UBS Willow Fund, L.L.C. – ‘N-2’ on 2/29/00

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Registration Statement of a Closed-End Investment Company   —   Form N-2
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Document/Exhibit                   Description                      Pages   Size 

 1: N-2         Registration Statement of a Closed-End Investment    137±   508K 
                          Company                                                

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As filed with the U.S. Securities and Exchange Commission on
   February 29, 2000
Investment Company Act File No. 811-_____   
----------------------------------------------------------------- 

 U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 -------------------------

FORM N-2

(CHECK APPROPRIATE BOX OR BOXES)

|X|   REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY                       
ACT OF 1940                                                         

| |   Amendment No. __                                                          

 -------------------------

  PW WILLOW FUND, L.L.C.
(Exact name of Registrant as specified in Charter)

 1285 Avenue of the Americas
 New York, New York 10019-6028
(Address of principal executive offices)

 Registrant's Telephone Number, including Area Code:

(212) 713-2000

 -------------------------

 MARK D. GOLDSTEIN, ESQ.
c/o PaineWebber Incorporated
 1285 Avenue of the Americas
 New York, New York 10019-6028
 (Name and address of agent for service)

Copy to:
 STUART H. COLEMAN, ESQ.
 Stroock & Stroock & Lavan LLP
 180 Maiden Lane
 New York, New York 10038-4982

 -------------------------

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This Registration Statement has been filed by Registrant pursuant to Section    
8(b) of the Investment Company Act of 1940, as amended. However, interests in   
the Registrant are not being registered under the Securities Act of 1933, as    
amended (the "1933 Act"), since such interests will be issued solely in private 
placement transactions which do not involve any "public offering" within the    
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may be   
made only by individuals or entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any        
interests in the Registrant.                                                    

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                                                                  MEMORANDUM NO:

PW WILLOW FUND, L.L.C.

                                                                 PAINEWEBBER

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THE INTERESTS IN PW WILLOW FUND, L.L.C. (THE "FUND") WHICH ARE DESCRIBED IN THIS
CONFIDENTIAL MEMORANDUM ("MEMORANDUM") HAVE NOT BEEN AND WILL NOT BE REGISTERED 
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT"), OR THE SECURITIES    
LAWS OF ANY OF THE STATES OF THE UNITED STATES. THE OFFERING CONTEMPLATED BY    
THIS MEMORANDUM WILL BE MADE IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT FOR OFFERS AND SALES OF SECURITIES WHICH DO NOT    
INVOLVE ANY PUBLIC OFFERING, AND ANALOGOUS EXEMPTIONS UNDER STATE SECURITIES    
LAWS.                                                                           

THIS MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN 
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF INTERESTS IN THE FUND IN ANY        
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE IS NOT AUTHORIZED OR TO  
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. NO  
PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS CONCERNING THE FUND THAT 
ARE INCONSISTENT WITH THOSE CONTAINED IN THIS MEMORANDUM. PROSPECTIVE INVESTORS 
SHOULD NOT RELY ON ANY INFORMATION NOT CONTAINED IN THIS MEMORANDUM OR THE      
APPENDIX HERETO.                                                                

THIS MEMORANDUM IS INTENDED SOLELY FOR THE USE OF THE PERSON TO WHOM IT HAS BEEN
DELIVERED FOR THE PURPOSE OF EVALUATING A POSSIBLE INVESTMENT BY THE RECIPIENT  
IN THE INTERESTS IN THE FUND DESCRIBED HEREIN, AND IS NOT TO BE REPRODUCED OR   
DISTRIBUTED TO ANY OTHER PERSONS (OTHER THAN PROFESSIONAL ADVISERS OF THE       
PROSPECTIVE INVESTOR RECEIVING THIS DOCUMENT).                                  

PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS    
LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS OR 
HER OWN PROFESSIONAL ADVISERS AS TO THE LEGAL, TAX, FINANCIAL OR OTHER MATTERS  
RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN THE FUND FOR SUCH INVESTOR.     

THESE SECURITIES ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY AND 
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE       
LIMITED LIABILITY COMPANY AGREEMENT OF THE FUND, THE 1933 ACT AND APPLICABLE    
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.         

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION
OF THE FUND AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS       
INVOLVED. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE          
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE FUND'S INTERESTS OR PASSED
UPON THE ADEQUACY OF THE DISCLOSURE IN THIS MEMORANDUM. ANY REPRESENTATION TO   
THE CONTRARY IS A CRIMINAL OFFENSE.                                             

 FEBRUARY 2000

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 TABLE OF CONTENTS
                                                                            PAGE

SUMMARY OF TERMS..............................................................1 
THE FUND.....................................................................12 
STRUCTURE....................................................................12 
INVESTMENT PROGRAM...........................................................12 
TYPES OF INVESTMENTS AND RELATED RISK FACTORS................................16 
ADDITIONAL RISK FACTORS......................................................25 
THE DIRECTORS................................................................26 
THE MANAGER, PWFA AND BOND STREET............................................28 
VOTING.......................................................................30 
CONFLICTS OF INTEREST........................................................30 
BROKERAGE....................................................................33 
FEES AND EXPENSES............................................................34 
CAPITAL ACCOUNTS AND ALLOCATIONS.............................................37 
ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES AND                      
     OTHER EXPENDITURES.....................................................39
APPLICATION FOR INTERESTS....................................................41 
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS..........................42 
TAX ASPECTS..................................................................46 
ERISA CONSIDERATIONS.........................................................60 
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED LIABILITY COMPANY AGREEMENT....62 
APPENDIX A -- LIMITED LIABILITY COMPANY AGREEMENT...........................A-1 

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SUMMARY OF TERMS

The following summary is qualified entirely by the detailed information         
appearing elsewhere in this Memorandum and by the terms and conditions of the   
Fund's Limited Liability Company Agreement (the "LLC Agreement"), each of which 
should be read carefully and retained for future reference.                     

THE FUND:                          PW Willow Fund, L.L.C. (the "Fund") is a     
                             newly formed Delaware limited liability
                              company, registered under the Investment
                                Company Act of 1940, as amended (the "1940
                              Act"), as a closed-end, non-diversified,
                    management investment company.

                                  The Fund is a specialized investment vehicle
                             that may be referred to as a registered
                                  private investment fund. The Fund is similar
                                   to an unregistered private investment fund in
                               that (i) the Fund's portfolio may be more
                                aggressively managed than other investment
                                   companies, (ii) interests in the Fund will be
                            sold in large minimum denominations in
                                 private placements solely to high net worth
                            individual and institutional investors
                                 ("Investors"), and will be restricted as to
                                transfer, and (iii) the Investors' capital
                                  accounts in the Fund will be subject to both
                               an asset-based fee and an incentive-based
 allocation.

INVESTMENT PROGRAM:                The Fund's investment objective is to        
                            maximize total return. It will seek to
                                   achieve its investment objective by investing
                                  primarily in debt and other obligations and,
                               to a lesser extent, equity securities, of
                         U.S.companies that are experiencing
                       significant financial or business
                             difficulties (collectively, "Distressed
                                Obligations"). These companies may include
                             companies that are in bankruptcy or are
                                   likely to become subject to the provisions of
                            bankruptcy law, and companies that are
                                   engaging, or recently have engaged, in a debt
                                   restructuring or other capital transaction of
                                a similar nature. These companies also may
                                  include companies that PW Willow Management,
                               L.L.C. (the "Manager") believes have been
                                 misidentified by others as likely to become
                                 subject to the provisions of bankruptcy law
                                 or to undergo a debt restructuring or other
                                   transaction of a similar nature. In addition,
                               the Fund may invest in companies that are
                               engaging, or recently have engaged, in an
                                 extraordinary transaction, such as a rights
                                  offering, liquidation outside of bankruptcy,
                                  recapitalization, leveraged buyout or "going
           private" transaction.

                               The debt securities in which the Fund may
                               invest sometimes are referred to as "junk
                                 bonds" and include, but are not limited to,
                                   corporate bonds, debentures, notes, municipal
                          bonds, equipment lease certificates,
                            equipment trust certificates and loans
                                 collateralized by real estate. The Fund may
                                   invest in privately held obligations, such as
                                   loans, commercial paper, loan participations,
                               leases, executory contracts, tort claims,
                         trade claims and accounts and notes
                                  receivable held by trade or other creditors,
                               as well as equity and other types of debt
                                  securities. These obligations may or may not
                               be collateralized and generally sell at a
                     discount from their face value.

                                   The Fund may invest in Distressed Obligations
                           of foreign issues denominated in U.S.
                               dollars. The Fund will not invest for the
                                 purpose of seeking control or participating
                                   in the management of any company; however, in
                            appropriate circumstances, it may seek
                                representation on creditors' committees or
                               equity holders' committees if the Manager
                                   determines such representation is in the best
            interests of the Fund.

                                 The Fund may sell securities short that the
                                   Manager believes are relatively overvalued or
                                  if the Manager has identified a company that
                                it believes is about to become financially
troubled. 

                         The Fund may use various investment
                          techniques to hedge a portion of its
                                   investment portfolio against certain risks or
                                 to pursue its investment objective. In this
                             regard, the Fund may use leverage, sell
                            securities short and purchase and sell
                                 options on securities and stock indexes and
                           other derivatives, subject to certain
                             limitations described elsewhere in this
                          Memorandum. The use of some of these
                                   investment techniques and instruments will be
                               an integral part of the Fund's investment
                              program, and involves certain risks. See
                            "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS." 

RISK FACTORS:                      THE FUND'S INVESTMENT PROGRAM IS SPECULATIVE 
                                  AND ENTAILS SUBSTANTIAL RISKS. An investment
                                  in the Fund should be viewed only as part of
                                 an overall investment program. No assurance
                             can be given that the Fund's investment
                 objective will be achieved.

                          The Fund's investments in Distressed
                                Obligations involve substantial risks. The
                           value of some of the Fund's portfolio
                                  investments should be expected to fluctuate,
                                   possibly significantly and unpredictably. The
                               value of the Fund's portfolio investments
                   generally will be affected by
                               company-specific events and, thus, should
                              have a lower correlation to broad market
                                   movements. The Fund's portfolio may include a
                               number of investments for which no market
                       exists and which have substantial
                            restrictions on transferability. These
                                   investments may be difficult to value and the
                          Fund may be able to dispose of these
                                  investments only at substantial discounts or
                                  losses. The Fund's use of leverage is likely
                              to cause its net assets to appreciate or
                                   depreciate at a greater rate than if leverage
                          were not used. Any one or all of the
                                   companies in which the Fund may invest may be
                               unsuccessful or not show any return for a
                         considerable period of time. In any
                              reorganization or liquidation proceeding
                                   relating to a portfolio company, the Fund may
                                   lose its entire investment or may be required
                               to accept cash or securities with a value
                               less than the Fund's original investment.
                            Under these circumstances, the returns
                                   generated from the Fund's investments may not
                                   compensate Investors adequately for the risks
                            assumed. See "TYPES OF INVESTMENTS AND
                                   RELATED RISK FACTORS--High Risk Investments."

                                 The Fund may invest a portion of its assets
                                   in Distressed Obligations of foreign issuers.
                                See "TYPES OF INVESTMENTS AND RELATED RISK
                   FACTORS--Foreign Securities."

                                The Fund's limited diversification, use of
                          leverage, short sales and derivative
                                 transactions, in certain circumstances, can
                               result in significant losses to the Fund.
                            Investments in illiquid securities and
                             foreign securities also involve certain
                                  risks. See "TYPES OF INVESTMENTS AND RELATED
    RISK FACTORS."

                              As a non-diversified investment company,
                                there are no percentage limitations on the
                              portion of the Fund's assets that may be
                                   invested in the securities of any one issuer.
                                  As a result, the Fund's investment portfolio
                                   may be subject to greater risk and volatility
                              than if investments had been made in the
                               securities of a broader range of issuers.

                                 The Manager will receive an incentive-based
                                allocation. The incentive-based allocation
                                 that may be credited to the capital account
                                of the Manager may create an incentive for
                           the Manager 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-based
                          allocation. In addition, because the
                                   incentive-based allocation is calculated on a
                                 basis that includes unrealized appreciation
                                 of the Fund's assets, the allocation may be
                             greater than if it were based solely on
                                 realized gains. See "SUMMARY OF TERMS--Fees
                                 and Expenses" and "--Incentive Allocation."

                                   An investment in the Fund entails special tax
                              risks. See "SUMMARY OF TERMS--Summary of
Taxation."

                               The Fund and the Manager are newly formed
                                   entities and have no operating histories upon
                                  which investors can evaluate the performance
                                of the Fund. However, the personnel of the
                                  Manager who are responsible for managing the
                                  Fund's investment portfolio have substantial
                                  experience in managing, with others, private
                               investment funds and individually managed
                                   client accounts that have investment programs
                                  that are substantially similar to the Fund's
         investment program.

                                 Interests in the Fund will not be traded on
                                 any securities exchange or other market and
                                are subject to substantial restrictions on
                              transfer. Although the Fund may offer to
                                repurchase interests from time to time, an
                               Investor may not be able to liquidate its
                                   interest in the Fund for up to two years. The
                                  Manager expects that generally, beginning in
                                  2001, it will recommend to the Directors (as
                                 hereinafter defined) that the Fund offer to
                               repurchase interests from Investors twice
                               that year, in June and December, and then
                                   once each year thereafter, near year-end. See
                                   "SUMMARY OF TERMS--Transfer Restrictions" and
                               "--Repurchases of Interests by the Fund."

MANAGEMENT:                        The Fund's Board of Directors (the "Board"   
                                   and its members, the "Directors") has overall
                              responsibility to manage and control the
                                 business affairs of the Fund, including the
                           exclusive authority to oversee and to
                                  establish policies regarding the management,
                                   conduct and operation of the Fund's business.
          See "THE DIRECTORS."

                                  The Board has engaged the Manager to provide
                          investment advice to, and day-to-day
                               management of, the Fund. The Manager is a
                                   joint venture between PW Fund Advisor, L.L.C.
                              ("PWFA") and Bond Street Capital, L.L.C.
                               ("Bond Street"). Investment professionals
                             employed by Bond Street will manage the
                                  Fund's investment portfolio on behalf of the
                             Manager under the supervision of PWFA's
personnel.

                                  PWFA is an indirect, wholly-owned subsidiary
                                  of Paine Webber Group Inc. ("PW Group"), and
                                  is registered as an investment adviser under
                             the Investment Advisers Act of 1940, as
                                amended (the "Advisers Act"). PWFA and its
                            affiliates provide investment advisory
                                  services to registered investment companies,
                             private investment funds and individual
                                  accounts, and, as of December 31, 1999, have
                                 approximately $423 billion of client assets
                                   and approximately $68 billion of assets under
                              management. Bond Street, which will be a
                             registered investment adviser under the
                                 Advisers Act before the commencement of the
                                Fund's operations, is controlled by Sam S.
               Kim, its managing member.

PLACEMENT AGENT:                   PaineWebber Incorporated acts as the         
                                   placement agent for the Fund, without special
                                   compensation from the Fund, and will bear its
                                 own costs associated with its activities as
                           placement agent. PWFA and PaineWebber
                                   Incorporated intend to compensate PaineWebber
                                 Incorporated's or its affiliates' financial
                           advisors and others for their ongoing
                              servicing of clients with whom they have
                                  placed interests in the Fund. See "CONFLICTS
         OF INTEREST--PWFA."

CONFLICTS OF INTEREST:             The investment activities of the Manager and 
                                   its affiliates for their own accounts and the
                                 other accounts they manage may give rise to
                                  conflicts of interest which may disadvantage
                                   the Fund. The Fund's operations may give rise
                         to other conflicts of interest. See
              "CONFLICTS OF INTEREST."

FEES AND EXPENSES:                 PWFA provides certain management and         
                          administrative services to the Fund,
                              including, among other things, providing
                                office space and other support services to
                                   the Fund. In consideration for such services,
                             the Fund will pay PWFA a management fee
                         generally on a monthly basis at the
                            annual rate of 1.25% of the Fund's net
                            assets for the month, excluding assets
                                   attributable to the Manager's capital account
                                   (the "Fee"). The Fee will be paid to PWFA out
                                   of the Fund's assets, and debited against the
                                   Investors' capital accounts. A portion of the
                              Fee will be paid by PWFA to Bond Street.

                              PFPC Inc. (the "Administrator") performs
                            certain administration, accounting and
                              investor services for the Fund and other
                                 investment funds sponsored or advised by PW
                                   Group or its affiliates. In consideration for
                            these services, the Fund and the other
                                 investment funds will pay the Administrator
                               an annual fee calculated based upon their
                                aggregate average net assets, subject to a
                                 minimum monthly fee, and will reimburse the
                      Administrator for certain of the
               Administrator's expenses.

                                 The Fund will bear all expenses incurred in
                                  the business of the Fund, including, but not
                              limited to, the following: all costs and
                                expenses related to portfolio transactions
                                 and positions for the Fund's account; legal
                                   fees; accounting fees; costs of computing the
                                 Fund's net asset value, including valuation
                                  services provided by third parties; costs of
                                insurance; organizational and registration
                           expenses; certain offering costs; and
                           expenses of meetings of the Board and
                         Investors. See "FEES AND EXPENSES."

PLACEMENT FEE:                     Investors purchasing interests in the Fund   
                                   may be charged a sales commission of up to 2%
                                 of the Investor's capital contribution. The
                                 placement fee will not constitute assets of
                                 the Fund. See "FEES AND EXPENSES--Placement
Fee."     

ALLOCATION OF PROFIT               The net profits or net losses of the Fund    
AND LOSS:                          (including, without limitation, net realized 
                                   gain or loss and the net change in unrealized
                                appreciation or depreciation of securities
                               positions) will be credited to or debited
                                   against the capital accounts of the Investors
                         at the end of each fiscal period in
                           accordance with their respective Fund
                                  percentages for such period. Each Investor's
                           Fund percentage will be determined by
                                 dividing as of the start of a fiscal period
                                   the balance of the Investor's capital account
                               by the sum of the balances of the capital
                                accounts of all Investors of the Fund. See
                                   "CAPITAL ACCOUNTS AND ALLOCATIONS--Allocation
                     of Net Profits and Net Losses."

INCENTIVE ALLOCATION:              Generally, at the end of the 12-month period 
                                   following the admission of an Investor to the
                              Fund, and at the end of each fiscal year
                                   thereafter, an amount equal to 20% of the net
                              profits, if any, that would otherwise be
                                 credited to the Investor's account for such
                            period will instead be credited to the
                                  account of the Manager. This allocation (the
                               "Incentive Allocation") will be made only
                                 with respect to net profits that exceed any
                                  net losses previously debited to the account
                                 of such Investor which have not been offset
                                 by any net profits subsequently credited to
                               the account of the Investor. See "CAPITAL
                         ACCOUNTS AND ALLOCATIONS--Incentive
  Allocation."

APPLICATION FOR INTERESTS:         Both initial and additional applications for 
                            interests by eligible investors may be
                            accepted at such times as the Fund may
                                  determine, subject to the receipt of cleared
                                   funds on or before the acceptance date set by
                                  the Fund. After the initial closing, initial
                         applications and additional capital
                              contributions will generally be accepted
                             monthly. The Fund reserves the right to
                                 reject any application for interests in the
                          Fund. Generally, the minimum initial
                             investment in the Fund is $250,000. For
                                   employees or directors of the Manager and its
                                affiliates, and members of their immediate
                                  families, and, in the sole discretion of the
                            Board, attorneys or other professional
                                 advisors engaged on behalf of the Fund, and
                              members of their immediate families, the
                                minimum initial investment is $25,000. The
                                Fund may vary the investment minimums from
                                time to time. The Fund, in its discretion,
                                   may suspend applications for interests at any
                time. See "APPLICATION FOR
                     INTERESTS--Eligible Investors."

INITIAL CLOSING DATE:              The initial closing date for applications of 
                                 interests in the Fund is April 1, 2000. The
                                  Fund, in its sole discretion, may accelerate
                   or postpone the closing date.

TRANSFER RESTRICTIONS:             Interests in the Fund may be transferred only
                             (i) by operation of law pursuant to the
                                  death, bankruptcy, insolvency or dissolution
                             of an Investor or (ii) with the written
                                   consent of the Manager, which may be withheld
                                in its sole and absolute discretion and is
                                   expected to be granted, if at all, only under
                                   extenuating circumstances, in connection with
                                  a transfer to an entity that does not result
                              in a change of beneficial ownership. The
                                 foregoing permitted transferees will not be
                             allowed to become substituted Investors
                                   without the consent of the Manager, which may
                          be withheld in its sole and absolute
                                  discretion. See "REDEMPTIONS, REPURCHASES OF
                           INTERESTS AND TRANSFERS--Transfers of
 Interests."

REPURCHASES OF INTERESTS           No Investor will have the right to require   
BY THE FUND:                       the Fund to redeem the Investor's interest in
                              the Fund. The Fund from time to time may
                               offer to repurchase interests pursuant to
                         written tenders by Investors. These
                                   repurchases will be made at such times and on
                                   such terms as may be determined by the Board,
                                   in its complete and exclusive discretion. The
                                  Manager expects that generally, beginning in
                                   2001, it will recommend to the Board that the
                             Fund offer to repurchase interests from
                            Investors twice that year, in June and
                                   December, and then once each year thereafter,
                              near year-end. In addition, the Fund may
                                   repurchase an interest in the Fund or portion
                          thereof of an Investor or any person
                                   acquiring an interest or portion thereof from
                            or through an Investor if, among other
                                   reasons, the Manager determines that it would
                                  be in the best interests of the Fund for the
                            Fund to repurchase such an interest or
                        portion thereof. See "REDEMPTIONS,
                                REPURCHASES OF INTERESTS AND TRANSFERS--No
                                Right of Redemption" and "--Repurchases of
 Interests."

                              The LLC Agreement provides that the Fund
                               shall be dissolved if the interest of any
                           Investor that has submitted a written
                                  request, in accordance with the terms of the
                                  LLC Agreement, to tender its entire interest
                             for repurchase by the Fund has not been
                                 repurchased within a period of two years of
   such request.

SUMMARY OF TAXATION:               Counsel to the Fund has rendered an opinion  
                        that the Fund will be treated as a
                                   partnership and not as an association taxable
                             as a corporation for Federal income tax
                                purposes. Counsel to the Fund has rendered
                          its opinion that, under a "facts and
                                  circumstances" test set forth in regulations
                                  adopted by the U.S. Treasury Department, the
                             Fund will not be treated as a "publicly
                                   traded partnership" taxable as a corporation.
                                 Accordingly, the Fund should not be subject
                                   to Federal income tax, and each Investor will
                                 be required to report on its own annual tax
                                 return its distributive share of the Fund's
             taxable income or loss.

                                   If it were determined that the Fund should be
                             treated as an association or a publicly
                                  traded partnership taxable as a corporation,
                                  as a result of a successful challenge to the
                                 opinions rendered by counsel to the Fund or
                               otherwise, the taxable income of the Fund
                                  would be subject to corporate income tax and
                                any distributions of profits from the Fund
                    would be treated as dividends.

ERISA PLANS AND OTHER              Investors subject to the Employee Retirement 
TAX-EXEMPT ENTITIES:               Income Security Act of 1974, as amended      
                               ("ERISA"), and other tax-exempt entities,
                                  including employee benefit plans, Individual
                              Retirement Accounts and 401(k) and Keogh
                             Plans (each a "tax-exempt" entity), may
                                purchase interests in the Fund. The Fund's
                                 assets should not be considered to be "plan
                               assets" for purposes of ERISA's fiduciary
                               responsibility and prohibited transaction
                                 rules or similar provisions of the Internal
                           Revenue Code of 1986, as amended (the
                           "Code"). The Fund may use leverage in
                             connection with its trading activities.
                                Therefore, a tax-exempt Investor may incur
                              income tax liability with respect to its
                                  share of the net profits from such leveraged
                                 transactions to the extent they are treated
                                   as giving rise to "unrelated business taxable
                                income" ("UBTI"). In addition, an Investor
                                   that is a charitable remainder trust will not
                                be exempt from Federal tax for any year in
                                 which it has UBTI. The Fund will provide to
                          tax-exempt Investors such accounting
                              information as such Investors require to
                                report their UBTI for income tax purposes.
                                   See "TAX ASPECTS" and "ERISA CONSIDERATIONS."

                                   Investment in the Fund by tax-exempt entities
                                 requires special consideration. Trustees or
                                  administrators of such entities are urged to
                               review carefully the matters discussed in
      this Memorandum.

TERM:                              The Fund's term is perpetual unless it is    
                                otherwise dissolved under the terms of the
                                LLC Agreement. See "ADDITIONAL INFORMATION
                              AND SUMMARY OF LIMITED LIABILITY COMPANY
                      AGREEMENT--Term, Dissolution and
   Liquidation."

REPORTS TO INVESTORS:              The Fund will furnish to Investors as soon as
                               practicable after the end of each taxable
                               year such information as is necessary for
                             Investors to complete Federal and state
                                   income tax or information returns, along with
                                any other tax information required by law.
                            The Fund also will send to Investors a
                              semi-annual and an audited annual report
                                 generally within 60 days after the close of
                              the period for which the report is being
                                made, or as otherwise required by the 1940
                             Act. Quarterly reports from the Manager
                                 regarding the Fund's operations during each
                             quarter also will be sent to Investors.

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THE FUND                                                                        

The Fund is registered under the 1940 Act as a closed-end, non-diversified,     
management investment company. The Fund was formed as a limited liability       
company under the laws of Delaware on February 1, 2000 and has no operating     
history. The Fund's principal office is located at 1285 Avenue of the Americas, 
New York, New York 10019, and its telephone number is (800) 486-2608. Investment
advisory services are provided to the Fund by the Manager.                      

STRUCTURE                                                                       

The Fund is a specialized investment vehicle that combines many of the features 
of a private investment fund with those of a closed-end investment company.     
Private investment funds are unregistered, commingled asset pools that may be   
leveraged, managed aggressively and offered in large minimum denominations,     
often over $1 million, through private placements to a limited number of high   
net worth individual and institutional investors. The general partners or       
managing members of these entities typically are compensated through asset-based
fees and incentive-based allocations. Closed-end investment companies are 1940  
Act registered pools typically organized as corporations or business trusts that
usually are managed more conservatively than most private investment funds,     
subject to relatively modest minimum investment requirements (often less than   
$2,000), and publicly offered to a broad range of investors. The advisers to    
these companies typically are compensated through asset-based, but not          
incentive-based, fees.                                                          

The Fund is similar to private investment funds in that its investment portfolio
may be actively managed and Fund interests will be sold in comparatively large  
minimum denominations in private placements solely to high net worth individual 
and institutional investors, whose capital accounts will be subject to both an  
asset-based fee and an incentive-based allocation.                              

INVESTMENT PROGRAM                                                              

INVESTMENT OBJECTIVE, INVESTMENTS AND INVESTMENT TECHNIQUES. The Fund's         
investment objective is to maximize total return. It will seek to achieve its   
investment objective by investing primarily in Distressed Obligations. These    
companies may include companies that are in bankruptcy or are likely to become  
subject to the provisions of bankruptcy law, and companies that are engaging, or
recently have engaged, in a debt restructuring or other capital transaction of a
similar nature. These companies also may include companies that the Manager     
believes have been misidentified by others as likely to become subject to the   
provisions of bankruptcy law or to undergo a debt restructuring or other        
transaction of a similar nature. The Fund may invest in companies that are      
engaging, or recently have engaged, in an extraordinary transaction, such as a  
rights offering, liquidation outside of bankruptcy, recapitalization, leveraged 
buyout or "going private" transaction. The Fund also may invest in the          
securities of companies experiencing poor operating results as a result of      
unfavorable operating conditions, catastrophic events, extraordinary write-offs 
or special competitive or product obsolescence problems.                        

The debt securities in which the Fund may invest sometimes are referred to as   
"junk bonds" and include, but are not limited to, corporate bonds, debentures,  
notes, municipal bonds, equipment lease certificates, equipment trust           
certificates and loans collateralized by real estate. The Fund may invest in    
privately held obligations, such as loans, commercial paper, loan               
participations, leases, executory contracts, tort claims, trade claims and      
accounts and notes receivable held by trade or other creditors, as well as      
equity and other types of debt securities. These obligations may or may not be  
collateralized and generally sell at a discount from their face value.          

The Fund may acquire loans from banks, insurance companies, financial           
institutions, other lenders and other market participants, as well as claims    
held by trade or other creditors. These loans and claims, which may or may not  
be collateralized, generally sell at a discount from their face value and may   
afford the Fund a risk-adjusted return superior to that available through the   
purchase of publicly traded securities of the same obligor. As a consequence of 
its purchase of private claims, the Fund may be required to perform certain     
traditional, but limited lending functions, such as funding issued but unfunded 
letters of credit in the course of the restructuring of a troubled company or   
providing debtor-in-possession financing to the company if it seeks relief under
Federal bankruptcy law.                                                         

The Fund also may acquire nonperforming and subperforming commercial real estate
loans and portfolios from financial institutions, government agencies and other 
sellers of troubled real estate. Investments may be in the form of single asset 
loans, participations in syndicated real estate loans, or bonds secured by      
single or multiple real estate assets. The Fund also may acquire portfolios and 
participations in portfolios that hold real estate or financial instruments     
backed by real estate.                                                          

In addition to nonperforming and subperforming commercial real estate assets,   
the Fund may invest in nonperforming and subperforming residential real estate  
mortgages, consumer loans, and other forms of pooled receivables.               

The Fund may invest in Distressed Obligations of foreign issuers denominated in 
U.S. dollars. The Fund will not invest for the purpose of seeking control or    
participating in the management of any company; however, in appropriate         
circumstances, it may seek representation on creditors' committees or equity    
holders' committees if the Manager determines such representation is in the best
interests of the Fund.                                                          

The Fund may sell securities short that the Manager believes are relatively     
overvalued or if the Manager has identified a company that it believes is about 
to become financially troubled.                                                 

The Fund may use various investment techniques to hedge a portion of its        
investment portfolio against certain risks or to pursue its investment          
objective. In this regard, the Fund may use leverage, sell securities short and 
purchase and sell options on securities and stock indexes and other derivatives,
subject to certain limitations. See "TYPES OF INVESTMENTS AND RELATED RISK      
FACTORS--Leverage," "--Short Sales" and "--Special Investment Techniques." The  
use of some of these investment techniques and instruments will be an integral  
part of the Fund's investment program, and involves certain risks. The Fund will
comply with applicable regulatory requirements, including the asset coverage    
requirements under the 1940 Act, in connection with the use of these strategies.

The Fund may invest, for defensive purposes or otherwise, some or all of its    
assets in high quality fixed-income securities, money market instruments, and   
money market mutual funds, or hold cash or cash equivalents in such amounts as  
the Manager deems appropriate under the circumstances. The Fund also may invest 
in these instruments pending allocation of the offering proceeds. Money market  
instruments include U.S. Government securities, commercial paper, certificates  
of deposit and bankers' acceptances, and repurchase agreements.                 

INVESTMENT OPPORTUNITIES. The Fund will seek profit opportunities arising from  
inefficiencies in the market for Distressed Obligations. These inefficiencies   
result from, among other factors, the considerable analysis required to evaluate
Distressed Obligations, the difficulty of applying conventional financial       
valuation parameters (such as meaningful price/earnings or price/book value     
relationships) to Distressed Obligations, and the lack of or limited            
institutional research coverage of, and market making activities with respect   
to, many troubled companies. Certain institutional investors may be required by 
statute or by their organizational documents to divest themselves of Distressed 
Obligations. Other investors may be intimidated by bankruptcy (whether actual or
pending) and the complexity of the bankruptcy process. Because of these factors,
the supply of Distressed Obligations often exceeds demand, thereby causing      
market inefficiencies such that a differential or "spread" may exist between (i)
the values of these securities under a liquidation or reorganization analysis of
the issuer and (ii) their current market prices. Given the complexities of the  
situation, these market inefficiencies may persist for a considerable length of 
time during the debt restructuring or bankruptcy process.                       

Attractive opportunities to acquire Distressed Obligations often arise as       
companies experiencing financial and/or business difficulties attempt to        
restructure or reorganize their operations outside of a bankruptcy proceeding.  
These opportunities may arise with respect to a company's public and private    
long and short term debt obligations, its equity securities or the short-term   
claims held by general creditors. Typically, a restructuring or reorganization  
is preceded by a negative event or events, such as a default on the company's   
obligations, downgrading of the company's credit rating, a revised earnings     
forecast or a major economic setback such as the loss of a key customer or loss 
of a significant lawsuit. The negative event increases the pressure on many     
equity holders and creditors to dispose of their Distressed Obligations. As a   
consequence of this pressure and the subsequent announcement of a plan to       
address the problem, a severe market imbalance often is created as some holders 
attempt to sell their positions at a time when few investors are willing to     
purchase the securities. This market inefficiency increases the downward        
pressure on the price of the Distressed Obligations of the company. This market 
imbalance creates opportunities to buy Distressed Obligations at prices below   
the value of such securities under a reorganization or liquidation analysis of  
the issuer.                                                                     

Similar opportunities to acquire Distressed Obligations often arise in          
connection with the reorganization or liquidation of a troubled company under   
Federal bankruptcy law. The added complexity of the Federal bankruptcy process  
and the potential for lengthy delays increase the pressure to sell on holders of
securities and other obligations of companies in a Chapter 11 proceeding. As    
described above, a supply/demand imbalance can result, producing market         
inefficiencies which create opportunities to acquire equity securities,         
long-term public and private debt obligations or private claims at prices below 
the value of these securities or obligations under a reorganization or          
liquidation analysis of the issuer.                                             

When a company emerges from a bankruptcy proceeding, it may do so by issuing new
classes of debt and equity securities or a combination of new and existing      
classes of debt and equity securities. These "packages" often offer attractive  
returns because the prospects of the company are unclear and there is little    
institutional or individual interest in the securities issued.                  

METHODOLOGY. The investment process begins with a screening of companies that   
appear to be on the road to default or bankruptcy. Financial distress for most  
companies is a gradual process, with substantial media coverage and trade       
discussion. Newspapers and industry publications give broad coverage to         
deteriorating financial conditions, actual and suspected. Additionally, clues to
possible investment opportunities can be detected by monitoring the price of    
debt securities in the public markets. The Manager will seek to capitalize on   
its extensive network of relationships in the Distressed Obligations            
marketplace.                                                                    

The Manager will invest in individual, event-driven securities and claims       
following a research intensive investment methodology that analyzes the value   
and viability of the UNDERLYING ASSETS, the CONTRACTED CLAIMS relating to those 
assets and the likely EVENT DYNAMICS.                                           

ASSETS. The heart of the investment analysis is finding good businesses and/or  
assets to invest in. Analysis may include visiting or contacting a company and  
its management or other market participants, a review of SEC filings, industry  
reports, court records, press releases, and "street" research. The Manager will 
develop computer models in an attempt to assess going concern and liquidation   
values and will contact former company managers, competitors, suppliers,        
creditors and lawyers, and financial advisers for creditor committees of the    
debtor. The Manager will seek to invest in companies that have strong franchises
that are not easily duplicated. The Manager will seek to understand a company's 
long-term ability to generate cash flow and its competitive position in its     
industry and identify other valuable assets. The Manager puts a great deal of   
importance on positive cash flow, in that positive cash flow results in steadily
increasing asset value, as well as potentially providing a bankrupt company the 
opportunity to fund itself through a reorganization.                            

CONTRACT RIGHTS. An integral part of evaluating the risk-reward profile of an   
investment is the analysis of protective debt covenants, collateral protection, 
seniority and other contractual rights, and how these rights will be classified 
in the restructuring process.                                                   

EVENT DYNAMICS/TIMING. The Manager will seek to make accurate judgments about   
the outcome and timing of legal and regulatory issues relating to a troubled    
company. The Fund's success will depend, in part, on the Manager's ability to   
handicap the likely structure of a reorganization plan, including assessments of
the relative positions of interested parties, including creditor groups, equity 
holders, regulatory agencies, employees and management.                         

Additional information about the types of investments that are expected to be   
made by the Fund, its investment practices and related risk factors is provided 
below. Except as otherwise indicated, the Fund's investment policies and        
restrictions are not fundamental and may be changed without a vote of Investors.
See "TYPES OF INVESTMENTS AND RELATED RISK FACTORS--Investment Restrictions."   

THE FUND'S INVESTMENT PROGRAM IS SPECULATIVE AND ENTAILS SUBSTANTIAL RISKS.     
THERE CAN BE NO ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE ACHIEVED 
OR THAT ITS INVESTMENT PROGRAM WILL BE SUCCESSFUL. IN PARTICULAR, THE FUND'S USE
OF LEVERAGE, SHORT SALES AND DERIVATIVE TRANSACTIONS, ITS LIMITED               
DIVERSIFICATION, THE LIMITED LIQUIDITY OF MANY OF ITS PORTFOLIO SECURITIES AND  
DIFFICULTIES IN VALUING CERTAIN PORTFOLIO SECURITIES CAN, IN CERTAIN            
CIRCUMSTANCES, RESULT IN OR CONTRIBUTE TO SIGNIFICANT LOSSES TO THE FUND.       
INVESTORS SHOULD CONSIDER THE FUND AS A SUPPLEMENT TO AN OVERALL INVESTMENT     
PROGRAM AND SHOULD INVEST ONLY IF THEY ARE WILLING TO UNDERTAKE THE RISKS       
INVOLVED. INVESTORS COULD LOSE SOME OR ALL OF THEIR INVESTMENT.                 

TYPES OF INVESTMENTS AND RELATED RISK FACTORS                                   

GENERAL                                                                         

Since the Fund will invest primarily in Distressed Obligations, the risk of an  
investment in the Fund is substantial. The market value of some of the Fund's   
portfolio investments should be expected to fluctuate, possibly significantly   
and unpredictably. The value of the Fund's portfolio investments generally will 
be affected by company-specific events and, thus, should have a lower           
correlation to broad market movements. The Fund's portfolio may include a number
of investments for which no market exists and which have substantial            
restrictions on transferability. These investments may be difficult to value and
the Fund may be able to dispose of these investments only at substantial        
discounts or losses. The Fund's use of leverage is likely to cause its net      
assets to appreciate or depreciate at a greater rate than if leverage were not  
used.                                                                           

HIGH RISK INVESTMENTS                                                           

The Fund's investments in Distressed Obligations involve substantial risks. Any 
one or all of the companies in which the Fund may invest may be unsuccessful or 
not show any return for a considerable period of time. In any reorganization or 
liquidation proceeding relating to a portfolio company, the Fund may lose its   
entire investment or may be required to accept cash or securities with a value  
less than the Fund's original investment. Under these circumstances, the returns
generated from the Fund's investments may not compensate Investors adequately   
for the risks assumed.                                                          

The Fund's investments in junk bonds are considered to be predominantly         
speculative with respect to the company's capacity to pay interest and repay    
principal. These securities may involve a substantial risk of default or may be 
in default. Adverse changes in economic conditions or developments regarding the
individual company are more likely to cause price volatility and weaken the     
capacity of issuers of junk bonds to make principal and interest payments than  
is the case for higher grade securities. In addition, the market for these      
securities may be thinner and less liquid than for higher grade securities.     

The Fund may acquire privately held loans from banks, insurance companies,      
financial institutions, other lenders and other market participants, as well as 
claims held by trade or other creditors. These investments are subject to both  
interest rate risk and credit risk. These investments also are subject to the   
risk of non-payment of scheduled interest or principal. Non-payment would result
in a reduction of income to the Fund and a reduction in the value of the        
investments experiencing non-payment. Although these investments generally will 
be secured by specific collateral, no assurance can be given that the           
liquidation of this collateral would satisfy the company's obligation in the    
event of default or that the collateral could be readily liquidated. In         
addition, because these investments are not registered and no public market for 
them exists, they typically are less liquid than publicly traded securities.    

Investments in securities or claims related to commercial or residential real   
estate may involve risk relating to the credit of the underlying obligor,       
uncertainties related to the cash flows derived from the underlying properties, 
and susceptibility to economic conditions generally and those related to        
specific locations.                                                             

Funding a plan of reorganization involves additional risks, including risks     
associated with equity ownership in the reorganized entity. The equity          
securities of distressed companies may be highly illiquid and hard to value.    
Equity securities hold the most junior position in a distressed company's       
capital structure and are not secured by any specific collateral.               

Some of the Fund's portfolio investments may be difficult to value from time to 
time because market quotations are not available. In these circumstances,       
investments will be valued based on procedures designed to ascertain their fair 
value. These determinations may not reflect the actual value of the investments.

Although the Fund expects to pay all repurchases of interests in cash, there can
be no assurance that this will be the case. If significant repurchases are      
requested, the Fund may not be able to liquidate its investments at the time the
repurchases are to be made or may be able to do so only at prices which the     
Manager believes do not reflect the true value of the Fund's investments and    
which would adversely affect the Fund's total returns. Under these              
circumstances, the Fund may make distributions in-kind of the Fund's portfolio  
securities or obligations, some or all of which may not be readily marketable   
and may have to be held by Investors for an indefinite period of time.          

