Corsair Opportunity Fund (the “Fund”) is a newly organized Delaware statutory trust that is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company.  Corsair Capital Management, L.P., a Delaware limited partnership that is registered as an investment adviser with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940 (the “Advisers Act”), serves as the investment adviser of the Fund (the “Adviser”).  The Adviser is controlled by its general partner, Corsair Capital Management GP, L.L.C. (the “General Partner”), and Jay R. Petschek and Steven Major, each a managing member of the General Partner and Principal and Co-Portfolio Manager of the Adviser, serve as the Portfolio Managers of the Fund.

 

The Fund's investment objective is to achieve capital appreciation.  The Fund pursues this objective by investing its assets primarily in long and short positions in equity securities of U.S. and Canadian companies.  Generally, the Adviser emphasizes companies believed to be going through strategic and/or structural change (e.g., spin-offs, restructurings, post-bankruptcy reorganizations, etc.) or companies operating in industries or other environments believed to be undergoing substantial change.  For purposes of the Fund's investment program, “equity securities” means common and preferred stocks (including IPO securities), convertible securities, stock options ( covered call and put options), warrants and rights.  The Fund is expected to have a “net-long bias” (where the dollar value of the long  positions exceed the value of short positions).  However, the Fund does effect short-sales under circumstances where the Adviser identifies more attractive opportunities for capital appreciation (relative to investing in long positions) and for other purposes, such as hedging.  Due to limitations imposed by the 1940 Act and operational requirements, the Fund generally expects that no more than 50 percent of its total assets would be represented by short sales.  (See “Principal Risk Factors --- Leverage & Borrowings Risk.”)  Short selling is considered a speculative investment practice and involves certain risks.  In addition, the Fund, as a result of certain short sale transactions, may recognize short term capital gain, which will be passed through to investors as ordinary income.  (For a more detailed discussion of the tax consequences of short sale transactions, see “Certain Tax Matters --- Taxation of Short Sales.”)

 

The Adviser will invest the Fund's assets in equity securities without regard to the issuer's market capitalization.  The Fund may invest in securities of “Canadian issuers,” which, for these purposes, are companies that derive a majority of their revenue or profits from Canadian businesses, investments or sales, or that have a substantial portion of their operations or assets in Canada.  Without regard to the Fund’s investments in Canadian companies, the Fund may invest up to 25% of its total assets in other foreign securities.  The Fund's investments in Canadian and other foreign companies may include companies that are located in, or conduct business in, emerging or less developed

 

The Adviser principally uses fundamental research to identify and assess potential portfolio investments.  This research typically includes analysis of financial statements and other data, meeting company personnel, visiting company facilities, reviewing customers and competitors and analyzing comparable companies or securities.

 

While the Adviser intends to conduct research on a broad range of companies, it will focus special attention on (i) companies believed to be undergoing substantial operating or financial change, which frequently include companies involved in spin-offs or corporate reorganizations and/or restructurings; and (ii) companies believed to be operating in industries or other environments undergoing substantial change.  These circumstances sometimes result in the Adviser focusing on companies with little or no research coverage or a perceived lack of adequate research coverage by securities firms generally.

 

In addition to its principal investment strategies, the Fund may invest in debt securities and certain derivative instruments (in addition to the options described under “Principal Investment Strategies”), such as forward contracts, total return swaps, forward currency exchange contracts, options on stock indices and structured-equity notes.  Currently, however, the Fund does not anticipate using over-the-counter derivatives.  (See “Additional Risk Factors --- Derivatives Risk.”)  The Fund may also purchase retail shares of exchange-traded funds that are registered under the 1940 Act (“ETFs”) and retail shares of similar investment vehicles that are not registered under the 1940 Act (together with the ETFs, “Traded Funds”) and effect short sales of these shares.  Transactions in Traded Funds may be used in seeking capital appreciation or for hedging purposes.  During periods of adverse market conditions in the equity securities markets, the Fund may deviate from its investment objective and invest substantially all of its assets in high quality debt securities, money market instruments, or hold its assets in cash.  The Fund also invests in money market instruments for liquidity purposes.  (See “Non-Principal Fund Investment Practices and Their Risks.”)

