Creation of the Additional Incubator

Tag : Furnishing Material
>SGAM AI Starway Fund Ltd. (The "Fund")


Re: Creation of additional Incubator Fund



SGAM AI Starway Tesseract Capital Fund (the "Tesseract IncubatorFund"), a segregated portfolio of SGAM AI Starway SPC (the"Segregated Portfolio Company") was formed on June 24, 2008, underthe laws of the Cayman Islands. The Tesseract Incubator Fund willcommence operations on July 2, 2008 . The Tesseract Incubator Fund's registered and principal office islocated at the same address as the Fund. Tesseract Capital LLC("Tesseract Capital" or the "Investment Manager") serves as theinvestment manager of Tesseract Capital Trading, Ltd. (the "Tesseract Master Fund"),in which the Tesseract Incubator Fund will invest all orsubstantially all of its assets.
The Tesseract Master Fund was incorporated with limited liabilityunder the laws of the Cayman Islands on May 20, 2008 under registration number 210853. The Tesseract Master Fund willcommence operations on July 2, 2008 . The Tesseract Master Fund's registered and principal office is:


GlobeOp Financial Services (Cayman) Limited
Westwind Building , 3rd Fl.
Harbour Drive, Georgetown
P.O. Box 10201 APO
Grand Cayman , Cayman Islands KY1-9003


Investment Objective and Strategy
The investment objective of the Tesseract Incubator Fund, throughits investment in the Tesseract Master Fund, is to seek capitalappreciation while minimizing risk by following a trading strategybased on the Investment Manager's proprietary models. In employingthe Tesseract Master Fund's investment strategy, Tesseracy Capitalwill employ a statistical arbitrage strategy that generates amulti-asset class portfolio with thousands of positions amongst multiple time horizons and countries. Theprocess of statistical arbitrage involves collecting, cleaning andanalyzing vast data arrays accumulated by Tesseract Capital overthe past decade. The analysis of this data is conducted withsoftware applications developed in-house in order to forecastfuture price movements. The forecasts are then translated into aportfolio of securities. The portfolio is managed by rigid riskcontrol systems that seek to optimize or otherwise restrict riskattributable to over 80 different factors. In selecting to generatealpha, the strategy may utilize various forecasting models togenerate alpha. The Tesseract Incubator Fund, through itsinvestment in the Tesseract Master Fund, may invest in either ratedor unrated securities or listed or unlisted securities.
Tesseract Capital's proprietary trading models may include, but arenot limited to:
Quantitative Fundamental - a technique that assigns numericalvalues to variables and attempts to predict future results based ontheses numerical results;
Pattern Matching - the process of identifying and categorizinghistorical investment prices, determining where the investment isin its pattern and using this information to determine how muchvalue remains in the investment;
Machine Learning - a mathematical formula which uses prior marketdata to try and predict future market results;
Earnings Evaluation - a process which the overall adequacy of theinstitution's present and projected earnings is studied. This isdone by mathematically quantifying five basic areas of aninstitution: earnings levels, composition of entity, stability ofentity, portfolio risk and earnings management.
Cluster-based Mean Reversion & Momentum - models that encouragepurchasing underperforming securities, under the premise that themarket will eventually rebound, and the value of the security willincrease and taking advantage of short term upward or downwardtrends in investment values;
Non-Linear Methods for forecasting medium term price movements - aform of regression analysis which estimates the relationship ofdependant market variables and independent market variables; and
Correlation Based Analysis - models that compare the effect thatvariables have on the value of an investment.
In furtherance of its investment objective, Tesseract Master Fundmay trade, buy, sell, and otherwise acquire, hold, dispose of, anddeal in, on margin or otherwise, non-U.S. and U.S. (i)publicly-traded equity and equity-related securities, and (ii)futures, forward contracts, derivative instruments including swaps,repurchase agreements such other instruments, rights, and interestsas determined by Tesseract Capital.
The Tesseract Incubator Fund and Tesseract Master Fund will adhereto the same investment restrictions as detailed in the listingparticulars of the Fund, dated July 31, 2006 (the "Listing Particulars"). The principal investment objectivesand policies of the Tesseract Incubator Fund and Tesseract MasterFund will be adhered to for three years from the date of thecommencement of operations of the Tesseract Incubator Fund. Each ofthe Tesseract Incubator Fund and Tesseract Master Fund may employleverage and borrowing to the extent permitted in the ListingParticulars.
Tesseract Capital LLC
Tesseract Capital LLC is a Delaware limited liability company formed on May 12, 2008 , and is responsible for managing the Tesseract Master Fund'sportfolio. Tesseract Capital is not registered in any capacity witha governmental regulatory authority. As of June 2008, TesseractCapital had no assets under discretionary management. The principalof Tesseract Capital is Michael Graves who will be solelyresponsible for all investment and trading decisions on behalf ofTesseract Master Fund.