In addition to the risks discussed above associated with the Fund's investments 
in Distressed Obligations, the Fund also may be subject to the following risks: 

SHORT SALES                                                                     

To effect a short sale, the Fund will borrow a security from a brokerage firm,  
or other permissible financial intermediary, to make delivery to the buyer. The 
Fund then is obligated to replace the borrowed security by purchasing it at the 
market price at the time of replacement. The price at such time may be more or  
less than the price at which the security was sold by the Fund, which would     
result in a loss or gain, respectively. The Fund may not always be able to      
borrow a security it wants to sell short and thus will lose the opportunity to  
benefit from its strategy. The Fund also may be unable to close out a short     
position at any particular time or at an acceptable price. If the Fund is       
required to replace the borrowed security at a time when other short sellers of 
the same security also are required to replace it, a "short squeeze" can occur, 
wherein the Fund might be compelled, at a disadvantageous time, to replace the  
borrowed security, possibly at prices significantly in excess of the proceeds   
received from the short sale. Although the Fund's gain on a short sale is       
limited to the amount at which it sold the security short, its potential loss   
can increase rapidly and is limited only by the maximum attainable price of the 
security less the price at which the security was sold. Short selling is a      
speculative investment technique and, in certain circumstances, can             
substantially increase the impact of adverse price movements on the Fund's      
portfolio.                                                                      

LEVERAGE                                                                        

The Fund may borrow money from brokers and banks for investment purposes.       
Borrowing for investment purposes, which is known as "leverage," is a           
speculative investment technique and involves certain risks.                    

Although leverage will increase investment return if the Fund earns a greater   
return on the investments purchased with borrowed funds than it pays for the use
of such funds, using leverage will decrease investment return if the Fund fails 
to earn as much on such investments as it pays for the use of such funds. Using 
leverage, therefore, will magnify the volatility of the value of the Fund's     
investment portfolio. If the Fund's equity or debt instruments decline in value,
the Fund could be required to deposit additional collateral with the lender or  
suffer mandatory liquidation of the pledged securities to compensate for the    
decline in value. In the event of a sudden, precipitous drop in value of the    
Fund's assets, whether resulting from changes in market value or from           
redemptions, the Fund might not be able to liquidate assets quickly enough to   
pay off its borrowing. Money borrowed for leveraging will be subject to interest
costs that may or may not be recovered by return on the securities purchased.   
The Fund also may be required to maintain minimum average balances in connection
with its borrowings or to pay a commitment or other fee to maintain a line of   
credit; either of these requirements would increase the cost of borrowing over  
the stated interest rate.                                                       

The 1940 Act limits the amount an investment company can borrow by imposing an  
asset coverage requirement of 300% of its indebtedness, including amounts       
borrowed, measured at the time the investment company incurs the indebtedness   
(the "Asset Coverage Requirement"). This means that the value of the Fund's     
total indebtedness may not exceed one-third the value of its total assets,      
including such indebtedness, measured at the time the Fund incurs the           
indebtedness.                                                                   

To obtain "leveraged" market exposure in certain investments and to increase the
overall return to the Fund of various investments, the Fund may purchase options
and other instruments that do not constitute "indebtedness" for purposes of the 
Asset Coverage Requirement. These instruments nevertheless may involve          
significant economic leverage and therefore, in some cases, may involve         
significant risks of loss.                                                      

FOREIGN SECURITIES                                                              

The Fund may invest in Distressed Obligations of foreign issuers and, to a      
lesser extent, in depositary receipts, such as American Depositary Receipts     
("ADRs"), that represent indirect interests in securities of foreign issuers.   
Foreign securities in which the Fund may invest may be listed on foreign        
securities exchanges or traded in foreign over-the-counter markets. Investments 
in foreign securities are affected by risk factors generally not thought to be  
present in the U.S. These factors include: varying custody, brokerage and       
settlement practices; difficulty in pricing; less public information about      
issuers of foreign securities; less governmental regulation and supervision over
the issuance and trading of securities than in the U.S.; the unavailability of  
financial information regarding the foreign issuer or the difficulty of         
interpreting financial information prepared under foreign accounting standards; 
less liquidity and more volatility in foreign securities markets; the           
possibility of expropriation or nationalization; the imposition of withholding  
and other taxes; adverse political, social or diplomatic developments;          
limitations on the movement of funds or other assets of the Fund between        
different countries; difficulties in invoking legal process abroad and enforcing
contractual obligations; and the difficulty of assessing economic trends in     
foreign countries. Moreover, governmental issuers of foreign securities may be  
unwilling to repay principal and interest due, and may require that the         
conditions for payment be renegotiated. Investment in foreign countries also    
involves higher brokerage and custodian expenses than does investment in        
domestic securities.                                                            

SPECIAL INVESTMENT TECHNIQUES                                                   

The Fund may use a variety of special investment techniques to hedge a portion  
of its investment portfolio against various risks or other factors that         
generally affect the values of securities and for non-hedging purposes to pursue
the Fund's investment objective. These techniques may involve the use of        
derivative transactions. The techniques the Fund may employ may change over time
as new instruments and techniques are introduced or as a result of regulatory   
developments. Certain of the special investment techniques that the Fund may use
are speculative and involve a high degree of risk, particularly when used for   
non-hedging purposes. It is possible that any hedging transaction may not       
perform as anticipated and that the Fund may suffer losses as a result of its   
hedging activities.                                                             

DERIVATIVES. The Fund may purchase derivatives or enter into derivative         
transactions ("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,     
index or interest rate. Derivatives can be volatile and involve various types   
and degrees of risk, depending upon the characteristics of the particular       
Derivative and the portfolio as a whole. Derivatives permit the Fund to increase
or decrease the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Fund can increase or decrease  
the level of risk, or change the character of the risk, of its portfolio by     
making investments in specific securities.                                      

Derivatives may entail investment exposures that are greater than their cost    
would suggest, meaning that a small investment in Derivatives could have a large
potential impact on the Fund's performance.                                     

If the Fund invests in Derivatives at inopportune times or judges market        
conditions incorrectly, such investments may lower the Fund's return or result  
in a loss. The Fund also could experience losses if its Derivatives were poorly 
correlated with its other investments, or if the Fund were unable to liquidate  
its position because of an illiquid secondary market. The market for many       
Derivatives is, or suddenly can become, illiquid. Changes in liquidity may      
result in significant, rapid and unpredictable changes in the prices for        
Derivatives.                                                                    

OPTIONS. The Fund may engage in options transactions. The Fund also may invest  
in so-called "synthetic" options or other derivative instruments written by     
broker-dealers or other permissible financial intermediaries. Options           
transactions may be effected on securities exchanges or in the over-the-counter 
market. When options are purchased over-the-counter, the Fund bears the risk    
that the counterparty that wrote the option will be unable or unwilling to      
perform its obligations under the option contract. These options also may be    
illiquid and, in such cases, the Fund may have difficulty closing out its       
position. Over-the-counter options purchased and sold by the Fund also may      
include options on baskets of specific securities.                              

The Fund may purchase and sell call and put options in respect of specific      
securities, and may write and sell covered or uncovered call and put options.   

A covered call option, which is a call option with respect to which the Fund    
owns the underlying security, that is sold by the Fund exposes the Fund during  
the term of the option to possible loss of opportunity to realize appreciation  
in the market price of the underlying security or to possible continued holding 
of a security that might otherwise have been sold to protect against            
depreciation in the market price of the security. A covered put option, which is
a put option with respect to which the Fund has segregated cash or liquid       
securities to fulfill the obligation undertaken, that is sold by the Fund       
exposes the Fund during the term of the option to a decline in price of the     
underlying security while depriving the Fund of the opportunity to invest the   
segregated assets.                                                              

The Fund may close out a position when writing options by purchasing an option  
on the same security with the same exercise price and expiration date as the    
option that it has previously written on such security. The Fund will realize a 
profit or loss if the amount paid to purchase an option is less or more, as the 
case may be, than the amount received from the sale thereof. To close out a     
position as a purchaser of an option, the Fund would ordinarily make a similar  
"closing sale transaction," which involves liquidating the Fund's position by   
selling the option previously purchased, although the Fund would be entitled to 
exercise the option should it deem it advantageous to do so.                    

WARRANTS. Warrants are derivative instruments that permit, but do not obligate, 
the holder to subscribe for other securities. Warrants do not carry with them   
the right to dividends or voting rights with respect to the securities that they
entitle the holder to purchase, and they do not represent any rights in the     
assets of the issuer. As a result, warrants may be considered more speculative  
than certain other types of investments. In addition, the value of a warrant    
does not necessarily change with the value of the underlying securities or      
commodities, and a warrant ceases to have value if it is not exercised prior to 
its expiration date.                                                            

CALL AND PUT OPTIONS ON SECURITIES INDEXES. The Fund may purchase and sell call 
and put options on stock indexes, such as the Standard & Poor's 500 Composite   
Stock Price Index or the Standard & Poor's 100 Index, listed on national        
securities exchanges or traded in the over-the-counter market for hedging       
purposes and to pursue its investment objective. A stock index fluctuates with  
changes in the market values of the stocks that comprise the index. Accordingly,
successful use by the Fund of options on stock indexes will be subject to the   
Manager's ability to predict correctly movements in the direction of the stock  
market generally or segments thereof. This requires different skills and        
techniques than forecasting changes in the price of individual stocks.          

LENDING PORTFOLIO SECURITIES                                                    

The Fund may lend securities from its portfolio to brokers, dealers and other   
financial institutions needing to borrow securities to complete certain         
transactions. The Fund continues to be entitled to payments in amounts equal to 
the interest, dividends or other distributions payable on the loaned securities 
which affords the Fund an opportunity to earn interest on the amount of the loan
and on the loaned securities' collateral. Loans of portfolio securities may not 
exceed 33-1/3% of the value of the Fund's total assets, and, in respect of such 
transactions, the Fund will receive collateral consisting of cash, U.S.         
Government Securities or irrevocable letters of credit which will be maintained 
at all times in an amount equal to at least 100% of the current market value of 
the loaned securities. The Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.                                                                  

WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES                 

To reduce the risk of changes in securities prices and interest rates, the Fund 
may purchase securities on a forward commitment, when-issued or delayed delivery
basis, which means delivery and payment take place a number of days after the   
date of the commitment to purchase. The payment obligation and the interest rate
receivable with respect to such purchases are fixed when the Fund enters into   
the commitment, but the Fund does not make payment until it receives delivery   
from the counterparty. The Fund will commit to purchase such securities only    
with the intention of actually acquiring the securities, but the Fund may sell  
these securities before the settlement date if it is deemed advisable.          

Securities purchased on a forward commitment or when-issued or delayed delivery 
basis are subject to changes in value, generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates   
rise, based upon the public's perception of the creditworthiness of the issuer  
and changes, real or anticipated, in the level of interest rates. Securities so 
purchased may expose the Fund to risks because they may experience such         
fluctuations prior to their actual delivery. Purchasing securities on a         
when-issued or delayed delivery basis can involve the additional risk that the  
yield available in the market when the delivery takes place actually may be     
higher than that obtained in the transaction itself. Purchasing securities on a 
forward commitment, when-issued or delayed delivery basis when the Fund is fully
or almost fully invested may result in greater potential fluctuation in the     
value of the Fund's net assets. In addition, there is a risk that securities    
purchased on a when-issued or delayed delivery basis may not be delivered and   
that the purchaser of securities sold by the Fund on a forward basis will not   
honor its purchase obligation. In such cases, the Fund may incur a loss.        

REVERSE REPURCHASE AGREEMENTS                                                   

Reverse repurchase agreements involve the sale of a security to a bank or       
securities dealer and the simultaneous agreement to repurchase the security for 
a fixed price, reflecting a market rate of interest, on a specific date. These  
transactions involve a risk that the other party to a reverse repurchase        
agreement will be unable or unwilling to complete the transaction as scheduled, 
which may result in losses to the Fund. Reverse repurchase agreements are a form
of leverage which also may increase the volatility of the Fund's investment     
portfolio.                                                                      

ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES                                  

The Fund may invest a substantial portion of its total assets in investments    
which are illiquid, such as certain loans and loan participations. While,       
frequently, an institutional trading market exists for loan participations, the 
market may become less liquid based on factors affecting individual credits or  
the entire market.                                                              

The Fund also may purchase restricted securities. Restricted securities are     
securities that may not be sold to the public without an effective registration 
statement under the 1933 Act or, if they are unregistered, may be sold only in a
privately negotiated transaction or pursuant to an exemption from registration  
under the 1933 Act.                                                             

Where registration is required to sell a security, the Fund may be obligated to 
pay all or part of the registration expenses, and a considerable period may     
elapse between the decision to sell and the time the Fund may be permitted to   
sell a security under an effective registration statement. If, during such a    
period, adverse market conditions were to develop, the Fund might obtain a less 
favorable price than the prevailing price when it decided to sell. Restricted   
securities for which no market exists and other illiquid investments are valued 
at fair value as determined in accordance with procedures approved and          
periodically reviewed by the Directors.                                         

The Fund may be unable to sell illiquid and restricted securities at the most   
opportune times or at prices approximating the value at which the Fund purchased
such securities.                                                                

NON-DIVERSIFIED STATUS                                                          

The classification of the Fund as a "non-diversified" investment company means  
that the percentage of the Fund's assets that may be invested in the securities 
of a single issuer is not limited by the 1940 Act. A "diversified" investment   
company is required by the 1940 Act generally, with respect to 75% of its total 
assets, to invest not more than 5% of such assets in the securities of a single 
issuer. Since a relatively high percentage of the Fund's assets may be invested 
in the securities of a limited number of issuers, some of which may be within   
the same industry, the Fund's portfolio securities may be more sensitive to     
changes in the market value of a single issuer and to events affecting a        
particular industry or market segment.                                          

Generally, the Fund intends to invest no more than 10% of the value of its total
assets in the securities of any one issuer. However, while seeking desirable    
investments, the Fund may exceed this limitation and U.S. Government Securities 
are not subject to this limitation.                                             

The Fund does not intend to make investments for the purpose of exercising      
control or management over a portfolio company; however, in appropriate         
circumstances, it may seek representation on creditors' committees or equity    
holders' committees if the Manager determines such representation is in the best
interests of the Fund.                                                          

INVESTMENT RESTRICTIONS                                                         

The Fund has adopted the following investment restrictions as fundamental       
policies, which cannot be changed without approval by holders of a majority (as 
defined in the 1940 Act) of the Fund's outstanding voting securities. The Fund  
may not:                                                                        

o    Issue senior securities, except that, to the extent permitted by the 1940  
  Act, the Fund may borrow money (a) to finance portfolio transactions and
    engage in other transactions involving the issuance by the Fund of "senior
   securities" representing indebtedness, and (b) for temporary or emergency
   purposes or in connection with repurchases of, or tenders for, the Fund's
interests.                                                            

o    Underwrite securities of other issuers, except insofar as the Fund may be  
     deemed an underwriter under the 1933 Act in connection with the disposition
of its portfolio securities.                                          

o    Make loans, except by or as a consequence of (a) the acquisition of loan   
interests (which may include, among other things, participations or   
assignments in debtor-in-possession loans), debt securities, and other
  obligations in which the Fund is authorized to invest in accordance with
  its investment objective and policies, (b) lending portfolio securities,
     and (c) entering into repurchase agreements in a manner consistent with the
  Fund's investment policies or as otherwise permitted under the 1940 Act.

o    Purchase, hold or deal in real estate, except that the Fund may invest in  
securities or other instruments that are secured by real estate, or   
    securities of companies that invest or deal in real estate or interests in
real estate or are engaged in the real estate business.               

o    Invest in commodities or commodity contracts, except that the Fund may     
purchase and sell options, including those related to indexes.        

o    Invest in the securities of any one industry (except securities issued or  
   guaranteed by the U.S. Government, its agencies or instrumentalities), if
     as a result 25% or more of the Fund's total assets would be invested in the
securities of such industry.                                          

Under the 1940 Act, the vote of a majority of the outstanding voting securities 
of an investment company, such as the Fund, means the vote, at the annual or a  
special meeting of the security holders of such company duly called, (A) of 67% 
or more of the voting securities present at such meeting, if the holders of more
than 50% of the outstanding voting securities of such company are present or    
represented by proxy; or (B) of more than 50% of the outstanding voting         
securities of such company, whichever is less.                                  

With respect to these investment restrictions, and other policies described in  
this Memorandum, if a percentage restriction is adhered to at the time of an    
investment or transaction, a later change in percentage resulting from a change 
in the values of investments or the value of the Fund's total assets, unless    
otherwise stated, will not constitute a violation of such restriction or policy.

The Fund's investment objective is fundamental and may not be changed without   
the vote of a majority (as defined by the 1940 Act) of the Fund's outstanding   
voting securities.                                                              

ADDITIONAL RISK FACTORS                                                         

INCENTIVE ALLOCATION                                                            

The Incentive Allocation of 20% of net profits to the capital account of the    
Manager may create an incentive for the Manager to make investments that are    
riskier or more speculative than those that might have been made in the absence 
of the Incentive Allocation. In addition, because the allocation is calculated  
on a basis that includes unrealized appreciation of the Fund's assets, the      
Incentive Allocation may be greater than if it were based solely on realized    
gains. See "CAPITAL ACCOUNTS AND ALLOCATIONS--Incentive Allocation."            

TAX RISKS                                                                       

Counsel to the Fund has rendered an opinion that the Fund will be treated as a  
partnership and not as an association taxable as a corporation for Federal      
income tax purposes. Counsel to the Fund has rendered its opinion that, under a 
"facts and circumstances" test set forth in regulations adopted by the U.S.     
Treasury Department, the Fund will not be treated as a "publicly traded         
partnership" taxable as a corporation. If it were determined that the Fund      
should be treated as an association or publicly traded partnership taxable as a 
corporation, as a result of a successful challenge to the opinions rendered by  
counsel to the Fund or otherwise, the taxable income of the Fund would be       
subject to corporate income tax and distributions of profits from the Fund would
be treated as dividends. See "TAX ASPECTS--Tax Treatment of Fund                
Operations--Classification of the Fund."                                        

In many circumstances, the Fund will invest in debt securities that were issued 
with original issue discount ("OID"). In general, because OID is includible in  
income as ordinary income as it accrues under a constant-yield method, the Fund,
and consequently the Investors, may have to recognize taxable income prior to   
the receipt of cash associated with that income. Similarly, the Fund may acquire
debt securities that have market discount (each, a "Market Discount             
Obligation"). Accrued market discount is includible in income to the Fund, and  
consequently to the Investors, as ordinary income currently, but limited to the 
extent principal payments are made with respect to the debt security. Any gain  
upon the Fund's sale or disposition of a Market Discount Obligation will be     
treated as ordinary income to the extent of any accrued and previously untaxed  
market discount. The Fund may be required to defer a portion of the interest    
deductions attributable to any indebtedness incurred or continued to purchase or
carry a Market Discount Obligation.                                             

The Fund's short sales and transactions in Derivatives will be subject to       
special tax rules, the effect of which may be to accelerate income to the Fund, 
defer losses to the Fund, cause adjustments in the holding period of the Fund's 
securities and convert short-term capital losses into long-term capital losses. 
Such transactions may result in the Fund realizing more short-term capital gains
and ordinary income subject to tax at ordinary income tax rates than it would if
it did not engage in such transactions.                                         

To the extent a modification of a debt security held by the Fund results in a   
deemed taxable exchange of the debt security, or there is a taxable exchange of 
a debt security held by the Fund in connection with the reorganization of the   
issuer of the security, the Fund will not have any cash receipts associated with
any gain recognized by the Fund upon such deemed or actual exchange. Each       
Investor will be required to pay all applicable Federal and state income taxes  
with respect to its share of all such gains even though, as described below, the
Fund does not intend to make periodic distributions of its net income or gains, 
if any, to Investors for such purpose.                                          

LACK OF OPERATING HISTORY                                                       

The Fund and the Manager are newly formed entities and have no operating        
histories upon which investors can evaluate the performance of the Fund.        
However, as discussed below, the personnel of the Manager who are responsible   
for managing the Fund's investment portfolio have substantial experience in     
managing, with others, private investment funds and individually managed client 
accounts that have investment programs that are substantially similar to the    
Fund's investment program. See "THE MANAGER, PWFA AND BOND STREET" and          
"CONFLICTS OF INTEREST--Participation in Investment Opportunities."             

LIQUIDITY RISKS                                                                 

Interests in the Fund will not be traded on any securities exchange or other    
market and are subject to substantial restrictions on transfer. Although the    
Fund may offer to repurchase Investor interests from time to time, an Investor  
may not be able to liquidate its interest in the Fund for up to two years. The  
Manager expects that generally, beginning in 2001, it will recommend to the     
Board that the Fund offer to repurchase interests from Investors twice that     
year, in June and December, and then once each year thereafter, near year-end.  
See "REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS."                      

DISTRIBUTIONS TO INVESTORS AND PAYMENT OF TAX LIABILITY                         

The Fund does not intend to make periodic distributions of its net income or    
gains, if any, to Investors. Whether or not distributions are made, Investors   
will be required each year to pay applicable Federal and state income taxes on  
their respective shares of the Fund's taxable income, and will have to pay such 
applicable taxes from sources other than Fund distributions. The amount and     
times of any distributions will be determined in the sole discretion of the     
Board.                                                                          

THE DIRECTORS                                                                   

The Board has overall responsibility to manage and control the business affairs 
of the Fund, including the complete and exclusive authority to oversee and to   
establish policies regarding the management, conduct and operation of the Fund's
business. The Board exercises the same powers, authority and responsibilities on
behalf of the Fund as are customarily exercised by the board of directors of a  
registered investment company organized as a corporation.                       

The Directors are not required to contribute to the capital of the Fund or hold 
interests in the Fund. A majority of the Directors are not "interested persons" 
(as defined in the 1940 Act) of the Fund (collectively, the "Independent        
Directors") and perform the same functions for the Fund as are customarily      
exercised by the non-interested directors of a registered investment company    
organized as a corporation.                                                     

The identity of the Directors and brief biographical information regarding each 
Director is set forth below. Each Director who is deemed to be an "interested   
person" of the Fund, as defined in the 1940 Act, is indicated by an asterisk.   

                   PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE                 DURING PAST FIVE YEARS                    

*E. Garrett Bewkes, Jr.               Mr. Bewkes is a director of, and prior to 
c/o PaineWebber Incorporated          December 1995 was a consultant to, PW     
1285 Avenue of the Americas           Group.  Prior to 1988, he was Chairman of 
New York, New York  10019             the Board, President and Chief Executive  
Age 73                                Officer of American Bakeries Company. Mr. 
                              Bewkes is a director of Interstate
                                      Bakeries Corporation. Mr. Bewkes also is a
                                      director or trustee of 37 other investment
                           companies for which PaineWebber
                                    Incorporated or its affiliates serves as
               investment adviser.

Meyer Feldberg                        Mr. Feldberg is Dean and Professor of     
c/o Columbia University               Management of the Graduate School of      
101 Uris Hall                         Business, Columbia University.  Prior to  
New York, New York  10027             1989, he was President of the Illinois    
Age 57                                Institute of Technology.  Dean Feldberg   
                           is a director of Primedia, Inc.
                                     (publishing), Federated Department Stores
                                    Inc. (operator of department stores) and
                                  Revlon, Inc (cosmetics). Dean Feldberg
                                     also is a director or trustee of 35 other
                                      investment companies for which PaineWebber
                                    Incorporated or its affiliates serves as
               investment adviser.

George W. Gowen                       Mr. Gowen is a partner in the law firm of 
666 Third Avenue                      Dunnington, Bartholow & Miller.  Prior to 
New York, New York 10017              May 1994, he was a partner in the law firm
Age 70                                of Fryer, Ross & Gowen. Mr. Gowen also is 
                             a director or trustee of 35 other
                                      investment companies for which PaineWebber
                                    Incorporated or its affiliates serves as
               investment adviser.

The Directors serve on the Board for terms of indefinite duration. A Director's 
position in that capacity will terminate if such Director is removed, resigns or
is subject to various disabling events such as death or incapacity. A Director  
may resign upon 90 days' prior written notice to the other Directors, subject to
waiver of notice, and may be removed either by vote of two-thirds of the        
Directors not subject to the removal vote or vote of the Investors holding not  
less than two-thirds of the total number of votes eligible to be cast by all    
Investors. In the event of any vacancy in the position of a Director, the       
remaining Directors may appoint an individual to serve as a Director, so long as
immediately after such appointment at least two-thirds of the Directors then    
serving would have been elected by the Investors. The Directors may call a      
meeting of Investors to fill any vacancy in the position of a Director, and must
do so within 60 days after any date on which Directors who were elected by the  
Investors cease to constitute a majority of the Directors then serving. If no   
Director remains to manage the business of the Fund, the Manager may manage and 
control the Fund, but must convene a meeting of Investors within 60 days for the
purpose of either electing new Directors or dissolving the Fund.                

The Independent Directors are each paid an annual retainer of $5,000 and per    
meeting fees of $500, or $250 in the case of telephonic meetings by the Fund.   
The other Directors receive no annual or other fees from the Fund. All Directors
are reimbursed by the Fund for their reasonable out-of-pocket expenses. It is   
estimated that the aggregate annual compensation paid by the Fund to each       
Independent Director will be $7,000 during the coming year, and that, together  
with compensation paid to them by other registered investment companies advised 
by affiliates of the Manager, Messrs. Feldberg and Gowen each will receive      
aggregate annual compensation from all such companies of approximately $150,000 
for such year. The Directors do not receive any pension or retirement benefits  
from the Fund.                                                                  

THE MANAGER, PWFA AND BOND STREET                                               

The Directors have engaged the Manager to provide investment advice to, and the 
day-to-day management of, the Fund, in each case under the ultimate supervision 
of and subject to any policies established by the Board. The Manager was formed 
as a Delaware limited liability company on February 1, 2000 and will be         
registered as an investment adviser under the Advisers Act before the           
commencement of the Fund's operations. The offices of the Manager are located at
1285 Avenue of the Americas, New York, New York 10019, and its telephone number 
is (800) 486-2608. Before the commencement of the Fund's operations, the Manager
owned 99% of the outstanding interests in the Fund (thereby controlling the     
Fund) and was the only person to own of record or beneficially 5% or more of the
outstanding interests in the Fund. The Manager or its designee maintains the    
Fund's accounts, books and other documents required to be maintained under the  
1940 Act at 1285 Avenue of the Americas, New York, New York 10019, or at such   
other place as designated by the Manager.                                       

The Manager is a joint venture between PWFA and Bond Street. PWFA is the        
managing member of the Manager and oversees the Manager's provision of          
investment advice and day-to-day management to the Fund. Bond Street provides   
the Manager with use of and access to such of its personnel, research and       
facilities as the Manager requires to manage the Fund's investment portfolio,   
and these individuals have the sole responsibility, subject only to the         
supervision of the Manager and the Board, for the investment advisory services  
provided to the Fund. As a result of its ownership of the Manager, PWFA will    
have a financial interest in other investment management activities in which    
Bond Street and its affiliates may engage.                                      

PWFA is an indirect, wholly-owned subsidiary of PW Group and is registered as an
investment adviser under the Advisers Act. PWFA and its affiliates provide      
investment advisory services to registered investment companies, private        
investment funds and individual accounts, and, as of December 31, 1999, have    
approximately $423 billion of client assets and approximately $68 billion of    
assets under management. PaineWebber Incorporated, a wholly-owned subsidiary of 
PW Group, is registered as a broker-dealer under the Securities Exchange Act of 
1934, as amended, and is a member of the New York Stock Exchange, Inc. and other
principal securities exchanges.                                                 

Bond Street, organized as a New Jersey limited liability company in 1999, will  
be registered as an investment adviser under the Advisers Act before the        
commencement of the Fund's operations. Sam S. Kim is the managing member of Bond
Street. He is the person who will be primarily responsible for the day-to-day   
management of the Fund's investment portfolio.                                  

From June 1995 until June 1999, Mr. Kim was a Senior Partner in Contrarian      
Capital Management, L.L.C., an investment manager specializing in distressed    
securities. From August 1988 to May 1995, Mr. Kim worked in various capacities  
for Oppenheimer & Co., Inc. ("Oppenheimer"). From January 1992 to May 1995, Mr. 
Kim was a Senior Vice President of Oppenheimer where he was one of three        
professionals responsible for managing distressed investing partnerships and    
from August 1989 to December 1991, served as an Analyst. Mr. Kim received a B.A.
in Economics from Columbia University in 1988.                                  

The authority of the Manager to serve or act as investment adviser, and be      
responsible for the day-to-day management, of the Fund (collectively, "Advice   
and Management"), and the incentive allocation arrangement between the Fund and 
the Manager, as the foregoing are set forth in the LLC Agreement, was initially 
approved by the Board, including each Independent Director, and by vote of      
Investors holding interests in the Fund on February 11, 2000. The authority of  
the Manager to provide Advice and Management will terminate under the following 
circumstances:                                                                  

   (1)  if revoked by (A) vote of a majority (as defined in the 1940 Act) of
      the outstanding voting securities of the Fund or (B) the Board, in
  either case with 60 days' prior written notice to the Manager;

    (2)  at the election of the Manager, with 60 days' prior written notice to
the Board;                                                  

     (3)  if, after February 11, 2001, any period of 12 consecutive months shall
          conclude without the approval of the continuation of such authority by
  (A) the vote of a majority (as defined in the 1940 Act) of the
      outstanding voting securities of the Fund or (B) the Board and, in
       either case, approved by a majority of the Independent Directors by
vote cast at a meeting called for such purpose; or          

 (4)  to the extent required by the 1940 Act, upon the occurrence of any
     event in connection with the Manager, its provision of Advice and
Management, the LLC Agreement or otherwise constituting an  
"assignment" within the meaning of the 1940 Act.            

VOTING                                                                          

Each Investor will have the right to cast a number of votes based on the value  
of such Investor's respective capital account at any meeting of Investors called
by the Directors or Investors holding at least a majority of the total number of
votes eligible to be cast by all Investors. Investors will be entitled to vote  
on any matter on which shareholders of a registered investment company organized
as a corporation would be entitled to vote, including selection of Directors,   
approval of the authority of the Manager to provide Advice and Management to the
Fund and approval of the Fund's auditors. Except for the exercise of their      
voting privileges, Investors will not be entitled to participate in the         
management or control of the Fund's business, and may not act for or bind the   
Fund.                                                                           

CONFLICTS OF INTEREST                                                           

PWFA                                                                            

PWFA and its affiliates manage the assets of registered investment companies,   
private investment funds and individual accounts (collectively, "PWFA Clients").
The Fund has no interest in these activities. PWFA and its officers or employees
who assist PWFA in its oversight of the Manager will be engaged in substantial  
activities other than on behalf of the Manager and may have conflicts of        
interest in allocating their time and activity between the Manager and PWFA     
Clients. PWFA and its officers and employees will devote so much of their time  
to the affairs of the Manager as in their judgment is necessary and appropriate.

PaineWebber Incorporated acts as the placement agent for the Fund, without      
special compensation from the Fund, and will bear its own costs associated with 
its activities as placement agent. PWFA and PaineWebber Incorporated intend to  
compensate PaineWebber Incorporated's or its affiliates' financial advisors, as 
well as third-party securities dealers and other industry professionals, for    
their ongoing servicing of clients with whom they have placed interests in the  
Fund and such compensation will be based upon a formula that takes into account 
the amount of client assets being serviced as well as the investment results    
attributable to the clients' assets in the Fund. Additionally these entities, at
their discretion, may charge Investors sales commissions of up to 2% of the     
purchase price of Fund interests being purchased. See "FEES AND EXPENSES" and   
"CAPITAL ACCOUNTS AND ALLOCATIONS--Incentive Allocation."                       

PaineWebber Incorporated or its affiliates may provide advisory, consulting or  
investment banking services to one or more of the Fund's portfolio companies or 
to a client that may enter or has entered into a transaction with one or more of
the Fund's portfolio companies. While the PaineWebber employees providing these 
services will be different from those associated with the Manager, these        
services or the transactions resulting therefrom could conflict with or have an 
adverse impact on the Fund's portfolio investments.                             

PWFA and its affiliates may engage in certain activities through which the      
Manager may acquire confidential or material non-public information with respect
to certain companies. As a result, the Manager may be restricted from engaging  
in transactions on behalf of the Fund involving the Distressed Obligations of   
these companies.                                                                

PaineWebber Incorporated or its affiliates may provide brokerage and other      
services from time to time to one or more accounts or entities managed by Bond  
Street or one of its affiliates.                                                

BOND STREET AND SAM S. KIM                                                      

Bond Street or Mr. Kim may provide investment advisory and other services to    
other clients or accounts (the "Bond Street Accounts"). Bond Street and certain 
of the investment professionals who are principals of or employed by Bond Street
(collectively with Bond Street, the "Bond Street Managers") also may carry on   
substantial investment activities for their own accounts, for the accounts of   
family members and for other Bond Street Accounts. The Fund will have no        
interest in these activities. As a result of the foregoing, Bond Street and the 
investment professionals who, on behalf of the Manager, will manage the Fund's  
investment portfolio may be engaged in substantial activities other than on     
behalf of the Manager and may have conflicts of interest in allocating their    
time and activity between the Fund and the Bond Street Accounts. Such persons   
will devote only so much time to the affairs of the Manager as in their judgment
is necessary and appropriate.                                                   

Bond Street and its affiliates may engage in certain activities through which   
the Manager may acquire confidential or material non-public information with    
respect to certain companies. As a result, the Manager may be restricted from   
engaging in transactions on behalf of the Fund involving the Distressed         
Obligations of these companies.                                                 

PWFA, its affiliates or PWFA Clients may have an interest in the Bond Street    
Accounts on terms different than an interest in the Fund. PWFA or its affiliates
may receive compensation in connection with the services provided by Bond Street
or Mr. Kim to the Bond Street Accounts. In addition, the Bond Street Managers   
may receive research products and services in connection with the brokerage     
services that PWFA and its affiliates may provide from time to time to one or   
more Bond Street Accounts or to the Fund.                                       

PARTICIPATION IN INVESTMENT OPPORTUNITIES                                       

The Manager expects to employ an investment program for the Fund that is        
substantially similar to the investment program that will be employed by the    
Bond Street Managers for the Bond Street Accounts. Accordingly, as a general    
matter, the Manager will consider participation by the Fund in all appropriate  
investment opportunities that will be under consideration for investment by the 
Bond Street Managers for the Bond Street Accounts. There may be, however,       
circumstances under which the Bond Street Managers will cause one or more Bond  
Street Accounts to commit a larger percentage of their respective assets to an  
investment opportunity than to which the Manager will commit the Fund's assets. 
There also may be circumstances under which the Bond Street Managers will       
consider participation by the Bond Street Accounts in investment opportunities  
in which the Manager does not intend to invest on behalf of the Fund, or vice   
versa.                                                                          

The Manager will evaluate for the Fund, and it is anticipated that the Bond     
Street Managers will evaluate for each Bond Street Account, a variety of factors
that may be relevant in determining whether a particular investment opportunity 
or strategy is appropriate and feasible for the Fund or a Bond Street Account at
a particular time, including, but not limited to, the following: (1) the nature 
of the investment opportunity taken in the context of the other investments at  
the time; (2) the liquidity of the investment relative to the needs of the      
particular entity or account; (3) the availability of the opportunity (i.e.,    
size of obtainable position); (4) the transaction costs involved; and (5) the   
investment or regulatory limitations applicable to the particular entity or     
account. Because these considerations may differ for the Fund and the Bond      
Street Accounts in the context of any particular investment opportunity, the    
investment activities of the Fund and the Bond Street Accounts may differ       
considerably from time to time. In addition, the fees and expenses of the Fund  
may differ from those of the Bond Street Accounts. Accordingly, prospective     
Investors should note that the future performance of the Fund and the Bond      
Street Accounts will vary.                                                      

When the Manager and the Bond Street Managers determine that it would be        
appropriate for the Fund and one or more Bond Street Accounts to participate in 
an investment opportunity at the same time, they will attempt to aggregate,     
place and allocate orders on a basis that the Manager believes to be fair and   
equitable, consistent with its responsibilities under applicable law. Decisions 
in this regard are necessarily subjective and there is no requirement that the  
Fund participate, or participate to the same extent as the Bond Street Accounts,
in all trades. However, no participating entity or account will receive         
preferential treatment over any other and the Bond Street Managers will take    
steps to ensure that no participating entity or account will be systematically  
disadvantaged by the aggregation, placement and allocation of orders.           

Situations may occur, however, where the Fund could be disadvantaged because of 
the investment activities conducted by the Bond Street Managers for the Bond    
Street Accounts. Such situations may be based on, among other things, the       
following: (1) legal restrictions on the combined size of positions that may be 
taken for the Fund and the Bond Street Accounts, thereby limiting the size of   
the Fund's position; (2) the difficulty of liquidating an investment for the    
Fund and the Bond Street Accounts where the market cannot absorb the sale of the
combined positions; and (3) the determination that a particular investment is   
warranted only if hedged with an option or other instrument and there is a      
limited availability of such options or other instruments. In particular, the   
Fund may be legally restricted from entering into a "joint transaction" (as     
defined in the 1940 Act) with the Bond Street Accounts with respect to the      
securities of an issuer without first obtaining exemptive relief from the SEC.  
See "CONFLICTS OF INTEREST--Other Matters."                                     

The Manager and members of the Manager, and their members, directors, officers, 
employees and affiliates, may buy and sell securities or other investments for  
their own accounts and may have actual or potential conflicts of interest with  
respect to investments made on behalf of the Fund. As a result of differing     
trading and investment strategies or constraints, positions may be taken by the 
Manager, members, directors, officers, employees and affiliates of PWFA or Bond 
Street, or by the Bond Street Managers for the Bond Street Accounts, that are   
the same, different or made at a different time than positions taken for the    
Fund.                                                                           

The Manager expects to serve as investment adviser for clients other than the   
Fund. As a result, it may have conflicts of interests similar to those described
above with respect to PWFA, Bond Street and Sam S. Kim.                         

OTHER MATTERS                                                                   

Except in accordance with applicable law, the Manager and its members are not   
permitted to buy securities or other property from, or sell securities or other 
property to, the Fund. However, the Fund may effect certain principal           
transactions in securities with one or more Bond Street Accounts, except for    
accounts in which Bond Street or any affiliate thereof serves as a general      
partner or in which it has a financial interest, other than an interest that    
results solely from Bond Street's or any affiliate's appointment as an          
investment adviser to the account. Such transactions would be made in           
circumstances where the Manager has determined it would be appropriate for the  
Fund to purchase and a Bond Street Account to sell, or the Fund to sell and a   
Bond Street Account to purchase, the same security or instrument on the same    
day.                                                                            

Future investment activities of PWFA or Bond Street, or their affiliates, and   
the principals, partners, directors, officers or employees of the foregoing, may
give rise to additional conflicts of interest.                                  

BROKERAGE                                                                       

The Manager is responsible for the execution of the Fund's portfolio            
transactions and the allocation of brokerage. Transactions on U.S. stock        
exchanges and on some foreign stock exchanges involve the payment of negotiated 
brokerage commissions. On the great majority of foreign stock exchanges,        
commissions are fixed. No stated commission is generally applicable to          
securities traded in over-the-counter markets, but the prices of those          
securities include undisclosed commissions or mark-ups.                         

In executing transactions on behalf of the Fund, the Manager seeks to obtain the
best price and execution for the Fund, taking into account factors such as      
price, size of order, difficulty of execution and operational facilities of a   
brokerage firm, and in the case of transactions effected by the Fund with       
unaffiliated brokers, the firm's risk in positioning a block of securities.     
Although the Manager generally will seek reasonably competitive commission      
rates, the Fund will not necessarily pay the lowest commission available on each
transaction. The Fund will have no obligation to deal with any broker or group  
or brokers in executing transactions in portfolio securities. The Fund may      
execute portfolio brokerage transactions through PaineWebber Incorporated or its
affiliates, subject to compliance with the 1940 Act.                            

Following the principle of seeking best price and execution, the Manager may    
place brokerage business on behalf of the Fund with brokers that provide the    
Manager and its affiliates, including the Bond Street Managers, with            
supplemental research, market and statistical information, including advice as  
to the value of securities, the advisability of investing in, purchasing or     
selling securities, and the availability of securities or purchasers or sellers 
of securities, and furnishing analyses and reports concerning issuers,          
industries, securities, economic factors and trends, portfolio strategy and the 
performance of accounts. The expenses of the Manager are not necessarily reduced
as a result of the receipt of this supplemental information, which may be useful
to the Manager and its affiliates in providing services to clients other than   
the Fund. In addition, not all of the supplemental information is used by the   
Manager in connection with the Fund. Conversely, the information provided to the
Manager by brokers and dealers through which other clients of the Manager and   
its affiliates effect securities transactions may be useful to the Manager in   
providing services to the Fund.                                                 

Although the Fund cannot accurately predict its portfolio turnover, the Fund    
expects that its annual portfolio turnover rate generally may exceed 100%. A    
turnover rate of 100% is equivalent to the Fund buying and selling all of the   
securities in its portfolio once in the course of a year. Higher portfolio      
turnover rates usually generate additional brokerage commissions and transaction
costs and the short-term gains realized from these transactions are taxable to  
Investors at ordinary income tax rates.                                         

FEES AND EXPENSES                                                               

PWFA provides certain management and administrative services to the Fund,       
including, among other things, providing office space and other support services
to the Fund. In consideration for such services, the Fund will pay PWFA a       
management fee generally on a monthly basis at the annual rate of 1.25% of the  
Fund's net assets for the month, excluding assets attributable to the Manager's 
capital account (the "Fee"). 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, calculated before giving effect to any repurchases of interests.   
The Fee will be computed as of the start of business on the first business day  
of the period to which the Fee relates, after adjustment for any capital        
contributions effective on such date, and will be payable in arrears. The Fee   
will be charged in each period to the capital accounts of all Investors in      
proportion to their capital accounts at the beginning of such period. A portion 
of the Fee will be paid by PWFA to Bond Street.                                 

The Administrator performs certain administration, accounting and investor      
services for the Fund and other investment funds sponsored or advised by PW     
Group or its affiliates. In consideration for these services, the Fund and such 
other funds will pay the Administrator an annual fee based on: (i) the average  
net assets of the Fund, subject to a minimum monthly fee, and (ii) the aggregate
net assets of such other funds, subject to a minimum monthly fee, and will      
reimburse the Administrator for out-of-pocket expenses.                         