 

The Fund is authorized to borrow money for investment purposes, to meet repurchase requests and for liquidity purposes.  Borrowings by the Fund (which do not include short and derivative transactions) will not exceed 33 ⅓ percent of the Fund's total assets.  Borrowing for investment purposes (a practice known as “leverage”) is a speculative investment practice and involves certain risks.  The Fund does not currently anticipate using borrowings for investment purposes.  (See “Principal Risk Factors --- Borrowings & Leverage Risk.”)

 

The board of trustees of the Fund (the “Board”) has overall responsibility for the management and supervision of the operations of the Fund.  It has delegated responsibility for management of the Fund's day-to-day operations to the Adviser.  (See “Management of the Fund.”)

 

The Adviser, Corsair Capital Management, L.P., a Delaware limited partnership, serves as the investment adviser of the Fund.  Pursuant to an investment advisory agreement with the Fund (the “Advisory Agreement”), the Adviser is responsible for: (i) developing and implementing the Fund's investment program, (ii) managing the Fund's investment portfolio and making all decisions regarding the purchase and sale of investments for the Fund, and (iii) providing various management and administrative services to the Fund.  Although the Fund is recently formed and has no operating history upon which investors can evaluate its performance and the Adviser has not served as investment adviser to other registered investment companies, the Adviser serves as a subadviser to one or more registered investment companies, and it manages investment funds and accounts that have investment programs that are substantially similar to the investment program of the Fund.  (See "Performance Information" and "Management of the Fund.")

 

In consideration of services provided by the Adviser, the Fund pays the Adviser a monthly management fee computed at the annual rate of 1.50 % of the Fund's average daily net assets (the “Management Fee”).  The Fund also pays the Adviser a performance-based incentive fee (the “Incentive Fee”) promptly after the end of each fiscal year of the Fund.  The Incentive Fee is determined as of the end of the fiscal year in an amount equal to 20% of the

 

amount by which the Fund's net profits for all Fiscal Periods (as defined below) ending within or coterminous with the close of such fiscal year exceed the balance of the loss carryforward account (as described on the next page), without duplication for any Incentive Fees paid during such fiscal year.  The Fund also pays the Adviser the Incentive Fee in the event a Fiscal Period is triggered in connection with a share repurchase offer by the Fund, as described below.  For purposes of calculating the Incentive Fee, net profits means the amount by which: (a) the net assets of the Fund as of the end of a Fiscal Period, increased by the dollar amount of shares of the Fund repurchased during the Fiscal Period (excluding shares to be repurchased as of the last day of the Fiscal Period after determination of the Incentive Fee) and by the amount of dividends and other distributions paid to shareholders during the Fiscal Period and not reinvested in additional shares (excluding any dividends and other distributions to be paid as of the last day of the Fiscal Period), exceeds (b) the net assets of the Fund as of the beginning of the Fiscal Period, increased by the dollar amount of shares of the Fund issued during the Fiscal Period (excluding any shares issued in connection with the reinvestment of dividends and other distributions paid by the Fund).  Net assets means the total value of all assets of the Fund, less an amount equal to all accrued debts, liabilities and obligations of the Fund, determined in accordance with the valuation and accounting policies and procedures of the Fund.  “Fiscal Period” means each twelve-month period ending on the Fund's fiscal year-end (or such other period ending on the Fund’s fiscal year-end in the event the Fund’s fiscal year is changed), provided that whenever the Fund conducts a share repurchase offer, the period of time from the last Fiscal Period-end through the effective date of the repurchase offer also constitutes a Fiscal Period.  (Upon termination of the Advisory Agreement, the Fund will pay the Incentive Fee to the Adviser as if the date of effectiveness of such termination is the end of the Fund's fiscal year.)  In the event that an Incentive Fee is payable with respect to a Fiscal Period that is not the Fund's fiscal year-end due to the Fund's share repurchases, the Incentive Fee will be determined as if the end of such Fiscal Period were the end of the Fund's fiscal year, and only that portion of the Incentive Fee that is proportional to the Fund's assets paid in respect of such share repurchases (not taking into account any proceeds from any contemporaneous issuance of shares of the Fund, by reinvestment of dividends and other distributions or otherwise) will be paid to the Adviser for such Fiscal Period.  Since the Fund may conduct repurchase offers every month, Fiscal Periods could be triggered (and, therefore, a portion of the Incentive Fee, if any, would be payable to the Adviser) up to twelve times each fiscal year.  For purposes of determining the Fund's net asset value, the Incentive Fee is calculated and accrued daily as an expense of the Fund (as if each day is the end of the Fund's fiscal year).

