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The directors of Key Hedge Fund Inc. (the “Company”) whose names appear under “Directory” accept responsibility for the information contained in this offering memorandum (the “Offering Memorandum”). To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information. The Directors accept responsibility accordingly. The Class A Shares of the Company, issued and available for issue, are listed on the Official List of the Irish Stock Exchange Limited. The Directors do not anticipate that an active secondary market will develop in the Class A Shares. No application has been made for the listing of the Class A Shares on any other stock exchange nor for the listing of the Class B, C, D or E Shares on any stock exchange.
OFFERING MEMORANDUM
KEY HEDGE FUND INC.
an International Business Company incorporated in the British Virgin Islands (Registered Number 24169)
Dated 9 March 2006
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Statements made in this Offering Memorandum are based on the law and practice currently in force in the British Virgin Islands and are subject to changes. The distribution of this Offering Memorandum and the offering of the Shares (as defined under “Definitions”) of the Company in certain jurisdictions may be restricted. Persons into whose possession this Offering Memorandum comes are required by the Company to inform themselves about and to observe any such restrictions. This Offering Memorandum does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. The Company is registered in the British Virgin Islands as a Public Mutual Fund pursuant to the British Virgin Islands Mutual Funds Act, 1996 (as amended) (the “British Virgin Islands Act”). Pursuant to Section 16 of the British Virgin Islands Act if a registered Public Mutual Fund publishes offering material or any amendment thereto that contains misrepresentation relating to any of the disclosures required under Section 14(2)(a) of the British Virgin Islands Act, a person who purchased any shares pursuant to such offering material or amendment thereto is deemed to have relied upon the misrepresentation and may elect to exercise a right of action (a) for the rescission of the purchase, or (b) for damages jointly and severally against the fund in question, and every member of the board of directors who, while aware of the misrepresentation, or who would have been aware of the misrepresentation had he made reasonable investigations consistent with his duties, authorised the signing of or approved the offering material or amendment thereto and consented to its publication and filing or caused it to be signed or published and filed. For the purposes of Section 16 of the British Virgin Islands Act, “misrepresentation” means (a) an untrue or misleading statement of any of the disclosures required under Section 14(2)(a) of the British Virgin Islands Act or (b) an omission to disclose any of such disclosures. No person is liable under Section 16 of the British Virgin Islands Act to a purchaser of shares in a fund if he proves that the purchaser purchased the shares offered by the offering material or amendment thereto with knowledge of the misrepresentation. The right of action for rescission or for damages conferred by Section 16(2) of the British Virgin Islands Act is in addition to and without derogation from any other right the purchaser may have at law. The Shares have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “1933 Act”), or qualified under any applicable state statutes, and the Shares may not be offered, sold or transferred in the United States of America (including its territories and possessions) or to or for the benefit of, directly or indirectly, any U.S. Person (as that term is defined herein), except pursuant to registration or an exemption. The Company is not, and will not be, registered under the United States Investment Company Act of 1940, as amended (the “1940 Act”), pursuant to Section 3(c)(7) of that Act, and investors will not be entitled to the benefit of such registration. The Company may make a private placement of the Shares to a limited number or category of U.S. Persons. The Shares have not been approved or disapproved by the United States Securities and Exchange Commission, any state securities commission or other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of this offering or the accuracy or adequacy of these offering materials. Any representation to the contrary is unlawful. The Shares are subject to restrictions on transferability and resale and may not be transferred or resold in the United States except as permitted under the 1933 Act and applicable state securities laws, pursuant to registration or exemption therefrom. Investors should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time. Each U.S. Person subscribing for Shares must agree that the Directors may reject, accept or condition any proposed transfer, assignment or exchange of those Shares. All investors in the Company have limited redemption rights and such rights may be suspended under the circumstances described in this Offering Memorandum. This Offering Memorandum is not available to the public in the United Kingdom. The Company is a collective investment scheme for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (the “FSMA”) and is not a recognised scheme for the purposes of Section 238 of the FSMA. The communication of this document or any invitation or inducement in the United Kingdom to participate in the Company or its Shares is accordingly restricted by law. The Company has not been approved by and is not regulated by the Irish Financial Services Regulatory Authority nor by the U.K. Financial Services Authority. The admission of the Class A Shares to the Official List of the Irish Stock Exchange Limited shall not constitute a warranty or representation by the Irish Stock Exchange Limited as to the competence of service providers or to any other party connected with the Company, the adequacy of information contained in this document or the suitability of the Company for investment purposes. No person has been authorised to give any information or to make any representations, other than those contained in this Offering Memorandum, in connection with the offering of Shares and, if given or made, such information or representations must not be relied on as having been authorised by the Company. Neither the delivery of this Offering
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Memorandum nor the allotment or issue of Shares shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax consequences from an investment in the Company. No assurance can be given that existing laws will not be changed or interpreted adversely. Prospective investors are not to construe this document as legal or tax advice. Each investor should consult his own counsel and accountant for advice concerning the various legal, tax and economic considerations relating to his investment. Each prospective investor is responsible for the fees of his own counsel, accountants and other advisors. No offering literature or advertising in any form shall be employed in the offering of the Shares other than this Offering Memorandum and the documents referred to herein. Any further distribution or reproduction of this document or accompanying materials, in whole or in part, or the divulgence of any of their contents, is prohibited. A prospective investor should not subscribe for Shares unless satisfied that he and/or his investment representative have asked for and received all information which would enable him and/or his investment representative to evaluate the merits and risks of the proposed investment. The Shares are not, and are not expected to be, liquid, except as described in this Offering Memorandum. Investors’ Reliance on U.S. Federal Tax Advice in this Offering Memorandum The discussion contained in this Offering Memorandum as to U.S. federal tax considerations is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties. Such discussion is written to support the promotion or marketing of the transactions or matters addressed in this Offering Memorandum, including the private placement of Shares in the United States. Each taxpayer should seek federal tax advice based on the taxpayer’s particular circumstances from an independent tax advisor. There are significant risks associated with an investment in the Company. Investment in the Company may not be suitable for all investors. It is intended for sophisticated investors who can accept the risks associated with such an investment including a substantial or complete loss of their investment. There can be no assurance that the Company will achieve its investment objective. Each prospective investor should carefully review this Offering Memorandum and carefully consider the risks before deciding to invest. The attention of investors is also drawn to the “Risk Factors” in Appendix III of this document.
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CONTENTS DIRECTORY ........................................................................................................................................................5
DEFINITIONS ......................................................................................................................................................6
PRINCIPAL FEATURES ....................................................................................................................................8
DIRECTORS.......................................................................................................................................................11
MANAGEMENT ................................................................................................................................................12
INVESTMENT MANAGER..............................................................................................................................12
ADMINISTRATOR............................................................................................................................................12
CUSTODIAN.......................................................................................................................................................13
LEGAL ADVISOR .............................................................................................................................................13
INSURANCE.......................................................................................................................................................13
INVESTMENT OBJECTIVE, CLASS STRUCTURE, STRATEGY AND RESTRICTIONS....................14
FEES AND EXPENSES......................................................................................................................................17
INVESTING IN THE COMPANY....................................................................................................................21
TAX CONSIDERATIONS .................................................................................................................................28
APPENDIX I - CONSTITUTION OF THE COMPANY................................................................................32
APPENDIX II - GENERAL INFORMATION.................................................................................................39
APPENDIX III - RISK FACTORS ...................................................................................................................47
ISSUE PROCEDURES.......................................................................................................................................51
INSTRUCTIONS FOR COMPLETING THE APPLICATION FORM .......................................................54
APPLICATION FORM .....................................................................................................................................55
APPENDIX A......................................................................................................................................................60
APPENDIX B ......................................................................................................................................................61
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DIRECTORY
Directors: George P. Aman, Burgauer, Huser, Aman & Partners, Stockerstrasse 14, CH 8002 Zurich, Switzerland Count Hadelin de Liedekerke Beaufort, 20 Avenue de Florimont, 1006 Lausanne, Switzerland Steven Georgala, 35 Rue la Boetie, 75008 Paris, France Morten H. Kielland, Haakon VII’s GT, 10114, Oslo, Norway Christopher Whittington, 3rd Floor, 34 Brook Street, London, W1K 5DN, United Kingdom
Registered Office of the Company
9 Columbus Centre Pelican Drive Road Town
Tortola British Virgin Islands
Manager
Key Capital Management, Inc. 9 Columbus Centre
Pelican Drive Road Town, Tortola
British Virgin Islands
Investment Manager
Key Asset Management (UK) Limited 3rd Floor, 34 Brook Street
London W1K 5DN United Kingdom
Auditors
Ernst & Young Ernst & Young Building
Harcourt Centre, Harcourt Street, Dublin 2 Ireland
Custodian Administrator
Citco Global Custody N.V. Custom House Plaza, Block 3
International Financial Services Centre Dublin 1 Ireland
Citco Fund Services (Dublin) Limited
Custom House Plaza, Block 6 International Financial Services Centre
Dublin 1 Ireland
Sponsoring Broker in respect of the Class A Shares
J&E Davy Davy House
49 Dawson Street Dublin 2 Ireland
Legal Advisors
As to English and U.S. law:
Dechert LLP 160 Queen Victoria Street
London EC4V 4QQ
United Kingdom
As to British Virgin Islands law:
Maples and Calder Sea Meadow House
PO Box 173 Road Town, Tortola
British Virgin Islands
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DEFINITIONS
The following definitions apply throughout this Offering Memorandum unless the context otherwise requires: “Administration Agreement” the agreement entered into between the Administrator and the
Company on 6 August 2002;
“Administrator” Citco Fund Services (Dublin) Limited;
“Application Form”
the application form for Shares at the end of this Offering Memorandum;
“Bank”
Citco Bank Nederland N.V., Dublin Branch;
“Benefit Plan Investor”
as set out in Section 6 of Appendix II;
“Business Day” any day (except Saturday and Sunday) on which banks in Dublin and London (and/or such other or additional places as the Directors may, in their discretion, determine) are open for business;
“British Virgin Islands Act” the British Virgin Islands Mutual Funds Act, 1996 (as amended);
“CFTC” the U.S. Commodity Futures Trading Commission;
“Class” a class of Shares;
“Company” Key Hedge Fund Inc.;
“Custodian” Citco Global Custody N.V.;
“Custodian Agreement” the agreement entered into between the Company, the Bank and the Custodian on 14 November 2000;
“Dealing Day” the first Business Day of each calendar month unless amended by the Directors as set out at pages 22 to 24 under “Valuation and Possible Suspension”;
“Director” a director of the Company;
“Directors” the board of directors from time to time of the Company including a duly authorised committee thereof;
“Investment Manager” Key Asset Management (UK) Limited;
“Irish Stock Exchange”
The Irish Stock Exchange Limited;
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“Law” The International Business Companies Act (cap.291), as amended, of the British Virgin Islands, and any amendment or other statutory modification thereof and where in this document any provision of the Law is referred to, the reference is to that provision as modified by any law for the time being in force;
“Management and Marketing Agreement”
the agreement entered into between the Manager and the Company on 28 September 2005;
“Management Fee” the management fee payable to the Manager, calculated as described under “Fees and Expenses” at page 17;
“Manager”
Key Capital Management, Inc.;
“NAV” or "Net Asset Value" the net asset value of the Company, relevant Class or a Share (as the context requires), calculated as described under “Valuations and Possible Suspension” at pages 22 to 24 inclusive;
“Ordinary Shares” the voting ordinary shares of par value $0.01 held by the Manager;
“Performance Fee”
the performance fee payable to the Manager, calculated as described under “Fees and Expenses” at pages 17 to 19;
“Shares” the Class A, B, C, D and E preference shares of the Company of par value $0.01, €0.01, Nok 0.09, Sek 0.07 and £0.01 respectively available to investors (and/or any other classes of preference shares from time to time designated) as the context requires;
“United Kingdom” or “U.K.” the United Kingdom of Great Britain and Northern Ireland;
“United States” or “U.S.” the United States of America including any state, territory or possession thereof and the District of Columbia;
“U.S. Person” as set out in Section 6 of Appendix II;
“U.S. Taxpayer” as set out in Section 6 of Appendix II;
“Valuation Day” the Business Day immediately preceding the relevant Dealing Day, unless amended by the Directors, as set out at pages 22 to 24 under “Valuations and Possible Suspension”;
“1933 Act” the United States Securities Act of 1933, as amended; and
“1940 Act” the United States Investment Company Act of 1940, as amended.
All references herein to “euros” or “€” are to European euros. All references to “dollars” or “$” are to United States dollars. All references to “Nok” are to Norwegian Kroner. All references to “Sek” are to Swedish Krona. All references to “£” and “sterling” are to pounds sterling.
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PRINCIPAL FEATURES
This summary is derived from and should be read in conjunction with the full text of this Offering Memorandum and any other document referred to herein. Company The Company is an open-ended multi-class investment company structured to operate in a similar manner to an open ended unit trust or mutual fund and is an international business company formed under the laws of the British Virgin Islands. The Company was incorporated with limited liability on 12 January 1990. The Company is registered in the British Virgin Islands as a Public Mutual Fund pursuant to the British Virgin Islands Act. Investment Objective
The objective of the Company is to provide investors with consistent and superior capital appreciation, while seeking to minimise risk. The Company will seek to invest with the best available funds. The funds in which it invests (the “underlying funds”) will be selected on the basis of the Investment Manager’s perception of their managers’ ability to generate attractive positive risk adjusted returns with a low correlation to the returns from long only investments in traditional asset classes. Through its underlying funds, the Company intends to be exposed to a diversified portfolio of strategies utilising global securities and their derivatives in both long and short positions and using sophisticated hedging techniques in order to achieve the Company’s investment objective. There can be no assurance that the Company’s investment objectives will be achieved. The Directors have overall responsibility for the investment policy. The Investment Manager has day to day authority to select underlying funds. It is expected that the majority of the Company’s underlying assets will be invested in strategies taking positions in global equity, fixed income and currency markets, including their derivatives. The Company will seek to diversify by approach, strategy, style and manager. However it is intended to limit the number of underlying managers to avoid over-diversification. Securities purchased or sold by the underlying funds may include equity and equity-related securities, including common and preferred stocks, convertible securities, warrants, options, debt, interest rate and FX instruments and their derivatives including repurchase and reverse repurchase agreements, spot and forward foreign currencies, other futures and forward contracts and money market instruments. An investment can be made in one or more of the following currency classes:- Class A: Dollars Class B: Euros Class C: Norwegian Kroner Class D: Swedish Krona Class E: Sterling
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Dividend Policy The Company will generally accumulate receipts and capital gains and therefore not make any distributions. Consequently, it is not the intention of the Directors to propose the payment of dividends in the normal course of the Company’s business. Manager Key Capital Management, Inc. Investment Manager Key Asset Management (UK) Limited. Administrator Citco Fund Services (Dublin) Limited. Custodian Citco Global Custody N.V. Fees and Expenses The Company will pay a monthly management fee to the Manager equivalent to 1.5 per cent. per annum of the Net Asset Value of each Class of the Company before the deduction of general expenses, plus an annual performance fee of five per cent. of the annual increase in the Net Asset Value per Class subject to a high water mark. Details of the fees are set out at pages 17 to 19. The Manager is responsible for any fees and expenses of the Investment Manager. The Company is entitled to charge an initial fee of up to five per cent. of the amount subscribed for by investors prior to the issue of Shares in order to pay the fees of any approved intermediaries (such fee may be waived at the discretion of the Directors). An annual licence fee will be payable by the Company in the British Virgin Islands currently of $1,100 per annum. Also an annual public fund registration fee will be payable by the Company currently of $500 per annum. Other operating costs and expenses of the Company including the fees of the Directors, the Administrator and the Custodian are set out at page 19. Taxation Under current British Virgin Islands law, the Company will be exempt from all income taxes in the British Virgin Islands. There are no capital gain taxes, capital transfer taxes, estate duties or inheritance duties in the British Virgin Islands (see “Tax Considerations” at pages 28 to 31). The Directors intend to conduct the affairs of the Company in such a manner as to minimise its exposure to taxation. Share Subscriptions Subscription applications should be received by the Administrator prior to 12.00 p.m. (Dublin time) five Business Days before the relevant Dealing Day. Cleared funds in respect of the subscription proceeds must be received by the Administrator prior to 12.00 p.m. (Dublin time) three Business
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Days before the relevant Dealing Day. If the relevant application form and/or subscription proceeds is/are not received by these times, the application will be held over until the next following Dealing Day and Shares will then be issued at the subscription price applicable on that Dealing Day. Shares are issued following the relevant Dealing Day at a price determined by reference to the Net Asset Value on the Valuation Day. Redemption of Shares Shareholders may redeem all or part of their Shares on any Dealing Day by delivering a duly completed redemption request (available from the Administrator) to the Administrator by 12.00 p.m. (Dublin time) 35 days prior to the relevant Valuation Day or such lesser period as the Directors may generally or in any particular case determine. The redemption proceeds will be determined by reference to the Net Asset Value. Minimum Subscription Each investor will be required to invest a minimum of $100,000 for Class A Shares and the equivalent of $10,000 in any other applicable currency for Class B, C, D and E Shares in each case payable in full (net of any initial fees and bank charges), subject to the Directors’ discretion to accept a lesser amount in respect of Class B, C, D and E Shares in any particular case. Listing The Class A Shares are listed on the Irish Stock Exchange. No application has been made for the listing of the Class B, C, D or E Shares on any stock exchange.