In addition, the capital accounts of Investors may be subject to an Incentive   
Allocation depending upon the investment performance of the Fund. See "CAPITAL  
ACCOUNTS AND ALLOCATIONS--Incentive Allocation."                                

The Fund will bear all expenses incurred in the business of the Fund other than 
those specifically required to be borne by PWFA. Expenses to be borne by the    
Fund include, but are not limited to, the following:                            

    o    all costs and expenses directly related to portfolio transactions and
    positions for the Fund's account, including, but not limited to,
         brokerage commissions, research fees, interest and commitment fees on
         loans and debit balances, borrowing charges on securities sold short,
       dividends on securities sold short but not yet purchased, custodial
        fees, margin fees, transfer taxes and premiums and taxes withheld on
foreign dividends;                                          

o    all costs and expenses associated with the organization and      
     registration of the Fund, certain offering costs and the costs of
compliance with any applicable Federal or state laws;       

   o    the costs and expenses of holding any meetings of any Investors that
       are regularly scheduled, permitted or required to be held under the
     terms of the LLC Agreement, the 1940 Act or other applicable law;

 o    fees and disbursements of any attorneys, accountants, auditors and
      other consultants and professionals engaged on behalf of the Fund,
   including, without limitation, in connection with the Manager's
      serving on creditors' and equity holders' committees and otherwise
 seeking to preserve or protect the Fund's rights in portfolio
securities;                                                 

o    the fees of custodians and other persons providing administrative
services to the Fund;                                       

   o    the costs of a fidelity bond and any liability insurance obtained on
behalf of the Fund, the Manager or the Directors;           

 o    all costs and expenses of preparing, setting in type, printing and
distributing reports and other communications to Investors; 

  o    all expenses of computing the Fund's net asset value, including any
        equipment or services obtained for the purpose of valuing the Fund's
        investment portfolio, including valuation services provided by third
parties;                                                    

    o    all charges for equipment or services used for communications between
       the Fund and any custodian, or other agent engaged by the Fund; and

   o    such other types of expenses as may be approved from time to time by
the Board.                                                  

The Manager will be reimbursed by the Fund for any of the above expenses that it
pays on behalf of the Fund.                                                     

The Fund's organizational and offering expenses are estimated at $250,000.      
Before a recent change to the guidelines followed by the American Institute of  
Certified Public Accountants applicable to the Fund, the Fund would have been   
able to amortize the organizational expenses over a 60-month period. Because of 
that change, however, the organizational expenses now must be expensed as       
incurred. To achieve a more equitable distribution of the impact of those       
expenses among the Investors, an amount equal to the organizational expenses    
incurred by the Fund will be allocated among and credited to or debited against 
the capital accounts of all Investors based on the percentage that an Investor's
contributed capital to the Fund bears to the total capital contributed to the   
Fund by all Investors as of the relevant allocation date. An initial allocation 
of organizational costs will be made as of the first date on which capital      
contributions of Investors are made. These allocations will thereafter be       
adjusted as of each date, through and including December 31, 2000, on which     
additional capital is contributed to the Fund by Investors. The Fund also will  
bear certain ongoing offering costs associated with any periodic offers of Fund 
interests. Offering costs cannot be deducted by the Fund or the Investors.      

PLACEMENT FEE                                                                   

In connection with initial and additional purchases of Fund interests, Investors
may be charged by PaineWebber Incorporated and its Financial Advisors, as well  
as third party securities dealers and other industry professionals, sales       
commissions of up to 2% of the Investor's capital contribution, in their sole   
discretion. The placement fee will be added to the purchase price and will not  
constitute assets of the Fund. See "APPLICATION FOR INTERESTS--Application      
Terms."                                                                         

CAPITAL ACCOUNTS AND ALLOCATIONS                                                

CAPITAL ACCOUNTS                                                                

The Fund will maintain a separate capital account for each Investor, which will 
have an opening balance equal to such Investor's initial contribution to the    
capital of the Fund. Each Investor's capital account will be increased by the   
sum of the amount of cash and the value of any securities constituting          
additional contributions by such Investor to the capital of the Fund, plus any  
amounts credited to such Investor's capital account as described below.         
Similarly, each Investor's capital account will be reduced by the sum of the    
amount of any repurchase by the Fund of the interest or portion of the interest 
of such Investor, plus the amount of any distributions to such Investor which   
are not reinvested, plus any amounts debited against such Investor's capital    
account as described below. To the extent that any debit would reduce the       
balance of the capital account of any Investor below zero, that portion of any  
such debit will instead be allocated to the capital account of the Manager; any 
subsequent credits that would otherwise be allocable to the capital account of  
any such Investor will instead be allocated to the capital account of the       
Manager in such amounts as are necessary to offset all previous debits          
attributable to such Investor.                                                  

Capital accounts of Investors are adjusted as of the close of business on the   
last day of each fiscal period. Fiscal periods begin on the day after the last  
day of the preceding fiscal period and end at the close of business on the first
to occur of (1) the last day of the fiscal year of the Fund, (2) the day        
preceding the date as of which a contribution to the capital of the Fund is     
made, (3) the day as of which the Fund repurchases any interest or portion of an
interest of any Investor, (4) the day as of which the Fund admits a substituted 
Investor to whom an interest or portion of an interest of an Investor has been  
transferred (unless there is no change in beneficial ownership) or (5) the day  
as of which any amount is credited to or debited from the capital account of any
Investor other than an amount to be credited to or debited from the capital     
accounts of all Investors in accordance with their respective Fund percentages. 
A Fund percentage will be determined for each Investor as of the start of each  
fiscal period by dividing the balance of such Investor's capital account as of  
the commencement of such period by the sum of the balances of all capital       
accounts of all Investors as of such date.                                      

ALLOCATION OF NET PROFITS AND NET LOSSES                                        

Net profits or net losses of the Fund for each fiscal period will be allocated  
among and credited to or debited against the capital accounts of all Investors  
as of the last day of each fiscal period in accordance with Investors'          
respective Fund percentages for such fiscal period. Net profits or net losses   
will be measured as the net change in the value of the net assets of the Fund,  
including any net change in unrealized appreciation or depreciation of          
investments and realized income and gains or losses and expenses during a fiscal
period, before giving effect to any repurchases by the Fund of interests or     
portions of interests, and adjusted to exclude the amount of any "key man"      
insurance premiums or proceeds to be allocated among the capital accounts of the
Investors and any items to be allocated among the capital accounts of the       
Investors other than in accordance with the Investors' respective Fund          
percentages.                                                                    

Allocations for Federal income tax purposes generally will be made among the    
Investors so as to reflect equitably amounts credited or debited to each        
Investor's capital account for the current and prior fiscal years.              

INCENTIVE ALLOCATION                                                            

So long as the Manager provides Advice and Management to the Fund, the Manager  
will be entitled to an incentive-based allocation (the "Incentive Allocation"), 
charged to the capital account of each Investor as of the last day of each      
"allocation period," of 20% of the amount by which any "allocated gain" during  
an "allocation period" exceeds the positive balance in the Investor's "loss     
recovery account." The Incentive Allocation will be credited to the capital     
account of the Manager.                                                         

For purposes of calculating the Incentive Allocation, "allocated gain" means the
excess of the balance of the Investor's capital account at the end of an        
"allocation period," after giving effect to allocations other than the Incentive
Allocation, but before giving effect to any distributions and repurchases of    
interests by the Fund or debits to such capital account to reflect any item     
(other than management fees) not chargeable ratably to all Investors, over the  
balance of the Investor's capital account at the start of such "allocation      
period." Consequently, any Incentive Allocation to be credited to the Manager   
will be increased by a portion of the amount of any net unrealized appreciation,
as well as net realized gains, allocable to an Investor.                        

An Incentive Allocation will be charged only with respect to any "allocated     
gain" in excess of the positive balance of a "loss recovery account" maintained 
for each Investor. A "loss recovery account" is a memorandum account maintained 
by the Fund for each Investor, which has an initial balance of zero and is (1)  
increased after the close of each "allocation period" by the amount of any      
negative performance for such Investor during such "allocation period," and (2) 
decreased (but not below zero) after the close of each "allocation period" by   
the amount of any allocated gain for such Investor during such "allocation      
period." Any positive balance in an Investor's "loss recovery account" would be 
reduced as the result of a repurchase or certain transfers with respect to the  
Investor's interest in the Fund in proportion to the reduction of the Investor's
capital account attributable to the repurchase or transfer.                     

An "allocation period" as to each Investor is a period commencing on the        
admission of such Investor to the Fund and ending at the close of business on   
the first to occur of (1) the last day of the twelfth complete calendar month   
since the admission of such Investor to the Fund, (2) the last day of a fiscal  
year subsequent to an Investor having been admitted to the Fund for 12 complete 
calendar months, and the last day of each fiscal year thereafter, (3) the day as
of which the Fund repurchases any interest or portion of an interest of such    
Investor, (4) the day as of which the Fund admits as a substitute Investor a    
person to whom the interest or portion of the interest of such Investor has been
transferred, (5) the day as of which the authority of the Manager to provide    
Advice and Management is terminated, (6) the day preceding any day as of which  
such Investor becomes a Special Investor (as defined below), or (7) the day on  
which such Investor ceases to be a Special Investor. The measurement of any     
Incentive Allocation for an "allocation period" must take into account any      
negative performance from a prior allocation period to the extent reflected in  
the "loss recovery account." Therefore, the Incentive Allocation for any        
allocation period after the initial 12-month period in effect is a reflection of
the extent to which cumulative performance achieved with respect to an          
Investor's account since such Investor's admission to the Fund exceeds the      
highest previous level of performance achieved through the close of any prior   
allocation period.                                                              

Within 30 days after the close of each allocation period with respect to each   
Investor, and subject to certain limitations, the Manager may withdraw up to    
100% of the Incentive Allocation, computed on the basis of unaudited data, that 
was credited to the Manager's capital account and debited from the Investor's   
capital account with respect to such allocation period. The Fund will pay any   
balance, subject to audit adjustments, within 30 days after the completion of   
the audit of the Fund's books.                                                  

The Manager, in its sole discretion, may reduce the Incentive Allocation for any
Investor whose Invested Capital (as the term is defined in the LLC Agreement)   
equals or exceeds $10,000,000 to a percentage agreed upon between the Manager   
and the Investor, and may reduce or waive the Incentive Allocation for Investors
who are key employees or directors of the Manager and its affiliates, and       
members of their immediate families, and attorneys or other professional        
advisors engaged on behalf of the Fund, and members of their immediate families 
(collectively, "Special Investors").                                            

ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES   

Withholding taxes or other tax obligations incurred by the Fund which are       
attributable to any Investor will be debited against the capital account of such
Investor as of the close of the fiscal period during which the Fund paid such   
obligation, and any amounts then or thereafter distributable to such Investor   
will be reduced by the amount of such taxes. If the amount of such taxes is     
greater than any such distributable amounts, the Investor and any successor to  
the Investor's interest is required to pay to the Fund, upon demand of the Fund,
the amount of such excess.                                                      

RESERVES                                                                        

Appropriate reserves may be created, accrued and charged against net assets for 
contingent liabilities as of the date any such contingent liabilities become    
known to the Manager or the Board. Reserves will be in such amounts, subject to 
increase or reduction, which the Board or the Manager may deem necessary or     
appropriate. The amount of any reserve, or any increase or decrease therein,    
will be proportionately charged or credited, as appropriate, to the capital     
accounts of those investors who are Investors at the time when such reserve is  
created, increased or decreased, as the case may be; provided, however, that if 
any such reserve, or any increase or decrease therein, exceeds the lesser of    
$500,000 or 1% of the aggregate value of the capital accounts of all such       
Investors, the amount of such reserve, increase, or decrease shall instead be   
charged or credited to those investors who, as determined by the Board, were    
Investors at the time of the act or omission giving rise to the contingent      
liability for which the reserve was established, increased or decreased in      
proportion to their capital accounts at that time.                              

NET ASSET VALUATION                                                             

Net asset value of the Fund will be determined by or at the direction of the    
Manager as of the close of business at the end of any fiscal period in          
accordance with the valuation principles set forth below or as may be determined
from time to time pursuant to policies established by the Directors.            

Securities for which market quotations are not readily available, which may be a
substantial portion of the portfolio, will be valued at fair value as determined
in good faith by, or under the supervision of, the Directors. Domestic exchange 
traded securities and securities included in the Nasdaq National Market System  
will be valued at their last composite sale prices as reported on the exchanges 
where such securities are traded. If no sales of such securities are reported on
a particular day, the securities will be valued based upon their composite bid  
prices for securities held long, or their composite ask prices for securities   
held short, as reported by such exchanges. Securities traded on a foreign       
securities exchange will be valued at their last sale prices on the exchange    
where such securities are primarily traded, or in the absence of a reported sale
on a particular day, at their bid prices, in the case of securities held long,  
or ask prices, in the case of securities held short, as reported by such        
exchange. Listed options will be valued using last sales prices as reported by  
the exchange with the highest reported daily volume for such options or, in the 
absence of any sales on a particular day, at their bid prices as reported by the
exchange with the highest volume on the last day a trade was reported. Other    
securities for which market quotations are readily available will be valued at  
their bid prices, or ask prices in the case of securities held short, as        
obtained from one or more dealers making markets for such securities.           

Debt securities will be valued in accordance with the procedures described      
above, which with respect to such securities may include the use of valuations  
furnished by a pricing service which employs a matrix to determine valuations   
for normal institutional size trading units. The Directors will monitor         
periodically the reasonableness of valuations provided by any such pricing      
service. Debt securities with remaining maturities of 60 days or less, absent   
unusual circumstances, will be valued at amortized cost, so long as such        
valuation is determined by the Directors to represent fair value.               

All assets and liabilities initially expressed in foreign currencies will be    
converted into U.S. dollars using foreign exchange rates provided by a pricing  
service compiled as of 4:00 p.m. London time. Trading in foreign securities     
generally is completed, and the values of such securities are determined, prior 
to the close of securities markets in the U.S. Foreign exchange rates are also  
determined prior to such close. On occasion, the values of securities and       
exchange rates may be affected by events occurring between the time as of which 
determination of such values or exchange rates are made and the time as of which
the net asset value of the Fund is determined. When such events materially      
affect the values of securities held by the Fund or its liabilities, such       
securities and liabilities may be valued at fair value as determined in good    
faith by, or under the supervision of, the Directors.                           

Prospective investors should be aware that situations involving uncertainties as
to the valuation of portfolio positions could have an adverse effect on the     
Fund's net assets if the Directors' judgments regarding appropriate valuations  
should prove incorrect.                                                         

APPLICATION FOR INTERESTS                                                       

APPLICATION TERMS                                                               

Both initial and additional applications for interests in the Fund may be       
accepted from eligible investors (as described below) at such times as the      
Manager may determine on the terms set forth below. The Fund may, in its        
discretion, suspend the offering of interests at any time or permit applications
on a more frequent basis. The Fund reserves the right to reject any application 
for interests in the Fund. After the initial closing, initial applications and  
additional capital contributions will generally be accepted monthly. Generally, 
the minimum required initial contribution to the capital of the Fund from each  
investor is $250,000. For employees or directors of the Manager and its         
affiliates, and members of their immediate families, and, in the sole discretion
of the Manager, attorneys or other professional advisors engaged on behalf of   
the Fund, and members of their immediate families, the minimum required initial 
contribution to the capital of the Fund is $25,000. The Fund may vary the       
investment minimums from time to time. Investors may be charged a placement fee.
See "FEES AND EXPENSES--Placement Fee." The initial closing date for            
applications for interests in the Fund is April 1, 2000. The Fund, in its sole  
discretion, may accelerate or postpone the closing date. In addition, because   
the Fund may generate UBTI, charitable remainder trusts may not want to purchase
interests in the Fund because a charitable remainder trust will not be exempt   
from Federal income tax under Section 664(c) of the Code for any year in which  
it has UBTI. Prospective investors that are charitable remainder trusts will be 
required to make certain representations contained in a supplemental certificate
to be provided. See "TAX ASPECTS--Unrelated Business Taxable Income."           

Except as otherwise permitted by the Fund, initial and any additional           
contributions to the capital of the Fund by any Investor will be payable in     
cash, and all contributions must be transmitted by such time and in such manner 
as is specified in the application of the Fund. Initial and any additional      
contributions to the capital of the Fund will be payable in one installment and 
will be due before the proposed acceptance of the contribution, although the    
Fund may accept, in its discretion, an application before its receipt of cleared
funds.                                                                          

Each new Investor will be obligated to agree to be bound by all of the terms of 
the LLC Agreement. Each potential investor also will be obligated to represent  
and warrant in the application, among other things, that such investor is       
purchasing an interest for its own account, and not with a view to the          
distribution, assignment, transfer or other disposition of such interest.       

If and when the Fund determines to accept securities as a contribution to the   
capital of the Fund, the Fund will charge each Investor making such contribution
an amount determined by the Directors and not exceeding 2% of the value of such 
contribution in order to reimburse the Fund for any costs it incurs in          
liquidating and accepting such securities. Any such charge will be due and      
payable by the contributing Investor in full at the time the contribution to the
capital of the Fund to which such charge relates is due.                        

ELIGIBLE INVESTORS                                                              

Each prospective Investor will be required to certify that the interest being   
purchased is being acquired directly or indirectly for the account of an        
"accredited investor" as defined in Regulation D under the 1933 Act, and that   
such Investor, as well as each of the Investor's equity owners under certain    
circumstances, (i) immediately after the time of purchase, has at least $750,000
under the discretionary investment management of PW Group and its affiliates or 
subsidiaries, (ii) at the time of purchase, has a net worth of more than $1.5   
million, or (iii) at the time of purchase, is a "qualified purchaser" as defined
in Section 2(a)(51)(A) of the 1940 Act (a "Qualified Purchaser"). Existing      
Investors who purchase additional interests in the Fund and transferees of      
interests in the Fund may be required to represent that they meet the foregoing 
eligibility criterion at the time of the additional purchase. The relevant      
Investor qualifications will be set forth in an application to be provided to   
prospective Investors, which must be completed by each prospective Investor.    

REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS                             

NO RIGHT OF REDEMPTION                                                          

No Investor or other person holding an interest or a portion of an interest will
have the right to require the Fund to redeem the interest or portion thereof. No
public market exists for interests in the Fund, and none is expected to develop.
Consequently, Investors may not be able to liquidate their investment other than
as a result of repurchases of interests by the Fund, as described below.        

REPURCHASES OF INTERESTS                                                        

The Fund from time to time may offer to repurchase interests pursuant to written
tenders by Investors. These repurchases will be made at such times and on such  
terms as may be determined by the Board, in its complete and exclusive          
discretion. In determining whether the Fund should repurchase interests or      
portions thereof from Investors pursuant to written tenders, the Board will     
consider the recommendation of the Manager. The Manager expects that generally, 
beginning in 2001, it will recommend to the Board that the Fund offer to        
repurchase interests from Investors twice that year, in June and December, and  
then once each year thereafter, near year-end. The Directors also will consider 
the following factors, among others, in making such determination:              

   o    whether any Investors have requested to tender interests or portions
thereof to the Fund;                                        

o    the liquidity of the Fund's assets;                              

 o    the investment plans and working capital requirements of the Fund;

    o    the relative economies of scale with respect to the size of the Fund;

     o    the history of the Fund in repurchasing interests or portions thereof;

o    the condition of the securities markets; and                     

o    the anticipated tax consequences of any proposed repurchases of  
interests or portions thereof.                              

The Board will determine that the Fund repurchase interests or portions thereof 
from Investors pursuant to written tenders only on terms they determine to be   
fair to the Fund and to all Investors or persons holding interests acquired from
Investors, as applicable. When the Board determines that the Fund will          
repurchase interests in the Fund or portions thereof, notice will be provided to
each Investor describing the terms thereof, and containing information Investors
should consider in deciding whether and how to participate in such repurchase   
opportunity. Investors who are deciding whether to tender their interests or    
portions thereof during the period that a repurchase offer is open may ascertain
an estimated net asset value of their interest in the Fund from the Manager     
during such period.                                                             

The LLC Agreement provides that the Fund shall be dissolved if the interest of  
any Investor that has submitted a written request to tender its entire interest 
for repurchase by the Fund has not been repurchased within a period of two years
of such request.                                                                

Repurchases of interests or portions thereof from Investors by the Fund may be  
made, in the discretion of the Board, in part or in whole for cash or for       
securities of equivalent value and will be effective after receipt by the Fund  
of all eligible written tenders of interests or portions thereof from Investors.
The amount due to any Investor whose interest or portion thereof is repurchased 
will be equal to the value of the Investor's capital account or portion thereof 
based on the net asset value of the Fund's assets as of the effective date of   
repurchase, after giving effect to all allocations to be made to the Investor's 
capital account (including the Incentive Allocation) as of such date. Payment of
the purchase price pursuant to a tender of interests will consist of, first,    
cash and/or securities valued at net asset value in accordance with the LLC     
Agreement and distributed to tendering Investors on a PARI PASSU basis, in an   
aggregate amount equal to at least 95% of the estimated unaudited net asset     
value of the interests tendered, determined as of the expiration date of the    
tender offer (the "expiration date"). Payment of such amount will be made       
promptly after the expiration date (the "cash payment"). Generally, payment     
pursuant to such a tender also will consist of a promissory note that, without  
approval by the Board, will bear no interest and is not transferable (the       
"note") entitling the holder thereof to a contingent payment equal to the       
excess, if any, of (a) the net asset value of the interests tendered as of the  
expiration date, determined based on the audited financial statements of the    
Fund, over (b) the cash payment. The note would be delivered to the tendering   
Investor promptly after the expiration date and would be payable in cash        
promptly after completion of the audit of the financial statements of the Fund  
or at such earlier date as the Board may determine. The audit of the Fund's     
financial statements is expected to be completed within 60 days after the end of
each year. The Fund does not impose any charges on a repurchase of interests or 
portion of interests in the Fund.                                               

The Fund intends to maintain daily a segregated account containing permissible  
liquid assets in an amount equal to the aggregate amount of the notes. Payment  
for repurchased interests may require the Fund to liquidate portfolio holdings  
earlier than the Manager otherwise would liquidate such holdings, potentially   
resulting in losses, and may increase the Fund's portfolio turnover. The Manager
intends to take measures to attempt to avoid or minimize such potential losses  
and turnover, and instead of liquidating portfolio holdings, may borrow money to
finance repurchases of interests.                                               

The Fund may repurchase an interest in the Fund or portion of an interest of an 
Investor or any person acquiring an interest or portion thereof from or through 
an Investor if:                                                                 

  o    such an interest or portion thereof has been transferred or such an
        interest or portion thereof has vested in any person by operation of
law as the result of the death, dissolution, bankruptcy or  
incompetency of an Investor;                                

o    ownership of such an interest by an Investor or other person will
        cause the Fund to be in violation of, or require registration of any
        interest or portion thereof under, or subject the Fund to additional
          registration or regulation under, the securities, commodities or other
 laws of the United States or any other relevant jurisdiction;

     o    continued ownership of such an interest may be harmful or injurious to
         the business or reputation of the Fund or the Manager, or may subject
      the Fund or any Investors to an undue risk of adverse tax or other
fiscal consequences;                                        

o    any of the representations and warranties made by an Investor in 
         connection with the acquisition of an interest in the Fund or portion
thereof was not true when made or has ceased to be true; or 

  o    it would be in the best interests of the Fund, as determined by the
   Manager, for the Fund to repurchase such an interest or portion
thereof.                                                    

TRANSFERS OF INTERESTS                                                          

No person may become a substituted Investor without the written consent of the  
Manager, which consent may be withheld for any reason in the Manager's sole and 
absolute discretion. Investor interests may be transferred only (i) by operation
of law pursuant to the death, bankruptcy, insolvency or dissolution of an       
Investor or (ii) with the written consent of the Manager, which may be withheld 
in its sole and absolute discretion and is expected to be granted, if at all,   
only in limited circumstances. Notice to the Fund of any proposed transfer must 
include evidence satisfactory to the Fund that the proposed transfer is exempt  
from registration under the 1933 Act, that the proposed transferee meets any    
requirements imposed by the Fund with respect to investor eligibility and       
suitability, including the requirement that any investor, or investor's equity  
owners in certain circumstances, (i) immediately after the time of purchase, has
at least $750,000 under the discretionary investment management of PW Group and 
its affiliates or subsidiaries, (ii) at the time of purchase, has a net worth of
more than $1.5 million, or (iii) at the time of purchase, is a Qualified        
Purchaser, and must be accompanied by a properly completed application. In      
addition to the foregoing, no Investor will be permitted to transfer an interest
or portion thereof unless after such transfer the balance of the capital account
of the transferee, and any Investor transferring less than its entire interest, 
is at least equal to the amount of the Investor's initial capital contribution. 

Any transferee meeting the eligibility requirements that acquires an interest or
portion thereof in the Fund by operation of law as the result of the death,     
dissolution, bankruptcy or incompetency of an Investor or otherwise, will be    
entitled to the allocations and distributions allocable to the interest so      
acquired and to transfer such interest in accordance with the terms of the LLC  
Agreement, but will not be entitled to the other rights of an Investor unless   
and until such transferee becomes a substituted Investor as provided in the LLC 
Agreement. If an Investor transfers an interest or portion thereof with the     
approval of the Manager, under the policies established by the Board, the Fund  
will promptly take all necessary actions to admit such transferee or successor  
to the Fund as an Investor. Each Investor and transferee is required to pay all 
expenses, including attorneys' and accountants' fees, incurred by the Fund in   
connection with such transfer. If such a transferee does not meet the investor  
eligibility requirements, the Fund reserves the right to redeem its interest.   

By purchasing an interest in the Fund, each Investor has agreed to indemnify and
hold harmless the Fund, the Directors, the Manager, each other Investor and any 
affiliate of the foregoing against all losses, claims, damages, liabilities,    
costs and expenses, including legal or other expenses incurred in investigating 
or defending against any such losses, claims, damages, liabilities, costs and   
expenses or any judgments, fines and amounts paid in settlement, joint or       
several, to which such persons may become subject by reason of or arising from  
any transfer made by such Investor in violation of these provisions or any      
misrepresentation made by such Investor in connection with any such transfer.   

TAX ASPECTS                                                                     

The following is a summary of certain aspects of the income taxation of the Fund
and its Investors which should be considered by a prospective Investor. The Fund
has not sought a ruling from the Internal Revenue Service (the "Service") or any
other Federal, state or local agency with respect to any of the tax issues      
affecting the Fund, nor has it obtained an opinion of counsel with respect to   
any tax issues other than the characterization of the Fund as a partnership     
which is not a "publicly traded partnership" for Federal income tax purposes.   

This summary of certain aspects of the Federal income tax treatment of the Fund 
is based upon the Code, judicial decisions, Treasury Regulations (the           
"Regulations") and rulings in existence on the date hereof, all of which are    
subject to change (possibly with retroactive effect). Except as otherwise noted 
below, this summary does not discuss the impact of various proposals to amend   
the Code which could change certain of the tax consequences of an investment in 
the Fund. This summary also does not discuss all of the tax consequences that   
may be relevant to a particular investor, to investors that acquire interests in
the Fund other than for cash or to certain investors subject to special         
treatment under the Federal income tax laws, such as insurance companies.       

EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISER IN ORDER FULLY
TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES OF  
AN INVESTMENT IN THE FUND.                                                      

In addition to the particular matters set forth in this section, tax-exempt     
organizations should review carefully those sections of this Memorandum         
regarding liquidity and other financial matters to ascertain whether the        
investment objective of the Fund is consistent with their overall investment    
plans. Each prospective tax-exempt Investor is urged to consult its own counsel 
regarding the acquisition of interests in the Fund.                             

TAX TREATMENT OF FUND OPERATIONS                                                

CLASSIFICATION OF THE FUND. The Fund has received an opinion of Stroock &       
Stroock & Lavan LLP, counsel to the Fund, that under the provisions of the Code 
and the Regulations, as in effect on the date of the opinion, the Fund will be  
treated as a partnership for Federal income tax purposes and not as an          
association taxable as a corporation.                                           

Under Section 7704 of the Code, "publicly traded partnerships" are generally    
treated as corporations for Federal income tax purposes. A publicly traded      
partnership is any partnership the interests in which are traded on an          
established securities market or which are readily tradable on a secondary      
market, or the substantial equivalent thereof. Interests in the Fund will not be
traded on an established securities market. Regulations concerning the          
classification of partnerships as publicly traded partnerships provide certain  
safe harbors under which interests in a partnership will not be considered      
readily tradable on a secondary market, or the substantial equivalent thereof.  
The Fund will not be eligible for any of those safe harbors. In particular, it  
will not qualify under the private placement safe harbor set forth in the       
Regulations if, as is anticipated, the Fund has more than 100 Investors.        

The Regulations specifically provide that the fact that a partnership does not  
qualify for the safe harbors is disregarded for purposes of determining whether 
interests in a partnership are readily tradable on a secondary market, or the   
substantial equivalent thereof. Rather, in this event the partnership's status  
is examined under a general facts and circumstances test set forth in the       
Regulations. Counsel to the Fund has rendered its opinion that, under this      
"facts and circumstances" test, and based upon the anticipated operations of the
Fund as well as the legislative history to Section 7704 and the text of the     
Regulations, interests in the Fund will not be readily tradable on a secondary  
market, or the substantial equivalent thereof, and, therefore, the Fund will not
be treated as a publicly traded partnership taxable as a corporation.           

Neither of the opinions of counsel described above, however, is binding on the  
Service or the courts. If it were determined that the Fund should be treated as 
an association or a publicly traded partnership taxable as a corporation for    
Federal income tax purposes, as a result of a successful challenge to such      
opinions by the Service, changes in the Code, the Regulations or judicial       
interpretations thereof, a material adverse change in facts, or otherwise, the  
taxable income of the Fund would be subject to corporate income tax when        
recognized by the Fund; distributions of such income, other than in certain     
redemptions of Fund interests, would be treated as dividend income when received
by Investors to the extent of the Fund's current or accumulated earnings and    
profits; and Investors would not be entitled to report profits or losses        
realized by the Fund.                                                           

As an entity that is properly classified as a partnership, the Fund is not      
itself subject to Federal income tax. For income tax purposes, each Investor    
will be treated as a partner of the Fund and, as such, will be taxed upon its   
distributive share of each item of the Fund's income, gain, loss and deductions 
for each taxable year of the Fund ending with or within the Investor's taxable  
year. Each item will have the same character to an Investor, and will generally 
have the same source (either United States or foreign), as though the Investor  
realized the item directly. Investors must report these items regardless of the 
extent to which, or whether, the Fund or Investors receive cash distributions   
for such taxable year, and thus may incur income tax liabilities unrelated to   
any distributions to or from the Fund.                                          

ALLOCATION OF PROFITS AND LOSSES. Under the LLC Agreement, the Fund's net       
capital appreciation or net capital depreciation for each fiscal period is      
allocated among the Investors and to their capital accounts without regard to   
the amount of income or loss actually recognized by the Fund for Federal income 
tax purposes. The LLC Agreement provides that items of income, deduction, gain, 
loss or credit actually recognized by the Fund for each fiscal year generally   
are to be allocated for income tax purposes among the Investors pursuant to     
Regulations issued under Sections 704(b) and 704(c) of the Code, based upon     
amounts of the Fund's net capital appreciation or net capital depreciation      
allocated to each Investor's capital account for the current and prior fiscal   
years.                                                                          

Under the LLC Agreement, the Manager has the discretion to allocate specially an
amount of the Fund's net capital gains, including short-term capital gain, for  
Federal income tax purposes to a withdrawing Investor to the extent that the    
Investor's capital account exceeds its Federal income tax basis in its interest 
in the Fund. There can be no assurance that, if the Manager makes such a special
allocation, the Service will accept such allocation. If such allocation is      
successfully challenged by the Service, the Fund's gains allocable to the       
remaining Investors would be increased.                                         

An Investor admitted to the Fund other than as of January 1 of a fiscal year    
will be allocated its distributive share of the Fund's tax items at the end of  
such fiscal year based on its pro rata share of the Fund's capital. Such        
allocation does not account for the possibility of a subsequent reallocation in 
the following year to the Manager in respect of the initial Incentive           
Allocation. The Manager, in its discretion, may attempt to minimize any negative
tax consequences which may result to an Investor from the foregoing, including  
by utilizing special allocations of the Fund's tax items. However, there is no  
assurance that any such attempt will successfully minimize any negative tax     
consequence resulting to an Investor from the initial Incentive Allocation.     

TAX ELECTIONS; RETURNS; TAX AUDITS. The Code provides for optional adjustments  
to the basis of partnership property upon distributions of partnership property 
to a partner and transfers of partnership interests, including by reason of     
death, provided that a partnership election has been made pursuant to Section   
754. Under the LLC Agreement, at the request of an Investor, the Manager, in its
sole discretion, may cause the Fund to make such an election. Any such election,
once made, cannot be revoked without the Service's consent. As a result of the  
complexity and added expense of the tax accounting required to implement such an
election, the Manager does not presently intend to make such election.          

The Manager decides how to report the Fund's tax items on the Fund's tax        
returns, and all Investors are required under the Code to treat the items       
consistently on their own returns, unless they file a statement with the Service
disclosing the inconsistency. In the event the income tax returns of the Fund   
are audited by the Service, the tax treatment of the Fund's income and          
deductions generally is determined at the Fund level in a single proceeding     
rather than by individual audits of the Investors. The Manager is designated as 
the Fund's "Tax Matters Partner" in the LLC Agreement. As such, it has          
considerable authority to make decisions affecting the tax treatment and        
procedural rights of all Investors. In addition, the Tax Matters Partner has the
authority to bind certain Investors to settlement agreements and the right on   
behalf of all Investors to extend the statute of limitations relating to the    
Investors' tax liabilities with respect to the Fund's tax items.                

TAX CONSEQUENCES TO A WITHDRAWING INVESTOR                                      

An Investor receiving a cash liquidating distribution from the Fund, in         
connection with a complete withdrawal from the Fund generally will recognize    
capital gain or loss to the extent of the difference between the proceeds       
received by such Investor and such Investor's adjusted tax basis in its interest
in the Fund. Such capital gain or loss will be short-term or long-term depending
upon the Investor's holding period for its interest in the Fund. However, a     
withdrawing Investor will recognize ordinary income to the extent such          
Investor's allocable share of the Fund's "unrealized receivables" exceeds the   
Investor's basis in such unrealized receivables, as determined pursuant to the  
Regulations. For these purposes, accrued but untaxed market discount, if any, on
securities held by the Fund will be treated as an unrealized receivable with    
respect to the withdrawing Investor. See "Tax Treatment of Fund                 
Investments--Obligations with Market Discount." An Investor receiving a cash    
nonliquidating distribution will recognize income in a similar manner only to   
the extent that the amount of the distribution exceeds such Investor's adjusted 
tax basis in its interest in the Fund.                                          

As discussed above, the LLC Agreement provides that the Manager may specially   
allocate items of Fund capital gain, including short-term capital gain, to a    
withdrawing Investor to the extent its liquidating distribution would otherwise 
exceed its adjusted tax basis in its Fund interest. Such a special allocation   
may result in the withdrawing Investor recognizing capital gain, which may      
include short-term gain, in the Investor's last taxable year in the Fund,       
thereby reducing the amount of long-term capital gain recognized during the     
taxable year in which it receives its liquidating distribution upon withdrawal. 

DISTRIBUTION OF PROPERTY                                                        

A partner's receipt of a distribution of property from a partnership is         
generally not taxable. However, under Section 731 of the Code, a distribution   
consisting of marketable securities generally is treated as a distribution of   
cash (rather than property) unless the distributing partnership is an           
"investment partnership" within the meaning of Section 731(c)(3)(C)(i) and the  
recipient is an "eligible partner" within the meaning of Section                
731(c)(3)(C)(iii). The Fund will determine at the appropriate time whether it   
qualifies as an "investment partnership." Assuming it so qualifies, if an       
Investor is an "eligible partner," which term should include an Investor whose  
contributions to the Fund consisted solely of cash, the recharacterization rule 
described above would not apply.                                                

TAX TREATMENT OF FUND INVESTMENTS                                               

IN GENERAL. The Fund expects to act as a trader or investor, and not as a       
dealer, with respect to its securities transactions. A trader and an investor   
are persons who buy and sell securities for their own accounts. A dealer, on the
other hand, is a person who purchases securities for resale to customers rather 
than for investment or speculation.                                             

Generally, the gains and losses realized by a trader or investor on the sale of 
securities are capital gains and losses. Thus, subject to the treatment of      
certain transactions described below, the Fund expects that its gains and losses
from its securities transactions typically will be capital gains and capital    
losses.                                                                         

These capital gains and losses may be long-term or short-term depending, in     
general, upon the length of time a particular investment position is maintained 
and, in some cases, upon the nature of the transaction. Property held for more  
than one year generally will be eligible for long-term capital gain or loss     
treatment. In certain circumstances, if the issuer of a security held by the    
Fund engages in a reorganization transaction, the Fund may be treated as        
disposing of the security in a taxable transaction at the time of the           
reorganization, depending on certain factors relating to the reorganization, the
nature of the security and the nature of the consideration received for the     
security in the reorganization. Accordingly, the timing of the Fund's           
dispositions of its securities may be affected by factors beyond its control.   
Further, the application of certain rules relating to short sales, to           
constructive sales, to so-called "straddle" and "wash sale" transactions and to 
"Section 1256 contracts" may serve to alter the manner in which the holding     
period for a security is determined or may otherwise affect the characterization
as long-term or short-term, and also the timing of the realization, of certain  
gains or losses. Moreover, the straddle rules and short sale rules may require  
the capitalization of certain related expenses.                                 

The maximum ordinary income tax rate for individuals is 39.6%, and the maximum  
individual income tax rate for long-term capital gains is 20%, unless the       
taxpayer elects to be taxed at ordinary rates, although in any case the actual  
rate may be higher due to the phase out of certain tax deductions and           
exemptions. See "Limitation on Deductibility of Interest" below. The excess of  
capital losses over capital gains may be offset against the ordinary income of  
an individual taxpayer, subject to an annual deduction limitation of $3,000. For
corporate taxpayers, the maximum income tax rate is 35%. Capital losses of a    
corporate taxpayer may be offset only against capital gains, but unused capital 
losses may be carried back three years, subject to certain limitations, and     
carried forward five years.                                                     

The Fund may realize ordinary income from accruals of interest and dividends on 
securities. Income or loss from transactions involving derivative instruments,  
such as swap transactions, entered into by the Fund also may constitute ordinary
income or loss. Moreover, gain recognized from certain "conversion transactions"
will be treated as ordinary income.1                                            

----------------------                                                          
1    Generally, a conversion transaction is one of several enumerated           
transactions where substantially all of the taxpayer's return is      
  attributable to the time value of the net investment in the transaction.
     The enumerated transactions are (i) the holding of any property, whether or
     not actively traded, and entering into a contract to sell such property, or
    substantially identical property, at a price determined in accordance with
     such contract, but only if such property was acquired and such contract was
entered into on a substantially contemporaneous basis, (ii) certain   
   straddles, (iii) generally any other transaction that is marketed or sold
    on the basis that it would have the economic characteristics of a loan but
   the interest-like return would be taxed as capital gain or (iv) any other
transaction specified in the Regulations.                             

OBLIGATIONS WITH ORIGINAL ISSUE DISCOUNT. In many circumstances, the Fund will  
invest in debt securities that are issued with OID. A debt instrument has OID if
the obligation's stated redemption price at maturity (which includes the        
principal amount of the obligation and, in certain cases, interest payable on   
the obligation) exceeds its issue price by more than a statutorily defined de   
minimis amount. OID is includible in gross income as ordinary income as it      
accrues under a prescribed constant-yield method. In general, OID will be       
includible in income in advance of the receipt of cash associated with that     
income. To the extent the Fund purchases a debt instrument that was issued with 
OID for a price that exceeds the instrument's adjusted issue price (such excess 
being "acquisition premium"), it may offset its OID income inclusions with the  
acquisition premium as it is deemed to accrue over the life of the debt         
instrument. It is unclear whether the Fund may reduce its OID income accruals   
with respect to a debt instrument if there is no reasonable expectation of      
collecting some or all of the cash associated with the OID income. The OID rules
do not provide for such an adjustment.                                          

OBLIGATIONS WITH MARKET DISCOUNT. In many circumstances, the Fund will acquire  
Market Discount Obligations. A debt security (excluding certain short-term      
obligations) generally will be treated as a Market Discount Obligation if its   
issue price exceeds the Fund's purchase price for the debt security by more than
a statutorily defined de minimis amount. Accrued market discount is includible  
in income as ordinary income in each month, but limited to an amount equal to   
the principal payments received that month on the obligation. Further, any gain 
upon the disposition of a Market Discount Obligation will be treated as ordinary
income to the extent of any accrued and previously untaxed accrued market       
discount. Subject to special rules which may apply to Market Discount           
Obligations that receive principal payments prior to maturity, market discount  
accrues on a straight-line basis or, if the Fund so elects, on a constant-yield 
basis, over the remaining life of the obligation.                               

