Filed On 3/31/03 4:00pm ET ˇ SEC File 811-21232 ˇ Accession Number 950172-3-1038
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
3/31/03 Fortress Pinnacle Investment..LLC N-2 6:139 Skadden Arps Sla..LLP/FA
Registration Statement of a Closed-End Investment Company ˇ Form N-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: N-2 Registration Statement of a Closed-End Investment 27 131K
Company
2: EX-99 Exhibit A 53 227K
3: EX-99 Exhibit D 3 11K
4: EX-99 Exhibit J 29 108K
5: EX-99 Exhibit P 16 66K
6: EX-99 Exhibit R 11 35K
N-2 ˇ Registration Statement of a Closed-End Investment Company
Document Table of Contents
FILE NO. 811-21232
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2003
U.S. SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(X) REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
FORTRESS PINNACLE INVESTMENT FUND LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1251 AVENUE OF THE AMERICAS
16TH FLOOR
NEW YORK, NEW YORK 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(NUMBER, STREET, CITY, STATE, ZIP CODE)
(212) 798-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
THE CORPORATION TRUST COMPANY
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL K. HOFFMAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NEW YORK 10036
FORM N-2
CROSS REFERENCE SHEET
as required by Rule 495(a)
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Part A
Item No. Caption Prospectus Caption
1. Outside Front Cover........................................ Not Applicable
2. Cover Pages; Other Offering Information.................... Not Applicable
3. Fee Table and Synopsis..................................... Fee Table and Synopsis
4. Financial Highlights....................................... Not Applicable
5. Plan of Distribution....................................... Not Applicable
6. Selling Shareholders....................................... Not Applicable
7. Use of Proceeds............................................ Not Applicable
8. General Description of the Registrant...................... General Description of the
Registrant; General; Investment
Objectives and Policies; Risk
Factors; Other Policies
9. Management................................................. Management; General
10. Capital Stock, Long-Term Debt, and Other Securities........ Capital Stock, Long Term Debt,
and Other Securities; Capital
Stock; Long-Term Debt; General;
Taxes; Outstanding Securities;
Securities Ratings
11. Defaults and Arrears on Senior Securities.................. Not Applicable
12. Legal Proceedings.......................................... Not Applicable
13. Table of Contents of Statement of Additional
Information................................................ Not Applicable
Part B Statement of Additional
Item No. Information
14. Cover Page................................................. Not Applicable
15. Table of Contents.......................................... Not Applicable
16. General Information and History............................ General Description of the
Registrant
17. Investment Objective and Policies.......................... Investment Objective and Policies;
Investment Restrictions
18. Management................................................. Management
19. Control Persons and Principal Holders of Securities........ Control Persons and Principal
Holders of Securities
20. Investment Advisory and Other Services..................... Investment Advisory and Other
Services
21. Brokerage Allocation and Other Practices................... Brokerage Allocation and Other
Practices
22. Tax Status................................................. Tax Status
23. Financial Statements....................................... Financial Statements
Part C
Item No.
Information required to be included in Part C is set forth, under the
appropriate item so numbered, in Part C of this registration statement.
PART A
ITEM 1. OUTSIDE FRONT COVER
Not Applicable.
ITEM 2. COVER PAGES; OTHER OFFERING INFORMATION
Not Applicable.
ITEM 3. FEE TABLE AND SYNOPSIS
3.1 Expense Information:
Annual Expenses (as a percentage of net assets attributable
to the Shares)
Advisory Fees* 1.50%
Interest Payment on Borrowed Funds 0.05%
Other Expenses** 0.15%
---------------------------------------------------------
Total Annual Expenses 1.70%
1 Year 3 Years 5 Years 10 Years
You would pay the following expenses on a
$1,000 investment, assuming a 5% annual
return: $2.33 $7.33 $12.85 $29.24
The purpose of the preceding table is to assist the investor in understanding
the various costs and expenses that an investor in Fortress Pinnacle
Investment Fund LLC (the "Fund") will bear directly or indirectly and do not
include expenses of other affiliates that are not investment companies.
* The Advisor is entitled to a special allocation out of the Fund's net
profits equal to a cumulative return of 1.50% per annum of capital
invested in the Fund.
** Other Expenses are based on estimated amounts for the current fiscal
year. The example above should not be considered a representation of
future expenses, which may be higher or lower.
3.2 Not Applicable.
3.3 Not Applicable.
ITEM 4. FINANCIAL HIGHLIGHTS
Not Applicable.
ITEM 5. PLAN OF DISTRIBUTION
Not Applicable.
ITEM 6. SELLING SHAREHOLDERS
Not Applicable.
ITEM 7. USE OF PROCEEDS
Not Applicable.
ITEM 8. GENERAL DESCRIPTION OF THE REGISTRANT
8.1 General. The Fund was formed as a limited liability company under
the laws of the State of Delaware on July 24, 2002, and is a non-diversified,
closed-end management investment company. The Fund is authorized to issue up
to $100,000,000 in common limited liability company interests in the Fund
designated as "Shares" and up to $120,000 in preferred limited liability
company interests in the Fund known as "Preferred Interests."
The Fund has called $25,500,000 (100%) of all the capital committed
by the holders of the Shares on the closing of the Fund to make investments in
accordance with its investment objectives and policies and to fund its
expenses.
Unless terminated earlier, the Fund shall terminate on the earlier to
occur of (1) the first anniversary of the termination of Fortress Pinnacle
Acquisition LLC ("FPA") (other than by merger or other combination of Pinnacle
Holdings Inc. ("Pinnacle Holdings") with or into FPA or any of its affiliates,
or (2) approval of 75% of the holders of the then outstanding Shares and 75%
of the holders of the then outstanding Preferred Interests.
8.2 Investment Objectives and Policies. The investment objective of
the Fund is to seek capital appreciation and income by (i) acquiring, owning,
holding and selling or otherwise transferring limited liability company
interests in FPA; (ii) making short-term investments; and (iii) engaging in
all activities and transactions as the board of managers of the Fund (the
"Board of Managers") may deem reasonably necessary, advisable or incidental in
connection therewith. No assurance can be given that the Fund will achieve its
investment objectives.
Pinnacle Holdings Inc. ("Pinnacle Holdings"), headquartered in
Sarasota, FL, is a leading provider of wireless communications sites in North
America and is focused exclusively on renting space to providers of wireless
communications services such as personal communication services, cellular,
paging, specialized mobile radio, enhanced specialized mobile radio, wireless
data transmission, and radio and television broadcasting. As of December 31,
2002, the Company had 3,200 revenue-producing communications sites, comprised
of 2,209 owned sites, 299 managed sites and 692 leased sites.
FPA is a limited liability company formed for the purpose of (i)
acquiring, purchasing, owning, holding and disposing of (directly or
indirectly through one or more wholly-owned subsidiaries) equity securities
and notes convertible into equity securities of Pinnacle
2
Holdings Inc., and (ii) forming one or more wholly-owned subsidiaries for the
purpose of investing or merging with Pinnacle Holdings Inc.
