) the Company and (ii) any of its transactions, and all materials of any kind (including opinions or other tax analyses) that are provided to the Member relating to such tax treatment and tax structure.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the date first above written.
| ORGANIZATIONAL MEMBER | ||
| Name: Steven L. Suss | ||
| MANAGERS | ||
| Name: Alan Brott | ||
| Name: John C. Hover II | ||
| Name: Victor F. Imbimbo | ||
| Name: Stephen V. Murphy | ||
| Name: Thomas G. Yellin | ||
| MEMBERS | ||
| (All Members now and hereafter admitted as Members of the Company pursuant to powers of attorney now and hereafter executed in favor of, and delivered to, the Company and/or Management Company) | ||
| By: | ||
| Attorney-in-Fact | ||
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SCHEDULE A
Schedule of Managers
Alan Brott
John C. Hover II
Victor F. Imbimbo
Stephen V. Murphy
Thomas G. Yellin
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made and executed the 1st day of July, 2013, by and between Excelsior Private Markets Fund III (TE), LLC, a Delaware limited liability company (the “Company”), and Bank of America Capital Advisors LLC, a Delaware limited liability company (“BACA”).
WHEREAS, the Company is registered with the Securities and Exchange Commission (the “Commission”) under the Investment Company Act of 1940, as amended (the “1940 Act”), as a closed-end, diversified management investment company, and BACA is an investment adviser registered as such with the Commission under the Investment Advisers Act of 1940; and
WHEREAS, the Company desires to retain BACA to provide various management and administrative services to the Company pursuant to this Agreement; and
WHEREAS, BACA desires to be retained to provide various management and administrative services to the Company pursuant to this Agreement;
NOW, THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed, by and between the parties, as follows:
1. The Company hereby retains BACA to provide, and BACA hereby agrees to provide, certain management, administrative and other services to the Company. Notwithstanding the appointment of BACA to provide such services hereunder, the Board of Managers of the Company (the “Board”) shall remain responsible for supervising and controlling the management, business and affairs of the Company. The management, administrative and other services to be provided by BACA shall include any of the following and/or such other management or administrative services as may be agreed upon by the parties from time to time:
(a) providing office space, telephone and utilities;
(b) providing administrative and secretarial, clerical and other personnel as necessary to provide the services required to be provided under this Agreement;
(c) supervising the entities which are retained by the Company to provide administration, custody and other services to the Company;
(d) assisting in the drafting and updating of disclosure documents relating to the Company and assisting in the preparation of offering materials;
(e) assisting in the preparation and mailing of investor subscription documents and confirming the receipt of such documents and funds;
(f) assisting in the preparation of reports and other regulatory filings with the Commission and state securities regulators and other Federal and state regulatory authorities;
(g) preparing reports to and other informational materials for members and assisting in the preparation of proxy statements and other member communications;
(h) monitoring compliance with regulatory requirements and with the Company’s investment objective, policies and restrictions as established by the Board;
(i) reviewing accounting records and financial reports of the Company, assisting with the preparation of the financial reports of the Company and acting as liaison with the Company’s accounting agent and independent auditors;
(j) assisting in the preparation and filing of tax returns;
(k) coordinating and organizing meetings of the Board and meetings of the members of the Company, in each case when called by such persons;
(l) preparing materials and reports for use in connection with meetings of the Board;
(m) maintaining and preserving those books and records of the Company not maintained by any sub-adviser of the Company or the Company’s administrator, accounting agent or custodian (which books and records shall be the property of the Company and maintained and preserved as required by the 1940 Act and the rules thereunder and shall be surrendered to the Company promptly upon request);
(n) reviewing and arranging for payment of the expenses of the Company;
(o) assisting the Company in conducting offers to members of the Company to repurchase member interests;
(p) reviewing and approving all regulatory filings of the Company required under applicable law;
(q) assisting in administrative matters relating to the processing of subscriptions for interests in the Company;
(r) providing the services of persons employed by BACA or its affiliates who may be appointed as officers of the Company by the Board; and
(s) assisting the Company in routine regulatory examinations, and working closely with any counsel retained to represent the members of the Board who are not “interested persons,” as defined by the 1940 Act and the rules thereunder (the “Independent Directors”) of the Company in response to any litigation, investigations or regulatory matters.
2. Without limiting the generality of paragraph 1 hereof, BACA shall be authorized to open, maintain and close accounts in the name and on behalf of the Company with brokers and dealers as it determines are appropriate; to select and place orders with brokers, dealers or other financial intermediaries for the execution, clearance or settlement of any transactions on behalf of the Company on such terms as BACA considers appropriate and that are consistent with the policies of the Company; and, subject to any policies adopted by the Board and to the provisions of applicable law, to agree to such commissions, fees and other charges on behalf of the Company as it shall deem reasonable in the circumstances taking into account all such factors as it deems relevant (including the quality of research and other services made available to it even if such services are not for the exclusive benefit of the Company and the cost of such services does not represent the lowest cost available) and shall be under no obligation to combine or arrange orders so as to obtain reduced charges unless otherwise required under the federal securities laws. BACA may, subject to such procedures as may be adopted by the Board, use affiliates of BACA as brokers to effect the Company’s securities transactions and the Company may pay such commissions to such brokers in such amounts as are permissible under applicable law.
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3. Fees; Expenses
(a) In consideration for the provision by BACA of its services hereunder, the Company will pay BACA a fee that is calculated and paid quarterly in arrears at an annual rate of 0.50% as follows: (i) during the period from the initial closing of the Company’s issuance of membership interests until the fifth anniversary of the final closing of the Company of the Company’s issuance of membership interests, based on the portion of the capital commitments entered into by Excelsior Private Markets Fund III (Master), LLC (the “Master Fund”) attributable to the Company (based on the Company’s commitments to the Master Fund relative to those of the other funds invested in the Master Fund), and (ii) beginning on the fifth anniversary of the final closing of the Company’s issuance of membership interests and thereafter, based on the net asset value of the Company (the “Management Fee”).
(b) Except as provided herein or in another agreement between the Company and BACA, BACA is responsible for all costs and expenses associated with the provision of its services hereunder. BACA shall, at its own expense, maintain such staff and employ or retain such personnel and consult with such other persons as may be necessary to render the services required to be provided by BACA or furnished to the Company under this Agreement. Without limiting the generality of the foregoing, the staff and personnel of BACA shall be deemed to include persons employed or otherwise retained by BACA or made available to BACA.
4. The Company will, from time to time, furnish or otherwise make available to BACA such financial reports, proxy statements, policies and procedures and other information relating to the business and affairs of the Company as BACA may reasonably require in order to discharge its duties and obligations hereunder.
5. Except as provided herein or in another agreement between the Company and BACA, the Company shall bear all of its own expenses, including: all investment related expenses (including brokerage commissions); any non-investment related interest expense; fees and disbursements of any attorneys and accountants engaged by the Company; audit and tax preparation fees and expenses of the Company; administrative expenses and fees; custody and escrow fees and expenses; the costs of an errors and omissions/directors and officers liability insurance policy and a fidelity bond; the fee payable to BACA; the fee payable to the Company’s member servicing agent; fees and travel-related expenses of members of the Board (the “Directors”) who are not employees of BACA or any affiliated person of BACA; all costs and charges for equipment or services used in communicating information regarding the Company’s transactions among BACA and any custodian or other agent engaged by the Company; any extraordinary expenses; and such other expenses as may be approved from time to time by the Board.
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6. BACA will use its best efforts in the supervision and management of the investment activities of the Company and in providing services hereunder, but in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations hereunder, BACA, its directors, officers or employees and its affiliates, successors or other legal representatives (collectively, the “Affiliates”) shall not be liable to the Company for any error of judgment, for any mistake of law, for any act or omission by BACA or any of the Affiliates or for any loss suffered by the Company.
7. Indemnification
(a) The Company shall indemnify BACA and its directors, officers or employees and their respective affiliates, executors, heirs, assigns, successors or other legal representatives (each an “Indemnified Person”) against any and all costs, losses, claims, damages or liabilities, joint or several, including, without limitation, reasonable attorneys’ fees and disbursements, resulting in any way from the performance or non-performance of any Indemnified Person’s duties with respect to the Company, except those resulting from the willful malfeasance, bad faith or gross negligence of an Indemnified Person or the Indemnified Person’s reckless disregard of such duties, and in the case of criminal proceedings, unless such Indemnified Person had reasonable cause to believe its actions unlawful (collectively, “disabling conduct”). Indemnification shall be made following: (i) a final decision on the merits by a court or other body before which the proceeding was brought that the Indemnified Person was not liable by reason of disabling conduct or (ii) a reasonable determination, based upon a review of the facts and reached by (A) the vote of a majority of the Directors who are not parties to the proceeding or (B) legal counsel selected by a vote of a majority of the Board in a written advice, that the Indemnified Person is entitled to indemnification hereunder. The Company shall advance to an Indemnified Person (to the extent that it has available assets and need not borrow to do so) reasonable attorneys’ fees and other costs and expenses incurred in connection with defense of any action or proceeding arising out of such performance or non-performance. BACA agrees, and each other Indemnified Person will agree as a condition to any such advance, that in the event the Indemnified Person receives any such advance, the Indemnified Person shall reimburse the Company for such fees, costs and expenses to the extent that it shall be determined that the Indemnified Person was not entitled to indemnification under this paragraph 8.
(b) Notwithstanding any of the foregoing to the contrary, the provisions of paragraph 7 and this paragraph 8 shall not be construed so as to relieve the Indemnified Person of, or provide indemnification with respect to, any liability (including liability under Federal Securities laws, which, under certain circumstances, impose liability even on persons who act in good faith) to the extent (but only to the extent) that such liability may not be waived, limited or modified under applicable law or that such indemnification would be in violation of applicable law, but shall be construed so as to effectuate the provisions of paragraph 7 and this paragraph 8 to the fullest extent permitted by law.
8. Nothing contained in this Agreement shall prevent BACA or any affiliated person of BACA from acting as a manager for any other person, firm or corporation and, except as required by applicable law (including Rule 17j-1 under the 1940 Act), shall not in any way bind or restrict BACA or any such affiliated person from buying, selling or trading any securities or commodities for their own accounts or for the account of others for whom they may be acting. Nothing in this Agreement shall limit or restrict the right of any member, officer or employee of BACA to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business whether of a similar or dissimilar nature.
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9. This Agreement will take effect on the date first set forth above. Unless earlier terminated pursuant to this paragraph, this Agreement shall remain in effect for a period of one (1) year from such date and shall continue in effect from year to year thereafter, so long as such continuance shall be approved at least annually by the vote of a “majority of the outstanding voting securities of the Company,” as defined by the 1940 Act and the rules thereunder, or by the Board; and provided that in either event such continuance is also approved by a majority of the Independent Directors, by vote cast in person at a meeting called for the purpose of voting on such approval. The Company may at any time, without payment of any penalty, terminate this Agreement upon sixty days’ prior written notice to BACA, either by majority vote of the Board or by the vote of a “majority of the outstanding voting securities of the Company,” as defined by the 1940 Act and the rules thereunder. BACA may at any time, without payment of penalty, terminate this Agreement upon sixty days’ prior written notice to the Company.
10. Any notice under this Agreement shall be given in writing and shall be deemed to have been duly given when delivered by hand or facsimile or five days after mailed by certified mail, post-paid, by return receipt requested to the other party at the principal office of such party.
11. This Agreement may be amended only by the written agreement of the parties. Any amendment shall be required to be approved by the Board and by a majority of the Independent Directors in accordance with the provisions of Section 15(c) of the 1940 Act and the rules thereunder, as if those rules applied. If required by the 1940 Act, any amendment shall also be required to be approved by the vote of a “majority of the outstanding voting securities of the Company,” as defined by the 1940 Act and the rules thereunder.
12. This Agreement shall be construed in accordance with the laws of the State of New York and the applicable provisions of the 1940 Act. To the extent the applicable law of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control.
13. The Company represents that this Agreement has been duly approved by the Board, including the vote of a majority of the Independent Directors, and by the vote of a “majority of the outstanding voting securities of the Company,” as defined by the 1940 Act and the rules thereunder.
14. The parties to this Agreement agree that the obligations of the Company under this Agreement shall not be binding upon any of the Directors, members of the Company or any officers, employees or agents, whether past, present or future, of the Company, individually, but are binding only upon the assets and property of the Company.
15. This Agreement embodies the entire understanding of the parties.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the day and year first above written.
| EXCELSIOR PRIVATE MARKETS FUND III (TE), LLC | ||
| By: | ||
| Name: | James D. Bowden | |
| Title: | President and CEO | |
| BANK OF AMERICA CAPITAL | ||
| ADVISORS LLC | ||
| By: | ||
| Name: | Steven L. Suss | |
| Title: | Senior Vice President | |
[Signature page to TE Feeder Management Agreement]
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FUnds
registered under the investment company act of 1940, as
amended, listed in appendix A1
(each the "Fund"2)
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
(the "Selling Agent")
PLACEMENT AGENCY AGREEMENT
Dated as of June 20, 2013
MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED
4 World Financial Center
230 Vesey Street, 11th Floor
New York, NY 10090
Ladies and Gentlemen:
Subject to the terms and conditions of this Agreement (in particular, Section 4 hereof) and the Selling Agent's good faith judgment of prevailing market conditions and the current marketability of the Fund, the Selling Agent hereby agrees to use reasonable efforts to solicit, on behalf of and as agent for the Fund, investments in the limited liability company interests (the "Interests") of the Fund, a limited liability company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). Each of the managers or investment advisers, as applicable, listed in Appendix A, as may be amended from time to time (the "Manager"3), serves as the manager or investment adviser to the applicable Fund listed on the Appendix A and provides management or investment advisory services, as applicable, to such Fund. This Agreement is made separately among: (i) each Fund listed in Appendix A; (ii) the applicable Fund's respective Manager listed in Appendix A (with respect to Sections 2, 4(a), 7, 8 and 9 only); and (iii) the Selling Agent, severally and not jointly with respect to the other Funds and Managers listed on Appendix A.
1 As may be amended from time to time.
2 Except where otherwise indicated by reference to a particular Fund, all defined terms used herein in the context of an individual Fund apply equally with respect to each Fund, as applicable. Any reference to the "Fund" shall be deemed to mean each Fund listed in Appendix A (as may be amended from time to time), as applicable.
3 Except where otherwise indicated by reference to a particular Manager, all defined terms used herein in the context of an individual Manager, apply equally with respect to each Manager, as applicable. Any reference to the "Manager" shall be deemed to mean each Manager listed in Appendix A (as may be amended from time to time), as applicable.
The Selling Agent's sole obligation and responsibility hereunder or in connection with the Fund is to use reasonable efforts, subject to the terms of this Agreement and the Selling Agent's good faith judgment, to solicit investors in the Interests in accordance with the provisions set forth herein.
Section 1. Representations and Warranties of the Fund. The Fund represents and warrants to the Selling Agent as of the date hereof and as of each time (a "Closing Time") that Interests are sold hereunder, as follows:
(a) The Fund has been duly formed and is validly existing under the laws of its jurisdiction of formation and has taken all necessary actions to attain good-standing status and at each Closing Time will be in good standing under the laws of its jurisdiction of formation, with power and authority to conduct its business as described in the Fund's Confidential Offering Memorandum (the "Offering Memorandum") and to offer and sell the Interests as contemplated by this Agreement; the Fund is duly qualified to transact business, is in good standing and at each Closing Time will be in good standing in each jurisdiction in which the conduct of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, of the Fund, or the earnings, business affairs or business prospects of the Fund.
(b) All of the issued and outstanding Interests of the Fund have been duly authorized and validly issued and are limited liability interests; the Interests to be issued as contemplated by this Agreement have been authorized by requisite action on the part of the Fund and, when issued and delivered against payment in accordance with the provisions of the relevant subscription documents, will be validly issued, limited liability interests. The issuance of the Interests by the Fund is not subject to preemptive rights and the Fund does not have any outstanding options to purchase or any rights or warrants to subscribe for, or any securities or obligations convertible into, any Interests other than as disclosed to the Selling Agent by the Fund in writing or as contained in the Offering Memorandum.
(c) The Fund is not in material violation of its organizational documents or in material default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, fiscal agency agreement, note, lease or other instrument to which it is a party or by which it may be bound or to which any of its assets is subject, except as set forth in Appendix B, as it may be amended from time to time; and the execution, delivery and performance by the Fund of, and compliance with, this Agreement, and the Fund's Management Agreement, Limited Liability Company Agreement, Administration Agreement or other related agreements (collectively, the "Operative Agreements") to which it is a party and the consummation by the Fund of the transactions contemplated herein and therein will not conflict with or result in a material breach of any of the terms or provisions of, or constitute, with or without the giving of a notice or lapse of time or both, a material default under, or result in the creation or imposition of any lien, charge or encumbrance upon any assets of the Fund pursuant to, or give any other party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the assets of the Fund is subject, nor will such action result in any violation of or conflict with the terms or provisions of the organizational documents of the Fund or, to the best knowledge of the Fund, any law, order, judgment, decree, rule or regulation applicable to the Fund; and no consent, approval, authorization or order of, or any filing or declaration with, any court or governmental authority or agency, national securities exchange or securities association is required for the consummation by the Fund of the transactions contemplated by this Agreement (except such filings as may be required under state securities or Blue Sky laws or by Regulation D under the Securities Act of 1933, as amended (the "Securities Act"), which will be timely filed) or the Fund's Operative Agreements.
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(d) Since the date of the Fund's Offering Memorandum, there has been no material adverse change, except as otherwise contemplated therein, in the condition, financial or otherwise, business affairs or business prospects of the Fund and, except as disclosed in the Fund's Offering Memorandum and any supplements thereto, there is no action, suit or proceeding before or by any court or governmental agency or body, U.S. or non-U.S., now pending, or, to the knowledge of the Fund, threatened against or affecting the Fund or any of its shareholders, members, principal stockholders or officers or directors, as the case may be, which adverse change, action, suit or proceeding will impair or adversely affect in any material respect the ability of the Fund to conduct its business as described in its Offering Memorandum or sell its Interests or perform its obligations under any Operative Agreement.
(e) This Agreement and the Fund's Operative Agreements have been duly authorized by all requisite action on the part of the Fund, and have been executed and delivered by the Fund. Assuming due authorization, execution and delivery by the other parties thereto with respect to the Fund's Operative Agreements, each such Operative Agreement constitutes a valid and legally binding agreement of the Fund, enforceable against the Fund in accordance with its terms, except as the same may be subject to the effects of (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, (B) general principles of equity (regardless of whether considered in a proceeding at law or in equity) and (C) an implied covenant of good faith and fair dealing.
(f) Assuming the accuracy of the representations made by each investor in Interests in its subscription or purchase agreement (none of which the Fund or the Manager had any reason to believe are false), the Fund is eligible to claim the exemption provided by Regulation 4.5 promulgated by the U.S. Commodity Futures Trading Commission (the "CFTC") to the extent that compliance with Regulation 4.5 is required by the Fund and has complied and will comply therewith.
(g) Any offering of Interests other than by the Selling Agent or an affiliate of the Selling Agent made or to be made within the United States was or will be made, as applicable, in compliance with U.S. federal and state securities and commodities laws, and any offering of Interests other than by the Selling Agent or an affiliate of the Selling Agent made or to be made outside the U.S. was or will be made, as applicable, in compliance with local laws.
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(h) At each date of issue as well as at each Closing Time, the Fund's Offering Memorandum, as well as all of the sales material relating to the Interests approved in writing by the Manager to be used as such (collectively and as the same may be amended or supplemented, the "Offering Materials") did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(i) Any certificate signed by any executive officer of the Fund and delivered to the Selling Agent or to counsel for the Selling Agent shall be deemed a representation and warranty by the Fund to the Selling Agent as to the matters covered thereby.
Section 2. Representations and Warranties of the Manager. The Manager represents and warrants to the Selling Agent as of the date hereof and as of each Closing Time as follows:
(a) The Manager has been duly formed, validly existing and, where applicable, in good standing under the laws of the jurisdiction of its formation with power and authority, to conduct its business as described in its organizational documents. Subject as aforesaid, the Manager has been duly licensed or qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, except where the failure to so qualify would not have a material adverse effect on the ability of the Manager to perform its obligations as described in the Offering Materials.
(b) Each of this Agreement and the Operative Agreements to which it is a party (the "Manager Operative Agreements") has been duly authorized, executed and delivered by or on behalf of the Manager and constitutes a valid and legally binding obligation of the Manager enforceable against the Manager in accordance with its terms, except as the same may be subject to the effects of (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, (B) general principles of equity (regardless of whether considered in a proceeding at law or in equity) and (C) an implied covenant of good faith and fair dealing; and the execution, delivery and performance by the Manager of and compliance with this Agreement and the execution and delivery and performance by the Manager of and compliance with each of the Manager Operative Agreements, and the consummation by the Manager of the transactions contemplated hereunder or thereunder, will not conflict with, or result in a breach of any of the terms or provisions of, or constitute, with or without the giving of notice or lapse of time or both, a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of the Manager pursuant to, any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Manager is a party or by which it may be bound or to which any of the property or assets of the Manager is subject, nor will such action result in any violation of or conflict with the terms or provisions of the other organizational documents of the Manager, any law, order, judgment, decree, rule or regulation applicable to the Manager; and no consent, approval, authorization or order of, or any filing or declaration with, any court or governmental authority or agency, national securities exchange, securities or futures association is required for the consummation by the Manager of the transactions contemplated by this Agreement or each of the Manager Operative Agreements, except such filings as may be required under state securities or Blue Sky laws or by Regulation D under the Securities Act, which will be timely filed.
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(c) The Manager has the financial resources available necessary for the performance of its obligations as contemplated herein and in the Fund's Offering Memorandum.
(d) The Manager is not in default under any material agreement, indenture or instrument or in breach or violation of any judgment, decree, order, rule or regulation applicable to it of any court or governmental or self-regulatory agency or body with jurisdiction over it, the effect of which might impair or adversely affect in any material respect the ability of the Manager to function as investment manager or perform its obligations under any of the Manager Operative Agreements or to perform its obligations as contemplated in the Fund's Offering Memorandum.
(e) Since the date of the Fund's Offering Memorandum, there has been no material adverse change, except as otherwise contemplated therein, in the condition, financial or otherwise, business affairs or business prospects of the Manager that would materially impact the nature or quality of the services it is obligated to provide to the Fund under any of the Manager Operative Agreements as contemplated in the Fund's Offering Memorandum and, except as disclosed in the Fund's Offering Memorandum, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Manager, threatened against or affecting the Manager or any of its members or officers, which adverse change, action, suit or proceeding would impair or adversely affect in any material respect the ability of the Manager to function as an investment manager or perform its obligations under any of the Manager Operative Agreements as contemplated in the Fund's Offering Memorandum.
(f) Unless exempted or excluded from registration, the Manager is registered with the CFTC as a commodity pool operator and commodity trading advisor and is a member of the U.S. National Futures Association ("NFA") and each of its principals and associated persons (as defined in the U.S. Commodity Exchange Act and regulations thereunder) is registered with the CFTC as such.
(g) The Manager is registered with the U.S. Securities and Exchange Commission (the "Commission") as an investment adviser and has all required state securities and commodities registrations to carry out its obligations under this Agreement and the Manager Operative Agreements.
(h) Each partner, officer or employee of the Manager who is not currently and has not been registered as a principal (as defined in the U.S. Commodity Exchange Act and regulations thereunder) of the Manager has not and will not engage in any activities which would require such individual to register as a principal until such time as such individual is registered as a principal of the Manager.
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(i) Each partner, officer or employee of the Manager who has not been and is not currently registered as an associated person (as defined in the U.S. Commodity Exchange Act and regulations thereunder) of the Manager has not and will not engage in any activities which would require such individual to register as an associated person, until such time as such individual is registered as an associated person of the Manager.
(j) Each of the Manager's registered principals and associated persons (as defined in the U.S. Commodity Exchange Act and regulations thereunder) has in the past performed and will perform their responsibilities in connection with the operation of the Fund in compliance in all material respects with CFTC and NFA requirements applicable thereto.
(k) Any certificate signed by any executive officer of the Manager and delivered to the Selling Agent or to counsel for the Selling Agent shall be deemed a representation and warranty by the Manager to the Selling Agent as to the matters covered thereby.
Section 3. Representations, Warranties and Agreements of the Selling Agent. The Selling Agent represents and warrants to, and agrees with, the Fund:
(a) The Selling Agent will not make any representations regarding the Manager or the Fund in the course of marketing the Interests which is materially inconsistent with the disclosures made in the Offering Materials. The Selling Agent will not distribute any sales materials to prospective investors in the course of marketing the Interests other than the Offering Materials, any subscription and eligibility documents related to the subscription of the Interests and any other materials which are approved in writing for distribution by the Manager.
(b) The Agreement has been duly authorized, executed and delivered by the Selling Agent. The Selling Agent will comply with all applicable laws in marketing the Interests, and will market the interests as a private placement under relevant securities and related laws so as not to cause the offering of Interests to be required to be registered with any government body. The Agreement constitutes a valid and legally binding agreement of the Selling Agent, enforceable against the Selling Agent in accordance with its terms, except as the same may be subject to the effects of (A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, (B) general principles of equity (regardless of whether considered in a proceeding at law or in equity) and (C) an implied covenant of good faith and fair dealing.
(c) The Selling Agent will use reasonable efforts to cooperate with the Manager and the Fund in assuring compliance with current money laundering laws and regulations.
(d) The Selling Agent will not disclose or otherwise use confidential or proprietary information regarding the Manager, its affiliates, the Fund or any of their owners, officers, directors, employees, prospective investors or investors, or the Manager's trading methods or strategies, without the Manager's written consent. Notwithstanding such consent, at any time as the Manager or the Fund may request, the Selling Agent agrees not to use or further disclose such information to others unless required to do so by law or governmental order provided however that the Selling Agent shall give the Manager and the Fund prior notice of its intent to use or disclose such information so that the parties may obtain a protective order in a court of competent jurisdiction. As used in this Section 3(d), the term "confidential information" does not include information that: (a) becomes or has been generally available to the public other than as a result of disclosure by the Selling Agent; (b) was available to the Selling Agent on a non-confidential basis prior to its disclosure; or (c) is independently developed or becomes available to Selling Agent on a non-confidential basis from a source other than the Fund, the Manager or their affiliates.
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(e) The Selling Agent will maintain the confidentiality of investor information in a manner consistent with the privacy policy adopted by the Fund and applicable to the Selling Agent, pursuant to Title V of the Gramm Leach Bliley Act, as amended.
(f) The Selling Agent and each of its employees and agents marketing the Interests is either not a person (1) ineligible to serve as a principal underwriter to an investment company pursuant to Section 9 of the 1940 Act, or (2) has obtained an appropriate exemptive order with respect to any potential ineligibility. The Selling Agent represents and warrants that it is duly registered as a broker/dealer pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is a member in good standing with the Financial Industry Regulatory Authority ("FINRA"). The Selling Agent maintains all appropriate registrations, whether federal or state, or is exempt from registration under applicable law, to enable it to perform its obligations hereunder in accordance with applicable laws and regulations. In taking any actions pursuant to this Agreement, the Selling Agent will not take any action constituting a general solicitation that would result in the exemption set forth in Rule 506 of Regulation D under the Securities Act not being available to the Fund with respect to any sale of Interests. The Selling Agent further agrees that it will not take any action (including, soliciting prospective investors or accepting commissions or other remuneration) in any state where it is not registered as a broker/dealer that would result in any exemption under the securities laws of such state not being available to the Fund.
(g) The Selling Agent will conduct its activities in accordance with (i) the terms and conditions set forth in the Offering Materials, in each case as may be amended from time to time, (ii) applicable provisions of the applicable laws and regulations, including but not limited to, anti-money laundering laws and regulations, the Federal Securities laws and the rules thereunder, and FINRA rules, and (iii) the terms of this Agreement.
(h) The Selling Agent will maintain a log of the names and addresses of prospective investors to whom the Offering Materials are sent (including the dates sent), and will send a report to the Fund stating the number of the prospective investors to whom the Offering Materials have been sent promptly upon request by the Fund.
Section 4. Offering and Sale of Interests. The Selling Agent is hereby appointed by the Fund as a non-exclusive selling agent for the purpose of finding acceptable subscribers for Interests.
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(a) The Selling Agent will solicit offers to purchase Interests only from prospective investors who are "U.S. persons" within the meaning of the U.S. Internal Revenue Code of 1986, as amended, and who meet the other eligibility requirements established by the Fund and set forth in the Offering Materials or communicated to the Selling Agent in writing. The Selling Agent may submit an Offeree Qualification Form for any qualified investor, as described in this Section 4, with which the Selling Agent and/or a Merrill Lynch Financial Advisor has had substantive business dealings for at least six months and believes that the Selling Agent and/or a Merrill Lynch Financial Advisor should have sufficient information to be able to assess such qualified investor's financial information, knowledge and sophistication. The Selling Agent may distribute to the qualified investors the Offering Materials, including the Fund's Offering Memorandum. The Manager will provide (or if provided by the Selling Agent, must approve) all Offering Materials to be given by the Selling Agent to qualified investors.
(b) The offers and sales of Interests are to be effected pursuant to the exemption from the registration requirements of the Securities Act, pursuant to Section 4(2) thereof and Regulation D under the Securities Act. Both the Selling Agent and the Fund have established the following procedures in connection with the offer and sale of Interests and agree that the Selling Agent will make offers or sales of any Interests in compliance with such procedures:
(i) Offers and sales of Interests will be made only in compliance with Regulation D under the Securities Act, the FINRA rules and state securities laws and only to investors that qualify as "accredited investors," as defined in Rule 501(a) under the Securities Act, and as "qualified clients," as defined in Rule 205-3 under the Investment Advisers Act of 1940, as amended.
(ii) No sale of Interests to any one investor will be for less than the minimum denominations as may be specified in the Offering Memorandum or as otherwise approved by the Board of Managers of the Fund (the "Board").
(iii) No offer or sale of any Interest shall be made in any state or jurisdiction, or to any prospective investor located in any state or jurisdiction, where such Interests have not been registered or qualified for offer and sale under applicable state securities laws unless such Interests are exempt from the registration or qualification requirements of such laws.
(c) It is understood that the Selling Agent has no commitment with regard to the sale of the Interests other than to use its reasonable efforts and its good faith judgment in soliciting investments in the Interests.
