ACACIA PARTNERS, L.P.

Review and Analysis

Comments Regarding

Advantages

- General partner has excellent historical investment performance record

- General partner is to invest personal and family assets in limited partnership

- Key investment objective is long term capital appreciation. Emphasis on the purchases of common stocks of business with superior income characteristics and good management

Disadvantages

- No control over structure and terms of limited partnership

- Unlimited authority of general partner including short selling, puts, calls, options, margin accounts, forward contracts. Such transactions can result in UBIT or be considered "jeopardy" investments

- Less liquidity. Semi- annual contributions/ withdrawals

Disadvantages

Typical of limited partnership arrangements

According to Greg Alexander and based on Greg's historical performance, the use of margins and options will be the exception rather than the rule. However, the partnership agreement provides unlimited authority and, accordingly, the Foundation could be subject to UBIT or "jeopardy" investment concerns. Greg may be willing to have some restrictions as to margin investing (1.2:1) and non-use of naked options

Given Foundation is long term investor and other funds are available for operating needs, the liquidity issue should not be a problem.

Advantages

Disadvantages

- Additional costs of limited partnership: organization costs, audit, legal, operating, etc. Such costs are estimated to be $35,000-$40,000 per year. Unknown cost of general partner indemnification in event of limited partner lawsuits or other issues.

- $30 million dollar investment could result in Foundation being a major limited partner. Potential public relations problems in the event of major losses. Also partnership withdrawals or unusual costs could have greater impact on major limited partners.

Comments Regarding

Disadvantages

The annual operating costs are reasonable but could result in some incremental cost to the Foundation. There is greater risk of the unknown costs associated with partner indemnification, which could be zero or could be significant.

According to Greg Alexander the initial size of the limited partnership is estimated to be $60-$80 million with 70-75 limited partners. The $80 million includes approximately $16M-$17M from Heritage Foundation. Greg's family interests are to be included in the limited partnership but limited to 25% of the total partnership because of certain regulations.

As a $30 million investor, the Foundation would initially be a major limited partner with an interest ranging from 27% to

Advantages

Disadvantages

Comments Regarding

Disadvantages

33⅓%. Greg indicated the Foundation's investment is important to him to minimize the chance that the family interests would not exceed 25%.

- Performance fee (10% of profits) is higher than traditional manager fee arrangement

The incentive fee would most likely be higher than the traditional manager fee based on a percent of assets. However, based on Greg's historical investment performance record, the incentive fee would represent only 41% of the excess of the actual return over the S&P 500 index. This relationship appears reasonable to Mike Palmer from Wilshire Associates.

Greg implied that he was unhappy with his compensation at Ruane Cunniff. His share of the 1% of asset fee normally charged by Ruane Cunniff is not significant in relation to his performance results. Clearly, the limited partnership will place him in a different compensation stratum.