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DIRECTORS
The Directors of the Company are:- George P. Aman (Swiss), started his career in 1975 with trainee positions with Credit Suisse, Guiness Mahon & Co., London in the investment consultancy and loan department, with Brown Brothers Harriman and Granger & Co., New York, and with Hottinguer & Cie., Paris in financial analysis and asset management. He then joined the Clariden Bank, Zurich as an investment consultant in 1980 and became the assistant manager responsible for Central America. Mr Aman left Clariden Bank in 1990 to set up a partnership with Marcel André Burgauer and Arther Huser. Mr Aman remains one of the founding partners of Burgauer, Huser, Aman & Partners, a financial services consultancy. Mr Aman has a Diploma of Swiss Commercial Schooling and passed the Registered Representative Exam at the New York Institute of Finance in 1979. Count Hadelin de Liedekerke Beaufort (French), is a director of privately held companies with interests in various fields such as financial, industrial, communication and real estate developments. Since April 2000, he has also been a member of the board of Société Européenne des Satellites, the Luxembourg based and listed satellite operator. After starting at Laurie Millbank, a U.K. stockbroker, in 1981, he joined Prudential-Bache in 1983 and became vice president of the London risk-arbitrage desk. In 1988 he founded The Petrus Fund Selection Ltd, a fund management company based in Bermuda, and was president of Petrus Advisors in London, investment advisors to the above until 1992. Count Hadelin de Liedekerke Beaufort graduated from Ecole Hotelière de Lausanne in 1980. Steven Georgala (South African), was appointed Managing Director of the Maitland group in 2004. Mr Georgala has been a partner of Maitland and Co. since 1987 and continues to practice in international tax planning. Maitland is a professional services firm, providing legal, fiduciary and asset management services from offices in ten locations across Europe, South Africa and the Caribbean. Mr Georgala was admitted as an attorney and notary in South Africa in 1984 and as a solicitor in England & Wales in 1995. Mr Georgala obtained a B.Comm.degree from the University of Stellenbosch in 1979 and a LL.B. degree from the same University in 1981. Morten H. Kielland (Norwegian), is the founder of the Key Asset Management group and serves as its chairman. Prior to founding the group in 1989 he was with Kidder Peabody, the New York investment bank, from 1981 to 1986 and with Oppenheimer & Co. from 1986 to 1989 where he was involved with risk arbitrage and distressed debt products. Mr Kielland is chairman of the Key family of investment funds as well as several Norwegian investment companies. He is also the honorary consul of Luxembourg in Norway. Mr Kielland holds a BSBA in Business Studies from the University of Denver and a Master of Science Degree from the University of Washington. Christopher Whittington (British), is deputy chairman of the Key Asset Management group. Mr Whittington is a qualified chartered accountant and spent over twenty years at the Morgan Grenfell group. He set up and ran the Morgan Grenfell New York office and held various senior executive positions at the Morgan Grenfell group including Chief Operating Officer and deputy chairman of the group. He is currently chairman of the Trustees of the Deutsche Bank UK group pension funds. Mr Whittington is also a General Commissioner for Income Tax – City of London District and a trustee of the St. Bartholomew’s Medical School Trust. He holds a Master of Arts degree from Oxford University. All of the Directors serve in a non-executive capacity. The Company has entered into the Management and Marketing Agreement, the Administration Agreement and the Custodian Agreement. Further particulars relating to the Manager, the Investment Manager, the Administrator and the Custodian and the agreements respectively entered into are given
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under “Management”, “Administrator” and “Custodian” below and under “Material Contracts” in Appendix II. The Company reserves the right, in its discretion, to change arrangements with any of its service providers, including the appointment of additional or alternative service providers. MANAGEMENT
The Company has appointed the Manager to manage the Company on a discretionary basis. Under the terms of its appointment, the Manager is responsible for the implementation of the Company's investment policy, selection of service providers and marketing and has overall responsibility for the Company's day-to-day investment activities. The Manager was incorporated in the British Virgin Islands on 3 October 2001. It is an independent investment management company licensed to conduct investment management business in the British Virgin Islands. The Manager may delegate its functions to other parties and has delegated, subject to its responsibility and supervision, day-to-day investment management of the Company and marketing of the Company in the UK to the Investment Manager. The Management and Marketing Agreement, further details of which are set out in Section 2 of Appendix II below, includes a limitation on liability and indemnity in favour of the Manager by the Company. INVESTMENT MANAGER
The Investment Manager was incorporated in England and Wales on 13 December 1989. It is an independent investment management company regulated in the conduct of its investment business in the U.K. by the Financial Services Authority. The Investment Manager has been appointed to select, appoint and allocate assets to, the underlying managers. The Investment Manager will, as part of its responsibility, review and monitor the performance of the underlying managers utilising its in-house expertise. ADMINISTRATOR
Citco Fund Services (Dublin) Limited, a company organised under the laws of Ireland and incorporated in 1998, serves as the administrator of the Company. The Administrator is authorised by the Irish Financial Services Regulatory Authority to provide fund administration services under the Investment Intermediaries Act, 1995. The Administrator is part of the Citco Group which, at the date of this Offering Memorandum, employs more than 2,000 people world-wide and provides fund administration services out of offices located in Amsterdam, the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Curacao, Dublin, Luxembourg, New York, San Francisco, Sydney and Toronto to in excess of 1,500 funds, representing approximately $270 billion in assets. Under the terms of the Administration Agreement the Directors have appointed the Administrator to administer the day-to-day operations and business of the Company and perform general administrative tasks for the Company, including dealing with the Company’s correspondence, processing subscriptions, redemptions, computing net asset values, maintaining books and records, disbursing payments, preparing and maintaining accounts on behalf of the Company and any other matters necessary or appropriate in connection with the operations of the Company. The Administrator will keep the accounts of the Company in accordance with international accounting standards.
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The Administrator has no responsibility for monitoring compliance by the Company or the Investment Manager with any investment policies or restrictions to which they are subject. The Administrator accepts no responsibility or liability for any losses suffered by the Company as a result of any breach of such policies or restrictions by the Company or the Investment Manager. The Administration Agreement, further details of which are set out in Section 2 of Appendix II below, includes a limitation on liability and indemnity in favour of the Administrator by the Company. CUSTODIAN
The Company has engaged the Custodian to serve as custodian. The Custodian is responsible for the safekeeping of the assets of the Company. The Custodian is also part of the Citco Group (see “Administrator” above). The Custodian was established in Amsterdam on 18 April 1986, and as at the date of this Offering Memorandum had assets of approximately $108 billion under custody. The Custodian is a wholly owned subsidiary of Citco Bank Nederland N.V. and is regulated by De Nederlandsche Bank N.V. (the Dutch Central Bank). Pursuant to the Custody Agreement, the Custodian is responsible, among other things, for the safekeeping and custody of the Company’s assets. Assets of the Company held at any time by the Custodian or any sub-custodian are required to be recorded in and ascertainable from the books or ledgers of the Custodian and such books and ledgers will constitute conclusive evidence of the assets retained on behalf of the Company. In the performance of its duties under the Custody Agreement, the Custodian may act through agents, sub-custodians or any other third party which the Custodian may, in its absolute discretion, deem necessary. The Custodian is authorised by the Company to enter into further agreements for their appointment. The Custodian will not be responsible for any act or omission or for the solvency of any sub-custodian, agent or third party, provided that the Custodian can demonstrate that reasonable care was taken in the selection and continued appointment of any such sub-custodian, agent or third party. The Custodian will not be responsible for any action taken or failure to act in the course of performing services under the Custody Agreement or for any loss suffered by the Company in connection with the subject matter of the Custody Agreement unless such loss arises from wilful misfeasance, fraud, bad faith or negligence in the performance of its obligations and duties or by reason of the Custodian’s reckless disregard of its obligations and duties under the Custody Agreement. LEGAL ADVISOR Dechert LLP provides the Company with legal advice as to English and U.S. law. Dechert LLP is a leading international law firm and has offices in the United States, United Kingdom and continental Europe. Its financial services practice group provides a range of services to funds and investment managers, including advice on regulatory and compliance matters and assistance with the formation and management of appropriate investment fund and manager entities. INSURANCE
The Company, the Manager and the Investment Manager have an investment management insurance policy in place. This policy provides combined professional indemnity, directors’ and officers’ liability and fraud insurance. The policy is renewable annually and is underwritten by Lloyds Syndicates and other leading insurers.
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INVESTMENT OBJECTIVE, CLASS STRUCTURE, STRATEGY AND RESTRICTIONS
Investment Objective The objective of the Company is to provide investors with consistent and superior capital appreciation, while seeking to minimise risk. The Company will seek to invest with the best available funds. The funds in which it invests (the “underlying funds”) will be selected on the basis of the Investment Manager’s perception of their managers’ ability to generate attractive positive risk adjusted returns with a low correlation to the returns from long only investments in traditional asset classes. Through its underlying funds, the Company intends to be exposed to a diversified portfolio of strategies utilising global securities and their derivatives in both long and short positions and using sophisticated hedging techniques in order to achieve the Company’s investment objective. There can be no assurance that the Company’s investment objective will be achieved. Investment Strategy The Directors have overall responsibility for the investment policy. The Investment Manager has day to day authority to select underlying funds. It is expected that the majority of the Company’s underlying assets will be invested in strategies taking positions in global equity, fixed income and currency markets, including their derivatives. The Company will seek to diversify by approach, strategy, style and manager. However it is intended to limit the number of underlying managers to avoid over-diversification. Securities purchased or sold by the underlying funds may include equity and equity-related securities, including common and preferred stocks, convertible securities, warrants, options, debt, interest rate and FX instruments and their derivatives including repurchase and reverse repurchase agreements, spot and forward foreign currencies, other futures and forward contracts and money market instruments. Underlying Fund Selection Process
Philosophy
The Directors believe that active management and monitoring, together with a primary focus on risk control, is the key to strong risk-adjusted returns. In-depth research is essential for successful underlying fund selection, since hedge fund managers have broader investment mandates than those in the traditional investment world, and the diversity between and within strategies is much greater than is typical among traditional funds. This research encompasses extensive qualitative assessment in addition to the traditional quantitative analysis. The Investment Manager makes significant investment in both personnel and systems in a programme of continual development. Process The Investment Manager’s investment process comprises both top down strategic asset allocation and individual fund selection. Strategic asset allocation decisions are made following analysis of a proprietary monthly strategy report. This report covers the key drivers of risk, return and opportunity
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within each strategy. Each quarter a forward-looking “big-picture” strategy-level meeting is held, at which detailed discussion of the reports and conclusions that can be reached from them will lead to the top-down strategic asset allocation decisions. Utilising their individual sector expertise, each of the portfolio managers will play an active role in these discussions, which will focus on the evolution of strategies and the future opportunity set including return expectations over the next 12 months. This analysis gives an edge on strategy-level allocation, and also plays an important part in the monthly manager monitoring. Portfolio construction and allocation is decided at the monthly investment committee meeting. Any fund that is considered for investment within the portfolio will have passed extensive due diligence including a full quantitative risk and return analysis, and on investment both qualitative and quantitative exit criteria will have been determined, along with a potential replacement. The Investment Manager relies on its own proprietary forward-looking non-parametric risk approach for quantitative risk analysis and as an aid to portfolio construction. It has the ability to calculate risk-optimal manager allocations, to consider strategy and portfolio performance under a range of scenarios and also to ensure diversification of the Company by factor risk. The portfolio is constructed in line with its investment guidelines from suitable funds using these proprietary risk systems to ensure that the portfolio is balanced in terms of risk both from individual managers and from the factors that drive performance with no manager or factor taking an excessive amount of the risk budget. Stress and scenario testing is conducted with the aim of ensuring that the Company is not just well diversified in normal conditions, but also in market shocks and “worst case” scenarios . Investment Restrictions The Company may buy, hold or sell any investments in such manner, at such times and in such amounts as the Investment Manager thinks fit subject to the following restrictions (in respect of the assets of the Company’s portfolio) which will limit further investments made so that: (a) no investment will be made and no holding of any investment will be added to if as a
result:-
(i) more than 20 per cent. of the gross assets of the Company will be exposed to the creditworthiness of a single counterparty;
(ii) more than 20 per cent. of the gross assets of the Company will be invested in the
securities of or lent to, any one issuer in each case calculated at the time of investment, except where the securities are issued or guaranteed by a government agency of any E.U. or O.E.C.D. member state or by any supranational authority of which one or more E.U. or O.E.C.D. member states are members and any other state approved for such purpose by the Irish Stock Exchange;
(iii) the Investment Manager will have selected underlying funds whose primary
objectives involve trading or dealing in real estate or oil and gas, currency speculation or venture capital transactions; or
(iv) the nominal amount of the Company’s holding of a security of any one class in
any underlying fund would exceed 20 per cent. of the total nominal amount of all the issued securities of that class immediately after such investment or any addition thereto has been made. At the time of investment, the Company will confirm with each underlying fund that it will not be in breach of this limit and will request that the underlying fund informs it should such limit be, or be about to be exceeded. In addition, the Company will monitor the extent of such holdings through the management reports received from underlying funds.
16
(b) the Company will not:- (i) assume, guarantee, endorse or otherwise become directly or contingently liable for
or in connection with any obligation or indebtedness of any person in respect of borrowed money;
(ii) invest in securities of a company for the purpose of the Company exercising legal
or management control; (iii) apply leverage in excess of 20 per cent. of the Net Asset Value to the Company’s
funds for investment purposes (although underlying managers may utilise leverage).
It will not be necessary to effect changes to the Company’s portfolio merely owing to appreciations (or as a result of any other event beyond the control of the Directors in respect of (a)(i) or (ii) above) or depreciations of the value of investments held by the Company and/or variations in exchange rates, any of the limitations prescribed by this “Investment Restrictions” section being exceeded including, without limitation, as a result of (i) the receipt by the Company of any rights, bonuses or benefits in the nature of capital; (ii) any scheme or arrangement for amalgamation, reconstruction, conversion or exchange; or (iii) any realisation of any investments. If, and so long as any of the said limits are exceeded, the Company will not purchase any type of investment which would result in any of the said limits being further exceeded.
In addition, for the purposes of the restrictions above:
(i) securities will be deemed to be of the same class if they confer identical rights and (if
applicable) are subject to identical restrictions but so that in the case of an issue of securities which are in other respects identical with securities already in issue, any temporary differences in rights as to the dividends or interest between such existing and new securities shall be disregarded;
(ii) the value of any investment for the purpose of any limit contained in this “Investment
Restrictions” section will not include any accrued interest in respect thereof, even if such accrued interest is included in the net assets of the Company;
(iii) the term “securities” will not include bank deposits, whether in current or in term deposit
accounts;
(iv) if the Company applies any part of its assets to the acquisition of any investments which are for the time being nil paid or partly paid or otherwise likely to involve the Company in any liability (contingent or otherwise) the Company will appropriate and set aside cash or other property to provide for paying up such investment in full unless according to the terms of its issue the investment concerned will or may at the option of the holder become within one year from the date of its acquisition by the Company fully paid up and free from all such liabilities as aforesaid. The cash or other property so appropriated will form part of the assets of the Company but will not be applied by the Company otherwise than as may be required for paying up the investment concerned so long as and to the extent that such investment remains nil paid or partly-paid and part of the assets of the Company.