(d) The Selling Agent shall be under no obligation to continue to market the Interests if, in its sole judgment, it believes that doing so would be impracticable, uneconomical or inappropriate, in view of such considerations as it may feel relevant.
(e) The Fund shall have the right, in its sole discretion, to approve or reject any prospective investor to whom the Selling Agent proposes to distribute the Offering Materials, and the Fund shall have the right, in its sole discretion to approve or reject each such investor before any Interests are sold.
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(f) The Selling Agent shall take all such reasonable and appropriate actions such that the representations and warranties made herein by the Selling Agent remain true and accurate in all material respects, and shall promptly inform the Fund and the Manager in the event that the Selling Agent has any reason to believe that any such representation or warranty is no longer true and accurate in all material respects.
Section 5. Covenants of the Fund.
The Fund hereby covenants as follows:
(a) The Fund will deliver to the Selling Agent, or the Selling Agent's designated distribution center, as promptly as practicable such number of copies of the Offering Materials (as the same may be amended or supplemented) as the Selling Agent may reasonably request in writing.
(b) If any event relating to or affecting the Fund occurs as a result of which it has become necessary to amend or supplement the Offering Materials so that they do not contain a material misstatement or omission, the Fund will so inform the Selling Agent and will prepare and furnish to the Selling Agent a reasonable number of copies of an amendment or amendments of, or a supplement or supplements to, the Offering Materials which will amend or supplement the Offering Materials so that as so amended or supplemented the Manager has reason to believe that such Offering Materials do not contain any material misstatement or omission.
(c) The Fund will use reasonable efforts to cooperate in the Selling Agent's ongoing due diligence process with respect to the Fund, to the extent consistent with the Fund's customary confidentiality policies.
(d) The Fund will comply with all applicable current anti-money laundering laws and regulations and will cooperate with the Selling Agent in its efforts to confirm such compliance.
(e) The Fund shall take all such reasonable and appropriate actions such that the representations and warranties made herein by the Fund remain true and accurate in all material respects, and shall promptly inform the Selling Agent in the event that the Fund has any reason to believe that any such representation or warranty is no longer true and accurate in all material respects.
Section 6. Payment of Expenses and Fees. Except as may otherwise be agreed to in writing, each party shall be responsible for the payment of all costs and expenses it incurs in connection with the performance of its obligations under this Agreement.
Section 7. Compensation. In consideration for the services provided by the Selling Agent to the Fund described in this Agreement, the Selling Agent shall receive from each investor the placement fee (the "Placement Fee"), as set forth in Appendix A (as may be amended from time to time). In addition, the Manager or its affiliate may pay directly to the Selling Agent such amounts as shall be mutually agreed upon from time to time by the Manager or its affiliate and the Selling Agent.
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Section 8. Conditions to Closing. The obligations of the Selling Agent shall be subject to the accuracy of the representations and warranties on the part of the Manager and the Fund contained herein as of the date hereof and as of each Closing Time, to the accuracy of the statements of executive officers of the Manager and the Fund made in any certificates pursuant to the provisions hereof and to the following additional conditions:
(a) The Selling Agent shall have received a certificate of the Manager and the Fund, signed by an executive officer of each, dated as of the initial Closing Time, to the effect that:
(i) The representations and warranties in Sections 1 and 2 hereof, as applicable, are true and correct on and as of the Closing Time with the same effect as if made on the Closing Time and the Manager and the Fund, as applicable, each has complied with all agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Time; and
(ii) Since the date of the most recent information included in the Offering Memorandum, there has not been a material adverse change in the Manager and the Fund that must be reflected in the Offering Memorandum in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(b) All actions taken by the parties hereto in connection with the sale of the Interests as herein contemplated shall be reasonably satisfactory in form and substance to the parties hereto and their counsel.
(c) At each additional Closing Time, the Selling Agent shall have been furnished with such information and certificated documents from the Manager and the Fund as the Selling Agent may deem to be reasonably necessary or appropriate.
If any of the conditions specified in this Section 8 shall not have been fulfilled when and as required by this Agreement to be fulfilled, this Agreement and all obligations hereunder may be cancelled by either party hereto by notifying the other party of such cancellation in writing or by telegram at any time at or prior to the Closing Time, and any such cancellation or termination shall be without liability of any party to the other party except as otherwise provided in this Section 8.
Section 9. Indemnification.
(a) The Fund and the Manager shall indemnify and hold harmless the Selling Agent or any affiliate of the Selling Agent ("Selling Agent's Affiliate") within the meaning of the Securities Act or the Exchange Act (collectively, the "Selling Agent's Indemnified Parties") from and against any loss, claim, damage or liability, joint or several, and any action in respect thereof, to which the Indemnified Party may become subject or otherwise, insofar as such loss, claim, damage, liability or action relates to or arises out of (i) any untrue statement of a material fact contained in the Offering Materials, or the omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (ii) any material breach of the representations, warranties or covenants of the Fund and the Manager contained in this Agreement, and shall reimburse such Selling Agent's Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Fund and the Manager will not be liable in any such case to the extent that any such loss, claim, damage, liability or action relates to or arises out of (i) any untrue statement or omission or alleged untrue statement or omission contained in the Offering Materials relating to the Selling Agent or to any Selling Agent's Affiliate that was made in reliance upon and in conformity with information furnished to the Manager or the Fund in writing by the Selling Agent or any Selling Agent's Affiliate, in any such case expressly for use in the Offering Materials, or (ii) the Selling Agent's or a Selling Agent's Affiliate's own bad faith, willful misconduct or gross negligence or their reckless disregard of duties under this Agreement. Any determination by the Fund to indemnify the Selling Agent or any Selling Agent's Affiliate for the foregoing liabilities shall be made in accordance with the requirements of Section 17 of the 1940 Act, as interpreted by the Commission.
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(b) Promptly after receipt by a Selling Agent’s Indemnified Party under this Section 9 of notice of any claim or the commencement of any action, such Selling Agent’s Indemnified Party shall notify the Fund and the Manager or the Selling Agent, as applicable (the "Indemnifying Party"), in writing of the claim or the commencement of that action, provided that the failure to notify the applicable Indemnifying Party will not relieve such Indemnifying Party from any liability which it may have to a Selling Agent’s Indemnified Party otherwise than under this Section 9 unless such failure materially affects the Indemnifying Party's case. If any such claim or action is brought against any Selling Agent’s Indemnified Party, and it shall notify an Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified party, to assume the defense thereof, with counsel reasonably satisfactory to the Selling Agent’s Indemnified Party (which consent may not be unreasonably withheld or delayed). After notice from the Indemnifying Party to the Selling Agent’s Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Selling Agent’s Indemnified Party under this Section 9 for any legal or other expenses subsequently incurred by the Selling Agent’s Indemnified Party in connection with the defense thereof other than reasonable costs of investigation in connection with the defense. The Selling Agent’s Indemnified Party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such Selling Agent’s Indemnified Party unless (1) the employment of counsel by the Selling Agent’s Indemnified Party has been authorized in writing by the Indemnifying Party, (2) a conflict or potential conflict exists (based on advice of counsel to the Selling Agent’s Indemnified Party) between the Selling Agent’s Indemnified Party and the Indemnifying Party (in which case the Indemnifying Party will not have the right to direct the defense of such action on behalf of the Selling Agent’s Indemnified Party), or (3) the Indemnifying Party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the Indemnifying Party. The Indemnifying Party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld or delayed).
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(c) The indemnity provided by this Section 9 shall not relieve the Fund, the Manager and the Selling Agent from any liability any such party may otherwise have.
Section 10. Representations, Warranties and Agreements to Survive Delivery. The indemnities set forth in this Agreement will remain in full force and effect regardless of any termination of this Agreement. All representations, warranties, agreements and indemnities contained in this Agreement or contained in certificates of any party hereto submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by, or on behalf of, the Selling Agent, the Fund or any person who controls any of the foregoing, and shall survive the initial and each additional Closing Time in the form restated and reaffirmed as of each such Closing Time. The provisions of this Section 10 shall survive the termination or cancellation of this Agreement.
Section 11. Effective Date and Term of Agreement.
This Agreement shall become effective for all purposes as of the date hereof and shall remain in effect for an initial term of two years from such date. Thereafter, this Agreement shall continue in effect from year to year, provided that each such continuance is approved by the Board, including the vote of a majority of the Board members who are not "interested persons," as defined by the 1940 Act, of the Fund or the Selling Agent.
Section 12. Termination.
(a) The Fund shall have the right to terminate this Agreement at any time by giving not less than thirty days' written notice of such termination to the Selling Agent. The Selling Agent shall have the right to terminate this Agreement at any time by giving not less than thirty days' written notice of termination to the Fund.
(b) This Agreement shall terminate automatically in the event of its "assignment," as such term is defined by the 1940 Act and the rules thereunder, by the Selling Agent.
(c) Any termination of this Agreement shall in no respect modify or qualify the Selling Agent's right to receive compensation through the date of such termination in respect of services provided prior to such termination or with respect to Interests previously sold through the Selling Agent or for which firm orders have been received by the Selling Agent and communicated in writing to the Fund prior to the termination date.
Section 13. Amendments. This Agreement may not be amended except by a writing executed by each of the parties hereto.
Section 14. Notices. All communications hereunder shall be in writing and: if sent to the Selling Agent shall be mailed, delivered or telegraphed and confirmed to it at: 4 World Financial Center, 250 Vesey Street, 11th Floor, New York, NY 10080, Attention: Sheldon T. Chang; and if sent to the Fund shall be mailed, delivered or telegraphed and confirmed to it at the following address: 225 High Ridge Road, Stamford, CT 06905, Attention: Steven Suss. Notices shall be effective when actually received.
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Section 15. Parties. This Agreement shall inure to the benefit of and be binding upon the Selling Agent, the Fund and such parties' respective successors to the extent provided herein. This Agreement and the conditions and provisions hereof are intended to be and are for the sole and exclusive benefit of the parties hereto and their respective successors, permitted assigns and controlling persons and parties indemnified hereunder, and for the benefit of no other person, firm or corporation. No purchaser or prospective purchaser of Interests shall be considered to be a successor or assign solely on the basis of such purchase.
Section 16. Selling Agent's Authority to Act. Nothing in this Agreement shall be construed to imply that the Selling Agent is a partner, shareholder, manager, managing member or member of: (1) the Fund; (2) the Manager; or (3) any of their respective affiliates. The Fund and the Selling Agent acknowledge that, absent express written consent by the parties, the Selling Agent does not have the right, power or authority to enter into any contract or to create any obligation on behalf of the Fund, the Manager, or any of their respective affiliates or to otherwise bind such entities or any of their respective affiliates in any way. Furthermore, nothing in this Agreement shall be construed to limit or waive the right of the Fund to: (a) require an Investor to withdraw from the Fund or to compel the redemption of some or all of an Investor's investment or Interests pursuant to the terms of the governing documents of the Fund; or (b) change the terms of the offering of Interests pursuant to the terms of the governing documents of the Fund.
Section 17. Governing Law. This Agreement and the rights and obligations of the parties created hereby shall be governed by the laws of the State of New York, without regard to principles of conflicts of law provisions thereof, and with the provisions of the 1940 Act. In the event of any conflict between the provisions of the laws of New York and those of the 1940 Act, the 1940 Act provisions shall control.
Section 18. Severability. In the event that any provision of this Agreement is held to be invalid or unenforceable in any jurisdiction, such provision shall be deemed modified to the minimum extent necessary so that such provision, as so modified, shall no longer be held to be invalid or unenforceable. Any such modification, invalidity or unenforceability shall be strictly limited both to such provision and to such jurisdiction, and in each case to no other. Furthermore, in the event of any such modification, invalidity or unenforceability, this Agreement shall be interpreted so as to achieve the intent expressed herein to the greatest extent possible in the jurisdiction in question and otherwise as set forth herein.
Section 19. Indirect Action. The parties agree that it is of the essence of their mutual agreement as embodied herein that none of them shall attempt to do indirectly what they could not do directly hereunder, through the use of affiliates, reciprocal business dealings or any other means.
Section 20. Requirements of Law. Whenever in this Agreement it is stated that a party will take or refrain from taking a particular action, such party may nevertheless refrain from taking or take such action if advised by counsel that doing so is required by law or advisable to ensure compliance with law, and shall not be subject to any liability hereunder for doing so, although such action shall permit termination of the Agreement by the other party hereto.
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Section 21. Consent to Jurisdiction. The parties hereto agree that any action or proceeding arising directly, indirectly, or otherwise in connection with, out of, related to, or from this Agreement, any breach hereof, or any transaction covered hereby, shall be resolved, whether by arbitration or otherwise, within the County, City, and State of New York. Accordingly, the parties consent and submit to the jurisdiction of the federal and state courts and any applicable arbitral body located within the County, City, and State of New York. The parties further agree that any such action or proceeding brought by either party to enforce any right, assert any claim, or obtain any relief whatsoever in connection with this Agreement shall be brought by such party exclusively in the federal or state courts, or if appropriate before any applicable arbitral body, located within the County, City, and State of New York.
Section 22. Use of Merrill Lynch Name. The Fund may not disseminate any written reference relating to the Selling Agent relating in any respect to the transactions contemplated hereby without the prior written consent of the Selling Agent.
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If the foregoing is in accordance with each party's understanding of their agreement, each party is requested to sign and return to the Fund a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement among them in accordance with its terms.
| Very truly yours, | ||
| EXCELSIOR PRIVATE MARKETS FUND III | ||
| (TE), LLC | ||
| By: | ||
| Name: | |||
| Title: Officer | |||
| (With respect to Sections 2, 4(a), 7, 8 and 9 only): | |||
| BANK OF AMERICA CAPITAL ADVISORS | |||
| LLC | |||
| By: | |||
| Name: | |||
| Title: | |||
Confirmed and accepted on June 20, 2013:
MERRILL LYNCH, PIERCE,
FENNER & SMITH,
INCORPORATED
| By: | ||
| Name: | ||
| Title: | ||
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APPENDIX A
THE FUNDS, THE MANAGERS AND PLACEMENT FEES
| No. | Fund Name | Manager | Fees | |||
| 1. | Excelsior Private Markets Fund III (TE), LLC | Bank of America Capital Advisors LLC |
(i) 2.5% on Commitments of less than $150,000; (ii) 2.0% on Commitments of $150,000 or greater but less than $500,000; (iii) 1.5% on Commitments of $500,000 or greater but less than $1,000,000; or (iv) 1.0% on Commitments of $1,000,000 or greater.
Fees: (i) may be discounted in 50 bps increments or waived completely for any order size; and (ii) waived for any account for which the Adviser or one of its affiliates acts in a fiduciary, advisory, custodial, or similar capacity. |
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APPENDIX B
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CUSTODY AGREEMENT
Dated July ___, 2013
Between
UMB BANK, N.A.
and
THE FUNDS LISTED IN APPENDIX B
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CUSTODY AGREEMENT
This agreement made as of the date first set forth above between UMB Bank, n.a., a national banking association with its principal place of business located in Kansas City, Missouri (hereinafter “Custodian”), and each of the Funds listed on Appendix B hereof, together with such additional Funds which shall be made parties to this Agreement by the execution of Appendix B hereto (individually, a “Fund” and collectively, the “Funds”).
WITNESSETH:
WHEREAS, each Fund is a limited liability company managed by Bank of America Capital Advisors LLC, its investment adviser or management securities provider, as applicable (such manager and the investment advisers or sub-advisers, if any, shall be defined herein as the “Manager”); and
WHEREAS, each Fund is registered under the Investment Company Act of 1940, as amended, (the “Investment Company Act”) and, pursuant to the terms of each Fund’s Operating Agreement, Partnership Agreement or other organizational document (the “Organizational Document”) the Funds are authorized to issue, offer and sell interests in the Funds representing interests in a separate portfolio of securities and other assets (“Interests”) in reliance upon exemptions provided in the Securities Act of 1933, as amended, and the securities laws of the various states for transactions not involving any public offering; and
WHEREAS, under the terms of a Confidential Private Placement, Information or Offering Memorandum, or such other offering document, as the same may be amended from time to time (the “Offering Memorandum”), the Manager will invest, or cause to be invested, the proceeds of each offering of Interests in accordance with the investment objectives and restrictions set forth therein and in the Organizational Document; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for the custody of Assets (as hereinafter defined) owned by such Fund, which Assets are to be held in such accounts as such Fund may establish from time to time; and
WHEREAS, the Custodian is willing to accept such appointment on the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, mutually covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as custodian of Assets belonging to each such Fund which have been or may be from time to time delivered to and accepted by the Custodian. Custodian accepts such appointment as a custodian and agrees to perform the duties and responsibilities of Custodian as set forth herein on the conditions set forth herein. For purposes of this Agreement, the term “Assets” shall include Securities, Underlying Shares, monies, and other property held by the Custodian for the benefit of a Fund. “Security” or “Securities” shall mean stocks, bonds, rights, warrants, certificates, instruments, obligations and all other negotiable or non-negotiable paper commonly known as Securities which have been or may from time to time be delivered to and accepted by the Custodian. The term “Securities”, as used in this Agreement, shall not include Underlying Shares. “Underlying Share” or “Underlying Shares” shall mean uncertificated shares of, or other interests in, other investment funds, accounts or vehicles, including, but not limited to, mutual funds.
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2. INSTRUCTIONS.
(a) An “Instruction,” as used herein, shall mean a request, direction, instruction or certification initiated by a Fund and conforming to the terms of this paragraph. An Instruction may be transmitted to the Custodian by any of the following means:
(i) a writing manually signed on behalf of a Fund by an Authorized Person (as hereinafter defined);
(ii) a telephonic or other oral communication from a person the Custodian reasonably believes to be an Authorized Person;
(iii) a facsimile transmission that the Custodian reasonably believes has been signed or otherwise originated by an Authorized Person;
(iv) a communication effected through the internet or web-based functionality (including without limitation, emails, data files and other communications) on behalf of a Fund that the Custodian reasonably believes has been signed or otherwise originated by an Authorized Person (“Electronic Communication”); or
(v) other means reasonably acceptable to both parties.
Instructions in the form of oral communications shall be confirmed by the appropriate Fund by either a writing (as set forth in (i) above), a facsimile (as set forth in (iii) above), or an Electronic Communication (as set forth in (iv) above), but the lack of such confirmation shall in no way affect any action taken by the Custodian in reliance upon such oral Instructions prior to the Custodian’s receipt of such confirmation. Each Fund authorizes the Custodian to record any and all telephonic or other oral Instructions communicated to the Custodian. The parties acknowledge and agree that, with respect to Instructions transmitted by facsimile, the Custodian cannot verify that the signature of an Authorized Person has been properly affixed and, with respect to Instructions transmitted by an Electronic Communication, the Custodian cannot verify that the Electronic Communication has been initiated by an Authorized Person; accordingly, the Custodian shall have no liability as a result of actions taken in reliance on unauthorized facsimile or Electronic Communication Instructions. The Custodian recommends that any Instructions transmitted by a Fund via email be done so through a secure system or process.
(b) “Special Instructions,” as used herein, shall mean Instructions countersigned or confirmed in writing by the Treasurer or any other officer or Authorized Person of a Fund, which countersignature or confirmation shall be on the same instrument containing the Instructions or on a separate instrument relating thereto.
(c) Instructions and Special Instructions shall be delivered to the Custodian at the address and/or telephone, facsimile transmission or email address agreed upon from time to time by the Custodian and each Fund.
(d) Where appropriate, Instructions and Special Instructions shall be continuing Instructions.
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(e) An Authorized Person shall be responsible for assuring the accuracy and completeness of Instructions. If the Custodian reasonably determines that an Instruction is unclear or incomplete, the Custodian may notify a Fund of such determination, in which case the Fund shall be responsible for delivering to the Custodian an amended Instruction. The Custodian shall have no obligation to take any action until an Authorized Person re-delivers to the Custodian an Instruction that is clear and complete.
(f) The Fund shall be responsible for delivering to the Custodian Instructions or Special Instructions in a timely manner, after considering such factors as the involvement of subcustodians, brokers or agents in a transaction, time zone differences, reasonable industry standards, etc. The Custodian shall have no liability if a Fund delivers Instructions or Special Instructions to the Custodian after any deadline reasonably established by the Custodian and communicated to the Fund.
(g) By providing Instructions to acquire or hold Foreign Assets, each Fund shall be deemed to have confirmed to the Custodian that the Fund has considered and accepted responsibility for all Sovereign Risks and Country Risks (as hereinafter defined) associated with investing in a particular country or jurisdiction The term “Foreign Assets”, as used herein, shall mean any Asset (including foreign currencies) for which the primary market is outside the United States, and any cash or cash equivalents that are reasonably necessary to effect a Fund’s transactions in those Assets.
3. DELIVERY OF ORGANIZATIONAL DOCUMENTS.
Each of the parties to this Agreement represents that: (a) its execution does not violate any of the provisions of its Organizational Document or other agreement governing its operations; (b) that all required corporate or organizational action to authorize the execution and delivery of this Agreement has been taken; and (c) that the person signing this Agreement is authorized to bind such party (and, in the case of the Funds, that the person signing this Agreement is authorized to bind each of the Funds listed on Appendix B, as such Appendix may be amended from time to time).
Each Fund agrees to provide the Custodian, upon reasonable request, documentation regarding the Fund necessary for the Custodian’s performance of the services provided hereunder, including, by way of example: a Fund’s Offering Memorandum, Organizational Document, by-laws (or other similar agreement governing the Fund’s operations), resolutions, the investment management or investment advisory agreement between the Fund and the Manager, W-9s and other tax-related documentation, compliance policies and procedures and other compliance documents, etc.
In addition, each Fund has delivered or will promptly deliver to the Custodian, copies of the Resolution(s) of the Fund and all amendments or supplements thereto, properly certified or authenticated, designating certain partners, managing members, director, officers, employees and/or agents of the Fund who will have continuing authority to certify to the Custodian: (a) the names, titles, signatures and scope of authority of all persons authorized to give Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of the Fund; and (b) the names, titles and signatures of those persons authorized to countersign or confirm Special Instructions on behalf of the Fund (in each of such cases collectively, the “Authorized Persons” and individually, an “Authorized Person”). Such Resolutions and certificates may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Custodian of a similar Resolution or certificate to the contrary; provided, however, that the Custodian may rely upon any written designation furnished by the Fund designating persons authorized to countersign or confirm Special Instructions (as provided in Section 2(b)). Upon delivery of a certificate which deletes or does not include the name(s) of a person previously authorized to give Instructions or to countersign or confirm Special Instructions, such person shall no longer be considered an Authorized Person authorized to give Instructions or to countersign or confirm Special Instructions. Unless the certificate specifically requires that the approval of anyone else will first have been obtained, the Custodian will be under no obligation to inquire into the right of the person giving such Instructions or Special Instructions to do so. Notwithstanding any of the foregoing, no Instructions or Special Instructions received by the Custodian from a Fund will be deemed to authorize or permit any partner, managing member, director, officer, employee or agent of the Fund to withdraw any of the Assets of such Fund upon the mere receipt of such authorization, Special Instructions or Instructions from such partner, managing member, director, trustee, officer, employee, agent.
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4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Foreign Subcustodian, Interim Subcustodian or Special Subcustodian appointed pursuant to Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the powers and duties hereinafter set forth in this Section 4. For purposes of this Section 4 all references to powers and duties of the “Custodian” shall also refer to any Domestic Subcustodian appointed pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of each Fund which are delivered to and accepted by it from time to time. The Custodian shall notify a Fund if it is unwilling or unable to accept custody of any asset of such Fund. The Custodian shall not be responsible for any property of a Fund held by a Fund and not delivered to the Custodian or for any pre-existing faults or defects in Assets that are delivered to the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of each Fund either: (i) by physical possession of the share certificates or other instruments representing such Securities, in registered or bearer form; in the vault of the Custodian, Domestic Subcustodian, a Special Custodian, depository or agent of the Custodian; or in an account maintained by the Custodian or agent at a Securities System (as hereinafter defined); or (ii) in book-entry form by a Securities System in accordance with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which have been delivered to it in physical form, by registering the same in the name of the appropriate Fund or its nominee, or in the name of the Custodian or its nominee, for whose actions such Fund and Custodian, respectively, shall be fully responsible. Upon the receipt of Instructions, the Custodian shall hold such Securities in street certificate form, so called, with or without any indication of representative capacity. However, unless it receives Instructions to the contrary, the Custodian will register all such portfolio Securities in the name of the Custodian’s authorized nominee. Securities held in certificated form and Underlying Shares not held in book-entry form by a Securities System shall be held in a segregated account of the Custodian containing only assets of the appropriate Fund.
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(3) The Custodian may deposit and/or maintain domestic Securities owned by a Fund in, and each Fund hereby approves use of: (a) The Depository Trust & Clearing Corporation; (b) any other clearing agency registered with the Securities and Exchange Commission (“SEC”) under section 17A of the Securities Exchange Act of 1934, which acts as a securities depository; and (c) a Federal Reserve Bank or other entity authorized to operate the federal book-entry system described in the regulations of the Department of the Treasury or book-entry systems operated pursuant to comparable regulations of other federal agencies. Upon the receipt of Special Instructions, the Custodian may deposit and/or maintain domestic Securities owned by a Fund in any other domestic clearing agency that may otherwise be authorized by the SEC to serve in the capacity of depository or clearing agent for the Securities or other assets of investment companies and that acts as a Securities depository. Each of the foregoing shall be referred to in this Agreement as a “Securities System”, and all such Securities Systems shall be listed on the attached Appendix A. Use of a Securities System shall be in accordance with applicable Federal Reserve Board and SEC rules and regulations, including without limitation Rule 17f-4 under the Investment Company Act, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through one or more agents or Subcustodians which are also qualified to act as custodians for investment companies.
(ii) Securities held in a Securities System shall be subject to any agreements or rules effective between the Securities System and the Custodian or a Subcustodian, as the case may be.
(iii) Any Securities deposited or maintained in a Securities System shall be held in an account (“Account”) of the Custodian or a Subcustodian in the Securities System that includes only assets held by the Custodian or Subcustodian on behalf of the applicable Fund.
(iv) The books and records of the Custodian shall at all times identify those Securities belonging to any one or more Funds which are maintained in a Securities System.
(v) The Custodian shall pay for Securities purchased for the account of a Fund only upon (a) receipt of advice from the Securities System that such Securities have been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of such Fund. The Custodian shall transfer Securities sold for the account of a Fund only upon (a) receipt of advice from the Securities System that payment for such Securities has been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of such Fund. Copies of all advices from the Securities System relating to transfers of Securities for the account of a Fund shall be maintained for such Fund by the Custodian. Such copies may be maintained by the Custodian in electronic form. The Custodian shall make available to the Fund or its agent on the next business day, by Electronic Communication, facsimile, or other means reasonably acceptable to both parties, daily transaction activity that shall include each day’s transactions for the account of such Fund.
(vi) The Custodian shall provide each Fund with reports required to be furnished to the Fund pursuant to Rule 17f-4 under the Investment Company Act and such other reports as from time to time may be agreed upon by the Custodian and the Fund. Without limiting the foregoing, the Custodian shall provide to each Fund: (a) sub-certifications in connection with Sarbanes-Oxley Act of 2002 certification requirements; and (b) periodic reports in such form reasonably agreed to by the parties with respect to the services hereunder and the Custodian's compliance with its operating policies and procedures.
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(c) Underlying Shares.
(1) The provisions of this Section 4(c) shall govern the custody of the Underlying Shares and, to the extent there is a conflict between such provisions and the provisions of any other section of this Agreement with respect to Underlying Shares, the terms of this Section 4(c) shall control.
(2) The Underlying Shares beneficially owned by a Fund shall be deposited and/or held in an account or accounts maintained by a transfer agent, registrar, recordkeeper, general partner, corporate secretary or other relevant third party (each a “Transfer Agent”) pursuant to Instructions to the Custodian. The Fund and the Custodian agree that the Custodian’s only responsibilities in connection with Underlying Shares shall be limited to the following:
(i) Upon receipt of a confirmation or statement from a Transfer Agent that such Transfer Agent is holding or maintaining Underlying Shares in the name of the Custodian (or a nominee of the Custodian) for the benefit of a Fund, the Custodian shall (A) mark such holdings on its books and records and (B) identify by book-entry that the relevant Underlying Shares are being held by the Custodian as custodian for the benefit of such Fund;
(ii) In accordance with Instructions, the Custodian shall (A) pay out monies from Fund Assets for the purchase of Underlying Shares for the account of the Fund and (B) record such purchase on the books and records of the Custodian; and
(iii) In accordance with Instructions, the Custodian shall (A) transfer Underlying Shares redeemed for the account of the Fund in accordance with such Instructions and (B) record such transfer on the books and records of the Custodian and, upon receipt of related proceeds, record the related payment for the account of the Fund on said books and records.
(d) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and except as provided in Section 3 hereof, the Custodian, upon receipt of Special Instructions, will undertake to make free delivery of Assets, provided such Assets are on hand and available, in connection with a Fund’s transactions and to transfer such Assets to such broker, dealer, Subcustodian, bank, agent, Securities System or otherwise as specified in such Special Instructions.
(e) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange Securities held by it for a Fund for other Securities or cash paid in connection with any reorganization, recapitalization, merger, consolidation, conversion, or similar event, and will deposit any such Securities in accordance with the terms of any reorganization or protective plan.
Unless otherwise directed by Instructions, the Custodian is authorized to exchange Securities held by it in temporary form for Securities in definitive form, to surrender Securities for transfer into a name or nominee name as permitted in Section 4(b)(2), to effect an exchange of shares in a stock split or when the par value of the stock is changed, to sell any fractional shares, and, upon receiving payment therefor, to surrender bonds or other Securities held by it at maturity or call.
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(f) Purchases of Assets.
