As filed with the Securities and Exchange Commission on December 30, 2009
Securities Act File No. 333-160653
Investment Company Act File No. 811-22312
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 2
[ ] POST-EFFECTIVE NO. ______
AND/OR
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 2
ACAP STRATEGIC FUND
(Exact name of registrant as specified in Charter)
350 Madison Avenue, 9th Floor
New York, New York 10017
(Address of Principal Executive Offices
(Number, Street, City, State, Zip Code))
Registrant's Telephone Number, including Area Code (212) 389-8713
SilverBay Capital Management LLC
350 Madison Avenue, 9th Floor
New York, New York 10017
(212) 389-8713
(Name and Address of Agents for Service)
COPY TO:
Kenneth S. Gerstein, Esq.
George M. Silfen, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box [X]
It is proposed that this filing will become effective when declared effective pursuant to section 8(c). [ ]
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement or the same offering is - ______.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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TITLE OF SECURITIES AMOUNT PROPOSED PROPOSED AMOUNT OF
BEING REGISTERED BEING MAXIMUM MAXIMUM REGISTRATION
REGISTERED OFFERING AGGREGATE FEE*
PRICE PER OFFERING PRICE
SHARE
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The Registrant hereby amends this Registration Statement under the Securities Act of 1933 on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Subject to completion, dated December 30, 2009.
PRELIMINARY PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
ACAP STRATEGIC FUND
SHARES OF BENEFICIAL INTEREST
ACAP Strategic Fund (the "Fund") is a newly organized Delaware statutory trust that is registered under the Investment Company Act of 1940 (the "1940 Act") as a non-diversified, closed-end management investment company. The Fund will operate as an interval fund under Rule 23c-3 of the 1940 Act and, as such, offer to repurchase between 5% - 25% of its outstanding shares at their net asset value as of or prior to the end of each fiscal quarter (as described on the next page). SilverBay Capital Management LLC will serve as the investment adviser of the Fund (the "Adviser").
The Fund's investment objective is to achieve maximum capital appreciation. The Fund pursues this objective by investing its assets primarily in equity securities of U.S. and foreign companies that the Adviser believes are well positioned to benefit from demand for their products or services, including companies that can innovate or grow rapidly relative to their peers in their markets. The Fund also pursues its objective by effecting short sales of securities when the Adviser believes that the market price of a security is above its estimated intrinsic or fundamental value. The Fund may also borrow money for investment purposes, i.e., leverage its assets. The use of short sales and leverage are speculative investment practices and involve a high degree of risk. SEE "Principal Risk Factors --- Leverage & Borrowings Risk."
The Fund has no plans to list its shares of beneficial interest ("shares") on any securities exchange, and there is no assurance that any secondary market will develop for shares. Shares are subject to transfer restrictions, including a requirement that shares must be held in the investor's account with an Underwriter or a Selling Agent (each as defined on the next page) and may only be transferred to persons who are "Qualified Investors" (as described on the next page).
This prospectus (the "Prospectus") sets forth concisely the information about
the Fund that a prospective investor should know before investing. You are
advised to read this Prospectus carefully and to retain it for future reference.
A statement of additional information ("SAI") dated December 30, 2009, as it may
be supplemented, containing additional information about the Fund, has been
filed with the Securities and Exchange Commission (the "SEC") and is
incorporated by reference in its entirety into this Prospectus. You may request
a free copy of the SAI (the table of contents of which is on page 61 of this
Prospectus), the Fund's annual and semi-annual reports to shareholders, and
other information about the Fund, and make shareholder inquiries by calling
(212)389-8713. The Fund's website is http://www.acapfunds.com. You also may
obtain a copy of the SAI (and other information regarding the Fund) from the
SEC's website (http://www.sec.gov). The address of the SEC's internet site is
provided solely for the information of prospective investors and is not intended
to be an active link.
INVESTING IN SHARES INVOLVES A HIGH DEGREE OF RISK. SEE "PRINCIPAL RISK FACTORS" BEGINNING ON PAGE 18.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Total Offering Amount (1)(2) $400,000,000
Maximum Sales Load (3) 3.00%
Minimum Sales Load (1)(3) 0.00%
Proceeds to the Fund (maximum) (4) $400,000,000
Proceeds to the Fund (minimum) (4) $388,000,000
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(1) The Fund is initially offering up to 40,000,000 common shares at a fixed price of $10.00 per share, plus a sales load (if applicable) and thereafter, will offer shares for purchase monthly at a price equal to net asset value next determined after an order is accepted, plus a sales load (if applicable).
(CONTINUED FROM COVER PAGE)
(2) The minimum initial investment in the Fund by an investor is $100,000,
subject to reduction at the discretion of an investor's broker, dealer
or other financial intermediary, but not below $50,000. Minimum
subsequent investments must be at least $25,000 (in each case, including
a sales load if applicable).
(3) Investors may be charged a sales load up to a maximum of 3% on the
amount they invest. The specific amount of the sales load is not fixed
and will be determined by the investor and its broker, dealer or other
financial intermediary. SEE "The Offering --- Plan of Distribution." The
sales load will not be applicable to investors that purchase shares
through a fee-based account with their broker, dealer or other financial
intermediary (commonly known as a "wrap fee program"). The sales load
will neither constitute an investment made by the investor nor form part
of the assets of the Fund. The sales load is subject to the applicable
limitations imposed by the rules and regulations of the Financial
Industry Regulatory Authority, Inc.
(4) Organizational and offering expenses are not expected to exceed
$500,000. Organizational expenses of approximately $100,000 will be
borne by the Adviser and/or its affiliates. The net proceeds to the Fund
after payment of the estimated offering expenses of $400,000 would be
approximately $387,600,000.
SMH Capital Inc. and Mainsail Group, L.L.C. (each, an "Underwriter" and together, the "Underwriters"), underwriters under the federal securities laws, serve as co-underwriters of the Fund's shares on a best efforts basis. Pursuant to the terms of each Underwriter's distribution agreement with the Fund, each Underwriter may retain unaffiliated brokers or dealers to act as selling agents ("Selling Agents") to assist in the distribution of shares. The Fund reserves the right to withdraw, cancel, suspend or modify the offering of shares at any time. The Fund is initially offering up to 40,000,000 common shares at a fixed price of $10.00 per share, plus a sales load (if applicable) (the "Initial Offering") and, following the close of the Initial Offering, which is currently anticipated to be on or about March 1, 2009, will offer shares for purchase monthly at a price equal to net asset value next determined after an order is accepted, plus a sales load (if applicable). Purchase orders for shares sold in connection with a monthly offering must be received in proper form by an Underwriter prior to the close of business (normally 5pm) on the day of the month specified by the Underwriters in a written communication to the Selling Agents (and communicated by Selling Agents to their customers), which is generally anticipated to be six business days prior to the end of a month (a "Closing Time"). At each Closing Time (and at the close of the Initial Offering, for purchase orders received in connection with the Initial Offering) purchase orders received in proper form will be accepted by the Fund and deposited monies will be invested in the Fund (net of the sales load, if applicable) as of the first business day of the next month following submission of an investor's purchase order. Investors will receive written or electronic confirmation of each transaction and regular reports showing account balances. A prospective investor may rescind a purchase order for shares at any time prior to the close of the Initial Offering or thereafter, prior to a Closing Time.
Pursuant to the distribution agreements, the Fund pays ongoing shareholder servicing fees to the Underwriters to compensate them for providing, or arranging for the provision of, ongoing investor services and account maintenance services to investors in the Fund. Each Underwriter may retain all or a portion of these payments. These fees are accrued daily and paid monthly in an amount not to exceed, in the aggregate, 0.25% (on an annualized basis) of the net asset value of the Fund.
Shares of the Fund may be purchased only by investors who certify to the Fund or its agents that they have a net worth of more than $1.5 million (or in the case of an individual, a joint net worth with their spouse of more than $1.5 million) ("Qualified Investors"). In order to purchase shares, a prospective investor must submit a completed investor certification (a form of which is included as Appendix A to this Prospectus) to an Underwriter or Selling Agent prior to the Closing Time. The Fund reserves the right to reject, in its sole discretion, any purchase order for shares in whole or in part at any time. Shares may only be purchased through, and with funds drawn on, an investor's brokerage account with an Underwriter or Selling Agent. Additional information regarding the process for buying shares is set forth under "The Offering --- Purchase Terms; Minimum Investment" and "Investor Qualifications and Suitability."
Investors may not be able to sell their shares. The Fund has no plans to list its shares on any securities exchange, and there is no assurance that any secondary market will develop for shares. Shares are subject to transfer restrictions, including a requirement that shares must be held in the investor's account with an Underwriter or a Selling Agent and may only be transferred to persons who are Qualified Investors. If an investor attempts to transfer shares to someone who is not a Qualified Investor or to an account with a broker or dealer that has not entered into a selling agreement with an Underwriter, the transfer will not be permitted. SEE "Investor Qualifications and Suitability --- Investor Suitability: Transfer Restrictions."
The Fund will operate as an "interval fund" under Rule 23c-3 of the 1940 Act and, as such, provides a limited degree of liquidity to shareholders. As an interval fund, the Fund has adopted a fundamental policy to offer to repurchase at least 5% of its outstanding shares at their net asset value at regular intervals. Currently, the Fund intends to offer to repurchase 25% of its outstanding shares as of or prior to the end of each fiscal quarter. However, repurchase offers in excess of 5% of the Fund's outstanding shares for any particular fiscal quarter is entirely within the discretion of the Fund's board of trustees and, as a result, there can be no assurance that the Fund would make repurchase offers for amounts in excess of 5% of the Fund's outstanding shares. There can be no assurance that shareholders tendering shares for repurchase in any such offer will have all of their tendered shares repurchased by the Fund. SEE "Additional Risk Factors --- Repurchase Offers" and "Repurchase Offers --- Oversubscribed Repurchase Offer." The Fund intends to complete its first quarterly repurchase offer in July 2010. SEE "Repurchase Offers --- Repurchase of Shares."
(CONTINUED FROM INSIDE FRONT COVER)
The Fund pays the Adviser a monthly management fee computed at the annual rate of 2.00% of the Fund's average daily net assets. Additionally, following the end of each fiscal year (and whenever the Fund conducts a share repurchase offer, as described herein), the Fund pays the Adviser an incentive fee (the "Incentive Fee") generally equal to 20% of the Fund's net profits, subject to reduction for prior period losses of the Fund that have not been offset by subsequent net profits. For purposes of calculating the Incentive Fee, net profits will generally be determined by calculating the amount by which the net assets of the Fund as of the end of a fiscal year exceeds the net assets as of the beginning of the fiscal year (excluding increases or decreases of net assets associated with share issuances, repurchases or dividends or other distributions). For more details regarding the Incentive Fee, see "Fees and Expenses --- Incentive Fee." The Incentive Fee structure presents risks that are not present in investment funds without incentive fees. SEE "Additional Risk Factors --- The Incentive Fee." The fees paid by the Fund to the Adviser are similar to those of private investment funds, but significantly higher than those of most other registered investment companies. SEE "Fees and Expenses --- Management Fee" and "--- Incentive Fee."
SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
THE REST OF THE PAGE IS INTENTIONALLY LEFT BLANK
TO ALL INVESTORS
This prospectus (the "Prospectus") does not constitute an offer to sell or the solicitation of an offer to buy, and no sale of shares will be made, in any jurisdiction in which the offer, solicitation or sale is not authorized or to any person to whom it is unlawful to make the offer, solicitation or sale. No person has been authorized to make any representations concerning the Fund that are inconsistent with those contained in this Prospectus. Prospective investors should rely only on information contained in this Prospectus, the Fund's statement of additional information and exhibits filed by the Fund. Each prospective investor should consult his, her or its own professional advisors as to the legal, tax, financial or other matters relevant to the suitability of an investment in the Fund for the investor. Prospective investors should read this Prospectus carefully before investing and retain it for future reference.
PRIVACY POLICY
An important part of our commitment to you is our respect to your right to privacy. Protecting all the information we are either required to gather or which accumulates in the course of doing business with you is a cornerstone of our relationship with you.
We collect information about you (such as your name, address, social security or tax identification number, assets and income) in the course of doing business with you or from documents that you may deliver to us or to an agent of the Fund. We may use this information to effectively administer our customer relationship with you. It also permits us to provide efficient, accurate and responsive service, to help protect you from unauthorized use of your information and to comply with regulatory and other legal requirements. These include those related to institutional risk control and the resolution of disputes or inquiries.
We do not disclose any nonpublic, personal information about our clients, former clients or investors to third parties, except as permitted or required by law. We maintain physical, electronic and procedural safeguards to protect such information, and limit access to such information to those employees who require it in order to provide products or services to you.
To service your account and effect transactions, we may provide your personal information to our affiliates and to firms that assist us in servicing your account and have a need for such information, such as a broker or administrator. We may also disclose such information to service providers and financial institutions with whom we have joint marketing arrangements. We require third party service providers and financial institutions with which we have joint marketing arrangements to protect the confidentiality of your information and to use the information only for the purposes for which we disclose the information to them. We do not otherwise provide information about you to outside firms, organizations or individuals except to our attorneys, accountants and auditors and as permitted by law.
It may be necessary, under anti-money laundering or other laws, to disclose information about you in order to accept your purchase order. Information about you may also be released if you so direct, or if we, or an affiliate, are compelled to do so by law, or in connection with any government or self-regulatory organization request or investigation.
We are committed to upholding this Privacy Policy. We will notify you on an annual basis of our policies and practices in this regard and at any time that there is a material change thereto.
THE REST OF THE PAGE IS INTENTIONALLY LEFT BLANK
TABLE OF CONTENTS
PROSPECTUS SUMMARY....................................................1 SUMMARY OF FUND EXPENSES.............................................16 PRINCIPAL RISK FACTORS...............................................18 ADDITIONAL RISK FACTORS..............................................27 THE FUND.............................................................30 USE OF PROCEEDS......................................................31 INVESTMENT PROGRAM...................................................31 NON-PRINCIPAL FUND INVESTMENT PRACTICES AND THEIR RISKS..............34 PERFORMANCE INFORMATION..............................................36 MANAGEMENT OF THE FUND...............................................37 FEES AND EXPENSES....................................................39 THE OFFERING.........................................................42 DESCRIPTION OF SHARES................................................44 CERTAIN TAX MATTERS..................................................45 INVESTOR QUALIFICATIONS AND SUITABILITY..............................47 REPURCHASE OFFERS....................................................48 CALCULATION OF NET ASSET VALUE.......................................52 DISTRIBUTION POLICY..................................................53 POTENTIAL CONFLICTS OF INTEREST......................................54 BROKERAGE............................................................58 GENERAL INFORMATION..................................................59 |
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.............61
APPENDIX A: FORM OF INVESTOR CERTIFICATION..........................A-1 APPENDIX B: PORTFOLIO MANAGER PERFORMANCE INFORMATION.........................................................B-1 |
PROSPECTUS SUMMARY
IN MAKING AN INVESTMENT DECISION, AN INVESTOR MUST RELY UPON HIS, HER OR ITS OWN EXAMINATION OF ACAP STRATEGIC FUND (THE "FUND") AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED IN ACQUIRING SHARES OF BENEFICIAL INTEREST ("SHARES") IN THE FUND. THIS IS ONLY A SUMMARY OF INFORMATION TO CONSIDER BEFORE INVESTING AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION THAT FOLLOWS ELSEWHERE IN THIS PROSPECTUS (THE "PROSPECTUS"). AN INVESTOR SHOULD REVIEW THE ENTIRE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION ("SAI"), AVAILABLE UPON REQUEST, BEFORE MAKING A DECISION TO PURCHASE SHARES OF THE FUND.
THE FUND ACAP Strategic Fund (the "Fund") is a newly
organized Delaware statutory trust that is
registered under the Investment Company Act of
1940 (the "1940 Act") as a non-diversified,
closed-end management investment company.
SilverBay Capital Management LLC, a newly formed
Delaware limited liability company that is
registered as an investment adviser with the
Securities and Exchange Commission (the "SEC")
under the Investment Advisers Act of 1940 (the
"Advisers Act"), will serve as the investment
adviser of the Fund (the "Adviser"). The Adviser
is controlled by its managing member, Alkeon
Capital Management, LLC ("Alkeon"), which is
registered with the SEC as an investment
adviser. Mr. Panayotis ("Takis") Sparaggis, the
controlling person and Chief Investment Officer
of Alkeon, serves as the Fund's portfolio
manager (the "Portfolio Manager").
PRINCIPAL INVESTMENT The Fund's investment objective is to achieve
STRATEGIES maximum capital appreciation. The Fund pursues
this objective by investing its assets primarily
in equity securities of U.S. and foreign
companies that the Adviser believes are well
positioned to benefit from demand for their
products or services, including companies that
can innovate or grow rapidly relative to their
peers in their markets. "Growth companies" are
generally considered to possess these
characteristics. For purposes of the Fund's
investment program, "equity securities" means
common and preferred stocks (including IPO
securities), convertible securities, stock
options (call and put options), warrants and
rights. The Fund may also seek maximum capital
appreciation by effecting short sales of
securities when the Adviser believes that the
market price of a security is above its
estimated intrinsic or fundamental value. Under
circumstances when the Adviser identifies
greater opportunities for capital appreciation
by effecting short sales (relative to investing
in long positions), the Fund's portfolio may
have a "net-short bias," where the dollar value
of the short positions exceed the value of long
positions. The Fund may also effect short sales
for hedging purposes. Due to limitations imposed
by the 1940 Act and operational
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requirements, the Fund generally expects that no
more than 50 percent of its total assets would
be represented by short sales. (SEE "Principal
Risk Factors --- Leverage & Borrowings Risk.")
The Adviser also expects that the Fund's
investment program will make frequent use of
leverage. Borrowings by the Fund (which do not
include short and derivative transactions) will
not exceed 33 1/3 percent of the Fund's total
assets. (SEE "Principal Risk Factors ---
Leverage & Borrowings Risk.") The use of short
sales and leverage are considered speculative
investment practices and involve certain risks.
In addition, the Fund, as a result of certain
short sale transactions, may recognize short
term capital gain, which will be passed through
to investors as ordinary income. (For a more
detailed discussion of the tax consequences of
short sale transactions, SEE "Certain Tax
Matters --- Taxation of Short Sales.") The
Adviser may use total return swaps to gain long
or short investment exposures in lieu of
purchasing or selling an equity security
directly. The use of swaps exposes the Fund to
counterparty credit risk (SEE "Principal Risk
Factors --- Counterparty Credit Risk.") The
Adviser will invest the Fund's assets in equity
securities without regard to the issuer's market
capitalization. The Fund may invest without
limitation in securities of "foreign issuers,"
which, for these purposes, are companies that
derive a majority of their revenue or profits
from foreign businesses, investments or sales,
or that have a substantial portion of their
operations or assets abroad. The Fund's
investments in foreign companies may include
companies that are located in, or conduct
business in, emerging or less developed
countries. These investments are typically
subject to certain risks to a much greater
degree than investments in developed countries.
(SEE "Principal Risk Factors --- Foreign
Investment Risk.")
In making investment decisions for the Fund, the
Adviser uses fundamental investment analysis and
research to identify attractive investment
opportunities. The Adviser's investment process
involves a research driven, bottom-up analysis
of a security's potential for appreciation or
depreciation, and includes consideration of the
financial condition, earnings outlook, strategy,
management and industry position of issuers.
This analytical process involves the use of
valuation models, review and analysis of
published research, and, in some cases,
discussions with industry experts and company
visits. The Adviser also takes into account
economic and market conditions.
Historically, Alkeon, the managing member of the
Adviser, has found significant opportunities for
maximum capital appreciation in the equity
securities of companies which derive a major
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portion of their revenue directly or indirectly
from business lines which benefit, or are
expected to benefit, from technological events,
advances or products ("Technology Companies").
These include companies whose processes,
products or services, in the judgment of Alkeon,
are or may be expected to be significantly
benefited by scientific developments in the
application of technical advances in
manufacturing and commerce. Conversely, Alkeon
has also found opportunities for maximum capital
appreciation in the equity securities of
companies that are, or may be expected to be,
disadvantaged by technological events, advances
or products. As a result, these companies,
together with Technology Companies, are expected
to comprise a significant portion of the Fund's
portfolio. The Fund's investment program may
also include investments in the equity
securities of companies in a variety of other
industries and sectors.
THE FUND'S INVESTMENT PROGRAM IS SPECULATIVE AND
ENTAILS SUBSTANTIAL RISKS. THERE CAN BE NO
ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE
WILL BE ACHIEVED OR THAT ITS INVESTMENT PROGRAM
WILL BE SUCCESSFUL. INVESTORS SHOULD CONSIDER
THE FUND AS A SUPPLEMENT TO AN OVERALL
INVESTMENT PROGRAM AND SHOULD INVEST ONLY IF
THEY ARE WILLING TO UNDERTAKE THE RISKS
INVOLVED. INVESTORS COULD LOSE SOME OR ALL OF
THEIR INVESTMENT.
NON-PRINCIPAL INVESTMENT In addition to its principal investment
PRACTICES strategies, the Fund may, from time to time,
invest in debt securities and certain derivative
instruments (in addition to the options and
swaps described under "Principal Investment
Strategies"), such as forward contracts, options
on stock indices and structured-equity notes.
The Fund may also purchase retail shares of
exchange-traded funds that are registered under
the 1940 Act ("ETFs") and retail shares of
similar investment vehicles that are not
registered under the 1940 Act (together with the
ETFs, "Traded Funds") and effect short sales of
these shares. Transactions in Traded Funds may
be used in seeking maximum capital appreciation
or for hedging purposes. During periods of
adverse market conditions in the equity
securities markets, the Fund may deviate from
its investment objective and invest all or a
portion of its assets in high quality debt
securities, money market instruments, or hold
its assets in cash. The Fund also invests in
money market instruments for liquidity purposes.
(SEE "Non-Principal Fund Investment Practices
and Their Risks.")
BORROWINGS The Fund is authorized to borrow money for
investment purposes, to meet repurchase requests
and for liquidity purposes.
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Borrowings by the Fund (which do not include
short and derivative transactions) will not
exceed 33 1/3 percent of the Fund's total
assets. Borrowing for investment purposes (a
practice known as "leverage") is a speculative
investment practice and involves certain risks.
The Adviser expects that the Fund's investment
program will make frequent use of leverage. (SEE
"Principal Risk Factors --- Borrowings &
Leverage Risk.")
MANAGEMENT OF THE FUND The board of trustees of the Fund (the "Board")
has overall responsibility for the management
and supervision of the operations of the Fund.
It has delegated responsibility for management
of the Fund's day-to-day operations to the
Adviser. (SEE "Management of the Fund.")
THE ADVISER The Adviser, SilverBay Capital Management LLC, a
newly formed Delaware limited liability company,
will serve as the investment adviser of the
Fund. Pursuant to an investment advisory
agreement with the Fund (the "Advisory
Agreement"), the Adviser is responsible for: (i)
developing and implementing the Fund's
investment program, (ii) managing the Fund's
investment portfolio and making all decisions
regarding the purchase and sale of investments
for the Fund, and (iii) providing various
management and administrative services to the
Fund. The Adviser is controlled by Alkeon.
Mr. Sparaggis, the Fund's Portfolio Manager,
manages other accounts in accordance with an
investment strategy that is substantially
similar to that of the Fund. (SEE "Performance
Information.")
MANAGEMENT FEE & In consideration of services provided by the
INCENTIVE FEE Adviser, the Fund pays the Adviser a monthly
management fee computed at the annual rate of
2.00% of the Fund's average daily net assets
(the "Management Fee"). The Fund also pays the
Adviser a performance-based incentive fee (the
"Incentive Fee") promptly after the end of each
fiscal year of the Fund. The Incentive Fee is
determined as of the end of the fiscal year in
an amount equal to 20% of the amount by which
the amount the Fund's net profits for all Fiscal
Periods (as defined below) ending within or
coterminus with the close of such fiscal year
exceed the balance of the loss carryforward
account (as described on the next page), without
duplication for any Incentive Fees paid during
such fiscal year. The Fund also pays the Adviser
the Incentive Fee in the event a Fiscal Period
is triggered in connection with a share
repurchase offer by the Fund, as described
below. For purposes of calculating the Incentive
Fee, net profits means the amount by which: (a)
the net assets of the Fund as of the end of a
Fiscal Period, increased by the dollar amount of
shares of the Fund repurchased during the Fiscal
Period (excluding shares to be repurchased as of
the last day of the Fiscal Period after
determination of the Incentive Fee) and by the
amount of dividends and other distributions paid
to shareholders during the Fiscal Period and not
reinvested in additional shares (excluding any
dividends and other
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distributions to be paid as of the last day of
the Fiscal Period), exceeds (b) the net assets
of the Fund as of the beginning of the Fiscal
Period, increased by the dollar amount of shares
of the Fund issued during the Fiscal Period
(excluding any shares issued in connection with
the reinvestment of dividends and other
distributions paid by the Fund). Net assets
means the total value of all assets of the Fund,
less an amount equal to all accrued debts,
liabilities and obligations of the Fund,
determined in accordance with the valuation and
accounting policies and procedures of the Fund.
"Fiscal Period" means each twelve-month period
ending on the Fund's fiscal year-end, provided
that whenever the Fund conducts a share
repurchase offer, the period of time from the
last Fiscal Period-end through the effective
date of the repurchase offer also constitutes a
Fiscal Period. (Upon termination of the Advisory
Agreement, the Fund will pay the Incentive Fee
to the Adviser as if the date of effectiveness
of such termination is the end of the Fund's
fiscal year.) In the event that an Incentive Fee
is payable with respect to a Fiscal Period that
is not the Fund's fiscal year-end due to the
Fund's share repurchases, the Incentive Fee will
be determined as if the end of such Fiscal
Period were the end of the Fund's fiscal year,
and only that portion of the Incentive Fee that
is proportional to the Fund's assets paid in
respect of such share repurchases (not taking
into account any proceeds from any
contemporaneous issuance of shares of the Fund,
by reinvestment of dividends and other
distributions or otherwise) will be paid to the
Adviser for such Fiscal Period. Since the Fund
operates as an interval fund under Rule 23c-3 of
the 1940 Act and conducts repurchase offers
every fiscal quarter, Fiscal Periods could be
triggered (and, therefore, a portion of the
Incentive Fee, if any, would be payable to the
Adviser) up to four times each fiscal year. For
purposes of determining the Fund's net asset
value, the Incentive Fee is calculated and
accrued daily as an expense of the Fund (as if
each day is the end of the Fund's fiscal year).
The Incentive Fee will be payable for a Fiscal
Period only if there is no positive balance in
the Fund's loss carryforward account. The loss
carryforward account is an account that will
have an initial balance of zero upon
commencement of the Fund's operations and,
thereafter, will be credited as of the end of
each Fiscal Period with the amount of any net
loss of the Fund for that Fiscal Period and will
be debited with the amount of any net profits of
the Fund for that Fiscal Period, as applicable.
This is sometimes known as a "high water mark."
(SEE "Fees and Expenses --- Incentive Fee.")
5
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The Incentive Fee presents certain risks that
are not present in investment funds without
incentive fees. (SEE "Additional Risk Factors
--- The Incentive Fee.") In addition, although
the aggregate fees payable by the Fund to the
Adviser are similar to those of private
investment funds, they are significantly higher
than those paid by most registered investment
companies.
THE OFFERING Shares of the Fund are being offered in an
initial offering (the "Initial Offering") at a
price of $10.00 per share plus a sales load of
up to 3% (if applicable). The Initial Offering
is currently anticipated to terminate on
March 1, 2009, subject to extension.
After the Initial Offering is closed, shares of
the Fund will be offered for purchase on a
monthly basis in a continuous offering at their
net asset value per share, plus, if applicable,
a sales load of up to 3% of the amount invested
(as described below). Shares will be issued at
the net asset value per share next computed
after acceptance of an order to purchase shares.
The Fund's net asset value per share will be
circulated to Selling Agents offering shares of
the Fund.
The minimum initial investment in the Fund by an
investor is $100,000, subject to reduction at
the discretion of an investor's broker, dealer
or other financial intermediary, but not below
$50,000. Subsequent investments must be at least
$25,000. The minimum investment requirements may
be reduced or waived for investments by
personnel of the Adviser and its affiliates, and
members of their immediate families, and as may
be determined by the Board.
Shares may only be purchased through, and with
funds drawn on, an investor's brokerage account
with an Underwriter or Selling Agent (each as
defined below). In order to purchase shares, a
prospective investor must submit a completed
investor certification (a form of which is
included in Appendix A to this Prospectus) to an
Underwriter or Selling Agent. The Fund reserves
the right to reject, in its sole discretion, any
request to purchase shares of the Fund at any
time. The Fund also reserves the right to
suspend or terminate the offering of shares at
any time. Additional information regarding the
share purchase process is set forth under
"Investor Qualifications and Suitability."
SMH Capital Inc. ("SMH") and Mainsail Group,
L.L.C. ("Mainsail," and together with SMH, the
"Underwriters"), underwriters under the federal
securities laws, serve as co-underwriters of
shares on a best efforts basis, pursuant to the
6
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terms of each Underwriter's distribution
agreement with the Fund, and may retain
unaffiliated brokers or dealers to act as
selling agents ("Selling Agents") to assist in
the distribution of shares. SMH has a
non-controlling equity interest in the Adviser,
pursuant to which it participates in a portion
of the revenue generated by the Adviser.
Mainsail is affiliated with Alkeon, the managing
member of the Adviser.
Selling Agents are entitled to charge a sales
load to each investor on the purchase price of
its shares of up to 3%. The specific amount of
the sales load paid is not fixed and will be
determined by the investor and its Selling
Agent. The sales load is expected to be waived
for the Adviser and its affiliates, including
its personnel and members of their immediate
families. In addition, the sales load is not
applicable to investors that purchase shares
through a fee-based account with their broker,
dealer or other financial intermediary (commonly
known as a "wrap fee program"). The sales load
will neither constitute an investment made by
the investor in nor form part of the assets of
the Fund. The Selling Agents' receipt of the
sales load is subject to the applicable
limitations imposed by the rules and regulations
of the Financial Industry Regulatory Authority,
Inc.
SHAREHOLDER SERVICING FEES Under the terms of each distribution agreement
with the Fund, the Fund pays ongoing shareholder
servicing fees to the Underwriters to compensate
them for providing, or arranging for the
provision of, ongoing investor services and
account maintenance services to investors in the
Fund. Each Underwriter may retain all or a
portion of these payments. These fees are
accrued daily and paid monthly in an amount not
to exceed, in the aggregate, 0.25% (on an
annualized basis) of the net asset value of the
Fund (the "Shareholder Servicing Fees"). (SEE
"Fees and Expenses --- Shareholder Servicing
Fees.")
FUND EXPENSES The Fund bears all expenses incurred in its
business and operations, other than those borne
by the Adviser or by the Underwriters pursuant
to their agreements with the Fund, including,
but not limited to: all investment related
expenses (E.G., costs and expenses directly
related to portfolio transactions and positions
for the Fund's account such as direct and
indirect expenses associated with investments,
transfer taxes and premiums, taxes withheld on
foreign income, 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); the Management Fee;
the Incentive Fee; the Shareholder Servicing
Fees; any non-investment related interest
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expense; offering
expenses; fees and disbursements of any
attorneys and accountants engaged by the Fund;
audit and tax preparation fees and expenses;
administrative expenses and fees; custody fees
and expenses; insurance costs; fees and
travel-related expenses of members of the Board
who are not employees of the Adviser or any
affiliate of the Adviser; and any extraordinary
expenses. (SEE "Fees and Expenses --- Other Fees
and Expenses of the Fund.")
INVESTOR QUALIFICATIONS Shares of the Fund may be purchased only by
investors who certify to the Fund or its agents
that they have a net worth of more than $1.5
million (or in the case of an individual, a
joint net worth with their spouse of more than
$1.5 million) ("Qualified Investors"). (Appendix
A to this Prospectus includes a form of investor
certification that must be completed in order to
purchase shares.) Shares may be held only
through an Underwriter or a Selling Agent.
Any attempt to transfer shares to someone who is
not a Qualified Investor or to an account with a
broker or dealer that has not entered into a
selling agreement with an Underwriter will not
be permitted and will be void. (SEE "Investor
Qualifications and Suitability.")
INVESTOR SUITABILITY AN INVESTMENT IN THE FUND INVOLVES SUBSTANTIAL
RISKS AND IS NOT NECESSARILY SUITABLE FOR ALL
ELIGIBLE INVESTORS. Prior to making an
investment decision, you should: (i) consider
the suitability of this investment with respect
to your investment objectives and personal
situation, (ii) consider factors such as your
personal net worth, income, age, risk tolerance
and liquidity needs, and (iii) consult with your
broker, dealer or other financial adviser to
determine whether an investment in the Fund is
suitable for your risk profile. (SEE "Investor
Qualifications and Suitability.")
UNLISTED CLOSED-END The Fund is organized as a closed-end management
STRUCTURE; LIMITED investment company. Closed-end funds differ from
LIQUIDITY AND TRANSFER open-end management investment companies
RESTRICTIONS (commonly known as mutual funds) in that
shareholders of a closed-end fund do not have
the right to redeem their shares on a daily
basis. In addition, the Fund has no plans to
list its shares on any securities exchange, and
there is no assurance that any secondary market
will develop for the Fund's shares. Although the
Fund will make quarterly offers to repurchase
its shares, there can be no assurance that the
Fund will repurchase all shares that are
tendered by a shareholder in connection with any
repurchase offer.
8
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Shares are subject to transfer restrictions that
permit transfers only to persons who are
Qualified Investors and who hold their shares
through an Underwriter or a Selling Agent. The
Fund may require substantial documentation in
connection with a requested transfer of shares,
and you should not expect that you will be able
to transfer shares at all. Attempted transfers
may require a substantial amount of time to
effect. Shares of the Fund may not be exchanged
for shares of any other fund. An investment in
the Fund is suitable only for investors who can
bear the risks associated with the limited
liquidity of shares and should be viewed as a
long-term investment.
QUARTERLY REPURCHASE The Fund will operate as an "interval fund"
OFFERS under Rule 23c-3 of the 1940 Act and, as such,
provides a limited degree of liquidity to
shareholders. As an interval fund, the Fund has
adopted a fundamental policy to offer to
repurchase at least 5% of its outstanding shares
at their net asset value at regular intervals.
Currently, the Fund intends to offer to
repurchase 25% of its outstanding shares as of
or prior to the end of each fiscal quarter.
However, repurchase offers in excess of 5% of
the Fund's outstanding shares for any particular
fiscal quarter is entirely within the discretion
of the Fund's board of trustees and, as a
result, there can be no assurance that the Fund
would make repurchase offers for amounts in
excess of 5% of the Fund's outstanding shares.
If the number of shares tendered for repurchase
in any repurchase offer exceeds the number of
shares that the Fund has offered to repurchase,
the Fund will repurchase shares on a pro-rata
basis, and tendering shareholders will not have
all of their tendered shares repurchased by the
Fund. (SEE "Repurchase Offers --- Oversubscribed
Repurchase Offer.")
PRINCIPAL RISK FACTORS An investment in the Fund involves a high degree
of risk. There can be no assurance that the
Fund's investment objective will be achieved. In
particular, the Fund's use of leverage, short
sales and derivative transactions can, in
certain circumstances, result in significant
losses to the Fund. The value of the Fund's
investments can be reduced by unsuccessful
investment strategies, poor selection of equity
securities, poor economic growth, pronounced
market volatility, and political and legal
developments.
Because the Fund primarily invests in common
stocks and other equity securities, the value of
the Fund's portfolio will be affected by daily
movements in the prices of equity securities.
These price movements may result from factors
affecting individual companies, industries or
the securities markets as a whole. Individual
companies may report poor results or be
negatively affected by industry, regulatory
and/or economic
9
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trends and developments. The prices of
securities issued by such companies may suffer a
decline in response. In addition, stock markets
can be volatile at times, and stock prices can
change drastically. This market risk will affect
the Fund's share price, which will fluctuate as
the values of the Fund's investment securities
and other assets change. Not all stock prices
change uniformly or at the same time, and not
all stock markets move in the same direction at
the same time.
The Fund's investment program emphasizes active
management of the Fund's portfolio.
Consequently, the Fund's portfolio turnover and
brokerage commission expenses may exceed those
of other investment companies. A high portfolio
turnover rate (one that exceeds 100% in our
view) may also result in the greater realization
of capital gains, including short-term gains
which are taxable to shareholders at the same
rates as ordinary income. (SEE "Principal Risk
Factors --- Active Management Risk.")
Investing in securities of Technology Companies
involves additional risks. These risks include:
the fact that certain companies in the Fund's
portfolio may have limited operating histories;
rapidly changing technologies and products which
may quickly become obsolete; cyclical patterns
in information technology spending which may
result in inventory write-offs, cancellation of
orders and operating losses; scarcity of
management, engineering and marketing personnel
with appropriate technological training; the
possibility of lawsuits related to technological
patents; changing investors' sentiments and
preferences with regard to investments in
Technology Companies (which are generally
perceived as risky) with their resultant effect
on the price of underlying securities; and
volatility in the U.S. and foreign stock markets
which may disproportionately affect the prices
of securities of Technology Companies and thus
cause the Fund's performance to experience
substantial volatility. The Fund is thus subject
to these and other risks associated with
Technology Companies to a much greater extent
than a fund that does not emphasize these
investments. (SEE "Principal Risk Factors ---
Technology Company Securities.")
The Fund may invest a substantial portion of its
assets in the securities of "growth companies."
|
Investing in growth companies involves substantial risks. Securities of growth companies may perform differently from the stock market as a whole and may be more volatile than other types of stocks. Since growth companies usually invest a significant portion of
earnings in their businesses, they may lack the dividends of value stocks that can cushion the impact of declining stock prices in a falling market. Also, earnings disappointments often lead to sharply falling prices for growth company stocks because investors buy growth company stocks in anticipation of superior earnings growth. Securities of growth companies may also be more expensive relative to their earnings or assets compared to value or other types of stocks. (SEE "Principal Risk Factors --- Growth Company Securities.")
The Fund may effect short sales of securities when the Adviser believes that the market price of a security is above its estimated intrinsic or fundamental value. The Fund may also effect short sales for hedging purposes. A short sale involves selling a security the Fund does not own in anticipation that the security's price will decline. Under circumstances when the Adviser identifies greater opportunities for capital appreciation by effecting short sales (relative to investing in long positions), the Fund may have a "net-short bias," where the dollar value of short positions in the portfolio exceeds the dollar value of long positions. The Fund will suffer a loss if it sells a security short and the value of the security rises rather than falls. Short sales expose the Fund to the risk that it will be required to buy the security sold short (also known as "covering" the short position) at a time when the security has appreciated in value, thus resulting in a loss to the Fund. Positions in stocks sold short are more risky than long positions (purchases) in stocks because the maximum loss on a stock purchased is limited to the amount paid for the stock plus the transaction costs, where in the case of a short sale, there is no limit on the loss that may be incurred. (SEE "Principal Risk Factors --- Risk of Short Sales.")
When effecting short sales of securities, the Fund will receive a dollar amount (the "net short proceeds") equal to the value of the securities sold short and will deposit and retain such net short proceeds with the brokerage firm through which it effected the short sale transactions (the "Prime Broker"). The Fund expects that, initially, its Prime Broker will be Morgan Stanley & Co. Incorporated. Because the Fund expects to effect short sales as part of its principal investment strategy, the Fund expects that the short proceeds deposited with the Prime Broker could represent a material portion of the Fund's total assets. This may expose the Fund to significant risks or difficulty in obtaining access to its assets in the event of the default or bankruptcy of its Prime Broker. It is expected that the Adviser will monitor on an ongoing basis the creditworthiness of the Prime Broker.
The Fund will be subject to counterparty credit risk with respect to its use of total return swap contracts. If a counterparty to a swap contract becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. To partially mitigate this risk, the Adviser will seek to effect swap transactions only with counterparties that it believes are creditworthy. (SEE "Principal Risk Factors --- Counterparty Credit Risk.")
The Adviser expects that the Fund's investment program will make frequent use of leverage by borrowing money to purchase securities on margin (or borrowing from banks). This practice is speculative and involves certain risks. Because short sales involve borrowing securities and then selling them, the Fund's short sales have the additional effect of leveraging the Fund's assets. Although leverage can increase investment returns if the Fund earns a greater return on investments purchased with borrowed funds than it pays for the use of those funds, the use of leverage will decrease investment returns if the Fund fails to earn as much on investments purchased with borrowed funds as it pays for the use of those funds. The use of leverage will therefore magnify the impact of changes in the value of investments held by the Fund on the Fund's net asset value and thus can increase the volatility of the Fund's net asset value per share. In the event that the Fund's portfolio investments decline in value, the Fund could be subject to a "margin call" and will be required to deposit additional collateral with the lender or suffer mandatory liquidation of securities pledged as collateral for its borrowings. Money borrowed for leveraging will be subject to interest costs that may or may not be recovered by return on the securities purchased. (SEE "Principal Risk Factors --- Leverage & Borrowings Risk.")
The Fund invests in equity securities without regard to the issuer's market capitalization. Accordingly, the Fund may invest significantly in the stocks of companies having smaller market capitalizations, including mid-cap and small-cap stocks. The stocks of these companies often have less management depth, narrower market penetrations, less diverse product lines, and fewer resources than larger companies. Due to these and other factors, stocks of smaller companies may be more susceptible to market downturns and other events, and their prices may be more volatile than the stocks of larger companies. (SEE "Principal
Risk Factors --- Market Capitalization Risk.")
The Fund may invest without limitation in
securities of "foreign issuers," which, for
these purposes, are companies that derive a
majority of their revenue or profits from
foreign businesses, investments or sales, or
that have a substantial portion of their
operations or assets abroad. (Some of these
"foreign issuers" may be legally organized or
have principal offices located in the U.S.)
Investments in foreign issuers are affected by
risk factors generally not thought to be present
in the U.S., including, among other things,
increased political, regulatory, contractual and
economic risk and exposure to currency
fluctuations. The Fund may also invest in
companies located in, or doing business in,
emerging or less developed countries. These
investments are typically subject to the
foregoing risks to a much greater degree than
investments in developed countries and thus,
investments in less developed countries could
potentially increase volatility in the Fund's
net asset value. There is no limit on the amount
of the Fund's assets that may be invested in
companies located or doing business in emerging
market countries. (SEE "Principal Risk Factors
--- Foreign Investment Risk.")
The Fund is a "non-diversified" investment
company. Thus, there are no percentage
limitations imposed by the 1940 Act on the
portion of the Fund's assets that may be
invested in the securities of any one issuer.
The portfolio of the Fund may therefore be
subject to greater risk than the portfolio of a
similar fund that diversifies its investments.
(SEE "Principal Risk Factors --- Non-Diversified
Status.")
ADDITIONAL RISK FACTORS The Incentive Fee may create an incentive for
the Adviser to cause the Fund to make
investments that are riskier or more speculative
than those that might have been made in the
absence of the Incentive Fee. In addition, the
application of the Incentive Fee may not
correspond to a particular shareholder's
experience in the Fund because aggregate
cumulative appreciation is calculated on an
overall basis allocated equally to each
outstanding share. The Incentive Fee is accrued
daily as a liability of the Fund and so reduces
the net asset value of all shares.
Each of the Fund and the Adviser is recently
formed and has no operating history upon which
investors can evaluate its performance. However,
the personnel of the Adviser responsible for
managing the Fund's investment portfolio has
substantial experience in managing investments
and investment funds, including those that have
investment programs similar to that of
13
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the Fund. (SEE "Performance Information.")
Shares of the Fund are not traded on any
securities exchange or other market and are
subject to substantial restrictions on transfer.
Although the Fund will offer to repurchase its
shares quarterly, there can be no assurance that
the Fund will repurchase all shares tendered by
a shareholder for repurchase in any such offer.
In light of the foregoing risks, an investment
in shares of the Fund should be considered a
speculative investment, and you should invest in
the Fund only if you can sustain a complete loss
of your investment.
NO GUARANTEE OR REPRESENTATION IS MADE THAT THE
INVESTMENT PROGRAM OF THE FUND WILL BE
SUCCESSFUL OR THAT THE FUND WILL ACHIEVE ITS
INVESTMENT OBJECTIVE.
POTENTIAL CONFLICTS OF The investment activities of Adviser and its
INTEREST affiliates for their own accounts and for other
accounts they manage may give rise to conflicts
of interest that may disadvantage the Fund. (SEE
"Potential Conflicts of Interest.")
DISTRIBUTION POLICY Dividends will be paid annually on the shares in
amounts representing substantially all of the
Fund's net investment income, if any, earned
each year. Payments on shares will vary in
amount depending on investment income received
and expenses of operation. It is likely that
many of the companies in which the Fund invests
will not pay any dividends, and this, together
with the Fund's relatively high expenses, means
that the Fund is unlikely to have income or pay
dividends. The Fund is not a suitable investment
if you require regular dividend income.
Dividends and capital gain distributions to
shareholders will be automatically reinvested
unless the Fund is otherwise instructed by the
shareholder through its broker, dealer or other
financial intermediary.
TAXATION The Fund intends to: (i) elect to be treated as
a "Regulated Investment Company" (a "RIC") under
Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"); and (ii) to
qualify as a RIC for federal income tax
purposes. As such, the Fund will generally not
be subject to federal income tax on its taxable
income and gains that it distributes to
shareholders. The Fund intends to distribute its
income and gains in a way that it will not be
subject to a federal excise tax on certain
undistributed amounts. Fund dividends and
capital gains distributions, if any, are taxable
to most investors and will be taxable whether or
not they are reinvested in shares of the Fund.
(SEE "Description of Shares --- Certain Tax
Matters" and, in the
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SAI, "Tax Aspects.")
REPORTS TO SHAREHOLDERS As soon as practicable after the end of each
taxable year, the Fund furnishes to shareholders
such information as is necessary for them to
complete their income tax or information
returns, along with any other tax information
required by law.
The Fund sends unaudited semi-annual and audited
annual reports to shareholders within 60 days
after the close of the period for which the
report is being made, or as otherwise required
by the 1940 Act.
TERM The Fund's term is perpetual, except that the
Fund may be terminated as provided in the
Agreement and Declaration of Trust of the Fund.
FISCAL YEAR The Fund's fiscal year ends on each October 31.
The Fund's tax year for federal income tax
purposes also ends on each October 31.
ADMINISTRATOR PNC Global Investment Servicing (U.S.) Inc.
("PNC"), located at 301 Bellevue Parkway,
Wilmington, Delaware 19809, serves as the Fund's
administrator and provides various
administrative and accounting services necessary
for the operations of the Fund.
CUSTODIAN PFPC Trust Company, located at 8800 Tinicum
Boulevard, 4th Floor, Philadelphia,
Pennsylvania, serves as the custodian for the
Fund's assets and is responsible for maintaining
custody of the Fund's cash and investments and
for retaining sub-custodians to maintain custody
of foreign securities held by the Fund.
TRANSFER AGENT PNC also serves as transfer agent and registrar
with respect to shares of the Fund.
LEGAL COUNSEL Schulte Roth & Zabel LLP, 919 Third Avenue, New
York, NY 10022, serves as U.S. legal counsel to
the Fund. The firm also acts as U.S. legal
counsel to the Adviser and its affiliates with
respect to certain other matters. The firm does
not represent potential investors with respect
to their investment in the Fund.
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SUMMARY OF FUND EXPENSES
The following table illustrates the expenses and fees that the Fund expects to incur and that shareholders can expect to bear.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load
(as a percentage of offering price) (1)..............................3.00%
ANNUAL EXPENSES (as a percentage of net assets attributable to shares)
Management Fee........................................................ 2.00%
Incentive Fee (2) 20%
Shareholder Servicing Fees (3).........................................0.25%
Interest Payments on Borrowed Funds (4)................................0.18%
Expenses on Securities Sold Short (5)..................................0.56%
Other Expenses (6).....................................................0.58%
TOTAL ANNUAL EXPENSES (EXCLUDING THE INCENTIVE FEE)................... 3.57%
________________
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(1) In connection with initial and additional investments, investors may be charged a sales load of up to 3% of the amounts transmitted in connection with their purchases of shares. No sales load will be charged to certain types of investors. (SEE "The Offering --- Plan of Distribution.")
(2) The Fund pays the Adviser a performance-based Incentive Fee promptly after the end of each fiscal year of the Fund. The Incentive Fee is determined as of the end of the fiscal year in an amount equal to 20% of the amount by which the Fund's net profits for all Fiscal Periods (as defined herein) ending within or coterminous with the close of such fiscal year exceed the balance of the loss carryforward account, without duplication for any Incentive Fees paid during such fiscal year. The Fund also pays the Adviser the Incentive Fee in the event a Fiscal Period is triggered in connection with a share repurchase offer by the Fund. In such event, only that portion of the Incentive Fee that is proportional to the Fund's assets paid in respect of such share repurchases (not taking into account any proceeds from contemporaneous issuance of shares of the Fund, by reinvestment of dividends and other distributions or otherwise) will be paid to the Adviser for such Fiscal Period. For purposes of determining the Fund's net asset value, the Incentive Fee is calculated and accrued daily as an expense of the Fund (as if each day is the end of a fiscal year). (See "Fees and Expenses --- Incentive Fee.")
(3) The Fund pays ongoing shareholder servicing fees to the Underwriters to compensate them for providing, or arranging for the provision of, ongoing investor services and account maintenance services to investors in the Fund. Each Underwriter may retain all or a portion of these payments. These fees are accrued daily and paid monthly in an amount not to exceed, in the aggregate, 0.25% (on an annualized basis) of the net asset value of the Fund. (SEE "Fees and Expenses --- Shareholder Servicing Fees.")
(4) "Interest Payments on Borrowed Funds" is based on the Portfolio Manager's historical experience in implementing an investment strategy substantially similar to that of the Fund. However, this amount may vary in the current year and going forward, depending on market conditions as well as the availability of investment opportunities. Borrowings by the Fund (which do not include short and derivative transactions) will not exceed 33 1/3 percent of the Fund's total assets. The Fund is authorized to borrow money for investment purposes, to meet repurchase requests and for liquidity purposes.
(5) The Fund may effect short sales of securities for both capital appreciation and for hedging purposes. "Expenses on Securities Sold Short" is based on the Portfolio Manager's historical experience in implementing an investment strategy substantially similar to that of the Fund. However, this amount may vary in the current year and going forward, depending on whether the securities the Fund sells short pay dividends, the size of any such dividends and the amount of interest expenses on short sales paid to a broker when the proceeds of the short sale are
released to the Fund. Due to limitations imposed by the 1940 Act and operational requirements, the Fund generally expects that no more than 50 percent of its total assets would be represented by short sales.
(6) "Other Expenses" are estimated based on net assets of the Fund of $200 million and include, among other things, organization and offering expenses, administration fees, legal fees, the independent auditor's fees, printing costs and fees payable to the Independent Trustees.
Example 1 Year 3 Years 5 Years 10 Years ------- ------ ------- ------- -------- You would pay the following expenses (including the Incentive Fee) on a $1,000 investment, assuming a 5% annual return and a sales load of 3%: $75.22 $172.35 $279.87 $598.79 You would pay the following expenses (including the Incentive Fee) on a $1,000 investment, assuming a 5% annual return (without a sales load): $46.62 $146.96 $257.59 $586.35 |
The example includes the payment of the Incentive Fee and assumes that the Fund's annual return is 5%. The Incentive Fee is calculated based on the Fund's net profit, which is generally determined by calculating the amount by which the net assets of the Fund as of the end of a Fiscal Period exceeds the net assets as of the beginning of the Fiscal Period (excluding increases or decreases of net assets associated with share issuances, repurchases or dividends or other distributions), subject to reduction for prior period losses of the Fund that have not been offset by subsequent net profits. As a result, the dollar amounts in the example could be significantly higher if the Fund's actual rate of return exceeds 5%.
The example should not be considered a representation of future expenses. Actual expenses may be greater or less than those shown in the example. For a more complete description of the various costs and expenses, SEE "Fees and Expenses." Moreover, the Fund's actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
PRINCIPAL RISK FACTORS
ACAP STRATEGIC FUND (THE "FUND") IS A SPECULATIVE INVESTMENT AND AN INVESTMENT IN THE FUND'S SHARES OF BENEFICIAL INTEREST ("SHARES") ENTAILS SUBSTANTIAL RISKS. THERE CAN BE NO ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE ACHIEVED. IN PARTICULAR, THE FUND'S USE OF LEVERAGE, ACTIVE TRADING, SHORT SALES AND DERIVATIVE INSTRUMENTS CAN, IN CERTAIN CIRCUMSTANCES, RESULT IN SIGNIFICANT LOSSES TO INVESTORS WHO PURCHASE SHARES ("SHAREHOLDERS").
GENERAL
All securities investments risk the loss of capital. Shareholders may experience a significant decline in the value of their investment. Prospective shareholders should invest only if they can sustain a complete loss of their investment. To the extent that the Fund makes substantial investments in securities of a single issuer or issuers in a single industry sector, the risk of any investment decision is increased. In addition, the value of the Fund's investments can be reduced by unsuccessful investment strategies, poor selection of equity securities, poor economic growth, pronounced market volatility, and political, regulatory and legal developments. Shareholders could lose some or all of their investment.
Recent economic developments may magnify the risk of investing in the Fund. Dramatic declines in the housing market, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities, but spreading to credit default swaps and other derivative instruments, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Additionally, many lenders and institutional investors have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions, reflecting an ongoing concern about the stability of the financial markets generally and the strength of counterparties. More recently, this economic turmoil has spread beyond the banking and financial services industry and has begun to affect other seemingly unrelated industries, such as the U.S. automobile industry. The depth of the current financial crisis is continuing to expand and its ultimate scope, reach and affect cannot be predicted.
Consequences of this economic turmoil that may adversely effect the Fund include, among other things:
o a lack of available credit, lack of confidence in the financial sector and reduced business activity, all which could materially and adversely affect the Fund and economic conditions generally. For example, the Fund offers to repurchase a certain percentage of its outstanding shares each fiscal quarter. The erosion of confidence in the financial sector, and the continuing deterioration of the financial markets and economic conditions generally, could lead to larger numbers of shareholders tendering their Fund shares for repurchase. This could result in a general decline in the Fund's asset base over time, thus hampering the Fund's ability to
effectively invest its capital to achieve its investment objective. (SEE "Repurchase Offers --- Consequences of Repurchase Offers.") The longer these conditions persist, the greater the probability that these factors could have an adverse effect on the Fund's financial results and continued viability;
o a significant decline in the equity markets which may reduce the value of the Fund's portfolio securities; and
o the possibility that utilizing short-selling transactions, derivative instruments and hedging strategies of the type the Fund may use might not perform as intended or expected, resulting in higher realized losses and unforeseen cash needs. In addition, these transactions depend on the performance of various counterparties. Due to the unprecedented challenging conditions in the financial markets, these counterparties may fail to perform, thus rendering the Fund's transactions ineffective, which would likely result in significant losses to the Fund. (SEE "Principal Risk Factors --- Counterparty Credit Risk.")
Even if legislative or regulatory initiatives or other efforts successfully stabilize and add liquidity to the financial markets, the Fund may need to modify its investment strategies in the future in order to satisfy new regulatory requirements or to compete in a changed business environment. For example, the U.S. government has indicated its willingness to implement additional measures as it may see fit to address changes in market conditions, and further Congressional responses to this financial crisis may result in a comprehensive overhaul of the regulatory infrastructure governing the financial system. These future governmental measures may have further negative consequences for the Fund and its investments and may diminish future opportunities available to it in ways that cannot be predicted.
Given the volatile nature of the current market disruption and the uncertainties underlying efforts to mitigate or reverse the disruption, the Fund and the investment adviser of the Fund, SilverBay Capital Management LLC (the "Adviser"), may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments and trends in new products and services, in the current or future market environment. Such a failure could materially and adversely affect the Fund's investments and its ability to meet its investment objective.
ACTIVE MANAGEMENT RISK
The Fund's investment program emphasizes active management of the Fund's portfolio. Consequently, the Fund's portfolio turnover and brokerage commission expenses may exceed those of other investment companies. A high portfolio turnover rate (one that exceeds 100% in our view) may also result in the greater realization of capital gains, including short-term gains which are taxable to shareholders at the same rates as ordinary income.
RISK OF EQUITY SECURITIES
The Fund primarily invests in publicly-traded "equity securities," which, for these purposes, means common and preferred stocks (including initial public offerings or "IPOs"), convertible securities, stock options (call and put options), warrants and rights. Thus, the value of the Fund's portfolio will be affected by daily movements in the prices of equity securities. These price movements may result from factors affecting individual companies, industries or the securities markets as a whole. Individual companies may report poor results or be negatively affected by industry, regulatory and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. In addition, stock markets can be volatile at times, and stock prices can change drastically. This market risk will affect the Fund's share price, which will fluctuate as the values of the Fund's investment securities and other assets change. Not all stock prices change uniformly or at the same time, and not all stock markets move in the same direction at the same time.
In addition, special risks are associated with investments in IPO securities including a limited number of shares available for trading, unseasoned trading, lack of investor knowledge of the issuer, and limited operating history. These factors may contribute to substantial price volatility for the shares of these companies. The limited number of shares available for trading in some IPOs may make it more difficult for the Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing market prices. In addition, some companies in IPOs are involved in relatively new industries or lines of business, which may not be widely understood by investors. Some of these companies may be undercapitalized or regarded as developmental stage companies, without revenues or operating income, or the near-term prospect of achieving them. (SEE "Principal Risk Factors --- Market Capitalization Risk.")
Convertible securities also carry unique risks. The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). Therefore, the investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors may also have an effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security is increasingly influenced by its conversion value. A convertible security generally sells at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed-income or preferred security, as applicable.
A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security's governing instrument. If a convertible security held by the Fund is called for redemption, the Fund will be required to permit the issuer to
redeem the security, convert it into the underlying common stock or sell it to a third party. Any of these actions could have an adverse effect on the Fund's ability to achieve its investment objective.
With respect to stock options, the sale of a covered call option exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security (owned by the Fund) or to possible continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. The sale of a covered put option exposes the Fund during the term of the option to a decline in price of the underlying security while depriving the Fund of the opportunity to invest the cash or liquid securities that are required to be placed in a segregated account in order to engage in a covered put option. In addition, when options are purchased over-the-counter, the Fund bears the risk that the counterparty that wrote the option will be unable or unwilling to perform its obligations under the option contract. (SEE "Principal Risk Factors --- Counterparty Credit Risk.") These options may also be illiquid and, in such cases, the Fund may have difficulty closing out its position. Over-the-counter options purchased and sold by the Fund may also include options on baskets of specific securities.
Finally, warrants and rights do not carry with them the right to dividends or voting rights with respect to the securities that they entitle the holder to purchase, and they do not represent any rights in the assets of the issuer. As a result, warrants and rights may be considered more speculative than certain other types of equity-like securities. In addition, the values of warrants and rights do not necessarily change with the value of the underlying securities or commodities and these instruments cease to have value if they are not exercised prior to their expiration dates.
TECHNOLOGY COMPANY SECURITIES
It is expected that, under normal market conditions, the Fund will maintain a significant exposure to the equity securities of companies which derive a major portion of their revenue directly or indirectly from business lines which benefit, or are expected to benefit from, technological events, advances or products ("Technology Companies"). Investing in securities of Technology Companies involves additional risks. These risks include: the fact that certain companies in the Fund's portfolio may have limited operating histories; rapidly changing technologies and products which may quickly become obsolete; cyclical patterns in information technology spending which may result in inventory write-offs, cancellation of orders and operating losses; scarcity of management, engineering and marketing personnel with appropriate technological training; the possibility of lawsuits related to technological patents; changing investors' sentiments and preferences with regard to investments in Technology Companies (which are generally perceived as risky) with their resultant effect on the price of underlying securities; and volatility in the U.S. and foreign stock markets which may disproportionately affect the prices of securities of Technology Companies and thus cause the Fund's performance to experience substantial volatility. The Fund is thus subject to these and other risks associated with Technology Companies to a much greater extent than a fund that does not emphasize these investments.
It should be noted that the Adviser's definition of "Technology Companies" (as indicated above) covers companies in a broader range of industries and sectors than those that are more commonly considered technology companies. As a result, the Fund's portfolio and performance may not resemble those of funds that are concentrated in more traditional technology companies.
GROWTH COMPANY SECURITIES
The Fund may invest a substantial portion of its assets in "growth companies." Investing in growth companies involves substantial risks. Securities of growth companies may perform differently from the stock market as a whole and may be more volatile than other types of stocks. Since growth companies usually invest a significant portion of earnings in their businesses, they may lack the dividends of value stocks that can cushion the impact of declining stock prices in a falling market. Also, earnings disappointments often lead to sharply falling prices for growth company stocks because investors buy growth company stocks in anticipation of superior earnings growth. Securities of growth companies may also be more expensive relative to their earnings or assets compared to value or other types of stocks.
RISK OF NET-LONG BIAS
The Fund's portfolio may operate with a "net-long bias," I.E., the dollar value of long positions in the portfolio exceed the dollar value of short positions. As a result, in a declining equity market environment, operating with a net-long bias could subject the Fund's portfolio to more downside volatility than would be the case if the Fund's portfolio had greater short exposure.
RISK OF SHORT SALES
The Fund may seek maximum capital appreciation by effecting short sales of securities when the Adviser believes that the market price of a security is above its estimated intrinsic or fundamental value. For example, the Fund may "short" a security of a company if the Adviser believes the security is over-valued in relation to the issuer's prospects for earnings growth. In addition, the Fund may attempt to limit exposure to a possible market decline in the value of its portfolio securities through short sales of securities that the Adviser believes possess volatility characteristics similar to those being hedged. At times, the Fund may be exposed significantly to short positions and, as a result, the dollar value of short positions in the portfolio could exceed the dollar value of long positions.
To effect a short sale, the Fund will borrow a security from a brokerage firm to make delivery to the buyer. The Fund is then obligated to replace the borrowed security by purchasing it at the market price at the time of replacement. Thus, short sales expose the Fund to the risk that it will be required to buy the security sold short (also known as "covering" the short position) at a time when the security has appreciated in value, thus resulting in a loss to the Fund. Positions in stocks sold short are more risky than long positions (purchases) in stocks because the maximum loss on a stock purchased is limited to the amount paid for the stock plus the transactions costs, where in the case of a short sale, there is no limit on the loss that may be incurred. Moreover, the amount of any gain achieved through a short sale will be decreased, and
the amount of any loss increased, by the amount of any premium or interest the Fund may be required to pay in connection with a short sale. There is a risk that the borrowed securities would need to be returned to the brokerage firm on short notice. If a request for return of securities occurs at a time when other short sellers of the subject security are receiving similar requests, a "short squeeze" can occur, and the Fund might be compelled, at the most disadvantageous time, to replace borrowed securities previously sold short with purchases on the open market, possibly at prices significantly in excess of the price at which the securities were sold short. The successful use of short selling may be adversely affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged. Short selling may exaggerate the volatility of the Fund's investment portfolio. Short selling may also produce higher than normal portfolio turnover and may result in increased transaction costs to the Fund. In addition, the Fund, as a result of certain short sale transactions, may recognize short term capital gain, which will be passed through to investors as ordinary income. (SEE "Certain Tax Matters --- Taxation of Short Sales.")
The Fund may also make short sales against-the-box, in which it sells short securities it owns or has the right to obtain without payment of additional consideration. If the Fund makes a short sale against-the-box, it will be required to set aside securities equivalent in-kind and amount to the securities sold short (or securities convertible or exchangeable into those securities) and will be required to hold those securities while the short sale is outstanding. The Fund will incur transaction costs, including interest expenses, in connection with opening, maintaining and closing short sales against-the-box.
When effecting short sales of securities, the Fund will receive a dollar amount (the "net short proceeds") equal to the value of the securities sold short and will deposit and retain such net short proceeds with the brokerage firm through which it effected the short sale transactions (the "Prime Broker"). The Fund expects that, initially, its Prime Broker will be Morgan Stanley & Co. Incorporated. Because the Fund expects to effect short sales as part of its principal investment strategy, the Fund expects that the short proceeds deposited with the Prime Broker could represent a material portion of the Fund's total assets. This may expose the Fund to significant risks or difficulty in obtaining access to its assets in the event of the default or bankruptcy of its Prime Broker. It is expected that the Adviser will monitor on an ongoing basis the creditworthiness of the Prime Broker.
COUNTERPARTY CREDIT RISK
The Fund will be subject to counterparty credit risk with respect to its use of total return swap contracts. If a counterparty to a swap contract becomes bankrupt or otherwise fails to perform its obligations due to financial difficulties, the Fund may experience significant delays in obtaining any recovery in a bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. To partially mitigate this risk, the Adviser will seek to effect swap transactions only with counterparties that it believes are creditworthy. The Adviser will consider the creditworthiness of counterparties in the same manner as it would review the credit quality of a security to be purchased by the Fund. However, there is no assurance that a counterparty will remain creditworthy or solvent.
LEVERAGE & BORROWINGS RISK
The Adviser expects that the Fund's investment program will make frequent use of leverage by borrowing money to purchase securities. (Although the Fund may issue preferred shares, it has no intention of doing so within the next 12 months.) The practice of leveraging by borrowing money is speculative and involves certain risks. Because short sales involve borrowing securities and then selling them, the Fund's short sales have the additional effect of leveraging the Fund's assets.
Purchasing equity securities on margin involves an initial cash requirement representing at least 50% of the underlying security's value with respect to transactions in U.S. markets and varying (typically lower) percentages with respect to transactions in foreign markets. Borrowings to purchase equity securities typically will be secured by the pledge of those securities. The financing of securities purchases may also be effected through reverse repurchase agreements with banks, brokers and other financial institutions. This involves the transfer by the Fund of the underlying security to a counterparty in exchange for cash proceeds based on a percentage (which can be as high as 95% to 100%) of the value of the debt instrument and, as described below, constitutes indebtedness subject to limitations of the Investment Company Act of 1940 (the "1940 Act"). Borrowings by the Fund (which do not include short and derivative transactions) will not exceed 33 1/3 percent of the Fund's total assets.
Although leverage can increase investment returns if the Fund earns a greater return on the investments purchased with borrowed funds than it pays for the use of those funds, the use of leverage will decrease investment returns if the Fund fails to earn as much on investments purchased with borrowed funds as it pays for the use of those funds. The use of leverage will therefore magnify the impact of changes in the value of investments held by the Fund on the Fund's net asset value and thus can increase the volatility of the Fund's net asset value per share. In the event that the Fund's portfolio investments decline in value, the Fund could be subject to a "margin call" and will be required to deposit additional collateral with the lender or suffer mandatory liquidation of securities pledged as collateral for its borrowings. In the event of a sudden, precipitous drop in value of the Fund's assets, the Fund might not be able to liquidate assets quickly enough to pay off its borrowing. Leverage also creates interest expense that may lower the Fund's overall returns. Money borrowed for leveraging will be subject to interest costs that may or may not be recovered by return on the securities purchased. The Fund also may be required to maintain minimum average balances in connection with its borrowings or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate.
The 1940 Act requires the Fund to satisfy an asset coverage requirement of 300% of its indebtedness, including amounts borrowed, measured at the time the Fund incurs the indebtedness (the "Asset Coverage Requirement"). This means that the value of the Fund's total indebtedness may not exceed one-third the value of its total assets (including such indebtedness), measured at the time the Fund incurs the indebtedness. The staff of the Securities and Exchange Commission's Division of Investment Management (the "SEC Staff") takes the position that short sales of securities, reverse repurchase agreements, use of margin, sales of put and call options on specific securities or indices, investments in certain other types of instruments (including certain derivatives such as swap agreements), and the purchase and sale of securities
on a when-issued or forward commitment basis, may be deemed to constitute indebtedness subject to the Asset Coverage Requirement.
The SEC Staff has stated, however, that it will not deem a portfolio position involving these instruments to be subject to the Asset Coverage Requirement if an investment company "covers" its position by segregating liquid securities on its books or in an account with its custodian in amounts sufficient to offset the liability associated with the position. Generally, in conjunction with portfolio positions that are deemed to constitute senior securities, the Fund must: (1) observe the Asset Coverage Requirement; (2) maintain daily a segregated account in cash or liquid securities at such a level that the amount segregated plus any amounts pledged to a broker as collateral will equal the current value of the position; or (3) otherwise cover the portfolio position with offsetting portfolio securities. Segregation of assets or covering portfolio positions with offsetting portfolio securities may limit the Fund's ability to otherwise invest those assets or dispose of those securities.
In order to obtain "leveraged" market exposure in certain investments and to increase the overall return to the Fund of various investments, the Fund may purchase options and other synthetic instruments that do not constitute "indebtedness" for purposes of the Asset Coverage Requirement. These instruments may nevertheless involve significant economic leverage and therefore may, in some cases, involve significant risks of loss. SEE "Special Investment Instruments and Techniques" in the Fund's statement of additional information ("SAI").
There is no guarantee that a leveraging strategy will be successful.
MARKET CAPITALIZATION RISK
The Adviser will invest the Fund's assets in equity securities without regard to the issuer's market capitalization. Accordingly, the Fund may invest significantly in the stocks of companies having smaller market capitalizations, including mid-cap and small-cap stocks. The stocks of these companies often have less liquidity than the stocks of larger companies and these companies frequently have less management depth, narrower market penetrations, less diverse product lines, and fewer resources than larger companies. Due to these and other factors, stocks of smaller companies may be more susceptible to market downturns and other events, and their prices may be more volatile than the stocks of larger companies.
FOREIGN INVESTMENT RISK
The Fund may invest without limitation in securities of foreign issuers and in depositary receipts, such as American Depositary Receipts ("ADRs"), that represent indirect interests in securities of foreign issuers. Securities of foreign issuers in which the Fund may invest may be listed on foreign securities exchanges or traded in foreign over-the-counter markets. The Adviser defines "foreign issuers" as companies that derive a majority of their revenue or profits from foreign businesses, investments or sales, or that have a substantial portion of their operations or assets abroad. Since there are companies that may be legally organized or have principal offices located in the U.S. that derive a majority of their revenue or profits from foreign businesses, investments or sales, or that have a substantial portion of their
operations or assets abroad, such companies are also considered to be "foreign issuers" for these purposes.
Risk factors affecting foreign investments include, but are not limited to, the following: varying custody, brokerage and settlement practices; difficulty in pricing; less public information about issuers of foreign securities; less governmental regulation and supervision over the issuance and trading of securities than in the U.S.; the unavailability of financial information regarding the foreign issuer or the difficulty of interpreting financial information prepared under foreign accounting standards; less liquidity and more volatility in foreign securities markets; the possibility of expropriation or nationalization; the imposition of withholding and other taxes; adverse political, social or diplomatic developments; limitations on the movement of funds or other assets of the Fund between different countries; difficulties in invoking legal process abroad and enforcing contractual obligations; and the difficulty of assessing economic trends in foreign countries. Moreover, governmental issuers of foreign securities may be unwilling to repay principal and interest due, and may require that the conditions for payment be renegotiated. Investment in foreign countries also involves higher brokerage and custodian expenses than does investment in U.S. securities.
Other risks of investing in foreign securities include changes in currency exchange rates (in the case of securities that are not denominated in U.S. dollars) and currency exchange control regulations or other foreign or U.S. laws or restrictions, or devaluations of foreign currencies. A decline in the exchange rate would reduce the value of certain of the Fund's foreign currency denominated portfolio securities irrespective of the performance of the underlying investment. In addition, the Fund may incur costs in connection with conversion between various currencies. The Fund may also invest in companies located in, or doing business in, emerging or less developed countries. These investments are typically subject to the foregoing risks to a much greater degree than investments in developed countries and thus, investments in less developed countries could potentially increase volatility of the Fund's net asset value. There is no limit on the amount of the Fund's assets that may be invested in companies located or doing business in emerging market countries.
The Fund may enter into forward currency exchange contracts ("forward contracts") for hedging purposes and non-hedging purposes to pursue its investment objective. Forward contracts are transactions involving the Fund's obligation to purchase or sell a specific currency at a future date at a specified price. Forward contracts may be used by the Fund for hedging purposes to protect against uncertainty in the level of future foreign currency exchange rates, such as when the Fund anticipates purchasing or selling a foreign security. This technique would allow the Fund to "lock in" the U.S. dollar price of the security. Forward contracts may also be used to attempt to protect the value of the Fund's existing holdings of foreign securities. There may be, however, imperfect correlation between the Fund's foreign securities holdings and the forward contracts entered into with respect to those holdings. Forward contracts may also be used for non-hedging purposes to pursue the Fund's investment objective (subject to any policies established by the board of trustees of the Fund (the "Board")), such as when the Adviser anticipates that particular foreign currencies will appreciate or depreciate in value, even though securities denominated in those currencies are not then held in the Fund's investment portfolio. There is no requirement that the Fund hedge all or any portion of its exposure to foreign currency risks.
NON-DIVERSIFIED STATUS
The Fund is a "non-diversified" investment company. Thus, there are no percentage limitations imposed by the 1940 Act on the portion of the Fund's assets that may be invested in the securities of any one issuer. The portfolio of the Fund may therefore be subject to greater risk than the portfolio of a similar fund that diversifies its investments.
ADDITIONAL RISK FACTORS
THE INCENTIVE FEE
The Incentive Fee (as described below) may create an incentive for the Adviser to cause the Fund to make investments that are riskier or more speculative than those that might have been made in the absence of the Incentive Fee. In addition, the Adviser may time investments in order to maximize income under the Incentive Fee. While the Board does not expect to monitor specific investment decisions by the Adviser and the particular timing of individual investment decisions as they relate to the Incentive Fee, the Board, as part of its fiduciary duties and responsibilities under the 1940 Act (relating to future determinations as to whether to renew the investment advisory agreement with the Adviser), expects to consider whether the Incentive Fee is fair and reasonable.
The Incentive Fee is accrued daily as a liability of the Fund and so reduces the net asset value of all shares. The repurchase price received by a shareholder whose shares are repurchased in a repurchase offer will reflect an Incentive Fee accrual if the Fund has experienced positive performance through the date of repurchase. However, the Fund will not accrue an Incentive Fee for any period unless it has fully recovered any cumulative losses from prior fiscal periods. This is sometimes known as a "high water mark." An Incentive Fee accrual may subsequently be reversed if the Fund's performance declines. No adjustment to a repurchase price will be made after it has been determined.
