EFTA01144866.pdf

CONFIDENTIAL - NOT TO BE REPRODUCED OR DISTRIBUTED PRIVATE PLACEMENT MEMORANDUM BLUE MOUNTAIN CREDIT ALTERNATIVES FUND ■. A DELAWARE LIMITED PARTNERSHIP PURSUANT TO AN EXEMPTION FROM CERTAIN REQUIREMENTS OF THE U.S. COMMODITY EXCHANGE ACT IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED TO QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMODITY FUTURES TRADING COMMISSION ("CFTC"). THE CFTC DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING MEMORANDUM. CONSEQUENTLY, THE CFTC HAS NOT REVIEWED OR APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR THIS POOL. September 2012 NAME OF OFFEREE MEMORANDUM NO. PPM September 2012 / ADV March 2012 EFTA01144866  NOTICES THIS PRIVATE PLACEMENT MEMORANDUM (THE "MEMORANDUM") IS INTENDED SOLELY FOR THE PERSON TO WHOM IT HAS BEEN DELIVERED FOR THE PURPOSE OF ENABLING THE RECIPIENT TO EVALUATE AN INVESTMENT IN THE LIMITED PARTNERSHIP INTERESTS (THE "INTERESTS") DESCRIBED HEREIN. IT IS NOT TO BE REPRODUCED OR DISTRIBUTED TO ANY OTHER PERSONS (EXCEPT TO A PROSPECTIVE INVESTOR'S PROFESSIONAL ADVISORS). PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN PROFESSIONAL ADVISORS AS TO THE LEGAL, TAX, FINANCIAL OR OTHER MATTERS WHICH MAY BE RELEVANT TO THE SUITABILITY AND PROPRIETY OF AN INVESTMENT IN BLUE MOUNTAIN CREDIT ALTERNATIVES FUND ■. (THE "PARTNERSHIP") FOR SUCH INVESTOR. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATION CONCERNING THE PARTNERSHIP OR THE INTERESTS WHICH IS INCONSISTENT WITH THOSE CONTAINED IN THIS MEMORANDUM. THIS MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE INTERESTS IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THE INTERESTS ARE BEING OFFERED UNDER EXEMPTIONS FROM REGISTRATION UNDER SECTION 4(2) OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT'), UNDER SECTION 3(c)(7) OF THE UNITED STATES INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "1940 ACT'), AND APPLICABLE STATE SECURITIES LAWS. PURSUANT TO RECENT RULEMAKING ACTIONS BY THE COMMODITY FUTURES TRADING COMMISSION ("CFTC"), THE INVESTMENT MANAGER (AS DEFINED BELOW) ANTICIPATES REGISTERING AS A COMMODITY POOL OPERATOR ("CPO") AND/OR A COMMODITY TRADING ADVISOR ("CTA"), EFFECTIVE AS OF JANUARY 1, 2013. IN CONNECTION WITH THE OFFERING MADE PURSUANT TO THE TERMS AND CONDITIONS SET FORTH HEREIN, THE INVESTMENT MANAGER ANTICIPATES THAT IT WILL AVAIL ITSELF OF AN EXEMPTION FROM CERTAIN HEIGHTENED DISCLOSURE AND RECORDKEEPING REQUIREMENTS WITH RESPECT TO THE PARTNERSHIP PROVIDED BY REGULATION 4.7 (THE "4.7 EXEMPTION") OF THE U.S. COMMODITY EXCHANGE ACT (THE "CEA"). THE 4.7 EXEMPTION RELIEVES A CPO AND/OR A CTA FROM THOSE HEIGHTENED DISCLOSURE AND RECORDKEEPING REQUIREMENTS, PROVIDED THAT THE INVESTORS IN ANY FUND FOR WHICH THE CPO AND/OR THE CTA IS CLAIMING THE 4.7 EXEMPTION ARE CONSIDERED QUALIFIED ELIGIBLE PERSONS. UNTIL THE EFFECTIVE DATE OF SUCH REGISTRATION, EFTA01144867 PURSUANT TO AN EXEMPTION FROM REGISTRATION AS A CPO SET FORTH IN CFTC REGULATION §4.13(A)(4) AND AN EXEMPTION FROM REGISTRATION AS A CTA SET FORTH IN CFTC REGULATION §4.14(A)(8), THE GENERAL PARTNER (AS DEFINED BELOW) AND THE INVESTMENT MANAGER ARE NOT REQUIRED TO REGISTER, AND WILL NOT BE REGISTERED, AS A CPO OR A CTA, RESPECTIVELY, UNDER THE CEA. PURSUANT TO AN EXEMPTION FOR POOLS WHOSE PARTICIPANTS ARE LIMITED TO QUALIFIED ELIGIBLE PERSONS, THIS MEMORANDUM IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE CFTC. THE CFTC DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING MEMORANDUM. CONSEQUENTLY, THE CFTC HAS NOT REVIEWED OR APPROVED THIS OFFERING OF INTERESTS OR ANY OFFERING MEMORANDUM FOR THIS POOL. THE INTERESTS ARE SUITABLE FOR SOPHISTICATED INVESTORS WHO ARE (I) QUALIFIED PURCHASERS FOR PURPOSES OF SECTION 3(c)(7) OF THE 1940 ACT, AND WHO ARE THEREFORE ALSO QUALIFIED ELIGIBLE PERSONS FOR PURPOSES OF REGULATION 4.7 OF THE CEA; AND (II) ACCREDITED INVESTORS FOR PURPOSES OF REGULATION D UNDER THE SECURITIES ACT, WHO DO NOT REQUIRE IMMEDIATE LIQUIDITY FOR THEIR INVESTMENTS, FOR WHOM AN INVESTMENT IN THE PARTNERSHIP DOES NOT CONSTITUTE A COMPLETE INVESTMENT PROGRAM AND WHO FULLY UNDERSTAND AND ARE WILLING TO ASSUME THE RISKS INVOLVED IN THE PARTNERSHIP'S INVESTMENT PROGRAM. SUBSCRIBERS FOR INTERESTS MUST REPRESENT THAT THEY ARE ACQUIRING THE INTERESTS FOR INVESTMENT. THE TRANSFER OF INTERESTS IS SUBJECT TO LIMITATIONS IMPOSED BY THE PARTNERSHIP'S FIFTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, IN COMPLIANCE WITH THE PROVISIONS OF APPLICABLE LAWS. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. BLUE MOUNTAIN CREDIT ALTERNATIVES MASTER FUND ■. (THE "MASTER FUND") FALLS WITHIN THE DEFINITION OF A "MUTUAL FUND" AND A "MASTER FUND", IN EACH CASE, UNDER THE MUTUAL FUNDS LAW (2009 REVISION) OF THE CAYMAN ISLANDS; THEREFORE, THE MASTER FUND IS REGULATED PURSUANT TO THAT LAW. THE MASTER FUND IS NOT HEREBY OFFERING ANY SECURITIES AND ACCORDINGLY THIS MEMORANDUM IS NOT TO BE REGARDED AS HAVING BEEN AUTHORIZED OR ISSUED BY THE MASTER FUND. THE MASTER FUND DOES NOT HAVE AN OFFERING DOCUMENT OR EQUIVALENT DOCUMENT. THE INTERESTS OFFERED HEREBY HAVE NOT BEEN FILED WITH OR APPROVED OR DISAPPROVED BY ANY REGULATORY AUTHORITY OF ANY COUNTRY OR JURISDICTION, NOR HAS ANY SUCH REGULATORY AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ii EFTA01144868  THIS MEMORANDUM HAS BEEN PREPARED SOLELY FOR THE INFORMATION OF THE PERSON TO WHOM IT HAS BEEN DELIVERED BY OR ON BEHALF OF THE PARTNERSHIP, AND SHOULD NOT BE REPRODUCED OR USED FOR ANY OTHER PURPOSE. AN INVESTMENT IN THE PARTNERSHIP IS SPECULATIVE AND INVOLVES CERTAIN RISKS AND CONFLICTS OF INTEREST DESCRIBED IN THIS MEMORANDUM. IT SHOULD BE REMEMBERED THAT THE VALUE OF INTERESTS MAY GO DOWN AS WELL AS UP, AND THAT INVESTORS MAY NOT RECEIVE, UPON WITHDRAWAL, THE AMOUNT THEY INVESTED. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PARTNERSHIP AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. CERTAIN INFORMATION CONTAINED IN THIS MEMORANDUM CONSTITUTES "FORWARD-LOOKING STATEMENTS," WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "PROJECT," "ESTIMATE," "INTEND," OR "BELIEVE" OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. DUE TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED IN THE "RISK FACTORS" SECTION HEREIN, ACTUAL EVENTS OR RESULTS OR THE ACTUAL PERFORMANCE OF THE PARTNERSHIP MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. EACH PROSPECTIVE INVESTOR AND ITS REPRESENTATIVES ARE INVITED TO QUESTION THE GENERAL PARTNER CONCERNING THE TERMS AND CONDITIONS OF THE OFFERING AND TO REQUEST ADDITIONAL INFORMATION CONCERNING THIS OFFERING, THE INVESTMENT STRATEGY, PERFORMANCE OR PROSPECTS OF THE PARTNERSHIP OR TO VERIFY THE ACCURACY OF INFORMATION CONTAINED IN THIS MEMORANDUM. SUCH INFORMATION WILL BE PROVIDED TO THE EXTENT THE GENERAL PARTNER HAS IT OR CAN OBTAIN IT WITHOUT UNREASONABLE EXPENSE OR EFFORT. SUBJECT TO THE FOREGOING, ANY REPRESENTATION OR INFORMATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE PARTNERSHIP OR THE GENERAL PARTNER SINCE NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY SUCH REPRESENTATIONS OR TO PROVIDE ANY SUCH INFORMATION. THE DELIVERY OF THIS MEMORANDUM DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE ON THE COVER HEREOF. All references to "$" in this Memorandum, unless stated otherwise, are to U.S. Dollars. iii EFTA01144869  TABLE OF CONTENTS INTRODUCTION 1 SUMMARY OF TERMS 2 THE OFFERING 15 BUSINESS OF THE PARTNERSHIP 15 MANAGEMENT OF THE PARTNERSHIP 17 ALLOCATION OF PROFITS AND LOSSES 23 FEES AND EXPENSES 24 BROKERAGE 24 SUMMARY OF THE PARTNERSHIP AGREEMENT 26 VALUATION OF THE PARTNERSHIP'S ASSETS AND LIABILITIES 32 DESCRIPTION OF THE MASTER FUND 32 SUMMARY OF THE MASTER FUND PARTNERSHIP AGREEMENT 33 VALUATION OF THE MASTER FUND'S ASSETS AND LIABILITIES 39 CONFLICTS OF INTEREST 40 RISK FACTORS 41 CERTAIN TAX AND ERISA CONSIDERATIONS 55 SUITABILITY STANDARDS 68 ANTI-MONEY LAUNDERING REGULATIONS 70 METHOD OF SUBSCRIPTION 71 COUNSEL 71 AUDITORS 71 ADDITIONAL INFORMATION 71 LIMITED PARTNER PRIVACY 71 DIRECTORY 73 EXHIBIT A: FORM ADV PART 2 EFTA01144870  BLUE MOUNTAIN CREDIT ALTERNATIVES FUND INTRODUCTION Blue Mountain Credit Alternatives Fund M., a Delaware limited partnership (the "Partnership"), invests in a wide range of credit market instruments and other asset classes in Alternatives Master Fund sZ, connection with credit trading strategies. The Partnership invests the net proceeds from the sale of its interests ("Interests" after payment of Partnership expenses, in Blue Mountain Credit ., a Cayman Islands exempted limited partnership (the "Master Fund"). The Partnership's investment objective is to provide consistent long-term appreciation of assets through active leveraged trading and investment, primarily in the North American, European and Asian credit markets. The general partner of the Partnership is Blue Mountain Credit GP, LLC (the "General Partner"), a limited liability company formed under the laws of the State of Delaware. The General Partner has ultimate management authority over all investment decisions, asset acquisitions and dispositions, distributions and Partnership affairs generally. The General Partner has delegated to BlueMountain Capital Management, LLC, a Delaware limited liability company (the "Investment Manager," or "BlueMountain"), the responsibility