 

The Incentive Fee will be payable for a Fiscal Period only if there is no positive balance in the Fund's loss carryforward account.  The loss carryforward account is an account that will have an initial balance of zero upon commencement of the Fund's operations and, thereafter, will be credited as of the end of each Fiscal Period with the amount of any net loss of the Fund for that Fiscal Period and will be debited with the amount of any net profits of the Fund for that Fiscal Period, as applicable.  This is sometimes known as a “high water mark.”  (See “Fees and Expenses --- Incentive Fee.”)

 

Unlike a traditional high water mark incentive fee structure, the Incentive Fee is paid based on a loss carryforward account for the Fund as a whole and not loss carryforward accounts for each individual shareholder.  This means that a shareholder is subject to the Incentive Fee as reflected in the net asset value of

The Incentive Fee presents certain risks that are not present in investment funds without incentive fees.  (See “Additional Risk Factors --- The Incentive Fee.”)  In addition, although the aggregate fees payable by the Fund to the Adviser are similar to those of private investment funds, they are significantly higher than those paid by most registered investment companies.

 

The Fund will initially offer a single class of shares of beneficial interest (“shares”) designated as “Class A shares” to investors eligible to invest in the Fund.  The Fund expects to offer Class I shares in the future, subject to obtaining an exemptive order from the Securities and Exchange Commission (“SEC”).  Unlike Class A shares, Class I shares would not be subject to any sales load or distribution and shareholder servicing fees.

 

Class A shares of the Fund are being offered in an initial offering (the "Initial  Offering") at a price of $[____] per share plus a sales load of up to 3 % (if applicable).  The Initial Offering is currently anticipated to terminate on [_____], 2014, subject to extension.

 

After the Initial Offering is closed, shares of the Fund will be offered for purchase on a monthly basis in a continuous offering at their net asset value per share, plus, in the case of Class A shares (and if applicable), a sales load of up to 3 % of the amount invested (as described below).  Shares will be issued at the net asset value per share next computed after acceptance of an order to purchase shares.  The Fund's net asset value per share will be circulated to Selling Agents (as defined below) offering shares of the Fund.

 

The minimum initial investment in shares of the Fund by an investor is $[50,000], subject to reduction at the discretion of an investor's broker, dealer or other financial intermediary. Subsequent investments must be at least $[10,000].  (In each case, including a sales load if applicable.)  The minimum investment requirements may be reduced or waived for investments by personnel of the Adviser and its affiliates, and members of their immediate families, and as may be determined by the Board.  In addition, the Fund currently expects Class I shares of the Fund to only be available to investors: (i) who purchase their investment through a discretionary or non-discretionary fee-based advisory or wrap program of a Selling Agent; (ii) who are clients of investment advisers or financial planners that participate in programs operated by Selling Agents through which Class I shares are offered; (iii) who are other

Shares may be purchased through, and with funds drawn on, an investor's brokerage account with a Selling Agent.  In order to purchase shares, a prospective investor must submit a completed subscription agreement to the Selling Agent.   The Fund reserves the right to reject, in its sole discretion, any request to purchase shares of the Fund at any time.  The Fund also reserves the right to suspend or terminate the offering of shares at any time.  Additional information regarding the share purchase process is set forth under “Investor Qualifications and Suitability.”