17
Class Structure Investment may be made in:- Class A (Dollars) Class B (Euros) Class C (Norwegian Kroner) Class D (Swedish Krona) or Class E (Sterling). As the Classes are denominated in different currencies, in the interests of seeking the optimal protection of a shareholder's investment, the Company may engage in foreign exchange hedging transactions for each Class (where the profits, gains and losses, costs, income and expenditure consequent upon such hedging transactions are allocated to the relevant Class). Foreign exchange transactions with respect to the dollar denominated Class A Shares may be undertaken with a view to protecting their dollar value. Foreign exchange transactions with respect to the euro denominated Class B Shares may be undertaken with a view to protecting their euro value. Foreign exchange transactions with respect to the Norwegian Kroner denominated Class C Shares may be undertaken with a view to protecting their Norwegian Kroner value. Foreign exchange transactions with respect to Swedish Krona denominated Class D Shares may be undertaken with a view to protecting their Swedish Krona value. Foreign exchange transactions with respect to the sterling denominated Class E Shares may be undertaken with a view to protecting their sterling value. The Classes performances may vary from each other due to different currency exposure. The base currency of account of the Company is the dollar. Dividend Policy
The Company will generally accumulate receipts and capital gains and therefore not make any distributions. Consequently, it is not the intention of the Directors to propose the payment of dividends in the normal course of the Company’s business. FEES AND EXPENSES Manager’s Fees The Company will pay a monthly management fee in arrear to the Manager equivalent to 1.5 per cent. per annum of the Net Asset Value of each Class of the Company before the deduction of general expenses (the "Management Fee"). The Company will also pay any fees and expenses charged by underlying funds and will therefore be indirectly responsible for the fees and expenses of the underlying managers. The Company will receive the benefit of any underlying fee rebates obtained from underlying managers. Where the Company invests in a fund in respect of which the Manager also receives a management fee, the Manager will make a rebate to the Company to avoid double charging. The rebate will be equal to the amount of management fees charged to the underlying fund less any part thereof required to be paid by the Manager to a third party in respect of the underlying fund. There will be no rebate to the Company of any performance fee received by the Manager in such circumstances. The Manager is also entitled to receive a performance related fee (the “Performance Fee”). The Performance Fee will be equivalent to 5 per cent. of the increase in the Net Asset Value per Share of the applicable Class outstanding in respect of each Performance Period subject to a high water mark. The use of a high water mark ensures that investors will not be charged a Performance Fee until any previous losses are recovered.
18
The high water mark is defined as the greater of:- (i) the highest Net Asset Value per Share on the last day of any Performance Period; and (ii) the initial issue price per Share of each Class. The methodology used by the Company ensures each Share is effectively charged a fee which equates precisely with that Share’s performance. This method of calculation also ensures that (i) any Performance Fee paid to the Manager is charged only to those Shares which have appreciated in value; (ii) all shareholders have the same amount of capital per Share at risk in the Company; and (iii) all shareholders have the same Net Asset Value per Share. The Performance Fee is payable at the end of each performance period. The performance period will be the Company’s financial year (each such period a “Performance Period”). The Performance Fee will be accrued monthly and taken into account in the calculation of the Net Asset Value on each Valuation Day. In the event that a shareholder redeems Shares prior to the end of a Performance Period, any accrued but unpaid Performance Fee in respect of such Shares will be deducted from the redemption proceeds and paid to the Manager promptly thereafter. The Performance Fee in respect of each Performance Period will be calculated by reference to the Net Asset Value before the deduction of any accrued Performance Fees. Adjustment Due to Deficit and Premium Subscriptions (a) Deficit Subscriptions
Where an investor subscribes for Shares at a time when the Net Asset Value per Share is less than the high water mark for that Class, then an adjustment is required to reduce inequalities that may otherwise result to the respective subscriber or to the Manager. Where Shares are subscribed for at a time when the Net Asset Value per Share is less than the high water mark for that Class, such new shareholders will in effect, be required to pay an equivalent Performance Fee with respect to any subsequent appreciation in the Net Asset Value per Share of those Shares until the high water mark has been reached. This will be achieved by the Company having the power to redeem a portion of that shareholder’s holding for no consideration and to pay the equivalent Performance Fee at the end of each Performance Period to the Manager. After the high water mark has been achieved, the Performance Fee will be calculated and levied in the same manner as for all other Shares. No Performance Fee will be accrued within the Class for existing shareholders until the high water mark for the Class has been recovered.
(b) Premium Subscriptions
Where Shares are purchased at a time when the Net Asset Value per Share is greater than the high water mark (“Premium Shares” and such subscription a “Premium Subscription”), the prospective investor will be required to pay an additional sum equal to the accrual then in place per Share in respect of the Performance Fee (an “Equalisation Credit”). The Equalisation Credit is designed to ensure that all shareholders have the same amount of capital at risk per Share. The Equalisation Credit will be at risk in the Company and will therefore appreciate or depreciate based on the performance of the Company subsequent to the subscription. In the event of a decline in the Net Asset Value per Share, the Equalisation Credit due to the shareholder will reduce in line with the Performance Fee accrual for other Shares namely by
19
an amount equal to 5 per cent. of the amount of the loss on a per Share basis until the Equalisation Credit is exhausted. Subsequent appreciation in the value of the Premium Shares will result in a recapture of any Equalisation Credit lost due to such reductions, but only to the extent of the previously lost Equalisation Credit up to the amount paid at subscription. At the end of the Performance Period, an amount equal to the lower of the Equalisation Credit paid at the time of the Premium Subscription (less any Equalisation Credit previously applied) or 5 per cent. of the excess of the Net Asset Value per Share of the relevant Class over the high water mark will be applied in the subscription for additional Shares for the shareholder. If the shareholder redeems Premium Shares before the last day in any Performance Period, the shareholder will receive additional redemption proceeds equal to any Equalisation Credit then remaining multiplied by a fraction, the numerator of which is the number of Premium Shares being redeemed and the denominator of which is the number of Premium Shares owned by the shareholder immediately prior to the redemption. An example of the Company’s method of calculating the Performance Fee payable and any adjustments thereto is set out below.
Other Fees and Expenses For providing the accounting, valuation and administrative services as specified in the Administration Agreement, the Administrator will receive from the Company such fees as may be agreed from time to time. As at the date of this Offering Document, the Administrator is entitled to receive out of the assets of the Company an annual administration fee of up to 0.15 per cent. of the Company’s month-end net assets. The Administrator is also entitled to out of pocket expenses including, without limitation, communications, postage, printing etc. The Manager is responsible for any fees and expenses of the Investment Manager. The Custodian charges a quarterly fee of 0.03 per cent. per annum of the average value of assets in custody during the preceding quarter plus transaction fees and is entitled to be reimbursed the reasonable fees of all agents and sub-custodians together with all other reasonable costs, expenses and disbursements incurred by the Custodian. In addition, the Company will pay certain other costs and expenses incurred in its operation, including, without limitation, taxes, expenses for legal, auditing and consulting services, marketing and promotional activities (including such activities undertaken by the Manager for which it receives a fee based on the Net Asset Value of the Company, up to a maximum of $50,000 per annum), registration fees and other expenses due to supervisory authorities, insurance, interest, any brokerage costs, costs of obtaining any listing of the Shares and all professional and other fees and expenses incurred in connection therewith and the cost of the publication of Net Asset Value. The fees and expenses of the Directors are referenced under paragraph 3(b) of Appendix II. An annual fee will be payable by the Company in the British Virgin Islands currently of $1,100 per annum. An annual public fund registration fee will be payable by the Company currently $500 per annum. The Company is entitled to charge an initial fee of up to five per cent. of the amount subscribed for by investors prior to the issue of Shares which it may apply in order to pay the fees of any approved intermediaries (such fee may be waived or varied in any particular case at the discretion of the Directors).
Exam
ple Performance Fee C
alculations for Illustration Purposes Only
Shareholder Shareholder Subscribes for Shares at
NA
V on
Date of
Purchase
Equalisation C
redit Paid O
ffering Price
NA
V at Y
ear End (30 June) (before Perform
ance Fee)
Performance
Fee accrued
at Year End
Deficit
Subscription payable
Equalisation C
redit returned
to Shareholder***
NA
V at Y
ear End
Shares held by Shareholder at beginning
of Y
ear 2
A
Year
beginning 1
July. NA
V =
$100
$100 $0
$100 $140
$2 $0
$0 $138
1.0000
B
Interim
Purchase D
ate 1 Sept. N
AV
= $80
$80 $0
$80* $140
$2 $1*
$0 $138
0.9924
C
Interim
Purchase D
ate 1 Dec.
NA
V = $120
(before Perform
ance Fee)
$119 $1
$120** $140**
$2 $0
$1 $138
1.00725
*Additional Perform
ance Fee owed for increase in N
AV
from $80 to $100 (w
hich is not charged to Shareholder A). A
djustment m
ade by redeeming a portion of Shareholder B
’s Shares at year end (the “deficit subscription”). ** Includes Equalisation Credit. *** In the form
of additional Shares.
21
INVESTING IN THE COMPANY
Eligible Investors Performance can be affected by the Company’s size. With this in mind and depending upon market conditions, the Directors may consider the imposition of periods when the Company will be closed for subscriptions by new investors and/or further investment where they consider this will be beneficial to the Company as a whole. Measures aimed towards prevention of money laundering or of financing terrorist activities will require a subscriber to verify his/her/its identity and information as to the source of subscription money to the Company or Administrator unless: (i) the application is being made via a regulated credit or financial institution; or (ii) payment is made to the Company from an account held in the subscriber’s name with a banking institution, which in either case is in a country which is a member of the Financial Action Task Force and recognised by Ireland as having equivalent anti-money laundering regulation. If alternative (i) applies, the Company may seek to obtain written assurance of the subscriber’s or beneficial owner’s identity from the relevant institution and information as to the source of the subscription money. The Administrator may also refuse to process a redemption request until proper information is provided. Further information is provided in Appendix A. The Administrator reserves the right to request such documentation as it deems necessary to verify the identity of the applicant and to verify the source of the relevant money. Failure to provide such information may result in applications being rejected or in delays in the despatch of documents and in the issue of Shares. The Administrator may also refuse to process a redemption request until proper information has been provided. The Administrator and/or the Company will be held harmless by a potential subscriber against any loss arising as a result of a failure to process the subscription or redemption if such information as has been requested by the Administrator has not been provided by the applicant. Investment in the Company is confined to sophisticated investors who can provide the representations and warranties contained in the Disclosure Statement in the Application Form. For U.S. Persons, investment in the Company will be confined to U.S. Persons who are eligible investors and meet certain other qualifications set forth in the Supplemental Disclosure Statement for U.S. Persons and U.S. Taxpayers which is available from the Administrator. In respect of an investment in the listed Class A Shares each investor is in addition required to declare that either (i) his ordinary business or professional activity includes buying and selling of investments, whether as principal or agent; or (ii) in the case of a natural person, his individual net worth (or joint net worth with spouse) exceeds $1 million; or (iii) that it is an institution with a minimum amount of assets under discretionary management of $5 million. In addition, each investor must warrant that he (a) has the knowledge, expertise and experience in financial matters to evaluate the risks of investing in the Company and to make an informed decision with respect thereto; (b) is aware of the risks involved in investing in the Company and the method by which the assets of the Company are held and invested; and (c) can bear the risk of the loss of his entire investment. The Shares may not be offered, sold or transferred in the United States or to, or for the benefit of, directly or indirectly, any U.S. Person (as defined herein) except pursuant to registration of the Shares under the 1933 Act or an exemption therefrom and applicants will be required to certify that they are not acquiring Shares for the benefit of, directly or indirectly, U.S. Persons and that such applicants will not, subject to the conditions set forth under “Investing in the Company - Transfers”, sell or offer to sell or transfer Shares to a U.S. Person. The Company reserves the right to accept applications for Shares from certain qualified investors in the United States if the Company receives evidence satisfactory to it that the sale of Shares to such an investor is exempt from registration under the securities laws of the United States, including, but not
22
limited to, the 1933 Act, that such sale will not require the Company to register under the 1940 Act, and, in all events, that there will be no adverse tax or other regulatory consequences to the Company or its shareholders as a result of such sale. U.S. Persons should request a Supplemental Disclosure Statement for U.S. Persons and U.S. Taxpayers and will be required to complete a set of subscription documents for U.S. Persons appended thereto in addition to the Application Form contained in this Offering Memorandum. Some subscribers may be taxable in the United States but will not come within the definition of U.S. Person for the purposes of determining which subscription documents should be used (see Appendix II, Section 6 at pages 42 to 44 for the definition of “U.S. Taxpayer” and “U.S. Person”). Such persons are not obliged to complete the special subscription documents for U.S. Persons and will not automatically receive the supplemental disclosure document. However, such investors are encouraged to obtain the supplemental disclosure document from the Administrator which sets forth additional tax disclosures with respect to U.S. Taxpayers. The Company will require each investor to represent whether it is either an investment company required to be registered under the 1940 Act or an issuer that, but for an exception from the definition of “investment company” under the 1940 Act, would be an investment company. Investors who fall under either of these categories will be further required to disclose the number of their U.S. Person beneficial owners and to update this information should it change in the future. The Directors shall have the authority to prohibit investment by such investors and compulsorily to redeem or require the transfer of shares held by such investors if the Directors determine, in their sole and absolute discretion, that the holding of Shares by such investors would be adverse to the interests of the Company. The Company reserves, and intends to exercise, the right at its sole discretion compulsorily to redeem or require the transfer of any Shares sold (or acquired) in contravention of these prohibitions or in the event that the continued ownership of any Shares by any person could result in adverse tax or regulatory consequences to the Company or its shareholders or, in particular, require the registration of the Shares under the 1933 Act or the Company under the 1940 Act. Valuations and Possible Suspension The Administrator will calculate the Net Asset Value of each Class under the overall supervision of the Directors and consulting where necessary with the Manager and/or the Investment Manager. The Administrator calculates the Net Asset Value on each Valuation Day. In respect of each Class a separate class account will be established in the books of the Company. The Net Asset Value per Share of each Class is calculated by dividing the Net Asset Value of the relevant Class by the number of Shares in that Class outstanding on such day. For these purposes, Shares to be redeemed immediately following the Valuation Day will be included in the Shares in issue while Shares to be issued immediately following the Valuation Day will be excluded from the Shares in issue. In calculating the value of the Company’s assets:- (a) shares or units in open-ended underlying funds will be valued at the last available net asset
value for such shares or units on the relevant Valuation Day, failing which they shall be valued at the last available net asset value whether estimated or actual which is calculated prior to such Valuation Day, provided that if events have occurred which may have resulted in a material change in the net asset value of such shares or units since the date on which the last net asset value was calculated, the value of such shares or units may be adjusted in order to reflect, in the reasonable opinion of the Directors, such change;
(b) shares or units in underlying funds the issue or redemption of which is restricted and in
respect of which a secondary market is maintained by dealers who, as principal market-makers, offer prices in response to market conditions may be valued by the Directors in line with such prices;
23
(c) any security (including a share or unit in a closed-ended underlying fund but not in an open-
ended underlying fund) which is listed or quoted on a securities exchange or similar electronic system and regularly traded thereon will be valued at its last closing price on the relevant Valuation Day or, if no trades occurred on such day, at the last available closing price, and as adjusted in such manner as the Directors, in their sole discretion, think fit, having regard to the size of the holding, and where prices are available on more than one exchange for a particular security the Directors will in their sole discretion determine which of those prices shall apply;
(d) any security which is not listed or quoted on any securities exchange or similar electronic
system or, if being so listed or quoted, is not regularly traded thereon or in respect of which no prices as described above are available will be valued at its fair value as determined by the Directors having regard to its cost price, the price at which any recent transaction in the security may have been effected, the size of the holding having regard to the total amount of such security in issue, and such other factors as the Directors in their sole discretion deem relevant in considering a positive or negative adjustment to the valuation;
(e) deposits will be valued at their cost and money market instruments at their face value, plus
accrued interest; (f) any value (whether of an investment or cash) otherwise than in dollars will be converted into
dollars, as the case may be, at the rate (whether official or otherwise) which the Directors in their absolute discretion deem applicable as at close of business on the relevant Valuation Day, having regard, among other things, to any premium or discount which they consider may be relevant and to costs of exchange.
In calculating Net Asset Value, assets will be valued at the latest available prices as set out in (a) to (f) above, except in the event of a compulsory redemption of Shares when they may be valued at the latest available bid price less any fiscal charges, fees and expenses incurred as a result of such redemption. If the latest available price is not available for a particular security then that security will be valued in a manner determined by the Directors to reflect the true value thereof.