for managing the Partnership's investment portfolio. The Investment Manager manages the Master Fund's investment portfolio using the same investment objectives as the Partnership. Blue Mountain Credit Alternatives Fund Ltd. (the "Offshore Fund") invests, and other investment vehicles structured to meet the needs of certain U.S. and non-U.S. investors (together with the Partnership and the Offshore Fund, the "Feeder Funds") may invest, in debt and equity securities of the Master Fund; each Feeder Fund bears a proportionate share of the Master Fund's expenses. These other Feeder Funds may differ from the Partnership in terms of eligible investors, tax structure, applicable management fees, redemption features and other terms. The Master Fund was created for the purpose of facilitating the joint implementation of the investment strategies of the Partnership and any other Feeder Fund, while at the same time enabling each Feeder Fund to offer terms suitable to the particular needs of various types of investors. In seeking to achieve its objective, the Master Fund has maximum flexibility to invest in a wide range of credit market instruments and other asset classes in connection with credit trading strategies. The Investment Manager's investment process for the Master Fund consists of identifying relative value trading strategies within and across asset classes by combining (i) rigorous quantitative analysis of price relationships across credit market segments and between the credit markets and other markets, (ii) fundamental credit research, (iii) an understanding of the technical dynamics in the various credit markets and (iv) macro-economic views. EFTA01144871  SUMMARY OF TERMS The following is a summary and is qualified in its entirety by information appearing elsewhere in this Memorandum and in the Partnership's Fifth Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). THE PARTNERSHIP The Partnership is a Delaware limited partnership organized on August 18, 2003. The Partnership invests in a wide range of credit market instruments and other asset classes in connection with credit trading strategies by investing the net proceeds from the sale of Interests, after payment of Partnershi in Blue Mountain Credit Alternatives Master Fund M., a Cayman Islands exempted limited partnership (the "Master Fund"). GENERAL PARTNER The general partner of the Partnership is Blue Mountain Credit GP, LLC (the "General Partner"), a limited liability company organized under the laws of the State of Delaware on January 31, 2005. The General Partner has ultimate management authority over all investment decisions, asset acquisitions and dispositions, distributions and Partnership affairs generally. The General Partner has delegated to the Investment Manager the responsibility for managing the Partnership's investment portfolio. The General Partner is a wholly-owned subsidiary of BlueMountain GP Holdings, LLC. INVESTMENT MANAGER BlueMountain Capital Management, LLC is the investment manager (the "Investment Manager") of the Partnership and the Master Fund and manages their investment program. The Investment Manager is a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended. The Investment Manager anticipates registering as a Commodity Pool Operator ("CPO") and/or a Commodity Trading Advisor ("CTA"), effective January 1, 2013, but plans to operate the Partnership after such date pursuant to Regulation 4.7 (the "4.7 Exemption") of the U.S. Commodity Exchange Act (the "CEA"). Pursuant to an agreement with the Partnership (the "Investment Management Agreement"), the Investment Manager has full discretion to invest the assets of the Partnership and the Master Fund in a manner consistent with the investment objective and investment strategies described in this Memorandum. Blue Mountain Capital Partners (London) LLP, a limited liability partnership formed under the laws of the United Kingdom and a wholly owned subsidiary of the Investment Manager ("BlueMountain London"), will serve as adviser to the Investment Manager with respect to issuers based in Europe. The Investment Manager has entered into a sub-advisory agreement 2 EFTA01144872  with BlueMountain London, pursuant to which BlueMountain London is compensated for providing investment advisory services, trade execution, and general infrastructure support to the Investment Manager. BlueMountain London is registered with the Financial Services Authority. BlueMountain London also expects to (i) register with the U.S. Commodity Futures Trading Commission as a commodity trading advisor and (ii) become a member of the National Futures Association, effective January 1, 