A holder of a Market Discount Obligation may be required to defer a portion of  
the interest deductions attributable to any indebtedness incurred or continued  
to purchase or carry the Market Discount Obligation. Alternatively, the holder  
will be exempt from the interest deduction deferral rules if it elects to       
include market discount in gross income as it accrues, without regard to the    
timing of principal payments. The election to include market discount in income 
as it accrues applies to all Market Discount Obligations acquired during the    
year of the election and thereafter and may not be revoked without the consent  
of the Internal Revenue Service.                                                

SECTION 1256 CONTRACTS. In the case of "Section 1256 Contracts," the Code       
generally applies a "mark to market" system of taxing unrealized gains and      
losses on such contracts and otherwise provides for special rules of taxation.  
Under these rules, Section 1256 Contracts, which include certain options        
contracts, held at the end of each taxable year are treated for Federal income  
tax purposes as if they were sold by the holder for their fair market value on  
the last business day of such taxable year. The net gain or loss, if any,       
resulting from such deemed sales, known as "marking to market," together with   
any gain or loss resulting from actual sales of Section 1256 Contracts, must be 
taken into account by the holder in computing its taxable income for such year. 
If a Section 1256 Contract held at the end of a taxable year is sold in the     
following year, the amount of any gain or loss realized on such sale will be    
adjusted to reflect the gain or loss previously taken into account under the    
"mark to market" rules.                                                         

Capital gains and losses from such Section 1256 Contracts generally are         
characterized as short-term capital gains or losses to the extent of 40% thereof
and as long-term capital gains or losses to the extent of 60% thereof. Such     
gains and losses will be taxed under the general rules described above. If an   
individual taxpayer incurs a net capital loss for a year, the portion thereof,  
if any, which consists of a net loss on "Section 1256 Contracts" may, at the    
election of the taxpayer, be carried back three years. Losses so carried back   
may be deducted only against net capital gain to the extent that such gain      
includes gains on "Section 1256 Contracts."                                     

MIXED STRADDLE ELECTION. The Code allows a taxpayer to elect to offset gains and
losses from positions which are part of a "mixed straddle." A "mixed straddle"  
is any straddle in which one or more but not all positions are Section 1256     
Contracts.                                                                      

Pursuant to Temporary Regulations, the Fund may be eligible to elect to         
establish one or more mixed straddle accounts for certain of its mixed straddle 
trading positions. The mixed straddle account rules require a daily "marking to 
market" of all open positions in the account and a daily netting of gains and   
losses from positions in the account. At the end of a taxable year, the annual  
net gains or losses from the mixed straddle account are recognized for tax      
purposes. The application of the Temporary Regulations' mixed straddle account  
rules is not entirely clear. Therefore, there is no assurance that a mixed      
straddle account election by the Fund will be accepted by the Service.          

SHORT SALES. Gain or loss from a short sale of property is generally considered 
as capital gain or loss to the extent the property used to close the short sale 
constitutes a capital asset in the taxpayer's hands. Except with respect to     
certain situations where the property used to close a short sale has a long-term
holding period on the date of the short sale, special rules would generally     
treat the gains on short sales as short-term capital gains. Moreover, a loss on 
a short sale will be treated as a long-term capital loss if, on the date of the 
short sale, "substantially identical property" has been held by the taxpayer for
more than one year. These rules may also terminate the running of the holding   
period of "substantially identical property" held by the taxpayer.              

Gain or loss on a short sale will generally not be realized until such time that
the short sale is closed. However, if the Fund holds a short sale position with 
respect to stock, certain debt obligations or partnership interests that has    
appreciated in value and then acquires property that is the same as or          
substantially identical to the underlying property, the Fund generally will     
recognize gain on the date it acquires such property as if the short sale were  
closed on such date with such property. Similarly, if the Fund holds an         
appreciated financial position with respect to stock, certain debt obligations  
or partnership interests and then enters into a short sale with respect to the  
same or substantially identical property, the Fund generally will recognize gain
as if the appreciated financial position were sold at its fair market value on  
the date it enters into the short sale. The subsequent holding period for any   
appreciated financial position that is subject to the constructive sale rules   
will be determined as if such position were acquired on the date of the         
constructive sale.                                                              

EFFECT OF STRADDLE RULES ON INVESTORS' SECURITIES POSITIONS. The Service may    
treat certain positions in securities held, directly or indirectly, by an       
Investor and its indirect interest in similar securities held by the Fund as    
"straddles" for Federal income tax purposes. The application of the "straddle"  
rules in such a case could affect an Investor's holding period for the          
securities involved and may defer the recognition of losses with respect to such
securities.                                                                     

MODIFICATIONS AND REORGANIZATION EXCHANGES OF DEBT SECURITIES. To the extent    
there is a "substantial modification" of a debt security held by the Fund,      
pursuant to a workout or otherwise, the Fund will be treated as exchanging the  
pre-modification debt security for a new debt security having the terms of the  
modified security. The Fund generally will be required to recognize gain or loss
upon the deemed exchange equal to the difference between the issue price of the 
post-modification instrument and the Fund's basis in the pre-modification debt  
security. Further, in certain circumstances, if the issuer of a security held by
the Fund engages in a reorganization transaction, the Fund may be treated as    
disposing of the security in a taxable transaction at the time of the           
reorganization, depending on certain factors relating to the reorganization, the
nature of the security and the nature of the consideration received for the     
security in the reorganization. At the time of either a taxable deemed exchange 
upon modification of a debt security or a taxable exchange of a debt security   
pursuant to a reorganization of the issuer of such security, however, the Fund  
will not have any cash receipts associated with any gains recognized upon the   
deemed exchange or reorganization exchange. Each Investor will be required to   
pay all applicable Federal and state income taxes with respect to its share of  
any such gains even though, as described above, the Fund does not intend to make
periodic distributions of its net income or gains, if any, to Investors for such
purpose.                                                                        

LIMITATION ON DEDUCTIBILITY OF INTEREST. For noncorporate taxpayers, Section    
163(d) of the Code limits the deduction for "investment interest" (i.e.,        
interest or short sale expenses for "indebtedness properly allocable to property
held for investment"). Investment interest is not deductible in the current year
to the extent that it exceeds the taxpayer's "net investment income," consisting
of net gain and ordinary income derived from investments in the current year    
less certain directly connected expenses (other than interest or short sale     
expenses). For this purpose, any long-term capital gain is excluded from net    
investment income unless the taxpayer elects to pay tax on such amount at       
ordinary income tax rates.                                                      

For purposes of this provision, the Fund's activities will be treated as giving 
rise to investment income for an Investor, and the investment interest          
limitation would apply to a noncorporate Investor's share of the interest and   
short sale expenses attributable to the Fund's operation. In such case, a       
noncorporate Investor would be denied a deduction for all or part of that       
portion of its distributive share of the Fund's ordinary losses attributable to 
interest and short sale expenses unless it had sufficient investment income from
all sources including the Fund. An Investor that could not deduct losses        
currently as a result of the application of Section 163(d) would be entitled to 
carry forward such losses to future years, subject to the same limitation. The  
investment interest limitation would also apply to interest paid by a           
noncorporate Investor on money borrowed to finance its investment in the Fund.  
Potential Investors are advised to consult with their own tax advisers with     
respect to the application of the investment interest limitation in their       
particular tax situations. As indicated earlier, under "Tax Treatment of Fund   
Investments--Obligations with Market Discount," limitations also may apply with 
respect to interest deductions on indebtedness of the Fund that is incurred or  
continued to purchase or carry a Market Discount Obligation.                    

DEDUCTIBILITY OF FUND INVESTMENT EXPENDITURES BY NONCORPORATE INVESTORS.        
Investment expenses (e.g., investment advisory fees) of an individual, trust or 
estate are deductible only to the extent that such expenses exceed 2% of        
adjusted gross income.2 Further, in the case of an Investor that is a           
partnership having 100 or more partners and which has elected to be treated as  
an "electing large partnership," 70% of such deductions will be disallowed,     
although the remaining deductions generally will be allowed at the partnership  
level and will not be subject to the 2% floor that would otherwise be applicable
to individual Investors. In addition, the Code further restricts the ability of 
an individual with an adjusted gross income in excess of a specified amount, for
2000, $128,950 or $64,475 for a married person filing a separate return, to     
deduct such investment expenses. Under such provision, investment expenses in   
excess of 2% of adjusted gross income may only be deducted to the extent such   
excess expenses, along with certain other itemized deductions, exceed the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the      
specified amount or (ii) 80% of the amount of certain itemized deductions       
otherwise allowable for the taxable year. Moreover, such investment expenses are
miscellaneous itemized deductions which are not deductible by a noncorporate    
taxpayer in calculating its alternative minimum tax liability.                  

------------------                                                              
2    However, Section 67(e) of the Code provides that, in the case of a trust or
    an estate, such limitation does not apply to deductions or costs which are
 paid or incurred in connection with the administration of the estate or
 trust and would not have been incurred if the property were not held in
   such trust or estate. The Federal Court of Appeals for the Sixth Circuit,
    reversing a Tax Court decision, has held that the investment advisory fees
     incurred by a trust were exempt under Section 67(e) from the 2% of adjusted
    gross income floor on deductibility. The Service, however, has stated that
  it will not follow this decision outside of the Sixth Circuit. Investors
that are trusts or estates should consult their tax advisers as to the
     applicability of this case to the investment expenses that are allocated to
them.                                                                 

Although the Fund intends to treat the trade or business related expenses and   
any incentive-based allocations as not being subject to the foregoing           
limitations on deductibility, there can be no assurance that the Service will   
not treat such items as investment expenses which are subject to the            
limitations.                                                                    

The consequences of these limitations will vary depending upon the particular   
tax situation of each taxpayer. Accordingly, noncorporate Investors should      
consult their tax advisers with respect to the application of these limitations.

APPLICATION OF RULES FOR INCOME AND LOSSES FROM PASSIVE ACTIVITIES. The Code    
restricts the deductibility of losses from a "passive activity" against certain 
income which is not derived from a passive activity. This restriction applies to
individuals, personal service corporations and certain closely held             
corporations. Pursuant to Temporary Regulations issued by the Treasury          
Department, income or loss from the Fund's securities trading activity generally
will not constitute income or loss from a passive activity. Therefore, passive  
losses from other sources generally could not be deducted against an Investor's 
share of income and gain from the Fund. Income or loss attributable to          
investments in partnerships engaged in a trade or business may constitute       
passive activity income or loss.                                                

"PHANTOM INCOME" FROM CERTAIN FOREIGN EQUITY INVESTMENTS. Pursuant to various   
"anti-deferral" provisions of the Code (the "Subpart F," "passive foreign       
investment company" and "foreign personal holding company" provisions),         
investments, if any, by the Fund in certain foreign corporations may cause an   
Investor to (i) recognize taxable income prior to the Fund's receipt of         
distributable proceeds, (ii) pay an interest charge on receipts that are deemed 
as having been deferred or (iii) recognize ordinary income that, but for the    
"anti-deferral" provisions, would have been treated as capital gain.            

FOREIGN TAXES                                                                   

It is possible that certain dividends and interest received from sources within 
foreign countries will be subject to withholding taxes imposed by such          
countries. In addition, some foreign countries may impose capital gains taxes on
certain securities transactions involving foreign issuers. Tax treaties between 
certain countries and the United States may reduce or eliminate such taxes.     

The Fund will inform Investors of their proportionate share of the foreign taxes
paid or incurred by the Fund that Investors will be required to include in their
income. The Investors generally will be entitled to claim either a credit       
(subject, however, to various limitations on foreign tax credits), or, if they  
itemize their deductions, a deduction (subject to the limitations generally     
applicable to deductions) for their share of such foreign taxes in computing    
their Federal income taxes. An Investor that is tax exempt will not ordinarily  
benefit from such credit or deduction.                                          

UNRELATED BUSINESS TAXABLE INCOME                                               

Generally, an exempt organization (such as an employee benefit plan, Individual 
Retirement Account or 401(k) or Keogh Plan) is exempt from Federal income tax on
its passive investment income, such as dividends, interest and capital gains,   
whether realized by the organization directly or indirectly through a           
partnership in which it is an investor.3 This general exemption from tax does   
not apply to the UBTI of an exempt organization. UBTI includes "unrelated       
debt-financed income," which generally consists of (i) income derived by an     
exempt organization, directly or through a partnership, from income-producing   
property with respect to which there is "acquisition indebtedness" at any time  
during the taxable year, and (ii) gains derived by an exempt organization,      
directly or through a partnership, from the disposition of property with respect
to which there is "acquisition indebtedness" at any time during the 12-month    
period ending with the date of such disposition. With respect to its investments
in partnerships engaged in a trade or business, the Fund's income, or loss, from
these investments may constitute UBTI.                                          

--------------------                                                            
3    With certain exceptions, tax-exempt organizations which are private        
     foundations are subject to a 2% Federal excise tax on their "net investment
    income." The rate of the excise tax for any taxable year may be reduced to
  1% if the private foundation meets certain distribution requirements for
     the taxable year. A private foundation will be required to make payments of
estimated tax with respect to this excise tax.                        

The Fund may incur "acquisition indebtedness" with respect to certain of its    
transactions, such as the purchase of securities on margin. Based upon a        
published ruling issued by the Service which generally holds that income and    
gain with respect to short sales of publicly traded stock does not constitute   
income from debt-financed property for purposes of computing UBTI, the Fund will
treat its short sales of securities as not involving "acquisition indebtedness" 
and therefore not generating UBTI.4 The percentage of income (i.e., dividends   
and interest) from securities with respect to which there is "acquisition       
indebtedness" during a taxable year which will be treated as UBTI generally will
be based on the percentage which the "average acquisition indebtedness" incurred
with respect to such securities is of the "average amount of the adjusted basis"
of such securities during the taxable year.                                     

--------------------                                                            
4    Moreover, income realized from option writing generally would not          
constitute UBTI.                                                      

The percentage of capital gain from securities with respect to which there is   
"acquisition indebtedness" at any time during the 12-month period ending with   
the date of their disposition which will be treated as UBTI will be based on the
percentage which the highest amount of such "acquisition indebtedness" is of the
"average amount of the adjusted basis" of such securities during the taxable    
year. In determining the unrelated debt-financed income of the Fund, an         
allocable portion of deductions directly connected with the Fund's debt-financed
property is taken into account. Thus, for instance, a percentage of capital     
losses from debt-financed securities, based on the debt/basis percentage        
calculation described above, would offset gains treated as UBTI.                

Since the calculation of the Fund's "unrelated debt-financed income" is complex 
and will depend in large part on the amount of leverage, if any, used by the    
Fund from time to time,5 it is impossible to predict what percentage of the     
Fund's income and gains will be treated as UBTI for an Investor which is an     
exempt organization. An exempt organization's share of the income or gains of   
the Fund which is treated as UBTI may not be offset by losses of the exempt     
organization either from the Fund or otherwise, unless such losses are treated  
as attributable to an unrelated trade or business (e.g., losses from securities 
for which there is acquisition indebtedness).                                   

----------------                                                                
5    The calculation of a particular exempt organization's UBTI would also be   
   affected if it incurs indebtedness to finance its investment in the Fund.
An exempt organization is required to make estimated tax payments with
respect to its UBTI.                                                  

To the extent that the Fund generates UBTI, the applicable Federal tax rate for 
such an Investor generally would be either the corporate or trust tax rate      
depending upon the nature of the particular exempt organization. An exempt      
organization may be required to substantiate, to the satisfaction of the        
Service, the method used to calculate its UBTI. The Fund will be required to    
report to an Investor which is an exempt organization information as to the     
portion, if any, of its income and gains from the Fund for each year which will 
be treated as UBTI. The calculation of such amount with respect to transactions 
entered into by the Fund is highly complex, and there is no assurance that the  
Fund's calculation of UBTI will be accepted by the Service.                     

In general, if UBTI is allocated to an exempt organization such as a qualified  
retirement plan or a private foundation, the portion of the Fund's income and   
gains which is not treated as UBTI will continue to be exempt from tax, as will 
the organization's income and gains from other investments which are not treated
as UBTI. Therefore, the possibility of realizing UBTI from its investment in the
Fund generally should not affect the tax-exempt status of such an exempt        
organization.6 However, a charitable remainder trust will not be exempt from    
Federal income tax under Section 664(c) of the Code for any year in which it has
UBTI. A title-holding company will not be exempt from tax if it has certain     
types of UBTI. Moreover, the charitable contribution deduction for a trust under
Section 642(c) of the Code may be limited for any year in which the trust has   
UBTI. A prospective Investor should consult its tax adviser with respect to the 
tax consequences of receiving UBTI from the Fund.                               
See also "ERISA CONSIDERATIONS."                                                

------------------                                                              
6    Certain exempt organizations which realize UBTI in a taxable year will not 
constitute "qualified organizations" for purposes of Section          
514(c)(9)(B)(vi)(I) of the Code, pursuant to which, in limited        
   circumstances, income from certain real estate partnerships in which such
  organizations invest might be treated as exempt from UBTI. A prospective
tax-exempt Investor should consult its tax adviser in this regard.    

CERTAIN ISSUES PERTAINING TO SPECIFIC EXEMPT ORGANIZATIONS                      

PRIVATE FOUNDATIONS. Private foundations and their managers are subject to      
excise taxes if they invest "any amount in such a manner as to jeopardize the   
carrying out of any of the foundation's exempt purposes." This rule requires a  
foundation manager, in making an investment, to exercise "ordinary business care
and prudence" under the facts and circumstances prevailing at the time of making
the investment, in providing for the short-term and long-term needs of the      
foundation to carry out its exempt purposes. The factors which a foundation     
manager may take into account in assessing an investment include the expected   
rate of return, both income and capital appreciation, the risks of rising and   
falling price levels, and the needs for diversification within the foundation's 
portfolio.                                                                      

In order to avoid the imposition of an excise tax, a private foundation may be  
required to distribute on an annual basis its "distributable amount," which     
includes, among other things, the private foundation's "minimum investment      
return," defined as 5% of the excess of the fair market value of its            
nonfunctionally related assets (defined to include assets not used or held for  
use in carrying out the foundation's exempt purposes), over certain indebtedness
incurred by the foundation in connection with such assets. It appears that a    
foundation's investment in the Fund would most probably be classified as a      
nonfunctionally related asset. A determination that an interest in the Fund is a
nonfunctionally related asset could conceivably cause cash flow problems for a  
prospective Investor which is a private foundation. Such an organization could  
be required to make distributions in an amount determined by reference to       
unrealized appreciation in the value of its interest in the Fund. Of course,    
this factor would create less of a problem to the extent that the value of the  
investment in the Fund is not significant in relation to the value of other     
liquid assets held by a foundation.                                             

In some instances, an investment in the Fund by a private foundation may be     
prohibited by the "excess business holdings" provisions of the Code. For        
example, if a private foundation, either directly or together with a            
"disqualified person," acquires more than 20% of the capital interest or profits
interest of the Fund, the private foundation may be considered to have "excess  
business holdings." If this occurs, such foundation may be required to divest   
itself of its interest in the Fund in order to avoid the imposition of an excise
tax. However, the excise tax will not apply if at least 95% of the gross income 
from the Fund is "passive" within the applicable provisions of the Code and     
Regulations. Although there can be no assurance, the Manager believes that the  
Fund will meet this 95% gross income test.                                      

A substantial percentage of investments of certain "private operating           
foundations" may be restricted to assets directly devoted to their tax-exempt   
purposes. Otherwise, generally, rules similar to those discussed above govern   
their operations.                                                               

QUALIFIED RETIREMENT PLANS. Employee benefit plans subject to the provisions of 
ERISA, Individual Retirement Accounts ("IRAs") and Keogh Plans should consult   
their counsel as to the implications of such an investment under ERISA. See "TAX
ASPECTS--Unrelated Business Taxable Income" and "ERISA CONSIDERATIONS."         

ENDOWMENT FUNDS. Investment managers of endowment funds should consider whether 
the acquisition of an interest in the Fund is legally permissible. This is not a
matter of Federal law, but is determined under state statutes. It should be     
noted, however, that under the Uniform Management of Institutional Funds Act,   
which has been adopted, in various forms, by a large number of states,          
participation in investment funds or similar organizations in which funds are   
commingled and investment determinations are made by persons other than the     
governing board of the endowment fund is allowed.                               

LEGISLATIVE PROPOSALS                                                           

There have been several proposals initiated by the Clinton Administration and   
Congress that would affect the tax consequences described herein. It is not     
possible to predict at this time the extent to which any of these proposals will
be enacted by Congress and, if enacted, what their final form and effective     
dates will be. In addition, other proposals could be enacted that would change  
the tax consequences described herein of an investment in the Fund. Prospective 
Investors should consult their own tax advisers regarding the status of these   
proposed changes and the effect, if any, on their investment in the Fund.       

STATE AND LOCAL TAXATION                                                        

In addition to the Federal income tax consequences described above, prospective 
Investors should consider potential state and local tax consequences of an      
investment in the Fund. State and local tax laws differ in the treatment of     
limited liability companies such as the Fund. A few jurisdictions may impose    
entity level taxes on a limited liability company if it is found to have        
sufficient contact with that jurisdiction. Such taxes are frequently based on   
the income and capital of the entity that is allocated to the jurisdiction.     
Although there can be no assurance, except as noted below, the Fund intends to  
conduct its activities so that it will not be subject to entity level taxation  
by any state or local jurisdiction.                                             

State and local laws often differ from Federal income tax laws with respect to  
the treatment of specific items of income, gain, loss, deduction and credit. An 
Investor's distributive share of the taxable income or loss of the Fund         
generally will be required to be included in determining its reportable income  
for state and local tax purposes in the jurisdiction in which it is a resident. 

A partnership in which the Fund acquires an interest may conduct business in a  
jurisdiction which will subject to tax an Investor's share of the Fund's income 
from that business. Prospective Investors should consult their tax advisers with
respect to the availability of a credit for such tax in the jurisdiction in     
which that Investor is a resident.                                              

The Fund should not be subject to the New York City unincorporated business tax,
which is not imposed on an entity taxed as a partnership which purchases and    
sells securities for its "own account." By reason of a similar "own account"    
exemption, it is also expected that a nonresident individual Investor should not
be subject to New York State personal income tax with respect to his share of   
income or gain realized directly by the Fund. A nonresident individual Investor 
will not be subject to New York City earnings tax on nonresidents with respect  
to his or her investment in the Fund.                                           

Individual Investors who are residents of New York State and New York City      
should be aware that the New York State and New York City personal income tax   
laws limit the deductibility of itemized deductions for individual taxpayers at 
certain income levels. This limitation would likely apply to an Investor's share
of some or all of the Fund's expenses. Prospective Investors are urged to       
consult their tax advisers with respect to the impact of these provisions and   
the Federal limitations on the deductibility of certain itemized deductions and 
investment expenses on their New York State and New York City tax liability.    

For purposes of the New York State corporate franchise tax and the New York City
general corporation tax, a corporation generally is treated as doing business in
New York State and New York City, respectively, and is subject to such corporate
taxes as a result of the ownership of a limited partnership interest in a       
partnership which does business in New York State and New York City,            
respectively.7 Each of the New York State and New York City corporate taxes are 
imposed, in part, on the corporation's taxable income or capital allocable to   
the relevant jurisdiction by application of the appropriate allocation          
percentages. Moreover, a non-New York corporation which does business in New    
York State may be subject to a New York State license fee. A corporation which  
is subject to New York State corporate franchise tax solely as a result of being
a limited partner in a New York partnership may, under certain circumstances,   
elect to compute its New York State corporate franchise tax by taking into      
account only its distributive share of such partnership's income and loss. There
is currently no similar provision in effect for purposes of the New York City   
general corporation tax.                                                        

----------------                                                                
7    New York State, but not New York City, generally exempts from corporate    
 franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a  
 partnership doing business in New York and (ii) has a tax basis in such
limited partnership interest not greater than $1 million.             

Regulations under both the New York State corporate franchise tax and the New   
York City general corporation tax, however, provide an exception to this general
rule in the case of a "portfolio investment partnership," which is defined,     
generally, as a partnership which meets the gross income requirements of Section
851(b)(2) of the Code. New York State (but not New York City) has adopted       
regulations that also include income and gains from commodity transactions      
described in Section 864(b)(2)(B)(iii) as qualifying gross income for this      
purpose. The Fund's qualification as such a portfolio investment partnership    
must be determined on an annual basis and with respect to a taxable year, the   
Fund may not qualify as a portfolio investment partnership.                     

A trust or other unincorporated organization which by reason of its purposes or 
activities is exempt from Federal income tax is also exempt from New York State 
and New York City personal income tax. A nonstock corporation which is exempt   
from Federal income tax is generally presumed to be exempt from New York State  
corporate franchise tax and New York City general corporation tax. New York     
State imposes a tax with respect to such exempt entities on UBTI, including     
unrelated debt-financed income, at a rate which is currently equal to the New   
York State corporate franchise tax rate, plus the corporate surtax. There is no 
New York City tax on the UBTI of an otherwise exempt entity.                    

Each prospective corporate Investor should consult its tax adviser with regard  
to the New York State and New York City tax consequences of an investment in the
Fund.                                                                           

ERISA CONSIDERATIONS                                                            

Persons who are fiduciaries with respect to an employee benefit plan or other   
arrangement subject to the Employee Retirement Income Security Act of 1974, as  
amended (an "ERISA Plan" and "ERISA," respectively), and persons who are        
fiduciaries with respect to an IRA or Keogh Plan, which is not subject to ERISA 
but is subject to the prohibited transaction rules of Section 4975 of the Code  
(together with ERISA Plans, "Benefit Plans") should consider, among other       
things, the matters described below before determining whether to invest in the 
Fund.                                                                           

ERISA imposes certain general and specific responsibilities on persons who are  
fiduciaries with respect to an ERISA Plan, including prudence, diversification, 
an obligation not to engage in a prohibited transaction and other standards. In 
determining whether a particular investment is appropriate for an ERISA Plan,   
Department of Labor ("DOL") regulations provide that a fiduciary of an ERISA    
Plan must give appropriate consideration to, among other things, the role that  
the investment plays in the ERISA Plan's portfolio, taking into consideration   
whether the investment is designed reasonably to further the ERISA Plan's       
purposes, an examination of the risk and return factors, the portfolio's        
composition with regard to diversification, the liquidity and current return of 
the total portfolio relative to the anticipated cash flow needs of the ERISA    
Plan, the income tax consequences of the investment (see "TAX ASPECTS--Unrelated
Business Taxable Income" and "--Certain Issues Pertaining to Specific Exempt    
Organizations") and the projected return of the total portfolio relative to the 
ERISA Plan's funding objectives. Before investing the assets of an ERISA Plan in
the Fund, a fiduciary should determine whether such an investment is consistent 
with its fiduciary responsibilities and the foregoing regulations. For example, 
a fiduciary should consider whether an investment in the Fund may be too        
illiquid or too speculative for a particular ERISA Plan, and whether the assets 
of the ERISA Plan would be sufficiently diversified. If a fiduciary with respect
to any such ERISA Plan breaches its or his responsibilities with regard to      
selecting an investment or an investment course of action for such ERISA Plan,  
the fiduciary itself or himself may be held liable for losses incurred by the   
ERISA Plan as a result of such breach.                                          

Because the Fund will register as an investment company under the 1940 Act, the 
underlying assets of the Fund should not be considered to be "plan assets" of   
the ERISA Plans investing in the Fund for purposes of ERISA's (or the Code's)   
fiduciary responsibility and prohibited transaction rules. Thus, the Manager    
will not be a fiduciary within the meaning of ERISA by reason of its authority  
with respect to the Fund.                                                       

The Manager will require a Benefit Plan which proposes to invest in the Fund to 
represent that it, and any fiduciaries responsible for such Plan's investments, 
are aware of and understand the Fund's investment objective, policies and       
strategies, that the decision to invest plan assets in the Fund was made with   
appropriate consideration of relevant investment factors with regard to the     
Benefit Plan and is consistent with the duties and responsibilities imposed upon
fiduciaries with regard to their investment decisions under ERISA and/or the    
Code.                                                                           

Certain prospective Benefit Plan Investors may currently maintain relationships 
with the Manager or other entities which are affiliated with the Manager. Each  
of such persons may be deemed to be a party in interest to and/or a fiduciary of
any Benefit Plan to which it provides investment management, investment advisory
or other services. ERISA prohibits (and the Code penalizes) the use of ERISA and
Benefit Plan assets for the benefit of a party in interest and also prohibits   
(or penalizes) an ERISA or Benefit Plan fiduciary from using its position to    
cause such Plan to make an investment from which it or certain third parties in 
which such fiduciary has an interest would receive a fee or other consideration.
ERISA and Benefit Plan investors should consult with counsel to determine if    
participation in the Fund is a transaction which is prohibited by ERISA or the  
Code. Fiduciaries of ERISA or Benefit Plan Investors will be required to        
represent that the decision to invest in the Fund was made by them as           
fiduciaries that are independent of such affiliated persons, that such          
fiduciaries are duly authorized to make such investment decision and that they  
have not relied on any individualized advice or recommendation of such          
affiliated persons, as a primary basis for the decision to invest in the Fund.  

The provisions of ERISA and the Code are subject to extensive and continuing    
administrative and judicial interpretation and review. The discussion of ERISA  
and the Code contained in this Memorandum is general and may be affected by     
future publication of regulations and rulings. Potential Benefit Plan Investors 
should consult their legal advisers regarding the consequences under ERISA and  
the Code of the acquisition and ownership of interests.                         

ADDITIONAL INFORMATION AND SUMMARY OF LIMITED LIABILITY COMPANY AGREEMENT       

The following is a summary description of additional items and of select        
provisions of the LLC Agreement which are not described elsewhere in this       
Memorandum. The description of such items and provisions is not definitive and  
reference should be made to the complete text of the LLC Agreement contained in 
Appendix A.                                                                     

LIABILITY OF INVESTORS                                                          

Investors in the Fund will be members of a limited liability company as provided
under Delaware law. Under Delaware law and the LLC Agreement, an Investor will  
not be liable for the debts, obligations or liabilities of the Fund solely by   
reason of being an Investor, except that the Investor may be obligated to make  
capital contributions to the Fund pursuant to the LLC Agreement, to repay any   
funds wrongfully distributed to the Investor and to make additional capital     
contributions up to, but in no event in excess of, the aggregate amount of any  
distributions, amounts in connection with a repurchase of all or a portion of   
the Investor's interests and any other amounts received by the Investor from the
Fund during or after the fiscal year to which any debt, obligation or liability 
of the Fund is incurred.                                                        

DUTY OF CARE OF THE BOARD AND MANAGER                                           

The LLC Agreement provides that neither the Directors nor the Manager (including
certain of its affiliates, among others) shall be liable to the Fund or any of  
the Investors for any loss or damage occasioned by any act or omission in the   
performance of their respective services as such in the absence of willful      
misfeasance, bad faith, gross negligence or reckless disregard of their duties. 
The LLC Agreement also contains provisions for the indemnification, to the      
extent permitted by law, of the Directors and the Manager (including certain of 
its affiliates, among others) by the Fund, but not by the Investors             
individually, against any liability and expense to which any of them may be     
liable which arises in connection with the performance of their activities on   
behalf of the Fund. None of these persons will be personally liable to any      
Investor for the repayment of any balance in such Investor's capital account or 
for contributions by such Investor to the capital of the Fund or by reason of   
any change in the Federal or state income tax laws applicable to the Fund or its
investors. The rights of indemnification and exculpation provided under the LLC 
Agreement do not provide for indemnification of a Director or the Manager for   
any liability, including liability under Federal securities laws which, under   
certain circumstances, impose liability even on persons that act in good faith, 
to the extent, but only to the extent, that such indemnification would be in    
violation of applicable law.                                                    

AMENDMENT OF THE LLC AGREEMENT                                                  

The LLC Agreement may be amended with the approval of (i) the Board, including a
majority of the Independent Directors, if required by the 1940 Act, (ii) the    
Manager or (iii) a majority, as defined in the 1940 Act, of the outstanding     
voting securities of the Fund. Certain amendments involving capital accounts,   
allocations thereto and the modification of events causing dissolution of the   
Fund may not be made without the consent of any Investors adversely affected    
thereby or unless each Investor has received notice of such amendment and any   
Investor objecting to such amendment has been allowed a reasonable opportunity  
to tender its entire interest for repurchase by the Fund.                       

POWER OF ATTORNEY                                                               

By purchasing an interest in the Fund, each Investor will appoint the Manager   
and each of the Directors his or her attorney-in-fact for purposes of filing    
required certificates and documents relating to the formation and continuance of
the Fund as a limited liability company under Delaware law or signing all       
instruments effecting authorized changes in the Fund or the LLC Agreement and   
conveyances and other instruments deemed necessary to effect the dissolution or 
termination of the Fund.                                                        

The power-of-attorney granted in the LLC Agreement is a special                 
power-of-attorney coupled with an interest in favor of the Manager and each of  
the Directors and as such is irrevocable and continues in effect until all of   
such Investor's interest in the Fund has been withdrawn pursuant to a periodic  
tender or transferred to one or more transferees that have been approved by the 
Board for admission to the Fund as substitute Investors.                        

TERM, DISSOLUTION AND LIQUIDATION                                               

The Fund will be dissolved:                                                     

   o    upon the affirmative vote to dissolve the Fund by both (1) the Board
        and (2) Investors holding at least two-thirds of the total number of
votes eligible to be cast by all Investors;                 

     o    upon the expiration of any two-year period which commences on the date
        on which any Investor has submitted to the Fund a written request in
        accordance with the LLC Agreement, to tender its entire interest for
   repurchase by the Fund if such Investor's interest has not been
repurchased during such period;                             

o    at the election of the Manager;                                  

o    upon the failure of Investors to elect successor Directors at a  
meeting called by the Manager when no Director remains; or  

o    as required by operation of law.                                 

Upon the occurrence of any event of dissolution, the Manager, or a liquidator   
under appointment by the Board, is charged with winding up the affairs of the   
Fund and liquidating its assets. Net profits or net loss during the fiscal      
period including the period of liquidation will be allocated as described in the
section titled "CAPITAL ACCOUNTS AND ALLOCATIONS--Allocation of Net Profits and 
Net Losses."                                                                    

Upon the dissolution of the Fund, its assets are to be distributed (1) first to 
satisfy the debts, liabilities and obligations of the Fund, other than debts to 
Investors, including actual or anticipated liquidation expenses, (2) next to    
satisfy debts owing to the Investors, and (3) finally to the Investors          
proportionately in accordance with the balances in their respective capital     
accounts. Assets may be distributed in-kind on a pro rata basis if the Board or 
liquidator determines that such a distribution would be in the interests of the 
Investors in facilitating an orderly liquidation.                               

REPORTS TO INVESTORS                                                            

The Fund will furnish to Investors as soon as practicable after the end of each 
taxable year such information as is necessary for such Investors to complete    
Federal and state income tax or information returns, along with any other tax   
information required by law. The Fund will send to Investors a semi-annual and  
an audited annual report within 60 days after the close of the period for which 
it is being made, or as otherwise required by the 1940 Act. Quarterly reports   
from the Manager regarding the Fund's operations during such period also will be
sent to Investors.                                                              

FISCAL YEAR                                                                     

The Fund's fiscal year ends on December 31st.                                   

ACCOUNTANTS AND LEGAL COUNSEL                                                   

Ernst & Young LLP serves as the independent public accountants of the Fund. Its 
principal business address is 787 Seventh Avenue, New York, New York 10019.     

Stroock & Stroock & Lavan LLP, New York, New York, acts as legal counsel to the 
Fund.                                                                           

Schulte Roth & Zabel LLP, New York, New York, acts as legal counsel to the      
Manager and its affiliates.                                                     

CUSTODIAN                                                                       

PFPC Trust Company (the "Custodian") serves as the primary custodian of the     
Fund's assets, and may maintain custody of the Fund's assets with domestic and  
foreign subcustodians (which may be banks, trust companies, securities          
depositories and clearing agencies) approved by the Directors. Assets of the    
Fund are not held by the Manager or commingled with the assets of other accounts
other than to the extent that securities are held in the name of a custodian in 
a securities depository, clearing agency or omnibus customer account of such    
custodian. The Custodian's principal business address is Airport Business       
Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania 19113.   

INQUIRIES                                                                       

Inquiries concerning the Fund and interests in the Fund, including information  
concerning purchase and redemption procedures, should be directed to:           

PW Willow Management, L.L.C.                
c/o PaineWebber Incorporated                
Alternative Investment Group                
1285 Avenue of the Americas                 
New York, New York  10019                   
Telephone: (800) 486-2608                   
Telecopier: (212) 713-1498                  

 * * * * *

All potential Investors in the Fund are encouraged to consult appropriate legal 
and tax counsel.                                                                

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                                                        APPENDIX   A

PW WILLOW FUND, L.L.C.
 LIMITED LIABILITY COMPANY AGREEMENT

      THIS LIMITED LIABILITY COMPANY AGREEMENT of PW Willow Fund, L.L.C.
(the "Fund") is dated and effective as of February 11, 2000 by and among the    
Organizational Member, the Manager and each person hereinafter admitted to the  
Fund and reflected on the books of the Fund as a Member.                        

 W I T N E S S E T H :

       WHEREAS, the Fund heretofore has been formed as a limited liability
company under the Delaware Limited Liability Company Act, pursuant to the       
Certificate dated as of January 31, 2000 and filed with the Secretary of State  
of the State of Delaware on February 1, 2000;                                   

     NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants hereinafter set forth, it is hereby agreed as follows:         

------------------------------------------------------------------------------  

 ARTICLE I

 DEFINITIONS

------------------------------------------------------------------------------  

For purposes of this Agreement:                             

          ADVICE AND MANAGEMENT means those services provided to the Fund by the
Manager pursuant to Section 3.4(b) hereof.                                      

         ADVISERS ACT means the Investment Advisers Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any         
successor law.                                                                  

         AFFILIATE means affiliated person as such term is defined in the 1940
Act.                                                                            

        AGREEMENT means this Limited Liability Company Agreement, as amended
and/or restated from time to time.                                              

 ALLOCATION CHANGE means, with respect to each Member for each
Allocation Period, the difference between:                                      

          (1)  the sum of (a) the balance of such Member's Capital Account as of
            the close of the Allocation Period (after giving effect to all
           allocations to be made to such Member's Capital Account as of
         such date other than any Incentive Allocation to be debited
            against such Member's Capital Account), plus (b) any debits to
           such Member's Capital Account during the Allocation Period to
            reflect any actual or deemed distributions or repurchases with
            respect to such Member's Interest, plus (c) any debits to such
              Member's Capital Account during the Allocation Period to reflect
           any Insurance premiums allocable to such Member, plus (d) any
           debits to such Member's Capital Account during the Allocation
            Period to reflect any items allocable to such Member's Capital
          Account pursuant to Section 5.6 hereof other than Management
Fees; and                                         

          (2)  the sum of (a) the balance of such Member's Capital Account as of
             the commencement of the Allocation Period, plus (b) any credits
              to such Member's Capital Account during the Allocation Period to
            reflect any contributions by such Member to the capital of the
         Fund, plus (c) any credits to such Member's Capital Account
            during the Allocation Period to reflect any Insurance proceeds
allocable to such Member.                         

      If the amount specified in clause (1) exceeds the amount
          specified in clause (2), such difference shall be a POSITIVE
          ALLOCATION CHANGE, and if the amount specified in clause (2)
               exceeds the amount specified in clause (1), such difference shall
be a NEGATIVE ALLOCATION CHANGE.                  

    ALLOCATION PERIOD means, with respect to each Member, the period
commencing as of the date of admission of such Member to the Fund and ending at 
the close of business on the first to occur of the following:                   

      (1)  the last day of the twelfth complete calendar month since the
admission of such Member to the Fund;             

         (2)  the last day of a Fiscal Year subsequent to a Member having been
           admitted to the Fund for 12 complete calendar months, and the
last day of each Fiscal Year thereafter;          

         (3)  the day as of which the Fund repurchases any Interest or portion
of an Interest of such Member;                    

      (4)  the day as of which the Fund admits as a substituted Member a
               person to whom the Interest (or a portion thereof) of such Member
           has been Transferred (unless there is no change in beneficial
ownership);                                       

    (5)  the day as of which the authority of the Manager to provide
            Advice and Management is terminated pursuant to Section 3.4(a)
hereof;                                           

    (6)  the day preceding any day as of which such Member becomes a
Special Member; or                                

    (7)  the day on which such Member ceases to be a Special Member.

          BOARD means the Board of Directors established pursuant to Section 2.6
hereof.                                                                         

   CAPITAL ACCOUNT means, with respect to each Member, the capital
account established and maintained on behalf of each Member pursuant to Section 
5.3 hereof.                                                                     

        CAPITAL PERCENTAGE means a percentage established for each Member as
of each Expense Allocation Date. The Capital Percentage of a Member on an       
Expense Allocation Date shall be determined by dividing the amount of capital   
contributed to the Fund by the Member pursuant to Section 5.1 hereof by the sum 
of the capital contributed to the Fund by each Member pursuant to Section 5.1   
hereof on or prior to such Expense Allocation Date. The sum of the Capital      
Percentages of all Members on each Expense Allocation Date shall equal 100%.    

       CAPITAL CONTRIBUTION means the contribution, if any, made, or to be
made, as the context requires, to the capital of the Fund by a Member.          

      CERTIFICATE means the Certificate of Formation of the Fund and any
amendments thereto as filed with the office of the Secretary of State of the    
State of Delaware.                                                              

      CLOSING DATE means the first date on or as of which a Member other
than the Organizational Member or the Manager is admitted to the Fund.          

          CODE means the United States Internal Revenue Code of 1986, as amended
and as hereafter amended from time to time, or any successor law.               

    DELAWARE ACT means the Delaware Limited Liability Company Act (6
DEL.C.ss.18-101, ET SEQ.) as in effect on the date hereof and as amended from   
time to time, or any successor law.                                             

      DIRECTOR means each natural person listed on Schedule I hereto who
serves on the Board and any other natural person who, from time to time,        
pursuant hereto shall serve on the Board. Each Director shall constitute a      
"manager" of the Fund within the meaning of the Delaware Act.                   

       EXPENSE ALLOCATION DATE means the Closing Date, and thereafter each
day on or before December 31, 2000, as of which a contribution to the capital of
the Fund is made pursuant to Section 5.1 hereof.                                