(1) Securities Purchases. In accordance with Instructions, the Custodian shall, with respect to a purchase of Securities, pay for such Securities out of monies held for a Fund’s account for which the purchase was made, but only insofar as monies are available therein for such purpose, and receive the Securities so purchased. Unless the Custodian has received Special Instructions to the contrary, such payment will be made only upon delivery of such Securities to the Custodian, a clearing corporation of a national securities exchange of which the Custodian is a member, or a Securities System in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, (i) in connection with a repurchase agreement, the Custodian may release funds to a Securities System prior to the receipt of advice from the Securities System that the Securities underlying such repurchase agreement have been transferred by book-entry into the Account maintained with such Securities System by the Custodian, provided that the Custodian’s instructions to the Securities System require that the Securities System may make payment of such funds to the other party to the repurchase agreement only upon transfer by book-entry of the Securities underlying the repurchase agreement into such Account; (ii) in the case of options, Interest Bearing Deposits, currency deposits and other deposits, and foreign exchange transactions, pursuant to Sections 4(h), 4(l), and 4(m) hereof, the Custodian may make payment therefor before receipt of an advice of transaction; and (iii) the Custodian may make payment for Securities or other Assets prior to delivery thereof in accordance with Instructions, applicable laws, generally accepted trade practices, or the terms of the instrument representing such Security or other Asset, including, but not limited to, Securities and other Assets as to which payment for the Security and receipt of the instrument evidencing the Security are under generally accepted trade practices or the terms of the instrument representing the Security expected to take place in different locations or through separate parties.
(2) Other Assets Purchased. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall pay for and receive other Assets for the account of a Fund as provided in Instructions.
(g) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the Custodian shall, with respect to a sale, deliver or cause to be delivered the Securities thus designated as sold to the broker or other person specified in the Instructions relating to such sale. Unless the Custodian has received Special Instructions to the contrary, such delivery shall be made only upon receipt of payment therefor in the form of: (a) cash, certified check, bank cashier’s check, bank credit, or bank wire transfer; (b) credit to the account of the Custodian with a clearing corporation of a national securities exchange of which the Custodian is a member; or (c) credit to the Account of the Custodian with a Securities System, in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, the Custodian may deliver Securities and other Assets prior to receipt of payment for such Securities in accordance with Instructions, applicable laws, generally accepted trade practices, or the terms of the instrument representing such Security or other Asset. For example, Securities held in physical form may be delivered and paid for in accordance with “street delivery custom” to a broker or its clearing agent, against delivery to the Custodian of a receipt for such Securities, provided that the Custodian shall have taken reasonable steps to ensure prompt collection of the payment for, or return of, such Securities by the broker or its clearing agent, and provided further that the Custodian shall not be responsible for the selection of or the failure or inability to perform of such broker or its clearing agent or for any related loss arising from delivery or custody of such Securities prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall receive payment for and deliver other Assets for the account of a Fund as provided in Instructions.
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(h) Options.
(1) Upon receipt of Instructions relating to the purchase of an option or sale of a covered call option, the Custodian shall: (a) receive and retain Instructions or other documents, to the extent they are provided to the Custodian, evidencing the purchase or writing of the option by a Fund; (b) if the transaction involves the sale of a covered call option, deposit and maintain in a segregated account the Securities (either physically or by book-entry in a Securities System) subject to the covered call option written on behalf of such Fund; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any notices or other communications evidencing the expiration, termination or exercise of such options which are furnished to the Custodian by the Options Clearing Corporation (the “OCC”), the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked option (including stock index and commodity options), the Custodian, the appropriate Fund and the broker-dealer shall enter into an agreement to comply with the rules of the OCC or of any registered national securities exchange or similar organizations(s). Pursuant to that agreement and such Fund’s Instructions, the Custodian shall: (a) receive and retain Instructions or other documents, if any, evidencing the writing of the option; (b) deposit and maintain in a segregated account, Securities (either physically or by book-entry in a Securities System), cash and/or other Assets; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any such agreement and with any notices or other communications evidencing the expiration, termination or exercise of such option which are furnished to the Custodian by the OCC, the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions. The appropriate Fund and the broker-dealer shall be responsible for determining the quality and quantity of assets held in any segregated account established in compliance with applicable margin maintenance requirements and the performance of other terms of any option contract.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and maintain on its books a segregated account or accounts for and on behalf of a Fund, into which account or accounts may be transferred Assets of such Fund, including Securities maintained by the Custodian in a Securities System pursuant to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained: (i) for the purposes set forth in Sections 4(h) and 4(n); and (ii) for such other purposes as may be set forth, from time to time, in Special Instructions. The Custodian shall not be responsible for the determination of the type or amount of Assets to be held in any segregated account referred to in this paragraph.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered Securities to the depository used for such Securities by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter referred to, collectively, as “ADRs”), against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the organization surrendering the same that the depository has acknowledged receipt of instructions to issue ADRs with respect to such Securities in the name of the Custodian or a nominee of the Custodian, for delivery in accordance with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered ADRs to the issuer thereof, against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the organization surrendering the same that the issuer of the ADRs has acknowledged receipt of instructions to cause its depository to deliver the Securities underlying such ADRs in accordance with such instructions.
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(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver warrants, puts, calls, rights or similar Securities to the issuer or trustee thereof (or to the agent of such issuer or trustee) for the purpose of exercise or sale, provided that the new Securities, cash or other Assets, if any, acquired as a result of such actions are to be delivered to the Custodian; and (b) deposit Assets upon invitations for tenders thereof, provided that the consideration for such Assets is to be paid or delivered to the Custodian, or the tendered Assets are to be returned to the Custodian.
Unless otherwise directed to the contrary in Instructions, the Custodian shall comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions, or similar rights of security ownership of which the Custodian receives notice through data services or publications to which it normally subscribes, and shall promptly notify the appropriate Fund of such action.
Each Fund agrees that if it gives an Instruction for the performance of an act on the last permissible date of a period established by the Custodian or any optional offer or on the last permissible date for the performance of such act, the Fund shall hold the Custodian harmless from any adverse consequences in connection with acting upon or failing to act upon such Instructions.
If a Fund wishes to receive periodic corporate action notices of exchanges, calls, tenders, redemptions and other similar notices pertaining to Assets and to provide Instructions with respect to such Assets via the internet, the Custodian and such Fund may enter into a Supplement to this Agreement whereby such Fund will be able to participate in the Custodian’s Electronic Corporate Action Notification Service.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase interest bearing fixed-term certificates of deposit or call deposits (hereinafter referred to, collectively, as “Interest Bearing Deposits”) for the account of a Fund, the Custodian shall purchase such Interest Bearing Deposits with such banks or trust companies, including the Custodian, any Subcustodian or any subsidiary or affiliate of the Custodian (hereinafter referred to as “Banking Institutions”), and in such amounts as such Fund may direct pursuant to Instructions. Such Interest Bearing Deposits shall be denominated in U.S. dollars. Interest Bearing Deposits issued by the Custodian shall be in the name of the Fund. Interest Bearing Deposits issued by another Banking Institution may be in the name of the Fund or the Custodian or in the name of the Custodian for its customers generally. The responsibilities of the Custodian to a Fund for Interest Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a similar deposit. With respect to Interest Bearing Deposits issued by any other Banking Institution, (a) the Custodian shall be responsible for the collection of income and the transmission of cash to and from such accounts; and (b) the Custodian shall have no duty with respect to the selection of the Banking Institution or for the failure of such Banking Institution to pay upon demand.
(m) Foreign Exchange Transactions.
(l) Each Fund may appoint the Custodian as its agent in the execution of all currency exchange transactions. If requested, the Custodian agrees to provide exchange rate and U.S. Dollar information, in writing, or by other means agreeable to both parties, to the Funds.
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(2) Upon receipt of Instructions, the Custodian shall settle foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of a Fund with such currency brokers or Banking Institutions as such Fund may determine and direct pursuant to Instructions. If, in its Instructions, a Fund does not direct the Custodian to utilize a particular currency broker or Banking Institution, the Custodian is authorized to select such currency broker or Banking Institution as it deems appropriate to execute the Fund’s foreign currency transaction. It is understood that all such transactions shall be undertaken by the Custodian as agent for the Funds.
(3) Each Fund accepts full responsibility for its use of third party foreign exchange brokers and for execution of said foreign exchange contracts and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred as a result of the failure or delay of its third party broker to deliver foreign exchange. The Custodian shall have no responsibility or liability with respect to the selection of the currency brokers or Banking Institutions with which a Fund deals or the performance or non-performance of such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon receipt of Instructions the Custodian may, in connection with a foreign exchange contract, make free outgoing payments of cash in the form of U.S. Dollars or foreign currency prior to receipt of confirmation of such foreign exchange contract or confirmation that the countervalue currency completing such contract has been delivered or received.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the Custodian will release or cause to be released Securities held in custody to the pledgees designated in such Instructions by way of pledge or hypothecation to secure loans incurred by such Fund with various lenders including but not limited to UMB Bank, n.a.; provided, however, that the Securities shall be released only upon payment to the Custodian of the monies borrowed, except that in cases where additional collateral is required to secure existing borrowings, further Securities may be released or delivered, or caused to be released or delivered for that purpose upon receipt of Instructions. Upon receipt of Instructions, the Custodian will pay, but only from funds available for such purpose, any such loan upon re-delivery to it of the Securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing such loan. In lieu of delivering collateral to a pledgee, the Custodian, on the receipt of Instructions, shall transfer the pledged Securities to a segregated account for the benefit of the pledgee.
(2) Upon receipt of Instructions, the Custodian will release securities to a securities lending agent appointed by the Fund and designated in such Instructions. The Custodian shall act upon Instructions from the Fund and/or such agent in order to effect securities lending transactions on behalf of the Fund. For its services in facilitating a Fund’s securities lending activities through such agent, the Custodian may receive from the agent a portion of the agent’s securities lending revenue or a fee directly from the Fund. The Custodian shall have no responsibility or liability for any losses arising in connection with the agent’s actions or omissions, including but not limited to the delivery of Securities prior to the receipt of collateral, in the absence of negligence or willful misconduct on the part of the Custodian.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends, rights, and other items of like nature and, upon receipt of Instructions, take action with respect to the same as directed in such Instructions.
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(p) Routine Dealings.
The Custodian will, in general, attend to all routine and operational matters in accordance with industry standards in connection with the sale, exchange, substitution, purchase, transfer, or other dealings with Securities or other property of each Fund, except as may be otherwise provided in this Agreement or directed from time to time by Instructions from any particular Fund. The Custodian may also make payments to itself or others from the Assets for disbursements and out-of-pocket expenses incidental to handling Securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to each Fund with respect to Securities and other Assets; (b) promptly credit to the account of each Fund all income and other payments relating to Securities and other Assets held by the Custodian hereunder upon Custodian’s receipt of such income or payments or as otherwise agreed in writing by the Custodian and any particular Fund; (c) promptly endorse and deliver any instruments required to effect such collection; and (d) promptly execute ownership and other certificates, affidavits and other documents for all federal, state, local and foreign tax purposes in connection with receipt of income or other payments with respect to Securities and other Assets, or in connection with the transfer of such Securities or other Assets; provided, however, that with respect to Securities registered in so-called street name, or physical Securities with variable interest rates, the Custodian shall use its best efforts to collect amounts due and payable to any such Fund. The Custodian shall not be responsible for the collection of amounts due and payable with respect to Securities or other Assets that are in default.
Any advance credit of cash or Securities or other Assets expected to be received shall be subject to actual collection and may, when the Custodian determines collection unlikely, be reversed by the Custodian.
(r) Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to holders of Interests of each such Fund, the Custodian shall release cash or Securities insofar as available. In the case of cash, the Custodian shall, upon the receipt of Instructions, transfer such funds by check or wire transfer to any account at any bank or trust company designated by each such Fund in such Instructions. In the case of Securities, the Custodian shall, upon the receipt of Special Instructions, make such transfer to any entity or account designated by each such Fund in such Special Instructions.
(s) Proceeds from Interests Sold.
The Custodian shall receive funds representing cash payments received for Interests issued or sold from time to time by each Fund, and shall credit such funds to the account of the appropriate Fund. Upon receipt of Instructions, the Custodian shall: (a) deliver all federal funds received by the Custodian in payment for Interests as may be set forth in such Instructions and at a time agreed upon between the Custodian and such Fund; and (b) make federal funds available to a Fund as of specified times agreed upon from time to time by such Fund and the Custodian, in the amount of checks received in payment for Interests which are deposited to the accounts of such Fund.
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(t) Proxies and Notices; Compliance with the Shareholder Communications Act of 1985.
The Custodian shall deliver or cause to be delivered to the appropriate Fund, or its designated agent or proxy service provider, all forms of proxies, all notices of meetings, and any other notices or announcements affecting or relating to Securities or Underlying Shares owned by such Fund that are received by the Custodian and, upon receipt of Instructions, the Custodian shall execute and deliver, or cause a Subcustodian or nominee to execute and deliver such proxies or other authorizations as may be required. Except as directed pursuant to Instructions, the Custodian shall not vote upon any such Securities or Underlying Shares, or execute any proxy to vote thereon, or give any consent or take any other action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and any such Fund unless a particular Fund directs the Custodian otherwise pursuant to Instructions.
(u) Books and Records.
The Custodian shall maintain such records relating to its activities under this Agreement, which shall be open for inspection by duly authorized officers, employees or agents (including independent public accountants) of the appropriate Fund during normal business hours of the Custodian.
The Custodian shall provide accountings relating to its activities under this Agreement as shall be agreed upon by each Fund and the Custodian.
(v) Opinion of Fund’s Independent Certified Public Accountants.
The Custodian shall take all reasonable action as each Fund may request to obtain from year to year favorable opinions from each such Fund’s independent certified public accountants with respect to the Custodian’s activities hereunder and in connection with the preparation of each such Fund’s periodic reports to the SEC and with respect to any other requirements of the SEC.
(w) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such Fund a written report, which may be in electronic form, prepared by the Custodian’s independent certified public accountants with respect to the services provided by the Custodian under this Agreement, including, without limitation, the Custodian’s accounting system, internal accounting control, financial strength and procedures for safeguarding cash, Securities and other Assets, including cash, Securities and other Assets deposited and/or maintained in a Securities System or with a Subcustodian. Such report shall be of sufficient scope and in sufficient detail as may reasonably be required by such Fund and as may reasonably be obtained by the Custodian.
(x) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause to be paid, all bills, statements, or other obligations of a Fund.
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(y) Sweep or Automated Cash Management.
Upon receipt of Instructions, the Custodian shall invest any otherwise uninvested cash of any Fund held by the Custodian in a money market mutual fund, a cash deposit product, or other cash investment vehicle made available by the Custodian from time to time, in accordance with the directions contained in such Instructions. A fee may be charged or a spread may be received by the Custodian for investing the Fund’s otherwise uninvested cash in the available cash investment vehicles or products.
The Custodian shall have no responsibility to determine whether any purchases of money market mutual fund shares or any other cash investment vehicle or cash deposit product by or on behalf of the Funds under the terms of this section will cause any Fund to exceed any limitations under any applicable law on ownership of shares of another investment fund or any other asset or portfolio restrictions or limitations contained in applicable laws or regulations or the Funds’ Offering Memorandum, Organizational Document or any other agreement governing the operations of the Funds. Each Fund agrees to indemnify and hold harmless the Custodian from all losses, damages and expenses (including attorney’s fees) suffered or incurred by the Custodian as a result of a violation by such Fund of any limitations on ownership of shares of another investment fund or any other cash investment vehicle or cash deposit product.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of this Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians or Interim Subcustodians (as each as hereinafter defined) to act on behalf of any one or more Funds. For purposes of this Agreement, all Domestic Subcustodians, Special Subcustodians, Foreign Subcustodians and Interim Subcustodians shall be referred to collectively as “Subcustodians.”
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint any bank, trust company or other entity which is itself qualified under the Investment Company Act to act as a custodian, to act for the Custodian on behalf of any one or more Funds as a subcustodian for purposes of holding Assets of such Fund(s) and performing other functions of the Custodian within the United States (a “Domestic Subcustodian”). Each Fund shall approve in writing the appointment of the proposed Domestic Subcustodian; and the Custodian’s appointment of any such Domestic Subcustodian shall not be effective without such prior written approval of the Fund(s) or as otherwise provided under the Investment Company Act. Each such duly approved Domestic Subcustodian shall be reflected on Appendix A hereto.
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(b) Foreign Subcustodians.
The Custodian may appoint, or cause a Domestic Subcustodian to appoint, any bank, trust company or other entity that is an “Eligible Foreign Custodian” within the meaning set forth in section (a)(1) of Rule 17f-5 under the Investment Company Act to act for the Custodian on behalf of any one or more Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic Subcustodian) for purposes of holding Assets of the Fund(s) and performing other functions of the Custodian in countries other than the United States of America (hereinafter referred to as “Foreign Subcustodian” in the context of either a subcustodian or sub-subcustodian); provided that the Custodian shall have obtained a prior written approval from each Fund (which approval may be withheld in the sole discretion of the Fund) with respect to (i) the identity of any proposed Foreign Subcustodian, (ii) the country or countries in which, and the securities depositories or clearing agencies (hereinafter “Foreign Securities Depositories and Clearing Agencies”), if any, through which the Custodian, or any proposed Foreign Subcustodian is authorized to hold Securities and other Assets of each such Fund, and (iii) the form and terms of the subcustodian agreement to be entered into with the proposed Foreign Subcustodian. Each Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country in which no Foreign Subcustodian is authorized to act, in order that there shall be sufficient time for the Custodian, or any Domestic Subcustodian, to effect the appropriate arrangements with a proposed Foreign Subcustodian, including obtaining approval as provided in this Section 5(b). In connection with the appointment of any Foreign Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian to, enter into a subcustodian agreement with the Foreign Subcustodian in form and substance approved by the Fund and satisfying the requirements of Rule 17f-5(c)(2) under the Investment Company Act. The Custodian shall not consent to the amendment of, and shall cause any Domestic Subcustodian not to consent to the amendment of, any agreement entered into with a Foreign Subcustodian, which materially affects any Fund’s rights under such agreement, except upon prior written approval of the Fund.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event that a Fund shall invest in an Asset to be held in a country in which no Foreign Subcustodian is authorized to act, the Custodian shall, or shall cause the Domestic Subcustodian to, promptly notify the Fund in writing by facsimile transmission, Electronic Communication, or otherwise of the unavailability of an approved Foreign Subcustodian in such country. The Custodian and the Domestic Subcustodian, as applicable, shall be entitled to rely on and shall have no liability or responsibility for following an Instruction from a Fund and shall have no duties or liabilities under this Agreement save those that it may undertake specifically in writing with respect to each particular instance. Upon the receipt of Instructions from a Fund and the completion of any actions required by applicable law, the Custodian may, in it absolute discretion, designate, or cause the Domestic Subcustodian to designate, an entity (defined herein as “Interim Subcustodian”) designated by the Fund in Instructions, to hold such security or other Asset.
(d) Special Subcustodians.
Upon receipt of Instructions from a Fund, the Custodian shall, on behalf of a Fund, appoint one or more banks, trust companies or other entities designated in such Special Instructions to act for the Custodian on behalf of such Fund as a subcustodian for purposes of: (i) effecting third-party repurchase transactions with banks, brokers, dealers or other entities through the use of a common custodian or subcustodian; (ii) providing depository and clearing agency services with respect to certain variable rate demand note Securities, (iii) providing depository and clearing agency services with respect to dollar denominated Securities; and (iv) effecting any other transactions designated by such Fund in Instructions. Each such designated subcustodian (hereinafter referred to as a “Special Subcustodian”) shall be listed on Appendix A attached hereto, as it may be amended from time to time. In connection with the appointment of any Special Subcustodian, the Custodian may enter into a subcustodian agreement with the Special Subcustodian.
(e) Termination of a Subcustodian.
The Custodian or Domestic Subcustodian may, at any time in its discretion upon notification to the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance with the termination provisions under the applicable subcustodian agreement, and upon the receipt of Special Instructions, the Custodian or Domestic Subcustodian shall terminate any Subcustodian in accordance with the termination provisions under the applicable subcustodian agreement.
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(f) Information Regarding Foreign Subcustodians.
Upon request of a Fund, the Custodian shall deliver, or cause the Domestic Subcustodian to deliver, to the Fund a letter or list stating: (i) the identity of each Foreign Subcustodian then acting on behalf of the Custodian; (ii) the Foreign Securities Depositories and Clearing Agencies in each foreign market through which each Foreign Subcustodian is then holding cash, securities and other Assets of the Fund; and (iii) such other information as may be requested by the Fund.
6. STANDARD OF CARE.
(a) Compliance with Laws.
The Custodian undertakes to comply with material applicable requirements of the material laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by the Custodian. Except as specifically set forth herein, the Custodian assumes no responsibility for such compliance by a Fund or any other entity.
(b) General Standard of Care.
Without limiting the foregoing, the Custodian shall exercise due care in accordance with reasonable commercial standards in discharging its duties hereunder. The Custodian shall be liable to a Fund for all losses, damages and reasonable costs and expenses suffered or incurred by such Fund resulting from a material breach of this Agreement or the fraud, negligence or willful misconduct of the Custodian; provided , however, in no event shall the Custodian be liable for special, indirect, consequential or punitive damages arising under or in connection with this Agreement.
(c) Actions Prohibited by Applicable Law, Etc.
In no event shall the Custodian incur liability hereunder if the Custodian or any Subcustodian or Securities System, or any Subcustodian, Foreign Securities Depository and Clearing Agency utilized by any such Subcustodian, or any nominee of the Custodian or any Subcustodian (individually, a “Person”) is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of: (i) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or of any foreign country, or political subdivision thereof or of any court of competent jurisdiction (and neither the Custodian nor any other Person shall be obligated to take any action contrary thereto); or (ii) any “Force Majeure,” which for purposes of this Agreement, shall mean any circumstance or event which is beyond the reasonable control of the Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian and which adversely affects the performance by the Custodian of its obligations hereunder, by the Subcustodian of its obligations under its subcustodian agreement or by any other agent of the Custodian or the Subcustodian, unless in each case, such delay or nonperformance is caused by the material breach of this Agreement, fraud, negligence or willful misconduct of the Custodian. Such Force Majeure events may include any event caused by, arising out of or involving (a) an act of God, (b) accident, fire, water damage or explosion, (c) any computer, system outage or downtime or other equipment failure or malfunction caused by any computer virus or any other reason or the malfunction or failure of any communications medium, (d) any interruption of the power supply or other utility service, (e) any strike or other work stoppage, whether partial or total, (f) any delay or disruption resulting from or reflecting the occurrence of any Sovereign Risk (as defined below), (g) any disruption of, or suspension of trading in, the securities, commodities or foreign exchange markets, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the transferability of cash, currency or a currency position on the actual settlement date of a foreign exchange transaction, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, or (i) any other cause similarly beyond the reasonable control of the Custodian.
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Subject to the Custodian’s general standard of care set forth in Subsection 6(b) hereof, the Custodian shall not incur liability hereunder if any Person is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed by reason of any (i) “Sovereign Risk,” which for the purpose of this Agreement shall mean, in respect of any jurisdiction, including but not limited to the United States of America, where investments are acquired or held under this Agreement, (a) any act of war, terrorism, riot, insurrection or civil commotion, (b) the imposition of any investment, repatriation or exchange control restrictions by any governmental authority, (c) the confiscation, expropriation or nationalization of any investments by any governmental authority, whether de facto or de jure, (d) any devaluation or revaluation of the currency, (e) the imposition of taxes, levies or other charges affecting investments, (f) any change in the applicable law, or (g) any other economic, systemic or political risk incurred or experienced, except as otherwise provided in this Agreement, or (ii) “Country Risk,” which for the purpose of this Agreement shall mean, with respect to the acquisition, ownership, settlement or custody of investments in a jurisdiction, all risks relating to, or arising in consequence of, systemic and markets factors affecting the acquisition, payment for or ownership of investments, including (a) the prevalence of crime and corruption in such jurisdiction, (b) the inaccuracy or unreliability of business and financial information, (c) the instability or volatility of banking and financial systems, or the absence or inadequacy of an infrastructure to support such systems, (d) custody and settlement infrastructure of the market in which such investments are transacted and held, (e) the acts, omissions and operation of any Foreign Securities Depository and Clearing Agency, (f) the risk of the bankruptcy or insolvency of banking agents, counterparties to cash and securities transactions, registrars or transfer agents, (g) the existence of market conditions which prevent the orderly execution or settlement of transactions or which affect the value of assets, and (h) the laws relating to the safekeeping and recovery of a Fund’s Assets held in custody pursuant to the terms of this Agreement.
(d) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have any liability in respect of any loss, damage or expense suffered by a Fund, insofar as such loss, damage or expense arises from the performance of the Custodian or any Domestic Subcustodian in reliance upon records that were maintained for such Fund by entities other than the Custodian or any Domestic Subcustodian prior to the Custodian’s employment hereunder.
(e) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled to receive and act upon advice of counsel of its own choosing on all matters. The Custodian and all Domestic Subcustodians shall be without liability for any actions taken or omitted reasonably and in good faith pursuant to the advice of counsel.
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(f) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may reasonably rely upon the advice of any Fund and upon statements of such Fund’s accountants and other persons believed by it in good faith to be expert in matters upon which they are consulted, and neither the Custodian nor any Domestic Subcustodian shall be liable for any actions taken or omitted, in good faith, pursuant to such advice or statements.
(g) Information Services.
The Custodian may reasonably rely upon information received from issuers of Securities or other Assets or agents of such issuers, information received from Subcustodians or depositories, information from data reporting services that provide detail on corporate actions and other securities information, and other commercially reasonable industry sources; and, provided the Custodian has acted in accordance with the standard of care set forth in Section 6(b), the Custodian shall have no liability as a result of relying upon such information sources, including but not limited to errors in any such information.
(h) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully protected and indemnified in acting as a custodian hereunder upon any Resolutions of the Board of the Fund, Instructions, Special Instructions, advice, notice, request, consent, certificate, instrument or paper appearing to it to be genuine and to have been properly executed and shall, unless otherwise specifically provided herein, be entitled to receive as conclusive proof of any fact or matter required to be ascertained from any Fund hereunder a certificate signed by any officer of such Fund authorized to countersign or confirm Special Instructions. The Custodian shall be entitled to rely upon any Instructions or Special Instructions from an Authorized Person (or from a person reasonably believed by the Custodian to be an Authorized Person in accordance with Section 3 hereof). The Custodian shall be further entitled to assume that any Instructions or Special Instructions are not in any way inconsistent with the provisions of a Fund’s Organizational Documents, Offering Memorandum or any other agreement governing such Fund’s operations. The Custodian shall have no duty to inquire into or investigate the validity, accuracy or content of any Instruction or Special Instruction. The Custodian shall have no liability for any losses, damages or expenses incurred by a Fund arising from the use of a non-secure form of email or other non-secure electronic system or process.
(i) No Investment Advice.
The Custodian shall have no duty to assess the risks inherent in Securities or other Assets or to provide investment advice, accounting or other valuation services regarding any such Securities or other Assets.
(j) Exceptions from Liability.
Without limiting the generality of any other provisions hereof, neither the Custodian nor any Domestic Subcustodian shall be under any duty or obligation to inquire into, nor be liable for:
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(i) the validity of the issue of any Securities purchased by or for any Fund, the legality of the purchase thereof or evidence of ownership required to be received by any such Fund, or the propriety of the decision to purchase or amount paid therefor;
(ii) the legality of the sale, transfer or movement of any Securities by or for any Fund, or the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities, borrowings or similar actions with respect to any Fund’s Assets;
and may, until notified to the contrary, presume that all Instructions or Special Instructions received by it are not in conflict with or in any way contrary to any provisions of any such Fund’s Organizational Document, Offering Memorandum or any other agreement governing the operations of the Funds.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians
Except as provided in Section 7(d), the Custodian shall be liable for the acts or omissions of any Domestic Subcustodian to the same extent as if such actions or omissions were performed by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
The Custodian shall be liable to a Fund for any loss or damage to such Fund caused by or resulting from the acts or omissions of any Foreign Subcustodian only to the extent that, under the terms set forth in the subcustodian agreement between the Custodian or a Domestic Subcustodian and such Foreign Subcustodian, the Foreign Subcustodian has failed to perform in accordance with the standard of care imposed under such subcustodian agreement, which standard of care shall be no less than the standard of care imposed on the Custodian by this Agreement, and the Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under the applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians, Special Subcustodians, Foreign Securities and Clearing Agencies.
The Custodian shall not be liable to any Fund for any loss, damage or expense suffered or incurred by such Fund resulting from or occasioned by the actions or omissions of a Securities System, Interim Subcustodian, Special Subcustodian, Foreign Securities Depository or Clearing Agency unless such loss, damage or expense is caused by, or results from, the fraud, negligence or willful misconduct of the Custodian.
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(d) Failure of Third Parties.
The Custodian shall not be liable for any loss, damage or expense suffered or incurred by any Fund resulting from or occasioned by the actions, omissions, neglects, defaults, insolvency or other failure of (i) any issuer of any Securities or Underlying Shares or of any agent of such issuer; (ii) any counterparty with respect to any Security or other Asset, including any issuer of any option, futures, derivatives or commodities contract; (iii) the Manager or other agent of a Fund; (iv) any broker, bank, trust company or any other person with whom the Custodian may deal (other than any of such entities acting as a Subcustodian, Securities System or Foreign Securities Depository and Clearing Agency, for whose actions the liability of the Custodian is set out elsewhere in this Agreement); or (v) any agent or depository (including but not limited to a securities lending agent or precious metals depository) with whom the Custodian may deal at the direction of, and behalf of, a Fund; unless such loss, damage or expense is caused by, or results from, the fraud, negligence or willful misconduct of the Custodian or the Custodian’s breach of the terms of any contract between the Funds and the Custodian.
(e) Transfer Agents.
The Custodian shall not be liable to the Fund for any loss or damage to the Fund resulting from the maintenance of Underlying Shares with a Transfer Agent except for losses resulting directly from the fraud, negligence or willful misconduct of the Custodian.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each Fund agrees to indemnify and hold harmless the Custodian and its nominees from all losses, damages and expenses (including attorneys’ fees) suffered or incurred by the Custodian or its nominee caused by or arising from actions reasonably taken by the Custodian, its employees or agents in the performance of its duties and obligations under this Agreement, including, but not limited to, any indemnification obligations undertaken by the Custodian under any relevant subcustodian agreement; provided, however, that (i) such indemnity shall not apply to the extent the Custodian is liable under Sections 6 or 7 hereof and (ii) any indemnification obligation undertaken by the Custodian with respect to a Subcustodian shall not indemnify the Subcustodian for its negligence, bad faith, willful misconduct, reckless disregard of its duties or breach of the agreement with such Subcustodian.
If any Fund requires the Custodian to take any action with respect to Securities, Underlying Shares or other Assets, which action involves the payment of money or which may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to such Fund being liable for the payment of money or incurring liability of some other form, such Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.