The Fund's investment objective and the following investment
restrictions are fundamental and cannot be changed without the approval of a
majority of the members of the Board of Managers (each, a "Manager," and
together, the "Managers") and the approval of the holders of the Shares and
the Preferred Interests who in the aggregate own more than 50% of the
outstanding Shares and Preferred Interests entitled to vote on a matter
("Majority in Interest of Members"). If a percentage restriction on investment
or use of assets set forth below is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing market values
will not be considered a deviation from policy. The Fund may not:
(1) borrow money or issue senior securities except in compliance
with the investment Company Act of 1940, as amended (the
"1940 Act");
(2) make loans of money or property to any person, except as may
be consistent with the Fund's investment objectives and
policies;
(3) underwrite the securities of other issuers, except to the
extent that in connection with the disposition of portfolio
securities or the sale of its own Shares, Preferred
Interests or securities of its subsidiaries the Fund may be
deemed to be an underwriter;
(4) purchase real estate or interests therein to the extent that
as a result of such investments the Fund would not be (a) an
investment company by virtue of Section 3(c)(5)(C) of the
1940 Act or (b) a regulated investment company under the
Code;
(5) purchase or sell commodities or commodity contracts for any
purposes except as, and to the extent, permitted by
applicable law without the Fund becoming subject to
registration with the Commodity Futures Trading Commissions
as a commodity pool; or
(6) invest in excess of 25% of its capital in assets in any
industry other than the real estate and real estate
financial products industry, including mortgage loans and
other Real Estate-Related Assets (as defined below), except
that the Fund may invest without limit in securities backed
by the credit the United States of America or agencies or
instrumentalities thereof.
Real Estate-Related Assets shall include (i) mortgage loans and
non-mortgage receivables; (ii) securities secured by or evidencing interests
in assets described in clause (i); (iii) fee or leasehold interests in real
properties, whether improved or unimproved, whether commercial, residential or
multifamily; (iv) debt interests (whether secured or unsecured, recourse or
non-recourse, senior or subordinated, convertible or otherwise), equity
interests (whether preferred or common) and derivative interests in entities
(whether in the form of partnerships, limited liability companies, trusts,
corporations or otherwise) the assets of which consist primarily of assets
described in clauses (i), (ii) or (iii) hereof, or in entities that otherwise
have substantial assets of the type described in clauses (i), (ii) or (iii)
hereof or in entities that provide services to or management in connection
with any other asset included in this paragraph; (v) options, including
without limitation, rights of first refusal, rights of first offer, and puts or
3
calls with respect to in any of the foregoing; and (f) hedging the
investment risks relating to any of the foregoing.
The Fund is committed to maintaining the privacy of shareholders and
to safeguarding its nonpublic personal information. Generally, the Fund does
not receive any nonpublic personal information relating to its shareholders,
although certain nonpublic personal information of its shareholders may become
available to the Fund. The Fund does not disclose any nonpublic personal
information about its shareholders or former shareholders to anyone, except as
permitted by law or as is necessary in order to service shareholder accounts
(for example, to a transfer agent or third party administrator) or as agreed
to by such shareholders. Unless otherwise agreed by the shareholders, the Fund
restricts access to nonpublic personal information about the shareholders to
Fortress employees with a legitimate business need for the information. The
Fund maintains physical, electronic and procedural safeguards designed to
protect the nonpublic personal information of its shareholders.
8.3 Risk Factors.
General. Investment in the Fund may involve certain risk factors and
special considerations, including those arising from the Fund's investment
securities, policies and practices and from the Fund's investment strategy.
Non-Diversified Status. As a result of concentrating its investments
indirectly in securities of Pinnacle Holdings, the Fund will be a
non-diversified investment company and, therefore, much more susceptible than
a more widely diversified fund to any single economic, political or regulatory
occurrence. In particular, declines in real estate values, adverse local and
basic economic conditions, and poor performance by Pinnacle Holdings may
affect the value of the Fund's holdings as well as the ability of the Fund to
conduct its operations.
General Real Estate Risks. Real property investments are subject to
varying degrees of risk. Real estate values are affected by a number of
factors, including changes in the general economic climate, local conditions
(such as an oversupply of space or a reduction in demand for space), the
quality and philosophy of management, competition based on rental rates,
attractiveness and location of the properties, financial condition of tenants,
buyers and sellers of properties, quality of maintenance, insurance and
management services and changes in operating costs. Real estate values are
also affected by such factors as government regulations (including those
governing usage, improvements, zoning and taxes), interest rate levels, the
availability of financing and potential liability under changing environmental
and other laws.
Additionally, all real estate and real estate-related investments are
subject to the risk that a general downturn in the national or local economy
within the United States will depress real estate prices. The Fund may be
unsuccessful in structuring its investments to minimize any detrimental impact
that a recession may have on its investments and as a result the Fund may
suffer significant losses.
Risks of Investment in Pinnacle Holdings. Pinnacle Holdings has
certain customers that account for a significant portion of its revenue. The
loss of one or more of its major customers, or a reduction in their
utilization of Pinnacle Holding's communications site rental space due to
their insolvency or inability or unwillingness to pay, could have a material
adverse effect on the business, results of operations and financial condition
of Pinnacle Holdings and, indirectly, the Fund.
4
Substantially all of Pinnacle Holding's revenue is derived from
leases of communications site space. Most of these leases are with wireless
communications providers, with approximately 37% being with companies in the
paging and wireless data industries. Accordingly, future growth of Pinnacle
Holdings depends, to a considerable extent, upon the continued growth and
increased availability of cellular, PCS and other wireless communications
services. The paging and wireless data industry in general is currently
experiencing financial difficulties. If paging and wireless data customers
continue to experience financial difficulties this could have a material
adverse effect on the business, results of operations and financial condition
of Pinnacle Holdings and, indirectly, the Fund.
There can be no assurance that the wireless communications industry
will not experience severe and prolonged downturns in the future or that the
wireless communications industry will expand. The demand for rental space on
communications sites is dependent on a number of factors that are, to a large
extent, beyond Pinnacle Holding's control, including the following:
- demand for wireless services;
- financial condition and access to capital of wireless
communications providers;
- strategy of wireless communications providers with respect to
owning or leasing communications sites;
- government licensing of broadcast rights;
- changes in telecommunications regulations; and
- general economic conditions.
The demand for space on Pinnacle Holding's communications sites is
primarily dependent on the demand for wireless communications services. A
slowdown in the growth of the wireless communications industry in the United
States would depress network expansion activities and reduce the demand for
the Pinnacle Holding's communications sites. In addition, a downturn in a
particular wireless segment as a result of technological competition or other
factors beyond Pinnacle Holding's control could adversely affect the demand
for rental communications sites. Advances in technology could also reduce the
need for site-based transmission and reception. In addition, wireless service
providers often enter into "roaming" and "resale" arrangements that permit
providers to serve customers in areas where they do not have facilities. In
most cases, these arrangements are intended to permit a provider's customers
to obtain service in areas outside the provider's license area or, in the case
of resale arrangements, to permit a provider that does not have any licenses
to enter the wireless marketplace. The occurrence of any of these factors
could have a material adverse effect on Pinnacle Holding's business, financial
condition or results of operations, which could have a material adverse effect
on the Fund.
Most types of wireless services currently require ground-based
network facilities, including communications sites, for transmission and
reception. The extent to which wireless service providers lease such
communications sites depends on a number of factors beyond Pinnacle Holding's
control, including the level of demand for such wireless services, the
financial condition and access to capital of such providers, the strategy of
providers with respect to owning or leasing communications sites, government
licensing of communications services, changes in telecommunications
regulations and general economic conditions. In addition, wireless service
5
providers frequently enter into agreements with competitors allowing each
other to utilize one another's wireless communications facilities to
accommodate customers who are out of range of their home provider's services.