The Net Asset Value may be determined on the basis of offer prices when calculating the issue price and bid prices when calculating the redemption price if in the opinion of the Directors not to do so would cause an inequity between shareholders. Notwithstanding the foregoing, the Directors may follow some other prudent method of valuation if they consider that in the circumstances such other method of valuation should be adopted to reflect more fairly the value of any investment. The Directors are entitled to exercise their reasonable judgement in determining the value to be attributed to assets and liabilities of the Company and, in the absence of manifest error, such valuation shall be binding on all persons. Special situations affecting the measurement of the Net Asset Value of the assets of the Company may arise from time to time given the Company's investments in underlying investment funds. Prospective investors should be aware that uncertainties with respect to the valuation of such assets could have an adverse effect on the Net Asset Value of the Company. The accuracy of the Net Asset Value may be affected by the frequency of the valuations of securities provided by those funds. These valuations may be weekly, bi-weekly, monthly or less frequent. Although the Company will generally use the published net asset value issued by underlying managers or funds in respect of each investment in order to calculate the Net Asset Value, it does use estimates when considered appropriate. When using estimates, the Company will not be required to adjust estimates in order to reflect final valuations subsequently published. The differences between
24
estimates and final valuations are usually small and it is administratively burdensome to attempt to restate valuations. The Company may, however, do so should it so determine. The Net Asset Value of the Class A Shares will be supplied to the Companies Announcement Office of the Irish Stock Exchange immediately upon calculation. The Directors are empowered temporarily to suspend the calculation of the Net Asset Value which will automatically lead to the suspension of subscriptions and redemptions for shareholders in the Class or Classes suspended, and may do so in any of the following events:-
(a) during any period when any stock exchange or over-the-counter market on which any of the
Company’s investments are quoted, traded or dealt in, is closed (other than customary weekend and holiday closing), or trading on any such stock exchange or over-the-counter market is restricted or suspended;
(b) during the existence of any state of affairs which, in the opinion of the Directors, constitutes
an emergency as a result of which disposal of investments by the Company would not be reasonably practical and might seriously prejudice the shareholders of the Company;
(c) when, for any other reason, an accurate valuation of any of the Company’s investments is
unavailable (including when it is not reasonably practicable to determine the value of the underlying funds); or
(d) during any period when the transfer of funds involved in the realisation or acquisition of any
investments cannot, in the opinion of the Directors, be effected at normal rates of exchange. The Directors reserve the right to withhold payment from persons whose Shares have been redeemed prior to such suspension until after the suspension is lifted. Such right will be exercised in circumstances where the Directors believe that to make such payment during the period of suspension would materially and adversely affect the interests of existing shareholders. Notice of any suspension will be given as soon as practicable to any shareholder tendering his Shares for redemption and, in respect of Class A Shares, to the Irish Stock Exchange Limited without delay. The Directors will take all reasonable steps to bring any period of suspension to an end as soon as possible. If the request is not withdrawn, the redemption will take place as soon as reasonably practicable following the termination of the suspension as the Directors in their discretion determine. Dealing Days and Valuation Days may, at the discretion of the Directors be extended to include other Business Days. The Directors may also change, increase or decrease the number of such days.
Purchases Shares may be subscribed for in respect of any Dealing Day at a subscription price per Share determined by reference to the Net Asset Value of the applicable Class on the relevant Valuation Day. Subject to the Directors’ discretion to determine otherwise, subscription applications should be received by the Administrator by 12.00 p.m. (Dublin time) five Business Days before the relevant Dealing Day. Cleared funds in respect of the subscription must be received by the Administrator prior to 12:00 p.m. (Dublin time) three Business Days before the relevant Dealing Day. If the relevant Application Form and/or subscription proceeds is/are not received by these times, the application will be held over until the next following Dealing Day and Shares will then be issued at the subscription price applicable on that Dealing Day. Application for an initial purchase of Class A Shares must be for an amount of not less than $100,000 and for Class B, C, D and E Shares the equivalent of $10,000 in any other applicable currency (net of any initial fees and bank charges), subject to the Directors’ discretion to accept a lesser amount in
25
respect of Class B, C, D and E Shares in any particular case. Further applications by existing shareholders can be made for any amount over $10,000 (or equivalent in any other applicable currency). As stated under “Fees and Expenses”, the Company is entitled to charge a fee of up to 5 per cent. of the amount subscribed prior to the issue of Shares (such fee may be waived at the discretion of the Directors). Applications for Shares should be made in the same denomination as that of the Class in which the Shares are to be purchased. Share subscriptions will normally be processed following the Dealing Day utilising the subscription proceeds. The Directors and the Administrator (on behalf of the Company) have a discretion to refuse to accept applications for Shares in whole or in part. The Administrator will send to the investor an acknowledgement of his purchase. All Shares issued will be in registered form and the Share register will be prima facie evidence as to ownership. Share certificates will not be issued unless a shareholder so requests in writing in which case a Share certificate will be despatched to him (at his risk) normally within 28 days of the issue or the transfer, as the case may be, of the relevant Shares. If the shareholder does not request the issue of a certificate, a contract note will be issued to him after receipt of all relevant registration details, confirming his holding and registration on the share register. Investors must be aware that their personal data may be disclosed to the Manager, the Investment Manager, any other member of their groups, other parties involved in the process of the business relationship (for example, distributors) and certain regulators in public filings where necessary or advisable to facilitate the acceptance and management of subscriptions including, but not limited to, in connection with anti-money laundering purpose or for compliance with applicable regulatory requirements. Transfers All transfers of Shares must be effected by written instrument signed by the transferor and containing the name of the transferee and the number of Shares being transferred, or in such other manner or form and subject to such evidence as the Directors shall consider appropriate. The transfer will take effect on registration of the transferee as holder of the Shares. The transferee will be required to give the warranties contained in the Application Form and obtain Shares with a minimum Net Asset Value of US$100,000, in the case of the Class A Shares, or $10,000 (or equivalent in any other applicable currency subject to the Directors’ discretion to accept a lesser amount in any particular case) in the case of the Class B, C, D or E Shares and must also provide such additional information as the Administrator deems necessary. The Directors intend to restrict transfers of Shares to any U.S. Persons. Further, the Directors may also be entitled to require the transfer of Shares which are held by any U.S. Person or any person holding Shares where such Shares are owned directly or beneficially by any person who, by virtue of the holding concerned gives rise to a pecuniary, legal, taxation or other disadvantage to the Company or shareholders of any Class. Redemptions Shareholders may request all or part redemption of their Shares on any Dealing Day, by delivering a duly completed redemption request (available from the Administrator) to the Administrator by 12.00 p.m. (Dublin time) 35 calendar days prior to the relevant Valuation Day or such lesser period as the Directors may generally or in any particular case determine. No redemption requests will be accepted unless in writing. If a redemption request is received by fax, the original must follow by post. Redemptions are determined by reference to the Net Asset Value applicable on the relevant Valuation
26
Day. The Company will pay redemption proceeds as soon as reasonably practicable following finalisation of the Net Asset Value in respect of the relevant Dealing Day. The Net Asset Value is normally finalised within 30 days of the relevant Dealing Day. If inscribed Shares are held, redemption requests may be made by fax or other written request with the original to follow by post. The redemption request should quote the Shareholder Account Number. Redemption proceeds will be transferred to the pre-designated bank account following receipt of a valid redemption request. No interest will accrue on the redemption proceeds pending the payment date. If a shareholder requires redemption proceeds to be paid to an alternative account, the Administrator will require the original request in writing signed by the shareholder. Although redemption instructions will normally require the authority of all joint holders, any joint holder of an inscribed Share (quoting the single Shareholder Account Number) may request that Share's redemption when the redemption proceeds are to be paid into the pre-designated account. If Shares are held in certificated form, the Share certificate together with a duly signed redemption instruction (which includes the instruction on the reverse of the Share certificate) must be received by the Administrator on or prior to the relevant Dealing Day. Redemption proceeds are paid following receipt of a valid redemption request by transfer to the pre-designated bank account. Where a written request is received without the relevant Share certificate, provisional redemption will be made but the proceeds of redemption will be held by the Administrator (without payment of interest) until the certificate and duly signed instructions have been received. Partial redemptions of Shares which would reduce a shareholder’s remaining investment in the Company to less than $100,000 for Class A Shares and the equivalent of $10,000 in any other applicable currency for Class B, C, D and E Shares will not normally be accepted. If applicable, a certificate for retained Shares is sent, normally within 28 days. Shares will be redeemed in their currency of denomination (as applicable). Except in the case of a suspension of calculation of the Net Asset Value (when redemptions will be delayed), all redemption requests will, save at the discretion of the Directors, be irrevocable. Subject to the Directors’ discretion to determine otherwise, requests not received within the required period prior to the relevant Dealing Day will normally be held over until the following Dealing Day and Shares will then be redeemed at the price applicable to that following Dealing Day. There is normally a single price for the issue and redemption of Shares (i.e. the Net Asset Value per Share). The Directors may in exceptional circumstances adjust the redemption proceeds in the interests of fairness among shareholders as described below. In certain circumstances (more particularly described at pages 17 to 19 under “Fees and Expenses”) redeemed Shares may be the subject of certain adjustments to the redemption price. In addition, the Company may deduct such sum as it may consider represents the appropriate allowance for duties and charges in relation to the realisation of all the investments held on that Dealing Day and, if in the opinion of the Directors not to do so would cause an inequity between shareholders, the Net Asset Value of a Class may be determined on the basis of bid prices when calculating redemption proceeds. The Net Asset Value so obtained will be divided by the number of Shares of a Class in issue and rounded to four decimal places. The Directors may also limit the value of redemptions on any Dealing Day to 25 per cent. of the total value of Shares then in issue in circumstances where the Directors believe that owing to their perception of the liquidity of the underlying investments, such an action would be in the overall interests of investors. Where this restriction applies redemptions will be on a pro rata basis and any redemptions which for this reason do not occur on any particular Dealing Day will be carried forward for realisation on the next Dealing Day in priority to requests subsequently received by the
27
Administrator. At all times the Directors may exercise such powers as necessary to ensure compliance with any applicable law or regulation (including the Irish Stock Exchange rules). The Directors may elect in their absolute discretion to effect a redemption payment to any or all redeeming shareholders, either in whole or in part, in specie or in kind rather than in cash in which event the Directors shall use the same valuation procedures used in determining the Net Asset Value of the Company and of the relevant Class to determine the value to be attributed to the relevant securities to be transferred or assigned to the redeeming shareholders who shall receive securities of a value equal to the redemption payment to which they would otherwise be entitled and who shall be responsible for all custody and other costs involved in changing the ownership of the relevant securities from the Company to the redeeming shareholders and on-going custody costs. Any such distributions in specie will not materially prejudice the interests of existing shareholders. Share Conversions Shares of one Class may be converted into Shares of another Class, save that any conversion which would reduce a shareholder’s investment in any one Class to less than $100,000 for Class A Shares and the equivalent of $10,000 in any other applicable currency for Class B, C, D and E Shares will not normally be accepted. In respect of an investment in the listed Class A Shares each investor is in addition required to declare that either (i) his ordinary business or professional activity includes buying and selling of investments, whether as principal or agent; or (ii) in the case of a natural person, his individual net worth (or joint net worth with spouse) exceeds $1 million; or (iii) that it is an institution with a minimum amount of assets under discretionary management of $5 million. In addition, each investor must warrant that he (a) has the knowledge, expertise and experience in financial matters to evaluate the risks of investing in the Company and to make an informed decision with respect thereto; (b) is aware of the risks involved in investing in the Company and the method by which the assets of the Company are held and invested; and (c) can bear the risk of the loss of his entire investment. Subject to the notice period of one calendar month or such lesser period as the Directors may generally or in any particular case determine, any conversion will take place on a Dealing Day. Where certified Shares are held, the Share certificate must be returned to the Administrator with a conversion request duly completed. Where a conversion request is received without the Share certificate (where applicable), a provisional conversion is made but the new certificate will not be issued until the old certificate has been returned. Conversion will take place at a rate calculated by reference to the price of the Shares of the Classes concerned and in accordance (or as nearly as may be in accordance) with the following formula: -
N = O x RP SP
Where: N is the number of Shares of the new Class to be allotted and issued; O is the number of Shares of the original Class to be converted; RP is the redemption price per Share of the original Class ruling on the Dealing Day;
and SP is the subscription price for the new Class ruling on the Dealing Day. An allowance will be made for currency conversion which will be carried out at the shareholder’s risk.
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TAX CONSIDERATIONS
General The statements on taxation below are intended to be a general summary of certain British Virgin Islands, U.S. and U.K. tax consequences that may result to the Company and shareholders. The statements relate to shareholders holding Shares as an investment (as opposed to an acquisition by a dealer) and are based on advice received by the Directors regarding the law and practice in force in the relevant jurisdiction at the date of this document. As is the case with any investment, there can be no guarantee that the tax position or proposed tax position prevailing at the time an investment in the Company is made will endure indefinitely. Prospective shareholders should familiarise themselves with and, where appropriate, take advice on the laws and regulations (such as those relating to taxation and exchange controls) applicable to the subscription for, and the holding and realisation of, Shares in the places of their citizenship, residence and domicile. The tax consequences for each shareholder of acquiring, holding, redeeming or disposing of Shares will depend upon the relevant laws of any jurisdiction to which the shareholder is subject. Prospective investors should seek their own professional advice as to this, as well as to any relevant exchange control or other laws and regulations. The Company and underlying investment funds in which the Company invests may be subject to local withholding taxes in respect of income or gains derived from its investments in underlying investee countries. Taxation law and practice and the levels and bases of and reliefs from taxation relating to the Company, the underlying investment funds in which the Company invests and to shareholders may change from time to time. British Virgin Islands Under current British Virgin Islands law, the Company will be exempt from all income taxes in the British Virgin Islands. There are no capital gain taxes, capital transfer taxes, estate duties or inheritance duties in the British Virgin Islands. The Directors intend to conduct the affairs of the Company in such a manner as to minimise its exposure to taxation. United States U.S. Persons and U.S. Taxpayers (even if not U.S. Persons) intending to invest in the Company should also consider the tax disclosures contained in the Supplemental Disclosure Statement for U.S. Persons and U.S. Taxpayers available upon request from the Administrator. United Kingdom The Company The Directors intend that the affairs of the Company should be managed and conducted so that it does not become resident in the U.K. for U.K. taxation purposes. Accordingly, and provided that the Company does not carry on a trade in the U.K. through a permanent establishment situated therein for U.K. taxation purposes, the Company will not be subject to U.K. corporation tax on income and capital gains arising to it. The Directors intend that the affairs of the Company are conducted so that no such permanent establishment will arise insofar as this is within their control, but it cannot be guaranteed that the conditions necessary to prevent any such permanent establishment coming into being will at all times be satisfied.