Each Fund agrees to indemnify and hold harmless the Custodian for any action the Custodian takes or does not take in reliance upon directions, Instructions or Special Instructions, except for such action or inaction resulting from the Custodian’s negligence or willful misconduct or if the Custodian follows an Instruction or Written Instruction expressly forbidden by this Agreement.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement, the Custodian agrees to indemnify and hold harmless each Fund from all losses, damages and expenses (including attorneys’ fees but with the exception of those damages and expenses referenced in Section 6(b)) suffered or incurred by each such Fund caused by a material breach of this Agreement or the fraud, negligence or willful misconduct of the Custodian or any agent of the Custodian or Subcustodian engaged by the Custodian.
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9. ADVANCES.
In the event that the Custodian or any Subcustodian, Securities System, Foreign Securities Depository or Clearing Agency acting either directly or indirectly under agreement with the Custodian (each of which for purposes of this Section 9 shall be referred to as “Custodian”), makes any payment or transfer of funds on behalf of any Fund as to which there would be, at the close of business on the date of such payment or transfer, insufficient funds held by the Custodian on behalf of any such Fund, the Custodian may, in its discretion without further Instructions, provide an advance (“Advance”) to any such Fund in an amount sufficient to allow the completion of the transaction by reason of which such payment or transfer of funds is to be made. In addition, in the event the Custodian is directed by Instructions to make any payment or transfer of funds on behalf of any Fund as to which it is subsequently determined that such Fund has overdrawn its cash account with the Custodian as of the close of business on the date of such payment or transfer, said overdraft shall constitute an Advance. Any Advance shall be payable by the Fund on behalf of which the Advance was made on demand by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall accrue interest from the date of the Advance to the date of payment by such Fund to the Custodian at a rate determined from time to time by the Custodian. It is understood that any transaction in respect of which the Custodian shall have made an Advance, including but not limited to a foreign exchange contract or transaction in respect of which the Custodian is not acting as a principal, is for the account of and at the risk of the Fund on behalf of which the Advance was made, and not, by reason of such Advance, deemed to be a transaction undertaken by the Custodian for its own account and risk. The Custodian and each of the Funds which are parties to this Agreement acknowledge that the purpose of Advances is to finance temporarily the purchase or sale of Securities for prompt delivery in accordance with the settlement terms of such transactions or to meet emergency expenses not reasonably foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund of any Advance. Such notification may be communicated by telephone, Electronic Communication or facsimile transmission or in such other manner as the Custodian may choose. Nothing herein shall be deemed to create an obligation on the part of the Custodian to advance monies to a Fund. In addition, the Funds hereby agree that they will promptly execute any documentation the Custodian reasonably believes is required under Regulation U with respect to any Advances made pursuant to this Section.
10. SECURITY INTEREST.
To secure the due and prompt payment of all Advances, together with any taxes, charges, fees, expenses, assessments, obligations, claims or liabilities incurred by the Custodian in connection with its or their performance of any duties under this Agreement (collectively, “Liabilities”), except for any Liabilities arising from or the Custodian’s negligence or willful misconduct, each Fund grants to the Custodian a security interest in all of the Fund’s Securities and other Assets now or hereafter in the possession of the Custodian and all proceeds thereof (collectively, the “Collateral”). A Fund shall promptly reimburse the Custodian for any and all such Liabilities. In the event that a Fund fails to satisfy any of the Liabilities as and when due and payable, the Custodian shall have in respect of the Collateral, in addition to all other rights and remedies arising hereunder or under local law, the rights and remedies of a secured party under the Uniform Commercial Code. Without prejudice to the Custodian’s rights under applicable law, the Custodian shall be entitled, without notice to the Fund, to withhold delivery of any Collateral, sell, set-off, or otherwise realize upon or dispose of any such Collateral and to apply the money or other proceeds and any other monies credited to the Fund in satisfaction of the Liabilities. This includes, but is not limited to, any interest on any such unpaid Liability as the Custodian deems reasonable, and all costs and expenses (including reasonable attorney’s fees) incurred by the Custodian in connection with the sale, set-off or other disposition of such Collateral.
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11. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is agreed to in writing by the Custodian and each such Fund from time to time. In addition, each Fund shall reimburse the Custodian for all out-of-pocket expenses incurred by the Custodian in connection with this Agreement, but excluding salaries and usual overhead expenses. Such compensation, and expenses shall be billed to each such Fund and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies, powers of attorney or other instruments as may be reasonable and necessary or desirable in connection with the performance by the Custodian or any Subcustodian of their respective obligations under this Agreement or any applicable subcustodian agreement.
13. TAX LAWS.
The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on a Fund or on the Custodian as custodian for such Fund by the tax law of any country or of any state or political subdivision thereof. Each Fund agrees to indemnify the Custodian for and against any such obligations including taxes, tax reclaims, withholding and reporting requirements, claims for exemption or refund, additions for late payment, interest, penalties and other expenses (including legal expenses) that may be assessed against the Fund or the Custodian as custodian of a Fund.
14. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in writing, delivered or mailed, postage prepaid (certified mail, return receipt requested) to the other not less than 90 days prior to the date upon which such termination shall take effect. Upon termination of this Agreement, the appropriate Fund shall pay to the Custodian such fees as may be due the Custodian hereunder as well as its reimbursable disbursements, costs and expenses paid or incurred. Upon termination of this Agreement, the Custodian shall deliver, at the terminating party’s expense, all Assets held by it hereunder to a successor custodian designated by the Fund or, if a successor custodian is not designated, then to the appropriate Fund or as otherwise designated by such Fund by Special Instructions. Upon such delivery, the Custodian shall have no further obligations or liabilities under this Agreement except as to the final resolution of matters relating to activity occurring prior to the effective date of termination. In the event that for any reason Securities or other Assets remain in the possession of the Custodian after the date such termination shall take effect, the Custodian shall be entitled to compensation at the same rates as agreed to by the Custodian and the Funds during the term of this Agreement as set forth in Section 11.
This Agreement may not be assigned by the Custodian or any Fund without the respective written consent of the other.
15. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement after the date hereof by an instrument in writing to such effect signed by such Fund or Funds and the Custodian. If this Agreement is terminated as to one or more of the Funds (but less than all of the Funds) or if an additional Fund or Funds shall become a party to this Agreement, there shall be delivered to each party an Appendix B or an amended Appendix B, signed by each of the additional Funds (if any) and each of the remaining Funds as well as the Custodian, deleting or adding such Fund or Funds, as the case may be. The termination of this Agreement as to less than all of the Funds shall not affect the obligations of the Custodian and the remaining Funds hereunder as set forth on the signature page hereto and in Appendix B as revised from time to time.
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For the avoidance of doubt, this Agreement shall be deemed to be a separate agreement with respect to each Fund that becomes a party, and the obligations and liabilities of each Fund hereunder shall be several and shall not be joint.
16. NOTICES.
As to each Fund, notices, requests, instructions and other writings delivered to: Bank of America Capital Advisors LLC, Attn: Steven L. Suss, 225 High Ridge Road, Stamford, CT 06905 postage prepaid, or to such other address as any particular Fund may have designated to the Custodian in writing, shall be deemed to have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the Custodian at its office at 928 Grand Blvd., 5th Floor, Attn: Bonnie Johnson, Kansas City, Missouri 64106, postage prepaid, or to such other addresses as the Custodian may have designated to each Fund in writing, shall be deemed to have been properly delivered or given to the Custodian hereunder; provided, however, that procedures for the delivery of Instructions and Special Instructions shall be governed by Section 2(c) hereof.
17. CONFIDENTIALITY.
The parties agree that all information, books and records provided by the Custodian or the Funds to each other in connection with this Agreement, and all information provided by either party pertaining to its business or operations, is “Confidential Information.” All Confidential Information shall be used by the party receiving such information only for the purpose of providing or obtaining services under this Agreement and, except as may be required to carry out the terms of this Agreement, shall not be disclosed to any other party without the express consent of the party providing such Confidential Information. The foregoing limitations shall not apply to any information that is available to the general public other than as a result of a breach of this Agreement, or that is required to be disclosed by or to any entity having regulatory authority over a party hereto or any auditor of a party hereto or that is required to be disclosed as a result of a subpoena or other judicial process, or otherwise by applicable laws.
18. ANTI-MONEY LAUNDERING COMPLIANCE.
The Funds represent and warrant that they have established and maintain policies and procedures designed to meet the requirements imposed by the USA PATRIOT Act, including policies and procedures designed to detect and prevent money laundering, including those required by the USA PATRIOT Act. The Funds agree to provide to the Custodian, from time to time upon the request of the Custodian, certifications regarding its compliance with the USA PATRIOT Act and other anti-money laundering laws. The Funds acknowledge that, because the Custodian will not have information regarding the shareholders of the Funds, the Funds will assume responsibility for customer identification and verification and other CIP requirements in regard to such shareholders.
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19. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of Missouri and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by the respective successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived in any manner except in writing, properly executed by both parties hereto; provided, however, Appendix A may be amended from time to time as Domestic Subcustodians, Securities Systems, and Special Subcustodians are approved or terminated according to the terms of this Agreement.
(d) The captions in this Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution hereof.
(f) This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
(g) If any part, term or provision of this Agreement is held to be illegal, in conflict with any law or otherwise invalid by any court of competent jurisdiction, the remaining portion or portions shall be considered severable and shall not be affected, and the rights and obligations of the parties shall be construed and enforced as if this Agreement did not contain the particular part, term or provision held to be illegal or invalid.
(h) This Agreement , as amended from time to time, constitutes the entire understanding and agreement of the parties thereto with respect to the subject matter therein and accordingly, supersedes as of the effective date of this Agreement any custodian agreement heretofore in effect between the Funds and the Custodian.
(j) The rights and obligations contained in Sections 6, 7, 8, 9, 10, 11 and 17 of this Agreement shall continue, notwithstanding the termination of this Agreement, in order to fulfill the intention of the parties as described in such Sections.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to be executed by their respective duly authorized officers.
| THE FUNDS | ||
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Attest: |
By: | |
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Name: Steven L. Suss | ||
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Title: Chief Financial Officer | ||
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Date: | ||
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UMB BANK, N.A. | ||
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Attest: |
By: | |
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Name: Bonnie L. Johnson | ||
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Title: Vice-President | ||
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Date: |
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APPENDIX A
CUSTODY AGREEMENT
The following Subcustodians and Securities Systems are approved for use in connection with the Custody Agreement dated .
SECURITIES SYSTEMS:
Depository Trust Company
Federal Book Entry
SPECIAL SUBCUSTODIANS:
DOMESTIC SUBCUSTODIANS:
| THE FUNDS | UMB BANK, N.A. | |
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By: |
By: | |
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Name: Steven L. Suss |
Name: Bonnie L. Johnson | |
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Title: Chief Financial Officer |
Title: Vice-President | |
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Date: |
Date: | |
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APPENDIX B
CUSTODY AGREEMENT
The following investment funds (“Funds”) are hereby made parties to the Custody Agreement dated _________________________, with UMB Bank, n.a. (“Custodian”) and agree to be bound by all the terms and conditions contained in said Agreement:
EXCELSIOR PRIVATE MARKETS FUND III (MASTER), LLC
EXCELSIOR PRIVATE MARKETS FUND III (TE), LLC
EXCELSIOR PRIVATE MARKETS FUND III (TI), LLC
| THE FUNDS | ||
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Attest: |
By: | |
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Name: Steven L. Suss | ||
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Title: Chief Financial Officer | ||
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Date: | ||
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UMB BANK, N.A. | ||
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Attest: |
By: | |
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Name: Bonnie L. Johnson | ||
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Title: Vice President | ||
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Date: |
Excelsior Global Private Markets Fund III (TE), LLC
ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT
THIS ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT is made and entered into as of the __ day of July, 2013, by and between J D Clark & Company (the “Administrator") and Excelsior Global Private Markets Fund III (TE), LLC ("Excelsior").
WITNESSETH:
WHEREAS, Excelsior is registered as a closed-end, non-diversified management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, Excelsior desires to retain the Administrator to provide certain administrative and accounting services to Excelsior and the Administrator desires to provide such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby the parties hereto agree as follows:
1. Definitions. As used in this Agreement:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any person duly authorized by Excelsior's Board of Managers to give Oral Instructions and Written Instructions on behalf of Excelsior and listed on the Authorized Persons Appendix attached hereto and made a part hereof or any amendment thereto as may be received by the Administrator. An Authorized Person's scope of authority may be limited by Excelsior by setting forth such limitation in the Authorized Persons Appendix.
(d) "Board of Managers" and "Members" shall have the same meanings as set forth in Excelsior's limited liability company agreement.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "Confidential Memorandum” means Excelsior’s Confidential Memorandum, as may be revised from time to time.
(g) "GLB Act" means the Gramm-Leach-Bliley Act, as amended.
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(h) "Oral Instructions" mean oral instructions received by the Administrator from an Authorized Person or from a person reasonably believed by the Administrator to be an Authorized Person.
(i) "SEC" means the Securities and Exchange Commission.
(j) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act and the CEA.
(k) "Written Instructions" mean written instructions signed by an Authorized Person and received by the Administrator. The instructions may be delivered by hand, mail, tested telegram, cable, telex or facsimile sending device.
2. Appointment. Excelsior hereby appoints the Administrator to provide administrative and accounting services, in accordance with the terms set forth in this Agreement. The Administrator accepts such appointment and agrees to furnish such services.
3. Compliance with Rules and Regulations. The Administrator undertakes to comply with all applicable requirements of the Securities Laws, and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by the Administrator hereunder. Except as specifically set forth herein, the Administrator assumes no responsibility for such compliance by Excelsior.
4. Records; Visits.
(a) The books and records pertaining to Excelsior which are in the possession or under the control of the Administrator shall be the property of Excelsior. Such books and records shall be prepared and maintained as required by the 1940 Act and other applicable securities laws, rules and regulations. Excelsior and Authorized Persons shall have access to such books and records at all times during the Administrator's normal business hours. Upon the reasonable request of Excelsior, copies of any such books and records shall be provided by the Administrator to Excelsior or to an Authorized Person, at Excelsior's expense.
(b) The Administrator shall keep the following records:
(i) all books and records with respect to Excelsior's books of account;
(ii) records of Excelsior's securities transactions; and
(iii) such specific books and records, set forth below, as Excelsior is required to maintain pursuant to Rule 31a-1 and Rule 31a-2 of the 1940 Act in connection with the services provided by the Administrator hereunder:
(a) Shareholder Transactions Journal
(b) Portfolio Transactions Journal
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(c) Cash Receipts and disbursements Journal including Cash Reconciliations
(d) Transactions Journal
(e) General Ledger
(f) Portfolio Securities Ledger
(g) Capital Share Ledger including NAV Calculation Schedules ("pricing sheets"), and
(h) Trial Balance
5. Description of Services. The Administrator will perform the following administration and accounting services:
(a) Establish, periodically review and update Excelsior's accounting systems and internal controls;
(b) Prepare monthly performance summary for Excelsior;
(c) Prepare detailed quarterly reports for Members of Excelsior.
(d) Calculate on a monthly basis the interest of each Member of Excelsior;
(e) Consult with the auditors designated by Excelsior to establish procedures for the annual audit of Excelsior and prepare such reports and other information as may be requested by such auditors;
(f) Consult with attorneys retained by Excelsior to ensure compliance with Excelsior's limited liability company agreement;
(g) Prepare and file Excelsior's Annual, Semi-Annual and Quarterly Reports with the SEC on Forms N-SAR, N-CSR, N-Q and N-PX via EDGAR.
(h) Prepare for execution and file Excelsior's Federal Form 1065 and state tax returns;
(i) Prepare annual Form K-1's and supplementary schedules for Member in accordance with applicable tax regulations;
(j) Provide Excelsior with an analysis of the issues and effects associated with Effectively Connected Income, U.S.-source income, and Branch Profit Taxes (if any).
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(k) Maintain the register of Members of Excelsior and enter on such register all issues, transfers and repurchases of interests in Excelsior;
(l) Arrange for the calculation of the issue and repurchase prices of interests in Excelsior in accordance with Excelsior's limited liability company agreement and confidential memorandum;
(m) Allocate income, expenses, gains and losses to individual Members' capital accounts in accordance with applicable tax laws and with Excelsior's limited liability company agreement;
(n) Retain in a safe place Share Registers and transfer forms for a period of at least six years from the time of execution;
(o) Calculate net asset value of Excelsior as referenced in the Confidential Memorandum;
(p) On a monthly basis (or more frequently, if deemed necessary) compare the register of Members against the Office of Foreign Asset Control’s (“OFAC”) Watch List (as promulgated by the U.S. Treasury Department) and the U.S. Securities and Exchange Commission Watch List (as periodically updated by the SEC). If there is a match between the Member List and OFAC’s Watch List, the Administrator shall notify Excelsior, or a designee, of all account matches against such list, including information regarding the nature of the match;
(q) Maintain and provide to Excelsior current client identification profile of Members of Excelsior who are not clients of Bank of America Corporation and its affiliates to the extent that Excelsior has provided Administrator with subscription documents containing information necessary to create client information profiles relating to such Members. Client identification profile information shall include Member name, address and tax identification number; and
(r) Mail the annual privacy notice to Members of Excelsior who are not clients of Bank of America Corporation and its affiliates.
6. Standard of Care and Indemnification.
| (a) | The Administrator shall be obligated to exercise reasonable care and diligence in the performance of its duties hereunder, to act in good faith and to use its best efforts in performing the services provided for under this Agreement. |
| (b) | Excelsior agrees to indemnify and hold harmless Administrator, its employees, agents, officers, directors, shareholders, affiliates and nominees (collectively, “Administrator Indemnified Parties”) from and against any and all claims, demands, actions and suits, and any and all judgments, liabilities, losses, damages, costs, charges, reasonable counsel fees and other expenses of every nature and character which may be asserted against or incurred by any Administrator Indemnified Party or for which any Administrator Indemnified Party may be held liable (an “Administrator Claim”), arising out of any of the following: |
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| (i) | Excelsior’s willful misfeasance, bad faith, negligence in the performance of its duties or from reckless disregard by it of its obligations and duties hereunder; |
| (ii) | Excelsior’s refusal or failure to comply with the terms of this Agreement, or a breach of any representation or warranty of Excelsior made herein; |
| (iii) | Administrator’s reliance on, implementation of, or use of Oral or Written Instructions, communications, data, documents or information (without investigation or verification) received by Administrator from an officer or representative of Excelsior or any past or current service provider (not including Administrator); |
| (iv) | the legality of the issue or sale of any Shares, the sufficiency of the amount received therefore, or the authority of Excelsior, as the case may be, to have requested such sale or issuance; |
| (v) | the legality of the declaration of any dividend by Excelsior, or the legality of the issue of any Shares in payment of any dividend; |
| (vi) | the legality of any recapitalization or readjustment of Shares; |
| (vii) | Administrator’s acting upon Oral or Written Instructions relating to the subscription or tender of Shares received by Administrator in accordance with procedures established by Administrator and Excelsior; |
| (viii) | the acceptance, processing and/or negotiation of a fraudulent payment for the purchase of Shares unless the result of Administrator’s or its affiliates’ willful misfeasance, bad faith or negligence in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. In the absence of a finding to the contrary, the acceptance, processing and/or negotiation of a fraudulent payment for the subscription or tender of Shares shall be presumed not to have been the result of Administrator’s or its affiliates’ willful misfeasance, bad faith or negligence; and |
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| (ix) | the offer or sale of Shares in violation of any requirement under the securities laws or regulations of any state that such Shares be qualified for sale in such state or in violation of any stop order or determination or ruling by any state with respect to the offer or sale of such Interests in such state. |
| (c) | The Administrator agrees to indemnify and hold harmless Excelsior, its employees, agents, officers, directors, shareholders, affiliates and nominees (collectively, “Excelsior Indemnified Parties”) from and against any and all claims, demands, actions and suits, and any and all judgments, liabilities, losses, damages, costs, charges, reasonable counsel fees and other expenses of every nature and character which may be asserted against or incurred by any Excelsior Indemnified Party or for which any Excelsior Indemnified Party may be held liable (an “Excelsior Claim”), arising out of or in any way relating to any of the following: | |
| (i) | the Administrator’s willful misfeasance, bad faith, negligence in the performance of its duties or from reckless disregard by it of its obligations and duties hereunder; or |
| (ii) | the Administrator’s refusal or failure to comply with the terms of this Agreement, or the Administrator’s breach of any representation or warranty of the Administrator made herein; |
| (d) | An Indemnified Party will notify the indemnifying party promptly after identifying any situation which it believes presents or appears likely to present a claim for which the indemnifying party may be required to indemnify or hold the Indemnified Parties harmless hereunder. In such event, the indemnifying party shall have the option to defend the Indemnified Parties against any claim, and, in the event that the indemnifying party so elects, such defense shall be conducted by counsel chosen by the indemnifying party and approved by the Indemnified Parties in their reasonable discretion. The Indemnified Parties shall not confess any claim or make any compromise in any case in which the indemnifying party will be asked to provide indemnification, except with the indemnifying party’s prior written consent. |
| (c) | The obligations of the parties under Section 6 shall indefinitely survive the termination of this Agreement. |
7. Compensation.
(a) Excelsior shall pay the Administrator, on a quarterly basis, within ten days after the end of each calendar quarter, a fee in an amount equal to $2,500, plus a tax compliance and preparation fee of $1,750 per calendar quarter, plus an audited financial statement preparation fee of $625 per calendar quarter.
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(b) Administrator shall not be required to pay or finance any costs and expenses incurred in the operation of Excelsior, including, but not limited to: SEC fees; mailing of Offering Documents, notices, forms and applications and proxy materials for regulatory purposes and for distribution to current Investors; mailing and other costs of Investor reports; expenses in connection with the electronic transmission of documents and information including electronic filings with the SEC.
8. Confidential Information. The Administrator will have access to and become acquainted with records of and information relating to Excelsior, its Members and affiliates (collectively, "Confidential Information"). Neither the Administrator nor any of its officers, employees or agents shall disclose any of the Confidential Information (including any client list or other confidential information relating to the businesses of Excelsior or its affiliates), directly or indirectly, or use them in any way, either during the term of this Agreement or at any time thereafter, except as required in the course of performing duties for Excelsior under this Agreement and unless the disclosure of any such Confidential Information is otherwise consented to, in writing, by Excelsior. As used in this Section 8 the term "Confidential Information" does not include information that (a) becomes or has been generally available to the public other than as a result of disclosure by the Administrator; (b) was available to the Administrator on a nonconfidential basis prior to its disclosure by Excelsior or any of its affiliates; or (c) is independently developed or becomes available to the Administrator on a nonconfidential basis from a source other than Excelsior or its affiliates.
Further, the Administrator will adhere to all applicable laws and regulations relating to consumer privacy, including the GLB Act ("Privacy Law"), and to the privacy policies adopted by Excelsior pursuant to Title V of the GLB Act. Notwithstanding the foregoing, the Administrator will not share any nonpublic personal information concerning any of Excelsior's Members with any non-affiliated party unless specifically directed by Excelsior or allowed under one of the exceptions noted under Privacy Law. The Administrator shall (a) cause its employees and agents to be informed of, and to agree to be bound by, Privacy Law and the relevant provisions of this Agreement, and (b) maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, any nonpublic personal information concerning any of Excelsior's Members.
9. Liaison with Accountants. The Administrator shall act as liaison with Excelsior's independent public accountants and shall provide account analyses, fiscal year summaries, and other audit-related schedules. The Administrator shall take all reasonable action in the performance of its duties under this Agreement to assure that the necessary information is made available to such auditors and accountants in a timely fashion for the expression of their opinion, as required by Excelsior.
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10. Disaster Recovery. In the event of equipment failures, the Administrator shall, at no additional expense to Excelsior, take reasonable steps to minimize service interruptions. The Administrator shall have no liability with respect to the loss of data or service interruptions caused by equipment failure, provided such loss or interruption is not caused by the Administrator's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties or obligations under this Agreement.
11. Other Services. Other services rendered at the option or request Excelsior that are not outlined in Section 5 above, shall be billed at an hourly rate of $100.
12. Term. This Agreement shall continue until terminated by Excelsior or the Administrator on sixty days' prior written notice to the other party.
13. Notices. All notices and other communications, including Written Instructions, shall be in writing or by confirming telegram, cable, telex or facsimile sending device. If notice is sent by confirming telegram, cable, telex or facsimile sending device, it shall be deemed to have been given immediately. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. Notices shall be addressed (a) if to the Administrator, at J D Clark & Company, 2225 Washington Boulevard, Suite 300, Ogden, Utah 84401; (b) if to Excelsior, at Bank of America Capital Advisors, LLC, 225 High Ridge Road, Stamford, CT 06905, Attn: Steven L. Suss; or (c) if to neither of the foregoing, at such other address as shall have been provided by like notice to the sender of any such notice or other communication by the other party.
14. Amendments. This Agreement, or any term thereof, may be changed or waived only by written amendment, signed by the party against whom enforcement of such change or waiver is sought.
15. Delegation; Assignment. This Agreement and the rights and duties of the parties herein may not be assigned or delegated by any party without the written consent of each party.
16. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
17. Further Actions. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
18. Miscellaneous.
(a) Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to delegated duties and Oral Instructions.
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(b) Captions. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract made in Utah and governed by Utah law, without regard to principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
| EXCELSIOR GLOBAL PRIVATE MARKETS FUND III (TE), LLC |
| By: Steven L. Suss | ||
| Title: Chief Financial Officer | ||
| J D CLARK & COMPANY | ||
| By: John P. Zader | ||
| Title: Executive Vice President & Treasurer |
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ESCROW AGREEMENT
This ESCROW AGREEMENT (the “Agreement”) is made and entered into this ____ day of July, 2013, by and between Excelsior Private Markets Fund III (TE), LLC, a Delaware limited liability company (the “Fund”), UMB Fund Services, Inc., as recordkeeper (“UMBFS”) and UMB Bank, N.A., a national banking association organized and existing under the laws of the United States of America, as escrow agent (the “Escrow Agent”).
WITNESSETH:
WHEREAS, the Fund is a limited liability company registered under the Investment Company Act of 1940, as amended, and which is authorized to offer and sell limited liability company interests (“Interests”) in reliance on exemptions provided in the Securities Act of 1933 and state securities laws for transactions not involving any public offering; and
WHEREAS, the Fund desires to appoint UMB Bank, N.A. as escrow agent for the purpose of holding investment proceeds tendered by investors prior to the time such funds are transferred to the Fund for investment.
NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Appointment and Delegation.
The Fund hereby appoints UMB Bank, N.A. as Escrow Agent, on the terms set forth in this Agreement. UMB Bank, N.A. hereby agrees to serve as Escrow Agent on the terms set forth in this Agreement. The Fund hereby authorizes UMBFS, in its capacity as recordkeeper, to provide instructions to the Escrow Agent on the Fund’s behalf in accordance with the terms of this Agreement.
2. Procedures.
(a) The Fund will establish an escrow account with the Escrow Agent (the “Escrow Account”). Purchase payments periodically received by UMBFS (the “Purchase Proceeds”) will be deposited into the Escrow Account.
(b) Simultaneously with any deposit of Purchase Proceeds, UMBFS will deliver to the Escrow Agent a cash letter (the “Cash Deposit Letter”) confirming the amount of the Purchase Proceeds so delivered. In the event the Fund or UMBFS provides written notice to the Escrow Agent that an underlying purchase order has been revoked in the form of a cash letter (the “Purchase Reversal Letter”), the Escrow Agent shall promptly (but in no event later than the close of business on the day of receipt of such Purchase Reversal Letter in accordance with subparagraph (d) or Paragraph 4) transfer from the Escrow Account the Purchase Proceeds specified in the Purchase Reversal Letter to UMBFS in accordance with the payment procedures in Paragraph 4. The Escrow Agent shall have no duty or obligation with respect to the collection of any Purchase Proceeds.
(c) On the last business day of each calendar month or such other time as instructed by the Fund, UMBFS will deliver to the Escrow Agent a cash letter instructing the Escrow Agent to disburse the Purchase Proceeds, if any, on deposit (the “Cash Disbursement Letter”).
(d) The Escrow Agent shall provide the Fund and UMBFS with a statement of the assets held and transactions of the Escrow Account on a monthly basis and shall provide electronic access on a daily basis. At the Escrow Agent’s request, UMBFS shall provide periodic summaries of Escrow Account activity.
(e) The Escrow Account shall be a non-interest bearing account.
(f) In the event an adjustment needs to be made in connection with any money movement hereunder, UMBFS shall deliver to the Escrow Agent a cash letter specifying the corrective action to be taken.
(g) Prior to delivery to it or its designated agents of the Purchase Proceeds or Repurchase Proceeds, the Fund or its agents shall have no title, right, claim, lien or any other interest in the funds held in escrow hereunder, and such funds shall under no circumstances be available to the Fund or its agents or their creditors for payment or reimbursement for liabilities or indebtedness.
3. Compensation.
For its services hereunder, the Escrow Agent shall be entitled to a one-time account acceptance fee of $500, plus an annual escrow fee of $600 for the Escrow Account and transaction fees of $5 per deposit and/or distribution. In addition to the foregoing fees, all reasonable out-of-pocket expenses relating to the administration of this Agreement and the Escrow Account such as, but not limited to, wire fees, postage, shipping, courier, telephone and facsimile charges will be paid directly by the Fund.
4. Payment Procedures.
(a) Whenever payments are required to be made to the Escrow Agent under this Agreement, such payments shall be made by electronic transfer per the following instructions:
UMB Bank, N.A., Kansas City, Missouri
ABA # 101000695
A/C # 9800006823
A/C Name: Trust Clearing
Ref: Excelsior Private Markets Fund III (TE), LLC
Attn: Lara Stevens
(b) Whenever payments are required to be made by the Escrow Agent to UMBFS under this Agreement, such payments shall be made by electronic transfer per the following instructions:
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UMB Bank, N.A., Kansas City, Missouri
ABA #101000695
A/C # 9871976335
Ref: Excelsior Private Markets Fund III (TE), LLC
(c) Every cash letter delivered to the Escrow Agent hereunder pursuant to Paragraph 2 shall bear the signature of two (2) authorized UMBFS signers. If requested by UMBFS, each cash letter shall also bear the countersignature of one (1) authorized Fund signer. In connection with the execution of this Agreement, UMBFS shall deliver to the Escrow Agent, and the Fund shall deliver to UMBFS, a list of authorized signers, together with a certificate of incumbency and specimen signatures. The party providing such certificate may provide an updated certificate evidencing the appointment, removal or change of authority of any authorized signer, it being understood that the party relying on such certificate shall not be held to have notice of any change in the authority of any authorized signer until receipt of written notice thereof.