Wireless service providers may view such agreements as a superior alternative
to leasing space for their own antenna on Pinnacle Holding's communications
sites. The proliferation of such agreements could have a material adverse
effect on Pinnacle Holding's business, financial condition or results of
operations, which could have a material adverse effect on the Fund.
The emergence of new technologies that do not require terrestrial
antenna sites and can be substituted for those that do also could have a
negative impact on Pinnacle Holding's operations. In addition, the FCC has
issued licenses for several low-earth orbiting satellite systems that are
intended to provide solely data services. Although such systems are currently
highly capital-intensive and technologically untested, mobile satellite
systems could compete with land-based wireless communications systems, thereby
reducing the demand for the infrastructure services Pinnacle provides. The
occurrence of any of these factors could have a material adverse effect on
Pinnacle Holding's business, financial condition or results of operations,
which could have a material adverse effect on the Fund.
Liquidity and Valuation. The Fund's investments are subject to legal
or other restrictions on transfer and are such that no liquid market presently
exists. In addition, illiquid securities, such as the Fund's investments, may
be difficult, or require a substantial period of time to sell and may be
salable only at a discount from comparable, more liquid investments. Illiquid
securities may also be more difficult to value.
Bankruptcy Considerations. Investments made in assets operating in
restructuring situations or under Chapter 11 of the Bankruptcy Code could be
subordinated or disallowed, and, if the Fund inappropriately exercises control
over the management and policies of the debtors, the Fund could become liable
to third parties in such circumstances. Furthermore, distributions made to the
Fund in respect of such investments, and distributions by the Fund to the
holders, could be required to be repaid to the creditors of such investment if
such distributions are found to be a fraudulent conveyance or preferential
payment.
Potential Environmental Liability. Under various foreign and United
States Federal, state and local laws, ordinances and regulations, an owner of
real property may be liable for the costs of removal or remediation of certain
hazardous or toxic substances on or in such property. Such laws often impose
such liability without regard to whether the owner knew of, or was responsible
for, the presence of such hazardous or toxic substances. The cost of any
required remediation and the owner's liability therefor as to any property is
generally not limited under such enactments and could exceed the value of the
property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to properly remediate contamination from such
substances, may adversely affect the Fund's ability to sell real estate it
acquires, whether as an equity investment or through foreclosure on a loan
investment, or to borrow using such property as collateral.
Restrictions on Transfer and Withdrawal. Interests in the Fund will
not be registered under the Securities Act of 1933, as amended (the "1933
Act"), or any other securities laws and may not be offered, sold or
transferred, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the 1933 Act and applicable state
securities laws. There is no market for the interests in the Fund and none is
expected to develop. Therefore, each prospective investor must consider its
investment in Fund interests to be illiquid. Moreover, interests in the Fund
may be transferred only with the prior written consent of the Fund.
6
Key Personnel of the Advisor. The Fund's success may depend
significantly on the skill and acumen of key employees at the Advisor or its
affiliates. If Wesley Edens or any other key employee should cease to
participate in the Fund's business, the Fund might be adversely affected.
Preferred Interests. The Fund is authorized to issue up to $120,000
in Preferred Interests. The Preferred Interests will pay cumulative dividends
when, as and if declared by the Board of Managers at the rate of 10% per year,
will have a liquidation preference equal to $500 per Preferred Interest plus
accumulated and unpaid dividends, will be redeemable at the option of the Fund
in whole or in part at any time from the date of issuance at a value equal to
the liquidation preference calculated as of the date of redemption and will
have certain others rights as required by the 1940 Act. No dividends may be
paid on the Preferred Interests if after giving effect to the payment of such
dividend, the Fund would not be able to pay its debts as such debts become due
in the ordinary course of business or the Fund's total assets would be less
than the sum of its total liabilities. Furthermore, the Board of Managers may
not declare any dividend or make any distribution upon the Shares unless the
Preferred Interests have, at the time of such dividend or distribution, an
asset coverage of at least 200% after deducting the amount of such dividend or
distribution. Assuming that the foregoing conditions have been met, the Fund
must experience an annual return of .05% in order to cover such dividend
payments.
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Assumed Return on
Portfolio (Net of
Expenses) -10% -5% 0% 5% 10%
-------------------------------------------------------------------------------------------------------------
Corresponding Return to
Holder of Shares*
-10.09% -5.07% -.05% 4.98% 10.00%
-------------------------------------------------------------------------------------------------------------
* The amounts shown assume a cumulative dividend on the Preferred
Interests of 10% per year. Percentages have been rounded to the nearest one
hundredth of one percent.
The foregoing table is to assist investors in understanding the
effects of leverage with respect to the Preferred Securities and assumes that
dividends have been declared in accordance with the foregoing conditions. The
figures appearing in the table are hypothetical. Actual returns may be greater
or less than those appearing in the table.
8.4 Other Policies. Consistent with its investment objective, the Fund
may also invest in (a) United States government and agency obligations with
maturities of not more than one year and one day from the date of acquisition,
(b) commercial paper with maturities of not more than six months and one day
from the date of acquisition and having a rating assigned to such commercial
paper by Standard & Poor's Ratings Services, a Division of the McGraw-Hill
Companies, Inc. ("S&P") or Moody's Investor Service, Inc. ("Moody's") (or, if
neither such organization shall rate such commercial paper at such time, by any
nationally recognized statistical rating organization in the United States of
America) equal to one of the two highest commercial paper ratings assigned by
such organization, it being understood that as of the date hereof such ratings
by S&P are "P1" and "P2" and such ratings by Moody's are "Al" and "A2," and (c)
interest bearing deposits in dollars in United States banks with an
unrestricted surplus of at least two hundred fifty million dollars
($250,000,000), maturing within one year.
7
8.5 Not Applicable.
8.6 Not Applicable.
ITEM 9. MANAGEMENT
9.1 General.
(a) Board of Managers. The Board of Managers sets broad policies for
the Fund and its officers. The Advisor manages the day-to-day operations of
the Fund subject to the oversight of the Board of Managers and supplies
officers to the Fund for this purpose. Except as expressly provided by the
Agreement, the Managers owe to the Fund and the holders of the Shares and the
Preferred Interests the same fiduciary duties as owed by directors of
corporations and their shareholders under the Delaware General Corporations
Law. The Board of Managers shall consist at all times of no fewer than one (1)
Manager (or such other number of Managers as shall be fixed from time to time
by a written instrument signed by a majority of the Managers); provided,
however, that if the number of Managers is one (1), such Manager shall not be
an "interested person" of the Fund as defined in Section 2(a)(19) of the 1940
Act, and provided further, that if the number of Managers is greater than one
(1), it shall not be less than three (3), of whom at least 50% are not
"interested persons" of the Fund as defined in Section 2(a)(19) of the 1940
Act.
(b) Investment Advisor. The Advisor, FIG Advisors LLC, maintains its
office at 1251 Avenue of the Americas, 16th Floor, New York, New York 10020.
The Advisor is a registered investment advisor formed in August 1999. The
Advisor is owned by Fortress Investment Group LLC ("FIG"), a Delaware limited
liability company which, through itself and other affiliates, provides
investment advice to real estate investment trusts and other related accounts.
Pursuant to the Agreement, the Fund has retained the Advisor to
manage the investment of its assets, to provide such investment research,
advice and supervision, in conformity with its investment objective and
policies, as may be necessary for the operations of the Fund.