Whenever shares are repurchased in a repurchase offer, or the Fund pays a dividend or a distribution, the amount of any cumulative loss will be reduced in proportion to the reduction in the Fund's assets paid in respect of such repurchase or in respect of such dividend or distribution. For example, if the Fund has a cumulative loss of $5 million, and 5% of the Fund's shares are repurchased in a repurchase offer (meaning that 5% of the Fund's assets are paid out to tendering shareholders), then the amount of the cumulative loss will be reduced by 5% (or $250,000) to $4,750,000. Under this scenario, the Fund will not accrue an Incentive Fee until it recovers the cumulative loss of $4,750,000. However, the amount of any cumulative loss incurred by the Fund will not be increased by any sales of shares (including shares issued as a result of the reinvestment of dividends and distributions). Consequently, as the number of outstanding shares increases, the per-share amount (but not the dollar amount) of a cumulative loss will be reduced. As a result, if a shareholder does not reinvest its distributions, the benefits that such shareholder would receive from a cumulative loss (if any) will be diluted. This means that an investor's investment may bear a higher percentage Incentive Fee than it otherwise would. SEE "Additional Risk Factors --- Repurchase Offers," "Fees and Expenses --- Incentive Fee," and "Repurchase Offers --- Consequences of Repurchase Offers."
The application of the Incentive Fee may not correspond to a particular shareholder's experience in the Fund because aggregate cumulative appreciation is calculated on an overall basis allocated equally to each outstanding share. For example, a shareholder may acquire shares after the Fund's trading has resulted in a cumulative loss. If so, that shareholder's shares will not be subject to having their net asset value reduced by the Incentive Fee until sufficient gains have been achieved to exceed such losses, despite the fact that all gains allocated to such shares from the date of purchase will constitute aggregate cumulative appreciation in respect of such shares. Conversely, the shares which had been outstanding when such losses were incurred may be subject to having their net asset value reduced by the Incentive Fee, even though the net asset value per share is below the net asset value at which such shares were issued. In addition, when shares are issued at a net asset value reduced by the accrued Incentive Fee and such accrued Incentive Fee is subsequently reversed due to trading losses, the reversal will be allocated equally among all outstanding shares (increasing the net asset value per share), including those shares whose purchase price had not itself been reduced by the accrued Incentive Fee being reversed.
Very few investment advisers to registered investment companies receive an incentive fee similar to that to which the Adviser is entitled. However, the Incentive Fee is comparable to performance-based fees charged by private funds. While the Board does not expect to monitor specific investment decisions by the Adviser and the particular timing of individual investment decisions as they relate to the Incentive Fee, the Board, as part of its fiduciary duties and responsibilities under the 1940 Act (relating to future determinations as to whether to renew the investment advisory agreement with the Adviser), expects to consider whether the Incentive Fee is fair and reasonable.
REPURCHASE OFFERS
The Fund will offer to purchase only a portion of its shares each quarter, and there is no guarantee that investors will be able to sell all of their shares that they desire to sell in any particular repurchase offer. If a repurchase offer is oversubscribed by shareholders, the Fund will repurchase only a pro rata portion of shares tendered by each shareholder. The potential for pro-ration may cause some investors to tender more shares for repurchase than they wish to have repurchased. SEE "Repurchase Offers --- Oversubscribed Repurchase Offer."
The Fund's repurchase policy may have the effect of decreasing the size of the Fund over time from what it otherwise would have been. It may, therefore, force the Fund to sell assets it would not otherwise sell. It may also reduce the investment opportunities available to the Fund and cause its expense ratio to increase.
The Incentive Fee is accrued as an expense of the Fund daily and thus reduces the net asset value of all shares. The repurchase price received by an investor whose shares are repurchased in a quarterly repurchase offer will therefore reflect an accrual for the Incentive Fee if the Fund has experienced an increase in net assets due to investment operations from the beginning of the fiscal period through the date of repurchase. However, that Incentive Fee accrual may subsequently be reversed if the Fund's performance declines. No adjustment to a repurchase price will be made after it has been fixed. SEE "Repurchase Offers --- Consequences of Repurchase Offers."
LACK OF OPERATING HISTORY
Each of the Fund and the Adviser is recently formed and has no
operating history upon which investors can evaluate its performance. Moreover,
as the Adviser is recently formed it has not yet managed a registered investment
company. However, the Adviser's managing member, Alkeon Capital Management, LLC
("Alkeon"), as well as the Fund's portfolio manager, Mr. Panayotis ("Takis")
Sparaggis (the "Portfolio Manager"), and other personnel of the Adviser have
substantial experience in managing investment portfolios, including portfolios
primarily composed of equity securities. In addition, Mr. Sparaggis manages
investment funds and accounts that have investment programs that are
substantially similar to the investment program of the Fund. SEE "Performance
Information" and "Management of the Fund."
LIQUIDITY RISKS
The Fund has no plans to list its shares on any securities exchange, and there is no assurance that any secondary market will develop for the Fund's shares. Shares may be held only through SMH Capital Inc. ("SMH") or Mainsail Group, L.L.C. ("Mainsail," and together with SMH, the "Underwriters") or a broker or dealer that has entered into a selling agreement with an Underwriter. Shareholders will be unable to redeem shares on a daily basis because the Fund is a closed-end fund. Although the Fund will offer to repurchase shares on a quarterly basis, a shareholder may not be able to liquidate its investment in the Fund within a timeframe suitable to that shareholder. SEE "Repurchase Offers." In addition, shares are subject to transfer restrictions that permit transfers only to persons who are Qualified Investors (as defined herein) and to accounts with a broker or dealer that has entered into a selling agreement with an Underwriter. Brokers, dealers or an Underwriter may require substantial documentation in connection with a requested transfer of shares, and shareholders should not expect that they will be able to transfer shares at all. Attempted transfers may require a substantial amount of time to effect. Shares of the Fund may not be exchanged for shares of any other fund. An investment in the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of the shares and should be viewed as a long-term investment.
REGULATORY RISK
Changes in government regulations may adversely affect the value of a security. An insufficiently regulated market might also permit inappropriate practices that adversely affect an investment.
MARKET DISRUPTION AND GEOPOLITICAL RISK
The aftermath of the war with Iraq, the continuing occupation of Iraq and continuing terrorist attacks around the world may have a substantial impact on the U.S. and world economies and securities markets. The nature, scope and duration of the occupation cannot be predicted with any certainty. The war and occupation, terrorism and related geopolitical risks have led, and may in the future lead to, increased short-term market volatility and may have adverse long-term effects on U.S. and world economies and markets generally. Those events could also have an acute effect on individual issuers or related groups of issuers.
These risks could also adversely affect individual issuers and securities markets, interest rates, inflation and other factors relating to the Fund's shares.
POTENTIAL CONFLICTS OF INTEREST
The investment activities of the Adviser and its affiliates for their own accounts and for other accounts they manage (collectively, "Other Accounts") may give rise to conflicts of interest that may disadvantage the Fund. The Fund has no interest in these other activities of the Adviser and its affiliates. As a result of the foregoing, the persons that manage the Fund's investments and their associated investment firms and their affiliates: (i) will be engaged in substantial activities other than on behalf of the Adviser and the Fund, (ii) may have differing economic interests in respect of such activities, and (iii) may have conflicts of interest in allocating their time and activity between the Fund and Other Accounts. Such persons will devote only so much of their time to the management of the Fund's investments as in their judgment is necessary and appropriate.
There may be circumstances under which the Adviser or its associated firms will cause one or more of their Other Accounts to commit a different percentage of their respective assets to an investment opportunity than to which the Adviser will commit the Fund's assets. There also may be circumstances under which the Adviser or its associated firms will consider participation by their Other Accounts in investment opportunities in which the Adviser does not intend to invest on behalf of the Fund, or vice versa. In addition, SMH and Mainsail and their respective affiliates may provide brokerage and other services from time to time to one or more accounts or entities managed by the Adviser or its affiliates. The Adviser will not purchase securities or other property from, or sell securities or other property to, the Fund, except that SMH or Mainsail may act as broker for, and impose usual and customary brokerage commissions on, the Fund in effecting securities transactions. SEE "Potential Conflicts of Interest" and "Brokerage."
THE FUND
The Fund is registered under the 1940 Act as a non-diversified, closed-end management investment company. The Fund was organized under a Certificate of Trust on June 26, 2009 in the State of Delaware and has no operating history. The Fund's principal office is located at 350 Madison Avenue, 9th Floor, New York, New York 10017, and its telephone number is (212) 389-8713. The Adviser, SilverBay Capital Management LLC, a newly formed Delaware limited liability company that is registered as an investment adviser with the Securities and Exchange Commission (the "SEC") under the Investment Advisers Act of 1940 (the "Advisers Act"), will serve as the investment adviser of the Fund. The Adviser is controlled by its managing member, Alkeon, which is registered with the SEC as an investment adviser. SMH has a non-controlling equity interest in the Adviser, pursuant to which it participates in a portion of the revenue generated by the Adviser. Mr. Sparaggis, the controlling person and Chief Investment Officer of Alkeon, serves as the Fund's Portfolio Manager. Responsibility for the overall management and supervision of the operations of the Fund is vested in the individuals who serve on the Board. SEE "Management of the Fund --- The Board of Trustees" herein and "Management of the Fund" in the SAI.
USE OF PROCEEDS
The proceeds of the initial offering and any continuous offering, excluding the amount of any sales load paid by shareholders (if applicable) and net of the Fund's ongoing fees and expenses, will be invested in accordance with the Fund's program as soon as practicable after the closing date of the initial offering period or, in the case of a continuous offering, as soon as practicable after each monthly closing of such offering or at such other times as may be determined by the Board.
Pending the investment of the proceeds of any offering in securities and other investments consistent with the Fund's investment program, the Fund may, during periods of adverse market conditions in the equity securities markets, deviate from its investment objective and invest all or a portion of its assets in high quality debt securities, money market instruments, or hold its assets in cash. The Fund may be prevented from achieving its objective during any time in which the Fund's assets are not substantially invested in accordance with its principal investment strategies.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve maximum capital appreciation. No assurance can be given that the Fund will achieve its investment objective or that shareholders will not lose money.
The Fund's investment objective is fundamental and may not be changed without the approval of shareholders. However, except as otherwise stated in this prospectus (the "Prospectus") or in the SAI, the investment policies and restrictions of the Fund are not fundamental and may be changed by the Board without a vote of shareholders. The Fund's fundamental investment policies and restrictions are listed in the SAI. Its principal investment strategies are discussed below. The Fund may change any investment policy or strategy that is not fundamental, if the Board believes doing so would be consistent with the Fund's investment objective.
PRINCIPAL INVESTMENT STRATEGIES & METHODOLOGY
The Fund pursues its investment objective by investing its assets primarily in equity securities of U.S. and foreign companies that the Adviser believes are well positioned to benefit from demand for their products or services, including companies that can innovate or grow rapidly relative to their peers in their markets. "Growth companies" are generally considered to possess these characteristics. For purposes of the Fund's investment program, "equity securities" means common and preferred stocks (including IPO securities), convertible securities, stock options (call and put options), warrants and rights. The Adviser will invest the Fund's assets in equity securities without regard to the issuer's market capitalization.
COMMON STOCKS. Common stocks are shares of a corporation or other entity that entitle the holder to a pro rata share of the profits, if any, of the entity without preference over any other shareholder or claim of shareholders, after making required payments to holders of the
entity's preferred stock and other senior equity. Common stock usually carries with it the right to vote and frequently an exclusive right to do so.
PREFERRED STOCKS. Preferred stock generally has a preference over an issuer's common stock as to dividends and in the event of liquidation, but it ranks junior to debt securities in an issuer's capital structure. Preferred stock generally pays dividends in cash (or additional shares of preferred stock) at a defined rate, but unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer's board of directors. Dividends on preferred stock may be cumulative, meaning that, in the event the issuer fails to make one or more dividend payments on the preferred stock, no dividends may be paid on the issuer's common stock until all unpaid preferred stock dividends have been paid. Preferred stock may also be subject to optional or mandatory redemption provisions.
IPO SECURITIES. The Fund may purchase securities of companies in initial public offerings (I.E., "IPO securities") or shortly thereafter. Special risks associated with these securities may include a limited number of shares available for trading, unseasoned trading, lack of investor knowledge of the issuer, and limited operating history. (SEE "Principal Risk Factors --- Market Capitalization Risk.")
CONVERTIBLE SECURITIES. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted into or exchanged for a specified amount of common stock of the same or different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest that is generally paid or accrued on debt or a dividend that is paid or accrued on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Convertible securities have unique investment characteristics, in that they generally: (1) have higher yields than common stocks, but lower yields than comparable non-convertible securities, (2) are less subject to fluctuation in value than the underlying common stock due to their fixed-income characteristics, and (3) provide the potential for capital appreciation if the market price of the underlying common stock increases.
CALL AND PUT OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase call and put options in respect of specific securities, and may write and sell covered or uncovered call and put options for hedging purposes and non-hedging purposes to pursue its investment objective. A put option gives the purchaser of the option the right to sell, and obligates the writer to buy, the underlying security at a stated exercise price at any time prior to the expiration of the option. Similarly, a call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the underlying security at a stated exercise price at any time prior to the expiration of the option. A covered call option written by the Fund is a call option with respect to which the Fund owns the underlying security. A covered put option written by the Fund is a put option with respect to which cash or liquid securities have been placed in a segregated account on the Fund's books or with the Fund's custodian to fulfill the obligation undertaken.
The Fund may close out a position when writing options by purchasing an option on the same security with the same exercise price and expiration date as the option that it has previously written on the security. The Fund will realize a profit or loss if the amount paid to purchase an option is less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Fund would ordinarily make a similar "closing sale transaction," which involves liquidating the Fund's position by selling the option previously purchased, although the Fund would be entitled to exercise the option should it deem it advantageous to do so. The Fund may also invest in so-called "synthetic" options or other derivative instruments written by broker-dealers. (SEE "Principal Risk Factors --- Derivatives Risk.")
Options transactions may be effected on securities exchanges or in the over-the-counter market. Over-the-counter options purchased and sold by the Fund may also include options on baskets of specific securities.
WARRANTS AND RIGHTS. Warrants are derivative instruments that permit, but do not obligate, the holder to subscribe for other securities or commodities. Rights are similar to warrants, but normally have a shorter duration and are offered or distributed to shareholders of a company.
TOTAL RETURN SWAPS. The Adviser may use total return swaps to pursue the Fund's investment objective of maximum capital appreciation. The Adviser may also use these swaps for hedging purposes. A swap is a contract under which two parties agree to make periodic payments to each other based on specified interest rates, an index or the value of some other instrument, applied to a stated, or "notional," amount. Swaps generally can be classified as interest rate swaps, currency swaps, commodity swaps, total return swaps or equity swaps, depending on the type of index or instrument used to calculate the payments. Such swaps would increase or decrease the Fund's investment exposure to the particular interest rate, currency, commodity or equity involved. Total return swaps are where one party exchanges a cash flow indexed (on a long or short basis) to a non-money market asset (E.G., an equity security). (The use of swaps other than total return swaps is not expected to be a principal investment strategy of the Fund.) Short Sales. The Fund may also seek maximum capital appreciation by effecting short sales of securities when the Adviser believes that the market price of a security is above its estimated intrinsic or fundamental value. The Fund may also effect short sales for hedging purposes.
LEVERAGE. In addition, depending upon market conditions and the availability of suitable investment opportunities, the Fund may utilize leverage as part of its investment program by borrowing money to purchase securities. The use of short sales and leverage are considered speculative investment practices and involve certain risks. SEE "Principal Risk Factors --- Risk of Short Sales" and "--- Leverage & Borrowings Risk."
Historically, Alkeon, the managing member of the Adviser, has found significant opportunities for maximum capital appreciation in the equity securities of Technology Companies. Conversely, Alkeon has also found opportunities for maximum capital appreciation in the equity securities of companies that are, or may be expected to be, disadvantaged by technological events, advances or products. As a result, these companies, together with
Technology Companies, are expected to comprise a significant portion of the Fund's portfolio. The Fund's investment program may also include investments in the equity securities of companies in a variety of other industries and sectors.
In making investment decisions for the Fund, the Adviser uses fundamental investment analysis and in-depth research to identify attractive investment opportunities. The Adviser's investment process involves a research driven, bottom-up analysis of a security's potential for appreciation or depreciation, and includes consideration of the financial condition, earnings outlook, and strategy, management and industry position of issuers. This analytical process involves the use of valuation models, review and analysis of published research and, in some cases, discussions with industry experts and company visits. The Adviser also takes into account economic and market conditions.
The Fund reserves the right to alter or modify some or all of the Fund's investment strategies in order to take advantage of changing market conditions, when the Adviser, in its sole discretion, concludes that such alterations or modifications will enable the Fund to meet its investment objective.
The Fund's investment program emphasizes active management of the Fund's portfolio. Consequently, the Fund's portfolio turnover and brokerage commission expenses may significantly exceed those of other registered investment companies. Additionally, a high portfolio turnover rate (one that exceeds 100% in our view) may result in the realization of capital gains, including short-terms gains which will be taxable to shareholders as ordinary income. (SEE "Principal Risk Factors --- Active Management Risk.") Additional information about the types of investments that may be made by the Fund is provided in the SAI.
NON-PRINCIPAL FUND INVESTMENT PRACTICES AND THEIR RISKS
Although the Fund's principal investment strategy is to invest primarily in equity securities of U.S. and foreign companies, the Fund may invest its assets in other types of securities and in other asset classes when, in the judgment of the Adviser (subject to any policies established by the Board), such investments present opportunities for the Fund to achieve maximum capital appreciation, taking into account the availability of equity investment opportunities, market conditions, the relative risk/reward analysis of other investments compared to equity securities, and such other considerations as the Adviser deems appropriate. Information regarding these additional investments and the risks associated with them, is discussed below and in the SAI.
BONDS AND OTHER FIXED-INCOME SECURITIES
The Fund may invest without limit in high quality fixed-income securities for temporary defensive purposes and to maintain liquidity. (SEE "Temporary Investments; U.S. Government Securities Risk" below for more information.) For these purposes, "fixed-income securities" are bonds, notes and debentures issued by corporations; debt securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities ("U.S. Government Securities") or by a foreign government; municipal securities; and mortgage-backed
and asset-backed securities. These securities may pay fixed, variable or floating rates of interest, and may include zero coupon obligations. Fixed-income securities are subject to the risk of the issuer's inability to meet principal and interest payments on its obligations (I.E., credit risk) and are subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (I.E., market risk).
The Fund may also invest in both investment grade and non-investment grade debt securities. Investment grade debt securities are securities that have received a rating from at least one nationally recognized statistical rating organization ("NRSRO") in one of the four highest rating categories or, if not rated by any NRSRO, have been determined by the Adviser to be of comparable quality. Non-investment grade debt securities (typically called "junk bonds") are securities that have received a rating from an NRSRO of below investment grade or have been given no rating, and are considered by the NRSRO to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Non-investment grade debt securities in the lowest rating categories may involve a substantial risk of default or may be in default. Adverse changes in economic conditions or developments regarding the individual issuer are more likely to cause price volatility and weaken the capacity of the issuers of non-investment grade debt securities to make principal and interest payments than is the case for higher grade debt securities. An economic downturn affecting an issuer of non-investment grade debt securities may result in an increased incidence of default. In addition, the market for lower grade debt securities may be thinner and less active than for higher grade debt securities. The Fund does not expect to invest more than 15% of its net assets in non-convertible debt securities. The Fund's investments in non-investment grade debt securities, if any, are not expected to exceed 5% of its net assets.
EXCHANGE TRADED FUNDS AND OTHER SIMILAR INSTRUMENTS
The Fund may purchase retail shares of exchange-traded funds that are registered under the 1940 Act ("ETFs") and retail shares of similar investment vehicles that are not registered under the 1940 Act (together with the ETFs, "Traded Funds") and effect short sales of these shares. Transactions in Traded Funds may be used in seeking maximum capital appreciation or for hedging purposes. Typically, a Traded Fund holds a portfolio of common stocks designed to track the performance of a particular index or a "basket" of stocks of companies within a particular industry sector or group. Traded Funds sell and redeem their shares at net asset value in large blocks (typically 50,000 shares) called "creation units." Shares representing fractional interests in these creation units are listed for trading on national securities exchange and can be purchased and sold in the secondary market in lots of any size at any time during the trading day (I.E., retail shares). The Adviser does not anticipate purchasing creation units.
Investments in Traded Funds involve certain inherent risks generally associated with investments in a broadly-based portfolio of stocks including risks that the general level of stock prices may decline, thereby adversely affecting the value of each unit of the Traded Funds. In addition, a Traded Fund may not fully replicate the performance of its benchmark index because of the temporary unavailability of certain index securities in the secondary market or discrepancies between the Traded Fund and the index with respect to the weighting of securities or number of stocks held.
Because Traded Funds bear various fees and expenses, the Fund's investment in these instruments will involve certain indirect costs, as well as transaction costs, such as brokerage commissions. The Adviser considers the expenses associated with an investment in determining whether to invest in a Traded Fund.
TEMPORARY INVESTMENTS; U.S. GOVERNMENT SECURITIES RISK
During periods of adverse market conditions in the equity securities markets, the Fund may deviate from its investment objective and invest all or a portion of its assets in high quality debt securities, money market instruments, or hold its assets in cash. Securities will be deemed to be of high quality if they are rated in the top four categories by an NRSRO or, if unrated, are determined to be of comparable quality by the Adviser. Money market instruments are high quality, short-term debt obligations (which generally have remaining maturities of one year or less), and may include: U.S. Government Securities; commercial paper; certificates of deposit and banker's acceptances issued by domestic branches of United States banks that are members of the Federal Deposit Insurance Corporation ("FDIC"); and repurchase agreements for U.S. Government Securities. In lieu of purchasing money market instruments, the Fund may purchase shares of money market mutual funds that invest primarily in U.S. Government Securities and repurchase agreements involving those securities, subject to certain limitations imposed by the 1940 Act.
The Fund may also invest in money market instruments or purchase shares of money market mutual funds pending investment of its assets in equity securities or non-money market debt securities, or to maintain such liquidity as may be necessary to effect repurchases of shares from shareholders or for other purposes.
It is possible that the U.S. Government would not provide financial support to its agencies or instrumentalities if it were not required to do so by law. If a U.S. Government agency or instrumentality in with the Fund invests defaults and the U.S. Government does not stand behind the obligation, the Fund's share price or yield could fall. The U.S. Government's guarantee of ultimate payment of principal and timely payment of interest of the U.S. Government Securities owned by the Fund does not imply that the Fund's shares are guaranteed by the FDIC or any other government agency, or that the price of the Fund's shares will not continue to fluctuate.
PERFORMANCE INFORMATION
Each of the Fund and the Adviser is newly formed and has no operating history. However, Mr. Sparaggis, the Fund's Portfolio Manager, manages other accounts in accordance with an investment strategy that is substantially similar to that of the Fund. Appendix B contains investment performance information for such an account, from its inception. (This account represents the longest track record available among all similarly managed accounts by Mr. Sparaggis.) The performance information does not represent the investment performance of the Fund and should not be viewed as indicative of the future investment performance of the Fund. Prospective investors should carefully read the notes accompanying the investment performance charts in Appendix B. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE PERFORMANCE. Performance of the Fund will vary based on many factors, including market conditions, the
composition of the Fund's portfolio and the Fund's expenses. The performance data used in Appendix B was provided by Alkeon.
MANAGEMENT OF THE FUND
THE BOARD OF TRUSTEES
The Board has overall responsibility for the management and supervision of the operations of the Fund. The Board has delegated responsibility for management of the Fund's day-to-day operations to the Adviser. (SEE "Management of the Fund --- The Adviser.") The Board exercises the same powers, authority and responsibilities on behalf of the Fund as are customarily exercised by the board of directors of a registered investment company organized as a corporation.
The persons comprising the Board (the "Trustees") are not required to invest in the Fund or to own shares. A majority of the Trustees are persons who are not "interested persons" (as defined in the 1940 Act) of the Fund (the "Independent Trustees"). The Independent Trustees perform the same functions for the Fund as are customarily exercised by the non-interested directors of a registered investment company organized as a corporation.
The identity of the Trustees and officers of the Fund and brief biographical information regarding each Trustee and officer during the past five years is set forth in the SAI.
THE ADVISER
The Adviser will serve as the Fund's investment adviser, subject to the ultimate supervision of and subject to any policies or procedures established by the Board, pursuant to the terms of an investment advisory agreement entered into between the Fund and the Adviser effective as of December 8, 2009 (the "Advisory Agreement"). The Adviser is responsible for: (i) developing and implementing the Fund's investment program, (ii) managing the Fund's investment portfolio and making all decisions regarding the purchase and sale of investments for the Fund, and (iii) providing various management and administrative services to the Fund. The Adviser will monitor the Fund's compliance with all applicable investment limitations, including those imposed by the 1940 Act. (Additional information regarding the Advisory Agreement is provided in the SAI under "Investment Advisory and Other Services.")
The Adviser, a newly formed Delaware limited liability company, is registered as an investment adviser under the Advisers Act. Affiliates of the Adviser will serve as investment advisers, sub-advisers or general partners to other registered and private investment companies. The offices of the Adviser are located at 350 Madison Avenue, 9th Floor, and its telephone number is (212) 389-8713. The Adviser is controlled by its managing member, Alkeon. Alkeon is a Delaware limited liability company that commenced operations on January 1, 2002 and is registered as an investment adviser under the Advisers Act. The offices of Alkeon are located at 350 Madison Avenue, 9th Floor, New York, New York 10017, and its telephone number is (212) 389-8710. As of December 1, 2009, Alkeon managed approximately $1.64 Billion of client assets in its global growth equity strategies, including various registered investment companies and private investment funds.
PORTFOLIO MANAGEMENT
Mr. Sparaggis, the controlling person and Chief Investment Officer of Alkeon, serves as the Fund's Portfolio Manager. Mr. Sparaggis also serves as the portfolio manager of several other investment funds that have investment programs substantially similar to that of the Fund. Mr. Sparaggis is also the controlling person of Mainsail, an affiliate of Alkeon, a broker-dealer registered under the Exchange Act and a co-underwriter of the Fund's shares.
From May 1995 until he established Alkeon in January 2002, Mr. Sparaggis was associated with CIBC World Markets Corp. ("CIBC WM") and its predecessor, Oppenheimer & Co., Inc., where he was a Managing Director. From January 1996 to December 2001, Mr. Sparaggis also was a Senior Portfolio Manager for Oppenheimer Investment Advisers ("OIA"), an investment management program offered by CIBC WM, and was then responsible for OIA's MidCap Managed Account Portfolios. From 1993 until joining Oppenheimer & Co., Inc. in 1995, Mr. Sparaggis was with Credit Suisse First Boston Investment Management and was responsible for security analysis and portfolio management for domestic investments, including proprietary trading on long-short equities and convertible arbitrage.
Mr. Sparaggis received a Ph.D. in Electrical and Computer Engineering and a Masters in Business Administration simultaneously from the University of Massachusetts in 1993. He received an IBM Fellowship in physical sciences in 1992 and 1993. He received a Masters in Electrical and Computer Engineering from the University of Massachusetts in 1990 and a Bachelor of Science degree in Electrical Engineering and Computer Science from the National Technical University of Athens in 1988.
The SAI provides additional information about the Portfolio Manager's compensation, other accounts managed by the Portfolio Manager and the Portfolio Manager's ownership of shares in the Fund.
ADMINISTRATION, ACCOUNTING, AND OTHER SERVICES
PNC Global Investment Servicing (U.S.) Inc. ("PNC") serves as the Fund's administrator and provides various administration, fund accounting, investor accounting and taxation services to the Fund (which are in addition to the services provided by the Adviser, as described above). (PNC will also provide transfer agency services to the Fund.) In consideration of the administration and accounting services, the Fund will pay PNC a monthly asset-based fee which is not anticipated to exceed .08% of the Fund's average net assets and a minimum monthly fee of $4,000/month for the first three months of the Fund's operations, increasing thereafter until such fee is $8,000/month. The Fund will also reimburse PNC for certain out-of-pocket expenses. The principal business address of PNC is 301 Bellevue Parkway, Wilmington, Delaware 19809.
CUSTODIAN
PFPC Trust Company ("PFPC") serves as the primary custodian of the Fund's assets, and may maintain custody of the Fund's assets with domestic and foreign sub-custodians (which may be banks, trust companies, securities depositories and clearing agencies), approved by the Board in accordance with the requirements set forth in Section 17(f) of the 1940 Act and the rules adopted thereunder. Assets of the Fund are not held by the Adviser or commingled
with the assets of other accounts other than to the extent that securities are held in the name of a custodian in a securities depository, clearing agency or omnibus customer account of a custodian. PFPC's principal business address is 8800 Tinicum Boulevard, 4th Floor, Philadelphia, Pennsylvania 19153.
PRIME BROKER
The Fund expects that, initially, Morgan Stanley & Co. Incorporated ("Morgan Stanley") will serve as the Fund's Prime Broker. The Fund, Morgan Stanley and PFPC are parties to an agreement in which Morgan Stanley will retain custody, on behalf of the Fund, of the proceeds from securities sold short. The Fund may also borrow money "on margin" from Morgan Stanley.
FEES AND EXPENSES
MANAGEMENT FEE
In consideration of management services provided by the Adviser and for services provided by the Adviser or an affiliate for certain administrative services, the Fund pays the Adviser a monthly management fee computed at the annual rate of 2.00% of the Fund's average daily net assets (the "Management Fee"), which is due and payable in arrears within five business days after the end of each month. This fee will be accrued daily as an expense to be paid out of the Fund's assets and will have the effect of reducing the net asset value of the Fund.
INCENTIVE FEE
The Fund also pays the Adviser a performance-based incentive fee (the "Incentive Fee") promptly after the end of each fiscal year of the Fund. The Incentive Fee is determined as of the end of the fiscal year in an amount equal to 20% of the amount by which the Fund's net profits for all Fiscal Periods (as defined below) ending within or coterminous with the close of such fiscal year exceed the balance of the loss carryforward account (as described below), without duplication for any Incentive Fees paid during such fiscal year. The Fund also pays the Adviser the Incentive Fee in the event a Fiscal Period is triggered in connection with a share repurchase offer by the Fund, as described below. For purposes of calculating the Incentive Fee, net profits means the amount by which: (a) the net assets of the Fund as of the end of a Fiscal Period, increased by the dollar amount of shares of the Fund repurchased during the Fiscal Period (excluding shares to be repurchased as of the last day of the Fiscal Period after determination of the Incentive Fee) and by the amount of dividends and other distributions paid to shareholders during the Fiscal Period and not reinvested in additional shares (excluding any dividends and other distributions to be paid as of the last day of the Fiscal Period), exceeds (b) the net assets of the Fund as of the beginning of the Fiscal Period, increased by the dollar amount of shares of the Fund issued during the Fiscal Period (excluding any shares issued in connection with the reinvestment of dividends and other distributions paid by the Fund). Net assets means the total value of all assets of the Fund, less an amount equal to all accrued debts, liabilities and obligations of the Fund, determined in accordance with the valuation and accounting policies and procedures of the Fund. "Fiscal Period" means each twelve-month period ending on the Fund's fiscal year-end, provided that whenever the Fund conducts a share repurchase offer, the period of time from the last Fiscal Period-end through the effective date of the repurchase offer also constitutes a Fiscal Period. Upon termination of the Advisory Agreement, the Fund will pay the Incentive Fee to the Adviser as if the date of effectiveness of such termination is the end of the Fund's fiscal year. Thus, the occurrence of certain events, such as the termination of the Advisory Agreement (which may be
terminated by the Adviser upon 60 days prior written notice to the Fund) or a periodic share repurchase offer, will trigger the determination of a Fiscal Period and the payment to the Adviser of the Incentive Fee, if any.
In the event that an Incentive Fee is payable with respect to a Fiscal
Period that is not the Fund's fiscal year-end due to the Fund's share
repurchases, the Incentive Fee will be determined as if the end of such Fiscal
Period were the end of the Fund's fiscal year, and only that portion of the
Incentive Fee that is proportional to the Fund's assets paid in respect of such
share repurchases (not taking into account any proceeds from any contemporaneous
issuance of shares of the Fund, by reinvestment of dividends and other
distributions or otherwise) will be paid to the Adviser for such Fiscal Period.
For example, if the Fund has a balance in the loss carryforward account of $1
million, and 10% of the Fund's shares are repurchased in a repurchase offer
(meaning that 10% of the Fund's assets are paid out to tendering shareholders)
and the Fund has net profits for such Fiscal Period (which is not the end of the
Fund's fiscal year) of $3 million, then (a) as described below, the positive
balance in the Fund's loss carryforward account will be reduced from $1 million
to zero; and (b) the Adviser will be paid $40,000, based on the following:
$3 million o net profits for the Fiscal Period ($1 million) o amount required to eliminate the balance in the loss
carryforward account
________
$2 million o net profits for the Fiscal Period after the balance of the loss
carryforward account is eliminated
x 20% o amount of Incentive Fee rate
________
$400,000 o amount of accrued Incentive Fee
x 10% o proportion of the Fund's assets paid out to tendering
shareholders
________
$40,000 o amount of incentive fee paid for the Fiscal Period
Since the Fund operates as an interval fund under Rule 23c-3 of the
|
1940 Act and conducts repurchase offers every fiscal quarter, Fiscal Periods could be triggered (and, therefore, a portion of the Incentive Fee, if any, would be payable to the Adviser) up to four times each fiscal year. For purposes of determining the Fund's net asset value, the Incentive Fee is calculated and accrued daily as an expense of the Fund (as if each day is the end of the Fund's fiscal year).
The Adviser will be under no obligation to repay any Incentive Fee or portion thereof previously paid to it by the Fund. Thus, the payment of an Incentive Fee for a Fiscal Period will not be reversed by the subsequent decline in assets of the Fund in any subsequent Fiscal Period.
The Incentive Fee will be payable for a Fiscal Period only if there is no positive balance in the Fund's loss carryforward account. The loss carryforward account is an account that will have an initial balance of zero upon commencement of the Fund's operations and, thereafter, will be credited as of the end of each Fiscal Period with the amount of any net loss of the Fund for that Fiscal Period and will be debited with the amount of any net profits of the Fund for that Fiscal Period, as applicable (provided, however, that the debiting of net profits may only reduce a positive balance in the loss carryforward account and may not reduce the balance of the loss carryforward account below zero). This is sometimes known as a "high water mark." The balance of the loss carryforward account, if any, will be subject to a proportionate reduction as of the day following: (i) the payment by the Fund of any dividend or other distribution to shareholders (unless the full amount thereof is reinvested in shares of the Fund); and (ii) any repurchase by the Fund of its shares.
The Incentive Fee presents certain risks that are not present in investment funds without incentive fees. In addition, although the aggregate fees payable by the Fund to the Adviser are similar to those of private investment funds, they are significantly higher than those paid by most registered investment companies. (SEE "Additional Risk Factors --- The Incentive Fee" above.)
SHAREHOLDER SERVICING FEES
Under the terms of each distribution agreement with the Fund, the Fund pays ongoing shareholder servicing fees to the Underwriters to compensate them for providing, or arranging for the provision of, ongoing investor services and account maintenance services to investors in the Fund. Each Underwriter may retain all or a portion of these payments. These fees are accrued daily and paid monthly in an amount not to exceed, in the aggregate, 0.25% (on an annualized basis) of the net asset value of the Fund (the "Shareholder Servicing Fees"). Shareholder Servicing Fees will be accrued daily as an expense of the Fund.
Pursuant to the terms of each Underwriter's distribution agreement
with the Fund, each Underwriter may retain unaffiliated brokers or dealers to:
(i) act as selling agents ("Selling Agents") to assist in the distribution of
shares; and (ii) to provide ongoing investor services and account maintenance
services to their customers that are investors in the Fund. Selling Agents will
be compensated for their services in determining whether an investment in the
Fund is a suitable investment for their customers (in accordance with the rules
of the Financial Industry Regulatory Authority, Inc. ("FINRA")) and whether
investors are Qualified Investors (as described herein), for providing customary
shareholder services, including responding to shareholder questions about the
Fund and the transferability of shares, assisting in selecting dividend payment
options and assisting the Fund in administering repurchases. Selling Agents will
be required to implement procedures designed to enable them to form a reasonable
belief that any transferees of the shares that are their clients are Qualified
Investors and that each Selling Agent will agree to cooperate in the event of a
regulatory audit to determine the Qualified Investor status of the shareholders
for whom it holds shares. (SEE "Investor Qualifications and Suitability.")
OTHER FEES AND EXPENSES OF THE FUND
The Fund bears all expenses incurred in its business and operations, other than those borne by the Adviser or by the Underwriters pursuant to their agreements with the Fund, including, but not limited to: all investment related expenses (E.G., costs and expenses directly related to portfolio transactions and positions for the Fund's account such as direct and indirect expenses associated with investments, transfer taxes and premiums, taxes withheld on foreign income, brokerage commissions, interest and commitment fees on loans and debit balances, borrowing charges on securities sold short, dividends on securities sold short but not yet purchased and margin fees); the Management Fee; the Incentive Fee; the Shareholder Servicing Fees; any non-investment related interest expense; offering expenses; fees and disbursements of any attorneys and accountants engaged by the Fund; audit and tax preparation fees and expenses; administrative expenses and fees; custody fees and expenses; insurance costs; fees and travel-related expenses of members of the Board who are not employees of the Adviser or any affiliate of the Adviser; and any extraordinary expenses.
THE OFFERING
PURCHASE TERMS; MINIMUM INVESTMENT
Shares of the Fund are being offered in an initial offering (the "Initial Offering") at a price of $10.00 per share plus a sales load of up to 3% (if applicable). The Initial Offering is currently anticipated to terminate on or about March 1, 2009, subject to extension. Subject to the investor qualifications described below, purchase orders for shares sold during the Initial Offering received by the Underwriters will be accepted at the close of the Initial Offering. After the Initial Offering is closed, shares of the Fund will be offered for purchase on a monthly basis in a continuous offering at their net asset value per share, plus, if applicable, a sales load of up to 3% of the amount invested (as described below). Shares will be issued at the net asset value per share next computed after acceptance of an order to purchase shares. The Fund's net asset value per share will be circulated to Selling Agent's offering shares of the Fund. Purchase orders for shares sold in connection with a monthly offering must be received in proper form by an
Underwriter prior to the close of business (normally 5pm) on the day of the month specified by the Underwriters in a written communication to the Selling Agents (and communicated by Selling Agents to their customers) (a "Closing Time"), which is generally anticipated to be six business days prior to the end of a month. A prospective investor may rescind a purchase order for shares at any time prior to the close of the Initial Offering or thereafter, prior to a Closing Time. The Fund reserves the right to suspend or terminate the offering of shares at any time.
The minimum initial investment in the Fund by an investor is $100,000, subject to reduction at the discretion of an investor's broker, dealer or other financial intermediary, but not below $50,000. Subsequent investments must be at least $25,000. The minimum investment requirements may be reduced or waived for investments by personnel of the Adviser and its affiliates, and members of their immediate families, and as may be determined by the Board.
In order to purchase shares, a prospective investor must submit a completed investor certification to an Underwriter or Selling Agent. (A form of investor certification is included as Appendix A to this Prospectus.) Additional information regarding investor qualifications is set forth under "Investor Qualifications" below.
At each Closing Time (and at the close of the Initial Offering, for purchase orders received in connection with the Initial Offering) purchase orders received in proper form will be accepted by the Fund and deposited monies will be invested in the Fund (net of the sales load, if applicable) as of the first business day of the next month following submission of an investor's purchase order. Investors will not receive any stock certificate evidencing the purchase of Fund shares. Instead, they will receive written or electronic confirmation of each transaction and regular reports showing account balances.
Plan of Distribution
SMH and Mainsail, underwriters under the federal securities laws, serve as co-underwriters of shares on a best efforts basis, subject to various conditions, pursuant to the terms of each Underwriter's distribution agreement with the Fund. Neither SMH nor Mainsail is obligated to buy from the Fund any of the shares. The Underwriters do not intend to make a market in the shares.
SMH is a securities brokerage firm that is registered as a broker-dealer under the Securities Exchange Act of 1934 (the "Exchange Act"), a member of FINRA and registered as an investment adviser under the Advisers Act. SMH, a wholly-owned subsidiary of Sanders Morris Harris Group, Inc., has a non-controlling equity interest in the Adviser, pursuant to which it participates in a portion of the revenue generated by the Adviser. SMH maintains its principal office at 600 Travis, Suite 5800, Houston, Texas 77002.
Mainsail is a securities brokerage firm that is registered as a broker-dealer under the Exchange Act and a member of FINRA. Mr. Sparaggis is the controlling person of Mainsail. Mainsail maintains its principal office at 350 Madison Avenue, 9th Floor, New York, New York 10017.
Under the terms of each distribution agreement with the Fund, the Underwriters are authorized to retain unaffiliated brokers or dealers (I.E., the Selling Agents) to assist in the
distribution of shares. In addition, pursuant to the distribution agreements, the Fund pays ongoing Shareholder Servicing Fees to the Underwriters to compensate them for providing, or arranging for the provision of, ongoing investor services and account maintenance services to investors in the Fund. Each Underwriter may retain all or a portion of these payments. These fees are accrued daily and paid monthly in an amount not to exceed, in the aggregate, 0.25% (on an annualized basis) of the net asset value of the Fund. SEE "Fees and Expenses --- Shareholder Servicing Fee" above. The Fund may terminate the distribution agreements on 60 days' prior written notice.
Selling Agents are entitled to charge a sales load to each investor on the purchase price of its shares of up to 3%. The specific amount of the sales load paid is not fixed and will be determined by the investor and its Selling Agent. The sales load is expected to be waived for the Adviser and its affiliates, including its personnel and members of their immediate families. In addition, the sales load is not applicable to investors that purchase shares through a fee-based account with their broker, dealer or other financial intermediary (commonly known as a "wrap fee program"). The sales load will neither constitute an investment made by the investor nor form part of the assets of the Fund. The Selling Agents' receipt of the sales load is subject to the applicable limitations imposed by FINRA rules and regulations.
The Adviser (or its affiliates), in its discretion and from its own resources, may pay the Selling Agents additional compensation not to exceed 0.75% (on an annual basis) of the aggregate value of shares of the Fund held by customers of the Selling Agent. In return for the additional compensation, the Fund may receive certain marketing advantages including access to a Selling Agent's registered representatives, placement on a list of investment options offered by a Selling Agent, or the ability to assist in training and educating the Selling Agent's registered representatives. The additional compensation may differ among Selling Agents in amount. The receipt of additional compensation by a Selling Agent may create potential conflicts of interest between an investor and its Selling Agent who is recommending the Fund over other potential investments.
The Fund has agreed to indemnify each Underwriter and each person, if any, who controls the Underwriter against certain liabilities, unless it is determined that the liability resulted from the willful misfeasance, bad faith or gross negligence of the person seeking indemnification, or from the reckless disregard of such person's obligations and duties. SEE "Investment Advisory and Other Services" in the SAI.
DESCRIPTION OF SHARES
The Fund is an unincorporated statutory trust organized under the laws of Delaware. The Fund is authorized to issue an unlimited number of shares of beneficial interest, $0.001 par value. The Board is authorized to increase or decrease the number of shares issued. Each share has one vote and, when issued and paid for in accordance with the terms of this offering, will be fully paid and non-assessable. The Trustees have the power to pay expenses of the Fund prior to paying dividends or distributions to Shareholders.
All shares are equal as to dividends, assets and voting privileges and
have no conversion, preemptive or other subscription rights. The Fund will send
annual and semi-annual reports, including financial statements, to all holders
of its shares. The Fund does not intend to hold annual meetings of shareholders.
Shareholders do not have preemptive, subscription or conversion rights, and are
not liable for further calls or assessments. Shareholders are entitled to
receive dividends only if and to the extent declared by the Board and only after
the Board has made provision for working capital and reserves as it in its sole
discretion deems advisable. Shares are not available in certificated form. The
Fund's agreement and declaration of trust (the "Declaration of Trust") provides
that any transfer will be void if made: (i) to an account held through a broker
or dealer that has not entered into a selling agreement with an Underwriter or
(ii) to any person who is not a Qualified Investor (as described below).
Shares of closed-end investment companies frequently trade on an exchange at prices lower than net asset value. Shares of the Fund are not listed on any exchange and the Fund does not expect that any secondary market will develop for the shares, except that brokers or dealers that have entered into selling agreements with an Underwriter (I.E., Selling Agents) may make a market in the shares among their customers that are Qualified Investors. SEE "Investor Qualifications and Suitability." Prices received or paid for the shares in such transactions will not be available to the public, thus, the Fund and shareholders will not be able to inform themselves if such transactions were effected at a premium or a discount to net asset value. The Fund cannot offer any assurance that any broker or dealer will make a market in the shares or that transactions in any such market will be effected at a price equal to or higher than net asset value.
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST
To convert the Fund to an open-end investment company, the Declaration of Trust requires the favorable vote of a majority of the Trustees then in office followed by the favorable vote of the holders of not less than 75% of the outstanding shares, unless such amendment has been approved by at least 75% of the Trustees, in which case approval by a vote of "a majority of the outstanding voting securities" (as defined in the 1940 Act) would be required. The foregoing vote would satisfy a separate requirement in the 1940 Act that any conversion of the Fund to an open-end investment company be approved by the shareholders. The Board believes, however, that the closed-end structure is desirable in light of the Fund's investment objective and policies. Therefore, investors should assume that it is not likely that the Board would vote to convert the Fund to an open-end fund. SEE "Investor Qualifications and Suitability --- Investor Suitability: UNLISTED CLOSED-END STRUCTURE AND LIMITED LIQUIDITY."
The Board has determined that provisions with respect to the Board and the shareholder voting requirements described above, which voting requirements are greater than the minimum requirements under Delaware law or the 1940 Act, are in the best interest of shareholders generally. Reference should be made to the Declaration of Trust on file with the SEC for the full text of these provisions.
CERTAIN TAX MATTERS
The following discussion is a brief summary of certain United States federal income tax considerations affecting the Fund and its shareholders. The discussion reflects applicable tax laws of the United States as of the date of this Prospectus, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the "IRS") retroactively or prospectively. No attempt is made to present a detailed explanation of all United States federal, state, local and foreign tax concerns affecting the Fund and its shareholders (including shareholders owning large positions in the Fund), and the discussion set forth herein does not constitute tax advice.
The Fund intends to elect and to qualify to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986 (the "Code"), as amended. To qualify as a regulated investment company, the Fund must comply with certain requirements relating to, among other things, the sources of its income and diversification of its assets. If the Fund so qualifies and distributes each year to its shareholders at least 90% of its investment company taxable income (generally including ordinary income and net short-term capital gain, but not net capital gain, which is the excess of net long-term capital gain over net short-term capital loss) and meets certain other requirements, it will not be required to pay federal income taxes on any income it distributes to shareholders. The Fund intends to distribute at least the minimum amount necessary to satisfy the 90% distribution requirement. The Fund will not be subject to federal income tax on any net capital gain distributed to shareholders. Distributions of the Fund's investment company taxable income are taxable to shareholders as ordinary income to the extent of the Fund's earnings and profits.
Distributions of the Fund's net capital gain as capital gain dividends, if any, are taxable to shareholders as long-term capital gains regardless of the length of time shares of the Fund have been held by such shareholders. The Fund will inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year. Investors are urged to consult their own tax advisers regarding specific questions about federal (including the application of the alternative minimum tax), state, local or non-U.S. tax consequences to them of investing in the Fund. For additional information, SEE the SAI under "Tax Aspects."
TAXATION OF SHORT SALES
Gain or loss from a short sale of property is generally considered as capital gain or loss to the extent the property used to close the short sale constitutes a capital asset in the Fund's possession. Except with respect to certain situations where the property used to close a short sale has a long-term holding period on the date the short sale is entered into, gains on short sales generally are short-term capital gains. A loss on a short sale will be treated as a long-term capital loss if, on the date of the short sale, "substantially identical property" has been held by the Fund for more than one year. In addition, these rules may also terminate the running of the holding period of "substantially identical property" held by the Fund.
Gain or loss on a short sale will generally not be realized until such time that the short sale is closed. However, if the Fund holds a short sale position with respect to stock, certain debt obligations or partnership interests that has appreciated in value and then acquires property that is the same as or substantially identical to the property sold short, the Fund generally will recognize gain on the date it acquires such property as if the short sale were closed on such date with such property. Similarly, if the Fund holds an appreciated financial position with respect to stock, certain debt obligations or partnership interests and then enters into a short sale with respect to the same or substantially identical property, the Fund generally will recognize gain as if the appreciated financial position were sold at its fair market value on the date it enters into the short sale. The subsequent holding period for any appreciated financial position that is subject to these constructive sale rules will be determined as if such position were acquired on the date of the constructive sale. For additional information, SEE the SAI under "Tax Aspects."
INVESTOR QUALIFICATIONS AND SUITABILITY
INVESTOR QUALIFICATIONS
Shares of the Fund may be purchased only by investors who certify to the Fund or its agents that they have a net worth of more than $1.5 million (or in the case of an individual, a joint net worth with their spouse of more than $1.5 million) ("Qualified Investors"). In order to purchase shares, a prospective investor must submit a completed investor certification (a form of which is included in Appendix A to this Prospectus) to an Underwriter or Selling Agent prior to the Closing Time (as described in "The Offering --- Purchase Terms; Minimum Investment" above). The Fund reserves the right to reject, in its sole discretion, any request to purchase shares of the Fund at any time.
Existing shareholders who are purchasing additional shares will be required to meet the Fund's eligibility criteria and submit a new investor certification each time they purchase additional shares.
INVESTOR SUITABILITY
GENERAL CONSIDERATIONS. AN INVESTMENT IN THE FUND INVOLVES SUBSTANTIAL
RISKS AND IS NOT NECESSARILY SUITABLE FOR ALL ELIGIBLE INVESTORS. Prior to
making an investment decision, you should: (i) consider the suitability of this
investment with respect to your investment objectives and personal situation,
(ii) consider factors such as your personal net worth, income, age, risk
tolerance and liquidity needs, and (iii) consult with your broker, dealer or
other financial adviser to determine whether an investment in the Fund is
suitable for your risk profile. A shareholder should invest in the Fund only
money that it can afford to lose, and a shareholder should not invest money to
which it will need access on a short-term or frequent basis. In addition, a
shareholder should be aware of how the Fund's investment strategies fit into its
overall investment portfolio because the Fund by itself is not designed to be a
well-balanced investment for a particular investor.
UNLISTED CLOSED-END STRUCTURE AND LIMITED LIQUIDITY. The Fund is organized as a closed-end management investment company. Closed-end funds differ from open-end
management investment companies (commonly known as mutual funds) in that shareholders of a closed-end fund do not have the right to redeem their shares on a daily basis. In addition, the Fund does not plan to list its shares on any securities exchange, and there is no assurance that any secondary market will develop for the Fund's shares. Although the Fund will make quarterly offers to repurchase its shares, there can be no assurance that the Fund will repurchase shares that are tendered by a shareholder in connection with any repurchase offer. A prospective investor should consider its liquidity needs before investing.
TRANSFER RESTRICTIONS. Shares are subject to transfer restrictions that permit transfers only to persons who are Qualified Investors and who hold their shares through an Underwriter or a Selling Agent. The Fund may require substantial documentation in connection with a requested transfer of shares, and you should not expect that you will be able to transfer shares at all. Attempted transfers may require a substantial amount of time to effect and may not be in the manner desired by a shareholder. Shares of the Fund may not be exchanged for shares of any other fund. An investment in the Fund should be viewed as a long-term investment and is suitable only for investors who bear the risks associated with the limited liquidity of shares (including these transfer restrictions).
REPURCHASE OFFERS
NO RIGHT OF REDEMPTION
No shareholder will have the right to require the Fund to redeem its shares. No public market exists for the shares, and none is expected to develop. Consequently, investors will not be able to liquidate their investment other than as a result of repurchases of shares by the Fund, as described below.
REPURCHASES OF SHARES
The Fund will operate as an "interval fund" under Rule 23c-3 of the 1940 Act and, as such, provides a limited degree of liquidity to shareholders. As an interval fund, the Fund has adopted a fundamental policy to offer to repurchase at least 5% of its outstanding shares at their net asset value at regular intervals. Currently, the Fund intends to offer to repurchase 25% of its outstanding shares as of or prior to the end of each fiscal quarter. However, repurchase offers in excess of 5% of the Fund's outstanding shares for any particular fiscal quarter is entirely within the discretion of the Fund's board of trustees and, as a result, there can be no assurance that the Fund would make repurchase offers for amounts in excess of 5% of the Fund's outstanding shares. As a general matter, the percentage of outstanding shares that the Fund will offer to repurchase will not be less than 5% or more than 25% of the shares outstanding on the date repurchase requests are due.
Quarterly repurchase offers will occur each January, April, July and October. The Fund intends to conduct its first quarterly repurchase offer in July 2010. The deadline by which the Fund must receive repurchase requests submitted by shareholders in response to each repurchase offer (the "repurchase request deadline") will be generally on or about the 18th day in the months of January, April, July and October or, if the 18th day is not a business day, on the next business day. The date on which the repurchase price for shares is determined will be
generally the last day of the month (the "repurchase pricing date"), but shall occur no later than the 14th day after the repurchase request deadline (or the next business day, if the 14th day is not a business day). The Fund does not charge a repurchase fee. SEE "Repurchase Offers --- Fundamental Policies with Respect to Share Repurchases." The Fund intends to fund repurchase offers by using cash on hand, and, to the extent necessary, liquidating portfolio securities, or by borrowing to finance the repurchases.
Prior to the commencement of any repurchase offer, the Fund sends a notification of the offer to shareholders via their brokers, dealers or other financial intermediaries. The notification specifies, among other things:
o the percentage of shares that the Fund is offering to repurchase;
o the date on which a shareholder's repurchase request is due (i.e., the repurchase request deadline);
o the date that will be used to determine the Fund's net asset value applicable to the share repurchase (i.e., the repurchase pricing date);
o the date by which shareholders will receive the proceeds from their share sales; and
o the net asset value of the shares of the Fund no more than seven days prior to the date of the notification.
The Fund intends to send this notification approximately 30 days before the deadline for the repurchase request. In no event will the notification be sent less than 21 or more than 42 days in advance of the repurchase request deadline. A shareholder's broker, dealer or other financial intermediary may require additional time to mail the repurchase offer to the shareholder, to process the request, and to credit the account with the proceeds of any repurchased shares.
The repurchase request deadline will be strictly observed. If a shareholder's broker, dealer or other financial intermediary fails to submit a shareholder's repurchase request in good order by the repurchase request deadline, the shareholder will be unable to liquidate the shares until a subsequent quarter, and the shareholder will have to resubmit the request in that subsequent quarter. Shareholders should advise their brokers, dealers or other financial intermediaries of their intentions in a timely manner. Shareholders may withdraw or change their repurchase request at any point before the repurchase request deadline.
FUNDAMENTAL POLICIES WITH RESPECT TO SHARE REPURCHASES
The Board has adopted the following fundamental policies with respect to its share repurchases which may only be changed by the "vote of a majority of the outstanding voting securities" of the Fund (within the meaning of Section 2(a)(42) of the 1940 Act):
o The Fund will make periodic share repurchase offers each fiscal quarter (in January, April, July and October) pursuant to Rule 23c-3(b) of the 1940 Act, as it may be amended from time to time;
o The repurchase request deadlines will be generally on or about the 18th day in the months of January, April, July and October or, if the 18th day is not a business day, on the next business day; and
o There will be a maximum 14 day period between each repurchase request deadline and the repurchase pricing date.
OVERSUBSCRIBED REPURCHASE OFFER
There is no minimum number of shares that must be tendered before the Fund will honor repurchase requests. However, the percentage determined by the Board for each repurchase offer sets a maximum number of shares that may be purchased by the Fund. In the event a repurchase offer by the Fund is oversubscribed, the Fund may, but is not required to, repurchase additional shares, but only up to a maximum amount of an additional 2% of the outstanding shares of the Fund beyond the original repurchase offer amount. If the Fund determines not to repurchase additional shares beyond the original repurchase offer amount, or if shareholders tender an amount of shares greater than that which the Fund is entitled to purchase, the Fund will repurchase the shares tendered on a pro rata basis.
If prorating is necessary, the Fund will send a notice of prorating on the business day following the repurchase request deadline. The number of shares each investor asked to have repurchased will be reduced by the same percentage. If any shares that a shareholder wishes to have repurchased by the Fund are not repurchased because of prorating, a shareholder will have to wait until the next repurchase offer, and the shareholder's repurchase request will not be given any priority over other shareholders' requests at this later date. Thus, there is a risk that the Fund may not purchase all of the shares a shareholder wishes to sell in a given quarter or in any subsequent quarter. In anticipation of the possibility of prorating, some shareholders may tender more shares than they wish to have repurchased in a particular quarter, thereby increasing the likelihood of prorating. There is no assurance that shareholders will be able to sell as many of their shares as they desire to sell.
The Fund may suspend or postpone a repurchase offer in limited circumstances, but only with the approval of a majority of the Board, including a majority of the Independent Trustees. These circumstances are:
o if the repurchase would cause the Fund to lose its status as a regulated investment company under Subchapter M of the Code;
o for any period during which the New York Stock Exchange (the "NYSE") or any other market in which the portfolio securities owned by the Fund are principally traded is closed, other than customary weekend and holiday closings, or during which trading in such market is restricted;
o for any period during which an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable, or during which it is not reasonably practicable for the Fund fairly to determine the value of its net assets; or
o for such other periods as the SEC may by order permit for the protection of shareholders of the Fund.
If a repurchase offer is suspended or postponed, the Fund shall provide notice to shareholders of such suspension or postponement. If the Fund thereafter renews the repurchase offer, the Fund shall send a new notification of the offer to shareholders.
DETERMINATION OF REPURCHASE PRICE
The repurchase price payable in respect of a repurchased share is equal to the share's net asset value on the repurchase pricing date. Changes in the Fund's net asset value may be more pronounced and more rapid than with other funds because of the Fund's investment objective and policies and the potential for the Incentive Fee. Indeed, the Fund's net asset value per share may change substantially in a short time as a result of developments at the companies in which the Fund invests. In that regard, the Fund's net asset value per share may change materially between the date a repurchase offer is mailed and the repurchase request deadline, and it may also change materially shortly after a repurchase request deadline and the repurchase pricing date. Nevertheless, the repurchase price will not be adjusted after the repurchase pricing date. In order to assist investors in determining whether to participate in a repurchase offer, Rule 23c-3 of the 1940 Act requires that the Fund calculate its net asset value each business day during the five business days preceding the repurchase request deadline as of the close of business on the NYSE. Since Selling Agents are responsible for disseminating the Fund's net asset value to their customers, there is a risk that these agents may not disseminate current net asset value information to shareholders, which would impact a shareholder's ability to evaluate effectively whether to participate in the repurchase offer. The method by which the Fund calculates net asset value is discussed below. SEE "Calculation of Net Asset Value."
PAYMENT FOR REPURCHASES
Payment for tendered shares will be distributed to brokers, dealers or other financial intermediaries for distribution to their customers, as specified in the repurchase offer notification, no later than seven days after the repurchase pricing date.
IMPACT OF REPURCHASE POLICY
From the time the Fund distributes each repurchase offer notification until the repurchase pricing date, the Fund must maintain liquid assets at least equal to the percentage of its shares subject to the repurchase offer. For this purpose, liquid assets means assets that can be
sold or disposed of in the ordinary course of business, at approximately the price at which they are valued by the Fund, within a period of time equal to the period between a repurchase request deadline and the repurchase payment date, or of assets that mature by the repurchase payment date. The Fund is also permitted to borrow money to meet repurchase requests. Borrowing by the Fund involves certain risks for shareholders. SEE "Principal Risk Factors --- Leverage & Borrowings Risk."
CONSEQUENCES OF REPURCHASE OFFERS
The Fund believes that repurchase offers are generally beneficial to the Fund's shareholders, and are expected to be funded from available cash or sales of portfolio securities. However, if the Fund borrows to finance repurchases, interest on that borrowing will negatively affect shareholders who do not tender their shares into a repurchase offer by increasing the Fund's expenses and reducing any net investment income. To the extent the Fund finances repurchase proceeds by selling liquid investments, the Fund will hold a larger proportion of its total assets in illiquid securities. Also, the sale of securities to fund repurchases could reduce the market price of those securities, which would in turn reduce the Fund's net asset value.
Repurchase offers provide shareholders with the opportunity to dispose of shares at net asset value. There is no assurance that any secondary market for the Fund's shares will develop, and in the event that a secondary market does develop, it is possible that shares would trade in that market at a discount to net asset value.
Repurchase of the Fund's shares will tend to reduce the number of outstanding shares and, depending upon the Fund's investment performance, its net assets. A reduction in the Fund's net assets will tend to increase the Fund's expense ratio. In addition, the repurchase of shares by the Fund is a taxable event to shareholders. For a discussion of these tax consequences, SEE "Tax Aspects" in the SAI.
Repurchase offers will cause the Fund to calculate Fiscal Periods more frequently than annually. If that occurs, shareholders could be adversely affected. For example, the Fund may be required to pay the Adviser a portion of the Incentive Fee accrued through that date based on the Fund's investment performance for a Fiscal Period under circumstances where, if no interim Fiscal Periods had occurred, the Adviser would not have been eligible to receive an Incentive Fee payment for an entire fiscal year. Conversely, if at the time the Fund has a cumulative loss, such cumulative loss will be reduced in proportion to the amount of assets withdrawn from the Fund to pay the share repurchases, with the result that the Adviser will be in a better position to eventually earn an Incentive Fee with respect to the Fund. SEE "Additional Risk Factors -- Repurchase Offers."
CALCULATION OF NET ASSET VALUE
The value of the net assets of the Fund is determined on each business day as of the close of regular business of the NYSE in accordance with the procedures set forth below or as may be determined from time to time pursuant to policies established by the Board.
Domestic exchange traded equity securities (other than options) other than those that trade on NASDAQ are valued at their last reported composite sale prices as reported on such
exchanges or, in the absence of any reported sale on a particular day, at their composite bid prices (for securities held long) or their composite ask prices (for securities held short), as reported by such exchanges. Securities traded on NASDAQ are valued: (i) at the NASDAQ Official Closing Price ("NOCP") (which is the last trade price at or before 4:00:02 (EST) adjusted up to NASDAQ's best offer price if the last trade is below such bid and down to NASDAQ's best offer price if the last trade is above such offer price); (ii) if no NOCP is available, at the last sale price on NASDAQ prior to the calculation of the Fund's net asset value; (iii) if no sale is shown on NASDAQ, at the bid price; or (iv) if no sale is shown and no bid price is available for a period of seven business days, the price will be deemed "stale" and the value will be determined at fair value. Securities traded on a foreign securities exchange are valued at their last sale prices on the exchange where the securities are primarily traded, or in the absence of a reported sale on a particular day, at their bid prices (in the case of securities held long) or ask prices (in the case of securities held short) as reported by that exchange.
Total return swaps on equity securities are generally valued based upon the price for the reference asset, as determined in the manner specified above.
Other securities for which market quotations are readily available are valued at their bid prices (or ask prices in the case of securities held short) as obtained from one or more dealers making markets for those securities. If market quotations are not readily available, securities and other assets will be valued at fair value as determined in good faith by the Adviser under the supervision of the Board.
Debt securities (other than convertible securities) are valued in accordance with the procedures described above, which with respect to these securities may include the use of valuations furnished by a pricing service which employs a matrix to determine valuations for normal institutional size trading units. The Adviser monitors the reasonableness of valuations provided by the pricing service. Such debt securities with remaining maturities of 60 days or less are, absent unusual circumstances, valued at amortized cost. If in the view of the Adviser, the bid price of a listed option or debt security (or ask price in the case of any such security held short) does not fairly reflect the market value of the security, the Adviser may value the security at fair value.
All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars using foreign exchange rates provided by a pricing service 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 securities markets in the U.S. Foreign exchange rates are also determined prior to such close. On occasion, the values of foreign securities and exchange rates may be materially affected by events occurring before the Fund calculates its net asset value but after the close of the primary markets or exchanges on which foreign securities are traded. These intervening events might be country-specific (E.G., natural disaster, economic or political developments, interest-rate change), issuer-specific (e.g., earnings report, merger announcement), or U.S. market-specific (E.G., a significant movement in the U.S. markets that is deemed to affect the value of foreign securities). When such an event materially affects the values of securities held by the Fund or its liabilities (including foreign securities for
which there is a readily available market price), such securities and liabilities may be valued at fair value pursuant to procedures adopted in good faith by the Board.
Prospective investors should be aware that situations involving uncertainties as to the valuation of portfolio positions could have an adverse effect on the Fund's net asset value if the Adviser's judgments regarding appropriate valuations should prove incorrect.
The fair values of one or more assets may not, in retrospect, be the prices at which those assets could have been sold during the period in which the particular fair values were used in determining the Fund's net asset value. As a result, the Fund's issuance or repurchase of its shares at net asset value at a time when it owns securities that are valued at fair value may have the effect of diluting or increasing the economic interest of existing shareholders. Fair values assigned to the Fund's investments also affect the amount of the Management Fee and Incentive Fee. SEE "Additional Risk Factors -- Incentive Fee." All fair value determinations by the Adviser are subject to the review of the Board.
Expenses of the Fund, including the Management Fee and the Incentive Fee and the costs of any borrowings are accrued daily and taken into account for the purpose of determining the Fund's net asset value.
DISTRIBUTION POLICY
Dividends will be paid annually on the shares in amounts representing substantially all of the Fund's net investment income, if any, earned each year. Payments on the shares will vary in amount depending on investment income received and expenses of operation. It is likely that many of the companies in which the Fund invests will not pay any dividends, and this, together with the Fund's relatively high expenses, means that the Fund is unlikely to have income or pay dividends. The Fund is not a suitable investment if you require regular dividend income.
Substantially all of any taxable net capital gain realized on investments will be paid to shareholders at least annually. For additional information, SEE "Tax Aspects" in the SAI.
The net asset value of each share that you own will be reduced by the amount of the distributions or dividends that you receive from that share.
AUTOMATIC REINVESTMENT PLAN
Dividends and capital gain distributions to shareholders will be automatically reinvested unless the Fund is otherwise instructed by the shareholder through its broker, dealer or other financial intermediary. Shareholders will not be charged any fees as a result of participating in the plan. A shareholder who elects not to reinvest will receive both dividends and capital gain distributions in cash. The Fund may limit the extent to which any distributions that are returns of capital may be reinvested in the Fund.
Shares will be issued at their net asset value on the ex-dividend date; there is no sales load or other charge for reinvestment. Shareholders may affirmatively opt out of the automatic reinvestment plan at any time by contacting their broker, dealer or other financial
intermediary, who will inform the Fund. Such a request must be received by the Fund before the record date to be effective for that dividend or capital gain distribution.
Although shareholders receive no cash for distributions reinvested through the plan, ordinary income and/or capital gains are realized for federal income tax purposes on the ex-dividend date. Distributions may also be subject to state and local taxes in the year they are declared. Shareholders will be required to report distributions on their tax returns, even if the distribution is reinvested in additional shares.
The Fund reserves the right to suspend the automatic reinvestment plan at any time and require shareholders to receive all distributions in cash. The Fund may also limit the maximum amount that may be reinvested, either as a dollar amount or as a percentage of distributions. The Fund does not currently expect to suspend or limit the reinvestment plan, but it may determine to do so if the amount being reinvested by shareholders exceeds the available investment opportunities that the Adviser considers suitable for the Fund.
POTENTIAL CONFLICTS OF INTEREST
GENERAL
Alkeon will control the Adviser as its sole managing member. In addition, Alkeon, an investment adviser registered under the Advisers Act, carries on substantial investment activities for its own account and for other registered investment companies, private investment partnerships, institutions and individual clients. The Fund has no interest in these activities. As a result of the foregoing, Alkeon and its officers or employees who assist in its management of the Adviser will be engaged in substantial activities other than as the managing member of the Adviser and may have conflicts of interest in allocating their time and activities between the Fund, the Adviser and Alkeon. Alkeon and its officers and employees devote only so much time to the affairs of the Adviser as in their judgment is necessary and appropriate.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
The Adviser and Alkeon may provide investment advice for certain other investment funds or other accounts that pursue investment strategies similar to that of the Fund (the "Similar Accounts"). As a general matter, the Adviser (subject to any policies established by the Board) will consider participation by the Fund in all appropriate investment opportunities that are under consideration by the Adviser or Alkeon for investment for the Similar Accounts. There may be circumstances, however, under which the Adviser or Alkeon will cause one (or more) of the Similar Accounts to commit a different percentage of its assets to an investment opportunity than the Adviser will cause the Fund to commit its assets. There may also be circumstances under which the Adviser or Alkeon will consider or recommend participation by the Similar Accounts in investment opportunities in which the Adviser does not intend to invest on behalf of the Fund.
The Adviser will consider subjective criteria in evaluating whether, and to what extent, a particular investment opportunity or strategy is appropriate and feasible for the Fund or a Similar Account at a particular time. The criteria typically include: (i) the nature of the investment opportunity taken in the context of the other investments at the time; (ii) the liquidity
of the investment relative to the needs of the particular entity or account;
(iii) the availability of the opportunity (E.G., size of obtainable position);
(iv) the transaction costs involved; and (v) the investment or regulatory
limitations applicable to the particular entity or account. Similarly, the
Adviser will consider subjective criteria when determining if a limited
investment opportunity (such as an IPO) is an investment that is appropriate and
feasible (in light of restrictions on investments in IPOs as may be applicable
under the 1940 Act) for the Fund and/or a Similar Account. Accordingly, the Fund
may not be able to take full advantage of an investment opportunity to the
extent the Adviser determines, in its discretion, that such opportunity is not
appropriate for the Fund. Because these considerations may differ for the Fund
and the Similar Accounts in the context of any particular investment
opportunity, the investment activities of the Fund and the Similar Accounts may
differ from time to time. In addition, the fees and expenses of the Fund may
differ from those of the Similar Accounts. Therefore, prospective shareholders
should note that the future performance of the Fund and the Similar Accounts may
vary. SEE "Performance Information."
When the Adviser and/or Alkeon determine(s) that it would be appropriate for the Fund and one or more Similar Accounts, respectively, to participate in an investment opportunity at the same time, orders will be aggregated, placed and allocated on a basis believed to be fair and equitable, consistent with Alkeon's and the Adviser's responsibilities under the Advisers Act and the 1940 Act and their own internal procedures. However, decisions in this regard are necessarily subjective and there is no requirement that the Fund participate, or participate to the same extent as the Similar Accounts, in all trades. The Adviser and Alkeon will take steps to ensure that no participating entity or account (including the Fund) will be systematically disadvantaged by the aggregation, placement or allocation of orders.
Situations may occur where the Fund could be disadvantaged because of the investment activities conducted by the Adviser or Alkeon. These situations may be based on, among other things, the following: (i) legal restrictions on the combined size of positions that may be taken for the Fund and the Similar Accounts, thereby limiting the size of the Fund's position; (ii) the difficulty of liquidating an investment for the Fund and the Similar Accounts where the sale of the combined positions cannot be absorbed; or (iii) the determination that a particular investment is warranted only if hedged with an option or other instrument and there is a limited availability of these options or other instruments.
The members of the Adviser, Alkeon and their directors, managers, officers and employees (including the Fund's Portfolio Manager, Mr. Sparaggis) and other affiliated persons may buy and sell securities or other investments for their own accounts and may have actual or potential conflicts of interest with respect to investments made on behalf of the Fund. As a result of differing trading and investment strategies or constraints, positions may be taken by directors, officers and employees of the Adviser or Alkeon that are the same, different or made at a different time than positions taken for the Fund. In order to mitigate the possibility that the Fund (or investors) will be adversely affected by this personal trading, the Adviser, Alkeon and Mainsail have adopted a Joint Code of Ethics and the Fund and SMH have each adopted a Code of Ethics, all of which are in compliance with Rule 17j-1 under the 1940 Act which restricts securities trading in the personal accounts of investment professionals and others who normally come into possession of information regarding the Fund's portfolio transactions. Each Code of Ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-551-8090. Each Code of Ethics is also available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of each Code of Ethics may be obtained, after paying a duplicating fee, by E-mail at publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
OTHER MATTERS
SMH currently acts as a co-underwriter for the Fund's shares and bears various costs associated with its activities as an Underwriter. SMH is a securities brokerage firm and is registered as a broker-dealer under the Exchange Act, is a member of FINRA, and is registered as an investment adviser under the Advisers Act. Similarly, Mainsail, an affiliate of Alkeon, acts as a co-underwriter for the Fund's shares and bears various costs associated with its activities as an Underwriter. Mainsail is a securities brokerage firm and is registered as a broker-dealer under the Exchange Act and is a member of FINRA. The Fund pays Shareholder Servicing Fees to each of SMH and Mainsail to compensate for providing, or arranging for the provision of, ongoing investor services and account maintenance services to investors in the Fund. Each Underwriter may retain all or a portion of these payments. SEE "Fees and Expenses -- Shareholder Servicing Fees" and "The Offering." SMH has a non-controlling equity interest in the Adviser, pursuant to which it participates in a portion of the revenue generated by the Adviser.
Situations may arise in which accounts affiliated with SMH, Mainsail or their respective affiliates have purchased securities that would have been suitable for investment by the Fund, but which the Fund, for various reasons, did not choose to purchase. This could affect the availability (or price) of investments to the Fund at a later time. From time to time, in the course of its brokerage, investment or dealer activities, SMH, Mainsail or their affiliates may trade, position or invest in, for its own account, the same securities as those in which the Fund invests. This could have an adverse impact on the Fund's investment performance.
SMH, Mainsail and their affiliates may provide brokerage and other services from time to time to one or more accounts or entities managed by the Adviser, Alkeon or one of their respective affiliates. In addition, these firms may receive research products and services in connection with the brokerage services that SMH, Mainsail and their affiliates may provide from time to time to one or more Similar Accounts or to the Fund. The Fund may also pay brokerage commissions to affiliated broker-dealers.
The Adviser will not purchase securities or other property from, or sell securities or other property to, the Fund, except that SMH or Mainsail may act as broker for, and impose usual and customary brokerage commissions on, the Fund in effecting securities transactions. SEE "Brokerage." In addition, the Fund may effect certain principal transactions in securities with one or more Similar Accounts, except for accounts in which Alkeon or any affiliate thereof serves as a general partner or certain accounts in which it has a financial interest (other than an interest that results solely from Alkeon or any affiliate's appointment as an investment adviser or portfolio manager to the account). These transactions would be effected in circumstances where the Adviser has determined that it would be appropriate for the Fund to purchase and it has been determined that it would be appropriate for such Similar Account to sell, or the Fund to sell and such Similar Account to purchase, the same security or instrument on the same day. The
purchases and sales will be made pursuant to procedures adopted by the Fund pursuant to Rule 17a-7 under the 1940 Act. Among other things, those procedures are intended to ensure that: (i) each transaction will be effected for cash consideration at the current market price of the particular securities; (ii) no transaction will involve restricted securities or other securities for which market quotations are not readily available; and (iii) no brokerage commissions, fees (except for customary transfer fees) or other remuneration will be paid in connection with the transaction.