      FISCAL PERIOD means the period commencing on the Closing Date, and
thereafter each period commencing on the day immediately following the last day 
of the preceding Fiscal Period, and ending at the close of business on the first
to occur of the following dates:                                                

(1)  the last day of a Fiscal Year;                         

    (2)  the day preceding any day as of which a contribution to the
  capital of the Fund is made pursuant to Section 5.1;

         (3)  the day as of which the Fund repurchases any Interest or portion
of an Interest of any Member;                     

         (4)  the day as of which the Fund admits a substituted Member to whom
               an Interest (or portion thereof) of a Member has been Transferred
     (unless there is no change of beneficial ownership); or

         (5)  any other day as of which this Agreement provides for any amount
             to be credited to or debited against the Capital Account of any
               Member, other than an amount to be credited to or debited against
          the Capital Accounts of all Members in accordance with their
respective Fund Percentages.                      

          FISCAL YEAR means the period commencing on the Closing Date and ending
on the first December 31st following the Closing Date, and thereafter each      
period commencing on January 1 of each year and ending on December 31 of each   
year (or on the date of a final distribution pursuant to Section 6.2 hereof),   
unless the Directors shall designate another fiscal year for the Fund that is a 
permissible taxable year under the Code.                                        

      FORM N-2 means the Fund's Registration Statement on Form N-2 filed
with the Securities and Exchange Commission, as amended from time to time.      

     FUND means the limited liability company governed hereby, as such
limited liability company may from time to time be constituted.                 

         FUND PERCENTAGE means a percentage established for each Member on the
Fund's books as of the first day of each Fiscal Period. The Fund Percentage of a
Member for a Fiscal Period shall be determined by dividing the balance of the   
Member's Capital Account as of the commencement of such Fiscal Period by the sum
of the Capital Accounts of all of the Members as of the commencement of such    
Fiscal Period. The sum of the Fund Percentages of all Members for each Fiscal   
Period shall equal 100%.                                                        

        INCENTIVE ALLOCATION means, with respect to any Member, other than a
Special Member, 20% (and, as respects a Special Member, such percentage as the  
Manager shall have agreed with such Special Member) of the amount, determined as
of the close of each Allocation Period with respect to such Member, by which    
such Member's Positive Allocation Change for such Allocation Period, if any,    
exceeds any positive balance in such Member's Loss Recovery Account as of the   
most recent prior date as of which any adjustment has been made thereto.        

       INDEPENDENT DIRECTORS means those Directors who are not "interested
persons" of the Fund as such term is defined in the 1940 Act.                   

        INSURANCE means one or more "key man" insurance policies on the life
of any principal of a member of the Manager, the benefits of which are payable  
to the Fund.                                                                    

   INTEREST means the entire ownership interest in the Fund at any
particular time of a Member or other person to whom an Interest or portion      
thereof has been transferred pursuant to Section 4.3 hereof, including the      
rights and obligations of such Member or other person under this Agreement and  
the Delaware Act.                                                               

          INVESTED CAPITAL means, with respect to any Member, the amount of such
Member's aggregate Capital Contributions to the Fund, decreased by any          
withdrawals (through repurchases pursuant to Section 4.4 hereof) made by such   
Member pursuant to Section 4.4 hereof other than withdrawals of aggregate Net   
Capital Appreciation (for this purpose, any amounts withdrawn shall first be    
applied against Net Capital Appreciation, if any).                              

          LOSS RECOVERY ACCOUNT means a memorandum account to be recorded in the
books and records of the Fund with respect to each Member, which shall have an  
initial balance of zero and which shall be adjusted as follows:                 

          (1)  As of the first day after the close of each Allocation Period for
            such Member, the balance of the Loss Recovery Account shall be
        increased by the amount, if any, of such Member's Negative
               Allocation Change for such Allocation Period and shall be reduced
          (but not below zero) by the amount, if any, of such Member's
    Positive Allocation Change for such Allocation Period.

       (2)  The balance of the Loss Recovery Account shall be reduced (but
          not below zero) as of the first date as of which the Capital
     Account balance of any Member is reduced as a result of
              repurchase or transfer with respect to such Member's Interest by
              an amount determined by multiplying (a) such positive balance by
               (b) a fraction, (i) the numerator of which is equal to the amount
              of the repurchase or transfer, and (ii) the denominator of which
      is equal to the balance of such Member's Capital Account
              immediately before giving effect to such repurchase or transfer.

    No transferee of any Interest shall succeed to any Loss Recovery
Account balance or portion thereof attributable to the transferor unless the    
Transfer by which such transferee received such Interest did not involve a      
change of beneficial ownership.                                                 

       MANAGEMENT FEE means the fee paid to PWFA out of the Fund's assets,
and debited against Members' Capital Accounts, for PWFA Services.               

        MANAGER means PW Willow Management, L.L.C. or any successor thereto.
The Manager shall constitute a "manager" of the Fund within the meaning of the  
Delaware Act. The Manager also shall constitute a "member" of the Fund within   
the meaning of the Delaware Act and shall have an Interest.                     

        MEMBER means the Manager and any person who shall have been admitted
to the Fund as a member (including any person who is a Special Member) until the
Fund repurchases the entire Interest of such person pursuant to Section 4.4     
hereof or a substitute Member who is admitted to the Fund pursuant to Section   
4.3 hereof, in such person's capacity as a member of the Fund. For purposes of  
the Delaware Act, the Members shall constitute a single class or group of       
members.                                                                        

     NEGATIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.                                                

       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,     
calculated before giving effect to any repurchases of Interests.                

   NET CAPITAL APPRECIATION means, with respect to any Member, the
excess, if any, of the aggregate amount credited to such Member's Capital       
Account under clause (ii) of paragraph (c) of Section 5.3 hereof over the       
aggregate amount debited to such Member's Capital Account under clause (ii) of  
paragraph (d) of Section 5.3 hereof.                                            

         NET PROFIT OR NET LOSS means the amount by which the Net Assets as of
the close of business on the last day of a Fiscal Period exceed (in the case of 
Net Profit) or are less than (in the case of Net Loss) the Net Assets as of the 
commencement of the same Fiscal Period (or, with respect to the initial Fiscal  
Period of the Fund, at the close of business on the Closing Date), such amount  
to be adjusted to exclude:                                                      

         (1)  the amount of any Insurance premiums or proceeds to be allocated
               among the Capital Accounts of the Members pursuant to Section 5.5
hereof;                                           

    (2)  any items to be allocated among the Capital Accounts of the
               Members on a basis which is not in accordance with the respective
            Fund Percentages of all Members as of the commencement of such
        Fiscal Period pursuant to Sections 5.6 and 5.7 hereof; and

        (3)  Organizational Expenses allocated among the Capital Accounts of
the Members pursuant to Section 5.11 hereof.      

    1940 ACT means the Investment Company Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any         
successor law.                                                                  

     1934 ACT means the Securities Exchange Act of 1934 and the rules,
regulations and orders thereunder, as amended from time to time, or any         
successor law.                                                                  

      ORGANIZATIONAL EXPENSES means the expenses incurred by the Fund in
connection with its formation, its initial registration as an investment company
under the 1940 Act, and the initial offering of Interests.                      

ORGANIZATIONAL MEMBER means Norman E. Sienko, Jr.           

  PERSON means any individual, entity, corporation, partnership,
association, limited liability company, joint-stock company, trust, estate,     
joint venture, organization or unincorporated organization.                     

     POSITIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.                                                

 PWFA means PW Fund Advisor, L.L.C., or any successor thereto.

      PWFA SERVICES means such management and administrative services as
PWFA or its affiliates shall provide to the Fund pursuant to a separate written 
agreement with the Fund as contemplated by Section 3.10(a) hereof.              

     RELATED PERSON means, with respect to any person, (i) a relative,
spouse or relative of a spouse who has the same principal residence as such     
person, (ii) any trust or estate in which such person and any persons who are   
related to such person collectively have more than 50% of the beneficial        
interests (excluding contingent interests) and (iii) any corporation or other   
organization of which such person and any persons who are related to such person
collectively are beneficial owners of more than 50% of the equity securities    
(excluding directors' qualifying shares) or equity interests.                   

         SECURITIES means securities (including, without limitation, equities,
debt obligations, options, and other "securities" as that term is defined in    
Section 2(a)(36) of the 1940 Act) and any contracts for forward or future       
delivery of any security, debt obligation, currency or commodity, all manner of 
derivative instruments and any contracts based on any index or group of         
securities, debt obligations, currencies or commodities, and any options        
thereon.                                                                        

      SPECIAL MEMBER means (i) a Member whose Invested Capital equals or
exceeds $10,000,000, and (ii) such other Members as the Manager shall determine 
from time to time, in its sole discretion, to be key employees, or directors of 
the Manager and its affiliates, and members of their immediate families, and    
attorneys or other professional advisors engaged on behalf of the Fund, and     
members of their immediate families.                                            

    TAX MATTERS PARTNER means the Manager designated as "tax matters
partner" of the Fund pursuant to Section 8.17 hereof.                           

         TRANSFER means the assignment, transfer, sale or other disposition of
all or any portion of an Interest, including any right to receive any           
allocations and distributions attributable to an Interest.                      

      VOTING INTEREST means with respect to a Member the number of votes
equivalent to such Member's Fund Percentage as of the record date for a meeting 
of Members.                                                                     

------------------------------------------------------------------------------- 

ARTICLE II

 ORGANIZATION; ADMISSION OF MEMBERS; BOARD

------------------------------------------------------------------------------- 

2.1 FORMATION OF LIMITED LIABILITY COMPANY.                 

    The Organizational Member and any person designated by the Board
hereby are designated as authorized persons, within the meaning of the Delaware 
Act, to execute, deliver and file all certificates (and any amendments and/or   
restatements thereof) required or permitted by the Delaware Act to be filed in  
the office of the Secretary of State of the State of Delaware. The Board shall  
cause to be executed and filed with applicable governmental authorities any     
other instruments, documents and certificates which, in the opinion of the      
Fund's legal counsel, may from time to time be required by the laws of the      
United States of America, the State of Delaware or any other jurisdiction in    
which the Fund shall determine to do business, or any political subdivision or  
agency thereof, or which such legal counsel may deem necessary or appropriate to
effectuate, implement and continue the valid existence and business of the Fund.

2.2 NAME.                                                   

        The name of the Fund shall be "PW Willow Fund, L.L.C." or such other
name as the Board hereafter may adopt upon (i) causing an appropriate amendment 
to the Certificate to be filed in accordance with the Delaware Act and (ii)     
sending notice thereof to each Member. The Fund's business may be conducted     
under the name of the Fund or, to the fullest extent permitted by law, any other
name or names deemed advisable by the Board.                                    

2.3 PRINCIPAL AND REGISTERED OFFICE.                        

       The Fund shall have its principal office at the principal office of
the Manager, or at such other place designated from time to time by the Board.  

         The Fund shall have its registered office in the State of Delaware at
1013 Center Road, Wilmington, New Castle County, Delaware 19805-1297, and shall 
have Corporation Service Company as its registered agent at such registered     
office for service of process in the State of Delaware, unless a different      
registered office or agent is designated from time to time by the Board in      
accordance with the Delaware Act.                                               

2.4 DURATION.                                               

        The term of the Fund commenced on the filing of the Certificate with
the Secretary of State of the State of Delaware and shall continue until the    
Fund is dissolved pursuant to Section 6.1 hereof.                               

2.5 BUSINESS OF THE FUND.                                   

      (a) The business of the Fund is to purchase, sell (including short
sales), invest and trade in Securities, and to engage in any financial or       
derivative transactions relating thereto or otherwise. The Manager, on behalf of
the Fund, may execute, deliver and perform all contracts, agreements and other  
undertakings and engage in all activities and transactions as may in the opinion
of the Manager be necessary or advisable to carry out the Fund's business and   
any amendments to any such contracts, agreements and other undertakings, all    
without any further act, vote or approval of any other person, notwithstanding  
any other provision of this Agreement.                                          

     (b) The Fund shall operate as a closed-end, management investment
company in accordance with the 1940 Act and subject to any fundamental policies 
and investment restrictions set forth in the Form N-2.                          

2.6 THE BOARD.                                              

        (a) The Organizational Member hereby designates those persons listed
on Schedule I who shall agree to be bound by all of the terms of this Agreement 
to serve as Directors on the initial Board. The Board may, subject to the       
provisions of paragraphs (a) and (b) of this Section 2.6 with respect to the    
number of and vacancies in the position of Director and the provisions of       
Section 3.3 hereof with respect to the election of Directors by Members,        
designate any person who shall agree to be bound by all of the terms of this    
Agreement as a Director. The names and mailing addresses of the Directors shall 
be set forth in the books and records of the Fund. The number of Directors shall
be fixed from time to time by the Directors but, at the Closing Date, shall not 
be fewer than three.                                                            

       (b) Each Director shall serve as a Director for the duration of the
term of the Fund, unless his or her status as a Director shall be sooner        
terminated pursuant to Section 4.1 hereof. If any vacancy in the position of a  
Director occurs, the remaining Directors may appoint a person to serve in such  
capacity, so long as immediately after such appointment at least two-thirds of  
the Directors then serving would have been elected by the Members. The Directors
may call a meeting of Members to fill any vacancy in the position of Director,  
and shall do so within 60 days after any date on which Directors who were       
elected by the Members cease to constitute a majority of the Directors then     
serving as Directors.                                                           

         (c) If no Director remains, the Manager shall promptly call a meeting
of the Members, to be held within 60 days after the date on which the last      
Director ceased to act in that capacity, for the purpose of determining whether 
to continue the business of the Fund and, if the business shall be continued, of
electing the required number of Directors. If the Members shall determine at    
such meeting not to continue the business of the Fund or if the required number 
of Directors is not elected within 60 days after the date on which the last     
Director ceased to act in that capacity, then the Fund shall be dissolved       
pursuant to Section 6.1 hereof and the assets of the Fund shall be liquidated   
and distributed pursuant to Section 6.2 hereof.                                 

2.7 MEMBERS.                                                

       The Board may admit one or more Members as of the beginning of each
calendar month or at such other times as the Board may determine. Members may be
admitted to the Fund subject to the condition that each such Member shall       
execute an appropriate signature page of this Agreement or of the Fund's        
application pursuant to which such Member agrees to be bound by all the terms   
and provisions hereof. The Board, in its absolute discretion, may reject        
applications for Interests in the Fund. The admission of any person as a Member 
shall be effective upon the revision of the books and records of the Fund to    
reflect the name and the contribution to the capital of the Fund of such        
additional Member. Each of the Manager and the Organizational Member hereby is  
admitted as a Member on the date hereof.                                        

2.8 ORGANIZATIONAL MEMBER.                                  

       Upon the admission to the Fund of any additional Member pursuant to
Section 2.7, the Organizational Member shall withdraw from the Fund as the      
Organizational Member and shall be entitled to the return of his Capital        
Contribution, if any, without interest or deduction, and shall cease to be a    
member of the Fund.                                                             

2.9 BOTH DIRECTORS AND MEMBERS.                             

      A Member may at the same time be a Director and a Member, in which
event such Member's rights and obligations in each capacity shall be determined 
separately in accordance with the terms and provisions hereof and as provided in
the Delaware Act.                                                               

2.10 LIMITED LIABILITY.                                     

  Except as otherwise provided in the Delaware Act, no Member or
Director shall be obligated personally for the Fund's debts, obligations or     
liabilities, whether arising in contract, tort or otherwise, solely by reason of
being a member or manager of the Fund, except that a Member may be obligated to 
make capital contributions to the Fund pursuant to this Agreement and to repay  
any funds wrongfully distributed to such Member, and a Member, in the sole      
discretion of the Manager, may be obligated to make additional capital          
contributions up to, but in no event in excess of, the aggregate amount of any  
distributions, amounts in connection with a repurchase of all or a portion of   
such Member's Interest and any other amounts received by such Member from the   
Fund during or after the Fiscal Year in which any debt, obligation or liability 
of the Fund is incurred.                                                        

------------------------------------------------------------------------------- 

 ARTICLE III

MANAGEMENT

------------------------------------------------------------------------------- 

3.1 MANAGEMENT AND CONTROL.                                 

          (a) Management and control of the business of the Fund shall be vested
in the Board, which shall have the right, power and authority, on behalf of the 
Fund and in its name, to exercise all rights, powers and authority of managers  
under the Delaware Act and to do all things necessary and proper to carry out   
the business of the Fund and its duties hereunder, including, without           
limitation, the power to engage the Manager to provide Advice and Management to 
the Fund. No Director shall have the authority individually to act on behalf of 
or to bind the Fund except within the scope of such Director's authority as     
delegated by the Board. The parties hereto intend that, except to the extent    
otherwise expressly provided herein, (i) each Director shall be vested with the 
same powers, authority and responsibilities on behalf of the Fund as are        
customarily vested in each director of a Delaware corporation and (ii) each     
Independent Director shall be vested with the same powers, authority and        
responsibilities on behalf of the Fund as are customarily vested in each        
director of a closed-end management investment company registered under the 1940
Act that is organized as a Delaware corporation who is not an "interested       
person" of such company as such term is defined in the 1940 Act. During any     
period in which the Fund shall have no Directors, the Manager shall continue to 
provide Advice and Management to the Fund.                                      

         (b) Each Member agrees not to treat, on his personal return or in any
claim for a refund, any item of income, gain, loss, deduction or credit in a    
manner inconsistent with the treatment of such item by the Fund. The Board shall
have the exclusive authority and discretion to make any elections required or   
permitted to be made by the Fund under any provisions of the Code or any other  
revenue laws.                                                                   

(c) Members (other than the Manager) shall have no right to 
participate in and shall take no part in the management or control of the Fund's
business and shall have no right, power or authority to act for or bind the     
Fund. Members shall have the right to vote on any matters only as provided in   
this Agreement or on any matters that require the approval of the holders of    
voting securities under the 1940 Act or as otherwise required in the Delaware   
Act.                                                                            

         (d) The Board may delegate to any person, including the Manager, even
if such delegation is greater than the power given to the Manager pursuant to   
Section 3.4 hereof, any rights, power and authority vested by this Agreement in 
the Board to the extent permissible under applicable law.                       

3.2 ACTIONS BY THE BOARD.                                   

        (a) Unless provided otherwise in this Agreement, the Board shall act
only: (i) by the affirmative vote of a majority of the Directors (which majority
shall include any requisite number of Independent Directors required by the 1940
Act) present at a meeting duly called at which a quorum of the Directors shall  
be present (in person or, if in person attendance is not required by the 1940   
Act, in person or by telephone) or (ii) by unanimous written consent of all of  
the Directors without a meeting, if permissible under the 1940 Act.             

      (b) The Board may designate from time to time a Chairman who shall
preside at all meetings. Meetings of the Board may be called by the Chairman or 
any two Directors, and may be held on such date and at such time and place as   
the Board shall determine. Each Director shall be entitled to receive written   
notice of the date, time and place of such meeting within a reasonable time in  
advance of the meeting. Notice need not be given to any Director who shall      
attend a meeting without objecting to the lack of notice or who shall execute a 
written waiver of notice with respect to the meeting. Directors may attend and  
participate in any meeting by telephone, except where in person attendance at a 
meeting is required by the 1940 Act. A majority of the Directors then in office 
shall constitute a quorum at any meeting.                                       

         (c) The Board may designate from time to time agents and employees of
the Fund who shall have the same powers and duties on behalf of the Fund        
(including the power to bind the Fund) as are customarily vested in officers of 
a Delaware corporation, and designate them as officers of the Fund.             

3.3 MEETINGS OF MEMBERS.                                    

          (a) Actions requiring the vote of the Members may be taken at any duly
constituted meeting of the Members at which a quorum is present. Meetings of the
Members may be called by the Board or by Members holding a majority of the total
number of votes eligible to be cast by all Members, and may be held at such     
time, date and place as the Board shall determine. The Board shall arrange to   
provide written notice of the meeting, stating the date, time and place of the  
meeting and the record date therefor, to each Member entitled to vote at the    
meeting within a reasonable time prior thereto. Failure to receive notice of a  
meeting on the part of any Member shall not affect the validity of any act or   
proceeding of the meeting, so long as a quorum shall be present at the meeting. 
Only matters set forth in the notice of a meeting may be voted on by the Members
at a meeting. The presence in person or by proxy of Members holding a majority  
of the total number of votes eligible to be cast by all Members as of the record
date shall constitute a quorum at any meeting. In the absence of a quorum, a    
meeting of the Members may be adjourned by action of a majority of the Members  
present in person or by proxy without additional notice to the Members. Except  
as otherwise required by any provision of this Agreement or of the 1940 Act, (i)
those candidates receiving a plurality of the votes cast at any meeting of      
Members shall be elected as Directors and (ii) all other actions of the Members 
taken at a meeting shall require the affirmative vote of Members holding a      
majority of the total number of votes eligible to be cast by those Members who  
are present in person or by proxy at such meeting.                              

         (b) Each Member shall be entitled to cast at any meeting of Members a
number of votes equivalent to such Member's Voting Interest. The Board shall    
establish a record date not less than 10 nor more than 60 days prior to the date
of any meeting of Members to determine eligibility to vote at such meeting and  
the number of votes which each Member will be entitled to cast thereat, and     
shall maintain for each such record date a list setting forth the name of each  
Member and the number of votes that each Member will be entitled to cast at the 
meeting.                                                                        

       (c) A Member may vote at any meeting of Members by a proxy properly
executed in writing by the Member and filed with the Fund before or at the time 
of the meeting. A proxy may be suspended or revoked, as the case may be, by the 
Member executing the proxy by a later writing delivered to the Fund at any time 
prior to exercise of the proxy or if the Member executing the proxy shall be    
present at the meeting and decide to vote in person. Any action of the Members  
that is permitted to be taken at a meeting of the Members may be taken without a
meeting if consents in writing, setting forth the action taken, are signed by   
Members holding a majority of the total number of votes eligible to be cast or  
such greater percentage as may be required in order to approve such action.     

3.4 ADVICE AND MANAGEMENT.                                  

      (a) Among its powers, the Board shall have the power to engage the
Manager to provide Advice and Management to the Fund under its general          
supervision, subject to the initial approval thereof prior to the Closing Date  
by the Organizational Member. The Board also delegates to the Manager the rights
and powers expressly given to the Manager under this Agreement. The authority of
the Manager granted under this Section 3.4 shall become effective upon such     
initial approval and shall terminate: (i) if any period of 12 consecutive months
following the first 12 consecutive months of the effectiveness of such authority
shall conclude without the approval of the continuation of such authority by (A)
the vote of a majority (as defined in the 1940 Act) of the outstanding Voting   
Interests of the Fund or (B) the Board, and in either case, approval by a       
majority of the Independent Directors by vote cast in person at a meeting called
for such purpose; (ii) if revoked by the Board or by vote of a majority (as     
defined in the 1940 Act) of the outstanding Voting Interests of the Fund, in    
either case with 60 days' prior written notice to the Manager; or (iii) at the  
election of the Manager with 60 days' prior written notice to the Board. The    
authority of the Manager to provide Advice and Management pursuant to this      
Section 3.4 shall automatically terminate upon the occurrence of any event in   
connection with the Manager, its provision of Advice and Management, this       
Agreement or otherwise constituting an "assignment" within the meaning of the   
1940 Act. If the authority of the Manager under this Section 3.4 is terminated  
as provided herein, the Board may appoint, subject to the approval thereof by a 
majority of the Independent Board and by vote of a majority (as defined in the  
1940 Act) of the outstanding Voting Interests of the Fund, a person or persons  
to provide Advice and Management to the Fund, and shall cause the terms and     
conditions of such appointment to be stated in an agreement executed on behalf  
of the Fund and such person or persons. Notwithstanding anything in this        
Agreement to the contrary, upon receiving the requisite approval set forth in   
the preceding sentence, the Fund, and a person designated by the Board, shall   
have the power and authority to enter into such agreement without any further   
act, vote or approval of any Member.                                            

         (b) So long as the Manager has been and continues to be authorized to
provide Advice and Management, it shall have, subject to any policies and       
restrictions set forth in any current offering memorandum issued by the Fund,   
this Agreement, the Form N-2 or the 1940 Act, or adopted from time to time by   
the Board and communicated in writing to the Manager, full discretion and       
authority (i) to manage the assets and liabilities of the Fund and (ii) to      
manage the day-to-day business and affairs of the Fund. In furtherance of and   
subject to the foregoing, the Manager, except as otherwise provided in this     
Agreement, shall have full power and authority on behalf of the Fund:           

          (1)  to purchase, sell, exchange, trade and otherwise deal in and with
              Securities and other property of the Fund and to loan Securities
of the Fund;                                      

          (2)  to open, maintain and close accounts with brokers and dealers, to
             make all decisions relating to the manner, method and timing of
               Securities and other investment transactions, to select and place
            orders with brokers, dealers or other financial intermediaries
               for the execution, clearance or settlement of any transactions on
       behalf of the Fund on such terms as the Manager considers
              appropriate, and to grant limited discretionary authorization to
         such persons with respect to price, time and other terms of
investment and trading transactions;              

    (3)  to borrow from banks or other financial institutions and to
               pledge Fund assets as collateral therefor, to trade on margin, to
          exercise or refrain from exercising all rights regarding the
          Fund's investments, and to instruct custodians regarding the
         settlement of transactions, the disbursement of payments to
              Members with respect to repurchases of Interests and the payment
            of Fund expenses, including those relating to the organization
and registration of the Fund;                     

         (4)  to issue to any Member an instrument certifying that such Member
is the owner of an Interest;                      

        (5)  to call and conduct meetings of Members at the Fund's principal
             office or elsewhere as it may determine and to assist the Board
in calling and conducting meetings of the Board;  

      (6)  to engage and terminate such attorneys, accountants and other
           professional advisors and consultants as the Manager may deem
               necessary or advisable in connection with the affairs of the Fund
or as may be directed by the Board;               

     (7)  to engage and terminate the services of others to assist the
             Manager in providing, or to provide under the Manager's control
               and supervision, Advice and Management to the Fund at the expense
of the Manager;                                   

       (8)  to assist in the preparation and filing of any required tax or
information returns to be made by the Fund;       

       (9)  as directed by the Board, to commence, defend and conclude any
              action, suit, investigation or other proceeding that pertains to
the Fund or any assets of the Fund;               

     (10) if directed by the Board, to arrange for the purchase of (A)
    Insurance, or (B) any insurance covering the potential
           liabilities of the Fund or relating to the performance of the
          Board or the Manager, or any of their principals, directors,
officers, members, employees and agents; and      

       (11) to execute, deliver and perform such contracts, agreements and
      other undertakings, and to engage in such activities and
               transactions as are, in the opinion of the Manager, necessary and
              appropriate for the conduct of the business of the Fund, without
      the act, vote or approval of any other Member or person.

3.5 CUSTODY OF ASSETS OF THE FUND.                          

         The physical possession of all funds, Securities or other property of
the Fund shall at all times, be held, controlled and administered by one or more
custodians retained by the Fund in accordance with the requirements of the 1940 
Act.                                                                            

3.6 BROKERAGE.                                              

   In the course of selecting brokers, dealers and other financial
intermediaries for the execution, clearance and settlement of transactions for  
the Fund, the Manager may agree to such commissions, fees and other charges on  
behalf of the Fund as it shall deem reasonable under the circumstances, taking  
into account all such factors as it deems relevant (including the quality of    
research and other services made available to it even if such services are not  
for the exclusive benefit of the Fund and the cost of such services does not    
represent the lowest cost available) and shall be under no obligation to combine
or arrange orders so as to obtain reduced charges unless otherwise required     
under the Federal securities laws. The Manager, subject to such procedures as   
may be adopted by the Board, may use Affiliates of the Manager as brokers to    
effect the Fund's Securities transactions and the Fund may pay such commissions 
to such brokers in such amounts as are permissible under applicable law.        

          3.7 OTHER ACTIVITIES OF MEMBERS (INCLUDING THE MANAGER) AND DIRECTORS.

         (a) Neither the Directors nor the Manager shall be required to devote
full time to the affairs of the Fund, but shall devote such time as may         
reasonably be required to perform their obligations under this Agreement.       

   (b) Any Member (including the Manager) or Director or Affiliate
thereof may engage in or possess an interest in other business ventures or      
commercial dealings of every kind and description, independently or with others,
including, but not limited to, acquisition and disposition of Securities,       
provision of investment advisory or brokerage services, serving as directors,   
officers, employees, advisors or agents of other companies, partners of any     
partnership, members of any limited liability company, or trustees of any trust,
or entering into any other commercial arrangements. No Member shall have any    
rights in or to such activities of any other Member or Director, or any profits 
derived therefrom.                                                              

3.8 DUTY OF CARE.                                           

       (a) The Directors and the Manager, including any officer, director,
member, principal, employee or agent of the Manager, shall not be liable to the 
Fund or to any of its Members for any loss or damage occasioned by any act or   
omission in the performance of such person's services under this Agreement,     
unless it shall be determined by final judicial decision on the merits from     
which there is no further right to appeal that such loss is due to an act or    
omission of such person constituting willful misfeasance, bad faith, gross      
negligence or reckless disregard of the duties involved in the conduct of such  
person's duties hereunder.                                                      

       (b) A Member not in breach of any obligation hereunder or under any
agreement pursuant to which the Member subscribed for an Interest shall be      
liable to the Fund, any other Member or third parties only as required by the   
Delaware Act or otherwise provided in this Agreement.                           

3.9 INDEMNIFICATION.                                        

          (a) To the fullest extent permitted by law, the Fund shall, subject to
Section 3.9(b) hereof, indemnify each Director (including for this purpose their
executors, heirs, assigns, successors or other legal representatives), the      
Manager (including for this purpose each affiliate, officer, director, member,  
partner, principal, employee or agent of the Manager or a member thereof, and   
the executors, heirs, assigns, successors or other legal representatives of each
of the foregoing, and of any person who controls or is under common control, or 
otherwise is affiliated, with the Manager or any member thereof, and their      
executors, heirs, assigns, successors or other legal representatives), and the  
Tax Matters Partner (including for this purpose its successor) against all      
losses, claims, damages, liabilities, costs and expenses, including, but not    
limited to, amounts paid in satisfaction of judgments, in compromise, or as     
fines or penalties, and reasonable counsel fees, incurred in connection with the
defense or disposition of any action, suit, investigation or other proceeding,  
whether civil or criminal, before any judicial, arbitral, administrative or     
legislative body, in which such indemnitee may be or may have been involved as a
party or otherwise, or with which such indemnitee may be or may have been       
threatened, while in office or thereafter, by reason of being or having been a  
Director, Manager or the Tax Matters Partner, as the case may be, of the Fund or
the past or present performance of services to the Fund by such indemnitee,     
except to the extent such loss, claim, damage, liability, cost or expense shall 
have been finally determined in a decision on the merits in any such action,    
suit, investigation or other proceeding to have been incurred or suffered by    
such indemnitee by reason of willful misfeasance, bad faith, gross negligence,  
or reckless disregard of the duties involved in the conduct of such indemnitee's
office. The rights of indemnification provided under this Section 3.9 shall not 
be construed so as to provide for indemnification of an indemnitee for any      
liability (including liability under federal securities laws which, under       
certain circumstances, impose liability even on persons that act in good faith) 
to the extent (but only to the extent) that such indemnification would be in    
violation of applicable law, but shall be construed so as to effectuate the     
applicable provisions of this Section 3.9 to the fullest extent permitted by    
law.                                                                            

       (b) Expenses, including reasonable counsel fees, so incurred by any
such indemnitee (but excluding amounts paid in satisfaction of judgments, in    
compromise, or as fines or penalties), may be paid from time to time by the Fund
in advance of the final disposition of any such action, suit, investigation or  
proceeding upon receipt of an undertaking by or on behalf of such indemnitee to 
repay to the Fund amounts so paid if it shall ultimately be determined that     
indemnification of such expenses is not authorized under Section 3.9(a) hereof; 
PROVIDED, HOWEVER, that (i) such indemnitee shall provide security for such     
undertaking, (ii) the Fund shall be insured by or on behalf of such indemnitee  
against losses arising by reason of such indemnitee's failure to fulfill his or 
its undertaking, or (iii) a majority of the Directors (excluding any Director   
who is seeking advancement of expenses hereunder) or independent legal counsel  
in a written opinion shall determine based on a review of readily available     
facts (as opposed to a full trial-type inquiry) that there is reason to believe 
such indemnitee ultimately will be entitled to indemnification.                 

   (c) As to the disposition of any action, suit, investigation or
proceeding (whether by a compromise payment, pursuant to a consent decree or    
otherwise) without an adjudication or a decision on the merits by a court, or by
any other body before which the proceeding shall have been brought, that an     
indemnitee is liable to the Fund or its Members by reason of willful            
misfeasance, bad faith, gross negligence, or reckless disregard of the duties   
involved in the conduct of such indemnitee's office, indemnification shall be   
provided pursuant to Section 3.9(a) hereof if (i) approved as in the best       
interests of the Fund by a majority of the Directors (excluding any Director who
is seeking indemnification hereunder) upon a determination based upon a review  
of readily available facts (as opposed to a full trial-type inquiry) that such  
indemnitee acted in good faith and in the reasonable belief that such actions   
were in the best interests of the Fund and that such indemnitee is not liable to
the Fund or its Members by reason of willful misfeasance, bad faith, gross      
negligence, or reckless disregard of the duties involved in the conduct of such 
indemnitee's office, or (ii) the Directors secure a written opinion of          
independent legal counsel based upon a review of readily available facts (as    
opposed to a full trial-type inquiry) to the effect that such indemnitee acted  
in good faith and in the reasonable belief that such actions were in the best   
interests of the Fund and that such indemnitee is not liable to the Fund or its 
Members by reason of willful misfeasance, bad faith, gross negligence, or       
reckless disregard of the duties involved in the conduct of such indemnitee's   
office.                                                                         

       (d) Any indemnification or advancement of expenses made pursuant to
this Section 3.9 shall not prevent the recovery from any indemnitee of any such 
amount if such indemnitee subsequently shall be determined in a decision on the 
merits in any action, suit, investigation or proceeding involving the liability 
or expense that gave rise to such indemnification or advancement of expenses to 
be liable to the Fund or its Members by reason of willful misfeasance, bad      
faith, gross negligence, or reckless disregard of the duties involved in the    
conduct of such indemnitee's office. In any suit brought by an indemnitee to    
enforce a right to indemnification under this Section 3.9 it shall be a defense 
that, and in any suit in the name of the Fund to recover any indemnification or 
advancement of expenses made pursuant to this Section 3.9 the Fund shall be     
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met the applicable standard of conduct set forth in this Section 3.9. In
any such suit brought to enforce a right to indemnification or to recover any   
indemnification or advancement of expenses made pursuant to this Section 3.9,   
the burden of proving that the indemnitee is not entitled to be indemnified, or 
to any indemnification or advancement of expenses, under this Section 3.9 shall 
be on the Fund (or any Member acting derivatively or otherwise on behalf of the 
Fund or its Members).                                                           

     (e) An indemnitee may not satisfy any right of indemnification or
advancement of expenses granted in this Section 3.9 or to which he, she or it   
may otherwise be entitled except out of the assets of the Fund, and no Member   
shall be personally liable with respect to any such claim for indemnification or
advancement of expenses.                                                        

     (f) The rights of indemnification provided hereunder shall not be
exclusive of or affect any other rights to which any person may be entitled by  
contract or otherwise under law. Nothing contained in this Section 3.9 shall    
affect the power of the Fund to purchase and maintain liability insurance on    
behalf of any Director or other person.                                         

3.10 FEES, EXPENSES AND REIMBURSEMENT.                      

         (a) So long as PWFA (or its affiliates) provides PWFA Services to the
Fund, it shall be entitled to receive such fees as may be agreed to by PWFA and 
the Fund pursuant to a separate written agreement, which, notwithstanding       
anything in this Agreement to the contrary, may be entered into by the Fund, and
the Manager on behalf of the Fund, without any further act, vote or approval of 
any Member.                                                                     

        (b) The Board may cause the Fund to compensate each Director for his
or her services hereunder. In addition, the Fund shall reimburse the Directors  
for reasonable out-of-pocket expenses incurred by them in performing their      
duties under this Agreement.                                                    

        (c) The Fund shall bear all expenses incurred in the business of the
Fund other than those specifically required to be borne by the Manager or its   
members hereunder or under any other agreement. Expenses to be borne by the Fund
include, but are not limited to, the following:                                 

     (1)  all costs and expenses related to portfolio transactions and
              positions for the Fund's account, including, but not limited to,
           brokerage commissions, research fees, interest and commitment
               fees on loans and debit balances, borrowing charges on Securities
        sold short, dividends on Securities sold short but not yet
        purchased, custodial fees, margin fees, transfer taxes and
premiums and taxes withheld on foreign dividends; 

    (2)  all costs and expenses associated with the organization and
       registration of the Fund, offering costs and the costs of
   compliance with any applicable Federal or state laws;

       (3)  the costs and expenses of holding any meetings of Members that
              are regularly scheduled, permitted or are required to be held by
   this Agreement, the 1940 Act or other applicable law;

       (4)  fees and disbursements of any attorneys, accountants, auditors
              and other consultants and professionals engaged on behalf of the
         Fund, including, without limitation, in connection with the
            Manager's serving on creditors' and equity holders' committees
               and otherwise seeking to preserve or protect the Fund's rights in
portfolio Securities;                             

          (5)  the costs of a fidelity bond and any liability insurance obtained
  on behalf of the Fund, the Manager or the Directors;

      (6)  any fees payable to PWFA or its affiliates for PWFA Services;

       (7)  all costs and expenses of preparing, setting in type, printing
           and distributing reports and other communications to Members;

        (8)  all expenses of computing the Fund's net asset value, including
               any equipment or services obtained for the purpose of valuing the
       Fund's investment portfolio, including valuation services
provided by third parties;                        

      (9)  all charges for equipment or services used for communications
               between the Fund and any custodian, or other agent engaged by the
Fund;                                             

        (10) fees payable to custodians and persons providing administrative
services to the Fund; and                         

          (11) such other types of expenses as may be approved from time to time
by the Board.                                     

        The Manager shall be entitled to reimbursement from the Fund for any
of the above expenses that it pays on behalf of the Fund.                       

      (d) The Fund from time to time, alone or in conjunction with other
accounts for which the Manager, or any Affiliate of the Manager, acts as general
partner, managing member or investment adviser, may purchase Insurance in such  
amounts, from such insurers and on such terms as the Board shall determine.     

------------------------------------------------------------------------------- 

ARTICLE IV

 TERMINATION OF STATUS OF DIRECTORS;
 TRANSFERS AND REPURCHASES

------------------------------------------------------------------------------- 

4.1 TERMINATION OF STATUS OF A DIRECTOR.                    

      The status of a Director shall terminate if the Director (i) shall
die; (ii) shall be adjudicated incompetent; (iii) shall voluntarily withdraw as 
a Director (upon not less than 90 days' prior written notice to the other       
Directors, unless the other Directors waive such notice); (iv) shall be removed 
under Section 4.2; (v) shall be certified by a physician to be mentally or      
physically unable to perform his duties hereunder; (vi) shall be declared       
bankrupt by a court with appropriate jurisdiction, file a petition commencing a 
voluntary case under any bankruptcy law or make an assignment for the benefit of
creditors; or (vii) shall have a receiver appointed to administer the property  
or affairs of such Director.                                                    

4.2 REMOVAL OF THE DIRECTORS.                               

         Any Director may be removed either by (a) the vote or written consent
of at least two-thirds of the Directors not subject to the removal vote or (b)  
the vote or written consent of Members holding not less than two-thirds of the  
total number of votes eligible to be cast by all Members.                       

4.3 TRANSFER OF INTERESTS OF MEMBERS.                       

          (a) An Interest or portion thereof of a Member may be Transferred only
(i) by operation of law pursuant to the death, bankruptcy, insolvency or        
dissolution of such Member or (ii) with the written consent of the Board (which 
may be withheld in its sole and absolute discretion). In addition, the Board may
not consent to a Transfer of an Interest or a portion thereof of a Member unless
the person to whom such Interest is transferred (or each of such person's equity
owners if such a person is a "private investment company" as defined in Rule    
205-3(d)(3) under the Advisers Act, an investment company registered under the  
1940 Act, or a business development company as defined under the Advisers Act)  
is a person whom the Board believes meets the requirements of paragraph (d)(1)  
of Rule 205-3 under the Advisers Act or successor rule thereto, or is otherwise 
exempt from such requirements. If any transferee does not meet such investor    
eligibility requirements, the Fund reserves the right to redeem its Interest. If
the Board does not consent to a Transfer by operation of law, the Fund shall    
redeem the Interest from the Member's successor. In addition to the foregoing,  
no Member shall be permitted to Transfer its Interest or portion thereof unless 
after such Transfer the balance of the Capital Account of each of the transferor
and the transferee is at least equal to the amount of the transferor's initial  
Capital Contribution. Any permitted transferee shall be entitled to the         
allocations and distributions allocable to the Interest so acquired and to      
Transfer such Interest in accordance with the terms of this Agreement, but shall
not be entitled to the other rights of a Member unless and until such transferee
becomes a substituted Member. If a Member Transfers an Interest or portion      
thereof with the approval of the Board, the Fund shall promptly take all        
necessary actions so that each transferee or successor to whom such Interest or 
portion thereof is Transferred is admitted to the Fund as a substituted Member. 
The admission of any transferee as a substituted Member shall be effective upon 
the execution and delivery by, or on behalf of, such substituted Member of      
either a counterpart of this Agreement or an instrument that constitutes the    
execution and delivery of this Agreement. Each transferring Member and          
transferee agrees to pay all expenses, including attorneys' and accountants'    
fees, incurred by the Fund in connection with such Transfer. Upon the Transfer  
to another person or persons of a Member's entire Interest, such Member shall   
cease to be a member of the Fund.                                               

      (b) Each transferring Member shall indemnify and hold harmless the
Fund, the Directors, the Manager, each other Member and any Affiliate of the    
foregoing against all losses, claims, damages, liabilities, costs and expenses  
(including legal or other expenses incurred in investigating or defending       
against any such losses, claims, damages, liabilities, costs and expenses or any
judgments, fines and amounts paid in settlement), joint or several, to which    
such persons may become subject by reason of or arising from (i) any Transfer   
made by such Member in violation of this Section 4.3 and (ii) any               
misrepresentation by such Member in connection with any such Transfer.          