As compensation for its services to the fund, Section 7.3 of the
Agreement provides that the net profits of the Fund for each fiscal year be
allocated first to the Advisor in an amount equal to a cumulative return of
1.5% per annum on all capital contributions; provided, however, that in no
event shall the payments to the Advisor exceed 1.5% of the capital
contributions made on or before the first anniversary of October 10, 2002; and
provided further that for any period in which the Advisor does not serve as
investment advisor pursuant to an investment advisory arrangement that has
been approved according to the applicable provisions of the 1940 Act, the
Advisor shall receive an annual allocation based on a percentage equal to the
days the Advisor served as investment advisor pursuant to a duly approved
investment advisory arrangement divided by 365 days.
The Advisor is an affiliate of Fortress Investment Group LLC
(collectively, "Fortress"), a global alternative investment and asset
management firm based in New York. Fortress was founded in 1998 by a group of
senior professionals led by Wesley R. Edens, who have worked together in
various capacities over the last 14 years. Today, the other principals of
8
Fortress include Peter Briger, Robert Kauffman, Randal Nardone, Michael
Novogratz and Erik Nygaard. Fortress currently manages over $3 billion in
equity capital in three alternative investment businesses: private equity,
real estate securities and hedge funds. Fortress is headquartered in New York,
with offices in London and Rome and employs approximately 100 people
worldwide.
Fortress's principals have over 80 years of collective real estate,
capital markets and structured finance experience. In the past six years
alone, the principals have directed the acquisition and management of
approximately $20 billion of financial and real estate-related assets and
companies in North America and Europe.
(c) Portfolio Management.
The Fund's assets are managed by a committee consisting of, among
others, the following persons (such persons being primarily responsible for
the day-to-day management of the Fund's portfolio):
WESLEY R. EDENS has been the Chief Executive Officer of FIG since
co-founding the firm in 1998. Mr. Edens is responsible for all investment
decisions at the firm, as well as the firm's strategic direction. Mr. Edens in
also responsible for the day-to-day operations and management of FIG's private
equity funds. Mr. Edens is also a Director of other FIG investment affiliates.
Prior to forming FIG, Mr. Edens was the head of the Global Principal Finance
("GPF") group at Union Bank of Switzerland ("UBS"), as well as a Managing
Director of UBS from May 1997 to May 1998. Mr. Edens received a B.S. degree in
Finance from Oregon State University.
ROBERT I. KAUFFMAN has been the President of FIG since co-founding
the firm in 1998. Mr. Kauffman oversees FIG's European investment operations.
Mr. Kauffman is also the Chief Executive Officer of Italfondiario, the loan
servicing business owned by FIG. Mr. Kauffman is currently a Director of REG
Real Estate Group, and is also a Director of other FIG investment affiliates.
Prior to joining FIG, Mr. Kauffman was a Managing Director of UBS from May
1997 to May 1998. Mr. Kauffman received a B.S. in Business Administration from
Northeastern University.
RANDAL A. NARDONE has been the Chief Operating Officer and Secretary
of FIG since co-founding the firm in 1998. Mr. Nardone oversees FIG's
structured finance and legal matters, and is a Director of other FIG
investment affiliates. Prior to joining FIG, Mr. Nardone was a Managing
Director of UBS from May 1997 to May 1998. Mr. Nardone received a B.A. degree
in English and Biology from the University of Connecticut and a J.D. degree
from the Boston University School of Law.
ERIK P. NYGAARD is the Chief Information Officer and Treasurer of
FIG. Mr. Nygaard co-founder FIG with Messrs. Edens, Kauffman and Nardone.
Previously, Mr. Nygaard was the head of the financial engineering department
of GPF, as well as a Managing Director of UBS. Prior to joining GPF in 1997,
Mr. Nygaard was a principal of BlackRock Financial Management, Inc., and a
Managing Director of Blackrock Asset Investors, a real estate investment fund
with approximately $560 million in capital. Mr. Nygaard received a B.S. degree
in Electrical Engineering and Computer Science from the Massachusetts
Institute of Technology.
JEFFREY R. ROSENTHAL is the Chief Financial Officer and Treasurer of
FIG. He joined FIG in June 2002. He was previously the Executive Vice President
and Chief Operating Officer of Starwood Capital Group from April 1997 to June
2002. In addition, he was a member of Starwood's Executive and Investment
Committees. Mr. Rosenthal is also a Director of Baird & Warner, Inc. Mr.
Rosenthal received a B.S. in Accounting from The University of Illinois in
Chicago and is a Certified Public Accountant.
9
(d) Not Applicable.
(e) Custodian. JPMorgan Chase Bank of New York, with a place of
business at 270 Park Avenue, New York, NY 10018, serves as Custodian for the
Fund, and in such capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Fund.
(f) Expenses. The Agreement provides, among other things, that the
Advisor will bear all costs and expenses of its directors, officers and
employees, any overhead incurred in connection with its duties under the
Agreement, the cost of any compensation of any officers or Managers of the
Fund who are partners, directors, officers or employees of the Advisor and all
other costs and expenses of the Fund that are not expressly stated to be borne
by the Fund.
The Agreement provides that the Fund will pay all ordinary operating
expenses of the Fund including, but not limited to, fees and expenses of the
Board of Managers; fees of the Advisor; expenses of registering the Shares and
Preferred Interests for sale under state securities laws and other expenses in
connection with the offering of the Shares and the Preferred Interests;
interest; taxes; fees and expenses of the Fund's legal counsel and independent
accountants; fees and expenses of the Fund's administrator, transfer agent and
custodian; expenses of printing and mailing Share and Preferred Interest
certificates (if any), reports to holders of Shares and Preferred Interests,
notices to holders of Shares and Preferred Interests, proxy statements;
reports to regulatory bodies; brokerage and other expenses in connection with
the execution, recording and settlement of portfolio security transactions;
expenses in connection with the acquisition and disposition of portfolio
securities or the registration of privately issued portfolio securities; costs
of third party evaluations or appraisals of the Fund (or its assets) or its
investments; expenses of membership in investment company and other trade
associations; expenses of fidelity bonding and other insurance premiums;
expenses of meetings of the holders of the Shares and Preferred Interests;
indemnification costs and expenses; and all of the Fund's other business and
operating expenses. In addition, the Fund will bear all organizational and
syndication expenses.
(g) Not applicable.
9.2 Not applicable.
9.3 Control Persons.
As of March 1, 2003, the following persons controlled the Fund:
Weyerhaeuser Company Master Retirement Trust 39.2% of the Shares; and
Howard Hughes Medical Institute 41.2% of the Shares.
The investment advisor to each of the entities listed above in this
Item 9.3 is Morgan Stanley Investments LP. As a result of acting as investment
advisor for these entities, Morgan Stanley Investments LP may be considered a
control person for purposes of this Item 9.3.
10
ITEM 10. CAPITAL STOCK, LONG-TERM DEBT, AND OTHER SECURITIES
10.1 Capital Stock. The Fund is authorized to issue up to
$100,000,000 in common limited liability company interests in the Fund known
as Shares. The Shares have no preemptive, conversion, appraisal, exchange or
redemption rights. Holders of Shares are entitled to one vote per Share on all
matters subject to Shareholder approval.