2013 in connection with advisory services provided to the Investment Manager. INVESTMENT OBJECTIVE The Partnership's investment objective is to provide consistent long-term appreciation of assets through active leveraged trading and investment, primarily in the North American, European and Asian credit markets. INVESTMENT STRATEGIES In seeking to achieve its objective, the Partnership, through its investment in the Master Fund, has maximum flexibility to invest in a wide range of credit market instruments and other asset classes in connection with credit trading strategies. Without limiting the foregoing, the Master Fund may take long or short positions in credit derivatives, equity derivatives, corporate and convertible bonds, loans (including private non-recourse loans supported by publicly traded collateral or project financings), equities, collateralized debt obligations and other asset-backed securities. Credit and equity derivatives may relate to individual reference entities or to baskets or portfolios of reference entities (including levered or de-levered (ranches of such portfolios or baskets). The Master Fund invests primarily in strategies where the underlying exposures are to investment grade and non-investment grade credit issuers but may take or hold positions where the underlying exposures are to distressed credits. The Master Fund uses interest rate derivatives and government securities to hedge interest rate risk, and spot and forward foreign currency contracts to hedge currency exposures. In carrying out its investment objective, the Investment Manager may not place more than 25% of the Master Fund's assets (measured as of investment) in positions quoted by fewer than three dealers. The Investment Manager's investment process for the Master Fund consists of identifying relative value trading strategies within and across asset classes by combining (i) rigorous quantitative analysis of price relationships across credit market segments and between the credit markets and other markets, (ii) fundamental credit research, (iii) an understanding of the 3 EFTA01144873 technical dynamics in the various credit markets and (iv) macro- economic views. The Investment Manager's trading strategies for the Master Fund can be broadly grouped into three categories: Fundamental Credit • Long/Short Trading: relative value positions (long and short) between or among different issuers, groups of issuers, sectors, or indices. These positions frequently occur in derivative form (i.e., CDS). • Capital Structure Trading: long and short positions in instruments with differing levels of seniority within the capital structure of one issuer. These transactions may include secured loan versus unsecured bond, senior bond versus subordinated bond, etc. • Loan Relative Value: relative value positions (long and short) between or amongst credits, groups of credits, sectors, or indices, in which at least one leg of the trade involves secured debt (loans). These positions include loans, bonds, LCDS, and CDS (e.g., loan versus loan, loan versus CDS). • Curve Trading: long and short position across the term structure curve of single name credits or indices (curve steepeners and flatteners). • Special Situations: investments in credit instruments including tranches of CLOs, structured credit, or private financings and club-style deals. Structured Credit • Structured Corporate Credit positions that generally involve baskets or portfolios of credits pooled together and then tranched into classes with varying priorities and risk/return profiles. The credits underlying these transactions may be derivative or cash instruments and the investments themselves may be in derivative or cash form. The Master Fund may take long or short positions in these transactions. • ABS / RMBS Instruments: long and short positions in ABX index (ranches, as well as directional trades in individual ABS security tranches. EFTA01144874  Credit Arbitrage • Index Arbitrage: positions include index versus constituent trades, as well as index versus index trades where a large degree of overlap between underlying constituent names exists. • Bond Basis: long and short positions involving cash bonds and CDS of the same issuer. MASTER-FEEDER The Partnership pursues its investment objective by investing all STRUCTURE of its investable assets in the Master Fund, which is managed by the Investment Manager and shares the same investment objective as the Partnership. The general partner of the Master Fund is BlueMountain CA Master Fund GP, Ltd. (the "Master Fund GP"). Blue Mountain Credit Alternatives Fund Ltd. (the "Offshore Fund") invests, and other investment