Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 1 of 32
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
CASE NO. 09-80846-CIV-MARRA/JOHNSON
WEST PALM BEACH POLICE PENSION FUND, Individually and on Behalf of All Others Similarly Situated,
Plaintiff,
v.
COLLINS CAPITAL LOW VOLATILITY PERFORMANCE FUND II, LTD., COLLINS CAPITAL LOW VOLATILITY PERFORMANCE FUND II, LP, and COLLINS CAPITAL INVESTMENTS, LLC,
Defendants.
AMENDED CLASS ACTION COMPLAINT
Plaintiff West Palm Beach Police Pension Fund (the “Pension Fund”) alleges, upon
personal knowledge as to itself and upon information and belief as to all other matters, as
follows:
I. NATURE OF THE ACTION
1. Plaintiff brings this class action on behalf of all persons or entities who were
shareholders in the Collins Capital Low Volatility Performance Fund II, Ltd. (“Collins Capital
Fund”) between June 1, 2007 and December 11, 2008, inclusive (the “Class Period”), to recover
damages and for immediate equitable relief, including an accounting and an order restraining the
continued dissipation of their funds, in connection with their investments in the Collins Capital
Fund. Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 2 of 32
2. Unbeknownst to Plaintiff, a substantial portion of its investment in the Collins
Capital Fund was turned over to Bernard L. Madoff (“Madoff”) through Bernard L. Madoff
Investment Securities LLC (“BMIS”). This transfer was facilitated by the Collins Capital Fund’s
investment in the Rye Select Broad Market Prime Fund, LP (the “Feeder Fund”). Collins Capital
Fund failed to conduct proper due diligence on its investments in the Feeder Fund, and as a result
of these failures, Plaintiff’s investments were lost to Madoff’ s massive Ponzi scheme.
3. Plaintiff’s losses resulted from the gross negligence of several entities that
facilitated Plaintiff’s investments in the Collins Capital Fund. Plaintiffs do not accuse any
Defendants of making misrepresentations or omissions with intent to defraud, mislead, omit, or
lie in any way.
4. In addition, the Defendants unjustly enriched themselves by taking fees
predicated on the phony profits reported by the Madoff Ponzi scheme. Plaintiff is entitled to a
constructive trust over such fees, and to preliminary and permanent injunctive relief to secure
such recovery.
II. PARTIES
A. Plaintiff
5. Plaintiff West Palm Beach Police Pension Fund provides retirement benefits for
its retired members. The Pension Fund is, and at all relevant times has been, a shareholder of the
Collins Capital Fund.
B. Defendants
6. Defendant Collins Capital Fund is a private investment company existing under
the laws of the British Virgin Islands as a BVI business company. Collins Capital Fund’s
registered office is located at c/o Bison Financial Services Limited, Bison Court, Road Town,
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Tortola, British Virgin Islands. Collins Capital Fund’s investment advisor is Collins Capital
Investments, LLC.
7. Defendant Collins Capital Low Volatility Performance Fund II, LP (the
“Sister Fund”) is a Delaware limited partnership which is described as a “sister U.S. domestic
fund” to the Collins Capital Fund. The Sister Fund’s registered office is located at c/o National
Corporate Research, Ltd., 615 South DuPont Highway, Dover, Delaware 19901. The Sister
Fund’s investment advisor is also Collins Capital Investments, LLC.
8. Defendant Collins Capital Investments, LLC (“Collins Investments”) is a
Delaware limited liability company with its principal office at 806 Douglas Road, Suite 570,
Coral Gables, Florida 33134. Collins Investments is a registered investment advisor with the
Securities and Exchange Commission (“SEC”) and serves as investment advisor of the Collins
Capital Fund and the Sister Fund.
9. Defendants Collins Capital Fund, the Sister Fund, and Collins Investments are
collectively referred to herein as the “Defendants.”
C. Non-Party Actors
10. The Rye Prime Fund is a Delaware limited partnership. The Rye Prime Fund
investment objective was to seek long-term capital growth and stability of returns. The Rye
Prime Fund’s assets were managed by Madoff and BMIS.
11. Tremont Partners, Inc. (“TPI”) is the general partner and manager of the Rye
Prime Fund. TPI is a subsidiary of Tremont Group Holdings, Inc.
12. Rye Investment Management (“Rye Management”) is a hedge fund group set up
as a division of Tremont Group Holdings, Inc.
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13. Tremont Group Holdings, Inc. (“Tremont”) is an investment manager in the
fund of funds products and multi-manager portfolios. Tremont’s executive offices are located at
555 Theodore Fremd Avenue, Rye, New York 10580.
14. Oppenheimer Acquisition Corp. (“Oppenheimer”) specializes in investment
advisory services to institutions and retail investors. Oppenheimer is the direct parent
corporation of Tremont. Oppenheimer’s executive offices are located at Two World Financial
Center, New York, New York 10281.
15. Massachusetts Mutual Life Insurance Co. (“Mass Mutual”) is a mutually
owned insurance and financial services company located at 1295 State Street, Springfield,
Massachusetts 01111. Mass Mutual is the direct parent company of Oppenheimer.
16. The Rye Prime Fund, Rye Management, TPI, Tremont, Oppenheimer and Mass
Mutual are collectively referred to herein as the “Tremont Group.”
III. JURISDICTION AND VENUE
17. This Court has jurisdiction over claims asserted herein pursuant to the Class
Action Fairness Act of 2005, codified at 28 U.S.C. § 1332(d)(2)(A). The amount in controversy
in this action exceeds $5,000,000, exclusive of interests and costs. On information and belief,
Plaintiff’s class consists of more than 100 individuals. At least one Plaintiff is a citizen of
Florida and one Defendant is a citizen of a state other than Florida. This Court has supplemental
jurisdiction pursuant to 28 U.S.C. § 1367(a).
18. This Court has personal jurisdiction over all Defendants because all Defendants
have maintained minimum contacts with the United States related to Plaintiff’s claims and have
done business in and maintained minimum contacts with the State of Florida.
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19. Venue is proper in this Court because Plaintiff’s claims arose in this District and
Defendants have purposefully availed themselves of this District. Venue is also proper in this
District because a substantial portion of the transactions and wrongs complained of in this
complaint, including Defendant’s primary participation in the wrongful acts detailed herein,
occurred in this District. Defendants have received substantial compensation in this District by
engaging in numerous activities and conducting business here, which had an effect in this
District.
IV. FACTUAL ALLEGATIONS
A. Background to BMIS and the Madoff Ponzi Scheme
20. Madoff founded BMIS in 1960 and eventually expanded the firm’s operations to
include a worldwide base serving over 4,800 clients, providing investment advisor services for a
fee. Because of its reliable financial returns year after year, BMIS’s client base grew to include
some of the largest investors in the world and its services were in high demand. A December 16,
1992 article from The Wall Street Journal described Madoff as:
[O]ne of the masters of the off-exchange “third market” and the bane of the New York Stock Exchange. He has built a highly profitable securities firm, Bernard L. Madoff Investment Securities, which siphons a huge volume of stock trades away from the Big Board. The $740 million average daily volume of trades executed electronically by the Madoff firm off the exchange equals 9% of the New York exchange’s. Mr. Madoff’ s firm can execute trades so quickly and cheaply that it actually pays other brokerage firms a penny a share to execute their customers’ orders, profiting from the spread between bid and asked prices that most stocks trade for.
21. Using Madoff’ s so-called “split-strike conversion” strategy, BMIS falsely
reported steady annual returns in the range of 8-12% to its clients for decades. This strategy
consisted of Madoff purportedly buying stocks of selected corporations that were included in the
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blue chip S&P 100 Index, while simultaneously buying put options below the current stock price
to protected against large declines and selling call options above the current price to fund the
purchase of put options. These call options would also, to a degree, limit any gains that would
be earned on the underlying stocks. Over time, Madoff’ s strategy evolved slightly. He
eventually incorporated put and call options on the S&P 100 Index itself, and began putting all
funds into U.S. Treasury bills at the end of each quarter. Madoff claimed to execute the split
strike conversion strategy six to eight times per year.
22. In reality, BMIS was a giant Ponzi scheme. BMIS’s account statements included
transactions, gains and securities holdings that were entirely fictitious. Irving Picard, the court-
appointed trustee liquidating Madoff’ s assets, has stated that for the past thirteen years, he has
found no evidence that Madoff traded any stocks or options for investors. It now appears that
substantially all of the assets given to BMIS for management have been lost or stolen through
Madoff’ s scheme.
23. Madoff’ s Ponzi scheme unraveled in December 2008 when BMIS did not have
sufficient funds to cover investors’ redemption requests. According to the SEC, Madoff
ultimately confessed to two senior executives of BMIS that he was “finished,” that he had
“absolutely nothing,” that “it’s all just one big lie,” and that BMIS’s investment advisor services
business model was “basically, a giant Ponzi scheme.” Madoff explained that for years he had
been paying returns to certain investors out of principal received from other, different investors.
Madoff stated that the business was insolvent and had crumbled. He also stated that he estimated
the losses from this fraud to be approximately $50 billion.
24. On March 12, 2009, Madoff pled guilty to all eleven felony counts filed against
him by the United States Attorney’s Office, admitting that he had perpetrated a fraud since the
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early 1990s. Madoff admitted in his plea allocution that he never invested his investment
advisory clients’ funds in securities; that he never employed the split-strike conversion strategy
he had public touted; and that he never had custody of the securities he purportedly held for his
investment advisory clients. Madoff also admitted that he caused to be created and sent to his
clients false trading confirmation and client account statements reflecting phony transactions and
positions. These trade confirmations and account statements were designed to give the
appearance that he had executed his split-strike conversion strategy with perfect market timing.
On June 29, 2009, Madoff was sentenced to 150 years in prison.
25. On March 18, 2009, David Friehling (“Friehling”), a partner of Friehling &
Horowitz (“F&H”), Madoff’ s auditor, surrendered to federal authorities in Manhattan. Friehling
had been charged with deceiving investors by falsely certifying that he had audited Madoff and
BMIS. According to a March 19, 2009 article in The Wall Street Journal:
[A] Federal Bureau of Investigation agent said the auditor didn’t verify the existence of assets that Mr. Madoff said he held or securities trades Mr. Madoff said he made. The agent also said Mr. Friehling didn’t examine a bank account through which billions of dollars of client funds flowed, among other things.
The SEC has also filed a civil case against Friehling and F&H.
26. On May 18, 2009, The Wall Street Journal reported that federal prosecutors are
investigating at least eight of BMIS’s highest-profile investors. Among those reportedly being
investigated is Carl Shapiro, described as “one of Mr. Madoff’ s oldest friends and biggest
financial backers and [who] helped Mr. Madoff start his investment firm in 1960.”
27. On August 9, 2009, Frank DiPascali, Jr. (“DiPascali”), Madoff’ s former chief
deputy and self-described “director of options trading” and “chief financial officer,” pled guilty
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to ten felony counts in connection with Madoff’ s Ponzi scheme. According to an August 11,
2009 article in The New York Times, DiPascali:
[D]escribed how he, Mr. Madoff and unidentified “other people” created fake account statements, shuffled money between bank accounts and perpetuated a years-long fairy tale that they were making money for clients of Bernard L. Madoff Investment Securities.“No purchases or sales of securities were actually taking place in their accounts,” Mr. DiPascali said. “It was all fake. It was all fictitious. It was wrong, and I knew it was wrong at the time.”
The SEC has also filed a civil complaint against DiPascali. He is scheduled to be sentenced in
May, 2010.
28. On August 31, 2009, the SEC published its 457-page Report, the Investigation of
Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme. The Report details the
multitude of tips and information the SEC received containing various proofs that Madoff was
operating a Ponzi scheme, and noted that “[b]y mid-December 2008, the SEC learned that
credible and specific allegations regarding Madoff’s financial wrongdoing were repeatedly
brought to the attention of SEC staff, but were never recommended to the Commission for
action.”
29. As stated in the Report’s Executive Summary, the Office of the Inspector General
(“OIG”) found that:
[T]he SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed. (emphasis added)
30. Regarding these three examinations and two investigations, the OIG concluded
that the SEC:
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[N]ever took the necessary and basic steps to determine if Madoff was misrepresenting his trading. . . . [H]ad these efforts been made with appropriate follow-up, the SEC could have uncovered the Ponzi scheme well before Madoff confessed.
The OIG found that the conduct of the examinations and investigations was similar in that they were generally conducted by inexperienced personnel, not planned adequately, and were too limited in scope. While examiners and investigators discovered suspicious information and evidence and caught Madoff in contradictions and inconsistencies, they either disregarded these concerns or relied inappropriately upon Madoff’ s representations and documentation in dismissing them. Further, the SEC examiners and investigators failed to understand the complexities of Madoff’ s trading and the importance of verifying his returns with independent third-parties.
31. The Report is very straightforward in explaining why the SEC did not uncover
Madoff’ s Ponzi scheme:
The OIG did not find that the failure of the SEC to uncover Madoff’ s Ponzi scheme was related to the misconduct of a particular individual or individuals, and found no inappropriate influence from senior-level officials. . . .
Rather, there were systemic breakdowns in the manner in which the SEC conducted its examinations and investigations, and for that reason, the OIG is issuing under separate cover two audit reports providing the SEC with specific and concrete recommendations to improve the operations of both [the Office of Compliance Inspections and Examinations] and [the Division of Enforcement].
B. Background of the Collins Capital Fund
32. On or about October 1, 2007 the Pension Fund placed $8,369,165.68 in the
Collins Capital Fund.
33. According to the Collins Capital Low Volatility Performance Fund II, Ltd.
Explanatory Memorandum (“Explanatory Memo”), 1 the Collins Capital Fund’s investment
1 A true and correct copy of the Explanatory Memo is attached hereto as Exhibit A. A true and correct copy of the executed Subscription Agreement is attached hereto as Exhibit B. 9 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 10 of 32
objective is “to achieve consistent investment returns with low correlation to the markets, while
reducing risk through diversification, by utilizing a diverse group of low volatility alternative
investment strategies.” Explanatory Memo, 13.
34. To achieve this investment objective, the Collins Capital Fund “employs a ‘multi-
manager’ approach, maintaining investments with a diversified group of investment managers . .
. managing private investment vehicles or accounts . . . that utilize low volatility strategies
believed to have superior risk-reward potential.” Id.
35. According to the Explanatory Memo, the goal of the multi-manager approach is to
“seek[] diversification through a combination of Managers employing a range of investment
strategies.” Id.
36. Regarding the selection of fund managers, the Explanatory memo emphasized the
“different factors” that Collins Investments employed before selecting a manager:
• “[M]ere consistency of return will not be sufficient to meet [Collins
Investments’] selection criteria. Consistent adherence to stated strategy
and absence of aberrational trading periods will be equally important in
[Collins Investments’] performance review. Id. at 15-16.
• “[A]n ability to achieve consistent, low correlated returns in both
favorable and unfavorable market environments.” Id. at 16.
• “Prospective Managers are also evaluated on their ability to manage risk. .
. . In this regard, risk management approaches beyond mere
diversification are analyzed. . . . [Collins Investments] evaluates and
analyzes each Manager’s use of risk monitoring, management and
control techniques.” Id.
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• “Collins Capital does not allocate or re-allocate Fund capital among
Managers based upon any attempt to time or exploit short-term market
trends or movements.” Id.
37. The Explanatory Memo also touted the ongoing oversight of the Collins Capital
Fund:
Collins Capital regularly monitors Managers and their Portfolio Funds. The Advisor contacts Managers on a regular basis and meets personally with Managers as appropriate. Performance and risk are monitored and reviewed on an ongoing basis, with each Manager and Portfolio Fund being compared to similar funds and the overall market. The Advisor also utilizes its extensive network of contacts in the industry to assist it in evaluating certain events or trends, whether within a market sector or strategy or as to a particular Portfolio Fund or Manager. Id. at 18.
38. With respect to the management fees paid by Plaintiff to Collins Investments, the
Explanatory Memo states that Collins Investments receives a management fee from the Collins
Capital Fund at the rate of 1.25% per annum of the fund’s net assets, payable monthly in advance
on or before the tenth business day of the month in an amount based upon the net asset value of
the fund as of the first business day of the month. Id. at 37.
39. Unbeknownst to the Pension Fund, as of October 31, 2008, 9.93% of its
$8,369,165.68 investment was placed in the Rye Prime Fund managed by TPI, for which BMIS
served as the investment manager. Accordingly, approximately $831,058.15 of the Pension
Fund’s investment in the Collins Capital Fund was funneled into and lost to the Madoff Ponzi
scheme.
C. Multiple Red Flags Should Have Alerted Defendants
40. Prior to Madoff’s admission that his strategy was a Ponzi scheme, many analysts
and experts questioned how Madoff and BMIS could legitimately produce such stable, positive
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results, month after month, regardless of market conditions. Defendants’ decision to invest in
the Rye Prime Fund—despite a multitude of significant “red flags” regarding Madoff and
BMIS—leads only to the conclusion that Defendants conducted no due diligence whatsoever, or
that their due diligence was so grossly negligent that they did not discover the red flags. These
red flags include, but are not limited to, the following:
1. Madoff ’s Returns Could Not Be Replicated
41. The description of Madoff’ s split-strike conversion strategy was inconsistent with
the pattern of returns in BMIS’s track record, which showed only seven small monthly losses
over a 14 year period.
42. In May 2001, Mar/Hedge, a leading hedge fund information source and the first
monthly publication dedicated to serving the hedge fund community, ran an article entitled
Madoff Tops Charts; Skeptics Ask How. The article provided a summary of the more significant
questions that securities experts had about Madoff’ s hedge funds:
[E]xperts ask why no one has been able to duplicate similar returns using the strategy and why other firms on Wall Street haven’t become aware of the fund and its strategy and traded against it, as has happened so often in other cases; why Madoff Securities is willing to earn commissions off the trades but not set up a separate asset management division to offer hedge funds directly to investors and keep all the incentive fees for itself, or conversely, why it doesn’t borrow the money from creditors, who are generally willing to provide leverage to a fully hedged portfolio of up to seven to one against capital at an interest rate of Libor-plus, and manage the funds on a proprietary basis.
43. Mar/Hedge also confirmed that “most of those who are aware of Madoff’ s status
in the hedge fund world are baffled by the way the firm has obtained such consistent, nonvolatile
returns month after month and year after year,” and that “skeptics who express a mixture of
amazement, fascination and curiosity about the program wonder, first, about the relative
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complete lack of volatility in the reported monthly returns. But among other things, they also
marvel at the seemingly astonishing ability to time the market and move to cash in the
underlying securities before market conditions turn negative; and the related ability to buy and
sell the underlying stocks without noticeably affecting the market.”
44. On May 7, 2001, an article published in Barron’s, entitled Don’t Ask, Don’t Tell:
Bernie Madoff is So Secretive, He Even Asks His Investors to Keep Mum, raised serious doubts
about the purported success of Madoff’s stated investment strategy:
[S]ome of Wall Street remain skeptical about how Madoff achieves such stunning double-digit returns using options alone. Three options strategists for major investment banks told Barron’s they couldn’t understand how Madoff churns out such numbers using this strategy. Adds a former Madoff investor: ‘Anybody who’s a seasoned hedge-fund investor knows the split-strike conversion is not the whole story. To take it at face value is a bit naïve.’
45. In November 2005, forensic accountant Harry Markopolos sent a detailed 17-page
memo to the SEC, in which he identified 29 red flags that BMIS was a fraud. Markopolos
concluded in this memo that it was “highly likely” that “Madoff Securities is the world’s largest
Ponzi scheme.” Moreover, Markopolos first contacted the SEC in 1999, asking that it
investigate Madoff because it was impossible to legally make the profits Madoff claimed using
the investment strategies that Madoff claimed to use. According to Markopolos’ February 4,
2009 testimony before the House Financial Services Subcommittee on Capital Markets,
Insurance, and Government Sponsored Enterprises, he was able to show BMIS was a fraud in
less than four hours:
A quick glance at Exhibit 1 of my May 2000 SEC Submission next to the letter “C” shows the “Cumulative Performance of Manager B” where Manager B is BM. Note how the line goes up at nearly a perfectly rising 45 degree angle with no noticeable downturns whatsoever from 1993 thru March 2000. Now ask yourself, how
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can any manager’s performance be that perfectly smooth and in only the up direction when markets go down as well as up? Then ask yourself what the managers of these feeder funds were thinking as they performed due diligence or even if they were thinking while they performed due diligence. Yes, BM was a “no-brainer” investment but only in the sense that you had to have no brains whatsoever to invest into such an unbelievable performance record that bears no resemblance to any other investment managers’ track record throughout recorded human history.
I then assembled OEX Standard & Poor’s 100 Index Option open interest and volume statistics from the Chicago Board Options Exchange (CBOE) as reported in the Wall Street Journal’s Money & Investing Section. There were not enough OEX index options in existence for BM to be managing the Split-Strike Conversion Strategy he purported to be running. This test took me less than 30 minutes to complete. At this point, I was incredulous as to how any fund would willingly invest in such an obvious fraud.
In less than four hours I knew I had proved mathematically that BM was a fraud and so I then furthered my analysis and developed two alternate fraud hypotheses to explain what might be happening. Fraud hypothesis 1 was that BM was simply a Ponzi scheme and the returns were fictional. Fraud hypothesis 2 was that the returns were real but they were being illegally generated by front-running Madoff Securities broker/dealer order flow and the split-strike conversion strategy was a mere “front” or “cover.” Either way, BM was committing a fraud and should go to prison.
46. Michael Markov, a hedge fund consultant, stated that he was hired by a fund in
2006 to look into the returns of one of BMIS’s feeder funds. He found that these returns were
“statistically impossible to replicate.”
47. Even other funds using the split-strike conversion strategy did not replicate the
returns of Madoff and BMIS. As reported in the May 2001 Mar/Hedge article, “the best known
entity using a similar strategy [to the split-strike conversion strategy], a publicly traded mutual
fund dating from 1978 called Gateway, has experienced far greater volatility and lower returns
during the same period.”
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2. BMIS’s Auditor was Obscure and Ill-Equipped
48. Despite holding more than $20 billion in assets under management, BMIS did not
use a “Big Four” auditor. Instead, the sole auditor for BMIS was Friehling & Horowitz
(“F&H”), a tiny firm located in Rockland County, New York.
49. F&H consisted of only three employees: a 78 year old retired accountant living in
Florida, a secretary, and a single active accountant. F&H’s only office was a tiny 13 foot by 18
foot storefront in the New York City suburb of New City in Rockland County.
50. While F&H was a member of the American Institute of Certified Public
Accountants (“AICPA” ), it had not been subject to peer review since 1993—a requirement of
membership of AICPA—because F&H represented to AICPA, in writing, that it did not perform
any audits.
3. Madoff Operated BMIS Behind a Wall of Secrecy
51. Madoff effectively operated the world’s largest hedge fund in total secrecy and
without oversight by the SEC, government regulators or other normal market checks. Former
employees have attested to the high degree of secrecy that surrounded the accounts of BMIS’s
clients.
52. Madoff made a point of refusing to discuss his “investment strategy,” even with
funds that invested billions of dollars with BMIS. According to the May 2001 Mar/Hedge
article:
The strategy and trading, [Madoff] says, are done mostly by signals from a proprietary “black box” system that allows for human intervention to take into account the “gut feel” of the firm’s professionals. []
As for the specifics of how the firm manages risk and limits the market impact of moving so much capital in and out of positions, Madoff responds first by saying, “I’m not interested in
15
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educating the world on our strategy, and I won’t get into the nuances of how we manage risk.
53. Those investors who invested directly with Madoff were also told not to disclose
their investments in BMIS. According to the May 2001 article in Barron’s, one investment
manger recalled Madoff telling him, “if you invest with me, you must never tell anyone that
you’re invested with me. It’s no one’s business what goes on here.”
4. Madoff’s Timing was Too Good to be True
54. Account statements revealed a pattern of purchases at or close to daily lows and
sales at or close to daily highs, which is virtually impossible to achieve with the consistency
reflected in Madoff’s reported results.
5. Madoff’s Strategy was Inconsistent with Options Volumes
55. Trading volumes reflected in accounts were vastly in excess of actually reported
trading volumes. In particular, the S&P 100 options that Madoff purported to trade could not
handle the size of the combined fund of funds’ assets. A report from Bloomberg estimated that
the strategy would have required at least 10 times the S&P 100 option contracts that traded on
U.S. exchanges.
6. Madoff Did Not Set Up a Stand-Alone Hedge Fund
56. Madoff operated through managed accounts, rather than by setting up a hedge
fund of his own, where his fees would have been much higher than the brokerage commissions
that Madoff was charging. This is particularly suspicious because a hedge fund requires annual
audits.
7. Madoff Liquidated Holdings at the End of Each Quarter
57. BMIS liquidated its securities positions at the end of each quarter, presumably to
avoid reporting large securities positions. As previously noted, Irving Picard, the court-
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appointed trustee liquidating Madoff’ s assets, has found no evidence that Madoff traded any
stocks or options for the past thirteen years.
8. Madoff Was His Own Custodian and Administrator
58. Substantially all of the assets were in the custody of BMIS. Moreover, BMIS
purportedly initiated trades in the accounts, executed the trades, and served as custodian and
administrator for the accounts. A December 13, 2008 article in The Wall Street Journal quoted
Chris Addy, founder of Castle Hall Alternatives, which invests in hedge funds for clients, as
saying:
There was no independent custodian involved who could prove the existence of assets. . . . There’s a clear and blatant conflict of interest with a manager using a related-party broker-dealer. Madoff is enormously unusual in that this is not a structure I’ve seen.
It was this structure that permitted Madoff to claim trades he never made.
9. Family Members Controlled Key Positions at BMIS
59. Key positions at BMIS were controlled by Madoff family members, including his
brother, two sons, and a niece. Madoff’ s brother Peter Madoff was BMIS’s Chief Compliance
Officer.
10. Clients of BMIS Did Not Have Electronic Access to their Accounts
60. Madoff was a pioneer in electronic trading and BMIS was supposedly
technologically advanced, yet clients did not have electronic access to their accounts at BMIS.
Paper documentation provided Madoff with the ability to manufacture trade tickets purporting to
confirm investment results that had not and were not occurring, and to falsify supporting
documentation.
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D. Investment Professionals Who Performed Adequate Due Diligence Identified the Numerous Red Flags Warning that Madoff was Operating a Fraud
61. Investment professionals who investigated the legitimacy of Madoff’ s trading
operations identified the numerous red flag warnings and, based on the numerous red flags and
the absence of any legitimate explanation from Madoff as to how he could generate such
consistent results, concluded that his operation must be a fraud.
62. Forensic accountant Harry Markopolos first approached the SEC in May 2000
with evidence that Madoff was operating a Ponzi scheme. As discussed above, Markopolos also
submitted a letter to the SEC on November 7, 2005, entitled The World’s Largest Hedge Fund is
a Fraud, in which he set forth in detail, over 17 single-spaced pages and a two page attachment,
how Madoff’ s returns could not be real. Markopolos identified 29 red flags that were signs of
highly suspicious activity at BMIS, including, among others:
a. Why would B[ernie] M[adoff] settle for charging only undisclosed commissions
when he could earn standard hedge fund fees of 1% management fee + 20% of
the profits? (emphasis original);
b. The third party hedge funds and fund of funds that market this hedge fund
strategy that invests in BM don’t name and aren’t allowed to name Bernie Madoff
as the actual manager in their performance summaries or marketing literature. . . .
Why the need for such secrecy? If I was the world’s largest hedge fund and had
great returns, I’d want all the publicity I could garner and would want to appear
as the world’s largest hedge fund in all the industry rankings. (emphasis original);
c. It is mathematically impossible for a strategy using index call options and index
put options to have such a low correlation to the market where its returns are
supposedly being generated from. This makes no sense! . . . However, BM’s
18 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 19 of 32
performance numbers show only 7 extremely small [monthly] losses during 141/2
years and these numbers are too good to be true. The largest one month loss was
only -55 basis points (-0. 55%) or just over one-half of one percent! And BM never
had more than a month losing streak! (emphasis added);
d. Madoff does not allow outside performance audits. (emphasis original);
e. Madoff returns are not consistent with the one publicly traded option income fund
with a history as long as Madoff’s (emphasis added);
f. Why is Bernie Madoff borrowing money at an average rate of 16.00% per annum
and allowing these third party hedge funds, fund of funds to pocket their 1% and
20% fee bases[sic] upon Bernie Madoff’s hard work and brains? Does this make
any sense at all? Typically FOF’s [fund of funds] charge only 1% and 10%, yet
BM allows them the extra 10%. Why? And why do these third parties fail to
mention Bernie Madoff in their marketing literature? After all he’s the manager,
don’t investors have a right to know who’s managing their money? (emphasis
original); and
g. BM goes to 100% cash for every December 31st year-end according to one FOF
invested with BM. This allows for ‘cleaner financial statements’ according to this
source. Any unusual transfers or activity near a quarter-end or year-end is a red
flag for fraud. (emphasis original).
63. According to a December 16, 2008 article in The New York Times, French bank
Société Genéralé put BMIS on its internal blacklist after conducting due diligence in March
2003. Société Genéralé became suspicious of BMIS’s returns when it could not match Madoff’s
19
Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 20 of 32
results after back-testing its strategy. Furthermore, Société Genéralé was troubled by the fact
that Madoff’s brother, Peter Madoff, was BMIS’s chief compliance officer.
64. In, 2007, Aksia LLC, a hedge fund investment advisor, warned its clients in a four
page memo not to invest with BMIS. Among the red flags cited by Aksia were:
a. The inadequacy of BMIS’ auditor, F&H;
b. The “high degree of secrecy” surrounding the trading of BMIS’s various feeder
fund accounts;
c. Madoff’s comptroller was based in Bermuda, whereas the standard practice was
to have an in-house comptroller;
d. The 2005 letter from Markopolos to the SEC described above; and
e. The fact that Madoff’s trading strategy that could not be replicated by Aksia’s
quantitative analysts.
65. Commenting on his company’s decision not to recommend Madoff-related
investments, Jim Vos, CEO of Aksia, stated, “[t]here were a host of red flags, which taken
together made us concerned about the safety of client assets should they [be] invested in these
feeders. Consequently, every time we were asked by clients, we waved them away from the
Madoff feeder funds.”
66. In a December 13, 2008 article in The New York Times, Robert Rosenkranz,
principal of hedge fund adviser Acorn Partners, was quoted as saying, “[o]ur due diligence,
which got into both account statements of [Madoff’s] customers, and the audited statements of
Madoff Securities, which he filed with the S.E.C., made it seem highly likely that the account
statements themselves were just pieces of paper that were generated in connection with some sort
of fraudulent activity.”
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67. A December 22, 2008 article in Pensions & Investments magazine titled
Homework Saves Crying Over Madoff further noted that funds which actually performed
appropriate due diligence steered clear of Madoff and avoided the losses caused to Plaintiffs:
The due diligence of hedge funds of funds that specialize in managing mandates for U.S. pension funds, endowments and foundations found too many inconsistencies in the trading strategy managed by [BMIS]. . . .
“The fact that so many institutional investors’ hedge fund-of-funds managers insisted on transparency and therefore avoided Bernie’s is a testament to the quality of their due diligence. They protected institutional investors from getting involved in this fraud,” said Eric Weber, chief operating officer and principal of Freeman & Col., New York, a boutique investment bank.
Among those steering clear were the largest hedge fund-of-funds managers of U.S. institutional assets, including Pacific Alternative Asset Management Co., K2 Advisors LLC, Mesirow Advanced Strategies, Inc., Goldman Sachs Asset Management, Morgan Stanley, JPMorgan Asset Management, UBS Global Asse Management, BlackRock Inc., Harris Alternatives LLC and the asset management unit of BNY Mellon Bank.
Grosvenor Capital Management LLC redeemed its small investment with Mr. Madoff in 1991. Arden Asset Management Inc. got rid of Madoff investments in 2002. . . .
“There were a thousand red flags, if you did the work. It didn’t take much energy to reverse-engineer Madoff’s track record and find that his split-strike conversion method just would not have worked in certain markets the way he said it did,” said the chief executive of a large institutional hedge fund-of-funds firm who asked not to be identified.
Many observers agreed with another hedge fund-of-funds executive who said, on condition of anonymity: “Among serious people in the industry, (Mr.) Madoff was a joke. . . . Madoff was very knowable. All the trouble signs were there, written in red.” (emphasis added)
68. A February 29, 2009 article in Barron’s entitled The Artful Dodgers: For Some
Hedge Funds, Avoiding Bernie Madoff Was A No-Brainer further noted that other large investors
21 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 22 of 32
in hedge funds who performed or attempted to perform appropriate due diligence steered clear of
Madoff and avoided the losses caused to Plaintiffs:
Other big investors in hedge funds tried to kick the tires more recently at “feeder funds” that funneled money to Madoff, and quickly determined they should stay away. The key was lack of transparency.
“Recently I was introduced to a feeder into the Madoff fund, and after being told about this rare opportunity to get invested with a manager of very high regard [to many], low fees and consistent returns, I declined immediately,” James Newman, vice president of operational due diligence at Ermitage, a fund-of-funds, wrote to clients after allegations of the massive Ponzi scheme hit the headlines. “From the outset, I was denied the opportunity to perform a detailed due-diligence review. We take a very dim view on any fund, regardless of size, industry status, or ‘it’s good enough for them’-type reasons, that restricts our due-diligence process,” he adds.
Bank of America was another skeptic. “None of Bank of America’s alternative investments had exposure to Madoff,” confirms David Bailin, president of the company’s Alternative Investment Asset Management. “It was impossible to understand or replicate the strategy,” he says, adding that there was “a lack of transparency.”
Ken Nakayama was one who avoided a personal investment in Madoff via a feeder fund, specifically the Fairfield Sentry fund. In April 2001, after studying Fairfield Sentry’s marketing materials and returns, Nakayama, an options expert and at the time Deutsche Bank’s chief equity derivatives strategist, was driven to express skepticism about Madoff to this reporter. His tip-off led to the May 2001 Barron’s article "Don't Ask, Don't Tell."
. . .
“The returns seemed ‘managed’ or ‘engineered,’ and showed little evidence of typical factor exposures you expect to see in hedge- fund returns,” he found. “And, equally oddly, despite his size, Madoff seemed to leave no footprints in the options market,” even though options played a big role in his stated investment strategy. Over the years, Nakayama followed Madoff' s returns with strong skepticism, meanwhile warning multiple others against investing.
22 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 23 of 32
In some cases, feeder funds offered by the likes of Tremont (a Rye, N.Y.-based unit of MassMutual Financial Group) and Fairfield Greenwich seem to have “allowed Madoff to outsource all the regulatory headaches and the paperwork,” says Lita Epstein, an Orlando, Fla.-based forensic accountant and author of books on analyzing financial statements. “Madoff paid them to be the front door, the registered investment adviser, while he operated the underlying strategy.” (emphasis added)
69. Had Defendants carried out their obligations to Plaintiff in accordance with their
fiduciary duties, they would have recognized at least some of the dozens of these red flags. At
the very least, like Aksia, Defendants should have been able to discover the existence of
Markopolos’ letter, which would put them on notice of at least some of the red flags previously
discussed. Instead, Defendants blindly invested Plaintiff’s money, funneling it to BMIS and
thereby losing it in the Madoff Ponzi scheme.
70. Defendants acted with gross negligence and violated their duties by failing to
perform, or cause to be performed, appropriate due diligence that would have revealed that the
assets of the Collins Capital Fund was invested with Madoff, BMIS, and/or Madoff-controlled
entities, and by failing to monitor the Collins Capital Fund’s investments in these Madoff
entities.
