CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

LIMITED PARTNERSHIP INTERESTS

OF

KSTONE ARV LP

AN ALTERNATIVE INVESTMENT MULTI-MANAGER FUND

(a Delaware limited partnership)

April 2016

THIS CONFIDENTIAL PRIVATE OFFERING MEMORANDUM (THIS “MEMORANDUM”) IS SUBMITTED TO YOU ON A CONFIDENTIAL BASIS SOLELY IN CONNECTION WITH YOUR CONSIDERATION OF AN INVESTMENT IN LIMITED PARTNERSHIP INTERESTS (THE “INTERESTS”) IN KSTONE ARV LP, A DELAWARE LIMITED PARTNERSHIP (THE “PARTNERSHIP”). DUE TO THE CONFIDENTIAL NATURE OF THIS MEMORANDUM, ITS USE FOR ANY OTHER PURPOSE MIGHT INVOLVE SERIOUS LEGAL CONSEQUENCES. CONSEQUENTLY, THIS MEMORANDUM MAY NOT BE REPRODUCED IN WHOLE OR IN PART, AND MAY NOT BE DELIVERED TO ANY PERSON (OTHER THAN YOUR FINANCIAL ADVISOR) WITHOUT THE PRIOR WRITTEN CONSENT OF KSTONE PARTNERS LLC, THE PARTNERSHIP’S GENERAL PARTNER (THE “GENERAL PARTNER”).

Memorandum Copy Number:__________

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THE INTERESTS OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), SINCE THEY WILL BE OFFERED ONLY TO A LIMITED NUMBER OF QUALIFIED INVESTORS. IT IS ANTICIPATED THAT THE OFFERING AND SALE OF THE INTERESTS WILL BE EXEMPT FROM REGISTRATION PURSUANT TO REGULATION D OF THE SECURITIES ACT.

THE INTERESTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THESE OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE INTERESTS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THESE OFFERING MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE INTERESTS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY STATE OR OTHER JURISDICTION IN WHICH AN OFFER OR SOLICITATION IS NOT AUTHORIZED.

NO REPRESENTATIONS OR WARRANTIES OF ANY KIND ARE INTENDED OR SHOULD BE INFERRED WITH RESPECT TO THE ECONOMIC RETURN OR THE TAX CONSEQUENCES FROM AN INVESTMENT IN THE PARTNERSHIP. NO ASSURANCE CAN BE GIVEN THAT EXISTING LAWS WILL NOT BE CHANGED OR INTERPRETED ADVERSELY TO THE PARTNERSHIP OR ITS PARTNERS. PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THIS MEMORANDUM AS LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT HIS OR HER OWN COUNSEL AND ACCOUNTANT FOR ADVICE CONCERNING THE VARIOUS LEGAL, TAX AND ECONOMIC CONSIDERATIONS RELATING TO HIS OR HER INVESTMENT.

NO PERSON OTHER THAN THE GENERAL PARTNER HAS BEEN AUTHORIZED TO MAKE REPRESENTATIONS OR GIVE ANY INFORMATION WITH RESPECT TO THE INTERESTS EXCEPT THE INFORMATION CONTAINED HEREIN AND ANY INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN OR OTHERWISE SUPPLIED BY THE GENERAL PARTNER IN WRITING MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE PARTNERSHIP OR ANY OF ITS PARTNERS. ANY FURTHER DISTRIBUTION OR REPRODUCTION OF THIS MEMORANDUM, IN WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF ITS CONTENTS, IS PROHIBITED.

A PROSPECTIVE INVESTOR SHOULD NOT SUBSCRIBE FOR INTERESTS UNLESS SATISFIED THAT THE PROSPECTIVE INVESTOR ALONE OR TOGETHER WITH HIS OR HER INVESTMENT REPRESENTATIVE HAS ASKED FOR AND RECEIVED ALL INFORMATION THAT WOULD ENABLE THE INVESTOR OR BOTH OF THEM TO EVALUATE THE MERITS AND RISKS OF THE PROPOSED INVESTMENT.

THE PARTNERSHIP WILL MAKE AVAILABLE TO EACH INVESTOR OR HIS OR HER AGENT, DURING THIS OFFERING AND PRIOR TO THE SALE OF ANY INTERESTS, THE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM REPRESENTATIVES OF THE GENERAL PARTNER CONCERNING ANY ASPECT OF THE PARTNERSHIP AND ITS PROPOSED BUSINESS AND TO

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OBTAIN ANY ADDITIONAL RELATED INFORMATION TO THE EXTENT THE PARTNERSHIP POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE.

WHENEVER THE MASCULINE OR FEMININE GENDER IS USED IN THIS MEMORANDUM, IT SHALL EQUALLY, WHERE THE CONTEXT PERMITS, INCLUDE THE OTHER, AS WELL AS INCLUDE ENTITIES.

EXEMPTION FROM CPO REGISTRATION:

THE GENERAL PARTNER HAS CLAIMED TEMPORARY RELIEF FROM REGISTRATION AS A COMMODITY POOL OPERATOR (“CPO”) WITH THE UNITED STATES COMMODITY FUTURES TRADING COMMISSION (“CFTC”) PURSUANT TO CFTC NO-ACTION LETTER 12-38, WHICH IS AVAILABLE TO FUNDS OF FUNDS. THIS RELIEF WILL EXPIRE SIX MONTHS FROM THE DATE THE CFTC ISSUES FURTHER GUIDANCE, AT WHICH TIME THE GENERAL PARTNER WILL REGISTER AS A CPO OR CLAIM ANOTHER EXEMPTION FROM REGISTRATION.

UNLIKE A REGISTERED CPO, THE GENERAL PARTNER IS NOT REQUIRED TO DELIVER A DISCLOSURE DOCUMENT AND A CERTIFIED ANNUAL REPORT TO PARTICIPANTS IN THE PARTNERSHIP. THE CFTC HAS NOT REVIEWED OR APPROVED THIS OFFERING OR ANY DISCLOSURE DOCUMENT FOR THE PARTNERSHIP.

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Table of Contents

Page

1. SUMMARY ...................................................................................................................................... 1

2. INTRODUCTION ............................................................................................................................. 7

3. INVESTMENT PROGRAM ............................................................................................................. 7

4. MANAGEMENT .............................................................................................................................. 9

5. SERIES OF LIMITED PARTNERSHIP INTERESTS .................................................................... 11

6. MANAGEMENT FEE; ADMINISTRATION FEE; EXPENSES ...................................................... 11

7. ALLOCATION OF NET PROFITS AND NET LOSSES; PRIOR FISCAL PERIOD ITEMS .......... 12

8. RISK FACTORS ............................................................................................................................ 12

9. ADMISSION OF PARTNERS; ADDITIONAL CAPITAL CONTRIBUTIONS ................................ 23

10. WITHDRAWALS; RETIREMENT; DISTRIBUTIONS; VALUATION ............................................. 24

11. BROKERAGE AND CUSTODY .................................................................................................... 27

12. TAXATION .................................................................................................................................... 28

13. ERISA AND RETIREMENT PLAN MATTERS.............................................................................. 31

14. OTHER PROVISIONS OF THE LIMITED PARTNERSHIP AGREEMENT .................................. 34

15. ADMINISTRATOR ........................................................................................................................ 36

16. PROCEDURES FOR BECOMING A LIMITED PARTNER .......................................................... 36

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1. SUMMARY

The following is a summary of the detailed information contained elsewhere in this Confidential Private Offering Memorandum (this "Memorandum") and is qualified in its entirety by reference to such information and to the Limited Partnership Agreement of KStone ARV LP.

The Partnership KStone ARV LP (the "Partnership") is a Delaware limited partnership designed for sophisticated investors.

The Partnership is a “fund of funds” that provides investors the opportunity to participate through one investment in a portfolio of private investment funds and similar accounts (each, an “Investment Vehicle”) managed by investment managers (collectively, “Portfolio Managers”). The Partnership originally operated as a stand alone fund, however, as of February 1, 2012, the Partnership serves as the master fund in a “master-feeder” fund structure. KStone ARV Ltd., an exempted company formed under the laws of the Cayman Islands for non-U.S. investors and for certain U.S. investors (the "Offshore Fund"), invests substantially all of its assets in the Partnership. Other investment entities also may be formed in the future to invest in the Partnership. Each investor that invests in the Partnership will generally be allocated a proportionate share of the Partnership’s gains, losses and expenses based on its interest in the Partnership.

Investment Objective The investment objective of the Partnership is to seek absolute, above market risk-adjusted returns with low correlations to the equity and fixed income markets. The General Partner (as defined below) seeks to achieve the Partnership’s investment objective by allocating the net assets of the Partnership to a select group of Investment Vehicles managed by Portfolio Managers who have experience in various alternative investment strategies including, in particular, credit-related, non-directional arbitrage and relative value strategies and selected directional strategies. The strategies utilized by the Portfolio Managers principally include, but are not limited to, mortgage-backed securities; asset-backed securities; fixed income trading, including high yield and investment grade; merger arbitrage; closed-end fund arbitrage; convertible arbitrage; capital structure arbitrage; statistical arbitrage; fixed income arbitrage; multi-strategy; long/short global credit; event-driven credit; stressed and distressed debt and equity; market neutral; opportunistic; global macro; and emerging market debt.

The General Partner KStone Partners LLC, a Delaware limited liability company, serves as the Partnership's general partner (the "General Partner"). The General Partner is responsible for managing the business of the Partnership and for the investment and reinvestment of the Partnership’s assets. The General Partner is registered as an investment adviser with the Securities and Exchange Commission pursuant to the Investment Advisers Act of 1940, as amended. The General Partner's principal office is located at 500 Summit Lake Drive, Suite 180, Valhalla, New York 10595. The principals of the General Partner are Mark J. Kenyon, Joseph H. Marren and Joseph T. Drohan (the “Principals”).

Minimum Initial Investment The minimum initial investment is $1,000,000, subject to reduction at the General Partner's discretion.

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Risk Factors An investment in the Partnership involves significant risks and is suitable only for those persons who can bear the economic risk of the loss of their investment and who have limited need for liquidity in their investment. There can be no assurance that the Partnership will achieve its investment objective. An investment in the Partnership carries with it the inherent risks associated with investments in private investment funds and accounts, as well as additional risks including, but not limited to, the use of short sales and concentration of investments. See "Risk Factors". Each prospective Limited Partner should carefully review this Memorandum and the agreements referred to herein before deciding to invest in the Partnership.

Series of Limited Partnership Interests

The Partnership currently offers the following series of limited partnership interests:

Series A-1 limited partnership interests (the “Series A-1 Interests”) are charged a 1.5% Management Fee (as defined below) and may be withdrawn quarterly, subject to a withdrawal fee for the first year, as discussed herein.

Series B-2 limited partnership interests (the “Series B-2 Interests”) are charged a 1.25% Management Fee and are subject to a two-year lock-up provision, as discussed herein.

A Limited Partner will have the choice at the end of each applicable lock-up period for Series B-2 Interests to have such Interests remain in Series B-2 or have such Interests converted into Series A-1 Interests. If a Limited Partner does not make any such choice by written notice to the General Partner at least 95 days prior to the end of the applicable lock-up period, the Interests will automatically convert into Series A-1 Interests.

In general, Series A-1 Interests and Series B-2 Interests (together, the “Interests”) participate in all investments of the Partnership in the same manner. The General Partner, in its sole discretion, may permit Limited Partners to convert their Interests from one series to another at any time. Series B-1 Interests were offered by the Partnership subject to a minimum capital contribution amount and different Management Fee and withdrawal terms and are currently closed to new investments.

Management and Administration Fees

The General Partner receives a management fee calculated at an annual rate of: (i) 1.5% of the portion of the capital accounts of each Limited Partner attributable to Series A-1 Interests and (ii) 1.25% of the portion of the capital accounts of each Limited Partner attributable to Series B-2 Interests (the “Management Fee”). The General Partner also receives an administration fee calculated at an annual rate of 0.10% of the capital accounts of each Limited Partner (the “Administration Fee”, and together with the Management Fee, the “Fees”). Withdrawals made other than at quarter end will be charged the Fees and will be paid over to the General Partner. The Fees are paid quarterly in arrears, based on the value of each Limited Partner's capital account as of the end of the last day of each quarter. The Fees are prorated for any period that is less than a full quarter and will be adjusted for contributions or withdrawals made during the quarter. In the event that the Interests of a Limited Partner are converted from one series to another, the Fees will be calculated and charged at the time of such conversion through the date of conversion.

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Allocation of Investment Opportunities

The General Partner may allocate all or any portion of any investment opportunities to the Partnership or any other investment vehicle to which it serves as general partner in such amounts as it deems appropriate in its sole discretion. Other funds affiliated with the General Partner (“KStone Funds”) may invest in the Partnership and the Partnership may invest in other KStone Funds. In the event that the Partnership invests in another KStone Fund, the General Partner will reduce or waive fees at either the Partnership and/or the KStone Fund levels such that Limited Partners are not double charged for the same services of the General Partner and only bear the Fees as described herein.

Allocation of Net Profits and Losses

The net profit or net loss of the Partnership (including realized and unrealized gains and losses) will be allocated to each Limited Partner and the General Partner in accordance with the ratio of their respective capital account balances.

Expenses The General Partner renders its services to the Partnership at its own expense and is responsible for its overhead expenses including: office rent; furniture and fixtures; stationery; secretarial/internal administrative services; salaries; employee insurance and payroll taxes. All other expenses are paid by the Partnership and include: the Fees payable to the General Partner; Partnership legal, compliance, audit, accounting and third party administrator fees and expenses; organizational expenses; investment expenses such as commissions, research fees and expenses; interest on margin accounts and other indebtedness; borrowing charges on securities, commodities and other financial instruments and assets sold short; custodial fees; Partnership-related insurance costs; expenses associated with bonding requirements (if any); the management and incentive fees and allocations of the Portfolio Managers; and any other expenses reasonably related to the purchase, sale, transmittal or preservation of Partnership assets.

The Offering The Partnership is offering Interests to certain qualified investors as described herein and in the Subscription Agreement accompanying this Memorandum. Admission as a Limited Partner in the Partnership is not open to the general public and Interests in the Partnership are privately offered pursuant to Regulation D under the Securities Act of 1933, as amended. The Partnership will generally accept capital contributions on a monthly basis; however, the General Partner reserves the right, in its sole discretion, to accept capital contributions at other times. The General Partner may reject any capital contribution in whole or in part at any time.

Withdrawals A Limited Partner holding Series A-1 Interests may, upon at least 95 days' prior written notice to the General Partner, withdraw all or any portion of its capital account relating to a particular Series A-1 Interest as of the last business day of each calendar quarter; provided however that withdrawals of Series A-1 Interests prior to the one year anniversary of the contribution sought to be withdrawn will be subject to a withdrawal fee equal to the lesser of: (i) 1% of the withdrawal proceeds or (ii) $25,000. All withdrawal fees will be payable to the Partnership.

A Limited Partner holding Series B-2 Interests may, upon at least 95 days' prior written notice to the General Partner, withdraw all or any portion of its capital account relating to a particular Series B-2 Interest

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as of the last business day of the calendar quarter following the two year anniversary of the contribution sought to be withdrawn. Upon expiration of the two-year lock-up period (and each succeeding lock-up period), the Series B-2 Interest will be automatically converted into a Series A-1 Interest subject to quarterly withdrawal rights and a 1.5% Management Fee, unless the Limited Partner elects by written notice to the General Partner, upon at least 95 days prior to the expiration of the applicable lock-up period, to have such Interest remain a Series B-2 Interest subject to another two-year lock-up period.