vehicles structured to meet the needs of certain U.S. and non-U.S. investors (together with the Partnership and the Offshore Fund, the "Feeder Funds") may invest, in debt and equity securities of the Master Fund; each Feeder Fund bears a proportionate share of the Master Fund's expenses. These other Feeder Funds may differ from the Partnership in terms of eligible investors, tax structure, applicable management fees, redemption features and other terms. The Master Fund was created for the purpose of facilitating the joint implementation of the investment strategies of the Partnership and any other Feeder Fund, while at the same time enabling each Feeder Fund to offer terms suitable to the particular needs of various types of investors. The Master Fund maintains a separate account (an "Investment Account") for each Feeder Fund, and within each such Investment Account maintains a separate sub-account (a "Sub- Investment Account") for each investment made by each investor in such Feeder Fund on any given date. AFFILIATED TRADING From time to time, the Master Fund may share a trading strategy ENTITIES; AFFILIATED with another fund or account managed by the Investment FUND INVESTMENTS Manager (an "Affiliated Fund"). In that event, the Investment Manager may form a pooled investment vehicle (a "Trading Entity") to facilitate the joint implementation of such trading strategy. The Master Fund may also invest directly in an Affiliated Fund. In either event, the Master Fund will not be subject to additional management fees, incentive fees or incentive 5 EFTA01144875  allocations in connection with its investment in any such Trading Entity or Affiliated Fund. INTEREST CLASSES; The Partnership is offering Class S Interests to all existing and CURRENT OFFERING prospective investors, which Interests shall have the rights and restrictions set out in this Memorandum and in the Partnership Agreement; the Offshore Fund is offering corresponding shares ("Shares") in the Offshore Fund, denominated as Class S Shares, with similar rights and restrictions. Class S Interests (and Class S Shares) are subject to (i) a 2.0% Management Fee (as defined below), and (ii) a 20% Performance Distribution (as defined below). In addition to the Class S Interests being offered pursuant to this Memorandum, there are currently outstanding (i) Class Q1 Interests, Class Al Interests and Class A2 Interests, none of which are currently being offered, and (ii) Class Q2 Interests and Class Q3 Interests, which are being offered to existing holders of such Interests with the rights and restrictions set out in the Partnership's Confidential Private Placement Memorandum dated May 19, 2009 (the "2009 Memorandum") and the Partnership Agreement. The rights and restrictions applicable to these other classes of Interests differ from the Class S Interests in several ways, including with respect to management fees, performance distributions, tax distributions (and corresponding clawback obligations), lock-ups and withdrawal rights, all of which are detailed in the 2009 Memorandum, the Partnership Agreement and the Fifth Amended and Restated Agreement of Limited Partnership of the Master Fund (the "Master Fund Agreement"). The General Partner may in the future issue additional classes of Interests in accordance with the Partnership Agreement. CAPITAL CONTRIBUTIONS The minimum investment amount is $1,000,000, subject to change or waiver in the sole discretion of the General Partner. New investors are admitted to the Partnership as limited partners (the "Limited Partners") as of the first day of each month. In addition, existing holders of Class Q2 Interests and Class Q3 Interests may, with the consent of the General Partner, make additional capital contributions to the Partnership in respect of such Class Q2 Interests or Class Q3 Interests, as the case may be, as of the first day of each month or at such other times as the General Partner in its sole discretion may allow. Each Limited Partner will have a capital account (a "Capital Account") established on the books and records of the Partnership, which is subdivided into as many sub-capital accounts (each a "Sub-Capital Account") as is necessary such that 6 EFTA01144876  there is a separate Sub-Capital Account with respect to each capital contribution made by such Limited Partner on any given date. For ease of administration, each Sub-Investment Account of the Master Fund corresponds to one Sub-Capital Account of a Limited Partner. The General Partner may but is not required to make capital contributions to the Partnership. SUITABILITY Interests may be purchased by a prospective investor who (i) is a qualified purchaser for purposes of Section 3(c)(7) of the 1940 Act, and who is therefore also a qualified eligible person for purposes of Regulation 4.7 of the CEA; and (ii) is an accredited investor for purposes of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). TERM The term of the Partnership will expire on December 31, 2050, subject to the discretion of the General Partner to wind up the Partnership on an earlier date or extend to a later one. WITHDRAWALS WITHDRAWALS GENERALLY Each holder of Class S Interests may withdraw all or any portion of its Interests as of the last day of March, June, September and December (each, a "Withdrawal Date")• provided that the Partnership's obligation to meet any withdrawal of Class S Interests shall be subject to the applicable Investor Level Limit (as defined below) and provided, further, that any Limited Partner that withdraws any Class S Interests prior to the 12-month anniversary of the purchase of such Interests will be charged a fee (a "Withdrawal Fee") payable to the Master Fund equal to 3% of the Net Asset Value of the Interests being withdrawn (a "Soft Lock"). Withdrawal requests for any Withdrawal Date must be made no later than the last business day of the most recently preceding December, March, June or September (as the case may be) or such earlier date as may be agreed with a particular Limited Partner. "Investor Level Limit" means, with respect to any Class S Interests issued on the same subscription date (a "Series" of Interests) held by a Limited Partner on any Withdrawal Date, (x) the Net Asset Value of all of such Limited Partner's Interests of such Series, multiplied by (y) 25%• provided that if such Limited Partner submits withdrawal requests in an amount equal to or exceeding its Investor Level Limit with respect to such Series for consecutive Withdrawal Dates, the multiplier in clause (y) shall be increased to equal (i) with respect to the second consecutive Withdrawal Date, 33-1/3%; (ii) with respect to the third consecutive Withdrawal Date, 50%; and (iii) with respect to 7 EFTA01144877  the fourth consecutive Withdrawal Date, 100%; provided, further, that for purposes of the foregoing calculation, at the calendar year end following the conclusion of the Soft Lock with respect to Class S Interests held by such Limited Partner, the Partnership may convert such Series into any other Series of Class S Interests not subject to a Soft Lock held by such Limited Partner. Withdrawals will be considered to be made first from the Sub- Capital Account (and corresponding Sub-Investment Account) attributable to the earliest eligible capital contribution on a first-in first-out basis. Partial withdrawals are not permitted if after giving effect to such withdrawal the remaining balance in a Limited Partner's Capital Account is less than the minimum initial investment requirement of the Partnership. In the case of a withdrawal from any Sub-Investment Account, the amount withdrawn and the amount remaining in the Sub-Investment Account will be treated as if they were separate Sub-Investment Accounts. All costs and expenses associated with any Limited Partner's withdrawal (including costs incurred in connection with liquidating assets of the Master Fund to meet such withdrawals) are allocated to, and debited against the Sub-Capital Account(s) of, the withdrawing Limited Partner. The Partnership may, in its sole discretion, pay withdrawal proceeds in cash, in securities or partly in cash and partly in securities. In addition, withdrawals may be satisfied by liquidating a pool of the Master Fund's assets and distributing the cash proceeds of such liquidation (net of any Performance Distribution and Withdrawal Fee), which may be greater than or less than the Net Asset Value of the withdrawn Interests as of such Withdrawal Date, through the Partnership to the withdrawing holders of such Interests. Each such pool shall consist of assets that are broadly representative of all the assets held by the Master Fund, as determined by the Investment Manager in its reasonable discretion. In connection with the liquidation of each such pool, the Master Fund shall have the right to purchase any asset in such pool; provided that the price paid for such asset represents (i) the best price actually received from a third party, (ii) fair market value, as determined by an independent valuation agent or (iii) such value as may be agreed between the Master Fund and a majority-in-interest of the holders of the Sub-Investment Accounts being liquidated. SUSPENSION Notwithstanding any provision contained herein, the General Partner may suspend the right of