Michael Graves. Prior to founding Tesseract Capital, Michael Graves was theManaging Director of the Swiss Re Global Arbitrage Team and beganat Swiss Re in January of 2006. His team ran a global portfolio ofautomated strategies that traded in 45 countries across almostevery asset class based upon quantitative models. Mr. Graves beganhis career with CooperNeff in Philadelphia where he worked for Dr. Andrew Sterge. After 2 years withCooperNeff, Credit-Suisse hired Mr. Graves to start itsQuantitative Trading Group. The Quantitative Trading Groupregularly traded over 5% of U.S. equity volume in the late 1990s. After leaving Credit-Suisse in2000, Mr. Graves started the FountainHead Capital and Area51 hedgefunds which he ran for 5 years. These firms were later purchased byFortress Investment Group, where the team built out the FIGinfrastructure and quantitative trading portfolio. Mr. Graves is aMagna Cum Laude graduate of the Wharton School and the College of the University of Pennsylvania , holding a BS in Finance and Minors in Genetics and InternationalRelations.
Tesseract Investment Management Agreement
General . Pursuant to the terms of the Investment Management Agreementbetween the Tesseract Master Fund and Tesseract Capital (the"Tesseract Investment Management Agreement"), Tesseract Capitalwill perform certain services on behalf of the Tesseract Master Fundsuch as trading, investing, re-investing and otherwise managing theassets of the Tesseract Master Fund, and the Tesseract Master Fund will pay certain asset-and performance-based fees to Tesseract Capital (as described under" Fees and Expenses " below).
Pursuant to the Tesseract Investment Management Agreement, neitherTesseract Capital nor any of its affiliates nor any of its or theirmanagers, members, officers, directors, employees, principals,shareholders or other applicable representatives (the " Manager Parties"), shall be liable to the Tesseract Master Fund, or their respectivemanagers, members, officers, directors, employees, equity holders(including any shareholder) or other applicable representatives, orto third parties (collectively, the " Fund Parties ") under the Tesseract Investment Management Agreement for, amongother things, any error in judgment or any loss sustained by anyFund Party, except by reason of acts or omissions which have beenthe result of the Investment Manager's gross negligence, fraud,willful misconduct or reckless disregard in the performance ornon-performance of its duties under the Tesseract InvestmentManagement Agreement. The Investment Manager will not be liable tothe Fund Parties for the acts of any agent of the Tesseract MasterFund, as the case may be, selected by Tesseract Capital, providedthat such agent was selected, engaged or retained by TesseractCapital with reasonable care.
The Tesseract Investment Management Agreement further provides thatthe Manager Parties shall be indemnified and held harmless by theTesseract Master Fund, against any losses, damages, obligations,penalties, claims, actions, suits, judgments, liabilities, costs,and expenses (including, without limitation, reasonable attorneys'and accountants' fees, as well as reasonable investigatoryexpenses, in each case, incurred in any action or proceedingbetween the parties or otherwise) and amounts paid in settlement ofany claims (collectively, " Losses") sustained by any of the foregoing persons by reason of (i) thefact that Tesseract Capital was or is an investment manager to theTesseract Master Fund, as the case may be, including, withoutlimitation, all legal, professional and other expenses incurred byTesseract Capital, or persons designated by it, in the performanceof its duties and obligations thereunder, all indemnity obligationsowed by Tesseract Capital to persons designated by it and any lossas a result of any misdelivery or error in any telexed, telefaxedor e-mailed transmission or as a result of acting upon any forgeddocument or signature, and (ii) any taxes on profits and losses ofthe Fund Parties, provided that the Manager Parties acted in goodfaith and in a manner reasonably believed to be in, or not opposedto, the best interest of Tesseract Master Fund, and such Losseswere not the result of the Manager Parties' gross negligence,fraud, willful misconduct or reckless disregard in the performanceor non-performance of its duties to the Tesseract Master Fund, and,in the case of criminal proceedings, that the indemnified personhad no reasonable cause to believe that its conduct was unlawful.Notwithstanding any of the foregoing to the contrary, the foregoingprovisions will not be construed to relieve (or attempt to relieve)the Manager Parties of any liability to the extent (but only to theextent) that such liability may not be waived, modified or limitedunder applicable law.
The initial term of the Tesseract Investment Management Agreementends on December 31, 2012 unless terminated earlier. Thereafter the Tesseract InvestmentManagement Agreement will automatically renew for successiveone-year periods. Each of the Tesseract Master Fund and theInvestment Manager may terminate the Tersseract InvestmentManagement Agreement upon at least 30 days' prior written noticeprior to the end of any year, or immediately in the event of thebankruptcy or insolvency of the other party.
Tesseract Incubation Agreement
General. The Project Agreement dated as of December 12, 2007 between SGAM AI Edge Inc. (the "Sponsor"), SGAM AI Starway(US) Master Fund Ltd., SGAM AI Starway Master Fund Ltd., SGAM AI Multi-Strategy Umbrella Fund LTD, T esseract Capital, LLC, Tesseract Capital Management, LP, Tesseract Capital Trading, LTD and Michael Graves (the "Tesseract Incubation Agreement")provides, in addition to Operating Revenues and the Buy-OutEntitlement, both as described in the Listing Particulars, otherrights or benefits - including, among other things, certain consentrights, non-competition covenants, marketing rights, "most favorednation" status and investment capacity rights.
