In re KINGATE MANAGEMENT LIMITED LITIGATION 09-CV-05386-Amended Consolidated Class

Case 1:09-cv-05386-DAB Document 53 Filed 05/18/10 of 159

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

IN RE KINGATE MANAGEMENT Master File No. 09 Civ. 5386 (DAB)

LIMITED LITIGATION

T:_This Document Relates To: All Actions JURY TRIA U Ii^D~

R;r

fA y

AMENDED CONSOLIDATED CLASS ACTION COMPLAINT

BOILS, SCHILLER & FLEXNER LLP575 Lexington AvenueNew York, New York 10022

.(212) 446-2300

COHEN MILSTEIN SELLERS& TOLL PLLC

88 Pine StreetNew York, New York 10005(212) 838-7797

LABATON SUCHAROW LLP140 BroadwayNew York, New York 10005(212) 907-0700

Co-Lead Counsel for Plaintiffs andInterim Co-Lead Counsel for the Putative Class


TABLE OF CONTENTS

Page

GLOSSARY OF DEFINED TERMS vii

I. NATURE OF THE ACTION 1

II. JURISDICTION AND VENUE 3

III. PARTIES 4

A. Plaintiffs 4

B. Defendants 6

1. The Kingate Defendants 6

2. The PricewaterhouseCoopers Defendants 11

3. Citi Hedge Defendants 12

C. Relevant Non-Parties 13

IV. BACKGROUND FACTS 16

A. Madoff’s Massive Ponzi Scheme 16

B. Madoff’s Arrest And Subsequent Investigations 17

V. THE KINGATE DEFENDANTS’ WRONGFUL CONDUCT 19

A. The Funds’ Investments With Madoff 19

B. Key Kingate Defendants Were In Close Contact With Madoff 20

C. The Kingate Defendants And Citi Hedge Knew Or Should Have KnownThat Madoff Was A Fraud 22

D. The Funds’ Information Memoranda Were False And Misleading 24

1. False and Misleading Statements Concerning the ActualInvestment 25

2. False and Misleading Statements Concerning Ongoing Duties toMonitor and Evaluate Madoff 27

3. False and Misleading Statements Concerning Options Trading andMadoff’s Counterparties 30

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4. False and Misleading Statements Attempting to Disclaim “TheRisk Of Fraud” 31

VI. PRICEWATERHOUSECOOPERS’ WRONGFUL CONDUCT 32

A. PricewaterhouseCoopers Audited The Funds 32

B. PricewaterhouseCoopers’ Audit Failed To Conform To GAAS 35

1. Basic Standards Under GAAS 36

2. PricewaterhouseCoopers Failed to Comply with GAAS 37

(a) PricewaterhouseCoopers Failed to Conduct AdequateProcedures Concerning Existence and Occurrence Risk 40

(b) PricewaterhouseCoopers Failed to Conduct the RequiredProcedures on BMIS Given Its Role as a ServiceOrganization 41

C. PricewaterhouseCoopers’ Practice Guide Concerning Audits of HedgeFunds Highlighted the Importance of Confirming the Existence of theAssets 43

D. The Funds’ Financial Statements Were False 46

1. Kingate Global’s Statements of Assets and Liabilities, Operations,and Change of Net Assets Were False 46

2. Kingate Euro’s Statements of Assets and Liabilities, Operations,and Change of Net Assets Were False 47

3. The Notes to Kingate Global’s and Kingate Euro’s FinancialStatements 51

E. Internal Documents Show That PricewaterhouseCoopers’ Audit ViolatedGAAS 53

F. PricewaterhouseCoopers Violated Its Duties To Plaintiffs And The Class 60

G. PricewaterhouseCoopers’ Substantial Assistance to Kingate Defendants’Fraud and Breaches of Fiduciary Duty 61

VII. CITI HEDGE’S WRONGFUL CONDUCT 63

A. Citi Hedge Committed To Provide Administrative Services Beyond ThoseOf A Typical Fund Administrator 63

B. Citi Hedge Touted Its Superior Financial Services Capabilities 65

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C. Citi Hedge Owed Duties To Plaintiffs And The Class 67

D. Citi Hedge’s Performance Of Its Duties Was Grossly Deficient 68

E. Citi Hedge Provided Substantial Assistance To The Kingate Defendants’Fraud And Breaches Of Fiduciary Duty 69

VIII. THE TREMONT GROUP 70

A. The Tremont Group Had Deep Ties With Madoff Based On ItsManagement Of At Least Five Other Madoff Feeder Funds 70

B. The Tremont Group Had A Special Relationship With Madoff 71

C. The Tremont Group Provided Substantial Assistance To Tremont’s FraudAnd Breach Of Fiduciary Duty 72

IX. HAD DEFENDANTS MONITORED AND EVALUATED MADOFF ASREPRESENTED IN THE INFORMATION MEMORANDA, DEFENDANTSWOULD HAVE DISCOVERED MADOFF’S PONZI SCHEME 73

A. Madoff’s Custody Of Equity Securities 73

B. Madoff’s Non-Existent Counterparties 73

C. The Government Securities Purportedly Held At The End Of Each YearDid Not Exist 73

D. Madoff’s Unknown Auditing Firm 74

E. Madoff’s Paper Trading Records 74

F. Madoff’s Consistent Returns 74

G. Madoff’s Fee Structure 75

X. THE COURT HAS SUBJECT MATTER JURISDICTIONPURSUANT TO THE EXCHANGE ACT 75

A. The Foreign Defendants Purposefully Availed Themselves Of TheBenefits Of Having The Funds Invest In The United States; It WasForeseeable That Defendants Would Be Haled Into Court In The UnitedStates 75

B. The Conduct And Effects Tests 77

1. The Conduct of Defendants KML, FIM Limited, FIM Advisers,and Grosso in the United States Was More Than Merely

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Preparatory, and the Culpable Failures to Act Within the UnitedStates Directly Caused the Losses 77

2. PwC Bermuda Had Substantial Conduct in the United States thatWas More Than Merely Preparatory and Directly Caused TheLosses 78

3. Effects Test: the Foreign Defendants’ Conduct Had a SubstantialEffect in the United States 78

XI. CLASS ACTION ALLEGATIONS 81

COUNT 1 Fraud Against The Kingate Fraud Claim Defendants(Purchaser Claims) 84

COUNT 2 Fraud Against The Kingate Fraud Claim Defendants(Holder Claims) 85

COUNT 3 Negligent MisrepresentationAgainst The Kingate Defendants (Purchaser Claims) 88

COUNT 4 Negligent MisrepresentationAgainst The Kingate Defendants (Holder Claims) 90

COUNT 5 Gross NegligenceAgainst The Kingate Defendants 92

COUNT 6 NegligenceAgainst The Kingate Defendants 94

COUNT 7 Breach Of Fiduciary DutyAgainst The Kingate Defendants 95

COUNT 8 Constructive FraudAgainst The Kingate Defendants 97

COUNT 9 Third Party Beneficiary Breach Of ContractAgainst KML And Tremont 100

COUNT 10 Third Party Beneficiary Breach Of ContractAgainst The FIM Entities 101

COUNT 11 Constructive TrustAgainst The Kingate Defendants 102

COUNT 12 Mutual MistakeAgainst The Kingate Defendants 102

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COUNT 13 Aiding And Abetting Breach Of Fiduciary DutyAgainst The Tremont Group 103

COUNT 14 Aiding And Abetting FraudAgainst The Tremont Group 104

COUNT 15 Gross NegligenceAgainst PricewaterhouseCoopers 107

COUNT 16 NegligenceAgainst PricewaterhouseCoopers 109

COUNT 17 Negligent MisrepresentationAgainst PricewaterhouseCoopers 110

COUNT 18 Third Party Beneficiary Breach Of ContractAgainst PricewaterhouseCoopers 111

COUNT 19 Aiding And Abetting Breach Of Fiduciary DutyAgainst PricewaterhouseCoopers 112

COUNT 20 Aiding And Abetting FraudAgainst PricewaterhouseCoopers 113

COUNT 21 Breach Of Fiduciary DutyAgainst Citi Hedge 117

COUNT 22 Gross NegligenceAgainst Citi Hedge 118

COUNT 23 NegligenceAgainst Citi Hedge 119

COUNT 24 Negligent MisrepresentationAgainst Citi Hedge 120

COUNT 25 Third Party Beneficiary Breach Of ContractAgainst Citi Hedge 121

COUNT 26 Aiding And Abetting Breach Of Fiduciary DutyAgainst Citi Hedge 123

COUNT 27 Aiding And Abetting FraudAgainst Citi Hedge 124

COUNT 28 Unjust EnrichmentAgainst All Defendants 125

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COUNT 29 For Violations Of Rule 1 0b-5 And Section 10(b) Of The Exchange ActAgainst The Kingate Fraud Claim Defendants 126

1. False And Misleading Statements And Omissions About The Split-Strike Conversion Strategy Used By The Funds 128

2. False And Misleading Statements And Omissions AboutDue Diligence For Kingate Global And Kingate Euro 129

3. False And Misleading Statements And Omissions AboutMadoff’s Role As Market Maker 130

4. False And Misleading Statements And Omissions AboutMadoff’s Over-The-Counter Options Transactions 131

5. Misleading Statements And Omissions About The “Possibility”That Madoff Will Abscond With the Funds’ Assets 132

COUNT 30 For Violations Of Section 20(a) Of The Exchange ActAgainst Tremont Advisers, Grosso, Ceretti, And Manzke 133

COUNT 31 For Violations Of Rule 1 0b-5 And Section 10(b) Of The Exchange ActAgainst PricewaterhouseCoopers 135

COUNT 32 For Violations Of Rule 1 0b-5 And Section 10(b) Of The Exchange ActAgainst Citi Hedge 139

JURY TRIAL DEMANDED 141

PRAYER 141

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GLOSSARY OF DEFINED TERMS

Defined Term Definition

Acorn Acorn Partners

Account Agreements Customer Agreements, Option Agreements, and TradingAuthorizations Between The Funds and BMIS

Administration Agreement Citi Hedge Administration Agreement, as amended andrestated effective June 1, 2007 (attached as Exhibit 15)

AICPA American Institute of Certified Public Accountants

AICPA Guide The AICPA Audit Guide: Auditing Derivative Instruments,Hedging Activities, and Investments in Securities

Aksia Aksia LLC

AU AICPA Statements of Accounting Standards

Bank of Bermuda Bank of Bermuda Limited

Bish Defendant Keith R. Bish

BISYS BISYS Hedge Fund Services Limited

BMIS Bernard L. Madoff Investment Securities LLC

BMIS Bank Account BMIS Account at JPMorgan Chase & Co.

BMIS' Office 885 Third Avenue, New York, New York

Brown Scott-Watson Brown

Calendar Calendar of Bernard L. Madoff kept by Eleanor Squillari

Castillo Plaintiff Alvaro Castillo

CBOE Chicago Board Options Exchange

Ceretti Defendant Federico M. Ceretti

Citi Hedge Defendant Citi Hedge Fund Services Ltd.

Class All persons or entities who owned shares of the Funds as ofDecember 10, 2008, and were damaged thereby

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Consultant FIM Advisers LLP and its predecessor-in-interest FIMLimited

Cook Defendant Graham H. Cook

DTC Depository Trust & Clearing Corporation

Epps Defendant John E. Epps

Exchange Act Securities Exchange Act of 1934

Exchange Act Plaintiffs Plaintiffs Silvana Worldwide Corp., BG Valores, S.A.,Alvaro Castillo, Lucien Geldzahler, Jaques Lamac andNitkey Holdings Corporation

F&H Friehling & Horowitz

Fairfield Greenwich Fairfield Greenwich Advisors, LLC

FBI Federal Bureau of Investigation

FIM Advisers Defendant FIM Advisers LLP

FIM Defendants Defendants FIM Advisers LLP, FIM Limited, FIM (USA)Incorporated, Carlo Grosso and Federico M. Ceretti

FIM Entities Defendants FIM Advisers LLP, FIM Limited and FIM(USA) Incorporated

FIM Limited Defendant FIM Limited

FIM USA Defendant FIM (USA) Incorporated

FINRA Financial Industry Regulatory Authority

Foreign Defendants Defendants Kingate Management Limited, FIM AdvisersLLP, FIM Limited, Tremont (Bermuda) Limited, CarlosGrosso, Federico M. Ceretti, Graham H. Cook, John E.Epps, Charles D. Sebah, Keith R. Bish, ChristopherWetherhill, PricewaterhouseCoopers Bermuda and CitiHedge Fund Services Ltd.

Friehling David Friehling

Funds Kingate Global Fund, Ltd. and Kingate Euro Fund, Ltd.

GAAP Generally Accepted Accounting Principles

GAAS Generally Accepted Auditing Standards

viii


Geldzahler Plaintiff Lucien Geldzahler

Grosso Defendant Carlo Grosso

Hemisphere Hemisphere Management Limited

IM Information Memoranda (attached as Exhibits 1-6)

Investment Advisory Investment Advisory Business Unit of Bernard L. MadoffInvestment Securities LLC

Individual Defendants Defendants Carlo Grosso, Federico M. Ceretti, Graham H.Cook, John E. Epps, Sandra Manzke, Charles D. Sebah,Keith R. Bish, Christopher Wetherhill and Michael G.Tannenbaum

IRS Internal Revenue Service

KEF 2006-07 FS Financial Statements of Kingate Euro Fund, Ltd. for theyears ending December 31, 2006 and 2007 (attached asExhibit 10)

KEF 2008 IM Kingate Euro Fund, Ltd. Information Memorandum,October 6, 2008 (attached as Exhibit 2)

KGF 2000 IM Kingate Global Fund, Ltd. Information Memorandum, May1, 2000 (attached as Exhibit 6)

KGF 2003 IM Kingate Global Fund, Ltd. Amended and RestatedInformation Memorandum, January 15, 2003 (attached asExhibit 5)

KGF 2004-05 FS Financial Statements of Kingate Global Fund, Ltd. for theyears ending December 31, 2004 and 2005 (attached asExhibit 8)

KGF 2006-07 FS Financial Statements of Kingate Global Fund, Ltd. for theyears ending December 31, 2006 and 2007 (attached asExhibit 9)

KGF 2006 IM Kingate Global Fund, Ltd. Amended and RestatedInformation Memorandum for USD Participating CommonShares, May 1, 2006 (attached as Exhibit 4)

KGF 2006 Management Agreement January 1, 2006 Management Agreement between KingateGlobal and KML (attached as Exhibit 7)

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KGF 2007 IM Kingate Global Fund, Ltd. Amended and RestatedInformation Memorandum, August 1, 2007 (attached asExhibit 3)

KGF 2008 IM Kingate Global Fund, Ltd. Amended and RestatedInformation Memorandum, October 6, 2008 (attached asExhibit 1)

Kingate Euro Kingate Euro Fund, Ltd.

Kingate Euro Account Kingate Euro’s Account with BMIS

Kingate Defendants Defendants Kingate Management Limited, Tremont(Bermuda) Limited, Tremont Group Holdings, Inc., FIMAdvisers LLP, FIM Limited, FIM (USA) Incorporated,Carlo Grosso, Federico M. Ceretti, Graham H. Cook, JohnE. Epps, Sandra Manzke, Charles D. Sebah, Keith R. Bish,Christopher Wetherhill and Michael G. Tannenbaum

Kingate Fraud Claim Defendants Defendants Kingate Management Limited, Tremont(Bermuda) Limited, FIM Advisers LLP, FIM Limited, FIM(USA) Incorporated, Carlo Grosso, Federico M. Ceretti andSandra Manzke

Kingate Global Kingate Global Fund, Ltd.

Kingate Global Account Kingate Global’s Account with BMIS

KML Defendant Kingate Management Limited

Lamac Plaintiff Jaques Lamac

Madoff Bernard L. Madoff

Manzke Defendant Sandra Manzke

MassMutual Massachusetts Mutual Life Insurance Company

McGowan Linda McGowan

Murphy John V. Murphy

NAV Net Asset Value

Nitkey Plaintiff Nitkey Holdings Corporation

OEX Options of the S&P 100 Index

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Office Telephone Directory Bernard L. Madoff’ s Office Telephone Directory kept byEleanor Squillari

Oppenheimer Oppenheimer Acquisition Corp.

OppenheimerFunds OppenheimerFunds, Inc.

Pocket Book A copy of Bernard L. Madoff’s Pocket Book TelephoneDirectory kept by Eleanor Squillari

PricewaterhouseCoopers Defendants PwC Bermuda and PwC U.S.

Proxy Statement Schedule 14A Proxy Statement filed with the SEC byTremont Group Holdings, Inc. on August 20, 2001

Putnam Lovell Putnam Lovell Securities, Inc.

PwC 2004 Madoff Report Report of PwC Meeting with Madoff in December 2004(attached as Exhibit 13)

PwC Bermuda Defendant PricewaterhouseCoopers Bermuda

PwC Guide 2007 PwC U.S. publication entitled, “Auditing AlternativeInvestments – A Practical Guide for Investor Entities,Investee Funds Managers and Auditors” (attached asExhibit 11)

PwC Netherlands PwC Rotterdam

PwC Netherlands Letter Letter from PwC Rotterdam (Netherlands) RecountingAudit Procedures Conducted on Madoff in December 2004(attached as Exhibit 12)

PwC U.S Defendant PricewaterhouseCoopers LLP

Rye Funds Rye Select Broad Market Fund LP, Rye Select BroadMarket Prime Fund LP, Rye Select Broad Market XL FundLP, Rye Select Broad Market Portfolio Limited, and RyeSelect Broad Market XL Portfolio Limited.

S&P 100 Index Standard & Poor’s 100 Index

SAS AICPA Statements of Accounting Standards

Sebah Defendant Charles D. Sebah

SEC Securities and Exchange Commission

Silvana Plaintiff Silvana Worldwide Corp

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SIPA Securities Investor Protection Act

SocGen Société Générale

Tannenbaum Defendant Michael G. Tannenbaum

Tremont Defendant Tremont (Bermuda) Limited

Tremont Advisers Tremont Advisers, Inc.

Tremont Group Defendant Tremont Group Holdings, Inc.

Wetherhill Defendant Christopher Wetherhill

Wolfgruber Kurt Wolfgruber

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Plaintiffs, individually and on behalf of all others similarly situated, by their undersigned

counsel, allege the following upon information and belief and counsels’ investigation, except for

those allegations as to themselves, which are alleged upon personal knowledge.

I. NATURE OF THE ACTION

1. This case arises from the massive fraud perpetrated by Bernard L. Madoff

(“Madoff”) through his investment firm Bernard L. Madoff Investment Securities LLC

(“BMIS”). As the public learned on December 11, 2008, Madoff and BMIS controlled billions

of dollars in investments which purportedly earned stable returns. In truth, these returns were

entirely fictitious and part of the largest Ponzi scheme in history. Investors lost an estimated

$64.8 billion based upon the reported value of thousands of BMIS client accounts as of

November 30, 2008.

2. Although Madoff operated the Ponzi scheme, Defendants solicited investments

from Plaintiffs and oversaw, controlled, and managed those investments. Defendants

represented to Plaintiffs that they would conduct due diligence, choose investment advisers,

monitor the performance of the chosen investment advisers, and provide Plaintiffs with

independently verified and calculated statements of their investments. Instead, Defendants

simply turned over all of Plaintiffs’ assets to Madoff without conducting any meaningful due

diligence or independently verifying any of Madoff’s purported trading and profits.

3. Plaintiffs invested indirectly with Madoff through two so-called “feeder funds”

that channeled billions of dollars into Madoff’ s fraudulent operations – Kingate Global Fund,

Ltd. (“Kingate Global”) and Kingate Euro Fund, Ltd. (“Kingate Euro,” collectively with Kingate

Global, “the Funds”). The Funds had billions of dollars in assets, substantially all of which were

invested with Madoff, and all of which are now lost.

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4. Each of the Defendants owed duties to Plaintiffs, including fiduciary duties, (i) to

conduct due diligence and provide accurate and complete information to Plaintiffs about the

Funds, both before and after the initial investment, (ii) to exercise due care with Plaintiffs’

investments, and (iii) to monitor Madoff and others chosen by Defendants to carry out the Funds’

investment strategy and safeguard their assets. Rather than complying with their representations

and duties, Defendants used the Funds as mere conduits to facilitate Madoff’s Ponzi scheme.

The loss of Plaintiffs’ assets in the Madoff Ponzi scheme is a direct and proximate result of

Defendants’ failure to fulfill their duties. In so doing, Defendants wrongfully collected hundreds

of millions of dollars in unearned fees based on the fictitious profits. These fees were wrongly

paid out of the Funds and must be returned.

5. Plaintiffs assert common law claims for fraud, negligent misrepresentation, gross

negligence, negligence, breach of fiduciary duty, constructive fraud, third party beneficiary

breach of contract, mutual mistake, aiding and abetting breach of fiduciary duty, aiding and

abetting fraud, and unjust enrichment. Plaintiffs also assert claims under Section 10(b) and 20(a)

of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j and 78t(a), and

Rule 1 0b-5, 17 C.F.R. § 240.1 0b5, promulgated thereunder by the Securities and Exchange

Commission (“SEC”).

6. Plaintiffs bring this action as a class action pursuant to Rules 23(a) and 23(b)(3)

of the Federal Rules of Civil Procedure on behalf of all persons or entities who owned shares of

the Funds as of December 10, 2008, and were damaged thereby (the “Class”). Excluded from

the Class are the Defendants, any entity in which Defendants have a controlling interest, and the

officers, directors, affiliates legal representatives, immediate family members, heirs, successors,

subsidiaries and/or assigns of any such individual or entity.

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II. JURISDICTION AND VENUE

7. This Court has jurisdiction pursuant to the Class Action Fairness Act of 2005,

codified at 28 U.S.C. § 1332(d)(2). The amount in controversy exceeds the jurisdictional

amount, the members of the Class are in the thousands, and at least one Plaintiff is a citizen of a

foreign state and one Defendant is a citizen of New York.

8. This Court also has supplemental jurisdiction pursuant to 28 U.S.C. § 1367(a).

9. This Court has jurisdiction over the Exchange Act claims asserted herein pursuant

to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331.

10. This Court has personal jurisdiction over all Defendants because all Defendants:

(a) have systematic and continuous contacts with New York, including:

(i) maintaining offices in New York;

(ii) being citizens of New York;

(iii) establishing investment accounts with BMIS in New York;

(iv) maintaining ongoing investment activity in BMIS accounts,including transferring all of Plaintiffs’ investments to BMIS inNew York as custodian of such assets;

(v) making telephone calls, faxing and mailing documents anddirecting computer and internet communications to New York;

(vi) receiving fees derived from the foregoing activity conducted inNew York; or

(b) are subject to New York’s long arm statute, N.Y. C.P.L.R. § 302, because

Defendants transacted business in New York concerning the allegations in this Complaint and

purposefully availed themselves of the privilege of conducting activities in this forum.

11. The exercise of personal jurisdiction over Defendants by this Court is appropriate

and will not offend traditional notions of fair play and substantial justice because each of the

Defendants had sufficient minimum contacts with the State of New York.

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12. Venue is proper in this District pursuant to 28 U.S.C. § 1391(a)(3), as one or more

of the Defendants resides in this District, a substantial number of relevant events occurred in this

District, and the principal place of business of one or more Defendants is in this District.

13. Venue in this judicial District also is proper pursuant to Section 27 of the

Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1391(b), because substantial acts in

furtherance of the alleged wrongdoing and/or its effects have occurred within this District.

III. PARTIES

A. Plaintiffs

14. Due to the acts alleged herein, the Plaintiffs identified below have lost their

investments in the Funds as of December 10, 2008, and also have paid substantial fees that were

wrongfully charged based on fictitious investment returns.

15. Plaintiff Silvana Worldwide Corp. (“Silvana”) is, and was at all times relevant

hereto, incorporated in Panama. Silvana invested in Kingate Global beginning in March 2008

and was damaged thereby.

16. Plaintiff Criterium Capital Funds, B.V. is, and was at all times relevant hereto,

a Netherlands Antilles private limited liability company (“besloten vennootschap”) that invested

assets in Kingate Global beginning on January 1, 1999. This purchase occurred more than five

years from the commencement of this action and therefore does not form the basis for any

Exchange Act claims, only common law claims.

17. Plaintiff BBF Trust is, and was at all times relevant hereto, a trust formed under

the laws of the Commonwealth of the Bahamas that invested assets in Kingate Global beginning

in October 1997. This purchase occurred more than five years from the commencement of this

action and therefore does not form the basis for any Exchange Act claims, only common law

claims.

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18. Plaintiff BG Valores, S.A. (f/k/a Wall Street Securities, S.A.) is, and was at all

times relevant hereto, a Panamanian corporation that invested assets in Kingate Global beginning

in November 2008.

19. Plaintiff Banca Arner S.A. is, and was at all times relevant hereto, a Swiss

corporation that invested assets in Kingate Global beginning in July 1997 and Kingate Euro

beginning in May 2000. This purchase occurred more than five years from the commencement

of this action and therefore does not form the basis for any Exchange Act claims, only common

law claims.

20. Plaintiff Alvaro Castillo (“Castillo”) is, and was at all times relevant hereto, an

individual residing in Switzerland who invested assets in Kingate Global beginning in October

2008.

21. Plaintiff Lucien Geldzahler (“Geldzahler”) is, and was at all times relevant

hereto, an individual residing in Israel who invested assets in Kingate Global beginning in

January 2008.

22. Plaintiff Jaques Lamac (“Lamac”) is, and was at all times relevant hereto, an

individual residing in Brazil who invested assets in Kingate Global beginning in January 2006.

23. Plaintiff Nitkey Holdings Corporation (“Nitkey”) is, and was at all times

relevant hereto, a Panamanian corporation that invested assets in Kingate Global beginning in

March 2008.

24. Plaintiffs Silvana, BG Valores, S.A., Castillo, Geldzahler, Lamac and Nitkey are

referred to herein as the “Exchange Act Plaintiffs.” Only these plaintiffs assert claims pursuant

to the Exchange Act. 1

1 Certifications pursuant to 15 U.S.C. § 78u-4(a)(2)(A) are attached as Exhibit A.

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B. Defendants

1. The Kingate Defendants

25. Defendant Kingate Management Limited (“KML”) is a corporation organized

under the laws of Bermuda on February 24, 1994. KML’s principal place of business is located

at 99 Front Street, Hamilton, Bermuda.

(a) KML served as Co-Manager of the Funds with Tremont (defined infra

¶ 26) from the inception of the Funds until approximately December 31, 2005. Beginning on

January 1, 2006, KML served as sole Manager. As Co-Manager and Manager, KML was

responsible for the selection, evaluation, and oversight of Madoff, and for arranging all the

accounting and administrative services for the Funds pursuant to certain management agreements

dated March 1, 1995, May 1, 2000, and January 1, 2006, as amended.

(b) For its purported services as Co-Manager, KML received a portion of the

annual management fee of 1.5 percent of the Fund’s net asset value (“NAV”), and the entire fee

when it acted as sole Manager.

(c) KML transacted business related to the Funds in New York, including

maintaining the Funds’ investment accounts with Madoff in New York, communicating regularly

with Madoff, and conducting due diligence and oversight of Madoff in New York.

26. Defendant Tremont (Bermuda) Limited (“Tremont”) is a corporation organized

under the laws of Bermuda on November 16, 1988, and its principal place of business is located

at Tremont House, 4 Park Road, Hamilton, Bermuda.

(a) Tremont is a wholly owned subsidiary of Tremont Advisers, Inc.

(“Tremont Advisers”). Tremont Advisers is currently known as Tremont Group Holdings, Inc.

(defined infra ¶ 27), which is a wholly owned subsidiary of Oppenheimer Acquisition Corp.

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(defined infra ¶ 53). Tremont Advisers and Oppenheimer Acquisition Corp. are incorporated in

Delaware.

(b) Tremont served as Co-Manager of the Funds with KML from the

inception of the Funds until December 31, 2005. As Co-Manager, Tremont was responsible for

the selection, evaluation, and oversight of Madoff, and for arranging all the accounting and

administrative services for the Funds, pursuant to certain management agreements dated March

1, 1995 and May 1, 2000, as amended.

(c) For its purported services as Co-Manager, Tremont received a portion of

the annual management fee of 1.5 percent of the Fund’s NAV.

(d) Tremont transacted business related to the Funds in New York, including

maintaining the Funds’ investment accounts with Madoff in New York, communicating regularly

with Madoff, and conducting due diligence and oversight of Madoff in New York.

27. Defendant Tremont Group Holdings, Inc. (“Tremont Group”) is a corporation

organized under the laws of the State of Delaware and maintains its principal place of business at

555 Theodore Fremd Avenue, Rye, New York. Tremont Group was formerly Tremont Advisers

and is currently a wholly owned subsidiary of Oppenheimer Acquisition Corp.

28. Defendant FIM Limited (“FIM Limited” or the “Consultant”) is a limited

liability company established in 1980 under the laws of England and Wales. FIM Limited has its

principal place of business at 25-28 Old Burlington Street, London, United Kingdom. FIM

Limited was appointed to provide consultancy services to KML and Tremont pursuant to a

Consulting Services Agreement dated December 1, 1995, and provided consultancy services

until approximately July 31, 2005. FIM Limited is the predecessor-in-interest to FIM Advisers

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LLP, and is associated with FIM (USA) Incorporated. FIM Limited earned millions of dollars in

fees from KML for its consulting services.

29. Defendant FIM Advisers LLP (“FIM Advisers” or the “Consultant”) is a limited

liability partnership incorporated under the laws of the United Kingdom on October 8, 2004.

FIM Advisers’ principal place of business is 20 St. James Street, London, United Kingdom.

(a) FIM Advisers is an asset management company specializing in the

management of hedge fund portfolios for institutions and private clients, with approximately $5

billion under management. FIM Advisers is regulated by the Financial Services Authority of the

United Kingdom.

(b) Pursuant to a Consulting Services Agreement dated August 1, 2005, FIM

Advisers rendered consulting advice and services to KML and Tremont with respect to the

Funds’ investment, operational, administrative, marketing, accounting, and legal matters.

(c) FIM Advisers is the successor-in-interest to FIM Limited. At all relevant

times, FIM Advisers had employees located in Bermuda, London, and New York, and conducted

a substantial amount of its business in the United States through its affiliate FIM (USA)

Incorporated.

30. Defendant FIM (USA) Incorporated (“FIM USA” and together with FIM

Limited and FIM Advisers, the “FIM Entities”) is a Delaware corporation incorporated on

January 25, 2005 and is qualified to do business in New York. FIM USA is the American

affiliate of FIM Advisers, and is located at 780 Third Avenue, New York, New York 10017.

31. Defendant Carlo Grosso (“Grosso”) founded the FIM Entities. Grosso served as

Executive Chairman and Chief Investment Officer of FIM Limited. Grosso is a resident of the

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United Kingdom. Grosso is the Executive Chairman and Chief Investment Officer of FIM

Advisers, which he also co-founded. Grosso controlled the FIM Entities.

32. Defendant Federico M. Ceretti (“Ceretti”) joined FIM Limited in 1986 and co-

founded FIM Advisers with Defendant Grosso. Ceretti is a resident of the United Kingdom.

Ceretti is Chief Executive Officer of FIM Advisers. Ceretti controlled the FIM Entities.

33. Defendants FIM Limited, FIM Advisers, FIM USA, Grosso and Ceretti are

collectively referred to herein as the “FIM Defendants.”

34. Defendant Graham H. Cook (“Cook”) is a Director of the Funds and a resident

of the British Virgin Islands. As a director of the Funds, Cook had knowledge of, and

participated in, the Funds’ transaction of business within the state of New York, including by

maintaining investment accounts in New York, consenting to the transactions related to those

accounts, and otherwise exercising control over the Funds.

35. Defendant John E. Epps (“Epps”) is a Director of the Funds and a resident of

Bermuda. As a director of the Funds, Epps had knowledge of, and participated in, the Funds’

transaction of business within the state of New York, including by maintaining investment

accounts in New York, consenting to the transactions related to those accounts, and otherwise

exercising control over the Funds.

36. Defendant Sandra Manzke (“Manzke”) was a Director of Kingate Global from

1995 until approximately 2003. Manzke was also Chairman and co-CEO of Tremont Group

(f/k/a Tremont Advisers), the parent company of Tremont throughout the time that Tremont

served as Co-Manager of the Funds. As a director of Kingate Global, Manzke had knowledge

of, and participated in, Kingate Global’s transaction of business within the state of New York,

including by maintaining investment accounts in New York, consenting to the transactions

9


related to those accounts, and otherwise exercising control over Kingate Global. Manzke is a

citizen of New York.

37. Defendant Charles D. Sebah (“Sebah”) was a Director of Kingate Global from

1995 until approximately 2003. As a director of Kingate Global, Sebah had knowledge of, and

participated in, Kingate Global’s transaction of business within the state of New York, including

by maintaining investment accounts in New York, consenting to the transactions related to those

accounts, and otherwise exercising control over Kingate Global. Sebah is a resident of France.

38. Defendant Keith R. Bish (“Bish”) was a Director of Kingate Global from 1995 to

2002. Bish is a national of the United Kingdom residing in the British Virgin Islands. As a

director of Kingate Global, Bish had knowledge of, and participated in, Kingate Global’s

transaction of business within the state of New York, including by maintaining investment

accounts in New York, consenting to the transactions related to those accounts, and otherwise

exercising control over Kingate Global.

39. Defendant Christopher Wetherhill (“Wetherhill”) is a Director of Kingate

Global, Kingate Euro, and KML. Wetherhill has been a Director of Kingate Global and KML

since 1995 and a Director of Kingate Euro since the Fund’s inception. Wetherhill, a national of

the United Kingdom, is a resident of Bermuda. As a director of Kingate Global, Kingate Euro,

and KML, Wetherhill had knowledge of, and participated in, the Funds’ transaction of business

within the state of New York, including by maintaining investment accounts in New York,

consenting to the transactions related to those accounts, and otherwise exercising control over the

Funds.

10


40. Defendant Michael G. Tannenbaum (“Tannenbaum”) is a Director of KML, and

oversaw and directed KML’s wrongful actions on behalf of the Funds. Tannenbaum is a citizen

of New York.

41. Defendants Grosso, Ceretti, Cook, Epps, Manzke, Sebah, Bish, Wetherhill, and

Tannenbaum are collectively referred to herein as the “Individual Defendants.” All of the

Individual Defendants had knowledge of and participated in the Funds’ transactions conducted in

New York, New York.

42. Defendants KML, Tremont, Tremont Group, the FIM Entities, and the Individual

Defendants are referred to collectively as the “Kingate Defendants.”

43. Defendants KML, Tremont, the FIM Entities, Grosso, Ceretti and Manzke are

collectively referred to as the “Kingate Fraud Claim Defendants.” These are the Kingate

Defendants against whom Plaintiffs assert fraud claims. The Kingate Fraud Claim Defendants

were active participants in the preparation and dissemination of materially false and misleading

documents, including the Information Memoranda, and had actual knowledge of or recklessly

disregarded the falsity and material omissions in these documents.

2. The PricewaterhouseCoopers Defendants

44. Defendant PricewaterhouseCoopers Bermuda (“PwC Bermuda”) is an

accounting firm organized under the laws of Bermuda. PwC Bermuda is a member of

PricewaterhouseCoopers and is part of PricewaterhouseCoopers’ global network of firms.

Pursuant to its membership in PricewaterhouseCoopers, PwC Bermuda is licensed to use the

names “PwC” and “PricewaterhouseCoopers” and is required to maintain uniform standards with

other members of PricewaterhouseCoopers, including PwC U.S.

(a) The audit opinions accompanying the Funds’ financial statements for the

years ended December 31, 2005, 2006, and 2007, were signed by “PricewaterhouseCoopers,

11


Chartered Accountants,” and stated that “PricewaterhouseCoopers refers to the members of the

worldwide PricewaterhouseCoopers organization.” PricewaterhouseCoopers certified that these

audits were conducted “in conformity with accounting principles generally accepted in the

United States of America.”

(b) PwC Bermuda was one of the PricewaterhouseCoopers member

organizations that conducted the audit of the Funds and reported on the financial statements and

results of the operations of the Funds by issuing unqualified audit opinions. The audit opinions

were issued on PwC Bermuda’s letterhead.

45. Defendant PricewaterhouseCoopers LLP (“PwC U.S.” and together with PwC

Bermuda, “PricewaterhouseCoopers”) is an accounting firm with offices at 300 Madison

Avenue, New York, New York. PwC U.S. was one of the PricewaterhouseCoopers member

organizations that conducted the audit of the Funds, and reported on the financial statements and

results of the operations of the Funds by issuing unqualified audit opinions.

3. Citi Hedge Defendants

46. Defendant Citi Hedge Fund Services Ltd. (“Citi Hedge”) is a company

registered in accordance with the laws of Bermuda. Citi Hedge has its principal place of

business located at 9 Church Street, Hamilton, Bermuda.

(a) Citi Hedge served as the Funds’ administrator pursuant to an

Administration Agreement, as amended and restated effective June 1, 2007. Citi Hedge is the

successor-in-interest to the prior administrators of the Funds, BISYS Hedge Fund Services

Limited (“BISYS”) and Hemisphere Management Limited (“Hemisphere”).

(b) As the Funds’ administrator, Citi Hedge was responsible for performing

significant day-to-day administrative services for the Funds, including: (i) preparing and

distributing monthly reports to the investors containing the amount of the Funds’ net assets, the

12


amount of any distributions from the Funds, and accounting and legal fees and all other fees and

expenses of the Funds; (ii) maintaining the Funds’ financial books and records; (iii) calculating

and publishing the Funds’ subscription and redemption prices and the Funds’ NAVs; (iv)

handling communications with shareholders and the general public; (v) soliciting sales of the

Funds’ shares; (vi) accepting Subscriptions for share purchases; (vii) maintaining the Funds’

corporate records and accounts; (viii) distributing payments of dividends and fees; (ix)

conducting meetings of the Funds’ shareholders and directors; and (x) making redemptions from

the Funds.

(c) Citi Hedge is an affiliate of Citigroup, Inc. and Citi Hedge Fund Services,

Inc., a Delaware corporation registered to do business in New York. Citi Hedge administered

Plaintiffs’ investments in the Funds’ New York investment accounts by communicating

subscription and redemption requests to Madoff.

47. “Foreign Defendants” refers to all Defendants who are not residents or citizens of

the United States, specifically, KML, FIM Limited, FIM Advisers, Tremont, Grosso, Ceretti,

Cook, Epps, Sebah, Bish, Wetherhill, PwC Bermuda, and Citi Hedge.

C. Relevant Non-Parties

48. Kingate Global is an open-ended investment company organized as an

international business company under the laws of the British Virgin Islands on February 11,

1994. Its principal place of business is located at Bison Court, P.O. Box 3460, Road Town,

Tortola, British Virgin Islands.

(a) Shares in Kingate Global were first sold on March 1, 1995. Since its

inception, all, or substantially all, of Kingate Global’s assets were invested with Madoff.

Plaintiffs acquired shares or equity in Kingate Global when they turned over their assets to the

Kingate Defendants, who in turn gave them to Madoff.

13


(b) According to BMIS’ records, Kingate Global maintained an account with

BMIS designated 1FN061 (the “Kingate Global Account”). The Kingate Global Account was

opened on or about March 2, 1994 when a Customer Agreement, an Option Agreement, and a

Trading Authorization Limited to Purchases and Sales of Securities and Options (the “Account

Agreements”) were executed and delivered to BMIS at its headquarters at 885 Third Avenue,

New York, New York. The Kingate Global Account was held in New York through BMIS.

49. Kingate Euro is an open-ended investment company organized as an

international business company under the laws of the British Virgin Islands on April 19, 2000.

Kingate Euro’s principal place of business is at Bison Court, P.O. Box 3460, Road Town,

Tortola, British Virgin Islands.

(a) Kingate Euro commenced operations on May 1, 2000. Since its inception,

all, or substantially all, of Kingate Euro’s assets were invested with Madoff. Plaintiffs acquired

shares or equity in Kingate Euro when they turned over their assets to the Kingate Defendants,

who in turn gave them to Madoff.

(b) Kingate Euro was essentially identical to Kingate Global, except that the

functional currency of the fund was the Euro rather than the U.S. Dollar. This made Kingate

Euro more attractive to Euro-based investors than Kingate Global. However, as the Information

Memoranda for Kingate Euro explained, because Madoff invested in the NYSE in U.S. Dollars,

Kingate Euro still incurred currency risk which it hedged through currency forward contracts. In

effect, Kingate Euro internalized the currency hedge within the fund rather than forcing investors

to hedge independently on their own.

(c) According to BMIS’ records, Kingate Euro maintained an account with

BMIS designated 1FN086 (the “Kingate Euro Account”). The Kingate Euro Account was

14


opened pursuant to a corresponding set of Account Agreements, which were executed and

delivered to BMIS at its headquarters at 885 Third Avenue, New York, New York. The Kingate

Euro Account was held in New York through BMIS.

50. The Account Agreements signed by BMIS and the Funds were executed in New

York. They state that all transactions are subject to the laws of the United States, including the

Securities Exchange Act of 1934, the Commodities Exchange Act, and the rules and regulations

of the SEC, the Board of Governors of the Federal Reserve System and the Commodities Futures

Trading Commission. The Account Agreements also state that they are subject to New York

law, and were deemed to have been made in New York and to be performed in New York

through New York-based securities trading activities.

51. Kingate Global and Kingate Euro have appointed provisional liquidators, pursuant

to orders issued by Justice Edwin Bannister in the Eastern Caribbean Supreme Court in the High

Court of Justice of the British Virgin Islands on May 8, and June 4, 2009. The provisional

liquidators are William R. Tacon and Richard E. F. Fogerty. The appointment of provisional

liquidators, however, does not place the Funds in liquidation.

52. Bank of Bermuda Limited (“Bank of Bermuda”) was, at all relevant times, the

Funds’ banker for purposes of receiving subscription funds, disbursing redemption payments and

processing cash transactions. Bank of Bermuda is a banking institution located at 9 Bermuda

Road, Compass Point, 5th Floor, Pembroke, Bermuda.

53. Oppenheimer Acquisition Corp. (“Oppenheimer”) is a corporation organized

under the laws of the State of Delaware and maintains its principal place of business at 2 World

Financial Center, New York, New York. Oppenheimer is the parent company of the Tremont

15


Group. Oppenheimer is an indirect, wholly owned subsidiary of Massachusetts Mutual Life

Insurance Company (“MassMutual”).

IV. BACKGROUND FACTS

A. Madoff ’s Massive Ponzi Scheme

54. Madoff founded BMIS in 1959 as a New York limited liability company and was

its chairman and chief executive officer. Since at least 1990, Madoff perpetrated a massive

Ponzi scheme through BMIS.

55. BMIS was registered with the SEC as a securities broker-dealer under Section

15(b) of the Exchange Act, 15 U.S.C. § 78o(b) and, by 2008, was registered with the Financial

Industry Regulatory Authority (“FINRA”). BMIS had three business units: market making,

proprietary trading, and investment advisory (“Investment Advisory”). BMIS’ website stated

that it had been providing “quality executions” for broker-dealers, banks and financial

institutions since its inception in 1960. BMIS “self-cleared” transactions, trading through its

own affiliated broker-dealer.

56. Madoff’s family members held the key control positions at BMIS. The direct

owners and executive officers of BMIS were Madoff and his brother, Peter Madoff. Peter

Madoff served as BMIS’ Director of Trading and Chief Compliance Officer. Madoff’ s sons,

Mark and Andrew, were BMIS’ Directors of Proprietary Trading. Mark and Andrew Madoff ran

BMIS’ proprietary trading services on a separate floor from the firm’s other business activities

and kept the financial statements for the firm under lock and key.

57. Madoff and BMIS represented that they used a “split-strike conversion” strategy

to manage the Investment Advisory assets, including those of the Funds. Pursuant to the

strategy, BMIS purportedly purchased between 45 and 50 stocks underlying the Standard &

Poor’s 100 index (“S&P 100 Index”), while concurrently selling out-of-the-money call options

16


and buying out-of-the-money put options on the S&P 100 Index. This investment strategy

purportedly sought to limit volatility – reducing gains compared to the benchmark index in an up

market and, likewise, limiting losses to something less than the benchmark in a down market.

58. BMIS provided its investors, including the Funds, with monthly or quarterly

statements purportedly showing (i) trades in equities and options using the assets turned over by

the Funds, (ii) the equity securities, options, and government securities that the investors

supposedly owned, and (iii) the purported growth of and profit from those accounts over time.

These statements, however, were a complete fabrication, as none of the trades listed on the

monthly or quarterly reports actually took place.

59. Similarly, Madoff and BMIS never purchased or sold any of the options they

claimed to have purchased and sold and that were reported to BMIS’ investors, including the

Funds. Options related to S&P 100 companies are typically traded on the Chicago Board

Options Exchange (“CBOE”), but Madoff never purchased or sold any options on the CBOE or

with any other counterparty in an over-the-counter transaction.

60. The purported growth of and profits on investor’s assets also was fictitious, as

Madoff’s only source of asset growth was from additional contributions made by feeder funds

such as Kingate Global and Kingate Euro. Rather than investing assets in actual securities as

represented by Madoff and Defendants, Madoff fraudulently used those assets for his personal

benefit (and the benefit of his family and associates) and otherwise distributed them to prior

investors to create the illusion of profits.

B. Madoff ’s Arrest And Subsequent Investigations

61. On December 11, 2008, federal authorities arrested Madoff and charged him with

violations of the securities laws. Madoff admitted that his money management operation was

“all just one big lie” and “basically, a giant Ponzi scheme” wherein he “paid investors with

17


money that wasn’t there.” Madoff further admitted that he had “personally traded money and

lost money for institutional clients,” and that “there is no innocent explanation.” That same day,

the SEC filed an emergency action to halt all ongoing activities by Madoff and BMIS. The

action is styled, SEC v. Bernard L. Madoff, 08 Civ. 10791 (S.D.N.Y. Dec. 11, 2008).

62. On December 15, 2008, SIPC filed an application in the United States District

Court for the Southern District of New York alleging that BMIS was not able to meet its

obligations to investors as they came due and, accordingly, that the investors needed the

protection afforded by the Securities Investor Protection Act (“SIPA”). The Court granted the

SIPC application and appointed Irving H. Picard as the Trustee to liquidate BMIS.

63. At a plea hearing on March 12, 2009, in the case captioned United States v.

Madoff, Case No. 09-CR-213 (DC), Madoff pled guilty to an 11-count criminal information filed

against him by the United States Attorney for the Southern District of New York, including

counts of fraud, perjury, theft from an employee benefit plan, and two counts of international

money laundering. Madoff admitted that he “operated a Ponzi scheme through the investment

advisory side of [BMIS],” and that “I knew what I was doing was wrong, indeed criminal.”

Madoff explained that he had been paying returns to certain investors out of the assets received

from other investors. Madoff stated that BMIS was insolvent and had been for years.

64. The size of Madoff’ s global fraud has been estimated at $64.8 billion, based upon

the reported value of approximately 4,800 BMIS client accounts as of November 30, 2008.

Madoff is now incarcerated and serving out his 150-year sentence.

65. The auditor for BMIS, Friehling & Horowitz (“F&H”), was an accounting firm

located in a 13-by-18 foot office in a strip-mall in New City, New York. David Friehling

(“Friehling”) was the only certified public accountant at the three-person firm. Jerome

18


Horowitz, the other partner in the firm, was inactive and living in Florida. The third F&H

employee was, reportedly, a secretary. F&H audited Madoff’ s investment advisory firm while at

the same time telling the American Institute of Certified Public Accountants (“AICPA”) that he

had not performed audits for the past fifteen years. The AICPA instituted an ethics investigation

into Friehling’s conduct as an auditor of BMIS, and on March 18, 2009, the AICPA expelled

Friehling from membership for failure to cooperate.

66. On November 3, 2009, Friehling pled guilty to nine charges of wrongdoing,

including securities fraud, making false statements and violations of the internal revenue laws.

As part of his guilty plea, Friehling agreed to cooperate with the government in its ongoing

investigation of Madoff and BMIS.

V. THE KINGATE DEFENDANTS’ WRONGFUL CONDUCT

A. The Funds’ Investments With Madoff

67. Each member of the class invested in Kingate Global and/or Kingate Euro, which,

in turn, delegated all investment duties and custody of the investments to Madoff and BMIS in

New York. Madoff was described in the Funds’ offering documents as a “New York based

NASD registered broker-dealer employing approximately 350 people and acting primarily as a

market-maker in listed and unlisted stocks and convertible securities.” 2 Madoff was not

identified by name in the offering documents.

2 Kingate Global Fund, Ltd. Amended and Restated Information Memorandum, October 6, 2008, at 14(“KGF 2008 IM,” attached as Exhibit 1); Kingate Euro Fund, Ltd. Amended and Restated InformationMemorandum, October 6, 2008, at 15 (“KEF 2008 IM,” attached as Exhibit 2); Kingate Global Fund, Ltd. Amendedand Restated Information Memorandum, August 1 ,2007, at 14 (“KGF 2007 IM,” attached as Exhibit 3); KingateGlobal Fund, Ltd. Amended and Restated Information Memorandum for USD Participating Common Shares, May1, 2006, at 14 (“KGF 2006 IM,” attached as Exhibit 4); Kingate Global Fund, Ltd. Amended and RestatedInformation Memorandum, January 15, 2003, at 15 (“KGF 2003 IM,” attached as Exhibit 5); see also KingateGlobal Fund, Ltd. Information Memorandum, May 1, 2000, at 15 (“KGF 2000 IM,” attached as Exhibit 6) (usingsimilar language) (collectively, the “Information Memoranda” or “IMs”).

19


68. Between March 1994 and December 10, 2008, Kingate Global invested $963.45

million with BMIS through 63 separate wire transfers directly into BMIS’ account at JPMorgan

Chase & Co. in New York City, Account Number 000000140081703 (the “BMIS Bank

Account”). From inception through December 10, 2008, Kingate Euro invested $767.44 million

with BMIS through 92 separate wire transfers directly into the BMIS Bank Account.

Accordingly, through their control of the Funds, the Kingate Defendants intentionally took

advantage of the benefits of conducting transactions in the State of New York. By November 30,

2008, Kingate Global’s and Kingate Euro’s investments had purportedly grown to over $3 billion

based on Madoff’s fictitious reports to the Funds.

69. The losses that Plaintiffs and other members of the Class suffered when the Funds

collapsed would have been avoided if Defendants had fulfilled their duties to Plaintiffs and other

members of the Class, if they had lived up to their own representations, and if they had

adequately investigated and monitored Madoff and BMIS. In failing to do so, Defendants

breached their duties to Plaintiffs and the Class, and effectively wiped out their investments. At

the same time, Defendants reaped millions of dollars in fees.

B. Key Kingate Defendants Were In Close Contact With Madoff

70. Key Kingate Defendants regularly met with Madoff in New York, according to

Madoff’s former personal secretary, Eleanor Squillari. Plaintiffs’ counsel interviewed

Ms. Squillari who supplied the information discussed below.

71. Madoff hired Ms. Squillari in March 1984 when BMIS’ former offices were

located at 110 Wall Street, New York, New York. The offices were subsequently moved to 885

Third Avenue, New York, New York in the late 1980s (“BMIS’ Office”). Ms. Squillari worked

as Madoff’s secretary for almost 25 years until Madoff’s arrest on December 10, 2008.

20


72. As part of her duties, Ms. Squillari kept his calendar, office telephone directory,

and a copy of Madoff’s pocket book telephone directory which Madoff customarily carried with

him at all times (“Calendar,” “Office Telephone Directory,” and “Pocket Book,” respectively).

The original documents were provided to the Federal Bureau of Investigation (“FBI”) as part of

Ms. Squillari’s extensive cooperation with the FBI and other governmental authorities.

Ms. Squillari kept a true and accurate copy of these documents and provided copies to Plaintiffs’

counsel.

73. Madoff’s Calendar reflects numerous meetings at BMIS’ Office between Madoff

and some of the key Kingate Defendants. Specifically, Madoff met with Manzke on May 11,

2005 and March 15, 2006. Madoff also met repeatedly with Grosso on October 4, 2006, March

8, 2007, September 17, 2007, and September 22, 2008. 3

74. Madoff’ Pocket Book included the phone numbers he needed more often and

represented an abbreviated list of his Office Telephone Directory. A transcription of the phone

numbers from Madoff’s Pocket Book is six pages long, while the comprehensive Office

Telephone Directory is 43 pages.

75. Madoff’s Pocket Book included Grosso’s phone numbers at home in London, on

his English mobile phone, and at FIM’s New York office. Of the business contacts included in

Madoff’s Pocket Book, very few included home phone numbers. In fact, out of approximately

160 entries, only 15 included home numbers.

76. Madoff’s Office Telephone Directory included, (i) Grosso’s office number in

London next to the annotation, “FIM Limited/Kingate,” (ii) Ceretti’s office number in London

next to the annotation, “FIM Limited,” and (iii) Manzke’s office number.

3 Copies of the Calendar prior to 2005 were not available.

21


C. The Kingate Defendants And Citi Hedge Knew Or Should Have Known ThatMadoff Was A Fraud

77. The Kingate Defendants and Citi Hedge had overwhelming evidence that

Madoff’s operation was a fraud – evidence they knew about or should have discovered, but

instead simply ignored. Specifically, almost two hundred of the trades reported by Madoff to

Citi Hedge and the Kingate Defendants were reported at prices that were outside the daily

trading range. Those trades could never have taken place, obviously did not, and the Kingate

Defendants and Citi Hedge knew that or, at a minimum, had the evidence to know that. If

Defendants had verified the pricing information for these trades, they would have immediately

discovered that the trades had not taken place as reported. Further, if Defendants had made a

single inquiry to the Depository Trust & Clearing Corporation (“DTC”), the clearing house for

such transactions, they would have discovered that there was no record of BMIS or Madoff

having cleared a single purchase or sale of securities through the DTC, or any other trading

platform on which BMIS could have possibly traded securities.

78. Specifically, the monthly account statements received by the Kingate Defendants

and Citi Hedge for the month of October 2003 reported purchases of 984,137 and 240,240 shares

of Intel Corporation (INTC), for Kingate Global and Kingate Euro, respectively. These

purchases were purportedly executed on October 2, 2003 at a price of $27.63. However, the

price for Intel Corporation stock on October 2, 2003, ranged from $28.41 to $28.95.

Accordingly, Madoff could never have purchased the shares at the reported price of $27.63, and

obviously he never did.

79. In a second example, this time a purported sale, the monthly account statements

for the month of December 2006 reported sales of 233,281 and 60,449 of Merck & Co., Inc.

(MRK) shares for Kingate Global and Kingate Euro, respectively. These sales were purportedly

22


executed on December 22, 2006, at a price of $44.61. However, the price for Merck stock on the

purported trade date of December 22, 2006, ranged from $42.78 to $43.42.

80. In total, the monthly reports reflected 185 trades that were reportedly executed at

prices outside the daily price ranges. This pattern in each of Kingate Global’s and Kingate

Euro’s accounts should have caused a sophisticated hedge fund manager and administrator like

the Kingate Defendants and Citi Hedge to independently verify the trades with the public

exchange.

81. Madoff also often reported option trading volumes that contradicted information

readily accessible to the Defendants. As mentioned above, the split-strike investment strategy

required purchases of underlying stocks in the S&P 100 Index in combination with purchases of

options of the S&P 100 Index (“OEX”). These options are traded on the CBOE. As reported on

the monthly statements for January 2008 received by the Kingate Defendants and Citi Hedge, on

January 23, 2008, Madoff purportedly bought a total of 17,859 and 5,762 OEX put options (with

February expiration and a strike price of 600) for Kingate Global’s and Kingate Euro’s accounts,

respectively. The total volume traded on the CBOE on that day for such contracts, however, was

only 8,645 – about one-third of Madoff’ s reported put options trades. Similarly, Madoff

purportedly bought a total of 17,859 and 5,762 OEX call options (with February expiration and a

strike price of 610) for these same accounts. The total volume traded on the CBOE for such

contracts was 631 – about 1/40 of Madoff’ s reported call option trades.

82. The fact that the option volume reported by Madoff was impossible, as there were

not nearly that many option contracts available on the CBOE, should have caused Defendants to

seriously question Madoff. While Madoff could have theoretically executed this massive

volume of option trades in the over-the-counter market with private counterparties (not through

23


public exchanges), Defendants could have verified with those counterparties whether any of

those options trades existed – not a single one did. Accordingly, the fictitiously reported options

volume constituted yet another tell-tale sign that Madoff simply could not have been executing

the split-strike conversion strategy.

D. The Funds’ Information Memoranda Were False And Misleading

83. Beginning in 1995 and continuing through December 11, 2008, the Kingate

Defendants induced Plaintiffs and the Class to invest in the Funds on the basis of false and

misleading representations and omissions. Investors in the Funds or their nominees were

provided copies of an Information Memorandum, which was periodically updated, and Plaintiffs

and the Class were required to acknowledge that they had received the respective Information

Memorandum as a condition of buying shares in the Funds.

84. The Kingate Defendants drafted, reviewed, authorized or otherwise participated in

the preparation and dissemination of the Information Memoranda provided to prospective and

current investors in the Funds, including Plaintiffs, and were responsible for the content of those

materials. The Information Memoranda contained uniform misrepresentations and material

omissions that induced Plaintiffs and the Class to invest in the Funds and retain their investments

in the Funds, and on which Plaintiffs and the Class relied.

85. As set forth below, the Kingate Defendants misrepresented to Plaintiffs, through

the Information Memoranda, that Plaintiffs’ assets were being invested using a split-strike

conversion strategy, and that the assets in the Funds were earning substantial, consistent returns

over time. The Kingate Defendants further misrepresented that they and their contracted for

advisors, consultants, auditors and administrators were conducting extensive due diligence and

monitoring Madoff’ s operations, and that they had full transparency to all of Madoff’ s

operations. The Kingate Defendants failed to disclose to Plaintiffs the material facts that (i) no

24


one had conducted meaningful due diligence, (ii) no one was monitoring or had independently

verified any of Madoff’s purported trading activity, (iii) they had no transparency, and did not

seek better transparency, into Madoff’ s operations, and (iv) they had no independent, factual

basis for stating that Madoff was executing a split-strike conversion strategy which resulted in

profits for Plaintiffs.

1. False and Misleading StatementsConcerning the Actual Investment

86. The Information Memoranda made numerous false and misleading statements

representing that Madoff made investments which, in reality, never existed and were entirely

fictitious. Kingate Global and Kingate Euro were essentially identical, except for the functional

currency, and the Information Memoranda were also materially identical with respect to the

representations relevant to this lawsuit.

87. According to the 2008 Information Memoranda for each of the Funds, Kingate

Global and Kingate Euro were “open-end investment compan[ies]” that “[sought] long-term

capital growth by allocating USD Share capital to a selected investment advisor to execute the

Fund’s Investment Objective and Process.” 4

88. The Funds’ “investment objective” as set forth in the Information Memoranda

was “to obtain capital appreciation of its assets through the utilization of a non-traditional

stock/options trading strategy.”5 The Information Memoranda further described the investment

strategy of the Funds as seeking to obtain capital appreciation of assets principally through a

“split-strike conversion” strategy. For example, according to the Information Memoranda,

Madoff used a “non-traditional investment strategy” to achieve long-term capital appreciation

4 KGF 2008 IM, Ex. 1 at 1; KEF 2008 IM, Ex. 2 at 1; KGF 2007 IM, Ex. 3 at 1; KGF 2006 IM, Ex. 4 at 1;KGF 2003 IM, Ex. 5 at 1; KGF 2000 IM, Ex. 6 at 1.

5 KGF 2008 IM, Ex. 1 at 2; KEF 2008 IM, Ex. 2 at 1-2; KGF 2007 IM, Ex. 3 at 2; KGF 2006 IM, Ex. 4 at 2;KGF 2003 IM, Ex. 5 at 2; KGF 2000 IM, Ex. 6 at 2-3.

25


“that is a variation of the traditional ‘option conversion’ strategies,” known as “split-strike

conversion.”6 These representations were false, since Madoff did not use the split-strike

conversion investment strategy or make any investments at all.

89. The description of the “split-strike conversion” strategy was virtually identical in

all the Information Memoranda from 2000 through 2008, stating:

The Fund seeks to obtain capital appreciation of its assets throughthe utilization of a non-traditional stock/options trading strategy.

* * *

The strategy utilized by the Fund’s Investment Advisor [ i.e.,Madoff] is called “split-strike conversion” and entails:

(i) purchasing a basket of forty-five (45) to fifty (50) largecapitalization S&P 100 stocks (e.g., General Electric,Microsoft, Pfizer, Exxon Mobil, Wal-Mart Stores,Citigroup, Intel, American International, IBM, Johnson &Johnson, etc.), which together account for the greatestweight of the Index and therefore, when combined, presenta high degree of correlation with the general market;

(ii) selling out-of-the money S&P 100 Index call optionsrepresenting a dollar amount of the underlying Indexequivalent to the dollar amount of the basket of sharespurchased; and

(iii) purchasing out-of-the-money or at-the-money S&P Indexput options in the same dollar amount. 7

90. The Information Memoranda from 2000 through 2008 further stated that:

The investment advisor is a New York based NASD registeredbroker-dealer employing approximately 350 people and actingprimarily as a market-maker in listed and unlisted stocks andconvertible securities. . . . The Manager [or co-manager] hasestablished a discretionary account with such Investment Advisoron behalf of the Fund for the management of the USD assets. The

6 Id.7 KGF 2008 IM, Ex. 1 at 2; KEF 2008 IM, Ex. 2 at 2; KGF 2007 IM, Ex. 3 at 2; KGF 2006 IM, Ex. 4 at 2;

see also KGF 2003 IM, Ex. 5 at 2 (stating Madoff would purchase a basket of thirty (30) to forty (40) largecapitalization S&P 100 stocks); KGF 2000 IM, Ex. 6 at 2 (same).

26


Investment Advisor utilizes a ‘split strike conversion’ strategyconsistent with the strategy of the Fund. . . . 8

91. These representations were false, and the Kingate Defendants failed to disclose to

Plaintiffs the material fact that they had not independently verified any of Madoff’ s purported

trading activity and had no factual basis for stating that Madoff was executing a split-strike

conversion strategy.

2. False and Misleading Statements ConcerningOngoing Duties to Monitor and Evaluate Madoff

92. The Information Memoranda from 2000 through 2008 represented that the

Manager (or Co-Managers) had an ongoing obligation to evaluate and monitor Madoff:

Pursuant to the Manager [or Co-Manager] Agreement, theManager [or Co-Managers] evaluates and monitors theInvestment Advisor and, in general, provides all necessarymanagement services to the Fund. 9

* * *

The Manager [or Co-Managers] has agreed (i) to manage allaspects of the investment advisory services provided to the Fund,including the selection and evaluation of [Madoff] and (ii) toarrange for the performance of all accounting and administrativeservices which may be required by the Fund’s operations. TheManager [Co-Manager] Agreement authorizes the Manager [orCo-Managers] to delegate responsibilities to others, subject toretaining responsibilities for evaluating and coordinating theservices offered by others. 10

93. These representations were false and misleading because the Kingate Defendants

did not evaluate and monitor Madoff as represented in the Information Memoranda.

8 KGF 2008 IM, Ex. 1 at 14; KEF 2008 IM, Ex. 2 at 15; KGF 2007 IM, Ex. 3 at 14; KGF 2006 IM, Ex. 4 at14; see also KGF 2003 IM, Ex. 5 at 15; KGF 2000 IM, Ex. 6 at 15.

9 KGF 2008 IM, Ex. 1 at (ii); KGF 2007 IM, Ex. 3 at (ii); KGF 2006 IM, Ex. 4 at (ii); KGF 2000 IM, Ex. 6at (iii); KEF 2008 IM, Ex. 2 at (iii). (All emphasis supplied throughout unless otherwise stated).

10 KGF 2008 IM, Ex. 1 at 13; KEF 2008 IM, Ex. 2 at 14 (further agreeing to make decisions with respect tohedging transactions utilizing the recommendations of the Consultant, FIM Advisers); KGF 2007 IM, Ex. 3 at 13;KGF 2006 IM, Ex. 4 at 13; KGF 2003 IM, Ex. 5 at 14.

27


94. The Manager’s obligation to monitor and evaluate Madoff was also clearly set

forth in the January 1, 2006 Management Agreement between Kingate Global and KML (the

“KGF 2006 Management Agreement,” Ex. 7). While Section 5.9 of that agreement authorized

the Manager to delegate its duties and obligations, the Manager undertook the continued

monitoring of the execution of those delegated duties:

(a) The Manager shall be authorized to delegate as appropriate, or in its

discretion, any of the duties or obligations hereunder to one or more other persons or entities,

whether affiliated with or independent of the Manager.

(b) In the event of any such delegation of duties . . . the Manager shall be

relieved and discharged of its obligations to perform services so delegated other than the

continuing obligation (subject at all times to the standard of care set forth in Section 5.4 [gross

negligence, bad faith, or willful or reckless malfeasance]), to take reasonable measures to,

(i) ascertain the competence of the delegatee [ i.e., Madoff] to perform

the services so delegated,

(ii) monitor generally the faithful performance by the delegatee of the

duties specified in the relevant delegation agreement,

(iii) coordinate such performance with the performance of the other

services contemplated hereunder, and

(iv) perform or procure the future performance of the delegated

services in the event of the expiration or termination of any such agreement with such delegatee.

* * *

(c) For the avoidance of doubt, the Manager has delegated responsibilities as

follows, which have the consent of the Fund’s Directors,

(i) To Madoff, investment advisory activities and custody services;

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(ii) To BISYS Hedge Fund Services Limited, Hamilton, Bermuda, as

to administrative services; and

(iii) To Bank of Bermuda with respect to banking matters. 11

95. KML failed to uphold this basic obligation it voluntarily accepted, and its

representation that it would manage all aspects of the investment advisory services provided to

the Funds was false. KML and the Kingate Defendants never independently monitored or

confirmed that the represented investment strategy was being executed, and in fact no such

investment strategy was being followed.

96. KML also failed to conduct any meaningful evaluation of Madoff’s trading and

performance; indeed, there was no investment of Plaintiffs’ or the Class’ assets in any legitimate

securities.

97. KML not only failed to properly monitor and evaluate Madoff, but also failed to

monitor Citi Hedge and Citi Hedge’s oversight over Madoff. Pursuant to the Information

Memoranda, Citi Hedge had to verify the trading information provided by Madoff to calculate

the NAV of the Funds. In a section entitled, “Determination of Net Asset Value,” the

Information Memoranda said that, “[Citi Hedge] verifies the prices attributed to the securities

held by the USD Shares of the Fund by reference to pricing sources independent of the

Investment Advisor whenever reasonably possible.” 12

98. Madoff provided prices outside of the daily trading range to Citi Hedge and the

Funds on at least 185 different occasions, and KML and Citi Hedge failed to properly verify the

prices provided by Madoff. If they had done so, they would have discovered Madoff’ s Ponzi

scheme.

11 KGF 2006 Management Agreement, § 5.9, Ex. 7 at 8-9.12 KGF 2008 IM, Ex. 1 at 23; KEF 2008 IM, Ex. 2 at 24; KGF 2007 IM, Ex. 3 at 23-24; KGF 2006 IM, Ex. 4

at 24; KGF 2003 IM, Ex. 5 at 24.

29


3. False and Misleading Statements ConcerningOptions Trading and Madoff’s Counterparties

99. In addition to falsely representing that Madoff executed trades which never took

place, the Information Memoranda also included false and misleading statements concerning

Madoff’s supposed trading counterparties: “[t]he options transactions executed for the benefit of

the USD portfolio are effected primarily in the over-the-counter market, not on a registered

options exchange.” 13 Madoff never executed any options transactions.

100. Because of these purported over-the-counter transactions, the Information

Memoranda said that the Funds were “subject to counterparty risk and [were] without the

protection afforded with respect to options transactions on regulated exchanges through the

Options Clearing Corporation. ”14 Despite acknowledging the lack of protection provided b^^ g IP p g^ g p p y

trading options over-the-counter, the Kingate Defendants never sought to determine whether

Madoff was trading with creditworthy counterparties or, in fact, making any over-the-counter

option trades at all.

101. Similarly, the Information Memoranda also stated that “[t]he Investment Advisor

acts as a market-maker in the stocks purchased and sold by the USD portfolio,” and as a result of

the Investment Advisor’s role as market-maker, “the portfolio is subject to credit risks (the

exposure to the possibility of loss resulting from a counterparty’s failure to meet its financial

obligations).” 15 Once again, the Kingate Defendants never conducted due diligence to verify or

assess the credit risks created by the Investment Advisor’s status as market-maker, as they were

13 KGF 2008 IM, Ex. 1 at 3; KGF 2006 IM, Ex. 4 at 3; KGF 2003 IM, Ex. 5 at 4; KGF 2000 IM, Ex. 6 at 4.14 KGF 2008 IM, Ex. 1 at 6; KEF 2008 IM, Ex. 2 at 6; KGF 2007 IM, Ex. 3 at 6; KGF 2006 IM, Ex. 4 at 6;

KGF 2003 IM, Ex. 5 at 7.15 KGF 2008 IM, Ex. 1 at 3, 6; KGF 2007 IM, Ex. 3 at 3, 6; KGF 2006 IM, Ex. 4 at 3, 6; see also KGF 2003

IM, Ex. 5 at 3, 6; KGF 2000 IM, Ex. 6 at 3-4, 6.

30


required to do under the Management Agreement and as they committed to do in the Information

Memoranda.

4. False and Misleading StatementsAttempting to Disclaim “The Risk Of Fraud”

102. Defendants knew that Madoff’ s overlapping responsibilities as Investment

Advisor, execution agent, and custodian created a risk rarely existing with other funds – that

Madoff could steal the money. Accordingly, the Information Memoranda sought (ineffectively)

to disclaim this risk:

Neither the Fund nor the Custodian has actual custody of theassets. Such actual custody rests with the Investment Advisor andits affiliated broker-dealer. Therefore, there is the risk that thecustodian [Madoff] could abscond with those assets. There isalways the risk that the assets with the Investment Advisor[Madoff] could be misappropriated. In addition, informationsupplied by the Investment Advisor may be inaccurate or evenfraudulent. The Manager [or Co-Manager] is entitled to rely onsuch information (provided they do so in good faith) and are notrequired to undertake any due diligence to confirm the accuracythereof. 16

103. Rather than insulating themselves from liability for failing to conduct due

diligence, by disclosing such a known risk, the Kingate Defendants undertook a heightened

obligation to monitor and evaluate Madoff. Stating the truism that there is “always the risk” that

assets could be misappropriated does not relieve the Kingate Defendants of their obligations

under the Information Memoranda, particularly when the facts show that they could have

discovered Madoff’ s fraud and avoided the risk of misappropriation if they had acted in

accordance with their representations and duties to Plaintiffs and the Class. Indeed, the

boilerplate language that “[t]here is always a risk” critically failed to address the probability of

that risk materializing. That statement also was meaningless and ineffective because by the time

16 KGF 2008 IM, Ex. 1 at 9; KEF 2008 IM, Ex. 2 at 10; KGF 2007 IM, Ex. 3 at 10; KGF 2006 IM, Ex.4 at 9;KGF 2003 IM, Ex. 5 at 9-10; KGF 2000 IM, Ex. 6 at 10.

31


the “disclosure” was made in the Information Memoranda, the risk had already materialized and

was ongoing. The Kingate Defendants had already failed to conduct any meaningful monitoring

or evaluation to determine the scope of that possibility, and allowed the monies to be stolen.

104. Moreover, while purporting to limit the amount of due diligence conducted by

KML and Tremont on information provided to it by Madoff, such a clause in no way exonerates

KML or Tremont – or the FIM Defendants – from conducting due diligence on the propriety of

Madoff as the selected Investment Advisor to whom the Fund delegated all investment

management discretion and authority in the first instance. Because the Kingate Defendants

failed to take reasonable steps to monitor or conduct due diligence concerning Madoff, any

purported reliance by Defendants on information received from Madoff was not in good faith.

This is because the Kingate Defendants took no steps during the entire time the Funds’ assets

were invested with Madoff to verify the accuracy of the information provided by Madoff.

105. Indeed, it is clear that Defendants never confirmed with any of Madoff’s

counterparties that the billions of dollars in trades that Madoff claimed he executed every year

actually took place. Although Madoff was a broker-dealer and custodian, Madoff still had to buy

stocks, bonds, and options from the outside world. But Defendants never called a single

counterparty to confirm that Madoff had traded with them. If Defendants had made such

inquiry, the fact of Madoff’s fraud would have been immediately revealed. Simply put,

Defendants took no action to confirm the existence of the assets invested with Madoff or of

Madoff’s assertions regarding investment activity, strategy, and performance.

VI. PRICEWATERHOUSECOOPERS’ WRONGFUL CONDUCT

A. PricewaterhouseCoopers Audited The Funds

106. PricewaterhouseCoopers – and its predecessor entity Coopers & Lybrand

Bermuda – audited the Funds every year since inception. Each year, PricewaterhouseCoopers

32


issued an unqualified audit opinion – also commonly referred to as a “clean” audit opinion –

stating that the financial statements and audit conformed with the requisite accounting and

auditing standards. Plaintiffs attach hereto (i) Kingate Global’s financial statements for the years

ending December 31, 2004, 2005, 2006, and 2007 17, and (ii) Kingate Euro’s financial statements

for the years ending December 31, 2006 and 2007. 18

107. PricewaterhouseCoopers addressed its unqualified audit opinions “To the

Shareholders of [Kingate Global/Kingate Euro]” – that is, to Plaintiffs and the Class.

PricewaterhouseCoopers’ unqualified audit opinions were included as the first page in the

Kingate Global and Kingate Euro financial statements. PricewaterhouseCoopers was aware that

investors in the Funds, including Plaintiffs and the Class, relied on the Funds’ financial

statements, including the unqualified audit opinions, to determine whether to invest and maintain

their assets in the Funds.

108. Not only did PricewaterhouseCoopers know that Plaintiffs and the Class would

rely on its audit opinions, PricewaterhouseCoopers also knew and accepted that it had an

obligation to provide assurances directly to the shareholders regarding the financial condition of

the Funds. In defining the objectives for providing an audit for similar Madoff feeder funds

managed by Fairfield Greenwich, a related PricewaterhouseCoopers entity acknowledged that it

was responsible for reporting to the shareholders on the financial statements for the funds and

committed to providing to the shareholders independent opinions and reports that provide

assurance on the financial statements released by the funds. Accordingly, Pricewaterhouse-

Coopers understood and accepted that it owed a direct duty to Plaintiffs and members of the

Class to conduct proper audits of the Funds.

17 “KGF 2004-05 FS” and “KGF 2006-07 FS”. Exs. 8 and 9.

18 “KEF 2006-07 FS.” Ex. 10.

33


109. The unqualified opinions for Kingate Global for the years 2004 through 2007, and

for Kingate Euro for the years 2006 and 2007, are identical, and stated:

In our opinion, the accompanying statements of assets andliabilities, including the schedules of investments, and the relatedstatements of operations and of changes in net assets present fairly,in all material respects, the financial position of Kingate GlobalFund, Ltd.[/Kingate Euro Fund, Ltd.] (the “Company”) atDecember 31, 200[5-7], and the results of its operations and thechanges in its net assets for the years then ended, in conformitywith accounting principles generally accepted in the United Statesof America. . . . [PricewaterhouseCoopers’] responsibility is toexpress an opinion on these financial statements based on ouraudits. [PricewaterhouseCoopers] conducted [its] audits of thesefinancial statements in accordance with auditing standardsgenerally accepted in the United States of America. . . . Webelieve our audits provide a reasonable basis for our opinion. 19

110. The audit opinions were signed, “PricewaterhouseCoopers, Chartered

Accountants.” The footer in the audit opinions defines PricewaterhouseCoopers to include its

worldwide members: “PricewaterhouseCoopers refers to the members of the worldwide

PricewaterhouseCoopers organization.” The opinions were issued on letterhead of the

PricewaterhouseCoopers member organization located in Hamilton, Bermuda. 20

111. Based on the repeated use of the PricewaterhouseCoopers name,

PricewaterhouseCoopers knew that its name was used by the Funds in marketing so as to give

the Funds legitimacy and to draw investors to the Funds. Indeed, according to the Information

Memoranda, “PricewaterhouseCoopers has given its written consent to the inclusion of its name,

report and reference to itself in the form and context in which they appear in this

Memorandum.”21 Accordingly, PricewaterhouseCoopers knew that existing and potential

19 KGF 2004-05 FS, Ex. 8 at second page (not numbered); KGF 2006-07 FS, Ex. 9 at second page (notnumbered); and KEF 2006-07 FS, Ex. 10 at second page (not numbered).

20 Id.21 KGF 2008 IM, Ex. 1 at 32; KEF 2008 IM, Ex. 2 at 33; KGF 2007 IM, Ex. 3 at 33; KGF 2006 IM, Ex. 4 at

33; KGF 2003 IM, Ex. 5 at 29; KGF 2000 IM, Ex. 6 at 28.

34


investors, including Plaintiffs and other members of the Class, would rely on the fact that

PricewaterhouseCoopers was the auditor of the Funds, represented it conducted proper audits,

and issued unqualified audit opinions on the Funds’ financial statements.

112. PricewaterhouseCoopers further knew that there was no independent market

mechanism or evidence to value the shares of Funds, and that there was no other independently-

verified third-party financial information about the Funds besides the audited financial

statements. PricewaterhouseCoopers knew that the primary purpose of its audits was to provide

investors in the Funds with assurances that the Funds’ assets were legitimately invested and

accurately valued. PricewaterhouseCoopers also knew that the Funds were not in any sense

“operating” businesses but were, instead, merely vehicles to aggregate investments and transfer

them to Madoff.

B. PricewaterhouseCoopers’ Audit Failed To Conform To GAAS

113. The AICPA is the professional organization that promulgates the national auditing

standards known as Generally Accepted Auditing Standards (“GAAS”). GAAS set the

minimum level of performance and quality that auditors are required to meet. The AICPA has

further codified a detailed interpretation of GAAS through the Statements of Accounting

Standards (“SAS,” commonly referred to as “AU”). PricewaterhouseCoopers violated GAAS in

conducting its audits of Kingate Global and Kingate Euro.

114. Generally Accepted Accounting Principles (“GAAP”) are those principles

recognized by the accounting profession as the uniform rules, conventions, and procedures

necessary to define generally accepted accounting principles in the United States. AU § 411.02

(applicable prior to November 15, 2008). The AICPA prohibits members, including PwC U.S.,

from expressing an opinion or stating affirmatively that financial statements or other financial

35


data conform with GAAP if such information departs from generally accepted accounting

principles.

1. Basic Standards Under GAAS

115. GAAS is comprised of ten basic standards that establish the quality of an

auditor’s performance and the overall objectives to be achieved in a financial statement audit.

The ten basic GAAS standards fall into three basic categories: General Standards; Fieldwork

Standards; and Reporting Standards.

116. The General Standards provide guidance to the auditor on the exercise of

professional care, as follows:

(a) The auditor must have adequate technical training and proficiency toperform the audit.

(b) The auditor must maintain independence in mental attitude in all mattersrelating to the audit.

(c) The auditor must exercise due professional care in the performance of theaudit and the preparation of the report. (AU § 150.02).

117. The Standards of Fieldwork provide guidance on audit planning, proper

evaluation of internal controls, and the collection of evidential matter sufficient to allow the

auditor a reasonable basis for rendering an opinion regarding the financial statements under

audit, as follows:

(a) The auditor must adequately plan the work and must properly superviseany assistants.

(b) The auditor must obtain a sufficient understanding of the entity and itsenvironment, including its internal control, to assess the risk of materialmisstatement of the financial statements whether due to error or fraud, andto design the nature, timing, and extent of further audit procedures.

(c) The auditor must obtain sufficient appropriate audit evidence byperforming audit procedures to afford a reasonable basis for an opinionregarding the financial statements under audit. (AU § 150.02).

36


118. The Standards of Reporting provide guidance to the auditor on the content of the

audit report and the auditor’s responsibility contained therein.

(a) The auditor must state in the auditor’s report whether the financialstatements are presented in accordance with generally accepted accountingprinciples (GAAP).

(b) The auditor must identify in the auditor’s report those circumstances inwhich such principles have not been consistently observed in the currentperiod in relation to the preceding period.

(c) When the auditor determines that informative disclosures are notreasonably adequate, the auditor must so state in the auditor’s report.

(d) The auditor must either express an opinion regarding the financialstatements, taken as a whole, or state that an opinion cannot be expressed,in the auditor’s report. When the auditor cannot express an overallopinion, the auditor should state the reasons therefore in the auditor’sreport. In all cases where an auditor’s name is associated with financialstatements, the auditor should clearly indicate the character of theauditor’s work, if any, and the degree of responsibility the auditor istaking, in the auditor’s report. (AU § 150.02).

2. PricewaterhouseCoopers Failed to Comply with GAAS

119. As set forth above, GAAS required PricewaterhouseCoopers to exercise due

professional care in the performance of the audits and the preparation of the reports. (AU §§

150.02, 230.02). Due professional care meant that PricewaterhouseCoopers had to exercise

professional skepticism, an attitude that includes a questioning mind and a critical assessment of

audit evidence. (AU § 230.07). It also meant that PricewaterhouseCoopers had “to plan and

perform the audit to obtain reasonable assurance about whether the financial statements are free

of material misstatement, whether caused by error or fraud.” (AU § 110.02).

120. Due professional care obligations also extended to the design of the audit. In

designing the nature, timing, and extent of audit procedures and in evaluating the results of those

procedures, GAAS obligated PricewaterhouseCoopers to consider audit risk and materiality.

(AU § 312.01). GAAS further required use of professional judgment and, in particular,

37


professional skepticism in determining whether a risk factor is present and should be considered

in identifying and assessing the risk of material misstatement due to fraud. (AU §§ 230.07-09,

316.13).

121. PricewaterhouseCoopers further had an obligation to obtain a sufficient

understanding of the Funds’ environment, including internal controls, in order to assess the risk

of material misstatement of the Funds’ financial statements, whether due to error or fraud, and to

design the nature, timing, and extent of further audit procedures. (AU § 150.02).

122. As part of the process of obtaining an understanding of the Funds and their

environment, PricewaterhouseCoopers had to obtain an understanding of, among other things,

the hedge fund industry in general, and, in particular, the nature of the Funds and the objectives,

strategies, and related business risks which may result in a material misstatement in the financial

statements of the Funds. This included obtaining an understanding of the Funds’ operations,

ownership, governance, structure, how they were financed, and the types of investments they

made. (AU §§ 314.21, 314.26).

123. Within the hedge fund industry, Madoff’s concentration of functions was

extremely rare. PricewaterhouseCoopers knew that Madoff and BMIS served as the Funds’

investment advisor, broker-dealer, and custodian. This concentration of functions at BMIS

created risks requiring special audit consideration – what GAAS refers to as “significant risks.”

(AU § 314.110). Because primarily all of the Funds’ investment and income information

available to PricewaterhouseCoopers was based on information from Madoff and/or BMIS,

PricewaterhouseCoopers was required to do more than rely solely on the procedures it performed

with respect to the Funds. (AU §§ 314.115, 318.53, 332.20).

38


124. GAAS also required PricewaterhouseCoopers to evaluate Madoff’s internal

controls, including the design of those controls, and determine whether they had been

implemented and were operating effectively. (AU §§ 318.13, 318.23, 318.24, 318.45, 314.40).

Internal control is a process – effected by those charged withgovernance, management, and other personnel – designed toprovide reasonable assurance about the achievement of the entity’sobjectives with regard to reliability of financial reporting,effectiveness and efficiency of operations, and compliance withapplicable laws and regulations. (AU § 314.41).

125. But even reviewing Madoff’s internal controls was not enough. GAAS

recognizes that an understanding of an entity and its environment, including its internal controls,

does not provide by itself a sufficient basis for forming an opinion on an entity’s financial

statements. GAAS further requires the auditor to perform additional audit procedures. (AU §

150.02). These additional audit procedures include “tests of controls” and/or “substantive

procedures.”

126. Tests of controls are used to “obtain audit evidence that controls operate

effectively. This includes obtaining audit evidence about how controls were applied at relevant

times during the period under audit, the consistency with which they were applied, and by whom

or by what means they were applied.” (AU § 318.26). Substantive procedures are performed to

detect material misstatements, and primarily include tests of details of balance sheet and income

statement accounts, and of analytical procedures. (AU § 318.50).

127. Because effective internal controls generally reduce, but do not eliminate, the risk

of material misstatement, and because an auditor’s assessment of risk is judgmental and may not

be sufficiently precise to identify all risks of material misstatement, tests of controls reduce, but

do not eliminate, the need for substantive procedures. (AU §§ 318.09, 318.51). Accordingly,

GAAS required PricewaterhouseCoopers to design and perform substantive procedures for each

39


of the Funds’ material balance sheets and income statement accounts – such as the Funds’

investments and investment income. More specifically, PricewaterhouseCoopers was required to

test: (i) the existence and valuation of the Funds’ securities at every balance sheet date;

(ii) the Funds’ ownership of those securities; (iii) the occurrence and accuracy of the Funds’

transactions in U.S. Treasuries, stocks, and options; and (iv) the reasonableness of the Funds’

reported investment income. (AU §§ 318.09, 318.51, 326.15, 332.21-22, 332.25).

(a) PricewaterhouseCoopers Failed to Conduct AdequateProcedures Concerning Existence and Occurrence Risk

128. GAAS required PricewaterhouseCoopers to conduct special procedures when

auditing an entity with securities investments in light of the obvious assertion risk: “The

inherent risk for an assertion about a derivative or security is its susceptibility to a material

misstatement, assuming there are no related controls.” (AU § 332.08). This was particularly

critical in light of the concentration of functions at BMIS.

129. The special procedures in auditing the existence of the securities with Madoff

required, among other things, confirmations with the security’s issuer or physical inspections of

the security. These same confirmation procedures were necessary in order to confirm the

occurrence of the transactions. This is set forth in detail in AU 332, entitled, “Auditing

Derivative Instruments, Hedging Activities, and Investments in Securities,” as follows:

Existence assertions address whether the derivatives and securitiesreported in the financial statements through recognition ordisclosure exist at the date of the statement of financial position.Occurrence assertions address whether derivatives and securitiestransactions reported in the financial statements, as a part ofearnings, other comprehensive income, or cash flows or throughdisclosure, occurred. Paragraph [332].19 provides guidance on theauditor’s determination of the nature, timing, and extent ofsubstantive procedures to be performed. Examples of substantiveprocedures for existence or occurrence assertions about derivativesand securities include –

40


• Confirmation with the issuer of the security.

• Confirmation with the holder of the security, includingsecurities in electronic form, or with the counterparty to thederivative [ i.e., options].

• Confirmation of settled transactions with the broker-dealeror counterparty.

• Confirmation of unsettled transactions with the broker-dealeror counterparty.

• Physical inspection of the security or derivative contract.

* * *

• Inspecting supporting documentation for subsequent realizationor settlement after the end of the reporting period.

• Performing analytical procedures. For example, the absenceof a material difference from an expectation that interestincome will be a fixed percentage of a debt security based onthe effective interest rate determined when the entity purchasedthe security provides evidence about existence of the security.(AU § 332.21).

(b) PricewaterhouseCoopers Failed to Conduct the RequiredProcedures on BMIS Given Its Role as a Service Organization

130. In addition to the requirements imposed by the foregoing standards, Pricewater-

houseCoopers should have treated BMIS as a service organization because BMIS’ services were

part of the Funds’ “information system,” pursuant to AU §§ 324.03, 332.11, and 332.20. Here,

BMIS’ services were part of the Funds’ information systems because: (i) BMIS’ operations and

transactions were significant to the Funds; (ii) BMIS initiated, authorized, recorded, processed

and reported the Funds’ transactions from their occurrence to their inclusion in the financial

statements; (iii) BMIS affected the accounting records relating to the initiation, recording,

processing, and reporting of the Funds’ transactions; (iv) BMIS affected how the Funds’

information system captures all information concerning the Funds’ transactions; and (v) BMIS

affected the financial reporting process used to prepare the Funds’ financial statements. Id.

41


131. Accordingly, because BMIS’ services were part of the Funds’ “information

system,” PricewaterhouseCoopers was required to perform additional procedures, including

assessing the internal controls at BMIS in order to assess the risk of material misstatement. (AU

§ 324.04; 06-21).

132. PricewaterhouseCoopers was also required to obtain audit evidence where, as

here, there was a lack of segregation of the investment advisory, brokerage, and custodial duties

at BMIS. (AU § 332.20). Indeed, even the Funds acknowledged that there was a risk of

misappropriation of the assets due to the fact that they did not have custody of them. 22 This

heightened risk required PricewaterhouseCoopers to perform additional procedures to opine on

the financial statements of the Funds. SAS § 332.16 specifically directs that confirmations from

service organizations are not sufficient audit evidence to assess internal controls.

133. Moreover, where, as here, the service organization (BMIS) both initiated the

transactions and held and serviced the securities, the greater risk of fraud required that Price-

waterhouseCoopers perform additional procedures, including site visits to inspect

documentation, and identification of controls by the service organization:

If one service organization initiates transactions as an investmentadviser and also holds and services the securities, all of theinformation available to the auditor is based on the serviceorganization’s information. The auditor may be unable tosufficiently limit audit risk without obtaining evidential matterabout the operating effectiveness of one or more of the serviceorganization’s controls. An example of such controls isestablishing independent departments that provide the investmentadvisory services and the holding and servicing of securities, thenreconciling the information about the securities that is provided byeach department. (AU § 332.20).

22 KGF 2008 IM, Ex. 1 at 9; KEF 2008 IM, Ex. 2 at 9; KGF 2007 IM, Ex. 3 at 9; KGF 2006 IM, Ex. 4 at 9;KGF 2003 IM, Ex. 5 at 9-10; KGF 2000 IM, Ex. 6 at 10.

42


C. PricewaterhouseCoopers’ Practice Guide ConcerningAudits of Hedge Funds Highlighted the Importanceof Confirming the Existence of the Assets

134. PricewaterhouseCoopers was well aware of the enormous risks posed by the type

of investments such as the Funds’ investments with Madoff. In 2007, for example, claiming a

“leadership position as auditors for both investee funds and investor entities,” PwC U.S. 23 issued

a publication entitled, “Auditing Alternative Investments – A Practical Guide for Investor

Entities, Investee Funds Managers and Auditors” (the “PwC Guide,” Ex. 11). The PwC Guide

was largely based on a similar publication by the AICPA, “The AICPA Audit Guide: Auditing

Derivative Instruments, Hedging Activities, and Investments in Securities” (the “AICPA Guide”).

135. One of the central purposes of the PwC Guide was to provide guidance for

auditors of funds-of-funds (such as Kingate Global and Kingate Euro) about their auditing

obligations with respect to the underlying hedge funds (such as Madoff) in which the funds-of-

funds had invested.

136. The PwC Guide’s first concern was the existence of assets at the underlying

hedge fund. The main focus of the new guidance was as follows:

With respect to existence, the question is: Do the investor entity’salternative investments exist at the financial statement date, andhave the related transactions occurred during the period? Whileconfirming the existence of assets that are held by third partiesgenerally provides adequate audit evidence, the Interpretation andAICPA Practice Aid say that, by itself, a confirmation in theaggregate does not constitute adequate audit evidence. (PwCGuide, Ex. 11, at “Our Perspective”).

137. Because “confirmation in the aggregate” that the assets existed was no longer

sufficient, the auditor had an obligation to “confirm the holdings on a security-by-security basis.”

23 The PwC Guide states that “‘PricewaterhouseCoopers’ refers to PricewaterhouseCoopers LLP (a Delawarelimited partnership) or, as the context requires, the PricewaterhouseCoopers global network or other member firmsof the network, each of which is a separate legal entity.” (Ex. 11; at last page (not numbered)).

43


(Id. at 1). And even then, the PwC Guide warned that that was not always enough, and

additional procedures were necessary in certain circumstances, such as here:

Even if the auditor obtains a detailed confirmation of the investeefund’s holdings [ i.e., Madoff’s holdings], . . . the auditor may needto perform additional procedures, depending on the significance ofthe investments to the financial statements. Considerableauditor judgment is required to determine whether the auditor hassufficient evidence to satisfy the existence assertion. (Id. at 24).

138. One of the “additional procedures” consisted in checking with the banks that the

assets actually existed. “Comparing cash activity in the records of the investor entity with the

corresponding cash movements reflected in bank or brokerage statements generally provides the

auditor with valuable audit evidence.” ( Id. at 26). Madoff never provided trade tickets or

statements from third parties – only statements from “Madoff Securities.” Yet, the PwC Guide

clearly said, “simply receiving a confirmation from the investee fund [ i.e., Madoff] of its

underlying investments, either in the aggregate or on a security-by-security basis, does not, in

and of itself, constitute adequate audit evidence with respect to the valuation assertion.”

(Id. at 27).

139. Confirming the existence of the assets was even more critical in this case because

Madoff held 100% of the Funds’ assets. The AICPA Guide highlights this point. It provides

that the extent of the audit evidence necessary to issue an opinion increases as: (1) the

percentage of alternative investments to both the total assets, as well as the total investment

portfolio increases; and (2) the nature, complexity and volatility of the underlying investments

increases. Here, because the investments in BMIS accounted for virtually 100% of the Funds’

assets and 100% of the Funds’ trading, and because BMIS’ operations were opaque, this should

have alerted PricewaterhouseCoopers that the highest level of audit evidence was necessary in

order to opine on the Funds’ financial statements.

44


140. PricewaterhouseCoopers further failed to conduct an additional basic

confirmation procedure listed in the PwC Guide concerning Madoff’s auditors. The PwC guide

said that, if PricewaterhouseCoopers was going to rely on Madoff’s financial statements audited

by F&H, PricewaterhouseCoopers had to conduct some basic due diligence on F&H and its

supposed audit of Madoff. The first critical factor was the “professional reputation and standing

of [F&H].” (Id. at 30). For auditors whose reputation was not sufficient (such as F&H) the PwC

Guide listed “illustrative additional procedures,” any of which would have uncovered the fact

that the Funds’ financial statements were incorrect if PricewaterhouseCoopers had carried them

out:

• Investigate the professional reputation and standing of [F&H].

• Request that [KML and Tremont] apply, or have [F&H] apply,appropriate procedures to [Madoff’s] financial statementsand/or the underlying records.

• Request that [KML and Tremont] call or visit [F&H] to discussaudit procedures followed and the results thereof. Review theaudit program and/or working papers of [F&H], to the extentpermissible. (Id.).

141. The PwC Guide requirements that PricewaterhouseCoopers conduct additional

procedures concerning F&H were based on specific GAAS guidance. Specifically, pursuant to

AU § 332.30, because F&H’s “audits” of BMIS were unsatisfactory, PricewaterhouseCoopers

had the additional obligation:

If [BMIS’] financial statements are not audited, or if [BMIS’]auditor’s report is not satisfactory to the investor’s auditor for thispurpose [i.e., PricewaterhouseCoopers], the investor’s auditorshould apply, or should request that the investor arrange with theinvestee to have another auditor apply, appropriate auditingprocedures to such financial statements, considering the materialityof the investment in relation to the financial statements of theinvestor.

45


142. Despite its own internal guidelines’ clear instructions to conduct, at a minimum, a

background check on F&H, PricewaterhouseCoopers did not do so. PricewaterhouseCoopers

never checked F&H’s status with the AICPA. Had it done so, it would have discovered that

F&H had filed a form every year with the AICPA certifying that F&H did not conduct any

audits. This should have set off all kinds of alarm bells at PricewaterhouseCoopers requiring an

in-depth review of F&H’s audit of Madoff – a review Madoff never could have survived.

D. The Funds’ Financial Statements Were False

1. Kingate Global’s Statements of Assets and Liabilities,Operations, and Change of Net Assets Were False

143. Kingate Global’s Financial Statements included a Statement of Assets and

Liabilities. This Statement supposedly reflected the value of Kingate Global’s assets purportedly

held by Madoff at the end of each respective year. These statements were false because the

assets no longer existed at the time of each annual audit.

(a) In 2004, Kingate Global supposedly held: (i) $2.20 billion in U.S.

Treasury bills; and (ii) $37.9 million in cash and cash equivalents. Total assets at the end of

2004 attributable to the putative Class were supposedly $2.24 billion. (KGF 2004-05 FS, Ex. 8

at third and sixth pages (not numbered)).

(b) In 2005, Kingate Global supposedly held: (i) $2.23 billion in U.S.


2005 attributable to the putative Class were supposedly $2.25 billion. ( Id.).

(c) In 2006, Kingate Global supposedly held: (i) $2.37 billion in U.S.


2006 attributable to the putative Class were supposedly $2.50 billion. (KGF 2006-07 FS, Ex. 9

at third and sixth pages (not numbered)).

46


(d) In 2007, Kingate Global supposedly held: (i) $2.63 billion in U.S.


2007 attributable to the putative Class were supposedly $2.75 billion. (Id.)

144. Kingate Global’s Financial Statements also included a Statement of Operations,

which included the following line items : 24

(a) “Net realized gain from investment” for the years 2004 through 2007,

inclusive, of $158.1 million, $163.6 million, $244.1 million, and $237.1 million, respectively.

This line item reflected the fictitious annual returns from Madoff.

(b) “Management fee” (KML and Tremont) for the years 2004 through 2007,

inclusive, of $31.7 million, $34.0 million, $34.4 million, and $38.8 million, respectively. This

line item reflected the cash payments actually paid by Plaintiffs and the Class to KML and

Tremont based on Madoff’ s fictitious returns.

(c) “Administration fee” (Citi Hedge) for the years 2004 through 2007,

inclusive, of $0.58 million, $0.61 million, $0.61 million, and $0.67 million, respectively. This

line item reflected the cash payments actually paid by Plaintiffs and the Class to Citi Hedge

based on Madoff’s fictitious reports.

(d) “Professional fees” (PricewaterhouseCoopers) for the years 2004 through

2007, inclusive, of $54,997, $49,381, $66,894, and $82,407, respectively.

2. Kingate Euro’s Statements of Assets and Liabilities,Operations, and Change of Net Assets Were False

145. Kingate Euro’s Financial Statements also included a Statement of Assets and

Liabilities. This Statement reflected the supposed value of Kingate Euro’s assets purportedly

24 KGF 2004-05 FS, Ex. 8 at fourth page (not numbered); KGF 2006-07 FS, Ex. 9 at fourth page (not numbered).

47


held by Madoff at the end of each respective year. These statements were false because the

assets no longer existed at the time of each annual audit.

(a) In 2006, Kingate Euro supposedly held: (i) €474 million in U.S. Treasury

bills; (ii) €49.5 million in cash held as collateral on forward currency contracts; and (iii) €9.1

million in net unrealized gains on forward currency contracts. Total assets at the end of 2006

attributable to the putative Class were supposedly €532 million. (KEF 2006-07 FS, Ex. 10 at

third and sixth pages (not numbered)).

(b) In 2007, Kingate Euro supposedly held: (i) €580 million in U.S. Treasury

bills; (ii) €46.0 million in cash held as collateral on forward currency contracts; and (iii) €7.5

million in net unrealized gains on forward currency contracts. Total assets at the end of 2007

attributable to the putative Class were supposedly €634 million. (Id.).

146. Kingate Euro’s Financial Statements also included a Statement of Operations,

which included the following line items 25:

(a) “Net realized gain on investment and foreign currency transactions” for

the years 2006 and 2007 of €25.0 million and €45.0 million, respectively. This line item

reflected, in part, the fictitious annual returns from Madoff.

(b) “Management fee” (KML and Tremont) for 2006 and 2007 of €7.9 million

and €9.1 million, respectively. This line item reflected the cash payments actually paid by

Plaintiffs and the Class to KML and Tremont based on Madoff’ s fictitious reports.

(c) “Administration fee” (Citi Hedge) for 2006 and 2007 of €0.132 million

and €0.146 million, respectively. This line item reflected the cash payments actually paid by

Plaintiffs and the Class to Citi Hedge based on Madoff’s fictitious reports.

25 KEF 2006-07 FS, Ex. 10 at fourth page (not numbered).

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(d) “Professional fees” (PricewaterhouseCoopers) for 2006 and 2007 of

€44,429 and €46,567, respectively.

147. PricewaterhouseCoopers failed in its obligation to obtain reasonable assurance

that the assets included in the Funds’ financial statements in fact existed and were appropriately

valued. Contrary to the applicable auditing standards, PricewaterhouseCoopers failed to gather

sufficient, competent evidence to support its opinion that the Funds’ financial statements were

free of material misstatement with respect to the claimed assets, instead inappropriately relying

on the Funds’ management’s representations. (AU § 333). As a result, although

PricewaterhouseCoopers opined that the multi-billion dollar valuations of the Funds’ investments

were fairly presented in the financial statements, PricewaterhouseCoopers failed to determine

whether the assets, which constituted nearly 100% of the Funds’ value, even existed.

148. With respect to the line item, “net realized gain from investment,”

PricewaterhouseCoopers did not perform the necessary procedures to audit the occurrence of the

transactions underlying the split-strike conversion strategy which would have constituted the

basis for the “gain.” PricewaterhouseCoopers knew that Madoff was purportedly using that

strategy, a nontraditional options trading strategy. PricewaterhouseCoopers knew that the split-

strike strategy required the use of options trading, and that Madoff purportedly relied on counter

parties outside of listed exchanges to execute those transactions, yet PricewaterhouseCoopers

failed to confirm the existence of those transactions with the supposed counterparties.

149. Had PricewaterhouseCoopers undertaken the proper analysis and testing of the

strategy purportedly employed by Madoff, it would have determined that the strategy, including

the claimed liquidation of all positions at the end of each quarter to acquire U.S. Treasury bills,

could not have functioned as described. Moreover, PricewaterhouseCoopers would have

49


determined that BMIS’ reported consistent, positive returns, even in down markets, were not

possible. While the split-strike conversion strategy can limit the downside of the trade, it could

never convert negative returns in the underlying stocks into positive returns. The only factually

possible explanation for having consistent, positive returns (even in down markets) was

Madoff’s market timing ability – which, based on the level of consistency reported, was

statistically impossible.

150. Several publicly available articles noted that Madoff’s consistent positive results

were suspicious and raised significant questions about Madoff’s purported trading strategy. For

instance, a May 2001 article in Barrons titled Don’t Ask Don’t Tell; Bernie Madoff Is So

Secretive, He Even Asks His Investors To Keep Mum, reported that three option strategists at

major investment banks were highly skeptical about Madoff’s unusually steady double-digit

returns and quoted one of the strategists as stating: “Anyone who’s a seasoned hedge fund

investor knows the split-strike conversion is not the whole story. To take it at face value is a bit

naïve.” Also in May 2001, an article in the hedge fund industry newsletter MAR/Hedge titled

Madoff Tops Charts; Skeptics Ask How, noted that numerous traders, money managers, and fund

managers employing a split-strike conversion strategy experienced far greater volatility and

significantly lower returns than what Madoff was reporting. PricewaterhouseCoopers ignored

these issues when conducting its audits for the Funds and failed to verify whether Madoff was in

fact executing the trades necessary to implement the split-strike conversion strategy.

151. In addition, despite the knowledge of the interconnection between the Funds and

BMIS, and of the Funds’ reliance on the supposed integrity of BMIS’ operations,

PricewaterhouseCoopers did not review the data required by the auditing standards with respect

to an auditor’s obligation to examine the “controls over derivatives and securities transactions

50


from their initiation to their inclusion in the financial statements.” (AU § 332.11).

PricewaterhouseCoopers did not test the trades supposedly made by BMIS or confirm the actual

existence of securities in BMIS accounts. If PricewaterhouseCoopers had made any such efforts,

it would have discovered that neither the securities nor the trades ever existed.

3. The Notes to Kingate Global’s andKingate Euro’s Financial Statements

152. The Notes to Kingate Global’s Financial Statements for the years 2004 through

2007, and for Kingate Euro’s 2007 Financial Statements, were identical with respect to the

statements discussed below.

153. Note 2(b) discussed “significant accounting policies” for “cash and cash

equivalents.” Note 2(b) shows that PricewaterhouseCoopers understood that Madoff acted as

custodian and held cash on deposit: “Cash and cash equivalents include . . . amounts on deposit

with the broker-dealer.”26

154. Note 5 discussed the “investment advisor, broker dealer, custodian and banker,”

in relevant part, as follows:

The [Fund’s] investment advisor is Bernard L. Madoff InvestmentSecurities LLC (“Madoff”), a New York based financialinstitution. Madoff also acts as the [Fund’s] broker-dealer for allequity, US Treasury and option transactions, these transactionsbeing executed in certain instances with Madoff as the principal.During the year [2005], the [Fund] executed transactions ofapproximately $48 billion (2004 - $49 billion). 27 Madoff’s onlyform of remuneration is from any principal spread and/orcommission on the transactions. Madoff also acts as custodian forinvestment assets of the [Fund]. (KGF 2004-05 FS, Ex. 8 at 3).

26 KGF 2004-05 FS, Ex. 8 at 1; KGF 2006-07 FS, Ex. 9 at 1; and KEF 2006-07 FS, Ex. 10 at 1.

27 The comparable figures for 2006 and 2007 were $48 billion and $58 billion, respectively. (KGF 2006-07FS, Ex. 9 at 3).

51


155. Note 7 to the Financial Statements was entitled “Financial Instruments,” and

addressed the risks incurred by the Funds due to Madoff’ s supposed trading activities.

In the normal course of business, the [Fund] invests in U.S.publicly traded securities as well as U.S. investments, which haveoff-balance sheet risk. These financial instruments includepurchased and written put and call options, which expose theCompany to market and credit risk. . . . Credit risk arises from thepotential inability of the counter-party to perform under the termsof the contracts.

* * *

During the year the [Fund] traded in listed and over the counterindex options. Where the Company trades in listed options, thecounter-party and guarantor is the Options Clearing Corporation.Where the [Fund] trades in over the counter options, the [Fund] isexposed to credit risk due to the potential inability of the counter-party to perform under the terms of the contract. (KGF 2004-05FS, Ex. 8 at 3).

156. All these statements in the Notes to the Financial Statements showed that

PricewaterhouseCoopers understood that Madoff held nearly 100% of the assets of the Funds,

served as the broker-dealer for “all” of the Funds’ transactions, and that Madoff did not charge

an investment advisory fee. PricewaterhouseCoopers further understood the risk that one of the

parties that held the assets on behalf of the Funds, or that had obligations to the Funds (the

counterparties), would not perform. Yet, contrary to the statements in the Notes,

PricewaterhouseCoopers never confirmed that Madoff actually held any of the assets Madoff so

claimed, nor confirmed any of Madoff’ s purported trades of approximately $50 billion annually

with the counterparties – the counterparties who never existed.

157. The Funds’ Financial Statements were also signed each year by two Directors.

The signatures are illegible.28

28 KGF 2004-05 FS, Ex. 8 at third page (not numbered); KGF 2006-07 FS, Ex. 9 at third page (not numbered); andKEF 2006-07 FS, Ex. 10 at third page (not numbered).

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E. Internal Documents Show ThatPricewaterhouseCoopers’ Audit Violated GAAS

158. Kingate Global and Kingate Euro were not the only Madoff feeder funds audited

by the “worldwide members of the PricewaterhouseCoopers organization.” Plaintiffs are aware

of at least seven additional feeder funds audited by such PricewaterhouseCoopers member

organizations with more than $16 billion purportedly held by Madoff in 2007.

Madoff Feeder Funds Assets UnderAudited By PwC Management - 200729

Fairfield Sentry(includes Fairfield Lambda & Sigma) $ 7,277,386,000

Greenwich Sentry, LP $ 262,531,000

Kingate Global, Ltd. $ 2,754,291,825

Kingate Euro Fund, Ltd. $ 633,934,973

Optimal Strategic US Equity, Ltd. $ 2,770,250,674

Thema International Fund, PLC $ 1,447,688,803

Zeus Partners, Ltd. $ 300,000,000

Defender Fund Ltd. $ 312,282,024

Plaza Investments International Ltd. $ 657,241,006

Total $16,415,606,305

159. According to Madoff’s form ADV publicly filed with the SEC on January 7,

2008, BMIS represented that its assets under management totaled $17,091,640,696. Feeder

29 Assets under management is the amount that Madoff reported to the feeder funds. This amount thusreflects the fictitious appreciation of the total cash invested. For Kingate Global, for example, while the total cashinvested by Kingate Global between 1994 and 2008 was $963.45 million ( infra ¶ 68), Madoff reported assets undermanagement of $2,754,291,825 as of the end of 2007.

53


funds audited by PricewaterhouseCoopers member organizations had assets under management

at the end of 2007 of $16.415 billion – or about 96% of BMIS’ supposed entire Investment

Advisory business. Accordingly, the audits of Madoff’s feeder funds by the

PricewaterhouseCoopers member organizations provided them with a unique ability and

opportunity to verify information about BMIS. That information, particularly in the aggregate,

should have raised significant suspicions about Madoff.

160. These suspicions also should have been obvious because PwC Bermuda

coordinated the PricewaterhouseCoopers member firms’ audits of the feeder funds and visits to

Madoff’s offices on a global basis. Starting at least as early as 2004, PwC Bermuda and PwC

U.S. conducted procedures on Madoff which were then communicated in written form to the

various PricewaterhouseCoopers member organizations. These procedures on Madoff were

conducted at least twice, in December 2004 and again in December 2006. 30

161. The procedures conducted in December 2004 are the subject of a letter from PwC

Rotterdam (“PwC Netherlands”), dated March 15, 2005, to another feeder fund (Fairfield

Greenwich Advisors, LLC (“Fairfield Greenwich”)). (“PwC Netherlands Letter,” Ex. 12). The

letter discloses PwC Bermuda’s involvement in meeting with Madoff. In relevant part, the letter

states as follows:

In our previous conference call, we have informed you about thefact that PwC Bermuda had a meeting in December 2004 withBernard L. Madoff Investments Securities LLC (hereinafter‘BLM’) in order to obtain and/or update PwC’s understanding ofthe procedures in place at BLM. PwC Bermuda has shared withPwC Rotterdam their procedures program, notes of meeting andconclusions for the purpose of our audit of Fairfield SentryLimited.

30 The December 2006 meeting is confirmed by Madoff’s Calendar which reflects an entry for LindaMcGowan from PwC U.S. on December 4, 2006. The copy of Madoff’s Calendar obtained by Plaintiffs does notinclude any records prior to 2005.

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* * *

The procedures performed by PwC Bermuda were only directedtowards obtaining an understanding of certain procedures andorganisation aspects of BLM for the purpose of gaining comfortthereon for the audits by several PwC offices of a number offunds having moneys managed by BLM.

(PwC Netherlands Letter, Ex. 12 at 1).

162. The letter also included an appendix entitled, “Summary of procedures performed

at BLM.” (PwC Netherlands Letter, Ex. 12 at 3). The appendix stated that “[b]y means of an

interview with [Madoff], the following controls and procedures were discussed. . . .” GAAS,

however, is clear that discussions alone do not suffice to provide appropriate audit evidence.

163. PricewaterhouseCoopers blindly accepted, and never confirmed, verified, or

independently ascertained, any of the information provided by Madoff. Particularly with respect

to sub-custodians, the PwC Netherlands Letter further explained that according to Madoff “there

[were] agreements with other US custodians.” (Id. at 5). PricewaterhouseCoopers never

confirmed who the “other US custodians” were, and accepted all of Madoff’s verbal

representations at his word.

164. PwC Bermuda and PwC U.S. issued an even more detailed report about the same

meeting with Madoff in December 2004. (“PwC 2004 Madoff Report,” Ex. 13). The PwC 2004

Madoff Report was issued to the PricewaterhouseCoopers member organization in Ireland

concerning another feeder fund named Optimal Strategic U.S. Equity Ltd. SUS. The report is

on “PricewaterhouseCoopers” letterhead and labeled “Strictly Private And Confidential.” Id.

PwC Ireland paid a fee to obtain the PwC 2004 Madoff Report. PwC Ireland obtained a similar

report for the 2006 audit.

165. The PwC 2004 Madoff Report concerning the 2004 audit follows a similar

structure to the appendix included in the PwC Netherlands letter, but provides additional

55


information. For example, the attendees to the meeting with Madoff are disclosed as Linda

McGowan (“McGowan”) and Scott-Watson Brown (“Brown”). McGowan is a partner at PwC

U.S., and based in PwC U.S.’s office in New York City at 300 Madison Avenue – about ten

blocks from Madoff’s offices in the Lipstick Building. Brown was a partner at PwC Bermuda,

based in Hamilton, Bermuda. Brown’s phone number in Bermuda appeared in Madoff’s

personal Office Telephone Directory next to “PricewaterhouseCoopers.”

166. Although the report purports to “document” BMIS’ management “procedures,”

the conclusions contained therein are based exclusively on McGowan and Brown’s interview

with Madoff himself, and his own self-serving representations. Neither McGowan nor Brown

made any attempt to verify, document, or confirm with evidentiary materials any of Madoff’s

statements. Instead, McGowan and Brown simply transcribed Madoff’s unsubstantiated

assertions. PwC Bermuda and PwC U.S. then, notwithstanding the cursory nature of the review

and that it did not comply with GAAS, relied on that review to sign-off on the Funds’ Financial

Statements for that year and to issue the Funds’ audit opinions.

167. The PwC 2004 Madoff Report states that “99% of all trades [were] electronic,

therefore records are updated daily and all reconciliations [were] performed daily (automated

process).” (PwC 2004 Madoff Report, Ex. 13 at 1). Yet, KML and Tremont received all trade

confirmations in paper format with a considerable time lag that allowed Madoff to fabricate the

trades. Indeed, the paper records did not include time stamps for each trade nor individualized

prices. Instead, the paper confirmation tickets only reflected average prices for the day. This

inconsistency between the fact that virtually all of Madoff’s purported trades were electronic and

the fact that all trade information from Madoff was sent in paper format, days later, was

irreconcilable. Accordingly, PricewaterhouseCoopers’ inability to obtain electronic

56


confirmations, and its reliance only on paper confirmations received by KML and Tremont,

should have raised significant questions regarding the assets claimed on the Funds’ financial

statements.

168. The exclusive production of paper confirmations was at odds with Madoff’ s

supposedly high-tech, electronic trade execution – at least as understood by Pricewaterhouse-

Coopers. The PwC 2004 Madoff Report explained that Madoff’ s operation was highly automated

and relied on sophisticated computer models and systems:

Trades are initiated by the system without trader interventionand routed in accordance with the firms [sic] routing priority.Trades are bunch[ed] but the system maintains detail by account,which upon electronic confirmation of execution isautomatically posted to each individual account in accordancewith the original trade break out. Bunched trades are allocated ona prorate[d] basis. Performance is the same across allfunds/accounts for which this strategy is employed. Madoffreceives 4 cents a share mark up on all trades. The systemchooses the trades by generally using 35 of the S&P 100 stocksand hedges the positions with S&P options. . . . The parameters ofthe strategy require the correlation to be in the 90’s. Based on themodels matrix, positions are adjusted as correlative factors dictate.If the model determines that there is not a current factor conduciveto positioning, the cash will be invested in US Treasury securities.The model runs on a dynamic basis and is adjusted periodically asmarket conditions dictate.

(“PwC 2004 Madoff Report,” Ex. 13 at 2).

169. Because PwC Bermuda and PwC U.S. could have only reviewed paper copies of

the trades purportedly executed for and sent to the Funds, PwC Bermuda and PwC U.S. never

confirmed that the electronic trading for the Funds’ assets in fact occurred.

170. Also according to the PwC 2004 Madoff Report, “all securities are segregated in

accordance with US brokerage rules (primarily at DTC for equities and BONY for

governments, GSCC clears governments).” (PwC 2004 Madoff Report, Ex. 13 at 4; emphasis

supplied). The phrase, “BONY for governments, GSCC clears governments” meant that BONY

57


(the Bank of New York) held the government securities, or U.S. Treasury bills, and that GSCC

(Government Securities Clearing Corporation) was the clearing agent for the purchase and sales

of U.S. Treasury bills. The U.S. Treasury bills were purportedly held at BONY and cleared

through GSCC because Madoff was not an authorized broker-dealer for government securities,

only for equity securities. FINRA’s 2008 report on BMIS specifically stated that BMIS was a

broker dealer, but not a “government securities broker or dealer.” (FINRA BrokerCheck Report

– BMIS, Ex. 14 at 6).

171. The PricewaterhouseCoopers audit opinions, however, all said that “Madoff

act[ed] as the [Fund’s] broker-dealer for all equity, US Treasury and option transactions.”31

This was false and contradicted by FINRA’s 2008 report.

172. The PricewaterhouseCoopers audit opinions were also false because, for example,

with respect to Kingate Global, the 2007 opinion represented that $2.60 billion was held in U.S.

Treasury bills as of December 31, 2007. In fact, every year-end and every financial statement

audited by PricewaterhouseCoopers reflected that virtually all the assets were being supposedly

held in U.S. Treasury bills, and the rest in cash. Yet, PricewaterhouseCoopers never confirmed

that the U.S. Treasury bills that were reflected on the Funds’ financial statements – in which the

Funds’ assets were purportedly invested when not invested in the split-strike conversion strategy

– actually existed.

173. Indeed, PricewaterhouseCoopers failed to check to make sure that these assets –

the U.S. Treasury bills – existed every single year it conducted its audits. Yet, the assertion that

the assets existed and that the Funds’ monies were safe because they were being held in U.S.


58


Treasury bills was the critical assertion of the financial statements and of Pricewaterhouse-

Coopers’ audit opinion.

174. The PwC 2004 Madoff Report also indicated that “all securities [were] segregated

in accordance with US brokerage rules (primarily at DTC for equities).” (“PwC 2004 Madoff

Report,” Ex. 13 at 4). PricewaterhouseCoopers never confirmed that there existed a

“segregated” account at DTC for the benefit of the Funds.

175. PricewaterhouseCoopers further failed to obtain confirmations from yet another

critical set of third parties: Madoff’s supposed trading counterparties. PricewaterhouseCoopers

knew that the counterparties to the put options supposedly purchased by Madoff were critical and

questioned Madoff on this point during the December 2004 meeting. The PwC 2004 Madoff

Report states that, according to Madoff, “all options [were] traded [over-the-counter], but use

same expiration date as listed index options; Madoff uses various, numerous counterparties.”

(“PwC Madoff Report,” Ex. 13 at 7).

176. Over-the-counter traded options meant that Madoff entered into private contracts

with other market participants and that Madoff did not purchase exchange-traded options.

Exchange-traded options carry no credit risk because the exchange ensures that all exchange

participants are credit worthy. In the event they are not, the exchange suffers the loss.

Accordingly, PricewaterhouseCoopers knew that Madoff supposedly did not purchase any puts

in an exchange, and that all its puts consisted of direct, private transactions, with considerable

credit risk.

177. The audit opinions issued by PricewaterhouseCoopers, however, falsely stated

that, “[d]uring the year the [Fund] traded in listed and over the counter index options. Where the

[Fund] trades in listed options, the counter-party and guarantor is the Options Clearing

59


Corporation.”32 This contradicted PricewaterhouseCoopers’ own PwC 2004 Madoff Report

which said that Madoff traded all options over-the-counter.

F. PricewaterhouseCoopers Violated Its Duties To Plaintiffs And The Class

178. As the independent party charged with certifying that it had reasonable assurance

that the Funds’ financial statements were free of material misstatements, Pricewaterhouse-

Coopers failed to meet its obligation to the Funds’ investors when it issued its audit opinions –

opinions upon which it knew those parties would rely. Had PricewaterhouseCoopers performed

appropriate audits (as it represented it had), it would have learned that the securities transactions

purportedly conducted by Madoff did not occur and the assets of the Funds did not exist.

179. In addition, the audits PricewaterhouseCoopers represented it conducted, and

even the limited audit work that PricewaterhouseCoopers must have conducted, would have

given PricewaterhouseCoopers actual knowledge or information that it willfully ignored

specifically that:

• BMIS was not audited pursuant to GAAS by a “qualified andreputable independent audit firm”;

• the Kingate Defendants performed no meaningful duediligence on BMIS;

• the Kingate Defendants did not test the validity of Madoff’sperformance or strategy; and

• the Kingate Defendants had no process in place to verify theoccurrence of the transactions purportedly made by BMIS withcounterparties or other third parties, or the existence of theassets.