V. CLASS ACTION ALLEGATIONS
71. Plaintiff brings this action as a class action pursuant to Rule 23(a) and 23(b)(3) of
the Federal Rules of Civil Procedure on behalf of the Class which consists of all shareholders in
the Collins Capital Fund between June 1, 2007 and December 11, 2008, inclusive, and who were
damaged thereby (the “Class”). Excluded from the Class are the Defendants named herein, and
the officers, directors, affiliates, legal representatives, immediate family members, heirs,
successors, subsidiaries, and/or assigns of any such individual or entity.
23 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 24 of 32
72. The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of Class members is unknown to Plaintiff at this time
and can only be ascertained through appropriate discovery, Plaintiff believes that there are more
than 100 members of the Class geographically dispersed throughout the United States and the
rest of the world.
73. Plaintiff’s claims are typical of the claims of the other members of the Class as all
members of the Class were similarly affected by Defendants’ wrongful conduct in violation of
law that is complained of herein.
74. Plaintiff will fairly and adequately protect the interests of the members of the
Class and have retained counsel competent and experienced in complex class action litigation.
75. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
a. Whether the Defendants performed adequate due diligence before investing in the
Feeder Fund;
b. Whether the Defendants failed to take adequate steps to confirm the Feeder
Fund’s purported account statements, transactions, and holdings of assets which
were invested in BMIS;
c. Whether the Defendants unjustly profited at the expense of investors by taking
monies in the form of commissions and other fees for the management of their
investment and the non-existent capital appreciation of a significant portion of
such assets;
24 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 25 of 32
d. Whether the Defendants failed to exercise due care by ultimately funneling
investors’ assets to the Madoff Ponzi scheme; and
e. The extent to which the members of the Class have sustained damages and the
proper measure of damages.
76. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
VI. CLAIMS
COUNT ONE Breach of Fiduciary Duty
77. Plaintiff repeats and realleges the allegations in the paragraphs prior to this Count
as if fully set forth herein.
78. Plaintiff entrusted its assets to Defendants by investing in the Collins Capital
Fund, and placed confidence in the Defendants with respect to the management of those assets.
79. The Defendants’ superior position as to the management and control of those
assets, as well as their superior access to information about the investment of those assets,
including information regarding the Feeder Fund, BMIS and Madoff, required Plaintiff to place
trust and confidence in the Defendants.
80. The Defendants further evinced an understanding that they were fiduciaries to
Plaintiff. Plaintiff reasonably and foreseeably relied on this fiduciary relationship and trusted in
the Collins Defendants’ expertise and skill. The Defendants therefore owed a fiduciary duty to
25
Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 26 of 32
Plaintiff with respect to their management and protection of Plaintiff’s assets invested in the
Collins Capital Fund.
81. The Defendants were obligated to act with loyalty and good faith towards
Plaintiff; to avoid placing themselves in situations involving a conflict of interest with Plaintiff;
to avoid placing themselves in situations involving inordinate financial risk to Plaintiff’s assets;
to manage and operate each Plaintiff’s investments exclusively for the best interests of Plaintiff;
to make recommendations and execute transactions in accordance with the goals, investment
objectives and permissible degree of risk; and to oversee the investment of Plaintiff’s assets to
confirm they were maintained in a prudent and professional manner.
82. The Defendants breached their fiduciary duties to Plaintiff and acted in reckless
disregard of those duties by engaging in the following conduct:
a. Failing to perform adequate due diligence on the Feeder Fund and BMIS before
investing a significant portion of Plaintiff’s assets in the Feeder Fund;
b. Investing Plaintiff’s assets in the Feeder Fund and thereby in the Madoff Ponzi
scheme with grossly inadequate diligence or monitoring;
c. Failing to monitor the Feeder Fund, BMIS and Madoff on an ongoing basis to any
reasonable degree; and
d. Failing to take adequate steps to confirm that the Feeder Fund’s purported account
statements, transactions and holdings of Fund assets with regard to BMIS and
Madoff were accurate.
83. As a result of the Defendants’ breaches of their fiduciary duties, Plaintiff has lost
a substantial portion of its investment in the Collins Capital Fund, and has been forced to pay
26 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 27 of 32
excessive investment and management fees in exchange for investment services that were
entirely inadequate.
84. By reason of the foregoing, the Defendants are jointly and severally liable to
Plaintiff.
85. Because the Defendants willfully and wantonly disregarded Plaintiff’s rights in
breaching their fiduciary duties, Plaintiff is entitled to punitive damages.
COUNT TWO Gross Negligence
86. Plaintiff repeats and realleges the allegations in the paragraphs prior to Count One
as if fully set forth herein.
87. Defendants, as investment advisors, managers and placement agents with
discretionary control over Plaintiff’s investments and the Collins Capital Fund’s assets, had a
special relationship with Plaintiff that gave rise to a duty to exercise due care in the management
of Plaintiff’s assets invested in the Collins Capital Fund, and in the selection and monitoring of
the Collins Capital Fund’s investments. Defendants knew or should have known that Plaintiff
was relying on Defendants to manage the investments entrusted to the Collins Capital Fund with
reasonable care, and Plaintiff did reasonably and foreseeably rely on Defendants to exercise such
care by entrusting their assets to the Collins Capital Fund.
88. The Defendants grossly failed to exercise due care, and acted in reckless disregard
of their duties, and thereby injured Plaintiff. The Defendants failed to exercise the degree of
prudence, caution and good business practice that would be expected of any reasonable
investment professional. Defendants failed to perform adequate due diligence before investing
Plaintiff’s assets in the Feeder Fund and thereby BMIS; failed to monitor the Feeder Fund, BMIS
and Madoff on an ongoing basis to any reasonable degree; and failed to take adequate steps to
27 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 28 of 32
confirm the Feeder Fund’s purported account statements, transactions and securities holdings of
the Collins Capital Fund’s assets as they related to investments with BMIS.
89. If the Defendants had not been grossly negligent with respect to Plaintiff’s assets
invested in the Collins Capital Fund, they would have discovered that the Feeder Fund’s
investments with Madoff and BMIS were funneled into Madoff’ s Ponzi scheme. Had the
Defendants performed adequate due diligence on the Feeder Fund and BMIS, they would not
have entrusted a significant portion of Plaintiff’s assets invested in the Collins Capital Fund to
the Feeder Fund and BMIS.
90. As a direct and proximate result of the Defendants’ gross recklessness with
respect to Plaintiff’s assets invested in the Collins Capital Fund, Plaintiff has lost a significant
portion of its investments.
91. By reason of the foregoing, the Defendants are jointly and severally liable to
Plaintiff.
92. Because of the nature of the Defendants’ course of conduct, Plaintiff is entitled to
punitive damages.
COUNT THREE Unjust Enrichment
93. Plaintiff repeats and realleges the allegations in the paragraphs prior to Count One
as if fully set forth herein.
94. Plaintiff had a contractual or quasi-contractual relationship with the Collins
Defendants by virtue of its investment in the Collins Capital Fund.
95. Defendants were enriched at the expense of Plaintiff by taking Plaintiff’s monies
in the form of commissions and other fees for the management of Plaintiff’s investment, and the
non-existent capital appreciation of a significant portion of such assets.
28 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 29 of 32
96. Defendants’ performance was so far below the fiduciary and business standards
that Plaintiff involuntarily conferred a benefit upon the Defendants without Plaintiff receiving
adequate benefit or compensation in return. In so doing, the Defendants acted in reckless
disregard of their duties to Plaintiff.
97. Defendants were compensated by Plaintiff with management and other fees that
were calculated based on “Net Profits” and the current state of the Collins Capital Fund. As of
March 2009, this compensation included $165,926.86 in management fees and $23,480.33 in
incentive fees.
98. Defendants were unjustly enriched by the retention of management and other fees
that were predicated on fictitious profits.
99. Equity and good conscience require the Defendants to refund all monies paid for
any services rendered on Plaintiff’s behalf.
COUNT FOUR Declaratory Relief
100. The Pension Fund repeats and realleges the allegations in the paragraphs prior to
Count One as if fully set forth herein.
101. Plaintiff requests that the Court declare the rights and legal relations of Plaintiff
and Defendants.
102. Plaintiff takes the position that the indemnification provisions in the Explanatory
Memo and the Investment Advisory Agreement are void as a result of the Defendants’ gross
negligence and total disregard of their obligations thereunder. The Defendants are expected to
deny this.
29 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 30 of 32
103. Plaintiff’s right to recover its losses and seek damages would be undermined if
the Defendants were allowed to indemnify each other despite their egregious and unlawful
behavior.
104. Thus, a justiciable controversy has arisen over the rights and legal relations of the
parties, and Plaintiff requests that the Court declare the indemnification provisions in the
Explanatory Memo and the Investment Advisory Agreement to be void, and award such other
relief as the Court deems equitable.
VII. REQUEST FOR RELIEF
WHEREFORE, Plaintiff asks for relief and judgment and requests the following:
A. Such preliminary and permanent injunctive relief, including imposition of a
constructive trust imposed on the amount of all monies and other property in the
possession of the Defendants, plus interest, which relate to Defendants’
compensation in the form of management and other fees with respect to the
portion of Plaintiff’s investment funneled to the Feeder Fund and BMIS, as is
appropriate to preserve the assets paid by Plaintiff;
B. Rescission of all contractual relationships between Plaintiff and Defendants;
C. Compensatory, consequential and general damages in an amount to be determined
at trial;
D. Disgorgement and restitution of all earnings, profits, compensation and benefits
received by Defendants as a result of their unlawful acts and practices;
E. Rescission of all contractual relationships between Plaintiff and the Defendants,
and a return of all principal payments made by Plaintiff to the Defendants;
F. Declaratory relief as described above;
30 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 31 of 32
G. Punitive damages on account of the willful and wanton disregard of Plaintiff’s
rights by the Defendants;
H. Costs and disbursements of the action;
I. Pre- and post -judgment interest;
J. Reasonable attorneys’ fees and expenses; and
K. Such other and further relief as this Court may deem just and proper.
VIII. JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated: September 23, 2009 Respectfully submitted, SAXENA WHITE P.A.
By:__/s/ Joseph E. White, III___
Maya Saxena Joseph E. White, III Christopher S. Jones Lester Hooker 2424 North Federal Highway Suite 257 Boca Raton, FL 33431 Telephone: (561) 394-3399 Facsimile: (561) 394-3382
Counsel for Plaintiff
31 Case 9:09-cv-80846-KAM Document 19 Entered on FLSD Docket 09/23/2009 Page 32 of 32
CERTIFICATE OF SERVICE
I certify that on September 23, 2009, I electronically filed the foregoing Amended Class
Action Complaint with the Clerk of Court using the CM/ECF system, which will send a notice of
electronic filing to all registered users.
/s/ Joseph E. White, III__ Joseph E. White, III
32 Case 9:09-cv-80846-KAM Document 19-2 Entered on FLSD Docket 09/23/2009 Page 1 of 68
COLLINS CAPITAL LOW VOLATILITY PERFORMANCE FUND II, LTD.
(A BVI Business Company)
EXPLANATORY MEMORANDUM
Investment Advisor:
Collins Capital Investments, LLC
806 Douglas Road, Suite 570 Coral Gables, Florida 33134 Telephone (305) 666-3319 Facsimile (305) 666-3439 [email protected]
June 1, 2007
THIS EXPLANATORY MEMORANDUM IS DELIVERED TO THE ORIGINAL RECIPIENT HEREOF ON A CONFIDENTIAL BASIS SOLELY IN CONNECTION WITH ITS CONSIDERATION OF AN INVESTMENT IN COMMON SHARES OF COLLINS CAPITAL LOW VOLATILITY PERFORMANCE FUND II, LTD. EXCEPT AS OTHERWISE PROVIDED FOR HEREIN, THIS EXPLANATORY MEMORANDUM MAY NOT BE REPRODUCED IN WHOLE OR IN PART, AND IT MAY NOT BE DELIVERED TO ANY PERSON WITHOUT THE PRIOR WRITTEN CONSENT OF THE FUND.
PURSUANT TO AN EXEMPTION FROM THE U.S. COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED TO QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING MEMORANDUM. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR THIS POOL.
V060107 Case 9:09-cv-80846-KAM Document 19-2 Entered on FLSD Docket 09/23/2009 Page 2 of 68
COLLINS CAPITAL LOW VOLATILITY PERFORMANCE FUND II, LTD.
Offering of Common Shares
This Explanatory Memorandum (the “Memorandum”) relates to the offering from time to time, to a limited number of qualified investors, of the Common Shares, par value US$ 0.01 per Share (the “Shares”), of Collins Capital Low Volatility Performance Fund II, Ltd., a private investment company existing under the laws of the British Virgin Islands as a BVI business company (the “Fund”). The Fund commenced investment activities on March 1, 2003. The Investment Advisor to the Fund is Collins Capital Investments, LLC (“Collins Capital” or the “Advisor”), a Delaware limited liability company registered as an investment adviser with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. Collins Capital currently acts as investment advisor to several investment vehicles which have engaged in multi-manager investment strategies since 1995.
The Fund’s investment objective is to achieve consistent investment returns, with low correlation to the markets, while reducing risk through diversification, by utilizing a diverse group of low volatility alternative investment strategies. In seeking this objective, Collins Capital employs a “multi- manager” approach, maintaining investments with a diversified group of investment managers (“Managers”) managing private investment vehicles or accounts (“Portfolio Funds”) that utilize strategies believed to have superior risk-reward potential. Collins Capital does not follow a rigid asset allocation policy but seeks diversification through a combination of Managers employing a range of investment strategies, including but not limited to event-driven, distressed securities, relative value and various arbitrage strategies. The Advisor attempts to select individual Managers that offer a variety of different skills in an effort to balance the Fund portfolio and reduce overall volatility. Collins Capital considers a number of factors in selecting Managers, including the Manager’s basic investment strategy and policies; reputation; prior performance; use of fundamental analysis and other analytical methods; use of leverage and other techniques; and trading acumen. See “Investment Objective and Strategy”.
The Fund seeks to achieve its investment objective by investing solely in, Collins Capital Low Volatility Fund II, LP, a Delaware limited partnership (the “Partnership”), which has an identical investment objective and strategy as the Fund. The Partnership, in turn, primarily invests in another affiliated investment vehicle, Collins Capital Master Fund II, LP, a Delaware limited partnership (the “Master Fund”), in a “master-feeder” investment structure. The “feeder funds” for the Master Fund are comprised of several affiliated investment vehicles, including, but not limited to, the Partnership, and indirectly the Fund. The Master Fund and all of the “feeder-funds” are managed by Collins Capital. The purpose of the “master-feeder” investment structure is to facilitate the investment in Portfolio Funds by the investment vehicles managed by Collins Capital, and to facilitate the allocation of Portfolio Funds and Managers among such investment vehicles. See “ Master-Feeder Investment Structure”.
An investment in the Fund is subject to certain risks. See “ Risk Factors”.
The Fund offers its Shares for purchase from time to time solely to selected offerees who are eligible investors and who are not “U.S. Persons” or, if U.S. Persons, are “Qualified U.S. Tax-Exempt Entities,” as defined. See “Introduction”.
Five classes of Shares are offered for purchase as of the first business day of each month (or at such other time(s) as the Fund may determine): Class A U.S. Dollar-denominated Shares (“U.S. Dollar Shares”); Class B U.S. Dollar-denominated non-voting Shares; Class C Euro-denominated Shares
-ii- V060107 Case 9:09-cv-80846-KAM Document 19-2 Entered on FLSD Docket 09/23/2009 Page 3 of 68
(“Euro Shares”); Class D British Pound-denominated Shares (“British Pound Shares”); and Class E Yen- denominated Shares (“Yen Shares”; and, together with the Euro Shares and the British Pound Shares, the “Non-U.S Dollar Denominated Shares”). Shares of each class are offered for purchase at a per share price equal to the Net Asset Value per Share of the appropriate class. The Non-U.S. Dollar Denominated Shares generally have the same rights and terms as the U.S. Dollar Shares, except that (i) the Non-U.S. Dollar Denominated Shares are denominated in currencies other than the U.S. Dollar; and (ii) the Non- U.S. Dollar Denominated Shares may have certain currency hedge activities specifically attributed to them as described in more detail under “Investment Objective and Strategy – Currency Hedging Program”. Shares of each class will be offered in a separate series for each purchase date, for purposes of accruing the Incentive Fee and/or the Management Fee (each as defined below) applicable to such Shares (or for other purposes in the Fund’s discretion). See “Description of Shares”. The minimum initial investment by a Shareholder is U.S.$1,000,000, or the equivalent amount in the relevant currency of the applicable Non-U.S. Dollar Denominated Share class, which minimum amount may be waived at the discretion of the Fund; provided, that the initial investment in respect of the majority of each of the investors is not less than U.S.$100,000 or its equivalent in the relevant currency. As used herein, the term “business day” means any day on which the New York Stock Exchange is open for regular trading and banking institutions in New York, New York are permitted to be open for business. See “ Offering of Shares”.
The Fund’s net asset value is calculated in U.S. Dollars and quoted monthly. A Fund shareholder has the right to redeem all or part of his Shares as of the last business day of any calendar quarter, commencing with the first such date at least twelve months following the date of his initial investment in the Fund, on not less than seventy-five (75) days prior written notice to the Fund (or such other notice as the Fund in its discretion may determine), at a redemption price equal to the Net Asset Value of such Shares on the redemption date, subject to certain conditions. See “Redemption of Shares”.
Prospective investors, together with their financial advisors, should review carefully this entire Memorandum and should discuss the Fund and its activities with the Advisor prior to any decision to purchase Shares.
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THE OFFERING OF SHARES MADE HEREBY HAS NOT BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY AUTHORITY OF ANY COUNTRY AND IS NOT BEING MADE IN ANY JURISDICTION WHERE SUCH OFFERING WOULD BE UNLAWFUL. INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS TAX OR LEGAL ADVICE. PRIOR TO PURCHASING SHARES, A PROSPECTIVE PURCHASER SHOULD CONSULT WITH HIS OWN LEGAL BUSINESS AND TAX ADVISORS TO DETERMINE THE APPROPRIATENESS AND CONSEQUENCES OF AN INVESTMENT IN THE FUND BY SUCH PURCHASER, INCLUDING MATTERS CONCERNING THE LAWS AND REGULATIONS IN THE COUNTRIES OF HIS CITIZENSHIP, RESIDENCE AND DOMICILE.
THIS MEMORANDUM HAS BEEN PREPARED ON BEHALF OF THE FUND AND EACH RECIPIENT HEREOF ACKNOWLEDGES THEREBY THAT NO PERSON OR PARTY OTHER THAN THE FUND SHALL HAVE ANY RESPONSIBILITY OR LIABILITY FOR THE ACCURACY AND COMPLETENESS OF THE CONTENTS HEREOF. THE INFORMATION IN THIS MEMORANDUM IS AS OF THE DATE HEREOF AND IS SUBJECT TO CHANGE OR AMENDMENT. THE DELIVERY OF THIS MEMORANDUM AS OF ANY SUBSEQUENT DATE DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE OR AMENDMENT IN THE CONTENTS HEREOF.
THE COMMON SHARES OFFERED HEREBY WILL BE ILLIQUID. NO PUBLIC MARKET FOR SUCH SHARES EXISTS AND NONE IS EXPECTED TO DEVELOP. THERE WILL BE SIGNIFICANT RESTRICTIONS ON THE TRANSFERABILITY OF COMMON SHARES. REDEMPTION OF COMMON SHARES BY THE FUND WILL BE SUBJECT TO A VARIETY OF TERMS AND CONDITIONS AND THE FUND WILL HAVE THE RIGHT TO SUSPEND REDEMPTIONS UNDER CERTAIN CIRCUMSTANCES.
NO OFFERING LITERATURE OR ADVERTISING IN ANY FORM SHALL BE EMPLOYED IN THIS OFFERING OF SHARES IN THE FUND EXCEPT FOR THIS MEMORANDUM AND SUMMARY INFORMATION, IF ANY, WHICH SHALL BE QUALIFIED IN ITS ENTIRE ATTACHED HERETO. NO PERSON OTHER THAN THE ADVISOR HAS BEEN AUTHORIZED TO MAKE REPRESENTATIONS, OR GIVE ANY INFORMATION, WITH RESPECT TO THE COMMON SHARES, EXCEPT THE INFORMATION CONTAINED HEREIN, AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN OR OTHERWISE SUPPLIED BY THE ADVISOR MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISOR OR ITS SENIOR MANAGEMENT.
THIS MEMORANDUM MAY CONTAIN CERTAIN FORWARD LOOKING INFORMATION ABOUT THE FUND AND ITS PROPOSED ACTIVITIES IN RELIANCE UPON THE “SAFE HARBOR” PROVISIONS OF THE U.S. FEDERAL SECURITIES LAWS. THIS INFORMATION IS SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THOSE DESCRIBED UNDER “RISK FACTORS” HEREIN. ALL INVESTMENT PERFORMANCE IS INHERENTLY SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE ADVISOR. ANY SIGNIFICANT CHANGE THEREIN CAN MATERIALLY AFFECT FUTURE RESULTS. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE FUND’S INVESTMENT OBJECTIVE WILL BE ACHIEVED OR THAT THE FUND WILL NOT INCUR LOSSES.
THIS MEMORANDUM IS SUBMITTED TO A LIMITED NUMBER OF RECIPIENTS ON A CONFIDENTIAL BASIS SOLELY IN CONNECTION WITH THEIR CONSIDERATION OF AN INVESTMENT IN SHARES OF THE FUND. IT MAY NOT BE REPRODUCED IN WHOLE OR IN PART AND MAY NOT BE DELIVERED TO ANY PERSON WITHOUT THE PRIOR WRITTEN CONSENT OF THE FUND. NOTWITHSTANDING THE FOREGOING A PROSPECTIVE INVESTOR (AND EACH EMPLOYEE, REPRESENTATIVE OR OTHER AGENT OF THE INVESTOR) MAY DISCLOSE TO ANY AND ALL PERSONS, WITHOUT LIMITATION OF ANY KIND, THE TAX TREATMENT AND TAX
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STRUCTURE OF (I) THE FUND AND (II) ANY TRANSACTIONS DESCRIBED HEREIN, AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) THAT ARE PROVIDED TO THE INVESTOR RELATING TO SUCH TAX TREATMENT AND TAX STRUCTURE. EACH PERSON ACCEPTING THIS CONFIDENTIAL MEMORANDUM THEREBY AGREES TO RETURN IT TO THE FUND UPON REQUEST.
CERTAIN PROVISIONS OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE FUND AND OTHER DOCUMENTS ARE SUMMARIZED IN THIS MEMORANDUM, BUT IT SHOULD NOT BE ASSUMED THAT THE SUMMARIES ARE COMPLETE AND SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THE CONTENTS OF THE DOCUMENTS WHICH THEY PURPORT TO SUMMARIZE. MATERIAL DOCUMENTS ARE AVAILABLE FOR INSPECTION AS INDICATED IN THE SECTION ENTITLED “DOCUMENTS AVAILABLE FOR INSPECTION” HEREIN. THE ADVISOR EXTENDS TO EACH INVESTOR AND ITS ADVISORS THE OPPORTUNITY TO DISCUSS THE OFFERING AND THE FUND WITH REPRESENTATIVES OF THE ADVISOR AND TO RECEIVE ADDITIONAL INFORMATION TO THE EXTENT SUCH INFORMATION MAY BE READILY AVAILABLE.
EACH INVESTOR SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS LEGAL, TAX OR FINANCIAL ADVICE. EACH INVESTOR SHOULD CONSULT ITS OWN PROFESSIONAL ADVISORS AS TO THE LEGAL, TAX OR FINANCIAL CONSEQUENCES OR OTHER MATTERS RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN SHARES OF THE FUND.
INVESTMENTS BY U.S. INVESTORS:
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO ANY UNITED STATES PERSON OTHER THAN “QUALIFIED U.S. TAX-EXEMPT ENTITIES,” AS DEFINED HEREIN, AND ONLY PURSUANT TO AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT BY REASON OF SECTION 4(2) THEREOF AND REGULATION D THEREUNDER, AS WELL AS THE EXEMPTION FROM REGISTRATION UNDER STATE SECURITIES LAWS PROVIDED BY SECTION 18 OF SAID ACT.
INVESTMENT BY U.S. TAX-EXEMPT INVESTORS:
INVESTMENTS IN THE FUND BY U.S. PERSONS WILL BE LIMITED TO “QUALIFIED U.S. TAX-EXEMPT ENTITIES” AS DEFINED HEREIN. A U.S. INVESTOR THAT IS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), SUCH AS A PENSION PLAN OR INDIVIDUAL RETIREMENT ACCOUNT, OR WHICH IS AN EDUCATIONAL INSTITUTION OR OTHER ENTITY EXEMPT FROM TAXATION UNDER SECTION 501 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, IS URGED TO CONSULT WITH ITS ADVISORS AS TO CERTAIN CONSIDERATIONS APPLICABLE TO AN INVESTMENT IN THE FUND. SEE “ERISA CONSIDERATIONS”. QUALIFIED U.S. TAX-EXEMPT ENTITIES SHOULD REVIEW WITH THEIR TAX ADVISORS THE TAX TREATMENT OF AN INVESTMENT IN THE FUND. SEE “CERTAIN TAX CONSIDERATIONS – INVESTMENT BY U.S. TAX-EXEMPT ENTITIES”. A U.S. PERSON WHO IS SUBJECT TO U.S. FEDERAL INCOME TAXATION MAY BE SUBJECT TO SERIOUS TAX CONSEQUENCES AS TO AN INVESTMENT IN THE FUND. SEE “CERTAIN TAX CONSIDERATIONS”.
U.S. PURCHASERS IN THE STATE OF FLORIDA:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE FLORIDA SECURITIES ACT IN RELIANCE UPON AN EXEMPTION THEREFROM. ANY SALE MADE
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PURSUANT TO SUCH EXEMPTION IS VOIDABLE BY A FLORIDA PURCHASER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE FUND, AN AGENT OF THE FUND (INCLUDING THE SERVICE COMPANY AND ADMINISTRATOR) OR AN ESCROW AGENT, OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO THE PURCHASER, WHICHEVER OCCURS LATER.
RESTRICTIONS ON SALES IN CERTAIN NON-U.S. JURISDICTIONS:
THIS OFFER IS ONLY OPEN TO PRIVATE INVESTORS CONTACTED DIRECTLY BY THE FUND (OR ITS AGENTS) AND IS NOT MADE TO THE PUBLIC AT LARGE IN AUSTRALIA. NO OFFER FOR SUBSCRIPTION OF THE SHARES WILL BE MADE OTHER THAN UNDER THE EXCLUDED OFFER EXEMPTIONS CONTAINED IN SECTION 708 OF THE CORPORATIONS LAW. ACCORDINGLY, THIS MEMORANDUM IS NOT REQUIRED TO BE, AND HAS NOT BEEN, LODGED WITH THE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION. ANY SHARES PURCHASED UNDER THIS OFFER MAY NOT BE RESOLD WITHIN AUSTRALIA FOR A PERIOD OF 12 MONTHS AFTER THE INITIAL PURCHASE OTHER THAN IN ACCORDANCE WITH SECTION 708 OF THE CORPORATIONS LAW.
THE SHARES MAY NOT BE OFFERED OR SOLD OR OTHERWISE DISPOSED OF IN ANY MANNER TO PERSONS DEEMED BY THE CENTRAL BANK OF THE BAHAMAS (THE “BANK”) AS RESIDENT FOR EXCHANGE CONTROL PURPOSES, UNLESS SUCH PERSONS DEEMED AS RESIDENT OBTAIN THE PRIOR APPROVAL OF THE BANK.
THE OFFERING OF SHARES HAS NOT BEEN AND WILL NOT BE NOTIFIED TO THE BELGIAN BANKING OF FINANCE COMMISSION (COMMISSIE VOOR HET BANK-EN FINANCIEWEZEN/COMMISSION BANCAIRE ET FINANCIERE) OR HAS THIS MEMORANDUM BEEN OR WILL IT BE APPROVED BY THE BELGIAN BANKING AND FINANCE COMMISSION. THE SHARES SHALL NOT, WHETHER DIRECTLY OR INDIRECTLY, BE OFFERED, SOLD, TRANSFERRED OR DELIVERED IN BELGIUM, AS PART OF THEIR INITIAL DISTRIBUTION OR AT ANY TIME THEREAFTER, TO ANY INVESTOR OTHER THAN (I) CREDIT INSTITUTIONS AND INVESTMENT FIRMS REFERRED TO IN ARTICLE 3.2, A) OF THE BELGIAN ROYAL DECREE OF JANUARY 9, 1991 ON THE PUBLIC CHARACTER OF TRANSACTIONS WHICH AIM TO SOLICIT PUBLIC SAVINGS AND THE ASSIMILATION OF CERTAIN TRANSACTIONS WITH A PUBLIC OFFER, (II) INSTITUTIONS FOR COLLECTIVE INVESTMENT REFERRED TO IN BOOK III OF THE BELGIAN ACT OF DECEMBER 4, 1990 ON THE FINANCIAL TRANSACTIONS AND THE FINANCIAL MARKETS, (III) INSURANCE COMPANIES REFERRED TO IN ARTICLE 2§1 OF THE BELGIAN ACT OF JULY 9, 1975 ON THE SUPERVISION OF INSURANCE COMPANIES AND (IV) PENSION FUNDS REFERRED TO IN ARTICLE 2§3, 6 OF THE BELGIAN ACT OF JULY 9, 1975 ON THE SUPERVISION OF INSURANCE COMPANIES IN THE BELGIAN ROYAL DECREE OF MAY 15, 1985 ON THE ACTIVITIES OF PRIVATE MUTUAL FUNDS, EACH ACTING ON THEIR OWN ACCOUNT IN RELIANCE ON ARTICLE 3.2 OF THE BELGIAN ROYAL DECREE OF JANUARY 9, 1991. THIS MEMORANDUM HAS BEEN DISTRIBUTED IN BELGIUM ONLY TO INVESTORS MENTIONED HERE ABOVE FOR THEIR PERSONAL USE AND EXCLUSIVELY FOR THE PURPOSES OF THE OFFERING OF SHARES. ACCORDINGLY, THIS MEMORANDUM MAY NOT BE USED FOR ANY OTHER PURPOSE NOR PASSED ON TO ANY OTHER PERSON IN BELGIUM.
THE SHARES OFFERED HEREBY HAVE NOT BEEN, AND WILL NOT BE, REGISTERED WITH THE COMISSAO DE VALORES MOBILIARIOS AND MAY NOT BE OFFERED OR SOLD IN BRAZIL EXCEPT IN CIRCUMSTANCES WHICH DO NOT CONSTITUTE A PUBLIC OFFERING OR DISTRIBUTION UNDER BRAZILIAN LAWS AND REGULATIONS.
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THIS MEMORANDUM CONSTITUTES AN OFFERING OF THE SECURITIES DESCRIBED HEREIN ONLY IN THOSE JURISDICTIONS AND TO THOSE PERSONS WHERE AND TO WHOM THEY MAY BE LAWFULLY OFFERED FOR SALE, AND THEREIN ONLY BY PERSONS PERMITTED TO SELL SUCH SECURITIES. THIS MEMORANDUM IS NOT, AND UNDER NO CIRCUMSTANCES IS TO BE CONSTRUED AS, AN ADVERTISEMENT OR A PUBLIC OFFERING OF THE SECURITIES DESCRIBED HEREIN IN CANADA. NO SECURITIES COMMISSION OR SIMILAR AUTHORITY IN CANADA HAS REVIEWED OR IN ANY WAY PASSED UPON THIS DOCUMENT OR THE MERITS OF THE SECURITIES DESCRIBED HEREIN, AND ANY REPRESENTATION TO THE CONTRARY IS AN OFFENSE.
IF THIS MEMORANDUM, TOGETHER WITH ANY AMENDMENT THERETO, CONTAINS AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMITS TO STATE A MATERIAL FACT THAT IS REQUIRED TO BE STATED OR IS NECESSARY IN ORDER TO MAKE ANY STATEMENT THEREIN NOT MISLEADING IN THE LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE (HEREIN CALLED A “MISREPRESENTATION”) AND IT WAS A MISREPRESENTATION ON THE DATE OF PURCHASE, PURCHASERS IN BRITISH COLUMBIA AND ONTARIO TO WHOM THE MEMORANDUM WAS SENT OR DELIVERED AND WHO PURCHASE SHARES SHALL HAVE A RIGHT OF ACTION AGAINST THE FUND FOR RESCISSION (WHILE STILL THE OWNER OF SUCH SHARES) OR ALTERNATIVELY, FOR DAMAGES, EXERCISABLE ON WRITTEN NOTICE GIVEN NOT MORE THAN 90 DAYS SUBSEQUENT TO THE DATE OF PURCHASE, PROVIDED THAT THE FUND WILL NOT BE LIABLE:
(A) IF THE PURCHASER PURCHASED SUCH SHARES WITH KNOWLEDGE OF THE MISREPRESENTATION;
(B) FOR ALL OR ANY PORTION OF ANY DAMAGES THAT IT PROVES DO NOT REPRESENT THE DEPRECIATION IN VALUE OF SUCH SHARES AS A RESULT OF THE MISREPRESENTATION; AND
(C) FOR AMOUNTS IN EXCESS OF THE PRICE AT WHICH SUCH SHARES WERE SOLD TO THE PURCHASER.
THE FOREGOING SUMMARY IS SUBJECT TO THE EXPRESS PROVISIONS OF EITHER THE SECURITIES ACT (BRITISH COLUMBIA) OR THE SECURITIES ACT (ONTARIO), WHICHEVER THE CASE MAY BE, AND SUCH REFERENCE IS MADE FOR THE COMPLETE TEXT OF SUCH PROVISION.
THE SHARES OFFERED HEREBY HAVE NOT BEEN, AND WILL NOT BE, REGISTERED WITH THE SUPERINTENDENCIA DE VALORES Y SEGUROS (THE “CHILEAN SECURITIES COMMISSION” OR SVS) AND MAY NOT BE OFFERED AND SOLD IN CHILE EXCEPT IN CIRCUMSTANCES WHICH DO NOT CONSTITUTE A PUBLIC OFFERING OR DISTRIBUTION UNDER CHILEAN LAWS AND REGULATIONS.
NO INVITATION TO OFFER FOR, OR OFFER FOR, OR SALE OF, THE SHARES SHALL BE MADE TO THE PUBLIC IN CHINA OR BY ANY MEANS THAT WOULD BE DEEMED PUBLIC UNDER THE LAWS OF CHINA. THE OFFER OF SHARES IS PERSONAL TO THE INVESTOR TO WHOM THE MEMORANDUM HAS BEEN ADDRESSED BY THE FUND. BUSINESS ENTITIES INCORPORATED UNDER THE LAWS OF CHINA (EXCLUDING FOREIGN INVESTMENT BUSINESS ENTITIES) SHALL APPLY FOR APPROVAL FROM THE CHINESE GOVERNMENT AUTHORITIES BEFORE PURCHASING THE SHARES. FURTHERMORE, ALL BUSINESS ENTITIES INCORPORATED UNDER THE LAWS OF CHINA AND CHINESE CITIZENS RESIDING IN CHINA
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SHALL OBTAIN THE PRIOR APPROVAL FROM THE CHINESE FOREIGN EXCHANGE AUTHORITY BEFORE PURCHASING THE SHARES.
THE SHARES WILL NOT BE OFFERED, TRANSFERRED OR SOLD, WHETHER DIRECTLY OR INDIRECTLY, TO ANY INDIVIDUAL OR LEGAL ENTITY IN THE NETHERLANDS, AS PART OF THEIR INITIAL DISTRIBUTION OR AT ANY TIME THEREAFTER, OTHER THAN TO INDIVIDUALS OR LEGAL ENTITIES WHO OR WHICH TRADE OR INVEST IN SECURITIES IN THE CONDUCT OF THEIR PROFESSION OR TRADE (WHICH INCLUDES BANKS, BROKERS, DEALERS, INSURANCE COMPANIES, PENSION FUNDS, OTHER INSTITUTIONAL INVESTORS AND COMMERCIAL ENTERPRISES WHICH REGULARLY, AS AN ANCILLARY ACTIVITY, INVEST IN SECURITIES).