In general, upon a Limited Partner's full withdrawal from the Partnership, at least 90% of the amount of the estimated value of the Limited Partner's capital account as of the withdrawal date will be paid within 30 days of the withdrawal date. The balance, if any, will be paid promptly after the completion of the audit of the Partnership for such year. To the extent a Limited Partner withdraws 90% or more of its capital account, the General Partner may elect to pay the withdrawal proceeds to the Limited Partner as if it were a full withdrawal. Notwithstanding the foregoing, in the event that aggregate withdrawal requests from Limited Partners in the Partnership as of a certain withdrawal date exceed 25% of the net asset value of the Partnership (the “Withdrawal Limit”), the amount of each Limited Partner’s withdrawal may be reduced pro rata such that the aggregate amount of the withdrawal proceeds as of such withdrawal date is less than the Withdrawal Limit.

Notwithstanding anything to the contrary herein, if, on the date of a withdrawal by a Limited Partner, assets of the Partnership are invested with an Investment Vehicle that does not permit, or delays payment with respect to, withdrawals on such date, then in the sole discretion of the General Partner (i) payment to the Limited Partner of the portion of its requested withdrawal attributable to the Partnership's investment with such Investment Vehicle shall be delayed until such time as the Investment Vehicle permits withdrawals or payment is made by such Investment Vehicle and (ii) the amount otherwise due the Limited Partner shall be increased or decreased to reflect the performance of the particular Investment Vehicle through the date on which the withdrawal from the Investment Vehicle is effected to the extent provided for in the particular Investment Vehicle's documentation, and shall also be decreased to reflect the Fees accrued during this period of delay.

Borrowing The Partnership may borrow up to 25% of its total assets. The Partnership intends to generally limit such borrowing to (i) borrowing on a short-term basis and (ii) borrowing for the purpose of (a) satisfying a withdrawal request when the Partnership has no available cash or immediately available liquid investments, (b) paying fees and expenses as detailed in the Partnership Agreement and (c) fulfilling any investment commitments made prior to the availability of cash or immediately available liquid investments.

To accommodate the Partnership’s need for short-term financing, Deutsche Bank, AG, London Branch (“Deutsche Bank”) will provide the Partnership with a line of credit to the Partnership at a rate of 1% over the rate for three-month deposits in U.S. dollars as determined

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by LIBOR.

Liability and Indemnification None of the General Partner, the Portfolio Managers or their respective directors, members, partners, shareholders, officers, employees agents or affiliates, nor any person designated to wind up the affairs of the Partnership pursuant to the Partnership Agreement will be liable to the Partnership, the Limited Partners or any other person for any loss (including losses due to trading error) or cost arising out of, or in connection with, any activity undertaken (or omitted to be undertaken) in connection with the Partnership, except for any liability caused by his, her or its gross negligence, willful misconduct or violation of applicable laws (including Title I of ERISA, to the extent applicable).

The Partnership will, to the fullest extent legally permissible under the laws of the State of Delaware, indemnify and hold harmless the General Partner, the Portfolio Managers, each of their respective directors, members, partners, shareholders, officers, employees, agents and affiliates and any persons designated to wind up the affairs of the Partnership pursuant to the Partnership Agreement (each, an "Indemnitee") against any and all loss (including losses due to trading errors), liability and expense (including, without limitation, judgments, fines, amounts paid or to be paid in settlement and reasonable attorneys' fees and expenses) incurred or suffered by the Indemnitee in connection with the good faith performance by the Indemnitee of his, her or its responsibilities to the Partnership; provided, however, that an Indemnitee will not be indemnified for losses resulting from his, her or its gross negligence, willful misconduct or violation of applicable laws (including Title I of ERISA, to the extent applicable). To the extent legally permissible, the Partnership will, in the discretion of the General Partner, advance amounts and/or pay expenses as incurred in connection with the Partnership’s indemnification obligation.

Reports Each Limited Partner will receive monthly estimates of the performance of the Partnership, as well as unaudited reports at least quarterly and annual audited year-end financial statements. The Partnership’s fiscal year will end on December 31 of each year. The Partnership’s ability to provide timely tax information to the Limited Partners is dependent upon the Partnership’s receipt of timely information from the Investment Vehicles. Accordingly, Limited Partners should be prepared to file for extensions with the relevant Federal, state and local taxing authorities.

Tax Matters The Partnership is treated as a partnership for Federal income tax purposes. Prospective Limited Partners should consult their own tax advisors with specific reference to their own situation as it relates to an investment in the Partnership.

ERISA Matters The Partnership may accept subscriptions from pension and profit-sharing plans maintained by U.S. corporations and/or unions, individual retirement accounts and Keogh plans, entities that invest the assets of such accounts or plans and other entities investing plan assets. It is anticipated that, at various times, participation by “benefit plan investors” in the Partnership may be “significant” (as such terms are defined by ERISA and the regulations thereunder) and result in the Partnership holding plan assets subject to Title I of ERISA and/or Section 4975 of the Internal Revenue Code of 1986, as amended.

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See Section 13 – “ERISA & Retirement Plan Matters.”

U.S. Counsel Seward & Kissel LLP One Battery Park Plaza New York, New York 10004

Auditor Marcum LLP 750 Third Avenue 11th Floor New York, New York 10017

Administrator

Orangefield Columbus Avenue Consulting LLC 888 7th Avenue 5th Floor New York, New York 10019

Custodians Deutsche Bank National Trust Company 1761 East Saint Andrew Place Santa Ana, California 92705 Signature Bank 360 Hamilton Avenue White Plains, New York 10601

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2. INTRODUCTION

KStone ARV LP is a Delaware limited partnership (the "Partnership") formed for the purpose of investing its assets in accordance with the investment program set forth in this Confidential Private Offering Memorandum (this "Memorandum") and the terms of the Partnership’s Limited Partnership Agreement (the “Partnership Agreement”). The Partnership is a “fund of funds” that will provide investors the opportunity to participate through one investment in a portfolio of private investment funds and similar accounts (each, an “Investment Vehicle”) managed by investment managers (collectively, “Portfolio Managers”). The Partnership relies on Section 3(c)(7) of the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”), and is therefore only offered to "qualified purchasers" as defined in Section 2(a)(51) of the Investment Company Act. The Partnership originally operated as a stand alone fund, however, as of February 1, 2012, the Partnership serves as the master fund in a “master-feeder” fund structure. KStone ARV Ltd., an exempted company formed under the laws of the Cayman Islands for non-U.S. investors and for certain U.S. investors (the "Offshore Fund"), invests substantially all of its assets in the Partnership. Other investment entities also may be formed in the future to invest in the Partnership. Each investor that invests in the Partnership will generally be allocated a proportionate share of the Partnership’s gains, losses and expenses based on its interest in the Partnership.

KStone Partners LLC, a Delaware limited liability company, serves as the Partnership's General Partner (the "General Partner"), and is responsible for managing the business of the Partnership and for the investment and reinvestment of the Partnership’s assets. The principal office of the General Partner is located at 500 Summit Lake Drive, Suite 180, Valhalla, New York 10595. The principals of the General Partner are Mark J. Kenyon, Joseph H. Marren and Joseph T. Drohan (the “Principals”). The Partnership's administrator is Orangefield Columbus Avenue Consulting LLC (the “Administrator”).

This Memorandum sets forth the investment program and objective and method of operation of the Partnership, the principal terms of the Partnership Agreement and certain other pertinent information. However, the Memorandum does not set forth all the provisions and distinctions of the Partnership Agreement that may be significant to a particular prospective Limited Partner. Each prospective Limited Partner should examine this Memorandum, the Partnership Agreement and the Subscription Agreement accompanying this Memorandum in order to assure itself that the terms of the Partnership Agreement and the Partnership's investment program are satisfactory to it.

Prospective Limited Partners are invited to review any materials available to the General Partner relating to the Partnership and any other matters regarding this Memorandum. All such materials are available at the office of the Partnership, at any reasonable hour, after reasonable prior notice. The General Partner will afford prospective Limited Partners the opportunity to ask questions of and receive answers from its representatives concerning the terms and conditions of the offering and to obtain any additional information to the extent that the General Partner or the Partnership possesses such information or can acquire it without unreasonable effort or expense.

3. INVESTMENT PROGRAM

Investment Objective

The investment objective of the Partnership is to seek absolute, above market risk-adjusted returns with low correlations to the equity and fixed income markets. The General Partner seeks to achieve the Partnership’s investment objective by allocating the net assets of the Partnership to a select group of Investment Vehicles managed by Portfolio Managers who have experience in various alternative investment strategies including, in particular, credit-related, non-directional arbitrage and relative value strategies and selected directional strategies. The strategies utilized by the Portfolio Managers principally include, but are not limited to, mortgage-backed securities; asset-backed securities; fixed income trading, including high yield and investment grade; merger arbitrage; closed-end fund arbitrage; convertible arbitrage; capital structure arbitrage; statistical arbitrage; fixed income arbitrage; multi-strategy; long/short global credit; event-driven credit; stressed and distressed debt and equity; market neutral; opportunistic; global macro; and emerging market debt.

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Investment Strategy

The General Partner seeks to select Investment Vehicles managed by Portfolio Managers that have demonstrated the ability to achieve superior risk-adjusted rates of return over time. By investing in a select group of such Investment Vehicles, the Partnership seeks to provide investors with access to the varied skills and expertise of these Portfolio Managers while at the same time lessening the risks and volatility associated with investing through any single manager.

In selecting Portfolio Managers for investment, the General Partner evaluates the underlying funds based on, but not solely on, the following criteria: (a) the investment management experience of the Portfolio Manager; (b) the historical performance of funds or accounts managed by the Portfolio Manager; (c) the investment discipline of the Portfolio Manager, as well as the Portfolio Manager’s ability to apply its investment approach consistently and effectively; (d) the diversification benefits of each fund to the overall Partnership; and (e) the experience, depth and quality of the investment management organization.

The General Partner generally seeks to invest with Portfolio Managers that have: (a) an established track record of superior risk-adjusted returns relative to their strategies; (b) a significant amount of their personal capital invested alongside the Partnership; (c) a reasonable performance fee-based compensation structure; (d) a reasonable lock-up period relative to the investment strategy; and (e) provisions for an annual audit of the Investment Vehicle by a recognized independent public accounting firm.

Portfolio Managers may, among other things, (i) purchase fixed or floating rate government and

corporate bonds (including high-yield debt securities), notes and other debentures, convertible debt, bank loans, promissory notes and trade receivables, (ii) invest in U.S. or non-U.S. publicly traded or privately issued common stocks, exchange-traded funds, preferred stocks, stock warrants, stock options and other equity-linked securities of corporations, partnerships or other private companies, (iii) engage in short sales of the aforementioned securities (both speculatively and as a hedge for other investments), (iv) purchase or write options of various types including options on individual equity securities, stock market indices, debt securities and foreign currencies, (v) enter into forward currency contracts, (vi) invest in partnership interests, swaps, futures and other securities or financial instruments of any and all types including those of investment companies and (vii) hold cash-equivalent instruments denominated in various currencies.

Portfolio Managers may buy and sell securities on both a short-term and long-term basis and may hold significant cash positions under certain market conditions. In addition, the Portfolio Managers may borrow for the purpose of purchasing portfolio securities and other instruments.

Although the Partnership does not expect to utilize “side pocket” accounting, the Partnership may be impacted by Portfolio Managers who do utilize this technique. The General Partner, in its sole discretion, may in the future amend the Partnership’s governing documents to allow it to hold its illiquid or restricted investments in segregated accounts (i.e., “side pockets”) if it determines that such accounts are necessary in order to avoid imposing a significant liquidity burden on the Partnership.

The General Partner may also allocate a portion of the Partnership’s net assets (measured at the time of investment) to individual securities that the General Partner reasonably believes will hedge the performance of the portfolio or enhance the risk-adjusted returns over time.

The General Partner reviews the performance of each Investment Vehicle utilized by the

Partnership regularly. While it is the intention of the General Partner to select Investment Vehicles with a view toward long-term investment, changes may be made in any Investment Vehicle if the General Partner determines that it no longer meets the objectives of the Partnership. Investments in Investment Vehicles may be made, changed or redeemed at any time, as determined by the General Partner, in its sole discretion. Flexibility

The Partnership has broad and flexible investment authority. Over time, markets change and the General Partner will seek to capitalize on attractive opportunities, wherever they might be. Depending on

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conditions and trends in securities markets and the economy generally, the General Partner may pursue other objectives or employ other techniques it considers appropriate and in the best interest of the Partnership. Accordingly, the Partnership’s investments may at any time include, without limitation, long or short positions in publicly-traded or privately offered common stocks, preferred stocks, stock warrants and rights, bonds, notes or other debentures or debt participations, convertible securities, interests in investment vehicles, currencies, commodity interests, forward contracts, futures contracts, options (including options written by the Partnership), swaps and other securities or financial instruments including those of investment companies. The Partnership may invest in cash or cash-equivalents on a short-term basis or if the General Partner believes that there are no potential investments meeting its investment objectives and risk-reward parameters.

The General Partner may allocate all or any portion of any investment opportunities to the

Partnership or any other investment vehicle to which it serves as general partner in such amounts as it deems appropriate in its sole discretion. Funds affiliated with the General Partner (“KStone Funds”) may invest in the Partnership and the Partnership may invest in other KStone Funds. In the event that the Partnership invests in another KStone Fund, the General Partner will reduce or waive fees at either the Partnership and/or the KStone Fund levels such that Limited Partners are not double charged for the same services of the General Partner and only bear the Fees as described herein.

Further, the Partnership has complete flexibility to create or organize (alone or in conjunction with others including the General Partner or other affiliates) or otherwise utilize special purpose subsidiaries, affiliates, feeders, master funds or other special purpose investment or financing vehicles, swaps or other derivatives or structured products to access investments, particularly in instances where the General Partner, in its sole discretion, determines that there is a potential tax, regulatory, finance, confidentiality or other advantage to such structured product, instrument or entity.

The Partnership may borrow up to 25% of its total assets. The Partnership intends to generally

limit such borrowing to (i) borrowing on a short-term basis and (ii) borrowing for the purpose of (a) satisfying a withdrawal request when the Partnership has no available cash or immediately available liquid investments, (b) paying fees and expenses as detailed in the Partnership Agreement and (c) fulfilling any investment commitments made prior to the availability of cash or immediately available liquid investments.

To accommodate the Partnership’s need for short-term financing, Deutsche Bank, AG, London

Branch (“Deutsche Bank”) will provide the Partnership with a line of credit to the Partnership at a rate of 1% over the rate for three-month deposits in U.S. dollars as determined by LIBOR.

THE PARTNERSHIP MAY BE DEEMED TO BE A HIGHLY SPECULATIVE INVESTMENT AND

IS NOT INTENDED AS A COMPLETE INVESTMENT PROGRAM. IT IS DESIGNED ONLY FOR SOPHISTICATED PERSONS WHO CAN BEAR THE ECONOMIC RISK OF THE LOSS OF THEIR ENTIRE INVESTMENT IN THE PARTNERSHIP AND WHO HAVE A LIMITED NEED FOR LIQUIDITY IN THEIR INVESTMENT. THERE CAN BE NO ASSURANCE THAT THE PARTNERSHIP WILL ACHIEVE ITS INVESTMENT OBJECTIVE.

4. MANAGEMENT

KStone Partners LLC, a Delaware limited liability company formed on July 10, 2008, serves as the Partnership’s General Partner. The General Partner is responsible for managing the business of the Partnership and for the investment and reinvestment of the Partnership’s assets. The General Partner is registered as an investment adviser with the Securities and Exchange Commission ("SEC") pursuant to the Investment Advisers Act of 1940, as amended. Mark J. Kenyon, Joseph H. Marren and Joseph T. Drohan are the Principals. Biographical information concerning the Principals is set forth below:

Mark J. Kenyon. Mr. Kenyon is the Chairman and Chief Investment Officer of the General Partner, which was formed in July 2008. Mr. Kenyon is a well-recognized professional in the alternative asset management area and has experience in all investment and operational aspects of managing multi-manager funds. He has developed a number of sophisticated approaches for evaluating and monitoring investment performance and the measurement of risks associated with alternative investing. He was the founder and lead executive at two highly successful and well-recognized fund-of-hedge-fund enterprises.