 

Amounts received from prospective investors in the Fund will be held in a non-interest bearing escrow account pending the transmission to the Fund. If an investor’s subscription is not accepted, the escrow agent will return the subscription monies to such investor.

 

Under certain circumstances, the Fund may sell shares directly (through its transfer agent) to certain investors who are affiliated with, or otherwise have an existing relationship with, the Adviser.

 

Foreside Fund Services, LLC  (the "Distributor") serves as the distributor of the Fund's shares on a best efforts basis, pursuant to the terms of the Distributor's distribution agreement with the Fund, and may retain unaffiliated brokers or dealers to act as selling agents (“Selling Agents”) to assist in the distribution of shares.

 

Selling Agents are entitled to charge a sales load to each investor on the purchase price of its shares of up to 3 %.  The specific amount of the sales load paid is not fixed and will be determined by the investor and its Selling Agent.  The sales load is expected to be waived for the Adviser and its affiliates, including its personnel and members of their immediate families.    The sales load will neither constitute an investment made by the investor in, nor form part of the assets of, the Fund.  The Selling Agents' receipt of the sales load is subject to the applicable limitations imposed by the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

 

 

Class A shares of the Fund are subject to ongoing distribution and shareholder servicing fees to compensate Selling Agents for selling shares of the Fund, marketing the Fund and providing, or arranging for the provision of, ongoing investor services and account maintenance services to investors in the Fund.  These fees are accrued daily as an expense of the Fund and paid monthly in an amount not to exceed, in the aggregate, 0.50 % (on an annualized basis) of the net asset value of Class A shares of the Fund (the “Distribution and Shareholder Servicing Fees”).  Class I shares are not expected to be subject to the Distribution and Shareholder Servicing Fees.  (See “Fees and Expenses --- Distribution and Shareholder Servicing Fees.”)

 

The Fund bears all expenses incurred in its business and operations, other than those borne by the Adviser or by the Distributor pursuant to their agreements with the Fund, including, but not limited to:  all investment related expenses (e.g., costs and expenses directly related to portfolio transactions and positions for the Fund's account such as direct and indirect expenses associated with investments, transfer taxes and premiums, taxes withheld on foreign income, brokerage commissions, interest and commitment fees on loans and debit balances, borrowing charges on securities sold short,

dividends on securities sold but not yet purchased and margin fees); the Management Fee; the Incentive Fee; the Distribution and Shareholder Servicing Fees; any non-investment related interest expense; offering expenses; fees and disbursements of any attorneys and accountants engaged by the Fund; audit and tax preparation fees and expenses; administrative expenses and fees; custody fees and expenses; insurance costs; fees and travel-related expenses of members of the Board who are not employees of the Adviser or any affiliate of the Adviser; and any extraordinary expenses.  (See “Fees and Expenses --- Other Fees and Expenses of the Fund.”)

 

The Adviser and the Fund have entered into an expense limitation and reimbursement agreement (the “Expense Limitation Agreement”) under which the Adviser (or its affiliate) has agreed to pay or absorb the ordinary operating expenses of the Fund (including organization and offering expenses, but excluding Distribution and Shareholder Servicing Fees, expenses on securities sold short, interest, brokerage commissions and extraordinary expenses of the Fund), to the extent necessary to limit the ordinary operating expenses of the Fund to 2.25% per annum of the Fund’s average monthly net assets (the “Expense Limitation”). In consideration of the Adviser’s agreement to limit the Fund’s expenses, the Fund will carry forward the amount of expenses paid or absorbed by the Adviser (or its affiliate) in excess of the Expense Limitation for a period not to exceed three years from the end of the fiscal year in which they were incurred and will reimburse the Adviser (or its affiliate) such amounts. Reimbursement will be made as promptly as possible, but only to the extent it does not cause the Fund’s ordinary operating expenses to exceed the Expense Limitation in effect at the time the expense was paid or absorbed. The Expense Limitation Agreement will remain in effect until terminated by the Board.  (See “Fees and Expenses --- Other Fees and Expenses of the Fund.”)