The Fund is authorized to issue up to $120,000 in Preferred
Interests. The Preferred Interests will pay cumulative dividends when, as and
if declared by the Board of Managers at the rate of 10% per year, will have a
liquidation preference equal to $500 per Preferred Interest plus accumulated
and unpaid dividends, will be redeemable at the option of the Fund in whole or
in part at any time from the date of issuance at a value equal to the
liquidation preference calculated as of the date of redemption and will have
certain others rights as required by the 1940 Act. No dividends may be paid on
the Preferred Interests if after giving effect to the payment of such
dividend, the Fund would not be able to pay its debts as such debts become due
in the ordinary course of business or the Fund's total assets would be less
than the sum of its total liabilities. Furthermore, the Board of Managers may
not declare any dividend or make any distribution upon the Shares unless the
Preferred Interests have, at the time of such dividend or distribution, an
asset coverage of at least 200% after deducting the amount of such dividend or
distribution. Holders of the Preferred Interests shall have the right to elect
two Managers of the Fund at all times and to elect a majority of Managers if
at any time dividends on the Preferred Interests are unpaid in an amount equal
to two full years' dividends and to be so represented until all dividends in
arrears have been paid or otherwise provided for, and shall have such other
voting rights as set forth in the Agreement or as required by the 1940 Act.
When issued against payment therefor, the Shares and the Preferred
Interests will be fully paid and non-assessable. No person has any liability
for obligations of the Fund by reason of owning Shares or Preferred Interests,
although each person that subscribes for Shares or Preferred Interests is
liable for the full amount of such subscription.
10.2 Not Applicable.
10.3 Not Applicable.
10.4 Taxes. The Fund will elect to be treated as a partnership for
U.S. Federal income tax purposes. Accordingly, the Fund itself will not be
subject to Federal income tax, and each holder in computing its Federal income
tax liability will take into account its share of the Fund's income, gain,
loss, deductions and credits, regardless of whether such holder receives any
distribution from the Fund.
11
10.5 Outstanding Securities.
[Download Table]
Amount
Outstanding
Amount Held Exclusive of
By Amount Shown
Amount Registrant or Under Previous
Title of Class Authorized for its Account Column
--------------------- ------------------ --------------- --------------
Shares up to $100,000,000 None $25,500,000
Preferred Interests up to $120,000 None $ 50,500
10.6 Not Applicable.
ITEM 11. DEFAULTS AND ARREARS ON SENIOR SECURITIES
11.1 Not Applicable.
11.2 Not Applicable.
ITEM 12. LEGAL PROCEEDINGS
Not Applicable.
ITEM 13. TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Not Applicable.
PART B
ITEM 14. COVER PAGE
Not Applicable.
ITEM 15. TABLE OF CONTENTS
Not Applicable.
ITEM 16. GENERAL INFORMATION AND HISTORY
The Fund has a limited operating history. See Item 8 - General
Description of the Registrant, for general information.
ITEM 17. INVESTMENT OBJECTIVE AND POLICIES
Additional information regarding the Fund's permitted investment
securities is set forth below. See Item 8 - General Description of the
Registrant, for additional information.
The Fund may borrow money or otherwise incur indebtedness for
temporary or emergency purposes in an amount up to $500,000. The Fund may not
borrow for investment purposes.
12
The Fund may invest in United States government and agency
obligations with maturities of not more than one (1) year and one (1) day from
the date of acquisition, commercial paper with maturities of not more than six
(6) months and one (1) day from the date of acquisition and having a rating
assigned to such commercial paper by Standard & Poor's Ratings Services, a
Division of the McGraw-Hill Companies, Inc. ("S&P") or Moody's Investor
Service, Inc. ("Moody's") (or, if neither such organization shall rate such
commercial paper at such time, by any nationally recognized statistical rating
organization in the United States of America) equal to one of the two highest
commercial paper ratings assigned by such organization, it being understood
that as of the date hereof such ratings by S&P are "P1" and "P2" and such
ratings by Moody's are "Al" and "A2," and interest bearing deposits in dollars
in United States banks with an unrestricted surplus of at least two hundred
fifty million dollars ($250,000,000), maturing within one (1) year.
ITEM 18. MANAGEMENT
18.1 The following individuals are the officers and Managers of the
Fund. A brief statement of their present positions and principal occupations
during the past five years is also provided.
[Enlarge/Download Table]
Number of
Portfolios in
Fund Complex
Term of Overseen by Other
Positions(s) Office and Manager Directorships
Name, Age and Business Held With Length of Principal Occupation(s) (including the Held by
Address Registrant Time Served During Past Five Years Fund) Manager
---------------------- ------------ ----------- ----------------------------- -------------- -------------
Wesley R. Edens (41) Chief October 8, Chief Executive Officer of the Not Applicable Not
Fortress Pinnacle Executive 2002 to Advisor and FIG; Chairman and Applicable
Investment Fund LLC Officer Present Chief Executive Officer of
1251 Avenue of the Newcastle Investment Holdings
Americas, 16th Floor Corp. ("NIHC") and Newcastle
New York, NY 10020 Investment Corp. ("NIC") and
Chairman, Chief Executive
Officer and President of
Capstead Mortgage Corporation;
formerly Head of Global
Principal Finance and Managing
Director at Union Bank of
Switzerland ("UBS").
Robert H. Gidel (51) Manager October 8, Managing Partner, Liberty Three: Brazos
Fortress Pinnacle 2002 to Partners, LP and Liberty Fortress Partners;
Investment Fund LLC Present Realty Partners LP; Chief Registered Pinnacle
1251 Avenue of the Operating Officer and Board Investment Holdings Inc.
Americas, 16th Floor Member, Brazos Fund; President Trust and
New York, NY 10020 and Board Member, Brazos Fortress
Partners; Board Member, Investment
Pinnacle Holdings Inc.; Trust II
Investment Committee, Lone
Star Opportunity Fund I and
Lone Star Opportunity Fund II;
Board of Directors, American
Industrial Properties and
Developers Diversified Realty
Corp.; formerly Chief
Executive Officer and Board
Member, Meridan Point 8;
President, Chief Operating
Officer and Board Member,
Paragon Group.
Robert I. Kauffman (39) President October 8, President, Advisor and FIG; Not Applicable Not
Fortress Pinnacle 2002 to Chief Executive Officer, Applicable
Investment Fund LLC Present Italfondiario, Director, REG
1251 Avenue of the Real Estate Group; formerly,
Americas, 16th Floor Managing Director, UBS.
New York, NY 10020
13
Number of
Portfolios in
Fund Complex
Term of Overseen by Other
Positions(s) Office and Manager Directorships
Name, Age and Business Held With Length of Principal Occupation(s) (including the Held by
Address Registrant Time Served During Past Five Years Fund) Manager
---------------------- ------------ ----------- ----------------------------- -------------- -------------
Randal A. Nardone (47) Vice October 8, Vice President, Chief Not Applicable Not
Fortress Pinnacle President, 2002 to Operating Officer and Applicable
Investment Fund LLC Chief Present Secretary, Advisor and FIG;
1251 Avenue of the Operating Secretary, NIHC, NIC;
Americas, 16th Floor Officer and formerly, Managing Director,
New York, NY 10020 Secretary UBS.
Jeffrey R. Rosenthal (52) Chief October 8, Chief Financial Officer and Not Applicable Not
Fortress Pinnacle Financial 2002 to Treasurer, Advisor and FIG; Applicable
Investment Fund LLC Officer and Present Director, Baird & Warner,
1251 Avenue of the Treasurer Inc.; formerly, Executive Vice
Americas, 16th Floor President and Chief Operating
New York, NY 10020 Officer of Starwood Capital
Group.
