U.S. Trust Hedge Fund Management, Inc.
PROXY VOTING POLICIES AND PROCEDURES
U.S. Trust Hedge Fund Management, Inc. (the "Adviser") provides investment
advisory services to private investment funds and registered investment funds
(each a "Client"), whose investment program primarily involves investing fund
assets in private investment funds (each, a "Fund" and collectively, the
"Funds"). The Adviser has authority to vote proxies relating to, or give
approval/consent to amendments proposed by, such Funds.
The Securities and Exchange Commission (the "SEC") has adopted Rule
206(4)-6 under the Investment Advisers Act. Under this rule, registered
investment advisers that exercise voting authority over client securities are
required to implement proxy voting policies and describe those policies to their
clients.
The Portfolio Manager is responsible for making all proxy voting decisions
in accordance with these proxy voting policies and procedures (the "Policies").
The Adviser is responsible for the actual voting of all proxies in a timely
manner, while the Compliance Officer is responsible for monitoring the
effectiveness of the Policies. (See Section IV. "Procedures for Proxies".)
The Policies attempt to generalize a complex subject. The Adviser may,
from time to time, determine that it is in the best interests of the Client to
depart from specific policies described herein. The rationale for any such
departure will be memorialized in writing by the Compliance Officer.
To the extent that the Adviser invests or holds a portion of a Client
account's assets in securities other than interests in Funds (i.e.,
publicly-traded securities), the Adviser will utilize the proxy voting policies
set forth in Appendix A attached hereto. To the extent any policy in the
Appendix conflicts with a specific policy herein, the policy herein will
control.
I. General Policy
The general policy is to vote proxy proposals, amendments, consents or
resolutions relating to Funds (collectively, "proxies") in a manner that serves
the best interests of the Client managed by the Adviser, as determined by the
Adviser in its discretion, taking into account relevant factors, including:
- the impact on the value of the returns of the Fund;
- the attraction of additional capital to the Fund;
- alignment of Management's (as defined below) interests with Fund Owners'
(as defined below) interests, including establishing appropriate
incentives for Management;
- the costs associated with the proxy;
- impact on redemption or withdrawal rights;
- the continued or increased availability of portfolio
information; and
- industry and business practices.
II. Specific Policies
A. Routine Matters
Routine matters are typically proposed by Management of a company and meet
the following criteria: (i) they do not measurably change the structure,
management, control or operation of the Fund; (ii) they do not measurably change
the terms of, or fees or expenses associated with, an investment in the Fund;
and (iii) they are consistent with customary industry standards and practices,
as well as the laws of the state of incorporation applicable to the Fund.
For routine matters, the Adviser will vote in accordance with the
recommendation of the Fund's management, directors, general partners, managing
members or trustees (collectively, "Management"), as applicable, unless, in the
Adviser's opinion, such recommendation is not in the best interests of the
Client.
The Adviser will generally vote for the following proposals:
1. To change capitalization, including to increase authorized common
shares or to increase authorized preferred shares as long as there
are not disproportionate voting rights per preferred share.
2. To elect or re-elect Board members.
3. To appoint or elect auditors.
4. To set time and location of annual meeting.
5. To establish a master/feeder structure without a significant
increase in fees or expenses.
6. To change the fiscal year or term of the Fund.
7. To change the name of a Fund.
B. Non-Routine Matters
Non-routine matters involve a variety of issues and may be proposed by
Management or beneficial owners of a Fund (i.e., shareholders, members,
partners, etc. (collectively, the "Owners")). These proxies may involve one or
more of the following: (i) a measurable change in the structure, management,
control or operation of the Fund; (ii) a measurable change in the terms of, or
fees or expenses associated with, an investment in the Fund; or (iii) a change
that is inconsistent with industry standards and/or the laws of the state of
formation applicable to the Fund.