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In 2008, Mr. Kenyon served as Chairman and President & Senior Advisor of Modern Capital and

Protégé Partners, respectively. In 1998, he founded UBP Asset Management (“UBPAM”) where he took the firm from startup to

$15 billion in assets under management. At the end of 2007, Mr. Kenyon sold his minority interest in UBPAM back to its’ Swiss-based parent company.

After functioning as the chief financial officer at Blackstone for several years in the late 1980’s, Mr.

Kenyon co-founded Blackstone Alternative Asset Management (“BAAM”) in 1992. He was instrumental in the creation and build-out of the fund-of-funds platform at Blackstone with $1 billion in assets under management before his departure in 1997. He was a Managing Director at Blackstone and was responsible for all investment and operational aspects of BAAM’s business.

Prior to his time at Blackstone, Mr. Kenyon worked at Kidder Peabody, JP Morgan and Refco, and

he started his career at Price Waterhouse in 1976. Mr. Kenyon received his B.S. degree from the University of California at Berkeley and his M.B.A.

from the University of San Francisco in 1980.

Joseph H. Marren. Mr. Marren is the President and Chief Executive Officer of the General Partner. Mr. Marren’s career as an investment banking professional gives him insight into mergers, acquisitions and private equity investing through a broad range of financial structures and securities. For more than 23 years, he has specialized in identifying attractive investment opportunities for corporations, financial sponsors and entrepreneurs and assisting in the execution of M&A transactions.

Mr. Marren joined the General Partner in October 2008. From April 2005 until September 2008,

Mr. Marren was Managing Director and Head of the Strategic Opportunities Group at Sagent Advisors, Inc., a privately-owned M&A advisory boutique based in New York City. From May 2001 to March 2005, Mr. Marren was a Managing Director and the Global Head of M&A Business Development at Citigroup Global Markets. He held the same position at Credit Suisse First Boston from November 2000 to March 2001, and was also a Managing Director and the Head of the Business Development Group at Donaldson Lufkin & Jenrette from mid-1997 to November 2000.

Prior to joining Donaldson Lufkin & Jenrette, Mr. Marren worked at The Bridgeford Group,

Prudential Securities and Kidder Peabody & Co. He led, or was a senior professional, in the business development efforts for the M&A group at these firms.

Before moving to Wall Street in 1985, Mr. Marren worked for six years at American Maize-

Products Company, a diversified publicly-traded conglomerate. He was directly involved in business development activities there. Mr. Marren began his career in 1976 at Price Waterhouse.

Mr. Marren has taught a course in Mergers & Acquisitions as an Adjunct Professor at New York

University Stern School of Business. He is the author of Mergers & Acquisitions: A Valuation Handbook and Mergers & Acquisitions: Will You Overpay?.

Mr. Marren received a Bachelor of Business Administration degree from the College of William &

Mary in 1976, a Juris Doctor degree from Fordham University School of Law in 1979 and an MBA from the NYU Stern School of Business in 1984. He is a member of the New York State Bar Association.

Joseph T. Drohan. Mr. Drohan is a Senior Managing Director. Mr. Drohan oversees the

research, due diligence and portfolio construction process for the General Partner’s investments into the underlying hedge funds. Mr. Drohan is a member of the General Partner’s Investment Committee.

Mr. Drohan has twenty-seven years of leadership experience in financial services, treasury, contract management and cash management initiatives. Prior to joining the General Partner, he was the head of the Private Equity Group at UBPAM from September 2005 to December 2007. He worked with the firm’s former CEO, Mark Kenyon, to establish and build out the private bank’s global Private Equity

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platform. The Private Equity Group researched and invested in leveraged buyout funds, mezzanine, distressed and venture funds. In that position he also worked with the UBPAM international research team to analyze all illiquid and long lock-up products, and performed diligence on all managers offering hybrid hedge and private equity investment products to the bank’s clients. Mr. Drohan was a member of the Investment Committees of the Selectinvest Private Equity Access Fund, Ltd (Cayman Islands), and the Diamond I SICAV Fund, a publicly traded SICAV fund listed on the Luxembourg Bourse.

Prior to establishing the UBPAM Private Equity platform, Mr. Drohan co-founded Healthwave Inc., which he was affiliated with from February 2000 to September 2005. Healthwave was a private equity backed revenue cycle management platform in the healthcare services sector. The firm provided web based cash management and accelerated accounts receivable solutions to improve cash flow. The firm was sold to a strategic competitor in 2007.

Mr. Drohan worked for 18 years in healthcare financial management, specifically in the areas of cost accounting, contract negotiation, business development and audit and controllership functions. He was a charter member of the Healthcare Roundtable, a nationally recognized group dedicated to national healthcare market analysis. He has served on several private and public company boards.

Mr. Drohan was an adjunct professor at Long Island University. 5. SERIES OF LIMITED PARTNERSHIP INTERESTS

The Partnership currently offers the following series of limited partnership interests:

Series A-1 limited partnership interests (the “Series A-1 Interests”) are charged a 1.5% Management Fee (as defined below) and may be withdrawn quarterly, subject to a withdrawal fee for the first year, as discussed herein.

Series B-2 limited partnership interests (the “Series B-2 Interests”) are charged a 1.25% Management Fee and are subject to a two-year lock-up provision, as discussed herein.

A Limited Partner will have the choice at the end of each applicable lock-up period for Series B-2 Interests to have such Interests remain in Series B-2 or have such Interests converted into Series A-1 Interests. If a Limited Partner does not make any such choice by written notice to the General Partner at least 95 days prior to the end of the applicable lock-up period, the Interests will automatically convert into Series A-1 Interests.

In general, Series A-1 Interests and Series B-2 Interests (together, the “Interests”) participate in all investments of the Partnership in the same manner. The General Partner, in its sole discretion, may permit Limited Partners to convert their Interests from one series to another at any time. Series B-1 Interests were offered by the Partnership subject to a minimum capital contribution amount and different Management Fee and withdrawal terms and are currently closed to new investments. 6. MANAGEMENT FEE; ADMINISTRATION FEE; EXPENSES

Management Fee

The General Partner receives a management fee calculated at an annual rate of: (i) 1.5% of the portion of the capital accounts of each Limited Partner attributable to Series A-1 Interests and (ii) 1.25% of the portion of the capital accounts of each Limited Partner attributable to Series B-2 Interests (the "Management Fee"). The General Partner receives an administration fee calculated at an annual rate of 0.10% of the capital accounts of each Limited Partner (the “Administration Fee” and together with the Management Fee, the “Fees”).

The Fees are paid quarterly in arrears based on the value of each Limited Partner's capital account as of the end of the last day of each quarter. Withdrawals made other than at quarter end will be charged the Fees and will be paid over to the General Partner. The Fees are prorated for any period that is less than a full quarter and are adjusted for contributions or withdrawals made during the quarter. In the event that the Interests of a Limited Partner are converted from one series to another, the Fees will be calculated and

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charged at the time of such conversion through the date of conversion. The Fees are deducted in calculating the net profit or net loss of the Partnership. The General Partner, in its sole discretion, may waive or reduce the Fees for Limited Partners including those that are members, employees or affiliates of the General Partner, relatives of such persons, and for certain large or strategic investors.

Expenses

The General Partner renders its services to the Partnership at its own expense and is responsible for its overhead expenses including: office rent; furniture and fixtures; stationery; secretarial/internal administrative services; salaries; employee insurance and payroll taxes. All other expenses are paid by the Partnership and include: the Fees payable to the General Partner; Partnership legal, compliance, audit, accounting and third party administrator fees and expenses; organizational expenses; investment expenses such as commissions, research fees and expenses; interest on margin accounts and other indebtedness; borrowing charges on securities, commodities and other financial instruments and assets sold short; custodial fees; Partnership-related insurance costs; expenses associated with bonding requirements (if any); the management and incentive fees and allocations of the Portfolio Managers; and any other expenses reasonably related to the purchase, sale, transmittal or preservation of Partnership assets.

7. ALLOCATION OF NET PROFITS AND NET LOSSES; PRIOR FISCAL PERIOD ITEMS

Allocation of Net Profits and Net Losses

The net profit or net loss of the Partnership as of the end of each fiscal period (as discussed further in Section 14 below) are allocated to each Partner in the proportion that the balance of its capital account as of the beginning of that fiscal period bore to the aggregate of all the capital accounts as of the beginning of that fiscal period. Net profit and net loss of the Partnership are determined on the accrual basis of accounting using GAAP as a guideline and are deemed to include net unrealized profits or losses on investment positions as of the end of each fiscal period.

Prior Fiscal Period Items

In general, and notwithstanding any of the allocation rules discussed above, if the Partnership has a material item of income or loss (as defined in the Partnership Agreement) in any fiscal period that relates to a matter or transaction occurring during a prior fiscal period (e.g., if the Partnership wins a cash settlement in a case it began in a prior year) the item of income or loss may, in the sole discretion of the General Partner, be shared among the Partners (including persons who have ceased to be Partners) in accordance with their interest in the Partnership during the prior fiscal period. A person who has ceased to be a Partner will be liable for his proportionate share of prior fiscal period items and will pay such share on demand, but the amount to be paid will not exceed the amount of such Partner's capital account at the time such prior fiscal period item arose.

8. RISK FACTORS

The Partnership may be deemed to be a highly speculative investment and is not intended as a complete investment program. It is designed only for sophisticated persons who are able to bear the economic risk of the loss of their investment in the Partnership and who have a limited need for liquidity in their investment. The following risks should be carefully evaluated before making an investment in the Partnership:

Nature of Investments

The General Partner and the Portfolio Managers have broad discretion in making investments for the Partnership and the Investment Vehicles. Investments generally consist of various instruments and other assets that may be affected by business, financial market or legal uncertainties. There can be no assurance that the General Partner or the Portfolio Managers will correctly evaluate the nature and magnitude of the various factors that could affect the value of and return on investments. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the

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Partnership's activities and the value of its investments. In addition, the value of the Partnership's portfolio may fluctuate as the general level of interest rates fluctuate. No guarantee or representation is made that the Partnership's investment objective will be achieved.

Reliance on the Principals

Mark J. Kenyon, Joseph H. Marren and Joseph T. Drohan are the Principals of the General Partner. If certain of the Principals were to resign from the General Partner or otherwise become unable to participate in the management of the Partnership, there might be adverse consequences. If certain of the Principals cease to participate in the management of the Partnership, it is possible that a significant number of Limited Partners would exercise their right to withdraw from the Partnership at the next applicable withdrawal date. There can be no assurance that the Partnership’s portfolio could be liquidated in an efficient manner to accommodate such withdrawals, and Limited Partners could experience losses.

Access to Information from Portfolio Managers

The General Partner selects Portfolio Managers based upon the factors described herein. The General Partner requests information from each Portfolio Manager regarding the Portfolio Manager's historical performance and investment strategy. The General Partner also requests detailed portfolio information on a continual basis from each Portfolio Manager retained on behalf of the Partnership. However, the General Partner may not always be provided with such information because certain of this information may be considered proprietary information by the particular Portfolio Manager. This lack of access to information may make it more difficult for the General Partner to select, allocate among and evaluate Portfolio Managers.

Activities of Portfolio Managers

The General Partner has no control over the day-to-day operations of any of the selected Portfolio Managers. As a result, there can be no assurance that every Portfolio Manager engaged by the Partnership will invest on the basis expected by the General Partner.

Diversification of Strategies and Portfolio Managers

Although the General Partner seeks to obtain diversification by investing with a number of different Portfolio Managers utilizing different strategies, it is possible that several Portfolio Managers may take substantial positions in the same security or group of securities at the same time. This possible lack of diversification may subject the investments of the Partnership to more rapid changes in value than would be the case if the assets of the Partnership were more widely diversified.

“Fund of Funds” Structure

Under certain circumstances, the Partnership's “fund of funds” structure may be disadvantageous to Limited Partners as compared with maintaining investments directly. The Partnership’s operating expenses are in addition to the Partnership’s pro rata share of the investment and other expenses of the Portfolio Managers indirectly borne by the Partnership. Accordingly, the expenses of the Partnership may be a higher percentage of net assets than in other investment entities.

Removal of Portfolio Managers

While the General Partner seeks to maximize the Partnership's returns and minimize disruptions to its operations, from time to time the General Partner may decide, in its sole discretion, to remove and/or replace a Portfolio Manager. Certain investment management agreements may not permit immediate termination. Furthermore, the process of transitioning the Partnership's assets from one Portfolio Manager to another Portfolio Manager will cause additional costs and may cause the performance of the Partnership to suffer.

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Managed Account Allocations

The General Partner may place assets with a Portfolio Manager by opening a discretionary managed account rather than investing in funds and other private investment companies. Managed accounts expose the Partnership to theoretically unlimited liability and it is possible, given the amount of leverage at which certain of the Portfolio Managers will trade, that the Partnership could lose more in a managed account directed by a particular Portfolio Manager than if the Partnership had allocated its assets to such Portfolio Manager’s fund or private investment company. Multiple Portfolio Managers

Because the Partnership invests with Portfolio Managers who make their trading decisions independently, it is possible that one or more of such Portfolio Managers may take positions that may be opposite to positions taken by other Portfolio Managers. It is also possible that the Portfolio Managers retained by the Partnership may on occasion be competing with each other for similar positions at the same time. Also, a particular Portfolio Manager may take positions for its other clients that may be opposite to positions taken for the Partnership.

Non-Diversification

It is anticipated that the Partnership's portfolio will be relatively concentrated with respect to types of investments. The portfolios of the Investment Vehicles may also be relatively concentrated. Accordingly, the Partnership may be subject to more rapid changes in value than would be the case if the Partnership or the Investment Vehicles were required to maintain a wider diversification among types of investments, issuers and geographic areas.

Leverage and Short Sales

The Partnership may incur indebtedness in connection with its investments in derivative instruments or otherwise, including to provide operational liquidity. Operational liquidity includes funding investments in Investment Vehicles until subscriptions are received, and funding withdrawals and expenses until withdrawal proceeds are received.

Many of the Investment Vehicles may utilize leverage by borrowing to the fullest extent allowable

by law to finance the purchase of investments. The interest expense and other costs incurred in connection with such leverage may not be recovered by appreciation in the investments purchased. Gains or losses realized with leverage may cause the Partnership’s net asset value to increase or decrease, respectively, at a faster rate than would be the case without leverage. If, however, investment results fail to cover the cost of leverage, the Partnership’s net asset value could also decrease faster than if there had been no leverage.

Furthermore, in an unsettled credit environment, the General Partner or the Portfolio Managers

may find it difficult or impossible to borrow funds. This would affect the operational liquidity of the Partnership. Also, since leveraging its assets may be an integral part of an Investment Vehicle’s strategy, in such an event, a Portfolio Manager could find it difficult to implement its strategy. In addition, any leverage obtained, if terminated on short notice by the lender, could result in the Portfolio Manager being forced to unwind the Investment Vehicle’s positions quickly and at prices below what the Portfolio Manager deems to be fair value for the positions.

Additionally, the Partnership may invest in Portfolio Managers who engage in short sales. Selling

securities short runs the risk of losing an amount greater than the amount invested. Short selling is subject to the theoretically unlimited risk of loss because there is no limit on how much the price of a stock may appreciate before the short position is closed out. There can be no assurance that securities necessary to cover a short position will be available for purchase.