The Sponsor has committed to Tesseract Capital that, barring aCommitment Termination Event (for example, peak-to-troughdrawdowns, position concentration events and other risk limits,sub-standard performance, "key man events," reputational damage ormaterial breach of the Tesseract Incubation Agreement), the Fundwill maintain investments in the Tesseract Master Fund until theSeptember 30, 2012. In certain circumstances, Tesseract Capital canexercise its Buy-Out Entitlement prior to this date.
If the Sponsor terminates the Tesseract Incubation Agreementwithout cause, the Sponsor will give up substantial future economicrights under the Tesseract Incubation Agreement. On the other hand,if the Sponsor terminates the Tesseract Incubation Agreement forcause, the Sponsor shall continue to be entitled to certainsubstantial economic rights.
Standard of Liability and Indemnity. The Fund, the Sponsor andtheir affiliates will generally be indemnified by Tesseract Capitalfor any loss suffered by them due to material misstatements oromissions contained in materials furnished by Tesseract Capital foruse in marketing. Tesseract Capital and its affiliates willgenerally be indemnified by the Sponsor for any loss suffered byTesseract Capital due to material misstatements or omissionscontained in materials furnished by the Sponsor for use inmarketing Tesseract Capital . Notwithstanding the foregoing, noperson will be indemnified with respect to any matter resultingfrom its gross negligence, fraud, material violation of applicablesecurities laws, conduct that is the subject of criminalproceedings where such person knew such conduct was unlawful, badfaith, or willful default under or willful and material breach ofthe Incubation Agreement.
The Administrators
Euro-VL (Ireland) Limited ("Euro-VL") serves as the Administratorof Tesseract Incubator Fund pursuant to an Administration Agreementdated October 1, 2005 between the Euro-VL and the SegregatedPortfolio Company (on behalf of each of the Incubator Funds).Euro-VL will continue to act under the same terms and conditionsand fees as disclosed in the Listing Particulars.
GlobeOp Financial Services (Cayman) Limited ("GlobeOp") serves asthe Administrator (and provides two independent directors) ofTesseract Master Fund. GlobeOP provides administrative services fora number of corporations, trusts and partnerships throughout theworld.
GlobeOP is responsible for all matters pertaining to theadministration of the Tesseract Master Fund, including: (i)processing and reviewing subscription agreements, communicatingwith Shareholders and maintaining a register of Shareholders;(ii) recording subscriptions payments and assisting in theestablishment of bank accounts; (iii) reviewing all money wires andmaintaining the principal records and books of accounting ofTesseract Master Fund; (iv) arranging for and coordinating theaudit of the financial statements of Tesseract Master Fund byindependent auditors; (v) disbursing distributions with respect tothe Shares, legal fees and accounting fees on behalf of TesseractMaster Fund; (vi) furnishing the offering price of the Shares;(vii) conducting meetings of Shareholders and Directors ofTesseract Master Fund; and (viii) calculating and distributing thenet asset value of Tesseract Master Fund.
Tesseract Master Fund has entered into Administrative ServicesAgreement with GlobeOP dated as of July 1, 2008 , which provide that Tesseract Master Fund will indemnify and holdharmless the Administrator, its affiliates and any of theirrespective officers, directors, members, shareholders, employees,and agents, or any of their successors or assigns (each, an"Administrator Indemnified Party"), from and against any and alllosses, judgments, liabilities, expenses (including, withoutlimitation, attorney's fees) and amounts paid in settlement of anyclaims arising out of, or in connection with, any action taken oromitted by any of the foregoing Administrator Indemnified Parties,unless such action or omission is found to have resulted from thefraud, gross negligence or willful misconduct by such AdministratorIndemnified Party in connection with the performance of its dutiesand obligations under the Services Agreement.
The Administrative Services Agreements may be terminated withoutpenalty by either of the parties thereto upon not less than 90days' prior written notice.
GlobOp is entitled to receive out of the assets of the Fund anannual fee of max 9 bps per year of the Net Asset Value of theFund.
The Custodian to the Tesseract Incubator Fund
Société Générale S.A. (the "Custodian"), an affiliate of the Sponsor, is the appointedcustodian of the Incubator Fund under Custodian Agreements dated asof October 1, 2005 . The main activities of the Custodian are the provision ofcustodial services to collective investment schemes. The Custodianis a French public limited company founded in 1864 and which is oneof France 's leading commercial and investment banking institutions withoperations throughout the world. The Custodian is actively engagedin asset management, private banking and corporate and investmentfinancial services throughout the world. As of the end of December2006, the Custodian has over €29.1 billion in shareholders'equity. As of the end of December 2007, the Custodian hadapproximately Euro 2,582 billion in assets under custody.