 

Shares of the Fund may be purchased only by investors who are United States citizens and certify to the Fund or its agents that they have a net worth (in the case of a natural person, either as an individual or with assets held jointly with a spouse) of more than $2 million, excluding the value of the primary residence of such person and any debt secured by such property (up to the current market value of the residence) (“Qualified Investors”).  Shares may be held only through a Selling Agent.

 

So long as an investor satisfied the definition of “Qualified Investor” in the then-effective Prospectus of the Fund at the time of such investor’s initial investment in the Fund, such investor may keep its assets in the Fund and make additional investments in the Fund, subject to applicable minimums, even if the investor does not satisfy the definition of “Qualified Investor” in the Fund’s currently effective Prospectus.

 

Any attempt to transfer shares to someone who is not a Qualified Investor, other than by gift or bequest, or pursuant to an agreement relating to a legal separation or divorce, or to an account with a broker or dealer that has not entered into a selling agreement with the Fund, the Distributor or other Fund agents will not be permitted and will be void.  (See “Investor Qualifications and Suitability.”)

 

An investment in the Fund involves substantial risks and is not necessarily suitable for all eligible investors.  Prior to making an investment decision, you should:  (i) consider the suitability of this investment with respect to your investment objectives and personal situation, (ii) consider

factors such as your personal net worth, income, age, risk tolerance and liquidity needs, and (iii) consult with your broker, dealer or other financial advisor to determine whether an investment in the Fund is suitable for your risk profile.  (See “Investor Qualifications and Suitability.”)

 

The Fund is organized as a closed-end management investment company.  Closed-end funds differ from open-end management investment companies (commonly known as mutual funds) in that shareholders of a closed-end fund do not have the right to redeem their shares on a daily basis.  In addition, the Fund has no plans to list its shares on any securities exchange, and there is no assurance that any secondary market will develop for the Fund's shares.  Although the Fund may make monthly offers to repurchase its shares, there can be no assurance that the Fund will repurchase all shares that are tendered by a shareholder in connection with any repurchase offer.

 

Shares are subject to transfer restrictions that permit transfers only to persons who are Qualified Investors, unless the transfer is by gift or bequest, or pursuant to an agreement relating to a legal separation or divorce, and who hold their shares through a Selling Agent.  The Fund may require substantial documentation in connection with a requested transfer of shares, and you should not expect that you will be able to transfer shares at all.  Attempted transfers may require a substantial amount of time to effect.  Shares of the Fund may not be exchanged for shares of any other fund.  An investment in the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of shares and should be viewed as a long-term investment.

 

In an effort to provide some liquidity for investors, the Adviser expects to recommend that the Fund make offers to repurchase up to 10% of its shares as of the end of each calendar month at the then-current net asset value commencing during the second calendar quarter of 2015. The Board for the Fund, in its discretion, must determine whether to approve each such offer (and for what amount).  There can be no assurance that the Fund will make such repurchase offers, nor that shareholders tendering shares for repurchase in any offer will have all of their tendered shares repurchased by the Fund.  (See “Repurchase Offers --- Repurchase Procedures. ”)

 

The Adviser expects that, under the procedures applicable to the repurchase of shares, shares will generally be valued for purposes of determining their repurchase price as of a date at least [45] days after the date by which shareholders must submit a repurchase request.  The value of shares can change significantly between this repurchase request deadline and the pricing date for the repurchase offer, i.e., [45] days later on the last business day of the applicable calendar month.

 

Under these procedures, shareholders will have to decide whether to tender their shares for repurchase without the benefit of having current information regarding the value of their shares as of a date proximate to the repurchase pricing date. In addition, there will be a period of time between the repurchase request deadline and the date they can expect to receive payment for their shares from the Fund.  Shareholders whose shares are accepted for repurchase will be given non-transferable promissory notes by the Fund representing the Fund's obligation to pay for repurchased shares.