1. Structure, Management and Investment Authority
On a case-by-case basis, the Adviser will decide the following matters,
taking into account these Policies and factors relevant to each proxy, as
discussed below.
a. Approval or Renewal of Investment Advisory Agreements
i. proposed and current fee schedules
ii. performance history of the Fund
iii. continuation of management talent
iv. alignment of interests between Management and Owners
b. Termination or Liquidation of the Fund
i. terms of liquidation
ii. past performance of the Fund
iii. strategies employed to save the Fund
c. Increases in Fees or Expenses
i. comparison to industry standards
ii. potential impact on the value of the returns of the Fund
iii. retention of management talent
2. Share Classes and Voting Rights
The Adviser will generally vote against the following proposals:
a. To establish a class or classes with terms that may disadvantage
other classes.
b. To introduce unequal voting rights.
c. To change the amendment provisions of an entity by removing
investor approval requirements.
C. All Other Matters
All other decisions regarding proxies will be determined on a case-by-case
basis taking into account the general policy, as set forth above.
D. Abstaining from Voting or Affirmatively Not Voting The Adviser will
abstain from voting (which generally requires submission of a proxy voting card)
or affirmatively decide not to vote if the Adviser determines that abstaining or
not voting is in the best interests of the Client. The Adviser is authorized to
consider the best interests of its Client accounts, in the aggregate, when
making the decision to abstain from voting or not to vote. In making such a
determination, the Adviser will consider various factors, including, but not
limited to: (i) the costs associated with exercising the proxy (e.g. translation
or travel costs); and (ii) any legal restrictions on trading resulting from the
exercise of a proxy. The Adviser will not abstain from voting or affirmatively
decide not to vote a proxy if the Client is a plan asset fund subject to the
requirements of the Employee Retirement Income Security Act of 1974, as amended.
III. Conflicts of Interest
At times, conflicts may arise between the interests of the Client, on the
one hand, and the interests of the Adviser or its affiliates, on the other hand.
If the Adviser determines that it has, or may be perceived to have, a conflict
of interest when voting a proxy, the Adviser will address matters involving such
conflicts of interest as follows:
A. if a proposal is addressed by the specific policies herein, the Adviser
will vote in accordance with such policies;
B. if the Adviser believes it is in the best interests of the Client to
depart from the specific policies provided for herein, the Adviser will be
subject to the requirements of C or D below, as applicable;
C. if the proxy proposal is (1) not addressed by the specific policies or
(2) requires a case-by-case determination by the Adviser, the Adviser may vote
such proxy as it determines to be in the best interests of the Client, without
taking any action described in D below, provided that such vote would be against
the Adviser's own interest in the matter (i.e. against the perceived or actual
conflict). The Adviser will memorialize the rationale of such vote in writing;
and
D. if the proxy proposal is (1) not addressed by the specific policies or
(2) requires a case-by-case determination by the Adviser, and the Adviser
believes it should vote in a way that may also benefit, or be perceived to
benefit, its own interest, then the Adviser must take one of the following
actions in voting such proxy: (a) delegate the voting decision for such proxy
proposal to an independent third party; (b) delegate the voting decision to an
independent committee of partners, members, directors or other representatives
of the Client, as applicable; (c) inform the investors in a Client of the
conflict of interest and obtain consent (majority consent in the case of a fund)
to vote the proxy as recommended by the Adviser; or (d) obtain approval of the
decision from the Adviser's Compliance Officer.
IV. Procedures for Proxies
The Compliance Officer will be responsible for determining whether each
proxy is for a "routine" matter or not, as described above. All proxies
identified as "routine" will be voted by the Adviser in accordance with the
Policies.
Any proxies that are not clearly "routine" will be submitted to the
Portfolio Manager, who will determine how to vote each such proxy by applying
the Policies. Upon making a decision, the proxy will be executed and returned to
the Adviser for submission to the company. Upon receipt of an executed proxy,
the Compliance Officer will update the Client's proxy voting record. The Adviser
is responsible for the actual voting of all proxies in a timely manner. The
Compliance Officer is responsible for monitoring the effectiveness of the
Policies.
In the event the Adviser determines that the Client should rely on the
advice of an independent third party or a committee regarding the voting of a
proxy, the Adviser will submit the proxy to such third party or committee for a
decision. The Adviser will execute the proxy in accordance with such third
party's or committee's decision.
V. Record of Proxy Voting
The Compliance Officer will maintain, or have available, written or
electronic copies of each proxy statement received and of each executed proxy.