Erik P. Nygaard (43) Vice October 8, Vice President and Chief Not Applicable Not
Fortress Pinnacle President 2002 to Information Officer, Advisor Applicable
Investment Fund LLC and Chief Present and FIG; formerly, Managing
1251 Avenue of the Information Director, UBS
Americas, 16th Floor Officer
New York, NY 10020
Each Manager (other than any Manager who is an "affiliated person" of
the Fund) shall receive the following amounts for serving as a Manager: (i)
$15,000 per year, (ii) $1,000 per physical meeting, and (iii) $125 per
telephonic meeting, subject to a cap of $500 per year for all telephonic
meetings. The Fund also pays each Manager (whether or not such person is an
"affiliated person" of the Fund or the Advisor) for all reasonable
out-of-pocket expenses of such Manager incurred in attending each such
meeting.
In the table above: "NIHC" is a private real estate investment trust;
"NIC" is a publicly traded real estate investment trust; "Capstead Mortgage
Corporation" is a publicly traded real estate investment trust; "Liberty
Partners" is an investment partnership; and "Italfondiario" is an Italian loan
servicing company.
18.2 See Item 18.1.
18.3 Not Applicable.
18.4 Not Applicable.
18.5 The Fund has established an Audit Committee, comprised of all of
the independent Managers of the Fund. Currently, Robert H. Gidel is the only
member of the Audit Committee. The Audit Committee is charged with providing
informed, vigilant and effective oversight of the Fund's financial reporting
process and the internal controls which protect the integrity of the reporting
process. The Audit Committee had its initial meeting in February, 2003.
18.6 During the two most recently completed calendar years, Robert H.
Gidel has served as a trustee, director or manager of two other registered
investment companies managed by the Advisor or an affiliate of the Advisor:
Fortress Registered Investment Trust and Fortress Investment Trust II.
18.7 Not Applicable.
14
18.8 Not Applicable.
18.9 Not Applicable.
18.10 Not Applicable.
18.11 Not Applicable.
18.12 Not Applicable.
18.13 The Board of Managers approved Section 6.1 of the Agreement
whereby the Advisor is to perform investment advisory services to the Fund
after reviewing performance data and personnel data regarding the Advisor and
after considering the Fund's investment objectives and policies in light of
such data, including the expected expenses of the Fund. Such consideration by
the Board of Managers also included a review by the Board of Managers of
Section 6.1 of the Agreement (including the fees to be paid to the Advisor
under such Section), a comparison of the fee to be charged to the Fund by the
Advisor to fees charged by other investment advisors to funds with comparable
investment objectives (including the fee charged by the Advisor to other funds
it manages) and a memorandum prepared by counsel to the Fund outlining the
statutory requirements and standard of liability for approval of investment
advisory contracts under the 1940 Act. The Board of Managers concluded that
the fee to be charged to the Fund by the Advisor under the Agreement was
acceptable and in the best interests of the Fund and the holders of the Shares
and Preferred Interests.
18.14 Compensation Table.
Because the Fund has not completed its first full year since its
organization, the following information is provided for the Fund's current
fiscal year, based upon estimates of future payments to be made pursuant to
existing agreements or understandings.
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Compensation
from Fund Benefits Benefits Upon from Fund and
Accrued as Retirement Fund Complex
Part of Fund Paid to Director
Expenses
-------------------------------------------------------------------------------------------
Robert H. Gidel, $19,000 0 0 $48,000
Manager
-------------------------------------------------------------------------------------------
18.15 The Fund and the Advisor have adopted a Consolidated Code of
Ethics (the "Code of Ethics") in accordance with Rule 17j-1 of the 1940 Act.
Persons subject to the Code of Ethics are permitted to purchase securities, but
such persons are not permitted to purchase or sell, directly or indirectly, any
security in which such person has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership interest and which to such person's
actual knowledge at the time of such purchase or sale, is being considered for
purchase or sale or being purchased or sold by the Fund, the Advisor or certain
other affiliated companies. Persons subject to the Code of Ethics may not
participate in securities transactions on a joint basis with the Fund, the
Advisor or certain affiliates of the Fund. Persons subject to the Code of
Ethics may not participate in initial public offerings or in private placements
of securities unless cleared to do so by the Compliance Officer of the Fund or
the Advisor, as appropriate.
15
The Code of Ethics can be reviewed and copied at the Commission's
Public Reference Room in Washington, D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-202-942-8090. The Code of Ethics is also available on the EDGAR Database on
the Commission's Internet site at http://www.sec.gov. Copies of the Code of
Ethics may be obtained, after paying a duplicating fee, by electronic request
at the following E-mail address: publicinfo@sec.gov, or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.
ITEM 19. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
19.1
Howard Hughes Medical Institute
4000 Jones Bridge Road
Chevy Chase, Maryland 20815
Jurisdiction of Formation or Incorporation: Delaware
41.2% of the Shares
Weyerhaeuser Company Master Retirement Trust
c/o Morgan Stanley Investments LP
One Tower Bridge
100 Front Street
Suite 1100
West Conshohocken, Pennsylvania 19428-2881
Jurisdiction of Formation or Incorporation: New York
39.2% of the Shares
The investment advisor to each of the entities listed above in this
Item 19.1 is Morgan Stanley Investments LP. As a result of acting as
investment advisor for these entities, Morgan Stanley Investments LP may be
considered a control person for purposes of this Item 19.1. Morgan Stanley
Investments LP is located at One Tower Road, 100 Front Street, Suite 1100,
West Conshohocken, Pennsylvania 19428-2881.
19.2 See Item 19.1.
19.3 The officers and Managers as a group own less than 1% of the
equity securities of the Fund.
ITEM 20. INVESTMENT ADVISORY AND OTHER SERVICES
20.1-20.6 See Item 9 - Management.
20.7 The Fund's independent auditors are Ernst & Young LLP, Five
Times Square, New York, New York 10036. Ernst & Young LLP audits the Fund.
20.8 Not Applicable.
16
ITEM 21. BROKERAGE ALLOCATION AND OTHER PRACTICES
21.1 See Item 9 - Management, above. From time to time, one or more
of the investment companies or accounts which the Advisor manages may own the
same investments as the Fund. Investment decisions for the Fund are made
independently from those of such other investment companies or accounts;
however, from time to time, the same investment decision may be made for more
than one company or account. Subject to the foregoing, when two or more
investment companies or accounts managed by the Advisor or its affiliates seek
to purchase or sell the same securities, the securities actually purchased or
sold will be allocated among the companies and accounts on a good faith
equitable basis by the Advisor in its discretion in accordance with the
accounts' various investment objectives. In some cases, this system may
adversely affect the price or size of the position obtainable for the Fund. In
other cases, however, the ability of the Fund to participate in volume
transactions may produce better execution for the Fund.
The Advisor will, subject to the investment limitations and
restrictions set forth herein, make all decisions to buy and sell securities
for the Fund, will select dealers to effect transactions, will negotiate
prices, and will effect securities transactions in a manner deemed fair and
reasonable to the shareholders of the Fund and not according to any formula.
The Advisor's primary considerations in selecting the manner of executing
securities transactions for the Fund will be prompt execution of orders, the
size and breadth of the market for the security, the reliability, integrity
and financial condition and execution capability of the firm, the size of and
difficulty in executing the order, and the best net price.