THE SHARES OFFERED HEREBY DO NOT COMPLY WITH THE CONDITIONS IMPOSED BY FRENCH LAW FOR ISSUANCE, DISTRIBUTION, SALE, PUBLIC OFFERING, SOLICITATION AND ADVERTISING WITHIN FRANCE. THE DISTRIBUTION OF THIS PRIVATE PLACEMENT MEMORANDUM AND THE OFFERING OF CLASS E SHARES, CLASS F SHARES, CLASS G SHARES AND CLASS H SHARES IN THE FUND IN FRANCE ARE THEREFORE RESTRICTED WITH RESPECT TO THE MANNER IN WHICH THEY MAY DISPOSE OF THE SHARES IN FRANCE.
ANY PERSON WHO IS IN POSSESSION OF THIS MEMORANDUM UNDERSTANDS THAT NO ACTION HAS OR WILL BE TAKEN WHICH WOULD ALLOW AN OFFERING OF SHARES TO THE PUBLIC IN GERMANY. ACCORDINGLY, THE SHARES MAY NOT BE OFFERED, SOLD OR DELIVERED AND NEITHER THIS MEMORANDUM NOR ANY OTHER OFFERING MATERIALS RELATING TO THE SHARES MAY BE DISTRIBUTED OR MADE AVAILABLE TO THE PUBLIC IN GERMANY. INDIVIDUAL SALES OF THE SHARES TO ANY PERSON IN GERMANY MAY ONLY BE MADE ACCORDING TO GERMAN SECURITIES, TAX AND OTHER APPLICABLE LAWS AND REGULATIONS.
THE SHARES MAY NOT BE OFFERED OR SOLD IN ANY MANNER THAT CONSTITUTES AN OFFER OR SALE TO THE PUBLIC IN THE HELLENIC REPUBLIC WITHIN THE LAWS AND REGULATIONS FROM TIME TO TIME APPLICABLE TO PUBLIC OFFERS OR SALES OF SECURITIES.
THIS MEMORANDUM RELATES TO A PRIVATE PLACEMENT AND DOES NOT CONSTITUTE AN OFFER TO THE PUBLIC IN HONG KONG TO SUBSCRIBE FOR SHARES. NO STEPS HAVE BEEN TAKEN TO REGISTER THIS MEMORANDUM AS A PROSPECTUS IN HONG KONG.
THE OFFER OF THE SHARES IS PERSONAL TO THE PERSON TO WHOM THIS MEMORANDUM HAS BEEN DELIVERED BY OR ON BEHALF OF THE FUND, AND A SUBSCRIPTION FOR SHARES WILL ONLY BE ACCEPTED FROM SUCH PERSON FOR SUCH MINIMUM AMOUNT OF SHARES AS DESCRIBED IN THIS MEMORANDUM. IT IS A CONDITION OF THE OFFER THAT EACH PERSON WHO AGREES TO SUBSCRIBE FOR SHARES PROVIDES A WRITTEN UNDERTAKING THAT IT IS ACQUIRING SUCH SHARES FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTE OR RESELL SUCH SHARES AND THAT IT WILL NOT OFFER FOR SALE, RESELL OR OTHERWISE DISTRIBUTE OR AGREE TO DISTRIBUTE SUCH SHARES WITHIN SIX MONTHS FROM THEIR DATE OF SALE TO SUCH PERSON.
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FOR IRISH PROSPECTIVE SHAREHOLDERS: THIS MEMORANDUM IS NOT A PROSPECTUS AND DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER OR INVITATION TO THE PUBLIC TO SUBSCRIBE FOR OR PURCHASE SHARES IN THE FUND AND SHALL NOT BE CONSTRUED AS SUCH AND NO PERSON OTHER THAN THE PERSON TO WHOM THIS MEMORANDUM HAS BEEN ADDRESSED OR DELIVERED SHALL BE ELIGIBLE TO SUBSCRIBE FOR OR PURCHASE SHARES IN THE FUND.
ISRAELI RESIDENTS, OTHER THAN THOSE CONSIDERED “EXEMPTION HOLDERS” UNDER THE GENERAL CURRENCY CONTROL PERMIT, 1978, REQUIRE A SPECIAL PERMIT FROM THE ISRAELI CONTROLLER OF FOREIGN CURRENCY IN ORDER TO PURCHASE THE SHARES. THE SHARES ARE OFFERED TO A LIMITED NUMBER OF SOPHISTICATED INVESTORS, IN ALL CASES UNDER CIRCUMSTANCES DESIGNED TO PRECLUDE A DISTRIBUTION WHICH WOULD BE OTHER THAN A PRIVATE PLACEMENT. THE MEMORANDUM MAY NOT BE REPRODUCED OR USED FOR ANY OTHER PURPOSE, NOR BE FURNISHED TO ANY OTHER PERSON THAN THOSE TO WHOM COPIES HAVE BEEN SENT.
THIS MEMORANDUM IS SOLELY INTENDED FOR THE INDIVIDUALS TO WHOM IT IS DELIVERED AND MAY NOT BE CONSIDERED OR USED AS A PUBLIC OFFERING IN THE MEANING OF AND FOR THE PURPOSE OF THE ART 1/18 TER L.N. 216/74.
IN ADDITION, ANY PERSON WHO IS IN POSSESSION OF THIS MEMORANDUM UNDERSTANDS THAT NO ACTION HAS OR WILL BE TAKEN THAT WOULD ALLOW AN OFFERING OF THE SHARES TO THE PUBLIC IN ITALY. ACCORDINGLY, THE SHARES MAY NOT BE OFFERED, SOLD OR DELIVERED AND NEITHER THIS MEMORANDUM NOR ANY OTHER OFFERING MATERIALS RELATING TO THE SHARES MAY BE DISTRIBUTED OR MADE AVAILABLE TO THE PUBLIC IN ITALY. INDIVIDUALS SALES OF THE SHARES TO ANY PERSON IN ITALY MAY ONLY BE MADE ACCORDING TO ITALIAN SECURITIES, TAX AND OTHER APPLICABLE LAWS AND REGULATIONS.
UNDER ARTICLE 23-14 PARAGRAPH 1 OF THE SECURITIES EXCHANGE LAW (THE “SEL”), THE PURCHASE OF SHARES CANNOT BE MADE UNLESS THE PURCHASER AGREES TO THE CONDITION THAT IT WILL NOT MAKE AN ASSIGNMENT OF THE SHARES TO ANY PERSON OTHER THAN A NON-RESIDENT OF JAPAN (HAVING THE SAME MEANINGS AS DEFINED IN ARTICLE 6, PARAGRAPH 1(6) OF THE FOREIGN EXCHANGE AND FOREIGN TRADE CONTROL LAWS), EXCEPT FOR THE CASE THAT ALL THE SHARES (EXCLUDING THE SHARES ASSIGNED TO NON-RESIDENTS OF JAPAN) ARE ASSIGNED TO ONE PERSON. FURTHERMORE, DISCLOSURE UNDER THE SEL HAS NOT BEEN MADE.
THIS MEMORANDUM IS NOT, AND UNDER NO CIRCUMSTANCE IS TO BE CONSTRUED AS, A PUBLIC OFFERING OF SECURITIES IN KOREA. NEITHER THE FUND NOR THE INVESTMENT MANAGER ARE MAKING ANY REPRESENTATION WITH RESPECT TO THE ELIGIBILITY OF ANY RECIPIENTS OF THIS MEMORANDUM TO ACQUIRE THE SHARES UNDER THE LAWS OF KOREA, INCLUDING BUT WITHOUT LIMITATION THE FOREIGN EXCHANGE MANAGEMENT ACT AND REGULATIONS THEREUNDER. THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES AND EXCHANGE ACT OF KOREA AND NONE OF THE SHARES MAY BE OFFERED, SOLD OR DELIVERED, OR OFFERED OR SOLD TO ANY PERSON FOR RE-OFFERING OR RESALE, IN KOREA OR TO ANY RESIDENT OF KOREA EXCEPT PURSUANT TO APPLICABLE LAWS AND REGULATIONS OF KOREA.
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FOR PROSPECTIVE SHAREHOLDERS OF LIECHTENSTEIN: THE SHARES ARE OFFERED TO A NARROWLY DEFINED CATEGORY OF INVESTORS, IN ALL CASES UNDER CIRCUMSTANCES DESIGNED TO PRECLUDE A PUBLIC SOLICITATION. THE MEMORANDUM MAY NOT BE REPRODUCED OR USED FOR ANY OTHER PURPOSE, NOR BE FURNISHED TO ANY OTHER PERSON OTHER THAN THOSE TO WHOM COPIES HAVE BEEN SENT.
FOR PROSPECTIVE SHAREHOLDERS OF LUXEMBOURG: THE SHARES ARE OFFERED TO A LIMITED NUMBER OF SOPHISTICATED INVESTORS, IN ALL CASES UNDER CIRCUMSTANCES DESIGNED TO PRECLUDE A DISTRIBUTION WHICH WOULD BE OTHER THAN A PRIVATE PLACEMENT. THE MEMORANDUM MAY NOT BE REPRODUCED OR USED FOR ANY OTHER PURPOSE, NOR BE FURNISHED TO ANY OTHER PERSON OTHER THAN THOSE TO WHOM COPIES HAVE BEEN SENT.
IN THE NETHERLANDS, SHARES MAY ONLY BE OFFERED TO A SUFFICIENTLY DEFINED CLOSED CIRCLE OF INVESTORS OR TO PERSONS WHO, IN THEIR PROFESSION OR AS THEIR BUSINESS, TRADE OR INVEST IN SECURITIES, AS SUCH RESTRICTION IS DESCRIBED IN THE NETHERLANDS SECURITIES ACT OF 1986.
THIS MEMORANDUM HAS BEEN PREPARED SOLELY FOR AND THE OFFER MADE IN IT IS MADE SOLELY TO HABITUAL INVESTORS (BEING PERSONS DEFINED IN SECTION 3(2)(A)(II) OF THE NEW ZEALAND SECURITIES ACT 1978).
THIS MEMORANDUM HAS NOT BEEN FILED WITH THE OSLO STOCK EXCHANGE IN ACCORDANCE WITH THE NORWEGIAN SECURITIES TRADING ACT, SECTION 5- 1, AND MAY THEREFORE NOT BE DISTRIBUTED TO MORE THAN FIFTY POTENTIAL INVESTORS IN NORWAY.
THE SHARES ARE NOT INTENDED TO BE SOLD OR OFFERED IN (OR ON THE TERRITORY OF) THE RUSSIAN FEDERATION OR TO RUSSIAN RESIDENTS AND THIS MEMORANDUM HAS NOT BEEN REGISTERED WITH, AND WILL NOT BE REGISTERED WITH, THE FEDERAL SECURITIES MARKETS COMMISSION OF THE RUSSIAN FEDERATION.
THIS MEMORANDUM HAS NOT BEEN REGISTERED WITH THE REGISTRAR OF COMPANIES IN SINGAPORE AND THE SHARES WILL BE OFFERED IN SINGAPORE PURSUANT TO AN EXEMPTION INVOKED UNDER SECTIONS 106C AND 106D OF THE COMPANIES ACT, CHAPTER 50 OF SINGAPORE (“COMPANIES ACT”). ACCORDINGLY, THE SHARES MAY NOT BE OFFERED OR SOLD, NOR MAY THIS MEMORANDUM OR ANY OTHER OFFERING DOCUMENT OR MATERIAL RELATING TO THE SHARES BE CIRCULATED OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, TO THE PUBLIC OR ANY MEMBER OF THE PUBLIC OTHER THAN (1) TO AN INSTITUTIONAL INVESTOR OR OTHER BODY OR PERSON SPECIFIED IN SECTION 106C OF THE COMPANIES ACT, OR (2) TO A SOPHISTICATED INVESTOR SPECIFIED IN SECTION 106D OF THE COMPANIES ACT, OR (3) OTHERWISE PURSUANT TO, AND IN ACCORDANCE WITH THE CONDITIONS OF, SECTION 106E(2) OF THE COMPANIES ACT OR ANY OTHER APPLICABLE EXEMPTION INVOKED UNDER DIVISION 5A OF PART IV OF THE COMPANIES ACT.
THE SHARES OFFERED HEREIN ARE FOR YOUR ACCEPTANCE ONLY AND MAY NOT BE OFFERED OR BECOME AVAILABLE TO PERSONS OTHER THAN YOURSELF AND MAY
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NOT BE PUBLICLY OFFERED, SOLD OR ADVERTISED IN SOUTH AFRICA AND THIS MEMORANDUM MAY ONLY BE CIRCULATED TO SELECTED INDIVIDUALS.
THE SHARES OFFERED HEREBY MAY NOT BE PUBLICLY OFFERED, SOLD OR ADVERTISED IN SWITZERLAND PURSUANT TO ARTICLE 2 OF THE SWISS INVESTMENT FUND ACT 1995 AND THIS MEMORANDUM MAY ONLY BE CIRCULATED TO A LIMITED NUMBER OF PERSONS IN SWITZERLAND. THEREFORE, NO STEPS HAVE BEEN TAKEN TO REGISTER THE FUND AND/OR THIS MEMORANDUM AS A PROSPECTUS IN SWITZERLAND.
EACH DEALER, IF ANY, WILL BE REQUIRED TO REPRESENT AND AGREE THAT (1) IT HAS NOT OFFERED OR SOLD AND PRIOR TO THE EXPIRATION OF THE PERIOD OF SIX MONTHS FROM THE DATE OF ISSUE OF ANY PARTICULAR SHARES WILL NOT OFFER OR SELL ANY SUCH SHARES TO PERSONS IN THE UNITED KINGDOM EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR BUSINESSES OR OTHERWISE IN CIRCUMSTANCES WHICH HAVE NOT RESULTED AND WILL NOT RESULT IN AN OFFER TO THE PUBLIC IN THE UNITED KINGDOM WITHIN THE MEANING OF THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995, (2) IT HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT 1986 WITH RESPECT TO ANYTHING DONE BY IT IN RELATION TO THE SHARES IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM, (3) IT HAS ONLY ISSUED OR PASSED ON AND WILL ONLY ISSUE OR PASS ON, IN THE UNITED KINGDOM, ANY DOCUMENT RECEIVED BY IT IN CONNECTION WITH THE ISSUE OF THE SHARES, TO A PERSON WHO IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1996, AS AMENDED, OR IS A PERSON TO WHOM THE DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON AND (4) IT HAS ONLY PROMOTED AND WILL ONLY PROMOTE OFFERS OR SALES OF THE SHARES IN THE UNITED KINGDOM (AS SUCH TERMS ARE DEFINED FOR THE PURPOSES OF SECTION 76 OF THE FINANCIAL SERVICES ACT 1986 AND/OR THE FINANCIAL SERVICES (PROMOTION OF UNREGULATED SCHEMES) REGULATIONS 1991) TO PERSONS WHO ARE DESCRIBED IN SECTION 76(2) OF THE FINANCIAL SERVICES ACT 1986 OR TO PERSONS WHO ARE NON-PRIVATE CUSTOMERS (AS DEFINED FOR THE PURPOSES OF THE FINANCIAL SERVICES (PROMOTION OF UNREGULATED SCHEMES) REGULATIONS 1991 AND THEN ONLY IN ACCORDANCE WITH SUCH REGULATIONS) OR TO SUCH OTHER PERSONS TO WHOM OFFERS OR SALES OF THE SHARES MAY LAWFULLY BE SO PROMOTED UNDER SUCH REGULATIONS OR OTHERWISE.
IT IS NOT THE PRESENT INTENTION OF THE DIRECTORS OF THE FUND TO ADVERTISE OR MARKET THE SHARES IN IRELAND AND NO SUCH MARKETING WILL TAKE PLACE IN THE FUTURE WITHOUT THE PRIOR APPROVAL IN WRITING OF THE CENTRAL BANK OF IRELAND.
REFERENCES HEREIN TO “$” AND “DOLLARS” ARE TO U.S. DOLLARS, WHICH IS THE OFFICIAL CURRENCY OF THE BRITISH VIRGIN ISLANDS.
AS USED HEREIN “BUSINESS DAY” MEANS ANY DAY ON WHICH THE NEW YORK STOCK EXCHANGE IS OPEN FOR REGULAR TRADING AND BANKING INSTITUTIONS IN NEW YORK, NEW YORK ARE PERMITTED TO BE OPEN FOR BUSINESS.
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TABLE OF CONTENTS
PAGE NO.
INTRODUCTION 1
SUMMARY 4
THE FUND 13
INVESTMENT OBJECTIVE AND STRATEGY 13 General 13 Description of Primary Strategies 14 Manager Selection 15 Portfolio Diversification 16 Investments of Portfolio Funds 16 Investment Techniques of Portfolio Funds 17 Oversight of Portfolio Funds 18
MASTER-FEEDER INVESTMENT STRUCTURE 18
CREDIT FACILITY; LEVERAGE 19
CURRENCY HEDGING PROGRAM 20
RISK FACTORS 20 General 21 Limited Operating History 21 Dependence Upon Senior Management of Advisor 21 Substantial Withdrawals 21 Use of Multi-Manager Approach 21 Investments and Strategies of Portfolio Funds 23 Managers’ Investment Techniques 25 Currency Risks Relating to Portfolio Funds 27 Currency Risks Relating to Non-Dollar Denominated Share Classes 27 Segregation of Income and Expenses between Classes of Shares; Performance of Share Classes 27 Conflicts of Interest 27 Credit Facility; Leverage 29 Fund Expenses 30 Limited Liquidity 30 No Distributions 30 Lack of Participation by Holders of Shares 30 Tax Risks 30 Limited Regulation 31 Limitation of Liability of the Advisor; Indemnification 32
MANAGEMENT OF THE FUND 32 The Advisor 32 Senior Management 33
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Investment Advisory Agreement 34 Directors 35 Service Company and Administrator 35 Custodian 36 Registered Agent 36 Auditors 36 Counsel 37
FEES AND EXPENSES 37 Management Fee 37 Incentive Fee 37 Service Company and Administrator’s Fees 39 Operating Expenses 39 Organizational Expenses 39
OFFERING OF SHARES 39
REDEMPTION OF SHARES 40
DETERMINATION OF NET ASSET VALUE PER SHARE 41 General 41 Suspension of Net Asset Value Calculations and Redemptions 42
DESCRIPTION OF SHARES 42 General 42 New Issues and Other Accounts; Related Series 43 Voting Rights 44 Issuance of Non-Voting Shares 45 Shares in Book Entry Form 45 Liquidation and Dissolution 45 Restrictions on Ownership and Transfer 45
CERTAIN TAX CONSIDERATIONS 46 General 46 No British Virgin Islands Tax on the Fund 46 U.S. Federal Income Tax Treatment of the Fund 47 Other Taxes 48 Investment by U.S. Tax-Exempt Entities 48
ERISA CONSIDERATIONS 49 Prudence, Diversification and Prohibited Transactions 49 Annual Evaluation 50 Plan Assets 50 Non-Fiduciary Status of the Advisor 50
REPORTS AND FINANCIAL STATEMENTS 51
SUBSCRIBING FOR SHARES 51
ANTI-MONEY LAUNDERING LAWS AND PROCEDURES 52 General 52
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United States 53 DOCUMENTS AVAILABLE FOR INSPECTION 53 APPENDIX A-I – SUBSCRIPTION AGREEMENT FOR U.S. INVESTORS APPENDIX A-II– SUBSCRIPTION AGREEMENT FOR NON-U.S. INVESTORS
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INTRODUCTION
This Explanatory Memorandum (the “Memorandum”) relates to the offering of Common Shares, par value U.S. $.01 per share (the “Shares”), of Collins Capital Low Volatility Performance Fund II, Ltd. (the “Fund”). The Fund is a BVI business company under the laws of the British Virgin Islands and is recognized as a “professional fund” under the laws of such jurisdiction. The Fund commenced investment activities on March 1, 2003. Shares are being offered solely to a limited number of selected investors who satisfy the applicable requirements described below and on the terms and conditions set forth in this Memorandum.
Shares may be offered and sold only to persons who are not U.S. Persons or to U.S. Persons that are (i) Qualified U.S. Tax-Exempt Entities; (ii) “accredited investors”; and (iii) “qualified eligible persons”, as such terms are defined in the paragraphs below. In addition, all purchasers of Shares must qualify as “qualified purchasers” and “professional investors”, also as defined below.
As used herein, the term “U.S. Person” means: (i) Any United States citizen or a resident of the United States (as defined for purposes of the federal income tax laws of the United States); (ii) any corporation, partnership, trust or other legal entity organized or created under the laws of any United States jurisdiction; (iii) any organization or entity controlled, directly or indirectly, by a person or persons described in (i) or (ii) or of which such person or persons described are known to be the owners, directly or indirectly, of a majority of the beneficial interests therein; or (iv) any other person or entity which is a “U.S. Person” within the meaning of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or Rule 4.7 under the U.S. Commodity Exchange Act, as amended (the “Commodity Act”), or any successor provision of the Code, the Securities Act or the Commodity Act, as in effect at the time.
As used herein, the term “Qualified U.S. Tax-Exempt Entity” means an organization or other entity that can demonstrate that it is exempt from United States income taxation pursuant to Section 501(a) of the Code, which includes (i) charitable, religious and educational institutions or other entities formed pursuant to Section 503 of the Code; (ii) qualified employee trusts forming a part of a pension or profit-sharing plan established pursuant to Section 401 of the Code; and (iii) individual retirement accounts established pursuant to Section 408 of the Code. Qualified U.S. Tax-Exempt Entities which are “Benefit Plan Investors” will be subject to the limitation that the aggregate ownership of Shares by Benefit Plan Investors shall be at all times less than 25% of the outstanding Shares. The term “Benefit Plan Investor” means: (i) an “employee benefit plan”, within the meaning of Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is subject to Title I of ERISA; (ii) IRAs and other retirement plans and accounts subject to Section 4975 of the Code; and (iii) any other entity whose underlying assets include “plan assets” by reason of any Benefit Plan Investor’s investment in such entity. See “ERISA Considerations – Plan Assets” herein.
The offering of the Shares is made in accordance with Regulation S (with respect to non- U.S. Persons) and Regulation D (with respect to U.S. Persons or certain non-U.S. Persons) under the Securities Act. Subscribers who are U.S. Persons (or otherwise covered by Regulation D) must qualify as “accredited investors,” as such term is defined in Rule 501 of said Regulation D, which definition is set forth in Annex A to the Subscription Agreement and Revocable Proxy for U.S. Persons which accompanies this Memorandum as Exhibit A-I.
The Fund is not registered as an investment company under the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”) in reliance upon an exemption provided in Section 3(c)(7) thereof. As such, every investor must be a “qualified purchaser”, as that term is defined in Section 2(a)(51) of the Investment Company Act. In order to be a “qualified purchaser”
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under the Investment Company Act, Qualified U.S. Tax-Exempt Entities and other entity investors (U.S. and non-U.S.) must generally own not less than $25 million in “investments” (as defined) at the time of purchase of Shares (or be beneficially owned solely by qualified purchasers) and investors who are individuals must own at least $5 million in “investments”. The definition of “qualified purchaser” (including a description of the term “investments”) is summarized in the Subscription Agreement which accompanies this Memorandum.
In addition to the above requirements, all investors in the Fund must also be “qualified eligible persons”, as that term is defined in Rule 4.7 under the Commodity Act. Under such Rule, all non- U.S. persons will generally be treated as qualified eligible persons and all “qualified purchasers” (as described above) will be qualified eligible persons. As all holders of Shares must be “qualified purchasers”, they will necessarily be qualified eligible persons under said Rule.
The Fund reserves the right to determine conclusively whether any person is an U.S. Person, a Qualified U.S. Tax-Exempt Entity, an accredited investor, a qualified purchaser, a qualified eligible person, or a professional investor. The Fund may determine to limit or restrict ownership by a non-qualifying shareholder after an investment in the Fund is made and to redeem Shares held by such a shareholder.
The Fund is a “professional fund” within the meaning of the British Virgin Islands Mutual Funds Act, 1996 (the “Funds Act”) and accordingly its Shares may only be made available to persons who are “Professional Investors” within the meaning of the Funds Act and on the basis that the initial investment in the Fund by a majority of each of its shareholders is not less than U.S. $100,000. The Fund has been recognized as a Professional Fund under the Funds Act and, as such, is required to pay an annual recognition fee of U.S. $350. Such recognition does not involve an examination of the merits of an investment in the Fund and does not entail supervision of the investment performance or portfolio constitution of the Fund by the British Virgin Islands Government or the Financial Services Commission in the British Virgin Islands. There is no financial obligation or compensation scheme imposed on or by the Government of the British Virgin Islands in favor of or available to the investors in the Fund.
As an entity regulated under the Funds Act, the Fund is subject to the supervision of the Financial Services Commission in the British Virgin Islands, which is authorized by the Funds Act to direct the Fund to furnish information or provide access to any records, books or other documents which it deems necessary to ascertain compliance with the Funds Act or any regulations made under the Funds Act.
The Funds Act provides that the Certificate of Recognition of the Fund may be cancelled or made subject to conditions if, among other things, the Fund has breached the Funds Act or any subsidiary legislation or conditions of its certificate, has been convicted of an offence, is carrying on business in a manner detrimental to mutual funds investors or to the public interest, or is declared bankrupt or is being wound-up or dissolved.
Neither this Memorandum nor the Shares described herein have been registered or qualified for offer or sale under the laws of any jurisdiction governing the offer or sale of securities. This Memorandum shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Shares in any jurisdiction in which such offer, solicitation or sale is not authorized or to any person to whom it is unlawful to make such offer, solicitation or sale.
Certain provisions of the Memorandum and Articles of Association of the Fund and other documents are summarized in this Memorandum, but it should not be assumed that the summaries are complete and such summaries are qualified in their entirety by the contents of the documents which they
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purport to summarize. Material documents are available for inspection as indicated in the section entitled “Documents Available for Inspection” herein. The Advisor extends to each investor and its advisors the opportunity to discuss the offering and the Fund with representatives of the Advisor and to receive additional information to the extent such information may be readily available.
Each investor should not construe the contents of this Memorandum as legal, tax or financial advice. Each investor should consult its own professional advisors as to the legal, tax or financial consequences or other matters relevant to the suitability of an investment in the Shares.
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SUMMARY
This summary of certain provisions of this Memorandum is intended only for quick reference, is neither complete nor exact and is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Memorandum. Certain provisions of the Memorandum and Articles of Association of the Fund and other documents are summarized in this Memorandum, but it should not be assumed that the summaries are complete and such summaries are qualified in their entirety by the contents of the documents which they purport to summarize.
The Fund Collins Capital Low Volatility Performance Fund II, Ltd. is a private investment company existing under the laws of the British Virgin Islands as a BVI business company (the “Fund”). The Fund is qualified as a “professional fund” under the laws of such jurisdiction. The Fund is exempt from registration under the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”), by reason of the exemption provided by Section 3(c)(7) thereof. The Fund commenced investment activities on March 1, 2003. See “ The Fund”, “Risk Factors – Limited Regulation” and “Subscribing for Shares”.
Investment Advisor Collins Capital Investments, LLC (“Collins Capital” or the “Advisor”), a Delaware limited liability company with principal offices at 806 Douglas Road, Suite 570, Coral Gables, Florida 33134, serves as the investment advisor to the Fund pursuant to an investment advisory agreement. Collins Capital is registered as an investment adviser with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Senior management of the Advisor is responsible for directing the management and investment of Fund assets. See “Management of the Fund – The Advisor”.
The Fund may retain one or more investment advisors, consultants or managers in addition to the Advisor, which firms shall be subject to the oversight and direction of the Advisor.
Sister Funds The Fund has a sister U.S. domestic fund, Collins Capital Low Volatility Performance Fund II, LP, a Delaware limited partnership which commenced investment activities on January 1, 2003 (the “Partnership”) also managed by Collins Capital. The Partnership has an identical investment objective and investment strategy as the Fund. The Partnership is primarily offered to investors who are U.S. Persons but are not Qualified U.S. Tax-Exempt Entities.
In addition to the Partnership, the Fund has two additional sister funds, Collins Capital Low Volatility Performance Fund I, LP, a Delaware partnership that commenced operations on January 1, 2003 (“Low Volatility Fund I”), Collins Capital Low Volatility Institutional Fund, Ltd., a BVI business company that commenced operations on August 1, 2006 (“Low Volatility
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Institutional Fund”), also managed by Collins Capital, each of which have an identical investment strategy and co-invest with many, if not most, of the Managers utilized by the Partnership. Low Volatility Fund I is offered to investors who are U.S. Persons that do not qualify as “qualified purchasers” under the Investment Company Act. Low Volatility Institutional Fund is offered primarily to investors that are “qualified purchasers” under the Investment Company Act and “benefit plan investors” under the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Master-Feeder Structure The Fund seeks to achieve its investment objective by investing solely in the Partnership. The Partnership, in turn, primarily invests in another affiliated investment vehicle, Collins Capital Master Fund II, LP, a Delaware limited partnership (the “Master Fund”), in a “master-feeder” investment structure. Similar to the Fund, the Master Fund is not registered as an investment company under the Investment Company Act in reliance upon the Section 3(c)(7) exemption. The “feeder funds” for the Master Fund are comprised of several affiliated investment vehicles, including, but not limited to, the Partnership. The Partnership, as well as the other affiliated investment vehicles, which vehicles may implement a variety of multi-manager strategies, invest in the Master Fund as limited partners of the Master Fund. The Master Fund and all of the “feeder-funds” are managed by Collins Capital and senior management of the Advisor are primarily responsible for investing the portfolio of the Master Fund on behalf of the Advisor. The purpose of the “master-feeder” investment structure is to facilitate the investment in Portfolio Funds by the investment vehicles managed by Collins Capital, and to facilitate the allocation of Portfolio Funds and Managers among such investment vehicles.
The Advisor receives no management fees or other compensation from the Master Fund and receives no management fees or other compensation from the Partnership in relation to the Fund’s investment in the Partnership. (References in this Memorandum to the investment activities of the Fund shall be deemed to include those conducted through the Partnership and the Master Fund, except where the context otherwise requires .) See “Master-Feeder Investment Structure”.
The Offering The Fund has an authorized share capital of: US$250,000 divided into 25,000,000 Shares of par value US$0.01 each. As of the date of this Memorandum, the Board has divided the shares of the Company into five classes each of which may be offered in separate series, as follows: (i) 11,200,000 Class A U.S. Dollar-denominated shares, issuable in up to twenty (20) series, consisting of 3,600,000 shares of series one and 400,000 shares of each of series two through and including series twenty
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(the “U.S. Dollar Shares”); (ii) 3,160,000 Class B U.S. Dollar- denominated non-voting shares, issuable in up to twenty (20) series, consisting of 500,000 shares of series one and 140,000 shares of each of series two through and including series twenty (the “Non-Voting Common Shares”); (iii) 3,160,000 Class C Euro-denominated shares, issuable in up to twenty (20) series, consisting of 500,000 shares of series one and 140,000 shares of each of series two through and including series twenty (the “Euro Shares”); (iv) 4,320,000 Class D British Pound- denominated shares issuable in up to twenty (20) series, consisting of 520,000 shares of series one and 200,000 shares of each of series two through and including series twenty (the “British Pound Shares”); and (v) 3,160,000 Class E Yen- denominated shares, issuable in up to twenty (20) series, consisting of 500,000 shares of series one and 140,000 shares of each of series two through and including series twenty (the “Yen Shares”, and together with the Euro Shares and the British Pound Shares, the “Non-U.S. Dollar Denominated Shares”). The Non- U.S. Dollar Denominated Shares generally have the same rights and terms as the U.S. Dollar Shares, except that (i) the Non-U.S. Dollar Denominated Shares are denominated in currencies other than the U.S. Dollar; and (ii) the Non-U.S. Dollar Denominated Shares may have certain currency hedge activities specifically attributed to them as described in more detail under “ Investment Objective and Strategy – Currency Hedging Program”.
Shares of each class will be offered in a separate series for each purchase date, for purposes of accruing the Incentive Fee and/or the Management Fee (each as defined below) applicable to such Shares (or for other purposes in the Fund’s discretion). See “Offering of Shares”. Each series may be further subdivided if required for certain regulatory purposes. The Fund in its discretion may issue fractional Shares. The Non-Voting Common Shares will generally be issued by the Fund’s Board of Directors, at the request of any holder or prospective holder. See “Description of Shares”.
Income and expenditures of the Fund are allocated appropriately among each class and series of Shares in accordance with U.S. GAAP. Although each class and series of Shares is treated internally as bearing its own specific liabilities, the Fund as a whole will remain liable to third parties for all its liabilities.
Offering Price Shares of each class are offered for purchase as of the first business day of a month (or other dates in the discretion of the Fund), at a per share offering price equal to the Net Asset Value per Share of the appropriate class. Shares of each class will be offered in a separate series for each purchase date, for purposes of accruing the Incentive Fee and/or the Management Fee (each as defined below) applicable to such Shares (or for other
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purposes in the Fund’s discretion). See “ Offering of Shares” and “Determination of Net Asset Value Per Share”.
Subscribing for Shares The minimum initial investment by a Shareholder is U.S. $1,000,000, or the equivalent amount in the relevant currency of the applicable Non-U.S. Dollar Denominated Share class, which minimum amount may be waived at the discretion of the Fund; provided, that the initial investment in respect of the majority of each of the investors is not less than U.S. $100,000 or its equivalent in the relevant currency. An existing shareholder may purchase additional Shares as of the first business day of any month (or at other times in the discretion of the Fund) in a minimum amount of $100,000, or the equivalent amount in the relevant currency of the applicable Non-U.S. Dollar Denominated Share class (unless waived by the Fund). The Directors, in consultation with the Advisor, may determine, at any time, to limit subscriptions for the Non-U.S. Dollar Denominated Shares. See “ Offering of Shares”.
Subscription funds must be delivered by wire transfer received by the Fund not less than three (3) business days prior to the desired purchase date for Shares, unless other payment arrangements are expressly accepted by the Fund. See “Subscribing for Shares” and the Fund’s Subscription Agreement. The Fund reserves the right to reject a subscription, or any portion thereof, or to terminate the offering of Shares at any time.
Eligible Investors The Shares are being offered on a private basis only to a select number of institutional and individual investors which meet applicable regulatory requirements. Any investor who is an U.S. Person must be both a “Qualified U.S. Tax-Exempt Entity,” as defined herein, and an “accredited investor,” as defined in Regulation D under the U.S. Securities Act of 1933, as amended (the “Securities Act”). All investors must also be “qualified purchasers” as defined under the Investment Company Act and “qualified eligible persons”, as defined under the U.S. Commodity Exchange Act, as amended (the “Commodity Act”), and “professional investors” under the British Virgin Islands Mutual Funds Act, 1996 (the “Funds Act”). See “ Introduction”.
Investment Objective and Strategy The Fund’s investment objective is to achieve consistent investment returns with low correlation to the markets, while reducing risk through diversification, by utilizing a diverse group of low volatility alternative investment strategies. In seeking this objective, Collins Capital employs a “multi-manager” approach, maintaining investments with a diversified group of investment managers (“Managers”) managing private investment vehicles or accounts (“Portfolio Funds”) that utilize low volatility strategies believed to have superior risk-reward potential. Collins Capital
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does not follow a rigid asset allocation policy but seeks diversification through a combination of Managers employing a range of investment strategies, including but not limited to event- driven, distressed securities, relative value and various arbitrage strategies. The Advisor attempts to select individual Managers that offer a variety of different skills in an effort to balance the Fund portfolio and reduce overall volatility. Collins Capital considers a number of factors in selecting Managers, including the Manager’s basic investment strategy and policies; reputation; prior performance; use of fundamental analysis and other analytical methods; use of leverage and other techniques; and trading acumen. See “Investment Objective and Strategy”.