withdrawal or postpone the date EFTA01144878  of payment for any period during which the Master Fund is not permitting withdrawals by Feeder Funds, and the Master Fund may suspend withdrawals, in whole or in part, or postpone the date of payment for any period during which (i) any stock exchange or over-the-counter market on which a substantial part of the investments owned by the Master Fund are traded is closed or trading on any such exchange or market is restricted or suspended, (ii) there exists a state of affairs that constitutes a state of emergency as a result of which disposal of the investments owned by the Master Fund is not reasonably practicable or it is not reasonably practicable to determine fairly the value of its assets, (iii) a breakdown occurs in any of the means normally employed in ascertaining the value of a substantial part of the assets of the Master Fund or when for any other reason the value of such assets cannot reasonably be ascertained or (iv) there exist such other extraordinary circumstances, as determined in good faith by the Master Fund GP, that cause withdrawals or such payments to be impracticable under existing economic or market conditions or conditions relating to the Master Fund. In addition, the General Partner, by written notice to any Limited Partner, may suspend the withdrawal rights of such Limited Partner if the General Partner in good faith deems it necessary to do so to comply with anti-money laundering laws and regulations applicable to the Partnership, the Master Fund, the Investment Manager, or any of the Partnership's service providers. MANDATORY WITHDRAWAL The General Partner may, in its sole discretion, require any Limited Partner to withdraw all or any portion of its Capital Account balance upon at least 30 days' prior written notice. PAYMENT GENERALLY A Limited Partner withdrawing less than 80% of its Sub-Capital Account generally will be paid in full within 30 days after the Withdrawal Date. To the extent a withdrawal is satisfied through the liquidation of a representative pool of the Master Fund's positions, the proceeds of such liquidation will generally be paid in full within 30 days following the completion of the liquidation of such pool. Hornaitcx PEND/NG AuDrr In connection with any withdrawal by a Limited Partner of more than 80% of its Interests, the Partnership will holdback up to 10% of the withdrawal proceeds that would otherwise be paid to such Limited Partner, pending completion of the audit for the year in which such withdrawal occurs. The amount of such holdback, as may be adjusted in connection with such audit, shall be paid to the withdrawing Limited Partner within 30 days following 9 EFTA01144879  delivery to the Partnership of the audit for the year in which such withdrawal occurs. NET ASSET VALUE The net asset value ("Net Asset Value") of the Master Fund is determined by aggregating the value of all securities and other assets of the Master Fund and subtracting all of the Master Fund's liabilities. The Net Asset Value of the Partnership is determined by aggregating the value of all securities and other assets of the Partnership, meaning in large part the Partnership's interest in the Master Fund, and subtracting all of the Partnership's liabilities. Net Asset Value per class of Interests is equal to the amount of the Partnership's Net Asset Value allocable to such class of Interests. Net Asset Value of a Limited Partner's Interest with respect to a particular class is equal to such Limited Partner's pro rata share of such class of Interests. MANAGEMENT FEE Pursuant to the Investment Management Agreement, the Master Fund pays the Investment Manager a monthly management fee on behalf of the Partnership (the "Management Fee") equal to 1/12 of 2.0% (2.0% per annum) of the Master Fund's Net Asset Value pertaining to each Class S Interest as of the last calendar day of each month (prior to the accrual of any Performance Distribution amounts). The Investment Management Agreement also provides for the payment of Management Fees in respect of the other outstanding classes of Interests. The Investment Manager may waive some or all of its Management Fee with respect to any Limited Partner, including principals and employees of the Investment Manager, the General Partner and their affiliates. PROFIT AND LOSS Net profits of the Partnership (including realized and unrealized ALLOCATIONS gains) with respect to each Sub-Investment Account of the Master Fund are allocated among the corresponding Sub-Capital Accounts for each Fiscal Period (as defined below) in the proportion that each Sub-Capital Account balance bears to the aggregate