The Compliance Officer will also maintain records relating to each proxy,
including (i) the determination as to whether the proxy was routine or not; (ii)
the voting decision with regard to each proxy; and (iii) any documents created
by the Portfolio Manager, or others, that were material to making the voting
decision.
The Adviser will maintain a record of each written request from an
investor in [a Client] for proxy voting information and the Adviser's written
response to any request (oral or written) from an investor in a Client for proxy
voting information.
The Compliance Officer will maintain such records in its offices for two
years and for an additional three years in an easily accessible place.
VI. Definitions
A. Portfolio Manager - Spencer N. Boggess, or as otherwise determined by
the Adviser.
A. Compliance Officer - Joan E. Hoffman, or as otherwise determined by
the Adviser.
Appendix A
PROXY VOTING POLICIES AND PROCEDURES
PUBLICLY TRADED SECURITIES
I. General Policy
The general policy is to vote proxy proposals relating to client
securities, (the "proxies"), in a manner that serves the best interests of the
funds and accounts managed by the Adviser, as determined by the Adviser in its
discretion, taking into account relevant factors, including, but not limited to:
o the impact on the value of the securities;
o the anticipated costs and benefits associated with the
proposal; and
o customary industry and business practices.
II. Specific Policies
A. Routine Matters
Routine matters are typically proposed by Management (as defined below) of
a company and meet the following criteria: (i) they do not measurably change the
structure, management, control or operation of the company; (ii) they do not
measurably change the terms of, or fees or expenses associated with, an
investment in the company; and (iii) they are consistent with customary industry
standards and practices, as well as the laws of the state of incorporation
applicable to the company.
For routine matters, the Adviser will vote in accordance with the
recommendation of the company's management, directors, general partners,
managing members or trustees (collectively, the "Management"), as applicable,
unless, in the Adviser's opinion, such recommendation is not in the best
interests of the fund or account.
1. General Matters
The Adviser will generally vote for the following proposals:
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a. to set time and location of annual meeting;
b. to change the fiscal year of the company; and
c. to change the name of a company.
2. Board Members
a. Election or Re-Election. The Adviser will generally vote for
Management proposals to elect or re-elect Board members.
b. Fees to Board Members. The Adviser will generally vote for
proposals to increase fees paid to Board members, unless it determines
that the compensation exceeds market standards.
3. Capital Structure
The Adviser will generally vote for proposals to change
capitalization, including to increase authorized common shares or to
increase authorized preferred shares, as long as the proposal does not
either: (i) establish a class or classes of shares or interests with terms
that may disadvantage the class held by the fund or account or (ii) result
in disproportionate voting rights for preferred shares or other classes of
shares or interests.
4. Appointment of Auditors
The Adviser will generally vote for the approval of auditors and
proposals authorizing the Board to fix auditor fees, unless:
a. the Adviser has serious concerns about the accounts presented or
the audit procedures used; or
b. the auditors are being changed without explanation. B.
Non-Routine Matters
Non-routine matters involve a variety of issues and may be proposed by a
company's Management or beneficial owners (i.e., shareholders, members,
partners, etc. (collectively, the "Owners")). These proxies may involve one or
more of the following: (i) a measurable change in the structure, management,
control or operation of the company; (ii) a measurable change in the terms of,
or fees or expenses associated with, an investment in the company; or (iii) a
change that is inconsistent with industry standards and/or the laws of the state
of incorporation applicable to the company.
1. Board Members
a. Term Limits. The Adviser will generally vote for proposals to
require a reasonable retirement age (e.g., 72) for Board members, and will
vote on a case-by-case basis on proposals to attempt to limit tenure.
b. Replacement. The Adviser will generally vote against proposals
that make it more difficult to replace Board members, including the
following proposals:
(i) to stagger the Board;
(ii) to overweight company Management on the Board;
(iii) to introduce cumulative voting (cumulative voting allows the
Owners to "stack" votes behind one or a few individuals for a
position on the Board, thereby giving minority Owners a greater
chance of electing the Board member(s));
(iv) to introduce unequal voting rights;
(v) to create supermajority voting; or
(vi) to establish pre-emptive rights.
c. Liability and Indemnification. In order to promote accountability,
the Adviser will generally vote against proposals to limit the personal
liability of Board members for any breach of fiduciary duty or failure to
act in good faith.