An investment in the Fund involves a high degree of risk.  There can be no assurance that the Fund's investment objective will be achieved.  In particular, the Fund's use of short sales can, in certain circumstances, result in significant losses to the Fund.  The value of the Fund's investments can be reduced by unsuccessful investment strategies, poor selection of equity securities, poor economic growth, pronounced market volatility, and political and legal developments.

 

Because the Fund primarily invests in common stocks and other equity securities, the value of the Fund's portfolio will be affected by daily movements in the prices of equity securities.  These price movements may result from factors affecting individual companies, industries or the securities markets as a whole.  Individual companies may report poor results or be negatively affected by industry, regulatory and/or economic trends and developments.  The prices of securities issued by such companies may suffer a decline in response.  In addition, stock markets can be volatile at times, and stock prices can change drastically.  This market risk will affect the Fund's share price, which will fluctuate as the values of the Fund's investment securities and other assets change.  Not all stock prices change uniformly or at the same time, and not all stock markets move in the same direction at the same time.  (See “Principal Risk Factors --- Risk of Equity Securities.”)

 

The Fund's investment program emphasizes active management of the Fund's portfolio.  Consequently, the Fund's portfolio turnover and brokerage commission expenses may exceed those of other investment companies, and the Fund could underperform its benchmark indices and/or other funds with similar investment objectives.  (See “Principal Risk Factors --- Active Management Risk.”)

 

The Fund may invest in securities of “Canadian issuers,” which, for these purposes, are companies that derive a majority of their revenue or profits from Canadian businesses, investments or sales, or that have a substantial portion of their operations or assets in Canada.  (Some of these “Canadian issuers” may be legally organized or have principal offices located in the U.S.)  Investments in Canadian issuers subject the Fund to the additional economic risks specific to Canada.  The United States is Canada’s largest trading and investment partner, and the Canadian economy is significantly affected by developments in the U.S. economy.  Any downturn in U.S. economic activity is likely to have an adverse impact on the Canadian economy.  Among other things, the Canadian economy is heavily dependent on relationships with certain key trading partners, including the United States, European Union countries and China.  Canada is susceptible to fluctuations in certain commodity markets.  Any negative changes in commodity markets could have an adverse impact on the Canadian economy.  As such, the Fund is subject to these risks to a much greater degree than funds that do not invest materially in Canadian issuers.  (See “Principal Risk Factors --- Canadian Issuer Risk.”)

 

Without regard to the Fund’s investments in Canadian companies, the Fund may invest up to 25% of its total assets in other foreign securities.  The Fund's investments in Canadian and other foreign companies are affected by risk factors generally not thought to be present in the U.S., including, among other things, increased political, regulatory, contractual and economic risk and

The Fund is expected to have a “net-long bias” (where the dollar value of the long positions exceed the value of short positions). However, the Fund does effect short-sales under circumstances where the Adviser identifies more attractive opportunities for capital appreciation (relative to investing in long positions) and for other purposes, such as hedging.  Short selling is considered a speculative investment practice and involves certain risks.  The Fund will suffer a loss if it sells a security short and the value of the security rises rather than falls.  Short sales expose the Fund to the risk that it will be required to buy the security sold short (also known as “covering” the short position) at a time when the security has appreciated in value, thus resulting in a loss to the Fund.  Positions in stocks sold short are more risky than long positions (purchases) in stocks because the maximum loss on a stock purchased is limited to the amount paid for the stock plus the transaction costs, where in the case of a short sale, there is no limit on the loss that may be incurred.  (See “Principal Risk Factors --- Risk of Short Sales.”)

 

When effecting short sales of securities, the Fund will receive a dollar amount (the “net short proceeds”) equal to the value of the securities sold short and will deposit and retain such net short proceeds with the brokerage firm through which it effected the short sale transactions (a “Prime Broker”).  Currently, the Fund's Prime Broker is UBS Securities, LLC.  The Fund may add one or more additional Prime Brokers.  The Fund, each Prime Broker and [_________], the Fund’s custodian, are parties to agreements in which the Prime Broker retains custody, on behalf of the Fund, of the cash proceeds from securities sold short.  Because the Fund effects short sales as part of its principal investment strategy, the short proceeds deposited with the Prime Broker could represent a material portion of the Fund's total assets.  This may expose the Fund to significant risks or difficulty in obtaining access to its assets in the event of the default or bankruptcy of its Prime Broker.  The Adviser will monitor regularly the creditworthiness of a Prime Broker.