The Fund is not permitted to purchase or sell securities of any issuer as to which the Adviser or Alkeon has obtained material, non-public information, until such time as the information is no longer material or has become publicly known. This policy could adversely affect the Fund's investment performance because the Fund may: (i) hold securities of an issuer with respect to which the Adviser or Alkeon has adverse information, or (ii) not purchase securities of any issuer with respect to which the Adviser or Alkeon has favorable information.
As a result of the investment banking, corporate finance or similar activities of SMH and Mainsail, the Fund may be subject to future restrictions on its ability to purchase or sell certain securities. Additionally, the Fund may purchase securities during the existence of an underwriting or selling syndicate in which SMH or Mainsail is participating only subject to certain conditions. This could have an adverse impact on the Fund's investment performance.
Future investment activities of the Adviser, Alkeon, SMH and Mainsail and their members, managers, principals, partners, directors, officers or employees (as applicable), may give rise to additional conflicts of interest.
BROKERAGE
The Adviser is responsible for placing orders for the execution of the Fund's portfolio transactions and the allocation of brokerage transactions. Transactions on the great majority of foreign stock exchanges involve the payment of a combination of fixed and negotiated commissions, while transactions on U.S. stock exchanges and on some foreign stock exchanges involve the payment of negotiated brokerage commissions. No stated commission is generally applicable to securities traded on a principal basis in over-the-counter markets, but the prices of those securities include undisclosed commissions or mark-ups. Transactions may also be executed on an agency basis in over-the-counter markets, which will involve the payment of negotiated or fixed commissions, when deemed consistent with the Fund's brokerage policies.
In selecting brokers to effect transactions on behalf of the Fund, the Adviser seeks to obtain the best price and execution, 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 in the case of transactions effected with unaffiliated brokers, the firm's risk in positioning a block of securities. Although the Adviser will generally seek reasonably competitive commission rates, the Adviser will not necessarily pay the lowest commission available on each transaction. The Adviser has no obligation to deal with any broker or group of brokers in executing transactions in portfolio securities.
Consistent with the principle of seeking best price and execution, the Adviser may place brokerage orders on behalf of the Fund with brokers (including affiliates of the Fund) that provide 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 furnish analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. A commission paid to such brokers may be higher than that which another qualified broker would have charged for effecting the same transaction, provided that the Adviser determines in good faith that such commission is reasonable in terms either of the transaction or the overall responsibility of the Adviser to the Fund and other clients and that the total commissions paid by the Fund will be reasonable in relation to the benefits to the Fund over the long-term. In no instance, however, will the Fund's securities be purchased from or sold to the Adviser, or any affiliated person thereof, except to the extent permitted by the SEC or by applicable law. Information and research received from such brokers will be in addition to, and not in lieu of the services required to be performed by the Adviser under the Advisory Agreement. The expenses of the Adviser are not necessarily reduced as a result of the receipt of this supplemental information, which may be useful to the Adviser, Alkeon or their respective affiliates in providing services to clients other than the Fund. In addition, not all of the supplemental information is used by the Adviser in connection with the Fund. Conversely, the information provided to the Adviser or its affiliates by brokers or dealers through which other clients of the Adviser or its respective affiliates effect securities transactions may be useful to the Adviser in providing services to the Fund.
Although the Fund cannot accurately predict its portfolio turnover for the Fund, the Fund generally expects that its annual portfolio turnover rate to significantly exceed that of other registered investment companies. The Fund's portfolio turnover rate may result in brokerage expenses that may exceed those of other registered investment companies. A high turnover rate may also result in the realization of capital gains, including short-term gains which will be taxable to the shareholders as ordinary income. The Adviser may execute portfolio brokerage transactions through SMH or Mainsail as well as other non-affiliated brokers. Transactions with any affiliated broker would be effected pursuant to procedures adopted by the Fund pursuant to Section 17(e) of the 1940 Act and Rule 17e-1 thereunder. Among other things, Section 17(e) and those procedures provide that when acting as broker for the Fund in connection with the sale of securities to or by the Fund, an affiliated broker may not receive any compensation exceeding the following limits: (i) if the sale is effected on a securities exchange, the compensation may not exceed the "usual and customary broker's commission" (as defined in Rule 17e-1 under the 1940 Act); (ii) if the sale is effected in connection with a secondary distribution of securities, the compensation cannot exceed 2% of the sale price; and (iii) the compensation for sales otherwise effected cannot exceed 1% of the sales price. Rule 17e-1 defines a "usual and customary broker's commission" as one that is reasonable and fair compared to the commission received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on an exchange during a comparable period of time.
GENERAL INFORMATION
FISCAL YEAR
The Fund's fiscal year ends on each October 31. The Fund's tax year for federal income tax purposes also ends on each October 31.
REPORTS TO SHAREHOLDERS
As soon as practicable after the end of each taxable year, the Fund furnishes to shareholders such information as is necessary for them to complete their income tax or information returns, along with any other tax information required by law. The Fund sends unaudited semi-annual and audited annual reports to shareholders within 60 days after the close of the period for which the report is being made, or as otherwise required by the 1940 Act.
LEGAL COUNSEL
Schulte Roth & Zabel LLP, 919 Third Avenue, New York, NY 10022, serves as U.S. legal counsel to the Fund. The firm also acts as U.S. legal counsel to the Adviser and its affiliates with respect to certain other matters. The firm does not represent potential investors with respect to their investment in the Fund.
INQUIRIES
Inquiries concerning the Fund and shares (including information concerning purchasing and withdrawal procedures) should be directed to your Selling Agent. All potential investors in the Fund are encouraged to consult appropriate legal and tax counsel.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Additional Investment Policies and Practices................................S-2 Investment Advisory and Other Services......................................S-7 Management of the Fund......................................................S-9 Portfolio Manager..........................................................S-13 Tax Aspects................................................................S-14 Proxy Voting Policies and Procedures.......................................S-21 General Information........................................................S-21 Financial Statements.......................................................S-22 |
APPENDIX A
[FORM OF INVESTOR CERTIFICATION]
ACAP STRATEGIC FUND
Account No.:_____________
Broker Name: _____________
INVESTOR CERTIFICATION
This certificate relates to ACAP Strategic Fund (the "Fund") and is given to you as broker with respect to a potential purchase of shares in the Fund.
I hereby certify that I am a natural person with, or I am signing on behalf of a company with, a net worth of more than $1,500,000 (if a natural person, together with assets held jointly with my spouse). If I am signing on behalf of a company, I further certify that (A) such company is not a private investment company, 1 a registered investment company or a business development company or (B) if such a company, each equity owner can make the certification in the preceding sentence. For purposes of this test, net worth is the fair market value of the assets that I (jointly with my spouse) or such company own(s) other than household effects, less all indebtedness and liabilities of any type (including joint liabilities with any other person). I agree to produce evidence to support the foregoing certification upon request.
In addition, I hereby confirm that I understand and agree that should I (or the company) purchase shares of the Fund, the following conditions will apply to the ownership and transfer of the shares:
(1) Shares may be held only through a broker, dealer or other financial intermediary that has entered into an agreement with the Fund's underwriter(s) for the provision of shareholder services;
(2) Shares may not be transferred, including by bequest, except to a person who has a net worth (if a natural person, together with assets held jointly with spouse) of more than $1,500,000, who agrees to hold his, her or its shares through a broker, dealer or other financial intermediary that has entered into an agreement for the provision of shareholder services to the Fund, and who agrees not to transfer the shares except to another person who has a net worth (if a natural person, together with assets held jointly with spouse) of more than $1,500,000 and agrees to comply with the foregoing ownership and transfer restrictions; and
(3) Upon any transfer of shares in violation of the foregoing clauses
(1) or (2), in addition to any other remedy that it may have, the
Fund will have the right (but not the obligation) to repurchase
any such improperly transferred shares.
Notwithstanding that the Fund is registered under the Investment Company Act of 1940, and the shares are being offered under an effective registration statement under the Securities Act of 1933, I acknowledge, understand and recognize that there will be no secondary market for the shares and that liquidity is limited as set forth in the prospectus. I understand that you, the Fund, and the Adviser are relying on the certification and agreements made herein in determining qualification and suitability as an investor in the Fund. I understand that shares of the Fund are not an appropriate investment for, and may not be acquired by, any person who can not make this certification, and agree to indemnify you and hold you harmless from any liability that you may incur as a result of this certification being untrue in any respect. I understand that it may be a violation of state and federal law for me (or the company) to provide this certification if I know that it is not true. I have read the preliminary or final prospectus for the Fund, including the investor qualification and investor suitability provisions contained therein. I understand that an investment in the Fund involves a considerable amount of risk and that I (or the company) may lose some or all of my (or its) investment. I understand that an investment in the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of the shares and should be viewed as a long-term investment. I will promptly advise you if any of the statements herein ceases to be true prior to my (or the company's) purchase of shares.
[THE REST OF THE PAGE IS INTENTIONALLY LEFT BLANK]
SALES LOAD:
Investment Amount Sales Load Net Amount Invested
----------------- ---------- ---------------------
$______________ _______% $______________
_________ The Investor acknowledges that a sales load in the percentage of
INITIAL the amount transmitted in connection with his, her or its
(IF purchase of shares as specified above is being charged by his,
APPLICABLE) her or its broker-dealer in connection with the investment in the
Fund and that only the net amount, after deduction of the sales
load, will be invested in the Fund.
|
Date:___________________ By:_________________________________ Name:
ELECTRONIC DELIVERY
Your consent will apply to ALL Fund-related documents. In giving your consent, please note that many of the documents will contain confidential information that is specific to your personal financial matters. Regardless of the delivery method you select, the Fund will take reasonable precautions to ensure the integrity, confidentiality and security of the documents, but will not be liable for any interception. If you consent to electronic delivery, each document will be delivered to you by sending you an e-mail that contains a copy of the document. The Fund will use the e-mail address that is in its records. Your initial consent noted above will take effect immediately and will remain in effect as long as you maintain an investment in the Fund or until you notify the Fund of a change. You may revoke your consent to receive electronic delivery of documents or update your address at any time by notifying the Fund. If you revoke your consent to electronic delivery, the Fund will begin to send paper copies of documents within 30 days of receiving your notice. The Fund does not impose any additional charge for electronic delivery.
APPENDIX B
PORTFOLIO MANAGER PERFORMANCE INFORMATION
The investment adviser of ACAP Strategic Fund (the "Fund"), SilverBay Capital Management LLC (the "Adviser"), is controlled by its managing member, Alkeon Capital Management, LLC ("Alkeon"). Mr. Panayotis ("Takis") Sparaggis, the Fund's portfolio manager and Alkeon's controlling principal, employs an investment program for the Fund that is substantially the same as the investment program that he employs in managing another investment vehicle (the "Other Investment Vehicle"). The Other Investment Vehicle represents the longest track record available among all similarly managed accounts by Mr. Sparaggis.1
Because of the similarity of investment programs, as a general matter, Mr. Sparaggis will consider participation by the Fund in all appropriate investment opportunities that are under consideration by Alkeon for the Other Investment Vehicle. There are a variety of factors that may be relevant in determining whether a particular investment opportunity or strategy is appropriate and feasible for the Fund or the Other Investment Vehicle at a particular time. Because these considerations may differ for the Fund and the Other Investment Vehicle in the context of any particular investment opportunity and at any particular time, the investment activities and future investment performance of the Fund and the Other Investment Vehicle will differ. (SEE "Potential Conflicts of Interest.")
THE TABLE AND BAR CHART SET FORTH PERFORMANCE INFORMATION OF THE OTHER INVESTMENT VEHICLE AND VARIOUS INDICES FOR THE PERIODS INDICATED. THE RETURNS SHOWN FOR THE OTHER INVESTMENT VEHICLE REFLECT THE ACTUAL FEES AND EXPENSES INCURRED BY THE OTHER INVESTMENT VEHICLE. THE TABLE SHOULD BE READ IN CONJUNCTION WITH THE NOTES THERETO. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. PROSPECTIVE INVESTORS SHOULD RECOGNIZE THAT THE FUND'S FEES AND EXPENSES MAY BE HIGHER THAN THOSE OF THE OTHER INVESTMENT VEHICLE. ACCORDINGLY, HAD THE OTHER INVESTMENT VEHICLE'S PERFORMANCE RECORDS REFLECTED THE FUND'S FEES AND ESTIMATED EXPENSES, THE OTHER INVESTMENT VEHICLE'S RETURNS SHOWN IN THE TABLE MAY HAVE BEEN LOWER. FURTHERMORE, THERE ARE CERTAIN DIFFERENCES BETWEEN THE INVESTMENT POLICIES OF THE FUND AND THE OTHER INVESTMENT VEHICLE. UNLIKE THE FUND, THE OTHER INVESTMENT VEHICLE IS NOT SUBJECT TO CERTAIN INVESTMENT LIMITATIONS IMPOSED BY APPLICABLE SECURITIES LAWS WHICH, IF APPLICABLE, MAY HAVE ADVERSELY AFFECTED THE OTHER INVESTMENT VEHICLE'S PERFORMANCE. THE FUTURE PERFORMANCE OF THE FUND, THE OTHER INVESTMENT VEHICLE AND THE VARIOUS INDICES MAY DIFFER.
The performance information does not represent the investment performance of the Fund and should not be viewed as indicative of the future investment performance of the Fund.
OTHER INVESTMENT VEHICLE PERFORMANCE 1
PERFORMANCE RELATIVE TO MAJOR INDICES AS OF NOVEMBER 30, 2009
COMPOUNDED ANNUAL RATE OF RETURN
12 MONTHS 3 YEARS 5 YEARS 10 YEARS SINCE OTHER
INVESTMENT VEHICLE
INCEPTION
OTHER INVESTMENT
VEHICLE 1 26.50% 17.45% 15.49% 11.60% 17.53%
S&P 500 2 22.24% -7.86% -1.37% -2.34% 1.02%
MSCI WORLD 3 28.67% -7.57% 0.38% -1.35% 1.73%
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OTHER INVESTMENT VEHICLE ("OIV") PERFORMANCE
COMPOUND ROR SINCE INCEPTION**** CUMULATIVE ROR SINCE INCEPTION****
550%-
450%-
17%- 350%-
12%- [GRAPHIC OMITTED] 250%- [GRAPHIC OMITTED]
7%- 150%-
2%- 50%-
-------------------------------- ------------------------------
-3% OIV MSCI S&P -50% OIV MSCI S&P
WORLD 500 WORLD 500
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*Source: Alkeon Capital Management LLC
**Source: MSCI Barra; Note: MSCI World data do not reflect reinvestment of
dividends.
***Source: Pertrac; Note: S&P 500 data do not reflect reinvestment of
dividends.
****Inception: January 5, 1998; S&P and MSCI data as of January 1, 1998.
1 The performance data provided in the table and bar chart are based on the investment performance of the Other Investment Vehicle. The information was prepared by Alkeon based on the following facts and assumptions:
The Other Investment Vehicle began investment operations on January 5, 1998. January 1998 performance was 1.66% and does not include the first 2 trading days in January 1998. Mr. Sparaggis, the primary portfolio manager of the Other Investment Vehicle, was employed by CIBC Oppenheimer Corp. from January 1998 through June 1999, and by CIBC World Markets Corp. from June 1999 through December 2001, and was the portfolio manager of the Other Investment Vehicle at all times during that period. Effective January 1, 2002, Mr. Sparaggis formed Alkeon, which has continued managing the Other Investment Vehicle's portfolio since that time.
The Other Investment Vehicle's performance reflects the deduction of a 1% management fee charged to investors prior to March 1, 2004, and a 1.5% management fee charged to investors beginning March 1, 2004. Performance results for the Other Investment Vehicle are actual results reflecting the returns of the Other Investment Vehicle as a whole (rather than the returns of a particular investor), and reflect the Other Investment Vehicle's advisory fees, incentive fees and expenses and include the reinvestment of dividends and income. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
2 The Standard & Poor's 500 Stock Index with is a market capitalization-weighted index made up of the 500 US companies with the largest market capitalizations.
3 MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. As of June 2007, the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, the United States. (Source: MSCI Barra)
OTHER DISCLOSURES
This information is intended for illustration purposes only. No index is directly comparable to the Fund or the Other Investment Vehicle. Past performance is not indicative of future results or performance of any account managed (directly or indirectly) by Mr. Sparaggis, including the Fund. There is no guarantee that the Fund will achieve its investment objective.
ACAP STRATEGIC FUND
Statement of
Additional Information
Dated December 30, 2009
This Statement of Additional Information ("SAI") is not a prospectus. This
SAI relates to and should be read in conjunction with the prospectus of ACAP
Strategic Fund (the "Fund"), dated December 30, 2009. To obtain a copy of the
Fund's prospectus (the "Prospectus"), please call the Fund's Vice President at
(212) 389-8713. The information in this SAI is not complete and may be changed.
The Fund may not sell these securities until the registration statement filed
with the Securities and Exchange Commission ("SEC") is effective. This SAI is
not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
TABLE OF CONTENTS
ADDITIONAL INVESTMENT POLICIES AND PRACTICES.............................S-2 INVESTMENT ADVISORY AND OTHER SERVICES...................................S-7 MANAGEMENT OF THE FUND...................................................S-9 PORTFOLIO MANAGER........................................................S-13 TAX ASPECTS..............................................................S-14 PROXY VOTING POLICIES AND PROCEDURES.....................................S-21 GENERAL INFORMATION......................................................S-21 FINANCIAL STATEMENTS.....................................................S-22 |
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER AND SALE IS NOT PERMITTED.
ADDITIONAL INVESTMENT POLICIES AND PRACTICES
The investment objective and principal investment strategies of the Fund, as well as the principal risks associated with the Fund's investment strategies, are set forth in the Prospectus. Certain additional investment information is set forth below.
FUNDAMENTAL POLICIES
The Fund has adopted fundamental policies for its interval fund structure as set forth in the Prospectus. In addition, the Fund has adopted the following six fundamental investment policies, which cannot be changed without the vote of a majority of the Fund's outstanding voting securities (as defined by the Investment Company Act of 1940 (the "1940 Act")):
(1) The Fund will not invest 25% or more of the value of its total assets in the securities of issuers engaged in any single industry or group of related industries, provided that this restriction does not limit the Fund's investments in U.S. Government Securities (as defined herein) or in securities of "Technology Companies" as defined in the Prospectus (as may be amended from time to time).
(2) The Fund will not issue "senior securities" (as defined by the 1940 Act) or borrow money except to the extent permitted by the 1940 Act or as otherwise permitted by the SEC or its staff and as is consistent with the Fund's investment policies.
(3) The Fund will not underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended (the "1933 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 debt 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, except that the Fund may purchase and sell foreign currency, as well as options on foreign currency, indices and financial futures contracts, and may enter into currency swaps and forward contracts, including those related to indices, in connection with its investments in foreign securities, in accordance with such investment policies as the Board may adopt and subject to applicable regulatory limitations.
(6) The Fund will not purchase, hold or deal in real estate, but may invest in securities that are secured by real estate or that are issued by companies that invest or deal in real estate or real estate investment trusts.
The investment objective of the Fund and its policies with respect to share repurchases (as set forth in the Prospectus) are also fundamental and may not be changed without a vote of a majority of the Fund's outstanding voting securities (as defined by the 1940 Act).
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, (i) of 67 percent or more of the voting securities present
at the meeting, if the holders of more than 50 percent of the outstanding voting securities of the Fund are present or represented by proxy; or (ii) of more than 50 percent of the outstanding voting securities of the Fund, whichever is less.
With respect to the investment restriction set forth in (1) above, and other policies described herein and in the Prospectus, except the incurrence of leverage or the issuance or deemed issuance of a senior security, if a percentage restriction is adhered to at the time of entering into the investment or transaction, a later change in percentage resulting from a change in the values of investments or the value of the Fund's total assets, unless otherwise stated, will not constitute a violation of the restriction or policy. In addition to the restrictions contained in the fundamental investment policies stated above, the Fund is subject to certain restrictions imposed by the 1940 Act on registered investment companies, including restrictions with respect to its investment in the securities of other investment companies, insurance companies and companies engaged in certain securities related businesses.
SPECIAL INVESTMENT INSTRUMENTS AND TECHNIQUES
The Fund may from time to time utilize a variety of special investment instruments and techniques (as described below) to hedge its investment portfolio against various risks (such as changes in interest rates or other factors that affect security values) or for non-hedging purposes to pursue its investment objective. The instruments the Fund may use and the particular manner in which they may be used may change over time as new instruments and techniques are developed or regulatory changes occur. Certain of the special investment instruments and techniques that the Fund may use are speculative and involve a high degree of risk, particularly in the context of non-hedging transactions to pursue the Fund's investment objective. There is no requirement that the Fund hedge its portfolio or any of its investment positions.
CALL AND PUT OPTIONS ON SECURITIES INDICES. The Fund may purchase and sell call and put options on stock indices listed on national securities exchanges or traded in the over-the-counter market for hedging purposes and non-hedging purposes to pursue its investment objective. A stock index fluctuates with changes in the market values of the stocks included in the index. The effectiveness of purchasing or writing stock index options for hedging purposes will depend upon the extent to which price movements in the Fund's portfolio correlate with price movements of the stock index selected. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular stock, the Fund's ability to realize a gain from the purchase or writing of options on an index depends upon movements in the level of stock prices in the stock market generally or, in the case of certain indices, the level of stock prices in an industry or market segment, rather than movements in the price of a particular stock. Accordingly, successful use by the Fund of options on stock indices will be subject to the ability of the Fund's investment adviser, SilverBay Capital Management LLC (the "Adviser"), to predict correctly movements in the direction of the stock market generally or of a particular industry or market segment. This requires different skills and techniques than predicting changes in the prices of individual stocks.
OTHER DERIVATIVES. In addition to options on securities indices (described above) and the derivative instruments described under "Principal Investment Strategies & Methodology" in the Prospectus, the Fund may from time to time invest in a variety of other derivative
instruments to seek maximum capital appreciation or for hedging purposes, such as swaptions, and structured-equity notes. A swaption is an option entitling one party to enter into a swap agreement with a counterparty. Structured-equity notes are specially designed investments whose principal payments or interest payments are linked to the value of an underlying equity asset. The Adviser reserves the right to utilize other derivative instruments as it deems appropriate and as new instruments are developed or regulatory changes occur. Derivative instruments may be subject to various types of risks, including market risk, liquidity risk, counterparty credit risk, legal risk and operations risk. For example:
o the underlying investment or security might not perform in the manner that the Adviser expects it to perform, which could make an effort to hedge using derivatives unsuccessful;
o the company issuing the derivative instrument may be unable to pay the amount due on the maturity of the instrument;
o certain derivative investments held by the Fund may trade only in over-the-counter markets or not at all, and can be illiquid; and
o derivatives may change rapidly in value because of their inherent leverage.
All of this can mean that the Fund's net asset value may change more often and to a greater degree than it otherwise would. The Fund has no obligation to enter into any hedging transactions.
REPURCHASE AGREEMENTS. The Fund is expected to invest no more than 5% of its assets in repurchase agreements involving the types of securities eligible for purchase by the Fund.
Repurchase agreements, which may be viewed as a type of secured lending by the Fund, are agreements under which the Fund purchases securities from a bank that is a member of the Federal Reserve System, a foreign bank or a securities dealer that agrees to repurchase the securities from the Fund at a higher price on a designated future date. If the seller under a repurchase agreement becomes insolvent or otherwise fails to repurchase the securities, the Fund would have the right to sell the securities. This right, however, may be restricted, or the value of the securities may decline before the securities can be liquidated. In the event of the commencement of bankruptcy or insolvency proceedings with respect to the seller of the securities before the repurchase of the securities under a repurchase agreement is accomplished, the Fund may encounter a delay and incur costs, including a decline in the value of the securities, before being able to sell the securities. Repurchase agreements that are subject to foreign law may not enjoy protections comparable to those provided to certain repurchase agreements under U.S. bankruptcy law, and they therefore may involve greater risks.
The Fund has adopted specific policies designed to minimize certain of the risks of loss associated with repurchase agreements. These procedures include a requirement that the Adviser effect repurchase transactions only with large, well-capitalized U.S. financial institutions
approved by it as creditworthy based upon periodic review. In addition, the value of the collateral underlying the repurchase agreement, which will be held by the Fund's custodian on behalf of the Fund, will always be at least equal to the repurchase price, including any accrued interest on the repurchase agreement. In the event of a default or bankruptcy by a selling financial institution, the Fund will seek to liquidate such collateral. However, the exercise of the Fund's right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase agreements, which involve the sale of securities with the simultaneous agreement to repurchase the securities at an agreed-upon price (reflecting a market rate of interest) on a specific date. These transactions involve a risk that the other party to a reverse repurchase agreement will be unable or unwilling to complete the transaction as scheduled, which may result in losses to the Fund. Reverse repurchase transactions are a form of leverage that may increase the volatility of the Fund's investment portfolio. The Fund is expected to invest no more than 5% of its assets in reverse repurchase agreements. As with repurchase agreements, the Adviser will only effect reverse repurchase transactions with large, well-capitalized U.S. financial institutions approved by it as creditworthy based upon periodic review.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis in order to hedge against anticipated changes in interest rates and prices. These transactions involve a commitment by the Fund to purchase or sell securities at a future date (ordinarily one or two months later). The price of the underlying securities, which is generally expressed in terms of yield, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. No income accrues on securities that have been purchased pursuant to a forward commitment or on a when-issued basis prior to delivery to the Fund. When-issued securities and forward commitments may be sold prior to the settlement date. If the Fund disposes of the right to acquire a when-issued security prior to its acquisition or disposes of its right to deliver or receive against a forward commitment, it may incur a gain or loss. These transactions will be subject to the Fund's limitation on indebtedness unless, at the time the Fund enters into such a transaction, a segregated account consisting of cash, debt securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities ("U.S. Government Securities") or liquid securities equal to the value of the when-issued or forward commitment securities is established and maintained. There is a risk that securities purchased on a when-issued basis may not be delivered and that the purchaser of securities sold by the Fund on a forward basis will not honor its purchase obligation. In these cases, the Fund may incur a loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although the Fund invests primarily in publicly-traded securities, it may invest a portion of the value of its total assets in restricted securities and other investments that are illiquid. Restricted securities are securities that may not be sold to the public without an effective registration statement under the 1933 Act, or, if they are unregistered, may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. In recognition of
the increased size and liquidity of the institutional markets for unregistered securities and the importance of institutional investors in the formation of capital, the SEC has adopted Rule 144A under the 1933 Act, which is designed to further facilitate efficient trading among qualified institutional investors by permitting the sale of certain unregistered securities to qualified institutional buyers. To the extent privately placed securities held by the Fund qualify under Rule 144A, and an institutional market develops for those securities, the Fund likely will be able to dispose of those securities without registering them under the 1933 Act. To the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities, investing in Rule 144A securities could have the effect of increasing the level of the Fund's illiquidity. The Fund may adopt procedures under which certain Rule 144A securities will not be deemed to be illiquid, if certain criteria are satisfied with respect to those securities and the market therefor. Securities that are considered to be illiquid are not expected to exceed 15% of the Fund's net assets (as determined at the time of investment). Foreign securities that can be freely sold in the markets in which they are principally traded are not considered by the Fund to be restricted or illiquid. Regulation S under the 1933 Act permits the sale abroad of securities that are not registered for sale in the United States. Repurchase agreements with maturities of more than seven days will be treated as illiquid.
When registration is required to sell a security, the Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the decision to sell a security and the time the Fund may be permitted to sell that security under an effective registration statement. If, during such period, adverse market conditions were to develop, the Fund might obtain a less favorable price than that which prevailed when it decided to sell. Restricted securities for which no market exists and other illiquid investments are valued at fair value, as determined in accordance with procedures approved and periodically reviewed by the Fund's board of trustees (the "Board").
Investments in restricted securities and other illiquid investments involve the risk that the securities will not be able to be sold at the time desired by the Adviser or at prices approximating the value at which the Fund is carrying the securities. As a result, in determining the proportion of the value of its total assets that will be invested in restricted and other illiquid investments, the Fund will consider the need to maintain an adequate level of liquidity in its portfolio in order to fund the repurchase of shares from shareholders without unnecessarily adversely impacting the value of the Fund's portfolio.
INVESTMENTS IN DISTRESSED COMPANIES AND RESTRUCTURINGS
Though not currently anticipated by the Adviser, the Fund may invest in securities and private claims and obligations of domestic and foreign entities which are experiencing significant financial or business difficulties, such as non-performing and sub-performing loans, loan participations, claims held by trade or other creditors, partnership interests and similar financial instruments, most of which are not publicly traded and which may involve a substantial degree of risk. If the Fund makes such an investment, it may lose a substantial portion or all of its investment in a troubled loan or equity interest or may be required to accept cash or securities with a value less than their share of the investment. Among the risks inherent in investments in troubled entities is the fact that it frequently may be difficult for the Adviser to obtain information as to the true condition of such entities.
The Fund may make certain speculative purchases of financial instruments of companies that are involved in, or which the Adviser believes will be involved in, corporate restructurings, that it believes are undervalued because of an extraordinary event, or that are expected to undergo a change in value because of an expected occurrence. The Fund may also make concentrated investments in financial instruments of companies that may be or may become targets for takeovers. If the Fund purchases financial instruments in anticipation of an acquisition attempt or reorganization or with the intention to influence the management and policies of the issuer of the financial instruments, and an acquisition attempt or reorganization does not in fact occur or it is not able to so influence the issuer of the financial instruments, the Fund may sell the financial instruments at a material loss.
In most forms of corporate reorganization, there exists the risk that the reorganization either will be unsuccessful (for example, for failure to obtain requisite approvals), will be delayed (for example, until various liabilities, actual or contingent, have been satisfied) or will result in a distribution of cash or a new financial instrument the value of which will be less than the purchase price to the Fund of the financial instruments in respect of which such distribution was made.
INVESTMENT ADVISORY AND OTHER SERVICES
Subject to the supervision and control of the Board, the Adviser serves as the Fund's investment adviser, pursuant to an investment advisory agreement (the "Advisory Agreement"). The Advisory Agreement was approved by the Board (including a majority of the Independent Trustees, as defined hereafter), at a meeting held in person on December 2, 2009, and approved on that date by the then sole shareholder of the Fund.
The Adviser is responsible for: (i) developing and implementing the Fund's investment program, (ii) managing the Fund's investment portfolio and making all decisions regarding the purchase and sale of investments for the Fund, and (iii) providing various management and administrative services to the Fund. The Advisory Agreement provides that, in consideration for providing certain management services (provided by the Adviser or an affiliate) and administrative services (provided by the Adviser or an affiliate), the Adviser will be entitled to receive the management fee and incentive fee, as set forth under "Fees and Expenses" in the Prospectus and as described below. The management fee and incentive fee arrangements between the Fund and the Adviser were also approved in person by the Board (including a majority of the Independent Trustees), and approved on that date by the then sole shareholder of the Fund, on December 2, 2009.
Those certain management and administrative services provided by the Adviser (or an affiliate) will include assisting the Fund in selecting, and monitoring the quality of services provided by, the Fund's administrator, custodian, transfer agent, and other organizations that provide services to the Fund. In addition, the Adviser (or an affiliate) provides office space, facilities, equipment and other support services and personnel as necessary to operate the Fund. The Adviser is also responsible for providing additional management and administrative services as may reasonably
be required in connection with the business affairs and operations of the Fund beyond those furnished by the Fund's administrator.
The Advisory Agreement provides for indemnification by the Fund of the Adviser and its affiliates from any and all costs, losses, claims, damages or liabilities, joint or several, including reasonable attorneys' fees and disbursements incurred by them resulting in any way from their performance or non-performance of their duties with respect to the Fund. Indemnification is only available to the extent the cost, loss, claim, damage or liability did not result from willful misfeasance, bad faith or gross negligence in the performance by the persons seeking indemnification of their duties, or the reckless disregard of their obligations and duties, under the Advisory Agreement.
The Advisory Agreement provides that it will continue in effect for two years and that, after the initial period of effectiveness, will continue in effect for successive annual periods, PROVIDED that such continuance is specifically approved at least annually by the vote of a majority of the Board who are not parties to the agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such continuance, and either: (i) the vote of a majority of the outstanding shares of the Fund; or (ii) the vote of a majority of the full Board. The Advisory Agreement also provides that it may be terminated at any time, without the payment of any penalty, either by: (i) the Fund, by action of the Board or by vote of a majority of the outstanding shares of the Fund, on 60 days' written notice; or (ii) the Adviser on 60 days' written notice to the Fund. The Advisory Agreement will terminate immediately in the event of its "assignment" (as defined in the 1940 Act). A discussion regarding the Board's approval of the Advisory Agreement and the factors the Board considered will be included in the Fund's first semi-annual report to shareholders.
In consideration of management services provided by the Adviser and for services provided by the Adviser or an affiliate for certain administrative services, the Fund pays the Adviser a monthly management fee computed at the annual rate of 2.00% of the Fund's average daily net assets (the "Management Fee"), which is due and payable in arrears within five business days after the end of each month. This fee will be accrued daily as an expense to be paid out of the Fund's assets and will have the effect of reducing the net asset value of the Fund.
The Fund also pays the Adviser a performance-based incentive fee (the "Incentive Fee") promptly after the end of each fiscal year of the Fund. The Incentive Fee is determined as of the end of the fiscal year in an amount equal to 20% of the amount by which the Fund's net profits for all Fiscal Periods (as defined below) ending within or coterminous with the close of such fiscal year exceed the balance of the loss carryforward account (as described below), without duplication for any Incentive Fees paid during such fiscal year. The Fund also pays the Adviser the Incentive Fee in the event a Fiscal Period is triggered in connection with a share repurchase offer by the Fund, as described below. For purposes of calculating the Incentive Fee, net profits means the amount by which: (a) the net assets of the Fund as of the end of a Fiscal Period, increased by the dollar amount of shares of the Fund repurchased during the Fiscal Period (excluding shares to be repurchased as of the last day of the Fiscal Period after determination of the Incentive Fee) and by the amount of dividends and other distributions paid to shareholders during the Fiscal Period and not reinvested in additional shares (excluding any dividends and other distributions to be paid as of the last day of the Fiscal Period), exceeds (b) the net assets of the Fund as of the beginning of the Fiscal Period, increased by the dollar amount of shares of the Fund issued during the Fiscal Period (excluding any shares issued in connection with the reinvestment of dividends and other distributions paid by the Fund). Net assets means the total value of all assets of the Fund, less an amount equal to all accrued debts, liabilities and obligations of the Fund, determined in accordance with the valuation and accounting policies and procedures of the Fund. "Fiscal Period" means each twelve-month period ending on the Fund's fiscal year-end, provided that whenever the Fund conducts a share repurchase offer, the period of time from the last Fiscal Period-end through the effective date of the repurchase offer also constitutes a Fiscal Period. Upon termination of the Advisory Agreement, the Fund will pay the Incentive Fee to the Adviser as if the date of effectiveness of such termination is the end of the Fund's fiscal year.
In the event that an Incentive Fee is payable with respect to a Fiscal Period that is not the Fund's fiscal year-end due to the Fund's share repurchases, the Incentive Fee will be determined as if the end of such Fiscal Period were the end of the Fund's fiscal year, and only that portion of the Incentive Fee that is proportional to the Fund's assets paid in respect of such share repurchases (not taking into account any proceeds from any contemporaneous issuance of shares of the Fund, by reinvestment of dividends and other distributions or otherwise) will be paid to the Adviser for such Fiscal Period. Since the
Fund operates as an interval fund under Rule 23c-3 of the 1940 Act and conducts repurchase offers every fiscal quarter, Fiscal Periods could be triggered (and, therefore, a portion of the Incentive Fee would be payable to the Adviser) up to four times each fiscal year.
The Incentive Fee is calculated and accrued daily as an expense of the Fund (as if each day is the end of the Fund's fiscal year). The Adviser will be under no obligation to repay any Incentive Fee or portion thereof previously paid to it by the Fund. Thus, the payment of an Incentive Fee for a Fiscal Period will not be reversed by the subsequent decline in assets of the Fund in any subsequent Fiscal Period.
The Incentive Fee will be payable for a Fiscal Period only if there is no positive balance in the Fund's loss carryforward account. The loss carryforward account is an account that will have an initial balance of zero upon commencement of the Fund's operations and, thereafter, will be credited as of the end of each Fiscal Period with the amount of any net loss of the Fund for that Fiscal Period and will be debited with the amount of any net profits of the Fund for that Fiscal Period, as applicable (provided, however, that the debiting of net profits may only reduce a positive balance in the loss carryforward account and may not reduce the balance of the loss carryforward account below zero). This is sometimes known as a "high water mark." The balance of the loss carryforward account, if any, will be subject to a proportionate reduction as of the day following: (i) the payment by the Fund of any dividend or other distribution to shareholders (unless the full amount thereof is reinvested in shares of the Fund); and (ii) any repurchase by the Fund of its shares.
MANAGEMENT OF THE FUND
The Board has overall responsibility for the management and supervision of the operations of the Fund and has approved the Fund's investment program. The Board has complete and exclusive authority to oversee and to establish policies regarding the management, conduct and operation of the Fund's business. The members of the Board (the "Trustees") will not contribute to the capital of the Fund in their capacity as Trustees, but may subscribe for shares, subject to the eligibility requirements described in the Prospectus.
The identity of the Trustees, and brief biographical information regarding each Trustee, is set forth below.
INDEPENDENT TRUSTEES
NUMBER OF
PORTFOLIOS IN
FUND
NAME AND POSITION(S) TERM OF OFFICE PRINCIPAL OCCUPATION(S) COMPLEX OTHER
AGE WITH THE AND LENGTH OF DURING PAST 5 YEARS OVERSEEN BY TRUSTEESHIPS/DIRECTOR
FUND TIME SERVED TRUSTEE SHIPS HELD BY TRUSTEE
____________________________________________________________________________________________________________________________________
Brad L. Trustee Indefinite/Since President, Liberian None (1) None
Berman, 52 Inception International Ship &
Corporate Registry, LLC
(ship & corporate registry)
William F. Trustee Indefinite/Since Senior Vice President, None (1) None
Murphy, 51 Inception Derivative Trading, HSBC
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Bank, NA; Executive
Director, Derivative
Trading, UBS AG
Jorge Trustee Indefinite/Since Analyst, HealthCor None (1) None
Orvananos, 41 Inception Partners Management, L.P.
(private equity firm);
Technical Strategist,
Kingdon Capital
Management, LLC (hedge
fund sponsor firm)
The address of each Independent Trustee is 350 Madison Avenue, 9th Floor, New York, New York 10017.
* "Fund Complex" means two or more registered investment companies that hold themselves out to investors as
related companies for purposes of investment and investor services, or that have a common investment adviser or
have an investment adviser that is an affiliated person of the investment adviser of any of the other registered
investment companies. Currently, the Fund is not part of any "Fund Complex."
(1) Other than the Fund.
Interested Trustees*
NUMBER OF
PORTFOLIOS IN
FUND
NAME AND POSITION(S) TERM OF OFFICE PRINCIPAL OCCUPATION(S) COMPLEX OTHER
AGE WITH THE AND LENGTH OF DURING PAST 5 YEARS OVERSEEN BY TRUSTEESHIPS/DIRECTOR
FUND TIME SERVED TRUSTEE SHIPS HELD BY TRUSTEE
____________________________________________________________________________________________________________________________________
Stephen R. Trustee Indefinite/Since President, Asset & Wealth None (1) None
Cordill, 53 Inception Management, Sanders
Morris Harris (investment
management firm);
Managing Director,
Oppenheimer & Co.
Gregory D. Trustee, Indefinite/Since Chief Operating Officer, None (1) None
Jakubowsky, President Inception Alkeon Capital
37 and Management (investment
Principal management firm); Chief
Executive Executive Officer,
Officer Mainsail Group, L.L.C.
(broker-dealer)
* "Interested person" of the Fund or the Adviser, as defined by the 1940 Act. Mr. Cordill may be deemed to be an
interested person due to his position with Sanders Morris Harris, the parent company of the Adviser's non-managing
member. Mr. Jakubowsky is an interested person of the Fund due to his position as an officer of the Fund.
(1) Other than the Fund.
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Each of the Trustees was elected to the Board by the Adviser as the then sole shareholder of the Fund.
The Trustees serve on the Board for terms of indefinite duration. Except as required by the 1940 Act, Trustees need not be elected by shareholders. Each Trustee shall serve during the continued lifetime of the Trust until he/she dies, resigns, is declared bankrupt or incompetent by a court of appropriate jurisdiction, or is removed, or, if sooner, until the next meeting of shareholders called for the purpose of electing Trustees and until the election and qualification of
his/her successor. Any Trustee may resign at any time by written instrument signed by him/her and delivered to any officer of the Trust or to a meeting of the Trustees. The Board, by action of a majority of the then remaining Trustees at a duly constituted meeting, may fill vacancies in the Board or remove Trustees with or without cause; except that a vacancy shall be filled only by a person elected by shareholders if required by the 1940 Act. Any Trustee may be removed at any meeting of shareholders by a vote of two-thirds of the outstanding shares of the Trust. A meeting of shareholders for the purpose of electing or removing one or more Trustees may be called (i) by the Trustees upon their own vote, or (ii) upon the demand of a shareholder or shareholders owning shares representing 10% or more of all votes entitled to be cast by outstanding shares.
The following table sets forth certain information regarding the compensation expected to be received by the Independent Trustees from the Fund for their first full fiscal year of service. No compensation is paid by the Fund to Trustees who are "interested persons" (as defined by the 1940 Act) of the Fund or the Adviser.
COMPENSATION TABLE
Pension or
Retirement
Aggregate Benefits Accrued Estimated Total
Compensation as Part of Fund Annual Benefits Compensation
Name of Trustee From Fund Expenses Upon Retirement From the Fund
_________________________________________________________________________________________________
Brad L. Berman $10,000 0 0 $10,000
William F. Murphy $10,000 0 0 $10,000
Jorge Orvananos $10,000 0 0 $10,000
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Currently, the Independent Trustees are each paid an annual retainer of $10,000 and are reimbursed by the Fund for their reasonable out-of-pocket expenses. The Trustees do not receive any pension or retirement benefits from the Fund.
BOARD COMMITTEES
The only standing committees of the Board are the Audit Committee and the Nominating Committee. The Audit Committee is comprised of the Independent Trustees. The Audit Committee has, as its primary purpose, oversight responsibility with respect to: (i) the adequacy of the Fund's accounting and financial reporting processes, policies and practices; (ii) the integrity of the Fund's financial statements and the independent audit thereof; (iii) the adequacy of the Fund's overall system of internal controls and, as appropriate, the internal controls of certain service providers; (iv) the Fund's compliance with certain legal and regulatory requirements; and (v) determining the qualification and independence of the Fund's independent auditors. To the extent there are Trustees who are not members of the Audit Committee, the Audit Committee members shall report its activities to the full Board on a regular basis and make such recommendations as the Audit Committee may deem necessary or appropriate. As the
Fund is newly organized, no meetings of the Audit Committee have been held as of the date of this SAI.
The Nominating Committee is comprised of the Independent Trustees to which the discretion to select and nominate candidates to serve as Independent Trustees has been committed. While the Nominating Committee is responsible for the selection and nomination of the Fund's Independent Trustees, the Nominating Committee may consider nominations for the office of Independent Trustee made by shareholders in the Fund or by Fund management as it deems appropriate. Shareholders who wish to recommend a nominee should send nominations (that include biographical information and set forth the qualifications of the proposed nominee) to ACAP Strategic Fund, 350 Madison Avenue, 9th Floor, New York, New York, 10017; Attention: Vice President. As the Fund is newly organized, no meetings of the Nominating Committee have been held as of the date of this SAI.
EQUITY SECURITIES OWNED BY TRUSTEES
As of the end of the most recently completed calendar year, none of the Trustees own shares of the Fund. As of the end of the most recently completed calendar year, the Independent Trustees, and their immediate family members, did not beneficially own or own of record securities in the Adviser, the Adviser's managing member, Alkeon Capital Management, LLC ("Alkeon"), SMH Capital Inc. ("SMH"), Mainsail Group L.L.C. ("Mainsail") or any persons (other than registered investment companies) directly or indirectly controlling, controlled by or under common control with the Adviser.
FUND OFFICERS
In accordance with the Fund's agreement and declaration of trust (the "Declaration of Trust"), the Board has selected the following persons to serve as officers of the Fund:
OFFICERS
TERM OF OFFICE AND PRINCIPAL OCCUPATION(S)
NAME AND POSITION(S) WITH THE LENGTH OF TIME DURING PAST 5 YEARS NUMBER OF PORTFOLIOS IN
AGE FUND SERVED FUND COMPLEX OVERSEEN
__________________________________________________________________________________________________________________________
Gregory D. President and Indefinite/Since Chief Operating Officer, None (1)
Jakubowsky, Principal Executive Inception Alkeon Capital
37 Officer Management (investment
management firm); Chief
Executive Officer,
Mainsail Group, L.L.C.
(broker-dealer)
George Treasurer and Indefinite/Since Chief Financial Officer, None (1)
Mykoniatis, Principal Financial Inception Alkeon Capital
39 Officer Management (investment
management firm); Chief
Compliance Officer,
Mainsail Group, L.L.C.
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(broker-dealer)
A. Tyson Chief Compliance Indefinite/Since Independent Consultant; None (1)
Arnedt, 47 Officer, Chief Legal Inception Chief Operating Officer,
Officer, Vice EIM Management (USA)
President and Inc. (investment
Secretary management firm
The address of each Officer is 350 Madison Avenue, 9th Floor, New York, New York 10017.
(1) Other than the Fund.
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PORTFOLIO MANAGER
The following table provides information regarding accounts managed by the Fund's portfolio manager, Mr. Panayotis "Takis" Sparaggis (the "Portfolio Manager"), as of December 1, 2009:
REGISTERED INVESTMENT POOLED INVESTMENT VEHICLES OTHER ACCOUNTS
COMPANIES MANAGED BY THE MANAGED BY THE MANAGED BY THE PORTFOLIO
PORTFOLIO MANAGER PORTFOLIO MANAGER MANAGER
NAME OF NUMBER WITH TOTAL ASSETS WITH NUMBER WITH TOTAL ASSETS WITH NUMBER WITH TOTAL ASSETS WITH
PORTFOLIO PERFORMANCE- PERFORMANCE- PERFORMANCE- PERFORMANCE- PERFORMANCE- PERFORMANCE-
MANAGER BASED FEES BASED FEES BASED FEES BASED FEES BASED FEES BASED FEES
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Panayotis
"Takis"
Sparaggis 1 $896,835,304 13 $742,174,211 None N/A
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PORTFOLIO MANAGER COMPENSATION
Mr. Sparaggis' compensation consists of periodic draws and the income from the profits of Alkeon, the managing member of the Adviser, derived by him as its controlling principal. The level of Alkeon's profitability in turn is dependent on the advisory fees and performance fees and allocations received from the Fund and other advisory clients.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of December 30, 2009, the Portfolio Manager did not own directly any shares of the Fund. (This does not take into account the Portfolio Manager's position as controlling principal of the Adviser's managing member.)
TAX ASPECTS
The following is a general summary of the material anticipated U.S. federal income tax consequences of the purchase, ownership and disposition of shares of the Fund. The discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, court decisions, published positions of the Internal Revenue Service ("IRS") and other applicable authorities, all as in effect on the date hereof and all of which are subject to change or differing interpretations (possibly with retroactive effect). The discussion is limited to
U.S. persons who hold shares of the Fund as capital assets for federal income tax purposes. This summary does not address all of the federal income tax consequences that may be relevant to a particular shareholder or to shareholders who may be subject to special treatment under federal income tax laws. No ruling has been or will be obtained from the IRS regarding any matter relating to the shares. No assurance can be given that the IRS would not assert a position contrary to any of the tax aspects described below. The discussions set forth here and in the Prospectus do not constitute tax advice. Shareholders must consult their own tax advisers as to the federal income tax consequences of the purchase, ownership and disposition of shares of the Fund, as well as the effects of state, local and non-U.S. tax laws.
FEDERAL INCOME TAXATION OF THE FUND
The Fund will elect, and intends to qualify each year, to be treated as a regulated investment company ("RIC") under Subchapter M of the Code. Prior to electing RIC status the Fund will elect to be treated as a corporation for federal tax purposes. To qualify as a regulated investment company, the Fund must comply with certain requirements relating to, among other things, the sources of its income and diversification of its assets (the "Diversification Requirement"). If the Fund so qualifies and distributes each year to its shareholders at least 90% of its investment company taxable income (generally including ordinary income and net short-term capital gain, but not net capital gain, which is the excess of net long-term capital gain over net short-term capital loss) and meets certain other requirements, it will not be required to pay federal income taxes on any income it distributes to shareholders. The Fund intends to distribute at least the minimum amount necessary to satisfy the 90% distribution requirement. The Fund will not be subject to federal income tax on any net capital gain distributed to shareholders.
To avoid a nondeductible 4% federal excise tax, the Fund will be required to distribute by December 31st of each year at least an amount equal to the sum of (i) 98% of its ordinary income for such year, (ii) 98% of its capital gain net income (which generally is computed on the basis of the one-year period ending on October 31st of such year), and (iii) any amounts that were not distributed in previous taxable years on which the Fund paid no U.S. federal income tax. For purposes of the excise tax, any ordinary income or capital gain net income retained by, and subject to federal income tax in the hands of, the Fund will be treated as having been distributed.
The Diversification Requirement requires the Fund to diversify its holdings so that at the end of each quarter of the taxable year:
o at least 50% of the value of the Fund's total assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs and other securities representing, in respect of any one issuer, no more than 5% of the value of the Fund's assets and no more than 10% of the outstanding voting securities of such issuer; and
o no more than 25% of the value of the total assets of the Fund is invested in (i) the securities of any one issuer, other than U.S. government securities or securities of other RICs, (ii) the securities of any two or more issuers that are controlled, as determined
under applicable tax rules, by the Fund and that are engaged in the same or similar or related trades or businesses, or (iii) securities of qualified publicly traded partnerships.
If the Fund failed to qualify as a regulated investment company or failed to satisfy the 90% distribution requirement in any taxable year, the Fund would be taxed as an ordinary corporation on its taxable income (even if such income were distributed to its shareholders) and all distributions out of earnings and profits would be taxed to shareholders as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject to interest charges) before requalifying for taxation as a regulated investment company.
There is a possibility that the Fund may from time to time be considered under the Code to be a nonpublicly offered regulated investment company. Under Temporary Regulations, certain expenses of nonpublicly offered regulated investment companies, including advisory fees, may not be deductible by certain shareholders, generally including individuals and entities that compute their taxable income in the same manner as an individual (thus, for example, a qualified pension plan is not subject to this rule). Such a shareholder's pro rata portion of the affected expenses, will be treated as an additional dividend to the shareholder and will be deductible by such shareholder, subject to the 2% "floor" on miscellaneous itemized deductions and other limitations on itemized deductions set forth in the Code. A "nonpublicly offered regulated investment company" is a RIC whose shares are neither (i) continuously offered pursuant to a public offering, (ii) regularly traded on an established securities market nor (iii) held by at least 500 persons at all times during the taxable year.
NATURE OF THE FUND'S INVESTMENTS
Certain of the Fund's investment practices are subject to special and
complex federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gain and qualified
dividend income into higher taxed short-term capital gain or ordinary income,
(iii) convert an ordinary loss or a deduction into a capital loss (the
deductibility of which is more limited), (iv) cause the Fund to recognize income
or gain without a corresponding receipt of cash, (v) adversely affect the timing
as to when a purchase or sale of stock or securities is deemed to occur and (vi)
adversely alter the characterization of certain complex financial transactions.
An investment by the Fund in a "passive foreign investment company" may result
in additional taxes as well as potentially causing the Fund to recognize income
in advance of receiving cash payments.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions of the Fund's investment company taxable income are taxable to shareholders as ordinary income to the extent of the Fund's earnings and profits. Distributions of the Fund's net capital gain as capital gain dividends, if any, are taxable to shareholders as long-term capital gains regardless of the length of time shares of the Fund have been held by such shareholders. Distributions in excess of the Fund's current and accumulated earnings and profits will first reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder. The Fund will inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year.
The federal income tax rates generally will be reduced to 15% (5% for individuals in lower tax brackets) on (1) long-term capital gains received by individuals and (2) "qualified dividend income" received by individuals from certain domestic and foreign corporations. The reduced rates for capital gains generally apply to long-term capital gains from sales or exchanges recognized for taxable years beginning on or before December 31, 2010. The reduced rate for dividends generally applies to "qualified dividend income" received in taxable years after December 31, 2002 and ceases to apply for taxable years beginning after December 31, 2010. Fund shareholders, as well as the Fund itself, must also satisfy certain holding period and other requirements in order for the reduced rates to apply. Because the Fund intends to invest primarily in equity securities, a portion of the ordinary income dividends paid by the Fund should be eligible for the reduced rate applicable to "qualified dividend income." No assurance can be given as to what percentage of the ordinary income dividends, if any, will consist of "qualified dividend income." To the extent that distributions from the Fund are designated as capital gain dividends, such distributions will be eligible for the reduced rates applicable to long-term capital gains. For a summary of the maximum tax rates applicable to capital gains (including capital gain dividends), SEE "Capital Gains Rates" below.
Income from investments in foreign securities received by the Fund may be subject to income, withholding or other taxes imposed by foreign countries and United States possessions. Such taxes will not be deductible or creditable by shareholders. Tax conventions between certain countries and the United States may reduce or eliminate such taxes.
Certain foreign currency gains and losses attributable to currency exchange rate fluctuations are treated as ordinary income or loss. Such income (or loss) may increase (or decrease) the Fund's income available for distribution.
SALE OF SHARES
A shareholder will recognize a gain or loss on the sale of shares (other than a repurchase as described below) equal to the difference between their adjusted tax basis (which will include any sales load paid by such shareholder to a Selling Agent) in the shares sold and the amount received. Generally, any such gain or loss will be considered capital gain or loss if the shares are held as capital assets, and will be treated as a long-term capital gain or loss if the shares have been held for more than one year. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to the Fund's automatic reinvestment plan. In such a case, the tax basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on the sale or exchange of Fund shares held by a shareholder for six months or less will be treated for federal income tax purposes as a long-term capital loss to the extent of any distributions of long-term capital gains received by the shareholder with respect to such shares and the amount of any undistributed capital gain of the Fund required to be included in the income of the shareholder with respect to such shares.
CAPITAL GAINS RATES
The maximum tax rate applicable to net capital gains recognized by individuals and other non-corporate taxpayers investing in the Fund is (i) the same as the maximum income tax rate for capital assets held for one year or less or (ii) for net capital gains, 15% for capital assets held for more than one year (5% for individuals in lower tax brackets and 20% for net capital gains recognized in taxable years beginning after December 31, 2010). The maximum long-term capital gains rate for corporations is 35%.
REPURCHASE OF SHARES
The repurchase of shares by the Fund generally will be a taxable transaction for federal income tax purposes, either as a sale or exchange or, under certain circumstances, as a dividend. A repurchase of shares generally will be treated as a sale or exchange if the receipt of cash by the shareholder results in a "complete redemption" of the shareholder's interest in the Fund or is "substantially disproportionate" or "not essentially equivalent to a dividend" with respect to the shareholder. In determining whether any of these tests have been met, shares actually owned and shares considered to be owned by the shareholder by reason of certain constructive ownership rules generally must be taken into account. If any of the tests for sale or exchange treatment is met, a shareholder will recognize gain or loss on a redemption equal to the difference between the amount of cash received by the shareholder and the adjusted tax basis of the shares redeemed. If such shares are held as a capital asset, the gain or loss will be a capital gain or loss.
If none of the tests for sale or exchange treatment is met, the amount received by a shareholder on a redemption of shares will be taxable to the shareholder as a dividend to the extent of such shareholder's allocable share of the Fund's current and accumulated earnings and profits. The excess of such amount received over the portion that is taxable as a dividend would constitute a non-taxable return of capital (to the extent of the shareholder's adjusted tax basis in the shares sold), and any amount in excess of the shareholder's adjusted tax basis would constitute taxable gain. Any remaining tax basis in the shares tendered to the Fund will be transferred to any remaining shares held by such shareholder. In addition, if a tender of shares is treated as a dividend to a tendering shareholder, a constructive dividend may result to a non-tendering shareholder whose proportionate interest in the earnings and assets of the Fund has been increased by such tender. The Fund believes, however, that the nature of such repurchases will be such that a tendering shareholder will qualify for sale or exchange treatment as opposed to dividend treatment.
WITHHOLDING ON PAYMENTS TO NON-U.S. SHAREHOLDERS
A shareholder who is not (i) a citizen or resident alien individual of the United States, (ii) a corporation or partnership created or organized under the laws of the United States or any state thereof, including the District of Columbia, (iii) an estate, the income of which is subject to United States federal income taxation regardless of its source or (iv) a trust, if such trust validly elects to be treated as a United States person for United States federal income tax purposes or whose administration is subject to the primary supervision of a United States court and which
has one or more United States fiduciaries who have the authority to control all substantial decisions of the trust (a "Non-U.S. Shareholder") generally will be subject to withholding of United States federal income tax at a 30% rate (or lower applicable treaty rate) on dividends from the Fund (other than capital gain dividends) that are not "effectively connected" with a United States trade or business carried on by such shareholder, provided that such shareholder furnishes to the Fund a properly completed IRS Form W-8BEN or other applicable W-8 form certifying its non-United States status.
Non-effectively connected capital gain dividends and gains realized from the sale of shares will not be subject to United States federal income tax in the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) an individual Non-U.S. Shareholder who is not present in the United States for 183 days or more during the taxable year (assuming that certain other conditions are met). However, certain Non-U.S. Shareholders may nonetheless be subject to backup withholding and information reporting on capital gain dividends and gross proceeds paid to them upon the sale of their shares. SEE "Backup Withholding" and "Information Reporting" below.
If distributions made by the Fund or gains realized from the sale of shares are effectively connected with a Non-U.S. Shareholder's United States trade or business, then such amounts will not be subject to the 30% withholding described above, but rather will be subject to United States federal income tax on a net basis at the graduated tax rates applicable to United States persons. To establish that income from the Fund or gains realized from the sale of shares are effectively connected with a United States trade or business, a Non-U.S. Shareholder must provide the Fund with a properly completed IRS Form W-8ECI certifying that such amounts are effectively connected with the Non-U.S. Shareholder's United States trade or business. Non-U.S. Shareholders that are corporations may also be subject to an additional "branch profits tax" with respect to income from the Fund that is effectively connected with a United States trade or business.
For taxable years beginning before January 1, 2010, properly designated dividends are generally exempt from U.S. federal withholding tax where they (i) are paid in respect of the Fund's "qualified net interest income" (generally, the Fund's U.S. source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which the Fund is at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) are paid in respect of the Fund's "qualified short-term capital gains" (generally, the excess of the Fund's net short-term capital gain over the Fund's long-term capital loss for such taxable year). Depending on its circumstances, however, the Fund may designate all, some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains, and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this exemption from withholding, a Non-U.S. Shareholder(s) will need to comply with applicable certification requirements relating to its Non-U.S. status (including, in general, furnishing an IRS Form W-8BEN, other applicable W-8 form or substitute Form). In the case of common shares held through an intermediary, the intermediary may withhold even if the Fund designates the payment as qualified net interest income or qualified short-term capital gain. Non-U.S. Shareholder(s) should contact their intermediaries with respect to the application of these rules to their accounts. There can be no
assurance as to what portion of the Fund's distributions will qualify for favorable treatment as qualified net interest income or qualified short-term capital gains.
The tax consequences to a Non-U.S. Shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described in this section. To claim tax treaty benefits, Non-U.S. Shareholders will be required to provide the Fund with a properly completed IRS Form W-8BEN certifying their entitlement thereto. In addition, in certain cases where payments are made to a Non-U.S. Shareholder that is a partnership or other pass-through entity, persons holding an interest in the entity will need to provide the required certification. For example, an individual Non-U.S. Shareholder that holds shares in the Fund through a non-United States partnership must provide an IRS Form W-8BEN to the Fund to claim the benefits of an applicable tax treaty. Non-United States investors are advised to consult their advisers with respect to the tax implications of purchasing, holding and disposing of shares of the Fund.
If the Fund retains and designates any amount of the Fund's net capital gains as undistributed capital gains, a Non-U.S. Shareholder will be entitled to a federal income tax credit or tax refund equal to the shareholder's allocable share of the tax we pay on such undistributed capital gains. In order to obtain the refund, the Non-U.S. Shareholder must obtain a U.S. taxpayer identification number and file a federal income tax return even if the Non-U.S. Shareholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a federal income tax return. Subject to certain exceptions, distributions attributable to a RIC's direct (and in certain cases, indirect) disposition of a United States real property interest will be subject to U.S. net income tax if made by the RIC that is a United States real property holding corporation before January 1, 2010, and distributions from a RIC that is a U.S. real property holding corporation that are attributable to a United States real property interest distribution from a REIT will be subject to net income tax even if made on or after January 1, 2010. In the case of a Non-U.S. Shareholder which is a corporation, such amounts may also be subject to a branch profits tax. Although there can be no assurance, the Fund does not anticipate that the Fund will constitute a United States real property holding corporation.
BACKUP WITHHOLDING
The Fund may be required to withhold federal income tax at the rate of
28% (through 2010) on all taxable distributions payable to non-corporate
shareholders. This tax may be withheld from dividends if (i) the shareholder
fails to properly furnish the Fund with its correct taxpayer identification
number or to certify its foreign status (in the case of a Non-U.S. Shareholder),
(ii) the IRS notifies the Fund that the shareholder has failed to properly
report certain interest and dividend income to the IRS and to respond to notices
to that effect or (iii) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Gross proceeds from the
sale of shares may be subject to backup withholding under the circumstances
described in (i) above.
Generally, dividends paid to Non-U.S. Shareholders that are subject to the 30% federal income tax withholding described above under "Withholding on Payments to Non-U.S. Shareholders" are not subject to backup withholding. To avoid backup withholding on capital
gain dividends and gross proceeds from the sale of shares, Non-U.S. Shareholders must provide a properly completed IRS Form W-8BEN certifying their non-United States status.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from payments made to a shareholder may be refunded or credited against such shareholder's United States federal income tax liability, if any, provided that the required information is furnished to the IRS.
INFORMATION REPORTING
The Fund must report annually to the IRS and to each shareholder the amount of dividends, capital gain dividends and gross proceeds paid to such shareholder and the amount, if any, of tax withheld pursuant to backup withholding rules with respect to such amounts. In the case of a Non-U.S. Shareholder, the Fund must report to the IRS and such shareholder the amount of dividends, capital gain dividends or gross proceeds paid that are subject to withholding (including backup withholding, if any) and the amount of tax withheld with respect to such amounts. This information may also be made available to the tax authorities in the Non-U.S. Shareholder's country of residence.
If a shareholder recognizes a loss with respect to shares of $2 million or more for a non-corporate shareholder or $10 million or more for a corporate shareholder in any single taxable year (or in excess of certain greater amounts over a combination of years), the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
PROXY VOTING POLICIES AND PROCEDURES
The Board has delegated the responsibility for voting proxies relating to portfolio securities held by the Fund to the Adviser as part of the Adviser's management of the Fund pursuant to the Advisory Agreement. The Adviser has adopted proxy voting policies and procedures to ensure that it votes proxies in a manner that serves the best interests of its clients, including the Fund. The following is a summary of the Adviser's proxy voting policies and procedures.
The Adviser has entered into an agreement with RiskMetrics Group ("RiskMetrics") (formerly Institutional Shareholder Services), an independent third party, for RiskMetrics to provide the Adviser with its research on proxies and to facilitate the electronic voting of proxies. The Adviser has adopted RiskMetrics' proxy voting policies and procedures (the "Proxy Procedures") in order to ensure that it votes proxies in the best interests of its clients. The Adviser has instructed RiskMetrics to vote all proxies in accordance with the Proxy Procedures, unless instructed by the Adviser to vote otherwise.
The Adviser generally votes in favor of routine corporate housekeeping proposals, such as proposals to ratify auditors and reasonably crafted shareholder proposals calling for directors to be elected with an affirmative majority of votes. For all other proposals, the Adviser will vote in accordance with the Proxy Procedures.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve month period ended June 30 will be reported on Form N-PX and be made available no later than August 31 of each year. Such information can be obtained (i) without charge, upon request, by calling the Fund's Vice President at (212) 389-8713 and (ii) at the SECs website at http://www.sec.gov.
GENERAL INFORMATION
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grant Thornton, LLP ("Grant Thornton") is the independent registered public accounting firm for the Fund. The independent registered public accounting firm is responsible for conducting the annual audit of the financial statements of the Fund. The selection of the independent registered public accounting firm is approved annually by the Board.
FINANCIAL STATEMENTS
Appendix A to this SAI provides financial information regarding the Fund. The Fund's financial statements have been audited by Grant Thornton.
APPENDIX A
ACAP STRATEGIC FUND
Financial StatementS
as of December 4, 2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES OF
ACAP STRATEGIC FUND:
We have audited the accompanying statement of assets and liabilities of ACAP Strategic Fund (the "Fund"), as of December 4, 2009. This financial statement is the responsibility of the Fund's management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of assets and liabilities is free of material misstatement. The Fund is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of assets and liabilities, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of assets and liabilities presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above presents fairly, in all material respects, the financial position of the Fund as of December 4, 2009, in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP New York, New York December 23, 2009 |
ACAP STRATEGIC FUND
Statement of Assets and Liabilities December 4, 2009 Cash $100,010 Deferred Offering Costs $320,000 TOTAL ASSETS $420,010 Offering Costs Payable $320,000 Net Assets $100,010 Components of Net Assets Paid-in Capital $100,010 Shares Outstanding 10,001 Net Asset Value per Share $10 |
See accompanying notes to financials statements
Notes to Financial Statements
December 4, 2009
1. ORGANIZATION
ACAP Strategic Fund (the "Fund"), a Delaware Statutory Trust, was formed on June 26, 2009 and is authorized to issue an unlimited number of shares of beneficial interest ("Shares"), par value $0.001 per Share. The Fund has had no operations to date other than its organization and registration as an closed-end management investment company under the Investment Company Act of 1940, as amended, and the sale and issuance to Alkeon Capital Management, LLC of 10,000 Shares and to SilverBay Capital Management LLC, the investment adviser of the Fund (the "Adviser") of one Share, each at a purchase price of $10.00 per Share. The Fund's principal place of business is 350 Madison Avenue, New York, New York 10017.
The Fund's investment objective is to achieve maximum capital appreciation. The Fund pursues this objective by investing its assets primarily in equity securities of U.S. and foreign companies that the Adviser believes are well positioned to benefit from demand for their products or services, including companies that can innovate or grow rapidly relative to their peers in their markets. The Fund also pursues its objective by effecting short sales of securities when the Adviser believes that the market price of a security is above its estimated intrinsic or fundamental value. The Fund may also borrow money for investment purposes.
The Fund's term is perpetual, except that the Fund may be terminated as provided in the Agreement and Declaration of Trust of the Fund. The Fund's fiscal year ends on each October 31. The Fund has no plans to list its Shares on any securities exchange, and there is no assurance that any secondary market will develop for Shares.
The Fund has adopted a fundamental policy to offer to repurchase at least 5% of its outstanding Shares at their net asset value at regular intervals. Currently, the Fund intends to offer to repurchase 25% of its outstanding Shares as of or prior to the end of each fiscal quarter. However, repurchase offers in excess of 5% of the Fund's outstanding Shares for any particular fiscal quarter is entirely within the discretion of the Fund's Board of Trustees and, as a result, there can be no assurance that the Fund would make repurchase offers for amounts in excess of 5% of the Fund's outstanding Shares. There can be no assurance that shareholders tendering Shares for repurchase in any such offer will have all of their tendered Shares repurchased by the Fund.
The Fund bears all expenses incurred in its business and operations, other than those borne by the Adviser or by SMH Capital Inc. and Mainsail Group, LLC, the Fund's underwriters (the "Underwriters") pursuant to their agreements with the Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from those estimates and the difference could be material.
Federal Income Tax
The Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and to distribute substantially all of its net investment income and capital gains to its shareholders. The Fund will generally not be subject to federal income tax on its taxable income and gains that it distributes to shareholders.
Deferred Offering Cost
Offering cost will be accounted for as a deferred charge until operations begin and thereafter amortized to expense over 12 months on a straight line basis or earlier if the offering period terminates.
3. AGREEMENTS
Advisory Agreement
Under the terms of an Investment Advisory Agreement, the Adviser serves as the investment adviser to the Fund, subject to the supervision of the Board of Trustees, and will be responsible for the day-to-day investment management of the Fund.
For the services it provides to the Fund, the Adviser will receive a management fee equal to an annual rate of 2.00% of the Fund's average daily net assets, accrued daily and paid monthly. The Adviser will also receive, after the close of the Fund's fiscal year, an incentive fee equal to 20% of the Fund's net profits, subject to the prior recoupment of the dollar amount of any losses previously incurred. The Adviser will also receive a portion of the incentive fee in the event a Fiscal Period is triggered in connection with a Share repurchase offer by the Fund. The incentive fee will be paid promptly after the end of the period for which it was earned.
Administrator, Transfer Agent and Custodian
PNC Global Investment Servicing (U.S.) Inc. will serve as the Fund's administrator and transfer agent. PFPC Trust Company will serve as the Fund's custodian.
Distribution Agreements
Mainsail Group LLC and SMH Capital Inc. will serve as co-underwriters of the Fund on a best efforts basis. The Underwriters will not maintain a secondary market in Shares of the Fund.
4. CASH
Cash at December 4, 2009 is deposited at PFPC Trust Company in a non-interest bearing account.
5. RELATED PARTY
At December 4, 2009, the two shareholders of the Fund are the Adviser and Alkeon Capital Management, LLC, the managing member of the Adviser. Mainsail Group, LLC, an Underwriter of the Fund, is under common control with the Adviser. SMH Capital Inc., an Underwriter of the Fund, is a non-managing member of the Adviser.
The Underwriters, who are underwriters under the federal securities laws, serve as co-underwriters of the Fund's Shares on a best efforts basis. Pursuant to the distribution agreements, the Fund pays ongoing shareholder servicing fees to the Underwriters to compensate them for providing or arranging for the provision of, ongoing investor services and account maintenance services to investors in the Fund. Each Underwriter may retain all or a portion of these payments. These fees are accrued daily and paid monthly in an amount not to exceed, in the aggregate, 0.25% (on an annualized basis) of the net asset value of the Fund.
6. ORGANIZATIONAL AND OFFERING COSTS
Organizational and offering expenses incurred in connection with organizing the Fund are not currently anticipated to exceed $500,000. Offering expenses of the Fund, which are not currently anticipated to exceed $400,000, will be borne by the Fund and amortized over its first twelve months of operations. Organizational expenses of approximately $100,000 will be borne by the Adviser or its affiliates. As of December 4, 2009, the Adviser has incurred approximately $90,000 and $320,000 in respect of organization and offering expenses, respectively, for the Fund.
7. CAPITAL
The Fund will issue Shares on a monthly basis and, commencing in July 2010, will conduct quarterly repurchase offers for the repurchase of Shares. Shares are not redeemable and liquidity is solely through means of the quarterly repurchase offers. Shares will not be listed on any exchange and will have limited transferability. Shares are subject to an optional sales load of up to 3 percent. Shares may be purchased only by Qualified Investors.
PART C - OTHER INFORMATION
Item 25. Financial Statements and Exhibits
25(1) Financial Statements:
The financial statements of the Registrant dated as of December 4, 2009
are included as Appendix A in Part B of the Registrant's Registration
Statement.
25(2) Exhibits
(a)(1) Certificate of Trust, dated June 26, 2009.(1)
(a)(2) Certificate of Amendment to Certificate of Trust, dated June
30, 2009.(1)
(a)(3) Certificate of Amendment to Certificate of Trust, dated August
7, 2009.*
(a)(4) Certificate of Amendment to Certificate of Trust, dated
October 1, 2009.*
(a)(5) Certificate of Amendment to Certificate of Trust, dated
November 17, 2009.*
(a)(6) Amended and Restated Certificate of Trust, dated December 29,
2009.*
(a)(7) Agreement and Declaration of Trust. (1)
(a)(8) Amended and Restated Declaration of Trust.*
(b) By-Laws of Registrant. (1)
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(c) Not Applicable.
(d) Incorporated by reference to Exhibits (a)(3) and (b) above.
(e) Included in Registrant's Prospectus.
(f) Not Applicable.
(g) Form of Investment Advisory Agreement between the Registrant and SilverBay Capital Management LLC (the "Adviser").*
(h)(1) Form of Distribution Agreement between the Registrant and SMH Capital Inc. ("SMH" or the "Underwriter").*
(h)(2) Form of Distribution Agreement between the Registrant and Mainsail Group, L.L.C. ("Mainsail" or the "Underwriter").*
(h)(3) Form of Selling and Shareholder Servicing Agreement between the Underwriter and the dealers to become parties thereto.*
(i) Not Applicable.
(j)(1) Form of Custodian Services Agreement between the Registrant and PFPC Trust Company ("PFPC").*
(j)(2) Form of Special Custody Account Agreement by and among the Registrant, PFPC and Morgan Stanley & Co. Incorporated.*
(k)(1) Form of Administration and Accounting Services Agreement between the Registrant and PNC Global Investment Servicing (U.S.) Inc. ("PNC").*
(k)(2) Form of Transfer Agency Services Agreement between the Registrant and PNC.*
(k)(3) Power of Attorney. (2)
(l)(1) Opinion and Consent of Schulte Roth & Zabel LLP.*
(l)(2) Opinion and Consent of Richards, Layton and Finger, P.A.*
(m) Not Applicable.
(n) Consent of Grant Thornton LLP, the independent registered public accountant of the Registrant.*
(o) Not Applicable.
(p) Form of Agreement Regarding Provision of Initial Capital.*
(q) Not Applicable.
(r)(1) Code of Ethics of the Registrant.*
(r)(2) Code of Ethics of the Adviser, Alkeon Capital Management, LLC and Mainsail.*
(r)(3) Code of Ethics of SMH.*
(1) Previously filed as an Exhibit to the Registrant's Registration Statement on Form N-2 (File No. 333-160653), filed July 17, 2009.
(2) Previously filed as an Exhibit to the Registrant's Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File Nos. 333-160653 and 811-22312), filed December 16, 2009.