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Interest and other income received by the Company which has a U.K. source may be subject to withholding taxes in the U.K. Shareholders Subject to their personal circumstances, shareholders resident in the U.K. for taxation purposes will be liable to U.K. income tax or corporation tax in respect of any dividends or other distributions of income by the Company, whether or not such distributions are reinvested. Except in the case of a company owning directly or indirectly not less than ten per cent. of the share capital of the Company, no credit will be available against a shareholder’s U.K. taxation liability in respect of income distributions of the Company for any taxes suffered or paid by the Company on its own income. Chapter V of Part XVII of the U.K. Income and Corporation Taxes Act 1988 (the “Taxes Act”) provides that if an investor who is resident or ordinarily resident in the U.K. for taxation purposes holds a “material interest” in an overseas company that constitutes an “offshore fund” and that company does not qualify as a “distributing fund” throughout the period during which the investor holds that interest, any gain accruing to the investor upon the sale, redemption or other disposal of that interest will be taxed at the time of such sale, redemption or disposal as income and not as a capital gain. Shares will constitute “material interests” in an “offshore fund” for the purposes of these provisions. The Directors currently intend that the Company will not seek to comply with the conditions necessary for it or any of the Classes of Shares to qualify as a distributing fund. Accordingly, shareholders who are resident or ordinarily resident in the U.K. for taxation purposes may be liable to U.K. income taxation in respect of gains arising from the sale, redemption or other disposal of their Shares. Such gains may remain taxable notwithstanding any general or specific U.K. capital gains tax exemption or allowance available to an investor and cannot be reduced by use of indexation allowance. In addition, individual and other non-corporate shareholders will not be able to take advantage of “taper relief” in the U.K. capital gains tax system which enables the proportion of chargeable gains subject to taxation to be reduced if Shares are held over a period of years. Accordingly, this may result in certain longer-term investors incurring a proportionately greater U.K. taxation charge. A shareholder who is resident or ordinarily resident in the U.K. and who, subsequent to subscription, wishes to convert Shares of one Class into Shares of another Class in accordance with the procedure outlined in “Share Conversions” above should note that in certain circumstances such a conversion may give rise to a disposal triggering a potential liability to income tax depending upon the value of the shareholding on conversion. Chapter II of Part IV of the Finance Act 1996 (“FA 1996”) provides that, if at any time in an accounting period a corporate investor within the charge to U.K. corporation tax holds a material interest in an offshore fund within the meaning of the relevant provisions of the Taxes Act, and there is a time in that period when that fund fails to satisfy the “non-qualifying investments test”, the material interest held by such a corporate investor will be treated for the accounting period as if it were rights under a creditor relationship for the purposes of the rules relating to the taxation of most corporate debt contained in FA 1996 (the “Corporate Debt Regime”). The Shares will (as explained above) constitute material interests in an offshore fund. In circumstances where the test is not so satisfied (for example where the Company invests in cash, securities, debt instruments or offshore funds that themselves do not satisfy the “non-qualifying investments test” and the market value of such investments exceeds 60 per cent. of the market value of all its investments) the Shares will be treated for corporation tax purposes as within the Corporate Debt Regime. As a consequence, where the test is not met, all returns on the Shares in respect of each corporate investor’s accounting period
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during which the test is not met (including gains, profits and deficits and exchange gains and losses) will be taxed or relieved as an income receipt or expense on a mark to market basis. Accordingly, a corporate investor in the Company may, depending on its own circumstances, incur a charge to corporation tax on an unrealised increase in the value of its holding of Shares (and, likewise, obtain relief against corporation tax for an unrealised reduction in the value of its holding of Shares). The provisions relating to non-distributing funds (outlined above) and those relating to holdings in controlled foreign companies (outlined below) would not then apply to such corporate shareholders. The attention of individual shareholders ordinarily resident in the U.K. is drawn to the provisions of section 739 and section 740 of the Taxes Act, under which the income accruing to the Company may be attributed to such a shareholder and may render them liable to taxation in respect of the undistributed income and profits of the Company. This legislation will, however, not apply if such a shareholder can satisfy HM Revenue & Customs that either: (i) the purpose of avoiding liability to U.K. taxation was not the purpose or one of the purposes
of their investment in the Company; or (ii) the investment was a bona fide commercial transaction and was not designed for the purpose
of avoiding U.K. taxation. Chapter IV of Part XVII of the Taxes Act subjects U.K. resident companies to tax on the profits of companies not so resident in which they have an interest. The provisions, broadly, affect U.K. resident companies which hold, alone or together with certain other associated persons shares which confer a right to at least 25 per cent. of the profits of a non-resident company where that non-resident company is controlled by persons who are resident in the U.K. and is subject to a lower level of taxation in its territory of residence. The legislation provides for certain exceptions including an exception for a company which implements an acceptable distribution policy as defined in the legislation. As the Company may not make significant distributions, this legislation may be relevant to certain corporate shareholders. The legislation is not directed towards the taxation of capital gains. The attention of persons resident or ordinarily resident in the U.K. for taxation purposes (and who, if individuals, are also domiciled in the U.K. for those purposes) is drawn to the provisions of section 13 of the Taxation of Chargeable Gains Act 1992 (“section 13”). Section 13 applies to a “participator” for U.K. taxation purposes (which term includes a shareholder) if at any time when any gain accrues to the Company which constitutes a chargeable gain for those purposes, at the same time, the Company is itself controlled by a sufficiently small number of persons so as to render the Company a body corporate that would, were it to have been resident in the U.K. for taxation purposes, be a “close” company for those purposes. The provisions of section 13 could, if applied, result in any such person who is a “participator” in the Company being treated for the purposes of U.K. taxation of chargeable gains as if a part of any chargeable gain accruing to the Company had accrued to that person directly, that part being equal to the proportion of the gain that corresponds on a just and reasonable basis to that person’s proportionate interest in the Company as a “participator”. No liability under section 13 could be incurred by such a person however, where such proportion does not exceed one-tenth of the gain. The European Union Savings Directive As the Company is not a UCITS authorised in accordance with European Union Directive 81/611/EEC (as amended), nor may be regarded as a UCITS equivalent under the applicable laws of Ireland and the British Virgin Islands, the European Union Savings Directive 2003/48/EC (the "Directive") should not apply to the Company or the Administrator. Where the Directive applies to an undertaking for collective investment which has the relevant percentage of its assets invested in debt instruments as defined in the directive, a paying agent in a member state such as the Administrator is required to provide to its home tax authorities details of payments of interest or, (as relevant to the
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Company) deemed interest paid by the Administrator on or after 1 July 2005 to or for the benefit of an individual resident in another member state which will be shared with the tax authorities of that other member state.
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APPENDIX I - CONSTITUTION OF THE COMPANY
CONSTITUTION OF THE COMPANY The Memorandum and Articles of Association (the “Articles”) of the Company comprise its constitution. The following summary is not exhaustive. The Articles are available for inspection at the Company’s registered office. (a) Memorandum Object The Memorandum of Association of the Company provides in clause 4 that the Company has been established with the object of engaging in any act or activity that is not prohibited under any law in force in the British Virgin Islands including to invest in securities of all kinds with a view to the maximisation of capital appreciation. Ordinary Shares The Ordinary Shares have unlimited voting rights. Shares The holders of Shares are entitled to receive notices of and to attend all general meetings but may vote only on resolutions having the following effect in which event they will be entitled to exercise only one vote per Share: -
(i) changing the corporate object; (ii) changing or otherwise affecting the rights attaching to the Shares; (iii) changing the rights attaching to the Ordinary Shares; (iv) approving the remuneration of the Directors; (v) the dissolution of the Company; and (vi) the declaration of a dividend.
Rights on a Winding Up In the event of a winding up of the Company: (a) Ordinary Shares will participate only in the surplus remaining after the payment to the
holders of the Shares of an amount equal to the initial contributions made upon subscription for those shares and then only to the extent of the par value of the Ordinary Shares;
(b) the holders of Shares shall, have a preferred claim in respect of the assets of the Company to
the extent of the initial contribution to the capital of the Company made upon subscription therefore and there shall be divided between them the surplus remaining after the payment to the holders of Ordinary Shares of their entitlement.
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(b) Articles of Association The Articles contain certain provisions to the following effect:- Issue of Shares The Directors are authorised to issue Shares at the Net Asset Value determined according to the Articles. Shares are issued in registered form. The Company is authorised to issue the following shares: 10,000,000 Class A Shares with a par value of $0.01 per share; 10,000,000 Class B Shares with a par value of €0.01 per share; 10,000,000 Class C Shares with a par value of Nok 0.09 per share; 10,000,000 Class D Shares with a par value of Sek 0.07 per share; 10,000,000 Class E Shares with a par value of £0.01 per share; and 5,000,000 Ordinary Shares with a par value of $0.01 per share. Alterations of Share Capital The Company may from time to time by either a special resolution or by a resolution of the Directors increase the authorised share capital by such sum, divided into shares of such amount, as the resolution shall prescribe. The Company may also, by resolution of the Directors, consolidate and divide all or any part of its authorised capital into shares of a larger amount than its existing shares. The Company may also, by resolution of the Directors, divide its authorised capital or any part thereof into shares of smaller amount than is fixed by the Memorandum of Association by subdivision of its existing shares or any of them, subject to the provisions of the Law. The Company, subject to the provisions of the Law and subject to any limitations in the Articles, may by special resolution reduce its capital or surplus or any capital redemption reserve fund or share premium account. Variation of Class Rights The rights, privileges or conditions attached to any Class of shares may only, subject to the provisions of the Law, be modified in any way or abrogated by special resolution and with either: (i) the consent in writing of the holders of at least three-fourths of the issued shares of that Class; or (ii) the sanction of an ordinary resolution passed at a separate general meeting of holders of the shares of that Class. The provisions of the Law and the Articles relating to general meetings of the Company shall apply mutatis mutandis to every such separate general meeting as if the resolution were an ordinary resolution. Redeemable Shares The Shares shall be redeemable preference shares. Subject to the provisions of the Articles and the Law, the Company shall, on receipt by it or its authorised agent of a redemption request, redeem all or any portion of the Shares in accordance with the Articles. No Shares shall be redeemed whilst the calculation of the Net Asset Value of the Company is suspended. The Shares shall entitle the holders thereof to any dividends that may be declared in respect of the Shares.
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Conversion of Shares Subject to the provisions of and the restrictions contained in the Articles and the Law, the Company shall, on receipt by it or its authorised agent of a conversion request, convert all or any portion of the Shares of the holder requesting the conversion into that number of Shares of another Class or Classes determined in accordance with the Articles. No Shares shall be converted whilst the calculation of the Net Asset Value of the Company is suspended. Transfer of Shares No transfer shall be recorded unless it is done pursuant to an instrument of transfer in the form prescribed by the Articles or pursuant to such other evidence of transfer as the Directors may accept. Share transfers shall be signed by or on behalf of the transferor and the transferor shall be deemed to remain the holder of such share until the name of the transferee is entered into the register of shareholders in respect thereof. The Directors may decline to register any proposed transfer of shares if the transfer is to a minor or to a person of unsound mind, or to a U.S. Person or to any persons who are not eligible investors, or where the holding of such shares may result in regulatory, pecuniary, legal, taxation or material administrative disadvantages for the Company. Restrictions on Transfer and Compulsory Transfer of Shares The Directors have the power to impose such restrictions on the transfer of Shares as they think necessary for the purpose of ensuring that no Shares are acquired or held by, or for the benefit of:- (i) any U.S. Person or any person holding the Shares for the account of a U.S. Person or any
person who is not an eligible investor; (ii) any person in breach of the law or requirements of any country or governmental authority; or (iii) any person or persons in circumstances which, in the opinion of the Directors, might result in
the Company incurring liability to taxation or suffering any other pecuniary, legal or any other disadvantage which the Company might not otherwise have incurred or suffered.
If it shall come to the notice of the Directors that any Shares are owned directly or beneficially by any person in contravention of the above restrictions, the Directors may give notice to such person requiring him to transfer such Shares to a person who would not thereby be in contravention of any such restrictions or may give a request in writing for the redemption of such Shares in accordance with the Articles. If any person upon whom such a notice is served does not within thirty days after such notice transfer such Shares or establish to the satisfaction of the Directors (whose judgment shall be final and binding) that such Shares are not held in contravention of any such restrictions he shall be deemed upon the expiration of thirty days to have given a redemption request in respect of all such Shares. General Meetings The Directors may whenever they think fit, convene a general meeting and the Directors shall forthwith proceed to convene a general meeting upon the receipt by them of a written request from shareholders holding more than 50 per cent. of the votes of the outstanding shares in the Company. A general meeting shall be called by not less than twenty-one clear days’ notice in writing. The notice shall be exclusive of the day on which it is served or deemed to have been served and of the day for which it is given, and shall specify the place, the day and the hour of the meeting and, in the case of
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special business, the general nature of such business and shall be given in the manner described below or in such other manner if any, as may be prescribed by the Company in general meeting, to such persons as are, under the Articles, entitled to receive such notices from the Company, and also at the same time to any stock exchanges on which the Company’s shares or other securities are listed or quoted in terms of any regulations of any such stock exchanges; provided that a meeting of the Company shall, notwithstanding the fact that it is called by shorter notice than that specified in the Articles, be deemed to have been duly called if it is so agreed by a majority in number of the shareholders having a right to attend and vote at the meeting, being a majority holding not less than ninety-five per cent. of the total voting rights of all the shareholders. No business shall be transacted at any general meeting unless the quorum requisite shall be present. A general meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy at least one shareholder representing one-third of the votes of the Ordinary Shares or, if the holders of the Shares are entitled to vote at the meeting, at least one shareholder representing one-tenth of the votes of the Shares. If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the Directors may determine, and if at the adjourned meeting there is present within one hour from the time appointed for the meeting and in person or by proxy at least one shareholder representing each Class or series of shares entitled to vote as a Class or series on the resolutions to be considered by the meeting those present shall constitute a quorum but otherwise the meeting shall be dissolved. An ordinary resolution may be passed by a simple majority of the votes of the shares which were present or represented at a general meeting and entitled to vote thereon and were voted and not abstained. A special resolution may be passed by a majority of not less than three quarters of the votes of the shares present or represented at a meeting and entitled to vote thereat and which are voted and not abstained. When there are joint registered holders of any shares any one of such persons may vote at any meeting in respect of such shares as if he were solely entitled thereto, but, if more than one of such joint holders be present or represented at any meeting, that one of the said persons whose name stands first in the register in respect of such shares or his proxy, as the case may be, shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member, in whose name any shares stand, shall for the purpose of the Articles be deemed joint holders thereof. Votes may be given either personally or by proxy. The appointment of a proxy shall be made either by means of a proxy form or by a power of attorney or by such other means as may be acceptable to the Directors. Directors The number of Directors shall be not less than two and not more than twelve. The Directors have power at any time and from time to time to appoint any person as a Director, either to fill a casual vacancy or as an additional Director. Directors may be removed from the Board or replaced at any time by an ordinary resolution of the shareholders. There is no share qualification for Directors.
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The remuneration of the Directors shall be such sum as may from time to time be determined by the Directors. Such remuneration shall be divided among the Directors in such proportions and manner as the Directors may determine. The Directors shall be paid all their travelling and other expenses properly and necessarily incurred by them in and about the business of the Company, and in attending meetings of the Board of Directors or of committees thereof. If any Director shall be required to perform extra service or to go or to reside abroad, or if any Director shall be specially occupied about the Company’s business or perform services which, in the opinion of the Directors, are outside the scope of the ordinary duties of a Director, he may receive such extra remuneration as determined by a disinterested quorum of the Directors and such extra remuneration may be either in addition to or in substitution for the remuneration provided for in the Articles. The management of the business and control of the Company is vested in the Directors. The Directors may, by Directors resolution, appoint any person, including a person who is a Director, to be an officer or agent of the Company. No Director shall vote as a Director in respect of any contract or arrangement in which he is interested, and if he does so vote, his vote shall not be counted, nor for the purpose of any resolution regarding the same shall he be counted in the quorum present at the meeting, but these prohibitions shall not apply to: (i) any contract or dealing with a company of which the Directors may be directors, members, managers, officials or employees or otherwise interested; (ii) the giving of any security or indemnity to a Director in respect of money lent or obligations or other liabilities incurred by him at the request of or for the benefit of the Company or any of its subsidiaries; or (iii) any contract or option to subscribe for or underwrite or sub-underwrite any shares or obligations of the Company or any shares in or debentures or obligations of any company in which the Company may be in any way interested; (iv) any proposal concerning an offer of shares or debentures or other securities of or by the Company or any of its subsidiaries for subscription or purchase in which offer a Director is or is to be interested directly or indirectly in the underwriting or sub-underwriting thereof; (v) any resolution determining the remuneration of the Directors pursuant to the provisions of the Articles; (vi) any contract for the payment of commission in respect of the subscription for shares or obligations of the Company; (vii) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director himself has assumed responsibility in whole or in part under a guarantee of indemnity or by the giving of security; (viii) any proposal concerning the adoption, modification or operation of a superannuation fund or retirement benefits scheme under which a Director may benefit and which has been approved by or is subject to and conditional upon approval by the relevant revenue authorities for taxation purposes. The Directors may meet for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit. Until otherwise determined by the Company in general meeting and, subject to the provisions of the Law, a meeting of the Directors is duly constituted if, at the commencement of the meeting, there are present in person or by alternate a minimum of two Directors. A Director may at any time require the secretary to convene a meeting of the Directors. All Directors and all duly appointed alternate Directors shall be entitled to notice of any such meeting. Meetings of the Directors may be held within or outside the British Virgin Islands, but not in the U.K. A Director shall be deemed to be present at a meeting of the Directors if he participates by telephone or other electronic means and all Directors participating in the meeting are able to hear each other, save that no Director may participate in such meeting from the U.K. Questions arising at any meeting of the Directors shall be decided by a majority of votes present or represented by alternate. In case of an equality of votes the chairman shall have a second or casting vote.
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Notices Notices shall be served by the Company upon each shareholder either personally or by sending it by post to his registered address. If he has not notified an address, he shall be deemed to have waived his right to be served with notices. All notices with respect to any shares to which persons are jointly entitled may be given to whichever of such persons is recognised by the Company as having any title to such shares pursuant to the Articles and notice so given shall be sufficient notice to all the holders of such shares. Unless otherwise provided in the Articles, at least 21 days’ notice of a meeting shall be given to all shareholders. Any notice sent by the Company by post shall be deemed to have been served on the day on which the notice is posted, and in proving such service, it shall be sufficient to prove that the letter containing the notice was properly addressed and posted. If a given number of days’ notice, or notice extending over any other period, is required to be given, the day of service and the day of the meeting, shall not be counted in such number of days or other period unless otherwise provided in the Articles. Winding Up The Company may voluntarily commence to wind up and dissolve by a special resolution but if the Company has never issued shares it may voluntarily commence to wind up and dissolve by resolution of the Directors. If the Company shall be wound up, whether voluntarily or otherwise, then with the sanction of a special resolution, the liquidators may divide among the shareholders in specie any part of the assets of the Company and may vest any part of the assets of the Company in trustees for the benefit of the members upon such trusts as the liquidators shall think fit. Indemnity The Company may indemnify any director or officer, and his heirs, executors and investment advisers, against expenses reasonably incurred by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director or officer of the Company, or at its request, of any other company of which the Company is a shareholder or creditor and from which he is not entitled to be indemnified. Such person shall be so indemnified in all circumstances except in relation to matters on which he shall be finally adjudged in such action, suit or proceeding to be liable for gross negligence or wilful misconduct; in the event of a settlement, indemnification shall be provided only in connection with such matters covered by the settlement on which the Company is advised by counsel that the person to be indemnified did not commit such a breach of duty. The foregoing right of indemnification shall not exclude other rights to which he may be entitled. The Company may purchase and maintain insurance in relation to any person who is or was a director, an officer or a liquidator of the Company, or who at the request of the Company is or was serving as a director, an officer or a liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability under the Articles. No director, manager, secretary or other officer or servant of the Company shall be liable for the acts, receipts, neglects or defaults of any other director or officer or servant, for joining in any receipt or other act of conformity or for loss or expense happening to the Company through the insufficiency or deficiency of title to any property acquired by order of the Directors, any security in or upon which any of the moneys of the Company shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any moneys, securities or effects shall be deposited or for any loss or damage occasioned by any error of judgment or oversight on his part, or for any other loss, damage or misfortune whatever which shall happen in the execution of the
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duties of his office, or in relation thereto, unless the same happen through his own gross negligence, wilful misconduct or dishonesty.