(d) A cash letter must be received by the Escrow Agent by 3:00 p.m. CT on the day such cash letter is transmitted in order for the instructions contained in such cash letter to be honored on that day.
5. Representations.
The Fund represents and warrants as follows:
(a) it
is duly organized and in good standing under the laws of the State of
Delaware and all necessary action has been taken by it and it is duly authorized to enter into this Agreement;
(b) this Agreement and all other documents related to the transactions described herein have been duly executed and delivered by the Fund and constitute the legal, valid and binding obligations of the Fund, enforceable in accordance with their respective terms;
(c) the execution, delivery and performance of this Agreement and all other documents related to the transactions described herein by the Fund do not and will not breach or violate or cause a default under its limited liability company agreement or any provision of any agreement, instrument, judgment, injunction or order applicable to or binding upon it.
6. Miscellaneous.
It is understood and agreed, further, that the Escrow Agent shall:
(a) be under no duty to pay and transfer any monies hereunder, unless the same shall have been first received by the Escrow Agent pursuant to the provisions of this Agreement;
(b) be under no duty to accept any information from any person or entity other than the Fund or UMBFS, and then only to the extent and in the manner expressly provided for in this Agreement;
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(c) act hereunder as a depository only and be protected in acting upon any written instruction or notice provided by the Fund or UMBFS pursuant to this Agreement and the information contained therein without responsibility to determine the validity or sufficiency of the same, and be protected in acting upon any other notice, opinion, request, certificate, approval, consent or other paper delivered to it and represented to it to be genuine and to be signed by the proper party or parties;
(d) be indemnified and held harmless by the Fund against any claim made against it by reason of its acting or failing to act in connection with any of the transactions contemplated hereby and against any loss, liability, cost, suit or expense, including the expense of defending itself against any claim of liability it may sustain in carrying out the terms of this Agreement except such claims which are occasioned by its fraud, bad faith, material breach of this Agreement, reckless disregard of its duties, gross negligence or willful misconduct;
(e) have no liability or duty to inquire into the terms and conditions of any subscriptions for Interests, and that its duties and responsibilities shall be limited to those expressly set forth under this Agreement and are purely ministerial in nature;
(f) be permitted to consult with counsel of its choice, including in-house counsel, and shall not be liable for any action taken, suffered or omitted by it in good faith in accordance with the advice of such counsel, provided, however, that nothing contained in this Subparagraph (f), nor any action taken by the Escrow Agent, or of any such counsel, shall relieve the Escrow Agent from liability for any claims which are occasioned by its fraud, bad faith, material breach of this Agreement, reckless disregard of its duties, gross negligence or willful misconduct, all as provided in Subparagraph (d) above;
(g) not be bound by any amendment or revocation of this Agreement, unless the same shall be in writing and signed by all of the parties of this Agreement;
(h) be entitled to refrain from taking any action other than to keep all property held by it in escrow hereunder until it shall be directed otherwise in writing by the Fund, or by a final judgment by a court of competent jurisdiction, provided that it shall be uncertain as to its duties and rights hereunder (including, without limitation, the receipt of conflicting instructions or directions from any of the parties hereto or any third parties);
(i) have no liability for following the instructions herein contained or expressly provided for, or written instructions given by, the Fund or UMBFS;
(j) have the right, at any time, to resign hereunder by giving written notice of its resignation to the Fund at the address as set forth in Subparagraph (l) hereof, at least sixty (60) days before the date specified for such resignation to take effect, and upon the effective date of such resignation;
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| (i) | all cash and other funds and all other property then held by the Escrow Agent hereunder shall be delivered by it to such successor Escrow Agent as may be designated in writing by the Fund, whereupon the Escrow Agent’s obligations hereunder shall cease and terminate; |
| (ii) | if no such successor Escrow Agent has been designated by such date, all obligations of the Escrow Agent hereunder shall, nevertheless, cease and terminate, and the Escrow Agent’s sole responsibility thereafter shall be to keep all property then held by it and to deliver the same to a person designated in writing by the Fund or in accordance with the directions of a final order or judgment of a court of competent jurisdiction; yet, if no such designation, order or judgment is received by Escrow Agent within sixty (60) days after its giving such resignation notice, it is unconditionally and irrevocably authorized and empowered to petition a court of competent jurisdiction for directions. |
(k) be reimbursed by the Fund upon its request for all reasonable costs, fees, charges, expenses, disbursements and advances incurred or made by it in accordance with any provision of this Agreement, or as a result of the acceptance of this Agreement.
(l) all deliveries and notices to the Escrow Agent shall be in writing and shall be sent or delivered to:
UMB Bank, N.A., as Escrow Agent
Attn: Lara L. Stevens, ext. 3017
1010 Grand Boulevard, 4th Floor
Kansas City, MO 64106
Facsimile: (816) 860-3029
All deliveries and notices hereunder to the Fund shall be in writing and shall be sent or delivered to:
Bank of America Capital Advisors LLC
Attn: Steven L. Suss
225 High Ridge Road
Stamford, CT 06905,
Facsimile: (800) 977-1605
All deliveries and notices hereunder to UMBFS shall be in writing and shall be sent or delivered to:
UMB Fund Services, Inc.
Attn: Suzanne P. Norman Barnes
803 West Michigan Street
Milwaukee, WI 53233
Facsimile: (414) 271-3954
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(m) Nothing in this Agreement is intended to or shall confer upon anyone other than the parties hereto any legal or equitable right, remedy or claim. This Agreement shall be construed in accordance with the laws of the State of Missouri and may be amended or settled only by a writing executed by the parties thereto.
(n) This Agreement may be executed in multiple counterparts, each of which shall be regarded for all purposes as an original, and such counterparts shall constitute but one and the same instrument. In addition, the transaction described herein may be conducted and related documents may be stored by electronic means. Copies, telecopies, facsimiles, electronic files and other reproductions of original executed documents shall be deemed to be authentic and valid counterparts of such original documents for all purposes, including the filing of any claim, action or suit in the appropriate court of law.
(o) In order to comply with provisions of the USA PATRIOT Act of 2001, as amended from time to time, Escrow Agent may request certain information and/or documentation to verify, confirm and record identification of persons or entities who are parties to the Agreement.
7. Confidentiality.
The parties agree that all information, books and records provided by the Fund to each of UMBFS or the Escrow Agent in connection with this Agreement, and all information provided pertaining to its business or operations or investors, is “Confidential Information.” All Confidential Information shall be used by the party receiving such information only for the purpose of providing or obtaining services under this Agreement and, except as may be required to carry out the terms of this Agreement and as disclosed to affiliates of UMBFS and Escrow Agent, shall not be disclosed to any other party without the express consent of the party providing such Confidential Information. The foregoing limitations shall not apply to any information that is available to the general public other than as a result of a breach of this Agreement, or that is required to be disclosed by or to any entity having regulatory authority over a party hereto or any auditor of a party hereto or that is required to be disclosed as a result of a subpoena or other judicial process, or otherwise by applicable laws.
8. Tax Reporting.
The parties hereto agree that for purposes of tax reporting, all interest or other income, if any, attributable to the Escrow Accounts pursuant to this Agreement shall be allocable to the Fund. The Fund agrees to provide the Escrow Agent with an Internal Revenue Service Form W-9 upon execution of this Agreement. The Fund understands that if such tax reporting documentation is not so certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code, as amended from time to time, to withhold a portion of any interest or other income earned on the investment of monies or other property held by the Escrow Agent pursuant to this Agreement. The Escrow Agent will prepare and send notifications on Form 1099 for each calendar year for which such Form is required during the term hereof.
[Signature page to follow.]
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IN WITNESS WHEREOF, the parties hereto have caused the Escrow Agreement to be executed by their respective duly authorized officers.
| EXCELSIOR PRIVATE MARKETS | ||
| FUND III (TE), LLC | ||
| By: | ||
| Title: | ||
| UMB Bank, N.A., AS ESCROW AGENT | ||
| By: | ||
| Title: | ||
| UMB fund services, INC. | ||
| By: | ||
| Title: | ||
| 7 |
MASTER / FEEDER
AGREEMENT
BETWEEN
Excelsior Private Markets Fund III (Te), LLC
AND
Excelsior Private Markets Fund III (OFFSHORE), LDC
dated as of
July __, 2013
TABLE OF CONTENTS
| Page | |
| ARTICLE I REPRESENTATIONS AND WARRANTIES | 1 |
| Sec. 1.1 Feeder Fund | 1 |
| Sec. 1.2 Offshore Fund | 1 |
| ARTICLE II COVENANTS | 2 |
| Sec. 2.1 Feeder Fund | 2 |
| Sec. 2.2 Offshore Fund | 3 |
| Sec. 2.3 Reasonable Actions | 4 |
| ARTICLE III INDEMNIFICATION | 4 |
| Sec. 3.1 Feeder Fund | 4 |
| Sec. 3.2 Offshore Fund. | 5 |
| ARTICLE IV ADDITIONAL AGREEMENTS | 7 |
| Sec. 4.1 Access to Information | 7 |
| Sec. 4.2 Confidentiality | 7 |
| Sec. 4.3 Obligations of the Feeder Fund and the Offshore Fund | 7 |
| ARTICLE V TERMINATION, AMENDMENT | 7 |
| Sec. 5.1 Termination | 7 |
| Sec. 5.2 Amendment | 7 |
| ARTICLE VI GENERAL PROVISIONS | 8 |
| Sec. 6.1 Expenses | 8 |
| Sec. 6.2 Headings | 8 |
| Sec. 6.3 Entire Agreement | 8 |
| Sec. 6.4 Successors | 8 |
| Sec. 6.5 Governing Law | 8 |
| Sec. 6.6 Counterparts | 8 |
| Sec. 6.7 Third Parties | 8 |
| Sec. 6.8 Notices | 8 |
| Sec. 6.9 Interpretation | 9 |
| Sec. 6.10 Operation of the Funds | 9 |
| Sec. 6.11 Relationship of Parties; No Joint Venture, Etc. | 9 |
AGREEMENT
THIS AGREEMENT (the “Agreement”) is made and entered into as of the ___ day of July, 2013, by and among Excelsior Private Markets Fund III (TE), LLC (the “Feeder Fund”), a Delaware limited liability company, and Excelsior Private Markets Fund III (Offshore), LDC (the “Offshore Fund”), an exempted company incorporated under the laws of the Cayman Islands.
WITNESSETH
WHEREAS, the Feeder Fund is registered under the Investment Company Act of 1940 (the “1940 Act”) as a diversified, closed-end management investment company;
WHEREAS, the Feeder Fund and the Offshore Fund each have the same investment objective and substantially the same investment policies; and
WHEREAS, the Feeder Fund desires to pursue its investment objective by investing on an ongoing basis substantially all of its investable assets (the “Assets”) in the Offshore Fund in consideration for shares (the “Shares”) of the Offshore Fund (the “Investment”) on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
Sec. 1.1 Feeder Fund. The Feeder Fund represents and warrants to the Offshore Fund that:
(a) Organization. The Feeder Fund is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. The Feeder Fund has the requisite power and authority to own its property and conduct its business as proposed to be conducted pursuant to this Agreement.
(b) 1940 Act Registration. The Feeder Fund is a registered investment company under the 1940 Act.
(c) Confidential Memorandum. The Feeder Fund has reviewed the Offshore Fund’s most recent confidential memorandum.
Sec. 1.2 Offshore Fund. The Offshore Fund represents and warrants to the Feeder Fund that:
(a) Organization. The Offshore Fund is an exempted company duly incorporated, validly existing and in good standing under the laws of the Cayman Islands. The Offshore Fund has the requisite power and authority to own its property and conduct its business as now being conducted and as proposed to be conducted pursuant to this Agreement.
(b) Approval of Agreement. No meeting of, or consent by, holders of Shares of the Offshore Fund is necessary to approve the issuance of Shares to the Feeder Fund.
(c) Issuance of Shares. The issuance by the Offshore Fund of Shares in consideration for the Investment by the Feeder Fund of its Assets has been duly authorized by all necessary action on the part of the Board of Directors of the Offshore Fund. When issued in accordance with the terms of this Agreement, the Shares will be validly issued, fully paid and non-assessable.
(d) SEC Filings; Securities Exemptions. The Offshore Fund has duly filed all forms, reports and other documents, if any (collectively, the “SEC Filings”) required to be filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 (the “1933 Act”), the Securities Exchange Act of 1934 (the “1934 Act”) and the 1940 Act, and the rules and regulations thereunder, (collectively, the “Securities Laws”). Shares of the Offshore Fund are not required to be registered under the 1933 Act, because such Shares are offered in the United States solely in private placement transactions which do not involve any “public offering” within the meaning of Section 4(2) of the 1933 Act and/or pursuant to either Regulation D or Regulation S promulgated thereunder, as applicable. In addition, Shares of the Offshore Fund are either noticed or qualified for sale or exempt from notice or qualification requirements under applicable securities laws in those states and other jurisdictions in which Shares are offered and sold. All SEC Filings relating to the Offshore Fund, if any, comply in all material respects with the requirements of the applicable Securities Laws and do not, as of the date of this Agreement, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(e) Tax Status. The Offshore Fund is taxable as a corporation for Federal income tax purposes under the Internal Revenue Code of 1986, as amended. Neither the Offshore Fund nor its shareholders are, under existing legislation, subject to any Cayman Islands income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax.
(f) Taxable and Fiscal Year. The taxable year end of the Offshore Fund is December 31st and the fiscal year end is March 31st.
ARTICLE II
COVENANTS
Sec. 2.1 Feeder Fund. The Feeder Fund covenants that:
(a) Substitution of Shares. The Feeder Fund shall refrain from substituting Shares of the Offshore Fund held by the Feeder Fund unless the SEC has approved such substitution in accordance with Section 26 of the 1940 Act.
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(b) Fiscal Year. The Feeder Fund shall take appropriate action to maintain the same fiscal year end as the Offshore Fund (currently March 31st).
(c) Proxy Voting. If requested to vote on matters pertaining to the Offshore Fund, the Feeder Fund will seek instructions from its investors with regard to the voting of all proxies with respect to the Offshore Fund’s securities and vote such proxies only in accordance with such instructions.
Sec. 2.2 Offshore Fund. The Offshore Fund covenants that:
(a) SEC Filings. The Offshore Fund will make all SEC Filings, if any, required to be made by it with the SEC under the Securities Laws. The Offshore Fund’s SEC Filings will comply in all material respects with the requirements of the applicable Securities Laws, and will not, at the time they are filed or used, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
(b) Tax Status. Based upon applicable Internal Revenue Service interpretations and rulings and Treasury Regulations, the Offshore Fund will continue to be treated as a corporation for Federal income tax purposes.
(c) Securities Exemptions. Shares of the Offshore Fund have been and will continue to be offered and sold solely in private placement transactions in the United States which do not involve any “public offering” within the meaning of Section 4(2) of the 1933 Act or require registration or notification under any state law or the laws of any other jurisdiction. Shares of the Offshore Fund will be offered and sold to the Feeder Fund pursuant to Regulation D or other investors pursuant to Regulation S, both under the 1933 Act.
(d) Advance Notice of Certain Changes. The Offshore Fund shall provide the Feeder Fund with reasonable advance written notice of any change in the Offshore Fund’s investment objective, or if the Offshore Fund has knowledge or should have knowledge that one of the following changes is likely to occur, written notice shall be provided as soon as reasonably possible after the Offshore Fund obtains or should have obtained such knowledge, of any material change in the Offshore Fund’s investment policies or activities, any material increase in the Offshore Fund’s fees or expenses, or any change in the Offshore Fund’s fiscal year.
(e) Compliance with Laws. The Offshore Fund shall comply, in all material respects, with all applicable laws, rules and regulations in connection with conducting its operations.
(f) Violations of Articles of Association. The Offshore Fund hereby submits to the jurisdiction of the courts of the United States in connection with the enforcement by the Feeder Fund of its rights with respect to any violations of the Articles of Association of the Offshore Fund.
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Sec. 2.3 Reasonable Actions. Each party covenants that it will, subject to the provisions of this Agreement, from time to time, as and when requested by another party or in its own discretion, as the case may be, execute and deliver or cause to be executed and delivered all such documents, assignments and other instruments, take or cause to be taken such actions, and do or cause to be done all things reasonably necessary, proper or advisable in order to conduct the business contemplated by this Agreement and to carry out its intent and purpose.
ARTICLE III
INDEMNIFICATION
Sec. 3.1 Feeder Fund.
(a) The Feeder Fund agrees to indemnify and hold harmless the Offshore Fund, and the Offshore Fund’s investment adviser, and any director, officer, employee or agent of the Offshore Fund or the Offshore Fund’s investment adviser (in this Section, each, a “Covered Person” and collectively, “Covered Persons”), against any and all losses, claims, demands, damages, liabilities or expenses (including, with respect to each Covered Person, the reasonable cost of investigating and defending against any claims therefor and any counsel fees incurred in connection therewith, except as provided in subparagraph (b)) (“Losses”), that:
(i) arise out of or are based upon any violation or alleged violation of any of the Securities Laws, or any other applicable statute, rule, regulation or common law, or are incurred in connection with or as a result of any formal or informal administrative proceeding or investigation by a regulatory agency, insofar as such violation or alleged violation, proceeding or investigation arises out of or is based upon any direct or indirect omission or commission (or alleged omission or commission) by the Feeder Fund or by any of its directors, officers, employees or agents, but only insofar as such omissions or commissions relate to the Investment; or
(ii) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any confidential memoranda or any other offering document of the Feeder Fund, or any amendments or supplements to the foregoing (in this Section, collectively “Offering Documents”), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was not made in the Offering Documents in reliance upon and in conformity with the Offshore Fund’s confidential memorandum and other written information furnished by the Offshore Fund or by any service provider of the Offshore Fund for use therein or for use by the Feeder Fund in preparing such documents, including but not limited to any written information contained in the Offshore Fund’s current confidential memorandum;
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provided, however, that in no case shall the Feeder Fund be liable for indemnification hereunder (i) with respect to any claims made against any Covered Person unless a Covered Person shall have notified the Feeder Fund in writing within a reasonable time after the summons, other first legal process, notice of a federal, state or local tax deficiency, or formal initiation of a regulatory investigation or proceeding giving information of the nature of the claim shall have properly been served upon or provided to a Covered Person seeking indemnification or (ii) if such Losses were the result of the negligence, willful misconduct or Fraud of the Offshore Fund. Failure to notify the Feeder Fund of such claim shall not relieve the Feeder Fund from any liability that it may have to any Covered Person otherwise than on account of the indemnification contained in this Section.
(b) The Feeder Fund will be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if the Feeder Fund elects to assume the defense, such defense shall be conducted by counsel chosen by the Feeder Fund. In the event the Feeder Fund elects to assume the defense of any such suit and retain such counsel, each Covered Person in the suit may retain additional counsel but shall bear the fees and expenses of such counsel unless (A) the Feeder Fund shall have specifically authorized the retaining of and payment of fees and expenses of such counsel or (B) the parties to such suit include any Covered Person and the Feeder Fund, and any such Covered Person has been advised in a written opinion by counsel reasonably acceptable to the Feeder Fund that one or more legal defenses may be available to it that may not be available to the Feeder Fund, in which case the Feeder Fund shall not be entitled to assume the defense of such suit notwithstanding its obligation to bear the fees and expenses of one counsel to all such persons. The Feeder Fund shall not be required to indemnify any Covered Person for any settlement of any such claim effected without its written consent, which consent shall not be unreasonably withheld or delayed. The indemnities set forth in paragraph (a) will be in addition to any liability that the Feeder Fund might otherwise have to Covered Persons.
Sec. 3.2 Offshore Fund.
(a) The Offshore Fund agrees to indemnify and hold harmless the Feeder Fund and any affiliate providing services to the Feeder Fund, and any manager, director, officer, employee or agent of any of them (in this Section, each, a “Covered Person” and collectively, “Covered Persons”), against any and all losses, claims, demands, damages, liabilities or expenses (including, with respect to each Covered Person, the reasonable cost of investigating and defending against any claims therefor and any counsel fees incurred in connection therewith, except as provided in subparagraph (b)) (“Losses”), that:
(i) arise out of or are based upon any violation or alleged violation of any of the Securities Laws, or any other applicable statute, rule, regulation or common law or are incurred in connection with or as a result of any formal or informal administrative proceeding or investigation by a regulatory agency, insofar as such violation or alleged violation, proceeding or investigation arises out of or is based upon any direct or indirect omission or commission (or alleged omission or commission) by the Offshore Fund, or any of its directors, officers, employees or agents; or
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(ii) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any advertising or sales literature, or any other SEC Filing relating to the Offshore Fund, or any amendments or supplements to the foregoing (in this Section, collectively, the “Offering Documents”) of the Offshore Fund, or arise out of or are based upon the omission or alleged omission to state therein, a material fact required to be stated therein, or necessary to make the statements therein in light of the circumstances under which they were made, not misleading; or
(iii) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Offering Documents relating to the Offshore Fund, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Offshore Fund by the Feeder Fund for use therein or for use by the Offshore Fund in preparing such documents, including but not limited to any written information contained in the Offshore Fund’s current confidential memorandum.
provided, however, that in no case shall the Offshore Fund be liable for indemnification hereunder with respect to any claims made against any Covered Person unless a Covered Person shall have notified the Offshore Fund in writing within a reasonable time after the summons, other first legal process, notice of a federal, state or local tax deficiency, or formal initiation of a regulatory investigation or proceeding giving information of the nature of the claim shall have properly been served upon or provided to a Covered Person seeking indemnification. Without limiting the generality of the foregoing, the Offshore Fund’s indemnity to Covered Persons shall include all relevant liabilities of Covered Persons under the Securities Laws, as if the Offering Documents constitute a “prospectus” within the meaning of the 1933 Act, and the Offshore Fund had registered its interests under the 1933 Act pursuant to a registration statement meeting the requirements of the 1933 Act. Failure to notify the Offshore Fund of such claim shall not relieve the Offshore Fund from any liability that it may have to any Covered Person otherwise than on account of the indemnification contained in this Section.
(b) The Offshore Fund will be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but, if the Offshore Fund elects to assume the defense, such defense shall be conducted by counsel chosen by the Offshore Fund. In the event the Offshore Fund elects to assume the defense of any such suit and retain such counsel, each Covered Person in the suit may retain additional counsel but shall bear the fees and expenses of such counsel unless (A) the Offshore Fund shall have specifically authorized the retaining of and payment of fees and expenses of such counsel or (B) the parties to such suit include any Covered Person and the Offshore Fund, and any such Covered Person has been advised in a written opinion by counsel reasonably acceptable to the Offshore Fund that one or more legal defenses may be available to it that may not be available to the Offshore Fund, in which case the Offshore Fund shall not be entitled to assume the defense of such suit notwithstanding its obligation to bear the fees and expenses of one counsel to such persons. The Offshore Fund shall not be required to indemnify any Covered Person for any settlement of any such claim effected without its written consent, which consent shall not be unreasonably withheld or delayed. The indemnities set forth in paragraph (a) will be in addition to any liability that the Offshore Fund might otherwise have to Covered Persons.
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ARTICLE IV
ADDITIONAL AGREEMENTS
Sec. 4.1 Access to Information. Throughout the life of this Agreement, the Feeder Fund and the Offshore Fund shall afford each other reasonable access at all reasonable times to such party’s officers, employees, agents and offices and to all relevant books and records and shall furnish each other party with all relevant financial and other data and information as such other party may reasonably request.
Sec. 4.2 Confidentiality. Each party agrees that it shall hold in strict confidence all data and information obtained from another party (unless such information is or becomes readily ascertainable from public or published information or trade sources or public disclosure of such information is required by law) and shall ensure that its officers, employees and authorized representatives do not disclose such information to others without the prior written consent of the party from whom it was obtained, except if disclosure is required by the SEC, any other regulatory body, the Feeder Fund’s and the Offshore Fund’s respective auditors, or in the opinion of counsel to the disclosing party such disclosure is required by law, and then only with as much prior written notice to the other parties as is practical under the circumstances.
Sec. 4.3 Obligations of the Feeder Fund and the Offshore Fund. The Offshore Fund agrees that the financial obligations of the Feeder Fund under this Agreement shall be binding only upon the assets of the Feeder Fund, and that except to the extent liability may be imposed under relevant Securities Laws, the Offshore Fund shall not seek satisfaction of any such obligation from the officers, agents, employees, directors or members of the Feeder Fund. The Feeder Fund agrees that the financial obligations of the Offshore Fund under this Agreement shall be binding only upon the assets of the Offshore Fund and that, except to the extent liability may be imposed under relevant Securities Laws, the Feeder Fund shall not seek satisfaction of any such obligation from the officers, agents, employees, directors or shareholders of the Offshore Fund.
ARTICLE V
TERMINATION, AMENDMENT
Sec. 5.1 Termination. This Agreement may be terminated at any time by the mutual agreement in writing of all parties, or by any party on ninety (90) days’ advance written notice to the other parties hereto. The provisions of Article III and Sections 4.2 and 4.3 shall survive any termination of this Agreement.
Sec. 5.2 Amendment. This Agreement may be amended, modified or supplemented at any time in such manner as may be mutually agreed upon in writing by the parties.
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ARTICLE VI
GENERAL PROVISIONS
Sec. 6.1 Expenses. All costs and expenses incurred in connection with this Agreement and the conduct of business contemplated hereby shall be paid by the party incurring such costs and expenses.
Sec. 6.2 Headings. The headings and captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Sec. 6.3 Entire Agreement. This Agreement sets forth the entire understanding between the parties concerning the subject matter of this Agreement and incorporates or supersedes all prior negotiations and understandings. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between the parties relating to the subject matter of this Agreement other than those set forth herein. This Agreement may be amended only in a writing signed by all parties.
Sec. 6.4 Successors. Each and all of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither this Agreement, nor any rights herein granted may be assigned to, transferred to or encumbered by any party, without the prior written consent of the other parties hereto.
Sec. 6.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of laws provisions thereof; provided, however, that in the event of any conflict between the 1940 Act and the laws of New York, the 1940 Act shall govern.
Sec. 6.6 Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing one or more counterparts.
Sec. 6.7 Third Parties. Except as expressly provided in Article III, nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, other than the parties hereto and their successors or assigns, any rights or remedies under or by reason of this Agreement.
Sec. 6.8 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made when delivered in person or three days after being sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed:
If to Feeder Fund:
Excelsior Private Markets Fund III (TE), LLC
One Financial Center
Boston, MA 02111
Attn.: Marina Belaya
Tel: (617) 772-3672
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If to Offshore Fund:
Excelsior Private Markets Fund III (Offshore), LDC
One Financial Center
Boston, MA 02111
Attn.: Marina Belaya
Tel: (617) 772-3672
Sec. 6.9 Interpretation. Any uncertainty or ambiguity existing herein shall not be interpreted against any party, but shall be interpreted according to the application of the rules of interpretation for arms’ length agreements.
Sec. 6.10 Operation of the Funds. Except as otherwise provided herein, this Agreement shall not limit the authority of the Feeder Fund to take such action as it may deem appropriate or advisable in connection with all matters relating to the operation of the Feeder Fund and the sale of its interest.
Sec. 6.11 Relationship of Parties; No Joint Venture, Etc. It is understood and agreed that the Feeder Fund shall not hold itself out as an agent of the Offshore Fund with the authority to bind such party, nor shall the Offshore Fund hold itself out as an agent of the Feeder Fund with the authority to bind such party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the date first written above.
OFFSHORE FUND
| EXCELSIOR PRIVATE MARKETS FUND III (OFFSHORE), LDC | |||
| By: | |||
| Name: | Steven L. Suss | ||
| Title: | Chief Financial Officer of Excelsior Private Markets Fund III (TE), LLC, its Managing Member | ||
| FEEDER FUND | |||
| EXCELSIOR PRIVATE MARKETS FUND III (TE), LLC | |||
| By: | |||
| Name: Steven L. Suss | |||
| Title: Chief Financial Officer | |||
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AI Fund Policy: Rule 17j-1 Code of Ethics
Excelsior Multi-Strategy Hedge Fund of Funds, LLC
Excelsior Venture Partners III, LLC
Excelsior Private Markets Fund II (Master), LLC
Excelsior Private Markets Fund II (TI), LLC
Excelsior Private Markets Fund II (TE), LLC
Excelsior Buyout Investors, LLC
UST Global Private Markets Fund, LLC
Excelsior Private Markets Fund III (Master), LLC
Excelsior Private Markets Fund III (TI), LLC
Excelsior Private Markets Fund III (TE), LLC
(Each a “Company” and collectively, the “Companies”)
CODE OF ETHICS
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Board Approval Received (as applicable) |
Excelsior Buyout Investors, LLC and UST Global Private Markets Fund, LLC – December 2008
Excelsior Venture Partners III, LLC and Excelsior Multi-Strategy Hedge Fund of Funds, LLC – December 2008
Excelsior Private Markets Fund II Master Fund; TI and TE LLC – October 2010
Excelsior Private Markets Fund III Master Fund; TI and TE LLC – April 2013
|
| Last Review Date: | June 2013 |
|
Applicable Regulatory Authority
|
Rule 17j-1 of the 1940 Act; Rule 204-2(a)(12) of the IAA Act of 1940; Section 15(f) of the Securities Exchange Act of 1934 |
| I. | Introduction. |
Each Company, severally and not jointly, has approved and adopted this Code of Ethics and has determined, in accordance with the requirements of Rule 17j-1 of the Investment Company Act of 1940, as amended (the “1940 Act”), that this Code of Ethics contains provisions that are reasonably necessary to prevent Access Persons, as defined herein, from engaging in conduct prohibited by Rule 17j-1 of the 1940 Act. This Code of Ethics applies to all Access Persons (as defined herein) of each Company. The specific policies set forth in Section V.B. hereof and the reporting requirements and procedures set forth in Section VI hereof, however, do not apply to any Access Person who is subject to the securities transaction pre-clearance requirements and securities transaction reporting requirements of the code of ethics adopted by a Company’s investment adviser or principal underwriter in compliance with Rule 17j-1 of the 1940 Act and Rule 204-2(a)(12) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”) or Section 15(f) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), as applicable.