180. PricewaterhouseCoopers also breached its duties as independent auditor of the

Funds at least as follows:


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• PricewaterhouseCoopers failed to exercise due professionalcare and professional skepticism in its audit of the Funds.Specifically, PricewaterhouseCoopers failed to use professionalskepticism “when considering the risk of material misstatementdue to fraud;”

• PricewaterhouseCoopers failed to obtain a sufficientunderstanding of the Funds and their environment, includingtheir internal controls, to assess the risk of materialmisstatement of the financial statements whether due to erroror fraud;

• PricewaterhouseCoopers failed to obtain sufficient competentaudit evidence with respect to existence of the Funds’investments through BMIS and PricewaterhouseCoopers didnot perform the necessary procedures to audit the existence ofthe Funds’ securities;

• PricewaterhouseCoopers failed to obtain an understanding ofthe internal controls (or lack thereof) of BMIS and did notperform the necessary procedures to audit the occurrence of thetransactions which constituted the purported split-strikeconversion strategy, such as confirmation with counterparties,confirmation of settled transactions, physical inspection of thesecurities, or performance of analytical procedures;

• PricewaterhouseCoopers failed to perform additionalprocedures required in situations where, as here, there was alack of segregation of duties at a service organization.Numerous issues and risks, discussed above, indicated thatMadoff was a fraud and required PricewaterhouseCoopers toinvestigate further and perform additional audit proceduresprior to opining on the Funds’ financial positions; and

• Any reliance by PricewaterhouseCoopers on the financialstatements of BMIS was improper because F&H was notqualified or able to audit BMIS in accordance with GAAS.

G. PricewaterhouseCoopers’ Substantial Assistance to Kingate Defendants’Fraud and Breaches of Fiduciary Duty

181. In the course of PricewaterhouseCoopers’ audits of the Funds, Pricewaterhouse-

Coopers knew that (i) all of the Funds’ assets were managed by Madoff, (ii) Madoff was both the

investment advisor and the broker-dealer with respect to those assets, and (iii) Madoff also

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served as the custodian of the assets. PricewaterhouseCoopers thus knew that Madoff was

responsible for managing, trading and holding the Funds’ assets, an unusual multi-faceted role

that made possible Madoff’ s fraudulent scheme.

182. Nevertheless, PricewaterhouseCoopers failed to account for these risks and to

conduct the audit procedures required by GAAS. As a result, the audit opinions misrepresented

the fact that PricewaterhouseCoopers had concluded the audits in compliance with GAAS and

falsely stated that the Funds’ financial statements reflected the true and accurate condition of the

Funds. Indeed, PricewaterhouseCoopers’ failure to comply with GAAS and its own policies and

procedures was so egregious that PricewaterhouseCoopers failed to detect that the purported

Fund assets did not even exist. In sum, PricewaterhouseCoopers’ audits were so deficient that in

reality there were no audits at all.

183. Moreover, in the course of even an inadequate audit, PricewaterhouseCoopers must

have known or willfully ignored that the Kingate Defendants did not, in fact, conduct the due

diligence they falsely represented that they conducted. PricewaterhouseCoopers further must

have known or willfully ignored that the Kingate Defendants did not monitor or verify the

investments purportedly made by Madoff in order to confirm that BMIS operated legitimately,

using the represented investment strategy, and in accordance with the legal and regulatory

requirements.

184. In conducting its audits, PricewaterhouseCoopers was willfully blind to the

Kingate Defendants’ breaches of fiduciary duty and fraud, and PricewaterhouseCoopers thereby

provided substantial assistance to the Kingate Defendants in that regard by providing clean audit

opinions and by failing in its other duties as set forth above.

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VII. CITI HEDGE’S WRONGFUL CONDUCT

A. Citi Hedge Committed To Provide AdministrativeServices Beyond Those Of A Typical Fund Administrator

185. Citi Hedge and its predecessors served as the administrator of the Funds at all

relevant times. Specifically, from the inception of the Funds through 2002, the administrator

was Bermuda-based Hemisphere. In 2002, Hemisphere was acquired by BISYS Group, Inc.

(BISYS’s parent) and renamed BISYS Hedge Fund Services Ltd. (Bermuda). In 2007, Citigroup

acquired BISYS Group, Inc. and gave the administrator its present name, Citi Hedge.

186. As administrator, Citi Hedge and its predecessors were subject to the

Administration Agreement, as amended and restated effective June 1, 2007 (the “Administration

Agreement,” Ex. 15), and the Registrar Agreement, as amended and restated effective January 1,

2002.

187. Pursuant to these agreements, one of Citi Hedge’s critical responsibilities

included the calculation of the Funds’ NAV.

The Administrator will determine the net asset value of the Fund’sPortfolio assets attributable to the USD shares as of the close ofbusiness on the last Business Day of each calendar month. TheAdministrator verifies the prices attributed to the securitiesheld by the USD shares of the Fund by reference to pricingsources independent of the Investment Advisor wheneverreasonably possible. 33

188. Citi Hedge failed to meet this commitment as it failed to verify the prices

provided by Madoff in at least 185 separate instances where the prices were demonstrably false.

In all instances, the information necessary for Citi Hedge to verify the prices of the securities

traded by Madoff – consisting of S&P 100 stocks – was readily available through private

financial information services, such as Bloomberg, as well as through the internet. Indeed, it is

33 KGF 2008 IM, Ex. 1 at 23; KEF 2008 IM, Ex. 2 at 24; KGF 2007 IM, Ex. 3 at 23-24; KGF 2006 IM, Ex. 4at 24; KGF 2003 IM, Ex. 5 at 24; KGF 2000 IM, Ex. 6 at 24.

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unlikely that there are any prices of securities that are more readily available than the prices of

S&P 100 stocks that trade in the NYSE.

189. The Information Memoranda further explained that the NAV “is the market value

of the Fund[s’] total assets, calculated as described below, less all accrued debts and

liabilities. . . . The Fund[s’] total assets include: (i) all cash and cash equivalent, including bank

deposits and interest bearing obligations; (ii) all securities positions; and (iii) all options

position.”34 Although the securities and options positions were reported and purportedly

custodied by Madoff, Citi Hedge had a duty to independently verify the information.

190. With respect to the securities and options, they were supposedly “valued at the

last sale price reported on the principal securities exchange or market on which [they] traded. In

the absence of reported sales prices on the valuation date, [the securities and options] generally

are valued at the last reported bid quotation.”35

191. Additional responsibilities of the administrator set forth in the Information

Memoranda included: (i) communicating with the Funds’ shareholders; (ii) communicating with

the general public; (iii) soliciting sales of the Funds’ stock; (iv) accepting the subscriptions of

new Shareholders; (v) maintaining the Funds’ principal corporate records and books of account;

(vi) disbursing payments of dividends, legal fees, accounting fees, and officers’ and directors’

salaries; (vii) calculating, publishing or furnishing the subscription or redemption price of the

shares, (viii) conducting meetings of the Funds’ shareholders and Directors; and (ix) making

redemptions. 36

34 Id.35 Id.36 KGF 2008 IM, Ex. 1 at 15; KEF 2008 IM, Ex. 2 at 16; KGF 2007 IM, Ex. 3 at 15; KGF 2006 IM, Ex. 4 at

15; KGF 2003 IM, Ex. 5 at 16; KGF 2000 IM, Ex. 6 at 16.

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192. For its services, Citi Hedge collected an annual fee. From 2005 through 2007,

Kingate Global paid approximately the following amounts in management fees to Citi Hedge,

respectively: $605,000; $611,000; and $666,000. 37 Kingate Euro paid Citi Hedge approximately

the following amounts in 2006 and 2007, respectively: €132,000 and €146,118. 38 These

payments were based on the fictitious value of the Funds’ assets, as calculated by Citi Hedge.

As a result, Citi Hedge did not earn these fees, which should be returned to Plaintiffs and the

Class.

B. Citi Hedge Touted Its Superior Financial Services Capabilities

193. Citi Hedge holds out its Funds Services division as “among the world’s largest

providers of Hedge Fund Administration Services.” (http://www.citibank.com/transaction

services/home/securities_svcs/fund/docs/hedgefundend_end.pdf (last visited May 17, 2010)). It

asserts that “Citi has the experience, the global scale and the state-of-the-art technology to meet

the comprehensive and complex needs of hedge funds and their managers today and in the years

to come. Our unmatched global presence and economy of scale create efficiencies and reduce

operational costs.” (Id.).

194. Citi Hedge also boasts that its hedge fund services group in Bermuda is number

one. “Bermuda is home to Citi’s industry-leading offshore fund services. . . . Ours is the most

highly rated alternative fund services team here, ranked the #1 fund administrator for three

straight years by Global Custodian magazine.” (http://www. citigroup.com/transactionservices/

home/region/lam/countries/bermuda.jsp (last visited May 17, 2010)). Citi Hedge further

emphasizes the many “Number One Wins” obtained by its Fund Services group, including “#1

Fund-of-Fund Administrator in North America,” according to HedgeFundNet.

37 KGF 2004-05 FS, Ex. 8 at fourth page (not numbered); KGF 2006-07 FS, Ex. 9 at fourth page (notnumbered).

38 KEF 2006-07 FS Ex. 10 at fourth page (not numbered).

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(http://www.citigroup.com/transactionservices/home/securities_svcs/sfsawardscampgn.jsp (last

visited May 17, 2010)).

195. Based on these accolades, Citi Hedge concludes that it has a “unique competitive

advantage” largely based on the fact that it has, “the industry’s largest global footprint with 53

proprietary branches”; “the strongest presence across all regions”; and the “most diversified

product line in the industry.” (http://www.citigroup.com/transactionservices/home

/securities_svcs/investors.jsp (last visited May 17, 2010)).

196. In light of its supposedly unique advantages, Citi Hedge committed to provide

administration services beyond those of a typical Fund administrator. As set forth in the

Administration Agreement, Citi Hedge agreed to “calculate and publish the net asset value per

Share . . . and the subscription and redemption prices per Share.” (Administration Agreement,

Ex. 15 at § 4.1.1). Citi Hedge was also responsible for providing corporate secretarial services

(§ 4.2), including having an employee act as corporate secretary (§ 4.2.1), and establishing and

maintaining the Funds’ bank accounts (§ 4.2.9). Citi Hedge further agreed to the preparation of

draft financial statements for the auditors (§ 4.3.4), maintenance of the books and records

(§ 4.3.1), and to the reconciliation of accounting issues with the Funds’ Directors, auditors, and

legal counsel (§ 4.3.3).

197. Moreover, Citi Hedge was to serve as the Funds’ agent with the general public,

and was specifically responsible for communications with investors, 39 and communicated

directly with Plaintiffs and members of the Class. In fact, Plaintiffs sent their subscription

documents directly to Citi Hedge, sent monies for investments to Citi Hedge, and received

investment confirmations from Citi Hedge.

39 KGF 2008 IM, Ex. 1 at 15; KEF 2008 IM, Ex. 2 at 16; KGF 2007 IM, Ex. 3 at 15; KGF 2006 IM, Ex. 4 at15; KGF 2003 IM, Ex. 5 at 16; KGF 2000 IM, Ex. 6 at 16.

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C. Citi Hedge Owed Duties To Plaintiffs And The Class

198. Citi Hedge was a fiduciary to Plaintiffs and the Class, and owed Plaintiffs and the

Class a duty of due care in the performance of the financial services it provided. Citi Hedge had

significant discretionary responsibilities that went beyond that of a typical fund administrator.

Citi Hedge was aware that potential and current investors knew that Citi Hedge was providing

significant financial services to the Funds, and were relying on Citi Hedge in making their

investment decisions. Citi Hedge was aware that its involvement in the Funds lent significant

credibility to the Funds, and provided potential and current investors with assurance about the

quality of financial services provided to the Funds and the accuracy of the reported values of the

Funds and the investors’ individual accounts. Citi Hedge knowingly placed its imprimatur on

the Funds.

199. As fully intended by Citi Hedge, Plaintiffs and the Class reposed their trust and

confidence in Citi Hedge, which occupied a superior position, to provide these financial services,

when Plaintiffs and the Class made their initial investment in the Funds, re-invested in the Funds,

and retained those investments in the Funds.

200. The NAV, which was to be independently calculated and reported by Citi Hedge,

was critical to Plaintiffs’ and the Class’ initial investment decisions, decisions to invest

additional funds, and decisions to maintain the investments over time. The number of shares that

Plaintiffs received in exchange for their investment amounts depended on Citi Hedge’s NAV

calculations. Plaintiffs’ and the Class’ subsequent reported profits also turned on Citi Hedge’s

calculations. Accordingly, Plaintiffs and the Class necessarily relied on Citi Hedge’s NAV

calculations. Their initial and subsequent investments were sent directly to Citi Hedge.

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D. Citi Hedge’s Performance Of Its Duties Was Grossly Deficient

201. Citi Hedge was grossly deficient in the fulfillment of its duties to Plaintiffs. Citi

Hedge utterly failed to take reasonable steps to fulfill its duties as administrator. For instance, in

contravention of its commitments set forth in the Information Memoranda, Citi Hedge failed to

take reasonable, industry-standard steps to calculate the Funds’ NAV; to independently confirm

and verify the pricing information provided by Madoff; to reconcile balances at BMIS; to

reconcile information provided by Madoff as the Funds’ prime broker with information provided

by KML and Tremont; to prepare the monthly financial statements in accordance with GAAP; or

to relay accurate information to investors.

202. Instead, Citi Hedge blindly and recklessly relied on information provided by

Madoff to calculate and disseminate the Funds’ NAV, and to perform its duties, even though that

information was manifestly incorrect and should not have been relied on. Citi Hedge agreed to

utilize independent pricing services in order to calculate the Funds’ NAV, but Citi Hedge failed

to perform its obligation to independently verify the pricing information provided by Madoff.

203. Citi Hedge also should not have relied on the information provided by Madoff

because the roles of the investment manager, custodian, and trade execution agent were

consolidated in Madoff, thus dramatically increasing the risk of fraud, and the need for

independent verification and scrutiny, as Citi Hedge well knew. Furthermore, as alleged above,

the profits generated by Madoff were virtually impossible to achieve. Moreover, numerous

questions and risks surrounding Madoff’ s operations and purported results should have caused

Citi Hedge to increase its scrutiny of the information provided, and seek independent

verification.

204. If Citi Hedge had not breached its duties as set forth above, Plaintiffs and the

Class would not have invested in the Funds, or retained their investments in the Funds. Plaintiffs

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and the Class could have redeemed their investments and recovered their principal at any time

during the many years in which the Funds were making redemptions, prior to the revelation of

Madoff’s fraud in December 2008.

E. Citi Hedge Provided Substantial Assistance To The Kingate Defendants’Fraud And Breaches Of Fiduciary Duty

205. Citi Hedge knowingly provided substantial assistance to the Kingate Defendants

in the fraud and breaches of fiduciary duty that they perpetrated on investors. By virtue of Citi

Hedge’s long-standing involvement in the Funds, and its experience in fund management, Citi

Hedge knew or was willfully blind to the fact that the due diligence and risk controls employed

by the Kingate Defendants were grossly deficient. Citi Hedge further knew that the Kingate

Defendants uniformly represented to Plaintiffs and the Class that they employed thorough due

diligence, monitoring and oversight of Fund managers, including Madoff, and strict risk controls

– representations which Citi Hedge knew to be false or to the falsity of which it was willfully

blind.

206. Rather than alerting investors to these problems, Citi Hedge provided substantial

assistance to the Kingate Defendants. For example, Citi Hedge assisted the Kingate Defendants

by receiving investments from Plaintiffs and the Class and transferring their funds to BMIS;

sending Plaintiffs investment confirmations; calculating the Funds’ NAV and disseminating the

false NAV values; receiving and transmitting other Fund information from the Kingate

Defendants to Plaintiffs; allowing Citi Hedge’s name and the services it was ostensibly providing

to be included in the Funds’ placement memoranda and other documents; and recording the

securities Madoff said he was holding. The Kingate Defendants could not have perpetrated their

fraud and breaches of fiduciary duty without this substantial assistance by Citi Hedge. If Citi

Hedge had refused to fulfill the instructions of the Kingate Defendants or rely on the information

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they transmitted, as it had a right to do, or alerted investors to the conduct of the Kingate

Defendants, Plaintiffs’ and the Class’ investment would have been saved.

VIII. THE TREMONT GROUP

A. The Tremont Group Had Deep Ties With Madoff Based On Its ManagementOf At Least Five Other Madoff Feeder Funds

207. The Tremont Group was the parent company of the Funds’ manager, Tremont.

The Tremont Group had extensive ties with Madoff based on its management of at least five

other feeder funds with over $3 billion invested by December 2008. These feeder funds were

commonly referred to as the “Rye Funds,” after Rye, New York, where the Tremont Group was

based. The Rye Funds included: (i) Rye Select Broad Market Fund LP; (ii) Rye Select Broad

Market Prime Fund LP; (iii) Rye Select Broad Market XL Fund LP; (iv) Rye Select Broad

Market Portfolio Limited; and (v) Rye Select Broad Market XL Portfolio Limited.

208. These funds were managed and controlled by the Tremont Group through its

subsidiaries. For example, the Rye Select Broad Market Portfolio Limited was managed by

Tremont, the Co-Manager of the Kingate Global and Kingate Euro funds. Many of the other

funds were managed by Rye Investment Management, which was a division of the Tremont

Group.

209. The Tremont Group had so many Madoff feeder funds because of Madoff’s long-

standing relationship with the founder of the Tremont Group, Defendant Manzke. Manzke had

first started investing and working with Madoff shortly after forming the Tremont Group (then

known as Tremont Advisers) in 1984. These deep ties to Madoff were cryptically acknowledged

in the Tremont Group’s public filings. For example, the Form 10-K SB filed with the SEC in

March 2001 stated that many of its funds were designed “to provide clients with vehicles for

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investments with ‘hard-to-access’ managers.” Madoff was the most prominent of these “hard-to-

access” managers.

B. The Tremont Group Had A Special Relationship With Madoff

210. The Tremont Group’s special relationship with Madoff is also evident from

documents made public in connection with the acquisition of the Tremont Group by

Oppenheimer. In 2001, Oppenheimer acquired the Tremont Group for $145 million. The

acquisition was described in detail in the Schedule 14A Proxy Statement filed with the SEC by

the Tremont Group on August 20, 2001 (the “Proxy Statement”). According to the Proxy

Statement, in early March 2001, Oppenheimer approached the Tremont Group’s financial

advisor, Putnam Lovell Securities, Inc. (“Putnam Lovell”), and expressed “an interest in

exploring a strategic transaction with Tremont.”

211. Tremont Group’s relationship with Madoff became a critical selling point to

Oppenheimer. In fact, during the negotiations, Putnam Lovell provided Oppenheimer with an

information package it had prepared about the Tremont Group. The package included Putnam

Lovell’s “analysis of the significant contribution to Tremont’s revenues from a single

relationship it has with an investment manager to its proprietary products,” according to the

Proxy Statement. The “single relationship” was Madoff. Accordingly, at the very outset of the

transaction, Tremont Group’s close and highly lucrative relationship with Madoff was a key

focus for Oppenheimer. As O. Leonard Darling, vice chairman and chief investment officer of

OppenheimerFunds, explained, the acquisition of Tremont “will enable us to enhance and

expand our alternative products offering for high net worth and institutional clients alike.”

212. Oppenheimer closed the Tremont Group’s acquisition on July 10, 2001. In the

press release announcing the deal, John V. Murphy (“Murphy”), OppenheimerFunds’ chief

executive officer, alluded to the importance of the Tremont Group’s relationship with Madoff.

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There is growing interest among high net worth investors andinstitutions alike in hedge funds and other alternative investmentproducts that seek to provide positive returns regardless of thedirection of the stock markets.

* * *

Tremont’s unique product offerings, in combination with ourdistributing network, will open the world of alternative investing toa new segment of investors.

213. As Oppenheimer’s acquisition of the Tremont Group shows, the Tremont Group

had a deep and long-standing relationship with Madoff and was capable of, but failed in,

discovering Madoff’s fraud.

C. The Tremont Group Provided Substantial Assistance To Tremont’s FraudAnd Breach Of Fiduciary Duty

214. The Tremont Group knowingly provided substantial assistance to Tremont in the

fraud and breaches of fiduciary duty that it perpetrated on investors. By virtue of the Tremont

Group’s long-standing involvement in the Rye Funds, as well as their experience in fund

management, the Tremont Group knew or was willfully blind to the fact that the due diligence

and risk controls employed by Tremont were grossly deficient. The Tremont Group further

knew that Tremont uniformly represented to Plaintiffs and the Class that it employed thorough

due diligence, monitoring and oversight of Madoff, and strict risk controls – representations

which the Tremont Group knew to be false or to the falsity of which it was willfully blind.

Rather than alerting investors to these problems, the Tremont Group provided substantial

assistance to Tremont by helping to conceal its breach of fiduciary duty and by failing to act

when required to do so in the face of that breach.

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IX. HAD DEFENDANTS MONITORED AND EVALUATED MADOFF ASREPRESENTED IN THE INFORMATION MEMORANDA, DEFENDANTSWOULD HAVE DISCOVERED MADOFF’S PONZI SCHEME

A. Madoff ’s Custody Of Equity Securities

215. Defendants knew that Madoff failed to trade through an independent broker and,

instead, self-cleared all trading activities through his wholly-owned company, BMIS.

Defendants also knew that Madoff served as his own custodian for the Funds’ assets, even

though this greatly increased the risk of self-dealing and of Madoff perpetrating a Ponzi scheme.

Had Defendants conducted any monitoring or evaluation of Madoff’ s purported self-clearing and

custodian functions, they would have uncovered the fraud.

B. Madoff’s Non-Existent Counterparties

216. Madoff refused to identify the counterparties with whom he purportedly traded

options in over-the-counter, off-exchange transactions when executing the split-strike conversion

strategy. Alternatively, if Madoff did identify them, Defendants failed to learn that Madoff had

never traded with any of them. Had Defendants monitored or evaluated Madoff’ s purported

counterparties, they would have uncovered the fraud.

C. The Government Securities PurportedlyHeld At The End Of Each Year Did Not Exist

217. Madoff claimed that he held all assets, one-hundred percent, in government

securities at the end of every year. While a possible coincidence, it is extremely suspicious that

not one, single year-end coincided with an opportune time to be invested in the split-strike

conversion strategy. Defendants, however, never determined whether Madoff actually converted

all of his holdings into government securities each year. Madoff also claimed that the

government securities were cleared through GSCC and held by BONY. Had Defendants

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contacted GSCC or BONY and sought to confirm the existence of the government securities

(which in fact did not exist), they would have uncovered the fraud.

D. Madoff’s Unknown Auditing Firm

218. Defendants knew that Madoff supposedly used F&H, an unknown accounting

firm that was plainly unequipped to audit a company of BMIS’ purported size. F&H had only

three employees – a retired partner living in Florida, a secretary, and one active certified public

accountant. While F&H was a member of the AICPA, it had not been the subject of a peer

review since 1993 – which is a membership requirement – because F&H represented to the

AICPA, in writing, that it did not conduct any audits. Had Defendants conducted minimal due

diligence into Madoff’s auditors, they would have uncovered the fraud.

E. Madoff’s Paper Trading Records

219. Madoff claimed that BMIS was technologically advanced, and that BMIS had a

world-class trading floor. Yet, Madoff reported his trades to Defendants using only paper

confirmation forms which did not include the exact time of the trade nor the exact price of each

trade. Instead, the paper confirmations only provided average prices for the transactions that had

supposedly been executed each day. The delayed paper confirmations are patently susceptible to

manipulation. Had Defendants conducted any due diligence into Madoff’s paper trading records

and verified whether the trades had been executed, they would have uncovered the fraud.

F. Madoff’s Consistent Returns

220. Madoff reported extraordinarily consistent results purportedly by executing a

split-strike conversion strategy. However, while the split-strike conversion strategy can dampen

volatility, it cannot produce gains in a declining market. Had Defendants conducted any

investigation into Madoff’s positive results when the market declined, they would have

uncovered the fraud.

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G. Madoff ’s Fee Structure

221. Madoff’s fee structure was extremely unusual and perhaps unique. A typical

investment firm like BMIS charged two percent of assets annually, plus twenty percent of

profits. “Two-twenty,” as this arrangement is commonly referred to, is the industry standard.

On the Funds’ investment of approximately $2.5 billion with Madoff in 2008, a “two-twenty” fee

arrangement would have entitled Madoff to an annual $75 million fee, assuming a low five

percent annual return. Madoff did not charge any such fees and effectively relinquished tens of

millions of dollars every year. There was no explanation for this apparent “generosity.”

222. Instead, Madoff supposedly charged a commission per trade. PwC U.S. and PwC

Bermuda reported to PwC Ireland that Madoff supposedly charged four cents a share on each

trade. But if Madoff was not charging for results, as a “two-twenty” fee structure does, and

charged only for trading, Madoff had an incentive to churn the account. Had Defendants

conducted any due diligence into Madoff’ s fees per trade, they would have uncovered the fraud.

X. THE COURT HAS SUBJECT MATTER JURISDICTIONPURSUANT TO THE EXCHANGE ACT

A. The Foreign Defendants Purposefully Availed Themselves Of The BenefitsOf Having The Funds Invest In The United States; It Was Foreseeable ThatDefendants Would Be Haled Into Court In The United States

223. The IMs explained that the Funds’ assets were to be exclusively and entirely

invested with and controlled by BMIS, a “New York based NASD registered broker-dealer.”

KGF 2006 IM, Ex. 4 at 14. The IMs further explained that BMIS “invests primarily in the

United States” through a “split-strike conversion” strategy that entails purchasing a basket of

stocks listed on U.S. exchanges, selling call options based on a U.S. stock index (typically the

Standard & Poor’s 100 Index (“S&P 100”), and purchasing put options also based on the S&P

100. Id. at 2. The Funds also were permitted to hold cash or cash equivalents, including

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“obligations of the United States Government, its agencies or instrumentalities, commercial

paper, and certificates of deposit and bankers’ acceptances issued by United States banks that are

members of the Federal Deposit Insurance Corporation.” Id. at 3. The Funds’ assets were held

in the United States, as BMIS had actual custody of the assets. Id. at 9. The Funds’ legal

counsel is based in New York. Id. Finally, the Funds were required to “comply with various

legal requirements, including requirements imposed by the federal securities laws, tax laws and

pension laws.” Id.

224. Plaintiffs’ sole purpose of investing in the Funds was to invest in the United

States and in United States equities that are part of the S&P 100.

225. The Foreign Defendants knew that the Funds’ sole objective was to be invested

with Madoff and BMIS in New York. All significant conduct (including trading and purported

due diligence on Madoff and BMIS) was supposed to take place in New York. The Foreign

Defendants, as well as Plaintiffs and the Class, all understood that the Funds were run by a

broker-dealer in New York. The IMs explicitly stated that KML did not “have any control over

the investment and trading decisions of the Investment Advisor [BMIS].” Id. at 5. Having

agreed to turn over all investment decisions and ascribed to the “split strike conversion strategy,”

the Foreign Defendants accepted that all trading and investment decisions for the Funds would

be directed by BMIS in New York. Id. at 14.

226. Further, in creating funds whose sole objectives were to invest in the United

States, the Foreign Defendants took advantage of the exemplary reputation of the laws and

securities markets of the United States as being the best regulated and most efficient markets in

the world. Having benefited from the advantages of the United States, the Foreign Defendants

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cannot seek now to disavow the concomitant obligations which include being subject to the laws

of the United States.

227. Accordingly, all Foreign Defendants availed themselves of the benefits and

privileges of investing in the United States, pursuant to its laws and regulations. It was

foreseeable that, having chosen to operate investment funds that were invested in United States

securities by a United States-based investment advisor, all Foreign Defendants would be haled

into court in the United States.

B. The Conduct And Effects Tests

1. The Conduct of Defendants KML, FIM Limited, FIM Advisers,and Grosso in the United States Was More Than Merely Preparatory,and the Culpable Failures to Act Within the United StatesDirectly Caused the Losses

228. Pursuant to a Consulting Services Agreement dated August 1, 2005, FIM

Advisers rendered consulting advice and services to KML with respect to the Funds’ investment,

operational, administrative, marketing, accounting, and legal matters. Accordingly, FIM

Advisers was KML’s agent.

229. FIM Advisers and FIM Limited had a presence in the United States through their

U.S. affiliate, FIM USA. FIM USA had key employees based in New York, including

employees specifically dedicated to due diligence of funds investing in the United States, such as

Kingate Global and Kingate Euro. At least the following employees were based in New York:

(a) Scott Dragoo; (b) Brendan Robertson; (c) Michael Dziegielewski; (d) Jonathan Krause;

(e) Eric Lazear; and (f) Brian Clegg.

230. Grosso met repeatedly with Madoff in New York.

231. Accordingly, FIM Advisers, FIM Limited and Grosso conducted and/or failed to

conduct the requisite due diligence in New York with respect to Madoff. The due diligence

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conducted in New York did not meet the adequate standard of care and, thus, (i) constituted

conduct that was more than merely preparatory to the wrongdoing, and (ii) directly caused the

losses.

2. PwC Bermuda Had Substantial Conduct in the United States thatWas More Than Merely Preparatory and Directly Caused The Losses

232. The conduct of PwC Bermuda in the United States represented the centerpiece

and fundamental aspect of the wrongful conduct at the heart of the claims against

PricewaterhouseCoopers. PwC Bermuda held repeated meetings with Madoff in New York

which served as the central basis for the faulty audits. Specifically:

(a) at least one PwC Bermuda partner met with Madoff at his offices in New

York in December 2004 and December 2006;

(b) PwC Bermuda obtained critical documents in the United States necessary

for PricewaterhouseCoopers to issue an audit opinion, including, (i) the PwC Madoff Report for

2004, (ii) a similar report to the PwC Madoff Report in 2006, (iii) a copy of F&H’s Independent

Auditor’s Report on Internal Control for Madoff pursuant to SEC Rule 17a-5(g)(1), received in

connection with the 2004, 2006, and 2007 audits, (iv) a copy of Madoff’ s Statement of Financial

Condition, with an Independent Auditor’s Report on Internal Control for Madoff from F&H,

received in connection with the 2006 and 2007 audits, and (v) a FINRA BrokerCheck report for

the 2004 and 2006 audits.

3. Effects Test: the Foreign Defendants’ ConductHad a Substantial Effect in the United States

233. Madoff’s Ponzi scheme caused investors to believe they had approximately $65

billion in assets when in reality those assets did not exist. Billions of dollars of these fictitious

assets caused substantial harm to thousands of United States citizens whose supposed wealth

78


evaporated overnight. This wealth had served to collateralize investments and assets of

thousands of United States citizens who had to liquidate these assets and suffered real losses.

234. The Foreign Defendants’ wrongful conduct permitted Madoff to perpetuate the

Ponzi scheme. The nature of a Ponzi scheme required that Madoff use the funds from new

investors to pay old ones. The Funds provided Madoff with billions of dollars to continue the

Ponzi scheme. But for the billions of dollars that the Funds gave to Madoff, the scheme would

have unraveled substantially earlier and not damaged thousands of United States citizens.

Similarly, but for the withdrawal of hundreds of millions of dollars from Madoff in the later

years of the Ponzi scheme which were effectively taken from United States citizens, substantially

fewer United States citizens would have been harmed by Madoff’s Ponzi scheme.

235. The effect of the feeder funds in perpetuating Madoff’s Ponzi scheme has been

widely reported in the press. According to The Wall Street Journal ’s article, “Mad Men,”

published on January 7, 2009, “[f]eeder funds appear to explain . . . the longevity of money

manager Bernie Madoff.” Other news agencies issued similar reports, including:

(a) Time Magazine published an article entitled, “How Madoff’s Feeder

Funds Stole My Retirement,” which stated that, “Bernard Madoff built his $65 billion Ponzi

empire at least half on the backs of his feeder funds.”40 The feeder funds allowed Madoff “to

keep his house of cards standing much longer than he otherwise could have with his ragtag band

of family members, small time accountants.” Id.; and

40 Time, April 5, 2009, How Madoff’s Feeder Funds Stole My Retirement.

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(b) The New York Times published an article entitled, “In Fraud Case,

Middlemen in Spotlight, , which reported that the feeder funds “were essentially pouring billions

of dollars each into Bernard L. Madoff Investment Securities. ,41

236. Madoff’s Ponzi scheme had additional substantial and direct effects on U.S.

citizens:

(a) It is estimated that the Internal Revenue Service (“IRS ,) will lose up to

$17 billion in lost tax revenue. In some instances, the IRS may have to refund filers who paid

taxes on fictitious gains from Madoff. Individual states may also lose substantial tax revenue

due to Madoff; 42

(b) The effect of Madoff on U.S. charities and their respective beneficiaries is

substantial and well-documented. The collateral effect of Madoff’s Ponzi scheme has sent

“shock waves throughout the medical and scientific communities – with far-reaching

implications for everything from diabetes research to palliative care. Philanthropy experts say

that the negative effect of the Madoff scandal on health care could ultimately affect millions

of people. ,43 As a result, “hospitals, food banks, schools and community outreach programs

throughout the world are being forced to cut life-giving services as they watch millions of dollars

in grants from large Jewish charities dry up in the wake of Bernard Madoff’s alleged $50 billion

Ponzi scheme. ,44

41 The New York Times, December 17, 2008, In Fraud Case, Middlemen in Spotlight.42 Huffington Post, December 18, 2008, Madoff’s Ponzi Scheme Could Cost IRS $17 Billion In Lost Tax

Revenue.43 The Wall Street Journal, February 12, 2009, Madoff Scandal’s Deep Impact on Funding For Health,

Science.44 Fox News online report, December 18, 2008, Long Tentacle ofMadoff’s Scheme Impacting Life-Giving

Programs.

80


(c) The insurance industry has reported that it will be affected by Madoff’ s

scheme in the “range of direct insured losses . . . between $760 million and $3.8 billion . . . with

the maximum potential exposed insurance limits at more than $6 billion.” 45

(d) United States banks have also been affected by Madoff, including lending

institutions, like Wells Fargo, who recently recorded losses of $294 million related to customers

who were unable to pay their mortgages because they were wiped out by Madoff. 46 Similarly,

hedge funds have seen substantial redemptions: “The Madoff scandal has contributed to

redemptions that could shrink the hedge fund industry by half, to $1 trillion, by the end of the

year”47 ; and

(e) Investors who suffered enormous losses at the hands of Madoff included

“pensioners, municipal workers, students on scholarship, and middle class Americans, not just

wealthy investors.”48

237. Accordingly, the Foreign Defendants’ wrongful conduct had a substantial effect

in the United States and upon United States citizens.

XI. CLASS ACTION ALLEGATIONS

238. This action is brought as a class action pursuant to Federal Rules of Civil

Procedure 23(a) and 23(b)(3) on behalf of all shareholders in Kingate Global and Kingate Euro

as of December 10, 2008 (the “Class”). Excluded from the Class are the Defendants herein, and

any entity in which any Defendant has a controlling interest, and the officers, directors, affiliates,

legal representatives, immediate family members, heirs, successors, subsidiaries, and/or assigns

of any such individual or entity.

45 Medill Reports, January 15, 2009, Aon Estimates Madoff’s Alleged Ponzi Scheme Could Cost InsurersBillions.

46 New York Times, January 28, 2009, Wells Fargo Says Madoff Scheme Cost It $294 Million.47 Reuters, March 27, 2008, Hedge Fund Industry Still Feeling Madoff Effect.48 Newsweek, December, 17, 2008, Did Bernie Madoff Steal Your Money?

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239. Plaintiffs will fairly and adequately protect the interests of the members of the

Class. Plaintiffs are members of the Class, their claims are typical, and they do not have interests

antagonistic to, or in conflict with, those of the Class. Plaintiffs have also retained competent

counsel experienced in class action litigation.

240. The Class satisfies the requirements of Rules 23(a) and 23(b)(3) of the Federal

Rules of Civil Procedure:

(a) Numerosity - During the Class Period, shares in the Funds were sold to

thousands of investors. The membership of the Class is so numerous as to render joinder of all

Class members impracticable. While the exact number of Class members is unknown to

Plaintiffs at this time and can only be ascertained through appropriate discovery, Plaintiffs

believe that Class members number in the thousands.

(b) Typicality - The losses suffered by the named Plaintiffs were caused by the

same events, patterns of practice, and wrongful courses of conduct that give rise to the claims of

the other members of the Class. The named Plaintiffs are members of the Class and the losses to

the named Plaintiffs are based on the same legal theories.

(c) Common Questions - There are numerous questions of law and fact which

are common to the Class and which predominate over any questions affecting individual

members, including:

(i) whether Defendants made false statements regarding Madoff’soperations, the investment strategy for the Funds, and historicalresults achieved by the Funds;

(ii) whether Defendants falsely misrepresented, inter alia: theinvestment services that would be provided by them; the extent andquality of the due diligence, ongoing risk monitoring, andtransaction verification that they performed and would perform onMadoff and BMIS; the transparency to Madoff and BMIS; thesplit-strike conversion method ostensibly used by Madoff and

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BMIS; each Funds’ appreciation; and BMIS’ qualifications toserve as custodian of the Funds’ assets;

(iii) whether Defendants’ false statements were negligentmisrepresentations;

(iv) whether Defendants breached their fiduciary and other duties toPlaintiffs;

(v) whether and to what extent Plaintiffs were damaged byDefendants’ misrepresentations and breaches of fiduciary duty;

(vi) whether Defendants were grossly negligent in:

(A) failing to perform adequate due diligence before selectingBMIS as each Fund’s investment advisor and broker-dealerfor the purported split-strike conversion strategy, andbefore allowing BMIS to serve as actual custodian of theFunds’ assets;

(B) failing to monitor Madoff and BMIS on any ongoing basisand to any reasonable degree;

(C) failing to take adequate steps to confirm BMIS’ purportedaccount statements, transactions, and holdings of eachFund’s assets; and

(vii) Whether Plaintiffs are entitled to the imposition of a constructivetrust on all monies and other property in the possession of theDefendants which derive from their compensation in the form ofmanagement and performance and other fees based on fraudulentMadoff investments.

(d) Adequate Representation - The representative Plaintiffs will fairly and

adequately protect the interests of the Class. Plaintiffs have retained experienced counsel

qualified in class action litigation who are competent to assert the interests of the Class.

(e) Superiority - A class action is superior to other available methods for the

fair and efficient adjudication of this controversy since a multiplicity of actions could result in an

unwarranted burden on the judicial system and could create the possibility of inconsistent

judgments. Moreover, a class action will allow redress for many persons whose claims would

83


otherwise be too small to litigate individually. There will be no difficulty in the management of

this action as a class action.

COUNT 1

Fraud Against The Kingate Fraud Claim Defendants(Purchaser Claims)

241. Plaintiffs restate and reallege each of the preceding allegations as if fully stated

herein.

242. The Kingate Fraud Claim Defendants falsely represented to Plaintiffs and the

Class in connection with their purchase of shares and/or equity interests in the Funds that: (i) the

Funds would invest in a legitimate investment, principally relying on the split-strike conversion

strategy involving the purchase of equities and options; (ii) by using this strategy, the Funds

historically had consistent profitable returns since inception; and (iii) the Kingate Fraud Claim

Defendants would conduct oversight and due diligence, and monitor, verify and confirm the

investments made by the Funds with Madoff to ensure that Madoff operated legitimately, using

the stated investment strategy, and in accordance with the required legal and regulatory

requirements.

243. The Kingate Fraud Claim Defendants failed to disclose the following material

information, among other things, which rendered their other representations false and

misleading: (i) that the Kingate Fraud Claim Defendants were not in fact engaging in customary,

industry-standard, or even minimal, due diligence to verify that the Funds’ assets were being

properly invested and managed by Madoff, or that the assets ever existed; and (ii) the existence

of numerous risks and questions regarding BMIS and Madoff including, among others, the lack

of transparency into Madoff’ s actual operations, the lack of segregation of duties, inadequate

84


auditing of Madoff, and the consistently profitable returns for a fund pursuing the split-strike

conversion strategy.

244. The Kingate Fraud Claim Defendants made these false and misleading

misrepresentations and omissions knowingly or recklessly, without regard for their truth or

falsity, and with the intent to induce Plaintiffs and the Class to rely upon them by investing assets

in the Funds.

245. Plaintiffs and the Class justifiably relied upon the false representations made by

the Kingate Fraud Claim Defendants by investing their assets in the Funds.

246. As a direct and proximate result of their reliance upon the false representations

and omissions of the Kingate Fraud Claim Defendants, Plaintiffs and the Class have suffered

damages, including the loss of their investments in the Funds, and the Kingate Fraud Claim

Defendants, in turn, have wrongfully taken substantial assets belonging to the Plaintiffs and the

Class in the form of improper and unearned fees.

COUNT 2

Fraud Against The Kingate Fraud Claim Defendants(Holder Claims)


herein.

248. The Kingate Fraud Claim Defendants induced purchasers to hold their positions

in the Funds by falsely representing to Plaintiffs and the Class that: (i) the Kingate Fraud Claim

Defendants had conducted thorough due diligence and exercised oversight of Madoff’s

operations and had determined that Madoff was legitimate, utilized the split-strike conversion

strategy, and had a long track record of achieving positive investment returns; (ii) Plaintiffs’ and

the Class’ assets invested in the Funds operated by the Kingate Fraud Claim Defendants would,

85


in turn, be invested in the legitimate funds operated by Madoff that utilized such strategy; (iii)

the Kingate Fraud Claim Defendants would monitor the investments made with Madoff to

confirm that the Funds were operated legitimately, using the split-strike conversion strategy, and

in accordance with all legal and regulatory strictures; (iv) the Kingate Fraud Claim Defendants

would verify the transactions, including that Madoff actually made the represented trades and

held the represented assets; (v) the due diligence and oversight process employed by the Kingate

Fraud Claim Defendants was so thorough as to be privileged in providing full transparency to all

aspects of Madoff’s operations, which allowed the Kingate Fraud Claim Defendants to assure

that the monies invested with Madoff were being actually and legitimately invested; and

(vi) Madoff’ s operations and accounts were audited by reputable, independent auditors utilizing

appropriate and accepted accounting and auditing principles, which provided further assurance

that Madoff’ s accounts actually held the represented assets and were otherwise operated

lawfully.

249. The Kingate Fraud Claim Defendants made the representations knowing that they

were false in that: (i) the Kingate Fraud Claim Defendants did not, in fact, conduct thorough or

appropriate due diligence of, or exercise oversight over Madoff and his operations and had not

determined that Madoff actually invested assets utilizing the split-strike conversion strategy, with

a long track record of achieving positive investment returns; (ii) the Kingate Fraud Claim

Defendants did not invest Plaintiffs’ nor the Class’ assets in legitimate funds that utilized such

strategy; (iii) the Kingate Fraud Claim Defendants did not meaningfully monitor the investments

operated by Madoff to confirm that Madoff operated legitimately using the split-strike

conversion strategy and in accordance with all legal and regulatory strictures, and did not verify

the transactions, including that Madoff actually made the represented trades and that the Funds

86


held the represented assets; (iv) the due diligence and oversight processes employed by the

Kingate Fraud Claim Defendants were non-existent, much less so thorough as to be privileged in

providing total transparency to all aspects of Madoff’ s operations, and did not allow the Kingate

Fraud Claim Defendants the ability to assure that the assets provided to Madoff were actually

and legitimately invested; and (v) Madoff’ s operations and accounts were not audited by

reputable, independent auditors utilizing appropriate and accepted accounting and auditing

procedures, and thus did not provide any assurance that Madoff actually held the represented

assets and otherwise operated lawfully.

250. When they made their false statements and committed their omissions, the

Kingate Fraud Claim Defendants knew facts or had access to information suggesting that their

public statements were not accurate or failed to check information they had a duty to monitor and

which would have demonstrated the falsity of their statements.

251. The Kingate Fraud Claim Defendants made the false representations knowing of

their falsity and with the intent to induce Plaintiffs and the Class to rely upon the false

representations by holding assets in the Funds.

252. Plaintiffs justifiably relied upon the false representations made by the Kingate

Fraud Claim Defendants in holding their assets in the Funds.


and omissions of the Kingate Fraud Claim Defendants, Plaintiffs and the Class have suffered

damages, namely the loss of their investments in the Funds, and the Kingate Fraud Claim

Defendants, in turn, have wrongfully taken substantial assets belonging to the Plaintiffs in the

form of improper and unearned fees.

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COUNT 3

Negligent MisrepresentationAgainst The Kingate Defendants (Purchaser Claims)


herein.

255. Based on their unique or special expertise with respect to investments generally

and Madoff’ s investments in particular, the Kingate Defendants had a special relationship of trust

or confidence with Plaintiffs and the Class, which created a duty on the part of the Kingate

Defendants to impart full and correct information to Plaintiffs and the Class, including to: (i) act

with reasonable care in preparing and disseminating information, statements and representations

made to, and relied upon by, Plaintiffs and the Class in deciding to invest in the Funds; and

(ii) use reasonable diligence in determining the accuracy and truthfulness of the information,

statements and representations made to, and relied upon by, Plaintiffs and the Class in deciding

to invest in the Funds.

256. The Kingate Defendants falsely represented to Plaintiffs and the Class in

connection with their purchase of shares in the Funds that: (i) the Kingate Defendants had

conducted thorough due diligence and exercised oversight of Madoff’s operations; (ii) the Funds

would invest their monies in a legitimate fund, principally relying upon a split-strike conversion

strategy involving the purchase of equities and options; (iii) by using this strategy, the Funds

historically had achieved consistent profitable returns and had a long track record of achieving

positive investment returns; (iv) the Kingate Defendants would monitor the investments made by

the Funds with Madoff to confirm that Madoff operated legitimately, followed the stated

investment strategy, and complied with all legal and regulatory strictures; (v) the due diligence

and oversight process employed by the Kingate Defendants was thorough and provided

88


transparency to all aspects of Madoff’s operations, which allowed the Kingate Defendants to

assure that the funds invested with Madoff were being actually and legitimately invested; and

(vi) Madoff’ s operations and accounts were audited by reputable, independent auditors utilizing

appropriate and accepted accounting and auditing procedures, which provided further assurance

that Madoff actually held the represented assets and otherwise operated lawfully.

257. The Kingate Defendants failed to disclose the following material information,

among other things, which rendered other representations false and misleading: (i) that the

Kingate Defendants were in fact not engaging in customary, or any other meaningful due

diligence or monitoring to verify that the Funds’ assets were being properly invested and

managed by Madoff, or that the assets even existed; and (ii) the existence of numerous risks and

questions regarding BMIS and Madoff including, among others, the inadequate auditing of

Madoff, the impossibility of making numerous specific trades that Madoff reported to the

Kingate Defendants and Citi Hedge, and the unattainable nature of consistently profitable returns

obtained by Madoff pursuant to the stated investment strategy.

258. The Kingate Defendants made the false representations and material omissions

knowing that Plaintiffs and the Class would use and rely upon the representations and omissions

for the particular purpose of determining where and how to invest their assets and, in particular,

to decide to invest their assets in the Funds.

259. Plaintiffs and the Class justifiably relied upon the false representations and

material omissions made by the Kingate Defendants in furtherance of that particular purpose by

investing their assets in the Funds.

260. As a result of their reliance upon the false representations and material omissions

of the Kingate Defendants, Plaintiffs and the Class have suffered damages, namely the loss of

89


their investments in the Funds, and the Kingate Defendants, in turn, have derived substantial

profits. The Kingate Defendants’ wrongful conduct was the direct and proximate cause of the

losses suffered by Plaintiffs and the Class.

COUNT 4

Negligent MisrepresentationAgainst The Kingate Defendants (Holder Claims)


herein.

262. Based on their unique or special expertise with respect to investments generally

and the investments in Madoff in particular, the Kingate Defendants had a special relationship of

trust or confidence with Plaintiffs and the Class, which created a duty on the part of Defendants

to impart correct information to Plaintiffs and the Class, including to: (i) act with reasonable

care in preparing and disseminating information, statements and representations made to, and

relied upon by, Plaintiffs and the Class in deciding to invest in the Funds; and (ii) use reasonable

diligence in determining the accuracy and truthfulness of the information, statements and

representations made to, and relied upon by, Plaintiffs and the Class in deciding to invest in the

Funds.

263. The Kingate Defendants induced purchasers to hold their positions in the Funds

by falsely representing to Plaintiffs and the Class that: (i) the Kingate Defendants had conducted

thorough due diligence and exercised oversight of Madoff’ s operations, and had determined that

those operations were legitimate, utilized the split-strike conversion strategy, and had a long

track record of achieving positive investment returns; (ii) the assets invested by Plaintiffs and the

Class in the Funds operated by the Kingate Defendants would, in turn, be invested in a legitimate

manner by Madoff who utilized the split-strike conversion strategy; (iii) the Kingate Defendants

90


would monitor the investments made by Madoff to confirm that he was operating legitimately,

using the split-strike conversion strategy, and in accordance with all legal and regulatory

strictures, and further that the Kingate Defendants would verify the transactions, including that

Madoff actually made the represented trades and that Madoff held the represented assets; (iv) the

due diligence and oversight process employed by the Kingate Defendants was thorough and

provided transparency to all aspects of Madoff’s operations, which supposedly allowed the

Kingate Defendants to assure that the monies invested with Madoff were being actually and

legitimately invested; and (v) Madoff’s operations and accounts were audited by reputable,

independent auditors utilizing appropriate and accepted accounting and auditing procedures,

which provided further assurance that Madoff actually held the represented assets and otherwise

operated lawfully.

264. The representations made by the Kingate Defendants were false in that, among

other things: (i) the Kingate Defendants did not, in fact, conduct thorough due diligence of, or

exercise oversight over, Madoff and his operations, and had not determined that Madoff actually

invested assets utilizing the split-strike conversion strategy with a long track record of achieving

positive investment returns; (ii) the Kingate Defendants did not invest assets of the Plaintiffs and

the Class with a legitimate investment advisor who utilized the split-strike conversion strategy;

(iii) the Kingate Defendants did not monitor the investments operated by Madoff to confirm that

Madoff operated legitimately using the split-strike conversion strategy and in accordance with all

legal and regulatory structures, and did not verify the transactions, including that Madoff actually

made the represented trades and that Madoff actually held the represented assets; (iv) the due

diligence and oversight process employed by the Kingate Defendants was non-existent and thus

did not allow the Kingate Defendants the ability to assure that the assets provided to Madoff

91


were actually and legitimately invested; and (v) Madoff’s operations and accounts were not

audited by reputable, independent auditors utilizing appropriate and accepted accounting and

auditing procedures, and thus did not provide any assurance that Madoff actually held the

represented assets and otherwise operated lawfully.

265. The Kingate Defendants made the false representations knowing that Plaintiffs

and the Class would use and rely upon the representations for the particular purpose of

determining whether to hold their assets in the Funds.


the Kingate Defendants in furtherance of that particular purpose by continuing to hold their

assets in the Funds.

267. As a result of their reliance upon the false representations made by the Kingate

Defendants, Plaintiffs and the Class have suffered damages, namely the loss of their investments

in the Funds, and the Kingate Defendants, in turn, have derived substantial profits. The Kingate

Defendants’ misconduct was the direct and proximate cause of the losses suffered by Plaintiffs

and the Class.

COUNT 5

Gross NegligenceAgainst The Kingate Defendants


herein.

269. The Kingate Defendants, as investment advisors, managers and placement agents

with discretionary control over the assets entrusted to them by Plaintiffs and the Class had a

special relationship with Plaintiffs and the Class that gave rise to a duty to exercise due care in

the management and monitoring of the assets invested by Plaintiffs and the Class, and in the

92


selection and monitoring of the investments with reasonable care. The Kingate Defendants knew

or should have known that Plaintiffs and the Class were relying on the Kingate Defendants to

manage the investments entrusted to the Funds with reasonable care, and Plaintiffs and the Class

did reasonably and foreseeably rely on the Kingate Defendants to exercise such care by

entrusting their assets to the Funds.

270. The Kingate Defendants grossly failed to exercise due care, and acted in reckless

disregard of their duties, and thereby injured Plaintiffs and the Class. The Kingate Defendants

failed to exercise the degree of prudence, caution, and good business practice that would be

expected of any reasonable investment professional. The Kingate Defendants failed to perform

adequate due diligence before selecting Madoff as the Funds’ investment advisor, and before

allowing Madoff custody of the assets of the Funds; failed to monitor Madoff on an ongoing

basis to any reasonable degree; and failed to take adequate steps to confirm Madoff’ s purported

account statements, transactions and holdings of the Funds’ assets.

271. If the Kingate Defendants had not been grossly negligent with respect to the

assets of the Plaintiffs and the Class invested with Madoff, they would have discovered that

Madoff was a fraud, and would not have entrusted the assets of the Plaintiffs and the Class

invested in the Funds to Madoff.

272. As a direct and proximate result of the Kingate Defendants’ gross negligence,

Plaintiffs and the Class have suffered damages and are entitled to such damages from the

Kingate Defendants, jointly and severally, as well as a return of all fees paid to the Kingate

Defendants.

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COUNT 6

NegligenceAgainst The Kingate Defendants


herein.

274. The Kingate Defendants, as investment advisors, managers and placement agents

with discretionary control over the assets entrusted to them by Plaintiffs and the Class, had a

special relationship with Plaintiffs and the Class that gave rise to a duty to exercise due care in

the management and monitoring of the assets invested by Plaintiffs and the Class, and in the

selection and monitoring of the investments with reasonable care. The Kingate Defendants knew

or should have known that Plaintiffs and the Class were relying on the Kingate Defendants to

manage the investments entrusted to the Funds with reasonable care, and Plaintiffs and the Class

did reasonably and foreseeably rely on the Kingate Defendants to exercise such care by

entrusting their assets to the Funds.

275. The Kingate Defendants negligently failed to exercise due care and thereby

injured Plaintiffs and the Class. The Kingate Defendants failed to exercise the degree of

prudence, caution, and good business practice that would be expected of any reasonable

investment professional. The Kingate Defendants failed to perform adequate due diligence

before selecting Madoff as the Funds’ investment advisor, and before allowing Madoff custody

of the assets of the Funds; failed to monitor Madoff on an ongoing basis to any reasonable

degree; and failed to take adequate steps to confirm Madoff’ s purported account statements,

transactions, and holdings of the Funds’ assets.

276. If the Kingate Defendants had not been negligent with respect to the assets that

the Plaintiffs and the Class invested with Madoff, the Kingate Defendants would have discovered

94


that Madoff was operating a Ponzi scheme, and would not have entrusted the assets that the

Plaintiffs and the Class invested in the Funds to Madoff.

277. As a direct and proximate result of the Kingate Defendants’ negligence, Plaintiffs

and the Class have suffered damages and are entitled to such damages from the Kingate

Defendants, as well as a return of all fees paid to the Kingate Defendants.

COUNT 7

Breach Of Fiduciary DutyAgainst The Kingate Defendants


herein.

279. Plaintiffs and the Class entrusted their assets to the Kingate Defendants who had

substantial discretion and control over the Plaintiffs’ and the Class’ assets invested in the Funds,

the marketing of those Funds, and communications to Plaintiffs and the Class.

280. This discretion and control gave rise to a fiduciary duty and duty of care on the

part of the Kingate Defendants to the Plaintiffs and the Class as evidenced by the following:

(a) the Kingate Defendants occupied a superior position over Plaintiffs and

the Class with respect to their management and control over their assets in the Funds, and had

superior access to confidential information about the investment of the assets and about Madoff;

(b) the Kingate Defendants’ superior position necessitated that Plaintiffs and

the Class repose their trust and confidence in the Kingate Defendants to fulfill their duties,

particularly with respect to Madoff’s investment activities, and Plaintiffs and the Class did so by

investing in the Funds; and

(c) the Kingate Defendants held themselves out as providing superior client

investment services, and evinced an understanding that they were the fiduciaries of the investors.

95


Plaintiffs and the Class reasonably and foreseeably relied on such representations, and trusted in

the Kingate Defendants’ purported expertise and skill.

281. The Kingate Defendants were obligated to deal fairly and honestly with the

Plaintiffs and the Class; to act with loyalty and good faith towards Plaintiffs and the Class; to

avoid placing themselves in situations involving a conflict of interest with Plaintiffs and the

Class; to manage and operate each Plaintiffs’ and member of the Class’ investments exclusively

for the best interest of the Plaintiffs and the Class; to make recommendations and execute

transactions in accordance with the goals, investment objectives, and permissible degree of risk;

and to oversee the investment of the assets of the Plaintiffs and the Class to confirm that they

were maintained in a prudent and professional manner.

282. The Kingate Defendants breached their fiduciary duties to Plaintiffs and the Class

members, including the following duties:

(a) to act with loyalty and good faith;

(b) to take all possible steps to oversee that the investment of the assets of

Plaintiffs and the Class were made and maintained in a prudent and professional manner;

(c) to take reasonable steps and observe the strictest of formalities in seeking

to preserve for Plaintiffs and the Class the value of their investments;

(d) to take all reasonable steps to publish information regarding Plaintiffs’ and

the Class’ investments that was accurate and verifiable;

(e) to perform all necessary and adequate due diligence and monitoring with

respect to the Funds’ investments; and

(f) to exercise generally the degree of prudence, caution and good business

practices that would be expected of reasonable investment professionals overseeing client funds.

96


283. As a direct and proximate result of the breaches of fiduciary duties of the Kingate

Defendants, Plaintiffs and the Class have suffered damages and are entitled to such damages

from the Kingate Defendants, jointly and severally, as well as a return of all fees paid to the

Kingate Defendants, and appropriate equitable relief, including an accounting and imposition of

a constructive trust.

COUNT 8

Constructive FraudAgainst The Kingate Defendants


herein.

285. The Kingate Defendants falsely represented to Plaintiffs and the Class in

connection with their purchases of shares in the Funds and as inducement to hold their positions

in the Funds that: (i) the Funds would invest in a legitimate fund, principally relying on the split-

strike conversion strategy involving the purchase of equities and options; (ii) by using this

strategy, the Funds historically had consistent profitable returns since inception; (iii) the Kingate

Defendants had conducted and would conduct oversight and due diligence to monitor, verify and

confirm the investments made by the Funds with Madoff to confirm that Madoff operated

legitimately, using the stated investment strategy, and in accordance with the required legal and

regulatory requirements, and further that the Kingate Defendants would verify the transactions,

including that Madoff actually made the represented trades and held the represented assets; (iv)

the due diligence and oversight process employed by the Kingate Defendants was so thorough as

to be privileged in providing full transparency to all aspects of Madoff’ s operations, which

allowed the Kingate Defendants to assure that the monies invested with Madoff were being

actually and legitimately invested; and (v) Madoff’s operations and accounts were audited by

97


reputable, independent auditors utilizing appropriate and accepted accounting and auditing

principles, which provided further assurance that Madoff’ s accounts actually held the represented

assets and were otherwise operated lawfully.

286. The Kingate Defendants failed to disclose the following material information,

among other things, which rendered their other representations false and misleading: (i) that the

Kingate Defendants were in fact not engaging in customary, industry-standard, or even minimal,

due diligence to verify that the Funds’ assets were being properly invested and managed by

Madoff or that the assets ever existed; and (ii) the existence of numerous risks and questions

regarding BMIS and Madoff including, among others, the lack of transparency into Madoff’s

actual operations, the lack of segregation of duties, inadequate auditing of Madoff, and the

attainability of consistently profitable returns for a fund pursuing the split-strike conversion

strategy.

287. The Kingate Defendants made these false and misleading misrepresentations and

omissions with the intent to induce Plaintiffs and the Class to rely upon them by investing and

holding their assets in the Funds.


the Kingate Defendants by investing and holding their assets in the Funds.

289. As investment managers and administrators with discretionary control over the

assets entrusted to them by Plaintiffs and the Class, the Kingate Defendants had a special

relationship with Plaintiffs and the Class that gave rise to a duty to manage and monitor their

investments with reasonable care.

290. This discretion and control gave rise to a fiduciary duty and duty of care on the

part of the Kingate Defendants to the Plaintiffs and the Class as evidenced by the following:

98


(a) the Kingate Defendants occupied a superior position over Plaintiffs and



(b) the Kingate Defendants’ superior position necessitated that Plaintiffs and

the Class repose their trust and confidence in the Kingate Defendants to fulfill their duties,

particularly with respect to Madoff’s investment activities, and Plaintiffs and the Class did so by

investing in the Funds; and

(c) the Kingate Defendants held themselves out as providing superior client


Plaintiffs and the Class reasonably and foreseeably relied on such representations, and trusted in

the Kingate Defendants’ purported expertise and skill.

291. The Kingate Defendants were obligated to deal fairly and honestly with the

Plaintiffs and the Class; to act with loyalty and good faith towards Plaintiffs and the Class; to

avoid placing themselves in situations involving a conflict of interest with Plaintiffs and the

Class; to manage and operate each Plaintiff’s and member of the Class’ investments exclusively

for the best interest of the Plaintiffs and the Class; to make recommendations and execute

transactions in accordance with the goals, investment objectives, and permissible degree of risk;

and to oversee the investment of the assets of the Plaintiffs and the Class to confirm that they

were maintained in a prudent and professional manner.


and omissions of the Kingate Defendants, Plaintiffs and the Class have suffered damages,

including the loss of their investment in the Funds, and the Kingate Defendants, in turn, have

99


wrongfully taken substantial assets belonging to the Plaintiffs and the Class in the form of

improper and unearned fees.

COUNT 9

Third Party Beneficiary Breach Of ContractAgainst KML And Tremont


herein.

294. Plaintiffs and the Class are third-party beneficiaries of the Management

Agreements executed among KML, Tremont, and the Funds. The Management Agreements are

valid and binding contracts and evince a clear intent to benefit shareholders in the Funds –

Plaintiffs and the Class. The Management Agreements required KML and Tremont to selecting

and evaluating appropriate investment advisors, allocate the assets of the Funds, and monitor the

selected investments advisor’s performance and adherence to the stated investment strategy.

295. The benefits to Plaintiffs and the Class under the Management Agreements

between the Funds, KML, and Tremont were immediate, not simply incidental, in that the Funds’

only motivations for executing these agreements were to provide investors with capital

appreciation and returns on their investments in the Funds.

296. KML and Tremont’s duties pursuant to the Management Agreement included

selecting and evaluating appropriate investment advisors and the allocation of assets with a

chosen appropriate investment advisor. KML and Tremont also had a continuing obligation to

ascertain Madoff’s competence and monitor Madoff’s performance and adherence to the

mandated split-strike conversion strategy.

297. KML and Tremont breached their management contracts by grossly failing to

meet the obligations of these agreements to provide competent management services to the

100


Funds. They also breached their contracts by collecting fees based on fictitious profits and for

services not properly performed. Both entities are liable to Plaintiffs and the Class, who are third

party beneficiaries of those contracts.

COUNT 10

Third Party Beneficiary Breach Of ContractAgainst The FIM Entities


herein.

299. Plaintiffs and the Class are third-party beneficiaries of the Consulting Services

Agreements executed among the FIM Entities, KML, Tremont, and the Funds. The Consulting

Services Agreements are valid and binding contracts and evince a clear intent to benefit

shareholders in the Funds – Plaintiffs and the Class. The Consulting Services Agreements

required the FIM Entities to make recommendations to KML and Tremont regarding allocation

of the Funds’ assets for suitable investment and appreciation.

300. The benefits to Plaintiffs and the Class under the Consulting Services Agreements

among the Funds, the FIM Entities, KML, and Tremont were immediate, not simply incidental,

in that the Funds’ only motivations for executing these agreements were to provide investors

with capital appreciation and returns on their investments in the Funds.

301. The FIM Entities’ duties included screening and nominating investment advisors

for selection by KML and Tremont. The FIM Entities also made recommendations regarding the

proposed allocation of assets among investment managers. The FIM Entities were also obligated

to “continuously monitor[]” the asset allocation and the investment advisor’s performance.

302. The FIM Entities breached their consulting services contracts by grossly failing to

meet the obligations of these agreements to provide competent management and consulting

101


services to the Funds. The FIM Entities also breached the contracts by receiving and holding

fees based on fictitious profits and for services not properly performed. The FIM Entities are

liable to Plaintiffs and the Class, who are third party beneficiaries of those contracts.

COUNT 11

Constructive TrustAgainst The Kingate Defendants


herein.

304. The Kingate Defendants had a fiduciary relationship with Plaintiffs and the Class

which included an obligation to invest the assets of the Plaintiffs and the Class in legitimate

investments, and perform adequate due diligence and monitoring as set forth in the Information

Memoranda. The Kingate Defendants were compensated by Plaintiffs and the Class with fees

based on the fictitious assets of the Funds.

305. The Kingate Defendants were unjustly enriched by the retention of fees that were

predicated on fictitious profits and assets. Plaintiffs and the Class are entitled to have a

constructive trust imposed on the amount of all monies and other property in the possession of

the Kingate Defendants which relate to fees paid to them on account of fictitious profits and

assets of the Funds, the amount of which is to be determined.

COUNT 12

Mutual MistakeAgainst The Kingate Defendants


herein.

102


307. Pursuant to the Information Memoranda and other agreements, the Kingate

Defendants were paid fee amounts well exceeding $100 million. The Kingate Defendants were

paid those fees under a mutual mistake of the parties as to the amount and value of the assets

under management and amount of profits. In fact, there were no assets under management and

no profits.

308. The investments by Plaintiffs and the Class were used to pay the foregoing fees to

the Kingate Defendants. Plaintiffs and the Class demand recovery of the foregoing fee payments

made pursuant to a mutual mistake.

COUNT 13

Aiding And Abetting Breach Of Fiduciary DutyAgainst The Tremont Group


herein.

310. By virtue of their ownership and control of Tremont, the Tremont Group was

aware of the fiduciary duties owed by Tremont to Plaintiffs and the Class as alleged above. The

Tremont Group acted with willful blindness or recklessness in its ownership and exercise of

control of Tremont and is thus charged with constructive knowledge that:

(a) Tremont had the discretion and control giving rise to a fiduciary duty and

duty of care to the Plaintiffs and the Class;

(b) Tremont occupied a superior position over Plaintiffs and the Class with

respect to its management and control over their assets in the Funds, and had superior access to

confidential information about the investment of the assets and about Madoff;

103


(c) Tremont’s superior position necessitated that Plaintiffs and the Class

repose their trust and confidence in Tremont to fulfill its duties, and Plaintiffs and the Class did

so by investing in the Funds; and

(d) Tremont held itself out as providing superior client investment services,

and evinced an understanding that it was the fiduciary of the investors.

311. The Tremont Group also had actual knowledge of the obvious risks concerning,

and warnings against, investing in Madoff by virtue of its ownership and control of the Rye

Funds, which included five additional Madoff feeder funds independently of the Funds.

312. The Tremont Group was also aware that Plaintiffs and the Class reasonably and

foreseeably relied on Tremont’s representations and trusted Tremont’s purported expertise and

skill.

313. The Tremont Group substantially assisted Tremont by helping to conceal

Tremont’s breach of fiduciary duty and by failing to act when required to do so in the face of

those breaches.

314. As a direct and natural result of (i) Tremont’s breaches of fiduciary duty, and (ii)

the Tremont Group aiding and abetting those breaches, the Plaintiffs and the Class have suffered

substantial damages.

COUNT 14

Aiding And Abetting FraudAgainst The Tremont Group


herein.

316. By virtue of their ownership and control of Tremont, the Tremont Group was

aware of the fiduciary duties owed by Tremont to Plaintiffs and the Class as alleged above. The

104


Tremont Group acted with willful blindness or recklessness in its ownership of and exercise of

control over Tremont and is thus charged with constructive knowledge that:

(a) Tremont falsely represented to Plaintiffs and the Class in connection with

their purchase of shares and/or equity interests in the Funds that:

(i) the Funds would invest their monies in a legitimate investment,

principally relying upon the split-strike conversion strategy involving the purchase of equities

and options;

(ii) by using this strategy, the Funds historically had consistent

profitable returns since inception; and

(iii) Tremont would conduct due diligence, and monitor and verify the

investments made with Madoff to confirm that Madoff operated legitimately, using the stated

investment strategy, and in accordance with the required legal and regulatory requirements.

(b) Tremont failed to disclose the following material information, among

other things, which rendered their other representations false and misleading:

(i) that Tremont was in fact not engaging in customary, or even

minimal, due diligence to verify that the Funds’ assets were being properly invested and

managed by Madoff or that the assets even existed; and

(ii) the existence of numerous obvious risks regarding the Funds

including, among others, inadequate auditing of Madoff, and the attainability of consistently

profitable returns for a fund pursuing the stated strategy.

(c) Tremont induced purchasers to hold their positions in the Kingate Funds

by falsely representing to Plaintiffs and the Class that:

105


(i) Tremont had conducted thorough due diligence and exercised

oversight of Madoff’s operations and had determined that those operations were legitimate,

utilized the split-strike conversion strategy, and had a long track record of achieving positive

investment returns;

(ii) the assets of the Plaintiffs and the Class invested in the Funds

operated by Tremont would, in turn, be invested in the legitimate funds operated by Madoff that

utilized the split-strike conversion strategy;

(iii) Tremont would monitor the investments made with Madoff to

confirm that Madoff operated legitimately, using the split-strike conversion strategy, and in

accordance with all legal and regulatory strictures, and further that Tremont would verify

Madoff’s transactions, including that Madoff actually made the represented trades and held the

represented assets; and

(iv) Madoff’s operations and accounts were audited by reputable,


which provided further assurance that Madoff’s accounts actually held the represented assets and

were otherwise operated lawfully.

(d) Tremont made the representations knowing that they were false in that:

(i) Tremont did not, in fact, conduct thorough or appropriate due

diligence of, or exercise oversight over Madoff and his operations and had not determined that

Madoff actually invested utilizing the split-strike conversion strategy, with a long track record of

achieving positive investment returns;

(ii) Tremont did not invest the assets of the Plaintiffs and the Class

legitimately utilizing the split-strike conversions strategy;

106


(iii) Tremont did not intend to monitor the investments operated by

Madoff to confirm that Madoff operated legitimately using the split-strike conversion strategy

and in accordance with all legal and regulatory structures, and did not intend to verify Madoff’s

transactions, including that Madoff actually made the represented trades and that Madoff held the

stated assets; and

(iv) Madoff’s operations and accounts were not audited by reputable,

independent auditors utilizing appropriate and accepted accounting and auditing procedures, and

thus did not provide any assurances that Madoff actually held the represented assets and operated

lawfully.

317. The Tremont Group was also aware that Plaintiffs and the Class reasonably and

foreseeably relied on Tremont’s representations and trusted Tremont’s purported expertise and

skill.

318. The Tremont Group substantially assisted Tremont by helping to conceal

Tremont’s breach of fiduciary duty and by failing to act when required to do so in the face of that

breach.

319. As a direct and natural result of (i) Tremont’s fraudulent scheme, and (ii) the

Tremont Group aiding and abetting that fraudulent scheme, the Plaintiffs and the Class have

suffered substantial damages.

COUNT 15

Gross NegligenceAgainst PricewaterhouseCoopers


herein.

107


321. PricewaterhouseCoopers, as the Funds’ auditor, had a special relationship with

Plaintiffs and the Class that gave rise to a duty to exercise due care. PricewaterhouseCoopers’

audit reports were specifically addressed and directed to the shareholders of the Funds –

Plaintiffs and the Class. PricewaterhouseCoopers knew that its audit reports would be relied

upon by Plaintiffs and the Class in deciding to make or retain investments in the Funds in that,

among other things, PricewaterhouseCoopers addressed its audit reports directly to investors in

the Funds. PricewaterhouseCoopers also knew that the Funds advised Plaintiffs and the Class

that PricewaterhouseCoopers (i) audited the Funds’ financial statements and (ii) had given the

Funds unqualified audit opinions.

322. Plaintiffs and the Class foreseeably and reasonably relied, directly or indirectly,

on PricewaterhouseCoopers to exercise such care as ordinarily exercised by auditors generally

and as required by GAAS and GAAP in conducting the audits of the Funds.

323. PricewaterhouseCoopers was grossly negligent in knowingly or recklessly failing

to properly audit the Funds in accordance with GAAS and GAAP and then misrepresenting that

it had conducted proper audits of the Funds. PricewaterhouseCoopers also willfully turned a

blind eye to numerous questions and risks about Madoff’s operations, both as to Madoff’s fraud

and the Kingate Defendants’ misrepresentations, omissions, and breaches of duty.

PricewaterhouseCoopers nevertheless knowingly or recklessly issued clean audit opinions that

the Funds’ financial statements fairly represented the financial condition of the Funds.

324. Had PricewaterhouseCoopers not acted recklessly and with willful blindness it

would not have issued the clean audit opinions concerning the Funds.

325. As a direct and proximate result of PricewaterhouseCoopers’ gross negligence,

Plaintiffs and the Class have lost all, or substantially all, of their investments in the Funds.

108


COUNT 16

NegligenceAgainst PricewaterhouseCoopers


herein.


Plaintiffs and the Class that gave rise to a duty to exercise due care. PricewaterhouseCoopers’

audit reports were specifically addressed and directed to the shareholders of the Funds –

Plaintiffs and the Class. PricewaterhouseCoopers knew that its audit reports would be relied

upon by Plaintiffs and the Class in deciding to make or retain investments in the Funds in that,

among other things, PricewaterhouseCoopers addressed its audit reports to investors in the

Funds. PricewaterhouseCoopers also knew that the Funds advised Plaintiffs and the Class that

PricewaterhouseCoopers (i) audited the Funds’ financial statements and (ii) had given the Funds

unqualified audit opinions.

328. Plaintiffs and the Class foreseeably and reasonably relied, directly or indirectly,

on PricewaterhouseCoopers to exercise such care as ordinarily exercised by auditors generally

and as required by GAAS and GAAP in conducting the audits of the Funds.

329. PricewaterhouseCoopers negligently failed to exercise due care by failing to

properly audit the Funds in accordance with GAAS and GAAP. As a direct and proximate result

of PricewaterhouseCoopers’ failure to exercise due care, Plaintiffs and the Class have lost all, or

substantially all, of their investments in the Funds.

109


COUNT 17

Negligent MisrepresentationAgainst PricewaterhouseCoopers


herein.


Plaintiffs and the Class. PricewaterhouseCoopers’ audit reports were specifically addressed and

directed to the shareholders of the Funds – i.e., Plaintiffs and the Class. PricewaterhouseCoopers

knew that its audit reports would be relied upon by Plaintiffs and the Class in deciding to make

or retain investments in the Funds in that, among other things, PricewaterhouseCoopers

addressed its audit reports to investors in the Funds, and PricewaterhouseCoopers knew the

Funds advised Plaintiffs and the Class that PricewaterhouseCoopers audited the Funds’ financial

statements and had given the Funds unqualified audit opinions. Based on this role,

PricewaterhouseCoopers had a duty to impart correct information to Plaintiffs and the Class.

332. PricewaterhouseCoopers induced purchasers to hold their positions in the Funds

and to purchase additional interests in the Funds by falsely representing to Plaintiffs and the

Class that: (i) it had conducted its audits in accordance with GAAS; and (ii) the Funds’ financial

statements conformed with GAAP

333. These representations made by PricewaterhouseCoopers were false in that: (i)

PricewaterhouseCoopers failed to conduct the audits of the Funds in accordance with GAAS;

and (ii) the Funds’ financial statements, including the claimed value of the Funds’ investments

through Madoff, did not present fairly in all respects the financial positions of the Funds. In fact,

PricewaterhouseCoopers made the false statements without so much as properly confirming the

existence of the Funds’ assets.

110


334. PricewaterhouseCoopers made the false representations knowing that Plaintiffs

and the Class would use and rely upon the representations for the particular purpose of

determining whether to hold their assets in the Funds and whether to purchase additional

interests in the Funds.


PricewaterhouseCoopers in furtherance of that particular purpose by continuing to hold their

assets in the Funds and by purchasing additional interests in the Funds.

336. PricewaterhouseCoopers knew that Plaintiffs were investors in the Funds and

understood that Plaintiffs and the Class would rely upon the false statements for the particular

purpose of continuing to hold their assets in the Funds and to purchase additional interests in the

Funds.

337. As a result of their reliance upon the false representations made by

PricewaterhouseCoopers, Plaintiffs and the Class have suffered damages, namely the loss of their

investments in the Funds, and PricewaterhouseCoopers, in turn, derived audit fees.

PricewaterhouseCoopers’ misconduct was the direct proximate cause of the losses suffered by

Plaintiffs and the Class.

COUNT 18

Third Party Beneficiary Breach Of ContractAgainst PricewaterhouseCoopers


herein.

339. PricewaterhouseCoopers entered into contracts with the Funds to perform audits

in accordance with GAAS. Plaintiffs and the Class are third-party beneficiaries of those

contracts.

111


340. The contracts evince a clear intent to benefit Plaintiffs and the Class, who had

invested in the Funds, to whom the audit reports were addressed, and who relied upon

PricewaterhouseCoopers to audit the financial statements of the Funds and to opine that the

financial statements fairly represented the financial condition of the Funds only if that

professional opinion was based upon a proper audit of the Funds conducted in accordance with

GAAS and other applicable auditing standards. The benefits to Plaintiffs and the Class under the

contracts were immediate, not simply incidental.

341. PricewaterhouseCoopers breached its agreements to perform its audits for the

Funds pursuant to GAAS, and this breach proximately caused Plaintiffs’ losses.

PricewaterhouseCoopers is liable to Plaintiffs and the Class as third party beneficiaries of those

contracts.

COUNT 19

Aiding And Abetting Breach Of Fiduciary DutyAgainst PricewaterhouseCoopers


herein.

343. As the auditor of the Funds, PricewaterhouseCoopers was aware of the fiduciary

duties owed by the Kingate Defendants to Plaintiffs and the Class as alleged above.

PricewaterhouseCoopers acted with willful blindness or recklessness in conducting its audits and

is thus charged with constructive knowledge that:

(a) the Kingate Defendants had discretion and control giving rise to a

fiduciary duty and duty of care to the Plaintiffs and the Class;

112


(b) the Kingate Defendants occupied a superior position over Plaintiffs and



(c) the Kingate Defendants’ superior position necessitated that Plaintiffs and

the Class repose their trust and confidence in the Kingate Defendants to fulfill their duties, and

that Plaintiffs and the Class did so by investing in the Funds; and

(d) the Kingate Defendants held themselves out as providing superior client


344. PricewaterhouseCoopers was further aware that Plaintiffs and the Class

reasonably and foreseeably relied on such representations, and trusted the Kingate Defendants’

purported expertise and skill.

345. PricewaterhouseCoopers substantially assisted the Kingate Defendants by issuing

unqualified audit reports on the Funds and failing to conduct proper independent audits of the

Funds, including PricewaterhouseCoopers’ failure to disclose that the representations made by

management in the financial statements could not be relied upon.

346. As a direct and natural result of (i) the Kingate Defendants’ breaches of their

fiduciary duties, and (ii) PricewaterhouseCoopers’ aiding and abetting those breaches, the

Plaintiffs and the Class have suffered substantial damages.

COUNT 20

Aiding And Abetting FraudAgainst PricewaterhouseCoopers


herein.

113


348. PricewaterhouseCoopers acted with willful blindness or recklessness in

conducting its audits and is thus charged with constructive knowledge that:

(a) The Kingate Fraud Claim Defendants falsely represented to Plaintiffs and

the Class in connection with their purchase of shares in the Funds that:

(i) the Funds would invest their monies in a legitimate investment,

principally relying upon the split-strike conversion strategy involving the purchase of equities

and options;

(ii) that by using this strategy, the Funds historically had consistent

profitable returns since inception; and

(iii) the Kingate Fraud Claim Defendants would conduct due diligence,

and monitor and verify the investments made with Madoff to confirm that Madoff operated

legitimately, using the stated investment strategy, and in accordance with the required legal and

regulatory requirements.

(b) The Kingate Fraud Claim Defendants failed to disclose the following

material information, among other things, which rendered their other representations false and

misleading:

(i) that the Kingate Fraud Claim Defendants were in fact not engaging

in customary, or even minimal, due diligence to verify that the Funds’ assets were being properly

invested and managed by Madoff or that the assets even existed; and

(ii) the existence of numerous risks to the Funds including, among

others, inadequate auditing of Madoff, and the attainability of consistently profitable returns for a

fund pursuing the stated strategy.

114


(c) The Kingate Fraud Claim Defendants induced purchasers to hold their

positions in the Kingate Funds by falsely representing to Plaintiffs that:

(i) the Kingate Fraud Claim Defendants had conducted thorough due

diligence and exercised oversight of Madoff’s operations and had determined that those

operations were legitimate, utilized the split-strike conversion strategy, and had a long track

record of achieving positive investment returns;

(ii) the assets of the Plaintiffs and the Class invested in the Funds

operated by the Kingate Fraud Claim Defendants would, in turn, be invested in the legitimate

funds operated by Madoff that utilized the split-strike conversion strategy;

(iii) the Kingate Fraud Claim Defendants would monitor the

investments made by them with Madoff to confirm that Madoff operated legitimately, using the

split-strike conversion strategy, and in accordance with all legal and regulatory strictures, and

further that the Kingate Fraud Claim Defendants would verify Madoff’s transactions, including

that Madoff actually made the represented trades and held the represented assets; and

(iv) Madoff’s operations and accounts were audited by reputable,


which provided further assurance that Madoff’s accounts actually held the represented assets and

were otherwise operated lawfully.

(d) The Kingate Fraud Claim Defendants made the representations knowing

that they were false in that:

(i) the Kingate Fraud Claim Defendants did not, in fact, conduct

thorough or appropriate due diligence of, or exercise oversight over Madoff and his operations,

115


and had not determined that Madoff actually invested utilizing the split-strike conversion

strategy, with a long track record of achieving positive investment returns;

(ii) the Kingate Fraud Claim Defendants did not invest the assets of

the Plaintiffs and the Class legitimately utilizing the split-strike conversion strategy;

(iii) the Kingate Fraud Claim Defendants did not intend to monitor the

investments operated by Madoff to confirm that Madoff operated legitimately using the split-

strike conversion strategy and in accordance with all legal and regulatory structures, and did not

intend to verify Madoff’ s transactions, including that Madoff actually made the represented

trades and that Madoff held the stated assets; and

(iv) Madoff’s operations and accounts were not audited by reputable,

independent auditors utilizing appropriate and accepted accounting and auditing procedures, and

thus did not provide any assurances that Madoff actually held the represented assets and operated

lawfully.

349. PricewaterhouseCoopers substantially assisted the Kingate Fraud Claim

Defendants by issuing unqualified audit reports and failing to conduct proper independent audits

of the Funds, including its failure to disclose that the representations made by management in the

financial statements could not be relied upon.

350. As a direct and natural result of (i) the Kingate Fraud Claims Defendants’

fraudulent scheme, and (ii) PricewaterhouseCoopers’ aiding and abetting that fraudulent scheme,

the Plaintiffs and the Class have suffered substantial damages.

116


COUNT 21

Breach Of Fiduciary DutyAgainst Citi Hedge


herein.

352. As Administrator to the Funds, Citi Hedge had discretionary duties and

obligations regarding the assets of the Funds, including the calculation of the Funds’ NAV,

accounting for the Funds, communications to the Plaintiffs and the Class about their investments,

and receipt of the Plaintiffs’ and the Class’ monies.

353. Citi Hedge occupied a superior position over Plaintiffs and the Class with respect

to their discretionary responsibilities, and had superior access to confidential information about

the investments, including the location, security, and value of the assets. Citi Hedge held itself

out as providing superior administrative and other financial services.

354. Citi Hedge’s superior position necessitated that Plaintiffs and the Class repose

their trust and confidence in Citi Hedge to fulfill its duties, and Plaintiffs and the Class did so by

investing in the Funds, and retaining their investments in the Funds. Plaintiffs and the Class

reasonably and foreseeably trusted in Citi Hedge’s purported expertise and skill, and Citi Hedge

recognized that Plaintiffs and the Class would rely and repose their trust in Citi Hedge when

deciding to invest and retain their investment in the Funds.

355. Citi Hedge’s discretion, control, and superior position over Plaintiffs and the

Class gave rise to a fiduciary duty and duty of care on the part of Citi Hedge to Plaintiffs and the

Class who invested in the Funds.

356. Citi Hedge breached its fiduciary duties to Plaintiffs and the Class by, among

other things, failing to discharge properly its responsibilities as Administrator, including by

117


communicating fictitious Fund valuations to Plaintiffs and the Class. Citi Hedge’s fiduciary

duties could not be delegated to BMIS or any third party and the fact that Citi Hedge entrusted its

responsibilities to BMIS without adequate supervision or control constituted a per se breach of

fiduciary duty.

357. Plaintiffs and the Class have been damaged as a proximate result of the breach of

fiduciary duties by Citi Hedge. Had Citi Hedge fulfilled its fiduciary duties, (i) Plaintiffs and the

Class would not have invested or re-invested in the Funds, (ii) Plaintiffs and the Class would not

have retained their investments in the Funds, (iii) Plaintiffs’ and the Class’ assets would not have

been turned over to Madoff, and (iv) Plaintiffs and the Class would not have lost their

investments.

358. Citi Hedge collected fees in return for the services they were ostensibly providing.

Those fees were calculated on the basis of Madoff’s fictional profits that were never actually

earned. Because the fees were calculated on the basis of fraudulent information, and Citi Hedge

did not fulfill its duties, Citi Hedge did not earn those fees and they should be repaid to Plaintiffs

and the Class.

359. By reason of the foregoing, Citi Hedge is liable to Plaintiffs and the Class, and

Plaintiffs and the Class are entitled to a constructive trust on fees received, damages, and

appropriate equitable relief.

COUNT 22

Gross NegligenceAgainst Citi Hedge


herein.

118


361. Citi Hedge, as the Funds’ administrator and financial services provider, had a

special relationship with Plaintiffs and the Class that gave rise to a duty to exercise due care.

Citi Hedge knew or should have known that Plaintiffs and the Class would be relying on Citi

Hedge to exercise reasonable care in providing administrative and financial services to the

Funds, and Plaintiffs and the Class reasonably and foreseeably relied on Citi Hedge to exercise

such care by entrusting their assets to the Funds.

362. Citi Hedge grossly failed to exercise due care, and acted in reckless disregard of

its duties. Citi Hedge failed to exercise the degree of prudence, caution, and good business

practice that would be expected of any reasonable investment professional.

363. As a direct and proximate result of Citi Hedge’s gross negligence, Plaintiffs and

the Class have lost all, or substantially all, of their investments in the Funds.

COUNT 23

NegligenceAgainst Citi Hedge


herein.


special relationship with Plaintiffs and the Class that gave rise to a duty to exercise due care.

Citi Hedge knew or should have known that Plaintiffs and the Class would be relying on Citi

Hedge to exercise reasonable care in providing administrative and financial services to the

Funds, and Plaintiffs and the Class reasonably and foreseeably relied on Citi Hedge to exercise

such care by entrusting their assets to the Funds.

119


366. Citi Hedge negligently failed to exercise due care, and failed to exercise the

degree of prudence, caution, and good business practice that would be expected of any

reasonable investment professional.

367. As a direct and proximate result of Citi Hedge’s negligence, Plaintiffs and the

Class have lost all, or substantially all, of their investments in the Funds.

COUNT 24

Negligent MisrepresentationAgainst Citi Hedge


herein.


unique and special expertise and superior position with respect to providing administrative

services and calculating the Funds’ NAV and account balances. With respect to Madoff in

particular, Citi Hedge had a special relationship of trust and confidence with Plaintiffs and the

Class, which created a duty to impart correct information to Plaintiffs and the Class.

370. Citi Hedge induced Plaintiffs and the Class to make their initial investments in the

Funds, to retain their investments in the Funds, and (where applicable) to make additional

investments in the Funds by issuing false NAV and account balance statements for the Funds

that they then disseminated to Plaintiffs and the Class, or knew would be disseminated to

Plaintiffs and the Class.

371. Citi Hedge made the false representations knowing that Plaintiffs and the Class

would use and rely upon the misrepresentations for the particular purpose of determining

whether to invest in the Funds, hold their assets in the Funds, and (where applicable) purchase

additional interests in the Funds.

120


372. Citi Hedge’s NAV calculations and account balance information were false. In

issuing the statements, Citi Hedge acted recklessly because it knew or had access to information

suggesting that its statements were not accurate. Citi Hedge also acted recklessly by failing to

verify the information received from BMIS despite a duty to scrutinize and verify independently

information relating to the NAV and account balances. In addition, its failure to check or verify

the information was reckless because Citi Hedge was aware of the increased risks surrounding

BMIS, including the consolidation of the roles of investment manager, custodian and broker-

dealer in Madoff and BMIS.


Citi Hedge. Citi Hedge was paid substantial fees for performing administrative services.

Plaintiffs and the Class justifiably relied, to their detriment, on Citi Hedge’s false statements and

omissions, in ignorance of their falsity, by making their initial investments in the Funds,

retaining their investments in the Funds, and (where applicable) making additional investments

in the Funds.

374. As a result of their reliance upon the false representations made by Citi Hedge,

Plaintiffs and the Class have suffered damages, namely the loss of their investments in the

Funds.

COUNT 25

Third Party Beneficiary Breach Of ContractAgainst Citi Hedge


herein.

376. Citi Hedge entered into Administration Agreements with the Funds, and Citi

Hedge breached its obligations to the Plaintiffs and the Class as third party beneficiaries of those

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contracts. The Administration Agreements executed by Citi Hedge with the Funds each

represent valid contracts binding on both Citi Hedge and the Funds.

377. The Administration Agreements evince a clear intent to benefit shareholders by

affirmatively recognizing Citi Hedge’s obligation to keep the Funds’ shareholders informed of

the status and performance of their investments, as set forth in the Administration Agreement (§§

4.1, 4.4).

378. The benefits to Plaintiffs and the Class under the Administration Agreements

between the Funds and Citi Hedge were immediate, not simply incidental, in that the Funds’ only

motivations for entering the Administration Agreement were to provide shareholders with

administrative services including keeping them informed of the status of the Funds.

379. Citi Hedge agreed to act in good faith in the performance of its services as Fund

Administrator. Citi Hedge’s duties that required good faith, due care and diligence in their

execution included the following:

(a) communicating with the general public;

(b) communicating with shareholders;

(c) soliciting sales of shares in the Funds;

(d) accepting new subscriptions in the Funds;

(e) maintaining the Funds’ corporate records and books of account;

(f) disbursing payments of dividends, fees, and salaries;

(g) calculating, publishing and furnishing the subscription price, redemption

price, and net asset value of the Funds’ shares; and

(h) conducting meetings of the Funds’ boards of directors.

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380. Citi Hedge breached the Administration Agreements, by, among other things,

failing to discharge its responsibility to calculate accurately the Funds’ NAV. Citi Hedge is

liable to Plaintiffs as third party beneficiaries of those contracts.

COUNT 26

Aiding And Abetting Breach Of Fiduciary DutyAgainst Citi Hedge


herein.

382. The Kingate Defendants breached their fiduciary duties to Plaintiffs and the Class,

as alleged above.

383. Citi Hedge, as the Funds’ administrator and financial services provider, had actual

knowledge of and substantially participated in the breaches of fiduciary duty committed by the

Kingate Defendants. As Administrator, Citi Hedge gained significant knowledge of the

operations of the Funds and their investment managers and other service providers. As a leading

provider of back office services to the hedge fund industry, and by virtue of its long-standing

relationship with the Funds, Citi Hedge knew that the Kingate Defendants owed a fiduciary duty

to Plaintiffs and the Class. Citi Hedge also knew that the due diligence and risk controls

employed by the Kingate Defendants were grossly deficient in breach of their fiduciary duties.

384. With knowledge that the Kingate Defendants were breaching their fiduciary

duties owed to Plaintiffs and the Class, Citi Hedge substantially assisted the Kingate Defendants

in this breach. For example, Citi Hedge substantially assisted the Kingate Defendants by

receiving investments from Plaintiffs and the Class and transferring their investments directly to

BMIS; calculating the Funds’ NAV and disseminating the NAV values; receiving and

transmitting other Fund information from the Kingate Defendants to Plaintiffs and the Class; and

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allowing Citi Hedge’s name and the services it was ostensibly providing to be included in the

Funds’ Information Memoranda. The Kingate Defendants’ breach of fiduciary duty would not

have occurred without this substantial assistance by Citi Hedge.

385. As a direct and natural result of (i) the Kingate Defendants’ breach of fiduciary

duty, and (ii) Citi Hedge’s aiding and abetting in that breach, Plaintiffs and the Class have


COUNT 27

Aiding And Abetting FraudAgainst Citi Hedge


herein.

387. The Kingate Fraud Claim Defendants perpetrated a fraud upon Plaintiffs and the

Class, as alleged above.

388. Citi Hedge, as the Funds’ administrator and financial services provider, had actual

knowledge of and substantially assisted in the fraudulent scheme perpetrated by the Kingate

Fraud Claim Defendants.

389. As Administrator, Citi Hedge gained significant knowledge of the operations of

the Funds and their investment managers and other service providers. Citi Hedge knew that the

Kingate Fraud Claim Defendants were falsely representing to Plaintiffs and the Class that they

had undertaken meaningful due diligence and implemented risk controls, and were failing to

disclose clear deficiencies in their internal controls and monitoring of Madoff’s activities.

390. Citi Hedge substantially assisted the Kingate Fraud Claim Defendants in the fraud

perpetrated on Plaintiffs and the Class by means of the actions alleged above. The Kingate

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Fraud Claim Defendants could not have perpetrated their fraud without this substantial assistance

by Citi Hedge

391. As a direct and natural result of (i) the Kingate Defendants’ fraudulent scheme,

and (ii) Citi Hedge’s aiding and abetting in that fraudulent scheme, Plaintiffs and the Class have


COUNT 28

Unjust EnrichmentAgainst All Defendants


herein.

393. Defendants were enriched at the expense of Plaintiffs and the Class by taking the

monies of Plaintiffs and the Class in the form of commissions and other fees for the purported

management and administration of their investments, and the purported, but in fact non-existent,

capital appreciation of such assets.

394. Defendants’ performance was so far below the applicable fiduciary and business

standards that Plaintiffs and the Class involuntarily conferred a benefit upon Defendants without

Plaintiffs and the Class receiving adequate benefit or compensation in return. In so doing,

Defendants acted in reckless disregard of their duties to Plaintiffs and the Class.

395. Defendants financially benefited from their unlawful acts, which caused Plaintiffs

and the Class to suffer injury and monetary loss.

396. As a result of the foregoing, it is unjust and inequitable for Defendants to have

enriched themselves in this manner and each Defendant should refund all monies paid for any

services rendered to Plaintiffs and the Class, and Plaintiffs and the Class are entitled to the

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establishment of a constructive trust imposed on the benefits reaped by Defendants from their

unjust enrichment and inequitable conduct.

COUNT 29

For Violations Of Rule 10b-5And Section 10(b) Of The Exchange Act

Against The Kingate Fraud Claim Defendants

397. The Exchange Act Plaintiffs restate and reallege each of the preceding allegations

as if fully stated herein. This Count is asserted against the Kingate Fraud Claim Defendants and

is based only upon Rule 1 0b-5 promulgated pursuant to Section 10(b) of the Exchange Act, 15

U.S.C. § 78j(b).

398. The false and misleading statements and omissions alleged in this Count apply to

this Count only and do not apply to any other Counts, or to any other part of this Complaint.

399. The Kingate Fraud Claim Defendants recklessly or knowingly made various

deceptive and untrue statements of material facts and omitted to state material facts necessary in

order to make the statements made, in light of the circumstances under which they were made,

not misleading to the Exchange Act Plaintiffs and the Class. The purpose and effect of said false

and misleading statements, was, among other things, to induce the Exchange Act Plaintiffs and

the Class to purchase shares in Kingate Global and Kingate Euro.

400. During the Class Period, the Kingate Fraud Claim Defendants sold the Funds

based on false and misleading statements and omissions. Investors in the Funds or their

nominees were provided copies of the prospectuses, called Information Memoranda, or IMs.

These documents, however, contained uniform misrepresentations and material omissions and

induced the Exchange Act Plaintiffs to invest in the Funds.

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401. The IMs specifically stated that only the representations in the IMs and annual

reports for the Funds were to be relied upon by investors:

(a) “This Agreement represents the entire agreement of the parties in respect

of the subscription for Shares and may not be changed or terminated orally.” 49

(b) The subscription forms necessary to invest in the Funds and attached to

the IMs stated: “The Subscriber acknowledges that the Fund has delivered to the Subscriber the

Information Memorandum. The Subscriber has not relied on any representations or other

information purported to be given on behalf of the Fund except as set forth in the Information

Memorandum or the published, financial accounts of the Fund.” 50

402. The Kingate Fraud Claim Defendants, as acknowledged in their own documents,

recognized the fundamental importance of proper due diligence, strict monitoring, and oversight

of the investment manager, broker, administrator and custodian, and their obligation to perform

these functions. Nevertheless, the Kingate Fraud Claim Defendants recklessly or knowingly

failed to perform due diligence that they recognized was essential and required by standard-

industry practice. The Kingate Fraud Claim Defendants also recklessly or knowingly

disregarded the obvious risks surrounding Madoff and that should have alerted them, as

experienced investment professionals, to the need for heightened scrutiny.

403. As set forth below in this Count, the Kingate Fraud Claim Defendants recklessly

or knowingly misrepresented to the Exchange Act Plaintiffs and other members of the Class that

their assets were being invested using a split-strike conversion strategy. The Kingate Fraud

Claim Defendants further recklessly or knowingly misrepresented that they and their financial

49 KGF 2008 IM, Ex. 1 at S-10; KEF 2008 IM, Ex. 2 at S-10; KGF 2007 IM, Ex. 3 at S-10; KGF 2006 IM,Ex. 4 at S-10.

50 KGF 2008 IM, Ex. 1 at S-8; KEF 2008 IM, Ex. 2 at S-8; KGF 2007 IM, Ex. 3 at S-8; KGF 2006 IM, Ex. 4at S-7.

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services providers and auditors were conducting extensive due diligence and monitoring of

BMIS and Madoff, which served as the Funds’ investment advisor, as well as broker, execution

agent, and custodian, and that they had full transparency with respect to all Madoff’s operations.

The Kingate Fraud Claim Defendants knowingly or recklessly failed to disclose to the Exchange

Act Plaintiffs and other members of the Class the material facts that in reality no one had

conducted any meaningful due diligence on Madoff prior to establishing the Funds’ investments

with Madoff; no one was meaningfully monitoring verifying, or confirming Madoff’s trade

activity; effectively there was no transparency into Madoff’s operations; and no one had an

independent, factual basis for stating that Madoff was executing a split-strike conversion

strategy.

1. False And Misleading Statements And Omissions About The Split-Strike Conversion Strategy Used By The Funds

404. The IMs consistently described the investment strategy utilized by the Funds as

seeking to obtain “long-term capital appreciation” through the “split strike conversion strategy.”

The IMs stated that “[t]he strategy utilized by the Fund’s Investment Advisor is called ‘split-

strike conversion’ and entails:

(a) purchasing a basket of forty-five (45) to fifty (50) large capitalization S&P

100 stocks (e.g. General Electric, Microsoft, Pfizer, Exxon Mobil, Wal-Mart Stores, Citigroup,

Intel, American International, IBM, Johnson & Johnson, etc.), which together account for the

greatest weight of the Index and therefore, when combined, present a high degree of correlation

with the general market;

(b) selling out-of-the money S&P 100 Index call options representing a dollar

amount of the underlying Index equivalent to the dollar amount of the basket of shares

purchased; and

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(c) purchasing out-of-the-money or at-the-money S&P Index put options in

the same dollar amount.” 51

405. These statements were false and misleading. In reality, no such strategy was

being executed because investors’ assets were being funneled into Madoff’ s Ponzi scheme in

which no legitimate securities transactions were ever conducted. Further, the IMs failed to

disclose to the Exchange Act Plaintiffs and other members of the Class the material fact that the

Kingate Fraud Claim Defendants had no independent factual basis for their representations about

the Funds’ investment strategy because they had never undertaken any meaningful steps to

confirm that the split-strike conversion strategy was actually being implemented by Madoff.

2. False And Misleading Statements And Omissions AboutDue Diligence For Kingate Global And Kingate Euro

406. The Information Memoranda falsely and misleadingly reassured investors that the

Manager (or Co-Managers) would fulfill their ongoing obligation to evaluate and monitor

Madoff. In that regard, the Information Memoranda from 2000 through 2008 included the

following false and misleading statements:

(a) Pursuant to the Manager [Co-Manager] Agreement, the Manager

evaluates and monitors the Investment Advisor and, in general, provides all necessary

management services to the Fund. 52

(b) The Manager [or Co-Managers] has agreed (i) to manage all aspects of the

investment advisory services provided to the Fund, including the selection and evaluation of

[Madoff] and (ii) to arrange for the performance of all accounting and administrative services

which may be required by the Fund’s operations. The Manager [Co-Manager] Agreement


52 KGF 2008 IM, Ex. 1 at ii; KEF 2008 IM, Ex. 2 at iii; KGF 2007 IM, Ex. 3 at ii; KGF 2006 IM, Ex. 4 at ii;KGF 2003 IM, Ex. 5 at iii; KGF 2000 IM, Ex. 6 at iii.

129


authorizes the Manager to delegate responsibilities to others, subject to retaining responsibilities

for evaluating and coordinating the services offered by others. 53

407. These representations were false and misleading because the Kingate Fraud Claim

Defendants did not conduct a careful analysis of Madoff and failed to ensure that Madoff had the

necessary competence, standing, and expertise to hold the Funds’ assets. Further, the IMs did

not disclose that the Kingate Fraud Claim Defendants failed to conduct any meaningful due

diligence of Madoff and had never independently verified with a third-party that any of the trade

confirmations provided by Madoff were true and correct, and that the assets reported by Madoff

existed. The IMs also did not disclose that the Kingate Fraud Claim Defendants failed to

evaluate the performance of accounting and administrative services necessary for the Fund’s

operations.

3. False And Misleading Statements And Omissions AboutMadoff’s Role As Market Maker

408. The Information Memoranda also falsely stated that “[t]he Investment Advisor

acts as a market-maker in the stocks purchased and sold by the USD portfolio,” and as a result of

the Investment Advisor’s role as market-maker, “the portfolio is subject to credit risks (the

exposure to the possibility of loss resulting from a counterparty’s failure to meet its financial

obligations).” 54

409. This statement was false and misleading. The IMs failed to disclose that the

Kingate Fraud Claim Defendants never conducted due diligence to verify or assess the credit

risks created by the Investment Advisor’s status as market-maker, as they were required to do

under the Management Agreement and as they represented they would do under the Information

53 KGF 2008 IM, Ex. 1 at 13; KEF 2008 IM, Ex. 2 at 14; KGF 2007 IM, Ex. 3 at 13; KGF 2006 IM, Ex. 4 at13; KGF 2003 IM, Ex. 5 at 14; KGF 2000 IM, Ex. 6 at 14.

54 KGF 2008 IM, Ex. 1 at 6, Ex.; KGF 2007 IM, Ex. 3 at 6; KGF 2006 IM, Ex. 4 at 6; see KEF 2008 IM, Ex.2 at 6; KGF 2003 IM, Ex. 5 at 6; KGF 2000 IM, Ex. 6 at 6.

130


Memoranda. The Kingate Fraud Claim Defendants had no independent factual basis for their

representations that the Investment Advisor acted as a market-maker because they had never

undertaken any meaningful steps to confirm that statement.

4. False And Misleading Statements And Omissions AboutMadoff ’s Over-The-Counter Options Transactions

410. In addition to falsely representing that Madoff executed trades which never took

place, the Information Memoranda also included false and misleading statements concerning

Madoff’s supposed trading counterparties: “[t]he options transactions executed for the benefit of

the USD portfolio are effected primarily in the over-the-counter market, not on a registered

options exchange.”55

411. This statement was false. The IMs failed to disclose that the Kingate Fraud Claim

Defendants had no independent factual basis for their representations that options transactions

were executed primarily in the over-the-counter market because they had never undertaken any

meaningful steps to confirm that statement. The Kingate Fraud Claim Defendants failed to

confirm the over-the-counter options trading despite acknowledging in the Information

Memoranda that trading equity and options in the over-the-counter market meant the Funds were

“subject[ed] to counterparty risk and [were] without the protection afforded with respect to

options transactions on regulated exchanges through the Options Clearing Corporation.” 56

Despite acknowledging the lack of protection provided by trading options over-the-counter, the

Kingate Fraud Claim Defendants never sought to determine whether the Investment Advisor was

trading with creditworthy counterparties or, in fact, making any over-the-counter option trades at

all.


56 KGF 2008 IM, Ex. 1 at 6; KEF 2008 IM, Ex. 2 at 7; KGF 2007 IM, Ex. 3 at 6; KGF 2006 IM, Ex.4 at 6;KGF 2003 IM, Ex. 5 at 7; KGF 2000 IM, Ex. 6 at 7.

131


5. Misleading Statements And Omissions About The “Possibility” ThatMadoff Will Abscond With the Funds’ Assets

412. As shown in the IMs, the Kingate Fraud Claim Defendants knew that Madoff’s

dual responsibilities as Investment Advisor and custodian created a risk that Madoff could

abscond with the Funds’ assets:

Neither the Fund nor the Custodian has actual custody of theassets. Such actual custody rests with the Investment Advisor andits affiliated broker-dealer. Therefore, there is the risk that thecustodian [Madoff] could abscond with those assets. There isalways the risk that the assets with the Investment Advisor[Madoff] could be misappropriated. In addition, informationsupplied by the Investment Advisor may be inaccurate or evenfraudulent. The Manager is entitled to rely on such information(provided they do so in good faith) and are not required toundertake any due diligence to confirm the accuracy thereof.57

413. This statement was misleading. The Kingate Fraud Claim Defendants knew, or

were reckless in not knowing, based on the numerous obvious risks of which they were aware,

that fraud or misappropriation was, in fact, taking place, and not a mere possibility.

414. This statement is also misleading because it fails to disclose the long list of

obvious risks of which the Kingate Fraud Claim Defendants were aware. Specifically, this

statement failed to disclose that: (i) no one had confirmed the existence of Madoff’s

counterparties; (ii) no one had confirmed the existence of the U.S. Treasury bills at the end of

each year; (iii) Madoff’s auditing firm was unknown, clearly unequipped to audit Madoff; and

had not conducted a single audit of any entity since 1993; (iv) Madoff was extremely secretive;

(v) key positions at BMIS were held by Madoff’s family members; (vi) Madoff only provided

paper confirmations of trading records; and (vii) Madoff’s consistent returns were impossible to

replicate by others and materially outside the realm of possibility based on statistical analysis.

57 KGF 2008 IM, Ex. 1 at 9; KEF 2008 IM, Ex. 2 at 10; KGF 2007 IM, Ex. 3 at 9; KGF 2006 IM, Ex. 4 at 9;KGF 2003 IM, Ex. 5 at 9-10; KGF 2000 IM, Ex. 6 at 10.

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415. By reason of the foregoing, the Kingate Fraud Claim Defendants directly violated

Section 10(b) of the Exchange Act and Rule 1 0b-5 promulgated thereunder in that they

recklessly or knowingly made untrue statements of material facts or omitted to state material

facts necessary in order to make the statements, in light of the circumstances under which they

were made, not misleading.

416. The Kingate Fraud Claim Defendants engaged in the fraudulent activity described

above knowingly, or in such a reckless manner, as to constitute willful deceit and fraud upon the

Exchange Act Plaintiffs and the Class.

417. But for the Kingate Fraud Claim Defendants’ fraud, none of the securities that

were sold to the Exchange Act Plaintiffs and the Class could have been sold.

418. As a result of the Kingate Fraud Claim Defendants’ fraudulent devices, schemes,

artifices, acts, practices and course of business, as alleged herein, the Exchange Act Plaintiffs’

and Class members’ investments have lost all their value.

419. The Exchange Act Plaintiffs and the Class suffered damages in connection with

their respective purchases of shares of Kingate Global and Kingate Euro, for which the Kingate

Fraud Claim Defendants are jointly and severally liable.

COUNT 30

For Violations Of Section 20(a) Of The Exchange ActAgainst Tremont Advisers, Grosso, Ceretti, And Manzke


as if fully stated herein. This Count is asserted against the Tremont Advisers, Grosso, Ceretti,

and Manzke pursuant to Section 20(a) of the Exchange Act, 15 U.S.C. § 78j(b).

421. Tremont Advisers, Grosso, Ceretti, and Manzke acted as controlling persons

within the meaning of Section 20(a) of the Exchange Act, as alleged herein.

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422. Tremont was a wholly-owned subsidiary of Tremont Advisers at all times.

Tremont Advisers had day-to-day control and exercised day-to-day control of Tremont.

Accordingly, Tremont Advisers had the power to control the general business affairs of Tremont,

and the power to directly or indirectly control or influence the specific corporate policy ( e.g., the

failure to conduct due diligence) at Tremont, which resulted in primary liability.

423. Defendant Grosso founded the FIM Entities and served as Executive Chairman

and Chief Investment Officer of FIM Limited. Grosso is also the Executive Chairman and Chief

Investment Officer of FIM Advisers. As such, Mr. Grosso had knowledge of, and participated

in, the FIM Entities’ transaction of business, consenting to the FIM Entities’ transactions related

to the Funds, and otherwise by exercising control over the FIM Entities. Accordingly,

Defendant Grosso had the power to control the general business affairs of the FIM Entities, and

the power to directly or indirectly control or influence the specific corporate policy ( e.g., the

failure to conduct due diligence) at the FIM Entities, which resulted in primary liability.

424. Defendant Ceretti joined FIM Limited in 1986 and co-founded FIM Advisers with

Defendant Grosso. Ceretti is Chief Executive Officer of FIM Advisers. As such, Mr. Ceretti had

knowledge of, and participated in, the FIM Entities’ transaction of business, consenting to the

FIM Entities’ transactions related to the Funds, and otherwise by exercising control over the FIM

Entities. Accordingly, Defendant Ceretti had the power to control the general business affairs of

the FIM Entities, and the power to directly or indirectly control or influence the specific

corporate policy (e.g., the failure to conduct due diligence) at the FIM Entities, which resulted in

primary liability.

425. Defendant Manzke was a director of the Funds from 1995 until approximately

2003. Ms. Manzke was also Chairman and co-CEO of Tremont Advisers, Inc., the parent

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company of Tremont. As a director of the Funds, Ms. Manzke had knowledge of, and

participated in, the Funds’ transaction of business, consenting to the transactions related to

Funds’ accounts, and otherwise by exercising control over the Funds. Accordingly, Defendant

Manzke had the power to control the general business affairs of the Funds, and the power to

directly or indirectly control or influence the specific corporate policy ( e.g., the failure to

conduct due diligence) at KML, Kingate Global and Kingate Euro, which resulted in primary

liability. As Chairman and co-CEO of Tremont’s parent company, Ms. Manzke had knowledge

of, and participated in, Tremont’s transaction of business, consenting to Tremont’s transactions

related to the Funds, and otherwise by exercising control over Tremont. Accordingly,

Defendant Manzke had the power to control the general business affairs of Tremont, and the

power to directly or indirectly control or influence the specific corporate policy ( e.g., the failure

to conduct due diligence) at Tremont, which resulted in primary liability.

426. As a direct and proximate result of the wrongful conduct alleged in this Count, the

Exchange Act Plaintiffs and the Class suffered an economic loss and damages in connection with

their purchases of shares in the Funds in an amount to be proven at trial.

COUNT 31


Against PricewaterhouseCoopers


as if fully stated herein. This Count is asserted against the PricewaterhouseCoopers and is based

only upon Rule 10b-5 promulgated pursuant to Section 10(b) of the Exchange Act, 15 U.S.C. §

78j(b).

135




429. PricewaterhouseCoopers issued audit opinions that constituted the presentation of

false and misleading information as to the assets of the Funds. Instead of billions of dollars, as

represented, virtually no assets actually existed. These statements were made recklessly or

knowingly and constitute deceptive and untrue statements of material facts and omissions of

material facts necessary in order to make the statements made, in light of the circumstances

under which they were made, not misleading. These statements induced the Exchange Act

Plaintiffs to invest in the Funds.

430. PricewaterhouseCoopers made the following false and misleading statements:

PricewaterhouseCoopers issued audit opinions for every calendar year with respect to the Funds’

financial statements. In each of these opinions, PricewaterhouseCoopers (i) stated that

PricewaterhouseCoopers conducted the audits in accordance with GAAS, and (ii) expressed an

unqualified opinion that the Funds’ financial statements “present fairly, in all material respects,

the financial position of [the Funds] as of December 31, 200[4-8], and the results of its

operations and the changes in its net assets for the years then ended, in conformity with

accounting principles generally accepted in the United States of America.”

431. Each of those statements was false. The statements were false for the following

reasons:

(a) PricewaterhouseCoopers knew, or was reckless in not knowing, that the

Funds’ financial statements did not reflect the financial position of the Funds as of December 31,

200[4-8];

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(b) PricewaterhouseCoopers knew, or was reckless in not knowing, that

PwC’s audits of the Funds did not meet, were in violation of, and were not in accordance with

GAAS;

(c) PricewaterhouseCoopers did not confirm the existence of the Funds’

supposed assets. While purporting to conduct an audit pursuant to GAAS, Pricewaterhouse-

Coopers did not take the most fundamental and obvious steps in confirming the existence of the

Funds’ assets, and did not do so despite the requirements pursuant to GAAS, as set forth above;

(d) PricewaterhouseCoopers acted recklessly in making the false statements

alleged in this Count and their conduct in performing the audits was highly unreasonable and

represented an extreme departure from the standards of ordinary care;

(e) PricewaterhouseCoopers knew facts or had access to information

suggesting that their audit opinions were not accurate or failed to check information that they had

a duty to monitor and which would have demonstrated the falsity of their statements when made;

and

(f) PricewaterhouseCoopers knew that substantially all of the Funds’ assets

were managed by Madoff, who as the investment advisor, broker-dealer, and custodian of the

assets held highly unusual multiple roles that facilitated Madoff’s fraud. Yet,

PricewaterhouseCoopers failed, as described above, to conduct the minimal steps necessary to

independently confirm the existence of the Funds’ assets, so that PricewaterhouseCoopers’ audits

failed to uncover the fact that the assets did not exist.

432. To issue unqualified audit opinions stating that the Funds had hundreds of

millions or billions of dollars of assets without any independent confirmation that any of the

assets actually existed is a textbook definition of a reckless audit. PricewaterhouseCoopers’

137


audits failed to comply with GAAS and the requisite accounting standards and constituted,

essentially, no audits at all. Issuing clean audit opinions in the circumstances here, with the

multiple questions and risks set forth above, is even more reckless yet. The failure of

PricewaterhouseCoopers to acquire any confirmatory evidence from independent third parties,

such as counterparties to the alleged trades by BMIS or the custodian of the U.S. Treasury bills,

or to acquire direct personal knowledge, such as by inspections and physical examination of the

assets, not only was a blatant violation of auditing standards, but violated the most common

sense and obvious purpose of an audit – to confirm that reported assets in fact exist.

433. PricewaterhouseCoopers engaged in the fraudulent activity described above

knowingly, or in such a reckless manner, as to constitute willful deceit and fraud upon the

Exchange Act Plaintiffs and the Class.

434. But for PricewaterhouseCoopers’ fraud, none of the securities that were sold to

the Exchange Act Plaintiffs and the Class could have been sold.

435. As a result of PricewaterhouseCoopers’ fraudulent devices, schemes, artifices,

acts, practices and course of business, as alleged herein, the Exchange Act Plaintiffs’ and Class

members’ investments have lost all their value.


their respective purchases of shares of Kingate Global and Kingate Euro, for which

PricewaterhouseCoopers is liable.

138


COUNT 32


Against Citi Hedge


as if fully stated herein. This Count is asserted against Defendant Citi Hedge pursuant to Rule

10b-5 promulgated under Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b).



439. Citi Hedge issued false statements containing inflated NAV calculations and

account balance information. Citi Hedge issued these statements, at a minimum, on a monthly

basis throughout the Class Period. In issuing these statements, Citi Hedge acted recklessly or

knowingly because Citi Hedge knew or had access to information indicating that its statements

were not accurate. Citi Hedge acted recklessly by failing to check or verify the information

received from BMIS despite a duty to scrutinize and verify independently the information

relating to the NAV and account balances. Citi Hedge’s failure to check or verify the

information was also reckless because Citi Hedge was aware of the obvious risks surrounding

Madoff, including the consolidation of the roles of investment manager, custodian, and execution

agent.

440. Citi Hedge also made the following false and misleading statement in the

Information Memoranda:

The Administrator will determine the net asset value of the Fund’sPortfolio assets . . . as of the close of business on the last BusinessDay of each calendar month. . . . The Administrator verifies theprices attributed to the securities held by the USD Shares of the

139


Fund by reference to pricing sources independent of theInvestment Advisor whenever reasonably possible.” 58

441. This statement was false and misleading because Citi Hedge did not use

reasonable efforts to verify pricing information to the extent that BMIS reported to Citi Hedge

purchases and sales of securities at prices that were outside the daily trading range. Citi Hedge

knew, or was reckless in not knowing, that BMIS reported to Citi Hedge purchases and sales of

securities at prices that were outside the daily trading range. Citi Hedge’s failure to check or

verify the information was also reckless, and lacked good faith, because Citi Hedge was aware of

the obvious risks surrounding Madoff, including the consolidation of the roles of investment

manager, custodian, and execution agent.

442. The Exchange Act Plaintiffs justifiably relied on the information contained in the

Citi Hedge statements. Further, Citi Hedge was paid substantial fees for performing

administrative services.

443. Citi Hedge engaged in the fraudulent activity described above knowingly, or in

such a reckless manner, as to constitute willful deceit and fraud upon the Exchange Act Plaintiffs

and the Class.

444. But for Citi Hedge’s fraud, none of the securities that were sold to the Exchange

Act Plaintiffs and the Class could have been sold.

445. As a result of Citi Hedge’s fraudulent devices, schemes, artifices, acts, practices

and course of business, as alleged herein, the Exchange Act Plaintiffs’ and Class members’

investments have lost all their value.

58 KGF 2008 IM, Ex. 1 at 23; KEF 2008 IM, Ex. 2 at 24; KGF 2007 IM, Ex. 3 at 23-24; KGF 2006 IM, Ex. 4at 23-24; KGF 2003 IM, Ex. 5 at 24; KGF 2000 IM, Ex. 6 at 24.

140



their respective purchases of shares of Kingate Global and Kingate Euro, for which Citi Hedge is

liable.

JURY TRIAL DEMANDED

447. Plaintiffs hereby demand a jury trial.

PRAYER

WHEREFORE, Plaintiffs request the following:

(a) certification of this class action as proper and maintainable pursuant to Rules

23(a) and 23(b)(3) of the Federal Rules of Civil Procedure and declaration of the proposed

named Plaintiffs as proper Class representatives;

(b) such preliminary and permanent injunctive relief, including imposition of a

constructive trust, as is appropriate to preserve the assets wrongfully taken from Plaintiffs and

the Class;

(c) compensatory, consequential, and general damages in an amount to be determined

at trial;

(d) disgorgement and restitution of all earnings, profits, compensation and benefits

received by Defendants as a result of their unlawful acts and practices;

(e) punitive damages for each claim to the maximum extent available under the law

on account of Defendants’ willful and wanton disregard of Plaintiffs’ and the Class’s rights;

(f) costs and disbursements of the action;

(g) pre- and post -judgment interest;

(h) reasonable attorneys’ fees; and

(i) such other and further relief as this Court may deem just and proper.

141


Date: May 18, 2010 LABATON SUCHAROW LLP

Joel H. BernsteinJavier BleichmarMichael Woolley140 BroadwayNew York, NY 10005Tel: 212-907-0700Fax: 212-818-0477

BOIES, SCHILLER& FLEXNER LLP

David Boies333 Main StreetArmonk, NY 10504Tel: (914) 749-8200Fax: (914) 749-8300

David A. BarrettHoward L. Vickery575 Lexington AvenueNew York, NY 10022Tel. (212) 446-2300Fax: (212) 446-2350

Stuart H. SingerCarlos M. SiresSashi Bach Boruchow401 East Las Olas Blvd, #1200Ft. Lauderdale, FL 33301Tel: (954) 356-0011Fax: (954) 356-0022

COHEN MILSTEIN SELLERS& TOLL PLLC

Joel P. Laitman88 Pine StreetNew York, New York 10005Tel: (212) 838 -7797Fax. (212) 838-7745

Steven J. TollDaniel S. Sommers

142


Joshua DevoreS. Douglas Bunch1100 New York Avenue, N.W.West Tower, Suite 500Washington, DC 20005Tel: (202) 408-4600Fax: (202) 408-4699

Co-Lead Counsel for Plaintiffs

143


Exhibit A


CERTIFICATION

1, Lector A. ` bbia k, hereby certify, as follows;

L I ain fly autfaarized to epater mto and execute, this Certification on behalf of

Silvana orldw i e: Corp. C Silvana") I have rc ,^ie ed a co pWnt ptepa red :against 'I agate Global

Fund I.srtiited, et. al. ('Kingatc Global"^. in this actlon-

2. Silvana did not investin K i gate Global at the direct3ton of counsel or in

order to parti,UP iri any:,,private action ax'sing undr r'tk e i'rivate Sec^xrities tig^ don Refs ^sri Act

(the: "PSLRA').

Silvana is willin'k to serve as tarepresen , Uve party on: el if oaf r sand

'Will testify' at.deposittdn and trial ; if necessary.

4.,Silvana investe€l iii 'Kingate: Global, and which is the subject of this litigation

as follows,. :.