 

The Fund may invest in companies involved in (or which are the target of) acquisition attempts or takeover or tender offers or mergers or companies involved in work-outs, liquidations, demergers, spin-offs, reorganizations, bankruptcies, share buy-backs and other capital market transactions or “special situations.” The level of analytical sophistication, both financial and legal, necessary for a successful investment in companies experiencing significant business and financial distress is unusually high. There is no assurance that the Adviser will correctly evaluate the nature and magnitude of the various factors that could, for example, affect the prospects for a successful reorganization or similar action. As there may be uncertainty

Given the Fund’s opportunistic investment strategy, the Fund generally  holds a significant amount of cash which may negatively impact the Fund’s ability to achieve its investment objective. The Fund may also hold U.S. Government Securities and/or interests in money market funds, and the Fund will be subject to the risks of U.S. Government Securities and money market funds.  During periods of rising markets, these holdings may adversely impact the Fund’s performance relative to a more fully invested portfolio.  While U.S. Treasury obligations are backed by the “full faith and credit” of the U.S. Government, such securities are nonetheless subject to credit risk (i.e., the risk that the U.S. Government may be, or be perceived to be, unable or unwilling to honor its financial obligations, such as making payments).  (See “Principal Risk Factors --- U.S. Government Securities Risk.”)  Although money market funds seek to preserve the value of investments at $1.00 per share, it is possible for the Fund to lose money by investing in money market funds, and, in addition to the fees and expenses that the Fund directly bears, the Fund indirectly bears the fees and expenses of any money market funds in which it invests.  (See “Principal Risk Factors --- Money Market Fund Risk.”)

 

The Fund invests in equity securities without regard to the issuer's market capitalization.  Accordingly, the Fund may invest significantly in the stocks of companies having smaller market capitalizations, including mid-cap and small-cap stocks.  The stocks of these companies often have less management depth, narrower market penetrations, less diverse product lines, and fewer resources than larger companies.  Due to these and other factors, stocks of smaller companies may be more susceptible to market downturns and other events, and their prices may be more volatile than the stocks of larger companies.  (See “Principal Risk Factors --- Market Capitalization Risk.”)

 

The Fund is a “non-diversified” investment company.  Thus, there are no percentage limitations imposed by the 1940 Act on the portion of the Fund's assets that may be invested in the securities of any one issuer.  The portfolio of the Fund may therefore be subject to greater risk than the portfolio of a similar fund that diversifies its investments.  Although the Fund is “non-diversified,” in order to qualify for special tax treatment as a “regulated investment company” under Subchapter M of the Internal Revenue Code,  it  must diversify its holdings so that, at the end of each quarter of the Fund’s taxable year: (i) at least 50% of the fair market value of its total assets consists of (A) cash and cash items (including receivables), U.S. government securities and securities of other regulated investment companies, and (B) other securities, limited in respect of any one issuer (other than those described in clause (A)) to the extent such securities do not exceed 5% of the value of the Fund’s total assets and are not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund’s total assets consists of the securities of any one issuer (other than those described in clause (i)(A)), the securities (other than securities of other regulated investment companies) of two or more issuers the Fund controls and which are engaged in the same, similar, or related trades or businesses, or the securities of one or more qualified publicly traded partnerships.

 

The Incentive Fee may create an incentive for the Adviser to cause the Fund to make investments that are riskier or more speculative than those that might have been made in the absence of the Incentive Fee.  In addition, the application of

Shares of the Fund are not traded on any securities exchange or other market and, except for certain circumstances, are subject to substantial restrictions on transfer.  Although the Fund may make monthly offers to repurchase its shares, there can be no assurance that the Fund will repurchase all shares that are tendered by a shareholder in connection with any repurchase offer.