The Custodian is responsible for the safe-keeping of all of theassets of the entities that make up the Fund's structure. TheCustodian may, however, appoint any person or persons to be thesub-custodian of the assets of these entities but the liability ofthe Custodian shall not be affected by the fact that it hasentrusted to a third party some or all of the assets in itssafekeeping. The Custodian may appoint sub-custodians to providecustody for the assets of the entities that make up the Fund'sstructure (including the Incubator Funds); provided, that theCustodian shall exercise reasonable skill, care and diligence inthe selection of a suitable sub-custodian and shall be responsibleto the entities that make up the Fund's structure (including theIncubator Funds) for the duration of the sub-custody agreement forsatisfying itself as to the ongoing suitability of thesub-custodian to provide custodial services to the entities thatmake up the Fund's structure (including the Incubator Funds). TheCustodian must maintain an appropriate level of supervision overthe sub-custodian and make appropriate inquiries to periodicallyconfirm that the obligations of the sub-custodian continue to becompetently discharged.
The Custodian Agreements provide that as the entities that make upthe Fund's structure (including the Incubator Funds) may invest inmarkets where custodial and/or settlement systems are not fullydeveloped, the assets of the entities that make up the Fund'sstructure (including the Incubator Funds) which are traded in suchmarkets and which have been entrusted to sub-custodians, incircumstances where the use of such sub-custodians is necessary,may be exposed to risk in circumstances whereby the Custodian willhave no liability.
The Custodian must exercise all reasonable care and diligence inthe discharge of its duties and shall be liable to the entitiesthat make up the Fund's structure (including the Incubator Funds)in respect of any loss suffered by them arising from negligence,bad faith, willful default or recklessness in the performance ofits duties under the Custodian Agreements. The entities that makeup the Fund's structure (including the Incubator Funds) undertaketo hold harmless and indemnify the Custodian against all actions,proceedings and claims and against all costs, demands and expensesarising therefrom which may be brought against, suffered orincurred by the Custodian by reason of the performance of theCustodian's duties under the terms of the Custodian Agreements savewhere any such actions, proceedings, claims, costs, demands orexpenses arise as a result of the Custodian's negligence, willfuldefault, fraud, bad faith or recklessness to perform itsobligations or its improper performance of them.
The Custodian Agreements continue in effect until terminated. TheCustodian Agreements may be terminated by any of the parties to theCustodian Agreements on giving 90 days' notice to the other partiesthereto. In the event of breach of the Custodian Agreements orcertain regulatory events occur, the Custodian Agreements may beterminated on shorter notice.
The Custodian's remuneration is determined based on the net assetvalue of the SGAM AI Starway Master Fund Ltd., as per thedisclosure contained in the Listing Particulars.
The Custodian is regulated in France by the AMF.
The Prime Broker to the Tesseract Master Fund
The Tesseract Master Fund has appointed Goldman, Sachs & Co. (the " Prime Broker") as a prime broker and custodian to the Tesseract Master Fundpursuant to an account agreement and prime brokerage supplement tothe account agreement, dated as of the July 1, 2008 (together the " Prime Brokerage Agreement ").
Tesseract Master Fund may utilize prime brokers other than thePrime Broker (such brokers, together with the Prime Brokers, the " Brokers "). Brokers and banks that the Company uses and that have custodyof the Company's cash (including subscription proceeds) andFinancial Instruments will meet the definition of "QualifiedCustodian" under Rule 206(4)-2 of the U.S. Investment Advisers Actof 1940, as amended (the " Advisers Act "). A "Qualified Custodian" is generally a bank or savingsassociation that has deposits insured by the U.S. Federal DepositInsurance Corporation, a U.S. SEC-registered broker-dealer, a U.S.CFTC-registered futures commission merchant or a foreign financialinstitution that holds segregated customer assets. FinancialInstruments and cash (including subscription proceeds) held by suchBrokers and banks will be maintained in an account in the name ofthe Tesseract Master Fund.
The Prime Broker will have no discretion in relation to theinvestment of the assets of the Tesseract Master Fund and will notparticipate in the management of the Tesseract Master Fund orotherwise be involved in the decision-making process. The PrimeBrokerage Agreement has been entered into on arms' length andmarket terms.
In addition to using the Prime Broker, Tesseract Capital isauthorized to determine different Brokers to be used for eachFinancial Instrument transaction for the Tesseract Master Fund. Inselecting Brokers to execute transactions, Tesseract Capital neednot solicit competitive bids and does not have an obligation toseek the lowest available commission cost. It is not TesseractCapital's practice to negotiate "execution only" commission rates;thus, the Company may be deemed to be paying for other products andservices provided by the Broker which are included in thecommission rate. Brokers will be selected generally on the basis ofbest execution, which will be determined by taking into account,among other things, commission rates (and other transactionalcharges), the Broker's financial strength, stability andresponsibility, reputation, reliability, responsiveness toTesseract Capital and accuracy of recommendations on particularFinancial Instruments, ability to execute trades, block trading andblock positioning capabilities, nature and frequency of salescoverage, net price, depth of available services, bond capabilityand option operations, willingness to execute related or unrelateddifficult transactions in the future, order of call, back office,processing and special execution capabilities and efficiency ofexecution and error resolution.