March 2f1Q8:Ci a""taxs 4 ra,..10/knit .$299,61955::

5. Silvana has not sou to serve as:a represeritat e Par r on behalf a s ^s

during tbe" last three years.

6. 16eyond its pto rata share cf any, recovery, Silvana-win not.d0cept any

payment for serving as a representative patty, on behalf of the class, except" ^i^ ate ^ urseni^nt a£

reasona)Dkl costs and expenses (including lost wages) a5::br red or approved by the u k

I dec t e under penalty of perjury, undet the laws: of the Uniteel States, 63at the

foregoing is . true and correct this d day, of June, 2009.

Hector A.' aU'

wry

Silvana Worldwide Corp.


CERTIFICATION OF PLAINTIFFPt IRSUANT TO FEDERAL SECURI 111 5 L;AW$

1, 1_.uci[n Geldcahlcr ("Plaintiff"), declare, ax to the claims asserted under the fedcril securitieslawn that:

I . I have reviewed a class action cotiiplaitnt asserting aocuritie5 claims against kingate GlobalRind, Ltd. and Kingate Guro Fund, Ltd,, and wish tri join as a plaintiff retaining Cotten Milstein Seller4Tull Pl. I_C.' and The Law I'imi of Jacob Sabo tts my counsA

2. Plainti ff did nett purchaae the sccurity that is the subject of this action at the direction ofplaintiffs counsel or in oMer to participate in this privatc action_

3. Plaintiff is willing to serve as a represontativo party on behalf of the class, includingproviding testimony at deposition and trial, if nevos-sary.

4. My transactions in to Global fund, I: r3 A ltinguLt, Metro Fund, l ld_ which -are thesubject of this lit gaLion, were its lolluwti

DAIE TRANSACT"IC?N (hGEy/sell) NO. t. _SHt RF.S PRICE, PER ^+111^ft1.

,hen 2008 Buy 403 5423.5236

S. Dvring the thrcc years prior to the date of thiti Certificate, Plaintiff has not sought to serveor served a} a repre<sentativc party fur a class in any action under the federal securities laws.

6. 1 will not accept ;iny payment. for scrving as a repmsentative party on behalf of the classbeyond pluintifr!4 pre, rata sbwv of any recovery, except such reasonable co-%Ls and expenses Oncludittglost wages) directly re-lating to the representation of the. class as ordered or approve([ by the court.

I declare under penalty of perjury that the foregoing is true acid correct.

Dw uted this i....__ day of /7 , -010.

Case 1:09-cv-05386-DAB Document 53-2 Filed 05/18/10 Page 1 of 81

Exhibit 1


THE SECURITIES DESCRIBED IN THIS CONFIDENTIAL INFORMATION MEMORANDUM AS THESAME MAY BE AMENDED, SUPPLEMENTED AND RESTATED FROM TIME TO TIME (THE"MEMORANDUM") HAVE NOT BEEN REGISTERED OR QUALIFIED FOR OFFER OR SALE TO THEPUBLIC UNDER THE SECURITIES LAWS OF ANY COUNTRY OR JURISDICTION.

THE SHARES ISSUED BY KINGATE GLOBAL FUND, LTD. (THE "FUND") ARE NOT FOR SALE TOU.S. PERSONS OR TO ANY MEMBER OF THE PUBLIC IN THE BRITISH VIRGIN ISLANDS OR INANY OTHER PLACE WHERE SUCH SALE IS UNAUTHORIZED. NO PERSON HAS BEENAUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR MAKEANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS MEMORANDUM. PLEASEDIRECT ANY INQUIRIES TO THE ADMINISTRATOR.

KINGATE GLOBAL FUND, LTD

A British Virgin Islands Company

Private Offering of USD Participating Common Shares(herein “USD Shares”)

AMENDED AND RESTATEDINFORMATION MEMORANDUM

6 October, 2008

Price per Share: Net Asset ValueMinimum Initial Subscription: U.S. $250,000

Manager: Kingate Management LimitedConsultant: FIM Advisers LLPAdministrator: Citi Hedge Fund Services, Ltd

INVESTMENT IN THE FUND INVOLVES RISK.YOUR ATTENTION IS DRAWN TO THE RISK FACTORS

AND CONFLICTS OF INTEREST DETAILED HEREIN.

Recipient:

Memorandum no.

THIS CONFIDENTIAL INFORMATION MEMORANDUM IS BEING GIVEN TO THE RECIPIENT SOLELYFOR THE PURPOSE OF EVALUATING AN INVESTMENT IN THE SHARES DESCRIBED HEREIN. ITMAY NOT BE REPRODUCED OR DISTRIBUTED TO ANYONE ELSE (OTHER THAN TO THEIDENTIFIED RECIPIENT’S PROFESSIONAL ADVISORS FOR THE PURPOSES OF EVALUATING THEINVESTMENT IN SHARES.) THE RECIPIENT, BY ACCEPTING DELIVERY OF THIS MEMORANDUM,AGREES TO RETURN IT AND ALL RELATED DOCUMENTS TO THE FUND IF THE RECIPIENTDETERMINES NOT TO SUBSCRIBE FOR SHARES.


IMPORTANT NOTICES

Neither Kingate Global Fund, Ltd. (the “Fund”) nor the USD Participating Common Shares of the Fund(the “USD Shares) described in this Amended and Restated Information Memorandum dated as of 6 October, 2008,as may be further amended and restated (this “Memorandum”), have been or will be registered or qualified underthe securities laws of the United States (“U.S.”) or any other jurisdiction. This Memorandum does not constitute anoffer to sell or the solicitation of an offer to buy, nor shall there be any sale of USD Shares in any jurisdiction inwhich such offer, solicitation or sale is not authorized or to any person to whom it is unlawful to make such offer,solicitation or sale. The direct or indirect ownership of USD Shares by “Restricted Persons” as defined in thisMemorandum, is prohibited except to a limited number of tax exempt investors in the Fund’s discretion and thenonly after supplementary offering materials have been distributed to such potential investors. No person has beenauthorized to make any representations concerning the Fund or the USD Shares which are inconsistent with thosecontained in this Memorandum, and any such representations should accordingly be treated as unauthorized andmay not be relied upon by the recipient.

Prospective investors should not construe the contents of this Memorandum as legal, tax or financialadvice. All prospective investors should consult their own professional advisors as to the legal, tax, financial orother matters relevant to the suitability of an investment in the USD Shares for such investor.

The purchase of USD Shares is speculative and involves a high degree of risk. There is no assurance thatthe Fund will continue to be profitable and past performance is no assurance of continued future success.Moreover, since the Fund’s Net Asset Value and the Net Asset Value of the USD Shares are calculated in U.S.Dollars, each investor, and not the Fund or any other person, bears the risk of any foreign currency exposureresulting from differences, if any, in the value of the U.S. Dollar relative to the currency of the country in whichsuch investor resides. See section entitled “CERTAIN RISK FACTORS” within this Memorandum for a moredetailed description of the risks involved in the purchase of USD Shares.

This Memorandum is intended solely for the use of the person to whom it has been delivered by the Fundfor the purpose of evaluating a possible investment by the recipient in the USD Shares described herein, and it isnot to be reproduced or distributed to any other persons (other than professional advisors of the prospective investorreceiving this document from the Fund). Kingate Global Fund, Ltd. may offer other classes of shares pursuant toseparate offering materials and may issue and offer other such classes without notice to or obtaining consent fromthe investors. At present there are no other shares on offer.

Investors (and each employee, representative or other agent of investors) may disclose to any and allpersons, without limitations of any kind, the tax treatment and tax structure of the transaction and all materials ofany kind (including options or other tax analysis) that are provided to investors relating to such tax treatment andtax structure. This authorization of tax disclosure is retroactively effective to the commencement of the firstdiscussions between such investor and the Fund regarding the transactions contemplated herein.

Discussions in this Memorandum below as they relate to certain United Stated Federal Income TaxConsequences are not intended or written to be used, and cannot be used, for the purpose of avoiding United StatesFederal tax penalties. Such discussions were written to support the promotion or marketing of the transactions ormatters addressed in this Memorandum, and any taxpayer to whom the transactions or matters are being promoted,marketed or recommended should seek advice based on its particular circumstances from an independent taxadvisor.

Any questions relating to the purchase of USD Shares in the Fund or this Memorandum should be directedto the Fund’s Manager, Kingate Management Limited (“Manager”).

This Memorandum supersedes the Fund’s Amended and Restated Information Memorandum dated August1, 2007.

All monetary amounts set forth herein are expressed in U.S. Dollars.

Kingate Global Fund, Ltd. – USD Shares


KINGATE GLOBAL FUND, LTD.

SUMMARY

The information set out below should be read in conjunction with, and is qualified in its entiretyby, the full text of this Amended and Restated Information Memorandum, as may be further amended andrestated (the “Memorandum”), the memorandum and articles of association (the “Memorandum andArticles of Association”) of Kingate Global Fund, Ltd. and the documents and agreements referred toherein, all of which are available from the Administrator upon request.

THE FUND Generally. Kingate Global Fund, Ltd. (the “Fund”) is an open-end investment company organized as an international businesscompany in the British Virgin Islands (“BVI”) on February 11,1994. The Fund is registered in the Territory of the BritishVirgin Islands as a “Professional Fund” as that term is defined inthe British Virgin Islands Mutual Funds Act (1996), as amendedby the Mutual Fund Amendment Act (1997).

Offering. The Fund is offering USD Class Participating CommonShares (the “USD Shares”) at a net price per USD Share equal tothe Net Asset Value (as defined herein) of the USD Shares.

The Fund is now offering, through this Memorandum, USDParticipating Common Shares (the “USD Shares”) at a net priceper USD Share equal to the Net Asset Value (as defined herein)of the USD Shares. As of December 31, 2007, the audited NetAsset Value per Share of the USD Shares was U.S.$421.37 andthere were 6,429,431 Shares outstanding. See “SHARES OFTHE FUND” and “DETERMINATION OF NET ASSETVALUE.” The Fund may discontinue this offering at any timefor any reason or no reason. Investors are referred to herein as“Shareholders.”

Board of Directors. The Fund has three (3) Directors on itsBoard of Directors (the “Board”) who exercise ultimate authorityover the Fund. The Directors meet quarterly, either in person orby telephone, to review the investment and administrative affairsof the Fund. See “MANAGEMENT - The Fund’s Board ofDirectors.”

Other Classes. The Fund is authorized to issue other classes ofshares subject to terms and conditions that may differ from theterms and conditions applicable to the Shares discussed herein atany time without notice to or obtaining consent from theShareholders. No offering of any other class is made by thisMemorandum. There are no other classes on offer at the presenttime.


i


INVESTMENT OBJECTIVE

AND PROCESS

Objective: The Fund’s investment objective is long-term capitalappreciation.

Stock/Options Trading. The Fund seeks to obtain capitalappreciation of its assets through the utilization of a non-traditional stock/options trading strategy. The Fund is designedfor long term investment. See “THE FUND – The Fund’sInvestment Objective and Investment Process.”

Leverage. The Fund may employ leverage for investmentpurposes or to fund redemptions.

INVESTMENT ADVISOR The Fund’s assets are managed by a New York based NASD*

registered broker-dealer employing approximately 350 peopleand acting primarily as a market-maker in listed and unlistedstocks and convertible securities (the “Investment Advisor”).The Investment Advisor utilizes a “split strike conversion”options strategy consistent with that of the Fund, as set forthunder “THE FUND – The Fund’s Investment Objective andInvestment Process.” The Investment Advisor has managed theassets of the Fund since its inception and it is anticipated that theretention of such Investment Advisor will continue. In addition,from time to time, a portion of the Funds’ assets may bemanaged by the Manager (as defined herein). See“MANAGEMENT - The Investment Advisor.”

PAST PERFORMANCE There can be no assurance that the Manager or the InvestmentAdvisor will continue to be successful in pursuing the Fund’sinvestment objective or that their strategy will continue to beprofitable. Past results of the Manager, the Investment Advisor,or their respective principals and affiliates, are not necessarilyindicative of the future favorable performance of the Fund.

MANAGER Kingate Management Limited, a company duly incorporatedunder the laws of Bermuda on February 24, 1994 (the“Manager”) is the Manager of the Fund. The Manager actspursuant to a Manager Agreement effective January 1, 2006, byand between the Fund and the Manager (herein the “ManagerAgreement”). Pursuant to the Manager Agreement, the Managerevaluates and monitors the Investment Advisor and, in general,provides all necessary management services to the Fund. TheManager may also manage directly the investment of a portion ofthe Fund’s assets. See “MANAGEMENT - The Manager.”

CONSULTANT FIM Advisers LLP, located in London, United Kingdom (hereinthe “Consultant”), has been appointed as consultant to theManager in relation to the investments of the Fund pursuant to aConsulting Services Agreement by and among the Fund, the

* The term NASD” refers to the U.S. National Association of Securities Dealers, Inc. Kingate Global Fund, Ltd. – VSD Shares

ii


Manager and the Consultant dated August 1, 2005 (the “FIMConsulting Services Agreement”). Pursuant to the FIMConsulting Services Agreement, the Consultant rendersconsulting advice to the Manager with respect to certain aspectsof the Fund’s operational, administrative, marketing, accountingand legal matters. See “MANAGEMENT - The Consultant.”

ADMINISTRATOR Citi Hedge Fund Services, Ltd., (formerly BISYS Hedge FundServices, Limited) , located in Bermuda (herein the“Administrator”) is the Fund’s Administrator pursuant to anAdministration Agreement, as amended and restated effectiveJune 1, 2007, by and among the Fund, the Manager and theAdministrator (herein the “Administration Agreement”).Pursuant to the Administration Agreement, the Administratoradministers the day-to-day activities of the Fund’s operations,which include, without limitation, receiving subscriptions andprocessing redemption requests, calculating the Net Asset Value,responding to shareholder inquiries and similar matters. Inaddition to its administrative duties, an affiliate of theAdministrator has been appointed as Registrar and TransferAgent of the USD Shares pursuant to a Registrar Agreement, asamended and restated effective January 1, 2002, by and amongthe Fund, the Manager and the Administrator (herein the“Registrar Agreement”). See “MANAGEMENT -Administrator.”

BANKING AND CUSTODY The Bank of Bermuda Limited (the “Bank”), based in Hamilton,Bermuda, has been appointed as the Fund’s banker for purposesof receiving subscription funds, disbursing redemption paymentsand processing cash transactions not directly related to theFund’s investment portfolio. Additionally, the assets of the Fundrepresented by the USD Shares (the “USD assets”) are held inthe custody of the Bank pursuant to a Custodian Agreement,dated as of May 1, 2000 by and among the Fund, the Managerand the Bank (herein the Custodian Agreement). The Bank doesnot provide custodian services for assets held with sub-custodians or with regard to assets maintained at the InvestmentAdvisor. See “MANAGEMENT - Banking and Custody.”

SUBSCRIPTIONS Price of Subscription. The USD Shares may be purchased byEligible Investors (as defined herein) as of the first Business Day(as defined below) of the month (herein the “Subscription Date”)at a price equal to the Net Asset Value per USD Share as of thelast Business Day of the immediately preceding calendar month(the “Valuation Date) plus any applicable subscription charges.“Business Day” refers to any day when the central bankingsystems of the U.S. and Bermuda are open and operating. See“Subscription Charge” below.

Minimum Subscription. The minimum initial investment persubscriber is U.S.$250,000. The minimum subsequent


iii


investment per subscriber is U.S.$100,000. Such amounts maybe waived or reduced at the discretion of the Directors.

Procedure. Completed Subscription Forms must be received bythe Administrator by the Business Day prior to the first BusinessDay of the month in which prospective investors wish tosubscribe for Shares and cleared funds must be received by theBank at the latest by the Subscription Date. All subscriptions arerequired to be made in U.S. Dollars. Fractional Shares are notissued and refunds of subscription funds are made only if thesurplus amount (corresponding to non-issued fractional Shares)is in excess of U.S.$450. The Fund reserves the right to acceptor reject any subscription in its absolute discretion. TheManager, in its sole discretion, may permit subscriptions onother than the first Business Day of a month.

Subscription Charge. A sales charge of up to five percent (5%)of the amount invested is payable on subscription of the USDShares, but such charge may be waived in whole or in part at thesole discretion of the Manager. The Manager may grant all orpart of such charge to dealers and independent third parties inconnection with the solicitation of subscriptions.

U.S. Tax Exempt Investors. U.S. tax exempt investors wishing tosubscribe should request a U.S. Supplemental DisclosureStatement and follow the additional procedures set forth therein.

ELIGIBLE INVESTORS The Shares may be purchased only by “Eligible Investors,” asdescribed herein, except in a limited number of cases and thenonly after supplementary offering materials have beendistributed to such potential investors (such as, withoutlimitation, U.S. tax-exempt investors). Persons interested inpurchasing Shares should inform themselves as to the legalrequirements within their own countries for the purchase ofShares and any foreign exchange restrictions with which theymust comply. A limited number of Shares may be sold to U.S.investors and then only in a limited number of cases. See“SUBSCRIPTIONS AND REDEMPTIONS-Eligible Investors.”

NET ASSET VALUE Generally. The Net Asset Value of the Fund is equal to theFund’s assets less the Fund’s liabilities and any accrued butunpaid expenses and reasonable reserves that have not yet beencharged. Each Class of Shares and, with respect to the USDShares, each Series thereof has its respective Net Asset Valuedetermined in accordance with the foregoing and based upon theassets and liabilities attributable to the particular Class or Series,as the case may be. Expenses, fees and other liabilities aredetermined in accordance with U.S. Generally AcceptedAccounting Principles. The Net Asset Values are calculated asof the close of business in New York on the last Business Day ofeach month or on such other date when such computation is


iv


necessary or appropriate (each a “Valuation Date”). See“DETERMINATION OF NET ASSET VALUE.”

CERTAIN US REGULATORYMATTERS The Fund is not registered as an investment company and

therefore is not required to adhere to certain investment policiesunder the U.S. Investment Company Act of 1940, as amended(the “Company Act”). In addition, neither the Manager nor theInvestment Advisor is registered as an investment adviser underthe Investment Advisers Act of 1940, as amended (the “AdvisersAct”). This Memorandum may be amended by the Fund withoutfurther notice to the Shareholders so as to comply with any rule,regulation or statute.

REDEMPTIONS Generally. Redemptions may be made as of the last BusinessDay of each calendar month (herein the “Redemption Date”)upon thirty-five (35) days’ prior notice, at the Net Asset Value asof the Redemption Date. Settlements are generally made withinthirty (30) days after the Redemption Date. In circumstanceswhere the Fund is unable to liquidate securities positions in anorderly manner in order to fund redemptions or where the valueof the assets of the Fund cannot reasonably be determined, theFund may take longer than thirty (30) days to effect settlementsof redemptions or may even suspend redemptions. The noticerequirement may be waived by the Fund in its discretion. Theredemption request is irrevocable unless the Fund consents to itswithdrawal. See “SUBSCRIPTIONS AND REDEMPTIONS.”

Redemption Charge. Generally, no redemption charge isimposed. However, a redemption charge not to exceed onepercent (1.0%) of the proceeds (waivable in whole or in part atthe sole discretion of the Manager in exceptional circumstances)may be imposed on the redemption of Shares which are held forless than twelve (12) months from the Subscription Date.

TRANSFERS No transfer of Shares may be made other than with the consentof the Directors, which consent may be withheld at the discretionof the Directors without the need for assigning any reasontherefor. For the avoidance of doubt, transfers will not beapproved unless the proposed transfer includes all legal,economic and beneficial rights to the Shares. As part of thetransfer process, the proposed transferee is required to completethe subscription documents and make the representationsrequired of all other investors. Shareholders requesting transferof their Shares must submit a completed Transfer Request Form(available from the Administrator on request) to the Fund and theAdministrator. Note that in the event that the Shareholder is anentity or acts as nominee for others, certain additionalinformation will be required. No transfer will be valid without acompleted Transfer Request Form and the express consent of theDirectors.

Kingate Global Fund, Ltd. – VSD Shares

v


DISTRIBUTIONS It is the present intention of the Directors not to distribute netincome by way of dividends. Accordingly, net incomeeffectively will be represented in the value of the Shares. TheDirectors reserve the right to change such policy.

FEES AND EXPENSES Manager. The Manager receives a monthly fee from the Fund atan aggregate annual rate equal to approximately one and one-half percent (1.50%) of the Fund’s month-end Net Asset Valueattributable to the USD Shares (the “Management Fee”), payablepursuant to the Manager Agreement. Appropriate adjustmentsare made to account for subscriptions and redemptions whichmay occur during the month.

Investment Advisor. The Investment Advisor does not chargeany fees for managing the assets of the USD Shares. Its sourceof compensation is derived from the market making activity ofits affiliated broker-dealer.

Administrator. For its administrative duties, the Administratorreceives fees as negotiated from time to time consistent with itscustomary charges for providing administrative services to theFund.

Consultant. The Consultant is paid by the Manager for itsservices at no additional cost to the Fund.

Custodian. Pursuant to the Custodian Agreement, the Bankreceives a custodian services fee comprised of (i) an annualsafekeeping charge equal to ten basis points (.10%) of the grossasset value of the Fund, subject to a maximum annual custodianfee of $25,000; and (ii) the right to recover all sub-custodiancharges which are charged directly to the Fund. The Bank isentitled to reimbursement of actual out-of-pocket expenses.

Operations. The Fund bears all other costs of its investmentprogram (including brokerage and custody charges, interest andtaxes) as well as professional fees of its auditors and attorneys.Expenses relating to the offering of the USD Shares are borne bythe USD shareholders and paid out of the proceeds of thisoffering. The USD Shares’ organizational costs are beingamortized and are not considered material.

Directors’ Fees. Each Director who is not an officer oremployee of the Manager, the Administrator or relatedcompanies, receives a flat annual fee for serving in suchcapacity. The fee may vary from time to time but will be inaccordance with reasonable and customary directors’ fees. TheDirectors shall be entitled for reimbursement from the Fund forreasonable out-of-pocket expenses incurred by them on behalf ofthe Fund.


vi


RISK FACTORS Investment in the Fund is speculative and involves a high degreeof risk. Past performance of the Manager or of the InvestmentAdvisor is no guarantee of future performance. There is noassurance that the Fund will be profitable. The risks of aninvestment in the Fund include, but are not limited to, thespeculative nature of the Fund’s strategies and the charges thatthe Fund will incur regardless of whether any profits are earned.Moreover, each USD Shareholder, and not the Fund, bears therisk of any foreign currency exposure resulting from differences,if any, in the value of the U.S. Dollar relative to the currency ofthe country in which such Shareholder resides. See “CERTAINRISK FACTORS.”

CONFLICTS OF INTEREST The Fund is also subject to certain conflicts of interest. TheInvestment Advisor or the Manager may directly or indirectlymanage the assets of funds that in some respects compete withthe Fund for certain investments. See “POTENTIALCONFLICTS OF INTEREST.”

LISTING The Fund may seek to list the Shares on the Irish StockExchange or a similar securities exchange, at the sole discretionof the Board and without the consent of the Shareholders.

REPORTING Shareholders will receive from the Fund annual audited financialstatements within a reasonable time after the Fund’s fiscal year-end. In addition, Shareholders will receive from theAdministrator monthly reports relating to the Fund’sperformance. Net Asset Value quotations are also publishedweekly (estimated to the extent required) in the InternationalHerald Tribune, Financial Times, Bloomberg and Telekurs.

FISCAL YEAR The Fund’s fiscal year-end is December 31 st.

TAX STATUS The Fund should not be subject to any BVI or U.S. income taxes(other than U.S. withholding taxes on dividend or certain interestincome, if any, derived from U.S. sources.) Shareholders of theFund who are not otherwise subject to BVI or U.S. taxation byreason of their residence, nationality or other particularcircumstances should not become subject to any such taxation byreason of the ownership or redemption of the USD Shares.Prospective investors should inform themselves as to the taxconsequences, if any, in their own countries, which might berelevant to the purchase, holding, repurchase, redemption ortransfer of the USD Shares.

CERTAIN ERISA CONSIDERATIONS Investment in the Fund generally will be open to employeebenefit plans and other funds subject to ERISA and/or Section4975 of the Code. Except as described below under “CERTAINRISK FACTORS – Compliance with ERISA TransferRestrictions,” the Fund intends to use commercially reasonableefforts to cause “benefit plan investors” not to own a significant


vii


portion of any class of shares in the Fund, so that the assets ofthe Fund should not be considered to be “plan assets” forpurposes of ERISA and Section 4975 of the Code, although therecan be no assurance that non “plan asset” status will be obtainedor maintained. Prospective purchases and subsequent transfereesof Shares in the Fund may be required to make certainrepresentations regarding the compliance with ERISA andSection 4975 of the Code. See “CERTAIN ERISACONSIDERATIONS.”

FUNCTIONAL CURRENCY The Fund’s functional currency, i.e., the currency in which itmaintains its books and records, its financial statements andinvests its assets, is the U.S. Dollar.

PRIVACY NOTICE Any and all nonpublic personal information received by theFund, the Manager and/or the Investment Advisor with respectto the Shareholders who are natural persons, including theinformation provided to the Fund by the Shareholder in thesubscription documents, will not be shared with nonaffiliatedthird parties which are not service providers to the Fund, theManager and/or the Investment Advisor without prior notice tosuch Shareholders. Service providers that may receive suchnonpublic information include but are not limited to theAdministrator, the auditors and the legal advisors of the Fund.Additionally, the Fund, the Manager and/or the InvestmentAdvisor may disclose such nonpublic personal information asrequired by law or regulation, including without limitation, anydisclosure that may be required by the Uniting andStrengthening America by Providing Appropriate ToolsRequired to Intercept and Obstruct Terrorism (USA PATRIOT)Act of 2001 and any relevant British Virgin Islands anti-moneylaundering laws and regulations. See the exhibit to theSubscription Agreement entitled “Privacy Notice.”


viii


DIRECTORY

Fund’s Kingate Global Fund, Ltd. Telephone: (+ 1-284) 494-5239Registered c/o Bison Financial Services Limited Telecopier: (+ 1-284) 494-6728Office Bison Court

P.O. Box 3460Road Town, TortolaBritish Virgin Islands

Fund’s Mr. Christopher WetherhillDirectors Mr. John E. Epps

Mr. Graham H. Cook

Manager Kingate Management Limited Telephone: (+ 1-441) 296-288899 Front Street Telecopier: (+ 1-441) 296-6775Hamilton HM1 1, Bermuda E-mail: [email protected].: Mr. Christopher Wetherhill

Ms. Patra Philipps

Administrator Citi Hedge Fund Services, Ltd Telephone: (+ 1-441) 295-91669 Church Street Telecopier: (+ 1-441) 296-8227P.O. Box HM 951Hamilton, Bermuda HM DXAttn.: Investor Services Unit

Consultant FIM Advisers LLP Telephone: (+ 44-20) 7389-890020 St. James St. Telecopier: (+ 44-20) 7389-8911London SW1A1ES E-mail: [email protected] KingdomAttn.: Mr. Carlo Grosso

Mr. Federico M. Ceretti

Bank The Bank of Bermuda Limited Telephone: (+ 1-441) 299-50716 Front Street Telecopier: (+ 1-441) 299-6565P.O. Box HM 1020 Email:[email protected] HM 11, BermudaAttn.: Ms. Chandra Arandjelovic

Auditors PricewaterhouseCoopers Telephone: (+ 1-441) 295-2000Dorchester House Telecopier: (+ 1-441) 295-12427 Church StreetHamilton HM1 1, BermudaAttn.: Mr. Andrew BrookEmail:[email protected]


ix


Legal Advisors In the British Virgin Islands:

O’Neal Webster O’Neal Telephone: (+ 1-284) 494-580830 DeCastro Street Telecopier: (+ 1-284) 494-5811Road Town, Tortola Email: [email protected] Virgin IslandsAttn: Barbara O’Neal, Esq.

In the United States

Tannenbaum, Helpern, Telephone: (+ 1-212) 508-6701Syracuse & Hirschtritt LLP Telecopier: (+ 1-212) 355-3034900 Third Avenue E-mail: [email protected] York, N.Y. 10022U.S.A.Attn.: Michael G. Tannenbaum, Esq.


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Table of Contents

Page

Summary i

Directory ix

The Fund 1

Investment Objective and Process 2Investment Objective 2Investment Process 2Temporary Investments 3Investment Restrictions 3Borrowing and Lending 3Transaction Execution 3Distributions and Reinvestment 3

Certain Risk Factors 4Operating History 4Achievement of Investment Objective 4Illiquidity of Investment 4Dependence on the Manager 4Dependence on the Investment Advisor 5General Economic Conditions 5Market Risks 5Trading Strategies of the Investment Advisor 5Special Techniques Used by the Investment Advisor 5Concentration 7Regulation 7No Manager Liability Beyond Fund Assets 8Shortened Claims Period 8Litigation 8Early Termination 8Effect of Substantial Withdrawals 8Possibility of Fraud or Misappropriation 9Changes in Applicable Law 9Reserve for Contingent Liabilities 9Certain Conflicts of Interest 9Other Clients of Investment Advisor 9Common Counsel 9Lack of Independent Experts Representing Investors 10Institutional Risk 10Settlements 10Pricing Information 10Anti-Money Laundering 11Compliance with ERISA Transfer Restrictions 11


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Management 11The Fund’s Board of Directors 11The Manager 12The Investment Advisor 14The Consultant 14The Administrator 15Banking and Custody 15Voting Rights of Shareholders 16

Fees and Expenses 16Organization Costs 16Fees of the Manager 17Fees of the Investment Advisor 17Fees of the Consultant 17Fees of the Administrator 17Fees of the Bank 17Other Operating Expenses 17

Subscriptions and Redemptions 18Subscriptions 18Anti Money Laundering 19Eligible Investors 20Redemptions 21

Determination of Net Asset Value 23

Potential Conflicts of Interest 24

Taxation 25Introduction 25The Fund 25E.U. Savings Directive 27

CERTAIN ERISA CONSIDERATIONS 29

Additional Information 32Reports to Shareholders 32Available Documents 32Auditor’s Consent 32Counsel 32Inquiries and Communication with the Fund 33


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Subscription Instructions S-1Subscription Agreement S-4Exhibit A: Form of Incumbency Certificate S-18Exhibit B: AML Certification Form for Fund of Funds or Entities that invest on behalf of 3 rd Parties S-20Exhibit C: Form Letter of Reference S-21Exhibit D: Beneficial Ownership Information S-22Exhibit E: Trust Ownership Information S-23Redemption Request S-24Transfer Request Form S-27Additional Subscription Agreement S-29Exhibit I: Sample Letter for Approved Transfers S-31Exhibit J: Privacy Notice S-32


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KINGATE GLOBAL FUND, LTD. I

THE FUND

KINGATE GLOBAL FUND, LTD. (the “Fund”) is an open-end investment company organizedas an international business company in the British Virgin Islands (“BVI”). The Fund seeks long-termcapital growth by allocating USD Share capital to a selected investment advisor to execute the Fund’sInvestment Objective and Process as set forth herein. See “INVESTMENT OBJECTIVE ANDPROCESS.”

The Fund was established and commenced operations during 1994. USD Shares were initiallyoffered on March 1, 1995 and the Net Asset Value (as defined herein) attributable to USD Shares as ofMarch 31, 2007 was U.S.$395.74. The same investment advisor (“Investment Advisor”) has managed theFund’s assets from inception. See “MANAGEMENT.” The Fund’s authorized capital is US$300,000consisting of 30,000,000 common shares, 15,000,000 of which have been designated as USD Shares. TheFund is a “Professional Fund” as that term is defined in the British Virgin Islands Mutual Funds Act(1996), as amended by the Mutual Fund Amendment Act (1997).

The USD Shares offered hereby are privately placed at Net Asset Value per Share plus anyapplicable subscription fee. See “SUBSCRIPTIONS AND REDEMPTIONS.” The net proceeds of theoffering are invested in accordance with the policies set forth under “INVESTMENT OBJECTIVE ANDPROCESS.” The Fund, without limitation, may hold cash or invest in cash equivalents for short-terminvestments. †

No offering other than USD Shares is made by this Amended and Restated InformationMemorandum dated as of 6 October, 2008, as may be further amended and restated (the “Memorandum”).Accordingly, all references in the Memorandum shall be deemed to refer to USD Shares. Theinformation in this Memorandum is qualified in its entirety by the Fund’s memorandum and articles ofassociation (the “Memorandum and Articles of Association”) and operative agreements, all which areavailable on request to the Administrator.

The Fund presently has outstanding other classes of common shares which may be issuedpursuant to separate offerings. The Fund has reserved the right to issue additional classes of shares fromtime to time, which in the Fund’s discretion, may have preferences and fee arrangements which differfrom those relating to the existing classes of shares, in order to meet the needs of, for example, certaininstitutional investors or investors facing different tax or foreign exchange requirements. Any increasedadministrative charges by virtue of such new classes will be borne by shareholders of such classes only.Additional classes may be issued by the Fund without consent of or notice to the Shareholders.

An investment in the Fund is subject to certain risks (see “CERTAIN RISK FACTORS”) andcertain conflicts of interest. See “POTENTIAL CONFLICTS OF INTEREST.”

† Among the cash equivalents in which the Fund may invest are: obligations of the U.S. Government, its agencies orinstrumentalities (U.S. Government Securities; U.S. Treasury Bills); commercial paper; and repurchase agreements, moneymarket mutual funds, certificates of deposit and bankers’ acceptances issued by domestic branches of U.S. banks that aremembers of the Federal Deposit Insurance Corporation. Kingate Global Fund, Ltd. – USD Shares

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INVESTMENT OBJECTIVE AND PROCESS

Investment Objective

The Fund’s investment objective is long-term capital appreciation. The Fund seeks to obtaincapital appreciation of its assets through the utilization of a non-traditional stock/options trading strategy.In attempting to achieve its objective, the Fund has established a discretionary account with theInvestment Advisor (as defined herein) who is based in the United States and who invests or trades in awide range of equity securities, and, to a lesser extent, other securities and derivatives. In certaininstances and at certain times, the Manager (as defined herein) may directly invest certain of the Fund’sassets, rather than allocating such assets to the Investment Advisor as may be consistent with, and infurtherance of, the Fund’s investment objective. All investments involve investment risk and may resultin losses instead of gains, as the achievement of the Fund’s investment objective cannot be assured. See“CERTAIN RISK FACTORS.”

Investment Process

The Investment Advisor invests primarily in the United States and utilizes a non-traditionalinvestment strategy that is a variation of the traditional “option conversion” strategies (generallyconsisting of the purchasing of equity shares, the selling of related options representing a number ofunderlying shares equal to the number of shares purchased, and the buying of related put optionsrepresenting the same number of underlying shares.) The strategy utilized by the Fund’s InvestmentAdvisor is called “split-strike conversion” and entails:

(i) purchasing a basket of forty-five (45) to fifty (50) large-capitalization S&P 100 stocks(e.g., General Electric, Microsoft, Pfizer, Exxon Mobil, Wal-Mart Stores, Citigroup, Intel, AmericanInternational, IBM, Johnson & Johnson, etc.), which together account for the greatest weight of the Indexand therefore, when combined, present a high degree of correlation with the general market;

(ii) selling out-of-the money S&P 100 Index call options representing a dollar amount of theunderlying Index equivalent to the dollar amount of the basket of shares purchased;

(iii) purchasing out-of-the-money or at-the-money S&P Index put options in the same dollaramount.

The strategy aims to limit losses when stock prices decline while still affording an upsidepotential that is capped to the strike price of the short call when stock prices rise. The long put/short callposition constitutes a “synthetic” short of the market, which provides a hedge against the long stockpositions. Proprietary systems continuously optimize the basket of stocks to replicate the performance ofthe overall market at low cost. Put and call option positions are actively managed as strike prices andmaturities are adjusted in response to relative valuations and general market movements.


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Temporary Investments

Pending investment of capital of the Fund in accordance with the Fund’s Investment Objectiveand Process, or to facilitate withdrawals of capital by USD Shareholders as permitted by thisMemorandum, the Fund may, among other things, hold cash or invest in cash equivalents. Among thecash equivalents in which the Fund may invest are: obligations of the United States Government, itsagencies or instrumentalities, commercial paper, and certificates of deposit and bankers’ acceptancesissued by United States banks that are members of the Federal Deposit Insurance Corporation. The Fundmay also enter into repurchase agreements and may purchase shares of money market mutual funds inaccordance with applicable legal restrictions.

Investment Restrictions

The following investment restrictions of the Fund may not be changed without the approval of theShareholders holding at least 67% of the USD Shares: the Fund will not purchase real estate or interestsin real estate, except that the Fund may purchase and sell securities that are secured by real estate orinterests therein and may purchase securities issued by companies that invest or deal in real estate.

Borrowing and Lending

The Fund is authorized to borrow in order to fund redemption requests and to enhance itsinvestment leverage. There are no restrictions on the Fund’s borrowing capacity other than limitationsimposed by lenders and any applicable credit regulations. Loans generally may be obtained fromsecurities brokers and dealers or from other financial institutions; such loans are secured by securities orother assets of the Fund pledged to such brokers. Loans may also be made from or to other investmentcompanies on such terms as are commercially reasonable, including without limitation, from or toinvestment companies similar to the Fund, or from or to finance companies with respect to which theManager (or one or more affiliates) have an interest, either as sponsor, manager, administrator, owner orotherwise.

Transaction Execution

The Investment Advisor acts as a market-maker in the stocks purchased and sold by the USDportfolio, and acts as a principal in connection with its sales of securities to the USD portfolio and thepurchase of securities from the USD portfolio.

The options transactions executed for the benefit of the USD portfolio are effected primarily inthe over-the-counter market, not on a registered options exchange. See “POTENTIAL CONFLICTS OFINTEREST” and “CERTAIN RISK FACTORS”.

Distributions and Reinvestment

The Fund does not expect to declare and/or pay dividends or make any other distributions toShareholders out of the Fund’s current earnings and profits. Rather, the Fund will reinvest such income.Potential investors should keep this limitation in mind when determining whether or not an investment inthe Fund is suitable for their particular purposes. The Fund reserves the right to change such policy. TheManager is solely responsible for ensuring compliance by the Fund with all investment objectives,investment guidelines and investment restrictions contained in this Memorandum.


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CERTAIN RISK FACTORS

Prospective investors should give careful consideration to the following risk factors in evaluatingthe merits and suitability of an investment in the Fund as they relate specifically to the USD Shares or tothe Fund, in general, as the context requires. The following does not purport to be an adequate summaryof all the risks associated with an investment in the USD Shares of the Fund. Rather, the following areonly certain particular risks to which the Fund is subject that the Manager wishes to encourageprospective investors to discuss in detail with their professional advisors.

Operating History

The Fund commenced operations with respect to USD Shares on March 1, 1995 and as such hasan operating history with regard to such Shares since such date. There can be no assurance that futurereturns will be similar to returns achieved since inception to date.

Achievement of Investment Objective

There can be no assurance that the Fund will continue to achieve its investment objective or thatthe Manager or the Investment Advisor will continue to succeed in achieving the Fund’s investmentobjective. Given the factors which are described below, and due to the fact that an investment in the Fundentails a high degree of risk, there exists a possibility that an investor could suffer a substantial loss as aresult of an investment in the Fund.

Illiquidity of Investment

There is no market for the USD Shares of the Fund and, accordingly, investments in the USDShares of the Fund may be disposed of only through the redemption procedures described elsewhere inthis Information Memorandum.

The consent of the Manager must be obtained prior to any transfer of USD Shares. In light of therestrictions imposed on a transfer of USD Shares, and in light of the limitations imposed on a USDShareholder’s ability to withdraw all or part of his or its capital from the Fund, an investment in the Fundshould be viewed as illiquid and subject to risk.

Dependence on the Manager

All decisions with respect to the general management of the Fund are made by the Manager, whohas complete authority and discretion in the management and control of the business of the Fund,including the authority to delegate all investment management activities to the selected InvestmentAdvisor. USD Shareholders will have no right or power to take part in the management of the Fund, norin any decision with regard to the allocation of management of the Fund’s assets to the selectedInvestment Advisor. As a result, the success of the Fund for the foreseeable future will depend largelyupon the ability of the Manager, and no person should invest in the Fund unless willing to entrust allaspects of the management of the Fund to the Manager, having evaluated its capability to perform suchfunctions.


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The USD Shareholders have certain limited rights to consent as set forth in this Memorandumbut do not have any authority or power to act for or bind the Fund.

Dependence on the Investment Advisor

The Manager has delegated all investment management duties with regard to USD Shares to theInvestment Advisor. As a result, the success of the Fund for the foreseeable future will depend on theability of the Investment Advisor to achieve the Fund’s investment objective. Neither the Manager norUSD Shareholders have any control over the investment and trading decisions of the Investment Advisor,and no person should invest in the Fund unless willing to entrust all aspects of the investmentmanagement of the Fund to the selected Investment Advisor, having evaluated its capability to performsuch functions.

General Economic Conditions

The success of any investment activity is influenced by general economic conditions, which mayaffect the level and volatility of interest rates and the extent and timing of investor participation in themarkets for both equity and interest-rate-sensitive securities. Unexpected volatility or illiquidity in themarkets in which the Fund directly or indirectly holds positions could impair the Fund’s ability to carryout its business and could cause it to incur losses.

Market Risks

The success of a significant portion of the Fund’s investment program depends, to a great extent,upon correctly assessing the future course of price movements of stocks, bonds and other securities.There can be no assurance that the Investment Advisor will be able to predict accurately these pricemovements.

Trading Strategies of the Investment Advisor

The Fund is a single-advisor fund and the overall success of the Fund depends upon the ability ofthe Investment Advisor to be successful in its own strategy. The past performance of such strategy orstrategies is not necessarily indicative of its or their future profitability, and no strategy can consistentlydetermine which security to purchase or sell at a profit. Any factor which would make it more difficult toexecute more timely trades, such as, without limitation, a significant lessening of liquidity in a particularmarket, changes in taxation or regulation, interest rate changes, would also be detrimental to profitability.Further, the Investment Advisor may modify its strategy from time to time in an attempt to evaluatemarket movements more favourably. As a result of such periodic modifications, it is possible that thestrategy used by such Investment Advisor in the future may be different from those presently in use. Noassurance can be given that the strategy to be used by the Investment Advisor will be successful under allor any market conditions. In addition, it is not known what effect, if any, the size of the Fund’s accountor the increase in total funds being managed by the Investment Advisor will have on the performance ofthe Investment Advisor’s trading methods.

Special Techniques Used by the Investment Advisor

The Investment Advisor uses special investment techniques that may subject the Fund’sinvestments to certain risks. Certain, but not all, of these techniques and the risks that they entail aresummarized below. The Fund, in any event, is not designed to correlate to the broad equity market, andshould not be viewed as a substitute for equity investments. Kingate Global Fund, Ltd. – USD Shares

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Risk of Lack of Independent Data. The Investment Advisor’s strategy, involving split strikeconversions, is a unique investment program, and is often not well followed by the Wall Streetcommunity. Accordingly, there is very little independent data available to assist a prospective investor inhis analysis of the Fund.

Risks of Transactions Executions. The Investment Advisor, in its role as a market-maker, tradeswith the USD portfolio as a principal. As a result, the portfolio is subject to credit risks (the exposure tothe possibility of loss resulting from a counterparty’s failure to meet its financial obligations).

Risks of Market Illiquidity. Despite the heavy volume of trading in securities, the markets forsome securities have limited liquidity and depth. The lack of depth could be a disadvantage to the Fund,both in the realization of the prices which are quoted and in the execution of orders at desired prices.

Risks of Arbitrage Transactions. The success of arbitrage strategies depends often on the abilityto execute two or more simultaneous transactions at desired prices. Should such transactions not beexecuted simultaneously at the desired prices, losses may be incurred on both sides of the transaction.Additionally, separate costs are incurred on both sides of an arbitrage transaction, and substantialfavorable price moves may be required before a profit can be realized.

Risks of Options Trading. In seeking to enhance performance or hedge assets, the InvestmentAdvisor may purchase and sell call and put options on stock indexes. A stock index measures themovement of a certain group of stocks by assigning relative values to the common stocks included in theindex. Examples of well-known stock indexes are the Standard & Poor’s Composite Index of 500 Stocksand the Standard & Poor’s 100 Index. Both the purchasing and the selling of call and put options containrisks. Although an option buyer’s risk is limited to the amount of the purchase price of the option, aninvestment in an option may be subject to greater fluctuation than an investment in the underlyingsecurities. In theory, the exposure to loss is potentially unlimited in the case of an uncovered call writer(i.e. a call writer who does not have and maintain during the term of the call an equivalent long positionin the stock or other security underlying the call), but in practice the loss is limited by the term ofexistence of the call. The risk for a writer of an uncovered put option (i.e., a put option written by a writerthat does not have and maintain an offsetting short position in the underlying stock or other security) isthat the price of the underlying security may fall below the exercise price. The effectiveness ofpurchasing or selling stock index options as a hedging technique will depend upon the extent to whichprice movements in assets that are hedged correlate with price movements of the stock index selected.Because the value of an index option depends upon movement in the level of the index rather than theprice of a particular stock, whether a gain or loss will be realized from the purchase or writing of optionson an index depends upon movements in the level of stock prices in the stock market generally, ratherthan movements in the price of a particular stock. Successful use of options on stock indexes will dependupon the ability of the Investment Advisor to predict correctly movements in the direction of the stockmarket generally. This ability requires skills and techniques different from those used in predictingchanges in the price of individual stocks.

Risks of Over-the-Counter Options Trading. The Investment Advisor may execute optionstransactions in the over-the-counter market. Trading equity and options in the over-the-counter market issubject to counterparty risk and is without the protection afforded with respect to options transactions onregulated exchanges through the Options Clearing Corporation.

Risks of Loss of Entire Options Investment. An option is a wasting asset. Its value is reduced asits life shortens, and it becomes worthless upon expiry. As a consequence, an option buyer that does not Kingate Global Fund, Ltd. – USD Shares

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sell an option in the secondary market prior to expiry nor exercises an option prior to expiry loses hisentire investment in the option.

Risks of Assignment of Options. In the event a short option position is assigned by its buyer, ahedged options position becomes net long or net short. Although the remaining portion of the previouslyhedged position may be liquidated or otherwise adjusted to limit exposure to price changes, substantiallosses may result if, for instance, a trading halt occurs in the remaining options position (either in theoption or the underlying security) followed by a price gap at the reopening of trading.

Risks of Prohibition of Exercise Rights. The options markets have the authority to prohibit theexercise of particular options. If a prohibition on exercise is imposed at a time when trading in the optionis halted, holders and writers of that option will be locked into their position until one of the tworestrictions is lifted.

Concentration

There is no requirement that investments of the Fund be diversified.

Regulation

The Manager is not registered with the U.S. Securities and Exchange Commission as a registeredinvestment adviser under the U.S. Investment Advisers Act of 1940, as amended, and investors, therefore,are not accorded the protective measures provided by such legislation.

The Fund is not registered as an investment company under the U.S. Company Act or any similarlegislation in any jurisdiction. Investors, therefore, will not be accorded the protective measures providedby such legislation.

Registered investment companies are required, under applicable U.S. Securities ExchangeCommission forms relating to the registration of their interests, to state definitive policies with respect tocertain enumerated types of activities, some of which may not be changed without security holderapproval. Such policies are considered to be “fundamental” policies with respect to such securitiesinvestments (i.e., policies which the registered investment company deems to be fundamental or policieswhich may not be changed without the approval of a majority of the registered investment company’ssecurity holders). The following discussion summarizes the Fund’s currently anticipated policies withrespect to such activities.

Type of Securities in which the Fund May Invest. As set out in this Memorandum and asgenerally authorized by the Memorandum and Articles of Association, the Fund may invest in securitiesand other business interests of any and all types and descriptions, including “restricted” securities. TheFund may buy or write put and call options. Notwithstanding the foregoing, the Fund will not invest inreal estate without the consent of USD Shareholders holding 67% of the USD Shares.

Use of Leverage. The Fund may trade in securities on margin and may effect short sales. TheFund also may borrow, pledge, mortgage, lend or hypothecate securities or other assets.

Making of Loans. The Fund may make loans.

Underwriting of Securities and Other Issuers. The Fund will not underwrite securities of otherissuers in connection with the distribution of securities. Kingate Global Fund, Ltd. – USD Shares

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Concentration of Investments in Particular Industries or Companies. The Manager and theInvestment Advisor may concentrate investments in particular industries and, from time to time to a lesserextent, in particular companies. The Fund will not invest more than 20% of the value of its total assets insecurities of any one issuer (other than obligations of the U.S. government, certificates of deposits, timedeposits, short-term commercial paper, shares of money market funds and bankers’ acceptances). TheFund may not change these policies without the approval of USD Shareholders holding at least 67% ofthe USD Shares.

Policy with respect to Portfolio Turnover. The Fund has no definite policy with respect toportfolio turnover. The Fund may incur a significant turnover rate, since the Fund’s investment strategiessometimes may involve short-term considerations.

No Manager Liability Beyond Fund Assets

The Manager shall have no personal liability to the USD Shareholders for the return of anycapital contributions, it being understood that any such return shall be made solely from the Fund assets.

Shortened Claims Period

By subscribing for the Shares, the Shareholder is agreeing to shortening the period during whicha claim may be made against the Fund, the Manager or the Consultant with regard to any matter relatingto such Shareholder’s investment in the Fund.

Litigation

The Fund and the Manager, as independent legal entities, may be subject to lawsuits orproceedings by governmental entities or private parties. Except in the event of a lawsuit or proceedingarising from a Director’s or Manager’s gross negligence, willful default, or fraud in the performance of itsduties, expenses or liabilities of the Fund arising from any suit shall be borne by the Fund.

Early Termination

In the event of the early termination of the Fund, the Fund would have to distribute to the USDShareholders their pro rata interest in the assets of the Fund. The Manager can withdraw from the Fund atany time upon 6 months’ prior notice, and may thereby cause the dissolution of the Fund. The Managermay terminate the appointment of the Investment Advisor to manage the Fund’s assets and henceforthwithdraw assets from the Investment Advisor in the ordinary course. The Investment Advisor mayterminate the authority granted to it to manage the Fund’s assets at any time, and may return to the Fundall or part of the Fund’s assets henceforth managed by the Investment Advisor. Certain assets held by theFund may be highly illiquid and might have little or no marketable value. It is possible that at the time ofsuch sale or distribution, certain securities held by the Fund would be worth less than the initial cost ofsuch securities, resulting in a loss to the USD Shareholders.

Effect of Substantial Withdrawals

Substantial withdrawals by USD Shareholders within a short period of time could require theManager to liquidate positions more rapidly than would otherwise be desirable, which could adverselyaffect the value of the Fund’s assets. The resulting reduction in the Fund’s assets could make it moredifficult to generate a positive rate of return or to recoup losses due to a reduced equity base. Kingate Global Fund, Ltd. – USD Shares

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Possibility of Fraud or Misappropriation

Neither the Fund nor the Custodian has actual custody of the assets. Such actual custody restswith the Investment Advisor and its affiliated broker-dealer. Therefore, there is the risk that the custodiancould abscond with those assets. There is always the risk that the assets with the Investment Advisorcould be misappropriated. In addition, information supplied by the Investment Advisor may beinaccurate or even fraudulent. The Manager is entitled to rely on such information (provided they do soin good faith) and is not required to undertake any due diligence to confirm the accuracy thereof.

Changes in Applicable Law

The Fund and the Investment Advisor must comply with various legal requirements, includingrequirements imposed by the federal securities laws, tax laws and pension laws. Should any of those lawschange over the scheduled term of the Fund, the legal requirements to which the Fund, the USDShareholders, and the Investment Advisor may be subject could differ materially from currentrequirements.

Reserve for Contingent Liabilities

Under certain circumstances, the Manager may find it necessary upon a redemption by a USDShareholder to set up a reserve for contingent liabilities and withhold a certain portion of the USDShareholder’s redemption proceeds.

Certain Conflicts of Interest

An investment in the Fund constitutes the acceptance and acknowledgement of certain conflictsof interest (See “POTENTIAL CONFLICTS OF INTEREST”).

Other Clients of Investment Advisor

The Investment Advisor has responsibility for making trading decisions on behalf of the Fund. Inaddition, the Investment Advisor may also manage other accounts (including other partnerships andaccounts in which the Investment Advisor may have an interest) which together with accounts alreadybeing managed could increase the level of competition for the same trades the Fund might otherwisemake, including the priorities of order entry. This could make it difficult or impossible to take or liquidatea position in a particular security at a price indicated by an Investment Advisor’s strategy.

Common Counsel

Tannenbaum Helpern Syracuse & Hirschtritt LLP (“THSH”) acts as counsel to the Fund inconnection with this offering of Shares; THSH also acts as counsel to the Manager. In connection withthis offering of Shares and ongoing advice to the Fund, the Manager and their affiliates, THSH has notand will not be representing the Shareholders. No independent counsel has been retained to representthe Shareholders. THSH’s representation of the Fund, its Manager and their affiliates is limited tothose specific matters upon which it has been consulted. There may exist other matters which wouldhave a bearing on the Fund, its Manager and their affiliates upon which THSH has not been consulted.THSH does not undertake to monitor the compliance of the Fund, its Manager and their affiliates withthe investment program, valuation procedures and other guidelines set out herein, nor does it monitorcompliance with applicable laws. Additionally, in all cases, including the preparation of this Amended


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and Restated Information Memorandum, THSH relies upon information furnished to it by the Fund, itsManager and their affiliates, and does not investigate or verify the accuracy and completeness of suchinformation. In the course of advising the Fund, its Manager and their affiliates, there may be timeswhen the interests of the Manager may differ from those of the Shareholders. THSH does not representthe interests of the Shareholders in resolving such issues.

Lack of Independent Experts Representing Investors

The Manager has consulted with counsel, accountants and other experts regarding the formationof the Fund. Each prospective investor should consult his own legal, tax and financial advisors regardingthe desirability of an investment in the Fund.

Institutional Risk

The institutions, including brokerage firms and banks, with which the Fund (directly orindirectly) does business, or to which securities have been entrusted for custodial and prime brokeragepurposes, may encounter financial difficulties that impair the operational capabilities or the capitalposition of the Fund. Brokers may trade with an exchange as a principal on behalf of the Fund, in a“debtor-creditor” relationship, unlike other clearing broker relationships where the broker is merely afacilitator of the transaction. Such broker could, therefore, have title to all of the assets of the Fund (forexample, the transactions which the broker has entered into on behalf of the Fund as principal as well asthe margin payments which the Fund provides). In the event of such broker’s insolvency, the transactionswhich the broker has entered into as principal could default and the Fund’s assets could become part ofthe insolvent broker’s estate, to the detriment of the Fund. In this regard, Fund assets may be held in“street name” such that a default by the broker may cause Fund’s rights to be limited to that of anunsecured creditor.

Settlements

The Fund is not required to distribute cash or other property to the Shareholders, and the Funddoes not intend to make any such distributions. Notwithstanding the foregoing, the Fund may, in itsdiscretion, settle redemptions in kind in which event the Shareholders may be required to obtain advicewith regard to disposing of such assets (and bear the expense thereof). Moreover, during the periodbetween submitting a notice of redemption and obtaining settlement, the redemption proceeds remains atrisk of loss, without interest, and under certain circumstances, such proceeds may be required to berestored to the Fund.

Pricing Information

While pricing information is generally available for securities in which the Fund invests, reliablepricing information may at times not be available from any source. Prices quoted by different sources aresubject to material variation. For purposes of calculating the Fund’s Net Asset Value and valuinginvestments, valuations of investments for which pricing information cannot be obtained are made by theAdministrator based upon such information as is available, including the advice of the InvestmentAdvisor. The Administrator may rely upon appropriate pricing services and information provided by theInvestment Advisor and shall not, in the absence of gross negligence or willful default be liable for anyloss suffered by the Fund or any Shareholder by reason of any error in calculation resulting from anyinaccuracy in the information provided by any pricing service or the Investment Advisor.


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Anti-Money Laundering

If the Fund, the Manager, Investment Advisor, Administrator, or any governmental agencybelieves that the Fund has accepted subscriptions for Shares by, or is otherwise holding assets of, anyperson or entity that is acting directly or indirectly, in violation of an U.S., international or other anti-money laundering laws, rules, regulations, treaties or other restrictions, or on behalf of any suspectedterrorist or terrorist organization, suspected drug trafficker, or senior foreign political figure(s) suspectedin engaging in foreign corruptions, the Fund, the Manager, Investment Advisor, Administrator or suchgovernmental agency may freeze the assets of such person or entity invested in the Fund or suspend theirredemption rights. The Fund may also be required to remit or transfer those assets to a governmentalagency.

Compliance with ERISA Transfer Restrictions

The Board intends to use commercially reasonable efforts to cause employee benefit plans subjectto ERISA and/or Section 4975 of the Code and other “benefit plan investors,” as defined in the Plan AssetRegulation, in the aggregate to hold less than 25% of the Shares in the Fund and of any class of shares inthe Fund. The Board shall use commercially reasonable efforts to restrict transfers of any interest in theFund so that ownership of the Fund by benefit plan investors will remain below the 25% thresholdcontained in the Plan Asset Regulation. In this event, although there can be no assurance that such will bethe case, the assets of the Fund should not constitute “plan assets” for purposes of ERISA and Section4975 of the Code.

If the assets of the Fund were to become “plan assets” subject to ERISA and Section 4975 of theCode, certain investments made or to be made by the Fund in the normal course of its operations mightresult in non-exempt prohibited transactions and might have to be rescinded (see “EMPLOYEEBENEFIT CONSIDERATIONS”). If at any time the Board determines that assets of the Fund may bedeemed to be “plan assets” subject to ERISA and Section 4975 of the Code, the Board may take certainactions it may determine necessary or appropriate, including requiring one or more investors to redeem orotherwise dispose of all or part of their Shares in the Fund or terminating and liquidating the Fund. See"CERTAIN ERISA CONSIDERATIONS."

MANAGEMENT

The Fund’s Board of Directors

The Fund has three (3) Directors, each of whom serves in accordance with the laws of the BritishVirgin Islands and in accordance with the Fund’s Memorandum and Articles of Association. TheDirectors are:

Mr. Christopher Wetherhill Christopher Wetherhill, F.C.A., C.A., founded and was ChiefExecutive Officer of Hemisphere Management Limited, a financial services company located in Bermuda,from 1981 until 2000, when he chose to retire. He is now a board member of, and a consultant to, anumber of investment companies. Mr. Wetherhill is a Chartered Accountant, a Fellow of the Institute ofChartered Accountants in England and Wales, a member of the Canadian and Bermudian Institutes of


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Chartered Accountants, a Fellow of the Institute of Directors and a Freeman of the City of London. Mr.Wetherhill is a resident of Bermuda.

Graham H. Cook is the Managing Director of TMF (BVI) Ltd., part of the TMF Group, aninternational organization providing trust, management and accounting services, financial services andfund administration services. Mr. Cook has worked in private practice as a solicitor in England and since1981 has pursued a career in providing management and trust services. He has been a director of trust andmanagement companies in the British Virgin Islands, Curacao, Gibraltar and latterly in London with TMFManagement (UK) Ltd. In 2002 he became a Director of TMF (BVI) Limited and Bison FinancialServices Limited. He also has work experience in South Africa and Brazil. Mr. Cook is an Honors Lawgraduate from the University of Birmingham, England, completed his post graduate studies at the Collegeof Law with a distinction, and was admitted as a Solicitor of the Supreme Court of England and Wales in1973. Mr. Cook resides in the British Virgin Islands.

Mr. John E. Epps, FCA, CA, is Director, President and CEO of Consolidated ManagementLimited, a financial management company that he established in Bermuda in 1981, specialising in theshipping and investment industry. Prior to setting up his own company, Mr. Epps was employed in thetreasury department of a major shipping company listed on the London Stock Exchange and based inBermuda. He is active in the property, oil trading and investment markets and is a board member ofnumerous companies. He is currently a Trustee to a number of high profile Foundations and has served asa director of a major marine insurance company. He is a qualified chartered accountant, a Fellow of theInstitute of Chartered Accountants in England and Wales as well as being a member of the Canadian andBermuda Institutes of Chartered Accountants. Mr. Epps has been a resident of Bermuda since 1963.

In the future, other or additional Directors may be appointed by the Fund.

The Board of Directors meet periodically to assist the Manager in reviewing the investment andadministrative affairs of the Fund. The Fund’s Memorandum and Articles of Association provide that theDirectors shall not be liable to the Fund for any acts or omissions in the performance of their duties ifsuch person acted honestly and in good faith with a view to the best interests of the Fund and in the caseof criminal proceedings, such person had no cause to believe that his conduct was unlawful, and containscertain provisions for the indemnification of the Directors by the Fund, to the extent permitted by law,against liabilities to third parties arising in connection with the performance of their services. TheDirectors may from time to time own Shares or dispose of Shares owned, in each case without notice tothe Shareholders.

The Manager

Kingate Management Limited has been appointed as the Manager of the Fund’s capital (the“Manager”). The Manager was duly incorporated under the laws of Bermuda. The Manager is notregistered with the U.S. Securities and Exchange Commission as a registered investment adviser underthe U.S. Investment Advisers Act of 1940, as amended, nor does it intend to do so in the near future.

The directors of the Manager are:

Mr. Christopher Wetherhill - See “MANAGEMENT - The Board of Directors” herein forbiographical details.


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Michael G. Tannenbaum, Esq. – Partner, Tannenbaum Helpern Syracuse & Hirschtritt LLP,where he heads the Firm’s Financial Services and Capital Markets Group which concentrates instructuring collective investments (hedge funds and the like) and capital financing arrangements bothon-shore and offshore the U.S. He is the author of numerous articles relating to industry matters. Mr.Tannenbaum is a past president of the Hedge Fund Association, an industry association, and is listed inAn International Who’s Who of Private Fund Lawyers.

Phillip A. Evans. Trust Manager (Partner) at Moore Stephens Services SAM located inMonaco. Mr. Evans joined in March 1993 to establish and manage a new trust management departmentand is responsible for designing and implementing systems and controls, client contact, and marketingworldwide. During January 1990-February 1993, Mr. Evans served as Trust Officer at Georgam SAMlocated in Monaco, responsible for a large and varied number of Trusts and associated underlyingcompanies. During February 1988-December 1989, Mr. Evans served as Senior Trust Administrator atBarclays Bank Trust Company located in Reading, England.

Ms. Shazieh Salahuddin – A senior employee of the FIM group of companies, for whom shehas worked since 1996 in a variety of roles including fund administration, operations, clients relationsand marketing. She has been a director of the Manager since June 2008. Ms. Salahuddin holds anhonors degree from Kingston University, England.

In the future, other and additional directors of the Manager may be elected.

The Manager performs services pursuant to the Manager Agreement effective January 1, 2006.Pursuant to the terms of the Manager Agreement, the Manager has agreed (i) to manage all aspects of theinvestment advisory services provided to the Fund, including the selection and evaluation of theInvestment Advisor and (ii) to arrange for the performance of all accounting and administrative serviceswhich may be required by the Fund’s operations. The Manager Agreement authorizes the Manager todelegate responsibilities to others, subject to retaining certain responsibilities for evaluating andcoordinating the services offered by others. The Manager is also permitted to manage directly theinvestment of a portion of the investment portfolio of the Fund and may do so from time to time asconditions warrant.

The Manager supervises distribution of the USD Shares. The Manager may appoint othersecurities dealers or other financial institutions as authorized dealers for the USD Shares. Such other,non-affiliated, authorized dealers may receive sales commissions either directly from the Fund (but pay-able only out of an investor’s gross subscription proceeds before investment in USD Shares and only tothe extent of the permitted five percent (5%) subscription charge as described herein) or from theManager. The Manager Agreement is automatically renewed for successive one-year periods, subject totermination by either party as of the end of any calendar month upon not less than one year’s prior writtennotice or otherwise in accordance with the terms of the Manager Agreement.

The Manager Agreement provides that the Manager shall not be liable to the Fund or itsShareholders for any error of judgment or for any loss suffered by the Fund or its Shareholders inconnection with its services in the absence of negligence, willful default, fraud, or dishonesty in theperformance or non-performance of its obligations or duties. The Manager Agreement containsprovisions for the indemnification of the Manager by the Fund against liabilities to third parties arising inconnection with the performance of its services, except under certain circumstances. The ManagerAgreement also contains provisions for the indemnification of the Fund by the Manager in certaincircumstances.


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See “FEES AND EXPENSES” herein for a general description of the fees payable to theManager.

The Investment Advisor

The investment advisor is a New York based NASD registered broker-dealer employingapproximately 350 people and acting primarily as a market-maker in listed and unlisted stocks andconvertible securities (the “Investment Advisor”). The Manager has established a discretionary accountwith such Investment Advisor on behalf of the Fund for the management of the USD assets. TheInvestment Advisor utilizes a “split strike conversion” strategy consistent with the strategy of the Fund, asset forth under “THE FUND - The Fund’s Investment Objective and Investment Process.” All investmentdecisions in the account held with the Investment Advisor are effected by persons associated with theInvestment Advisor. The Investment Advisor has managed the assets of the Fund since its inception andit is anticipated that the retention of such Investment Advisor will continue.

See “FEES AND EXPENSES” herein for a general description of the fees payable to theInvestment Advisor.

The Consultant

The Manager has appointed FIM Advisers LLP (“FIM”) as its consultant in relation to certainaspects of the Fund’s operations (the “Consultant”).

The Consultant was incorporated on October 8, 2004 as a limited liability partnership underEnglish Law. On August 1, 2005, the Consultant took over the business of its affiliate, FIM Limited, anasset management company with over twenty years of experience. The Consultant is a leading alternativeinvestment management company, specialising in the creation and management of portfolios of hedgefunds for institutions and private clients on a global basis. The Consultant is authorised and regulated bythe Financial Services Authority ("FSA") of the United Kingdom. As of the date of this document, theConsultant acts as Investment/Fund Adviser in respect of funds with assets totaling in excess of US$ 7.3billion.

In addition to its role as Consultant to the Fund, the Consultant acts as investment and/or fundadvisor to several other investment management companies that manage a variety of funds of funds andsingle-manager funds.

The founder members of the Consultant are:

Mr. Carlo Grosso - Carlo Grosso is a Founder Member and the Chief Investment Officer of FIMAdvisers LLP. Mr. Grosso founded FIM Limited, an affiliate of FIM Advisers LLP, in 1981 and servesas Executive Chairman of FIM Limited. His previous experience includes: executive director ofEuromobiliare Limited (1979-1980), president and general manager of Tucker Anthony S.A. (1974-1979), account executive at White, Weld & Co., Inc. (1972-1974) and securities analyst and foreigndepartment manager at Tucker, Anthony & R.L. Day, Inc. (1969-1972). Mr. Grosso holds a Degree inLaw from the University of Milano (Italy).

Mr. Federico M. Ceretti - Federico Ceretti is a Founder Member of FIM Advisers LLP. Mr.Ceretti joined FIM Limited, an affiliate of FIM Advisers LLP, in 1986, and is Chief Executive Officer ofFIM Limited. Prior to joining FIM Limited, he worked in various positions with Merrill Lynch Pierce Kingate Global Fund, Ltd. – USD Shares

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Fenner and Smith in London. Mr. Ceretti holds a Degree in Business Administration from the Universityof Pavia (Italy).

Pursuant to the FIM Consulting Services Agreement, the Consultant renders consulting advice tothe Manager with respect to certain aspects of the Fund’s operational, administrative, marketing,accounting and legal matters.

The FIM Consulting Services Agreement is dated August 1, 2005, and will be automaticallyrenewed for successive one-year periods, subject to termination by either party at the end of the current orsubsequent term upon not less that thirty (30) days’ prior written notice. The FIM Consulting ServicesAgreement provides that FIM shall not be liable to the Manager, the Fund or its Shareholders for any actsor omissions in the performance of its services in the absence of negligence, willful default, fraud ordishonesty in the performance or non-performance of its obligations or duties. The FIM ConsultingServices Agreement contains provisions for the indemnification of FIM by the Manager and the Fundagainst liabilities to third parties arising in connection with the performance of its services, except undercertain circumstances.

The Administrator

Citi Hedge Fund Services, Ltd (formerly BISYS Hedge Fund Services Limited) , a Bermudaregistered company, has been appointed as the Fund's administrator (the “Administrator”).

Pursuant to the Administration Agreement, as amended and restated effective June 1, 2007, andthe Registrar Agreement, as amended and restated effective January 1, 2002, the Administrator isresponsible for all matters pertaining to the administration of the Fund, including, without limitation,(i) communicating with the Fund’s Shareholders; (ii) communicating with the general public;(iii) soliciting sales of the Fund’s stock; (iv) accepting the subscriptions of new Shareholders;(v) maintaining the Fund’s principal corporate records and books of account; (vi) disbursing payments ofdividends, legal fees, accounting fees, and officers’ and directors’ salaries; (vii) calculating, publishing orfurnishing the subscription or redemption price of the USD Shares; (viii) conducting meetings of theFund’s Shareholders and Directors; and (ix) making redemptions of the USD Shares. The Administratorwill also provide the services of an individual to act as the secretary of the Fund.

Both the Administration Agreement and the Registrar Agreement shall continue and remain inforce and effect unless and until terminated by either party upon not less than three (3) months’ notice ora shorter time period under certain circumstances. The Administration Agreement provides that theAdministrator shall not be liable to the Manager, the Fund or its Shareholders in the absence ofnegligence, willful default, fraud or dishonesty in the performance or non-performance of its obligationsor duties. The Administration Agreement and the Registrar Agreement contain provisions for theindemnification of the Administrator by the Fund against liabilities to third parties arising in connectionwith the performance of its services, except under certain circumstances. .

See “FEES AND EXPENSES” herein for a description of the fees payable to the Administratorpursuant to the Administration Agreement and the Registrar Agreement.

Banking and Custody

The Bank of Bermuda Limited, located in Hamilton, Bermuda (the “Bank”), has been appointedas the Fund’s banker for purposes of receiving subscription funds, disbursing redemption payments and


15


processing cash transactions not directly related to the Fund’s portfolio. Actual custody, however, is withthe Investment Advisor. See “CERTAIN RISK FACTORS.”

The Bank of Bermuda Limited is a licensed bank incorporated in Bermuda under The Bank ofBermuda Act of 1890. The Bank of Bermuda Limited is engaged in a wide range of international bankingand trust services through its main office in Bermuda and its subsidiaries worldwide. On February 18,2004, the Bank of Bermuda Limited became an indirect wholly-owned subsidiary of HSBC Holdings plc,a public company incorporated in England. As of December 31, 2005, HSBC Holdings plc hadconsolidated gross assets of approximately US$1.467 billion.

The Bank is not responsible for the safekeeping of any assets of the Fund deposited in anyaccount opened with brokers or other intermediaries in connection with the trading activities of the Fund,and in particular, the operation of any accounts managed by the Investment Advisor.

The Manager does not have custody of any of the Fund’s assets nor does it presently propose toperform any brokerage services for the Fund. Brokerage services may be provided to the Fund by theInvestment Advisor or their affiliated firms.

Voting Rights of Shareholders

Each USD Shareholder is entitled to one vote for each USD Share held on any matter affectingUSD Shareholders presented to a meeting of Shareholders in accordance with the Fund’s Memorandumand Articles of Association. General meetings of the Fund’s Shareholders will be held annually toapprove the selection of auditors and to attend to such other business as may properly be placed before ameeting. Shareholders will receive at least thirty (30) days’ notice of any Shareholders’ meeting (or ten(10) days’ notice, if the Board of Directors determines that prompt Shareholder action is advisable) andwill be entitled to vote their USD Shares either personally or by proxy. If the proxy sent with the noticeof meeting is not completed and returned prior to the meeting and the Shareholder does not appearpersonally at such meeting, such USD Shares will be voted in the discretion of the proxy and theattorney-in-fact designated in the Subscription Agreement executed by such Shareholder.

FEES AND EXPENSES

Organization Costs

All costs and expenses associated with the organization of the Fund, including governmentincorporation charges and professional fees and expenses in connection with the preparation andrestatement of the Fund’s offering documents and the preparation of its basic corporate and contractdocuments, have been paid out of the Fund’s assets.


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Fees of the Manager

The Manager receives a monthly fee from the Fund calculated at an annual rate equal toapproximately one and one-half percent (1.5%) of the month-end Net Asset Value of the Fundattributable to the USD Shares (the “Management Fee”). The Management Fee is generally payable as ofthe last Business Day of each month. The Manager may, in its sole discretion, waive all or part of theManagement Fee otherwise due with respect to any Shareholder’s investment, by rebate or otherwise orpay all or part of the Management Fee to placement agents under separate agreements.

Fees of the Investment Advisor

The Fund bears all direct and indirect costs associated with the investment advisory services ofthe Investment Advisor. The Investment Advisor’s compensation is derived from the market makingactivities of its affiliated broker-dealer and bid-ask spreads.

Fees of the Consultant

The Consultant is paid by Manager for its services at no additional cost to the Fund.

Fees of the Administrator

For its administrative duties relating to the USD Shares, the Administrator receives customaryfees paid out of the Fund assets based upon the nature and extent of the services performed by theAdministrator for the Fund. The compensation provisions of the Administration Agreement may berevised in the future.

Fees of the Bank

Pursuant to the Custodian Agreement, the Bank receives a custodian services fee comprised of(i) an annual safekeeping charge equal to ten basis points (.10%) of the gross asset value of the Fund witha maximum of U.S. $25,000 per annum and (ii) the right to recover all sub-custodian charges which willbe charged directly to the Fund. The Bank is entitled to reimbursement of actual out-of-pocket expenses.The compensation provisions of the Custodian Agreement may be revised in the future.

Other Operating Expenses

The Manager and the Administrator are responsible for providing all office personnel, space andfacilities required for the performance of their respective services. The Fund bears all other expensesincident to its operations and business, including brokerage commissions, appraisers, pricing services,printing costs, the fees of its auditors and legal advisors; custody charges; interest and commitment feeson loans and debt balances; any income, withholding or other taxes; and the costs of communicationswith Shareholders, prospective investors and the Investment Advisor. In addition, the Fund pays for anyexpenses incurred in connection with listing the Shares on the Irish Stock Exchange, or any other suitableexchange, if such listing is deemed desirable in the sole discretion of the Directors.

Each Director of the Fund who is not an officer or employee of the Manager or the Administratorreceives a fee in accordance with reasonable practice. All Directors receive reimbursement for travel andother costs incurred in connection with their services.


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Fees and expenses that are directly identifiable with a particular class of shares of the Fund arecharged against that class. Other fees and expenses will be charged to the Fund as a whole or otherwisein the discretion of the Board and allocated among the outstanding classes in a commercially reasonablemanner in the Board’s discretion.

SUBSCRIPTIONS AND REDEMPTIONS

Subscriptions

Generally. The USD Shares may be purchased as of the first Business Day (as defined herein) ofthe month (herein the “Subscription Date”) at a price equal to the Net Asset Value per USD Share as ofthe last Business Day of the immediately preceding calendar month (the “Valuation Date”), plus anyapplicable subscription charges. “Business Day” refers to any day when the central banking systems ofthe U.S. and Bermuda are open and operating. As of December 31, 2007, the audited Net Asset Value perShare of the USD Shares was U.S.$421.37. The Fund may (i) discontinue the offering of USD Shares atany time or (ii) permit subscriptions on other than the first Business day of a month at the then Net AssetValue of the USD Shares. The minimum initial subscription from each investor is $250,000 and eachminimum additional subscription is $100,000. Such minimums may be waived by the Fund.

Procedure. Subscriptions are generally payable in U.S. Dollars. The acceptance of subscriptionsas of the commencement of each month is subject to (i) receipt by the Administrator of completedSubscription Forms by the last Business Day prior to the Subscription Date of the month in whichprospective investors wish to subscribe for Share and (ii) confirmation of the receipt of cleared funds bythe Bank at the latest by the Subscription Date. The Fund reserves the right to accept or rejectsubscriptions in its absolute discretion. Details of the Subscription procedure are set forth at page S-1 ofthe Subscription Forms attached hereto. As part of the Administrator’s and the Fund’s responsibility forprotection against money laundering, the Administrator may require a detailed verification of the identityof a person or entity applying for Shares.

Subscription Charge. A subscription charge of up to five percent (5%) of the total dollar amountsubscribed will be charged on subscription of the USD Shares, but such charge may be waived in wholeor in part at the sole discretion of the Manager. The subscription charge, if any, will be retained by theManager. The Manager may grant all or part of such charge to dealers and independent third parties inconnection with the solicitation of subscriptions. The subscription charge will be deducted from thesubscriber’s payment for purposes of determining the net amount available for investment in USD Shares.

Certain Special Arrangements. Fractional USD Shares will not be issued and refunds ofsubscription funds will be made only if the surplus amount (corresponding to non-issued fractional USDShares) is in excess of U.S.$450.

Registration and Transfer. USD Shares will be issued only in registered form; the Fund does notissue bearer shares. The Administrator maintains a current register of the names and addresses of theFund’s Shareholders. Certificates representing USD Shares will be issued, without charge, only ifrequested by a USD Shareholder. Certificates will be mailed or delivered to the USD Shareholder at theShareholder’s risk. Because certificates must be returned to the Administrator prior to the processing ofredemption requests, the Fund discourages USD Shareholders from requesting certificates. Kingate Global Fund, Ltd. – USD Shares

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Transfers of USD Shares are permitted only with the prior consent of the Fund, which may bewithheld for any reason or for no reason. For the avoidance of doubt, transfers will not be approvedunless the proposed transfer includes all legal, economic and beneficial rights to the Shares. Proposedtransferees are required to furnish the same information, which would be required in connection with adirect subscription in order for a transfer application to be considered by the Fund. Violation ofapplicable ownership and transfer restrictions may result in a compulsory redemption.

Listing. The USD Shares are not listed on any securities exchange, and it is not anticipated thatthere will be any secondary market for trading in the USD Shares. Notwithstanding the foregoing, theFund reserves the right to list the USD Shares on The Irish Stock Exchange if, in its discretion, it deemsthe same desirable.

Shortened Period Within Which to Make Claims. By executing a subscription agreement for Shares,each investor in the Fund shall be deemed to have waived, to the maximum extent permissible under law, theright to bring any legal claim, action or other proceeding against the Fund, the Manager or the Consultantunless such claim, action or proceeding is commenced within six (6) months from the date of the first tooccur of (i) the original occurrence allegedly giving rise to such claim, action or proceeding or (ii) theShareholder’s redemption of any Shares. See “CERTAIN RISK FACTORS.”

Anti Money Laundering

To ensure compliance with all relevant rules and regulations designed to avoid money laundering,the Administrator will require a detailed verification of the identity of any applicant subscribing for USDShares. Each applicant must undertake to provide verification of identity upon request from, and to thesatisfaction of, the Administrator. Depending on the circumstances of each application, a detailedverification may not be required if the investor is an authorized financial institution. A detailedverification might not be required when:

(a) the applicant makes payment by wire transfer from an account held in theapplicant’s name at a recognized financial institution residing in a recognized jurisdiction, as defined byapplicable laws, and the applicant’s details (name and account number) appear in the confirmation of thewire transfer; or

(b) the application is made through a recognized intermediary.

This exception will only apply if the financial institution referred to above is within a country orterritory which is a member of the Financial Action Task Force (“FATF”) or Caribbean Financial ActionTask Force (“CFATF”) and has anti-money laundering procedures that are at least equivalent to those inthe British Virgin Islands. The following countries are deemed to have anti-money laundering proceduresat least equivalent to those in the British Virgin Islands: Aruba, Australia, Bahamas, Barbados, Bermuda,Belgium, Canada, Cayman Islands, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey,Hong Kong, Iceland, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Netherlands & NetherlandsAntilles, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom andUnited States of America.

An individual may be required to produce a copy of a passport or identification card certified by anotary public. In the case of corporate applicants, they may be required to produce a certified copy of thecertificate of incorporation (and change of name), memorandum and articles of association (or


19


equivalent), and the names, occupations, dates of birth, and residential and business addresses of alldirectors.

The Administrator reserves the right to request such information as it deems necessary to verifythe identity of an applicant and the applicant will be expected to make the representation set forth in theSubscription Agreement. To ensure compliance with statutory and other requirements relating to anti-money laundering, the Administrator may require verification of identity from any person submitting acompleted Subscription Agreement. Pending the provision of evidence satisfactory to the Administratoras to identity, the evidence of title in respect of the USD Shares may be retained at the absolute discretionof the Administrator. If within a reasonable period of time following a request for verification of identity,the Administrator has not received evidence satisfactory to it as aforesaid, it may, in its absolutediscretion, refuse to allot the USD Shares applied for in which event subscription monies will be returnedwithout interest to the account from which such monies were originally debited, refuse to process aredemption request, or otherwise proceed in accordance with applicable laws. Subscription monies maybe rejected by the Administrator if the remitting bank or financial institution is unknown to theAdministrator.

Eligible Investors

Investment in the Fund is not available to Restricted Persons (as defined herein), unless the Funddetermines otherwise in limited cases. The term “Restricted Person” as used in this Memorandum meansany U.S. Person * and other persons from time to time designated as such by the Fund. Each prospectiveinvestor is required to certify that the Shares are not being acquired directly or indirectly for the accountor benefit of a Restricted Person.

Any prospective investor acting in any fiduciary capacity is required to certify the number ofbeneficial owners for whom Shares are being purchased. Furthermore, it is the responsibility of eachinvestor to verify that the purchase and payment for the Shares is in compliance with all relevant laws ofthe investor’s jurisdiction or residence.

* For the purposes of this Memorandum, “U.S. Person” means: (a) any natural person resident in the United States; (b) anypartnership or corporation organized or incorporated under the laws of the United States; (c) any estate of which any executoror 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 foreignentity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) held by adealer or other fiduciary for the benefit or account of a U.S. Person; (g) any discretionary account or similar account (otherthan an estate or trust) held by a dealer or other fiduciary organized, incorporated or, if an individual, resident in the UnitedStates; or (h) any partnership or corporation if (i) organized or incorporated under the laws of any foreign jurisdiction and (ii)formed by a U.S. Person principally for the purpose of investing in securities not registered under the United States SecuritiesAct of 1933, as amended (the “Securities Act”), unless it is organized or incorporated, and owned, by accredited investors (asdefined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts. “U.S. Person” does notinclude: (a) any discretionary account or similar account (other than an estate or trust) held for the benefit or account of anon-U.S. Person by a dealer or other professional fiduciary organized, incorporated or, if an individual, resident in the UnitedStates; (b) any estate of which any professional fiduciary acting as executor or administrator is a U.S. Person if (i) an executoror administrator of the estate who is not a U.S. Person has sole or shared investment discretion with respect to the assets of theestate and (ii) the estate is governed by foreign law; (c) 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 nobeneficiary of the trust (and no settlor if the trust is revocable) is a U.S. Person; (d) an employee benefit plan established andadministered in accordance with the law of a country other than the United States and customary practices and documentationof such country; (e) any agency or branch of a U.S. Person located outside the United States if (i) the agency or branchoperates for valid business reasons and (ii) the agency or branch is engaged in the business of insurance or banking and issubject to substantive insurance or banking regulation, respectively, in the jurisdiction where located; or (f) the InternationalMonetary Fund, the International Bank for Reconstruction and Development, the Inter-American Development Bank, the AsianDevelopment Bank, the African Development Bank, the United Nations and their agencies, affiliates and pension plans. Kingate Global Fund, Ltd. – USD Shares

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The Fund reserves the right to offer Shares to Restricted Persons upon compliance withapplicable rules and regulations. For example, the Fund may admit a number of U.S. tax-exempt entitiessuch as, without limitation, employee benefit plans, charitable organizations, foundations, endowmentsand the like upon meeting certain eligibility standards such as being an “accredited investor” within themeaning of the U.S. Securities Act. Such investors should request a U.S. Supplemental DisclosureStatement from the Administrator and comply with the instructions for U.S. subscribers as set forththerein. In any event, the Fund reserves the right to reject subscriptions for Shares, in whole or in part, inits absolute discretion for any reason or for no reason.

The Fund is not a recognised collective investment scheme for the purposes of the FinancialServices and Markets Act 2000 of the United Kingdom (the "Act") and the information contained in thisMemorandum has not been approved for the purposes of Section 21(2) of the Act by a personauthorised under the Act. The promotion of the Fund and this Memorandum in the United Kingdom aretherefore prohibited by law. This Memorandum is being issued in the United Kingdom by the Fund(where permitted by applicable law and regulation) to persons who are of a kind to whom the Fund maylawfully be promoted by a person authorised under the Act by virtue of the Financial Services andMarkets Act 2000 (Promotion of Collective Investment Schemes (Exemptions) Order 2001) and Chapter4.12 of the FSA’s Conduct of Business Sourcebook or as otherwise permitted by applicable law andregulation. The Fund is not regulated by the Financial Services Authority, and investors may not havethe benefit of the Financial Services Compensation Scheme and other protections afforded by the Act orany of the rules and regulations made thereunder.

Redemptions

USD Shares are redeemable at the option of the Shareholder on the terms and conditions providedherein.

Generally. USD Shares are eligible for redemption as of the last Business Day of each calendarmonth (the “Redemption Date”), upon not less than thirty-five (35) days’ prior written notice to theAdministrator. The net redemption proceeds normally will be settled within thirty (30) days after theredemption date, without interest. In circumstances where the Fund is unable to liquidate securitiespositions in an orderly manner so as to fund redemptions or where the value of the assets of the Fundcannot reasonably be determined, the Fund may take longer than thirty (30) days to effect settlement ofredemptions. The notice requirement may be waived by the Fund in its discretion. Redemption forms areavailable on request to the Administrator. A redemption request is irrevocable unless the Fund consentsto its withdrawal. The Manager may elect to purchase or to procure the purchase of Shares offered forredemption at a price equal to their Net Asset Value rather than requiring the Fund to redeem them.

Redemption Price. The redemption price is equal to the Net Asset Value of the USD Shares as ofthe Redemption Date, plus any applicable redemption charge as described below. See“DETERMINATION OF NET ASSET VALUE”.

Settlement. Redemptions will be generally settled in U.S. Dollars, although the Fund may, in itsdiscretion, settle redemptions in kind to the extent of such redeeming Shareholder’s pro-rata share of non-illiquid, direct investments. Cash settlements will be remitted either by wire transfer to an accountdesignated by the Shareholder or by check posted at the Shareholder’s risk (as specified by theShareholder in his written redemption notice). If USD Shares are held in certificate form, the redemptionpayment will not be remitted until the certificates have been tendered to the Administrator, and no interest


21


will accrue on the redemption proceeds pending the settlement date. The Fund may withhold a portion ofany proceeds of redemption if necessary to comply with applicable regulatory requirements.

Redemption requests may be submitted by fax to the Administrator at (+1-441) 296-8227, Attn:Shareholder Services Unit, provided that: (i) the original Redemption Request (attached hereto) isreceived by the Administrator prior to the Redemption Date and (ii) the Shareholder receives writtenconfirmation that the faxed Redemption Request has been received.

The Administrator will confirm in writing within five (5) Business Days of receipt of all faxedRedemption Request(s) which are received in good order. Shareholders failing to receive such writtenconfirmation from the Administrator within five (5) Business Days should contact Shareholder ServicesUnit at the Administrator at (+1-441) 295-9166 to obtain the same. Failure to obtain such writtenconfirmation will render faxed instructions void.

Requests for redemption received after 5:00 p.m. (Bermuda time) on the last day of theredemption notice will be treated as a request for redemption as of the next Redemption Date.Redemption payments will be made in U.S. Dollars, unless made in kind, and will be remitted either bywire transfer to an account designated by the Shareholder at the bank from which the subscription pricewas paid or by check posted at the Shareholder’s risk (as specified by the Shareholder in its writtenredemption notice). In circumstances where the Fund is unable to liquidate securities positions in anorderly manner in order to fund redemptions, or where the value of the assets and liabilities of the Fundcannot reasonably be determined, the Fund may take longer than the time periods mentioned above toeffect settlements of redemptions or may even suspend redemptions. Under extraordinary circumstances,in the discretion of the Directors, the Fund may settle redemptions in kind and may extend the duration ofthe redemption notice period beyond a full quarter if the Directors deem such an extension as being in thebest interest of the Fund and the non-redeeming Shareholders. Certain risks exist with regard toredemption requests made but not yet settled. See “CERTAIN RISK FACTORS.”

Compulsory Redemptions. The Fund and the Manager each, independently, have the right torequire the compulsory redemption of all USD Shares held by a Shareholder for any reason or for noreason. Compulsory redemptions will be made at the current Net Asset Value of the USD Shares (plusany applicable redemption charge) as of the last Business Day of the month in which such notice ofredemption is issued to the USD Shareholder.

Redemption Charge. Generally, no redemption charge is imposed. However, a redemptioncharge not to exceed one percent (1.0%) of the proceeds (waivable in whole or in part at the solediscretion of the Manager in exceptional circumstances) may be imposed on the redemption of Shareswhich are held for less than twelve (12) months from the Subscription Date.

Temporary Suspension of Dealings and Determination of Net Asset Value. The Fund’s Directorsmay declare a temporary suspension of the determination of the Fund’s Net Asset Value and the sale,allotment, issue or redemption of the Shares during: (i) any period during which, in the opinion of theBoard, disposal by the Fund of securities which constitute a substantial portion of the assets of the Fund isnot practically feasible or as a result of which any such disposal would be materially prejudicial toShareholders; (ii) any period when, in the opinion of the Board, for any reason it is not possible totransfer monies involved in the acquisition or disposition or realization of securities which constitute asubstantial portion of the assets of the Fund at normal rates of exchange; (iii) any period when, in theopinion of the Board, for any reason the prices of any securities which constitute a substantial portion ofthe assets of the Fund cannot be reasonably, promptly or accurately ascertained; (iv) any period (otherthan customary holiday or weekend closings) when any recognized exchange or market on which the Kingate Global Fund, Ltd. – USD Shares

22


Fund’s securities are normally dealt in or traded is closed, or during which trading thereon is restricted orsuspended; or (v) any period when proceeds of any sale or redemption of the Shares cannot be transmittedto or from the Fund’s account. The Fund may withhold payment to any person whose USD Shares havebeen tendered for redemption until after any suspension has been lifted.

DETERMINATION OF NET ASSET VALUE

The net asset value of the USD Shares is the market value of the Fund’s total assetscalculated as described below, less all accrued debts and liabilities, including (i) fees of the Manager, theAdministrator and the Bank earned or accrued but not yet paid, (ii) monthly amortization of organizationcosts, (iii) an allowance for the Fund’s estimated annual audit and legal fees, (iv) any contingencies forwhich reserves are determined to be required, (v) any other costs attributable to the USD Shares (the “NetAsset Value”). Net Asset Value of the USD Shares is expressed in U.S. Dollars, and any itemsdenominated in other currencies are translated at prevailing exchange rates as determined by theAdministrator.

The Administrator will determine the net asset value of the Fund’s Portfolio assets attributable tothe USD Shares as of the close of business on the last Business Day of each calendar month. See“CERTAIN RISK FACTORS”. The Administrator verifies the prices attributed to the securities held bythe USD Shares of the Fund by reference to pricing sources independent of the Investment Advisorwhenever reasonably possible

The Fund’s total assets include (i) all cash and cash equivalent, including bank deposits andinterest bearing obligations, (ii) all securities positions, and (iii) all options positions.

Cash and cash equivalents, including bank deposits and interest bearing obligations, are valued atcost plus accrued interest and discount.

Securities are valued at the last sale price reported on the principal securities exchange or marketon which the securities are traded. In the absence of reported sales prices on the valuation date, securitiesgenerally are valued at the last reported bid quotation.

Options positions are valued at the last sale price reported on the principal securities exchange ormarket on which the options are traded. In the absence of reported sales prices on the valuation date,options generally are valued at the last reported bid quotation.

The value of assets are recorded at their fair value as determined in good faith by theAdministrator in the absence of current quotations or if the Administrator concludes that such quotationsare not indicative of fair value by reason of illiquidity of a particular security or other factors. In specialcircumstances in which the Administrator determines that market prices or quotations do not fairlyrepresent the value of particular assets, the Administrator is authorized to assign a value to such assetswhich differs from the market prices or quotations. The cost of appraisers or pricing services employedby the Fund is an expense of the Fund and as such a charge against Net Asset Value of the USD Shares.

Prospective investors should be aware that situations involving uncertainties as to the valuation ofportfolio positions could have an adverse effect on the Fund’s net assets if judgments regarding Kingate Global Fund, Ltd. – USD Shares

23


appropriate valuations made by the Administrator should prove incorrect. See “CERTAIN RISKFACTORS.” In the absence of bad faith or manifest error, the Net Asset Value calculations of the USDShares made by the Administrator are conclusive and binding on all Shareholders.

The Net Asset Value per USD Share shall equal the Net Asset Value of the assets of the Fundattributable to the USD Shares divided by the number of outstanding USD Shares on the relevantvaluation date.

POTENTIAL CONFLICTS OF INTEREST

The Manager, the Investment Advisor, the Administrator, the Consultant and their respectiveaffiliates, which shall be deemed to include, in each case, their respective officers, directors, employeesand entities owned by any of the aforementioned parties (the “Related Parties”) may face certain conflictsof interests in relation to the Fund. These conflicts include, but are not limited to, the following:

The Manager and each of its directors presently and may in the future, directly or indirectly,direct, sponsor or manage other managed pools or accounts in addition to the Fund and may havefinancial or other incentives to favor some such pools or accounts over the Fund. The Manager’sdecisions with regard to the Fund may differ from those recommended for other arrangements for whichthe Manager exercises discretion.

The Investment Advisor is presently affiliated and manages investment programs for otherinvestment entities with substantially the same or different objectives of the Fund. Additionally, theInvestment Advisor, in its role as a market-maker, trades with the Fund as a principal and no arms’ lengthrelationship exists between the Fund and the Investment Advisor.

Some or all of the Related Parties may be involved with other entities utilizing investmentstrategies similar to those of the Fund and with other business in general. Execution of the strategy mightnot yield the same results in all cases. The Investment Advisor may cause the Fund to invest in securitiesin which some or all of the Related Parties have a financial interest, or to engage in transactions withbrokers or others with whom some or all of the Related Parties have financial or other relationships, as byway of example, the use, in this case, of an affiliated broker dealer by the Investment Advisor. In suchcase, there is no assurance that the usual level of oversight or the degree of competition leading towardslower fees and commissions that might have resulted had the broker dealer been independent of theInvestment Adviser would not be lost.

The Related Parties may engage for their own accounts, or for the accounts of others, in otherbusiness ventures of any nature, and the Fund has no right to participate in or benefit from such othermanagement activities. Related Parties are not obliged to account to the Fund for any profits or benefitsmade or derived therefrom, nor do they have any obligation to disclose or refer any of the investment orservice opportunities obtained through such activities to the Fund. Related Parties may own and sellShares in the Fund, deal as principals with the Fund or Shareholders in the sale or purchase ofinvestments of the Fund (or Shares) or act as brokers, whether to the Fund or to third parties, in thepurchase or sale of the Fund’s investments (or Shares) and entitled to retain any profits or customarycommissions resulting from such dealings.


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One or more directors of the Manager may also be a director of the Fund or otherwise provideservices to the Fund, either directly or indirectly, in which event the likelihood of independence in dealingwith issues facing the Fund is diminished. For example, the Manager’s Director is Michael G.Tannenbaum who is a senior partner of the law firm that renders advice to the Fund as well as to both theManager and the Consultant. See “ADDITIONAL INFORMATION – Counsel”

TAXATION

Introduction

This summary of the principal tax consequences applicable to the Fund and its Shareholders isbased upon advice received from the Fund’s U.S. and British Virgin Islands legal and tax advisers. Suchadvice is based upon factual representations made by the Manager, the Consultant and Administratorconcerning the proposed conduct of the activities to be carried out by the Fund and by them on behalf ofthe Fund. The conclusions summarized herein could be adversely affected if any of the material factualrepresentations on which they are based should prove to be inaccurate. Moreover, while this summary isconsidered to be a correct interpretation of existing laws in force on the date of this Memorandum, noassurance can be given that courts or fiscal authorities responsible for the administration of such laws willagree with such interpretations or that changes in such laws will not occur. Investors should consult theirprofessional advisors on the possible tax consequences of their subscribing for, purchasing, holding,selling or redeeming Shares under the laws of their countries of citizenship, residence, ordinary residenceor domicile.

THIS SUMMARY IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED,FOR THE PURPOSE OF AVOIDING UNITED STATES FEDERAL TAX PENALTIES. THISSUMMARY WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THETRANSACTIONS OR MATTERS ADDRESSED HEREIN, AND ANY TAXPAYER TO WHOM THETRANSACTIONS OR MATTERS ARE BEING PROMOTED, MARKETED OR RECOMMENDEDSHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM ANINDEPENDENT TAX ADVISOR.

The Fund

British Virgin Islands Taxation. The Fund should not be subject to any taxation or othergovernmental charges or fees in the British Virgin Islands other than an annual license fee payable to theRegistrar of Companies (currently U.S.$1,150.00) and an annual license fee payable to the Registrar ofMutual Funds (currently U.S.$350). Under current British Virgin Island law, no income tax should beimposed on the Fund or on investors in the Fund who are not domiciled or resident in the British VirginIslands. There are no withholding, capital gains, estate or inheritance taxes in the British Virgin Islands.

US Federal Income Taxation. The Fund has been advised that it should not be subject to U.S.Federal income taxes on income or gains from its trading (except in respect of any dividends received inthe course of such trading) provided that it does not engage in a trade or business within the U.S. to whichsuch income or gains are effectively connected. Pursuant to a safe harbor under the United States InternalRevenue Code of 1986, as amended, a non-U.S. corporation which trades stock or securities orcommodities for its own account should not be treated as engaged in a trade or business within the U.S. Kingate Global Fund, Ltd. – VSD Shares

25


provided that the non-U.S. corporation is not a dealer in stock or securities or commodities. The Fundintends to conduct its business in a manner so as to meet the requirements of this safe harbor. If theactivities of the Fund are not covered by the foregoing safe harbor, there is a risk that the Fund (but notany investor) will be required to file a U.S. federal income tax return for such year and pay tax at full U.S.corporate income tax rates as well as an additional thirty percent (30%) branch profits tax or other taxeson its income.

The Fund should not be subject to U.S. federal income or withholding tax on U.S. source interestincome (other than in the case of certain contingent interest or interest received from a borrower tenpercent (10%) or more of the equity of which is owned by the Fund, neither of which the Fund anticipatesreceiving) provided that the Fund is not engaged in a trade or business within the U.S. to which suchinterest income is effectively connected, and provided that the Fund’s interest-bearing securities qualifyas registered obligations and that the Fund periodically supplies an Internal Revenue Service Form W-8BEN or its equivalent.

Other Jurisdictions. Capital gains and other revenues received by the Fund may be subject towithholding or similar taxes imposed on foreign corporations by the country in which such gains or otherrevenues originate. In jurisdictions other than the United States, non-U.S. taxes may be withheld atsource on dividend and other income derived by the Fund at rates generally ranging up to thirty percent(30%). Capital gains derived by the Fund in such jurisdictions may often be exempt from non-U.S.income or withholding taxes at source, although the treatment of capital gains varies among jurisdictions.

Persons interested in purchasing the Fund’s Shares should inform themselves as to any taxconsequences particular to their circumstances arising in the jurisdiction in which they are resident ordomiciled for tax purposes in connection with the acquisition, ownership, redemption or disposition of theFund’s Shares.

Changes in Law. All laws, including laws relating to taxation in the British Virgin Islands, theUnited States and other jurisdictions are subject to change without notice.

Shareholders of the Fund

Shareholders who are not otherwise subject to British Virgin Islands or United States taxes byreason of their residence, domicile or other particular circumstances should not become subject to anysuch taxes by reason of the ownership, transfer or redemption of the Shares.

Shareholders who are or may be subject to U.S. Federal income tax on their worldwide incomeshould be aware of certain tax consequences of investing directly or indirectly in Shares and should becertain to consult with their own tax advisers in this regard.

U.S. tax-exempt investors should review the materials set forth below under “ERISACONSIDERATIONS” as well as any supplemental materials provided to such investors.

Dividend and redemption payments made by the Fund to Shareholders who are not U.S. Personsshould not be subject to U.S. Federal income tax, provided that Shares are not held in connection with aU.S. trade or business of the Shareholder in the year of receipt. Individual holders of Shares who areneither present nor former U.S. citizens nor U.S. residents (as determined for U.S. estate and gift taxpurposes) should not be subject to U.S. estate and gift taxes with respect to their ownership of suchShares. A Shareholder’s change in status to a U.S. Person could result in adverse U.S. tax consequences


26


and will constitute a violation of the terms of this Memorandum, resulting in a compulsory redemption ofShares.

Unrelated Business Taxable Income

The term “Permitted U.S. Person” means a U.S. Person that is subject to ERISA, or is otherwiseexempt from payment of U.S. Federal income tax. Generally, a Permitted U.S. Person is exempt fromFederal income tax on certain categories of income, such as dividends, interest, capital gains and similarincome realized from securities investment or trading activity. This general exemption from tax does notapply to the “unrelated business taxable income” (“UBTI”) of a Permitted U.S. Person. Generally, exceptas noted above with respect to certain categories of exempt trading activity, UBTI includes income orgain derived from a trade or business, the conduct of which is substantially unrelated to the exercise orperformance of the Permitted U.S. Person’s exempt purpose or function. UBTI also includes (i) incomederived by a Permitted U.S. Person from debt-financed property and (ii) gains derived by a PermittedU.S. Person from the disposition of debt-financed property.

A Permitted U.S. Person investing in a foreign corporation such as the Fund should not realizeUBTI with respect to an unleveraged investment in Shares. Permitted U.S. Persons are urged to consulttheir own tax advisers concerning the U.S. tax consequences of an investment in the Fund.

Information Returns

Any U.S. Person transferring cash or other property to a foreign corporation such as the Fund orowning ten percent (10%) or more of the value or voting power of the shares of a foreign corporationsuch as the Fund will, with certain limited exceptions, likely be required to file an information return withthe U.S. Internal Revenue Service containing certain disclosure concerning the filing shareholder, othershareholders and the corporation. The Fund has not committed itself to provide the information about theFund or its Shareholders needed to complete the return.

E.U. Savings Directive

It should be noted that the BVI agreed in principle to implement the EU Savings Directive(2003/48/EC) (“EUSD”).

According to Article 1 of the EUSD, “the ultimate aim of the EUSD is to enable savings incomein the form of interest payments made in one Member State to beneficial owners, individuals, resident fortax purposes in another Member State to be made subject to effective taxation in accordance with thenational laws of the latter Member State.”

The EUSD applies:(i) only to interest or interest-derived payments;

(ii) only to payments to EU resident individuals (“beneficial owners”) and certainEU intermediary entities (“residual entities”);

(iii) only when payments are made by paying agents in the EU and other definedterritories (including the Caribbean Overseas Territories); and Kingate Global Fund, Ltd. – VSD Shares

27


(iv) only when payments are made cross-border.

A paying agent is defined as an economic operator that is established in either the EU or certaindefined territories (including the BVI) which either pays interest to, or secures the payment of interest forthe immediate benefit of, the beneficial owner. In a chain of economic operators, the last economicoperator is the paying agent.

For the purposes of the EUSD, interest payments include interest paid in relation to debt claims,which include bonds and deposits, but not equities. Such payments also include interest accrued orcapitalized at sale or redemption of debt claims.

Under the EUSD, there are certain exclusions to the definition of interest payments. Theseinclude the following:

(i) Income derived from EU non-UCITS (non-retail) funds. As explained below,this is of particular significance for BVI funds by virtue of the agreed basis of implementation;

(ii) Income realized upon the sale or redemption of shares or units of a fund(whether a EU UCITS fund or not) if less than 40% of such fund’s assets are invested in debt claims. Indetermining the percentage of a fund’s assets that are invested in debt claims, reference may be made tothe investment policy stated in the fund’s offering document. However, if this does not place a limit onthe amount of its assets that may be invested in debt claims and it is unknown from the informationavailable what percentage of the fund’s assets are in fact so invested, the fund will be deemed to exceedthe 40% limits set out above.

Since the BVI are not directly subject to EU law, implementation of the EUSD will be by way ofbilateral agreements between the BVI and each EU Member State. The BVI government has agreed amodel for these bilateral agreements (“Model Agreement”), which sets out the manner in which theEUSD will be implemented in relation to the BVI. Under the Model Agreement, certain mutual fundsregulated under the Mutual Funds Law (such as the Fund) will be treated as non-UCITS funds. By virtueof direct arrangements with the UK and Ireland, UK and Irish paying agents will be able to treat BVI non-UCITS funds in the same manner as EU non-UCITS funds, that is, as falling outside the scope of theEUSD. Paying agents in the BVI will be able to do likewise.

According to Swiss rules published on 1 April 2005, a Swiss-based paying agent, whenattempting to determine whether a fund that is based in a dependent territory (e.g. the BVI) is within thescope of the EUSD, is entitled to look to the laws of the fund’s “home country”. Accordingly, if the fundwould be considered to be outside of the scope of the EUSD for the purposes of the laws of thejurisdiction in which the fund is based, a Swiss-based paying agent is entitled to treat the fund as fallingoutside the scope of the EUSD.

The Fund has appointed the Administrator as its administrator and the Administrator isresponsible for processing redemptions. Accordingly, the Fund itself would not be considered to be apaying agent for the purposes of the EUSD. The Administrator would also not be considered to be apaying agent for the purposes of the EUSD because it is located outside of the EU and the definedterritories. However, if the Administrator were to make redemption payments to a professional nomineethat in turn were to forward the payments to the ultimate beneficial owner, the professional nominee maybe considered to be a paying agent and the redemption payments may be considered to be interestpayments for the purposes of the EUSD if the professional nominee is based in an EU Member State other Kingate Global Fund, Ltd. – VSD Shares

28


than the UK or Ireland or in one of the defined territories other than the BVI or Switzerland. In suchcircumstances, advice should be obtained from counsel in the relevant jurisdiction as to whether thelegislation in that jurisdiction would treat the Fund as falling outside the scope of the EUSD and, if itwould not, the manner in which such legislation would treat a redemption payment made by the Fund to abeneficial owner or residual entity.

* * * *

The foregoing summary does not address tax considerations which may be applicable to certainShareholders under the laws of jurisdictions other than the BVI or the U.S. The Fund has no presentplans to apply for any certifications or registrations, or to take any other actions under the laws of anyjurisdictions which would afford relief to local investors therein from the normal tax regime otherwiseapplicable to an investment in the USD Shares. It is the responsibility of all persons interested inpurchasing the USD Shares to inform themselves as to any income or other tax consequences arising inthe jurisdictions in which they are resident or domiciled for tax purposes, as well as any foreign exchangeor other fiscal or legal restrictions, which are relevant to their particular circumstances in connection withthe acquisition, holding or disposition of the USD Shares. The value of the Fund’s investments may alsobe affected by repatriation and exchange control regulations.

CERTAIN ERISA CONSIDERATIONS

The United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”). imposescertain requirements on “employee benefit plans” (as defined in Section 3(3) of ERISA) subject toERISA, including entities such as collective investment funds and separate accounts whose underlyingassets include the assets of such plans (collectively, “ERISA Plans”) and on those persons who arefiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA's generalfiduciary requirements, including the requirement of investment prudence and diversification and therequirement that an ERISA Plan's investments be made in accordance with the documents governing theplan. The prudence of a particular investment must be determined by the responsible fiduciary of anERISA Plan by taking into account the ERISA Plan's particular circumstances, including the ERISAPlan's existing investment portfolio, and all of the facts and circumstances of the investment including,but not limited to, the matters discussed above under “CERTAIN RISK FACTORS”.

Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving theassets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject toSection 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, “Plans”))and certain persons (referred to as “parties in interest” for purposes of ERISA and “disqualified persons”for purposes of the Code) having certain relationships to such Plans, unless a statutory or administrativeexemption is applicable to the transaction. A party in interest or disqualified person who engages in anon-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities underERISA and the Code, and the transaction might have to be rescinded.

The U.S. Department of Labor has promulgated a regulation, 29 C.F.R. Section 2510.3-101 (asmodified by Section 3(42) of ERISA) (the “Plan Asset Regulation”), describing what constitutes theassets of a Plan with respect to the Plan's investment in an entity for purposes of certain provisions of Kingate Global Fund, Ltd. – USD Shares

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ERISA, including the fiduciary responsibility and prohibited transaction provisions of Title I of ERISAand the related prohibited transaction provisions under Section 4975 of the Code. Under the Plan AssetRegulation, if a Plan invests in an “equity interest” of an entity that is neither a “publicly offered security”nor a security issued by an investment company registered under the Investment Company Act, the Plan'sassets include both the equity interest and an undivided interest in each of the entity's underlying assets,unless it is established that the entity is an “operating company”, which includes for purposes of the PlanAsset Regulation a “venture capital operating company”, or that equity participation in the entity by“Benefit Plan Investors” (as defined below) is not “significant”.

Under the Plan Asset Regulation, equity participation in an entity by Benefit Plan Investors (asdefined below) is “significant” on any date if, immediately after the most recent acquisition of any equityinterest in the entity, 25% or more of the value of any class of equity interests in the entity is held byBenefit Plan Investors. The term “Benefit Plan Investor” is defined in the Plan Asset Regulation as: (a)any employee benefit plan (as defined in Section 3(3) of ERISA) subject to Part 4 of Subtitle B of Title Iof ERISA; (b) any plan subject to Section 4975 of the Code; and (c) any entity whose underlying assetsinclude plan assets by reason of the investment in the entity by such employee benefit plan and/or plan.For purposes of this determination, (i) the value of equity interests held by a person (other than a BenefitPlan Investor) that has discretionary authority or control with respect to the assets of the entity or thatprovides investment advice for a fee (direct or indirect) with respect to such assets (or any affiliate of anysuch person) is disregarded, and (ii) only that portion of the equity interests of an entity described inclause (c) of the preceding sentence investing in another entity that are held by employee benefit plans orother plans described in clauses (a) or (b) of the preceding sentence are included in the testing of suchother entity.

A Share in the Fund should be considered to be an “equity interest” in the Fund for purposes ofthe Plan Asset Regulation, and the Shares will not constitute “publicly offered securities” for purposes ofthe Plan Asset Regulation. In addition, the Fund will not be registered under the Investment CompanyAct and it is not expected to qualify as a “venture capital operating company.”

The Board intends to use commercially reasonable efforts to restrict transfers of any equityinterest in the Fund so that ownership of each class of equity interests in the Fund by Benefit PlanInvestors will remain below the 25% threshold contained in the Plan Asset Regulation. Although therecan be no assurance that such will be the case, the assets of the Fund should not constitute “plan assets”for purposes of ERISA and Section 4975 of the Code.

If the assets of the Fund were deemed to constitute the assets of a Plan, the fiduciary making aninvestment in the Fund on behalf of an ERISA Plan could be deemed to have improperly delegated itsasset management responsibility, the assets of the Fund could be subject to ERISA's reporting anddisclosure requirements, and transactions involving the assets of the Fund would be subject to thefiduciary responsibility and prohibited transaction provisions of ERISA and the prohibited transactionrules of Section 4975 of the Code. Accordingly, certain transactions that the Fund might enter into, ormay have entered into, in the normal course of its operations might result in non-exempt prohibitedtransactions and might have to be rescinded. A party in interest or disqualified person that engaged in anon-exempt prohibited transaction may be subject to non-deductible excise taxes and other penalties andliabilities under ERISA and the Code. In addition, such “plan asset” treatment would subject thecalculation and payment of the Board's fees to applicable prohibited transaction and certain conflict ofinterest provisions of ERISA and the Code. Consequently, if at any time the Board determines that assetsof the Fund may be deemed to be “plan assets” subject to ERISA and Section 4975 of the Code, theBoard may take certain actions it may determine to be necessary or appropriate, including requiring one


30


or more investors to redeem or otherwise dispose of all or part of their Shares in the Fund or terminatingand liquidating the Fund.

Each Plan fiduciary who is responsible for making the investment decisions whether to invest inthe Fund should determine whether, under the general fiduciary standards of investment prudence anddiversification and under the documents and instruments governing the Plan, an investment in the Sharesis appropriate for the Plan, taking into account the overall investment policy of the Plan and thecomposition of the Plan's investment portfolio. Any Plan proposing to invest in Shares should consultwith its counsel to confirm that such investment will not result in a prohibited transaction and will satisfythe other requirements of ERISA and the Code.

The sale of any Shares to a Benefit Plan Investor is in no respect a representation by the Board orits affiliates that such an investment meets all relevant legal requirements with respect to investments byPlans generally or any particular Plan, or that such an investment is appropriate for Plans generally or anyparticular Plan.

Regardless of whether the assets of the Fund are deemed to be “plan assets”, the acquisition of anShare by a Plan could, depending upon the facts and circumstances of such acquisition, be a prohibitedtransaction, for example, if the Board or its affiliates was a party in interest or disqualified person withrespect to the Plan. However, such a prohibited transaction may be treated as exempt under ERISA andthe Code if the Shares were acquired pursuant to and in accordance with one or more “class exemptions”issued by the U.S. Department of Labor, such as Prohibited Transaction Class Exemption (“PTCE”) 84-14 (a class exemption for certain transactions determined by an independent qualified professional assetmanager), PTCE 90-1 (a class exemption for certain transactions involving an insurance company pooledseparate account), PTCE 91-38 (a class exemption for certain transactions involving a bank collectiveinvestment fund), PTCE 95-60 (a class exemption for certain transactions involving an insurancecompany general account), and PTCE 96-23 (a class exemption for certain transactions determined by anin-house asset manager).

Any insurance company proposing to invest assets of its general account in the Shares shouldalso consider the extent to which such investment would be subject to the requirements of ERISA in lightof the U.S. Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris Trust andSavings Bank and under any subsequent legislation or other guidance that has or may become availablerelating to that decision, including Section 401(c) of ERISA and the regulations thereunder published bythe U.S. Department of Labor in January, 2000.

The Board will require a fiduciary of an ERISA Plan that proposes to acquire a Share to representthat it has been informed of and understands the Fund's investment objectives, policies, strategies andlimitations, that the decision to acquire an Share was made in accordance with its fiduciaryresponsibilities under ERISA and that neither the Board nor any of its affiliates has provided investmentadvice with respect to such decision. The Board will also require any investor that is, or is acting onbehalf of, a Plan to represent and warrant that its acquisition and holding of a Share will not result in anon-exempt prohibited transaction under ERISA and/or Section 4975 of the Code.

Governmental plans and certain church plans, while not subject to the fiduciary responsibilityprovisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to stateor other federal laws that are substantially similar to the foregoing provisions of ERISA and the Code.The Board will require similar representations and warranties with respect to the purchase of a Share byany such plan. Fiduciaries of such plans should consult with their counsel before purchasing any Shares.


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The discussion of ERISA and Section 4975 of the Code contained in this memorandum is, ofnecessity, general and does not purport to be complete. Moreover, the provisions of ERISA and Section4975 of the Code are subject to extensive and continuing administrative and judicial interpretation andreview. Therefore, the matters discussed above may be affected by future regulations, rulings and courtdecisions, some of which may have retroactive application and effect.

ANY POTENTIAL INVESTOR CONSIDERING AN INVESTMENT IN THE SHARES THAT IS,OR IS ACTING ON BEHALF OF, A PLAN (OR A GOVERNMENTAL PLAN SUBJECT TOLAWS SIMILAR TO ERISA AND/OR SECTION 4975 OF THE CODE) IS STRONGLY URGEDTO CONSULT ITS OWN LEGAL, TAX AND ERISA ADVISERS REGARDING THECONSEQUENCES OF SUCH AN INVESTMENT AND THE ABILITY TO MAKE THEREPRESENTATIONS DESCRIBED ABOVE.

ADDITIONAL INFORMATION

Reports to Shareholders

The Fund will furnish annual reports to its Shareholders containing financial statements examinedby the Fund’s independent auditors. Shareholders will be sent copies of the audited financial statementsprior to the Fund’s annual general meeting each year prepared in accordance with U.S. GenerallyAccepted Accounting Principles. In addition, Shareholders will receive from the Administrator monthlyreports relating to the Fund’s performance.

Available Documents

This Memorandum is not intended to provide a complete description of the Fund’s Memorandumof Association and Bye-laws or the agreement with the Manager, Administrator, Investment Advisor, andthe Bank. Copies of such documents are available for inspection by Shareholders and prospectiveinvestors during normal business hours at the Administrator’s office or at the office of the Manager inHamilton, Bermuda.

Auditor’s Consent

PricewaterhouseCoopers has given its written consent to the inclusion of its name, report andreference to itself in the form and context in which they appear in this Memorandum.

Counsel

The law firms of Tannenbaum Helpern Syracuse & Hirschtritt LLP (New York) and O’NealWebster O’Neal (BVI) serve as counsel to the Fund in connection with matters pertaining to U.S. law andBVI law, respectively, and to the Manager and, together or individually, may serve as counsel to otherinvestment funds sponsored or managed by the Manager and its affiliates. Should a future dispute arisebetween the Fund and the Manager, separate counsel may be retained as circumstances and professionalresponsibilities then dictate. Counsel to the Fund do not represent the Shareholders. See “POTENTIALCONFLICTS OF INTEREST.”


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Inquiries and Communication with the Fund

All communications and correspondence with the Fund and inquiries concerning the Fund and theShares, including information concerning subscription and redemption procedures and current Net AssetValue, should be directed to the Administrator at the address set forth in the “DIRECTORY” appearingelsewhere in this Memorandum.


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SUBSCRIPTION INSTRUCTIONS FOR NON U.S. INVESTORS ONLY

(U.S. Investors are directed to the Subscription Documents appended to theSupplemental Disclosure Statement available on request from the Administrator)

USD Class Common Shares

Subscription Applications

Applications to subscribe for USD Class Common Shares (the “USD Shares”) of the Kingate GlobalFund, Ltd., a British Virgin Islands corporation (the “Fund”), may be made only by written applicationusing the enclosed Subscription Agreement and certain related documentation, outlined for ease ofreference as follows:

Individual Investors 1. Subscription Agreementfrom a FATF (*) Jurisdiction

Individual Investors 1. Subscription Agreementfrom a non-FATF Jurisdiction 2. Form Letter of Reference (Exhibit C)

Entity Investors 1. Subscription Agreementfrom a FATF Jurisdiction 2. Form of Incumbency Certificate (Exhibit A)

Entity Investors 1. Subscription Agreementfrom a non-FATF Jurisdiction 2. Form of Incumbency Certificate (Exhibit A)

3. Form Letter of Reference (Exhibit C)4. If privately held: Beneficial Ownership Information

Form (Exhibit D)5. If a trust: Trust Beneficiaries’ Information Form

(Exhibit E)

Funds of Funds and Other Entities 1. Subscription AgreementInvesting on Behalf of Others 2. Form of Incumbency Certificate (Exhibit A)(Nominee Banks, Hedge Funds, etc.) 3. AML Certification (Exhibit B)from a FATF Jurisdiction

* A FATF Jurisdiction is a country or territory which is a member of the Financial Action Task Force onMoney Laundering.


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Funds of Funds and Other Entities 1. Subscription AgreementInvesting on Behalf of Others 2. Form of Incumbency Certificate (Exhibit A)(Nominee Banks, Hedge Funds, etc.) 3. Form Letter of Reference (Exhibit C)from a non-FATF Jurisdiction 4. If privately held: Beneficial Ownership Information


(Exhibit E)

All completed Subscription Agreements should be directed to the Administrator at the addressshown thereon no later than the last Business Day (as defined in the Fund’s amended and restatedInformation Memorandum, as may be further amended and restated (the “Information Memorandum”))prior to the Subscription Date (as defined in the Fund’s Information Memorandum). The Fund reservesthe right to reject subscriptions in whole or in part, in which event subscription payments will be refundedat the applicant’s risk, without interest. The Manager of the Fund may, in its sole discretion, discontinuethe offering of USD Shares at any time. A properly completed and signed copy of the SubscriptionAgreement may be submitted to the Administrator by telecopier (+ 1-441) 296-8227 in advance ofsubmitting the original in order to expedite processing of the application. The signed original, however,must be sent to the Administrator immediately thereafter.

Subscription Payments

Payments in full for the amount subscribed (not less than U.S. $250,000, unless otherwise agreedin advance by the Fund) are to be made in U.S. Dollars by Fed Fund transfer at the latest by theSubscription Date (as defined in the Fund’s Information Memorandum) as follows:

(Note: Send Via SWIFT MT 103)

Wire to:

Correspondent Bank: HSBC Bank USA, N.A.452 Fifth AvenueNew York, New York 10018U.S.A.(ABA No. 021001088)(CHIPS UID no. 0108)(Swift Code MRMDUS33)

Beneficiary Bank: The Bank of Bermuda Limited6 Front StreetHamilton, Bermuda(CHIPS UID no. 005584)(Swift Code BBDABMHM)

Beneficiary: Kingate Global Fund, Ltd. (USD Shares)

Account No: 010-424174-561

Notification to the Administrator may be made via facsimile to the attention of ShareholderServices Unit at telecopier number (+ 1-441) 296-8227.