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AI Fund Policy: Rule 17j-1 Code of Ethics
| II. | Legal Requirement. |
Rule 17j-1(b) of the 1940 Act makes it unlawful for any officer or director of a Company in connection with the purchase or sale by such person of a Security “held or to be acquired” by the Company:
| 1. | To employ any device, scheme or artifice to defraud the Company; |
| 2. | To make to the Company any untrue statement of a material fact or omit to state to the Company a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; |
| 3. | To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Company; or |
| 4. | To engage in any manipulative practice with respect to the Company’s investment portfolios. |
The policies, restrictions, and procedures included in this Code are designed to prevent violations of these prohibitions.
| III. | Purpose of the Code of Ethics. |
Each Company expects that its officers and directors/trustees/managers will conduct their personal investment activities in accordance with (1) the duty at all times to place the interests of the Companies’ shareholders first, (2) the requirement that all personal securities transactions be conducted consistent with this Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual’s position of trust and responsibility, and (3) the fundamental standard that investment company personnel should not take inappropriate advantage of their positions.
In view of the foregoing, the provisions of Section 17(j) of the 1940 Act, the “Report of the Advisory Group on Personal Investing” issued by the Investment Company Institute on May 9, 1994 and the Securities Exchange Commission’s (“SEC”) September 1994 Report on “Personal Investment Activities of Investment Company Personnel,” each of the Companies have determined to adopt this Code of Ethics to specify a code of conduct for certain types of personal securities transactions which might involve conflicts of interest or an appearance of impropriety and to establish reporting requirements and enforcement procedures.
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AI Fund Policy: Rule 17j-1 Code of Ethics
| IV. | Definitions. |
| A. | An “Access Person” with respect to a Company means (i) any director/trustee/manager or officer of that Company; any director, officer or general partner of that Company’s investment adviser (the “Adviser”) or any Advisory Person (as defined below) of that Company or the Adviser, or (ii) any director, officer or general partner of that Company’s distributor who, in the ordinary course of his or her business, makes, participates in or obtains information regarding, the purchase or sale of Securities (other than Exempt Securities) by that Company or whose functions or duties as part of the ordinary course of his or her business relate to the making of any recommendation to that Company regarding the purchase or sale of Securities (other than Exempt Securities). |
An Access Person’s “immediate family” includes a spouse, minor children, and adults living in the same household as the Access Person.
| B. | An “Advisory Person” with respect to a Company means any trustee/director/manager, officer, general partner, or employee of that Company or the Adviser (or of any company in a control relationship to that Company or the Adviser) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of Securities (other than Exempt Securities) by that Company or, whose functions relate to the making of any recommendations with respect to such purchases or sales; or any natural person in a control relationship to that Company who obtains information concerning recommendations made to that Company with regard to the purchase or sale of Securities (other than Exempt Securities) by that Company. |
| C. | “Automatic Investment Plan” means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan. |
| D. | “Disinterested Director” means a director/trustee/manager who is not an “interested person” within the meaning of Section 2(a)(19) of the 1940 Act. |
| E. | “Investment Personnel” of a Company or of a Company’s Adviser means: |
| (i) | Any employee of that Company or its Adviser (or of any company in a control relationship to that Company or its Adviser) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by that Company. |
| (ii) | Any natural person who controls that Company or its Adviser and who obtains information concerning recommendations made to that Company regarding the purchase or sale of securities by that Company. |
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AI Fund Policy: Rule 17j-1 Code of Ethics
| F. | The “Compliance Officer” is the person or persons designated by the Company’s directors/trustees/managers as its Chief Compliance Officer pursuant to Rule 38a-1 of the 1940 Act. When acting hereunder, the Compliance Officer may delegate one or more of its duties to third parties, such as the Company’s administrator or the Adviser’s compliance department. |
| G. | “Exempt Security” means: |
| 1. | Direct obligations of the U.S. Government (or any other “government security” as that term is defined in the 1940 Act), bankers’ acceptances, bank certificates of deposit, commercial paper and high-quality short-term debt instruments, including repurchase agreements, and shares of registered open-end investment companies, other than exchange traded funds. |
| 2. | Securities purchased or sold in any account over which the Access Person has no direct or indirect influence or control. |
| 3. | Securities purchased or sold in a transaction that is non-volitional on the part of either the Access Person or a Company, including mergers, recapitalizations or similar transactions. |
| 4. | Securities acquired as a part of an Automatic Investment Plan. |
| 5. | Securities acquired upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. |
| 6. | Securities which the Company’s investment portfolios are not permitted to purchase under the investment objectives and policies set forth in the Company’s then current prospectus(es) under the Securities Act of 1933 (the “1933 Act”), confidential memorandum, or the Company’s registration statement. |
| H. | An “Initial Public Offering” means an offering of securities registered under the 1933 Act, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act. |
| I. | A “Limited Offering” means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the 1933 Act. |
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AI Fund Policy: Rule 17j-1 Code of Ethics
| J. | “Security” or “Securities” means any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase any of the foregoing. |
| K. | A Security is “held or to be acquired” by a Company if within the most recent 15 days it (1) is or has been held by the Company, or (2) is being or has been considered by the Company or the Adviser for purchase or sale by the Company. A purchase or sale includes the writing of an option to purchase or sell and any Security that is exchangeable for, or convertible into, any Security that is held or to be acquired by the Company. |
| V. | Policies Regarding Personal Securities Transactions. |
| A. | General Policy. |
No Access Person of a Company shall engage in any act, practice, or course of business that would violate the provisions of Rule 17j-1(b) set forth above, or in connection with any personal investment activity, engage in conduct inconsistent with this Code of Ethics. In this regard, each Access Person has a duty at all times to place the interests of the Companies’ shareholders first and is required to conduct all personal securities transactions consistent with the letter and spirit of this Code and in such a manner as to avoid any actual or potential conflicts of interest or any abuse of the Access Person’s position of trust and responsibility. It is a fundamental standard that Access Persons should not take inappropriate advantage of their positions.
| B. | Specific Policies. |
| 1. | Restrictions on Personal Securities Transactions by Access Persons Other than Disinterested Directors and those Persons Listed on Appendix A. |
| a. | No Access Persons, other than Disinterested Directors and those listed on Appendix A, shall purchase or sell, directly or indirectly, any “Covered Securities” other than Exempt Securities for his or her personal account or the account of a member of his or her immediate family without obtaining oral authorization from the Company’s Compliance Officer prior to effecting such security transaction. |
A written memorialization of this authorization will be provided by the Compliance Officer to the person receiving the authorization.
| -5- |
AI Fund Policy: Rule 17j-1 Code of Ethics
Note: If an Access Person has questions as to whether purchasing or selling a Security for his or her personal account or the account of a member of his or her immediate family requires prior oral authorization, the Access Person should consult the Compliance Officer for clearance or denial of clearance to trade prior to effecting any securities transactions.
| b. | Pre-clearance requests must be submitted during New York Stock Exchange hours. Pre-clearance approvals are valid until 4:00 pm eastern time of the same business day as approval. |
| c. | No clearance will be given to purchase or sell any Security, other than an Exempt Security (1) on a day when any portfolio of the Company has a pending “buy” or “sell” order in that same Security until that order is executed or withdrawn or (2) when the Compliance Officer has been advised by the Adviser that the same Security is being considered for purchase or sale for any portfolio of the Company. |
| d. | The pre-clearance requirement contained in paragraph V.B.1.a, above shall apply to all purchases of a Security through an Initial Public Offering or a Limited Offering by any Access Person who meets the definition of Investment Personnel. A record of any decision and the reason supporting such decision to approve the acquisition by Investment Personnel of Initial Public Offerings or Limited Offerings shall be made. |
| 2. | Restrictions on Personal Securities Transactions by Disinterested Directors and those Persons Listed on Appendix A. |
The Company recognizes that a Disinterested Director and those persons listed on Appendix A do not have on-going, day-to-day involvement with the operations of the Company. In addition, it has been the practice of each Company to give information about Securities purchased or sold by the Company or considered for purchase and sale by the Company to Disinterested Directors and those persons listed on Appendix A in materials circulated more than 15 days after such Securities are purchased or sold by the Company or are considered for purchase or sale by the Company.
Accordingly, each Company believes that less stringent controls are appropriate for Disinterested Directors and those listed on Appendix A, as follows:
| -6- |
AI Fund Policy: Rule 17j-1 Code of Ethics
| a. | The Securities pre-clearance requirement contained in paragraph V.B.l.a. above shall only apply to a Disinterested Director or a person listed on Appendix A if he or she knew or, in the ordinary course of fulfilling his or her official duties as a director/trustee/manager or officer, should have known, that during the 15-day period before the transaction in a Security (other than an Exempt Security) or at the time of the transaction that the Security purchased or sold by him or her other than an Exempt Security was also purchased or sold by the Company or considered for the purchase or sale by the Company. |
| b. | If the pre-clearance provisions of the preceding paragraph apply, no clearance will be given to a Disinterested Director or a person listed on Appendix A to purchase or sell any Security (1) on a day when any portfolio of the Company has a pending “buy” or “sell” order in that same Security until that order is executed or withdrawn or (2) when the Compliance Officer has been advised by the Adviser that the same Security is being considered for purchase or sale for any portfolio of the Company. |
| VI. | Reporting Requirements and Procedures. |
| A. | In order to provide each Company with information to enable it to determine with reasonable assurance whether the provisions of this Code of Ethics are being observed by its Access Persons: |
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AI Fund Policy: Rule 17j-1 Code of Ethics
| 1. | Initial and Annual Holdings Report: Within ten (10) days after a person becomes an Access Person and annually thereafter, such person, other than a Disinterested Director, or a person listed on Appendix A, as provided in Section V(B)(2) above, shall submit to the Compliance a completed Initial/Annual Holdings Report in the form attached hereto as Exhibit A (or another form of written submission containing all required information and acceptable to the Global Compliance) that lists all Securities other than Exempt Securities in which such Access Person has a Beneficial Interest1. Each holdings report must contain, at a minimum, (a) the title and type of security, and as applicable and exchange ticker symbol or CUSIP number, number of shares and principal amount of each Reportable Security in which the Access Person has any direct or indirect beneficial ownership; (b) the name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the Access Person’s direct or indirect benefit; and (c) the date the Access Person submits the report. The Initial Holdings Report must be current as of a date no more than 45 days prior to the date the person became an Access Person and the Annual Holdings Report shall be submitted no later than January 31 and must be current as of a date no more than 45 days prior to the date the report is submitted. In lieu of providing such a report, an Access Person may provide account statements to the Compliance Officer. |
| 2. | Each Access Person of a Company, other than a Disinterested Director, or a person listed on Appendix A, as provided in Section V(B)(2) above, shall direct his or her broker to supply to the Compliance Officer, on a timely basis, duplicate copies of confirmations of all Securities transactions, other than for Exempt Securities, in which the person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and copies of periodic statements for all securities accounts. |
| 3. | Quarterly Report: Each Access Person of a Company, other than a Disinterested Director as provided in Section V(B)(2) above, shall submit a securities transactions report in the form attached hereto as Exhibit B to the Compliance Officer, showing all transactions in Securities other than Exempt Securities in which the person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership, as well as all accounts established with brokers, dealers, or banks during the quarter in which any Securities, other than Exempt Securities, were held for the direct or indirect beneficial interest of the Access Person2. Such reports shall be filed no later than 30 days after the end of each calendar quarter. An Access Person of a Company need not make a quarterly transaction report under this paragraph if all of the information required by this paragraph 3 is contained in the brokerage confirmations or account statements required to be submitted under this paragraph. The reports must include the date on which such report was submitted to the Compliance Officer. |
| 4. | A Disinterested Director need not make an initial or annual holdings report but shall submit the same quarterly report as required under paragraph 3 to the Compliance Officer, but only for a transaction in a Security other than an Exempt Security where he or she knew (or should have known) at the time of the transaction or, in the ordinary course of fulfilling his or her official duties as a director or officer, should have known that during the 15-day period immediately preceding or after the date of the transaction, such Security is or was purchased or sold, or considered for purchase or sale, by a Company. |
| 1 | You will be treated as the “beneficial owner” of a Security under this policy only if you have a direct or indirect pecuniary interest in the Security. |
| (a) | A direct pecuniary interest is the opportunity, directly or indirectly, to profit, or to share the profit, from the transaction. |
| (b) | An indirect pecuniary interest is any nondirect financial interest, but is specifically defined in the rules to include Securities held by members of your immediate family sharing the same household; securities held by a partnership of which you are a general partner; Securities held by a trust of which you are the settlor if you can revoke the trust without the consent of another person, or a beneficiary if you have or share investment control with the trustee; and equity securities which may be acquired upon exercise of an option or other right, or through conversion. |
For interpretive guidance on this test, you should consult Company counsel.
| 2 | See footnote 1 above. |
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AI Fund Policy: Rule 17j-1 Code of Ethics
| 5. | The Compliance Officer shall notify each Access Person of the Companies who may be subject to the pre-clearance requirement or required to make reports pursuant to this Code of Ethics that such person is subject to the pre-clearance or reporting requirements and shall deliver a copy of this Code of Ethics to each such person. Any amendments to this Code of Ethics shall be similarly furnished to each person to whom this Code of Ethics is applicable. |
| 6. | The Compliance Officer shall review the initial holdings reports, annual holdings reports, and quarterly transaction reports received, and as appropriate compare the reports with the pre-clearance authorization received, and report to the Companies’ Boards of Directors/Trustees/Managers: |
| a. | with respect to any transaction that appears to evidence a possible violation of this Code of Ethics; and |
| b. | apparent violations of the reporting requirement stated herein. |
| 7. | The Boards shall consider reports made to it hereunder and shall determine whether the policies established in Sections V and VI of this Code of Ethics have been violated, and what sanctions, if any, should be imposed on the violator, including but not limited to a letter of censure, suspension or termination of the employment of the violator, or the unwinding of the transaction and disgorgement of any profits to the respective Company. The Boards of the Companies shall review the operation of this Code of Ethics at least once a year and any material changes hereto will be approved by the Boards at the next scheduled quarterly board meeting and in no case more than six months after such change. Certain Access Persons, in addition to the Disinterested Directors, will not have an on-going, day-to-day involvement with the Companies. The Compliance Officer will be responsible for determining which Access Persons this applies to and will list such persons on Appendix A to this Code of Ethics. Any amendment to Appendix A will not require approval or ratification by the Boards of the Companies, but the Compliance Officer will provide the Boards with notice of the amendment at the next scheduled quarterly board meeting. |
| -9- |
AI Fund Policy: Rule 17j-1 Code of Ethics
| 8. | The Adviser and the Companies’ principal underwriter shall adopt, maintain and enforce separate codes of ethics with respect to their personnel in compliance with Rule 17j-1 and Rule 204-A-1 of the Advisers Act or Section 15(f) of the 1934 Act, as applicable, and shall forward to the Compliance Officer and the Companies’ counsel copies of such codes and all future amendments and modifications thereto. Any material changes to these codes will be approved by the Boards of the Companies at the next scheduled quarterly board meeting and in no case more than six months after such change, as required by Rule 17j-1 of the 1940 Act. |
| 9. | At each quarterly Boards of Directors’/Trustees’/Managers’ meeting, the Compliance Officer and the Adviser shall provide a written report to the Companies’ Boards of Directors/Trustees/Managers stating: |
| a. | any reported Securities transaction, other than for Exempt Securities, that occurred during the prior quarter that may have been inconsistent with the provisions of the Codes of Ethics adopted by the Company or Adviser; and |
| b. | all disciplinary actions3 taken in response to such violations. |
| 10. | At least once a year, the Adviser shall provide to the Boards a written report which contains: (a) a summary of existing procedures concerning personal investing by Advisory Persons and any changes in the procedures during the past year; (b) an evaluation of current compliance procedures and a report on any recommended changes in existing restrictions or procedures based upon the Companies’ experience under this Code of Ethics, industry practices, or developments in applicable laws and regulations; (c) a description of any issues arising under the Code of Ethics or procedures since the last report, including, but not limited to, information about material violations of the Code of Ethics or procedures and sanctions imposed in response to material violations; and (d) a certification that the procedures which have been adopted are those reasonably necessary to prevent Access Persons from violating the Codes of Ethics. |
| 3 | Disciplinary action includes, but is not limited to, any action that has a material financial effect upon the employee, such as fining, suspending, or demoting the employee, imposing a substantial fine or requiring the disgorgement of profits. |
| -10- |
AI Fund Policy: Rule 17j-1 Code of Ethics
| VII. | Certification. |
Each Access Person will be required to certify annually that he or she has read and understood this Code of Ethics, and will abide by it. Each Access Person will further certify that he or she has disclosed or reported all personal securities transactions required to be disclosed or reported under the Code of Ethics. A form of such certification is attached hereto as Exhibit C.
| VIII. | Recordkeeping |
Each Company will maintain the following records:
(a) a copy of this Code of Ethics and the Adviser’s Code of Ethics that is in effect, or at any time within the past five years was in effect, in an easily accessible place;
(b) a record of any violation of the Code of Ethics, and of any action taken as a result of the violation, in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs;
(c) a record of all persons, currently or within the past five years, who are or were required to submit reports under Section VI.A. of this Code of Ethics, or who are or were responsible for reviewing those reports, in an easily accessible place;
(d) a copy of each report required under Section VI.A. of this Code of Ethics for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place; and
(e) a record of any approvals relating to Initial Public Offerings and Limited Offerings for at least five years after the end of the fiscal year in which the approval is granted.
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AI Fund Policy: Rule 17j-1 Code of Ethics
Appendix A
Excelsior Multi-Strategy Hedge Fund of Funds, LLC
Excelsior Venture Partners III, LLC
Excelsior Private Markets Fund II (Master), LLC
Excelsior Private Markets Fund II (TI), LLC
Excelsior Private Markets Fund II (TE), LLC
Excelsior Buyout Investors, LLC
UST Global Private Markets Fund, LLC
Excelsior Private Markets Fund III (Master), LLC
Excelsior Private Markets Fund III (TI), LLC
Excelsior Private Markets Fund III (TE), LLC
(the “Companies”)
The Compliance Officer has determined that the following Access Persons do not have an on-going, day-to-day involvement with the Companies:
| NAME | COMPANY | |
| -12- |
Exhibit A
Excelsior Multi-Strategy Hedge Fund of Funds, LLC
Excelsior Venture Partners III, LLC
Excelsior Private Markets Fund II (Master), LLC
Excelsior Private Markets Fund II (TI), LLC
Excelsior Private Markets Fund II (TE), LLC
Excelsior Buyout Investors, LLC
UST Global Private Markets Fund, LLC
Excelsior Private Markets Fund III (Master), LLC
Excelsior Private Markets Fund III (TI), LLC
Excelsior Private Markets Fund III (TE), LLC
(the “Companies”)
Initial/Annual Holdings Report
| For the Year/Period Ended | ||
| (month/day/year) |
£ Check Here if this is an Initial Holdings Report
| To: | Fred Wofford, Chief Compliance Officer |
As of the calendar year/period referred to above, I have a direct or indirect beneficial ownership interest in the Securities listed below which are required to be reported pursuant to the Code of Ethics of the Companies:
| Title and Type of Security |
Ticker Symbol or CUSIP Number (as applicable) |
Number of Shares |
Principal Amount | |||
The name of any broker, dealer or bank with whom I maintain an account in which my Securities are held for my direct or indirect benefit are as follows:
This report (i) excludes transactions with respect to which I had no direct or indirect influence or control, (ii) excludes other transactions not required to be reported, and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the Securities listed above.
| Date:___________ | Signature: | |
| Print Name: |
Exhibit B
Excelsior Multi-Strategy Hedge Fund of Funds, LLC
Excelsior Venture Partners III, LLC
Excelsior Private Markets Fund II (Master), LLC
Excelsior Private Markets Fund II (TI), LLC
Excelsior Private Markets Fund II (TE), LLC
Excelsior Buyout Investors, LLC
UST Global Private Markets Fund, LLC
Excelsior Private Markets Fund III (Master), LLC
Excelsior Private Markets Fund III (TI), LLC
Excelsior Private Markets Fund III (TE), LLC
(the “Companies”)
Securities Transaction Report
For the Calendar Quarter Ended [_____ __], 20__
| To: | Fred Wofford, Compliance Officer |
During the quarter referred to above, the following transactions were effected in securities of which I had, or by reason of such transaction acquired, direct or indirect beneficial ownership, and which are required to be reported pursuant to the Code of Ethics of the Companies:
| Title of Security (Required) Exchange Ticker Symbol or CUSIP Number (as applicable) |
Date of Transaction |
Number of Shares or Principal Amount |
Interest Rate and Maturity Date (if applicable) |
Dollar Amount of Transaction |
Nature of Transaction (Purchase, Sale, Other) |
Price | Broker/Dealer or Bank Through Whom Effected | |||||||
For each Access Person of the Companies, other than a Disinterested Director1, provide the following information with respect to any account established by you during the quarter referred to above in which securities were held during the quarter for your direct or indirect benefit:
1. The name of the broker, dealer or bank with whom you established the account.
2. The date the account was established.
This report (i) excludes transactions with respect to which I had no direct or indirect influence or control, (ii) excludes other transactions not required to be reported, and (iii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.
| Date:___________ | Signature: | |
| Print Name: |
| 1 | A director/trustee/manager who knew, or in the ordinary course of fulfilling his or her official duties as a Company director/trustee/manager, should have known, that during the 15-day period immediately before or after the director’s transaction in a Security, the Company purchased or sold the Security, or the Company or its Adviser considered purchasing or selling the Security. |
Exhibit C
Excelsior Multi-Strategy Hedge Fund of Funds, LLC
Excelsior Venture Partners III, LLC
Excelsior Private Markets Fund II (Master), LLC
Excelsior Private Markets Fund II (TI), LLC
Excelsior Private Markets Fund II (TE), LLC
Excelsior Buyout Investors, LLC
UST Global Private Markets Fund, LLC
Excelsior Private Markets Fund III (Master), LLC
Excelsior Private Markets Fund III (TI), LLC
Excelsior Private Markets Fund III (TE), LLC
(the “Companies”)
ANNUAL CERTIFICATE
Pursuant to the requirements of the Code of Ethics of the Companies, the undersigned hereby certifies as follows:
| 1. | I have read the Companies’ Code of Ethics. |
| 2. | I understand the Code of Ethics and acknowledge that I am subject to it. |
| 3. | Since the date of the last Annual Certificate (if any) given pursuant to the Code of Ethics, I have reported all personal securities transactions required to be reported under the requirements of the Code of Ethics. |
| Date: | ||||
| Print Name | ||||
| Signature | ||||
Associate Investment Monitoring (AIM) Code of Ethics
Date of Last Revision: January 1, 2013
AIM Code of Ethics
Rev. 01/01/2013
TABLE OF CONTENTS
| Overview | 2 | |
| Part I – Statement of General Principles | 4 | |
| A. | Compliance with the Spirit of the Code | 5 |
| B. | Federal Securities Law Prohibit Fraudulent and Deceptive Acts | 5 |
| C. | Compliance with other BAC and Line of Business Policies | 6 |
| D. | Contacts for Questions and Reporting Violations of this Code | 6 |
| E. | Training and Education | 6 |
| Part II – Prohibited Transactions and Activities | 7 | |
| A. | Prohibited Transactions in Open-end Mutual Funds | 7 |
| 1. | Late Trading Prohibition | 7 |
| 2. | Market Timing Prohibition | 7 |
| B. | Prohibited Transactions in Reportable Securities | 7 |
| 1. | Client Conflict | 7 |
| 2. | IPOs and Limited Offerings | 8 |
| 3. | Short-Term Trading (30 Calendar Days) | 8 |
| 4. | Excessive Trading | 10 |
| 5. | Bank of America Global Restricted List | 10 |
| 6. | AIM Code Restricted List | 10 |
| 7. | AI Product Restrictions | 10 |
| 8. | Trading in BAC Securities | 10 |
| C. | Other Prohibitions | 10 |
| 1. | Information Walls and Protection of Corporate Confidential and Material Nonpublic Information | 10 |
| 2. | Restriction on Service as Officer or Director by Covered Persons | 11 |
| 3. | Participation in Investment Clubs | 11 |
| 4. | Bank of America Closed-end Funds | 11 |
| 5. | Outside Business Activities | 11 |
| D. | Additional Trading Restrictions Applicable to Investment Persons | 12 |
| 1. | Fourteen Calendar Day Blackout Period | 12 |
| 2. | Limited Offerings | 12 |
| E. | Exemptions | 13 |
| Part III – Pre-Clearance of Transactions | 14 | |
| A. | General Requirement to Pre-clear | 14 |
| B. | Procedures | 14 |
| C. | Exemptions | 14 |
| Part IV – Administration and Reporting Requirements | 16 | |
| A. | Annual Code Coverage Acknowledgement and Compliance Certification | 16 |
| B. | Reporting Requirements for Covered Persons | 16 |
| C. | Exceptions from the above Reporting Requirements | 18 |
| D. | Code Administration | 18 |
| Part V – Penalties for Non-Compliance | 19 | |
| Appendix A – Definitions | 21 | |
| Appendix B – Beneficial Ownership | 24 | |
| Appendix C – Other BAC and Line of Business Policies | 26 | |
| Appendix D – Contact Information | 27 | |
| Appendix E – Additional Guidance While Trading in Bank of America Securities | 28 | |
| 1 |
AIM Code of Ethics
Rev. 01/01/2013
Overview
This Code of Ethics (the “Code”) covers a wide range of ethical conduct with a focus on obligations with respect to personal securities trading. You are a “Covered Person” for purposes of this Code if you have been notified by the Associate Investment Monitoring Group within Bank of America’s Global Compliance Division (“AIM Group”) that this Code applies to you. Covered Persons are obligated to comply with the terms of this Code. Terms used herein that are capitalized have the meaning set forth in Appendix A.
You will likely be notified by the AIM Group that this Code applies to you if you are a director, officer, employee or contractor of one of the following companies (the businesses conducted by the following companies, whose activities are or may be subject to the Investment Advisers Act of 1940 (the “Advisers Act”) and/or the Investment Company Act of 1940 (the “Investment Company Act”), will be collectively referred to as the “Covered Businesses”):
| · | BofA Advisors, LLC (“BofA Advisors”) |
| · | BofA Distributors, Inc. (“BofA Distributors”) |
| · | Bank of America Capital Advisors, LLC |
| · | Merrill Lynch Alternative Investments LLC (“MLAI”) |
| · | Managed Account Advisors LLC |
You may be notified by the AIM Group that this Code applies to you, and thus you are a “Covered Person” for purposes of this Code, if you are a support partner of any of the Covered Businesses. For example, employees and contractors in Legal, Risk, Compliance, Technology & Operations and other support units, while not employees of a Covered Business, may be notified that this Code applies to them due to the services they provide to the Covered Business.
You may be notified by the AIM Group that this Code applies to you, and thus you are a “Covered Person” for purposes of this Code, if you work for Bank of America, N.A. For example, Bank of America, N.A. employees and contractors in Technology and Operations may be notified that this Code applies to them due to their support of a Covered Business. Other employees and contractors may be notified that this Code applies to them due to their access to certain systems used by a Covered Business.
This Code will also serve as the employee personal trading policy for all employees in the Global Wealth & Retirement Solutions (“GWRS”) line of business. As such, GWRS employees and designated support partners who have access to information regarding GWRS businesses will be treated as Covered Persons under the Code.
This Code will also serve as the employee personal trading policy for certain employees and contractors in U.S. Trust (“UST”) and Merrill Lynch Trust Company (“MLTC”). As such, these UST and MLTC employees and contractors will be treated as Covered Persons under the Code.
| 2 |
AIM Code of Ethics
Rev. 01/01/2013
Certain Covered Persons, including, but not limited to, portfolio managers, traders and research analysts, may also be designated by the AIM Group as “Investment Persons” and have heightened responsibility under this Code. Investment Persons are obligated to comply with all provisions of the Code applicable to Covered Persons and additional provisions applicable to Investment Persons.
Keep in mind that additional personal trading restrictions, some of which may be more restrictive, may also apply to Covered Persons and Covered Persons' Affiliates through personal trading policies or other codes of ethics adopted outside the AIM Code of Ethics. Thus, Covered Persons may be notified that they are subject to more than one personal trading policy or code of ethics and must comply with each such applicable policy or code. For a list of Bank of America Corporation (“BAC”) and other line of business policies that may be applicable to Covered Persons and Covered Persons' Affiliates, please see Appendix C.
If you believe you should have been notified by the AIM Group that this Code applies to you and have not been so notified, you are obligated to contact the AIM Group.
This Code governs, among other things, Personal Securities Transactions of you and your Covered Person’s Affiliates. You should be familiar with the terms “Personal Securities Transaction” as defined in Appendix A and “Beneficial Ownership” as defined in Appendix B. These terms are very broad for purposes of the Code and may include transactions and securities that you intuitively would not expect to be included.
Part I of this Code sets forth certain general principles relating to the Code. Part II identifies certain prohibited transactions and activities. Part III identifies your obligation to pre-clear your Personal Securities Transactions, including those of your Covered Person’s Affiliates. Part IV identifies your reporting obligations with respect to your Personal Securities Transactions and holdings, including those of your Covered Person’s Affiliates. Part V sets forth sanctions for failure to comply with this Code.
The AIM Code of Ethics Oversight Working Group or the BACM Code of Ethics Oversight Committee, as applicable (the “Committee”), is responsible for enforcing compliance with this Code. Failure to comply with this Code may result in disciplinary action, including termination of employment.