Neither Tesseract Master Fund nor Tesseract Capital intends toenter into "soft dollar" arrangements that would fall outside ofthe safe harbor rules set forth in Section 28(e) of the U.S.Securities Exchange Act of 1934.
The Prime Broker is primarily regulated in the conduct of itsbrokerage business by the U.S. Securities Exchange Commission andthe New York Stock Exchange. The Prime Broker has a credit rating of A-1 by Standard & Poorsand P-1 by Moodys for its short-term debt, a credit rating of AA -by Standard & Poors for its long term debt and a credit ratingof Aa3 by Moodys for its long term debt. It has financial resources in excess of U.S.$200 million. In itscapacity as prime broker, the Prime Broker will execute purchaseand sale orders as directed by Tesseract Master Fund and clear andsettle such orders and orders executed by other brokers (on thebasis of payment against delivery). In addition, the Prime Brokermay enter into off-exchange contracts with the Tesseract MasterFund as principal. The Prime Broker will also provide the Tesseractwith short selling facilities.
As custodian, the Prime Broker will be responsible for thesafekeeping of the investments and other assets of the TesseractMaster Fund delivered to it in accordance with general brokeragelaws of the U.S. applicable to the Prime Broker (the "TesseractMaster Fund's Property"). The Prime Broker will identify, recordand hold the Tesseract Master Fund's Property in such a manner thatthe identity and location thereof can be identified at any time andso that the Tesseract Master Fund's Property shall be readilyidentifiable as property belonging to, and held for the benefit of,the Tesseract Master Fund and as separate from any of the PrimeBroker's own property.
The Prime Broker may hold the Tesseract Master Fund's Property witha sub-custodian, depository or clearing agent, including a personconnected with the Prime Broker (each a " sub-custodian ") in a single account that is identified as belonging to customersof the Prime Broker. The Prime Broker will identify in its ownbooks and records that part of the Company's Property held by asub-custodian as being held for the Company. Consistent withgeneral brokerage laws of the U.S. applicable to the Prime Broker, certain assets of the Company arenot required to be segregated and in the event of the PrimeBroker's insolvency, may not be recoverable in full.
The Prime Broker will exercise reasonable skill, care and diligencein the selection of any such sub-custodian and will be responsibleto the Tesseract Master Fund for the duration of the sub-custodyagreement for satisfying itself as to the ongoing suitability ofsuch sub-custodian to provide custodian services to the TesseractMaster Fund, will maintain an appropriate level of supervision oversuch sub-custodian and will make appropriate inquiries periodicallyto confirm that the obligations of such sub-custodian continue tobe competently discharged.


The Tesseract Master Fund's obligations to the Prime Broker will besecured by way of a security interest in and first priority lienover the Tesseract Master Fund's Property. Assets held ascollateral by the Prime Broker will be deemed pledged to the PrimeBroker and may be re-hypothecated or otherwise used by the PrimeBroker for its own purposes to the extent permitted under generalbrokerage laws applicable to the Prime Broker. The Tesseract MasterFund will have a right against the Prime Broker for the return ofequivalent assets. Cash held or received for the Tesseract MasterFund by the Prime Broker may be used by the Prime Broker in thecourse of its business. However, U.S. federal regulations requirethe Prime Broker to maintain a "Special Reserve Bank Account forthe Exclusive Benefit of Customers" into which the Prime Brokermust deposit a sufficient amount of cash and/or U.S. Governmentsecurities to cover the net amount of unencumbered cash held onbehalf of clients after deducting customer debits owed to the PrimeBroker. The Prime Broker may not commingle its own cash with theassets held in the Special Reserve Bank Account. Under theSecurities Investor Protection Act (" SIPA "), cash for investment is considered "customer property" and wouldbe subject to the SIPA customer protection scheme in the event ofthe Prime Broker's insolvency.
The Prime Broker will not be liable for any loss, expense, damage,demand, charge, claim, penalties, fine and excise tax or any kindor nature (including legal expenses and reasonable attorneys' fee)(together "Losses") to the Tesseract Master Fund resulting from anyact or omission in relation to the services provided under theterms of the Prime Brokerage Agreements unless such Losses resultsdirectly from gross negligence, bad faith, willful misfeasance ofthe Prime Broker, but in no event is the Prime Broker liable forconsequential or other types of special damages. The Prime Brokerwill not be liable for Losses to the Tesseract Master Fund causedby the insolvency, acts or omissions of any sub-custodian or otherthird party by whom or in whose control any of the Fund'sinvestments or cash may be held (subject to the obligations of thePrime Broker regarding the selection and ongoing suitability ofsuch sub-custodian or third party as set out above). The PrimeBroker accepts the same level of responsibility for nomineecompanies controlled by it as for its own acts. The TesseractMaster Fund has agreed to indemnify the Prime Broker against anyloss suffered by, and any claims made against, them to the extentset forth in the Prime Brokerage Agreements.
The Prime Broker may. Depending on the transaction, be paid atransaction-based fee or commission charged at commercial ratesnegotiated in the ordinary course of business.