In order to facilitate prompt and accurate crediting of subscription payments, subscribers mustnotify the Administrator, prior to remitting payment, of the details of the subscription payment, indicating(i) the name of the subscriber, (ii) the dollar amount subscribed, (iii) the subscriber’s address (including a Kingate Global Fund, Ltd. – USD Shares

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telex or telecopier number if available), (iv) the name and address of the financial institution remitting thesubscription payment and (v) the approximate date as of which the payment is being wired to the Fund’saccount.

Confirmations

Confirmations will be sent to subscribers showing the details of each transaction. The USDShares will ordinarily be issued in respect of accepted applications at the Net Asset Value (as defined inthe Fund’s Information Memorandum) per USD Share as of the last Business Day of the month followingthe date on which the Fund has verified the receipt of the cleared funds.

A Share certificate will be issued only if specifically requested by the subscriber.

Local Rules

Persons interested in subscribing for the USD Shares should inform themselves as to (1) the legalrequirements within their own countries for the purchase of the USD Shares, (2) any foreign exchangerestrictions which they might encounter, (3) the income tax or other tax consequences, if any, which mightbe relevant to the purchase, holding or sale of the USD Shares, and (4) the applicable anti-moneylaundering rules set forth in the Memorandum and below.

As part of the Administrator’s and the Fund’s responsibility for protection against moneylaundering, the Administrator may require a detailed verification of the identity of a person or entityapplying for Shares. Depending on the circumstances of each application, a detailed verification mightnot be required where:

a. the applicant makes payment by wire transfer from an account held in the applicant’sname at a recognized financial institution residing in a recognized jurisdiction, as definedby applicable laws, and the applicant’s details (name and account number) appear in theconfirmation of the wire transfer; or

b. the application is made through a recognized intermediary.

These exceptions will only apply if the financial institution or intermediary referred to above iswithin a country recognized as having sufficient anti-money laundering regulations. As such, it is thecurrent policy of the Board to accept subscription monies only from financial institutions that are licensed toconduct banking or securities business in jurisdictions designated by the Board as “qualified jurisdictions”based on the nature of the jurisdictions’ regulatory regime, or the clients of such financial institutions.

A list of the jurisdictions that have been designated as “qualified jurisdictions” is available from theFund.

The Administrator and the Fund reserve the right to request such information as they deemnecessary to verify the identity of an applicant. In the event of delay or failure by the applicant to produceany information required for verification purposes, the Administrator may refuse to accept the applicationand the subscription monies relating thereto or may refuse to process a redemption request until properinformation has been provided.


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KINGATE GLOBAL FUND, LTD.USD SHARES

SUBSCRIPTION AGREEMENT(for non-U.S. Investors)

Kingate Global Fund, Ltd. – USD Sharesc/o Citi Hedge Fund Services, Ltd9 Church StreetP.O. Box HM 951Hamilton, Bermuda HM DXFax No.: (+ 1-441) 296-8227Attn: Shareholder Services Unit

Dear Sirs:

The undersigned subscriber (the “Subscriber”) acknowledges having received, reviewed andunderstood the Amended and Restated Information Memorandum dated as of 6 October, 2008 as may befurther amended and restated (the “Information Memorandum”) for the offering of USD ParticipatingCommon Shares (the “Shares”) of Kingate Global Fund, Ltd. (the “Fund”) and hereby subscribes for asmany Shares as may be purchased for the amount indicated below on the terms of the InformationMemorandum and subject to the provisions of the Memorandum and Articles of Association of the Fund.

Entitv Subscriber

Date and Jurisdiction of Incorporation:

Tax ID Number:

Natural Person Subscribers

Date and Place of Birth:

Social Security Number:

Nationality:

All Subscribers

Subscription Date:

Amount of Subscription:


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Name and Address of Subscriber(s):

Telephone Number:

Fax Number:

E-Mail:

Name and Address for Share Registration (if different):

Postal Address (if other than address of registration):

Name, Address and Account Number of Financial InstitutionRemitting Payment for Subscriber’s Account*:

* Such account details will be used to remit proceeds on redemption of Shares unless otherwise instructed in writing ofalternative instructions. Kingate Global Fund, Ltd. – USD Shares

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Payment Date:

The Subscriber agrees that all or any funds payable to the Subscriber (including redemption proceeds)may be wire transferred to the Subscriber in accordance with the following instructions, until furtherwritten notice, signed by one or more of the following individuals authorized to act on behalf of theSubscriber, and delivered to the Administrator (*).

Bank Name:

Bank Address:

ABA or CHIPS No:

Account Name:

Account No:

For Further credit:

Number of beneficial owners represented by Subscriber (if Subscriber is acting in any sort of nominee orfiduciary capacity)

Is the Subscriber, or an affiliate of the Subscriber, a pension profit-sharing, annuity, or employee benefitplan (whether private, governmental, or charitable)?

[ ] Yes [ ] No (Initial one)

The undersigned Subscriber is (tick one and refer to the Subscription Instructions for the documentationto enclose for different categories of investors):

q An Individual Investor from a FATF Jurisdiction

q An Individual Investor from a non-FATF Jurisdiction

q An Entity Investor from a FATF Jurisdiction

q An Entity Investor from a non-FATF Jurisdiction

q An Entity Investor from a non-FATF Jurisdiction – privately held

q An Entity Investor from a non-FATF Jurisdiction – trust

q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks, HedgeFunds, etc.) from a FATF Jurisdiction

q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks, HedgeFunds, etc.) from a non-FATF Jurisdiction


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q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks, HedgeFunds, etc.) from a non-FATF Jurisdiction – privately held

q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks, HedgeFunds, etc.) from a non-FATF Jurisdiction – trust

Authorized Signatories:

Set forth below are the names of persons authorized by the Subscriber to give and receiveinstructions between the Fund (or its Administrator) and the Subscriber, together with their respectivesignatures. Such persons are the only persons so authorized until further written notice to theAdministrator signed by one or more of such persons.

(please attach additional pages if needed)

Name Signatures


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PROFESSIONAL INVESTOR REPRESENTATIONS AND WARRANTIES

The Subscriber represents and warrants that:

(a) The Subscriber is subscribing for, or acquiring, Shares herein with a value of at leastU.S.$250,000;

(b) It is (i) an institution whose ordinary business or professional activity includes the buyingand selling of investments, whether as principal or agent; (ii) in the case of a natural person, his/herindividual net worth, or joint net worth with his/her spouse, exceeds U.S.$1 million; or (iii) an institutionwith a minimum amount of assets under discretionary management of U.S.$5 million; and

(c) It (i) has the knowledge, expertise and experience in financial matters to evaluate the risksof investing in the Fund; (ii) is aware of the risks inherent in investing in the assets proposed to beacquired by the Fund and the method by which the assets of the Fund are held and/or traded; and (iii) canbear the risk of loss of its/his/her entire investment.

SUBSCRIBER REPRESENTATIONS AND WARRANTIES

The Subscriber represents and agrees that none of the Shares (nor any interest therein) is beingacquired or will at any time be held, directly or indirectly, for the account or benefit of any “RestrictedPerson” (as defined in the Information Memorandum), and further agrees that none of the Shares will betransferred to any person who has failed to supply a similar representation. The Subscriber represents andwarrants that:

(a) Reliance on Information Memorandum. The Subscriber acknowledges that the Fundhas delivered to the Subscriber the Information Memorandum. The Subscriber has not relied on anyrepresentations or other information purported to be given on behalf of the Fund except as set forth in theInformation Memorandum or the published, financial accounts of the Fund.

(b) No Resale. The Subscriber is acquiring the Shares for its own account, or on behalf of athird party or third parties for investment and not with a view to resale, transfer or other disposition in whole orin part.

(c) No Need for Liquidity. The undersigned understands that the Shares have not beenregistered under the United States Securities Act of 1933, as amended (the “Securities Act”), or under the lawsof any other jurisdiction, and that the Fund does not contemplate and is under no obligation to so register theShares. The undersigned understands and agrees that the Shares must be held indefinitely unless they aresubsequently registered under the Securities Act and, where required, under the laws of other jurisdictions orunless an exemption from registration is available. Even if such exemption is available, the undersignedagrees that the assignment and transferability of the Shares will be governed by the Memorandum and Articlesof Association of the Fund (the “Memorandum and Articles of Association”). The Memorandum and Articlesof Association require that Shares in the Fund shall not be transferred without the prior consent of the Fund.The undersigned recognizes that there will be no established trading market for the Shares and it is extremelyunlikely that any public market for the Shares will develop. The undersigned has no need for liquidity inconnection with its purchase of Shares.

(d) Legality and Validity of Consents. All consents required to be obtained and all legalrequirements necessary to be complied with or observed in order for this Agreement or the issuance of the


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Shares to be lawful and valid under the laws of any jurisdiction to which the Subscriber is subject havebeen obtained, complied with or observed.

(e) Anti-Money Laundering. The Subscriber acknowledges that due to money launderingrequirements, the Fund, the Manager, the Investment Advisor and/or the Administrator may requirecertain identification and/or other information of the Subscriber before the application can be processed.

(f) Subscriber Knowledge. The Subscriber possesses requisite knowledge and experiencein financial matters such that it is capable of evaluating the merits and risks of an investment in the Fund(including without limitation, the ability to suffer a complete loss of the investment and need to hold theShares for an indefinite period of time).

(g) Transfer Request Form. Subscriber agrees to complete and submit to the Board ofDirectors the Transfer Request Form (annexed hereto) and any other documents requested by the Board ofDirectors in the event the Subscriber seeks to transfer its Shares, in whole or in part. No transfer shall beeffective without the express consent of the Board of Directors.

(h) No Performance Guarantees. No guarantees have been made to the Subscriber aboutfuture performance or financial results of the Fund.

(i) Ability to Bear Risks. The Subscriber is and will be able to bear the economic risks of itsinvestment in the Shares.

(j) Suitability. The Subscriber has read carefully and understands the InformationMemorandum and has consulted its own attorney, accountant or investment advisor with respect to theinvestment contemplated hereby and its suitability for the Subscriber and Subscriber consents to everyprovision therein.

(k) Opportunity to Verify Information. The Subscriber acknowledges that therepresentatives of the Fund, the Manager, Investment Advisor, Administrator and Consultant have madeavailable to the Subscriber, during the course of this transaction and prior to the purchase of any Shares,the opportunity to ask questions of and receive answers from them concerning the terms and conditions ofthe offering described in the Information Memorandum, and to obtain any additional informationnecessary to verify the information contained in the Information Memorandum or otherwise relevant tothe suitability of the proposed investment and to the proposed activities of the Fund.

(l) Investment Objectives. The purchase of the Shares by the Subscriber is consistent withthe general investment objectives of the Subscriber.

(m) No Borrowings. The Subscriber has not borrowed any portion of its contribution to theFund, either directly or indirectly, from the Fund, the Manager, Investment Advisor, Administrator, or anyaffiliate of the foregoing.

(n) Conflicts of Interest; Fund Counsel Does Not Re present Investors. The Subscriberunderstands and acknowledges the various conflicts of interest that are set forth in the InformationMemorandum. The Subscriber understands and acknowledges that Tannenbaum Helpern Syracuse &Hirschtritt LLP and O’Neal Webster O’Neal represent only the Fund and the Manager and not theSubscriber, in connection with the offer and sale of the Shares. The Subscriber has had the opportunity toconsult with legal counsel of its own choosing.


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(o) Amendments. Neither this Subscription Agreement nor any term hereof may bechanged, waived, discharged or terminated except with the written consent of the Fund’s Board ofDirectors.

(p) Change in Information. The Subscriber agrees to notify the Board of Directorsimmediately if any of the information provided herein by the Subscriber changes or becomes inaccurate.

(q) Authorization. The Subscriber acknowledges that it has the legal capacity and authority andis permitted by applicable law to execute and deliver this Agreement and is authorized to purchase Shares andto perform its obligations pursuant to the provisions hereof and pursuant to the Memorandum and Articles andof Association and such Subscriber has not been formed for the specific purpose of acquiring an interest in theFund.

(r) Broker Dealer Arrangements. The Subscriber acknowledges that the Fund and/or theInvestment Advisor have the power to enter into agreements pursuant to which a registered broker-dealeraffiliate of the Fund or any member of the Investment Advisor, splits commissions earned from any trades inrespect of Fund assets with any other registered broker-dealer on such terms as the Fund or the InvestmentAdvisor (as the case may be) in their sole discretion deem advisable and proper.

(s) Restricted Person. The Subscriber certifies that it is not now, and for as long as it ownsthe Shares, a Restricted Person, nor a custodian, nominee or trustee of such a person. The Subscriberfurther certifies that it is not acquiring the Shares for and will not hold the Shares on behalf of or transferShares to any person or entity that is a Restricted Person. The Subscriber agrees that it will promptlynotify the Fund at any time when it becomes a Restricted Person, and the Subscriber agrees that in suchevent the Fund shall be entitled to (but shall not be obliged to) repurchase or to require the Subscriber toredeem or sell the Shares to a person designated by the Fund at a price equal to the Net Asset Value perShare as calculated by the Administrator as at the date of the repurchase or sale or as at the date of anyunauthorised transfer giving rise to such repurchase or sale.

(t) Legal Entitv. Where the Subscriber is a company, trust or partnership, it agrees toproduce a certified copy or copies of the certificate of incorporation (and any change of name), bye-laws(or other document evidencing the existence of the legal entity), the register of directors or an excerptfrom the trade register held at the relevant chamber of commerce and the signatory card verifying theauthority of officers to sign on behalf of the corporate entity and any other relevant documentation asrequested by the Fund.

(u) Subscriptions. The Subscriber acknowledges that the Fund reserves the right to reject inits absolute discretion this and any other subscription for Shares in whole or in part, in any order, at anytime prior to a Subscription Date (as defined in the Information Memorandum), notwithstanding priorreceipt by the Subscriber of notice of acceptance of the subscription. If the Shares are oversubscribed, theFund will determine in its sole discretion which subscriptions shall be accepted. If this subscription isrejected or if the sale of the Shares is not completed for any reason (in which event this subscription shallbe deemed to be rejected), the Fund shall as soon as practicable return any funds transferred by theSubscriber (without interest) along with this Agreement and any other documents delivered by theSubscriber.

(v) Entire Agreement. This Agreement represents the entire agreement of the parties inrespect of the subscription for Shares and may not be changed or terminated orally.


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(w) Waiver. No waiver by any party of any breach of any term of this Agreement shall beconstrued as a waiver of any subsequent breach of that term or any other term of the same or of a differentnature.

(x) Legal Actions. If any legal action or any arbitration or other proceeding is brought for theenforcement of this Agreement or because of an alleged dispute, breach, default, or misrepresentation inconnection with any of the provisions of this Agreement, the successful or prevailing party or parties shallbe entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, inaddition to any other relief to which they may be entitled.

(y) Waiver of Statute of Limitations. Each investor in the Fund agrees to have waived, to themaximum extent permissible under law, the right to bring any legal claim, action or other proceeding againstthe Fund, its Board of Directors and other officers unless such claim, action or proceeding is commencedwithin six (6) months from the date of the first to occur of (i) the original occurrence allegedly giving rise tosuch claim, action or proceeding or (ii) the Shareholder's redemption of any Shares.

(z) Governing Law. The Subscriber agrees when entering into the Agreement to be boundby the laws of the BVI and in addition to the non-exclusive jurisdiction of the relevant courts thereinsubject to which laws this Agreement shall be governed and interpreted.

(aa) Facsimile Instructions. The Subscriber acknowledges that the Fund and theAdministrator are entitled to act upon facsimile instructions from or purported to be from the Subscriberand that all such instructions, where accepted by the Fund or the Administrator, will be final and bindingupon the Subscriber. The Subscriber agrees to indemnify the Fund or Administrator against any and allclaims, demands, liabilities, costs, charges, damages and expenses that the Fund or the Administrator mayincur by reason of any act or failure to act on the part of the Fund with regard to all facsimile instructionsso provided by the Subscriber.

(bb) Survival of Representations. The representations, warranties, agreements andindemnification obligations of the Subscriber contained in this Agreement shall survive the execution ofthis Agreement and the purchase of the Shares.

(cc) General. This Agreement shall be binding upon the Subscriber and the legalrepresentatives, successors and assigns of the Subscriber, and shall, if the Subscriber consists of more thanone person, be the joint and several obligation of all such persons. Two or more duplicate counterparts ofthis Agreement may be executed by the Subscriber and accepted by the Fund, each of which shall be anoriginal, but all of which together shall constitute one and the same instrument.

BENEFIT PLAN INVESTOR STATUS

Please respond yes or no to the following questions:

(1) The Subscriber is not a, and is not using to acquire the Shares the assets of any,“benefit plan investor” as defined in 29 C.F.R. 2510.3-101(f)(2) (as modified by Section 3(42) of ERISA) (the “Plan Asset Regulation”). For purposes of illustration, (Initial)“benefit plan investors” include pension plans, profit-sharing plans, or other “employeebenefit plans” subject to part 4 of subtitle B of Title I of ERISA, and plans subject toSection 4975 of the Internal Revenue Code of 1986, as amended (the “Code”).“Benefit plan investors” also include simplified employee pension plans, KEOGH plansand individual retirement accounts. “Benefit plan investors” also include entities


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deemed under Department of Labor regulations to hold “plan assets” due to investmentsmade in the entity by such employee benefit plans and other plans.

If the Subscriber is an entity, the Subscriber certifies that less than 25% of the value ofeach class of equity interests in the Subscriber (excluding any equity interests held byan individual or entity with discretionary authority or control over the equity interests ofthe Subscriber) is held by “benefit plan investors”.

Or

(2) The Subscriber, an affiliate of the Subscriber, or the person or entity for which the Subscriber is acting is a “benefit plan investor” as defined in the Plan Asset Regulation. (Initial)

If the Subscriber is a “benefit plan investor,” please indicate whether the Subscriber is aplan defined in Section 4975 of the Code (e.g., an individual retirement account,Coverdell account, ERISA Plans, etc.):

Yes No

(3) The Subscriber is a life insurance company acquiring the Shares with the assets ofthe Subscriber’s general account.

(Initial)

If so, the portion of such general account assets which represents “plan assets” withinthe meaning of the Plan Asset Regulation will not exceed the following percentageduring the period the Subscriber holds the Shares:

%

(4) The Subscriber is a person who has discretionary authority or control with respectto the assets of the Fund or provides investment advice to the Fund for a fee, direct or indirect, with respect to such assets or any affiliate of any such person (a “Controlling (Initial)

Person”).

(5) The Subscriber is an entity whose underlying assets are deemed to include “planassets” by reason of an employee benefit plan or other plan’s investment in the Subscriber. If so, the percentage of equity interests of the Subscriber held by employee (Initial)

benefit plans subject to part 4 of subtitle B of Title I of ERISA or plans subject toSection 4975 of the Code will not exceed the following percentage during the period theSubscriber holds the Shares:

%


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For purposes of the foregoing, an “affiliate” of a person includes any person, directly orindirectly, through one or more intermediaries, controlling, controlled by, or undercommon control with the person. “Control”, with respect to a person other than anindividual, means the power to exercise a controlling influence over the management orpolicies of such person.

The Subscriber understands and agrees that the information suppliedabove will be utilized to determine whether benefit plan investors own less than25% of the value of the Shares, as determined under the Plan Asset Regulation,both upon the original issuance of Shares and upon subsequent transfer of Shares.

TRUSTEE, AGENT, REPRESENTATIVE, NOMINEE OR OTHER THIRD PARTIES

If the Subscriber is acting as trustee, agent, representative or nominee for an investor (a "BeneficialOwner"), the Subscriber understands and acknowledges that the representations, warranties and agreementsmade herein are made by the Subscriber with respect to the Subscriber and with respect to the BeneficialOwner. The Subscriber further represents and warrants that it has all requisite power and authority from saidBeneficial Owner to execute and perform the obligations under this Subscription Agreement. The Subscriberalso agrees to indemnify the Fund, the Manager, the Investment Advisor, the Consultant and the Administratorand their officers and agents for any and all costs, fees and expenses (including legal fees and disbursements)in connection with any damages resulting from the Subscriber's misrepresentation or misstatement containedherein, or the assertion of the Subscriber's lack of proper authorization from the Beneficial Owner to enter intothis Subscription Agreement or perform the obligations hereof.

If the Subscriber enters into a swap, structured note or other derivative instrument, the return fromwhich is based in whole or in part on the return of the Fund (the "Swap") with a third party (a "Third Party"),the Subscriber represents and warrants that with respect to a Third Party entering into a Swap: (a) the ThirdParty is authorized under its constitutional documents (e.g., certificate of incorporation, by-laws, partnershipagreement or trust agreement) and applicable law to enter into the Swap and would also be so authorized toinvest directly into the Fund; (b) the Third Party has received and reviewed a copy of the InformationMemorandum, the U.S. Supplement and the Subscription Agreement; (c) the Third Party acknowledges thatthe Fund and its affiliates are not responsible for the legality, suitability or tax consequences of the Swap andthat the Subscriber is not an agent of the Fund; and (d) the Third Party is an "eligible contract participant"under the U.S. Commodity Exchange Act, as amended and, as necessary, an “accredited investor” within themeaning of Regulation D under the Securities Act of 1933, as amended. The Subscriber also agrees toindemnify the Fund, the Manager, the Investment Advisor and the Consultant and the Administrator and theirofficers and agents for any and all costs, fees and expenses (including legal fees and disbursements) inconnection with any damages resulting from the Subscriber's misrepresentation or misstatement containedherein. Nothing herein constitutes an agreement or statement by the Fund as to the legality of a Swap or thesuitability of a Swap for the Third Party.

ANTI-MONEY LAUNDERING REPRESENTATIONS

(a) The Subscriber represents that all evidence of identity provided in connection with theSubscription Agreement is true and correct and all related information furnished is genuine and accurate.

(b) The Subscriber agrees to provide any information deemed necessary by the Fund in itssole discretion to comply with its anti-money laundering program and related responsibilities from time to


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time. In the event of delay or failure by the Subscriber to produce any information requested in thisSubscription Agreement or required for verification purposes, the Fund may refuse to accept thesubscription.

(c) The Subscriber represents and covenants that neither it, nor any person controlling,controlled by, or under common control with it, nor any person having a beneficial interest in it, is anindividual, organization, or entity listed on the List of Specially Designated Nationals and BlockedPersons (the “OFAC Control List”) maintained by the US Office of Foreign Assets Control (“OFAC”),and that it is not investing and will not invest in the Fund on behalf of or for the benefit of any individual,organization, or entity listed on the OFAC Control List.

(d) The Subscriber represents that (i) the amounts contributed by it to the Fund were not andare not directly or indirectly derived from activities that contravene U.S. federal or state laws orregulations and international laws and regulations, including anti-money laundering laws and regulations,and (ii) the proceeds from the Subscriber’s investment in the Fund will not be used to finance any illegalactivities.

(e) The Subscriber acknowledges (i) that additional subscriptions by the Subscriber may berefused and/or (ii) that requests for withdrawals may be delayed or declined if the Manager reasonablybelieves it does not have satisfactory evidence of the Subscriber’s identity.

(f) The Subscriber acknowledges that, if, following its subscription in the Fund, the Managerand/or the Administrator reasonably believes that the Subscriber is listed on the OFAC Control List or hasotherwise breached its representations and covenants as to its identity, the Manager and/or theAdministrator may be obligated to block the Subscriber’s investment in accordance with applicable law,and the Subscriber shall have no claim against the Manager and/or the Administrator for any form ofdamages as a result of blocking the investment.

(g) If the Subscriber is a “fund of funds” or an entity that invests on behalf of others, theSubscriber, in addition to and not by way of limiting the foregoing, represents and certifies that it is awareof the requirements of the USA PATRIOT Act of 2001, and rules and regulations promulgated thereunderand other applicable anti-money laundering measures in any jurisdiction (collectively, the “AML Rules”)and that it has adopted anti-money laundering policies and procedures in place reasonably designed toverify the identity of its beneficial owners or underlying investors, as the case may be, and their respectivesources of funds. Such policies and procedures are properly enforced and are consistent with such AMLRules. The Subscriber represents and certifies that to the best of its knowledge, the beneficial owners orinvestors, as the case may be, are not individuals, entities, or countries that may subject the Fund or any ofits affiliates to criminal or civil violations of any AML Rules. The Subscriber acknowledges that it is tofurnish a copy of its anti-money laundering policies and procedures to the Fund when requested. Amongits other obligations hereunder, the Subscriber agrees to promptly notify the Fund if the foregoingrepresentation and certification becomes inaccurate.

(h) Subscriber represents that:

(1)

it is not a Senior Foreign Political Figure‡, a member of a Senior ForeignPolitical Figure’s Immediate Family§ , and/or any Close Associate ** of a Senior

‡ The term “senior foreign political figure” is defined to mean a senior official in the executive, legislative, administrative,military or judicial branches of a foreign government (whether elected or not), senior official of a major foreign political party,$r a senior executive of a foreign government-owned corporation.

The term “immediate family” is defined to mean the parents, siblings, spouse, children and in-laws of a senior foreignpolitical figure. Kingate Global Fund, Ltd. – VSD Shares

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Foreign Political Figure residing in a non-cooperative country or territory or ajurisdiction that has been designated by the US Treasury as warranting specialmeasures due to money laundering concerns;

(2) it is not a former Senior Foreign Political Figure residing in a non-cooperativecountry or territory or a jurisdiction that has been designated as warrantingspecial measures due to money laundering concerns;

(3) it is not resident in, or organized or chartered under the laws of a jurisdiction thathas been designated by the US Secretary of Treasury under Sections 311 and 312of the USA PATRIOT Act as warranting special measures due to moneylaundering concerns;

(4) it is not a Foreign Shell Bank as the term is defined in the USA PATRIOT Act;and

(5) its subscription funds do not originate from, nor will they be routed through, anaccount maintained at a Foreign Shell Bank, an “offshore bank,” or a bankorganized or charted under the laws of a jurisdiction deemed to be a non-cooperative country or territory (“NCCT” ) ††.

STANDING PROXY

Subscriber hereby designates and appoints Kingate Management Limited, or any successorthereof, with full powers of substitution, as Subscriber’s true and lawful Proxy for the purpose of votingany Shares issued pursuant to this Agreement (or such portion thereof from time to time owned bySubscriber) as said Proxy may determine on any and all matters arising at any meeting of the Fund or anyClass meeting upon which such Shares could be voted by Subscriber (or the person in whose name theShares hereby subscribed are registered at Subscriber’s direction) if present in person at the meeting. Thisproxy may be revoked by Subscriber (or his registered nominee) either personally or by presentation of asubsequently executed form of proxy at any meeting of the Fund or by written notice to KingateManagement Limited received by Kingate Management Limited prior to any such meeting providedhowever that such revocation may lead to the compulsory redemption of such Subscriber’s Shares

POWER OF ATTORNEY

The Subscriber hereby irrevocably constitutes and appoints Kingate Management Limited, with fullpower of substitution, as the Subscriber’s true and lawful attorney-in-fact with full power and authority forthe Subscriber, and in the Subscriber’s name, place and stead and either personally or by attorney-in-fact, toexecute, deliver, acknowledge, publish, file and record and swear to the execution, delivery,acknowledgment, filing and/or recording of:

(a) The Information Memorandum, the Memorandum and Articles of Association and allamendments thereto required or permitted by law or the provisions of the Memorandum and Articles ofAssociation and all instruments that the attorney-in-fact deems appropriate to reflect any change or

** The term close associate” is defined to mean a person who is widely and publicly known to maintain an unusually close

gationship with s senior foreign political figure.The Financial Action Task Force on Money Laundering (“FATF”) has designated certain countries or territories as NCCTs.

The list of countries or territories deemed to be NCCTs is available at: http://www1.oecd.org/fatf. Kingate Global Fund, Ltd. – VSD Shares

S-15


modification of the Information Memorandum and the Memorandum and Articles of Association inaccordance with the Memorandum and Articles of Association;

(b) all such other agreements, applications, instruments, documents, certifications, certificatesand reports which may from time to time be required by the laws of any jurisdiction in which the Fund shalldetermine to do business, or any political subdivision or agency thereof, or any regulator to effectuate,implement and continue the valid and subsisting existence of the Fund;

(c) all conveyances and other instruments which the Board of Directors deems appropriate toreflect the dissolution and termination of the Fund; and

(d) all certificates and other instruments deemed necessary or advisable by the Board of Directorsto carry out the provisions of the Information Memorandum and the Memorandum and Articles ofAssociation.

The Power of Attorney granted hereby is coupled with an interest and is irrevocable and shall (i)continue in full force and effect notwithstanding the subsequent death, incapacity, dissolution, termination orbankruptcy of the Subscriber or the transfer of all or any portion of the Subscriber’s Shares in the Fund and (ii)extend to the Subscriber’s successors, assigns and legal representatives. The Subscriber agrees to be bound byany representation made by the attorney-in-fact acting in good faith pursuant to this Power of Attorney, andhereby waives any and all defenses which may be available to contest, negate or disaffirm the action of theattorney-in-fact taken in good faith under this Power of Attorney.

In the event of any conflict between the provisions of the Memorandum and Articles of Associationand any document executed or filed by the attorney-in-fact pursuant to this Power of Attorney, theMemorandum and Articles of Association shall govern.

INDEMNIFICATION

The Subscriber acknowledges that the Subscriber understands the meaning and legal consequences ofthe representations and warranties contained in this Agreement and agrees to indemnify and hold harmless theFund, the Manager, Investment Advisor, Consultant and Administrator, and their respective affiliates,employees, officers, directors and agents and each other Subscriber from and against any and all loss, damage,liability or expense, including, without limitation, legal fees, due to or arising out of a breach of anyrepresentation or warranty of the Subscriber contained in any document furnished by the Subscriber inconnection with the offering and sale of the Shares, including, without limitation, this Agreement, theInformation Memorandum and the Memorandum and Articles of Association, and all schedules, appendicesand exhibits hereto or thereto, submitted by the Subscriber, or failure by the Subscriber to comply with anycovenant or agreement by the Subscriber herein or in any other document furnished by the Subscriber to anyof the foregoing in connection with this transaction. The indemnified parties shall be entitled to advances withregard to the indemnification made hereunder provided that such indemnified party deliver to theindemnifying party an undertaking pursuant to which it promises to return such advanced amount if theindemnity is ultimately found to be inapplicable.


S-16


INDIVIDUALS ENTITIES

Signature Print Name of Entity

By: Print Name Authorized Signature(s)

Additional Investor Signature Print Name(s) and Title(s)

Print Name

Date Date

I/We enclose (tick as appropriate):

q Exhibit A – Form of Incumbency Certificate

q Exhibit B – Anti Money Laundering (“AML”) Certificate

q Exhibit C – Letter of Reference

q Exhibit D – Beneficial Ownership Information (Entities)

q Exhibit E – Trust Beneficiaries’ Information (Trusts)

The foregoing Subscription Agreement is hereby accepted by the undersigned as of the date set forthbelow:

Amount Accepted USD

Kingate Global Fund, Ltd.By:

Name:Title:

Date of Acceptance:


S-17


EXHIBIT A

FORM OF INCUMBENCY CERTIFICATE

The undersignedInsert Name

Being theInsert Title

OfInsert Name of Entity

AInsert Type of Entity

Organized under the laws of Insert Jurisdiction of Entity

(the “Company”), does hereby certify on behalf of the Company that the persons named below are directors

and/or officers of the Company and that the signature at the right of said name, respectively, is the genuine

signature of said person and that the persons listed below are each an authorized signatory for the Company.

Name Title Signature

IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of the day of

, 200__.

Name:Title:


S-18



a Duly Authorized

of the CompanyInsert Title

does hereby certify thatInsert Name of First Signatory

is a duly authorized Officer of Insert Name of Company

and that the signature set forth above is [his][her] true and correct signature.

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the dayof , 200__.

Name:Title:


S-19


EXHIBIT B

By Using This Form, the Undersigned Represents that it is Located in a FATF Jurisdiction

AML CERTIFICATION FORM FOR FUND OF FUNDS OR ENTITIES THAT INVEST ONBEHALF OF THIRD PARTIES

The undersigned, being theInsert Title

ofInsert Name of Entity

aInsert Type of Entity

organized under the laws of Insert Jurisdiction of Entity

(the “Investor”), does hereby certify that it is aware of the requirements of the USA PATRIOT Act of

2001, the regulations administered by the U.S. Department of Treasury’s Office of Foreign Assets

Control, and other applicable U.S. federal, state or non-U.S. anti-money laundering laws and regulations

(collectively, the “anti-money laundering/OFAC laws”). As an entity regulated by

(Insert Appropriate Regulatory Agency) in the

(Insert Jurisdiction) (a FATF member jurisdiction) the Investor

has/have anti-money laundering policies and procedures in place reasonably designed to verify the

identity of its [beneficial holders] [underlying investors] and, to the extent required, their sources of

funds. Such policies and procedures are properly enforced by the Investor.

After due inquiry, the Investor hereby represents to Kingate Global Fund, Ltd. that, to the best ofits knowledge, the Investor’s [beneficial holders(s)] [underlying investor(s)] are not individuals, entitiesor countries that are identified on the list maintained by the U.S. Office of Foreign Assets Control ** .

Date: By: Name:Title:

1 The list may be found at http://www.ustreas.gov/ofac/t11/sdn.pdf Kingate Global Fund, Ltd. – VSD Shares

S-20


EXHIBIT C

FORM LETTER OF REFERENCE

[TO BE PRINTED ON THE LETTERHEAD OF LOCAL OFFICE OF FATFMEMBER BANKING INSTITUTION OR BROKERAGE FIRM]

Kingate Global Fund, Ltd.c/o Citi Hedge Fund Services, Ltd9 Church StreetP.O. Box HM 951Hamilton, Bermuda HM DXAttn: Shareholder Services Unit

To Whom It May Concern:

I, , the of , do herebyName Title Name of Institution

certify that has maintained an account at our institution for

Name of Investor Insert Period

years and, during this period, nothing has occurred that would give our institution cause to be

concerned regarding the integrity of

.Name of Investor

Do not hesitate to contact me at if you have any further questions.Insert Telephone Number

Very truly yours,

Name:

Title:


S-21


EXHIBIT D

BENEFICIAL OWNERSHIP INFORMATION

To Be Completed By Entity Subscribers That Are Privately Held Entities

Instructions: Please complete and return this Exhibit D and provide the name of every personwho is directly, or indirectly through intermediaries, the beneficial owner of 25% or more ofany voting or non-voting class of equity interests of the Investor. If the intermediary’sshareholders or partners are not individuals, continue up the chain of ownership listing their25% or more equity interest holders until individuals are listed. If there are no 25% beneficialowners, please write none.

CitizenshipIf Shareholder is an Individual, (for Individuals) or

Insert Name and Address of Principal Place ofFull Name Principal Employer and Position Business (for Entities)


S-22


EXHIBIT E

TRUST OWNERSHIP INFORMATION

To Be Completed By Entity Subscribers That Are Trusts

Instructions: Please complete and return this Exhibit E and provide the name of: i) everycurrent beneficiary that has, directly or indirectly, an interest of 25% or more in the trust; ii)every person who contributed assets to the trust (settlors or grantors); and iii) every trustee. Ifthere are intermediaries that are not individuals, continue up the chain of ownership listingtheir 25% or more equity interest holders until individuals are listed.

Citizenship

Status (for Individuals) or(Beneficiary/Settlor/ Principal Place of

Full Name and Address Trustee) Business (for Entities)


S-23


KINGATE GLOBAL FUND, LTD.USD Shares

REDEMPTION REQUEST

Kingate Global Fund, Ltd. – USD Sharesc/o Citi Hedge Fund Services, Ltd9 Church StreetP.O. Box HM 951Hamilton, Bermuda HM DXFax No.: (+ 1-441) 296-8227Attn: Shareholder Services Unit

Dear Sirs:

I/We hereby requests Redemption of the number of USD Shares OR the U.S. Dollar amount detailedbelow, subject to all the terms and conditions of the Memorandum and Articles of Association ofKingate Global Fund, Ltd. (the “Fund”), and the Amended and Restated Information Memorandumof Kingate Global Fund, Ltd. – USD Shares, as may be further amended and supplemented fromtime to time.

Redemption shall be effective as of the last Business Day of the calendar month detailed below,provided that this Redemption Request, accompanied by a share certificate(s) (if applicable) isreceived by the Fund at least thirty-five (35) days prior to such effective date and that (i) the originalsigned Redemption Request is received by the Administrator prior to the Redemption Date and (ii)I/we receive written confirmation from the Administrator that the faxed Redemption Request hasbeen received.

Please accept this letter as written notice of my/our intention to redeem the number of Class USDShares indicated below or the USD amount indicated below.

I/We (either in an individual capacity or as an authorized representative of an entity, if applicable)hereby represents and warrants to be the true, lawful and beneficial owner of the Shares to which thisRedemption Request relates, with full power and authority to request redemption of such Shares.Such Shares are not subject to any pledge or otherwise encumbered in any fashion.

Redemption Date:

Number of Shares Being Redeemed:

[ ] USD Shares (number of shares)

OR


S-24


Amount Being Redeemed:

[ ] USD (Amount in US $)

Name and Address of Redeeming Shareholder(s):

Telephone Number:

Fax Number:

E-Mail:

Name and Address of Share Registration (if different):

Telephone Number:

Fax Number:

E-Mail:

Name and Address of Bank for the Payment of Redemption Proceeds

Bank Name:

Bank Address:

ABA or CHIPS No:


S-25


Account Name:

Account No:

For Further credit:

Telephone Number:

Fax Number:

E-Mail:





Print Name

Date Date


S-26



TRANSFER REQUEST FORM

Kingate Global Fund, Ltd.c/o Citi Hedge Fund Services, Ltd9 Church StreetP.O. Box HM 951Hamilton, Bermuda HM DXFax No.: (+ 1-441) 296-8227Attn: Shareholder Services Unit

Dear Sirs:

The undersigned (herein referred to as the “Transferor”) hereby requests transfer, as defined in andsubject to all the terms and conditions of the Amended and Restated Information Memorandum of theFund, as may be further amended, restated and supplemented from time to time, to the transferee (the“Transferee”) designated below, of the number of USD Shares of the Fund detailed below in an amountequal to their Net Asset Value, as defined in the Information Memorandum.

Request is hereby made that effective as of (insert date), Shares specified below aredeemed transferred from the Transferor to the Transferee. It is understood that the Fund’s consent isrequired for this proposed transaction to be effective.

The Transferor (either in an individual capacity or as an authorized representative of an entity, ifapplicable) hereby represents and warrant to be the true, lawful and beneficial owner of the USD Sharesto which this Transfer Request relates, with full power and authority to request transfer of such USDShares. Such USD Shares are not subject to any pledge or otherwise encumbered in any fashion. TheTransferor hereby further represents and warrants that upon the requested transfer herein, the Transferorwill continue to remain the beneficial owner of the Shares.

TRANSFER INFORMATION

NUMBER OF USD SHARESREQUESTED FOR TRANSFER: SHARES.............................ORUS$ AMOUNTBEING TRANSFERRED US$...............................

PLEASE INDICATE IF THE BENEFICIAL OWNER OF THE USD SHARES IN THE HANDS OF THETRANSFEROR WILL REMAIN THE SAME:

YES: ......NO: ...... (initial applicable answer)

EFFECTIVE TRANSFER DATE:


S-27


NAME AND MAILING ...........................................................................ADDRESS OF TRANSFEROR(S)WISHING TO TRANSFER ...........................................................................

............................................................................

NAME AND MAILINGADDRESS OF TRANSFEREE(S) ........................................................................

NAME AND ADDRESS OF ..............................................................................SHARE REGISTRATION(IF DIFFERENT) ...............................................................................

..............................................................................

NAME AND ADDRESS OF ..............................................................................FINANCIAL INSTITUTIONTO WHICH TRANSFER ................................................................................PROCEEDS ARE TO BETRANSFERRED FROM ...............................................................................(INCLUDING A BANKACCOUNTNUMBER AND ..............................................................................WIRING INSTRUCTIONSIF APPROPRIATE)

DATE..............................................................................

SIGNATURE..............................................................................

NAME OF TRANSFEROR* ..................................................................

NAME AND TITLE ..................................................................(IF SIGNING IN A REPRESENTATIVE CAPACITY)

See EXHIBIT I attached hereto for a sample letter that must be provided to the Fund and the Administrator when anyoneother than an individual makes a request to transfer Shares. Kingate Global Fund, Ltd. – VSD Shares

S-28



SUBSCRIPTION AGREEMENT FOR ADDITIONAL SUBSCRIPTIONS BYEXISTING NON-U.S. SHAREHOLDERS


Dear Sirs:

1. The undersigned, an existing Shareholder of Kingate Global Fund, Ltd., a British VirginIslands business company (the “Fund”), does hereby subscribe for and agrees to purchase additional shares(the “Shares”) in the Fund in the amount of $ , such subscription to be effective as of , (the “Effective Date”).

2. The undersigned agrees and acknowledges that in connection with its original investment inthe Fund, it tendered a subscription agreement (the “Subscription Agreement”) to the Fund.

3. The undersigned reaffirms all of the representations, warranties, covenants and agreementson the part of the undersigned which were set forth in the Subscription Agreement (which are incorporatedherein by reference), except for the subscription amount and date of purchase, with the same force and effectas if set forth in full herein on the date hereof. The undersigned also confirms to the Fund that all of theinformation contained in the Subscription Agreement, including, without limitation, information contained inthe “SUBSCRIBER REPRESENTATIONS AND WARRANTIES” and “PROFESSIONAL INVESTORREPRESENTATIONS AND WARRANTIES” sections, is true and correct as of the date hereof and that theeffect of the execution of this instrument by the undersigned is the same as the re-execution of theSubscription Agreement on the date hereof except as above provided.

4. The undersigned hereby tenders wire transfer payable to “Kingate Global Fund, Ltd.” in theamount of his subscription and agrees that such wire, and this Additional Subscription Agreement are beingdelivered subject to the Fund’s acceptance of the additional subscription contained herein and subject furtherto the terms and conditions of this Subscription Agreement for Additional Subscriptions, the Fund's Amendedand Restated Information Memorandum (as the same may be further amended from time to time) and theFund's Memorandum and Articles of Association (as the same may be amended from time to time).


S-29


IN WITNESS WHEREOF the undersigned agrees to be bound by this Additional SubscriptionAgreement as provided herein.

Dated: ,

IF THE UNDERSIGNED IS AN INDIVIDUAL,COMPLETE THE FOLLOWING:

Print name of individual Print name of spouse if funds are to be invested injoint name

Signature of individual Signature of spouse if funds are to be invested injoint name

IF THE UNDERSIGNED IS A CORPORATION,PARTNERSHIP, TRUST OR ANOTHER ENTITY,COMPLETE THE FOLLOWING:

Print name of corporation, partnership, trust or Print capacity of authorized representativeanother entity

By:Signature of authorized Print name of authorized representativeRepresentative

Accepted by:

Kingate Global Fund, Ltd.:

By:Title:


S-30


EXHIBIT I

Sample Letter For Approved Transfers

[to be placed on letterhead of a financial institution in a recognizedjurisdiction for money laundering regulations on behalf of the Shareholder requesting a Share transfer]


Re: Transfers of USD Shares in Kingate Global Fund, Ltd. (the “Fund”)

Dear Sirs:

We act as a nominee or intermediary for our customers with respect to investments in various investmentfunds. We may from time to time be the recipient of shares (by way of a transfer from an existingShareholder) in the Fund and/or in funds which are administered by the Fund’s administrator, Citi HedgeFund Services, Ltd (the "Administrator"), or one of your subsidiary or affiliated companies. We areproviding this letter to you, the Fund, and the Administrator, in connection with your obligations underthe various anti-money laundering and similar laws applicable to you.

We confirm that we are a financial institution which is subject to regulation in our jurisdiction ofresidence the purpose or effect of which is to prevent money laundering (the “AML Rules”).

We confirm that we have in place policies and procedures which meet or exceed the requirementsimposed by the AML Rules.

We confirm that prior to acting as a nominee or intermediary for our customers we verify the identity ofthe customer and, if not an individual, its beneficial owners.

The above information is given in strictest confidence and may only be relied upon by you and theAdministrator.

Yours truly,

Signed:

Full Name:

Position:

Address and Telephone Number of Branch Providing this Letter:


S-31


EXHIBIT J

PRIVACY NOTICE

Kingate Management Limited (the “Manager”) recognizes the importance of protecting Shareholderprivacy and have appropriate policies in place to maintain the confidentiality and security of ourShareholders’ information.

Categories Of Information We May Collect

In the normal course of business, we may collect the following types of information:

• Information you provide in the subscription documents and other forms (including name, address,date of birth, social security or taxpayer identification number, income and other financial-relatedinformation)

• Data about your transactions with us (such as the types of investments you have made and youraccount status)

How We Use Your Information That We Collect

Any and all nonpublic personal information received by the Manager with respect to the Shareholderswho are natural persons, including the information provided to the Fund by a Shareholder in thesubscription documents, will not be shared with nonaffiliated third parties which are not service providersto the Fund or the Manager without prior consent from such Shareholders. In the normal course ofbusiness, we may disclose the kinds of nonpublic personal information listed above to nonaffiliated thirdparty service providers involved in servicing and administering products and services on our behalf. Suchservice providers include but are not limited to the Administrator, the auditors and the legal advisors ofthe Fund. Additionally, the Fund and/or the Manager may disclose such nonpublic personal informationas required by law (such as to respond to a subpoena or to prevent fraud). In addition, if the Fundchooses to dispose of any Shareholder’s nonpublic personal information that the Fund is not legallybound to maintain, then the Fund will do so in a manner that reasonably protects such information fromunauthorized access.

The same privacy policy applies to the former Shareholders.

Confidentiality and Security

We restrict access to nonpublic personal information about our customers to those employees and agentswho need to know that information in order to provide products and services to you. We maintain physical,electronic and procedural safeguards to protect your nonpublic personal information.

For questions about this privacy policy, please contact the Manager.


S-32


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Exhibit 3








August 1, 2007


Manager: Kingate Management LimitedConsultant: FIM Advisers LLPAdministrator: BISYS Hedge Fund Services Limited, Bermuda

INVESTMENT IN THE FUND INVOLVES RISK.YOUR ATTENTION IS DRAWN TO THE RISK FACTORS


Recipient:

Memorandum no.

THIS CONFIDENTIAL INFORMATION MEMORANDUM IS BEING GIVEN TO THE RECIPIENT SOLELYFOR THE PURPOSE OF EVALUATING AN INVESTMENT IN THE SHARES DESCRIBED HEREIN. ITMAY NOT BE REPRODUCED OR DISTRIBUTED TO ANYONE ELSE (OTHER THAN TO THEIDENTIFIED RECIPIENT’S PROFESSIONAL ADVISORS FOR THE PURPOSES OF EVALUATING THEINVESTMENT IN SHARES.) THE RECIPIENT, BY ACCEPTING DELIVERY OF THIS MEMORANDUM,AGREES TO RETURN IT AND ALL RELATED DOCUMENTS TO THE FUND IF THE RECIPIENTDETERMINES NOT TO SUBSCRIBE FOR SHARES.


IMPORTANT NOTICES

Neither Kingate Global Fund, Ltd. (the “Fund”) nor the USD Participating Common Shares of the Fund(the “USD Shares) described in this Amended and Restated Information Memorandum dated as of August 1, 2007,as may be further amended and restated (this “Memorandum”), have been or will be registered or qualified underthe securities laws of the United States (“U.S.”) or any other jurisdiction. This Memorandum does not constitute anoffer to sell or the solicitation of an offer to buy, nor shall there be any sale of USD Shares in any jurisdiction inwhich such offer, solicitation or sale is not authorized or to any person to whom it is unlawful to make such offer,solicitation or sale. The direct or indirect ownership of USD Shares by “Restricted Persons” as defined in thisMemorandum, is prohibited except to a limited number of tax exempt investors in the Fund’s discretion and thenonly after supplementary offering materials have been distributed to such potential investors. No person has beenauthorized to make any representations concerning the Fund or the USD Shares which are inconsistent with thosecontained in this Memorandum, and any such representations should accordingly be treated as unauthorized andmay not be relied upon by the recipient.




Investors (and each employee, representative or other agent of investors) may disclose to any and allpersons, without limitations of any kind, the tax treatment and tax structure of the transaction and all materials ofany kind (including options or other tax analysis) that are provided to investors relating to such tax treatment andtax structure. This authorization of tax disclosure is retroactively effective to the commencement of the firstdiscussions between such investor and the Fund regarding the transactions contemplated herein.



This Memorandum supersedes the Fund’s Amended and Restated Information Memorandum dated May 1,2006.

All monetary amounts set forth herein are expressed in U.S. Dollars. Kingate Global Fund, Ltd. – USD Shares



SUMMARY

The information set out below should be read in conjunction with, and is qualified in its entiretyby, the full text of this Amended and Restated Information Memorandum, as may be further amended andrestated (the “Memorandum”), the memorandum and articles of association (the “Memorandum andArticles of Association”) of Kingate Global Fund, Ltd. and the documents and agreements referred toherein, all of which are available from the Administrator upon request.



The Fund is now offering, through this Memorandum, USDParticipating Common Shares (the “USD Shares”) at a net priceper USD Share equal to the Net Asset Value (as defined herein)of the USD Shares. As of March 31, 2007, the audited Net AssetValue per Share of the USD Shares was U.S.$395.74 and therewere 6,367,570 Shares outstanding. See “SHARES OF THEFUND” and “DETERMINATION OF NET ASSET VALUE.”The Fund may discontinue this offering at any time for anyreason or no reason. Investors are referred to herein as“Shareholders.”

Board of Directors. The Fund has three (3) Directors on itsBoard of Directors (the “Board”) who exercise ultimate authorityover the Fund. The Directors meet quarterly, either in person orby telephone, to review the investment and administrative affairsof the Fund. See “MANAGEMENT - The Fund’s Board ofDirectors.”

Other Classes. The Fund is authorized to issue other classes ofshares subject to terms and conditions that may differ from theterms and conditions applicable to the Shares discussed herein atany time without notice to or obtaining consent from theShareholders. No offering of any other class is made by thisMemorandum. There are no other classes on offer at the presenttime.


i



AND PROCESS




INVESTMENT ADVISOR The Fund’s assets are managed by a New York based NASD*

registered broker-dealer employing approximately 350 peopleand acting primarily as a market-maker in listed and unlistedstocks and convertible securities (the “Investment Advisor”).The Investment Advisor utilizes a “split strike conversion”options strategy consistent with that of the Fund, as set forthunder “THE FUND – The Fund’s Investment Objective andInvestment Process.” The Investment Advisor has managed theassets of the Fund since its inception and it is anticipated that theretention of such Investment Advisor will continue. In addition,from time to time, a portion of the Funds’ assets may bemanaged by the Manager (as defined herein). See“MANAGEMENT - The Investment Advisor.”



CONSULTANT FIM Advisers LLP, located in London, United Kingdom (hereinthe “Consultant”), has been appointed as consultant to theManager in relation to the investments of the Fund pursuant to aConsulting Services Agreement by and among the Fund, the


ii


Manager and the Consultant dated August 1, 2005 (the “FIMConsulting Services Agreement”). Pursuant to the FIMConsulting Services Agreement, the Consultant rendersconsulting advice to the Manager with respect to certain aspectsof the Fund’s operational, administrative, marketing, accountingand legal matters. See “MANAGEMENT - The Consultant.”

ADMINISTRATOR BISYS Hedge Fund Services Limited, located in Bermuda(herein the “Administrator”) is the Fund’s Administratorpursuant to an Administration Agreement, as amended andrestated effective January 1, 2002, by and among the Fund, theManager and the Administrator (herein the “AdministrationAgreement”). Pursuant to the Administration Agreement, theAdministrator administers the day-to-day activities of the Fund’soperations, which include, without limitation, receivingsubscriptions and processing redemption requests, calculatingthe Net Asset Value, responding to shareholder inquiries andsimilar matters. In addition to its administrative duties, theAdministrator has been appointed as Registrar and TransferAgent of the USD Shares pursuant to a Registrar Agreement, asamended and restated effective January 1, 2002, by and amongthe Fund, the Manager and the Administrator (herein the“Registrar Agreement”). See “MANAGEMENT -Administrator.”



Minimum Subscription. The minimum initial investment persubscriber is U.S.$250,000. The minimum subsequent


iii


investment per subscriber is U.S.$100,000. Such amounts maybe waived or reduced at the discretion of the Directors.





NET ASSET VALUE Generally. The Net Asset Value of the Fund is equal to theFund’s assets less the Fund’s liabilities and any accrued butunpaid expenses and reasonable reserves that have not yet beencharged. Each Class of Shares and, with respect to the USDShares, each Series thereof has its respective Net Asset Valuedetermined in accordance with the foregoing and based upon theassets and liabilities attributable to the particular Class or Series,as the case may be. Expenses, fees and other liabilities aredetermined in accordance with U.S. Generally AcceptedAccounting Principles. The Net Asset Values are calculated asof the close of business in New York on the last Business Day ofeach month or on such other date when such computation is


iv


necessary or appropriate (each a “Valuation Date”). See“DETERMINATION OF NET ASSET VALUE.”


therefore is not required to adhere to certain investment policiesunder the U.S. Investment Company Act of 1940, as amended(the “Company Act”). In addition, neither the Manager nor theInvestment Advisor is registered as an investment adviser underthe Investment Advisers Act of 1940, as amended (the “AdvisersAct”). This Memorandum may be amended by the Fund withoutfurther notice to the Shareholders so as to comply with any rule,regulation or statute.


Redemption Charge. Generally, no redemption charge isimposed. However, a redemption charge not to exceed onepercent (1.0%) of the proceeds (waivable in whole or in part atthe sole discretion of the Manager in exceptional circumstances)may be imposed on the redemption of Shares which are held forless than twelve (12) months from the Subscription Date.



v











vi







TAX STATUS The Fund should not be subject to any BVI or U.S. income taxes(other than U.S. withholding taxes on dividend or certain interestincome, if any, derived from U.S. sources.) Shareholders of theFund who are not otherwise subject to BVI or U.S. taxation byreason of their residence, nationality or other particularcircumstances should not become subject to any such taxation byreason of the ownership or redemption of the USD Shares.Prospective investors should inform themselves as to the taxconsequences, if any, in their own countries, which might berelevant to the purchase, holding, repurchase, redemption ortransfer of the USD Shares.

CERTAIN ERISA CONSIDERATIONS Investment in the Fund generally will be open to employeebenefit plans and other funds subject to ERISA and/or Section4975 of the Code. Except as described below under “CERTAINRISK FACTORS – Compliance with ERISA TransferRestrictions,” the Fund intends to use commercially reasonableefforts to cause “benefit plan investors” not to own a significant


vii


portion of any class of shares in the Fund, so that the assets ofthe Fund should not be considered to be “plan assets” forpurposes of ERISA and Section 4975 of the Code, although therecan be no assurance that non “plan asset” status will be obtainedor maintained. Prospective purchases and subsequent transfereesof Shares in the Fund may be required to make certainrepresentations regarding the compliance with ERISA andSection 4975 of the Code. See “CERTAIN ERISACONSIDERATIONS.”


PRIVACY NOTICE Any and all nonpublic personal information received by theFund, the Manager and/or the Investment Advisor with respectto the Shareholders who are natural persons, including theinformation provided to the Fund by the Shareholder in thesubscription documents, will not be shared with nonaffiliatedthird parties which are not service providers to the Fund, theManager and/or the Investment Advisor without prior notice tosuch Shareholders. Service providers that may receive suchnonpublic information include but are not limited to theAdministrator, the auditors and the legal advisors of the Fund.Additionally, the Fund, the Manager and/or the InvestmentAdvisor may disclose such nonpublic personal information asrequired by law or regulation, including without limitation, anydisclosure that may be required by the Uniting andStrengthening America by Providing Appropriate ToolsRequired to Intercept and Obstruct Terrorism (USA PATRIOT)Act of 2001 and any relevant British Virgin Islands anti-moneylaundering laws and regulations. See the exhibit to theSubscription Agreement entitled “Privacy Notice.”


viii


DIRECTORY




Mr. Graham H. Cook


Ms. Shazieh Salahuddin

Administrator BISYS Hedge Fund Services Limited Telephone: (+ 1-441) 295-91669 Church Street Telecopier: (+ 1-441) 296-8227P.O. Box HM 951Hamilton, Bermuda HM DXAttn.: Shareholder Services Unit






ix



O’Neal Webster O’Neal Telephone: (+ 1-284) 494-580830 DeCastro Street Telecopier: (+ 1-284) 494-5811Road Town, Tortola Email: [email protected] Virgin IslandsAttn: Barbara O’Neal, Esq.


Tannenbaum, Helpern, Telephone: (+ 1-212) 508-6701Syracuse & Hirschtritt LLP Telecopier: (+ 1-212) 355-3034900 Third Avenue E-mail: [email protected] York, N.Y. 10022U.S.A.Attn.: Michael G. Tannenbaum, Esq.


X


Table of Contents

Page

Summary i

Directory ix

The Fund 1


Certain Risk Factors 4Operating History 4Achievement of Investment Objective 4Illiquidity of Investment 4Dependence on the Manager 4Dependence on the Investment Advisor 5General Economic Conditions 5Market Risks 5Trading Strategies of the Investment Advisor 5Special Techniques Used by the Investment Advisor 5Concentration 7Regulation 7No Manager Liability Beyond Fund Assets 8Shortened Claims Period 8Litigation 8Early Termination 8Effect of Substantial Withdrawals 8Possibility of Fraud or Misappropriation 9Changes in Applicable Law 9Reserve for Contingent Liabilities 9Certain Conflicts of Interest 9Other Clients of Investment Advisor 9Common Counsel 9Lack of Independent Experts Representing Investors 10Institutional Risk 10Settlements 10Pricing Information 10Anti-Money Laundering 11Compliance with ERISA Transfer Restrictions 11


xi


Management 11The Fund’s Board of Directors 11The Manager 12The Investment Advisor 14The Consultant 14The Administrator 15Banking and Custody 16Voting Rights of Shareholders 16





Taxation 25Introduction 25The Fund 26E.U. Savings Directive 28

CERTAIN ERISA CONSIDERATIONS 30



xii


Subscription Instructions S-1Subscription Agreement S-4Exhibit A: Form of Incumbency Certificate S-18Exhibit B: AML Certification Form for Fund of Funds or Entities that invest on behalf of 3 rd Parties S-20Exhibit C: Form Letter of Reference S-21Exhibit D: Beneficial Ownership Information S-22Exhibit E: Trust Ownership Information S-23Redemption Request S-24Transfer Request Form S-27Additional Subscription Agreement S-29Exhibit I: Sample Letter for Approved Transfers S-31Exhibit J: Privacy Notice S-32


xiii



THE FUND


The Fund was established and commenced operations during 1994. USD Shares were initiallyoffered on March 1, 1995 and the Net Asset Value (as defined herein) attributable to USD Shares as ofMarch 31, 2007 was U.S.$395.74. The same investment advisor (“Investment Advisor”) has managed theFund’s assets from inception. See “MANAGEMENT.” The Fund’s authorized capital is US$300,000consisting of 30,000,000 common shares, 15,000,000 of which have been designated as USD Shares. TheFund is a “Professional Fund” as that term is defined in the British Virgin Islands Mutual Funds Act(1996), as amended by the Mutual Fund Amendment Act (1997).


No offering other than USD Shares is made by this Amended and Restated InformationMemorandum dated as of August 1, 2007, as may be further amended and restated (the “Memorandum”).Accordingly, all references in the Memorandum shall be deemed to refer to USD Shares. Theinformation in this Memorandum is qualified in its entirety by the Fund’s memorandum and articles ofassociation (the “Memorandum and Articles of Association”) and operative agreements, all which areavailable on request to the Administrator.




1





Investment Process







2












The Fund does not expect to declare and/or pay dividends or make any other distributions toShareholders out of the Fund’s current earnings and profits. Rather, the Fund will reinvest such income.Potential investors should keep this limitation in mind when determining whether or not an investment inthe Fund is suitable for their particular purposes. The Fund reserves the right to change such policy. TheManager is solely responsible for ensuring compliance by the Fund with all investment objectives,investment guidelines and investment restrictions contained in this Memorandum.


3




Operating History








All decisions with respect to the general management of the Fund are made by the Manager, whohas complete authority and discretion in the management and control of the business of the Fund,including the authority to delegate all investment management activities to the selected InvestmentAdvisor. USD Shareholders will have no right or power to take part in the management of the Fund, norin any decision with regard to the allocation of management of the Fund’s assets to the selectedInvestment Advisor. As a result, the success of the Fund for the foreseeable future will depend largelyupon the ability of the Manager, and no person should invest in the Fund unless willing to entrust allaspects of the management of the Fund to the Manager, having evaluated its capability to perform suchfunctions.


4







Market Risks





The Investment Advisor uses special investment techniques that may subject the Fund’sinvestments to certain risks. Certain, but not all, of these techniques and the risks that they entail aresummarized below. The Fund, in any event, is not designed to correlate to the broad equity market, andshould not be viewed as a substitute for equity investments. Kingate Global Fund, Ltd. – USD Shares

5








Risks of Loss of Entire Options Investment. An option is a wasting asset. Its value is reduced asits life shortens, and it becomes worthless upon expiry. As a consequence, an option buyer that does not Kingate Global Fund, Ltd. – USD Shares

6


sell an option in the secondary market prior to expiry nor exercises an option prior to expiry loses hisentire investment in the option.



Concentration


Regulation







Underwriting of Securities and Other Issuers. The Fund will not underwrite securities of otherissuers in connection with the distribution of securities. Kingate Global Fund, Ltd. – USD Shares

7








Litigation


Early Termination



Substantial withdrawals by USD Shareholders within a short period of time could require theManager to liquidate positions more rapidly than would otherwise be desirable, which could adverselyaffect the value of the Fund’s assets. The resulting reduction in the Fund’s assets could make it moredifficult to generate a positive rate of return or to recoup losses due to a reduced equity base. Kingate Global Fund, Ltd. – USD Shares

8



Neither the Fund nor the Custodian has actual custody of the assets. Such actual custody restswith the Investment Advisor and its affiliated broker-dealer. Therefore, there is the risk that the custodiancould abscond with those assets. There is always the risk that the assets with the Investment Advisorcould be misappropriated. In addition, information supplied by the Investment Advisor may beinaccurate or even fraudulent. The Manager is entitled to rely on such information (provided they do soin good faith) and is not required to undertake any due diligence to confirm the accuracy thereof.









Common Counsel

Tannenbaum Helpern Syracuse & Hirschtritt LLP (“THSH”) acts as counsel to the Fund inconnection with this offering of Shares; THSH also acts as counsel to the Manager. In connection withthis offering of Shares and ongoing advice to the Fund, the Manager and their affiliates, THSH has notand will not be representing the Shareholders. No independent counsel has been retained to representthe Shareholders. THSH’s representation of the Fund, its Manager and their affiliates is limited tothose specific matters upon which it has been consulted. There may exist other matters which wouldhave a bearing on the Fund, its Manager and their affiliates upon which THSH has not been consulted.THSH does not undertake to monitor the compliance of the Fund, its Manager and their affiliates withthe investment program, valuation procedures and other guidelines set out herein, nor does it monitorcompliance with applicable laws. Additionally, in all cases, including the preparation of this Amended


9


and Restated Information Memorandum, THSH relies upon information furnished to it by the Fund, itsManager and their affiliates, and does not investigate or verify the accuracy and completeness of suchinformation. In the course of advising the Fund, its Manager and their affiliates, there may be timeswhen the interests of the Manager may differ from those of the Shareholders. THSH does not representthe interests of the Shareholders in resolving such issues.



Institutional Risk


Settlements


Pricing Information



10



If the Fund, the Manager, Investment Advisor, Administrator, or any governmental agencybelieves that the Fund has accepted subscriptions for Shares by, or is otherwise holding assets of, anyperson or entity that is acting directly or indirectly, in violation of an U.S., international or other anti-money laundering laws, rules, regulations, treaties or other restrictions, or on behalf of any suspectedterrorist or terrorist organization, suspected drug trafficker, or senior foreign political figure(s) suspectedin engaging in foreign corruptions, the Fund, the Manager, Investment Advisor, Administrator or suchgovernmental agency may freeze the assets of such person or entity invested in the Fund or suspend theirredemption rights. The Fund may also be required to remit or transfer those assets to a governmentalagency.




MANAGEMENT



Mr. Christopher Wetherhill Christopher Wetherhill, F.C.A., C.A., founded and was ChiefExecutive Officer of Hemisphere Management Limited, a financial services company located in Bermuda,from 1981 until 2000, when he chose to retire. He is now a board member of, and a consultant to, anumber of investment companies. Mr. Wetherhill is a Chartered Accountant, a Fellow of the Institute ofChartered Accountants in England and Wales, a member of the Canadian and Bermudian Institutes of


11


Chartered Accountants, a Fellow of the Institute of Directors and a Freeman of the City of London. Mr.Wetherhill is a resident of Bermuda.

Graham H. Cook is the Managing Director of TMF (BVI) Ltd., part of the TMF Group, aninternational organization providing trust, management and accounting services, financial services andfund administration services. Mr. Cook has worked in private practice as a solicitor in England and since1981 has pursued a career in providing management and trust services. He has been a director of trust andmanagement companies in the British Virgin Islands, Curacao, Gibraltar and latterly in London with TMFManagement (UK) Ltd. In 2002 he became a Director of TMF (BVI) Limited and Bison FinancialServices Limited. He also has work experience in South Africa and Brazil. Mr. Cook is an Honors Lawgraduate from the University of Birmingham, England, completed his post graduate studies at the Collegeof Law with a distinction, and was admitted as a Solicitor of the Supreme Court of England and Wales in1973. Mr. Cook resides in the British Virgin Islands.




The Manager


The operating directors of the Manager are:



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Michael G. Tannenbaum, Esq. – Partner, Tannenbaum Helpern Syracuse & Hirschtritt LLP,where he heads the Firm’s Financial Services and Capital Markets Group which concentrates instructuring collective investments (hedge funds and the like) and capital financing arrangements bothon-shore and offshore the U.S. He is the author of numerous articles relating to industry matters. Mr.Tannenbaum is a past president of the Hedge Fund Association, an industry association, and is listed inAn International Who’s Who of Private Fund Lawyers.

Phillip A. Evans. Trust Manager (Partner) at Moore Stephens Services SAM located inMonaco. Mr. Evans joined in March 1993 to establish and manage a new trust management departmentand is responsible for designing and implementing systems and controls, client contact, and marketingworldwide. During January 1990-February 1993, Mr. Evans served as Trust Officer at Georgam SAMlocated in Monaco, responsible for a large and varied number of Trusts and associated underlyingcompanies. During February 1988-December 1989, Mr. Evans served as Senior Trust Administrator atBarclays Bank Trust Company located in Reading, England.







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The Consultant


The Consultant was incorporated on October 8, 2004 as a limited liability partnership underEnglish Law. On August 1, 2005, the Consultant took over the business of its affiliate, FIM Limited, anasset management company with over twenty years of experience. The Consultant is a leading alternativeinvestment management company, specialising in the creation and management of portfolios of hedgefunds for institutions and private clients on a global basis. The Consultant is authorised and regulated bythe Financial Services Authority ("FSA") of the United Kingdom. As of the date of this document, theConsultant acts as Investment/Fund Adviser in respect of funds with assets totaling in excess of US$ 6.5billion.


The founder members of the Consultant are:


Mr. Federico M. Ceretti - Federico Ceretti is a Founder Member of FIM Advisers LLP. Mr.Ceretti joined FIM Limited, an affiliate of FIM Advisers LLP, in 1986, and is Chief Executive Officer ofFIM Limited. Prior to joining FIM Limited, he worked in various positions with Merrill Lynch PierceFenner and Smith in London. Mr. Ceretti holds a Degree in Business Administration from the Universityof Pavia (Italy).


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The Administrator

BISYS Hedge Fund Services Limited, a Bermuda registered company, has been appointed as theFund's administrator. The Administrator and its affiliates specialize in providing services to the alternativeinvestment community from offices located in Bermuda, Dublin, Boston and New York. TheAdministrator is ultimately wholly owned by The BISYS Group, Inc., a New York Stock Exchange listedcompany, which provides growth enabling outsourcing solutions to the financial services industry.

Pursuant to the Administration Agreement, as amended and restated effective January 1, 2002,and the Registrar Agreement, as amended and restated effective January 1, 2002, the Administrator isresponsible for all matters pertaining to the administration of the Fund, including, without limitation,(i) communicating with the Fund’s Shareholders; (ii) communicating with the general public;(iii) soliciting sales of the Fund’s stock; (iv) accepting the subscriptions of new Shareholders;(v) maintaining the Fund’s principal corporate records and books of account; (vi) disbursing payments ofdividends, legal fees, accounting fees, and officers’ and directors’ salaries; (vii) calculating, publishing orfurnishing the subscription or redemption price of the USD Shares; (viii) conducting meetings of theFund’s Shareholders and Directors; and (ix) making redemptions of the USD Shares. The Administratorwill also provide the services of an individual to act as the secretary of the Fund.

Both the Administration Agreement and the Registrar Agreement shall continue and remain inforce and effect unless and until terminated by either party upon not less than three (3) months’ notice ora shorter time period under certain circumstances. The Administration Agreement provides that theAdministrator shall not be liable to the Manager, the Fund or its Shareholders in the absence ofnegligence, willful default, fraud or dishonesty in the performance or non-performance of its obligationsor duties. The Administration Agreement and the Registrar Agreement contain provisions for theindemnification of the Administrator by the Fund against liabilities to third parties arising in connectionwith the performance of its services, except under certain circumstances. The Administration Agreementand the Registrar Agreement also contain provisions for the indemnification of the Manager and the Fundby the Administrator in certain circumstances.



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Banking and Custody

The Bank of Bermuda Limited, located in Hamilton, Bermuda (the “Bank”), has been appointedas the Fund’s banker for purposes of receiving subscription funds, disbursing redemption payments andprocessing cash transactions not directly related to the Fund’s portfolio. Actual custody, however, is withthe Investment Advisor. See “CERTAIN RISK FACTORS.”






FEES AND EXPENSES

Organization Costs

All costs and expenses associated with the organization of the Fund, including governmentincorporation charges and professional fees and expenses in connection with the preparation andrestatement of the Fund’s offering documents and the preparation of its basic corporate and contractdocuments, have been paid out of the Fund’s assets.


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Fees of the Manager








Fees of the Bank



The Manager and the Administrator are responsible for providing all office personnel, space andfacilities required for the performance of their respective services. The Fund bears all other expensesincident to its operations and business, including brokerage commissions, appraisers, pricing services,printing costs, the fees of its auditors and legal advisors; custody charges; interest and commitment feeson loans and debt balances; any income, withholding or other taxes; and the costs of communicationswith Shareholders, prospective investors and the Investment Advisor. In addition, the Fund pays for anyexpenses incurred in connection with listing the Shares on the Irish Stock Exchange, or any other suitableexchange, if such listing is deemed desirable in the sole discretion of the Directors.



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Subscriptions

Generally. The USD Shares may be purchased as of the first Business Day (as defined herein) ofthe month (herein the “Subscription Date”) at a price equal to the Net Asset Value per USD Share as ofthe last Business Day of the immediately preceding calendar month (the “Valuation Date”), plus anyapplicable subscription charges. “Business Day” refers to any day when the central banking systems ofthe U.S. and Bermuda are open and operating. As of March 31, 2007, the audited Net Asset Value perShare of the USD Shares was U.S.$395.74. The Fund may (i) discontinue the offering of USD Shares atany time or (ii) permit subscriptions on other than the first Business day of a month at the then Net AssetValue of the USD Shares. The minimum initial subscription from each investor is $250,000 and eachminimum additional subscription is $100,000. Such minimums may be waived by the Fund.




Registration and Transfer. USD Shares will be issued only in registered form; the Fund does notissue bearer shares. The Administrator maintains a current register of the names and addresses of theFund’s Shareholders. Certificates representing USD Shares will be issued, without charge, only ifrequested by a USD Shareholder. Certificates will be mailed or delivered to the USD Shareholder at theShareholder’s risk. Because certificates must be returned to the Administrator prior to the processing ofredemption requests, the Fund discourages USD Shareholders from requesting certificates. Kingate Global Fund, Ltd. – USD Shares

18









This exception will only apply if the financial institution referred to above is within a country orterritory which is a member of the Financial Action Task Force (“FATF”) or Caribbean Financial ActionTask Force (“CFATF”) and has anti-money laundering procedures that are at least equivalent to those inthe British Virgin Islands. The following countries are deemed to have anti-money laundering proceduresat least equivalent to those in the British Virgin Islands: Aruba, Australia, Bahamas, Barbados, Bermuda,Belgium, Canada, Cayman Islands, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey,Hong Kong, Iceland, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Netherlands & NetherlandsAntilles, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom andUnited States of America.

An individual may be required to produce a copy of a passport or identification card certified by anotary public. In the case of corporate applicants, they may be required to produce a certified copy of thecertificate of incorporation (and change of name), memorandum and articles of association (or


19


equivalent), and the names, occupations, dates of birth, and residential and business addresses of alldirectors.


Eligible Investors

Investment in the Fund is not available to Restricted Persons (as defined herein), unless the Funddetermines otherwise in limited cases. The term “Restricted Person” as used in this Memorandum meansany U.S. Person * and other persons from time to time designated as such by the Fund. Each prospectiveinvestor is required to certify that the Shares are not being acquired directly or indirectly for the accountor benefit of a Restricted Person.


* For the purposes of this Memorandum, “U.S. Person” means: (a) any natural person resident in the United States; (b) anypartnership or corporation organized or incorporated under the laws of the United States; (c) any estate of which any executoror 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 foreignentity located in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) held by adealer or other fiduciary for the benefit or account of a U.S. Person; (g) any discretionary account or similar account (otherthan an estate or trust) held by a dealer or other fiduciary organized, incorporated or, if an individual, resident in the UnitedStates; or (h) any partnership or corporation if (i) organized or incorporated under the laws of any foreign jurisdiction and (ii)formed by a U.S. Person principally for the purpose of investing in securities not registered under the United States SecuritiesAct of 1933, as amended (the “Securities Act”), unless it is organized or incorporated, and owned, by accredited investors (asdefined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts. “U.S. Person” does notinclude: (a) any discretionary account or similar account (other than an estate or trust) held for the benefit or account of anon-U.S. Person by a dealer or other professional fiduciary organized, incorporated or, if an individual, resident in the UnitedStates; (b) any estate of which any professional fiduciary acting as executor or administrator is a U.S. Person if (i) an executoror administrator of the estate who is not a U.S. Person has sole or shared investment discretion with respect to the assets of theestate and (ii) the estate is governed by foreign law; (c) 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 nobeneficiary of the trust (and no settlor if the trust is revocable) is a U.S. Person; (d) an employee benefit plan established andadministered in accordance with the law of a country other than the United States and customary practices and documentationof such country; (e) any agency or branch of a U.S. Person located outside the United States if (i) the agency or branchoperates for valid business reasons and (ii) the agency or branch is engaged in the business of insurance or banking and issubject to substantive insurance or banking regulation, respectively, in the jurisdiction where located; or (f) the InternationalMonetary Fund, the International Bank for Reconstruction and Development, the Inter-American Development Bank, the AsianDevelopment Bank, the African Development Bank, the United Nations and their agencies, affiliates and pension plans. Kingate Global Fund, Ltd. – USD Shares

20



The information contained in this Memorandum is being communicated by the Fund. The Fundis not a recognised collective investment scheme for the purposes of the Financial Services and MarketsAct 2000 of the United Kingdom (the "Act") and the information contained in this Memorandum has notbeen approved for the purposes of Section 21(2) of the Act by a person authorised under the Act (an"authorised person"). This Memorandum is exempt from the general restriction on the communication ofinvitations or inducements to engage in investment activity contained in section 21 of the Act on theground that it may only be communicated in the United Kingdom to those persons to whom unregulatedcollective investment schemes may be communicated, as described in the Financial Services and MarketsAct 2000 (Financial Promotion) Order 2001, as amended, (including high net worth companies, certifiedsophisticated investors and investment professionals) or otherwise pursuant to an applicable exemptionpursuant to Section 21 of the Act. Any other persons should not act or rely on this Memorandum or anyof its contents.

High net worth companies include bodies corporate with more than 20 members and a called upshare capital of not less than £500,000, any other body corporate with a called up share capital of not lessthan £5million and any unincorporated association or partnership which has net assets of not less than £5million.

Certified sophisticated investors must have a current certificate in writing or other legible formsigned by an authorised person to the effect that he or she is sufficiently knowledgeable to understand therisks associated with participating in unregulated collective investment schemes. Assuming he or she hassuch a certificate, he or she must also have signed within a period of twelve months prior to the date ofreceipt of this Memorandum a declaration to the effect that he or she qualifies as a certified sophisticatedinvestor.

Investment professionals includes authorised persons and persons whose ordinary businessincludes advising on the types of investment described in this Memorandum. No person who is anauthorised person may communicate the information contained in this Memorandum, or otherwisepromote the Fund, to any person in the United Kingdom unless such person is a person to whom suchauthorised person is permitted to promote the Fund under Section 238 of the Act, the Financial Servicesand Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 and theRules of the Financial Services Authority in the United Kingdom. Communication of the informationcontained in this Memorandum to any other person in the United Kingdom is unauthorised and maycontravene the Act.

A United Kingdom investor who enters into an investment agreement to acquire Shares will nothave the right to cancel the agreement constituted by the acceptance by or on behalf of the Fund of anapplication for Shares. In addition, most if not all of the protections afforded by the United Kingdomregulatory system will not apply to investments in Shares. Investors will not benefit from the protectionafforded by the United Kingdom Financial Services Compensation Scheme.


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Redemptions




Settlement. Redemptions will be generally settled in U.S. Dollars, although the Fund may, in itsdiscretion, settle redemptions in kind to the extent of such redeeming Shareholder’s pro-rata share of non-illiquid, direct investments. Cash settlements will be remitted either by wire transfer to an accountdesignated by the Shareholder or by check posted at the Shareholder’s risk (as specified by theShareholder in his written redemption notice). If USD Shares are held in certificate form, the redemptionpayment will not be remitted until the certificates have been tendered to the Administrator, and no interestwill accrue on the redemption proceeds pending the settlement date. The Fund may withhold a portion ofany proceeds of redemption if necessary to comply with applicable regulatory requirements.

Redemption requests may be submitted by fax to the Administrator at (+1-441) 296-8227, Attn:Shareholder Services Unit, provided that: (i) the original Redemption Request (attached hereto) isreceived by the Administrator prior to the Redemption Date and (ii) the Shareholder receives writtenconfirmation that the faxed Redemption Request has been received.


Requests for redemption received after 5:00 p.m. (Bermuda time) on the last day of theredemption notice will be treated as a request for redemption as of the next Redemption Date.Redemption payments will be made in U.S. Dollars, unless made in kind, and will be remitted either bywire transfer to an account designated by the Shareholder at the bank from which the subscription pricewas paid or by check posted at the Shareholder’s risk (as specified by the Shareholder in its writtenredemption notice). In circumstances where the Fund is unable to liquidate securities positions in anorderly manner in order to fund redemptions, or where the value of the assets and liabilities of the Fundcannot reasonably be determined, the Fund may take longer than the time periods mentioned above toeffect settlements of redemptions or may even suspend redemptions. Under extraordinary circumstances, Kingate Global Fund, Ltd. – USD Shares

22


in the discretion of the Directors, the Fund may settle redemptions in kind and may extend the duration ofthe redemption notice period beyond a full quarter if the Directors deem such an extension as being in thebest interest of the Fund and the non-redeeming Shareholders. Certain risks exist with regard toredemption requests made but not yet settled. See “CERTAIN RISK FACTORS.”


Redemption Charge. Generally, no redemption charge is imposed. However, a redemptioncharge not to exceed one percent (1.0%) of the proceeds (waivable in whole or in part at the solediscretion of the Manager in exceptional circumstances) may be imposed on the redemption of Shareswhich are held for less than twelve (12) months from the Subscription Date.

Temporary Suspension of Dealings and Determination of Net Asset Value. The Fund’s Directorsmay declare a temporary suspension of the determination of the Fund’s Net Asset Value and the sale,allotment, issue or redemption of the Shares during: (i) any period during which, in the opinion of theBoard, disposal by the Fund of securities which constitute a substantial portion of the assets of the Fund isnot practically feasible or as a result of which any such disposal would be materially prejudicial toShareholders; (ii) any period when, in the opinion of the Board, for any reason it is not possible totransfer monies involved in the acquisition or disposition or realization of securities which constitute asubstantial portion of the assets of the Fund at normal rates of exchange; (iii) any period when, in theopinion of the Board, for any reason the prices of any securities which constitute a substantial portion ofthe assets of the Fund cannot be reasonably, promptly or accurately ascertained; (iv) any period (otherthan customary holiday or weekend closings) when any recognized exchange or market on which theFund’s securities are normally dealt in or traded is closed, or during which trading thereon is restricted orsuspended; or (v) any period when proceeds of any sale or redemption of the Shares cannot be transmittedto or from the Fund’s account. The Fund may withhold payment to any person whose USD Shares havebeen tendered for redemption until after any suspension has been lifted.


The net asset value of the USD Shares is the market value of the Fund’s total assetscalculated as described below, less all accrued debts and liabilities, including (i) fees of the Manager, theAdministrator and the Bank earned or accrued but not yet paid, (ii) monthly amortization of organizationcosts, (iii) an allowance for the Fund’s estimated annual audit and legal fees, (iv) any contingencies forwhich reserves are determined to be required, (v) any other costs attributable to the USD Shares (the “NetAsset Value”). Net Asset Value of the USD Shares is expressed in U.S. Dollars, and any itemsdenominated in other currencies are translated at prevailing exchange rates as determined by theAdministrator.

The Administrator will determine the net asset value of the Fund’s Portfolio assets attributable tothe USD Shares as of the close of business on the last Business Day of each calendar month. See“CERTAIN RISK FACTORS”. The Administrator verifies the prices attributed to the securities held by


23


the USD Shares of the Fund by reference to pricing sources independent of the Investment Advisorwhenever reasonably possible






Prospective investors should be aware that situations involving uncertainties as to the valuation ofportfolio positions could have an adverse effect on the Fund’s net assets if judgments regardingappropriate valuations made by the Administrator should prove incorrect. See “CERTAIN RISKFACTORS.” In the absence of bad faith or manifest error, the Net Asset Value calculations of the USDShares made by the Administrator are conclusive and binding on all Shareholders.




The Manager and each of its directors presently and may in the future, directly or indirectly,direct, sponsor or manage other managed pools or accounts in addition to the Fund and may havefinancial or other incentives to favor some such pools or accounts over the Fund. The Manager’s


24


decisions with regard to the Fund may differ from those recommended for other arrangements for whichthe Manager exercises discretion.




One or more directors of the Manager may also be a director of the Fund or otherwise provideservices to the Fund, either directly or indirectly, in which event the likelihood of independence in dealingwith issues facing the Fund is diminished. For example, the Manager’s Director is Michael G.Tannenbaum who is a senior partner of the law firm that renders advice to the Fund as well as to both theManager and the Consultant. See “ADDITIONAL INFORMATION – Counsel”

TAXATION

Introduction

This summary of the principal tax consequences applicable to the Fund and its Shareholders isbased upon advice received from the Fund’s U.S. and British Virgin Islands legal and tax advisers. Suchadvice is based upon factual representations made by the Manager, the Consultant and Administratorconcerning the proposed conduct of the activities to be carried out by the Fund and by them on behalf ofthe Fund. The conclusions summarized herein could be adversely affected if any of the material factualrepresentations on which they are based should prove to be inaccurate. Moreover, while this summary isconsidered to be a correct interpretation of existing laws in force on the date of this Memorandum, noassurance can be given that courts or fiscal authorities responsible for the administration of such laws will Kingate Global Fund, Ltd. – VSD Shares

25


agree with such interpretations or that changes in such laws will not occur. Investors should consult theirprofessional advisors on the possible tax consequences of their subscribing for, purchasing, holding,selling or redeeming Shares under the laws of their countries of citizenship, residence, ordinary residenceor domicile.


The Fund

British Virgin Islands Taxation. The Fund should not be subject to any taxation or othergovernmental charges or fees in the British Virgin Islands other than an annual license fee payable to theRegistrar of Companies (currently U.S.$1,150.00) and an annual license fee payable to the Registrar ofMutual Funds (currently U.S.$350). Under current British Virgin Island law, no income tax should beimposed on the Fund or on investors in the Fund who are not domiciled or resident in the British VirginIslands. There are no withholding, capital gains, estate or inheritance taxes in the British Virgin Islands.

US Federal Income Taxation. The Fund has been advised that it should not be subject to U.S.Federal income taxes on income or gains from its trading (except in respect of any dividends received inthe course of such trading) provided that it does not engage in a trade or business within the U.S. to whichsuch income or gains are effectively connected. Pursuant to a safe harbor under the United States InternalRevenue Code of 1986, as amended, a non-U.S. corporation which trades stock or securities orcommodities for its own account should not be treated as engaged in a trade or business within the U.S.provided that the non-U.S. corporation is not a dealer in stock or securities or commodities. The Fundintends to conduct its business in a manner so as to meet the requirements of this safe harbor. If theactivities of the Fund are not covered by the foregoing safe harbor, there is a risk that the Fund (but notany investor) will be required to file a U.S. federal income tax return for such year and pay tax at full U.S.corporate income tax rates as well as an additional thirty percent (30%) branch profits tax or other taxeson its income.




26








Dividend and redemption payments made by the Fund to Shareholders who are not U.S. Personsshould not be subject to U.S. Federal income tax, provided that Shares are not held in connection with aU.S. trade or business of the Shareholder in the year of receipt. Individual holders of Shares who areneither present nor former U.S. citizens nor U.S. residents (as determined for U.S. estate and gift taxpurposes) should not be subject to U.S. estate and gift taxes with respect to their ownership of suchShares. A Shareholder’s change in status to a U.S. Person could result in adverse U.S. tax consequencesand will constitute a violation of the terms of this Memorandum, resulting in a compulsory redemption ofShares.


The term “Permitted U.S. Person” means a U.S. Person that is subject to ERISA, or is otherwiseexempt from payment of U.S. Federal income tax. Generally, a Permitted U.S. Person is exempt fromFederal income tax on certain categories of income, such as dividends, interest, capital gains and similarincome realized from securities investment or trading activity. This general exemption from tax does notapply to the “unrelated business taxable income” (“UBTI”) of a Permitted U.S. Person. Generally, exceptas noted above with respect to certain categories of exempt trading activity, UBTI includes income orgain derived from a trade or business, the conduct of which is substantially unrelated to the exercise orperformance of the Permitted U.S. Person’s exempt purpose or function. UBTI also includes (i) incomederived by a Permitted U.S. Person from debt-financed property and (ii) gains derived by a PermittedU.S. Person from the disposition of debt-financed property.



27


Information Returns







(iii) only when payments are made by paying agents in the EU and other definedterritories (including the Caribbean Overseas Territories); and



For the purposes of the EUSD, interest payments include interest paid in relation to debt claims,which include bonds and deposits, but not equities. Such payments also include interest accrued orcapitalized at sale or redemption of debt claims.



(ii) Income realized upon the sale or redemption of shares or units of a fund(whether a EU UCITS fund or not) if less than 40% of such fund’s assets are invested in debt claims. Indetermining the percentage of a fund’s assets that are invested in debt claims, reference may be made tothe investment policy stated in the fund’s offering document. However, if this does not place a limit onthe amount of its assets that may be invested in debt claims and it is unknown from the information Kingate Global Fund, Ltd. – VSD Shares

28


available what percentage of the fund’s assets are in fact so invested, the fund will be deemed to exceedthe 40% limits set out above.



The Fund has appointed the Administrator as its administrator and the Administrator isresponsible for processing redemptions. Accordingly, the Fund itself would not be considered to be apaying agent for the purposes of the EUSD. The Administrator would also not be considered to be apaying agent for the purposes of the EUSD because it is located outside of the EU and the definedterritories. However, if the Administrator were to make redemption payments to a professional nomineethat in turn were to forward the payments to the ultimate beneficial owner, the professional nominee maybe considered to be a paying agent and the redemption payments may be considered to be interestpayments for the purposes of the EUSD if the professional nominee is based in an EU Member State otherthan the UK or Ireland or in one of the defined territories other than the BVI or Switzerland. In suchcircumstances, advice should be obtained from counsel in the relevant jurisdiction as to whether thelegislation in that jurisdiction would treat the Fund as falling outside the scope of the EUSD and, if itwould not, the manner in which such legislation would treat a redemption payment made by the Fund to abeneficial owner or residual entity.

* * * *



29



The United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”). imposescertain requirements on “employee benefit plans” (as defined in Section 3(3) of ERISA) subject toERISA, including entities such as collective investment funds and separate accounts whose underlyingassets include the assets of such plans (collectively, “ERISA Plans”) and on those persons who arefiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA's generalfiduciary requirements, including the requirement of investment prudence and diversification and therequirement that an ERISA Plan's investments be made in accordance with the documents governing theplan. The prudence of a particular investment must be determined by the responsible fiduciary of anERISA Plan by taking into account the ERISA Plan's particular circumstances, including the ERISAPlan's existing investment portfolio, and all of the facts and circumstances of the investment including,but not limited to, the matters discussed above under “CERTAIN RISK FACTORS”.

Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving theassets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject toSection 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, “Plans”))and certain persons (referred to as “parties in interest” for purposes of ERISA and “disqualified persons”for purposes of the Code) having certain relationships to such Plans, unless a statutory or administrativeexemption is applicable to the transaction. A party in interest or disqualified person who engages in anon-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities underERISA and the Code, and the transaction might have to be rescinded.

The U.S. Department of Labor has promulgated a regulation, 29 C.F.R. Section 2510.3-101 (asmodified by Section 3(42) of ERISA) (the “Plan Asset Regulation”), describing what constitutes theassets of a Plan with respect to the Plan's investment in an entity for purposes of certain provisions ofERISA, including the fiduciary responsibility and prohibited transaction provisions of Title I of ERISAand the related prohibited transaction provisions under Section 4975 of the Code. Under the Plan AssetRegulation, if a Plan invests in an “equity interest” of an entity that is neither a “publicly offered security”nor a security issued by an investment company registered under the Investment Company Act, the Plan'sassets include both the equity interest and an undivided interest in each of the entity's underlying assets,unless it is established that the entity is an “operating company”, which includes for purposes of the PlanAsset Regulation a “venture capital operating company”, or that equity participation in the entity by“Benefit Plan Investors” (as defined below) is not “significant”.

Under the Plan Asset Regulation, equity participation in an entity by Benefit Plan Investors (asdefined below) is “significant” on any date if, immediately after the most recent acquisition of any equityinterest in the entity, 25% or more of the value of any class of equity interests in the entity is held byBenefit Plan Investors. The term “Benefit Plan Investor” is defined in the Plan Asset Regulation as: (a)any employee benefit plan (as defined in Section 3(3) of ERISA) subject to Part 4 of Subtitle B of Title Iof ERISA; (b) any plan subject to Section 4975 of the Code; and (c) any entity whose underlying assetsinclude plan assets by reason of the investment in the entity by such employee benefit plan and/or plan.For purposes of this determination, (i) the value of equity interests held by a person (other than a BenefitPlan Investor) that has discretionary authority or control with respect to the assets of the entity or thatprovides investment advice for a fee (direct or indirect) with respect to such assets (or any affiliate of anysuch person) is disregarded, and (ii) only that portion of the equity interests of an entity described inclause (c) of the preceding sentence investing in another entity that are held by employee benefit plans or


30


other plans described in clauses (a) or (b) of the preceding sentence are included in the testing of suchother entity.

A Share in the Fund should be considered to be an “equity interest” in the Fund for purposes ofthe Plan Asset Regulation, and the Shares will not constitute “publicly offered securities” for purposes ofthe Plan Asset Regulation. In addition, the Fund will not be registered under the Investment CompanyAct and it is not expected to qualify as a “venture capital operating company.”

The Board intends to use commercially reasonable efforts to restrict transfers of any equityinterest in the Fund so that ownership of each class of equity interests in the Fund by Benefit PlanInvestors will remain below the 25% threshold contained in the Plan Asset Regulation. Although therecan be no assurance that such will be the case, the assets of the Fund should not constitute “plan assets”for purposes of ERISA and Section 4975 of the Code.

If the assets of the Fund were deemed to constitute the assets of a Plan, the fiduciary making aninvestment in the Fund on behalf of an ERISA Plan could be deemed to have improperly delegated itsasset management responsibility, the assets of the Fund could be subject to ERISA's reporting anddisclosure requirements, and transactions involving the assets of the Fund would be subject to thefiduciary responsibility and prohibited transaction provisions of ERISA and the prohibited transactionrules of Section 4975 of the Code. Accordingly, certain transactions that the Fund might enter into, ormay have entered into, in the normal course of its operations might result in non-exempt prohibitedtransactions and might have to be rescinded. A party in interest or disqualified person that engaged in anon-exempt prohibited transaction may be subject to non-deductible excise taxes and other penalties andliabilities under ERISA and the Code. In addition, such “plan asset” treatment would subject thecalculation and payment of the Board's fees to applicable prohibited transaction and certain conflict ofinterest provisions of ERISA and the Code. Consequently, if at any time the Board determines that assetsof the Fund may be deemed to be “plan assets” subject to ERISA and Section 4975 of the Code, theBoard may take certain actions it may determine to be necessary or appropriate, including requiring oneor more investors to redeem or otherwise dispose of all or part of their Shares in the Fund or terminatingand liquidating the Fund.

Each Plan fiduciary who is responsible for making the investment decisions whether to invest inthe Fund should determine whether, under the general fiduciary standards of investment prudence anddiversification and under the documents and instruments governing the Plan, an investment in the Sharesis appropriate for the Plan, taking into account the overall investment policy of the Plan and thecomposition of the Plan's investment portfolio. Any Plan proposing to invest in Shares should consultwith its counsel to confirm that such investment will not result in a prohibited transaction and will satisfythe other requirements of ERISA and the Code.

The sale of any Shares to a Benefit Plan Investor is in no respect a representation by the Board orits affiliates that such an investment meets all relevant legal requirements with respect to investments byPlans generally or any particular Plan, or that such an investment is appropriate for Plans generally or anyparticular Plan.

Regardless of whether the assets of the Fund are deemed to be “plan assets”, the acquisition of anShare by a Plan could, depending upon the facts and circumstances of such acquisition, be a prohibitedtransaction, for example, if the Board or its affiliates was a party in interest or disqualified person withrespect to the Plan. However, such a prohibited transaction may be treated as exempt under ERISA andthe Code if the Shares were acquired pursuant to and in accordance with one or more “class exemptions”issued by the U.S. Department of Labor, such as Prohibited Transaction Class Exemption (“PTCE”) 84- Kingate Global Fund, Ltd. – VSD Shares

31


14 (a class exemption for certain transactions determined by an independent qualified professional assetmanager), PTCE 90-1 (a class exemption for certain transactions involving an insurance company pooledseparate account), PTCE 91-38 (a class exemption for certain transactions involving a bank collectiveinvestment fund), PTCE 95-60 (a class exemption for certain transactions involving an insurancecompany general account), and PTCE 96-23 (a class exemption for certain transactions determined by anin-house asset manager).

Any insurance company proposing to invest assets of its general account in the Shares shouldalso consider the extent to which such investment would be subject to the requirements of ERISA in lightof the U.S. Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris Trust andSavings Bank and under any subsequent legislation or other guidance that has or may become availablerelating to that decision, including Section 401(c) of ERISA and the regulations thereunder published bythe U.S. Department of Labor in January, 2000.

The Board will require a fiduciary of an ERISA Plan that proposes to acquire a Share to representthat it has been informed of and understands the Fund's investment objectives, policies, strategies andlimitations, that the decision to acquire an Share was made in accordance with its fiduciaryresponsibilities under ERISA and that neither the Board nor any of its affiliates has provided investmentadvice with respect to such decision. The Board will also require any investor that is, or is acting onbehalf of, a Plan to represent and warrant that its acquisition and holding of a Share will not result in anon-exempt prohibited transaction under ERISA and/or Section 4975 of the Code.

Governmental plans and certain church plans, while not subject to the fiduciary responsibilityprovisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to stateor other federal laws that are substantially similar to the foregoing provisions of ERISA and the Code.The Board will require similar representations and warranties with respect to the purchase of a Share byany such plan. Fiduciaries of such plans should consult with their counsel before purchasing any Shares.

The discussion of ERISA and Section 4975 of the Code contained in this memorandum is, ofnecessity, general and does not purport to be complete. Moreover, the provisions of ERISA and Section4975 of the Code are subject to extensive and continuing administrative and judicial interpretation andreview. Therefore, the matters discussed above may be affected by future regulations, rulings and courtdecisions, some of which may have retroactive application and effect.

ANY POTENTIAL INVESTOR CONSIDERING AN INVESTMENT IN THE SHARES THAT IS,OR IS ACTING ON BEHALF OF, A PLAN (OR A GOVERNMENTAL PLAN SUBJECT TOLAWS SIMILAR TO ERISA AND/OR SECTION 4975 OF THE CODE) IS STRONGLY URGEDTO CONSULT ITS OWN LEGAL, TAX AND ERISA ADVISERS REGARDING THECONSEQUENCES OF SUCH AN INVESTMENT AND THE ABILITY TO MAKE THEREPRESENTATIONS DESCRIBED ABOVE.


32





Available Documents

This Memorandum is not intended to provide a complete description of the Fund’s Memorandumof Association and Bye-laws or the agreement with the Manager, Administrator, Investment Advisor, andthe Bank. Copies of such documents are available for inspection by Shareholders and prospectiveinvestors during normal business hours at the Administrator’s office or at the office of the Manager inHamilton, Bermuda.

Auditor’s Consent


Counsel

The law firms of Tannenbaum Helpern Syracuse & Hirschtritt LLP (New York) and O’NealWebster O’Neal (BVI) serve as counsel to the Fund in connection with matters pertaining to U.S. law andBVI law, respectively, and to the Manager and, together or individually, may serve as counsel to otherinvestment funds sponsored or managed by the Manager and its affiliates. Should a future dispute arisebetween the Fund and the Manager, separate counsel may be retained as circumstances and professionalresponsibilities then dictate. Counsel to the Fund do not represent the Shareholders. See “POTENTIALCONFLICTS OF INTEREST.”




33







Applications to subscribe for USD Class Common Shares (the “USD Shares”) of the Kingate GlobalFund, Ltd., a British Virgin Islands corporation (the “Fund”), may be made only by written applicationusing the enclosed Subscription Agreement and certain related documentation, outlined for ease ofreference as follows:







(Exhibit E)


* A FATF Jurisdiction is a country or territory which is a member of the Financial Action Task Force onMoney Laundering.


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(Exhibit E)

All completed Subscription Agreements should be directed to the Administrator at the addressshown thereon no later than the last Business Day (as defined in the Fund’s amended and restatedInformation Memorandum, as may be further amended and restated (the “Information Memorandum”))prior to the Subscription Date (as defined in the Fund’s Information Memorandum). The Fund reservesthe right to reject subscriptions in whole or in part, in which event subscription payments will be refundedat the applicant’s risk, without interest. The Manager of the Fund may, in its sole discretion, discontinuethe offering of USD Shares at any time. A properly completed and signed copy of the SubscriptionAgreement may be submitted to the Administrator by telecopier (+ 1-441) 296-8227 in advance ofsubmitting the original in order to expedite processing of the application. The signed original, however,must be sent to the Administrator immediately thereafter.


Payments in full for the amount subscribed (not less than U.S. $250,000, unless otherwise agreedin advance by the Fund) are to be made in U.S. Dollars by Fed Fund transfer at the latest by theSubscription Date (as defined in the Fund’s Information Memorandum) as follows:


Wire to:

Correspondent Bank: HSBC Bank USA, N.A.452 Fifth AvenueNew York, New York 10018U.S.A.(ABA No. 021001088)(CHIPS UID no. 0108)(Swift Code MRMDUS33)

Beneficiary Bank: The Bank of Bermuda Limited6 Front StreetHamilton, Bermuda(CHIPS UID no. 005584)(Swift Code BBDABMHM)


Account No: 010-424174-561


In order to facilitate prompt and accurate crediting of subscription payments, subscribers mustnotify the Administrator, prior to remitting payment, of the details of the subscription payment, indicating(i) the name of the subscriber, (ii) the dollar amount subscribed, (iii) the subscriber’s address (including a Kingate Global Fund, Ltd. – USD Shares

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telex or telecopier number if available), (iv) the name and address of the financial institution remitting thesubscription payment and (v) the approximate date as of which the payment is being wired to the Fund’saccount.

Confirmations

Confirmations will be sent to subscribers showing the details of each transaction. The USDShares will ordinarily be issued in respect of accepted applications at the Net Asset Value (as defined inthe Fund’s Information Memorandum) per USD Share as of the last Business Day of the month followingthe date on which the Fund has verified the receipt of the cleared funds.


Local Rules

Persons interested in subscribing for the USD Shares should inform themselves as to (1) the legalrequirements within their own countries for the purchase of the USD Shares, (2) any foreign exchangerestrictions which they might encounter, (3) the income tax or other tax consequences, if any, which mightbe relevant to the purchase, holding or sale of the USD Shares, and (4) the applicable anti-moneylaundering rules set forth in the Memorandum and below.

As part of the Administrator’s and the Fund’s responsibility for protection against moneylaundering, the Administrator may require a detailed verification of the identity of a person or entityapplying for Shares. Depending on the circumstances of each application, a detailed verification mightnot be required where:

a. the applicant makes payment by wire transfer from an account held in the applicant’sname at a recognized financial institution residing in a recognized jurisdiction, as definedby applicable laws, and the applicant’s details (name and account number) appear in theconfirmation of the wire transfer; or


These exceptions will only apply if the financial institution or intermediary referred to above iswithin a country recognized as having sufficient anti-money laundering regulations. As such, it is thecurrent policy of the Board to accept subscription monies only from financial institutions that are licensed toconduct banking or securities business in jurisdictions designated by the Board as “qualified jurisdictions”based on the nature of the jurisdictions’ regulatory regime, or the clients of such financial institutions.

A list of the jurisdictions that have been designated as “qualified jurisdictions” is available from theFund.

The Administrator and the Fund reserve the right to request such information as they deemnecessary to verify the identity of an applicant. In the event of delay or failure by the applicant to produceany information required for verification purposes, the Administrator may refuse to accept the applicationand the subscription monies relating thereto or may refuse to process a redemption request until properinformation has been provided.


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Kingate Global Fund, Ltd. – USD Sharesc/o BISYS Hedge Fund Services Limited9 Church StreetP.O. Box HM 951Hamilton, Bermuda HM DXFax No.: (+ 1-441) 296-8227Attn: Shareholder Services Unit

Dear Sirs:

The undersigned subscriber (the “Subscriber”) acknowledges having received, reviewed andunderstood the Amended and Restated Information Memorandum dated as of August 1, 2007 as may befurther amended and restated (the “Information Memorandum”) for the offering of USD ParticipatingCommon Shares (the “Shares”) of Kingate Global Fund, Ltd. (the “Fund”) and hereby subscribes for asmany Shares as may be purchased for the amount indicated below on the terms of the InformationMemorandum and subject to the provisions of the Memorandum and Articles of Association of the Fund.

Entitv Subscriber

Date and Jurisdiction of Incorporation:

Tax ID Number:

Natural Person Subscribers

Date and Place of Birth:

Social Security Number:

Nationality:

All Subscribers

Subscription Date:



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Telephone Number:

Fax Number:

E-Mail:



Name, Address and Account Number of Financial InstitutionRemitting Payment for Subscriber’s Account*:

* Such account details will be used to remit proceeds on redemption of Shares unless otherwise instructed in writing ofalternative instructions. Kingate Global Fund, Ltd. – USD Shares

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Payment Date:

The Subscriber agrees that all or any funds payable to the Subscriber (including redemption proceeds)may be wire transferred to the Subscriber in accordance with the following instructions, until furtherwritten notice, signed by one or more of the following individuals authorized to act on behalf of theSubscriber, and delivered to the Administrator (*).

Bank Name:

Bank Address:

ABA or CHIPS No:

Account Name:

Account No:

For Further credit:

Number of beneficial owners represented by Subscriber (if Subscriber is acting in any sort of nominee orfiduciary capacity)

Is the Subscriber, or an affiliate of the Subscriber, a pension profit-sharing, annuity, or employee benefitplan (whether private, governmental, or charitable)?


The undersigned Subscriber is (tick one and refer to the Subscription Instructions for the documentationto enclose for different categories of investors):







q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks, HedgeFunds, etc.) from a FATF Jurisdiction

q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks, HedgeFunds, etc.) from a non-FATF Jurisdiction


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q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks, HedgeFunds, etc.) from a non-FATF Jurisdiction – privately held

q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks, HedgeFunds, etc.) from a non-FATF Jurisdiction – trust

Authorized Signatories:

Set forth below are the names of persons authorized by the Subscriber to give and receiveinstructions between the Fund (or its Administrator) and the Subscriber, together with their respectivesignatures. Such persons are the only persons so authorized until further written notice to theAdministrator signed by one or more of such persons.

(please attach additional pages if needed)

Name Signatures


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(a) The Subscriber is subscribing for, or acquiring, Shares herein with a value of at leastU.S.$250,000;

(b) It is (i) an institution whose ordinary business or professional activity includes the buyingand selling of investments, whether as principal or agent; (ii) in the case of a natural person, his/herindividual net worth, or joint net worth with his/her spouse, exceeds U.S.$1 million; or (iii) an institutionwith a minimum amount of assets under discretionary management of U.S.$5 million; and

(c) It (i) has the knowledge, expertise and experience in financial matters to evaluate the risksof investing in the Fund; (ii) is aware of the risks inherent in investing in the assets proposed to beacquired by the Fund and the method by which the assets of the Fund are held and/or traded; and (iii) canbear the risk of loss of its/his/her entire investment.


The Subscriber represents and agrees that none of the Shares (nor any interest therein) is beingacquired or will at any time be held, directly or indirectly, for the account or benefit of any “RestrictedPerson” (as defined in the Information Memorandum), and further agrees that none of the Shares will betransferred to any person who has failed to supply a similar representation. The Subscriber represents andwarrants that:

(a) Reliance on Information Memorandum. The Subscriber acknowledges that the Fundhas delivered to the Subscriber the Information Memorandum. The Subscriber has not relied on anyrepresentations or other information purported to be given on behalf of the Fund except as set forth in theInformation Memorandum or the published, financial accounts of the Fund.

(b) No Resale. The Subscriber is acquiring the Shares for its own account, or on behalf of athird party or third parties for investment and not with a view to resale, transfer or other disposition in whole orin part.

(c) No Need for Liquidity. The undersigned understands that the Shares have not beenregistered under the United States Securities Act of 1933, as amended (the “Securities Act”), or under the lawsof any other jurisdiction, and that the Fund does not contemplate and is under no obligation to so register theShares. The undersigned understands and agrees that the Shares must be held indefinitely unless they aresubsequently registered under the Securities Act and, where required, under the laws of other jurisdictions orunless an exemption from registration is available. Even if such exemption is available, the undersignedagrees that the assignment and transferability of the Shares will be governed by the Memorandum and Articlesof Association of the Fund (the “Memorandum and Articles of Association”). The Memorandum and Articlesof Association require that Shares in the Fund shall not be transferred without the prior consent of the Fund.The undersigned recognizes that there will be no established trading market for the Shares and it is extremelyunlikely that any public market for the Shares will develop. The undersigned has no need for liquidity inconnection with its purchase of Shares.

(d) Legality and Validity of Consents. All consents required to be obtained and all legalrequirements necessary to be complied with or observed in order for this Agreement or the issuance of the


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Shares to be lawful and valid under the laws of any jurisdiction to which the Subscriber is subject havebeen obtained, complied with or observed.

(e) Anti-Money Laundering. The Subscriber acknowledges that due to money launderingrequirements, the Fund, the Manager, the Investment Advisor and/or the Administrator may requirecertain identification and/or other information of the Subscriber before the application can be processed.

(f) Subscriber Knowledge. The Subscriber possesses requisite knowledge and experiencein financial matters such that it is capable of evaluating the merits and risks of an investment in the Fund(including without limitation, the ability to suffer a complete loss of the investment and need to hold theShares for an indefinite period of time).

(g) Transfer Request Form. Subscriber agrees to complete and submit to the Board ofDirectors the Transfer Request Form (annexed hereto) and any other documents requested by the Board ofDirectors in the event the Subscriber seeks to transfer its Shares, in whole or in part. No transfer shall beeffective without the express consent of the Board of Directors.

(h) No Performance Guarantees. No guarantees have been made to the Subscriber aboutfuture performance or financial results of the Fund.

(i) Ability to Bear Risks. The Subscriber is and will be able to bear the economic risks of itsinvestment in the Shares.

(j) Suitability. The Subscriber has read carefully and understands the InformationMemorandum and has consulted its own attorney, accountant or investment advisor with respect to theinvestment contemplated hereby and its suitability for the Subscriber and Subscriber consents to everyprovision therein.

(k) Opportunity to Verify Information. The Subscriber acknowledges that therepresentatives of the Fund, the Manager, Investment Advisor, Administrator and Consultant have madeavailable to the Subscriber, during the course of this transaction and prior to the purchase of any Shares,the opportunity to ask questions of and receive answers from them concerning the terms and conditions ofthe offering described in the Information Memorandum, and to obtain any additional informationnecessary to verify the information contained in the Information Memorandum or otherwise relevant tothe suitability of the proposed investment and to the proposed activities of the Fund.

(l) Investment Objectives. The purchase of the Shares by the Subscriber is consistent withthe general investment objectives of the Subscriber.

(m) No Borrowings. The Subscriber has not borrowed any portion of its contribution to theFund, either directly or indirectly, from the Fund, the Manager, Investment Advisor, Administrator, or anyaffiliate of the foregoing.

(n) Conflicts of Interest; Fund Counsel Does Not Re present Investors. The Subscriberunderstands and acknowledges the various conflicts of interest that are set forth in the InformationMemorandum. The Subscriber understands and acknowledges that Tannenbaum Helpern Syracuse &Hirschtritt LLP and O’Neal Webster O’Neal represent only the Fund and the Manager and not theSubscriber, in connection with the offer and sale of the Shares. The Subscriber has had the opportunity toconsult with legal counsel of its own choosing.


S-9



(p) Change in Information. The Subscriber agrees to notify the Board of Directorsimmediately if any of the information provided herein by the Subscriber changes or becomes inaccurate.

(q) Authorization. The Subscriber acknowledges that it has the legal capacity and authority andis permitted by applicable law to execute and deliver this Agreement and is authorized to purchase Shares andto perform its obligations pursuant to the provisions hereof and pursuant to the Memorandum and Articles andof Association and such Subscriber has not been formed for the specific purpose of acquiring an interest in theFund.

(r) Broker Dealer Arrangements. The Subscriber acknowledges that the Fund and/or theInvestment Advisor have the power to enter into agreements pursuant to which a registered broker-dealeraffiliate of the Fund or any member of the Investment Advisor, splits commissions earned from any trades inrespect of Fund assets with any other registered broker-dealer on such terms as the Fund or the InvestmentAdvisor (as the case may be) in their sole discretion deem advisable and proper.

(s) Restricted Person. The Subscriber certifies that it is not now, and for as long as it ownsthe Shares, a Restricted Person, nor a custodian, nominee or trustee of such a person. The Subscriberfurther certifies that it is not acquiring the Shares for and will not hold the Shares on behalf of or transferShares to any person or entity that is a Restricted Person. The Subscriber agrees that it will promptlynotify the Fund at any time when it becomes a Restricted Person, and the Subscriber agrees that in suchevent the Fund shall be entitled to (but shall not be obliged to) repurchase or to require the Subscriber toredeem or sell the Shares to a person designated by the Fund at a price equal to the Net Asset Value perShare as calculated by the Administrator as at the date of the repurchase or sale or as at the date of anyunauthorised transfer giving rise to such repurchase or sale.

(t) Legal Entitv. Where the Subscriber is a company, trust or partnership, it agrees toproduce a certified copy or copies of the certificate of incorporation (and any change of name), bye-laws(or other document evidencing the existence of the legal entity), the register of directors or an excerptfrom the trade register held at the relevant chamber of commerce and the signatory card verifying theauthority of officers to sign on behalf of the corporate entity and any other relevant documentation asrequested by the Fund.

(u) Subscriptions. The Subscriber acknowledges that the Fund reserves the right to reject inits absolute discretion this and any other subscription for Shares in whole or in part, in any order, at anytime prior to a Subscription Date (as defined in the Information Memorandum), notwithstanding priorreceipt by the Subscriber of notice of acceptance of the subscription. If the Shares are oversubscribed, theFund will determine in its sole discretion which subscriptions shall be accepted. If this subscription isrejected or if the sale of the Shares is not completed for any reason (in which event this subscription shallbe deemed to be rejected), the Fund shall as soon as practicable return any funds transferred by theSubscriber (without interest) along with this Agreement and any other documents delivered by theSubscriber.

(v) Entire Agreement. This Agreement represents the entire agreement of the parties inrespect of the subscription for Shares and may not be changed or terminated orally.


S-10


(w) Waiver. No waiver by any party of any breach of any term of this Agreement shall beconstrued as a waiver of any subsequent breach of that term or any other term of the same or of a differentnature.

(x) Legal Actions. If any legal action or any arbitration or other proceeding is brought for theenforcement of this Agreement or because of an alleged dispute, breach, default, or misrepresentation inconnection with any of the provisions of this Agreement, the successful or prevailing party or parties shallbe entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, inaddition to any other relief to which they may be entitled.

(y) Waiver of Statute of Limitations. Each investor in the Fund agrees to have waived, to themaximum extent permissible under law, the right to bring any legal claim, action or other proceeding againstthe Fund, its Board of Directors and other officers unless such claim, action or proceeding is commencedwithin six (6) months from the date of the first to occur of (i) the original occurrence allegedly giving rise tosuch claim, action or proceeding or (ii) the Shareholder's redemption of any Shares.

(z) Governing Law. The Subscriber agrees when entering into the Agreement to be boundby the laws of the BVI and in addition to the non-exclusive jurisdiction of the relevant courts thereinsubject to which laws this Agreement shall be governed and interpreted.

(aa) Facsimile Instructions. The Subscriber acknowledges that the Fund and theAdministrator are entitled to act upon facsimile instructions from or purported to be from the Subscriberand that all such instructions, where accepted by the Fund or the Administrator, will be final and bindingupon the Subscriber. The Subscriber agrees to indemnify the Fund or Administrator against any and allclaims, demands, liabilities, costs, charges, damages and expenses that the Fund or the Administrator mayincur by reason of any act or failure to act on the part of the Fund with regard to all facsimile instructionsso provided by the Subscriber.

(bb) Survival of Representations. The representations, warranties, agreements andindemnification obligations of the Subscriber contained in this Agreement shall survive the execution ofthis Agreement and the purchase of the Shares.

(cc) General. This Agreement shall be binding upon the Subscriber and the legalrepresentatives, successors and assigns of the Subscriber, and shall, if the Subscriber consists of more thanone person, be the joint and several obligation of all such persons. Two or more duplicate counterparts ofthis Agreement may be executed by the Subscriber and accepted by the Fund, each of which shall be anoriginal, but all of which together shall constitute one and the same instrument.



(1) The Subscriber is not a, and is not using to acquire the Shares the assets of any,“benefit plan investor” as defined in 29 C.F.R. 2510.3-101(f)(2) (as modified by Section 3(42) of ERISA) (the “Plan Asset Regulation”). For purposes of illustration, (Initial)“benefit plan investors” include pension plans, profit-sharing plans, or other “employeebenefit plans” subject to part 4 of subtitle B of Title I of ERISA, and plans subject toSection 4975 of the Internal Revenue Code of 1986, as amended (the “Code”).“Benefit plan investors” also include simplified employee pension plans, KEOGH plansand individual retirement accounts. “Benefit plan investors” also include entities


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deemed under Department of Labor regulations to hold “plan assets” due to investmentsmade in the entity by such employee benefit plans and other plans.

If the Subscriber is an entity, the Subscriber certifies that less than 25% of the value ofeach class of equity interests in the Subscriber (excluding any equity interests held byan individual or entity with discretionary authority or control over the equity interests ofthe Subscriber) is held by “benefit plan investors”.

Or

(2) The Subscriber, an affiliate of the Subscriber, or the person or entity for which the Subscriber is acting is a “benefit plan investor” as defined in the Plan Asset Regulation. (Initial)

If the Subscriber is a “benefit plan investor,” please indicate whether the Subscriber is aplan defined in Section 4975 of the Code (e.g., an individual retirement account,Coverdell account, ERISA Plans, etc.):

Yes No

(3) The Subscriber is a life insurance company acquiring the Shares with the assets ofthe Subscriber’s general account.

(Initial)

If so, the portion of such general account assets which represents “plan assets” withinthe meaning of the Plan Asset Regulation will not exceed the following percentageduring the period the Subscriber holds the Shares:

%

(4) The Subscriber is a person who has discretionary authority or control with respectto the assets of the Fund or provides investment advice to the Fund for a fee, direct or indirect, with respect to such assets or any affiliate of any such person (a “Controlling (Initial)

Person”).

(5) The Subscriber is an entity whose underlying assets are deemed to include “planassets” by reason of an employee benefit plan or other plan’s investment in the Subscriber. If so, the percentage of equity interests of the Subscriber held by employee (Initial)

benefit plans subject to part 4 of subtitle B of Title I of ERISA or plans subject toSection 4975 of the Code will not exceed the following percentage during the period theSubscriber holds the Shares:

%


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For purposes of the foregoing, an “affiliate” of a person includes any person, directly orindirectly, through one or more intermediaries, controlling, controlled by, or undercommon control with the person. “Control”, with respect to a person other than anindividual, means the power to exercise a controlling influence over the management orpolicies of such person.

The Subscriber understands and agrees that the information suppliedabove will be utilized to determine whether benefit plan investors own less than25% of the value of the Shares, as determined under the Plan Asset Regulation,both upon the original issuance of Shares and upon subsequent transfer of Shares.


If the Subscriber is acting as trustee, agent, representative or nominee for an investor (a "BeneficialOwner"), the Subscriber understands and acknowledges that the representations, warranties and agreementsmade herein are made by the Subscriber with respect to the Subscriber and with respect to the BeneficialOwner. The Subscriber further represents and warrants that it has all requisite power and authority from saidBeneficial Owner to execute and perform the obligations under this Subscription Agreement. The Subscriberalso agrees to indemnify the Fund, the Manager, the Investment Advisor, the Consultant and the Administratorand their officers and agents for any and all costs, fees and expenses (including legal fees and disbursements)in connection with any damages resulting from the Subscriber's misrepresentation or misstatement containedherein, or the assertion of the Subscriber's lack of proper authorization from the Beneficial Owner to enter intothis Subscription Agreement or perform the obligations hereof.

If the Subscriber enters into a swap, structured note or other derivative instrument, the return fromwhich is based in whole or in part on the return of the Fund (the "Swap") with a third party (a "Third Party"),the Subscriber represents and warrants that with respect to a Third Party entering into a Swap: (a) the ThirdParty is authorized under its constitutional documents (e.g., certificate of incorporation, by-laws, partnershipagreement or trust agreement) and applicable law to enter into the Swap and would also be so authorized toinvest directly into the Fund; (b) the Third Party has received and reviewed a copy of the InformationMemorandum, the U.S. Supplement and the Subscription Agreement; (c) the Third Party acknowledges thatthe Fund and its affiliates are not responsible for the legality, suitability or tax consequences of the Swap andthat the Subscriber is not an agent of the Fund; and (d) the Third Party is an "eligible contract participant"under the U.S. Commodity Exchange Act, as amended and, as necessary, an “accredited investor” within themeaning of Regulation D under the Securities Act of 1933, as amended. The Subscriber also agrees toindemnify the Fund, the Manager, the Investment Advisor and the Consultant and the Administrator and theirofficers and agents for any and all costs, fees and expenses (including legal fees and disbursements) inconnection with any damages resulting from the Subscriber's misrepresentation or misstatement containedherein. Nothing herein constitutes an agreement or statement by the Fund as to the legality of a Swap or thesuitability of a Swap for the Third Party.


(a) The Subscriber represents that all evidence of identity provided in connection with theSubscription Agreement is true and correct and all related information furnished is genuine and accurate.

(b) The Subscriber agrees to provide any information deemed necessary by the Fund in itssole discretion to comply with its anti-money laundering program and related responsibilities from time to


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time. In the event of delay or failure by the Subscriber to produce any information requested in thisSubscription Agreement or required for verification purposes, the Fund may refuse to accept thesubscription.