* Filed herewith.
Item 26. Marketing Arrangements
Not applicable.
Item 27. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses, payable by the Registrant in connection with the issuance and distribution of the securities covered by this registration statement.
All Figures are estimates
Registration fees $ 28,520
Legal fees and expenses $310,000
Printing and mailing $ 11,244
Accounting fees and expenses $ 26,250
Blue Sky fees $ 23,986
Total $400,000
|
Item 28. Persons Controlled by or Under Common Control
Not applicable.
Item 29. Number of Holders of Securities
The following table sets forth the approximate number of record holders of the Registrant's shares as of December 30, 2009:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
--------------- --------------------
Shares of Beneficial Interest 2
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Item 30. Indemnification
Reference is made to Section 2 of the Registrant's Agreement and Declaration of Trust ("Declaration of Trust"), previously filed as an Exhibit to the Registrant's Registration Statement on Form N-2 (File No. 333-160653), filed July 17, 2009, and Section 13(a) of the Registrant's Investment Advisory Agreement (the "Advisory Agreement"), to be filed as Exhibit (g) hereto. The Registrant hereby undertakes that it will apply the indemnification provisions of the Declaration of Trust and Advisory Agreement in a manner consistent with Release 40-11330 of the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (the "1940 Act"), so long as the interpretation therein of Sections 17(h) and 17(i) of the 1940 Act remains in effect.
The Registrant will maintain insurance on behalf of any person who is an independent trustee, officer, employee, or agent of the Registrant against certain liability asserted against and incurred by, or arising out of, his or her position. However, in no event will the Registrant pay that portion of the premium, if any, for insurance to indemnify any such person for any act for which the Registrant itself is not permitted to indemnify.
Item 31. Business and Other Connections of the Adviser
The Adviser is newly formed and, as such, has not conducted any business other than as investment adviser to the Registrant.
See the Section of the Registrant's Prospectus titled "Management of the Fund" for a description of the other business, vocation or employment of affiliates of the Adviser.
Item 32. Location of Accounts and Records
PNC, the Fund's administrator, maintains certain required accounting related and financial books and records of the Registrant at 301 Bellevue Parkway, Wilmington, Delaware 19809. The other required books and records are maintained by the Adviser at 350 Madison Avenue, 9th Floor, New York, New York 10017.
Item 33. Management Services
Except as described or in the SAI under the caption "Investment Advisory and Other Services" and "General Information," the Registrant is not a party to any management service related contract.
Item 34. Undertakings
The Registrant undertakes to suspend the offering of its shares until
it amends its Prospectus if: (1) subsequent to the effective date of its
registration statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the registration statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the Prospectus.
The Registrant additionally undertakes, pursuant to Rule 415 under the Securities Act of 1933, as amended (the "1933 Act"), as follows:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the 1933 Act;
(b) To reflect in the Prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
(c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any statement of additional information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 30th day of December, 2009.
ACAP STRATEGIC FUND
By: /s/ Gregory D. Jakubowsky
-------------------------------------------
Name: Gregory D. Jakubowsky
Title: President and Principal Executive Officer
|
Pursuant to requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated.
Title Date
/s/ Gregory D. Jakubowsky President, Principal Executive December 30, 2009
------------------------- Officer and Trustee
Gregory D. Jakubowsky
/s/ George Mykoniatis Treasurer and Principal December 30, 2009
------------------------- Financial Officer
George Mykoniatis
/s/ Brad L. Berman Trustee December 30, 2009
-------------------------
Brad L. Berman*
/s/ Stephen R. Cordill Trustee December 30, 2009
-------------------------
Stephen R. Cordill*
/s/ William F. Murphy Trustee December 30, 2009
-------------------------
William F. Murphy*
/s/ Jorge Orvananos Trustee December 30, 2009
-------------------------
Jorge Orvananos*
*By:/s/ Gregory D. Jakubowsky
-----------------------
Gregory D. Jakubowsky, attorney-in-fact
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EXHIBIT INDEX
EXHIBITS DESCRIPTION
-------- -----------
(a)(3) Certificate of Amendment to Certificate of Trust, dated
August 7, 2009.
(a)(4) Certificate of Amendment to Certificate of Trust, dated
October 1, 2009.
(a)(5) Certificate of Amendment to Certificate of Trust, dated
November 17, 2009.
(a)(6) Amended and Restated Certificate of Trust, dated
December 29, 2009.
(a)(8) Amended and Restated Declaration of Trust.
(g) Form of Investment Advisory Agreement between the
Registrant and SilverBay Capital Management LLC (the
"Adviser").
(h)(1) Form of Distribution Agreement between the Registrant
and SMH Capital Inc. ("SMH" or the "Underwriter").
(h)(2) Form of Distribution Agreement between the Registrant
and Mainsail Group, L.L.C. ("Mainsail" or the
"Underwriter").
(h)(3) Form of Selling and Shareholder Servicing Agreement
between the Underwriter and the dealers to become
parties thereto.
(j)(1) Form of Custodian Services Agreement between the
Registrant and PFPC Trust Company ("PFPC").
(j)(2) Form of Special Custody Account Agreement by and among
the Registrant, PFPC and Morgan Stanley & Co.
Incorporated.
(k)(1) Form of Administration and Accounting Services Agreement
between the Registrant and PNC Global Investment
Servicing (U.S.) Inc. ("PNC").
|
(k)(2) Form of Transfer Agency Services Agreement between the
Registrant and PNC.
(l)(1) Opinion and Consent of Schulte Roth & Zabel LLP.
(l)(2) Opinion and Consent of Richards, Layton and Finger, P.A.
(n) Consent of Grant Thornton, LLP, the independent
registered public accountant of the Registrant.
(p) Form of Agreement Regarding Provision of Initial
Capital.
(r)(1) Code of Ethics of the Registrant.
(r)(2) Code of Ethics of the Adviser, Alkeon Capital
Management, LLC and Mainsail.
(r)(3) Code of Ethics of SMH.
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STATE OF DELAWARE
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF TRUST
OF
MADISON AVENUE GLOBAL FUND
Pursuant to Title 12, Section 3810(b) of the Delaware Statutory Trust Act, the undersigned Trust executed the following Certificate of Amendment:
FIRST: The name of Statutory Trust (hereinafter called the "Trust") is Madison Avenue Global Fund.
SECOND: The Certificate of Amendment to the Certificate of Trust is hereby amended as follows:
The Certificate of Trust is amended to change the name of the Trust to:
Alkeon Global Fund.
THIRD: This Certificate of Amendment shall be effective immediately upon its filing with the Office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on the 7th day of August, 2009.
Madison Avenue Global Fund
By: /s/George Mykoniatis
-------------------------------
George Mykoniatis, as Trustee
and not individually
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STATE OF DELAWARE
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF TRUST
OF
ALKEON GLOBAL FUND
Pursuant to Title 12, Section 3810(b) of the Delaware Statutory Trust Act, the undersigned Trust executed the following Certificate of Amendment:
FIRST: The name of Statutory Trust (hereinafter called the "Trust") is Alkeon Global Fund.
SECOND: The Certificate of Amendment to the Certificate of Trust is hereby amended as follows:
The Certificate of Trust is amended to change the name of the Trust to:
ACAP Global Fund.
THIRD: This Certificate of Amendment shall be effective immediately upon its filing with the Office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on the 1st day of October, 2009.
Alkeon Global Fund
By: /s/George Mykoniatis
-------------------------------
George Mykoniatis, as Trustee
and not individually
|
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF TRUST
OF
ACAP GLOBAL FUND
Pursuant to Title 12, Section 3810(b) of the Delaware Statutory Trust Act, the undersigned Trust executed the following Certificate of Amendment:
FIRST: The name of Statutory Trust (hereinafter called the "Trust") is ACAP Global Fund.
SECOND: The Certificate of Amendment to the Certificate of Trust is hereby amended as follows:
The Certificate of Trust is amended to change the name of the Trust to:
ACAP Strategic Fund.
THIRD: This Certificate of Amendment shall be effective immediately upon its filing with the Office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on the 17th day of November, 2009.
ACAP GLOBAL FUND
By: /s/ George Mykoniatis
--------------------------------
George Mykoniatis, as Trustee
and not individually
|
AMENDED AND RESTATED
CERTIFICATE OF TRUST
OF
ACAP STRATEGIC FUND
DECEMBER 29, 2009
This Amended and Restated Certificate of Trust on the records of the Secretary of State of the State of Delaware as ACAP Strategic Fund (the "Trust") is being duly filed by the undersigned, as trustees, to amend and restate the Certificate of Trust of the Trust (the "Certificate of Trust"). The Trust was originally formed pursuant to a certificate of trust filed with the Secretary of State of the State of Delaware on June 26, 2009, under the Delaware Statutory Trust Act (12 Del. C. Section 3801, ET SEQ.) (the "Act") under the name Alkeon Global Fund.
The Certificate of Trust is hereby amended and restated in its entirety, pursuant to Section 3810(c)(1) of the Act, to read as follows:
This Certificate of Trust of ACAP Strategic Fund, which has registered under the Investment Company Act of 1940, as amended (the "1940 Act"), filed in accordance with the provisions of the Delaware Statutory Trust Act (12 Del. Code ss. 3801 ET SEQ.)
FIRST: The name of the statutory trust formed hereby is ACAP Strategic Fund.
SECOND: As required by 12 Del. Code ss.ss. 3807(b) and 3810 9a)(1)(b), the name and business address of the Trust's Registered Agent for Service of Process and the address of the Trust's Registered Office are:
Address of Trust's Registered Office and
REGISTERED AGENT BUSINESS ADDRESS OF REGISTERED AGENT
Corporation Service Company 2711 Centerville Rd., Suite 400
Wilmington, DE 19808
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The name and business address of the trustees of the Trust are:
NAME BUSINESS ADDRESS
Gregory D. Jakubowsky 350 Madison Avenue
New York, NY 10017
Stephen R. Cordill 350 Madison Avenue
New York, NY 10017
Brad Berman 350 Madison Avenue
New York, NY 10017
William Murphy 350 Madison Avenue
New York, NY 10017
Jorge Orvananos 350 Madison Avenue
New York, NY 10017
|
THIRD: The nature of the business or purpose or purposes of the Trust as set forth in its governing instrument is to conduct, operate and carry on the business of a management investment company registered under the 1940 Act.
FOURTH: The trustees of the Trust, as set forth in its governing instrument, reserve the right to amend, alter, change or repeal any provision contained in this Certificate of Trust, in any manner now or hereafter prescribed by statute.
FIFTH: This Amended and Restated Certificate of Trust shall become effective immediately upon its filing with the Secretary of State of the State of Delaware.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned, being the trustees of ACAP Strategic Fund, have duly executed this Amended and Restated Certificate of Trust as of the date first set forth above.
/s/Gregory D. Jakubowsky
----------------------------
Gregory D. Jakubowsky,
as Trustee and not individually
/s/Stephen R. Cordill
-------------------------------
Stephen R. Cordill,
as Trustee and not individually
/s/Brad Berman
-------------------------------
Brad Berman,
as Trustee and not individually
/s/William Murphy
-------------------------------
William Murphy,
as Trustee and not individually
/s/Jorge Orvananos
-------------------------------
Jorge Orvananos,
as Trustee and not individually
|
Effective as of December 29, 2009
AMENDED AND RESTATED DECLARATION OF TRUST
OF
ACAP STRATEGIC FUND
A DELAWARE STATUTORY TRUST
PRINCIPAL PLACE OF BUSINESS:
350 MADISON AVENUE, 9TH FLOOR
NEW YORK, NEW YORK 10017
TABLE OF CONTENTS
ARTICLE I NAME AND DEFINITIONS.............................................1
Section 1. Name.............................................................1
Section 2. Definitions......................................................1
ARTICLE II PURPOSE OF TRUST.................................................3
ARTICLE III SHARES OF BENEFICIAL INTEREST....................................3
Section 1. Description of Shares............................................3
Section 2. Ownership of Shares..............................................4
Section 3. Investments in the Trust; Consideration..........................4
Section 4. Status of Shares and Limitation of Personal Liability............4
Section 5. Power of Board of Trustees to Change Provisions
Relating to Shares...............................................5
Section 6. Establishment and Designation of Series and Classes..............5
Section 7. Indemnification of Shareholders..................................7
ARTICLE IV THE BOARD OF TRUSTEES............................................7
Section 1. Number, Election and Tenure......................................7
Section 2. Effect of Death, Resignation, etc. of a Trustee..................8
Section 3. Powers...........................................................8
Section 4. Payment of Expenses by the Trust................................11
Section 5. Payment of Expenses.............................................11
Section 6. Ownership of Assets of the Trust................................12
Section 7. Service Contracts...............................................12
ARTICLE V SHAREHOLDERS' VOTING POWERS.....................................13
ARTICLE VI NET ASSET VALUE, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES.....13
Section 1. Determination of Net Asset Value, Net Income, Dividends
and Distributions................... ........................13
Section 2. Redemptions by Shareholders.....................................14
Section 3. Redemptions at the Option of the Trust..........................14
Section 4. Repurchases.....................................................14
ARTICLE VII COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES............14
Section 1. Compensation....................................................14
Section 2. Indemnification and Limitation of Liability.....................14
Section 3. Trustee's Good Faith Action; Expert Advice; No Bond or Surety...15
Section 4. Insurance.......................................................15
ARTICLE VIII MISCELLANEOUS...................................................15
Section 1. Liability of Third Persons Dealing with Trustees................15
Section 2 Termination of Trust or Series or Class.........................15
Section 3. Conversion to an Open-End Investment Program....................16
Section 4. Merger and Consolidation........................................16
Section 6. Amendments......................................................17
Section 6. Filing of Copies; References; Headings..........................17
Section 7. Applicable Law..................................................17
Section 8. Provisions in Conflict with Law or Regulations..................17
Section 9. Statutory Trust Only............................................18
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AMENDED AND RESTATED DECLARATION OF TRUST
OF
ACAP STRATEGIC FUND
(THE "TRUST")
THIS AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration") is made and entered into as of the date set forth below by the trustees named hereunder (the "Trustees"),
WHEREAS, this Trust is a Delaware statutory trust and George Mykoniatis, as initial trustee, filed a Certificate of Trust with the office of the Secretary of State of the State of Delaware (the "Secretary of State") on June 26, 2009, and the Trustees of the Trust have filed an Amended and Restated Certificate of Trust of the Trust on the date hereof (as restated, the "Certificate of Trust") setting forth the name of the Trust as ACAP Strategic Fund;
WHEREAS, this Trust is governed by a Declaration of Trust dated July 17, 2009 (under the name "Madison Avenue Global Fund") (the "Initial Declaration");
WHEREAS, the Trustees have determined to amend the Initial Declaration, consistent with Article VIII, Section 5 therein, to revise Article IV, Section 5 therein and to make such other changes to the Initial Declaration as they deem appropriate and necessary;
NOW, THEREFORE, this Declaration amends and restates the Initial Declaration in its entirety.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name.
The name of the trust is ACAP Strategic Fund and, insofar as may be practicable, the Trustees shall conduct the Trust's activities, execute all documents and sue or be sued under that name, which name (and the word "Trust" wherever herein used) shall refer to the Trustees as trustees, and not as individuals, or personally, and shall not refer to the officers, agents, employees or Shareholders of the Trust. If the Trustees determine that the Trust's use of such name is not advisable, then the Trustees may adopt such other name for the Trust as they deem proper and the Trust may hold its property and conduct its activities under such other name.
Section 2. Definitions.
Whenever used herein, unless otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Delaware statutory trust established pursuant to the Certificate of Trust, by whatever name it be known, inclusive of each and every Series established hereunder;
(b) The "Trust Property" means any and all assets and property, real or personal, tangible or intangible, which are owned or held by or for the account of the Trust or the Trustees;
(c) "Trustees" refers to the Trustees who have signed this Declaration, so long as such persons continue in office in accordance with the terms hereof, and all other individuals who may from time to time be duly elected or appointed to serve as Trustees hereunder in accordance with the provisions hereof, so long as such persons continue in office in accordance with the terms hereof, and all references herein to a Trustee or the Trustees shall refer to such person or persons in their capacity as trustees hereunder;
(d) "Shares" means the units of beneficial interest into which the beneficial interest in the Trust and each Series of the Trust shall be divided from time to time and includes fractions of Shares as well as whole Shares;
(e) "Shareholder" means a record owner of outstanding Shares;
(f) "Person" means and includes individuals, corporations, partnerships, trusts, associations, joint ventures, estates and other entities, whether or not legal entities, and governments and agencies and political subdivisions thereof, whether domestic or foreign;
(g) The "1940 Act" refers to the Investment Company Act of 1940 and the rules and regulations thereunder, all as amended from time to time and any orders thereunder which may from time to time be applicable to the Trust;
(h) The terms "Commission" and "Principal Underwriter" shall have the meanings given them in the 1940 Act;
(i) "Declaration" shall mean this Amended and Restated Agreement and Declaration of Trust, as amended and in effect from time to time. Reference in this Declaration of Trust to "Declaration," "hereof," "herein," "hereby," and "hereunder" shall be deemed to refer to this Declaration rather than the article or section in which such words appear;
(j) "By-Laws" shall mean the By-Laws of the Trust referred to in Article IV, Section 3 hereof, as amended from time to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given it in the 1940 Act;
(l) "Investment Adviser" means a party furnishing investment
advisory services to the Trust pursuant to any contract described in Article IV,
Section 7(a) hereof;
(m) "Series" refers to each Series of the Trust established and designated under or in accordance with the provisions of Article III hereof; and
(n) "Board of Trustees" means such individuals who at any time from time to time constitute the Trustees.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to conduct, operate and carry on the business of a management investment company registered under the 1940 Act.
ARTICLE III
SHARES OF BENEFICIAL INTEREST
Section 1. Description of Shares.
The beneficial interest in the Trust shall at all times be divided into transferable units to be called Shares of Beneficial Interest, each with a par value of one tenth of one cent ($.001). The Trustees may, from time to time, authorize the division of Shares into separate Series and the division of any Series into two or more separate classes of Shares, as they deem necessary and desirable and, in each case, to the extent permitted by applicable law, rule or order. The different Series (and classes) shall be established and designated, and the variations in the relative rights and preferences as between the different Series (and classes) shall be fixed and determined, by the Trustees, without the requirement of Shareholder approval. If only one or no Series (or classes) shall be established, the Shares shall have the rights and preferences provided for herein and in Section 6 of this Article III to the extent relevant and not otherwise provided for herein, and all references to Series (and classes) shall be construed (as the context may require) to refer to the Trust.
Subject to the provisions of Section 6 of this Article III, each Share shall have voting rights as provided in Article V hereof and in the By-Laws, and holders of the Shares of any Series shall be entitled to receive dividends, when, if and as declared with respect thereto in the manner provided in Article VI, Section 1 hereof. No Shares shall have any priority or preference over any other Shares of the same Series (and class) with respect to dividends or distributions upon termination of the Trust or of such Series (or class) made pursuant to Article VIII, Section 2 hereof. All dividends and distributions shall be made ratably among all Shareholders of a particular Series (or class thereof) from the assets held with respect to such Series according to the number of Shares of such Series (or class thereof) held of record by such Shareholder on the record date for any dividend or distribution or on the date of termination, as the case may be. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust or any Series (or class). The Trustees may from time to time divide or combine the Shares of any particular Series (or class) without thereby materially changing the proportionate beneficial interest of the Shares of that Series (or class) in the assets held with respect to that Series or materially affecting the rights of Shares of any other Series (or class).
The number of authorized Shares and the number of Shares of each Series (and class) that may be issued is unlimited. To the extent permitted by applicable law, rule or order, the Trustees may classify or reclassify any unissued Shares or any Shares previously issued and reacquired of any Series (or class) into one or more Series (or classes) that are now or hereafter established and designated from time to time. The Trustees may hold as treasury Shares, reissue for such consideration and on such terms as they may determine, or cancel, at their discretion from time to time, any Shares of any Series (or class) reacquired by the Trust.
Section 2. Ownership of Shares.
The ownership of Shares shall be recorded on the books of the Trust or of a transfer or similar agent for the Trust, which books shall be maintained separately for the Shares of each Series (and class). No certificates certifying the ownership of Shares shall be issued except as the Board of Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the transfer of Shares of each Series (or class) and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to who are the Shareholders of each Series (or class) and as to the number of Shares of each Series (or class) held from time to time by each Shareholder.
Section 3. Investments in the Trust; Consideration.
Shares of the Trust shall be offered for sale and sold in such manner and at such times, and subject to such requirements and for such consideration, as may be determined from time to time by the Trustees, subject to applicable requirements of law, including the 1940 Act. To the extent permitted by applicable law, Shares may be sold subject to imposition of such sales charges (such as a sales load), deferred sales charges, redemption or repurchase fees (as applicable), small balance fees and such other fees and charges as may be determined by the Trustees. All Shares when issued on the terms determined by the Trustees shall be fully paid and non-assessable.
Section 4. Status of Shares and Limitation of Personal Liability.
Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the existence of the Trust shall not operate to terminate the Trust, and shall not entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but entitles such representative only to the rights of said deceased Shareholder under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust Property or to any right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders as partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any Shareholders, nor, except as specifically provided herein, to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay.
Section 5. Power of Board of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Declaration and without limiting the power of the Board of Trustees to amend the Declaration as provided elsewhere herein, the Board of Trustees shall have the power to amend this Declaration, at any time and from time to time, in such manner as the Board of Trustees may determine in its sole discretion, without the need for Shareholder action, so as to add, delete, replace or otherwise modify any provisions relating to the Shares contained in this Declaration, provided that before adopting any such amendment without Shareholder approval the Board of Trustees shall determine that it is consistent with the fair and equitable treatment of all Shareholders or that Shareholder approval is not otherwise required by the 1940 Act or other applicable law. If Shares have been issued, Shareholder approval shall be required to adopt any amendments to this Declaration which would adversely affect to a material degree the rights and preferences of the Shares or to increase or decrease the par value of the Shares.
Section 6. Establishment and Designation of Series and Classes.
If so authorized, the establishment and designation of any Series (or class) shall be effective upon the execution by a majority of the Trustees of an instrument setting forth such establishment and designation and the relative rights and preferences of the Shares of such Series (or class), or as otherwise provided in such instrument. Each instrument referred to in this paragraph shall have the status of an amendment to this Declaration.
Shares of any Series (or class) hereafter established pursuant to this Section 6, unless otherwise provided in the instrument establishing such Series (or class), shall have the following relative rights and preferences:
(a) ASSETS HELD WITH RESPECT TO A PARTICULAR SERIES OR CLASS. All consideration received by the Trust for the issuance or sale of Shares of a particular Series (or class), together with all assets in which such consideration is invested or reinvested, all income, earnings and profits thereon, and the proceeds thereof, from whatever source derived, including, without limitation, any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably be held with respect to that Series (or class) for all purposes, subject only to the rights of creditors of such Series, and shall be so recorded upon the books of account of the Trust. All such consideration, assets, income, earnings, profits and proceeds thereof of a Series (or class), are herein referred to as "assets held with respect to" that Series (or class). In the event that there are any assets, income, earnings, profits and proceeds thereof, funds or payments which are not readily identifiable as assets held with respect to any particular Series (or class) (collectively "General Assets"), the Trustees shall allocate such General Assets to, between or among any one or more of the Series (or classes) in such manner and on such basis as the Trustees, in their sole discretion, deem fair and equitable, and any General Assets so allocated to a particular Series (or class) shall be assets held with respect to that Series (or class). Each such allocation by the Trustees shall be conclusive and binding upon the Shareholders of all Series (and classes) for all purposes.
(b) LIABILITIES ATTRIBUTABLE TO A PARTICULAR SERIES OR CLASS. The assets of the Trust held with respect to each particular Series (and class) shall be charged with all liabilities, expenses, costs, charges and reserves attributable to that Series (or class). All such liabilities, expenses, costs, charges, and reserves so charged to a Series (or class) are herein referred to as "liabilities attributable to" that Series (or class). Any liabilities of the Trust which are not readily identifiable as being attributable to any particular Series (or class) ("General Liabilities") shall be allocated and charged by the Trustees to, between or among any one or more of the Series (or classes) in such manner and on such basis as the Trustees, in their sole discretion, deem fair and equitable, and any General Liabilities so allocated to a particular Series (or class) shall be liabilities attributable to that Series (or class). Each such allocation of liabilities, expenses, costs, charges and reserves by the Trustees shall be conclusive and binding upon the holders of all Series (and classes) for all purposes. All Persons who have extended credit which has been allocated to a particular Series, or who have a claim or contract which has been allocated to any particular Series, shall look, and shall be required by contract to look exclusively, to the assets of that particular Series for payment of such credit, claim or contract. In the absence of an express contractual agreement so limiting the claims of such creditors, claimants and contract providers, each creditor, claimant and contract provider will be deemed nevertheless to have impliedly agreed to such limitation unless an express provision to the contrary has been incorporated in the written contract or other document establishing the claimant relationship.
(c) DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES. Notwithstanding any other provisions of this Declaration, including, without limitation, Article VI, no dividend or distribution including, without limitation, any distribution paid upon termination of the Trust or of any Series (or class) with respect to, nor any redemption or repurchase of, the Shares of any Series (or class) shall be effected by the Trust other than from the assets held with respect to such Series (or class), nor, except as specifically provided in Section 7 of this Article III, shall any Shareholder of any particular Series (or class) otherwise have any right or claim against the assets held with respect to any other Series (or class) except to the extent that such Shareholder has such a right or claim hereunder as a Shareholder of such other Series (or class). The Trustees shall have full discretion, to the extent not inconsistent with the 1940 Act, to determine which items shall be treated as income or capital gains and which items shall be treated as capital; and each such determination and allocation shall be conclusive and binding upon the Shareholders.
(d) VOTING. Except as otherwise provided herein, all Shares of the Trust entitled to vote on a matter shall vote separately by Series (and, if applicable, by class): that is, the Shareholders of each Series (or class) shall have the right to approve or disapprove matters affecting the Trust and that Series (or class) as if the Series (or class) were separate companies.
There are, however, two exceptions to voting by separate Series (or classes). First, if as to any matter the 1940 Act requires or permits all Shares entitled to vote with respect to such matter to be voted in the aggregate without differentiation between the separate Series (or classes), then all Shares entitled to vote on such matter shall vote as a single class. Second, if any matter affects only the interests of some but not all Series (or classes), then only the Shareholders of such affected Series (or classes) shall be entitled to vote on the matter.
(e) EQUALITY. All the Shares of each particular Series (or class) shall represent an equal proportionate interest in the assets held with respect to that Series (or class) (subject to the liabilities attributable to that Series (or class) and such rights and preferences as may have been established and designated with respect to classes of Shares within such Series (or class)), and each Share of any particular Series (or class) shall be equal to each other Share of that Series (or class).
(f) FRACTIONAL SHARES. Any fractional Share of a Series (or class) shall carry proportionately all the rights and obligations of a whole share of that Series (or class), including rights with respect to voting, receipt of dividends and distributions, redemption of Shares and termination of the Trust.
(g) EXCHANGE PRIVILEGE. The Trustees shall have the authority to provide that the holders of Shares of any Series (or class) shall have the right to exchange said Shares for Shares of one or more other Series (or classes) of Shares in accordance with such requirements, limitations and procedures as may be established by the Trustees.
Section 7. Indemnification of Shareholders.
If any Shareholder or former Shareholder shall be exposed to liability by reason of a claim or demand relating to his or her being or having been a Shareholder, and not because of his or her acts or omissions, the Shareholder or former Shareholder (or his or her heirs, executors, administrators, or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified out of the assets of the Trust against all loss and expense arising from such claim or demand.
ARTICLE IV
THE BOARD OF TRUSTEES
Section 1. Number, Election and Tenure.
The number of Trustees constituting the Board of Trustees shall be fixed from time to time by a written instrument signed, or by resolution approved at a duly constituted meeting, by a majority of the Board of Trustees; provided, however, that the number of Trustees shall in no event be less than one (1) nor more than fifteen (15). Except as required by the 1940 Act, Trustees need not be elected by Shareholders. The Board of Trustees, by action of a majority of the then remaining Trustees at a duly constituted meeting, may fill vacancies in the Board of Trustees or remove Trustees with or without cause; except that a vacancy shall be filled only by a person elected by Shareholders if required by the 1940 Act. Each Trustee shall serve during the continued lifetime of the Trust until he dies, resigns, is declared bankrupt or incompetent by a court of appropriate jurisdiction, or is removed, or, if sooner, until the next meeting of Shareholders called for the purpose of electing Trustees and until the election and qualification of his successor. Any Trustee may resign at any time by written instrument signed by him and delivered to any officer of the Trust or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Except to the extent expressly provided in a written agreement with the Trust, no Trustee resigning and no
Trustee removed shall have any right to any compensation for any period following his resignation or removal, or any right to damages on account of such removal. The Shareholders may elect Trustees at any meeting of Shareholders called by the Trustees for that purpose. Any Trustee may be removed at any meeting of Shareholders by a vote of two-thirds of the outstanding Shares of the Trust. A meeting of Shareholders for the purpose of electing or removing one or more Trustees shall be called (i) by the Trustees upon their own vote, or (ii) upon the demand of a Shareholder or Shareholders owning Shares representing 10% or more of all votes entitled to be cast by outstanding Shares.
Section 2. Effect of Death, Resignation, etc. of a Trustee.
The death, declination, resignation, retirement, removal or incapacity of one or more Trustees, or all of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration. Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is filled as provided in Article IV, Section 1, the Trustees in office, regardless of their number, shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration. As conclusive evidence of such vacancy, a written instrument certifying the existence of such vacancy may be executed by an officer of the Trust or by a majority of the Board of Trustees. In the event of the death, declination, resignation, retirement, removal or incapacity of all the then Trustees within a short period of time and without the opportunity for at least one Trustee being able to appoint additional Trustees to fill vacancies, the Trust's Investment Adviser hereby is empowered to appoint new Trustees, subject to the provisions of Section 16(a) of the 1940 Act.
Section 3. Powers.
Subject to the provisions of this Declaration, the business of the Trust shall be managed by the Board of Trustees, and such Board shall have all powers necessary or convenient to carry out that responsibility. Without limiting the foregoing, the Trustees may: (i) adopt By-Laws not inconsistent with this Declaration providing for the regulation and management of the affairs of the Trust and may amend and repeal the By-Laws to the extent that such By-Laws do not reserve that right to the Shareholders; (ii) elect persons to serve as Trustees and fill vacancies in the Board of Trustees, and remove Trustees from such Board in accordance with the provisions of this Declaration, and may elect and remove such officers and appoint and terminate such agents as they consider appropriate; (iii) appoint from their own number and establish and terminate one or more committees consisting of one or more Trustees which may exercise the powers and authority of the Board of Trustees to the extent that the Trustees determine; (iv) employ one or more custodians of the assets of the Trust and may authorize such custodians to employ sub-custodians and to deposit all or any part of such assets in a system or systems for the central handling of securities or with a Federal Reserve Bank, retain a transfer agent or a shareholder servicing agent, or both, and employ such other Persons as the Trustees may deem desirable for the transaction of business of the Trust or any Series; (v) provide for the issuance, sale and distribution of Shares by the Trust directly or through one or more Principal Underwriters or otherwise; (vi) redeem, repurchase, retire, cancel, acquire, hold, resell, reissue, classify, reclassify, and transfer and otherwise deal in Shares pursuant to applicable law; (vii) set record dates for the determination of Shareholders with respect to various matters; (viii) declare
and pay dividends and distributions to Shareholders of each Series (or class) from the assets of such Series (or classes); (ix) collect all property due to the Trust, pay all claims, including taxes, against the Trust Property, prosecute, defend, compromise or abandon any claims relating to the Trust Property, foreclose any security interest securing any obligations by virtue of which any property is owed to the Trust, and enter into releases, agreements and other instruments; (x) incur and pay any expenses which, in the opinion of the Trustees, are necessary or incidental to carry out any of the purposes of the Trust, and pay reasonable compensation from the funds of the Trust to themselves as Trustees; (xi) engage in and prosecute, defend, compromise, abandon, or adjust, by arbitration or otherwise, any actions, suits, proceedings, disputes, claims and demands relating to the Trust expenses incurred in connection therewith, including those of litigation; (xii) indemnify any Person with whom the Trust has dealings, including the Shareholders, Trustees, officers, employees, agents, Investment Adviser, or Principal Underwriter(s) of the Trust, to the extent permitted by law and not inconsistent with any applicable provisions of the By-Laws as the Trustees shall determine; (xiii) determine and change the fiscal year of the Trust or any Series and the method by which its accounts shall be kept; (xiv) adopt a seal for the Trust or any Series; and (xv) in general, delegate such authority as they consider desirable to any officer of the Trust, to any committee of the Trustees and to any agent or employee of the Trust or to any such custodian, transfer or shareholder servicing agent, Investment Adviser or Principal Underwriter. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Declaration, the presumption shall be in favor of a grant of power to the Trustees. Unless otherwise specified or required by law, any action by the Board of Trustees shall be deemed effective if approved or taken by a majority of the Trustees then in office.
Without limiting the foregoing, the Trust shall have power and authority:
(a) To invest and reinvest cash, to hold cash uninvested, and to subscribe for, invest in, reinvest in, purchase or otherwise acquire, own, hold, pledge, sell, sell short, assign, transfer, exchange, distribute, write options on, lend or otherwise deal in or dispose of contracts for the future acquisition or delivery of securities of every nature and kind, including, without limitation, all types of bonds, debentures, stocks, negotiable or non-negotiable instruments, obligations, evidences of indebtedness, certificates of deposit or indebtedness, commercial paper, repurchase agreements, bankers' acceptances and other securities and financial instruments of any kind, issued, created, guaranteed, or sponsored by any and all Persons, including, without limitation, states, territories, and possessions of the United States and the District of Columbia and any political subdivision, agency, or instrumentality thereof, any political subdivision of the U.S. Government or any foreign government, or any international instrumentality, or by any bank or saving institution, or by any corporation or organization organized under the laws of the United States or of any state, territory, or possession thereof, or by any corporation or organization organized under any foreign law, or in "when issued" contracts for any such securities, to change the investments of the assets of the Trust; and to exercise any and all rights, powers, and privileges of ownership or interest in respect of any and all such investments and financial instruments of every kind and description, including, without limitation, the right to consent and otherwise act with respect thereto, with power to designate one or more Persons, to exercise any of said rights, powers, and privileges in respect of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or write options with respect to or otherwise deal in any property rights relating to any or all of the assets of the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such Person or Persons as the Trustees shall deem proper, granting to such Person or Persons such power and discretion with relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights to subscription or otherwise which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in its own name or in the name of a custodian or sub-custodian or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer of any security which is held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer; and to pay calls or subscriptions with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any matter in controversy, including but not limited to a claim for taxes;
(i) To enter into joint ventures, general or limited partnerships and any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or other obligations of any Person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof;
(l) To purchase and pay for out of Trust Property such insurance as the Trustees may deem necessary or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust or payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, Investment Adviser, Principal Underwriter(s), or independent contractors of the Trust, individually against all claims and liabilities of every nature arising by reason of holding Shares, holding or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such Person as Trustee, officer, employee, agent, Investment Adviser, Principal Underwriter, or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such Person against liability, subject to such limitations as may be imposed by law;
(m) To adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust;
(n) To enter into swap agreements;
(o) To enter into futures contracts (including, but not limited to, interest rate and stock index futures contracts) and options thereon; and
(p) To conduct, operate and carry on any other lawful business and engage in any other lawful business activity which the Trustees, in their sole and absolute discretion, consider to be (i) incidental to the business of the Trust as an investment company, (ii) conducive to or expedient for the benefit or protection of the Trust or any Series or the Shareholders, or (iii) calculated in any other manner to promote the interests of the Trust or any Series or the Shareholders.
The Trust shall not be limited to investing in obligations maturing before the possible termination of the Trust or one or more of its Series. The Trust shall not in any way be bound or limited by any present or future law or custom in regard to investment by fiduciaries. The Trust shall not be required to obtain any court order to deal with any assets of the Trust or take any other action hereunder.
Section 4. Payment of Expenses by the Trust.
The Trustees are authorized to pay or cause to be paid out of the principal or income of the Trust, or partly out of the principal and partly out of income, as they deem fair, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, Investment Adviser, Principal Underwriter(s), auditors, counsel, custodian, transfer agent, Shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur.
Section 5. Payment of Expenses.
The Trustees shall have the power to pay expenses of the Fund prior to paying dividends or distributions to Shareholders.
Section 6. Ownership of Assets of the Trust.
Title to all of the assets of the Trust shall at all times be considered as vested in the Trust, except that the Trustees shall have power to cause legal title to any Trust Property to be held by or in the name of one or more of the Trustees, or in the name of the Trust, or in the name of any other Person as nominee, on such terms as the Trustees may determine. The right, title and interest of the Trustees in the Trust Property shall vest automatically in each Person who may hereafter become a Trustee. Upon the resignation, removal or death of a Trustee he shall automatically cease to have any right, title or interest in any of the Trust Property, and the right, title and interest of such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth in the By-Laws, the Trustees may, at any time and from time to time, contract for investment advisory, management and administrative services for the Trust or for any Series with any corporation, trust, association or other organization; and any such contract may contain such other terms as the Trustees may determine, including without limitation, authority for the Investment Adviser (or a duly appointed sub-investment adviser) to determine from time to time without prior consultation with the Trustees what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments, or such other activities as may specifically be delegated to such party.
(b) The Trustees may also, at any time and from time to time, contract with one or more corporation, trust, association or other organization, appointing it as a Principal Underwriter for the Shares.
(c) The Trustees are also empowered, at any time and from time to time, to contract with any corporation, trust, association or other organization, appointing it the administrator, custodian, transfer agent or shareholder servicing agent for the Trust or one or more of its Series.
(d) The Trustees are further empowered, at any time and from time to time, to contract with any entity to provide such other services to the Trust or any Series (or class), as the Trustees determine to be in the best interests of the Trust or the Series (or class).
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, Investment Adviser, Principal Underwriter, distributor, or affiliate or agent of or for any corporation, trust, association, or other organization, or for any parent or affiliate of any organization with which an advisory,
management or administration contract, or Principal Underwriter's or distributor's contract, or transfer, shareholder servicing or other type of service contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with which an advisory, management or administration contract or Principal Underwriter's or distributor's contract, or transfer, shareholder servicing or other type of service contract may have been or may hereafter be made also has an advisory, management or administration contract, or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other service contract with other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same, or create any liability or accountability to the Trust or its Shareholders, provided approval of each such contract is made pursuant to the requirements of the 1940 Act.
ARTICLE V
SHAREHOLDERS' VOTING POWERS
Subject to the provisions of Article III, Section 6(d), the Shareholders shall have power to vote only (i) for the election or removal of Trustees as provided in Article IV, Section 1, and (ii) with respect to such additional matters relating to the Trust as may be required by this Declaration, the By-Laws, the 1940 Act or any registration of the Trust with the Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional Share shall be entitled to a proportionate fractional vote, except that (i) Shares held in the Treasury as of the record date, as determined in accordance with the By-Laws, shall not be voted, and (ii) when Shares of more than one Series (or class) vote together on a matter as a single class, each Share (or fraction thereof) shall be entitled to that number of votes which is equal to the net asset value of such Share (or fractional Share) determined as of the applicable record date. There shall be no cumulative voting in the election of Trustees.
Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration or the By-Laws to be taken by Shareholders.
ARTICLE VI
NET ASSET VALUE, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES
Section 1. Determination of Net Asset Value, Net Income, Dividends and Distributions .
Subject to applicable law and Article III, Section 6 hereof, the Trustees, in their absolute discretion, may prescribe such bases and times for valuing the net assets of the Trust and determining the net asset value of Shares, which net asset value shall be separately determined for each Series (and class), for determining the net income attributable to the Shares,
or for declaring and paying dividends and other distributions on Shares, as they may deem necessary or desirable.
Section 2. Redemptions by Shareholders .
The Shares of the Trust are not redeemable by the Shareholders.
Section 3. Redemptions at the Option of the Trust.
The Trust shall have the right at its option and at any time to
redeem Shares from any Shareholder at the net asset value thereof as described
in Section 1 of this Article VI if at such time the Board of Trustees or the
Investment Adviser determine or have reason to believe that, among other things:
(i) ownership of Shares by such Shareholder or other person will cause the Trust
to be in violation of, or subject the Trust or the Investment Adviser to
additional registration or regulation under the securities, commodities, or
other laws of the United States or any other relevant jurisdiction; (ii)
continued ownership of such Shares may be harmful or injurious to the business
or reputation of the Trust or the Investment Adviser, or may subject the Trust
or any Shareholders to an undue risk of adverse tax or other fiscal
consequences; (iii) any representation or warranty made by a Shareholder in
connection with the acquisition of Shares (such as in the investor
certification) was not true when made or has ceased to be true; or (iv) it would
be in the best interests of the Trust, as determined by the Board of Trustees,
for the Trust to cause a mandatory redemption of such Shares.
Section 4. Repurchases.
Subject to the requirements of the 1940 Act, the Trustees are empowered to authorize the repurchase by the Trust, from time to time, of all or any portion of the Shares, whether now or hereafter authorized, or securities convertible into Shares of any class or classes, whether now or hereafter authorized, upon such time, at such prices (which may be determined by formula) and subject to such conditions (which may include prorating Shares tendered for repurchase) as the Trustees may determine.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 1. Compensation.
The Trustees as such shall be entitled to reasonable compensation from the Trust, and they may fix the amount of such compensation. Nothing herein shall in any way prevent the employment of any Trustee for advisory, management, legal, accounting, investment banking or other services and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability.
The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, Investment Adviser or Principal Underwriter(s) of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, and the Trust out of its assets shall indemnify and hold harmless each and every Trustee from and
against any and all claims and demands whatsoever arising out of or related to each Trustee's performance of his duties as a Trustee of the Trust to the fullest extent permitted by law; provided that nothing herein contained shall indemnify, hold harmless or protect any Trustee from or against any liability to the Trust or any Shareholder to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever issued, executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been issued, executed or done only in or with respect to their or his capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon.
Section 3. Trustee's Good Faith Action; Expert Advice; No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable to the Trust and to any Shareholder solely for his own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration, and shall be under no liability for any act or omission in accordance with such advice nor for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required.
Section 4. Insurance.
The Trustees shall be entitled and empowered to the fullest extent permitted by law to purchase with Trust assets insurance for liability and for all expenses reasonably incurred or paid or expected to be paid by a Trustee or officer in connection with any claim, action, suit or proceeding in which he becomes involved by virtue of his capacity or former capacity with the Trust.
ARTICLE VIII
MISCELLANEOUS
Section 1. Liability of Third Persons Dealing with Trustees.
No Person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order.
Section 2. Termination of Trust or Series or Class.
Unless terminated as provided herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by vote of the holders of a majority of the outstanding Shares of each Series entitled to vote, voting separately by Series, or by the Trustees by written notice to the Shareholders. Any Series (or class) may be terminated at any time by
vote of the holders of a majority of the outstanding Shares of that Series (or class) or by the Trustees by written notice to the Shareholders of that Series (or class).
Upon termination of the Trust (or any Series or class, as the case may be), after paying or otherwise providing for all charges, taxes, expenses and liabilities held (severally, with respect to each Series or class, if applicable and as the case may be), whether due or accrued or anticipated as may be determined by the Trustees, the Trust shall, in accordance with such procedures as the Trustees consider appropriate, reduce the remaining assets held (severally, with respect to each Series or class, if applicable and as the case may be) to distributable form in cash or shares or other securities, or any combination thereof, and distribute the proceeds held (with respect to each Series or class, if applicable and as the case may be) to the Shareholders (if applicable, to Shareholders of that Series (or class), as a Series (or class)), ratably according to the number of Shares held on the date of termination.
Section 3. Conversion to an Open-End Investment Company.
Notwithstanding any other provisions of this Declaration of Trust or the By-Laws of the Trust, a favorable vote of a majority of the Trustees then in office followed by the favorable vote of the holders of not less than three-quarters of the Shares shall be required to approve, adopt or authorize an amendment to this Declaration of Trust that makes the Shares a "redeemable security" as that term is defined in the 1940 Act, unless such amendment has been approved by three-quarters of the Trustees, in which case approval by a vote of a majority of the Shares outstanding and entitled to vote shall be required. Upon the adoption of a proposal to convert the Trust from a "closed-end company" to an "open-end company" as those terms are defined by the 1940 Act and the necessary amendments to this Declaration of Trust to permit such a conversion of the Trust's outstanding Shares entitled to vote, the Trust shall, upon complying with any requirements of the 1940 Act and state law, become an "open-end" investment company.
Section 4. Merger and Consolidation.
The Trustees may cause (i) the Trust or one or more of its Series to the extent consistent with applicable law to be merged into or consolidated with another trust or company, (ii) Shares of the Trust or any Series to be converted into beneficial interests in another statutory trust (or series thereof) created pursuant to this Section 4 of Article VIII, (iii) the sale of substantially all of the assets of the Trust or one or more of its Series to another trust or company in exchange for the assumption of the liabilities of the Trust or the Series and the issuance of beneficial interests in such trust or company, or (iv) Shares to be exchanged under or pursuant to any state or federal statute to the extent permitted by law. Such merger or consolidation, Share conversion, sale of assets or Share exchange must be authorized by vote of the holders of a majority of the outstanding Shares (or, if applicable, a majority of the outstanding shares of the affected Series); provided that in all respects not governed by applicable law, the Trustees shall have the power to prescribe the procedures necessary or appropriate to accomplish the transaction including the power to create one or more separate statutory trusts to which all or any part of the assets, liabilities, profits or losses of the Trust may be transferred and to provide for the conversion of Shares of the Trust or any Series into beneficial interests in such separate statutory trust or trusts (or series thereof). The Trustees may also cause substantially all of the
assets of any Series (the "Acquired Series") to be sold to another Series if
authorized by vote of the holders of a majority of the outstanding Shares of the
Acquired Series, and to the extent not governed by applicable law, the Trustees
shall have the power to prescribe the procedures necessary or appropriate to
accomplish the transaction. Upon consummation of any transaction contemplated by
this Section 4, the Trust or applicable Series, as the case may be, shall
distribute its remaining assets to Shareholders and terminate as provided by
Section 2 of this Article VIII.
Section 5. Amendments.
(a) This Declaration may be restated or amended at any time by an instrument in writing signed by a majority of the Trustees and, if required by applicable law or this Declaration or the By-Laws, by approval of such amendment by Shareholders in accordance with Article V hereof and the By-Laws. Any such restatement or amendment hereto shall be effective immediately upon execution and approval. The Certificate of Trust of the Trust may be restated or amended by a similar procedure, and any such restatement or amendment shall be effective immediately upon filing with the Office of the Secretary of State of the State of Delaware or upon such future date as may be stated therein.
(b) Nothing contained in this Declaration shall permit the amendment of this Declaration to impair the exemption from personal liability of the Shareholders, Trustees, officers, employees and agents of the Trust or to permit assessments on Shareholders.
Section 6. Filing of Copies; References; Headings.
The original or a copy of this Declaration and of each restatement and amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such restatements or amendments have been made and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this Declaration or of any such restatement or amendment. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Declaration. Whenever the singular number is used herein, the same shall include the plural; and the neuter, masculine and feminine genders shall include each other, as applicable. This Declaration may be simultaneously executed in any number of counterparts each of which shall be deemed an original, and such counterparts together shall constitute one and the same instrument, which shall be sufficiently evidenced by any such original counterpart.
Section 7. Applicable Law.
This Declaration is created under and is to be governed by and construed and administered according to the laws of the State of Delaware and the Delaware Statutory Trust Act, as amended from time to time (the "Delaware Act"). The Trust shall be a Delaware statutory trust pursuant to the Delaware Act, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a statutory trust.
Section 8. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the regulated investment company provisions of the Internal Revenue Code of 1986, as amended, or with other applicable laws and regulations, the conflicting provision shall be deemed never to have constituted a part of the Declaration of Trust; provided, however, that such determination shall not affect any of the remaining provisions of the Declaration of Trust or render invalid or improper any action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall attach only to such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of the Declaration in any jurisdiction.
Section 9. Statutory Trust Only.
It is the intention of the Trustees to create a statutory trust pursuant to the Delaware Act and thereby to create only the relationship of trustee and beneficial owners within the meaning of the Delaware Act between the Trustees and each Shareholder. It is not the intention of the Trustees to create a general partnership, limited partnership, joint stock association, corporation, bailment, or any form of legal relationship other than a statutory trust pursuant to the Delaware Act. Nothing in this Declaration shall be construed to make the Shareholders, either by themselves or with the Trustees, partners or members of a joint stock association.
IN WITNESS WHEREOF, the Trustees named below hereby make and enter into this Amended and Restated Declaration of Trust as of the date first set forth above.
/s/Gregory D. Jakubowsky
-------------------------------
Gregory D. Jakubowsky,
as Trustee and not individually
/s/Stephen R. Cordill
-------------------------------
Stephen R. Cordill,
as Trustee and not individually
/s/Brad Berman
-------------------------------
Brad Berman,
as Trustee and not individually
/s/William Murphy
-------------------------------
William Murphy,
as Trustee and not individually
/s/Jorge Orvananos
-------------------------------
Jorge Orvananos,
as Trustee and not individually
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INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is made as of the 8th day of December, 2009, by and between ACAP Strategic Fund, a Delaware statutory trust (the "Fund"), and SilverBay Capital Management LLC, a Delaware limited liability company (the "Investment Adviser").
WHEREAS, the Fund engages in business as a closed-end, non-diversified management investment company and is registered as such under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Investment Adviser to furnish investment advisory services to the Fund and to provide certain management and administrative services to the Fund and the Investment Adviser desires to be retained to provide such services;
NOW, THEREFORE, in consideration of the terms and conditions hereinafter contained, the Fund and the Investment Adviser agree as follows:
1. The Fund hereby retains the Investment Adviser:
(a) to act as investment adviser to the Fund and, subject to the supervision and control of the Board of Trustees of the Fund (the "Board"), to develop and implement the Fund's investment program, to manage the Fund's investment portfolio and make all decisions regarding the purchase and sale of investments for the Fund, and to provide various management and administrative services to the Fund as hereinafter set forth. Without limiting the generality of the foregoing, the Investment Adviser shall: obtain and evaluate such information and advice relating to the economy, securities markets, and securities as it deems necessary or useful to discharge its duties hereunder; continuously manage the assets of the Fund in a manner consistent with the investment objective, policies and restrictions of the Fund, as set forth in the Fund's Prospectus and Statement of Additional Information and as may be adopted from time to time by the Board, and applicable laws and regulations; determine the securities to be purchased, sold or otherwise disposed of by the Fund and the timing of such purchases, sales and dispositions; and take such further action, including the placing of purchase and sale orders and the voting of securities on behalf of the Fund, as the Investment Adviser shall deem necessary or appropriate. The Investment Adviser shall furnish to or place at the disposal of the Fund such of the information, evaluations, analyses and opinions formulated or obtained by the Investment Adviser in the discharge of its duties as the Fund may, from time to time, reasonably request; and
(b) to assist in the selection of and the negotiation of agreements with, and monitor the quality of services provided by, the Fund's administrator, custodian, transfer agent, and other organizations that provide services to the Fund (but the Fund shall pay the fees and expenses of the administrator, custodian and transfer agent and such other organizations and the Investment Adviser shall not be responsible for the acts or omissions of such service providers). The Investment Adviser shall also provide such additional management and administrative services as may reasonably be required in connection with the business affairs and operations of the Fund beyond those furnished by the Fund's administrator.
2. The Investment Adviser shall, in all matters, give to the Fund and
the Board the benefit of its best judgment, effort, advice and recommendations
and shall at all times conduct the Fund's investment program in a manner
consistent with: (i) the provisions of the 1940 Act and the rules or regulations
thereunder; (ii) other applicable provisions of Federal and state law; (iii) the
provisions of this Agreement and the Declaration of Trust of the Fund, as
amended from time to time; (iv) the policies and determinations of the Board;
(v) the investment policies and restrictions of the Fund as reflected in the
registration statement of the Fund under the 1940 Act, as such policies may,
from time to time, be amended; and (vi) the Prospectus and Statement of
Additional Information of the Fund, as the same may be amended from time to
time. The appropriate officers and employees of the Investment Adviser shall be
available upon reasonable notice for consultation with the Board with respect to
any matters dealing with the business and affairs of the Fund, including the
valuation of the portfolio securities of the Fund.
3. Provided that the Fund shall not be required to pay any compensation to the Investment Adviser for the services to be provided hereunder other than as provided by the terms of this Agreement, the Investment Adviser is authorized: (i) to obtain investment information, research or assistance from any other person, firm or corporation to supplement, update or otherwise assist the Investment Adviser in providing investment management services; (ii) utilize personnel of affiliates of the Investment Adviser in providing services hereunder; and (iii) to enter into investment sub-advisory agreements with any registered investment adviser (a "Sub-Adviser"), subject to such approvals of the Board and shareholders of the Fund ("Shareholders") as may be required to comply with applicable provisions of the 1940 Act, delegating any or all of the investment advisory services required to be provided by the Investment Adviser under Section 1(a) hereof, subject to the supervision of the Investment Adviser.
4. The Investment Adviser shall provide the Fund with such office space, facilities, equipment, clerical help, and other personnel and services as the Fund shall reasonably require in the conduct of its business.
5. The Fund will, from time to time, furnish or otherwise make available to the Investment Adviser such financial reports, proxy statements, policies and procedures and other information relating to the business and affairs of the Fund as the Investment Adviser may reasonably require in order to discharge its duties and obligations hereunder.
6. Without limiting the generality of Section 1 hereof, the Investment Adviser and, if applicable, a Sub-Adviser, shall be authorized to open, maintain and close accounts in the name and on behalf of the Fund 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 Fund on such terms as the Investment Adviser (or such Sub-Adviser) considers appropriate and that are consistent with the policies of the Fund; and, subject to any policies adopted by the Board and to the provisions of applicable law, to agree to the payment of such commissions, fees and other charges by the Fund 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 Fund 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. The Investment Adviser may, subject to such procedures as may be adopted by the Board, use affiliates of the Investment Adviser or the Fund's distributor(s) as brokers to effect the Fund's securities transactions and the Fund may pay such commissions to such brokers in such amounts as are permissible under applicable law.
7. Fees; Expenses
(a) In consideration for the provision by the Investment Adviser of its services hereunder and the Investment Adviser's bearing of certain expenses, the Fund shall pay the Investment Adviser a monthly asset-based fee (the "Management Fee") and a performance-based incentive fee (the "Incentive Fee"), each determined as set forth in this Section 7.
(b) The Management Fee shall be computed and paid monthly in arrears within five business days after the end of the month and calculated at the annual rate of 2.00% of the Net Assets, as defined in Section 7(e) below, of the Fund determined as of the close of the last business day of the month (and before reduction for any repurchases of shares of the Fund or for the payment of any dividends in cash during such month through the time of calculation) (the "Management Fee"). In the event that this Agreement becomes effective after the first day of a month or terminates prior to the last day of a month, the Management Fee payable for such month shall be pro rated based on the number of days during such month this Agreement was in effect.
(c) Subject to the provisions of this Section 7(c), the Fund will pay
the Incentive Fee to the Investment Adviser promptly after the end of each
fiscal year of the Fund. The Incentive Fee shall be determined as of the end of
the fiscal year and shall be an amount equal to 20% of the amount by which the
Fund's Net Profits for all Fiscal Periods ending within or coterminous with the
close of such fiscal year exceed the balance of the Loss Carryforward Account,
as defined in Section 7(d) below, without duplication for any Incentive Fees
paid during such fiscal year. In the event that a Fiscal Period, as defined in
Section 7(e) below, ends by reason of the repurchase by the Fund of its shares,
the Incentive Fee will be determined as if the end of such Fiscal Period were
the end of the Fund's fiscal year, and that portion of the Incentive Fee that is
proportional to the Fund's assets paid in respect of such share repurchases (not
taking into account any proceeds from any contemporaneous issuance of shares of
the Fund, by reinvestment of dividends and other distributions or otherwise)
will be paid to the Adviser for such Fiscal Period. Upon termination of this
Agreement, the Fund will pay the Incentive Fee to the Investment Adviser
calculated in accordance with this Section 7(c) as of the date of effectiveness
of such termination as if such date were the end of the Fund's fiscal year.
(d) For purposes of determining the Incentive Fee, if any, payable to
the Investment Adviser, the parties will maintain a memorandum account (the
"Loss Carryforward Account") that will have an initial balance of zero upon
commencement of the Fund's operations and, thereafter, will be credited as of
the end of each Fiscal Period with the amount of any Net Loss of the Fund for
that Fiscal Period and will be debited with the amount of any Net Profits of the
Fund for that Fiscal Period, as applicable (provided, however, that the debiting
of Net Profits may only reduce a positive balance in the Loss Carryforward
Account and may not reduce the balance of the Loss Carryforward Account below
zero). The balance of the Loss Carryforward Account, if any, shall be subject to
a proportionate reduction as of the day following: (i) the payment by the Fund
of any dividend or other distribution to shareholders (unless the full amount
thereof is reinvested in shares of the Fund); and (ii) any repurchase by the
Fund of its shares. The amount of such reduction shall be that percentage of the
then current balance of the Loss Carryforward Account determined by dividing:
(i) the aggregate of the amount of any dividends and other distributions paid to
shareholders and not reinvested in shares of the Fund, and the dollar amount of
any shares of the Fund repurchased, as of the day preceding the determination,
by (ii) the Net Assets of the Fund on the day preceding the determination, prior
to the reduction of Net Assets for the amount of such unreinvested dividends and
other distributions and the dollar amount of shares repurchased.
(e) For purposes of Sections 7(b), 7(c) and 7(d), the following definitions apply:
(1) "Net Assets" shall mean the total value of all assets of the Fund, less an amount equal to all accrued debts, liabilities and obligations of the Fund, determined in accordance with the valuation and accounting policies and procedures of the Fund as from time to time in effect.
(2) "Fiscal Period" shall mean each twelve-month period ending at the end of the Fund's fiscal year (or, for the first fiscal year of the Fund, the period from the commencement of the Fund's operations through the end of the Fund's fiscal year); provided that whenever the Fund repurchases it shares, the period of time from the last fiscal period-end (or commencement of the Fund, as the case may be) through that date shall constitute a Fiscal Period.
(3) "Net Profits" shall mean the amount by which (a) the Net Assets of the Fund as of the end of a Fiscal Period, increased by the dollar amount of shares of the Fund repurchased during the Fiscal Period (excluding shares to be repurchased as of the last day of the Fiscal Period after the determination of the Incentive Fee) and by the amount of dividends and other distributions paid to shareholders during the Fiscal Period and not reinvested in additional shares (excluding any dividends and other distributions to be paid as of the last day of the Fiscal Period), exceeds (b) the Net Assets of the Fund as of the beginning of the Fiscal Period, increased by the dollar amount of shares of the Fund issued during the Fiscal Period (excluding any shares issued in connection with the reinvestment of dividends and other distributions paid by the Fund).
(4) "Net Loss" shall mean the amount by which (a) the Net Assets of the Fund as of the beginning of a Fiscal Period, increased by the dollar amount of shares of the Fund issued during the Fiscal Period (excluding any shares issued in connection with the reinvestment of dividends and other distributions paid by the Fund), exceeds (b) the Net Assets of the Fund as of the end of the Fiscal Period, increased by the dollar amount of shares of the Fund repurchased during the Fiscal Period (excluding shares to be repurchased as of the last day of the Fiscal Period after the determination of the Incentive Fee) and by the amount of dividends and other distributions paid to shareholders during the Fiscal Period and not reinvested in additional shares (excluding any dividends and other distributions to be paid as of the last day of the Fiscal Period).
8. The Investment Adviser is responsible for all costs and expenses associated with the provision of its services hereunder including, but not limited to: fees of any consultants or a Sub-Adviser retained by the Investment Adviser (if applicable); the cost of office space, telephone service, heat, light, power and other utilities provided to the Fund; and the salaries of officers of the Fund, and the fees and expenses of the members of the Board of the Fund (the "Trustees") who are also directors, officers or employees of the Investment Adviser, or who are directors, officers or employees of any company affiliated with the Investment Adviser. The Investment Adviser 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 the Investment Adviser or furnished to the Fund under this Agreement.
9. Except as provided herein or in another agreement between the Fund and the Investment Adviser, the Fund shall bear all of its own expenses, including, but not limited to: all investment related expenses (e.g., costs and expenses directly related to portfolio transactions and positions for the Fund's account such as direct and indirect expenses associated with investments, transfer taxes and premiums, taxes withheld on foreign income, brokerage commissions, interest and commitment fees on loans and debit balances, borrowing charges on securities sold short, dividends on securities sold short but not yet purchased and margin fees); the Management Fee; the Incentive Fee; shareholder servicing fees; any non-investment related interest expense; offering expenses; fees and disbursements of any attorneys and accountants engaged by the Fund; audit and tax preparation fees and expenses; the fees of any administrator or transfer agent retained by the Fund and related expenses; custody and escrow fees and expenses; the costs of an errors and omissions/directors and officers liability insurance policy and a fidelity bond; fees and travel-related expenses of members of the Board 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 transactions among the Investment Adviser and any custodian or other agent engaged by the Fund; any extraordinary expenses; and such other expenses as may be approved from time to time by the Board.
10. The compensation provided to the Investment Adviser pursuant to
Section 7 hereof shall be the entire compensation for the services provided to
the Fund hereunder and the expenses assumed by the Investment Adviser under this
Agreement.
11. The Investment Adviser represents that it: (a) is duly organized in the State of Delaware as a limited liability company under the Delaware Limited Liability Company Act; and (b) is registered as an investment adviser with the Securities and Exchange Commission.
12. The Investment Adviser will use its best efforts in the supervision and management of the investment activities of the Fund and in providing services hereunder, but in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations hereunder, the Investment Adviser, its managers, members, officers or employees and their respective affiliates, executors, heirs, assigns, successors and other legal representatives (collectively, "Affiliates") shall not be liable to the Fund for any error of judgment, for any mistake of law or for any act or omission by the Investment Adviser or any of its Affiliates.
13. (a) The Fund shall indemnify the Investment Adviser and its
Affiliates (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 Fund, 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 were 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 Board 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 Fund 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.
The Investment Adviser 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 Fund 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 Section 13.
(b) Notwithstanding any of the foregoing to the contrary, the provisions of this Section 13 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 this Section 13 to the fullest extent permitted by law.
14. Nothing contained in this Agreement shall prevent the Investment Adviser or any of its Affiliates from acting as investment adviser or manager for any other person, firm, fund, account, corporation or other entity and, except as required by applicable law (including Rule 17j-1 under the 1940 Act), shall not in any way bind or restrict the Investment Adviser or any of its Affiliates from buying, selling or trading any securities or other investments 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 the Investment Adviser or any of its Affiliates to engage in any other business or to devote its, 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.
15. This Agreement shall take effect on the date first set forth above (the "Effective Date") and shall remain in effect for a period of two years from the date of its execution and shall continue in effect from year to year thereafter, provided that such continuance is approved at least annually by the vote of a "majority of the outstanding voting securities" of the Fund, 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 Trustees who are not "interested persons," as defined by Section 2(a)(19) of the 1940 Act (the "Independent Trustees"), by vote cast in person at a meeting called for the purpose of voting on such approval. The Fund may at any time, without payment of any penalty, terminate this Agreement upon sixty days' prior written notice to the Investment Adviser, either by majority vote of the Board or by the vote of a "majority of the outstanding voting securities" of the Fund (as defined by the 1940 Act and the rules thereunder). The Investment Adviser may at any time, without payment of penalty, terminate this Agreement upon sixty days' prior written notice to the Fund. This Agreement shall automatically and immediately terminate in the event of its "assignment," as defined by the 1940 Act and the rules thereunder, by the Investment Adviser.
16. 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.
17. 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 Trustees in accordance with the provisions of
Section 15(c) of the 1940 Act and the rules thereunder. 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 Fund (as defined by the
1940 Act and the rules thereunder).
18. 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.
19. The Fund represents that this Agreement has been duly approved by the Board, including the vote of a majority of the Independent Trustees, and by the vote of a "majority of the outstanding voting securities" of the Fund (as defined by the 1940 Act and the rules thereunder).
20. The parties to this Agreement agree that the obligations of the Fund under this Agreement shall not be binding upon any of the Trustees, Shareholders or any officers, employees or agents, whether past, present or future, of the Fund, individually, but are binding only upon the assets and property of the Fund.
21. 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 as of the day and year first above written.
ACAP STRATEGIC FUND
By: ____________________
Name: Greg Jakubowsky
Title: President and Principal
Executive Officer
SILVERBAY CAPITAL MANAGEMENT LLC
By: ____________________
Name: A. Tyson Arnedt
Title: Managing Director
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "Agreement") by and between ALKEON GLOBAL FUND, a Delaware statutory trust (the "Fund"), and SMH CAPITAL INC., a Texas corporation (the "Distributor"), is dated as of August 19, 2009 and effective upon its approval by a majority of the independent members of the board of trustees of the Fund (the "Board") at an in-person meeting of the Board.
WITNESSETH:
WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as a closed-end, non-diversified management investment company; and
WHEREAS, the Fund is authorized to issue shares of beneficial interest in the Fund ("Shares") pursuant to the Fund's registration statement on Form N-2, as it may be amended or supplemented from time to time (the "Registration Statement"); and
WHEREAS, the Distributor is a securities firm engaged in the business of selling interests of investment companies either directly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with each other with respect to the offering of the Fund's Shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR; OFFERING.
(a) Subject to the terms and conditions of this Agreement, the Fund hereby appoints the Distributor as a non-exclusive distributor in connection with the distribution of the Shares, and the Distributor hereby accepts such appointment.
(b) The Distributor agrees to use its reasonable best efforts to offer and sell Shares to investors that the Distributor reasonably believes meet the eligibility requirements set forth in the Registration Statement and to use all reasonable efforts to assist the Fund in obtaining performance by each prospective investor who submits a completed Investor Certificate (as defined below) to his/her broker, dealer or other financial intermediary.
(c) Unless otherwise agreed by the parties hereto, unaffiliated brokers or dealers retained by the Distributor to act as selling agents ("Selling Agents") or PNC Global Investment Servicing (U.S.) Inc., the Fund's administrator (the "Administrator") shall be responsible for reviewing each completed investor certificate ("Investor Certificate") to confirm that it has been completed in accordance with the instructions thereto. The Administrator or the prospective investor's Selling Agent, in its sole discretion, may reject any Investor Certificate
that is not completed to its satisfaction and the Fund shall be under no obligation to accept any Investor Certificate.
(d) The Distributor acknowledges that Shares will be offered and sold only as set forth in the Registration Statement and the Fund's Declaration and Agreement of Trust.
(e) The Fund may suspend or terminate the offering of the Shares at any time as to specific classes of investors (to the extent such separate classes are permitted and established by applicable law, rule or order), as to specific jurisdictions or otherwise. Upon notice to the Distributor of the terms of such suspension or termination, the Distributor shall suspend solicitation of purchases of Shares in accordance with such terms until the Fund notifies the Distributor that such solicitation may be resumed.
(f) It is acknowledged and agreed that the Distributor is not obligated to sell any specific number of Shares or to purchase any Shares for its own account. The Fund shall be entitled to appoint additional distributors.
Section 2. AGENCY. In offering Shares, the Distributor shall act solely as an agent of the Fund and not as principal.
Section 3. DUTIES OF THE FUND.
(a) The Fund shall take, from time to time, but subject always to any necessary approval of the board of trustees of the Fund (the "Board of Trustees") or of the shareholders of the Fund (the "Shareholders"), all necessary action to fix the number of authorized Shares and such steps as may be necessary to register the same under the Securities Act of 1933, as amended (the "Securities Act"), to the end that there will be available for sale such number of Shares as the Distributor reasonably may be expected to sell.
(b) For purposes of the offering of Shares, the Fund will furnish to the Distributor copies of the Registration Statement, including the prospectus contained therein, the Investor Certificate and any other documentation for use in the offering of Shares. Additional copies of such documents will be furnished to the Distributor at no cost to the Distributor in such numbers as reasonably requested. The Distributor is authorized to furnish to prospective investors only such information concerning the Fund and the offering as may be contained in the Registration Statement, the Fund's formation documents, or any other documents (including sales material), if approved by the Fund.
(c) The Fund shall furnish to the Distributor copies of all financial statements of the Fund which the Distributor may reasonably request for use in connection with its duties hereunder, and this shall include, upon request by the Distributor, one certified copy of all financial statements prepared for the Fund by independent public accountants.
(d) The Fund shall use its best efforts to qualify and maintain the qualification of the Shares for sale under the securities laws of such jurisdictions as the Distributor and the Fund may approve. Any such qualification may be withheld, terminated or withdrawn by the Fund at any time in its discretion. The expense of qualification and maintenance of qualification shall be borne by the Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in connection with such qualification.
(e) The Fund will furnish, in reasonable quantities upon request by the Distributor, copies of annual and interim reports of the Fund.
(f) The Fund will furnish the Distributor with such other documents as it may reasonably require, from time to time, for the purpose of enabling it to perform its duties as contemplated by this Agreement.
Section 4. DUTIES OF THE DISTRIBUTOR.
(a) In addition to selling and marketing the Fund (as described in
Section 1), the Distributor shall furnish personal investor services and account
maintenance services to Shareholders of the Fund ("Shareholder Services"),
and/or retain Selling Agents whose clients purchase Shares to provide
Shareholder Services to Shareholders who are clients of such Selling Agents.
Shareholder Services shall include, but shall not be limited to:
(i) handling inquiries from Shareholders regarding the Fund, including but not limited to questions concerning their investments in the Fund, and reports and tax information provided by the Fund;
(ii) assisting in the enhancement of communications between Shareholders and the Fund;
(iii) notifying the Fund of any changes to Shareholder information, such as changes of address;
(iv) providing such other information and Shareholder Services as may be reasonably requested by the Fund or, in the case of Selling Agents, by the Distributor;
(v) assisting in any transfer of Shares made in accordance with the terms of the Fund's Prospectus; and
(vi) assisting in any repurchase offers conducted by the Fund, including, but not limited to: delivering to each Shareholder in a timely manner any applicable repurchase offer material, responding to client inquiries about procedures for tendering Shares, tendering Shares on behalf of Shareholders that wish to participate in the repurchase offer, remitting repurchase proceeds to the appropriate Shareholders, and in the event the Fund is required to pro rate repurchase offers, determining correct allocations among Shareholders of any repurchase proceeds and any Shares not purchased in the repurchase offer.
(b) The Distributor shall devote reasonable time and effort to its duties hereunder. The services of the Distributor to the Fund hereunder are not to be deemed exclusive and nothing herein contained shall prevent the Distributor from entering into like arrangements with other investment companies so long as the performance of its obligations hereunder is not impaired thereby.
(c) In performing its duties hereunder, the Distributor shall use its best efforts in all respects to duly conform with the requirements of all applicable laws relating to the sale of securities.
(d) The Distributor shall adopt and follow procedures, as approved by the officers of the Fund, for the confirmation of sales to investors and Selling Agents, the collection of amounts payable by investors and Selling Agents on such sales, and the cancellation of unsettled transactions, as may be necessary to comply with the requirements of the Financial Industry Regulatory Authority, Inc. ("FINRA"), as such requirements may from time to time exist.
(e) The Distributor shall use the facilities, rules and procedures of the National Securities Clearing Corporation (NSCC) Fund Settlement, Entry and Registration Verification System (Fund/SERV System) for the payment for and delivery of Shares.
Section 5. SELLING AGENT AGREEMENTS.
(a) The Distributor shall have the right to enter into agreements with Selling Agents (substantially in the form included in SCHEDULE A) with the Selling Agents listed in SCHEDULE B or such other brokers, dealers or other financial intermediaries deemed by the Distributor to be well positioned to (i) sell Shares and (ii) provide, or arrange for the provision of, Shareholder Services; provided that the Distributor shall periodically inform the Board of Trustees of its entrance into a Selling Agent Agreement. Shares sold to Selling Agents shall be for resale by such dealers only. Notwithstanding the foregoing, the Distributor may enter into a Selling Agent Agreement that is materially different than the form included in SCHEDULE A so long as the Distributor receives the prior written consent of the Board of Trustees, including a majority of the Trustees who are not "interested persons," as such term is defined by the Investment Company Act, of the Fund.
(b) Within the United States, the Distributor shall offer and sell Shares only to such Selling Agents as are members in good standing of FINRA.
Section 6. FEES.
(a) The Distributor or Selling Agents may, in their discretion, impose a sales load to each investor on the purchase price of its Shares of up to 3.0% as specified in the Registration Statement upon acceptance of the investor's purchase of Shares by the Administrator or Selling Agent; provided that the Distributor or Selling Agent shall have the authority to adjust or waive the sales load in particular cases, each in its sole discretion.
(b) As compensation for providing or arranging for the provision of Shareholder Services, the Fund will pay the Distributor monthly fees of 0.25% (on an annualized
basis) of the net asset value of outstanding Shares held by investors that receive Shareholder Services from the Distributor or from Selling Agents retained by the Distributor ("Shareholder Servicing Fees"). Such fees shall not, in the aggregate, exceed 0.25% (on an annualized basis) of the net asset value of the Fund. The Distributor may retain all or a portion of the Shareholder Servicing Fees.
Section 7. PAYMENT OF EXPENSES.
(a) The Fund shall bear all of its own costs and expenses, including fees and disbursements of its counsel and auditors, in connection with the preparation and filing of any required registration statements under the Investment Company Act, and all amendments and supplements thereto, and in connection with any fees and expenses incurred with respect to any filings with FINRA and preparing and mailing annual and interim reports and proxy materials to members (including but not limited to the expense of setting in type any such registration statements, or interim reports or proxy materials).
(b) The Fund shall bear any cost and expenses of qualification of the Shares for sale pursuant to this Agreement and, if necessary or advisable in connection therewith, of qualifying the Fund as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Fund and the Distributor and the cost and expenses payable to each such state for continuing qualification therein until the Fund decides to discontinue such qualification.
(c) The Distributor shall be responsible for any payments made to Selling Agents as reimbursement for their expenses associated with payments of sales commissions to financial consultants. In addition, after the prospectuses and annual and interim reports have been prepared and set in type, the Distributor shall bear the costs and expenses of distributing any copies thereof which are to be used in connection with the offering of Shares to Selling Agents or investors pursuant to this Agreement. The Distributor shall bear the costs and expenses of preparing, printing and distributing any other literature used by the Distributor or furnished by it for use by Selling Agents in connection with the offering of the Shares for sale to the public and any expenses of advertising incurred by the Distributor in connection with such offering.