4.4 REPURCHASE OF INTERESTS.                                

          (a) Except as otherwise provided in this Agreement, no Member or other
person holding an Interest or portion thereof shall have the right to withdraw  
or tender to the Fund for repurchase of that Interest or portion thereof. The   
Board may from time to time, in its complete and exclusive discretion and on    
such terms and conditions as it may determine, cause the Fund to repurchase     
Interests or portions thereof pursuant to written tenders. In determining       
whether to cause the Fund to repurchase Interests or portions thereof pursuant  
to written tenders, the Board shall consider the following factors, among       
others:                                                                         

  (1)  whether any Members have requested to tender Interests or
portions thereof to the Fund;                     

(2)  the liquidity of the Fund's assets;                    

     (3)  the investment plans and working capital requirements of the
Fund;                                             

        (4)  the relative economies of scale with respect to the size of the
Fund;                                             

      (5)  the history of the Fund in repurchasing Interests or portions
thereof;                                          

(6)  the condition of the securities markets; and           

        (7)  the anticipated tax consequences of any proposed repurchases of
Interests or portions thereof.                    

      The Board shall cause the Fund to repurchase Interests or portions
thereof pursuant to written tenders only on terms fair to the Fund and to all   
Members (including persons holding Interests acquired from Members), as         
applicable.                                                                     

         (b) The Board may cause the Fund to repurchase an Interest or portion
thereof of a Member or any person acquiring an Interest or portion thereof from 
or through a Member if the Board determines or has reason to believe that:      

    (1)  such an Interest or portion thereof has been transferred in
             violation of Section 4.3 hereof, or such an Interest or portion
         thereof has vested in any person by operation of law as the
               result of the death, dissolution, bankruptcy or incompetency of a
Member;                                           

       (2)  ownership of such an Interest by a Member or other person will
              cause the Fund to be in violation of, or require registration of
           any Interest or portion thereof under, or subject the Fund to
          additional registration or regulation under, the securities,
         commodities or other laws of the United States or any other
relevant jurisdiction;                            

  (3)  continued ownership of such an Interest may be harmful or
              injurious to the business or reputation of the Fund, the Manager
             or the Directors, or may subject the Fund or any of the Members
           to an undue risk of adverse tax or other fiscal consequences;

      (4)  any of the representations and warranties made by a Member in
               connection with the acquisition of an Interest or portion thereof
 was not true when made or has ceased to be true; or

        (5)  it would be in the best interests of the Fund, as determined by
               the Board, for the Fund to repurchase such an Interest or portion
thereof.                                          

         (c) Repurchases of Interests or portions thereof by the Fund shall be
payable in cash or in part by promissory note, in each case without interest,   
unless the Board, in its discretion, determines otherwise, or, in the discretion
of the Board, in Securities (or any combination of Securities and cash) of      
equivalent value. All such repurchases shall be subject to any and all          
conditions as the Board may impose and shall be effective as of a date set by   
the Board after receipt by the Fund of all eligible written tenders of Interests
or portion thereof. The amount due to any Member whose Interest or portion      
thereof is repurchased shall be equal to the value of such Member's Capital     
Account or portion thereof as applicable as of the effective date of repurchase,
after giving effect to all allocations to be made to such Member's Capital      
Account as of such date.                                                        

------------------------------------------------------------------------------- 

 ARTICLE V

 CAPITAL

------------------------------------------------------------------------------- 

5.1 CONTRIBUTIONS TO CAPITAL.                               

       (a) The minimum initial contribution of each Member (other than the
Manager) to the capital of the Fund shall be $250,000 ($25,000 for employees or 
directors of the Manager and its affiliates, and members of their immediate     
families, and, in the sole discretion of the Board, attorneys or other          
professional advisors engaged on behalf of the Fund, and members of their       
immediate families) or such other amount as the Board may determine from time to
time. The amount of the initial contribution of each Member shall be recorded on
the books and records of the Fund upon acceptance as a contribution to the      
capital of the Fund. The Directors shall not be entitled to make voluntary      
contributions of capital to the Fund as Directors of the Fund, but may make     
voluntary contributions to the capital of the Fund as Members.                  

       (b) The Members may make additional contributions to the capital of
the Fund, effective as of such times as the Board in its discretion may permit, 
but no Member shall be obligated to make any additional contribution to the     
capital of the Fund except to the extent provided in Section 5.7 hereof.        

       (c) Except as otherwise permitted by the Board, (i) initial and any
additional contributions to the capital of the Fund by any Member shall be      
payable in cash or in such Securities that the Board, in its absolute           
discretion, may agree to accept on behalf of the Fund, and (ii) initial and any 
additional contributions in cash shall be payable in readily available funds at 
the date of the proposed acceptance of the contribution. The Fund shall charge  
each Member making a contribution in Securities to the capital of the Fund such 
amount as may be determined by the Board not exceeding 2% of the value of such  
contribution in order to reimburse the Fund for any costs incurred by the Fund  
by reason of accepting such Securities, and any such charge shall be due and    
payable by the contributing Member in full at the time the contribution to the  
capital of the Fund to which such charges relate is due. The value of           
contributed Securities shall be determined in accordance with Section 7.3 hereof
as of the date of contribution.                                                 

5.2 RIGHTS OF MEMBERS TO CAPITAL.                           

         No Member shall be entitled to interest on his or its contribution to
the capital of the Fund, nor shall any Member be entitled to the return of any  
capital of the Fund except (i) upon the repurchase by the Fund of a part or all 
of such Member's Interest pursuant to Section 4.4 hereof, (ii) pursuant to the  
provisions of Section 5.7(c) hereof or (iii) upon the liquidation of the Fund's 
assets pursuant to Section 6.2 hereof. No Member shall be liable for the return 
of any such amounts. No Member shall have the right to require partition of the 
Fund's property or to compel any sale or appraisal of the Fund's assets.        

5.3 CAPITAL ACCOUNTS.                                       

   (a) The Fund shall maintain a separate Capital Account for each
Member.                                                                         

         (b) Each Member's Capital Account shall have an initial balance equal
to the amount of cash and the value of any Securities (determined in accordance 
with Section 7.3 hereof) constituting such Member's initial contribution to the 
capital of the Fund.                                                            

          (c) Each Member's Capital Account shall be increased by the sum of (i)
the amount of cash and the value of any Securities (determined in accordance    
with Section 7.3 hereof) constituting additional contributions by such Member to
the capital of the Fund permitted pursuant to Section 5.1 hereof, plus (ii) any 
amount credited to such Member's Capital Account pursuant to Sections 5.4       
through 5.7 or 5.11 hereof.                                                     

        (d) Each Member's Capital Account shall be reduced by the sum of (i)
the amount of any repurchase of the Interest, or portion thereof, of such Member
or distributions to such Member pursuant to Sections 4.4, 5.10 or 6.2 hereof    
which are not reinvested, plus (ii) any amounts debited against such Member's   
Capital Account pursuant to Sections 5.4 through 5.7 and 5.11 hereof.           

       (e) If all or a portion of an Interest is transferred in accordance
with the terms of this Agreement, the transferee shall succeed to the Capital   
Account of the transferor to the extent it relates to the transferred Interest. 

5.4 ALLOCATION OF NET PROFIT AND LOSS.                      

        As of the last day of each Fiscal Period, any Net Profit or Net Loss
for the Fiscal Period shall be allocated among and credited to or debited       
against the Capital Accounts of the Members in accordance with their respective 
Fund Percentages for such Fiscal Period.                                        

5.5 ALLOCATION OF INSURANCE PREMIUMS AND PROCEEDS.          

         (a) Any premiums payable by the Fund for Insurance purchased pursuant
to Section 3.9(d) hereof shall be apportioned evenly over each Fiscal Period or 
portion thereof falling within the period to which such premiums relate under   
the terms of such Insurance, and the portion of the premiums so apportioned to  
any Fiscal Period shall be allocated among and debited against the Capital      
Accounts of each Member who is a member of the Fund during such Fiscal Period in
accordance with such Member's Fund Percentage for such Fiscal Period.           

        (b) Proceeds, if any, to which the Fund may become entitled pursuant
to such Insurance shall be allocated among and credited to the Capital Accounts 
of each Member who is a member of the Fund during the Fiscal Period in which the
event which gives rise to recovery of proceeds occurs in accordance with such   
Member's Fund Percentage for such Fiscal Period.                                

       5.6 ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES.

         (a) If the Fund incurs a withholding tax or other tax obligation with
respect to the share of Fund income allocable to any Member, then the Board,    
without limitation of any other rights of the Fund or the Board, shall cause the
amount of such obligation to be debited against the Capital Account of such     
Member when the Fund pays such obligation, and any amounts then or thereafter   
distributable to such Member shall be reduced by the amount of such taxes. If   
the amount of such taxes is greater than any such distributable amounts, then   
such Member and any successor to such Member's Interest shall pay to the Fund as
a contribution to the capital of the Fund, upon demand of the Fund, the amount  
of such excess. The Fund shall not be obligated to apply for or obtain a        
reduction of or exemption from withholding tax on behalf of any Member that may 
be eligible for such reduction or exemption; provided, that in the event that   
the Fund determines that a Member is eligible for a refund of any withholding   
tax, the Fund may, at the request and expense of such Member, assist such Member
in applying for such refund.                                                    

     (b) Except as otherwise provided for in this Agreement and unless
prohibited by the 1940 Act, any expenditures payable by the Fund, to the extent 
determined by the Board to have been paid or withheld on behalf of, or by reason
of particular circumstances applicable to, one or more but fewer than all of the
Members, shall be charged to only those Members on whose behalf such payments   
are made or whose particular circumstances gave rise to such payments. Such     
charges shall be debited from the Capital Accounts of such Members as of the    
close of the Fiscal Period during which any such items were paid or accrued by  
the Fund.                                                                       

5.7 RESERVES.                                               

        (a) Appropriate reserves may be created, accrued and charged against
Net Assets and proportionately against the Capital Accounts of the Members for  
contingent liabilities, if any, as of the date any such contingent liability    
becomes known to the Manager or the Board, such reserves to be in the amounts   
which the Board in its sole discretion deem necessary or appropriate. The Board 
may increase or reduce any such reserves from time to time by such amounts as it
in its sole discretion deems necessary or appropriate. The amount of any such   
reserve, or any increase or decrease therein, shall be proportionately charged  
or credited, as appropriate, to the Capital Accounts of those parties who are   
Members at the time when such reserve is created, increased or decreased, as the
case may be; PROVIDED, HOWEVER, that if any such individual reserve item,       
adjusted by any increase therein, exceeds the lesser of $500,000 or 1% of the   
aggregate value of the Capital Accounts of all such Members, the amount of such 
reserve, increase, or decrease instead shall be charged or credited to those    
parties who were Members at the time, as determined by the Board in its sole    
discretion, of the act or omission giving rise to the contingent liability for  
which the reserve was established, increased or decreased in proportion to their
Capital Accounts. (b) If at any time an amount is paid or received by the Fund  
(other than contributions to the capital of the Fund, distributions or          
repurchases of Interests or portions thereof) and such amount exceeds the lesser
of $500,000 or 1% of the aggregate value of the Capital Accounts of all Members 
at the time of payment or receipt and such amount was not accrued or reserved   
for but would nevertheless, in accordance with the Fund's accounting practices, 
be treated as applicable to one or more prior Fiscal Periods, then such amount  
shall be proportionately charged or credited, as appropriate, to those parties  
who were Members during such prior Fiscal Period or Periods.                    

         (c) If any amount is required by paragraph (a) or (b) of this Section
5.7 to be charged or credited to a party who is no longer a Member, such amount 
shall be paid by or to such party, as the case may be, in cash, with interest   
from the date on which the Board determines that such charge or credit is       
required. In the case of a charge, the former Member shall be obligated to pay  
the amount of the charge, plus interest as provided above, to the Fund on       
demand; PROVIDED, HOWEVER, that (i) in no event shall a former Member be        
obligated to make a payment exceeding the amount of such Member's Capital       
Account at the time to which the charge relates; and (ii) no such demand shall  
be made after the expiration of three years from the date on which such party   
ceased to be a Member. To the extent that a former Member fails to pay to the   
Fund, in full, any amount required to be charged to such former Member pursuant 
to paragraph (a) or (b), whether due to the expiration of the applicable        
limitation period or for any other reason whatsoever, the deficiency shall be   
charged proportionately to the Capital Accounts of the Members at the time of   
the act or omission giving rise to the charge to the extent feasible, and       
otherwise proportionately to the Capital Accounts of the current Members.       

5.8 INCENTIVE ALLOCATION.                                   

       (a) So long as the authority to provide Advice and Management under
Section 3.4 hereof shall remain effective, the Incentive Allocation shall be    
debited against the Capital Account of each Member (other than the Manager) as  
of the last day of each Allocation Period with respect to such Member and the   
amount so debited shall be credited simultaneously to the Capital Account of the
Manager, or, subject to compliance with the 1940 Act and the Advisers Act, to   
the Capital Accounts of such Members as have been designated in any written     
notice delivered by the Manager, to the Fund within 90 days after the close of  
such Allocation Period.                                                         

     (b) Within 30 days after the close of each Allocation Period with
respect to each Member, the Manager may withdraw up to 100% of the Incentive    
Allocation (computed on the basis of unaudited data) that was credited to the   
Capital Account of the Manager, and debited from such Member's Capital Account  
with respect to such Allocation Period. The Fund shall pay the Manager the      
undrawn balance, if any, of such Incentive Allocation (subject to audit         
adjustments) within 30 days after the completion of the audit of the Fund's     
books. Any amount of such Incentive Allocation not withdrawn by the Manager     
pursuant to the first sentence of this Section 5.8(b) shall be deemed reinvested
in the Fund by the Manager.                                                     

5.9 TAX ALLOCATIONS.                                        

          For each Fiscal Year, items of income, deduction, gain, loss or credit
shall be allocated for income tax purposes among the Members in such a manner as
to reflect equitably amounts credited or debited to each Member's Capital       
Account for the current and prior Fiscal Years (or relevant portions thereof).  
Allocations under this Section 5.9 shall be made pursuant to the principles of  
Sections 704(b) and 704(c) of the Code, and in conformity with Treasury         
Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e)      
promulgated thereunder, as applicable, or the successor provisions to such      
Section and Regulations. Notwithstanding anything to the contrary in this       
Agreement, there shall be allocated to the Members such gains or income as shall
be necessary to satisfy the "qualified income offset" requirement of Treasury   
Regulations Section 1.704-1(b)(2)(ii)(d).                                       

    If the Fund realizes capital gains (including short-term capital
gains) for Federal income tax purposes for any Fiscal Year during or as of the  
end of which one or more Positive Basis Members (as hereinafter defined)        
withdraw from the Fund pursuant to Articles IV or VI hereof, the Board may elect
to allocate such gains as follows: (i) to allocate such gains among such        
Positive Basis Members, PRO RATA in proportion to the respective Positive Basis 
(as hereinafter defined) of each such Positive Basis Member, until either the   
full amount of such gains shall have been so allocated or the Positive Basis of 
each such Positive Basis Member shall have been eliminated and (ii) to allocate 
any gains not so allocated to Positive Basis Members to the other Members in    
such manner as shall reflect equitably the amounts credited to such Members'    
Capital Accounts.                                                               

          As used herein, (i) the term "Positive Basis" shall mean, with respect
to any Member and as of any time of calculation, the amount by which the total  
of such Member's Capital Account as of such time exceeds its "adjusted tax      
basis," for Federal income tax purposes, in its Interest as of such time        
(determined without regard to any adjustments made to such "adjusted tax basis" 
by reason of any transfer or assignment of such Interest, including by reason of
death and without regard to such Member's share of the liabilities of the Fund  
under Section 752 of the Code), and (ii) the term "Positive Basis Member" shall 
mean any Member who withdraws from the Fund and who has a Positive Basis as of  
the effective date of its withdrawal but such Member shall cease to be a        
Positive Basis Member at such time as it shall have received allocations        
pursuant to clause (i) of the preceding sentence equal to its Positive Basis as 
of the effective date of its withdrawal.                                        

5.10 DISTRIBUTIONS.                                         

         (a) The Board, in its sole discretion, may authorize the Fund to make
distributions in cash or in kind at any time to all of the Members on a PRO RATA
basis in accordance with the Members' Fund Percentages. Notwithstanding anything
to the contrary in this Agreement, a Member may be compelled to accept a        
distribution of any asset in kind from the Fund despite the fact that the       
percentage of the asset distributed to the Member exceeds the percentage of that
asset which is equal to the percentage in which the Member shares in            
distributions from the Fund.                                                    

        (b) The Board may withhold taxes from any distribution to any Member
to the extent required by the Code or any other applicable law. For purposes of 
this Agreement, any taxes so withheld by the Fund with respect to any amount    
distributed by the Fund to any Member shall be deemed to be a distribution or   
payment to such Member, reducing the amount otherwise distributable to such     
Member pursuant to this Agreement and, if appropriate, reducing the Capital     
Account of such Member.                                                         

          (c) Notwithstanding anything to the contrary contained herein, none of
the Directors or the Members (including the Manager), nor any other person on   
behalf of the Fund, shall make a distribution to the Members on account of their
interest in the Fund if such distribution would violate the Delaware Act or     
other applicable law.                                                           

5.11 ALLOCATION OF ORGANIZATIONAL EXPENSES.                 

        (a) As of the first Expense Allocation Date, Organizational Expenses
shall be allocated among and debited against the Capital Accounts of the Members
in accordance with their respective Capital Percentages on such Expense         
Allocation Date.                                                                

      (b) As of each Expense Allocation Date following the first Expense
Allocation Date, all amounts previously debited against the Capital Account of a
Member pursuant to this Section 5.11 on the preceding Expense Allocation Date   
will be credited to the Capital Account of such Member, and Organizational      
Expenses then shall be re-allocated among and debited against the Capital       
Accounts of all Members in accordance with their respective Capital Percentages 
on such Expense Allocation Date.                                                

------------------------------------------------------------------------------- 

ARTICLE VI

 DISSOLUTION AND LIQUIDATION

------------------------------------------------------------------------------- 

6.1 DISSOLUTION.                                            

     (a) The Fund shall be dissolved at any time there are no Members,
unless the Fund is continued in accordance with the Delaware Act, or upon the   
occurrence of any of the following events:                                      

       (1)  upon the affirmative vote to dissolve the Fund by both (i) the
             Board and (ii) Members holding at least two-thirds of the total
            number of Voting Interests eligible to be cast by all Members;

         (2)  upon the failure of Members to approve of successor Directors at
               a meeting called by the Manager in accordance with Section 2.6(c)
             hereof when no Director remains to continue the business of the
Fund;                                             

          (3)  upon the expiration of any two-year period which commences on the
            date on which any Member has submitted a written notice to the
         Fund requesting to tender such Member's entire Interest for
             repurchase by the Fund if such Member has not been permitted to
do so at any time during such period;             

       (4)  upon the determination by the Manager to dissolve the Fund; or

(5)  as required by operation of law.                       

      Dissolution of the Fund shall be effective on the day on which the
event giving rise to the dissolution shall occur, but the Fund shall not        
terminate until the assets of the Fund have been liquidated in accordance with  
Section 6.2 hereof and the Certificate has been canceled.                       

6.2 LIQUIDATION OF ASSETS.                                  

   (a) Upon the dissolution of the Fund as provided in Section 6.1
hereof, the Board, acting directly or through a liquidator it selects, shall    
promptly liquidate the business and administrative affairs of the Fund, except  
that if the Board is unable to perform this function, a liquidator elected by   
Members holding a majority of the total number of votes eligible to be cast by  
all Members shall promptly liquidate the business and administrative affairs of 
the Fund. Net Profit and Net Loss during the period of liquidation shall be     
allocated pursuant to Article V hereof. The proceeds from liquidation shall,    
subject to the Delaware Act, be distributed in the following manner:            

        (1)  in satisfaction (whether by payment or the making of reasonable
            provision for payment thereof) of the debts and liabilities of
              the Fund, including the expenses of liquidation (including legal
            and accounting expenses incurred in connection therewith), but
      not including debt and liabilities to Members, up to and
              including the date that distribution of the Fund's assets to the
           Members has been completed, shall first be paid on a PRO RATA
basis;                                            

   (2)  such debts, liabilities or obligations as are owing to the
             Members shall be paid next in their order of seniority and on a
PRO RATA basis; and                               

        (3)  the Members shall be paid next on a PRO RATA basis the positive
               balances of their respective Capital Accounts after giving effect
             to all allocations to be made to such Members' Capital Accounts
           for the Fiscal Period ending on the date of the distributions
under this Section 6.2(a)(3).                     

         (b) Anything in this Section 6.2 to the contrary notwithstanding, but
subject to the priorities set forth in Section 6.2(a) above, upon dissolution of
the Fund, the Board or other liquidator may distribute ratably in kind any      
assets of the Fund; PROVIDED, HOWEVER, that if any in-kind distribution is to be
made (i) the assets distributed in kind shall be valued pursuant to Section 7.3 
hereof as of the actual date of their distribution and charged as so valued and 
distributed against amounts to be paid under Section 6.2(a) above, and (ii) any 
profit or loss attributable to property distributed in-kind shall be included in
the Net Profit or Net Loss for the Fiscal Period ending on the date of such     
distribution.                                                                   

------------------------------------------------------------------------------- 

 ARTICLE VII

ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS

------------------------------------------------------------------------------- 

7.1 ACCOUNTING AND REPORTS.                                 

       (a) The Fund shall adopt for tax accounting purposes any accounting
method which the Board shall decide in its sole discretion is in the best       
interests of the Fund. The Fund's accounts shall be maintained in U.S. currency.

          (b) After the end of each taxable year, the Fund shall furnish to each
Member such information regarding the operation of the Fund and such Member's   
Interest as is necessary for Members to complete Federal and state income tax or
information returns and any other tax information required by federal or state  
law.                                                                            

         (c) Except as otherwise required by the 1940 Act, or as may otherwise
be permitted by rule, regulation or order, within 60 days after the close of the
period for which a report required under this Section 7.1(c) is being made, the 
Fund shall furnish to each Member a semi-annual report and an annual report     
containing the information required by the 1940 Act. The Fund shall cause       
financial statements contained in each annual report furnished hereunder to be  
accompanied by a certificate of independent public accountants based upon an    
audit performed in accordance with generally accepted accounting principles. The
Fund may furnish to each Member such other periodic reports as it deems         
necessary or appropriate in its discretion.                                     

7.2 DETERMINATIONS BY THE BOARD.                            

         (a) All matters concerning the determination and allocation among the
Members of the amounts to be determined and allocated pursuant to Article V     
hereof, including any taxes thereon and accounting procedures applicable        
thereto, shall be determined by the Board (either directly or by the Manager    
pursuant to delegated authority) unless specifically and expressly otherwise    
provided for by the provisions of this Agreement or as required by law, and such
determinations and allocations shall be final and binding on all the Members.   

     (b) The Board may make such adjustments to the computation of Net
Profit or Net Loss or any components (withholding any items of income, gain,    
loss or deduction) comprising any of the foregoing as it considers appropriate  
to reflect fairly and accurately the financial results of the Fund and the      
intended allocation thereof among the Members.                                  

7.3 VALUATION OF ASSETS.                                    

        (a) Except as may be required by the 1940 Act, the Board shall value
or have valued any Securities or other assets and liabilities of the Fund as of 
the close of business on the last day of each Fiscal Period or more frequently, 
in the discretion of the Board, in accordance with such valuation procedures as 
shall be established from time to time by the Board and which conform to the    
requirements of the 1940 Act. In determining the value of the assets of the     
Fund, no value shall be placed on the goodwill or name of the Fund, or the      
office records, files, statistical data or any similar intangible assets of the 
Fund not normally reflected in the Fund's accounting records, but there shall be
taken into consideration any items of income earned but not received, expenses  
incurred but not yet paid, liabilities, fixed or contingent, the unamortized    
portion of any organizational expenses and any other prepaid expenses to the    
extent not otherwise reflected in the books of account, and the value of options
or commitments to purchase or sell Securities or commodities pursuant to        
agreements entered into prior to such valuation date.                           

        (b) The value of Securities and other assets of the Fund and the net
worth of the Fund as a whole determined pursuant to this Section 7.3 shall be   
conclusive and binding on all of the Members and all parties claiming through or
under them.                                                                     

------------------------------------------------------------------------------- 

ARTICLE VIII

MISCELLANEOUS PROVISIONS

------------------------------------------------------------------------------- 

8.1 AMENDMENT OF LIMITED LIABILITY COMPANY AGREEMENT.       

        (a) Except as otherwise provided in this Section 8.1, this Agreement
may be amended, in whole or in part, with the approval of (i) the Board         
(including the vote of a majority of the Independent Directors, if required by  
the 1940 Act), (ii) the Manager or (iii) a majority (as defined in the 1940 Act)
of the outstanding Voting Interests of the Fund.                                

(b) Any amendment that would:                               

       (1) increase the obligation of a Member to make any contribution to
the capital of the Fund;                                                        

       (2) reduce the Capital Account of a Member other than in accordance
with Article V; or                                                              

(3) modify the events causing the dissolution of the Fund;  

may be made only if (i) the written consent of each Member adversely affected   
thereby is obtained prior to the effectiveness thereof or (ii) such amendment   
does not become effective until (A) each Member has received written notice of  
such amendment and (B) any Member objecting to such amendment has been afforded 
a reasonable opportunity (pursuant to such procedures as may be prescribed by   
the Board) to tender his or her entire Interest for repurchase by the Fund.     

     (c) The Board at any time without the consent of the Members may:

         (1)  restate this Agreement together with any amendments hereto which
               have been duly adopted in accordance herewith to incorporate such
amendments in a single, integrated document;      

         (2)  amend this Agreement (other than with respect to the matters set
           forth in Section 8.1(b) hereof) to effect compliance with any
         applicable law or regulation or to cure any ambiguity or to
     correct or supplement any provision hereof which may be
              inconsistent with any other provision hereof, provided that such
              action does not adversely affect the rights of any Member in any
material respect; and                             

         (3)  amend this Agreement to make such changes as may be necessary or
         desirable, based on advice of legal counsel to the Fund, to
           assure the Fund's continuing eligibility to be classified for
            U.S. Federal income tax purposes as a partnership which is not
         treated as a corporation under Section 7704(a) of the Code;

subject, however, to the limitation that any amendment to this Agreement        
pursuant to Sections 8.1(c)(2) or (3) hereof shall be valid only if approved by 
the Board (including the vote of a majority of the Independent Directors, if    
required by the 1940 Act).                                                      

        (d) The Board shall give written notice of any proposed amendment to
this Agreement (other than any amendment of the type contemplated by clause (1) 
of Section 8.1(a) hereof) to each Member, which notice shall set forth (i) the  
text of the proposed amendment or (ii) a summary thereof and a statement that   
the text thereof will be furnished to any Member upon request.                  

8.2 SPECIAL POWER OF ATTORNEY.                              

          (a) Each Member hereby irrevocably makes, constitutes and appoints the
Manager and each of the Directors, acting severally, and any liquidator of the  
Fund's assets appointed pursuant to Section 6.2 hereof with full power of       
substitution, the true and lawful representatives and attorneys-in-fact of, and 
in the name, place and stead of, such Member, with the power from time to time  
to make, execute, sign, acknowledge, swear to, verify, deliver, record, file    
and/or publish:                                                                 

(1)  any amendment to this Agreement which complies with the
               provisions of this Agreement (including the provisions of Section
8.1 hereof);                                      

         (2)  any amendment to the Certificate required because this Agreement
          is amended or as otherwise required by the Delaware Act; and

         (3)  all other such instruments, documents and certificates which, in
             the opinion of legal counsel to the Fund, from time to time may
          be required by the laws of the United States of America, the
           State of Delaware or any other jurisdiction in which the Fund
             shall determine to do business, or any political subdivision or
               agency thereof, or which such legal counsel may deem necessary or
         appropriate to effectuate, implement and continue the valid
               existence and business of the Fund as a limited liability company
under the Delaware Act.                           

    (b) Each Member is aware that the terms of this Agreement permit
certain amendments to this Agreement to be effected and certain other actions to
be taken or omitted by or with respect to the Fund without such Member's        
consent. If an amendment to the Certificate or this Agreement or any action by  
or with respect to the Fund is taken in the manner contemplated by this         
Agreement, each Member agrees that, notwithstanding any objection which such    
Member may assert with respect to such action, the attorneys-in-fact appointed  
hereby are authorized and empowered, with full power of substitution, to        
exercise the authority granted above in any manner which may be necessary or    
appropriate to permit such amendment to be made or action lawfully taken or     
omitted. Each Member is fully aware that each Member will rely on the           
effectiveness of this special power-of-attorney with a view to the orderly      
administration of the affairs of the Fund.                                      

    (c) This power-of-attorney is a special power-of-attorney and is
coupled with an interest in favor of the Manager and each of the Directors,     
acting severally, and any liquidator of the Fund's assets, appointed pursuant to
Section 6.2 hereof, and as such:                                                

   (1)  shall be irrevocable and continue in full force and effect
             notwithstanding the subsequent death or incapacity of any party
              granting this power-of-attorney, regardless of whether the Fund,
            the Board or any liquidator shall have had notice thereof; and

          (2)  shall survive the delivery of a Transfer by a Member of the whole
             or any portion of such Member's Interest, except that where the
             transferee thereof has been approved by the Board for admission
               to the Fund as a substituted Member, this power-of-attorney given
             by the transferor shall survive the delivery of such assignment
             for the sole purpose of enabling the Board or any liquidator to
              execute, acknowledge and file any instrument necessary to effect
such substitution.                                

8.3 NOTICES.                                                

         Notices which may or are required to be provided under this Agreement
shall be made, if to a Member, by regular mail, hand delivery, registered or    
certified mail return receipt requested, commercial courier service, telex or   
telecopier, or, if to the Fund, by registered or certified mail, return receipt 
requested, and shall be addressed to the respective parties hereto at their     
addresses as set forth on the books and records of the Fund (or to such other   
addresses as may be designated by any party hereto by notice addressed to the   
Fund in the case of notice given to any Member, and to each of the Members in   
the case of notice given to the Fund). Notices shall be deemed to have been     
provided when delivered by hand, on the date indicated as the date of receipt on
a return receipt or when received if sent by regular mail, commercial courier   
service, telex or telecopier. A document that is not a notice and that is       
required to be provided under this Agreement by any party to another party may  
be delivered by any reasonable means.                                           

8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.          

        This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors, assigns, executors,      
trustees or other legal representatives, but the rights and obligations of the  
parties hereunder may not be Transferred or delegated except as provided in this
Agreement and any attempted Transfer or delegation thereof which is not made    
pursuant to the terms of this Agreement shall be void.                          

8.5 APPLICABILITY OF 1940 ACT AND FORM N-2.                 

          The parties hereto acknowledge that this Agreement is not intended to,
and does not set forth the substantive provisions contained in the 1940 Act and 
the Form N-2 which affect numerous aspects of the conduct of the Fund's business
and of the rights, privileges and obligations of the Members. Each provision of 
this Agreement shall be subject to and interpreted in a manner consistent with  
the applicable provisions of the 1940 Act and the Form N-2.                     

8.6 CHOICE OF LAW; ARBITRATION.                             

         (a) Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, the parties expressly agree that all the terms and   
provisions hereof shall be construed under the laws of the State of Delaware,   
including the Delaware Act, without regard to the conflict of law principles of 
such State.                                                                     

         (B) EACH MEMBER AGREES TO SUBMIT ALL CONTROVERSIES ARISING BETWEEN OR
AMONG MEMBERS OR ONE OR MORE MEMBERS AND THE FUND IN CONNECTION WITH THE FUND OR
ITS BUSINESSES OR CONCERNING ANY TRANSACTION, DISPUTE OR THE CONSTRUCTION,      
PERFORMANCE OR BREACH OF THIS OR ANY OTHER AGREEMENT, WHETHER ENTERED INTO PRIOR
TO, ON OR SUBSEQUENT TO THE DATE HEREOF, TO ARBITRATION IN ACCORDANCE WITH THE  
PROVISIONS SET FORTH BELOW. EACH MEMBER UNDERSTANDS THAT:                       

(1)  ARBITRATION IS FINAL AND BINDING ON THE PARTIES;       

        (2)  THE PARTIES ARE WAIVING THEIR RIGHTS TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO JURY TRIAL;                

     (3)  PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS;                 

  (4)  THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
             FINDINGS OR LEGAL REASONING AND A PARTY'S RIGHT TO APPEAL OR TO
              SEEK MODIFICATION OF RULINGS BY ARBITRATORS IS STRICTLY LIMITED;
AND                                               

    (5)  A PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
        ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.                                         

         (C) CONTROVERSIES SHALL BE DETERMINED BY ARBITRATION BEFORE, AND ONLY
BEFORE, AN ARBITRATION PANEL CONVENED BY THE NEW YORK STOCK EXCHANGE, INC.      
("NYSE") OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (THE "NASD"),  
TO THE FULLEST EXTENT PERMITTED BY LAW. THE PARTIES MAY ALSO SELECT ANY OTHER   
NATIONAL SECURITIES EXCHANGE'S ARBITRATION FORUM UPON WHICH A PARTY IS LEGALLY  
REQUIRED TO ARBITRATE THE CONTROVERSY, TO THE FULLEST EXTENT PERMITTED BY LAW.  
SUCH ARBITRATION SHALL BE GOVERNED BY THE RULES OF THE ORGANIZATION CONVENING   
THE PANEL, TO THE FULLEST EXTENT PERMITTED BY LAW. JUDGMENT ON ANY AWARD OF ANY 
SUCH ARBITRATION MAY BE ENTERED IN THE SUPREME COURT OF THE STATE OF NEW YORK OR
IN ANY OTHER COURT HAVING JURISDICTION OVER THE PARTY OR PARTIES AGAINST WHOM   
SUCH AWARD IS RENDERED. EACH MEMBER AGREES THAT THE DETERMINATION OF THE        
ARBITRATORS SHALL BE BINDING AND CONCLUSIVE UPON THEM.                          

     (D) NO MEMBER SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO
ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST  
ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION OR WHO IS A MEMBER
OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY      
CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNLESS AND UNTIL: (I) THE CLASS 
CERTIFICATION IS DENIED; OR (II) THE CLASS IS DECERTIFIED; OR (III) THE MEMBER  
IS EXCLUDED FROM THE CLASS BY THE COURT. THE FORBEARANCE TO ENFORCE AN AGREEMENT
TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT   
EXCEPT TO THE EXTENT STATED HEREIN.                                             

8.7 NOT FOR BENEFIT OF CREDITORS.                           

         The provisions of this Agreement are intended only for the regulation
of relations among past, present and future Members and the Fund. This Agreement
is not intended for the benefit of non-Member creditors and no rights are       
granted to non-Member creditors under this Agreement.                           

8.8 CONSENTS.                                               

 Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall 
be filed and kept with the books of the Fund.                                   

8.9 MERGER AND CONSOLIDATION.                               

          (a) The Fund may merge or consolidate with or into one or more limited
liability companies formed under the Delaware Act or other business entities (as
defined in Section 18-209(a) of the Delaware Act) pursuant to an agreement of   
merger or consolidation which has been approved in the manner contemplated by   
Section 18-209(b) of the Delaware Act.                                          

       (b) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, an agreement of merger or consolidation approved in accordance  
with Section 18-209(b) of the Delaware Act may, to the extent permitted by      
Section 18-209(b) of the Delaware Act, (i) effect any amendment to this         
Agreement, (ii) effect the adoption of a new limited liability company agreement
for the Fund if it is the surviving or resulting limited liability company in   
the merger or consolidation, or (iii) provide that the limited liability company
agreement of any other constituent limited liability company to the merger or   
consolidation (including a limited liability company formed for the purpose of  
consummating the merger or consolidation) shall be the limited liability company
agreement of the surviving or resulting limited liability company.              

8.10 PRONOUNS.                                              

     All pronouns shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identity of the person or persons, firm or   
corporation may require in the context thereof.                                 

8.11 CONFIDENTIALITY.                                       

     (a) A Member may obtain from the Fund, for any purpose reasonably
related to the Member's Interest, such information regarding the affairs of the 
Fund as is just and reasonable under the Delaware Act, subject to reasonable    
standards (including standards governing what information and documents are to  
be furnished, at what time and location and at whose expense) established by the
Board.                                                                          

        (b) Each Member covenants that, except as required by applicable law
or any regulatory body, it will not divulge, furnish or make accessible to any  
other person the name or address (whether business, residence or mailing) of any
Member (collectively, "Confidential Information") without the prior written     
consent of the Board, which consent may be withheld in its sole discretion.     

          (c) Each Member recognizes that in the event that this Section 8.11 is
breached by any Member or any of its principals, partners, members, directors,  
officers, employees or agents or any of its affiliates, including any of such   
affiliates' principals, partners, members, directors, officers, employees or    
agents, irreparable injury may result to the non-breaching Members and the Fund.
Accordingly, in addition to any and all other remedies at law or in equity to   
which the non-breaching Members and the Fund may be entitled, such Members also 
shall have the right to obtain equitable relief, including, without limitation, 
injunctive relief, to prevent any disclosure of Confidential Information, plus  
reasonable attorneys' fees and other litigation expenses incurred in connection 
therewith.                                                                      

   (d) The Fund shall have the right to keep confidential from the
Members for such period of time as it deems reasonable any information which the
Board reasonably believes to be in the nature of trade secrets or other         
information the disclosure of which the Board in good faith believes is not in  
the best interest of the Fund or could damage the Fund or its business or which 
the Fund is required by law or by agreement with a third party to keep          
confidential.                                                                   

8.12 CERTIFICATION OF NON-FOREIGN STATUS.                   

  Each Member or transferee of an Interest from a Member that is
admitted to the Fund in accordance with this Agreement shall certify, upon      
admission to the Fund and at such other time thereafter as the Board may        
request, whether he or she is a "United States Person" within the meaning of    
Section 7701(a)(30) of the Code on forms to be provided by the Fund, and shall  
notify the Fund within 30 days of any change in such Member's status. Any Member
who shall fail to provide such certification when requested to do so by the     
Board may be treated as a non-United States Person for purposes of U.S. Federal 
tax withholding.                                                                

8.13 SEVERABILITY.                                          

  If any provision of this Agreement is determined by a court of
competent jurisdiction not to be enforceable in the manner set forth in this    
Agreement, each Member agrees that it is the intention of the Members that such 
provision should be enforceable to the maximum extent possible under applicable 
law. If any provisions of this Agreement are held to be invalid or              
unenforceable, such invalidation or unenforceability shall not affect the       
validity or enforceability of any other provision of this Agreement (or portion 
thereof).                                                                       

8.14 ENTIRE AGREEMENT.                                      

   This Agreement (including the Schedule attached hereto which is
incorporated herein) constitutes the entire agreement among the parties hereto  
pertaining to the subject matter hereof and supersedes all prior agreements and 
understandings pertaining thereto. It is hereby acknowledged and agreed that the
Board, without the approval of any Member may enter into written agreements     
("Other Agreements") with Members, executed contemporaneously with the admission
of such Members to the Fund, effecting the terms hereof or of any application in
order to meet certain requirements of such Members. The parties hereto agree    
that any terms contained in an Other Agreement with a Member shall govern with  
respect to such Member notwithstanding the provisions of this Agreement or of   
any application.                                                                

8.15 DISCRETION.                                            

         To the fullest extent permitted by law, whenever in this Agreement, a
person is permitted or required to make a decision (i) in its "sole discretion" 
or "discretion" or under a grant of similar authority or latitude, such person  
shall be entitled to consider only such interests and factors as it desires,    
including its own interests, and shall have no duty or obligation to give any   
consideration to any interest of or factors affecting the Fund or the Members,  
or (ii) in its "good faith" or under another express standard, then such person 
shall act under such express standard and shall not be subject to any other or  
different standards imposed by this Agreement or any other agreement            
contemplated herein or by relevant provisions of law or in equity or otherwise. 

8.16 COUNTERPARTS.                                          

        This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,          
notwithstanding that all the parties have not signed the same counterpart.      

          8.17 TAX MATTERS PARTNER. The Manager hereby is designated as the "tax
matters partner" under the Code for the Fund.                                   

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  THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS
ENTIRETY BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSES SET FORTH
IN SECTION 8.6 ON PAGES 35-36 AND THE CONFIDENTIALITY CLAUSES SET FORTH IN      
SECTION 8.11 ON PAGE 37.                                                        

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.                                        

              ORGANIZATIONAL MEMBER:

                 /S/ NORMAN E. SIENKO, JR.
                 -------------------------
             Norman E. Sienko, Jr.

MANAGER:

                    PW WILLOW MANAGEMENT, L.L.C.

                    By:  PW FUND ADVISOR, L.L.C.

              By:/S/ DANIEL ARCHETTI
                   Name: Daniel Archetti
                        Title:   Authorized Person

           ADDITIONAL MEMBERS:

       Each person who has signed or has had signed on its behalf a Member
Signature Page, which shall constitute a counterpart hereof.                    

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The undersigned understand and agree to the provisions of this Agreement        
pertaining to the obligations of Directors.                                     