(c) The Subscriber represents and covenants that neither it, nor any person controlling,controlled by, or under common control with it, nor any person having a beneficial interest in it, is anindividual, organization, or entity listed on the List of Specially Designated Nationals and BlockedPersons (the “OFAC Control List”) maintained by the US Office of Foreign Assets Control (“OFAC”),and that it is not investing and will not invest in the Fund on behalf of or for the benefit of any individual,organization, or entity listed on the OFAC Control List.

(d) The Subscriber represents that (i) the amounts contributed by it to the Fund were not andare not directly or indirectly derived from activities that contravene U.S. federal or state laws orregulations and international laws and regulations, including anti-money laundering laws and regulations,and (ii) the proceeds from the Subscriber’s investment in the Fund will not be used to finance any illegalactivities.

(e) The Subscriber acknowledges (i) that additional subscriptions by the Subscriber may berefused and/or (ii) that requests for withdrawals may be delayed or declined if the Manager reasonablybelieves it does not have satisfactory evidence of the Subscriber’s identity.

(f) The Subscriber acknowledges that, if, following its subscription in the Fund, the Managerand/or the Administrator reasonably believes that the Subscriber is listed on the OFAC Control List or hasotherwise breached its representations and covenants as to its identity, the Manager and/or theAdministrator may be obligated to block the Subscriber’s investment in accordance with applicable law,and the Subscriber shall have no claim against the Manager and/or the Administrator for any form ofdamages as a result of blocking the investment.

(g) If the Subscriber is a “fund of funds” or an entity that invests on behalf of others, theSubscriber, in addition to and not by way of limiting the foregoing, represents and certifies that it is awareof the requirements of the USA PATRIOT Act of 2001, and rules and regulations promulgated thereunderand other applicable anti-money laundering measures in any jurisdiction (collectively, the “AML Rules”)and that it has adopted anti-money laundering policies and procedures in place reasonably designed toverify the identity of its beneficial owners or underlying investors, as the case may be, and their respectivesources of funds. Such policies and procedures are properly enforced and are consistent with such AMLRules. The Subscriber represents and certifies that to the best of its knowledge, the beneficial owners orinvestors, as the case may be, are not individuals, entities, or countries that may subject the Fund or any ofits affiliates to criminal or civil violations of any AML Rules. The Subscriber acknowledges that it is tofurnish a copy of its anti-money laundering policies and procedures to the Fund when requested. Amongits other obligations hereunder, the Subscriber agrees to promptly notify the Fund if the foregoingrepresentation and certification becomes inaccurate.


(1)

it is not a Senior Foreign Political Figure‡, a member of a Senior ForeignPolitical Figure’s Immediate Family§ , and/or any Close Associate ** of a Senior

‡ The term “senior foreign political figure” is defined to mean a senior official in the executive, legislative, administrative,military or judicial branches of a foreign government (whether elected or not), senior official of a major foreign political party,$r a senior executive of a foreign government-owned corporation.

The term “immediate family” is defined to mean the parents, siblings, spouse, children and in-laws of a senior foreignpolitical figure. Kingate Global Fund, Ltd. – VSD Shares

S-14


Foreign Political Figure residing in a non-cooperative country or territory or ajurisdiction that has been designated by the US Treasury as warranting specialmeasures due to money laundering concerns;

(2) it is not a former Senior Foreign Political Figure residing in a non-cooperativecountry or territory or a jurisdiction that has been designated as warrantingspecial measures due to money laundering concerns;

(3) it is not resident in, or organized or chartered under the laws of a jurisdiction thathas been designated by the US Secretary of Treasury under Sections 311 and 312of the USA PATRIOT Act as warranting special measures due to moneylaundering concerns;

(4) it is not a Foreign Shell Bank as the term is defined in the USA PATRIOT Act;and

(5) its subscription funds do not originate from, nor will they be routed through, anaccount maintained at a Foreign Shell Bank, an “offshore bank,” or a bankorganized or charted under the laws of a jurisdiction deemed to be a non-cooperative country or territory (“NCCT” ) ††.

STANDING PROXY

Subscriber hereby designates and appoints Kingate Management Limited, or any successorthereof, with full powers of substitution, as Subscriber’s true and lawful Proxy for the purpose of votingany Shares issued pursuant to this Agreement (or such portion thereof from time to time owned bySubscriber) as said Proxy may determine on any and all matters arising at any meeting of the Fund or anyClass meeting upon which such Shares could be voted by Subscriber (or the person in whose name theShares hereby subscribed are registered at Subscriber’s direction) if present in person at the meeting. Thisproxy may be revoked by Subscriber (or his registered nominee) either personally or by presentation of asubsequently executed form of proxy at any meeting of the Fund or by written notice to KingateManagement Limited received by Kingate Management Limited prior to any such meeting providedhowever that such revocation may lead to the compulsory redemption of such Subscriber’s Shares

POWER OF ATTORNEY

The Subscriber hereby irrevocably constitutes and appoints Kingate Management Limited, with fullpower of substitution, as the Subscriber’s true and lawful attorney-in-fact with full power and authority forthe Subscriber, and in the Subscriber’s name, place and stead and either personally or by attorney-in-fact, toexecute, deliver, acknowledge, publish, file and record and swear to the execution, delivery,acknowledgment, filing and/or recording of:

(a) The Information Memorandum, the Memorandum and Articles of Association and allamendments thereto required or permitted by law or the provisions of the Memorandum and Articles ofAssociation and all instruments that the attorney-in-fact deems appropriate to reflect any change or

** The term close associate” is defined to mean a person who is widely and publicly known to maintain an unusually close

gationship with s senior foreign political figure.The Financial Action Task Force on Money Laundering (“FATF”) has designated certain countries or territories as NCCTs.

The list of countries or territories deemed to be NCCTs is available at: http://www1.oecd.org/fatf. Kingate Global Fund, Ltd. – VSD Shares

S-15


modification of the Information Memorandum and the Memorandum and Articles of Association inaccordance with the Memorandum and Articles of Association;

(b) all such other agreements, applications, instruments, documents, certifications, certificatesand reports which may from time to time be required by the laws of any jurisdiction in which the Fund shalldetermine to do business, or any political subdivision or agency thereof, or any regulator to effectuate,implement and continue the valid and subsisting existence of the Fund;

(c) all conveyances and other instruments which the Board of Directors deems appropriate toreflect the dissolution and termination of the Fund; and

(d) all certificates and other instruments deemed necessary or advisable by the Board of Directorsto carry out the provisions of the Information Memorandum and the Memorandum and Articles ofAssociation.

The Power of Attorney granted hereby is coupled with an interest and is irrevocable and shall (i)continue in full force and effect notwithstanding the subsequent death, incapacity, dissolution, termination orbankruptcy of the Subscriber or the transfer of all or any portion of the Subscriber’s Shares in the Fund and (ii)extend to the Subscriber’s successors, assigns and legal representatives. The Subscriber agrees to be bound byany representation made by the attorney-in-fact acting in good faith pursuant to this Power of Attorney, andhereby waives any and all defenses which may be available to contest, negate or disaffirm the action of theattorney-in-fact taken in good faith under this Power of Attorney.

In the event of any conflict between the provisions of the Memorandum and Articles of Associationand any document executed or filed by the attorney-in-fact pursuant to this Power of Attorney, theMemorandum and Articles of Association shall govern.

INDEMNIFICATION

The Subscriber acknowledges that the Subscriber understands the meaning and legal consequences ofthe representations and warranties contained in this Agreement and agrees to indemnify and hold harmless theFund, the Manager, Investment Advisor, Consultant and Administrator, and their respective affiliates,employees, officers, directors and agents and each other Subscriber from and against any and all loss, damage,liability or expense, including, without limitation, legal fees, due to or arising out of a breach of anyrepresentation or warranty of the Subscriber contained in any document furnished by the Subscriber inconnection with the offering and sale of the Shares, including, without limitation, this Agreement, theInformation Memorandum and the Memorandum and Articles of Association, and all schedules, appendicesand exhibits hereto or thereto, submitted by the Subscriber, or failure by the Subscriber to comply with anycovenant or agreement by the Subscriber herein or in any other document furnished by the Subscriber to anyof the foregoing in connection with this transaction. The indemnified parties shall be entitled to advances withregard to the indemnification made hereunder provided that such indemnified party deliver to theindemnifying party an undertaking pursuant to which it promises to return such advanced amount if theindemnity is ultimately found to be inapplicable.


S-16






Print Name

Date Date







The foregoing Subscription Agreement is hereby accepted by the undersigned as of the date set forthbelow:

Amount Accepted USD


Name:Title:

Date of Acceptance:


S-17


EXHIBIT A







(the “Company”), does hereby certify on behalf of the Company that the persons named below are directors

and/or officers of the Company and that the signature at the right of said name, respectively, is the genuine

signature of said person and that the persons listed below are each an authorized signatory for the Company.



, 200__.

Name:Title:


S-18



a Duly Authorized





IN WITNESS WHEREOF, the undersigned has executed this certificate as of the dayof , 200__.

Name:Title:


S-19


EXHIBIT B







(the “Investor”), does hereby certify that it is aware of the requirements of the USA PATRIOT Act of

2001, the regulations administered by the U.S. Department of Treasury’s Office of Foreign Assets

Control, and other applicable U.S. federal, state or non-U.S. anti-money laundering laws and regulations

(collectively, the “anti-money laundering/OFAC laws”). As an entity regulated by


(Insert Jurisdiction) (a FATF member jurisdiction) the Investor

has/have anti-money laundering policies and procedures in place reasonably designed to verify the

identity of its [beneficial holders] [underlying investors] and, to the extent required, their sources of

funds. Such policies and procedures are properly enforced by the Investor.

After due inquiry, the Investor hereby represents to Kingate Global Fund, Ltd. that, to the best ofits knowledge, the Investor’s [beneficial holders(s)] [underlying investor(s)] are not individuals, entitiesor countries that are identified on the list maintained by the U.S. Office of Foreign Assets Control ** .



S-20


EXHIBIT C



Kingate Global Fund, Ltd.c/o BISYS Hedge Fund Services Limited9 Church StreetP.O. Box HM 951Hamilton, Bermuda HM DXAttn: Shareholder Services Unit


I, , the of , do herebyName Title Name of Institution


Name of Investor Insert Period

years and, during this period, nothing has occurred that would give our institution cause to be

concerned regarding the integrity of

.Name of Investor


Very truly yours,

Name:

Title:


S-21


EXHIBIT D



Instructions: Please complete and return this Exhibit D and provide the name of every personwho is directly, or indirectly through intermediaries, the beneficial owner of 25% or more ofany voting or non-voting class of equity interests of the Investor. If the intermediary’sshareholders or partners are not individuals, continue up the chain of ownership listing their25% or more equity interest holders until individuals are listed. If there are no 25% beneficialowners, please write none.




S-22


EXHIBIT E



Instructions: Please complete and return this Exhibit E and provide the name of: i) everycurrent beneficiary that has, directly or indirectly, an interest of 25% or more in the trust; ii)every person who contributed assets to the trust (settlors or grantors); and iii) every trustee. Ifthere are intermediaries that are not individuals, continue up the chain of ownership listingtheir 25% or more equity interest holders until individuals are listed.

Citizenship

Status (for Individuals) or(Beneficiary/Settlor/ Principal Place of

Full Name and Address Trustee) Business (for Entities)


S-23



REDEMPTION REQUEST


Dear Sirs:

I/We hereby requests Redemption of the number of USD Shares OR the U.S. Dollar amount detailedbelow, subject to all the terms and conditions of the Memorandum and Articles of Association ofKingate Global Fund, Ltd. (the “Fund”), and the Amended and Restated Information Memorandumof Kingate Global Fund, Ltd. – USD Shares, as may be further amended and supplemented fromtime to time.

Redemption shall be effective as of the last Business Day of the calendar month detailed below,provided that this Redemption Request, accompanied by a share certificate(s) (if applicable) isreceived by the Fund at least thirty-five (35) days prior to such effective date and that (i) the originalsigned Redemption Request is received by the Administrator prior to the Redemption Date and (ii)I/we receive written confirmation from the Administrator that the faxed Redemption Request hasbeen received.

Please accept this letter as written notice of my/our intention to redeem the number of Class USDShares indicated below or the USD amount indicated below.

I/We (either in an individual capacity or as an authorized representative of an entity, if applicable)hereby represents and warrants to be the true, lawful and beneficial owner of the Shares to which thisRedemption Request relates, with full power and authority to request redemption of such Shares.Such Shares are not subject to any pledge or otherwise encumbered in any fashion.

Redemption Date:

Number of Shares Being Redeemed:


OR


S-24


Amount Being Redeemed:



Telephone Number:

Fax Number:

E-Mail:


Telephone Number:

Fax Number:

E-Mail:


Bank Name:

Bank Address:

ABA or CHIPS No:


S-25


Account Name:

Account No:

For Further credit:

Telephone Number:

Fax Number:

E-Mail:





Print Name

Date Date


S-26




Kingate Global Fund, Ltd.c/o BISYS Hedge Fund Services Limited9 Church StreetP.O. Box HM 951Hamilton, Bermuda HM DXFax No.: (+ 1-441) 296-8227Attn: Shareholder Services Unit

Dear Sirs:

The undersigned (herein referred to as the “Transferor”) hereby requests transfer, as defined in andsubject to all the terms and conditions of the Amended and Restated Information Memorandum of theFund, as may be further amended, restated and supplemented from time to time, to the transferee (the“Transferee”) designated below, of the number of USD Shares of the Fund detailed below in an amountequal to their Net Asset Value, as defined in the Information Memorandum.

Request is hereby made that effective as of (insert date), Shares specified below aredeemed transferred from the Transferor to the Transferee. It is understood that the Fund’s consent isrequired for this proposed transaction to be effective.

The Transferor (either in an individual capacity or as an authorized representative of an entity, ifapplicable) hereby represents and warrant to be the true, lawful and beneficial owner of the USD Sharesto which this Transfer Request relates, with full power and authority to request transfer of such USDShares. Such USD Shares are not subject to any pledge or otherwise encumbered in any fashion. TheTransferor hereby further represents and warrants that upon the requested transfer herein, the Transferorwill continue to remain the beneficial owner of the Shares.



PLEASE INDICATE IF THE BENEFICIAL OWNER OF THE USD SHARES IN THE HANDS OF THETRANSFEROR WILL REMAIN THE SAME:


EFFECTIVE TRANSFER DATE: ...............................................................................


S-27



............................................................................

NAME AND MAILINGADDRESS OF TRANSFEREE(S) ........................................................................


..............................................................................


DATE..............................................................................

SIGNATURE..............................................................................



See EXHIBIT I attached hereto for a sample letter that must be provided to the Fund and the Administrator when anyoneother than an individual makes a request to transfer Shares. Kingate Global Fund, Ltd. – VSD Shares

S-28



SUBSCRIPTION AGREEMENT FOR ADDITIONAL SUBSCRIPTIONS BYEXISTING NON-U.S. SHAREHOLDERS


Dear Sirs:

1. The undersigned, an existing Shareholder of Kingate Global Fund, Ltd., a British VirginIslands business company (the “Fund”), does hereby subscribe for and agrees to purchase additional shares(the “Shares”) in the Fund in the amount of $ , such subscription to be effective as of , (the “Effective Date”).

2. The undersigned agrees and acknowledges that in connection with its original investment inthe Fund, it tendered a subscription agreement (the “Subscription Agreement”) to the Fund.

3. The undersigned reaffirms all of the representations, warranties, covenants and agreementson the part of the undersigned which were set forth in the Subscription Agreement (which are incorporatedherein by reference), except for the subscription amount and date of purchase, with the same force and effectas if set forth in full herein on the date hereof. The undersigned also confirms to the Fund that all of theinformation contained in the Subscription Agreement, including, without limitation, information contained inthe “SUBSCRIBER REPRESENTATIONS AND WARRANTIES” and “PROFESSIONAL INVESTORREPRESENTATIONS AND WARRANTIES” sections, is true and correct as of the date hereof and that theeffect of the execution of this instrument by the undersigned is the same as the re-execution of theSubscription Agreement on the date hereof except as above provided.

4. The undersigned hereby tenders wire transfer payable to “Kingate Global Fund, Ltd.” in theamount of his subscription and agrees that such wire, and this Additional Subscription Agreement are beingdelivered subject to the Fund’s acceptance of the additional subscription contained herein and subject furtherto the terms and conditions of this Subscription Agreement for Additional Subscriptions, the Fund's Amendedand Restated Information Memorandum (as the same may be further amended from time to time) and theFund's Memorandum and Articles of Association (as the same may be amended from time to time).


S-29


IN WITNESS WHEREOF the undersigned agrees to be bound by this Additional SubscriptionAgreement as provided herein.

Dated: ,

IF THE UNDERSIGNED IS AN INDIVIDUAL,COMPLETE THE FOLLOWING:

Print name of individual Print name of spouse if funds are to be invested injoint name

Signature of individual Signature of spouse if funds are to be invested injoint name

IF THE UNDERSIGNED IS A CORPORATION,PARTNERSHIP, TRUST OR ANOTHER ENTITY,COMPLETE THE FOLLOWING:

Print name of corporation, partnership, trust or Print capacity of authorized representativeanother entity

By:Signature of authorized Print name of authorized representativeRepresentative

Accepted by:

Kingate Global Fund, Ltd.:

By:Title:


S-30


EXHIBIT I




Re: Transfers of USD Shares in Kingate Global Fund, Ltd. (the “Fund”)

Dear Sirs:

We act as a nominee or intermediary for our customers with respect to investments in various investmentfunds. We may from time to time be the recipient of shares (by way of a transfer from an existingShareholder) in the Fund and/or in funds which are administered by the Fund’s administrator, BISYSHedge Fund Services Limited (the "Administrator"), or one of your subsidiary or affiliated companies.We are providing this letter to you, the Fund, and the Administrator, in connection with your obligationsunder the various anti-money laundering and similar laws applicable to you.





Yours truly,

Signed:

Full Name:

Position:



S-31


EXHIBIT J

PRIVACY NOTICE

Kingate Management Limited (the “Manager”) recognizes the importance of protecting Shareholderprivacy and have appropriate policies in place to maintain the confidentiality and security of ourShareholders’ information.






Any and all nonpublic personal information received by the Manager with respect to the Shareholderswho are natural persons, including the information provided to the Fund by a Shareholder in thesubscription documents, will not be shared with nonaffiliated third parties which are not service providersto the Fund or the Manager without prior consent from such Shareholders. In the normal course ofbusiness, we may disclose the kinds of nonpublic personal information listed above to nonaffiliated thirdparty service providers involved in servicing and administering products and services on our behalf. Suchservice providers include but are not limited to the Administrator, the auditors and the legal advisors ofthe Fund. Additionally, the Fund and/or the Manager may disclose such nonpublic personal informationas required by law (such as to respond to a subpoena or to prevent fraud). In addition, if the Fundchooses to dispose of any Shareholder’s nonpublic personal information that the Fund is not legallybound to maintain, then the Fund will do so in a manner that reasonably protects such information fromunauthorized access.






S-32


Exhibit 4








May 1, 2006


Manager: Kingate Management LimitedConsultant: FIM Advisers LLPAdministrator: BISYS Hedge Fund Services Limited, Bermuda

INVESTMENT IN THE COMPANY INVOLVES RISK.YOUR ATTENTION IS DRAWN TO THE RISK FACTORS


Recipient:

Memorandum no.

THIS CONFIDENTIAL INFORMATION MEMORANDUM IS BEING GIVEN TO THE RECIPIENT SOLELYFOR THE PURPOSE OF EVALUATING AN INVESTMENT IN THE SHARES DESCRIBED HEREIN. ITMAY NOT BE REPRODUCED OR DISTRIBUTED TO ANYONE ELSE (OTHER THAN TO THEIDENTIFIED RECIPIENT’S PROFESSIONAL ADVISORS FOR THE PURPOSES OF EVALUATING THEINVESTMENT IN SHARES.) THE RECIPIENT, BY ACCEPTING DELIVERY OF THIS MEMORANDUM,AGREES TO RETURN IT AND ALL RELATED DOCUMENTS TO THE COMPANY IF THE RECIPIENTDETERMINES NOT TO SUBSCRIBE FOR SHARES.


IMPORTANT NOTICES

Neither Kingate Global Fund, Ltd. (the “Fund”) nor the USD Participating Common Shares of the Fund(the “USD Shares) described in this Amended and Restated Information Memorandum dated as of May 1, 2006, asmay be further amended and restated (this “Memorandum”), have been or will be registered or qualified under thesecurities laws of the United States (“U.S.”) or any other jurisdiction. This Memorandum does not constitute anoffer to sell or the solicitation of an offer to buy, nor shall there be any sale of USD Shares in any jurisdiction inwhich such offer, solicitation or sale is not authorized or to any person to whom it is unlawful to make such offer,solicitation or sale. The direct or indirect ownership of USD Shares by “Restricted Persons” as defined in thisMemorandum, is prohibited except to a limited number of tax exempt investors in the Fund’s discretion and thenonly after supplementary offering materials have been distributed to such potential investors. No person has beenauthorized to make any representations concerning the Fund or the USD Shares which are inconsistent with thosecontained in this Memorandum, and any such representations should accordingly be treated as unauthorized andmay not be relied upon by the recipient.






This Memorandum supersedes the Fund’s Amended and Restated Information Memorandum dated May 1,2004.





SUMMARY

The information set out below should be read in conjunction with, and is qualified in its entiretyby, the full text of this amended and restated Information Memorandum, as may be further amended andrestated (the “Memorandum”), the memorandum and articles of association (the “Memorandum andArticles of Association”) of Kingate Global Fund, Ltd. and the documents and agreements referred toherein, all of which are available from the Administrator upon request.



The Fund is now offering, through this Memorandum, USDParticipating Common Shares (the “USD Shares”) at a net priceper USD Share equal to the Net Asset Value (as defined herein)of the USD Shares. As of March 31, 2006, the audited Net AssetValue per Share of the USD Shares was U.S.$358.56 and therewere 6,204,917 Shares outstanding. See “SHARES OF THEFUND” and “DETERMINATION OF NET ASSET VALUE.”The Fund may discontinue this offering at any time for anyreason or no reason. Investors are referred to herein as“Shareholders.”

Board of Directors. The Fund has three (3) Directors on itsBoard of Directors (the “Board”) who exercise ultimate authorityover the Fund. The Directors meet at least annually, either inperson or by telephone, to review the investment andadministrative affairs of the Fund. See “MANAGEMENT - TheFund’s Board of Directors.”

Other Classes. The Fund is authorized to issue other classes ofshares subject to terms and conditions that differ from the termsand conditions applicable to the Shares discussed herein at anytime without notice to or obtaining consent from theShareholders. No offering of any other class is made by this


i


Memorandum. There are no other classes on offer at the presenttime.


AND PROCESS




INVESTMENT ADVISOR The Fund’s assets are managed by a New York based NASD*registered broker-dealer employing approximately 350 peopleand acting primarily as a market-maker in listed and unlistedstocks (the “Investment Advisor”). The Investment Advisorutilizes a “split strike conversion” options strategy consistentwith that of the Fund, as set forth under “THE FUND – TheFund’s Investment Objective and Investment Process.” TheInvestment Advisor has managed the assets of the Fund since itsinception and it is anticipated that the retention of suchInvestment Advisor will continue. In addition, from time totime, a portion of the Funds’ assets may be managed by theManager (as defined herein). See “MANAGEMENT - TheInvestment Advisor.”



CONSULTANT

FIM Advisers LLP, located in London, United Kingdom (hereinthe “Consultant”), has been appointed as consultant to the


ii


Manager in relation to the investments of the Fund pursuant to aConsulting Services Agreement by and among the Fund, theManager and the Consultant dated August 1, 2005 (the “FIMConsulting Services Agreement”). Pursuant to the FIMConsulting Services Agreement, the Consultant rendersconsulting advice to the Manager with respect to certain aspectsof the Fund’s operational, administrative, marketing, accountingand legal matters. See “MANAGEMENT - The Consultant.”

ADMINISTRATOR BISYS Hedge Fund Services Limited, located in Bermuda(herein the “Administrator”) is the Fund’s Administratorpursuant to an Administration Agreement, as amended andrestated effective January 1, 2002, by and among the Fund, theManager and the Administrator (herein the “AdministrationAgreement”). Pursuant to the Administration Agreement, theAdministrator administers the day-to-day activities of the Fund’soperations, which include, without limitation, receivingsubscriptions and processing redemption requests, calculatingthe Net Asset Value, responding to shareholder inquiries andsimilar matters. In addition to its administrative duties, theAdministrator has been appointed as Registrar and TransferAgent of the USD Shares pursuant to a Registrar Agreement, asamended and restated effective January 1, 2002, by and amongthe Fund, the Manager and the Administrator (herein the“Registrar Agreement”). See “MANAGEMENT -Administrator.”



iii



Minimum Subscription. The minimum initial investment persubscriber is U.S.$250,000. The minimum subsequentinvestment per subscriber is U.S.$100,000. Such amounts maybe waived or reduced at the discretion of the Directors.






iv


NET ASSET VALUE Generally. The Net Asset Value of the Fund is equal to theFund’s assets less the Fund’s liabilities and any accrued butunpaid expenses and reasonable reserves that have not yet beencharged. Each Class of Shares and, with respect to the USDShares, each Series thereof has its respective Net Asset Valuedetermined in accordance with the foregoing and based upon theassets and liabilities attributable to the particular Class or Series,as the case may be. Expenses, fees and other liabilities aredetermined in accordance with U.S. Generally AcceptedAccounting Principles. The Net Asset Values are calculated asof the close of business in New York on the last Business Day ofeach month or on such other date when such computation isnecessary or appropriate (each a “Valuation Date”). See“DETERMINATION OF NET ASSET VALUE.”


therefore is not required to adhere to certain investment policiesunder the U.S. Investment Company Act of 1940, as amended(the “Company Act”). In addition, the Manager and theInvestment Advisor are not registered as investment advisersunder the Investment Adviser Act of 1940, as amended (the“Advisers Act”). This Memorandum may be amended by theFund without further notice to the Shareholders so as to complywith any rule, regulation or statute.


Redemption Charge. Generally, no redemption charge isimposed. However, a redemption charge not to exceed onepercent (1.0%) of the proceeds (waivable in whole or in part atthe sole discretion of the Manager in exceptional circumstances)may be imposed on the redemption of USD Shares which areheld for less than twelve (12) months from the SubscriptionDate.


v










vi









TAX STATUS The Fund should not be subject to any BVI or U.S. income taxes(other than U.S. withholding taxes on dividend or certain interest


vii


income, if any, derived from U.S. sources.) Shareholders of theFund who are not otherwise subject to BVI or U.S. taxation byreason of their residence, nationality or other particularcircumstances should not become subject to any such taxation byreason of the ownership or redemption of the USD Shares.Prospective investors should inform themselves as to the taxconsequences, if any, in their own countries, which might berelevant to the purchase, holding, repurchase, redemption ortransfer of the USD Shares.

CERTAIN ERISA CONSIDERATIONS Investment in the Fund generally will be open to employeebenefit plans and other funds subject to ERISA and/or Section4975 of the Code. Except as described below under “CERTAINRISK FACTORS – Compliance with ERISA TransferRestrictions,” the Fund intends to use commercially reasonableefforts to cause “benefit plan investors” not to own a significantportion of any class of shares in the Fund, so that the assets ofthe Fund should not be considered to be “plan assets” forpurposes of ERISA and Section 4975 of the Code, although therecan be no assurance that non “plan asset” status will be obtainedor maintained. Prospective purchases and subsequent tranfereesof Shares in the Fund may be required to make certainrepresentations regarding the compliance with ERISA andSection 4975 of the Code. See “CERTAIN ERISACONSIDERATIONS.”


PRIVACY NOTICE Any and all nonpublic personal information received by theFund, the Manager and/or the Investment Advisor with respect tothe Shareholders who are natural persons, including theinformation provided to the Fund by the Shareholder in thesubscription documents, will not be shared with nonaffiliatedthird parties which are not service providers to the Fund, theManager and/or the Investment Advisor without prior notice tosuch Shareholders. Service providers that may receive suchnonpublic information include but are not limited to theAdministrator, the auditors and the legal advisors of the Fund.Additionally, the Fund, the Manager and/or the InvestmentAdvisor may disclose such nonpublic personal information asrequired by law or regulation, including without limitation, anydisclosure that may be required by the Uniting and StrengtheningAmerica by Providing Appropriate Tools Required to Interceptand Obstruct Terrorism (USA PATRIOT) Act of 2001 and anyrelevant British Virgin Islands anti-money laundering laws andregulations. See the exhibit to the Subscription Agreemententitled “Privacy Notice.”


viii


DIRECTORY




Mr. Graham H. Cook



Administrator BISYS Hedge Fund Services Limited Telephone: (+ 1-441) 295-91669 Church Street Telecopier: (+ 1-441) 296-8227P.O. Box HM 951Hamilton, Bermuda HM DXAttn.: Shareholder Services Unit






ix



O’Neal Webster O’Neal Myers Telephone: (+ 1-284) 494-5808Fletcher & Gordon Telecopier: (+ 1-284) 494-581130 DeCastro Street Email: [email protected] Town, TortolaBritish Virgin IslandsAttn: Barbara O’Neal, Esq.


Tannenbaum, Helpern, Telephone: (+ 1-212) 508-6701Syracuse & Hirschtritt LLP Telecopier: (+ 1-212) 355-3034900 Third Avenue E-mail: [email protected] York, N.Y. 10022U.S.A.Attn.: Michael G.Tannenbaum, Esq.


x


Table of Contents

Page

Summary i

Directory ix

The Fund 1


Certain Risk Factors 4Limited Operating History 4Achievement of Investment Objective 4Illiquidity of Investment 4Dependence on the Manager 4Dependence on the Investment Advisor 5General Economic Conditions 5Market Risks 5Trading Strategies of the Investment Advisor 5Special Techniques Used by the Investment Advisor 5Concentration 7Regulation 7No Manager Liability Beyond Fund Assets 8Shortened Claims Period 8Litigation 8Early Termination 8Effect of Substantial Withdrawals 8Possibility of Fraud or Misappropriation 9Changes in Applicable Law 9Reserve for Contingent Liabilities 9Certain Conflicts of Interest 9Other Clients of Investment Advisor 9Common Counsel 9Lack of Independent Experts Representing Investors 10Institutional Risk 10Settlements 10Pricing Information 10

Management 11The Fund’s Board of Directors 11The Manager 12The Investment Advisor 14The Consultant 14


xi


The Administrator 15Banking and Custody 16Voting Rights of Shareholders 16





Taxation 26Introduction 26The Fund 26Shareholders of the Fund 27


Subscription Instructions S-1Subscription Agreement S-4Exhibit A: Form of Incumbency Certificate S-17Exhibit B: AML Certification Form for Fund of Funds or Entities that invest on behalf of 3 rd Parties S-19Exhibit C: Form Letter of Reference S-20Exhibit D: Beneficial Ownership Information S-21Exhibit E: Trust Ownership Information S-22Redemption Request S-23Transfer Request Form S-26Exhibit I: Sample Letter for Approved Transfers S-28Exhibit J: Privacy Notice S-29


xii



THE FUND


The Fund was established and commenced operations during 1994. USD Shares were initiallyoffered on March 1, 1995 and the Net Asset Value (as defined herein) attributable to USD Shares as ofMarch 31, 2006 was U.S.$358.56. The same investment advisor (“Investment Advisor”) has managed theFund’s assets from inception. See “MANAGEMENT.” The Fund’s authorized capital is US$300,000consisting of 30,000,000 common shares, 15,000,000 of which has been designated as USD Shares. TheFund is a “Professional Fund” as that term is defined in the British Virgin Islands Mutual Funds Act(1996), as amended by the Mutual Fund Amendment Act (1997).


No offering other than USD Shares is made by this Amended and Restated InformationMemorandum dated as of May 1, 2006, as may be further amended and restated (the “Memorandum”).Accordingly, all references in the Memorandum shall be deemed to refer to USD Shares. Theinformation in this Memorandum is qualified in its entirety by the Fund’s memorandum and articles ofassociation (the “Memorandum and Articles of Association”) and operative agreements, all which areavailable on request to the Administrator.



1






Investment Process







2












The Fund does not expect to declare and/or pay dividends or make any other distributions toShareholders out of the Fund’s current earnings and profits. Rather, the Fund will reinvest such income.Potential investors should keep this limitation in mind when determining whether or not an investment inthe Fund is suitable for their particular purposes. The Fund reserves the right to change such policy.


3




Operating History








All decisions with respect to the general management of the Fund are made by the Manager, whohas complete authority and discretion in the management and control of the business of the Fund,including the authority to delegate all investment management activities to the selected InvestmentAdvisor. USD Shareholders will have no right or power to take part in the management of the Fund, norin any decision with regard to the allocation of management of the Fund’s assets to the selectedInvestment Advisor. As a result, the success of the Fund for the foreseeable future will depend largelyupon the ability of the Manager, and no person should invest in the Fund unless willing to entrust allaspects of the management of the Fund to the Manager, having evaluated their capability to perform suchfunctions.


4







Market Risks





The Investment Advisor uses special investment techniques that may subject the Fund’sinvestments to certain risks. Certain, but not all, of these techniques and the risks that they entail aresummarized below. The Fund, in any event, is not designed to correlate to the broad equity market, andshould not be viewed as a substitute for equity investments.


5








Risks of Loss of Entire Options Investment. An option is a wasting asset. Its value is reduced asits life shortens, and it becomes worthless upon expiry. As a consequence, an option buyer that does notsell an option in the secondary market prior to expiry nor exercises an option prior to expiry loses hisentire investment in the option.


6




Concentration


Regulation







Underwriting of Securities and Other Issuers. The Fund will not underwrite securities of otherissuers in connection with the distribution of securities.


7








Litigation


Early Termination



Substantial withdrawals by USD Shareholders within a short period of time could require theManager to liquidate positions more rapidly than would otherwise be desirable, which could adverselyaffect the value of the Fund’s assets. The resulting reduction in the Fund’s assets could make it moredifficult to generate a positive rate of return or to recoup losses due to a reduced equity base.


8



Neither the Fund nor the Custodian has actual custody of the assets. Such actual custody restswith the Investment Advisor and its affiliated broker-dealer. Therefore, there is the risk that the custodiancould abscond with those assets. There is always the risk that the assets with the Investment Advisorcould be misappropriated. In addition, information supplied by the Investment Advisor may beinaccurate or even fraudulent. The Manager is entitled to rely on such information (provided they do soin good faith) and are not required to undertake any due diligence to confirm the accuracy thereof.









Common Counsel

The law firm of Tannenbaum Helpern Syracuse & Hirschtritt LLP, counsel to the Fund, alsoserves as counsel to the Manager and to the Consultant in connection with the offering contemplated bythis Memorandum and other transactions and a senior partner of such counsel (who has no significantprior experience in professional asset management) is a member of the Board of Directors of the Managerand an investor in the Fund. Counsel has attempted to be fair and reasonable and believes it has acted in amanner consistent with its professional responsibilities. Should a future dispute arise between the Fundand the Manager or Consultant, the Fund will act accordingly. Counsel does not represent the USDShareholders (or any other shareholders) of the Fund.


9




Institutional Risk


Settlements


Pricing Information



If the Fund, the Manager, Investment Advisor, Administrator, or any governmental agencybelieves that the Fund has accepted subscriptions for Shares by, or is otherwise holding assets of, anyperson or entity that is acting directly or indirectly, in violation of an U.S., international or other anti-money laundering laws, rules, regulations, treaties or other restrictions, or on behalf of any suspectedterrorist or terrorist organization, suspected drug trafficker, or senior foreign political figure(s) suspectedin engaging in foreign corruptions, the Fund, the Manager, Investment Advisor, Administrator or such


10


governmental agency may freeze the assets of such person or entity invested in the Fund or suspend theirredemption rights. The Fund may also be required to remit or transfer those assets to a governmentalagency.




MANAGEMENT



Mr. Christopher Wetherhill Christopher Wetherhill, F.C.A., C.A., founded and was ChiefExecutive Officer of Hemisphere Management Limited, a financial services company located in Bermuda,from 1981 until 2000, when he chose to retire. He is now a board member of, and a consultant to, anumber of investment companies. Mr. Wetherhill is a Chartered Accountant, a Fellow of the Institute ofChartered Accountants in England and Wales, a member of the Canadian and Bermudian Institutes ofChartered Accountants, a Fellow of the Institute of Directors and a Freeman of the City of London.

Graham H. Cook is the Managing Director of TMF (BVI) Ltd., part of the TMF Group, aninternational organization providing trust, management and accounting services, financial services andfund administration services. Mr. Cook has worked in private practice as a solicitor in England and since1981 has pursued a career in providing management and trust services. He has been a director of trust andmanagement companies in the British Virgin Islands, Curacao, Gibraltar and latterly in London with TMFManagement (UK) Ltd. In 2002 he became a Director of TMF (BVI) Limited and Bison FinancialServices Limited. He also has work experience in South Africa and Brazil. Mr. Cook is an Honors Law Kingate Global Fund, Ltd. – USD Shares

11


graduate from the University of Birmingham, England, completed his post graduate studies at the Collegeof Law with a distinction, and was admitted as a Solicitor of the Supreme Court of England and Wales in1973. Mr. Cook resides in the British Virgin Islands.




The Manager


The operating directors of the Manager are:


Michael G. Tannenbaum, Esq. – Partner, Tannenbaum Helpern Syracuse & Hirschtritt LLP,where he heads the Firm’s Financial Services and Capital Markets Group which concentrates instructuring collective investments (hedge funds and the like) and capital financing arrangements both on-shore and offshore the U.S. He is the author of several articles including: “Domicile - A ComparativeAnalysis of Certain Offshore Jurisdictions,” appearing in The Capital Guide to Offshore Funds, ISIPublications, Hamilton, Bermuda 1997 and 1999, and Marketing Hedge Funds Over the Internet - a U.S.Perspective, ISI Publications, 2000. Mr. Tannenbaum is the President of the Hedge Fund Association, anindustry association, and is listed in An International Who’s Who of Private Fund Lawyers.

Phillip A. Evans. Trust Manager (Partner) at Moore Stephens Services SAM located inMonaco. Mr. Evans joined in March 1993 to establish and manage a new trust management departmentand is responsible for designing and implementing systems and controls, client contact, and marketing


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worldwide. During January 1990-February 1993, Mr. Evans served as Trust Officer at Georgam SAMlocated in Monaco, responsible for a large and varied number of Trusts and associated underlyingcompanies. During February 1988-December 1989, Mr. Evans served as Senior Trust Administrator atBarclays Bank Trust Company located in Reading, England.







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The Consultant


The Consultant was incorporated on October 8, 2004 as a limited liability partnership underEnglish Law. On August 1, 2005, the Consultant took over the business of its affiliate, FIM Limited, anasset management company with over twenty years of experience. The Consultant is a leading alternativeinvestment management company, specialising in the creation and management of portfolios of hedgefunds for institutions and private clients on a global basis. The Consultant is authorised and regulated bythe Financial Services Authority ("FSA") of the United Kingdom. As of the date of this document, theConsultant acts as Investment/Fund Adviser in respect of funds with assets totaling in excess of US$5billion.


The founder members of FIM Advisers LLP are;


Mr. Federico M. Ceretti - Federico Ceretti is a Founder Member of FIM Advisers LLP. Mr.Ceretti joined FIM Limited, an affiliate of FIM Advisers LLP, in 1986, and is Chief Executive Officer ofFIM Limited. Prior to joining FIM Limited, he worked in various positions with Merrill Lynch PierceFenner and Smith in London. Mr. Ceretti holds a Degree in Business Administration from the Universityof Pavia (Italy).


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The Administrator

BISYS Hedge Fund Services Limited, a Bermuda registered company, has been appointed as theFund's administrator. The Administrator and its affiliates specialize in providing services to the alternativeinvestment community from offices located in Bermuda, Dublin, Boston and New York. TheAdministrator is ultimately wholly owned by The BISYS Group, Inc., a New York Stock Exchange listedcompany, which provides growth enabling outsourcing solutions to the financial services industry.

Pursuant to the Administration Agreement, as amended and restated effective January 1, 2002,and the Registrar Agreement, as amended and restated effective January 1, 2002, the Administrator isresponsible for all matters pertaining to the administration of the Fund, including, without limitation,(i) communicating with the Fund’s Shareholders; (ii) communicating with the general public;(iii) soliciting sales of the Fund’s stock; (iv) accepting the subscriptions of new Shareholders;(v) maintaining the Fund’s principal corporate records and books of account; (vi) disbursing payments ofdividends, legal fees, accounting fees, and officers’ and directors’ salaries; (vii) calculating, publishing orfurnishing the subscription or redemption price of the USD Shares; (viii) conducting meetings of theFund’s Shareholders and Directors; and (ix) making redemptions of the USD Shares. The Administratorwill also provide the services of an individual to act as the secretary of the Fund.

Both the Administration Agreement and the Registrar Agreement shall continue and remain inforce and effect unless and until terminated by either party upon not less than three (3) months’ notice ora shorter time period under certain circumstances. The Administration Agreement provides that theAdministrator shall not be liable to the Manager, the Fund or its Shareholders in the absence ofnegligence, willful default, fraud or dishonesty in the performance or non-performance of its obligationsor duties. The Administration Agreement and the Registrar Agreement contain provisions for theindemnification of the Administrator by the Fund against liabilities to third parties arising in connectionwith the performance of its services, except under certain circumstances. The Administration Agreementand the Registrar Agreement also contain provisions for the indemnification of the Manager and the Fundby the Administrator in certain circumstances.



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Banking and Custody

The Bank of Bermuda Limited, located in Hamilton, Bermuda (the “Bank”), has been appointedas the Fund’s banker for purposes of receiving subscription funds, disbursing redemption payments andprocessing cash transactions not directly related to the Fund’s portfolio. Actual custody, however, is withthe Investment Advisor. See “CERTAIN RISK FACTORS.”







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FEES AND EXPENSES

Organization Costs

All costs and expenses associated with the organization of the Fund, including government incor-poration charges and professional fees and expenses in connection with the preparation and restatement ofthe Fund’s offering documents and the preparation of its basic corporate and contract documents, havebeen paid out of the Fund’s assets.

Fees of the Manager








Fees of the Bank



The Manager and the Administrator are responsible for providing all office personnel, space andfacilities required for the performance of their respective services. The Fund bears all other expensesincident to its operations and business, including brokerage commissions, appraisers, pricing services, Kingate Global Fund, Ltd. – USD Shares

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printing costs, the fees of its auditors and legal advisors; custody charges; interest and commitment feeson loans and debt balances; any income, withholding or other taxes; and the costs of communicationswith Shareholders, prospective investors and the Investment Advisor. In addition, the Fund pays for anyexpenses incurred in connection with listing the Shares on the Irish Stock Exchange, or any other suitableexchange, if such listing is deemed desirable in the sole discretion of the Directors.




Subscriptions

Generally. The USD Shares may be purchased as of the first Business Day (as defined herein) ofthe month (herein the “Subscription Date”) at a price equal to the Net Asset Value per USD Share as ofthe last Business Day of the immediately preceding calendar month (the “Valuation Date”), plus anyapplicable subscription charges. “Business Day” refers to any day when the central banking systems ofthe U.S. and Bermuda are open and operating. As of March 31, 2006, the audited Net Asset Value perUSD Share was U.S.$358.56. The Fund may (i) discontinue the offering of USD Shares at any time or(ii) permit subscriptions on other than the first Business day of a month at the then Net Asset Value of theUSD Shares. The minimum initial subscription from each investor is $250,000 and each minimumadditional subscription is $100,000. Such minimums may be waived by the Fund.




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Registration and Transfer. USD Shares will be issued only in registered form; the Fund does notissue bearer shares. The Administrator maintains a current register of the names and addresses of theFund’s Shareholders. Certificates representing USD Shares will be issued, without charge, only ifrequested by a USD Shareholder. Certificates will be mailed or delivered to the USD Shareholder at theShareholder’s risk. Because certificates must be returned to the Administrator prior to the processing ofredemption requests, the Fund discourages USD Shareholders from requesting certificates.








This exception will only apply if the financial institution referred to above is within a country orterritory which is a member of the Financial Action Task Force (“FATF”) or Caribbean Financial ActionTask Force (“CFATF”) and has anti-money laundering procedures that are at least equivalent to those inthe British Virgin Islands. The following countries are deemed to have anti-money laundering procedures


19


at least equivalent to those in the British Virgin Islands: Aruba, Australia, Bahamas, Barbados, Bermuda,Belgium, Canada, Cayman Islands, Denmark, Finland, France, Germany, Gibraltar, Greece, Guernsey,Hong Kong, Iceland, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Netherlands & NetherlandsAntilles, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom andUnited States of America.

An individual may be required to produce a copy of a passport or identification card certified by anotary public. In the case of corporate applicants, they may be required to produce a certified copy of thecertificate of incorporation (and change of name), memorandum and articles of association (orequivalent), and the names, occupations, dates of birth, and residential and business addresses of alldirectors.


Eligible Investors

Investment in the Fund is not available to Restricted Persons (as defined herein), unless the Funddetermines otherwise in limited cases. The term “Restricted Person” as used in this Memorandum meansany U.S. Person * and other persons from time to time designated as such by the Fund. Each prospective

*For the purposes of this Memorandum, “U.S. Person” means: (a) any natural person resident in the United States; (b) any

partnership or corporation organized or incorporated under the laws of the United States; (c) any estate of which any executor oradministrator is a U.S. Person; (d) any trust of which any trustee is a U.S. Person; (e) any agency or branch of a foreign entitylocated in the United States; (f) any non-discretionary account or similar account (other than an estate or trust) held by a dealeror other fiduciary for the benefit or account of a U.S. Person; (g) any discretionary account or similar account (other than anestate or trust) held by a dealer or other fiduciary organized, incorporated or, if an individual, resident in the United States; or (h)any partnership or corporation if (i) organized or incorporated under the laws of any foreign jurisdiction and (ii) formed by aU.S. Person principally for the purpose of investing in securities not registered under the United States Securities Act of 1933, asamended (the “Securities Act”), unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule501(a) under the Securities Act) who are not natural persons, estates or trusts. “U.S. Person” does not include: (a) anydiscretionary account or similar account (other than an estate or trust) held for the benefit or account of a non-U.S. Person by adealer or other professional fiduciary organized, incorporated or, if an individual, resident in the United States; (b) any estate ofwhich any professional fiduciary acting as executor or administrator is a U.S. Person if (i) an executor or administrator of theestate who is not a U.S. Person has sole or shared investment discretion with respect to the assets of the estate and (ii) the estateis governed by foreign law; (c) any trust of which any professional fiduciary acting as trustee is a U.S. Person if a trustee who isnot a U.S. Person has sole or shared investment discretion with respect to the trust assets, and no beneficiary of the trust (and nosettlor if the trust is revocable) is a U.S. Person; (d) an employee benefit plan established and administered in accordance withthe law of a country other than the United States and customary practices and documentation of such country; (e) any agency orbranch of a U.S. Person located outside the United States if (i) the agency or branch operates for valid business reasons and (ii)the agency or branch is engaged in the business of insurance or banking and is subject to substantive insurance or bankingregulation, respectively, in the jurisdiction where located; or (f) the International Monetary Fund, the International Bank forReconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, the AfricanDevelopment Bank, the United Nations and their agencies, affiliates and pension plans. Kingate Global Fund, Ltd. – USD Shares

20


investor is required to certify that the Shares are not being acquired directly or indirectly for the accountor benefit of a Restricted Person.



The information contained in this Memorandum is being communicated by the Fund. The Fundis not a recognised collective investment scheme for the purposes of the Financial Services and MarketsAct 2000 of the United Kingdom (the "Act") and the information contained in this Memorandum has notbeen approved for the purposes of Section 21(2) of the Act by a person authorised under the Act (an"authorised person"). This Memorandum is exempt from the general restriction on the communication ofinvitations or inducements to engage in investment activity contained in section 21 of the Act on theground that it may only be communicated in the United Kingdom to those persons to whom unregulatedcollective investment schemes may be communicated, as described in the Financial Services and MarketsAct 2000 (Financial Promotion) Order 2001, as amended, (including high net worth companies, certifiedsophisticated investors and investment professionals) or otherwise pursuant to an applicable exemptionpursuant to Section 21 of the Act. Any other persons should not act or rely on this Memorandum or anyof its contents.

High net worth companies include bodies corporate with more than 20 members and a called upshare capital of not less than £500,000, any other body corporate with a called up share capital of not lessthan £5million and any unincorporated association or partnership which has net assets of not less than £5million.

Certified sophisticated investors must have a current certificate in writing or other legible formsigned by an authorised person to the effect that he or she is sufficiently knowledgeable to understand therisks associated with participating in unregulated collective investment schemes. Assuming he or she hassuch a certificate, he or she must also have signed within a period of twelve months prior to the date ofreceipt of this Memorandum a declaration to the effect that he or she qualifies as a certified sophisticatedinvestor.

Investment professionals includes authorised persons and persons whose ordinary businessincludes advising on the types of investment described in this Memorandum. No person who is anauthorised person may communicate the information contained in this Memorandum, or otherwisepromote the Fund, to any person in the United Kingdom unless such person is a person to whom suchauthorised person is permitted to promote the Fund under Section 238 of the Act, the Financial Servicesand Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 and theRules of the Financial Services Authority in the United Kingdom. Communication of the informationcontained in this Memorandum to any other person in the United Kingdom is unauthorised and maycontravene the Act. Kingate Global Fund, Ltd. – VSD Shares

21


A United Kingdom investor who enters into an investment agreement to acquire Shares will nothave the right to cancel the agreement constituted by the acceptance by or on behalf of the Fund of anapplication for Shares. In addition, most if not all of the protections afforded by the United Kingdomregulatory system will not apply to investments in Shares. Investors will not benefit from the protectionafforded by the United Kingdom Financial Services Compensation Scheme.

Redemptions




Settlement. Redemptions will be generally settled in U.S. Dollars, although the Fund may, in itsdiscretion, settle redemptions in kind to the extent of such redeeming Shareholder’s pro-rata share of non-illiquid, direct investments. Cash settlements will be remitted either by wire transfer to an accountdesignated by the Shareholder or by check posted at the Shareholder’s risk (as specified by theShareholder in his written redemption notice). If USD Shares are held in certificate form, the redemptionpayment will not be remitted until the certificates have been tendered to the Administrator, and no interestwill accrue on the redemption proceeds pending the settlement date. The Fund may withhold a portion ofany proceeds of redemption if necessary to comply with applicable regulatory requirements.

Redemption requests may be submitted by fax to the Administrator at (+1-441) 296-8227, Attn:Shareholder Services Unit, provided that: (i) the original Redemption Request (attached hereto on page S-12) is received by the Administrator prior to the Redemption Date and (ii) the Shareholder receiveswritten confirmation that the faxed Redemption Request has been received.


Requests for redemption received after 5:00 p.m. (Bermuda time) on the last day of theredemption notice will be treated as a request for redemption as of the next Redemption Date.Redemption payments will be made in U.S. Dollars, unless made in kind, and will be remitted either bywire transfer to an account designated by the Shareholder at the bank from which the subscription price


22


was paid or by check posted at the Shareholder’s risk (as specified by the Shareholder in its writtenredemption notice). In circumstances where the Fund is unable to liquidate securities positions in anorderly manner in order to fund redemptions, or where the value of the assets and liabilities of the Fundcannot reasonably be determined, the Fund may take longer than the time periods mentioned above toeffect settlements of redemptions or may even suspend redemptions. Under extraordinary circumstances,in the discretion of the Directors, the Fund may settle redemptions in kind and may extend the duration ofthe redemption notice period beyond a full quarter if the Directors deem such an extension as being in thebest interest of the Fund and the non-redeeming Shareholders. Certain risks exist with regard toredemption requests made but not yet settled. See “CERTAIN RISK FACTORS.”


Redemption Charge. Generally, no redemption charge is imposed. However, a redemptioncharge not to exceed one percent (1.0%) of the proceeds (waivable in whole or in part at the solediscretion of the Manager in exceptional circumstances) will be imposed on the redemption of USDShares which are held for less than twelve (12) months from the Subscription Date. Such redemptioncharge may be retained by the Manager.

Temporary Suspension of Dealings and Determination of Net Asset Value. The Fund’s Directorsmay declare a temporary suspension of the determination of the Fund’s Net Asset Value and the sale,allotment, issue or redemption of the Shares during: (i) any period during which, in the opinion of theBoard, disposal by the Fund of securities which constitute a substantial portion of the assets of the Fund isnot practically feasible or as a result of which any such disposal would be materially prejudicial toShareholders; (ii) any period when, in the opinion of the Board, for any reason it is not possible totransfer monies involved in the acquisition or disposition or realization of securities which constitute asubstantial portion of the assets of the Fund at normal rates of exchange; (iii) any period when, in theopinion of the Board, for any reason the prices of any securities which constitute a substantial portion ofthe assets of the Fund cannot be reasonably, promptly or accurately ascertained; (iv) any period (otherthan customary holiday or weekend closings) when any recognized exchange or market on which theFund’s securities are normally dealt in or traded is closed, or during which trading thereon is restricted orsuspended; or (v) any period when proceeds of any sale or redemption of the Shares cannot be transmittedto or from the Fund’s account. The Fund may withhold payment to any person whose USD Shares havebeen tendered for redemption until after any suspension has been lifted.


The net asset value of the USD Shares is the market value of the Fund’s total assetscalculated as described below, less all accrued debts and liabilities, including (i) fees of the Manager, theAdministrator and the Bank earned or accrued but not yet paid, (ii) monthly amortization of organizationcosts, (iii) an allowance for the Fund’s estimated annual audit and legal fees, (iv) any contingencies forwhich reserves are determined to be required, (v) any other costs attributable to the USD Shares (the “Net


23


Asset Value”). Net Asset Value of the USD Shares is expressed in U.S. Dollars, and any itemsdenominated in other currencies are translated at prevailing exchange rates as determined by theAdministrator.

The Administrator will determine the net asset value of the Fund’s Portfolio assets attributable tothe USD Shares as of the close of business on the last Business Day of each calendar month. See“CERTAIN RISK FACTORS”. The Administrator verifies the prices attributed to the securities held bythe USD Shares of the Fund by reference to pricing sources independent of the Investment Advisorwhenever reasonably possible






Prospective investors should be aware that situations involving uncertainties as to the valuation ofportfolio positions could have an adverse effect on the Fund’s net assets if judgments regardingappropriate valuations made by the Administrator should prove incorrect. See “CERTAIN RISKFACTORS.” In the absence of bad faith or manifest error, the Net Asset Value calculations of the USDShares made by the Administrator are conclusive and binding on all Shareholders.



24




The Manager and each of its directors presently and may in the future, directly or indirectly,direct, sponsor or manage other managed pools or accounts in addition to the Fund and may havefinancial or other incentives to favor some such pools or accounts over the Fund. The Manager’sdecisions with regard to the Fund may differ from those recommended for other arrangements for whichthe Manager exercises discretion.




One or more directors of the Manager may also be a director of the Fund or otherwise provideservices to the Fund, either directly or indirectly, in which event the likelihood of independence in dealingwith issues facing the Fund is diminished. For example, the Manager’s Director is Michael G.Tannenbaum who is a senior partner of the law firm that renders advice to the Fund as well as to both theManager and the Consultant. In addition, Mr. Tannenbaum has been an investor in the Fund sinceJanuary 1, 2003. See “ADDITIONAL INFORMATION – Counsel”


25


TAXATION

Introduction

This summary of the principal tax consequences applicable to the Fund and its Shareholders isbased upon advice received from the Fund’s U.S. and British Virgin Islands legal and tax advisers. Suchadvice is based upon factual representations made by the Manager, the Consultant and Administratorconcerning the proposed conduct of the activities to be carried out by the Fund and by them on behalf ofthe Fund. The conclusions summarized herein could be adversely affected if any of the material factualrepresentations on which they are based should prove to be inaccurate. Moreover, while this summary isconsidered to be a correct interpretation of existing laws in force on the date of this Memorandum, noassurance can be given that courts or fiscal authorities responsible for the administration of such laws willagree with such interpretations or that changes in such laws will not occur. Investors should consult theirprofessional advisors on the possible tax consequences of their subscribing for, purchasing, holding,selling or redeeming Shares under the laws of their countries of citizenship, residence, ordinary residenceor domicile.


The Fund

British Virgin Islands Taxation. The Fund should not be subject to any taxation or othergovernmental charges or fees in the British Virgin Islands other than an annual license fee payable to theRegistrar of Companies (currently U.S.$300) and an annual license fee payable to the Registrar of MutualFunds (currently U.S.$350). Under current British Virgin Island law, no income tax should be imposedon the Fund or on investors in the Fund who are not domiciled or resident in the British Virgin Islands.There are no withholding, capital gains, estate or inheritance taxes in the British Virgin Islands.

US Federal Income Taxation. The Fund has been advised that it should not be subject to U.S.Federal income taxes on income or gains from its trading (except in respect of any dividends received inthe course of such trading) provided that it does not engage in a trade or business within the U.S. to whichsuch income or gains are effectively connected. Pursuant to a safe harbor under the United States InternalRevenue Code of 1986, as amended, a non-U.S. corporation which trades stock or securities orcommodities for its own account should not be treated as engaged in a trade or business within the U.S.provided that the non-U.S. corporation is not a dealer in stock or securities or commodities. The Fundintends to conduct its business in a manner so as to meet the requirements of this safe harbor. If theactivities of the Fund are not covered by the foregoing safe harbor, there is a risk that the Fund (but notany investor) will be required to file a U.S. federal income tax return for such year and pay tax at full U.S.corporate income tax rates as well as an additional thirty percent (30%) branch profits tax.


26










Dividend and redemption payments made by the Fund to Shareholders who are not U.S. Personsshould not be subject to U.S. Federal income tax, provided that Shares are not held in connection with aU.S. trade or business of the Shareholder in the year of receipt. Individual holders of Shares who areneither present or former U.S. citizens nor U.S. residents (as determined for U.S. estate and gift taxpurposes) should not be subject to U.S. estate and gift taxes with respect to their ownership of suchShares. A Shareholder’s change in status to a U.S. Person could result in adverse U.S. tax consequencesand will constitute a violation of the terms of this Memorandum, resulting in a compulsory redemption ofShares.


The term “Permitted U.S. Person” means a U.S. Person that is subject to ERISA, or is otherwiseexempt from payment of U.S. Federal income tax. Generally, a Permitted U.S. Person is exempt fromFederal income tax on certain categories of income, such as dividends, interest, capital gains and similar


27


income realized from securities investment or trading activity. This general exemption from tax does notapply to the “unrelated business taxable income” (“UBTI”) of a Permitted U.S. Person. Generally, exceptas noted above with respect to certain categories of exempt trading activity, UBTI includes income orgain derived from a trade or business, the conduct of which is substantially unrelated to the exercise orperformance of the Permitted U.S. Person’s exempt purpose or function. UBTI also includes (i) incomederived by a Permitted U.S. Person from debt-financed property and (ii) gains derived by a PermittedU.S. Person from the disposition of debt-financed property.


Information Returns







(iii) only when payments are made by paying agents in the EU and other definedterritories (including the Caribbean Overseas Territories); and



For the purposes of the EUSD, interest payments include interest paid in relation to debt claims,which include bonds and deposits, but not equities. Such payments also include interest accrued orcapitalized at sale or redemption of debt claims. Kingate Global Fund, Ltd. – VSD Shares

28




(ii) Income realized upon the sale or redemption of shares or units of a fund(whether a EU UCITS fund or not) if less than 40% of such fund’s assets are invested in debt claims. Indetermining the percentage of a fund’s assets that are invested in debt claims, reference may be made tothe investment policy stated in the fund’s offering document. However, if this does not place a limit onthe amount of its assets that may be invested in debt claims and it is unknown from the informationavailable what percentage of the fund’s assets are in fact so invested, the fund will be deemed to exceedthe 40% limits set out above.



The Fund has appointed the Administrator as its administrator and the Administrator isresponsible for processing redemptions. Accordingly, the Fund itself would not be considered to be apaying agent for the purposes of the EUSD. The Administrator would also not be considered to be apaying agent for the purposes of the EUSD because it is located outside of the EU and the definedterritories. However, if the Administrator were to make redemption payments to a professional nomineethat in turn were to forward the payments to the ultimate beneficial owner, the professional nominee maybe considered to be a paying agent and the redemption payments may be considered to be interestpayments for the purposes of the EUSD if the professional nominee is based in an EU Member State otherthan the UK or Ireland or in one of the defined territories other than the BVI or Switzerland. In suchcircumstances, advice should be obtained from counsel in the relevant jurisdiction as to whether thelegislation in that jurisdiction would treat the Fund as falling outside the scope of the EUSD and, if itwould not, the manner in which such legislation would treat a redemption payment made by the Fund to abeneficial owner or residual entity.

* * * *


29




The following summary of certain aspects of the Employee Retirement Income Security Act of1974, as amended (“ERISA”), is based upon ERISA, judicial decisions, Department Of Labor (“DOL”)regulations and rulings in existence on the date hereof. This summary is general in nature and does notaddress every ERISA issue that may be applicable to the Fund or a particular investor. Accordingly, eachprospective investor in the Fund should consult with its own counsel in order to understand the ERISAissues affecting the Fund and the investor.

General

Each prospective Shareholder that is an employee benefit plan or trust (an “ERISA Plan”) withinthe meaning of and subject to the provisions of ERISA, an Individual Retirement Account (“IRA ”) or aKeogh Plan subject to the Code should consider the matters described below in determining whether toinvest in the Fund.

In addition, fiduciaries of an ERISA Plan must give appropriate consideration to, among otherthings, the role that an investment in the Fund plays in the plan’s portfolio, taking into considerationwhether the investment is designed reasonably to further the plan’s purposes, the investment’s risk andreturn factors, the portfolio’s composition with regard to diversification, the liquidity and current return ofthe total portfolio relative to the anticipated cash flow needs of the plan, the projected return of the totalportfolio relative to the plan’s objectives and the limited right of shareholders to redeem all or any part oftheir shares or to transfer their interests in the Fund.

In analyzing the prudence of an investment in the Fund, special attention should be given to theDOL’s regulations on investment duties which require, among other things, (i) a determination that eachinvestment is reasonably designed, as part of an ERISA Plan’s portfolio, to further the purposes of suchERISA Plan, (ii) an examination of risk and return factors, and (iii) consideration of the portfolio’scomposition with regard to diversification, the liquidity and current return on the total portfolio relative tothe ERISA Plan ’s funding objectives. Under ERISA, a fiduciary is liable for any loss resulting from abreach of his fiduciary duty and, under certain circumstances, he may be held liable for breaches by co-fiduciaries. No party or an affiliate providing certain services to the Fund will recommend an investmentin the Fund by an ERISA Plan for which it is treated as a fiduciary under ERISA by virtue of a priorrelationship with the Plan. Before investing in the Shares, a fiduciary of an ERISA Plan should carefullyconsider whether such an investment is consistent with its fiduciary responsibilities. The Fund and the


30


Investment Manager do not assume any responsibility with respect to such matters.

Plan Assets Regulation

The fiduciary responsibility provisions of ERISA and the related provisions of the Code generallyapply to the management and investment of “plan assets.” DOL has issued a regulation (the“Regulation”) describing when the underlying assets of an entity in which certain benefit plan investors(“Benefit Plan Investors”) invest constitute “plan assets” for purposes of ERISA and/or the Code. Theterm “Benefit Plan Investor” is defined in the regulation to include employee benefit plans as defined inSection 3(3) of ERISA, whether or not subject to Title I of ERISA, plans described in Section 4975(e)(1)of the Code, government plans, church plans, and entities the underlying assets of which include planassets by reason of a plan’s investment in the entity. The effect of the Regulation is to treat certainentities as pooled funds for the collective investment of plan assets.

The Regulation provides that, as a general rule, when a plan invests assets in another entity, theplan’s assets include its investment, but do not, solely by reason of such investment, include any of theunderlying assets of the entity. However, when a plan acquires an “equity interest” in an entity that isneither (a) a “publicly offered security,” nor (b) a security issued by an investment company registeredunder the Company Act then the plan’s assets include both the equity interest and an undivided interest ineach of the underlying assets of the entity, unless it is established that:

(i) the entity is an “operating company”; or

(ii) the equity participation in the entity by Benefit Plan Investors is not “significant.”

Equity participation in an entity by Benefit Plan Investors is considered “significant ” if twenty-five percent (25%) or more of the value of any class of equity interests in the entity is held by suchBenefit Plan Investors. For purposes of this test, a redemption by an investor may be treated as theacquisition of an equity interest by the remaining investors. Any Shares held by a person who would be a“fiduciary” if the Fund’s assets constitute plan assets, and certain affiliates, must be excluded from thetotal outstanding Shares in determining whether Benefit Plan Investors of all types (whether or notcovered by ERISA) own less than twenty-five percent (25%) of the value of any class of the outstandingShares.

If the assets of the Fund were regarded as “plan assets” of an ERISA Plan, an IRA or a KeoghPlan, certain persons providing services to the Fund, including the Investment Manager and certain of itsaffiliates, would be considered “parties in interest” under ERISA and/or disqualified persons under theCode with respect to such investing plans, thereby causing certain transactions between the Fund andcertain parties to be deemed to constitute prohibited transactions. Potential investors should be aware thatif the Fund is deemed to have plan assets, the Investment Manager may need to forego certaininvestments to avoid potential violations of ERISA or excise tax under the Code. Also, under oneinterpretation of the Regulation, the assets of the Fund might have to be held in accordance withregulations governing the indicia of ownership of foreign assets.

Limitation on Investments by Benefit Plan Investors; Rights of the Investment Manager

The Investment Manager intends to monitor the investments in the Fund to ensure that theaggregate investment by Benefit Plan Investors does not equal or exceed twenty-five percent (25%) of thevalue of the interests in the Fund so that equity participation by Benefit Plan Investors will not be Kingate Global Fund, Ltd. – USD Shares

31


considered "significant" under the Regulation and, as a result, the underlying assets of the Fund will notbe deemed "plan assets" for purposes of ERISA. The Fund further reserves the right, however, to waivethe twenty-five percent (25%) limitation and thereafter to comply with ERISA and/or the Code.

Plans Having Prior Relationships with Affiliates of the Manager

Certain prospective Benefit Plan Investors may currently maintain relationships with theInvestment Manager or other entities which are affiliated with the Investment Manager (collectively the“Affiliated Entities”). Each of the Affiliated Entities may be deemed a party in interest with respect toand/or fiduciary of such plans if any of the Affiliated Entities provides investment management,investment advisory or other services to them. ERISA and/or the Code prohibits plan assets from beingused for the benefit of a party in interest and also prohibits a fiduciary from using its position to cause theplan to make an investment from which it or certain third parties in which such fiduciary has an interestwould receive a fee or other consideration. In this circumstance, Benefit Plan Investors should consultwith counsel to determine if participation in the Fund is a transaction which is prohibited by ERISAand/or the Code."

Representation by Plans

The fiduciaries of each ERISA Plan, IRA or Keogh Plan proposing to invest in the Fund will berequired to represent, and by making an investment in the Fund thereby do represent, that they have beeninformed of and understand the Fund’s investment objectives, policies and strategies and that the decisionto invest plan assets in the Fund is consistent with the provisions of ERISA and/or the Code that requirediversification of plan assets and impose other fiduciary responsibilities. In particular, exemptorganizations should consider the applicability to them of the provisions relating to “unrelated businesstaxable income.”

WHETHER OR NOT THE UNDERLYING ASSETS OF THE FUND ARE DEEMED PLANASSETS UNDER THE REGULATION, AN INVESTMENT IN THE FUND BY A PLAN IS SUBJECTTO ERISA AND/OR THE CODE. ACCORDINGLY, FIDUCIARIES OF SUCH PLANS SHOULDCONSULT WITH THEIR OWN COUNSEL AS TO THE CONSEQUENCES UNDER ERISA AND/ORTHE CODE OF AN INVESTMENT IN THE FUND.


32





Available Documents

This Memorandum is not intended to provide a complete description of the Fund’s Memorandumof Association and Bye-laws or the agreement with the Managers, Administrator, Investment Advisor,and the Bank. Copies of such documents are available for inspection by Shareholders and prospectiveinvestors during normal business hours at the Administrator’s office or at the office of the Manager inHamilton, Bermuda.

Auditor’s Consent


Counsel

The law firms of Tannenbaum Helpern Syracuse & Hirschtritt LLP (New York) and O’NealWebster O’Neal Myers Fletcher & Gordon (BVI) serve as counsel to the Fund in connection with matterspertaining to U.S. law and BVI law, respectively, and to the Manager and, together or individually, mayserve as counsel to other investment funds sponsored or managed by the Manager and its affiliates.Should a future dispute arise between the Fund and the Manager, separate counsel may be retained ascircumstances and professional responsibilities then dictate. Counsels to the Fund do not represent theShareholders. See “POTENTIAL CONFLICTS OF INTEREST.”




33







Applications to subscribe for USD Class Common Shares (the “USD Shares”) of the KingateGlobal Fund, Ltd., a British Virgin Islands corporation (the “Fund”), may be made only by writtenapplication using the enclosed Subscription Agreement and certain related documentation, outlinedfor ease of reference as follows:







(Exhibit E)


* A FATF Jurisdiction is a country or territory which is a member of the Financial Action TaskForce on Money Laundering.


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(Exhibit E)

All completed Subscription Agreements should be directed to the Administrator at theaddress shown thereon no later than the last Business Day (as defined in the Fund’s amended andrestated Information Memorandum, as may be further amended and restated (the “InformationMemorandum”)) prior to the Subscription Date (as defined in the Fund’s InformationMemorandum). The Fund reserves the right to reject subscriptions in whole or in part, in whichevent subscription payments will be refunded at the applicant’s risk, without interest. The Managerof the Fund may, in its sole discretion, discontinue the offering of USD Shares at any time. Aproperly completed and signed copy of the Subscription Agreement may be submitted to theAdministrator by telecopier (+ 1-441) 296-8227 in advance of submitting the original in order toexpedite processing of the application. The signed original, however, must be sent to theAdministrator immediately thereafter.


Payments in full for the amount subscribed (not less than U.S. $250,000, unless otherwiseagreed in advance by the Fund) are to be made in U.S. Dollars by Fed Fund transfer at the latest bythe Subscription Date (as defined in the Fund’s Information Memorandum) as follows:


Wire to:

Correspondent Bank: HSBC Bank USA500 Stanton Christiana Road, 2/OPS 1Newark, Delaware 19713-2107ABA# 021001088/ CHIPS # 0108SWIFT Address: MRMDUS33

Beneficiary Bank: The Bank of Bermuda Limited6 Front StreetHamilton HM 11 Bermuda

Account No.: 10921671


Account no.: 0239335

Attn: Ms. Warrenette Walcott


In order to facilitate prompt and accurate crediting of subscription payments, subscribersmust notify the Administrator, prior to remitting payment, of the details of the subscription


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payment, indicating (i) the name of the subscriber, (ii) the dollar amount subscribed, (iii) thesubscriber’s address (including a telex or telecopier number if available), (iv) the name and addressof the financial institution remitting the subscription payment and (v) the approximate date as ofwhich the payment is being wired to the Fund’s account.

Confirmations

Confirmations will be sent to subscribers showing the details of each transaction. The USDShares will ordinarily be issued in respect of accepted applications at the Net Asset Value (asdefined in the Fund’s Information Memorandum) per USD Share as of the last Business Day of themonth following the date on which the Fund has verified the receipt of the cleared funds.


Local Rules

Persons interested in subscribing for the USD Shares should inform themselves as to the (1)the legal requirements within their own countries for the purchase of the USD Shares, (2) anyforeign exchange restrictions which they might encounter, (3) the income tax or other taxconsequences, if any, which might be relevant to the purchase, holding or sale of the USD Shares,and (4) the applicable anti-money laundering rules set forth in the Memorandum and below.

As part of the Administrator’s and the Fund’s responsibility for protection against moneylaundering, the Administrator may require a detailed verification of the identity of a person or entityapplying for Shares. Depending on the circumstances of each application, a detailed verificationmight not be required where:

a. the applicant makes payment by wire transfer from an account held in theapplicant’s name at a recognized financial institution residing in a recognizedjurisdiction, as defined by applicable laws, and the applicant’s details (name andaccount number) appear in the confirmation of the wire transfer; or


These exceptions will only apply if the financial institution or intermediary referred toabove is within a country recognized as having sufficient anti-money laundering regulations. Assuch, it is the current policy of the Board to accept subscription monies only from financial institutionsthat are licensed to conduct banking or securities business in jurisdictions designated by the Board as“qualified jurisdictions” based on the nature of the jurisdictions’ regulatory regime, or the clients of suchfinancial institutions.

A list of the jurisdictions that have been designated as “qualified jurisdictions” is available fromthe Fund.

The Administrator and the Fund reserve the right to request such information as they deemnecessary to verify the identity of an applicant. In the event of delay or failure by the applicant toproduce any information required for verification purposes, the Administrator may refuse to acceptthe application and the subscription monies relating thereto or may refuse to process a redemptionrequest until proper information has been provided.


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Dear Sirs:

The undersigned subscriber (the “Subscriber”) acknowledges having received, reviewedand understood the Amended and Restated Information Memorandum dated May 1, 2006 as may befurther amended and restated (the “Information Memorandum”) for the offering of USDParticipating Common Shares (the “Shares”) of Kingate Global Fund, Ltd. (the “Fund”) and herebysubscribes for as many Shares as may be purchased for the amount indicated below on the terms ofthe Information Memorandum and subject to the provisions of the Memorandum and Articles ofAssociation of the Fund.

Subscription Date



Telephone Number:

Fax Number:

E-Mail:


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Name, Address and Account Number of Financial InstitutionRemitting Payment for Subscriber’s Account *

Payment Date:

The Subscriber agrees that all or any funds payable to the Subscriber (including redemptionproceeds) may be wire transferred to the Subscriber in accordance with the following instructions,until further written notice, signed by one or more of the following individuals authorized to act onbehalf of the Subscriber, and delivered to the Administrator (*).

Bank Name:

Bank Address:

ABA or CHIPS No:

Account Name:

*Such account details will be used to remit proceeds on redemption of Shares unless otherwise instructed in writing of

alternative instructions. Kingate Global Fund, Ltd. – USD Shares

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Account No:

For Further credit:

Number of beneficial owners represented by Subscriber (if Subscriber is acting in any sort ofnominee or fiduciary capacity)

Is the Subscriber, or an affiliate of the Subscriber, a pension profit-sharing, annuity, or employeebenefit plan (whether private, governmental, or charitable)?


The undersigned Subscriber is (tick one and refer to the Subscription Instructions for thedocumentation to enclose for different categories of investors):







q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks,Hedge Funds, etc.) from a FATF Jurisdiction

q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks,Hedge Funds, etc.) from a non-FATF Jurisdiction

q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks,Hedge Funds, etc.) from a non-FATF Jurisdiction – privately held

q A Fund of Funds or Other Entity Investing on Behalf of Others (Nominee Banks,Hedge Funds, etc.) from a non-FATF Jurisdiction – trust


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(a) The Subscriber is subscribing for, or acquiring, Shares herein with a value of atleast U.S.$250,000;

(b) It is (i) an institution whose ordinary business or professional activity includes thebuying and selling of investments, whether as principal or agent; (ii) in the case of a natural person,his/her individual net worth, or joint net worth with his/her spouse, exceeds U.S.$1 million; or (iii)an institution with a minimum amount of assets under discretionary management of U.S.$5 million;and

(c) It (i) has the knowledge, expertise and experience in financial matters to evaluatethe risks of investing in the Fund; (ii) is aware of the risks inherent in investing in the assetsproposed to be acquired by the Fund and the method by which the assets of the Fund are held and/ortraded; and (iii) can bear the risk of loss of its/his/her entire investment.


The Subscriber represents and agrees that none of the Shares (nor any interest therein) isbeing acquired or will at any time be held, directly or indirectly, for the account or benefit of any“Restricted Person” (as defined in the Information Memorandum), and further agrees that none ofthe Shares will be transferred to any person who has failed to supply a similar representation. TheSubscriber represents and warrants that:

(a) Reliance on Information Memorandum. The Subscriber acknowledges that theFund has delivered to the Subscriber the Information Memorandum. The Subscriber has not reliedon any representations or other information purported to be given on behalf of the Fund except asset forth in the Information Memorandum or the published, financial accounts of the Fund.

(b) No Resale. The Subscriber is acquiring the Shares for its own account, or on behalf ofa third party or third parties for investment and not with a view to resale, transfer or other disposition inwhole or in part.

(c) No Need for Liquidity. The undersigned understands that the Shares have not beenregistered under the United States Securities Act of 1933, as amended (the “Securities Act”), or underthe laws of any other jurisdiction, and that the Fund does not contemplate and is under no obligation toso register the Shares. The undersigned understands and agrees that the Shares must be held indefinitelyunless they are subsequently registered under the Securities Act and, where required, under the laws ofother jurisdictions or unless an exemption from registration is available. Even if such exemption isavailable, the undersigned agrees that the assignment and transferability of the Shares will be governedby the Memorandum and Articles of Association of the Fund (the “Memorandum and Articles ofAssociation”). The Memorandum and Articles of Association require that Shares in the Fund shall notbe transferred without the prior consent of the Fund. The undersigned recognizes that there will be noestablished trading market for the Shares and it is extremely unlikely that any public market for theShares will develop. The undersigned has no need for liquidity in connection with its purchase ofShares.

(d) Legality and Validity of Consents. All consents required to be obtained and all


S-7


legal requirements necessary to be complied with or observed in order for this Agreement or theissuance of the Shares to be lawful and valid under the laws of any jurisdiction to which theSubscriber is subject have been obtained, complied with or observed.

(e) Anti-Money Laundering. The Subscriber acknowledges that due to moneylaundering requirements, the Fund, the Manager, the Investment Advisor and/or the Administratormay require certain identification and/or other information of the Subscriber before the applicationcan be processed.

(f) Subscriber Knowledge. The Subscriber possesses requisite knowledge andexperience in financial matters such that it is capable of evaluating the merits and risks of aninvestment in the Fund (including without limitation, the ability to suffer a complete loss of theinvestment and need to hold the Shares for an indefinite period of time).

(g) Transfer Request Form. Subscriber agrees to complete and submit to the Boardof Directors the Transfer Request Form (annexed hereto) and any other documents requested by theBoard of Directors in the event the Subscriber seeks to transfer its Shares, in whole or in part. Notransfer shall be effective without the express consent of the Board of Directors.

(h) No Performance Guarantees. No guarantees have been made to the Subscriberabout future performance or financial results of the Fund.

(i) Ability to Bear Risks. The Subscriber is and will be able to bear the economic risks ofits investment in the Shares.

(j) Suitability. The Subscriber has read carefully and understands the InformationMemorandum and has consulted its own attorney, accountant or investment advisor with respect tothe investment contemplated hereby and its suitability for the Subscriber and Subscriber consents toevery provision therein.

(k) Opportunity to Verify Information. The Subscriber acknowledges that therepresentatives of the Fund, the Manager, Investment Advisor, Administrator and Consultant havemade available to the Subscriber, during the course of this transaction and prior to the purchase ofany Shares, the opportunity to ask questions of and receive answers from them concerning the termsand conditions of the offering described in the Information Memorandum, and to obtain anyadditional information necessary to verify the information contained in the InformationMemorandum or otherwise relevant to the suitability of the proposed investment and to theproposed activities of the Fund.

(l) Investment Objectives. The purchase of the Shares by the Subscriber is consistentwith the general investment objectives of the Subscriber.

(m) No Borrowings. The Subscriber has not borrowed any portion of its contributionto the Fund, either directly or indirectly, from the Fund, the Managers, Investment Advisor,Administrator, or any affiliate of the foregoing.

(n) Conflicts of Interest; Fund Counsel Does Not Represent Investors. TheSubscriber understands and acknowledges the various conflicts of interest that are set forth in theInformation Memorandum. The Subscriber understands and acknowledges that TannenbaumHelpern Syracuse & Hirschtritt LLP and O’Neal Webster O’Neal Myers Fletcher & Gordon


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represent only the Fund and the Manager and not the Subscriber, in connection with the offer andsale of the Shares. The Subscriber has had the opportunity to consult with legal counsel of its ownchoosing.


(p) Change in Information. The Subscriber agrees to notify the Board of Directorsimmediately if any of the information provided herein by the Subscriber changes or becomesinaccurate.

(q) Authorization. The Subscriber acknowledges that it has the legal capacity andauthority and is permitted by applicable law to execute and deliver this Agreement and is authorized topurchase Shares and to perform its obligations pursuant to the provisions hereof and pursuant to theMemorandum and Articles and of Association and such Subscriber has not been formed for the specificpurpose of acquiring an interest in the Fund.

(r) Broker Dealer Arrangements. The Subscriber acknowledges that the Fund and/or theInvestment Advisor have the power to enter into agreements pursuant to which a registered broker-dealer affiliate of the Fund or any member of the Investment Advisor, splits commissions earned fromany trades in respect of Fund assets with any other registered broker-dealer on such terms as the Fund orthe Investment Advisor (as the case may be) in their sole discretion deem advisable and proper.

(s) Restricted Person. The Subscriber certifies that it is not now, and for as long as itowns the Shares, a Restricted Person, nor a custodian, nominee or trustee of such a person. TheSubscriber further certifies that it is not acquiring the Shares for and will not hold the Shares onbehalf of or transfer Shares to any person or entity that is a Restricted Person. The Subscriberagrees that it will promptly notify the Fund at any time when it becomes a Restricted Person, andthe Subscriber agrees that in such event the Fund shall be entitled to (but shall not be obliged to)repurchase or to require the Subscriber to redeem or sell the Shares to a person designated by theFund at a price equal to the Net Asset Value per Share as calculated by the Administrator as at thedate of the repurchase or sale or as at the date of any unauthorised transfer giving rise to suchrepurchase or sale.

(t) Legal Entitv. Where the Subscriber is a company, trust or partnership, it agrees toproduce a certified copy or copies of the certificate of incorporation (and any change of name), bye-laws (or other document evidencing the existence of the legal entity), the register of directors or anexcerpt from the trade register held at the relevant chamber of commerce and the signatory cardverifying the authority of officers to sign on behalf of the corporate entity and any other relevantdocumentation as requested by the Fund.

(u) Subscriptions. The Subscriber acknowledges that the Fund reserves the right toreject in its absolute discretion this and any other subscription for Shares in whole or in part, in anyorder, at any time prior to a Subscription Date (as defined in the Information Memorandum),notwithstanding prior receipt by the Subscriber of notice of acceptance of the subscription. If theShares are oversubscribed, the Fund will determine in its sole discretion which subscriptions shallbe accepted. If this subscription is rejected or if the sale of the Shares is not completed for anyreason (in which event this subscription shall be deemed to be rejected), the Fund shall as soon aspracticable return any funds transferred by the Subscriber (without interest) along with this


S-9


Agreement and any other documents delivered by the Subscriber.

(v) Entire Agreement. This Agreement represents the entire agreement of the partiesin respect of the subscription for Shares and may not be changed or terminated orally.

(w) Waiver. No waiver by any party of any breach of any term of this Agreement shallbe construed as a waiver of any subsequent breach of that term or any other term of the same or of adifferent nature.

(x) Legal Actions. If any legal action or any arbitration or other proceeding is broughtfor the enforcement of this Agreement or because of an alleged dispute, breach, default, ormisrepresentation in connection with any of the provisions of this Agreement, the successful orprevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costsincurred in that action or proceeding, in addition to any other relief to which they may be entitled.

(y) Waiver of Statute of Limitations. Each investor in the Fund agrees to have waived,to the maximum extent permissible under law, the right to bring any legal claim, action or otherproceeding against the Fund, its Board of Directors and other officers unless such claim, action orproceeding is commenced within six (6) months from the date of the first to occur of (i) the originaloccurrence allegedly giving rise to such claim, action or proceeding or (ii) the Shareholder'sredemption of any Shares.

(z) Governing Law. The Subscriber agrees when entering into the Agreement to bebound by the laws of the BVI and in addition to the non-exclusive jurisdiction of the relevant courtstherein subject to which laws this Agreement shall be governed and interpreted.

(aa) Facsimile Instructions. The Subscriber acknowledges that the Fund and theAdministrator are entitled to act upon facsimile instructions from or purported to be from theSubscriber and that all such instructions, where accepted by the Fund or the Administrator, will befinal and binding upon the Subscriber. The Subscriber agrees to indemnify the Fund orAdministrator against any and all claims, demands, liabilities, costs, charges, damages and expensesthat the Fund or the Administrator may incur by reason of any act or failure to act on the part of theFund with regard to all facsimile instructions so provided by the Subscriber.

(bb) Survival of Representations. The representations, warranties, agreements andindemnification obligations of the Subscriber contained in this Agreement shall survive theexecution of this Agreement and the purchase of the Shares.

(cc) General. This Agreement shall be binding upon the Subscriber and the legalrepresentatives, successors and assigns of the Subscriber, and shall, if the Subscriber consists ofmore than one person, be the joint and several obligation of all such persons. Two or moreduplicate counterparts of this Agreement may be executed by the Subscriber and accepted by theFund, each of which shall be an original, but all of which together shall constitute one and the sameinstrument.


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The Subscriber or the person or entity for which the Subscriber is acting is a “benefit plan investor” asdefined in 29 C.F.R. 2510.3-101(f)(2) (the “Plan Asset Regulation”). For purposes of illustration,“benefit plan investors” are pension plans, profit-sharing plans, or other “employee benefit plans” asdefined in ERISA, regardless of whether the plans are subject to ERISA, and plans defined in Section4975 of the Internal Revenue Code of 1986. “Benefit plan investors” also include simplified employeepension plans, KEOGH plans, individual retirement accounts, health insurance plans, life insuranceplans, church or other charitable plans, governmental plans, and foreign plans. “Benefit plan investors”also include entities deemed under U.S. Department of Labor regulations to hold “plan assets” due toinvestments made in the entity by employee benefit plans and other such plans.

If the Subscriber is an entity and 25% or more of the value of any class of equity interests in theSubscriber (excluding any equity interests held by an individual or entity with discretionary authority orcontrol over the equity interests of the Investor) is held by “benefit plan investors,” then the entity islikely to a “benefit plan investor” (if you’re not certain, please contact the Investment Manager with anyquestions).

Yes No

The Subscriber is a person who has discretionary authority or control ‡ with respect to the assets of theFund or provides investment advice to the Fund for a fee, direct or indirect, with respect to such assets orany affiliate of any such person § (a “Controlling Person”).

Yes No

The Subscriber understands and agrees that the information supplied above will be utilized todetermine whether benefit plan investors own less than 25% of the equity interests in any Classof the Fund, as determined under the Plan Asset Regulation, both upon the original issuance ofShares and upon subsequent transfer of Shares.


If the Subscriber is acting as trustee, agent, representative or nominee for an investor (a"Beneficial Owner"), the Subscriber understands and acknowledges that the representations, warrantiesand agreements made herein are made by the Subscriber with respect to the Subscriber and with respectto the Beneficial Owner. The Subscriber further represents and warrants that it has all requisite powerand authority from said Beneficial Owner to execute and perform the obligations under this SubscriptionAgreement. The Subscriber also agrees to indemnify the Fund, the Manager, the Investment Advisor,the Consultant and the Administrator and their officers and agents for any and all costs, fees andexpenses (including legal fees and disbursements) in connection with any damages resulting from the

‡ For purposes of this question, “control” means, with respect to a person other than an individual, the power to exercise acontrolling influence over the management or policies of such person.§ For purposes of this question, “affiliate of a person” includes any person, directly or indirectly, through one or moreintermediaries, controlling, controlled by, or under common control with the person. Kingate Global Fund, Ltd. – USD Shares

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Subscriber's misrepresentation or misstatement contained herein, or the assertion of the Subscriber's lackof proper authorization from the Beneficial Owner to enter into this Subscription Agreement or performthe obligations hereof.

If the Subscriber enters into a swap, structured note or other derivative instrument, the returnfrom which is based in whole or in part on the return of the Fund (the "Swap") with a third party (a"Third Party"), the Subscriber represents and warrants that with respect to a Third Party entering into aSwap: (a) the Third Party is authorized under its constitutional documents (e.g., certificate ofincorporation, by-laws, partnership agreement or trust agreement) and applicable law to enter into theSwap and would also be so authorized to invest directly into the Fund; (b) the Third Party has receivedand reviewed a copy of the Information Memorandum, the U.S. Supplement and the SubscriptionAgreement; (c) the Third Party acknowledges that the Fund and its affiliates are not responsible for thelegality, suitability or tax consequences of the Swap and that the Subscriber is not an agent of the Fund;and (d) the Third Party is an "eligible contract participant" under the U.S. Commodity Exchange Act, asamended and, as necessary, an “accredited investor” within the meaning of Regulation D under theSecurities Act of 1933, as amended. The Subscriber also agrees to indemnify the Fund, the Manager,the Investment Advisor and the Consultant and the Administrator and their officers and agents for anyand all costs, fees and expenses (including legal fees and disbursements) in connection with anydamages resulting from the Subscriber's misrepresentation or misstatement contained herein. Nothingherein constitutes an agreement or statement by the Fund as to the legality of a Swap or the suitability ofa Swap for the Third Party.


(a) The Subscriber represents that all evidence of identity provided in connection withthe Subscription Agreement is true and correct and all related information furnished is genuine andaccurate.

(b) The Subscriber agrees to provide any information deemed necessary by the Fund inits sole discretion to comply with its anti-money laundering program and related responsibilitiesfrom time to time. In the event of delay or failure by the Subscriber to produce any informationrequested in this Subscription Agreement or required for verification purposes, the Fund may refuseto accept the subscription.

(c) The Subscriber represents and covenants that neither it, nor any person controlling,controlled by, or under common control with it, nor any person having a beneficial interest in it, isan individual, organization, or entity listed on the List of Specially Designated Nationals andBlocked Persons (the “OFAC Control List”) maintained by the US Office of Foreign Assets Control(“OFAC”), and that it is not investing and will not invest in the Fund on behalf of or for the benefitof any individual, organization, or entity listed on the OFAC Control List.

(d) The Subscriber represents that (i) the amounts contributed by it to the Fund werenot and are not directly or indirectly derived from activities that contravene U.S. federal or statelaws or regulations and international laws and regulations, including anti-money laundering lawsand regulations, and (ii) the proceeds from the Subscriber’s investment in the Fund will not be usedto finance any illegal activities.


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(e) The Subscriber acknowledges (i) that additional subscriptions by the Subscribermay be refused and/or (ii) that requests for withdrawals may be delayed or declined if the Managerreasonably believe it does not have satisfactory evidence of the Subscriber’s identity.

(f) The Subscriber acknowledges that, if, following its subscription in the Fund and/orManager and/or the Administrator reasonably believes that the Subscriber is listed on the OFACControl List or has otherwise breached its representations and covenants as to its identity, theManager and/or the Administrator may be obligated to block the Subscriber’s investment inaccordance with applicable law, and the Subscriber shall have no claim against the Manager and/orthe Administrator for any form of damages as a result of blocking the investment.

(g) If the Subscriber is a “fund of funds” or an entity that invests on behalf of others,the Subscriber, in addition to and not by way of limiting the foregoing, represents and certifies thatit is aware of the requirements of the USA PATRIOT Act of 2001, and rules and regulationspromulgated thereunder and other applicable anti-money laundering measures in any jurisdiction(collectively, the “AML Rules”) and that it has adopted anti-money laundering policies andprocedures in place reasonably designed to verify the identity of its beneficial owners or underlyinginvestors, as the case may be, and their respective sources of funds. Such policies and proceduresare properly enforced and are consistent with such AML Rules. The Subscriber represents andcertifies that to the best of its knowledge, the beneficial owners or investors, as the case may be, arenot individuals, entities, or countries that may subject the Fund or any of its affiliates to criminal orcivil violations of any AML Rules. The Subscriber acknowledges that it is to furnish a copy of itsanti-money laundering policies and procedures to the Fund when requested. Among its otherobligations hereunder, the Subscriber agrees to promptly notify the Fund if the foregoingrepresentation and certification becomes inaccurate.


(1) it is not a Senior Foreign Political Figure ** , a member of a Senior ForeignPolitical Figure’s Immediate Family†† , and/or any Close Associate ‡‡ of aSenior Foreign Political Figure residing in a non-cooperative country orterritory or a jurisdiction that has been designated by the US Treasury aswarranting special measures due to money laundering concerns;

(2) it is not a former Senior Foreign Political Figure residing in a non-cooperative country or territory or a jurisdiction that has been designated aswarranting special measures due to money laundering concerns;

(3) it is not resident in, or organized or chartered under the laws of ajurisdiction that has been designated by the US Secretary of Treasury underSections 311 and 312 of the USA PATRIOT Act as warranting specialmeasures due to money laundering concerns;

(4) it is not a Foreign Shell Bank as the term is defined in the USA PATRIOTAct; and

** The term “senior foreign political figure” is defined to mean a senior official in the executive, legislative,administrative, military or judicial branches of a foreign government (whether elected or not), senior official of a major

Weign political party, or a senior executive of a foreign government-owned corporation.The term “immediate family” is defined to mean the parents, siblings, spouse, children and in-laws of a senior foreign

^Flitical figure.The term close associate” is defined to mean a person who is widely and publicly known to maintain an unusually

close relationship with s senior foreign political figure. Kingate Global Fund, Ltd. – VSD Shares

S-13


(5) its subscription funds do not originate from, nor will they be routedthrough, an account maintained at a Foreign Shell Bank, an “offshorebank,” or a bank organized or charted under the laws of a jurisdictiondeemed to be a non-cooperative country or territory (“NCCT”)

§§ .

STANDING PROXY

Subscriber hereby designates and appoints Kingate Management Limited with the powers ofsubstitution, as Subscriber’s true and lawful Proxy for the purpose of voting any Shares issuedpursuant to this Agreement (or such portion thereof from time to time owned by Subscriber) as saidProxy may determine on any and all matters arising at any general meeting of the Fund upon whichsuch Shares could be voted by Subscriber (or the person in whose name the Shares herebysubscribed are registered at Subscriber’s direction) if present in person at the meeting. This proxymay be revoked by Subscriber (or his registered nominee) either personally or by presentation of asubsequently executed form of proxy at any general meeting of the Fund or by written notice to theAdministrator.

POWER OF ATTORNEY

The Subscriber hereby irrevocably constitutes and appoints Kingate Management Limited,with full power of substitution, as the Subscriber’s true and lawful attorney-in-fact with full power andauthority for the Subscriber, and in the Subscriber’s name, place and stead and either personally or byattorney-in-fact, to execute, deliver, acknowledge, publish, file and record and swear to the execution,delivery, acknowledgment, filing and/or recording of:

(a) The Information Memorandum, the Memorandum and Articles of Association and allamendments thereto required or permitted by law or the provisions of the Memorandum and Articles ofAssociation and all instruments that the attorney-in-fact deems appropriate to reflect any change ormodification of the Information Memorandum and the Memorandum and Articles of Association inaccordance with the Memorandum and Articles of Association;

(b) all such other agreements, applications, instruments, documents, certifications,certificates and reports which may from time to time be required by the laws of any jurisdiction inwhich the Fund shall determine to do business, or any political subdivision or agency thereof, or anyregulator to effectuate, implement and continue the valid and subsisting existence of the Fund;

(c) all conveyances and other instruments which the Board of Directors deems appropriateto reflect the dissolution and termination of the Fund; and

(d) all certificates and other instruments deemed necessary or advisable by the Board ofDirectors to carry out the provisions of the Information Memorandum and the Memorandum andArticles of Association.

The Power of Attorney granted hereby is coupled with an interest and is irrevocable and shall(i) continue in full force and effect notwithstanding the subsequent death, incapacity, dissolution,termination or bankruptcy of the Subscriber or the transfer of all or any portion of the Subscriber’sShares in the Fund and (ii) extend to the Subscriber’s successors, assigns and legal representatives. The

§§ The Financial Action Task Force on Money Laundering (“FATF”) has designated certain countries or territories asNCCTs. The list of countries or territories deemed to be NCCTs is available at: http://www1.oecd.org/fatf. Kingate Global Fund, Ltd. – USD Shares

S-14


Subscriber agrees to be bound by any representation made by the attorney-in-fact acting in good faithpursuant to this Power of Attorney, and hereby waives any and all defenses which may be available tocontest, negate or disaffirm the action of the attorney-in-fact taken in good faith under this Power ofAttorney.

In the event of any conflict between the provisions of the Memorandum and Articles ofAssociation and any document executed or filed by the attorney-in-fact pursuant to this Power ofAttorney, the Memorandum and Articles of Association shall govern.

INDEMNIFICATION

The Subscriber acknowledges that the Subscriber understands the meaning and legalconsequences of the representations and warranties contained in this Agreement and agrees to indemnifyand hold harmless the Fund, the Manager, Investment Advisor, Consultant and Administrator, andtheir respective affiliates, employees, officers, directors and agents and each other Subscriber from andagainst any and all loss, damage, liability or expense, including, without limitation, legal fees, due to orarising out of a breach of any representation or warranty of the Subscriber contained in any documentfurnished by the Subscriber in connection with the offering and sale of the Shares, including, withoutlimitation, this Agreement, the Information Memorandum and the Memorandum and Articles ofAssociation, and all schedules, appendices and exhibits hereto or thereto, submitted by the Subscriber, orfailure by the Subscriber to comply with any covenant or agreement by the Subscriber herein or in anyother document furnished by the Subscriber to any of the foregoing in connection with this transaction.The indemnified parties shall be entitled to advances with regard to the indemnification made hereunderprovided that such indemnified party deliver to the indemnifying party an undertaking pursuant to whichit promises to return such advanced amount if the indemnity is ultimately found to be inapplicable.


S-15






Print Name

Date Date







The foregoing Subscription Agreement is hereby accepted by the undersigned as of the date setforth below:

Amount Accepted USD


Name:

Title:

Date of Acceptance:


S-16


EXHIBIT A







(the “Company”), does hereby certify on behalf of the Company that the persons named below are

directors and/or officers of the Company and that the signature at the right of said name, respectively,

is the genuine signature of said person and that the persons listed below are each an authorized

signatory for the Company.



, 200__.

Name:Title:


S- 17



a Duly Authorized





IN WITNESS WHEREOF, the undersigned has executed this certificate as of the day of , 200__.

Name:Title:


S- 18


EXHIBIT B







(the “Investor”), does hereby certify that it is aware of the requirements of the USA PATRIOT Act

of 2001, the regulations administered by the U.S. Department of Treasury’s Office of Foreign

Assets Control, and other applicable U.S. federal, state or non-U.S. anti-money laundering laws and

regulations (collectively, the “anti-money laundering/OFAC laws”). As an entity regulated by


(Insert Jurisdiction) (a FATF member jurisdiction) the

Investor has/have anti-money laundering policies and procedures in place reasonably designed to

verify the identity of its [beneficial holders] [underlying investors] and, to the extent required, their

sources of funds. Such policies and procedures are properly enforced by the Investor.

After due inquiry, the Investor hereby represents to Kingate Global Fund, Ltd. that, to thebest of its knowledge, the Investor’s [beneficial holders(s)] [underlying investor(s)] are notindividuals, entities or countries that are identified on the list maintained by the U.S. Office ofForeign Assets Control *** .



S-19


EXHIBIT C



Kingate Global Fund, Ltd.c/o BISYS Hedge Fund Services Limited9 Church StreetP.O. Box HM 951Hamilton, Bermuda HM DXAttn: Shareholder Services Unit


I, , the of , dohereby

Name Title Name of Institution


Name of Investor InsertPeriod

years and, during this period, nothing has occurred that would give our institution cause to beconcerned

regarding the integrity of

.Name of Investor


Very truly yours,

Name:

Title:


S-20


EXHIBIT D



Instructions: Please complete and return this Exhibit D and provide the name of everyperson who is directly, or indirectly through intermediaries, the beneficial owner of 25%or more of any voting or non-voting class of equity interests of the Investor. If theintermediary’s shareholders or partners are not individuals, continue up the chain ofownership listing their 25% or more equity interest holders until individuals are listed. Ifthere are no 25% beneficial owners, please write none.




S-21


EXHIBIT E



Instructions: Please complete and return this Exhibit E and provide the name of: i) everycurrent beneficiary that has, directly or indirectly, an interest of 25% or more in thetrust; ii) every person who contributed assets to the trust (settlors or grantors); and iii)every trustee. If there are intermediaries that are not individuals, continue up the chainof ownership listing their 25% or more equity interest holders until individuals are listed.

Citizenship

Status (for Individuals) or

(Beneficiary/Settlor/ Principal Place ofFull Name and Address Trustee) Business (for Entities)


S-22



REDEMPTION REQUEST


Dear Sirs:

I/We hereby requests Redemption of the number of USD Shares OR the U.S. Dollar amountdetailed below, subject to all the terms and conditions of the Memorandum and Articles ofAssociation of Kingate Global Fund, Ltd. (the “Fund”), and the amended and restatedInformation Memorandum of Kingate Global Fund, Ltd. – USD Shares, as may be amendedand supplemented from time to time.

Redemption shall be effective as of the last Business Day of the calendar month detailedbelow, provided that this Redemption Request, accompanied by a share certificate(s) (ifapplicable) is received by the Fund at least thirty-five (35) days prior to such effective date andthat (i) the original signed Redemption Request is received by the Administrator prior to theRedemption Date and (ii) I/we receive written confirmation from the Administrator that thefaxed Redemption Request has been received.

Please accept this letter as written notice of my/our intention to redeem the number of ClassUSD Shares indicated below or the USD amount indicated below.

I/We (either in an individual capacity or as an authorized representative of an entity, ifapplicable) hereby represents and warrants to be the true, lawful and beneficial owner of theShares to which this Redemption Request relates, with full power and authority to requestredemption of such Shares. Such Shares are not subject to any pledge or otherwiseencumbered in any fashion.

Redemption Date


S-23


Number of Shares Being Redeemed


OR

Amount Being Redeemed



Telephone Number:

Fax Number:

E-Mail:


Telephone Number:

Fax Number:

E-Mail:


Bank Name:

Bank Address:


S-24


ABA or CHIPS No:

Account Name:

Account No:

For Further credit:

Telephone Number:

Fax Number:

E-Mail:





Print Name

Date Date


S-25





Dear Sirs:

The undersigned (herein referred to as the “Transferor”) hereby requests transfer, as defined in andsubject to all the terms and conditions of the Information Memorandum of the Fund, as may beamended and supplemented from time to time, to the transferee (the “Transferee”) designatedbelow, of the number of USD Shares of the Fund detailed below in an amount equal to their NetAsset Value, as defined in the Information Memorandum.

Request is hereby made that effective as of [DATE], Shares specified below are deemed transferredfrom the Transferor to the Transferee. It is understood that the Fund’s consent is required for thisproposed transaction to be effective.

The Transferor (either in an individual capacity or as an authorized representative of an entity, ifapplicable) hereby represents and warrant to be the true, lawful and beneficial owner of the USDShares to which this Transfer Request relates, with full power and authority to request transfer ofsuch USD Shares. Such USD Shares are not subject to any pledge or otherwise encumbered in anyfashion. The Transferor hereby further represents and warrants that upon the requested transferherein, the Transferor will continue to remain the beneficial owner of the Shares.



PLEASE INDICATE IF THE BENEFICIAL OWNER OF THE USD SHARES IN THE HANDS OFTHE TRANSFEROR IS THE SAME AS IN THE HANDS OF THE TRANSFEREE:


EFFECTIVE TRANSFER DATE: ...............................................................................


S-26



............................................................................


..............................................................................


DATE..............................................................................

SIGNATURE..............................................................................



See EXHIBIT I attached hereto for a sample letter that must be provided to the Fund and the Administrator whenanyone other than an individual makes a request to transfer Shares.


S-27


EXHIBIT I




Re: Transfers of USD Shares in Kingate Global Fund, Ltd.

Dear Sirs:

We act as a nominee or intermediary for our customers with respect to investments in various investmentfunds. We may from time to time be the recipient of shares (by way of a transfer from an existingShareholder) in the Fund and/or in funds which are administered by the Fund’s administrator, HemisphereManagement Limited (the "Administrator"), or one of your subsidiary or affiliated companies. We areproviding this letter to you, the Fund, and the Administrator, in connection with your obligations underthe various anti-money laundering and similar laws applicable to you.





Yours truly,

Signed:

Full Name:

Position:



S-28


EXHIBIT J

PRIVACY NOTICE

Kingate Management Limited (the “Manager”) recognize the importance of protecting Shareholderprivacy and have appropriate policies in place to maintain the confidentiality and security of ourShareholders’ information.






Any and all nonpublic personal information received by the Manager with respect to the Shareholderswho are natural persons, including the information provided to the Fund by a Shareholder in thesubscription documents, will not be shared with nonaffiliated third parties which are not service providersto the Fund or the Manager without prior consent from such Shareholders. In the normal course ofbusiness, we may disclose the kinds of nonpublic personal information listed above to nonaffiliated thirdparty service providers involved in servicing and administering products and services on our behalf. Suchservice providers include but are not limited to the Administrator, the auditors and the legal advisors ofthe Fund. Additionally, the Fund and/or the Manager may disclose such nonpublic personal informationas required by law (such as to respond to a subpoena or to prevent fraud).






S-29


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Exhibit 6


CONFIDENTIAL



Private Offering of U.S. Dollar Participating Common Shares(herein "USD Shares")

INFORMATION MEMORANDUM

May 1, 2000

Price per Share: Net Asset ValueMinimum Initial Subscription: U.S. $250, 000

Co- Managers: Kingate Management LimitedTremont (Bermuda) Limited

Consultant: FIM Limited

Administrator: Hemisphere Management Limited


IMPORTANT NOTICES

Neither Kingate Global Fund, Ltd. (the "Fund") nor the USD Participating CommonShares of the Fund (the "USD Shares") described in this Information Memorandum asrestated and amended as of May 1, 2000 (this "Memorandum"), have been or will beregistered or qualified under the securities laws of the United States ("U.S.") or any otherjurisdiction. This Memorandum does not constitute an offer to sell or the solicitation of anoffer to buy, nor shall there be any sale of USD Shares in any jurisdiction in which suchoffer, solicitation or sale is not authorized or to any person to whom it is unlawful to makesuch offer, solicitation or sale. The direct or indirect ownership of USD Shares by"Restricted Persons" as defined in this Memorandum, is prohibited except to a limitednumber of tax exempt investors in the Fund's discretion. No person has been authorized tomake any representations concerning the Fund or the USD Shares which are inconsistentwith those contained in this Memorandum, and any such representations should accordinglybe treated as unauthorized and may not be relied upon by the recipient.

Prospective investors should not construe the contents of this Memorandum as legal,tax or financial advice. All prospective investors should consult their own professionaladvisors as to the legal, tax, financial or other matters relevant to the suitability of aninvestment in the USD Shares for such investor.

The purchase of USD Shares is speculative and involves a high degree of risk. Thereis no assurance that the Fund will continue to be profitable and past performance is noassurance of continued future success. Moreover, since the Fund’s Net Asset Value and theNet Asset Value of the USD Shares are calculated in U.S. Dollars, each investor, and not theFund or any other person, bears the risk of any foreign currency exposure resulting fromdifferences, if any, in the value of the U.S. Dollar relative to the currency of the country inwhich such investor resides. See section entitled "CERTAIN RISK FACTORS" within thisMemorandum for a more detailed description of the risks involved in the purchase of USDShares.

This Memorandum is intended solely for the use of the person to whom it has beendelivered by the Fund for the purpose of evaluating a possible investment by the recipient inthe USD Shares described herein, and it is not to be reproduced or distributed to any otherpersons (other than professional advisors of the prospective investor receiving this documentfrom the Fund). Kingate Global Fund, Ltd. may offer other classes of shares pursuant toseparate offering materials and may issue and offer other such classes without notice to orobtaining consent from the investors. At present there are no other shares on offer.

Any questions relating to the purchase of USD Shares in the Fund or this InformationMemorandum should be directed to the Fund's Co-Managers, Kingate Management Limited("Co-Manager Kingate") and Tremont (Bermuda) Limited ("Co-Manager Tremont")(together, the "Co-Managers").

This Memorandum supersedes the Fund’s Amended and Restated InformationMemorandum dated September 30, 1998.

____________________________




SUMMARY

The information set out below should be read in conjunction with, and is qualified inits entirety by, the full text of this Information Memorandum (the "Memorandum"), theMemorandum of Association and Articles of Kingate Global Fund, Ltd. and the documentsand agreements referred to herein, all of which are available from the Administrator uponrequest.

THE FUND Generally. Kingate Global Fund, Ltd. (the "Fund") isan open-end investment company organized as aninternational business company in the British VirginIslands ("B. V.I. ") on February 11, 1994. The Fundis registered in the Territory of the British VirginIslands as a “Professional Fund” as that term isdefined in the British Virgin Islands Mutual FundsAct (1996), as amended by the Mutual FundAmendment Act (1997).

Offering. The Fund initially offered USD ClassParticipating Common Shares (the "USD Shares") ata price of US$100.00 on March 1, 1995, andsubsequently has continued offering the USD Sharesat a net price per USD Share equal to the Net Asset

*Value (as defined herein) of the USD Shares.

The Fund is now offering, through thisMemorandum, USD Participating Common Shares(the "USD Shares") at a net price per USD Shareequal to the Net Asset Value (as defined herein) of theUSD Shares. As of December 31, 1999, the auditedNet Asset Value per Share of the USD Shares was US$200.48 and there were 5,071, 101 sharesoutstanding. See "SHARES OF THE FUND" and"DETERMINATION OF NET ASSET VALUE."The Fund may discontinue this offering at any timefor any reason or no reason. Investors are referred toherein as "Shareholders."

Board of Directors. The Fund has four (4) Directorson its Board of Directors (the “Board”) who exerciseultimate authority over the Fund. The Directors meet

*The Shares were initially designated "B Shares."

i


at least annually, either in person at the Fund'sregistered office in the B.V. I. or at another locationof their choosing other than a location within theUnited States ("U.S.") or Bermuda, or by way of atelephone conference call, to review the investmentand administrative affairs of the Fund. See"MANAGEMENT - The Fund's Board of Directors."

Other Classes. The Fund is authorized to issue otherclasses of shares subject to terms and conditions thatdiffer from the terms and conditions applicable to theShares discussed herein at any time without notice toor obtaining consent from the Shareholders. Nooffering of any other class is made by thisMemorandum. There are no other classes on offer atthe present time.

INVESTMENT OBJECTIVE Objective: The Fund's investment objective is long-AND PROCESS term capital appreciation.

Stock/Options Trading. The Fund seeks to obtaincapital appreciation of its assets through the utilizationof a non-traditional stock/options trading strategy.The Fund is designed for long term investment. See“THE FUND – The Fund’s Investment Objective andInvestment Process.”

Leverage. The Fund may employ leverage for invest-ment purposes or to fund redemptions.

INVESTMENT ADVISOR The Fund’s assets are managed by a New York basedNASD * registered broker-dealer employingapproximately 200 people and acting primarily as amarket-maker in listed and unlisted stocks andconvertible securities. The investment advisor utilizesa "split strike conversion" options strategy consistentwith that of the Fund, as set forth under “THE FUND– The Fund’s Investment Objective and InvestmentProcess.” The Investment Advisor has managed theassets of the Fund since its inception and it isanticipated that the retention of such InvestmentAdvisor will continue. In addition, from time to time,a portion of the Funds’ assets may be managed by theCo-Managers. See "MANAGEMENT - TheInvestment Advisor."

PAST PERFORMANCE There can be no assurance that the Co-Managers orthe Investment Advisor will continue to be successful

* The term NASD” refers to the U. S. National Association of Securities Dealers, Inc.

ii


in pursuing the Fund's investment objective or thattheir strategy will continue to be profitable. Pastresults of the Co- Managers, the Investment Advisor,or their respective principals and affiliates, are notnecessarily indicative of the future favorableperformance of the Fund.

CO-MANAGERS Kingate Management Limited, a company dulyincorporated under the laws of Bermuda onFebruary 24, 1994 ("Co-Manager Kingate") andTremont (Bermuda) Limited ("Co-ManagerTremont"), a company duly incorporated under thelaws of Bermuda on November 16, 1988 (hereintogether, the "Co-Managers") are the Co-Managers ofthe Fund. Each of the Co-Managers acts pursuant toa Co-Manager Agreement, as amended and restatedeffective May 1, 2000, by and between the Fund andthe Co-Manager (herein the "Co-ManagerAgreement"). Pursuant to the Co-ManagerAgreement, each Co-Manager evaluates and monitorsthe Investment Advisor and, in general, provides allnecessary management services to the Fund. The Co-Managers may also manage directly the investment ofa portion of the Fund's assets. See"MANAGEMENT - The Co-Managers."

CONSULTANT FIM Limited, located in London, United Kingdom(herein the "Consultant"), has been appointed asconsultant to Co-Manager Kingate in relation to theinvestments of the Fund pursuant to a ConsultingServices Agreement by and among the Fund, Co-Manager Kingate and the Consultant dated November1, 1994 as amended effective May 1, 2000 (the "FIMConsulting Services Agreement"). Pursuant to theFIM Consulting Services Agreement, the Consultantrenders consulting advice to Co-Manager Kingatewith respect to certain aspects of the Fund’soperational, administrative, marketing, accountingand legal matters. See "MANAGEMENT - TheConsultant."

ADMINISTRATOR Hemisphere Management Limited, located inHamilton, Bermuda (herein the "Administrator") isthe Fund’s Administrator pursuant to anAdministration Agreement, amended and restated asof May 1, 2000, by and among the Fund, Co-Manager Kingate and the Administrator (herein the"Administration Agreement"). The Administrator isan ultimate wholly-owned subsidiary of Mutual RiskManagement Ltd., a public New York StockExchange-listed diversified financial services

iii


company. Pursuant to the Administration Agreement,the Administrator administers the day-to-day activitiesof the Fund's operations, which include, withoutlimitation, receiving subscriptions and processingredemption requests, calculating the Net Asset Value,responding to shareholder inquiries and similarmatters. In addition to its administrative duties, theAdministrator has been appointed as Registrar andTransfer Agent of the USD Shares pursuant to aRegistrar Agreement, as amended, effective March 1,1995, by and among the Fund, Co-Manager Kingateand the Administrator (herein the "RegistrarAgreement"). See "MANAGEMENT -Administrator."

BANKING AND CUSTODY The Bank of Bermuda Limited (the "Bank"), based inHamilton, Bermuda, has been appointed as the Fund'sbanker for purposes of receiving subscription funds,disbursing redemption payments and processing cashtransactions not directly related to the Fund'sinvestment portfolio. Additionally, the assets of theFund represented by the USD Shares (the “USDassets”) are held in the custody of the Bank pursuantto a Custodian Agreement, dated as of May 1, 2000by and among the Fund, the Co-Manager Kingate andthe Bank (herein the Custodian Agreement) The Bankdoes not provide custodian services for assets heldwith sub-custodians or with regard to assetsmaintained at the Investment Advisor. See"MANAGEMENT - Banking and Custody."

SUBSCRIPTIONS Price of Subscription. The USD Shares may bepurchased by Eligible Investors (as defined herein) asof the first Business Day (as defined below) of themonth (herein the "Subscription Date") at a priceequal to the Net Asset Value per USD Share as of thelast Business Day of the immediately precedingcalendar month (the "Valuation Date) plus anyapplicable subscription charges. "Business Day"refers to any day when the central banking systems ofthe U.S. and Bermuda are open and operating. See“Subscription Charge” below.

Minimum Subscription. The minimum initialinvestment per subscriber is U.S. $250, 000. Theminimum subsequent investment per subscriber isU.S. $100, 000. Such amounts may be waived orreduced at the discretion of the Directors.

Procedure. Completed Subscription Forms must bereceived by the Administrator by the Business Day

iv


prior to the first Business Day of the month in whichprospective investors wish to subscribe for Shares andcleared funds must be received by the Bank at thelatest by the Subscription Date. All subscriptions arerequired to be made in U.S. Dollars. FractionalShares are not issued and refunds of subscriptionfunds are made only if the surplus amount(corresponding to non-issued fractional Shares) is inexcess of U.S. $300. The Fund reserves the right toaccept or reject any subscription in its absolutediscretion. The Co-Managers, in their solediscretion, may permit subscriptions on other than thefirst Business Day of a month.

Subscription Charge. A sales charge of up to fivepercent (5%) of the amount invested is payable onsubscription of the USD Shares, but such charge maybe waived in whole or in part at the sole discretion ofthe Co-Managers. The Co-Managers may grant all orpart of such charge to dealers and independent thirdparties in connection with the solicitation ofsubscriptions.

ELIGIBLE INVESTORS The Shares may be purchased only by "EligibleInvestors," as described herein, except in a limitednumber of cases and then only after supplementaryoffering materials have been distributed to suchpotential investors (such as, without limitation, U. S.tax-exempt investors). Persons interested inpurchasing Shares should inform themselves as to thelegal requirements within their own countries for thepurchase of Shares and any foreign exchangerestrictions with which they must comply. A limitednumber of Shares may be sold to U.S. investors andthen only in a limited number of cases. See"SUBSCRIPTIONS AND REDEMPTIONS-EligibleInvestors."

NET ASSET VALUE Generally. The Net Asset Value of the Fund is equalto the Fund's assets less the Fund's liabilities and anyaccrued but unpaid expenses and reasonable reservesthat have not yet been charged. Each Class of Sharesand, with respect to the USD Shares, each Seriesthereof will have its respective Net Asset Valuedetermined in accordance with the foregoing andbased upon the assets and liabilities attributable to theparticular Class or Series, as the case may be.Expenses, fees and other liabilities will be determinedin accordance with U. S. Generally AcceptedAccounting Principles. The Net Asset Values will becalculated as of the close of business in New York on

v


the last Business Day of each month or on such otherdate when such computation is necessary orappropriate (each a "Valuation Date"). See"DETERMINATION OF NET ASSET VALUE.”

REDEMPTIONS Generally. Redemptions may be made as of the lastBusiness Day of each calendar month (herein the"Redemption Date") upon thirty-five (35) days' priornotice, at the Net Asset Value as of the RedemptionDate. Settlements are generally made within thirty(30) days after the Redemption Date. Incircumstances where the Fund is unable to liquidatesecurities positions in an orderly manner in order tofund redemptions or where the value of the assets ofthe Fund cannot reasonably be determined, the Fundmay take longer than thirty (30) days to effectsettlements of redemptions or may even suspendredemptions. The notice requirement may be waivedby the Fund in its discretion. The redemption requestis irrevocable unless the Fund consents to itswithdrawal. See “SUBSCRIPTIONS ANDREDEMPTIONS.”

Redemption Charge. Generally, no redemptioncharge is imposed. However, a redemption chargenot to exceed one percent (1.0%) of the proceeds(waivable in whole or in part at the sole discretion ofthe Co-Managers in exceptional circumstances) maybe imposed on the redemption of USD Shares whichare held for less than twelve (12) months from theSubscription Date.

TRANSFERS No transfer of Shares may be made other than withthe consent of the Directors, which consent may bewithheld at the discretion of the Directors without theneed for assigning any reason therefor.

DISTRIBUTIONS It is the present intention of the Directors not todistribute net income by way of dividends.Accordingly, net income effectively will berepresented in the value of the Shares. The Directorsreserve the right to change such policy.

FEES AND EXPENSES Co-Managers. The Co-Managers receive a monthlyfee from the Fund at an aggregate annual rate equal toone and one-half percent (1.50%) of the Fund'smonth-end Net Asset Value attributable to the USDShares (the "Co-Management Fee"), payable pursuantto their respective Co-Manager Agreements.Appropriate adjustments are made to account forsubscriptions and redemptions which may occur

vi


during the month.

Investment Advisor. The Investment Advisor does notcharge any fees for managing the assets of the USDShares. Its source of compensation is derived fromthe market making activity of its affiliated broker-dealer.

Administrator. For its administrative duties, theAdministrator receives fees as negotiated from time totime consistent with its customary charges forproviding administrative services to the Fund.

Consultant. The Consultant is paid by Co-ManagerKingate for its services at no additional cost to theFund.

Custodian. Pursuant to the Custodian Agreement, theBank receives a custodian services fee comprised of(i) an annual safekeeping charge equal to ten basispoints (.10%) of the gross asset value of the Fund,subject to a maximum annual custodian fee of$25,000; and (ii) the right to recover all sub-custodiancharges which are charged directly to the Fund. TheBank is entitled to reimbursement of actual out-of-pocket expenses.

Operations. The Fund bears all other costs of itsinvestment program (including brokerage and custodycharges, interest and taxes) as well as professionalfees of its auditors and attorneys. Expenses relating tothe offering of the USD Shares are borne by the USDshareholders and paid out of the proceeds of thisoffering. The USD Shares’ organizational costs arebeing amortized and are not considered material.

Directors’ Fees. Each Director who is not an officeror employee of a Co-Manager, the Administrator orrelated companies, receives a flat annual fee forserving in such capacity. The fee may vary fromtime to time but will be in accordance with reasonableand customary directors' fees. The Directors shall beentitled for reimbursement from the Fund forreasonable out-of-pocket expenses incurred by themon behalf of the Fund.