Sub-Capital Account balances of all Partners with respect to such Master Fund investment. Net losses are generally allocated to the Partners in proportion to and to the extent of their respective Sub-Capital Account balances in the same manner, and thereafter to the General Partner. Net profits of the Master Fund (including realized and unrealized gains) are allocated to each Sub-Investment Account for each Fiscal Period in the proportion that each Sub-Investment Account balance bears to the aggregate Sub-Investment Account balances of the Master Fund. Net losses are generally allocated among Sub-Investment Accounts in proportion to and to the extent of Sub-Investment Account balances, and thereafter to the Master I0 EFTA01144880  Fund GP. Such allocated profits and losses shall be further adjusted by reallocations to the Master Fund GP related to Performance Distributions. A "Fiscal Period" ends, among other times, on the last day of a calendar month, on the day prior to the effective date of a contribution of capital to the Master Fund, on the effective date of a withdrawal from a Sub-Investment Account, on a distribution by the Master Fund other than pro rata in accordance with the Sub-Investment Account balances, and on the date when the Master Fund is wound up. PERFORMANCE At the end of each calendar year (or as of any Withdrawal Date DISTRIBUTION TO with respect to the withdrawn portion of the Class S Interests) the MASTER FUND GP Master Fund shall make a distribution on behalf of the Partnership (a "Performance Distribution") to the Master Fund GP from the Sub-Investment Account pertaining to each Class S Interest equal to 20% of the amount by which the Net Asset Value of such Class S Interest (prior to accrual of any Performance Distribution amounts or the payment of any Withdrawal Fee in connection with a withdrawal as of such date) exceeds its High Water Mark. The "High Water Mark" with respect to each Class S Interest shall initially be the Net Asset Value of such Interest upon issuance, and thereafter shall be adjusted in connection with any Performance Distribution made with respect to such Class S Interest to equal such Class S Interest's Net Asset Value immediately following such distribution• provided that with respect to any Class S Interest issued in exchange for a pre- existing Interest of another class, its initial High Water Mark shall be the high water mark of such pre-existing Interest. EXPENSES It is generally expected that the Master Fund shall bear its and each Feeder Fund's organizational, operating and other expenses, including without limitation, legal and accounting services and investment related expenses (such as research, subscriptions, quotation services and data feeds). These expenses include, but are not limited to, expenses incurred by the General Partner or its affiliates in connection with the initial and continuous offering of Interests (other than placement fees), personnel costs of persons that perform certain back- and middle-office services for the Investment Manager, and other expenses associated with the operation of the Feeder Funds and the Master Fund. The Master Fund or the respective Feeder Fund, as the case may be, shall reimburse the General Partner and its affiliates for such expenses. II EFTA01144881  To the extent that such expenses are treated as expense items of the Master Fund, they shall be shared by the Feeder Funds pro rata based on the balance in their respective Investment Accounts as of the last day of each calendar month (and accordingly are allocated pro rata among each Sub-Investment Account at such time); provided that any such expenses specific to any Feeder Fund are specially allocated to such Feeder Fund. WAIVER OR MODIFICATION The General Partner shall have the absolute discretion to agree with OF TERMS a Limited Partner to waive or modify the application of any terms set forth in this Memorandum with respect to such Limited Partner (including those relating to Management Fees, Performance Distributions, withdrawals and reporting) without obtaining the consent of any other Limited Partner. PLACEMENT AGENTS The General Partner may, but is not required to, appoint affiliated and unaffiliated persons or entities to solicit investors and act as placement agents for the Partnership. Each placement agent will comply with the legal requirements of the jurisdictions within which it offers and sells Interests. There will be no sales charges for the benefit of the Partnership, the General Partner, the Investment Manager or any of their respective affiliates in connection with the offering of Interests. Placement fees may be charged b