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Counterparty and Custody Risk

To the extent that the General Partner or Portfolio Managers have utilized options, swaps, derivative or synthetic instruments, forward contracts, or other over-the-counter transactions (including certain equities), the Partnership and the Investment Vehicles may take a credit risk with regard to parties with whom it trades and may also bear the risk of settlement default. These risks may differ materially from those entailed in exchange-traded transactions that generally are backed by clearing organization guarantees, daily marking-to-market and settlement and segregation and minimum capital requirements applicable to intermediaries. Transactions entered directly between two counterparties generally do not benefit from such protections and expose the parties to the risk of counterparty default.

In addition, there are risks involved in dealing with the custodians or brokers who settle trades, particularly with respect to non-U.S. investments. There is no guarantee that any custodian that the Partnership or the Investment Vehicles may use will not become insolvent. While both the U.S. Bankruptcy Code and the Securities Investor Protection Act of 1970 seek to protect customer property in the event of a failure, insolvency or liquidation of a broker-dealer or custodian, there is no certainty that, in the event of a failure of a broker-dealer or custodian that has custody of the Partnership’s or an Investment Vehicle’s assets, the Partnership would not directly or indirectly incur losses due to the assets being unavailable for a period of time and/or the receipt of ultimately less than full recovery of the assets.

It is expected that all securities and other assets deposited with custodians or brokers will be

clearly identified as being assets of the Partnership or the Investment Vehicles, and hence they should not be exposed to a credit risk with regard to such parties. However, it may not always be possible to achieve this segregation, and there may be practical or time problems associated with enforcing the Partnership's or Investment Vehicles’ rights to their assets in the case of an insolvency of any such party.

Furthermore, the assets of the Partnership and/or the Investment Vehicles may be held by sub-custodians in certain non-U.S. jurisdictions. The Partnership may therefore have a potential direct or indirect exposure on the default of any sub-custodian and, as a result, many of the protections that would normally be provided to a fund by a custodian will not be available. Under certain circumstances, including certain transactions where assets of an Investment Vehicle are pledged as collateral for leverage from a non-broker-dealer custodian or a non-broker-dealer affiliate of a prime broker, or where the assets of an Investment Vehicle are held by a non-U.S. custodian, the securities and other assets deposited with the custodian or broker may not be clearly identified as being assets of the Partnership and hence the Partnership could be exposed to a credit risk with regard to these parties. Custody services in certain non-U.S. jurisdictions remain undeveloped and, accordingly, there is a transaction and custody risk of dealing in certain non-U.S. jurisdictions. Given the undeveloped state of regulations on custodial activities and bankruptcy or mismanagement in certain non-U.S. jurisdictions, the ability of the Partnership or an Investment Vehicle to recover assets held by a sub-custodian in the event of the sub-custodian's bankruptcy could be in doubt, as the Partnership or the Investment Vehicles may be subject to significantly less favorable insolvency laws than many of the protections that would be available under U.S. laws. In addition, there may be practical or time problems associated with enforcing the Partnership's rights to its assets in the case of an insolvency of any party.

Business and Regulatory Risks of Private Funds

Legal, tax and regulatory changes could occur during the term of the Partnership that may adversely affect the Partnership. The regulatory environment for private funds is evolving, and changes in the regulation of private funds may adversely affect the value of investments held by the Partnership and the ability of the Partnership or Investment Vehicles to borrow and/or pursue their investment strategies. In addition, securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. Regulators and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. The regulation of derivative transactions and funds that engage in such transactions is an evolving area of law and is subject to modification by government and judicial action. The effect of any future regulatory change on the Partnership and/or Investment Vehicles could be substantial and adverse including, for example, increased compliance costs, the prohibition of certain types of trading and/or the inhibition of the Investment Vehicles’ ability to pursue their investment strategies.

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Hedging Transactions

Although the General Partner and the Portfolio Managers may utilize a variety of financial instruments, such as derivatives, options, interest rate swaps, swaptions, caps and floors, futures and forward contracts for risk management purposes (note that they may also utilize them for speculative purposes), there can be no assurances that a particular hedge is appropriate, or that a certain risk is measured properly. Further, while the Partnership and/or the Investment Vehicles may enter into hedging transactions to seek to reduce risk, such transactions may result in poorer overall performance and increased (rather than reduced) risk for the Partnership and/or the Investment Vehicles than if they did not engage in any such hedging transactions. Moreover, the Partnership and/or the Investment Vehicles will always be exposed to certain risks that cannot be hedged, such as credit risk (relating both to particular securities and counterparties). In addition, the Partnership and/or the Investment Vehicles may choose not to enter into hedging transactions with respect to some or all of its positions.

Arbitrage

Arbitrage strategies attempt to take advantage of perceived price discrepancies of identical or similar financial instruments, on different markets or in different forms. Examples of arbitrage strategies include event-driven arbitrage, merger arbitrage, capital structure arbitrage, convertible arbitrage, closed-end fund arbitrage, fixed-income or interest rate arbitrage, statistical arbitrage, debt spread arbitrage and index arbitrage. The Portfolio Managers may employ any one or more of these arbitrage strategies. If the requisite elements of an arbitrage strategy are not properly analyzed, or unexpected events or price movements intervene, losses can occur, which can be magnified to the extent the Portfolio Managers are employing leverage. Moreover, arbitrage strategies often depend upon identifying favorable "spreads", which can also be identified, reduced or eliminated by other market participants. Convertible Arbitrage

Convertible arbitrage generally involves acquiring convertible securities and selling short a corresponding amount of the underlying equity security, although this relationship may be reversed. While this investment strategy is considered to be relatively "market neutral", there are many associated risks that can affect the results of this strategy. Such risks include, but are not limited to, the following: (i) dramatically rising interest rates or escalating market volatility may adversely affect the relationship between securities; (ii) convertible securities tend to be significantly less liquid and have wider bid/offer spreads making it more difficult to enter and profitably exit such trades; (iii) convertible arbitrage involves an inherently imperfect and dynamic hedging relationship and must be adjusted from time to time (the failure to make timely or appropriate adjustments may limit profitability or lead to losses); (iv) convertible arbitrage involves selling securities short (see "Leverage and Short Sales" above); (v) a material change in the dividend policy of the underlying common equity may adversely affect the prices of the securities involved; (vi) changes in the issuer’s credit rating may adversely affect the prices of the securities involved; and (vii) unexpected merger or other extraordinary transactions affecting the convertible security or common equity may adversely affect the prices of the securities involved.

Relative Value Strategy

The Portfolio Managers may pursue relative value strategies by taking long positions in assets believed to be undervalued and short positions in assets believed to be overvalued. In the event that the perceived mispricings underlying the Portfolio Managers' trading positions were to fail to converge toward, or were to diverge further from their expectations, the Partnership may incur a loss. Even pure riskless arbitrage can result in significant losses if the arbitrage is not sustained (due to, for example, margin calls) until expiration. In implementing relative value strategies, the Portfolio Managers may seek to reduce exposure to the risk of overall market price movements, but will still be fully exposed to the risks of disruptions in historical price relationships, the restricted availability of credit and the obsolescence of their valuation models.

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Event-Driven Strategy

Because of the inherently speculative nature of event-driven investing, results may fluctuate and are not expected to correlate with the direction of the equity markets. Accordingly, the results of a particular period will not necessarily be indicative of results that may be expected in future periods. The number of opportunities available varies greatly and is based on many factors beyond the control of the General Partner or the Portfolio Managers. For such investment opportunities, there exists the risk that the contemplated transaction either will be unsuccessful, will take considerable time or will result in a distribution of cash or a new security the value of which will be less than the purchase price to the Portfolio Managers of the security or other financial instrument in respect of which such distribution is received. Similarly, if such investments were made and the anticipated transactions did not occur, the securities would likely be sold at a loss.

Distressed Securities

The Portfolio Managers may invest in "distressed" securities, claims and obligations of domestic and foreign entities that are experiencing significant financial or business difficulties. Investments may include loans, commercial paper, loan participations, trade claims held by trade or other creditors, stocks, partnership interests and similar financial instruments, executory contracts and options or participations therein not publicly traded. Investments in distressed securities may result in significant returns to a Portfolio Manager (and therefore the Partnership), but also involve a substantial degree of risk. The Portfolio Managers (and therefore the Partnership) may lose a substantial portion or all of their investment in a distressed environment or may be required to accept cash or securities with a value less than their investment. Among the risks inherent in investments in entities experiencing significant financial or business difficulties is the fact that it frequently may be difficult to obtain information as to the true condition of such issuers. Such investments also may be adversely affected by state and federal laws relating to, among other things, fraudulent conveyances, voidable preferences, lender liability and the bankruptcy court's discretionary power to disallow, subordinate or disenfranchise particular claims. The market prices of such instruments are also subject to abrupt and erratic market movements and above average price volatility, and the spread between the bid and asked prices of such instruments may be greater than normally expected. In trading distressed securities, litigation is sometimes required. Such litigation can be time-consuming and expensive, and can frequently lead to unpredicted delays or losses. Moreover, to the extent that the Portfolio Managers invest in distressed sovereign debt obligations, it will be subject to additional risks and considerations not present in private distressed securities, including the uncertainties involved in enforcing and collecting debt obligations against sovereign nations, which may be affected by world events, changes in U.S. foreign policy and other factors outside of the control of the General Partner or Portfolio Managers. The market for distressed securities and instruments is generally thinner and less active than other markets, which can adversely affect the prices at which distressed securities can be sold.

Emerging Markets

Investing in emerging market equity and debt strategies and the securities of non-U.S. companies that are generally denominated in non-U.S. currencies, involves certain considerations comprising both risk and opportunity not typically associated with investing in other more established economies or securities markets or in the securities of U.S. companies. Such considerations include (i) the risk of nationalization or expropriation of assets or non-U.S. taxation; (ii) social, economic and political uncertainty; (iii) dependence on exports and the corresponding importance of international trade; (iv) price fluctuations, less liquidity and smaller capitalization of securities markets; (v) changes in exchange rates and exchange control regulations; (vi) rates of inflation; (vii) controls on non-U.S. investment and limitations on repatriation of invested capital and on the ability to exchange local currencies for U.S. dollars; (viii) governmental involvement in and control over the economies; (ix) that governments may decide not to continue to support economic reform programs generally and could impose centrally planned economies; (x) differences in auditing and financial reporting standards, which may result in the unavailability of material information about issuers and less available information than is generally the case in the United States; (xi) less extensive government supervision of the securities markets, brokers and issuers; (xii) the settlement period of securities transactions in emerging markets may be longer; (xiii) less developed corporate laws regarding fiduciary duties of officers and directors and the protection of

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investors; (xiv) higher transaction costs and greater price volatility; (xv) imposition of foreign taxes; (xvi) difficulty in enforcing contractual obligations; and (xvii) less available information than is generally the case in the United States. Debt Obligations and Securities

The Portfolio Managers may invest in corporate debt obligations, including commercial paper. Corporate debt obligations are subject to the risk of an issuer’s inability to meet principal and interest payments on the obligations (credit risk). The Portfolio Managers may intend to actively expose the Investment Vehicles' portfolios to credit risk. There can be no guarantee that the Portfolio Managers will be successful in making the right selections and thus fully mitigate the impact of credit risk changes on the Investment Vehicles' portfolios.

Furthermore, the Portfolio Managers may invest in debt securities that rank junior to other outstanding securities and obligations of the issuer, all or a significant portion of which may be secured on substantially all of that issuer’s assets. The Portfolio Managers may invest in debt securities that are not protected by financial covenants or limitations on additional indebtedness. In addition, evaluating credit risk for foreign debt securities involves greater uncertainty because credit rating agencies throughout the world have different standards, making comparison across countries difficult.

Commercial and Residential Mortgage-Backed Securities and Asset-Backed Securities

The Portfolio Managers may invest in commercial and residential mortgage-backed securities. Such investments involve the general risks typically associated with investing in traditional fixed-income securities (including interest rate and credit risk) and certain additional risks and special considerations (including the risk of principal prepayment and the risk of investing in real estate). Mortgage-backed securities generally provide for the payment of interest and principal on the mortgage-backed securities on a frequent basis and there also exists the possibility, particularly with respect to residential mortgage-backed securities, that principal may be prepaid at any time due to, among other reasons, prepayments on the underlying mortgage loans or other assets. As a result of prepayments, the Portfolio Managers may be required to reinvest assets at an inopportune time, which may expose the Portfolio Managers to a lower rate of return. The rate of prepayments on underlying mortgages affects the price and volatility of a mortgage-backed security, and may have the effect of shortening or extending the effective maturity beyond what was anticipated. Further, different types of mortgage-backed securities are subject to varying degrees of prepayment risk. Finally, the risks of investing in such instruments reflect the risks of investing in real estate securing the underlying loans, including the effect of local and other economic conditions, the ability of tenants to make payments, and the ability to attract and retain tenants.

Asset-backed securities are subject to interest rate risk and, to a lesser degree, prepayment risk. Asset-backed securities are subject to additional risks in that, unlike mortgage-backed securities, asset-backed securities generally do not have the benefit of a security interest in the related collateral. Each type of asset-backed security also entails unique risks depending on the type of assets involved and the legal structure used. For example, credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Asset-backed securities typically experience credit risk. For example, there is an increasing supply of subordinated securities rated lower than AA (down to B or first loss) and senior securities that may be rated lower than AAA, as well. There is also the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities because of the inability to perfect a security interest in such collateral. Interest Rate Risk

The portfolios of the Partnership and the Investment Vehicles are subject to interest rate risk. Generally, the value of fixed income securities will change inversely with changes in interest rates. As interest rates rise, the market value of fixed income securities tends to decrease. Conversely, as interest rates fall, the market value of fixed income securities tends to increase. This risk will be greater for long-term securities than for short-term securities.

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Options

The purchase or sale of an option involves the payment or receipt of a premium by the investor and the corresponding right or obligation, as the case may be, to either purchase or sell the underlying security, commodity or other instrument for a specific price at a certain time or during a certain period. Purchasing options involves the risk that the underlying instrument will not change price in the manner expected, such that the investor loses its premium. Selling options involves potentially greater risk because the investor is exposed to the extent of the actual price movement in the underlying security rather than only the premium payment received (which could result in a potentially unlimited loss). Over-the-counter options also involve counterparty solvency risk.

Derivative Financial Instruments and Techniques

The Portfolio Managers may invest in derivative financial instruments. The risks posed by such instruments and techniques, which can be extremely complex and may involve leveraging of the Investment Vehicles’ assets, include (but are not limited to): (1) credit risks (e.g., the exposure to the possibility of loss resulting from a counterparty’s failure to meet its financial obligations); (2) market risk (e.g., adverse movements in the price of a financial asset); (3) legal risks (e.g., the characterization of a transaction or a party’s legal capacity to enter into it could render the financial contract unenforceable, and the insolvency or bankruptcy of a counterparty could preempt otherwise enforceable contract rights); (4) operations risk (e.g., inadequate controls, deficient procedures, human error, system failure or fraud); (5) documentation risk (e.g., exposure to losses resulting from inadequate documentation); (6) liquidity risk (e.g., exposure to losses created by inability to prematurely terminate the derivative); (7) system risk (e.g., the risk that financial difficulties in one institution or a major market disruption will cause uncontrollable financial harm to the financial system); (8) concentration risk (e.g., exposure to losses from the concentration of closely related risks such as exposure to a particular industry or exposure linked to a particular entity); and (9) settlement risk (e.g., the risk faced when one party to a transaction has performed its obligations under a contract but has not yet received value from its counterparty).