RISK FACTORS Investment in the Fund is speculative and involves ahigh degree of risk. Past performance of the Co-Managers or of the Investment Advisor is noguarantee of future performance. There is noassurance that the Fund will be profitable. The risks

vii


of an investment in the Fund include, but are notlimited to, the speculative nature of the Fund'sstrategies and the charges that the Fund will incurregardless of whether any profits are earned.Moreover, each USD Shareholder, and not the Fund,bears the risk of any foreign currency exposureresulting from differences, if any, in the value of theU.S. Dollar relative to the currency of the country inwhich such Shareholder resides. See "CERTAINRISK FACTORS."

CONFLICTS OF INTEREST The Fund is also subject to certain conflicts ofinterest. The Investment Advisor or the Co-Managersmay directly or indirectly manage the assets of fundsthat in some respects compete with the Fund forcertain investments. See "POTENTIALCONFLICTS OF INTEREST."

LISTING The Fund may seek to list the Shares on the IrishStock Exchange or a similar securities exchange, atthe sole discretion of the Board and without theconsent of the Shareholders.

REPORTING Shareholders will receive from the Fund annualaudited financial statements within a reasonable timeafter the Fund's fiscal year-end. In addition,Shareholders will receive from the Administratormonthly reports relating to the Fund's performance.Net Asset Value quotations are also be publishedweekly (estimated to the extent required) in theInternational Herald Tribune, Financial Times,Bloomberg and Telekurs.

FISCAL YEAR The Fund's fiscal year-end is December 31.

TAX STATUS The Fund should not be subject to any B. V.I. or U.S.income taxes (other than U.S. withholding taxes ondividend or certain interest income, if any, derivedfrom U.S. sources.) Shareholders of the Fund whoare not otherwise subject to B. V.I. or U.S. taxationby reason of their residence, nationality or otherparticular circumstances should not become subject toany such taxation by reason of the ownership orredemption of the USD Shares. Prospective investorsshould inform themselves as to the tax consequences,if any, in their own countries, which might berelevant to the purchase, holding, repurchase,redemption or transfer of the USD Shares.

viii


FUNCTIONAL CURRENCY The Fund's functional currency, i.e., the currency inwhich it maintains its books and records, its financialstatements and invests its assets, is the U.S. Dollar.

* * * *

ix


DIRECTORY

Fund's Kingate Global Fund, Ltd. Telephone: (+ 1-284) 494-5239Registered c/o Bison Financial Services LimitedTelecopier: (+ 1-284) 494-6728Office Bison Court

P.O. Box 3460Road Town, TortolaBritish Virgin IslandsAttn.: Mr. Keith R. Bish

Fund's Ms. Sandra ManzkeDirectors Mr. Charles D. Sebah

Mr. Christopher WetherhillMr. Keith R. Bish

Co-Managers Kingate Management Limited Telephone: (+ 1-441) 296-288899 Front Street Telecopier: (+ 1-441) 296-6775Hamilton HM 11, Bermuda E-mail: [email protected].: Mr. Christopher Wetherhill


Tremont (Bermuda) Limited Telephone: (+ 1-441) 292-3781Tremont House Telecopier: (+ 1-441) 296-06674 Park RoadHamilton HM 11, BermudaAttn.: Mr. Johann Wong

Administrator Hemisphere Management Limited Telephone: (+ 1-441) 295-9166Hemisphere House Telecopier: (+ 1-441) 296 82279 Church Street E-mail: [email protected]. Box HM 951Hamilton HM DX, BermudaAttn.: Mr. Eric Bertrand

Consultant FIM Limited Telephone: (+ 44-20) 7494-219425-28 Old Burlington Street Telecopier: (+ 44-20) 7494-1981London W 1X 1LB E-mail: [email protected] KingdomAttn.: Mr. Carlo Grosso


Bank The Bank of Bermuda Limited Telephone: (+ 1-441) 299-50716 Front Street Telecopier: (+ 1-441) 299-6565P.O. Box HM 1020Hamilton HM 11, BermudaAttn.: Mr. Michael Cordeiro


Auditors PricewaterhouseCoopers Telephone: (+ 1-441) 295-2000Dorchester House Telecopier: (+ 1-441) 295-12427 Church StreetHamilton HM 11, BermudaAttn.: Mr. Darren Johnston


O'Neal Webster O'Neal Myers Telephone: (+ 1-284) 494-5808Fletcher & Gordon Telecopier: (+ 1-284) 494-581130 DeCastro StreetRoad Town, TortolaBritish Virgin IslandsAttn: Elizabeth Chin Aleong, Esq.


Tannenbaum, Helpern, Telephone: (+ 1-212) 508-6701Syracuse & Hirschtritt LLP Telecopier: (+ 1-212) 355-3034900 Third Avenue E-mail: [email protected] York, N.Y. 10022U. S. A.Attn.: Michael G. Tannenbaum, Esq.


Table of Contents

Page

Summary i

Directory xi

The Fund 1


Certain Risk Factors 4Limited Operating History 4Achievement of Investment Objective 4Illiquidity of Investment 5Dependence on the Co-Managers 5Dependence on the Investment Advisor 5General Economic Conditions 5Market Risks 6Trading Strategies of the Investment Advisor 6Special Techniques Used by the Investment Advisor 6Concentration 8Regulation 8No Co-Managers Liability Beyond Fund Assets 9Shortened Claims Period 9Litigation 9Early Termination 9Effect of Substantial Withdrawals 9Possibility of Fraud or Misappropriation 10Changes in Applicable Law 10Reserve for Contingent Liabilities 10Certain Conflicts of Interest 10Other Clients of Investment Advisor 10Common Counsel 11Lack of Independent Experts Representing Investors 11Institutional Risk 11Settlements 11Pricing Information 12

Management 12The Fund’s Board of Directors 12The Co-Managers 13The Investment Advisor 15The Consultant 15


The Administrator 16Banking and Custody 16Voting Rights of Shareholders 17

Fees and Expenses 17Organization Costs 17Fees of the Co-Managers 17Fees of the Investment Advisor 18Fees of the Consultant 18Fees of the Administrator 18Fees of the Bank 18Other Operating Expenses 18




Taxation 26Introduction 26The Fund 26Shareholders of the Fund 27

Additional Information 28Reports to Shareholders 28Available Documents 28Auditor's Consent 28Counsel 28Inquiries and Communication with the Fund 30

Subscription Instructions S-1Subscription Agreement S-3Redemption Request S-6



THE FUND

KINGATE GLOBAL FUND, LTD. (the "Fund") is an open-end investment companyorganized as an international business company in the British Virgin Islands (B. V.I. ). TheFund seeks long-term capital growth by allocating USD Share capital to a selected investmentadvisor to execute the Fund’s Investment Objective and Process as set forth herein. See“INVESTMENT OBJECTIVE AND PROCESS.”

The Fund was established and commenced operations during 1994. USD Shareswere initially offered on March 1, 1995 and the Net Asset Value attributable to USD Sharesas of March 30, 2000 was $210.26. The same investment advisor (“Investment Advisor”)has managed the Fund's assets from inception. See “MANAGEMENT.” The Fund’sauthorized capital is US$300,000 consisting of 30,000,000 common shares, 15,000 000 ofwhich has been designated as USD Shares. The Fund is a “Professional Fund” as that term isdefined in the British Virgin Islands Mutual Funds Act (1996), as amended by the MutualFund Amendment Act (1997).

The USD Shares offered hereby are privately placed at Net Asset Value per Shareplus any applicable subscription fee. See “SUBSCRIPTIONS AND REDEMPTIONS.” Thenet proceeds of the offering are invested in accordance with the policies set forth under"INVESTMENT OBJECTIVE AND PROCESS." The Fund, without limitation, may holdcash or invest in cash equivalents for short-term investments. t

No offering other than USD Shares is made by this Memorandum. Accordingly, allreferences in the Memorandum shall be deemed to refer to USD Shares. The information inthis Memorandum is qualified in its entirety by the Fund's memorandum and articles ofassociation (the "Memorandum and Articles of Association") and operative agreements, allwhich are available on request to the Administrator.

The Fund presently has outstanding other classes of common shares which may beissued pursuant to separate offerings. The Fund has reserved the right to issue additionalclasses of shares from time to time, which in the Fund's discretion, may have preferences andfee arrangements which differ from those relating to the existing classes of shares, in order tomeet the needs of, for example, certain institutional investors or investors facing different taxor foreign exchange requirements. Any increased administrative charges by virtue of suchnew classes will be borne by shareholders of such classes only. Additional classes may be

t Among the cash equivalents in which the Fund may invest are: obligations of the U.S. Government, its agenciesor instrumentalities (U. S. Government Securities; U. S. Treasury Bills); commercial paper; and repurchaseagreements, money market mutual funds, certificates of deposit and bankers' acceptances issued by domesticbranches of U.S. banks that are members of the Federal Deposit Insurance Corporation.

1


issued by the Fund without consent of or notice to the Shareholders.

An investment in the Fund is subject to certain risks (see “CERTAIN RISKFACTORS”) and certain conflicts of interest. See “POTENTIAL CONFLICTS OFINTEREST.”



The Fund's investment objective is long-term capital appreciation. The Fund seeks toobtain capital appreciation of its assets through the utilization of a non-traditionalstock/options trading strategy. In attempting to achieve its objective, the Fund has establisheda discretionary account with an Investment Advisor who is based in the United States and whoinvests or trades in a wide range of equity securities, and, to a lesser extent, other securitiesand derivatives. In certain instances and at certain times, the Co-Managers may directlyinvest certain of the Fund's assets, rather than allocating such assets to the InvestmentAdvisor as may be consistent with, and in furtherance of, the Fund's investment objective.All investments involve investment risk and may result in losses instead of gains, as theachievement of the Fund's investment objective cannot be assured. See "CERTAIN RISKFACTORS."

Investment Process

The Investment Advisor invests primarily in the United States and utilizes a non-traditional investment strategy that is a variation of the traditional "option conversion"strategies (generally consisting of the purchasing of equity shares, the selling of relatedoptions representing a number of underlying shares equal to the number of shares purchased,and the buying of related put options representing the same number of underlying shares.)The strategy utilized by the Fund's Investment Advisor is called "split-strike conversion" andentails:

(i) purchasing a basket of thirty (30) to 40 (forty) large-capitalization S&P 100stocks (e.g., Microsoft, Cisco Systems, General Electric, Intel, Exxon, Wal-Mart Stores,Oracle, Lucent Technologies, IBM, Citigroup, Nortel Networks, AT&T, etc.), whichtogether account for the greatest weight of the Index and therefore, when combined, present ahigh degree of correlation with the general market;

(ii) selling out-of-the money S&P 100 Index call options representing a dollaramount of the underlying Index equivalent to the dollar amount of the basket of sharespurchased;

(iii) purchasing out-of-the-money or at-the-money S&P Index put options in the

2


same dollar amount.

The strategy aims to limit losses when stock prices decline while still affording anupside potential that is capped to the strike price of the short call when stock prices rise. Thelong put/short call position constitutes a "synthetic" short of the market, which provides ahedge against the long stock positions. Proprietary systems continuously optimize the basketof stocks to replicate the performance of the overall market at low cost. Put and call optionpositions are actively managed as strike prices and maturities are adjusted in response torelative valuations and general market movements.


Pending investment of capital of the Fund in accordance with the Fund's InvestmentObjective and Process, or to facilitate withdrawals of capital by USD Shareholders aspermitted by this Memorandum, the Fund may, among other things, hold cash or invest incash equivalents. Among the cash equivalents in which the Fund may invest are: obligationsof the United States Government, its agencies or instrumentalities, commercial paper, andcertificates of deposit and bankers' acceptances issued by United States banks that aremembers of the Federal Deposit Insurance Corporation. The Fund may also enter intorepurchase agreements and may purchase shares of money market mutual funds in accordancewith applicable legal restrictions.


The following investment restrictions of the Fund may not be changed without theapproval of the Shareholders holding at least 67% of the USD Shares: the Fund will notpurchase real estate or interests in real estate, except that the Fund may purchase and sellsecurities that are secured by real estate or interests therein and may purchase securitiesissued by companies that invest or deal in real estate.


The Fund is authorized to borrow in order to fund redemption requests and toenhance its investment leverage. There are no restrictions on the Fund's borrowing capacityother than limitations imposed by lenders and any applicable credit regulations. Loansgenerally may be obtained from securities brokers and dealers or from other financialinstitutions; such loans are secured by securities or other assets of the Fund pledged to suchbrokers. Loans may also be made from or to other investment companies on such terms asare commercially reasonable, including without limitation, from or to investment companiessimilar to the Fund, or from or to finance companies with respect to which the Co-Managers(or one or more affiliates) have an interest, either as sponsor, manager, administrator, owneror otherwise.


The Investment Advisor acts as a market-maker in the stocks purchased and sold bythe USD portfolio, and acts as a principal in connection with its sales of securities to the USD

3


portfolio and the purchase of securities from the USD portfolio.

The options transactions executed for the benefit of the USD portfolio are effectedprimarily in the over-the-counter market, not on a registered options exchange. See"POTENTIAL CONFLICTS OF INTEREST" and "CERTAIN RISK FACTORS".


The Fund does not expect to declare and/or pay dividends or make any otherdistributions to Shareholders out of the Fund's current earnings and profits. Rather, the Fundwill reinvest such income. Potential investors should keep this limitation in mind whendetermining whether or not an investment in the Fund is suitable for their particular purposes.The Fund reserves the right to change such policy.


Prospective investors should give careful consideration to the following risk factorsin evaluating the merits and suitability of an investment in the Fund as they relate specificallyto the USD Shares or to the Fund, in general, as the context requires. The following does notpurport to be an adequate summary of all the risks associated with an investment in the USDShares of the Fund. Rather, the following are only certain particular risks to which the Fundis subject that the Co-Managers wish to encourage prospective investors to discuss in detailwith their professional advisors.

Limited Operating History

The Fund commenced operations with respect to USD Shares on March 1, 1995 andas such has an operating history with regard to such Shares since such date. There can be noassurance that future returns will be similar to returns achieved since inception to date.


There can be no assurance that the Fund will continue to achieve its investmentobjective or that the Co-Managers or the Investment Advisor will continue to succeed inachieving the Fund's investment objective. Given the factors which are described below, anddue to the fact that an investment in the Fund entails a high degree of risk, there exists apossibility that an investor could suffer a substantial loss as a result of an investment in theFund.

4



There is no market for the USD Shares of the Fund and, accordingly, investments inthe USD Shares of the Fund may be disposed of only through the redemption proceduresdescribed elsewhere in this Information Memorandum.

The consent of the Co-Managers must be obtained prior to any transfer of USDShares. In light of the restrictions imposed on a transfer of USD Shares, and in light of thelimitations imposed on a USD Shareholder's ability to withdraw all or part of his or its capitalfrom the Fund, an investment in the Fund should be viewed as illiquid and subject to risk.

Dependence on the Co-Managers

All decisions with respect to the general management of the Fund are made by theCo-Managers, who have complete authority and discretion in the management and control ofthe business of the Fund, including the authority to delegate all investment managementactivities to the selected Investment Advisor. USD Shareholders will have no right or powerto take part in the management of the Fund, nor in any decision with regard to the allocationof management of the Fund’s assets to the selected Investment Advisor. As a result, thesuccess of the Fund for the foreseeable future will depend largely upon the ability of the Co-Managers, and no person should invest in the Fund unless willing to entrust all aspects of themanagement of the Fund to the Co-Managers, having evaluated their capability to performsuch functions.

The USD Shareholders will have certain limited rights to consent as set forth in thisMemorandum but will not have any authority or power to act for or bind the Fund.


The Co-Managers have delegated all investment management duties with regard toUSD Shares to the Investment Advisor. As a result, the success of the Fund for theforeseeable future will depend on the ability of the Investment Advisor to achieve the Fund’sinvestment objective. Neither the Co-Managers nor USD Shareholders will have any controlover the investment and trading decisions of the Investment Advisor, and no person shouldinvest in the Fund unless willing to entrust all aspects of the investment management of theFund to the selected Investment Advisor, having evaluated its capability to perform suchfunctions.


The success of any investment activity is influenced by general economic conditions,which may affect the level and volatility of interest rates and the extent and timing of investorparticipation in the markets for both equity and interest-rate-sensitive securities. Unexpectedvolatility or illiquidity in the markets in which the Fund directly or indirectly holds positionscould impair the Fund's ability to carry out its business and could cause it to incur losses.

5


Market Risks

The success of a significant portion of the Fund's investment program will depend,to a great extent, upon correctly assessing the future course of price movements of stocks,bonds and other securities. There can be no assurance that the Investment Advisor will beable to predict accurately these price movements.


The Fund is a single-advisor fund and the overall success of the Fund depends uponthe ability of the Investment Advisor to be successful in its own strategy. The pastperformance of such strategy or strategies is not necessarily indicative of its or their futureprofitability, and no strategy can consistently determine which security to purchase or sell at aprofit. Any factor which would make it more difficult to execute more timely trades, such as,without limitation, a significant lessening of liquidity in a particular market, changes intaxation or regulation, interest rate changes, would also be detrimental to profitability.Further, the Investment Advisor may modify its strategy from time to time in an attempt toevaluate market movements more favourably. As a result of such periodic modifications, it ispossible that the strategy used by such Investment Advisor in the future may be different fromthose presently in use. No assurance can be given that the strategy to be used by theInvestment Advisor will be successful under all or any market conditions. In addition, it isnot known what effect, if any, the size of the Fund's account or the increase in total fundsbeing managed by the Investment Advisor will have on the performance of the InvestmentAdvisor's trading methods.


The Investment Advisor uses special investment techniques that may subject theFund's investments to certain risks. Certain, but not all, of these techniques and the risks thatthey entail are summarized below. The Fund, in any event, is not designed to correlate to thebroad equity market, and should not be viewed as a substitute for equity investments.

Risk of Lack of Independent Data. The Investment Advisor’s strategy, involving splitstrike conversions, is a unique investment program, and is often not well followed by theWall Street community. Accordingly, there is very little independent data available to assist aprospective investor in his analysis of the Fund.

Risks of Transactions Executions. The Investment Advisor, in its role as a market-maker, trades with the USD portfolio as a principal. As a result, the portfolio is subject tocounterparty risk.

Risks of Market Illiquidity. Despite the heavy volume of trading in securities, themarkets for some securities have limited liquidity and depth. The lack of depth could be adisadvantage to the Fund, both in the realization of the prices which are quoted and in theexecution of orders at desired prices.

Risks of Arbitrage Transactions. The success of arbitrage strategies depends often on

6


the ability to execute two or more simultaneous transactions at desired prices. Should suchtransactions not be executed simultaneously at the desired prices, losses may be incurred onboth sides of the transaction. Additionally, separate costs are incurred on both sides of anarbitrage transaction, and substantial favorable price moves may be required before a profitcan be realized.

Risks of Options Trading. In seeking to enhance performance or hedge assets, theInvestment Advisor may purchase and sell call and put options on stock indexes. A stockindex measures the movement of a certain group of stocks by assigning relative values to thecommon stocks included in the index. Examples of well-known stock indexes are theStandard & Poor' s Composite Index of 500 Stocks and the Standard & Poor' s 100 Index.Both the purchasing and the selling of call and put options contain risks. Although an optionbuyer's risk is limited to the amount of the purchase price of the option, an investment in anoption may be subject to greater fluctuation than an investment in the underlying securities. Intheory, the exposure to loss is potentially unlimited in the case of an uncovered call writer(i.e. a call writer who does not have and maintain during the term of the call an equivalentlong position in the stock or other security underlying the call), but in practice the loss islimited by the term of existence of the call. The risk for a writer of an uncovered put option(i.e., a put option written by a writer that does not have and maintain an offsetting shortposition in the underlying stock or other security) is that the price of the underlying securitymay fall below the exercise price. The effectiveness of purchasing or selling stock indexoptions as a hedging technique will depend upon the extent to which price movements inassets that are hedged correlate with price movements of the stock index selected. Because thevalue of an index option depends upon movement in the level of the index rather than theprice of a particular stock, whether a gain or loss will be realized from the purchase orwriting of options on an index depends upon movements in the level of stock prices in thestock market generally, rather than movements in the price of a particular stock. Successfuluse of options on stock indexes will depend upon the ability of the Investment Advisor topredict correctly movements in the direction of the stock market generally. This abilityrequires skills and techniques different from those used in predicting changes in the price ofindividual stocks.

Risks of Over-the-Counter Options Trading. The Investment Advisor may executeoptions transactions in the over-the-counter market. Trading equity and options in the over-the-counter market is subject to counterparty risk and is without the protection afforded withrespect to options transactions on regulated exchanges through the Options ClearingCorporation.

Risks of Loss of Entire Options Investment. An option is a wasting asset. Its value isreduced as its life shortens, and it becomes worthless upon expiry. As a consequence, anoption buyer that does not sell an option in the secondary market prior to expiry nor exercisesan option prior to expiry loses his entire investment in the option.

Risks of Assignment of Options. In the event a short option position is assigned by itsbuyer, a hedged options position becomes net long or net short. Although the remainingportion of the previously hedged position may be liquidated or otherwise adjusted to limitexposure to price changes, substantial losses may result if, for instance, a trading halt occursin the remaining options position (either in the option or the underlying security) followed bya price gap at the reopening of trading.

7


Risks of Prohibition of Exercise Rights. The options markets have the authority toprohibit the exercise of particular options. If a prohibition on exercise is imposed at a timewhen trading in the option is halted, holders and writers of that option will be locked intotheir position until one of the two restrictions is lifted.

Concentration


Regulation

The Fund is not registered as an investment company under the U.S. Company Actor any similar legislation in any jurisdiction. Investors, therefore, will not be accorded theprotective measures provided by such legislation.

Registered investment companies are required, under applicable U. S. SecuritiesExchange Commission forms relating to the registration of their interests, to state definitivepolicies with respect to certain enumerated types of activities, some of which may not bechanged without security holder approval. Such policies are considered to be "fundamental"policies with respect to such securities investments (i.e., policies which the registeredinvestment company deems to be fundamental or policies which may not be changed withoutthe approval of a majority of the registered investment company's security holders). Thefollowing discussion summarizes the Fund's currently anticipated policies with respect to suchactivities.

Type of Securities in which the Fund May Invest. As set out in this Memorandumand as generally authorized by the Memorandum and Articles of Association, the Fund mayinvest in securities and other business interests of any and all types and descriptions,including "restricted" securities. The Fund may buy or write put and call options.Notwithstanding the foregoing, the Fund will not invest in real estate without the consent ofUSD Shareholders holding 67% of the USD Shares.

Use of Leverage. The Fund may trade in securities on margin and may effect shortsales. The Fund also may borrow, pledge, mortgage, lend or hypothecate securities or otherassets.


Underwriting of Securities and Other Issuers. The Fund will not underwritesecurities of other issuers in connection with the distribution of securities.

Concentration of Investments in Particular Industries or Companies. The Co-Managers and the Investment Advisor may concentrate investments in particular industriesand, from time to time to a lesser extent, in particular companies. The Fund will not investmore than 20% of the value of its total assets in securities of any one issuer (other thanobligations of the U. S. government, certificates of deposits, time deposits, short-term

8


commercial paper, shares of money market funds and bankers' acceptances). The Fund maynot change these policies without the approval of USD Shareholders holding at least 67% ofthe USD Shares.

Policy with respect to Portfolio Turnover. The Fund has no definite policy withrespect to portfolio turnover. The Fund may incur a significant turnover rate, since theFund's investment strategies sometimes may involve short-term considerations.

No Co-Managers Liability Beyond Fund Assets

The Co-Managers shall have no personal liability to the USD Shareholders for thereturn of any capital contributions, it being understood that any such return shall be madesolely from the Fund assets.


By subscribing for the Shares, the Shareholder is agreeing to shortening the periodduring which a claim may be made against the Fund, the Co-Managers or the Consultant withregard to any matter relating to such Shareholder's investment in the Fund.

Litigation

The Fund and the Co-Managers, as independent legal entities, may be subject tolawsuits or proceedings by governmental entities or private parties. Except in the event of alawsuit or proceeding arising from a Director's or Co-Manager's gross negligence, willfuldefault, or fraud in the performance of its duties, expenses or liabilities of the Fund arisingfrom any suit shall be borne by the Fund.

Early Termination

In the event of the early termination of the Fund, the Fund would have to distributeto the USD Shareholders their pro rata interest in the assets of the Fund. The Co-Managerscan withdraw from the Fund at any time upon 6 months' prior notice, and may thereby causethe dissolution of the Fund. The Co-Managers may terminate the appointment of theInvestment Advisor to manage the Fund's assets and henceforth withdraw assets from theInvestment Advisor in the ordinary course. The Investment Advisor may terminate theauthority granted to it to manage the Fund’s assets at any time, and may return to the Fund allof part of the Fund’s assets henceforth managed by the Investment Advisor. Certain assetsheld by the Fund may be highly illiquid and might have little or no marketable value. It ispossible that at the time of such sale or distribution, certain securities held by the Fund wouldbe worth less than the initial cost of such securities, resulting in a loss to the USDShareholders. Moreover, any organizational expenses with regard to the USD Shares thathad not yet become fully amortized would be debited against Fund capital at that time.


9


Substantial withdrawals by USD Shareholders within a short period of time couldrequire the Co-Managers to liquidate positions more rapidly than would otherwise bedesirable, which could adversely affect the value of the Fund's assets. The resultingreduction in the Fund's assets could make it more difficult to generate a positive rate of returnor to recoup losses due to a reduced equity base.


Neither the Fund nor the Custodian have actual custody of the assets. Such actualcustody rests with the Investment Advisor and its affiliated broker-dealer. Therefore, there isthe risk that the custodian could abscond with those assets. There is always the risk that theassets with the Investment Advisor could be misappropriated. In addition, informationsupplied by the Investment Advisor may be inaccurate or even fraudulent. The Co-Managersare entitled to rely on such information (provided they do so in good faith) and are notrequired to undertake any due diligence to confirm the accuracy thereof.


The Fund and the Investment Advisor must comply with various legal requirements,including requirements imposed by the federal securities laws, tax laws and pension laws.Should any of those laws change over the scheduled term of the Fund, the legal requirementsto which the Fund, the USD Shareholders, and the Investment Advisor may be subject coulddiffer materially from current requirements.


Under certain circumstances, the Co-Managers may find it necessary upon aredemption by a USD Shareholder to set up a reserve for contingent liabilities and withhold acertain portion of the USD Shareholder's redemption proceeds.


An investment in the Fund constitutes the acceptance and acknowledgement ofcertain conflicts of interest (See "POTENTIAL CONFLICTS OF INTEREST").


The Investment Advisor will have responsibility for making trading decisions onbehalf of the Fund. In addition, the Investment Advisor may also manage other accounts(including other partnerships and accounts in which the Investment Advisor may have aninterest) which together with accounts already being managed could increase the level ofcompetition for the same trades the Fund might otherwise make, including the priorities oforder entry. This could make it difficult or impossible to take or liquidate a position in aparticular security at a price indicated by an Investment Advisor's strategy.

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Common Counsel

The law firm of Tannenbaum Helpern Syracuse & Hirschtritt LLP, counsel to theFund, also serves as counsel to the Co-Managers and to the Consultant in connection with theoffering contemplated by this Memorandum and other transactions and a senior partner ofsuch counsel (who has no significant prior experience in professional asset management) is amember of the Board of Directors of Co-Manager Kingate. Counsel has attempted to be fairand reasonable and believes it has acted in a manner consistent with its professionalresponsibilities. Should a future dispute arise between the Fund and Co-Managers orConsultant, the Fund will act accordingly. Counsel does not represent the USD Shareholders(or any other shareholders) of the Fund.


The Co-Managers have consulted with counsel, accountants and other expertsregarding the formation of the Fund. Each prospective investor should consult his own legal,tax and financial advisors regarding the desirability of an investment in the Fund.

Institutional Risk

The institutions, including brokerage firms and banks, with which the Fund (directlyor indirectly) does business, or to which securities have been entrusted for custodial andprime brokerage purposes, may encounter financial difficulties that impair the operationalcapabilities or the capital position of the Fund. Brokers may trade with an exchange as aprincipal on behalf of the Fund, in a "debtor-creditor" relationship, unlike other clearingbroker relationships where the broker is merely a facilitator of the transaction. Such brokercould, therefore, have title to all of the assets of the Fund (for example, the transactionswhich the broker has entered into on behalf of the Fund as principal as well as the marginpayments which the Fund provides). In the event of such broker's insolvency, thetransactions which the broker has entered into as principal could default and the Fund's assetscould become part of the insolvent broker's estate, to the detriment of the Fund. In thisregard, Fund assets may be held in "street name" such that a default by the broker may causeFund's rights to be limited to that of an unsecured creditor.

Settlements

The Fund is not required to distribute cash or other property to the Shareholders, andthe Fund does not intend to make any such distributions. Notwithstanding the foregoing, theFund may, in its discretion, settle redemptions in kind in which event the Shareholders maybe required to obtain advice with regard to disposing of such assets (and bear the expensethereof). Moreover, during the period between submitting a notice of redemption andobtaining settlement, the redemption proceeds remains at risk of loss, without interest, andunder certain circumstances, such proceeds may be required to be restored to the Fund.

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Pricing Information

While pricing information is generally available for securities in which the Fundinvests, reliable pricing information may at times not be available from any source. Pricesquoted by different sources are subject to material variation. For purposes of calculating theFund's Net Asset Value and valuing investments, valuations of investments for which pricinginformation cannot be obtained will be made by the Administrator based upon suchinformation as is available, including the advice of the Investment Advisor. TheAdministrator may rely upon appropriate pricing services and information provided by theInvestment Advisor and shall not, in the absence of gross negligence or willful default beliable for any loss suffered by the Fund or any Shareholder by reason of any error incalculation resulting from any inaccuracy in the information provided by any pricing serviceor the Investment Advisor.

MANAGEMENT


The Fund has four (4) Directors, each of whom serves in accordance with the lawsof the British Virgin Islands and in accordance with the Fund's Memorandum and Articles ofAssociation. The Directors are:

Ms. Sandra Manzke has been President and Director of Tremont Advisers, Inc., aU.S. public company, since 1984. Ms. Manzke also serves as Chairman and President ofTremont Partners, Inc. and President and Director of Tremont (Bermuda) Limited, one of theCo-Managers. Ms. Manzke has been in the investment industry since 1970. Ms. Manzkeserves as the Director of various U.S. companies.

Mr. Charles D. Sebah is the managing partner of SV International, a stock andfutures brokerage firm headquartered in Paris, France, which he founded in 1989. From1984 to 1989, Mr. Sebah worked with Drexel Burnham Lambert in various managerialcapacities in both London, England and Paris. Prior to joining Drexel Burnham Lambert,Mr. Sebah was affiliated with AG Becker Paribas in London and Bache & Co. in Paris,where he was responsible for developing institutional brokerage business in U. S. securitiesand Eurobonds. Mr. Sebah is a former member of the board of directors of Amro Bank inLuxembourg.

Mr. Christopher Wetherhill Mr. Wetherhill is a director of MRM FinancialServices Ltd., and its wholly-owned subsidiary, Hemisphere Management Limited. Mr.Wetherhill is a Chartered Accountant, a Fellow of the Institute of Chartered Accountants inEngland and Wales, a member of the Bermudian and Canadian Institutes of CharteredAccountants, a Fellow of the Institute of Directors and a Freeman of the City of London.

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Mr. Keith R. Bish is a Chartered Secretary, Certified Accountant and a member ofthe (British) Institute of Directors. He has worked in offshore finance since 1977 spending12 years in Jersey, Channel Islands holding directorships and senior management positionswith the trust companies of Bank of America and The Chase Manhattan Bank. In 1988 Mr.Bish relocated to the British Virgin Islands spending 7 years as Managing Director of HWRServices Limited, the trust company affiliated with the law practice of Harney Westwood &Riegels. Mr. Bish has since founded Bison Financial Services Limited of which he isChairman and Chief Executive.


The Board of Directors will periodically meet to assist the Co-Managers in reviewingthe investment and administrative affairs of the Fund. The Fund's Memorandum and Articlesof Association provide that the Directors shall not be liable to the Fund for any acts oromissions in the performance of their duties if such person acted honestly and in good faithwith a view to the best interests of the Fund and in the case of criminal proceedings, suchperson had no cause to believe that his conduct was unlawful, and contains certain provisionsfor the indemnification of the Directors by the Fund, to the extent permitted by law, againstliabilities to third parties arising in connection with the performance of their services. TheDirectors may from time to time own Shares or dispose of Shares owned, in each casewithout notice to the Shareholders.

The Co-Managers

Kingate Management Limited and Tremont (Bermuda) Limited have been appointedas the Co-Managers of the Fund's capital (together, the "Co-Managers"). The Co-Managerswere duly incorporated under the laws of Bermuda. The operating directors of the Co-Managers are:

Kingate Management Limited

Mr. Christopher Wetherhill - See "MANAGEMENT - The Board of Directors"herein for biographical details.

Michael G. Tannenbaum - Partner and co-founder (in 1978) of the law firm ofTannenbaum Helpern Syracuse & Hirschtritt LLP where he heads the Firm's FinancialServices and Capital Markets Group which concentrates in structuring collective investments(hedge funds and the like) and capital financing arrangements both on-shore and offshore theU.S. He is the Editor of GlobalNote, a quarterly publication devoted to examining new legalissues facing the financial services industry and is the author of several articles including:"Domicile - A Comparative Analysis of Certain Offshore Jurisdictions," appearing in TheCapital Guide to Offshore Funds, ISI Publications, Hamilton, Bermuda 1997 and 1999, andMarketing Hedge Funds Over the Internet - a U. S. Perspective, ISI Publications, 2000.

Phillip A. Evans. Trust Manager (Partner) at Moore Stephens Services SAMlocated in Monaco. Mr. Evans joined in March 1993 to establish and manage a new trustmanagement department and is responsible for designing and implementing systems andcontrols, client contact, and marketing worldwide. During January 1990-February 1993, Mr.

13


Evans served as Trust Officer at Georgam SAM located in Monaco, responsible for a largeand varied number of Trusts and associated underlying companies. During February 1988-December 1989, Mr. Evans served as Senior Trust Administrator at Barclays Bank TrustCompany located in Reading, England.

Tremont (Bermuda) Limited

Johann Wong CFA, President, C.F.A. and holds an SSGD in General Arts &Science from the Jarvis Collegiate Institute in Toronto, Canada. He is a Director andPresident of Tremont (Bermuda) Limited, One World Capital Partners Limited, One WorldAsset Management Limited, One World Asset Management, Inc., and Joule & Watt CanadaInc. He is a Director of Children's Media Network, Inc., Brandt Technologies, Inc., andAdvanced Orthopedic Technologies, Inc.

Preston M. Davis, Accounting Manager, is responsible for all accounting relatedmatters involving Tremont (Bermuda) Limited and client accounts for which Tremont acts asadministrator. Prior to joining the firm, Preston Davis was a Supervisor in the CorporateTrust Department of The Bank of Bermuda Limited where he co-ordinated the launching ofnew mutual funds and pensions accounts on their accounting system.

From 1981 to 1994 Preston Davis was an Accounts Manager at Fidelity InternationalLtd. responsible for accounting administration of a group of mutual funds and pensionaccounts. He was responsible for successfully co-ordinating the transfer of administration ofAustralia subsidiary mutual fund accounting to corporate headquarters in Bermuda. Prior tothis he was an account executive at Armco Insurance Management Ltd.

Preston Davis graduated from Mount Allison University, New Brunswick, Canadawith a Bachelor of Commerce in Financial Accounting.

In the future, other and additional directors of the Co-Managers may be elected.

The Co-Managers perform services pursuant to the Co-Manager Agreements.Pursuant to the terms of the Co-Manager Agreements, the Co-Managers have agreed (i) tomanage all aspects of the investment advisory services provided to the Fund, including theselection and evaluation of the Investment Advisor and (ii) to arrange for the performance ofall accounting and administrative services which may be required by the Fund's operations.The Co-Manager Agreement authorizes the Co-Managers to delegate responsibilities toothers, subject to retaining certain responsibilities for evaluating and coordinating the servicesoffered by others. The Co-Managers are also permitted to manage directly the investment ofa portion of the investment portfolio of the Fund and may do so from time to time asconditions warrant.

The Co-Managers supervise distribution of the USD Shares. The Co-Managers mayappoint other securities dealers or other financial institutions as authorized dealers for theUSD Shares. Such other, non-affiliated, authorized dealers may receive sales commissionseither directly from the Fund (but payable only out of an investor's gross subscriptionproceeds before investment in USD Shares and only to the extent of the permitted five percent(5%) subscription charge as described herein) or from the Co-Managers. The Co-ManagerAgreement is automatically renewed for successive one-year periods, subject to terminationby either party as of the end of any calendar month upon not less than one year's prior

14


written notice or otherwise in accordance with the terms of the Co-Manager Agreement.

The Co-Manager Agreement provides that the Co-Managers shall not be liable to theFund or its shareholders for any error of judgment or for any loss suffered by the Fund or itsshareholders in connection with its services in the absence of negligence, willful default,fraud, or dishonesty in the performance or non-performance of its obligations or duties. TheCo-Manager Agreement contains provisions for the indemnification of the Co-Managers bythe Fund against liabilities to third parties arising in connection with the performance of itsservices, except under certain circumstances. The Co-Manager Agreement also containsprovisions for the indemnification of the Fund by the Co-Managers in certain circumstances.

See "FEES AND EXPENSES" herein for a general description of the fees payable tothe Co-Managers.


The Investment Advisor is a New York based NASD registered broker-dealeremploying approximately 200 people and acting primarily as a market-maker in listed andunlisted stocks and convertible securities. The Co-Managers have established a discretionaryaccount with such Investment Advisor on behalf of the Fund for the management of the USDassets. The Investment Advisor utilizes a "split strike conversion" strategy consistent with thestrategy of the Fund, as set forth under "THE FUND - The Fund's Investment Objective andInvestment Process." All investment decisions in the account held with the InvestmentAdvisor are effected by person associated with the Investment Advisor. The InvestmentAdvisor has managed the assets of the Fund since its inception and it is anticipated that theretention of such Investment Advisor will continue.

See "FEES AND EXPENSES" herein for a general description of the fees payable tothe Investment Advisor.

The Consultant

Co-Manager Kingate has appointed FIM Limited ("FIM"), located in London, UnitedKingdom as its consultant in relation to certain aspects of the Fund's operations. FIM wasformed on December 31, 1980 as a limited liability company under England's variousCompanies Acts and is regulated by the United Kingdom's Investment ManagementRegulatory Organisation Ltd. ("IMRO") in the conduct of investment business.

Pursuant to the FIM Consulting Services Agreement, the Consultant rendersconsulting advice to Co-Manager Kingate with respect to certain aspects of the Fund'soperational, administrative, marketing, accounting and legal matters.

The FIM Consulting Services Agreement expires on December 31, 2001 and isautomatically renewed for successive one-year periods, subject to termination by either partyat the end of the initial or subsequent term upon not less that thirty (30) days' prior writtennotice. The FIM Consulting Services Agreement provides that FIM shall not be liable to theCo-Manager, the Fund or its shareholders for any acts or omissions in the performance of itsservices in the absence of negligence, willful default, fraud or dishonesty in the performance

15


or non-performance of its obligations or duties. The FIM Consulting Services Agreementcontains provisions for the indemnification of FIM by the Co-Manager and the Fund againstliabilities to third parties arising in connection with the performance of its services, exceptunder certain circumstances.

The Administrator

Hemisphere Management Limited, located in Hamilton, Bermuda, serves as theFund's Administrator. Hemisphere Management Limited was incorporated in Bermuda inSeptember 1981 to provide management, investment, administration and accounting servicesto international clients. The Administrator is a wholly-owned subsidiary of Mutual RiskManagement Ltd., a public New York Stock Exchange-listed diversified financial servicescompany.

Pursuant to the Administration Agreement and the Registrar Agreement, theAdministrator is responsible for all matters pertaining to the administration of the Fund,including, without limitation, (i) communicating with the Fund's shareholders;(ii) communicating with the general public; (iii) soliciting sales of the Fund's stock;(iv) accepting the subscriptions of new shareholders; (v) maintaining the Fund's principalcorporate records and books of account; (vi) disbursing payments of dividends, legal fees,accounting fees, and officers' and directors' salaries; (vii) calculating, publishing orfurnishing the subscription or redemption price of the USD Shares; (viii) conducting meetingsof the Fund's shareholders and Directors; and (ix) making redemptions of the USD Shares.The Administrator will also provide the services of an individual to act as the secretary of theFund.

Both the Administration Agreement and the Registrar Agreement shall continue andremain in force and effect unless and until terminated by either party upon not less than three(3) months' notice or a shorter time period under certain circumstances. The AdministrationAgreement provides that the Administrator shall not be liable to the Co-Managers, the Fundor its shareholders in the absence of negligence, willful default, fraud or dishonesty in theperformance or non-performance of its obligations or duties. The Administration Agreementand the Registrar Agreement contain provisions for the indemnification of the Administratorby the Fund against liabilities to third parties arising in connection with the performance of itsservices, except under certain circumstances. The Administration Agreement and theRegistrar Agreement also contain provisions for the indemnification of the Co-Managers andthe Fund by the Administrator in certain circumstances.

See "FEES AND EXPENSES" herein for a description of the fees payable to theAdministrator pursuant to the Administration Agreement and the Registrar Agreement.

Banling and Custody

The Bank of Bermuda Limited, located in Hamilton, Bermuda (the "Bank"), hasbeen appointed as the Fund's banker for purposes of receiving subscription funds, disbursingredemption payments and processing cash transactions not directly related to the Fund'sportfolio. Actual custody, however, will be with the Investment Advisor. See "CERTAINRISK FACTORS."

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The Bank is not responsible for the safekeeping of any assets of the Fund depositedin any account opened with brokers or other intermediaries in connection with the tradingactivities of the Fund, and in particular, the operation of any accounts managed by theInvestment Advisor.

The Co-Managers will not have custody of any of the Fund's assets nor do they pre-sently propose to perform any brokerage services for the Fund. Brokerage services may beprovided to the Fund by the Investment Advisor or their affiliated firms.


Each USD Shareholder is entitled to one vote for each USD Share held on any matteraffecting USD Shareholders presented to a meeting of shareholders in accordance with theFund's Memorandum and Articles of Association. General meetings of the Fund'sshareholders will be held annually to approve the selection of auditors and to attend to suchother business as may properly be placed before a meeting. Shareholders will receive at leastthirty (30) days' notice of any shareholders' meeting (or ten (10) days' notice, if the Board ofDirectors determines that prompt shareholder action is advisable) and will be entitled to votetheir USD Shares either personally or by proxy. If the proxy sent with the notice of meetingis not completed and returned prior to the meeting and the shareholder does not appearpersonally at such meeting, such USD Shares will be voted in the discretion of the proxy andthe attorney-in-fact designated in the Subscription Agreement executed by such shareholder.

FEES AND EXPENSES

Organization Costs

All costs and expenses associated with the organization of the Fund, includinggovernment incorporation charges and professional fees and expenses in connection with thepreparation and restatement of the Fund's offering documents and the preparation of its basiccorporate and contract documents, have been paid out of the Fund's assets. The amountremaining to be amortized is no longer considered material.

Fees of the Co-Managers

The Co-Managers receive a monthly fee from the Fund calculated at an annual rateequal to one and one-half percent (1.5%) of the month-end Net Asset Value of the Fundattributable to the USD Shares (the “Management Fee"). The Management Fee is generally

17


payable as of the last Business Day of each month. The Co-Managers may, in their solediscretion, waive all or part of the Management Fee otherwise due with respect to anyShareholder’s investment, by rebate or otherwise or pay all or part of the Management Fee toplacement agents under separate agreements.


The Fund bears all direct and indirect costs associated with the investment advisoryservices of the Investment Advisor. The Investment Advisor's compensation is derived fromthe market making activities of its affiliated broker-dealer and bid-ask spreads.


The Consultant will be paid by Co-Manager Kingate for its services at no additionalcost to the Fund.


For its administrative duties relating to the USD Shares, the Administrator receivescustomary fees paid out of the Fund assets based upon the nature and extent of the servicesperformed by the Administrator for the Fund. The compensation provisions of theAdministration Agreement may be revised in the future.

Fees of the Bank

Pursuant to the Custodian Agreement, the Bank receives a custodian services feecomprised of (i) an annual safekeeping charge equal to ten basis points (.10%) of the grossasset value of the Fund with a maximum of U.S. $ 25,000 per annum and (ii) the right torecover all sub-custodian charges which will be charged directly to the Fund. The Bank isentitled to reimbursement of actual out-of-pocket expenses. The compensation provisions ofthe Custodian Agreement may be revised in the future.


The Co-Managers and the Administrator are responsible for providing all office per-sonnel, space and facilities required for the performance of their respective services. TheFund bears all other expenses incident to its operations and business, including brokeragecommissions, appraisers, pricing services, printing costs, the fees of its auditors and legaladvisors; custody charges; interest and commitment fees on loans and debt balances; anyincome, withholding or other taxes; and the costs of communications with Shareholders,prospective investors and the Investment Advisor. In addition, the Fund will pay for anyexpenses incurred in connection with listing the Shares on the Irish Stock Exchange, or anyother suitable exchange, if such listing is deemed desirable in the sole discretion of theDirectors.

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Each Director of the Fund who is not an officer or employee of the Co-Managers orthe Administrator receives a fee in accordance with reasonable practice. All Directorsreceive reimbursement for travel and other costs incurred in connection with their services.

Fees and expenses that are directly identifiable with a particular class of shares of theFund are charged against that class. Other fees and expenses will be charged to the Fund as awhole or otherwise in the discretion of the Board and allocated among the outstanding classesin a commercially reasonable manner in the Board’s discretion.


Subscriptions

Generally. The USD Shares may be purchased as of the first Business Day (asdefined herein) of the month (herein the "Subscription Date") at a price equal to the Net AssetValue per USD Share as of the last Business Day of the immediately preceding calendarmonth (the "Valuation Date"), plus any applicable subscription charges. "Business Day"refers to any day when the central banking systems of the U.S. and Bermuda are open andoperating. As of December 31, 1999, the audited Net Asset Value per USD Share was US$200.48. The Fund may (i) discontinue the offering of USD Shares at any time or (ii) permitsubscriptions on other than the first Business day of a month at the then Net Asset Value ofthe USD Shares. The minimum initial subscription from each investor is $250,000 and eachminimum additional subscription is $100,000. Such minimums may be waived by the Fund.

Procedure. Subscriptions are generally payable in U. S. Dollars. The acceptance ofsubscriptions as of the commencement of each month is subject to (i) receipt by theAdministrator of completed Subscription Forms by the last Business Day prior to theSubscription Date of the month in which prospective investors wish to subscribe for Shareand (ii) confirmation of the receipt of cleared funds by the Bank at the latest by theSubscription Date. The Fund reserves the right to accept or reject subscriptions in its abso-lute discretion. Details of the Subscription procedure are set forth at page S-1 of theSubscription Forms. As part of the Administrator’s and the Fund’s responsibility forprotection against money laundering, the Administrator may require a detailed verification ofthe identity of a person or entity applying for Shares.

Subscription Charge. A subscription charge of up to five percent (5%) of the totaldollar amount subscribed will be charged on subscription of the USD Shares, but such chargemay be waived in whole or in part at the sole discretion of the Co-Managers. Thesubscription charge, if any, will be retained by the Co-Managers. The Co-Managers maygrant all or part of such charge to dealers and independent third parties in connection with thesolicitation of subscriptions. The subscription charge will be deducted from the subscriber'spayment for purposes of determining the net amount available for investment in USD Shares.

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Certain Special Arrangements. Fractional USD Shares will not be issued and refundsof subscription funds will be made only if the surplus amount (corresponding to non-issuedfractional USD Shares) is in excess of U.S. $300.

Registration and Transfer. USD Shares will be issued only in registered form; theFund does not issue bearer shares. The Administrator maintains a current register of thenames and addresses of the Fund's Shareholders. Certificates representing USD Shares willbe issued, without charge, only if requested by a USD Shareholder. Certificates will bemailed or delivered to the USD Shareholder at the Shareholder's risk. Because certificatesmust be returned to the Administrator prior to the processing of redemption requests, theFund discourages USD Shareholders from requesting certificates.

Transfers of USD Shares are permitted only with the prior consent of the Fund whichmay be withheld for any reason or for no reason. Proposed transferees are required tofurnish the same information which would be required in connection with a directsubscription in order for a transfer application to be considered by the Fund. Violation ofapplicable ownership and transfer restrictions may result in a compulsory redemption.

Listing. The USD Shares are not listed on any securities exchange, and it is notanticipated that there will be any secondary market for trading in the USD Shares.Notwithstanding the foregoing, the Fund reserves the right to list the USD Shares on TheIrish Stock Exchange if, in its discretion, it deems the same desirable.

Shortened Period Within Which to Make Claims. By executing a subscription agreementfor Shares, each investor in the Fund shall be deemed to have waived, to the maximum extentpermissible under law, the right to bring any legal claim, action or other proceeding against theFund, the Co-Managers or the Consultant unless such claim, action or proceeding iscommenced within six (6) months from the date of the first to occur of (i) the originaloccurrence allegedly giving rise to such claim, action or proceeding or (ii) the Shareholder'sredemption of any Shares. See "CERTAIN RISK FACTORS."


As part of the Administrator's responsibility for the prevention of money laundering,the Administrator, its affiliates, subsidiaries or associates may require a detailed verificationof the applicant's identity and the source of payment for the Shares. A detailed verificationmight not be required when:

(a) the applicant makes payment by wire transfer from an account held inthe applicant's name at a recognized financial institution residing in a recognized jurisdiction,as defined by applicable laws, and the applicant's details (name and account number) appearin the confirmation of the wire transfer; or


These exceptions will apply only if the financial institution or intermediary referred toabove is within a country recognized as having sufficient anti-money laundering regulations.

20


In the case of (a) above, to avoid delays, the applicant should ensure that its remitting bankincludes the applicant's full name and account number in any confirmation that it sends.

The Administrator reserves the right to request such information as it considers to benecessary to verify the identity of the applicant. In the event of delay or failure by theapplicant to produce any information required for verification purposes, the Administrator orthe Fund may refuse to accept the application and all subscription monies relating thereto ormay refuse to process a redemption request until proper information has been provided.

Eligible Investors

Investment in the Fund is not available to Restricted Persons (as defined herein),unless the Fund determines otherwise in limited cases. The term "Restricted Person" as usedin this Memorandum means any U.S. Person * and other persons from time to time designatedas such by the Fund. Each prospective investor is required to certify that the Shares are notbeing acquired directly or indirectly for the account or benefit of a Restricted Person.

Any prospective investor acting in any fiduciary capacity is required to certify thenumber of beneficial owners for whom Shares are being purchased. Furthermore, it is theresponsibility of each investor to verify that the purchase and payment for the Shares is incompliance with all relevant laws of the investor's jurisdiction or residence.

The Fund reserves the right to offer Shares to Restricted Persons upon compliancewith applicable rules and regulations. For example, the Fund may admit a number of U.S.tax-exempt entities such as, without limitation, employee benefit plans, charitableorganizations, foundations, endowments and the like upon meeting certain eligibilitystandards such as being an “accredited investor” within the meaning of the U. S. SecuritiesAct. The Fund reserves the right to reject subscriptions for Shares, in whole or in part, in itsabsolute discretion for any reason or for no reason.

*For the purposes of this Memorandum, "U.S. Person" means: (a) any natural person resident in the United

States; (b) any partnership or corporation organized or incorporated under the laws of the United States; (c) anyestate 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 foreign entity located in the United States; (f) any non-discretionary account orsimilar 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 otherfiduciary organized, incorporated or, if an individual, resident in the United States; or (h) any partnership orcorporation if (i) organized or incorporated under the laws of any foreign jurisdiction and (ii) formed by a U.S.Person principally for the purpose of investing in securities not registered under the United States Securities Act of1933, as amended (the "Securities Act"), unless it is organized or incorporated, and owned, by accredited investors(as defined in Rule 501(a) under the Securities Act) who are not natural persons, estates or trusts. "U.S. Person"does not include: (a) any discretionary account or similar account (other than an estate or trust) held for the benefitor account of a non-U.S. Person by a dealer or other professional fiduciary organized, incorporated or, if anindividual, resident in the United States; (b) any estate of which any professional fiduciary acting as executor oradministrator is a U. S. Person if (i) an executor or administrator of the estate who is not a U. S. Person has sole orshared investment discretion with respect to the assets of the estate and (ii) the estate is governed by foreign law;(c) 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 (andno settlor if the trust is revocable) is a U.S. Person; (d) an employee benefit plan established and administered inaccordance with the law of a country other than the United States and customary practices and documentation ofsuch country; (e) any agency or branch of a U. S. Person located outside the United States if (i) the agency orbranch operates for valid business reasons and (ii) the agency or branch is engaged in the business of insurance orbanking and is subject to substantive insurance or banking regulation, respectively, in the jurisdiction wherelocated; or (f) the International Monetary Fund, the International Bank for Reconstruction and Development, theInter-American Development Bank, the Asian Development Bank, the African Development Bank, the UnitedNations and their agencies, affiliates and pension plans.

21


This Memorandum should not be issued to or given to any person in the UnitedKingdom unless that person is of a kind described in Article 9(3) of the United KingdomFinancial Services Act, 1986 (Investment Advertisements) (Exemptions) Order, 1988, or is aperson to whom the document may otherwise be issued or given. The Fund is an unregulatedcollective investment scheme, the promotion of which by authorized persons in the UnitedKingdom is restricted by Section 76 (particularly as amended by Section 76(3)) of the FSA.Authorized persons may not offer or sell shares in the United Kingdom to persons other thanthose who are authorized to carry out investment business under the FSA, those whoseordinary business involves the acquisition and disposal of property of the same kind as theproperty, or a substantial part of the property, in which the Fund invests and personspermitted to receive this document under the United Kingdom financial services (promotionof unregulated collective investment schemes) Regulations, 1991.

Redemptions

USD Shares are redeemable at the option of the Shareholder on the terms andconditions provided herein.

Generally. USD Shares are eligible for redemption as of the last Business Day ofeach calendar month (the "Redemption Date"), upon not less than thirty-five (35) days' priorwritten notice to the Administrator. The net redemption proceeds normally will be settledwithin thirty (30) days after the redemption date, without interest. In circumstances wherethe Fund is unable to liquidate securities positions in an orderly manner so as to fund redemp-tions or where the value of the assets of the Fund cannot reasonably be determined, the Fundmay take longer than thirty (30) days to effect settlement of redemptions. The noticerequirement may be waived by the Fund in its discretion. Redemption forms are available onrequest to the Administrator. A redemption request is irrevocable unless the Fund consents toits withdrawal. The Co-Managers may elect to purchase or to procure the purchase of Sharesoffered for redemption at a price equal to their Net Asset Value rather than requiring theFund to redeem them.

Redemption Price. The redemption price is equal to the Net Asset Value of the USDShares as of the Redemption Date, plus any applicable redemption charge as described below.See "DETERMINATION OF NET ASSET VALUE".

Settlement. Redemptions will be generally settled in U.S. Dollars, although the Fundmay, in its discretion, settle redemptions in kind to the extent of such redeemingShareholder's pro-rata share of non-illiquid, direct investments. Cash settlements will beremitted either by wire transfer to an account designated by the Shareholder or by checkposted at the Shareholder's risk (as specified by the Shareholder in his written redemptionnotice). If USD Shares are held in certificate form, the redemption payment will not beremitted until the certificates have been tendered to the Administrator, and no interest willaccrue on the redemption proceeds pending the settlement date. The Fund may withhold aportion of any proceeds of redemption if necessary to comply with applicable regulatoryrequirements. Requests for redemption received after 5:00 p.m. (Bermuda time) on the lastday of the redemption notice will be treated as a request for redemption as of the nextRedemption Date. Redemption payments will be made in U.S. Dollars, unless made in kind,and will be remitted either by wire transfer to an account designated by the Shareholder at the

22


bank from which the subscription price was paid or by check posted at the Shareholder's risk(as specified by the Shareholder in its written redemption notice). In circumstances where theFund is unable to liquidate securities positions in an orderly manner in order to fundredemptions, or where the value of the assets and liabilities of the Fund cannot reasonably bedetermined, the Fund may take longer than the time periods mentioned above to effectsettlements of redemptions or may even suspend redemptions. Under extraordinarycircumstances, in the discretion of the Directors, the Fund may settle redemptions in kind andmay extend the duration of the redemption notice period beyond a full quarter if the Directorsdeem such an extension as being in the best interest of the Fund and the non-redeemingShareholders. Certain risks exist with regard to redemption requests made but not yet settled.See “CERTAIN RISK FACTORS.”

Compulsory Redemptions. The Fund and the Co-Managers each, independently, havethe right to require the compulsory redemption of all USD Shares held by a Shareholder forany reason or for no reason. Compulsory redemptions will be made at the current Net AssetValue of the USD Shares (plus any applicable redemption charge) as of the last Business Dayof the month in which such notice of redemption is issued to the USD Shareholder.

Redemption Charge. Generally, no redemption charge is imposed. However, aredemption charge not to exceed one percent (1.0%) of the proceeds (waivable in whole or inpart at the sole discretion of the Co-Managers in exceptional circumstances) will be imposedon the redemption of USD Shares which are held for less than twelve (12) months from theSubscription Date. Such redemption charge may be retained by the Co-Managers.

Temporary Suspension of Dealings and Determination of Net Asset Value. TheFund's Directors may declare a temporary suspension of the determination of the Fund's NetAsset Value and the sale, allotment, issue or redemption of the Shares during: (i) any periodduring which, in the opinion of the Board, disposal by the Fund of securities which constitutea substantial portion of the assets of the Fund is not practically feasible or as a result of whichany such disposal would be materially prejudicial to Shareholders; (ii) any period when, inthe opinion of the Board, for any reason it is not possible to transfer monies involved in theacquisition or disposition or realization of securities which constitute a substantial portion ofthe assets of the Fund at normal rates of exchange; (iii) any period when, in the opinion ofthe Board, for any reason the prices of any securities which constitute a substantial portion ofthe assets of the Fund cannot be reasonably, promptly or accurately ascertained; (iv) anyperiod (other than customary holiday or weekend closings) when any recognized exchange ormarket on which the Fund's securities are normally dealt in or traded is closed, or duringwhich trading thereon is restricted or suspended; or (v) any period when proceeds of any saleor redemption of the Shares cannot be transmitted to or from the Fund's account. The Fundmay withhold payment to any person whose USD Shares have been tendered for redemptionuntil after any suspension has been lifted.

23



Net Asset Value of the USD Shares is the market value of the Fund's total assetscalculated as described below, less all accrued debts and liabilities, including (i) fees of theCo-Managers, the Administrator and the Bank earned or accrued but not yet paid, (ii)monthly amortization of organization costs, (iii) an allowance for the Fund's estimated annualaudit and legal fees, (iv) any contingencies for which reserves are determined to be required,(v) any other costs attributable to the USD Shares. Net Asset Value of the USD Shares willbe expressed in U.S. Dollars, and any items denominated in other currencies will betranslated at prevailing exchange rates as determined by the Administrator.

The Administrator will determine the net asset value of the Fund’s Portfolio assetsattributable to the USD Shares as of the close of business on the last Business Day of eachcalendar month. See “CERTAIN RISK FACTORS”. The Administrator will verify theprices attributed to the securities held by the USD Shares of the Fund by reference to pricingsources independent of the Investment Advisor whenever reasonably possible

The Fund's total assets include (i) all cash and cash equivalent, including bankdeposits and interest bearing obligations, (ii) all securities positions, and (iii) all optionspositions.

Cash and cash equivalents, including bank deposits and interest bearing obligations,are valued at cost plus accrued interest and discount.

Securities are valued at the last sale price reported on the principal securitiesexchange or market on which the securities are traded. In the absence of reported salesprices on the valuation date, securities generally are valued at the last reported bid quotation.

Options positions are valued at the last sale price reported on the principal securitiesexchange or market on which the options are traded. In the absence of reported sales priceson the valuation date, options generally are valued at the last reported bid quotation..

The value of assets are recorded at their fair value as determined in good faith by theAdministrator in the absence of current quotations or if the Administrator concludes that suchquotations are not indicative of fair value by reason of illiquidity of a particular security orother factors. In special circumstances in which the Administrator determines that marketprices or quotations do not fairly represent the value of particular assets, the Administrator isauthorized to assign a value to such assets which differs from the market prices or quotations.The cost of appraisers or pricing services employed the Fund is an expense of the Fund andas such a charge against Net Asset Value of the USD Shares.

Prospective investors should be aware that situations involving uncertainties as to the

24


valuation of portfolio positions could have an adverse effect on the Fund's net assets ifjudgments regarding appropriate valuations made by the Administrator should proveincorrect. See “CERTAIN RISK FACTORS.” In the absence of bad faith or manifest error,the Net Asset Value calculations of the USD Shares made by the Administrator are conclusiveand binding on all shareholders.

The Net Asset Value per USD Share shall equal the Net Asset Value of the assets of theFund attributable to the USD Shares divided by the number of outstanding USD Shares on therelevant valuation date.


The Co-Managers, the Investment Advisor, the Administrator, the Consultant andtheir respective affiliates, which shall be deemed to include, in each case, their respectiveofficers, directors, employees and entities owned by any of the aforementioned parties (the"Related Parties") may face certain conflicts of interests in relation to the Fund. Theseconflicts include, but are not limited to, the following:

The Co-Managers and each of their directors presently and may in the future, directlyor indirectly, direct, sponsor or manage other managed pools or accounts in addition to theFund and may have financial or other incentives to favor some such pools or accounts overthe Fund. The Co-Managers’ decisions with regard to the Fund may differ from thoserecommended for other arrangements for which the Co-Managers exercise discretion.

The Investment Advisor is presently affiliated and manages investment programs forother investment entities with substantially the same or different objectives of the Fund.Additionally, the Investment Advisor, in its role as a market-maker, trades with the Fund as aprincipal and, as a result of the Investment Advisor's discretionary authority over the accountmanaged by the Investment Advisor, it has the ability to use the Fund's assets to enhance itsmarket-making functions, and no arms' length relationship exists between the Fund and theInvestment Advisor.

Some or all of the Related Parties may be involved with other entities utilizinginvestment strategies similar to those of the Fund and with other business in general.Execution of the strategy might not yield the same results in all cases. The InvestmentAdvisor may cause the Fund to invest in securities in which some or all of the Related Partieshave a financial interest, or to engage in transactions with brokers or others with whom someor all of the Related Parties have financial or other relationships, as by way of example, theuse, in this case, of an affiliated broker dealer by the Investment Advisor. In such case, thereis no assurance that the usual level of oversight or the degree of competition leading towardslower fees and commissions that might have resulted had the broker dealer been independentof the Investment Adviser would not be lost.

The Related Parties may engage for their own accounts, or for the accounts of others,

25


in other business ventures of any nature, and the Fund has no right to participate in or benefitfrom such other management activities. Related Parties are not obliged to account to theFund for any profits or benefits made or derived therefrom, nor do they have any obligationto disclose or refer any of the investment or service opportunities obtained through suchactivities to the Fund. Related Parties may own and sell Shares in the Fund, deal asprincipals with the Fund or Shareholders in the sale or purchase of investments of the Fund(or Shares) or act as brokers, whether to the Fund or to third parties, in the purchase or saleof the Fund's investments (or Shares) and entitled to retain any profits or customarycommissions resulting from such dealings.

One or more directors of Co-Manager Kingate may also be a director of the Fund orotherwise provide services to the Fund, either directly or indirectly, in which event thelikelihood of independence in dealing with issues facing the Fund is diminished. Forexample, Co-Manager Kingate Director Tannenbaum is a senior partner of the law firmrender advice to the Fund as well as to both Co-Managers and the Consultants. See“ADDITIONAL INFORMATION – Counsel”

TAXATION

Introduction

This summary of the principal tax consequences applicable to the Fund and its Share-holders is based upon advice received from the Fund's U.S. and British Virgin Islands legaland tax advisers. Such advice is based upon factual representations made by the Co-Managers, the Consultant and Administrator concerning the proposed conduct of the activitiesto be carried out by the Fund and by them on behalf of the Fund. The conclusionssummarized herein could be adversely affected if any of the material factual representationson which they are based should prove to be inaccurate. Moreover, while this summary isconsidered to be a correct interpretation of existing laws in force on the date of thisMemorandum, no assurance can be given that courts or fiscal authorities responsible for theadministration of such laws will agree with such interpretations or that changes in such lawswill not occur. Investors should consult their professional advisors on the possible taxconsequences of their subscribing for, purchasing, holding, selling or redeeming Shares underthe laws of their countries of citizenship, residence, ordinary residence or domicile.

The Fund

British Virgin Islands Taxation. The Fund should not be subject to any taxation orother governmental charges or fees in the British Virgin Islands other than an annual licensefee payable to the Registrar of Companies (currently US$300) and an annual license feepayable to the Registrar of Mutual Funds (currently US$350). Under current British VirginIsland law, no income tax should be imposed on the Fund or on investors in the Fund who are

26


not domiciled or resident in the British Virgin Islands. There are no withholding, capitalgains, estate or inheritance taxes in the British Virgin Islands.

United States Federal Income Taxation. The Fund has been advised that it should notbe subject to U.S. federal income taxes on any U.S. source income or gains from its trading(except in respect of any dividends received in the course of such trading) provided that itdoes not engage in a trade or business within the U. S. to which such income or gains areeffectively connected. Pursuant to a safe harbor under the United States Internal RevenueCode of 1986, as amended, a non-U.S. corporation which trades stock or securities for itsown account should not be treated as engaged in a trade or business within the U.S. providedthat the non-U.S. corporation is not a dealer in stock or securities. The Fund intends toconduct its business in a manner so as to meet the requirements of this safe harbor. If theactivities of the Fund are not covered by the foregoing safe harbor, there is a risk that theFund (but not any investor) will be required to file a U.S. federal income tax return for suchyear and pay tax at full U. S. corporate income tax rates as well as an additional thirty percent(30%) branch profits tax or other taxes on its income.

Subject to the foregoing, the Fund should not be subject to U.S. federal income orwithholding tax on U.S. source interest income (other than in the case of certain contingentinterest or interest received from a borrower ten percent (10%) or more of the equity ofwhich is owned by the Fund, neither of which the Fund anticipates receiving) provided thatthe Fund is not engaged in a trade or business within the U.S. to which such interest incomeis effectively connected, and provided that the Fund's interest-bearing securities qualify asregistered obligations and that the Fund periodically supplies an Internal Revenue ServiceForm W-8 or its equivalent.

Other Jurisdictions. Capital gains and other revenues received by the Fund may besubject to withholding or similar taxes imposed on foreign corporations by the country inwhich such gains or other revenues originate. In jurisdictions other than the United States,non-U.S. taxes may be withheld at source on dividend and other income derived by the Fundat rates generally ranging up to thirty percent (30%).


USD Shareholders who are not otherwise subject to B.V.I. or United States taxes byreason of their residence, domicile or other particular circumstances should not becomesubject to any such taxes by reason of the ownership, transfer or redemption of the USDShares.

Shareholders who are or may be subject to U.S. Federal income tax on theirworldwide income should be aware of certain tax consequences of investing directly orindirectly in USD Shares and should be certain to consult with their own tax advisors in thisregard. The Fund reserves the right to pay over taxes to any jurisdictions or taxing authorityas a debit against the Shareholders interest in the Fund upon proper process.

Dividend and redemption payments made by the Fund to Shareholders who are notU.S. persons should not be subject to U.S. Federal income tax, provided that USD Shares arenot held in connection with a U.S. trade or business of the Shareholder in the year of receipt.Individual Shareholders who are not U.S. persons should not be subject to any U.S. Federal

27


estate or gift taxes by reason of the ownership or transfer of the USD Shares. (AShareholder's change in status to a U.S. person could result in adverse U.S. tax consequencesin addition to resulting in a compulsory redemption of USD Shares.)

Any U.S. Person owning ten percent (10%) or more of the value or voting power ofthe shares of a foreign corporation such as the Fund will likely be required to file aninformation return with the U. S. Internal Revenue Service containing certain disclosureconcerning the filing Shareholder, other shareholders and the corporation. The Fund has notcommitted itself to provide the information about the Fund or its shareholders needed tocomplete the return.



The Fund will furnish annual reports to its Shareholders containing financialstatements examined by the Fund's independent auditors. Shareholders will be sent copies ofthe audited financial statements prior to the Fund's annual general meeting each year preparedin accordance with U. S. Generally Accepted Accounting Principles. In addition,Shareholders will receive from the Administrator monthly reports relating to the Fund'sperformance.

Available Documents

This Memorandum is not intended to provide a complete description of the Fund'sMemorandum of Association and Bye-laws or the agreements with the Co-Managers,Administrator, Investment Advisor, and the Bank. Copies of such documents are availablefor inspection by Shareholders and prospective investors during normal business hours at theAdministrator's office or at the office of Co-Manager Kingate in Hamilton, Bermuda.

Auditor's Consent

PricewaterhouseCoopers has given its written consent to the inclusion of its name,report and reference to itself in the form and context in which they appear in thisMemorandum.

Counsel

The law firms of Tannenbaum Helpern Syracuse & Hirschtritt LLP (New York) andO'Neal Webster O'Neal Myers Fletcher & Gordon (B. V.I.) serve as counsel to the Fund inconnection with matters pertaining to U.S. law and BVI law, respectively, and to the Co-

28


Managers and, together or individually, may serve as counsel to other investment fundssponsored or managed by the Co-Managers and their affiliates. Should a future dispute arisebetween the Fund and Co-Managers, separate counsel may be retained as circumstances andprofessional responsibilities then dictate. Counsel to the Fund do not represent theShareholders. See "POTENTIAL CONFLICTS OF INTEREST."

29



All communications and correspondence with the Fund and inquiries concerning theFund and the Shares, including information concerning subscription and redemptionprocedures and current Net Asset Value, should be directed to the Administrator at theaddress set forth in the "DIRECTORY" appearing elsewhere in this Memorandum.

30



SUBSCRIPTION INSTRUCTIONS



Applications to subscribe for USD Class Common Shares (the "USD Shares") of the KingateGlobal Fund, Ltd., a British Virgin Islands corporation, may be made only by writtenapplication using the enclosed Subscription Agreement. All completed SubscriptionAgreements should be directed to the Administrator at the address shown thereon no later thanthe last Business Day (as defined in the Fund's Information Memorandum) prior to theSubscription Date (as defined in the Fund's Information Memorandum). The Fund reserves theright to reject subscriptions in whole or in part, in which event subscription payments will berefunded at the applicant's risk, without interest. The Co-Managers of the Fund may, in theirsole discretion, discontinue the offering of USD Shares at any time. A properly completed andsigned copy of the Subscription Agreement may be submitted to the Administrator bytelecopier (+ 1-441) 296-8227 in advance of submitting the original in order to expediteprocessing of the application. The signed original, however, must be sent to theAdministrator immediately thereafter.


Payments in full for the amount subscribed (not less than U.S. $250,000, unless otherwiseagreed in advance by the Fund) are to be made in U.S. Dollars by Fed Fund transfer at thelatest by the Subscription Date (as defined in the Fund's Information Memorandum) asfollows:


Wire to:

Correspondent Bank: Citibank N.A.111 Wall StreetNew York, NY(ABA No.: 021000089)(CHIPS UID no. 0008)(SWIFT Code CITIUS33)

Beneficiary Bank: The Bank of Bermuda Limited6 Front StreetHamilton HM 11 Bermuda

Account No.: 10921671


Account no.: 0239335

Attn: Ms. Warrenette Walcott

Notification to the Administrator may be made via facsimile to the attention of Eric Bertrand attelecopier number (+ 1-441) 296-8227.

S-1


In order to facilitate prompt and accurate crediting of subscription payments, subscribers mustnotify the Administrator, prior to remitting payment, of the details of the subscriptionpayment, indicating (i) the name of the subscriber, (ii) the dollar amount subscribed, (iii) thesubscriber's address (including a telex or telecopier number if available), (iv) the name andaddress of the financial institution remitting the subscription payment and (v) the approximatedate as of which the payment is being wired to the Fund's account.

Confirmations

Confirmations will be sent to subscribers showing the details of each transaction. The USDShares will ordinarily be issued in respect of accepted applications at the Net Asset Value (asdefined in the Fund's Information Memorandum) per USD Share as of the last Business Dayof the month following the date on which the Fund has verified the receipt of the clearedfunds.


Local Rules

Persons interested in subscribing for the USD Shares should inform themselves as to the (1)the legal requirements within their own countries for the purchase of the USD Shares, (2) anyforeign exchange restrictions which they might encounter, (3) the income tax or other taxconsequences, if any, which might be relevant to the purchase, holding or sale of the USDShares, and (4) the applicable anti-money laundering rules set forth in the Memorandum andbelow.

As part of the Administrator’s and the Fund’s responsibility for protection against moneylaundering, the Administrator may require a detailed verification of the identity of a person orentity applying for Shares. Depending on the circumstances of each application, a detailedverification might not be required where:

a. the applicant makes the payment from an account held in the applicant’s name at arecognized financial institution; or


These exceptions will only apply if the financial institution or intermediary referred to above iswithin a country recognized as having sufficient anti-money laundering regulations.

The Administrator and the Fund reserve the right to request such information as is necessary toverify the identity of an applicant. In the event of delay or failure by the applicant to produceany information required for verification purposes, the Administrator may refuse to accept theapplication and the subscription monies relating thereto or may refuse to process a redemptionrequest until proper information has been provided.

S-2



SUBSCRIPTION AGREEMENT

Kingate Global Fund, Ltd. – USD Sharesc/o Hemisphere Management LimitedHemisphere House, 9 Church StreetP.O. Box HM 951Hamilton HM DX, BermudaFax No.: (+ 1-441) 296-8227

Dear Sirs:

The undersigned subscriber (the “Subscriber”) acknowledges having received, reviewed andunderstood the Amended and Restated Information Memorandum dated May 1, 2000 (the“Information Memorandum”) for the offering of USD Participating Common Shares (the“Shares”) of Kingate Global Fund, Ltd. (the “Fund”) and hereby subscribes for as manyShares as may be purchased for the amount indicated below on the terms of the InformationMemorandum and subject to the provisions of the Memorandum and Articles of Association ofthe Fund.

SUBSCRIPTION INFORMATION

NAME AND MAILING ...........................................................................ADDRESS OF SUSBCRIBER

...........................................................................

...........................................................................

TELEPHONE NUMBER ....................................................................................

FAX NUMBER ....................................................................................

NAME AND ADDRESS FOR ....................................................................................SHARE REGISTRATION(IF DIFFERENT) ....................................................................................

....................................................................................

AMOUNT OF SUBSCRIPTION(MINIMUM US$ 250,000) US$ .......................................................................

S-3


NAME AND ADDRESS OF ....................................................................................FINANCIAL INSTITUTIONREMITTING PAYMENT ....................................................................................FOR SUBSCRIBER’SACCOUNT ....................................................................................

....................................................................................

PAYMENT DATE: ....................................................................................

SUBSCRIBER REPRESENTATION

The Subscriber represents and agrees that none of the Shares (nor any interest therein) is beingacquired or will at any time be held, directly or indirectly, for the account or benefit of any“Restricted Person” (as defined in the Information Memorandum), and further agrees thatnone of the Shares may be transferred to any person who has failed to supply a similarrepresentation.

The Subscriber represents and warrants that: (a) the Shares are not being purchased with aview to resale; (b) all consents required to be obtained and all legal requirements necessary tobe complied with or observed in order for this Agreement or the issuance of the Shares to belawful and valid under the laws of any jurisdiction to which the Subscriber is subject have beenobtained, complied with or observed; (c) the Subscriber has not relied on any representationsor other information purported to be given on behalf of the Fund except as set forth on theInformation Memorandum or the published, financial accounts of the Fund; and (d)understands that all assets of the Fund have been and will likely continue to be, invested with asingle Investment Manager; (e) has revised the Memorandum including the sections entitled“CERTAIN RISK FACTORS” and “POTENTIAL CONFLICTS OF INTEREST” andunderstands its contents, and (f) acknowledges and agrees to the a shortening of the statute oflimitations (i.e. the period within which to bring a claim) as discussed in the Memorandum.(See “SUBSCRIPTIONS AND REDEMPTIONS - Subscriptions - Shortened Period WithinWhich to Make Claims.”)

The Subscriber agrees, represents and warrants to the Fund that the Subscriber is a‘professional investor’ within the meaning of the Mutual Funds Act of the British VirginIslands, in that (1) the Subscriber’s ordinary business involves, whether for its own account orthe account of others, the acquisition or disposal of property of the same kind as the property,or a substantial part of the property which is (or will be) owned by the Fund, as set out in theFund’s current Confidential Offering Memorandum; OR (2) the Subscriber’s net worth (in thecase of a natural person, either individually or jointly with spouse) exceeds one million dollarsin United States currency and that the Subscriber consents to being treated as a professionalinvestor for the purposes of investment in the Fund.

STANDING PROXY

S-4


The Subscriber hereby designates and appoints Kingate Management Limited, with the powersof substitution, as Subscriber’s true and lawful Proxy for the purpose of voting any Sharesissued pursuant to this Agreement (or such portion thereof from time to time owned bySubscriber) as said Proxy may determine on any and all matters arising at any annual or fiscalgeneral meeting of the Fund upon which such Shares could be voted by the Subscriber (or theperson in whose name the Shares hereby subscribed are registered at the Subscriber’sdirection) if present in person at the meeting.

This proxy may be revoked by the Subscriber (or his registered nominee) either personally orby presentation of a subsequently executed form of proxy at any general meeting of the Fundor by written notice to the Administrator received at the Fund’s registered office prior to anysuch meeting.

DATE .................................................................................

SIGNATURE ....................................................................................

NAME OF SUBSCRIBER .....................................................................................

NAME AND TITLE .............................................................................(IF SIGNING IN AREPRESENTATIVE CAPACITY)

S-5



REDEMPTION REQUEST

Kingate Global Fund, Ltd. – USD Sharesc/o Hemisphere Management LimitedHemisphere House, 9 Church StreetP.O. Box HM 951Hamilton HM DX, BermudaFax No.: (+ 1-441) 296-8227

Dear Sirs:

The undersigned hereby requests Redemption of the number of Shares OR the USD amountdetailed below, subject to all the terms and conditions of the Memorandum and Articles ofAssociation of Kingate Global Fund, Ltd. (the “Fund”), and the Information Memorandum ofKingate Global Fund, Ltd. – USD Shares, as may be amended and supplemented from time totime.

Redemption shall be effective as of the last business day of the calendar month detailed below,provided that this Request for Redemption, accompanied by a share certificate(s) (ifapplicable) is received by the Fund at least thirty-five (35) days prior to such effective date.

The undersigned (either in an individual capacity or as an authorized representative of anentity, if applicable) hereby represents and warrants to be the true, lawful and beneficial ownerof the Shares to which this Redemption Request relates, with full power and authority torequest redemption of such Shares. Such Shares are not subject to any pledge or otherwiseencumbered in any fashion.

REDEMPTION INFORMATION

NUMBER OF SHARESBEING REDEEMED:SHARES ......................................................................ORUS$ AMOUNTBEING REDEEMED US$ ................................................................

EFFECTIVE REDEMPTION DATE:..................................................................................

S-6


S-7


NAME AND MAILING ....................................................................................ADDRESS OF SUBSCRIBERWISHING TO REDEEM ....................................................................................

....................................................................................

NAME AND ADDRESS OF ....................................................................................SHARE REGISTRATION(IF DIFFERENT) .....................................................................................

....................................................................................

NAME AND ADDRESS OF ....................................................................................FINANCIAL INSTITUTIONTO WHICH REDEMPTION .....................................................................................PROCEEDS ARE TO BETRANSFERRED ....................................................................................(INCLUDING A BANKACCOUNT NUMBER ....................................................................................IF APPROPRIATE)

DATE ....................................................................................

SIGNATURE ....................................................................................

NAME OF SUBSCRIBER .....................................................................................

NAME AND TITLE .....................................................................................(IF SIGNING IN A REPRESENTATIVE CAPACITY)

THIS REDEMPTION REQUEST MUST BE RECEIVED BY THE COMPANY AT LEASTTHIRTY-FIVE (35) DAYS PRIOR TO THE END OF THE MONTH IN WHICHREDEMPTION IS TO BE EFFECTIVE.

THIS REDEMPTION REQUEST MUST BE ACCOMPANIED BY SHARE CERTIFICATESFOR A NUMBER OF PARTICIPATING COMMON SHARES AT LEAST EQUAL TO THENUMBER OF PARTICIPATING COMMON SHARES BEING REDEEMED (IN THEEVENT SUCH CERTIFICATES WERE ISSUED BY THE COMPANY TO THESHAREHOLDER REQUESTING THE REDEMPTION).

REDEMPTION REQUESTS ARE IRREVOCABLE UNLESS THE FUND CONSENTS TOITS WITHDRAWAL.

S-8


Exhibit 7


NIAN'AC.E,NIFNT AGREE^IFNT (this ":Agreement"), dated as of January 1, 2006, by andbetween KINGATE 'MANAGEMENT LiNnTED, a company incorporated under the lama's ofBcnnuda with offices located at 99 Front Street, Hamilton HM11 Bermuda (the "Manager"), andKINGATE GLOBAL FUND, LTD., a company incorporated Under the laws of the British Virginislands (BVI) whose registered office is c o Bison Financial Services Limited, Bison Court, PO Box3460, Road Town,'fortola, British Virgin islands (tic "Fund").

NVITNESSETIl:

WHEREAS, the Fund seeks to obtain capital appreciation of its assets through theutilization of a non-traditional slock/options trading strategy as more fully described in its Amendedand Restated Information Memorandum dated January 1, 2006, as the same May be supplemented,amended and restated from time to time (collectively the "information Memorandum"):

WHEREAS, the Fund wishes to ongaUe the Manager and the Manager wishes to act as themanager of the Fund:

NOW, THEREFORE, in consideration of the mutual premises and covenants containedhetvin. the parties hereto agree as follows:

PART 1. SERVICES

1.1 Proilsion nf' Serti •ices. In accordance with provisions of the Memorandum andArticles of Association of the Fund and the Information Memorandum, and under the ultimatesupcnV ision of the directors of the Fund (the "Directors") from time to time as provided therein, theManager shall he responsible for performing or obtainin g the perfonnancc of, and is herebyauthorized and empowered to perform. or obtain the performance of, all of the following duties andfunctions necessary or appropriate in connection with the management of the Fund:

(a) Providing invesnnent management services as described in Part 11 of thisAgreement;

(b) Providing- administrative services as described in Part III of this .Agreement:and

(c) Providing seiA- ices as described in Part iV of this Agreement.

T}rc Manager may delegate all or part of such responsibilities pursuant to Section 2,2, 4.6and 5.9 below.

PART H. INVESTNTENT 'MANAGEMENT SERVICES

2.1 Investment Pr( qq cwt a, Subject to the ultimate supervision of the Directors, and inaccordance with the Memorandum and Articles of Association of the Fund, as well as the

176!001 I


invcstnnent objectives, paficics, guidelines and rest rictions which are set forth in the informationMeniorandusn, or which arc otherwise communicated to the Manager. the Manager shall effect theinvestment strategy for the investment of the assets of the Fund as \well as evaluating and selectingpotential investnients which are consistent with such strate^,y. Included \within this power will henianaging the investment and reinvestment of the assets of the Fund, in each ease in such manner asthe Manager considers appropriate haled upon the Manager's past practices.

?.? C'IIStOdl'. Poirtfolio securities and other financial assets of the Fund shall bemaintained at all limes in the custody of one or more banks, trust companies, brokerage firms orother financial institutions as shall have been approvcd for that purpose by the Manager. As of thedate hereot: custody of substantially all of the Fund's assets is in custody with Bernard MadoffInves4111c11t Secnritics 11C. a New York financial institution C'Madoff'). The Manager has nocustody of any of the Fund's assets.

PART III. AD]IINisTRATION

3.1 Provisiat Fund. In accordance with the provisions ofthe Memorandum and Articles of Association of the Fund, and under the ultimate supervision ofthe Directors from time to time as provided therein, the Manager shall assist the Fund (in a mannerconsistent with existing practice) in the performance of certain of its administrative duties as maybe a rrecd to by the pa[Kics f[ •otn time to time.

PART I\ SALT OF SBARES

4.1 Afarkciing Generalty. In accordance with provisions of the Memorandum andAricles of Association of the Fund and the Information Memorandum, and under the ultimatesupervision ol' the Directors from time to time as provided therein, the Manager is herebyauthorized and ctnpowercd to perform (or procure the performance of), all duties and functions inconnection with the sale of any Shares of tine Fund and advising the Fund on general plattersaffecting the marketing of the Shares. including, fi•om time to time advising the Fund's Directorscancennn°:

(a) Subject, inter alia, to the provisions of Section 4.5(b), soliciting andintroducingp['oSl7eetl\' e ]rl\'estors in the Fund's Shares, either rel ying upon an exemptionfrom registration as a broker dealer or by engaging the ser vices of a broker dealer whichmay be an affiliate of the Manager; and

(I)) Maintaining regular contact and updating existing and prospective investorsto keep them infotincd of investment results and other information with regard to the Fund.

s 7^,n7r.0-i

i.71,1Q %1 . 1 -2-


4.2 Sale af5hureT. The Manager shall have sole authority to act in respect of the sale ofam' of the Fund's Shares. In this regard, the Manager. from time to time, shall seek to procureapplications for the purchase of Shares b y eli gible inv estors, either directly or through securitiesdealers and other financial institutions selected by the Manager pursuant to Section 4.3 hereof("authorized dealers"), Shares shall be offered at the subscription price and on the terms andconditions set forth herein and ill Lnformation MemOrandtnn. All applications shall be subieclto acceptance by the Fund (it being understood that the Fund shall have the right to rejectapplications in its discretion). The Manager shall have no . authority G) to bind the Fund to acceptany applications or {ii) to receive or accept on behalf of the Fund any funds, or other propertytendered as payment for Shares, such authority resting with the FLLnd and its Directors.

4. i .-1 uthrfrirc°1l Decrlc rs.

(a) In addition to any powers the Manager may have under Section 5.9, hereof,the Manager may appoint consultants. agents, securities dealers and other financial institutions asauthorizcd dealers to solicit applications to purchase Shares. Such authorized dealers must havefull authority to act ill jurisdiction within ^,vbich they conduct business. The Manager shall usereasonable efforts to ensure that any such authorized dealer shall conduct its solicitation activities inaccordance with all of the conditions. restrictions and limitations applicable to the Manager's directsales activities as set forth in this agreement.

(b) The Mana ger may cutter into compensation arrangements with authorizeddealers as it sees fit and at no additional cost to the Fund,

4.4 Off,rm- 11(acrials.

(a) The Manager shall deliver, or arrange for the delivery by any authorizeddealer selected by the Manager, to each person to whom Shares are offered a copy of the Fund'smost recently published Information Memorandum and a copy of the Fund's most recentlyPublished annual report.

(b) If any form of offering materials (including anv form of advertisement orOther soiicitation nmaterials calculated to result in all of interest in subscribing for Shares)concerning the Fund or its Shares other than the Information Mcmorandunn is required or permittedto be given to any prospective investor under the laws of any jurisdiction in which Shares areoflcred by or throtigh the Manager, the Manager agrees that any such document (i) shall be preparedand furnished in a commercially reasonable manner, in good faith and reliance on its advisors andconsultants. (ii) shall not contain anv information concerning the Fund or the Shares which ismaterially inCOmsistelt lyith the Information Memorandum, and (iii) shall use reasonable efforts tocomply in all respects with the lap s of the jurisdiction in which it is furnished.

i


(c) 'the Alanager acknowledges and agrees that no person is authorized to makeanV representations, whether written or oral, concerning, the fund and its Shares which are .inconsistent with the Infoitnation MemorandUrn and that all offers of Shares shall be made incontbi-mity with the terms and conditions set forth therein.

4.5 Certain Lgqul Restrictions.

(a) No Shares shall be offered by the Manager or any authorized dealer to anyperson who is not reasonably believed by the Manager or the authorized dealer to be an eligibleinvestor as set forth in the Information MenlorandU n.

(b) The Shares and the Fund have not been and will not be registered orqualified for offer and sale under the applicable la%% s of any jurisdiction. Neither the Manager norany authorized dealer shall (i) solicit any applications or otherwise extend any offers for thepurchase of Shares, or (ii) deliver (or have in their possession for the purpose of delivery) theInformation Menlorandunl or any other offering literature relating to the Fund or its Shares, to anyperson in any jurisdiction in lyhich such solicitation or delivery would be 11111aWfUl. -file'Vlanagerundertakes to campy with tilt foregoing representations in connection with its participation in thesale of Shares (includin g, the appointment of any authorized dealers) during the terns of thisAgreement.

4.6 Awhority of rem Afcmtrger as to the Sale of Am- Shares. The Manager shall have fulldiscretion and authority, without obtaining the Fund's prior approval, to manage any sale of theShares of the Fund in such manner as the Manager consider appropriate including Withoutlimitation hiritlgr such experts, agents and consultants to assist the Manager in perfortning its duties11C1'CLInder as such Manager may deem appropriate.

PART V. GENERAL PROVISIONS

Tile followinu general tertlls and conditions shall apply to the performance of the Manager'sobligations as otllenvise set forth herein:

5.1 .Vet:Isser 1`aluo. As used in this Agreement., the Net Asset Value of the Fund andof the Shares shall have the meaning assigned to it in the Information Memorandum and -,ball becalculated as described in the Information Memorandum.

5,?;1lnnrhlt' rllcrtrr^gemelu ree; Other Fces.

(a) For its services hereunder, the Manager shall be entitled, in the aggregate.to receive from the Fund a monthly management fee at an annual rate of one and one-half percent(1.5%) of the Net Asset Value of the Fund determined as of each Valuation Date of each calendar111011th. Such monthly management fee shall he shall payable as of the last business day of each

176r,_'i0-1 11 7 66=-R1-1 1 -a• .


calendar month. As used herein, the teen "Valuation Date" shall have the meanin^^ assigned to it inthe ]nfomnalion Mcruorrndum.

(b) Other fees, such as Without limitation, up-front fees and exit fees, shall heretained by and belong to the Manager,

?.3 lFxponscs.

(a) Unless othenvise a-rced to by the Fund, the Manager shall hear all of itsONNn costs and expenses incurred in the performance of its services provided pursuant to thisAgreement, includin g those attributable to such office personnel, office space, office equipment andoffice services as may be required by the Manager.

(b)(b) The Fund shall bear all expenses incident to its organization, operations andbusiness. including but not limited to (i) brokerage commissions and charges on portfolio ices onloans and debit balances, (ii) income taxes, withholding taxes, transfer taxes and othergoyenimental charges and duties, (iii) fees of the Fund's legal advisers and independent auditors,(iN) directors, attorneys, audit and accounting= and expenses, ( y ) the costs of maintaining theFund's registered office in the BVl and Benntrda, if any, or anyn •here else in the world. and (vi) thecosts of printing anti distributing the Fund's any offering documents, reports and notices toshareholders.

i.4 Scope gfLiubilifies. Neither the Manager nor its directors, officers, shareholdersand employees, shall be liable to the Fund or its Shareholders for any losses, damages, expenses orclaims occasioned by any act or omission of the Manager or directors, officers. shareholders oremployees in connection with the performance of its sen• iccs hereunder, other than as a result of itsonn gross negligence, bad faith, or willful or reckless malfeasance. disregard of an y of itsobligations under this Agreement.

?.S Indenw(frcration.

(a) The Fund shall indemnify the Manager, and its directors, officers,employees, servants, agents, dele gates and shareholders (each an "Indemnified Party") and hold thelndemnified Parties harmless from and against any expense, loss, liability or damage arising out ofany claim asserted or threatened to be asserted in connection with the indemnified Party's servingor having served as such pursuant to this Agreement; provided, however, that no indenntified Partyshall be entitled to a11V such indemnification with respect to any expense, loss, liability or damageWhich was caused by the indcnmi ficd Party's own gross negligence, bad faith, or wiliful or recklessmail feasance or disregard of any of its obligations under this Agreement.

(b) The Manager shall indemnify the Fund against, and hold it harmless from,an%- expense, loss, liability or damage arising out of any claim asserted or threatened to be asserted

17Da,`nq.1

7w,2 of-k I^'(,h_' r .t-


by any third party as a consequence of am• misstatement of any material fact or any other materialnlisreprescmation concerning the Fund or its Shares by the Manager, other than arising out of anlisstatenlcnt or rCprCSClltatnOn authorized, approved or furnished by the Fund.

(c) In the event that either parity hereto is or becomes a party to any action orProceedin g in respect of lvhich it maybe entitled to seek indemnification hereunder (°indenlnitee"),the 1ndLnulltec shall promptly notify the other party ("inder nnitor") thereof. The indemnitor shallbe ettitled to participate in any such suit or proceeding and, to the extent that it may wish, toassume the defense thereof with. counsel reasonably satisfactory to the indenlnitee. After notice ofan election by the indemnitor so to assume the defense thereof, the indemnitor will not be liable tothe indenlnitee hereunder for any legal or other expenses subsequently incurred by (lie indenlniteein connection with the defense thereof other than reasonable costs of investigation or reasonablelegal expenses incurred as a result of(i) potential conflicts of interest between the indemnitee andindemnitor or (ii) the protection of proprietary or privacy interests of other clients of the indenlnitee.The indemnitor shall advance to the indenlnitee the reasonable costs and expenses of investigatingand. or deferldinY such claim. subject to receiving a writtell Undertaking from the 'indenlnitee torepay SUCh amounts i f and to the extent of any subsequent determination by a court or other tribunalof connpetem jurisdiction that the indemnitee was not entitled to indemnification hereunder.

(d) The indemnitor shall be liable lie]"CLnlder for any settlement of any action orclaim effected without its written consent thereto.

(c) Each Indemnified Party shall be entitled to reasonable advances with regardto alleged claims asserted and to attorney fees and expenses.

(f) The indemnity pro v ided for hereunder is in addition to and without prejudiceto any indemnity pro vided bylaw or contract.

5.6 Inclel7encfcnt Contractor. For all purposes of this Agreement, the Manager shall beall independent contractor and not an employee or dependent agent of the Fund; nor shall anythingherein be construed as making the Fund a partner or co-venturer with the Manager or any of itsaffiliates. Any court or authority is requested to interpret the provisions of this Agreementrecognizing that the fore going is Tile firm intention of the parties even to the extent of amending orrevising that portion of the Agrecrinent that might lead to a contrary construction. Except asprovided in this Agreement. the Manager shall have no authority to bind, obligate or represent theFund,

i.7 Irrfornurtiot Corcernin,; Activities: Records uml Access; Conftclentirditr.

(a) The Manager shall pro v ide to the Fund from time to time and oilinformation regarding the activities (f) conducted by the Manager since the inception of this

A,orcemcnt or since the most recent date of which the Manager pro v ided information to the Fund


regardinu the activities of the Manager and (ii) proposed to be conducted by the Manager. TheManager shall furnish inronrratioll concerning the Manager and any authorized dealers andCOt1Cet'11n1'- the activities undertaken by them for the Fund as the Fund may reasonably request.

ill The Manager shall retain for a period of at least five (5) year copies orallydOCln11e11tS generated or received by the Mana-cr in the ordinary course of business pertaining tothe financial condition or the Fund's assets or to the compensation payable to the Manager. At therequest of the Fund. the Manager shall afford to the Fund's independent auditors reasonable accessLo documents pertaining to the Fund's activities during customary business hours and shall pemlitsuch auditors to make copies thereof or extracts therefrom at the expense of the requesting party.

(c) neither of the parties hereto shall (except under compulsion of law') eitherbelbre or after the termination of this Afyreenlent disclose to any person not authorised by therelevant Marty to receive the same any confidential information relating to such party or to theaffitil'S Of Such part y of which the part\ disclosing the same shall have become possessed during theperiod of this Agreement and each party shall use all reasonable endeavours to prevent any suchdisclosure as aforesaid.

5.8 Term, Termination and Renewai.

(a) This Agreement (as restated and amended hereby) shall have a ternending oil December 31, 2007 and will be automatically renewed for successive one-gearperiods, subject to termination by either party in accordance with this section.

(b) The Manager shall he entitled to resign its appointment hereunder:

(i) by giving not less than one years' notice in writing to the Fund toexpire at the end of a calendar month;

(ii) at any time if the Fund shall go into liquidation or be unable topay its debts or con-imit any act of bankruptcy or if a receiver is appointed of any ofthe assets of the Fund or if some event ]laving an equivalent effect; or

(iii) at any time if the Fund shall commit any material breach of itsobli gations under this Agreement and (if such breach shall be capable of remedy)shall tail within thirty (30) days of receipt of notice served by the Manager requitingit so to do to make good such breach.

(c) The Fund may terniinate the appointment of the Manager as follows:

(i) by giving no less than one years' notice in writing to the Managerto expire at the end of a calendar month;

17C,6200- 1


(ii) if the Managger goes into liquidation or is unable to pay its debtsor commits any act of bankruptcy or if a receiver is appointed of any of the assets ofthe Nlamnzer or if some event having an equivalent effect occurs; or

(iii) if the Manager shall commit am material breach of itsobligations under this Agreement and (if such breach shall be capable of remedy)shall fail within thirty (30) days of receipt of notice served by the Fund requiring itso to do to make good such breach.

(d) Upon termination of the appointment of the Manager, the Managershall be entitled to receive the fees and compensation as provided hereunder but shall not heentitled to compensation in respect of such termination; and the Manager shall deliver or procure tobe delivered to the Fund or successor manager, or as it shall direct, all books of account, records,other registers, correspondence, and documents relating to the affairs of or belonging to the Fund inthe possession of or under the control of the Manager.

(c) Upon termination of this Agreement for any reason (or for no reason) thefollowing provisions shall survive: Sections: 5.3 (to the extent of unpaid expenses); 5.4; 5.5; 5.7;5.13: 5.17; 5,30 and 5.21.

?.9 Dc'k'^crtrat.

(a) The Manager shall be authorized to delegate as appropriate, or in itsdiscretion, any of tite duties or obligations hereunder to one or more other persons or entities,whether affiliated with or independent of the Manager.

(b) In the event of any such delegation of duties or obligations hereunderpursuant to any agreement consented to in writing by the Fund, the Manager shall be relieved anddischarged of its obligations to perform the services so delegated other than the continuingobligation (subject at Fall times to the standard of care set forth in Section 5.4 hereof) to takereasonable measures to (i) ascertain the competence of the dclegatee to perform the services sodelegated, (ii) monitor generally the faithful performance by the delegates of the duties specified inthe relevant delegation agreement, (iii) coordinate such performance with the performance of theother services contemplated hereunder, and (ir) perform or procure the future performance of thedcic^LTatcd services in the event of' the expiration or termination of any such agreement with Suchdclegatec. No(withstanding any other provisions of this Agreemert, following the Fund's consent toany such delegation agreement, the •lanagcr sliall not incur any liability hereunder to the fundpursuant to Section 5.4 hereof for any acts or omissions of such delegate and shall remain entitledto indemnification as provided in Section 5.3 hereof:

(c} The Fund acknowledges its understanding that the Manager proposes to

I ;nr.^uu- I I


emir- into delegation agrec;ntents pursualtt to Section 5.9(bl hereof with respect to certain of theser v ices contemplated by this Agreemcni, and agrees that whenever the Fund's consent to suchagreements is requested by the Manager. such consent shall not be withheld 1,vithout reasonablecause.

(d) For the avoidance of doubt, the Manager has delegated responsibilities asfollows, which have the consent of the Fund's Directors:

i. To Madoff, investment advisory activities and custody services;

ii. To BISYS Iledge Fund Sen-ices Limited, Hamilton, Bernutda. as toadillinistrative services: and

iii. To Bank of Bermuda with respect to banking matters.

5.10 Alorlrfication il'aiver. Exccpt as otherwise expressly provided herein, thisAgreement shall not be amended, nor shall any provision of this Agreement be considered modifiedor waived, unless evidenced by a writing signed by the party to he charged with such amendment,waiver or modilicaticn.

?.11 13ttrdhl -, E/Jeer: ; lssigninna. This Agreement shall be binding upon and inure to thebenefit of the parties hereto and their respective successors, but the rights and obligations hereundershall not be assignable, transferable or delegable without the ,viitten consent of the other partyhereto except as provided in Section 5.9 hereof and any attempted assignment, transfer ordelegation thereof without such consent except as provided in Section 5.9 hereof shall be void.

5.1' Governing Law. This Agreement shall be governed by and construed in accordancewith the substantive laws of Bermuda. applicable to contracts made and entirely to be performedtherein. The parties hereby irrevocably submit to the non-exclusive jurisdiction of the courts ofBermuda for the settlement of any dispute or difference arising between the parties hereto.

5,13 I.)c>finitinn. Heatlinrgs. Terns used herein which are not otherwise defined hereinshall have the meanings set forth in the information Memorandum. Headings and titles arc for caseof retcrence on1v and shall be [,iven no substantive effect.

5,14 Services ,ion-EvclusA ,c^ The serv ices of the Manager to the Fund hereunder are notto be deemed exclusive and the Manager shall be free to render similar services to others so long asits services hereunder arc not impaired thereby and to retain for its own use and benefit all fees orother monies payable thereby and the Manager shall not be deemed to be affected with notice of orto be under an y duty to disclose to the Filnd any fact or thine which comes to the notice of theManager or an.• scr'ant or agent of the ]•tanagers in the course of the Manager rendering similarsen • ices to others or in the course of its business in any other capacity or in any manner whatsoever

^7pL_'I1R-I ^

^1ocûn-i î-[n_ot ^ î-


otheiNvise than in the course of carrying ont its duties hereunder.

5.15 Corutrc )elf-ts. This Agreement may be si-ned in any number of counterparts. AnysilWle cotuitcrpart or a set of counterparts signed. in either case, by the parties hereto, shallconstitute a fill[ and original a+reenieni for all put•poscs.

5.1 f Interest of wad in :1lurra er uuc(alrtnu er in Fund.

(a) It is understood that directors, officers, agents and shareholders of the Fundare or may he interested in the ti4anager as directors, officers, or shareholders or otherwise, thatdirectors, officers, shareholders, agents and any client of the Manager are or may be interested inthe Fund as directors, officers, shareholders of otherwise and that the Manager is or lllay beinterested in the Fund as shareholder or otherwise and it is hereby acknowledged that no persoll sointerested shall be liable to account for any benefit to any other party by reason solely of suchinterest.

(b) Tlie Mana lTU or any client of the -Manager or any Connected Person' 1 of theManager or any holding company of the Manager or any subsidiary of such holding company (the"interested part y") may hold, acquire or dispose of any investmenis upon its own accountnotwithstanding that the same or similar Investments may be held by or for the account of orotherwise connected Nwith the Fund and it is hereby acknowledged that no such interested party shallbe liable to account for any benefit to any other party by reason solely of such interest.

5.1 ? Leged Acrion hr the :Wanag er. The Manager shall not be required to take any legalaction on behalf of the Fund unless fully indemnified to its reasonable satisfaction for all costs andliabilities that may be incurred or suffered by the Manager in connection therewith.

5.18 Notices to Parties; rtfeetings of Direciors.

(a) A11V notice given hereunder shall be in writing and shall be sewed by handat or by being sent by prepaid airmail post to the registered office for the tinte being of theaddressee and any SIICII notice shall if so posted be deemed to be sen •ed seven (7) days afterposting. Evidence that the notice was properly addressed stamped and put into the post shall be

i the [cent "Connected Person" of a company rrtcans and includes (at any person or company beneficially uu vmng. dtreclly orindarx[h. 30 per cent or more or the issued ordmary share capital of thal company or able to exercise. directly or indirectly 30 percent or nwrc of the total rotes in that company: (h) uny person or company controlled by a person a ho or company which meets oneor borh of the (lescr!tnsous -iron in tat: (c) am company 31) per eel Or more of whose issued ordinarc sharL capnal is benericrallyrMned. directly or indtrccth' by that company and any Connected Person of that company (as defined in (a), (b) or (d) of thisde inmon) taken together or am v compan y 21) per cent or more of the [oral motes in which can be exercised. direct]% or indirmly, byihw company and an y such C'ennected Person thereof (as dctincd in 1a), tb) or (di ofrhis definition taken together; (d) any employee.dlrector or officer of drat company or of any Connected person orthat company (as defined in (a), S b) or (c 1 of th is definition); (c i an},hadst, minor child or slep-child orthe persons referred to in (a). (bt and tdl', and (0 any kuslCe 01` 4 trust, fhe beneficiaries of whicharc person, ladling into ta), (b), id) and W.

i7Dr,'iU'l II7w,_00-1!l7nr, 1 n^i . l1 - -1 f7- -


conclusive evidence of posting. Notice ntav also be given b y e-mail and by fax transmission at theusual addresses on file kith the Mana ger %vith regard to such party. Notice given by fax or c-mailshall be deemed to have been given contemporaneousl y unless delivered outside normal businesshours in which case it shall be deemed to have been received at the next time after delivery whcnnormal business horn's commence.

(h) At the request of the Directors and subject to reasonable prior notice, theManakcr, at its own expense, shall endeavor to make one of its executive officers available toattend the meetings of rite Directors to report on the Managers activities and on other matterspertaining to its enga-erient.

5.19 Severuhilin. The illegality, invalidity or utenforceability of any provision of thisAgreement under the law of any jurisdiction shall not affect its legality, validity or enforceabilityunder the law of any othe r jurisdiction nor the legality, validity or enforceability of any otherprovision.

5,20 Awhoritt •, Each of the }parties to this Agreement hereby represents that it is dulyauthorized and empowered to execute, deliver and perform this Agreement and that such actiondoes not conflict with or violate any provision of law, rule or regulation, contract, deed of trust, orOther instrument to Which it is a party or to which any of its property is subject, and that thisAgreement is a valid and binding obli.-ation enforceable in accordance with its terms.

5.21 Errr(re,ar^enrcirr, This A^ eement sets forth the entire agreement between the partieswith respect to matters contained herein and therein and hereby supersedes and replaces in itsentirety the previous agreement among the parties with respect to management of the Fund.

^7s,G7 g n-^ i^-o6?t" ^-^ 1 -^ r-


IN WITNESS WHEREOF, the panics have executed this amended and restated Agreement as ofthe day and year first above xviitten.

KI\GATF GLOBAI- FUND LTD.

By' -.... Name:

Title: Direetor

KINGATE MANAGEMENT LIMITED

By..if.

Title:


1

i,


Exhibit 8


Kingate Global Fund, Ltd.(Incorporated in British Virgin Islands)

Financial StatementsDecember 31, 2005 and 2004(expressed in U.S. dollars)


[)MCWATERHOUSECCOPERS

PricewaterhouseCoopersChartered AccountantsDorchester House7 Church StreetHamilton HM 11BermudaTelephone +1 (441) 295 2000Facsimile +1 (441) 295 1242

February 27, 2006 www.pwc.comlbermuda

Report of Independent Auditors

To the Shareholders ofKingate Global Fund, Ltd,

In our opinion, the accompanying statements of assets and liabilities, including the schedules ofinvestments, and the related statements of operations and of changes in net assets present fairly, in allmaterial respects, the financial position of Kingate Global Fund, Ltd. (the "Company") at December31, 2005 and 2004, and the results of its operations and the changes in its net assets for the yearsthen ended, in conformity with accounting principles generally accepted in the United States ofAmerica. These financial statements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits of these financial statements in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

Chartered Accountants

A list of partners can be obtained from the above addressPrioewaterhousecoopers refers to the members of the worldwide PricewaterhouseCoopers organization


Kingate Global Fund, Ltd.Statements of Assets and LiabilitiesAs of December 31, 2005 and 2004

(expressed in U.S. dollars)

2005 2004

AssetsInvestments at fair value (cost - $2,228,453,185; 2004 - $2,199,758,350) 2,228,453,185 2,199,758,350Cash and cash equivalents 16,702 ,677 37,943,702

Total assets 2,245,155,862 2,237,702,052

LiabilitiesRedemptions payable 47,051,672 -Subscriptions received in advance 11,475,000 19,049,950Accrued expenses and other liabilities (notes 3 and 4) 2,857,282 2,882,128

Total liabilities 61,383,954 21,932,078

Net assets 2,183,771,908 2,215,769,974

Number of shares issued and outstanding (note 8) 6,242,113 6,858,583

Net asset value per share 349.84 323.07

Approved by the Board of Directors

Director ^ Director

The accompanying notes are an integral part of these financial statements.


Kingate Global Fund, Ltd.Statements of OperationsFor the years ended December 31, 2005 and 2004


2005 2004

Investment incomeDividends (net of withholding tax of $5,985,098; 2004 - $4,447,327) 13,965,230 10,377,097Interest earned 37,112,761 18,717,677

Total income 51,077,991 29,094,774

ExpensesManagement fee (note 3) 34,017,453 31,665,162Administration fee (note 4) 605,005 576,603Professional fees 49,381 54,997Bank fee (note 5) 25,000 25,000Other operating expenses 19,373 (36,579)

Total expenses 34,716,212 32,285,183

Net investment income (loss) 16,361,779 (3,190,409)

Net realized gain from investments 163,588,585 158,104,135

Increase in net assets resulting from operations 179,950,364 154,913,726



Kingate Global Fund, Ltd.Statements of Changes in Net AssetsFor the years ended December 31, 2005 and 2004


2005 2004

Increase (decrease) in net assets

From operationsNet investment income (loss) 16,361,779 (3,190,409)Net realized gain from investments 163,588,585 158,104,135


From capital transactionsIssuance of shares 265,715,461 456,348,524Redemption of shares (477,663,891) (376,755,400)

Increase (decrease) in net assets resulting from capitaltransactions (211,948,430) 79,593,124

increase (decrease) in net assets (31,998,066) 234,506,850

Net assets - Beginning of year 2,215,769,974 1,981,263,124

Net assets - End of year 2,183,771,908 2,215,769,974



Kingate Global Fund, Ltd.Schedules of InvestmentsAs of December 31, 2005 and 2004


2005

Nominal Percentage Fair

value of net assets value$ Short-term notes -- United States of America % $

224,500,000 U.S. Treasury Bill due 02/02/06 10.24 223,673,840










175,000 U.S. Treasury Bill due 05/11/06 0.01 172,356


Total (cost-$2,228,453,185) 102.05 2,228,453,185

2004


value of net assets value$ Short-term notes — United States of America % $










176,575,000 U.S. Treasury Sill due 06/09/05 7.88 174,620,315




Total (cost - $2,199,758,350) 99.28 2,199,758,350



Kingate Global Fund, Ltd.Notes to Financial StatementsDecember 31, 2005 and 2004


9. Organization and fund description

Kingate Global Fund, Ltd. (the "Company") is an open-ended investment company established under the lawsof the British Virgin Islands on February 11, 1994, and is recognized as a professional mutual fund under theTerritory of the Virgin Islands Mutual Funds Act, 1996. The Company commenced operations on March 1,1994,

The Company's investment objective is to seek above average long-term capital appreciation by allocating themanagement of the Company's assets to one investment advisor, a New York based, registered broker-dealerwhich employs an options strategy described as "split-strike conversion strategy". This strategy uses U.S. listedequities and listed and over the counter options.

2. Significant accounting policies

The Company's financial statements are presented in accordance with accounting principles generallyaccepted in the United States of America. The following is a summary of the Company's significant accountingpolicies.

(a) Valuation of investmentsListed securities are valued at the last sale price reported on the principal securities exchange or marketon which the securities are traded. In the absence of reported sales prices on the valuation date, securitiesgenerally are valued at the last reported bid quotation.

Listed option positions are valued at the last sale price reported on the principal securities exchange ormarket on which the securities are traded. In the absence of reported sales prices on the valuation date,options generally are valued at the last reported bid quotation for long positions and the latest reported askquotation for short positions.

Options traded over the counter are valued at their last closing bid quotation for long positions and theirlast closing ask quotation for short positions, as obtained from the respective market makers.

The United States Treasury Bills are held by the Company at amortized cost, which approximates their fairvalue.

(b) Cash and cash equivalentsCash and cash equivalents include short-term money market investments with maturities at purchase ofless than three months, amounts on deposit with the broker-dealer and amounts held in current andinterest bearing accounts at the Bank of Bermuda Limited.

(c) Investment transactions and investment incomeInvestment transactions are recorded on a trade date basis. Realized gains or losses on sales ofinvestments are calculated on an average cost basis and are included in the statement of operations.Unrealized gains or losses on investments are included in the statement of operations. Interest is recordedon the accruals basis. Discounts on United States Treasury Bills are accreted on an effective yield basis,over the term of the security, and included as interest income in the statement of operations. Dividends arerecorded on an ex-dividend basis net of withholding tax.




(d) OptionsPremiums received or paid from writing or purchasing options which expire or were unexercised, arerecognized on the expiration date as realized gains or losses in the statement of operations. If an option isexercised, the premium received or paid is subtracted from the proceeds of the sale or added to the costof the purchase to determine whether the Company has realized a gain or loss on the related investmenttransaction in the statement of operations. When the Company enters into a closing transaction, theCompany will realize a gain or loss in the statement of operations depending upon whether the amountfrom the closing transaction is greater or less than the premium received or paid. The Company, as awriter of an option, may have no control over whether the underlying securities may be sold or purchasedand, as a result, bears the market risk of an unfavourable change in the price of the security underlying thewritten option.

(e) Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting period. Actual results could differ fromthose estimates.

3. Investment managers

The Company is co-managed by Kingate Management Limited and Tremont (Bermuda) Limited (the "Co-Managers"), companies duly incorporated under the laws of Bermuda. The Co-Managers are responsible forproviding the investment advisory, accounting and administrative services required by the Company. For theirservices, the Co-Managers receive a monthly fee calculated at a combined annual rate equal to 1.5% of themonth end net asset value attributable to the Company, paid in arrears at the close of each month.Management fees incurred by the Company during the year were $34,017,453 (2004 - $31,665,162). As ofDecember 31, 2005, management fees of $2,791,393 (2004 - $2,773,179) were payable. There are noperformance fees associated with the Company.

Pursuant to the Consulting Services Agreement dated December 1, 1995, FIM Limited (the "Consultant") hasbeen appointed to provide consultancy services to Kingate Management Limited. The Consultant iscompensated by Kingate Management Limited, at no additional cost to the Company.

4. Administrator

BISYS Hedge Fund Services Limited (the "Administrator") has been appointed administrator and acts asSecretary and Registrar for the Company. For its services, the Administrator receives a fee paid out of theCompany's assets based upon the monthly net assets of the Company. Administration fees incurred by theCompany during the year were $605,005 (2004 - $576,603). As of December 31, 2005, administration fees of$50,071 (2004 - $49,699) were payable.

(2)




5. Investment advisor, broker-dealer, custodian and banker

The Company's investment advisor is Bernard L. Madoff Investment Securities LLC ("Madoff), a New Yorkbased financial institution. Madoff also acts as the Company's broker-dealer for all equity, US Treasury andoption transactions, these transactions being executed in certain instances with Madoff as the principal. Duringthe year, the Company executed transactions of approximately $48 billion (2004 - $49 billion). Madoffs onlyform of remuneration is from any principal spread and/or commission on the transactions. Madoff also acts ascustodian for investment assets of the Company.

The Bank of Bermuda Limited (the "Bank") has been appointed banker for the Company. For its services, theBank receives 0.10% of the gross asset value of the Company with a maximum of $25,000 per annum.

6. Commitments and contingencies

In the normal course of business the Company enters into contracts that contain a variety of representationsand warranties and which provide general indemnifications. The Company's maximum exposure under thesearrangements is unknown, as this would involve future claims that may be made against the Company thathave not yet occurred. However, based on experience, the Company expects the risk of loss to be remote.

7. Financial instruments

Investment securities are carried at fair value. The Company's other assets and liabilities include cash andother receivables and payables, which are realized or settled within a short period of time. The carryingamounts of these other assets and liabilities approximate their fair value. The fair value of a financial instrumentis defined as the amount at which the instrument could be exchanged in a current transaction between willingparties, other than in a forced or liquidation sale.

In the normal course of its business, the Company invests in U.S. publicly traded securities as well as U.S.investments, which have off-balance sheet risk. These financial instruments include purchased and written putand call options, which expose the Company to market and credit risk. Market risk arises from changes in themarket value of the securities underlying the financial instruments being in excess of the amounts recognized inthese financial statements. Credit risk arises from the potential inability of the counter-party to perform underthe terms of the contracts.

Options are contracts that allow the holder of the option to purchase or sell a financial instrument at a specifiedprice and within a specified period of time from the seller or "writer" of the option. As a writer of options, theCompany receives a premium at the outset and then bears the risk of an unfavorable change in the price of thefinancial instrument underlying the option. During the year the Company traded in listed and over the counterindex options. Where the Company trades in listed options, the counter-party and guarantor is the OptionsClearing Corporation. Where the Company trades in over the counter options, the Company is exposed tocredit risk due to the potential inability of the counter-party to perform under the terms of the contract.

The Company did not hold any options as of December 31, 2005 and 2004.

(3)




8. Share capital

The authorized share capital of the Company is $300,000, consisting of 30,000,000 common shares with a parvalue of $0.01 per share, 15,000,000 of which have been designated USD shares. As of December 31, 2005and 2004, only USD Class shares were issued and outstanding.

The Company's share activity was as follows:

2005 2004

Number of Number of

shares shares

Shares issued and outstanding - Beginning of year 6,858,583 6,602,949Issued during the year 799,739 1,475,173Redeemed during the year (1,416,209) (1,219,539)

Shares issued and outstanding - End of year 6,242,113 6,858,583

9. Financial highlights

2005 2004

Per share operating performance:

Net asset value, beginning of year 323.07 300.06

Income from investment operationsNet investment income (loss) 2.43 (0.47)Net realized gain from investments 24.34 23.48

Total income from operations 26.77 23.01

Net asset value, end of year 349.84 323.07

Total return 8.29% 7.67%

Supplemental data:

Net assets at December 31 $ 2,183,771,908 $ 2,215,769,974

Ratios to average net assets:-Total expenses 1.54% 1.54%Net investment income (loss) 0.72% (0.15%)

(4)




Per share performance is calculated using the average shares outstanding during the year. An individual's pershare operating performance may vary from these results based on the timing of individual capital transactionsin the year.

The expense and net investment loss ratios are based on the average net asset value in the year. Anindividual's ratio calculation may vary from these results based on the timing of individual capital transactions.

10. Income taxes

Under current laws of the British Virgin Islands, there are no income, estate, sales or other British Virgin Islandstaxes payable by the Company, or withholding taxes applicable to distributions by the Company or to thepayment of New Asset Value upon repurchase of certificates.

Dividend income, as well as certain investment income from United States sources, is subject to withholding taxat rates ranging up to 30%.

(5)


Exhibit 9


Kingate Global Fund, Ltd.(Incorporated in British Virgin Islands)

Financial StatementsDecember 31, 2007 and 2006(expressed in U.S. dollars)


ftXffATERHOUSECCOPERS

PricewaterhouseCoopersChartered AccountantsDorchester House7 Church StreetHamilton HM 11

BermudaTelephone +1 (441) 295 2000Facsimile +1 (441) 295 1242

March 3, 2008 www.pwc.com/bermuda


To the Shareholders ofKingate Global Fund, Ltd.