There are many instances when, in the judgment of the Advisor, more
than one firm can offer comparable execution services. In selecting among such
firms, consideration is given to those firms which supply research and other
services in addition to execution services. However, it is not the policy of
the Advisor, absent special circumstances, to pay higher commissions to a firm
because it has supplied such services. The Advisor is able to fulfill its
obligations to furnish a continuous investment program to the Fund without
receiving such information from brokers; however, it considers access to such
information to be an important element of financial management. Although such
information is considered useful, its value is not determinable, as it must be
reviewed and assimilated by the Advisor, and does not reduce the Advisor's
normal research activities in rendering investment advice under the Agreement.
It is possible that the Advisor's expenses could be materially increased if it
attempted to purchase this type of information or generate it through its own
staff.
Although the Agreement contains no restrictions on portfolio
turnover, it is not the Fund's policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that the
annual portfolio turnover rate of the Fund will not exceed 400% excluding
securities having a maturity of one year or less. Because it is difficult to
predict accurately portfolio turnover rates, actual turnover may be higher or
lower. Higher portfolio turnover results in increased Fund expenses, including
brokerage commissions, dealer mark-ups and other transaction costs on the sale
of securities and on the reinvestment in other securities.
21.2 Not Applicable.
21.3 See response to Item 21.1.
21.4 Not Applicable.
21.5 Not Applicable.
17
ITEM 22. TAX STATUS
The following is a summary of the material U.S. Federal income tax
consequences relating to the purchase, ownership and disposition of Shares or
Preferred Interests in the Fund. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), rules and regulations
promulgated thereunder, published rulings and court decisions, all as in
effect on the date of this Registration Statement. The discussion does not
describe all of the U.S. Federal income tax consequences that may be relevant
to a particular investor in view of such investor's particular circumstance
and, except as otherwise directed, is not directed to individuals,
closely-held corporations, foreign persons, insurance companies and entities
or other persons generally exempt from U.S. federal income taxation. No
advance rulings have been or will be sought from the Internal Revenue Service
(the "Service") regarding any matter related to the Fund. ACCORDINGLY,
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO THEM OF
ACQUIRING, HOLDING AND DISPOSING SHARES, INCLUDING THE APPLICATION OF THE
ALTERNATIVE MINIMUM TAX.
Taxation of the Fund. The Fund will elect to be treated as a
partnership and not as an association taxable as a corporation for U.S.
Federal income tax purposes.
Publicly-Traded Partnership. Under current U.S. federal income tax
law, a partnership that constitutes a "publicly-traded partnership" may be
taxed as a corporation in certain circumstances generally depending upon the
nature of its income. Pursuant to Treasury regulations, a partnership will not
be treated as a publicly traded partnership if its interests are not (a)
traded on an established security market or (b) readily tradeable on a
secondary market (or the substantial equivalent thereof). Shares and Preferred
Interests in the Fund will not be listed on any securities exchange. In
addition, due to restrictions on transfers and redemptions, no secondary
market will exist for the units. Accordingly, the Fund expects that it will
not be treated as a publicly-traded partnership and will use its best efforts
to conduct its affairs so that it will not be so treated.
Taxation of Holders on Fund Profits and Losses. As a partnership, the
Fund generally will not itself be subject to U.S. Federal income tax. Rather,
each holder in computing its Federal income tax liability for a taxable year
will be required to take into account its allocable share of all items of Fund
income, gain, loss, deduction and credit for the taxable year of the Fund
ending within or with the taxable year of such holder, regardless of whether
such holder has received any distributions from the Fund. The Fund will make
distributions of cash to its holders. If a holder's allocable share of Fund
taxable income exceeds cash distributions to such holder for any taxable year,
such income would pass through to the holders without any corresponding
distribution. Such accruals will constitute taxable income to the holder and
will increase such holder's basis in its interest in the Fund. If cash is
subsequently received and distributed by the Fund in respect of such accruals,
no additional income would be recognized. The characterization of an item of
profit or loss usually will be determined at the Fund (rather than at the
holder) level.
Allocation of Fund Profits and Losses. For U.S. federal income tax
purposes, a holder's allocable share of items of Fund income, gain, loss,
deduction and credit will be determined by the Agreement provided such
allocations either have "substantial economic effect" or are determined to be
in accordance with the holders' units in the Fund. If the allocations provided
by the Agreement were successfully challenged by the Service, the
redetermination of the allocations to a particular holder for U.S. federal
income tax purposes could be less favorable than the allocations set forth in
the Agreement.
18
The maximum ordinary income tax rate for corporate taxpayers is
currently 35%.
Adjusted Tax Basis for Fund Interest. A holder's adjusted tax basis
for its Shares or Preferred Interests will be equal to the amount of its
initial capital contributions and will be increased by (a) any additional
capital contributions made by such holder and (b) the sum of such holder's
allocable share of (i) items of Fund taxable income and gain and (ii)
liabilities of the Fund. A holder's adjusted tax basis will be decreased, but
not below zero, by the holder's allocable share of (a) items of Fund
deductions and losses and (b) by the amount of any cash distributions by the
Fund or the amount of the basis of any property, other than cash, distributed
by the Fund and constructive distributions resulting from a reduction in such
holder's share of liabilities of the Fund, if any. In certain situations, the
distribution of marketable securities by the Fund may be treated as a cash
distribution equal to the fair market value of the marketable securities. A
distribution of marketable securities will not, however, be treated as a cash
distribution if the Fund constitutes an "investment partnership" and the
distribution is made to an eligible partner. Although not free from doubt, the
Shares and the Preferred Interets should constitute an investment partnership
for this purpose and, therefore, any distributions of marketable securities to
the holders should not be treated as cash distributions for U.S. Federal
income tax purposes.
If the recognition of a holder's allocable share of Fund losses would
reduce its adjusted tax basis for its Shares or Preferred Interests below
zero, the recognition of such losses by such holder would be deferred until
such time as the recognition of such losses would not reduce such holder's
basis below zero. If a holder receives a cash distribution (or constructive
cash distribution, as described above) in an amount that exceeds such holder's
adjusted tax basis in its Shares, such holder would be required to recognize
taxable income to the extent of that excess. Any such income recognized would
be treated as gain from the sale or exchange of its shares. In general, and
subject to the discussion below with respect to the possible application of
Section 751 of the Code, if a holder is not a "dealer" with respect to its
Shares or Preferred Interests and has held its Shares or Preferred Interests
for more than one year, any such gain would be long-term capital gain.
Sales and Liquidation. A sale or liquidation of all or part of a
holder's Shares or Preferred Interests will result in the recognition of gain
or loss in an amount equal to the difference, if any, between the amount
realized on the sale or the cash distributions received upon the liquidation
(including any deemed cash distributions from the Fund, as described above)
and the holder's adjusted tax basis for its Shares or Preferred Interests.
Such holder's adjusted tax basis will be adjusted for this purpose by its
allocable share of the Fund's income or loss for the year of such sale or
liquidation. Any gain or loss recognized with respect to such a sale or
liquidation generally will be treated as capital gain or loss and will be
long-term capital gain or loss if the units have been held for more than one
year. To the extent that the proceeds of the sale or liquidation are
attributable to such holder's allocable share of the Fund's "unrealized
receivables" or "substantially appreciated inventory," as defined in Section
751 of the Code, any gain will be treated as ordinary income.