Use of derivatives and other techniques such as short sales involves certain additional risks, including (i) dependence on the ability to predict movements in the price of the securities hedged; (ii) imperfect correlation between movements in the securities on which the derivative is based and movements in the assets of the underlying portfolio; and (iii) possible impediments to effective portfolio management or the ability to meet short-term obligations because of the percentage of a portfolio’s assets segregated to cover its obligations. In addition, by hedging a particular position, any potential gain from an increase in value of such position may be limited.

Currency Risks

The Portfolio Managers' investments that are denominated in a foreign currency are subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. A Portfolio Manager may try to hedge these risks, but there can be no assurance that it will implement a hedging strategy, or if it implements one, that it will be effective.

Risk Control Framework

No risk control system is fail-safe, and no assurance can be given that any risk control framework employed by the General Partner or the Portfolio Managers will achieve its objective. Target risk limits developed by the General Partner or the Portfolio Managers may be based upon historical trading patterns for the securities and financial instruments in which the Partnership or Investment Vehicles invest. No assurance can be given that such historical trading patterns will accurately predict future trading patterns.

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Limited Transfer and Withdrawal Rights; In Kind Distributions

Because of the limitations on withdrawal rights and the fact that Interests are not tradable, and furthermore, due to the fact that the Partnership may invest with Portfolio Managers who do not permit frequent withdrawals, an investment in the Partnership is a relatively illiquid investment and involves a high degree of risk. Furthermore, if a substantial number of Limited Partners were to withdraw and the Partnership did not have a sufficient amount of cash or liquid securities, the Partnership might have to meet such withdrawals through distributions of illiquid securities or instruments directly to Limited Partners or to a liquidating trust or liquidating account. Transfers of Interests will be permitted only with the written consent of the General Partner. Accordingly, the Interests should only be acquired by persons who can afford a substantial loss of their investment and who are willing and able to commit their funds for an appreciable period of time.

Unrelated Business Taxable Income for Certain Tax-Exempt Investors

Pension and profit-sharing plans, Keogh plans, individual retirement accounts and other tax-exempt investors may realize “unrelated business taxable income” as a result of an investment in the Partnership since it is anticipated that the Portfolio Managers may employ leverage. See Section 12, “Taxation.” Any tax-exempt investor should consult its own tax adviser with respect to the effect of an investment in the Partnership on its own tax situation.

ERISA Risks

As the assets of the Partnership may at various times be subject to Title I of ERISA, the Partnership may encounter specific capacity limitations imposed by the Portfolio Managers and may be required or deem it advisable to redeem all or part of its investment in an Investment Vehicle should the investment in that Investment Vehicle by "benefit plan investors" become “significant” as such terms are defined under U.S. Department of Labor Regulations under ERISA at 29 C.F.R. 2510.3-101, as modified in application by Section 3(42) of ERISA (the "Plan Assets Regulation") prior to the time it would have redeemed its investment in the absence of Plan Assets Regulation. Alternatively, the Partnership may invest in an Investment Vehicle that is designed to hold plan assets, provided that either (i) the assets of the entity that is making portfolio investments do not constitute plan assets for purposes of ERISA or (ii) the Portfolio Manager of such Investment Vehicle has documented how it intends to manage "plan assets" in compliance with ERISA.

Side Letters

The Partnership has entered into agreements with certain Limited Partners, including agreements granting Limited Partners more favorable liquidity and conversion terms and an agreement to waive certain investment minimums, and may in the future enter into additional agreements ("Side Letters") with certain prospective or existing Limited Partners whereby such Limited Partners may be subject to terms and conditions that are more advantageous than those set forth in this Memorandum. For example, such terms and conditions may provide for special rights to make future investments in the Partnership, other investment vehicles or managed accounts; special withdrawal rights relating to frequency or notice; a reduction or rebate in fees or withdrawal charges to be paid by the Limited Partners and/or other terms; rights to receive reports from the Partnership on a more frequent basis or that include information not provided to other Limited Partners (including, without limitation, more detailed information regarding portfolio positions) and such other rights as may be negotiated by the Partnership and such Limited Partners. The modifications are solely at the discretion of the General Partner and may, among other things, be based on the size of a Limited Partner’s investment in the Partnership or affiliated investment entity, an agreement by a Limited Partner to maintain such investment in the Partnership for a significant period of time, or other similar commitment by a Limited Partner to the Partnership.

Cybersecurity Risk

The information and technology systems of the General Partner and of key service providers to the Partnership may be vulnerable to potential damage or interruption from computer viruses, network failures, computer and telecommunication failures, infiltration by unauthorized persons and security

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breaches, usage errors by their respective professionals, power outages and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. Although the General Partner and the service providers have each implemented various measures designed to manage risks relating to these types of events, if these systems are compromised, become inoperable for extended periods of time or cease to function properly, it may be necessary for the General Partner or a service provider to make a significant investment to fix or replace them and to seek to remedy the effect of such issues. The failure of these systems and/or of disaster recovery plans for any reason could cause significant interruptions in the operations of the Partnership and result in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information.

No Separate Counsel; No Independent Verification

Seward & Kissel LLP acts as counsel to the General Partner and the Partnership (together, the "Parties"). The Partnership does not have counsel separate and independent from counsel to the General Partner. Seward & Kissel LLP does not represent investors in the Partnership, and no independent counsel has been retained to represent investors in the Partnership. Seward & Kissel LLP is not responsible for any acts or omissions of the Parties (including their compliance with any guidelines, policies, restrictions or applicable law, or the selection, suitability or advisability of their investment activities) or any administrator, accountant, custodian/prime broker or other service provider to the Parties. This Memorandum was prepared based on information furnished by the General Partner; Seward & Kissel LLP has not independently verified such information.

Absence of U.S. Regulatory Oversight

While the Partnership may be considered similar to an investment company, it is not registered with the SEC as such under the Investment Company Act in reliance upon an exemption available to privately offered investment companies, and, accordingly, the provisions of the Investment Company Act (which, among other matters, require investment companies to have disinterested directors, require securities held in custody to at all times be individually segregated from the securities of any other person and marked to clearly identify such securities as the property of such investment company and regulate the relationship between the adviser and the investment company) will not be afforded to the Partnership or the Limited Partners. However, the General Partner is registered with the SEC as an investment adviser pursuant to the U.S. Investment Advisers Act of 1940, as amended.

Potential Conflicts of Interest

The General Partner will use its best efforts in connection with the purposes and objectives of the Partnership and will devote so much of its time and effort to the affairs of the Partnership as may, in its judgment, be necessary to accomplish the purposes of the Partnership. Under the terms of the Partnership Agreement, the General Partner, the Fund, and their respective directors, members, partners, shareholders, officers, employees, agents and affiliates (hereinafter referred to as the “Affiliated Parties”) may conduct any other business, including any business within the securities industry, whether or not such business is in competition with the Partnership. Without limiting the generality of the foregoing, any of the Affiliated Parties may act as general partner, investment adviser or investment manager for others, may and do manage funds, separate accounts or capital for others, may have, make and maintain investments in their own name or through other entities and may serve as an officer, director, consultant, partner or stockholder of one or more investment funds, partnerships, securities firms or advisory firms.

Other entities or accounts managed by the Affiliated Parties, including the KStone Funds, (collectively, the “Other Clients”) may have investment objectives or may implement investment strategies similar to or different from those of the Partnership. In addition, the Affiliated Parties may, through other investments including other investment funds, have interests in the securities in which the Partnership invests as well as interests in investments in which the Partnership does not invest. The Affiliated Parties may give advice or take action with respect to such other entities or accounts that differs from the advice given with respect to the Partnership. To the extent a particular investment is suitable for both the Partnership and the Other Clients of the Affiliated Parties, such investments will be allocated between the Partnership and the Other Clients pro rata based on assets under management or in some other manner

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that the Affiliated Parties determine is fair and equitable under the circumstances to all clients, including the Partnership.

The Affiliated Parties may have conflicts of interest in allocating their time and activity among the Partnership and Other Clients, in allocating investments among the Partnership and Other Clients and in effecting transactions for the Partnership and Other Clients, including ones in which the Affiliated Parties may have a greater financial interest.

From the standpoint of the Partnership, simultaneous identical portfolio transactions for the Partnership and the Other Clients may tend to decrease the prices received, and increase the prices required to be paid, by the Partnership for its portfolio sales and purchases. Where less than the maximum desired number of shares of a particular security to be purchased is available at a favorable price, the shares purchased will be allocated among the Partnership and the Other Clients in an equitable manner as determined by the Affiliated Parties. Further, it may not always be possible or consistent with the investment objectives of the various persons or entities described above and/or of the Partnership for the same investment positions to be taken or liquidated at the same time or at the same price; however, all transactions will be made on a “best execution" basis.

The Partnership may invest in other KStone Funds. In the event that the Partnership invests in another KStone Fund, the General Partner will reduce or waive fees at either the Partnership and/or the KStone Fund levels such that Limited Partners are not double charged for the same services of the General Partner and only bear the Fees as described herein. Consistent with its fiduciary duties, the General Partner will only invest the assets of the Partnership in other KStone Funds if it believes that such investments are in the best interests of the Partnership. Nevertheless, the General Partner may have inherent conflicts of interest in allocating investments to KStone Funds. For example, the Partnership's investment in KStone Funds may be made at a time when such KStone Funds may not have substantial assets. The investment in the KStone Fund might encourage further contributions to the relevant KStone Fund by other investors or bring the KStone Fund to critical mass, both of which might benefit the General Partner.

Other Clients may invest in the Partnership. Any withdrawal or transfer by Other Clients from the Partnership may adversely affect the Partnership and may present certain conflicts of interest. The Partnership may permit Other Clients to withdraw at a time other than the stated withdrawal date and/or with less than the required notice ("Special Withdrawals"). Withdrawals and Special Withdrawals in particular, may adversely affect the Partnership and may present significant conflicts of interest. A withdrawal of a large investment in the Partnership by Other Clients could decrease the asset base of the Partnership (and therefore increase the expense ratio) and/or could have a disruptive effect on the portfolio by compelling the Partnership to liquidate investments at what may be a disadvantageous time. In making a decision to redeem assets of Other Clients from the Partnership, the General Partner will have more access to portfolio data on which to base such decision than will other investors in the Partnership.

Even in situations where the General Partner believes that there is no disadvantage to its clients, "cross transactions" between its clients may nonetheless create an inherent conflict of interest; the General Partner has a duty to obtain the most favorable price for both the selling client and the purchasing client. Purchase and sale transactions (including swaps) may be effected between the Partnership and the Other Clients subject to the following guidelines: (i) such transactions shall be effected at the current market price or value of the particular securities, and (ii) no extraordinary brokerage commissions or fees (i.e., except for customary transfer fees or commissions) or other remuneration shall be paid in connection with any such transaction. Generally, any cross transactions in an Investment Vehicle will be effected at the Investment Vehicle’s net asset value. An Investment Vehicle’s net asset value may include positions that are carried at cost. When cross transactions are effected, they will include pro rata portions of positions in such Investment Vehicles at cost, even if such positions could be severed from the transaction. Notwithstanding anything to contrary herein, during any period when the Partnership is deemed to hold “plan assets” for purposes of Title I of ERISA, the Partnership will not engage in cross transactions.

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Although it is a general policy that, wherever practicable, investment valuations will be based on financial information independent of the General Partner, the General Partner may have a conflict of interest in connection with valuing the Partnership’s assets in that such valuations will directly affect the amount of Fees that the General Partner receives. Such fee structures may give the General Partner an incentive to value such assets at a higher valuation.

Further, the Partnership bears its own expenses as described in Section 6 of this Memorandum. Each Other Client bears its own expenses as set forth in its respective investment management agreement or other agreement with the General Partner. While the expenses borne by the Other Clients are generally similar to the expenses borne by the Partnership, there may be differences between the expenses borne by the Partnership and the expenses borne by Other Clients due to the nature of each Other Client and its arrangement with the General Partner.

Common expenses frequently will be incurred on behalf of the Partnership and one or more Other Clients. Specifically, the Partnership incurs ongoing expenses on behalf of the Offshore Fund. The General Partner seeks to allocate the ongoing common expenses between the Partnership and the Offshore Fund, as a limited partner in the Partnership, in a manner that is fair and reasonable over time, generally on a pro rata basis based on assets under management. Expense allocations made by the General Partner in good faith will be final and binding on the Partnership.

Accounting for Uncertainty in Income Taxes

Various accounting standards, including, without limitation, Accounting Standards Codification Topic 740 (“ASC 740”) (formerly known as “FIN 48”), could cause the Partnership to be required to reserve for certain expenses or taxes or could otherwise impact the net asset value of the Partnership. Prospective Limited Partners should be aware that, among other things, these accounting standards could have a material adverse effect on the periodic calculations of the net asset value of the Partnership, including reducing the net asset value of the Partnership to reflect reserves for income taxes that may be payable in respect of prior periods by the Partnership. This could adversely affect certain Limited Partners, depending upon the timing of their contribution to and withdrawal from the Partnership.

9. ADMISSION OF PARTNERS; ADDITIONAL CAPITAL CONTRIBUTIONS

Admission as a Limited Partner in the Partnership is not open to the general public. The Partnership is not intended as a complete investment program and is designed only for persons who are able to bear the economic risk of the loss of their investment in the Partnership and who have a limited need for liquidity in their investments. Interests will generally be sold only to qualified investors who are "accredited investors" under Rule 501 of Regulation D of the Securities Act of 1933, as amended and “qualified purchasers” under Section 2(a)(51) of the Investment Company Act.

The minimum initial investment in the Partnership is $1,000,000, subject to reduction in the sole discretion of the General Partner. In general, the Partnership will accept capital contributions on a monthly basis; however, the General Partner reserves the right, in its sole discretion, to accept capital contributions at other times or to reject contributions in whole or in part. Capital contributions by Limited Partners will be made in cash or, in the General Partner’s sole discretion, in securities acceptable to the General Partner or partly in cash and partly in securities acceptable to the General Partner.

The General Partner may admit additional or substitute general partners (i) as of the beginning of any calendar month upon 30 days’ prior written notice to all Limited Partners, (ii) at any time with the consent of the majority in interest of the Limited Partners, or (iii) at any time if such additional or substitute general partners are affiliates of the General Partner or its Principals.

The General Partner may pay fees to persons (whether or not affiliated with the General Partner) who are instrumental in the sale of Interests in the Partnership. Any such fees will in no event be payable by or chargeable to the Partnership or any Limited Partner or prospective Limited Partner.

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10. WITHDRAWALS; RETIREMENT; DISTRIBUTIONS; VALUATION

Withdrawals of Capital

A Limited Partner holding Series A-1 Interests may, upon at least 95 days' prior written notice to the General Partner, withdraw all or any portion of its capital account relating to a particular Series A-1 Interest as of the last business day of each calendar quarter; provided, however, that withdrawals of Series A-1 Interests prior to the one year anniversary of the contribution sought to be withdrawn will be subject to a withdrawal fee equal to the lesser of: (i) 1% of the withdrawal proceeds or (ii) $25,000. All withdrawal fees will be payable to the Partnership.

A Limited Partner holding Series B-2 Interests may, upon at least 95 days' prior written notice to the General Partner, withdraw all or any portion of its capital account relating to a particular Series B-2 Interest as of the last business day of the calendar quarter following the two year anniversary of the contribution sought to be withdrawn. Upon expiration of the two-year lock-up period (and each succeeding lock-up period), the Series B-2 Interest will be automatically converted into a Series A-1 Interest subject to quarterly withdrawal rights and a 1.5% Management Fee, unless the Limited Partner elects by written notice to the General Partner, upon at least 95 days prior to the expiration of the applicable lock-up period, to have such Interest remain a Series B-2 Interest subject to another two-year lock-up period.