                  /S/ E. GARRETT BEWKES, JR.
                        E. Garrett Bewkes, Jr., Director

          /S/ MEYER FELDBERG
                Meyer Feldberg, Director

          /S GEORGE W. GOWEN
                 George W. Gowen, Director

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SCHEDULE I

 DIRECTORS

NAME AND ADDRESS                                                                

E. Garrett Bewkes, Jr.                                                          
c/o PaineWebber Incorporated                                                    
1285 Avenue of the Americas                                                     
New York, New York  10019                                                       

Meyer Feldberg                                                                  
c/o Columbia University                                                         
101 Uris Hall                                                                   
New York, New York  10027                                                       

George W. Gowen                                                                 
666 Third Avenue                                                                
New York, New York  10017                                                       

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FORM N-2

PW WILLOW FUND, L.L.C.

PART C - OTHER INFORMATION

ITEM 24.   FINANCIAL STATEMENTS AND EXHIBITS                                    

(1)      Financial Statements:                                

                  Because the Registrant has no assets, financial statements are
omitted.                                    

(2)      Exhibits:                                            

(a)      (1)      Certificate of Formation. 
                    (2)      Limited Liability Company Agreement.*
(b)      Not Applicable.                    
(c)      Not Applicable.                    
(d)      See Item 24(2)(a)(2).              
(e)      Not Applicable.                    
(f)      Not Applicable.                    
(g)      See Item 24(2)(a)(2).              
(h)      Not Applicable.                    
(i)      Not Applicable.                    
(j)      Custodian Services Agreement.      
              (k)      (1)      Management and Administration Agreement.
                      (2)      Administration, Accounting and Investor
           Services Agreement.
(3)      Escrow Agreement.
(l)      Not Applicable.                    
(m)      Not Applicable.                    
(n)      Not Applicable.                    
(o)      Not Applicable.                    
(p)      Not Applicable.                    
(q)      Not Applicable.                    
(r)      Not Applicable.                    
--------------                                                
* See Appendix A of the Confidential Offering Memorandum.     

ITEM 25.  MARKETING ARRANGEMENTS                                                

Not Applicable.                                               

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ITEM 26.   OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION                          

Blue Sky fees and expenses (including fees of                                   
counsel)                                                         $  5,000   
Legal and accounting fees and expenses                              125,000     
Printing, engraving and offering expenses                           115,000     
Miscellaneous                                                         5,000     
                                                                 -----------
                                                              $250,000
                                                                 ===========

ITEM 27.   PERSONS CONTROLLED BY OR UNDER COMMON CONTROL                        

         After completion of the private offering of interests, the Registrant
expects that no person will be directly or indirectly under common control with 
the Registrant, except that the Registrant may be deemed to be controlled by PW 
Willow Management, L.L.C. (the "Manager"), the manager of the Registrant, which,
in turn, is controlled by PW Fund Advisor, L.L.C. Information regarding the     
ownership of PW Fund Advisor, L.L.C. is set forth in its Form ADV, as filed with
the Commission (File No. 801-55537).                                            

ITEM 28.   NUMBER OF HOLDERS OF SECURITIES                                      

Title of Class            Number of Record Holders                              
--------------            ------------------------                              
Interests                 1   (The Registrant anticipates                       
           that as a result of the private
            offering of interests there will
           be more than 100 record holders
             of such interests in the future.)

ITEM 29.   INDEMNIFICATION                                                      

          Reference is made to Section 3.9 of the Registrant's Limited Liability
Company Agreement (the "LLC Agreement") filed as Exhibit (a)(2) hereto. The     
Registrant hereby undertakes that it will apply the indemnification provision of
the LLC Agreement in a manner consistent with Release 40-11330 of the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended    
(the "1940 Act"), so long as the interpretation therein of Sections 17(h) and   
17(i) of the 1940 Act remains in effect.                                        

     The Registrant, in conjunction with the Manager, the Registrant's
directors and other registered management investment companies managed by the   
Manager or its affiliates, maintains insurance on behalf of any person who is or
was an independent director, officer, employee, or agent of the Registrant, or  
who is or was serving at the request of the Registrant as an individual general 
partner, director, officer, employee or agent of another managed investment     
company, against certain liability asserted against and incurred by, or arising 
out of, his or her position. However, in no event will the Registrant pay that  
portion of the premium, if any, for insurance to indemnify any such person or   
any act for which the Registrant itself is not permitted to indemnify.          

ITEM 30.   BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER                 

 A description of any other business, profession, vocation, or
employment of a substantial nature in which the investment adviser of the       
Registrant, and each member, director, executive officer, or partner of any such
investment adviser, is or has been, at any time during the past two fiscal      
years, engaged in for his or her own account or in the capacity of member,      
director, officer, employee, partner or trustee, is set forth in the            
Registrant's Confidential Memorandum in the section entitled "THE MANAGER, PWFA 
AND BOND STREET." Information as to the members and officers of PW Fund Advisor,
L.L.C. is included in its Form ADV as filed with the Commission (File No.       
801-55537), and is incorporated herein by reference. Information as to the      
members and officers of Bond Street Capital, L.L.C. will be filed by amendment. 

ITEM 31.  LOCATION OF ACCOUNTS AND RECORDS                                      

       The Administrator maintains certain required accounting related and
financial books and records of the Registrant at 400 Bellevue Parkway,          
Wilmington, Delaware 19809. The other required books and records are maintained 
by the Manager, c/o PW Fund Advisor, L.L.C., 1285 Avenue of the Americas, New   
York, New York 10019.                                                           

ITEM 32.   MANAGEMENT SERVICES                                                  

Not Applicable.                                               

ITEM 33.   UNDERTAKINGS                                                         

Not Applicable.                                               

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FORM N-2

PW WILLOW FUND, L.L.C.

SIGNATURES

       Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this registration statement to be signed on its  
behalf by the undersigned, thereunto duly authorized, in the City of New York,  
and State of New York, on the 29th day of February, 2000.                       

                PW WILLOW FUND, L.L.C.

                          By: PW Willow Management, L.L.C.
         Manager

                     By: PW Fund Advisor, L.L.C.
                 Managing Member

                  By: /S/  Daniel Archetti
                                --------------------------
                            Name:  Daniel Archetti
                                      Title: Authorized Representative

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FORM N-2
PW WILLOW FUND, L.L.C.
EXHIBIT INDEX 

EXHIBIT NUMBER      DOCUMENT DESCRIPTION                                        

(a)(1)              Certificate of Formation.                                   
(2)              Limited Liability Company Agreement.*                    
(j)                 Custodian Services Agreement.                               
(k)(1)              Management and Administration Agreement.                    
  (2)              Administration, Accounting and Investor Services Agreement.
(3)              Escrow Agreement.                                        

--------------                                                                  
*    See Appendix A of the Confidential Offering Memorandum.                    

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                                                                  EXHIBIT (a)(1)

CERTIFICATE OF FORMATION

OF

PW WILLOW FUND, L.L.C.

Under Section 18-201 of the Delaware
 Limited Liability Company Act

 The undersigned, being an authorized person under Section 18-201 of the
Limited Liability Company Act of the State of Delaware, hereby certifies:       

    FIRST: The name of the limited liability company is PW Willow Fund, L.L.C.
(the "Company").                                                                

SECOND: The address of the Company's registered office in the State of
Delaware is Corporation Service Company, 1013 Centre Road, in the City of       
Wilmington, County of New Castle (Zip Code 19805). The name of its registered   
agent at such address is Corporation Service Company.                           

 IN WITNESS WHEREOF, the undersigned has signed this Certificate on this
31st day of January, 2000.                                                      

MANAGER:

                    PW WILLOW MANAGEMENT, L.L.C.

        MANAGING MEMBER:

               PW FUND ADVISOR, L.L.C.

                By:  /s/ Daniel Archetti
                    Name:  Daniel Archetti
                         Title: Authorized Signature

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                                                                     EXHIBIT (j)

CUSTODIAN SERVICES AGREEMENT

  THIS AGREEMENT is made as of February 11, 2000 by and between PFPC TRUST
COMPANY, a limited purpose trust company incorporated under the laws of Delaware
("PFPC Trust"), and PW WILLOW FUND, L.L.C., a Delaware limited liability company
(the "Fund").                                                                   

W I T N E S S E T H:

WHEREAS, the Fund is registered as a closed-end management investment 
company under the Investment Company Act of 1940, as amended (the "1940 Act");  
and                                                                             

WHEREAS, the Fund wishes to retain PFPC Trust to provide custodian    
services, and PFPC Trust wishes to furnish custodian services, either directly  
or through an affiliate or affiliates, as more fully described herein.          

NOW, THEREFORE, in consideration of the premises and mutual covenants 
herein contained, and intending to be legally bound hereby, the parties hereto  
agree as follows:                                                               

1.   DEFINITIONS.  AS USED IN THIS AGREEMENT:                                   

(a)  "1933 ACT" means the Securities Act of 1933, as amended.         

(b)  "1934 ACT" means the Securities Exchange Act of 1934, as amended.

 (c)  "AUTHORIZED PERSON" means any person duly authorized by the Fund's
         Board to give Oral Instructions and Written Instructions on behalf of
          the Fund and listed on the Authorized Persons Appendix attached hereto
          and made a part hereof, or any amendment thereto as may be received by
         PFPC. An Authorized Person's scope of authority may be limited by the
   Fund by setting forth such limitation in the Authorized Persons
Appendix.                                                   

     (d)  "BOARD" AND "MEMBERS" shall have the same meanings as set forth in the
      Fund's limited liability company agreement (the "Limited Liability
Company Agreement").                                        

   (e)  "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury book-entry system
     for United States and federal agency securities, its successor or
     successors, and its nominee or nominees and any book-entry system
         maintained by an exchange registered with the SEC under the 1934 Act.

(f)  "CEA" means the Commodities Exchange Act, as amended.            

  (g)  "CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.                         

     (h)  "ORAL INSTRUCTIONS" mean oral instructions received by PFPC Trust from
     an Authorized Person or from a person reasonably believed by PFPC
Trust to be an Authorized Person.                           

 (i)  "PFPC TRUST" means PFPC Trust or a subsidiary or affiliate of PFPC
Trust Company.                                              

(j)  "PROPERTY" means:                                                

         (i)  any and all securities and other investment items which the Fund
           may from time to time deposit, or cause to be deposited, with
               PFPC Trust or which PFPC Trust may from time to time hold for the
Fund;                                             

 (ii) all income in respect of any of such securities or other
investment items;                                 

          (iii) all proceeds of the sale of any of such securities or investment
items; and                                        

         (iv) all proceeds of the sale of securities issued by the Fund, which
             are received by PFPC Trust from time to time, from or on behalf
of the Fund.                                      

(k)  "SEC" means the Securities and Exchange Commission.              

  (l)  "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.                                                    

(m)  "SHARES" mean the interests of any series or class of the Fund.  

(n)  "WRITTEN INSTRUCTIONS" mean written instructions signed by two   
          Authorized Persons and received by PFPC Trust. The instructions may be
       delivered by hand, mail, tested telegram, cable, telex or facsimile
sending device.                                             

2.   APPOINTMENT. The Fund hereby appoints PFPC Trust to provide custodian      
     services to the Fund, on behalf of each of its investment portfolios (each,
a "Portfolio"), and PFPC Trust accepts such appointment and agrees to 
furnish such services.                                                

3.   DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will    
provide PFPC Trust with the following:                                

 (a)  certified or authenticated copies of the resolutions of the Board,
        approving the appointment of PFPC Trust or its affiliates to provide
services;                                                   

 (b)  a copy of the Fund's most recent effective registration statement;

(c)  a copy of the Limited Liability Company Agreement;               

   (d)  a copy of the placement agency agreement with respect to the Shares;

   (e)  a copy of each Portfolio's administration agreement if PFPC Trust is
not providing the Portfolio with such services;             

    (f)  copies of any shareholder servicing agreements made in respect of the
Fund or a Portfolio; and                                    

(g)  certified or authenticated copies of any and all amendments or   
supplements to the foregoing.                               

4.   COMPLIANCE WITH LAWS. PFPC Trust undertakes to comply with all applicable  
    requirements of the Securities Laws and any laws, rules and regulations of
    governmental authorities having jurisdiction with respect to the duties to
be performed by PFPC Trust hereunder. Except as specifically set forth
 herein, PFPC Trust assumes no responsibility for such compliance by the
Fund or any Portfolio.                                                

5.   INSTRUCTIONS.                                                              

     (a)  Unless otherwise provided in this Agreement, PFPC Trust shall act only
upon Oral Instructions and Written Instructions.            

  (b)  PFPC Trust shall be entitled to rely upon any Oral Instructions and
         Written Instructions it receives from an Authorized Person (or from a
        person reasonably believed by PFPC Trust to be an Authorized Person)
   pursuant to this Agreement. PFPC Trust may assume that any Oral
          Instructions or Written Instructions received hereunder are not in any
       way inconsistent with the provisions of organizational documents of
          the Fund or of any vote, resolution or proceeding of the Board, or the
        Members unless and until PFPC Trust receives Written Instructions to
the contrary.                                               

(c)  The Fund agrees to forward to PFPC Trust Written Instructions    
         confirming Oral Instructions (except where such Oral Instructions are
          given by PFPC Trust or its affiliates) so that PFPC Trust receives the
      Written Instructions by the close of business on the same day that
      such Oral Instructions are received. The fact that such confirming
       Written Instructions are not received by PFPC Trust in no way shall
     invalidate the transactions or enforceability of the transactions
   authorized by the Oral Instructions. Where Oral Instructions or
        Written Instructions reasonably appear to have been received from an
         Authorized Person, PFPC Trust shall incur no liability to the Fund in
       acting upon such Oral Instructions or Written Instructions provided
      that PFPC Trust's actions comply with the other provisions of this
Agreement.                                                  

6.   RIGHT TO RECEIVE ADVICE.                                                   

(a)  ADVICE OF THE FUND. If PFPC Trust is in doubt as to any action it
   should or should not take, PFPC Trust may request directions or
         advice, including Oral Instructions or Written Instructions, from the
Fund.                                                       

    (b)  ADVICE OF COUNSEL. If PFPC Trust shall be in doubt as to any question
      of law pertaining to any action it should or should not take, PFPC
         Trust may request advice at its own cost from such counsel of its own
    choosing (who may be counsel for the Fund, the Fund's investment
adviser or PFPC Trust, at the option of PFPC Trust).        

 (c)  CONFLICTING ADVICE. In the event of a conflict between directions,
  advice or Oral Instructions or Written Instructions PFPC Trust
         receives from the Fund, and the advice it receives from counsel, PFPC
         Trust shall be entitled to rely upon and follow the advice of counsel
       provided that such counsel is selected with reasonable care. In the
   event PFPC Trust so relies on the advice of counsel, PFPC Trust
       remains liable for any action or omission on the part of PFPC Trust
   which constitutes willful misfeasance, bad faith, negligence or
  reckless disregard by PFPC Trust of any duties, obligations or
responsibilities set forth in this Agreement.               

    (d)  PROTECTION OF PFPC TRUST. PFPC Trust shall be protected in any action
         it takes or does not take in reliance upon directions, advice or Oral
          Instructions or Written Instructions it receives from the Fund or from
          counsel and which PFPC Trust believes, in good faith, to be consistent
 with those directions, advice or Oral Instructions or Written
     Instructions. Nothing in this section shall be construed so as to
     impose an obligation upon PFPC Trust (i) to seek such directions,
          advice or Oral Instructions or Written Instructions, or (ii) to act in
   accordance with such directions, advice or Oral Instructions or
       Written Instructions unless, under the terms of other provisions of
    this Agreement, the same is a condition of PFPC Trust's properly
      taking or not taking such action. Nothing in this subsection shall
          excuse PFPC Trust when an action or omission on the part of PFPC Trust
      constitutes willful misfeasance, bad faith, negligence or reckless
          disregard by PFPC Trust of any duties, obligations or responsibilities
set forth in this Agreement.                                

7.   RECORDS; VISITS. The books and records pertaining to the Fund and any      
    Portfolio, which are in the possession or under the control of PFPC Trust,
shall be the property of the Fund. Such books and records shall be    
  prepared, preserved and maintained as required by the 1940 Act and other
    applicable securities laws, rules and regulations. The Fund and Authorized
 Persons shall have access to such books and records at all times during
PFPC Trust's normal business hours. Upon the reasonable request of the
    Fund, copies of any such books and records shall be provided by PFPC Trust
   to the Fund or to an authorized representative of the Fund, at the Fund's
expense.                                                              

8.   CONFIDENTIALITY. PFPC Trust agrees to keep confidential all records of the 
Fund and information relating to the Fund and its Members, unless the 
release of such records or information is otherwise consented to, in  
writing, by the Fund. The Fund agrees that such consent shall not be  
unreasonably withheld and may not be withheld where PFPC Trust may be 
exposed to civil or criminal contempt proceedings or when required to 
divulge such information or records to duly constituted authorities.  

9.   COOPERATION WITH ACCOUNTANTS. PFPC Trust shall cooperate with the Fund's   
    independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the   
expression of their opinion, as required by the Fund.                 

10.  DISASTER RECOVERY. PFPC Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable     
     provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment  
failures, PFPC Trust at no additional expense to the Fund, shall take 
   reasonable steps to minimize service interruptions. PFPC Trust shall have
no liability with respect to the loss of data or service interruptions
caused by equipment failure provided such loss or interruption is not 
  caused by PFPC Trust's own willful misfeasance, bad faith, negligence or
reckless disregard of its duties or obligations under this Agreement. 

11.  YEAR 2000 READINESS DISCLOSURE. PFPC Trust (a) has reviewed its business   
   and operations as they relate to the services provided hereunder, (b) has
developed or is developing a program to remediate or replace computer 
    applications and systems, and (c) has developed a testing plan to test the
    remediation or replacement of computer applications/systems, in each case,
to address on a timely basis the risk that certain computer           
applications/systems used by PFPC Trust may be unable to recognize and
perform properly date sensitive functions involving dates prior to,   
     including and after December 31, 1999, including dates such as February 29,
     2000 (the "Year 2000 Challenge"). To the best of PFPC Trust's knowledge and
    belief, the reasonably foreseeable consequences of the Year 2000 Challenge
  will not adversely effect PFPC Trust's ability to perform its duties and
obligations under this Agreement.                                     

12.  COMPENSATION. As compensation for custody services rendered by PFPC Trust  
during the term of this Agreement, the Fund, on behalf of each of the 
 Portfolios, will pay to PFPC Trust a fee or fees as may be agreed to in
writing from time to time by the Fund and PFPC Trust.                 

13.  INDEMNIFICATION. (a) The Fund, on behalf of each Portfolio, agrees to      
   indemnify and hold harmless PFPC Trust and its affiliates from all taxes,
    charges, expenses, assessments, claims and liabilities (including, without
     limitation, liabilities arising under the Securities Laws and any state and
     foreign securities and blue sky laws, and amendments thereto) and expenses,
including (without limitation) reasonable attorneys' fees and         
     disbursements, (collectively, "Losses") arising directly or indirectly from
    any action or omission to act which PFPC Trust takes (i) at the request or
   on the direction of or in reliance on the advice of the Fund or (ii) upon
   Oral Instructions or Written Instructions. Neither PFPC Trust, nor any of
     its affiliates, shall be indemnified against any liability (or any expenses
    incident to such liability) arising out of PFPC Trust's or its affiliates'
     own willful misfeasance, bad faith, negligence or reckless disregard of its
duties under this Agreement.                                          

     (b) Notwithstanding anything in this Agreement to the contrary, neither the
    Fund nor any Portfolio shall be liable to PFPC Trust or its affiliates for
   any consequential, special or indirect losses or damages which PFPC Trust
 or its affiliates may incur or suffer, whether or not the likelihood of
such losses or damages was known by the Fund.                         

14.  RESPONSIBILITY OF PFPC TRUST.                                              

    (a)  PFPC Trust shall be under no duty to take any action on behalf of the
       Fund or any Portfolio except as specifically set forth herein or as
      may be specifically agreed to by PFPC Trust in writing. PFPC Trust
        shall be obligated to exercise care and diligence in the performance
     of its duties hereunder, to act in good faith and to use its best
          efforts, within reasonable limits, in performing services provided for
          under this Agreement. PFPC Trust agrees to indemnify and hold harmless
       the Fund from Losses arising out of PFPC Trust's failure to perform
        its duties under this Agreement to the extent such damages arise out
          of PFPC Trust's willful misfeasance, bad faith, negligence or reckless
disregard of its duties under this Agreement.               

(b)  Without limiting the generality of the foregoing or of any other 
      provision of this Agreement, (i) PFPC Trust shall not be under any
          duty or obligation to inquire into and shall not be liable for (A) the
   validity or invalidity or authority or lack thereof of any Oral
        Instruction or Written Instruction, notice or other instrument which
        conforms to the applicable requirements of this Agreement, and which
   PFPC Trust reasonably believes to be genuine; or (B) subject to
  Section 10 of this Agreement, delays or errors or loss of data
     occurring by reason of circumstances beyond PFPC Trust's control,
        including acts of civil or military authority, national emergencies,
      fire, flood, catastrophe, acts of God, insurrection, war, riots or
        failure of the mails, transportation, communication or power supply.

  (c)  Notwithstanding anything in this Agreement to the contrary, neither
       PFPC Trust nor its affiliates shall be liable to the Fund or to any
          Portfolio for any consequential, special or indirect losses or damages
     which the Fund may incur or suffer by or as a consequence of PFPC
   Trust's or its affiliates' performance of the services provided
          hereunder, whether or not the likelihood of such losses or damages was
known by PFPC Trust or its affiliates.                      

15.  DESCRIPTION OF SERVICES.                                                   

(a)  DELIVERY OF THE PROPERTY. The Fund will deliver or arrange for   
        delivery to PFPC Trust, all of the Property owned by the Portfolios,
      including cash received as a result of the distribution of Shares,
          during the period that is set forth in this Agreement. PFPC Trust will
not be responsible for such Property until actual receipt.  

 (b)  RECEIPT AND DISBURSEMENT OF MONEY. PFPC Trust, acting upon Written
         Instructions, shall open and maintain separate accounts in the Fund's
     name using all cash received from or for the account of the Fund,
     subject to the terms of this Agreement. In addition, upon Written
       Instructions, PFPC Trust shall open separate custodial accounts for
          each separate Portfolio of the Fund (collectively, the "Accounts") and
         shall hold in the Accounts all cash received from or for the Accounts
        of the Fund specifically designated to each separate Portfolio. PFPC
          Trust shall make cash payments from or for the Accounts of a Portfolio
only for:                                                   

         (i)  purchases of securities in the name of a Portfolio or PFPC Trust
            or PFPC Trust's nominee as provided in sub-section (j) of this
         Section and for which PFPC Trust has received a copy of the
      broker's or dealer's confirmation or payee's invoice, as
appropriate;                                      

  (ii) purchase or redemption of Shares delivered to PFPC Trust;

       (iii) payment of, subject to Written Instructions, interest, taxes,
            administration, accounting, distribution, advisory, management
            fees or similar expenses which are to be borne by a Portfolio;

       (iv) payment to, subject to Written Instructions, the Members of an
              amount equal to the amount of dividends and distributions stated
    in the Written Instructions to be distributed in cash;

    (v)  payments, upon Written Instructions, in connection with the
      conversion, exchange or surrender of securities owned or
               subscribed to by the Fund and held by or delivered to PFPC Trust;

      (vi) payments of the amounts of dividends received with respect to
securities sold short;                            

    (vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and              

          (viii) payments, upon Written Instructions, made for other proper Fund
purposes.                                         

   PFPC Trust hereby is authorized to endorse and collect all checks, drafts
or other orders for the payment of money received as custodian for the
Accounts.                                                             

(c)  RECEIPT OF SECURITIES; SUBCUSTODIANS.                            

    (i)  PFPC Trust shall hold all securities received by it for the
            Accounts in a separate account that physically segregates such
  securities from those of any other persons, firms or
              corporations, except for securities held in a Book-Entry System.
        All such securities shall be held or disposed of only upon
            Written Instructions of the Fund pursuant to the terms of this
               Agreement. PFPC Trust shall have no power or authority to assign,
             hypothecate, pledge or otherwise dispose of any such securities
            or investment, except upon the express terms of this Agreement
       and upon Written Instructions, accompanied by a certified
              resolution of the Board, authorizing the transaction. In no case
               may any member of the Board, or any officer, employee or agent of
the Fund withdraw any securities.                 

           At PFPC Trust's own expense and for its own convenience, PFPC
             Trust may enter into sub-custodian agreements with other United
            States banks or trust companies to perform duties described in
            this sub-section (c). Such bank or trust company shall have an
            aggregate capital, surplus and undivided profits, according to
        its last published report, of at least one million dollars
             ($1,000,000), if it is a subsidiary or affiliate of PFPC Trust,
              or at least twenty million dollars ($20,000,000) if such bank or
              trust company is not a subsidiary or affiliate of PFPC Trust. In
              addition, such bank or trust company must be qualified to act as
               custodian and agree to comply with the relevant provisions of the
           1940 Act and other applicable rules and regulations. Any such
               arrangement will not be entered into without prior written notice
to the Fund.                                      

         PFPC Trust shall remain responsible for the performance of all of its
          duties as described in this Agreement and shall hold the Fund and each
          Portfolio harmless from its own acts or omissions, under the standards
 of care provided for herein, or the acts and omissions of any
          sub-custodian chosen by PFPC Trust under the terms of this sub-section
(c).                                                        

     (d)  TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral Instructions
      or Written Instructions and not otherwise, PFPC Trust, directly or
through the use of the Book-Entry System, shall:            

        (i)  deliver any securities held for a Portfolio against the receipt
of payment for the sale of such securities;       

         (ii) execute and deliver to such persons as may be designated in such
           Oral Instructions or Written Instructions, proxies, consents,
             authorizations, and any other instruments whereby the authority
         of a Portfolio as owner of any securities may be exercised;

          (iii) deliver any securities to the issuer thereof, or its agent, when
               such securities are called, redeemed, retired or otherwise become
         payable; provided that, in any such case, the cash or other
consideration is to be delivered to PFPC Trust;   

       (iv) deliver any securities held for a Portfolio against receipt of
            other securities or cash issued or paid in connection with the
             liquidation, reorganization, refinancing, tender offer, merger,
          consolidation or recapitalization of any corporation, or the
exercise of any conversion privilege;             

      (v)  deliver any securities held for a Portfolio to any protective
               committee, reorganization committee or other person in connection
          with the reorganization, refinancing, merger, consolidation,
        recapitalization or sale of assets of any corporation, and
     receive and hold under the terms of this Agreement such
               certificates of deposit, interim receipts or other instruments or
         documents as may be issued to it to evidence such delivery;

        (vi) make such transfer or exchanges of the assets of the Portfolios
       and take such other steps as shall be stated in said Oral
           Instructions or Written Instructions to be for the purpose of
 effectuating a duly authorized plan of liquidation,
              reorganization, merger, consolidation or recapitalization of the
Fund;                                             

          (vii) release securities belonging to a Portfolio to any bank or trust
            company for the purpose of a pledge or hypothecation to secure
        any loan incurred by the Fund on behalf of that Portfolio;
            provided, however, that securities shall be released only upon
          payment to PFPC Trust of the monies borrowed, except that in
       cases where additional collateral is required to secure a
           borrowing already made subject to proper prior authorization,
            further securities may be released for that purpose; and repay
          such loan upon redelivery to it of the securities pledged or
           hypothecated therefor and upon surrender of the note or notes
evidencing the loan;                              

 (viii) release and deliver securities owned by a Portfolio in
             connection with any repurchase agreement entered into on behalf
               of the Fund, but only on receipt of payment therefor; and pay out
               moneys of the Fund in connection with such repurchase agreements,
but only upon the delivery of the securities;     

        (ix) release and deliver or exchange securities owned by the Fund in
            connection with any conversion of such securities, pursuant to
their terms, into other securities;               

         (x)  release and deliver securities owned by the Fund for the purpose
              of redeeming in kind shares of the Fund upon delivery thereof to
PFPC Trust; and                                   

         (xi) release and deliver or exchange securities owned by the Fund for
other corporate purposes.                         

            PFPC Trust must also receive a certified resolution describing
             the nature of the corporate purpose and the name and address of
              the person(s) to whom delivery shall be made when such action is
pursuant to this sub-section d.                   

(e)  USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to PFPC Trust   
 certified resolutions of the Board approving, authorizing and
   instructing PFPC Trust on a continuous basis, to deposit in the
         Book-Entry System all securities belonging to the Portfolios eligible
          for deposit therein and to utilize the Book-Entry System to the extent
     possible in connection with settlements of purchases and sales of
          securities by the Portfolios, and deliveries and returns of securities
     loaned, subject to repurchase agreements or used as collateral in
         connection with borrowings. PFPC Trust shall continue to perform such
      duties until it receives Written Instructions or Oral Instructions
authorizing contrary actions.                               

 PFPC Trust shall administer the Book-Entry System as follows:

          (i)  With respect to securities of each Portfolio which are maintained
       in the Book-Entry System, the records of PFPC Trust shall
               identify by book-entry or otherwise those securities belonging to
             each Portfolio. PFPC Trust shall furnish to the Fund a detailed
          statement of the Property held for each Portfolio under this
               Agreement at least monthly and from time to time and upon written
request.                                          

   (ii) Securities and any cash of each Portfolio deposited in the
               Book-Entry System will at all times be segregated from any assets
            and cash controlled by PFPC Trust in other than a fiduciary or
             custodian capacity but may be commingled with other assets held
           in such capacities. PFPC Trust and its sub-custodian, if any,
         will pay out money only upon receipt of securities and will
deliver securities only upon the receipt of money.

        (iii) All books and records maintained by PFPC Trust which relate to
               the Fund's participation in the Book-Entry System will be open to
           the inspection of Authorized Persons at all times during PFPC
            Trust's regular business hours, and PFPC Trust will furnish to
             the Fund all information in respect of the services rendered as
it may require.                                   

      PFPC Trust will also provide the Fund with such reports on its own
      system of internal control as the Fund may reasonably request from
time to time.                                               

    (f)  REGISTRATION OF SECURITIES. All Securities held for a Portfolio which
      are issued or issuable only in bearer form, except such securities
        held in the Book-Entry System, shall be held by PFPC Trust in bearer
        form; all other securities held for a Portfolio may be registered in
     the name of the Fund on behalf of that Portfolio, PFPC Trust, the
         Book-Entry System, a sub-custodian, or any duly appointed nominees of
      the Fund, PFPC Trust, Book-Entry System or sub-custodian. The Fund
 reserves the right to instruct PFPC Trust as to the method of
        registration and safekeeping of the securities of the Fund. The Fund
          agrees to furnish to PFPC Trust appropriate instruments to enable PFPC
        Trust to hold or deliver in proper form for transfer, or to register
       in the name of its nominee or in the name of the Book-Entry System,
      any securities which it may hold for the Accounts and which may be
       registered from time to time in the name of the Fund on behalf of a
Portfolio.                                                  

     (g)  VOTING AND OTHER ACTION. Neither PFPC Trust nor its nominee shall vote
       any of the securities held pursuant to this Agreement by or for the
account of a Portfolio, except in accordance with Written   
Instructions. PFPC Trust, directly or through the use of the
      Book-Entry System, shall execute in blank and promptly deliver all
     notices, proxies and proxy soliciting materials to the registered
          holder of such securities. If the registered holder is not the Fund on
         behalf of a Portfolio, then Written Instructions or Oral Instructions
must designate the person who owns such securities.         

  (h)  TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of contrary
        Written Instructions, PFPC Trust is authorized to take the following
actions:                                                    

(i)  COLLECTION OF INCOME AND OTHER PAYMENTS.               

             (A)  collect and receive for the account of each Portfolio, all
                   income, dividends, distributions, coupons, option premiums,
                    other payments and similar items, included or to be included
                   in the Property, and promptly advise each Portfolio of such
             receipt and credit such income, as collected, to each
Portfolio's custodian account;          

               (B)  endorse and deposit for collection, in the name of the Fund,
                 checks, drafts, or other orders for the payment of money;

         (C)  receive and hold for the account of each Portfolio all
                securities received as a distribution on the Portfolio's
                  securities as a result of a stock dividend, share split-up
                  or reorganization, recapitalization, readjustment or other
          rearrangement or distribution of rights or similar
                  securities issued with respect to any securities belonging
        to a Portfolio and held by PFPC Trust hereunder;

              (D)  present for payment and collect the amount payable upon all
              securities which may mature or be called, redeemed, or
             retired, or otherwise become payable on the date such
securities become payable; and          

       (E)  take any action which may be necessary and proper in
                 connection with the collection and receipt of such income
                and other payments and the endorsement for collection of
         checks, drafts, and other negotiable instruments.

(ii) MISCELLANEOUS TRANSACTIONS.                            

               (A)  deliver or cause to be delivered Property against payment or
              other consideration or written receipt therefor in the
following cases:                        

                  (1)  for examination by a broker or dealer selling for the
                  account of a Portfolio in accordance with street
delivery custom;              

              (2)  for the exchange of interim receipts or temporary
           securities for definitive securities; and

                    (3)  for transfer of securities into the name of the Fund on
                   behalf of a Portfolio or PFPC Trust or nominee of
                       either, or for exchange of securities for a different
                   number of bonds, certificates, or other evidence,
                       representing the same aggregate face amount or number
                        of units bearing the same interest rate, maturity date
                         and call provisions, if any; provided that, in any such
                      case, the new securities are to be delivered to PFPC
Trust.                        

            (B)  Unless and until PFPC Trust receives Oral Instructions or
               Written Instructions to the contrary, PFPC Trust shall:

                   (1)  pay all income items held by it which call for payment
                         upon presentation and hold the cash received by it upon
                 such payment for the account of each Portfolio;

               (2)  collect interest and cash dividends received, with
                       notice to the Fund, to the account of each Portfolio;

             (3)  hold for the account of each Portfolio all stock
                      dividends, rights and similar securities issued with
                   respect to any securities held by PFPC Trust; and

                 (4)  execute as agent on behalf of the Fund all necessary
                    ownership certificates required by the Code or the
                      Income Tax Regulations of the United States Treasury
                  Department or under the laws of any state now or
                    hereafter in effect, inserting the Fund's name, on
                         behalf of a Portfolio, on such certificate as the owner
                         of the securities covered thereby, to the extent it may
lawfully do so.               

(i)  SEGREGATED ACCOUNTS.                                             

(i)  PFPC Trust upon receipt of Written Instructions or Oral
               Instructions, shall establish and maintain segregated accounts on
            its records for and on behalf of each Portfolio. Such accounts
               may be used to transfer cash and securities, including securities
in the Book-Entry System:                         

      (A)  for the purposes of compliance by the Fund with the
               procedures required by a securities or option exchange,
                  providing such procedures comply with the 1940 Act and any
          releases of the SEC relating to the maintenance of
                   segregated accounts by registered investment companies; and

         (B)  upon receipt of Written Instructions, for other proper
corporate purposes.                     

        (ii) PFPC Trust shall arrange for the establishment of IRA custodian
               accounts for such Members holding Shares through IRA accounts, in
              accordance with the Fund's Confidential Memorandum, the Code and
            such other procedures as are mutually agreed upon from time to
time by and between the Fund and PFPC Trust.      

    (j)  PURCHASES OF SECURITIES. PFPC Trust shall settle purchased securities
      upon receipt of Oral Instructions or Written Instructions from the
Fund or its investment advisers that specify:               

          (i)  the name of the issuer and the title of the securities, including
CUSIP number if applicable;                       

   (ii) the number of shares or the principal amount purchased and
accrued interest, if any;                         

(iii) the date of purchase and settlement;                  

(iv) the purchase price per unit;                           

(v)  the total amount payable upon such purchase;           

(vi) the Portfolio involved; and                            

         (vii) the name of the person from whom or the broker through whom the
       purchase was made. PFPC Trust, upon receipt of securities
               purchased by or for a Portfolio, shall pay out of the moneys held
              for the account of the Portfolio the total amount payable to the
          person from whom or the broker through whom the purchase was
               made, provided that the same conforms to the total amount payable
             as set forth in such Oral Instructions or Written Instructions.

(k)  SALES OF SECURITIES. PFPC Trust shall settle sold securities upon
      receipt of Oral Instructions or Written Instructions from the Fund
that specify:                                               

        (i)  the name of the issuer and the title of the security, including
CUSIP number if applicable;                       

   (ii) the number of shares or principal amount sold, and accrued
interest, if any;                                 

(iii) the date of trade and settlement;                     

(iv) the sale price per unit;                               

(v)  the total amount payable to the Fund upon such sale;   

      (vi) the name of the broker through whom or the person to whom the
sale was made;                                    

  (vii) the location to which the security must be delivered and
delivery deadline, if any; and                    

(viii) the Portfolio involved.                              

PFPC Trust shall deliver the securities upon receipt of the total amount payable
to the Portfolio upon such sale, provided that the total amount payable is the  
same as was set forth in the Oral Instructions or Written Instructions. Subject 
to the foregoing, PFPC Trust may accept payment in such form as shall be        
satisfactory to it, and may deliver securities and arrange for payment in       
accordance with the customs prevailing among dealers in securities.             

(l)  REPORTS; PROXY MATERIALS.                                        

    (i)  PFPC Trust shall furnish to the Fund the following reports:

               (A)  such periodic and special reports as the Fund may reasonably
request;                                

               (B)  a monthly statement summarizing all transactions and entries
                 for the account of each Portfolio, listing each Portfolio
                securities belonging to each Portfolio with the adjusted
                  average cost of each issue and the market value at the end
                    of such month and stating the cash account of each Portfolio
including disbursements;                

               (C)  the reports required to be furnished to the Fund pursuant to
Rule 17f-4 under the 1940 Act; and      

            (D)  such other information as may be agreed upon from time to
time between the Fund and PFPC Trust.   

 (ii) PFPC Trust shall transmit promptly to the Fund any proxy
          statement, proxy material, notice of a call or conversion or
      similar communication received by it as custodian of the
               Property. PFPC Trust shall be under no other obligation to inform
the Fund as to such actions or events.            

     (m)  CREDITING OF ACCOUNTS. If PFPC Trust in its sole discretion credits an
          Account with respect to (a) income, dividends, distributions, coupons,
     option premiums, other payments or similar items on a contractual
          payment date or otherwise in advance of PFPC Trust's actual receipt of
        the amount due, (b) the proceeds of any sale or other disposition of
        assets on the contractual settlement date or otherwise in advance of
    PFPC Trust's actual receipt of the amount due or (c) provisional
    crediting of any amounts due, and (i) PFPC Trust is subsequently
        unable to collect full and final payment for the amounts so credited
    within a reasonable time period using reasonable efforts or (ii)
        pursuant to standard industry practice, law or regulation PFPC Trust
         is required to repay to a third party such amounts so credited, or if
         any Property has been incorrectly credited, PFPC Trust shall have the
       absolute right in its sole discretion without demand to reverse any
        such credit or payment, to debit or deduct the amount of such credit
        or payment from the Account, and to otherwise pursue recovery of any
       such amounts so credited from the Fund. Nothing herein or otherwise
          shall require PFPC Trust to make any advances or to credit any amounts
       until PFPC Trust's actual receipt thereof. The Fund hereby grants a
         first priority contractual possessory security interest in the amount
   necessary to secure the return and payment to PFPC Trust of any
   advance or credit made by PFPC Trust (including charges related
thereto) to such Account.                                   

   (n)  COLLECTIONS. All collections of monies or other property in respect,
        or which are to become part of the Property (but not the safekeeping
        thereof upon receipt by PFPC Trust) shall be at the sole risk of the
      Fund. If payment is not received by PFPC Trust within a reasonable
         time after proper demands have been made, PFPC Trust shall notify the
        Fund in writing, including copies of all demand letters, any written
responses, memoranda of all oral responses and shall await  
       instructions from the Fund. PFPC Trust shall not be obliged to take
          legal action for collection unless and until reasonably indemnified to
      its satisfaction. PFPC Trust also shall notify the Fund as soon as
   reasonably practicable whenever income due on securities is not
    collected in due course and shall provide the Fund with periodic
    status reports of such income collected after a reasonable time.

16.  DURATION AND TERMINATION. This Agreement shall continue until terminated by
    the Fund or by PFPC Trust on ninety (90) days' prior written notice to the
     other party. In the event this Agreement is terminated (pending appointment
     of a successor to PFPC Trust or vote of the Members of the Fund to dissolve
or to function without a custodian of its cash, securities or other   
    property), PFPC Trust shall not deliver cash, securities or other property
of the Portfolios to the Fund. It may deliver them to a bank or trust 
  company of PFPC Trust's choice, having an aggregate capital, surplus and
    undivided profits, as shown by its last published report, of not less than
 twenty million dollars ($20,000,000), as a custodian for the Fund to be
   held under terms similar to those of this Agreement. PFPC Trust shall not
   be required to make any such delivery or payment until full payment shall
  have been made to PFPC Trust of all of its fees, compensation, costs and
     expenses attributable to the relevant Portfolio(s). PFPC Trust shall have a
    security interest in and shall have a right of setoff against the Property
of such Portfolio(s) as security for the payment of such fees,        
compensation, costs and expenses.                                     

17.  NOTICES. All notices and other communications, including Written           
   Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. Notice shall be addressed (a) if to PFPC 
    Trust, at Airport Business Center, 200 Stevens Drive, Lester, Pennsylvania
 19113 (b) if to the Fund, at 1285 Avenue of the Americas, New York, New
York 10019, Attn: Mark D. Goldstein, Esq., or (c) if to neither of the
     foregoing, at such other address as shall have been given by like notice to
     the sender of any such notice or other communication by the other party. If
  notice is sent by confirming telegram, cable, telex or facsimile sending
 device, it shall be deemed to have been given immediately. If notice is
   sent by first-class mail, it shall be deemed to have been given five days
after it has been mailed. If notice is sent by messenger, it shall be 
deemed to have been given on the day it is delivered.                 