 

The Fund is recently formed and has no operating history upon which investors can evaluate its performance, and the Adviser has not served as investment adviser to other registered investment companies. (See “Additional Risk Factors --- Lack of Operating History.”)

 

The Fund may, from time to time, invest in certain derivative instruments, such as forward contracts, total return swaps, forward currency exchange contracts, options on stock indices and structured-equity notes.  Gains or losses involving derivative instruments may be substantial, because a relatively small price movement in the underlying security(ies), instrument, currency or index may result in a substantial gain or loss for the Fund.  The use of derivatives also exposes the Fund to counterparty credit risk, leverage risk and liquidity risk, among others.  (See “Additional Risk Factors --- Derivatives Risk.”)

 

In light of the foregoing risks, an investment in shares of the Fund should be considered a speculative investment, and you should invest in the Fund only if you can sustain a complete loss of your investment.

 

The investment activities of Adviser and its affiliates for their own accounts and for other accounts they manage may give rise to conflicts of interest that may disadvantage the Fund.  (See “Potential Conflicts of Interest.”)

 

Dividends will be paid annually on the shares in amounts representing substantially all of the Fund's net investment income, if any, earned each year.  Payments on shares will vary in amount depending on investment income received and expenses of operation.  It is likely that many of the companies in which the Fund invests will not pay any dividends, and this, together with the Fund's relatively high expenses, means that the Fund is unlikely to have income or pay dividends.  The Fund is not a suitable investment if you require regular dividend income.  Dividends and capital gain distributions to shareholders will be automatically reinvested unless the Fund is otherwise instructed by the shareholder through its broker, dealer or other financial intermediary.

 

The Fund intends to qualify as a “Regulated Investment Company” (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).  If the Fund so qualifies, it will generally not be subject to federal income tax on its taxable income and gains that it distributes to shareholders. 

The Fund intends to distribute its income and gains in a way that it will not be subject to a federal excise tax on certain undistributed amounts.  Fund dividends and capital gains distributions, if any, are taxable to most investors and will be taxable whether or not they are reinvested in shares of the Fund.  (See “Certain Tax Matters” and, in the SAI, “Tax Aspects.”)

 

As soon as practicable after the end of each taxable year, the Fund furnishes to shareholders such information as is necessary for them to complete their income tax or information returns, along with any other tax information required by law.

 

The Fund sends unaudited semi-annual and audited annual reports to shareholders within 60 days after the close of the period for which the report is being made, or as otherwise required by the 1940 Act.

 

The Fund's term is perpetual, except that the Fund may be terminated as provided in the Amended and Restated Declaration of Trust of the Fund.

 

The Fund's fiscal year ends on each [________].  The Fund's tax year for federal income tax purposes also ends on each [________].

 

[________] (“[________]”), located at [________], serves as the Fund's administrator and provides various administrative and accounting services necessary for the operations of the Fund.

 

[________], located at [________], serves as the custodian for the Fund's assets and is responsible for maintaining custody of the Fund's cash and investments and for retaining sub-custodians to maintain custody of foreign securities held by the Fund.  Additionally, the Prime Broker custodies cash proceeds from Fund securities sold short.

 

[________] also serves as escrow agent (in such capacity, the “Escrow Agent”) with respect to subscription monies received from prospective investors in advance of dates when shares may be subscribed for and monies may be transmitted to the Fund , as well as with respect to monies received from the Fund in advance of dates when shares may be tendered to the Fund and monies may be transmitted to the tendering shareholders. Amounts received from prospective investors in the Fund (in the case of subscriptions) and amounts received from the Fund (in the case of tender offers) will be held in a non-interest bearing escrow account pending the transmission to the Fund or tendering shareholders, as the case may be. If an investor’s subscription is not accepted, the Escrow Agent will return the subscription monies to such investor.

 

[________] is an affiliate of [________].

 

[________] also serves as transfer agent and registrar with respect to shares of the Fund.

 

Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of the Americas, New York, NY 10036, serves as U.S. legal counsel to the Fund.  The firm does not represent potential investors with respect to their investment in the Fund.