Withdrawals will occur on a “first-in first-out” basis with respect to particular capital contributions. A notice of withdrawal must state (i) the amount to be withdrawn or the basis on which such amount is to be determined and (ii) the series to be withdrawn.

A Partner who elects to withdraw all of his capital account will be deemed to have “retired” from the Partnership and will no longer be a Partner as of the effective date of such withdrawal. See “Payments on Retirement” below. A partially withdrawing Limited Partner will generally be paid within 30 days; provided, however, that if a Limited Partner withdraws at least 90% of its capital account, it will be paid in the same manner as a fully retiring Limited Partner (i.e., at least 90% of the withdrawal amount will be paid within 30 days with the balance to be paid after a final determination of the value of all of the capital accounts in the Partnership, which may be after the completion of the Partnership's annual audit).

The General Partner, in its sole discretion, may waive or modify the conditions relating to withdrawals for Limited Partners, including those that are members, employees or affiliates of the General Partner, relatives of such persons, and for certain large or strategic investors.

The General Partner may withdraw all or any portion of its capital account on the last day of each calendar quarter.

Delay in Payment on Withdrawal or Retirement

Notwithstanding the foregoing, in the event that aggregate withdrawal requests from Limited Partners in the Partnership as of a certain withdrawal date exceed 25% of the net asset value of the Partnership (the “Withdrawal Limit”), the amount of each Limited Partner’s withdrawal may be reduced pro rata such that the aggregate amount of the withdrawal proceeds as of such withdrawal date is less than the Withdrawal Limit. If a Limited Partner’s withdrawal is reduced by the Withdrawal Limit, it will be paid as of the next withdrawal date (i.e., the last day of the next calendar quarter) subject to the Withdrawal Limit until the request has been satisfied in full. Withdrawal requests that have been carried forward from an earlier withdrawal date (and that have not been withdrawn by the Limited Partner) will have priority over subsequent requests, with earlier unsatisfied withdrawal requests retaining priority over subsequent unsatisfied requests.

Notwithstanding anything to the contrary herein, if, on the date of a withdrawal by a Limited Partner, assets of the Partnership are invested with an Investment Vehicle that does not permit, or delays payment with respect to, withdrawals on such date, then in the sole discretion of the General Partner (i) payment to the Limited Partner of the portion of its requested withdrawal attributable to the Partnership's investment with such Investment Vehicle shall be delayed until such time as the Investment Vehicle permits withdrawals or payment is made by such Investment Vehicle and (ii) the amount otherwise due the Limited Partner shall be

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increased or decreased to reflect the performance of the particular Investment Vehicle through the date on which the withdrawal from the Investment Vehicle is effected to the extent provided for in the particular Investment Vehicle's documentation, and shall also be decreased to reflect the Fees accrued during this period of delay.

Mandatory Withdrawals

The General Partner, in its sole discretion, may require any Limited Partner to withdraw all or any part of its capital account from the Partnership at any time on not less than 5 days' notice, such withdrawal to be effective on the date specified in such notice.

Death, Bankruptcy or Legal Incapacity of a Partner

In the event of the death, bankruptcy or legal incapacity of a Partner, the estate or legal representative of such Partner will succeed to the Partner's right to share in net profits or net losses of the Partnership and to receive distributions from the Partnership. The estate or representative may, in the sole discretion of the General Partner, be paid as of the end of the fiscal year during which the Partner died or became bankrupt or legally incapacitated, the value of such Partner's capital account as of the end of such year in liquidation of the Partner's interest in the Partnership. Alternatively, the General Partner may, in its sole discretion, admit the estate or representative to the Partnership as a Limited Partner.

Payments on Retirement

A Partner retiring in accordance with the Partnership Agreement will be entitled to receive an amount equal to the value of his capital account as of the date of his retirement, and the estate or legal representative of any deceased, bankrupt or legally incapacitated Partner may, in the sole discretion of the General Partner, be paid the value of such Partner's capital account as of the end of the fiscal year during which such Partner died or became bankrupt or incapacitated.

The Partnership will generally distribute to a retiring Partner at least 90% of its capital account within 30 days of the date of such Partner's retirement or the end of the fiscal year, as the case may be. Promptly after the General Partner has determined the capital accounts of the Partners as of such date (which, in the General Partner's sole discretion, may be after the Partnership's annual audit), the Partnership will pay to the retiring Partner or his representative the excess, if any, of the amount to which such Partner is entitled over the amount previously paid, or such Partner will be obligated to pay to the Partnership the excess, if any, of the amount previously paid over the amount to which such Partner is entitled, in each case without interest thereon. The payment to a retiring Partner of his capital account will be subject to the retention of a reserve for Partnership liabilities, as provided in the Partnership Agreement. If the reserve (or a portion thereof) is later determined by the General Partner to have been in excess of the amount required, the proportionate amount of the excess will be returned to the retired Partner without interest thereon.

Suspension of Withdrawals

The General Partner may suspend (in whole or in part) the calculation of net asset value of the Partnership, the right of Limited Partners to make withdrawals and/or the payout of withdrawal proceeds during any period when:

(a) any market or exchange on which a substantial part of securities owned by the Partnership are traded is closed, otherwise than for ordinary holidays, or dealings thereon are restricted or suspended;

(b) there exists any state of affairs that constitute a state of emergency or period of extreme volatility or illiquidity as a result of which (i) disposal of some or all of the investments of the Partnership would not be reasonably practicable or cannot be completed in a timely fashion to meet withdrawal requirements and might seriously prejudice the Limited Partners or (ii) it is not reasonably practicable for the Partnership to determine fairly the value of some or all of its net assets;

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(c) there is a breakdown in the means of communication normally employed in determining the prices of a substantial part of the investments of the Partnership;

(d) none of the requests for withdrawals that have been made may be lawfully satisfied by the Partnership in U.S. dollars; or

(e) in its sole judgment, a material adverse change or disruption has occurred in the financial, banking or capital markets generally, which has had or could reasonably be expected to have a material adverse effect on the Partnership.

Payments in Cash or in Kind

Payments to a Limited Partner on withdrawal or retirement may be made in cash or, in the sole discretion of the General Partner, in securities or other property (which may include short positions, as well as long positions) selected by the General Partner, or partly in cash and partly in securities, or other property (which may include short positions, as well as long positions) selected by the General Partner. In the event of a distribution in kind, the General Partner may distribute more than a Limited Partner’s pro rata share of any one security or other property. In-kind distributions may be made directly to the withdrawing Partner or, alternatively, in certain limited circumstances, distributed into a liquidating trust or account and sold for the benefit of such withdrawing Partner, in which case (i) payment to such Partner of that portion of his withdrawal attributable to such securities or other property will be delayed until such time as such securities or other property can be liquidated, and (ii) the amount otherwise due such Partner will be increased or decreased to reflect the performance of such securities or other property through the date on which the liquidation of such securities or other property is effected and any applicable expenses or Fees. In kind distributions need not be made on a pro rata basis in the sole discretion of the General Partner.

Valuation

Partnership investments will generally be valued based on information provided by Portfolio Managers and the Investment Vehicles unless the General Partner has reason to believe such information is inaccurate and determines that another valuation is more appropriate.

To the extent that investments are held directly, the market value of positions in securities shall be as follows: securities that are listed on an exchange or the NASDAQ Global Market and are freely transferable shall be valued at their last sale price on such exchange during the regular or primary trading session on the date of determination or "official closing price" (if applicable), or, if no sales occurred on such day, at the "bid" price at the close of business on such day if held long and at the "asked" price at the close of business on such day if sold short. Securities traded over the counter and not listed on the NASDAQ Global Market that are freely transferable shall be valued at the last sale price on the date of determination, or, if no sales occurred on such day, at the "bid" price at the close of business on such day if held long and at the "asked" price at the close of business on such day if sold short. Options that are listed on a national options exchange shall be valued at their last sale price on the principal market on which such options shall have traded on such date; provided, however, that if the last sale price of such options does not fall within the last “bid” and “asked” price for such options on such date, the options will be valued at the mean between the last “bid” and “asked” price for such options on such date by the General Partner. The market value of a commodity future, forward or similar contract or any option on any such instrument traded on an exchange shall be the most recent available closing quotation on such exchange; provided, that if the General Partner determines that such closing price does not accurately reflect market value due to price limit constraints, such contract or option shall be valued at fair market value as determined by the General Partner. Notwithstanding the foregoing, if in the reasonable judgment of the General Partner, in its sole discretion, the valuation methodology set forth above is not appropriate or market quotations for a security are unavailable, unreliable or not reflective of the security's market value, the General Partner shall determine the fair value of the security by taking into account such factors as it deems relevant. It is a general policy that wherever practicable, and in any event during any periods when the Partnership is subject to ERISA, investment valuations will be based on financial information independent of the General Partner.

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Securities contributed to the Partnership shall be treated as if purchased by the Partnership at market value on the date of contribution, and securities distributed from the Partnership shall be treated as if sold by the Partnership at market value on the date of distribution.

All other assets and liabilities of the Partnership shall be valued in the manner determined by the General Partner.

11. BROKERAGE AND CUSTODY

The Portfolio Managers and the General Partner, to the extent that the General Partner invests directly in securities on behalf of the Partnership, are authorized to determine the broker or dealer to be used for each securities transaction for the Partnership. Except for investments made directly in securities by the General Partner on behalf of the Partnership, the Partnership and the General Partner have no direct control over the selection of brokers. It is not the General Partner's practice and it may not be the practice of the Portfolio Managers to negotiate “execution only” commission rates, thus the Partnership may be deemed to be paying for research, brokerage or other services provided by the broker which are included in the commission rate. In selecting brokers or dealers to execute transactions, a Portfolio Manager or the General Partner need not solicit competitive bids and do not have an obligation to seek the lowest available commission cost.

Section 28(e) of the Securities Exchange Act of 1934, as amended, is a “safe harbor” that permits an investment manager to use commissions or “soft dollars” to obtain research and brokerage services that provide lawful and appropriate assistance in the investment decision-making process. The General Partner will limit the use of “soft dollars” to obtain research and brokerage services to services that constitute research and brokerage within the meaning of Section 28(e). Research services within Section 28(e) may include, but are not limited to, research reports (including market research); certain financial newsletters and trade journals; software providing analysis of securities portfolios; corporate governance research and rating services; attendance at certain seminars and conferences; discussions with research analysts; meetings with corporate executives; consultants’ advice on portfolio strategy; data services (including services providing market data, company financial data, and economic data); advice from brokers on order execution; and certain proxy services. Brokerage services within Section 28(e) may include, but are not limited to, services related to the execution, clearing and settlement of securities transactions and functions incidental thereto (i.e., connectivity services between an investment manager and a broker-dealer and other relevant parties such as custodians); trading software operated by a broker-dealer to route orders; software that provides trade analytics and trading strategies; software used to transmit orders; clearance and settlement in connection with a trade; electronic communication of allocation instructions; routing settlement instructions; post trade matching of trade information; and services required by the SEC or a self regulatory organization such as comparison services, electronic confirms or trade affirmations. Research and brokerage services obtained by the use of commissions arising from the Partnership's and each Investment Vehicle’s portfolio transactions may be used by the General Partner and the applicable Portfolio Managers, respectively, in their other investment activities and thus, the Partnership may not necessarily, in any particular instance, be the direct or indirect beneficiary of the research or brokerage services provided.

While the General Partner will limit the use of “soft dollars” to obtain research and brokerage services to services which constitute research and brokerage within the meaning of Section 28(e), the Portfolio Managers may not so limit their use of “soft dollars”. Accordingly, Portfolio Managers may also be paying for services other than brokerage or research which are included in the commission rate. These other services may include, without limitation, office space, facilities and equipment; administrative and accounting support; investment personnel; supplies and stationery; telephone lines, usage and equipment and other items which might otherwise be treated as an expense of the Portfolio Manager. To the extent a Portfolio Manager uses commissions to obtain items that would otherwise be an expense of the Portfolio Manager, such use of commissions in effect constitutes additional compensation to the Portfolio Manager. Certain of the foregoing commission arrangements are outside the parameters of Section 28(e).

Even in instances where a Portfolio Manager limits its use of commissions to obtain research and

brokerage services within the meaning of Section 28(e), in some instances, the Portfolio Manager or the

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General Partner may receive a product or service that may be used only partially for functions within Section 28(e) (e.g., an order management system, trade analytical software or proxy services). In such instances, the General Partner will, and it is expected that such Portfolio Managers will also, make a good faith effort to determine the relative proportion of the product or service used to assist it in carrying out its investment decision-making responsibilities and the relative proportion used for administrative or other purposes outside Section 28(e). The proportion of the product or service attributable to assisting the General Partner or such Portfolio Managers in carrying out their investment decision-making responsibilities will be paid through brokerage commissions generated by client transactions and the proportion attributable to administrative or other purposes outside Section 28(e) will be paid for by the General Partner or the Portfolio Managers from their own resources.

Although the General Partner will make a good faith determination that the amount of

commissions paid is reasonable in light of the products or services provided by a broker, commission rates are generally negotiable and thus, selecting brokers on the basis of considerations that are not limited to the applicable commission rates may result in higher transaction costs than would otherwise be obtainable. The receipt of such products or services and the determination of the appropriate allocation in the case of “mixed use” products or services creates a potential conflict of interest between the General Partner and its clients.

In selecting brokers and negotiating commission rates, the General Partner will, and it is expected that the Portfolio Managers will also, take into account the financial stability and reputation of brokerage firms, and the research, brokerage or other services provided by such brokers. The General Partner and the Portfolio Managers may place transactions with a broker or dealer that refers investors to the Partnership or the applicable Investment Vehicles, respectively, or other products advised by the General Partner or the Portfolio Managers if otherwise consistent with seeking best execution, provided the General Partner and the Portfolio Managers are not selecting the broker-dealer in recognition of its referral of investors.

The Partnership maintains accounts at Signature Bank and Deutsche Bank National Trust Company. The Partnership reserves the right, in its sole discretion, to change its brokerage and custodial arrangements without further notice to the Limited Partners.

12. TAXATION

Federal Taxation

The Partnership has been advised by its counsel, Seward & Kissel LLP, that, under present law, the Partnership will be treated as a partnership and will not be a taxable entity for Federal income tax purposes. Instead, each Limited Partner will be required to take into account for each fiscal year, for purposes of computing his own income tax, his proportionate share of the various items of taxable income or loss allocated to him pursuant to the Partnership Agreement, whether or not any income is paid out to him. The manner in which such items of taxable income or loss are allocated among the Partners is set forth in Article VII of the Partnership Agreement. Such items of taxable income or loss will be required to be taken into account in the taxable year of the Limited Partner in which the fiscal year of the Partnership ends.

Under Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”), a partnership that meets the definition of a “publicly traded partnership” may be taxable as a corporation. It is expected that the Partnership will not be treated as a “publicly traded partnership”. If the Partnership were taxed as a corporation, the Partnership's income would be subject to corporate income tax, which would significantly reduce the return that an investor would derive from the Partnership.

Under the Partnership Agreement, the General Partner will have the discretion to allocate specially an amount of the Partnership’s taxable gains or losses to a retiring Partner to the extent that the Partner’s capital account exceeds, or is less than, his Federal income tax basis in his Interest. There can be no assurance that the Internal Revenue Service (the “IRS”) would accept such a special allocation. If the special allocation was successfully challenged by the IRS, the Partnership’s taxable gains or losses allocable to the remaining Partners would be increased.