d. Ownership Issues. The Adviser will generally vote for proposals
that require Management to own a minimum interest in the company. The
purpose of this policy is to encourage the alignment of Management's
interests with the interests of the company's Owners. However, the Adviser
will generally vote against proposals for stock options or other
compensation that grant an ownership interest for Management if such
proposals offer greater than [15%] of the outstanding securities of a
company because such options may dilute the voting rights of other Owners
of the company. 2. Compensation, Fees and Expenses
In general, the Adviser will vote against proposals to increase
compensation, fees or expenses applicable to the company's Owners, unless
the Adviser determines that the benefits resulting to the company and its
Owners justifies the increased compensation, fees or expenses.
3. Voting Rights
The Adviser will generally vote against the following proposals:
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a. to introduce unequal voting or dividend rights among the classes;
b. to change the amendment provisions of a company's
charter documents by removing Owner approval
requirements;
c. to require supermajority (2/3) approval for votes rather than a
simple majority (1/2);
d. to restrict the Owners' right to act by written consent; or e. to
restrict the Owners' right to call meetings,
propose amendments to the articles of incorporation
or other governing documents of the company or
nominate Board members;
The Adviser will generally vote for proposals that eliminate
any of the foregoing rights or requirements.
4. Takeover Defenses and Related Actions
The Adviser will generally vote against any proposal to create any
plan or procedure designed primarily to discourage a takeover or other
similar action, including "poison pills". Examples of "poison pills"
include:
a. large increases in the amount of stock authorized but not issued;
b. blank check preferred stock (stock with a fixed
dividend and a preferential claim on company assets relative to
common shares, the terms of which are set by the Board at a
future date without further action by the Owners);
c. compensation that would act to reward Management as a result of
a takeover attempt, whether successful or not, such as revaluing
purchase price of stock options, or "golden parachutes";
d. fixed price amendments that require a certain price to be
offered to all Owners based on a fixed formula; and
e. greenmail provisions that allow a company to make payments to a
bidder in order to persuade the bidder to abandon its takeover
plans.
The Adviser will generally vote for proposals that eliminate any of
the foregoing rights or requirements, as well as proposals to:
a. require that golden parachutes or golden handcuffs be submitted
for ratification by the Owners; and
b. to opt out of state anti-takeover laws deemed by the Adviser to
be detrimental.
The Adviser will generally vote on a case-by-case basis regarding
other proposals that may be used to prevent takeovers, such as the
establishment of employee stock purchase or ownership plans.
5. Reincorporation
The Adviser will generally vote for a change in the state of
incorporation if the change is for valid business reasons (such as
reincorporating in the same state as the headquarters of the controlling
company).
6. Debt Issuance and Pledging of Assets for Debt
The Adviser will generally vote proxies relating to the issuance of
debt, the pledging of assets for debt, and an increase in borrowing powers
on a case-by-case basis, taking into consideration relevant factors,
including, for example:
a. the potential increase in the company's outstanding interests or
shares, if any (e.g., convertible bonds); and
b. the potential increase in the company's capital, if any, over the
current outstanding capital.
7. Mergers or Acquisitions
The Adviser will vote proxies relating to mergers or acquisitions on
a case-by-case basis, but will generally vote for any proposals that the
Adviser believes will offer fair value to its clients.
8. Termination or Liquidation of the Company The Adviser will vote
proxies relating to the termination or liquidation of a company on a
case-by-case basis, taking into consideration one or more of the
following factors:
a. terms of liquidation;
b. past performance of the company; and
c. strategies employed to save the company.
9. Social & Environmental Issues and Corporate Responsibility
The Adviser will vote proxies relating to social and environmental
issues on a case-by-case basis, but will generally vote for any
proposals that will reduce discrimination and pollution, improve
protections to minorities and disadvantaged classes, and increase
conservation of resources and wildlife.
The Adviser will generally vote against any proposals that place
arbitrary restrictions on the company's ability to invest, market, enter
into contractual arrangements or conduct other activities. The Adviser
will also generally vote against proposals:
a. to bar or restrict charitable contributions; or
b. to limit corporate political activities.
10. All Other Matters
All other decisions regarding proxies will be determined on a
case-by-case basis taking into account the general policy, as set forth
above.