As we previously mentioned in our memorandum dated October 3, 2008, the passage of the Emergency Economic Stabilization Act of 2008 (the “Act”) resulted in the elimination of the ability of U.S. hedge fund managers to defer fee income from offshore funds attributable to services performed on or after January 1, 2009. Accordingly, any offshore fund managers who have been deferring their incentive fees should consider whether to (1) retain an incentive fee structure for their offshore fund, which will result in all such income being paid and taxed on a current basis at the highest marginal rate applicable to such ordinary income, or (2) convert to an incentive allocation structure, which will result in the pass-through of the tax character of the income components underlying the incentive allocation so that items of income such as long-term gains or qualified dividend income will be taxed at their applicable lower tax rate. If option 2 is selected, for a stand-alone offshore fund, the incentive allocation typically would be implemented by establishing a new offshore (i.e., master) entity taxed as a partnership for U.S. tax purposes into which the offshore fund would feed where the allocation would be made at the new master level, while for an existing offshore fund in a master-feeder structure, the master’s articles of association would need to be amended to allow for an incentive allocation to be made. It is recommended that the master have a 12/31 taxable year. Note that the management fee usually is not restructured to recharacterize it as an allocation. In addition to what is discussed above, the Act requires that existing deferred fees be included in income no later than December 31, 2017. Offshore fund managers may be able to take advantage of a special transition rule to optimize the length of their deferrals for previously deferred fees, however, this transition rule expires on December 31, 2008. If you have any questions concerning the foregoing, or would like to discuss restructuring your offshore fund, please contact your primary attorney in Seward & Kissel’s Investment Management Group.