Section 8. INDEMNIFICATION.
(a) The Fund shall indemnify and hold harmless the Distributor and each person, if any, who controls the Distributor, against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damage or expense and reasonable counsel fees incurred in connection therewith), as incurred, arising by reason of any person acquiring any Shares, which may be based upon the Securities Act, or on any other statute or at common law, on the ground that any registration statement or other offering materials, as from time to time amended and supplemented, or an annual or interim report to Shareholders of the Fund, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, information furnished to the Fund in connection therewith by or on
behalf of the Distributor; provided, however, that in no case (i) is the indemnity of the Fund in favor of the Distributor and any such controlling persons to be deemed to protect the Distributor or any such controlling persons thereof against any liability to the Fund or its Shareholders to which the Distributor or any such controlling persons would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their obligations and duties under this Agreement; or (ii) is the Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any such controlling persons, unless the Distributor or such controlling persons, as the case may be, shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim or claims that have been served upon the Distributor or such controlling persons (or after the Distributor or such controlling persons shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The 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 Fund elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Distributor, or such controlling person or persons of the Distributor. In the event the Fund elects to assume the defense of any such suit and retain such counsel, the Distributor, or such controlling person or persons of the Distributor, shall bear the fees and expenses, as incurred, of any additional counsel retained by them, but in case the Fund does not elect to assume the defense of any such suit, it will reimburse the Distributor, or such controlling person or persons of the Distributor, for the reasonable fees and expenses, as incurred, of any counsel retained by them. The Fund shall promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or Trustees in connection with the issuance or sale of any of the Shares.
(b) The Distributor shall indemnify and hold harmless the Fund, each
person affiliated with the Fund, and their respective officers, directors (or
Trustees, in the case of the Fund), employees, partners and shareholders from
and against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this Section
8 but only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by or on behalf of
the Distributor for use in connection with the Registration Statement or other
offering materials, as from time to time amended, or the annual or interim
reports to Shareholders. In case any action shall be brought against the Fund or
any person so indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties given to the
Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor by the provisions of subsection (a) of this
Section 8.
Section 9. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall become effective upon its approval by a majority of the independent members of the Board at an in-person meeting of the Board and shall remain in force for two years thereafter and thereafter continue from year to year, but only so long as such continuance is specifically approved at least annually (i) by the Trustees or by the vote of a majority of the outstanding voting securities of the Fund and (ii) by the vote of a majority of
those Trustees who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees or by vote of a majority of the outstanding voting securities of the Fund, or by the Distributor, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment.
(c) The terms "vote of a majority of the outstanding voting securities," "assignment," and "interested person," when used in this Agreement, shall have the respective meanings specified in the Investment Company Act.
(d) In the event the offering of Shares is terminated, the Distributor will not be entitled to unrecovered compensation (except for out-of-pocket expenses).
Section 10. AMENDMENTS OF THIS AGREEMENT.
This Agreement may be amended by the parties only if such amendment is specifically approved (i) by the Trustees or by the vote of a majority of outstanding voting securities of the Fund and (ii) by the vote of a majority of those Trustees who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
Section 11. GOVERNING LAW.
The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of New York as at the time in effect and the applicable provisions of the Investment Company Act. To the extent that the applicable law of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the Investment Company Act, the latter shall control.IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. This Agreement may be executed by the parties hereto in any number of counterparts, all of which shall constitute one and the same instrument.
ALKEON GLOBAL FUND
SMH CAPITAL INC.
Title:
SCHEDULE A
MASTER SELLING AND SHAREHOLDER SERVICING AGREEMENT
[ ___________, 2009]
Ladies and Gentlemen:
The undersigned distributor (the "Distributor" or "us" or "we"), which is a member firm of the Financial Industry Regulatory Authority, Inc. ("FINRA," formerly the National Association of Securities Dealers, Inc.), has an agreement with each of the funds listed in Annex A, as may be amended from time to time (each a "Fund" and together, the "Funds"), pursuant to which it acts as a distributor for the sale of shares of beneficial interest in the Funds ("Shares").
This Master Selling and Shareholder Servicing Agreement (the "Agreement"), dated as of [________] and effective upon its approval by a majority of the independent directors or trustees of the Fund or Funds (as applicable) at an in-person meeting of the board of directors or trustees, shall be applicable to any offering of Shares pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"). A Fund may elect to offer and sell Shares on a delayed or continuous basis in reliance on Rule 415 under Securities Act. The terms and conditions of the Agreement shall also be applicable to any such delayed or continuous offering of Shares.
We have delivered or will deliver to the undersigned broker-dealer (the "Selling Agent" or "you"), for delivery to prospective purchasers of Shares, copies of the Funds' prospectus, as amended or supplemented from time to time (the "Prospectus"), including the Funds' required form of investor certification (the "Investor Certification"), and other relevant written information approved and furnished by the Funds for use by prospective purchasers in connection with their purchase of Shares (collectively, the "Offering Documents").
We hereby appoint you as a Selling Agent with respect to the offering of Shares, and you hereby accept such appointment, expressly upon the following terms and conditions of the Agreement:
1. NON-EXCLUSIVE APPOINTMENT. You agree on a non-exclusive basis to use reasonable efforts to solicit and receive offers to purchase Shares in accordance with the terms and conditions set forth in this Agreement and the Offering Documents. Nothing in this Agreement shall limit our right to make other arrangements with respect to the Shares with any person, including the appointment of other distributors or selling dealers.
2. LIMITATION ON ACTIVITIES AS SELLING AGENT; BLUE SKY. You agree to solicit and receive offers to purchase Shares: (a) only in the jurisdictions in which you and your employees
maintain all licenses and registrations necessary under applicable law and regulations (including the rules of FINRA) to provide the services required to be provided by you under this Agreement; and (b) only to U.S. persons in states where notifications regarding the Shares have been duly filed or where no such notifications are required or otherwise in compliance with applicable state securities or Blue Sky laws.
We agree to inform you as to the states in which notifications of the intention to sell Shares have been duly filed or where no such notification is required, but we assume no responsibility or obligation as to your right to sell Shares in any jurisdiction.
3. QUALIFIED INVESTORS.
(a) You will only: (i) solicit offers to purchase Shares from persons who certify that they have a net worth of more than $1.5 million (or in the case of an individual, a joint net worth with their spouse of more than $1.5 million) ("Qualified Investors"); and (ii) submit completed Investor Certifications to us or another agent of the Funds on behalf of prospective investors who you have determined, after reasonable inquiry, to be Qualified Investors.
(b) You agree that: (i) you have implemented procedures designed to enable you to form a reasonable belief that a prospective investor is a Qualified Investor; (ii) you will keep records (and make them available to us promptly upon request) of the information you relied on in concluding that a prospective investor in a Fund is a Qualified Investor; and (iii) you will cooperate with the Securities and Exchange Commission ("SEC") in the event of any audit or examination of the Qualified Investor status of your clients with respect to the Shares.
(c) You understand that Shares will be subject to transfer restrictions that permit transfers only to persons who are Qualified Investors and agree to provide a certification to that effect. You agree that: (i) you will not make any transfers of Shares to any of your clients unless you believe that the client is a Qualified Investor; (ii) you have implemented procedures designed to enable you to form a reasonable belief that any transferee of Shares who is a client is a Qualified Investor; (iii) you will only make transfers of Shares to an account with a broker or dealer that has entered into a selling agreement with us; and (iv) confirmations of any transfer will include a statement regarding the transfer restrictions applicable to the Shares.
4. PROCESSING OF ORDERS. Orders for Shares received from you will be accepted through us only at the public offering price applicable to each order, as set forth in the Prospectus. The procedure relating to the handling of orders shall be subject to the terms of this Agreement and instructions that we or the Funds shall forward from time to time to you. All orders are subject to acceptance or rejection, in whole or in part, by the Distributor or the Funds in their sole discretion. The minimum initial and subsequent purchase requirements are as set forth in the Prospectus.
Payment for and delivery of Shares will be made through the facilities, and subject to the rules and procedures, of the National Securities Clearing Corporation (NSCC) Fund Settlement, Entry and Registration Verification System (Fund/SERV System), subject to the Funds' right to accept or reject orders for Shares.
5. SUSPENSION OR WITHDRAWAL OF OFFERING. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Shares entirely or to certain persons or entities in a class or classes specified by us.
6. SELLING AGENT'S STANDING & RELATED REPRESENTATIONS
(a) DELIVERY OF FUND MATERIALS, OFFERING DOCUMENTS AND CONFIRMATIONS. You agree to deliver to each of your clients making purchases a copy of the then current Prospectus prior to the time of offering or sale. Subject to receipt of such material from Distributor, you agree thereafter to deliver to such clients copies of the annual and interim reports, proxy solicitation and repurchase or tender offer materials (as applicable) of a Fund and any other communications made by a Fund to all of its investors (collectively, "Fund Materials"). You further agree to endeavor to obtain completed proxies from such purchasers and to forward them to the applicable Fund. Additional copies of the Fund Materials will be supplied to you in reasonable quantities upon request.
You represent and warrant that you are familiar with Rule 15c2-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to the distribution of preliminary and final prospectuses and agree that you will comply therewith. You agree to make a record of your distribution of each preliminary prospectus and when furnished with copies of any revised preliminary prospectus, you will promptly forward copies thereof to each person to whom you have theretofore distributed a preliminary prospectus. You further agree to furnish any confirmations required pursuant to Rule 10b-10 under the Exchange Act and provide applicable point of sale disclosure to investors concerning the amount of all compensation received or to be received by you in connection with the sale of Shares.
You agree that in making offers of Shares you will rely upon no statement whatsoever, written or oral, other than the statements in the Offering Documents delivered to you by us. You will not be authorized by a Fund to give any information or to make any representation not contained in the Offering Documents in connection with the sale of Shares.
(b) FINRA. You represent and warrant that you are actually engaged in the investment banking or securities business and either are a member in good standing of FINRA or, if you are not such a member, you are a foreign bank, dealer or institution not eligible for membership in FINRA which agrees to make no sales within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply with all applicable FINRA Rules. If you are a member of FINRA you agree to promptly notify us if you cease to be in good standing with FINRA. You further represent, by your participation in an offering of Shares, that you have provided to us all documents and other information required to be filed with respect to you, any related person or any person associated with you or any such related person pursuant to the supplementary requirements of FINRA Rule 5110 with respect to review of corporate financing to the extent that such requirements relate to such offering of Shares.
You agree that, in connection with any purchase or sale of the Shares wherein a selling concession, discount or other allowance is received or granted, you will: (i) if you are a member of FINRA, comply with all applicable interpretive material and Rules of FINRA, including, without limitation, FINRA Conduct Rule 2740 (relating to Selling Concessions, Discounts and Other Allowances), or (ii) if you are a foreign bank or dealer or institution not eligible for such membership, comply with FINRA Conduct Rules 2730 (relating to Securities Taken in Trade), 2740 (relating to Selling Concessions) and 2750 (relating to Transactions With Related Persons) as though you were such a member and Conduct Rule 2420 (relating to Dealing with Non-Members) as it applies to a non-member broker or dealer in a foreign country, and all other applicable rules of FINRA.
If you are a member of FINRA, you further agree that, prior to making an offering of Shares to any clients, you will, among other things, comply with FINRA Conduct Rule 2310 (Recommendations to Customers (Suitability)), which compliance shall include without limitation considering: (i) the suitability of this investment with respect to the client's investment objectives and personal situation, (ii) factors such as the client's personal net worth, income, age, risk tolerance and liquidity needs, and (iii) whether the client's risk profile is suitable for this investment.
(c) REGISTERED BROKER-DEALER. You represent that you are a broker or dealer registered under the Exchange Act. You agree to notify us immediately if you cease to be registered or licensed as a broker or dealer.
(d) SIPC. You agree to promptly notify us if you are not now a member of the Securities Investor Protection Corporation or its successor ("SIPC"), or if at any time during the term of this Agreement you cease being a member of SIPC.
(e) COMPLAINTS; LITIGATION; REGULATORY PROCEEDINGS. You agree to promptly advise the Distributor if you receive notice of any client complaint, litigation initiated or threatened, or communication by any regulatory authority which relates to a Fund or to a transaction in Shares by you, and you agree to provide us information and documentation thereon as we may reasonably request, subject to confidentiality obligations.
(f) APPLICABLE LAWS AND REGULATIONS. In addition to the laws, rules and regulations specifically referenced in this Section 6, you agree to comply with all applicable laws, rules or regulations (including, without limitation, the FINRA Rules) in connection with your activities under this Agreement.
7. ANTI-MONEY LAUNDERING. You hereby certify that you have established and maintain an anti-money laundering program that includes written policies, procedures and internal controls reasonably designed to identify your clients and have undertaken appropriate due diligence efforts to "know your customers" in accordance with all applicable anti-money laundering laws and regulations in your jurisdiction, including, where applicable, the USA PATRIOT Act of 2001 (the "PATRIOT Act"), including sections 326 (Customer Identification Program), 356 (Suspicious Activity Reporting), 314 (INFORMATION SHARING), 313/319 (Foreign Banks), 312 (Correspondent/Private Banking Accounts) and 311 (Special Measures)
of the PATRIOT Act. You represent and warrant that any money contributed to a
Fund by or on behalf of an investor introduced by you, will not be directly or
indirectly derived from activities that may contravene U.S. federal, state and
international laws and regulations, including anti-money laundering laws and
regulations. You also represent and warrant that you will screen any investor
introduced to a Fund by you against the sanctions programs administered by the
U.S. Department of Treasury's Office of Foreign Assets Control ("OFAC"),
including Executive Order 13224, Blocking Property And Prohibiting Transactions
with Persons Who Commit, Threaten to Commit, or Support Terrorism, or the Annex
thereto, as published at http://www.treas.gov/offices/enforcement/ofac/programs/
terror/terror.pdf, and the OFAC list, available at http://www.treas.gov/offices
/enforcement/ofac/. You further confirm that you will monitor for suspicious
activity in accordance with the requirements of the PATRIOT Act. You agree to
provide us with such information as we may reasonably request, including but not
limited to, the filling out of questionnaires, attestations and other documents,
to enable us to fulfill our obligations under the PATRIOT Act. Upon filing a
Section 314 notice you agree to comply with all applicable requirements under
the PATRIOT Act and applicable implementing regulations concerning the use,
disclosure, and security of any information that is shared.
8. PRIVACY.
You acknowledge that we are subject to the privacy regulations under Title
V of the Gramm-Leach-Bliley Act, 15 U.S.C. ss. 6801 et seq., pursuant to which
regulations we are required to obtain certain undertakings from you with regard
to the privacy, use and protection of nonpublic personal financial information
of our clients or prospective clients. Therefore, notwithstanding anything to
the contrary contained in this Agreement, you agree that: (a) you shall not
disclose or use any Client Data (as defined in the last sentence of this Section
8) except to the extent necessary to carry out your obligations under this
Agreement and for no other purpose; (b) you shall not disclose Client Data to
any third party, including, without limitation, your third party service
providers without our prior consent and an agreement in writing from the third
party to use or disclose such Client Data only to the extent necessary to carry
out your obligations under this Agreement and for no other purposes; (c) you
shall maintain, and shall require all third parties approved under subsection
(b) to maintain, effective information security measures to protect Client Data
from unauthorized disclosure or use; and (d) you shall provide us with
information regarding such security measures upon our reasonable request and
promptly provide us with information regarding any failure of such security
measures or any security breach related to Client Data. The obligations set
forth in this Section shall survive termination of the Agreement. For purposes
of this Agreement, Client Data means the nonpublic personal information (as
defined in 15 U.S.C. ss. 6809(4)) of the Distributor's clients or prospective
clients (and/or the Distributor's parent, affiliated or subsidiary companies)
received by the Selling Agent in connection with the performance of its
obligations under the Agreement, including, but not limited to: (a) an
individual's name, address, e-mail address, IP address, telephone number and/or
social security number; (b) the fact that an individual has a relationship with
the Distributor and/or its parent, affiliated or subsidiary companies; or (c) an
individual's account information.
9. SHAREHOLDER SERVICES.
(a) PROVISION OF SERVICES. You agree to maintain accounts and provide certain services for your clients who have purchased or otherwise acquired Shares in an offering subject to this
Agreement, including, without limitation: (i) handling inquiries from clients regarding a Fund, including, but not limited to, questions concerning their investments in a Fund, and reports and tax information provided by a Fund; (ii) assisting in the enhancement of communications between clients and a Fund; (iii) notifying a Fund of any changes to shareholder information, such as changes of address; (iv) providing such other information and shareholder services as may be reasonably requested by us; (v) assisting in any transfer of Shares made in accordance with the terms of the Prospectus; and (vi) assisting in any repurchase or tender offers conducted by Fund (as applicable), including, but not limited to: delivering to each client in a timely manner any applicable repurchase or tender offer material, responding to client inquiries about procedures for tendering Shares, tendering Shares on behalf of clients that wish to participate in the repurchase or tender offer, remitting repurchase or tender proceeds to the appropriate clients, and in the event the Fund is required to pro rate repurchase or tender offers, determining correct allocations among your clients of any repurchase or tender proceeds and any Shares not purchased in the repurchase or tender offer.
(b) COMPENSATION. Compensation for the services performed by you pursuant to this Section 9 is set forth in Annex B hereto, as may be amended by the parties hereto from time to time.
10. INDEMNIFICATION.
(a) You agree to indemnify and hold harmless the Distributor, the Funds and each person affiliated with the Distributor or the Funds, and their respective officers, directors, employees, partners and shareholders from and against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability claim, damage or expense and reasonable counsel fees incurred in connection therewith), as incurred, arising in connection with the performance of your obligations under this Agreement or your breach of any of its provisions; except insofar as such loss, liability, claim, damage, or expense is caused by the willful misfeasance, bad faith, gross negligence or reckless disregard of the Distributor in the performance of its obligations and duties under this Agreement.
(b) Distributor agrees to indemnify and hold harmless Selling Agent (for the purposes of this Section, "Selling Agent" shall mean you, your directors, officers, employees and agents, and any person who is or may be deemed to be a controlling person of Selling Agent) from and against any and all losses, claims, damages, liabilities or expenses (including the reasonable costs of investigation and attorney's fees and expenses as such expenses are incurred by Selling Agent in any action or proceeding between the parties to this Agreement or between Selling Agent and any third party) to which Selling Agent may become subject, insofar as any such loss, claim, damage, liability or expense (or action with respect thereto) arises out of or is based on any untrue statement of a material fact contained in the Prospectus or any Offering Document relating to an offering of Shares, or arises out of or is based on the failure to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Distributor's obligation to indemnify and hold harmless Selling Agent applies only with respect to such statements or omissions of material fact relating to information about the Distributor furnished in writing by the Distributor expressly for use in any such Prospectus or sales materials.
(c) The provisions of this Section 10 shall survive termination of this Agreement.
11. TERMINATION; SUPPLEMENTS AND AMENDMENTS. This Agreement shall continue in full force and effect until terminated by a written instrument executed by each of the parties hereto; provided, however, that the terms and conditions set forth in Section 9 shall continue in effect until terminated by a written instrument setting forth the mutual agreements of the Funds and you for the disposition of any Shares held by you for your clients' accounts. This Agreement may be supplemented or amended by us by written notice thereof to you, and any such supplement or amendment to this Agreement shall be effective with respect to any offering of Shares to which this Agreement applies after the date of such supplement or amendment. Each reference to "this Agreement" herein shall, as appropriate, be to this Agreement as so amended and supplemented.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and the respective successors and assigns of each of them.
13. CONFIDENTIALITY. The parties agree to keep the existence and the terms of this Agreement confidential and not to disclose such terms unless they are made public other than due to a breach of this Section 13 by the affected party or as required by law in which case the affected party shall give the other parties as is reasonably practicable the right to contest such law and/or limit the scope of the required disclosure. The Selling Agent agrees that neither it nor any of its affiliates shall publicly disparage the Funds, the Distributor or any of their respective affiliates.
14. ENTIRE AGREEMENT. This Agreement represents the entire agreement between the parties and supersedes any prior agreement entered into by the parties hereto (or their respective predecessors) with respect to the Shares. In the event that any provision hereof is held to be invalid or unenforceable by any court of competent jurisdiction, such invalidity shall be limited to the jurisdiction in question, and such invalidity to the extent so held by such court. For the avoidance of doubt, the decision of a given court having jurisdiction over a given premises that any provision hereof is invalid or unenforceable shall have no effect whatsoever in respect of any such premises.
15. GOVERNING LAw. This Agreement and the terms and conditions set forth herein with respect to any offering of Shares shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Please confirm by signing and returning to us the enclosed copy of this Agreement that your subscription to or your acceptance of any reservation of any Shares pursuant to an offering shall constitute (i) acceptance of and agreement to the terms and conditions of this Agreement (as may be supplemented and amended pursuant to Section 11 hereof); together with and subject to any supplementary terms and conditions contained in any Written Communication from us in connection with such offering of Shares, all of which shall constitute a binding agreement between you and us, (ii) confirmation that your representations and warranties set forth herein are true and correct at that time, (iii) confirmation that your agreements set forth herein hereof have been and will be fully performed by you to the extent and at the times required thereby and (iv) acknowledgment that you have requested and received from us sufficient copies of the final Prospectus in order to comply with your undertakings herein.
Very truly yours,
Title:
ANNEX A
LIST OF FUNDS
Alkeon Global Fund
ANNEX B
Compensation Schedule for Alkeon Global Fund (the "Fund")
1. You shall be entitled to charge an upfront sales load of up to 3% of an investor's investment amount.
2. In addition, you shall be entitled to receive an ongoing shareholder servicing fee of [0.25%] (on an annualized basis) of the aggregate value of Shares held by your clients that you have referred to the Fund (the "Shareholder Servicing Fee"). The Shareholder Servicing Fee shall be determined as of the last day of the month and paid [as soon as reasonably practicable, but not later than [___] days after the end of such month].
SCHEDULE B
[LIST OF BROKER-DEALERS TO BE INSERTED]
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "Agreement") by and between ALKEON GLOBAL FUND a Delaware statutory trust (the "Fund"), and MAINSAIL GROUP, L.L.C., a Delaware limited liability company (the "Distributor"), is dated as of August 19, 2009 and effective as set forth in Section 9(a) of this Agreement.
WITNESSETH:
WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as a closed-end, non-diversified management investment company; and
WHEREAS, the Fund is authorized to issue shares of beneficial interest in the Fund ("Shares") pursuant to the Fund's registration statement on Form N-2, as it may be amended or supplemented from time to time (the "Registration Statement"); and
WHEREAS, the Distributor is a securities firm engaged in the business of selling interests of investment companies either directly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with each other with respect to the offering of the Fund's Shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor; Offering.
(a) Subject to the terms and conditions of this Agreement, the Fund hereby appoints the Distributor as a non-exclusive distributor in connection with the distribution of the Shares, and the Distributor hereby accepts such appointment.
(b) The Distributor agrees to use its reasonable best efforts to offer and sell Shares to investors that the Distributor reasonably believes meet the eligibility requirements set forth in the Registration Statement and to use all reasonable efforts to assist the Fund in obtaining performance by each prospective investor who submits a completed Investor Certificate (as defined below) to his/her broker, dealer or other financial intermediary.
(c) Unless otherwise agreed by the parties hereto, unaffiliated brokers or dealers retained by the Distributor to act as selling agents ("Selling Agents") or PNC Global Investment Servicing (U.S.) Inc., the Fund's administrator (the "Administrator") shall be responsible for reviewing each completed investor certificate ("Investor Certificate") to confirm that it has been completed in accordance with the instructions thereto. The Administrator or the prospective investor's Selling Agent, in its sole discretion, may reject any Investor Certificate
that is not completed to its satisfaction and the Fund shall be under no obligation to accept any Investor Certificate.
(d) The Distributor acknowledges that Shares will be offered and sold only as set forth in the Registration Statement and the Fund's Declaration and Agreement of Trust.
(e) The Fund may suspend or terminate the offering of the Shares at any time as to specific classes of investors (to the extent such separate classes are permitted and established by applicable law, rule or order), as to specific jurisdictions or otherwise. Upon notice to the Distributor of the terms of such suspension or termination, the Distributor shall suspend solicitation of purchases of Shares in accordance with such terms until the Fund notifies the Distributor that such solicitation may be resumed.
(f) It is acknowledged and agreed that the Distributor is not obligated to sell any specific number of Shares or to purchase any Shares for its own account. The Fund shall be entitled to appoint additional distributors.
Section 2. Agency. In offering Shares, the Distributor shall act solely as an agent of the Fund and not as principal.
Section 3. Duties of the Fund.
(a) The Fund shall take, from time to time, but subject always to any necessary approval of the board of trustees of the Fund (the "Board of Trustees") or of the shareholders of the Fund (the "Shareholders"), all necessary action to fix the number of authorized Shares and such steps as may be necessary to register the same under the Securities Act of 1933, as amended (the "Securities Act"), to the end that there will be available for sale such number of Shares as the Distributor reasonably may be expected to sell.
(b) For purposes of the offering of Shares, the Fund will furnish to the Distributor copies of the Registration Statement, including the prospectus contained therein, the Investor Certificate and any other documentation for use in the offering of Shares. Additional copies of such documents will be furnished to the Distributor at no cost to the Distributor in such numbers as reasonably requested. The Distributor is authorized to furnish to prospective investors only such information concerning the Fund and the offering as may be contained in the Registration Statement, the Fund's formation documents, or any other documents (including sales material), if approved by the Fund.
(c) The Fund shall furnish to the Distributor copies of all financial statements of the Fund which the Distributor may reasonably request for use in connection with its duties hereunder, and this shall include, upon request by the Distributor, one certified copy of all financial statements prepared for the Fund by independent public accountants.
(d) The Fund shall use its best efforts to qualify and maintain the qualification of the Shares for sale under the securities laws of such jurisdictions as the Distributor and the Fund may approve. Any such qualification may be withheld, terminated or withdrawn by the Fund at any time in its discretion. The expense of qualification and maintenance of qualification shall be borne by the Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in connection with such qualification.
(e) The Fund will furnish, in reasonable quantities upon request by the Distributor, copies of annual and interim reports of the Fund.
(f) The Fund will furnish the Distributor with such other documents as it may reasonably require, from time to time, for the purpose of enabling it to perform its duties as contemplated by this Agreement.
Section 4. Duties of the Distributor.
(a) In addition to selling and marketing the Fund (as described in Section 1), the Distributor shall furnish personal investor services and account maintenance services to Shareholders of the Fund ("Shareholder Services"), and/or retain Selling Agents whose clients purchase Shares to provide Shareholder Services to Shareholders who are clients of such Selling Agents. Shareholder Services shall include, but shall not be limited to:
(i) handling inquiries from Shareholders regarding the Fund, including but not limited to questions concerning their investments in the Fund, and reports and tax information provided by the Fund;
(ii) assisting in the enhancement of communications between Shareholders and the Fund;
(iii) notifying the Fund of any changes to Shareholder information, such as changes of address;
(iv) providing such other information and Shareholder Services as may be reasonably requested by the Fund or, in the case of Selling Agents, by the Distributor;
(v) assisting in any transfer of Shares made in accordance with the terms of the Fund's Prospectus; and
(vi) assisting in any repurchase offers conducted by the Fund, including, but not limited to: delivering to each Shareholder in a timely manner any applicable repurchase offer material, responding to client inquiries about procedures for tendering Shares, tendering Shares on behalf of Shareholders that wish to participate in the repurchase offer, remitting repurchase proceeds to the appropriate Shareholders, and in the event the Fund is required to pro rate repurchase offers, determining correct allocations among Shareholders of any repurchase proceeds and any Shares not purchased in the repurchase offer.
(b) The Distributor shall devote reasonable time and effort to its duties hereunder. The services of the Distributor to the Fund hereunder are not to be deemed exclusive and nothing herein contained shall prevent the Distributor from entering into like arrangements with other investment companies so long as the performance of its obligations hereunder is not impaired thereby.
(c) In performing its duties hereunder, the Distributor shall use its best efforts in all respects to duly conform with the requirements of all applicable laws relating to the sale of securities.
(d) The Distributor shall adopt and follow procedures, as approved by the officers of the Fund, for the confirmation of sales to investors and Selling Agents, the collection of amounts payable by investors and Selling Agents on such sales, and the cancellation of unsettled transactions, as may be necessary to comply with the requirements of the Financial Industry Regulatory Authority, Inc. ("FINRA"), as such requirements may from time to time exist.
(e) The Distributor shall use the facilities, rules and procedures of the National Securities Clearing Corporation (NSCC) Fund Settlement, Entry and Registration Verification System (Fund/SERV System) for the payment for and delivery of Shares.
(f) The Distributor represents that it has filed a Continuance in Membership Application with FINRA (the "FINRA Application") to cover distribution of the Fund.
Section 5. Selling Agent Agreements.
(a) The Distributor shall have the right to enter into
agreements with Selling Agents (substantially in the form included in SCHEDULE
A) with the Selling Agents listed in SCHEDULE B or such other brokers, dealers
or other financial intermediaries deemed by the Distributor to be well
positioned to (i) sell Shares and (ii) provide, or arrange for the provision of,
Shareholder Services; provided that the Distributor shall periodically inform
the Board of Trustees of its entrance into a Selling Agent Agreement. Shares
sold to Selling Agents shall be for resale by such dealers only. Notwithstanding
the foregoing, the Distributor may enter into a Selling Agent Agreement that is
materially different than the form included in SCHEDULE A so long as the
Distributor receives the prior written consent of the Board of Trustees,
including a majority of the Trustees who are not "interested persons," as such
term is defined by the Investment Company Act, of the Fund.
(b) Within the United States, the Distributor shall offer and sell Shares only to such Selling Agents as are members in good standing of FINRA.
Section 6. Fees.
(a) The Distributor or Selling Agents may, in their discretion, impose a sales load to each investor on the purchase price of its Shares of up to 3.0% as specified in the Registration Statement upon acceptance of the investor's purchase of Shares by the Administrator or Selling Agent; provided that the Distributor or Selling Agent shall have the authority to adjust or waive the sales load in particular cases, each in its sole discretion.
(b) As compensation for providing or arranging for the provision of Shareholder Services, the Fund will pay the Distributor monthly fees of 0.25% (on an annualized basis) of the net asset value of outstanding Shares held by investors that receive Shareholder Services from the Distributor or from Selling Agents retained by the Distributor ("Shareholder Servicing Fees"). Such fees shall not, in the aggregate, exceed 0.25% (on an annualized basis) of the net asset value of the Fund. The Distributor may retain all or a portion of the Shareholder Servicing Fees.
Section 7. Payment of Expenses.
(a) The Fund shall bear all of its own costs and expenses, including fees and disbursements of its counsel and auditors, in connection with the preparation and filing of any required registration statements under the Investment Company Act, and all amendments and supplements thereto, and in connection with any fees and expenses incurred with respect to any filings with FINRA and preparing and mailing annual and interim reports and proxy materials to members (including but not limited to the expense of setting in type any such registration statements, or interim reports or proxy materials).
(b) The Fund shall bear any cost and expenses of qualification of the Shares for sale pursuant to this Agreement and, if necessary or advisable in connection therewith, of qualifying the Fund as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Fund and the Distributor and the cost and expenses payable to each such state for continuing qualification therein until the Fund decides to discontinue such qualification.
(c) The Distributor shall be responsible for any payments made to Selling Agents as reimbursement for their expenses associated with payments of sales commissions to financial consultants. In addition, after the prospectuses and annual and interim reports have been prepared and set in type, the Distributor shall bear the costs and expenses of distributing any copies thereof which are to be used in connection with the offering of Shares to Selling Agents or investors pursuant to this Agreement. The Distributor shall bear the costs and expenses of preparing, printing and distributing any other literature used by the Distributor or furnished by it for use by Selling Agents in connection with the offering of the Shares for sale to the public and any expenses of advertising incurred by the Distributor in connection with such offering.
Section 8. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each person, if any, who controls the Distributor, against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damage or expense and reasonable counsel fees incurred in connection therewith), as incurred, arising by reason of any person acquiring any Shares, which may be based upon the Securities Act, or on any other statute or at common law, on the ground that any registration statement or other offering materials, as from time to time amended and supplemented, or an annual or interim report to Shareholders of the Fund, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, information furnished to the Fund in connection therewith by or on behalf of the Distributor; provided, however, that in no case (i) is the indemnity of the Fund in favor of the Distributor and any such controlling persons to be deemed to protect the Distributor or any such controlling persons thereof against any liability to the Fund or its Shareholders to which the Distributor or any such controlling persons would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their obligations and duties under this Agreement; or (ii) is the Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any such controlling persons, unless the Distributor or such controlling persons, as the case may be, shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim or claims that have been served upon the Distributor or such controlling persons (or after the Distributor or such controlling persons shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The 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 Fund elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Distributor, or such controlling person or persons of the Distributor. In the event the Fund elects to assume the defense of any such suit and retain such counsel, the Distributor, or such controlling person or persons of the Distributor, shall bear the fees and expenses, as incurred, of any additional counsel retained by them, but in case the Fund does not elect to assume the defense of any such suit, it will reimburse the Distributor, or such controlling person or persons of the Distributor, for the reasonable fees and expenses, as incurred, of any counsel retained by them. The Fund shall promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or Trustees in connection with the issuance or sale of any of the Shares.
(b) The Distributor shall indemnify and hold harmless the Fund,
each person affiliated with the Fund, and their respective officers, directors
(or Trustees, in the case of the Fund), employees, partners and shareholders
from and against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this Section
8 but only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by or on behalf of
the Distributor for use in connection with the Registration Statement or other
offering materials, as from time to time amended, or the annual or interim
reports to Shareholders. In case any action shall be brought against the Fund or
any person so indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties given to the
Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor by the provisions of subsection (a) of this
Section 8.
Section 9. Duration and Termination of this Agreement.
(a) This Agreement shall become effective upon the later of:
(i) its approval by a majority of the independent members of the Board of
Trustees at an in-person meeting of the Board of Trustees; or (ii) FINRA's
approval of the FINRA Application. This Agreement
shall remain in force for two years thereafter and thereafter continue from year to year, but only so long as such continuance is specifically approved at least annually (i) by the Trustees or by the vote of a majority of the outstanding voting securities of the Fund and (ii) by the vote of a majority of those Trustees who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees or by vote of a majority of the outstanding voting securities of the Fund, or by the Distributor, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment.
(c) The terms "vote of a majority of the outstanding voting securities," "assignment," and "interested person," when used in this Agreement, shall have the respective meanings specified in the Investment Company Act.
(d) In the event the offering of Shares is terminated, the Distributor will not be entitled to unrecovered compensation (except for out-of-pocket expenses).
Section 10. Amendments of this Agreement.
This Agreement may be amended by the parties only if such amendment is specifically approved (i) by the Trustees or by the vote of a majority of outstanding voting securities of the Fund and (ii) by the vote of a majority of those Trustees who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
Section 11. Governing Law.
The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of New York as at the time in effect and the applicable provisions of the Investment Company Act. To the extent that the applicable law of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. This Agreement may be executed by the parties hereto in any number of counterparts, all of which shall constitute one and the same instrument.
ALKEON GLOBAL FUND
MAINSAIL GROUP, L.L.C.
SCHEDULE A
MASTER SELLING AND SHAREHOLDER SERVICING AGREEMENT
[ ___________, 2009]
Ladies and Gentlemen:
The undersigned distributor (the "Distributor" or "us" or "we"), which is a member firm of the Financial Industry Regulatory Authority, Inc. ("FINRA," formerly the National Association of Securities Dealers, Inc.), has an agreement with each of the funds listed in Annex A, as may be amended from time to time (each a "Fund" and together, the "Funds"), pursuant to which it acts as a distributor for the sale of shares of beneficial interest in the Funds ("Shares").
This Master Selling and Shareholder Servicing Agreement (the "Agreement"), dated as of [________] and effective upon its approval by a majority of the independent directors or trustees of the Fund or Funds (as applicable) at an in-person meeting of the board of directors or trustees, shall be applicable to any offering of Shares pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"). A Fund may elect to offer and sell Shares on a delayed or continuous basis in reliance on Rule 415 under Securities Act. The terms and conditions of the Agreement shall also be applicable to any such delayed or continuous offering of Shares.
We have delivered or will deliver to the undersigned broker-dealer (the "Selling Agent" or "you"), for delivery to prospective purchasers of Shares, copies of the Funds' prospectus, as amended or supplemented from time to time (the "Prospectus"), including the Funds' required form of investor certification (the "Investor Certification"), and other relevant written information approved and furnished by the Funds for use by prospective purchasers in connection with their purchase of Shares (collectively, the "Offering Documents").
We hereby appoint you as a Selling Agent with respect to the offering of Shares, and you hereby accept such appointment, expressly upon the following terms and conditions of the Agreement:
1. Non-Exclusive Appointment. You agree on a non-exclusive basis to use reasonable efforts to solicit and receive offers to purchase Shares in accordance with the terms and conditions set forth in this Agreement and the Offering Documents. Nothing in this Agreement shall limit our right to make other arrangements with respect to the Shares with any person, including the appointment of other distributors or selling dealers.
2. Limitation on Activities as Selling Agent; Blue Sky. You agree to solicit and receive offers to purchase Shares: (a) only in the jurisdictions in which you and your employees maintain all licenses and registrations necessary under applicable law and regulations (including the rules of FINRA) to provide the services required to be provided by you under this Agreement; and (b) only to U.S. persons in states where notifications regarding the Shares have been duly filed or where no such notifications are required or otherwise in compliance with applicable state securities or Blue Sky laws.
We agree to inform you as to the states in which notifications of the intention to sell Shares have been duly filed or where no such notification is required, but we assume no responsibility or obligation as to your right to sell Shares in any jurisdiction.
3. Qualified Investors.
(a) You will only: (i) solicit offers to purchase Shares from persons who certify that they have a net worth of more than $1.5 million (or in the case of an individual, a joint net worth with their spouse of more than $1.5 million) ("Qualified Investors"); and (ii) submit completed Investor Certifications to us or another agent of the Funds on behalf of prospective investors who you have determined, after reasonable inquiry, to be Qualified Investors.
(b) You agree that: (i) you have implemented procedures designed to enable you to form a reasonable belief that a prospective investor is a Qualified Investor; (ii) you will keep records (and make them available to us promptly upon request) of the information you relied on in concluding that a prospective investor in a Fund is a Qualified Investor; and (iii) you will cooperate with the Securities and Exchange Commission ("SEC") in the event of any audit or examination of the Qualified Investor status of your clients with respect to the Shares.
(c) You understand that Shares will be subject to transfer restrictions that permit transfers only to persons who are Qualified Investors and agree to provide a certification to that effect. You agree that: (i) you will not make any transfers of Shares to any of your clients unless you believe that the client is a Qualified Investor; (ii) you have implemented procedures designed to enable you to form a reasonable belief that any transferee of Shares who is a client is a Qualified Investor; (iii) you will only make transfers of Shares to an account with a broker or dealer that has entered into a selling agreement with us; and (iv) confirmations of any transfer will include a statement regarding the transfer restrictions applicable to the Shares.
4. Processing of Orders. Orders for Shares received from you will be accepted through us only at the public offering price applicable to each order, as set forth in the Prospectus. The procedure relating to the handling of orders shall be subject to the terms of this Agreement and instructions that we or the Funds shall forward from time to time to you. All orders are subject to acceptance or rejection, in whole or in part, by the Distributor or the Funds in their sole discretion. The minimum initial and subsequent purchase requirements are as set forth in the Prospectus.
Payment for and delivery of Shares will be made through the facilities, and subject to the rules and procedures, of the National Securities Clearing Corporation (NSCC) Fund
Settlement, Entry and Registration Verification System (Fund/SERV System), subject to the Funds' right to accept or reject orders for Shares.
5. Suspension or Withdrawal of Offering. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Shares entirely or to certain persons or entities in a class or classes specified by us.
6. SELLING AGENT'S STANDING & RELATED REPRESENTATIONS
(a) Delivery of Fund Materials, Offering Documents and Confirmations. You agree to deliver to each of your clients making purchases a copy of the then current Prospectus prior to the time of offering or sale. Subject to receipt of such material from Distributor, you agree thereafter to deliver to such clients copies of the annual and interim reports, proxy solicitation and repurchase or tender offer materials (as applicable) of a Fund and any other communications made by a Fund to all of its investors (collectively, "Fund Materials"). You further agree to endeavor to obtain completed proxies from such purchasers and to forward them to the applicable Fund. Additional copies of the Fund Materials will be supplied to you in reasonable quantities upon request.
You represent and warrant that you are familiar with Rule 15c2-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to the distribution of preliminary and final prospectuses and agree that you will comply therewith. You agree to make a record of your distribution of each preliminary prospectus and when furnished with copies of any revised preliminary prospectus, you will promptly forward copies thereof to each person to whom you have theretofore distributed a preliminary prospectus. You further agree to furnish any confirmations required pursuant to Rule 10b-10 under the Exchange Act and provide applicable point of sale disclosure to investors concerning the amount of all compensation received or to be received by you in connection with the sale of Shares.
You agree that in making offers of Shares you will rely upon no statement whatsoever, written or oral, other than the statements in the Offering Documents delivered to you by us. You will not be authorized by a Fund to give any information or to make any representation not contained in the Offering Documents in connection with the sale of Shares.
(b) FINRA. You represent and warrant that you are actually engaged in the investment banking or securities business and either are a member in good standing of FINRA or, if you are not such a member, you are a foreign bank, dealer or institution not eligible for membership in FINRA which agrees to make no sales within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply with all applicable FINRA Rules. If you are a member of FINRA you agree to promptly notify us if you cease to be in good standing with FINRA. You further represent, by your participation in an offering of Shares, that you have provided to us all documents and other information required to be filed with respect to you, any related person or any person associated with you or any such related person pursuant to the supplementary requirements of FINRA Rule 5110 with respect to review of corporate financing to the extent that such requirements relate to such offering of Shares.
You agree that, in connection with any purchase or sale of the Shares wherein a selling concession, discount or other allowance is received or granted, you will: (i) if you are a member of FINRA, comply with all applicable interpretive material and Rules of FINRA, including, without limitation, FINRA Conduct Rule 2740 (relating to Selling Concessions, Discounts and Other Allowances), or (ii) if you are a foreign bank or dealer or institution not eligible for such membership, comply with FINRA Conduct Rules 2730 (relating to Securities Taken in Trade), 2740 (relating to Selling Concessions) and 2750 (relating to Transactions With Related Persons) as though you were such a member and Conduct Rule 2420 (relating to Dealing with Non-Members) as it applies to a non-member broker or dealer in a foreign country, and all other applicable rules of FINRA.
If you are a member of FINRA, you further agree that, prior to making an offering of Shares to any clients, you will, among other things, comply with FINRA Conduct Rule 2310 (Recommendations to Customers (Suitability)), which compliance shall include without limitation considering: (i) the suitability of this investment with respect to the client's investment objectives and personal situation, (ii) factors such as the client's personal net worth, income, age, risk tolerance and liquidity needs, and (iii) whether the client's risk profile is suitable for this investment.
(c) Registered Broker-Dealer. You represent that you are a broker or dealer registered under the Exchange Act. You agree to notify us immediately if you cease to be registered or licensed as a broker or dealer.
(d) SIPC. You agree to promptly notify us if you are not now a member of the Securities Investor Protection Corporation or its successor ("SIPC"), or if at any time during the term of this Agreement you cease being a member of SIPC.
(e) Complaints; Litigation; Regulatory Proceedings. You agree to promptly advise the Distributor if you receive notice of any client complaint, litigation initiated or threatened, or communication by any regulatory authority which relates to a Fund or to a transaction in Shares by you, and you agree to provide us information and documentation thereon as we may reasonably request, subject to confidentiality obligations.
(f) Applicable Laws and Regulations. In addition to the laws, rules and regulations specifically referenced in this Section 6, you agree to comply with all applicable laws, rules or regulations (including, without limitation, the FINRA Rules) in connection with your activities under this Agreement.
7. Anti-Money Laundering. You hereby certify that you have established and maintain an anti-money laundering program that includes written policies, procedures and internal controls reasonably designed to identify your clients and have undertaken appropriate due diligence efforts to "know your customers" in accordance with all applicable anti-money laundering laws and regulations in your jurisdiction, including, where applicable, the USA PATRIOT Act of 2001 (the "PATRIOT Act"), including sections 326 (Customer Identification Program), 356 (Suspicious Activity Reporting), 314 (INFORMATION SHARING), 313/319 (Foreign
Banks), 312 (Correspondent/Private Banking Accounts) and 311 (Special Measures) of the PATRIOT Act. You represent and warrant that any money contributed to a Fund by or on behalf of an investor introduced by you, will not be directly or indirectly derived from activities that may contravene U.S. federal, state and international laws and regulations, including anti-money laundering laws and regulations. You also represent and warrant that you will screen any investor introduced to a Fund by you against the sanctions programs administered by the U.S. Department of Treasury's Office of Foreign Assets Control ("OFAC"), including Executive Order 13224, Blocking Property And Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism, or the Annex thereto, as published at http://www.treas.gov/offices/enforcement/ofac/programs/ terror/terror.pdf, and the OFAC list, available at http://www.treas.gov/ offices/enforcement/ofac/. You further confirm that you will monitor for suspicious activity in accordance with the requirements of the PATRIOT Act. You agree to provide us with such information as we may reasonably request, including but not limited to, the filling out of questionnaires, attestations and other documents, to enable us to fulfill our obligations under the PATRIOT Act. Upon filing a Section 314 notice you agree to comply with all applicable requirements under the PATRIOT Act and applicable implementing regulations concerning the use, disclosure, and security of any information that is shared.
8. Privacy.
You acknowledge that we are subject to the privacy regulations under
Title V of the Gramm-Leach-Bliley Act, 15 U.S.C. ss. 6801 et seq., pursuant to
which regulations we are required to obtain certain undertakings from you with
regard to the privacy, use and protection of nonpublic personal financial
information of our clients or prospective clients. Therefore, notwithstanding
anything to the contrary contained in this Agreement, you agree that: (a) you
shall not disclose or use any Client Data (as defined in the last sentence of
this Section 8) except to the extent necessary to carry out your obligations
under this Agreement and for no other purpose; (b) you shall not disclose Client
Data to any third party, including, without limitation, your third party service
providers without our prior consent and an agreement in writing from the third
party to use or disclose such Client Data only to the extent necessary to carry
out your obligations under this Agreement and for no other purposes; (c) you
shall maintain, and shall require all third parties approved under subsection
(b) to maintain, effective information security measures to protect Client Data
from unauthorized disclosure or use; and (d) you shall provide us with
information regarding such security measures upon our reasonable request and
promptly provide us with information regarding any failure of such security
measures or any security breach related to Client Data. The obligations set
forth in this Section shall survive termination of the Agreement. For purposes
of this Agreement, Client Data means the nonpublic personal information (as
defined in 15 U.S.C. ss. 6809(4)) of the Distributor's clients or prospective
clients (and/or the Distributor's parent, affiliated or subsidiary companies)
received by the Selling Agent in connection with the performance of its
obligations under the Agreement, including, but not limited to: (a) an
individual's name, address, e-mail address, IP address, telephone number and/or
social security number; (b) the fact that an individual has a relationship with
the Distributor and/or its parent, affiliated or subsidiary companies; or (c) an
individual's account information.
9. Shareholder Services.
(a) Provision of Services. You agree to maintain accounts and provide
certain services for your clients who have purchased or otherwise acquired
Shares in an offering subject to this Agreement, including, without limitation:
(i) handling inquiries from clients regarding a Fund, including, but not limited
to, questions concerning their investments in a Fund, and reports and tax
information provided by a Fund; (ii) assisting in the enhancement of
communications between clients and a Fund; (iii) notifying a Fund of any changes
to shareholder information, such as changes of address; (iv) providing such
other information and shareholder services as may be reasonably requested by us;
(v) assisting in any transfer of Shares made in accordance with the terms of the
Prospectus; and (vi) assisting in any repurchase or tender offers conducted by
Fund (as applicable), including, but not limited to: delivering to each client
in a timely manner any applicable repurchase or tender offer material,
responding to client inquiries about procedures for tendering Shares, tendering
Shares on behalf of clients that wish to participate in the repurchase or tender
offer, remitting repurchase or tender proceeds to the appropriate clients, and
in the event the Fund is required to pro rate repurchase or tender offers,
determining correct allocations among your clients of any repurchase or tender
proceeds and any Shares not purchased in the repurchase or tender offer.
(b) Compensation. Compensation for the services performed by you pursuant to this Section 9 is set forth in Annex B hereto, as may be amended by the parties hereto from time to time.
10. Indemnification.
(a) You agree to indemnify and hold harmless the Distributor, the Funds and each person affiliated with the Distributor or the Funds, and their respective officers, directors, employees, partners and shareholders from and against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability claim, damage or expense and reasonable counsel fees incurred in connection therewith), as incurred, arising in connection with the performance of your obligations under this Agreement or your breach of any of its provisions; except insofar as such loss, liability, claim, damage, or expense is caused by the willful misfeasance, bad faith, gross negligence or reckless disregard of the Distributor in the performance of its obligations and duties under this Agreement.
(b) Distributor agrees to indemnify and hold harmless Selling Agent (for the purposes of this Section, "Selling Agent" shall mean you, your directors, officers, employees and agents, and any person who is or may be deemed to be a controlling person of Selling Agent) from and against any and all losses, claims, damages, liabilities or expenses (including the reasonable costs of investigation and attorney's fees and expenses as such expenses are incurred by Selling Agent in any action or proceeding between the parties to this Agreement or between Selling Agent and any third party) to which Selling Agent may become subject, insofar as any such loss, claim, damage, liability or expense (or action with respect thereto) arises out of or is based on any untrue statement of a material fact contained in the Prospectus or any Offering Document relating to an offering of Shares, or arises out of or is based on the failure to state therein a material fact required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Distributor's obligation to indemnify and hold harmless Selling Agent applies only with respect to such statements or omissions of material fact relating to information about the Distributor furnished in writing by the Distributor expressly for use in any such Prospectus or sales materials.
(c) The provisions of this Section 10 shall survive termination of this Agreement.
11. Termination; Supplements and Amendments. This Agreement shall continue in full force and effect until terminated by a written instrument executed by each of the parties hereto; provided, however, that the terms and conditions set forth in Section 9 shall continue in effect until terminated by a written instrument setting forth the mutual agreements of the Funds and you for the disposition of any Shares held by you for your clients' accounts. This Agreement may be supplemented or amended by us by written notice thereof to you, and any such supplement or amendment to this Agreement shall be effective with respect to any offering of Shares to which this Agreement applies after the date of such supplement or amendment. Each reference to "this Agreement" herein shall, as appropriate, be to this Agreement as so amended and supplemented.
12. Successors and Assigns. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and the respective successors and assigns of each of them.
13. Confidentiality. The parties agree to keep the existence and the terms of this Agreement confidential and not to disclose such terms unless they are made public other than due to a breach of this Section 13 by the affected party or as required by law in which case the affected party shall give the other parties as is reasonably practicable the right to contest such law and/or limit the scope of the required disclosure. The Selling Agent agrees that neither it nor any of its affiliates shall publicly disparage the Funds, the Distributor or any of their respective affiliates.
14. Entire Agreement. This Agreement represents the entire agreement between the parties and supersedes any prior agreement entered into by the parties hereto (or their respective predecessors) with respect to the Shares. In the event that any provision hereof is held to be invalid or unenforceable by any court of competent jurisdiction, such invalidity shall be limited to the jurisdiction in question, and such invalidity to the extent so held by such court. For the avoidance of doubt, the decision of a given court having jurisdiction over a given premises that any provision hereof is invalid or unenforceable shall have no effect whatsoever in respect of any such premises.
15. Governing Law. This Agreement and the terms and conditions set forth herein with respect to any offering of Shares shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
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Please confirm by signing and returning to us the enclosed copy of this Agreement that your subscription to or your acceptance of any reservation of any Shares pursuant to an offering shall constitute (i) acceptance of and agreement to the terms and conditions of this Agreement (as may be supplemented and amended pursuant to Section 11 hereof); together with and subject to any supplementary terms and conditions contained in any Written Communication from us in connection with such offering of Shares, all of which shall constitute a binding agreement between you and us, (ii) confirmation that your representations and warranties set forth herein are true and correct at that time, (iii) confirmation that your agreements set forth herein hereof have been and will be fully performed by you to the extent and at the times required thereby and (iv) acknowledgment that you have requested and received from us sufficient copies of the final Prospectus in order to comply with your undertakings herein.
Very truly yours,
[------------]
Title:
By:-----------------------
Name:
Title:
Address:
Telephone:
Fax:
ANNEX A
LIST OF FUNDS
Alkeon Global Fund
ANNEX B
Compensation Schedule for Alkeon Global Fund (the "Fund")
1. You shall be entitled to charge an upfront sales load of up to 3% of an investor's investment amount.
2. In addition, you shall be entitled to receive an ongoing shareholder servicing fee of [0.25%] (on an annualized basis) of the aggregate value of Shares held by your clients that you have referred to the Fund (the "Shareholder Servicing Fee"). The Shareholder Servicing Fee shall be determined as of the last day of the month and paid [as soon as reasonably practicable, but not later than [___] days after the end of such month].
SCHEDULE B
[LIST OF BROKER-DEALERS TO BE INSERTED]
MASTER SELLING AND SHAREHOLDER SERVICING AGREEMENT
[ ___________, 2009]
Ladies and Gentlemen:
The undersigned distributor (the "Distributor" or "us" or "we"), which is a member firm of the Financial Industry Regulatory Authority, Inc. ("FINRA," formerly the National Association of Securities Dealers, Inc.), has an agreement with each of the funds listed in Annex A, as may be amended from time to time (each a "Fund" and together, the "Funds"), pursuant to which it acts as a distributor for the sale of shares of beneficial interest in the Funds ("Shares").
This Master Selling and Shareholder Servicing Agreement (the "Agreement"), dated as of [________] and effective upon its approval by a majority of the independent directors or trustees of the Fund or Funds (as applicable) at an in-person meeting of the board of directors or trustees, shall be applicable to any offering of Shares pursuant to a registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"). A Fund may elect to offer and sell Shares on a delayed or continuous basis in reliance on Rule 415 under Securities Act. The terms and conditions of the Agreement shall also be applicable to any such delayed or continuous offering of Shares.
We have delivered or will deliver to the undersigned broker-dealer (the "Selling Agent" or "you"), for delivery to prospective purchasers of Shares, copies of the Funds' prospectus, as amended or supplemented from time to time (the "Prospectus"), including the Funds' required form of investor certification (the "Investor Certification"), and other relevant written information approved and furnished by the Funds for use by prospective purchasers in connection with their purchase of Shares (collectively, the "Offering Documents").
We hereby appoint you as a Selling Agent with respect to the offering of Shares, and you hereby accept such appointment, expressly upon the following terms and conditions of the Agreement:
1. Non-Exclusive Appointment. You agree on a non-exclusive basis to use reasonable efforts to solicit and receive offers to purchase Shares in accordance with the terms and conditions set forth in this Agreement and the Offering Documents. Nothing in this Agreement shall limit our right to make other arrangements with respect to the Shares with any person, including the appointment of other distributors or selling dealers.
2. Limitation on Activities as Selling Agent; Blue Sky. You agree to solicit and receive offers to purchase Shares: (a) only in the jurisdictions in which you and your
employees maintain all licenses and registrations necessary under applicable law and regulations (including the rules of FINRA) to provide the services required to be provided by you under this Agreement; and (b) only to U.S. persons in states where notifications regarding the Shares have been duly filed or where no such notifications are required or otherwise in compliance with applicable state securities or Blue Sky laws.
We agree to inform you as to the states in which notifications of the intention to sell Shares have been duly filed or where no such notification is required, but we assume no responsibility or obligation as to your right to sell Shares in any jurisdiction.
3. Qualified Investors.
(a) You will only: (i) solicit offers to purchase Shares from persons who certify that they have a net worth of more than $1.5 million (or in the case of an individual, a joint net worth with their spouse of more than $1.5 million) ("Qualified Investors"); and (ii) submit completed Investor Certifications to us or another agent of the Funds on behalf of prospective investors who you have determined, after reasonable inquiry, to be Qualified Investors.
(b) You agree that: (i) you have implemented procedures designed to enable you to form a reasonable belief that a prospective investor is a Qualified Investor; (ii) you will keep records (and make them available to us promptly upon request) of the information you relied on in concluding that a prospective investor in a Fund is a Qualified Investor; and (iii) you will cooperate with the Securities and Exchange Commission ("SEC") in the event of any audit or examination of the Qualified Investor status of your clients with respect to the Shares.
(c) You understand that Shares will be subject to transfer restrictions that permit transfers only to persons who are Qualified Investors and agree to provide a certification to that effect. You agree that: (i) you will not make any transfers of Shares to any of your clients unless you believe that the client is a Qualified Investor; (ii) you have implemented procedures designed to enable you to form a reasonable belief that any transferee of Shares who is a client is a Qualified Investor; (iii) you will only make transfers of Shares to an account with a broker or dealer that has entered into a selling agreement with us; and (iv) confirmations of any transfer will include a statement regarding the transfer restrictions applicable to the Shares.
4. Processing of Orders. Orders for Shares received from you will be accepted through us only at the public offering price applicable to each order, as set forth in the Prospectus. The procedure relating to the handling of orders shall be subject to the terms of this Agreement and instructions that we or the Funds shall forward from time to time to you. All orders are subject to acceptance or rejection, in whole or in part, by the Distributor or the Funds in their sole discretion. The minimum initial and subsequent purchase requirements are as set forth in the Prospectus.
Payment for and delivery of Shares will be made through the facilities, and subject to the rules and procedures, of the National Securities Clearing Corporation (NSCC) Fund Settlement, Entry and Registration Verification System (Fund/SERV System), subject to the Funds' right to accept or reject orders for Shares.
5. Suspension or Withdrawal of Offering. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Shares entirely or to certain persons or entities in a class or classes specified by us.
6. SELLING AGENT'S STANDING & RELATED REPRESENTATIONS
(a) Delivery of Fund Materials, Offering Documents and Confirmations. You agree to deliver to each of your clients making purchases a copy of the then current Prospectus prior to the time of offering or sale. Subject to receipt of such material from Distributor, you agree thereafter to deliver to such clients copies of the annual and interim reports, proxy solicitation and repurchase or tender offer materials (as applicable) of a Fund and any other communications made by a Fund to all of its investors (collectively, "Fund Materials"). You further agree to endeavor to obtain completed proxies from such purchasers and to forward them to the applicable Fund. Additional copies of the Fund Materials will be supplied to you in reasonable quantities upon request.
You represent and warrant that you are familiar with Rule 15c2-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to the distribution of preliminary and final prospectuses and agree that you will comply therewith. You agree to make a record of your distribution of each preliminary prospectus and when furnished with copies of any revised preliminary prospectus, you will promptly forward copies thereof to each person to whom you have theretofore distributed a preliminary prospectus. You further agree to furnish any confirmations required pursuant to Rule 10b-10 under the Exchange Act and provide applicable point of sale disclosure to investors concerning the amount of all compensation received or to be received by you in connection with the sale of Shares.
You agree that in making offers of Shares you will rely upon no statement whatsoever, written or oral, other than the statements in the Offering Documents delivered to you by us. You will not be authorized by a Fund to give any information or to make any representation not contained in the Offering Documents in connection with the sale of Shares.
(b) FINRA. You represent and warrant that you are actually engaged in the investment banking or securities business and either are a member in good standing of FINRA or, if you are not such a member, you are a foreign bank, dealer or institution not eligible for membership in FINRA which agrees to make no sales within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein, and in making other sales to comply with all applicable FINRA Rules. If you are a member of FINRA you agree to promptly notify us if you cease to be in good standing
with FINRA. You further represent, by your participation in an offering of Shares, that you have provided to us all documents and other information required to be filed with respect to you, any related person or any person associated with you or any such related person pursuant to the supplementary requirements of FINRA Rule 5110 with respect to review of corporate financing to the extent that such requirements relate to such offering of Shares.
You agree that, in connection with any purchase or sale of the Shares wherein a selling concession, discount or other allowance is received or granted, you will: (i) if you are a member of FINRA, comply with all applicable interpretive material and Rules of FINRA, including, without limitation, FINRA Conduct Rule 2740 (relating to Selling Concessions, Discounts and Other Allowances), or (ii) if you are a foreign bank or dealer or institution not eligible for such membership, comply with FINRA Conduct Rules 2730 (relating to Securities Taken in Trade), 2740 (relating to Selling Concessions) and 2750 (relating to Transactions With Related Persons) as though you were such a member and Conduct Rule 2420 (relating to Dealing with Non-Members) as it applies to a non-member broker or dealer in a foreign country, and all other applicable rules of FINRA.
If you are a member of FINRA, you further agree that, prior to making an offering of Shares to any clients, you will, among other things, comply with FINRA Conduct Rule 2310 (Recommendations to Customers (Suitability)), which compliance shall include without limitation considering: (i) the suitability of this investment with respect to the client's investment objectives and personal situation, (ii) factors such as the client's personal net worth, income, age, risk tolerance and liquidity needs, and (iii) whether the client's risk profile is suitable for this investment.
(c) Registered Broker-Dealer. You represent that you are a broker or dealer registered under the Exchange Act. You agree to notify us immediately if you cease to be registered or licensed as a broker or dealer.
(d) SIPC. You agree to promptly notify us if you are not now a member of the Securities Investor Protection Corporation or its successor ("SIPC"), or if at any time during the term of this Agreement you cease being a member of SIPC.
(e) Complaints; Litigation; Regulatory Proceedings. You agree to promptly advise the Distributor if you receive notice of any client complaint, litigation initiated or threatened, or communication by any regulatory authority which relates to a Fund or to a transaction in Shares by you, and you agree to provide us information and documentation thereon as we may reasonably request, subject to confidentiality obligations.
(f) Applicable Laws and Regulations. In addition to the laws, rules and regulations specifically referenced in this Section 6, you agree to comply with all applicable laws, rules or regulations (including, without limitation, the FINRA Rules) in connection with your activities under this Agreement.
7. Anti-Money Laundering. You hereby certify that you have established and maintain an anti-money laundering program that includes written policies, procedures and internal controls reasonably designed to identify your clients and have undertaken appropriate due diligence efforts to "know your customers" in accordance with all applicable anti-money laundering laws and regulations in your jurisdiction, including, where applicable, the USA PATRIOT Act of 2001 (the "PATRIOT Act"), including sections 326 (Customer Identification Program), 356 (Suspicious Activity Reporting), 314 (INFORMATION SHARING), 313/319 (Foreign Banks), 312 (Correspondent/Private Banking Accounts) and 311 (Special Measures) of the PATRIOT Act. You represent and warrant that any money contributed to a Fund by or on behalf of an investor introduced by you, will not be directly or indirectly derived from activities that may contravene U.S. federal, state and international laws and regulations, including anti-money laundering laws and regulations. You also represent and warrant that you will screen any investor introduced to a Fund by you against the sanctions programs administered by the U.S. Department of Treasury's Office of Foreign Assets Control ("OFAC"), including Executive Order 13224, Blocking Property And Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism, or the Annex thereto, as published at http://www.treas.gov/offices/ enforcement/ofac/ programs/terror/terror.pdf, and the OFAC list, available at http://www.treas.gov/ offices/ enforcement/ofac/. You further confirm that you will monitor for suspicious activity in accordance with the requirements of the PATRIOT Act. You agree to provide us with such information as we may reasonably request, including but not limited to, the filling out of questionnaires, attestations and other documents, to enable us to fulfill our obligations under the PATRIOT Act. Upon filing a Section 314 notice you agree to comply with all applicable requirements under the PATRIOT Act and applicable implementing regulations concerning the use, disclosure, and security of any information that is shared.
8. Privacy.
You acknowledge that we are subject to the privacy regulations under
Title V of the Gramm-Leach-Bliley Act, 15 U.S.C. ss. 6801 et seq., pursuant to
which regulations we are required to obtain certain undertakings from you with
regard to the privacy, use and protection of nonpublic personal financial
information of our clients or prospective clients. Therefore, notwithstanding
anything to the contrary contained in this Agreement, you agree that: (a) you
shall not disclose or use any Client Data (as defined in the last sentence of
this Section 8) except to the extent necessary to carry out your obligations
under this Agreement and for no other purpose; (b) you shall not disclose Client
Data to any third party, including, without limitation, your third party service
providers without our prior consent and an agreement in writing from the third
party to use or disclose such Client Data only to the extent necessary to carry
out your obligations under this Agreement and for no other purposes; (c) you
shall maintain, and shall require all third parties approved under subsection
(b) to maintain, effective information security measures to protect Client Data
from unauthorized disclosure or use; and (d) you shall provide us with
information regarding such security measures upon our reasonable request and
promptly provide us with information regarding any failure of such security
measures or any security breach related to Client Data. The obligations set
forth in this Section shall survive termination of the Agreement. For purposes
of this Agreement,
Client Data means the nonpublic personal information (as defined in 15 U.S.C. ss. 6809(4)) of the Distributor's clients or prospective clients (and/or the Distributor's parent, affiliated or subsidiary companies) received by the Selling Agent in connection with the performance of its obligations under the Agreement, including, but not limited to: (a) an individual's name, address, e-mail address, IP address, telephone number and/or social security number; (b) the fact that an individual has a relationship with the Distributor and/or its parent, affiliated or subsidiary companies; or (c) an individual's account information.
9. Shareholder Services.
(a) Provision of Services. You agree to maintain accounts and provide
certain services for your clients who have purchased or otherwise acquired
Shares in an offering subject to this Agreement, including, without limitation:
(i) handling inquiries from clients regarding a Fund, including, but not limited
to, questions concerning their investments in a Fund, and reports and tax
information provided by a Fund; (ii) assisting in the enhancement of
communications between clients and a Fund; (iii) notifying a Fund of any changes
to shareholder information, such as changes of address; (iv) providing such
other information and shareholder services as may be reasonably requested by us;
(v) assisting in any transfer of Shares made in accordance with the terms of the
Prospectus; and (vi) assisting in any repurchase or tender offers conducted by
Fund (as applicable), including, but not limited to: delivering to each client
in a timely manner any applicable repurchase or tender offer material,
responding to client inquiries about procedures for tendering Shares, tendering
Shares on behalf of clients that wish to participate in the repurchase or tender
offer, remitting repurchase or tender proceeds to the appropriate clients, and
in the event the Fund is required to pro rate repurchase or tender offers,
determining correct allocations among your clients of any repurchase or tender
proceeds and any Shares not purchased in the repurchase or tender offer.
(b) Compensation. Compensation for the services performed by you pursuant to this Section 9 is set forth in Annex B hereto, as may be amended by the parties hereto from time to time.
10. Indemnification.
(a) You agree to indemnify and hold harmless the Distributor, the Funds and each person affiliated with the Distributor or the Funds, and their respective officers, directors, employees, partners and shareholders from and against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability claim, damage or expense and reasonable counsel fees incurred in connection therewith), as incurred, arising in connection with the performance of your obligations under this Agreement or your breach of any of its provisions; except insofar as such loss, liability, claim, damage, or expense is caused by the willful misfeasance, bad faith, gross negligence or reckless disregard of the Distributor in the performance of its obligations and duties under this Agreement.
(b) Distributor agrees to indemnify and hold harmless Selling Agent (for the purposes of this Section, "Selling Agent" shall mean you, your directors, officers, employees and agents, and any person who is or may be deemed to be a controlling person of Selling Agent) from and against any and all losses, claims, damages, liabilities or expenses (including the reasonable costs of investigation and attorney's fees and expenses as such expenses are incurred by Selling Agent in any action or proceeding between the parties to this Agreement or between Selling Agent and any third party) to which Selling Agent may become subject, insofar as any such loss, claim, damage, liability or expense (or action with respect thereto) arises out of or is based on any untrue statement of a material fact contained in the Prospectus or any Offering Document relating to an offering of Shares, or arises out of or is based on the failure to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Distributor's obligation to indemnify and hold harmless Selling Agent applies only with respect to such statements or omissions of material fact relating to information about the Distributor furnished in writing by the Distributor expressly for use in any such Prospectus or sales materials.
(c) The provisions of this Section 10 shall survive termination of this Agreement.
11. Termination; Supplements and Amendments. This Agreement shall continue in full force and effect until terminated by a written instrument executed by each of the parties hereto; provided, however, that the terms and conditions set forth in Section 9 shall continue in effect until terminated by a written instrument setting forth the mutual agreements of the Funds and you for the disposition of any Shares held by you for your clients' accounts. This Agreement may be supplemented or amended by us by written notice thereof to you, and any such supplement or amendment to this Agreement shall be effective with respect to any offering of Shares to which this Agreement applies after the date of such supplement or amendment. Each reference to "this Agreement" herein shall, as appropriate, be to this Agreement as so amended and supplemented.
12. Successors and Assigns. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and the respective successors and assigns of each of them.
13. Confidentiality. The parties agree to keep the existence and the terms of this Agreement confidential and not to disclose such terms unless they are made public other than due to a breach of this Section 13 by the affected party or as required by law in which case the affected party shall give the other parties as is reasonably practicable the right to contest such law and/or limit the scope of the required disclosure. The Selling Agent agrees that neither it nor any of its affiliates shall publicly disparage the Funds, the Distributor or any of their respective affiliates.
14. Entire Agreement. This Agreement represents the entire agreement between the parties and supersedes any prior agreement entered into by the parties hereto (or their respective predecessors) with respect to the Shares. In the event that any provision
hereof is held to be invalid or unenforceable by any court of competent jurisdiction, such invalidity shall be limited to the jurisdiction in question, and such invalidity to the extent so held by such court. For the avoidance of doubt, the decision of a given court having jurisdiction over a given premises that any provision hereof is invalid or unenforceable shall have no effect whatsoever in respect of any such premises.
15. Governing Law. This Agreement and the terms and conditions set forth herein with respect to any offering of Shares shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed within the State of New York.
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Please confirm by signing and returning to us the enclosed copy of this Agreement that your subscription to or your acceptance of any reservation of any Shares pursuant to an offering shall constitute (i) acceptance of and agreement to the terms and conditions of this Agreement (as may be supplemented and amended pursuant to Section 11 hereof); together with and subject to any supplementary terms and conditions contained in any Written Communication from us in connection with such offering of Shares, all of which shall constitute a binding agreement between you and us, (ii) confirmation that your representations and warranties set forth herein are true and correct at that time, (iii) confirmation that your agreements set forth herein hereof have been and will be fully performed by you to the extent and at the times required thereby and (iv) acknowledgment that you have requested and received from us sufficient copies of the final Prospectus in order to comply with your undertakings herein.
Very truly yours,
[------------]
Title:
ANNEX A
LIST OF FUNDS
ACAP Strategic Fund
ANNEX B
Compensation Schedule for ACAP Strategic Fund (the "Fund")
1. You shall be entitled to charge an upfront sales load of up to 3% of an investor's investment amount.
2. In addition, you shall be entitled to receive an ongoing shareholder servicing fee of [0.25%] (on an annualized basis) of the aggregate value of Shares held by your clients that you have referred to the Fund (the "Shareholder Servicing Fee"). The Shareholder Servicing Fee shall be determined as of the last day of the month and paid [as soon as reasonably practicable, but not later than [___] days after the end of such month].
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is made as of December 1, 2009 by and between PFPC TRUST COMPANY, a limited purpose trust company incorporated under the laws of Delaware ("PFPC TRUST"), and ACAP STRATEGIC FUND, a Delaware statutory trust (the "FUND"). Capitalized terms not otherwise defined shall have the meanings set forth in Appendix A.
BACKGROUND
A. The Fund is registered as a closed-end, non-diversified management investment company under the Investment Company Act of 1940, as amended (the "1940 ACT").
B. The Fund wishes to retain PFPC Trust to provide custodian services and PFPC Trust wishes to furnish custodian services, either directly or through an affiliate or affiliates, as more fully described herein.
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. APPOINTMENT. The Fund hereby appoints PFPC Trust to provide custodian services to the Fund as set forth herein and PFPC Trust accepts such appointment and agrees to furnish such services. PFPC Trust shall be under no duty to take any action hereunder on behalf of the Fund except as specifically set forth herein or as may be specifically agreed to by PFPC Trust and the Fund in a written amendment hereto. Except as otherwise provided herein, PFPC Trust shall not bear, or otherwise be responsible for, any fees, costs or expenses charged by any third party service providers engaged by the Fund or by any other third party service provider to the Fund, unless such third party service provider is engaged by PFPC Trust.
2. COMPLIANCE WITH LAWS. Each party undertakes to comply with applicable requirements of the Federal Securities Laws, and any other applicable laws, rules and regulations of governmental authorities having jurisdiction with respect to the subject matter herein. Except as specifically set forth herein, neither party shall be responsible for such compliance by the other party or any other entity.
3. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC Trust shall act only upon Oral Instructions or Written Instructions.
(b) PFPC Trust shall be entitled to rely upon any Oral Instruction or Written Instruction it receives pursuant to this Agreement. PFPC Trust may assume that any Oral Instructions or Written Instructions received hereunder are
not in any way inconsistent with the provisions of organizational documents of the Fund or of any vote, resolution or proceeding of the Fund's board of trustees ("BOARD") or of the Fund's shareholders ("SHAREHOLDERS"), unless and until PFPC Trust receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Trust Written Instructions confirming Oral Instructions (except where such Oral Instructions are given by PFPC Trust or its affiliates) so that PFPC Trust receives the Written Instructions by the close of business on the same day that such Oral Instructions are received. The fact that such confirming Written Instructions are not received by PFPC Trust or differ from the Oral Instructions shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions or PFPC Trust's ability to rely upon such Oral Instructions.
4. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PFPC Trust is in doubt as to any action it should or should not take, PFPC Trust may request directions or advice, including Oral Instructions or Written Instructions, from the Fund or its investment adviser (the "INVESTMENT ADVISER").
(b) ADVICE OF COUNSEL. If PFPC Trust shall be in doubt as to any question of law pertaining to any action it should or should not take, PFPC Trust may request advice from counsel of its own choosing (who may be counsel for the Fund, the Investment Adviser or PFPC Trust, at the option of PFPC Trust).