Risk Factors An investment in the Shares is subject to various risks, including risks relating to the limited operating history of the Fund, risks inherent with multi-manager funds, the use of certain investment techniques, certain conflicts of interest and the illiquid nature of the Shares. See “Risk Factors”.
Managers The Advisor determines the identity of the Managers, satisfies itself as to the suitability of the terms and conditions of the Portfolio Funds they manage and allocates and reallocates the Fund’s assets, through the Master Fund, with such Managers and their Portfolio Funds. Collins Capital expects that changes in Managers will occur from time to time depending upon market conditions, amount of Fund capital available for investment, Manager performance and other factors. Through the Master Fund, the Advisor may add Managers, remove Managers and allocate and reallocate Fund assets among Managers from time to time, without notification to or consent of the shareholders of the Fund. See “Master-Feeder Investment Structure”.
All Managers and Portfolio Funds are selected by the Advisor in its sole discretion. The ability of the Fund to achieve its investment objective is substantially dependent upon the skill of Collins Capital in selecting capable Managers and allocating Fund assets among them. See “Investment Objective and Strategy – Manager Selection”.
Incentive Fee and Management Fee The Advisor is entitled to receive an annual incentive fee from the Fund equal to 5% of the net increase, if any, in Net Asset Value of Shares during each fiscal year, determined separately as to each outstanding series of shares. Such fee will also be payable when Shares are redeemed. In determining the incentive fee, net appreciation will reflect all Fund expenses, including the fees of Managers described below. No incentive fee will be due, however, as to a Net Asset Value increase in particular Shares unless, and only to the extent that, such Net Asset Value increase exceeds any net decrease in the Net Asset Value of such Shares during prior periods. See “Fees and Expenses – Incentive Fee”.
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The Advisor also receives from the Fund a management fee at the rate of 1.25% per annum of the Fund’s Net Assets, determined and payable monthly in advance. See “Fees and Expenses – Management Fee” and “Determination of Net Asset Value Per Share”.
In the event the Advisor retains advisers, consultants or managers (other than Managers) in addition to the Advisor, the amount of compensation payable by the Fund, if any, to such parties shall operate to reduce that payable by the Fund to the Advisor, so that the retention of such parties will not increase the overall management fee compensation payable by the Fund. See “Fees and Expenses – Management Fee”.
Fees to Managers In addition to the Advisor’s incentive and management fees, the Fund (as a limited partner in the Partnership) pays its pro rata portion of advisory fees, management fees and/or incentive fees or allocations to the Managers of the Portfolio Funds to which the Fund’s assets are allocated through the Partnership and the Master Fund. Generally, the fee structure of Fund Managers includes a 1% to 2% management fee and a 20% incentive fee or allocation of net profits.
Redemption of Shares A holder of Shares, upon at least seventy-five (75) days prior written notice (or such other notice as the Advisor in its discretion may determine), may request the Fund to redeem any or all of his Shares, on the last business day of any calendar quarter, commencing with the first such date at least twelve months following the date of his initial investment in the Fund, at a redemption price equal to the Net Asset Value per Common Share on the redemption date, after accrual of any applicable Incentive Fee. In the event of any partial redemption, a holder must maintain a minimum investment of at least $250,000 (or, if applicable, the equivalent Non-U.S. Dollar currency) in the Fund, unless waived by the Fund. The Fund, in its sole discretion, may allow redemptions on other dates. See “Redemption of Shares”. The Fund has the right, at its option, to redeem Shares of a shareholder at any time if deemed in the best interests of the Fund and, under certain cases, to suspend or delay redemptions. See “Determination of Net Asset Value Per Share – Suspension of Net Asset Value Calculations and Redemptions”.
Payment for redeemed Shares shall be made generally within forty-five (45) days of the redemption date, except that in the case of a redemption of over 90% of the Shares owned by a particular holder, the Fund has the right, in its discretion, to withhold up to 10% of the redemption payment pending completion of the Fund’s financial statements for the fiscal year in which the redemption occurs. Redemption payments will be
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made in U S. dollars; however, the Fund reserves the right, in limited circumstances deemed appropriate, to effect a particular redemption in whole or in part by distribution of one or more interests in Portfolio Funds or other Fund investments. See “Redemption of Shares”.
Dividends It is the present policy of the Fund to reinvest any dividends or other income. Accordingly, shareholders are unlikely to receive current income on their Shares.
Valuation of Assets The value of the Fund’s assets is calculated monthly in U.S. Dollars, in accordance with the guidelines set forth in “Determination of Net Asset Value Per Share.” However, the Non-U.S. Dollar Denominated Shares are valued, subscribed for and redeemed in their respective currencies based on Net Asset Value Per Share calculations utilizing the applicable U.S. Dollar/Non-U.S. Dollar Denominated Share currency spot rate, as of the close of business of the day immediately preceding the relevant valuation date. Such currency spot rate will be based upon the WM Company/Reuters closing spot rate. In order to protect the net asset values of the Non-U.S Dollar Denominated Share classes from variations in the U.S. Dollar/ Non-U.S. Dollar exchange rates, the Fund may employ currency hedging techniques specifically for the benefit of the Non-U.S. Dollar Denominated Share classes. The costs and expenses related to such hedging activities, which may be substantial, will be allocated to the Non-U.S. Dollar Denominated Shares.
Service Company and Administrator Monument Financial Services, LLC acts as the service company and administrator (the “Service Company and Administrator”) for the Fund, the Master Fund and its various “feeder funds”, including the Partnership, and provides various administrative, clerical and other services to such funds, including the calculation of net asset value and the facilitation of share purchases and redemptions. In addition, the Service Company and Administrator pays certain costs and expenses which would otherwise be borne by the Advisor. Such firm is affiliated with the Chief Financial Officer of Collins Capital. See “Management of the Fund – Service Company and Administrator”. Fees of the Service Company and Administrator are charged directly to the Master Fund. As a result, a ratable portion of such fees are borne indirectly by the Fund. See “Fees and Expenses – Service Company and Administrator’s Fees”. The Fund, the Partnership and the Master Fund may select other entities to serve as a service company and/or administrator or discontinue the use of such an entity.
Custodian and Banking Northern Trust Bank of Texas, N.A. renders custodial services to the Fund, the Partnership and the Master Fund and acts as the primary commercial bank to such entities. The Fund may retain
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other custodians or financial institutions as may be required. See “Management of the Fund – Custodian”.
Exchange Listing The Fund may seek to have the Shares listed for trading on a stock exchange, such as that of Ireland or Bermuda; however, there is no assurance the Shares will be approved for such listing.
Taxes The Fund is organized in the British Virgin Islands and is intended to conduct its business in such manner to avoid exposing it to the United States taxation applicable to similar funds organized in the United States.
The Master Fund is a domestic partnership for U.S. federal income tax purposes and therefore should not be subject to such tax at the entity level. Accordingly, all gains, losses, income, expense and other tax items of the Master Fund for U.S. tax purposes will be allocated ratably among its partners, including the Partnership, and indirectly the Fund.
The Fund should not be subject to United States federal income tax on either long or short-term capital gains from the sale or other dispositions of securities in United States corporations, as recognized through the Master Fund, the Partnership and the various Portfolio Funds, provided that (i) the gain is not from the sale of securities in “United States real property holding corporations” and (ii) the Fund is not considered engaged in a trade or business in the United States.
The Fund will be subject to a 30% withholding tax with respect to dividends and non-portfolio interest received directly or indirectly by the Fund from U.S. sources, through the Master Fund and the various Portfolio Funds. Such tax will be effectively borne by the Fund’s shareholders, whether or not Qualified U.S. Tax-Exempt Entities or non-U.S. Persons.
The Fund should not be subject to any tax in the British Virgin Islands. Portfolio Funds may or may not be subject to a variety of taxes. Investors should ascertain the tax consequences of an investment in the Fund in the jurisdiction of their domicile. See “Certain Tax Considerations” for a discussion of certain taxation matters.
Operating Expenses The Fund bears its own operating expenses, including the Advisor’s Incentive Fees and Management Fees; fees of the Registered Agent; outside directors’ fees; legal and accounting fees and costs of shareholder communications. The Fund also indirectly bears its ratable share of the expenses of the Master Fund, the Partnership and the Portfolio Funds. The Master Fund does not pay any fees or other compensation to Collins Capital. See “Fees and Expenses – Operating Expenses”.
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Organizational Expenses The organization and formation expenses of the Fund were paid and expensed by the Fund during its first year of operations.
Fiscal Year The fiscal year of the Fund is the year ending December 31, which may be changed in the Fund’s discretion.
Auditors The Fund’s firm of independent certified public accountants is KPMG LLP, which firm will issue an audit report on the annual financial statements of the Fund. The Board of Directors of the Fund has the right to change its selection of auditing firms for the Fund. See “Management of the Fund – Auditors”.
Financial Statements Following the end of each fiscal year of the Fund, the Fund’s auditors will prepare financial statements of the Fund for such year, which will be delivered to each shareholder by the Service Company and Administrator. Each shareholder will also receive regular communications, at least quarterly, from the Advisor. See “Reports and Financial Statements”.
Additional Information Prospective shareholders are invited to meet with the Advisor for a further explanation of the terms and conditions of this offering of Shares and to obtain any additional information necessary to verify the information contained in this Memorandum, to the extent the Advisor possesses such information or can acquire it without unreasonable effort or expense. Requests for such information should be directed to the Advisor at, telephone (305) 666-3319, facsimile (305) 666-3439, or e-mail [email protected].
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THE FUND
Collins Capital Low Volatility Performance Fund II, Ltd. is a private investment company existing under the laws of the British Virgin Islands as a BVI business company (the “Fund”). A BVI business company is not subject to any taxes in the British Virgin Islands, provided that it does not engage in local business activities. The Fund is recognized as a “professional fund” under the Funds Act and therefore is not required to be licensed under the Funds Act. The Fund is constituted for an indefinite period. The Fund’s registered office and principal place of business in the British Virgin Islands is c/o Bison Financial Services Limited, Bison Court, Road Town, Tortola, British Virgin Islands. The rights and obligations of shareholders of the Fund are determined by its Memorandum of Association and Articles of Association, as filed with the Registrar of Corporate Affairs, British Virgin Islands.
The Fund commenced investment activities on March 1, 2003 as Collins Capital Low Volatility Performance Fund I, Ltd. As of September 27, 2004, the Fund changed its name to Collins Capital Low Volatility Performance Fund II, Ltd. As of April 1, 2004, the Fund converted from the 3(c)(1) exemption under the Investment Company Act, to the 3(c)(7) exemption under the Investment Company Act.
The Fund seeks to achieve its investment objective by investing solely in the Partnership, which, in turn, invests in the Master Fund; however, the Fund may also invest directly in Portfolio Funds, or indirectly in Portfolio Funds through other investment vehicles managed by Collins Capital or its affiliates. The Partnership and the Master Fund have the same place of business as Collins Capital. References hereinafter in the Memorandum to the business and activities of the Fund shall be deemed to include those conducted through the Master Fund, except where the context otherwise requires. See “Master-Feeder Investment Structure”.
INVESTMENT OBJECTIVE AND STRATEGY
General
The Fund’s investment objective is to achieve consistent investment returns with low correlation to the markets, while reducing risk through diversification, by utilizing a diverse group of low volatility alternative investment strategies. In seeking this objective, Collins Capital employs a “multi- manager” approach, maintaining investments with a diversified group of investment managers (“Managers”) managing private investment vehicles or accounts (“Portfolio Funds”) that utilize low volatility strategies believed to have superior risk-reward potential. Collins Capital does not follow a rigid asset allocation policy but seeks diversification through a combination of Managers employing a range of investment strategies. Such strategies may include one or more of the following: (i) a broad array of arbitrage strategies, including convertible and hybrid equity arbitrage, merger arbitrage and statistical arbitrage; (ii) distressed, bankruptcy and special situations investing; and (iii) other strategies deemed consistent with the Fund’s investment objective, such as relative value investing.
The Fund may invest in Portfolio Funds either directly or through other vehicles (“Master Funds”) managed by Collins Capital or its affiliates. No management fees are charged by such Master Funds on account of investments made by the Fund.
Investments of Portfolio Funds as a whole are expected to involve a broad variety of issuers and instruments on a global basis, although particular Managers may emphasize specific regions or markets. The Portfolio Funds in which the Fund invests from time to time should generally be considered medium to long-term commitments. Many, if not all, of the Fund’s investments are in private
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investment funds which permit capital withdrawals by investors, including the Fund, on only a periodic and restricted basis. The Advisor monitors the performance of the Fund’s Managers on an ongoing basis as well as seeks to identify suitable new Managers and disciplines to be incorporated into the Fund’s portfolio.
Description of Primary Strategies
Strategies Generally. The Fund’s portfolio reflects the use of multiple investment strategies in furtherance of its investment objective, through investments in a variety of Portfolio Funds employing such strategies. Certain anticipated general strategies which may be pursued by the Fund through its Portfolio Funds are briefly summarized below. Other strategies not described below may also be employed by Portfolio Funds. The actual strategies that are reflected in the Fund’s investments in Portfolio Funds at any particular time depends initially upon the strategic considerations upon which Portfolio Funds are selected by the Advisor, which depends upon its assessment of balancing requirements as to the Fund’s portfolio, considerations of strategic diversification and relative risk/return, evaluation of current market and economic conditions and relative attractiveness of the available opportunities among Managers and their Portfolio Funds. The precise weighting of strategies reflected in the Fund’s investments depends ultimately upon the strategy selections and consequent investments made by each Manager within its Portfolio Fund. The following summary is not intended to be a comprehensive description of such anticipated general strategies.
Convertible and Hybrid Equity Arbitrage. Convertible and hybrid equity arbitrage is an investment strategy that focuses on hedged investments using convertible or exchangeable securities, such as convertible debentures and preferred stocks, warrants and options, and other hybrid equity securities, in combination with positions in the respective underlying common stocks. In a typical convertible arbitrage position, the asset manager will assume a long position in the senior security and a short position in the underlying common stock or a warrant or option equivalent. In such a position, the portfolio will have the benefit of the yield on the senior security plus the short sale rebate, as well as the potential downside protection afforded by the offsetting short position.
Merger Arbitrage. Merger arbitrage is an investment technique intended to capture the differential in value between the current market price of a security and the value of the consideration to be received following an announced corporate tender offer, merger, acquisition, spin-off, liquidation or other transaction. The decision to initiate a position generally depends upon the magnitude of such price differential, or “spread”, at the time of investment and whether or not such “spread” is large enough to compensate for both the time value until closing and the risks associated with the transaction. The assessment of probability, risk, valuation and timing requires analysis of business, financial, regulatory and legal issues specific to each transaction. An investment decision may also depend on the potential for other buyers to emerge at higher prices. Merger arbitrage investments may involve long or short positions or a combination thereof.
Statistical Arbitrage. In statistical arbitrage, an asset manager seeks to exploit shorter- term, relative mispricings between securities based on fundamental and/or technical factors. This is accomplished using quantitative-based tools such as multiple regression analyses and covariance matrices. Typically, the asset manager will seek to neutralize various portfolio risks at the portfolio level by investing comparable dollar amounts on the long and short sides in hundreds of securities. Some forms of statistical arbitrage may utilize securities portfolios or surrogate instruments in lieu of direct positions, such as index and market basket options and investment company shares. Statistical arbitrage may also cover other styles that may not be strictly quantitative but are short-term and technically driven.
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Distressed/Bankruptcy Investing. Debt and equity securities of issuers experiencing financial distress present opportunities because the market often does not accurately assess the value of the issuer’s securities or the likely effect of future events. These investments may be in bank loans, equipment leases, trade payables and other trade debt, common or preferred stock or other equity securities of companies which may become subject to Chapter 7 liquidations or Chapter 11 reorganization proceedings or may be affected by financial reorganizations, exchange offers, liquidations outside of bankruptcy, workouts and other extraordinary transactions. Distressed investing may also involve positions established prior to, during or following a Chapter proceeding. The lack of institutional research coverage, limited investor analysis of a potential restructuring and original claimholders’ liquidity requirements may create substantial price differentials between current market value and likely future value. Successful distressed investing generally requires a high degree of expertise and a careful assessment and control of particular risks, including, but not limited to, the basic risk that a particular reorganization or other proceeding will not be consummated.
Special Situations/Event-Driven Investing. Special situations/event driven investing is a broad investment category often meant to cover investments also included in certain categories enumerated above, namely merger arbitrage and distress/ bankruptcy investing, that are largely event- related or company-specific and therefore may be significantly uncorrelated to general market price direction. However, special situations/event-driven approaches may involve investment styles more broadly oriented than simply merger or reorganization investing, such as opportunistic and timing strategies, investing in restructurings not necessarily involving financial distress, and investing in companies in litigation or facing imminent regulatory approvals or other developments. Similar to distress investing, special situations/event-driven strategies often require unusual expertise and expert judgment to be successful.
Relative Value. Relative value investing is designed to take advantage of the relative valuation between two or more securities, often of issuers in the same or similar industries. Both long and short positions will be established and sensitivity to market direction may be reduced through the use of hedging tools. In selecting individual securities for purchase, the manager typically focuses on companies that it believes are undervalued and where a catalyst exists that could result in higher valuation. In selecting securities for short sale, the manager typically seeks overvalued securities that reflect unrealistic earnings expectations on the part of analysts and investors, situations where aggressive accounting practices are pursued, and situations where decline in value is likely due to specific industry, market, economic or other factors.
The above summary is not intended to be comprehensive or complete. Collins Capital may, at its sole and absolute discretion, change the Fund’s allocation between strategies, use strategies other than those described above, or discontinue the use of any strategy, so long as in its sole judgment such action is consistent with and in furtherance of the Fund’s investment objective.
Manager Selection
Having determined from time to time the general investment and trading strategies which the Fund should emphasize, the Advisor will select Managers utilizing primarily such strategies. Manager selection is based on a number of different factors, including, but not limited to, the following criteria:
Definable Investment Strategy and Process. Collins Capital reviews each prospective Manager’s actual historical performance in light of such Manager’s strategy and investment policies and practices to verify that the Manager has in fact maintained its investment discipline even during difficult market conditions. Under the Advisor’s approach, mere consistency of return will not be sufficient to
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meet its selection criteria. Consistent adherence to stated strategy and absence of aberrational trading periods will be equally important in the Advisor’s performance review.
Successful Performance Under Different Market Conditions. The Fund typically invests with Managers who have historical performance records under different market conditions (although in certain cases these may be proprietary rather than customer records). Such performance records should demonstrate, in the Advisor’s view, an ability to achieve consistent, low correlated returns in both favorable and unfavorable market environments.
Disciplined Risk Management. Prospective Managers are also evaluated on their ability to manage risk. Collins Capital seeks investment managers whose performance reflects attractive risk- reward relationships. In this regard, risk management approaches beyond mere diversification are analyzed. The Advisor intends to utilize diversification among Managers as an important source of protection against significant loss. In addition, the Advisor evaluates and analyzes each Manager’s use of risk monitoring, management and control techniques.
Commonality of Financial Interest. The Advisor typically selects Managers who have meaningful financial commitments jointly with their clients, generally by investing significant amounts of their personal capital in their own Portfolio Funds.
Long-Term Approach. Collins Capital does not allocate or re-allocate Fund capital among Managers based upon any attempt to time or exploit short-term market trends or movements. However, the Advisor does take into consideration in its allocation decisions the strategies that it regards as benefiting the most from prevailing economic conditions. The Advisor’s approach is to seek to achieve consistent, low volatility returns for the Fund on a long-term basis and under a variety of market conditions.
Collins Capital is dedicated to the principle of extensive due diligence as the cornerstone of its Manager selection process. Quantitative analysis of performance is an important prerequisite to the selection of Managers but an equally important factor in Manager selection is the direct evaluation of a Manager and its senior personnel by the Advisor’s senior management. The Advisor travels extensively to conduct on-site Manager review sessions, in addition to analysis of performance data and other relevant information.
Portfolio Diversification
Collins Capital believes that a significant advantage of the alternative investment strategy marketplace is the breadth and diversity of trading styles and approaches. The Advisor generally selects investment strategies and individual Managers in an effort to achieve portfolio balance and diversification for the Fund across a number of key portfolio characteristics, including: trading methodology, market emphasis and average investment holding period. As a threshold diversification policy, the Advisor will not allocate capital to any single Portfolio Fund in excess of 20% of the Fund’s net assets (determined at the time of allocation).
Investments of Portfolio Funds
A Portfolio Fund may invest and trade its assets, in the form of long and short positions, in a broad variety of securities and other instruments, whether traded on exchanges, over-the-counter or negotiated or electronic markets, or possibly in some securities lacking a ready market or whose public resale is subject to legal restrictions (“restricted securities”). The Advisor has a global outlook toward the
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selection of Managers and may cause the Fund to invest in Portfolio Funds investing worldwide or in particular geographic regions, markets, sectors or industries throughout the world.
Investments by Portfolio Funds may take a broad variety of forms and may include, but are not limited to, equity and fixed-income securities; convertible and hybrid stocks and debt securities; preferred stocks, warrants and options; structured and other synthetic securities and related derivative instruments, such as swaps, forwards, options, futures, caps and floors; other derivatives, including those relating to equity securities, equity indices, interest rate products, fixed-income products and indices; structured securities; in corporate and government securities, money market instruments, foreign currencies and interests in currencies, such as options, spot and forward contracts; certificates of deposit, banker’s acceptances, trust receipts and trade and commercial obligations, loans and loan participations and creditor claims, whether secured or unsecured, and irrespective of ranking; and any other instruments or other evidences of indebtedness. A Portfolio Fund may periodically maintain all or a portion of its assets in money market instruments and other cash equivalents and may not be fully invested at all times.
A Portfolio Fund may utilize leverage (including, without limitation, borrowing cash (as described below under “Investment Techniques of Portfolio Funds”), securities and other instruments, entering into reverse repurchase agreements, and entering into derivative transactions that have the effect of leveraging its portfolio), may enter into repurchase agreements and may engage in securities lending transactions. Debt securities (e.g. convertible bonds) held by a Portfolio Fund may be securities that are unrated or rated below investment grade by rating organizations. A Portfolio Fund may determine to invest in securities and other instruments on a directional basis without regard to any long/short or relative value trading strategy. In general, Managers have broad flexibility to determine, the instruments and markets in which their Portfolio Funds may invest and the investment techniques that their Funds may use to achieve their investment objectives.
Investment Techniques of Portfolio Funds
Managers utilized by the Fund may, when investing in the securities and instruments described above, utilize a broad variety of investment techniques, including, but not limited to, those described below. These practices may vary significantly from time to time and no assurance can be given that the use of any practice by a Manager will have its intended result or that the use of any practice is, or will be, available to the Fund through investing in a particular Portfolio Fund at a particular time.
Hedging. It is expected that Managers, to varying degrees, will employ a variety of hedging techniques. Such techniques are intended to limit an investment portfolio’s exposure to market declines or other risks. Hedging may involve a variety of instruments and strategies, including selling short securities, taking offsetting positions in options or other derivatives related to specific securities, investing in market index or “market basket” instruments or assuming short positions in securities of the same or related issuers.
Leverage. Some Managers may utilize borrowed funds, or leverage, in their investment activities. The use of leverage by particular Managers may vary, depending upon the risk profile of their individual strategies. The use of leverage can increase investment returns, as well as the risk of investment loss and associated volatility. A manager’s leverage policies will be a matter that will be reviewed by the Advisor in the process of Manager selection. The ability of the Advisor to monitor a Manager’s use of leverage depends upon the extent to which Managers make such information available to their investors. The Fund itself also may borrow on a temporary basis to facilitate investment of capital and making redemptions.
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Short Selling. Managers may from time to time engage in short sale transactions. As the Fund focuses upon Managers which employ a variety of strategies in which short selling, to varying degrees, forms an integral part, such as various types of arbitrage, special situations, opportunistic strategies and long/short or relative value investing, it may be expected that short selling will be a significant feature of most, if not all, of the Fund’s Managers.
Options Strategies. Managers may purchase or write call and put options on securities, securities indices or groups of securities that are traded on U.S. or non-U.S. securities exchanges or sold over-the-counter. Managers may also buy or sell put and call options on currencies or other instruments. Options written (sold) by Managers may be covered ( i.e., where the Portfolio Fund owns an offsetting position in the underlying security) or uncovered. Managers may employ a wide spectrum of derivative instruments in addition to conventional options, in connection with their particular strategies.
Other Techniques. Although the foregoing describes certain types of investments and investment techniques to be utilized by the Fund’s Managers, the Advisor reserves the right to engage Managers which invest in other instruments and utilize other investment techniques, if it deems the same to be consistent with the Fund’s investment objective, without notice to or approval by the shareholders.
Oversight of Portfolio Funds
Collins Capital regularly monitors Managers and their Portfolio Funds. The Advisor contacts Managers on a regular basis and meets personally with Managers as appropriate. Performance and risk are monitored and reviewed on an ongoing basis, with each Manager and Portfolio Fund being compared to similar funds and the overall market. The Advisor also utilizes its extensive network of contacts in the industry to assist it in evaluating certain events or trends, whether within a market sector or strategy or as to a particular Portfolio Fund or Manager.
MASTER-FEEDER INVESTMENT STRUCTURE
The Fund seeks to achieve its investment objective by investing solely in the Partnership. The Partnership, in turn, primarily invests in another affiliated investment entity, the Master Fund, in a “master-feeder” investment structure. The “feeder funds” for the Master Fund are comprised of several affiliated investment vehicles, including, but not limited to, the Partnership, and indirectly the Fund. The Partnership, as well as the other affiliated investment vehicles, which vehicles may implement a variety of multi-manager strategies, invest in the Master Fund as limited partners of the Master Fund. Under the master-feeder structure utilized by the Fund, the Fund does not invest directly in Portfolio Funds, but invests indirectly in Portfolio Funds through the Partnership and the Master Fund. The Master Fund makes all investments in Portfolio Funds for the benefit of its “feeder funds”. The Master Fund and all of the “feeder-funds” are managed by Collins Capital and senior management of Collins Capital is primarily responsible for investing the portfolio of the Master Fund on behalf of the Advisor.
The purpose of the “master-feeder” investment structure is to facilitate the investment in Portfolio Funds by the investment vehicles managed by Collins Capital, and to facilitate the allocation of Portfolio Funds and Managers among such investment vehicles. Typically, each Portfolio Fund or Manager invested in by the Master Fund is represented by a series of limited partnership interests within the Master Fund (“Series”). Collins Capital, in its sole discretion, may rebalance the allocation of Portfolio Funds and Managers among the “feeder-funds” through the Master Fund by adjusting the “feeder-funds” asset allocation in the Master Fund’s Series (i.e., reallocations may be achieved through an increase, or reduction, of a feeder-fund’s investment in one or more Series of the Master Fund). Such
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rebalancing or reallocation may be made without notice to, or approval of, the investors within the various “feeder-funds”.
It should be expected that the allocation of Portfolio Funds and Managers among those “feeder-funds”, with identical, or substantially similar, investment objectives and strategies (including the Fund and the Partnership) will be substantially similar, and as a result, such “feeder-funds” may indirectly invest in many, if not all, of the same Portfolio Funds and Managers. Notwithstanding the foregoing, for various reasons, allocations may not be identical and the performance of each of the “feeder-funds” may differ substantially.
The Advisor receives no management fees or other compensation from the Master Fund and receives no management fees or other compensation from the Partnership in relation to the Fund’s investment in the Partnership. The “feeder-funds” and the Master Fund are not registered as investment companies under the Investment Company Act in reliance upon Section 3(c)(7) of the Investment Company Act.
Investments and redemptions of Common Shares will be dependent upon the Fund’s ability to effect parallel transactions with the Partnership and the Master Fund. The management and affairs of the Master Fund are governed by the Advisor as the Master Fund’s general partner. The Fund as a limited partner in the Partnership, and the Partnership as a limited partner in the Master Fund, will have no control over the management or operations of the Master Fund. (References in this Memorandum to the investment activities of the Fund shall be deemed to include those conducted through the Partnership and the Master Fund, except where the context otherwise requires .)
Notwithstanding the foregoing, the Fund, the Partnership and each of the other “feeder- funds” of the Master Fund reserve the right to directly invest in Portfolio Funds or Managers, or indirectly invest in Portfolio Funds or Managers through other investment vehicles managed by Collins Capital or its affiliates, in addition to, or in lieu of, investing in the Master Fund.
CREDIT FACILITY; LEVERAGE
The Master Fund has entered into a credit facility with a financial institution primarily for the purposes of: (i) providing liquidity, on a temporary basis, to facilitate redemptions and/or investments with respect to Portfolio Funds and Managers; and (ii) providing the capital necessary to satisfy the fees, costs, premiums, margins and/or other related expenses associated with one or more Currency Hedging Instruments (as defined below) established by the Master Fund in favor of the Non-U.S. Denominated Share classes. In addition, the borrowed funds or “leverage” provided by the credit facility may also be utilized: (i) to satisfy redemption or withdrawal requests in the event the Fund, the Partnership or the Master Fund have no or limited available cash or immediately available liquid investments; (ii) to pay fees and expenses of the Fund, the Partnership, the Master Fund and other affiliated investment entities; (iii) to make investments in anticipation of the receipt of additional subscription funds; and (iv) other circumstances deemed appropriate by Collins Capital. The Master Fund will be charged interest by lenders for borrowings and will be required to pay or reimburse lenders for various expenses. Interest and other expenses of the credit facility will be allocated among the Master Fund’s “feeder-funds” (which may include the Partnership and thereby indirectly the Fund) in proportion to the amount of borrowed funds utilized by such “feeder-funds”. Additional leverage may be obtained through borrowings directly from other lenders or through swap agreements, options or other derivative instruments (or through a combination of such methods).
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The Advisor may, from time to time without the consent of investors in the Master Fund and the Fund, modify the terms of the Master Fund’s leverage arrangements. Furthermore, the Advisor, in its discretion, may terminate the Master Fund’s current leverage arrangement or obtain additional or alternative credit facilities or other loan arrangements on behalf of the Master Fund from the Fund’s current lender or from other lenders. Any such future modifications or additional or alternative leverage arrangements may subject the Fund to additional obligations and/or costs. See “ Risk Factors – Credit Facility; Leverage”.
CURRENCY HEDGING PROGRAM
The value of the Fund’s portfolio is calculated in U.S. Dollars. However, the Non-U.S. Dollar Denominated Shares are valued, subscribed for and redeemed in their respective currencies based on Net Asset Value Per Share calculations utilizing the applicable U.S. Dollar/Non-U.S. Dollar Denominated Share currency spot rate, as of the close of business of the day immediately preceding the relevant valuation date. Such currency spot rate will be based upon the WM Company/Reuters closing spot rates, or in the absence of such rates, the currency spot rate shall be determined by the Service Company and Administrator, in its discretion, utilizing other recognized currency valuation methods (the “Spot Rate”).
In order to protect the net asset values of the Non-U.S. Dollar Denominated Share classes from variations in the U.S. Dollar/ Non-U.S. Dollar exchange rates, it is expected that during each month the Fund will place one or more currency trades (“Currency Trades”) to short the U.S. Dollar and buy the appropriate Non-U.S. Dollar currency with respect to each issued and outstanding Non-U.S. Dollar Denominated Share class. The Advisor reserves the right to implement additional currency hedging techniques, including, but not limited to, forward foreign currency contracts, exchange-listed futures contracts, currency swaps and/or put and call options on such contracts or currencies (such instruments, along with the Currency Trades described above, and any other instruments which may be utilized by the Advisor in connection with its currency hedging activities, the “Currency Hedging Instruments”). Such hedging activities will be employed specifically for the benefit of each class of Non-U.S. Dollar Denominated Shares, and will be effected by the Fund, through corresponding series within the Master Fund.
In order to establish and maintain positions in one or more Currency Hedging Instruments, the Fund may be required to pay fees or “premiums” or incur other costs, and satisfy certain margin or other requirements, with respect to such positions. In order to satisfy such requirements, the Advisor expects to utilize the Master Fund’s credit facility. The fees, premiums, costs and expenses, including, but not limited to, interest payment obligations, that arise in connection therewith will be borne by the class of Common Shares benefiting from the related currency hedging activities.
There can be no guarantee that the Fund’s currency hedging activities will be successful. See “Risk Factors – Currency Risks Relating to Non-Dollar Denominated Share Classes”.
RISK FACTORS
All securities investments risk the loss of capital. There can be no assurance that the Fund will be profitable or that it will not incur losses. Prospective investors should, among other matters, consider the risks summarized below before investing in Common Shares. An investment in the Fund is speculative, involves a high degree of risk, and is suitable only for persons who are willing and able to assume the risk of losing their entire investment.
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General
The Fund is designed for investors seeking consistent, stable returns from alternative investments, who do not require regular current income and who can accept a high degree of risk in their investments. In view of, among other things, the Fund’s ability to retain Managers who may invest in a wide range of securities and instruments and use a broad variety of investment strategies and techniques, the Fund may be deemed speculative in nature and not as a complete investment program. The Fund is intended for investment solely by sophisticated investors who are accustomed to and fully understand the risks of such investments.
Limited Operating History
The Fund commenced investment activities on March 1, 2003, and therefore has a limited operating history upon which potential investors may evaluate its performance. The success of the Fund is dependent upon the skills of Collins Capital as the Advisor in selecting, monitoring rebalancing and changing Managers and their Portfolio Funds. The historical performance of the Fund should not be construed as assuring any level of future success or profitability. There can be no assurance that the Advisor will successfully identify Managers which fulfill the Fund’s investment objective or that such Managers will not cause the Fund to experience investment losses. See “Management of the Fund – The Advisor”.
Dependence Upon Senior Management of Advisor
The success of the Fund depends upon the efforts of senior management of the Advisor, including their ability in selecting, monitoring rebalancing and changing Managers and their Portfolio Funds. In the event that the services of one or more members of senior management become unavailable to the Fund for any reason, although other personnel of the Advisor will be available to continue the Fund’s operations, the Fund could be adversely affected thereby. The members of senior management may have significant business responsibilities in addition to those of the Fund. See “--Conflicts of Interest” below.
Substantial Withdrawals
Substantial withdrawals by investors in the Fund, the Partnership and/or one or more of the other “feeder-funds”, within a short period of time could require the Advisor to redeem or withdraw the Master Fund’s investments in one or more Portfolio Funds or Managers at an inappropriate time or on unfavorable terms, which could adversely affect the net asset value of the Shares.
Use of Multi-Manager Approach
General. The Advisor will not have any control over the investments that the Managers make. The Advisor may, however, reallocate the Master Fund’s investments among Managers, but the Advisor’s ability to do so may be constrained by withdrawal limitations imposed by the Portfolio Funds. These withdrawal limitations may well prevent the Advisor, and therefore the Master Fund, from reacting rapidly to market changes should a Manager fail to effect portfolio changes consistent with such market changes and the intentions of the Advisor.
Although the Advisor endeavors to monitor Managers regularly, the Advisor is unlikely to have access to information about the underlying portfolio positions of the Master Fund’s investments in Portfolio Funds on a daily or regular basis. Investors in such Portfolio Funds, moreover, typically have no right to demand such information of the Managers. Accordingly, the Advisor will not be in a position
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to analyze or respond to developments within any particular Portfolio Fund unless and until information relating thereto is disseminated by the Manager to its investors, including the Fund. Such information may not necessarily be timely or complete.
The Fund’s multi-manager approach places certain constraints on the Advisor’s ability to value the assets of the Fund. Managers may invest in securities with no current market or for which a market value is not readily determinable. The Fund relies solely on the Managers’ valuations of their respective accounts or Portfolio Funds and the Fund’s interest therein. The Advisor will not be required to independently verify valuations or other performance information furnished by Managers.