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APPENDIX II - GENERAL INFORMATION
1. The Company (a) The Company was incorporated with limited liability on 12 January 1990 in the British
Virgin Islands as an International Business Company (registered no. 24169). (b) The authorised share capital of the Company is the aggregate of $150,000 and €100,000 and
Nok 900,000, Sek 700,000 and £100,000 comprising (i) 5 million voting Ordinary Shares of $0.01 par value; (ii) 10 million redeemable Shares of $0.01 par value; (iii) 10 million redeemable Shares at €0.01 par value; (iv) 10 million redeemable Shares at Nok 0.09 par value; (vi) 10 million redeemable Shares at Sek 0.07 par value; and (vii) 10 million redeemable Shares at £0.01.
(c) The Ordinary Shares confer effective management control over the Company and are held by
the Manager. (d) No Shares have pre-emptive rights. There are no outstanding options or any special rights
relating to any Shares within each Class. 2. Material Contracts The following contracts, not being contracts in the ordinary course of business, were entered
into by the Company and are or may be material. They contain limitations of liability and indemnities operating in favour of parties other than the Company as summarised under “Management”, “Administrator” and “Custodian” above. Information in relation to fees is contained under “Fees and Expenses”.
(a) The Administration Agreement dated 6 August 2002 between the Company and the
Administrator whereby the Administrator has agreed to provide secretarial, registrar, transfer agency, accounting and other administrative services to the Company. The Agreement is terminable by the other party at any time on 90 days’ written notice or with immediate effect, inter alia, if either party:- (a) commits any material breach of the Agreement which is either incapable of remedy or has not been remedied within 30 days of the non-defaulting party serving notice upon the defaulting party requiring it to remedy the same; (b) be unable to pay its debts as they fall due or otherwise become insolvent or enter into any composition or arrangement with or for the benefit of its creditors or any class thereof; (c) be the subject of any petition for the appointment of any examiner or similar officer to it; (d) have a receiver appointed over all or any substantial part of its undertaking, assets or revenues; (e) be the subject of an effective resolution for its winding up or dissolution except in relation to a voluntary winding up or a dissolution for the purposes of reconstruction or amalgamation upon terms previously approved in writing by the non-defaulting party; (f) be the subject of a court order for its winding up or dissolution; (g) no longer be permitted to perform its obligations under applicable law.
(b) The Custodian Agreement dated 14 November 2000 between the Company, the Bank and the
Custodian, whereby the Custodian agrees to provide custody services for the Company’s assets. The appointment of the Custodian will continue unless and until terminated by any party giving to the others not less than 90 days’ prior written notice or immediately if any party to the agreement shall have committed a breach of the agreement which is not remedied within ten days after notification thereof to such party. Any party may terminate the Custodian Agreement on the insolvency of, or similar event with regard to, any other party.
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(c) The Management and Marketing Agreement dated 28 September 2005 between the Company and the Manager whereby the Manager has agreed to provide management and marketing services to the Company. The agreement is terminable by either party on not less than three months’ written notice or immediately at any time if (i) the other shall go into liquidation; if the other party shall at any time be declared bankrupt; or if a receiver of any of the assets of the other is appointed; or (ii) the other party shall commit a breach of the provisions of the agreement and shall not have remedied such breach within thirty days after the service of notice requiring the same to be remedied.
In addition the Manager has entered into an Investment Management Agreement with the Investment Manager, whereby the Manager has delegated day-to-day investment management of the Company’s assets to the Investment Manager. The agreement is terminable by either party on not less than three months’ written notice or immediately at any time if (i) the other shall go into liquidation; if the other shall at any time be declared bankrupt; or if a receiver of any of the assets of the other is appointed; or (ii) the other party shall commit a breach of the provisions of the agreement and shall not have remedied such breach within thirty days after the service of notice requiring the same to be remedied; or (iii) the termination of the Management and Marketing Agreement. The Company and/or the Manager may also enter into marketing agreements with financial intermediaries approved by the Directors. All of the agreements listed above may be amended from time to time by mutual consent of the parties thereto. 3. Directors, Promoters and Interests (a) There are no service contracts in existence between the Company and any of the Directors,
nor are any such contracts proposed. (b) As at the date of this Offering Memorandum, a fixed fee of $5,000 per annum will be paid by
the Company to each of the Directors for acting as such together with their out of pocket expenses.
Directors may waive all or part of their fees and may assign their fees to their
employers/firms. (c) Morten Kielland is also a director of one or more companies in the Key group and a number
of other investment funds managed by the Manager including Key Europe, Inc., Key Global, Inc., Key Asia Holdings, Inc., Key Global Emerging Markets, Inc., Key Delta Fund, Inc., Key Recovery Fund, Limited, Key Value Inc. and Key Hedge Fund Plus, Inc. Count Hadelin de Liedekerke Beaufort is a director of one or more companies in the Key group, the Manager and funds managed by it including: Key Europe, Inc., Key Global, Inc., Key Asia Holdings, Inc., Key Global Emerging Markets, Inc., Key Delta Fund, Inc., Key Recovery Fund Limited, Key Value Inc. and Key Hedge Fund Plus, Inc. George Aman is also a director of the following funds: Key Europe, Inc., Key Global, Inc., Key Asia Holdings, Inc., Key Global Emerging Markets, Inc., Key Delta Fund, Inc., Key Recovery Fund Limited, Key Value Inc. and Key Hedge Fund Plus, Inc. Steven Georgala is also a director of one or more companies in the Key Group and a number of other funds managed by the Manager including Key Europe Inc., Key Global Inc., Key Asia Holdings, Inc., Key Global Emerging Markets, Inc., Key Delta Fund, Inc., Key Recovery Fund Limited, Key Value Inc. and Key Hedge Fund Plus, Inc.
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Christopher Whittington is also a director of one or more companies in the Key group and a number of other investment funds managed by the Manager including Key Europe, Inc., Key Global, Inc., Key Asia Holdings, Inc., Key Global Emerging Markets, Inc., Key Delta Fund Inc., Key Value Inc. and Key Recovery Fund, Limited.
(d) Save as disclosed in this section 3 and under “Conflicts of Interest” on page 45, no Director
has any interest, direct or indirect, in the promotion of, or in any assets which have been or are proposed to be acquired or disposed of by, or leased to, the Company, and no Director is materially interested in any contract or arrangement subsisting at the date hereof which is unusual in its nature or condition or which is significant in relation to the business of the Company.
(e) The Company may charge an initial fee of up to five per cent. of the amount subscribed for
by investors prior to the issue of Shares in order to pay the fees of any approved intermediaries (such fee may be waived at the discretion of the Directors). Some or all of this initial fee may be paid to individual Directors or their employers as a consequence of their introducing investors to the Company. The Manager may also rebate part of its fees received from the Company to any approved intermediaries who may include, from time to time, individual Directors.
(f) None of the Directors are required to be investors. The Directors and any associates may
invest in the Company. The level of any investment is likely to vary over time. The Directors and/or persons associated with the Company, Manager and Investment Manager may make identical, similar or different own account investments from time to time.
(g) There is no retirement age for Directors. (h) No Director has:
(i) any unspent convictions in relation to indictable offences; or (ii) been bankrupt or the subject of a voluntary arrangement or has had a receiver
appointed to any asset of such Director; or (iii) been a director of any company which, while he was a director with an executive
function or within 12 months after he ceased to be a director with an executive function, had a receiver appointed or went into compulsory liquidation, creditors voluntary liquidation, administration or company voluntary arrangements, or made any composition or arrangements with its creditors generally or with any class of its creditors; or
(iv) been a partner of any partnership which, while he was a partner or within 12 months
after he ceased to be a partner, went into compulsory liquidation, administration or partnership voluntary arrangement or had a receiver appointed to any partnership asset;
(v) had any public criticism by statutory or regulatory authorities (including recognised
professional bodies); or (vi) been disqualified by a court from acting as a director or from acting in the
management or conduct of affairs of any company.
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4. General (a) No Share or loan capital of the Company is under option or agreed conditionally or
unconditionally to be put under option. (b) Save for the five per cent. initial charge, no commissions, discounts, brokerages or other
special terms have been granted by the Company in connection with the issue or sale of Shares.
(c) The Company has no litigation, arbitration or claim pending or, so far as the Directors are
aware, threatened against it nor has any claim been made since incorporation or establishment.
(d) The Company does not, nor does it expect to, have any employees. (e) The Manager is the promoter of the Company and, save as disclosed under “Fees and
Expenses” no amount or benefit has been or will be paid or given to the promoter by the Company and none is intended to be paid or given.
5. Offering Expenses The expenses (including marketing, printing and legal fees) which remain to be amortised
amounted as at the date of this Offering Memorandum to approximately $50,000. This sum is being, or will be, amortised over three financial years subject to the Directors’ discretion to vary this if they consider it prudent to do so. This practice is contrary to international accounting standards and, although this is not anticipated by the Directors, could result in a qualified audit opinion.
6. Definition of “U.S. Person”, “U.S. Taxpayer” and “Benefit Plan Investor” “U.S. Person”
A “U.S. Person” for purposes of this Offering Memorandum is a person who is in either of the following two categories: (a) a person included in the definition of “U.S. person” under Rule 902 of Regulation S under the 1933 Act or (b) a person excluded from the definition of a “Non-United States person” as used in CFTC Rule 4.7. For the avoidance of doubt, a person is excluded from this definition of U.S. Person only if he or it does not satisfy any of the definitions of “U.S. person” in Rule 902 and qualifies as a “Non-United States person” under CFTC Rule 4.7. “U.S. person” under Rule 902 generally includes the following: (a) any natural person resident in the United States; (b) any partnership or corporation organised or incorporated under the laws of the
United States; (c) any estate of which any executor or administrator is a U.S. person; (d) any trust of which any trustee is a U.S. person; (e) any agency or branch of a non-U.S. entity located in the United States;
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(f) any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;
(g) any discretionary account or similar account (other than an estate or trust) held by a
dealer or other fiduciary organised, incorporated or (if an individual) resident in the United States; and
(h) any partnership or corporation if: (i) organised or incorporated under the laws of any non-U.S. jurisdiction; and (ii) formed by a U.S. person principally for the purpose of investing in securities
not registered under the 1933 Act, unless it is organised or incorporated, and owned, by accredited investors (as defined in Rule 501(a) of Regulation D under the 1933 Act) who are not natural persons, estates or trusts.
Notwithstanding the preceding paragraph, “U.S. person” under Rule 902 does not include: (i) any discretionary account or similar account (other than an estate or trust) held for the benefit or account of a non-U.S. person by a dealer or other professional fiduciary organised, incorporated, or (if an individual) resident in the United States; (ii) any estate of which any professional fiduciary acting as executor or administrator is a U.S. person, if (A) an executor or administrator of the estate who is not a U.S. person has sole or shared investment discretion with respect to the assets of the estate, and (B) the estate is governed by non-United States law; (iii) any trust of which any professional fiduciary acting as trustee is a U.S. person, if a trustee who is not a U.S. person has sole or shared investment discretion with respect to the trust assets, and no beneficiary of the trust (and no settlor if the trust is revocable) is a U.S. person; (iv) an employee benefit plan established and administered in accordance with the law of a country other than the United States and customary practices and documentation of such country; (v) any agency or branch of a U.S. person located outside the United States if (A) the agency or branch operates for valid business reasons, and (B) the agency or branch is engaged in the business of insurance or banking and is subject to substantive insurance or banking regulation, respectively, in the jurisdiction where located; and (vi) certain international organisations as specified in Rule 902(k)(2)(vi) of Regulation S under the 1933 Act. CFTC Rule 4.7 currently provides in relevant part that the following persons are considered “Non-United States persons”: (a) a natural person who is not a resident of the United States;
(b) a partnership, corporation or other entity, other than an entity organised principally
for passive investment, organised under the laws of a non-U.S. jurisdiction and which has its principal place of business in a non-U.S. jurisdiction;
(c) an estate or trust, the income of which is not subject to United States income tax
regardless of source; (d) an entity organised principally for passive investment such as a pool, investment
company or other similar entity, provided, that units of participation in the entity held by persons who do not qualify as Non-United States persons or otherwise as qualified eligible persons (as defined in CFTC Rule 4.7(a)(2) or (3)) represent in the aggregate less than ten per cent. of the beneficial interest in the entity, and that such entity was not formed principally for the purpose of facilitating investment by persons who do not qualify as Non-United States persons in a pool with respect to
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which the operator is exempt from certain requirements of Part 4 of the CFTC’s regulations by virtue of its participants being Non-United States persons; or
(e) a pension plan for the employees, officers or principals of an entity organised and
with its principal place of business outside the United States. An investor who is not a U.S. Person may nevertheless be considered a “U.S. Taxpayer” under U.S. federal income tax laws. For example, an individual who is a U.S. citizen residing outside of the United States is not a U.S. Person but is a “U.S. Taxpayer”. Such a person need not complete the Supplemental Disclosure Statement for U.S. Persons and U.S. Taxpayers (which is available from the Administrator), but should review the disclosure relating to U.S. taxation therein as the tax consequences described therein will apply to that person. “U.S. Taxpayer” “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 organised in, or under the laws of, the United States or any state thereof (including the District of Columbia); any other partnership that is treated as a U.S. Taxpayer under 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 circumstances, be treated as U.S. Taxpayers.
“Benefit Plan Investor” “Benefit Plan Investor” is used as defined in U.S. Department of Labor (“DOL”) Regulation § 2510.3-101(f)(2) and includes (i) any employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), whether or not such plan is subject to Title I of ERISA (which includes both U.S. and non-U.S. plans, plans of governmental entities as well as private employers, church plans, and certain assets held in connection with nonqualified deferred compensation plans); (ii) any plan described in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the “Code”) (which includes a trust described in Code Section 401(a) that is exempt from tax under Code Section 501(a), a plan described in Code Section 403(a), an individual retirement account or annuity described in Code Section 408 or 408A, a health savings account described in Code Section 223(d), a medical savings account described in Code Section 220(d) and an education savings account described in Code Section 530); and (iii) any entity whose underlying assets include plan assets by reason of a plan’s investment in the entity (generally because 25 per cent. or more of a class of equity interests in the entity is owned by plans). Benefit Plan Investors also include that portion of any insurance company’s general account assets that are considered “plan assets” and (except if the entity is an investment company registered under the 1940 Act) the assets of any insurance company separate account or bank common or collective trust in which plans invest.
7. Reports and Financial Statements
The financial year of the Company ends on 30 June. The Company will, as a policy, and when possible, inform shareholders on the monthly, updated, unaudited, statement of the Net Asset Value of the Shares. The monthly performance figures are expected to be published in the “Financial Times”, “International Herald Tribune” and the “The Wall Street Journal Europe” or such other publications as the Directors shall determine, and are also expected to
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be listed by Micropal, Bloomberg, Telekurs and on the Key Asset Management website (www.keyhedge.com). An annual audited report on the financial position of the Company will be sent to shareholders following the end of each financial year. Audited financial statements will be sent to Class A shareholders and to the Company Announcements Office of the Irish Stock Exchange within six months of the period to which they relate. In addition, a semi annual report with unaudited financial information will be sent to the Company Announcements Office of the Irish Stock Exchange within four months of the period to which it relates and will be sent to Class A shareholders on request.