(c) CONFLICTING ADVICE. In the event of a conflict between directions or advice or Oral Instructions or Written Instructions PFPC Trust receives from the Fund, and the advice it receives from counsel, PFPC Trust shall be entitled to rely upon and follow the advice of counsel, provided that reasonable prior written notice has been given to the Fund . The Fund shall, upon receipt of such notice, promptly and timely notify PFPC Trust in writing of its agreement or disagreement with any actions or any omissions to act PFPC Trust proposes to take pursuant to counsel's advice. In the event where the Fund has timely notified PFPC Trust in writing of its disagreement, PFPC Trust and the Fund shall consult with each other in good faith to reach agreement on the actions or omissions that are the subject of the Fund's objection. In the event where, after such consultations, PFPC Trust and the Fund are unable to agree on the actions or omissions in question, PFPC Trust shall consult independent counsel reasonably acceptable to such Fund, and may follow and rely upon the advice of such independent counsel.
(d) NO OBLIGATION TO SEEK ADVICE. Nothing in this SECTION 4 shall be construed so as to impose an obligation upon PFPC Trust (i) to seek such directions or advice or Oral Instructions or Written Instructions, or (ii) to act in accordance with such directions or advice or Oral Instructions or Written Instructions.
5. RECORDS; VISITS. The books and records pertaining to the Fund, which are in the possession or under the control of PFPC Trust, shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the 1940 Act and such other applicable Federal Securities Laws, rules and
regulations. Such books and records shall be prepared and maintained as required by the 1940 Act and such other applicable Federal Securities Laws. The Fund and its duly authorized officers, employees and agents and the staff of the Securities and Exchange Commission ("SEC") shall have access to such books and records at all times during PFPC Trust's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by PFPC Trust to the Fund or to an authorized representative of the Fund, at the Fund's expense.
6. CONFIDENTIALITY.
(a) Each party shall keep confidential any information relating to the other party's business ("CONFIDENTIAL INFORMATION"). Confidential Information shall include:
(i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finances, operations, customer relationships, customer profiles, customer lists, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of the Fund or PFPC Trust, their respective subsidiaries and affiliated companies, and the investors, customers, clients, service providers and suppliers of any of them;
(ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords the Fund or PFPC Trust a competitive advantage over its competitors;
(iii) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, and trade secrets, whether or not patentable or copyrightable; and
(iv) anything designated as confidential.
(b) Notwithstanding the foregoing, information shall not be Confidential Information and shall not be subject to such confidentiality obligations if it:
(i) is already known to the receiving party at the time it is obtained;
(ii) is or becomes publicly known or available through no wrongful act of the receiving party;
(iii) is rightfully received from a third party who, to the best of the receiving party's knowledge, is not under a duty of confidentiality;
(iv) is released by the protected party to a third party without restriction;
(v) is requested or required to be disclosed by the receiving party pursuant to a court order, subpoena, governmental or regulatory agency request or law (provided the receiving party will provide the other party notice of the same, to the extent such notice is permitted);
(vi) is relevant to the defense of any claim or cause of action asserted against the receiving party;
(vii) is Fund information provided by PFPC Trust in connection with an independent third party compliance or other review, provided that such third party compliance or other review is subject to substantially the same confidentiality obligations as PFPC Trust hereunder;
(viii) is necessary for PFPC Trust to release such information in connection with the provision of services under this Agreement, provided that the recipient of such information is subject to substantially the same confidentiality obligations as PFPC Trust hereunder; or
(ix) has been or is independently developed or obtained by the receiving party.
7. COOPERATION WITH ACCOUNTANTS. PFPC Trust shall cooperate with the Fund's independent public accountants and shall take all reasonable action to make any requested information available to such accountants as reasonably requested by the Fund.
8. PFPC SYSTEM. PFPC Trust shall retain title to and ownership of any and all data bases, computer programs, screen formats, report formats, interactive design techniques, derivative works, inventions, discoveries, patentable or copyrightable matters, concepts, expertise, patents, copyrights, trade secrets, and other related legal rights utilized by PFPC Trust in connection with the services provided by PFPC Trust to the Fund.
9. DISASTER RECOVERY. PFPC Trust shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for emergency use of electronic data processing equipment. In the event of equipment failures, PFPC Trust shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. PFPC Trust 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 PFPC Trust's own breach of its Standard of Care (defined in SECTION 11(A) below).
10. COMPENSATION.
(a) As compensation for custody services rendered by PFPC Trust during the term of this Agreement, the Fund will pay to PFPC Trust a fee or fees as may be agreed to in writing from time to time by the Fund and PFPC Trust. The Fund acknowledges that PFPC Trust may receive float benefits in connection with maintaining certain accounts required to provide services under this Agreement.
(b) The undersigned hereby represents and warrants to PFPC Trust that (i) the terms of this Agreement, (ii) the fees and expenses associated with this Agreement, and (iii) any benefits accruing to PFPC Trust or to the adviser or sponsor to the Fund in connection with this Agreement, including but not limited to any fee waivers, conversion cost reimbursements, up front payments, signing payments or periodic payments made or to be made by PFPC Trust to such adviser or sponsor or any affiliate of the Fund relating to this Agreement have been fully disclosed to the Board and that, if required by applicable law, such Board has approved or will approve the terms of this Agreement, any such fees and expenses, and any such benefits.
11. STANDARD OF CARE/LIMITATIONS OF LIABILITY.
(a) PFPC Trust shall be obligated to exercise care and diligence in the performance of its duties hereunder and to act in good faith in performing services provided for under this Agreement. Subject to the terms of this SECTION 11, PFPC Trust shall be liable to the Fund (or any person or entity claiming through the Fund) for damages only to the extent caused by PFPC Trust's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations under this Agreement ("STANDARD OF Care").
(b) Notwithstanding anything in this Agreement to the contrary (other than as specifically provided in SECTION 13(H)(II)(B)(4) and SECTION 13(H)(III)(A) of this Agreement), the Fund shall be responsible for all filings, tax returns and reports on any transactions undertaken pursuant to this Agreement, or in respect of the Property or any collections undertaken pursuant to this Agreement, which may be requested by any relevant authority. In addition, the Fund shall be responsible for the payment of all taxes and similar items (including without limitation penalties and interest related thereto).
(c) Absent PFPC Trust's fraud, embezzlement or intentional misconduct, PFPC Trust's liability to the Fund and any person or entity claiming through the Fund for any loss, claim, suit, controversy, breach or damage of any nature whatsoever (including but not limited to those arising out of or related to this Agreement) and regardless of the form of action or legal theory ("LOSS") shall not exceed the fees received by PFPC Trust for services provided hereunder during the twelve (12) months immediately prior to the date of such Loss; provided that PFPC Trust's cumulative maximum liability for all Losses shall not exceed $500,000.
(d) Subject to SECTION 9 above, PFPC Trust shall not be liable for damages (including without limitation damages caused by delays, failure, errors, interruption or loss of data) occurring directly or indirectly by reason of circumstances beyond its reasonable control, including without limitation acts of God; action or inaction of civil or military authority; national emergencies; public enemy; war; terrorism; riot; fire; flood; catastrophe; sabotage; epidemics; labor disputes; civil commotion; interruption, loss or malfunction of utilities, transportation, computer or communications capabilities; insurrection; elements of nature; non-performance by a third party; failure of the mails; or functions or malfunctions of the internet, firewalls, encryption systems or security devices caused by any of the above.
(e) PFPC Trust shall not be under any duty or obligation to inquire into and shall not be liable for the validity or invalidity, authority or lack thereof, or truthfulness or accuracy or lack thereof, of any instruction, direction, notice, instrument or other information which PFPC Trust reasonably believes to be genuine. PFPC Trust shall not be liable for any damages that are caused by actions or omissions taken by PFPC Trust in accordance with Written Instructions or advice of counsel. PFPC Trust shall not be liable for any damages arising out of any action or omission to act by any prior service provider of the Fund or for any failure to discover any such error or omission.
(f) Neither party hereto or its affiliates shall be liable for any consequential, incidental, exemplary, punitive, special or indirect damages, whether or not the likelihood of such damages was known by such party or its affiliates.
(g) Each party shall have a duty to mitigate damages for which the other party may become responsible.
(h) This SECTION 11 shall survive termination of this Agreement.
12. INDEMNIFICATION. Absent PFPC Trust's failure to meet its Standard of Care (defined in SECTION 11 above), the Fund agrees to indemnify, defend and hold harmless PFPC Trust and its affiliates and their respective directors, trustees, officers, agents and employees from all claims, suits, actions, damages, losses, liabilities, obligations, costs and reasonable expenses (including attorneys' fees and court costs, travel costs and other reasonable out-of-pocket costs related to dispute resolution) arising directly or indirectly from any action taken or omitted to be taken by PFPC Trust in connection with the provision of services to the Fund. This SECTION 11 shall survive termination of this Agreement.
13. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. The Fund will deliver or arrange for delivery to PFPC Trust, all the Property owned by the Fund, including cash received as a result of the purchase of Shares, during the period that is set forth in this Agreement. PFPC Trust will not be responsible for such Property until actual receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PFPC Trust, acting upon Written Instructions, shall open and maintain a separate account (the "ACCOUNT") in the Fund's name using all cash received from or for the account of the Fund, subject to the terms of this Agreement. PFPC Trust shall make cash payments from or for the Account only for:
(i) purchases of securities in the name of the Fund, PFPC Trust or PFPC Trust's nominee or a sub-custodian or nominee thereof as provided in sub-section (j) and for which PFPC Trust has received a copy of (A) the broker's or dealer's confirmation, or (B) payee's invoice, as appropriate;
(ii) the repurchase of Shares of the Fund;
(iii) payment of, subject to Written Instructions, interest, taxes (provided that tax which PFPC Trust considers is required to be deducted or withheld "at source" will be governed by SECTION 13(H)(III)(B) of this Agreement), administration, accounting, distribution, advisory, management fees or similar expenses which are to be borne by the Fund;
(iv) payment to, subject to receipt of Written Instructions, the Fund's administrator, as agent for the Shareholders, of an amount equal to the amount of any distributions stated in the Written Instructions to be distributed in cash by the administrator to Shareholders, or, in lieu of paying the Fund's administrator, PFPC Trust may arrange for the direct payment of cash dividends and distributions to Shareholders in accordance with procedures mutually agreed upon from time to time by and among the Fund, PFPC Trust and the Fund's administrator;
(v) payments, upon receipt of Written Instructions signed by one Authorized Person, in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Fund and held pursuant to this Agreement or delivered to PFPC Trust;
(vi) payments of, subject to receipt of Written Instructions signed by one Authorized Person, the amounts of dividends received with respect to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in sub-section (c) of this SECTION 13; and
(viii) other payments, upon Written Instructions.
PFPC Trust is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received as custodian for the Fund.
(c) RECEIPT OF SECURITIES; SUB-CUSTODIANS.
(i) PFPC Trust shall hold all securities received by it for the Fund in a separate account that physically segregates such securities from those of any other persons, firms or corporations, except for securities held in a Book-Entry System or through a sub-custodian or depository. All such securities shall be held or disposed of only upon Written Instructions or otherwise pursuant to the terms of this Agreement. PFPC Trust shall have no power or authority to assign, hypothecate, pledge or otherwise dispose of any such securities or investment, except upon the express terms of this Agreement or upon Written Instructions authorizing the transaction. In no case may any member of the Fund's Board, or any officer, employee or agent of the Fund withdraw any securities.
At PFPC Trust's own expense and for its own convenience, PFPC Trust may enter into sub-custodian agreements with other United States banks or trust companies which are banks as defined by the 1940 Act to perform duties described in this sub-section (c) with respect to domestic assets. Such bank or trust company shall have aggregate capital, surplus and undivided profits, according to its last published report, of at least one million dollars ($1,000,000), if it is a subsidiary or affiliate of PFPC Trust, or at least twenty million dollars ($20,000,000) if such bank or trust company is not a subsidiary or affiliate of PFPC Trust. In addition, such bank or trust company must be qualified to act as a custodian and agree to comply with the relevant provisions of the 1940 Act. Any such arrangement will not be entered into without prior written notice to the Fund.
In addition, PFPC Trust may enter into arrangements with sub-custodians with respect to services regarding foreign assets of the Fund only if such arrangement has been approved by the Fund.
(ii) Sub-custodians utilized by PFPC Trust may be subsidiaries or affiliates of PFPC Trust, and such entities will be compensated for their services at such rates as are agreed between the entity and PFPC Trust. PFPC Trust shall remain responsible for the acts and omissions of any sub-custodian chosen by PFPC Trust under the terms of this sub-section (c) to the same extent that PFPC Trust is responsible for its own acts and omissions under this Agreement.
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral Instructions or Written Instructions and not otherwise, PFPC Trust shall:
(i) deliver any securities held for the Fund against the receipt of payment for the sale of such securities or otherwise in accordance with standard market practice;
(ii) execute and deliver to such persons as may be designated in such Oral Instructions or Written Instructions, proxies, consents, authorizations, and any other instruments received by PFPC Trust as custodian whereby the authority of the Fund as owner of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or its agent, when such securities are called, redeemed, retired or otherwise become payable at the option of the holder; provided that, in any such case, the cash or other consideration is to be delivered to PFPC Trust;
(iv) deliver any securities held for the Fund against receipt of other securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, tender offer, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for the Fund to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of assets of any corporation, and receive and hold under the terms of this Agreement such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the assets of the Fund and take such other steps as shall be stated in said Oral Instructions or Written Instructions to be for the purpose of effectuating a duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund;
(vii) release securities belonging to the Fund to any bank or trust company for the purpose of a pledge or hypothecation to secure any loan incurred by the Fund; provided, however, that securities shall be released only upon payment to PFPC Trust of the monies borrowed, except that in cases where additional collateral is required to secure a borrowing already made subject to proper prior authorization, further securities may be released for that purpose; and repay such loan upon redelivery to it of the securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing the loan;
(viii) release and deliver securities owned by the Fund in connection with any repurchase agreement entered into by the Fund on behalf of the Fund, but only on receipt of payment therefor; and pay out monies of the Fund in connection with such repurchase agreements, but only upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by the Fund in connection with any conversion of such securities, pursuant to their terms, into other securities;
(x) release and deliver securities to a broker in connection with the broker's custody of margin collateral relating to futures and options transactions;
(xi) release and deliver securities owned by the Fund for the purpose of redeeming in kind Shares of the Fund upon delivery thereof to PFPC Trust; and
(xii) release and deliver or exchange securities owned by the Fund for other purposes.
(e) USE OF BOOK-ENTRY SYSTEM OR OTHER DEPOSITORY. PFPC Trust will deposit in Book-Entry Systems and other depositories all securities belonging to the Fund eligible for deposit therein and will utilize Book-Entry Systems and other depositories to the extent possible in connection with settlements of purchases and sales of securities by the Fund, and deliveries and returns of securities loaned, subject to repurchase agreements or used as collateral in connection with borrowings. PFPC Trust shall continue to perform such duties until it receives Written Instructions or Oral Instructions authorizing contrary actions.
PFPC Trust shall administer the Book-Entry System or other depository as follows:
(i) With respect to securities of the Fund which are maintained in the Book-Entry System or another depository, the records of PFPC Trust shall identify by book-entry or otherwise those securities as belonging to the Fund.
(ii) Assets of the Fund deposited in a Book-Entry System or another depository will at all times be segregated from any assets and cash controlled by PFPC Trust in other than a fiduciary or custodian capacity but may be commingled with other assets held in such capacities.
PFPC Trust will provide the Fund with such reports on its own system of internal control as the Fund may reasonably request from time to time.
(f) REGISTRATION OF SECURITIES. All securities held for the Fund which are issued or issuable only in bearer form, except such securities maintained in the Book-Entry System or in another depository, shall be held by PFPC Trust in bearer form; all other securities maintained for the Fund may be registered in the name of the Fund, PFPC Trust, a Book-Entry System, another depository, a sub-custodian, or any duly appointed nominees of the Fund, PFPC Trust, Book-Entry System, depository or sub-custodian. The Fund reserves the right to instruct PFPC Trust as to the method of registration and safekeeping of the securities of the Fund. The Fund agrees to furnish to PFPC Trust appropriate instruments to enable PFPC Trust to maintain or deliver in proper form for transfer, or to register in the name of its nominee or in the name of the Book-Entry System or in the name of another appropriate entity, any securities which it may maintain for the Accounts. With respect to uncertificated securities which are registered in the name of the Fund (or a nominee thereof) ("UNCERTIFICATED SECURITIES"), PFPC Trust will reflect such Uncertificated Securities on its records based upon the holdings information provided to it by the issuer of such Uncertificated Securities, but notwithstanding anything in this Agreement to the contrary, PFPC Trust shall not be obligated to safekeep such Uncertificated Securities or to perform other duties with respect to such Uncertificated Securities other than to make payment for the purchase of such Uncertificated Securities upon receipt of Oral or Written Instructions, accept
in sale proceeds received by PFPC Trust upon the sale of such Uncertificated Securities of which PFPC Trust is informed pursuant to Oral or Written Instructions, and accept in other distributions received by PFPC Trust with respect to such Uncertificated Securities or reflect on its records any reinvested distributions with respect to such Uncertificated Securities of which it is informed by the issuer of the Uncertificated Securities. In addition, in the event that PFPC Trust receives any documentation relating to Uncertificated Securities by or on behalf of the Fund, PFPC Trust agrees to safekeep such documentation upon PFPC Trust's actual receipt thereof but PFPC Trust will not otherwise be responsible for such documentation. PFPC Trust may receive and deliver such documentation held by it hereunder in accordance with Oral or Written Instructions.
(g) VOTING AND OTHER ACTION. Neither PFPC Trust nor its nominee shall vote any of the securities held pursuant to this Agreement by or for the account of the Fund, except in accordance with Written Instructions. PFPC Trust, directly or through the use of another entity, shall execute in blank and promptly deliver all notices, proxies and proxy soliciting materials received by PFPC Trust as custodian to the registered holder of such securities. If the registered holder is not the Fund, then Written Instructions or Oral Instructions must designate the person who owns such securities.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of a contrary Written Instruction, PFPC Trust is authorized to take the following actions without the need for instructions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of the Fund, all income, interest, dividends, distributions, coupons, option premiums, other payments and similar items, included or to be included in the Property, and, in addition, promptly advise the Fund of such receipt and credit such income to the Fund's custodian account;
(B) endorse and deposit for collection, in the name of the Fund, checks, drafts, or other orders for the payment of money;
(C) receive and hold for the account of the Fund all securities received as a distribution on the Fund's securities as a result of a stock dividend, share split-up or reorganization, recapitalization, readjustment or other rearrangement or distribution of rights or similar securities issued with respect to any securities belonging to the Fund and held by PFPC Trust hereunder;
(D) present for payment and collect the amount payable upon all securities which may mature or be called, redeemed, or retired, or otherwise become payable (on a mandatory basis) on the date such securities become payable; and
(E) take any action which may be necessary and proper in connection with the collection and receipt of such income and other payments and the endorsement for collection of checks, drafts, and other negotiable instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) PFPC Trust is authorized to deliver or cause to be delivered Property against payment or other consideration or written receipt therefor in the following cases:
(1) for examination by a broker or dealer selling for the account of the Fund in accordance with street delivery custom;
(2) for the exchange of interim receipts or temporary securities for definitive securities; and
(3) for transfer of securities into the name of the Fund or PFPC Trust or a sub-custodian or a nominee of one of the foregoing, or for exchange of securities for a different number of bonds, certificates, or other evidence, representing the same aggregate face amount or number of units bearing the same interest rate, maturity date and call provisions, if any; provided that, in any such case, the new securities are to be delivered to PFPC Trust.
(B) Unless and until PFPC Trust receives Oral Instructions or Written Instructions to the contrary, PFPC Trust shall:
(1) pay all income items held by it which call for payment upon presentation and hold the cash received by it upon such payment for the account of the Fund;
(2) collect interest and cash dividends received, with notice to the Fund, for the account of the Fund;
(3) hold for the account of the Fund all stock dividends, rights and similar securities issued with respect to any securities held by PFPC Trust; and
(4) subject to receipt of such documentation and information as PFPC Trust may request, execute as agent on behalf of the Fund all necessary ownership certificates required by a national governmental taxing authority or under the laws of any U.S. state now or
hereafter in effect, inserting the Fund's name, on such certificate as the owner of the securities covered thereby, to the extent it may lawfully do so.
(iii) OTHER MATTERS.
(A) subject to receipt of such documentation and information as PFPC Trust may request, PFPC Trust will, in such jurisdictions as PFPC Trust may agree from time to time, seek to reclaim or obtain a reduction with respect to any withholdings or other taxes relating to assets maintained hereunder (provided that PFPC Trust will not be liable for failure to obtain any particular relief in a particular jurisdiction); and
(B) PFPC Trust is authorized to deduct or withhold any sum in respect of tax which PFPC Trust considers is required to be deducted or withheld "at source" by any relevant law or practice.
(i) SEGREGATED ACCOUNTS. PFPC Trust shall upon receipt of Written Instructions or Oral Instructions establish and maintain segregated accounts on its records for and on behalf of the Fund. Such accounts may be used to transfer cash and securities, including securities in a Book-Entry System or other depository:
(i) for the purposes of compliance by the Fund with the procedures required by a securities, futures or option exchange, provided such procedures comply with the 1940 Act and any rules, regulations or interpretations thereunder; and
(ii) upon receipt of Written Instructions, for other purposes.
(j) PURCHASES OF SECURITIES. PFPC Trust shall settle purchased securities upon receipt of Oral Instructions or Written Instructions that specify:
(i) the name of the issuer and the title of the securities, including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through whom the purchase was made. PFPC Trust shall upon receipt of securities purchased by or for the Fund (or otherwise in accordance with standard market practice) pay out of the monies held for the account of the Fund the total amount payable to the person from whom or the broker through whom the purchase was made, provided that the same conforms to the total amount payable as set forth in such Oral Instructions or Written Instructions.
(k) SALES OF SECURITIES. PFPC Trust shall settle sold securities upon receipt of Oral Instructions or Written Instructions that specify:
(i) the name of the issuer and the title of the security, including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the sale was made; and
(vii) the location to which the security must be delivered and delivery deadline, if any.
PFPC Trust shall deliver the securities upon receipt of the total amount payable to the Fund upon such sale, provided that the total amount payable is the same as was set forth in the Oral Instructions or Written Instructions. Notwithstanding anything to the contrary in this Agreement, PFPC Trust may accept payment in such form which is consistent with standard industry practice and may deliver assets and arrange for payment in accordance with standard market practice.
(l) REPORTS; PROXY MATERIALS.
(i) PFPC Trust shall furnish to the Fund the following reports:
(A) such periodic and special reports as the Fund may reasonably request;
(B) a monthly statement summarizing all transactions and entries for the account of the Fund, listing each portfolio security belonging to the Fund (with the corresponding security identification number) held at the end of such month and stating the cash balance of the Fund at the end of such month;
(C) any reports required to be furnished to the Fund pursuant to Rule 17f-4 of the 1940 Act; and
(D) such other information as may be agreed upon from time to time between the Fund and PFPC Trust.
(ii) PFPC Trust shall transmit promptly to the Fund any proxy statement, proxy material, notice of a call or conversion, other corporate action or similar communication received by it as custodian of the Property. PFPC Trust shall be under no other obligation to inform the Fund as to such actions or events.
(m) CREDITING OF ACCOUNT. PFPC Trust may in its sole discretion credit the Account with respect to income, dividends, distributions, coupons, option premiums, other payments or similar items prior to PFPC Trust's actual receipt thereof, and in addition PFPC Trust may in its sole discretion credit or debit the assets in the Account on a contractual settlement date with respect to any sale, exchange or purchase applicable to the Account; provided that nothing herein or otherwise shall require PFPC Trust to make any advances or to credit any amounts until PFPC Trust's actual receipt thereof. If PFPC Trust credits the Account with respect to (a) income, dividends, distributions, coupons, option premiums, other payments or similar items on a contractual payment date or otherwise in advance of PFPC Trust's actual receipt of the amount due, (b) the proceeds of any sale or other disposition of assets on the contractual settlement date or otherwise in advance of PFPC Trust's actual receipt of the amount due or (c) provisional crediting of any amounts due, and (i) PFPC Trust is subsequently unable to collect full and final payment for the amounts so credited within a reasonable time period using reasonable efforts or (ii) pursuant to standard industry practice, law or regulation PFPC Trust is required to repay to a third party such amounts so credited, or if any Property has been incorrectly credited, PFPC Trust shall have the absolute right in its sole discretion without demand to reverse any such credit or payment, to debit or deduct the amount of such credit or payment from the Account, and to otherwise pursue recovery of any such amounts so credited from the Fund. The Fund hereby grants to PFPC Trust and to each sub-custodian utilized by PFPC Trust in connection with providing services to the Fund a first priority contractual possessory security interest in and a right of setoff against the assets maintained hereunder in the amount necessary to secure the return and payment to PFPC Trust and to each such sub-custodian of any advance or credit made by PFPC Trust and/or by such sub-custodian (including reasonable charges related thereto). Notwithstanding anything in this Agreement to the contrary, PFPC Trust shall be entitled to assign any rights it has under this sub-section (m) to any sub-custodian utilized by PFPC Trust in connection with providing services to the Fund which sub-custodian makes any credits or advances with respect to the Fund.
(n) COLLECTIONS. All collections of monies or other property in respect, or which are to become part, of the Property (but not the safekeeping thereof upon receipt by PFPC Trust) shall be at the sole risk of the Fund. If payment is not received by PFPC Trust within a reasonable time after proper demands have been made, PFPC Trust shall notify the Fund in writing, including copies of all demand letters, any written responses and memoranda of all oral responses and shall await instructions from the Fund. PFPC Trust shall not be obliged to take legal action for collection unless and until reasonably indemnified to its satisfaction. PFPC Trust shall also notify the Fund as soon as reasonably practicable whenever income due on securities is not collected in due course and shall provide the Fund with periodic status reports of such income collected after a reasonable time.
(o) EXCESS CASH SWEEP. PFPC Trust will, consistent with applicable law, sweep any net excess cash balances daily into an investment vehicle or other instrument designated in Written Instructions, so long as the investment vehicle or instrument is acceptable to PFPC Trust and the Fund, subject to a fee, paid to PFPC Trust for such service, to be agreed between the parties. Such investment vehicle or instrument may be offered by an affiliate of PFPC Trust or by a PFPC Trust client and PFPC Trust may receive compensation therefrom.
(p) FOREIGN EXCHANGE. PFPC Trust, its sub-custodians and the respective affiliates of such entities (together, "AFFILIATED ENTITIES") jointly or separately may act as principal and/or agent for foreign exchange ("FX") transactions for the Fund, and any of the Affiliated Entities may arrange FX transactions for the Fund with third parties that act as principal or agent. Affiliated Entities and third parties may receive fees and other compensation in connection with FX transactions for the Fund, and PFPC Trust may receive from such entities a portion of their fees or other compensation. Unless PFPC Trust itself is the principal for a FX transaction, PFPC Trust will not be responsible and shall have no liability for the actions or omissions of any principal (including any other Affiliated Entity) to any FX transaction for the Fund nor any responsibility to monitor the commercial terms of any such FX transactions.
14. DURATION AND TERMINATION. This Agreement shall continue until terminated by the Fund or PFPC Trust on sixty (60) days' prior written notice to the other party. In the event this Agreement is terminated (pending appointment of a successor to PFPC Trust or vote of the Shareholders to dissolve or to function without a custodian of its cash, securities or other property), PFPC Trust shall not deliver cash, securities or other property of the Fund to the Fund. It may deliver them to a bank or trust company of PFPC Trust's choice, having aggregate capital, surplus and undivided profits, as shown by its last published report, of not less than twenty million dollars ($20,000,000), and which meets the requirements of Rule 17f-1 under the 1940 Act, as a custodian for the Fund to be held under terms similar to those of this Agreement. PFPC Trust shall not be required to make any delivery or payment of assets to the value of PFPC Trust's Unpaid Fees (as hereinafter defined) until full payment shall have been made to PFPC Trust of all of its fees, compensation, costs and expenses (including without limitation fees and expenses associated with deconversion or conversion to another service provider and other trailing expenses incurred by PFPC Trust) ("UNPAID FEES"). PFPC Trust shall have a first priority contractual possessory security interest in and shall have a right of setoff against the Property as security for the payment of such Unpaid Fees, in the following order: FIRST, any cash held by PFPC Trust on behalf of the Sub-Trust (up to the balance of the Unpaid Fees); and SECONDLY, if such cash is less than the outstanding balance of the Unpaid Fees, such other Property as necessary to satisfy the outstanding balance of the Unpaid Fees (and only up to the outstanding balance of the Unpaid Fees).
15. NOTICES. Notices shall be addressed (a) if to PFPC Trust at 8800 Tinicum Boulevard, 4th Floor, Philadelphia, Pennsylvania 19153, Attention: Sam Sparhawk; (b) if to the Fund, at _______________________ or (c) if to neither of the foregoing, at such other address as shall have been given by like notice to the sender of any such notice or other communication by the other party. If notice is sent by confirming electronic delivery, hand 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 five 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.
16. AMENDMENTS. This Agreement, or any term hereof, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought.
17. ASSIGNMENT; DELEGATION. Neither party may assign this Agreement without
the prior written consent of the other party; provided, however, that PFPC Trust
may assign its rights and delegate its duties hereunder at no additional cost to
the Fund to any affiliate of PFPC Trust or of The PNC Financial Services Group,
Inc., provided that (i) PFPC Trust gives the Fund thirty (30) days prior written
notice of such delegation, (ii) the delegate agrees to comply with the relevant
provisions of the Federal Securities Laws; (iii) such delegation does not impair
the Fund's receipt of services under this Agreement in any material respect, and
(iv) any such delegation shall not relieve PFPC Trust of its liabilities
hereunder. For the avoidance of doubt, nothing herein shall serve to prohibit or
otherwise restrict the ability of PFPC Trust to use third-party vendors in
connection with any services provided hereunder.
18. FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be executed in one more counterparts; such execution of counterparts may occur by manual signature, facsimile signature, manual signature transmitted by means of facsimile transmission or manual signature contained in an imaged document attached to an email transmission; and each such counterpart executed in accordance with the foregoing shall be deemed an original, with all such counterparts together constituting one and the same instrument. The exchange of executed copies of this Agreement or of executed signature pages to this Agreement by facsimile transmission or as an imaged document attached to an email transmission shall constitute effective execution and delivery hereof and may be used for all purposes in lieu of a manually executed copy of this Agreement.
19. 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.
(b) NON-SOLICITATION. During the term of this Agreement and for one year thereafter, the Fund shall not (with the exceptions noted in the immediately succeeding sentence) knowingly solicit or recruit for employment or hire any of PFPC Trust's employees, and the Fund shall cause the Fund's sponsor and the Fund's affiliates to not (with the exceptions noted in the immediately succeeding sentence) knowingly solicit or recruit for employment or hire any of PFPC Trust's employees. To "knowingly" solicit, recruit or hire within the meaning of this provision does not include, and therefore does not prohibit, solicitation, recruitment or hiring of a PFPC Trust employee by the Fund, the Fund's sponsor or an affiliate of the Fund if the PFPC Trust employee was identified by such entity solely as a result of the PFPC Trust employee's response to a general advertisement by such entity in a publication of trade or industry interest or other similar general solicitation by such entity.
(c) NO REPRESENTATIONS OR WARRANTIES. Except as expressly provided in this Agreement, PFPC Trust hereby disclaims all representations and warranties, express or implied, made to the Fund or any other person, including, without limitation, any warranties regarding quality, suitability, merchantability, fitness for a particular purpose or otherwise (irrespective of any course of dealing, custom or usage of trade), of any services or any goods provided incidental to services provided under this Agreement. PFPC Trust disclaims any warranty of title or non-infringement except as otherwise set forth in this Agreement.
(d) NO CHANGES THAT MATERIALLY AFFECT OBLIGATIONS. Notwithstanding anything in this Agreement to the contrary, the Fund agrees not to make any modifications to its offering or organizational documents or adopt any policies which would affect materially the obligations or responsibilities of PFPC Trust hereunder without the prior written approval of PFPC Trust, which approval shall not be unreasonably withheld or delayed. The scope of services to be provided by PFPC Trust under this Agreement shall not be increased as a result of new or revised regulatory or other requirements that may become applicable with respect to the Fund, unless the parties hereto expressly agree in writing to any such increase.
(e) 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.
(f) INFORMATION. The Fund will provide such information and documentation as PFPC Trust may reasonably request in connection with services provided by PFPC Trust to the Fund.
(g) GOVERNING LAW. This Agreement shall be deemed to be a contract made in Delaware in the United States and governed by Delaware law, without regard to principles of conflicts of law.
(h) 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.
(i) PARTIES IN SHARE. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except as may be explicitly stated in this Agreement, (i) this Agreement is not for the benefit of any other person or entity and (ii) there shall be no third party beneficiaries hereof.
(j) CUSTOMER IDENTIFICATION PROGRAM NOTICE. To help the U.S. government fight the funding of terrorism and money laundering activities, U.S. Federal law requires each financial institution to obtain, verify, and record certain information that identifies each person who initially opens an account with that financial institution on or after October 1, 2003. Consistent with this requirement, PFPC Trust may request (or may have already requested) the Fund's name, address and taxpayer identification number or other government-issued identification number, and, if such party is a natural person, that party's date of birth. PFPC Trust may also ask (and may have already asked) for additional identifying information, and PFPC Trust may take steps (and may have already taken steps) to verify the authenticity and accuracy of these data elements.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
PFPC TRUST COMPANY
By: _____________________________
Title: _____________________________
ACAP STRATEGIC FUND
By: ____________________________
Title: ____________________________
APPENDIX A
DEFINITIONS
As used in this Agreement:
(a) "AUTHORIZED PERSON" means any officer of the Fund and any other person duly authorized by the Fund in a manner reasonably satisfactory to PFPC Trust to give Oral or Written Instructions on behalf of the Fund. An Authorized Person's scope of authority may be limited by setting forth such limitation in a written document signed by both parties hereto.
(b) "BOOK-ENTRY SYSTEM" means the Federal Reserve Treasury book-entry system for United States and federal agency securities, its successor or successors, and its nominee or nominees and any book-entry system registered with the Securities Exchange Commission under the 1934 Act.
(c) "FEDERAL SECURITIES LAWS" means the 1940 Act, the Investment Advisers Act of 1940, as amended, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Commodities Exchange Act, as amended.
(d) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC Trust from an Authorized Person or from a person reasonably believed by PFPC Trust to be an Authorized Person. PFPC Trust may, in its sole discretion in each separate instance, consider and rely upon instructions it receives from an Authorized Person via electronic mail as Oral Instructions.
(e) "PFPC TRUST" means PFPC Trust Company or a subsidiary or affiliate of PFPC Trust Company.
(f) "PROPERTY" means:
(i) any and all securities and other investment items which the Fund may from time to time deposit, or cause to be deposited, with PFPC Trust or which PFPC Trust may from time to time hold for the Fund;
(ii) all income in respect of any of such securities or other investment items;
(iii) all proceeds of the sale of any of such securities or investment items; and
(iv) all proceeds of the issuance of Shares by the Fund, which are received by PFPC Trust from time to time, from or on behalf of the Fund.
(g) "SHARES" mean the shares of beneficial interest of any series or class of the Fund.
(h) "WRITTEN INSTRUCTIONS" mean (i) written instructions signed by two Authorized Persons (or persons reasonably believed by PFPC Trust to be Authorized Persons) and received by PFPC Trust or (ii) trade instructions transmitted by means of an electronic transaction reporting system which requires the use of a password or other authorized identifier in order to gain access. The instructions may be delivered electronically (with respect to sub-item (ii) above) or by hand, mail, tested telegram, cable, telex or facsimile sending device.
SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT, dated as of December 23, 2009, by and among PFPC Trust Company, in its capacity as custodian hereunder ("Custodian"), ACAP Strategic Fund (the "Customer"), and Morgan Stanley & Co. Incorporated ("Broker").
WHEREAS, Broker is a securities broker-dealer registered with the Securities and Exchange Commission and a clearing member of The Options Clearing Corporation ("OCC") and is a member of several national securities exchanges; and
WHEREAS, Customer desires from time to time to sell securities "short" through Broker, such short sales being permitted by Customer's investment policies, and for that purpose has opened one or more margin accounts with Broker (each an "Account") and executed Broker's " Prime Broker Margin Account Agreement" (the "Customer Agreement"); and
WHEREAS, to facilitate Customer's transactions through Broker, Customer, Custodian and Broker desire to establish procedures for the compliance by Broker with the provisions of Regulation T of the Board of Governors of the Federal Reserve System and with the provisions of Rule 431 of the New York Stock Exchange and other applicable requirements and for compliance by Customer with Regulation X of the Board of Governors of the Federal Reserve System and other requirements ("Margin Rules"); and
WHEREAS, Custodian acts as custodian of certain assets of Customer pursuant to a contract between the Custodian and Customer dated as of December 1, 2009 (the "Custodian Agreement") and holds such assets in an account (the "Custodial Account") and is further prepared to act as custodian to hold Collateral as defined below pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, be it agreed as follows:
1. As used herein, the following terms have the following meanings:
"Adequate Margin" shall mean such Eligible Collateral as is adequate in Broker's judgment under the Margin Rules and the internal policies of Broker. For purposes hereunder, Eligible Collateral shall be valued by Broker at Broker's sole discretion.
"Advice from Broker" or "Advise" means a written notice sent by Broker and delivered to Customer and/or Custodian or transmitted by a facsimile sending device and which is reasonably believed by Customer and/or Custodian in good faith to be signed by a person designated by Broker in writing as authorized to give an Advice from Broker on behalf of Broker, except that for any of the
following purposes in connection with a notice to Customer only it shall mean notice by telephone to a person designated by Customer in writing as authorized to receive such advice or, in the event that no such person is available, to any officer of Customer and confirmed promptly in writing thereafter: (i) for initial or additional Collateral; and (ii) that Customer has defaulted pursuant to paragraph 9(a) hereof. With respect to any short sale or covering purchase transaction, the Advice from Broker shall mean a standard confirmation in use by Broker and sent or transmitted to Customer and/or Custodian. An officer of Broker will certify to Custodian the names and signatures of those employees who are authorized to sign Advices from Broker, which certification may be amended from time to time. When used herein the term "Advise" means the act of sending an Advice from Broker.
"Closing Transaction" is a transaction in which Customer purchases securities which have been sold short.
"Collateral" means the Special Custody Account, all Eligible Collateral, other financial assets or investment property and other property and assets which are deposited from time to time in, or credited from time to time to, the Special Custody Account, all security entitlements in respect thereof, all income and profits thereon, all interest, dividends and other payments and distributions with respect thereto, all other property and assets specified as Collateral in the second paragraph of Section 4, and all proceeds of any of the foregoing.
"Eligible Collateral" means cash (U.S. dollars), U.S. government securities maintained in the Treasury/Reserve Automated Debt Entry System ("TRADES") or other securities acceptable to Broke and securities having an industry CUSIP, SEDOL or ISIN number that are either in the possession of Custodian or credited to the account of Custodian.
"Insolvency" means that (A) an order, judgment or decree has been entered under the bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law (herein called the "Bankruptcy Law") of any jurisdiction adjudicating the Customer insolvent; or (B) the Customer has petitioned or applied to any tribunal for, or consented to the appointment of, or taking possession by, a trustee, receiver, liquidator or similar official, of the Customer, or commenced a voluntary case under the Bankruptcy Law of the United States or any proceedings relating to the Customer under the Bankruptcy Law of any other jurisdiction, whether now or hereinafter in effect; or (C) any such petition or application has been filed, or any such proceeding has commenced, against the Customer or the Customer by any act has indicated its approval thereof, consent thereto or acquiescence therein, or an order for relief has been entered in an involuntary case under the Bankruptcy Law of the United States, as now or hereinafter constituted, or an order, judgment or decree has been entered appointing any such trustee, receiver, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days.
"Instructions from Customer" or "Instructions" means a request, direction or certification in writing signed by Customer and delivered to Custodian and/or Broker or transmitted by a facsimile sending device and which is reasonably
believed by Custodian and/or Broker in good faith to be signed by a person authorized to give Instructions on behalf of Customer. An authorized agent of Customer will certify to Custodian and Broker the names and signatures of those persons authorized to Instruct Custodian and/or Broker, which certification may be amended from time to time. When used herein, the term "Instruct" shall mean the act of sending an Instruction from Customer.
"Receipt of Payment" means receipt by Custodian on behalf of Broker, of (l)
a wire transfer to Custodian or a certified or official bank check, (2) a
written or telegraphic advice from a registered clearing agency that funds have
been or will be credited to the account of Custodian for credit to Broker, or
(3) a transfer of funds from any of Broker's accounts maintained at Custodian.
"Receipt of Securities" means receipt by Custodian on behalf of Broker, of
(1) securities in proper form for transfer or (2) a written or telegraphic
advice from a registered clearing agency or other securities intermediary
approved in writing by Broker that securities have been credited to the account
of Custodian for credit to the Special Custody Account.
2. From time to time, Customer may place orders with Broker for the short sale of securities. Prior to the acceptance of such short sale orders Broker will notify Customer of Broker's ability to borrow such securities or other properties and acceptance of short sale orders will be contingent upon same.
3. Custodian shall open an account on its books entitled "Special Custody Account for margin and short sales for Morgan Stanley & Co. Incorporated as pledgee of ACAP Strategic Fund" (referred to herein as "Special Custody Account"). Collateral shall be released only in accordance with this Agreement. Custodian agrees to release Collateral held in the Special Custody Account to Customer only upon receipt of and as provided in an Advice from Broker. Customer can substitute or exchange the cash, securities or similar property in the Special Custody Account only after Customer notifies Broker of the contemplated substitution or exchange and Broker Advises Custodian to make such substitution or exchange. Any collateral so released to Customer from the Special Custody Account shall be transferred to the Custodial Account. Customer hereby grants a continuing security interest to Broker in the Collateral and the proceeds thereof to secure its obligations to Broker under the Margin Agreement and this Agreement. The parties hereto agree that all property and assets held in or credited to the Special Custody Account will be treated as financial assets under Article 8 of the Uniform Commercial Code as in effect in the State of New York (the "UCC"). The parties hereto further agree that the securities intermediary's jurisdiction, within the meaning of Section 8-110(e) of the UCC, in respect of the Special Custody Account and the Collateral is the State of New York and agree that none of them has or will enter into any agreement to the contrary. Anything in this Agreement to the contrary notwithstanding, Custodian hereby agrees to comply with entitlement orders and other instructions of Broker with respect to the Special Custody Account and any Collateral without further consent of Customer. Customer hereby consents to such agreement.
4. Customer agrees to instruct Custodian in Instructions from Customer that Eligible Collateral specified by Customer and at least equal in value to what Broker shall initially and from time to time advise Customer in an Advice from Broker is necessary to constitute Adequate Margin is to be transferred to and deposited in the Special Custody Account as Collateral. Such Eligible Collateral and any other Collateral so transferred (i) will be held by Custodian in, and credited by Custodian to, the Special Custody Account, subject to the terms and conditions of this Agreement; (ii) may be released only in accordance with the terms of this Agreement; and (iii) except as required to be released hereunder to Broker, shall not be made available to Broker or to any other person claiming through Broker, including creditors of Broker. Custodian will hold the Collateral in the Special Custody Account separate and apart from any other property of Customer which may be held by Custodian, subject to the interest therein of Broker as the pledgee thereof in accordance with the terms of this Agreement. The security interest of Broker will terminate at such time as Collateral is released as provided herein. Custodian shall have no responsibility for the validity, priority or enforceability of any security interest granted by Customer to Broker.
Interest, dividends or proceeds attributable to Collateral shall be credited to the Special Custody Account as additional Collateral and shall be held in the Special Custody Account as Collateral until released therefrom or withdrawn in accordance with this Agreement.
Custodian will make available to Broker and Customer (via access to Custodian's web browser) a daily statement of (i) the amount and kind of assets maintained in the Special Custody Account and (ii) any transactions in the Special Custody Account, including deposits of assets therein and releases of assets therefrom, by the business day after the business day to which such statement relates. In the event that, but only so long as, such web access is not available to Broker or Customer, Custodian shall provide a comparable daily statement to Broker and Customer in writing upon notice from Broker or Customer to Custodian that such access is not available. Upon the request of Customer, Broker shall Advise Custodian and Customer of any excess of Collateral in the Special Custody Account. Upon Customer's request, Broker shall Advise Custodian to transfer such excess Collateral out of the Special Custody Account to the Custodial Account. Custodian at no time has any responsibility to require or request Broker to, or for determining whether Broker should or should not, Advise Custodian as provided in the immediately preceding sentence.
5. For the avoidance of doubt, Broker shall have no right pursuant to this Agreement, as a secured party or otherwise, with respect to those assets of Customer that are held by the Custodian outside of the Special Custody Account; provided, however, that nothing herein shall be construed as a waiver of Broker's right to seek recourse against such assets as a creditor under the Customer Agreement. Customer represents and warrants to Broker that securities included at any time in the Collateral shall be in good deliverable form (or Custodian shall have the unrestricted power to put such securities into good deliverable form) in accordance with the requirements of such exchanges as may be the primary market or markets for such securities. Securities Collateral may be held at Depository Trust Company ("DTC") or other book-entry depository system in the account of Custodian, except U.S. Treasury securities shall be held in a TRADES Participant's Securities Account of the Custodian at a Federal
Reserve Bank. The Custodian represents that Collateral will not be subject to any lien, charge, security interest or other right or claim of the Custodian or any person claiming through the Custodian. Custodian hereby waives and releases all liens, encumbrances, claims and rights of setoff that it may now or hereafter have against the Special Custody Account or any Collateral and agrees that it will not assert any such lien, encumbrance, claim or right against the Special Custody Account or any Collateral. Custodian represents and warrants that it has not, and agrees that it will not, agree to comply with entitlement orders concerning the Special Custody Account or any Collateral that are originated by any person other than Broker.
6. Custodian will maintain accounts and records for the Collateral in the Special Custody Account separate from the accounts and records for other property of Customer held by Custodian and other property in which Broker has an interest.
7. Customer agrees to maintain Adequate Margin at all times. Broker shall initially, and from time to time, advise Customer (in an Advice from Broker) of the value of Eligible Collateral which is necessary to constitute Adequate Margin. Broker shall, from time to time, compute the aggregate net credit or debit balance on Customer's open short sales and advise Customer by 11:00 a.m. New York time of the amount of the net debit or credit, as the case may be. If a net debit balance exists on such day, Customer will cause an amount of Eligible Collateral equal to such net debit balance to be deposited as Collateral in the Special Custody Account by the close of business on such day. Broker will not pay interest on credit balances. Balances will be appropriately adjusted to reflect each Closing Transaction. Custodian at no time has any responsibility to determine whether Adequate Margin is maintained.
8. It is understood and agreed that Customer, when placing with Broker any order to sell short for Customer's account, will designate the order as such and hereby authorizes Broker to mark such order as being "short," and when placing with Broker any order to sell long for Customer's account, will designate the order as such and hereby authorizes Broker to mark such order as being "long." Any sell order which Customer shall designate as being for long account as above provided is for securities then owned by Customer.
9. (a) In the event of default by Customer of any obligation hereunder or under the Customer Agreement and the expiration of any applicable cure or grace period, or in the event of Customer's Insolvency, Broker may, after transmittal of an Advice from Broker to Customer specifying such default or Insolvency and its intention to do so, and only if Customer continues to be in default or Insolvent, sell and Advise Custodian to deliver to Broker the proceeds of such of the Collateral as in Broker's judgment is reasonably necessary for the protection of its interest under this Agreement. Custodian is not a party to, nor bound by, and shall be deemed to have no knowledge of, the terms of the Customer Agreement. Except as provided herein or otherwise notified by Broker in an Advice from Broker Custodian shall have no responsibility to determine the existence of, or take any action in respect of, any such Customer default or Insolvency.
(b) Any sale of Collateral made by Broker pursuant to this paragraph 9 must be made on the exchange or other market where such business is then usually transacted. Such sale shall be made in a manner commercially reasonable for such
securities. Customer shall remain liable to Broker for any deficiency. Broker shall notify Customer of any sale of Collateral and any deficiency remaining in an Advice from Broker. If the proceeds of any such sale exceed the amount due to Broker under this paragraph 9, the excess of the amount due to Broker shall remain in the Special Custody Account as Collateral unless otherwise released or withdrawn as provided herein.
10. Custodian shall be paid as compensation for its services pursuant to this Agreement such compensation as may from time to time be agreed upon in writing between Customer and Custodian.
11. Custodian's duties and responsibilities with respect to the Special Custody Account and the Collateral from time to time held therein shall be only those expressly set forth in this Agreement. In matters concerning or relating to this Agreement, Custodian shall not be responsible for compliance with any Margin Rules or the regulations of the OCC. Custodian shall be entitled to rely upon any court order, entered by a court of competent jurisdiction over the Special Custody Account and regarding the Special Custody Account, until such time that such order is overturned, suspended, withdrawn or is no longer applicable. Custodian shall not be liable for the acts or omissions of any of the other parties to this Agreement. Neither Broker, Customer nor Custodian shall be responsible or liable for any losses resulting from nationalization, expropriation, devaluation, seizure, or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, levies or other charges affecting the property in the Special Custody Account; or acts of war, terrorism, insurrection or revolution; or acts of God; or any other similar event beyond the reasonable control of such party. Neither Broker, Customer nor Custodian shall be liable for punitive, indirect special or consequential damage even if advised of the possibility or likelihood thereof. With respect to any losses or liabilities, Custodian shall be protected in acting or not acting pursuant to any Instructions, Advices or notices from Customer or Broker believed by Custodian in good faith to be genuine and authorized, except in the case of Custodian's bad faith, negligence or willful misconduct. Custodian shall have no obligation or responsibility to question or investigate any Advice from Broker or Instruction from Customer. Customer agrees to indemnify Custodian for, and hold it harmless against, any loss, liability or expense (including counsel fees) incurred by Custodian in connection with any Instructions, Advices or notices from Customer or otherwise arising under this Agreement, except to the extent such losses, claims, costs, damages, liabilities or expenses are the result of Custodian's own negligence or willful misconduct in the carrying out of Custodian's obligations under this Agreement. This paragraph 11 shall survive the termination of this Agreement.
12. Neither Broker nor Custodian shall be liable for any losses, claims, costs, damages, liabilities or expenses suffered or incurred by Customer as a result of any transaction executed hereunder, or any other action taken or not taken by Broker or Custodian hereunder for Customer's account at Customer's direction or otherwise, except to the extent that such loss, cost, damage, liability or expense is the result of Broker's own, or Custodian's own, as the case may be, negligence or willful misconduct.
13. No amendment of this Agreement shall be effective unless in writing and signed by an authorized officer of each of the parties hereto.
14. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one and the same instrument.
15. It is agreed that, notwithstanding any language to the contrary in Custodian's form of confirmation, Custodian holds the Collateral deposited in the Special Custody Account for the benefit of Broker as pledgee and secured party hereunder, not in the capacity of escrow agent.
16. Customer represents and warrants that the Collateral will not be subject to any other liens or encumbrances, other than to Broker in accordance with the Customer Agreement and this Agreement.
17. Any of the parties hereto may terminate this Agreement upon thirty (30) days prior written notice to the other parties hereto; provided, however, that the status of any short sales, and of Collateral held at the time of such notice to margin such short sales shall not be affected by such termination until the release by Broker of such Collateral pursuant to the provisions of this Agreement or as otherwise required by applicable rules of such national securities exchanges of which Broker may be a member, as applicable. This Agreement shall also terminate in the event of the termination of the Custodian Agreement, following thirty (30) days prior written notice from Custodian or Customer to the other parties hereto. Upon termination of this Agreement by any party, any Collateral in the Special Custody Account that has not been released by Broker shall be transferred, within thirty (30) days of such termination, to a successor custodian designated in writing by Customer and acceptable to Broker
18. Written communications hereunder shall be sent by facsimile transmission or hand delivered as required herein, when another method of delivery is not specified, may be mailed first class postage prepaid, except that written notice of termination shall be sent by certified mail, addressed:
(a) If to Custodian, to:
PFPC Trust Company
8800 Tinicum Boulevard
Philadelphia, PA 19153
Attention: Edward Smith
Fax No.: (215) 749-3946
(b) If to Customer, to:
SilverBay Capital Management LLC
350 Madison Avenue, 9th Floor
New York, New York 10017
Attention: A. Tyson Arnedt
Fax No.: 212-389-8748
(c) If to Broker, to:
Morgan Stanley & Co. Incorporated
Prime Brokerage Services
One New York Plaza
New York, New York 10004
Attention: PB Custody - Rich Busby
Fax: (212) 507-0327
19. This Agreement will be governed by the laws of the State of New York without regard to its conflicts of law rules and to the extent not preempted by ERISA. The Custodian and the Customer hereby irrevocably submit to the exclusive jurisdiction of any New York State court or any United States District Court located in the State of New York in any action or proceeding arising out of this Agreement and hereby irrevocably waive any objection to the venue of any such action or proceeding brought in any such court or any defense of an inconvenient forum.
20. This Agreement is being entered into for the exclusive benefit of Broker, Customer and Custodian. There are no third party beneficiaries to this Agreement. Nothing in this Agreement shall be construed to benefit any person other than Broker, Customer or Custodian, as the case may be.
21. In the event of any inconsistency between the provisions of this Agreement and the other provisions of the Customer Agreement, as between Customer and Broker, this Agreement will prevail. Notwithstanding anything in this Agreement to the contrary, Custodian is not a party to, nor bound by, and shall be deemed to have no knowledge of, the terms of the Customer Agreement.
PFPC Trust Company as Custodian
Title:
ACAP Strategic Fund as Customer
Title:
Morgan Stanley & Co. Incorporated
as Broker
Title:
ADMINISTRATION AND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is made as of December 7, 2009 by and between ACAP STRATEGIC FUND, a Delaware statutory trust (the "FUND"), and PNC GLOBAL INVESTMENT SERVICING (U.S.) INC., a Massachusetts corporation ("PNC"). Capitalized terms not otherwise defined shall have the meanings set forth in Appendix A.
BACKGROUND
A. The Fund is registered as a closed-end, non-diversified management investment company under the Investment Company Act of 1940, as amended (the "1940 ACT").
B. The Fund wishes to retain PNC to provide administration and accounting services provided for herein, and PNC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:
1. APPOINTMENT. The Fund hereby appoints PNC to provide administration, and accounting services in accordance with the terms set forth in this Agreement. PNC accepts such appointment and agrees to furnish such services. PNC shall be under no duty to take any action hereunder on behalf of the Fund except as specifically set forth herein or as may be specifically agreed to by PNC and the Fund in a written amendment hereto. Except as may be specifically provided herein, PNC shall not bear, or otherwise be responsible for, any fees, costs or expenses charged by any third party service providers engaged by the Fund or by any other third party service provider to the Fund, unless such third party service provider is engaged by PNC.
2. COMPLIANCE WITH THE LAWS. Each party agrees to comply with applicable requirements of the Federal Securities Laws, and any other applicable laws, rules and regulations of governmental authorities having jurisdiction with respect to the subject matter herein. Except as specifically provided herein, neither party shall be responsible for such compliance by the other party or any other entity.
3. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC shall act only upon Oral Instructions or Written Instructions.
(b) PNC shall be entitled to rely upon any Oral Instruction or Written Instruction it receives from an Authorized Person (or from a person reasonably believed by PNC to be an Authorized Person) pursuant to this Agreement. PNC may assume that any Oral Instruction or Written Instruction received hereunder is not in any way inconsistent with the provisions of the Fund's offering or organizational documents or this Agreement or of any vote, resolution or
proceeding of the Fund's board of trustees (the "BOARD") or shareholders, unless and until PNC receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PNC Written Instructions confirming Oral Instructions (except where such Oral Instructions are given by PNC or its affiliates) so that PNC receives the Written Instructions as promptly as practicable and in any event by the close of business on the day after such Oral Instructions are received. The fact that such confirming Written Instructions are not received by PNC or differ from the Oral Instructions shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions or PNC's ability to rely upon such Oral Instructions.
4. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PNC is in doubt as to any action it should or should not take, PNC may request directions or advice, including Oral Instructions or Written Instructions, from the Fund or its investment adviser (the "INVESTMENT ADVISER").
(b) ADVICE OF COUNSEL. If PNC shall be in doubt as to any question of law pertaining to any action it should or should not take, PNC may request advice from counsel of its own choosing, who may be counsel for the Fund or the Investment Adviser (at the Fund's expense) or PNC (at PNC's expense).
(c) CONFLICTING ADVICE. In the event of a conflict between directions or advice or Oral Instructions or Written Instructions PNC receives from the Fund and the advice PNC receives from counsel, PNC may rely upon and follow the advice of counsel, provided that reasonable prior written notice has been given to the Fund . The Fund shall, upon receipt of such notice, promptly and timely notify PNC in writing of its agreement or disagreement with any actions or any omissions to act PNC proposes to take pursuant to counsel's advice. In the event where the Fund has timely notified PNC in writing of its disagreement, PNC and the Fund shall consult with each other in good faith to reach agreement on the actions or omissions that are the subject of the Fund's objection. In the event where, after such consultations, PNC and the Fund are unable to agree on the actions or omissions in question, PNC shall consult independent counsel reasonably acceptable to such Fund, and may follow and rely upon the advice of such independent counsel.
(d) NO OBLIGATION TO SEEK ADVICE. Nothing in this section shall be construed so as to impose an obligation upon PNC (i) to seek such directions or advice or Oral Instructions or Written Instructions, or (ii) to act in accordance with such directions or advice or Oral Instructions or Written Instructions.
5. RECORDS; VISITS.
(a) The books and records pertaining to the Fund which are in the possession or under the control of PNC shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the 1940 Act and such other applicable Federal Securities Laws.
The Fund and its duly authorized officers, employees and agents and the staff of the Securities and Exchange Commission ("SEC") shall have access to such books and records at all times during PNC's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by PNC to the Fund or to an Authorized Person in the form requested by the Fund, at the Fund's expense, including, without limitation, any Fund accounting reports and other Fund documents in the possession of PNC for regulatory audits and examinations. Any such books or records may be maintained in the form of electronic media and stored on any magnetic disk or tape or similar recording method.
(b) PNC shall keep the following records:
(i) all books and records with respect to the Fund's books of account; and
(ii) records of the Fund's securities transactions.
To the extent consistent with the requirements of the 1940 Act, PNC may house these records in a third party storage facility.
(c) Upon request, PNC shall provide the Fund with a copy of the "Report on Controls Placed in Operation and Tests of Operating Effectiveness" (SAS 70), with respect to Fund Accounting and Administration Operations, within 15 days from the time the report is generally available for distribution to PNC's clients.
6. CONFIDENTIALITY.
(a) Each party shall keep confidential any information relating to the other party's business ("CONFIDENTIAL INFORMATION"). Confidential Information shall include:
(i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finances, operations, customer relationships, customer profiles, customer lists, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of the Fund or PNC, their respective subsidiaries and affiliated companies;
(ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords the Fund or PNC a competitive advantage over its competitors and the investors, customers, clients, service providers and suppliers of any of them;
(iii) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, and trade secrets, whether or not patentable or copyrightable; and
(iv) anything designated as confidential.
(b) Notwithstanding the foregoing, information shall not be Confidential Information and shall not be subject to such confidentiality obligations if it:
(i) is already known to the receiving party at the time it is obtained;
(ii) is or becomes publicly known or available through no wrongful act of the receiving party;
(iii) is rightfully received from a third party who, to the best of the receiving party's knowledge, is not under a duty of confidentiality;
(iv) is released by the protected party to a third party without restriction;
(v) is requested or required to be disclosed by the receiving party pursuant to a court order, subpoena, governmental or regulatory agency request or law;
(vi) is relevant to the defense of any claim or cause of action asserted against the receiving party;
(vii) is Fund information provided by PNC in connection with an independent third party compliance or other review, provided that such third party compliance or other reviewer is subject to substantially the same confidentiality obligations as PNC is subject hereunder;
(viii) is necessary for PNC to release such information in connection with the provision of services under this Agreement, provided that the recipient of such information is subject to substantially the same confidentiality obligations as PNC is subject hereunder; or
(ix) has been or is independently developed or obtained by the receiving party.
7. LIAISON WITH ACCOUNTANTS. PNC shall cooperate with, and act as liaison to, the Fund's independent public accountants and shall provide account analyses, fiscal year summaries, and other audit-related schedules with respect to the Fund. PNC shall take all reasonable action in the performance of its duties under this Agreement to assure that any reasonably requested or necessary information is made available to such accountants for the expression of their opinion, as to the financial statements of the Fund or as may otherwise be required by the Federal Securities Laws or the Fund.
8. PNC SYSTEM. PNC shall retain title to and ownership of any and all data bases, computer programs, screen formats, report formats, interactive design techniques, derivative
works, inventions, discoveries, patentable or copyrightable matters, concepts, expertise, patents, copyrights, trade secrets, and other related legal rights utilized by PNC in connection with the services provided by PNC to the Fund.
9. DISASTER RECOVERY. PNC shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for emergency use of electronic data processing equipment. In the event of equipment failures, PNC shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. PNC 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 PNC's own breach of its Standard of Care (defined in Section 11 below) in the performance of its duties or obligations under this Agreement.
10. COMPENSATION.
(a) As compensation for services set forth herein that are rendered by PNC during the term of this Agreement, the Fund will pay to PNC a fee or fees as may be agreed to in writing by the Fund and PNC in a fee letter that by its terms relates to this Agreement.
(b) The undersigned hereby represents and warrants to PNC that (i) the terms of this Agreement, (ii) the fees and expenses associated with this Agreement, and (iii) any benefits accruing to PNC or to the adviser or sponsor to the Fund in connection with this Agreement, including but not limited to any fee waivers, conversion cost reimbursements, up front payments, signing payments or periodic payments made or to be made by PNC to such adviser or sponsor or any affiliate of the Fund relating to this Agreement have been fully disclosed to the Board of Trustees and that, if required by applicable law, such Board of Trustees has approved or will approve the terms of this Agreement, any such fees and expenses, and any such benefits.
11. STANDARD OF CARE/LIMITATIONS OF LIABILITY.
(a) PNC shall be obligated to exercise care and diligence in the performance of its duties hereunder and to act in good faith in performing services provided for under this Agreement. Subject to the terms of this Section 11, PNC and its affiliates shall be liable to the Fund (or any person or entity claiming through the Fund) for damages only to the extent caused by PNC's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligations under this Agreement ("STANDARD OF CARE").
(b) Notwithstanding anything in this Agreement (whether contained anywhere in Sections 13-15 or otherwise) to the contrary, the Fund hereby acknowledges and agrees that (i) PNC, in the course of providing tax-related services or calculating and reporting portfolio performance hereunder, may rely upon PNC's interpretation of tax positions or its interpretation of relevant circumstances (as determined by PNC) in providing such tax services and in determining methods of calculating portfolio performance to be used, and that (ii) PNC shall not be liable for losses or damages of any kind associated with such reliance except to the extent such loss or damage is substantially due to PNC's breach of its Standard of Care hereunder.
(c) Notwithstanding anything in this Agreement to the contrary, without limiting anything in the immediately preceding sentence, the Fund hereby acknowledges and agrees that PNC shall not be liable for any losses or damages of any kind associated with any tax filings with which PNC has assisted in any way except to the extent such loss or damage is substantially due to PNC's breach of its Standard of Care hereunder.
(d) Absent PNC's fraud, embezzlement or intentional misconduct, PNC's
liability to the Fund and any person or entity claiming through the Fund for any
loss, claim, suit, controversy, breach or damage of any nature whatsoever
(including but not limited to those arising out of or related to this Agreement)
and regardless of the form of action or legal theory ("LOSS") shall not exceed
the fees received by PNC for services provided hereunder during the twelve (12)
months immediately prior to the date of such Loss; provided that PNC's
cumulative maximum liability for all Losses shall not exceed $500,000.
(e) Subject to Section 9 above, PNC shall not be liable for damages (including without limitation damages caused by delays, failure, errors, interruption or loss of data) occurring directly or indirectly by reason of circumstances beyond its reasonable control, including without limitation acts of God; action or inaction of civil or military authority; national emergencies; public enemy; war; terrorism; riot; fire; flood; catastrophe; sabotage; epidemics; labor disputes; civil commotion; interruption, loss or malfunction of utilities, transportation, computer or communications capabilities; insurrection; elements of nature; non-performance by a third party; failure of the mails; or functions or malfunctions of the internet, firewalls, encryption systems or security devices caused by any of the above.
(f) PNC shall not be under any duty or obligation to inquire into and shall not be liable for the validity or invalidity, authority or lack thereof, or truthfulness or accuracy or lack thereof, of any instruction, direction, notice, instrument or other information which PNC reasonably believes to be genuine. PNC shall not be liable for any damages that are caused by actions or omissions taken by PNC in accordance with Oral Instructions or Written Instructions or advice of counsel. PNC shall not be liable for any damages arising out of any action or omission to act by any prior service provider of the Fund or for any failure to discover any such error or omission.
(g) Neither party nor its affiliates shall be liable for any consequential, incidental, exemplary, punitive, special or indirect damages, whether or not the likelihood of such damages was known by such party or its affiliates.
(h) Each party shall have a duty to mitigate damages for which the other party may become responsible.
(i) This Section 11 shall survive termination of this Agreement.
12. INDEMNIFICATION. Absent PNC's failure to meet its Standard of Care (defined in Section 11 above), the Fund agrees to indemnify, defend and hold harmless PNC and its affiliates
and their respective directors, trustees, officers, agents and employees from all claims, suits, actions, damages, losses, liabilities, obligations, costs and reasonable expenses (including attorneys' fees and court costs, travel costs and other reasonable out-of-pocket costs related to dispute resolution) arising directly or indirectly from any action taken or omitted to be taken by PNC in connection with the provision of services to the Fund. This Section 12 shall survive termination of this Agreement.
13. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. PNC will perform the following accounting services if required with respect to the Fund:
(x) Journalize investment, capital and income and expense activities;
(xi) Record investment buy/sell trade tickets when received from the Investment Adviser;
(xii) Maintain individual ledgers for investment securities;
(xiii) Maintain historical tax lots for each security;
(xiv) Record and reconcile corporate action activity and all other capital changes and notify the Investment Adviser of any unusual reconciling items;
(xv) Reconcile cash and investment balances with the Fund's custodian(s)/prime broker(s), and provide the Investment Adviser with the beginning cash balance available for investment purposes;
(xvi) Determine and report cash availability to the Investment Adviser;
(xvii) Calculate contractual expenses, including management fees and incentive fee, and track the "high water mark" and cumulative loss account (for purposes of the incentive fee allocation) in accordance with the Fund's offering or organizational documents;
(xviii) Prepare (or assist in the preparation of) the Fund's financial statements and supporting schedules, as reasonably agreed to by the parties, for the Fund's annual and semi-annual shareholders reports;
(xix) Provide audit package for independent auditors, which includes work papers and ledgers, to facilitate an efficient audit, as reasonably agreed to by the parties;
(xx) Monitor the expense accruals and notify the Fund of any proposed adjustments;
(xxi) Control all disbursements and authorize such disbursements upon Written Instructions;
(xxii) Calculate capital gains and losses;
(xxiii) Determine net income;
(xxiv) Determine applicable foreign exchange gains and losses on payables and receivables;
(xxv) Obtain security market quotes and currency exchange rates from independent pricing sources approved by the Investment Adviser or the Board, of if such quotes or rates are unavailable, then obtain the same from the Investment Adviser and in either case calculate the market value of the Fund's investments in accordance with the Fund's valuation policies or guidelines; provided, however, that PNC shall not be under a duty to independently price or value any of the Fund's investments itself or to confirm or validate any information or valuation provided by the Investment Adviser or any other pricing source, nor shall PNC have any liability relating to inaccuracies or otherwise with respect to such information or valuations, subject to PNC's adherence to the Standard of Care;
(xxvi) Transmit or make available a copy of the portfolio valuation to the Investment Adviser as agreed upon between the Fund and PNC; and
(xxvii) Arrange for the computation of the net asset value in accordance with the provisions of the Fund's offering documents.
14. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. PNC will perform the following administration services if required with respect to the Fund:
(i) Supply various normal and customary Fund statistical data as requested on an ongoing basis;
(ii) Assist in the preparation and filing of Federal and State tax returns;
(iii) Arrange for the calculation of the issue and repurchase prices of Shares in accordance with the Fund's offering or organizational documents, as applicable;
(iv) Calculate the incentive fee, if applicable, in accordance with the Fund's offering or organizational documents, as applicable;
(v) Coordinate annual audit with independent auditor;
(vi) Copy the Investment Adviser on routine correspondence sent to shareholders;
(vii) Monitor Fund activity for compliance with subchapter M under the Internal Revenue Code;
(viii) Provide such financial information in the possession of PNC for meetings of the Board, as reasonable requested and agreed to by PNC;
(ix) Provide administrative assistance to the Fund with respect to SEC audits and examinations;
(x) File or coordinate the filing of Form N-SAR with the SEC via EDGAR;
(xi) Coordinate with the Fund's counsel the preparation of and coordinate the filing of: annual Post-Effective Amendments to the Fund's Registration Statement (if needed); Form N-Q; Form N-CSR and Form N-PX (provided that the Fund's voting records are delivered to PNC in the format required by PNC and PNC is not responsible for maintaining the Fund's voting records);
(xii) Assist the Fund's counsel and Fund management with the preparation of Schedule TO's with the SEC and coordinate the filings with the Fund's financial printer;
(xiii) Upon request, provide administrative assistance to the Fund with respect to obtaining the fidelity bond and directors' and officers'/errors and omissions insurance policies for the Fund;
(xiv) Draft agendas (with final selection of agenda items being made by Fund counsel) and resolutions for quarterly board meetings;
(xv) Assemble and mail board materials for quarterly board meetings;
(xvi) Attend quarterly board meetings and draft minutes thereof;
(xvii) Maintain the Fund's corporate calendar listing various SEC filing and board approval deadlines;
(xviii) If the chief executive officer or chief financial officer of the Fund is required to provide a certification as part of the Fund's Form N-CSR or Form N-Q filing pursuant to regulations promulgated by the SEC under Section 302 of the Sarbanes-Oxley Act of 2002, PNC will provide (to such person or entity as agreed between the Fund and PNC) a sub-certification in support of certain matters set forth in the aforementioned certification, such sub-certification to be in such form and relating to such matters as agreed between the Fund and PNC from time to time, PNC shall be required to provide the sub-certification only during the terms of this Agreement and only if it receives such cooperation as it may request to perform its investigations with respect to the sub-certification. For clarity, the sub-certification is not itself a certification under the Sarbanes-Oxley Act of 2002 or under any other regulatory requirement;
(xix) Provide compliance policies and procedures related to certain services provided
by PNC and, if mutually agreed, certain PNC affiliates, summary procedures thereof and a periodic certification letter; and
(xx) Perform such additional administrative duties relating to the administration of the Fund upon such terms and conditions and for such fees as may subsequently be agreed upon in writing between the Fund and PNC.
All regulatory services are subject to the review and approval of Fund counsel.
15. DURATION AND TERMINATION. This Agreement shall continue until terminated by the Fund or by PNC on sixty (60) days' prior written notice to the other party by certified mail with confirmed receipt. In the event the Fund gives notice of termination, all expenses associated with movement (or duplication) of records and materials and conversion thereof to a successor service provider (or each successive service provider, if there are more than one), and all trailing expenses incurred by PNC, will be borne by the Fund.
16. NOTICES. All notices and other communications, including Written Instructions but excluding Oral Instructions, shall be in writing or by confirming facsimile sending device. If notice is sent by confirming 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 seven 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 PNC, at 301 Bellevue Parkway, Wilmington, DE 19809, attn: President (or such address as PNC may inform the Fund in writing); (b) if to the Fund, at the address of the Fund; 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.
17. 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.
18. ASSIGNMENT; DELEGATION. Neither party may assign this Agreement
without the prior written consent of the other party; provided, however, that
PNC may assign its rights and delegate its duties hereunder at no additional
cost to the Fund to any majority-owned direct or indirect subsidiary of PNC or
of The PNC Financial Services Group, Inc., provided that (i) PNC gives the Fund
thirty (30) days prior written notice of such delegation, (ii) the delegate
agrees to comply with the relevant provisions of the Federal Securities Laws;
(iii) such delegation does not impair the Fund's receipt of services under this
Agreement in any material respect, and (iv) any such delegation shall not
relieve PNC of its liabilities hereunder. For the avoidance of doubt, nothing
herein shall serve to prohibit or otherwise restrict the ability of PNC to use
third-party vendors in connection with any services provided hereunder.
19. FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be executed in one more counterparts; such execution of counterparts may occur by manual signature, facsimile signature, manual signature transmitted by means of facsimile transmission or manual signature
contained in an imaged document attached to an email transmission; and each such counterpart executed in accordance with the foregoing shall be deemed an original, with all such counterparts together constituting one and the same instrument. The exchange of executed copies of this Agreement or of executed signature pages to this Agreement by facsimile transmission or as an imaged document attached to an email transmission shall constitute effective execution and delivery hereof and may be used for all purposes in lieu of a manually executed copy of this Agreement.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
21. 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. Notwithstanding any provision hereof, the services of PNC are not, nor shall they be construed as constituting, legal advice or the provision of legal services for or on behalf of the Fund or any other person. Neither this Agreement nor the provision of services under this Agreement establishes or is intended to establish an attorney-client relationship between the Fund and PNC.
(b) NON-SOLICITATION. During the term of this Agreement and for one year thereafter, the Fund shall not (with the exceptions noted in the immediately succeeding sentence) knowingly solicit or recruit for employment or hire any of PNC's employees, and the Fund shall cause the Fund's sponsor and the Fund's affiliates to not (with the exceptions noted in the immediately succeeding sentence) knowingly solicit or recruit for employment or hire any of PNC's employees. To "knowingly" solicit, recruit or hire within the meaning of this provision does not include, and therefore does not prohibit, solicitation, recruitment or hiring of a PNC employee by the Fund, the Fund's sponsor or an affiliate of the Fund if the PNC employee was identified by such entity solely as a result of the PNC employee's response to a general advertisement by such entity in a publication of trade or industry interest or other similar general solicitation by such entity.
(c) NO CHANGES THAT MATERIALLY AFFECT OBLIGATIONS. Notwithstanding anything in this Agreement to the contrary, the Fund agrees not to make any modifications to its offering or organizational documents or adopt any policies which would affect materially the obligations or responsibilities of PNC hereunder without the prior written approval of PNC, which approval shall not be unreasonably withheld or delayed. The scope of services to be provided by PNC under this Agreement shall not be increased as a result of new or revised regulatory or other requirements that may become applicable with respect to the Fund, unless the parties hereto expressly agree in writing to any such increase.
(d) 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.
(e) INFORMATION. The Fund will provide such information and documentation as PNC may reasonably request in connection with services provided by PNC to the Fund, including without limitation copies of its organizational documents and Offering Documents, and any supplements, updates or amendments thereto.