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Some of the investment partnerships in which the Partnership invests may be considered for Federal income tax purposes to be “traders” in securities, and some may be considered to be “investors” in securities. Accordingly, the Partnership intends to take the position on its Federal income tax return that each Limited Partner who is an individual (i) may deduct his share of the expenses (other than interest expense) of the “trader” partnerships as business expenses under Code Section 162, and (ii) may deduct his share of expenses (other than interest expense) of the “investor” partnerships as investment expenses under Code Section 212. Those expenses which flow through to the Limited Partners as investment expenses deductible under Code Section 212 will be deductible by an individual only to the extent that such expenses, when combined with other “miscellaneous itemized deductions”, exceed 2% of the adjusted gross income of the individual taxpayer. Further, the amount in excess of such 2% floor is subject to the overall limitation on itemized deductions imposed by Code Section 68. Also, the amount in excess of such 2% floor is not deductible in computing the alternative minimum tax for an individual taxpayer. The Partnership also will be required to determine whether expenses it incurs directly (e.g., the Fees) are business expenses or investment expenses subject to the foregoing limitations on deductibility. In this regard, the IRS has issued a revenue ruling expressing its view that the management fee paid to the manager of a “fund of funds” is an investment expense that is subject to the foregoing limitations on deductibility. Payments made with respect to notional principal contracts, such as swaps, may be subject to the foregoing limitations on deductibility. Expenses connected with the marketing and issuing of Interests are not deductible.

For Federal income tax purposes, interest expense of the Partnership and the investment partnerships in which it invests generally will be considered "investment interest." Subject to certain limited exceptions, investment interest is deductible by an individual only to the extent of his net investment income (which for this purpose generally does not include net long-term capital gains or "qualified dividend income"). Investment interest that is not deductible in any taxable year because of this limitation may be carried forward to the succeeding taxable year.

The income, gains, losses and deductions of the Partnership generally will not be from a “passive activity” within the meaning of Code Section 469, and therefore (i) the deduction by a Limited Partner of his share of the losses or deductions of the Partnership generally will not be restricted under Code Section 469, and (ii) a Limited Partner who is an individual will not be able to offset losses or deductions from “passive activities” against his share of income or gain of the Partnership.

Since the Partnership may invest, directly or indirectly, in the securities of foreign issuers, the Partnership’s income may be subject to foreign income taxes, including withholding taxes. A Limited Partner may elect either to deduct his share of such foreign taxes in computing his Federal taxable income or treat his share of such foreign taxes as a credit against Federal income taxes, subject to certain limitations. No deduction for foreign taxes may be claimed by an individual who does not itemize deductions.

The Partnership may invest in certain foreign entities that will be “passive foreign investment companies” (“PFICs”) for Federal income tax purposes. Under the PFIC rules, unless the Partnership makes the election described below, any gain realized on the sale or other disposition of shares in a PFIC generally will be treated as ordinary income and subject to tax as if (i) the gain had been realized ratably over the Partnership’s holding period and (ii) the amount deemed realized had been subject to tax in each year of that holding period at the highest applicable tax rate and, in addition to the tax, an interest charge at the rate generally applicable to underpayments of tax will be imposed. The Partnership may elect, provided the PFIC complies with certain reporting requirements, to have a PFIC in which the Partnership invests treated as a “qualified electing fund”, in which case the Partnership would include annually in its gross income its pro rata share of the PFIC’s net ordinary income and net realized capital gains, whether or not such amounts are actually distributed to the Partnership. Any net operating losses or net capital losses of the PFIC will not pass through to the Partnership and will not offset any ordinary income or capital gains of the PFIC reportable to the Partnership in subsequent years (although such losses would ultimately reduce the gain, or increase the loss, recognized by the Partnership on its disposition of its shares in the PFIC). There can be no assurance that the Partnership will be able to make a “qualified electing fund” election with respect to a PFIC in which it invests. Limited Partners may be subject to IRS reporting requirements with respect to the Partnership’s investments in PFICs.

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The character and timing of the Partnership's taxable gains and losses may be affected by various Code provisions, including those applicable to Section 1256 contracts, foreign currency transactions, straddles, wash sales, short sales, and notional principal contracts.

The Investment Vehicles in which the Partnership invests (and the Partnership itself) may use leverage in connection with their activities. In this regard, a tax-exempt entity will generally be subject to tax on the portion of its share of the Partnership’s profits attributable to the use of certain leverage. Such portion will be considered “debt-financed income” and will be taxable as “unrelated business taxable income” under the Federal income tax law. The law is not entirely clear, however, as to the proper way to determine what portion of a tax-exempt entity’s share of the Partnership’s profits is attributable to the use of leverage and therefore “debt-financed income.” The Partnership will obtain from the Investment Vehicles in which it invests a calculation of the debt-financed income generated by such Investment Vehicles and, based upon those calculations, the Partnership annually will provide each tax-exempt entity with a report indicating such tax-exempt entity’s share of the Partnership’s debt-financed income. However, there can be no assurance that the IRS will accept the method of computation utilized by the Partnership and the Investment Vehicles.

The IRS has released final Treasury Regulations expanding previously existing information reporting, record maintenance and investor list maintenance requirements with respect to certain "tax shelter" transactions (the "Tax Shelter Regulations"). The Tax Shelter Regulations may potentially apply to a broad range of investments that would not typically be viewed as tax shelter transactions, including investments in investment partnerships and portfolio investments of investment partnerships. Under the Tax Shelter Regulations, if the Partnership or an Investment Vehicle engages in a “reportable transaction,” the Partnership and, under certain circumstances, a Limited Partner would be required to (i) retain all records material to such “reportable transaction”; (ii) complete and file IRS Form 8886, "Reportable Transaction Disclosure Statement" as part of its Federal income tax return for each year it participates in the "reportable transaction"; and (iii) send a copy of such form to the IRS Office of Tax Shelter Analysis at the time the first such tax return is filed. The scope of the Tax Shelter Regulations may be affected by further IRS guidance. Non-compliance with the Tax Shelter Regulations may involve significant penalties and other consequences. Each Limited Partner should consult his own tax advisers as to his obligations under the Tax Shelter Regulations.

The Bipartisan Budget Act of 2015 changes partnership audit provisions effective for partnership tax years beginning after December 31, 2017. In general, under these provisions, if it is determined that the Partnership underreported income in a prior year (the “reviewed year”), the Partnership would have the option either to (i) have the Partnership itself pay any tax due in the “adjustment year” (generally, the year in which the adjustment becomes final) or (ii) issue statements to the Partners for the reviewed year, which statements would indicate such Partners’ share of the adjustment. The General Partner will have the authority to make this determination on behalf of the Partnership. If the Partnership chooses the first option, a Partner may bear the economic burden for taxes that are attributable to a period prior to such Partner’s admission to the Partnership or in a different amount due to such Partner’s varying percentage interest in the Partnership during the period to which the taxes relate. If the Partnership chooses the second option, each Partner’s tax for the taxable year which includes the date the statement was furnished would be increased by the adjustment amount, subject to various adjustments. In either case, interest (and possibly penalties) also would apply.

New York State Taxation

If the Partnership were considered to have income from New York sources, the Partnership would be required to withhold New York State income tax with respect to income allocable to Limited Partners who are not residents of New York. Assuming that the activities of the Partnership and each Investment Vehicle consist solely of purchasing and selling securities for its own account and not as a dealer, none of the Partnership’s income should be treated as New York source income. If the Partnership or an Investment Vehicle engages in business activities, rather than merely purchasing and selling securities for its own account, the Partnership may be required to pay such tax. If the Partnership is required to pay such tax, a nonresident Limited Partner should be eligible for a credit equal to the portion of the tax paid by the Partnership attributable to such Limited Partner’s share of the Partnership’s income if such Limited Partner files a New York State income tax return.

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Other State and Local Taxation

The Partnership and Limited Partners may be subject to state and local taxes and filing requirements in jurisdictions in which the Portfolio Managers conduct their activities.

General

The advice from Seward & Kissel LLP on Federal and New York State tax matters is based on the assumption that the Partnership will be organized and operated in the manner contemplated by the General Partner and as described in this Memorandum and the Partnership Agreement and under present provisions of the laws and regulations issued thereunder and the cases and rulings interpreting such laws and regulations. There can be no assurance that the positions the Partnership takes on its tax returns, with respect to expenses or otherwise, will be accepted by the IRS or the New York taxing authorities.

As promptly as practicable after the end of each fiscal year, the Partnership will send to each Limited Partner a report indicating the amounts representing his respective share of net long-term capital gain or loss, net short-term capital gain or loss, operating profit or loss, and other appropriate items of income and deduction for purposes of reporting such amounts for Federal income tax purposes. The Partnership’s ability to provide timely tax information to the Limited Partners is dependent upon the Partnership’s receipt of timely information from the Investment Vehicles. Accordingly, Limited Partners should be prepared to file for extensions with the relevant Federal, state and local taxing authorities.

The tax consequences of an investment in the Partnership may vary depending upon the particular circumstances of each prospective Limited Partner. Accordingly, each prospective Limited Partner should consult his own tax advisers with respect to the effect of an investment in the Partnership on his personal tax situation and, in particular, the state and local tax consequences to him of an investment in the Partnership.

Tax-exempt entities should review with their tax advisers the discussion above regarding unrelated business taxable income and debt-financed income and any tax and/or filing obligation they may have with respect to unrelated business taxable income. Tax-exempt entities should also consult their tax advisers with regard to the unrelated business taxable income issues that may arise upon the disposition of their Interests. In a private ruling, the IRS has taken the position that a portion of the gain realized from the sale (e.g., withdrawal) of a partnership interest by a tax-exempt entity is debt-financed income when the partnership uses borrowed funds to purchase property even though the tax-exempt entity did not use borrowed funds to purchase its partnership interest.

A Limited Partner (and each employee, representative, or other agent of the Limited Partner) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of an investment in the Partnership and all materials of any kind (including opinions or other tax analyses) that are provided to the Limited Partner relating to such tax treatment and tax structure.

13. ERISA AND RETIREMENT PLAN MATTERS

The following is a summary of certain aspects of laws and regulations applicable to retirement plan investments as in existence on the date hereof, all of which are subject to change. This summary is general in nature and does not address every issue that may be applicable to the Partnership or a particular investor.

The Partnership may accept subscriptions from pension and profit-sharing plans maintained by U.S. corporations and/or unions, individual retirement accounts and Keogh plans, entities that invest the assets of such accounts or plans and other entities investing plan assets (all such entities are herein referred to as “Benefit Plan Investors”) as well as subscriptions from plans maintained by governmental entities, churches and non-U.S. companies. It is anticipated that, at various times, participation by Benefit Plan Investors in the Partnership may be significant and result in the Partnership’s assets being subject to Title I of ERISA and/or Section 4975 of the Code.

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Certain duties, obligations and responsibilities are imposed on persons who serve as fiduciaries with respect to employee benefit plans or accounts; for example, ERISA and the Code prohibit acts of fiduciary self-dealing and certain transactions between a “plan” and “parties-in-interest” or “disqualified persons” (as such terms are defined in ERISA and the Code). In the Partnership’s Subscription Agreement, each plan and account investor will be required to represent that the person who is making the decision to invest in the Partnership (its “Fiduciary”) is independent and has not relied on any advice from the Partnership, the General Partner, any placement agent associated with the Partnership, or any of their affiliates with respect to the investment in the Partnership. Fiduciaries will also be asked to determine (i) that the investment in the Partnership is prudent, (ii) that the structure, incentives and operation of the fee arrangements have been adequately disclosed, further the interests of the investors and provide reasonable compensation to the General Partner, (iii) that the calculation of the value of a capital account as described in the Partnership Agreement represents the fair market value of a limited partnership interest; (iv) that the investor’s current and anticipated liquidity needs will be met, given the limited rights to withdraw from the Partnership or transfer a limited partnership interest, (v) that the investment will permit the investor’s overall portfolio to remain adequately diversified, and (vi) that the investment in the Partnership and investment program described in this Memorandum are permitted under the laws, rules and documents governing the investor. Accordingly, Fiduciaries should consult their own investment advisors and their own legal counsel regarding the investment in the Partnership and its consequences under applicable law, including ERISA and the Code.

Generally, when a benefit plan invests in another entity, the plan’s assets include its investment, but do not, solely by reason of its investment, include any of the underlying assets of an entity. However, the U.S. Department of Labor issued the regulation at 29 C.F.R. §2510.3-101, as modified in application by Section 3(42) of ERISA (the “the Plan Assets Regulation”) which defines the circumstances under which this general rule does not apply with respect to plans or accounts subject to Title I of ERISA and/or Section 4975 of the Code (a “Plan”). In those circumstances, an investment in an entity, such as the Partnership, by a Plan includes both its investment in the entity and an undivided interest in each of the underlying assets of the entity. Therefore, any person who exercises authority or control regarding the management or disposition of the underlying assets of that entity is a fiduciary to each Plan investing in the entity directly or indirectly through a Benefit Plan Investor. Under the Plan Assets Regulation, the underlying assets of the Partnership will be deemed to be plan assets if participation by Benefit Plan Investors in the Partnership equals or exceeds 25% or more of any class of equity interests, excluding from this calculation any non-Benefit Plan Investor interests held by the General Partner and certain affiliated persons and entities (the “25% Threshold”). The 25% Threshold is mechanical and is calculated after each contribution or redemption of any equity interest.

The General Partner anticipates that, at various times, participation by Benefit Plan Investors in the Partnership may equal or exceed the 25% Threshold. During these periods and to the extent that the General Partner exercises discretion with respect to the Partnership’s assets, the General Partner will be a fiduciary to each Plan investing in the Partnership directly or indirectly through a Benefit Plan Investor. ERISA provides that a fiduciary may delegate its fiduciary duties (other than trustee duties) to "investment managers" (as defined in Section 3(38) of ERISA). The General Partner meets the requirements to be an investment manager; it is registered as an investment adviser under the Advisers Act and the General Partner, as the general partner to the Partnership, acknowledges its status as a fiduciary with respect to each Plan investing in the Partnership directly or indirectly through a Benefit Plan Investor during any period when the Partnership equals or exceeds the 25% Threshold. Provided the procedures under the Plan’s documents are followed, the Fiduciary authorizing investment and thereby appointing the General Partner as an investment manager will not be liable for any fiduciary breaches the General Partner may commit, unless the appointing Fiduciary knowingly participates in or knowingly conceals the breach. As with any Plan investment, Fiduciaries must prudently select and monitor the continuing performance of the General Partner and will be liable for failing to exercise their fiduciary duties in this regard.

The Partnership may invest with Portfolio Managers who are managing assets that are also deemed to be plan assets within the meaning of the Plan Assets Regulation. In this regard and, during any period when the assets of the Partnership equal or exceed the 25% Threshold, an investment in the Partnership by a Plan subject to Title I of ERISA (an “ERISA Plan”) directly or indirectly through a Benefit Plan Investor shall constitute the appointment of the General Partner as either (i) an “investment manager” with the authority to appoint Portfolio Managers who are managing plan assets as “investment managers”

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for such ERISA Plan, to the extent of such ERISA Plan’s investment in the Partnership or (ii) as a named fiduciary for the limited purpose of appointing Portfolio Managers who are managing plan assets as “investment managers” for such ERISA Plan to the extent of such ERISA Plan’s investment in the Partnership. If the General Partner is appointed as named fiduciary, such appointment is limited to appointing other Portfolio Managers with respect to the assets of ERISA Plan that are invested in the Partnership and allocating to Portfolio Managers investment authority over such assets. The other named fiduciaries of ERISA Plan investors retain all other fiduciary responsibilities, duties and obligations imposed upon named fiduciaries under ERISA.