The Prime Brokerage Agreement may be terminated by either party atany time. The Prime Broker may decline to act as a prime broker atany time.
The Prime Broker is a service provider to the Company and is notresponsible for the preparation of this document or the activitiesof the Fund and therefore accepts no responsibility for anyinformation contained in this document.
Fees & Expenses
Management Fee
Tesseract Master Fund will pay the Investment Manager a quarterlyasset-based fee (the " Management Fee ") equal to 0.5% (2% per annum) of the Net Asset Value of eachSeries of Shares, in advance, calculated as of the beginning ofeach fiscal quarter. The Management Fee will be borne solely by the Shares and not anyother Class of shares. Tesseract Master Fund will rebate a pro rata portion of the Management Fee with respectto Shares redeemed intra-quarter and will waive a pro rata portionof the Management Fee for intra-quarter subscriptions.
"Net Asset Value of a Series" is defined under " Net Asset Value And Valuation of the Company's Assets " below. All calculations with respect to the Management Fee shallbe based on unaudited financial statements prepared in accordancewith GAAP with such adjustments as necessary or advisable in thediscretion of the Directors, and all Financial Instruments held bythe Company shall be valued in accordance with the valuationprinciples set forth under " Net Asset Value and Valuation of the Company's Assets " below.
The Management Fee may be waived or reduced by the Directors of theTesseract Master Fund in their sole discretion with respect tocertain Classes and/or Series (including, but not limited to, thoseheld by the Investment Manager and/or its principal and employees).
Performance Fee
At the end of each calendar year (and, with respect to anintra-year redemption, on the Redemption Date) Tesseract MasterFund will pay the Investment Manager, solely out of the assets ofthe relevant Series, a performance-based fee equal to 20% of theNew Net Profit of the Shares, if any, attributable to each Series(the " Performance Fee "). The Performance Fee is calculated separately for each Series,is net of all expenses, and is subject to a "high water mark" sothat no Performance Fee will be paid on the recoupment of any netlosses.
" New Net Profit " means the increase, if any, in the Net Asset Value of a Series ofthe Shares from the beginning to the end of the relevant periodafter subtraction of the Management Fee and the other fees andexpenses described in this Memorandum and adjustment for anyintra-period redemptions (i.e., a net gain (both realized andunrealized)) allocable to that Series. To the extent that lossesare attributable to a particular Series, all such losses must berecouped before a subsequent Performance Fee will be made withrespect to such Series. New Net Profit will not be reduced by thePerformance Fee or distributions paid during the calendar year. NewNet Profit will be determined on the basis of realized andunrealized profits and losses
The Performance Fee will be made provisionally at the end of eachmonth and will be reduced on account of any net losses occurring inthe same calendar year after provisional Performance Fees are made.
The Performance Fee may be waived or reduced by the Directors ofTesseract Master Fund in their sole discretion with respect tocertain Classes and/or Series (including, but not limited to, thoseheld by the Investment Manager and/or its principal and employees).
Organizational Expenses
Tesseract Master Fund will bear the organizational, start-up andinitial offering costs and expenses attributable to the TesseractMaster Fund which are not expected to exceed U.S.$25,000 comprisedof legal filing and administrative fees related to the launch ofthe Tesseract Mast Fund (the " Organizational Expenses "). These Organizational Expenses will be amortized over a 60-monthperiod. While the amortization of the Organizational Expenses isnot in accordance with U.S. generally accepted accounting principles (" GAAP "), the Directors believe that amortizing the OrganizationalExpenses is more equitable than requiring the initial investors tobear these costs.
Ongoing Expenses
Tesseract Master Fund will bear all of its ongoing operatingexpenses including, but not limited to, (i) investment relatedexpenses, including, but not limited to, brokerage commissions andother charges for transactions in Financial Instruments, interestexpense, custody expense, data services, quotation services,commitment fees and due diligence expenses, (ii) legal,bookkeeping, accounting, auditing, record keeping, administration,corporate secretarial, and clerical expenses, (iii) printing,duplication, telephone and mailing expenses, (iv) the cost ofmaintaining the Tesseract Master Fund's corporate existence andexpenses (including the fees for continuing regulatory approvalunder Cayman Islands law), filing fees, government fees,(v) expenses related to investor communication and support,(vi) expenses of the continuing offering of Shares, and(vii) extraordinary expenses (including indemnification) asincurred. All fund expenses incurred directly or indirectly by theInvestment Manager in the exercise of its duties to the TesseractMaster Fund, including, but not limited to, investment relatedexpenses, will be paid or reimbursed by the Tesseract Master Fund.