8. Conflicts of Interest
The Manager, the Investment Manager, the Administrator, the Custodian, any of their directors, officers, employees, agents and connected persons and the Directors and any person or company with whom they are affiliated or by whom they are employed (each an “Interested Party”) may be involved in other financial, investment or other professional activities which may cause conflicts of interest with the Company. In particular, Interested Parties may provide services similar to those provided to the Company to other entities and will not be liable to account for any profit earned from any such services. The Interested Parties will at all times have due regard to their duties owed to the Company and where a conflict arises they will endeavour to ensure that it is resolved fairly. For example, an Interested Party may acquire investments in which the Company may invest on behalf of clients. However, where the Investment Manager could (i) allocate an investment between two or more funds or accounts which it manages (including the Company's); or (ii) make a disposal of investments held by two or more such funds or accounts, it will act fairly as between the relevant funds or accounts in making such allocation or disposal, having regard to, inter alia, factors such as cash availability and portfolio balance.
The Company may acquire securities from or dispose of securities to any Interested Party or any investment fund or account advised or managed by any such person. In addition, the Company may invest in one or more investment funds or accounts advised or managed by an Interested Party. An Interested Party may provide professional services to the Company (provided that no Interested Party will act as auditor to the Company) or hold Shares and buy, hold and deal in any investments for their own accounts notwithstanding that similar investments may be held by the Company. An Interested Party may contract or enter into any financial or other transaction with any shareholder or with any entity any of whose securities are held by or for the account of the Company, or be interested in any such contract or transaction. Furthermore, any Interested Party may receive commissions to which it or he is contractually entitled in relation to any sale or purchase of any investments of the Company effected by it for the account of the Company, provided that in each case the terms are no less beneficial to the Company than a transaction involving a disinterested party and any commission is in line with market practice.
Investors should also take note of the information provided under paragraph 3(c) of “Directors, Promoters and Interests” at pages 40 to 41. In the event of a conflict of interest arising, the Directors will endeavour to ensure that it is resolved fairly.
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9. Documents for Inspection Copies of the following documents will be available for inspection at the registered office of
the Company and the offices of the Administrator during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted):- (a) the Memorandum and Articles of Association of the Company; (b) the material contracts referred to in paragraph 2 of Appendix II; and (c) the latest audited financial statements of the Company.
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APPENDIX III - RISK FACTORS
Investment in the Company carries a high degree of risk including, but not limited to, the risks referred to below. No assurance can be given that shareholders will realise a profit on their investment. Moreover, shareholders may lose some or all of their investment. The risks referred to below are not exhaustive. Potential investors should review this Offering Memorandum carefully and in its entirety and consult with their professional advisers before making an application for Shares. Operating History. The past investment performance of the Company, the Manager and Investment Manager may not be construed as an indication of the future results of an investment in the Company. There can be no assurance that the Company will achieve its investment objective. Investment Strategies. No assurance can be given that the strategies to be used will be successful under all or any market conditions. The Company or underlying funds may utilise financial instruments such as derivatives for investment purposes and seek to hedge against fluctuations in the relative values of the Company‘s portfolio positions as a result of changes in exchange rates. Such investment or hedging transactions may not always achieve the intended effect and can limit potential gains or lead to losses. Market Risk. The Company’s investments are subject to normal market fluctuations and the risks inherent in the purchase, holding or selling of equity securities and related instruments, and there can be no assurance that appreciation will occur. The value of Shares can go down as well as up and investors may not realise the value of their initial investment. Investor Status. The Company may utilise subscription amounts received from investors for investment purposes following the Dealing Day although physical allocation of Shares to shareholders will take place after the Dealing Day. Risk of Government Intervention. The prices of instruments in which the Company and/or underlying funds may trade or invest are subject to certain risks arising from government regulation of or intervention in the relevant capital markets, through regulation of their local markets, restrictions on investments by foreigners or limits on flows of investment funds. Such regulation or intervention could adversely affect the Company’s performance. Fees and Expenses. Whether or not the Company is profitable, it is required to meet certain fixed costs, including organisational expenses, ongoing direct and indirect administrative and operating expenses and advisory fees. Illiquidity of Investments. Investments in the Shares may be relatively illiquid because of limitations on withdrawal and transfer rights and difficult to value.
Currency. Shares in the Company will be issued and redeemed in the currency of the denomination of the Shares purchased. Certain of the Company’s assets may, however, be invested in securities and other investments denominated in other currencies. The value of such investments may be affected favourably or unfavourably by fluctuations in exchange currencies, notwithstanding any efforts made to hedge such fluctuations. In addition, prospective investors whose assets and liabilities are primarily denominated in currencies other than the currency of investment should take into account the potential risk of loss arising from fluctuations in the rate of exchange between the currency of investment and such other currency. Trading in Derivatives. The prices of certain underlying derivative instruments, including futures and options, carry a degree of volatility. The ability of the Company and underlying funds to utilise futures or options on futures to hedge its exposure to certain positions or as a surrogate for investments in instruments or markets will depend on the degree of correlation between the value of
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the instrument or market being hedged, or to which exposure is sought and the value of the futures or option contract. Because the instrument underlying a futures contract or option traded by the Company and underlying funds will often be different from the instrument or market being hedged or to which exposure is sought, the correlation risk could be significant and could result in substantial losses to the Company. The use of futures and options involves the risk that changes in the value of the underlying investment will not be fully reflected in the value of the futures contract or option. In addition, the Company is subject to the risk of the failure of any of the exchanges on which it or underlying funds trade or of their clearing houses and in certain cases the counterparties with whom the trades are carried out. Prior to exercise or expiration, a future or option position can be terminated only by entering into an offsetting transaction. This requires a liquid secondary market on the exchange on which the original position was established. While a fund will generally enter into futures and option positions where, in the judgement of its manager, there appears to be a liquid secondary market for such instruments, there can be no assurance that such a market will exist for any particular contract at any point in time. In that event, it might not be possible to establish or liquidate a position. The Company and/or underlying funds may purchase options on a variety of securities exchanges and over-the-counter markets to hedge exposure of underlying fixed income or equity holdings or for investment purposes. Trading in futures and options is a highly specialised activity and although it may increase the total return of the Company’s portfolio it may also decrease the total return of the Company’s portfolio. To the extent that the Company and/or underlying funds trade in derivatives contracts and any broker with whom the Company maintains accounts fails to segregate the Company’s underlying assets, the Company may be subject to a risk of loss in the event of the bankruptcy of the broker. Exchange Traded Futures Contracts and Options on Futures and Contracts. The Company may use or may invest in underlying funds which may use financial futures contracts and related options to hedge against changes in the market value of their portfolio securities or securities that they intend to purchase or for investment purposes. These funds’ use of futures contracts and options on futures contracts will present the same types of volatility and leverage risks associated with transactions in derivative instruments generally. In addition, such transactions present a number of risks which might not be associated with the purchase and sale of other types of investments. The Company may invest in financial futures and related options to the extent that all necessary CFTC registrations or exemptions have been obtained. Such registrations or exemptions would not include review or approval by the CFTC of any offering document or the trading strategies of the Company. Forward Trading. Forward contracts and options thereon, unlike futures contracts, are not traded on exchanges and are not standardised; rather banks and dealers act as principals in these markets, negotiating each transaction on an individual basis. Forward and “cash” trading is substantially unregulated; there is no limitation on daily price movements. The principals who deal in the forward markets are not required to continue to make markets in the currencies they trade and these markets may experience periods of illiquidity, sometimes of significant duration. Disruptions can occur in any market traded by underlying hedge funds due to unusually high trading volume, political intervention or other factors. The imposition of controls by governmental authorities might also limit such forward (and futures) trading to the possible detriment of the Company. In respect of such trading, the Company is subject to the risk of counterparty failure or the inability or refusal by a counterpart to perform with respect to such contracts. Market illiquidity or disruption could result in major losses to the Company.
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No Established Rating Criteria. No rating criteria have been established for the debt securities in which the Company and underlying funds may invest. The Company and underlying funds may invest in closed or open ended funds focusing on low rated (considered to be those that are below “investment grade”) and unrated debt securities. Low rated and unrated debt securities are the equivalent of high yield, high risk bonds, commonly known as “junk bonds” and are generally considered to be speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of its obligations under such securities. Speculative Nature of Certain Investments. Certain investments by the Company and/or underlying funds may be regarded as speculative in nature and involve increased levels of investment risk. An inherent part of a strategy may be to identify securities which are undervalued (or, in the case of short positions, overvalued) by the marketplace. Success of such strategy necessarily depends upon the market eventually recognising such value in the price of the security, which may not necessarily occur. Equity positions, particularly IPOs, may involve highly speculative securities. Debt positions may emphasise high yield obligations, which are generally below investment grade, and may include distressed securities, including issuers in insolvency proceedings and debt which is nonperforming. Short Selling. Short selling may be utilised by the Company and/or underlying funds both in situations where the securities in question are believed overvalued, and therefore likely to experience significant price declines, over time, or as a hedge or offset to related long positions. Short selling inherently involves additional risks. 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. Hedging Transactions. The Company and/or underlying funds may utilise financial instruments such as derivatives for investment purposes and to seek to hedge against fluctuations in the relative values of portfolio positions as a result of changes in exchange rates, interest rates, equity prices and levels of other interest rates and prices of other securities. Such hedging transactions may not always achieve the intended effect and can also limit potential gains. While the Company and/or underlying funds may enter into such transactions to seek to reduce currency, exchange rate and interest rate risks, unanticipated changes in currency, interest rates and equity markets may result in a poorer overall performance of the Company and/or underlying funds. For a variety of reasons, the Company and/or underlying funds may not obtain a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent the intended hedge or expose the Company and/or underlying funds to risk of loss. Repurchase Agreements. The use of repurchase agreements by the Company and/or underlying funds involves certain risks. For example, if the seller of securities under a repurchase agreement defaults on its obligation to repurchase the underlying securities, as a result of its bankruptcy or otherwise, the Company and/or underlying funds will seek to dispose of such securities, which action could involve costs or delays. If the seller becomes insolvent and subject to liquidation or reorganisation under applicable bankruptcy or other laws and the Company and/or underlying fund’s ability to dispose of the underlying securities may be restricted. If the seller fails to repurchase the securities, the Company may suffer a loss to the extent proceeds from the sale of the underlying securities are less than the repurchase price. Finally, it is possible that the Company and/or underlying funds may not be able to substantiate its/their interest in the underlying securities. Leverage, Interest Rates and Margin. Underlying funds may borrow in order to increase the amount of capital available for investment. Consequently, the level of interest rates at which
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underlying funds can borrow will affect the operating results of the Company. In addition, underlying funds may in effect borrow funds through entry into repurchase agreements and may “leverage” their investment return with such instruments as forwards, futures, options and other derivative contracts. Valuations. In calculating the Net Asset Value of the Company, the Administrator will rely on valuations received by it from the administrators of any underlying funds. Where such prices are not available for any reason, the Administrator may have to estimate the relevant price or suspend the calculation of the Net Asset Value of the Company. Cross Class Liability. The Company has multiple Classes and further Classes may be created in the future. However, the Company is one entity. Thus all of the assets of the Company may be available to meet all of the liabilities of the Company, regardless of the separate Class to which such assets or liabilities are attributable. In practice, cross class liability will usually only arise where any Class becomes insolvent or exhausts its assets and is unable to meet all of its liabilities. In this case, all of the assets of the Company attributable to the other Classes may be applied to cover the liabilities of the insolvent Class. Conflicts of Interest. See paragraph 8 of Appendix II - “Conflicts of Interest”
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ISSUE PROCEDURES
1. Applications Your application to invest in the Company should be made by sending the printed Application Form supplied with this Offering Memorandum to:-
Key Hedge Fund Inc. c/o Investor Relations Group Citco Fund Services (Dublin) Limited Custom House Plaza, Block 6
International Financial Services Centre Dublin 1, Ireland
Tel: + 353 1 636 7300 Fax: + 353 1 636 7301 The Administrator must be sent a completed Application Form for each Share issue. U.S. Persons must also complete the Subscription Agreement for U.S. Persons which accompanies the Supplemental Disclosure Statement for U.S. Persons and U.S. Taxpayers together with (in the case of both U.S. and non-U.S. Persons) such other documentation as the Directors may from time to time request. Applications for an initial purchase of Class A Shares must be for an amount of not less than $100,000 and applications for an initial purchase of Class B, C, D and E Shares must be for an amount of not less than the equivalent of $10,000 in any other applicable currency (net of initial fees and bank charges), subject to the Directors’ discretion to accept a lesser amount in respect of Class B, C, D and E Shares in any particular case. Further applications by existing shareholders can be made of any amount over $10,000 or equivalent in any other applicable currency. Applications for Shares should be made in the same denomination as that of the Class in which the Shares are to be purchased (i.e. in dollars for Class A, euros for Class B, Norwegian Kroner for Class C, Swedish Krona for Class D and Sterling for Class E).
2. Payment by SWIFT or Telegraphic Transfer Applicants may make payment by SWIFT (details of which should be available from your bank). Applicants should fax or write to the Administrator prior to any Dealing Day to request an allotment of Shares. The applicant's bank must be instructed at the time of application to forward the appropriate remittance by the fastest available means to reach the bank listed below three Business Days prior to the relevant Dealing Day. The applicant's bank should also be instructed to fax the Administrator with details of the transfer it is making containing the information set out at Appendix B to the application form.
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Payment, net of charges, should be sent to:-
Class A (Dollar)
Class B (Euros)
HSBC, New York KBC Bank N.V., Brussels SWIFT/BICS: MRMDUS33 FED Wire: 021 001 088
SWIFT/BICS: KREDBEBB Account Name: Citco Bank Nederland N.V. Dublin Branch
Account Name: Citco Bank Nederland N.V. Dublin Branch Account Number: BE96 4809 5884 4705 Account Number: 000306487 SWIFT/BICS: CITCIE2D BICS: CITCIE2D For further credit to Key Hedge Fund Inc. For Further Credit to Key Hedge Fund Inc. Euro Class Investor Account USD Class Investor account IBAN: IE02CITC00000020070301 IBAN: IE62 CITC 0000 00 2001 4901
Class C (Norwegian Kroner) Class D (Swedish Krona)
Den Norske Bank, Oslo Nordea Bank Sweden, AB Publ, Stockholm SWIFT/BICS: DNBANOKK SWIFT/BICS: NDEASESS Account Name: Citco Bank Nederland N.V. Dublin Branch Account Name: Citco Bank Nederland N.V. Dublin Branch Account Number: NO41 7001.02.48173 Account Number: 3952 79 11036 SWIFT/BICS: CITCIE2D SWIFT/BICS: CITCIE2D For further credit to Key Hedge For further credit to Key Hedge Norwegian Kroner Investor Account Swedish Krona Investor Account IBAN: IE34 CITC 0000 00 2007 0501 IBAN: IE18 CITC 0000 00 2007 0401
Class E (Sterling) Barclays Bank plc, London SWIFT/BICS: BARCGB22 Sort Code: 20-32-53 Account Name: Citco Bank Nederland N.V. Dublin Branch Account Number: GB11 BARC 2032 5310 09 7438 For further credit to Key Hedge Fund Inc., E Class IBAN: IE77 CITC 0000 00 2096 6201
Payment must be sent from an account in the applicant’s name.
3. General Information Shares will not be finally allotted until the Administrator is satisfied that cleared funds have been received. The Company reserves the right to reject any application in whole or in part, in which event the application money or any balance will be returned by post at the risk of the applicant. If the amount paid does not correspond to a specific number of Shares, the Company will issue such number of Shares as is applicable, calculated to two decimal points.
4. Confirmation Statements It is anticipated confirmation statements of receipt of cleared funds will be sent to applicants within five Business Days of the Dealing Day confirming details of their transaction and a contract note will be dispatched generally within one month of the Dealing Day.
5. Share Certificates
To avoid unnecessary expense and to facilitate redemption of Shares, no certificate will be issued unless a shareholder specifically so requests at the time of application. If such a
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request is made, certificates representing Shares will normally be despatched at the applicant’s risk within 28 days to the address specified in the application form.
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INSTRUCTIONS FOR COMPLETING THE APPLICATION FORM
1. Application All applications must be made in writing using the printed Application Form. Please write
name(s) using block capitals and fill in the address as indicated. Where there are joint applicants, all correspondence will be sent to the first named applicant at that address. If a nominee is appointed, all correspondence will be sent to the nominee.
2. Signature The Disclosure Statement in the Application Form should be read carefully and signed by the
applicant(s) on the appropriate line(s). If any signature is different from the name given for registration purposes, please complete the full name in block capitals and state the capacity in which the Application Form is being signed, where indicated.
3. Transmittal and Mailing Instructions The Application Form should be sent to the address shown on the application form. Where
application is made by fax, the original signed application form must be mailed to the Administrator.
4. Anti-Money Laundering
Measures aimed towards prevention of money laundering may require the applicant to verify their identity by providing the information noted at Appendix A to the Application Form. The Administrator may also refuse to process a redemption request until proper information is provided. The applicant must ensure that where payment is made by bank transfer, the financial institution remitting their subscription funds sends a fax to the Administrator containing the information noted at Appendix B to the Application Form.