During any period when it is a fiduciary to a Plan investor, the General Partner, under Section 406 of ERISA and Section 4975(c)(1) of the Code, will be prohibited from causing the Partnership to engage in certain transactions with "parties in interest" or "disqualified persons". The definitions of the terms "party in interest" and "disqualified person" are substantially similar, and include a Plan’s fiduciaries, service providers, sponsors and other parties having relationships to such persons. Among the transactions which are prohibited are sales and leasing of property, extensions of credit and the furnishing of services between the Partnership and a party in interest or a disqualified person to a Plan investor. In addition, ERISA and the Code prohibit fiduciaries from engaging in acts of self-dealing in transactions involving Plan assets. In order to enable the Partnership to comply with the prohibited transaction rules under ERISA and the Code, each Plan investor is required to deliver to the General Partner, in writing, all of the information that the General Partner may require or request in order to avoid violations of any provisions of ERISA or any other laws applicable to the investor, and to notify the General Partner, promptly and in writing, of any change in the information so furnished.

While the prohibited transaction rules may restrict the Partnership from engaging in certain transactions in which it might otherwise engage if it were not subject to such rules, both ERISA and the Code contain various exemptions from the prohibited transaction rules that will permit the General Partner to conduct the business of the Partnership. Among these prohibited transaction exemptions are an exemption for reasonable arrangements with a party in interest or disqualified person for necessary services, an exemption for transactions with service providers for adequate consideration, an exemption for securities lending transactions and an exemption for qualified professional asset managers (“QPAMs”). The U.S. Department of Labor Prohibited Transaction Exemption 84-14, as amended (the “QPAM Exemption”) generally permits transactions with most parties in interest and disqualified persons if such transactions are entered into on behalf of a Plan investor by a QPAM. The General Partner will meet the requirements to qualify as a QPAM during any period when the Partnership equals or exceeds the 25% Threshold.

When the Partnership invests with a Portfolio Manager that does not manage “plan assets”, the application of ERISA may result in a Portfolio Manager mandatorily redeeming the Partnership’s investment or the General Partner may determine, due to ERISA concerns, to withdraw an investment held by a Portfolio Manager before it would otherwise do so. If, however, the Partnership invests with a Portfolio Manager that manages “plan assets”, the General Partner will use its reasonable best efforts to ensure that during any period when the Partnership is subject to ERISA, it will only invest in Investment Vehicles where (i) the assets of the entity that is making portfolio investments do not constitute plan assets subject to ERISA or (ii) where the Portfolio Manager of that entity is a QPAM.

If the U.S. Department of Labor or the Internal Revenue Service determines that any transaction entered into by the Partnership constitutes a non-exempt prohibited transaction, the party in interest or disqualified person involved in the transaction would be liable to pay an excise tax and the General Partner would also be required to correct the prohibited transaction by rescinding the transaction and restoring to the Plan any loss resulting from such prohibited transaction.

All ERISA Plans are required to file annual reports with the U.S. Department of Labor (Form 5500) setting forth the fair market value of all ERISA Plan’s assets. Under ERISA’s general reporting and disclosure rules, ERISA Plans are required to include information regarding their assets, expenses and liabilities. The General Partner will provide any information requested to complete its annual report. ERISA Plans are also required to make a determination that the Partnership-related compensation paid to the General Partner and its affiliates is “reasonable” within the meaning of Section 408(b)(2) of ERISA. The regulation at 29 C.F.R. §2550.408b-2 (the “408(b)(2) Regulation”) provides that in order for such

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compensation to be “reasonable”, certain prospective disclosures must be made by the General Partner to ERISA Plan investors. To facilitate a plan administrator’s compliance with these requirements, it is noted that the descriptions of the fees and expenses (including but not limited to the Management Fee and the Administration Fee) contained in this Memorandum, the General Partner’s Form ADV and the Partnership’s audited financial statements and the notes thereto are intended to satisfy (i) the alternative reporting option for “eligible indirect compensation” on Schedule C of Form 5500 and (ii) the disclosure requirements of the 408(b)(2) Regulation. The General Partner will, upon written request, furnish any other information relating to the General Partner’s compensation received in connection with the Partnership that is required for such ERISA investor to comply with the reporting and disclosure requirements of Title I of ERISA and the regulations, forms and schedules issued thereunder. The General Partner may, in its sole discretion, elect to utilize the alternative filing method provided for in regulations promulgated by the U.S. Department of Labor with respect to Form 5500, in which case each ERISA Plan investor consents to the disclosure required to be made in such filing.

To protect ERISA Plans against loss as a result of fiduciary misconduct, Section 412 of ERISA requires that certain ERISA Plan fiduciaries be bonded. The General Partner intends to comply with the bonding requirements of ERISA.

Section 403(a) of ERISA generally requires that all assets of ERISA Plans be held in trust; however, while the assets of the Partnership may at times be deemed plan assets, the U.S. Department of Labor regulations provide that the holding in trust requirement is satisfied for entities such as the Partnership if the indicia of a Plan’s ownership of an interest in the Partnership is held in trust by the Plan's trustees. Plan investors will be required to represent in the Subscription Agreement that the Subscription Agreement represents the investing Plan’s indicia of ownership in the Partnership for purposes of Section 403(a) of ERISA and that the Subscription Agreement will be held in trust by the Plan’s trustee or custodian. The General Partner will maintain the indicia of ownership of the Partnership’s assets within the jurisdiction of the U.S. district courts as required by Section 404(b) of ERISA and the regulations thereunder.

Benefit plans maintained by governmental entities, churches and non-U.S. companies are not subject to Title I of ERISA or Section 4975 of the Code. However, federal, state or local laws or regulations governing the investment and management of the assets of such plans may contain fiduciary and prohibited transaction requirements similar to those under ERISA and the Code discussed above and may include other limitations on permissible investments. Accordingly, fiduciaries of governmental, church and non-U.S. plans, in consultation with their advisors, should consider the requirements of any applicable law or regulation specifically applicable to governmental, church or non-U.S. plans (“Similar Law”) with respect to investments in the Partnership, as well as the ERISA fiduciary considerations discussed above. The fiduciary of each prospective governmental, church or non-U.S. plan investor will be required to represent and warrant that the investment in the Partnership and the investment program described in this Memorandum is permissible, has been duly authorized, complies in all respects with applicable Similar Law and either (i) the investment will not subject the Partnership’s assets to any applicable Similar Law or (ii) that by complying with the provisions of ERISA during any period it is acting as an ERISA fiduciary, the General Partner will also have complied with any applicable Similar Law.

14. OTHER PROVISIONS OF THE LIMITED PARTNERSHIP AGREEMENT

Term of the Partnership. The Partnership will continue from year to year unless dissolved as provided in the Partnership Agreement.

Liability of Partners and Indemnification of the General Partner and Others. The General Partner is liable to creditors for the debts of the Partnership. However, none of the General Partner, Portfolio Managers or their respective directors, members, partners, shareholders, officers, employees, agents or affiliates, or any person designated to wind up the affairs of the Partnership pursuant to the Partnership Agreement will be liable to the Partnership, Limited Partners or any other person for any loss (including losses due to trading error) or cost arising out of, or in connection with, any activity undertaken (or omitted to be undertaken) in fulfillment of any obligation or responsibility under the Partnership Agreement, including any such loss sustained by reason of any investment or the sale or retention of any security or other asset of

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the Partnership, except for any liability arising from losses caused by his, her or its gross negligence, willful misconduct or violation of applicable laws (including Title I of ERISA, to the extent applicable).

The Partnership will, to the fullest extent legally permissible under the laws of the State of Delaware, indemnify and hold harmless the General Partner, Portfolio Managers, each of their respective directors, members, partners, shareholders, officers, employees, agents and affiliates and any persons designated to wind up the affairs of the Partnership pursuant to the Partnership Agreement (each, an "Indemnitee") against any and all loss (including losses due to trading error), liability and expense (including, without limitation, judgments, fines, amounts paid or to be paid in settlement and reasonable attorneys' fees and expenses) incurred or suffered by the Indemnitee in connection with the good faith performance by the Indemnitee of his, her or its responsibilities to the Partnership; provided, however, that an Indemnitee will not be indemnified for losses resulting from his, her or its gross negligence, willful misconduct or violation of applicable laws (including Title I of ERISA, to the extent applicable). To the extent legally permissible, the Partnership will, in the discretion of the General Partner, advance amounts and/or pay expenses as incurred in connection with the Partnership’s indemnification obligation.

A Limited Partner who does not take part in the management or control of the business of the Partnership will not be personally liable for any debt or obligation of the Partnership in excess of his capital account. Under certain circumstances a Limited Partner may, under Delaware law, be required to return, for the benefit of creditors, amounts previously distributed to him.

Amendment of the Partnership Agreement. The Partnership Agreement may be amended by the General Partner, in its sole discretion, (i) in any manner that does not materially adversely affect any Limited Partner, (ii) to create segregated accounts to hold illiquid or restricted investments, or (iii) to effect any changes required by applicable laws or regulations. The Partnership Agreement may also be amended by action taken by both (a) the General Partner and (b) the Limited Partners owning a majority-in-interest of the Capital Accounts of all the Limited Partners of the affected class or series of interests at the time of the amendment, provided that such amendment does not discriminate among the Limited Partners. For purposes of obtaining consent on a proposed amendment, the General Partner may require a response within a specified reasonable time (which shall not be less than fifteen days) and failure to respond shall constitute consent in accordance with the General Partner's recommendation as to the proposed amendment, except as otherwise prohibited by law.

Dissolution of the Partnership. The Partnership may be dissolved at any time by the General Partner, whereupon its affairs will be wound up by the General Partner. The retirement, dissolution, bankruptcy or insolvency of the General Partner will dissolve the Partnership unless (i) at such time there is another general partner who agrees to continue the business of the Partnership, or (ii) an entity controlled by Mark J. Kenyon is substituted as general partner to continue the business of the Partnership. If there is no remaining general partner who agrees to continue the business of the Partnership or an entity controlled by the General Partner is not substituted as general partner, the affairs of the Partnership will be promptly wound up by the General Partner, or if the General Partner is unavailable, by the person previously designated by the General Partner, or if the General Partner has made no such designation, the person selected by a majority in interest of the capital accounts of the Limited Partners. Such person will take all steps necessary or appropriate to wind up the affairs of the Partnership as promptly as practicable.

Neither the admission of Limited Partners nor the retirement, bankruptcy, death, dissolution, or insanity of any Limited Partner will dissolve the Partnership.

Assignability of Interests. Neither the interest of any Limited Partner in the Partnership nor any beneficial interest therein is assignable, in whole or in part, without the prior written consent of the General Partner.

Reports to Partners. The Partners will be advised promptly following the end of each quarter as to the unaudited performance of the Partnership. Monthly estimates of net returns will also be sent to each Partner. The books and records of the Partnership will be audited at the end of each fiscal year by auditors selected by the General Partner, and the Limited Partners will be furnished with audited year-end financial statements (as soon as practicable after received from the auditors) including a statement of profit or loss for

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such fiscal year. The Partnership's financial statements will be prepared using GAAP as a guideline, unless otherwise deemed appropriate in the sole discretion of the General Partner.

The General Partner reserves the right, in its sole discretion, to change the Partnership’s auditors without prior notice to the Limited Partners.

Fiscal Year and Fiscal Periods. The Partnership has adopted a fiscal year ending on December 31. Since Limited Partners may be admitted or required to retire and additional capital contributions or withdrawals may be made during the course of a fiscal year, the Partnership Agreement provides for fiscal periods, which are portions of a fiscal year, for the purpose of allocating net profits and net losses due to changes occurring in capital accounts at such times.

15. ADMINISTRATOR

The Partnership has entered into an agreement (the “Administration Agreement”) with Orangefield Columbus Avenue Consulting LLC (the "Administrator") pursuant to which the Administrator will perform certain day-to-day administrative services for the Partnership, including, but not limited to: (i) calculating the value of the Partnership's net assets, (ii) receiving and processing subscriptions and withdrawals, (iii) calculating the Fees, and (iv) preparing the Partnership’s financial statements for audit purposes.

The Administration Agreement may be terminated by either of the parties upon not less than 90 days’ written notice.

The Administration Agreement provides that the Administrator will not be liable to the Partnership for any loss suffered by the Partnership in connection with the matters to which the Administration Agreement relates, except, as to any loss arising out of or in connection with the willful misconduct, fraud, gross negligence or a material violation of law by the Administrator in the performance of its duties. Additionally, the Partnership shall indemnify and hold harmless the Administrator from and against all expenses, costs, losses, claims, damages, causes of action or liabilities which may arise out of or in connection with the Administration Agreement, except any expense, cost, loss, claim, damage, cause of action or liability directly resulting from willful or reckless misconduct, fraud or gross negligence or a material violation of law by the Administrator. 16. PROCEDURES FOR BECOMING A LIMITED PARTNER

In order to become a Limited Partner, a prospective Limited Partner should: (i) complete and execute a copy of the Subscription Agreement, inserting the amount of such Limited Partner's capital contribution, such Limited Partner's residence address and his taxpayer identification or social security number; (ii) complete and execute a copy of the signature page of the Partnership Agreement; and (iii) return one copy of each of (i) and (ii) to the General Partner by mail to 500 Summit Lake Drive, Suite 180, Valhalla, New York 10595. A copy of the form of the Subscription Agreement together with the Partnership Agreement is contained in the materials accompanying this Memorandum. Capital contributions shall be made in cash unless the General Partner, in its sole discretion, permits contributions in securities or partly in cash and partly in securities. A prospective Limited Partner who fails to indicate a series of Interest in the Subscription Agreement will be deemed to have selected Series A-1 Interests.

In order to comply with United States and international laws aimed at the prevention of money laundering and terrorist financing, each prospective investor that is an individual will be required to represent in the Subscription Agreement that, among other things, he is not, nor is any person or entity controlling, controlled by or under common control with the prospective investor, a “Prohibited Person” as defined in the Subscription Agreement (generally, a person involved in money laundering or terrorist activities, including those persons or entities that are included on any relevant lists maintained by the U.S. Treasury Department's Office of Foreign Assets Control, any senior foreign political figures, their immediate family members and close associates, and any foreign shell bank). Further, each prospective investor that is an entity will be required to represent in the Subscription Agreement that, among other things, (i) it has carried out thorough due diligence to establish the identities of its beneficial owners, (ii) it reasonably believes that no beneficial owner is a “Prohibited Person”, (iii) it holds the evidence of such identities and status and will maintain such information for at least five years from the date of its complete

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withdrawal from the Partnership, and (iv) it will make available such information and any additional information that the Partnership and/or the Administrator may request. Please be advised that each of the Administrator and the Partnership reserves the right to require additional identifying information of the investor and/or the sources of funds of the investor upon the acceptance and/or processing of a subscription, as applicable. Any delay in providing this information by the investor may delay the process of any application and the Partnership and/or the Administrator may refuse to accept the application in which case any funds received may be returned without interest to the account from which the monies were originally debited.

After receipt of the Subscription Agreement, the General Partner will notify each prospective Limited Partner of the date (the “Admission Date”) by which, and the address to which, such Limited Partner will be required to transmit the amount of such Limited Partner's capital contribution under the Subscription Agreement. Shortly after the Admission Date, the General Partner will return to each new Limited Partner such Limited Partner's copies of the Subscription Agreement and the signature page of the Partnership Agreement as executed by the General Partner.

It is noted that if a broker is instrumental in the sale of an Interest to a particular Partner, the broker may, in certain limited situations, charge such Partner a fully disclosed sales charge. Investors who do not make their capital contribution to the Partnership through such brokers will not be subject to any such sales charge. In no event will any sales charges be payable to the Partnership or the General Partner. It should also be noted that the General Partner may pay fees to persons (whether or not affiliated with the General Partner) who are instrumental in the sale of Interests. Any such fees will in no event be payable by or chargeable to the Partnership or any Limited Partner or prospective Limited Partner.

KSTONE ARV LP SK 26145 0004 6923178 v6