Unrelated Business Taxable Income. Special tax considerations apply
to holders that are exempt from U.S. federal income taxation under Section 501
of the Code. Generally, such holders are not subject to U.S. federal income
taxation on passive investment income such as dividends, interest and capital
gains. This general exemption, however, does not apply to "un-
19
related business taxable income" ("UBTI") which includes income or gain
derived from a trade or business, the conduct of which is substantially
unrelated to the exercise or performance of the holder's exempt purpose. UBTI
also includes "unrelated debt-financed income," which generally consists of
(i) income derived by an exempt holder from income-producing property with
respect to which there is "acquisition indebtedness" at any time during the
taxable year, and (ii) gain derived by the exempt holder from the disposition
of property with respect to which there is "acquisition indebtedness" at any
time during the twelve-month period ending with the date of such disposition.
Accordingly, although not currently anticipated, if the Fund incurs any
indebtedness to acquire income-producing property, an exempt holder will be
subject to U.S. federal income taxation on its allocable share of income from
such property. In addition, an exempt holder will be subject to U.S. federal
income taxation on any gain recognized from the disposition of its Shares if
the holder incurred indebtedness to acquire such Shares during the
twelve-month period ending with the date of disposition.
Limitation on Deductibility of Capital Losses. A holder may be
restricted from currently taking into account for U.S. Federal income tax
purposes (i) its allocable share of any Fund Capital losses and (ii) any
Capital losses recognized by the holder upon the disposition of any Shares.
Capital losses generally are deductible by corporations only to the extent of
capital gains for the taxable year. Corporations may carry capital losses back
three years and forward five years.
Tax Audits. Under the Code, adjustments in tax liability with respect
to Fund items generally will be made at the Fund level in a single proceeding
rather than in separate proceedings with each holder. The Advisor will
represent the Fund as its "tax matters partner" during any audit and in any
dispute with the Service. Each holder will be informed by the Advisor of the
commencement of an audit of the Fund. In general, the Advisor may enter into a
settlement agreement with the Service on behalf of, and binding upon, the
holders. Prior to settlement, however, a holder may file a statement with the
Service providing that the Advisor does not have authority to settle on behalf
of such holder.
If adjustments are made to items of Fund income, gain, loss,
deduction or credit as the result of an audit of the Fund, the tax returns of
the holders may be reviewed by the Service, which could result in adjustments
of non-Fund items as well as Fund items.
ITEM 23. FINANCIAL STATEMENTS
The Fund incorporates by reference the information contained in its
annual report to investors on Form N-SAR, filed with the Securities and
Exchange Commission on March 3, 2003. The Fund will furnish, without charge, a
copy of such information upon request to Randal A. Nardone, Fortress Pinnacle
Investment Fund LLC, 1251 Avenue of the Americas, 16th Floor, New York, NY
10020, (212) 798-6100.
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
24.1 FINANCIAL STATEMENTS:
The Fund incorporates by reference the information contained in its
annual report to investors on Form N-SAR, filed with the Securities and
Exchange Commission on March 3, 2003.
20
24.2 EXHIBITS:
(a) Limited Liability Company Agreement of the Fund dated October 8,
2002
(b) None
(c) None
(d) Certificate of Designation of the Preferred Interests dated
October 8, 2002
(e) None
(f) None
(g) See Section 6.1 of the Limited Liability Company Agreement of the
Fund attached hereto as Exhibit A.
(h) Not applicable
(i) None
(j) Custodian Contract between the Fund and JPMorgan Chase Bank
(k) None
(l) Not applicable
(m) None
(n) Not applicable
(o) Not applicable
(p) Form of Subscription Agreement of the Fund
(q) None
(r) Consolidated Code of Ethics of Fortress Registered Investment
Trust, Fortress Investment Trust II, Fortress Brookdale Investment Fund LLC,
the Fund and the Advisor dated August 16, 2000 as amended through October 8,
2002
ITEM 25. MARKETING ARRANGEMENTS
None.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
21
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
As of March 27, 2003, the number of record holders of each class of
securities of the Fund was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Shares 4
Preferred Interests 101
ITEM 29. INDEMNIFICATION
29.1 The Agreement provides that, none of the Advisor, any Manager,
any officer or any of their respective affiliates, shareholders, partners,
officers, directors, members, employees, agents and representatives (each an
"Indemnified Person") shall have any liability, responsibility or
accountability in damages or otherwise to any Member or the Fund for, and the
Fund agrees, to the fullest extent permitted by law, to indemnify, pay,
protect and hold harmless each Indemnified Person from and against, any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, proceedings, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, all reasonable costs and expenses
of attorneys, defense, appeal and settlement of any and all suits, actions or
proceedings instituted or threatened against the Indemnified Persons or the
Fund) and all costs of investigation in connection therewith which may be
imposed on, incurred by, or asserted against the Indemnified Persons or the
Fund in any way relating to or arising out of, or alleged to relate to or
arise out of, any action or inaction on the part of the Fund, on the part of
the Indemnified Persons when acting on behalf of the Fund or otherwise in
connection with the business or affairs of the Fund or any portfolio
investment, or on the part of any brokers or agents when acting on behalf of
the Fund or any portfolio investment (collectively, the "Indemnified
Liabilities") and the Indemnified Person shall not be released from such
Indemnified Person's willful misfeasance, bad faith or gross negligence in the
performance of his, her or its duties or by reason of his, her or its reckless
disregard of his, her or its obligations and duties. These indemnification
rights provided for in the Agreement shall survive the termination of the Fund
or the Agreement except that no claim may be asserted by any Indemnified
Person against any indemnitor after the third anniversary of the termination
of the Fund unless written notice of such claim shall have been provided to
the indemnitor prior to the third anniversary date. Any indemnification rights
provided for in the Agreement shall be retained by any removed, resigned or
withdrawn investment advisor, Manager or officer and its constituent
Indemnified Persons. Any indemnification rights provided for in the Agreement
shall also be retained by any person who has acted in the capacity of officer,
director, partner, employee, agent, stockholder or affiliate of an Indemnified
Person after such persons shall have ceased to hold such positions.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
30.1 For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and directors of
the Advisor, reference is made to the Advisor's current Form ADV, and
incorporated herein by reference upon filing.
22
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Fund are maintained in part at the
office of the Advisor at 1251 Avenue of the Americas, 16th Floor, New York,
New York 10020, and in part at the offices of the Custodian with offices at
270 Park Avenue, New York, NY 10018.
ITEM 32. MANAGEMENT SERVICES
Except as described above in Item 9 - Management, the Fund is not a
party to any management-related service contract.
ITEM 33. UNDERTAKINGS
Not Applicable.
23
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,
State of New York, as of the 31st day of March, 2003.
FORTRESS PINNACLE INVESTMENT FUND LLC
(Registrant)
/s/ Wesley R. Edens
---------------------------------------
Wesley R. Edens
Chief Executive Officer
SCHEDULE OF EXHIBITS TO FORM N-2
Exhibit Number Exhibit
-------------- -------
Exhibit A Limited Liability Company Agreement of the Fund dated
October 8, 2002
Exhibit D Certificate of Designation of the Preferred
Interests dated October 8, 2002
Exhibit G Investment Advisory Agreement. See Section 6.1 of the
Limited Liability Company Agreement of the Fund
attached hereto as Exhibit A
Exhibit J Custodian Contract between the Fund and JPMorgan Chase
Bank
Exhibit P Form of Subscription Agreement of the Fund
Exhibit R Consolidated Code of Ethics of Fortress Registered
Investment Trust, Fortress Investment Trust II,
Fortress Brookdale Investment Fund LLC, the Fund and
the Advisor dated August 16, 2000 as amended through
October 8, 2002
Dates Referenced Herein and Documents Incorporated By Reference
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