5. Redemption of Shares
Redemption requests must be in writing, signed and accompanied by the Share certificate (where Certified Shares are held) or redemption request. The request may be made by completing the form on the reverse of the Share certificate. The redemption request should be faxed to the Administrator with the original following by post. Investors are also required to complete the redemption of shares (standing wiring instructions) contained in the Application Form.
6. Queries All queries regarding the completion of the Application Form should be addressed to the
Administrator.
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APPLICATION FORM
To: Key Hedge Fund Inc. Attn: c/o Investor Relations Group Citco Fund Services (Dublin) Limited
Custom House Plaza, Block 6 International Financial Services Centre Dublin 1, Ireland
Fax No: + 353 1 636 7301
Please use block capitals
APPLICANT
Name....................................................................................................................................................
Address.................................................................................................................................................
..............................................................................................................................................................
E-mail: ......................................................... Postal Code..................................................................
Tel. No ......................................................... Fax No.........................................................................
CORRESPONDENCE ADDRESS (if different from above). All correspondence will be sent to the above address, unless the following section is completed.
Name....................................................................................................................................................
Address.................................................................................................................................................
..............................................................................................................................................................
E-mail: ......................................................... Postal Code..................................................................
Tel. No ......................................................... Fax No.........................................................................
INVESTMENT
Amount Remitted
Bank Transfer
Initial Fee
Net
Class A
$ ........................... $ ........................... $ ...........................
Class B € ........................... € ........................... € ........................... Class C Nok ...................... Nok ...................... Nok ...................... Class D Sek ...................... Sek ...................... Sek ...................... Class E £ ...................... £ ...................... £ ...................... The initial minimum investment is $100,000 for Class A Shares and the equivalent of $10,000 in any other applicable currency for Class B, C, D and E Shares in each case payable in full (net of any initial fees and bank charges). Subsequent investments must be over $10,000 or equivalent in any other applicable currency.
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REDEMPTION OF SHARES (STANDING WIRE INSTRUCTIONS) Until further written notice to the Company signed by the respective shareholder(s), redemption proceeds will be wired to the shareholder(s) using the following instructions: Name of Bank.................................................................................................................................. City ............................................................... Country.................................................................... Branch Office (and Sort Code) ....................................................................................................... ABA or CHAPS Number ................................................................................................................ Account Name............................................... Account No ............................................................. Reference......................................................................................................................................... DISCLOSURE STATEMENT To: Key Hedge Fund Inc. and Citco Fund Services (Dublin) Limited (1) I/We hereby acknowledge that I/we have received and considered the current Offering Memorandum relating to the Company and that this application is made on the terms thereof and subject to the Company’s Memorandum and Articles of Association. (2) I/We hereby irrevocably apply for such number of Shares (including fractions) at a price determined in accordance with the Offering Memorandum. I/We acknowledge that the Company reserves the right to reject any application in whole or in part. (3) If I am/we are investing in Class A Shares, I/We warrant and declare that (i) my/our ordinary business or professional activity includes the buying or selling of investments whether as principal agent; or (ii) that I individually (or jointly with my spouse) have a net worth in excess of $1,000,000; or (iii) we are an institution with a minimum amount of assets under discretionary management of $5,000,000. (4) I/We warrant that: (a) I/We have the knowledge, expertise and experience in financial matters to evaluate the risks of investing in the Company and to make an informed decision with respect thereto; (b) I am/We are aware of the risks inherent in investing in the Shares and the method by which the assets of the Company are held and/or traded; and (c) I/We can bear the risk of loss of my/our entire investment. (5) I/We certify that the Shares are not being acquired in violation of any applicable law. (6) U.S. Person Representation (Please tick either (a) or (b) below.):
(a) I/We hereby certify that I am/we are a U.S. Person (as defined in the Offering Memorandum), and that I/we have completed and submitted the Supplemental Disclosure Statement for U.S. Persons and U.S. Taxpayers provided to me/us by the Administrator.
(b) I/We hereby certify that I am/we are not a U.S. Person (as defined in the Offering
Memorandum). I/we further certify that the Shares are not being acquired for the benefit of, directly or indirectly, any U.S. Person (as defined in the Offering Memorandum) and that I/we will not, subject to the conditions set forth in the Offering Memorandum, sell or offer to sell or transfer Shares in the United States or to or for the benefit of a U.S. Person.
(7) I/We understand (a) that the Company has not been and will not be registered under the United States Investment Company Act of 1940, as amended (“1940 Act”), (b) that the Shares have not been registered and will not be registered under the United States Securities Act of 1933, as amended (“1933 Act”), and (c) that the Shares have not been qualified under the securities laws of any state of the United States and, absent approval by the Directors and except as permitted under the 1933 Act, the 1940 Act and any applicable state securities laws, the Shares may not be offered, sold or transferred in the United States or to or for the benefit of, directly or indirectly, any U.S. Person.
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(8) I/We will hold Shares on behalf of a U.S. Taxpayer (as defined in Section 6 of Appendix II of the Offering Memorandum):
Yes No (please tick the appropriate box)
If the “yes” box is ticked, I/we have also reviewed the disclosures relating to U.S. taxation set forth in the Supplemental Disclosure Statement for U.S. Persons and U.S. Taxpayers, and I/we understand the U.S. tax consequences of such an investment. I/We agree to provide the Company with such additional tax information as it may from time to time request. (9) (a) I/We declare that the entity hereby subscribing for Shares is or is not (tick the appropriate box) a Benefit Plan Investor or investing on behalf of or with any assets of a Benefit Plan Investor as defined in the Offering Memorandum. (Benefit Plan Investors must contact the Administrator.) (b) If the entity subscribing for Shares is a Benefit Plan Investor or investing on behalf of or with any
assets of a Benefit Plan Investor, is it subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or to Section 4975 of the Internal Revenue Code of 1986, as amended (“Code”), or an entity any of the assets of which include assets of any such plan?
Yes No (please tick the appropriate box) (c) If I/we am/are a Benefit Plan Investor, or am/are acting on behalf of or investing with any assets of
a Benefit Plan Investor, then, to the extent applicable, (i) I am/we are aware of and have taken into consideration the diversification requirements and other fiduciary duties under Section 404(a)(1) of ERISA or other substantively similar law; (ii) I/we have concluded that my/our proposed investment in the Company is a prudent one; (iii) the fiduciary or other person signing the Application Form is independent of the investment adviser(s) to the Company, the Directors, any intermediaries who have marketing agreements with the Company and any of its affiliates, and has not relied upon any investment advice or recommendation of any such person as a basis for the decision to invest in the Company; (iv) this subscription and the investment contemplated hereby are in accordance with all requirements applicable under my/our governing instruments and under ERISA, the Code and/or other substantively similar law; (v) I/we represent and warrant that my/our acquisition and holding of Shares does not and will not constitute or result in a non-exempt prohibited transaction under ERISA or Code Section 4975, or a violation of any substantively similar law; and (vi) I/we acknowledge and agree that none of the Investment Manager, the Directors or the Manager shall be a “fiduciary” (within the meaning of Section 3(21) of ERISA, Section 4975 of the Code, or other substantively similar law) with respect to any of my/our assets by reason of the investor’s investment in the Company.
(10) I/We declare that I/we am/are or am/are not (tick the appropriate box) a person (including an entity)
that has discretionary authority or control with respect to the assets of the Company or a person that provides investment advice with respect to Company assets, or an “affiliate” of such a person. For purposes of this representation, an “affiliate” is any person controlling, controlled by or under common control with the Company or any of its investment advisers, including by reason of having the power to exercise a controlling influence over the management or policies of the Company or its investment adviser(s).
(11) I/We certify that I/we am/are or am/are not (tick the appropriate box) exercising discretionary authority over an account held for the benefit of a U.S. Person. (12) If I am/we are a commodity pool, my/our investment is directed by an entity which (i) is not required to be registered in any capacity with the CFTC or to be a member of the National Futures Association (“NFA”), (ii) is exempt from such registration or (iii) is duly registered with the CFTC in an appropriate capacity or capacities and is a member in good standing of the NFA. (13) Investment Company Representations:
(a) I am/We are neither an investment company required to be registered under the U.S. Investment Company Act of 1940, as amended (the “1940 Act”), nor an issuer that, but for an exception from the definition of “investment company” under the 1940 Act, would be an investment company; or
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(b) I am/We are an investment company subject to registration or would be an investment company but for an exception under the 1940 Act.
I/We have ____________ U.S. Person beneficial owners. (State the number, not the percentage, of U.S. Person beneficial owners. For purposes of answering (12)(b), include as a U.S. Person beneficial owner any account held for the benefit of a U.S. Person, regardless of where the discretion over the account is exercised. Applicants who tick (12)(b) must contact the Administrator and may be required to provide additional information.) I/We further agree to notify the Administrator within 5 business days in the event that the number of U.S. Person beneficial owners exceeds the number stated immediately above.
(14) I/We acknowledge that due to money laundering requirements operating within their jurisdiction, the Administrator may require proof of identity as described on pages 21, 54 and 60 of the Offering Memorandum (or any other information required by the Administrator in its discretion) before the application can be processed and the Company and/or the Administrator shall be held harmless and indemnified against any loss ensuing due to the failure to process this application, if such information as has been required has not been provided by me/us. In order to comply with the anti-money laundering regulations applicable to the Company and the Administrator, Appendix B MUST be completed by the financial institution which will be remitting the subscription monies on behalf of the subscriber. (15) I/We accept that the Company has authority to redeem a portion of my/our investments in the Company and to pay the proceeds of the redemption to the Manager as part of any Performance Fee payable in accordance with the provisions of the Offering Memorandum. (16) I/We hereby confirm that the Company, the Directors and the Administrator are each authorised and instructed to accept and execute any instructions in respect of this application and the Shares to which it relates given by me/us by facsimile. If instructions are given by me/us by facsimile, I/we acknowledge that the onus is on me/us to ensure that such instructions are received in legible form, and I/we undertake to confirm them in writing. I/We hereby indemnify the Company, the Directors and the Administrator and agree to keep each of them indemnified, against any loss of any nature whatsoever arising to each of them as a result of any of them acting on facsimile instructions. The Company, the Directors and the Administrator may rely conclusively upon and shall incur no liability in respect of any action taken upon any notice, consent, request, instructions or other instrument believed, in good faith, to be genuine or to be signed by properly authorised persons. (17) I/We understand and agree that, although the Company, the Administrator and the Company’s other service providers will use their reasonable efforts to keep details of my/our shareholding or personal data which is revealed on this form or is disclosed by me/us subsequently strictly confidential, I/we consent to such information being disclosed to the Manager, the Investment Manager, any other member of their groups and to other parties involved in the process of the business relationship (for example, distributors) where necessary or advisable to facilitate the acceptance and management of my/our subscription including, but not limited to, in connection with anti-money laundering purpose or for compliance with foreign regulatory requirements. (18) In accordance with the preceding paragraph, for the purposes of carrying out its services of Administrator, registrar and transfer agent of the Company, I/we consent to the Administrator, its delegates, authorised agents and associated or affiliated companies using, disclosing, processing and transferring outside the European Union (to countries which may not have equivalent data protection legislation in place) my/our personal data which is revealed on this form or is disclosed by me/us subsequently. (19) I/We agree to indemnify and hold harmless the Company, the Manager, the Investment Manager, the Administrator and their respective directors, officers and employees against any loss, liability, cost or expense (including without limitation attorneys’ fees, taxes, and penalties) which may result directly or indirectly, from any misrepresentation or breach of any warranty, condition, covenant or agreement set forth herein or in any other document delivered by me/us to the Company or the Administrator. Without limiting the generality of the foregoing. I/we understand and acknowledge that the Company is relying upon the representations and warranties in determining whether the offering is eligible for exemption from the registration requirements under the U.S. Securities Act of 1933, as amended, in determining whether the Company will remain excepted from the definition of “investment company” under the 1940 Act and in determining whether to accept the subscription tendered hereby. I/We further understand that the Manager and the Investment Manager are relying upon the representations and warranties to determine their status with relevant securities and other regulators.
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(20) I/We acknowledge that certain laws and regulations may require disclosure of my/our identity under some circumstances (for example, 10% or greater owners on Form D), and such disclosures may be a matter of public record. I/We hereby consent to such disclosure. (21) If I/we am/are acting as agent, representative or nominee for an investor (“Nominee”), the nominee acknowledges and agrees that the agreements, representations and warranties herein are also made on behalf of the beneficial owner(s). The Nominee represents and warrants that the Nominee has all requisite power and authority to enter into and perform this Application Form and the agreements contemplated hereby, and Nominee represents and warrants, after reasonable inquiry, that the information, representations and warranties of the investor provided in this Application Form and otherwise to the Company through the Nominee are accurate and complete. Nominee agrees to indemnify the Company and the Manager (including their members, shareholders, managers, partners, directors, officers, employees and agents) for any and all damages, costs, fees, losses and expenses (including counsel fees and disbursements) in connection with or resulting from the Nominee’s misrepresentation or misstatement contained herein or breach hereof, or the assertion of the Nominee’s lack of proper authorisation from the investor. (22) I/We hereby confirm that I/we shall be deemed to have made the statements listed at (1) to (21) above unless I/we notify you to the contrary in relation to any future Shares I/we may obtain. NAME: _____________________ SIGNATURE: ____________________ DATE: ____________ TITLE OF AUTHORISED SIGNATORY: ____________________________________________ JOINT APPLICANTS (if applicable)
NAME: SIGNATURE: DATE: 1. ________________________ _______________________ __________________________ 2. ________________________ _______________________ __________________________ 3. ________________________ _______________________ __________________________ NOTES: (1) A corporation should affix its common seal or execute under the hand of a duly authorised official who should state his representative capacity. (2) The application may be completed by a duly authorised agent on behalf of the applicant(s). Such person represents and warrants that he is duly authorised to sign this form and thereafter to redeem Shares on behalf of the applicant(s). (3) Applicants who are unable to make the above Disclosure Statement may still be able, in certain circumstances, to subscribe for Shares, but they should contact the Administrator for details first. (4) If the Application Form is not completed to the satisfaction of the Administrator the application may not be accepted. (5) The Company is entitled to charge an initial fee of up to 5 per cent. of the amount subscribed by investors prior to the issue of Shares which may be applied in order to pay the fees of any approved intermediaries (such fee may be waived at the discretion of the Directors).
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APPENDIX A
The Administrator requires the following identifying documents:- 1. In the case of subscribers who are individuals, please supply the following identification
documents:
(a) a certified copy of passport displaying photograph and signature; (b) two items of confirmation of residential address such as copies of electricity, gas or
telephone bills or bank statements.
2. In the case of subscribers which are corporate entities, please supply the following identification documents:
(a) certified copies of Certificate of Incorporation or similar document; (b) details of directors of the corporate entity or, alternatively, certified copies of the
passports of two directors; (c) list of persons authorised to sign on behalf of the corporate entity.
3. In the case of subscribers which are partnerships, please supply the following identification documents:
(a) certified copy of the Deed of Partnership or similar documents providing evidence of
establishment of the partnership; (b) identification of two of the partners and details of those authorised to sign on behalf
of the partnership.
The above requirements may be waived where payment is made from an account in the subscriber’s name at a financial institution which is a Designated Body1. Where payment is made in this way, you must ask the remitting financial institution to forward an advice letter in the form attached at Appendix B to the Administrator at the same time that funds are wired. Further details on which financial institutions qualify as a Designated Body are available from the Administrator.
1 A Designated Body is an individual or other entity which is regulated in respect of the provision of banking or
investment services in a country which is a member of the European Union or the Financial Action Task Force.
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APPENDIX B
PLEASE GIVE THIS LETTER TO YOUR FINANCIAL INSTITUTION AND HAVE THEM RETURN IT TO THE ADMINISTRATOR AT THE SAME TIME THAT THE SUBSCRIPTION MONEY IS WIRED.
SAMPLE LETTER
[to be placed on letterhead of the financial institution remitting payment]
Date Via mail and facsimile: + 353 1 636 7301 Key Hedge Fund Inc. c/o Citco Fund Services (Dublin) Limited Custom House Plaza, Block 6 International Financial Services Centre Dublin 1 Ireland Dear Sirs RE: KEY HEDGE FUND INC. 1. Name of Remitting Financial Institution: 2. Address of Remitting Financial Institution: 3. Name of Customer: 4. Address of Customer: 5. We have credited your account at [Bank], Account Number [number] for [amount] by order
of [subscriber] on [date]. The above information is given in strictest confidence for your own use only and without any guarantee, responsibility or liability on the part of this institution or its officials. Yours faithfully, Signed: Full Name: Position: 11067482.21.BUSINESS