Control Agreements
SGAM AI Starway FoF Ltd. and the Segregated Portfolio Company onbehalf of the Tesseract Incubator Fund have entered into anagreement, dated as of July 1, 2008 , in which the Tesseract Incubator Fund agrees not to do thefollowing, without the prior consent of SGAM AI Starway FoF Ltd.:(i) change its investment objectives, policies and restrictions asset out in the Fund's Listing Particulars and (ii) change thePortfolio Manager, Administrator, Custodian or any other serviceprovider to the Tesseract Incubator Fund. The Directors of SGAM AIStarway FoF Ltd. will further ensure that the Tesseract IncubatorFund (i) shall continue to be validly organized and shall operatein conformity with the Memorandum and Articles of Association ofthe Segregated Portfolio Company at all times, (ii) shall adhere tothe principles on the resolutions of conflicts of interest outlinedin the section entitled "Potential Conflicts of Interest" in theFund's Listing Particulars, and (iii) that shares attributable tothe Tesseract Incubator Fund conform with the constitutionaldocuments of the Tesseract Incubator Fund and with all relevantlegal and regulatory requirements and be issued without third partyrights or obligations.
The Tesseract Incubator Fund and Tesseract Master Fund have enteredinto an agreement, dated as of June 25, 2008, in which theTesseract Master Fund agrees not to do the following, without theprior consent of the Tesseract Incubator Fund: (i) change itsinvestment objectives, policies and restrictions as set out in theFund's Listing Particulars and (ii) change the Portfolio Manager,Administrator, Custodian or any other service provider to theTesseract Master Fund. The Directors of Tesseract Incubator Fundwill further ensure that the Tesseract Master Fund (i) shallcontinue to be validly organized and shall operate in conformitywith the Memorandum and Articles of Association of the SegregatedPortfolio Company at all times, (ii) shall adhere to the principleson the resolutions of conflicts of interest outlined in the sectionentitled "Potential Conflicts of Interest" in the Fund's ListingParticulars, and (iii) that shares attributable to the TesseractMaster Fund conform with the constitutional documents of theTesseract Master Fund and with all relevant legal and regulatoryrequirements and be issued without third party rights orobligations.
Incubator Fund
The share capital of the Segregated Portfolio Company (incorporatedon August 23, 2005 and its registration number in the Cayman Islands is 153890) is $50,000 divided into 5,000,000 shares of $0.01 parvalue each. All shares are issued in registered form. All sharesare voting shares. Every shareholder in the Segregated PortfolioCompany shall have one vote for each share held. Shares in the Tesseract Incubator Fund will be entitled toparticipate in the profits and losses of the Tesseract IncubatorFund. The shares will also share equally in the net assetsattributable to the Incubator Fund on liquidation and in dividendsand other distributions as declared. Shares in the SegregatedPortfolio Company have no other special rights, includingconversion rights.
The share capital of the Tesseract Master Fund is $50,000 divided into 5,000,000 redeemable participating Shares,designated as Class C Shares , of a nominal or par value of U.S.$0.01 each which may be issued inone or more Classes or Series as the Directors may by resolutionsdetermine. The Directors are authorized to allot and issue sharesat any time and upon such terms and conditions as the Directors, byresolution, may determine.
All shares are issued in registered form. Class C Shares do not have the right to receive notice of, attend, speak or voteat general meetings of the Tesseract Master Fund. The Class CShares are redeemable at the option of the holder in accordancewith the terms set out in this Memorandum and the Articles ofAssociation of the Tesseract Master Fund.
Management shares carry one vote per share but do not carry anyright to dividends. In a liquidation, the management shares rankonly for a return of the nominal amount paid up on those sharesbefore any payment to the holders of participating shares and anyother shares ranking pari passu with the Participating Shares in aliquidation.
Certain matters must be passed as "special resolutions" asexplicitly stated in the Companies Law (Revised) of the Cayman Islands in which case the requisite majority is two-thirds of the votesvalidly cast at a meeting, or a unanimous written resolution.General meetings of the Shareholders will be held at the discretionof the Directors or when called by holders of Shares in accordancewith the Articles of Association of the Company. Holders of Shareswill receive at least seven calendar days' written notice of anyShareholders meeting and will be entitled to vote their Shareseither in person or by proxy. No business shall be transacted at ageneral meeting unless a quorum is present. At a general meeting,unless otherwise provided in the Articles of Association, includingif a meeting is adjourned, persons who are present in person or byproxy representing at least a majority of the Company's outstandingShares entitled to vote will constitute a quorum.
The Tesseract Incubator Fund will hold Class C Shares and all ofthe Management Shares.
It is not the current intention of the Tesseract Incubator Fund orthe Tesseract Master Fund to declare dividends. Any dividend, ifdeclared, will be paid in compliance with the requirements of theIrish Stock Exchange.
Shares of the Segregated Portfolio Company (including the IncubatorFunds) and the Teseract Master Fund can be redeemed at thediscretion of the Directors.
The Tesseract Incubator Fund and the Tesseract Master Fund willsuspend redemptions and the determination of its net asset value inthe same situations as disclosed in the Fund's Listing Particulars.The frequency of calculation, the valuation principles and methodof determination of the Incubator Fund's net asset values and theTesseract Master Fund's net asset values are the same as those ofthe Fund.