Managers trade wholly independently of each other and, at times, may hold economically offsetting positions. To the extent that the Managers do, in fact, hold such positions, the Fund, considered as a whole, cannot achieve any gain or loss despite incurring expenses. Gains achieved by one or more Managers may be partially or wholly offset by losses incurred by one or more other Managers.
Possible Strategic and Manager Concentration. Although Collins Capital seeks to diversify the Fund’s capital generally among various low volatility strategies, there are no fixed restrictions on the ability of the Advisor to invest with one or more Managers, or Managers with a particular strategy or style or who invest in similar types of securities, industries or markets, other than a requirement that the Fund may not invest more than 20% of its capital (in terms of cost at time of investment) in any single Portfolio Fund. Accordingly, the Fund’s investments may be relatively concentrated as to a limited number of Managers and/or Managers employing a limited number of strategies deemed attractive. Conversely, maintaining a high degree of diversification, in the interest of possibly reducing certain Manager-related risks and reducing volatility of return, can have the effect of reducing overall rate of portfolio return, relative to a fund that invests in a limited group of managers that prove highly successful.
Incentive Based Compensation Arrangements. In investing in the Fund, which in turn employs Managers through the Master Fund, an investor will, in effect, incur the costs of two forms of investment management services, namely, the services provided by the Advisor in identifying Managers and the services provided by Managers in selecting investments on behalf of their Portfolio Funds. In addition to the Advisor’s incentive fee, the Managers will likely receive incentive-based compensation from or with respect to the Fund’s investment (through the Master Fund) in their own Portfolio Funds. As a Manager will be compensated based on the performance of its own Portfolio Fund, a Manager may receive, in effect, incentive compensation from the Fund in respect of its investment in such Portfolio Fund for a particular period, even if the Fund’s overall portfolio depreciated during such period. Both the Advisor, and typically a Manager, will also be entitled to receive management fees.
Investment of Capital. The Fund may accept additional capital contributions from existing shareholders or admit new shareholders as of the first business day of a month or at other times in the discretion of the Fund, and will permit redemptions by shareholders, in general, as of the end of each calendar quarter following a one-year restricted period. Some Portfolio Funds in which the Fund may invest, however, may not permit additional capital contributions or the admission of new investors, or withdrawals by investors, on the same basis. As a result, the Fund may be delayed in investing its capital in, and in withdrawing Fund assets from, some Portfolio Funds. This delay may in turn dilute the interests of shareholders in the Fund’s holdings of certain Portfolio Funds, may affect the ability of the Fund to effect timely redemptions by shareholders and may tend as well to affect the proportionate level of Fund investment in particular Portfolio Funds.
Lack of Publicly Available Information. Managers and Portfolio Funds will typically not be required under applicable laws to make public disclosures regarding their operations and performance.
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As a result, the amount of publicly available information that may be used by the Advisor in identifying and monitoring Managers may be relatively small.
Lack of Regulation of Managers. The Fund may employ Managers that are not subject to provisions or laws enacted by various jurisdictions that are designed to protect investors contracting with entities for the provision of money management services. In particular, a number of Managers that may be utilized by the Advisor have claimed exemptions from registration as investment advisers with the SEC and/or various state agencies. Accordingly, Portfolio Funds eligible for investment by the Fund, like Managers selected to serve the Fund, will be subject to varying levels of regulation.
Nature of Managers. The Advisor anticipates that many Managers selected to serve the Fund will rely on the services of a small number of key personnel in managing the assets of the Fund. The death, disability or departure of the key personnel of a Manager could adversely affect the Manager’s ability to manage the Fund’s assets. Moreover, no assurance can be given that suitable replacement personnel will be retained by the Manager.
Institutional Risk. The institutions, including brokerage firms and banks, with which the Portfolio Funds do business, to which securities have been entrusted for custodial purposes, and/or to which securities have been loaned as part of a securities loan or swap transaction, may encounter financial difficulties that may impair the value of such Portfolio Funds to their investors, including the Fund.
Investments and Strategies of Portfolio Funds
There are investment risks inherent in the investments of the Portfolio Funds in which the Fund invests and the strategies such Portfolio Funds may employ. Such risks include, but are not limited to, the following:
General. The assets of the Fund are managed by a number of Managers investing in potentially a broad range of securities and other instruments. Each individual Manager is likely to have broad latitude in the types of investments and investment techniques to be employed. These may include many types of speculative or relatively high-risk instruments and approaches. As the Advisor will be relying upon a limited amount of information reported by the Managers themselves, it may have limited or no information on a current basis regarding such investments. The obligation of the Advisor will be to select Managers in good faith and with reasonable care under the circumstances, and in no event will the Advisor be assuming responsibility for the investment performance of the individual Managers.
Convertible/Hybrid Arbitrage. The success of convertible/hybrid arbitrage strategies is dependent upon a number of factors, including the identification of paired senior and junior securities with price movement correlated in such a manner that, for example, in the event of a price decline in both securities, the price decline in the long position in the senior security will be more than offset by the gain in the short position in the junior security. In addition, successful convertible arbitrage positions often involve senior securities with sufficient yield so as to provide relative price stability. If such requisite elements of prospective positions are not properly analyzed, or unexpected events or price movements intervene, losses in such positions can occur, which can be magnified to the extent a Manager is employing leverage. Convertible arbitrage strategies often depend upon identifying favorable “spreads”, which can also be identified, reduced or eliminated by other market participants.
Merger Arbitrage. Merger arbitrage strategies employed by Managers are subject to a variety of significant risks, the most basic such risk being so-called “event risk”, i.e., the risk that the transaction in question, whether a merger, acquisition, tender offer, spin-off, restructuring or other corporate event, will simply fail to be consummated as contemplated or will be delayed or modified in a
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manner detrimental to arbitrageurs in the transaction. Numerous factors, including market or industry developments, economic factors, regulatory clearance requirements and management or workforce issues, can cause an announced transaction to be abandoned, delayed or modified. In addition, “spreads” on some merger opportunities may be initially small or may be impacted in a manner that precludes investment or causes a position to be limited in profitability or become unprofitable. Merger strategies can also be adversely affected by costs of borrowed funds, hedging issues, including the ability or inability to hedge and the attendant costs, and the strength of competing investors in the marketplace.
Statistical Arbitrage. In statistical trading systems, historical analysis may indicate probabilities of price movements which are not necessary or inevitable or which may not necessarily recur in the future in a manner which will support a profitable trading strategy. Moreover, as the securities markets disseminate and absorb relevant information more rapidly, periods of temporary stock mispricings, such as those endeavored to be exploited by statistical arbitrage strategies, may become shorter, less frequent and of lesser quantitative significance. Managers employing such systems may effectively be competing in the marketplace with numerous institutional investors for the timely identification of such opportunities and the favorable execution of resultant transactions.
Distressed/Bankruptcy Investing. Managers may invest in unrated or “distressed” securities, i.e., securities of companies that are experiencing significant financial or business difficulties, including companies involved in debt restructurings or in bankruptcy or other reorganization and liquidation proceedings. Managers may also purchase financial instruments of or make direct loans to companies of low credit quality or purchase loans that are in default and may also purchase trade claims of suppliers and others, both within or outside of insolvency or reorganization proceedings. Although such investments may result in significant returns, they typically involve a high degree of risk. Restructurings or reorganizations may fail to be completed or be substantially delayed and expected returns on their securities may never materialize. Nonperforming loans, by their nature, may prove uncollectible or not yield appreciable returns for considerable periods of time.
The level of analytical sophistication, both financial and legal, necessary for successful investment in such companies, loans or claims is unusually high. There is no assurance that Managers will correctly evaluate the nature and magnitude of the various factors that could affect the prospects for a successful reorganization or rehabilitation of a distressed issuer or adequate realization upon such loans and claims. A Portfolio Fund’s performance may be substantially impaired by unsuccessful distressed or low credit investments.
Equity Security Strategies. Investments in equity securities by Managers may include a broad variety of issuers and instruments. There are no overall requirements with respect to earnings, revenues, market capitalization or other criteria applicable to all Managers, although individual Managers may be selected which limit themselves to particular types of equity investments. Accordingly, equity investments may include many securities which are speculative or are of higher risk than those of the most mature or prominent companies. Long/short strategies and other strategies that Portfolio Funds may employ, such as pairs trading, depend largely upon identifying securities with appropriate features of negative correlation, i.e., that a loss in one position (whether long or short) will be more than outweighed by a gain in a related position. Similar to various types of arbitrage, if the anticipated pattern of price correlation does not in fact occur, or if the positions are not appropriately weighted, a Portfolio Fund may experience losses.
Non-U.S. Investments. Some Portfolio Funds may invest predominantly in non-U.S. markets or industries, in securities denominated in foreign currencies and/or traded outside of the United States or comparable Western nations. Such investments require consideration of certain risks typically not associated with investing in U.S. securities. Such risks include, among other things, trade balances
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and imbalances and related economic policies, unfavorable currency exchange rate fluctuations, imposition of exchange control regulation, withholding taxes, limitations on the removal of funds or other assets, policies of governments with respect to possible nationalization of their industries, political difficulties, including expropriation of assets, confiscatory taxation and economic or political instability in foreign nations.
There may be less publicly available information about certain foreign companies than would be the case for comparable companies in the United States and certain foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to or as uniform as those of United States companies. Securities markets outside the United States, while growing in volume, have for the most part substantially less volume than U.S. markets, and many securities traded on these foreign markets are less liquid and their prices more volatile than securities of comparable U.S. companies. In addition, settlement of trades in some non-U.S. markets is slower, less systematic and more subject to failure than in U.S. markets. There also may be less extensive regulation of the securities markets in countries other than the United States.
Securities With Limited or No Liquidity. Although most investments of Portfolio Funds are expected to be relatively liquid, Managers may invest some portion of their capital in securities with limited marketability, such as small capitalization stocks, stocks traded on foreign markets or on a limited basis, or in securities that are illiquid, such as privately placed securities or instruments not readily tradable. Such investments present additional investment risks of possible inability to both realize gains on a timely basis as well as limit losses. Disposition of such investments may be possible, if at all, only at substantial discounts from their purchase price or intrinsic value. Substantial holdings by Managers of illiquid securities may adversely affect their ability, and indirectly that of the Fund, to effect capital withdrawals on a satisfactory basis.
Overall Investment Risk. All securities investments risk the loss of capital. Investing in one or more Portfolio Funds may be speculative and subject to significant risk, notwithstanding the efforts of the Advisor. While the Advisor endeavors to select appropriate Managers and allocate Fund capital accordingly, there can be no assurance that the Fund will be profitable or that it will not incur significant losses.
Managers’ Investment Techniques
In addition to the foregoing risks related to anticipated investments by Managers, there are certain investment risks inherent in the Fund’s investments with Managers, through the Master Fund, due to the techniques typically utilized by such Managers, particularly with respect to Portfolio Funds, including, but not necessarily limited to, the following:
Possible Concentration of Investments. Unlike certain investment vehicles, such as diversified mutual funds, hedge funds, such as Portfolio Funds, are often relatively concentrated as to investments. Limitations as to strategy, amount of capital or analytical resources can lead to significant concentration practices among Managers as a group. Concentration of investments in a limited number of issuers or securities, industries or industry groups, or countries or regions, particularly in the context of event-related investing, can increase significantly investment risk and portfolio volatility. Moreover, the taking of positions in the same or similar securities by multiple Managers with which the Fund invests can inadvertently increase the Fund’s overall level of concentration.
Leverage; Interest Rates. The investment strategy of some Managers may involve the use of leverage, i.e., borrowings to increase investment positions and exposure. A particular Portfolio Fund may not be subject to any limitation on the amount of its borrowings and the amount of its
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borrowings outstanding at any time may be large in comparison to its capital. Risk of loss and the magnitude of possible gains are both increased by the use of leverage. Adverse market fluctuations, in the case of margin borrowings, may require the untimely liquidation of one or more investment positions. Interest costs of borrowings will be an expense of Portfolio Funds employing leverage and therefore both borrowing levels and fluctuations in interest rates may affect the operating results of such Funds and therefore the Fund. The Fund itself also may borrow on a temporary basis to facilitate investments of capital and making of withdrawals.
Short Selling. Short selling may be part of the investment strategy of some of the Fund’s Managers. Selling securities short creates the risk of losing an amount greater than the initial investment in a relatively short period of time and the theoretically unlimited risk of an increase in the market price of the securities sold short. Short selling can also involve significant borrowing and other costs which can reduce the profit or create losses in particular positions. Short selling, particularly in the case of thinly traded or speculative securities, can involve the further risk of an inability to locate or purchase adequate amounts of the security sold short in order to cover the short position. Although Managers may utilize short selling as a hedging technique, short selling may also be used for speculative purposes.
Options and Other Derivatives. Managers may utilize options or other derivative instruments in furtherance of their investment strategies. A position in a derivative instrument entails risks that are separate and distinct from those of the underlying interest. For example, the leverage (market risk per trading unit) and volatility represented by a derivative instrument is often significantly greater than that of the underlying interest. When traded in markets, derivative trading is often more volatile and less regulated than trading in established debt or equity issues. Trading in various over-the- counter derivatives, moreover, involves certain risks as to the counterparty ( i.e., its ability to fulfill its contractual obligations under the derivative instrument).
Options positions may include both long positions, where the Portfolio Fund is the holder of put or call options, as well as short positions, where the Portfolio Fund is the seller (writer) of an option. The expiration of unexercised long option positions effectively results in loss of the entire cost or premium paid for the option. The writing or selling by a Portfolio Fund of an uncovered put or call option can involve, similar to short selling, a theoretically unlimited risk of an increase in the cost of selling or purchasing the underlying securities in the event of exercise of the option. Hedging Limitations. Although the Advisor may seek Managers who employ various hedging techniques, the extent and effectiveness of such hedging strategies may vary substantially. Most hedging techniques of Managers will be directed primarily toward general market risks or certain issuer risks. Typically, there are numerous investment risks which will not be hedged or necessarily capable of being hedged as a practical matter. To the extent unhedged, investment positions of Managers will, in general, be fully exposed to market and investment risks. Hedging techniques have a variety of limitations. For example, hedging against a decline in the value of a long position by selling short does not prevent a loss in the long position but establishes one or more other positions expected to appreciate in value under the same circumstances. Hedging through market index options or other market-based instruments may only protect against an overall market downturn, as compared with price declines in specific securities.
Hedge transactions generally also limit the opportunity for gain if the value of the portfolio position should increase, due to the hedging cost or price decline in the hedging position. For a variety of reasons, a Manager may not seek or be able to establish a sufficiently accurate correlation between hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent a Portfolio Fund from achieving the intended hedge or may expose the Fund to risk of loss. Such losses can include losses on the hedged position, the attempted hedge position, or both, and could be
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substantial. There can be no assurance, therefore, that all investment positions of Portfolio Funds will be hedged against investment risks or that such hedging strategies will in fact prove successful.
Currency Risks Relating to Portfolio Funds
Although many of the Fund’s shareholders may be non-U.S. Persons, a major portion of the Fund’s investments, through the Portfolio Funds, may be in U.S. companies and the Fund’s accounts are stated in U.S. dollars. There is no way to reliably predict future currency fluctuations involving the U.S. dollar or other foreign currencies and the effect of such fluctuations on the financial situation of each shareholder. Although one or more individual Managers may employ currency hedging in their Portfolio Funds, there is no intended policy within the Fund’s contemplated investment strategy to protect against currency fluctuations affecting the Fund’s portfolio as a whole. Prospective investors concerned with currency risk are urged accordingly to seek such protection therefrom to the extent they deem appropriate.
Currency Risks Relating to Non-Dollar Denominated Share Classes
The value of the Fund’s portfolio is calculated in U.S. Dollars. This creates currency risk for holders of the Fund’s Non-U.S. Dollar Denominated Share classes. While the Fund may employ currency hedging techniques to limit such risk, there can be no guarantee that hedging activities will be successful. Any costs and expenses of hedging activities with respect to a particular Non-U.S. Dollar Denominated Share class, and any profits or losses relating thereto, will be specifically allocated to such Share class and will be reflected in the Net Asset Value Per Share of such Share class. The costs and expenses associated with the Fund’s currency hedging activities may be substantial.
Segregation of Income and Expenses between Classes of Shares; Performance of Share Classes
Income and expenses specifically related to a class of Shares of the Fund, particularly the expenses associated with the Fund’s currency hedging activities, will be segregated on the books and records of the Fund for recording keeping, accounting and other appropriate purposes. Notwithstanding the foregoing, in the event there is a substantial loss in one class of Shares, or other relevant liability, which exceeds the assets of such class, the assets of the other classes of Shares may be subject to a creditor’s claim in relation to, and ultimately be held accountable for, such loss or liability.
The performance of the various share classes may vary as a result of the currency hedging activities of the Fund with respect to each class. Such hedging activities will be employed specifically for the benefit of the Non-U.S. Dollar Denominated Shares. There can be no guarantee that the Fund’s currency hedging activities will be successful.
Conflicts of Interest
Among potential conflicts of interest which should be considered by each prospective investor are the following:
Possible Conflicts with Other Investment Vehicles or Clients. The Advisor currently serves as general partner or investment adviser to a number of multi-manager investment vehicles and may serve as investment adviser to other entities or accounts, some with investment strategies and policies similar to that of the Fund. The Advisor or its affiliates may participate in or sponsor other investment vehicles, and possibly have additional advisory clients, in the future. The Advisor may also determine to engage in other businesses. The existence of such multiple entities or clients, or other businesses, necessarily creates a number of potential conflicts of interest.
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The Fund has three sister funds, the Partnership, Low Volatility Fund I and Low Volatility Institutional Fund (collectively, the “Sister Funds”). The Sister Funds have an identical investment strategy and may invest, through the Master Fund or another affiliated “master fund” (together, the “Master Funds”), in many, if not most, of the Managers and Portfolio Funds with which the Fund invests. See “Management of the Fund – The Advisor”. However, due to availability and timing of capital, investor qualifications and other factors, Manager and Portfolio Fund allocations among the Fund and the Sister Funds, which are achieved by Collins Capital through allocations within the respective Master Fund, may be expected to vary over time, perhaps significantly, and therefore the investment performance of the Fund and the Sister Funds should not be expected to be identical.
The feeder funds of the Master Funds may have differing but possibly related or overlapping strategies (such as broadly diversified or long-short equity investment strategies). In general, with respect to use of particular Managers, the Advisor may retain a particular Manager for the Fund, the Master Fund or for the account of other managed vehicles, including the Sister Funds, other feeder funds or their respective Master Fund. When the availability of investment with a particular Manager is limited, the Advisor may allocate such opportunity, as between the Master Funds and other appropriate investment vehicles or managed accounts, in such manner as the Advisor deems equitable to all parties. The Fund and the Master Fund will not be entitled to priority of choice as among available Managers or Portfolio Funds and may not invest in every Manager or Portfolio Fund selected by the Advisor for the Master Funds or its other investment vehicles.
The existence of multiple investment vehicles or clients may also create conflicts as to time and resource commitments on the part of the Advisor’s personnel. While the members of senior management of the Advisor intend to devote such time to the business of the Fund as they deem necessary, they have other ongoing investment and business responsibilities which could have the effect of reducing the time they devote to the investment activities of the Fund.
Conflicts Regarding Advisory Fees. The Incentive Fee payable to the Advisor is determined and paid annually, as a percentage of the entire increase, if any, in the aggregate net asset value of a holder’s Shares during the year, after reduction for any unrecovered prior period losses. See “Fees and Expenses – Incentive Fee”. Since the Incentive Fee is determined on both realized and unrealized appreciation, the Advisor may receive a fee reflecting unrealized gains at the end of a year that are not subsequently recognized by the Fund. In general, the fact that an advisory fee is based on capital appreciation of the Fund’s shares may create an incentive for the Advisor to make investments that are more speculative than would be the case in the absence of such a performance-based advisory fee. The Advisor has the right to agree to reduce, waive or rebate the Incentive Fee and/or Management Fee chargeable to particular shareholders, for such consideration it deems appropriate, without notice or offering any similar opportunity to other shareholders. See “--Agreements with Certain Shareholders” below and “Management of the Fund – Investment Advisory Agreement”.
Affiliated Service Company and Administrator. Shareholders will not have the benefits that may be afforded by an independent administrator, as the Service Company and Administrator is owned by Mr. Kent (Pete) Windhorst, the Chief Financial Officer of Collins Capital and President of the Service Company and Administrator, and Mrs. Joyce Windhorst, Mr. Windhorst’s wife. Mr. Windhorst and Mrs. Windhorst are compensated solely by the Service Company and Administrator for their services to the Advisor and the Service Company and Administrator, and do not receive any compensation from the Advisor. In addition, employees of the Advisor may also perform certain administrative-related functions for the Service Company and Administrator, for which they are compensated by the Advisor.
In addition to the functions customarily performed by fund administrators, the Service Company and Administrator also pays certain costs and expenses which would otherwise be borne by the
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Advisor. The Advisor believes that the fee rates charged by the Service Company and Administrator to the Master Fund represent fair and reasonable compensation in light of the services provided, and the costs and expenses paid for, by such firm. See “ Management of the Fund – Service Company and Administrator” and “Fees and Expenses – Service Company and Administrator’s Fees”.
Information Provided by the Advisor. Factual information contained in this Memorandum, including without limitation, the investment strategy and policies, biographical and certain other information, has been furnished largely by the Advisor and its affiliates and in general has not been independently confirmed or verified. Therefore, shareholders should seek to confirm such information, seek additional information or conduct further investigation as they deem appropriate in connection with a decision to invest in the Fund.
Agreements with Certain Shareholders. The Fund and the Advisor may from time to time enter into agreements with one or more shareholders, whereby in consideration for agreeing to invest certain amounts in the Fund or other vehicles, or other consideration deemed material by the Board of Directors and the Advisor, such shareholders may be granted favorable rights not afforded to other shareholders generally. Such rights may include one or more of the following: special rights to make future investments in the Fund; special redemption rights, relating to frequency, notice and/or other terms; rights to receive reports from the Fund on a more frequent basis or that include information not provided to other shareholders; rights to receive reduced rates of the Incentive Fee and/or the Management Fee; rights to receive a share of the Incentive Fee, Management Fee or other amounts earned by the Advisor or its affiliates; and such other rights as may be negotiated between the Fund, the Advisor and such shareholders. The Fund and/or the Advisor may enter into such agreements without the consent of or notice to the other shareholders.
Conflict Regarding Role of Counsel. U.S. counsel to the Fund has represented, and continues to represent, the Advisor in certain matters. Such counsel does not purport to represent the separate interests of the shareholders of the Fund and has assumed no obligation to do so. Accordingly, such shareholders will not have had the benefit of independent counsel in the structuring of the Fund or determination of the relative interests of the shareholders and the Advisor and directors of the Fund. Prospective shareholders must therefore rely upon their own counsel and other advisors in evaluating the consequences of an investment in the Fund.
Credit Facility; Leverage
The Master Fund may utilize leverage (i.e., borrowed funds), from time to time, as the Advisor considers appropriate, primarily for the purpose of providing liquidity, on a temporary basis, to facilitate redemptions and/or investments with respect to Portfolio Funds and Managers. In addition, the Master Fund may borrow on a temporary basis to facilitate investor redemptions or for other reasons. The Master Fund’s use of leverage may increase the Master Fund’s risk of loss. In addition, interest costs associated with the use of leverage by the Master Fund will be an expense of the Master Fund, and indirectly the Fund, and, therefore, both borrowing levels and fluctuations in interest rates may affect the operating results of the Master Fund and the Fund.
As a condition to providing the Master Fund with additional capital, the Master Fund’s lenders (“Lenders”) will generally require the Master Fund to pledge some or all of the Master Fund’s assets (which will generally be its investments in the Portfolio Funds) as collateral. Under the Master Fund’s current leverage arrangement only a portion of the Master Fund’s Portfolio Funds are pledged as collateral. In addition, Lenders will impose various covenants and restrictions on the Master Fund as a result of which they may exercise some degree of control over the Master Fund’s investment activities and the Master Fund’s assets. The failure of the Master Fund to satisfy such covenants and restrictions
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could result in an event of default under a loan arrangement. Upon an event of default, a Lender may require the Master Fund to liquidate certain investment positions with one or more Portfolio Funds in an untimely or otherwise adverse manner, may be entitled to take possession of a portion of the Master Fund’s assets, and/or may have the right to take other actions which could have an adverse impact on the Master Fund or its assets, and therefore the Fund.
Fund Expenses
Multi-manager investment vehicles such as the Fund necessarily incur a share of expenses of their underlying investment entities. Shareholders bear their ratable share of the fees and expenses of Portfolio Funds, including incentive fees and management fees payable to their Managers. Some Portfolio Funds may have significant operating expenses. Strategies utilized by certain Managers may require frequent trading, and, as a result, portfolio turnover and brokerage commission expenses may significantly exceed those of other investment entities of comparable size.
Although the Master Fund will not be charged advisory fees by Collins Capital, it will incur operating expenses, including, but not limited to the fees of the Service Company and Administrator, that will be borne indirectly by the “feeder-funds”, including the Partnership and the Fund. See “Fees and Expenses – Operating Expenses”.
Limited Liquidity
Shares of the Fund are significantly less liquid than many other securities investments, as it is highly unlikely that there will be an active secondary trading market for the Shares. A shareholder has the right to redeem Shares from the Fund, but only after the end of a minimum one-year “lock-up” period, and then at the end of a calendar quarter and upon at least 75 days prior written notice, unless the Advisor, in its discretion, permits a lesser period, which it is under no obligation to do. The Fund has the right to suspend or delay redemptions under certain conditions, including situations where the Fund is restricted in its ability to make comparable withdrawals from one or more Portfolio Funds. See “Redemption of Shares”. There are certain limitations on transfer of the Shares, including those involving transferees who may be “U.S. Persons.” See “ Description of Shares – Restrictions on Ownership and Transfer”.
No Distributions
The Fund does not anticipate making annual distributions to its shareholders. To the extent gains and income are realized by the Fund, the Advisor is likely to reinvest the same on behalf of the Fund.
Lack of Participation by Holders of Shares
The holders of the Shares have no right to participate in the day-to-day operations of the Fund and some of their actions as shareholders are subject to extraordinary voting requirements for approval. In addition, the Subscription Agreement provides for the grant by the subscriber of a revocable proxy to the Fund’s Agent for voting the Shares. See “Description of Shares – Voting Rights”.
Tax Risks
Under the U.S. Internal Revenue Code, an entity, such as the Fund, engaged in investing or trading of securities for its own account from an office within the United States will not be deemed “engaged in a trade or business within the United States”, provided that it is not a “dealer in securities.”
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Although the Advisor believes the Fund will not be such a “dealer”, should the U.S. Internal Revenue Service determine that the Fund is actually “engaged in a trade or business in the United States”, whether directly or through the Master Fund, or should existing law or regulations change, the Fund could be subject to U.S. taxes on its portfolio transactions and its receipt of dividends and interest, as well as possibly a branch tax.
Dividend and non-portfolio interest income of the Fund from U.S. sources is currently subject to a 30% U.S. withholding tax rate. Qualified U.S. Tax-Exempt Entities investing in the Fund (in addition to the Fund’s non- U.S. shareholders) will effectively bear their share of such tax, which is generally not assessed against U.S. domestic entities and investors. Such tax may or may not be significant, depending upon the underlying investments of Portfolio Funds from time to time.
Qualified U.S. Tax-Exempt Entities investing in the Fund should be aware that although dividends and gains on the sale of assets held for investment (such as the Shares) are generally not included in unrelated business taxable income for federal income tax purposes, gains or income earned from “debt financed property” is treated as income from an unrelated business in the proportion in which the property is financed with debt. Thus, if a Qualified U.S. Tax-Exempt Entity incurs debt to acquire its Shares, the income such entity derives from such Shares will be unrelated business taxable income. See “Certain Tax Considerations – Investment by U.S. Tax-Exempt Entities”.
Depending upon level of share ownership, total ownership by U.S. persons and other factors, Qualified U.S. Tax-Exempt Entities owning Shares may be subject to a variety of reporting requirements under the U.S. Internal Revenue Code. Such Entities should generally consult their tax advisors with respect to all of the potential tax consequences of an investment in the Shares.
The taxation of U.S. investments held by foreign persons is subject to continuing scrutiny by the U.S. Congress. Each investor is urged to have his own U.S. tax advisors advise him regarding the U.S. federal income tax consequences of the Fund’s activities. Each investor should be aware that U.S. tax laws are subject to change and such changes could adversely affect the U.S. taxation of the Fund, and thus, adversely affect each investor’s economic return on his investment in the Fund.
Investors may also be subject to tax with respect to the Fund based upon the laws of their respective domiciles or residences for tax purposes or in other jurisdictions. Accordingly it is necessary that a prospective investor consult with his tax advisors with respect to the tax consequences of an investment in the Shares.
Limited Regulation
Both the Fund and the Master Fund are exempt from registration as an investment company under the Investment Company Act. The offer and sale of Shares being made hereby is not registered under the Securities Act in reliance upon an exemption therefrom. Accordingly, although certain protections of such laws may be available, investors in the Shares will not have the benefits afforded generally by such registrations under such laws. Although the Fund may be subject to securities laws of certain jurisdictions in which the Shares may be offered for sale, there can be no assurance that the Fund will be subject to significant regulation under the securities laws of any particular jurisdiction.
Under its exemption from registration under the Investment Company Act, the Fund will be permitted to have a theoretically unlimited number of shareholders. Such provision may make it less likely that a particular shareholder or group of shareholders will control the Fund.
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The Advisor, Collins Capital, is currently registered with the SEC as an investment adviser under the Advisers Act. Such registration does not imply that the SEC has in any way approved or passed upon the merits or fitness of the Advisor, the offering of the Shares or the accuracy or completeness of this Memorandum. The Advisor may in the future withdraw from registration as an investment adviser, if an exemption from registration is then available.
The Advisor is in the process of registering as a commodity pool operator and commodity trading adviser under the Commodity Act. Until such registration is effective, Collins Capital Advisors, Inc., the sole voting member of the Advisor, will maintain its registration as a commodity pool operator and commodity trading adviser under the Commodity Act. The Fund is entitled to an exemption that limits the reporting and recordkeeping responsibilities incident to such registration.
In recent periods both the SEC and Congress have devoted increased attention to the issue of whether hedge funds, fund of funds and other private investment vehicles should be subject to increased or different modes of regulation. It is not currently practicable to predict the form or extent of future regulation. Changes in applicable securities laws or regulations could impose additional compliance or financial burdens upon the Fund, the Master Fund and the Portfolio Funds or affect their operations in other respects.
Limitation of Liability of the Advisor; Indemnification
The Investment Advisory Agreement (as defined below) provides for certain limitations on the liability of the Advisor in connection with the performance of its duties under the Investment Advisory Agreement. In addition, pursuant to the Investment Advisory Agreement the Fund has agreed to indemnify the Advisor from and against certain losses, damages, liabilities and expenses incurred by the Advisor in the course of performing its duties to the Fund.
MANAGEMENT OF THE FUND
The Advisor
Pursuant to the terms of an Investment Advisory Agreement, as amended from time to time (the “Investment Advisory Agreement”), the Fund has retained Collins Capital Investments, LLC, a Delaware limited liability company (“Collins Capital” or the “Advisor”), a private investment advisory firm, as Investment Advisor for the Fund, with full discretionary authority and responsibility to manage and invest the assets of the Fund. Senior management of the Advisor is responsible for all decisions regarding the selection, retention and monitoring of Portfolio Fund Managers for the Fund. The Advisor is currently registered as an investment adviser with the SEC.
The Advisor succeeded Collins Capital Advisors, Inc., a Delaware corporation (“Collins Capital Advisors”), as the investment advisor of the Fund on January 1, 2007. Collins Capital Advisors had previously served as the investment advisor of the Fund since its inception and is currently the sole voting member of the Advisor. Such succession is not expected to have any material impact on the management or investment activities of the Fund as the members of senior management of Collins Capital Advisors serve in the same capacities with the Advisor.
The Advisor is in the process of registering as a commodity pool operator and commodity trading adviser under the Commodity Act. Until such registration is effective, Collins Capital Advisors, will maintain its registration as a commodity pool operator and commodity trading adviser under the Commodity Act.
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In addition to the Fund, Collins Capital also serves currently as: (i) general partner to the Partnership, Low Volatility Fund I, Collins Capital Long/Short Equity Fund II, L.P., Collins Capital Diversified Fund I, L.P., Collins Capital Diversified Fund II, L.P., Collins Capital Long/Short Equity Fund II, L.P., Collins Capital Alpha Fund I, LP, Collins Capital Credit Opportunity Fund, LP and QHS Fund, LP, all U.S. domestic partnerships, and (ii) investment adviser to, Low Volatility Institutional Fund, Collins Capital Diversified Offshore Fund I, Ltd., Collins Capital Diversified Offshore Fund II, Ltd., and Collins Capital Diversified Institutional Fund, Ltd., all organized in the British Virgin Islands.
Collins Capital also serves as the general partner of the Master Fund and Collins Capital Master Fund I, LP, a Delaware limited partnership (“Master Fund I”). Master Fund I serves as the master fund, in a “master-feeder” investment structure substantially similar to that utilized by the Fund, the Partnership and the Master Fund; however, the “feeder-funds” of Master Fund I are generally exempt from registration under the Investment Company Act pursuant to Section 3(c)(1).
In addition to the foregoing vehicles, the Advisor may have other private investment clients or accounts, or manage other investment vehicles, in the future.
Senior Management
Set forth below is a brief summary of the business background and education of the current senior management of the Advisor.
Dorothy Collins Weaver, Chairman & Co-Founder. Prior to founding Collins Capital Advisors, Mrs. Weaver was President of Intercap Investments, Inc., a diversified investment company specializing in alternative investments including real estate development. Mrs. Weaver was instrumental in rewriting the banking laws in the State of Florida which resulted in Miami becoming an international banking center. After serving as Chairman of the Board of the Federal Reserve Bank of Miami under both Paul Voelker and Alan Greenspan, she served as Chairman of the Governor’s Economic Council for the State of Florida; Chairman of the Business Leadership Council; Chairman of the Governor’s Commission on Education Workforce Committee; Chairman of the Greater Miami Chamber of Commerce; and Founding Director of Enterprise Florida, an innovative public/private partnership that replaced Florida’s Department of Commerce. Mrs. Weaver graduated with honors (Phi Beta Kappa) from Wellesley College where she serves on the Board of Trustees and chaired the Finance Committee. She serves on the Investment Committee of the American Red Cross. Mrs. Weaver has received the “Business Leader Hall of Fame Award”, “Leader of the Year Award”, “Women Who Make A Difference Award” and “The Community Headliner Award”.
Michael J. Collins, President & Co-Founder. Prior to founding Collins Capital Advisors, Mr. Collins was President and CEO of a diversified investment firm which focused on hedge funds, venture capital, private equity, start-ups, and M&A. From 1984 until 1987, Mr. Collins was General Partner of a successful hedge fund specializing in short selling. From 1972 to 1982, Mr. Collins served as President, CEO and Chairman of Fidelity Union Life Insurance Company. Under his leadership, profits increased six-fold and return on total assets moved from among the lowest to the highest of the top 100 U.S. life insurance companies. In 1979 he was named president of Allianz Investment Corporation, the US holding company subsidiary of Allianz Versicherung A.G. Mr. Collins received his B.A. from Stanford University where he served as President of the Student Body and received his M.B.A. from Harvard Business School. Mr. Collins has received numerous honors including “Ten Outstanding Men in America”.