In our opinion, the accompanying statements of assets and liabilities, including the schedules ofinvestments, and the related statements of operations and of changes in net assets present fairly, in allmaterial respects, the financial position of Kingate Global Fund, Ltd. (the “Company”) at December31, 2007 and 2006, and the results of its operations and the changes in its net assets for the yearsthen ended, in conformity with accounting principles generally accepted in the United States ofAmerica. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits of these financial statements in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

SChartered Accountants

A list of partners can be obtained from the above addressPricewaterhouseCoopers refers to the members of the worldwide PricewaterhouseCoopers organization


Kingate Global Fund, Ltd.Statements of Assets and LiabilitiesAs of December 31, 2007 and 2006 (expressed in U.S. dollars)

2007 2006

$ $

AssetsInvestments at fair value (cost - $2,626,037,806; 2006 - $2,373,720,025) 2,626,037,806 2,373,720,025Cash and cash equivalents 128,254,019 124,350,373

Total assets 2,754,291,825 2,498,070,398

LiabilitiesRedemptions payable 96,734,754 67,755,920Subscriptions received in advance 41,633,750 31,004,500Accrued expenses and other liabilities (notes 3 and 4) 3,481,090 3,179,981


Net assets 2,612,442,231 2,396,129,997



Approved by th and of Directorsi

G Director Director



Kingate Global Fund, Ltd.Statements of OperationsFor the years ended December 31, 2007 and 2006


2007 2006

$ $

Investment incomeDividends (net of withholding tax of $6,787,697; 2006 - $11,185,313) 15,208,010 26,173,933Interest earned 1,242,089 16,742

Total income 16,450,099 26,190,675

ExpensesManagement fee (note 3) 38,783,479 34,408,746Administration fee (note 4) 666,795 611,802Professional fees 82,407 66,894Bank fee (note 5) 25,000 25,000Other operating expenses 76,668 102,875

Total expenses 39,634,349 35,215,317

Net investment (loss) (23,184,250) (9,024,642)

Net realized gain from investments 237,077,054 244,083,642




Kingate Global Fund, Ltd.Statements of Changes in Net AssetsFor the years ended December 31, 2007 and 2006


2007 2006

$ $

Increase (decrease) in net assets

From operationsNet investment (loss) (23,184,250) (9,024,642)Net realized gain from investments 237,077,054 244,083,642



Increase (decrease) in net assets resulting from capitaltransactions 2,419,430 (22,700,911)

Increase in net assets 216,312,234 212,358,089

Net assets - Beginning of year 2,396,129,997 2,183,771,908

Net assets - End of year 2,612,442,231 2,396,129,997



Kingate Global Fund, Ltd.Schedules of InvestmentsAs of December 31, 2007 and 2006


2007


value of net assets value

$ Short-term notes – United States of America % $














Total (Cost -$2,626,037,806) 100.52 2,626,037,806

2006



$ Short-term notes – United States of America % $
















Total (Cost -$2,373,720,025) 99.07 2,373,720,025






Kingate Global Fund, Ltd. (the “Company”) is an open-ended investment company established under the lawsof the British Virgin Islands on February 11, 1994, and is recognized as a professional mutual fund under theTerritory of the Virgin Islands Mutual Funds Act, 1996. The Company commenced operations on March 1,1994.

The Company’s investment objective is to seek above average long-term capital appreciation by allocating themanagement of the Company’s assets to one investment advisor, a New York based, registered broker-dealerwhich employs an options strategy described as “split-strike conversion strategy”. This strategy uses U.S. listedequities and listed and over the counter options.


The Company’s financial statements are presented in accordance with accounting principles generallyaccepted in the United States of America. The following is a summary of the Company’s significant accountingpolicies.

(a) Valuation of investmentsListed securities are valued at the last sale price reported on the principal securities exchange or marketon which the securities are traded. In the absence of reported sales prices on the valuation date, securitiesgenerally are valued at the last reported bid quotation.

Listed option positions are valued at the last sale price reported on the principal securities exchange ormarket on which the securities are traded. In the absence of reported sales prices on the valuation date,options generally are valued at the last reported bid quotation for long positions and the latest reported askquotation for short positions.

Options traded over the counter are valued at their last closing bid quotation for long positions and theirlast closing ask quotation for short positions, as obtained from the respective market makers.

The United States Treasury Bills are held by the Company at amortized cost, which approximates their fairvalue.

(b) Cash and cash equivalentsCash and cash equivalents include short term money market investments with maturities at purchase ofless than three months, amounts on deposit with the broker-dealer, overnight sweep deposit investmentsand amounts held in current and interest bearing accounts at the Bank of Bermuda Limited.

(c) Investment transactions and investment incomeInvestment transactions are recorded on a trade date basis. Realized gains or losses on sales ofinvestments are calculated on an average cost basis and are included in the statement of operations.Unrealized gains or losses on investments are included in the statement of operations. Interest is recordedon the accruals basis. Discounts on United States Treasury Bills are accreted on an effective yield basis,over the term of the security, and included as interest income in the statement of operations. Dividends arerecorded on an ex-dividend basis net of withholding tax.

(1)




(d) OptionsPremiums received or paid from writing or purchasing options which expire or were unexercised, arerecognized on the expiration date as realized gains or losses in the statement of operations. If an option isexercised, the premium received or paid is subtracted from the proceeds of the sale or added to the costof the purchase to determine whether the Company has realized a gain or loss on the related investmenttransaction in the statement of operations. When the Company enters into a closing transaction, theCompany will realize a gain or loss in the statement of operations depending upon whether the amountfrom the closing transaction is greater or less than the premium received or paid. The Company, as awriter of an option, may have no control over whether the underlying securities may be sold or purchasedand, as a result, bears the market risk of an unfavourable change in the price of the security underlying thewritten option.

(e) Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reporting period. Actual results could differ fromthose estimates.

(f) New accounting pronouncementsIn July 2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109” (the “interpretation”). Theinterpretation is effective for fiscal years beginning after December 15, 2006. On January 23, 2008, theFASB deferred the effective date of the interpretation. Management has therefore deferred theimplementation and is currently evaluating the application of the interpretation to the Company.

In September 2006, the FASB issued Statements of Financial Accounting Standards No. 157, ”Fair ValueMeasurement” (the “Statements”). The Statements are effective for fiscal years beginning after November15, 2007. Management is currently evaluating the application of the Statements to the Company.

3. Investment manager

The Company is managed by Kingate Management Limited (the “Manager”), a company duly incorporatedunder the laws of Bermuda. The Manager is responsible for providing the investment advisory, accounting andadministrative services required by the Company. For its services, the Manager receives a monthly feecalculated at an annual rate equal to 1.5% of the month end net asset value attributable to the Company, paidin arrears at the close of each month. Management fees incurred by the Company during the year were$38,783,479 (2006 -$34,408,746). As of December 31, 2007, management fees of $3,390,709 (2006 -$3,081,584) were payable. There are no performance fees associated with the Company.

Pursuant to the Consulting Services Agreement dated December 1, 1995, FIM Limited (the “Consultant”) hasbeen appointed to provide consultancy services to Kingate Management Limited. The Consultant iscompensated by Kingate Management Limited, at no additional cost to the Company.

(2)




4. Administrator

Citi Hedge Fund Services Ltd, (formally BISYS Hedge Fund Services Limited) serves as administrator of theCompany (the “Administrator”). On August 1, 2007, The BISYS Group Inc., was acquired by and became awholly owned subsidiary of Citigroup Inc.

In addition, the Administrator acts as Secretary and Registrar for the Company. For its services, theAdministrator receives a fee paid out of the Company’s assets based upon the monthly net assets of theCompany. Administration fees incurred by the Company during the year were $666,795 (2006 - $611,802). Asof December 31, 2007, administration fees of $57,463 (2006 - $53,617) were payable.


The Company’s investment advisor is Bernard L. Madoff Investment Securities LLC (“Madoff”), a New Yorkbased financial institution. Madoff also acts as the Company’s broker-dealer for all equity, US Treasury andoption transactions, these transactions being executed in certain instances with Madoff as the principal. Duringthe year, the Company executed transactions of approximately $58 billion (2006 - $48 billion). Madoff’s onlyform of remuneration is from any principal spread and/or commission on the transactions. Madoff also acts ascustodian for investment assets of the Company.

The Bank of Bermuda Limited (the “Bank”) has been appointed banker for the Company. For its services, theBank receives 0.10% of the gross asset value of the Company with a maximum of $25,000 per annum.


In the normal course of business the Company enters into contracts that contain a variety of representationsand warranties and which provide general indemnifications. The Company’s maximum exposure under thesearrangements is unknown, as this would involve future claims that may be made against the Company thathave not yet occurred. However, based on experience, the Company expects the risk of loss to be remote.


Investment securities are carried at fair value. The Company’s other assets and liabilities include cash andother receivables and payables, which are realized or settled within a short period of time. The carryingamounts of these other assets and liabilities approximate their fair value. The fair value of a financial instrumentis defined as the amount at which the instrument could be exchanged in a current transaction between willingparties, other than in a forced or liquidation sale.

In the normal course of its business, the Company invests in U.S. publicly traded securities as well as U.S.investments, which have off-balance sheet risk. These financial instruments include purchased and written putand call options, which expose the Company to market and credit risk. Market risk arises from changes in themarket value of the securities underlying the financial instruments being in excess of the amounts recognized inthese financial statements. Credit risk arises from the potential inability of the counter-party to perform underthe terms of the contracts.

(3)

Case 1:09-cv-05386-DAB Document 53-10 Filed 05/18/10 Page 1 1 of 12



Options are contracts that allow the holder of the option to purchase or sell a financial instrument at a specifiedprice and within a specified period of time from the seller or “writer” of the option. As a writer of options, theCompany receives a premium at the outset and then bears the risk of an unfavorable change in the price of thefinancial instrument underlying the option. During the year the Company traded in listed and over the counterindex options. Where the Company trades in listed options, the counter-party and guarantor is the OptionsClearing Corporation. Where the Company trades in over the counter options, the Company is exposed tocredit risk due to the potential inability of the counter-party to perform under the terms of the contract.


8. Share capital

The authorized share capital of the Company is $300,000, consisting of 30,000,000 common shares with a parvalue of $0.01 per share, 15,000,000 of which have been designated USD shares. As of December 31, 2007and 2006, only USD Class shares were issued and outstanding.

The Company’s share activity was as follows:

2007 2006

Number of Number of

shares shares

Shares issued and outstanding - Beginning of year 6,177,834 6,242,113Issued during the year 1,405,610 1,198,641Redeemed during the year (1,383,585) (1,262,920)

Shares issued and outstanding - End of year 6,199,859 6,177,834


2007 2006

$ $ Per share operating performance:


Income from investment operationsNet investment income (3.64) (1.46)Net realized gain from investments 37.15 39.48




(4)




2007 2006

$ $ Supplemental data:

Net assets at December 31 $ 2,612,442,231 $ 2,396,129,977

Ratios to average net assets:-Total expenses 1.55% 1.55%Net investment loss (0.91%) (0.40%)

Per share performance is calculated using the average shares outstanding during the year. An individual’s pershare operating performance may vary from these results based on the timing of individual capital transactionsin the year.

The expense and net investment loss ratios are based on the average net asset value in the year. Anindividual’s ratio calculation may vary from these results based on the timing of individual capital transactions.

10. Income taxes

Under current laws of the British Virgin Islands, there are no income, estate, sales or other British Virgin Islandstaxes payable by the Company, or withholding taxes applicable to distributions by the Company or to thepayment of New Asset Value upon repurchase of certificates.

Dividend income, as well as certain investment income from United States sources, is subject to withholding taxat rates ranging up to 30%.

(5)


Exhibit 10


Kingate Eulro Fund, Ltd.(Incorporated in British Virgin Islands)

Financial StatementsDecember 31, 2007 and 2006(expressed in Furo)


[W"ATERHOUSECCOPERS

PrEcewaterhouseCoopersChartered AccountantsDorchester ]douse7:Church StreetHamilton HM 11BermudaTelephone +1 {441) 295 2000Facslmite+1 (441)295'1242

March 8 1 2008 wWw:pwc:0oM/6ertMuda

Report of Independent Auditors"

To the Shareholders ofKingate Ebro Fund, Ltd.

In our opinion, the accompanying statements of assets and liabilities, including the schedules ofinvestments, and the. related statements of operations and of changes in net assets present fairly, in allmaterial respects, the. Anancial position of Kingate Euro Fund, Ltd. (the "Company") at December 31,2007 and 2006, and. :fhe results of its operations and the changes in its net assets for the years thenended, in conformity with accounting principles generally accepted.in the United States of America.These financial statements are the responsibility of the Company s banagement. Our responsibility is.to expiess a.n opinion on these financial statements based on our audits. We conducted our audits ofthese 1nancal statements -in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements art: free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the:accounting principles used and significant estimates matte by management,and evaluating the overall financial statement` presentation. We believe that our audits provide areasonable basis for our opinion.

Chartered. Accountants

Mist ot parthers.can be obtained from the,above addressPricewateiho.useCoopers refers to the members of the worldwide Pricewaterhousecoopers organization


Kingate Euro Fund, Ltd.Statements of Assets and LiabilitiesAs of December 31, 2007 and 2006

(expressed in Euro)

2007 2006

Assets.__ -

Investments at fair value (cost - E580,49@,385; 2006 - E473,719,875) 580,490,385 473,719,875Cash held: as collateral onforward currency contracts 45,964,521 49,475,981Net unrealized gain on forward currency contracts (note 7) 7,480,067 9,089,236

Total: assets 633,934,973 532,285,092

LiabilitiesRedemptions payable 13,438,307 23,458,788Subscriptions received in advance 3,3.29;900 6,783,600Accrued expenses and other liabilities (notes 3 and 4) 869,000 731.747

Total liabilities 17,637,207 30;974,135

Net assets 616,297,766 501,310,957


Net asset :value per share 164.89 154.39

Approved by th oard of directorsc

^"s`+ • Director Director

The accompanying notes are an integral part of these financial statements_.


Kingate Euro Fund, Ltd.Statements of OperationsFor the pears ended December 31, 2007 and 2006

(expressed in Euro)

2007 2006

investment incomeDividends (net of withholding tax of €1,381,735; 2006 - E2,334,305) 3,106,469 5,305,286Interest earned 128,987 36,238

Total income 3,235,456 5,343,524

ExpensesManagement fee (note 3) 9,054,137 7,683,958Administration fee (note 4) 146018 131,599Professional fees 4,.567 44,429Other operating expenses 138,641 53,564

Total expenses 9;385,463 8,11.3,550

Net investment (loss) (5,150,007) (2,770,026)

Net realized gain on investrnents:and foreign currency'tansactions 44,961,587 25,009.787Net (decrease) / increase inunrealized (loss) ! gain on forward

currency contracts (1,609,169) 15,190,703

Net realized and unrealized gain from investments andforeign currency transactions 43,352,418 40,200,290


a

The accompanying notes art, an integral part of these financial :statements.


Kingate Euro Fund, Ltd.Statements of Changes in Net AssetsFor the years ended December 31, 2.007 and 2006

(expressed in Euro)

2007 2006

Increase in net:assets

From operationsNet investment (loss) (6,150,007) (2,770.,026)Net realized gain (loss) on investments and foreign currency transactions 44,961,587 25,009,787Net change in Unrealized losses on forward currency emtracts (1,609,169) 15,190,703

increase in net assets resulting from operations 37,202,411 37;430,464


Increase (decrease) in net assets resulting fromcapital transactions 77,784,398 (30;056,886)


Net assets - Beginning of year 501,310,957 493;937,379

Net assets - End of year 616,297,766 501,310,957



Kingate E.uro Fund, Ltd.Scheduies of InvestmentsAs of December 31, 2007 and 2006

(expressed in . Euro)

2007



$ Short-term notes —limited States of America % €

71,175;000 U.S. Treasury Bill due 02/21/08 7.88 48,558,297

71,175,000 U.S Treasury Bill due 02/28/08 7.87 48,526,600

71,175,000 U.S. Treasury Bill due 03/06108 7.87 48,497,340

71,175,000 U.S. Treasury Bill . due 03113108 7.86 48,464,180

71,175 1 0:00 U.S. Treasury B ill .due 03120/08 7.86 48,4260.142

71,175;000 U.S. Treasury Bill due 03/27108: 7.85 48,392,008

175;000 U.S, Treasury_Bill due 04/03/08 0.02 118,88171,175,000 U.S. Treasury Bill due 04/10108 7.84 48,329,100



71,175,000 U.S. Treasury Bill due:05101108 7.83 48,230.110671,175,000 U.S. Treasury Bill due::05/08108 7.82 48,201,334

71,175,000 U,S, Treasury Sill due 05/15/08 7.82 48,168,661

Total (Cost €580;490,385) 94A9 580;490,385

2006



U5$ Short-term notes — United States of America % €

42,1.50.,000 U.S. Treasury Bil due 02/01/07 6.34 31,792,769

42,150,000 U.S. Treasury Bildue 02/08/07 6.34 31,762,43142,150,000 U.S. Treasury Bitdue 02/15/07 6.33 31,729,539

42,150,000 U.S. Treasury Bit due 02122/07 6.32 31,699,201

42,150,000 U.S. Treasury Bitdue 03/01107 6,32 31,667,906.

42,150,000 U.S. Treasury Bit due 03108/07 6:31 31,637,249

42,150,000 U.S. Treasury Bil due 03/15/07 .6.31 31,607,845.

42,150,000 U.S. Treasury Bit due 03/22187 6.30 31,575,61842,200,0010 U.S. Treasury Bil due 03/29/07 6430 31,582,059`

42,20%000 U.S. Treasury Bildue 04/05/67 6.29 31,550,727

42,150,000 U.S. Treasury Bitdue 04/12107 6.28 31,483,96542,150,000 U.S. Treasury Bit clue 04/19107 6.27 31,453,627

42,150,000 U.S. Treasury Bldue 04/26107 6.27 31,422,332

42,150,000 U.S. Treasury Bitdue 05103107 6.26 31,391,994

42,150,000 U.S, Treasury Bit due 05110/07 6.26 31,362,615

Total (cost - E473,719,875). 94.50 473,719,875

The accompanying notes are an integral ,part of these-financial statements.


Kingate Euro Fund., Ltd.Notes to Financial StatementsDecember 31, 2007 and 2006

(expressed in Euro)


Kingate Euro Fund, Ltd: (the "Company") is an open-ended investment company established under the laws ofthe British Virgin Islands on May 1, 2000 and is recognized as a professional mutual fund under the Territory ofthe Virgin-Islands Mutual Funds Act, 1996. The Company commenced operations on May 1, 2000;

The Company's, investment opjective is to seek above average long-term capital appreciation by allocating themanagement of the Company's assets to one investment advisor, a New York based, registered broker-dealerwhich employs an options strategy described as "split-strike conversion strategy". This strategy uses U.S. listedequities and listed and over the counter options.


The'Company's <financial statements are presented in accordance With accounting principles generallyaccepted in the United States of America. The following is a summary of the Company's significant accountingpolicies.

(e) Valuation of investmentsListed. securities are valued at the last sale price reported on the principal securities exchange or marketon which the securities are traded. In the absence of reported sales prices on the valuation date, securitiesgenerally are valued at the last reported bid quotation.

Listed option positions are valued at the last sale price reported on the principal securities exchange ormarket on which the securities are traded. In the absence of reported sales.prices on the valuation date,options generally are valued at the last reported bid quotation for long positions and the latest reported askquotation for short positions.

options traded over the counter are valued at their last closing bid quotation for long positions and theirlast closing ask quotation for short positions, as obtained from the respective market makers.

The United .States Treasury Bills are held by the Company at amortized cost, which approximates their fairvalue.


(G) Investment transactions and Investment incomeInvestment transactions are recorded on a trade date basis. Realized gains or losses on sales ofinvestments are calculated on an average cost basis and are included In the statement of operations.Unrealized gains or losses on investments are included in the statement of operations. Interest is recordedon the accruals basis. Discounts on United States Treasury Bills are accreted on an effective yield basis,over the term of the security, and included as interest income in the statement of operations. Dividends arerecorded. or! an ex-diyidend basis net of withholding tax.

{1)


Kingate Euro Fund, Ltd.Notes to Financial StatementsDecember 31, 2007 and 2006

(expressed in Euro)

(d) Foreign currency translationAssets and liabilities : denominated in foreign currencies are translated into the reporting currency usingrates of exchange imeffect at the reporting date. Transactions: in foreign currencies have been translatedaf-rates of exchangeprevailing at the;dates of those transactions. Realized and unrealized gains andlosses on translation of investments denominated in foreign currencies are included in realized andunrealized gains and losses in the statement of operations.

(e) Forward currency contractsForward currency contracts are used to hedge the Investment portfolio. Open forward currency contracts

'are fair valued at the reporting date based on the present value of the difference between the contract rateand the applicable forward rate to closeout the contract. Gains and losses associated with the fairvaluation of the open forward contracts are recorded 'in the statement of operations as unrealized gainsand losses. Upon`mntract settlement, or when an offsetting contract is entered into, the cumulativechange in value is recognized as a realized gain or loss.

{f) OptionsPremiums received or paid from writing or-purchasing options which expire or were unexercised, arerecognized on the expiration date as realized gains or losses in the statement of operations. If an option isexercised, the premium received or paid is subtracted from the proceeds of the sale or added to the costof the purchase to determine whether the Company has realized a gain or loss on the related investmenttransaction in the statement of operations. When the Company enters into a closing transaction, theCompanywilt-realize a gain or loss in the statement of operations depending upon whether the amountfrom the'closing transaction Is greater or less. than the premium received orpaid. The Company, as awriter of`an option, may have no control over whether the underlying securities may be sold or purchasedand, as:a result, bears the market risk of an unfavourable change in the price of the security underlying thewritten option.

(g) Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amounts of assets and,liabilities and disclosureof contingent assets and liabilities at the date of the financial statements, and thereported amounts of revenues and expenses during the reporting year. Actual results could differ fromthose estimates.

(h). New accounting pronouncementsIn July 2006, the Financial Accounting Standard Board ("FA55") issued interpretation No. 48, 'Accountingfor Uncertainty in Income Faxes-an Interpretation of FASB Statement No. 109" (the "interpretation"). Theinterpretation is effective for fiscal years beginning after December 15, 2006, On January 23, 2008, theFASB deferred the effective date of the interpretation. Management has therefore deferred theimplementation and is currently evaluating the application of the interpretation to the Company.

In September 2006, the.FASI3 issued Statements of Financial Accounting Standards No. 157, "Fair ValueMeasurement' (the "statements"). The Statements are effective for fiscal years beginning after November15, 2007. Management is currently evaluating the :application of the Statements to the Company.

(2)


Kingate Euro Fund, Ltd.Motes to Financial StatementsDecember 31, 2007 and 2006

(expressed in Euro)


The Corn'panyis managed by Kingate Management Limited (tile "Manager"), a Company duly incorporated-under the laws of Bermuda. The Manager is responsible for providing the investment advisory, accounting andadministrative services required by the Company. For its services, the Manager receives a monthly feecalculated at an annual rate equal to 1.5% of the month end net asset value attributable to the Company, paidin arrears at the close of each month. In addition, the Manager also receives a monthly administration fee at anannual rate of 0.10°/ G of the month end net asset value attributable to the Company, paid in arrears at the closeof each month. Management and administration fees incurred by the Company during the year wereE9,054,137 (2006 - €7,883;958). As of December 31, 2007, management and administration fees of E840,783(2006 -700;573) were payable. There are no performance fees associated with the Company.

Pursuant to the Consulting Services Agreement dated May 1, 2000 FIM Limited (the "Consultant"), has beenappointed to provide consultancy services to the Kingate Management limited. The Consultant is compensatedby Kingate Management Limited, at no additional cost to the Company.

4. Administrator

Ceti Hedge Fund Services .Ltd, (formally BISYS Hedge Fund Services Limited) serves as administrator of theFund (the "Administrator"). On August 1, 2007, The BISYS Group Inc., was acquired by and became a whollyowned subsidiary of Citigroup Inc.

The administrator also acts as Secretary and Registrar for the Company_ For lts:services, the Administratorreceives a fee paid out of the Company's assets teased upon the monthly net assets of the Company.Administration fees incurred by the Company during the year were €146,118 .(200. 6 - €131,559). As ofDecember 31, 2007, administration fees of €13,372 (2006 - ,El 1,453) were payable.

S. Investment advisor, broker-dealer, custodian and banker

The Company's investment advisor is Bemard L. Madoff Investment Securities LLC ("Madoff"), a New Yorkbased financial institution. Madoff `also acts as the Company's broker-dealer for all equity, US Treasury andoption transactions, these transactions being executed in certain instances with Madoff as the principal. Duringthe year, the Company executed transactions of approximately €12.5 billion (2006 - E10.1 billion). Madoff's only.farm of remuneration is from any principal spread and/or commission on the transactions. Madoff also acts ascustodian for investment assets of the Company.

The Bank of Bermuda Limited (the "Bank") has been appointed banker for the Company.

ti. Commitments and contingencies

In the normal course of business the Company enters into contracts that contain a variety of representationsand warranties and which provide general indemnifications. The Company's maximum exposure under thesearrangements is unknown, as this would involve future claims that maybe made against the Company thathave not yet occurred. However, based on experience, the Company expects the risk.:of loss to be remote.

(3)

Case 1:09-cv-05386-DAB Document 53-11 Filed 05/18/10 Page 1 1 of 25

Kingate Eulro Fuld, Ltd.Notes to Financial StatementsDecember 31, 2007 and 2006

(expressed 'ih. ; uro)


investment securities are carried at fair value. The Company's other assets and liabilities include cash andother receivables and payables, which are realized or:settled within a short period of time.. The carryingamounts of these other assets. and liabilities approximate" their fair value. Thefair value of a financial instrumentis defined as the amount at which the instrument could be exchanged in a current transaction between willingparties, other than in a forced or liquidation sale.

In.the normal course of its.business, the Company invests in U.S. publicly traded securities as well as U.S.investments, which have offi balance'sheet risk. These financial instruments include.purchased and written putand call options and forward currency contracts, which expose the Company to market and credit risk. Marketrisk arises from changes in the:market value of the securities underlying the financial instruments being inexcess of the amounts recognized in these financial statements. Credit:risk arises, from the potential inability ofthe counter-party tta perform under the terms of the contracts.

(a) :OptionsOptions are contracts that allow the holder of the option to purchase or sell a financial instrument at aspecified price and within a specified period of time from the seller or "writer" of the option. As a writer ofoptions, the Company receives a premium at the outset and then bears the risk of an unfavourable changein the price of the financial instrument underlying the option. Mring the year the Company traded in listedand over the counter index options. Where the Company trades in listed options, the counter--party andguarantor is the Options Clearing Corporation. Where the Company trades in over the counter options, theCompany is exposed to credit risk due tq the potential inability of the counter-party to perform under theterms':of the contract.


(b) Forward currency contractsA forward currency contract is a contract that provides for the delayed delivery of a foreign currency, withthe seller agreeing to make delivery at a specified future date, at a specified price or yield.

The Company is exposed to credit risk associated with counter-party non-performance on forwardcontracts and off balance. sheet risk as a result of unfavourable market movements. During the year allforward contracts were transacted with the Bank, who requires that the Company maintain cash balancesas collateral.

The Company had open forward .currency contracts at December 31, as follows:

2007 Unrealized

Buy gain

Sell Maturity € €

US$ .160,000,000 01131/08 112,628,467 3,068,274

US$ 40,000,004 01/31108 27,018,994 (371,054)US$260,000,000 02/27/08 182,366;557 4,357,922US$160.,000,000 03/27/08 108,085;834 (1,454,062)

US$220,.000,000 04130/08 152;818,285 1:,878,987

7,480;067

(4)



(expressed in Euro)

2006Unrealized

Buy gainSell Maturity 4. E

US$180,000,000 01/30107 140,931,084 4,727,797US$140,000,000 02/28/07 109,000,311 31204,196US$170,000,000 03/29/07 128,545,395 235,761US$145,000,000 04126/07 110,241,009 921,482

9,089,236

8. Share capital

The authorized share capital of the Company is'E300,000, consisting of 30,000,000:wmmon shares with a pervalue of E0.01. per share.


2007 2006

Number of Number of

shares shares

Shares issued and outstanding - Beginning of year :,247,019 $,453,394Issued during the year 1,175,495 519,883Redeemed during the year (684,938) (726,258)

Shares issued and outstanding - End of year 3,737.576 3,247,019

9. Financial highlights.

2007 2006

€ €


Net.asset value, beginning of year 184.39 143.03

Income from investment operationsNet investment Loss (1.74) (0.84)

Net realized and unrealized gain from investmentsand foreign currency 12.24 12.20




^5)


Kingate Euro Fond, Ltd.Notes to Financial StatementsDecember 31, 2007 and 2006

(expressed in Euro)

2007 2006Supplemental Plata: € €

Net assets at December 31, 616,297,766 501,310,957

Ratios to average net assets:Total expenses 1.680% 1.66%Net investment income (1.10%) (0.57%)

Per share performance is calculated using the average shares outstanding during theyear. An individual's pershare operating performance may vary from these results based on the tinting of individual capital transactionsin the year.

The expense and. net investment loss ratios are based on the average net asset value in the year. Anindividual's ratio calculation may vary from these results based on the timing of individual capital transactions.

10. Income taxes

Under current laws of the British Virgin Islands, there are no income, estate, sales or other British Virgin Islandstaxes payable by the Company., or withholding taxes applicable to distributions by the Company or to thepayment of New Asset Value upon request of certificates.

Dividend income, as well as certain investment income from United States sources; is subject to withholding taxat rates ranging up to 30%.

{6)


Ki gate Euro Fund, Ltd.(Incorporated in British Virgin Islands)

Financial StatementsDecember 31, 2406 and 2005(expressed in Euro)


)c s o^ t s WPricewateihouseCoopomChartered AccountantsDorchester House7 Church Street

Hamilton HM 11BermudaTelephone *1 (44 .1) 295 200DFacsimile *1 (443) 285 1242

March 5, 2007 oVWW.pwc.comtheimuda


To the Shareholders ofKingate Euro Fund, Ltd.

In our opinion, the accompanying statements of assets and liabilities, including the schedules ofinvestments, and the related statements of operations and. of changes.i .n net assets present:fairly, in allmaterial respects, the financial position. of Kingate Euro Fund, Ltd: .(the "Company") at December 31,2006 and 2005, and the results of its operations and the changes in its net assets for the years thenended, in conformity with accounting principles ..cgenerally accepted in the united States of America_These financial statements are the responsibility of.the Company's management. Our responsibility isto express an opinion on these financial statements based on our audits. We conducted .our audits ofthese financial statements in accordance with auditing standards generally accepted in the.UnitedStates of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test: basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimates made by. management,and evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

Chartered Accountants

A list of partners can be obtained from the above addressPricewaterhouseCoopers refers to the members of the worldwide. PricewaterhouseCoopers organization


Kingate Euro Fund, Ltd.Statements of Assets and LiabilitiesAs of December 31, 2006 and 2005

(expressed in Euro)

20©6 2005

AssetsInvestments at fair value (cost - € 473,719,875; 2005 - 1W8,763,602) 473,719;875 468,763,602Gash held as collateral on forward currency contracts 49,475,981. 41,852,692Net unrealized gain on forward currency contracts (note 7) 9,089,236 -

Total assets 532;285,092 510;616.294

LiabilitiesRedemptions payable 23,458,788 81743,996Net unrealized loss on forward currency contracts (note 7) - 6,101,467Subscriptions received in advance 6,783,600 1,145,000Accrued:expenses and other Iiabilities.(notes 3 and 4) 731,747 688,452


Net assets 501,310,957 493,937,379



Approved by the Board of Directors

r ^ MIA`, Director Director



Kin gate Euro Fund, Ltd.Statements of OperationsFor the years ended December 3r1, 0. 06 and 2005

(expressed in Euro)

2006 2005

Investment incomeDividends (net of withholding tax ofd 2,334,305, 2005 - E1,343,615) 5,305,286 3,135,100

Interest earned 6,490,399 7,681,458

"Total income 11,795,685 10,816,558

ExpensesManagement fee (note 3) 7,883,968 8,401,924

Administration fee (note 4) 131,599 139;948

Professional fees 44,429 39,088

Other operating expenses 53,564 11,791

Total expenses 8,113,550 8,592,751

Net investment income 3,682,135 2,223,807

Net realized gain on investments 43,495,018 36,474,105

Net realized gain (loss) on foreign currency transactions (24,937,392) 25,932,041Net increase (decrease) in unrealized gain (loss) on forward currency

15,190,703 (30,771.406) contracts

Net realized and unrealized gain from investments andforeign currency transactions 33,748,329 31,634,740

Increase in net assets resulting from operations 37,430,464 33.858,547

The accompanying notes area an integral part of these financial statements.


Kingate Eluro Fund, Ltd.Statements of Changes in Net AssetsFor the years ended December 31, 2006 and 2005

(expressed in.Euro)

2006 2005

Increase in net assets

From operationsNet investment income 3,682,135 2;223,807Net realized gain on investments 43;495,018 36,474,105Net realized gaini(loss) on foreign currency transactions (24,937,392) 25,932,041Net change in unrealized losses.on forward currency contracts 15,190,703 (30,771,406)


From capital transactionsissuance of shares 77,793,536 79,344,720Redemption of shares (107,850,422) (110,141,597)

Decrease in net assets resulting fromcapital transactions (30,056,886) (30,796,877)


Net assets - Beginning of year 493,937,379 490,875,709

Net assets - End of year 501,310;957 493,937,379

The accornpanyin9 notes are an integral part of these financial statements.


Kingate Euro Fund, Ltd.Schedules of InvestmentsAs of December 31, 2005 and 2005

(expressed in Euro)

2006

Nominal Percentage Fainvalue of net assets value

€ Short-term notes -- United States of America % E

42,15.0,000 U.S, Treasury Bit l:due 02101/07 6.34 31,792,76942,150,000 U.S. Treasury Bill due 02/08107 6.34 31,762,431


42,150000 U.S. Treasury Bill due 02/22/07 6.32 31,699,201


.42,150;000 U.S. Treasury Bill due 03108107 6.31 31.037;249

42,150;000 U.S. Treasury Hill due 03/15/07 6.31 31,6.07,845


42,200;000 U.S. Treasury Bill due 03129107 6.30 31,582,05942,200,000 U.S. Treasury Bill due 04/05107 6.29 31,550,727

42,150 .,000 U.S. Treasury.Bill due 041121.07 6.28 31,483,96542,160,000 U.S. Treasury Bill due 04119107 6.27 $1,453,627

42,150,000 U.S, Treasury Bill due 04/26107 6.27 31,422,332

42,150,000 U.S, Treasury . Bill due 05/03/07 6.26 31,391,994

42,150,000 U.S. Treasury: .Bill due 05/10/07 6.26 31,362,615

TollAl (cost - E 473,719,875) 94.50 473,719,875

2005


value of net assets value€ Short-term notes - United States of America % e

55,950,000 U.S. Treasury Bitdue 02102/06 9.52 47,045,408

55,950,000 U.S. Treasury Bit due 0210.9106 9.52 47,010,938

55,950,000 U.S. Treasury Bit due 02/16/06 9.51 46,9751996

55,950,000 U.S. Treasury .Bildue 02123/06 9.50 46,940,109

55;950,000 U.S. Treasury Bitdue 03/02/06 9.50 46,901,390

55,954;000 U.S. Treasury Bit due 03/09/06 9.49 46,860,781

55,950,000 U.S. Treasury Bit due 03/161.06 9:49 46,825,367

55,950,000 U.S. Treasury Bil due 03/23106 9.47 46,783,813

55,95.0,000 U.S. Treasury Bit due 03/30/06 9.46 46,748,399

55,950,000 U.S. Treasury Bil due 05/04/06 9.42 46,546,774

75,000 U.S. Treasury Bildue 05/11/06 0.01 62,340

75,0. 00. U.S. Treasury Bit due 05/18/06 0.01 62,287

Total (cast - E468,7.63,602) 94.90 468,763,602




(.expressed in Euro)

1. organization and.fund description

Kingate Euro Fund, Ltd. (the "Company") is an open-ended investment company established under the laws ofthe British Virgin Islands on May 1, 2006 and is recognized as a professional mutual fund under the Territory ofthe. Virgin Islands Mutual 'Funds Act, 1996.: The Company commenced operations on May 1, 2000.

The Company's investment subjective is to seek above average long-term capital appreciation by allocating themanagement of the Company's assets to one investment advisor, a New York based, registered broker-dealerwhich employs an-options strategy described as "split-strike conversion strategy". This strategy uses U.S. listedequities and listed and. over the counter options.


The Company's financial statements are presented in accordance with accounting principles generallyaccepted in the United States of America. The following is a summary of the Company's significant accountingpolicies.

(a) Valuation of investmentsListed securities are valued at the last sale price reported on the principal securities exchange or marketon which the securities are traded. In the absence of reported sales prices on the valuation date, securitiesgenerally are valued at the last;.reported bid quotation.

Listed option positions are valued at the last sale price reported on the principal securities exchange ormarket on which=the securities are traded; In the absence of reported sales prices on the valuation date,options generally are valued at the last reported bid quotation for long positions and the latest reported ask.quotation for short positions.

Options traded over the counter are Valued at their last closing bid quotation for long positions and theirlast closing ask quotation for short positions, as obtained from the respective market makers.

The united States Treasury..Bills are held by the Company at amortized cost, which approximates their fairValue.


(c) Investment transactions and investment IncomeInvestment transactions are recorded on a trade date basis. Realized gains or losses on sales ofinvestments are calculated on an average cost basis and are included in the statement of operations.Unrealized gains or losses on investments are included in the statement of operations. Interest is recordedon the accruals basis. Discounts on United States Treasury Bills are accreted on an effective yield basis,over the term of the security, and included as interest income in the statement of operations. Dividends arerecorded on an ex-dividend. basis net of withholding tax.

t1)


Kincgate Euro Fund, Ltd.Notes to Financial StatementsDecember 31, 2006 acid 2005

(expressed in Euro)

(d) Foreign currency translationAssets and liabilities denominated in foreign currencies are translated into the reporting currency usingrates of exchange in effect at the reporting . date. Transactions in foreign currencies have been translatedat rates of exchange prevailing at the dates of those transactions. Realized and unrealized gains andlosses on translation of investments denominated in foreign currencies are included in realized andunrealized gains and losses in . the statement of operations.

(e) Forward currency contractsForward currency contracts are used to hedge the investment portfolio. Open forward currency contractsare fair val sed at the reporting date based on the present value of the difference between the contract rateand the applicable forward rate. to close out the contract. Gains and losses associated with the fairValuation. of the open forward contracts are recorded in the statement of operations as unrealized gainsand losses,. Upon contract settlement, or when:an offsetting contract is entered into, the cumulativechange in value is recognized as a realized gain or loss.

(f) OptionsPremiums received or paid. from writing or purchasing options which expire or were unexercised, arerecognized on the expiration date as realized gains or losses in the statement of operations. If an option isexercised, the premium received or paid is subtracted from the proceeds of the sale or added to the costof the purchase to determine whether the Company has realized a gain or lass on the related investmenttransaction in the statement of operations. When the Company enters into a closing transaction, theCompany will realize a gain or loss in the statement of operations depending upon whether the amountfrom the closing transaction is greater or less than the premium received or paid. The Company, as awriter of an option, may have no control over whether the underlying securities may be sold or purchased

and, a.s:a result, hears the market risk of am unfavourable change in the price of the security underlying thewritten'.vption.

(g) Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date of the financial statements and thereported amounts of revenues and expenses during. the reporting year. Actual results could differ fromthose estimates,

(h) New accounting pronouncementsIn July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, "Accounting forUncertainty in Income Taxes — an. Interpretation of FASS Statement No. 149° (the "interpretation"). TheInterpretation is effective for fiscat.years beginning after December 15, 2€706. In September 2006, theFASS issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (the"Statement"), The Statement is effective for fiscal years beginning after November 15, 2007.Management is currently evaluating the application of the Interpretation and the Statement to the

Company.

(2)


Kingate Eur© Fund, Ltd,Notes to Financial StatementsDecember 39, 2006 and 2005

(expressed in Euro)


The .Company is managed b y Kingate Management Limited (the'°Manager"): The Manager is responsible forproviding the investment advisory, accounting and administrative . services required bythe company. For its,services, the Manager receives a monthly :fee calculated at an annual rate equal to 1.5% of the month end netasset value attributable to the Company, paid in arrears at the close of each month. In addition, the Manageralso receives a monthly administration fee at an annual rate of 0.10 11/o-of the month end net asset valueattributable to the Company, paid in arrears at the close of each month. Management and administration feesincurred by the Company during the year were € 7,883,958 (2005 -€8,401,924). As of December 31, 2006,management and administration fees of E 700 1 573 (2005 - €671,085) were payable. There are no performancefees associated with the Company.

Pursuant to the Consulting Services Agreement dated May 1, 2000 FIM Limited (the "Consultant"), has beenappointed to: .provide consultancy services to Kingate Management Limited, The Consultant is compensated byKingate Management Limited, at no additional cost to the Company.

4. Administrator

BISYS Hedge Fund Services Limited (the "Administrator") has been appointed administrator and acts asSecretary:and Registrar for the Company. For its services, the Administrator receives a fee paid out of theCompany's assets based upon the monthly net assets of the Company. Administration.:fees incurred by theCompany during the yearwere €131:,599 (2005 - €139,948). As of December 31, 2006, administration fees of

€ 11,453 (2005- €11,312). were payable.


The Company's' investment advisor is Bernard L. Madoff Investment Securities LLC ("Madoff), a New Yorkbased financial institution, Madoff also acts as the Company's broker-dealer for all equity, US Treasury andoption transactions, these transactions being executed in certain instances with Madoff as the principal. Duringthe.year, the Company executed transactions of approximately € 9.:5. billion (2005 - E10.8 billion), Madotrs onlyform.of remuneration is from any principal spread and/or commission the transactions. Madoff also acts ascustodian for investment "sets of the Company.

The Bank of Bermuda Limited (the "Bank") has been appointed banker for the Company.


In the normal:course of business the Company enters into contracts that contain a variety of representationsand warranties and which provide general indemnifications. The Company's maximum exposure under thesearrangements is unknown; as this would involve future claims that may be made against the Company thathave not yet occurred. However, based on experience, the Company expects the risk of loss to be remote.

(3)


Kingate Euro Fund, Ltd.Notes to Financial StatementsDecember 31, 2006 and 20.5

(expressed in Suro)`

7. Financial Instruments

Investment _securities are. carried at fair value. The„ company's other assets and liabilities include cash andother receivables and payables, which are realized or settled within a short period of time. The carryingamounts of these other assets and liabilities approximate their fair value. The fair value of a financial instrumentis defined as the amount at which the instrument could be exchanged in a cur rent transaction between willingparties, other than In a forced or Iquidation sale.

In the normal course of: is business, the Company invests In U.S. publicly traded securities.:asi well as U.S.investments, which have•o1'- balance sheet risk. "These financial instruments include purchased and written putand call options.and forward-currency contracts; which expose the Company to market and credit risk. {Marketrisk arises from changes in the market value of the securities. underlying the financial instruments being Inexcess of the amounts recognized in these financial statements. Credit risk arises from the potential inability ofthe. counter-party to perform under the terms of the contracts.

(a) OptionsOptions are contracts that allow the holder of the option to purchase or sell a financial instrument at aspecified price and within a specified period of time from the seller or "writer" of the option. As a writer ofoptions, the Company receives a premium at the outset and then bears the risk of an unfavourable changein the price of the financial instrument underlying the option. During the year the Company traded in listedand over the counter index options. Where the Company trades in listed options, the counter-party andguarantor is the Options Clearing Corporation, Where the Company trades in over the counter options, theCompany is. exposed to credit risk due to the potential inability of the oounter-party to perform under theterms of the contract.

The Company did not hold any options as of December 31, 2006 and 200.5.

(b) Forward currency contractsA forward currency contract is a contract that provides for the delayed delivery of a foreign currency, withthe seller agreeing.to make delivery at a specified future date, at a specified price or yield.

The Company is exposed to credit risk associated with counter-party non-performance on forwardcontracts and off balance sheet risk as.a result of unfavourable market . movements. During the year allforward contracts were transacted with the Sank; who requires that the.Company maintain cash balancesas collateral.

The Company had open forward currency contracts at December 31, as follows:

2006Unrealized

Buy gainSett Maturity US$180,000,000 01130/07 "140,931,084 4,727,797US$140,000,000 02/28107 109,000,311 3,204,196US$170,000,000 03129107 128,545;395 235,761US$145.,000,000 04126/07 110,241,009 921,482

9,089,236

(4)


Kingate Euro Fund, Ltd.Notes to Financial StatementDecember 31, 2006 and 2005

(expressed in Euro)

20.05Unrealized

Buy (lass)Sell Maturity C €

U5$135,000;000 01126/06 110;979,580 (2,814,160)U$$160,000,000 02/24/06 132,056,784 (2,583.683)US$125,000,000 03129/06 103,434,009 (1,559,129)US$150,000,400 44/27/06 126,639,453 855,505

(6,101,467).

8. Share capital

The authorized share capital of the Company is 4E300,000, consisting of 30.,000,000 common shares with a parvalue of E0.01 per share.


2006 2006

Number of number of

shares shares

Shares issued and outstanding- Beginning of year 3,453,394 3,663,033Issued during;the year 519,883. 591,554Redeemed during . the year (726,255) (791,193)

Shares issued and outstanding-`End of year 3,247,019 3,453,394


2006 2005



Income from investment operationsNet investment income 1.12 0.58Net. realized and unrealized gain from investments

and foreign currency 10.24 8.43



Total return . 7.94% 6,73%

(6)



(expressed in Euro)

2006 20054

Supplemental data:

Net assets at December 31, E 501,310,957 € 493,937,379

Ratios to average net assets:Total expenses 7 55°/a 1 55%Net "investmenit income 0.75% 0:43%

Per share performance is calculated using the average shares outstanding during the year. An individual's per

share. operating performance may vary from these results based on the timing of individual capital transactionsin the year.

The expense and net investment loss ratios are based on the average net asset value in the year. Anindividual's ratio calculation may vary from these results based on the timing of individual capital transactions:

10. Income taxes

Under current laws of the British Virgin Islands, there are no income, estate, sales or other British Virgin Islandstaxes payable by the Company, or withholding taxes applicable to distributions by the Companyor to thepayment of New Asset Value upon request of certificates.

Dividend income, as well as certain investment income from United States sources. , is subject to withholding taxat rates ranging up to 30%.

(6)


Exhibit 11


April 2007

)kud i

IilInf

A I t III

vet *

A Practical Guide for Investor Entities,

Investee Fund Managers and Auditors

*connectedthinking PRICEWATERHOUSECOOPERS r


About PricewaterhouseCoopersPricewaterhouseCoopers is a leading provider of professional servicesfor alternative investment funds and for colleges and universities. Ourgoal is to help our clients turn their complex business issues intoopportunities and measurably enhance their ability to build value,manage risk and improve performance.

For more information about our alternative investment funds services,call us in the US at 646.471.2500 or visit our Web site at

http://www.pwc.com/alternatives . For more information about ourhigher education services, call us in the US at 1.888.272.3236 or visit

our Web site at http://www.pwc.com/education.

PricewaterhouseCoopers (www.pwc.com ) provides industry-focusedassurance, tax and advisory services to build public trust and enhancevalue for our clients and their stakeholders. More than 130,000 peoplein 148 countries across our network share their thinking, experience

and solutions to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to the network of member firms ofPricewaterhouseCoopers International Limited, each of which is a

separate and independent legal entity.


or pers e

We are pleased to provide you with this publication, en t it l ed Auditing Alternative

Investments, A Practical Guide for investor Entities, Investee Fund Managers and Auditors,

on an important topic that has been the focus of the various entities that invest in alternative

investment funds, as well as to management of the investee funds,

As you are aware, many types of investors have More recently, on February 22, 2007, thebeen investing an increasing percentage of their President's Working Group on Financial Marketsinvestment portfolios in alternative investrnents and (the "PWG") publicly released its "Agreementother non-traditional types of financial instruments, arnong PWG and US Agency Principals onRecently, outside organizations, regulators and the Principles and Guidelines regarding Private Poolsaccounting and auditing rule makers, such as the of Capital" (the "PWG Principles and Guidelines").American Institute of Certified Public Accountants These PWG Principles and GuidelinesCAICPA"), have begun to scrutinize the inherent acknowledge the "significant benefits" that "privaterisks associated with alternative investrnents, with pools of capital," including hedge funds, bring toa particular focus on the issues associated with the financial markets and the challenges they pose,due diligence, oversight and transparency, It encourages all relevant market participants (i.e"

investors, creditors, counterparties, fund managersIn 2005, the AICPA issued an auditing and regulators) to address them, It alsointerpretation (the "Interpretation") and, in 2006, a acknowledges that "these pools can involvepractice aid (the "AI CPA Practice Aid"), which complex, illiquid or opaque investments andrequired auditors and management to respond investment strategies that are not fully disclosed,"quickly to new guidance with respect to the and that such risks are "most appropriately borneexistence and valuation assertions associated with by investors with the sophistication to identify,alternative investments, The main focus of the new analyze and bear these risks." Interestingly, severalguidance is as follows: of the principles and guidelines set forth by the• With respect to existence, the question is: Do the PWG focus on transparency and due diligence,

investor entity's alternative investments exist at which are two of the main underlying themesthe financial staternent date, and have the related addressed in the AICPA Practice Aid andtransactions occurred during the period? While discussed in this paper. For example, the PWGconfirming the existence of assets that are held Principles and Guidelines state the following:by third parties generally provides adequate audit Investors in private pools of capital should obtainevidence, the Interpretation and AICPA Practice accurate and timely historical and ongoingAid say that, by itself, a confirmation in the material information necessary to perform dueaggregate does not constitute adequate audit diligence regarding the pool's strategies, terrns,evidence. conditions and risk management, thereby

• With respect to valuation, the question is: Are the enabling such investors to make informedalternative investments stated in the investor investment decisions, (No. 4)entity's financial statements at fair value? Managers of private pools of capital should haveConfirming the value of the alternative information, valuation and, risk managementinvestments from an investee fund manager systems that meet sound industry practices andprovides one piece of evidence, Based on the enable them to provide accurate information toguidance in the AICPA Practice Aid, additional creditors, counterparties and investors withaudit evidence could be obtained, appropriate frequency, breadth, and detail. (No, 9)

, PricewaterhouseCoopers i Auditing Alternative !nvestments


Tile PWG Principles and Guidelines also acknowledge tile The objective of this PricewaterhouseCoopers' publicationbalance tilat is necessary witil respect to transparency. For is to summarize and highlight the AICPA's interpretativeexample. No. 7.4 states tilat tile "information that creditors guidance on alternative investments. In addition. thisand counterparties should seek to obtain from a private publication is designed to address, from a practicalpool includes both quantitative and qualitative indicators of perspective, tile issues of most importance to officers,a private pool's net asset value, performance, market and senior management, general partners, fund managers,credit risk exposure, and liquidity. The level of detail board members and auditors of many diverse entities (e.g.,expected should respect the legitimate interest of the hedge funds, private equity funds, fund-of-funds, colleges,private pool in protecting its proprietary trading strategies" universities and other highly endowed institutions). Tilese[emphasis added]. In No. 9.3, the PWG Principles and issues include:Guidelines further state that tile "information provided by What are the internal controls and leading practices tilatmanagers of private pools to their creditors, counterparties investor entities should consider implementing?and investors should adhere to tile sound practices

How should transparency be viewed at the investor andarticulated in industry guidelines. Managers of private poolsof capital silould provide information frequently enough and investee level? Can transparency also be viewed broadly

with sufficient detail that creditors, counterparties and to encompass all forms of information and/or access

investors stay informed of strategies, and the amount of risk requested by, or provided to, investors by management

being taken by the pool, and any material changes." of investee funds?

• Wilat is the importance of a management-developed riskPricewaterhouseCoopers is uniquely positioned to provide assessment of the alternative investment portfolio? Howleadersilip in the areas identified as concerns by regulators, does management view the risks compared to how thethe AICPA and others. We maintain a leadership position as auditor views the risks?auditors for both investee funds and investor entities -serving many of the largest and most complex alternative °What are some practical suggestions for improving an

investment funds, and many of the most well-endowed investor entity's documentation of their internal controls?

higher education and not-for-profit organizations across the What lessons have we learned from the last two years ofcountry. Our leadership position in both industries gives us audits? How can we all be better prepared for the yeara unique perspective and ability to converse with investors end audits of investor entities such as fund-of·funds,and investees, and to understand the implications and colleges, universities and other highly endowedchallenges for each. We have devoted considerable time institutions?and energy to studying these important issues, speakingabout the new requirements and - most importantly -listening to the concerns of investors, investees and otherindustry participants. It is from this position of leadershipthat we have authored the enclosed publication.

We are pleased tp provide this publication to you and hope that it will serve as an informative and thought-provokingdocument that highlights existing guidance and provides a common message to both investors and investees as to howpolicies, procedures and controls might be enilanced.

Sincerely,

Mark J. Casella, Assurance Partner John A. Mattie, Assurance PartnerNational Alternative Investment Funds National Education and Not-for-ProfitPractice Leader Practice Leader

Note: This paper is not intended to drive asset allocation decisions. It is meant to summarize and highlight key issuesassociated with the AICPA's interpretative guidance on alternative investments.

Pricewateri'10useCoopers i Auditing Alternative Investments


Conte

1 I Executive summary

2 I Implications for investor entities

A. Management's procedures and controls

B. Management's risk assessment

3 I Implications for investee fund managers

4 I Implications for the auditor

A. Auditor's risk assessment

B. Addressing the existence and valuation assertions

Appendix A I Illustrative AU332 risk assessment and

AU332 risk assessment considerations

Appendix I Liquidity terms

Appendix C I Other key terms

PricowaterhouseCoopers ! Auditing Alternative Investments


1IE ITl ary

Recently, there has been considerable investments may be structured as limiteddiscussion regarding the audit requirements partnerships, limited liability corporations,related to investor entities that invest in trusts or corporations,alternative investments, This discussionresulted from the issuance of the following The Interpretation was issued in July 2005 to

guidance by the American Institute of Certified help auditors apply the provisions of AU332 toPublic Accountants CAICPA"): alternative investments, Since the

Interpretation clarified existing guidance, it wasInterpretation No, 1 to AU332 (the effective upon issuance, It provided guidance"Interpretation"), also referred to as AU9332 on the confirmation of an investor entity's(issued July 2005) interest in an investee fund by the investor

• A non-authoritative practice aid entitled entity's auditor, The Interpretation wasAlternative Investments - Audit controversial because it stated that simplyConsideratiolls (the "AICPA Practice Aid") confirming investments in the aggregate doesbased on input from the AICPA's Alternative not constitute adequate audit evidence withInvestments Task Force and certain AICPA respect to the existence assertion, It statedmember firms (issued July 2006) that, in certain circumstances, it would be

The Interpretation and the AICPA Practice Aid necessary to confirm the investee fund

provide guidance to help auditors address the holdings on a security-by-security basis,Uncertainty existed over concerns whether

existence and valuation assertions associated auditors would be required to disclaimwith alternative investments because a readily opinions on investor entities because of scopedeterminable fair value does not exist and, limitations resulting from the likelygenerally, investee fund managers provide unwillingness of investee fund managers tolimited investment information, These confirm all requested information, Additionally,requirements are currently in effect and will even if investee fund managers providedimpact the way auditors interact with clients portfolio listings, it was unclear what investorand client investee funds, These requirements entities and their auditors would be expectedwill also likely impact the relationships to do, or even could do, with the information,between investor entities and investee funds,as well as affect the nature, timing and extent The AICPA Practice Aid was issued in Julyof information shared between these two 2006 to clarify certain key pOints from theparties relating to the investee fund's Interpretation, The AICPA Practice Aid shouldinvestment portfolio and the investee fund's be of interest to management of investorvaluation policies and procedures, entities, including, but not limited to, other

investment companies (e,g " fund-of-funds orAlternative investments include private funds that hold alternative investments),investment funds meeting the definition of an colleges and universities, hospitals and"investment company" under the provisions of pension plans, as well as to management ofthe AICPA Audit and Accounting Guide: the investee funds, Some of these entitiesInvestment Companies, such as hedge funds, invest a small percentage of their investmentprivate equity funds, real estate funds, venture portfolios in alternative investments, whilecapital funds, commodity funds, offshore fund others invest a substantial percentage, Invehicles, and fund-of-funds, as well as bank addition, the underlying investment portfolioscommon/collective trust funds, Collectively, held by alternative investments can range fromthese types of investment funds are referred to marketable securities to complex derivativesin the AICPA Practice Aid and herein as and/or illiquid investments,"alternative investments," Alternative

PriGcwaterhouseCoopers \ Auditing Altcrnahve Investments 1


Key pointsThe following paragraphs summarize the key paintsfrom the AICPA Practice Aid and the Interpretation.

Management's responsibility Auditor's responsibility

The existence and valuation of an alternative investment is An important element in determining the nature, timing andthe responsibility of the investor entity's management. extent of the audit procedures is the auditor'sManagement of the investor entity that uses audited understanding of the reliability of the process the investorfinancial statements or other information as support for the entity's management yses to determine estimated fairvaluation of an alternative investment must be prepared to value.take responsibility, in its own right, for the valuation.Therefore, if management of the investor entity ultimately The auditor's approach is based on an assessment of the

determines that it is comfortable with the valuation provided risk of material misstatement of the financial statements. Asby the investee fund, management of the investor entity stated in AU section 312.11, Audit Risk and Materiality in

then takes responsibility for that valuation. Conducting an Audit (AICPA Professional Standards, vol. 1),the auditor's consideration of materiality is a matter of

This is particularly reinforced in the AICPA Practice Aid, professional judgment, and materiality judgments involvewhich states that "management of the investor entity is both quantitative and qualitative considerations. The risk ofresponsible for the valuation of alternative investment material misstatement includes inherent risk and controlamounts as presented in the investor entity's financial risk. Accordingly, the auditor's risk assessment, afterstatements" and that "this responsibility cannot, under any considering management's process, will determine thecircumstances, be outsourced or assigned to a party quantity and quality of audit evidence necessary to supportoutside of the investor entity's management." Therefore, the existence and valuation assertions.although the investor entity's management may look to theievestee fund manager for the mechanics of the valuation or The auditor's risk assessment should consider variousto certain third parties to assist with the due diligence and factors, including, but not limited to:

ongoing monitoring efforts, management of the investor The materiality of the alternative investmentsentity must have sufficient understanding and supporting The nature and extent of management's process andinformation to evaluate and either accept or independently related controls associated with the alternativechallenge the investee fund's valuation. investments

To take such responsibility, management of the investor The degree of transparency available to the investor entityentity must have an effective process and related internal to support its valuation process and related conclusionscontrols in place to ensure a sufficient understanding of (including portfolio detail andlor audit reports)their alternative investments. This includes a sufficient The nature, complexity and liquidity of the investee fundsunderstanding of: and their underlying investments• The investment strategies and the manner in which they A subtext to the AICPA Practice Aid is that, because the

are employed investments presented in an investor entity's financial• The underlying investment portfolios and the statements represent the investor entity's assertion, the

reasonableness and reliability of the inputs and auditor should not rely exclusively on information obtainedmethodologies used for their valuation from the investee fund manager while ignoring the investor

The nature, timing and extent of management's process will entity's controls, including its monitoring process.depend on management's risk assessment of thealternative investments.

2 PricewaterhouseCoopers i Auditing Alternative Investments


1 E.xGcutiVQ SWrliTl2FY

Confirmation process

The AICPA Practice Aid reinforces the Interpretation, which So, why then is it necessary for the auditor to request

states that simply confirming investments in the aggregate confirmation of the investee fund's holdings on a security does not constitute adequate audit evidence with respect to by-security basis?the existence assertion, The AICPA Practice Aid clarifies First, the confirmation request is necessary becausethat, while confirmation of the holdings of the investee fund confirmation of the investee fund's holdings on a security on a security-by-security basis (or contemporaneous by-security basis is required by the Interpretation. In fact,audited financial statements) typically would constitute the AICPA Practice Aid reinforces that uncertainty aboutadequate audit evidence with respect to the existence whether the investee fund manager will provide theassertion, the auditor for the investor entity should consider requested information does not obviate the auditor'salternative or additional procedures directed at the requirement to obtain sufficient appropriate auditexistence of the alternative investments, In addition, evidence - either through confirmation or otherwise. If theAppendix t to the AICPA Practice Aid provides an confirmation request is not returned to the auditor or theillustrative confirmation for use by auditors, details of the underlying investments are not otherwise

Despite the guidance included in the AICPA Practice Aid, it provided by the investee fund manager, the auditorshould perform alternative procedures. The AICPA

is still unclear to many industry participants how the Practice Aid is helpful in this respect because itconfirmation of the investee fund's holdings on a security acknowledges that alternative procedures can beby-security basis adequately addresses the existence performed -the Interpretation was silent on this issue.assertion, Without information on other assets or liabilities Even if all the requested information is provided,of the investee fund and the investor entity's percentage additional procedures may also be necessary in certain

, ownership in the net assets of the investee fund, a security circumstances.by-security listing of the underlying investments would notgenerally provide adequate information for the investor Second, the confirmation request is necessary because

entity or its auditor as to the existence or appropriateness confirmation of the investee fund's holdings on a security of the recorded value of the alternative investment Further, by-security basis, or other adequate information about

without other assurance (which may include management's the investee fund and its investment portfolio, rnay be

monitoring controls), the auditor may not have sufficient helpful or necessary with respect to the existence and

evidence that the listed investments are genuine, valuation assertions. This is because such informationshould serve to corroborate information the investor entityhas represented or directly provided to the auditor withrespect to the nature, complexity and liquidity of aninvestee fund.

PricewaterhouseCoopers i Auditing Alternativo Investments 3


Impact to audit reportMoving forward

With respect to the new guidance in the AICPA PracticeAn auditor cannot audit what management has not done. Aid, management of both investor entities and investeeTherefore, auditors need to evaluate both (i) the adequacy entities should carefully consider these requirements andof management's process and related documentation to evaluate the following:support the amounts in management's financial statements,and (ii) the quantity and quality of audit evidence available Degree of transparency

to support the auditor's opinion on those financial The demands of a growing and more institutional investorstatements. In evaluating the quantity and quality of audit base, along with other pressures, have combined to forceevidence to support specific audit objectives, the auditor management of investor entities and investee fundshould consider factors including, but not limited to: managers to grapple with the issue of transparency. This

The significance of the alternative investments for which means that hedge fund managers, in particular, areneither the underlying security-by-security detail nor increasingly being asked to divulge more information onaudited financial statements was available as of the their strategies, portfolios and performance, whereasbalance sheet date traditionally they have not been required to provide such

e The sufficiency of alternative procedures performed and information. In addition, private equity fund managers are

supporting documentation obtained in situations where being asked to provide more transparency around their

the security-by-security detail was not provided to the portfolio company investments at a time when concerns

auditor around this information already exist as a result of the

The adequacy of management's process and related recent Freedom of Information Act requests.

internal controls, including those related to the extent of The issue of transparency should be considered broadly toits understanding of the complexity and liquidity of the incorporate all forms of information and/or accessunderlying investment portfolio and related valuation requested by, or provided to, current and potentialprocess, and the degree of transparency provided by the investors, consultants and others. The focus on theinvestee fund manager monitoring controls utilized by manag ,ement of the investor

entity is likely to increase their contact with funds, as wellIf the auditor concludes that management's valuation as requests for various types of information throughout theprocedures are adequate or reasonable and that the year - not just on investor entities' annual reporting dates.underlying documentation supports the valuation, the As a result, at both the investee and investor levels,auditor would generally issue an unqualified audit opinion. portfolio managers, risk management, legal/compliance andIn certain circumstances, an auditor might include a so financeiaccounting personnel need to collectively preparecalled "fair value paragraph" (i.e., as an emphasis of matter for and assess these requirements.paragraph) in the audit report because of inherentuncertainty in management's estimated fair value for a Due diligence programssignificant portion of the investment portfolio. If the auditor

Management of the investor entity must establish controlsconcludes that management's valuation procedures areover its alternative investments to support the existenceinadequate or unreasonable, or that the underlying

documentation does not support the valuation, an auditor and valuation assertions. These controls include:

could issue a qualified opinion or an adverse opinion. For Initial due diligence (procedures performed before thefurther discussion of such reporting option, see the AICPA initial investment)Audit and Accounting Guide: Investment Companies, Ongoing monitoring (procedures performed after the initialparagraph 11.06. investment)

If an auditor cannot obtain sufficient and appropriate audit Financial reporting controls (procedures related to theevidence to support their audit objectives, the auditor may accounting for and reporting of the investment)qualify or disclaim an opinion on the financial statements The design and effectiveness of these controls arebecause of a scope limitation. particularly important because they can affect the nature,

timing and extent of audit procedures performed by theinvestor entity's auditor over alternative investments.In light of the guidance provided in the AICPA Practice Aid,management of investor entities should examine their duediligence programs, related controls and documentationover alternative investments.

4 PficGwaterhouseCoopers Auditing Alternative Investments


•2 I Ifor i vest^r ntiti

A. anagement's procedures and

controls

This section addresses an investor entity's procedures and controls over alternativeinvestments and how those procedures and controls can be designed or enhanced tomeet the requirements of the audit guidance issued during the past few years.

Directly or through third parties acting on its behalf, management of the investor entitymust establish strong procedural controls over the initial due diligence and ongoingmonitoring of their alternative investments. These controls may include those listed inAppendix 2 to the AICPA Practice Aid. That list, however. is not intended to be all inclusive or to be used as a checklist by management or the auditor. Managementmust design controls appropriate to its organization and the nature and extent of itsalternative investments.

To take appropriate responsibility for its portfolio of alternative investments,management of the investor entity must have an effective process and related internalcontrols in place to ensure a sufficient understanding of their alternative investments.These controls include:a Initial due diligence (procedures performed before the initial investment)

Ongoing monitoring (procedures performed after the initial investment)

Financial reporting controls (procedures related to tile accounting for and reportingof the investment)

The design and effectiveness of these controls are particularly important because theycan affect the nature, timing and extent of audit procedures performed by the investorentity's auditor over alternative investments. In light of the guidance provided in theAICPA Practice Aid, management of the investor entity should examine its duediligence programs and related controls over alternative investments. In particular,management of the investor entity should evaluate the following, each of which isdiscussed further below:

1. Design and effectiveness of its due diligence prograrns

2. Documentation and other evidence available to support its due diligence programs

3. Knowledge, experience and training of the personnel responsible for its duediligence programs and adequacy of related systems

4. Coordination and cornrnunication between all parties

5. Financial reporting controls, including valuation

Prjc0waterhousoCoopers ! Auditing Alternative Investments 5


1. Design and effectiveness ofdue diligence programs

Initial due diligence process. The degree to which thisprocess is effectively documented has

It is critical that appropriate controls historically varied depending on thebegin with initial due diligence before sophistication and resources availablechoosing to invest in a particular to the investor entity. The AICPAalternative investment. Initial due Practice Aid reinforces the need fordiligence often incorporates both top management to their initialdown and bottom-up analysis to due diligence process.evaluate whether a prospectiveinvestee fund manager meets the Ongoing monitoring

investor entity's risk/return objectives. Due diligence should continue after anThis would typically involve quantitative investment is made. In addition to anand qualitative analysis of a fund ongoing analysis of investment resultsmanager's investment style and and risk/return objectives, post process and an assessment of the investment monitoring involveseffect the investment would have on ensuring that the investee fundthe investor entity's overall portfolio. manager - and the investor entity in itsInitial due diligence also involves role as a prudent investor and fiduciaryassessing the investee fund manager's - continues to have adequate controls,personnel, operations, controls, systems, policies and procedures insystems, policies and procedures. This place.is often accomplished through on-sitefront office and back office reviews, as An effective ongoing monitoringwell as a review of the key legal, tax process requires that the investorand compliance issues. entity's management (directly or

There are a variety of approaches andthrough agents acting on its behalf) has

procedures used by investor entities in sufficient information on the underlyinginvestee fund and its investments. The

their investment decision-making investor entity's management may notprocess. Many investor entities have be able to obtain full transparency intovery sophisticated and well-established the underlying investments, including apolicies and procedures to identify, detailed listing of the underlyingselect and approve alternative investment portfolio held by theinvestments, which incorporate alternative investments. This isquantitative and qualitative analysis, particularly true for hedge funds, whichdedicated teams, comprehensive due have historically been reluctant todiligence questionnaires, and formal provide such information, and forreview and approval processes. Some certain types of investor entities, wherecolleges, universities and other highly the receipt of such information may fallendowed institutions rely on third under the Freedom of Information Act.parties to perform pre-investment due Nevertheless, management shoulddiligence, while fund-of-funds typically apply a broader view of transparency tohave their own dedicated personnel. incorporate all forms of informationRegardless of which approach is andior access provided by investeefollowed, the investor entity is still fund managers. Therefore,ultimately responsible for performing management must find othersufficient due diligence, making an information or conduct other activitiesinformed choice, and documenting the

6 PrlcewaterllouseCoopers Aud<lting Alternative Investments


2 J!Tlplications fel l fnV8S^(!r onli!ics

that will provide valuable information on the alternative the amount of "fair valued" investments' ) or otherinvestments and the investee fund managers. For example, unusual disclosures associated with related partymanagement of the investor entity can: transactions or otherwise.

• Conduct periodic interviews, including on-site front ofiice Review SAS 70 reports". if available, and ensure thatreviews, with the investee fund manager to update their identified user controls are in place.understanding of the investee fund's strategy, positions, Review press reports for significant management,exposures, key performance drivers, etc. structure, or personnel developments. Inquire about

• Ask about changes in the investee fund manager's staffing level changes. Wi,en key personnel changesdetailed valuation policies and procedures, and obtain occur, consider making background checks, asking forupdated copies or summaries, as applicable. (Note: An and checking references, and searching the NASD andexcerpt from the in vestee fund's offering document does SEC websites, as applicable.not constitute adequate valuation policies and procedures Review the Schedule K-1 for each investee fund taxed asfor this purpose.) a pass-through entity (e.g., limited partnership, limited

• Compare the fund's performance to benchmark returns, liability company), as applicable, to determine if it haspeer groups andlor historical returns, to the extent resulted in any tax considerations.applicable, to see if the return is reasonable Review information on the investee fund's and investee

• Review periodic investor reports and letters, including fund manager's assets under management and inquire asperformance and risk statistics, summary or detailed to any significant capital changes (up or down).portfolio information, and other information related to

The activities described above should be documented andleverage, exposure levels, large positions, etc.maintained in management's files.

• Attend the investee fund manager's annual investorconference, if applicable. (Note: This is common for As they do with the initial due diligence, some colleges,private equity funds.) universities and other highly endowed institutions may

• Obtain and review annual audited financial statements outsource ongoing monitoring activities to a third party. If

and interim (i.e., quarterly or semi-annual) unaudited this is the case, the investor entity must develop

financial statements, to the extent available. For audited appropriate monitoring controls and related documentation

financial statements, note whether the opinion is qualified over its third-party service provider to make sure that its

and, if so, why. Also note whether there was a change of monitoring activities are complete and effective.

auditors, or a change in valuation policies (or a change in

1 When effective (fiscal years beginning after November 15, 200?), the new disciosure requirements of Statement of Financial

Accounting Standard No, 157, Fair Value Measurements ("FAS 157"), wii! like!y provide the investor entity wiHl additional transparency

and information reiating to the investee fund's fair vaiuation poliCies and exposures.

2 Some investoo fund managers or fund administrators may have a SAS 70 report on their internal controls. SAS 70 is a standard

issued by the A1CPA, titled "Reports on the Processing 01 Transactions by Service Organizations." SAS 70 sets forth the professional

standards used by an auditor to assess the interna! controls of a service organization and issue a report.

PricewaterhouseCoopors i Auditing Alternative Investments 7


2. Documentation and otherevidence to support duediligence programs

It would be prudent for management to expect - and prepare for in advance - theexternal auditor's request for supporting documentation related to the investorentity's due diligence and valuation practices. Good internal controls includestrong documentation related to initial due diligence, ongoing monitoring andfinancial reporting controls. The following table summarizes some examples of thedocumentation that may be maintained to provide evidence of certainmanagement controls. To the extent that management does not have sufficientinformation on its underlying investments, and/or sufficient evidence of suchinformation, the auditor needs to consider the reporting implications.

Area Illustrative documentation

Selection', evaluation and approval of Written due diligence memos, with appropriate review and approvalsinvestee fund managers indicated

• Formal due diligence checklists/questionnaires. with appropriate reviewand approvals indicated

a Written minutes (or summaries) of meetings where investment decisionswere made

Periodic visits or phone calls to Written documentation of visits to or discussions with in vestee fundinvestee fund managers managers

Investment policy for asset allocations Written policy that has been adopted/approved by the Investmentand valuations Committee

• Written evidence that policy exceptions were presented to thecommittee for acknowledgement

Review of audited financial statements Written checklist that may address: (a) reconciliation of audited financialstatements to recorded balance, (b) roll-forward of audited balance frominvestee fund's year end to investor entity's year end, and (c)comparison of actual returns to benchmarks, and explanations ofsignificant variances

Review of valuations prepared by Written notes on valuations or separate memo documentinginvestee fund managers, including understanding of the investee fund manager's process and conclusionsreview of portfolio holdings, key Memo explaining rationale for acceptance of investee fund manager'smethodologies, inputs and valuations or adjustments deemed appropriateassumptions used

8 Pr,icewaterhollseCoopers Ii Auditing Alternative !nvestments


2 !mpiications fo, investor fmU!is::

3. Knowledge, experience 4. Coordination andand training of personnel, communication betweenand adequacy of systems parties

An important consideration - especially for To ensure an efficient and effective process, allcolleges, universities and other highly endowed parties should open the lines of communicationinstitutions - is the required resources to and take the time to understand the roles andselect, monitor, value and report alternative responsibilities of the other parties, including:investments, along with the related governance Independent auditors: What audit proceduresstructures in place to oversee these efforts on will they perform and how does thebehalf of the investor entity, As mentioned complexity, liquidity and volatility of theabove, many investor entities have very alternative investrnents irnpact the nature,experienced, dedicated teams, while others tirning and extent of those procedures?(primarily colleges, universities and other highlyendowed institutions) may rely on third parties Investee fund rnanagers: What controls and

processes have they established,to perform initial and ongoing due diligence,Regardless of which approach is used, the docurnented and shared with their investors?

investor entity should rnaintain a sufficient Internal constituents: Is there propercomplement of investment, accounting and coordination and cornmunication betweenfinance personnel with an appropriate level of the personnel within an investor entity whoknowledge, experience and training perform and document the due diligence andcommensurate with the nature, extent and those who perform accounting and financialcomplexity of the investor entity's alternative reporting for such investments? Do theinvestment portfolio, The team dedicated to rnembers of the Audit Committee (ifalternative investments should have deep applicable). Investment Committee.investment experience and extensive front/investment office and backicontroller'sexperience evaluating and monitoring office fully understand how their roles andalternative investments, including the unique responsibilities align?tax, legal and regulatory issues, Other external parties (e,g " valuation

Equally important are the systems used in the specialists, investment consultants), if

monitoring, oversight, and reporting of applicable: What are their responsibilities and

alternative investments, Also, given the how do they satisfy them? What inforrnation

complexity and risks associated with is shared with the investor entity, in what

alternative investments, adequate form and how often?

communication and training are essential.

PricewaterhouseCoopors I Auditillg Alternative Investments 9


5. Financial reporting controls,including valuation

Valuation is one of the two key issues discussed in An investor entity with an effective valuationthe Interpretation and AICPA Practice Aid. The process would obtain and review the investeeAICPA Practice Aid notes that a readily fund's financial reports (e.g., independently auditeddeterminable fair value does not exist for many financial statements, monthly statements). Ideally,alternative investments. Despite the difficulty of the investee fund's reports would include aestimating a fair value for alternative investments, detailed list of the underlying investments and theirthey must generally be stated at their fair value, fair values, along with other risk metrics. In theand management is responsible for determining absence of detailed data, the investor entity cansuch fair value. The AICPA Practice Aid states that request other summarized data, such as"management of the investor entity is responsible condensed portfolio data, sector data, etc., thatfor the valuation of alternative investment amounts the investee fund may be willing to provide.as presented in the investor entity's financialstatements" and "this responsibility cannot, under Management of the investor entity must do more

any circumstances, be outsourced or assigned to than simply obtain the detail of the underlying

a party outside of the investor entity's investments to support its assertion regarding the

management." This means that although valuation of the alternative investments. However,

management may look to the in vestee fund the investor entity's valuation process need not

manager for the mechanics of the valuation, include recalculation of estimated fair values for

management of the investor entity must be able to the alternative investments. Management of theindependently evaluate and either accept or investor entity should understand the

challenge the investee fund manager's valuation. In characteristics of the underlying investments andorder to take responsibility at this level, the valuation process used by the investee fund

management must have an effective process and manager for the investments held at the balance

controls in place, as well as a sufficient sheet date. Management of the investor entity

understanding of the in vestee fund's investment should perform an independent, separate valuation

strategies, operations, underlying investments, and only if it becomes aware of erroneous orvaluation policies and procedures. incomplete assumptions or methodology.

The tirning and extent of the investor entity The following points summarize some sound

management's understanding is based on its practices related to the financial reporting and

assessment of risk of material misstatement of the valuation for all types of alternative investments,

financial statements. The extent of management's including fund-of-funds:

fair valuation process and related controls should Compare the unaudited net asset values (NA V)reflect the significance of the alternative received by the investor entity at the investeeinvestments to the investor entity's financial fund's year-end date (often December) to thestatements as a whole, the nature of the underlying information included within the investee fund'sinvestments and their risk assessment. In lower audited financial statements. Identify andrisk situations, such as for alternative investments investigate any significant differences.invested in readily marketable securities (e.g., bank Track the timeliness of NAV statements providedcommon/commingled trust funds), an effective by the investee fund manager during the year.valuation process ordinarily requires a less

For hedge funds, consider whether the fund'ssophisticated process and related controls than aestimated NA Vs received are consistent with thehigher-risk portfolio of illiquid and complex final NAVs received from the investee fundalternative investments.manager or administrator. Identify andinvestigate any significant differences.

10 PricowaterflouseCoopers ! Auditing Alternative Investments


2 lmplic_,!ions or ;es y r e,n_i ies

• Obtain the investee fund's Schedule K-l (for investee Valuation may present the single biggest challenge offunds structured as partnerships, or taxed as such) and alternative investments, Therefore, a robust financialreview for any federal and state tax liability, Also, reporting and valuation monitoring process that is wellcompare the capital account information reflected on the documented is essential, and becomes increasinglySchedule K-l with the capital account information important as the size and complexity of the portfolio ofprovided by the investee fund manager and recorded by alternative investments increases, Investor entities shouldthe investor entity, Identify and investigate any significant expect their independent auditors to focus on valuationdifferences, issues, It would be a good idea to discuss with the auditor

• Compare the investee fund's NAV statements with the - sooner rather than later - what audit evidence the auditor

value included on the statement provided by the investor will expect from the investor entity to support the adequacy

entity's custodian, to the extent applicable, Identify and and reasonableness of the portfolio's valuation,

investigate any significant differences, Other financial reporting controls

• On a regular basis, ask the in vestee fund manager, viaphone calls or on,site visits, about any changes in the In addition to exercising its responsibility for determining

fund's valuation polices and procedures, including the the fair value of alternative investments, management

valuation methodologies, key inputs and assumptions, should take other actions to coordinate the financialstatement preparation and prepare for its annual audit.

• Request and review changes to valuation policies and These actions include, but are not limited to, the following:procedures, Ask whether the investee fund manageremploys a consistent valuation process throughout the •Coordinate financial reporting responsibilities between the

year. front and back offices, For colleges, universities and otherhighly endowed institution, coordinate between the

• Compare the in vestee fund manager's valuation policies "investment office" and the "controller's office,"and procedures across different funds in the fund's peergroup to identify potential differences in methodologies or

Consider financial reporting controls and related

key inputs, Ask the investee fund manager to explain any accounting policies over key investment transactions,

differences in methodologies or inputs, including investment income, realized gains and losses,and unrealized gains and losses,

• When valuations change significantly, find out whatcaused the change and consider the reasonableness of 'Understand and assess the implications associated with

the explanation, This can be particularly relevant for the investee fund's basis of accounting and significant

private equity funds with a discrete number of private accounting policies and procedures pertaining to thevaluation of alternative investments.investments whose values do not tend to fluctuate period

to period, Monitor the level of ownership in each in vestee fund to

• Compare cash distributions to previously reported values determine the proper accounting method (for certain

throughout the year. types of investor entities),

• Inquire periodically as to the composition of the Ensure disclosures related to alternative investments not

investment portfolio and obtain exposure levels, portfolio only meet GAAP standards, but also enhance the

attribution, large positions, degree of leverage, etc, transparency of an entity's financial statements given the

(primarily for hedge funds), increasingly high expectations about transparency that

• For hedge funds, inquire and understand movementsexist in the current environment

to/from "side pocket accounts" maintained by the fundand any related valuation changes for "side pocketinvestments," (Note: See Appendix B for furtherdiscussion of side pockets,)

PricewaterhouseCoopers i Auditing Alternative !nvestments 1 1


B^ M agem nt's risk assess ent

The AICPA Practice Aid focuses on the existence and consider all relevant factors. It is clear that severalvaluation assertions associated with alternative types of alternative investments with varying structuresinvestments. Management of the investor entity is and strategies, each with their own attributes andresponsible for the existence and valuation of the characteristics, present unique risks. Accordingly, aalternative investments presented in the investor 'one-size-fits-all" approach to assigning risk attributesentity"s financial statements. To exercise this to alternative investments may not be appropriate.responsibility, the investor entity's management musthave a sufficient understanding of the underlying So, how does management consider all of these

investments in order to design and maintain an factors? In many cases, management has developed

effective process and related controls over its its own assessment of risk across its alternative

alternative investments. investment portfolio to facilitate its due diligence andongoing monitoring of its investee funds. There are

An auditor's approach is based on an assessment of several quantitative and qualitative approaches thatthe risk of material misstatement of the financial have been used in practice to address this issue. Forstatements. While management's risk assessment is example, the investor entity may categorize or stratifybased on its assessment of the inherent risk of its portfolio of alternative investments into different riskmaterial misstatement in its financial statements, it categories (e.g., 'low," "moderate" and "high" riskencompasses other factors as well. One of the categories) andlor assign each investee fund a riskchallenges that investor entities and their auditors have rating, score or grade based on specified criteria.experienced in addressing the new auditing guidance Management would then design procedures andset forth in the AICPA Practice Aid has been controls appropriate for each risk category to provideunderstanding each other's assessment of risk for their adequate comfort given the relative risk rating (e.g.,respective purposes. Clearly this is an essential more robust procedures and controls for the "high"element to an efficient and effective audit process. risk category). This approach involves considerable

judgment and requires extensive experience withTo design an efficient and effective risk assessment alternative investments in order to balance all relevantprocess that addresses the unique risks associated factors for each investment.with alternative investments, management must

Appendix A provides an illustrative AU332 risk assessment and related considerations that capture certain riskfactors being considered in practice, including considerations related to the following areas:

Management, governance and service providers Transparency and reporting• Quality and experience of fund management Nature and quality of transparency• Role and effectiveness of fund governance • Quality of financial reporting• Quality of service providers

Internal controlsStrategy, structure and key terms Adequacy of infrastructure, personnel and general• Nature, complexity and liquidity of strategy internal controls

• Nature of the fund's liquidity terms • Design and effectiveness of valuation policies and

• Complexity of structure and key termsprocedures

• Quality of risk monitoring• Impact of regulatory compliance matters• Impact of legal and tax matters

This information is presented for illustrative purposes only, and is not intended to be an all-inclusive list of riskfactors that management should consider.

Given the focus in the AICPA Practice Aid on transparency and the nature, complexity and liquidity of theinvestee funds and their underlying investments, these factors are discussed in more detail below.

12 PricewaterhouseCoopors ! Auditing Alternative Investments


2 Impiications fOf investo( ent::i0^;

Nature and quality of transparency investor entity. The audit effort needed to support the

pprovided b the investee fund

valuation and existence assertions is greater for a more

y complex or illiquid investee fund than for a less complexmanager and more liquid fund. Therefore. rnanagement's risk

assessment should consider the complexity of theAmong the factors management should consider in underlying investments and the policies relating to valuationperforming its risk assessment is the nature and quality of for each major asset class.transparency provided by the investee fund manager. Aneffective process for supporting fair value estimates of its Management may also consider how the ultimatealternative investments requires the investor entity's investments are held by the investee fund. The complexitymanagement (directly or through agents acting on its behalf) of the structures used by investee funds may affect theto gather sufficient information on the investment strategy and degree of transparency provided to or available for thethe underlying investments and to understand the policies and auditor and the investor entity's management with respectprocedures used by the investee fund manager andlor an to the underlying investment portfolio. For example,outside service provider, such as a fund administrator, to information on the underlying investments may be morevalue the underlying investment portfolio. In many instances, limited for investments held through multi-tiered fundthe investor entity's management may not be able to obtain structures, like master-feeder or fund-of-funds structures,full transparency into the underlying investment portfolio, or through various special-purpose vehicles. Suchincluding a detailed list of the underlying investment portfolio structures may result in further challenges in assessing theheld by the alternative investments. However, the issue of existence or valuation assertions.transparency can also be viewed broadly to encompass all Typically, there should be a general correlation between theforms of information or access provided by the investee fund liquidity of an investee fund's investment portfolio and themanager, including the information and activities described liquidity terms of the investee fund itself (Le., redernptionearlier. provisions). Investor entity management, as part of its initial

due diligence in evaluating potential investee funds andongoing due diligence in monitoring existing investee funds,

Nature, complexity and liquidity of should consider risks associated with a potential mismatch

underlying investments of theof liquidity terms between an investee fund's investmentsand the liquidity terms of the investee fund. Due diligence

investee funds procedures should also consider the potential for "style

In assessing the risks associated with an investor entity'sdrift" for each investee fund and the effect it may have onthe matching or mismatching of liquidity.

alternative investments, management should consider thenature of the underlying investments held by the investee If we are to assume correlation of liquidity, as describedfunds. Generally, more actively traded, liquid securities held above, management should give special consideration toby an investee fund generate the highest level of confidence the investee funds that hold non-pUblic, illiquid investments,regarding the valuation and existence assertions at both the such as private equity funds, special opportunity funds, realinvestor and investee levels. This is consistent with FAS estate funds and other real asset or natural resource funds.157. Conversely, the more complex, illiquid or esoteric the Since these funds hold assets that are generally illiquid andinvestee fund's investments are, the more effort the investor for which no ready market exists, such assets are generallyentity may need to put forth to gain comfort over the carried at the investee fund manager's estimate of fairinvestee fund's valuation and existence assertions. The value. This yields a higher level of judgment relating to theauditor's efforts operate in the same rnanner as that of the valuation assertions.

PricGwaterhouseCoopers I l\uditlng Alternative Investments 13


Nature, complexity and liquidity of Hedge fundsthe investee funds themselves

In performing its risk assessment, management should In general, key structural and operational issues associatedconsider the liquidity of the investee fund itself, and assess with Iledge funds complicate their capital structures andthe risks associated with any potential mismatch of liquidity related liquidity terms, which may affect fair valuebetween the investee fund's investment portfolio and the considerations of the investor entity. Such issues include,liquidity terms of the fund itself. but are not limited to:

As noted earlier, the AICPA Practice Aid defines alternative • Legal structures

investments to include hedge funds, private equity funds, Liquidity of the underlying investment portfolioreal estate funds, venture capital funds, commodity funds, Timing of cash flows and net asset value determinationsoffshore fund vehicles, fund-of-funds, as well as bankcommonicollective trust funds. Some alternative •Prevalence and mechanisms associated with

investments, such as bank common/collective trust funds performance-based fee arrangements (e.g., incentive

and certain offshore funds, may be highly liquid (e.g., daily allocations)

liquidity) with underlying investment portfolios consisting For example, the use of a corporate form for most offshoremostly of marketable securities. Accordingly, these types of funds (as opposed to a limited partnership form for mostalternative investments may not require significant judgment domestic funds) imposes certain complexities on the capitalby the investor entity's management in the assessment of structure. In addition, multiple classes of shares orfair value and provide a lower risk of material misstatement partnership interests with varied terms, as well as master to the overall financial statements, on a relative basis. As feeder or other multi-tiered structures, also contribute to thenoted in the AICPA Practice Aid, alternative investments complexity of the fund and issues related to liquidity andthat are themselves invested in marketable securities fair value.require a less sophisticated fair value process. Therefore,this publication focuses primarily on hedge funds and Investors in domestic and offshore hedge funds canprivate equity/venture capital funds because they are more generally withdraw amounts from, or redeem interests in,likely to hold complex and/or illiquid investments and may hedge funds on a monthly, quarterly, semi-annual or annualprovide limited, if any, liquidity. basis, as the case may be for each fund, subject to certain

notice and timing requirements. Such terms (commonlyreferred to as the "liquidity terms") are governed by therespective investee fund's governing documents (e.g.,limited partnership agreement, confidential offeringmemorandum and articles of association). In particular, theuse of "side pocket accounts" may affect the riskassessment. Other liquidity terms include initial lock-ups,the ability to withdraw with penalties (i.e., redemption fees),notice periods, hold backs and gates. Each of these liquidityterms are described in more detail in Appendix B. Other keyterms that may affect the determination of fair value for aninvestor entity's interest in an investee fund are summarizedin Appendix C. Management of an investor entity should befamiliar with the various fund terms that may affect the riskassessment with respect to an investee fund, with aparticular focus on the investee fund's liquidity terms.

14 Pricewaterf'lousoCoopers i Auditing Alternative Investmellts


,? Implications for "westol" entities

Private equity funds

Redemption upon liquidation or termination of the entity is Private equity funds have, as a predominant operatinggenerally the case for investment fund structures strategy, the return of the proceeds from the disposition oftraditionally used for private equity funds (comprising investments to investor entities, Therefore, upon thebuyout, venture capital, mezzanine and other similar disposition of an investment, the proceeds will generally bestrategies), These entities are referred to as "limited-life distributed to the investor entities (including both the limitedfunds" pursuant to the AICPA's Statement of Position 03-4, and general partners), subject to a limited ability of theReporting Financial Highlights and Schedule of Investments general partner to "recycle" (i,e " reinvest) the capital underby Nonregistered Investment Partnerships: An Amendment certain circumstances. Distributions can be in the form ofto the Audit and Accounting Guide Audits of Investment cash or securities.Companies and AICPA Statement of Position 95-2, Finally, unlike hedge funds, private equity funds do notFinancial Reporting by Nonpublic Investment Partnerships, routinely acquire (directly or indirectly) market-tradedSome closed-end hedge funds employing certain securities or derivatives as part of their investment strategy,investment strategies (e.g., special opportunities, distressed Rather, they generally invest in the equity andlor debtdebt, and so-called "PIPEs," or private investments in securities of private companies,public equities) may also be structured in a similar way,These funds typically do not provide for limited partner Funds that specialize in purchasing the existing interests ofinitiated redemptions, Rather, by the terms of their offering an investor entity in a closed private equity fund aredocuments, these funds have limited lives, often 8 tol 0 referred to as "secondary funds." This type of fund may aimyears, with the ability for the general partner to extend the to exploit an existing investor entity's need for liquidity orlife for a specified period of time (e.g., 2 years), Therefore, desire to avoid future draws on unfunded commitmentunless an investor entity's interest is sold in the "secondary balances by purchasing these interests, often at a price thatmarket," such funds have limited opportunities, if any, for is different than the capital balance attributable to theinvestor entities to withdraw before the fund is terminated, interest The divergence between the purchase price of theAs a result, interests in private equity funds are less liquid interest and the purchased capital balance (which is often athan interests in hedge funds because investors in hedge discount to the investee fund's NAV but may also be afunds generally have the ability to redeem their interests at premium) creates unique valuation considerations for thesetheir discretion, subject to applicable liquidity terms. secondary funds, Because many of these transactions

purchased at a discount have a "fire sale" attribute to them,Also, unlike hedge funds, which are generally open to theacceptance of new capital, private equity funds do not

the purchase price actually may not be fair value,Conversely, if the purchase price was derived from

continuously raise capital. Rather, investor entities "commit" negotiations between the buyer and seller after robust duea specified amount of capital upon inception of the fund diligence by the buyer, and there is no "fire sale" element to(I.e., committed capital), which is then generally "drawn the transaction, the purchase price may be indicative of fairdown" over a specified period of the fund's life (i,e., the value. Therefore, the investor entity's management mustinvestment period) either on a "just-in-time basis" (i.e " as carefully consider the nature of each transaction and theneeded by the general partner to make investments or fund specific facts and circumstances of each transaction whenthe payment of fees and expenses) or at specified intervals. determining fair value, In each case, the investor entityBoth the investor entity and its auditor should be aware of should document the nature and circumstancesthe amount of future commitments, not only for disclosure, surrounding the transaction to support the fair valuebut also for understanding the projected liquidity of the assertion,overall investments in the portfolio.

PricewaterhousoCoopers ! Aud iting Alternative Investments 15


3 I Impiicati ns for in fun

manage

The challenges of increased investor due diligence, information does not obviate the auditor'snew auditing requirements, a growing interest in requirement to obtain sufficient appropriate auditdemonstrating operational soundness and stability, evidence. As a result, by and large, it should beand other factors have all combined to force expected that auditors will send confirmationmanagement of investor entities and investee fund requests that include requests for portfolio-level detailmanagers to grapple with the issues of transparency similar to those set forth in the AICPA Practice Aid.and more intensive due diligence. As a result,investee fund managers should expect an increase in To help satisfy the accounting and reporting needsthe nature and extent of due diligence by investors and expectations of their investors, we encourage

and requests for greater transparency. As described investee fund managers to carefully consider their

in this document, the request for greater transparency responses to these new confirmation requests. Otherwill not come just from management of the investor than the request for portfolio-level detail, the other

entity -it will also come from the investor entity's information requested in the confirmation should not

auditor. With respect to such requests for greater be too controversial or difficult for an investee fund

transparency, investee fund managers should manager to provide. To facilitate the audit of the

consider the following: investor entity, we encourage investee fund managersto respond to these requests for such information in a

Anticipate requests and plan response timely fashion, even if a response to the request for

Investee fund managers should anticipate and portfolio-level detail is sent separately.

prepare for confirmation requests from investor We also encourage investee fund managers toentities' auditors. As described earlier, such requests carefully consider these confirmation requests andshould include a request for portfolio-level detail. respond in a manner that balances the needs of theirFormulating a policy and approach to such requests investors and their own policies and obligations withwill likely require investee fund managers to make an respect to transparency and confidentiality. Manyevaluation between: investee fund managers have formulated responses

• Providing certain information they generally that appear to have met this balance by providing the

consider proprietary requested portfolio-level detail and/or providing other

• Meeting investors' expectations by fulfilling these adequate information about the in vestee fund and itsinvestment portfolio. Based on our experience to

requests date, such other information has taken a variety of• Addressing legal and compliance considerations forms, including, but not limited to, one or more of

relating to providing information to some but not all the following:investors • Condensed portfolio detail

Carefully consider response Performance andlor risk reports

As discussed earlier, the auditor's request for Exposure levels at the asset class, geography,confirmation of the investee fund's holdings on a industry and/or position levelsecurity-by-security basis is required by the Liquidity analysis of the investment portfolioInterpretation, and uncertainty about whether the Valuation procedures, in general or by asset classinvestee fund manager will provide the requested

16 PricewaterflouseCoopers Auditing Alternative Investments


Some investee fund managers have "One size does not fit all"responded with a standard reportingpackage, while others address each It is important for investee fund same investee fund may also have

request separately. Some have even managers to recognize that requests different approaches and expectations

considered scheduling conference for greater transparency from their with respect to the nature and level of

calls or hosting web-casts for investor entities and from their investor transparency needed to satisfy their

investors during which they discuss entities' auditors will likely not be respective audit requirements. These

valuation policies and procedures and consistent, at least for some time. different expectations and approaches

other matters. Such inconsistency could result from could be driven by various factors,continued uncertainty about applying including:

While the portfolio-level detail remains the requirements set forth in the Different risk assessments by thethe requirement pursuant to the AICPA AICPA Practice Aid (which this investor entity andlor their auditor forPractice Aid, the type of information document hopes to alleviate), and various reasons. including thedescribed above may also be helpful some could result from other reasons significance of the alternativeor necessary for the auditor to address relating to the application of the investment to a given investor entitythe valuation and existence assertions considerable judgment required in this The design and effectiveness of theand to corroborate information the process. For example, different investor entity's procedures andinvestor entity has represented or investor entities investing the same controlsdirectly provided to the auditor with amount in the same investee fund mayrespect to the nature, complexity and approach their due diligence Different audit approachesliquidity of an investee fund. responsibilities differently because of Fund-of-funds, in particular, may face

various factors, including different significant challenges with respect to theviews about risk, different levels of requirements of the Interpretation andsophistication with respect to their due the AICPA Practice Aid because theydiligence, different resources, etc. are both an investor entity (investing inAlso, auditors auditing an investment investee funds) and an investee fundheld by different investor entities in the for their own investor entities.

PrlcewaterhousoCoopors \ Auditing AltBrnatlve !nvestments 17


4I Implications for t r

A. Auditor's sk assess e t

The AICPA Practice Aid focuses on the existence and valuation assertions associated with alternativeinvestrnents. The auditor's approach is based on an assessment of the risk of material misstatementof the financial statements. As stated in AU Section 312. 11, the auditor's consideration of materialityis a matter of professional judgment - and materiality judgments involve both quantitative andqualitative considerations. The risk of material misstatement includes assessing inherent risk andcontrol risk.

With respect to investments in alternative investments, an auditor's risk assessment depends on theparticular facts and circumstances, including, but not limited to, the following risk factors, each ofwhich is discussed in more detail below':

1. Significance of alternative investments to the investor entity's financial statements

2. Nature and extent of the investor entity's process and related internal controls associated with thealternative investments

3. Nature and extent of information available to the investor entity to support its valuation processand valuation conclusions (including the availability of portfolio detail and audit reports)

4. Nature, complexity and liquidity of the underlying investments of the investee funds

5. Nature, complexity and liquidity of the investee funds themselves

1, Significance of alternative investments to the

ry investor entity's financial statements

In assessing the risks to the investor entity's factor used to determine the audit strategy.financial statements related to alternative Auditors also should consider the complexity ofinvestments, auditors need to consider the size the strategies of these investments, theof the portfolio devoted to alternative complexity of the entities or legal structures thatinvestments and the assessment of materiality hold the investments, the level of transparencyat the overall financial statement level or in into the underlying investments, the level ofrelation to financial statement assertions for oversight by management and the Investmentclasses of transactions, account balances and Committee, and other factors. These other riskdisclosures. However, with respect to an considerations are addressed in more detailinvestor entity's interests in alternative below.investments, the relative size is not the only

i The AICPA Practice Aid includes items (1) through (4), although we have r,,>sequenced them to reflect the ordor in which we believe

they should be considered. The above list also includes item (5) which was not explicitly included in the AICPA Practice Aid. While we

believe there is often an impliCit correlation between the nature, complexity and iiquldity of the underlying investments (item (4) above)

and that at tile funds themselves, we have included item (5) to ensure that auclitors appropriately focus on this tssue as well.

18 PricewaterhouseCoopers i Auditing Alternative Investments


2. Nature and extent of the investor entity'sprocess and related internal controls

In performing ti,e risk assessment of the investor entity's prevented or detected on a timely basis by the entity'svaluation assertion, the auditor should consider the internal control). The auditor's assessment of control riskprocess used by the investor entity's management in is based on an evaluation 01 the effectiveness of andeveloping its fair value estimates and the controls entity's internal control to prevent or detect materialestablished relative to those estimates. See Section 2 for misstatements in the financial statements. Since thisfurther discussion of investor entity management's assessment should generally be applied in the context ofcontrols and procedures. a particular process, it should be applied when obtaining

an understanding of processes and controls, and whenIn many cases, other parties play a role in the valuation evaluating and validating internal controls aroundand/or due diligence process. For example, the investor alternative investments. This may require that the auditorentity's management will often look to the investee fund understand, evaluate and, if appropriate, validate varyingmanager for the mechanics of the valuation. In addition, controls over different classes or types of alternativedepending on tile extent of the investor entity's investments held by the investor entity. As stated above,investment activities and the relative sophistication of its the controls to be tested may include those listed ininternal investment process and resources, the investor Appendix 2 to the AICPA Practice Aid. As previouslyentity may use the services of a third-party investment noted, however, that list is not intended to be all-inclusiveconsultant to initially select alternative investments (often or to be used as a checklist by the investor entity'swithin the context of its overall investment portfolio) management or the auditor. Management must designand/or monitor such investments. As stated in the AICPA controls appropriate to its organization and the naturePractice Aid, management's "responsibility cannot, under and extent of its alternative investments.any circumstances, be outsourced or assigned to a partyoutside of the investor entity's management" Therefore, The assessment of control risk determines the nature andwhile management of the investor entity may initially rely extent of controls comfort, if any, from the effectiveon the investee fund manager for the valuation of the operation of internal controls. The n'ature of controlsunderlying investments and the determination of its testing relates to the purpose and type of auditinterest in the investee fund, management is not bound by procedures. The extent of controls testing relates to thesuch valuations. Management must have sufficient quantity and quality of audit evidence needed toinformation to evaluate the investee fund's valuation and demonstrate that controls operated effectively throughouteither accept or independently challenge it, as the period of reliance. The level of comfort obtained fromappropriate. Also, while management of the investor entity testing the controls drives an auditor to determine the naturemay engage a third-party consultant to select and monitor and extent of substantive procedures to be performed.its alternative investments, it needs to design controls,including monitoring controls, to ensure that its outsourced If the auditor believes that controls are unlikely to be

investment monitoring and due diligence are effective. effective as they relate to existence or valuation ofalternative investments, or believes that evaluating their

As discussed above, regardless of whether other parties effectiveness would be inefficient, the auditor wouldare involved in the valuation and/or due diligence process, assess control risk for those assertions at the maximum,management must have a sufficient understanding of the resulting in obtaining little or no controls comfort from thenature of the underlying investments, the portfolio effective operation of internal control. Conversely, if thestrategies of the alternative investments, and the methods auditor assesses control risk at a low level. thenand significant assumptions used by the investee fund significant controls comfort can be obtained by evaluatingmanagers to value the underlying investments. To do this, and validating the effectiveness of the design andmanagement must maintain a sufficient complement of operation of internal controls. Assessing control riskpersonnel with an appropriate level of knowledge, below the maximum level requires that the auditor:experience and training commensurate with the risks Identify specific controls relevant to specific assertionsassociated with its alternative investments. In addition,

. Test controlsmanagement should document its understanding of thenature of the underlying investments and the associated Conclude on the assessed level of control riskassumptions and methodologies used by the investee

In order to rely on controls around alternativefund managers to value underlying investments. investments, an auditor must also validate, through

As part of the overall risk assessment, the auditor uses testing, the design and operating effectiveness of theprofessional judgment in assessing control risk (i.e., the related internal controls, including those in the informationrisk that a potential material misstatement will not be technology environment.

PricewaterhousoCoopors ! Auditinq Alternative Investments 19


3. Nature and extent of Nature, complexity and liquidity

information available to the of underlying investments of theinvestor entity investee fundsManagement of the investor entity is responsible for the In assessing the risks associated with an investor entity'svaluation of the alternative investments presented in the alternative investments, the auditor should considerinvestor entity's financial statements, To exercise this factors including, but not limited to, the nature of theresponsibility, the investor entity's management must underlying investments held by the investee funds, thehave a sufficient understanding of the underlying policies relating to valuation for each major asset class,investments in order to design and maintain an effective and the manner in which investments are held by the

process to support fair value estimates of its alternative investee fund,

investments, The timing and extent of management's As discussed in Section 2, the auditor's efforts operate inprocedures is based on its assessment of the inherent the same manner as that of the investor entity, Generally,risk of material misstatement in its financial statements, more actively traded, liquid securities held by an investeeIn higher risk situations, management should have a fund generate the highest level of confidence regardingbetter understanding of the underlying investments and the valuation and existence assertions. This is consistentthe process used to value such investments, with FAS 157, The audit effort needed to support theManagement must also have sufficient information to valuation and existence assertions is greater for a moreunderstand, evaluate and either accept or independently complex or illiquid investee fund than for a less complexchallenge the investee fund's valuation policies and and more liquid fund,application thereof. The investor entity's auditor should also considerManagement of the investor entity must also have a management's policies relating to obtaining ansufficient understanding of the nature of the investee understanding and evidence of the composition of thefund's underlying investments, the portfolio strategy investee fund's investment portfolio and the valuationemployed and the policies and procedures used by the policies relating thereto (e.g " what are the valuation inputs

investee fund manager andlor an outside service and methodologies, how much of the portfolio is fair

provider, such as a fund administrator, to value the valued, how often is the portfolio priced). The auditor, in

underlying investment portfolio, including the inputs, developing a risk assessment, must also consider how the

methods and key assumptions used, Such understanding ultimate investments are held by the investee fund, The

should be documented in the investor entity's files, complexity of the structures used by investee funds mayaffect the degree of transparency provided to or available

An effective process for supporting fair value estimates of for the auditor and the investor entity's management, withits alternative investments requires the investor entity's respect to the underlying investment portfolio, Formanagement (directly or through agents acting on its example, information on the underlying investments may

behalf) to have sufficient information on the underlying be more limited for investments held through multi-tiered

investments, Therefore, an auditor needs to assess the fund structures like master-feeder or fund-of-funds

nature and extent of information available to management structures, or through various special-purpose vehicles,

and the documentation and support of such information Such structures may result in further challenges in

in management's files. Good internal controls include assessing the existence or valuation assertions,

strong documentation related to both initial and periodic As discussed in Section 2, there should be a generalongoing due diligence, To the extent that management correlation between the liquidity of an investee fund'sdoes not have sufficient information on its underlying investment portfolio and the liquidity terms of the fundinvestments, andlor sufficient evidence of such itself (Le " redemption provisions), As part of its riskinformation, the auditor needs to consider the internal assessment, the auditor should consider the potential forcontrol and financial statement reporting implications, liquidity mismatch between an investee fund's

investments and the liquidity terms of the investee funditself, as well as the potential for "style drift" for eachinvestee fund and the effect it may have on liquidity.

20 PricewaterflouseCoopers ! Auditing Alternative Investments


'"' !mpHcatiDns for tho auditor

5. Nature, complexity and liquidity ofthe investee funds themselves

In performing its risk assessment over an investor entity's could affect the amount and timing of the investorportfolio of alternative investments, the auditor should entity's redemptions from an investee fund and,consider the liquidity of the investee funds themselves, therefore, afiect the investor entity's assertion related towith a particular focus on hedge funds and private equity fair value (I. e., consider whether the net asset value of thefunds. When assessing the risk of the investment, investment should be discounted).

management of the investor entity and the auditor should Some of these terms could affect the investor entity's netunderstand the nature and extent of the investee fund's realizable value with respect to an investee fund. Forliquidity terms. For the following reasons, funds thatexample, the investor entity and the auditor should beprovide less liquidity (i.e., less frequent redemption rights)

may be considered higher risk than funds with greater aware of situations where the holdback period (described

liquidity: in Appendix B) has ended and proceeds have either notbeen received from the investee fund or have been

• Investor entities are not as readily able to redeem their received but not for the full amount. This could indicateinterests in the fund. an issue associated with the net realizable value of the

• There is an expected correlation between the liquidity receivable from the investee fund with respect to suchterms of the fund itself and the liquidity of the investee holdback amount.fund's underlying investment portfolio.

When assessing the risk of the investment, the auditorTherefore, investee funds with longer lock· up periods (and management of the investor entity) should ensureand/or notice periods may suggest that the investee fund they understand the nature and extent of the investeeis less liquid - and therefore higher risk - than funds with fund's liquidity terms in combination with other factors.shorter or no lock·up periods. This is because investors For example, since private equity funds have limitedin funds with shorter or no lock·up periods generally have opportunities, if any, for investor entities to withdrawthe ability to redeem their interests more frequently. Also, before the fund terminates (other than through a sale insince investor entities lose any redemption rights with the "secondary market"), interests in private equity fundsrespect to the portion of the underlying investments may be considered less liquid than interests in hedgedesignated in "side pocket accounts" (as explained in funds. Therefore, simply from a liquidity perspective,Appendix B), the use of such mechanisms may create private equity funds may be considered higher risk. Otherinherent difficulties in assessing fair value. Therefore, it is factors, however, such as the possibility of a sale in theimportant to determine if investments held in the side "secondary market" andlor the higher level ofpocket accounts are material to the investor entity's transparency often provided by private equity fundoverall capital balance, and for management to managers to their investors may serve to mitigate theunderstand the nature of the fair value policies and higher risk. Private equity fund managers tend to provideprocedures over the related side pocket investments. significant transparency to investors because theirFurther, the imposition of the "gate" could indicate portfolios consist of positions that were "privatelysignificant redemptions from the fund. Depending on the negotiated" with little access to the transactions throughliquidity of the underlying investments in the fund, this the public market.

A

Pric0waterhouseCoopers I Auditing Alternative Investments 21


Summary of auditor's risk In determining the nature, timing and extent of auditprocedures, the auditor must consider all of these factors, It

assessment is clear that several types of alternative investments with

As noted throughout this section, with respect to varying structures and strategies, each with their own

investments in alternative investments, the auditor's risk attributes and characteristics, present unique audit risks,

assessment depends on the particular facts and Accordingly, a "one-size-fits-all" approach to auditing an

circumstances, including, but not limited to, the following investor entity's interests in various alternative investments

risk factors: may not be appropriate, To design efficient and effectiveaudit procedures that address the unique risks associated

Significance of alternative investments to the investor with each investment, all relevant factors must beentity's financial statements considered. As with management's risk assessment, there

• Nature and extent of management's process and related are several approaches to addressing this issue, Oneinternal controls associated with alternative investments approach would be to categorize or stratify the investor

• Nature and extent of information available to management entity's portfolio of alternative investments by the auditor's

to support its valuation process and valuation conclusions perceived risk assessment into "low," "moderate" and

• Nature, complexity and liquidity of the underlying "high" risk categories, The auditor would then design

investments of the investee funds procedures for each category to provide adequate comfortgiven the relative risk rating (e,g " more robust audit

• Nature, complexity and liquidity of the investee funds procedures for the "high" risk category), For example,themselves based on the risk assessment, the auditor may categorize

the portfolio of alternative investments as follows:

Low risk Moderate risk High risk• Lower relative risk than other Moderate relative risk compared High relative risk compared with

categories with other categories other categories

• Heavier reliance on management's Moderate reliance on Low reliance on management'sprocess and controls management's process and process and controls

• Some substantive testing of controls Heavy substantive testing ofvaluation and existence assertions More substantive testing of valuation and existence assertions

valuation and existence assertions

This approach, which involves considerable judgment by In addition, a fund-ol-funds investment might bethe auditor, should consider all relevant factors for each categorized initially as "high" risk given the inherent liquidityalternative investment. For example, if the auditor issues and transparency constraints with respect to theconsidered the liquidity of the alternative investment as the ultimate underlying investments, If, however, the fund-of-only relevant factor in categorizing risk, all closed-ended funds manager has effective procedures and strong internalprivate equity funds would default to a "high" risk rating. If controls and periodically provides detailed or summarythe auditor considered other factors, such as the information on portfolio funds, the risk assessment mighttransparency of portfolio holdings and quality of quarterly change to "moderate" or "Iow" risk,investment summary disclosures, the risk assessment forthose private equity funds may change to "moderate" or As discussed in Section 2, in many cases, management

"low." may have developed its own stratification of risk across itsalternative investment portfolio to facilitate its due diligence

Also, given the varying terms, structures and strategies and ongoing monitoring of the investee fund managers.within different types of alternative investments, it is likely Though the factors management considered in theirthat the alternative investments within a general category stratification effort may vary from those of an auditor, the(e.g" hedge funds, private equity funds) may be placed into auditor should understand management's approach anddifferent risk categories, For example, a hedge fund that any significant differences that could influence their ultimateholds highly liquid, marketable securities and provides risk categorization of the investments. An efficient approachmonthly liquidity may be categorized as "Iow" risk, while may be for the auditor to obtain and assess management'sanother hedge lund that holds liquid and illiquid risk assessments, corroborate the information, and theninvestments and has a longer lock-up period may be design appropriate audit procedures around each category,considered "moderate" or "high" risk, The same couldapply for funds that employ a similar investment strategybut are structured differently.

22 PriC0waterhouseCoopers i Auditing Alternative Investments


.J. If np!icalions fo^· the auditor

B. AddresS i n the existence and valu Ion

S

As with any audit area, an auditor's approach is based Refer to Exhibit I and related discussion in the AICPAon an assessment of the risk of material misstatement Practice Aid for further information.of the financial statements. Accordingly, the auditor

In general, a direct relationship also exists between theneeds to consider the quantity and quality of audit quality of the audit evidence and the nature and extentevidence to be obtained when assessing risks and

designing audit procedures. There is a direct of the information provided by the investor entity andlor

relationship between the risk of misstatement and the the investee fund manager as of a date closest to the

quantity of audit evidence needed -the greater the risk, investor entity's balance sheet date. As the quality andthe more audit evidence is required. Also, the quantity extent of information as of the investor entity's year end

and quality of audit evidence are interrelated because increases, so does the quality of the audit evidence

the higher the quality of audit evidence, the less quantity available. Because of certain inherent issues associatedof audit evidence may be required. with alternative investments, auditors may face

challenges in obtaining the same quality and quantity ofThe evaluation of the quality of such evidence is subject audit evidence across an investor entity's portfolio ofto the auditor's professional judgment. The AICPA alternative investments. The evaluation of the qualityPractice Aid highlights that the quantity and quality of and quantity of audit evidence is subject to the auditor'sthe audit evidence necessary generally increases as: professional judgment. Table 4A is a non-all-inclusive

• The percentage of alternative investments to total list of the various types of audit evidence an auditor

assets and the total investment portfolio increases may receive and an illustrative assessment as to its

• The nature, complexity and volatility of the underlyingquality.

Investments increases

Table 4A

Information available Quality US GAAS/GAAP audited financial statements of the investee fund, including detailed schedule of Highestinvestments, as of the investor balance sheet date

US GAAS/GAAP audited financial statements of the investee fund, including condensed schedule Highof investments, as of the investor entity's balance sheet date

Unaudited detailed list of the investee fund's underlying investments as of the date of the investor Highentity's balance sheet date, particularly to the extent the investments are highly liquid

Non-US GAAP audited financial statements of the investee fund, including detailed schedule of Moderate/Highinvestments, as of the investor entity's balance sheet date, along with reconciliation to US GAAP

Unaudited investee fund's condensed schedule of investments as of the date of the investor Moderateentity's balance sheet date

Unaudited detailed listing of the investee fund's underlying investments as of a date other than Moderatethe investor entity's balance sheet date

Audited financial statements of the investee fund, including a detailed or condensed schedule of Moderateinvestments as of a date other than the investor entity's balance sheet date

Confirmation with the investee fund manager or with a third-party administrator of the investor Moderate/Lowentity's interest in the investee fund (e.g., number of units held or percentage ownership, andvalue of the investor entity's proportionate share of net assets/partners' capital) as of the investorentity's balance sheet date

Limited visibility into the underlying investments Low

PricewatorhouseCoopers i Auditing Alternative Investment s 23


Existence assertion

The existence assertion addresses whether the alternativeinvestments exist at a given date. The occurrence assertionaddresses whether the alternative investment transactionsreported in the financial statements actually occurred.

Confirmation process

The AICPA Practice Aid provides guidance on the confirmation process that auditors should incorporate

into their audit approach. According to the AICPA Practice Aid, simply confirming investments in the

aggregate does not constitute adequate evidence with respect to the existence assertion. Rather, the

AICPA Practice Aid states that, if the auditor concludes that the nature and extent of audit procedures

should include confirming the existence of the entity's investments, confirmation of the holdings of the

alternative investments on a security-by-security basis typically would constitute adequate audit

evidence with respect to the existence assertion. Appendix 1 to the AICPA Practice Aid includes an

illustrative confirmation for alternative investments. This confirmation is illustrative only and may be

enhanced or modified if appropriate. For example, for private equity funds, it may be appropriate to also

confirm the investor entity's share of committed capital and the unfunded capital commitment as of the

reporting date. It may also be appropriate to create different confirmations for an investee hedge fund

(domestic and offshore funds) or an investee private equity fund.

If the confirmation request is not returned to the auditor or the details of the underlying investments are

not otherwise provided, the AICPA Practice Aid states that the auditor .should perform alternative

procedures to assess the existence of the alternative investments. Even if the auditor obtains a detailed

confirmation of the investee fund's holdings, the AICPA Practice Aid states that the auditor may need to

perform additional procedures, depending on the significance of the alternative investments to the

investor entity's financial statements. Considerable auditor judgment is required to determine whether

the auditor has sufficient evidence to satisfy the existence assertion.

-- - _-- _ - — ---- - . _- _ ------ -- --------- - - ^

The confirmation process is summarized as follows: 1

Does the nature and extent of audit procedures

include confirming the existence of the investor entity'sYes

investments? N°

Confirm holdings of the investee fund's All audit comfort is obtained from controls

investments on a security-by-security basis. reliance and other substantive tests.'

t No Is the confirmation request returned to Perform alternative procedures

the auditor? to assess the existence of the

v Yes alternative investments. IAre the details of the underlying investments

No See illustrative procedures

provided by the investee fund manager? below.

^ Yes

Consider whether additional procedures are still

necessary to satisfy the existence assertion. See 1

illustrative procedures below.

1 !t would be unusual for the nature and extent of audit procedures to not include confirming evfdence of the investor entity's alternative

investments.

24 PricewatedlouseCoopers Auditing Alternative Investments


J impi ications fo!" the 2lUOilor

Illustrative alternative or additional procedures

Alternative or additional auditing procedures include, but are not limited to, the following:

1, Observe management site visits or listen to 3. Inspect other documentation supporting the investor

telephone calls to in vestee funds (or review entity's interest in the fund (e.g., confirmation of

documentation of such calls or visits), subscription, periodic statements, tax forms).

Observetion: Depending on the timing of Observation: Upon subscription to a fund, the

management's site visits or telephone calls to investee fund manager or fund administrator may

investee funds and the willingness of the investee provide a "confirmation" of the investment made.

fund manager to allow participation by the. auditor, Typically, the ihvestee fund manager or fund

auditors may or may not be able to actually.observe administrator also provides periodic statements

such visits or calls, However, management of the reflecting an investor entity's interest in the fund,

investor entity, as part of its due diligence process, related capital account or number of shares/units

should maintain adequate records of such visits or . helrVSuch information may be useful audit evidence .

calls, which auditors can review, for the existence assertion, especially when it is

supplied to the inve. stor entity directly by a third-party

2. Review executed partnership, trust, limited liability fund administrator. Alternative investments structured

corporation or similar arrangements, as domestic partnerships (or taxed as such) would

Observation: The ability and extent to which

also be required .to provide limited partners with a

Schedule K-1, which reports the components ofexecuted documents help satisfy the existence

taxable income, the capital account balance andassertion depends on factors such as the nature of

related activity, as well as the percentage of interestthe investee fund and the aging of the investment.

of such investor entity in the fund. Auditors need tomFor example, the limited partnership agreeenlfora

keep :in mind that, like most alternative investments,private equity fund may include a list of each limited

funds structured as domestic partnershipspartner and their corresponding capital.commitment

predominantly have a December 31 year end. ForReviewing executed copies of such documentsmayprovide evidence as to the existence.assertion,such information to be most useful to the auditor of

.

especially when the investment is relatively new, the investor entity, management of the investor entity

However, if an investment in a private, equity fund i.swith a different 'year end should reconcile such

aged (I.e., greater than one year), reviewing thecalendar year tax information to the audit period and

partnership agreement . would give the audit()r"less" year end of the rivestor entity.

evidence of the ownership of that alternative

investment as of a current reporting date. 4. Review periodic investor/partner statements from

The limited partnership agreement for a hedge fund the investee fund or administrator/custodian reflecting

does not typically provide an investor list Rather, investment activity and compare such activity with the

each limited partner separately executes a limited investor entity's records.

partnership agreement and related subscription

document upon admission to the hedge fund. Limited Observation: As noted above, the investee fund

partners may execute.' additional subscription manager or, fund administrator typically provides

documents or other documents upon subsequent periodic statements reflecting an investor entity's

subscriptions to the fund. Limited partners may also interest in the fund, related capital account or

execute redemption requests upon providing notice number of share.s/units held. Comparing such

of their intention to redeem from an investee fund. documentation reflecting investment activity to the

records of the investor entity may provide the auditorThe auditor might obtain adequate .audit evidence by with valuable audit evidence., especially when .such .reviewing executed documents, along with information issupplied directly to the investor entity "confirmation of related capital activity, withthe

by a third-party .fund administrator.investee fund manager or with a third-party fund

administrator, and vouching the related cas.h.

PricewaterhouseCoopers I Auditing Alternative Investments 25


5. Review annual audited financial statements.

Observation: In most cases, alternative investments

are required to have an annual audit. The timing of

the audit depends on factors primarily driven by the

investee fund'·s fiscal year end and the nature of its

underlying investment portfolio. The vast majority of

alternative investments have a December 31 year

end. Some offshore hedge funds, however, may have..a different: year end, often June 30. Reviewing annual

audited financial statements (or, toa lesser extent,

quarterly or semi-annual unaudited financial

statements) mayb e useful in satisfying the existence

assertion, especially when the financial statements

include additional information detailing an investor

entity'sinterest'in the fund. Considerations related to

the, use of such firmncial statements are discussed in

further detail later in this section.

6. Vouch relevant cash receipts and disbursements.

Observation: Comparing cash activity reflected in the

records of the investor entity with the corresponding

cash movements reflected in bank or brokerage

statements generally provides the auditor with Valuation assertionvaluable audiLevidenCe.

The valuation assertion addresses whether

alternative investments have been included in the

financial statements at the appropriate values.

This guidance addresses alternative investments

required to be carried at fair value.

Illustrative procedures

The auditor 's consideration of the valuation assertion

typically begins with understanding the process used by

the investor entity's management to develop its fair value

estimates and the controls established relative to those

estimates.