This Code is intended to satisfy the requirements of Rule 204A-1 of the Advisers Act and Rule 17j-1 of the Investment Company Act. In addition, this Code is intended to satisfy certain FINRA requirements for registered personnel.
| 3 |
AIM Code of Ethics
Rev. 01/01/2013
Part I
Part I – Statement of General Principles
Certain Covered Persons have a fiduciary relationship with Clients. A fiduciary has an affirmative duty of care, loyalty, honesty and good faith. In addition, if a fiduciary duty exists, there are a number of specific obligations, including:
| · | To act solely in the best interests of Clients and to make full and fair disclosure of all material facts, particularly where a Covered Business interests may conflict with those of its Clients; |
| · | To have a reasonable, independent basis for our investment advice; |
| · | To ensure that our investment advice is suitable to the Client’s investment objectives, needs and circumstances; |
| · | To refrain from effecting Personal Securities Transactions inconsistent with our Clients’ interests; |
| · | To obtain best execution for our Clients’ securities transactions; |
| · | To refrain from favoring the interest of a particular Client over the interests of another Client; |
| · | To keep all information about Clients (including former Clients) confidential, including the Client’s identity, Client’s securities holdings information, and other non-public information; and |
| · | To exercise a high degree of care to ensure that adequate and accurate representations and other information is presented. |
Covered Persons who serve in a fiduciary capacity are in a position of trust and that position of trust dictates that they act at all times with the utmost integrity, avoid any actual or potential conflict of interest (described below), and not otherwise abuse that position of trust. Covered Persons who serve in a fiduciary capacity are required to put the interests of Clients before their personal interests. All Covered Persons, regardless of whether they serve in a fiduciary capacity, must seek to avoid conflicts of interest and comply with many of the above principles pursuant to the BAC Code of Ethics.
A conflict of interest is any situation that presents an incentive to act other than in the best interest of a Client. A conflict of interest may arise, for example, when a Covered Person engages in a transaction that potentially favors: (i) BAC’s interests over a Client’s interest, (ii) the interest of a Covered Person or Covered Person’s Affiliate over a Client’s interest, or (iii) one Client’s interest over another Client’s interest.
Each Covered Business has adopted various policies designed to prevent, or otherwise manage, conflicts of interest. To effectively manage conflicts of interest, all Covered Persons must seek to prevent conflicts of interest, including the appearance of a conflict. Covered Persons must be vigilant about circumstances that present a conflict of interest and immediately seek assistance from their manager or one of the other resources identified in Part I.D of this Code.
Independence in the investment decision-making process is paramount, and all Covered Persons must avoid situations that might compromise or call into question their exercise of independent judgment in the interest of Clients. For example, Covered Persons should not take, or seek to take, personal advantage of unusual or limited investment opportunities appropriate for Clients, and should avoid any appearance of such activities.
| 4 |
AIM Code of Ethics
Rev. 01/01/2013
The general principles discussed in this section govern all conduct, regardless of whether or not such conduct is also covered by more specific standards and procedures set forth in other sections of this Code.
| A. | Compliance with the Spirit of the Code |
Sound, responsible personal securities trading is an appropriate activity when it is not excessive in nature, when it is conducted consistent with the Code and when it does not cause any actual, potential or apparent conflict of interest.
Personal trading activity, including trading activity of a Covered Person’s Affiliates, that is inconsistent with duties to our Clients or that injures the reputation and professional standing of BAC or any of the Covered Businesses will not be tolerated. Technical compliance with the specific requirements of this Code will not insulate you from sanction should a review of your Personal Securities Transactions, including those of your Covered Person’s Affiliates, indicate breach of your duty of loyalty to a Client or otherwise pose harm to our organization’s reputation.
The Committee has the authority to grant written waivers of the provisions of this Code. It is expected that this authority will be exercised only in rare instances.
| B. | Federal Securities Laws Prohibit Fraudulent and Deceptive Acts |
All Covered Persons are required to comply with all Federal Securities Laws, including, but not limited to, the Advisers Act and the Investment Company Act. Among other prohibitions, each of these Acts contains anti-fraud provisions.
The Advisers Act makes it unlawful for any investment adviser, directly or indirectly, to employ any device, scheme or artifice to defraud any client or prospective client, or to engage in any transaction or practice that operates as a fraud or deceit on such persons.
The Investment Company Act makes it unlawful for any director, trustee, officer or employee of an investment adviser of an investment company, as well as certain other persons, in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired by the investment company:
| 1. | To employ any device, scheme or artifice to defraud the fund; |
| 2. | To make to the fund any untrue statement of a material fact or omit to state to the fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; |
| 3. | To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the fund; or |
| 4. | To engage in any manipulative practice with respect to the fund. |
| 5 |
AIM Code of Ethics
Rev. 01/01/2013
| C. | Compliance with other BAC and Line of Business Policies |
Compliance with this Code is in addition to your obligation to comply with other BAC policies that may be applicable to you, including but not limited to those set forth in Appendix C.
| D. | Contacts for Questions and Reporting Violations of this Code |
If you have any questions about the Code or about the applicability of the Code to a Personal Securities Transaction, you may call the AIM Group directly at 866-853-4324 or send an email to the “AssociateInvestmentMonitoringGroup@bankofamerica.com.”
Each Covered Person must promptly report any conduct that he or she reasonably believes constitutes or may constitute a violation of the Code. Covered Persons must promptly report all relevant facts and circumstances relating to such potential violation of the Code to the AIM Group. If you wish to remain anonymous, you may simply refer to yourself as a “BAC Employee.” You will not be retaliated against for reporting information in good faith in accordance with this policy.
For additional contacts, please refer to Appendix D.
| E. | Training and Education |
New Covered Persons will be required to complete new hire training. Once training is assigned to new Covered Persons, it is required that this training be successfully completed within forty-five calendar days.
All Covered Persons will be required to complete ongoing training. This training will occur no less frequently than annually.
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Part II
Part II – Prohibited Transactions and Activities
Part II of the Code pertains to personal securities trading and identifies certain prohibited transactions and activities. If there is a stated exception to a prohibited transaction or activity and you qualify for the exception, you are not relieved of any other obligations you may have under this Code, including any requirement to pre-clear and report the transaction.
| A. | Prohibited Transactions in Open-end Mutual Funds |
| 1. | Late Trading Prohibition |
Late trading of mutual funds is illegal. No Covered Person or Covered Person’s Affiliate shall engage in any transaction in any mutual fund shares where the order is placed after the fund is closed for the day and the transaction is priced using the closing price for that day. In addition to being illegal, late trading may present a conflict of interest and/or a violation of fiduciary duty.
| 2. | Market Timing Prohibition |
No Covered Person or Covered Person’s Affiliate shall engage in mutual fund market timing activities. The Committee believes that the interests of a mutual fund’s long-term shareholders and the ability of a mutual fund to manage its investments may be adversely affected when fund shares are repeatedly bought, sold or exchanged by any individual or entity within short periods of time to seek to take advantage of perceived short-term differentials in the net asset values of such funds. This practice, known as “market timing,” can occur in direct purchases and sales of mutual fund shares, through rapid reallocation of funds held in a 401(k) plan or similarly structured retirement plan or other accounts invested in mutual funds, or through the rapid reallocation of funds held in variable annuity and variable life policies invested in mutual funds. In addition to being prohibited by this Code, mutual fund market timing may present a conflict of interest and/or a violation of fiduciary duty. All Covered Persons are expected to review, and abide by, any market timing provisions set forth in the prospectus of any open-end fund being traded by the Covered Person or Covered Person’s Affiliates.
| B. | Prohibited Transactions in Reportable Securities |
| 1. | Client Conflict |
No Covered Person or Covered Person’s Affiliate shall engage in a Personal Securities Transaction that involves the purchase or sale of a Reportable Security seven days before or seven days after such security is purchased or sold by a Client Account when such Covered Person has advance knowledge that such security will be purchased or sold by a Client Account. Whether a Covered Person has “advance knowledge” will depend upon the facts and circumstances and such knowledge may be imputed where the facts and circumstances indicate that a prudent person would conclude that there is a reasonable probability that a Client Account may transact in the security. Certain types of Covered Persons, such as portfolio managers, traders and analysts, will be subject to heightened scrutiny for compliance with this section (see section D below).
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No Covered Person or Covered Person’s Affiliate shall engage in a Personal Securities Transaction that involves the purchase or sale of any Reportable Security when, at the time of such purchase or sale, the Covered Person knew or should have known, that the same class of security is the subject of an open buy or sell order for a Client Account or is Being Considered for Purchase or Sale by a Client Account.
These restrictions do not apply:
| · | to securities of an issuer that has a market capitalization of $10 billion or more at the time of a transaction; however, a Covered Person must pre-clear these trades as with any other personal trade as described in Part III of this Code; or |
| · | when the Personal Securities Transaction conflicts with a trade in a Client Account that principally follows a passive index tracking investment strategy. |
| 2. | IPOs and Limited Offerings |
Covered Persons and Covered Persons’ Affiliates are prohibited from investing in equity IPOs.
No Covered Person or Covered Person’s Affiliate shall engage in a Personal Securities Transaction that involves the purchase of a security in a debt IPO without the prior written approval of his/her manager and the CCO. For assistance with debt IPO requests and obtaining CCO approval, please contact the AIM Group at 866-853-4324 or send an e-mail to the "AIM Group".
All requests for Limited Offerings, including additions to existing holdings but excluding capital calls for previously approved commitments, must be submitted via the Associate Investment Monitoring System. Requests made by a Covered Person or Covered Person’s Affiliate to purchase will be first routed to the employee’s manager, and then to the CCO for approval.
In approving the purchase of debt IPOs or Limited Offerings, the CCO will consider whether the purchase conflicts with the Code or its underlying policies, whether the investment opportunity should be reserved for Clients, and whether the opportunity has been offered to the Covered Person because of the Covered Person’s relationship with BAC, the issuer, or a Client. The CCO may approve an acquisition under certain circumstances, such as:
| · | An opportunity resulting from the Covered Person’s pre-existing ownership of an interest in the IPO company or status as an investor in the IPO company; |
| · | An opportunity made available to the Covered Person’s spouse, in circumstances permitting the CCO reasonably to determine that the opportunity is being made available for reasons other than the Covered Person’s relationship with BAC, the issuer or a Client (for example, because of the spouse’s employment); or |
| · | An opportunity to acquire securities of an insurance company converting from a mutual ownership structure to a stockholder ownership structure, if the Covered Person’s ownership of an insurance policy issued by the IPO company or an affiliate of the IPO company conveys the investment opportunity. |
| 3. | Short-Term Trading (30 Calendar Days) |
Unless exempted, there is a minimum 30-calendar day holding period for Reportable Securities (including options and derivatives thereon).
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| (a) | The 30 calendar day restriction period commences the day of the purchase or sale of any Reportable Security. | |
| (b) | The 30-day restriction applies on a “last-in, first-out basis.” | |
| (c) | Opening option positions expiring in less than 30 days will result in violations of the short-term trading ban. | |
| (d) | The short-term trading restriction also applies to the purchase and subsequent gifting of securities. | |
| (e) | The 30-day restriction does not apply to the exercise of options to purchase shares of BAC stock and the immediate sale of the same or identical shares, including so-called “cashless exercise” transactions. | |
| (f) | The 30-day restriction does not apply to liquidations of securities when the purchase was part of an Automatic Investment Plan; however, any purchases that override or otherwise depart from the automatic investment plan would be subject to the 30-day restriction. | |
| (g) | The 30-day restriction does not apply to transactions effected in any account in which the Covered Person may have a Beneficial Interest, but no direct or indirect Influence or Control of investment or trading activity, such as a blind trust or fully discretionary investment advisory account. | |
(h) Commodity and currency transactions, including derivatives thereon, are exempt from the holding period requirement.
Exceptions to the short-term trading ban may be requested in advance of a trade and will generally be granted only in rare cases of economic hardship, gifting of securities or other unusual circumstances where it is determined that no abuse is involved and the mitigating factors of the situation strongly support an exception to the ban. Circumstances that could provide the basis for an exception from the short-term trading restriction might include, for example, among others:
| · | An involuntary transaction that is the result of unforeseen corporate activity; |
| · | The disclosure of a previously nonpublic, material corporate, economic or political event or activity that could cause a reasonable person in like circumstances to sell a security even if originally purchased as a long-term investment; or |
| · | The Covered Person’s economic circumstances materially change in such a manner that enforcement of the short-term trading ban would result in the Covered Person being subjected to an avoidable, inequitable economic hardship. |
Exception requests, addressed to the CCO, should be sent via email to
AssociateInvestmentMonitoringGroup@bankofamerica.com.
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| 4. | Excessive Trading |
Covered Persons and Covered Persons’ Affiliates are strongly discouraged from engaging in excessive Personal Securities Transactions. Although this Code does not define excessive Personal Securities Transactions, Personal Securities Transactions that exceed thirty per month may be reported by the AIM Group to senior management.
| 5. | Bank of America Global Restricted List |
For securities placed on the Bank of America Global Restricted List (“Global Restricted List”), trading may be limited or prohibited, depending on the nature of the restriction and the applicability of the Global Restricted List to the Covered Person. All Covered Persons and Covered Persons’ Affiliates are subject to the Global Restricted List.
| 6. | U.S. Trust and MLTC Restrictions |
When UST or MLTC employees receive buy-side research reports from third parties, where coverage is initiated or ratings are changed, on a Reportable Security, the security is put on a “AIM Code Restricted List” and remains on the restricted list for seven calendar days. Additionally, any change in a Reportable Security on the UST Equity Buy List or within an Investment Solutions model the security is added to the “AIM Code Restricted List,” and remains on the restricted list for seven calendar days. No UST or MLTC Covered Person shall engage in a Personal Securities Transaction involving a Reportable Security that he or she knows, or should have known, is on the AIM Code Restricted List. This restriction also applies to the Personal Securities Transactions of a UST or MLTC Covered Person’s Affiliate.
| 7. | AI Product Restrictions |
Covered Persons, including a Covered Person’s Affiliate, are prohibited from purchasing or selling any MLAI or BACA sponsored fund, including feeder funds. Investments in funds sponsored by entities not affiliated with BAC (“selling agreement funds”) is permitted; however, pre-approval must first be obtained through the “Private Investment Disclosure” screen in the AIM System.
| 8. | Trading in BAC Securities |
All Bank of America employees are prohibited from engaging in speculative trading of Bank of America securities. This generally prohibits short sales and trading in puts, calls and other options or derivatives with respect to such securities, unless such transactions are for legitimate, non-speculative purposes. Further clarification of what is deemed speculative trading with respect to BAC securities can be found in Appendix E.
| C. | Other Prohibitions |
| 1. | Information Walls and Protection of Corporate Confidential and Material Nonpublic Information |
The BAC Code of Ethics prohibits any employee who is in possession of material, nonpublic information (“MNPI”) about securities or financial instruments, from buying, selling, recommending or trading such securities or financial instruments in breach of a duty of trust or confidence owed to the issuer of the securities or financial instruments, the shareholders of that issuer or any other person who is the source of the information. In addition, an employee must not communicate or disclose such information to others who may misuse it.
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Additionally, Covered Persons must not disclose or disseminate to any other person or business unit MNPI or other confidential information regarding a client, unless they have a legitimate business reason to know or access that information or the client who provided the information has otherwise directed or consented to its disclosure or dissemination, and then only in compliance with the Bank of America Corporation Information Wall Policy and all other applicable information wall and other policies (refer to Appendix C).
| 2. | Restriction on Service as Officer or Director by Covered Persons |
Covered Persons are prohibited from serving as an officer or director of any publicly traded company, other than Bank of America Corporation, without prior authorization from the CCO based on a determination that the board service would not be inconsistent with the interests of BAC or of any Client. Covered Persons serving as a director or officer of a private company may be required to resign, either immediately or at the end of the current term, if the company goes public during his or her term as a director or an officer.
Requests to the CCO must be submitted via email, addressed to the CCO, to the AIM Group at AssociateInvestmentMonitoringGroup@bankofamerica.com.
| 3. | Participation in Investment Clubs |
No Covered Person or Covered Person’s Affiliate may participate in private investment clubs or other similar groups.
| 4. | Bank of America Closed-End Funds |
Notwithstanding the restrictions in Part II B.7., no Covered Person or Covered Person’s Affiliate shall acquire Beneficial Ownership of securities of any Closed-end Fund advised by subsidiaries controlled by BAC without the prior written approval of the CCO.
| 5. | Outside Business Activities |
Covered Persons may not engage in outside activities for which he/she receives compensation, or has the reasonable expectation of receiving compensation, in such activities that, in the opinion of BAC management, present an actual or potential conflict of interest or have an adverse impact with the respect to the employee’s job responsibilities. Covered Persons must obtain the prior approval of their supervisors and the activity must be reviewed by the AIM Group, via the initial disclosure/certification process, before they may:
| · | engage in any business other than that of BAC or its affiliates; |
| · | be employed, compensated or have the reasonable expectation of being compensated by any person or organization other than BAC or its affiliates; |
| · | engage in an activity as a general partner or managing member; or |
| · | serve full or part-time as an officer, director, partner, consultant, independent contractor, sole proprietor or employee of a business organization other than BAC or its affiliates. |
It is the Covered Person’s responsibility to disclose and request pre-approval for any such employment and/or affiliation. Unless otherwise expressly permitted in writing, every employee shall devote his or her entire time during business hours to the business of BAC and its affiliates. Additional approvals are required for any role as a director or general partner or managing member of any organization.
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The following are examples of activities that are required to be reported and approved if compensation is to be received/reasonably expected or if a Covered Person seeks to serve as an officer, director, partner, independent contractor, or employee:
| · | participating in social, recreational or community service organizations (country clubs, Junior League, Rotary Club, Jaycees, etc.); |
| · | participating in religious organizations; |
| · | participating in a non-profit charitable organization; |
| · | participating in educational organizations (PTA, etc.); or |
| · | participating in any homeowner associations or similar organizations. |
BAC policy generally does not allow employees to be involved in securities-related business activities outside of their employment with BAC and its affiliates.
| D. | Additional Trading Restrictions Applicable to Investment Persons |
| 1. | Fourteen Calendar Day Blackout Period |
No Investment Person, including his or her Covered Person’s Affiliates, shall engage in a Personal Securities Transaction that involves the purchase or sale of any Reportable Security within a period of seven calendar days before or after a purchase or sale of the same class of security by a Client Account with which the Investment Person or his/her team are regularly associated. The spirit of this Code requires that no Investment Person intentionally delay trades on behalf of a Client Account so that his/her own personal trades or the trades of a Covered Person’s Affiliate avoid falling within the fourteen day blackout period. This restriction does not apply:
| · | to securities of an issuer that has a market capitalization of $10 billion or more at the time of a transactions; however, an Investment Person must pre-clear these trades as with any other personal trade, as described in Part III of this Code; or |
| · | when the personal trade involves the same reportable security as a trade in a Client Account that principally follows a passive index tracking investment strategy. |
| 2. | Limited Offerings |
Investment Persons who have been authorized to acquire securities in a Limited Offering are required to disclose in writing that investment to their manager when, within thirty days of the Investment Person’s acquisition, the Investment Person plays a role in any Client’s consideration of an investment in the issuer. In such circumstances, the decision to purchase securities of the issuer for the Client should be made either by another employee or, at a minimum, should be subject to an independent review by investment personnel with no personal interest in the issuer.
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| E. | Exemptions |
The following Personal Securities Transactions are exempt from the prohibitions contained in this Part II:
| · | Transactions effected pursuant to an Automatic Investment Plan; provided, however, that this exemption does not apply to transactions that override or otherwise depart from the pre-determined schedule or allocation features of the investment plan |
| · | Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. |
| · | Transactions that are non-volitional (e.g., stock splits, automatic conversions). |
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Part III
Part III – Pre-Clearance of Transactions
| A. | General Requirement to Pre-clear |
Covered Persons must pre-clear all Personal Securities Transactions, including those of their Covered Persons’ Affiliates, in Reportable Securities using the appropriate pre-clearance procedures.
For specific information on Reportable Securities, please visit the AIM system home page (http://associate.aim.bankofamerica.com).
When Covered Persons subsequently gain material, non-public information about a security after receiving approval to trade the security, the approval is considered void.
In accordance with the Code, Covered Persons’ trade requests may be denied, which may cause increased market exposure for the Covered Person or Covered Persons’ Affiliates.
| B. | Procedures |
Pre-clearance requests should be submitted using the AIM system. All trade approvals expire at the end of the following calendar day. If an approved trade has not been executed by the end of the following calendar day, the Covered Person must submit a new request for approval and, as necessary, must continue to do so until the trade is executed. Accordingly, all good-till-canceled (GTC) orders are strongly discouraged. Covered Persons who place a GTC limit order are solely responsible for obtaining pre-clearance approval, as noted above, until the trade executes.
| C. | Exemptions |
The following securities/transactions in reportable securities are exempt from the pre-clearance requirement:
| · | Transactions in BAC Employee Retirement Plans |
| · | Transactions in Company-Directed 401(k) Plans |
| · | Transactions in 529 Plans |
| · | Exchange Traded Funds |
| · | Closed-end Funds (exemption is NOT available to employees who work on the GWRS Closed-end Fund Origination and Marketing Desks) |
| · | Unit Investment Trusts |
| · | Government Sponsored Enterprises |
| · | Municipal Securities |
| · | Futures (but not single-stock futures) |
| · | Transactions in commodities or currencies, and derivatives thereon |
| · | Transactions by a Covered Person on an official leave of absence who does not have remote system access |
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| · | Transactions effected pursuant to an Automatic Investment Plan, including purchases in the BAC Employee Stock Purchase Plan. Note this does not include transactions that override or otherwise depart from the pre-determined schedule or allocation features of the investment plan, including, but not limited to initial transactions. Liquidations of securities acquired pursuant to an Automatic Investment Plan do require pre-clearance |
| · | Transactions effected in any account in which the Covered Person may have a Beneficial Interest, but no direct or indirect Influence or Control of investment or trading activity, such as a blind trust or fully discretionary advisory account. Any transactions in these accounts that are executed at the direction of the Covered Person or Covered Person’s Affiliate would, however, require pre-clearance |
| · | Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired |
| · | Transactions that are non-volitional (e.g., stock splits, automatic conversions) |
| · | The exercise of options to purchase shares of BAC stock and the immediate sale of the same or identical shares, including so-called “cashless exercise” transactions |
| · | The receipt or grant of a bona fide gift of securities |
NOTE: The securities/transactions listed above, although exempt from the pre-clearance requirement, may be subject to the 30-calendar day holding period. Please refer to Part II. B. 3 of this Code for additional information.
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Part IV
Part IV – Administration and Reporting Requirements
| A. | Annual Code Coverage Acknowledgement and Compliance Certification |
All Covered Persons will annually furnish electronic acknowledgement of coverage under, and certification of compliance with, this Code. Copies of this Code and any amendments to the Code are provided to all Covered Persons. All Covered Persons are required to provide electronic acknowledgment of their receipt of the Code and any amendments.
| B. | Reporting Requirements for Covered Persons |
Each Covered Person must report all Reportable Securities Beneficially Owned by such Covered Person.
Each Covered Person must also report accounts that currently hold, or that are capable of holding, Reportable Securities Beneficially Owned by such Covered Person, including accounts such as those with broker-dealers, banks and insurance companies (“Investment Accounts”). Therefore, even if an account does not currently hold Reportable Securities, if it has the capacity to hold such securities, it is an Investment Account and a Covered Person is obligated to report its existence.
Information provided by each Covered Person relating to Investment Accounts and Beneficial Ownership of Reportable Securities must not be more than 45 days old. Such reporting is required as follows:
| · | By the 10th calendar day after becoming a Covered Person, you must: (i) report your Investment Accounts and any Reportable Securities that you Beneficially Own and (ii) acknowledge that you have read and understand this Code and that you understand that you are a Covered Person (and, if applicable, an Investment Person) under the Code. The ten calendar day period starts the earliest of: (i) the day you are notified by the AIM Group that you are a Covered Person, (ii) the day you have access to certain material, non-public information of any Covered Business, including any Client’s purchase or sale of securities, or analyst recommendations or (iii) the day you begin working within a Covered Business. |
| · | By the 30th calendar day following the end of the calendar quarter, all Covered Persons are required to submit via the AIM System a report of their Investment Accounts (including Investment Accounts opened during the quarter for themselves or their Covered Persons’ Affiliates) and Personal Securities Transactions in Reportable Securities during the quarter. |
| · | By the 30th calendar day after the end of the calendar year, Covered Persons are required to submit via the AIM System a detailed annual report of the Reportable Securities they Beneficially Own. |
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Except as provided below, each Covered Person shall cause every broker-dealer or investment services provider with whom he or she maintains an Investment Account to provide duplicate periodic statements and trade confirmations to the AIM Group for all Investment Accounts. All duplicate statements and confirmations should be sent to the following address:
Bank of America
Associate Investment Monitoring
NC1-002-21-58
101 South Tryon Street
Charlotte, NC 28255
While Investment Accounts at the following firms require reporting/disclosure, duplicate statements and confirmations are not required as electronic data feeds have been established:
| · | Merrill Lynch, Pierce, Fenner & Smith Incorporated (US) |
| · | Fidelity Investments (US) |
| · | Morgan Stanley Smith Barney (US) |
| · | E*Trade (US) |
| · | Wells Fargo Advisors (US) |
| · | Goldman Sachs (US) |
| · | Edward Jones (US) |
| · | UBS Financial Services Inc (US) |
| · | Computershare - BAC ESPP accounts only (US) |
| · | TD Ameritrade (US) |
| · | Scottrade (US) |
| · | TD Direct Investing (Global) |
| · | Charles Schwab (Global) |
| · | Interactive Brokers (Global) |
| · | Merrill Lynch Wealth Management (UK) |
| · | Fidelity Worldwide (UK) |
| · | Barclays Stockbrokers (UK) |
| · | ML Capital Markets Espana (Spain) |
| · | ML South Africa (South Africa) |
| · | Royal Bank of Canada (Canada) |
| · | TD Canada (Canada) |
| · | CIBC (Canada) |
| · | HSBC (Canada) |
| · | Ágora CTVM (Brazil) |
| · | ML SA Corretora de Valores Mobiliarios (Brazil) |
| · | GBM (Mexico) |
| · | Shinhan Investment Group (South Korea) |
| · | Mitsubishi UFJ ML PB Securities Co. Ltd (Japan) |
| · | Merrill Lynch Singapore (Singapore) |
| · | Maybank Kim Eng Securities (Singapore) |
| · | E*Trade Australia (Australia) |
| · | Evans and Partners (Australia)Commonwealth Securities (Australia) |
| · | HDFC (India) |
| · | ICICI (India) |
| · | DSPML (India) |
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| C. | Exceptions from the above Reporting Requirements |
The following Investment Accounts do not need to be reported:
| · | BAC Employee Retirement Plans |
| · | Company-Directed 401(k) Plans that do not hold any Reportable Securities |
The following Personal Securities Transactions do not need to be reported:
| · | Transactions in BAC Employee Retirement Plans. |
| · | Transactions in 529 Plans. For purposes of clarity, a Covered Person is required to report the opening or closing of a 529 Plan, but is not required to report transactions in underlying mutual funds or other investments in 529 Plans. |
The designation of any Covered Person on an official leave of absence will be reviewed by the AIM Group to determine whether the individual should still be considered a Covered Person. The AIM Group will consider factors such as whether the employee continues to have password access to electronic firm and Client data and whether the employee continues to be in contact with other Covered Persons at the firm. If AIM determines the individual is not a Covered Person, the individual will be exempt from the above reporting requirements while on leave. However, any Covered Person on an official leave of absence with such access will be responsible for the above reporting.
| D. | Code Administration |
The Committee has charged the AIM Group with the responsibility of day-to-day administration of this Code. The AIM Group will provide quarterly reports to the Committee that will include all significant and material violations noted during the period. The quarterly report will include relevant details and a record of any recommended sanction.
When required under Rule 17j-1 of the Investment Company Act, the CCO of a Covered Business shall report any relevant issues to the respective Board of Directors/Trustees.
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Part V
Part V – Penalties for Non-Compliance
Upon discovering a violation of the Code, the AIM Group shall take or direct whatever remedial steps it deems necessary and available to correct an actual or apparent conflict (e.g., trade reversal, etc.). Following those corrective efforts, the Committee may impose sanctions if, based upon all of the facts and circumstances considered, such action is deemed appropriate. The magnitude of these penalties varies with the severity of the violation, although repeat offenders will likely be subjected to harsher punishment. It is important to note that violations of the Code may occur without employee fault (e.g., despite pre-clearance) and many violations of the Code do not involve any element of “scienter” or intent/knowledge of the employee. In those cases, punitive action may not be warranted, although remedial steps may still be necessary. Violations of the Code include, but are not limited to, the following:
| · | Execution of a Personal Securities Transaction without proper pre-clearance, including spousal and other Covered Person’s Affiliate transactions; |
| · | Execution of a Personal Securities Transaction with pre-clearance, but Client account activity in the same issuer occurs within seven days of the Covered Person or Covered Person’s Affiliate’s Personal Securities Transaction; |
| · | Execution of a Personal Securities Transaction after being denied approval; |
| · | Execution of a Personal Securities Transaction that involves opening and subsequently closing a Reportable Security position within 30 calendar days or less; |
| · | Execution of a Personal Securities Transaction when that security is on the Global Restricted List or AIM Code Restricted List; |
| · | Failure to disclose the opening or existence of an Investment Account; |
| · | Failure to obtain prior approval of a purchase of a debt IPO or to acquire an interest in a Limited Offering; and |
| · | Failure to timely complete and return periodic certifications and acknowledgements. |
The Committee will consider the specific facts and circumstances of any violations and will determine appropriate sanctions. Factors to be considered during any review would include but are not limited to:
| · | Whether the act or omission was intentional; |
| · | Whether mitigating or aggravating factors existed; |
| · | The person’s history of prior violations of the Code; |
| · | The person’s cooperation, acknowledgement of transgression and demonstrable remorse; |
| · | The person’s position within the firm (i.e., whether the employee is deemed to be a Covered Person or an Investment Person); |
| · | Whether the person transacted in the security of an issuer in which his/her line of business area has invested or could invest; |
| · | Whether the person was aware of any information concerning an actual or contemplated investment in that same issuer for any Client account; and |
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| · | Whether the price at which the Personal Securities Transaction was effected was more advantageous than the price at which the Client transaction in question was effected. |
The type of sanctions to be imposed may include, but are not limited to, verbal or written warnings, trade reversals, disgorgement of profits, monetary fines, suspension or termination of personal trading privileges and employment suspension or termination. The minimum monetary fine is typically $100 for Covered Persons and $500 for Investment Persons. Monetary fines, other than the minimum fines, are typically based on a percentage of the employee’s annual compensation including, but not limited to, an employee’s salary and bonus. In addition to sanctions, violations may result in referral to civil or criminal authorities where appropriate.
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Appendix A – Definitions
To understand the Code, you need to understand the capitalized terms in the Code, which are defined below.
“Advisers Act” means the Investment Advisers Act of 1940 and the rules and regulations thereunder.