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Al Bhatt, Chief Investment Officer. Prior to joining Collins Capital Advisors, Mr. Bhatt was Director of Alternative Investments at SEI Investments, a publicly traded company (“SEI”) with approximately $100 billion in assets under management and the leader in providing manager of manager investment solutions to institutional, high net worth and financial advisor clients. Mr. Bhatt was responsible for the development and implementation of the investment strategy and manager selection process for hedge funds and private equity. Prior to joining SEI, Mr. Bhatt was a partner with a European-based private equity firm focusing on fund-of-fund investments as well as direct and co- investment opportunities in the U.S. Previously, Mr. Bhatt held several senior investment and financial positions with Koch Capital, the captive merchant bank of Koch Industries, Inc., which is the second largest privately held company in the U.S. Mr. Bhatt began his professional career with Cornerstone Research, a leading financial and economic consulting firm, where he had considerable managerial responsibilities and participated in the creation of the Financial Institution, Real Estate and Technology Groups. Mr. Bhatt’s academic training is in economics, with an M.A. from Stanford University and a B.A. from Union College.
Kent (Pete) Windhorst, Chief Financial Officer. Prior to joining Collins Capital Advisors, Mr. Windhorst had 24 years of experience in the financial and accounting area since starting his career in 1973 as the controller for a public company, Hy-Gain Electronics Corporation. Mr. Windhorst was a partner and the Chief Financial Officer of Intercap Investments, Inc., a diversified investment company and GCA, a real estate company. He is President of Monument Financial Services, LLC, the Service Company and Administrator for the Collins Capital funds. Mr. Windhorst received his B.S. degree from the University of Nebraska with a major in Accounting.
Maurice W. Blauch II, Chief Compliance Officer and Controller. Prior to joining Collins Capital Advisors, Mr. Blauch had 28 years of experience in the financial and accounting area. Mr. Blauch began his career with Motorola in 1976, and held various financial positions with NYSE and AMEX listed companies or subsidiaries including Imperial Industries Inc, Jartran Inc., and the Greyhound Corporation (currently Viad Corp). In 1998, he joined Equitable Life Insurance (currently AXA Advisors) providing financial and investment planning for individuals and small businesses. Most recently, Mr. Blauch was Vice President of Planning with the private wealth management firm of Evensky, Brown and Katz in Coral Gables, Florida. Mr. Blauch received his B.B.A. degree from Florida International University with a major in accounting and his M.B.A. from the University of Miami. He is a licensed CPA in the state of Florida and is also a CFP®.
Investment Advisory Agreement
Services. Pursuant to the terms of an Investment Advisory Agreement, the Advisor has full investment discretion and authority to manage, invest and reinvest the Fund assets, including all investments, withdrawals and re-investing in Portfolio Funds and the terms of such investments. The Advisor is responsible for the retention of third parties to render services to the Fund, including other advisors, subadvisors and consultants. The Advisor is also responsible for assisting in the calculation by the Service Company and Administrator, as of each valuation date, of the Net Asset Value Per Share and for furnishing the Service Company and Administrator with appropriate information for purposes of preparing reports to shareholders regarding the Fund’s performance.
Term. The term of the Investment Advisory Agreement expires on December 31 of each year, subject to renewal by action of the Fund’s Board of Directors for additional one-year periods thereafter (but no later than December 31, 2027), unless either party gives notice of its desire not to renew, provided that the Agreement shall also be terminable at any time, as follows: (i) By either party upon ninety (90) days written notice to the other party, provided that any such termination by the Fund shall be effective only if, prior thereto, such termination shall have been approved by the Board of
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Directors and an affirmative vote of the holders of at least seventy-five percent (75%) of the issued and outstanding Shares; (ii) by either party if the other party shall have defaulted in the performance of any material duty thereunder and shall have failed to remedy such default within thirty (30) days after written notice thereof from the other; or (iii) by either party if the other party shall apply for relief under any insolvency or bankruptcy statute or be adjudicated insolvent or bankrupt, or have a receiver appointed in respect of all or a substantial part of its assets, or be dissolved.
Notwithstanding the foregoing, the Investment Advisory Agreement shall terminate upon the dissolution of the Advisor, unless prior thereto the Advisor had assigned the Agreement to a person or corporation which is a qualifying affiliated entity or with the consent of the holders of at least a majority of the issued and outstanding Shares.
Standard of Care. The Investment Advisory Agreement provides that the Advisor may rely on information it reasonably believes to be accurate and reliable. In the absence of fraud, misfeasance, bad faith or gross negligence on the part of the Advisor, or of reckless disregard of its obligations thereunder, neither the Advisor nor its officers, directors, managers or employees shall be subject to liability for any act or omission in the course of, or connected with, rendering services to the Fund. The Advisor will be entitled to assume and rely upon the accuracy of information furnished to it by third parties, including Managers, absent actual knowledge to the contrary. In any event the Advisor will not be responsible for the investment performance of individual Managers or their acts or omissions. In the Investment Advisory Agreement the Fund has agreed to indemnify and hold harmless the Advisor and its officers, directors, shareholders and employees (the “Indemnitees”) against any and all losses, damages, expenses and liabilities arising out of or connected with any services or transactions contemplated by the Investment Advisory Agreement, provided, however, that the Fund shall not be obligated to indemnify or hold harmless the Advisor or the Indemnitees insofar as such losses, damages, expenses or liabilities have arisen out of actual fraud, willful misfeasance, bad faith or gross negligence on the part of the Advisor or the Indemnitees or with respect to which indemnification is not obtainable under the securities laws of the United States or any other law.
Directors
The Board of Directors of the Fund has overall responsibility for the business and affairs of the Fund, to the extent provided by the laws of the British Virgin Islands. The directors of the Fund are Messrs. Graham Cook and Jan Kruthoffer. Mr. Cook is the President of Bison Financial Services Limited, the registered agent for the Fund, and Mr. Kruthoffer is a private investor. Both Mr. Cook and Mr. Kruthoffer are entitled to receive customary directors’ fees from the Fund for their services as such.
Service Company and Administrator
Monument Financial Services, LLC, Coral Gables, Florida currently acts as the service company and administrator (the “Service Company and Administrator”) to the Master Fund and its various “feeder funds” (collectively, the “Funds”), to perform one or more functions customarily performed by fund administrators. These may include, one or more of the following: (i) maintaining corporate and financial books and records of the Funds; (ii) processing subscriptions for Shares or other equity interests in the Funds; (iii) reproducing and distributing quarterly performance reports and annual financial statements to the equity owners of the Funds; (iv) disbursing for the Funds all payments of all legal fees, accounting fees and other fees related to the operations of the Funds; (v) calculating the net asset value of the Funds for each valuation date; (vi) calling the shareholders’, partners’ and directors’ meetings of the Funds; (vii) providing share transfer services in connection with the issuance, transfer and redemption of common shares or other equity interests in each of the Funds; and (viii) performing all other clerical services necessary in connection with the administration of the Funds.
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In addition, the Service Company and Administrator, out of its fees, pays certain costs and expenses that would otherwise be borne by the Advisor, including, but not limited to: (i) due diligence related costs (such as those costs related to travel, communications, printing, computers, background checks and shipping); (ii) disaster recovery system costs (such as those costs related to offsite data and paper storage, e-mail retention and continuity, telephone and remote access data systems); (iii) occupancy costs (such as those costs related to office and parking rent, telephone and data service provider, computers, copy machines, faxes, supplies and repairs); and (iv) marketing costs (such as those costs related to travel, communications, materials, printing, computers, supplies and shipping).
In connection with the foregoing, the Service Company and Administrator receives fees from the Master Fund. See “Fees and Expenses – Service Company and Administrator’s Fees”. The Advisor believes that the fee rates charged by the Service Company and Administrator to the Master Fund represent fair and reasonable compensation in light of the services provided and the costs and expenses paid for by such firm.
The Service Company and Administrator is owned by Mr. Kent (Pete) Windhorst, the Chief Financial Officer of Collins Capital and President of the Service Company and Administrator, and Mrs. Joyce Windhorst, Mr. Windhorst’s wife. Mr. and Mrs. Windhorst are compensated solely by the Service Company and Administrator for their services to the Advisor and the Service Company and Administrator and do not receive any compensation from the Advisor. In addition, employees of the Advisor may also perform certain administrative-related functions for the Service Company and Administrator, for which they are compensated by the Advisor.
The Fund, the Partnership and the Master Fund may select other entities to serve as a service company and/or administrator or discontinue the use of such an entity.
Custodian
Northern Trust Bank of Texas, N.A. renders custodial services to the Fund, the Partnership and the Master Fund and currently acts as the primary commercial bank to such entities. Custodial services of such bank consist predominantly of retention of cash balances and money market instruments. The equity interests of the Master Fund in various Portfolio Funds are typically in uncertificated book-entry form, with related records being generally held by the Master Fund or the Service Company and Administrator. The Fund may retain other custodians or financial institutions as may be required. See “Management of the Fund – Custodian”.
Registered Agent
Bison Financial Services Limited (the “Agent”), with a principal office at Bison Court, P.O. Box 3460, Road Town, Tortola, British Virgin Islands, serves as the registered agent for the Fund in the British Virgin Islands with such responsibilities as are prescribed under the laws of such jurisdiction.
Auditors
KPMG LLP serves as the Fund’s independent auditors. Such firm prepares the annual audited financial statements of the Fund, which are delivered to shareholders by the Service Company and Administrator. The Board of Directors of the Fund has the right to change its selection of auditing firms.
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Counsel
Cobb & Associates LLC has acted as U.S. counsel to the Fund and to the Advisor in connection with U.S. legal matters involved in the formation of the Fund, the Advisor and its affiliates. Farara & Kerins has acted as counsel to the Fund as to matters of British Virgin Islands law. Such firms are not representing, or purporting to represent, any prospective shareholder in regard to the offering of Shares made hereby and prospective investors must rely accordingly upon their own legal advisors, as to tax matters and otherwise, in connection with their investment decision.
FEES AND EXPENSES
The following is a summary of the fees and expenses which are borne by the Fund.
Management Fee
Under the Investment Advisory Agreement, the Advisor is responsible for and pays, or causes to be paid, certain overhead expenses of the Fund and its own operating expenses, including rent, utilities, equipment and clerical expenses. The Advisor receives a Management Fee from the Fund at the rate of 1.25% per annum of the Fund’s Net Assets. The Management Fee is payable monthly in advance on or before the tenth day of each month in an amount based upon the Net Asset Value of the Fund as of the first business day of the month, after giving effect to any purchases or redemptions of Shares as of or prior to such day.
The Advisor has the right, for such consideration as it deems appropriate, to reduce, rebate, waive or eliminate all or any part of the Management Fee chargeable to the Shares owned by any holder, provided the same shall not have the effect of increasing such fee(s) borne by any other holder.
The Advisor may elect, prior to the beginning of any fiscal year, to defer payment of all or part of its Management Fee to be earned for any or all months of the succeeding year, as provided in the Investment Advisory Agreement. If the Advisor elects to make such a deferral, any such deferred amounts payable to the Advisor shall be treated, and the amounts eventually payable at the end of such deferred period(s) shall be determined, as if such deferred amounts had been invested in Shares (or, if elected alternatively, in U.S. Treasury obligations or other permitted investments). Any such deferred amounts and any earnings thereon shall be treated as an unsecured liability of the Fund and shall be due and payable upon expiration of the deferral period. Under the Investment Advisory Agreement, the Advisor is entitled to reimbursement by the Fund of certain research-related out-of-pocket expenses. These include travel and other expenses incurred in connection with meetings and conferences with current or potential Fund Managers, industry analysts and other professionals.
In the event the Advisor retains advisers, consultants or managers (other than Managers) in addition to the Advisor, the amount of compensation payable by the Fund, if any, to such parties shall operate to reduce that payable by the Fund to the Advisor, so that the retention of such parties will not increase the overall management fee compensation payable by the Fund.
Incentive Fee
The Fund will pay to the Advisor an Incentive Fee, for each fiscal year (or partial year) of the Fund and as to all Shares redeemed during such year, in an amount, determined separately as to any and all Shares outstanding at any time during the year, equal to five percent (5%) of the amount, if any
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(the “Net Appreciation per Share”), by which the Net Asset Value attributed to each such Common Share at the end of such fiscal year or on the date of redemption, as the case may be, exceeded the highest Net Asset Value of such Common Share (the “Prior High NAV”) at the following dates: (i) the beginning of such fiscal year; (ii) the beginning of any preceding fiscal year during which such Common Share was issued and outstanding; or (iii) the subscription date for such Common Share. The use of a Prior High NAV is intended to effectively require the recovery of any depreciation in Net Asset Value as to a holder’s Shares in any and all prior years before an Incentive Fee may be earned on such Shares for a particular year. Any such prior year with such a depreciation in Net Asset Value as to a particular Common Share is referred to herein as a “Loss Year” and the amount of such loss carried forward to a particular year in calculating the Incentive Fee is referred to herein as a “Loss Carryover.”
For purposes of facilitating the accrual of the applicable Incentive Fee, Shares issued at a particular time and identical Share NAV and bearing the same Incentive Fee will be denominated as a separate series, resulting in multiple series of Shares being issued at different Share NAVs. The applicable Incentive Fee for each series will then be accrued in determining the subsequent Share NAV for that series. See “Determination of Net Asset Value Per Share” and “Description of Shares”.
Notwithstanding the foregoing, with respect to shareholders that purchased shares prior to July 1, 2006, no Incentive Fee shall be due or payable as to particular Shares unless such Shares have achieved an appreciation in Net Asset Value during the year at least equal to an assumed cumulative simple return on the initial Net Asset Value thereof for such year at an effective rate equal to one percent (1%) per annum above the London Interbank Offered Rate for U.S. Dollar deposits of six-month maturities (“LIBOR”) in effect at the beginning of such Year (the “Threshold Return”).
Under the Investment Advisory Agreement, the Advisor will be paid 90% of the estimated Incentive Fee within 30 days after the end of each fiscal year and the balance within 30 days following completion of the Fund’s financial statements for the year. In addition, if Shares are redeemed during a fiscal year, the Incentive Fee charged such shares at the time of redemption will be paid to the Advisor within 30 days following the effective redemption date. The Incentive Fee will be calculated separately with respect to each outstanding Share and will be determined as of the last business day of each fiscal year and, in the case of interim redemptions, as of the applicable effective redemption date. The Advisor will have no obligation to restore to the Fund any Incentive Fee previously earned and paid, notwithstanding a loss in a subsequent period.
The Advisor has the right, for such consideration as it deems appropriate, to reduce, rebate, waive or eliminate all or any part of the Incentive Fee chargeable to the Shares owned by any holder, provided the same shall not have the effect of increasing such fee(s) borne by any other holder.
The Advisor may elect, prior to the beginning of any fiscal year, to defer payment of all or part of its Incentive Fee for such fiscal year for such period as is provided in the Investment Advisory Agreement. If the Advisor elects to make such a deferral, any such deferred amounts payable to the Advisor shall be treated, and the amounts eventually payable at the end of such deferred period(s) shall be determined, as if such deferred amounts had been invested in Shares (or, if elected alternatively, in U.S. Treasury obligations or other permitted investments). Any such deferred amounts and any earnings thereon shall be treated as an unsecured liability of the Fund and shall be due and payable upon expiration of the deferral period.
All incentive allocations and management fees attributable to the Fund’s investment in the Partnership, have been waived by the Advisor. Furthermore, if the Fund invests in another investment vehicle managed by the Advisor or its affiliates, such vehicle will be required to waive any and all
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incentive allocations/fees and management fees payable to the Advisor or such affiliates which would otherwise be chargeable to the Fund.
Service Company and Administrator’s Fees
For its services, and the payment of certain costs and expenses (as described above), the Service Company and Administrator receives a monthly fee, from the Master Fund, at the rate of 0.00625% (0.25%per annum) of the net asset value of the Master Fund (calculated at the beginning of each calendar quarter). A ratable portion of such fees are borne indirectly by the Fund as an investor in the Master Fund.
The Service Company and Administrator is affiliated with the Chief Financial Officer of Collins Capital. See “Management of the Fund – Service Company and Administrator”.
Operating Expenses
The Fund bears all of its own operating costs, including the Management Fee and Incentive Fee payable to the Advisor; fees of the Registered Agent; fees of outside directors; any applicable taxes; the interest expense of borrowings, if any; accounting fees of the Fund’s independent auditors; fees and expenses of counsel to the Fund; registration and custodian fees; and the cost of preparation and distribution of reports and statements to shareholders.
In addition, the Fund indirectly bears its ratable portion of the costs and expenses of the Partnership, the Master Fund and the Portfolio Funds, including, but not limited to (i) all management and incentive fees and other fees and charges of Managers; (ii) all trading expenses and transaction costs, including brokerage commissions and expenses relating to short sales, clearing and settlement charges, interest on loans and debit balances, margin interest, broker service fees and other clearing and custodial expenses; (iii) the fees of the Service Company and Administrator described above; (iv) fees of any other third parties retained by the Master Fund and the Partnership; and (v) the Master Fund’s and the Partnership’s own operating expenses, including accounting, bookkeeping, auditing and legal expenses.
Collins Capital does not charge the Master Fund any management fees or other compensation for its advisory and management services. Such compensation is paid solely by the Master Fund’s “feeder funds” (such as the Incentive Fee and Management Fee payable by the Fund) and may vary among such feeder funds.
Organizational Expenses
The organization and formation expenses of the Fund were paid and expensed by the Fund during its first year of operations.
OFFERING OF SHARES
Shares are offered for purchase as of the first business day of each month (or at such other dates, in the discretion of the Fund), at a per share offering price equal to the Net Asset Value per Share of the appropriate class as of the close of business on the previous business day, determined without deduction for any Incentive Fee accruing at or prior to the subscription date. Shares of each class will be offered in a separate series for each purchase date, for purposes of accruing the Incentive Fee and/or the Management Fee applicable to such Shares (or for other purposes in the Fund’s discretion). See “Determination of Net Asset Value Per Share”.
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The minimum initial investment by a shareholder is U.S. $1,000,000, or the equivalent amount in the relevant currency of the applicable Non-U.S. Dollar Denominated Share class, which minimum amount may be waived at the discretion of the Fund; provided, that the initial investment in respect of the majority of each of the investors is not less than U.S.$100,000 or its equivalent in the relevant currency. An existing Shareholder may purchase additional Shares as of the first business day of any month (or at other times in the discretion of the Fund) in a minimum amount of U.S. $100,000, or the equivalent amount in the relevant currency of the applicable Non-U.S. Dollar Denominated Share class (unless waived by the Fund). The Directors, in consultation with the Advisor (as defined below), may determine, at any time, to limit subscriptions for the Non-U.S. Dollar Denominated Shares.
REDEMPTION OF SHARES
A holder of Shares shall have the right to redeem all or any part of such Shares, as of the last business day of any calendar quarter, commencing with the first such day at least twelve months following the date of such holder’s initial purchase of Shares (a “Redemption Date”), at a redemption price per share (the “Redemption Price”) equal to the Net Asset Value Per Share of the series of Shares being redeemed as of the close of business on the Redemption Date. The Fund may permit redemptions on other dates but in the sole discretion of the Fund or the Advisor. The Redemption Price shall reflect the accrual and deduction (in addition to customary expense accruals in determining Net Asset Value) of an Incentive Fee calculated with respect to the redeemed Shares as if the Redemption Date were the end of a fiscal year.
In order to redeem Shares a holder must deliver a written redemption request, specifying the desired permitted Redemption Date and the amount of Shares to be redeemed, to the Fund c/o the Advisor (at its principal office set forth on the cover page of this Memorandum) not less than seventy-five (75) days prior to such redemption date (unless the Fund, in its sole discretion, permits lesser notice), together with the share certificate(s) (if issued to the shareholder) representing the Shares to be redeemed. No partial withdrawal request will be accepted unless the holder has a remaining investment of at least $250,000 in the Fund (or, if applicable, the equivalent Non-U.S. Dollar currency), unless waived by the Fund. If a shareholder had acquired Shares at different times and is withdrawing only in part, it shall be considered that the earliest acquired Shares are being redeemed first, unless otherwise expressly specified by the holder.
Payment of the Redemption Price shall be made by the Fund to the redeeming holder within forty-five (45) days of the Redemption Date (subject to the Fund’s right to suspend or delay redemptions under certain circumstances, as referred to below), except that in the case of a redemption of over 90% of the Shares owned by a holder, the Fund will have the right, in its discretion, to withhold payment of up to 10% of the Redemption Price pending completion of the Fund’s audited financial statements for the fiscal year in which the redemption occurs, which withheld amount shall be payable within thirty (30) days following the delivery of such audited financial statements.
The Redemption Price with respect to U.S. Dollar Shares will be paid in U.S. dollars. In the case of Non-U.S. Dollar Shares, the Redemption Price will be paid in the applicable Non-U.S. Dollar currency. However, in circumstances where an in-kind payment is deemed appropriate in the discretion of the Advisor (such as where liquidation of interests in Portfolio Funds would be restricted or untimely), the Fund may deliver interests in one or more Portfolio Funds (or other assets of the Fund), valued in the same manner as for purposes of determining Net Asset Value, in lieu of all or part of such cash payment. No redemption penalty or administrative fee shall be charged for a redemption as of any regular quarterly Redemption Date and on the requisite notice to the Fund. The Fund reserves the right, however, to charge
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such a fee or penalty in the case of any other redemption permitted by the Fund or the Advisor as provided above.
Shares are subject to mandatory redemption at any time at the Net Asset Value Per Share whenever the Fund has reason to believe that a shareholder is no longer eligible to hold them or for any other reason in the discretion of the Directors of the Fund deemed to be in the best interests of the Fund or its shareholders. See “Description of Shares”. The Fund also has the right to suspend redemptions under certain circumstances. See “Determination of Net Asset Value Per Share – Suspension of Net Asset Value Calculations and Redemptions”.
DETERMINATION OF NET ASSET VALUE PER SHARE
General
The Service Company and Administrator calculates the value of the assets of the Fund in U.S. dollars as of the last business day of each month and any other valuation date.
For purposes of such determination, “Net Assets” of the Fund shall mean the total value of the Fund’s assets, reduced by the amount of all liabilities (whether accrued or contingent) determined as of the valuation date with certain adjustments as set forth herein. The Net Asset Value Per Share of each series of the U.S. Dollar Share class, the Euro Share class, the British Pound Share class and the Yen Share class issued by the Fund is generally calculated first, by ascertaining the net asset value of the assets and liabilities of the Fund allocable to each class of Shares (which, in the case of Euro Shares, British Pound Shares and Yen Shares, includes the additional costs (if any) of hedging activities), second, by ascertaining the net asset value of the assets and liabilities of each class of Shares allocable to each series of Shares issued within that class (which generally involves the specific allocation of the Incentive Fees (or other class or series specific liabilities, if any) charged in relation to each series of Shares), and finally, by dividing the net asset value of each series of Shares by the number of Shares of that series in issue on the relevant valuation date.
Following the end of each fiscal year of the Fund, Shares of the various outstanding series of a class which have paid an Incentive Fee for such year (and which bear an identical rate of Incentive Fee and Management Fee) will be deemed exchanged, at their respective Net Asset Values per Share, for Shares of a single series of such class.
The Fund’s net asset value is calculated in U.S. Dollars as is the Net Asset Value Per Share for each series of the U.S. Dollar Share class. The Net Asset Value Per Share for each series of Euro Shares, British Pound Shares and Yen Shares is calculated by utilizing the applicable Non-U.S. Dollar currency/U.S. Dollar currency Spot Rate, as of the close of business of the day immediately preceding the relevant valuation date. As each class and series of Shares established by the Fund has its own Net Asset Value Per Share, investors should take into consideration the performance of Shares of each series held by them in the Fund in order to determine the overall performance of their investment in the Fund.
In determining Net Asset Value Per Share, the value of assets of the Fund, consisting primarily of limited partnership interests of the Partnership, are valued at their net asset value, determined as provided in the limited partnership agreement of the Partnership. The Partnership, in-turn, values its assets, consisting primarily of limited partnership interests of the Master Fund, at their net asset value, determined as provided in the limited partnership agreement of the Master Fund. Other assets are valued as provided in the Fund’s Articles of Association. In connection with each determination of the Net Asset
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Value Per Share, the Service Company and Administrator may consult with and is entitled to rely in good faith upon action of the Fund’s Board of Directors, recommendations of the Advisor and financial statements and information furnished by Portfolio Funds, their accountants, auditors and agents.
Substantially all of the assets of the Master Fund (other than cash) will consist of equity interests in Portfolio Funds. Under the partnership agreement of the Master Fund, equity interests in each Portfolio Fund are to be valued as provided in the constituent instruments of each Portfolio Fund. For such purpose, the Service Company and Administrator and the Fund are entitled to rely conclusively upon financial statements and other information furnished by the Portfolio Funds without further verification or investigation. In determining the net asset value of partnership interests in the Master Fund, assets of the Master Fund other than interests in Portfolio Funds, as well as all liabilities, are to be determined as provided in the Master Fund’s partnership agreement.
In no event and under no circumstances shall the directors or officers of the Fund, the Advisor, the Service Company and Administrator, or their respective agents and employees, incur any individual liability or responsibility for any determination as to Net Asset Value Per Share or other action taken or omitted to be taken by them in connection therewith, so long as they act in good faith.
Suspension of Net Asset Value Calculations and Redemptions
The Fund may suspend or delay the redemption of Shares and/or the calculation of Net Asset Value Per Share during the following circumstances: (i) one or more U.S. or foreign stock exchanges or other markets on which a significant amount of the Fund’s investments are listed or quoted and which constitute the primary markets for such investments, are closed for any reason other than that of an ordinary holiday, or transactions at these exchanges are restricted or suspended; (ii) the existence of a war, natural catastrophe or any like state of affairs which constitutes an emergency as a result of which disposal of securities by the Fund is not possible in an orderly manner; (iii) any means of communications necessary to determine the price or value of any of the Fund’s investments do not function; (iv) the redemption or withdrawal of funds from one or more Portfolio Funds is materially restricted, impaired or precluded or any other transfer of funds involved in the realization or acquisition of any investments is, in the judgment of the Board of Directors, not possible at normal rates of exchange; (v) in the event of a passing of a resolution to wind up the Fund or of the filing of a petition to wind up the Fund; or (vi) the redemption would result in a violation of any provision of law. The Fund shall take all reasonable measures to notify the Fund’s shareholders of any such suspension of redemptions.
DESCRIPTION OF SHARES
General
The Fund has an authorized share capital of: US$250,000 divided into 25,000,000 Shares of par value US$0.01 each. As of the date of this Memorandum, the Board has divided the shares of the Company into five classes each of which may be offered in separate series, as follows: (i) 11,200,000 Class A U.S. Dollar-denominated shares, issuable in up to twenty (20) series, consisting of 3,600,000 shares of series one and 400,000 shares of each of series two through and including series twenty (the “U.S. Dollar Shares”); (ii) 3,160,000 Class B U.S. Dollar-denominated non-voting shares, issuable in up to twenty (20) series, consisting of 500,000 shares of series one and 140,000 shares of each of series two through and including series twenty (the “Non-Voting Common Shares”); (iii) 3,160,000 Class C Euro- denominated shares, issuable in up to twenty (20) series, consisting of 500,000 shares of series one and 140,000 shares of each of series two through and including series twenty (the “Euro Shares”); (iv) 4,320,000 Class D British Pound-denominated shares issuable in up to twenty (20) series, consisting of
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520,000 shares of series one and 200,000 shares of each of series two through and including series twenty (the “British Pound Shares”); and (v) 3,160,000 Class E Yen-denominated shares, issuable in up to twenty (20) series, consisting of 500,000 shares of series one and 140,000 shares of each of series two through and including series twenty (the “Yen Shares”, and together with the Euro Shares and the British Pound Shares, the “Non-U.S. Dollar Denominated Shares”).
The purpose of issuing Shares in separate series is to equitably reflect any differing Incentive Fees and/or Management Fees attributable to Shares of each series (whether by reason of differing issue dates during the fiscal year, any agreed reduction or waiver of such Fees or otherwise). The Fund may issue additional series if needed in connection with additional issuance dates or for other reasons.
One or more outstanding series of Shares may be further subdivided for purposes of complying with any applicable regulatory provisions affecting the allocation of profits relating to underwritten “new issues” to shareholders of the Fund. See “--New Issues Account and Related Series” below.
If at the end of a particular fiscal year any series of Shares of a class other than series one Shares of such class shall be outstanding which is subject to an Incentive Fee for such year and bears an Incentive Fee (and Management Fee) at the same rate as the series one Shares, such other series of Shares shall be converted automatically immediately after the close of business on the last day of such fiscal year into series one Shares of the appropriate class (or other series as the Directors may determine in the event the series one Shares are below their Prior High NAV), on the basis of the relative Net Asset Value Per Share of the particular series being converted and of the series one Shares (or other such series). However, no such conversion will occur while any loss carryforward attributable to the Shares being converted, or to the series one Shares (or such other series), remains outstanding. Such conversion will be deemed effected by the Fund acquiring the Shares to be converted from the holder of such Shares and applying the proceeds of such acquisition to purchase series one Shares in the relevant class, without any required action on the part of such holder. Shares of the series so converted shall revert to the status of authorized and unissued shares and may be reissued.
By subscribing for Shares, a subscriber shall be deemed to have irrevocably authorized and directed the Fund to convert such Shares (if not previously redeemed) into Shares of a single series from time to time as hereinabove provided. Other than such automatic conversions, there are no conversion or pre-emptive rights in connection with any Shares. All Shares of the Fund, when duly issued and paid for as provided in the Memorandum and Articles of Association of the Fund, will be deemed fully paid and nonassessable.
The net profits or net losses of the Fund for any fiscal period will be allocated to the Shares and to each respective class and series thereof in accordance with their relative Net Asset Values at the end of each fiscal period. Each series of each class of Shares shall have equal dividend, distribution and liquidation rights with other Shares of the same series of such class, with Shares of different series having dividend, distribution and liquidation rights in proportion to their relative Net Asset Values.
New Issues and Other Accounts; Related Series
Under Rule 2790 (the “New Issue Rule”) of the Conduct Rules of the U.S. National Association of Securities Dealers, Inc. (the “NASD”), individuals who are associated with broker-dealers, senior officers of banks, insurance companies, investment companies or investment advisors, or other persons who otherwise may influence the purchase or selling of securities for an institutional account (including investment partnerships) are “restricted persons” who are generally prohibited from purchasing
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in the underwritten public offering of any “new issues,” i.e., all underwritten initial public offerings of common equity, with certain exceptions. In the case of an investment vehicle such as the Fund, however, restricted persons may participate in profits and losses from new issues, provided that the allocation thereof to restricted persons does not exceed 10% of the overall participation therein by the Fund.
One or more Portfolio Funds may acquire from time to time Securities which are “new issues” (“New Issues”), within the meaning of the New Issue Rule. For purposes of such Rule, the Fund and its shareholders may be deemed to beneficially own indirectly a portion of such New Issues. In order to comply with the requirements of the New Issue Rule, if and to the extent indirectly applicable to the Fund or any of its shareholders, the Board of Directors shall have the power and authority to establish a “new issues account” on the books of the Fund, to which there shall be allocated all costs, expenses, profits, gains, income, and losses attributable to Securities which are “new issues” (“New Issues”), within the meaning of the New Issue Rule. In order to implement the New Issues Account and to comply with the New Issue Rule, the Board of Directors of the Fund shall have the further power and authority to (i) issue, and/or subdivide, each series of Shares of the Fund into two series, to be denominated Series A and Series B; (ii) make effective provision whereby the Series A Shares shall be held solely by Persons who are not “restricted persons,” within the meaning of the New Issue Rule; (iii) allocate all items of cost, expense, profit, income, gain and expense (“New Issue Items”) from the New Issues Account and the Securities held therein, solely to the holders of the Series A Shares, provided, however, that the holders of Series B Shares may participate in the allocation of New Issue Items not to exceed the maximum extent of 10% of any such Item, or such other maximum percentage as shall then be permitted by the New Issue Rule; (iv) provide for the debiting and crediting of such sums, as between the Series A and Series B Shares, if any, as may be deemed equitable by the Directors to reflect the benefit of use of funds to purchase New Issues; and (v) take such other action as may be deemed necessary or appropriate to comply with the New Issue Rule. Shareholders will be required to represent as to their status under the New Issue Rule in the Fund’s Subscription Agreement and Revocable Proxy. A shareholder’s eligibility to participate in New Issue Items shall be determined exclusively by the Fund.
In light of the complexity of applying the New Issue Rule with regard to the Portfolio Funds, or other considerations, the Board of Directors of the Fund will have the discretion to determine not to permit any Shareholders to participate in New Issues or to take other action not inconsistent with the New Issue Rule.
Voting Rights
The holders of Shares (other than the Non-Voting Shares) will be entitled to receive notice of, and to attend and vote at, meetings of the Fund’s shareholders. Matters submitted to a vote of shareholders shall be approved by the affirmative vote of the holders of a majority of Shares voting on the matter except that, among other matters, (i) the removal of a director by shareholders must be approved by the affirmative vote of the holders of at least two-thirds of the issued and outstanding Shares; (ii) the Investment Advisory Agreement, and any other investment advisory or management agreement entered into by the Fund, may be terminated by the Fund (other than on a regular annual renewal date) only with the approval of the Board of Directors and the holders of at least seventy-five percent (75%) of the issued and outstanding Shares; and (iii) amendments to the Memorandum and Articles of Association of the Fund must be approved by the affirmative vote of the holders of at least a majority of the then issued and outstanding Shares (except for certain amendments which require a greater affirmative vote).
Any person desiring to subscribe for Shares shall give, at the time of and as part of his subscription, a revocable proxy to the Agent of the Fund to vote his Shares on his behalf at any meeting of shareholders except with respect to (i) an amendment of the Articles or Memorandum of Association, (ii) the merger or consolidation of the Fund with another corporation or (iii) an amendment to or
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termination of the Investment Advisory Agreement. Such proxy may be revoked at any time upon notice to the Agent. The form of revocable proxy is included in the Subscription Agreement that accompanies this Memorandum as Appendix A.
Issuance of Non-Voting Shares
Under the Memorandum of Association and Articles of Association of the Fund, the Fund’s Board of Directors will have the right to issue, at the request of any holder or prospective holder, Shares that are otherwise identical in rights to comparable other Shares but the voting rights of which will be limited solely to certain extraordinary events, such as a liquidation of the Fund. Non-Voting Shares will be issued, in general, to one or more holders whose ownership of voting securities in entities such as the Fund may be precluded or limited under regulatory restrictions or for other reasons. Holders of Non- Voting Shares will generally have the right to convert such Non-Voting Shares to Shares with voting rights at such time or times as such holders or their transferees shall be permitted to own voting Shares.
Shares in Book Entry Form
Unless a holder requests a share certificate, Shares will be registered on the books of the Fund and held in book-entry form. Share certificates will be issued to shareholders only upon written request. Shares for which a certificate has been issued may be redeemed only after the Fund, as transfer agent for the Shares, receives the certificate, duly executed for transfer or with an executed stock power attached, and proper payment instructions duly signed. In light of the above, shareholders may wish to consider the same before requesting certificates.
Liquidation and Dissolution
The Fund is formed for an unlimited period. However, it may be dissolved and liquidated at any time upon a resolution adopted by the holders of at least seventy-five percent (75%) of the issued and outstanding Shares.
The Advisor or other appointed liquidator shall, upon the dissolution of the Fund, endeavor to realize the Fund assets in the best interests of the shareholders and, upon instructions given by the Advisor or liquidator, as the case may be, the Fund shall distribute the net liquidation proceeds to the shareholders pro rata in proportion to the number of Shares held by each of them, after deduction of liquidation fees and expenses, all subject to and in accordance with applicable law.