As discussed earlier, management of the investor entity is

responsible for the valuation of the alternative investment

amounts presented in the investor entity 's financial

statements. The AICPA Practice Aid states that this

responsibility cannot be outsourced or to a party

outside of the investor entity 's management. While

management can look to other parties for the mechanics,

review, accounting or oversight of the valuation - such as

the investee fund manager, administrator/custodian or a

third-party investment consultant - management must have

sufficient information to evaluate the investee fund's

valuation, and either independently challenge it or accept it,

as appropriate. In certain circumstances, challenging the

investee fund's valuation. may cause the investor entity to

modify it in some way.

26 Pl'iC8wat8(1l011SeCOopers i Auditing Alternative Investments


4- liT1piications fur the ct'.:cii:or

The investor entity's auditor needs to develop a solid the type of data that is presented to management, Valuation

understanding of the investor management's process and Committees and lor the board of directors at the investor

controls to determine the estimated fair value of its entity with respect to alternative investments.

alternative investments in order to assess how they affectWhere management of the investor entity has determined

the nature, timing and extent of the auditing procedures.

The AICPA Practice Aid suggests that the auditor testthat they are NOT comfortable relying on an investee fund's

management's fair value estimates using one or more of the reported value, management must arrive at its own estimate

following approaches as of the balance sheet date:of fair value. This is typically done with the help of the

underlying investee fund manager because the informationa. Confirm the alternative investment about the portfolio investments that would facilitate the

b. Review and test the investor entity's process and related valuation process .is often not totally transparent or

data available to the investor entity. For example, if the investee

c. Use audited financial statements fund reports on a tax basis (rather than US GAAP), the

investor entity should contact the investee fund manager tod. Review recent transactions

obtain the necessary information to arrive at fair values in

These approaches are described in more detail below. To accordance with US GAAP for the investee fund's

the extent that the investor entity's management estimates investment portfolio.

the fair value of a significant portion of its alternative The approaches described in the AICPA Practice Aid for the

investments as of an interim date, management of theauditor to test management's fair value estimates are each

investor entity needs to obtain sufficient information to stated below, with additional guidance provided on the use

record such investments at fair value as of its balance sheet of financial statements and the review of recent

date. In those cases, the auditor must test both the investor transactions.

entity's estimation process as of the interim date and the

investor entity 's roll-forward process to the reporting date. a. Confirm the alternative investment

The auditor must also consider how much management of The AICPA Practice Aid states that if the auditor determines

the investor entity relies on the information reported to it by that the nature and extent of auditing procedures should

the investee funds. If management of the investor entity include testing the measurement of the investor entity's

relies significantly on the investee fund manager's investment, simply receiving a confirmation from the

valuations and valuation process, management must first investee fund of its underlying investments, either in the

ascertain whether it is appropriate to do so by gathering as aggregate or on a security-by-security basis, does not, in

much information about each of the investee fund and of itself, constitute adequate audit evidence with

managers as possible. Much of this information is obtained respect to the valuation assertion. The extent of additional

and analyzed as part of management's initial and ongoing procedures is directly related to the assessed risk of

due diligence procedures described in the AICPA Practice material misstatement of the financial statements.

Aid and discussed in Section 2.b. Review and test investor entity's process and

The auditor should ensure that it understands where within related datathe investor entity 's organization the due diligence and

monitoring process takes place. The auditor should not only A confirmation on asecurity-by-security basis may provide

review the procedures performed by operational andthe auditor with corroborating evidence to support the data

accounting personnel, but also focus on the functions used or considered by the investor entity 's management in

performed by areas such as portfolio management, risk its valuation process. However, if detailed information, such

management and the legal department. In some cases, the as a description of each investment, ownership percentage,

responsibility for the due diligence programs and related shares owned and estimated value is not available, then the

documentation is dispersed within an investor entity's auditor should look to other information that management

organization. It is also helpful for the auditor to understand of the investor entity used in its valuation.

PricewaterhouseCoopers ! Auditing Alternative Investments 27


Such other information may include detailed descriptions of c, Use audiied financial statementsthe investee fund process to determine fair value and the

investor entity's assessment of that process, It may also The investor entity should provide the auditor with the most

include a review of Valuation or Investment Committeerecent financial statements of each investee fund and the

minutes or other memoranda or summaries that documentaccompanying audit report The investor entity should also

key valuation assessments and judgments made in the provide the auditor with the reconciliation of such financial

process,statements with the investment balance recorded by the

investor entity, In reviewing these financial statements and

Often, management uses a wide variety of information to related reconciliations, the auditor should consider the

assess valuation, This includes management's factors discussed below,

understanding and supporting documentation related to the

valuation controls at the investee fund manager, as well as Obtain and review available financial statements

information it receives on a periodic basis, As part of its In general, coterminous financial statements of the investeeongoing due diligence, the investor entity may receive full fund that are reported on the same basis of accounting astransparency to the investee fund 's underlying portfolio or those of the investor entity and which have been audited bysomething less, such as material positions, Alternatively, an auditor whose report is satisfactory to the investorthey may receive other information, such as exposure entity's auditor, for this purpose, may constitute sufficientreports or benchmarking data, which they may use to evidential matter,assess the reasonableness of the returns provided by

investee fund managers, For instance, a fixed-income Upon reviewing the investee fund 's financial statements,

hedge fund may not provide an investor with full however, the auditor may conclude that additional evidence

transparency to the fund, but may give the investor key is needed because of factors such as:

data with respect to the porHolio that the investor may in Unfamiliarity with, or questions surrounding, theturn use to track the fund against observable benchmarks, professional reputation and standing of the investeeSuch data includes the duration of the portfolio, weighted . fund's auditoraverage maturity, weighted average coupon, portion of the

Significant differences in fiscal year ends between theportfolio that is hedged, etc, The investor entity may then

investor entity and the investee funduse this information to derive expectations related to the

investee fund, which are then compared to actual returns, Significant differences in the basis of accounting between

the investor entity and the investee fund resulting in

Another example would be an in vestee fund invested in significant differences in the accounting principles appliedover-the-counter derivatives, The investee fund may provide .

Ouestions regarding the audit opinion for the investeeenough information related to the portfolio, such as its

fund andlor its accounting policiessensitivity relative to the benchmark (e,g " the delta of the

portfolio) that it could be tracked against an observable • Timing of the investor entity's audit that precludes receipt

market In the absence of sufficient audit evidence, of the audited financial statements of the investee fund

especially when the year end of the investee fund does not Other factors that cause management of the investor

coincide with that of the investor entity, auditors may entity discomfort with relying on an investee fund

consider testing these analytical procedures by performing manager's estimate of value

independent analytical procedures using publicly available

information or testing the assumptions used,

28 PricewaterhouseCoopers Auditing Alternative Investments


The following decision tree is a tool to help the auditors of investor entitiesas they consider the use of financial statements of invGslee funds.

Understand the internal cQntrol .at the investor entity enough to

be able to plan the. audit strategy for alternative investments.

Does the audit strategy planned include obtaining and

Noreviewing audited financial statements of the investee funds? ^

l

All audit comfort is obtained from controls Determine whether the report of the investee

reliance and other substantive tests'. fund's auditor is satisfactory for this purpose.4

Is the professional reputation and standing

Yes of the investee fund auditor adequate?

No

Is the basis of accounting in the in vestee fund's No audited financial statements the same as that of =

the investor entity (e.g., US GAAP)?

Yes Consider

additional

Is the fiscal year end of the investee No. procedures.

fund's audited financial statements the

same as that of the investor entity?(See Table 4B)

!Yes

Do the financial statements of the investee fund Na include an unqualified audit o.pinion and industry

standard acco.unting po.licies?

As reflected above, if the investor entity and the investee fund have the same year end and basis of accounting, then the

audited financial statements of the investee fund and the accompanying auditor 's report may provide significant audit

evidence regarding the valuation of the investment. To the extent that the investor entity and the investee fund have

different year ends andior a different basis of accounting, the auditor may need to perform additional procedures.

1 It would be unusual for the audit strategy to not include obtaining and reviewing the most recent audited financial statements of the

investee funds,

PriC0watorho'JseCoopers i Auditing Alternative !nvestments 29


If, because of the issues listed above (or others), the auditor needs more evidential matter, the auditor should perform

additional procedures to gather the additional evidence. The nature, timing and extent of these additional procedures is a

matter of professional judgment after considering factors such as the materiality of the investment in relation to the

financial statements of the investor entity. These procedures may include those listed in Table 48 below.

Table 48

Factors impacting use of audited financial statements Illustrative additional procedures

Professional reputation and standing of the investee fund 's Investigate the professional reputation and standing of

auditor the investee fund's auditor.

• Request that the investor entity apply, or have the auditor

apply, appropriate procedures to the financial statements

and/or the underlying records.

• Request that the investor entity call or visit the other

auditor to discuss audit procedures followed and the

results thereof. Review the audit program and/or working

papers of the other auditor, to the extent permissible'

While it may be appropriate for auditors to observe such

visits (or to review documentation of the calls or visits),

the investor entity retains primary responsibility.

Significant differences in fiscal year ends Obtain and review interim financial information supplied

by the investor entity related to the investee fund and test

their tracking analyses.

• Obtain from the investor entity any roll-forward or

analytical procedures over the investment balance from

the date of the investee fund's year end to the date of the

investor entity's year end.

Significant differences in basis of accounting Obtain a reconciliation of the reported amounts to US

GAAP. Such reconciliation should be prepared by the

investor entity or obtained by the investor entity from the

investee fund manager and reviewed by the investor entity.

Obtain documentation from the investor entity assessing

differences in the basis of accounting and the effect on the

investment balance. For investments not held by the

investee fund at fair value, review the independent

assessment of fair value provided by the investor entity's

management.'

Qualified opinion and/or unusual accounting policies Review financial statements of the investee fund to

assess the potential effect of a qualified opinion or

unusual accounting policies.

• Obtain documentation from the investor entity assessing

the potential effect of a qualified opinion or unusual

accounting policies.

1 To the extent Ulat the inv€stee fund's audHors have policies that prevent an lnvestor from contacting them directly. investor entity

auditors need to consider alternative procedures,

2 This is typically done with the help of the investee fund manager whenever possibie. For example, if ttle investee fund reports on a tax

basis (rather Ulan US GAAP), management of the investor entity should contact the investee fund manager to obtain the necessary

inforrnation to arrive at fair values for tile investments heid by the investee fund. For real estate funds, for instance, the in vestee fund

manager may have independent appraisals. Management of the investor entity may obtain and review the appraisals to support its fair

value assertions.

30 PricowaterflouseCoopers Auditing Alternative Investments


Reconcile financial statements lo investment balance Private equity funds: With respect to investments in

private equity funds, management's reconciliation of theIn addition to assessing the adequacy of the audited audited financial statement to the recorded investmentfinancial statements of the in vestee funds based on the balance may be more difficult because the economics offactors set forth above, the auditor should obtain private equity funds may be unique. For instance,management's reconciliation of tile investee fund's financial partnership agreements may require priority returns bestatements with the investor entity's recorded investment made to limited partners before the general partnerbalance. receives distributions of capital, after which the general

Management's ability to reconcile the investee fund's partner may receive amounts in excess of its capital

audited financial statements to the investor entity's commitments (commonly known as carried interest). The

recorded investment balance depends on various factors, investor entity's management must have a very good

such as the nature of the information provided in the understanding of the partnership agreement and its effect

financial statements and the investee fund's capital on fair value as of the balance sheet date. The investor

structure. In certain situations, it may be easy for the entity's analysis should generally incorporate a

investor entity to reconcile the recorded investment balance hypothetical liquidation approach (i.e., what amount

with information in the investee fund's audited financial would the investor entity be entitled to under the

statements. In other situations, it may be difficult. Consider distribution terms of the investee fund agreement if the

the following examples: in vestee fund were to liquidate all of its investments at the

• Supplemental information: In some cases, the auditedbalance sheet date). The investor entity must also be

financial statements include supplemental informationcognizant that some financial statements of private equity

containing individual investor capital balances and related

funds may not allocate unrealized gain/loss to the capital

accounts of the limited partners. Lack of allocation ofactivity. In such situations, the investor entity should

such amounts may result in large differences associatedcompare the recorded investment balance with the

with capital balances for the partners. The investor entitycorresponding capital balance presented as supplemental

must ensure that its analysis incorporates unrealizedinformation to the investee fund's audited financial

gaintloss amounts. Finally, it is always important for thestatements and reconcile any differences.

auditor to read investor letters that accompany the annual

• Unitized capital structures: In the case of hedge funds financial statements because they may identify

that maintain unitized capital structures (e.g., most anticipated transactions or other information that may be

offshore funds structured as corporations), the audited relevant to the determination of fair value.

financial statements should present the net asset value

(NAV) per share for the various classes or series d, Review recent transactions

outstanding at year end. The investor entity may decide Under Statement of Auditing Standard No. 1 01, theto compare such NAVs reflected in the audited financial auditor's substantive tests of fair value measurementsstatements with those used by the investor entity to involve examining subsequent events and transactions thatrecord its investment balance. confirm or disconfirm the estimate. The investor entity may

• Analytical procedures: In other cases, it may be more liquidate a portion of its alternative inve!3tment as of a date

difficult for management to reconcile the audited financial close to the investor entity's fiscal year end to support the

statements for the investee fund as a whole with the valuation of its investment. The auditor needs to consider

investor entity's recorded investment balance. In those how often these settiements occur and the procedures

cases, the investor entity may decide to perform used to value them, including whether there are holdbacks

analytical procedures over the investment balance for or whether the transactions are between willing buyers

reasonableness. For example, it may be possible for the and sellers.

investor entity to reconcile its investment balance to the

product of the total capital/net assets of the investee fund Recent transactions not indicative of fair value

reflected in the audited financial statements and the Sometimes a recent transaction should not be consideredinvestor entity's percentage interest. Such percentage in the valuation considerations because it may not indicateinterest can be obtained from information provided by the fair value. Such an example often arises in the secondary

investee fund manager and/or the percentage interest private equity market where an investor purchases a limitedreflected for the investor entity on the Schedule K-1 it partner's existing interest and remaining commitment in areceives from an investee fund structured as a limited private equity fund, This often results from the seller's needpartnership (i.e., most domestic funds). for liquidity, inability to fund future commitments or desire

PricowaterhouseCoopers I Auditing Alternative !f'lvestrnents 31


to reduce exposure to private equity. The seller may sell its It is more difficult in a non-unitized fund environment (i.e.,

interest in a private equity fund to the buyer at a deep investment partnership) to gain significant comfort with

discount or at a premium to the fund's NAV. Consequently, respect to the valuation assertion from a partial redemption

the sale or transfer price between the buyer and the seller because there is no point of measurement for the investor

may not indicate a true fair value. entity. For example, if an investee fund reported an investor

Another example is a 'run on the fund," where funds have account balance of $5,000,000 and the investor entity

requested $3,000,000 in redemption proceeds, thebeen forced to liquidate because of various circumstances,

redemption provides less support for the valuation assertionsuch as poor performance combined with expired lock-up

with respect to the remaining $2,000,000. Accordingly, theperiods or lack of "gates." This could become a situation of

auditor for the investor entity would have to gain additionalduress for the investee fund. In an effort to meet its

audit evidence for both the existence and valuationredemption requests, the fund may be forced to liquidate

assertions. With respect to unitized funds (i.e., mostsecurities in a "fire sale" situation. Such a forced liquidation

offshore funds), some audit comfort may be achievedor sale could result in values lower than those recorded on

because the number of units and dollar value per unit arethe books and records of the investee fund. Alternatively,

known. But this depends on the circumstances associatedthe fund may sell its highly liquid investments first, leaving

with the transaction.very illiquid investments in the portfolio. The auditor must

consider those remaining investments if the investor entity Summary of addressing theremains in the fund. The investor entity must be aware of

the activities occurring at the investee fund to ensure no existence and valuation assertionscircumstances can create a situation of duress that may

As discussed above, the auditor's approach is based on anaffect the valuation of its investment. If indicators of duress

assessment of the risk of material misstatement of thearise, the investor entity requires additional effort to

financial statements and must consider the quantity anddetermine fair value.

quality of audit evidence to be obtained when assessing

Full and partial redemptions risks and designing further audit procedures.

On or close to the investor entity's fiscal year end, there Because alternative investments use varying structures and

may be full or partial redemptions of interests in investee strategies, each with their own attributes and

funds. For a full redemption, as noted in Appendix B, the characteristics, they present unique audit risks.

investee fund may hold back a portion of the investor Accordingly, a "one-size-fits-all" approach to auditing an

entity's balance pending the issuance of the independent entity's interests in various alternative investments may not

auditor's report of the investee fund. These amounts are be appropriate or possible.

generally recorded as receivables on the investor entity'sAn effective and efficient process may involve the following:

books, and may range from 5 percent to 10 percent of the

full redemption amount. After the auditor's report is 1. Obtain management's risk assessment over its portfolio

released, the investee fund will then remit the remaining of alternative investments.

balance, with the ultimate balance perhaps being more or 2. Review and assess such risk assessment and

less than the balance recorded at year end. The investor corroborateitest the information reflected.

entity 's auditor's procedures should include vouching such 3. Design efficient and effective procedures that addressamounts received and comparing adjustments to the

the unique risks associated with each investment, eitheramounts recorded at the balance sheet date.

individually or by assigned risk category, after

Full redemptions can be indicative of value near the balance considering all relevant factors.

sheet date. For instance, close to year end, an investor Because of certain inherent issues associated withentity may request a full redemption from an investee fund. alternative investments, either individually or by assignedThe balance related to its investment may be materially

risk category, auditors may face challenges in obtaining theconsistent with the balance recorded at year end. Through

same quality and quantity of audit evidence across anits monitoring controls and other documentation, the investor entity's portfolio of alternative investments. Theinvestor entity should be able to assert the reasons for the evaluation of the quality and quantity of audit evidencedifference between the year-end balance and the

necessary to satisfy existence and valuation assertions isredemption amount. The combination of the cash received subject to the auditor's professional judgment.from the redemption and other documentation supporting

the investor entity's assertion, with respect to the difference

between the balance sheet value and redeemed value, may

constitute sufficient audit evidence for the valuation assertion.

32 PricewaterflouseCoopers i Auditing Alternative lnvestments


Appendix A I III ustrative U3 riskass s e t and AU332 ris

asses ment considerati ns

The following illustrative AU332 risk assessment is provided as an example only. It depicts one approach management of

investor entities might use to assess and summarize risk to determine the nature and extent of due diligence pursuant to

the requirements of the AICPA Practice Aid. This example is not intended to be all-inclusive of every risk factor thatmanagement should consider.

Risk rating'

Fund A Fund B Fund C

General information

Fund type (e.g., hedge, private equity, real estate, fund-of-funds)

Investment strategy

Investor's original investment date

Investor's investment balance at [date]

Fund's net assets/partners ' capital

Amount

As of date

Fund manager 's assets under management

Amount

As of date

Fund's fiscal year end date

I Investor entities can use different approaches to assess the risk associated with their portfolio of alternative investments. SUdlapproaches can be quantitahvely driven based on tIle assignment of a risk score (Le., 1 :=; lowest risk, 5 := highest risk) or morequalitatively driven.

PricewaterhouseCoopers I Auditing Alternative Investments 33


Risk rating'

Fund A Fund B Fund C

Management, governance and service providers

Quality and experience of fund management

Role and effectiveness of fund governance

Quality of service providers

Strategy, structure and key terms

Nature, complexity and liquidity of strategyenro Nature of fund's liquidity termsQ)

ro Complexity of structure and key terms-c

Q) Transparency and reportingE

N Nature and quality of transparency

Q)rJ)rJ) Quality of financial reporting(1j

N Internal controls

a: Adequacy of infrastructure, personnel and general internal controls

Design and effectiveness of valuation policies and procedures

Quality of risk monitoring

Impact of regulatory compliance matters

Impact of legal and tax matters

Other factors

Composite Risk Rating/Score/Grade

Prepared by: Date:

Reviewed by: Date:

i Investor entitles can use di'fferent approaches to assess the risk associated with their portfoHo of alternative investments. Suet)

approaches can be quantitatively driven based on the assignment of a risk score (Le., 1 = lowest risk, 5 := highest risk) or more

quaritatlvely driven.

2 See accompanying pages for items to consider when assessing the risk associated with an investee fund.

34 PriC8wateri'10useCoopors : Auditing Alternative Investments


Appendix 1\ ' iLUslrativ8 r\U332 risk assess,ncnt and AU33^,: risk assessment considerat:ons

AU3 2 risk assessment considerations

The following summarizes various considerations that management can use \Nhen addressing the

risk areas in the AU332 risk assessment. These risk assessment considerations are for illustrative

purposes only and are not intended to be all-inclusive of every risk factor that management

should consider.

Management, governance and service providers

Quality and experience of fund management

• Is this a new or established investment manager?

• What is the quality and experience of management?

• Does the investment manager demonstrate that he or she is specifically qualified to execute the

strategy in the market in which the investee fund invests?

• Is there evidence from similar endeavors of the ability of the principals to work together?

Role and effectiveness of fund governance

• Is there an Advisory Committee composed of certain limited partners or others? Is it effective?

• Is there a Board of Directors? If so, are there independent members? Is it effective?

Quality of service providers

• Are the auditors a reputable firm with the requisite knowledge and experience given the nature and

complexity of the fund?

• Who is the prime broker? Will they use multiple prime brokers?

• Are the attorneys a well-established firm with appropriate industry experience?

• Is the administrator/accounting agent (if outsourced) experienced and well-established?

PricewaterhousoCoopors i Auditing Alternative Investments 35


Strategy, structure and key terms Nature of fund's liquidity terms

Nature, complexity and liquidity of strategy• What is the liquidity of the investee fund?

• What is the nature, complexity and liquidity of the • Consider the following:

investment portfolio? Subscription frequency (e.g " monthly, quarterly,

• Consider the following: annually, commitments)

- Investment strategyRedemption frequency (e,g " , monthly, quarterly,annually, closed end)

- Performance history • Gates

- Concentrations and exposures• Early redemption charges

- Asset classes (e.g., equities, fixed income, derivatives, • Side pocketsprivate equity) • Holdbacks

- Volatility • Lock-ups

- Volume of transactions To what extent is the liquidity of the investee fund's

- Leverage and use of derivatives portfolio consistent with the liquidity provisions of the

• What is the risk and complexity of the financial investee fund itself?

instruments in the portfolio? Complexity of structure and key terms

• Consider the following: What is the complexity of the in vestee fund structure and

Market prices are readily available from active markets key terms?

with significant transparency and reliability (e.g., stocks, Consider the following:bonds, options, futures). Management feePrices can be obtained from multiple sources such as Incentive fee/allocationsdealers, brokers and intermediaries based on activemarkets with reasonable transparency, reliability and Carried interest

objectivity (e.g., certain high-yield bonds, forward Hurdle rate/preferred returncontracts, matrix pricing of municipal bonds). High-water markPrices can be obtained but the prices are not Clawback provisionscompletely transparent, and the quality and reliability Loss carryforwardvary. The information is generally obtainable fromdealers, although there may be wide spreads in prices Master-feeder

(e.g., asset-backed securities, mortgage-backed Multi-tieredsecurities, CDOs). Side-by-side

- Prices are not observable in the market but can be Fund-of-fundsderived from observable market data or estimated fromhistorical performance or comparable data. The Side letters

derivation or estimation requires a level of judgment Special-purpose vehicles(e,g" structured products, private equity), Opt-out provisions

36 Pricewated'louseCoopers Auditing Alternative Investments


Aopendix !\ liiustrativr.:; /\U:^32 risk assessment and AU332 risk assessment cor;sid8r^itions

Transparency and reporting

Nature and quality of transparency Quality of financial reporting

. What is the nature, extent and timeliness of the investee Are the accounting policies and procedures consistentfund manager's reporting (e.g., monthly, quarterly, annual with industry practice? Under what basis of accountingstatements; written correspondence in the form of are the financial statements of the investee fund preparednewsletters, discussion of holdings and performance)? (e.g., US GAAP, International Financial Reporting

• What level and quality of transparency is provided by the Standards, Tax)? Is it the same basis as the investor

investee fund manager (e.g., full access to portfolio entity?

positions, access to books and records, access to Is the investee fund's year end coterminous with theportfolio managers and key accounting and operational investor entity's reporting year end?personnel)? Has the investee fund received anything other lilan an

unqualified audit opinion in the past three years?

• Do the financial statements contain a portfolio ofinvestments? Is it condensed or detailed? Does it containenough information to assess geographical or industryconcentrations?

• Are there unusual accounting policies or disclosures,including related-party disclosures?

PriC0waterhouseCoopers Auditing Alternative Investments 31


Internal controls

Adequacy of infrastructure, personnel and general Design and effectiveness of valuation policies andinternal controls procedures

• What is the quality of the fund accounting and operational Does the firm have comprehensive written valuationpersonnel? Does the investee fund manager have a policies and procedures that address the keysufficient complement of accounting and finance methodologies and related inputs, by asset class, and thepersonnel with the requisite skills, experience and training roles and responsibilities of the key parties in theto provide for the investee fund's needs? valuation process?

• What is the financial condition of the investment What is the degree of independence in the valuationmanagement firm? process?

• Is there a good relationship between management, the Role of front officeboard of directors and the investors? Role of back office

• Are there written policies and procedures commensurate Role of service providers (e.g., third'party valuationwith the size, nature and complexity of the funds trading experts)strategies? If yes, how frequently are such policiesreviewed and approved by senior management? -Role of Valuation Committee

• Does the investment manager have the necessary Does a Valuation Committee exist and is it effective?

infrastructure to execute, process and account for the Does it consist of any independent members?

transactions? If valuation models are utilized. are:

• Does the fund manager maintain adequate oversight over They standard?outside service providers such as prime brokers, They consistently applied?custodians, administrators, investment consultants, sub,

- The key assumptions reasonable and reliable?advisors, etc,? Are such firms reputable andexperienced? Third'party experts involved?

• Is the fund's strategy a core or ancillary strategy of the Are there adequate information technology controls,manager? Is this a new strategy? including a disaster recovery plan?

• Are all trading strategies determined, approved andreviewed by senior management?

• Is there a SAS 70 or other attest engagement performedover the control environment by external auditors? Ifservice providers are used (e,g " fund administrator), isthere a SAS 70 over their control environment? Ifapplicable, what is the nature of the SAS 70 report?

• Is there an internal audit function within the complex and,if so, does that internal audit department include theinvestee fund operations within the scope of its revieweach year?

38 PriC8waterhouseCoopers Auditing Alternative Investments


ApP(;)f)dix (\ !:iustrativ2 AU332 .. isk assessment and !\U332 risk as-sessn^e"l CDnsiderations

Quality of risk monitoring Impact of regulatory compliance Impact of legal and tax matters

Are there risk limitation policies? matters - Does the complex have an effective

• What types of monitoring, reporting, Is the advisor or the investee fund in-house legal function that is

escalation and resolution processes subject to SEC, CFTC, DOL, FSA or recognized as part of senior

exist? other regulations? management?

• Are "stress tests" performed on a If so, have there been any Are all agreements with all relevant

regular basis? examinations by the regulatory counterparties formally documented

• Are the concentrations of risk in the bodies? with legally binding agreements?

portfolio routinely measured against What were the results? Has management established formal,

the trading covenants/restrictions Any investigations, sanctions or written document retention policies?

outlined in the fund's governing enforcement proceedings? Are there any lawsuits or litigationdocuments (asset class, industry, Any threatened or pending involving the general partner, itsgeography, etc.)? litigation? principals, employees or prior funds

• What is the nature of theolicies that would impact the investmentp Does the investee fund managerand procedures around the cash maintain procedures for tracking and

manager or the fund?

management function? meeting large position reporting Are there any conflicts of interest

• What are the sources of liquidity requirements? with regard to the investee fund, as

available to the fund? Is the investee fund manager's well as activities of the principals?

• What policies and procedures exist compliance with regulatory Has the fund broken any covenants

around measuring the fund's requirements independently relating to any credit facilities or

exposure to potential defaults by the reviewed? How often? other counterparty arrangements? If

fund's counterparties? Is there an effective chief yes, has the fund obtained

• Do policies and procedures exist to compliance officer? Have his/herappropriate waivers from thecounterparty/credit provider?

measure the fund's exposure to reviews resulted in any materialleverage? Are they operating as findings that would affect the Is there an effective tax function and

prescribed?investee fund? related internal controls?

• What policies and procedures exist Has senior management instituted a Are there significant uncertain tax

to measure the fund's exposure to training program for all employees positions?

operational risk (data entry errors, with respect to ethics andsystem failures, valuation errors, compliance procedures?fraud)? Does management of the investee

fund have a robust anti-moneylaundering program in place?

PriC0waterhouseCoopers ! Auditing Alternative Investments 39


ppendi rms

Lock-up Period

A lock-up period refers to the initial amount of time a limited partner or shareholder is required to keep his or her money ina hedge fund before redeeming it. When the lock-up period is over, the limited partner or shareholder is free to redeem hisor her interests in the fund on any liquidity date, subject to the other liquidity terms described in the fund documents.Whether a hedge fund demands a long lock-up period depends a great deal on the quality and reputation of the hedgefund as well as the liquidity of the underlying investment portfolio. Investors may be able to redeem during a lock-upperiod after they pay a "redemption fee," often 3 percent to 5 percent of the amount requested to be redeemed.

Notice Requirement

Following the expiration of any applicable lock-up period, a limited partner or shareholder may, upon specified prior writtennotice (generally 45 days to 120 days) to the general partner or manager (a "Redemption Notice"), elect to redeem all or aportion of his or her interest in a 11edge fund as of the last day of a calendar quarter or month (the "Redemption Date").Redemption requests are generally irrevocable once delivered and are unconditional. Redemption requests that purport tobe revocable or conditional can generally be ignored or treated as irrevocable and unconditional, at the discretion of thegeneral partner or investment manager.

Payment and Holdback

When the general partner or investment manager receives a Redemption Notice, the hedge fund will redeem the interestsof a limited partner or shareholder as specified in the Redemption Notice, at the redemption price as of the applicableRedemption Date. The fund will distribute all or a substantial portion (i.e., 90 percent) of the redemption price with respectto the interests being redeemed within a specified number of business days (e.g., 30) following the applicable RedemptionDate. Any balance (i.e., the remaining 10 percent) is distributed within a specific timeframe, often following the release ofthe fund's audited financial statements for the year in which the Redemption Date falls. Sometimes (but not always) theredeeming limited partner or shareholder is entitled to interest on the unremitted balance. Holdback amounts protect thegeneral partner or investment manager from adjustments made to the net asset value of the fund as a result of an audit ofthe financial statements.

40 PricewaterflouseCoopers Auditing Alternative Investments


Side Pockets

Some hedge funds have an investment strategy that allows the fund to invest in illiquid securities, yet investors are stillallowed periodic redemption. In such cases, a common mechanism used is a "side pocket," wllereby, at the time aninvestment is made in such an illiquid security, a proportionate share of a limited partner's capital account. relative to theentire capital balance of the fund, is assigned to a separate memorandum capital account or "side pocket account" forthat limited partner. This side pocket account generally does not incur a performance fee until the illiquid security is sold orotherwise deemed liquid. Typically, limited partners lose redemption rights to their side pocket accounts, and even a fullredemption request is fulfilled only with thaI capital ascribed to his or her "basic" capital account (i.e., the non-side pocketcapital account). Only after the security is sold (or otherwise deemed liquid) by the fund is the amount moved back to eachapplicable limited partner's basic capital account. Side pocket accounts are often referred to as "designated accounts" oras "special investment accounts."

Suspension or Postponement of Redemption

Pursuant to the hedge fund's governing documents, the general partner or investment manager can suspend or restrict thedetermination of net asset value and/or the right of any limited partner or shareholder to redeem his or her interests(whether in whole or in part). The general partner or investment manager can implement this restriction for certain reasons,including the aggregate amount of redemption requests, certain adverse regulatory and tax consequences and otherreasons that may cause the inability to promptly and accurately calculate the fund's net asset value. The most commonexample is the use of a "gate," whereby redemption requests are deferred because the aggregate amount of redemptionrequests as of a particular Redemption Date exceeds a specified level, generally ranging from 15 percent to 25 percent ofthe fund's net asset value.

PriC0waterhoLlseCoopefS i Auditing Alternatlv0 !nvestments 41


Appendi r rms

Hedge funds

Key terms Potential implications

Classes of Shares or Partnership

Interests

Offshore hedge funds may issue interests in the form of a The investor entity should understand the terms of itssingle class of shares or multiple classes of shares. ownership interest and ensure that the class of shares orPartnerships may also have different ownership classes or partnership interest that is reported by the investee fundinterests. Multiple-class funds have unique operational and manager on its investor statement is consistent with theaccounting issues. The terms of the fund documents dictate subscription documents maintained in its files.how income, expenses, gains and losses are to beallocated to determine the net asset value for each class orinterest. In addition, specific classes may have class specific expenses or be entitled to specific items of income(e.g., "new issue" income). F',nally, fee waivers may exist forcertain classes of shares.

High-Water Mark

A high-water mark ensures that an incentive fee/allocation The investor entity should be aware of the high-water mark(see below) is made only to the extent that the net asset provision in the fund documents and if its investmentvalue of an investor's interest exceeds the highest net asset exceeds the high-water mark for a given period. If thevalue as of any previous incentive fee/allocation period. In investment balance exceeds the high-water mark, thegeneral, a high-water mark is the capital balance of an investor entity should ensure that its net asset value isindividual partner/shareholder after the last incentive calculated net of the incentive fee/allocation.fee/allocation was charged. This balance is then adjustedfor any contributions or withdrawals during the period toestablish a new high-water mark. The agreement or offeringmemorandum defines the high-water mark and dictateshow the incentive fee/allocation is calculated.

Incentive Fee/Allocation

Incentive fee/allocation is performance-based When determining fair value, the investor entity shouldcompensation in which the investment manager or general ensure that its capital balance is reported net of thepartner receives a specified percentage (often 20 percent) incentive fee/allocation.of net income. These amounts are accounted for inaccordance with the offering memorandum/partnershipagreement, sometimes as an expense (income statement)as in the case of a corporate structure or as a specialallocation of partnership profits (statement of changes inpartners' capital) to the general partner in the case of apartnership. The amount of the allocation should be shownin the statement of operations or in the statement ofchanges in partners' capital, and the method of computingsuch allocations should be disclosed.

42 Pr^cowaterhouseCoopers \ Auditing Altornative Investments



Loss Carryforward

A loss carryforward is a technique or provision in the The investor entity must be aware of loss carryforwardpartnership agreement or offering document that applies provisions that exist in investee fund partnershipthe current year's net operating losses to future period agreements and the impact, if any, to the fair value of itsprofits when calculating the incentive fee/allocations. These investment.provisions protect the investor entity by ensuring thegeneral partner or investment manager makes up theshortfall of losses before he or she is entitled to anyincentive fee based on profits. Accordingly, if the investeefund has earned profits in the current period, the generalpartner or investment manager may not be entitled to anincentive fee/allocation because there may be pre-existingloss carryforwards from prior periods. Typically, unusedcarryforwards are reduced pro rata for redemptions madewhile they are outstanding.

Master-Feeder Funds

Certain funds will have structures under which they invest in A schedule of portfolio investments is generally notother affiliated funds. A feeder fund is a fund that conducts presented at the feeder level. Accordingly, the investor

. virtually all of its investing through another fund (called the entity should obtain the feeder fund's and the master fund'smaster fund). The master fund conducts all investing financial statements to ascertain the capital structure andactivities. Each feeder fund's statement of assets and associated net asset value of its investment and understandliabilities shows an investment in the master fund, which is the nature, complexity and liquidity of the underlyingusually the sole or principal investment of the feeder fund. portfolio investments.

Nevv Issue Eligibility

New issue securities are defined by the National The investor entity should be aware of its eligibility andAssociation of Securities Dealers Inc. (NASD) as equity whether it has subscribed to the appropriate class ofsecurities being sold through an initial public offering. shares. Accordingly, when analyzing the fair value of itsResulting profits or losses from new issue securities are not investment, the investor entity should ensure that new issueallocated to the capital accounts of those investor entities income has been properly included or excluded from itsconsidered to be restricted persons. In many cases, capital account balance.separate share classes will be created for shareholders whoare eligible and ineligible to participate in new issue income.

PricewaterhouseCoopers ! Auditing Alternative Investments 43



Open-End Fund

An open-end fund is an investment company that is ready The investor entity should be aware of the liquidityto offer or redeem its shares or partnership interests provisions associated with the fund in which it invests. If theperiodically. Open-end funds provide for liquidity to investor investee fund is less liquid, the investor should have aentities. The frequency of contributions or redemptions is better understanding of the nature, complexity and risksdictated by the fund's documents. Contributions and associated with the underlying investments.redemptions can be monthly, quarterly, semi-annually,annually, etc. The amount of liquidity provided to investorentities in a particular fund is usually consistent with theliquidity and risk associated with the underlying portfolio(i.e., the more liquid the investments in the portfolio, thegreater the liquidity generally provided to the investors).

Side LettersIn general, a side letter is a private agreement between a Side letters are not part of the fund agreements; therefore,general partner and a limited partner, relating to the limited those within the investor entity responsible for monitoring ofpartner's investment in a partnership, which provides the and accounting for the investment must know if side letterslimited partner with rights that are not otherwise available to exist between the investor entity and the fund because thethe limited partners under the fund agreements. A side side letter may have a direct impact on the calculation ofletter typically appears as a unilateral letter agreement the investor entity's investment in the investee fund.delivered by the general partner to the limited partner,although it can be drafted as a traditional. two-partyagreement. Side leiters may provide for certain agreementsoutside of the partnership agreement, such as managementfee waivers, co-invest or opt-out provisions.

Special-Purpose Vehicle (SPV)

Special-purpose vehicles (SPV) are usually created for a Just as the investor entity must understand the terms andsingle, well-defined and narrow purpose. The SPY can take conditions associated with an investee fund, it must alsoany number of legal forms: corporation, partnership, trust, understand the terms and conditions associated with theunincorporated entity or a multi-user structure (such as a SPY and its effect on the liquidity and fair value of theprotected cell company). In certain cases, SPVs are referred investee fund.to as a "bankruptcy-remote entity," with operations limitedto the acquisition and financing of specific assets.Sometimes, funds will own interests in SPVs, which will inturn own interests in specific investments.

44 PricewaterhouseCoopers ,t Auditing Alternative l'nvestrnents


Private uity funds


Capital Commitments

A capital commitment is a general or limited partner's The investor entity should consider its ability to meet itsobligation to provide a certain amount of capital to a fund. obligations under its capital commitment. Disclosure shouldCommitments are usually made up front at the time capital be made in the financial statements with respect to theis raised. Profits and losses may be allocated in accordance investor entity's obligation.with capital commitments or unfunded capital commitmentsrather than capital contributed to the fund.

Carried InterestThis term denotes the split of profits to the general partner. Carried interest incorporates a "waterfall" calculation basedThis is the general partner's compensation for carrying the on the terms of the agreement. The investor entity shouldmanagement responsibility plus all the liability for serving as be aware that in certain cases the carried interest isgeneral partner, as well as providing the needed expertise to considered more of a distribution concept than ansuccessfully manage the investments in the fund. Carried allocation concept. The investor entity must ensure that theinterest is somewhat analogous to incentive fee/allocation for investee fund considered a hypothetical liquidation modela hedge fund. There are many variations of this profit split, when calculating its capital account (i.e., if the fund wereboth in its size and how it is calculated and accrued. The completely liquidated on the reporting date, how would thecarried interest terms will affect the balance of the capital proceeds be distributed to the general partner and theaccount for both the general partner and limited partners, limited partners?). In most cases, but not all, this allocationdepending on the terms of the agreement. is reflected in the capital statement already - on a

hypothetical liquidation basis - and disclosed as such.

ClawbackA clawback obligation represents the general partner's When a clawback is triggered, it may affect the investorpromise that. over the life of the fund, the managers will not entity's interest in the investee fund. Certain clawbackreceive a greater share of the fund's distributions than they provisions may result in a negative general partner balanceare entitled to. Generally, this means that the general or a receivable from the general partner. The investor entitypartner cannot keep distributions representing more than a must assess the impact of the ciawback on its ownspecified percentage (e.g., 20 percent) of the fund's investment balance and consider the credit risk associatedcumulative profits. When triggered, the clawback requires with the general partner's obligation to refund the clawbackthat the general partner return to the fund an amount equal to the partnership. Also see Carried Interest above.to what is determined to be "excess" distributions.Clawbacks can present issues with respect to valuationwhen the value of the portfolio falls below a specificthreshold. Issues arise because carried interest distributionshave otten already been made to the general partner, thusrequiring that amounts be returned to the fund by thegeneral partner. The calculation of the amount of clawbackobligation is dictated by a number of technical, often highlynegotiated, provisions in the fund's limited partnershipagreement. These proviSions look at the aggregate amountof distributions received by the general partner over the lifeof the fund, but typically exclude both amounts received inrespect of the general partner's capital contribution (usually1 percent) and the taxes payable by the general partner onall carried interest distributions. More complex provisionsexist as well. When applying the waterfall calculationconcept, clawback provisions must be taken intoconsideration. Also see Carried Interest above.

PricowaterhouseCoopers i Auditing Alternative Investments 45


-Key -terms Potential implications

Closed-End Fund

A closed-end fund is an investment company that has a The investor entity should be aware of the liquidityfixed number of shares outstanding or a fixed amount of provisions associated with the fund in which it invests.capital commitments from investors, which it does not If the investee fund is less liquid, the investor entity shouldstand ready to redeem. This structure is very common to have a better understanding of the nature, complexity andprivate equity funds because the underlying investments are risks associated with the underlying investment portfolio.illiquid. As such, the fund has no liquidity to provide forredemptions to investors. Accordingly, investors are"locked in" and must wait until the fund can sell itsinvestments in order to convert the fair value of theinvestment into cash that can then be distributed under theterms of the agreement.

In-Kind Contributions and Distributions

Certain agreements may provide for capital contributions or The investor entity should be aware of the accountingdistributions in the form of securities or investments in other policies used by the investee fund and ensure that itsfunds. The valuation of these transactions, for purposes of accounting policy conforms with GAAP.allocations/distributions under the agreement, may be non-GAAP. For instance, for a private equity fund, a distributionmay be based on a value determined using a 10-dayaverage, unlike GAAP, which would require the securities tobe fair valued on the date of distribution.

Opt-out Provisions

Certain investment partnership agreements will allow Gains and losses associated from the restricted investmentpartners to "opt out" of a particular investment by providing should not be reflected as part of the fair value of thea written notice or written opinion to the effect that a limited investor entity's interest in the investee fund.partner's participation in such investment would have adetrimental effect due to legal, regulatory, or otherrequirements. Accordingly, the limited partner would beexcluded from participation in that type of investment withinthe fund's portfolio.

46 PricewaterilouseCoopers i Auditing Alternative !nvestments


1'4p;^c^ r, t^'tx C ! ^,3[^ air icy=y iE'7?7t;


Preferred Return and Catch-Up

AmountThe preferred return is the internal rate of return that a fund See Carried interest discussed earlier.must achieve before its general partner can receive acarried interest. When the fund achieves the preferredreturn as defined in the fund documents, the generalpartner is usually entitled to receive a carried interest (seedefinition above). In many cases, the general partner isentitled to a "catch-up amount" whereby all or a specifiedlarge percentage of profit is allocated to the general partnerafter the preferred return is achieved until the generalpartner has received cumulative profits equal to the carriedinterest percentage (e.g., 20 percent).

Priority Allocation

Certain funds may incorporate priority returns to the general Priority allocations must be taken into consideration whenpartner or other partner that result in economics for a applying the waterfall provisions of a private equitypartner or shareholder that are other than a pro rata share partnership agreement in determining the fair value of anof income or loss. For example, this could take the form of interest in that partnership.management fees waived by the general partner inexchange for a priority allocation of a gain associated witha particular investment.

PricewaterhouseCoopers l Auditing Alternative Investments 47


P ice I ad

Mark Casella John A. Mattie

Assurance Partner Assurance Partner

National Alternative Investment Funds National Education and Not-for-Profit

Practice Leader Practice Leader

646.471.2500 [email protected] [email protected]

Principal authors

Michele Godvin Mike Greenstein


Alternative Investment Funds Alternative Investment Funds


Tim Grady Lee Ann Leahy


Alternative Investment Funds National Education and Not-for-Profit


48 PricewaterflouseCoopers Auditing Alternative investments


© 2007 PricewaterhouseCoopers LLP. AU rights reseNed, " PricewaterhouseCoopers" reters to PricewaterhouseCoopers LLP (a Deiaware

limited iiability partnership) or, as the context requires, the PricewaterhouseCoopers globa! network or other member firms of the network,

each of which is a separate and independent legal entity. 'connectedthinking is a trademark of PricewalerhouseCoopers LLP {US),


www.pwc.com


Exhibit 12


iWA&PERSVUEWATYIAN

- e^..rna rtx

3MAC Aonafto80.881

Private and Confidential 3MAW Rona"

Fairfield Greenwich Advisors, I,.L.C.T4kN

.. retepb=+31 p0n4oa8600

AthL Mr Upton Aftb3&+31 (1e)400070

919 Third Avenue wwa v9►^ ooaihd

New York, N.Y. 10022UMted States of Anm6ica

March 15,20D5 .

Reference: FQ-0000-brf-42041705

Subjects Fah Aeld 'Seutry Ltd.

Dear Mr .Lipton,

ce In our previous coaf^renee calls, we have informed you about f1w fact that PwC Bermudahad a meeting in December 2004 with Barnard L. Madofl'Investments Securities LMthereafter `DLM') in order to obtain and/err-update PwC's-undwstaadirig of the proceduresin place at BLbE PwC Bemuda has shared with PwC Rotterdam. their proceduresprogram, notes of meetings and oonobulo ss for the purpose of Asir audit ofFairField Sentry.Limited. -

we are pleased to share this faforimnadon with you and provide you with a brief summary ofthe procedures perforated by PWC Barmnda and conclusions for your won purposesonly. This summary Is attached in Appendix 1.

The procedures performed by PwC Bermuda were only directed towards obtaining anundc atending of certain pr9cedum and orgonlaation aspects of BLM for rho purpose of.gaining comfort thereon for the audits by saveaal PwC offices of a mumnbc r offttads-bavingmoneys rttattagod by BLK One of these fonds is Fairfleld Scatty Ltd. audited by PwCRotterdam. Therefore; the procedures parlormod are not directed to the providing ofassurance in respect of laternal control, nor to the detection of ftw4 atrors or illegal acts.7 ie procedures performers do not constitute an audit nor an investigation of the intervalcontrols boat BL3 L The prowdures consisted of gathering factual-information through an

- PtTwwÔebeoaQtgeraraawaewaexa.nj^taMa .aê followksoempst.. Âao^m.er rcV. t[o^trw.d.iA Ua -

.- ^ - 7t.daAq^te*+sdnm^ber^llîS^ , vdavrtaAouôLroopa^8dvb^stGxw6sa,. 'rYû7.xlftaonma^ram^brâli0otp, _ .t^râeaiwmoS.bope» fie^nos• Becomes'H.V.(^hlheTradelt^êatmdorw^bge ?41ib2tJlawtYrleptâueCbopgia V.(raêaedw&pgr Ag6L►nskwmbr31t302bih7i^wvka .odlgdêwow wVraaQtyaw ITaw+t4i^td8eu

. ^WJcbmeludetinvu(or^ê^+toaiGa^bllLowe3^.enftbna#QOgd^no +gwlfadrid^tlNlâaadu^sClumbvofCaetaâoa+daÂtbobaskôdMr^w^wTaMNe1. .

Confidential Treatment Requested by Fairfield Greenwich Limited FAI 00003452


^^- 115CEWME=QOP^N

" k^irHeld Beatty Liattpd - .

inteMow with Mr Madotf (htacdf er'BM J. No testltig of controls and procedures was

'Phis memo has bean prvparod solely for the use of tha nmagelment of 1~tirfield SentryLimited-and iney not lie 4bu ttad to fury other patty. As* cansequanee we do not acceptor assume any liability or duty of care to any other person to whom this report is shows orimb iwwwIiarids Itli aycoiiio:.

Should yot.'bava stiy gaestoos, please do not besttate to contact ." fiom our Rottainiism otllea. -

Yours faithfully,



PMWEMOUS10OPER5' 1°'

- t^ntasauy^rs+tt<a - .?&nb 14 zees

Appendix 1 Sumptary of procedures performed at DY M

By rem of an interviewv with -BM.- the following controls and prace +dows were discussed .in order to obtain it bWa understanding of the intormtl control fiamoworkat MM.

1) Investma tt Advisory (Front offtce) fmcdonE_: _ ......a) Segiega7on oftiie edv sory/&ont of ce f mcdon f m the broker, accounting and

custodial dqtuUmU.b) Trading pmeess for the -st vagy;e) SLro'wty-ovar the trading term inals and/or the moms from which the traders.

f ' d) G oIs in place to.ensuro that trading levels era nw&dWncd %*Wn thoseprescrlb ' in the brokerage a*oement (1.a, the controls to en"M ossh accounts are

. not rrtacgimsd); - - -e) Reporting to clients (copies of trade con8rmadons and blotters aad what level of

reports suumrnarking investment transactions, roeeipts and disbursements, assetholdings. and pincome am vWded on regular bests to the client)

f) Inquire about grouping or bunching of orders and the procedures for the Advisorauthorising,the mdear size t r our eneift, the Advisor 's procedures for zvonitoring .the allocatlon of coached trades, and the monitDAng in place at the tradingdgwtnient ibr eusudng'slocarato allocation ofburtched order;

g) Menitodug of Advisory of the results of the Fund against wipeetatfons (rotes and

. . rospansibilities) - - {h) Procedures id-respect of review by the Advisor if own trading zocoxds matelirs with

the broker-geneaated listing of daily trades (P&S), and monthly activity stdovients

i) Procedures in rasped ofroconciliation by the Advisor of opentrade equity. Bash -and total Raid equity -to broker trade confirmaoms on a regular basis;

J) • ProcedMu is Tweet ofermn relating to the above matohiag andreouncitins Wasresolved on a timaly basis;

' k) Procedures (and activity) regarding stock lending (if any is allowed on the Fund'satxount);

(3)



- attratryZ:,t^tew - -Hank lA 2905

2) &rokerap funcdoa .a) Proeedurr s in =4=t of maintaining brokerage accounts in litre with the

euatotriarlmargia account Ummant;b) Controls In plam to easum ttacitits orders accepted ens in lino with the account typo

heldby tlo Ftmd;c) P'roee&m in respect ofpiedging activities (that wouldroqu_i_ a con4dM- OODIm er

#A3 40-)

3) Custodian filactiona) 'What enifly acts as custodian within Madotrs group of con4*Wes;b) Are them any other.sub-custodial or olearing mmigemeats; -o) Scgregatton ofthe austodim fmcdon from the Advisory and Brokerage fh60ow,

(both physically and through acoess);d)- Frequency of rocondlia ms. (daily, weekly) performed with the eub-custodian;

taking inventory of securities and subsequent reconciliation to stock and treasuryholdings and reconoiliation of activity reports to recon>s maintained by depositoriesand suboustodiaas;

e) Follow-up proceduresfor' exception reports;f) Any liens or rights oven the custody of tho fund 's assets;

.4) Rolo of the internal Audit function

S) Monitoring of fraud-rbk

6) Rogulatory-matters.

7) Othara) Organbation backgroundb) SOXC) stole of BM in industry. Committees

(4)

Confidential Treatment Requested by Fairfield Greenwich Limited. FA100003455


407,t.

Fore amabor ofpreoadum no obaages as to prior years were notal. A *unbo of eonttel s .ad reconalliatiotw arcs puftnocl cleetroaioally and an a dally b4ol& `Pha teadis vroocss1br the strategy "split std cwnversion" is also initiated by the sysim without trader

_ .•.-. ^tad^. .T^daB .are-bausalsadasd•a^tosated-ta-tbo-^c^terprrna^-6dais; ?tt - ._ "Addition busium con" was addressed and-PwC was in&tumd of Om various measurestakott in order to safeguard the coatinuity (such as other sites In gaaans and additionalcapacity in t6a London office). Thong lavels have also bait program A&

: Perfbmanc b tovimed by BLM Advisory by analyzing the pao trading sbvftV •and tbereby -reviewing the cormladvo 19ators. Maneseravat an mpdra adjust is sadwig be responilble fbr such ndjustnieats. PwC was informed OW there is.no stock lendingor pledging a dvity.

Ito US rogulated broker-dealer of BI,&i is acting as the custodian. There are agraprnents "with other US cuatodians. PwC was laformed that genorslly excepdans are reserved before

. sdtlerncnt. .

PwC was. hifo cd brat them b-air lntftW Audit departmelnt that does peribdio rwiows of-systom and rrecondliatlon processes. Them is #oquent roperting to 1W ax "11 sit to themolt committee ofBI,M.

Rlsk.of raced is being scrutinized closely. Monitoring of communications bas been in placoas well sag blonldag esf outgolag email and mowging for traders.

PWC VMS informed that there have not been any regulatory matters.bpaeting BLN- Frog ►a oomplioce point of view it bar also been noted that BM bean s W in the VedaralReserve's Rate Committee and the SEC Advisory Gotrsnnittee on Market intbransdon,Division ofMserketReon.

PwC was Wily mod tba SOX is . kot applicable to -Rl.M.

Per 2004 a stave& d elm iottot of internal control was issued by BIWs auditors. PwC hasarrived a copy eftbix latter. For 2004, accordluS to RM a clean SFr~ Avila 174 report vMissued in Hocamber 2004. PwC has not yet rceoived a copy o€this report.

Confidential Treatment Requested by Fairfield Greenvach Limited FAI 00003456


Exhibit 13


['kffATERH0USECG0PERS S

Attendees: Funds: Bernard Madoff (BM)Linda McGowan (PwC)Scott Watson-Brown (PwC) Optimal MultiAdvisors

Notes of discussion

Through discussion and enquiry with Bernard Madoff document the procedures used byMadoff:

Investment Advisory (Front office) function Investment Advisory function has moved from six to eight persons, with all reporting toBernard or Peter Madoff.

(a) Segregation of the advisory/front office function from the broker, accounting andcustodial departments:• The firm is segregated into separate areas for trading, systems, back office

operations, legal and accounting. All areas have separate card key access and aresecure. Monitoring logs of entry into secured areas. Access keys changedperiodically. No changes noted.

• The operations area is responsible for daily clearance and settlement of all tradeswith the street. No changes noted. No issues noted in the operations for the year todate.

• The accounting department (i) reconciles daily activity on the rolling balancereport (showing opening balance, trades for the day and ending balances to theadvisory system), (ii) the rolling balance report is then agreed to the month endcustomer statement. These processes are done systematically and there are rarely,if ever any breaks. The operations department reconciles the depositories, for themost part daily, for the firm as a whole using the stock record and trade date data.Madoff estimates that 99% of all trades are electronic, therefore records areupdated daily and all reconciliations are performed daily (automated process). Nochanges noted. No changes in the accounting department role year to date.

Strictly Private and Confidential


['WCWATERHOUSECCOPERS 9(b) Discuss and through narrative document the trading process for the strategy;

Trades are initiated by the system without trader intervention and routed inaccordance with the fines routing priority. Trades are bunch but the systemmaintains detail by account, which upon electronic confirmation of execution isautomatically posted to each individual account in accordance with the original tradebreak out. Bunched trades are allocated on a prorate basis. Performance is the sameacross all funds/accounts for which this strategy is employed. Madoff receives 4cents a share mark up on all trades. The system chooses the trades by generally using35 of the S&P 100 stocks and hedges the position with S&P options. The model hasbeen adjusted to increase selected stocks to a range of 40-50 (change noted as part of2002 visit). Going to a larger basket increases liquidity and smoothes returns byhaving greater correlation with the market (currently 95%), but increases load ontechnology. Aim is not to increase basket size from this level. The parameters of thestrategy require the correlation to be in the 90's. Based on the models matrix,positions are adjusted as correlative factors dictate. If the model determines that thereis not a current factor conducive to positioning, the cash will be invested in USTreasury securities. The model runs on a dynamic basis and is adjusted periodicallyas market conditions dictate. See comments on tie out of selected trades in thatsection of the program. Daily reports are created in every department and reviewed byoperations and investment advisory functions daily.

(c) Through discussion understand the security over the trading terminals and/or therooms from which the traders operate;

See discussion above regarding access and firm security. In addition the firmoperates a hot site duplicate trading facility in Queens on a separate power grid.Employees are required to periodically work from the disaster recovery site on arotating basis — each broker must actively trade from the Queen's sight for one weekper month. NASD can also utilize this sight. Madoff's London operations allow fortrading capabilities for the US operation, should the need arise. All terminals arepassword protected and access to records is limited by job responsibility. One-third oftraders now using the "hot site" all the time. Still a requirement for all traders tospend one week per month trading from the "hot site" and as such rotate throughworking from this site. Recent major upgrade undertaken and still committed tomaintaining and operating the site. The site has recently been stress tested and is a fullmirror of the Manhattan office. The London office is also able to mirror the USoperation and vice versa.



PMCffATERHOUSECOOPERS

(d) What controls are in place to ensure that trading levels are maintained within thoseprescribed in the brokerage agreement (i.e. the controls to ensure cash accounts arenot margined);

Trades are done in a cash account at the US broker. The system is programmed withthe account strategy and limitations. The company's most recent internal controlletter was a standard clean letter. Copy obtained and attached (2003 report; 2004 isdue to be released in Jan '05; copy to be forwarded once received). No matters orchanges noted. Draft 2004 SEC Rule 17a report is clean per Madoff.

(e) Determine whether copies of trade confirmations and blotters are sent to the client;what level of reports summarising investment transactions, receipts anddisbursements, asset holdings, and income are provided on regular basis to the client;the administrator receives copies of trade confirmations and customer statements instandard industry form, from the back office function.

(f) Inquire about grouping or bunching of orders and the procedures for the Advisorauthorising the order size for our clients, the Advisor's procedures for monitoring theallocation of bunched trades, and the monitoring in place at the trading department forensuring accurate allocation of bunched orders;

See above discussion regarding the bunching and allocation of orders.

(g) How does the Advisory monitor the results of the Fund against his expectations. Whois responsible for this task?

The results of the programmed trading strategy are reviewed and the correlativefactors adjusted when in the opinion of management such adjustments are required.Madoff is responsible for the ultimate decisions for adjustments to the tradingstrategy.

(h) Review if the Advisor matches their own trading records with the broker-generatedlisting of daily trades (P&S), and monthly activity statements;

See discussion above.

(i) Review if the Advisor reconciles open trade equity, cash and total fund equity tobroker trade confirmations on a regular basis;

See above discussions.



PMCffATERHOUSECCOPERS M

a) Discuss how errors relating to the above matching and reconciling are resolved on atimely basis;

See above discussion.

(k) What level of stock lending, if any is allowed on the Fund's account;

None - the account is maintained as a cash account and all securities are segregated inaccordance with US brokerage rules (primarily at DTC for equities and BONY forgovernments; GSCC clears governments).

Brokeraize function

(a) Is the Fund's brokerage account maintained in line with the customer/margin accountagreement;

The funds account is maintained as a cash account and all securities are fully paid onsettlement date as noted above.

(b) Ensure sufficient controls are in place to ensure trading orders accepted are in linewith the account type held by the Fund;

See above.

(c) Are there any pledging activities that would require consideration under FAS 140.

No. Madoff has no ability to pledge or rehypothicate the funds securities. BM has asmall stock lending business of its proprietary portfolio only.



PMCffATERHOUSECOOPERS

Custodian function

(a) What entity acts as custodian within Madoff s group of companies;

The US regulated broker-dealer.

(b) Are there any other sub-custodial or clearing arrangements;

Madoff has arrangements with standard US custodians as is common street practice.See discussion above.

(c) Ensure custodian function is segregated from the Advisory and Brokerage functions,both physically and through access;

See segregation narrative above.

(d) Ensure that frequent reconciliations (daily, weekly) are performed with the sub-custodian; taking inventory of securities and subsequent reconciliation to stock andtreasury holdings and reconciliation of activity reports to records maintained bydepositories and subcustodians;

See above.

(e) What are the follow-up procedures for exception reports;

All exceptions are resolved quickly and usually before settlement date.

(f) Are there any liens or rights over the custody of the fund's assets;

No



PPKEWATERHOUSECCOPERS

Internal Audit function

(a) Does an internal audit function exist;

Internal audit exists and does periodic reviews of systems and reconciliationprocesses. IA undertakes weekly reviews and reports to Madoff on a weekly basis.

(b) Is there a perceived level of independence from management;

Internal audit reports to the audit committee with a dotted line to Mr. Madoff. Nochanges noted.

Fraud

No instances or cases reported with clients or internally. Risk of fraud gets close scrutinyfrom Madoff (personally) as the operation is his business. With the general size ofoperations (staff numbers) and the involvement of family in every area of the business,Madoff closely scrutinizes the results and operations with the risk of fraud in mind.

There is formal monitoring of all mail, faxes and email (both in and out bound).Following the rule for retention and monitoring of email, no outgoing email for traders orany instant messaging is available. BM limited email function as he feels it will be theundoing of many firms. Internet reviews and email reviews are done and internal finesare in place for inappropriate internet usage.

Re gulatory matters

Any instances of regulatory enquiries, subpoenas, or other requests for information orassistance not in the ordinary course of business?

See above for access to Rule 17a report. Regulatory capital now in excess of $500MM.No regulatory matters impacting Madoff, no sanctions, subpoenas or other enquiries. Areview of the NASD BrokerCheck Reporter up to December 1, 2004 indicates no mattersother than as previously understood (1963 and 1975 — minor). See attached report.


Case 1:09-cv-05386-DAB Document 53-14 Filed 05/18/10 Page 8 of 8' f

PWWATERHOUSECCOPERS 13

Other

Organization background (per discussion with Bernard Madoff)— Four operating floors including separate floors for:

- executive offices, trading room (proprietary, listed, NASD stocks) (approx 100persons)- systems and administration (approx 100 persons)- operations and settlement (approx 100 persons)- One floor of technical i) in-house technology

Joint venture finance trading system work with GS, MS and ML is nowcomplete and has been handed over to the NASD and as such 5 t" floor given up.

— 320 staff in total at Madoff's;— approximately 500 broker/dealer clients— executing approx 250,000 trades per day

The firm is very much a family business. Madoff, pre discussion, appears very involvedin the operations. The head traders are Madoff's sons. The office manager is hisnephew. In house counsel is his Niece.

All options are traded OTC, but use same expiration date as listed index options; Madoffuses various, numerous counterparties.

Brokerage operation audit completed as of December; regulatory capital in excess of$500MM.

No change in business model — has something that works and continues to stick with it.Staffing changes have been routine to deal with internal promotions. Consistency ofbusiness model means that certain opportunities are missed in the industry, but as it is aprivate company and own money BM is not driven to show a changing company profilefor the benefit of shareholders.

Strategy sessions are held ("sole searching" sessions) to consider developments andchanges. BM has over the past few years passed up two bids on his business fromsignificant broker/dealers, but interested in maintaining a family business operation asopposed to becoming part of a large corporate, public entity.

SOX does not apply to Madoff, however as most NY firms are public and subject to SOXor are required to maintain certain documentation by the Fed, BM has moved toincreasing level of documentation to stay in line with expectations.

BM sits on the Fed Rate Committee (for last 12 years) and on the SEC AdvisoryCommittee. His son is on the board of the District 10 NASD.



Exhibit 14


BrokerCheck ReportBERNARD L. MADOFF INVESTMENT SECURITIES LLCC R D# 2625Report #99523-16546, data current as of Sunday, December 14, 2008.

Section Title Paqe(s)Report Summary 1

Firm Profile 2-4

Firm History 5

Firm Operations 6-11

Disclosure of Arbitration Awards, 12-23Disciplinary, Financial, andRegulatory Events

About this BrokerCheck Report 24


Dear Investor:

F|NRA has generated the following BnokenChauk established investment business relationships.

report for BERNARD LMADOFFINVESTMENTSECURITIES LbC. The information contained within F|NRABnrkerChmchin governed by federal law,

this report has been provided byaF|NRAbrokerage Securities and Exchange Commission (8EC)

fimn(u) and securities regulators ao part nf the regulations and F|NRA rules approved by the SEC.

securities industry's registration and licensing process State disclosure programs are governed by state law,

and represents the most current information reported and may provide additional information onbrokers

to the Central Registration Depository (CROO). licensed by the state. Therefore, you should also Using this aiconsider requesting information from your state that you ocn

F|NRA regulates the securities markets for the securities regulator. Refer to»mmw.»eomo.opQ for a BnzharChan|ultimate benefit and protection of the investor. F|NRA complete list cf state securities regulators. Conditions. 'believes the general public should have access ho Terms and (informaUonthat vviUhelp them de^nninewhether bo Thanky»uforuo|n8RNRAB»o^erCh^ck' found atconduct, or continue to conduct, business with e brokemheokF|NR\ member. To that end, F|NRA has adopted mpublic disclosure policy tn make certain types ofinformation available to you. Examples of informationF|NRA provides include: regulatory actions, Foroddihominvestment-related civil suits, customer disputes that the contentscontain allegations of sales practice violations against refer tothe ibrokars, all felony charges and convicti p no, wwxw.finro.o/misdemeanor charges and convictions relating to provides agsecurities vio|aUons, and financial events such as list offraqumbankruptcies, compromises with creditors, judgments, as well aea,and liens. For more inf

F|NRA.viod

When evaluating this report, please keep in mind thath may include items that involve pending actions orallegations that may be contested and have not beenresolved nrproven. Such items may, |n the end, bewithdrawn or dismissed, or resolved )n favor oftheindividual broker, nr concluded through anegotiatedsettlement with no admission or finding ofwrongdoing.

The information in this report io not the only resourceyou should consult. F|NFQ\ recommends that youlearn om much ampossible about the individual brokeror firm from other sounoea, such as professionalrahsennes. local consumer and investment grnupa, orfriends and family members who already have

ww-w,ti ri-ra-.ot,glOrOKercnle.ck Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 4 of 27

BERNARD L. MADOFF INVESTMENT Report Summary for this FirmSECURITIES LLC

CRD# 2625 The report summary provides an overview of the firm's background. The firm and a

SEC# 8-8132 provided the information contained in this report as part of the securities industry reprocess. More detailed information for this firm can be found in the firm's PDF repotReport" to view the detailed information about this firm. The information contained ii

Main Office Location by the firm via Uniform Application for Broker-Dealer Registration (Form BID), the U1

885 THIRD AVENUE Dealer Withdrawal (Form BDW), or a securities regulator via a Uniform Disciplinary

NEW YORK, NY 10022 (Form U6) on 12/12/2008.

Regulated by FINRA New York Office Firm Profile Disclosure of Arbitrat!Mailing Address This firm is classified as a limited liability company. Disciplinary, Financia

885 THIRD AVENUE This firm was formed in New York on 01/01/2001. EventsNEW YORK, NY 10022 Its fiscal year ends in October. This section includes detailsBusiness Telephone Number events reported by or about

212-230-2424Firm History the securities industry regist

Information relating to the firm's history such as process. Examples of such (

Other Business Names, Other Business, and from disciplinary actions initi

This firm is a brokerage firm and an investment Successions (e.g., mergers or acquisitions) can be certain criminal charges and

adviser firm. For more information about found in the firm's full PDF report. financial disclosures such a,summary information regard

investment adviser firms, visit the SEC'sInvestment Adviser Public Disclosure website at:

Firm Operations involving securities and corr

This firm is registered with:between public customers a

http://www.adviserinfo.sec ,qov firms.

• the SEChe• 5 Self-Regulatory Organizations t ts dtselo w"

• 49 U.S. states and territoriesThe following types of disi

Is this: br6kerage-firlm: currency ,wilK,anT, 7pl" y-

1 reported:No

u yent!0v;This firm conducts 2 types of businesses.

Civil EventThis firm is affiliated with financial or investmentinstitutions.

This firm does not have referral or financialarrangements with other brokers or dealers.

02008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 2008

vv lynrzk.V gjb qKqruner-K Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 5 of 27

Firm Profile

This firm is classified as a limited liability company.

This firm was formed in New York on 01/01/2001.

Its fiscal year ends in October.

Firm Names and LocationsThis section includes details, as reported by the firm on Form BD, regarding the firm's full legal name, business andmailing addresses, the firm's "doing business as" name (i.e., "DBA" name) if different from the full legal name, and anyother name by which the firm conducts business and where such name is used.

BERNARD L. MADOFF INVESTMENT SECURITIES LLC

Doing business as BERNARD L. MADOFF INVESTMENT SECURITIES LLC

CRD# 2625

SEC# 8-8132

Main Office Location

885 THIRD AVENUENEW YORK, NY 10022

Regulated by FINRA New York Office

Mailing Address

885 THIRD AVENUENEW YORK, NY 10022

Business Telephone Number

212-230-2424

62008 FINRA. All rights reserved. Report* 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES I-I-C. Data current as of Sunday, December 14, 200E


Firm ProfileThis section provides information relating to Direct Owners and Executive Officers as reported by the firm on Form BD.

Direct Owners and Executive Officers

Legal Name & CRO# (if mny): [NADOFF. BERNARD LAWRENCE

316667

Is this a domestic or foreign Individualentity oranindividual?

Ppo|U q n SOLEMEMBERIPR|NC|PAL

Position Start Date 01/2001

Percentage ofOwnership 75%ormore

Does this owner direct the Yesmanagement or policies ofthe firm?

in this apublic reporting Nocompany?

Legal Name & CRO# (if mny): MADOFF. PETER BARNETT

316688

Is this a domestic or foreign Individualentity or an individual?

Position SENIOR MANAGING DIRECTOR/CHIEF COMPLIANCE OFFICER

Position Start Date 06/1960

Percentage nfOwnership Less than 696

Does this owner direct the Yesmanagement mr policies mfthe firm?

/m this a public reporting Nocompany?

'

@moouP/wRA.e|noomemomoo. Report# 99523-IBW about BERNARD L, MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 200E

Firm Profile Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 7 of 27This section provides information relating to Indirect Owners, if any, as reported by the firm on Form BD.

Indirect OwnersNo information reported.

©2008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 2001

www,. t.in. ra. .o q/lblroke.rcne.pk Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 8 of 27Firm History

This section provides information relating to successions (e.g., mergers or acquisitions), if any, as reported by the

firm on Form BD.

This firm was previously: BERNARD L. MADOFF

Date of Succession: 01/01/2001

Predecessor CRD#: 2625

Predecessor SECM 8-08132

Description EFFECTIVE JANUARY 1, 2001, PREDECESSOR WILL TRANSFER TOSUCCESSOR ALL OF PREDECESSOR'S ASSETS AND LIABILITIES, RELATED

TO PREDECESSOR'S BUSINESS. THE TRANSFER WILL NOT RESULT INANY CHANGE IN OWNERSHIP OR CONTROL.

@2008 FINRA. All rights reserved, Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 2008

www.finra.orq/brok1ercheck Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 9 of 27

Firm Operations

RegistrationsThis section provides information about the regulators (e.g., U.S. Securities and Exchange Commission (SEC), self-regulatory organizations, states and U.S. territories) the firm is currently registered and licensed with, the category ofeach registration, and the date on which the registration status became effective, as well as certain information aboutthe firm's SEC registration.

This firm is currently registered with the SEC, 5 SROs and 49 U.S. states and territories.Federal Regulator Status Date EffectiveSEC Approved :101/1-0/1,

SEC Registration QuestionsThis firm is registered with the SEC as:

A broker-dealer: Yes

A broker-dealer and government securities broker or dealer: No

A government securities broker or dealer only: No

This firm has ceased activity as a government securities broker or dealer: No

Self-Regulatory Organization Status Date Effective

FINRA Approved

BATS Exchange, Inc. Approved 10/23/2008

NASDAQ Stock Market Approved0

NYSE Arca, Inc. Approved 02/03/2003

National Stock Exchange Approved

02008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES ILILC. Data current as of Sunday, December 14, 200E

www,,mra,ug/bwKerc;nepK Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 10 of 27

Firm Operations

Registrations (continued)U.S. States & Status Date Effective U.S. States & Status Date EffectiveTerritories TerritoriesAlabama Approved 03125/1997 Ohio Approved 05/11/1998Alaska Approved 02/0411997 Oklahoma -A 000. , d }510 11 9 ;:'$#Arizona Approved 04/08/1997 Oregon Limited 02/27/1997Arkansas Approved 06/17/1997 Pennsylvania Approyecf 03/?t1 i9'California Approved 01/22/2001 Rhode Island Approved 03/1311997Colorado Approved 01/17/1997 South Carolina Approvd. 0228/1197Connecticut Approved 03/13/1997 South Dakota Approved 07/02/1997Delaware Approved 01/29/1997 Tennesseepproir;~d '.- O1( i^99T .:'District of Columbia Approved 05/20/1997 Texas Approved 01/26/2001Florida Approved 01/19/1993 Utah Apprie¢ 0 f F`51 g97Georgia Approved 04/21/1997 Vermont Approved 03/2111997Idaho Approved 01/07/1997 Virginia A0004.etl ° 040{}1Illinois Approved 03/13/1997 Washington Approved 01/15/1997Indiana Approved 06/20/1997 West Virginia Aprrved 01/08f19Iowa Approved 02/2111997 Wisconsin Approved 03/20/1997Kansas Approved 05/27/1997 Wyoming Approved 01/1411997Kentucky Approved 01/02/1997Louisiana Approved 03/05/1997Maine Approved 06/10/1997Maryland Approved 02/27/1997Massachusetts Approved 03/18/1997Michigan Approved 02/25/1997Minnesota Approved 07/0811997Mississippi Approved 04/08/1997Missouri Approved 07/25/1997Montana Approved 01/14/1997Nevada Approved 05/14/1997New Hampshire Approved 07/01/1997New Jersey Approved 08/11/1997New Mexico Approved 03/14/1997New York Approved 03/30/1984North Carolina Limited 03/18/1997North Dakota Approved 06/16/1997



Firm Operations

Types of Business

This section provides the types of business and any other business or other non-securities business the firm isengaged inorim expected hobe engaged inan reported by the firm on Form BD.This firm currently conducts 3 types nfbusinesses.

Types ofBusiness

Broker cv dealer making inter-dealer markets in corporation oeuurhies^- ' ~ .,Trading securities for own account

Other Types of Business

This firm does affect transactions in commodities, commodity futures, or commodity options.This firm does not engage in other non-securities business.

Non-Securities Business Description:

02V08F|wRA. All rights reserved. Report#89s23-10s4nabout BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14,2001


Firm Operations

Clearing ArrangementsThis firm does not hold or maintain funds or securities or provide clearing services for other broker-dealer(s).

Introducing Arrangements

This firm does not refer or introduce customers to other brokers and dealers.

@2008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 200f

vvww1 ,J.t-nrq,-vrqjl;0 Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 13 of 27

Firm Operations

Industry Arrangements

This firm does not have books or records maintained by a third party.

This firm does not have accounts, funds, or securities maintained by a third party.

This firm does not have customer accounts, funds, or securities maintained by a third party.

Control Persons/FinancingThis firm does not have individuals who control its management or policies through agreement.

This firm does not have individuals who wholly or partly finance the firm's business.

02008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 200E


Firm Operations

Organization AffiliatesThis section provides information relating to control relationships with mnhhea engaged in the securibas, investmentadvioory, or banking business as reported by the firm on Form BD.

This firm im, directly or indirectly:' in control of' controlled by' or under common control withthe following partnerships, corporations, or other organizations engaged in the securities or investmentadvisory business.KHADOFF SECURITIES INTERNATIONAL LTD. |s controlled bV the firm.

Business Address: 12 BERKELEY STREETMAYFAIR, LONDON VV1X58AO

Effective Date: 12/31/1898

Foreign Entity: Yes

Country: UNITED KINGDOM

Securities Activities: Yes

Investment Advisory NoActivities:

Description: BERNARD L K8ADC}FF OWNS 30.8% OF MADOFF SECURITIESINTERNATIONAL LTD.. A REGISTERED COMPANY IN THE UNITED KINGDOM.THE COMPANY IS A MEMBER OF THE LONDON STOCK EXCHANGE.

This firm |s not directly or indirectly, controlled by the following:' bank holding company^ national bank' state member bank mf the Federal Reserve System' state non-member bank' savings bank orassociation' credit union' or foreign bank

@2008 FINRA. All rignts reserved. Report# 99523-16546 aboLA BERNARD L. MADOFF INVESTMENT SECURITfES LLC. Data current as of Sunday, December 14, 200(

*ww."n^w^^'nk^unrs Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 15 of 27

Disclosure of Arbitration Awards, Disciplinary, Financial, and Regulatory Events

Firms are required to answer a series of disclosure questions on Forrn BD and provide the corresponding details to anyreported events aspart of the securities industry registration and licensing process. The disclosure questions concern ^~criminal and regulatory events, civil actions, and certain financial disclosures such as bankruptcy or liquidation Poasib|emu|tipproceedings filed within the past ten years, bond actions and unpaid judgments and liens. The firm must answer either please note:..yes" or "no" to each question as it applies to the firm itself or to any of its control affiliates (i.e., an individual,partnership, corporation, trust, or other organization that directly or indirectly controls, is under common control with, orhe Disclosure evecontrolled by the firm). This section lists the various disclosure questions and their corresponding answers as reported hy more than cby the firm on Form BD. firm). When thi

reported eventBrokerChmcknof the same re|separated byosource clearly

Pending Final On Appeal

Regulatory Event O 6^- ~~^'^

Civil Event 1 O O

CooO8F|mRA. All rights reserved. Repvrt#98523'/85*s about BERNARD LMADOFF INVESTMENT SECURITIES LLC. Data current wun[ Sunday, December 14.2008


Disclosure Event DetailsThis section provides the specific details for each disclosure event, as reported by the finn on Form BD, thatcorrespond with any "yes" answers hothe various Form BD disclosure questions. It also includes summary informationregarding arbitration awards in cases where the finn was named as o respondent in the arbitration proceeding, if any.

Nothing will be displayed in this section of the firm's Br pkedCheok Report when the firm has no reported disclosureinformation.

If the firm does have reported disclosure events, please keep the following in mind when evaluating the disclosureevent details. |bamn may involve pending actions or allegations that may be contested and have not been resolved orproven. The items may, in the end, be withdrawn or dismissed, or resolved in favor of the firm, or concluded through anegotiated settlement with no admission or finding ofwrongdoing,

This report provides the information exactly as it was reported to CRD by the firm and/or bysecurities industryregulators. Some of the specific data fields contained in this section of the report may be blank if the information wasnot provided to CRD.

Disclosure event details may be reported by more than one source (i.e., regulator and firm). When this occurm, allversions of the reported event will appear in the finn'nBrnkerCheck report. A solid line separates the different versionsof the same reported disclosure event with the reporting source clearly labeled (e.g., Source: Finn or Source:Regulator).

Regulatory .a--

U^^^

This section provides information regarding any finud, regulatory action as reported by the 5nn and/oro securitiesregulator to CRD as part of the securities industry registration and licensing process. Such event may include a final,fonno| pnzomed/nU initiated by regulatory authority (e.g., a state securities agency, a self-regulatory organization, ofederal regulator such as the U.S. Securities and Exchange Commission (SEC) or the Commodity Futures TradingCommission (CFTC), or a foreign financial regulatory body) for a violation of investment-related rules or regulations. Inaddition, m revocation or suspension of the authority ofa firm's control effi|isdeto act as an attorney, accountant orfederalcontractor, if any, will appear here.Disclosure of 6

Reporting Source: Regulator

Current Status: Final

Allegations: NASD RULES 8211, 8213-BERNARD L MAD8FF INVESTMENT SECURITIESLLC FAILED TO REPORT ACCURATE TRADING INFORMATION THROUGHTHE SUBMISSION OFELECTRONIC BLUE SHEETS |N RESPONSE TOF|NRAREQUESTS FOR SUCH INFORMATION - THE FIRM FAILED TQ INCLUDE THESHORT SALE INDICATOR FOR ELECTRONIC BLUE SHEETS RECORDS.

Initiated By: F|NRA

Date Initiated: 08/07/2008

02OU8 FIN RA. All rights reserved. Ropmn#QQS23-1o54o about BERNARD L. MxDUFF INVESTMENT SECURITIES LLC. Data current omof Sunday, December 1*.20U&

www.itpra.QEqibrokeich-eCK Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 17 of 27

Docket/Case Number: 20050025081-02Principal Product Type: No ProductOther Product Type(s):Principal Sanction(s)/ReliefSought:Other Sanctions)/ReliefSought:Resolution: Acceptance, Waiver & Consent(AWC)

Resolution Date: 08/27/2008

Does the order constitute a Nofinal order based onviolations of any laws orregulations that prohibitfraudulent, manipulative, ordeceptive conduct?Sanctions Ordered: Censure

Monetary/Fine $25,000.00Other Sanctions Ordered:Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED

TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED AND FINED $25,000.

Reporting Source: FirmCurrent Status: Final

Allegations: THE FIRM SUBMITTED INACCURATE "BLUE SHEET' INFORMATION TOFINRA RELATED TO SHORT SALE INDICATORS.

Initiated By: FINRADate Initiated: 08/27/2008Docket/Case Number: 20050025081-02Principal Product Type: No ProductOther Product Type(s):Principal Sanction(s)/Relief CensureSought:

@2008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 200

W-'V.Tin .ra.oqqA)roke-[ qheqt Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 18 of 27

Other Sanction(s)/ReliefSought:Resolution: Acceptance, Waiver & Consent(AWC)Resolution Date: 03/27/2008Sanctions Ordered: Censure

Monetary/Fine $25,000.00Other Sanctions Ordered: NONE.Sanction Details: THE DISPOSITION RESULTED IN A FINE OF $25,000.00 AGAINST THE FIRM.Summary: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED

TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS. THEFIRM WAS CENSURED AND FINED $25,000.00,

Disclosure 2 of 5Reporting Source: RegulatorCurrent Status: FinalAllegations: SEC RULE 604, NASD RULE 2110, INTERPRETATIVE MATERIAL 2110-2 -

BERNARD L. MADOFF INVESTMENT FAILED TO DISPLAY IMMEDIATELYCUSTOMER LIMIT ORDERS IN NASDAQ SECURITIES IN ITS PUBLICQUOTATION WHEN EACH SUCH ORDER WAS AT A PRICE THAT WOULDHAVE IMPROVED THE FIRM'S BID OR OFFER IN EACH SUCH SECURITY; ORWHEN THE ORDER WAS PRICED EQUAL TO THE FIRM'S BID OR OFFERAND THE NATIONAL BEST BID OR OFFER FOR EACH SUCH SECURITY, ANDTHE SIZE OF THE ORDER REPRESENTED MORE THAN A DE MINIMISCHANGE IN RELATION TO THE SIZE ASSOCIATED WITH THE FIRM'S BID OROFFER IN EACH SECURITY. THE FIRM FAILED TO COMTEMPORANEOUSLYOR PARTIALLY EXECUTE CUSTOMER LIMIT ORDERS IN MULTIPLTENASDAQ SECURITIES AFTER IT TRADED EACH SUBJECT SECURITY FORITS OWN MARKET-MAKING ACCOUNT AT A PRICE THAT WOULD HAVESATISFIED EACH CUSTOMER'S LIMIT ORDER.

Initiated By: NASDDate Initiated: 02/27/2007Docket/Case Number: 20050009132-01Principal Product Type: OtherOther Product Type(s): NASDAQ SECURITIESPrincipal Sanction(s)/ReliefSought:

@2008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L, MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 2009

www.rrnra :o%1bro...k. Qmhec. K Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 19 of 27

Other Sanction(s)/ReliefSought:Resolution: Acceptance, Waiver & Consent(AWC)


Does the order constitute a Nofinal order based onviolations of any laws orregulations that prohibitfraudulent, manipulative, ordeceptive conduct?Sanctions Ordered: Censure

Monetary/Fine $8,500.00

Other Sanctions Ordered:

Sanction Details: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTEDTO THE DESCRIBED SANCTIONS AND TO THE ENTRY OF FINDINGS;THEREFORE, THE FIRM IS CENSURED AND FINED $8,500.

Reporting Source: Firm

Current Status: Final

Allegations: THE FIRM SUBMITTED AN AWC THAT WAS ACCEPTED BY THE NASD FORVIOLATIONS OF LIMIT ORDER DISPLAY AND LIMIT ORDER PROTECTION.

Initiated By: NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.


Docket/Case Number: 2005009132/20050010261

Principal Product Type: Equity - OTC

Other Product Type(s):

Principal Sanction(s)/Relief Civil and Administrative Penalt(ies) /Fine(s)Sought:

Other Sanction(s)/Relief CENSURESought:

Resolution: Acceptance, Waiver & Consent(AWC)


Sanctions Ordered: CensureMonetary/Fine $8,500.00

©2008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 2001

WWW.ti0rP,U1_q/bt uNeru IeCK Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 20 of 27

Other Sanctions Ordered:Sanction Details: WITHOUT ADMI I I ING OR DENYING THE ALLEGATIONS, THE FIRM

CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OFFINDINGS, THEREFORE THE FIRM WAS CENSURED AND FINED $8,500.00.

Disclosure 3 of 5Reporting Source: RegulatorCurrent Status: Final

Allegations: SEC RULE 11ACI-4 - MEMBER FIRM FAILED TO DISPLAY IMMEDIATELYCUSTOMER LIMIT ORDERS IN NASDAQ SECURITIES IN ITS PUBLICQUOTATION, WHEN EACH SUCH ORDER WAS AT A PRICE THAT WOULDHAVE IMPROVED FIRM'S BID OR OFFER IN EACH SUCH SECURITY; ORWHEN THE ORDER WAS PRICED EQUAL TO FIRM'S BID OR OFFER ANDTHE NATIONAL BEST BID OR OFFER FOR EACH SUCH SECURITY, AND THESIZE OF THE ORDER REPRESENTED MORE THAN A DE MINIMIS CHANGEIN RELATION TO THE SIZE ASSOCIATED WITH FIRM'S BID OR OFFER INEACH SUCH SECURITY.

Initiated By: NASD

Date Initiated: 07/06/2005Docket/Case Number: CLGO50081Principal Product Type: No Product

Other Product Type(s):

Principal Sanction(s)/ReliefSought:Other Sanction(s)/ReliefSought:Resolution: Acceptance, Waiver & Consent(AWC)Resolution Date: 07/06/2005Does the order constitute a Nofinal order based onviolations of any laws orregulations that prohibitfraudulent, manipulative, ordeceptive conduct?Sanctions Ordered: Censure

Monetary/Fine $7,000.00


h ,ra utq/bruKercnecK Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 21 of 27

Other Sanctions Ordered:Sanction Details: WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, MADF,

CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OFFINDINGS, THEREFORE THE FIRM IS CENSURED AND FINED $7,000.

Reporting Source: FirmCurrent Status: Final

Allegations: SEC RULE 11AC1-4 - THE FIRM FAILED TO DISPLAY IMMEDIATELYCUSTOMER LIMIT ORDERS IN NASDAQ SECURITIES IN ITS PUBLICQUOTATION, WHEN EACH SUCH ORDER WAS AT A PRICE THAT WOULDHAVE IMPROVED THE FIRM'S BID OR OFFER IN EACH SUCH SECURITY; ORWHEN THE ORDER WAS PRICED EQUAL TO THE FIRM'S BID OR OFFERAND THE NATIONAL BEST BID OR OFFER FOR EACH SECURITY, AND THESIZE OF THE ORDER REPRESENTED MORE THAN A DE MINIMUS CHANGEIN RELATION TO THE SIZE ASSOCIATED WITH THE FIRM'S BID OR OFFERIN EACH SECURITY

Initiated By: NASDDate Initiated: 07/06/2005DocketlCase Number: CLGO50081Principal Product Type: No ProductOther Product Type(s):Principal Sanction(s)/ReliefSought:Other Sanctions)/ReliefSought:Resolution: Acceptance, Waiver & Consent(AWC)Resolution Date: 07/06/2005

Sanctions Ordered: CensureMonetary/Fine $7,000.00

Other Sanctions Ordered:Sanction Details: WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, THE FIRM

CONSENTED TO THE DESCRIBED SANCTIONS AND TO THE ENTRY OFFINDINGS, THEREFORE THE FIRM IS CENSURED AND FINED $7,000.00.

Disclosure 4 of 5©2008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14,20G

www wira.utq1btQKprcneCK Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/1 0 Page 22 of 27

Reporting Source: RegulatorCurrent Status: FinalAllegations:Initiated By: NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.Date Initiated: 07101/1963

DockettCase Number: NY-802Principal Product Type:Other Product Type(s):Principal Sanction(s)/ReliefSought:Other Sanction(s)/ReliefSought:Resolution: DecisionResolution Date: 12/08/1963Sanctions Ordered: Censure

Monetary/Fine $500.00Other Sanctions Ordered:Sanction Details:Summary* COMP. NY-802 FILED 07/01/63.

DECISION RENDERED 11/08/63; CENSURED,FINED $500.00 PLUS COSTS OF $60.50.COMPLAINT FINAL 12108163.FINES & COSTS PAID 11/20/63.

Reporting Source: Firm

Current Status: FinalAllegations: VIOLATION OF NASD RULES 2230 AND 2110

Initiated By: NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.Date Initiated: 07/01/1963Docket/Case Number: COMPLAINT NO. NY-802

02008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 200E


Principal Product Type: No ProductOther Product Type(s):Principal Sanction(s)/Relief CensureSought:Other Sanction(s)/ReliefSought:Resolution: DecisionResolution Date: 11/08/1963Sanctions Ordered: Censure

Monetary/Fine $500.00Other Sanctions Ordered:Sanction Details: FINED IN THE AMOUNT OF $500 AND ASSESSED COSTS OF THE

PROCEEDING IN THE AMOUNT OF $60.65. THE FINE AND COSTS OF THEPROCEEDINGS WERE PAID IN FULL IN NOVEMBER 1963.

Summary: THE FINDING OF A VIOLATION OF NASD RULE 2230 WAS LIMITED TO ATECHNICAL INFRACTION.

Disclosure 5 of 5Reporting Source , RegulatorCurrent Status: FinalAllegations:Initiated By: NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.


Docket/Case Number: N-VS-86Principal Product Type:Other Product Type(s):Principal Sanction(s)/ReliefSought:Other Sanctions)/ReliefSought:Resolution: DecisionResolution Date: 01/02/1975

Summary: NASDAQ COMPLAINT N-VS-8602008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 2001

, :7 Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 24 of 27

FILED: 11-22-74ACCEPTED: 12-4-74, PAID $25.00FINAL: 1-2-75

Reporting Source: FirmCurrent Status: FinalAllegations: INFORMATION NO LONGER AVAILABLE DUE TO AGE OF THE COMPLAINT.Initiated By: NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.Date Initiated: 11/22/1974

Docket/Case Number: N-NV-86Principal Product Type: No ProductOther Product Type(s):Principal Sanction(s)/Relief OtherSought:Other Sanction(s)/Relief FINESought:Resolution: DecisionResolution Date: 11/19/1974

Sanctions Ordered: Monetary/Fine $25.00Other Sanctions Ordered:Sanction Details: FINE IN THE AMOUNT OF $25.00. NO OTHER INFORMATION IS AVAILABLE

DUE TO THE AGE OF THE COMPLAINT.

02008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES I_I_C. Data current as of Sunday, December 14, 200E

www' . ti nia otq/b IrOl Ke rcr ieck Case 1:09-cv-05386-DAB Document 53-15 Filed 05/18/10 Page 25 of 27

Civill - PendingThis section provides details regarding pending, civil actions as reported by the firm and/or a securities regulator to CRD.The event may include an action filed in a foreign or domestic court in connection with seeking an injunction to ceasecertain investment-related activity or an allegation of a violation of any investment-related statute(s) or regulation(s).Disclosure I of,11Reporting Source: RegulatorCurrent Status: PendingAllegations: ON DECEMBER 11, 2008, THE UNITED STATE SECURITIES AND EXCHANGE

COMMISSION FILED A COMPLAINT IN THE UNITED STATES DISTRICTCOURT FOR THE SOUTHERN DISTRICT OF NEW YORK, ALLEGING THATBERNARD L. MADOFF INVESTMENT SECURITIES, LLC VIOLATED SECTIONS206(1) AND 206(2) OF THE INVESTMENT ADVISERS ACT OF 1940, SECTION17(A)(1), 17(A)(2) AND 17(A)(3) OF THE SECURITIES ACT OF 1933, ANDSECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE1OB-5 THEREUNDER. THE COMPLAINT ALLEGES THAT THE FIRM AND ITSOWNER DIRECTLY OR INDIRECTLY, SINGLY OR IN CONCERT, KNOWINGLYOR RECKLESSLY, THROUGH THE USE OF THE MAILS ORINSTRUMENTALITY OF INTERSTATE COMMERCE, WHILE ACTING AS ANINVESTMENT ADVISER WITHIN THE MEANING OF SECTION 202(11) OF THEADVISERS ACT EMPLOYED, OR ARE EMPLOYING OR ABOUT TO EMPLOYDEVICES, SCHEMES AND ARTIFICES TO DEFRAUD ANY CLIENT ORPROSPECTIVE CLIENT; OR HAVE ENGAGED, ARE ENGAGING, OR AREABOUT TO ENGAGE IN ACTS, PRACTICES OR COURSES OF BUSINESSWHICH OPERATES AS A FRAUD OR DECEIT UPON ANY CLIENT ORPROSPECTIVE CLIENT. THE FIRM, AND ITS OWNER, IN THE OFFER ANDSALE OF SECURITIES, BY THE USE OF THE MEANS AND INSTRUMENTS OFTRANSPORTATION AND COMMUNICATION IN INTERSTATE COMMERCE ORBY THE USE OF THE MAILS, DIRECTLY OR INDIRECTLY, HAVE EMPLOYEDAND ARE EMPLOYING DEVICES, SCHEMES AND ARTIFICES TO DEFRAUDAND KNEW OR WAS RECKLESS IN NOT KNOWING OF THESE ACTIVITIES,THE FIRM IN THE OFFER AND SALE OF SECURITIES, BY THE USE OF THEMEANS AND INSTRUMENTS OF TRANSPORTATION AND COMMUNICATIONIN INTERSTATE COMMERCE OR BY THE USE OF THE MAILS, DIRECTLYAND INDIRECTLY, HAVE OBTAINED AND ARE OBTAINING MONEY ANDPROPERTY BY MEANS OF UNTRUE STATEMENTS OF MATERIAL FACTS OROMISSIONS TO STATE MATERIAL FACTS NECESSARY IN ORDER TO MAKETHE STATEMENTS MADE, IN LIGHT OF THE CIRCUMSTANCES UNDERWHICH THEY WERE MADE, NOT MISLEADING, [CONTINUED IN COMMENTS.]

Initiated By: UNITED STATES SECURITIES AND EXCHANGE COMMISSIONCourt Details: UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW

YORK, CIVIL ACTION NO. 08 CIV 10791

@2008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14, 2008

www,fli ii a.,0i,4/bruKerci Case 1:09 -cv-05386-DAB Document 53-15 Filed 05/18/10 Page 26 of 27

Date Court Action Filed: 12/11/2008Principal Product Type: OtherOther Product Types: UNSPECIFIED TYPE OF SECURITIES

Relief Sought: Injunction

Other Relief Sought , TEMPORARY AND PRELIMINARY INJUNCTION, PERMANENT INJUNCTION,DISGORGEMENT OF ILL-GOTTEN GAINS, PLUS PREJUDGMENT INTERESTTHEREON, CIVIL MONETARY PENALTIES

Summary: AND HAVE ENGAGED AND ARE ENGAGING IN TRANSACTIONS, PRACTICESOR COURSES OF BUSINESS WHICH HAVE OPERATED AND WILL OPERATEAS A FRAUD AND DECEIT UPON INVESTORS. THE FIRM, AND ITS OWNER,IN CONNECTION WITH THE PURCHASE AND SALE OF SECURITIES,DIRECTLY OR INDIRECTLY, BY THE USE OF THE MEANS ANDINSTRUMENTALITIES OF INTERSTATE COMMERCE OR OF THE MAILS,HAVE EMPLOYED AND ARE EMPLOYING INSTRUMENTALITIES OFINTERSTATE COMMERCE OR OF THE MAILS, HAVE EMPLOYED AND AREEMPLOYING DEVICES, SCHEMES AND ARTIFICES TO DEFRAUD; HAVEMADE AND ARE MAKING UNTRUE STATEMENTS OF MATERIAL FACT ANDHAVE AND ARE OMITTING TO STATE MATERIAL FACTS NECESSARY INORDER TO MAKE THE STATEMENTS MADE, IN LIGHT OF THECIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING;AND HAVE ENGAGED AND ARE ENGAGING IN ACTS, PRACTICES ANDCOURSES OF BUSINESS WHICH OPERATED AS A FRAUD AND DECEITUPON INVESTORS, THE FIRM WAS RECKLESS IN NOT KNOWING OF THESEACTIVITIES. THE FIRM AND ITS OWNER HAVE BEEN CONDUCTING APONZI-SCHEME THROUGH THE INVESTMENT ADVISER SERVICES OF THEFIRM.

02008 FINRA. All rights reserved. Report# 99523-16546 about BERNARD L. MADOFF INVESTMENT SECURITIES LLC. Data current as of Sunday, December 14,200f


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Exhibit 15


DATE I JUNE 2007

AMENDED AND RESTATEDADMINISTRATION AGREEMENT


and -

KINGATE MANAGEMENT LIMITED

- and -

BISYS HEDGE FUND SERVICES LIMITED

BISYS Hedge Fund Services LimitedHemisphere House

9 Church StreetHamilton HM I I

Bermuda


DATE OF AGREEMENT: 1 JUNE 2007

PARTIES:

1. KINGATE GLOBAL FUND, LTD (the "Company") a company incorporated under the laws of theBritish Virgin Islands, whose registered office is located at Bison Court, P.O. Box 3460, Road Town,Tortola, British Virgin Islands;

2. KINGATE MANAGEMENT LIMITED (the "Manager") a company incorporated under the laws ofBermuda whose principal office is located at 99 Front Street, Hamilton HM 11, Bermuda; and

3. BISYS HEDGE FUND SERVICES LIMITED (the "Administrator") a limited company incorporatedunder the laws of Bermuda, whose registered office is. at Hemisphere House, 9 Church Street, HamiltonHM I1, Bermuda.

RECITALS:

A. The Company wishes to appoint the Administrator to provide company secretarial, registrar and transferagency, accounting and other administrative services as specified herein.

B. The Administrator has agreed to provide such services to the Company pursuant to the terms of thisAgreement.

C. This Amended and Restated Administration Agreement shall supersede and replace in full all previousagreements between the parties regarding the provision of administrative services by the Administrator tothe Company.

OPERATIVE PROVISIONS:

I. DEFINITIONS

1.1 The following words and expressions shall have the following meanings:

"Agreement": this Administration Agreement, as amended or restated from time to time

"Auditor": the auditor of the Company from time to time.

"Articles": the memorandum and articles of association of the Company as they may beamended from time to time.

"Directors": the board of directors of the Company from time to time.

"Offering Memorandum": the current amended and restated information memorandum,listing particulars or other disclosure document utilized by the Company in connection withan offering of its Shares and all amendments to that document.

"Register": the register of Shareholders.

"Shareholders": the holders of Shares of the Company.

"Shares": the common shares of the Company, as described in the Offering Memorandum.


1.2 Words and expressions not otherwise defined in this Agreement shall bear the same meaningas in the Articles or Offering Memorandum as the context requires.

2. APPOINTMENT

The Company hereby appoints the Administrator as administrator for the Company from the date ofthis Agreement and to provide the administrative services referred to in this Agreement.

3. PROVISION OF FACILITIES

The Administrator shall provide and pay for an adequate staff and shall provide suitable officeaccommodation and other facilities for efficiently performing the functions set out in this Agreement,but the Company shall not be entitled to the exclusive use of any such accommodation or to theexclusive services of any member of such staff.

4. DUTIES OF THE ADMINISTRATOR

During the continuance of this Agreement the Administrator shall perform the functions of anadministrator to the Company as may be requested by the Company namely:

4.1 Net Asset Value Calculation

4.1.1 calculate and publish the net asset value per Share for each class of Shares issued bythe Company and the subscription and redemption prices per Share for each class of Sharesissued by the Company in accordance with the methodology contained within the Articles, theOffering Memorandum or as directed by the Directors from time to time utilising, wheneverreasonably practicable, such independent pricing services as chosen by the Administratorfrom time to time;

4.1.2 oversee and review the calculation and payment of fees payable to the Administrator,the Manager and other service providers to the Company;

4.2 Corporate Secretarial Services

4.2.1 provide the services of an officer or employee of the Administrator or an affiliatethereof to act as secretary of the Company in accordance with the laws of the British Virginislands, as may be requested by the Company;

4.2.2 continue to permit Bison Court, P.O. Box 3450, Road Town, Tortola, British VirginIslands to be the Company's registered office;

4,2.3 be responsible for maintaining the Register in accordance with the statutoryprovisions for the time being in force and the Articles;

4.2.4 take or procure that there are taken reasonable and proper precautions for the safecustody of the Register, any certificates of the Company held by the Administrator, and of allother documents held by it in performance of its duties in accordance with this Agreement.

4.2.5 receive, record and deal with probates, letters of administration, powers of attorney,and other documents affecting the title of Shares or any dividends payable thereon inaccordance with the Administrator's normal practice or in accordance with the writteninstructions of the Company;


4.2.6 prepare and seal on behalf of the Company Share certificates in accordance with theprovision of the Articles and the Offering Memorandum;

4.2.7 subject to any instructions to the contrary from the Company, ensure that the officeror employee of the Administrator or an affiliate thereof appointed as secretary of theCompany from time to time (or, if appropriate a suitable alternate) shall organize and attendin person or by telephone at board meetings and general meetings of the Company held andprepare agendas, minutes and other documents required at or in connection with suchmeetings held in the British Virgin Islands or elsewhere;

4.2.8 effect all necessary registrations with governmental and similar agencies in theBritish Virgin Islands in order to maintain the good standing of the Company except for thoseflings undertaken by the registered office of the Company which shall be effected by theAdministrator only where the Administrator provides a registered office to the Companypursuant to 4.2.2 above. For the sake of clarity it is agreed that the Administrator shall not beresponsible for effecting any U.S. federal or state regulatory filings which may be required asa result of the offering of Shares by the Company

4.2.9 establish and maintain such bank accounts as may be necessary and take such actionin relation thereto as may be authorized by the directors from time to time;

4.3 Preparation of Financial Statements

4.3.1 maintain the principal corporate records and books of account of the Company asrequired for the proper conduct of the financial affairs of the Company, provided however,that the corporate records and books of account held by the Company in the British VirginIslands shall, in any event, be treated as the Company's principal corporate records and booksof account;

4.3.2 at any time during the Administrator's business hours permit the Auditor and anyduly appointed agent or representative of the Company, at the expense of the Company, toaudit or inspect the Register, the financial records of the Company and any other documentsor records kept by the Administrator under the terms of this Agreement and make availableall such documents and records in its possession to the Auditor, agent or representative duringbusiness hours whenever reasonably required so to do and afford all such information,explanations and assistance as the Auditor, agent or representative may reasonably require;

4.13 reconcile accounting issues with the Company's Directors, officers, the Auditor orthe Company's legal counsel;

4.3.4 prepare draft financial statements for presentation to the Auditors annually;

4.3.5 at the end of each fiscal year of the Company, arrange for the books and accounts ofthe Company to be audited and cause the auditors report to be delivered to the Directors, theshareholders, the Manager and such governmental or regulatory agencies as may be requiredby law;

4.4 Shareholder Services

4.4.1 process subscription and redemption requests. in accordance with the provisions ofthe Articles and the Offering Memorandum and arrange for the issue, transfer, allotment,


conversion and/or redemption of Shares and make any corresponding entries on the Register,provided that, in the performance of the foregoing, the Administrator shall:

0) established and will apply to the Company in the performance of its dutieshereunder anti-money laundering practices and procedures (including stafftraining programmes) that comply with the requirements of the British VirginIslands Anti-Money Laundering Code of Practice 1999 as the same may beamended from time to time.

(ii) comply with any anti-money laundering or similar laws or regulations in BritishVirgin Islands, Bermuda or other jurisdictions that are applicable to theCompany and the Administrator;

(iii) review the Company's subscription documents provided by potential investors inthe Company; and

(iv) perform such Anti-Money Laundering Services as described in Section 4.5hereto.

4.4.2 send all circulars, notices of meetings, reports, financial statements and other writtenmaterial to all persons entitled to receive the same under the Articles and the OfferingMemorandum as the Company may require;

4.4.3 act as may be required by the Company from time to time, as proxy agent inconnection with the holding of meetings of Shareholders, receive and tabulate votes cast byproxy and communicate to the Company the results of such tabulation accompanied byappropriate certificates;

4.4.4 use reasonable efforts to deal with and answer all correspondence from or on behalfof Shareholders relating to the Company;

4.5 Anti-Money Laundering Services

4.5.1 the Administrator represents to the Company that the Administrator is subject to theanti-money laundering laws and regulations of the jurisdiction of the Administrator C'theAML Regime') and has anti-money laundering policies and procedures in place that arecompliant with the requirements of the AML Regime;

4.5.2 the Administrator will deliver to the Company, a true and correct copy of its anti-money laundering policies and procedures as amended from time to time. The Administratorrepresents to the Company that it is properly enforcing its anti-money laundering policies andprocedures;

4.5.3 the Administrator has read the section titled "Representations and Covenants of theInvestor" (or its equivalent) in the subscription documents of the Company and theAdministrator shall take all reasonable steps to ensure that it does not accept or maintainsubscription funds from investors who have failed to provide the U.S. Office of Foreign AssetControl ("OFAC") representations included in the subscription documents of the Companywithout conducting such enhanced due diligence as may be agreed between the Administratorand the Company from time to time;


4.5.4 retain records for a period of five years after the termination of the appointment ofthe Administrator hereunder for any reason whatsoever all documentation related to theShareholder;

4.5.5 maintain internal controls and communications for the ongoing monitoring ofShareholders in the Company to the extent practicable based on the information received bythe Administrator in the regular discharge of the services, including searching on a periodicbasis the list maintained by World Check (found at http:l/www.world-cheek.com ) to ensurethat the Shareholders are not identified by name on the said list;

4.5.6 provide to the Company or the Financial Services Commission O FSC"), uponrequest, written evidence of its suitability to perform the AML Procedures on behalf of theCompany;

4.5.7 provide identification information obtained and held with respect to the investors tothe Company or FSC and to the British Virgin Islands financial reporting authority and/orother law enforcement authorities, upon lawful request;

4.5.8 provide the Company or its authorized agents, upon request, with information whichthey may reasonably require to satisfy themselves of the reliability of the Administrator'ssystems and procedures;

4.5.9 the Administrator reserves the right to engage such agents, in its absolute discretion,as it shall consider appropriate for the purposes of complying with its obligations pursuant tothe AML Regime;

4.5. 10 the Company and the Administrator understand and agree that, notwithstanding theability of the Company to delegate the maintenance of the AML Procedures to theAdministrator, the Company shall be ultimately responsible for ensuring that it is compliantwith its own anti-money laundering obligations.

4.5.11 review the subscription agreement to ensure that investor has represented therein thathe is not a senior foreign political figure, an immediate family member or close associatethereof or a foreign shell bank;

4.6 Other Services

4.6.1 establish and maintain such bank, brokerage, custodian and other accounts as may benecessary or advisable and do all such things and take such action in relation thereto as maybe authorised by the Directors from time to time;

4.6.2 obtain approval from the Company for, and draw upon the bank account(s) of theCompany to pay and discharge, all properly due, charged, and documented costs, expensesand liabilities of the Company due to the service providers to the Company;

5. RIGHTS OF THE ADMINISTRATOR

The Administrator may:

5.1 at its own expense employ servants or agents in performance of its duties and the exercise ofits rights under this Agreement;


5.2 delegate its functions, powers, discretions, privileges and duties under this Agreement or anyof them to any affiliate of the Administrator on such terms and conditions as it may deem appropriateand particularly to its British Virgin Islands affiliate, provided that such responsibility may not bedelegated to the extent that they are to be performed by any person outside the British Virgin Islandsif such responsibilities are required to be performed within the British Virgin Islands under BritishVirgin Islands law;

5.3 use one or more third parties to perform some or all of its obligations under this Agreement.The Administrator shall be fully responsible for the acts of such third parties and shall not be relievedof any of its responsibilities under this Agreement by virtue of the use of such third parties;

5.4 use the name of the Company and sign any necessary letters or other documents for and onbehalf of the Company as Administrator of the Company in the performance of its duties under thisAgreeent;

5.5 provide a secretary or act as administrator for any other company, corporation or body ofpersons on such terms as may be arranged with such company, corporation or body of persons andshall not be deemed to be affected with notice of or to be under any duty to disclose to the Companyany fact or thing which may come to the knowledge of the Administrator or any servant, agent ordelegate of the Administrator in the course of so doing or in any manner whatever otherwise than inthe course of carrying out the duties of administrator under this Agreement;

b. POWERS RETAINED BY DIRECTORS

In the performance of its duties under this Agreement the Administrator shall at all times be subjectto all of the following powers retained by the Directors:

6.1 with the consent of the Administrator, to define and modify the scope of the Administrator'sduties under this Agreement, provided that any amendment to this Agreement shall be in writing andsigned by the parties hereto;

6.2 to establish and apply benchmarks for measuring the quality of the Administrator'sperformance under this Agreement;

6.3 to request and promptly receive reports concerning the nature and quality of the servicesperformed by the Administrator under this Agreement;

6A to evaluate the systems and controls utilised by the Administrator in performing its serviceshereunder; and

6.5 to exercise such other powers and take such other actions as may. be deemed necessary toperform their duties as directors, provided however, the Directors shall not have the power tosupervise or control the operations of the Administrator in the performance of its duties other than asprovided above.

7. REMUNERATION OF THE ADMINISTRATOR

7.1 The Administrator shall be paid by the Company, by way of remuneration for its servicesunder this Agreement, fees at such rates as may be agreed in writing from time to time between theCompany and the Administrator. The initial fees payable by the Company to the Administrator areas set out in the attached Fee Schedule.


7.2 The Administrator shall also be entitled to receive from the Company an amount equal to allout of pocket expenses properly incurred by the Administrator in carrying out its duties under thisAgreement upon receipt by the Company (if requested) of appropriate and reasonable supportingdocumentation.

7.3 Administration fees payable by the Company to the Administrator under this Agreement shallbe paid in United States Dollars monthly in arrears, All other fees specified in the Fee Scheduleattached hereto shall be payable in United States Dollars when invoiced.

$. DUTIES OF THE COMPANY

The Company shall:

8.1 with all reasonable expedition approve or disapprove transfers submitted to it by theAdministrator;

8.2 after the commencement of and during the continuance of this Agreement not itself prepare orinstruct any other person to prepare or issue any certificates or accept for registration any transfer ofany Shares of the Company and on receipt of any document affecting the title to the Shares of theCompany will immediately forward the same to the Administrator;

8.3 retain for a period of five years after the termination of the appointment of the Administratorhereunder for any reason whatsoever all cancelled certificates and transfer forms lodged during theperiod of such appointment; and

8.4 deliver or cause to be delivered from time to time to the Administrator proper certified orauthenticated copies of its Articles and all amendments thereto and of such other documents andinformation as may be necessary for the Administrator to perform its duties under this Agreement.

9. TERMINATION

9.1 This Agreement may be terminated at any time by either party provided that at least ninty (90)days written notice has been given to the other party to this Agreement. The obligations of theCompany pursuant to Clause 10.5 shall survive the termination of this Agreement and shall continuein full force and effect for the benefit of the Administrator and other parties named therein.

9.2 The appointment of the Administrator shall terminate immediately if (a) a secured party takespossession or a receiver, manager or other similar officer is appointed, of the whole or in part of theundertaking, assets and revenues of the Administrator, (b) the Administrator admits in writing itsinsolvency or inability to pay its debts as they fall due, (c) an administrator or liquidator of theAdministrator or the whole or any part of the undertaking, assets and revenues of the Administrator isappointed (or application for any such appointment is made), (d) the Administrator takes any actionfor a readjustment or deferment of any of its obligations or makes a general assignment, or anarrangement, or composition, with, or for the benefit of, its creditors or declares a moratorium inrespect of any of its indebtedness, (e) an order is made or an effective resolution is passed for thewinding up of the Administrator or (f) any event occurs which has an analogous effect of any of theforegoing; whereupon the Company shall appoint a successor as Administrator acceptable to it totake effect immediately upon such termination.

9.3 Upon the resignation or any termination of the appointment of the Administrator, theAdministrator shall be released and discharged from all its obligations under this Agreement (butshall not be released from its liabilities relating to its duties under this Agreement prior to resignationor termination) except for those contained in clauses 13 and 14 hereof.


10. RESPONSIBILITY OF ADMINISTRATOR AND INDEMNITY BY COMPANY

10.1 For the purpose of this Section 10, the term "Administrator" or any reference thereto shall bedeemed to include each and any of the Administrator, its directors, officers, employees, agents,delegates or affiliates. Each person included within the term "Administrator" is entitled to the benefitof the agreements and indemnities contained in this Section 10 and may enforce the provisions of,and the rights, agreements and indemnities provided under, this Section 10 on behalf of any personincluded within the term "Administrator".

10.2 The Administrator shall not incur liability by refusing in good faith to perform any duty orobligation herein which in its reasonable judgment is improper or unauthorised provided that inperforming its duties and obligations pursuant to this Agreement it shall not be required at any timeto do or procure the doing of anything contrary to, or in breach of, or which constitutes any offenceunder, any applicable law or regulation then in force.

10.3 The Administrator shall not, in the absence of gross negligence, willful default or fraud on itspart be liable to the Company or to any Shareholder for any act or omission, in the course of or inconnection with, the services rendered by it under this Agreement or for any loss or damage whichthe Company may sustain or suffer as the result of, or in the course of, the discharge by theAdministrator of its duties under or pursuant to this Agreement.

10.4 The Administrator shall not be responsible for the loss or damage to any documents orproperty of the Company in the possession of the Administrator or for any failure to fulfil its dutieshereunder, if such loss, damage or failure shall be caused by or directly or indirectly be due to war,enemy action, the act of government or other competent authority, riots, civil disturbance, rebellion,storm, tempest, accident, fire, strike, explosion or lock-out or any occurrence or event beyond thecontrol of the Administrator.

10.5 The Company agrees to indemnify the Administrator from and against any and all liabilities,obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements ofany kind or nature whatsoever (other than those resulting from the gross negligence, willful defaultor fraud on the part of the Administrator) which may be imposed on, incurred by, or asserted againstthe Administrator in performing its obligations or duties hereunder.

10.6 To the extent that the Administrator relies on information supplied by the Manager or anybrokers or other financial intermediaries engaged by the Company in connection with performing itsobligations hereunder, the Administrator's liability for the accuracy of any calculations utilising suchinformation is limited to the accuracy of its own computations. The Administrator is not liable forthe accuracy of the underlying data provided to it.

10.7 The Company acknowledges the Administrator shall have no discretionary authority orcontrol with respect to the management or disposition of financial instruments held by the Companyand shall not be required to undertake any action that could possibly characterize the Administratoras a fiduciary, as defined in Section 3(21) of the U.S. Employee Retirement Income Security Act of1974, as amended ("ERISA"), of any "employee benefit plan" (within the meaning of Section 3(3) ofERISA) or "plan" (within the meaning of Section 4975 (e)(1) of the U.S. Internal Revenue Code of1986, as amended) whose assets are comprised in the Company, directly or indirectly.

11. FRAUD

In the absence of gross negligence, or willful default and provided that the directors, officers,employees, agents, delegates or affiliates of the Administrator are not parties to any fraud, theAdministrator shall not be responsible to the Company for any action taken by the Administratorupon the faith of any forged or fraudulent document in any case where, had the document not been


forged or fraudulent, the action taken by the Administrator would have been the normal andreasonable action to be taken.

12. REPUTATION

Except for acts incidental to the enforcement of its rights pursuant to this Agreement, neither party tothis Agreement may do or commit any act or matter or thing which would or might prejudice or bringinto disrepute in any manner the business or reputation of either of the parties or any director of anysuch party.

13. CONFIDENTIALITY

Neither of the parties to this Agreement shall, unless compelled so to do by any court of competentjurisdiction or any governmental or regulatory body, either before or after the termination of thisAgreement, disclose any information relating to the other party without the prior written consent ofthe other party unless such information is already in the public domain other than as a result of abreach of this clause. It is agreed that such consent shall be deemed to have been given in the case ofdisclosure to a party's professional advisers, directors, officers, employees, agents or delegates for thepurpose of the proper and effective carrying on of this Agreement.

14. DELIVERY OF DOCUMENTS

14.1 Upon the termination of this Agreement the Administrator shall, subject to clause 14.2, handover to the Company the Register and all other documents in the possession of the Administrator inits capacity as Administrator or in relation to the functions assigned to it hereunder.

14.2 The Administrator shall not be required to make any delivery of documents under clause 14.1until full payment shall have been made to the Administrator by the Company of its fees,compensation, costs and expenses due to it under the provisions of this Agreement.

15. NOTICES

Any notice, instruction or other instrument required or permitted to be given under this Agreementmay be delivered in person or delivered by prepaid registered mail or by fax to the parties at theaddresses set out in this document or such other address as may be notified in the manner providedhereunder by either party from time to time.

Unless shown to have been received earlier, such notice, instruction or other instrument shall bedeemed to have been delivered, in the case of personal delivery, at the time it is left at the premises ofthe party, in the case of a registered letter at the expiration of five (5) business days after posting, and,in the case of fax, one hour after sending; provided that if any document is sent by fax outside normalbusiness hours it shall be deemed to have been received at the next time after delivery when normalbusiness hours commence. Evidence that the notice, instruction or other instrument was properlyaddressed, stamped and put into the post shall be conclusive evidence of posting.

16. SEVERASILITY

It is hereby agreed that, in the event any particular provision or provisions of this Agreement aredetermined to be unenforceable or void by a court of competent jurisdiction, such provision orprovisions shall be deemed to be severable and such determination shall solely affect such provisionor provisions and shall not, in itself, impair or render void or unenforceable the remaining provisionsof this Agreement.


17. ASSIGNMENT

Except as provided in Clause 5.2, neither the benefit nor the burden of this Agreement shall beassigned by either party save with the consent of the other party to this Agreement. Notwithstandingthe foregoing, in the event of a transfer of fifty percent (50%) or more of the ownership of the votingstock of the Administrator within any ninety day (90) period ("Change of Ownership"), thisAgreement shall be binding upon, and shall inure to the benefit of, the Administrator's successorfollowing any such Change of Ownership.

18. PROPER LAW

This Agreement shall be governed by and construed in accordance with the laws of the British VirginIslands.

19. COUNTERPARTS

This Agreement may be executed in one or more counterparts all of which taken together shall bedeemed to constitute one and the same instrument.


Signed as an agreement on behalf of the parties on the date set out in this document.

SIGNED BY )duly authorised )for and on behalf of ) ,u4j COG\,,KINGATE GLOBAL FUND, LTD )

signature

in the presence of: ))

SIGNED BY )duly authorised }for and on behalf of )KINGATE MANAGEMENT LIMITED )

signature

in the presence of:

SIGNED BY )duly authorised )

r 1for and on behalf of ) .BISYS HEDGE FUND SERVICES }LIMITED ) signature

in the presence of )


FEE SCHEDULE

For the purposes of this Fee Schedule "Combined Net Assets" shall mean the aggregate combined net assets ofthe Kingate Funds (as defined below) before deduction for accrued performance fees at the end of the priormonth adjusted for subscriptions and redemptions at the start of the current month.

Fund Administration (including accounting and investor record keeping);

(a) On the first $2 billion of CombinedNet Assets of the Kingate Funds 3 basis points (.03%) of Combined Net Assets per annum

(b) On Combined Net Assets of the KingateFunds over $2 billion 2 basis points (.02%) of Combined Net Assets per annum

"Kingate Funds" shall mean as of the date of this agreement the Company and Kingate Euro Fund, Ltd together.

Additionally, the Administrator shall charge its monthly out of pocket expenses (including communications,postage, printing, etc.) as they are incurred. The Administrator's fees are billed monthly and payable uponreceipt. The Administrator's fees are reviewed following an initial period of six months and annuallythereafter.

If at such point the service requirements are materially changed from the original assumptions theAdministrator reserves the right to renegotiate these fees.

This fee schedule assumes, that the Administrator will perform 12 official valuations per annum. To the extentthe Company requires a second valuation in a month an additional charge of $3,000 will be assessed.

Initial here to Accept

In re KINGATE MANAGEMENT LIMITED LITIGATION 09-CV-05386-Amended Consolidated Class

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Transcript of In re KINGATE MANAGEMENT LIMITED LITIGATION 09-CV-05386-Amended Consolidated Class