18.  AMENDMENTS. This Agreement, or any term hereof, may be changed or waived   
   only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.                                   

19.  DELEGATION; ASSIGNMENT. PFPC Trust may assign its rights and delegate its  
duties hereunder to any affiliate (as defined in the 1940 Act) of PFPC
Trust, or PNC Bank Corp., provided that (i) PFPC Trust gives the Fund 
 thirty (30) days' prior written notice; (ii) the delegate (or assignee)
    agrees with PFPC Trust and the Fund to comply with all relevant provisions
of the Securities Laws; and (iii) PFPC Trust and such delegate (or    
  assignee) promptly provide such information as the Fund may request, and
   respond to such questions as the Fund may ask, relative to the delegation
 (or assignment), including (without limitation) the capabilities of the
delegate (or assignee).                                               

20.  COUNTERPARTS. This Agreement may be executed in two or more counterparts,  
    each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.                               

21.  FURTHER ACTIONS. Each party agrees to perform such further acts and execute
    such further documents as are necessary to effectuate the purposes hereof.

22.  MISCELLANEOUS.                                                             

 (a)  ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
         understanding between the parties and supersedes all prior agreements
      and understandings relating to the subject matter hereof, provided
       that the parties may embody in one or more separate documents their
agreement, if any, with respect to delegated duties and Oral
Instructions.                                               

    (b)  CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the
       provisions hereof or otherwise affect their construction or effect.

     (c)  GOVERNING LAW. This Agreement shall be deemed to be a contract made in
    Pennsylvania and governed by Pennsylvania law, without regard to
principles of conflicts of law.                             

   (d)  PARTIAL INVALIDITY. If any provision of this Agreement shall be held
        or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.  

     (e)  SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
   inure to the benefit of the parties hereto and their respective
successors and permitted assigns.                           

 (f)  FACSIMILE SIGNATURES. The facsimile signature of any party to this
        Agreement shall constitute the valid and binding execution hereof by
such party.                                                 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.                                     

            PFPC TRUST COMPANY

By:   

Title:

                 PW  WILLOW FUND, L.L.C.

By:   

Title:

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 AUTHORIZED PERSONS APPENDIX

NAME (TYPE)                                SIGNATURE                            
_______________________________            ___________________________________  
_______________________________            ___________________________________  
_______________________________            ___________________________________  

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                                                                  EXHIBIT (k)(1)

 MANAGEMENT AND ADMINISTRATION AGREEMENT

BY AND BETWEEN

 PW FUND ADVISOR, L.L.C.

 AND

PW WILLOW FUND, L.L.C.

          THIS MANAGEMENT AND ADMINISTRATION AGREEMENT (the "Agreement") is made
as of this 11th day of February, 2000, by and between PW Fund Advisor, L.L.C.   
("PWFA") and PW Willow Fund, L.L.C. (the "Fund").                               

      WHEREAS, PWFA is in the business of providing, and the Fund wishes
PWFA to provide, certain management and administrative services;                

      NOW THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:                                        

1. APPOINTMENT OF PWFA.                                     

   (a) The Fund hereby appoints, and PWFA hereby accepts
appointment, to serve as the Fund's management company. In such capacity, PWFA  
agrees to provide certain management (but not investment management) and        
administrative services to the Fund. These services shall include:              

          (i)  the provision of office space, telephone and utilities;

            (ii) the provision of administrative and secretarial, clerical
                and other personnel as necessary to provide the services
     required to be provided under this Agreement;

              (iii) the general supervision of the entities which are retained
                  by the Fund to provide administrative services and custody
services to the Fund;                   

            (iv) the handling of investor inquiries regarding the Fund and
             providing investors with information concerning their
            investment in the Fund and capital account balances;

            (v)  monitoring relations and communications between investors
and the Fund;                           

               (vi) overseeing the drafting and updating of disclosure documents
                 relating to the Fund and assisting in the distribution of
all offering materials to investors;    

          (vii) maintaining and updating investor information, such as
change of address and employment;       

           (viii) overseeing the distribution and acceptance of investor
                    applications and confirming the receipt of such applications
and funds;                              

               (ix) overseeing the provision of investment advice to the Fund by
                 PW Willow Management, L.L.C., the manager of the Fund (or
              any successor adviser) (the "Manager"), and monitoring
            compliance by the Manager with applicable investment
policies and restrictions of the Fund;  

              (x)  coordinating and organizing meetings of the Fund's board of
                 directors (the "Board" and its members, the "Directors");

             (xi) preparing materials and reports for use in connection with
meetings of the Board; and              

           (xii) reviewing and approving all regulatory filings required
under applicable law.                   

          (b) All other services to be performed, and expenses related
thereto, in the operation of the Fund shall be borne by the Fund.               

             (c) Notwithstanding the appointment of PWFA to provide services
hereunder, the Board shall remain responsible for supervising and controlling   
the management, business and affairs of the Fund.                               

2. PWFA FEE; REIMBURSEMENT OF EXPENSES.                     

            (a) In consideration for the provision by PWFA of its services
hereunder, the Fund will pay PWFA a management fee at the annual rate of 1.25%  
of the Fund's "net assets," excluding assets attributable to the Manager's      
capital account (the "Fee"). The Fee will be paid to PWFA at such times as the  
Manager, on behalf of the Fund, shall determine in its sole discretion, but     
generally is expected to be paid monthly. "Net assets" shall equal the total    
value of all assets of the Fund, less an amount equal to all accrued debts,     
liabilities and obligations of the Fund calculated before giving effect to any  
repurchase of interests.                                                        

              (b) The Fee will be computed based on the net assets of the Fund
as of the start of business on the first business day of the period to which the
Fee relates, after adjustment for any applications effective on such date, and  
will be payable in arrears. The Fee will be charged in each period to the       
capital accounts of the Fund's investors in proportion to their capital accounts
at the beginning of such period. The Fee will be appropriately pro-rated based  
on the number of days in such period.                                           

           (c) PWFA is responsible for all costs and expenses associated
with the provision of its services hereunder. The Fund shall pay all other      
expenses associated with the conduct of its business, including the costs and   
expenses of holding any meetings of the Board that are regularly scheduled,     
permitted or required to be held under the terms of the Fund's limited liability
company agreement, the Investment Company Act of 1940, as amended (the "1940    
Act"), or other applicable law, and the fees and disbursements of any attorneys 
engaged on behalf of the Fund.                                                  

              (d) The Fund understands that PWFA may pay a portion of the fees
received by it hereunder to Bond Street Capital, L.L.C. or an affiliate.        

      3. LIABILITY. PWFA will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund or its investors in         
connection with the performance of its duties under this Agreement, except a    
loss resulting from willful misfeasance, bad faith or gross negligence on PWFA's
part (or on the part of an officer or employee of PWFA) in the performance of   
its duties hereunder or reckless disregard by it of its duties under this       
Agreement.                                                                      

  4. EFFECTIVE DATE AND TERMINATION. This Agreement shall become
effective as of the date first noted above, and shall remain in effect for an   
initial term of two years from the date of its effectiveness. This Agreement may
be continued in effect from year to year thereafter provided that each such     
continuance is approved by the Board, including the vote of a majority of the   
Directors who are not "interested persons" of the Fund, as defined by the 1940  
Act. This Agreement may be terminated by PWFA, by the Board or by vote of a     
majority of the outstanding voting securities of the Fund at any time, in each  
case upon not less than 60 days' prior written notice. This Agreement shall also
terminate automatically in the event of its "assignment," as such term is       
defined by the 1940 Act.                                                        

         5. ENTIRE AGREEMENT. This Agreement embodies the entire understanding
of the parties. This Agreement cannot be altered, amended, supplemented, or     
abridged, or any provisions waived, except by written agreement of the parties. 

       6. CHOICE OF LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York and the 1940 Act. In the event
the laws of New York conflict with the 1940 Act, the applicable provisions of   
the 1940 Act shall control.                                                     

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.                                               

                 PW FUND ADVISOR, L.L.C.

By:   
Name: 
Title:

                PW WILLOW FUND, L.L.C.

By:   
Name: 
Title:

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                                                                  EXHIBIT (k)(2)

 ADMINISTRATION , ACCOUNTING AND INVESTOR SERVICES AGREEMENT

 THIS AGREEMENT is made as of February 11, 2000 by and between PW WILLOW
FUND, L.L.C., a Delaware limited liability company (the "Fund"), and PFPC INC., 
a Delaware corporation ("PFPC"), which is an indirect subsidiary of PNC Bank    
Corp.                                                                           

 W I T N E S S E T H :

     WHEREAS, the Fund is registered as a closed-end, non-diversified management
investment company under the Investment Company Act of 1940, as amended (the    
"1940 Act"); and                                                                

    WHEREAS, the Fund wishes to retain PFPC to provide certain administration,
accounting and investor services provided for herein, and PFPC wishes to furnish
such services.                                                                  

   NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto  
agree as follows:                                                               

1.   DEFINITIONS. AS USED IN THIS AGREEMENT:                                    

(a)  "1933 ACT" means the Securities Act of 1933, as amended.         

(b)  "1934 ACT" means the Securities Exchange Act of 1934, as amended.

 (c)  "AUTHORIZED PERSON" means any person duly authorized by the Fund's
         Board to give Oral Instructions and Written Instructions on behalf of
          the Fund and listed on the Authorized Persons Appendix attached hereto
          or any amendment thereto as may be received by PFPC from time to time.
          An Authorized Person's scope of authority may be limited to the extent
set forth in the Authorized Persons Appendix.               

(d)  "CEA" means the Commodities Exchange Act, as amended.            

     (e)  "BOARD" and "MEMBERS" shall have the same meanings as set forth in the
      Fund's limited liability company agreement (the "Limited Liability
Company Agreement").                                        

(f)  "MANAGER" means PW Willow Management, L.L.C.                     

  (g)  "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from an
        Authorized Person or from a person reasonably believed by PFPC to be
an Authorized Person.                                       

(h)  "SEC" means the Securities and Exchange Commission.              

   (i)  "SECURITIES LAWS" means the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.                                                    

(j)  "WRITTEN INSTRUCTIONS" mean written instructions signed by an    
      Authorized Person or a person reasonably believed by PFPC to be an
   Authorized Person and received by PFPC. The instructions may be
       delivered by hand, mail, tested telegram, cable, telex or facsimile
sending device.                                             

2.   APPOINTMENT. The Fund hereby appoints PFPC to provide administration,      
    accounting and investor services to the Fund, in accordance with the terms
  set forth in this Agreement. PFPC accepts such appointment and agrees to
furnish such services.                                                

3.   DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will    
provide PFPC with the following:                                      

 (a)  certified or authenticated copies of the resolutions of the Board,
  approving the appointment of PFPC or its affiliates to provide
services and approving this Agreement;                      

   (b)  a copy of the Fund's most recent effective registration statement on
Form N-2 under the 1940 Act, as filed with the SEC;         

(c)  a copy of the Limited Liability Company Agreement;               

(d)  a copy of any distribution agreement with respect to the Fund;   

    (e)  a copy of any additional administration agreement with respect to the
Fund;                                                       

  (f)  a copy of any investor servicing agreement made with respect to the
Fund; and                                                   

   (g)  copies (certified or authenticated, where applicable) of any and all
amendments or supplements to the foregoing.                 

4.   COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with all  
 applicable requirements of the Securities Laws, and any laws, rules and
     regulations of governmental authorities having jurisdiction with respect to
  the duties to be performed by PFPC hereunder. Except as specifically set
 forth herein, PFPC assumes no responsibility for such compliance by the
Fund or any other party.                                              

5.   INSTRUCTIONS.                                                              

    (a)  Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral Instructions and Written Instructions.                 

   (b)  PFPC shall be entitled to rely upon any Oral Instructions or Written
        Instructions it receives from an Authorized Person (or from a person
       reasonably believed by PFPC to be an Authorized Person) pursuant to
        this Agreement. PFPC may assume that any Oral Instruction or Written
          Instruction received hereunder is not in any way inconsistent with the
      provisions of organizational documents or this Agreement or of any
          vote, resolution or proceeding of the Board or the Members, unless and
until PFPC receives Written Instructions to the contrary.   

 (c)  The Fund agrees to forward to PFPC Written Instructions confirming
         Oral Instructions and shall endeavor to ensure that PFPC receives the
      Written Instructions by the close of business on the same day that
      such Oral Instructions are received. The fact that such confirming
 Written Instructions are not received by PFPC shall in no way
     invalidate the transactions or enforceability of the transactions
   authorized by the Oral Instructions. Where Oral Instructions or
        Written Instructions reasonably appear to have been received from an
          Authorized Person, PFPC shall incur no liability to the Fund in acting
     upon such Oral Instructions or Written Instructions provided that
      PFPC's actions comply with the other provisions of this Agreement.

6.   RIGHT TO RECEIVE ADVICE.                                                   

    (a)  Advice of the Fund. If PFPC is in doubt as to any action it should or
          should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.        

     (b)  Advice of Counsel. If PFPC shall be in doubt as to any question of law
   pertaining to any action it should or should not take, PFPC may
        request advice at its own cost from such counsel of its own choosing
          (who may, without limitation, be counsel for the Fund, or PFPC, at the
option of PFPC), provided that such counsel is selected with
reasonable care.                                            

 (c)  Conflicting Advice. In the event of a conflict between directions,
          advice or Oral Instructions or Written Instructions PFPC receives from
     the Fund, and the advice PFPC receives from counsel selected with
     reasonable care, PFPC may rely upon and follow the advice of such
          counsel. PFPC shall promptly inform the Fund of such conflict. If PFPC
    relies on the advice of counsel, PFPC will remain liable for any
    action or omission on the part of PFPC which constitutes willful
          misfeasance, bad faith, gross negligence or reckless disregard by PFPC
    of any duties, obligations or responsibilities set forth in this
Agreement.                                                  

    (d)  Protection of PFPC. PFPC shall be protected in any action it takes or
          does not take in reliance upon directions, advice or Oral Instructions
     or Written Instructions it receives from the Fund or from counsel
         selected with reasonable care and which PFPC believes, in good faith,
        to be consistent with those directions, advice and Oral Instructions
          or Written Instructions. Nothing in this section shall be construed so
     as to impose an obligation upon PFPC (i) to seek such directions,
          advice or Oral Instructions or Written Instructions, or (ii) to act in
   accordance with such directions, advice or Oral Instructions or
       Written Instructions unless, under the terms of other provisions of
        this Agreement, the same is a condition of PFPC's properly taking or
        not taking such action. Nothing in this subsection shall excuse PFPC
      when an action or omission on the part of PFPC constitutes willful
          misfeasance, bad faith, gross negligence or reckless disregard by PFPC
    of any duties, obligations or responsibilities set forth in this
Agreement.                                                  

7.   RECORDS; VISITS.                                                           

(a)  The books and records pertaining to the Fund, which are in the   
         possession or under the control of PFPC, shall be the property of the
    Fund. Such books and records shall be prepared and maintained as
        required by the 1940 Act and other applicable securities laws, rules
         and regulations. The Fund and Authorized Persons shall have access to
     such books and records at all times during PFPC's normal business
      hours. Upon the reasonable request of the Fund, copies of any such
    books and records shall be provided by PFPC to the Fund or to an
Authorized Person, at the Fund's expense.                   

    (b)  PFPC shall keep the following records: (i) all books and records with
      respect to the Fund's books of account; (ii) records of the Fund's
         securities transactions; and (iii) all other books and records as the
          Fund is required to maintain pursuant to Rule 31a-1 of the 1940 Act in
connection with the services of PFPC provided hereunder.    

     (c)  Upon termination of this Agreement, PFPC in accordance with the Fund's
       reasonable request, shall, in accordance with Written Instructions,
         deliver a copy of the books and records pertaining to the Fund, which
      are in the possession or under control of PFPC, to the Fund or any
other person designated by the Fund.                        

8.   CONFIDENTIALITY. PFPC agrees to keep confidential all records of the Fund  
     and information relating to the Fund and its Members, unless the release of
   such records or information is otherwise consented to, in writing, by the
     Fund. The Fund agrees that such consent shall not be unreasonably withheld.
The Fund further agrees that, should PFPC be required to provide such 
   information or records to duly constituted authorities (who may institute
   civil or criminal contempt proceedings for failure to comply), PFPC shall
not be required to seek the Fund's consent prior to disclosing such   
information.                                                          

9.   LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's        
   independent public accountants and shall provide account analyses, fiscal
year summaries, and other audit-related schedules as the Fund or such 
   accountants may reasonably request. PFPC shall take all reasonable action
  in the performance of its duties under this Agreement to ensure that the
necessary information is made available to such accountants for the   
expression of their opinion, as required by the Fund.                 

10.  DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect with 
     appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent   
 appropriate equipment is available. In the event of equipment failures,
    PFPC shall, at no additional expense to the Fund, take reasonable steps to
   minimize service interruptions. PFPC shall have no liability with respect
   to the loss of data or service interruptions caused by equipment failure,
provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its 
duties or obligations under this Agreement.                           

11.  YEAR 2000 READINESS DISCLOSURE. PFPC (a) has reviewed its business and     
operations as they relate to the services provided hereunder, (b) has 
developed or is developing a program to remediate or replace computer 
    applications and systems, and (c) has developed a testing plan to test the
    remediation or replacement of computer applications/systems, in each case,
to address on a timely basis the risk that certain computer           
  applications/systems used by PFPC may be unable to recognize and perform
   properly date sensitive functions involving dates prior to, including and
 after December 31, 1999, including dates such as February 29, 2000 (the
 "Year 2000 Challenge"). To the best of PFPC's knowledge and belief, the
 reasonably foreseeable consequences of the Year 2000 Challenge will not
     adversely effect PFPC's ability to perform its duties and obligations under
this Agreement.                                                       

12.  COMPENSATION. As compensation for services rendered by PFPC during the term
     of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed
to in writing by the Fund and PFPC.                                   

13.  INDEMNIFICATION.                                                           

     (a)  The Fund agrees to indemnify and hold harmless PFPC and its affiliates
          from all taxes, charges, expenses, assessments, claims and liabilities
 (including, without limitation, liabilities arising under the
          Securities Laws and any state or foreign securities and Blue Sky laws,
         and amendments thereto), and expenses, including, without, limitation
         reasonable attorneys' fees and disbursements (collectively, "Losses")
      arising directly or indirectly from any action which PFPC takes or
          does not take (i) at the request or on the direction of or in reliance
       on the advice of the Fund or (ii) upon Oral Instructions or Written
   Instructions. Neither PFPC, nor any of its affiliates, shall be
       indemnified against any liability (or any expenses incident to such
  liability) arising out of PFPC's or its affiliates own willful
         misfeasance, bad faith, gross negligence or reckless disregard of its
duties and obligations under this Agreement.                

   (b)  Notwithstanding anything in this Agreement to the contrary, the Fund
        shall not be liable to PFPC or its affiliates for any consequential,
          special or indirect losses or damages which PFPC or its affiliates may
    incur or suffer, whether or not the likelihood of such losses or
damages was known by the Fund.                              

14.  RESPONSIBILITY OF PFPC.                                                    

   (a)  PFPC shall be under no duty to take any action on behalf of the Fund
     except as specifically set forth herein or as may be specifically
          agreed to by PFPC in writing. PFPC shall be obligated to exercise care
       and diligence in the performance of its duties hereunder, to act in
        good faith and to use its best efforts, within reasonable limits, in
         performing services provided for under this Agreement. PFPC agrees to
          indemnify and hold harmless the Fund from Losses arising out of PFPC's
         failure to perform its duties under this Agreement to the extent such
     damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties.            

(b)  Without limiting the generality of the foregoing or of any other 
        provision of this Agreement, (i) PFPC shall not be liable for losses
       beyond its control, provided that PFPC has acted in accordance with
    the standard of care set forth above; and (ii) PFPC shall not be
          liable for (A) the validity or invalidity or authority or lack thereof
   of any Oral Instruction or Written Instruction, notice or other
    instrument which conforms to the applicable requirements of this
       Agreement, and which PFPC reasonably believes to be genuine; or (B)
        subject to Section 10 of this Agreement, delays or errors or loss of
    data occurring by reason of circumstances beyond PFPC's control,
        including acts of civil or military authority, national emergencies,
labor difficulties, fire, flood, catastrophe, acts of God,  
     insurrection, war, riots or failure of the mails, transportation,
communication or power supply.                              

  (c)  Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Fund for any 
       consequential, special or indirect losses or damages which the Fund
may incur or suffer by or as a consequence of PFPC's or any 
          affiliates' performance of the services provided hereunder, whether or
         not the likelihood of such losses or damages was known by PFPC or its
affiliates.                                                 

15.  DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.                  

PFPC will perform the following accounting services:                            

(i)  Journalize investment, capital and income and expense activities;

(ii) Verify investment buy/sell trade tickets when received from the  
Manager in accordance with PFPC's written procedures;       

(iii) Maintain individual ledgers for investment securities;          

(iv) Maintain historical tax lots for each security;                  

   (v)  Record and reconcile corporate action activity and all other capital
changes with the Manager;                                   

     (vi) Reconcile cash and investment balances of the Fund with the custodian,
         and provide the Manager with the beginning cash balance available for
investment purposes.                                        

  (vii) Update the cash availability throughout the day as required by the
          Manager, including details of cash movements related to securities and
payment of Fund expenses;                                   

   (viii) Calculate contractual expenses (e.g. advisory and custody fees) in
accordance with the Fund's Confidential Memorandum;         

     (ix) Maintain expense budget for the Fund and notify an officer of the Fund
of any proposed adjustments;                                

  (x)  Control all disbursements and authorize such disbursements from the
Fund's account at the custodian upon Written Instructions;  

(xi) Calculate capital gains and losses;                              

(xii) Determine net income;                                           

   (xiii) Determine applicable foreign exchange gains and losses on payables
and receivables;                                            

(xiv) Interface with global custodian to monitor collection of tax    
reclaims;                                                   

    (xv) Obtain daily security market quotes from independent pricing services
    approved by the Manager, or if such quotes are unavailable, then
         obtain such prices from the Manager, and in either case calculate the
market value and the appreciation/depreciation on the Fund's
investments;                                                

     (xvi) Transmit or otherwise send a copy of the daily portfolio valuation to
the Manager;                                                

(xvii) Compute net asset values monthly;                              

(xviii) Research and recommend portfolio accounting tax treatment for 
unique security types; and                                  

(xix) As appropriate, compute yields, total return, expense ratios,   
portfolio turnover rate, and, if required, portfolio average
       dollar-weighted maturity in accordance with applicable regulations.

16.  DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. PFPC will    
perform the following administration services:                        

 (i)  Prepare quarterly broker security transactions summaries including
principal and agency transactions and related commissions;  

(ii) Prepare monthly security transaction listings;                   

(iii) Supply various normal and customary Fund statistical data as    
requested on an ongoing basis;                              

(iv) Provide to the extent contained in accounting records materials  
       required for board reporting as may be requested from time to time;

    (v)  Prepare for execution and file the Fund's Federal Form 1065 and state
tax returns;                                                

  (vi) Prepare and file the Fund's Annual and Semi-Annual Reports with the
SEC on Form N-SAR via EDGAR;                                

 (vii) Prepare and coordinate the services of the Fund's printer for the
       printing of and filing with the SEC via EDGAR the Fund's annual and
semi-annual shareholder reports;                            

(viii) Assist in the preparation of registration statements;          

  (ix) Transmit or otherwise send, to the extent practicable and feasible,
    requested detailed information related to the Members, including
        admission details, income, capital gains and losses, and performance
detail;                                                     

(x)  Mail Fund offering materials to prospective investors; and       

(xi) Mail quarterly reports of the Manager and Semi-Annual Financial  
          Statements to investors as well as any other necessary correspondence.

17.  DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. PFPC will perform  
the following functions:                                              

(i)  Maintain the register of Members and enter on such register all  
issues, transfers and repurchases of interests in the Fund; 

(ii) Arrange for the calculation of the issue and repurchase prices of
          interests in the Fund in accordance with the Limited Liability Company
Agreement and the Fund's Confidential Memorandum;           

  (iii) Allocate income, expenses, gains and losses to individual Members'
        capital accounts in accordance with applicable tax laws and with the
Fund's Confidential Memorandum;                             

(iv) Calculate the Incentive Allocation in accordance with the Fund's 
         Confidential Memorandum and reallocate corresponding amounts from the
applicable Members' accounts to the Manager's account;      

 (v)  Prepare and mail annually to Members a Form K-1 in accordance with
applicable tax regulations; and                             

   (vi) Mail tender offers to Members for purposes of executing repurchases.

18.  DURATION AND TERMINATION. This Agreement shall be effective on the date    
   first above written and shall continue in effect for an initial period of
  two years. Thereafter, this Agreement, unless terminated, shall continue
   automatically for successive terms of one (1) year. This Agreement may be
    terminated by either party upon 60 days' prior written notice to the other
party.                                                                

19.  NOTICES. All notices and other communications, including Written           
   Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. If notice is sent by confirming telegram,
   cable, telex or facsimile sending device, it shall be deemed to have been
given immediately. If notice is sent by first-class mail, it shall be 
     deemed to have been given three days after it has been mailed. If notice is
   sent by messenger, it shall be deemed to have been given on the day it is
delivered. Notices shall be addressed (a) if to PFPC, at 400 Bellevue 
   Parkway, Wilmington, Delaware 19809, Attn: Neal J. Andrews; (b) if to the
 Fund, at c/o PaineWebber Incorporated, 1285 Avenue of the Americas, New
   York, New York 10019, Attn: Mark D. Goldstein, Esq.; or (c) if to neither
     of the foregoing, at such other address as shall have been provided by like
     notice to the sender of any such notice or other communication by the other
party.                                                                

20.  AMENDMENTS. This Agreement, or any term thereof, may be changed or waived  
    only by written amendment, signed by the party against whom enforcement of
such change or waiver is sought.                                      

21.  DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its duties 
hereunder to any affiliate (as defined in the 1940 Act) of or any     
majority-owned direct or indirect subsidiary of PFPC Inc., or PNC Bank
Corp., provided that (i) PFPC gives the Fund (60) days' prior written 
  notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to
   comply with all relevant provisions of the Securities Laws, and any laws,
    rules and regulations of governmental authorities having jurisdiction with
respect to the duties to be performed by the delegate (or assignee)   
    hereunder; and (iii) PFPC and such delegate (or assignee) promptly provide
    such information as the Fund may request, and respond to such questions as
  the Fund may ask, relative to the delegation (or assignment), including,
without limitation, the capabilities of the delegate (or assignee).   

22.  COUNTERPARTS. This Agreement may be executed in counterparts, each of which
     shall be deemed an original, but all of which together shall constitute one
and the same instrument.                                              

23.  FURTHER ACTIONS. Each party agrees to perform such further acts and execute
    such further documents as are necessary to effectuate the purposes hereof.

24.  MISCELLANEOUS.                                                             

 (a)  ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
        understanding between the parties with respect to the subject matter
          hereof and supersedes all prior agreements and understandings relating
to the subject matter hereof.                               

    (b)  CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the
       provisions hereof or otherwise affect their construction or effect.

     (c)  GOVERNING LAW. This Agreement shall be deemed to be a contract made in
          Delaware and governed by Delaware law, without regard to principles of
conflicts of law.                                           

   (d)  PARTIAL INVALIDITY. If any provision of this Agreement shall be held
        or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.  

     (e)  SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
   inure to the benefit of the parties hereto and their respective
successors and permitted assigns.                           

 (f)  FACSIMILE SIGNATURES. The facsimile signature of any party to this
        Agreement shall constitute the valid and binding execution hereof by
such party.                                                 

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 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.                            

         PFPC INC.

                                    By: ________________________________
                                      Title: _______________________________

                      PW WILLOW FUND, L.L.C.

                                    By: ________________________________
                                      Title:  ______________________________

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 AUTHORIZED PERSONS APPENDIX

NAME (TYPE)                                               SIGNATURE             

------------------------------                  ------------------------------  

------------------------------                  ------------------------------  

------------------------------                  ------------------------------  

------------------------------                  ------------------------------  

------------------------------                  ------------------------------  

------------------------------                  ------------------------------  

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                                                                  EXHIBIT (k)(3)

ESCROW AGREEMENT

  THIS AGREEMENT is made as of February 11, 2000, by and between PW WILLOW
FUND, L.L.C., a Delaware limited liability company (the "Fund"), PW WILLOW      
MANAGEMENT, L.L.C. (the "Manager"), and PFPC INC., a Delaware corporation which 
is an indirect subsidiary of PNC Bank Corp. (the "Escrow Agent").               

WITNESSETH

     WHEREAS, the Fund is registered as a closed-end, non-diversified management
investment company under the Investment Company Act of 1940, as amended (the    
"1940 Act");                                                                    

     WHEREAS, the Fund has retained PFPC Inc. to provide certain administration,
accounting and investor services pursuant to an Administration, Accounting and  
Investor Services Agreement dated as of February 11, 2000; and                  

  WHEREAS, the Fund desires that PFPC Inc. also provide services as escrow
agent, as described herein, and PFPC Inc. wishes to provide such services.      

NOW, THEREFORE, in consideration of the premises and of the mutual    
covenants herein contained, the parties hereto agree as follows:                

1.   ACCEPTANCE BY ESCROW AGENT. The Escrow Agent hereby accepts the appointment
 as escrow agent hereunder and agrees to act on the terms and conditions
hereinafter set forth.                                                

2.   RIGHTS AND RESPONSIBILITIES OF ESCROW AGENT. The acceptance by the Escrow  
Agent of its duties hereunder is subject to the following terms and   
   conditions, which the parties to this Agreement hereby agree shall govern
    and control the Escrow Agent's rights, duties, liabilities and immunities.

    (a)  The Escrow Agent shall act hereunder as a depositary only, and in its
         capacity as such, it shall not be responsible or liable in any manner
         whatever for the sufficiency, correctness, genuineness or validity of
          any document furnished to the Escrow Agent or any asset deposited with
it.                                                         

(b)  "Written Instructions" mean written instructions received by the 
   Escrow Agent and signed by the Manager or any other person duly
       authorized by the Manager, or by the Fund's Board (as defined under
          the Fund's limited liability company agreement (the "Limited Liability
         Company Agreement"), to give such instructions on behalf of the Fund.
      The instructions may be delivered by hand, mail, facsimile, cable,
   telex or telegram; except that any instruction terminating this
         Agreement may be given only by hand or mail. The Fund shall file from
        time to time with the Escrow Agent a certified copy certified by the
     Manager of each resolution of its Board authorizing the person or
       persons to give Written Instructions. Such resolution shall include
   certified signatures of such persons authorized to give Written
  Instructions. This shall constitute conclusive evidence of the
authority of the signatories designated therein to act. Such
    resolution shall be considered in full force and effect with the
         Escrow Agent fully protected in acting in reliance thereon unless and
         until it receives written notice from the Manager or the Board to the
       contrary. The Escrow Agent may rely upon and shall be protected for
       any action or omission it takes pursuant to Written Instructions if
        it, in good faith, believes such Written Instructions to be genuine.
       Unless otherwise provided in this Agreement, the Escrow Agent shall
          act only upon Written Instructions. The Escrow Agent shall be entitled
       to assume that any Written Instruction received hereunder is not in
     any way inconsistent with the provisions of the Limited Liability
     Company Agreement or this Agreement or of any vote, resolution or
       proceeding of the Board, or of the Fund's members, unless and until
   the Escrow Agent receives Written Instructions to the contrary.

    (c)  The Escrow Agent shall be obligated to exercise care and diligence in
        the performance of its duties hereunder, to act in good faith and to
          use its best efforts, within reasonable limits, in performing services
       provided for under this Agreement. The Escrow Agent shall be liable
          for any damages arising out of its failure to perform its duties under
      this Agreement to the extent such damages arise out of its willful
          misfeasance, bad faith, gross negligence or reckless disregard of such
duties.                                                     

  (d)  Notwithstanding anything in this Agreement to the contrary, neither
          the Escrow Agent nor its affiliates shall be liable to the Fund or the
        Manager for any consequential, special or indirect losses or damages
    which the Fund may incur or suffer by or as a consequence of the
          Escrow Agent's or its affiliates' performance of the services provided
          hereunder, whether or not the likelihood of such losses or damages was
known by the Escrow Agent or its affiliates.                

(e)  Without limiting the generality of the foregoing or of any other 
         provision of this Agreement, the Escrow Agent shall not be liable for
       losses beyond its control, provided it has acted in accordance with
        the standard of care set forth above; and the Escrow Agent shall not
         be liable for delays or errors or loss of data occurring by reason of
         circumstances beyond its control, including acts of civil or military
     authority, national emergencies, labor difficulties, fire, flood,
        catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.       

 (f)  The Fund agrees to indemnify the Escrow Agent and hold it harmless
         from and against any tax, charge, loss, liability, expense (including
    reasonable attorneys fees and expenses), claim or demand arising
       directly or indirectly from any action or omission to act which the
      Escrow Agent takes (i) at the request or on the direction of or in
         reliance on the advice of the Fund or (ii) upon Written Instructions;
    provided, however, that neither the Escrow Agent, nor any of its
  affiliates, shall be indemnified against any liability (or any
          expenses incident to such liability) arising out of the Escrow Agent's
          or its affiliates own willful misfeasance, bad faith, gross negligence
  or reckless disregard of its duties and obligations under this
          Agreement. The Fund shall indemnify and hold harmless the Escrow Agent
 against and in respect of any liability for taxes and for any
 penalties or interest in respect of taxes attributable to the
      investment of funds held in escrow by the Escrow Agent pursuant to
     this Agreement. Notwithstanding anything in this Agreement to the
      contrary, the Fund shall not be liable to the Escrow Agent for any
         consequential, special or indirect losses or damages which the Escrow
    Agent may incur or suffer, whether or not the likelihood of such
    losses or damages was known by the Fund. These indemnities shall
          survive the resignation of the Escrow Agent or the termination of this
Agreement.                                                  

  (g)  The Escrow Agent shall have no duties except those specifically set
forth in this Agreement.                                    

     (h)  The Escrow Agent shall have the right at any time it deems appropriate
          to seek an adjudication in a court of competent jurisdiction as to the
        respective rights of the parties hereto and shall not be held liable
      by any party hereto for any delay or the consequences of any delay
occasioned by such resort to court.                         

    (i)  The Escrow Agent shall notify promptly the Manager of any discrepancy
      between the amounts set forth on any remittance advice received by
Escrow Agent and the sums delivered to it therewith.        

3.   DEFINITIONS. Except as specifically set forth herein, the terms used in    
this Agreement shall have the same meaning as set forth in the        
Administration, Accounting and Investor Services Agreement among the  
parties.                                                              

4.   DEPOSIT OF ESCROW FUND. The Escrow Agent shall establish an account in the 
     name of PW Willow Fund, L.L.C., Escrow Account for the Benefit of Investors
    (the "Subscription Account") and an account in the name of PW Willow Fund,
     L.L.C. Repurchase Account (the "Repurchase Account") and, together with the
Subscription Account, the "Accounts"). The Escrow Agent shall promptly
    deposit in the Subscription Account checks remitted by Potential Investors
 and made payable to PW Willow Fund, L.L.C. Potential Investors also may
 deposit monies in the Subscription Account by wire transfer pursuant to
  instructions provided to them by the Fund or by amounts wire transferred
     from brokerage accounts at PaineWebber Incorporated. Balances on deposit in
the Subscription Account will earn interest at prevailing market rates
pursuant to arrangements approved by the Fund.                        

5.   STATEMENTS. During the term of this Agreement, the Escrow Agent shall      
provide the Fund with (a) monthly statements containing the beginning 
  balance in each Account as well as all principal and income transactions
   for the statement period and (b) a daily summary of amounts deposited and
the status of available funds. The Fund shall be responsible for      
     reconciling such statements. The Escrow Agent shall be forever released and
discharged from all liability with respect to the accuracy of such    
    statements, except with respect to any such act or transaction as to which
    the Fund shall, within 90 days after the furnishing of the statement, file
written objections with the Escrow Agent.                             

6.   DISTRIBUTIONS AND CLOSINGS. Upon Written Instructions, at each closing of  
each offering of interests in the Fund, the Escrow Agent will wire    
  principal balances on deposit in the Subscription Account to the account
designated by the Fund. Such Written Instructions shall be sent to the
     Escrow Agent by 2:00 p.m. on the closing date with respect to each closing.
In the event that a Potential Investor who has escrow funds in the    
Subscription Account is not admitted into the Fund, upon Written      
Instructions, the Escrow Agent shall promptly issue refunds to the    
Potential Investor in the amount of the principal balance with accrued
   interest. Such refunds shall be made in check form or by wire transfer to
the brokerage account of the Potential Investor at PaineWebber        
Incorporated.                                                         

7.   INTEREST. All interest earned on the escrow funds deposited in the Accounts
    hereunder shall be added to and held in the Accounts. With respect to each
closing, pursuant to Written Instructions, within 5 business days the 
    Escrow Agent shall issue interest payments in check form to each Potential
     Investor based on his or her individual balance in the Subscription Account
    along with a cover letter and to the Manager based upon its balance in the
Subscription Account along with a cover letter. The Escrow Agent will 
prepare and send notifications on Form 1099 for each calendar year.   

8.   REPURCHASES. The Fund from time to time may wire balances to the Repurchase
  Account in connection with periodic repurchases of interests by the Fund
   from its members. Upon Written Instructions, the Escrow Agent shall issue
   promptly repurchase payments from the Repurchase Account in check form to
     the repurchasing member or to the Manager, as the case may be. Upon Written
Instructions, the Escrow Agent will withhold specified amounts from   
   repurchasing members. Any interest earned thereon will be credited to the
accounts of the Fund.                                                 

9.   TAX IDENTIFICATION NUMBER. All deposits to the Accounts shall be subject to
 the Escrow Agent's receipt of a valid tax identification number for the
Fund, Manager or Potential Investor, as applicable.                   

10.  COMPENSATION. The fee of the Escrow Agent for its services hereunder shall 
     be paid by the Fund as may be mutually agreed to in writing by the Fund and
   Escrow Agent. Notwithstanding the foregoing, standard account transaction
charges will be billed to the Fund as an out-of-pocket expense.       

11.  AMENDMENT. This Agreement may not be amended or supplemented, and no       
provision hereof may be modified or waived, except by an instrument in
writing, signed by all of the parties hereto.                         

12.  TERMINATION. This Agreement shall continue until terminated by either party
     on 60 days prior written notice. Upon the termination of this Agreement and
upon the delivery of the balance of the Accounts to a successor escrow
  agent or such other person as may be designated by Written Instructions,
  the Escrow Agent shall be released and discharged of any and all further
 obligations hereunder. If no successor Escrow Agent has been designated
    pursuant to Written Instructions to receive the balance of the Accounts at
     the expiration of the 60-day period, the Escrow Agent shall have no further
    obligation hereunder except to hold the escrow funds as a depositary. Upon
   written notification by the Fund of the appointment of the successor, the
 Escrow Agent shall promptly deliver the balance of the Accounts to such
    successor, and the duties of the resigning Escrow Agent shall thereupon in
    all respects terminate, and it shall be released and discharged of any and
all further obligations hereunder.                                    

13.  EXECUTION. This Agreement may be executed in several counterparts, each of 
 which shall be deemed an original, but such counterparts together shall
constitute one and the same instrument.                               

14.  MISCELLANEOUS. All covenants and agreements contained in this Agreement by 
   or on behalf of the parties hereto shall bind and inure to the benefit of
such parties and their respective heirs, administrators, legal        
   representatives, successors and assigns, as the case may be. The headings
   in this Agreement are for convenience of reference only and shall neither
    be considered as part of this Agreement, nor limit or otherwise affect the
meaning thereof. This Agreement shall be construed and enforced in    
accordance with the laws of Delaware without regard to principles of  
conflicts of law.                                                     

15.  NOTICES. All instructions, notices and other communications hereunder must 
   be in writing and shall be deemed to have been duly given if delivered by
     hand or facsimile or mailed by first class, registered mail, return receipt
requested, postage prepaid, and addressed as follows:                 

(a)  If to the Fund:                                                  
PW Willow Fund, L.L.C.                                      
c/o PaineWebber Incorporated                                
Attn: Mark D. Goldstein, Esq.                               
1285 Avenue of the Americas                                 
New York, New York  10019                                   

(b)  If to the Escrow Agent:                                          
PFPC Inc.                                                   
Attn:  Neal Andrews                                         
400 Bellevue Parkway                                        
Wilmington, DE  19809                                       

16.  PARTIAL INVALIDITY. If any provision of this Agreement shall be held or    
     made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.                      

17.  ENTIRE AGREEMENT. This Agreement embodies the entire agreement and         
 understanding among the parties and supersedes all prior agreements and
  understandings relating to the subject matter hereof; provided that, the
  parties may embody in one or more separate documents their agreement, if
any, with respect to delegated duties and instructions.               

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 IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.                                    

PW WILLOW FUND, L.L.C.                                                          

By: ________________________________                                            

Name:  _____________________________                                            

Title:  ______________________________                                          

PW WILLOW MANAGEMENT, L.L.C.                                                    

By: ________________________________                                            

Name:  _____________________________                                            

Title:  ______________________________                                          

PFPC INC.                                                                       

By:  _______________________________                                            

Name:  _____________________________                                            

Title:  ______________________________                                          

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘N-2’ Filing		Date		First		Last			Other Filings
		2/11/01		7
		12/31/00		7		8			N-30D,  NSAR-B,  NT-NSAR
		4/1/00		6		7
Filed on:		2/29/00		1		21			N-8A
		2/11/00		7		24
		2/1/00		7		8
		1/31/00		8
		12/31/99		6		21
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