Restrictions on Ownership and Transfer
In general, no Shares may be owned by anyone who is or who subsequently becomes a U.S. Person, except for Qualified U.S. Tax-Exempt Entities. For this purpose, a U.S. Person and a Qualified U.S. Tax-Exempt Entity are defined in “Introduction.” In addition, Qualified U.S. Tax-Exempt Entities which are Benefit Plan Investors will be further limited to owning less than 25% of the outstanding Shares. For the definition of a Benefit Plan Investor, see “ ERISA Considerations” below. The Shares have not been registered under the Securities Act nor has the Fund been registered under the Investment Company Act, in reliance upon exemptions from such registration. Except in a transaction which does not violate such Acts, the Shares may not be offered or sold directly or indirectly in the United States of America or any of its territories or possessions or areas subject to its jurisdiction.
The Memorandum and Articles of Association of the Fund provides, in substance, that the Fund may refuse to issue or transfer Shares if (i) the transferor and/or the transferee does not provide the Fund with the documentation requested for the transfer; (ii) the transferee is a U. S. Person who is not
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a Qualified U.S. Tax-Exempt Entity; (iii) such transfer would result in Benefit Plan Investors holding in the aggregate 25% or more of the outstanding Shares; (iv) such transfer would require the Fund to register under the Investment Company Act or to register the Shares under the Securities Act, or to register or take other action under the laws of any other jurisdiction deemed unduly burdensome by the Board of Directors of the Fund; (v) the transferee would not qualify as a “professional investor” under the Funds Act; or (vi) the ownership of the Shares by the intended transferee would be unlawful or may be deemed harmful or injurious, in the sole discretion of the Board of Directors of the Fund, to the business or reputation of the Fund or the Advisor.
CERTAIN TAX CONSIDERATIONS
General
The following is a general discussion of certain of the anticipated U.S. federal income tax and British Virgin Islands income tax consequences of (i) the Fund’s purchase, ownership and disposition of securities in U.S. corporations and (ii) an investor’s purchase, ownership and disposition of Shares in the Fund. The discussion is based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), and other laws, regulations, rulings and decisions now in effect, all of which are subject to change or possibly different interpretations. Moreover, the U.S. Congress has considered from time to time various major federal income tax legislative proposals, including some that, if passed, could change substantially a number of the significant Code provisions discussed below. Prospective shareholders subject to U.S. tax, together with their tax advisors, should familiarize themselves with relevant aspects of such legislation.
The discussion below is a summary only does not purport to be complete and does not deal with the U.S. federal and the British Virgin Islands tax consequences applicable to all categories of investors, some of which may be subject to special rules (including, without limitation, financial institutions, broker-dealers, and insurance companies); nor does this discussion cover tax considerations of countries other than the U.S. and the British Virgin Islands or U.S. state or local income or other tax considerations. The discussion assumes that any investors who purchase Shares in the Fund will hold such shares as capital assets. In addition, the discussion assumes that no U.S. Person, other than Qualified U.S. Tax-Exempt Entities, will own Shares of the Fund. The discussion below should not be relied upon for the purposes of avoiding penalties that may be imposed by the U.S. Internal Revenue Service (the “IRS”) or any state or local tax authority. Investors are strongly encouraged to consult their own tax advisors in determining the tax consequences to them of the purchase, ownership and disposition of the Fund’s Shares and tax considerations, tax elections and possible informational tax reporting requirements affecting their investment in the Fund.
No British Virgin Islands Tax on the Fund
The Fund will not be required to pay any income taxes under the British Virgin Islands Income Tax Act. Furthermore, Shareholders of the Fund will not be required to pay any British Virgin Islands income taxes or capital gains taxes on payments received from the Fund. Capital gains realized with respect to any Shares of the Fund will be exempt from income tax in the British Virgin Islands and there are no estate, inheritance, succession or gift taxes payable in the British Virgin Islands with respect to any shares of the Fund. The Fund will only be liable to pay payroll tax in the British Virgin Islands on any payments made to any employees or directors who are resident in the British Virgin Islands. The Fund will be obligated to pay an annual registration fee as a BVI business company, currently $1,100, as well as an annual fee, currently $350, relating to its recognition as a “professional fund” under the Funds Act.
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U.S. Federal Income Tax Treatment of the Fund
The Fund should be treated as a corporation for U.S. federal income tax purposes. The Master Fund will be treated as a partnership for U.S. federal income tax purposes. Consequently, for such purposes the Fund will be required to take into account its distributive share of all items of the Master Fund’s income, gain, loss, deduction and credit, whether or not distributed. As a partnership the Master Fund will not be subject to U.S. federal income tax at the entity level.
However, the Fund should not be subject to U.S. corporate income tax on either long or short-term capital gains from the sale or other dispositions of stock or securities, provided that (i) the gain is not from the sale of stock or securities in “United States real property holding corporations” and (ii) the Fund is not considered engaged in a trade or business in the United States. A “United States real property holding corporation” is a corporation which at any time during an applicable measurement period held “United States real property interests” constituting 50% or more in fair market value of its total real property interests and other assets held for use in a trade or business. However, gain from the sale of a class of stock in any United States real property holding corporation which is regularly traded on an established securities market is taxable only if the seller holds or has held, directly or indirectly, more than 5% of such class of stock.
With respect to the Fund’s being engaged in a trade or business in the U.S., the Code provides that trading in stock or securities does not constitute engaging in a trade or business in the U.S., provided that the entity is not a dealer in stocks or securities. A “dealer in stocks or securities” for this purpose is a person engaged in the regular business of buying and selling securities to its customers. The Fund believes that the investment and other activities of the Fund and the Master Fund generally will not constitute being engaged in a trade or business within the United States, and the Fund takes the position that it is not so engaged. Accordingly, the Fund expects that its income (including its distributive share of income of the Master Fund) will not be subject to U.S. federal income tax on a net basis.
Notwithstanding the foregoing, there can be no absolute assurance that the IRS will not take the position that the Fund is engaged in a trade or business in the U.S. If the IRS were to take this position and it were to be sustained by the courts, then the Fund would be subject to U.S. federal income tax on all or a portion of its net income (including capital gains) at prevailing rates and possibly an additional branch profits tax on its earnings and profits. Moreover, the Fund would be required to file a U.S. federal income tax return within 18 months of its due date in order to obtain the benefit of any deductions (including capital losses) from its gross income.
Assuming the Fund is not considered engaged in a trade or business in the U.S., the Fund will, nonetheless, be subject to withholding at the source on account of U.S. income taxes on dividends and non-portfolio interest received by it from U.S. sources, currently at a rate of 30% of the gross amount thereof. In general, no U.S. income tax will be withheld or payable on “portfolio interest” received by the Fund from U.S. sources. It is expected that substantially all interest income of the Master Fund and the Fund will qualify as “portfolio interest” subject to such exclusion from tax withholding. If interest on a debt obligation qualifies as portfolio interest, any portion of the gain from sale of a security deemed to be original issue discount or market discount will also be excluded from U.S. tax.
Non-U.S. Persons will not be subject to U.S. income (and withholding) tax in respect of distributions or redemptions from the Fund with respect to their Shares, provided the Fund is not treated as engaged in business in the U.S. Non-U.S. Persons will not be subject to U.S. federal income tax or U.S. withholding tax on any gain recognized on the sale or other transfer of Shares. In addition, a non- U.S. Person should not be subject to any U.S. federal estate, inheritance or gift taxes as a result of the transfer of Shares by way of gift or upon death.
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In the case of Shares held in the United States by custodian or nominee for a non-U.S. Person, U.S. federal backup withholding taxes may apply unless such shareholder properly certifies as to its non-U.S. status or otherwise establishes an exemption from backup withholding.
Other Taxes
The Fund, through the Master Fund, invests all or a portion of its assets in Portfolio Funds. Such Portfolio Funds or its investors, such as the Fund, may be subject to taxation in one or more jurisdictions, including jurisdictions of their domicile and/or jurisdictions in which portfolio investments are located.
Investors interested in purchasing Shares should inform themselves as to any income tax or other tax consequences arising in their countries on the purchase, holding or disposition of such Shares. In addition, such countries may have relevant foreign exchange or other legal restrictions which should be reviewed before investing.
Investment by U.S. Tax-Exempt Entities
Before investing in the Fund, a Qualified U.S. Tax-Exempt Entity (“Exempt Investor”) should consider the special income tax rules applicable to it. The following discussion relates solely to the federal income tax consequences to an Exempt Investor and does not address state or local income tax matters.
Exempt Investors are subject to federal income tax with respect to any “unrelated business taxable income” (“UBTI”), determined in accordance with Sections 511 through 514 of the Code, and are required to file federal income tax returns if they have gross UBTI in excess of $1,000, whether or not any tax is actually due. UBTI includes income derived from an unrelated trade or business carried on by a tax-exempt entity or by a partnership of which the entity is a member. Dividends and gains on sale of assets held for investment are generally not included in UBTI. Accordingly, gains and income with respect to the Shares held by Exempt Investors would not normally be UBTI.
However, under these Code provisions any gain or income earned from “debt financed” property is treated as income from an unrelated business in the proportion in which the property is financed with debt, even if the income otherwise would have been excluded. Thus, if an Exempt Investor incurs debt to acquire its Shares (such as margin borrowing), the income such Exempt Investor derives from the Fund (such as dividends and gains on the sale or redemption of Shares) will be UBTI. Accordingly, an investment in the Fund may result in UBTI for an Exempt Investor that purchases Shares through the use of borrowed funds. Any potential investor which is an Exempt Investor is urged to consult its own tax advisors in this regard.
The incurrence by a partnership of debt to purchase securities, or other property, generally results in such securities or other property being treated as “debt financed property” to such extent and accordingly gives rise to the ratable incurrence of UBTI. Since the Fund is organized as a corporation, however, the foregoing principle does not apply. Therefore, under current law Exempt Investors will not incur UBTI solely by reason of any use by the Fund (or indirectly, by the Master Fund or a Portfolio Fund) of leverage or other forms of borrowing in their respective investment activities. It should be noted that legislation has previously been proposed in the U.S. Congress which if re-proposed and enacted would change this result. Under this legislation, dividends from foreign corporations would be treated as UBTI in the same proportion that the earnings and profits of the foreign corporation would be so treated if received directly by the recipient tax-exempt entity. Comparable U.S. tax legislation could be passed in the future.
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It should be noted that notwithstanding their tax-exempt status, Exempt Investors will bear indirectly their ratable share of any U.S. withholding tax imposed on the Fund as to dividends and non-portfolio interest from U.S. sources, as discussed above, as well as possibly other withholding taxes or taxation at the source imposed by other jurisdictions upon the Master Fund or one or more Portfolio Funds.
Sponsors of tax qualified pension and profit-sharing plans that desire to invest plan assets in the Fund should keep in mind the requirement that the related trust must have been created or organized in the U.S. and maintained at all times as a U.S. domestic trust. Plan sponsors must further assure that the trust related to the pension or profit-sharing plans allow for investments in the Fund and that the trustees maintain total control over plan assets in order to satisfy the domestic trust requirement.
Any U.S. Person, including an Exempt Investor, which owns 10% or more of the outstanding Shares of the Fund, and possibly other holders of Shares, will be required to file an information return, and possibly other returns, with the IRS.
Congress has enacted tax provisions relating to “reportable transactions.” If applicable to the Fund (or any transaction undertaken by the Fund), these provisions may require shareholders that file U.S. federal income tax returns to disclose to the IRS information relating to the Fund, and to retain certain documents and other records related thereto. Such provisions may apply to certain Exempt Investors. Although the Fund does not believe that the subscription for shares in the Fund is a reportable transaction, there can be no assurance that the IRS will not take a contrary position. In addition, there can be no assurance that Shares in the Fund will not become a reportable transaction for Shareholders in the future. The recently enacted legislation imposes substantial penalties on taxpayers and advisers who fail to comply with these provisions, including, but not limited to, the possible imposition of an excise tax on certain Exempt Investors. Exempt Investors are strongly encouraged to consult their tax advisors with respect to this matter.
The Code provisions and related regulations applicable to ownership of shares of foreign corporations, and other business interests, by Exempt Investors can be complex and in some cases uncertain. Any Exempt Investor contemplating an investment in the Fund should review the potential consequences of the same with its tax advisors.
ERISA CONSIDERATIONS
Prudence, Diversification and Prohibited Transactions
To the extent applicable, each prospective Qualified U.S. Tax-Exempt Entity which is an “Employee Benefit Plan,” including defined benefit plans, profit-sharing plans and other plans within the scope of Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), should consider whether an investment in Shares (1) satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA and (2) is prudent in accordance with the requirements of Section 404(a)(1)(B) of ERISA and the regulations promulgated thereunder, keeping in mind, among other factors, the relatively illiquid nature of the proposed investment. In addition, Employee Benefit Plans, as well as individual retirement accounts (“IRAs”) and certain other retirement plans qualified under the Code, should consider whether (i) the investment is a prohibited transaction under Section 406 of ERISA and/or Code Section 4975, and (ii) the investment will generate “unrelated business taxable income”, as described above under “Certain Tax Considerations – Investment by U.S. Tax-Exempt Entities”.
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Annual Evaluation
To enable fiduciaries of plans subject to annual reporting requirements under ERISA to file reports as they relate to an investment in Shares and to enable an IRA trustee or custodian to report annually the value of IRA investments in the Shares, such fiduciaries, trustees and custodians will be furnished with statements of the fair market value of their Shares within a reasonable period after the close of each year. There can be no assurance (a) that such value could or will actually be realized upon liquidation (in part because statements of value do not necessarily indicate the price at which assets could be sold and because no attempt will be made to estimate the expenses of selling any of such Shares) nor (b) that such investors could realize the estimated value if they were to attempt to sell their Shares because no public market will exist for such Shares.
Plan Assets
ERISA generally requires that the assets of Employee Benefit Plans be held in trust and that the trustees or a duly authorized fiduciary (often, an “investment manager”, within the meaning of Section 3(38) of ERISA) have exclusive authority and discretion to manage and control assets of such Plans. ERISA also imposes certain duties on persons who are fiduciaries of Employee Benefit Plans and prohibits certain transactions between Employee Benefit Plans and the fiduciaries of such plans. Under the Code, similar prohibitions apply to all qualified plans, IRAs and certain Keogh plans which otherwise would not be subject to ERISA.
If the assets of the Fund were deemed to be “plan assets” under ERISA, (i) the prudence and other requirements of Title I of ERISA would apply to investments made by the Fund, (ii) the Advisor and any additional investment advisors would be plan “fiduciaries” under ERISA with respect to Employee Benefit Plans which acquire any Shares, and (iii) certain transactions of the Fund, or into which the Fund may seek to enter, might constitute “prohibited transactions” under ERISA and the Code. It is the intention of the Advisor and the Fund not to permit Fund assets to be deemed “plan assets” under ERISA by complying with the applicable regulations described below.
Under U.S. Department of Labor regulations defining the term “plan assets” (the “Plan Asset Regulations”), when “Benefit Plan Investors” (as defined below) have a “significant” interest in a commingled investment vehicle (such as the Fund), the underlying assets of such vehicle become “plan assets”, triggering ERISA requirements. The Plan Asset Regulations provide, in effect, that the investment by Benefit Plan Investors in an entity would not be deemed to be “significant” if less than 25% of each class of equity interests in such entity (such as the Shares) is held by Benefit Plan Investors. For purposes of this 25% rule, the interest of the Advisor (other than in the capacity of an IRA or other benefit plan investor) will be disregarded.
On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006 (the “2006 Pension Act”), which amends numerous provisions of ERISA in key respects. Among such amendments is a statutory change in the definition of “Benefit Plan Investor” from that set forth in the Plan Asset Regulations. As so amended, “Benefit Plan Investors” are limited to include solely: (i) Employee Benefit Plans subject to Title I of ERISA; (ii) IRAs and other retirement plans and accounts subject to Section 4975 of the Code; and (iii) any other entity whose underlying assets include “plan assets” by reason of any Benefit Plan Investor’s investment in such entity.
Non-Fiduciary Status of the Advisor
The Advisor currently intends to limit participation in the Fund by Benefit Plan Investors to less than 25% of any class of Shares so as to qualify under such provisions of the Plan Asset
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Regulations, as amended. Accordingly, the assets of the Fund should not be deemed “plan assets” and the Advisor should not be regarded as a “fiduciary” (within the meaning of ERISA) with respect to any employee benefit plans that are holders of the Shares.
Under ERISA and related regulations, even if the 25% limit under the Plan Asset Regulations is exceeded with respect to any class of Shares, the Advisor will not be deemed a “fiduciary” with respect to shareholders that are IRAs, certain owner-employee plans (such as Keogh plans) and other specified plans not subject to the ERISA fiduciary provisions, even if they are Benefit Plan Investors, so long as the Advisor and its affiliates are not trustees or other named fiduciaries under such accounts or plans. In such event, however, the capital accounts of such shareholders that are IRAs or certain other such plans will nonetheless be subject to the “prohibited transaction” restrictions in section 4975 of the Code.
Notwithstanding the foregoing, the Advisor, in its sole discretion, may allow the 25% limit to be exceeded with respect to any class of Shares, without the consent of the shareholders, which would subject the Fund to ERISA requirements.
REPORTS AND FINANCIAL STATEMENTS
The Fund will provide each shareholder with performance reports, not less frequently than quarterly, which will include Net Asset Value information and a performance summary.
As a matter of policy, the Advisor will require that each Portfolio Fund provide audited annual financial statements to its investors, including the Master Fund. Audited financial statements of the Fund will be sent to all shareholders as promptly as practicable following the end of each fiscal year of the Fund, which has been initially determined to be the year ending December 31. The Board of Directors of the Fund has the authority to change such fiscal year and to request financial statements as of different dates or periods.
The Advisor shall furnish such other reports to shareholders when an event occurs as to which in its judgment shareholders should be informed.
SUBSCRIBING FOR SHARES
Subscriptions for Shares shall be made pursuant to the Subscription Agreement and Revocable Proxy in the form accompanying this Memorandum. All subscriptions must be irrevocable, must be made upon and subject to the terms and conditions of this Memorandum, and must specify the following information:
(i) the class of Shares for which the subscription is submitted; (ii) the total amount of the subscription in the applicable currency amount (which amount must meet the applicable minimum investment amounts set forth under “Offering of Shares” herein, unless waived by the Fund);
(iii) the name and address of the subscriber and, if appropriate, the name and title of the person making the subscription on the subscriber’s behalf; and
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(iv) the name of the financial institution wiring the subscription payment and the account at such institution being debited.
Subscription Agreements should be sent by facsimile, followed by delivery of the executed original copy by mail or overnight courier, to such address as is provided in such Agreements. Simultaneously with each subscription, the subscriber must pay the full amount of the subscription amount, by wire transfer in U.S. dollars, via Fed wire or S.W.I.F.T, pursuant to wire transfer instructions that will be provided by the Advisor and/or the Service Company and Administrator upon request.
The Subscription Agreement contains certain representations and warranties, including the following: (i) the subscriber understands the objectives of the Fund and the risks of his investment; (ii) no person other than the subscriber has or shall have any interest in the Shares subscribed for (if the subscriber is acting in a fiduciary or other representative capacity, it alternatively represents that it is purchasing the Shares on behalf of an eligible person); (iii) the subscriber acknowledges the limitations on transfer of the Shares; and (iv) the subscriber meets the Standards of Suitability set forth in “Introduction” and in the Subscription Agreement, and, if a U.S. Person, it further represents that it is a Qualified U.S. Tax-Exempt Entity and an accredited investor; (v) the subscriber represents it is a qualified eligible person and a qualified purchaser; and (vi) the subscriber consents to be treated as a “professional investor” within the meaning of the Funds Act.
The Fund’s subscription agreements also contain representations from each subscriber intended to assure compliance with various anti-terrorist and anti-money laundering laws and regulations, including the U.S. PATRIOT Act. Subscribers should review carefully the terms of such representations. The Fund has the right to refuse to accept a subscription from, or to require the redemption of Shares by, any person who fails to satisfy the Fund’s and the Service Company and Administrator’s anti-terrorist and anti-money laundering procedures.
All subscriptions are subject to acceptance by the Fund, in its absolute discretion. The Directors, in consultation with the Advisor, may determine, at any time, to limit subscriptions for the Non-U.S. Dollar Denominated Shares.
The Advisor may pay, but only in its discretion, to certain parties which introduce investors for the Fund compensation on a negotiated basis, payable from a portion of the Advisor’s Incentive Fee and/or Management Fee, based upon the assets attributable to such subscriber. Such compensation will not decrease such subscriber’s investment or increase any expense attributable to the Fund or any subscriber. The Fund may also compensate certain introducing parties by deducting such payment from the subscription funds remitted by the introduced investors, but only pursuant to written agreements with such investors in form acceptable to the Fund.
ANTI-MONEY LAUNDERING LAWS AND PROCEDURES
General
Measures aimed toward the prevention of money laundering may require a subscriber for Shares to verify his identity to the Fund or the source of his subscription funds. This obligation is absolute unless (i) the application is made via a recognized financial intermediary (subject to certain limitations) or (ii) the subscriber makes the application payment from an account held in such a subscriber’s name at a recognized financial institution. These exceptions will only apply if such financial institution or intermediary is within a country recognized as having equivalent anti-money laundering regulations. By way of example, an individual will be required to produce a copy of a passport or
-52- V060107 Case 9:09-cv-80846-KAM Document 19-2 Entered on FLSD Docket 09/23/2009 Page 67 of 68
identification card duly certified by a public authority such as a notary public, the police or the ambassador in his country of residence, together with evidence of his address such as a utility bill or bank statement. In the case of corporate applicants, this will require production of a certified copy of the charter documents or comparable instruments and the names and addresses of all directors and/or beneficial owners. The Fund reserves the right to request such documentation as is necessary to verify the identity of any subscriber. This may result in Shares being issued on a date subsequent to the issuance date on which the subscriber desired to have Shares issued to him.
United States
As a result of anti-money laundering legislation enacted by the U.S. federal government, and any future amendments to such legislation, the Advisor and/or the Fund may be required to establish an anti-money laundering program which, among other things, may require the Advisor and/or the Fund, as applicable, to take measures to verify the identities of existing and prospective Fund shareholders and to identify the source of funds invested in the Fund. In the event that the Advisor or the Fund determines, in its discretion, that verification of identity of an existing or prospective shareholder or identification of the source of funds is required, the applicable shareholder will be required to provide the Fund with all requested information and documentation.
The Advisor, the Service Company and Administrator and the Fund each reserves the right to request any documentation and information that is deemed by it to be necessary in order for it to comply with applicable anti-money laundering laws and any anti-money laundering program established by it. This may result in Shares being issued on a date subsequent to the issuance date on which an investor initially wished to have Shares issued to him or her. Furthermore, the Fund may, in its discretion, effect a mandatory redemption of a shareholder, or reject a subscription for Shares by an investor, in the event that the Advisor, the Service Company and Administrator or the Fund does not receive satisfactory information or documentation, or if the Advisor, the Service Company and Administrator or the Fund believes that it would be a violation of applicable anti-money laundering laws or an established anti-money laundering program for such person to remain a shareholder or be admitted to the Fund, as applicable.
It is further acknowledged that the Service Company and Administrator, in the performance of its delegated duties, shall be held harmless by the subscriber against any loss arising as a result of a failure to process the subscription if such information as has been requested by the Service Company and Administrator has not been provided by the applicant.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents of the Fund may be inspected during usual business hours on any business day at the respective offices of (i) the Fund, c/o Bison Financial Services Limited, Bison Court, Road Town, Tortola, British Virgin Islands; or (ii) the Advisor, at the address set forth on the cover page of this Memorandum:
1. Memorandum and Articles of Association of the Fund.
2. Limited Partnership Agreement of the Partnership and Master Fund.
3. Investment Advisory Agreement between the Fund and the Advisor.
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Descriptions herein of certain terms of the above documents are summary in nature, do not purport to be complete. Reference is made to the copies of the documents themselves, available as aforesaid, for a complete statement of the terms thereof, which reference qualifies such descriptions.
Investors or their representatives may contact the Advisor to discuss the prospective operations of the Fund or obtain other available information they may request concerning the Fund.
-54- V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 1 of 25- COLLINS CAPI`T'AL, pjetw
October 1 st, 2007
Mr. Scott Baur Pension Resource Center Administrator 4360 Northlake Boulevard #206 Palm Beach Gardens, FL 33410
Re: West Palm Beach Police Pension Fund
Dear Mr. Baur:
Please accept this letter as confirmation that the West Palm Beach Police Pension Fund's initial capital contribution of $9,200,000.00 in the Collins Capital Low Volatility Performance Fund II, Ltd. has been received and became effective as of October 1 st, 2007. All documentation has been completed and accepted.
We are returning for your files the following documents:
1. The Subscription Agreement containing the General Partner's acceptance signature.
We appreciate your confidence in the fund and should you need additional information, please do not hesitate to contact us.
Kind Regards,
Uri M Dilan vestor Services 10 2007
I
Cc: Fran Coopersmith — Asset Strategy Consultants '. - 1 1t01P,Pb Bonni Jensen
South Tower Building, 806 Douglas Road, Suite 570 Coral Gables, F1 33134 Tel 305-666-3319 Fax 305-666-3439 [email protected] Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 2 of 25
COLLINS CAPITAL FUNDS
SUBSCRIPTION AGREEMENT FOR U.S. INVESTORS
Collins Capital Funds c/o Monument Financial Services, LLC 806 Douglas Road, Suite 570 Coral Gables, FL 33134 Telephone (305) 666-3319 Facsimile (305) 666-3439
Dear Sirs:
We understand that Collins Capital Investments, LLC ("Collins Capital" or the "Advisor") acts as the investment advisor to the private investment funds listed in Section 1(a) below (the "Collins Capital Funds"). Common Shares in the each of the Collins Capital Funds (the "Shares") are described in and offered pursuant to an Explanatory Memorandum (each, a "Memorandum"). Collins Capital has furnished to the undersigned (the "Subscriber") a copy of the applicable Memorandum as to each of the Collins Capital Funds in which the Subscriber has indicated an interest and is subscribing for pursuant to the terms of this Subscription Agreement.
1. Subscription.
(a) The Subscriber hereby subscribes and agrees to purchase, subject to the terms and conditions hereof and acceptance by the Funds, and effective as of the date this subscription is so accepted by one or more of the Collins Capital Funds (the "Subscription Date"), that number of Shares of such Fund (or that number of Shares of a specific class of such Fund, if applicable), that may be purchased with the sum indicated below, representing the agreed subscription amount. The Subscriber must complete all relevant, sections of the Subscription Agreement. Failure to do so may result in delay of acceptance of a Subscriber's subscription until a properly completed Subscription Agreement has been received, processed and approved.
(b) The Subscriber is concurrently delivering payment (the "Subscription Funds") for the purchase of Shares in each of the Funds (as hereinafter defined) indicated below, by federal wire transfer of immediately available funds in the applicable currency, as follows:
Fund (check applicable box(es)): Amount of Subscription:
q Collins Capital Diversified Offshore Fund I, Ltd. U.S.$
q Collins Capital Diversified Offshore Fund II, Ltd.
q Class A U.S. Dollar Denominated Shares U.S.$ q Class B Non-Voting Shares U.S.$ q Class C Euro Denominated Shares € q Class D British Pound Denominated Shares E q Class E Yen Denominated Shares ¥
A-I-1 V060107
Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 3 of 25
E4 Collins Capital Low Volatility Performance 'Fund II, Ltd. ^t Z QQf O 00 , O p Class A U.S. Dollar Denominated Shares U.S. ,J „ q Class B Non.-Voting Shares U,S,S Fl Class C Euro Denominated Shares a /rp7 q Class D British Pound Denominated Shares f q Class E Yen Denominated Shares
(Note: Each of the Collins Capital Funds has a minimum subscription amount of U.S. $1,000,000, or the equivalent amount in the relevant currency, unless a Fund expressly agrees to permit a lesser amount.) Each of the Collins Capital Funds subscribed for above is referred to herein as a "Fund".
(c) It is understood and agreed that this subscription is made subject to the terms and conditions contained in this Section 1 and that each Fund is to hold and dispose of the Subscription Funds and Subscription Agreement in accordance with the following:
(1) Each Fund shall have the right to accept or reject this subscription, in its sole discretion.
(ii) Each Fund shall deposit the Subscription Funds in a Fund Bank Account with Northern Trust Company, separate and apart from the Advisor's own monies or the monies of any other person, firm or corporation, other than monies representing payment for subscriptions for Fund Shares by other subscribers thereto. The Subscription Funds will be held 1 in trust for the purposes herein set forth and nnay not be transferred or used for any purpose except in accordance with the further provisions of this Section 1.
(iii) Should a Fund reject this subscription such Fund shall forthwith thereafter return the Subscription Funds, without abatement or interest, to the Subscriber.
' (iv) Should a Fund accept this subscription, such Fund shall (i) register Shares of the respective Fund to the Subscriber in book-entry form pursuant to the terms of this Subscription Agreement and the Fund's Memorandum, as of the date of such acceptance; (ii) deliver and transfer the applicable amount of Subscription Funds to each Fund for investment pursuant to the Memorandum; (iii) deliver the Subscription Agreement to each Fund, and (iv) cause each Fund to deliver to the Subscriber one counterpart each of this Subscription Agreement, accepted by a Fund,
2. Representations and Warranties. To induce the Funds to accept the Subscription, and recognizing its reliance thereon, the Subscriber hereby represents and warrants as follows:
(a) The Subscriber is a "U.S. Person" (as hereinafter defined). As used herein, the term "U.S. Person" means: (i) Any United States citizen or a resident of the United States of America (as defined for purposes of the federal income tax laws of the United States); (ii) any corporation, partnership, trust or other legal entity organized or created under the laws of any United States jurisdiction; (iii) any organization or entity controlled, directly or indirectly, by a person or persons described in (i) or (ii) or of which such person or persons described are known to be the owners, directly or indirectly, of a majority of the bene;icial interests therein; or (iv) any other person or entity which is a "U,S. Person" within the meaning of the U.S. Internal
A-I-2 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 4 of 25
Revenue Code of 1986, as amended (the "Code"); Regulation S, or any successor provision, as in effect at the time under the Securities Act of 1933, as amended (the "Securities Act").
(b) The Subscriber (check applicable box(es)):
G) 0 is/0 is not a "Quali led U.S. Tax-Exempt Entity" deferred or exempt from U.S. income taxation pursuant-_ Section 401, q Section 501(a) or q (other Code provision — describe) of the Code;
(ii) q is/M/is not an "employee benefit plan" (an "ERISA Plan") subject to Title I of the Employee Retirement Income Security Act of 1974, as. amended ("ERISA"); c_o Y, ^ Y r"—' -ck -t-" c%-' V ` cr -\ ^ S t4 Cr S^ ti;,c -fizz C— R 1 S; A ^ G - —n cam) ^l Cart p e- ; ,r cL'i i fitrc7 c, ^r i ^G Y1S^ti cY 3 i c, t CA I^ f L I ^i'I . (iii) q is/1M is not a plan subject to Section 4975 of the Code, including accounts commonly known as individual retirement accounts ("IRAs") or related trusts created pursuant to the Code;
(iv) q is/W is not a plan whose beneficiaries are solely equity owners of the employer establishing or sponsoring such plan (such as a Keogh plan having only owner beneficiaries);
(v) M is/0 is not a "Benefit Plan Investor" as defined in paragraph (f)(2) of ERISA Regs. 2510.3-101 (the "Plan Asset Regulations") which term includes, inter alia, an ERISA Plan, an IRA or related trust created pursuant to the Code, a church plan or governmental plan;
(vi) q is/Q is not an entity (a "Benefit Plan Fund") (A) in which Benefit Plan Investors own 25% or more of the value of any class of equity interests in the Benefit Plan Fund or (B) the underlying assets of which Benefit Plan Fund include "plan assets", within the meaning of the Plan Asset Regulations or otherwise under ERISA; and/or
(vii) q is/E6 not an entity in which individual beneficiaries, account holders or other third parties (other than the trustee(s) or single authorizing fiduciary or fiduciary body(ies)) make individual investment decisions.
(c) The Subscriber represents that it (check one) m is/ q is not an "accredited investor", as defined and used in Rule 501 of Regulation D under the Securities Act (as set forth on Annex A hereto). (Note: In order to be eligible to invest in the Collins Capital Funds, the Subscriber must check "is" in this Section 2(c).)
(d) The Subscriber represents that:
(i) The Subscriber (check one) 0 is/ q is not a "qualified purchaser", as that term is defined in Section 2(a)(51) of the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") (as set forth on Annex B hereto). (Note: In order to be eligible to invest in Collins Capital Diversified Offshore Fund II, Ltd. and Collins Capital Low Volatility Performance Fund lI, Ltd., the Subscriber must check "is" in this Section 2(d)(i).)
A-I-3 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 5 of 25
(ii) The Subscriber (check one) q is/9 is not an entity relying upon the exception from the definition of an "investment company" set forth in Section 3(c)(7) of the Investment Company Act.
(iii) The Subscriber (check one) q is/E2 is not an entity relying upon the exception from the definition of an "investment company" set forth in Section 3(c)(1) of the Investment Company Act. If Subscriber is an entity relying upon the exception from the definition of an "investment company" set forth in said Section 3(c)(1), the Subscriber further represents that as of the date hereof it has [insert number of security holders] holders of its securities, determined as provided in prevailing interpretations under said Section 3(c)(1).
(iv) If Subscriber is an entity relying upon the exception from the definition of an "investment company" set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, the Subscriber understands that certain of the Collins Capital Funds, including Collins Capital Diversified Offshore Fund I, Ltd., CW Trading Fund, Ltd., or Collins Capital Alpha Offshore Fund I, Ltd., may be required to limit such Subscriber's ownership in such Fund to less than 10% of the outstanding Shares.
(v) The Subscriber certifies that it is not a partnership, grantor trust or S-corporation (a "flow-through entity") or, if it is a flow-through entity, substantially all of the value of each beneficial owner's interest in the Subscriber is not attributable to the Subscriber's interest in the Funds and the Subscriber was not formed or operated for the principal purpose of investing in the Funds.
(e) The Subscriber (check one) 2/is/ q is not a "qualified eligible person", as defined and used in Rule 4.7 under the Commodity Exchange Act, as amended (the Subscriber understands that in order to be a qualified eligible person under said Rule, it must, in general, be an "accredited investor" and also own securities and/or other investments with an aggregate market value of not less than $2,000,000, or satisfy other requirements of said Rule).
(f) The Subscriber consents to being treated as a "professional investor" as that term is defined under the Mutual Funds Act 1996 of the British Virgin Islands. The Subscriber declares and represents that it is either a person (i) whose ordinary business involves, whether for its own account or for the accounts of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property, of the Funds; or (ii) who hereby declares that it has a net worth in excess of one million dollars (U.S. $1,000,000) in United States currency or its equivalent thereof in any other lawful recognized currency.
(g) The Funds from time to time may invest in "new issues", as defined in NASD Rule 2790. In order for the Funds to determine the extent to which the Subscriber is eligible to participate in profits and losses from such "new issues", the Subscriber must respond to those statements below which apply to it and, if the Subscriber is a corporation, partnership, trust or other entity acting as nominee for another person, which apply to such person for which the entity is acting as nominee-
A-I-4 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 6 of 25
1) Restricted Persons: The Subscriber, or a person having a beneficial interests in the Subscriber (check all that apply):
(i) q is a broker-dealer.
(ii) q is an officer, director, general partner, associated person or employee of a broker-dealer (other than a limited business broker- dealer).Z
(iii) q is an agent of a broker-dealer (other than a limited business broker-dealer) that is engaged in the investment banking or securities business.
(iv) q is an immediate family member3 of a person described in item (ii) or (iii) above and such person (a) materially supports ¢, or receives material support from the immediate family member; or (b) is employed by or associated with the broker-dealer, or an affiliate of the broker- dealer, selling the new issue to the immediate family member.