(f) GOVERNING LAW. This Agreement shall be deemed to be a contract made in Delaware and governed by Delaware law without regard to principles of conflict of law.
(g) 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.
(h) PARTIES IN INTEREST. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except as may be explicitly stated in this Agreement, (i) this Agreement is not for the benefit of any other person or entity and (ii) there shall be no third party beneficiaries hereof.
(i) NO REPRESENTATIONS OR WARRANTIES. Except as expressly provided in this Agreement, PNC hereby disclaims all representations and warranties, express or implied, made to the Fund or any other person, including, without limitation, any warranties regarding quality, suitability, merchantability, fitness for a particular purpose or otherwise (irrespective of any course of dealing, custom or usage of trade), of any services or any goods provided incidental to services provided under this Agreement. PNC disclaims any warranty of title or non-infringement except as otherwise set forth in this Agreement.
(j) CUSTOMER IDENTIFICATION PROGRAM NOTICE. To help the U.S. government fight the funding of terrorism and money laundering activities, U.S. Federal law requires each financial institution to obtain, verify, and record certain information that identifies each person who initially opens an account with that financial institution on or after October 1, 2003. Certain of PNC's affiliates are financial institutions, and PNC may, as a matter of policy, request (or may have already requested) the Fund's name, address and taxpayer identification number or other government-issued identification number, and, if such party is a natural person, that party's date of birth. PNC may also ask (and may have already asked) for additional identifying information, and PNC may take steps (and may have already taken steps) to verify the authenticity and accuracy of these data elements.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
PNC GLOBAL INVESTMENT SERVICING
(U.S.) INC.
By: ____________________________
Title: _________________________
ACAP STRATEGIC FUND
By: _____________________________
Title: __________________________
APPENDIX A
DEFINITIONS
As used in this Agreement:
(a) "AUTHORIZED PERSON" means any officer of the Fund and any other person duly authorized by the Fund in a manner reasonably satisfactory to PNC to give Oral Instructions or Written Instructions on behalf of the Fund. An Authorized Person's scope of authority may be limited by setting forth such limitation in a written document signed by both parties hereto.
(b) "FEDERAL SECURITIES LAWS" means the 1940 Act, the Investment Advisers Act of 1940, as amended, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Commodities Exchange Act, as amended.
(c) "ORAL INSTRUCTIONS" mean oral instructions received by PNC from an Authorized Person or from a person reasonably believed by PNC to be an Authorized Person. PNC may, in its sole discretion in each separate instance, consider and rely upon instructions it receives from an Authorized Person via electronic mail as Oral Instructions.
(d) "SHARES" mean the shares or units of beneficial interest of any series or class of the Fund.
(e) "WRITTEN INSTRUCTIONS" mean (i) written instructions signed by an Authorized Person (or a person reasonably believed by PNC to be an Authorized Person) and received by PNC or (ii) trade instructions transmitted (and received by PNC) by means of an electronic transaction reporting system access to which requires use of a password or other authorized identifier. The instructions may be delivered electronically (with respect to sub-item (ii) above) or by hand, mail or facsimile sending device.
TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is made as of December 7, 2009 ("EFFECTIVE DATE") by and between ACAP STRATEGIC FUND, a Delaware statutory trust (the "FUND"), and PNC GLOBAL INVESTMENT SERVICING (U.S.) INC., a Massachusetts corporation ("PNC"). Capitalized terms, and certain noncapitalized terms, not otherwise defined shall have the meanings set forth in Appendix A.
BACKGROUND
A. The Fund is registered as a closed-end management investment company under the 1940 Act.
B. The Fund wishes to retain PNC to serve as its transfer agent, registrar, dividend disbursing agent and shareholder servicing agent, and PNC wishes to furnish such services.
TERMS
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree to the statements made in the preceding paragraphs and as follows:
1. APPOINTMENT. The Fund hereby appoints PNC to serve as transfer agent, registrar, dividend disbursing agent and shareholder servicing agent to the Fund in accordance with the terms set forth in this Agreement. PNC accepts such appointment and agrees to furnish such services. PNC shall be under no duty to take any action hereunder on behalf of the Fund except as specifically set forth herein or as may be specifically agreed to by PNC and the Fund in a written amendment hereto. Except as may be specifically provided herein, PNC shall not bear, or otherwise be responsible for, any fees, costs or expenses charged by any third party service providers engaged by the Fund or by any other third party service provider to the Fund, unless such third party service provider is engaged by PNC.
2. COMPLIANCE WITH THE LAWS. Each party agrees to comply with applicable requirements of the Federal Securities Laws, and any other applicable laws, rules and regulations of governmental authorities having jurisdiction with respect to the subject matter herin. Except as specifically provided herein, neither party shall be responsible for such compliance by the other party or any other entity.
3. RECORDS; VISITS. The books and records pertaining to the Fund, which are in the possession or under the control of PNC, shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the 1940 Act and such other applicable Federal Securities Laws. The Fund and its duly authorized officers, employees and agents and the staff of the Securities and Exchange Commission ("SEC") shall have access to such books and records at all times during PNC's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by PNC to the Fund or to an Authorized Person, at the Fund's expense.
4. SERVICES.
(A) TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND SHAREHOLDER
SERVICING:
(1) Services provided on an ongoing basis, if applicable:
(i) Calculate 12b-1 payments;
(ii) Maintain shareholder registrations;
(iii) Review new applications and correspond with shareholders to complete or correct information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify shareholder lists in conjunction with proxy solicitations;
(vi) Countersign share certificates;
(vii) Prepare and mail to shareholders confirmation of activity;
(viii) Provide toll-free lines for direct shareholder use, plus customer liaison staff for on-line inquiry response;
(ix) Mail duplicate confirmations to broker-dealers of their clients' activity, whether executed through the broker-dealer or directly with PNC;
(x) Provide periodic shareholder lists and statistics to the Fund;
(xi) Provide detailed data for underwriter/broker confirmations;
(xii) Prepare periodic mailing of year-end tax and statement information;
(xiii) Notify on a timely basis the investment adviser, accounting agent, and custodian of Share activity;
(xiv) Perform other participating broker-dealer shareholder services as may be agreed upon from time to time;
(xv) Accept and post daily Share purchases and redemptions;
(xvi) Accept, post and perform shareholder transfers and exchanges;
(xvii) Issue and cancel certificates (when requested in writing by the shareholder); and
(xviii) Remediation Services, as required; and
(xviii) Perform certain administrative and ministerial duties relating to opening, maintaining and processing transactions for shareholders or financial intermediaries that trade shares through the NSCC.
(2) PURCHASE OF SHARES. PNC shall issue and credit an account of an investor, in the manner described in the Fund's prospectus, once it receives:
(i) A purchase order in completed proper form;
(ii) Proper information to establish a shareholder account; and
(iii) Confirmation of receipt or crediting of funds for such order to the Fund's custodian.
(3) REDEMPTION OF SHARES. PNC shall process requests to redeem Shares as follows:
(i) All requests to transfer or redeem Shares and payment therefor shall be made in accordance with the Fund's prospectus, when the shareholder tenders Shares in proper form, accompanied by such documents as PNC reasonably may deem necessary.
(ii) PNC reserves the right to refuse to transfer or redeem Shares until it is satisfied that the endorsement on the instructions is valid and genuine and that the requested transfer or redemption is legally authorized, and it shall incur no liability for the refusal, in good faith, to process transfers or redemptions which PNC, in its good judgment, deems improper or unauthorized, or until it is reasonably satisfied that there is no basis to any claims adverse to such transfer or redemption.
(iii) When Shares are redeemed, PNC shall deliver to the Fund's custodian (the "Custodian") and the Fund or its designee a notification setting forth the number of Shares redeemed. Such redeemed Shares shall be reflected on appropriate accounts maintained by PNC reflecting outstanding Shares of the Fund and Shares attributed to individual accounts.
(iv) PNC shall, upon receipt of the monies provided to it by the Custodian for the redemption of Shares, pay such monies as are received from the Custodian, all in accordance with the procedures established from time to time between PNC and the Fund.
(v) When a broker-dealer notifies PNC of a redemption desired by a customer, and the Custodian provides PNC with funds, PNC shall prepare and send the redemption check to the broker-dealer and made payable to the broker-dealer on behalf of its customer, unless otherwise instructed in writing by the broker-dealer.
(vi) PNC shall not process or effect any redemption requests with respect to Shares of the Fund after receipt by PNC or its agent of notification of the suspension of the determination of the net asset value of the Fund.
(4) DIVIDENDS AND DISTRIBUTIONS. Upon receipt by PNC of Written Instructions
containing all requisite information that may be reasonably requested by PNC,
including payment directions and authorization, PNC shall issue Shares in
payment of the dividend or distribution, or, upon shareholder election, pay such
dividend or distribution in cash, if provided for in the Fund's prospectus. If
requested by PNC, the Fund shall furnish a certified resolution of the Fund's
Board of Directors declaring and authorizing the payment of a dividend or other
distribution but PNC shall have no duty to request such. Issuance of Shares or
payment of a dividend or distribution as provided for in this Section 3(a)(4),
as well as payments upon redemption as described in sub-Section 3(a)(3), shall
be made after deduction and payment of any and all amounts required to be
withheld in accordance with any applicable tax laws or other laws, rules or
regulations. PNC shall (i) mail to the Fund's shareholders such tax forms and
other information, or permissible substitute notice, relating to dividends and
distributions paid by the Fund as are required to be filed and mailed by
applicable law, rule or regulation; and (ii) prepare, maintain and file with the
IRS and other appropriate taxing authorities reports relating to all dividends
by the Fund paid to its shareholders (above threshold amounts stipulated by
applicable law) as required by tax or other laws, rules or regulations;
PROVIDED, HOWEVER, notwithstanding the foregoing and notwithstanding any other
provision of this Section 3(a)(4) or this Agreement: (A) PNC's exclusive
obligations with respect to any written statement that Section 19(a) of the 1940
Act may require to be issued with respect to the Fund shall be, upon receipt of
specific Written Instructions to such effect, to receive from the Fund the
information which is to be printed on the statement, to print such information
on appropriate paper stock and to mail such statement to shareholders, and (B)
PNC's sole obligation with respect to any dividend or distribution that Section
19(a) of the 1940 Act may require be accompanied by such a written statement
shall be to act strictly in accordance with the first three sentences of this
Section 3(a)(4).
(5) SHAREHOLDER ACCOUNT SERVICES. PNC may arrange, in accordance with the prospectus:
(i) for issuance of Shares obtained through:
(A) Any pre-authorized check plan; and
(B) Direct purchases through broker wire orders, checks and applications.
(ii) for a shareholder's:
(A) Exchange of Shares for shares of another fund with which the Fund has exchange privileges;
(B) Automatic redemption from an account where that shareholder participates in an automatic redemption plan; and/or
(C) Redemption of Shares from an account with a checkwriting privilege.
(6) COMMUNICATIONS TO SHAREHOLDERS. Subject to receipt by PNC of timely Written Instructions where appropriate, PNC shall mail all communications by the Fund to its shareholders, including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of Fund shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices; and
(v) Tax form information.
(7) RECORDS. PNC shall maintain records of the accounts for each shareholder showing the following information:
(i) Name, address and United States Tax Identification or Social Security number;
(ii) Number and class of Shares held and number and class of Shares for which certificates, if any, have been issued, including certificate numbers and denominations;
(iii) Historical information regarding the account of each shareholder, including dividends and distributions paid and the date and price for all transactions on a shareholder's account;
(iv) Any stop or restraining order placed against a shareholder's account;
(v) Any correspondence relating to the current maintenance of a shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for PNC to perform any calculations required by this Agreement.
(8) LOST OR STOLEN CERTIFICATES. PNC shall place a stop notice against any certificate reported to be lost or stolen and comply with all applicable federal regulatory requirements for reporting such loss or alleged misappropriation. A new certificate shall be registered and issued only upon:
(i) The shareholder's pledge of a lost instrument bond or such other appropriate
indemnity bond issued by a surety company approved by PNC; and
(ii) Completion of a release and indemnification agreement signed by the shareholder to protect PNC and its affiliates.
(9) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any Fund shareholder to inspect stock records, PNC will notify the Fund and the Fund will issue instructions granting or denying each such request. Unless PNC has acted contrary to the Fund's instructions, the Fund agrees to and does hereby release PNC from any liability for refusal of permission for a particular shareholder to inspect the Fund's stock records.
(10) WITHDRAWAL OF SHARES AND CANCELLATION OF CERTIFICATES. Upon receipt of Written Instructions, PNC shall cancel outstanding certificates surrendered by the Fund to reduce the total amount of outstanding shares by the number of shares surrendered by the Fund.
(11) LOST SHAREHOLDERS.
(A) PNC shall perform such services as are required in order to comply with Rule 17Ad-17 of the 1934 Act (the "Lost Shareholder Rule"), including, but not limited to, those set forth below. PNC may, in its sole discretion, use the services of a third party to perform some of or all such services.
(i) documentation of search policies and procedures;
(ii) execution of required searches;
(iii) tracking results and maintaining data sufficient to comply with the Lost Shareholder Rule; and
(iv) preparation and submission of data required under the Lost Shareholder Rule.
(B) For purposes of clarification: (i) Section 3(a)(11)(A) does not obligate PNC to perform the services described therein for broker-controlled accounts, omnibus accounts and similar accounts with respect to which PNC does not receive or maintain information which would permit it to determine whether the account owner is a "lost securityholder", as that term is defined in the Lost Shareholder Rule; and (ii) Section 3(a)(11)(A) does not obligate PNC to perform any escheat services for any accounts - all escheat responsibilities will remain with each Fund.
(12) TAX FAVORED ACCOUNTS.
(A) Certain definitions:
(i) "Eligible Assets" means shares of the Fund and such other assets as the Fund and PNC may mutually agree.
(ii) "Participant" means a natural person who establishes and is the beneficial owner of a Tax Favored Account.
(iii) "Tax Favored Account" means (i) a Traditional, SEP, Roth, or SIMPLE individual retirement account, (ii) an account in a money purchase or profit sharing plan, (iii) a single participant "k" plan account, or (iv) a Coverdell educational savings accounts, all within the meaning of Sections 408, 401, or 530 of the Code, which is facilitated or sponsored by the Fund or affiliates of the Fund and with respect to which the contributions of Participants are invested solely in Eligible Assets.
(B) To the extent requested by the Fund, PNC shall provide the following administrative services to Tax Favored Accounts, to the extent a particular administrative service is appropriate to the Tax Favored Account under the Code:
(i) Establish a record of types and reasons for distributions (i.e., attainment of age 59-1/2, disability, death, return of excess contributions, etc.);
(ii) Record method of distribution requested and/or made;
(iii) Receive and process designation of beneficiary forms requests;
(iv) Examine and process requests for direct transfers between custodians/trustees; transfer and pay over to the successor assets in the account and records pertaining thereto as requested;
(v) Prepare any annual reports or returns required to be prepared and/or filed by a custodian of Tax Favored Accounts, including, but not limited to, an annual fair market value report, Forms 1099R and 5498; and file same with the Internal Revenue Service and provide same to the Participant or Participant's beneficiary, as applicable; and
(vi) Perform applicable federal withholding and send to the Participant or Participant's beneficiary, as applicable, an annual TEFRA notice regarding required federal tax withholding.
(C) To the extent requested by the Fund with respect to particular Tax Favored Accounts: PNC shall provide disclosure documents, custodial agreements, account agreements and forms appropriate for the establishment and administration of the Tax Favored Accounts and PNC shall maintain such materials in compliance with applicable provisions of the Code and the regulations promulgated thereunder.
(D) PNC shall, at the request of the Fund, arrange for PFPC Trust to serve as custodian for the Tax Favored Accounts (a "Custodied Account"). In consideration for such service, the Fund agrees:
(i) it will provide sixty (60) days advance written notice to PNC or PFPC Trust and Participants in connection with a Fund liquidation or any other event or circumstance or act or course of conduct involving the Fund that would result in an involuntary liquidation of Fund Shares in a Custodied Account or in any other modification to the rights or obligations of a Participant or the terms or provisions of a Custodied Account and reimburse PNC and PFPC for all reasonable costs, including costs of tax counsel, incurred in determining appropriate responses under the Code and under agreements with Participants;
(ii) PFPC Trust may provide materials and communications related to its role as custodian of the Custodied Accounts to Participants and the Fund will coordinate joint mailings of such materials and communications with Fund materials as PNC or PFPC Trust may reasonably requested; and
(iii) it will, at its cost and expense, at the request of PNC, (aa) appoint and provide for a qualified successor custodian for all Custodied Accounts in the event it terminates this Agreement or if any other event or circumstance, other than those caused by a breach by PNC of this Agreement or its Standard of Care, constitutes commercially reasonable cause for PFPC Trust to resign as custodian of the Custodied Accounts or seek appointment of a successor custodian, and (bb) provide for any interim custodial or transfer arrangements made appropriate by any of the circumstances governed by clause (aa).
(E) In consideration for PNC or PFPC Trust furnishing any one or more of the services provided for in this Section 3(a)(12), whether alone or in combination with others, the Fund shall pay to PNC the related Fees and Reimbursable Expenses as set forth in the Fee Agreement. The Fund may direct PNC to collect such Fees and Reimbursable Expenses from the assets in relevant Tax Favored Accounts upon appropriate disclosure to Participants, but shall remain responsible for such Fees and Reimbursable Expenses to the extent it does not so direct PNC or such amounts are not collectable from Participants.
(13) PRINT MAIL. The Fund hereby engages PNC as its exclusive print/mail service provider with respect to those items and for such fees as may be agreed to from time to time in writing by the Fund and PNC.
(14) PROXY ADVANTAGE. The Fund hereby engages PNC as its exclusive proxy solicitation service provider with respect to those items and for such fees as may be agreed to from time to time in writing by the Fund and PNC.
(B) ANTI-MONEY LAUNDERING PROGRAM SERVICES.
(1) ANTI-MONEY LAUNDERING.
(A) To the extent the other provisions of this Agreement require PNC to establish, maintain and monitor accounts of investors in the Fund consistent with the Securities
Laws, PNC shall perform reasonable actions necessary to assist the Fund in
complying with Section 352 of the USA PATRIOT Act, as follows: PNC shall:
(a) establish and implement written internal policies, procedures and
controls reasonably designed to help prevent the Fund from being used to
launder money or finance terrorist activities; (b) provide for independent
testing, by an employee who is not responsible for the operation of PNC's
anti-money laundering ("AML") program or by an outside party, for
compliance with PNC's written AML policies and procedures; (c) designate a
person or persons responsible for implementing and monitoring the operation
and internal controls of PNC's AML program; and (d) provide ongoing
training of PNC personnel relating to the prevention of money-laundering
activities.
(B) Upon the reasonable request of the Fund, PNC shall provide to the Fund: (x) a copy of PNC's written AML policies and procedures; (y) at the option of PNC, a copy of a written assessment or report prepared by the party performing the independent testing for compliance, or a summary thereof, or a certification that the findings of the independent party are satisfactory; and (z) a summary of the AML training provided for appropriate PNC personnel.
(C) Without limiting or expanding subsections (A) or (B) above, the parties agree this Section 3(b)(1) relates solely to Fund compliance with Section 352 of the USA PATRIOT Act and does not relate to any other obligation the Fund may have under the USA PATRIOT Act, including without limitation Section 326 thereof.
(2) FOREIGN ACCOUNT DUE DILIGENCE.
(A) To assist the Fund in complying with requirements regarding a due diligence program for "foreign financial institution" accounts in accordance with applicable regulations promulgated by U.S. Department of Treasury under Section 312 of the USA PATRIOT Act ("FFI Regulations"), PNC will do the following:
(i) Implement and operate a due diligence program that includes appropriate, specific, risk-based policies, procedures and controls that are reasonably designed to enable the Fund to detect and report, on an ongoing basis, any known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered or managed by the Fund for a "foreign financial institution" (as defined in 31 CFR 103.175(h))("Foreign Financial Institution");
(ii) Conduct due diligence to identify and detect any Foreign Financial Institution accounts in connection with new accounts and account maintenance;
(iii) Assess the money laundering risk presented by each such Foreign Financial Institution account, based on a consideration of all appropriate relevant factors (as generally outlined in 31 CFR 103.176), and assign a risk category to each such Foreign Financial Institution account;
(iv) Apply risk-based procedures and controls to each such Foreign Financial Institution account reasonably designed to detect and report known or suspected money laundering activity, including a periodic review of the Foreign Financial Institution account activity sufficient to determine consistency with information obtained about the type, purpose and anticipated activity of the account;
(v) Include procedures to be followed in circumstances in which the appropriate due diligence cannot be performed with respect to a Foreign Financial Institution account;
(vi) Adopt and operate enhanced due diligence policies for certain Foreign Financial Institution accounts in compliance with 31 CFR 103.176(b);
(vii) Record due diligence program and maintain due diligence records relating to Foreign Financial Institution accounts; and
(viii) Report to the Fund about measures taken under (i)-(vii) above.
(B) Nothing in Section 3(b)(2) shall be construed to require PNC to perform any course of conduct that is not required for Fund compliance with the FFI Regulations.
(C) Without limiting or expanding subsections (A) or (B) above, the parties agree this Section 3(b)(2) relates solely to Fund compliance with Section 312 of the USA PATRIOT Act and does not relate to any other obligation the Fund may have under the USA PATRIOT Act, including without limitation Section 326 thereof.
(3) CUSTOMER IDENTIFICATION PROGRAM.
(A) To assist the Fund in complying with requirements regarding a customer identification program in accordance with applicable regulations promulgated by U.S. Department of Treasury under Section 326 of the USA PATRIOT Act ("CIP Regulations"), PNC will do the following:
(i) Implement procedures which require that prior to establishing a new account in the Fund PNC obtain the name, date of birth (for natural persons only), address and government-issued identification number (collectively, the "Data Elements") for the "Customer" (defined for purposes of this Agreement as provided in 31 CFR 103.131) associated with the new account.
(ii) Use collected Data Elements to attempt to reasonably verify the identity of each new Customer promptly before or after each corresponding new account is opened. Methods of verification may consist of non-documentary methods (for which PNC may use unaffiliated information vendors to assist with such verifications) and documentary methods (as permitted by 31 CFR 103.131), and may include procedures under which PNC personnel perform enhanced due
diligence to verify the identities of Customers the identities of whom were not successfully verified through the first-level (which will typically be reliance on results obtained from an information vendor) verification process(es).
(iii) Record the Data Elements and maintain records relating to verification of new Customers consistent with 31 CFR 103.131(b)(3).
(iv) Regularly report to the Fund about measures taken under (a)-(c) above.
(v) If PNC provides services by which prospective Customers may subscribe for shares in the Fund via the Internet or telephone, work with the Fund to notify prospective Customers, consistent with 31 CFR 103.131(b)(5), about the program conducted by the Fund in accordance with the CIP Regulations.
(B) Nothing in Section 3(b)(3) shall be construed to require PNC to perform any course of conduct that is not required for Fund compliance with the CIP Regulations, including by way of illustration not limitation the collection of Data Elements or verification of identity for individuals opening Fund accounts through financial intermediaries which use the facilities of the National Securities Clearing Corporation.
(4) FINCEN REQUESTS UNDER USA PATRIOT ACT SECTION 314(A). The Fund hereby engages PNC to provide certain services as set forth in this subsection (b) with respect to FinCEN Section 314(a) information requests ("Information Requests") received by the Fund. Upon receipt by PNC of an Information Request delivered by the Fund in full compliance with all 314(a) Procedures (as defined below), PNC will compare appropriate information contained in the Information Request against relevant information contained in account records maintained for the Fund. Information relating to potential matches resulting from these comparisons, after review by PNC for quality assurance purposes ("Comparison Results"), will be made available to the Fund in a timely manner. The Fund will retain responsibility for filing reports with FinCEN that may be appropriate based on the Comparison Results. In addition, (i) a potential match involving a tax identification number will be forwarded by PNC to PNC's SAR Service for analysis in conjunction with other relevant activity contained in records for the particular relevant account, and (ii) if, after such analysis, PNC's SAR Service determines that the potential match could constitute a "suspicious activity", as that term is used for purposes of the USA Patriot Act, then PNC's SAR Service will deliver a suspicious activity referral to the Fund. "314(a) Procedures" means the procedures adopted from time to time by PNC governing the delivery and processing of Information Requests transmitted by PNC's clients to PNC, including without limitation requirements governing the timeliness, content, completeness, format and mode of transmissions to PNC.
(5) U.S. GOVERNMENT LIST MATCHING SERVICES.
(A) PNC will compare Appropriate List Matching Data (as defined in subsection (C) below) contained in PNC databases which are maintained for the Fund pursuant to this Agreement ("Fund Data") to "U.S. Government Lists", which is hereby defined to mean the following:
(i) data promulgated in connection with the list of Specially Designated Nationals published by the Office of Foreign Asset Control of the U.S. Department of the Treasury ("OFAC") and any other sanctions lists or programs administered by OFAC to the extent such lists or programs remain operative and applicable to the Fund ("OFAC Lists");
(ii) data promulgated in connection with the list of Non-Cooperative Countries and Territories ("NCCT List") published by the Financial Action Task Force;
(iii) data promulgated in connection with determinations by the Director (the "Director") of the Financial Crimes Enforcement Network of the U.S. Department of the Treasury that a foreign jurisdiction, institution, class of transactions, type of account or other matter is a primary money laundering concern ("PMLC Determination"); and
(iv) data promulgated in connection with any other lists, programs or determinations (A) which PNC determines to be substantially similar in purpose to any of the foregoing lists, programs or determinations, or (B) which PNC and the Fund agree in writing to add to the service described in this subsection (a).
(B) In the event that following a comparison of Fund Data to a U.S. Government List as described in subsection (a) PNC determines that any Fund Data constitutes a "match" with the U.S. Government List in accordance with the criteria applicable to the particular U.S. Government List, PNC:
(i) will notify the Fund of such match;
(i) will send any other notifications required by applicable law or regulation by virtue of the match;
(iii) if a match to an OFAC List, will to the extent required by applicable law or regulation assist the Fund in taking appropriate steps to block any transactions or attempted transactions to the extent such action may be required by applicable law or regulation;
(iv) if a match to the NCCT List or a PMLC Determination, will to the extent required by applicable law or regulation conduct a suspicious activity review of accounts related to the match and if suspicious activity is detected will deliver a suspicious activity referral to the Fund;
(v) if a match to a PMLC Determination, will assist the Fund in taking the appropriate special measures imposed by the Director; and
(vi) will assist the Fund in taking any other appropriate actions required by applicable law or regulation.
(C) "Appropriate List Matching Data" means (A) account registration and alternate payee data, to the extent made appropriate by statutes, rules or regulations governing the U.S. Government Lists, (ii) data determined by PNC in good faith in light of statutes, rules or regulations governing the U.S. Government Lists to be necessary to provide the services described in this Section 3(b)(5), and (iii) data the parties agree in writing to be necessary to provide the services described in this Section 3(b)(5).
(6) PNC agrees to permit governmental authorities with jurisdiction over the Fund to conduct examinations of the operations and records relating to the services performed by PNC under this Section 3(b) upon reasonable advance request and during normal business hours and to furnish copies at the Fund's cost and expense of information reasonably requested by the Fund or such authorities and relevant to the services.
(7) For purposes of clarification: All Written Procedures relating to the services performed by PNC pursuant to this Section 3(b) and any information, written matters or other recorded materials relating to such services and maintained by PNC shall constitute Confidential Information of PNC, except to the extent, if any, such materials constitute Fund records under the Securities Laws.
(8) This Section 3(b) shall not be construed to impose on PNC any obligation other than to engage in the specific course of conduct specified by the provisions therein, and in particular shall not be construed to impose any other obligation on PNC to design, develop, implement, administer, or otherwise manage compliance activities of the Fund.
(C) RED FLAGS SERVICES. In the event the Fund elects to receive the Red Flags Services, the provisions of Appendix B, which is hereby incorporated by reference into this Agreement as if fully set forth herein, shall apply.
5. CONFIDENTIALITY.
(a) Each party shall keep the Confidential Information (as defined in subsection (b) below) of the other party in confidence and will not use or disclose or allow access to such Confidential Information except in connection with the activities contemplated by this Agreement or as otherwise expressly agreed in writing. Each party acknowledges that the Confidential Information of the disclosing party will remain the sole property of such party. In complying with the first sentence of this subsection (a), each party will use the same degree of care it uses to protect its own confidential information, but in no event less than a reasonable degree of care.
(b) Subject to subsections (c) and (d) below, "Confidential Information" means this Agreement and its contents, all compensation agreements, arrangements and understandings (including waivers) respecting this Agreement, disputes pertaining to the Agreement, and information and data exchanged between the parties in connection with this Agreement, including but not limited to (A) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, studies, plans, reports,
surveys, summaries, documentation and analyses, regardless of form, information about product plans, marketing strategies, finances, operations, customer relationships, customer profiles, customer lists, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of the Company or PNC, their respective subsidiaries and Affiliates and the customers, clients and suppliers of any of them; (B) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords the Company or PNC a competitive advantage over its competitors and the investors, customers, clients, service providers and suppliers of any of them; (C) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know how, and trade secrets, whether or not patentable or copyrightable; and (D) anything designated as confidential.
(c) Information or data that would otherwise constitute Confidential Information under subsection (b) above shall not constitute Confidential Information to the extent it:
(i) is already known to the receiving party at the time it is obtained;
(ii) is or becomes publicly known or available through no wrongful act of the
receiving party; (iii) is rightfully received from a third party who, to
the receiving party's knowledge, is not under a duty of confidentiality;
(iv) is released by the protected party to a third party without
restriction; or (v) has been or is independently developed or obtained by
the receiving party without reference to the Confidential Information
provided by the protected party.
(d) Confidential Information of a disclosing party may be used or disclosed by the receiving party in the circumstances set forth below but except for such permitted use or disclosure shall remain Confidential Information subject to all applicable terms of this Agreement:
(i) as appropriate in connection with activities contemplated by this Agreement;
(ii) as required pursuant to a court order, subpoena, governmental or regulatory or self-regulatory authority or agency, law, regulation, or binding discovery request in pending litigation (provided the receiving party will provide the other party written notice of such requirement, to the extent such notice is permitted, and subject to proper jurisdiction, if applicable);
(iii) as requested by a governmental, regulatory or self-regulatory authority or agency or independent third party in connection with an inquiry, examination, audit or other review; or
(iv) the information or data is relevant and material to any claim or cause of action between the parties or the defense of any claim or cause of action asserted against the receiving party.
(e) Each party agrees not to publicly disseminate Confidential Information or information about a either party's exercise of rights hereunder, performance of obligations hereunder or other conduct of a party in connection with the Agreement.
(f) The provisions of this Section 4 shall survive termination of this Agreement for a period of three (3) years after such termination.
5. PRIVACY. Each party hereto acknowledges and agrees that, subject to the reuse and re-disclosure provisions of Regulation S-P, 17 CFR Part 248.11, it shall not disclose the non-public personal information of investors in the Fund obtained under this Agreement, except as necessary to carry out the services set forth in this Agreement or as otherwise permitted by law or regulation.
6. COOPERATION WITH ACCOUNTANTS. PNC shall cooperate with the Fund's independent public accountants and shall take all reasonable actions in the performance of its obligations under this Agreement to ensure that any reasonably requested or necessary information is made available to such accountants for the expression of their opinion, as required by the Fund.
7. PNC SYSTEM. PNC shall retain title to and ownership of any and all data bases, computer programs, screen formats, report formats, interactive design techniques, derivative works, inventions, discoveries, patentable or copyrightable matters, concepts, expertise, patents, copyrights, trade secrets, and other related legal rights utilized by PNC in connection with the services provided by PNC to the Fund. Notwithstanding the foregoing, the parties acknowledge the Fund shall retain all ownership rights in Fund data which resides on the PNC System.
8. DISASTER RECOVERY. PNC shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for emergency use of electronic data processing equipment to the extent appropriate equipment is available. In the event of equipment failures, PNC shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions. PNC 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 PNC's own intentional misconduct, bad faith or gross negligence in the performance of its duties under this Agreement.
9. FEES AND EXPENSES.
(a) As compensation for services rendered by PNC during the term of this Agreement, the Fund will pay to PNC such fees and charges (the "Fees") as may be agreed to from time to time in writing by the Fund and PNC in a fee letter that by its terms relates to this Agreement (the "Fee Agreement"). In addition, the Fund agrees to pay, and will be billed separately in arrears for, reasonable expenses incurred by PNC in the performance of its duties hereunder ("Reimbursable Expenses").
(b) In connection with cash management accounts that PNC may establish in its own name for the benefit of the Funds at third party institutions, including without limitation institutions that may be an affiliate or client of PNC (a "Third Party Institution") for the purpose of administering
the funds received by PNC in the course of performing its services hereunder ("Service Accounts"), the Funds acknowledge that PNC may receive (i) investment earnings from sweeping certain funds in such Service Accounts into investment accounts at Third Party Institutions; and (ii) balance credits with respect to the funds in the Service Accounts not swept as described in clause (i). On a monthly basis, PNC will offset banking service fees imposed on the Service Accounts by the Third Party Institutions (which are passed to the Fund) with balance credits calculated on average balances held in the Service Accounts without reduction for amounts swept as described in clause (i). PNC may retain for its own account the investment earnings and balance credits received from Third Party Institutions with respect to the Service Accounts. PNC may in its discretion use the services of Third Party Institutions in connection with the issuance of redemption and distribution checks and may retain any benefits resulting from such arrangements, including any commission or return on float paid to it for balances transferred from the Service Accounts to the Third Party Institutions.
(c) The undersigned hereby represents and warrants to PNC that (i) the terms of this Agreement, (ii) the fees and expenses associated with this Agreement, and (iii) any benefits accruing to PNC or to the adviser or sponsor to the Fund in connection with this Agreement, including but not limited to any fee waivers, conversion cost reimbursements, up front payments, signing payments or periodic payments made or to be made by PNC to such adviser or sponsor or any affiliate of the Fund relating to the Agreement have been fully disclosed to the Board of Directors of the Fund and that, if required by applicable law, such Board of Directors has approved or will approve the terms of this Agreement, any such fees and expenses, and any such benefits.
(d) No termination of this Agreement shall cause, and no provision of this Agreement shall be interpreted in any manner that would cause, PNC's right to receive payment of its fees and charges for services actually performed hereunder, and Fund's obligation to pay such fees and charges, to be barred, limited, abridged, conditioned, reduced, abrogated, or subject to a cap or other limitation or exclusion of any nature.
(e) To the extent that any service or course of conduct of PNC or PFPC Trust provided hereunder is configured or performed as it is in whole or in part due to the dictates of Shareholder Materials, standards imposed by clearing corporations or other industry-wide service bureaus or organizations, Fund policies or laws, rules or regulations in effect on the Effective Date and due to new or amended provisions of any of the foregoing after the Effective Date PNC or PFPC Trust develops, implements or provides significantly modified, different, or new processes, procedures, resources or functionalities to perform such service or course of conduct or to perform a related new service or course of conduct, PNC shall be entitled to fees appropriate for such processes, procedures, resources or functionalities or as otherwise mutually agreed by the parties.
(f) While the Fee Agreement sets forth the Fees and certain of the expenses constituting Reimbursable Expenses, PNC's rights hereunder to receive compensation and the reimbursement of expenses from the Fund for services or a course of conduct performed in accordance with the Agreement shall not be diminished to any degree solely due to such fees and reimbursable expenses not being expressly set forth in the Fee Agreement, including by way of illustration and
not limitation fees and reimbursable expenses arising from a service or a course of conduct performed pursuant to Instructions and other Fund Communications, in connection with a Response Failure, and responding to Fund Error.
10. INSTRUCTIONS.
(a) Unless the terms of this Agreement or PNC's Written Procedures expressly provide, in the reasonable discretion of PNC, all requisite details and directions for it to take a specific course of conduct, PNC may, prior to engaging in a course of conduct on a particular matter, require the Fund to provide it with Oral Instructions or Written Instructions with respect to the matter.
(b) Whether received from the Fund in response to a request described in
Section 10(a) or otherwise, PNC shall be obligated to act only on "Standard
Instructions", which is hereby defined to mean (i) Instructions it receives
which direct a course of conduct substantially similar in all material respects
to a course of conduct provided for in PNC's Written Procedures, or (ii) if
PNC's Written Procedures provide for a particular form of instructions to be
used in connection with a matter ("Form"), Instructions it receives on the Form
or conforming in all material respects to the Form in the PNC's sole judgment.
(c) PNC may in its sole discretion decline to follow any course of conduct contained in an Instruction that is not a Standard Instruction (such course of conduct being a "Non-Standard Instruction") for a bona fide legal, commercial or business reason ("Bona Fide Reason"), including by way of example and not limitation the following: (i) the course of conduct is not consistent or compliant with, is in conflict with, or requires a deviation from an Industry Standard, (ii) the course of conduct is not reasonably necessary or appropriate to or consistent with the services contemplated by this Agreement, (iii) the course of conduct requires a deviation from PNC's Written Procedures, (iv) the course of conduct is in conflict or inconsistent with or violates a law, rule, regulation, or order or legal process of any nature, (v) the course of conduct is in conflict or inconsistent with or will violate a provision of this Agreement, or (vi) the course of conduct imposes on PNC a risk, liability or obligation not contemplated by this Agreement, including without limitation sanction or criticism of a governmental, regulatory or self-regulatory authority, civil or criminal action, a loss or downgrading of membership, participation or access rights or privileges in or to organizations providing common services to the financial services industry, out-of-pocket costs and expenses the Fund does not agree to reimburse, requires performance of a course of conduct customarily performed pursuant to a separate service or fee agreement, requires a material increase in required resources, or is reasonably likely to result in a diversion of resources, disruption in established work flows, course of operations or implementation of controls, or (vii) PNC lacks sufficient information, analysis or legal advice to determine that the conditions in clauses (iv) and (vi) do not exist.
(d) Notwithstanding the right reserved to PNC by subsection (c) above:
(i) PNC may in good faith consider implementing a Non-Standard Instruction if the Fund agrees in a prior written authorization to reimburse PNC for: the costs and expenses incurred in consulting with and obtaining the opinions of other work product of technical
specialists, legal counsel or other third party advisors, consultants or professionals reasonably considered by PNC to be appropriate to fully research, develop and implement the policies, procedures, operational structure and controls required to perform the Non-Standard Instruction ("External Research"), the costs and expenses associated with utilizing or expanding internal resources to research, develop and implement the policies, procedures, operational structure and controls required to perform the Non-Standard Instruction ("Internal Research"), and the fees and charges reasonably established by PNC for performing the Non-Standard Instruction following its implementation. The Fund may, in place of agreeing to reimburse PNC for the costs of Research, agree in such written authorization to provide PNC at the Fund's cost and expense with all Research reasonably requested by PNC.
(ii) Following receipt of all requested Research, PNC may, in its sole discretion, as an accommodation and not pursuant to any obligation, agree to follow a Non-Standard Instruction if it subsequently receives a Written Instruction containing terms satisfactory to it in its sole discretion, including without limitation terms constituting additional agreements with respect to fees, charges, and expenses, terms constituting appropriate warranties, representations and covenants, and terms specifying with reasonable particularity the course of conduct constituting the Non-Standard Instruction.
(iii) PNC reserves the right following receipt of all External Research and Internal Research and notwithstanding such receipt to continue to decline to perform the Non-Standard Instruction for a Bona Fide Reason.
(e) PNC will also not be obligated to act on any Instruction with respect to which it has reasonable uncertainty about the meaning of the Instruction or which appears to conflict with another Instruction. PNC will advise the Fund if it has uncertainty about the meaning of an Instruction or if it appears to conflict with another Instruction, but PNC will have no liability for any delay between issuance of the initial Instruction and its receipt of a clarifying Instruction.
(f) In addition to any other provision of this Agreement that may be applicable to a particular Instruction, PNC may include in a form of instruction constituting a Standard Instruction, in addition to appropriate functional terms and provisions, indemnification terms that are substantially similar in all material respects to indemnification terms of this Agreement and representations and covenants that PNC reasonably believes to be appropriate due to risks, liabilities or obligations incurred by on it by virtue of acting in an agency capacity for the Fund or imposed on it by law, regulation, or governmental, regulatory or self-regulatory authority by virtue of its agency conduct. In addition, PNC may require third parties who purport to be authorized, or who the Fund indicates has been authorized, to act on behalf of or for the benefit of the Fund in connection with this Agreement to execute an instrument containing indemnification terms, representations and covenants as PNC may reasonably require prior to accepting the authority of the persons to so act or prior to engaging in a course of conduct with them.
(g) PNC shall not be under any duty or obligation to inquire into and shall not be liable for the validity or invalidity, authority or lack thereof, truthfulness or accuracy or lack thereof, or
genuineness or lack thereof of any Instruction, direction, notice, instrument or other information or communication from the Fund which PNC reasonably believes to have been given by the Fund ("Fund Communication"). PNC shall have no liability for engaging in a course of conduct in accordance with any of the foregoing provided it otherwise acts in compliance with the Agreement. PNC shall be entitled to rely upon any Instruction it receives from an Authorized Person or from a person PNC reasonably believes to be an Authorized Person relating to this Agreement. PNC may assume that any Instruction received hereunder is not in any way inconsistent with the provisions of organizational documents of the Fund or this Agreement or of any vote, resolution or proceeding of the Fund's Board of Directors or of the Fund's shareholders.
(h) PNC may, in its discretion, decline to accept Oral Instructions with respect to a particular matter under this Agreement and may require Written Instructions before engaging in a course of conduct with respect to a particular matter under this Agreement. In the event PNC accepts Oral Instructions, the Fund agrees as a condition to PNC's acceptance of the Oral Instructions, to deliver to PNC, for receipt by 5:00 PM (Eastern Time) on the same business day as the day the Oral Instructions were given, Written Instructions which confirm the Oral Instructions. In the event Written Instructions confirming Oral Instructions are received late, are never received, or fail to contain terms which confirm the Oral Instructions in all material respects: (i) the validity, authorization and enforceability of the Oral Instructions, all actions, transactions, and conduct occurring as a result of the Oral Instructions, and PNC's ability to rely on the Oral Instructions shall not be abridged, abrogated, nullified or adversely impacted in any manner; and (ii) PNC's memorialization of the Oral Instructions shall be conclusively presumed to be the controlling Written Instructions in the event confirming Written Instructions are never received or are received but fail to confirm the Oral Instructions in all material respects.
(i) In the event facts, circumstances, or conditions exist or events occur, other than due to a breach by PNC of its Standard of Care, including without limitation situations contemplated by Section 2(e), and PNC reasonably determines that it must take a course of conduct in response to such situation and must receive an Instruction from the Fund to direct its conduct, and PNC so notifies the Fund, and the Fund fails to furnish adequate Instructions or unreasonably delays furnishing adequate Instructions ("Response Failure"):
(i) PNC will first endeavor to utilize internal resources to determine the appropriate course of conduct in response to the situation but will be entitled, at the Fund's sole cost and expense, to consult with legal counsel or other third parties reasonably determined by PNC to be appropriate to determine the appropriate course of conduct and the Fund will reimburse PNC for out-of-pocket expenses so incurred upon being invoiced for same; and
(ii) PNC may implement a course of conduct on behalf of the Fund and PNC will have all rights hereunder with respect to such course of conduct as if such course of conduct was taken pursuant to and contained in Written Instructions. The Fund will pay PNC all fees reasonably charged by PNC, if any, for engaging in the particular course of conduct and reimburse PNC for all reasonably related out-of-pocket expenses incurred upon being invoiced for same.
11. STANDARD OF CARE/LIMITATION OF LIABILITY.
(a) PNC shall be obligated to exercise care and diligence in the performance of its duties hereunder and to act in good faith in performing services provided for under this Agreement. PNC and its affiliates shall be liable to the Fund (or any person or entity claiming through the Fund) for Loss the recovery of which is not otherwise excluded by another provision of this Section 11 only to the extent the Loss is caused by PNC's willful misfeasance, bad faith, gross negligence or reckless disregard of its duties and obligation under this Agreement ("Standard of Care") and only if the Fund provides PNC with written notice of the Loss containing a reasonably detailed description of the amount of Loss and the conduct alleged to constitute a breach of the Standard of Care. In the absence of a finding to the contrary, the acceptance, processing and/or negotiation of a fraudulent payment for the purchase of Shares shall be presumed not to have been a failure of PNC to meet its Standard of Care.
(b) PNC's maximum cumulative aggregate liability to the Fund and all persons or entities claiming through the Fund, considered as a whole, for Loss the recovery of which is not otherwise excluded by another provision of this Section 11 shall not exceed the fees actually paid to PNC for services provided hereunder during the twelve (12) months immediately prior to the last Loss Date, up to maximum aggregate cumulative liability for all Losses of $500,000.
(c) Subject to Section 8 above, neither PNC nor its affiliates shall be liable for Loss (including without limitation damages caused by delays, failures, errors, interruptions or loss of data) occurring directly or indirectly by reason of circumstances beyond its reasonable control, including without limitation: acts of God; natural disasters, such as floods, hurricanes, tornados, earthquakes and wildfires; epidemics; action or inaction of civil or military authority; war, terrorism, riots or insurrection; criminal acts; action by organized labor; interruption, loss or malfunction of utilities, transportation, computer or communications capabilities; non-performance by third parties (other than subcontractors of PNC for causes other than those described herein); or functions or malfunctions of the internet, firewalls, encryption systems or security devices caused by any of the foregoing.
(d) PNC shall not be liable for any Loss arising out of any action, omission or conduct of any prior service provider of the Fund or for any failure to discover any action, omission or conduct of any prior service provider of the Fund that caused or could cause Loss.
(e) Neither party nor its affiliates shall be liable for any Loss that constitutes consequential, incidental, exemplary, punitive, special or indirect damages, whether or not the likelihood, reasonable or otherwise, of such damages was known or should have been known by PNC or its affiliates.
(g) Each party shall have a duty to mitigate damages for which the other party may become responsible.
(h) This Section 11 shall survive termination of this Agreement.
12. INDEMNIFICATION. The Fund agrees to indemnify, defend and hold harmless PNC and its affiliates, including specifically and without limitation PFPC Trust Company in connection with
services it provides pursuant to Section 3(a)(12), and the respective directors, trustees, officers, agents and employees of each, from any and all Losses and all attorneys' fees, court costs, travel costs and other reasonable out-of-pocket costs and expenses related to the investigation, discovery, litigation, settlement, mediation or alternative dispute resolution of any Claim arising directly or indirectly from: (a) conduct of the Fund in connection with activities contemplated by this Agreement, or the conduct of a Fund contractor, subcontractor or prior service provider in connection with providing services to the Fund; (b) conduct of PNC as agent of the Fund not constituting a breach of its Standard of Care; (c) conduct of PNC pursuant to a Fund Communication or in reliance on written legal analysis or advice provided PNC's performance of the conduct shall remain subject to the Standard of Care; (d) a course of conduct taken by PNC pursuant to Section 10(i) due to a Response Failure; and (e) a Fund Error. PNC shall have no liability to the Fund or any person claiming through the Fund for any Loss caused by any conduct described in the preceding sentence. This Section 12 shall survive termination of this Agreement.
13. DURATION AND TERMINATION.
(a) This Agreement shall be effective on the Effective Date and continue, unless validly terminated pursuant to this Section 13 prior thereto, until the date which is the fifth (5th) anniversary of the Effective Date (the "Initial Term").
(b) This Agreement shall automatically renew on the final day of the Initial Term and the final day of each Renewal Term for an additional term which will continue until the third (3rd) anniversary of such renewal date (each such additional term being a "Renewal Term"), unless the Fund or PNC gives written notice to the other party of its intent not to renew and such notice is received by the other party not less than ninety (90) days prior to the expiration of the Initial Term or the then-current Renewal Term (a "Non-Renewal Notice"). In the event a party provides a Non-Renewal Notice, this Agreement shall terminate at 11:59 PM (Eastern Time) on the last day of the Initial Term or Renewal Term, as applicable.
(c) If a party materially breaches this Agreement (a "Defaulting Party") the other party (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party ("Breach Notice"), and if such material breach shall not have been remedied within thirty (30) days after the Breach Notice is given, then the Non Defaulting Party may terminate this Agreement by giving written notice of termination to the Defaulting Party ("Breach Termination Notice"), in which case this Agreement shall terminate as of 11:59 PM (Eastern Time) on the 30th day following the date the Breach Termination Notice is given, or such later date as may be specified in the Breach Termination Notice (but not later than the last day of the Initial Term or then-current Renewal Term, as appropriate). In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against the Defaulting Party.
(d) Notwithstanding anything contained in this Agreement to the contrary, if in connection with a Change in Control the Fund gives notice to PNC terminating this Agreement or terminating it as the provider of any of the services hereunder or if the Fund otherwise terminates this Agreement or any of such services before the expiration of, as appropriate, the Initial Term
or the then-current Renewal Term ("Early Termination") (in all cases, other than in accordance with Sections 13(b) or (c) above) the following terms shall apply:
(i) PNC shall, if requested by the Fund, make a good faith effort to facilitate a conversion to the Fund's successor service provider; provided that PNC does not guarantee that it will be able to effect a conversion on the date(s) requested by the Fund.
(ii) Before the effective date of the Early Termination and before any conversion of Fund records and accounts to a successor service provider, the Fund shall pay to PNC an amount equal to all fees and other amounts ("Early Termination Fee") calculated as if PNC were to provide all services hereunder until the expiration of, as appropriate, the Initial Term or the then-current Renewal Term. The Early Termination Fee shall be calculated using the average of the monthly fees and other amounts due to PNC under this Agreement during the last three calendar months before the date of the notice of Early Termination (or, if not given, the date services are terminated hereunder).
(iii) The Fund expressly acknowledges and agrees that the Early Termination Fee is not a penalty but reasonable compensation to PNC for the termination of services before the expiration of, as appropriate, the Initial Term or the then-current Renewal Term.
(iv) For purposes of this Section 13(d), "Change in Control" means a merger, consolidation, adoption, acquisition, change in control, re-structuring, or re-organization of or any other similar occurrence involving the Fund or any affiliate of the Fund.
(v) If the Fund gives notice of Early Termination (or an Early Termination without such notice occurs) after expiration of the notice period specified in Section 13(b), the references above to "expiration of, as appropriate, the Initial Term or the then-current Renewal Term" shall be deemed to mean "expiration of the Renewal Term immediately following, as appropriate, the Initial Term or the then-current Renewal Term."
(vi) If any of the Fund's assets serviced by PNC under this Agreement are removed from the coverage of this Agreement ("Removed Assets") and are subsequently serviced by another service provider (including the Fund or an affiliate of the Fund): (i) the Fund will be deemed to have caused an Early Termination with respect to such Removed Assets as of the day immediately preceding the first such removal of assets and be obligated to PNC for an Early Termination Fee calculated as if the Removed Assets constituted a "Fund"; and, (ii) at, PNC's option, either (a) the Fund will also be deemed to have caused an Early Termination with respect to all non-Removed Assets as of a date selected by PNC resulting in the Fund owing PNC the Early Termination Fee, or (b) this Agreement will remain in full force and effect with respect to all non-Removed Assets.
(e) In the event of termination, all expenses ("Conversion Expenses") associated with movement of records and materials and conversion thereof to a successor transfer agent ("Conversion Actions") will be borne by the Fund and paid to PNC prior to any such conversion, including without limitation (i) reasonable expenses incurred by PNC associated with de-conversion to a successor service provider, (ii) reasonable expenses associated with the transfer
or duplication of records and materials, (iii) reasonable expenses associated with the conversion of records or materials and (iv) reasonable trailing expenses. In addition, in the event of termination, if PNC continues to perform any Conversion Actions or provides any other services hereunder, beyond any termination date or time specified in any notice or in any other manner, the Fund shall be obligated to pay PNC immediately upon being invoiced therefor, all Conversion Expenses and all other Fees and Reimbursable Expenses associated with the services PNC continues to provide hereunder during such period. PNC's performance of any Conversion Actions is conditioned on the prior full performance by the Fund, to PNC's reasonable satisfaction, of its obligations under Section 3(a)(12)(D)(iii).
(f) Notwithstanding any other provision of this Agreement, PNC may in its sole
discretion terminate this Agreement immediately by sending notice thereof to the
Fund upon the happening of any of the following: (i) the Fund commences as
debtor any case or proceeding under any bankruptcy, insolvency or similar law,
or there is commenced against the Fund any such case or proceeding; (ii) the
Fund commences as debtor any case or proceeding seeking the appointment of a
receiver, conservator, trustee, custodian or similar official for the Fund or
any substantial part of its property or there is commenced against the Fund any
such case or proceeding; (iii) the Fund makes a general assignment for the
benefit of creditors; or (iv) the Fund states in any medium, written, electronic
or otherwise, any communication or in any other manner its inability to pay
debts as they come due. PNC may exercise its termination right under this
Section 13(f) at any time after the occurrence of any of the foregoing events
notwithstanding that such event may cease to be continuing prior to such
exercise, and any delay in exercising this right shall not be construed as a
waiver or other extinguishment of that right. Any exercise by PNC of its
termination right under this Section 13(f) shall be without any prejudice to any
other remedies or rights available to PNC and shall not be subject to any fee or
penalty, whether monetary or equitable. Notwithstanding clause (iii) of Section
19, notice of termination under this Section 13(f) shall be considered given and
effective when given, not when received.
14. POLICIES AND PROCEDURES.
(a) The parties acknowledge that the services described in and to be provided under this Agreement involve processes, actions, functions, instructions, consents, choices, the exercise of rights or performance of obligations, communications and other components, both internal to PNC and interactive between the parties, necessitated or made appropriate by business or by legal or regulatory considerations, or both, that in most cases are far too numerous and minutely detailed to expressly include in this Agreement and that, accordingly, the parties agree that PNC shall perform the services provided for in this Agreement in accordance with the written policies, procedures, manuals, documentation and other operational guidelines of PNC governing the performance of the services in effect at the time the services are performed ("Written Procedures"), that PNC may from time to time revise its Written Procedures, and that the Written Procedures are expressly intended to supplement the description of services provided for herein, but that the express terms of this Agreement will always prevail in any conflict with the Written Procedures. PNC may embody in its Written Procedures any course of conduct which it reasonably determines is commercially reasonable or consistent with generally accepted industry practices, principles or standards ("Industry Standard") and in making such determination may rely on such information, data, research, analysis and advice,
including legal analysis and advice, as it reasonably determines appropriate under the circumstances.
(b) Notwithstanding any other provision of this Agreement, the following terms of this Section 14(b) shall apply in the event facts, circumstances or conditions exist or events occur, other than due to a breach by PNC of its Standard of Care, which would require a service to be provided hereunder other than in accordance with PNC's Written Procedures, or if PNC is requested by the Fund, or a third party authorized to act for the Fund, to deviate from a Written Procedure in connection with the performance of a service hereunder (collectively, "Exception Services"):
(i) PNC shall not be obligated to perform any particular Exception Service. However, PNC may in good faith consider developing and implementing an Exception Service: if the Fund agrees in a prior written authorization to reimburse PNC for all costs and expenses incurred in consulting with and obtaining the opinions of specialists, legal counsel or other third parties reasonably considered by PNC to be appropriate in light of the Exception Service requested ("Exception Research") and the costs associated with utilizing internal resources to develop and implement the Exception Service, and to pay the fees and charges established by PNC for performing the Exception Service. The Fund may, in place of agreeing to reimburse PNC for the costs of Exception Research, agree in such written authorization to provide PNC with all Exception Research reasonably requested by PNC at the Fund's cost and expense.
(ii) Following receipt of all requested Exception Research, PNC may, in its sole discretion, as an accommodation and not pursuant to any obligation, agree to provide an Exception Service if it receives a Written Instruction containing terms satisfactory to it in its sole discretion, including without limitation terms constituting additional agreements with respect to fees, charges, and expenses, terms constituting appropriate warranties, representations and covenants, and terms specifying with particularity the course of conduct constituting the Exception Service.
(iii) PNC reserves the right following receipt of all Exception Research and not withstanding such receipt to continue to decline to perform the Exception Service for a bona fide legal, commercial or business reason.
(c) In the event that Fund requests documentation, analysis or verification in whatsoever form regarding the commercial reasonableness or industry acceptance of conduct provided for in a Written Procedure, PNC will cooperate to furnish such materials as it may have in its possession at the time of the request without cost to the Fund, but the Fund agrees to reimburse PNC for all out of pockets costs and expenses incurred, including the costs of legal or expert advice or analysis, in obtaining additional materials in connection with the request.
15. NOTICES. Notices permitted or required by this Agreement shall be in writing and:
(i) addressed as follows, unless a notice provided in accordance with this
Section 19 shall specify a different address or individual:
(A) if to PNC, to PNC Global Investment Servicing (U.S.) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809, Attention: President; with a copy to PNC Global Investment Servicing (U.S.) Inc., 301 Bellevue Parkway, Wilmington, Delaware 19809, Attention: Senior Counsel - TA & SubAccounting; and
(B) if to the Fund, at ACAP Strategic Fund, 350 Madison Avenue, 9th Floor, New York; New York 10017, Attention: Vice President
(ii) delivered: by hand (personal delivery by an Authorized Person to addressee); private messenger, with signature of recipient; U.S. Postal Service (with return receipt or other delivery verification provided); overnight national courier service, with signature of recipient, facsimile sending device providing for automatic confirmation of receipt; and
(iii) deemed given on the day received by the receiving party.
16. AMENDMENTS.
(a) This Agreement, or any term thereof, including without limitation the Exhibits and Appendices hereto, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought.
(b) Notwithstanding subsection (a) above, in the event an officer of the Fund or other person acting with apparent authority on behalf of the Fund requests that PNC perform some or all of the services provided for in this Agreement for a Portfolio not listed on Exhibit A, as amended, and such Portfolio accepts such services and pays amounts provided for in the Fee Agreement as Fees and Reimbursable Expenses, then in the absence of an express written statement to the contrary such services are provided in accordance with the terms of this Agreement and the Portfolio shall be bound by the terms of this Agreement with respect to all matters addressed herein, except that PNC may terminate such amendment by convenience to this Agreement if within 60 days of the first such acceptance of services by the Portfolio the Fund and PNC do not execute an written amendment to Exhibit A on terms mutually acceptable to PNC and the Fund in their respective sole discretion. PNC and the Fund each reserve the right to negotiate terms appropriate to such additional Portfolios which differ from the terms herein.
17. DELEGATION; ASSIGNMENT. Neither party may assign this Agreement without the prior written consent of the other party; provided, however, that PNC may assign its rights and delegate its duties hereunder at no additional cost to the Fund to any majority-owned direct or indirect subsidiary of PNC or of The PNC Financial Services Group, Inc., provided that (i) PNC gives the Fund thirty (30) days' prior written notice of such delegation; (ii) the delegate agrees to comply with the relevant provisions of the Federal Securities Laws; (iii) such delegation does nt impair the Fund's receipt of services under this Agreement in any material respect; and (iv) any such delegation shall not relieve PNC of its liabilities hereunder. For the avoidance of doubt, nothing herein shall serve to prohibit or otherwise restrict the ability of PNC to use third-party vendors in connection with any services provided hereunder. To the extent required by the rules and regulations of the NSCC and in order for PNC to perform the NSCC-related services, the Fund agrees that PNC may delegate its duties to any affiliate of PNC that is a member of the
NSCC.
18. FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be executed in one more counterparts; such execution of counterparts may occur by manual signature, facsimile signature, manual signature transmitted by means of facsimile transmission or manual signature contained in an imaged document attached to an email transmission; and each such counterpart executed in accordance with the foregoing shall be deemed an original, with all such counterparts together constituting one and the same instrument. The exchange of executed copies of this Agreement or of executed signature pages to this Agreement by facsimile transmission or as an imaged document attached to an email transmission shall constitute effective execution and delivery hereof and may be used for all purposes in lieu of a manually executed copy of this Agreement.
19. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
20. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the final, complete, exclusive and fully integrated record of the agreement of the parties on the subject matter herein and supersedes all prior agreements and understandings relating to such subject matter, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to delegated duties.
(b) NON-SOLICITATION. During the term of this Agreement and for one year thereafter, the Fund shall not (with the exceptions noted in the immediately succeeding sentence) knowingly solicit or recruit for employment or hire any of PNC's employees, and the Fund shall cause the Fund's sponsor and the Fund's affiliates to not (with the exceptions noted in the immediately succeeding sentence) knowingly solicit or recruit for employment or hire any of PNC's employees. To "knowingly" solicit, recruit or hire within the meaning of this provision does not include, and therefore does not prohibit, solicitation, recruitment or hiring of a PNC employee by the Fund, the Fund's sponsor or an affiliate of the Fund if the PNC employee was identified by such entity solely as a result of the PNC employee's response to a general advertisement by such entity in a publication of trade or industry interest or other similar general solicitation by such entity.
(c) NO CHANGES THAT MATERIALLY AFFECT OBLIGATIONS. Notwithstanding anything in this Agreement to the contrary, the Fund agrees not to make any modifications to its registration statement or other Shareholder Materials or to adopt any policies which would affect materially the obligations or responsibilities of PNC hereunder without the prior written approval of PNC, which approval shall not be unreasonably withheld or delayed. The scope of services to be provided by PNC under this Agreement shall not be increased as a result of new or revised regulatory or other requirements that may become applicable with respect to the Fund, unless the parties hereto expressly agree in writing to any such increase.
(d) 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.
(e) INFORMATION. The Fund will provide such information and documentation as PNC may reasonably request in connection with services provided by PNC to the Fund.
(f) GOVERNING LAW. This Agreement shall be deemed to be a contract made in Delaware and governed by Delaware law, without regard to principles of conflicts of law.
(g) 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.
(h) PARTIES IN INTEREST. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except with respect to those certain provisions providing for rights of PFPC Trust or obligations of the Fund to PFPC Trust, and those certain provisions benefitting affiliates of the parties, this Agreement is not for the benefit of any other person or entity and (ii) there shall be no third party beneficiaries hereof.
(i) NO REPRESENTATIONS OR WARRANTIES. Except as expressly provided in this Agreement, PNC hereby disclaims all representations and warranties, express or implied, made to the Fund or any other person, including, without limitation, any warranties regarding quality, suitability, merchantability, fitness for a particular purpose or otherwise (irrespective of any course of dealing, custom or usage of trade), of any services or any goods provided incidental to services provided under this Agreement. PNC disclaims any warranty of title or non-infringement except as otherwise set forth in this Agreement.
(j) CUSTOMER IDENTIFICATION PROGRAM NOTICE. To help the U.S. government fight the funding of terrorism and money laundering activities, U.S. Federal law requires each financial institution to obtain, verify, and record certain information that identifies each person who initially opens an account with that financial institution on or after October 1, 2003. Certain of PNC's affiliates are financial institutions, and PNC may, as a matter of policy, request (or may have already requested) the Fund's name, address and taxpayer identification number or other government-issued identification number, and, if such party is a natural person, that party's date of birth. PNC may also ask (and may have already asked) for additional identifying information, and PNC may take steps (and may have already taken steps) to verify the authenticity and accuracy of these data elements.
(k) USE OF "FUND". In the event "Fund" as used in this Agreement refers to Portfolios listed on Exhibit A, notwithstanding such use, the Fund bears to the extent permitted by law all responsibilities, obligations, liabilities and duties of all such Portfolios to the extent not performed by such Portfolios.
(l) ADDITIONAL FUND ADOPTION. Notwithstanding anything in this Agreement to the contrary, if PNC is requested orally or in writing to provide services under this Agreement to any additional new class, tier, portfolio or series of an Fund or fund that is a party to this Agreement or any additional Fund or fund ("Additional Fund"), and PNC provides such services under this
Agreement to such Additional Fund, then, from the date PNC commences providing such services, such Additional Fund shall be deemed a party to and bound by the terms and conditions of this Agreement with respect to all matters addressed herein even in the absence of a writing by such Additional Fund agreeing to be so bound by this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
PNC GLOBAL INVESTMENT SERVICING ACAP STRATEGIC FUND (U.S.) INC. By: ____________________________ By: ________________________ Name: ____________________________ Name: ________________________ Title: ___________________________ Title: ________________________ |
EXHIBIT A
(Dated: December 7, 2009)
THIS EXHIBIT A is Exhibit A to that certain Transfer Agency Services Agreement dated as of December 7, 2009, between PNC Global Investment Servicing (U.S.) Inc. and ACAP Strategic Fund.
PORTFOLIOS
[List all Portfolios here]
APPENDIX A
DEFINITIONS
As used in this Agreement:
"1933 ACT" means the Securities Act of 1933, as amended. "1934 ACT" means the Securities Exchange Act of 1934, as amended. "1940 ACT" means Fund Act of 1940, as amended. |
"AUTHORIZED PERSON" means any officer of the Fund and any other person duly authorized by the Fund in a manner reasonably satisfactory to PNC to give Instructions on behalf of the Fund. Any limitation on the authority of an Authorized Person to give Instructions must be expressly set forth in a written document signed by both parties.
"CLAIM" means any claim, demand, suit, action, obligation, liability, suit, controversy, breach, proceeding or allegation of any nature (including but not limited to those arising out of or related to this Agreement) and regardless of the form of action or legal theory.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONDUCT" or "COURSE OF CONDUCT" means a single act, two or more acts, a single instance of an action not being taken or of forbearance given, two or more instances of an action not being taken or of forbearance given, or any combination of the foregoing.
"FUND ERROR" means the Fund or a third party acting on behalf of the Fund or conveying Fund data or information committing an error, furnishing inaccurate, incorrect or incomplete data or information to PNC or PFPC Trust or by other act or omission requiring Remediation.
"FUND SHARES" (see "Shares")
"INSTRUCTIONS" means Oral Instructions and Written Instructions considered collectively or individually.
"LOSS" and "LOSSES" means any one, or any series of related, losses, costs, damages, expenses, awards, judgments, assessments, fines, penalties, payments, reimbursements, adverse consequences, liabilities or obligations arising out of any Claim
"LOSS DATE" means the date of occurrence of the event or circumstance causing a particular Loss, or the date of occurrence of the first event or circumstance in a series of events or circumstances causing a particular Loss.
"ORAL INSTRUCTIONS" means oral instructions received by PNC from an Authorized Person or from a person reasonably believed by PNC to be an Authorized Person. PNC may, in its sole
discretion in each separate instance, consider and rely upon instructions it receives from an Authorized Person via electronic mail as Oral Instructions.
"PFPC TRUST" means PFPC Trust Company, the parent corporation of PNC, and its lawful successors and assigns.
"PORTFOLIO" means each separate subdivision of the Fund, whether characterized or structured as a portfolio, class, tier, series or otherwise, listed on Schedule A hereto or included within this Agreement by virtue of the operation of Section 16(b) or 20(l).
"REMEDIATION SERVICES" means the additional services required to be provided hereunder by PNC or PFPC Trust in connection with a Fund Error in order to correct, remediate, adjust, reprocess, repeat, reverse or otherwise modify conduct previously taken in accordance with the Agreement to achieve the outcome originally intended for by the previous conduct.
"SEC" means the Securities and Exchange Commission.
"SECURITIES LAWS" means the 1933 Act, the 1934 Act and the 1940 Act.
"SHAREHOLDER MATERIALS" means the Fund's prospectus, statement of additional information and any other materials relating to the Fund provided to Fund shareholders by the Fund.
"SHARES" or "FUND SHARES" means the shares or other units of beneficial interest of each Fund.
"WRITTEN INSTRUCTIONS" means (i) written instructions signed by an Authorized Person (or a person reasonably believed by PNC to be an Authorized Person), addressed to and received by PNC, and delivered by (A) hand (personally delivery by the Authorized Person), (B) private messenger, U.S. Postal Service or overnight national courier which provides confirmation of receipt with respect to the particular delivery, or (C) facsimile sending device which provides automatic confirmation of the standard details of receipt, or (ii) trade instructions transmitted to and received by PNC by means of an electronic transaction reporting system which requires use of a password or other authorized identifier in order to gain access.
--------------------------------------------------------------------------------
GLOSSARY OF DEFINED TERMS
-------------------------------------------- ---------------------------------
TERM LOCATION
-------------------------------------------- ---------------------------------
1933 Act Appendix A
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1934 Act Appendix A
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1940 Act Appendix A
-------------------------------------------- ---------------------------------
314(a) Procedures ss. 3(b)(4)
-------------------------------------------- ---------------------------------
Additional Fund ss. 20(l)
-------------------------------------------- ---------------------------------
AML ss. 3(b)(l)
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Audit Report Appendix B, ss. (b)(iv)
-------------------------------------------- ---------------------------------
Authorized Person Appendix A
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|
-------------------------------------------- --------------------------------- Appropriate List Matching Data ss. 2(b)(5)(C) -------------------------------------------- --------------------------------- Bona Fide Reason ss. 10(c) -------------------------------------------- --------------------------------- Breach Notice ss. 13(c) -------------------------------------------- --------------------------------- Breach Termination Notice ss. 13(c) -------------------------------------------- --------------------------------- Change in Control ss. 13(d)(iv) -------------------------------------------- --------------------------------- CIP Regulations ss. 3(b)(3)(A) -------------------------------------------- --------------------------------- Claim Appendix A -------------------------------------------- --------------------------------- Code Appendix A -------------------------------------------- --------------------------------- conduct Appendix A -------------------------------------------- --------------------------------- Confidential Information ss. 4(b) -------------------------------------------- --------------------------------- Comparison Results ss. 3(b)(4) -------------------------------------------- --------------------------------- Controls Appendix B, ss. (b)(i) -------------------------------------------- --------------------------------- Conversion Actions ss. 13(e) -------------------------------------------- --------------------------------- Conversion Expenses ss. 13(e) -------------------------------------------- --------------------------------- course of conduct Appendix A -------------------------------------------- --------------------------------- Covered Account Appendix B, ss. (b)(i)(F) -------------------------------------------- --------------------------------- Covered Person Appendix B, ss. (b)(i)(D) -------------------------------------------- --------------------------------- Custodian ss. 3(a)(3)(iii) -------------------------------------------- --------------------------------- Customer ss. 3(b)(3)(A)(i) -------------------------------------------- --------------------------------- Custodied Account ss. 3(a)(12)(D) -------------------------------------------- --------------------------------- Data Elements ss. 3(b)(3)(A)(i) -------------------------------------------- --------------------------------- Defaulting Party ss. 13(c) -------------------------------------------- --------------------------------- Direct Account Appendix B, ss. (b)(i)(E) -------------------------------------------- --------------------------------- Director ss. 2(b)(5)(A)(iii) -------------------------------------------- --------------------------------- Early Termination ss. 13(d) -------------------------------------------- --------------------------------- Early Termination Fee ss. 13(d)(ii) -------------------------------------------- --------------------------------- Effective Date Preamble -------------------------------------------- --------------------------------- Eligible Assets ss. 3(a)(12)(A)(i) -------------------------------------------- --------------------------------- Exception Research ss. 14(b)(i) -------------------------------------------- --------------------------------- Exception Services ss. 14(b) -------------------------------------------- --------------------------------- External Research ss. 10(d)(i) -------------------------------------------- --------------------------------- Fee Agreement ss. 9(a) -------------------------------------------- --------------------------------- Fees ss. 9(a) -------------------------------------------- --------------------------------- FFI Regulations ss. 3(b)(2)(A) -------------------------------------------- --------------------------------- Foreign Financial Institution ss. 3(b)(2)(A)(i) -------------------------------------------- --------------------------------- Form ss. 10(b) -------------------------------------------- --------------------------------- Fund Background -------------------------------------------- --------------------------------- Fund Communication ss. 10(g) -------------------------------------------- --------------------------------- Fund Data ss. 2(b)(5)(A) -------------------------------------------- --------------------------------- Fund Error Appendix A -------------------------------------------- --------------------------------- Fund Registry Appendix B, ss. (b)(i)(C) -------------------------------------------- --------------------------------- Fund Shares Appendix A -------------------------------------------- --------------------------------- Identity Theft Appendix B, ss. (b)(i)(B) -------------------------------------------- --------------------------------- Industry Standard ss. 14(a) -------------------------------------------- --------------------------------- Information Requests ss. 3(b)(4) -------------------------------------------- --------------------------------- |
-------------------------------------------- --------------------------------- Initial Term ss. 13(a) -------------------------------------------- --------------------------------- Instructions Appendix A -------------------------------------------- --------------------------------- Internal Research ss. 10(d)(i) -------------------------------------------- --------------------------------- Fund Preamble -------------------------------------------- --------------------------------- Loss, Losses Appendix A -------------------------------------------- --------------------------------- Loss Date Appendix A -------------------------------------------- --------------------------------- Lost Shareholder Rule ss. 3(a)(11)(A) -------------------------------------------- --------------------------------- NCCT List ss. 2(b)(5)(A)(ii) -------------------------------------------- --------------------------------- Non-Defaulting Party ss. 13(c) -------------------------------------------- --------------------------------- Non-Renewal Notice ss. 13(b) -------------------------------------------- --------------------------------- Non-Standard Instruction ss. 10(c) -------------------------------------------- --------------------------------- OFAC ss. 2(b)(5)(A)(i) -------------------------------------------- --------------------------------- OFAC Lists ss. 2(b)(5)(A)(i) -------------------------------------------- --------------------------------- Oral Instructions Appendix A -------------------------------------------- --------------------------------- Participants ss. 3(a)(12)(A)(ii) -------------------------------------------- --------------------------------- PFPC Trust Appendix A -------------------------------------------- --------------------------------- PMLC Determination ss. 2(b)(5)(A)(iii) -------------------------------------------- --------------------------------- PNC Preamble -------------------------------------------- --------------------------------- Portfolio Appendix A -------------------------------------------- --------------------------------- Possible Identity Theft Appendix B, ss. (b)(iii) -------------------------------------------- --------------------------------- Red Flag Appendix B, ss. (b)(i)(A) -------------------------------------------- --------------------------------- Red Flags Requirements Appendix B, ss. (c) -------------------------------------------- --------------------------------- Red Flags Section Appendix B, ss. (a) -------------------------------------------- --------------------------------- Red Flags Services Appendix B, ss. (b) -------------------------------------------- --------------------------------- Registered Owner Appendix B, ss. (b)(i)(C) -------------------------------------------- --------------------------------- Reimbursable Expenses ss. 9(a) -------------------------------------------- --------------------------------- Remediation Services Appendix A -------------------------------------------- --------------------------------- Removed Assets ss. 13(d)(vi) -------------------------------------------- --------------------------------- Renewal Term ss. 13(b) -------------------------------------------- --------------------------------- Response Failure ss. 10(i) -------------------------------------------- --------------------------------- SEC Appendix A -------------------------------------------- --------------------------------- Securities Laws Appendix A -------------------------------------------- --------------------------------- Service Accounts ss. 9(b) -------------------------------------------- --------------------------------- Shareholder Materials Appendix A -------------------------------------------- --------------------------------- Shares Appendix A -------------------------------------------- --------------------------------- Standard Instructions ss. 10(b) -------------------------------------------- --------------------------------- Standard of Care ss. 11(a) -------------------------------------------- --------------------------------- Tax Favored Account ss. 3(a)(12)(A)(iii) -------------------------------------------- --------------------------------- Third Party Institution ss. 9(b) -------------------------------------------- --------------------------------- U.S. Government Lists ss. 2(b)(5)(A) -------------------------------------------- --------------------------------- Written Instructions Appendix A -------------------------------------------- --------------------------------- Written Procedures ss. 14(a) -------------------------------------------- --------------------------------- |
APPENDIX B
RED FLAGS SERVICES
(a) The provisions of this Appendix B shall apply in the event the Fund elects to receive Red Flags Services. Section 3(e) of the Agreement together with this Appendix B is referred to collectively as the "Red Flags Section".