“Automatic Investment Plan” means a plan or other program in which regular periodic purchases or withdrawals are made automatically in or from Investment Accounts in accordance with a pre-determined schedule and allocation. These may include payroll deduction plans, issuer dividend reinvestment programs or 401(k) automatic investment plans.
“BAC” means Bank of America Corporation and its affiliates.
“BAC Employee Retirement Plan” means any retirement plan sponsored by BAC for the benefit of its employees.
“Being Considered for Purchase or Sale” means a security is being considered for purchase or sale when a recommendation to purchase or sell a security has been made and communicated or, with respect to the person making the recommendation, when such person decides to make the recommendation.
“Beneficial Ownership” has the meaning set forth in Appendix B.
“BofA Advisors” has the meaning set forth in the Overview section of this Code.
“BofA Distributors” has the meaning set forth in the Overview section of this Code.
“CCO” means each Covered Business’s Chief Compliance Officer, or his/her designee, or line of business Compliance or Risk executive associated with the employee’s line of business.
“Client” means any natural person, company or organization to which a Covered Business provides financial services.
“Client Account” means any investment management account or fund for which any of BofA Advisors, LLC, Bank of America Capital Advisors, LLC, Merrill Lynch Alternative Investments LLC, or Managed Account Advisors LLC acts as investment adviser or sub-adviser.
“Closed-end Fund” refers to a registered investment company with a fixed number of shares outstanding and whose shares are publicly traded in a secondary market rather than directly with the fund.
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“Code” has the meaning set forth in the Overview section herein.
“Committee” has the meaning set forth in the Overview section of this Code.
“Company-Directed 401(k) Plan” means a 401(k) plan that offers a limited number of investment options in which a participant can direct their investments. A 401(k) plan whereby the participant may direct stock investments is not a Company-Directed 401(k) Plan for purposes of this Code.
“Covered Businesses” has the meaning set forth in the Overview section of this Code.
“Covered Person” has the meaning set forth in the Overview section of this Code.
“Covered Person’s Affiliate” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, significant other, domestic partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (but does not include aunts and uncles, or nieces and nephews) sharing the same household with you. The term “Covered Person’s Affiliate” also includes persons not living in your household if the person is economically dependent upon you.
“Federal Securities Laws” means the Securities Act of 1933 (15 U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a –mm), the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), the Investment Company Act of 1940 (15 U.S.C 80a), the Investment Advisers Act of 1940 (15 U.S.C. 80b), Title V of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999), any rules adopted by the Securities and Exchange Commission under any of these statutes, the Bank Secrecy Act (31 U.S.C. 5311 –5314; 5316 – 5332) as it applies to funds and investment advisers, and any rules adopted thereunder by the Securities and Exchange Commission or the Department of Treasury.
“Financial Interest” has the meaning set forth in Appendix B.
“FINRA” means the Financial Industry Regulatory Authority.
“GWRS” has the meaning set forth in the Overview section herein.
“Influence or Control” has the meaning set forth in Appendix B.
“Investment Account” has the meaning set forth in Part IV.B of this Code.
“Investment Adviser” means BofA Advisors, LLC, Bank of America Capital Advisors, LLC, Merrill Lynch Alternative Investments LLC, and Managed Account Advisors LLC.
“Investment Company Act” means the Investment Company Act of 1940 and the rules and regulations thereunder.
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“Investment Person” has the meaning set forth in the Overview section of this Code.
“IPO” generally refers to a company’s first offer of shares to the public, including an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.
“Limited Offering” generally refers to an offering of securities that is not offered to the public and includes an offering that is exempt from registration under the Securities Act of 1933 pursuant to Sections 4(2) or 4(6), or Regulation D thereunder. This includes, but is not limited to, private placements and hedge funds.
“Personal Securities Transaction” means the acquisition or disposition of Beneficial Ownership of a Reportable Security.
“Reportable Security” means anything that is considered a “security” under the Investment Advisers Act, but does not include:
| 1. | Direct obligations of the U.S. Government. |
| 2. | Bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. |
| 3. | Shares of money market funds and other short-term income funds. |
| 4. | Shares of any open-end mutual fund, other than an ETF. |
Reportable Securities therefore include stocks, bonds, debentures, convertible and/or exchangeable securities, notes, options on securities, warrants, rights, shares of a closed-end registered investment company, shares of exchange traded funds and 529 plans, unit investment trusts, among other instruments. If you have any question or doubt about whether an investment is a Reportable Security under this Code, ask the AIM Group.
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Appendix B – Beneficial Ownership
You should carefully read this Appendix B to determine securities that are deemed to be beneficially owned by you for purposes of the Code. The definition of “Beneficial Ownership” for purposes of the Code is very broad and may include securities you would not intuitively consider to be owned by you. You should review this entire Appendix B and if you have any questions as to whether you beneficially own a security for purposes of the Code, contact the AIM Group at 866-853-4324 or send an email to “AssociateInvestmentMonitoringGroup@bankofamerica.com”.
For purposes of this Appendix B, the term “you” includes your Covered Person’s Affiliates. Your “Covered Person’s Affiliates” includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, significant other, domestic partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (but does not include aunts and uncles, or nieces and nephews) sharing the same household with you. The term “Covered Person’s Affiliate” also includes persons not living in your household if the person is economically dependent upon you.
Definitions
Beneficial Ownership. For purposes of the Code, you are deemed to have “Beneficial Ownership” of a security if you have: (i) a Financial Interest in such security and Influence or Control over such security or (ii) Influence or Control over such security and such Influence or Control arises outside of your regular employment duties.
Influence or Control. To have “Influence or Control” over a security, you must have an ability to prompt, induce or otherwise effect transactions in the security. Whether you have influence or control over a security is based upon the facts and circumstances of each case; however, the determining factor in each case will be whether you have an ability to prompt, induce or otherwise effect transactions in the security.
Financial Interest. The term “Financial Interest” means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities whether through any contract, arrangement, understanding, relationship or otherwise. This standard looks beyond the record owner of securities to reach the substance of a particular arrangement. You not only have a Financial Interest in securities held by you for your own benefit, but also securities held (regardless of whether or how they are registered) by others for your benefit, such as securities held for you by custodians, brokers, relatives, executors, administrators, or trustees. The term also includes any security owned by an entity directly or indirectly controlled by you.
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Examples of How the Definition of Beneficial Ownership is Applied
Set forth below are some examples of how the definition of Beneficial Ownership is applied in different contexts.
| · | Covered Person’s Affiliate Holdings. You are deemed to have Beneficial Ownership of securities held by your Covered Person’s Affiliates. |
| · | Partnership and Corporate Holdings. You are deemed to have Beneficial Ownership of securities held by an entity you directly or indirectly control. If you are a limited partner in a partnership, you will generally not be deemed to have Beneficial Ownership of securities held by such limited partnership, provided that you do not own a controlling voting interest in the partnership. If you own or otherwise control a corporation, limited liability company or other legal entity, you will be deemed to have Beneficial Ownership of such entity’s securities. |
| · | Trusts. You are deemed to have Beneficial Ownership of securities held by a trust if you control the trust or if you have the ability to prompt, induce or otherwise effect transactions in securities held by the trust. For example, you would be deemed to have Beneficial Ownership of securities held by a trust if you have the power to revoke the trust without the consent of another person, or if you have actual or de facto investment control over the trust, such as when you act as trustee. In a typical blind trust, you would not be deemed to have Beneficial Ownership of the securities held by the trust. |
| · | Estates. You are typically not deemed to have Beneficial Ownership of securities held by executors or administrators in estates in which you are a legatee or beneficiary unless, under the facts and circumstances, you have the ability to prompt, induce or otherwise effect transactions in the securities held by the estate. You are typically deemed to have Beneficial Ownership of securities held by an estate if you act as the executor or administrator of such estate and, under the facts and circumstances, you have the ability to prompt, induce or otherwise effect transactions in the securities held by the estate. |
| · | Where You Have Given Investment Discretion to Another Party. You are typically not deemed to have Beneficial Ownership of securities managed by someone other than yourself where you have given such party sole investment discretion. |
| · | Where You Have Received Investment Discretion from Another Party Outside of Your Employment. You are typically deemed to have Beneficial Ownership of securities held in an account or other vehicle if you manage such account or other vehicle outside of your employment, even if you do not have an economic interest in such securities. For example, you are deemed to have Beneficial Ownership of securities held in a brokerage account if you have a power of attorney with respect to the account. Similarly, you are deemed to have Beneficial Ownership of securities held in an education trust if you have an ability to prompt, induce or otherwise effect transactions in such securities, even if you do not have an economic interest in the asset of the trust. |
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Appendix C – Other BAC and Line of Business Policies
In addition to the provisions set forth in this Code, Covered Persons are required to adhere to all applicable Bank of America and line of business policies, which may include, but are necessarily limited to, those listed below:
| · | Bank of America Corporation Code of Ethics |
| · | Bank of America Corporation Information Wall Policy |
| · | Bank of America Corporation Outside Business Activities Policy |
| · | Global Wealth and Investment Management Information Wall Policy |
| · | Global Wealth and Investment Management Designated Broker Policy |
| · | Global Wealth and Investment Management Gifts & Entertainment Policy |
| · | Global Banking & Markets and Other Designated Units Associate Investment Policy |
| · | Merrill Lynch, Pierce, Fenner & Smith Incorporated Investment Adviser Code of Ethics |
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Appendix D – Contact Information
The Associate Investment Monitoring Group (AIM Group)
AssociateInvestmentMonitoringGroup@bankofamerica.com
866-853-4324
The Ethics and Compliance Hotline
888-411-1744 (domestic)
770-623-6334 (international)
BofA Advisors, LLC
| · | James Bordewick, Chief Compliance Officer | 617-772-3672 |
| · | Patrick Donovan, Ombudsperson & Conflicts of Interest Officer | 617-772-3694 |
Managed Account Advisors LLC
| · | Andrew Baldauf, Chief Compliance Officer | 201-557-0816 |
Bank of America Capital Advisors, LLC; Merrill Lynch Alternative Investments LLC
| · | Brian Woldow, Chief Compliance Officer | 212-236-8129 |
Global Wealth & Retirement Solutions
| · | John Ivan, GWIM Compliance Executive | 212-236-5131 |
| · | Alise Beres, Conflicts of Interest Officer | 212-670-0405 |
| · | Jana Chambers, Conflicts of Interest Officer | 314-466-4436 |
U.S. Trust and MLTC
| · | Brian Woldow, GWIM Compliance Executive | 212-236-8129 |
| · | James Bordewick, GWIM Compliance Executive | 617-772-3672 |
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Appendix E – Additional Guidance While Trading in Bank of America Securities
Some lines of business or designated groups may have more stringent requirements. Please contact your manager, compliance officer or legal partner if you have questions. The following interpretations are offered to assist employees in identifying permitted and prohibited transactions involving BAC securities:
GENERAL:
| · | Bank of America encourages all employees who invest to adopt a long-term investment strategy in Bank of America securities. |
| · | Bank of America Stock Option Programs and Restricted Stock Awards: Unvested restricted stock and option awards and unexercised options, even if fully vested, may not be hedged with options. Hedging strategies are permitted only if the employee is long stock that is “readily available for sale or delivery.”1 |
PROHIBITED:
| · | Day trading and market timing of Bank of America securities is PROHIBITED. |
| · | Margin Accounts: The purchase of Bank of America securities on margin is speculative and PROHIBITED. Bank of America securities traded in a margin account must be paid for in full by settlement date. |
| · | Short selling of any Bank of America security is speculative and is PROHIBITED, with one exception: Short selling against the box (that is, versus an existing long position in Bank of America stock that is “readily available for sale or delivery”) made to lock in profits, is not speculative and is permitted. 2 |
| · | The sale of a “naked call” option (that is, an opening sale of a call not covered by a long position in Bank of America stock that is “readily available for sale or delivery”) is speculative and is PROHIBITED. 3 |
| · | The purchase of short dated call options, defined as calls with an expiration of less than nine months, is speculative and PROHIBITED. Employees may purchase calls with an expiration of nine months or greater. This would include the purchase of LEAPS (Long- Term Equity Anticipation Securities). |
PERMITTED:
| · | Covered call option writing (that is, an opening sale of a call covered by a long position in Bank of America stock that is “readily available for sale or delivery”) is not speculative and is permitted. |
| · | The only put option activity permitted is the purchase of puts as a bona-fide hedge against an existing long Bank of America stock position that is “readily available for sale or delivery.”4 These protective puts do not require evaluation regarding strike or expiration. |
1 “Readily available for sale or delivery” is defined as a long stock position that can be sold (in the event a protective put is exercised) or delivered (in the event that the stock is “called away”).
2 See footnote 1.
3 See footnote 1.
4 See footnote 1.
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MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
CODE OF ETHICS
For
REGISTERED ALTERNATIVE INVESTMENT FUND
DISTRIBUTION ACTIVITIES
Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill Lynch”) is a registered broker-dealer and investment adviser and a wholly-owned subsidiary of Bank of America Corporation (“BAC”). The MLPF&S Registered Alternative Investment Fund Code of Ethics (“Code of Ethics”) is supplemental to the general compliance materials applicable to all MLPF&S personnel.
February 2013
I. Purpose and Scope
This Code of Ethics sets forth the policies and procedures required pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), and is intended to only apply to certain MLPF&S employees involved in placement agency activities ("Access Persons" for purposes of Rule 17j-1 under the Investment Company Act) in regard to registered alternative investment fund distribution (“Registered AI Fund Distribution”) and assist them in meeting the high standards MLPF&S follows in conducting its business. Such Access Persons are referred to herefrom as “Employees,”and include any MLPF&S employee engaged in Registered AI Fund Distribution who:
| · | has access to nonpublic information regarding an Investment Company Act registered fund clients' (each a “Fund” and collectively, the “Funds”) purchase or sale of securities, |
| · | is involved in making securities recommendations to the Funds; |
| · | has access to Fund securities recommendations that are nonpublic, or |
| · | is designated as an Employee by the CCO. |
| · | Employees include, but are not limited to: |
| · | Employees of MLPF&S who are engaged in Registered AI Fund Distribution; and |
| · | Any other person so designated in writing by the CCO. |
The term “Employees” shall not include any person who is already subject to the securities transaction pre-clearance requirements and securities transaction reporting requirements of a code of ethics adopted by an investment adviser, administrator or their affiliates, including affiliated service providers, in compliance with Rule 17j-1 under the Investment Company Act or Rule 20A-1 under the Investment Advisers Act of 1940, as amended.
One of MLPF&S’s most important assets is its reputation for integrity and professionalism. The responsibility of maintaining that reputation as it relates to this Code of Ethics rests with all Employees.
MLPF&S’s business is built on a foundation of trust. Maintaining the trust of MLPF&S’s clients, BAC shareholders, regulators, and the general public is an employee’s first obligation. Employees must comply with applicable federal and state securities laws. Among other things, they may not make illegal use of inside information or engage in fraudulent or manipulative practices. Additionally, all Employees must adhere to the Bank of America Code of Ethics.
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This Code of Ethics is based on the fundamental principle that MLPF&S and its Employees must put client interests first. This Code of Ethics and other written policies and procedures contain procedural requirements that Employees must follow to meet legal and regulatory requirements. This Code of Ethics and other written policies and procedures instruct Employees to use MLPF&S’s assets, including confidential information, only for legitimate business purposes – and not for their own personal benefit. Employees may not take advantage of their position for the purpose of furthering any private interest or as a means to making any personal gain. Employees must maintain the confidentiality of client information in accordance with MLPF&S’s privacy and confidentiality policies.
To implement the above principles and standards, this Code of Ethics includes procedures in the following important areas:
| · | Personal trading restrictions relating to the investment activities of Employees, including a requirement that Employees report their personal securities transactions and holdings; and |
| · | Procedures established by MLPF&S to prohibit Employees from engaging in securities transactions based on “inside information” or disseminating inside information to others who might use that knowledge to trade securities. |
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This Code of Ethics sets forth:
| · | The high standards of business conduct that MLPF&S requires of all Employees when providing services to the Funds. |
| · | The requirement that Employees comply with all applicable securities and related laws and regulations. |
| · | Personal trading policies designed to prevent and detect inappropriate trading practices and activities by Employees. |
| · | Pre-clearance and reporting requirements of Employees. |
| · | Policies intended to prevent the misuse of material non-public information. |
| · | The requirement that MLPF&S imposes on all Employees to report any violation or suspected violation of this Code of Ethics to their manager, the Legal Department, the Chief Compliance Officer for MLPF&S’s distribution/retail brokerage business or his/her designee(s) (“CCO”), and/or the Bank of America Ethics and Compliance Hotline (the "Ethics Hotline"). |
| · | The requirement that all Employees certify that they have received this Code of Ethics. MLPF&S expects all Employees to comply not only with the letter but also with the spirit of the requirements set forth herein. |
The requirements of this section of this Code of Ethics apply to all Employees.
MLPF&S’s Securities-Related Registrations and Regulation
MLPF&S’s Registrations
MLPF&S is registered with the Securities and Exchange Commission (“SEC”) as a broker-dealer under the Securities Exchange Act of 1934 (the “Exchange Act”). As a broker-dealer, MLPF&S provides placement agency services to the Funds.
Regulation of MLPF&S
In offering its placement agency services to the Funds, MLPF&S is:
| · | subject to regulation under the Investment Company Act and the rules and regulations thereunder; |
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| · | an adviser that owes its clients an affirmative duty of utmost good faith to act solely in the best interests of the client and to make full and fair disclosure of all material facts, particularly where MLPF&S’s interests may conflict with that of the client’s; |
| · | subject to various other federal and state statutes, rules and regulations; and |
| · | subject to regulatory and self-regulatory organization rules and regulations. |
II. Personal Trading Restrictions, Pre-clearance and Reporting Requirements
All Employees are subject to personal trading, pre-clearance, and reporting requirements as identified in this Section. Employees should familiarize themselves with the specific personal trading policies mandated by their business unit.
A. Personal Trading Restrictions
1. Accounts.
The securities accounts of all Employees must be held with MLPF&S, or with the subsidiary with which the Employee is affiliated in accordance with the GWIM Designated Broker Policy, unless permission is obtained from Global Compliance or other designated person(s). This policy also applies to the immediate families of Employees sharing the same household (e.g., child, stepchild, grandchild, parent, stepparent, grandparent, spouse, significant other, domestic partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (but does not include aunts and uncles, or nieces and nephews). It also applies to persons not living in the Employee’s household if the person is economically dependent upon the employee.
2. Mutual Fund Accounts and Transactions
a. Market Timing
BAC prohibits engaging in mutual fund market timing that involves the purchase and sale of shares of mutual funds (including exchanges within the same fund family) when such trading occurs outside the limits, if any, established by the applicable fund’s prospectus. Employees are also subject to BAC policies that prohibit other mutual fund market timing activities such as purchases and sales of mutual funds within short periods of time with the intention of capturing short-term profits resulting from market volatility.
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BAC policy, which applies to all accounts and services offered through MLPF&S, including Employee accounts, client accounts and retirement accounts, prohibits:
| · | opening accounts
known to be for
the purpose of
market timing in
mutual funds, |
| · | rendering services
to known market
timers, |
| · | accepting orders
(purchases, sales
or exchanges) known
to be for the purpose
of market timing, |
| · | participating in activities such as lending, marketing and/or structuring derivatives, brokerage or other services known to relate to mutual fund market timing activity, and |
| · | failing to take appropriate steps to deter market timing in proprietary mutual funds when BAC has concluded reasonably that such activities are occurring to the detriment of the other shareholders in such fund. |
Employees should not accept mutual fund orders that appear to be made for the purpose of market timing, and must raise any concerns to the OMT. Some indicators that a client may be attempting to transact mutual funds for the purpose of market timing include:
| · | frequent short-term purchases and sales of mutual fund shares, |
| · | frequent transfers of mutual fund positions between the client’s MLPF&S account and accounts held at mutual fund companies or other broker-dealers, |
| · | frequent transfers of mutual fund positions between and among MLPF&S accounts, |
| · | participating in activities such as lending, marketing and/or structuring derivatives, brokerage, or other services known to BAC to relate to mutual fund market timing activity, or |
| · | failing to take appropriate steps to deter market timing in proprietary or third party mutual funds when BAC has reasonably concluded that such activities are occurring to the detriment of the other shareholders in such fund. |
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| · | Additionally, employees may not effect or facilitate: |
| · | Excessive mutual fund trading or |
| · | Mutual fund marketing timing activities |
| · | Employees who become aware of a violation of this policy must immediately report such activity to their OMT/Manager, Divisional Compliance Advisor (DCA), or the Ethics Hotline. |
b. Late Trading
BAC policy prohibits engaging in or facilitating late trading. Late trading refers to the practice of placing orders to buy or sell mutual fund shares after the time as of which a mutual fund has calculated its net asset value (“NAV”) (usually at the close of trading on the NYSE at 4:00 p.m. ET) but receiving the price based on the prior NAV already determined (as of 4:00 p.m. ET). Late trading is a violation of the federal securities laws, self regulatory organization rules, and state law because it gives such clients an unfair advantage over other investors in the fund.
BAC policy prohibits engaging in or facilitating late trading. Any mutual fund orders received from a client after the fund’s pricing time must be entered for execution on the following business day. No exceptions may be granted.
3. Bank of America Global Restricted List.
Bank of America maintains a global “Restricted List.” For securities placed on the Restricted List, trading may be limited or prohibited, depending on the nature of the restriction. Employees must check the Restricted List, which is accessible through Flagscape, before engaging in transactions for their personal or related accounts.
4. Initial Public Offerings.
The purchase by an Employee of equity securities offered in an initial public offering is prohibited. Employees are further required to pre-clear purchases of all other initial public offerings.
5. Pre-clearance of Outside Investments and Interests.
Industry rules and BAC policy prohibit Employees from participating in certain outside investments and activities without prior written approval. Employees must notify and obtain approval from both their manager and the Associate Investment Monitoring Group (“AIM Group”) prior to engaging in any proposed outside investment or activity, including limited offerings (limited offerings include, but are not limited to, private equity partnerships, hedge funds, limited partnerships and venture capital funds), to determine whether it would be in conflict with BAC policy or applicable laws, rules or regulation.
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6. Bank of America Stock and Related Options.
No transactions in securities issued by BAC or its affiliates may be effected while an Employee is in possession of material nonpublic information.
B. Pre-clearance and Reporting Requirements of Access Persons
1. Initial and Annual Holding Reports and Quarterly Transaction Reports.
Employees are required to complete initial (no later than 10 days after becoming an Access Person) and annual disclosures relating to their personal and related accounts and holdings. Each Employee shall cause every broker-dealer or investment services provider with whom he or she maintains a securities account to provide duplicate periodic statements and confirmations to the AIM Group for all securities accounts, unless the broker-dealer or investment firm provides electronic data feeds to the AIM Group. Employees who have provided duplicate statements as indicated above are deemed to have complied with the requirements of this Section II.B. as to reporting executed transactions and personal holdings.
Employees initial and annual holding disclosures must include every Reportable Security. For purposes of this IA Code of Ethics, Reportable Security means anything that is considered a “security” under the Advisers Act, but does not include:
| 1. | Direct obligations of the U.S. Government |
| 2. | Banks’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. |
| 3. | Shares of money market funds and other short-term income funds. |
| 4. | Shares of any open-end mutual fund, other than an exchange traded fund (“ETF”). |
Reportable Securities therefore include stocks, bonds, debentures, convertible and/or exchangeable securities, notes, options on securities, warrants, rights, shares of a close-end registered investment company, shares of exchange traded funds and 529 plans, unit investment trusts, among other instruments. Any questions about whether an investment is a Reportable Security under the IA Code of Ethics may be directed to the AIM Group.
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2. Review of Transactions and Holdings Reports.
All transactions reports and holdings will be reviewed by managers/supervisors (or their designees) or a central review unit, such as the AIM Group or the Central Supervisory Desk, in accordance with Applicable Policies, with respect to Employees in keeping the fundamental guidelines described in this Code of Ethics.
3. Initial Public Offerings.
All Employees are, prohibited from purchasing equity initial public offerings. Access Persons are further required to pre-clear purchases of all other initial public offerings of securities.
4. Limited Offerings.
All Employees are required to obtain prior approval before the purchase of a limited offering (limited offerings include, but are not limited to, private equity partnerships, hedge funds, limited partnerships and venture capital funds). In addition, no order for a limited offering issued by BAC or an affiliate should be filled for an Employee if a client order for the same limited offering will not be satisfied.
III. Use of Information, Advance Information and Material Nonpublic Information
Employees must comply with applicable BAC and Merrill Lynch policies regarding Use of Information, Advance Information and Material Nonpublic Information.
No Employee may use his or her position or knowledge of Merrill Lynch or customer activities to gain personal benefit at the expense of customers. Employees must be prepared to disclose to authorized supervisors sufficient information about their financial affairs to comply with this policy.
Information that is produced by Bank of America/Merrill Lynch for use by its customers, and which might reasonably be expected to have some influence on the market price of the product being discussed, may not be acted upon by Employees until customers have had a reasonable opportunity to receive and assess the information.
Material Nonpublic Information
Material nonpublic information relating to BAC or any other issuer may not be acted upon by an Employee for his or her own benefit or for the benefit of others, nor disclosed to anyone except in accordance with established procedures that have been approved by the Legal Department.
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Information is “material” if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision, or it could reasonably be expected to have a substantial effect on the price of BAC or any other issuer’s securities. While it is not possible to create an exhaustive list, the following items are some of the types of information that should be reviewed carefully to determine whether they are material:
| · | earnings information, including whether BAC or any other issuer will or will not meet expectations; |
| · | inflows or outflows of client assets or assets under management; |
| · | changes in control, mergers, acquisitions, tender offers, joint ventures, divestitures, or changes in assets; |
| · | new products or discoveries, or developments regarding customers or suppliers (e.g., the acquisition or loss of an important contract); |
| · | changes in management, key personnel, or employee turnover; |
| · | changes in compensation policy; |
| · | a change in auditors or auditor notification that an issuer may no longer rely on an audit report; |
| · | events regarding an issuer’s securities – e.g., defaults on senior securities, calls of securities for redemption, repurchase plans, stock splits or changes in dividends, changes to the rights of security holders, public or private sales of additional securities; |
| · | significant litigation; and |
| · | bankruptcy, corporate restructuring or receivership. |
“Nonpublic” information is information that has not been disclosed to the general public by means of a press release, SEC filing or other media for broad public access. Disclosure to even a large group of analysts does not constitute disclosure to the public.
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IV. Acknowledgement of Receipt of this Code of Ethics and Record Keeping Requirements
A. Acknowledgement of Receipt of this Code of Ethics
Each Employee will be required annually to acknowledge receipt of this Code of Ethics and certify that they have read, understand and agree to abide by this Code of Ethics.
B. Record Keeping
Copies of all Employees’ account records must be “maintained and preserved” in accordance with the BAC’s record retention policies.
In addition, the following records will also be kept on file:
| · | A copy of all Codes of Ethics and relevant MLPF&S policies and procedures in effect within the past five years. |
| · | Original reports and records used in conjunction with the above referenced policies. |
| · | Documentation used in conjunction with all violations of this Code of Ethics and actions taken. |
| · | Copies of all initial, annual and other reports made by Employees. |
| · | A copy of all written acknowledgments for all persons who currently are, or within the past five years were, Employees, certifying receipt of this Code of Ethics. |
| · | A record of the names of persons who currently are, or within the past five years were, Employees. |
| · | Record of approval in connection with any pre-clearance process under this Code. |
V. Reporting Violations, Sanctions, and Questions Concerning this Code of Ethics
A. Reporting Violations and Suspected Violations of this Code of Ethics and Related Compliance Policies
Management Responsibilities
It is the responsibility of management to establish controls to minimize and, where practicable, detect violations of this Code of Ethics. Each manager should be familiar with the possible violations which could occur in his/her area and be alert to any indication thereof.
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If a violation is suspected or detected, it is the responsibility of the manager initially to contact his/her direct supervisor or, if this is impractical or inappropriate, contact the CCO or the Legal Department.
If a matter is reported to a manager, on an anonymous or confidential basis, he/she should obtain as much specific data as possible from the person making the report and then promptly contact the CCO or the Legal Department to report the incident and obtain instructions on how to proceed.
Annually, MLPF&S must furnish a report to the Fund’s board of directors, describing all issues arising under the Code of Ethics or procedures since the last report to the board of directors, including, but not limited to, information about material violations of the Code of Ethics or procedures and sanctions imposed in response to the material violations. This annual report must also certify that the Fund has adopted procedures reasonably necessary to prevent Employees from violating the Code of Ethics.
Protecting the BAC’s reputation is everyone’s responsibility, and the Ethics Hotline is a confidential way for all Employees to report situations that may violate our standards of business conduct or this Code of Ethics.
While the types of incidents may vary widely, Employees have an obligation to report questionable incidents that could result in unethical or illegal behavior.
We encourage Employees to report incidents to managers, but we recognize that there are some circumstances where Employees may feel more comfortable using the Ethics Hotline. Employees who call or write to the Ethics Hotline do not have to identify themselves. All calls and letters are given promptly to experienced personnel, and if an investigation is begun, it will be kept as confidential as possible.
No employee will be penalized or retaliated against in any way for reporting inappropriate conduct to the Ethics Hotline.
B. Sanctions
In the event of a failure by any Employee to comply with the provisions of this Code of Ethics or of applicable securities laws, MLPF&S may impose disciplinary action up to and including termination.
Consistent with the statement of the SEC in connection with its adoption of Rule 17j-1 of the Investment Company Act, violations of this Code of Ethics are not to be construed as per se violations of the law.
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C. Questions Concerning this Code of Ethics
Given the potential consequences of violations of this Code of Ethics, MLPF&S urges all Employees to seek guidance from MLPF&S management, the Legal Department, and the Compliance Department with respect to issues that may arise. Resolving whether a particular situation may create a potential conflict of interest, or the appearance of such a conflict, may not always be easy, and situations will inevitably arise that will require interpretation of this Code of Ethics and other compliance materials to particular circumstances. Please do not attempt to resolve such questions yourself.
MLPF&S may grant exceptions to the requirements set forth in this Code of Ethics under appropriate circumstances. However, MLPF&S cannot guarantee that it will grant an exception in any particular case.
D. Material Revisions of this Code of Ethics
Each Fund’s board must approve a material change to this Code of Ethics no later than six months after adoption of the material change.
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