(v) q acts as a finder or acts in a fiduciary capacity (including, among others, attorneys, accountants and financial consultants) to the managing underwriter in offerings.
(vi) q has the authority to buy or sell securities for a bank, savings and loan institution, insurance company, investment advisor, or collective investment account.5
(vii) q is an immediate family member of a person described in item (v) or (vi) above and such person materially supports, or receives material support from such person.
1 The term "beneficial interest' as used herein means any economic interest such as the right to share in gains or losses. The receipt of a management or performance based fee for operating a collective investment account, or other fee for acting in a fiduciary capacity, is not considered a beneficial interest in the account: 2 A "limited business broker-dealer" is a member of the NASD engaged solely in the purchase or sale of either investment company/variable contracts securities or direct participation program securities. 3 As used herein, the term "immediate family" includes parents, mother-in-law or father-in-law, husband or wife, brother or sister, brother-in-law or sister-in-law, son-in-law or daughter-in-law, children and any other person to whom the person provides "material support" as defined in footnote 4, below. 4 As used herein, the term "material support" means the direct or indirect provision of more than 25% of a person's income in the prior calendar year. Members of the immediate family living in the same household are deemed to be providing each other with material support. 5 As used herein, the term "collective investment account" means any hedge fund, investment partnership, investment corporation, or any other collective investment vehicle that is engaged primarily in the purchase and/or sale of securities. The term does not include an investment club where a group of individuals pool their money and are collectively responsible for investment decisions, or a family investment vehicle owned solely by immediate family members.
A-I-5 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 7 of 25
(viii) q is a person listed, or required to be listed, in Schedule A of a Form BD (other than with respect to a limited business broker-dealer), except persons identified by an ownership code of less than 10 %.6
(ix) q is a person listed, or required to be listed, in Schedule B of a Form BD (other than with respect to a limited business broker-dealer), except persons whose listing on Schedule B relates to an ownership interest in a person listed on Schedule A identified by an ownership code of less than 10%.
(x) q is a person listed, or required to be listed, in Schedule C of a Form BD that meets the criteria of items (viii) and (ix) above.
(xi) q is a person that (a) directly or indirectly owns 10% or more of a public reporting company listed, or required to be listed, in Schedule A of a Form BD, or (b) directly or indirectly owns 25% or more of a public reporting company listed, or required to be listed, in Schedule B of a Form BD, (other that a reporting company that is listed on a national securities exchange or is traded on the Nasdaq National Market, and other than with respect to a limited business broker-dealer).
(xii) q is an immediate family member of a person specified in items (viii)-(xi), above, provided that the Subscriber , should not initial this item (xii) if the person owning the broker-dealer (specified in itbms ' (viii)- (xi)):
(a) does not materially support, or receive material support from such person; and
(b) is not an owner of the NASD member, or an affiliate of the NASD member.
(xiii) E'VNone of the above statements are applicable.
If the Subscriber initialed any of items (i)-(xii) above, please complete Section (2) below.
(2) Exempt Persons: The Subscriber (check all that apply):
(i) q is an investment company registered under the Investment Company Act of 1940.
(ii) q is a common trust fund or similar fund as described in Section 3(a)(12)(A)(iii) of the Securities .Exchange Act of 1934, as amended, and the fund (a) has investments from 1,000 or more accounts, and (b) does not limit beneficial interests in the fund principally to trust accounts of Restricted Persons. "Restricted Persons" are those persons listed in items (i)-(xii) of Section (1), above.
6 Items (viii)-(xi) pertain to "owners" of broker-dealers. The NASD has stated that an owner of a broker-dealer will be viewed as having a "beneficial interest" in an account held by a subsidiary i.e., a sister company of the broker- dealer). Accordingly, an affiliate of a broker-dealer will be a Restricted Person.
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(iii) q is an insurance company general, separate or investment account, and (a) the account is funded by premiums from 1,000 or more policyholders, or, if a general account, the insurance company has 1,000 or more policyholders; and (b) the insurance company does not limit the policyholders whose premiums are used to fund the account principally to Restricted Persons, or, if a general account, the insurance company does not limit its policyholders principally to Restricted Persons.
(iv) q is a corporation, partnership, trust or other entity and the beneficial interests of Restricted Persons do not exceed in the aggregate 10% of such entity (the "De Minimis Exemption"). A Subscriber who liunits the participation by Restricted Persons to no more than 10% of the profits and losses of new issues may initial this statement.
(v) q is a publicly traded entity (other than a broker-dealer or an affiliate of a broker-dealer where such broker-dealer is authorized to engage in the public offering of new issues either as a selling group member or underwriter) that: (a) is listed on a national securities exchange, (b) is traded on the Nasdaq National Market or (c) is a foreign issuer whose securities meet the quantitative designation criteria for listing on a national securities exchange or trading on the Nasdaq National Market.
(vi) q is an investment company organized under the laws of a foreign jurisdiction and (a) the investment company is listed on a foreign exchange or authorized for sale to the public by a foreign regulatory authority, and (b) no person owning more than 5% of the shares of the investment company is a Restricted Person.
(vii) q is an ERISA benefits plan that is qualified under Section 401(a) of the Code and such plan is not sponsored solely by a broker- dealer.
(viii) q is a state or municipal government benefits plan that is subject to state and/or municipal regulation.
(ix) q is a tax exempt charitable organization under Section 501(c)(3) of the Internal Revenue Code.
(x) q is a church plan under Section 414(e) of the Internal Revenue Code.
(xi) q None of the above statements are applicable.
(3) Investment Fund Investors: If the Subscriber is a "fund of funds," a feeder fund or other type of collective investment account, the Subscriber must complete the following:
(i) Restricted Persons in the aggregate are entitled to receive not more than _% of the Subscriber's profits and losses from "new
A-I-7 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 9 of 25
issues". [Note: The Funds will rely upon this percentage in making any new issue allocations to the Subscriber, unless and until the Subscriber has advised the Funds as to any change.]
(ii) If Restricted Persons may account for more than 10% of the beneficial interests in the Subscriber, please indicate whether or not the Subscriber's constituent documents have "carve-out" or similar provisions to restrict the participation of Restricted Persons to not more than 10% of any "new issue" allocation:
q Yes q No
(iii) If the answer to (ii) is "no", please describe briefly the procedures you follow to assure meeting the limitation set forth in (i) above and compliance with NASD Rule 2790:
(4) The Subscriber fiirther acknowledges that if the Subscriber is .subject to the prohibitions of the NASD Rule 2790, the Subscriber will only be permitted to have a limited participation in any profits or losses from a Fund's new issues investments, if any, as described in the Memorandum. The Subscriber further represents that, if it is not presently a restricted person, but becomes one, the Subscriber will notify the appropriate Funds in writing immediately of such event, and the Subscriber will then be subject to a limited participation in the profits or losses from a Fund's new issues investments, if any.
(h) The execution, delivery and performance by the Subscriber of this Subscription Agreement are within the powers of the Subscriber, have been duly authorized and will not constitute or result in a breach or default under or conflict with any order, ruling or regulation of any court or other tribunal or of any governmental commission or agency, or any agreement or other undertaking, to which the Subscriber is a party or by which the Subscriber is bound, and, if the Subscriber is not an individual, will not violate any provisions of the incorporation papers, by-laws, indenture of trust or partnership agreement, as may be applicable, of the Subscriber. (If the Subscriber is an entity, such Subscriber shall provide excerpts from its constituent documents and/or applicable resolutions authorizing this investment.)
(i) The signature on this Subscription Agreement is genuine, and the signatory, if the Subscriber is an individual, has legal competence and capacity to execute the seine, and this Subscription Agreement constitutes a legal, valid and binding obligation of the Subscriber, enforceable in accordance with its terms. The Subscriber represents that all evidence of identity provided is genuine and all related information furnished is accurate.
(j) The Shares hereby subscribed for will be acquired by the Subscriber solely for its own account, for investment and not with a view to any distribution or resale thereof.
(k) The Subscriber will not transfer directly or indirectly any of the Shares or any interest therein (including without limitation any right to receive dividends or other distributions) to any person or entity (i) unless the proposed transferee has made representations
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and warranties similar to those contained herein (including, without limitation, those relating to the Securities Act) and such representations and warranties have been approved by 'the appropriate Fund, and (ii) unless the Shares are registered pursuant to the provisions of the Securities Act or an exemption from such registration, in the opinion of U.S. counsel to the Funds, is available.
(1) The Subscriber, together with its advisors, has such knowledge and experience in financial matters that it is capable of evaluating the relative risks and merits of an investment in a Fund and, without limiting the generality of the foregoing, has had extensive experience in investments of the type represented by the Shares.
. (m) The Subscriber, together with its advisors, have received and carefully reviewed the appropriate Fund's Memorandum, understands fully the contents thereof and has had the opportunity to discuss with the principals of the Advisor the proposed business and affairs of the Funds and has received the information it requires to make an informed investment decision.
(n) In particular, the Subscriber, together with its advisors, have received and carefully reviewed the section entitled "Risk Factors" in the Memorandum, understands fully the contents thereof, is in a position to bear the risks of an investment in a Fund, including the possible loss of its entire investment and understands that an investment in a Fund is suitable only as a limited part of an overall prudent and balanced investment program.
(o) The Subscriber understands, as described in the Memorandum, that the Shares will have limited liquidity and acknowledges that it will not require liquidity of its investment therein.
(p) The Subscriber acknowledges and agrees that in determining to invest in Shares, it is relying solely upon the contents of the Memorandum and upon no other document, information or statement furnished to it by or on behalf of a Fund, the Advisor, the Administrator or their agents or employees, any and all of which is superseded in full by the contents of the Memorandum.
(q) The Subscriber is relying solely upon its own tax advisers, and not upon the contents of the Memorandum, with respect to the tax consequences of an investment in the Shares, and understands that as a U.S. Person investing in a foreign corporation such as a Fund it may have certain reporting and filing obligations with regard thereto.
(r) The Subscriber meets any and all eligibility standards set forth under "Eligible Investors" in the Memorandum.
(s) The Subscriber certifies under penalty of perjury that it is a U.S. Taxpayer (as hereinafter defined). As used herein, the term "U.S. Taxpayer" includes a U.S. citizen or resident alien of the United States (as defined for United States federal income tax purposes); any entity treated as a partnership or corporation for U.S. tax purposes that is created or organized in, or under the laws of, the United States or any State thereof; any other partnership that is treated as a U.S. person under the U.S. Treasury Department regulations; any estate, the income of which is subject to U.S. income taxation regardless of source; and any trust over whose administration a court within the United States has primary supervision and all substantial decisions of which are under the control of one or more U.S. fiduciaries. Persons who have lost their U.S. citizenship and who live outside the United States may nonetheless in some
A-I-9 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 11 of 25
circumstances be treated as U.S. Taxpayers. U.S. Taxpayers include persons, such as U.S. Tax- Exempt Entities, which meet the foregoing definition notwithstanding their tax-exempt status under the Code.
The Subscriber further certifies under penalty of perjury that the taxable year provided below is correct and agrees to notify the Funds immediately of any change in the information provided above. / Taxable Year End (please check one): q December 31 Q Other (specify)-^ -Ps C& Vea. V" (t) The Subscriber hereby authorizes and instructs each of the Funds and the Administrator to accept and execute any instructions in respect of the Shares to which this Subscription Agreement relates given by the Subscriber in written fonn or by facsimile. If instructions are given by the Subscriber by facsimile, the Subscriber undertakes to send the original letter of instructions to the Funds and agrees to keep each of the Funds and the Administrator indemnified against any loss of any nature whatsoever arising to any of them as a result of any of them acting upon facsimile instructions. Each of the Funds and the Administrator may rely conclusively upon and shall incur no liability in respect of any action take upon any notice, consent, request, instructions or other instrument believed in good faith to be genuine or to be signed by properly authorized persons.
3. Further Representations and Warranties Pursuant to Anti-Money Laundering and Anti-Terrorist Regulations.
The Subscriber hereby further represents and warrants as follows:
(a) The Subscriber acknowledges that due to certain anti-money laundering requirements, the Funds and the Administrator may require further identification of the Subscriber before an application or redemption can be processed and each of the Funds and the Administrator shall be held harmless and indemnified against any loss arising as a result of a failure to process the application or a transfer or redemption request if such information has been required by the parties referred to and has not been provided by the Subscriber.
(b) (i) The Subscriber represents that all evidence of identity provided is genuine and all related information furnished is accurate. The Subscriber agrees to provide any information deemed necessary by a Fund or the Administrator in its sole discretion, to comply with its anti-money laundering and anti-terrorist financing program and related responsibilities.
(ii) The Subscriber represents that its Subscription Funds were not and are not directly or indirectly derived from activities that may contravene federal, state or international laws and regulations, including anti-money laundering laws and regulations.
(iii) Check one of the following boxes, whichever is applicable:
(1) Subscriber is acquiring the Shares for its own account, risk and beneficial interest, and (A) is not acting as agent, representative, intermediary/nominee or in any similar capacity for any other person; (B) no other person will have a beneficial or economic interest in the Shares; and (C) does not have any intention or obligation to sell, distribute, assign or transfer all or a portion of the Shares to any other person.
A-I-10 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 12 of 25
(2) q The Subscriber is an investor intermediary investing in its own name on behalf of other investors, which, for these purposes, may include, without limitation, an introducing Rion, an asset aggregator, a nominee or a "fund of funds" (each, an "Intermediary"); and (A) is subscribing for Shares as a record owner in its capacity as (circle one of the following) [agent / representative / nominee] on behalf of one or more investors ("Underlying Investors"), and agrees that the representations, warranties and covenants made in this Subscription Agreement are made by it on behalf of itself and the Underlying Investors; (B) The Intermediary: (i) has all requisite power and authority from the Underlying Investors to execute and perform the obligations under the Subscription Agreement; (ii) has carried out investor identification procedures with regard to all Underlying Investors, to the extent it is required to do so by applicable law; and (C) has established the identity of all Underlying Investors, holds evidence of such identities, to the extent it is required to do so by applicable law, and will make such information available to the Funds and/or the Administrator upon request.
(c) Subscriber agrees to promptly notify the Funds and the Administrator should the Subscriber become aware of any change in the information set forth in these representations. The Subscriber further agrees to provide any information deemed necessary by a Fund or the Administrator, in its sole discretion, to comply with its anti-money laundering and anti-terrorist financing program and related responsibilities. The Subscriber is advised and hereby acknowledges, understands and consents that, by law, the Funds and/or the Administrator may be required to disclose the Subscriber's identity to regulatory authorities.
(d) The Subscriber represents and warrants that, to the best of its knowledge, none of (i) the Subscriber; (ii) any person controlling or controlled by the Subscriber; (iii) if the Subscriber is a privately held entity, any person having a beneficial interest in the Subscriber; or (iv) any person for whom the Subscriber is acting as agent or nominee in connection with this investment is: a senior foreign political figure, 7 any immediate family mensbeO or close associate9 of a senior foreign political figure, as such terms are defined in the footnotes below.
(e) If the Subscriber receives deposits from, makes payments on behalf of, or handles other financial transactions related to a non-U.S. banking institution (a "Foreign Bank"), the Subscriber represents and warrants to the Funds that: (i) The Foreign Bank has a fixed address, other than solely an electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities; (ii) the Foreign Bank employs one or more individuals on a full-time basis; (iii) the Foreign Bank maintains operating records related to its banking activities; (iv) the Foreign Bank is subject to inspection by the banking authority that licensed the Foreign Bank to conduct banking activities; and (v) the Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence in any country and that is not a regulated affiliate.
7 A "senior foreign political figure" is defined as a senior official in the executive, legislative, administrative, military or judicial branches of a non-U.S. government (whether elected or not), a senior official of a major non- U.S. political party, or a senior executive of a non-U.S. government owned corporation. In addition, a "senior foreign political figure" includes any corporation, business or other entity that has been formed by or for the benefit of a senior foreign political figure. 8 "Immediate family" of a senior foreign political figure typically includes the figure's parents, siblings, spouse, children and in-laws. 9 A "close associate" of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial U.S. and non-U.S. financial transactions on behalf of the senior foreign political figure.
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(f) The Subscriber understands and agrees that any redemption of Shares will be paid to the same account from which the Subscriber's investment in the Funds was originally remitted, unless the Funds or Administrator, in their sole discretion, agree otherwise.
(g) The Subscriber fitrther represents and warrants that, to the best of its knowledge, none of (i) the Subscriber; (ii) any person controlling or controlled by the Subscriber; (iii) if the Subscriber is a privately held entity, any person having a beneficial interest in the Subscriber, or (iv) any person for whom the Subscriber is acting as agent or nominee in connection with this investment is a person or entity whose name appears on the List of Specially Designated Nationals and Blocked Persons maintained by the U.S. Office of Foreign Assets Control ("OFAC'). 10 The Subscriber acknowledges that if the Underlying Investor is, or the Funds reasonably believe that the Underlying Investor is, a prohibited investor, the Funds may be obligated to freeze its investment, either by prohibiting additional investments, declining any redemption requests and/or segregating the assets constituting the investment in accordance with applicable regulations, or its investment may be immediately redeemed by a Fund, and it shall have no claim against a Fund or any of its affiliates for any form of damages as a result of any aforementioned actions.
(h) The Subscriber represents that the following individual or individuals are authorized to act on behalf of the Subscriber to give and receive instructions between the Funds (or its representatives, including the Administrator) and the Subscriber. Such individuals are the only persons so authorized until further written notice, signed by one or more of such individuals, to each of the appropriate Funds.
Name Specimen Signature
The foregoing representations and warranties are true and accurate as of the date hereof and shall be true and accurate as of the date of delivery of the Subscription Funds and the Subscription Agreement to the Funds and shall survive such delivery. If in any respect such representations and warranties shall not be true and accurate prior to delivery of the Subscription Funds to the Funds, the Subscriber shall give written notice of such fact to the Funds specifying which representations and warranties are not true and accurate and the reasons therefor.
4. Further Representations and Warranties by Investors Subject to ERISA.
If the Subscriber is a pension plan, profit-sharing plan, annuity or other ERISA Plan, in order to assure compliance with applicable provisions of ERISA, the undersigned, as well as the person(s) entering into this Agreement on behalf of the undersigned (the "Authorizing Fiduciary"), hereby represent, warrant and agree as follows (all references in this Section 4 to the "Plan" shall be deenned to be references to the undersigned):
(a) The Authorizing Fiduciary is: a named fiduciary, within the meaning of Section 402(a) of ERISA, of the Subscriber. The Authorizing Fiduciary is duly authorized and empowered, on behalf of the Subscriber, to enter into this Agreement and otherwise cause the
10 The list of prohibited persons and entities can be found on the U.S. Office of Foreign Assets Control website at www.treas.gov/ofac.
A-I-12 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 14 of 25
Subscriber to make an investment in a Fund, and this Agreement is a binding obligation of the Subscriber. The Authorizing Fiduciary is duly authorized and empowered, on behalf of the Subscriber, to cause the Subscriber to make future additional capital contributions to a Fund, to cause the Subscriber to effect a redemption of Shares, and to exercise, on behalf of the Subscriber, all rights afforded a shareholder of a Fund pursuant to such Fund's Memorandum and Articles of Association.
(b) An investment in the Funds by the Subscriber has been duly authorized by all necessary action on the part of the Subscriber and the Authorizing Fiduciary. An investment in each of the Funds as contemplated by each Fund's Memorandum and this Subscription Agreement is permitted by, and consistent with, the constituent instruments forming and governing the undersigned, including any related trust documents (collectively, the "Plan Documents"). The Subscriber, or the Authorizing Fiduciary, shall furnish to the Funds copies of the Plan Documents and such other documents or information as shall be reasonably requested by them, in connection with an investment by the Subscriber in the Funds and the performance by the Funds and the Advisor and of their respective obligations in connection therewith.
(c) The Authorizing Fiduciary has reviewed carefully the contents of the appropriate Fund's Memorandum, including the provisions relating to the proposed investment objective, strategy and policies of the Fund as set forth therein (the "Investment Policies"), as well as the provisions relating to the Advisor's compensation (including the Incentive Fee (as defined in the Memorandum) and management fees), and fully understands the Investment Policies. The Investment Policies shall constitute "investment guidelines" of the Subscriber, for purposes of ERISA, with respect to the Subscriber's investment in a Fund, and each Fund and the Advisor shall be entitled to rely upon the same.
(d) The Authorizing Fiduciary acknowledges that it is aware of, and understands, the provisions of Section 404 of ERISA (and the related rules and regulations) relating to the requirements for investment and diversification of the assets of Plans subject to ERISA. In authorizing an investment in the Funds by the Subscriber, the Authorizing Fiduciary has given appropriate consideration thereto (as contemplated by Section 404 of ERISA and Department of Labor Regulation 404a-1 promulgated thereunder), including a determination that an investment in the Funds pursuant to this Subscription Agreement is reasonably designed as part of the portfolio of the Subscriber to further the purposes of the Subscriber, taking into consideration the risk of loss and the opportunity for gain (or other return) associated with an investment in the Funds. The Authorizing Fiduciary has considered, among other matters, as they relate to an investment in the Funds by the Subscriber as part of the Subscriber's overall portfolio: (A) the composition of the Subscriber's portfolio with regard to diversification; (B) the liquidity and current return of such portfolio relative to the anticipated cash flow requirements of the Subscriber; and (C) the projected return of the portfolio relative to the funding objectives of the Subscriber. Taking into account the other investments made with the assets of the Subscriber, and the diversification thereof, the Subscriber's investment in the Funds as contemplated by this Subscription Agreement is consistent with the requirements of Section 404 (and the related rules and regulations) and all other applicable provisions of ERISA.
(e) If the Subscriber is an ERISA Plan (i.e., an employee benefit plan subject to the requirements of Title I of ERISA), the undersigned acknowledges that by reason of the Plan Asset Regulations (as defined above) of the U.S. Department of Labor, and assuming compliance therewith by the Advisor, the Advisor is not, and shall not be regarded as, a "fiduciary", within the meaning and for purposes of ERISA, with respect to the Subscriber.
A-I-13 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 15 of 25
(f) If the Subscriber is an "individual retirement account" plan described in section 4975(e)(1) of the Code, or other plan to which to the requirements of Title I of ERISA do not apply, the undersigned acknowledges that by reason of applicable regulations of the U.S. Department of Labor, the Advisor is not, and shall not be regarded as, a "fiduciary", within the meaning and for purposes of ERISA, with respect to the Subscriber.
(g) The Authorizing Fiduciary represents, warrants and agrees that it has taken, and will in the future take, all necessary action in order to limit the responsibilities of the Funds and the Advisor to those responsibilities set forth in the Memorandum and this Subscription Agreement with respect to any investment by the Subscriber in any of the Funds.
(h) The Subscriber and/or the Authorizing Fiduciary will provide to the Funds and the Advisor upon acceptance of this Subscription Agreement, and from time-to-time thereafter upon reasonable notice, a list of the "parties in interest", as defined in Section 3(14) of ERISA, of the Subscriber.
(i) No individual or employer participating directly or indirectly in the Subscriber, acting in his or its capacity as an individual or employer, can direct the investments of the Subscriber (or any other pension, profit-sharing, annuity or employee benefit plan participating in the Subscriber); the decision to invest assets of the Subscriber in the Funds was not, and any subsequent decision to redeem Shares of the Funds will not be, made pursuant to the direction of any individual or individuals participating in the Subscriber, and no individual or individuals participating in the Subscriber will determine whether or how much of their assets will be invested in any of the Funds; neither the employer nor any other person associated with the Subscriber shall have, or attempt to exercise, the power to influence or control the appointment or removal of the Advisor, or any successor to any such person, the terms of the Memorandum or Articles of Association of the appropriate Fund, the terms of the Investment Advisory Agreement by and between each of the Funds and the Advisor, the investment objectives, policies or restrictions of the Funds, and the investment or management decisions regarding the Funds; and neither the employer nor any other person associated with the Subscriber has made or will make any representation to individuals participating in the Subscriber that all or any specific portion of their contributions will be invested in any of the Funds. The undersigned acknowledges that it understands (and each of the Funds agree) that neither the Advisor nor any person acting on behalf of a Fund or the Advisor will have any direct contact with individuals as such participating in the Subscriber regarding investment of contributions to the Subscriber.
(j) The Authorizing Fiduciary acknowledges and agrees that the information, representations, warranties and agreements contained in this Agreement are provided for the purpose of assisting the Funds and the Advisor in connection with their investment management duties, and each of the Funds and the Advisor may rely and act upon such information, representations, warranties and agreements for so long as the Subscriber shall be an investor in a Fund.
5. Reaffirmation of Representations, Etc.
(a) The Subscriber agrees that the foregoing representations and warranties will be deemed to be reaffirmed by the Subscriber at any time it makes an additional investment in a Fund and if any of the foregoing representations cease to be true, the Subscriber will promptly notify the Funds of the facts pertaining to such changed circumstances.
A-1- 14 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 16 of 25
(b) The Subscriber agrees that it will supply the directors of each of the Funds with'such other information as from time to time is generally requested by the Funds and deemed necessary or desirable in order to avoid the loss of a contemplated tax benefit to a Fund or any of its shareholders and in order to ascertain that no violation by any of the Funds shall occur of any tax or securities laws of the United States (including the Code, the Securities Act, the Investment Company Act and the Investment Advisers Act of 1940) or of any other applicable jurisdiction.
6. Indemnity.
(a) The Subscriber agrees that any Shares hereby subscribed for or otherwise acquired will be held subject to the terms and conditions of the Memorandum and Articles of Association of the respective Fund, as amended from tune to time, and recognizes that each Fund will protect and indemnify its directors and other representatives against liability, to the extent set forth in the Articles.
(b) The Subscriber agrees to indemnify and hold harmless each of the Funds, the Advisor, the Administrator and their respective directors, officers, shareholders, members or other owners, their agents, attorneys, accountants and employees, from and against any loss, liability, cost or expense (including attorneys' fees, taxes and penalties) which may result, directly or, indirectly, from any misrepresentation or breach of any warranty, covenant or agreement of the Subscriber set forth herein or in any, other document delivered by the Subscriber to the Funds. The Subscriber further agrees to indemnify and hold harmless each of the Funds, their directors, officers and shareholders, from and against any and all loss, damage or liability (including attorneys fees) arising out of any liability for United States taxes caused by actions of the Subscriber.
7. Appointment of Revocable Proxy. The Subscriber hereby designates and appoints Bison Financial Services Limited (the "Agent"), with full power of substitution, as its true and lawful proxy and attorney-in-fact for the purpose of voting the Shares subscribed for herein or otherwise acquired as said Proxy may determine on any and all matters which may arise at any meeting of shareholders and upon which such shares could be voted by Shareholders present in person at such meeting. This Proxy may be revoked by the owner of record of the shares hereby subscribed for, either personally or by presentation of a subsequently executed Proxy at any meeting of shareholders, or by written notice to the Agent, at the above address (or such other address as the Funds or the Agent shall furnish in writing to a Shareholder) received prior to any such meeting.
8. Restrictive Legend. The Subscriber agrees that a legend, reading substantially as follows, may be placed on each stock certificate, if any, issued to the Subscriber pursuant to this Subscription Agreement and Revocable Proxy or otherwise acquired, and that each of the Funds may take all steps they may deem necessary or desirable to assure that the restrictions contained therein are complied with:
"The shares of the Company represented by this certificate are subject to certain restrictions which prohibit the transfer of these shares to persons who are citizens, residents or entities of the United States, its territories or possessions, or are otherwise U.S. Persons, as defined in the Articles of Association of the Company, other than certain permitted transfers to Qualified U.S. Tax-Exempt Entities, as defined therein. Such
A-1- 15 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 17 of 25
shares have not been registered under the U.S. Securities Act of 1933 and may be offered and sold only if registered pursuant to the provisions of that Act, or as permitted by Regulation S, Rule 144 or other exemption from registration under that Act in a manner satisfactory to U.S. counsel to the Company. Such shares are subject to a revocable proxy granted pursuant to a Subscription Agreement and Revocable Proxy between the shareholder and the Company, a copy of which is on file at the business office of the Company, c/o Bison Financial Services Limited, Bison Court, Road Town, Tortola, British Virgin Islands."
9. Execution of Documents. Two executed copies of this Subscription Agreement and Revocable Proxy are being sent to the Funds at the address set forth above. The name and address set forth below will be used for the purpose of recording the Subscriber as a shareholder of one or more of the Funds.
10. Miscellaneous. This Subscription Agreement and Revocable Proxy is the sole agreement of the parties hereto with respect to the subject matter hereof and may not be amended, modified, revoked (except as provided herein) tenninated or waived, except in writing signed by the person(s) to be bound thereby or as expressly provided herein. This Subscription Agreement and Revocable Proxy shall be governed by the laws of the British Virgin Islands.
[Signature Page is Following Page]
A-I-16 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 18 of 25
COLLINS CAPITAL FUNDS SUBSCRIPTION AGREEMENT FOR U.S. INVESTORS SIGNATURE PAGE
Dated: ^er' i 2, ^"'^'l Very truly yours,
[Print name of Subscriber]
By:
rSignature of Authorized Signatory(ies)] ^r^v^;u-^ i^^ficl^li GI^Durma^
[Print name(s) and title(s) of Authorized Signatory(ies)]
SUBSCRIPTION BY AN IRA, KEOGH OR SELF-DIRECTED RETIREMENT PLAN
If the Subscriber is an individual retirement account ("IRA."), Keogh plan or self-directed retirement plan, the individual beneficiary(ies) who established the IRA or Keogh plan, or who directed the retirement plan's investment in a Fund, as the case may be, (i) has signed below to indicate that the Subscriber hereby represents and warrants for himself or herself those representations set forth in Sections 2, 3 and 4 above and (ii) has caused the Custodian or Trustee of the Subscriber to execute this Subscription Agreement on the line(s) set forth above for Authorized Signatory.
[Print Name of Beneficiary]
[Signature]
[Print Name of Beneficiary]
[Signature]
(All subscribers must complete information requested on following pages)
A-1- 17 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 19 of 25
COLLINS CAPITAL FUNDS SUBSCRIPTION AGREEMENT FOR U.S. INVESTORS SUBSCRIBER INFORMATION
Subscriber's Telephone No.: No
Subscriber's Facsimile No.: 5-^ / r b d `I 3
Email address: b fl ^^^^ t? r^ ` 3^^e C (' 1 r^ , (0,',,-1
Subscriber's Registered Address:
Beo-.(-k GoLvAuvs, 6-ld
Additional copies of correspondence to: ^, Name: G^If^ ^OO^ tr,— rYl t ^ S^-^^- ^ L^ Cap
Telephone No.: 4", ^ ^ ^ ] 3 -' -7
Facsimile No.:
Email address: eJ CLS ^DC'_` ^' i:^ S v ^ ^^^,1 + `^ ^ (6,'1'7 Registered Address:
Old_ oK^e c,h o b e- na-A SL) ,-x-10 0
Please indicate exactly how record ownership of the Shares subscribed for is to be reflected on the Share Register of the Fund (if none is designated Shares will appear in the name of Subscriber set forth above):
(0eS^ ra I m G eack P01ce- Pemsb6-'YA Please indicate nature of relationship between Subscriber and above designation of record owner, if any (e.g., custodial account, nominee account, etc.): (Y)(^^ .5fi^^ ^ - Pe n sl-m ^esoL)v-a
A-1- 18 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 20 of 25
COLLINS CAPITAL FUNDS SUBSCRIPTION AGREEMENT FOR U.S.. INVESTORS ACCEPTANCE OF SUBSCRIPTION
The subscription for Shares of the Collins Capital Fund(s) as set forth' ecYt' 1(a) of the attached Subscription Agreement by*W Q ^-k Q a^ m ^, Q.CkI lkk i (^ ` YI^IOn^e oi^ Subscriber] as described therein is hereby accepted, as of an effective subscription date of nc,t. ^ , 20 Ll subject to the conditions set forth therein and in the Memorandum referred to therein.
COLLINS CAPITAL FUNDS
By: I frno Name: 4.v 7- "/.
Title: C/cd
A-I-20 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 21 of 25
Name of financial institution wiring subscription payment and the account at such institution being debited: 1^, Name: ^^+^ Tr^s^' Branch or Location: LAC ^^ I) . ic,//sGk--1 1 P-MSIAMr'Cloilcote Account Name: Oesf. Pa Ii,)1 )Sea- f6 i06ce, FLI/,Lw
Account No.: c:) oc^
Contact Name: l0 rely tl S SO Contact Phone No.: T7-7 —3K) J S°Z
Date of Remittance:
A-I-19 ^^^ V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 22 of 25
Name of financial institution wiring subscription payment and the account at such institution being debited:
Name: ^^1' ^d1li, Ct A, Branch or Location: U5t P /M &,et;,6 / Account Name: Psfi . I t t CL(- c) Po 'i q 144, SIBS Y)
Account No.:
Contact Name: I J jet n6t 6(OD Contact Phone No.: ^0 3
Date of Remittance:
A-1- 19 b V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 23 of 25
Annex A to Subscription Agreement for U.S. Investors
DEFINITION OF "ACCREDITED INVESTOR" (as set forth in Rule 501 of Regulation D)
"Accredited investor" shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:
(1) Any bank as defined in section 3(a)(2) of the [Securities] Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self- directed plan, with investment decisions made solely by persons that are accredited investors;
(2) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint worth with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
A-I-21 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 24 of 25
(7) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in § 230.506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited investors.
A-I-22 V060107 Case 9:09-cv-80846-KAM Document 19-3 Entered on FLSD Docket 09/23/2009 Page 25 of 25
Annex B to Subscription Agreement for U.S. Investors
DEFINITION OF "QUALIFIED PURCHASER" (as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended (the "Act "D
"Qualified Purchaser" means:
(1) An individual who owns not less than $5,000,000 in investmentsl.
(2) A corporation, partnership or trust which (a) was not formed for the specific purpose of acquiring an interest in a Fund, (b) owns at least $5,000,000 in investments, and (c) has at least two equity owners (or in the case of a trust, has at least two beneficiaries) and all of its equity owners or beneficiaries are Related Persons2.
(3) A corporation, partnership or trust which (a) was not formed for the specific purpose of acquiring an interest in a Fund, and (b) owns at least $25,000,000 in investments.
(4) A trust which was not formed for the specific purpose of acquiring an interest in a Fund and each of the trustees or other persons authorized to make decisions with respect to the trust and each of the grantors thereof (and any other person who has contributed assets to the trust) is either an individual owning at least $5,000,000 of investments; or satisfies one or more of the representations set forth in clauses (2) or (3) above.
(5) A corporation, partnership or trust each of the beneficial owners of which satisfies one or more of the representations set forth in clauses (1), (2), (3) or (4) above.
1 When determining ownership of "investments" the following general rules are applicable: (1) Investments should be valued at either their fair market value as of the most recent practicable date or cost. (2) There must be excluded from the value of the investment the principal amount of any outstanding debt, including margin loans, incurred by the undersigned (or any owner of the undersigned) to acquire or for the purpose of acquiring the investment. (3) Investments include investments held jointly with the undersigned's spouse. (4) Investments include investments held in any IRA, 401(k) or similar retirement account directed by the undersigned and held for the undersigned's benefit. (5) "Investments" shall mean the following: A. securities which are publicly-traded and listed on a U.S. national securities exchange or traded on NASDAQ; B. shares in registered investment companies such as mutual funds and money market funds; C. interests in private investment companies such as hedge funds, commodity pools and similar private investment companies (such as the Fund); D. cash and cash equivalents (including foreign currencies) held for investment purposes; E. real estate held for investment purposes; and F. shares of non-public companies which have total shareholder equity of $50 million or more. 2 "Related Persons" means individuals that are related as siblings or spouse (including former spouses) or direct lineal descendants, spouses of such persons, estates of such persons or foundations, charitable organisations or trusts established by or for the benefit of such persons.
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