(b) PNC agrees to provide the Fund with the "Red Flags Services", which is hereby defined to mean the following services:
(i) PNC will maintain written controls reasonably designed to detect the occurrence of Red Flags (as defined below) in connection with (i) account opening and other account activities and transactions conducted directly through PNC with respect to Direct Accounts (as defined below), and (ii) transactions effected directly through PNC by Covered Persons (as defined below) in Covered Accounts (as defined below). Such controls, as they may be revised from time to time hereunder, are referred to herein as the "Controls". Solely for purposes of the Red Flags Section, the capitalized terms below will have the respective meaning ascribed to each:
(A) "Red Flag" means a pattern, practice, or specific activity or a combination of patterns, practices or specific activities which may indicate the possible existence of Identity Theft (as defined below) affecting a Registered Owner (as defined below) or a Covered Person.
(B) "Identity Theft" means a fraud committed or attempted using the identifying information of another person without authority.
(C) "Registered Owner" means a natural person who is the owner of record of a Direct Account on the books and records of the Fund maintained by PNC as registrar of the Fund (the "Fund Registry").
(D) "Covered Person" means a natural person who is the owner of record of a Covered Account on the Fund Registry.
(E) "Direct Account" means an account holding Fund shares established directly with and through PNC by a natural person as a registered account on the Fund Registry and through which the owner of record has the ability to directly conduct account and transactional activity with and through PNC.
(F) "Covered Account" means an account holding Fund shares established by a financial intermediary for a natural person as the owner of record on the Fund Registry and through which such owner of record has the ability to conduct transactions in Fund shares directly with and through PNC.
(ii) PNC will provide the Fund with a printed copy of or Internet viewing access to the Controls.
(iii) PNC will notify the Fund of Red Flags which it detects and reasonably determines to indicate a significant risk of Identity Theft to a Registered Owner or a Covered Person ("Possible Identity Theft") and assist the Fund in determining the appropriate response of the Fund to the Possible Identity Theft.
(iv) PNC will (A) engage an independent auditing firm or other similar firm of independent examiners to conduct an annual testing of the Controls and issue a report on the results of the testing (the "Audit Report"), and (B) furnish a copy of the Audit Report to the Fund; and
(v) Upon Fund request, issue a certification in a form determined to be appropriate by PNC in its reasonable discretion, certifying to PNC's continuing compliance with the Controls after the date of the most recent Audit Report.
(c) The Fund agrees it is responsible for complying with and determining the applicability to the Fund of Section 114 of the Fair and Accurate Credit Transaction Act of 2003 and regulations promulgated thereunder by the Federal Trade Commission (the "Red Flags Requirements"), the extent to which the Red Flags Services assist the Fund in complying with the Red Flags Requirements, and for furnishing any supplementation or augmentation to the Red Flags Services it determines to be appropriate under the Red Flags Requirements, and that PNC has given no advice and makes no representations with respect to such matters. This Red Flags Section shall not be interpreted in any manner which imposes a duty on PNC to act on behalf of the Fund or otherwise, including any duty to take any action upon the occurrence of a Red Flag, other than as expressly provided for in this Red Flags Section. The Controls and the Red Flags Services may be changed at any time and from time to time by PNC in its reasonable sole discretion to include commercially reasonable provisions appropriate to the Red Flags Requirements, as they may be constituted from time to time. In consideration for the Red Flags Services, the Fund will pay to PNC fee for Red Flags Services as established by PNC from time to time by written notice. Other than the initial fee which will be payable as of the Effective Date, the Fund will pay PNC any revised fee commencing thirty (30) days after the Fund's receipt of the written notice containing the revised fee. The Fund will be able to terminate the Red Flags Services within this 30-day period by sending notice of such to PNC but will be considered to have agreed to the revised fee if such notice is not sent.
(d) Notwithstanding any other provision of the Agreement:
(i) Neither PNC nor its affiliates shall be liable for any Loss that constitutes consequential, incidental, exemplary, punitive, special or indirect damages, whether or not the likelihood, reasonable or otherwise, of such damages was known by PNC or its affiliates. PNC's maximum cumulative aggregate liability to the Fund and all persons or entities claiming through the Fund, considered as a whole, for Loss arising out of the Red Flags Section, the recovery of which is not barred by another provision of this Agreement, shall not exceed the greater of (i) $25,000, or (ii)
fees received by PNC for the Red Flags Services during the six (6) months immediately prior to the last Loss Date, up to a maximum of $50,000.
(ii) In the event of a material breach of this Red Flags Section by PNC, the Fund's sole and exclusive termination right shall be to terminate the Red Flags Services by complying with the procedural provisions of Section 13(c). For clarification: this clause (ii) shall be interpreted to limit only the Fund's termination remedy in the event of a material breach of the Red Flags Section shall not be interpreted to modify or nullify any other remedy available to the Fund under the Agreement.
[Letterhead of Schulte Roth & Zabel LLP]
December 30, 2009
ACAP Strategic Fund
350 Madison Avenue, 9th Floor
New York, New York 10017
Ladies and Gentlemen:
We have acted as counsel to ACAP Strategic Fund (the "Fund"), a statutory trust organized under the laws of the State of Delaware, in connection with the registration of shares of beneficial interest in the Fund ("Shares") under the Securities Act of 1933, as amended (the "1933 Act").
In such capacity, we have reviewed the Fund's registration statement on Form N-2 under the 1933 Act and the Investment Company Act of 1940, as amended (the "Registration Statement"), and Pre-Effective Amendment No. 1 to the Registration Statement, each as filed by the Fund with the Securities and Exchange Commission (File Nos. 333-160653 and 811-22312). We have also reviewed Pre-Effective Amendment No. 2 to the Registration Statement, which is expected to be filed as of the date hereof. We are familiar with the actions taken by the Fund and its Board of Trustees in connection with the organization of the Fund and the proposed issuance and sale of Shares, including, but not limited to, the adoption of a resolution authorizing the offer and issuance of Shares in the manner described in the prospectus contained in the Registration Statement (the "Prospectus"). In addition, we have examined and are familiar with the Fund's certificate of trust (and amendments thereto) and the agreement and declaration of trust, as in effect on the date hereof, and such other documents as we have deemed relevant to the matters referred to in this opinion.
We have examined such Fund records, certificates and other documents and reviewed such questions of law as we have considered necessary or appropriate for purposes of rendering this opinion. In our examination of such materials, we have assumed the genuineness of all signatures and the conformity to the original documents of all copies submitted to us. As to certain questions of fact material to our opinion, we have relied upon statements of officers of the Fund and upon representations of the Fund made in the Registration Statement.
Based upon the foregoing, we are of the opinion that Shares, when issued and sold in the manner described in the Prospectus, will be legally issued, fully paid and non-assessable.
ACAP Strategic Fund
December 30, 2009
We are attorneys licensed to practice only in the State of New York. The foregoing opinion is limited to the Federal laws of the United States.
We hereby consent to the inclusion of this opinion as an exhibit to the Registration Statement and to the references to us therein as counsel to the Fund. In giving such permission, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Schulte Roth & Zabel LLP |
[RICHARDS LAYTON & FINGER LOGO]
December 30, 2009
ACAP Strategic Fund
350 Madison Avenue, 9th Floor
New York, New York 10017
Ladies and Gentlemen:
RE: ACAP STRATEGIC FUND
We have acted as special Delaware counsel in connection with ACAP Strategic Fund, a Delaware statutory trust (the "Trust"), with respect to the matters set forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our examination of documents has been limited to the examination of originals or copies of the following:
(a) The Certificate of Trust as filed with the office of the Secretary of State of the State of Delaware (the "Secretary of State") on June 26, 2009, the Certificate of Amendment to Certificate of Trust as filed with the Secretary of State on July 1, 2009, the Certificate of Amendment to Certificate of Trust as filed with the Secretary of State on August 7, 2009, the Certificate of Amendment to Certificate of Trust as filed with the Secretary of State on October 1, 2009, the Certificate of Amendment to Certificate of Trust as filed with the Secretary of State on November 17, 2009, the Amended and Restated Certificate of Trust of the Trust (the "Restatement") as filed with the Secretary of State on December 29, 2009 (as restated, the "Certificate of Trust");
(b) The Agreement and Declaration of Trust, dated as of July 17, 2009, by the initial trustee named therein as amended and restated by the Amended and Restated Declaration of Trust, effective as of December 29, 2009, by the trustees named therein (as amended and restated, the "Trust Agreement");
ACAP Strategic Fund
December 30, 2009
(c) The Written Consent of the Initial Trustee dated July 17, 2009 adopted by the Initial Trustee of the Trust and the Resolutions of the Trustees dated December 29, 2009 (together, the "Resolutions") with respect to the Trust and issuance of the Shares;
(d) The registration statement under the Securities Act of 1933 on Form N-2 (the "Registration Statement") and draft of the Pre-Effective Amendment No. 2 to the Registration Statement, to be filed by the Trust with the Securities and Exchange Commission on or about December 30, 2009, including a prospectus (the "Prospectus"), with respect to the issuance of shares of beneficial interests in the Trust (the "Shares");
(e) The By-Laws of the Trust dated as of July 17, 2009 (the "By-Laws");
(f) A certificate of an officer of the Trust, dated December 30, 2009, certifying as to items (a) through (e) above and as to the Restatement changing the name of the Trust (the documents listed in paragraphs (b) through (f) are collectively referred to as the "Trust Documents"); and
(g) A Certificate of Good Standing for the Trust, dated December 30, 2009, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (g) above. In particular, we
have not reviewed any document (other than the documents listed in paragraphs
(a) through (g) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our own
but rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the authenticity of all documents submitted to us as authentic originals, (ii) the conformity with the originals of all documents submitted to us as copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust Agreement and the Certificate of Trust are in full force and effect and have not been amended and that the Trust Agreement, the By-Laws and Resolutions will be in full force and effect when the Shares are
ACAP Strategic Fund
December 30, 2009
issued by the Trust, (ii) except to the extent provided in paragraph 1 below,
the due organization or due formation, as the case may be, and valid existence
in good standing of each party to the documents examined by us under the laws of
the jurisdiction governing its organization or formation, (iii) the legal
capacity of natural persons who are parties to the documents examined by us,
(iv) that each of the parties to the documents examined by us has the power and
authority to execute and deliver, and to perform its obligations under, such
documents, (v) the due authorization, execution and delivery by all parties
thereto of all documents examined by us, (vi) that each party has complied with
all of the obligations and satisfied all of the conditions on its part to be
performed or satisfied pursuant to and in connection with the documents examined
by us, (vii) that the Trust Documents have been accomplished in accordance with
the Trust Agreement and the Act (as defined below) and that any amendment or
restatement of any document reviewed by us has been accomplished in accordance
with, and was permitted by, the relevant provisions of said document prior to
its amendment or restatement from time to time, (viii) the payment by each
Person to whom a Share is to be issued by the Trust (collectively, the
"Shareholders") for such Share, in accordance with the Trust Agreement, By-Laws
and the Resolutions and as contemplated by the Registration Statement and
Prospectus, and (ix) that the Shares are issued and sold to the Shareholders in
accordance with the Trust Agreement, By-Laws and the Resolutions and as
contemplated by the Registration Statement and Prospectus. We have not
participated in the preparation of the Registration Statement or the Prospectus
and assume no responsibility for their contents.
This opinion is limited to the laws of the State of Delaware (excluding the securities and tax laws of the State of Delaware), and we have not considered and express no opinion on the laws of any other jurisdiction or federal laws and the rules and regulations relating thereto, including without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Trust Indenture Act of 1939, as amended, and the Investment Company Act of 1940. Our opinions are rendered only with respect to Delaware laws and rules, regulations and orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such questions of law and statutes of the State of Delaware as we have considered necessary or appropriate, and subject to the assumptions, qualifications, limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good standing as a statutory trust under the Delaware Statutory Trust Act, 12 Del. C. ss. 3801, ET. SEQ. (the "Act").
2. The Shares of the Trust have been duly authorized and, once paid for and issued in accordance with the Trust Documents, will be validly issued, fully paid and nonassessable beneficial interests in the Trust.
We consent to Schulte Roth & Zabel LLP relying as to matters of Delaware law upon this opinion as of its date, subject to the understanding that the opinions herein are given on
ACAP Strategic Fund
December 30, 2009
the date hereof and such opinions are rendered only with respect to facts
existing on the date hereof and laws and rules, regulations and orders
thereunder in effect as of such date. We also consent to the filing of this
opinion with the Securities and Exchange Commission as an exhibit to the
Registration Statement. In giving the foregoing consent, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
stated above, without our prior written consent, this opinion may not be
furnished or quoted to, or relied upon by, any other person or entity for any
purpose.
Very truly yours,
/s/ Richards, Layton & Finger, P.A. |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated December 23, 2009, with respect to the statement of assets and liabilities of ACAP Strategic Fund contained in the Statement of Additional Information, which is a part of this Pre-effective Amendment No. 2 to the Registration Statement on Form N-2 (File No. 333-160653) and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus and to the use of our name as it appears under the caption, "Independent Registered Public Accounting Firm" in the Statement of Additional Information.
/s/Grant Thornton LLP ---------------------------- New York, New York December 30, 2009 |
[LETTERHEAD OF ALKEON CAPITAL MANAGEMENT]
December 4, 2009
Board of Trustees
ACAP Strategic Fund
350 Madison Avenue, 9th Floor
New York, New York 10017
To the Board of Trustees:
In order to provide the ACAP Strategic Fund (f/k/a Madison Avenue Global Fund, Alkeon Global Fund and ACAP Global Fund) (the "Fund") with initial capital so as to enable the public offering of shares of the Fund, Alkeon Capital Management, LLC ("Alkeon") is hereby purchasing from the Fund 10,000 shares of beneficial interest, par value $0.001 per share, of the Fund, at a purchase price of $10.00 per share.
Alkeon represents and warrants that such purchase of shares is being made for investment purposes and not with a view towards the distribution thereof; and without any present intention of selling such shares.
Very truly yours,
Alkeon Capital Management, LLC
By: /s/George Mykoniatis
-------------------------
Name: George Mykoniatis
Title: Chief Financial Officer
|
CODE OF ETHICS
OF
ACAP STRATEGIC FUND
Effective December 2, 2009
This Code of Ethics (the "Code") has been adopted by the Board of Trustees (the "Board") of ACAP Strategic Fund (the "Fund") in compliance with Rule 17j-l (the "Rule") under the Investment Company Act of 1940, as amended (the "1940 Act"), to establish standards and procedures for the detection and prevention of activities by which persons having knowledge of recommended investments and investment intentions of the Fund may abuse their fiduciary duties and otherwise to deal with the type of conflict of interest situations to which the Rule is addressed. This Code applies to the Fund's independent board members -- or, INDEPENDENT ACCESS PERSONS (as defined below). Each ACCESS PERSON of the Fund (as defined by the Rule) that is employed by the investment adviser of the Fund, its managing member or a principal underwriter of the Fund is required to comply with the provisions of any code adopted by that service provider and such individual will not be subject to this Code (except where indicated to the contrary herein).(1)
A. PURPOSE
This Code states the general principle for the operations of the Fund, sets the standard for the members of the Board, and establishes procedures to assure transactions are carried out consistent with the standard. It differs from a code of ethics for an operating company because the Fund contracts with others to provide all the services required by shareholders and the Fund's officers are generally employees of service providers. Accordingly, the Board, in entering into contracts on behalf of the Fund, shall evaluate the code of ethics of each service provider to determine that it has established principles that give reasonable assurance the Fund will be managed consistent with the long-term interests of all shareholders. In addition, the Board shall evaluate the practices of a service provider to determine that the practices are consistent with its principles by considering:
o the tone set by senior management of a service provider regarding
the way in which the business will be managed; and
o the candor of the service provider's employees and their
commitment to serve all clients fairly, and the responsiveness of
the service provider to addressing issues that arise.
B. DEFINITIONS - AS USED HEREIN:
An INDEPENDENT ACCESS PERSON is a trustee of the Fund who is not an "interested person" (as defined by the 1940 Act) of the Fund or the Adviser or its managing member. The Fund's Chief Compliance Officer (the "CCO") shall maintain a list of INDEPENDENT ACCESS PERSONS of the Fund and advise them of their status once a year.
COVERED SECURITY AND A COVERED SECURITY TRANSACTION
A COVERED SECURITY is any stock, bond or other instrument as defined in Section 2(a)(36) of the 1940 Act. A COVERED SECURITY is not a security issued by the Government of the United States, a bankers' acceptance, a bank certificate of deposit, commercial paper, high quality short-term debt instruments or shares issued by a registered open-end investment company. A COVERED SECURITY TRANSACTION includes, among other things, a transaction in a COVERED SECURITY, an option to purchase or sell a COVERED SECURITY and an over-the-counter contract on a narrow-based index of securities.
C. GOVERNING PRINCIPLES
The general principle is that the Fund shall be managed and its shares shall be distributed in compliance with all applicable laws, regulations and policies set forth in corporate documents and regulatory filings and in accordance with high business standards.
The Board shall fulfill its fiduciary and oversight responsibility with respect to each service provider by monitoring its operations, serving as a resource, forming opinions regarding the quality and scope of the services provided, and taking such actions as may be required.
In that regard, fiduciary principles govern the personal investment activities of the Fund's INDEPENDENT ACCESS PERSONS, including, at a minimum, the following: (1) the duty at all times to place the interests of the Fund first; (2) the requirement that all personal securities transactions be conducted consistent with this Code 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 personnel providing services to the Fund should not take inappropriate advantage of their positions.
D. POLICY REGARDING INSIDER TRADING
No ACCESS PERSON or INDEPENDENT ACCESS PERSON (or any family member of such person) who has any material non-public information relating to a COVERED SECURITY or to any publicly-traded companies with whom the Fund or its Adviser (or its affiliates) does business, such as clients, partners, or suppliers, may buy or sell such COVERED SECURITIES (or securities of such publicly-traded companies), pass the information to others for use in trading in securities or otherwise attempt to take advantage of the information.
E. STANDARD OF CONDUCT
Each INDEPENDENT ACCESS PERSON shall render decisions based upon the best interest of the Fund and its shareholders.
F. PROCEDURES
These procedures are intended to assure compliance with the standard of conduct.
1. PERSONAL SECURITY TRANSACTIONS
An independent member of the Board is a person who is not an "interested person" of the Fund or of a service provider, as that term is defined in the 1940 Act. Each independent member shall comply with the provisions in this portion of the Code as reasonably necessary to prevent such persons from violating the anti-fraud provisions of the Rule.
PROHIBITED SECURITY TRANSACTIONS IN COVERED SECURITIES
No INDEPENDENT ACCESS PERSON shall purchase or sell, directly or indirectly any COVERED SECURITY in which such INDEPENDENT ACCESS PERSON has, or by reason of such transaction acquires, any direct or indirect beneficial ownership, or cause any account over which he or she has any direct or indirect influence or control to purchase or sell any COVERED SECURITY, if at the time of such purchase or sale he or she knew or should have known the COVERED SECURITY is being considered for purchase or sale, or is being purchased or sold, for the Fund.
2. REPORTING
INDEPENDENT ACCESS PERSONS shall report to the Chair of the Board, who shall have responsibility for reviewing each report, on a quarterly (if applicable) and an annual basis as follows:
QUARTERLY REPORT
No quarterly report shall be filed unless at the time of a COVERED SECURITY TRANSACTION, the INDEPENDENT ACCESS PERSON knew or in the ordinary course of fulfilling his or her official duties as a Board member should have known, that during the 15-day period immediately preceding or following the date of the transaction, the COVERED SECURITY was purchased or sold or was being considered for purchase or sale for the Fund. It is the responsibility of the Fund officers and the Adviser (and its affiliates) to keep to a minimum any discussion pertaining to COVERED SECURITIES that are being considered or being actively traded for the Fund and to alert INDEPENDENT ACCESS PERSONS when such a discussion occurs so that they can either pre-clear a personal transaction or avoid trading the COVERED SECURITY.
ANNUAL REPORT
An annual report shall be filed stating whether he or she has read the Code and complied with its provisions.
G. RECORDKEEPING
The CCO shall maintain the following records for a period of six years and shall keep all reports filed pursuant to this Code confidential except that such reports may be made available to the Securities and Exchange Commission ("SEC") or any representative thereof upon proper request:
1. A copy of the Code;
2. A list of all INDEPENDENT ACCESS PERSONS and a list of persons responsible for reviewing their reports;
3. A record of all pre-clearances;
4. A record of any violation and of any action taken;
5. A copy of each report filed under this Code; and
6. A copy of each written report and certification furnished to the Board by the CCO, on the Fund's behalf (as required by Section K below).
H. DOING BUSINESS WITH OR BORROWING MONEY FROM THE FUND
No INDEPENDENT ACCESS PERSON, no members of their families, no company for which they serve as a director, access person, nor any partnership or association of which they are a member, may:
1. Borrow money or other property from the Fund, directly or indirectly, except the Fund may own debt securities including commercial paper of such a company provided the securities are issued on the same terms of other comparable securities.
2. Buy or sell any security or other property from or to the Fund as principal unless permitted to do so by statute, rule or order of the SEC (or an interpretation by its staff) and done pursuant to procedures established by the Board.
I. OWNING SHARES OF STOCK OF A BROKER, INVESTMENT ADVISER OR AFFILIATED COMPANY
No INDEPENDENT ACCESS PERSON nor any member of his or her immediate family may own, directly or indirectly, any security issued by the Adviser or the Distributors, or by an affiliated company of the Adviser or the Distributors.
J. RECEIVING OR GIVING GIFTS
No INDEPENDENT ACCESS PERSON may:
1. Directly or indirectly, give to, solicit or receive from any person with whom he or she transacts business on behalf of the Fund or that may be related, directly or indirectly, to any transaction of the Fund, any gratuities in money or services of more than nominal value.
2. Use assets of the Fund to reward or remunerate officials of any government for decisions or actions favorable to the Fund or to its access persons.
3. Use assets of the Fund for political contributions for the support of political parties or political candidates.
4. Establish any unrecorded fund or bookkeeping account for any purpose.
5. Give any information or data of or about the Fund to anyone except as is already public, without the pre-clearance of the Fund's CCO.
6. Falsely report or record any expenditure of monies.
K. REVIEW OF THE CODE BY THE BOARD
On an annual basis, the Board shall review the operation of this Code and shall adopt such amendments (pursuant to Section L below) as may be necessary to assure that the provisions of the Code continue to establish standards and procedures that are reasonably designed to detect and prevent activities that would constitute violations of the Rule.
In connection with the annual review of the Code, the CCO, on the Fund's behalf, will provide to the Board, and the Board will consider, a written report that:
1. Describes any issues arising under the Code or related procedures during the past year, including, but not limited to, information about material violations of the Code or any procedures adopted in connection therewith and that describes the sanctions imposed in response to material violations; and
2. Certifies that the Fund and each service provider have adopted procedures reasonably necessary to prevent access persons from violating the Code.
L. AMENDMENTS AND MODIFICATIONS
This Code may not be amended or modified, in any material respect, except in a written form which is specifically approved by majority vote of the Board's independent trustees.
Dated as of December 2, 2009.
Adopted by the Board of Trustees of ACAP Strategic Fund.
JOINT CODE OF ETHICS
ALKEON CAPITAL MANAGEMENT, LLC
MAINSAIL GROUP, L.L.C.
SILVERBAY CAPITAL MANAGEMENT LLC
ADOPTED DECEMBER, 2009
SECTION I STATEMENT OF GENERAL PRINCIPLES
This Joint Code of Ethics (the "Code") has been adopted by Alkeon Capital Management, LLC ("Alkeon"), Mainsail Group, L.L.C. ("Mainsail") and SilverBay Capital Management LLC ("SilverBay" and, together with Alkeon and Mainsail, the "Firm"), in accordance with the regulatory requirements of Sections 204A and 206 of the Investment Advisers Act of 1940, as amended (the "Advisers Act") and Rule 204A-1 thereunder and Section 17(j) of the Investment Company Act of 1940, as amended (the "1940 Act") and Rule 17j-1 thereunder. The purpose of the Code is to set forth and reinforce the fiduciary principals that govern the conduct of the Firm and its personnel.
As it relates to Rule 17j-1 of the 1940 Act, the purpose of the Code is to establish standards and procedures that are reasonably designed for the detection and prevention of activities by which persons having knowledge of the investments and investment intentions of the Firm may abuse their fiduciary duties to the Firm or any of the funds or other accounts managed by the Firm and otherwise to deal with the types of conflict of interest situations to which Rule 17j-1 is addressed. As it relates to Section 204A of the Advisers Act, the purpose of the Code is to establish procedures that are reasonably designed to prevent the misuse of material non-public information in violation of the federal securities laws by persons associated with the Firm.
Every employee (including directors, officers and partners or other persons occupying a similar status or performing similar functions, collectively referred to herein as "Employees") of the Firm must read and retain this Code, and should recognize that he or she is subject to its provisions.
The Code is based on the principle that Employees, who in the course of their duties make, participate in or obtain information regarding, investment recommendations made to, or investment transactions conducted for, any Advisory Account (as defined below), owe a fiduciary duty to the Advisory Account and the Firm to conduct personal securities transactions in a manner that does not interfere with Advisory Account transactions or otherwise take unfair advantage of his or her position. All Employees shall place the interests of each Advisory Account before their own personal interests. Technical compliance with the Code will not automatically insulate any Employee from scrutiny of transactions that show a pattern of compromise or abuse of the individual's fiduciary duties to any account. Accordingly, all
Employees must seek to avoid any actual or potential conflicts between their personal interests and the interests of each account.
SECTION II DEFINITIONS
"Advisory Accounts" means any account managed by the Firm, including, but not limited to, registered and unregistered funds, wrap accounts and separately managed accounts.
"Annual Certification" means an Annual Certification of Compliance with the Code, in the form attached as Schedule D.
"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, including a dividend reinvestment plan.
"Beneficial Ownership" has the meaning set forth in paragraph (a)(2) of Rule 16a-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and for purposes of this Code should be deemed to include, but not be limited to, any interest by which an Employee or any person in control of a Personal Account (as defined below) can directly or indirectly derive a monetary or other economic benefit from the purchase, sale (or other acquisition or disposition) or ownership of a Security (as defined below), including for this purpose any such interest that arises as a result of: a general partnership interest in a general or limited partnership; an interest in a trust; a right to dividends that is separated or separable from the underlying Security; a right to acquire equity Securities through the exercise or conversion of any derivative Security (whether or not presently exercisable).
"Chief Compliance Officer" means the person(s) designated by each of Alkeon, Mainsail and SilverBay to serve as the senior compliance officer.
"Control" shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act, and includes the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with the company. Control shall be presumed to exist where a person owns beneficially, either directly or through one or more companies, more than 25% of the voting Securities of a company.
"Initial Certification" means an Initial Certification of Compliance with the Code, in the form attached as Schedule C.
"Personal Account" means any account in which an Employee has any direct or indirect Beneficial Ownership. A Personal Account also includes any account maintained by or for:
(i) an Employee's spouse (other than a legally separated or divorced spouse of the Employee) and minor children;
(ii) any immediate family members who live in the Employee's household;
(iii) any persons to whom the Employee provides primary financial support, and either (a) whose financial affairs the Employee controls, or (b) for whom the Employee provides discretionary advisory services; and
(iv) any partnership, corporation or other entity in which the Employee has a 25% or greater beneficial interest, or in which the Employee exercises effective control.
"Reportable Security" means a Security (as defined below), except that it does not include:
(i) Direct obligations of the Government of the United States and other Sovereign Debt;
(ii) Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements;
(iii) Shares issued by money market funds;
(iv) Shares issued by registered open-end funds other than: (a) exchange-traded funds; (b) registered funds managed by the Firm; or (c) registered funds whose adviser or principal underwriter controls the Firm, is controlled by theF Firm, or is under common control with the Firm (each a "reportable fund"); and
(v) Shares issued by unit investment trusts, other than exchange-traded funds, that are invested exclusively in one or more registered open-end funds, none of which are reportable funds.
"Security" shall have the meaning set forth in Section 202(a)(18) of the Advisers Act (15 U.S.C. 80b-2(a)(18)) and should be deemed to include any and all stock, debt obligations, and similar instruments of whatever kind, including any right or warrant to purchase a security, or option to acquire or sell a security, a group or index of securities or a foreign currency. References to a Security in this Code (E.G., a prohibition or requirement applicable to the purchase or sale of a Security) shall be deemed to refer to and to include any warrant for, option in, or Security immediately convertible into that Security, and shall also include any financial instrument which has an investment return or value that is based, in whole or part, on that Security (collectively, "Derivatives"). Therefore, except as otherwise specifically provided by this Code: (i) any prohibition or requirement of this Code applicable to the purchase or sale of a Security shall also be applicable to the purchase or sale of a Derivative relating to that Security; and (ii) any prohibition or requirement of this Code applicable to the purchase or sale of a Derivative shall also be applicable to the purchase or sale of a Security relating to that Derivative.
A Security is "being considered for purchase or sale" when a recommendation to purchase or sell that Security has been made or communicated and, with respect to the person making the recommendation, when such person seriously considers making such a recommendation.
SECTION III APPLICABILITY, OBJECTIVE AND GENERAL PROHIBITIONS
This Code applies to all of the Firm's Employees.(1) ACCORDINGLY, ALL EMPLOYEES ARE EXPECTED TO CONDUCT THEIR PERSONAL ACTIVITIES IN ACCORDANCE WITH THE STANDARDS SET FORTH IN THIS CODE. Therefore, an Employee may not engage in any personal investment transaction under circumstances where the Employee benefits from or interferes with the purchase or sale of investments by an Advisory Account. In addition, Employees may not use information concerning the investments or investment intentions of any Advisory Account, or their ability to influence such investment intentions, for personal gain or in a manner detrimental to the interests of any Advisory Account. Disclosure by an Employee of such information to any person outside of the course of the responsibilities of the Employee to the Firm will be deemed a violation of this prohibition. All Employees must also comply with applicable federal securities laws and with the policies regarding the misuse of material, non-public information, which are set forth in Section V.
Employees may not engage in conduct that is deceitful, fraudulent, or manipulative, or which involves false or misleading statements, in connection with the purchase or sale of Securities by the Firm. In this regard, Employees should recognize that Rule 17j-1 under the 1940 Act and Section 206 under the Advisers Act make it unlawful for any affiliated person or principal underwriter of a fund, or any affiliated person of such a person, or any adviser directly or indirectly, in connection with the purchase or sale of a Security held or to be acquired by an Advisory Account to:
(1) Rule 204A-1 of the Advisers Act requires all "Access Persons" of a registered investment adviser to report, and the investment adviser to review, personal securities transactions and holdings periodically. The Advisers Act defines "Access Person" to mean any supervised person of any investment adviser who: (1) has nonpublic information regarding any advisory clients' purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any fund or account, or (2) makes securities recommendations to advisory clients, or who has access to such recommendations that are nonpublic. Further, the Advisers Act defines "Supervised Person" to mean any partner, director, manager and officer (or other person occupying a similar status or performing similar functions) or employee of the investment adviser, or any other person who provides investment advice on behalf of the investment adviser and is subject to the firm's supervision and control. As applied to the Firm, and for purposes of this Code, the Firm's "Supervised Persons" consist of all of the Firm's Employees and all of the Firm's Employees are "Access Persons"; PROVIDED, HOWEVER, that the Chief Compliance Officer may determine that a particular employee or officer of Mainsail is not an "Access Person" of ACAP Strategic Fund and, thus, need not be covered by the Code.
(i) employ any device, scheme or artifice to defraud an Advisory Account;
(ii) make any untrue statement of a material fact with respect to an Advisory Account or omit to state to the Firm a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
(iii) engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon an Advisory Account; or
(iv) engage in any manipulative practice with respect to the Firm.
SECTION IV COMPLIANCE WITH APPLICABLE FEDERAL SECURITIES LAWS
In addition to the general principles of conduct stated in the Code and the specific trading restrictions and reporting requirements described below, the Code requires all Employees to comply with applicable federal securities laws. These laws include the Securities Act of 1933, as amended, the Exchange Act, the Sarbanes-Oxley Act of 2002, the 1940 Act, the Advisers Act, Title V of the Gramm-Leach-Bliley Act of 1999, any rules adopted by the Securities and Exchange Commission ("SEC") under any of these statutes, the Bank Secrecy Act as it applies to the Advisory Accounts and investment advisers, and any rules adopted thereunder by the SEC or the Department of the Treasury.
SECTION V PROHIBITION AGAINST INSIDER TRADING
(A) INTRODUCTION
This Section V of the Code is intended to satisfy the requirements of Section 204A of the Advisers Act, which is applicable to the Firm and requires that the Firm establish and enforce procedures designed to prevent the misuse of material, non-public information by its members, officers, directors and employees.
Trading Securities while in possession of material, non-public information, or improperly communicating that information to others, may expose an Employee to severe penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The SEC can recover the profits gained or losses avoided through the violative trading, a penalty of up to three times the illicit windfall, and an order permanently barring an Employee from the securities industry. In addition, any violation of this Section V can be expected to result in serious sanctions by the Firm, which may include dismissal of any Employees involved.
(B) POLICY ON INSIDER TRADING
No Employee may trade a Security, either personally or on behalf of any other person or account (including Advisory Accounts), while in possession of material, non-public information concerning that Security or the issuer thereof, nor may any Employee communicate
material, non-public information to others in violation of the law. This Policy extends to Employees' activities within and outside their duties with the Firm.
(1) DEFINITION OF MATERIAL INFORMATION
Information is material where there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this includes: (i) information that, if publicly disclosed, is reasonably certain to have a substantial effect on the price of a company's securities, or (ii) information that could cause insiders to change their trading patterns. Information that Employees should consider material includes, without limitation, changes in dividend policies, earnings estimates, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidity problems, significant management changes and significant new products, services or contracts.
Material information can also relate to events or circumstances affecting the market for a company's securities. Information about a significant order to purchase or sell securities or the portfolio holdings of a fund may, in some contexts, be material. Pre-publication information regarding reports to be published in the financial press may also be material. For example, in 1987, the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security. In that case, a reporter from THE WALL STREET JOURNAL was found criminally liable for disclosing to others the dates that reports on various companies would appear in THE WALL STREET JOURNAL and whether those reports would be favorable or not.
No simple test exists to determine when information is material; assessments of materiality involve a highly fact specific inquiry. For this reason, you should direct any questions about whether information is material to the Chief Compliance Officer.
(2) DEFINITION OF NON-PUBLIC INFORMATION
Information is "public" when it has been disseminated broadly to investors in the marketplace. For example, information is public after it has become available to the general public through a public filing with the SEC or some other government agency, or appears in the DOW JONES NEWSWIRE or THE WALL STREET JOURNAL or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely. In addition, if information is being disseminated to traders generally by brokers or institutional analysts, such information would be considered public unless there is a reasonable basis to believe that such information is confidential and came from a corporate insider. Until information has been effectively communicated to the market place, it is considered to be "non-public."
(3) APPLICABLE PROCEDURES
An Employee, before executing any trade for himself or herself or an Advisory Account, must determine whether he or she has material, non-public information. To make this determination, ask yourself the following questions:
(i) Is the information MATERIAL? Is this information that an investor would consider important in making his or her investment decisions? Is this information that would substantially affect the market price of the securities if generally disclosed? Is this information which could cause insiders to change their trading habits?
(ii) Is the information NONPUBLIC? To whom has this information been provided? Has the information been filed with the SEC, or been effectively communicated to the marketplace by being published in REUTERS ECONOMIC SERVICES, THE WALL STREET JOURNAL or other publications of general circulation, or by appearing on the wire services?
If, after consideration of the above, you believe that the information is material and nonpublic, or if you have a question as to whether the information is material and nonpublic, you should take the following steps:
* Report the information and proposed trade immediately to the Chief Compliance Officer.
* Do not purchase or sell the Securities on behalf of anyone, including Advisory Accounts.
* Do not communicate the information to any person, other than to the Chief Compliance Officer.
After the Chief Compliance Officer has reviewed the issue, the Firm will determine whether the information is material and non-public and, if so, what action such Firm and the Employee should take.
Employees must consult with the Chief Compliance Officer before taking any action. This degree of caution will protect Employees, Advisory Accounts and the Firm.
(4) CONTACTS WITH PUBLIC COMPANIES
Contacts with public companies will sometimes be a part of the Adviser's research efforts. The Firm may make investment decisions on the basis of conclusions formed through such contacts and analysis of publicly available information. Difficult legal issues arise, however, when, in the course of these contacts, an Employee becomes aware of material, non-public information. This could happen, for example, if a company's chief financial officer prematurely discloses quarterly results, or an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, the Firm must make a judgment as to its further conduct. All Employees should contact the Chief Compliance Officer immediately if they believe that they may have received material, non-public information.
(5) CLIENT RELATIONSHIPS
It is possible that an investor in an Advisory Account may be employed by, or associated with, a publicly traded company. Additionally, investors may have affiliations within the hedge fund, investment management or securities industries. Employees must be extremely careful not to trade or communicate material nonpublic information which might be conveyed by these types of investors or persons occupying similar positions. You should be particularly careful about situations where the investor is another investment professional and a person with whom you discuss investment-related matters. To protect yourself, our clients and the Firm, you should contact the Chief Compliance Officer immediately if you believe that you may have received material, nonpublic information.
(6) PRIVATE INVESTMENTS IN PUBLIC EQUITY
Employees may be approached by third parties (including brokers) soliciting the purchase for clients of securities being offered in private placements by publicly traded companies (commonly referred to as "PIPEs" transactions). Such offerings generally are not known by the public and, upon disclosure to the public, could have a significant effect on the price of a company's stock. If any Employee becomes aware of such a transaction or proposal (regardless of whether the issuer or soliciting party requires a non-disclosure agreement), the information must be reported to the Chief Compliance Officer.
(7) ARBITRAGE ACTIVITIES
Arbitrage activities must be conducted with particular care. Absent authorization or clearance from the Chief Compliance Officer or his designee, initial arbitrage positions (for both client and personal trading purposes) should only be taken after a significant corporate event is announced or information affecting the securities markets generally or a specific industry segment thereof is disclosed. Arbitrage personnel should limit contacts with bankers, lawyers and other advisers of parties involved in various transactions.
(8) TENDER OFFERS
Tender offers represent a particular concern under the laws governing insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's Securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule that expressly forbids trading and "tipping" while in possession of material, non-public information regarding a tender offer received from the tender offer, or, the target company or anyone acting on behalf of either. Employees should exercise particular caution any time they become aware of non-public information relating to a tender offer.
SECTION VI PROHIBITED TRANSACTIONS
(A) An Employee may not purchase or otherwise acquire direct or indirect Beneficial Ownership of any Security, and may not sell or otherwise dispose of any Security in which he or she has direct or indirect Beneficial Ownership, if he or she knows or should know at the time of entering into the transaction that: (i) the Firm has purchased or sold the Security within the last
seven (7) calendar days, or is considering purchasing or selling or is going to purchase or sell the Security in the next seven (7) calendar days; or (ii) any person, on behalf of the Firm, has within the last seven (7) calendar days considered purchasing or selling the Security for any Advisory Account, or is considering purchasing or selling the Security in the next seven (7) calendar days, unless the Employee:
(1) obtains pre-clearance of such transaction pursuant to
Section VII; and
(2) provides the Chief Compliance Officer with the reports and other information described in Section VIII.
(B) While pre-clearance is still required, the prohibitions against trading in Securities seven (7) days before or after an Advisory Account may do so do not apply to transactions in a Security (which shall for the purpose of this exemption be deemed to include a series of related transactions in a Security) involving 500 shares or less of the stock of an issuer that has a market capitalization (I.E., outstanding shares multiplied by the current price per share) of $1 billion or more; provided that the general prohibitions of this Code shall be applicable to these transactions and that no orders for an Advisory Account are being executed or contemplated on the trading day that pre-clearance is requested.
SECTION VII PRE-CLEARANCE PROCEDURES
All transactions in Personal Accounts, including an Employee's participation in initial public offerings ("IPOs") and limited offerings, are subject to pre-clearance.
(A) OBTAINING PRE-CLEARANCE
Pre-clearance of a personal transaction in a Security may be obtained only from the Chief Compliance Officer or a person who has been designated by the Chief Compliance Officer to pre-clear transactions. The Chief Compliance Officer and these designated persons are each referred to as a "Clearing Officer." A Clearing Officer seeking pre-clearance with respect to his or her own transaction shall obtain such clearance from another Clearing Officer.
(B) TIME OF CLEARANCE
(1) An Employee may pre-clear a trade only where such person has a present intention to effect a transaction in the Security for which pre-clearance is sought. An Employee cannot obtain a general or open-ended pre-clearance to cover the eventuality that he or she may buy or sell a Security at some future time depending upon market developments. Consistent with the foregoing, Employees may not simultaneously request pre-clearance to buy and sell the same Security.
(2) Pre-clearance of a trade shall be valid and in effect only for the day pre-clearance is given; provided, however, that pre-clearance for a proposed transaction expires automatically upon the Employee's receipt of facts or circumstances that would have prevented a proposed trade from being pre-
cleared had such facts or circumstances been known by a Clearing Officer at the time the proposed transaction was approved. Accordingly, if an Employee becomes aware of new or changed facts or circumstances that give rise to a question as to whether pre-clearance could be obtained if a Clearing Officer was aware of such facts or circumstances, the Employee shall be required to so advise a Clearing Officer and obtain a new pre-clearance before proceeding with such transaction.
(C) FORM
Pre-clearance must be obtained in writing by completing and signing the form provided for that purpose, which form shall set forth the details of the proposed transaction, and by obtaining the signature of a Clearing Officer. The form to be used in seeking pre-clearance is attached as Schedule A.
(D) FILING
Copies of all completed pre-clearance forms, with the required signatures, shall be retained by the Clearing Officer.
(E) FACTORS CONSIDERED IN PRE-CLEARANCE OF PERSONAL TRANSACTIONS
A Clearing Officer may refuse to grant pre-clearance of a personal transaction in his or her sole discretion without being required to specify any reason for the refusal. Generally, a Clearing Officer will consider the following factors and any other factors he or she deems appropriate in determining whether or not to pre-clear a proposed transaction:
(1) Whether the amount or nature of the transaction or person making it is likely to affect the price or market for the Security;
(2) Whether the person making the proposed purchase or sale is likely to benefit from purchases or sales being made or being considered on behalf of an Advisory Account;
(3) Whether the chance of a conflict of interest is remote; and
(4) Whether the transaction is likely to affect any Advisory Account adversely.
(F) PRE-CLEARANCE EXCEPTIONS
In recognition of the involuntary nature of certain transactions, certain transactions are excepted from the pre-clearance requirements; however, the restrictions and reporting obligations of the Code of Ethics will continue to apply to any transaction exempted from pre-clearance pursuant to this Section. Accordingly, the following transactions will be exempt ONLY from the preclearance requirements:
(1) Purchases or sales that are non-volitional on the part of the Employee, such as purchases that are made pursuant to a merger, tender offer or exercise of rights;
(2) Purchases or sales pursuant to an Automatic Investment Plan; PROVIDED, HOWEVER, that the establishment of the Automatic Investment Plan be reported to, and approved by, a Clearing Officer, and provided further than transactions in IPOs and limited offerings pursuant to an Automatic Investment Plan remain subject to the pre-clearance procedures;
(3) Transactions in securities that are not Reportable Securities; and
(4) Transactions effected in, and the holdings of, any account over which the Employee has no direct or indirect influence or control (i.e., blind trust, discretionary account or trust managed by a third party). (Employees wishing to take advantage of this provision must provide the Chief Compliance Officer with a written representation to the effect that the Employee will not have any direct or indirect influence or control over the account.)
SECTION VIII REPORTS BY EMPLOYEES
It is the responsibility of each Employee to take the initiative to comply with the requirements of this Section VIII. Any effort by the Firm to facilitate the reporting process does not change or alter that responsibility.
(A) INITIAL CERTIFICATIONS AND INITIAL HOLDINGS REPORTS
Within ten days of becoming an Employee, Employees are required to complete and submit to the Chief Compliance Officer an Initial Certification in the form attached as Schedule C and an Initial Holdings Report.
The Initial Certification includes a list of all Personal Accounts along with a listing of any such Securities that are not held in a Personal Account. The Initial Certification and/or Initial Holdings Report must contain the following information (which must be current as of a date not more than 45 days before the person became an Employee):
(1) the title and type of Security, the exchange ticker symbol or CUSIP number (as applicable), number of shares, and principal amount of each Security in which the Employee had any direct or indirect Beneficial Ownership when the person became an Employee;
(2) the name of any broker, dealer or bank with which the Employee maintained an account in which any Securities were held for the direct or indirect benefit of the Employee as of the date the person became an Employee; and
(3) the date the Certification/Report is submitted.
Any new positions in Personal Accounts must be effected through and held in a brokerage account with a broker that has been pre-approved by the Chief Compliance Officer or other appropriate signatory of the Firm, as determined by the Chief Compliance Officer. Further, Employees must make arrangements so that duplicate confirmations and statements relating to all Personal Accounts are sent to the Chief Compliance Officer, unless an exemption from this requirement is granted in writing by the Chief Compliance Officer.
Timely submission of the Initial Certification, along with a copy of the most recent monthly or periodic statement for each Personal Account and copies of all confirmations of transactions effected after the date of such statement, shall satisfy the requirements of this Section VIII regarding submission of an Initial Holdings Report, provided that all information set forth in (1) and (2) above is contained the statements and confirmations. [NOTE: THIS INCLUDES STATEMENTS AND CONFIRMS OF PERSONS OTHER THAN THE EMPLOYEE IF THE EMPLOYEE HAS BENEFICIAL OWNERSHIP OF SECURITIES HELD IN THE ACCOUNT.]
(B) QUARTERLY TRANSACTION REPORTS
(1) Within ten days after the end of each calendar quarter, each Employee shall make a written report to the Chief Compliance Officer of all transactions occurring in the quarter by which he or she acquired or disposed of Beneficial Ownership of any Reportable Security.
Such report is hereinafter called a "Quarterly Transaction Report."
(2) A Quarterly Transaction Report shall be on the form attached as Schedule B and must contain the following information with respect to each Reportable Security:
(a) Date and nature of the transaction (purchase, sale or any other type of acquisition or disposition);
(b) Title and exchange ticker number or CUSIP number, the interest rate and maturity (if applicable), the number of shares or principal amount of each Security and the price at which the transaction was effected;
(c) Name of the broker, dealer or bank with or through whom the transaction was effected; and (d) The date the report is submitted.
(3) An Employee shall not be required to file a Quarterly Transaction Report for a calendar quarter if the Chief Compliance Officer is being furnished with confirmations and statements for all Personal Accounts of such
Employee, provided that the Employee has no transactions in
Reportable Securities, other than those reflected in the
confirmations and statements for such accounts. [NOTE:
THIS INCLUDES STATEMENTS AND CONFIRMS OF PERSONS OTHER THAN
THE EMPLOYEE IF THE EMPLOYEE HAS BENEFICIAL OWNERSHIP OF
SECURITIES HELD IN THE ACCOUNT.]
(4) Each Employee must notify the Chief Compliance Officer
promptly of any new account opened during a quarter
containing Securities in which the Employee has Beneficial
Ownership. The Employee must provide: (i) the name of the
broker, dealer or bank with whom the Employee established
the account; (ii) the date the account was established, and
(iii) the date the report is submitted.
(C) ANNUAL CERTIFICATIONS AND ANNUAL HOLDINGS REPORTS
Annually, each Employee is required to complete and submit to the Chief Compliance Officer an Annual Certification in the form attached as Schedule D and an Annual Holdings Report. The Annual Certification includes a list of all Personal Accounts, along with a listing of any Securities in which the Employee has Beneficial Ownership that are not held in a Personal Account. The Annual Certification and/or Annual Holdings Report must include the information (which must be current as of a date no more than 45 days before the Certification/Report is submitted) set forth in Section VIII(A)(1) and (2).
(D) REPORTING EXEMPTIONS
(1) An Employee need not submit reports (initial, quarterly or annual) with respect to Securities held in accounts over which the Employee has no direct or indirect influence or control (E.G., a blind trust).
(2) An Employee need not submit quarterly transaction reports with respect to purchases made by reinvesting cash dividends pursuant to a DRIP.
SECTION IX ADDITIONAL PROHIBITIONS
(A) CONFIDENTIALITY OF ADVISORY ACCOUNT TRANSACTIONS
Until disclosed in a public report to investors of an Advisory Account or in a report filed with the SEC in the normal course, all information concerning the Securities being considered for purchase or sale by any Advisory Account shall be kept confidential by all Employees and disclosed by them only on a "need to know" basis. Discussing the Firm's investment positions or sharing material nonpublic information with an Employee's personal fund manager, asset manager, wealth advisor or any other investment professional is strictly prohibited.
(B) OUTSIDE BUSINESS ACTIVITIES, RELATIONSHIPS AND DIRECTORSHIPS
(1) Employees may not: (i) engage in any outside business activities or maintain a business relationship with any person or company that may give rise to conflicts of interest or jeopardize the integrity or reputation of an Advisory Account or the Firm; or (ii) engage in outside business activities or maintain relationships with any person or company that may be inconsistent with the interests of any Advisory Account or the Firm.
(2) To avoid conflicts of interest, Employees are prohibited from managing a non-client investment account without prior approval of the Chief Compliance Officer and implementation of arrangements to allow trading to be monitored in those accounts and procedures to ensure that trading for the accounts does not have the potential to impact adversely client accounts managed by the Firm.
(3) Employees shall promptly notify the Chief Compliance Officer prior to becoming a member of the board of a public or private company. Employees are required to obtain the written approval of the Chief Compliance Officer or the appropriate signatory of the Firm, as determined by the Firm, prior to accepting any such board membership.
(C) GRATUITIES
Employees shall not, directly or indirectly, take, accept or receive gifts or other consideration in merchandise, services or otherwise, except: (i) customary business gratuities such as meals, refreshments, beverages and entertainment that are associated with a legitimate business purpose, reasonable in cost, appropriate as to time and place, do not influence or give the appearance of influencing the recipient and cannot be viewed as a bribe, kickback or payoff; and (ii) business related gifts of nominal value.
(D) REPORTING ILLEGAL OR UNETHICAL BEHAVIOR
Employees are encouraged to report to management any actual or suspected illegal or unethical conduct on the part of other Employees of which they become aware or any situations in which they are concerned about the "best course of action". A violation of the Code may be cause for immediate dismissal.
SECTION X ADMINISTRATION OF THE CODE AND OTHER ITEMS
(A) The administration of this Code shall be the responsibility of the Chief Compliance Officer.
(B) The duties of the Chief Compliance Officer are as follows:
(1) The Chief Compliance Officer will continuously maintain a current list of the names of all Employees.
(2) The Chief Compliance Officer will provide each Employee with a copy of the Code (and any amendments) and inform each Employee of his or her duties and obligations hereunder. Each Employee must acknowledge receipt of the Code and amendments thereto.
(3) The Chief Compliance Officer will obtain the Initial and Annual Certifications, the initial and annual holdings reports and the Quarterly Transaction Reports and brokerage confirmations and statements from Employees. The Chief Compliance Officer will periodically review holdings reports, transaction reports and brokerage confirmations and statements for, among other things, consistency with pre-clearance forms and client transactions.
(4) The Chief Compliance Officer will maintain or supervise the maintenance of all records and reports required to be kept by the Firm pursuant to the Code.
(5) If the Chief Compliance Officer determines that a violation of this Code has occurred, he or she will advise management of the Firm and will in consultation with management (and counsel as necessary) impose such sanctions as may be appropriate, including disgorgement of profits, censure, suspension or termination of the employment of the violator. All material violations of the Code and any sanctions imposed as a result thereto will be maintained as part of the Firm's records as specified below in Section X(C).
(C) The Chief Compliance Officer shall maintain and cause to be maintained in an easily accessible place, the following records:
(1) A copy of each Code that has been in effect at any time during the past five years;
(2) A record of any violation of the Code(s) described in
(C)(1), above and of any action taken as a result of such
violation for a period of not less than five (5) years from
the end of the fiscal year in which the violation occurred;
(3) A copy of all written acknowledgements of the receipt of the Code and amendments for each Employee who is currently, or within the past five years was, an Employee (these records must be kept for five years after the individual ceases to be an Employee);
(4) A copy of each report made by an Employee and brokerage confirmations and statements submitted on behalf of an Employee for a period of not less than five (5) years from the end of the year in which such report, confirmation or statement was made or submitted;
(5) a list of the names of persons who are currently, or within the past five years were, Employees (or otherwise subject to the Code).
(6) A record of any decision and supporting reasons for approving the acquisition of Securities by an Employee, including decisions relating to investments in initial public offerings and limited offerings; and
(7) A record of persons responsible for reviewing reports and copies of reports provided pursuant to Section X(F).
(D) The Chief Compliance Officer may delegate to one or more other officers or employees of the Firm such responsibilities of the Chief Compliance Officer as he or she may deem appropriate; provided, that it shall be the responsibility of the Chief Compliance Officer to supervise the performance by such persons of the responsibilities that have been delegated to them.
(E) The Chief Compliance Officer will ensure that the Form ADV of each of Alkeon and SilverBay (i) describes the Code and (ii) offers to provide a copy of the Code to any client or prospective client upon request.
(F) The Board of Directors/Trustees of any registered investment company advised or sub-advised by the Firm must approve this Code and any material amendments to this Code. The Chief Compliance Officer will prepare annually a written report that describes any issues arising under the Code since the last report, including information about material violations of the Code and sanctions imposed in response to such violations. The report must include a discussion of whether any waivers that might be considered important by the Board were granted during the period. The report must also certify that the Firm has adopted procedures reasonably necessary to prevent "access persons" (I.E., supervised persons of the Firm who: (i) have access to nonpublic information regarding any clients' purchase or sale of Securities, or nonpublic information regarding portfolio holdings of any fund the Firm or its control affiliates manage, or (ii) are involved in making Securities recommendations to clients, or have access to such recommendations that are nonpublic) from violating the Code.
SCHEDULE A
REQUEST FOR PERMISSION TO ENGAGE IN PERSONAL TRANSACTION
I hereby request permission to effect the following transaction(s) in Securities in which I have or will acquire Beneficial Ownership:
PURCHASES AND ACQUISITIONS
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No. of Shares or Current Market Price
Date Principal Amount Name of Security Per Share or Unit Account
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SALES AND OTHER DISPOSITIONS
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No. of Shares or Current Market Price
Date Principal Amount Name of Security Per Share or Unit Account
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Date: ________________________ Signature:_________________________________
Print Name:_______________________________
Permission Granted ______ Permission Denied ______
Date and Time:_________________ Signature:_________________________________
(Clearing Officer)
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SCHEDULE B
I certify that this report, together with the confirmations and statements for any Personal Account(s) as to which I have arranged for the Chief Compliance Officer to receive duplicate confirmations and statements, identifies all transactions during the calendar quarter in which I acquired or disposed of any Security in which I had or have any direct or indirect Beneficial Ownership that are required to be reported by me pursuant to the Code. (If no such transactions took place write "NONE".) Use reverse side if additional space is needed.
PURCHASES AND ACQUISITIONS
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No. of Shares Purchase Price
or Principal Per Share or
Date Amount Name of Security Unit Account Executing Broker
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SALES AND OTHER DISPOSITIONS
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No. of Shares
or Principal Sale Price Per
Date Amount Name of Security Share or Unit Account Executing Broker
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Date Completed: _______________ Signature:_________________________________
Print Name:________________________________
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SCHEDULE C
I have read and understand the Joint Code of Ethics of Alkeon Capital Management, LLC, Mainsail Group, L.L.C. and SilverBay Capital Management LLC (the "Code"), a copy of which has been provided to me. I recognize that the provisions of the Code apply to me and agree to comply in all respects with the procedures described therein.
I certify that all my Personal Accounts are listed below, and that the most recent monthly statement for each Account, along with confirmations of any transactions effected since the date of such statements, are attached. I further certify that, other than those Securities listed below, I hold no Securities in which I may be deemed to have Beneficial Ownership other than in my Personal Accounts.
Title of Account Name of Broker Account Number
I hold the following Securities in addition to those in my Personal Accounts (If none, write NONE):
I am a director of the following public and private companies:
Date Completed: _______________ Signature:___________________________
Print Name:__________________________
SCHEDULE D
I have read and understand the Joint Code of Ethics of Alkeon Capital Management, LLC, Mainsail Group, L.L.C. and SilverBay Capital Management LLC (the "Code"), a copy of which has been provided to me. I recognize that the provisions of the Code apply to me and agree to comply in all respects with the procedures described therein.
I certify that I have complied in all respects with the requirements of the Code as in effect during the past year. I also certify that all transactions during the past year that were required to be reported by me pursuant to the Code have been reported in Quarterly Transactions Reports that I have filed or in confirmations and statements for my Personal Accounts that have been sent to you.
I certify that all my Personal Accounts are listed below, and that the most recent monthly statement for each Account is attached. I further certify that, other than those Securities listed below, I hold no Securities in which I may be deemed to have Beneficial Ownership other than in my Personal Accounts.
Title of Account Name of Broker Account Number
I hold the following securities in addition to those in my Personal Accounts (If none, write NONE):
I am a director of the following public and private companies:
Date Completed: _______________ Signature:___________________________
Print Name:__________________________
SMH CAPITAL INC.
CODE OF ETHICS
Investment advisers are fiduciaries that owe their undivided loyalty to their clients. Investment advisers are trusted to represent clients' interests in many matters, and advisers must hold themselves to the highest standard of fairness in all such matters.
Rule 204A-1 under the Advisers Act requires each registered investment adviser to adopt and implement a written code of ethics that addresses:
o The adviser's fiduciary duty to its clients,
o Compliance with all applicable Federal Securities Laws,
o Reporting and review of personal securities transactions and holdings,
o Reporting of violations of the code of ethics, and
o The delivery of the code of ethics to all supervised persons.
POLICIES AND PROCEDURES
DEFINITIONS
The following definitions are used throughout this Code of Ethics (the "Code").
1. ACCESS PERSON - Any SMH supervised person who has access to nonpublic information regarding any client's purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund, or who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic.
2. AUTOMATIC INVESTMENT PLAN - 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.
3. BENEFICIAL INTEREST - A person is considered to have beneficial interest in securities if they have or share a direct or indirect pecuniary interest in the securities. A person has a pecuniary interest in securities if he/she has the ability to directly or indirectly profit from a securities transaction (e.g., securities held by members of the person's immediate family sharing the same household. Immediate family means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. Adoptive relationships are included.).
4. CCO- Leslie Jallans, SMH Capital's Chief Compliance Officer.
5. COMPLIANCE OFFICER - SMH Capital's Investment Advisor Compliance Officer. The Compliance Officer reports directly to the CCO.
6. EXEMPTED SECURITY - Securities that are exempt from reporting under the PERSONAL SECURITIES TRANSACTIONS POLICY. Exempted Securities include: (a) direct obligations of the U.S. Government; (b) money market instruments such as bankers' acceptances, bank certificates of deposit, commercial paper, repurchase agreements and other high-quality short-term debt instruments; (c) shares of money market funds; (d) shares issued by open-end funds; and (e) shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are advised or underwritten by SMH Capital or an affiliate. Exchange-traded funds, or ETFs, are somewhat similar to open-end registered investment companies. However, ETFs are Reportable Securities, and are subject to the reporting requirements contained in SMH Capital's PERSONAL SECURITIES TRANSACTIONS POLICY.
7. FRONT-RUNNING - A practice generally understood to occur when investment advisory personnel personally trade ahead of client accounts.
8. MANUAL - SMH Capital's Investment Adviser Compliance Manual.
9. PERSHING - Pershing LLC, SMH Capital's clearing broker-dealer.
10. PRIVATE PLACEMENT - Any private offering of a security, including private investment funds and securities issued by private companies, that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) or Rule 504, Rule 505, or Rule 506 thereunder, or any other offering of securities not registered with the SEC.
11. REPORTABLE SECURITY - Any security other than an Exempted Security.
12. SECURITIES ACCOUNT - Any type of account that holds any type of security, including Exempted Securities.
13. SUPERVISED PERSON - SMH Capital's officers, directors, Investment Adviser Representatives, and any other person who provides investment advice on behalf of the adviser and is subject to the adviser's supervision or control is a supervised person under the Code of Ethics.
FIDUCIARY STANDARDS AND COMPLIANCE WITH THE FEDERAL SECURITIES LAWS
At all times, SMH Capital and its Supervised Persons must comply with the spirit and the letter of the Federal Securities Laws and the rules governing the capital markets. The Compliance Officer administers the Code. All questions regarding the Code should be directed to the Compliance Officer. Supervised persons must cooperate to the fullest extent reasonably requested by the Compliance Officer to enable SMH Capital to comply with all applicable Federal Securities Laws and the Compliance Officer to discharge his or her duties under the Manual.
All Supervised Persons will act with competence, dignity, integrity, and in an ethical manner when dealing with Advisory Clients, prospective clients, the public, third-party service providers, and other Supervised Persons. Supervised Persons must use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, trading, promoting SMH Capital's services, and engaging in other professional activities.
All Supervised Persons must adhere to the highest standards with respect to any potential conflicts of interest with Advisory Clients. As a fiduciary, SMH Capital must act in its Advisory Clients' best interests. Neither SMH Capital, nor any Supervised Person should ever benefit at the expense of any Advisory Client. Supervised Persons should notify the Compliance Officer immediately if they become aware of any practice that creates, or gives the appearance of, a material conflict of interest.
Supervised Persons are generally expected to discuss any perceived risks, or concerns about SMH Capital's business practices, with their direct supervisor or OSJ Principal. However, if a Supervised Person is uncomfortable discussing an issue with his or her supervisor, or if he or she believes that an issue has not been appropriately addressed, he or she should bring the matter to the Compliance Officer's attention.
REPORTING VIOLATIONS OF THE CODE
Supervised Persons must promptly report any suspected violations of the Code to the OSJ Principal, who shall in turn report those violations to the Compliance Officer. To the extent practicable, SMH Capital will protect the identity of any Supervised Person who reports a suspected violation.
Retaliation against any Supervised Person who reports a violation of the Code is strictly prohibited and will be cause for corrective action, up to and including dismissal.
Violations of this Code, or the policies and procedures set forth in the Manual, may warrant sanctions including, without limitation, requiring that personal trades be reversed, requiring the disgorgement of profits or gifts, issuing a letter of caution or warning, suspending personal trading rights, imposing a fine, suspending employment (with or without compensation), making a civil referral to the SEC, making a criminal referral, terminating employment for cause, and/or a combination of the foregoing. No Supervised Person will determine whether he or she committed a violation of the Code, or impose any sanction against him or herself. All sanctions and other actions taken will be in accordance with applicable employment laws and regulations.
All violations of this Code discovered by or reported to the Compliance Officer or the CCO and the remedial action taken as a result of the violation(s) shall be maintained by the Compliance Officer.
DISTRIBUTION OF THE CODE AND ACKNOWLEDGEMENT OF RECEIPT
SMH Capital will disseminate this Code of Ethics to each Supervised Person upon the commencement of employment, annually, and following any amendments to the Code.
All Supervised Persons must acknowledge that they have received, read, understood, and agree to comply with SMH Capital's Code and the Investment Adviser Compliance Manual. Each Supervised Person must acknowledge receipt of the firm's Code of Ethics in writing initially upon hire or when first becoming registered as an Investment Adviser Representative, when amended, and annually thereafter when completing the Annual Compliance Questionnaire via RegEd.com.
PERSONAL SECURITIES TRANSACTIONS POLICY
Supervised Persons' trades should be executed in a manner consistent with the Company's fiduciary obligations to its Advisory Clients - trades should avoid actual improprieties, as well as the appearance of impropriety. Supervised Persons' trades must not be timed to precede orders placed for any Advisory Client, nor should trading activity be so excessive as to conflict with a Supervised Person's ability to fulfill daily job responsibilities.
PROHIBITIONS
The Compliance Officer, in consultation with the CCO, may permit exemptions to the prohibitions of this section on a case-by-case basis when no abuse is involved and the circumstances warrant an exemption. All exemptions shall be evidenced in writing.
1. PERSHING ACCOUNTS - Supervised Persons should maintain Securities Accounts at Pershing, with limited exceptions as approved by the Compliance Officer.
Exceptions to this requirement may include the following:
o Accounts maintained by an Supervised Person prior to their
employment with SMH Capital,
o Accounts over which an Supervised Person does not have any direct
or indirect influence or control,
o Automatic Investment Plans, and
o Accounts that hold only Exempted Securities.
2. IPOs - Supervised Persons are prohibited from purchasing IPOs.
3. BLACK-OUT PERIOD - Supervised Persons are prohibited from buying or selling a security on the same day as an Advisory Client before the Advisory Client's order is either executed or withdrawn. This prohibition shall only apply to trades occurring in accounts of Advisory Clients that are managed within the Supervised Person's Branch Office. INVESTMENT OPPORTUNITIES MUST BE OFFERED TO ADVISORY CLIENTS FIRST, BEFORE THE COMPANY OR ITS SUPERVISED PERSONS MAY ACT UPON THEM.
Should a Supervised Person trade on the same day and in the same security as an Advisory Client, the Supervised Person may not receive a better price than the Advisory Client. If a Supervised Person's trade is executed at a better price than an Advisory Client's, SMH Capital shall award the better price to the Advisory
Client. If this is not possible, the Supervised Person's trade should be cancelled and, when necessary, all profits from the trade shall be disgorged and paid to a charity selected by the Supervised Person and approved by the Compliance Officer.
The prohibitions of this section shall not apply to:
o Purchases or sales effected in any account over which a
Supervised Person has no direct or indirect influence or control
AND the person making the investment decision with respect to
such account has no actual knowledge about the Company's pending
"buy" or "sell" orders;
o Purchases that are part of an Automatic Investment Plan; and
o Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities.
4. SHORT-TERM TRADING - Supervised Persons are discouraged from short-term trading. Short-term trading is generally any purchase and sale, or sale and purchase, of a security within thirty days.
ACCOUNTS COVERED BY THE POLICIES AND PROCEDURES
SMH Capital's PERSONAL SECURITIES TRANSACTIONS POLICY applies to all accounts holding any securities over which Supervised Persons have any Beneficial Interest.
REPORTABLE SECURITIES
SMH Capital requires Supervised Persons to provide periodic reports regarding transactions and holdings in all Reportable Securities.
PRECLEARANCE PROCEDURES FOR PRIVATE PLACEMENTS
Supervised Persons must have written clearance before executing any transaction in a Private Placement security. SMH Capital will not approve any proposed transaction that poses a conflict of interest or in any way appears improper.
Supervised Persons must use the PRECLEARANCE FORM FOR PRIVATE PLACEMENTS (located on SMH Capital's Intranet) to seek preclearance. All preclearance requests must be submitted to the OSJ Principal for initial review and then forwarded to the Compliance Officer for final review. The Compliance Officer, or a designee, shall determine if the transaction poses a conflict of interest or otherwise appears improper.
REPORTING
SMH Capital must collect information regarding the personal trading activities and securities holdings of all Supervised Persons. Supervised Persons must provide written notice to their OSJ Principal prior to opening a new Securities Account. After completing an initial review, the OSJ Principal will forward the request to the Compliance Department. Supervised Persons must
submit reports regarding securities transactions quarterly, as well as holdings reports initially, upon employment, and annually.
QUARTERLY TRANSACTION REPORTS
Each quarter, Supervised Persons must report all transactions in Reportable Securities in any accounts over which they have a Beneficial Interest. This reporting requirement is generally met with duplicate trade confirmations and account statements provided by the custodian, as discussed below. Reports are to be submitted to the Compliance Department within 30 days after the end of each calendar quarter.
Upon receipt of a written request to open an account, the Compliance Department will instruct the institution(s) hosting their account(s) to send duplicate trade confirmations and account statements to the Compliance Department. Any trades not included on such account statements, such as a Private Placement, must be reported on the appropriate QUARTERLY REPORTING FORM (included on SMH Capital's Intranet). QUARTERLY REPORTING FORMS shall be submitted to the Compliance Department within 30 days after the end of each calendar quarter in which the Supervised Person has transactions to report.
ANY SECURITIES ACCOUNTS HELD AT PERSHING AND THE REPORTABLE SECURITIES HELD IN THOSE ACCOUNTS ARE NOT REQUIRED TO BE REPORTED ON THE PERIODIC HOLDINGS REPORTING FORMS SO LONG AS THE COMPLIANCE DEPARTMENT AND OSJ PRINCIPAL, OR A DESIGNEE, MAY ACCESS THE ACCOUNT(S) ELECTRONICALLY THROUGH PERSHING. FURTHER, DUPLICATE INFORMATION CONTAINED IN BROKER CONFIRMATIONS OR ACCOUNT STATEMENTS THAT THE FIRM RECEIVED DIRECTLY FROM THE CUSTODIAN AND ALREADY HAS ON FILE DO NOT NEED TO BE PROVIDED.
Reports of quarterly transactions (i.e., QUARTERLY SECURITIES TRANSACTION REPORT forms or duplicate trade confirmations and account statements) must contain, at a minimum, the following information:
1. The date of the transaction, the title, and, as applicable, the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each Reportable Security involved;
2. The nature of the transaction (i.e., purchase, sale, or any other type of acquisition or disposition);
3. The price of the security at which the transaction was effected;
4. The name of the broker, dealer, or bank with or through which the transaction was effected; and
5. The date the Supervised Person submitted the report.
INITIAL AND ANNUAL HOLDINGS REPORTS
Supervised Persons must report the existence of Securities Accounts, as well as all holdings in Reportable Securities, initially and annually thereafter. Initial reports must be submitted to the Compliance Department within ten days of an individual first becoming a Supervised Person and must be current as of a date no more than 45 days prior to the date that the person became an Supervised Person. Annual reports must be submitted to the Compliance Department on or
before February 14th of each year, and must be current as of December 31st. Initial and annual holdings reports should be submitted using the SECURITIES HOLDINGS REPORT.
In lieu of completing the SECURITIES HOLDINGS REPORT for annual reporting, Supervised Persons may submit copies of their account statements, current as of December 31st, for all accounts that hold Reportable Securities. Supervised Persons should sign and date each statement before submitting it to the Compliance Department.
If a Supervised Person does not have any holdings and/or accounts to report, this should be indicated on the SECURITIES HOLDINGS REPORT. These forms should be signed, dated, and submitted to the Compliance Department within ten days of becoming a Supervised Person and by February 14th of each year.
ANY SECURITIES ACCOUNTS HELD AT PERSHING AND THE REPORTABLE SECURITIES HELD IN THOSE ACCOUNTS ARE NOT REQUIRED TO BE REPORTED ON THE SECURITIES HOLDINGS REPORT SO LONG AS THE COMPLIANCE DEPARTMENT AND OSJ PRINCIPAL, OR A DESIGNEE, MAY ACCESS THE ACCOUNT(S) ELECTRONICALLY THROUGH PERSHING. FURTHER, DUPLICATE INFORMATION CONTAINED IN BROKER CONFIRMATIONS OR ACCOUNT STATEMENTS THAT THE FIRM RECEIVED DIRECTLY FROM THE CUSTODIAN AND ALREADY HAS ON FILE DO NOT NEED TO BE PROVIDED.
SECURITIES HOLDINGS REPORT forms must contain, at a minimum, the following information:
1. The title and type of security and, as applicable, the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each Reportable Security in which the Supervised Person has any direct or indirect beneficial ownership;
2. The name of any broker, dealer, or bank with which the Supervised Person maintains an account in which any securities are held for the Supervised Person's direct or indirect benefit; and
3. The date the Supervised Person submitted the report.
REVIEW OF SUPERVISED PERSON TRADING
SMH Capital's PERSONAL SECURITIES TRANSACTIONS POLICY is designed to mitigate any potential material conflicts of interest associated with Supervised Persons' personal trading activities. The Compliance Officer is responsible for enforcing the PERSONAL SECURITIES TRANSACTIONS POLICY and underlying procedures. Accordingly, the OSJ Principals shall monitor Supervised Persons' personal trading activities and shall report any activity that may pose a conflict to the role of an Investment Adviser Representative, or any other unusual activity, to the Compliance Officer.
Each OSJ Principal, or a designee, shall keep an updated list of each Supervised Person under his or her supervision, along with a record of the Supervised Persons' Securities Accounts. OSJ Principals, or their designees, shall review Supervised Persons' investment patterns to detect the following potentially abusive behavior:
o Frequent and/or short-term trades in any security,
o Front-Running or short-term trading,
o Trading opposite of or ahead of Advisory Client trades,
o Trading in securities on a Restricted List or Watch List,
o Violations of black-out period(s), and
o Trading that appears to be based on material, non-public
information.
Each OSJ Principal, or a designee, shall review all reports submitted by the Supervised Persons under his or her supervision for potentially abusive behavior. All reviews of Supervised Persons' personal trading shall be documented. Any personal trading that appears abusive may result in further inquiry by the OSJ Principal or Compliance Officer, and/or sanctions, up to and including dismissal. If an OSJ Principal, or a designee, detects any violations of the Company's Code, the violations shall be reported to the Compliance Officer, who shall determine the necessary course of action.
The General Counsel will monitor the CCO's personal securities transactions. The appropriate supervisor (or, as applicable, his or her designee) shall monitor each OSJ Principal's personal securities transactions for compliance with the PERSONAL SECURITIES TRANSACTIONS POLICY.
DISCLOSURE OF THE CODE OF ETHICS
SMH Capital will describe its Code in Part II of Form ADV and, upon request, furnish Advisory Clients with a copy of the Code. All Advisory Client requests for SMH Capital's Code should be directed to the Compliance Department.