The risk factors associated with the Tesseract Incubator Fund andTesseract Master Fund include in all material respects the risks ofinvesting in the shares of the Fund. Additionally, the TesseractIncubator Fund and Tesseract Master Fund are subject to thefollowing risk factors:
A. Spread and Arbitrage Trading. A significant part of the Fund's investment operations mayinvolve spread positions between two or more Financial Instrumentpositions. To the extent the price relationships between suchpositions remain constant, no gain or loss on the positions willoccur. Such positions, however, do entail a substantial risk thatthe price differential could change unfavorably, causing a loss tothe spread position. The Fund's trading operations also may involvearbitraging between a Financial Instrument and its announcedbuy-out price (or other forms of "risk arbitrage"), or between oramong two or more Financial Instruments (e.g., by means of"statistical arbitrage," which depends heavily on the ability ofmarket prices to return to a historical or predicted normal). Thismeans, for example, that the Fund may purchase (or sell) FinancialInstruments (i.e., on a current basis) and take offsettingpositions in the same or related Financial Instruments. To theextent the price relationships between such positions remainconstant, no gain or loss on the positions will occur. Theseoffsetting positions entail substantial risk that the pricedifferential could change unfavorably, causing a loss to theposition.
B. Speculative Nature of the Fund's Investment Program. The Fund's investment program is speculative and involves a high degreeof risk. There is no assurance that the technical and riskmanagement techniques utilized by the Investment Manager, as wellas the investment decisions made by the Investment Manager, willnot expose the Fund to risk of significant losses. In addition, theanalytical techniques used by the Investment Manager cannot provideany assurance that the Fund will not be exposed to the risk ofsignificant trading losses if the underlying patterns of marketbehavior studied by the Investment Manager and which provide thebasis for its statistical models change in ways not anticipated bythe Investment Manager.
C. Limitations of Investment Methodology. The Investment Manager's statistical arbitrage methodology isbased solely upon its analysis of historical securities marketdata. As with other statistical trading systems, such historicalanalysis may indicate probabilities of price movements which arenot necessary or inevitable or which may not necessarily recur inthe future in a manner which will support a profitable tradingstrategy. Moreover, under the so-called efficient markethypothesis, if and as the securities markets disseminate and absorbrelevant information more rapidly, periods of temporary stockmispricings, such as those endeavored to be identified by theInvestment Manager's methodology, may become shorter, less frequentand of lesser quantitative significance.
Many investors, including large institutions, employ a variety ofstatistically based trading programs similar in varying degrees tothat of the Investment Manager. Since certain such programs mayidentify the same or related mispricings as the InvestmentManager's system, the Fund may effectively be competing in themarketplace with such investors for the timely identification ofsuch opportunities and the favorable execution of resultanttransactions. Such methodology of the Investment Manager alsoinvolves a degree of subjective judgment on its part and favorabletransaction costs in order to be successfully implemented.
As with any investment approach or strategy, the InvestmentManager's strategy and methodology cannot assure any given level ofinvestment return or that the Fund's investment objective will infact be realized. Any past successes with the methodology cannotassure future results. There can be no assurance that use of themethodology will necessarily result in profitability or that theFund will not incur losses.
Other than disclosed in this announcement, the service providers tothe Tesseract Incubator Fund and Tesseract Master Fund are the sameas those for the Fund and each of the service providers may becontacted at the same address. The Memorandum and Articles of Association and the materialcontracts relating to the Incubator Fund, the Tesseract Master Fundand the Segregated Portfolio Company, together with the CompaniesLaw may be inspected at the registered offices of the TesseractIncubator Fund and Tesseract Master Fund and, for a period of 14days from the date of this announcement, at the offices of J&EDavy.
Each year investors and the Irish Stock Exchange will be sentaudited financial statements of the Tesseract Incubator Fund andTesseract Master Fund within 6 months of the end of the fiscalyear. The Tesseract Incubator Fund and Tesseract Master Fund willsend unaudited interim reports for the first 6 months of eachfiscal year to each investor and the Irish Stock Exchange within 4months of the end of the period to which it relates. The annual audited financial statements for the Tesseract IncubatorFund, Tesseract Master Fund and Segregated Portfolio Company willbe sent to Shareholders and prospective investors on request.
The financial statements for December 31, 2008 , will be the first audited financial statements for the TesseractIncubator Fund and Tesseract Master Fund and there has been nopending or threatened legal or arbitration proceedings against theTesseract Incubator Fund and Tesseract Master Fund since theirincorporation. Since the date of incorporation, neither theTesseract Incubator Fund nor the Tesseract Master Fund hascommenced trading, no accounts have been prepared and no dividendshave been paid as at the date of this announcement.
As of the date of this announcement, the Tesseract Incubator Fundand the Tesseract Master Fund have no loan capital (including termloans) outstanding or created but unissued, and no outstandingmortgages, charges or other borrowings or indebtedness in thenature of borrowing, including bank overdrafts and liabilitiesunder acceptance or acceptance credits, hire purchase or financelease commitments, guarantees, term loans either secured orunsecured, guaranteed or other contingent liabilities.
The Taxation section as set out on page 67 the Fund's ListingParticulars equally applies to shareholders in the Fund andshareholders in the Tesseract Incubator Fund and Tesseract MasterFund.


Enquires: