As Filed with the Securities and Exhcnage Commission on December 14, 1998
Registration No. 33-96292
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
POST EFFECTIVE AMENDMENT NUMBER FIVE TO FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FREMONT FUND, LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
INDIANA
[State of organization]
6289 35-1949364
(Primary SIC Number) (I.R.S. EIN)
5916 N. 300 West
Fremont, Indiana 46737
Telephone: (219) 833-1306
(address and telephone number of registrant's principal executive offices)
Ms. Shira Del Pacult
5916 N. 300 West
Fremont, Indiana 46737
Telephone: (219) 833-1306; Facsimile (219) 833-1505
(Name, address and telephone number of agent for service of process)
Copies to:
William Sumner Scott, Esquire
The Scott Law Firm
5121 Sarazen Drive
Hollywood, Florida 33021
(954) 964-1546; Facsimile (954) 964-1548
The sale of these securities commenced August 12, 1996. No sales have been
made since April, 1997.
If any of the securities being offered on the Form are to be offered on a
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Each Class Amount being Maximum Offering Maximum Aggregate Amount of
of Securities Being Registered:(1) Price Per Unit: (2) Offering Price: Registration Fee:
Registered:
<S> <C> <C> <C> <C>
Limited Partnership 5,000 $1,000 $5,000,000 $1,724
Interests ("Units")
</TABLE>
(1) This amount is based upon the number of Units to be initially offered.
The exact number of Units issued will vary because of the issuance of
additional Units for interest earned during the Escrow period.
(2) The actual sales price per Unit will fluctuate each month to reflect
expenses and additions and subtractions for trading results.
The registrant hereby amends this registation statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
UNITS OF LIMITED PARTNERSHIP INTEREST
$5,000,000 of Units
Sold at Month End Net Unit Value(1)
Fremont Fund, Limited Partnership (the "Partnership") is an Indiana limited
partnership, which is managed by Pacult Asset Management, Inc., a Delaware
corporation, its general partner (the "General Partner"). The Partnership is
organized to be a commodity pool to engage in the speculative trading of
futures, commodity options and forward contracts on currencies, interest
rates, energy and agriculture products, metals, and stock indices. The
Partnership Agreement attached as Exhibit A grants full management control to
the General Partner including the right, without notice to the Limited
Partners, to employ, terminate and change the equity assigned to independent
trading managers ("Commodity Trading Advisors") to select trades. A
prospectus to disclose all material information will be delivered to each
subscriber either at or before the time of confirmation of the investment in
the Units. THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" ON PAGE 9 OF THE PROSPECTUS.
* Futures, commodity option, and forward trading are speculative, volatile and
involves a high degree of risk. The investors could lose all, or
substantially all, of their investment.
* The Partnership has substantial fixed management fees and commission costs
which must be paid without regard to the profits earned by the Partnership.
Assuming Net Assets of $679,535 (as of October 31, 1998), the General Partner
estimates the Partnership must generate a 35.0% return on investment during
its first twelve months of trading to offset expenses and approximately 39.0%
to offset both expenses and redemption charges due on Units redeemed as of the
twelfth month after they are issued. If both expenses and redemption charges
are not offset, investors will not receive any return on their investment.
See "Charges to the Partnership".
* The transferability of the Units is restricted and there are limitations on
investors' rights to surrender the Units to the Partnership for their Net Unit
Value (the "Redemption Rights"). No public market for the Units exists and
none is expected to develop. See "No Right To Transfer Units And Limited
Ability To Realize Return On Investment", and "Redemptions", and "The Limited
Partnership Agreement, Redemptions".
* The Partnership does not expect to make distributions. Limited Partners must
rely on their limited right of transfer and redemption to realize a return on
their investment. See "No Right To Transfer Units - Limited Ability To
Realize Return On Investment", and "The Limited Partnership Agreement,
Redemptions".
* The General Partner and its principal and affiliates have conflicts of
interest in regard to the management of the Partnership for the benefit of the
investors. See "Conflicts of Interest".
* Investors will be taxed upon the profits, if any, earned upon their
investment in the Partnership without the right to receive a distribution of
any such profits. See "Certain Federal Income Tax Aspects".
* The General Partner and its principal have limited experience in the
management of commodity pools. See "Risk Factors" and "The General Partner".
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION OR AGENCY, NOR HAVE
ANY OF THEM CONFIRMED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Initial Price to Sales Proceeds to
Public(1) Commissions(2) Partnership(3)
<S> <C> <C> <C>
Per Limited Partnership Unit Net Asset Value 6% Net Asset Value
Total Maximum $5,000,000 $300,000 $4,700,000
</TABLE>
See Notes on page i
FREMONT FUND, LIMITED PARTNERSHIP
5916 N. 300 West - Fremont, Indiana 46737
Telephone: (219) 833-1306
NOTES:
(1) Units are offered for sale, from time to time, in the discretion of the
General Partner, at a price per Unit equal to the value of the Units adjusted
to reflect the results from trading after payment of expenses and fees, (the
"Net Unit Value"), as of the effective date of the purchase, which shall be
the close of business on the last day of the month of acceptance of the
Subscription Agreement.
The Units are being offered through Futures Investment Company, 5916 N. 300
West, Fremont, Indiana 46737, (219) 833-1306, (the "Selling Agent" or "FIC"),
a National Association of Securities Dealers, Inc. ("NASD") registered broker-
dealer, on a "best efforts" basis.
(2) See "Plan of Distribution - The Selling Agreement" for information
relating to indemnification arrangements with respect to the Selling Agent and
any Additional Sellers. Selling commissions of six percent (6%) of the
subscription price will be paid to the Selling Agent from the proceeds of
subscriptions without regard to the amount invested. The Selling Agent will
retain or distribute the sales commissions to the registered representatives
of all of the dealers, including the principal and Affiliates of the General
Partner, who sold the Units.
(3) The Partnership sold the Minimum of six hundred (600) Units and commenced
trading in November, 1996. The Partnership continues to offer up to a maximum
of $5,000,000 of Units until they are either all sold or the General Partner
elects to terminate this offering. There has been no promise by the Selling
Agent, or any other person, to purchase any Units or any other form of firm
underwriting commitment to assure the sale of the Units. The General Partner
or the Selling Agent may engage additional registered broker dealers (the
"Additional Sellers") to sell Units.
The General Partner may accept or reject subscriptions within five (5)
business days of receipt. If a subscription is rejected or if subscriptions
for at least six hundred (600) Units are not accepted during the Initial
Offering Period, or any extended Offering Period, all subscriptions will be
returned to prospective subscribers as soon as practicable.
[The balance of this page has been intentionally left blank.]
i
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION,
RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR
PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO
AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT
CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT
PAGE 25 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 21.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGE 9.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE
UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET,
MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION
TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY
AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY
AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS
FOR THE POOL MAY BE EFFECTED.
[THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
ii
<PAGE>
NOTICE TO RESIDENTS OF ALL STATES
UNTIL 90 DAYS AFTER THE TERMINATION OF THIS OFFERING, ALL DEALERS EFFECTING
TRANSACTIONS IN THE UNITS, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
ARE REQUIRED TO DELIVER A PROSPECTUS AND ALL POST EFFECTIVE AMENDMENTS TO ALL
PROSPECTIVE PURCHASERS OF THE UNITS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS OR BEST EFFORTS
SELLERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. THE
SELLING AND ADDITIONAL SELLERS MUST ALSO DELIVER ANY SUPPLEMENTED OR AMENDED
PROSPECTUS ISSUED BY THE PARTNERSHIP.
NO DEALER, SALESMAN, OFFICER, EMPLOYEE OR AGENT OF THE PARTNERSHIP OR THE
GENERAL PARTNER AND OR ANY OTHER PERSON HAS BEEN AUTHORIZED, IN CONNECTION
WITH THIS OFFERING, TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PARTNERSHIP, THE GENERAL PARTNER, THE SELLING AGENTS, OR ANY
OTHER PERSON CONNECTED WITH THIS OFFERING. THIS PROSPECTUS SPEAKS AS OF THE
DATE OF ITS ISSUANCE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE PARTNERSHIP
SINCE THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY UNITS BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER, SOLICITATION, OR PURCHASE IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
THE REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION REQUIRE THAT NO
COMMODITY POOL OPERATOR MAY SOLICIT, ACCEPT OR RECEIVE FUNDS, SECURITIES OR
OTHER PROPERTY FROM A PROSPECTIVE PARTICIPANT IN A COMMODITY POOL WITHOUT
FIRST DELIVERING A DISCLOSURE DOCUMENT (THIS "PROSPECTUS") TO SUCH PROSPECTIVE
PARTICIPANT. THE GENERAL PARTNER MUST FURNISH ALL PARTNERS ANNUAL AND MONTHLY
REPORTS COMPLYING WITH COMMODITY FUTURES TRADING COMMISSION ("CFTC") AND
NATIONAL FUTURES ASSOCIATION ("NFA") REQUIREMENTS. THE ANNUAL REPORTS WILL
CONTAIN CERTIFIED AND AUDITED, AND THE MONTHLY REPORTS UNAUDITED, FINANCIAL
INFORMATION IN REGARD TO THE OPERATION OF THE PARTNERSHIP AND ITS GENERAL
PARTNER
THE DIVISION OF INVESTMENT MANAGEMENT OF THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC") REQUIRES THAT THE FOLLOWING STATEMENT BE SET FORTH
HEREIN: FREMONT FUND, LIMITED PARTNERSHIP, IS NOT A MUTUAL FUND AND IS NOT
SUBJECT TO REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940. CONSEQUENTLY,
INVESTORS WILL NOT HAVE THE BENEFIT OF THE PROTECTIVE PROVISIONS OF SUCH
LEGISLATION.
INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. INVESTORS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME. ACCORDINGLY, THE UNITS MAY BE SOLD,
ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN ACCORDANCE WITH THE
TERMS OF THE LIMITED PARTNERSHIP AGREEMENT, INCLUDING THE CONSENT OF THE
GENERAL PARTNER, AND ONLY IF SUCH UNITS ARE SUBSEQUENTLY REGISTERED OR, IN THE
OPINION OF COUNSEL FOR THE COMPANY, SUCH TRANSFER WILL NOT VIOLATE ANY
APPLICABLE FEDERAL OR STATE SECURITIES LAWS. THE SUBSCRIPTION AGREEMENT AND
THE CERTIFICATE FOR UNITS, IF ANY, WILL HAVE A LEGEND TO DISCLOSE THAT THE
UNITS ARE RESTRICTED FROM SALE OR OTHER TRANSFER WITHOUT PRIOR REGISTRATION OR
OTHER LEGAL JUSTIFICATION. NO PUBLIC MARKET EXISTS OR IS EXPECTED TO DEVELOP
FOR THE UNITS AND, CONSEQUENTLY, PROSPECTIVE INVESTORS WHO DESIRE LIQUIDITY
SHOULD NOT PURCHASE THE UNITS. EACH INVESTOR (PURCHASER OF UNITS) MUST MEET
THE FOLLOWING SUITABILITY STANDARDS: (i) AN INVESTOR MUST HAVE (A) HAD
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<PAGE>
AN ANNUAL GROSS INCOME IN EXCESS OF $45,000 IN THE LAST CALENDAR YEAR AND
REASONABLY EXPECTS TO HAVE GROSS INCOME IN EXCESS OF $45,000 FOR THE CURRENT
YEAR TOGETHER WITH A NET WORTH, EXCLUSIVE OF PRINCIPAL RESIDENCE, HOME
FURNISHINGS, AND AUTOMOBILE OF $45,000; OR (B) THE INVESTOR HAS A NET WORTH
(EXCLUSIVE OF PRINCIPAL RESIDENCE, HOME FURNISHINGS AND AUTOMOBILE) IN EXCESS
OF $150,000; AND (ii) THE INVESTOR IS REPRESENTED BY A PURCHASER REPRESENTATIVE
OR OTHERWISE DEMONSTRATES TO THE GENERAL PARTNER SUFFICIENT KNOWLEDGE TO ACCEPT
THE RISKS OF THIS INVESTMENT. A GENERAL PARTNERSHIP OR OTHER ENTITY MAKING
INVESTMENT MUST MEET THE FINANCIAL SUITABILITY REQUIREMENTS PRESCRIBED FOR
NATURAL PERSONS. A QUALIFIED PENSION, PROFIT-SHARING OR KEOGH EMPLOYEE PLAN,
THE FIDUCIARY FOR SUCH PLAN, OR THE DONOR OF ANY SUCH PLAN WHO DIRECTLY OR
INDIRECTLY SUPPLIES THE FUNDS TO PURCHASE AN INTEREST (THE "UNITS") IN THE
PARTNERSHIP MUST MEET THE MINIMUM FINANCIAL SUITABILITY STANDARDS. "ACCREDITED
INVESTORS", AS THAT TERM IS DEFINED UNDER REGULATION D OF THE ACT, WHO MEET THE
NET INCOME TEST IN (i) ABOVE, ARE DEEMED TO HAVE SUCH KNOWLEDGE AND EXPERIENCE
IN FINANCIAL BUSINESS MATTERS AS TO BE CAPABLE OF EVALUATING THE MERITS AND
RISKS OF THE PROPOSED INVESTMENT AND, AT THE TIME OF INVESTING, CAN AFFORD A
COMPLETE LOSS.
THE ACT AND THE SECURITIES LAWS OF CERTAIN STATES GRANT PURCHASERS OF
SECURITIES SOLD, EITHER IN VIOLATION OF THE REGISTRATION OR QUALIFICATION
PROVISIONS OF SUCH LAWS OR WITHIN CERTAIN TIME LIMITATIONS, THE RIGHT TO
RESCIND THEIR PURCHASE OF SUCH SECURITIES AND TO RECEIVE BACK THEIR
CONSIDERATION PAID, PLUS INTEREST. THE GENERAL PARTNER EITHER INTENDS TO
REGISTER THE UNITS FOR SALE OR BELIEVES THAT THE OFFERING DESCRIBED IN THIS
PROSPECTUS IS NOT REQUIRED TO BE REGISTERED OR QUALIFIED. MANY OF THESE LAWS
WHICH GRANT THE RIGHT OF RESCISSION ALSO PROVIDE THAT SUITS FOR SUCH VIOLATIONS
MUST BE BROUGHT WITHIN A SPECIFIED TIME, USUALLY ONE YEAR FROM DISCOVERY OF
FACTS CONSTITUTING SUCH VIOLATION. SHOULD ANY INVESTOR INSTITUTE AN ACTION ON
THE THEORY THAT THE OFFERING CONDUCTED AS DESCRIBED HEREIN WAS REQUIRED TO BE
REGISTERED OR QUALIFIED, THE PARTNERSHIP WILL CONTEND THAT THE CONTENTS OF THIS
PROSPECTUS PROVIDED NOTICE OF SUFFICIENT FACTS TO COMMENCE THE TIME FROM WHICH
AN ACTION FOR RESCISSION SHOULD HAVE BEEN BROUGHT. ALSO, SHOULD ANY INVESTOR
CONTEND THE OFFER WAS NOT QUALIFIED FOR PRESENTATION OR THE INVESTOR NOT
SUITABLE TO MAKE SUCH INVESTMENT, THE GENERAL PARTNER WILL PLEAD RELIANCE UPON
THE INFORMATION SUPPLIED BY THE INVESTOR IN THE SUBSCRIPTION DOCUMENTS.
INVESTORS ARE TO COMPLETE ALL DOCUMENTS BEFORE SIGNING. NEITHER THE
INFORMATION CONTAINED HEREIN, NOR ANY PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
COMMUNICATION SHOULD BE CONSTRUED BY THE PROSPECTIVE INVESTOR AS LEGAL OR TAX
ADVICE FOR THAT INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS OWN
LEGAL AND TAX ADVISORS TO ASCERTAIN THE MERITS AND RISKS DESCRIBED HEREIN PRIOR
TO SUBSCRIBING TO PURCHASE UNITS IN THE PARTNERSHIP PURSUANT TO THIS OFFERING.
VARIOUS SPECIFIC STATE NOTICES
NOTICE TO CALIFORNIA INVESTORS
CALIFORNIA RESIDENTS ARE REQUIRED TO HAVE A LIQUID NET WORTH OF $100,000 AND
ANNUAL INCOME OF $50,000 TO BE ABLE TO PURCHASE PARTNERSHIP INTERESTS IN THIS
COMMODITY POOL. THE TRANSFER OF THE LIMITED PARTNERSHIP INTERESTS OFFERED AND
SOLD PURSUANT TO THIS OFFERING CAN NOT BE RESOLD OR TRANSFERRED WITHOUT
PERMISSION OF THE GENERAL PARTNER AND FULFILLMENT OF OTHER TERMS AND
CONDITIONS CONTAINED IN THE PARTNERSHIP AGREEMENT. ACCORDINGLY, (a) THE
LIMITED PARTNERSHIP, AS ISSUER OF A SECURITY UPON WHICH A RESTRICTION ON
TRANSFER HAS BEEN IMPOSED MUST CAUSE A COPY OF RULE 260.141.11 TO BE DELIVERED
TO EACH ISSUEE OR TRANSFEREE OF SUCH SECURITY AT THE TIME THE CERTIFICATE
EVIDENCING THE SECURITY IS DELIVERED TO THE ISSUEE OR TRANSFEREE; AND, (b) IT
IS UNLAWFUL FOR THE HOLDER OF ANY SUCH SECURITY TO CONSUMMATE A SALE OR
TRANSFER OF SUCH SECURITY, OR ANY INTEREST THEREIN, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER (UNTIL THIS CONDITION IS REMOVED PURSUANT TO
SECTION 260.141.12 OF THESE RULES), EXCEPT AS PROVIDED IN THE CODE. THE
CERTIFICATES, WHETHER UPON INITIAL ISSUANCE
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<PAGE>
OR UPON ANY TRANSFER, SHALL BEAR ON THEIR FACE, IN CAPITAL LETTERS OF 10-POINT
SIZE, AS FOLLOWS: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES".
NOTICE TO IDAHO INVESTORS
INVESTORS WHO ARE RESIDENTS OF IDAHO ARE REQUIRED TO HAVE A NET WORTH OF
$100,000 OR NET WORTH OF $50,000 AND ANNUAL INCOME OF $50,000 TO BE ELIGIBLE TO
INVEST IN THIS OFFERING OF PARTNERSHIP INTERESTS IN THIS COMMODITY POOL.
NOTICE TO OREGON INVESTORS
INVESTORS WHO ARE RESIDENTS OF OREGON ARE REQUIRED TO HAVE A NET WORTH OF
$225,000 OR NET WORTH OF $60,000 AND ANNUAL INCOME OF $60,000 TO BE ELIGIBLE TO
INVEST IN THIS OFFERING OF PARTNERSHIP INTERESTS IN THIS COMMODITY POOL.
NOTICE TO FOREIGN INVESTORS
THE SECURITIES HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION AND SEVERAL SELECTED STATES. HOWEVER, THE SECURITIES MAY
NOT BE OFFERED, SOLD, RENOUNCED OR TRANSFERRED, DIRECTLY OR INDIRECTLY, IN THE
UNITED STATES OF AMERICA, ITS TERRITORIES, POSSESSIONS, AND ALL AREAS SUBJECT
TO ITS JURISDICTION ("UNITED STATES" OR IN CANADA (COLLECTIVELY, "NORTH
AMERICA"), OR TO OR FOR THE BENEFIT OF ANY PERSON WHO IS A NATIONAL CITIZEN OR
A RESIDENT OR NORMALLY A RESIDENT THEREOF, THE ESTATES OF SUCH A PERSON OR ANY
CORPORATION OR OTHER ENTITY CREATED OR ORGANIZED UNDER ANY LAW OF THE UNITED
STATES OR CANADA OR ANY POLITICAL SUBDIVISION THEREOF (COLLECTIVELY REFERRED TO
AS "NORTH AMERICAN PERSONS") UNLESS (i) THE SECURITIES ARE DULY REGISTERED
UNDER THE APPLICABLE STATE ACT, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER
THE APPLICABLE STATE ACT AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO
SUCH EFFECT REASONABLY SATISFACTORY TO IT, OR (iii) SUCH SECURITIES ARE SOLD ON
FOREIGN EXCHANGE IN ACCORDANCE WITH PROCEDURES APPROVED BY SUCH FOREIGN STOCK
EXCHANGE.
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<PAGE>
TABLE OF CONTENTS
COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT ii
NOTICE TO RESIDENTS OF ALL STATES iii
VARIOUS SPECIFIC STATE NOTICES iv
NOTICE TO CALIFORNIA INVESTORS iv
NOTICE TO IDAHO INVESTORS v
NOTICE TO OREGON INVESTORS v
NOTICE TO FOREIGN INVESTORS v
PARTNERSHIP AND GENERAL PARTNER IDENTIFICATION 1
SUMMARY OF THE OFFERING 1
RISK FACTORS 1
CONFLICTS OF INTEREST 3
DIAGRAM OF PARTNERSHIP STRUCTURE & COMMISSIONS FREMONT FUND, LIMITED
PARTNERSHIP 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 5
Business Objective and Expenses 5
Securities Offered 5
CHARGES TO THE PARTNERSHIP 5
Compensation of the General Partner 5
Management and Incentive Fees 6
Charges to the Partnership 6
USE OF PROCEEDS 7
SELECTION OF COMMODITY TRADING ADVISORS AND ALLOCATION OF EQUITY 7
FEDERAL INCOME TAX ASPECTS 8
No Legal Opinion As To Certain Material Tax Aspects 8
REDEMPTIONS 8
PLAN OF DISTRIBUTION 9
SUBSCRIPTION PROCEDURE 9
RISK FACTORS 9
PAST 10-K AND 10-Q FORMS WERE FILED LATE 9
LIMITED OPERATION EXPERIENCE OF THE GENERAL PARTNER 10
THE PARTNERSHIP WILL PAY SUBSTANTIAL CHARGES - INVESTORS HAVE LIMITED
OPPORTUNITY TO REALIZE RETURN ON INVESTMENT 10
NO RIGHT TO TRANSFER UNITS - LIMITED ABILITY TO REALIZE RETURN ON
INVESTMENT 10
INVESTORS MUST RELY UPON THEIR LIMITED RIGHT OF TRANSFER AND REDEMPTION
RIGHTS TO REALIZE A RETURN ON THEIR INVESTMENT 11
RELIANCE ON THE PRINCIPAL OF THE GENERAL PARTNER COULD BE RESTRICTIVE TO
PARTNERSHIP ACTIVITIES 11
GENERAL PARTNER AND CTAs TO SERVE OTHER COMPETING BUSINESSES 11
PARTNERSHIP HAS LIMITED OPERATING HISTORY 11
CONFLICTS OF INTEREST IN THE PARTNERSHIP STRUCTURE 11
LIMITED PARTNERS WILL BE TAXED ON PROFITS NOT DISTRIBUTED 12
PRESENT TRADE SELECTION METHODS SUBJECT TO SUDDEN ADVERSE CHANGE 12
LIMITED PARTNERS WILL NOT PARTICIPATE IN MANAGEMENT 12
COMMODITY FUTURES TRADING IS SPECULATIVE AND VOLATILE - UNITS MAY NOT
BE REDEEMABLE BEFORE SUBSTANTIAL DEVALUATION OF NET UNIT VALUE 12
LOW SECURITY DEPOSIT IN RELATION TO PRICE MOVEMENT 12
TRADE SELECTION MADE WITHOUT NOTICE TO PARTNERSHIP - PARTNERSHIP
MAY BECOME DEVALUED BEFORE GENERAL PARTNER IS ABLE TO TAKE REMEDIAL
ACTION 13
PARTNERSHIP COULD LOSE SUBSTANTIAL ASSETS DUE TO LACK OF MARKET
LIQUIDITY 13
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INCREASED TRADING EQUITY TO CTAs MAY ADVERSELY AFFECT THEIR
PERFORMANCE 13
PARTNERSHIP WILL NOT BE COMPENSATED IF PARTNERSHIP ACTIVITY RESULTS
IN LOWER COMMISSIONS FOR OTHER ACCOUNTS 13
FAILURE OF COMMODITY BROKERS OR BANKS COULD RESULT IN LOSS OF ASSETS 14
COUNTERPARTY CREDITWORTHINESS MUST BE RELIED UPON IN FOREIGN MARKETS 14
TRADING ON FOREIGN EXCHANGES INHERENTLY RISKIER THAN U.S. MARKETS 14
TRADING FORWARD CURRENCY CONTRACTS ARE NOT SUBJECT TO U.S. REGULATION
AND ARE INHERENTLY RISKY 14
OPTIONS TRADING PUTS MORE PARTNERSHIP CAPITAL AT RISK 14
POSITION LIMITS MAY AFFECT PROFIT POTENTIAL 15
COMPETITION IS INTENSE 15
ALLOCATION OF EQUITY TO A CTA MAY OCCUR AT SUBOPTIMAL TIME FOR
MAXIMIZING PROFITS 15
CHANGES IN THE SIZE OF THE PARTNERSHIP MAY ADVERSELY AFFECT CTAs'
ABILITY TO TRADE PROFITABLY 15
FAILURE TO MAINTAIN NET WORTH OF THE GENERAL PARTNER MAY RESULT IN
SUSPENSION OF TRADING AND SUSTAINED LOSSES 15
INABILITY TO MAINTAIN NET WORTH OF GENERAL PARTNER COULD RESULT IN
POSSIBILITY OF TAXATION AS A CORPORATION 16
GENERAL PARTNER NOT TO ADVISE INVESTORS - INCLUDING RETIREMENT PLAN
AND IRA PARTICIPANTS 16
INVESTORS NOT PROTECTED BY THE INVESTMENT COMPANY ACT OF 1940 16
POSSIBILITY OF AUDIT - PARTNERS MAY BE SUBJECT TO AUDIT AND PENALTIES 16
GENERAL PARTNER MAY SETTLE IRS CLAIM NOT IN THE BEST INTEREST OF
THE PARTNERS 16
POSSIBLE ADVERSE DETERMINATION BY THE IRS - PARTNERS MAY BE SUBJECT
TO BACK TAXES AND PENALTIES 17
CONFLICTS OF INTEREST 17
GENERAL PARTNER, THE CTAs, AND THEIR PRINCIPALS MAY PREFERENTIALLY
MANAGE EQUITY FOR THEMSELVES AND OTHERS 17
POSSIBLE RETENTION OF VOTING CONTROL BY THE GENERAL PARTNER MAY LIMIT
PARTNER'S ABILITY TO CONTROL CERTAIN ISSUES 18
GENERAL PARTNER TO REMAIN AGAINST POSSIBLE BEST INTEREST OF
PARTNERSHIP 18
FEES AND CHARGES TO THE PARTNERSHIP NOT NEGOTIATED AND MAY DISCOURAGE
PROFITABLE TRADING 18
CONFLICTS OF INTEREST IN THE PARTNERSHIP STRUCTURE 18
GENERAL PARTNER TO DISCOURAGE REDEMPTIONS 19
CTAs MAY ENGAGE IN HIGH RISK TRADING TO GENERATE INCENTIVE FEES 19
IB AFFILIATED WITH THE GENERAL PARTNER RETAINS A SHARE OF THE
COMMISSIONS AND IS NOT LIKELY TO BE REPLACED 19
NO RESOLUTION OF CONFLICTS PROCEDURES 19
INTERESTS OF NAMED EXPERTS AND COUNSEL 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 19
THE PARTNERSHIP - GENERAL PARTNER - BOOKS AND RECORDS 19
THE COMMODITY TRADING ADVISORS 20
THE ADVISORY CONTRACTS AND POWERS OF ATTORNEY 20
BUSINESS OBJECTIVE AND EXPENSES 20
EXPENSES PER UNIT FOR THE FIRST 12-MONTH PERIOD OF OPERATIONS 21
SECURITIES OFFERED 22
MANAGEMENT'S DISCUSSION 23
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER 23
INDEMNIFICATION 24
RELATIONSHIP WITH THE FCM AND THE IB 24
RELATIONSHIP WITH THE CTAs 25
RISK CONTROL 25
vii
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CHARGES TO THE PARTNERSHIP 25
COMPENSATION OF GENERAL PARTNER 26
MANAGEMENT FEE AND INCENTIVE FEES TO THE CTAs 26
FEES TO FUTURES COMMISSION MERCHANT AND INTRODUCING BROKER 26
ALLOCATION OF COMMISSIONS 27
OTHER EXPENSES 27
CHARGES TO THE PARTNERSHIP 28
INVESTOR SUITABILITY 29
POTENTIAL ADVANTAGES 29
EQUITY MANAGEMENT 29
INVESTMENT DIVERSIFICATION 29
LIMITED LIABILITY 29
ADMINISTRATIVE CONVENIENCE 29
ACCESS TO THE CTAs 29
USE OF PROCEEDS 30
DETERMINATION OF THE OFFERING PRICE 30
NO MARKET AND LIMITATION OF RIGHT OF TRANSFER 30
THE GENERAL PARTNER 30
IDENTIFICATION 30
THE PRINCIPAL AND OFFICER OF THE GENERAL PARTNER 31
TRADING BY THE GENERAL PARTNER; INTEREST IN THE POOL 31
LIMITED PRIOR PERFORMANCE AND REGULATORY NOTICE 31
TRADING MANAGEMENT 31
SELECTION OF COMMODITY TRADING ADVISORS AND ALLOCATION OF EQUITY 31
THE ADVISORY CONTRACTS 32
FREQUENCY OF CTA AND EQUITY REALLOCATIONS 32
THE COMMODITY TRADING ADVISORS 32
MICHAEL J. FRISCHMEYER 32
BUSINESS BACKGROUND 32
DESCRIPTION OF TRADING PROGRAM 33
PERFORMANCE RECORD OF THE CTA 34
Managed Account Program, Regular Fee Schedule 35
Managed Account Program, Regular Fee Schedule-Regular Fee
Restricted Accounts Only 36
Managed Account Program, Frischmeyer Fund, L.P. Fee Schedule 37
Managed Account Program, Iowa Commodities Fee Schedule 38
EPIC TRADING 39
BUSINESS BACKGROUND 39
DESCRIPTION OF TRADING PROGRAM 40
PERFORMANCE RECORD OF THE CTA 40
EPIC Trading Program 40
BELL FUNDAMENTAL FUTURES, L.L.C. 41
BUSINESS BACKGROUND 41
DESCRIPTION OF TRADING PROGRAM 42
PERFORMANCE RECORD OF THE CTA 44
Capsule A - Bell Fundamental Futures, L.L.C. 44
PERFORMANCE OF FREMONT FUND, LIMITED PARTNERSHIP 45
viii
<PAGE>
FREMONT FUND, LP 45
NOTES TO PERFORMANCE RECORD OF THE FUND 46
LIMITED PRIOR PERFORMANCE AND REGULATORY NOTICE 47
THE FUTURES COMMISSION MERCHANT 47
FEDERAL INCOME TAX ASPECTS 47
SCOPE OF TAX PRESENTATION 47
NO LEGAL OPINION AS TO CERTAIN MATERIAL TAX ASPECTS 48
PARTNERSHIP TAX STATUS AND NET WORTH OF THE GENERAL PARTNER 48
NO IRS RULING 49
TAX OPINION 49
PASSIVE LOSS AND UNRELATED BUSINESS INCOME TAXES RULES 50
BASIS LOSS LIMITATION 50
AT-RISK LIMITATION 50
INCOME AND LOSSES FROM PASSIVE ACTIVITIES 50
ALLOCATION OF PROFITS AND LOSSES 50
TAXATION OF FUTURES AND FORWARD TRANSACTIONS 51
SECTION 988 FOREIGN CURRENCY TRANSACTIONS 51
CAPITAL GAIN AND LOSS PROVISIONS 51
BUSINESS FOR PROFIT 51
SELF-EMPLOYMENT INCOME AND TAX 51
INDIVIDUAL ALTERNATIVE MINIMUM TAX 52
INTEREST RELATED TO TAX EXEMPT OBLIGATIONS 52
NOT A TAX SHELTER 52
TAXATION OF FOREIGN PARTNERS 52
PARTNERSHIP ENTITY-AUDIT PROVISIONS-PENALTIES 52
EMPLOYEE BENEFIT, RETIREMENT PLANS AND IRA'S 53
THE LIMITED PARTNERSHIP AGREEMENT 53
FORMATION OF THE PARTNERSHIP 53
UNITS 53
MANAGEMENT OF PARTNERSHIP AFFAIRS 53
ADDITIONAL OFFERINGS 54
PARTNERSHIP ACCOUNTING, REPORTS, AND DISTRIBUTIONS 54
FEDERAL TAX ALLOCATIONS 54
TRANSFER OF UNITS ONLY WITH CONSENT OF THE GENERAL PARTNER 54
TERMINATION OF THE PARTNERSHIP 54
MEETINGS 54
REDEMPTIONS 55
PLAN OF DISTRIBUTION 55
SUBSCRIPTION PROCEDURE 55
LEGAL MATTERS 56
LITIGATION AND CLAIMS 56
LEGAL OPINION 56
EXPERTS 56
ADDITIONAL INFORMATION 57
ix
<PAGE>
FINANCIAL STATEMENTS
A. FREMONT FUND, LIMITED PARTNERSHIP
Audited Balance Sheets as of December 31, 1996 and December 31, 1997
With Notes to Statement of Financial Condition
Unaudited Balance Sheet as of September 30, 1998
With Notes to Statement of Financial Condition
B. PACULT ASSET MANAGEMENT, INC.
Audited Balance Sheets and Income Statements as of December 31, 1996
and December 31, 1997 With Notes to Statement of Financial Condition
Unaudited Balance Sheet as of September 30, 1988
APPENDIX I - Commodity Terms And Definitions; State Regulatory Glossary
APPENDIX II - Performance Record Of The Fund
APPENDIX III - Supplemental Performance Information For Epic Trading, CTA
APPENDIX IV - Supplemental Performance Information for Bell Fundamental
Futures, L.L.C.
EXHIBIT A - Limited Partnership Agreement
EXHIBIT B - Request For Redemption
EXHIBIT C - Suitability Information
EXHIBIT D - Subscription Agreement And Power Of Attorney
EXHIBIT E - Form of Advisory Agreement for Michael J. Frischmeyer, CTA
EXHIBIT F - Form Of Advisory Agreement for Epic Trading, CTA
EXHIBIT G - Form of Advisory Agreement for Bell Fundamental Futures, L.L.C.,
CTA
[The balance of this page has been intentionally left blank]
x
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PARTNERSHIP AND GENERAL PARTNER IDENTIFICATION
Fremont Fund, Limited Partnership (the "Partnership") is an Indiana limited
partnership. Its main business office is 5916 N. 300 West, Fremont, Indiana
(219) 833-1306. It is managed by Pacult Asset Management, Inc., a Delaware
corporation, its general partner (the "General Partner"), with its main
business office c/o Corporate Systems, Inc. 101 North Fairfield Drive, Dover,
DE 19901 (302) 697-2139. The Partnership is organized to be a commodity pool
to engage in the speculative trading of futures, commodity options and forward
contracts on currencies, interest rates, energy and agriculture products,
metals, and stock indices. The Partnership Agreement attached as Exhibit A
grants full management control to the General Partner including the right to
employ independent trading managers ("Commodity Trading Advisors") to select
trades. The objective of the Partnership is substantial capital appreciation
with controlled volatility. There can be no assurance that the Partnership
will achieve its objectives or avoid substantial losses.
The Partnership commenced operation in November, 1996. Therefore the General
Partner and its principal have limited experience in the management of a
commodity pool; however, the principal of the General Partner, Ms. Shira
Pacult, has been engaged in supervision of individual managed commodity
accounts for over 16 years. See "Description of the General Partner". The
Partnership hereby offers to sell $5,000,000 of units of limited partnership
interest (the "Units") under the terms and conditions described herein. The
Units are offered at a price per Unit equal to the value of the Units adjusted
to reflect the results from trading after payment of expenses and fees, (the
"Net Unit Value"), as of the effective date of the purchase, which shall be
the close of business on the last day of the month of acceptance of the
Subscription Agreement. The minimum purchase per investor is $15,000;
provided, however, the General Partner, in its sole discretion, may permit the
purchase by an investor of less than $15,000 but more than $5,000.
The transferability of Units is subject to the approval of the General Partner
and no trading or market for the Units now exists or is expected to develop on
any exchange or over the counter market. Consequently, Units should be
purchased for long-term investment only. There also can be no assurance that
any additional Units will be sold.
SUMMARY OF THE OFFERING
The following summary is qualified, in its entirety, by the more detailed
information appearing elsewhere in this Prospectus, in the Exhibits, and other
documents identified herein. Reference to subsections in this Prospectus are
in quotation marks. Terms with the initial letter capitalized are defined in
the Glossary in Appendix I to this Prospectus.
* RISK FACTORS
An investment in the Partnership is speculative and involves substantial risks
which include, but are not limited to, the risk of loss of a Partner's entire
investment. See "Description of Charges", "Risk Factors", "Conflicts of
Interest", and Exhibit A.
* The Partnership relies upon the General Partner to conduct the main
business of the Partnership's affairs. The Limited Partners do not
participate in the management of the Partnership, and the General Partner has
absolute discretion over the selection of the CTAs, the allocation of assets,
and the commencement and cessation of trading. The General Partner is also
the general partner of a private commodity pool, Auburn Fund, Limited
Partnership, which commenced operation in May, 1998. In that regard, the
General Partner has limited experience as a commodity pool operator and in
conducting such business, although the principal of the general partner has 16
years experience supervising individual managed commodity accounts.
* Past SEC reporting forms 10-K and 10-Q for the Fund were filed late due
to misinterpretation of the law by legal counsel. However, the Fund did not
suffer any adverse consequences and the General Partner has taken steps to
assure that the quarterly Form 10-Q is filed within 45 days after each quarter
and the annual Form 10-K is filed within 90 days after the end of each year.
* The Limited Partners have a limited opportunity to realize a return on
their investment. This is due to the substantial fees, commissions, and
repayment of offering costs to which the Partnership is subject. The
Partnership must earn income of $280.71 per Unit during the first year of a
subscriber's investment to permit an investor to redeem a Unit at the original
per unit subscription amount. The Partnership does not expect to make
distributions, and if it does, those distributions may be subject to being
recalled if the Partnership becomes insolvent. Accordingly, the Limited
Partners must rely upon their limited rights of transfer and redemption to
1
<PAGE>
realize a return on their investment. The Limited Partners are also subject
to redemption fees during the first two years of investment and there are
restrictions upon the transfer and redemption procedures.
* Both the General Partner and the CTAs it selects to trade for the
Partnership may serve other businesses with competing interests. See
"Conflicts of Interest". The General Partner also serves as the general
partner of a privately offered commodity pool, Auburn Fund, Limited
Partnership. As the principal of the General Partner, Ms. Shira Del Pacult,
is also a principal of the Introducing Broker, which receives fixed
commissions for payment of brokerage commissions, it would be in Ms. Pacult's
interest to select CTAs who minimize the number of trades at the expense of
the Partnership. The General Partner is also required by federal law to
maintain a minimum net worth. If the minimum is not maintained, the
Partnership would be forced to suspend trading, in which case it could
experience significant losses.
The CTAs conduct trades for both themselves and other clients, in addition
to the Partnership. It would be possible for a CTA to experience limitations
on the number of positions it may take, therefore not maximizing the profit
potential, as a result of taking the same position with several clients'
funds. It would also be possible for a CTA to preferentially liquidate
positions in one account, while the others sustain significant losses.
* Futures, commodity options, and forward contract trading are speculative
and volatile, and are thus inherently risky. In addition, only a fraction of
the commodity contract value is required as a security deposit. Should a
trade perform poorly, the Partnership is at risk of a demand for money to
cover the balance of the transaction. Such a demand could deplete the
Partnership of all its assets. The CTAs sell option contracts, which often
require less security deposit. There are also limits placed upon (i) the
total number of positions a trader may take; (ii) the total number of
positions that may be taken by all traders in a given market as a whole; and
(iii) the amount of change in price a given commodity may fluctuate in a given
day. Such limits may restrict the profit potential of the Partnership. In
addition, it is possible that a trader may not be able to liquidate a position
due to successive daily changes in the price of a commodity reaching their
maximum limit. There is no guarantee that Partners will be able to redeem
Units before substantial losses are incurred through trading.
The CTAs also trade on foreign markets, which are not regulated by the
United States and are thus inherently riskier to trade than U.S. markets.
Specifically, there would be little recourse to recover trading assets lost as
a result of the collapse of a foreign government or private institution. The
trades are also denominated in the foreign currency particular to the location
of the trade, and are thus adversely affected by inflation and currency
fluctuation. The CTAs may also trade forward currency contracts not subject
to U.S. regulation, in which there are no limitations on daily price moves or
on the number of positions available to be taken. The Partnership's assets
are at greater risk by the CTAs taking positions on such foreign markets.
* There are also risks inherent to operation of the Partnership, including
the intense competition in commodity futures trading, the limited experience
of the General Partner, the right of the CTAs to resign without notice, and
the fact that trades are executed without notice to the Partnership. The
Partnership competes with others who may have greater financial and analytical
resources at their disposal. The CTAs assigned by the General Partner have
complete discretion over the execution of trades, and as a result, the
Partnership may experience substantial losses before the General Partner is
able to take remedial action. The Partnership also relies upon the solvency
of the commodity brokers and banks which hold a substantial portion of the
Partnership's assets. A failure of one of these entities could result in
unrecoverable loss to the Partnership's assets.
* There are several risks to investors due to the amount of capital raised
through this offering and the amount of Partnership assets. Increases or
decreases in the amount of trading equity assigned to the CTAs may adversely
affect their performance and cause the Partnership to suffer losses.
* There are significant tax issues which present risks to investors. The
Limited Partners are subject to taxes on profits not distributed. The
Partnership is currently not taxed as a corporation, but should the IRS rule
to the contrary because a limited partner has taken management, the
Partnership and its Partners may be subject to higher taxes on profits, as
well as possible back taxes, interest, penalties, and an audit. The General
Partner also has the power to settle IRS claims on behalf of certain Limited
Partners when such settlement may not be in their best interest.
2
<PAGE>
* CONFLICTS OF INTEREST
Significant potential and actual conflicts of interest may arise, including:
(i) The principal of the General Partner, Ms. Shira Del Pacult, the General
Partner, and the CTAs have the right to manage other commodity pools and/or
accounts. They may also engage in trading for their own accounts without
making those records available for inspection. It is possible for these
persons to trade other accounts preferentially over the Partnership.
Additionally, a CTA is limited in the number of simultaneous positions it may
take, and may therefore favor accounts which offer greater financial
incentives.
(ii) The General Partner, its principal, Ms. Shira Del Pacult, and their
Affiliates may purchase enough Units in the Partnership to retain voting
control. This may limit the ability of the Limited Partners to achieve a
majority vote on such issues as amendment of the Limited Partnership
Agreement, change in the basic investment policy of the Partnership,
dissolution of the Partnership, or the sale or distribution of the
Partnership's assets. The General Partner is not allowed to vote on the issue
of its own removal, but it is not likely to voluntarily remove itself as it
receives a fixed management fee of 2%.
(iii) An Affiliate of the General Partner receives the difference between the
fixed commissions and the actual round-turn commissions paid from the
Partnership's trading activities, creating a disincentive for the General
Partner to replace the IB which is Affiliated with it even if such replacement
may be in the best interest of the Partnership.
(iv) A 12% fixed commission is paid to the Introducing Broker (the "IB")
Affiliated with the General Partner in lieu of round-turn brokerage
commissions which have not been negotiated at arm's length, nor has the 2%
management fee paid to the General Partner. It is not likely that the General
Partner would remove itself or the IB even if it were in the best interest of
the Partnership.
(v) The Selling Agent is Affiliated with the principal of the General Partner
and, therefore, no independent due diligence of the offering has been nor will
be conducted for the protection of the investors. The General Partner has
taken steps to insure that the Partnership equity is held in segregated
accounts at the banks and futures commission merchant selected and has
otherwise assured the Selling Agent that all money on deposit is in the name
of and for the beneficial use of the Partnership.
(vi) The General Partner selects the trading advisors for the Partnership and
the trading advisors determine the frequency of trading, resulting in a
conflict of interest of the General Partner between it selecting trading
advisors who will trade to maximize profits rather than to minimize the number
of trades; i.e., it is in the best interest of the General Partner to reduce
the frequency of trading to maximize the difference between the fixed
commission and the share of the fixed commission, after payment of the round-
turn commissions, the IB Affiliated with it receives.
(vii) The General Partner has an incentive to discourage redemptions because
the IB Affiliated with the General Partner receives a portion of the fixed
commissions based on the Net Asset Value (the total assets of the Partnership
minus commissions, fees, and other charges) of the Partnership assigned to be
traded.
(viii) The CTAs are compensated based on a percentage of the profits they
generate and thus may have an incentive to engage in ill-advised trades.
(ix) It is extremely difficult, if not impossible, for the General Partner to
assure that these and future potential conflicts will not result in adverse
consequences to the Partnership or the Limited Partners. The General Partner
has not established formal procedures, and none are expected to be established
in the future, to resolve potential conflicts of interest which may arise.
See "Conflicts of Interest" and "Risk Factors". The diagram on the following
page represents the Partnership structure and summary of commissions received.
See "Charges to the Partnership".
3
<PAGE>
Diagram of Partnership Structure & Commissions
Fremont Fund, Limited Partnership
[Diagram omitted.]
4
<PAGE>
* MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
* Business Objective and Expenses
The Partnership engages in the speculative trading of domestic and foreign
commodity futures contracts and options at the direction of the independent
commodity trading advisors (the "CTAs") it selects. See "Risk Factors",
"Conflicts of Interest", "Use of Proceeds", "General Partner", "Commodity
Trading Advisors", Appendix I and Exhibit A. The audited balance sheets of the
Partnership and General Partner are attached hereto. See, "Experts" and the
Financial Statements. The Partnership was organized in January 1995 and has
been operating since November, 1996. The principal objective is to generate
increased capital. There can be no assurance that the Partnership can achieve
this objective. Distributions of profits, if any, will be made at the sole
discretion of the General Partner. The Partnership is subject to substantial
charges, regardless of whether profits are earned. If there are no claims,
the Partnership must earn approximately a 39.0% return on equity based on the
current amount of equity invested in the Partnership, or a 27.7% return on
equity if the Maximum is sold to permit the investor to Redeem a Unit at the
sales price of the Net Unit Value at the completion of one year from the date
of investment. In addition, Partners are required to pay Federal, state and
local taxes upon income, if any, in the year earned by the Partnership,
although there are no expectations of distributions of income during that, or
any other, year. Accordingly, the purchase of Units in the Partnership is
intended to be a long-term investment. Neither the General Partner nor any
other person has made any promise or guarantee that the Partnership will be
profitable or otherwise meet its objectives.
* Securities Offered
The Fremont Fund, Limited Partnership (the "Partnership") offers and sells
Limited Partnership interests in the Partnership which have pro rata rights to
profit and losses with all other owners equal to the Capital they have
contributed. The Limited Partners are not exposed to payment of debts of the
Partnership in excess of their subscription amount; provided, however, in the
event the Limited Partners were to receive distributions which represent a
return of Capital, such distributions, in the event of insolvency of the
Partnership, would have to be returned to pay Partnership debts. In addition,
these limited partners have no voice in the day to day management of the
Partnership. They do have the right to vote on Partnership matters such as
the replacement of the General Partner. The Partnership commenced trading
November, 1998, and as of October 31, 1998, there were 945 Units outstanding.
The remaining Units will be offered for sale at the Net Unit Value as of the
close of trading on the effective date of such purchase, which will be the
close on the last business day of the month in which the General Partner
accepts a duly executed Subscription Agreement and capital contribution from
the subscriber. As the Minimum for this offering has already been sold and
operation of the Partnership has commenced, no escrow will be utilized for
Units sold. All subscriptions are irrevocable and subscription payments,
after the statutory withdrawal period, if any, which are accepted by the
General Partner and deposited in the Partnership account, may not be withdrawn
by subscribers. Although a maximum of $5,000,000 of Units are offered hereby,
the Limited Partnership Agreement authorizes the General Partner to sell
additional Units and there is, therefore, no maximum aggregate number or
contribution for Units which may be offered or sold by the Partnership by
future offerings. There cannot be any assurance that any additional Units
will be sold and the General Partner is authorized, in its sole discretion, to
terminate this, or any future, offering of Units.
* CHARGES TO THE PARTNERSHIP
This prospectus discloses all compensation, fees, profits and other benefits
(including reimbursement of out-of-pocket expenses) which the General Partner
and its affiliates earn in connection with the offering.
* Compensation of the General Partner
The Partnership pays a fixed amount for brokerage commissions of twelve
percent (12%) per year, payable monthly upon the assets assigned by the
General Partner for trading to Futures Investment Company, the introducing
broker, (the "IB"), affiliated with the principal of the General Partner, for
introducing trades through ABN AMRO, the futures commission merchant (the
"FCM"). See "The Futures Commission Merchant". The IB pays all round-turn
brokerage commissions, pit brokerage and other clearing expenses to the FCM,
which acts in the normal capacity as a futures commission merchant, holds the
equity assigned by the General Partner for trading, and clears the trades
entered by the CTAs pursuant to the power of attorney granted by the General
Partner to the CTAs to trade on behalf of the Partnership. The past history
of the frequency of trades by the CTAs has been at the rate of approximately
255 round turns per month for every million dollars
5
<PAGE>
($1,000,000) of equity under management. In the unlikely event the CTAs trade
765 round turns for every million dollars ($1,000,000) in any month, the
General Partner has the right, but not the obligation, to suspend trading
until the commencement of the next month. This suspension of trading is to
limit the exposure to loss to the General Partner to a defined amount
determined by the maximum number of round turn commissions the IB pays to the
FCM during any one month. Trading will automatically resume the following
month subject to the same maximum of 765 trades for that and any future month.
From the 12% paid by the Partnership, the IB pays six percent (6%) per year to
the broker dealers and other duly licensed entities, pro-rated to the value of
Units sold, who have facilitated the sale of Units, as trailing commissions,
in exchange for services provided to the investors and the Partnership to
communicate results to the investors and other similar assistance. Upon
admission of subsequent Partners to the Partnership, a charge will be made to
such newly admitted Partners equal to their pro-rata share of the Offering
Expenses which will be credited to the Capital Accounts of the prior admitted
Partners to reimburse them for the Offering Expenses they advanced.
* Management and Incentive Fees
The Partnership pays a management fee to the General Partner at the annual
rate of two percent (2%) of equity in the Partnership payable at the end of
each month (1/6 of 1%) and a management fee to the CTAs of four percent (4%)
per year, payable at the rate of one-third of one percent (1/3 of 1%) of the
equity allocated to each CTA to trade at the close of each month, which are
held in the trading account assigned to them at the futures commission
merchant or merchants. The Partnership also pays to the General Partner an
allocation of profit, earned in the accounts assigned to each CTA, of fifteen
percent (15%) of the New Net Profit for each CTA. New Net Profit is
calculated for each quarterly period that the net value of the trading equity
for a CTA as of the end of each quarterly period for each account exceeds the
highest previous quarterly net value of the trading equity in that account for
that CTA. The General Partner is responsible for payment of all incentive
fees to the CTAs. It will be possible for one of the CTAs to produce New Net
Profit in the account assigned to him and be paid an incentive fee while the
other CTA or CTAs produce losses which cause the Partnership to suffer a net
loss for the quarter or the year. The Partnership is also obligated to bear
certain other periodic operating, fixed, and extra-ordinary expenses of the
Partnership including, but not limited to, legal and accounting fees, defense
and payment of claims, trading and office expenses, and sales charges. See
"Description of Charges to the Partnership".
* Charges to the Partnership
The following table includes all charges to the Partnership.
6
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<TABLE>
<CAPTION>
Entity Form of Compensation Amount of Compensation
<S> <C> <C>
General Partner
Management fee 2% management fee of Net Asset Value
Reimbursement of Offering Expenses Reimbursement of Offering
Expenses upon the Initial Closing
Reimbursement of Organizational Expenses Reimbursement of Organizational Expenses
amortized over 60 months
Selling Agents Sales Commission A one time charge of 6% of Gross Selling
Price of Units for Selling Commissions
Trailing Commission Trailing Commissions of 6%, paid annually,
from the 12% fixed commissions paid to the
Introducing Broker
Introducing Fixed Commissions 12% of assets assigned by General Partner for
Broker Affiliated trading, less costs to trade to FCM and less
with the General 6% trailing commissions paid to Selling
Partner Agents which will include persons Affiliated
with the General Partner Futures Commission
Merchant
Round-turn commissions paid from the fixed Brokerage Commissions negotiated with the
commissions paid by the Partnership Introducing Broker;
Reimbursement of delivery, insurance, Reimbursement by the Partnership of actual
storage and any other charges incidental to payments to third parties in connection
trading and paid to third Parties with Partnership trading
Commodity Trading Advisors Fixed Management Fee 4% per year of the trading equity assigned to
each CTA
Incentive Fee 15% of the New Net Profits of the account for
each quarterly period that the net value of
the trading equity at the end of such
quarterly period for a CTA exceeds the
highest previous quarterly net value of the
trading equity for that CTA.
Third Parties Legal, accounting fees, and other actual Estimated at $23,000 for each year after
expenses necessary to the operation of the the first ($18,000 for accounting and
Partnership, and all claims and other $5,000 for legal). Claims and other costs
extraordinary expenses of the Partnership. can not be estimated and will be paid as
incurred.
</TABLE>
See "Charges to the Partnership".
* USE OF PROCEEDS
The gross sales price, less 6% sales commissions (i.e., the net proceeds of
the offering, together with the General Partner's capital contribution) will
be used in the Partnership's business of speculative, high risk trading of
commodity futures contracts, inter-bank forward currency contracts, and
options upon those contracts. Each newly admitted Partner's pro rata share of
Offering Expenses will be deducted from their investment amount and used to
credit the accounts of prior admitted Partners for the Offering Expenses they
advanced. No limitations have been placed by the General Partner upon the
positions or types of contracts which may be traded by the CTAs who trade for
the Partnership. The General Partner has complete authority pursuant to the
Partnership Agreement to determine, from time to time, the amount of equity
deposited with the FCM and how much is used for other investments and on
deposit in bank accounts. The General Partner deposits 3% of the prior month-
end Net Asset Value to a regular checking account in the name of the
Partnership to pay current expenses and Redemptions for the next month and the
balance to be deposited with the FCM to be available for trading. From 5% to
40% of the Net Asset Value on deposit with the FCM is committed to margin to
hold positions taken by the CTAs for the account of the Partnership.
The General Partner purchases Units to permit it to maintain not less than a
one percent (1%) interest in the income, losses, gains, deductions and credits
of the Partnership. In addition, the General Partner may purchase additional
Units for the same price established, from time to time, pursuant to the terms
of this Offer, without payment of sales commissions.
* SELECTION OF COMMODITY TRADING ADVISORS AND ALLOCATION OF EQUITY
The General Partner is solely responsible for the selection of the CTAs and
the allocation of equity to the CTAs it selects. The General Partner has
entered in advisory contract with independent commodity trading advisors to
direct all trading with the commodity broker, ABN-AMRO, (the "Futures
Commission Merchant"). The Partnership currently relies, pursuant to the
Advisory Agreements and Powers of Attorney attached as Exhibits F and G, upon
Michael J. Frischmeyer ("Frischmeyer") and EPIC Trading ("EPIC"), the
Commodity Trading Advisors selected by the General Partner to trade the equity
of the Partnership and to implement the trading methods and strategies. The
General Partner has assigned substantially all of the Partnership's net assets
as trading equity as follows: 50% of total trading equity to Frischmeyer and
50% to EPIC. The first $300,000 of equity raised pursuant to the sale of
Units through this offering will be allocated to
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another CTA, Bell Fundamental Futures, L.L.C. ("Bell") (see Exhibit H). As
additional equity is raised, it will be distributed to reallocate the equity
under management such that 30% of the total is allocated to Frischmeyer, 40%
to EPIC and 30% to Bell. No additional CTAs are contemplated to be added
regardless of the number of additional Units sold; provided however, that the
General Partner may, in its sole discretion and without notice to the Limited
Partners, terminate any existing CTA, select additional CTAs, or change the
allocation of equity among the CTAs. None of the CTAs currently selected are
affiliates of the General Partner, or its principal, nor will the General
Partner serve as CTA or select any other CTAs to trade for the Partnership
which are affiliates of it or its principal. See "The Commodity Trading
Advisors" for a summary of the CTAs' performance information.
* FEDERAL INCOME TAX ASPECTS
Partners must pay tax on any profits during the year earned by the Partnership
even though no distributions may have been made during that year. The
Partnership pays no income tax and prospective investors must recognize that
the actual and pro-forma performance records set forth in this Prospectus do
not reflect the taxes payable by investors on their investment. Partners are
taxed on interest income earned by the Partnership even though trading
produces losses in excess of such interest income. The Partnership's fiscal
year for financial reporting and for tax purposes is the calendar year. The
General Partner has delegated to Mr. James Hepner, certified public
accountant, the responsibility for the preparation of the Partnership's Form
K-1's which is the Internal Revenue Service form which reports the taxable
income and loss to each individual Partner and which are included in the
Partnership's tax return. The General Partner has or will make certain
elections on behalf of the Partnership and has been appointed "tax matters
partner" in the Limited Partnership Agreement to determine the Partnership's
response to an audit and to bind certain Limited Partners to the terms of any
settlement. Such settlement may not necessarily be in the best interest of
the Limited Partners. The General Partner intends not to treat any part of
the incentive profit sharing, brokerage commissions and other ordinary
expenses of the Partnership as "investment advisory fees". A change in such
treatment could result in the Partners recognizing taxable income despite
having incurred a financial loss. No legal opinion has or will be requested
by the Partnership in regard to any tax matter which involves the
determination by the IRS of the facts related to the operation of the
Partnership or as to any other matter which may be subject to Internal Revenue
Service interpretation or adjustment upon audit.
* No Legal Opinion As To Certain Material Tax Aspects
No legal opinion has or will be requested by the Partnership in regard to any
State income tax issue. In addition, tax counsel to the Partnership cannot
opine upon any Federal income tax issue which involves a determination by the
IRS of the facts related to the operation of the Partnership or as to any
other matter which may be subject to Internal Revenue Service interpretation
or adjustment upon audit. For example, commodity trading adviser fees are
aggregated with employee business expenses and other expenses of producing
income and the aggregate of such expenses is deductible only to the extent
such amount exceeds 2% of the taxpayer's adjusted gross income. The Federal
income tax deductibility of these expenses depends upon factual determinations
related to the operation of the Partnership by the General Partner.
Accordingly, investors are encouraged to seek independent tax counsel with
regard to these matters. See "Federal Income Tax Aspects".
* REDEMPTIONS
No Partner may redeem or liquidate any Units until six (6) months after the
investment in the Partnership. A Limited Partner may thereafter request the
Partnership, subject to payment of fees, if applicable, and other conditions,
to redeem Units held by such Limited Partner at the Net Unit Value, adjusted
to reflect certain reserves and contingencies, as determined at the end of the
applicable monthly period. Redemption shall be after all liabilities,
contingent, accrued, and reserved, in amounts determined by the General
Partner have been deducted and there remains property of the Partnership
sufficient to pay the Net Unit Value. A Limited Partner desiring to have
Units redeemed must provide written notice to the General Partner by 12:00
noon on the tenth calendar day immediately preceding the last business day of
the month in which the Units are requested to be redeemed.
Under certain circumstances, the General Partner may honor requests for
Redemption only in part and/or suspend Redemptions or delay payment of
Redemptions. These circumstances include, but are not limited to, the
inability to liquidate positions as of such Redemption date or default or
delay in payments due the Partnership from banks, brokers, or other persons.
The Partnership may in turn delay payment to Partners requesting Redemption of
Units of the proportionate part of the Net Unit Value represented by the sums
which are the subject of such delay or default. The General Partner, in its
sole discretion may, upon notice to the Partners, declare additional
Redemption dates and may cause the Partnership to
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redeem fractions of Units and, prior to registration of Units for public sale,
redeem Units held by Partners who do not hold the required minimum amount of
Units established, from time to time, by the General Partner.
Redemption of Units shall be charged a redemption fee towards the value of the
Units and will be made payable to the Partnership equal to four percent (4%)
for all Redemptions requested prior to the nineteenth day of the twelfth month
after the date of the sale of the Units for which Redemption is requested.
Thereafter, there will be a reduction of one percent (1%) for each six (6)
months the investment in the Units remained invested in the Fund after the
initial twelve months; i.e., 13-18 months a Redemption fee of 3%, 19-24 months
2%, 25-30 months 1%, and, thereafter, no redemption fee.
See the Limited Partnership Agreement, Exhibit A, and "The Limited Partnership
Agreement, Redemptions". Distributions will be made from the Partnership only
in the sole discretion of the General Partner and no such distributions are
expected to be made.
* PLAN OF DISTRIBUTION
The Units are being offered and sold through Futures Investment Company
("FIC"), the Affiliated IB of the principal of the general partner, and other
broker dealers it, or the General Partner may select, on a best efforts basis.
The selling commission is six percent (6%) of the gross subscription for all
Units sold. See "Subscription Procedure" and "Plan of Distribution". FIC is
registered as a broker dealer with the SEC and is a member of the National
Association of Securities Dealers, Inc. (the "NASD").
* SUBSCRIPTION PROCEDURE
The minimum investment per subscriber in the Partnership is $15,000. The
General Partner may, in its sole discretion, agree to accept investments from
a subscriber of less than $15,000; provided, however, no such subscription
shall be less than $5,000. All investments are subject to compliance with the
minimum suitability standards established by the state of residence of the
investor. Unless higher amounts are otherwise specified for residents of a
particular state, an investor must have at least either (i) a minimum net
worth (determined exclusive of home, home furnishings, and automobiles) of
$150,000, or (ii) a minimum annual gross income of $45,000 and a minimum net
worth of $45,000 (once again determined exclusive of home, home furnishings
and automobiles). In the case of sales to fiduciary accounts, the net worth
and income standards may be met by the beneficiary, the fiduciary account, or
by the donor or grantor who directly or indirectly supplies the funds to
purchase the Units, if the donor or grantor is the fiduciary. In order to
purchase Units, an investor must complete, execute, and deliver to the General
Partner a Subscription Agreement, see Exhibit "D".
RISK FACTORS
Investment in the Units is speculative, involves a high degree of risk, and is
suitable only for persons who have no need for liquidity in their investment
and who can also afford to lose their entire investment in the Partnership.
In addition to the Risk Disclosure Statements at the beginning and in the
Summary of this Prospectus, investors should carefully consider the following
risks and the conflicts of interests before subscribing for Units. All of
these risks and conflicts are present in different degrees, and, unless
otherwise stated, are without regard to how many Units are sold through this
offering.
PAST 10-K AND 10-Q FORMS WERE FILED LATE
The Fund, in reliance upon legal counsel, believed that the reporting
requirements under the Securities and Exchange Act of 1934 (the "34Act") did
not commence until after the General Partner had accepted the subscriptions
because, until that time, no securities had been issued. No securities were
issued prior to the break of escrow on or about November 12, 1996. In March,
1997, the Fund received notice from the Securities and Exchange Commission
that the obligation to file periodic reports on Forms 10-Q and 10-K under the
34Act commenced at the time the Fund registration statement became effective
on August 12, 1996. The Fund was not selling Fund Units at that time and
focused upon filing the Forms 10-Q for September 30, 1996, and the Form 10-K
for the year ended December 31, 1996, as quickly as possible. The Form 10-K
for the year ended December 31, 1996, was filed on April 25, 1997, when it
should have been filed on March 30, 1997, because legal counsel believed the
Company had 120 days to file. The Form 10-Q for the period ended September
30, 1996 was filed on April 30, 1997 because the 1996 10-K was given priority
and because during the period from August 12, through September 30, 1996, no
activity had taken place in the Fund or the General Partner. No sales of
Units have been made since March 30, 1997. The Company has taken steps to
assure that the quarterly Form 10-Q is filed within 45 days after each quarter
and the annual Form 10-K is filed within 90 days after the end of each year.
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LIMITED OPERATION EXPERIENCE OF THE GENERAL PARTNER
The General Partner of this Partnership is a Delaware corporation which has
only operated this commodity pool since November, 1996, and has operated
Auburn Fund, Limited Partnership since May, 1998. However, the principal of
the General Partner has over sixteen years of experience selecting commodity
trading advisors to manage individual investor accounts and describing to
individual investors how individual managed futures accounts work.
THE PARTNERSHIP WILL PAY SUBSTANTIAL CHARGES - INVESTORS HAVE LIMITED
OPPORTUNITY TO REALIZE RETURN ON INVESTMENT
The Partnership is obligated to pay fixed brokerage commissions of twelve
percent (12%) per year, payable monthly, upon the assets assigned by the
General Partner for trading, a management fee to the General Partner of two
percent (2%) of Net Asset Value, payable monthly, and a management fee on the
equity assigned to each CTA of 4%, payable monthly, plus an estimated $23,000
per year in expenses, ($5,000 in legal expense and $18,000 in accounting and
audit charges), together with Offering Expenses estimated to be $47,000 and
Organizational Expenses of $5,000, amortized on a straight line method over
the first 60 months of the Partnership's operation. The General Partner has
advanced the Offering Expenses and has been reimbursed for such expenses from
the gross proceeds of the Offering from the break of Escrow at the time of the
Initial Closing. Upon admission of subsequent Partners to the Partnership, a
charge will be made to such newly admitted Partners equal to their pro rata
share of the Offering Expenses which will be credited to the Capital Accounts
of the prior admitted Partners to reimburse them for the Offering Expenses
they advanced. The Partnership expects to earn interest income. The
Partnership must earn income of $280.71 per Unit during the first year
subsequent to purchase of the Unit to permit an investor to redeem a Unit at
the price paid for the Unit (which as of October 31, 1998, was $719 per Unit).
The Partnership must pay variable operating expenses such as incentive fees to
the CTAs, telephone, postage, and office supplies, and extra-ordinary
expenses, such as claims and defense of claims from brokers, Partners, and
other parties. Also, because the incentive fees are determined on a
quarterly, rather than on an annual basis, and are paid to the CTAs when
profitable without regard to total income or loss of the Partnership during
the period, the Partnership may be subject to substantial incentive fees in
any given twelve (12) consecutive month period despite total losses which
produce a decline in the Partnerships Net Assets for any such period. See
"Description of Charges to the Partnership". The above charges may make it
difficult for investors to redeem their Units at a price equal to or above the
purchase price.
NO RIGHT TO TRANSFER UNITS - LIMITED ABILITY TO REALIZE RETURN ON INVESTMENT
Units cannot be assigned, transferred or otherwise encumbered except upon
certain conditions, including the consent of the General Partner as set forth
in the Limited Partnership Agreement, which also imposes certain conditions
and restrictions on the ability of a transferee of a Unit to become a
substituted Limited Partner. In no event may an assignment be made or
permitted until after six months from the date of purchase of such assigned or
transferred Units(s) by said Partner; and, provided, further, that full Units
must be assigned and the assignor, if he is not assigning all of his Units,
must retain more than five Units. Any such assignment shall be subject to all
applicable securities, commodity, and tax laws and the regulations promulgated
under each such law. The General Partner shall review any proposed assignment
and shall withhold its consent in the event it determines, in its sole
discretion, that such assignment could have an adverse effect on the business
activities or the legal or tax status of the Partnership, including
jeopardizing the status of or causing a termination of the Partnership for
Federal income tax purposes or affecting characterizations or treatment of
income or loss. See "The Limited Partnership Agreement, No Right to Transfer
Without Consent of General Partner" and Exhibit A, "The Limited Partnership
Agreement", Article VIII which provides that no transfer of Units may be made
without the written approval of the General Partner. See also Article VI,
paragraph 6.1 and 6.2, of the Limited Partnership Agreement attached as
Exhibit A.
Restrictions and conditions are also imposed upon a Partner's right and
ability to cause the Partnership to redeem and liquidate the Partner's Units,
including approval by the General Partner and certain liquidity conditions.
Redemptions may also be honored only in part and/or delayed and/or suspended
in certain circumstances. These circumstances include, but are not limited to,
the inability to liquidate positions as of such Redemption date or default or
delay in payments due the Partnership from banks, brokers, or other persons.
The Partnership may in turn delay payment to Partners requesting Redemption of
Units of the proportionate part of the Net Unit Value represented by the sums
which are the subject of such delay or default. Redemption of Units shall be
charged a redemption fee, payable to the Partnership, to be applied first to
pay organization costs and, thereafter, to the benefit of the other Partners
in proportion to their Capital accounts, equal to four percent (4%) for all
Redemptions effective during the first six (6) months after the purchase of
the Units to be redeemed by the investor. Thereafter, there will be a
reduction of one percent (1%) in the Redemption fee for each six (6)
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months the investment in the Units remained invested in the Fund. The General
Partner and its principal may redeem Units from the Partnership at any time
without payment of a Redemption fee. See "The Limited Partnership Agreement,
Redemptions". Further, substantial Redemptions of Units could require the
Partnership to liquidate positions more rapidly than otherwise desirable in
order to raise the necessary cash to fund the Redemptions, and, at the same
time, cause a smaller equity base for the Partnership. The absence of buyers
or sellers in the market could also make it difficult or impossible to
liquidate positions in this circumstance on favorable terms, and may result in
further losses to the Partnership which decrease the Net Unit Value of the
remaining outstanding Units.
INVESTORS MUST RELY UPON THEIR LIMITED RIGHT OF TRANSFER AND REDEMPTION RIGHTS
TO REALIZE A RETURN ON THEIR INVESTMENT
Since there is no assurance that the Partnership will distribute to the
Partners any profits the Partnership may experience, the Partners will have to
depend on their limited and restricted transfer and Redemption rights to
realize their investment in the Units. See "The Limited Partnership
Agreement, Redemptions".
RELIANCE ON THE PRINCIPAL OF THE GENERAL PARTNER COULD BE RESTRICTIVE TO
PARTNERSHIP ACTIVITIES
Limited Partners will be relying entirely on the ability of the General
Partner to select and to monitor the commodity trading activity of the
Partnership, including the CTAs and any additional or substituted trading
advisors that may be retained in the future. Ms. Pacult is the sole principal
and officer of the General Partner, is a principal of the IB and the Selling
Agent, and the Partnership currently has no employees and, therefore, no
report of executive compensation is made in this Prospectus. If Ms. Pacult
were to become incapacitated or otherwise rendered incapable of performing her
duties as principal of the General Partner, the Partnership would have to
cease operations and trading until a replacement could be found. In addition,
the General Partner must maintain sufficient net worth to make this offering
pursuant to the rules and regulations of certain State Securities
Administrators (the "NASAA Guidelines") and to maintain the tax status of the
Partnership pursuant to the Rules and Regulations of the Federal Internal
Revenue Service ("IRS Requirements"). To accomplish those results, the
General Partner has entered into a Subordinated Loan Agreement dated April 25,
1995, with Ms. Pacult whereby Ms. Pacult has agreed to loan up to $265,000 to
the General Partner to be repaid on January 12, 2017, or at such time as the
General Partner has sufficient net worth to comply with NASAA Guidelines and
IRS Requirements. In the event of Ms. Pacult's incapacity to supply the loan,
the Partnership could be unable to secure a similar loan from another source
and would have to cease operations and trading.
GENERAL PARTNER AND CTAs TO SERVE OTHER COMPETING BUSINESSES
The General Partner manages another privately offered commodity pool, Auburn
Fund, Limited Partnership, which uses Frischmeyer as a CTA (and, thus, uses
similar trading methods as the Partnership). It also uses FIC, the IB which
is Affiliated with the principal of the General Partner, to enable it to
negotiate better terms for clearing and other services. The better terms may
produce better results for individual customers of FIC or any other commodity
pools either FIC or the General Partner may undertake to manage. See
"Responsibility of the General Partner". Each CTA currently manages other
commodity accounts and may manage new or additional deposits to existing
accounts, including personal accounts and other commodity pools. Although
each CTA intends to use similar trading methods for the Partnership and all
other discretionary accounts it manages, it may vary the trading method
applicable to the Partnership from that used for other managed accounts. No
assurance is given that results of the Partnership's trading will be similar
to that of any other accounts which are now, or in the future, concurrently
managed by any CTA. See "Risk Factors", "Trading Management", and "The
Commodity Trading Advisors".
PARTNERSHIP HAS LIMITED OPERATING HISTORY
As the Partnership only commenced operations in November, 1995, it has a
limited operating history. There is no way to predict the future performance
of the Partnership. Additionally, the General Partner has limited experience
as a commodity pool operator. See "Description of the General Partner"; and,
"Limited Operation Experience of the General Partner".
CONFLICTS OF INTEREST IN THE PARTNERSHIP STRUCTURE
Certain actual and potential conflicts of interest do exist in the structure
and operation of the Partnership which must be considered by investors before
they purchase Units in the Partnership. Specifically, the principal of the
General Partner is also a principal of Futures Investment Company ("FIC"), the
NFA registered IB and the NASD registered Selling Agent. It
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would, therefore, be unlikely for the General Partner to replace FIC as either
the IB, because it receives 12% in fixed commissions from the Partnership to
pay round-turn brokerage commissions and trailing commissions or as the
Selling Agent because it receives 6% selling commissions from the IB. In
addition, due to the Selling Agent's affiliation with the principal of the
General Partner, no independent due diligence of the offering has been, or
will be, conducted for the protection of the investors. See "Risk Factors",
"Conflicts of Interest", and "the Limited Partnership Agreement" attached as
Exhibit A to this Prospectus.
LIMITED PARTNERS WILL BE TAXED ON PROFITS NOT DISTRIBUTED
The Partnership is not required to make any cash distributions from profits
and the principal objective of the Partnership is to increase capital, not
create cash flow. If the Partnership realizes profits for a fiscal year, such
profits will be taxable to the Partners in accordance with their distributive
share whether or not the profits have been distributed. Distributions to
Limited Partners may not equal taxes payable by Partners with respect to
Partnership profit. Also, the Partnership might sustain losses offsetting
such profit after the end of the year, so a Partner might never receive a
distribution in an amount equal to the distributive share of the Partnership's
prior year's taxable income. See "Federal Income Tax Aspects" and Exhibit A,
the "Limited Partnership Agreement".
PRESENT TRADE SELECTION METHODS SUBJECT TO SUDDEN ADVERSE CHANGE
The Partnership relies, pursuant to the Advisory Agreements and Powers of
Attorney attached as Exhibits F and G, upon Frischmeyer and EPIC, for the
implementation of trading methods and strategies. Upon the sale of additional
Units pursuant to this offering, an additional CTA, Bell, will be allocated
equity to trade on substantially similar terms. (Exhibit H). The Advisory
Agreements provide that either the General Partner, or any CTA, may terminate
the relationship for any reason without notice to the other or the Limited
Partners, and under these circumstances, the General Partner has absolute
discretion to choose alternate CTAs. If the services of any CTA become
unavailable, for any reason, the General Partner will select one or more other
trading advisors to trade for the Partnership. No assurance is provided that
any other substitute traders or methods will perform profitably or will be
retained on as favorable terms as the replaced CTA.
LIMITED PARTNERS WILL NOT PARTICIPATE IN MANAGEMENT
Limited Partners do not participate in the management of the Partnership or in
the conduct of its business. To the extent that a Limited Partner would
attempt to become involved or identified with the management of the
Partnership, such Limited Partner could be deemed a General Partner of the
Partnership. No such right is conferred upon any Limited Partner by the
Partnership Agreement. See Exhibit A, "the Limited Partnership Agreement".
COMMODITY FUTURES TRADING IS SPECULATIVE AND VOLATILE - UNITS MAY NOT BE
REDEEMABLE BEFORE SUBSTANTIAL DEVALUATION OF NET UNIT VALUE
Commodity futures, forward, and option contract prices are highly volatile.
Price movements are influenced by changes in supply and demand; weather;
agricultural trade, fiscal, monetary and exchange control programs and
policies of governments; national and international political and economic
events; and, changes in interest rates. In addition, governments, exchanges,
and other market authorities intervene to influence prices. In addition,
notwithstanding that the analysis of the fundamental conditions by the
Partnership's trader is correct, prices still may not react as predicted. It
is also possible for most of the Partnership's open positions to move against
it at the same time. These negative events may occur in connection with
changes in price which reach the daily limit beyond which no further trading
is permitted until the following day. It is possible for daily limits to be
reached in the same direction for successive days. Should this occur and one
of the CTAs has taken a position on behalf of the Partnership which is adverse
to the daily move in a particular commodity, the Partnership may not be able
to exit the position. And when the market reopens, the position could cause a
substantial loss to the Partnership. The loss could exceed not only the
amount allocated for margin to establish and hold the position but also more
than the total amount of equity in the account. Redemption only occurs at the
end of the month and is based upon the Net Unit Value at that time. Investors
could be prevented from being able to redeem the Units before significant
devaluation occurs. See "The Limited Partnership Agreement, Redemptions".
LOW SECURITY DEPOSIT IN RELATION TO PRICE MOVEMENT
The small amount of money to be deposited ("margins") to hold or short a
contract relative to its value (typically between 3% and 20% of the value)
permit a large percentage gain or loss relative to the size of a commodity
account. A small price movement in the value of the contract bought or sold
is expected to result in a substantial percentage gain or loss of equity
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to the Partnership. For example, if at the time of purchase, five percent
(5%) of the price of the futures contract is deposited as margin, a five
percent (5%) decrease in the value of the position will cause a loss of all of
the equity allocated to the trade, which could equal all of the value of the
account. In addition, the amount of margin assigned to a trade by the FCM is
only a security deposit to hold the position. The loss on a position could be
substantially more than the margin deposited and the value of the account.
TRADE SELECTION MADE WITHOUT NOTICE TO PARTNERSHIP - PARTNERSHIP MAY BECOME
DEVALUED BEFORE GENERAL PARTNER IS ABLE TO TAKE REMEDIAL ACTION
The CTAs enter trades on behalf of the Partnership directly with the FCM
without the prior knowledge or approval of the General Partner of the methods
used by the CTAs to select the trades, the number of contracts, or the margin
required. In addition, the General Partner does not know the prior methods
used by the CTAs to compile the track record disclosed in this Prospectus
which was the basis for the selection of the CTAs by the General Partner to
trade for the Partnership. Nor does the General Partner know how many times,
if any, the trading methods of the CTAs have been changed in the past. The
General Partner will not be notified of any modifications, additions or
deletions to the trading methods and money management principles utilized by
the CTAs. It is possible for the Partnership to experience sudden and large
losses before the General Partner becomes aware of the need to take remedial
action.
PARTNERSHIP COULD LOSE SUBSTANTIAL ASSETS DUE TO LACK OF MARKET LIQUIDITY
It is not always possible to execute a buy or sell order, due to market
illiquidity. Such illiquidity can be caused by a lack of open interest in the
contract, market conditions which produce no persons willing to take a
particular side of a trade, or it may be the result of factors like the
suspension of trading because of "daily price limits". Most United States
commodity exchanges limit movement in a single direction in one trading day by
rules referred to as "daily price limits". These limits provide that no
trades may be executed at prices beyond the daily limits. Once the price of a
futures contract for a particular commodity has increased or decreased by an
amount equal to the daily limit, positions in the commodity can be neither
taken nor liquidated unless traders are willing to effect trades at or within
the limit. Commodity futures prices have occasionally moved the daily limit
for several consecutive days with little or no trading. Similar future
occurrences could prevent the Partnership from promptly liquidating
unfavorable positions and subject it to substantial losses which could exceed
the equity on deposit ("margins") for such trades. The inability to liquidate
positions could frustrate the trading plan of the CTAs and cause losses to the
Partnership in excess of the money invested.
INCREASED TRADING EQUITY TO CTAs MAY ADVERSELY AFFECT THEIR PERFORMANCE
Commodity trading advisors often are unable to adjust to a change in the size
of the money they have under management. This is caused by numerous factors
including, but not limited to, (i) the difficulty of executing substantially
larger trades made necessary by the larger amount of equity under management,
(ii) the restrictive effect of limits imposed by the CFTC on the number of
positions that may be taken on certain commodities (Position Limits), or,
(iii) the diminishment of opportunity to Scale in Positions (taking positions
at different prices at different times and allocating those positions on a
ratable basis when available equity is reduced). See the definitions section,
Appendix I, for the full definitions of Position Limits and Scale in
Positions. The CTAs have not agreed to limit the amount of additional equity
that they may manage, and they contemplate managing (and in all likelihood
will manage) additional equity. Increased equity generally results in a
larger demand for the same futures contract position among the accounts
managed by a commodity trading advisor. CTA performance suffers when the
total equity available for the CTA to trade increases to a level where the
market selected will not permit the placement of a position at the time the
CTA selects. When the CTAs are allocated trading equity upon the sale of the
Minimum or upon the sale of additional Units, their performance may
unexpectedly suffer. Furthermore, a considerable number of analysts believe
that a trading advisor's rate of return tends to decrease as the amount of
equity under management increases.
PARTNERSHIP WILL NOT BE COMPENSATED IF PARTNERSHIP ACTIVITY RESULTS IN LOWER
COMMISSIONS FOR OTHER ACCOUNTS
The General Partner, and its principal, have not made agreements with or on
behalf of the Partnerships with third parties for the purpose of benefit,
directly or indirectly, to either of them; however, the maintenance of the
Partnership's Assets with the Partnership's FCM is expected to increase
trading activities which may enable the IB Affiliated with the principal of
the General Partner to negotiate a lower payment to the FCM for clearing the
trades of other accounts, including partnerships, presently in existence or
established in the future by the General Partner, its principal, or other
customers of the IB Affiliated with the principal of the General Partner, or
its other principal, and their Affiliates.
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FAILURE OF COMMODITY BROKERS OR BANKS COULD RESULT IN LOSS OF ASSETS
If the FCM engaged by the Partnership to execute trades were to become
bankrupt, it is possible that the Partnership would be able to recover none or
only a small portion of its assets held by such FCM. In addition, those funds
deposited in the Partnership's account at a U.S. bank will be insured only up
to $100,000 under existing Federal regulations. All insured deposits are
subject to delays in payment and amounts on deposit in a single bank in excess
of $100,000 would be subject to the risk of total loss.
COUNTERPARTY CREDITWORTHINESS MUST BE RELIED UPON IN FOREIGN MARKETS
The trading of commodities involves the entry of a contract or option to
contract for the delivery of goods or money at a future date. The value of
the contract or option is directly dependent upon the creditworthiness of the
other party to the contract. The CTAs selected engage in trading of
commodities on United States Commodity Exchanges, foreign commodity exchanges,
and the inter-bank currency markets. The commodity exchange contracts and
options traded on United States Exchanges are subject to regulation pursuant
to the Commodity Exchange Act and are guaranteed by the credit of the members.
Contracts and options upon foreign commodity exchanges and the inter-bank
currency markets are usually not regulated by specific laws and are backed
only by the parties to the contracts. It is possible for a price movement in
a particular contract or option to be large enough to destroy the
creditworthiness of the contracts and options issued by a particular party or
all of the contracts and options of an entire market. In that situation, the
CTA could lose the entire value of a position with little recourse to regain
any of its value. The CTAs manage this risk by trading a widely diversified
portfolio of futures markets.
TRADING ON FOREIGN EXCHANGES INHERENTLY RISKIER THAN U.S. MARKETS
The Partnership may trade in futures, forward and option contracts on
exchanges located outside the United States where CFTC regulations do not
apply, and trading on such exchanges may be subject to greater risks than
trading on United States exchanges. The trades are denominated in the foreign
currency at the location of the trade. Accordingly, in addition to the price
fluctuation of the position taken, the rate of inflation or other currency
related factor may adversely affect the price. Thus, a trader is at greater
risk to losing the value of a trade on foreign exchanges than on US exchanges
and may lose a significant portion of his allocated equity for trading.
INVESTORS COULD INCUR SUBSTANTIAL LOSSES FROM THE PARTNERSHIP TRADING ON
FOREIGN EXCHANGES TO WHICH THEY WOULD NOT HAVE BEEN SUBJECT HAD THE
PARTNERSHIP LIMITED THE TRADING OF ITS CTAs TO U.S. MARKETS.
TRADING FORWARD CURRENCY CONTRACTS ARE NOT SUBJECT TO U.S. REGULATION AND ARE
INHERENTLY RISKY
Forward contracts are negotiated by the parties without CFTC or other
government regulation rather than by the regulated open out-cry method used on
United States exchanges. The Partnership may experience credit limitations
and other disadvantages during negotiations that may compromise its ability to
maximize profits. There are no limitations on daily price moves or position
limits in forward contracts, although the principals with which the
Partnership may deal in the forward markets may limit the positions available
to the Partnership as a consequence of credit considerations. Accordingly,
the Partnership is exposed to significant loss without the protective
safeguards of the U.S. regulated markets.
OPTIONS TRADING PUTS MORE PARTNERSHIP CAPITAL AT RISK
The Partnership may engage in the trading of options (both puts and calls).
No assurance can be given that a liquid market will exist for any particular
commodity option or at any particular time after a position is taken. If
there is insufficient liquidity in the option market at the time, the
Partnership may not be able to buy or sell to offset (liquidate) the positions
taken. Options trading allows the trade to be put in place with less equity
on deposit to secure the risk of loss. And, therefore, the investor is
exposed to the loss of a greater percentage of equity allocated to the trade
because of the increased number of positions which can be held as contrasted
with futures or physical positions. In the commodities markets the investor
puts at risk more capital at risk than the amount committed to margin. The
CTA may become subject to a margin call, or the request for the CTA to put
more money in its account by the futures commission merchant to cover the
losses sustained in a trade. In this situation, the overall performance of
the Partnership may suffer due to the money lost on the trade and the possible
need for additional capital to cover the margin call.
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POSITION LIMITS MAY AFFECT PROFIT POTENTIAL
The CFTC and the United States commodity exchanges have established limits
referred to as "Speculative Position Limits" or "Position Limits" (these are
different from "daily limits" described above) on the maximum net long or net
short futures or options positions which any person or group of persons may
own, hold, or control in futures contracts, except position limits do not
presently apply to certain currency futures contracts. No limitations have
been placed by the General Partner upon the positions or types of contracts
which may be traded by the CTAs who trade for the Partnership. All commodity
accounts owned, controlled or managed by a CTA and the advisor's principals
are combined for position limit purposes, to the extent they may be
applicable. Thus, a CTA may not be able to hold sufficient positions for the
Partnership to maximize the return on a particular trade on behalf of the
Partnership due to similar positions taken for other accounts or entities, and
the performance of the Partnership may not be as great as it could otherwise
be.
COMPETITION IS INTENSE
Commodity futures trading is highly competitive. The Partnership competes
with others who may have greater experience, more extensive information about
and access to developments affecting the futures markets, more sophisticated
means of analyzing and interpreting the futures markets, and greater financial
resources. The greater the experience and financial resources, the better
chance an investor has to trade commodities at a profit. The Partnership is
limited to trading without the advantages of a warehouse to take delivery of
commodities or a large capital base to hold positions during a period when
prices do not perform as expected.
ALLOCATION OF EQUITY TO A CTA MAY OCCUR AT SUBOPTIMAL TIME FOR MAXIMIZING
PROFITS
Upon the selection of a new CTA by the General Partner, the Partnership will
encounter a start-up period during which it will incur certain risks relating
to the initial assignment of equity to such CTA and investment by the CTA of
its assigned trading equity in commodity trading positions. The Partnership
may allocate equity at a difficult time, such as after sustained moves in the
commodities markets, which result in significant initial losses. Moreover,
this period also represents a special risk in that the level of
diversification of the Partnership's portfolio may be lower than in a Fully-
Committed portfolio, where the objective percentage of equity is placed at
risk or the CTA reaches the limit in number of positions. The CTAs divide the
equity assigned to them into uniform dollar amounts to trade. For example,
Mr. Frischmeyer uses his best efforts to trade every $40,000 the same. In
other words, the Trading Matrix for Mr. Frischmeyer is $40,000. No assurance
can be given that the CTAs' procedures for moving to a Fully-Committed
Position within its allocated equity will be successful. For example, a CTA
may have determined that the grains are in short supply and have taken a
position in February while the Partnership is not ready to break escrow until
May. The entry into the grains in May could be too late to experience the
gains required to assume the risk of taking the position and the CTA may elect
to defer taking a fully invested position until his grain trade is completed
for his other accounts. See the Definitions in Appendix I for the full
definitions of Trading Matrix and Fully Committed Position.
CHANGES IN THE SIZE OF THE PARTNERSHIP MAY ADVERSELY AFFECT CTAs' ABILITY TO
TRADE PROFITABLY
Similar to the effects of the initial allocation of equity to a CTA discussed
in the previous risk factor, any substantial increase or decrease in the CTAs'
trading equity could have an adverse effect on their trading, A CTA may be
unable to adjust to and properly diversify a sudden increase in trading equity
to be consistent with its Trading Matrix or trading strategy. A sudden
decrease in equity due to Redemptions may cause the CTA liquidate a position
before experiencing a profit, or the CTA may preferentially liquidate
positions to experience as little loss as possible in such a way that results
in an undiversified portfolio. There is no guarantee that the CTAs will be
able to recover from such changes in trading equity. See also "Risk Factors,
Increased Trading Equity to CTAs May Adversely Affect Their Performance", and
"The Limited Partnership Agreement, Redemptions".
FAILURE TO MAINTAIN NET WORTH OF THE GENERAL PARTNER MAY RESULT IN SUSPENSION
OF TRADING AND SUSTAINED LOSSES
The state securities administrators have established guidelines applicable to
the sale of interests in commodity pool limited partnerships. Among those
guidelines is the requirement that the Net Worth of a sole corporate general
partner be equal to five percent (5%) of the amount of the offering; provided,
however, such Net Worth is never to be less than $50,000 nor is it required to
be more than $1,000,000. The General Partner has and intends to use its best
efforts to maintain its Net Worth in compliance with these guidelines. There
can be no assurance, however, that the General Partner can maintain its
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Net Worth in conformity with these requirements. The reduction in Net Worth
to below these limits will cause a suspension in trading to either permit the
General Partner to restore its Net Worth or to liquidate the Partnership. If
trading is suspended, there is no guarantee that the CTAs will be able to
liquidate their positions without sustaining losses, or that they will be able
to trade profitably if trading resumes. Any successful claims against the
General Partner are expected to be limited in amount of recovery to the amount
of Net Worth maintained by the General Partner.
INABILITY TO MAINTAIN NET WORTH OF GENERAL PARTNER COULD RESULT IN POSSIBILITY
OF TAXATION AS A CORPORATION
When a sole general partner is a corporation, as is the case in this
Partnership, IRS Requirements include a "significant" Net Worth test as one of
the elements examined to determine if a partnership will be taxed as a
partnership rather than as an association taxed as a corporation. The General
Partner, to qualify for the safe harbor ("Safe Harbor") definition of
"significant" Net Worth is required to maintain a net worth of fifteen percent
(15%) of the first $2,500,000 of capital contributions to all such
partnerships or $250,000, whichever is less, and, ten percent (10%) of all
capital contributions in excess of $2,500,000. The General Partner intends to
use its best efforts to utilize this Safe Harbor or otherwise to satisfy the
IRS requirements necessary to cause the Partnership to be taxed as a
partnership and not as a corporation. The tax status of the Partnership has
not been confirmed by a ruling from the IRS. No such ruling has been or will
be requested on behalf of the Partnership. If the Partnership should be taxed
as a corporation for Federal income tax purposes in any taxable year or years,
(i) income or loss of the Partnership would not be passed through to the
Partners; (ii) the Partnership would be subject to tax on its income at the
rate of tax applicable to corporations; (iii) all or a portion of
distributions, if any, made to Partners would be taxed to the Partners as
dividend income; and, (iv) the amount of such distributions would not be
deductible by the Partnership in computing its taxable income. See the
"Federal Income Tax Aspects" section of this Prospectus.
GENERAL PARTNER NOT TO ADVISE INVESTORS - INCLUDING RETIREMENT PLAN AND IRA
PARTICIPANTS
The purchase of a Unit does not itself create an IRA and the creation and
administration of an IRA are solely the responsibility of the investor. A
retirement account should carefully consider the diversification of the
retirement assets and one should not place more of those assets in this
Partnership than the investor determines is prudent to allocate to highly
speculative, high risk investments, such as the Partnership. If the investor
invested a significant portion of the assets of their retirement plan or IRA
assets in the Partnership, they could be exposing that portion to the
possibility of significant loss. The General Partner does not undertake to
advise investors in any manner (including diversification, prudence and
liquidity) with respect to investment in the Partnership for any investor,
including retirement accounts. Accordingly, investors must rely upon the
experience of qualified investment counsel.
INVESTORS NOT PROTECTED BY THE INVESTMENT COMPANY ACT OF 1940
The Partnership, the General Partner, Ms. Pacult, and the Commodity Trading
Advisors are not required nor do they intend to be registered under the
Investment Company Act of 1940, as amended (or any similar state law) as
either an investment company or investment advisor. Investors, therefore, are
not accorded the protective measures provided by any such legislation.
POSSIBILITY OF AUDIT - PARTNERS MAY BE SUBJECT TO AUDIT AND PENALTIES
Historically, partnerships have had a higher percentage of returns audited by
the IRS than other forms of business entities. In the event of any such audit
of the Partnership's return, there can be no assurance that adjustments to the
reported items will not be made. If an audit results in an adjustment,
Partners may be required to file amended returns, may be subject to a separate
audit, and may be required to pay back taxes, plus penalty and interest.
GENERAL PARTNER MAY SETTLE IRS CLAIM NOT IN THE BEST INTEREST OF THE PARTNERS
The General Partner is named "tax matters partner" and has been granted the
power to settle any claim from the IRS on behalf of each Limited Partner who
holds one percent (1%) or less in the Partnership, who does not timely object
to the exercise of such authority, after notice. Such settlement may not
necessarily be in the best interest of the individual limited partner. See
"Federal Income Tax Aspects".
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POSSIBLE ADVERSE DETERMINATION BY THE IRS - PARTNERS MAY BE SUBJECT TO BACK
TAXES AND PENALTIES
The General Partner has obtained the opinion of The Scott Law Firm, P.A. that
the Partnership, as it is intended to be operated by the General Partner, will
be taxed as a Partnership and not as an association taxable as a corporation.
The Law Firm is not able to opine upon the tax treatment of certain Offering
and operating Expenses as the determination depends upon questions of fact to
be resolved by the General Partner on behalf of the Partnership. For example,
commodity trading adviser fees are aggregated with employee business expenses
and other expenses of producing income and the aggregate of such expenses is
deductible only to the extent such amount exceeds 2% of the taxpayer's
adjusted gross income. It is the General Partner's position that the
Partnership's operations qualify as a trade or business. If this position is
sustained, the brokerage commissions and performance fees are deductible as
ordinary and necessary business expenses. In the event of an adverse
determination by the IRS, these expenses would be added back to the income
earned by the Partnership and the Form K-1 submitted to each Partner revised
upward to reflect this additional income. Were this event to occur, it is
likely that the reporting year adjustment would be after the individual tax
returns were filed by the Partners. The Partners would be required to file
amended returns and pay interest and penalty, if any, related to the increase
in tax assessed upon the increase in reportable income. Such increase in
reportable income would not result in an increase in the Net Unit Value of the
Units owned by the Partners. Syndication costs to organize the Partnership
are capitalized, not deductible, and amortized over 3 to 5 years. Offering
Expenses are either deductible or are amortized over 3 to 5 years.
CONFLICTS OF INTEREST
Significant actual and potential conflicts of interest exist in the structure
and operation of the Partnership. The General Partner has used its best
efforts to identify and describe all potential conflicts of interest which may
be present under this heading and elsewhere in this Prospectus and the
Exhibits attached hereto. Prospective investors should consider that the
General Partner intends to assert that Partners have, by subscribing to the
Partnership, consented to the existence of such potential conflicts of
interest as are described in this Prospectus and the Exhibits, in the event of
any claim or other proceeding against the General Partner, any principal of
the General Partner, the CTAs, any Principal of the CTAs, the Partnership's
FCM, or any principal of the FCM, the Partnership's IB or any principal or any
Affiliate of any of them alleging that such conflicts violated any duty owed
by any of them to said subscriber. Specifically, the Selling Agent is
Affiliated with the principal of the General Partner and, therefore, no
independent due diligence of the Partnership or the General Partner has been
or will be made by a National Association of Securities Dealers, Inc. member.
GENERAL PARTNER, THE CTAs, AND THEIR PRINCIPALS MAY PREFERENTIALLY MANAGE
EQUITY FOR THEMSELVES AND OTHERS
The right of both Ms. Shira Del Pacult, the principal of the General Partner,
and the General Partner to manage and the actual management by the CTAs of
accounts they or their Affiliates own or control and other commodity accounts
and pools presents the potential for conflicts of interest. There is no
limitation upon the right of Ms. Pacult, the General Partner, the CTAs, or any
of their Affiliates to engage in trading commodities for their own account.
It is possible for these persons to take their positions in their personal
accounts prior to the orders they know they are going to place for the money
they manage for others. The General Partner has obtained representations from
all of these persons and their Affiliates that no such prior orders will be
entered for their personal accounts. The Partnership's CTAs will be effecting
trades for their own accounts and for others (including other commodity pools
in competition with this Pool) on a discretionary basis. It is possible that
positions taken by the CTAs for other accounts may be taken ahead of or
opposite positions taken on behalf of the Partnership. The General Partner
and its principal, should they form other commodity pools, and the CTAs may
have financial incentives to favor other accounts over the Partnership. In
the event the General Partner, its principal, or any CTA, or any of their
principals trade for their own account, such trading records shall not be made
available for inspection. The General Partner does not presently intend to
engage in trading for its own account; however, the principal of the General
Partner does trade for her own account. The CTAs also trade for their own
accounts. Any trading for their personal accounts by the General Partner, any
commodity trading advisor selected to trade for the Partnership or any of
their principals could present a conflict of interest in regard to position
limits (i.e., a trader may legally only take a set number of positions in all
of its accounts combined), timing of the taking of positions, or other similar
conflicts. The result to the Partnership would be a reduction in the
potential for profit should the entry or exit of positions be at unfavorable
prices by virtue of position limits or entry of other trades in front of the
Partnership trades by the General Partner or CTAs responsible for the
management of the Partnership.
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POSSIBLE RETENTION OF VOTING CONTROL BY THE GENERAL PARTNER MAY LIMIT PARTNERS'
ABILITY TO CONTROL CERTAIN ISSUES
There is no limit upon the number of Units in the Partnership the General
Partner and its principal and Affiliates may purchase, and it is possible,
though unlikely, that the General Partner and its Affiliates could purchase
sufficient Units in the Fund to retain voting control. It would be possible
for them to vote, individually or as a block, to create a conflict with the
best interests of the Partnership. Such voting control may limit the ability
of the Limited Partners to achieve a majority vote on such issues as amendment
of the Limited Partnership Agreement, change in the basic investment policy of
the Partnership, dissolution of the Partnership or the sale or distribution of
the Partnership's assets. However, since the General Partner is not entitled
to vote on questions related to its removal, that possibility does not present
a conflict of interests to the partnership.
GENERAL PARTNER TO REMAIN AGAINST POSSIBLE BEST INTEREST OF PARTNERSHIP
The General Partner's financial interest in the operation of the Partnership
in the form of the 2% management fee, creates a disincentive for it to
voluntarily replace itself, even if such replacement would be in the best
interest of the Partnership.
FEES AND CHARGES TO THE PARTNERSHIP NOT NEGOTIATED AND MAY DISCOURAGE
PROFITABLE TRADING
The two percent (2%) management fee to the General Partner and the amount of
the fixed commission of twelve percent (12%) per year in lieu of round-turn
brokerage commissions, payable to the IB that is Affiliated with the principal
of the General Partner, have not been negotiated at arm's length. The General
Partner has a conflict of interest between its responsibility to manage the
Partnership for the benefit of the Limited Partners and the General Partner's
interest in receiving the management fee and the IB Affiliated with the
principal of the General Partner receiving the difference between the fixed
commission charged the Partnership and the actual transaction costs incurred
by the FCM as a result of the frequency of trades entered by the CTAs. See
"Charges to the Partnership". The General Partner selects the CTAs to manage
the Partnership assets and the CTAs determine the frequency of trading.
Because the IB Affiliated with the General Partner receives the difference
between the brokerage commissions and other costs which are paid on behalf of
the Partnership and the fixed commission, the General Partner's best interests
are served if it selects trading advisors which trade the Partnership's equity
assigned to them in a way to minimize the frequency of trades to maximize the
difference between the fixed commission and the round-turn commissions and
other costs to trade charged by the FCM; i.e., it is in the best interest of
the General Partner to reduce the frequency of trading rather than concentrate
on the expected profitability of the CTAs without regard to frequency of
trades. This conflict is offset by the fact the General Partner does not
select any of the trades and the CTAs are paid an incentive of 15% of New Net
Profits, or those Profits for each quarterly period that the net value of the
trading equity at the end of such quarterly period for a CTA exceeds the
highest previous quarterly net value of the trading equity for that CTA. The
arrangements between the General Partner and the Partnership with respect to
the payment of the commissions are consistent in cost with arrangements other
comparable commodity pools have made to clear their trades. The General
Partner has, however, assumed the risk of frequency of trading, up to a
maximum of three times the normal rate by the CTAs and has assumed all
liability for the payment of trailing commissions.
CONFLICTS OF INTEREST IN THE PARTNERSHIP STRUCTURE
Certain actual and potential conflicts of interest do exist in the structure
and operation of the Partnership which must be considered by investors before
they purchase Units in the Partnership. See "Risk Factors", "Conflicts of
Interest", and the Limited Partnership Agreement attached as Exhibit A to the
Prospectus. Specifically, the principal of the General Partner is also a
principal of Futures Investment Company ("FIC"), the IB and Selling Agent. It
would therefore be unlikely for the General Partner to replace FIC as the IB
as it receives 12% in fixed commissions from the Partnership to pay round-turn
brokerage commissions and trailing commissions. It would also be unlikely for
the General Partner to dismiss FIC as the Selling Agent as it receives 6%
trailing commissions from the IB. In addition, due to the Selling Agent's
affiliation with the principal of the General Partner, no independent due
diligence of the offering has been or will be conducted for the protection of
the investors. The General Partner has taken steps to insure that the
Partnership equity is held in segregated accounts at the banks and futures
commission merchant selected and has otherwise assured the Selling Agent that
all money on deposit is in the name of and for the beneficial use of the
Partnership.
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GENERAL PARTNER TO DISCOURAGE REDEMPTIONS
The General Partner has an incentive to withhold distributions and to
discourage Redemption because the General Partner receives compensation based
on the Net Asset Value of the Partnership.
CTAs MAY ENGAGE IN HIGH RISK TRADING TO GENERATE INCENTIVE FEES
As a general rule, the greater the risk assumed, the greater the potential for
profit. Because the CTAs are compensated by the General Partner based on 15%
of the New Net Profit of the Partnership, it is possible that the CTAs will
select trades which are otherwise too risky for the Partnership to assume to
earn the 15% incentive fee on the profit should that ill-advised speculative
trade prove to be profitable.
IB AFFILIATED WITH THE GENERAL PARTNER RETAINS A SHARE OF THE COMMISSIONS AND
IS NOT LIKELY TO BE REPLACED
The Partnership pays a fixed brokerage commission of 12% per year, payable
monthly to Futures Investment Company, an introducing broker Affiliated with
the General Partner, upon the assets assigned by the General Partner for
trading . Futures Investment Company retains so much of the fixed brokerage
commission as remains after payment of the round turn brokerage commissions to
the Futures Commission Merchant and the 6% per year trailing commissions to
the associated persons who service the Partners' accounts in the Partnership.
Because the principal of the General Partner, Ms. Shira Pacult, is also a
principal in the IB and the Selling Agent, there is a likelihood that the
Partnership will continue to retain the IB even though other IB's may be
available to provide better service to the Partners and their accounts.
NO RESOLUTION OF CONFLICTS PROCEDURES
As is typical in many futures partnerships, the General Partner has not
established formal procedures, and none are expected to be established in the
future, to resolve the potential conflicts of interest which may arise. It
will be extremely difficult, if not impossible, for the General Partner to
assure that these and future potential conflicts will not, in fact, result in
adverse consequences to the Partnership or the Limited Partners. The
foregoing list of risk factors and conflicts of interest is complete as of the
date of this Prospectus, however, additional risks and conflicts may occur
which are not presently foreseen by the General Partner. Investors are not to
construe this Prospectus as legal or tax advice. Before determining whether
to invest in the Units, potential investors should read this entire
Prospectus, including the Limited Partnership Agreement attached as Exhibit A
and the subscription agreement, and consult with their own personal legal,
tax, and other professional advisors as to the legal, tax, and economic
aspects of a purchase of Units and the suitability of such purchase for them.
See "Investor Suitability".
INTERESTS OF NAMED EXPERTS AND COUNSEL
The General Partner has employed The Scott Law Firm, P.A. to prepare this
Prospectus, provide certain tax advice and opine upon the legality of the
issuance of the Units. Neither the Law Firm, nor its principal, nor any
accountant or other expert employed by the General Partner to render advice in
connection with the preparation of the Prospectus or any documents attendant
thereto, have been retained on a contingent fee basis nor do they have any
present interest or future expectation of ownership in the Partnership or its
General Partner or the Selling Agent or the CTA or the IB or the FCM.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
THE PARTNERSHIP - GENERAL PARTNER - BOOKS AND RECORDS
Fremont Fund Limited Partnership (the "Partnership") was organized under the
Indiana Uniform Limited Partnership Act as of January 12, 1995. The principal
office of the Partnership is located at 5916 N. 300 West, Fremont, IN 46737.
Its telephone number is (219) 833-1306 and facsimile number is (219) 833-4411.
The Partnership will terminate at 11:59 p.m. on January 12, 2016, or upon an
event causing an earlier termination as set forth in the Limited Partnership
Agreement. See Exhibit A - "Termination of the Partnership".
The Partnership is managed by its General Partner, Pacult Asset Management,
Inc., a Delaware corporation, incorporated on October 13, 1994 (the "General
Partner" and "Commodity Pool Operator"). The Partnership does not have
officers or employees and, therefore, there is no report of executive
compensation in this Prospectus. The General Partner's principal office is
c/o Corporate Systems Inc., 101 North Fairfield Drive, Dover, Kent County, DE
19901. Ms. Shira Del Pacult is the sole principal, shareholder, director, and
officer of the General Partner and has no ownership in any of the CTAs. Mr.
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Michael Pacult, Ms. Pacult's husband, has no ownership or role in the
management of the General Partner, but is an associated person, officer and
fifty percent shareholder in the Affiliated Introducing Broker and Selling
Agent, Futures Investment Company, which is paid the fixed brokerage
commissions by the Partnership. Mr. Pacult may sell Units in the Partnership.
The General Partner's experience in managing commodity pools is limited to its
management of this Fund and a separate privately offered commodity pool,
Auburn Fund, Limited Partnership, both of which have been operating for less
than two years. However, the principal of the General Partner has over
sixteen years of experience in the sale of commodity pool interests for other
pool operators and the management of individual managed commodity accounts.
The books and records for the Partnership will be maintained for six years at
5916 N. 300 West, P. O. Box C, Fremont, Indiana 46737. A duplicate set of the
books will be maintained by Mr. James Hepner, Certified Public Accountant,
1824 N. Normandy, Chicago, IL 60635, (773) 804-0074. Mr. Hepner also prepares
the Form K-1s for the Partnership. The General Partner serves as tax partner
for the Partnership. Frank L. Sassetti, & Co., 6611 West North Avenue, Oak
Park, IL 60302 conducts the annual audit of the Partnership and its General
Partner and also prepares the Partnership tax returns.
THE COMMODITY TRADING ADVISORS
The General Partner initially selected one independent commodity trading
advisor ("CTA") to conduct trading on behalf of the Partnership, Michael J.
Frischmeyer ("Frischmeyer"). As of July, 1998, another CTA, EPIC Trading
("EPIC") was allocated 50% of all trading equity to trade, with the balance
remaining under the control of Frischmeyer. The first $300,000 of equity
raised pursuant to the sale of Units through this offering will be allocated
to another CTA, Bell Fundamental Futures, L.L.C. ("Bell") (see Exhibit H). As
additional equity is raised, it will be distributed as follows: 30% to
Frischmeyer, 40% to EPIC and 30% to Bell. The General Partner has provided
the CTAs with a revocable power of attorney pursuant to the terms of an
advisory contract between the Partnership and the CTAs to trade the account or
accounts of the Partnership assigned by the General Partner to the CTAs to
trade. The markets to be traded, the location of those markets, the size of
the position to be taken in each market, the timing of entry and exit in a
market are within the sole judgment of the CTAs.
THE ADVISORY CONTRACTS AND POWERS OF ATTORNEY
The General Partner has assign a portion of the Partnership assets to the CTAs
it selects to trade. The terms of this assignment of assets is governed by
Advisory Contracts and Powers of Attorney signed by each CTA. See Exhibits F,
G and H. The Advisory Contracts and Powers of Attorney granted by the
Partnership to the CTAs is terminable upon immediate notice by either party to
the other. Accordingly, neither party can rely upon the continuation of the
Advisory Contracts and Powers of Attorney. Should the Partnership prove to be
profitable it is unlikely the General Partner will terminate the Powers of
Attorney granted to the CTAs responsible for the production of those profits.
BUSINESS OBJECTIVE AND EXPENSES
The General Partner organized the Partnership to be a commodity pool, as that
term is defined under the Commodity Exchange Act, to trade exchange listed
futures and options contracts as well as non-listed forward contracts and
options to produce profits to the investors in the Partnership. The General
Partner is authorized to do any and all things on behalf of the Partnership
incident thereto or connected therewith. See Article II of the Limited
Partnership Agreement, attached as Exhibit A. The plan of operation is for
the General Partner to employ independent investment management to conduct
this trading. The Partnership has not and is not expected to engage in any
other business. The objective of the Partnership is to achieve the
potentially high rates of return which are possible through speculative
trading in the contracts and in the markets identified in "The Commodity
Trading Advisors". The General Partner has allocated substantially all of the
Partnership Capital to conduct this trading with the CTAs. The CTAs have
advised that they have allocated between 20% and 30% of the Capital assigned
to them to trade to margin and secure the trading positions they select.
There can be no assurance that the Partnership will achieve its business
objectives, be able to pay the costs to do business, or avoid substantial
trading losses.
In that regard, the Partnership is subject to substantial fixed charges. The
General Partner is paid a management fee of two percent (2%) of the Net Assets
of the Partnership; in addition, the CTAs are paid a four percent (4%)
management fee upon the equity assigned to them, and the Partnership pays to
the IB fixed brokerage commissions of twelve percent (12%) of assets assigned
by the General Partner for trading. Accordingly, to redeem a Unit at the
original face value at the end of the first twelve months of trading and avoid
a loss, the Partnership will need to generate, annually, interest income and
gross trading profits of 39.0% assuming current Net Assets of the Partnership,
or 27.7% assuming Net Assets of the
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Maximum. This includes the fixed costs of administration, which are estimated
by the General Partner to be approximately $23,000 per year, ($5,000 for legal
fees and $18,000 for accounting and audit fees), repayment of Offering
Expenses of $52,000, and Organizational Expenses of $5,000, amortized on a
straight line method over 60 months. The General Partner advanced the
Offering Expenses and was reimbursed for such expenses from the gross proceeds
of the Offering from the break of Escrow at the time of the Initial Closing in
November, 1996. Upon admission of subsequent Partners to the Partnership, a
charge will be made to such newly admitted Partners equal to their pro-rata
share of the Offering Expenses which will be credited to the Capital Accounts
of the prior admitted Partners to reimburse them for the Offering Expenses
they advanced.
Below is a chart setting forth expenses during the first twelve full months of
the Partnership's operations. All interest income is paid to the Partnership.
The chart below assumes that the Partnership's Unit value remains at $714
during the first 12 months of the Partnership's operations.
EXPENSES PER UNIT
FOR THE FIRST 12-MONTH PERIOD OF OPERATIONS
Current Net Asset Value Maximum
Gross Units Sold (1) 945 Units 6,953 Units
($679,536) $5,000,000.00
Selling Price per Unit (1) $ 719.00 $ 719.00
Selling Commission (1) $ 43.14 $ 43.14
Offering and Organizational Expenses (2) 56.08 7.62
General Partner's Management Fee 14.38 14.38
Partnership Operating Expenses (3) 24.34 3.31
Trading Advisor's Management Fees (4) 28.76 28.76
Trading Advisor's Incentive Fees on New
Net Profits (5) 42.11 29.84
Brokerage Commissions and Trading Fees (6) 86.28 86.28
Redemption Fee (7) 28.76 28.76
Less Interest Income (8) (43.14) (43.14)
Amount of Trading Income Required for the
Partnership's Net Unit Value (Redemption
Value) at the End of One Year to Equal the
Selling Price per Unit (9) $ 280.71 $ 198.95
Percentage of Initial Selling Price per Unit 39.0% 27.7%
Explanatory Notes:
(1) Investors will purchase Units at the current Net Asset Value per Unit
which, as of October 31, 1998, was $719 per Unit. A 6% sales commission will
be deducted from each subscription.
(2) Newly admitted Partners will be subject to a charge equal to their pro-
rata share of the Offering Expenses which will be credited to the Capital
Accounts of the prior admitted Partners to reimburse them for the Offering
Expenses they advanced. Offering and Organizational Expenses includes all
Offering Expenses of $52,000 and one fifth ($1,000, or 12 months' worth) of
the Organizational Expenses. (3) The Partnership's actual accounting,
auditing, legal and other operating expenses are borne by the Partnership.
These expenses are estimated to be $23,000 per year regardless of Partnership
equity.
(4) The Partnership's CTAs are paid a total monthly management fee of 1/3 of
1% of the trading equity allocated to them.
(5) Each CTA receives an incentive fee of 15% of New Net Profits each quarter
earned upon the trading equity assigned to him to trade. The $42.11 of
incentive fees shown above is equal to 15% of total trading income of $280.71
which is adjusted to earn sufficient income to return the original investment
amount ($719 as of October 31, 1998) to the investor upon Redemption at the
end of the first year without computation of incentive fee upon the interest
earned or the incentive
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fee to be paid and without reduction for brokerage commissions and after
payment of management fees to the General Partner and the CTAs.
(6) Brokerage commissions and trading fees are fixed at 12% of assets assigned
by the General Partner for trading. For purposes of this calculation, the
assumption is that all equity will be made available to the CTAs to trade.
(7) The Redemption Fee of 4% is computed upon the assumed $719 Net Unit Value
of the Redemption at the end of the first year.
(8) The Partnership earns interest on margin deposits with its Futures
Commission Merchant and Bank Deposits. Based on current interest rates,
interest income is estimated at 6% of the Net Assets of the Partnership.
(9) This computation assumes there will be no claims or extra-ordinary
expenses during the first year.
THE ABOVE PRESENTATION DOES NOT CONSTITUTE REPRESENTATION BY THE PARTNERSHIP
AS TO THE ACTUAL OPERATING EXPENSES OR INTEREST INCOME OF THE PARTNERSHIP.
THERE CAN BE NO ASSURANCE THAT THE EXPENSES TO BE INCURRED BY THE PARTNERSHIP
WILL NOT EXCEED THE AMOUNTS AS PROJECTED OR THAT THERE WILL BE NO OTHER
EXPENSES.
In addition, Partners are required to pay Federal, state and local taxes upon
income, if any, in the year earned by the Partnership, although there will be
no expectations of distributions of income during that, or any other, year.
Accordingly, the purchase of Units in the Partnership is intended to be a
long-term investment. Neither the General Partner nor any other person has
made any promise or guarantee that the Partnership will be profitable or
otherwise meet its objectives. The General Partner has made no guarantee that
the Partnership will break even or produce any other rate of return per year.
All interest income earned upon the Capital of the Partnership is paid to the
Partners in their pro rata share determined by the amount of Capital each
Partner, including the General Partner, has contributed to the Partnership.
The current rate of interest income is approximately 6% per year . The
General Partner estimates that 20% to 30% of total Capital, as that term is
defined in Exhibit A, will be used for margin purposes each year. The
specific futures contracts to be traded, the exchanges and forward markets,
and the trading methods of the CTAs selected are identified in "The Commodity
Trading Advisors".
SECURITIES OFFERED
The Fremont Fund, Limited Partnership (the "Partnership") offers and sells
Limited Partnership interests in the Partnership which have pro rata rights to
profit and losses with all other owners equal to the Capital they have
contributed, but Limited Partners have limited obligations to pay the debts of
the Partnership in excess of their contribution to Capital plus their
undistributed profits, less losses. The Limited Partners will not be exposed
to payment of debts of the Partnership in excess of their Capital
contributions; provided, however, in the event the Limited Partners were to
receive distributions which represent a return of Capital, such distributions,
in the event of insolvency of the Partnership, would have to be returned to
pay Partnership debts. In addition, these interests have no voice in the day
to day management of the Partnership. They do have the right to vote on
Partnership matters such as the replacement of the General Partner. See the
Partnership Agreement attached as Exhibit A.
These Limited Partnership interests are defined as the units (the "Units")
which are offered for sale at the current month end Net Unit Value. The
Partnership commenced trading in November, 1998 and as of October 31, 1998,
there were 945.08 Units outstanding. The remaining Units will be offered for
sale at a price per Unit equal to the Net Unit Value as of the close of
trading on the effective date of such purchase, which will be the close on the
last business day of the month in which the General Partner accepts a duly
executed Subscription Agreement and capital contribution from the subscriber.
As the Minimum for this offering has already been sold and operation of the
Partnership has commenced, there will be no utilization of escrow for Units
sold. All subscriptions are irrevocable and subscription payments, after the
statutory withdrawal period, if any, which are accepted by the General
Partner, and deposited in the Partnership account, may not be withdrawn by
subscribers. Although a maximum of $5,000,000 of Units are offered hereby,
the Limited Partnership Agreement authorizes the General Partner to sell
additional Units and there is, therefore, no maximum aggregate number or
contribution for Units which may be offered or sold by the Partnership. There
cannot be any assurance that any additional Units will be sold and the General
Partner is authorized, in its sole discretion, to terminate this, or any
future, offering of Units.
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MANAGEMENT'S DISCUSSION
The Limited Partnership Agreement permits future offerings of Units after the
close of this offering. The Partnership commenced operations on November,
1996 with Frischmeyer as the sole CTA. Because trading results for
Frischmeyer and the Partnership have been poor, the General Partner allocated
40% of the Partnership's trading equity to another CTA, EPIC Trading, on July
1, 1998 and has since adjusted the equity to each CTA to 50% apiece. When
sales are resumed pursuant to this offering, trading equity raised through the
sale of Units will be initially allocated to Bell Fundamental Futures, L.L.C.
until a total of $300,000 has been so allocated. Thereafter, the General
Partner intends to allocate Units sold so as to assign 30% of all trading
equity to Frischmeyer, 40% to EPIC, and 30% to Bell. Such composition of
trading advisors and allocation of equity are subject to change, in the sole
discretion, of the General Partner, from time to time.
The Partnership will raise capital only through the sale of Units offered
pursuant to this and future offerings, if any, and does not intend to raise
money for any purpose through borrowing. The Partnership makes certain
capital expenditures, such as for the preparation of this Prospectus and other
expenditures to qualify the Units for sale, and for office equipment, and
allocates all of its capital not used to pay those capital and operating
expenses to trading and other investments. There is no report of executive
compensation in this Prospectus as the Partnership does not have any
directors, officers or employees; furthermore, the Partnership conducts all
of its business through the General Partner.
The General Partner has authorized the IB to select ABN-AMRO to serve as the
futures commission merchant (the "FCM") to hold the funds allocated to the
Commodity Trading Advisors to trade. On a daily basis, the FCM transmits a
computer run or facsimile transmission to the General Partner which depicts
the positions held, the margin allocated and the profit or loss on the
positions from the date the positions were taken. The General Partner reviews
these transmissions and based upon that review determines and, with the advice
of the CTAs, makes appropriate adjustments to the allocation of trading
equity; provided, however, only the CTAs make specific trades and determine
the number of positions taken and the timing of entry and departure from the
markets based upon the amount of equity available to trade.
Most United States commodity exchanges limit fluctuations in commodity futures
contracts prices during a single day by regulations referred to as "daily
price fluctuation limits" or "daily limits". Once the price of a futures
contract has reached the daily limit for that day, positions in that contract
can neither be taken nor liquidated. Commodity futures prices have
occasionally moved to the daily limit for several consecutive days with little
or no trading. Similar occurrences could prevent the Partnership from
promptly liquidating unfavorable positions and subject the Partnership to
substantial losses which could exceed the margin initially committed to such
trades. In addition, even if commodity futures prices have not moved the
daily limit, the Partnership may not be able to execute futures trades at
favorable prices, if little trading in such contracts is taking place or the
price move in a futures or forward contract is both sudden and substantial.
Other than these limitations on liquidity, which are inherent in the
Partnership's proposed commodity futures trading operations, the Partnership's
assets are expected to be highly liquid.
Except for payment of offering and other expenses of the Partnership, the
General Partner is unaware of any (i) anticipated known demands, commitments
or required capital expenditures; (ii) material trends, favorable or
unfavorable, which will effect its capital resources; or (iii) trends or
uncertainties that will have a material effect on operations. From time to
time, certain regulatory agencies have proposed increased margin requirements
on commodity futures contracts. Because the Partnership generally uses a
small percentage of assets for margin, the Partnership does not believe that
any increase in margin requirements, as proposed, will have a material effect
on the Partnership's proposed operations. Management cannot predict whether
the Partnership's Net Unit Value will increase or decrease. Inflation is not
projected to be a significant factor in the Partnership's operations, except
to the extent inflation influences futures' prices.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The General Partner has a fiduciary responsibility to the Limited Partners to
exercise good faith and fairness in all dealings affecting the Partnership.
In the event that a Limited Partner believes the General Partner has violated
such fiduciary duty to the Limited Partners, a Limited Partner may seek legal
relief for such Limited Partner or on behalf of the Partnership under
applicable laws, including Indiana partnership and applicable Federal and
state securities laws, to recover damages from or require an accounting by the
General Partner. The Partnership Agreement conforms with the Uniform Limited
Partnership Act for the State of Indiana in regard to the definition of the
fiduciary duties of the General Partner.
In addition, Partners are afforded certain rights to institute reparations
proceedings under the Commodity Exchange Act for violations of such Act or of
any rule, regulation or order of the CFTC by the General Partner, the CTAs
selected and the
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Introducing Broker and the Futures Commission Merchant. For example,
excessive trading of the Partnership's account may constitute a violation of
such Act. A Limited Partner may also institute legal proceedings in court for
excessive trading and may have a right to institute legal proceedings in court
for certain violations of applicable laws, including the Commodity Exchange
Act or rules, regulations or orders of the CFTC. The General Partner will
have certain defenses to claims that it is liable merely because the
Partnership lost money or otherwise did not meet its business objectives. For
example, the General Partner will not be liable for actions taken in good
faith and exercise of its best business judgment.
Also, the responsibility of a general partner to other partners is a changing
area of the law, and Limited Partners who have questions concerning the
responsibilities of the General Partner should, from time to time, consult
their own legal counsel.
INDEMNIFICATION
The Limited Partnership Agreement provides that the General Partner shall not
be liable, responsible or accountable in damages or otherwise to the
Partnership or any of the Limited Partners for any act or omission performed
or omitted by the General Partner and which the General Partner determines, in
good faith, to be within the scope of authority and in the best interest of
the Partnership, except when such action or failure to act constitutes willful
misconduct or a breach of the Federal or state securities laws related to the
sale of Units. The Partnership shall defend, indemnify and hold the General
Partner harmless from and against any loss, liability, damage, cost or expense
(including attorneys' and accountants' fees and expenses incurred in defense
of any demands, claims or lawsuits) actually and reasonably incurred and
arising from any act, omission, activity or conduct undertaken by or on behalf
of the Partnership and within the scope of authority granted the General
Partner by the Limited Partnership Agreement, including, without limitation,
any demands, claims or lawsuits initiated by another Partner. Applicable law
provides that such indemnity shall be payable only if the General Partner (a)
determined, in good faith, that the act, omission or conduct giving rise to
the claim for indemnification was in the best interests of the Partnership,
and (b) the act, omission or activity that was the basis for such loss,
liability, damage, cost or expense was not the result of negligence or
misconduct, and (c) such liability or loss was not the result of negligence or
misconduct by the General Partner, and (d) such indemnification or agreement
to hold harmless is recoverable only out of the assets of the Partnership and
not from the Partners, individually.
In addition, the indemnification of the General Partner in respect of any
losses, liability or expenses arising from or out of an alleged violation of
any Federal or state securities laws are subject to certain legal conditions.
Those conditions presently are that no indemnification may be made in respect
of any losses, liabilities or expenses arising from or out of an alleged
violation of Federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving alleged
securities law violations as to the General Partner or other particular
indemnitee, or (ii) such claim has been dismissed with prejudice on the merits
by a court of competent jurisdiction as to the General Partner or other
particular indemnitee, or (iii) a court of competent jurisdiction approves a
settlement of the claims against the General Partner or other particular
indemnitee and finds that indemnification of the settlement and related costs
should be made, provided, before seeking such approval, the General Partner or
other indemnitee must apprise the court of the position against such
indemnification held by the SEC and the securities administrator of the state
or states in which the plaintiffs claim they were offered or sold Units in
regard to indemnification for securities laws violations. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to the General Partner pursuant to the indemnification provisions
in the Limited Partnership Agreement, or otherwise, the General Partner has
been advised that, in the opinion of the SEC and the various state
administrators, such indemnification is against public policy as expressed in
the Securities Act of 1933 and the North American Securities Administrators
Association, Inc. commodity pool guidelines and is, therefore, unenforceable.
The clearing agreement to clear the trades made between the Partnership and
ABN-AMRO provides for indemnification from the Partnership to ABN-AMRO,
including reasonable outside and in-house attorney's fees, incurred by ABN-
AMRO arising out of any failure of the Partnership to perform its duties under
the clearing agreement.
The General Partner has indemnified the Managing Dealer, Futures Investment
Company, and expects to indemnify any other Selling Agents it selects, that
there are no misstatements or omissions of material facts in this Prospectus.
RELATIONSHIP WITH THE FCM AND THE IB
The General Partner has initially engaged Futures Investment Company as the
sole introducing broker (the "IB") to the Partnership. Ms. Pacult, the
President and sole stockholder of the General Partner, is also a stockholder,
director and officer of the IB. Accordingly, the General Partner is
Affiliated with the IB. The IB has engaged ABN-AMRO to act as
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the sole futures commission merchant, (the "FCM") for the Partnership. The
General Partner believes the rates to be charged to the Partnership by the IB
for fixed commissions are competitive. In that regard, the General Partner is
obligated by the NASAA guidelines to obtain the best commission rates
available to the Partnership. Accordingly, the General Partner is free to
select any substitute or additional futures commission merchants or
introducing brokers at any time, for any reason, although it has a conflict in
regard to the IB because of the Affiliation with the principal of the General
Partner. The FCM and the IB may act for any other commodity pool for which
the General Partner or Ms. Pacult, individually, as the case may be, will act,
in the future, as general partner. The General Partner is also the general
partner of a privately offered commodity pool, Auburn Fund, Limited
Partnership. It is possible for the General Partner and any other commodity
pools to obtain rates from the IB that are more favorable to such other
accounts than the fixed commissions in lieu of round-turn commissions charged
by the IB to the Partnership.
The FCM has tentatively established the per round-turn commission rate to be
paid by the IB for trades made by the Partnership at $11.00 per round-turn for
US markets plus US floor brokerage fees of $2.50 and Exchange and NFA fees of
$1.10 for Chicago markets and $2.70 for New York Markets. An additional $2.50
to $12.50 per round-turn is charged for foreign markets plus Globex fees which
range from $5.20 to $15.20 per round-turn. All of these costs are paid by FIC
from the 12% per year fixed commissions paid by the Partnership.
Additionally, FIC will cover any such costs should they exceed the fixed
commission. The FCM credits the Partnership with interest at the prevailing
rate on 100% of the available balances maintained in the Partnership accounts.
RELATIONSHIP WITH THE CTAs
The Commodity Trading Advisors will be effecting trades for their own accounts
and for others on a discretionary basis. They may employ trading methods,
policies and strategies for others which differ from those employed for the
Partnership and, as a consequence, such accounts may have trading results
which are different (which could be better or worse) from those experienced by
the Partnership. A potential conflict of interest arises in such cases in
that it is possible that positions taken by the CTAs may be taken ahead of or
opposite positions taken on behalf of the Partnership. See definitions in
Appendix I for "Taking Positions Ahead of the Partnership". Where in any case
trades are identical with respect to the Partnership and other accounts of the
CTAs and where prices are different, the CTAs have informed the General
Partner that, pursuant to CFTC Regulation 421.03, such Commodity Trading
Advisor will utilize the "Average Price System" for those futures and options
contracts where its use is authorized. See definitions in Appendix I for
"Average Price System". The Commodity Trading Advisors have also informed the
General Partner that where the Average Price System is not available, trades
will be filled (both purchases and sales) in order based on the numerical
account numbers, with the lowest price (on both purchases and sales) allocated
to the lowest account number and in numerical matching sequence, thereafter.
The past, present, and future trading methods to be utilized by the CTAs are
proprietary in nature and are not disclosed to the Partners. No notice will
be given by the CTAs of any changes they may make in their trading methods to
the Partners. See "Risk Factors, No Notice of Trades or Trading Method".
RISK CONTROL
The General Partner has obtained the commitment from the FCM that a report, as
of the close of each business day, of the equity used for margin to hold the
trades selected by the CTAs will be sent to the General Partner by overnight
facsimile or computer transmission before the opening of trading on the next
business day to permit the General Partner to review the percentage of equity
used for margin and losses, if any. In the event the Net Unit Value falls to
less than fifty percent (50%) of the Net Unit Value established by the greater
of the initial offering price of one thousand dollars ($1,000), less
commissions and other charges, or such higher value earned after payment of the
incentive fee for the addition of profits, the General Partner shall
immediately suspend all trading, provide immediate notice as provided in the
Partnership Agreement to all Partners of the reduction in Net Unit Value and
afford all Partners the opportunity, for fifteen (15) days after the date of
such notice, to Redeem their Units in accordance with the provisions of Article
IX, Sections 9.5 and 9.6. No trading shall commence until after such fifteen
day period. See Exhibit A attached.
CHARGES TO THE PARTNERSHIP
Investors in the Partnership pays the cost of operation of the Partnership.
These charges are described in narrative form and in the chart which follows
this narrative. This prospectus discloses all compensation, fees, profits and
other benefits (including reimbursement of out-of-pocket expenses) which the
General Partner and its affiliates earn in connection with
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the offering. Most of the charges to the Partnership were not the result of
arm-length bargaining but rather were determined by the General Partner, its
principal and their affiliates.
COMPENSATION OF GENERAL PARTNER
The General Partner is paid an annual management fee of two percent (2%) of
the Net Asset Value of the Partnership payable at the end of each month (1/6
of 1%).
The General Partner receives an allocation of New Net Profit of fifteen
percent (15%) on the trading accounts assigned to the CTAs, which are paid
directly to them. New Net Profits, as used herein, means the increase, if
any, in the net value of the trading equity of a CTA due to trading activity
at the end of each respective quarterly period over the net value of the
trading equity at the end of the highest previous quarterly period.
MANAGEMENT FEE AND INCENTIVE FEES TO THE CTAs
In addition to the management fee to the General Partner and the 12% fixed
commission, the Partnership pays a management fee to the CTAs at the annual
rate of four percent (4%) of the equity assigned to them to trade, payable at
the rate of one-third of one percent (1/3 of 1%) per month of the equity on
deposit at the future commission merchant or merchants allocated to them to
trade, computed and paid from said accounts to the CTAs. The Partnership is
also obligated to bear certain other periodic operating, fixed, and extra-
ordinary expenses of the Partnership including, but not limited to, legal and
accounting fees, defense and payment of claims, trading and office expenses,
and sales charges. The Partnership also pays the General Partner an
allocation of profit earned in the accounts assigned to each CTA of fifteen
percent (15%) of the New Net Profit for each CTA which produced a New Net
Profit. The General Partner is responsible for payment of all incentive fees
to the CTAs. New Net Profits, as used herein, means the increase, if any, in
the net value of the trading equity for a CTA due to trading activity at the
end of each respective quarterly period over the net value of the trading
equity for that CTA at the end of the highest previous quarterly period. The
net value of the trading equity assigned to each CTA, as of the close of
business on the last business day of each month, determined before accrual of
any incentive fee payable to a CTA, is used to compute the management and
incentive fees to each CTA. The calculation of New Net Profits are adjusted
to eliminate the effect thereon resulting from new subscriptions for Units
received, if any, or Redemptions made, if any, during the month, and are
decreased by any Capital, interest or other income earned on Partnership
assets during the month which are not directly assigned to the CTAs to trade
and are not related to such trading activity and regardless of whether such
assets are held separately or in a margin account. These fees are payable by
the Partnership, as to the management fee, or by the General Partner, as to
the incentive fee, to each CTA within ten (10) business days after the close
of the applicable accounting period. If a CTA should make trades which incur
a net loss during any quarter, such loss will be carried forward for purposes
of calculating the incentive fee to that CTA and will be charged against the
net value of the CTA's assigned trading equity of any succeeding quarterly
period. No incentive fee will be payable to a CTA until such losses have been
offset by New Net Profits in such succeeding quarters. Because incentive fees
are calculated separately for each CTA, it is possible that one or more CTAs
may receive incentive fees, though the Partnership experiences a net loss due
to trading losses created by the remaining CTA(s). In no event may a
modification of the compensation to be paid to the CTA result in an incentive
fee exceeding the above amount and any new contract with the CTA must carry
forward all losses attributable to the CTA. For example, if in successive
quarters the Partnership performance yields New Net Profits from trading
activity of the funds on deposit with the FCM assigned to Frischmeyer of
$2,000, $8,000, ($4,000), ($3,000), $2,000, and $8,000, then the incentive fee
at the rate of fifteen percent (15%) payable to him would be, respectively,
$300, $1,200, $0, $0, $0, and $450.
FEES TO FUTURES COMMISSION MERCHANT AND INTRODUCING BROKER
The futures commission merchant for the Partnership is ABN-AMRO (the "FCM").
The Partnership pays a fixed commission of twelve percent (12%) per year,
payable monthly upon the assets assigned by the General Partner for trading to
Futures Investment Company (the "IB") for introducing trades through the FCM.
See "The Futures Commission Merchant". The IB, pays to the FCM all clearing
costs, including the pit brokerage fees, which shall include floor brokerage,
NFA fees and exchange fees. The IB pays six percent (6%) of the fixed
commissions as trailing commissions to the Broker/Dealers and introducing
brokers who are qualified to provide services to the investors. See "Charges
to the Partnership, Allocation of Commissions".
From the remaining six percent (6%) of the fixed commission, the IB pays,
among other things, approximately 3% to the FCM for clearing charges. The IB
retains approximately three percent (3%) of the fixed commission. The past
history of
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the frequency of Trades by the CTAs have been at the rate of approximately 255
round turns per month for every million dollars ($1,000,000) under management.
In the unlikely event the Commodity Trading Advisors effect round-turns of 765
or more for every million dollars ($1,000,000) in any month, the General
Partner has the right, but not the obligation, to suspend trading until the
commencement of the next month. This suspension of trading is to limit the
exposure to loss to the IB to a defined amount determined by the maximum
number of round turns the General Partner pays to complete in any one month.
Trading will automatically resume the following month subject to the same
maximum of 765 trades for that and any future month. The General Partner has
reserved the right to change the IB, FCM, the fixed commission rate or to have
the Partnership pay a per round-turn brokerage commission, at any time in the
future, with or without a change in circumstances; provided, however, the
brokerage commissions so charged can not exceed (i) 80% of the published
retail rate of the IB and other similar introducing brokers, plus Pit
Brokerage Fees, or (ii) 14% annually of the average Net Assets excluding the
Partnership assets not directly related to trading activity; this 14% shall
include Pit Brokerage Fees. In addition, to protect against excessive
trading, the General Partner has the right, but not the obligation, to suspend
all trading by the Partnership during any month in which the CTAs collectively
trade at a rate of three times their normal frequency. See "Fiduciary
Responsibility of the General Partner". The Partnership also reimburses the
FCM for all delivery, insurance, storage or other charges incidental to
trading and paid to third parties. The General Partner has not experienced
nor does it anticipate significant charges of this nature. The fixed
commission to be paid by the Partnership is fair and reasonable to the
Partnership. This is an area of judgment which depends upon the value of
similar services provided by the same CTAs for managed accounts and to other
pools and, to some degree, the value of similar services by other public
commodity pools.
ALLOCATION OF COMMISSIONS
The General Partner, either directly or indirectly, controls the allocation of
the fixed commissions and the allocation may change, from time to time,
without the knowledge or consent of the Partners. The commodity brokerage
commissions are to be allocated as follows: The Partnership pays the IB,
Affiliated with the General Partner, a fixed brokerage commission rate of
twelve percent (12%) per year, payable monthly upon the assets assigned by the
General Partner for trading. The IB negotiates a round-turn commission rate
per trade with the FCM. The difference between the 12% fixed commission rate
and the per round turn commission negotiated, less trailing commissions paid
to the persons who sold Units in the Partnership, is retained by the IB
Affiliated with the General Partner. If the trading commissions exceed the
12% less the trailing commissions, FIC will cover the difference. The IB pays
its associated persons and individual employee-broker (associated persons) of
Futures Investment Company and the other broker dealers, through whom Units
are sold. Such persons include, but are not limited to, the principal of the
General Partner and the husband of the principal of the General Partner, who
is an associated person of the IB which is Affiliated with the principal of
the General Partner.
The IB pays six percent (6%) per year of the fixed commission to the Broker
Dealer and Associated Persons of the IB and other duly licensed entities and
persons, which may include the principal of the General Partner or other
principals of the IB Affiliated with it, pro rated to the value of Units sold,
who have facilitated the sale of Units, as trailing commissions in exchange
for services provided to the investors and the Partnership. It is important
that investment in the Partnership be maintained to permit diversification of
risk over a large number of investors and to allow the long-term trading
strategies of the CTAs to produce the opportunity for investment in the
Partnership. To accomplish these objectives requires a continuous
relationship with the Limited Partners to be aware of their investment
objectives and changes in circumstances, if any. Neither the General Partner
nor the IB have the staff or the time to maintain this continuous contact and
awareness. The IB pays the trailing commissions to the Brokers for payment to
the persons who made the sale of the Units as compensation for the effort
required to maintain this continuous contact and awareness during the time the
Limited Partner holds the Units. In addition the Brokers communicate
explanations of changes in operation methods, such as a changes in CTAs and
results from operations, answer questions regarding the Partnership, and are
expected to work to retain investment in the Partnership.
OTHER EXPENSES
The Partnership is obligated to pay legal and accounting fees, other expenses
and claims. The General Partner advanced and has been reimbursed by the
Limited Partners for $52,000 in Offering Expenses in addition to
Organizational Expenses of $5,000 (see Appendix I, Offering Expenses and
Organizational Expenses). The Partnership is also subject to legal and
accounting costs of approximately $23,000 ($18,000 for accounting and audit
and $5,000 for legal) charged annually, subsequent to the first year. In
addition to management fees, incentive fees, brokerage commissions, and the
actual cost of legal and audit services provided by third parties, the
Partnership Agreement provides that all customary and routine administrative
expenses and other direct expenses of the Partnership, be paid by the
Partnership. The General Partner will
27
<PAGE>
also be reimbursed by the Partnership for direct expenses (such as delivery
charges, statement preparation and mailing costs, telephone toll charges, and
postage).
CHARGES TO THE PARTNERSHIP
The following table includes all charges to the Partnership.
<TABLE>
<CAPTION>
Entity Form of Compensation Amount of Compensation
<S> <C> <C>
General Partner
Management fee 2% management fee of Net Asset Value
Reimbursement of Offering Expenses Reimbursement of Offering
Expenses upon the Initial Closing
Reimbursement of Organizational Expenses Reimbursement of Organizational Expenses
amortized over 60 months
Selling Agents Sales Commission A one time charge of 6% of Gross Selling
Price of Units for Selling Commissions
Trailing Commission Trailing Commissions of 6%, paid annually,
from the 12% fixed commissions paid to the
Introducing Broker
Introducing Fixed Commissions 12% of assets assigned by General Partner for
Broker Affiliated trading, less costs to trade to FCM and less
with the General 6% trailing commissions paid to Selling
Partner Agents which will include persons Affiliated
with the General Partner Futures Commission
Merchant
Round-turn commissions paid from the fixed Brokerage Commissions negotiated with the
commissions paid by the Partnership Introducing Broker;
Reimbursement of delivery, insurance, Reimbursement by the Partnership of actual
storage and any other charges incidental to payments to third parties in connection
trading and paid to third Parties with Partnership trading
Commodity Trading Advisors Fixed Management Fee 4% per year of the trading equity assigned to
each CTA
Incentive Fee 15% of the New Net Profits of the account for
each quarterly period that the net value of
the trading equity at the end of such
quarterly period for a CTA exceeds the
highest previous quarterly net value of the
trading equity for that CTA.
Third Parties Legal, accounting fees, and other actual Estimated at $23,000 for each year after
expenses necessary to the operation of the the first ($18,000 for accounting and
Partnership, and all claims and other $5,000 for legal). Claims and other costs
extraordinary expenses of the Partnership. can not be estimated and will be paid as
incurred.
</TABLE>
28
<PAGE>
INVESTOR SUITABILITY
An investment in the Partnership is suitable only for a limited amount of the
risk portion of an investor's total portfolio and no one should invest more in
the Partnership than he or she can afford to lose. Investors contemplating
even the minimum investment in the Partnership of $15,000 must have (i) a net
worth of at least $150,000 (exclusive of home, furnishings and automobiles),
or (ii) an annual gross income of at least $45,000 and a net worth (as
calculated above) of at least $45,000. NO INVESTOR MAY INVEST MORE THAN 10%
OF SUCH INVESTOR'S NET WORTH IN THE PARTNERSHIP. THE FOREGOING STANDARD AND
THE ADDITIONAL STANDARDS APPLICABLE TO RESIDENTS OF CERTAIN STATES AS SET
FORTH IN THIS PROSPECTUS AND THE SUBSCRIPTION DOCUMENTS ARE REGULATORY
MINIMUMS ONLY.
POTENTIAL ADVANTAGES
Although commodity trading is speculative and involves a high degree of risk
(see "Risk Factors"), an investment in the Partnership offers the following
potential advantages:
EQUITY MANAGEMENT
The Partnership offers the opportunity for investors to place equity with
professional CTAs who have demonstrated, in the judgment of the General
Partner, an ability to trade profitably and to have that equity allocated to
the CTAs in a manner which is intended by the General Partner to optimize the
potential for profit in the future. The General Partner is also the general
partner of a privately offered commodity pool, Auburn Fund, Limited
Partnership, and its principal has over sixteen years of experience selecting
commodity trading advisors to manage individual investor accounts and
describing how individual managed futures accounts work to individual
investors. This experience is expected to benefit the Partnership in the
quality of commodity trading advisors selected and the explanation of the
operation of the Partnership and the attendant risks of investment in the
Partnership to prospective investors.
INVESTMENT DIVERSIFICATION
An investor who is not prepared to spend substantial time trading various
commodity contracts or options may participate in these markets through an
investment in the Partnership (with a minimum investment of only $15,000),
thereby obtaining diversification from investments in stocks, bonds and real
estate.
LIMITED LIABILITY
A Limited Partner in the Partnership will not be subject to margin calls and
cannot lose more than the amount of the Limited Partner's unredeemed capital
contribution, the Limited Partner's share of undistributed profits, if any,
and, under certain circumstances, any prior distributions and/or amounts
received upon Redemption of Units and interest thereon; provided, however, the
Limited Partner must not participate in the management of the Partnership. In
the opinion of legal counsel to the Partnership, subject to the maintenance of
the Partnership structure by the General Partner and no affiliation by the
Limited Partner with any phase of management of the Partnership, there are no
circumstances, including bankruptcy of the Partnership, which will subject the
personal assets of a Limited Partner to the debts of the Partnership. See the
Limited Partnership Agreement attached as Exhibit A.
ADMINISTRATIVE CONVENIENCE
The Partnership is structured so as to provide Limited Partners with certain
services designed to alleviate the administrative details involved in engaging
directly in commodities contract trading, including providing monthly and
annual financial reports (showing, among other things, the Net Unit Value,
trading profits or losses and expenses), and all tax information relating
Limited Partner's interest in the Partnership.
ACCESS TO THE CTAs
The CTAs selected by the General Partner require a minimum account size
substantially greater than the $15,000 minimum investment in the Partnership;
e.g., Bell requires a minimum investment of $300,000. Accordingly, investors
have access to the CTAs for a smaller investment, at substantially the same
cost, than is available by a direct investment in a managed account with any
particular CTA.
29
<PAGE>
USE OF PROCEEDS
At the time of the sale of the Units, the only deduction prior to the delivery
of the funds to the Partnership in furtherance of its business is the six
percent (6%) selling commission. The trades are entered by the CTAs and the
FCM charges the Partnership account the per round turn commission in effect,
from time to time. At the end of each month, the actual management fees and
fixed commissions identified in this Prospectus, less the per round turn
commissions already paid, are deducted from the Partnership accounts. The
General Partner determines, in its sole judgment, from time to time, the
percentage of the Partnership's Net Asset Value that is on deposit with the
FCM and how much is used for other investments and held in bank accounts to
pay current obligations. Other than the approximately three percent (3%) of
the previous month end Net Asset Value the General Partner causes to be
retained in the Partnership's bank accounts as a reserve to pay Partnership
Expenses, and other similar current payments, the General Partner deposits the
Net Asset Value including the proceeds from interest and trading profits, in
the commodity account with the FCM to be used by the Partnership to engage in
the speculative trading of commodity futures contracts and options under the
direction of the CTAs. The Partnership uses only cash and cash equivalents,
such as United States Treasury Bills to satisfy margin requirements. All
FCMs, CTAs, money market, other cash investment accounts, and banks selected
by the General Partner to hold or trade assets of the Partnership are based in
the United States and are subject to United States regulations. The trades of
the Partnership are cleared by the FCM. Between twenty percent (20%) to forty
percent (40%) of the Partnership's assets are normally committed as margin for
commodity futures contracts but, from time to time, the percentage of assets
committed as margin may be substantially more, or less, than such range. The
amount of interest income earned upon the Capital of the Partnership is based
upon the assumption that between 20% and 40% of the Capital is used for margin
upon trades and that the rate of interest to be paid on the available balances
is approximately 6%. The FCM may increase margins applicable to the
Partnership at any time.
The General Partner has advanced the Offering Expenses and has been reimbursed
for such expenses from the gross proceeds of the Offering from the break of
Escrow at the time of the Initial Closing. Upon admission of subsequent
Partners to the Partnership pursuant to this and any future offerings, a
charge will be made to such newly admitted Partners equal to their pro-rata
share of the Offering Expenses which will be credited to the Capital Accounts
of the prior admitted Partners to reimburse them for the Offering Expenses
they advanced.
DETERMINATION OF THE OFFERING PRICE
The Units were initially offered for sale at One Thousand Dollars ($l,000) per
Unit, which amount was arbitrarily set by the General Partner. This amount
was not based on expected earnings and was not a representation that the Units
had or will have a market value of or could be resold or redeemed at that
price. As trading operations have commenced, all remaining Units that are
offered for sale are offered at a price per Unit equal to the Net Assets of
the Partnership divided by the number of outstanding Units, or Net Unit Value,
as of the close of business on the effective date of such purchase, which is
the last business day of the month in which the General Partner accepts a duly
executed Subscription Agreement and the required applicable subscription
amount from the subscriber. All sales are subject to a sales commission of 6%
to be deducted from the proceeds prior to the issuance of Units.
NO MARKET AND LIMITATION OF RIGHT OF TRANSFER
None of the Units sold are or will be traded on any United States Market or
any other Market. To the Contrary, before any transfer of Units may be made,
the General Partner must grant its written approval. See "The Limited
Partnership Agreement, Transfer of Units Only With Consent of the General
Partner", "Plan of Distribution" and Partnership Agreement attached as Exhibit
A. The Partners have the right of Redemption. See "The Limited Partnership
Agreement, Redemption".
THE GENERAL PARTNER
IDENTIFICATION
The General Partner of the Partnership, Pacult Asset Management, Inc., a
Delaware corporation, c/o Corporate Systems, Inc. 101 N. Fairfield Drive,
Dover, DE 19901 was incorporated on October 13, 1994. It has been operating
this commodity pool since November, 1996 and has been operating a privately
offered commodity pool, Auburn Fund, Limited Partnership since May, 1998. It
was registered as a commodity pool operator on January 27, 1995. The balance
sheets of the General Partner as of December 31, 1996, December 31, 1997 and
September 30, 1998 and an Income Statement, Statement of
30
<PAGE>
Cash Flows and Statement of Changes in Stockholders' Equity are attached
hereto. See "Experts". Purchasers of Units in the Partnership will not
acquire or otherwise have any interest in the General Partner.
THE PRINCIPAL AND OFFICER OF THE GENERAL PARTNER
Ms. Shira Del Pacult, age 42, is the sole shareholder, director, principal,
and officer of the General Partner, and is a principal and registered
representative of Futures Investment Company, the Selling Agent, of which her
husband is also a principal. She graduated Phi Beta Kappa from the University
of California, at Berkeley, in 1979. From 1980 to 1981, she was employed by a
real estate developer in Sonoma County, California, as an administrative
assistant. From 1981 - 1983 she was employed by Heinold Commodities, Inc.,
Chicago, IL, to assist in the development of the Commodities Options
Department. She became a senior account executive at Heinold and was a member
of the President's Council, a select group appointed to advise the firm on all
matters of business practice. In 1983, Ms. Pacult and her husband established
Futures Investment Company, an Illinois corporation, to sell futures
investments managed by independent commodity trading advisors to retail
clients. Presently, Futures Investment Company is located at 5916 N. 300
West, Fremont, Indiana, 46737, with clearing agreements with Vision Limited
Partnership and ABN-AMRO. The Partnership clears its trades through ABN-AMRO.
Ms. Pacult is a member of the National Association of Introducing Brokers, and
is an affiliated person and registered representative of Futures Investment
Company, which is a member of the National Futures Association and the
National Association of Securities Dealers, Inc. In addition to the Units
offered pursuant to this Prospectus, FIC offers for sale, on a best efforts
basis, securities of other issuers and engages in other broker-dealer
activities. Ms. Pacult devotes adequate time to handle properly the
responsibilities of the General Partner; however, Ms. Pacult provides less
than her full time to the business affairs of the Partnership. Ms. Pacult and
her husband, Michael, are included in the book Master Brokers: Interviews
with Top Futures Brokers by John Walsh, ISBN 0-915513-61-7.
TRADING BY THE GENERAL PARTNER; INTEREST IN THE POOL
The General Partner and its principal, may, from time to time, trade commodity
interests for their own accounts. The records of any such trading activities
will not be made available to Limited Partners. As stated earlier, the
General Partner does not and will not knowingly take positions on its own
behalf which would be ahead of identical positions taken on behalf of the
Partnership. The General Partner may purchase and hold Units.
LIMITED PRIOR PERFORMANCE AND REGULATORY NOTICE
THIS POOL BEGAN TRADING IN NOVEMBER, 1996, AND, THEREFORE HAS LIMITED
PERFORMANCE HISTORY.
THE REGULATIONS OF THE CFTC AND NFA PROHIBIT ANY REPRESENTATION BY A PERSON
REGISTERED WITH THE CFTC OR BY ANY MEMBER OF THE NFA, RESPECTIVELY, THAT SUCH
REGISTRATION OR MEMBERSHIP IN ANY RESPECT INDICATES THAT THE CFTC OR THE NFA,
AS THE CASE MAY BE, HAS APPROVED OR ENDORSED SUCH PERSON OR SUCH PERSON'S
TRADING PROGRAMS OR OBJECTIVES. THE REGISTRATIONS AND MEMBERSHIPS DESCRIBED
IN THIS PROSPECTUS MUST NOT BE CONSIDERED AS CONSTITUTING ANY SUCH APPROVAL OR
ENDORSEMENT. LIKEWISE, NO COMMODITY EXCHANGE HAS GIVEN OR WILL GIVE ANY SUCH
APPROVAL OR ENDORSEMENT.
TRADING MANAGEMENT
SELECTION OF COMMODITY TRADING ADVISORS AND ALLOCATION OF EQUITY
The General Partner selects Commodity Trading Advisors for the Partnership by
utilizing the best judgment of its principal and her sixteen year personal
experience in the review of disclosure documents of CTAs. The Partnership
relies, pursuant to the Advisory Agreements and Powers of Attorney attached as
Exhibits F and G, upon Michael J. Frischmeyer and EPIC Trading, the CTAs
selected by the General Partner to trade the equity of the Partnership and to
implement the trading methods and strategies. The General Partner has
allocated substantially all of the Partnership's net assets as trading equity
to the existing CTAs in the percentages disclosed. The first $300,000 of
equity raised pursuant to the sale of Units through this offering will be
allocated to another CTA, Bell Fundamental Futures, L.L.C. ("Bell") (see
Exhibit H). As additional equity is raised, it will be distributed as
follows: 30% to Frischmeyer, 40% to EPIC and 30% to Bell. No additional CTAs
are contemplated to be added due to the sale of additional Units; provided
however, that the General Partner may, in its sole discretion and without
notice to the Limited Partners, terminate any existing CTA, select additional
CTAs, or change
31
<PAGE>
the allocation of equity among the CTAs. None of the CTAs currently selected
are affiliates of the General Partner, or its principal, nor will the General
Partner serve as CTA or select any other CTAs to trade for the Partnership
which are affiliates of it or its principal. See "The Commodity Trading
Advisors" for a summary of the CTAs' performance information.
The General Partner periodically reviews the performance of the Partnership to
determine if the CTAs selected to trade for the Partnership should be changed
or if other CTAs should be added. Due to the allocation of trading assets
over multiple CTAs, it is possible for one of the CTAs to produce New Net
Profit in the account assigned to him and be paid an incentive fee while the
other CTA or CTAs produce losses which cause the Partnership to suffer a net
loss for the Quarter or the year. From time to time, the General Partner may
use computer generated correlation analysis or other types of automated review
procedures to evaluate CTAs.
THE ADVISORY CONTRACTS
For the purpose of directing and effecting trades, the Partnership has entered
advisory contracts and granted Powers of Attorney to the CTAs to trade. The
CTAs have sole discretion, in the accounts so assigned, to determine the
commodity futures trades made by the Partnership. The Partnership is bound by
the directions of the CTAs given to the FCM under the Powers of Attorney. The
Powers of Attorney are subject to termination by either the General Partner or
the respective CTAs upon written notice to the other and to the FCM. If the
Powers of Attorney are terminated, the General Partner will seek and retain a
new CTA or CTAs.
FREQUENCY OF CTA AND EQUITY REALLOCATIONS
The General Partner believes that a CTA should be retained on a medium to
long-term basis and should be given the opportunity to implement fully his
trading strategy or program. While it is not anticipated that frequent
changes will be made to the number of CTAs advising the Partnership or that
frequent reallocations of assets among existing CTAs will be made, the General
Partner retains the flexibility to replace CTAs or to reallocate the
Partnership's assets among CTAs based upon its sole judgment and experience.
From time to time, the General Partner may engage in reallocations of assets
or add or replace CTAs on a frequent basis. Due to the allocation of trading
assets over multiple CTAs, it is possible for one of the CTAs to produce New
Net Profit in the account assigned to him and be paid an incentive fee while
the other CTA or CTAs produce losses which cause the Partnership to suffer a
net loss for the Quarter or the year.
THE COMMODITY TRADING ADVISORS
MICHAEL J. FRISCHMEYER
Michael J. Frischmeyer is one of the Commodity Trading Advisors (collectively
above called the "CTAs" and in this section called the "CTA"). The CTA
conducts the business of the trading program described in this Disclosure
Document as a sole proprietorship, and his Main Business Office and main
business telephone are: 1422 Central Avenue, P.O. Box 898, Fort Dodge, Iowa
50501; (515) 955-3800; and, Facsimile: (515) 955-8257. The books and records
of the CTA will be kept and made available for inspection at the Main Business
Office.
BUSINESS BACKGROUND
The business background of the CTA for at least five (5) years is as follows:
The CTA, Mr. Frischmeyer, was born in 1953. He graduated from Iowa State
University, Ames, Iowa, in 1976 with a Bachelor of Science degree in
agricultural business. From March of 1976 to November of 1979, Mr. Frischmeyer
was an account executive in the commodity brokerage business of Stark
Brokerage, Inc., Fort Dodge, Iowa. In November of 1979, he joined the newly
organized North Iowa Commodities, now known as Iowa Commodities, Ltd. He is
currently Vice President and owner of approximately 21% of the total
outstanding stock of Iowa Commodities, Ltd. and is registered with the CFTC and
the NFA as an associated person of Iowa Commodities, Ltd. (since 1984). Iowa
Commodities, Ltd. serves as an introducing broker for various traders, and is
registered as an introducing broker with the CFTC (though the NFA) and a member
of the Chicago Board of Trade.
Mr. Frischmeyer is registered with the CFTC and the NFA as a commodity trading
advisor (since October 12, 1984), and, as a commodity pool operator (since
April, 1987). He directs the trading for discretionary accounts for
individuals and entities and devotes substantially all of his time to the
futures and options trading business. Mr. Frischmeyer serves as both the
commodity
32
<PAGE>
pool operator and commodity trading advisor for two commodity pools and also
advises other commodity pool operators and other traders and managers with
respect to trading strategies including his role as the sole CTA for Fremont
Fund, Limited Partnership, a publicly offered commodity pool in which Ms.
Pacult, the principal of the General Partner for this pool also serves as the
principal of the general partner. See "Performance Record of Fremont Fund,
Limited Partnership".
Mr. Frischmeyer was affiliated with R.G. Dickinson and Company, based in Des
Moines, Iowa, as registered representative from January, 1986 through December,
1991. R.G. Dickinson is a securities broker-dealer. Mr. Frischmeyer became a
registered representative with Broker-Dealer Financial Services, Inc., based in
Des Moines, Iowa on January 1, 1992. Mr. Frischmeyer terminated his
association with Broker-Dealer Financial Services Corporation on December 31,
1994, and became a registered representative of Investment Guidance, Inc.,
effective January 1, 1995. Investment Guidance, Inc. is registered as a fully-
disclosed broker-dealer with the Securities and Exchange Commission and member
of the National Association of Securities Dealers, Inc. It serves as the
underwriter for certain limited partnership commodity pool offerings, in
addition to offering general brokerage services to the public.
Additionally, please see "Performance of the CTA," below, for a detailed
performance history of Mr. Frischmeyer.
DESCRIPTION OF TRADING PROGRAM
The types of futures contracts and options which the CTA may trade for the
Partnership include, without limitation, all domestic and foreign currency
futures contracts and all domestic and foreign commodities, currencies and
provisions, and options therefore, as are usually dealt in on exchanges or in
the interbank foreign currency forward markets.
The CTA's trading has been active in the soybean complex (beans, oil and
meal), corn, wheat, cattle (live and feeder), live hog and pork belly
contracts and interest rate futures (long-term treasury bonds, Eurodollars and
others). The CTA's trading has also been active in foreign currencies and in
stock index futures and options and in precious metals (primarily gold and
silver) futures, as well as in futures and options on foreign futures and
options exchanges.
The futures and options traded by the CTA, including the trades to be made for
the Partnership, will be traded on regulated exchanges located in the United
States and in non-United States jurisdictions, including England, France,
Spain, Germany, Canada, Australia, Japan and Singapore. No business will in
any event be conducted which is forbidden by or will be contrary to any
applicable law (whether laws of the United States or a foreign jurisdiction)
or any lawful rules and regulations as are established by the regulated
exchanges (whether United States exchanges or foreign exchanges) upon which
futures or options are traded for the Partnership. Prospective clients should
be aware, however, that trading on foreign exchanges will not be subject to
the regulations of the Commodity Futures Trading Commission (the "CFTC") and
may involve greater risks than trading on exchanges located in the United
States. In addition, the CTA will be effecting certain trades through the
"GLOBEX" system, Project A and other systems, which are electronic order-entry
and matching systems for futures and options. See "Risk Factors".
The CTA contemplates trading the contracts identified on the following Futures
Exchanges for the Partnership, although other exchanges may be used and other
types of contracts or interests may be traded:
FOREIGN FUTURES EXCHANGES: Deutsche Terminborse - DAX Index; London
International Financial Futures Exchange (LIFFE) - 3-Month Sterling, 3-Month
EuroDeutscheMark, 3-Month EuroLira, 3-Month EuroSwissFranc, German Bond,
British Gilt, Italian Government Bond (BTP), FT-SE 100 Index; Marche A Terme
Internationale de France (MATIF) - 3-Month PIBOR, French Notional Bond, CAC 40
Index; Mercado de Futuros Y Opciones (MEFF) - 3-Month MIBOR, Spanish Notional
Bond; Montreal Stock Exchange - 3-Month Canadian Bankers Acceptance, Canadian
Government Bond; Sydney Futures Exchange - 3-Month Australian Bills, 10 Year
Australian Bonds; Tokyo International Financial Futures Exchange (TIFFE) -
EuroYen; Tokyo Stock Exchange - Japanese 10 Year Bond; Singapore International
Financial Futures Exchange (SIMEX) - EuroDollars, Nikkei, Japanese 10 Year
Bond.
UNITED STATES FUTURES EXCHANGES: Chicago Board of Trade (CBOT) - Corn,
Soybeans, Soybean Meal, Soybean Oil, Wheat, Treasury (10 year) Notes, Treasury
Bonds, Municipal Bond Index; Chicago Mercantile Exchange (CME) - Live Cattle,
Feeder Cattle, Live Hogs, Pork Bellies; International Monetary Market (IMM) a
division of the CME - Australian Dollar, Canadian Dollar, Deutsche Mark,
French Franc, Japanese Yen, Swiss Franc, Eurodollars, British Pound, Mexican
Peso; Index and Options Market (IOM) a division of the CME - S & P 500 Index,
S & P Midcap 400 Index; New York Futures Exchange (NYFE) - NYSE Composite;
Financial Instruments Exchange (FINEX) - U.S. Dollar
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<PAGE>
Index, British Sterling-Deutsche Mark, Deutsche Mark-Yen, Deutsche Mark-French
Franc, Deutsche Mark-Italian Lira; Commodity Exchange, Inc. (COMEX) - Gold,
Silver; Kansas City Board of Trade (KCBT) - Hard Red Winter Wheat, Value Line
Index.
The following description of the CTA's trading systems, methods and strategies
is not intended to be exhaustive. In addition, the trading methods, systems
and principles utilized by the CTA are proprietary and confidential and the
following descriptions are general in nature. Further, in preparing the
following discussion, the CTA may have chosen to refer to or emphasize only
specific aspects of his trading systems, methods and strategies. Prospective
clients should also be aware that there are numerous trading systems, methods
and strategies utilized in the various futures and options contexts and that
the following discussion only addresses those systems, methods and strategies
utilized by the CTA. Prospective clients will be unable to compare the CTA's
systems, methods and strategies with any other trading systems, methods and
strategies that are or may be utilized by other traders or commodity trading
advisors or trading managers.
The CTA will rely on his subjective judgment and discretion in the trading of
Partnership accounts. The intent of such subjective judgment and discretion
is to enhance returns and/or lower risks; however, there can be no assurances
that such actions will be successful. One example of such subjective judgment
or discretion may be determining the appropriate level of aggressiveness
during periods of unusual uncertainty.
In certain trades, the CTA will be utilizing a practice known as "Exchange for
Physicals" ("EFP"). EFP is a practice whereby positions in certain futures
contracts may be initiated or liquidated by first executing the transaction in
the appropriate cash market and then arbitraging the position into the futures
market (simultaneously buying the cash position and selling the futures
position, or vice versa). Although it is not anticipated to occur, if the
CTA's ability to engage in such transactions were to be restricted by the CFTC
or other applicable authority, the current trading techniques employed by the
CTA may be impaired to the detriment of clients of the CTA.
PERFORMANCE RECORD OF THE CTA
The performance capsules set forth below are presented on a composite basis.
While there may be differences in the specific trades made in each account,
the trading program and strategies employed for accounts traded in Mr.
Frischmeyer's Managed Account Program, Iowa Commodities Fee Schedule and in
his Managed Account Program, Regular Fee Schedule are the same, and Mr.
Frischmeyer does not believe there are substantial differences between the
trading systems, money management policies or fee structures, or any other
significant differences among the accounts comprising the respective
composites which would make the use of a composite inappropriate. As much as
possible, Mr. Frischmeyer attempts to trade all managed accounts
proportionately the same. For example, if one account is twice the size of
another, it will trade twice the number of contracts so that the two accounts
would generate a similar rate of return.
When reviewing the CTA's performance record, prospective clients should also
be aware, however, that composite performance results tend to create an
"averaging effect" on the performance of the accounts. Further, prospective
clients should recognize that different accounts can have and have had varying
investment results, even though they have been traded according to the same
general trading approach. The reasons for this include numerous material
differences between accounts, including the following:
1. The timing of the deposit of equity and the total period during which each
account was traded.
2. The relative sizes of the accounts, which influences the number of
interests and the number of contracts in each interest traded by accounts,
as well as the diversification of the account and the design and execution
of the CTA's methods. For instance, in the example given above, the larger
account might not be exactly twice the size of the smaller account. The
CTA may, from time to time, determine that certain trades may entail
greater than ordinary risks, which may cause him to also determine that all
accounts should trade a smaller than usual number of contracts. As a
result, in some circumstances larger accounts may trade a reduced number of
contracts in such trades and the small accounts may not participate in such
trades.
3. The trading approach used-although all accounts may be traded in accordance
with the same general trading approach, such approach can and does change
periodically as a result of research and development by the CTA.
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<PAGE>
4. Split fills. When entering an order to buy or sell futures or options, the
CTA will block his managed accounts (group them together) so that multiple
accounts can be filled on one order. If fills occur at more than one
price, a small difference in performance can result. In such instances
(except where the Average Price System is applicable, described in the
Sections entitled "Description of Trading Program" and "Conflicts of
Interest"), the fills are arbitrarily allocated so that the highest prices
(whether buys or sells) are successively allocated to the numerically
highest account numbers.
5. Incomplete fills. Occasionally, a blocked order can be partially, but not
completely filled at the price specified on the order. In such an
instance, the CTA attempts to allocate one contract to each account,
regardless of account size, and then allocate the remaining fills in
proportion to account capitalization, but some discrepancies may be
unavoidable. See "Conflicts of Interest" above.
6. The size and time of payment of brokerage commissions and fees paid by the
accounts.
7. The size and time and payment of administrative costs paid by the accounts.
8. The size and time and payment of interest income earned by the accounts.
9. The market condition in which accounts are traded, which in part determines
the quality of trade executions.
10. The allocation of orders to open or close positions.
Thus, the results of individual accounts, as a result of differences in the
above factors, may experience better or worse than the composite performance
results shown.
Managed Account Program, Regular Fee Schedule
The following capsule shows the past performance of Mr. Frischmeyer's Managed
Account Program, Regular Fee Schedule since the inception of the Managed
Account Program, Regular Fee Schedule and year-to-date (through October 31,
1998). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<TABLE>
Managed Account Program, Regular Fee Schedule
Percentage Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
Month 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
January (0.02) (2.36) (2.56) 1.45 N/A
February (0.51) (1.79) (1.22) (5.86) N/A
March (0.79) (1.79) (5.11) (2.88) 0.19
April (3.95) (3.17) 14.71 (7.88) (3.40)
May (5.77) (0.94) (8.46) (6.24) 0.58
June (0.95) (0.91) (10.26) (3.09) (6.47)
July 4.02 (3.28) 2.21 2.55 11.36
August (3.90) (1.15) (7.38) 9.58 5.38
September 0.40 (3.76) (7.53) 19.83 (0.55)
October (1.80) (0.11) 2.35 4.18 1.65
November (1.51) (0.47) (3.01) (1.62)
December (0.66) (3.40) 12.87 (1.53)
Year (9.97) (19.50) (25.86) 19.24 4.64
<FN>
35
<PAGE>
Name of Commodity Trading Advisor: Michael J. Frischmeyer
Name of Trading Program: Managed Account Program, Regular Fee Schedule
("Regular Program")
Date Commodity Trading Advisor Began Trading Client Accounts: March 1, 1976
Date When Client Funds Began Being Traded Pursuant To The Regular Program:
March 1, 1994
Number of Accounts Directed Pursuant To The Regular Program: 163
Total Assets Under Management of Mr. Frischmeyer: $16,609,402
Total Assets Traded Pursuant To The Regular Program: $4,526,578
Largest Monthly Draw-Down: 6-96/10.26% of client funds
Worst Peak-to-Valley Draw-Down***: 12-95 to 10-98/73.50% of net asset value
* Rate of Return is computed by dividing net performance by beginning net
asset value for the period. For those months when additions or
withdrawals exceed ten percent of beginning net assets, the Time-
Weighting of Additions and Withdrawals method is used to compute rates
of return.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by an account over the specified period.
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
As indicated above, the performance capsule is a composite consisting of 135
accounts, comprised of 68 at $40,000, 48 at $80,000, 7 at $120,000, 11 at
$160,000, and 1 at $200,000. As also indicated above, Mr. Frischmeyer's
Managed Account Program, Regular Fee Schedule began in March of 1994. One
hundred twenty-three (123) such accounts were opened in 1994, one hundred
thirty-two (132) such accounts were opened in 1995, two hundred thirty (230)
were opened in 1996, fifty-six (56) were opened in 1997, and nine (15) were
opened in 1998 (as of October 31, 1998). Three (3) of such accounts were
closed in 1994, all of which were profitable. Forty-three (43) such accounts
were closed in 1995, of which 29 were profitable, and 14 of which were
unprofitable. Fifty-two (52) such accounts were closed in 1996, of which 22
were profitable, 30 of which were unprofitable, and 20 of which were closed
for purposes of transferring to the accounts to another futures commission
merchant. The CTA continued as the commodity trading advisor for all such
20 accounts. One hundred eighty (180) such accounts were closed in 1997,
17 of which were profitable, and 163 of which were unprofitable. One hundred
fifty-three (153) such accounts were closed in 1998 (as of October 31, 1998),
1 of which was profitable and 152 of which were unprofitable.
The composite performance records of the CTA's Managed Account Program, Regular
Fee Schedule do not include certain limited accounts (5 as of October 31, 1998)
which are traded in the Managed Account Program, Regular Fee Schedule, but
which have not and will not, with the client's agreement, make any trades in
any contracts, options or other interests in any grains, oil seeds or livestock
which are otherwise made by the other accounts traded in the CTA's Managed
Account Program, Regular Fee Schedule. Those accounts are collectively
referred to in this Prospectus as the "Regular Fee Schedule-Regular Fee
Restricted Accounts Only". Although the Regular Fee Restricted Accounts are
charged the same fees by the CTA as the other accounts traded in the CTA's
Managed Account Program, Regular Fee Schedule, the CTA believes including the
Regular Fee Schedule-Regular Fee Restricted Accounts Only Accounts in his
composite performance records for his Managed Account Program, Regular Fee
Schedule is inappropriate because the Regular Fee Schedule-Regular Fee
Restricted Accounts Only Schedule Accounts do not trade in any contracts,
options or other interest in any grains, oil seeds or livestock. As indicated
above, the Regular Fee Schedule-Regular Fee Restricted Accounts Only Accounts
were therefore also excluded from the composite performance records for the
CTA's Managed Account Program, Regular Fee Schedule.
Managed Account Program, Regular Fee Schedule-Regular Fee Restricted Accounts
Only
The following capsule shows the past performance of Regular Fee Schedule-
Regular Fee Restricted Accounts Only since the inception of trading of the
first Regular Fee Schedule-Regular Fee Restricted Accounts Only Account (in
November, 1995) and year-to-date (through October 31, 1998). PAST PERFORMANCE
IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
36
<PAGE>
<TABLE>
Managed Account Program, Regular Fee Schedule -
Regular Fee Restricted Accounts Only
Percentage Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
Year-to-date Nov - Dec
1998 1997 1996 1995
<S> <C> <C> <C>
(13.17) (10.06) (18.40) (2.12)
<FN>
Name of Pool: Managed Account Program, Regular Fee Schedule-Regular Fee
Restricted Accounts Only
Date Commodity Trading Advisor Began Trading Client Accounts: March 1, 1976
Date When Client Funds Began Traded Pursuant To The Restricted Program:
November 27, 1995
Number of Accounts Directed Pursuant To The Restricted Program: 5
Total Assets Under Management of Mr. Frischmeyer: $16,609,402
Total Assets Traded Pursuant To The Regular Program: $127,369
Largest Monthly Draw-Down**: 7-96/7.84% of client funds
Worst Peak-to-Valley Draw-Down***: 7-96 to 12-97/25.99% of net asset value
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by a pool or account over the specified period
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
The above performance capsule is a composite of five (5) Regular Fee Schedule-
Regular Fee Restricted Accounts Only Accounts. One (1) such Account was
opened in 1995, twelve (12) such Accounts were opened in 1996, and no such
Accounts were opened in either 1997 or 1998 (as of October 31, 1998). Three
(3) such Accounts were closed in 1996, all of which were unprofitable as of the
date they were closed. Four (4) such Accounts were closed in 1997, all of
which were unprofitable as of the date they were closed. One (1) such Account
was closed in 1998 (as of October 31, 1998), which was unprofitable as of the
date it was closed.
The CTA has reserved the right, in his discretion, to negotiate and accept a
different fee schedule for any particular account or accounts to be traded
under his trading program, i.e., the CTA's Managed Account Program, Regular Fee
Schedule. One account traded under the CTA's Managed Account Program, Regular
Fee Schedule for which the CTA has agreed to a different fee schedule is
Frischmeyer Fund, L.P., which is an Iowa limited partnership operating as a
commodity pool. As of October 31, 1998, Frischmeyer Fund, L.P. had net assets
of approximately $1,024,086. Given the size of Frischmeyer Fund, L.P., the CTA
has agreed to receive a one percent (1%) annual management fee from Frischmeyer
Fund, L.P. based upon the total equity of Frischmeyer Fund, L.P.'s account,
rather than the four percent (4%) annual management fee based upon the
incremental trading level of the account as is generally charged to accounts
traded in the CTA's Managed Account Program, Regular Fee Schedule. (The fees
charged Frischmeyer Fund, L.P. by the CTA are otherwise the same as those
normally charged by the CTA to accounts traded in the CTA's Managed Account
Program, Regular Fee Schedule.). The CTA has determined that the difference in
the management fees charged to Frischmeyer Fund, L.P. makes the inclusion of
Frischmeyer Fund, L.P. in the composite performance records of the CTA's
Managed Account Program, Regular Fee Schedule inappropriate. The following
paragraph therefore sets forth a separate performance capsule for Frischmeyer
Fund, L.P.
Managed Account Program, Frischmeyer Fund, L.P. Fee Schedule
Frischmeyer Fund, L.P. is a single advisor pool that does not have a guarantee
feature. The following capsule shows the past performance of Frischmeyer Fund,
L.P. since the inception of trading by Frischmeyer Fund, L.P. and year-to-date
(through October 31, 1998). The CTA has no authority to, and no offering of any
interests in Frischmeyer Fund, L.P. is made by this Prospectus. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
37
<PAGE>
<TABLE>
Managed Account Program, Frischmeyer Fund, L.P. Fee Schedule
Percentage Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
Year-to-date Feb - Dec
1998 1997 1996 1995
<S> <C> <C> <C>
(11.62) (14.25) 12.69 (6.62)
<FN>
Name of Pool: Frischmeyer Fund, L.P.
Type of Pool: Publicly offered, but currently closed to new investors
Date of Inception of Trading: March 15, 1995
Aggregate Gross Capital Subscriptions to the Pool: $2,658,017
Pool's Net Asset Value: $1,024,086
Largest Monthly Draw-Down**: 12-95/19.44% of net asset value
Worst Peak-to-Valley Draw-Down***: 4-96 to 10-98/33.6% of net asset value
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by an account over the specified period.
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
Managed Account Program, Iowa Commodities Fee Schedule
The following capsule shows the past performance of Mr. Frischmeyer's Managed
Account Program, Iowa Commodities Fee Schedule for the most recent five
calendar years and year-to-date (through October 31, 1998), as well as since
inception through 1992. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF
FUTURE RESULTS.
<TABLE>
Managed Account Program, Iowa Commodities Fee Schedule
Percentage Rate of Return
For the Most Recent Five Calendar Years and Year-to-Date
(Computed on a compounded monthly basis)*
<CAPTION>
Year-to-Date
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
(5.89) (17.89) (20.14) 42.34 9.71 166.90
</TABLE>
<TABLE>
Managed Account Program, Iowa Commodities Fee Schedule
Percentage Rate of Return
Since Inception Through December, 1992
(Computed on a compounded monthly basis)*
<CAPTION>
1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21.19 (4.96) (6.73) 54.84 86.89 100.09 (35.78) (4.62) 229.34 100.69 0.86 (25.34)
<FN>
Name of Commodity Trading Advisor: Michael J. Frischmeyer
Name of Trading Program: Managed Account Program, Iowa Commodities Fee
Schedule ("ICL Program")
Date Commodity Trading Advisor Began Trading Client Accounts: March 1, 1976
38
<PAGE>
Date When Client Funds Began Being Traded Pursuant To The ICL Program: January 1, 1981
Number of Accounts Directed Pursuant To The ICL Program: 58
Total Assets Under Management of Mr. Frischmeyer: $16,609,402
Total Assets Traded Pursuant To The ICL Program: $10,821,715
Largest Monthly Draw-Down**: 8-93/35.47% of client funds
Worst Peak-to-Valley Draw-Down***: 4-96 to 6-98/76.06% of net asset value
* Rate of Return is computed by dividing the net trading results by
beginning net asset value for the period.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by an account over the specified period.
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
One account in Mr. Frischmeyer's Managed Account Program, Iowa Commodities Fee
Schedule was opened in 1998 (as of October 31, 1998). Four (4) such accounts
were opened in 1997. Eight (8) such accounts were opened in 1996, six (6) such
accounts were opened in 1995, and twenty-one (21) such accounts were opened in
1994. Eight (8) such accounts were opened in 1993, and one (1) such account
was opened in 1992, being a commodity pool which was created as a vehicle for
existing managed accounts of less than $30,000 to permit participation in
trades that would be unsuitable for a small account. In the course of
consolidating those accounts, twenty-four (24) managed accounts were closed.
The historical performance of each of those accounts was comparable to that
shown in the composite performance record. The lifetime performance of such
accounts is dependent upon when each account was opened.
One account in Mr. Frischmeyer's Managed Account Program, Iowa Commodities Fee
Schedule was closed in 1992, one other was closed in 1993, three were closed in
1994, five such accounts were closed in 1995, no such accounts were closed in
1996, four such accounts were closed in 1997, and six such accounts were
closed in 1998 (as of October 31, 1998). The account closed in 1992 had been
traded for ten quarters from April, 1990 through September, 1992 and was
unprofitable (as were all of Mr. Frischmeyer's managed accounts during that
period). The account closed in 1993 was transferred to Mr. Frischmeyer in
1989, had been profitable, and was closed due to the dissolution of the
partnership which owned the account. Of the three closed in 1994, one was
opened in 1989 and was profitable, one was opened in 1990 and was profitable
(closed for estate planning), and one was opened in 1976 and was closed due to
a death. Of the five closed in 1995, one was opened in 1981 and was
profitable, one was opened in 1984 and was profitable, and three were opened in
1994 and were unprofitable. Two of the accounts which were closed in 1995 were
closed pursuant to reorganizations by the client, and resulted in two new
accounts being opened in 1995.
EPIC TRADING
EPIC Trading is a registered Commodity Trading Advisor ("collectively above
called the "CTAs" and in this section called the "CTA") organized as a sole
proprietorship with Bradley P. Jordan, Commodity Trading Advisor as principal.
The business office of EPIC Trading is One Whitehall St., Suite 1500, New
York, New York 10004 and the telephone number is (212) 859-0200.
BUSINESS BACKGROUND
The business background of the CTA for at least five (5) years is as follows:
Mr. Jordan first obtained his CFTC license as an Associated Person in 1975
while employed with the Taylor-Grant Division of Rosenthal & Co. In 1976, he
began ten years with Merrill Lynch Futures, Inc. ("Merrill") as a Commodity
Account Executive, Futures Analyst serving institutional clients in grains and
soft commodities as well as speculative accounts primarily in the metals
markets. Mr. Jordan left Merrill in 1986 as the Senior Floor Broker on the New
York Futures Exchange to trade his own account in the NYFE pits. In January
1995, the THESIS Fund, L.P. started trading as an exempt Commodity Pool with
Mr. Jordan as Trading Advisor and 50% Managing Partner. In January, 1997, he
resumed trading for his proprietary account in stock index futures until early
this year. Currently, Mr. Jordan is an associated person of Super Fund
Financial Group, Inc., an NFA member, Commodity Pool Operator and Introducing
Broker guaranteed by Vision Limited Partnership.
39
<PAGE>
Mr. Jordan lives in Glen Rock, New Jersey with his wife and two sons. He
currently serves as Councilman for the Borough of Glen Rock and in that
capacity is the Chairman of the Division of Revenue and Finance overseeing a
municipal budget of $11,000,000. Mr. Jordan graduated from Cornell University
in 1975.
There have been no material administrative, civil or criminal actions
concluded within the preceding five years against EPIC Trading or Bradley P.
Jordan and no such actions are pending or on appeal.
DESCRIPTION OF TRADING PROGRAM
At the backbone of EPIC Trading is a technically based system utilized to
trade the stock index futures and options markets. A proprietary moving
average program is combined with internal divergence analysis to create
trading strategies. Divergence analysis is used to study the price structure
of underlying equity markets in order to create a long-term trading framework.
A leading indicator moving average projection is then applied to generate
short and intermediate term trades. Various filters have been developed to
maximized results. Standard technical analysis techniques, such as trend line
and pattern formation, are also used to a lesser extent in the trading
program.
The CTA intends to trade primarily Stock Index Futures and Options, however
the CTA may trade any variety of commodity interests that fall in the
categories of Grains, Meats, Metals, Currencies, Financials, Stock Indexes,
Energies, and other items of Food and Fiber. "Commodity Interests" means
contracts on and for physical commodities, currencies, money market
instruments, and items which are now, or may hereinafter be, the subject of
futures contract trading, options' contracts, or physical commodities.
PERFORMANCE RECORD OF THE CTA
Trading in Epic Trading Program commenced on January, 1995 and ceased in
December, 1996, then resumed in April, 1998. During 1997, Mr. Jordan traded
for his own accounts. See Appendix III for the performance summary of his
trading activity.
EPIC Trading Program
The following capsule shows the past performance of EPIC Trading Program since
the inception of trading (in January, 1995) and year-to-date (through October
31, 1998). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<TABLE>
EPIC Trading Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
MONTH 1998 1997 1996 1995
<S> <C> <C> <C> <C>
January N/A N/A 3.88 5.67
February N/A N/A 5.66 6.10
March N/A N/A (0.04) (1.18)
April 6.50 N/A (2.62) (2.90)
May 1.80 N/A 6.57 4.80
June (3.00) N/A 2.35 0.95
July 3.40 N/A 0.99 1.17
August 3.00 N/A 3.70 (0.71)
September 1.50 N/A 2.49 (3.67)
October 2.70 N/A (0.20) 1.73
November N/A 2.97 0.06
December N/A 2.30 (1.73)
Year 16.64 N/A 15.10 26.03
<FN>
40
<PAGE>
Name of the Commodity Trading Advisor: EPIC Trading
Name of the Trading Program: EPIC Trading Program
Date Commodity Trading Advisor Began Trading Client Accounts: January 1, 1995
Date When Client Funds Began Being Traded Pursuant to Trading Program:
January 1, 1995
Number Of Accounts In Trading Program: 4
Total Assets Under Management: $5,329,297
Largest Monthly Draw-Down**: 3.67%, September, 1995.
Worst Peak-to-Valley Draw-Down***: 8-95 to 9-95 / 4.38% of net assets
Number of Accounts Closed With Net Profit: 1
Number of Accounts Closed With Net Loss: 0
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by an account over the specified period.
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
BELL FUNDAMENTAL FUTURES, L.L.C.
Bell Fundamental Futures, L.L.C. ("BFF") is a registered Commodity Trading
Advisor ("collectively above called the "CTAs" and in this section called the
"CTA") organized in 1997 as a Tennessee Limited Liability Corporation, with
its business office located at 889 Ridge Lake Boulevard, Suite 233, Memphis,
Tennessee 38120. Its telephone number is (901) 766-4692 and its facsimile
number is (901) 766-4698.
BFF became registered with the Commodity Futures Trading Commission (the
"CFTC") as a commodity trading advisor ("CTA") on September 30, 1997 and is a
member in good standing with the National Futures Association ("NFA"), a self-
regulatory organization.
David M. Bell is the President of BFF. He and his wife, Diane L. Bell are the
sole shareholders of BFF. Ms. Bell is not otherwise involved in BFF. Mr.
Bell is currently the only Trader for the CTA.
BUSINESS BACKGROUND
The business background of the CTA for at least five (5) years is as follows:
BFF is a limited liability corporation created to engage in the business of
managing speculative commodity accounts. David M. Bell has been registered as
principal of BFF with the CFTC since September 30, 1997, the initial
registration.
Mr. Bell was born in Lincoln, Nebraska, and grew up on the family's
diversified farm at Bellwood, Nebraska.
Mr. Bell graduated from David City High School, David City, Nebraska, in 1961.
He received a B.S. of Agricultural Economics from the University of Nebraska
in 1965; a MS of Agricultural Economics from the University of Nebraska in
1966; and a Ph.D. from Michigan State University in 1972, with a major in
Agricultural Economics and minors in Marketing and Statistics. Mr. Bell's
doctoral dissertation was selected as one of the three outstanding
dissertations in 1972 by the American Agricultural Economics Association.
Mr. Bell taught economics at Northwest Missouri State College in Maryville,
Missouri during the 1966/67 academic year. From 1970-75, Mr. Bell was
employed by the Economic Research Service of the US Department of Agriculture,
first in East Lansing, Michigan and later in Washington, D.C., where he served
as leader of the Manufactured Inputs Research Area.
In June, 1975, Mr. Bell joined Connell Econometrics/Connell Rice and Sugar
Co., a commodity research and consulting company in Westfield, New Jersey.
Mr. Bell directed commodities research and consulting operations and developed
41
<PAGE>
econometric models for forecasting prices and key fundamental factors in the
grain and soybean complex markets. From January, 1982 through December, 1994,
he was employed by Sparks Companies, Inc., one of the leading commodity
research and consulting companies. He developed trading strategies for
customers, directed research operations, and conducted training schools on
futures and options markets, fundamental analysis, and development of trading
strategies. Since January, 1995, Mr. Bell has been the sole trader for Eagle
Fund, L.P., a commodity speculation enterprise.
Past Performance for Mr. Bell may be found beginning on below under
"Performance Record of the CTA". Proprietary Trading Results as well as
trading results for Eagle Fund, L.P. may be found in Appendix IV.
Diane L. Bell, the only other principal, is not otherwise involved in either
the management or trading of BFF.
DESCRIPTION OF TRADING PROGRAM
Fundamental and Technical Analysis
There are generally two methods of analysis used to forecast price behavior in
commodity markets - fundamental and technical.
Fundamental analysis looks at factors that affect the supply and demand of the
underlying commodity thereby affecting its equilibrium price. Such factors as
weather patterns, government policies, livestock profitability, prices of
competitive commodities, farmer's profit margins, and foreign monetary
exchange rates are a few of the factors involved. For example, if a foreign
country sells feed wheat at prices below the US export price for corn, export
demand for US corn will be reduced, potentially leading to lower corn prices.
Since both producers and consumers may take positions in the futures market as
a substitute for the transaction in the cash market, fundamental analysis must
also take those actions into consideration.
Technical analysis is based upon the theory that the market price reflects all
known supply and demand factors and appropriately discounts the unknown
factors, and that by studying the price patterns, future price changes can be
anticipated. Such variables as closing prices, highs and lows, the
relationship of closings to openings, volume and open interest, rate of change
in prices, and even the rate of change of the rate of change may be variables
studied. These variables may be studied on a daily, weekly or even monthly
basis, and be in the form of computer generated models, graphic chart
patterns, or discretionary, where the trader considers a number of variables
and makes a judgment of what they mean.
Mr. Bell's Trading Style
Mr. Bell trades primarily, but not exclusively, futures on agricultural
markets, as well as options on these markets. (See Description of Commodity
Interests Traded)
As discussed above, CTAs generally rely on either fundamental or technical
analysis or a combination thereof to identify effective trading strategies.
Mr. Bell believes that fundamental factors determine the eventual movement of
the market and places primary emphasis on these factors. However, he also
monitors technical factors as they may serve to confirm the fundamentals,
serve as an early warning that fundamentals are changing, or help indicate the
potential extent of the price move. Mr. Bell's trading strategy attempts to
detect disequilibriums in prices which will lead to trend movements for the
commodity interests monitored, and normally seeks to establish positions and
maintain such positions while the particular market moves in favor of the
position and to exit the particular market and/or establish reverse positions
when the favorable trend either reverses or does not materialize. In markets
that are in equilibrium, Mr. Bell may trade a range around that price, making
more frequent trades of shorter duration.
BFF may employ trading analysts and technical analysts to assist with market
research. No client will acquire any rights or proprietary interest in, or
have access to, any of the information, data or trading methods utilized by
BFF.
BFF intends to maintain its current reliance on a combination of fundamental
and technical analyses as the basis for all trading decisions, although BFF
reserves the right to make adjustments to its risk management and other
trading policies, without approval by the client. Clients will, however, be
advised of any material changes in such trading policies.
42
<PAGE>
Proprietary Trading Policy and Associated Order Allocation
Mr. Bell does trade for his own account(s) and may trade his proprietary
accounts in a manner more or less aggressively than client accounts or trade
positions different from, or not included in, a client account. Such
proprietary trading may differ from trading decisions made by Mr. Bell on
behalf of BFF's clients. Mr. Bell generally follows the same basic trading
methods and strategies developed, modified and refined as described above.
Mr. Bell may elect not to trade his proprietary account(s) in parallel with
customer accounts. However, Mr. Bell will normally not take a position that
is opposite those taken for clients.
In trading for proprietary account(s) and in contrast to trading for
customers, Mr. Bell may trade a larger number of commodity interests, utilize
a higher degree of leverage, and test new markets. In addition, Mr. Bell may
conduct experimental trading methods and strategies. Mr. Bell also may trade
contracts for proprietary account(s), but not for customer accounts of BFF, or
may trade contracts for customer accounts of BFF and not his own proprietary
accounts. Accordingly, Mr. Bell at times may take positions in his
proprietary account(s) that are different to those taken by BFF on behalf of
customer accounts and Mr. Bell's proprietary account(s) may produce trading
results that are different from those experienced by the CTA's clients.
Any such proprietary trading will not knowingly be made so as to benefit from
contemplated purchase or sales by customer accounts - i.e., engaging in so-
called "front running." The intent of such policies is to ensure that all
client orders have the opportunity to be filled at the best possible price
(although the prices at which individual client orders are filled will vary
depending upon changing market conditions and the quality of the carrying
brokerage firm's execution services).
BFF may place all client orders for a particular FCM as part of a bulk order
that will include all client accounts handled by that FCM in which the same
commodity is being traded pursuant to BFF's trading program(s). BFF will
employ an objective price allocation system which is intended to promote
fairness among all client accounts maintained at each FCM
Clients will not be permitted to inspect the records of Mr. Bell's proprietary
trading nor any written policies related to such trading.
Description of Commodity Interests Traded
BFF intends to trade futures and options on futures contracts primarily, but
not exclusively, on agricultural raw materials and products, particularly:
grains, oilseeds, oilseed products, livestock, fiber and food products.
However, BFF may trade all commodity futures contracts, including, but not
limited to, agricultural products, financials, metals, foreign currencies and
options on such futures contracts without limitations or restrictions.
Options on futures contracts may be used by BFF on both a covered basis (i.e.,
to write or sell an option against a futures contract in the client's account)
and/or on an uncovered basis (i.e., to buy or sell an option directly). Both
Put and Call options may be used. In general, the use of options by BFF
increases an account's margin requirements and may increase volatility as
well.
Money And Risk Management
BFF and its principals believe that the discipline of money management is an
important element of the overall trading program.
BFF determines the size of any particular position based on the potential risk
of the trade relative to the potential gain along with the probabilities of
each, and the volatility of the market. This evaluation is purely
discretionary and does not ensure in any way whatsoever that risk of loss will
be effectively managed or limited or that the preservation of capital will be
achieved.
43
<PAGE>
PERFORMANCE RECORD OF THE CTA
Capsule A - Bell Fundamental Futures, L.L.C.
The following capsule shows the past performance of the BFF Trading Program
since the inception of trading (in February, 1998) and year-to-date (through
October 31, 1998). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
<TABLE>
Capsule A - Bell Fundamental Futures, L.L.C.
Percentage Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
MONTH 1998
<S> <C>
January N/A
February 0.5
March 2.4
April 0.4
May 2.7
June (3.7)
July (0.4)
August 5.6
September (0.3)
October (1.1)
Year 6.0
<FN>
Name of the Commodity Trading Advisor: Bell Fundamental Futures, L.L.C.
Name of the Trading Program: Capsule A - Bell Fundamental Futures, L.L.C.
Date Commodity Trading Advisor Began Trading Client Accounts: January 1983
Date When Client Funds Began Being Traded Pursuant to Trading Program:
February 1998
Number Of Accounts In Trading Program: 7
Total Assets Under Management: $2,859,987.74
Largest Monthly Draw-Down**: 6-98/4.5%
Worst Peak-to-Valley Draw-Down***: 6-98/4.5%
Number of Accounts Closed With Net Profit: 4
Number of Accounts Closed With Net Loss: 3
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by an account over the specified period.
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
Capsule A - Bell Fundamental Futures, L.L.C. represents the performance
history of accounts managed by BFF. No proprietary trading accounts are
included. All of the accounts were traded in a manner consistent with the
program and policies currently offered. See Appendix IV for the performance
summary of Mr. Bell's supplemental trading activity.
Accounts in this composite pay monthly management fees of 1% - 3% per annum)
of an account's month ending Net Asset Value and an incentive fee of 15% - 20%
of New High Trading Profits. The accounts pay brokerage commission at rates
44
<PAGE>
of $26 per round-turn trade plus exchange and NFA fees. As of October 31,
1998, this capsule had 7 accounts varying in size from $99,277.10 to
$995.301.64 totaling $2.7 million. Total funds under management, including
notionally funded and proprietary accounts, was $9.5 million.
PERFORMANCE OF FREMONT FUND, LIMITED PARTNERSHIP
The Fremont Fund Limited Partnership is currently traded by two CTAs, with
Michael J. Frischmeyer and EPIC Trading each responsible for 50% of the total
trading equity. The first $300,000 of equity raised pursuant to the sale of
Units through this offering will be allocated to anther CTA, Bell Fundamental
Futures, L.L.C. ("Bell"). As additional equity is raised, it will be
distributed to reallocate the equity under management such that 30% of the
total is allocated to Frischmeyer, 30% to Bell, and 40% to EPIC. The Fund
pays various expenses in relation its operation including a management fee to
the CTAs and the General Partner of 4% and 2% annually respectively charged
1/12th monthly, and quarterly incentive fees of 15% of all new profits. In
addition, the fund pays 1% per month for trading commissions as opposed to a
round turn commission charge.
In addition to the following performance capsule, a detailed performance table
of the Fund is available in Appendix II.
Fremont Fund, LP
The following capsule shows the past performance of Fremont Fund, LP for the
period from inception of trading in November, 1996, through October 31, 1998.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<TABLE>
Fremont Fund, Limited Partnership
Percentage Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
Month 1998 1997 1996
<S> <C> <C> <C>
January (1.48) (1.79) N/A
February (0.92) 0.71 N/A
March 0.74 (0.91) N/A
April (3.46) (2.13) N/A
May (2.30) (0.66) N/A
June (5.39) (0.39) N/A
July 4.21 (0.65) N/A
August 1.78 (2.57) N/A
September 0.07 (0.53) N/A
October 0.26 (0.76) N/A
November (1.09) (8.83)
December (2.13) 2.34
Year (8.55) (12.21) (6.69)
<FN>
Name of Pool: Fremont Fund, LP
How Offered: Publicly offered pursuant to Form S-1 Registration statement
Name of CTAs: Michael J. Frischmeyer, EPIC Trading
Principal Protected: No
Date of Inception of trading: November, 1996
Net Asset Value of the pool: $679,536 on total Units
outstanding: 945.08
NAV Per Unit: $719.02
Largest Monthly Draw-Down**: 12-96/8.83% of client funds
Worst Peak-to-Valley Draw-Down***: 11-96 to 6-98/32.50% of net asset value
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
45
<PAGE>
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by a pool or account over the specified period
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
NOTES TO PERFORMANCE RECORD OF THE FUND
The performance capsule set forth above represents real time trading results
for the Fremont Fund, Limited Partnership. While there may be differences in
the specific trades made by the CTAs in each account they has under
management, the trading program for all of their accounts are the same. As
much as possible, the CTAs attempt to trade all managed accounts
proportionately the same. For example, if one account is twice the size of
another, it will trade twice the number of contracts so that the two accounts
would generate a similar rate of return.
When reviewing the Fund's performance record, prospective clients should
recognize that different accounts can have and have had varying investment
results, even though they have been traded according to the same general
trading approach. The reasons for this include numerous material differences
between accounts, including the following:
1. The timing of the deposit of equity and the total period during which each
account was traded.
2. The relative sizes of the accounts, which influences the number of
interests and the number of contracts in each interest traded by accounts,
as well as the diversification of the account and the design and execution
of the CTA's methods. For instance, in the example given above, the larger
account might not be exactly twice the size of the smaller account. The
CTA may, from time to time, determine that certain trades may entail
greater than ordinary risks, which may cause him to also determine that all
accounts should trade a smaller than usual number of contracts. As a
result, in some circumstances larger accounts may trade a reduced number of
contracts in such trades and the small accounts may not participate in such
trades.
3. The trading approach used-although all accounts may be traded in accordance
with the same general trading approach, such approach can and does change
periodically as a result of research and development by the CTA.
4. Split fills. When entering an order to buy or sell futures or options, the
CTA will block his managed accounts (group them together) so that multiple
accounts can be filled on one order. If fills occur at more than one
price, a small difference in performance can result. In such instances
(except where the Average Price System is applicable, described in the
Sections entitled "Description of Trading Program" and "Conflicts of
Interest"), the fills are arbitrarily allocated so that the highest prices
(whether buys or sells) are successively allocated to the numerically
highest account numbers.
5. Incomplete fills. Occasionally, a blocked order can be partially, but not
completely filled at the price specified on the order. In such an
instance, the CTA attempts to allocate one contract to each account,
regardless of account size, and then allocate the remaining fills in
proportion to account capitalization, but some discrepancies may be
unavoidable. See "Conflicts of Interest" above.
6. The size and time of payment of brokerage commissions and fees paid by the
accounts.
7. The size and time and payment of administrative costs paid by the accounts.
8. The size and time and payment of interest income earned by the accounts.
9. The market condition in which accounts are traded, which in part determines
the quality of trade executions.
10. The allocation of orders to open or close positions.
Thus, the results of the Fund, as a result of differences in the above
factors, may experience better or worse performance than the composite
performance results shown for the CTAs.
46
<PAGE>
LIMITED PRIOR PERFORMANCE AND REGULATORY NOTICE
THIS POOL BEGAN TRADING IN NOVEMBER, 1996, AND, THEREFORE, HAS LIMITED
PERFORMANCE HISTORY.
THE REGULATIONS OF THE CFTC AND NFA PROHIBIT ANY REPRESENTATION BY A PERSON
REGISTERED WITH THE CFTC OR BY ANY MEMBER OF THE NFA, RESPECTIVELY, THAT SUCH
REGISTRATION OR MEMBERSHIP IN ANY RESPECT INDICATES THAT THE CFTC OR THE NFA,
AS THE CASE MAY BE, HAS APPROVED OR ENDORSED SUCH PERSON OR SUCH PERSON'S
TRADING PROGRAMS OR OBJECTIVES. THE REGISTRATIONS AND MEMBERSHIPS DESCRIBED
IN THIS PROSPECTUS MUST NOT BE CONSIDERED AS CONSTITUTING ANY SUCH APPROVAL OR
ENDORSEMENT. LIKEWISE, NO COMMODITY EXCHANGE HAS GIVEN OR WILL GIVE ANY SUCH
APPROVAL OR ENDORSEMENT.
THE FUTURES COMMISSION MERCHANT
From inception of trading by the Partnership in November, 1996, until January
2, 1997, The Chicago Corporation, 208 South LaSalle Street, Chicago, IL 60604
was the futures commission merchant for the Partnership. On January 2, 1997,
the stock of The Chicago Corporation was purchased by ABN AMRO Capital Markets
Holding, Inc., a subsidiary of ABN AMRO Bank, N.V., headquartered in
Amsterdam, Netherlands. What was formerly The Chicago Corporation was then
merged with ABN AMRO Bank, N.V.'s wholly owned subsidiary, ABN AMRO Securities
(USA) Inc., to form ABN AMRO Chicago Corporation, at the same address. In
February, 1998, the name of ABN AMRO Chicago Corporation was changed to ABN
AMRO Incorporated ("FCM" or "ABN AMRO"). The FCM is registered as a futures
commission merchant pursuant to the Commodity Exchange Act and is a member of
the National Futures Association. Before any change in FCM is made, the
General Partner will provide notice to the other Partners as required by law.
Regulations of the Commodity Futures Trading Commission ("CFTC") require
disclosure of any material administrative, civil, or criminal actions against
the FCM, or any principal of the FCM, within the five years preceding the date
of this Disclosure Document.
In its capacity as a futures commission merchant and Securities and Exchange
Commission registered Broker/Dealer, ABN AMRO is involved in litigation and
regulatory actions on an ongoing basis. However, during the five years
preceding the date of this Prospectus, there have been no administrative,
civil or criminal actions against ABN AMRO, or any of its affiliates, which
are material to an investor determining whether to purchase Units in the
Partnership.
The inclusion in this Prospectus of the identity and certain disclosure
information for ABN AMRO, as the futures commission merchant, does not mean
that it has endorsed or passed upon the sufficiency of this Prospectus or the
suitability of an investment in the Partnership for any prospective purchaser,
or that it will be involved in the management of the Partnership or the sale
of Units.
All equity of the Partnership used for trading by the CTAs is held on deposit
under the supervision and control of ABN AMRO. Currently, ABN AMRO charges the
Partnership the exchange minimums for margin for each position held over-
night; provided, however, for positions traded on the Chicago Board of Trade,
the margin for the Partnership is 125% of exchange minimum. The margin
requirements are revised by the various exchanges and ABN AMRO, from time to
time. With regard to trades conducted on exchanges outside of the United
States, certain exchanges must be margined in the local currency. Accordingly,
for trades selected by the CTA on those exchanges, the Partnership is exposed
to changes in the exchange rate for those currencies while any of those
positions are held.
FEDERAL INCOME TAX ASPECTS
SCOPE OF TAX PRESENTATION
This presentation is based on the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder (hereinafter collectively
called the Code") which were in effect as of August 1, 1998, and is based upon
the express intention of the General Partner to cause the Partnership to
invest only its equity capital and not to borrow funds
47
<PAGE>
from any source and the belief that all of the income generated by the Fund is
"qualifying income" and, therefore, the Fund is not a publicly-traded entity.
Any change in the Code or deviation from the intent to invest equity capital
only, could alter this presentation and also have adverse tax consequences to
the Partnership and the Partners, such as taxation as a corporation. This
would result in the payment of tax by the Fund and the payment of a second tax
by the investor rather than only by the investor if the Fund were taxed as a
Partnership. In addition, if the Fund were taxed as a corporation, none of
the deductions for expenses would pass through to the investor's tax return.
Under current IRS guidelines, there exists a substantial increase in the
likelihood that the partnership's return will be examined. If the partnership
is audited, significant factual questions may arise which, if challenged by
the IRS, might only be resolved at considerable legal and accounting expense
to the Partners and the Partnership. Any adjustment made to the Partnership
return will flow through to the Partners' returns and could result in a
separate audit of the Partners' individual returns. The Partnership reports
its income for tax and book purposes under the accrual method of accounting
and its tax year is the calendar year, or such other period as is required
under section 706(b) of the Code. During taxable years in which little or no
profit is generated from trading activities, a Limited Partner may still have
interest income which will be taxed as ordinary income.
THIS DISCUSSION ASSUMES THAT THE INVESTOR IS AN INDIVIDUAL AND IS NOT INTENDED
AS A SUBSTITUTE FOR CAREFUL PLANNING, PARTICULARLY, SINCE CERTAIN OF THE
INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP WILL NOT BE THE
SAME FOR ALL TAXPAYERS. ALL MATTERS UPON WHICH THE PARTNERSHIP HAS OBTAINED
AN OPINION OF TAX COUNSEL ARE DISCUSSED UNDER THE CAPTION "TAX OPINION" BELOW.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH SPECIFIC REFERENCE TO THEIR TAX SITUATION.
NO LEGAL OPINION AS TO CERTAIN MATERIAL TAX ASPECTS
No legal opinion has been nor will be requested by the Partnership in regard
any State income tax issue. In addition, tax counsel to the Partnership can
not opine upon any Federal income tax issue which involves a determination by
the IRS of the facts related to the operation of the Partnership or as to any
other matter which may be subject to Internal Revenue Service interpretation
or adjustment upon audit. For example, commodity trading adviser fees are
aggregated with employee business expenses and other expenses of producing
income and the aggregate of such expenses is deductible only to the extent
such amount exceeds 2% of the taxpayer's adjusted gross income. The Federal
income tax deductibility of these expenses depends upon factual determinations
related to the operation of the Partnership by the General Partner. See
"Federal Income Tax Aspects".
PARTNERSHIP TAX STATUS AND NET WORTH OF THE GENERAL PARTNER
If the Partnership were treated as an association or publicly traded
partnership, taxable as a corporation, in any taxable year, the Partnership
would pay taxes at the corporate rates upon its income and gains, items of
deduction and losses would be deductible only by the Partnership and not by
the Partners, tax credits would be available only to the Partnership and not
to the Partners, and all or a part of the distributions to the Partners could
be taxable as dividend income to the Partners and would not be deductible by
the Partnership in computing its taxable income. This would substantially
increase the total amount of taxes the Partnership and it Partners would pay
each year.
The Code, at Section 7701, provides the characteristics of a corporation which
should not be present if a partnership is to be taxed as a partnership. Among
those characteristics is a test for net capital to be met when the partnership
has a sole corporate general partner, such as this Partnership. Among those
requirements are that the General Partner, as such, maintain a capital
contribution in the Partnership in an amount not less than the greater of (i)
$25,000 or (ii) one percent (1%) of the aggregate Capital Contributions from
time to time, of all Limited Partners (measured at the time of each respective
investment) and sufficient net worth to enable the creditors of the
Partnership to have a viable entity to hold responsible for Partnership debts.
These tests are contained in Code Section 7701 to maintain its partnership
taxation status. The General Partner uses its best efforts to satisfy these
requirements.
The IRS Code Section 7701 specifically provides a "safe harbor" which permits
limited partnerships to be deemed to have met the net worth test when the
General Partner's Net Worth is equal to (15%) of the first $2,500,000 or
$250,000,
48
<PAGE>
whichever is less, and (10%) of all above $2,500,000 exclusive of the amount
invested by the General Partner in this Partnership or any other partnership.
There can be no assurance, however, that the General Partner can fulfill or
maintain its Net Worth to meet this safe harbor test.
Historically, the right of redemption, similar to the right available to
Partners in the Partnership, renders a pool, such as the Partnership, a
publicly traded partnership, taxed as a corporation. However, the Revenue Act
of 1987 (the "1987 Act") Act provides an exception. The exception requires
ninety percent (90%) or more of the partnership's gross income to be
qualifying income. Qualifying income includes interest, dividends, and income
from futures, options or forward contracts on commodities, if the buying and
selling of commodities is a principal activity of the partnership. The
General Partner intends to limit the sources of income so that the exception
applies to the Partnership. In addition, the General Partner has placed
certain restrictions upon the right of redemption. See Exhibit A, "Right of
Redemption".
NO IRS RULING
THE PARTNERSHIP HAS NOT APPLIED FOR A RULING FROM THE INTERNAL REVENUE SERVICE
(THE "IRS") REGARDING ITS STATUS AS A PARTNERSHIP OR WITH REGARD TO ANY OTHER
TAX ASPECT, NOR DOES THE PARTNERSHIP INTEND TO SEEK A RULING. IN THE ABSENCE
OF A RULING, THERE CAN BE NO ASSURANCE THAT THE IRS WILL NOT ATTEMPT TO TAKE A
POSITION ADVERSE TO THE PARTNERSHIP.
TAX OPINION
The Partnership has obtained an opinion, which is not binding upon the IRS or
the Courts, from The Scott Law Firm, P.A., that the Partnership is taxable as
a partnership and not as a corporation. The Firm opines that: (i) the
Partnership will be treated as a partnership for federal income tax purposes
(assuming that substantially all of the gross income of the Partnership will
constitute "qualifying income" within the meaning of section 7704(d) of the
Internal Revenue Code of 1986, as amended) (the "Code")); (ii) the allocations
of profits and losses made when Unitholders redeem their Units should be
upheld for federal income tax purposes; (iii) based upon the contemplated
trading activities of the Partnership, the Partnership should be treated as
engaged in the conduct of a trade or business for federal income tax purposes,
and, as a result, the ordinary and necessary business expenses incurred by the
Partnership in conducting its commodity futures trading business should not be
subject to limitation under section 67 or section 68 of the Code; (iv) the
Profit Share should be respected as a distributive share of the Partnership's
income allocable to Fremont Fund, Limited Partnership; and (v) the
contracts traded by the Partnership, as described in the Prospectus, should
satisfy the commodities trading safe harbor as described in section 864(b) of
the Code.
Such opinion is based on the Code as of December 31, 1997, a review of the
Limited Partnership Agreement, and is conditioned upon the following
representations of facts by the General Partner: (a) at all times, the
Partnership will be operated in accordance with the Indiana Uniform Limited
Partnership Act and the Limited Partnership Agreement attached hereto as
Exhibit A; (b) the General Partner will, at all times maintain not less than
a one percent (1%) interest in the income, losses, gains, deductions and
credits of the Partnership; (c) the aggregate deductions to be claimed by the
Partners as their distributive shares of the Partnership net losses for the
first two years of operation of the Partnership did not exceed the amount of
equity capital invested in the Partnership; (d) no creditor who makes a loan
to the Partnership, including margin accounts, will have or acquire, as a
result of making the loan, any direct or indirect interest in the capital,
profits or property of the Partnership, other than as a secured creditor; (e)
the General Partner will at all times actively direct the affairs of the
Partnership; (f) the General Partner will possess substantial assets
(exclusive of its interest in the Partnership or any other limited
partnership) which can be reached by the general creditors of the Partnership
within the meaning of Treasury Regulation Section 301.7701 2(d)(2) or the
General Partner will otherwise comply with the tax code general partner
requirements imposed upon sole corporate general partners of limited
partnerships; (g) interests in the Partnership will be transferable only upon
approval of the General Partner and not, otherwise, be (1) traded on an
established securities market, or (2) readily tradable on a secondary market
(or the substantial equivalent thereof); (h) the Partnership will not be
registered under the Investment Advisor's Act of 1940; and, (i) over ninety
percent of the income earned by the Partnership will be Qualifying Income as
that term is defined in the 1987 Act.
The Law Firm is not able to opine upon the tax treatment of certain expenses
as the determination depends upon questions of fact to be resolved by the
General Partner on behalf of the Partnership. In addition, commodity trading
adviser fees are aggregated with employee business expenses and other expenses
of producing income and the aggregate of such expenses is deductible only to
the extent such amount exceeds 2% of the taxpayer's adjusted gross income. It
is the General
49
<PAGE>
Partner's position that the Partnership's intended operations qualify as a
trade or business. If this position is sustained, the brokerage commissions
and performance fees are deductible as ordinary and necessary business
expenses. Syndication costs to organize the Partnership and Offering Expenses
are not deductible or amortizable by the Partnership or its Partners.
Any change in these representations or the operative facts prevents reliance
by the Partnership and the Partners upon the legal opinion from The Scott Law
Firm, P.A.
PASSIVE LOSS AND UNRELATED BUSINESS INCOME TAXES RULES
In addition to the imposition of a corporate level tax on publicly traded
partnerships, special rules apply to partnerships in regard to the application
of the passive loss and unrelated business income tax rules. In Notice 88-75
issued on June 17, 1988 (the "Notice"), the IRS provided guidance as to the
operation of the Partnership. The General Partner has caused the Partnership
to comply with the applicable provisions of these guidelines. In the event
the Expenses of the Partnership were deemed not to qualify as deductions from
trading profits, if any, the total taxes paid by the Partners would increase
while the distributions to them would remain the same.
BASIS LOSS LIMITATION
Generally, the "basis" of a Partner's interest in the Partnership for tax
purposes is equal to the cost decreased, but not below zero, by the Partner's
share of any Partnership losses and distributions and increased by the
Partner's share of any Partnership income. A Partner may not deduct losses in
excess of the adjusted basis for the interest in the Partnership at the end of
the partnership year in which such losses occurred, but may carry forward any
excess to such time, if ever, as the basis for the interest in the Partnership
is sufficient to absorb the loss. Upon the sale or liquidation of a Partner's
interest in the Partnership, the Partner will recognize a gain or loss for
Federal income tax purposes equal to the difference between the amount
realized by such Partner in the transaction and the basis for such Partner's
interest in the Partnership at the time of such sale. For individuals,
capital losses would offset capital gains on a dollar for dollar basis, with
any excess capital losses subject to a $3,000 annual limitation. Accordingly,
it is possible for the Partners to sustain a loss from the operation of the
Partnership which will be not allowed as a deduction for tax purposes or
limited to a $3,000 annual limitation.
AT-RISK LIMITATION
The election by a Partner to borrow the money to invest in the Partnership
carries with it certain at risk limitations. Section 465 of the Code provides
that the amount of any loss allowable for any year to be included in a Limited
Partner's personal tax return is limited to the amount paid for the Units (tax
basis) of the amount "at risk". Losses already claimed may be subject to
recapture if the amount "at risk" is reduced as a result of cash distributions
from the activity, deduction of losses from the activity, changes in the
status of indebtedness from recourse to non-recourse, the commencement of a
guarantee, or other events that affect the taxpayer's risk of loss. Partners
should consider the "at-risk" provisions in arranging debt financing for
purchase of an interest in the Partnership.
INCOME AND LOSSES FROM PASSIVE ACTIVITIES
Code Section 469 limits the deductibility of losses from business activities
in which the taxpayer (limited to individuals, certain estates and trusts,
personal service corporations or closely-held corporations) does not
materially participate ("Passive Losses"). Under temporary Treasury
Regulations, the trading of personal property, such as futures contracts, is
not treated as a passive activity and Partnership gains allocable to Limited
Partners are not available to offset passive losses from sources outside the
Partnership and Partnership losses are not subject to limitation under the
Passive Loss Rules.
ALLOCATION OF PROFITS AND LOSSES
The allocation of profits, losses, deductions and credits contained in the
Limited Partnership Agreement are recognized for tax purposes only if the
allocations have substantial economic effect. While the General Partner
believes that the Limited Partnership Agreement either meets the requirements
or satisfies a substitute "capital account equivalency" test, the Limited
Partnership Agreement does not meet a third requirement, that a Partner must
make a contribution to the Partnership equal to any deficit in the Capital
account. Accordingly, under the regulations and the Limited Partnership
Agreement, losses would not be allocable to a Partner in excess of the
Partner's capital contribution plus properly allocated profits less any prior
distributions. The General Partner intends to allocate income and losses in
accordance with the Partnership Agreement which it believes complies with
applicable Code Section 704. However, no assurances can be
50
<PAGE>
given that the IRS will not attempt to change any allocation that is made
among Partners admitted on different dates which could adversely effect the
amount of taxable income to one Partner as opposed to another Partner.
TAXATION OF FUTURES AND FORWARD TRANSACTIONS
The CTAs selected by the Partnership are expected to trade primarily in
Section 1256 Contracts as defined in the Code. All Section 1256 contracts are
marked-to-market upon the closing of every contract (including closing by
taking an offsetting position or by making or taking delivery, by exercise or
being exercised, by assignment or being assigned; or by lapse or otherwise)
and all open Section 1256 contracts held by the Partnership at its fiscal
year-end are treated as sold for their fair market value on the last business
day of such taxable year. This results in all unrealized gains and losses
being recognized for Federal income tax purposes for the taxable year. As a
consequence, the Partners may have tax liability relating to unrealized
Partnership profits in open positions at year-end. Sixty percent (60%) of any
gain or loss from a Section 1256 contract is treated as long-term, and forty
percent (40%) as short-term, capital gain or loss (the "60/40 Rule"),
regardless of the actual holding period of the individual contracts. The
character of a Partner's distributive share of profits or losses of the
Partnership from Section 1256 contracts will thus be 60% long-term capital
gain or loss and 40% short-term capital gain or loss. Each partner's
distributive share of such gain or loss for a taxable year is combined with
its other items of capital gain or loss for such year in computing its Federal
income tax liability. The Code contains certain rules designed to eliminate
the tax benefits flowing to high-income taxpayers from the graduated tax rate
schedule and from the personal and dependency exemptions. The effect of these
rules is to tax a portion of a high-income taxpayer's income at a marginal tax
rate of 39.6%. However, long-term capital gains are now subject to a maximum
tax rate of 28%. Subject to certain limitations, a Limited Partner, other
than a corporation, estate or trust, may elect to carry-back any net Section
1256 contract losses to each of the three preceding years. The marked-to-
market rules do not apply to interests in personal property of a nature which
are actively traded other than Section 1256 contracts (termed "off-exchange
positions").
SECTION 988 FOREIGN CURRENCY TRANSACTIONS
A "Section 988 transaction" is defined as the entering or acquiring of any
forward contract, futures contract, option or similar financial instrument if
the amount to be received or to be paid by reason of a transaction is
denominated in a nonfunctional currency (i.e., other than the dollar) or is
determined by reference to one or more nonfunctional currencies. If the
Section 988 transaction results in a gain or loss, it is considered to be a
foreign currency gain or loss to the extent it does not exceed gain or loss
realized by reason of changes in exchange rates.
CAPITAL GAIN AND LOSS PROVISIONS
If long-term capital gains exceed short-term capital losses, the net capital
gain will be taxed at the same rates as ordinary income. Subject to an annual
limitation of $3,000, the excess of capital losses over capital gains will be
deductible by an individual against ordinary income. Excess capital losses
which are not used to reduce ordinary income in a particular taxable year may
be carried forward to, and treated as capital losses incurred in, future
years.
BUSINESS FOR PROFIT
Code Section 183 sets forth the general rule that no deduction is allowable to
an individual for an activity "not engaged in for profit". These are
activities other than those constituting a trade or business or engaged in for
the production or collection of income or for the management, conservation, or
maintenance of property held for the production of income. The determination
of whether an activity is engaged in for profit is based on all facts and
circumstances, and no single factor is determinative. The General Partner
believes that the employment by the Partnership of independent CTAs with
strong track records of production of profits, it is more likely than not,
that the activity of the Partnership will be considered an activity engaged
for profit.
SELF-EMPLOYMENT INCOME AND TAX
Section 1402 of the Code provides that an individual's net earnings from self-
employment shall not include the distributive share of income or loss from any
trade or business carried on by a partnership of which he is a Limited
Partner. Therefore, a Limited Partner should not consider that the ordinary
income from the Partnership constitutes net earnings from self-employment for
purposes of either the Social Security Act or the Code.
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INDIVIDUAL ALTERNATIVE MINIMUM TAX
Non-corporate taxpayers are subject to the alternative minimum tax to the
extent it exceeds their regular tax. For an entity taxable as an estate or
trust, the first $22,500 of "alternative minimum taxable income" is exempt
from the alternative minimum tax, while for an individual it is the first
$33,750 of such income ($45,000 for a joint return; $22,500 for married
taxpayers filing separately). The exemption amounts will be phased out at the
rate of $.25 for each dollar of alternative minimum taxable income in excess
of $150,000 for married taxpayers filing jointly, $112,500 for single
taxpayers, and $75,000 for married taxpayers filing separately, estates and
trusts. Alternative minimum taxable income in excess of the exemption amount,
after any applicable phase-out, will be subject to a two-tiered rate schedule.
Alternative minimum taxable income (net of exemption) up to and including
$175,000 will be taxed at a rate of 26% and alternative minimum taxable income
over $175,000 will be taxed at a 28% rate. Taxpayers liable for the
alternative minimum tax are required to make estimated tax payments.
INTEREST RELATED TO TAX EXEMPT OBLIGATIONS
Section 265(a)(2) of the Code disallows any deduction for interest on
indebtedness of a taxpayer incurred or continued to purchase or carry
obligations the interest on which is wholly exempt from tax. The IRS
announced in Revenue Procedure 72-18 that the proscribed purpose will be
deemed to exist with respect to indebtedness incurred to finance a "portfolio
investment". The Revenue Procedure further states that a limited partnership
interest will be regarded as a "portfolio investment", unless rebutted by
other evidence. Therefore, in the case of a Limited Partner owning tax-exempt
obligations, the IRS might take the position that any interest expense
incurred by him to purchase or carry Units should be viewed as incurred by him
to continue carrying tax exempt obligations and that such Limited Partner
should not be allowed to deduct all or a portion of the interest on any such
loans.
NOT A TAX SHELTER
In the opinion of tax counsel, the Partnership does not constitute a tax
shelter, as defined in Code Section 6111(c), since the General Partner
operates the Partnership so that the tax shelter ratio does not exceed two-to-
one at the close of any of the first five years. Accordingly, the General
Partner does not plan to register the Partnership as a tax shelter with the
IRS.
TAXATION OF FOREIGN PARTNERS
An investment in the Partnership should not, by itself, cause a Foreign
Partner to be engaged in a trade or business within the United States. A
foreign person is subject to a 30% withholding tax (unless reduced or exempted
by treaty) on certain types of United States source income which is not
effectively connected with the conduct of a United States trade or business.
This tax must be withheld by the person having control over the payment of
such income. Accordingly, the Partnership may be required to withhold tax on
items of such income which are included in the distributive share (whether or
not actually distributed) of a Foreign Partner. If the Partnership is
required to withhold tax on such income of a Foreign Partner, the General
Partner may pay such tax out of its own funds and then be reimbursed out of
the proceeds of any distribution to or redemption of Units by the Foreign
Partner.
PARTNERSHIP ENTITY-AUDIT PROVISIONS-PENALTIES
The Code provides that the tax treatment of items of partnership income, gain,
loss, deduction and credit will be determined at the partnership level in a
single partnership proceeding. The Partnership Agreement has appointed the
General Partner the "Tax Matters Partner" to settle any issue involving any
partner with less than a one percent (1%) profits interest unless such a
partner, upon notice, properly elects not to give such authority to the Tax
Matters Partner. The Tax Matters Partner may seek judicial review for any
adjustment to partnership income, but there will be only one such action for
judicial review to which all partners will be bound. The Code provides that a
partner must report a partnership item consistently with its treatment on the
partnership return, unless the partner specifically identifies the
inconsistency or can show that its treatment of the partnership item on its
return is consistent with a schedule furnished to the partner by the
Partnership. Failure to comply with this requirement may result in penalties
for underpayment of tax and could result in an extended statute of
limitations. The statute of limitations for adjustment of tax with respect to
partnership items will generally be three years from the date of filing the
partnership return.
Code Section 6662 imposes a penalty for a substantial understatement of income
tax equal to 20% of the amount of any underpayment attributable to that
understatement. "Understatement" is defined as meaning the excess of the
correct amount of tax required to be shown on the return over the amount of
tax which is actually shown on the return. A
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substantial understatement exists for any taxable year if the amount of the
"understatement" for the taxable year exceeds the greater of (1) 10% of the
correct tax, or (2) $5,000 ($10,000, in the case of a corporation other than
an S corporation or a personal holding company).
EMPLOYEE BENEFIT, RETIREMENT PLANS AND IRA'S
In considering an investment in the Partnership, a fiduciary of an employee
benefit plan covered by the Employee Retirement Income Security Act of 1974
("ERISA") (such as, for example, a qualified pension, profit-sharing or stock
bonus plan, or health and welfare plan), or of an Individual Retirement
Account ("IRA") (collectively "Qualified Plans"), taking into account the
facts and circumstances of such Qualified Plan, should consider applicable
fiduciary standards under ERISA. The General Partner intends to limit the
investment in the Partnership by benefit plan investors to less that 25% of
the total equity invested in the Partnership. Prospective plan investors
should consult their own legal and financial advisors regarding these and
other considerations involved in an investment in the Partnership by a
particular plan.
ACCORDINGLY, THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR
HER ATTORNEY AS TO THE PROPRIETY OF SUCH AN INVESTMENT IN LIGHT OF
CIRCUMSTANCES OF THE PARTICULAR PLAN.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF EMPLOYEE BENEFIT PLANS IS NOT A
REPRESENTATION BY GENERAL PARTNER OR ANY OTHER PARTY THAT THIS INVESTMENT
MEETS ALL LEGAL REQUIREMENTS OR IS APPROPRIATE WITH RESPECT TO INVESTMENTS BY
ANY PARTICULAR PLAN. THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT
WITH THE ATTORNEY FOR THE PLAN AS TO THE PROPRIETY OF AN INVESTMENT IN THE
PARTNERSHIP.
THE LIMITED PARTNERSHIP AGREEMENT
This Prospectus contains an explanation of some of the more significant terms
of the Limited Partnership Agreement, however, prospective investors are urged
to read the Agreement in its entirety. See Exhibit A.
FORMATION OF THE PARTNERSHIP
The Certificate of Limited Partnership dated December 12, 1994 was filed on
January 12, 1995, pursuant to the Indiana Uniform Limited Partnership Act (the
"Indiana Act"). It was Amended and Restated in its entirety on January 12,
1996, Units of the Partnership purchased and paid for are fully paid and
nonassessable. The liability of a Limited Partner for the losses, debts and
obligations of the Partnership is limited to the Limited Partner's Capital
Contribution and share of any undistributed assets of the Partnership, so long
as the Limited Partner complies with Article V of the Limited Partnership
Agreement. The Limited Partnership Agreement provides that the death,
incompetency, withdrawal, insolvency, bankruptcy, termination, liquidation,
dissolution or other legal incapacity of a Limited Partner will not terminate
or dissolve the Partnership, and that the legal representatives of such
Limited Partner have no right to become a substituted Limited Partner solely
by reason of such capacity or to withdraw the Limited Partner's interest
except by redemption of Units.
UNITS
The number of Units held by a Partner determines the Partner's percentage
interest in the Net Assets of the Partnership, such percentage interest to be
equal to an amount calculated by dividing the number of Units held by the
Partner by the aggregate number of outstanding Units of the Partnership, from
time to time.
MANAGEMENT OF PARTNERSHIP AFFAIRS
Responsibility for managing the Partnership is vested solely in the General
Partner. The Limited Partners do not take part in the business or affairs of
the Partnership nor do they have any voice in the management or operations of
the Partnership. Any material change in the Limited Partnership Agreement or
the Partnership's structure shall, however, require the prior written approval
of the Limited Partners who collectively hold a majority of the Units of the
Partnership; provided, however, the General Partner may change trading
advisors, change the commodity contracts traded by the Partnership, and change
the diversification of the Partnership's assets among the various types of or
in the positions held in commodity contracts without a vote or other form of
permission from the Limited Partners. The Limited Partners who collectively
hold a majority of the Units of the Partnership may, to the extent permitted
by law, without the concurrence of the General
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Partner, vote to (i) amend any term in the Limited Partnership Agreement and,
if necessary, the Certificate of Limited Partnership including, but not
limited to, the right to remove the General Partner and elect a new general
partner. The General Partner has no authority to engage in the actual
selection or frequency of trading. Trading must be done by independent CTAs
selected by the General Partner.
ADDITIONAL OFFERINGS
The General Partner may from time to time, in its sole discretion, terminate
any offering of Units, or register additional Units and/or make additional
public or private offerings of Units. No Limited Partner shall have any
preemptive, preferential or other rights with respect to the issuance or sale
of any additional Units. There is no limit upon the amount of contributions
or the maximum number of Units which may be issued, offered, or sold.
PARTNERSHIP ACCOUNTING, REPORTS, AND DISTRIBUTIONS
Each Partner has a Capital Account, and its initial balance is the amount the
Partner paid for the Partner's Units. The Net Assets of the Partnership is
determined monthly, and any increase or decrease from the end of the preceding
month is added to or subtracted from the accounts of the Partners in the ratio
that each account bears to all accounts. Distributions from profits or
Capital are made solely at the discretion of the General Partner. On a
monthly basis the General Partner causes to be reported to the Partners, the
following information: the Net Unit Value as of the end of the month and as of
the end of the previous month, and the percentage change in Net Unit Value
between the two months; the amount of distributions during the month; the
aggregate fixed commission in lieu of round-turn brokerage commissions, other
fees, administrative expenses, and reserves for claims and other extra-
ordinary expenses incurred or accrued by the Partnership during the month;
and, such other information as the CFTC may, by regulation, require. Partners
or their duly authorized representatives may, after adequate notice, inspect
the Partnership books and records at any reasonable time, to copy, at their
expense said records related to the Capital Account of said Partner.
FEDERAL TAX ALLOCATIONS
At the end of each fiscal year the Partnership's realized capital gain or loss
and ordinary income or loss is allocated among the Partners, after having
given effect to the fees of the General Partner and the Commodity Trading
Advisors and each Partner's share of such items are includable in the
Partner's personal income tax return.
TRANSFER OF UNITS ONLY WITH CONSENT OF THE GENERAL PARTNER
A purchaser is admitted to the Partnership and is registered on the records of
the Partnership as the owner of those Units. The registered holder is
entitled to receive all distributions, allocations of losses and withdrawals
or reductions of Capital contributions with respect to such Units, and to vote
on any matters submitted to the Limited Partners for voting. Units are
transferable only with the written consent of the General Partner, whose
consent will be withheld if, among other things, the transfer (i) is requested
prior to two years from the date of purchase of such assigned or transferred
Units(s) by said Partner; (ii) is not for the full Units or if the assignor,
if he is not assigning all of his Units, will not retain more than five Units;
(iii) will violate any applicable laws or governmental rules or regulations,
including without limitation, any applicable Federal or state securities laws
and the limited partnership laws of the State of Indiana; or (iv) will
jeopardize the status of or cause a termination of the Partnership for Federal
income tax purposes or affect characterizations or treatment of income or
loss.
TERMINATION OF THE PARTNERSHIP
The Partnership will terminate at 11:59 p.m. twenty-one years from the date of
the Partnership Agreement; by election of the General Partner, in its sole
discretion, to terminate and dissolve the Partnership; the dissolution, death,
resignation, withdrawal, bankruptcy or insolvency of the General Partner,
unless the Limited Partners unanimously elect to carry on the business and a
new general partner has been substituted; upon the occurrence of an event
specified under the laws of the State of Indiana as one effecting dissolution;
any event which shall make unlawful the continued existence of the
Partnership; or, upon the unanimous vote of the Limited Partners.
MEETINGS
No regular meetings of the Partnership are required to be held, however, a
meeting of the Partners for the purpose of acting upon any matter upon which
the Partners are entitled to vote may be called by the General Partner at any
time and shall be called by the General Partner, no more than 15 days after
receipt by the General Partner, either in person or by certified
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mail, of a written request, accompanied by an advance of the costs to send
notice of the meeting to all Partners, for such a meeting which sets forth the
purpose thereof, which is signed by one or more of the Partners who
collectively own 10% or more of the then outstanding Units.
REDEMPTIONS
No Partner may redeem or liquidate any Units until six months after the
commencement of trading. Written notice must be received by the General
Partner no later than 12:00 noon on the tenth calendar day immediately
preceding the desired effective date of Redemption which must be as of the
last day of the then current or a future month. The General Partner intends
to use its best efforts to make payment of the Redemption request of the
Partner's pro rata share of the Net Asset Value, as those terms are defined in
Appendix I, within ten days following the effective date. However, investors
should be aware that while the General Partner intends to so honor all proper
Unit Redemption requests, circumstances existing in the Partnership's business
at the time of such Redemption request. Specifically, the lack of sufficient
cash due to the inability to liquidate positions as of the Redemption date or
the accrual for contingent claims may cause the General Partner to suspend or
delay Redemptions or to only partially honor such requests. The General
Partner in its sole discretion may, upon notice to the Partners, declare
additional Redemption dates and may cause the Partnership to redeem fractions
of Units and, prior to registration of Units for public sale, redeem Units
held by Partners who do not hold the required minimum amount of Units
established, from time to time, by the General Partner. A Redemption fee will
be assessed towards the value of the Units and will be made payable to the
Partnership in the amount of four percent (4%) of the value of the Redemption
request which is received prior to the nineteenth day of the sixth month after
the date of the sale of the Units for which Redemption is requested.
Thereafter, there will be a reduction in the Redemption fee of one percent (1%)
for each six (6) months the investment in the Units remained invested in the
Partnership after the initial twelve months; i.e., a redemption during the next
13 to 18 months will be charged a 3% Redemption fee; 19 to 24 months 2%, 25 to
30 months 1% and, thereafter, no Redemption fee will be charged.
PLAN OF DISTRIBUTION
The Units are being offered and sold through Futures Investment Company
("Selling Agent" or "FIC"), 5916 N. 300 West, Fremont, Indiana 46737, an NASD
registered broker dealer and other broker dealers selected by the General
Partner, on a best efforts basis. Ms. Pacult, the sole shareholder, director,
and officer of the General Partner and her husband, Mr. Michael Pacult, are
the sole owners and are also registered representatives of FIC and they will
earn sales and trailing commissions as a result of the Units they sell and
service. A best efforts basis means there is no requirement that the General
Partner or any broker dealer (sometimes referred to as the underwriter) to
purchase any unsold Units, and no person or entity, including the General
Partner and the broker dealer have any obligation, currently or are expected
at any time in the future, to purchase any unsold Units. In addition, the
General Partner may, in its sole discretion, terminate this offering of Units
at anytime. There is a selling commission of six percent (6%) paid to the
broker dealers selected, from time to time, to sell Units. FIC, the broker
dealer, is an Illinois corporation which was incorporated on December 6, 1983.
Its registration as a fully disclosed broker dealer with the NASD became
effective on July 28, 1997. The principal business functions of the broker
dealer are currently the offering and trading of securities and commodities as
a CFTC registered introducing broker. The broker dealer has participated in
the offering of another commodity pool sponsored by the General Partner,
Auburn Fund, Limited Partnership, and may participate in other offerings with
other persons or entities in competition with the Partnership.
The Partnership commenced trading in November, 1996. The Partnership will
offer for sale through Futures Investment Company the remaining Units that
constitute the Maximum of this offering at a price per Unit equal to the
number of outstanding Units divided into the Net Asset Value of the
Partnership as of the close of business on the effective date of such
purchase, which will be the last business day of the month in which the
General Partner accepts a duly executed Subscription Agreement and the
required applicable subscription amount from the investor. The General
Partner will not grant its permission for any subscription documents or
payments, once accepted, to be withdrawn by a subscriber. There can be no
assurance that any additional Units will be sold. As the Minimum for this
offering has already been sold and operation of the Partnership has commenced,
there will be no utilization of escrow for Units sold.
SUBSCRIPTION PROCEDURE
In order to purchase Units, an investor must complete and execute a
Suitability Questionnaire and a Subscription Agreement in the form attached
hereto as Exhibit "D", and deliver the executed Subscription Documents to the
Sales Agent. All Subscription Documents shall be sent by the Sales Agent to
the General Partner with a check or money order made
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payable to "Fremont Fund, Limited Partnership" for investment in the Fund
effective on the next admission date. Under no circumstances are any sales to
be made for cash or any checks to be made payable to the General Partner or
the Selling Agent or any of their registered representatives or affiliates.
The minimum subscription per investor is $15,000; provided, however, the
General Partner may reduce this minimum investment to $5,000 and investors may
make additional investments above $15,000 in $1,000 increments. All Units
subscribed for shall be recorded on the books of the Partnership subject to
the collection of good funds. Any Units recorded in favor of a Subscriber who
has not provided collectible funds (whether in the form of a bad check or
draft, or otherwise) shall be cancelled.
All subscriptions for Units are irrevocable by subscribers, subject only to
possible rights under applicable Federal and state securities laws. The
General Partner may reject any subscription, in whole or in part, in its sole
discretion. Unless higher amounts are otherwise specified in the Subscription
Agreement for residents of a particular state, an investor must have at least
either (i) a minimum net worth (determined exclusive of home, home furnishings
and automobiles) of $150,000, or (ii) a minimum annual gross income of $45,000
and a minimum net worth of $45,000 (once again determined exclusive of home,
home furnishings and automobiles). In the case of sales to fiduciary
accounts, the net worth and income standards may be met by the beneficiary,
the fiduciary account, or by the donor or grantor who directly or indirectly
supplies the funds to purchase the Units if the donor or grantor is the
fiduciary.
LEGAL MATTERS
LITIGATION AND CLAIMS
There have been no material administrative, civil or criminal actions against
the General Partner (who is the Commodity Pool Operator), the principal of the
General Partner, Ms. Pacult, the Commodity Trading Advisors, the Futures
Commission Merchant, the Introducing Broker and Selling Agent or any principal
or any Affiliate of any of them, pending, on appeal, or concluded, threatened
or otherwise known to them, within the five (5) years preceding the date of
this Prospectus.
LEGAL OPINION
The Scott Law Firm, P.A., 5121 Sarazen Drive, Hollywood, FL 33021, serves as
special counsel to the Partnership and the General Partner in regard to the
offering of Units and the preparation of this Prospectus, the legality of the
Units offered, and the classification of the Partnership as a partnership for
tax purposes. In addition, the Firm advises the Partnership and its General
Partner, from time to time, in regard to the maintenance of the tax status of
the Partnership and the legality of subsequent offers, if any, of sale of Units
to and transfers by investors. The General Partner has granted the right to
The Scott Law Firm, P.A. to employ other law firms to assist in specific
matters which may now, or in the future, relate to the sale of Units or the
operation of the Partnership.
The Scott Law Firm, P.A. will not provide legal advice to any potential
investors or any Partners other than the General Partner, in regard to this
offering or any other matter. All parties other than the General Partner
should seek investment, legal, and tax advice from counsel of their choice.
EXPERTS
The financial Statements of the Partnership as of December 31, 1996 and
December 31, 1997 and the financial statements of the General Partner as of
December 31, 1996 included in this Prospectus have been audited by Frank L.
Sassetti, & Co., 6611 West North Avenue, Oak Park, IL 60302, as indicated in
their reports included with each such statement. Such financial statements
have been included herein and in any filings to the SEC, CFTC, NFA, and
selected state administrators, relying upon the authority of Frank L.
Sassetti, & Co., as experts in accounting and auditing, in giving said
respective reports. Durland & Company, P.A., Certified Public Accountants,
340 Royal Palm Way, Suite 201, Palm Beach, FL 33480, was responsible for the
audit of the General Partner for the year ended December 31, 1997. The
accountant who established and maintains the original books and records for
the Partnership and handles the journal entries, prepares the monthly and
annual statements of account and financial statements, including the unaudited
financial statements for the Partnership and the General Partner as of
September 30, 1998, and prepares the Partnership K-1s is Mr. James Hepner,
certified public accountant, 1824 N. Normandy, Chicago, IL 60635. The General
Partner serves as tax partner for the Partnership. The General Partner is
required by CFTC rules and regulations to send monthly, unaudited, and annual
statements of account and financial statements, audited by an independent
certified public accountant, for the
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Partnership to each Partner. The unaudited monthly statements are sent as
soon as practicable after the end of each month and the audited annual
financial statements are sent within 90 days after the end of each calendar
year.
ADDITIONAL INFORMATION
The Partnership, by its General Partner, has filed a Registration Statement on
Form S-1 and Post Effective Amendments to its Registration Statement with the
Securities and Exchange Commission with respect to the issuance and sale of
the limited partnership interests (the "Units") under the Securities Act of
1933. This Prospectus does not contain all of the information set forth in
the Form S-1 filing and reference is made to said Form S-1 and the Exhibits
thereto (for example, the Selling Agreement, the Escrow Agreement, and the
Customer Agreement). The description contained in this Prospectus to the
exhibits to the Registration Statement are summaries. For further information
regarding the Partnership and the Units offered, the Prospectus, including the
Exhibits and other documents filed and periodic reports, may be inspected,
without charge, and copied at the public reference facilities of the
Securities and Exchange Commission at 450 Fifth Street, NW, Washington, D.C.
20549 and at its Northeast Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048; and Midwest Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and copies of all or
any part of this filing can be obtained by mail from the Securities and
Exchange Commission, at such offices, upon payment of the prescribed rates.
This document and other electronic filings made through the Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system are publicly available
through the Commission's Web site (http://www.sec.gov).
In addition, the books and records for the Partnership are maintained for six
years at 5916 N. 300 West, Fremont, Indiana 46737 with a duplicate set
maintained at the offices of Mr. James Hepner, Certified Public Accountant, at
1824 N. Normandy, Chicago, IL 60635, (773) 804-0074. Prospective investors
are invited to review any materials available to the General Partner relating
to the Partnership; the operations of the Partnership; this offering; the
commodity experience and trading history of the CTAs; the General Partner and
the commodity brokers and their respective officers, directors and affiliates;
the advisory agreements between the Partnership and the CTAs; the Customer
Agreements between the Partnership and the Commodity Brokers for the
Partnership; the Disclosure Documents of the CTAs; the forms filed with the
NFA for any registered entity or person related to the Partnership; and any
other matters relating to this offering, the operation of the Partnership, or
the laws applicable to the offering or the Partnership. The officer and staff
of the General Partner will answer all reasonable inquiries from prospective
investors relating thereto. All such materials will be made available at any
mutually convenient location at any reasonable hour after reasonable prior
notice. The General Partner will afford prospective investors the opportunity
to obtain any additional information necessary to verify the accuracy of any
representations or information set forth in this Prospectus or any exhibits
attached hereto to the extent that the Partnership or the General Partner
possess such information or can acquire it without unreasonable effort or
expense. Such review is limited only by the proprietary and confidential
nature of the trading systems to be utilized by the CTAs and by the
confidentiality of certain personal information relating to other investors.
[The balance of this page has been intentionally left blank]
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FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(With Auditors' Report Thereon)
GENERAL PARTNER:
Pacult Asset Management, Inc.
2990 West 120
Fremont, Indiana 46737
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
YEARS ENDED DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
Page
Independent Auditors' Report F-1
Financial Statements -
Balance Sheet F-2
Statement of Operations F-3
Statement of Partners' Equity F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6 - F-10
<PAGE>
Frank L. Sassetti & Co.
Certified Public Accountants
To The Partners
Fremont Fund, Limited Partnership
Fremont, Indiana
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of FREMONT FUND, LIMITED
PARTNERSHIP as of December 31, 1997 and 1996, and the related statements of
operations, partners' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of FREMONT FUND,
LIMITED PARTNERSHIP as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Accountants: Frank L. Sassetti & Co.
Certified Public Accountants
Date: June 8, 1998 By: /s/Frank L. Sassetti & Co.
Frank L. Sassetti & Co.
Certified Public Accountants
F-1
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FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
BALANCE SHEET
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
Cash (Note 7) $ 36,029 $161,388
United States Treasury Obligations (Note 6) 833,160 362,652
Accrued interest receivable 8,754 2,379
Equity in Commodity Futures Trading Accounts -
Cash (Note 6) 116,594 276,415
Net unrealized gain (loss) on open
commodity futures contracts (Note 8) (2,880) 17,889
Organization costs, net of amortization (Note 1) 915 2,135
$992,572 $822,858
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accrued commissions payable $ 12,666 $ 14,062
Accrued management fees payable 6,544 1,834
Accrued incentive fees payable 1,716
Accrued accounting fees payable 2,023 734
Accrued auditing fees payable 3,500
Due to general partner 1,661 10,860
Partner redemptions payable 11,922
Total Liabilities 38,316 29,206
PARTNERS' CAPITAL
Limited partners - (1,207.47 units and
876.34 units in 1997 and 1996, respectively) 932,082 768,498
General partner - (25 units) 22,174 25,154
Total Partners' Capital 954,256 793,652
$992,572 $822,858
The accompanying notes are an integral part
of the financial statements.
F-2
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
REVENUES
Realized loss from trading on futures $ (1,667) $ (57)
Realized gain from trading options 24,413
Realized gain on exchange rate fluctuation 335 28
Changes in unrealized gains on open commodity
futures contracts (20,769) 17,861
Interest income 49,620 6,259
Redemption penalty income 236
Total Revenues 52,168 24,091
EXPENSES
Commissions 112,058 8,542
Management fees 57,264 4,492
Incentive fees 1,717
Professional accounting and legal fees 27,137 1,499
Other operating and administrative expenses 1,382 637
Amortization of organization costs 1,220 305
Total Expenses 199,061 17,192
NET INCOME (LOSS) $(146,893) $ 6,899
NET INCOME (LOSS) -
Limited partnership unit $ (119.19) $ 7.65
General partnership unit $ (119.19) $ 7.65
The accompanying notes are an integral part
of the financial statements.
F-3
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
STATEMENT OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Limited General Total
Partners Partners Partners' Equity
Amount Units Amount Units Amount Units
Balance -
December 31, 1995 $ 963 1 $ 963 1 $ 1,926 2
Additions of
899.34 units 760,827 875 24,000 24 784,827 899
Net income 6,708 191 6,899
Balance -
December 31, 1996 768,498 876 25,154 25 793,652 901
Additions of 362 units 331,221 362 331,221 362
Withdrawals of
31 units (23,724) (31) (23,724) (31)
Net loss (143,913) (2,980) (146,893)
Balance -
December 31, 1997 $932,082 1,207 $22,174 25 $954,256 1,232
Value per unit at December 31, 1997 $774.26
Total partnership units at
December 31, 1997 1,232.47
Value per unit at December 31, 1996 $880.53
Total partnership units at
December 31, 1996 901.34
The accompanying notes are an integral part
of the financial statements.
F-4
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(146,893) $ 6,899
Adjustments to reconcile net income to
net cash provided by operating
activities -
Amortization of organization costs 1,220 305
Changes in operating assets and
liabilities -
(Increase) decrease in Equity in
Commodity Future Trading Accounts 180,590 (294,304)
Increase in accrued interest receivable (6,375) (2,379)
Increase in U. S. Treasury Obligations (470,508) (362,652)
Increase (decrease) in accrued
commissions payable (1,396) 14,062
Increase in management and incentive
fees payable 2,994 3,550
Increase in accounting fees payable 1,289 734
Increase in auditing fees payable 3,500
Increase in due to partners 2,723 10,860
Net Cash Used in
Operating Activities (432,856) (622,925)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in organization costs (2,440)
CASH FLOWS FROM FINANCING ACTIVITIES
Gross proceeds from sale of units 352,363 830,327
Syndication and registration costs (21,142) (45,500)
Partner redemptions (23,724)
Net Cash Provided by
Financing Activities 307,497 784,827
NET INCREASE (DECREASE) IN CASH (125,359) 159,462
CASH -
Beginning of period 161,388 1,926
End of period $ 36,029 $ 161,388
The accompanying notes are an integral part
of the financial statements.
F-5
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Fremont Fund, Limited Partnership (the Fund) was formed January 12, 1995.
The Fund is engaged in speculative trading of futures contracts in
commodities. Pacult Asset Management, Inc. is the General Partner and the
commodity pool operator (CPO) of Fremont Fund, Limited Partnership. The
commodity trading advisor (CTA) is Michael J. Frischmeyer, who has the
authority to trade so much of the Fund's equity as is allocated to him by the
General Partner.
Income Taxes - In accordance with the generally accepted method of
presenting partnership financial statements, the financial statements do not
include assets and liabilities of the partners, including their obligation
for income taxes on their distributive shares of the net income of the Fund
or their rights to refunds on its net loss.
Organizational Costs - Organizational costs are capitalized and amortized
over twenty-four months on a straight line method starting when operations
began, payable from profits or capital subject to a 2% annual capital
limitation. All organizational costs paid to date have been capitalized.
Amortization expense of $1,220 and $305 was recorded for the year ended
December 31, 1997 and 1996, respectively.
Registration Costs - Costs incurred for the initial registration with the
Securities and Exchange Commission, National Association of Securities
Dealers, Inc., Commodity Futures Trading Commission, National Futures
Association (the "NFA") and the states where the offering was made were
accumulated, deferred and charged against the gross proceeds of offering at
the initial closing. Recurring registration costs, if any, will be charged
to expense as incurred.
Revenue Recognition - Commodity futures contracts are recorded on the trade
date and are reflected in the accompanying Balance Sheet at the difference
between the original contract amount and the market value on the last
business day of the reporting period.
Market value of commodity futures contracts is based upon exchange closing
quotations.
F-6
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Use of Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Statement of Cash Flows - Net cash provided by operating activities includes
no cash payments for interest or income taxes for the years ended December
31, 1997 and 1996 since the Fund has no debt nor pays federal income taxes.
For purposes of the Statement of Cash Flows, the Fund considers only cash and
money market funds to be cash equivalents.
2. GENERAL PARTNER DUTIES
The responsibilities of the General Partner, in addition to directing the
trading and investment activity of the Fund, include executing and filing all
necessary legal documents, statements and certificates of the Fund, retaining
independent public accountants to audit the Fund, employing attorneys to
represent the Fund, reviewing the brokerage commission rates to determine
reasonableness, maintaining the tax status of the Fund as a limited
partnership, maintaining a current list of the names, addresses and numbers
of units owned by each Limited Partner and taking such other actions as
deemed necessary or desirable to manage the business of the Partnership.
3. THE LIMITED PARTNERSHIP AGREEMENT
The Limited Partnership Agreement provides, among other things, that -
Capital Account - A capital account shall be established for each partner.
The initial balance of each partner's capital account shall be the amount of
the initial contributions to the partnership.
F-7
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
3. THE LIMITED PARTNERSHIP AGREEMENT - CONTINUED
Monthly Allocations - Any increase or decrease in the Partnership's net
asset value as of the end of a month shall be credited or charged to the
capital account of each Partner in the ratio that the balance of each account
bears to the total balance of all accounts.
Any distribution from profits or partners' capital will be made solely at the
discretion of the General Partner.
Allocation of Profit and Loss for Federal Income Tax Purposes - As of the end
of each fiscal year, the Partnership's realized capital gain or loss and
ordinary income or loss shall be allocated among the Partners, after having
given effect to the fees of the General Partner and the Commodity Trading
Advisor and each Partner's share of such items are includable in the
Partner's personal income tax return.
Redemption - No partner may redeem or liquidate any Units until six months
after the commencement of trading. A Limited Partner may withdraw any part
or all of his units from the Partnership at the Net Asset Value per Unit as
of the last day of any month on ten days prior written notice to the General
Partner. A redemption fee payable to the Partnership of a percentage of the
value of the redemption request bears the following schedule.
* 4% if such request is received prior to the nineteenth day of the
twelfth month after the commencement of trading.
* 3% if such request is received during the next seven to twelve months.
* 2% if such request is received during the next thirteen to eighteen
months.
* 1% if such request is received during the next nineteen to twenty-four
months.
* 0% thereafter.
F-8
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
4. FEES
The Fund is charged the following fees on a monthly basis since the
commencement of trading on November 14, 1996.
* A management fee of 4% (annual rate) of the Fund's net assets allocated
to the CTA to trade will be paid to the CTA and 2% of equity to the
Fund's General Partner.
* An incentive fee of 15% of "new trading profits" will be paid to the
CTA. "New trading profits" includes all income earned by the CTA and
expense allocated to his activity. In the event that trading produces a
loss, no incentive fees will be paid and all losses will be carried over
to the following months until profits from trading exceed the loss.
* The Fund will pay fixed commissions of 12% (annual rate) of net assets,
payable monthly, to the Introducing Broker affiliated with the General
Partner. The Affiliated Introducing Broker will pay the costs to clear
the trades to the futures commission merchant and all PIT Brokerage
costs which shall include the NFA and exchange fees.
5. REALIZED GAIN ON EXCHANGE RATE FLUCTUATIONS
The Fund is investing in certain foreign currency futures contracts. The
difference in the exchange rates from the trade date to the end of the fiscal
year is being recorded as a realized gain or loss on exchange rate
fluctuation.
6. PLEDGED ASSETS
The U. S. Treasury Obligations and cash in trading accounts are pledged as
collateral for commodities trading on margin.
F-9
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
7. CONCENTRATIONS OF CREDIT RISK
The Fund maintains its cash balances at a high credit quality financial
institution. The balances may, at times, exceed federally insured credit
limits.
8. OFF BALANCE SHEET RISK
As discussed in Note 1, the Fund is engaged in speculative trading of futures
contracts in commodities. The carrying amounts of the Fund's financial
instruments and commodity contracts generally approximate their fair values
at December 31. Open commodity contracts had a gross contract value of
$272,220 on long positions at December 31, 1997 and $3,891,594 on long
positions and $180,775 on short positions at December 31, 1996.
Although the gross contract values of open commodity contracts represent
market risk, they do not represent exposure to credit risk, which is limited
to the current cost of replacing those contracts in a gain position. The
unrealized gain (loss) on open commodity future contracts at December 31,
1997 and 1996 was $(2,880) and $17,889, respectively.
F-10
<PAGE>
*******************************************************************************
Fremont Fund, Ltd. Partnership
(An Indiana Limited Partnership)
Balance Sheet
as of September 30, 1998
ASSETS
9/30/98 9/30/98
Cash (Note 7) 4,688.99 4,688.99
United States Treasury Obligations (Note 6) 592,878.34 592,878.34
Accrued Interest Receivable 2,098.33 2,098.33
Equity in Commodity Futures Trading Accounts -
Cash (Note 6) 59,078.62 59,078.62
Net Unrealized Gain on Open Commodity
Futures & Options Contracts (Note 8) 76,771.65 76,771.65
Premium Recvd. On Short Options (40,158.54) (40,158.54)
Interest Due From Broker 378.11 378.11
Organization Costs, Net of Amortization (Note 1) 1,423.25 1,423.25
Total Assets 697,158.75 697,158.75
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accrued Commissions Payable 3,764.75 3,764.75
Accrued Management and Incentive Fees 9,564.75 9,564.75
Accrued Accounting Fees 4,892.56 4,892.56
Due to General Partner 0.01 0.01
Partner Redemptions Payable 1,138.00 1,138.00
Total Liabilities 19,360.07 19,360.07
Partners' Capital:
Limited Partners - (916.53) Units) 656,189.20 656,189.20
General Partner - ( 30.13 Units ) 21,609.48 21,609.48
Total Partners' Capital 677,798.68 677,798.68
Total Liabilities And Partners' Capital 697,158.75 697,158.75
The accompanying notes are an integral part of the financial statements.
F-1
<PAGE>
Fremont Fund, Ltd. Partnership
(An Indiana Limited Partnership)
Statement of Operations
for the Quarter Ended September 30, 1998 and
Year to Date 1998
3rd YTD
Qtr, 1998 1998
REVENUES:
Realized Gain From Trading on Futures & Options (9,022.86) (41,518.61)
Changes in Value of Open Commodity Futures Positions 75,521.65 79,651.65
Interest Income 8,564.96 30,311.72
Redistribution of O&O Costs 2,373.50 4,276.21
Realized Gain from Exchange Fluctuations (73.08) (369.12)
Total Revenues 77,364.17 72,351.85
EXPENSES:
Commissions 16,791.60 71,693.04
Management and Incentive Fees 14,115.92 40,965.90
Professional Accounting and Legal Fees 7,161.61 19,952.27
Amortization of Organization Costs 81.30 (444.57)
Total Expenses 38,150.43 132,166.64
Net Gain 39,213.74 (59,814.79)
Net Loss :
Per Limited Partnership Unit (41.42) (63.18)
Per General Partnership Unit (41.42) (63.18)
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
Fremont Fund, Ltd. Partnership
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
for the Period Ended September 30, 1998
(Unaudited)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Fremont Fund, Limited Partnership (the Fund) was formed January
12, 1995. The Fund is engaged in speculative trading of futures contracts in
commodities. Pacult Asset Management, Inc. is the General Partner and the
commodity pool operator (CPO) of Fremont Fund, Limited Partnership. During
the period from January 1 through May 31, 1998, Michael J. Frischmeyer was
the sole commodity trading advisor (CTA) to the Fund. Effective, June 1,
1998 Epic Trading was appointed to serve as co-CTA and was allocated 40% of
the equity to trade and the percent assigned to Frischmeyer was adjusted to
60%. The General Partner may delete or add a CTA and change the allocation
of equity among the CTA's at anytime, for any reason, without prior notice to
the limited partners.
Income Taxes - In accordance with the generally accepted method
of presenting partnership financial statements, the financial
statements do not include assets and liabilities of the partners,
including their obligation for income taxes on their distributive
shares of the net income of the Fund or their rights to refunds on
its net loss.
Organizational Costs - Organizational costs are capitalized and
amortized over twenty-four months on a straight line method starting when
operations began, payable from profits or capital subject to a 2% annual
capital limitation. All organizational costs paid to date have been
capitalized. Amortization expense of $1,115 was recorded for the year ended
December 31, 1997, and ($444) during the first three quarters of 1998 after
adjustments.
Registration Costs - Costs incurred for the initial registration
with the Securities and Exchange Commission, National Association
of Securities Dealers, Inc., Commodity Futures Trading Commission,
National Futures Association (the "NFA") and the states where the
offering was made were accumulated, deferred and charged against
the gross proceeds of offering at the initial closing. Recurring
registration costs, if any, will be charged to expense as incurred.
Revenue Recognition - Commodity futures contracts are recorded
on the trade date and are reflected in the accompanying Balance
Sheet at the difference between the original contract amount and
the market value on the last business day of the reporting period.
Market value of commodity futures contracts is based upon exchange
or other applicable market best available closing quotations.
F-3
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
for the Period Ended September 30, 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Use of Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
2. GENERAL PARTNER DUTIES
The responsibilities of the General Partner, in addition to
directing the trading and investment activity of the Fund, include
executing and filing all necessary legal documents, statements and
certificates of the Fund, retaining independent public accountants to
audit the Fund, employing attorneys to represent the Fund, reviewing the
brokerage commission rates to determine reasonableness, maintaining the
tax status of the Fund as a limited partnership, maintaining a current
list of the names, addresses and numbers of units owned by each Limited
Partner and taking such other actions as deemed necessary or desirable to
manage the business of the Partnership.
3. THE LIMITED PARTNERSHIP AGREEMENT
The Limited Partnership Agreement provides, among other things,
that -
Capital Account - A capital account shall be established for each
partner. The initial balance of each partner's capital account shall be
the amount of the initial contributions to the partnership.
F-4
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
for the Period Ended September 30, 1998
(Unaudited)
3. THE LIMITED PARTNERSHIP AGREEMENT - CONTINUED
Monthly Allocations - Any increase or decrease in the Partnership's net
asset value as of the end of a month shall be credited or charged to the
capital account of each Partner in the ratio that the balance of each
account bears to the total balance of all accounts.
Any distribution from profits or partners' capital will be made
solely at the discretion of the General Partner.
Allocation of Profit and Loss for Federal Income Tax Purposes - As of
the end of each fiscal year, the Partnership's realized capital gain or
loss and ordinary income or loss shall be allocated among the Partners,
after having given effect to the fees of the General partner and the
Commodity Trading Advisor and each Partner's share of such items are
includable in the Partner's personal income tax return.
Redemption - No partner may redeem or liquidate any Units until after
the lapse of six months from the date of the investment. Thereafter, a
Limited Partner may withdraw, subject to certain restrictions, any part
or all of his Units from the Partnership at the Net Asset Value per Unit
on the last day of any month on ten days prior written request to the
General Partner. A redemption fee payable to the Partnership of a
percentage of the value of the redemption request is charged during the
first 24 months of investment pursuant to the following schedule:
* 4% if such request is received ten days prior to the
last trading day of the month in which the redemption is to
be effective the sixth month after the date of the
investment in the Fund.
* 3% if such request is received during the next seven
to twelve months after the investment.
* 2% if such request is received during the next
thirteen to eighteen months.
* 1% if such request is received during the next
nineteen to twenty-four months.
* 0%, thereafter.
F-5
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
for the Period Ended September 30, 1998
(Unaudited)
4. FEES
The Fund is charged the following fees on a monthly
basis since the commencement of trading on November 14, 1996.
* A management fee of 4% (annual rate) of the Fund's
net assets allocated to the CTA to trade will be paid to the
CTA and 2% of equity to the Fund's General Partner.
* An incentive fee of 15% of "new trading profits" will
be paid to the CTA. "New trading profits" includes all
income earned by the CTA and expense allocated to his
activity. In the event that trading produces a loss, no
incentive fees will be paid and all losses will be carried
over to the following months until profits from trading
exceed the loss.
* The Fund will pay fixed commissions of 12% (annual
rate) of net assets, payable monthly, to the Introducing
Broker affiliated with the General Partner. The Affiliated
Introducing Broker will pay the costs to clear the trades to
the futures commission merchant and all PIT Brokerage costs
which shall include the NFA and exchange fees.
5. REALIZED GAIN ON EXCHANGE RATE FLUCTUATIONS
The Fund is investing in certain foreign currency
futures contracts. The difference in the exchange rates from the trade
date to the end of the fiscal year is being recorded as a realized gain
or loss on exchange rate fluctuation. The valuations are at published or
best available contract market prices as of the close on the last trading
day of the period.
6. PLEDGED ASSETS
The U. S. Treasury Obligations and cash in trading
accounts are pledged, from time to time, as collateral for commodities
trading on margin.
F-6
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
for the Period Ended September 30, 1998
(Unaudited)
7. CONCENTRATIONS OF CREDIT RISK
The Fund maintains a substantial portion of its cash
balances at The Chicago Corporation, the futures commission merchant
where the commodity trading advisor places trades pursuant to the terms
of the account documents and the power of attorney granted to the
commodity trading advisor. These balances may, at times, exceed
federally insured credit limits and also be subject to unilateral
retention by the futures commission merchant in the event of a dispute.
8. OFF BALANCE SHEET RISK
As discussed in Note 1, the Fund is engaged in
speculative trading of futures on option contracts in commodities. The
carrying amounts of the Fund's financial instruments and commodity contracts
generally approximate their fair values at the end of the reporting period.
The Fund computes the gross contract values on open commodity contracts as of
the end of each month for inclusion in the annual audited reports.
Although the gross contract values of open commodity
contracts represent market risk, they do not represent exposure to credit
risk, which is limited to the current cost of replacing those contracts in a
gain position. The Fund also computes unrealized gain on open commodity
future contracts as of the end of each month.
F-7
*******************************************************************************
PACULT ASSET MANAGEMENT, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
PACULT ASSET MANAGEMENT, INC.
YEARS ENDED DECEMBER 31, 1996 AND 1995
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Financial Statements -
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5 - 6
<PAGE>
Frank L. Sassetti & Co.
Certified Public Accountants
To The Shareholders
Pacult Asset Management, Inc.
Fremont, Indiana
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of PACULT ASSET MANAGEMENT,
INC. as of December 31, 1996 and 1995, and the related statements of income
and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PACULT ASSET MANAGEMENT,
INC. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Frank L. Sassetti & Co.
February 19, 1996
Oak Park, Illinois
1
<PAGE>
PACULT ASSET MANAGEMENT, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS
Cash $ 60,196 $ 62,445
Due from Fremont Fund (Note 2) 10,860 34,204
-------- --------
71,056 96,649
Investments (Note 3) 26,410 1,000
-------- --------
$ 97,466 $ 97,649
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Current Liabilities
Accrued interest payable $ 6,500 $ 500
Long-Term Debt (Note 4) 100,000 100,000
Stockholder's Equity
Capital stock (common 1,500 shares
authorized, no par value; 1,000
issued and outstanding) 1,000 1,000
Accumulated deficit (10,034) (3,351)
--------- ---------
Total Stockholder's Equity (9,034) (2,351)
$ 97,466 $ 97,649
The accompanying notes are an integral part
of the financial statements
2
<PAGE>
PACULT ASSET MANAGEMENT, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
REVENUES $1,645 $________
EXPENSES (Note 4)
Registration and dues 670
Professional accounting, legal and
audit fees 858 2,199
Licenses and fees 1,154 160
Other administrative expenses 226
Interest expense 6,500
-------- --------
Total Expenses 8,738 3,029
NET INCOME (LOSS) BEFORE EQUITY
IN LIMITED PARTNERSHIP (7,093)
EQUITY IN LIMITED PARTNERHSIP (NOTE 3) 410
-------- --------
NET INCOME (LOSS) (6,683) (3,029)
ACCUMULATED DEFICIT
Beginning of period (3,351) (322)
End of period $(10,034) $(3,351)
The accompanying notes are an integral part
of the financial statements
3
<PAGE>
PACULT ASSET MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (6,683) $ (3,029)
Adjustments to reconcile net (loss)
to net cash used in operating
activities -
Equity in limited partnership (410)
Changes in operating assets and
liabilities -
Increase in accrued interest
payable 6,500
-------- --------
Net Cash (Used In)
Operating Activities (593) (3,029)
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in due from
Fremont Fund 23,344 (28,204)
Purchase of investment interest in
limited partnership 25,000 (1,000)
-------- --------
Net Cash (Used In)
Investing Activities (1,656) (29,204)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in advances
from stockholder (10,000)
Loan proceeds from stockholder ________ 100,000
Net Cash Provided by
Financing Activities ________ 90,000
-------- --------
NET INCREASE (DECREASE) IN CASH (2,249) 57,767
CASH -
Beginning of period 62,445 4,678
End of period $60,196 $ 62,445
The accompanying notes are an integral part
of the financial statements
4
<PAGE>
PACULT ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Pacult Asset Management, Inc. (the Company) was formed primarily to act as
general partner of the Fremont Fund, Limited Partnership (the Fund).
The responsibilities of the General Partner, in addition to directing the
trading and investment activity of the Fund, include executing and filing all
necessary legal documents, statements and certificates of the Fund, retaining
independent public accountants to audit the Fund, employing attorneys to
represent the Fund, reviewing the brokerage commission rates to determine
reasonableness, maintaining the tax status of the Fund as a limited
partnership, maintaining a current list of the names, addresses and numbers of
units owned by each Limited Partner and taking such other actions as deemed
necessary or desirable to manage the business of the Partnership.
Use of Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Statement of Cash Flows - Net cash provided by operating activities includes
no cash payment for interest nor income taxes for the years ended December 31,
1996 and 1995.
2. CORPORATE AFFILIATION
The Company's sole shareholder is also a joint owner of Futures Investment
Company. In addition, the Company is the general partner of Fremont Fund, a
limited partnership. During 1994, Futures Investment Company advanced $9,000
to the Company, and Ms. Shira Pacult, sole principal to the Company, advanced
$18,000 to the Company. These advances were not collateralized, bore no
interest and were repaid in 1995.
5
<PAGE>
PACULT ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
2. CORPORATE AFFILIATION - CONTINUED
Also, the Company, in its capacity as general partner, had been advancing the
organization, registration and syndication costs of Fremont Fund. In
addition, the Company receives a management fee of 2% of the equity of the
Fund. As of December 31, 1996, the Fund owed the Company $10,860 in advanced
costs of the Fund and unpaid management fees. These funds are not
collateralized and bear no interest.
3. INVESTMENTS
During 1995, the Company purchased an interest as the general partner in a
limited partnership with an initial investment of $1,000. During 1996, the
Company purchased one limited partner unit of the limited partnership for
$1,000 and made an additional $24,000 investment in the partnership as general
partner. The investments are being accounted for under the equity method and
earned $410 in equity during the year.
4. LONG-TERM DEBT
The Company and its sole shareholder signed a subordinated loan agreement on
April 26, 1995, whereby the Company can borrow up to $265,000 from the
shareholder. The loan agreement bears interest at the rate of 6% per annum
and is payable on or before January 12, 2017. On November 28, 1995, the
Company borrowed $100,000 against this commitment, which will mature January
12, 2017, in part to fund the expenses of the Company and to advance proceeds
to the limited partnership.
6
<PAGE>
*******************************************************************************
PACULT ASSET MANAGEMENT
FREMONT, INDIANA
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
Pacult Asset Management, Inc.
Table of Contents
Independent Auditors' Report...........................................F-2
Balance Sheet..........................................................F-3
Statement of Operations................................................F-4
Statement of Stockholder's Equity......................................F-5
Statement of Cash Flows................................................F-6
Notes to Financial Statements..........................................F-7
F-1
<PAGE>
DURLAND & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL ASSOCIATION
340 ROYAL PALM WAY, SUITE 201
PALM BEACH, FL 33480
(561) 822-9995 * FAX 822-9942
To the Shareholders
Pacult Asset Management, Inc.
Fremont, Indiana
INDEPENDENT AUDITORS'REPORT
We have audited the accompanying balance sheet of Pacult Asset Management,
Inc., (a Delaware Corporation) as of December 31, 1997, and the related
statement of operations, stockholder's equity, and cash flows for the year
then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacult Asset Management,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Durland & Company, CPAs, P.A.
Durland & Company, CPAs, P.A.
March 26, 1998 Palm Beach, Florida
F-2
<PAGE>
PACULT ASSET MANAGEMENT, INC.
Balance Sheet
December 31, 1997
ASSETS 1997
Current Assets
Cash $ 88,763
Accrued interest receivable 215
Due from Fremont Fund 3,778
Total current assets 92,756
Investments in Freemont Fund, Limited Partnership 23,183
Total investments 23,183
Total Assets 115,939
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Current Liabilities
Accrued interest payable $ 18,500
Subordinated long term debt 100,000
Total Liabilities 118,500
STOCKHOLDER'S EQUITY
Common stock, no par value (1,500 shares authorized,
1,000 shares issued and outstanding) 1,000
Accumulated deficit (3,561)
Total Stockholder's Equity (2,561)
Total Liabilities and Stockholder's Equity $ 115,939
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PACULT ASSET MANAGEMENT, INC.
Statement of Operations
Year ended December 31, 1997
1997
Revenues $ 24,050
Expenses
Registration and dues 685
Professional accounting, legal and audit fees 1,600
Licenses, fees and taxes 65
Interest expenses 12,000
Total expenses 14,350
Net income before loss of equity in limited partnership 9,700
Loss of equity in limited partnership (3,227)
Net income $ 6,473
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PACULT ASSET MANAGEMENT, INC.
Statement of Stockholder's Equity
Year ended December 31, 1997
Total
Number of No Par Value Accumulated Stockholder's
Shares Common Stock Deficit Equity
BEGINNING BALANCE,
January 1, 1997 1,000 $ 1,000 $ (10,034) (9,034)
Net profit 0 0 6,473 6,473
BALANCE,
December 31, 1997 1,000 $ 1,000 $ (3,561) $ (2,561)
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PACULT ASSET MANAGEMENT, INC.
Statement of Cash Flows
Year ended December 31, 1997
1997
Cash Flows from Operating Activities
Net income $ 6,473
Adjustment to reconcile net to net cash used in operating
activities - Loss of equity in limited partnership 3,227
Changes in operating assets and liabilities
(Increase) in accrued interest receivable (215)
Decrease in due from Fremont Fund 7,082
Increase in accnied interest payable 12,000
Net cash (used in) operating activities 28,567
Cash Flows from 1nvesting Activities
Net cash (used in) investing activities 0
Cash Flows from financing activities
Net cash provided by financing activities 0
Net increase in cash 28,567
Cash
Beginning of period 60,196
End of period 88,763
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PACULT ASSET MANAGEMENT, INC.
Notes to Financial Statements
December 31, 1997
(1) Nature of Business and Significant Accounting Policies
THE COMPANY. Pacult Asset Management, Inc. (the Company) was formed on
October 13, 1994 under the laws of the State of Delaware to act as general
partner of the Fremont Fund, Limited Partnership (the Fund). The Fund is a
publicly offered commodity pool. It is currently operating, but sales of
Units were suspended in March, 1997. Sales of the Fund are expected to resume
during 1998. In 1998, the Company became the general partner of Auburn Fund,
Limited Partnership. Units in Auburn Fund are currently being offered as a
private placement.
The responsibilities of the general partner, in addition to selection of the
commodity trading advisors, include executing and filing all necessary legal
documents, statements and certificates of the Fund, retaining independent
public accountants to audit the Fund, employing attorneys to represent the
Fund, reviewing the brokerage commission rates to determine reasonableness,
maintaining the tax status of the Fund as a limited partnership, maintaining
a current list of the names, addresses and numbers of units owned by each
Limited Partner and taking such other actions as deemed necessary or
desirable to manage the business of the Partnership.
a) USE OF ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and effect the disclosure of contingent assets and
liabilities at the date of the financial statements, and effect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
b) STATEMENT OF CASH FLOWS. There have not been cash payments for interest
for the year ended December 31, 1997. The Company has elected to be treated
as an S- Corporation for Federal and State tax purposes, and thus there is no
provision for income taxes or benefits at the corporation level.
(2) CORPORATE AFFILIATION. The Company's sole shareholder is also owner of
Ashley Capital Management, Inc., a Delaware corporation, formed to serve as
the general partner of Atlas Futures Fund, Limited Partnership, which is to
be offered as a public commodity pool. The sole shareholder is a joint owner
of Futures Investment Company, an Illinois corporation, formed on December 6,
1983,( formerly CDTA, Inc.). Futures Investment Company serves as an
introducing broker (commodities) to members of the public and, subsequently,
for the commodity pools formed under the direction of Ms. Shira Del Pacult,
the principal of the Company. In addition, the Company is the general partner
of Fremont Fund, an Indiana limited partnership and Auburn Fund, a Delaware
limited partnership, as discussed in note (1) above.
(3) INVESTMENTS. During 1995, the Company purchased its interest in the Fund
with an initial investment of S 1,000. During 1996, the Company purchased one
limited partner unit of the limited partnership for $ 1,000 arid made an
additional $24,000 investment in the partnership as its general partner,
These investments are being accounted for under the equity method. The
Company reported its share of the Fund equity losses of $3,227 during the
year.
(4) LONG-TERM DEBT. The Company and its sole shareholder signed a
subordinated loan agreement on April 26, 1995, whereby the Company could
borrow up to $265,000 from the shareholder until April 25, 1997. The
underlying promissory note bears interest at tile rate of 12% per annum and
is payable on or before January 12, 2017. The purpose of the loan arrangement
was, in part, to fund the expenses of the Company and to advance proceeds to
the limited partnership, and also to fulfill its obligation under applicable
securities and tax laws requiring general partner capital.
F-6
<PAGE>
*******************************************************************************
PACULT ASSET MANAGEMENT, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
YTD TOTAL
BALANCE YTD BALANCE
ASSETS
CURRENT ASSETS
COUNTY NATIONAL BANK CHECKING 18,642.34
CERTIFICATE OF DEPOSIT 54,401.17
AUBURN FUND G.P. INTEREST 25,000.00
FREMONT FUND G.P. INTEREST 23,183.00
============
TOTAL CURRENT ASSETS $ 121,226.51
FIXED ASSETS
==============
TOTAL FIXED ASSETS $ .00
OTHER ASSETS
==============
TOTAL OTHER ASSETS $ .00
==============
TOTAL ASSETS $ 121,226.51
==============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES
==============
TOTAL CURRENT LIABILITIES $ .00
==============
TOTAL LIABILITIES $ .00
CAPITAL
COMMON STOCK 1,000.00
SHAREHOLDERS 12% SUBORD LOAN 100,000.00
RETAINED EARNINGS (3,533.91)
NET INCOME (LOSS) 23,760.42
============
TOTAL CAPITAL $ 121,226.51
==============
TOTAL LIABILITIES AND CAPITAL $ 121,226.51
==============
1
<PAGE>
PACULT ASSET MANAGEMENT, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 1998
SEPTEMBER YTD
1998 RATIO BALANCE RATIO
SALES
INTEREST INCOME 228.42 100.00% 2,594.38 7.70%
MANAGEMENT FEES-FREMONT FUND .00 .00% 9,585.54 28.45%
MANAGEMENT FEES-AUBURN FUND .00 .00% 21,516.55 63.85%
============ ============
TOTAL SALES $ 228.42 100.00% 33,696.47 100.00%
OPERATING EXPENSES
BANK CHARGES 14.69 6.43% 14.69 .04%
LEGAL FEES 2,750.00 1,203.92% 4,852.36 14.40%
REGISTRATION & DUES 3,795.00 1,661.41% 4,530.00 13.44%
SHIPPING EXPENSE 449.50 196.79% 539.00 1.60%
============ ============
TOTAL OPERATING EXPENSES $ 7,009.19 3,068.55% $ 9,936.05 29.49%
============ ============
NET INCOME FROM OPERATIONS $ (6,780.77)(2,968.55%) $ 23,760.42 70.51%
OTHER REVENUE
OTHER EXPENSES
============ ============
NET INCOME (LOSS) $ (6,780.77)(2,968.55%) $ 23,760.42 70.51%
============ ============
2
<PAGE>
*******************************************************************************
APPENDIX I
COMMODITY TERMS AND DEFINITIONS
Identification of the parties and knowledge of various terms and concepts
relating to trading in futures and forward contracts and this offering are
necessary for a potential investor to identify the risks of investment in the
Fund.
"1256 Contract". See "Taxation - Section 1256 Contract".
"Additional Sellers". See definition of "Selling Agent".
"Affiliated IB". The IB is Affiliated with the principal of the General
Partner. The IB has no affiliation with the Partnership. Also see definition
of "IB".
"Associated Persons". The persons registered pursuant to the Commodity
Exchange Act with the FCM, the Selling Agent, Additional Sellers, or the IB
who are eligible to service the Partnership, the Partners and to receive
Trailing Commissions.
"Average Price System". The method approved by the CFTC to permit the CTA to
place positions sold or purchased in a block to the numerous accounts managed
by the CTA. See "The Commodity Trading Advisors" in the main body of the
Prospectus.
"Best Efforts". The term to describe that the party is liable only in the
event they intentionally fail or are grossly negligent in the performance of
the task described.
"Capital" means cash invested in the Partnership by any Partner and placed at
risk for the business of the Partnership.
"CFTC". Commodity Futures Trading Commission, 2033 K Street, Washington,
D.C., 20581. An independent regulatory commission of the United States
government empowered to regulate commodity futures transactions under the
Commodity Exchange Act.
"Commodity". Goods, wares, merchandise, produce, currencies, and stock
indices and in general everything that is bought and sold in commerce. Traded
commodities on U. S. Exchanges are sold according to uniform established grade
standards, in convenient predetermined lots and quantities such as bushels,
pounds or bales, are fungible and, with a few exceptions, are storable over
periods of time.
"Commodity Broker". See definitions of "Futures Commission Merchant" and
"IB".
"Commodity Exchange Act". The statute providing the regulatory scheme for
trading in commodity futures and options contracts in the United States under
the administration of the Commodity Futures Trading Commission which will
provide the opportunity for reparations and other redress for claims.
"Commodity Pool Operator" or "CPO". Pacult Asset Management, Incorporated,
c/o Corporate Systems, Inc., 101 N. Fairfield Dr., Dover, DE 19901. An entity
that raises capital through the sale of interests in an investment trust,
partnership, corporation, syndicate or similar form of enterprise, and uses
that capital to invest either entirely or partially in futures contracts.
"Commodity Trading Advisors" or "CTAs". Michael Frischmeyer, 1422 Central
Avenue, Fort Dodge, IA. 50501; EPIC Trading, One Whitehall St., Suite 1500,
New York, New York 10004; and, Bell Fundamental Futures, L.L.C., 889 Ridge
Lake Boulevard, Suite 233, Memphis, Tennessee 38120. A person or entity which
renders advice about commodities or about the trading of commodities, as part
of a regular business, for profit. Particularly, those who will be
responsible for the analysis and placement of trades for the Partnership.
"Daily Price Limit". The maximum permitted movement in a single direction
(imposed by an exchange and approved- by the CFTC) in the price of a commodity
futures contract for a given commodity that can occur on a commodity exchange
on
1
<PAGE>
a given day in relation to the previous day's settlement price, which is
subject to change, from time to time, by the exchange (with CFTC approval).
"Exchange for Physicals" ("EFP"). EFP is a practice whereby positions in
certain futures contracts may be initiated or liquidated by first executing
the transaction in the appropriate cash market and then arbitraging the
position into the futures market (simultaneously buying the cash position and
selling the futures position, or vice versa).
"Form K-1". The section of the Federal Income Tax Return filed by the
Partnership which identifies the amount of investment in the Partnership, the
gains and losses for the tax year, and the amount of such gains and losses
reportable by a Partner on the Partner's tax return.
"Fully-Committed Position". Each commodity trading advisor has an objective
percentage of equity to be placed at risk. In addition, the CFTC places
limits upon the number of positions a single commodity trading advisor may
have in certain commodities. When either the objective percentage of equity
is placed at risk or the commodity trading advisor reaches the limit in number
of positions, the account or accounts have a fully-committed position.
"Futures Commission Merchant" or "FCM". ABN AMRO, 208 South LaSalle Street,
Chicago, IL 60604. The entity that solicits or accepts orders for the
purchase or sale of any commodity for future delivery subject to the rules of
any contract market and in connection with such solicitation or acceptance of
orders, accepts money or other assets to margin, guarantee, or secure any
trades or contracts that result from such orders for a commission. The IB
will be responsible for the negotiation and payment of the commission to the
FCM.
"Futures Contract". A contract providing for (i) the delivery or receipt at a
future date of a specified amount and grade of a traded Commodity at a
specified price and delivery point, or (ii) cash settlement of the change in
the value of the contract. The terms of these contracts are standardized for
each Commodity traded on each exchange and vary only with respect to price and
delivery months. A futures contract should be distinguished from the actual
physical commodity, which is termed a "cash commodity". Trading in futures
contracts involves trading in contracts for future delivery of Commodities and
not the buying and selling of particular physical lots of Commodities. A
contract to buy or sell may be satisfied either by making or taking delivery
of the commodity and payment or acceptance of the entire purchase price
therefor, or by offsetting the contractual obligation with a countervailing
contract on the same exchange prior to delivery.
"Futures Investment Company". The selling agent (the "Selling Agent") and
introducing broker (the "IB"), 5916 N. 300 West, Fremont, IN 46737 which will
introduce the trades to the FCM for a fixed commission of 12% of equity on
deposit at the FCM allocated by the General Partner to trade. The principal
of the General Partner, Ms. Shira Del Pacult is also one of the principals of
the IB, with her husband.
"General Partner". Pacult Asset Management, Incorporated, c/o Corporate
Systems, Inc., 101 N. Fairfield Dr., Dover, DE 19901. The manager of the
Fund.
"Gross Profits". The income or loss from all sources, including interest
income and profit and loss from non-trading activities, if any.
"Initial Closing". November, 1996 - when the Minimum offering amount was
raised and Escrow funds were released to the Partnership for commencement of
trading.
"IB" or "Introducing Broker". The introducing broker, Futures Investment
Company, 5916 N. 300 West, Fremont, IN 46737, which will introduce the trades
to the FCM for a fixed commission of 12% of equity on deposit at the FCM
allocated by the General Partner to trade. The principal of the General
Partner, Ms. Shira Del Pacult is also one of the principals of the IB, with
her husband.
"Introduction of Trades". The term used to describe the function performed by
the broker which handles the relationship between the Partnership and the
Futures Commission Merchant. See the definition of "IB".
"Limited Partner". Persons admitted without management authority pursuant to
the Partnership Agreement.
"Margin". A good faith deposit with a broker to assure fulfillment of the
terms of a Futures Contract.
2
<PAGE>
"Margin call". A demand for additional monies to hold positions taken to
maintain a customer's account in compliance with the requirements of a
particular commodity exchange or of an FCM.
"Maximum Offering". The amount which will terminate this offering,
$5,000,000.
"NASD". National Association of Security Dealers, Inc., the self regulatory
organization responsible for the legal and fair operation of broker dealers
such as the Selling Agent.
"Net Assets" or "Net Asset Value" means the total assets, including all cash
and cash equivalents (valued at cost plus accrued interest and earned
discount), less total liabilities, of the Partnership (each determined on the
basis of generally accepted accounting principles consistently applied under
the accrual method of accounting or as required by applicable laws,
regulations and rules including those of any authorized self regulatory
organization), specifically:
(i) Net Asset Value includes any unrealized profit or loss on open security
and commodity positions subject to reserves for loss established, from time to
time, by the General Partner;
(ii) All open stock, option, and commodity positions are calculated on the
then current market value, which shall be based upon the settlement price for
that particular position on the date with respect to which Net Asset Value is
being determined; provided, however, that if a position could not be
liquidated on such day due to the operation of the daily limits or other rules
of the exchange upon which that position is traded or otherwise, the
settlement price on the first subsequent day on which the position could be
liquidated shall be the basis for determining the market value of such
position for such day. As used herein, "settlement price" includes, but is
not limited to: (1) in the case of a futures contract, the settlement price
on the commodity exchange on which such futures contract is traded; and (2) in
the case of a foreign currency forward contract which is not traded on a
commodity exchange, the average between the lowest offered price and the
highest bid price, at the close of business on the day Net Asset Value is
being determined, established by the bank or broker through which such forward
contract was acquired or is then currently traded;
(iii) Brokerage commissions to close security and commodity positions, if
charged on a round-turn basis, are accrued in full at the time the position is
initiated (i.e., on a round-turn basis) as a liability of the Partnership;
(iv) Interest earned on all Partnership accounts is accrued at least monthly;
(v) The amount of any distribution made by the Partnership is a liability of
the Partnership from the day when the distribution is declared by the General
Partner or as provided in this Agreement and the amount of any redemption is a
liability of the Partnership as of the valuation date; and
(vi) Syndication Costs incurred in organizing and all present and future costs
to increase or maintain the qualification of the Units available for sale and
the cost to present the initial and future offering of Units for sale shall be
capitalized when incurred and amortized and paid from Capital or Monthly
Profit as required by applicable law.
"Net Unit Value". The Net Assets of the Partnership divided by the total
number of Units outstanding.
"Net Gains". The net profit from all sources.
"New Net Profit". The profit in excess of the highest prior level of equity,
before charges and fees, earned by a commodity trading advisor. See
"Description of Charges" and the "Limited Partnership Agreement".
"Net Worth". The excess of total assets over total liabilities as determined
by generally accepted accounting principles. Net Worth for a prospective
investor shall be exclusive of home, home furnishings and automobiles.
"Offering Expenses". The Partnership has reimbursed the General Partner for
offering expenses of $52,000 from the gross proceeds of the offering as of the
Initial Closing in November, 1996. The $52,000 in Offering Expenses included
the first year operating costs. Each newly admitted Partner's pro rata share
of Offering Expenses will be deducted from their investment amount and used to
credit the accounts of prior admitted Partners for the Offering Expenses they
advanced.
3
<PAGE>
"Organizational Expenses". The General Partner is being reimbursed for
certain Organizational Expense in the amount of $5,000, amortized on a
straight line method over the first 60 months of Partnership operation,
commencing November, 1996. Specifically, these include $500 in accounting
fees, and $4500 in legal fees.
"Option Contract". An option contract gives the purchaser the right (as
opposed to the obligation) to acquire (call) or sell (put) a given quantity of
a commodity or a futures contract for a specified period of time at a
specified price to the seller of the option contract. The seller has
unlimited risk of loss while the loss to a buyer of an option is limited to
the amount paid ("premium") for the option.
"Partners". The General Partner, all other general partners, and all Limited
Partners in the Partnership.
"Partnership" or "Limited Partnership" or "Commodity Pool" or "Pool" or
"Fund". The Fremont Fund Limited Partnership, evidenced by Exhibit A to this
Prospectus, 5916 N. 300 West, Fremont, IN (219) 833-1306.
"Position Limits". The CFTC has established maximum positions which can be
taken in some, but not in all commodity markets, to prevent the corner or
control of the price or supply of those commodities. These maximum number of
positions are called Position Limits.
"Principal". Ms. Shira Del Pacult, the principal of the General Partner (who
is also a principal of the IB).
"Round-turn Trade". The initial purchase or sale of a futures or forward
contract and the subsequent offsetting sale or purchase of such contract.
"Redemption". The right of a Partner to tender the Units to the Partnership
for surrender at the Net Unit Value, subject to certain conditions. See the
Limited Partnership Agreement attached as Exhibit A to the Prospectus.
"Selling Agent". The NASD member broker dealer, Futures Investment Company,
5916 N. 300 West, Fremont, IN 46737, selected by the General Partner to offer
the Units for sale. The General Partner and the Selling Agent may select
Additional Selling Agents to also offer Units for sale. See "Plan of
Distribution" in the Prospectus.
"Scale in Positions". Some of the CTAs selected by the General Partner
presently have a large amount of equity under management. In some situations,
the positions desired to be taken on behalf of the Partnership and other
accounts under management will be too large too be executed at one time. The
CTAs intend to take positions at different prices, at different times and
allocate those positions on a ratable basis in accordance with rules
established by the CFTC. This procedure is defined as to "Scale in
Positions". The same definition and rules apply when the CTA elects to exit a
position.
"Taxation - Section 1256 Contract" is defined to mean: (1) any regulated
futures contract ("RFC"); (2) any foreign currency contract; (3) any non-
equity option; and (4) any dealer equity option.
The term RFC means a futures contract whether it is traded on or subject to
the rules of a national securities exchange which is registered with the SEC,
a domestic board of trade designated as a contract market by the CFTC or any
other board of trade, exchange or other market designated by the Secretary of
Treasury ("a qualified board of exchange") and which is "market-to-market" to
determine the amount of margin which must be deposited or may be withdrawn. A
"foreign currency contract" is a contract which requires delivery of, or the
settlement of, which depends upon the value of foreign currency which is
currency in which positions are also entered at arm's length at a price
determined by reference to the price in the interbank market. (The Secretary
of Treasury is authorized to issue regulations excluding certain currency
forward contracts from marked-to-market treatment.) A "non-equity option"
means an option which is treated on a qualified board or exchange and the
value of which is not determined directly or indirectly by reference to any
stock (or group of stocks) or stock index unless there is in effect a
designation by the CFTC of a contract market for a contract bond or such group
of stocks or stock index. A "dealer equity option" means, with respect to an
options dealer, only a listed option which is an equity option, is purchased
or granted by such options dealer in the normal course of his activity of
dealing in options, and is listed on the qualified board or exchange on which
such options dealer is registered.
With certain exceptions discussed below, the following rules apply to Section
1256 contracts. All Section 1256 contracts will be market-to-market upon the
closing of every contract (including closing by taking an offsetting position
or by
4
<PAGE>
making or taking delivery, by exercise or being exercised, by assignment or
being assigned or by lapse or otherwise) and all open Section 1256 contracts
held by the Partnership at its fiscal year-end will be treated as sold for
their fair market value on the last business day of such taxable year. This
will result in all unrealized gains and losses being recognized for Federal
income tax purposes for the taxable year. As a consequence, the Partners may
have tax liability relating to unrealized Partnership profits in open
positions at year-end. Sixty percent of any gain or loss from a Section 1256
contract will be treated as long-term, and 40% as short-term, capital gain or
loss (the "60/40 Rule"), regardless of the actual holding period of the
individual contracts. The character of a Partner's distributive share of
profits or losses of the Partnership from Section 1256 contracts will thus be
60% long-term capital gain or loss and 40% short-term capital gain or loss.
Each partner's distributive share of such gain or loss for a taxable year will
be combined with its other items of capital gain or loss for such year in
computing its Federal income tax liability. The Code contains certain rules
designed to eliminate the tax benefits flowing to high-income taxpayers from
the graduated tax rate schedule and from the personal and dependency
exemptions. The effect of these rules is to tax a portion of a high-income
taxpayer's income at a marginal tax rate of 39.6%. However, long-term capital
gains are now subject to a maximum tax rate of 28%.
Subject to certain limitations, a Limited Partner, other than a corporation,
estate or trust, may elect to carryback any net Section 1256 contract losses
to each of the three preceding years. Net Section 1256 contract losses
carried back to prior years may only be used to offset net Section 1256
contract gains, but not against other income. The net loss from Section 1256
contracts will be treated as 60% long-term capital loss and 40% short- term
capital loss. To the extent that such losses are not depleted by the
carryback, they can be carried forward under the existing capital loss carry
forward rules and will be treated as 60% long-term capital losses and 40%
short-term capital losses.
During taxable years in which little or no profit is generated from trading
activities, a Limited Partner will, none-the-less, still have interest income.
The marked-to-market rules do not apply to interests in personal property of a
nature which are actively traded other than Section 1256 contracts (termed
"off-exchange positions"). The gains and losses from off-exchange positions
will not be subject to the 60/40 Rule, but will be treated in accordance with
the general holding period rules and taxed at the same rates as ordinary
income, on a dollar for dollar basis. Capital gain or loss with respect to
property other than Section 1256 contracts generally will be long-term only if
such contracts have been held for more than one year. See "Federal Income Tax
Aspects".
"Trailing Commissions". The share of the fixed commissions to be paid to the
individual associated persons who work for the NASD member broker dealers or
the IB who have either sold the Units to the Partners or are providing
services to the General Partner or the other Partners.
"Taking Positions Ahead of the Partnership". The allocation of trades by
other than legally accepted methods by the CTA or other trader which favors
parties who took the position unfairly.
"Trading Matrix". The dollar value used by a commodity trading advisor to
define the number of positions to be taken by the accounts under management.
For example, each $40,000 in every account is traded the same by Mr.
Frischmeyer. This is his trading matrix. Some other commodity trading
advisors have a different trading matrix for different sized accounts. For
example, they may trade all accounts over one million in size differently than
accounts under one million.
"Unit". The term used to describe the ownership of both the General and
Limited Partner interests in the Partnership.
"Unrealized Profit Or Loss". The profit or loss which would be realized on an
open position if it were closed at the current settlement price or the most
recent appropriate quotation as supplied by the broker or bank through which
the transaction is effected.
"Underwriter". See "Selling Agent".
STATE REGULATORY GLOSSARY
The following definitions are supplied by the state securities
administrators responsible for the review of public futures fund ("commodity
pool") offerings made to residents of their respective states. They belong to
the North American Securities Administrators Association, Inc. which publish
"Guidelines for the Registration of Commodity Pool Programs",
5
<PAGE>
such as the Fund, which contain these definitions. The following definitions
are published from the Guidelines, however, the General Partner has made
additions to, but no deletions from, some of these definitions to make them
more relevant to an investment in the Fund.
Administrator-The official or agency administering the security laws of
a state. This will usually be the State of residence of the Fund or the
domicile of the Broker or Brokerage Firm which makes the offer or the
residence of the potential investor.
Advisor-Any person who, for any consideration, engages in the business
of advising others, either directly or indirectly, as to the value, purchase,
or sale of commodity contracts or commodity options. This definition applies
to the CTAs and, when it provides such advice, to the General Partner.
Affiliate-An Affiliate of a Person means: (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of
the outstanding voting securities of such Person; (b) any Person 10% or more
of whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote, by such Person; (c) any Person,
directly or indirectly, controlling, controlled by, or under common control of
such Person; (d) any officer, director or partner of such Person; or (e) if
such Person is an officer, director or partner, any Person for which such
Person acts in any such capacity. See "Conflicts". This applies to the fact
that Ms. Shira Del Pacult is the sole shareholder and principal of the General
Partner and also owns 50% of the outstanding voting shares and is a principal
in the Affiliated IB.
Capital Contributions-The total investment in a Program by a Participant
or by all Participants, as the case may be. The purchase price, less sales
commissions, for the Units.
Commodity Broker-Any Person who engages in the business of effecting
transactions in commodity contracts for the account of others or for his own
account. See "Futures Commission Merchant" and "Introducing Broker" and
Appendix III to this Prospectus.
Commodity Contract-A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of a
traded commodity at a specified price and delivery point.
Cross Reference Sheet-A compilation of the Guideline sections,
referenced to the page of the
prospectus, Program agreement, or other exhibits, and justification of any
deviation from the Guidelines.
This sheet is used by the State Administrator to review this Prospectus.
Net Assets-The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles. Net
Assets shall include any unrealized profits or losses on open positions, and
any fee or expense including Net Asset fees accruing to the Program.
Net Asset Value Per Program Interest-The Net Assets divided by the
number of Program Interests outstanding.
Net Worth-The excess of total assets over total liabilities are
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
New Trading Profits-The excess, if any, of Net Assets at the end of the
period over Net Assets at the end of the highest previous period or Net Assets
at the date trading commences, whichever is higher, and as further adjusted to
eliminate the effect on Net Assets resulting from new Capital Contributions,
redemptions, or capital distributions, if any, made during the period
decreased by interest or other income, not directly related to trading
activity, earned on Program assets during the period, whether the assets are
held separately or in a margin account. See "New Net Profit".
Organizational and Offering Expenses-All expenses incurred by the
Program in connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders,
depositories, experts, expenses of qualification of the sale of its Program
Interest under Federal and state law, including taxes and fees, accountants'
and attorneys' fees.
6
<PAGE>
Participant-The holder of a Program Interest. A Partner in the Fund.
Person-Any natural Person, partnership, corporation, association or
other legal entity.
Pit Brokerage Fee-Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees. These
fees will be paid by the Introducing Broker from the fixed commissions.
Program-A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in Commodity
Contracts. The Fund.
Program Broker-A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program. See the "Futures Commission Merchant"
and "Introducing Broker" and Appendix III to this Prospectus.
Program Interest-A limited partnership interest or other security
representing ownership in a program. The "Units" in the Fund. See Exhibit A,
the Limited Partnership Agreement.
Pyramiding-A method of using all or a part of an unrealized profit in a
Commodity Contract position to provide margin for any additional Commodity
Contracts of the same or related commodities.
Sponsor-Any Person directly or indirectly instrumental in organizing a
Program or any Person who will manage or participate in the management of a
Program, including a Commodity Broker who pays any portion of the
Organizational Expenses of the Program, and the general partner(s) and any
other Person who regularly performs or selects the Persons who perform
services for the Program. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only
compensation is for professional services rendered in connection with the
offering of the Units. The term "Sponsor" shall be deemed to include its
Affiliates.
Valuation Date-The date as of which the Net Assets of the Program are
determined. For the Fund, this will be after the close of business on the
last business day of each month.
Valuation Period-A regular period of time between Valuation Dates. For
the Fund, this will be the close of business for each calendar month and each
calendar year.
7
<PAGE>
*******************************************************************************
APPENDIX II
Performance Record of the Fund
Trader: Michael J. Frischmeyer, CTA; EPIC Trading, CTA
[To keep the rows of the following table from exceding 132 characters,
it has been broken into two tables where the first table contains columns
1-12 and the second contains columns 1-7 and 13-15.]
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Gross Net Change In Change Operation
Realized Realized Unrealized In Mgt. and
Period Beginning Capital Capital Trading Broker Trading Trading Net Accrued Incentive Net Ending
End Capital Adds W/Ds Profits Comm. Profits Profits Int. Comm. Fees Performance Capital
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Init. 0 610,968 0 0 0 0 0 0 0 0 0 610,968
Nov. 610,968 93,998 0 0 3,039 -3,039 0 7,965 0 58,843 -53,917 651,049
Dec. 651,049 127,360 0 -29 5,502 -5,531 17,861 4,362 0 1,449 15,242 793,651
1996 Performance -6.69%
1997
Jan. 793,651 58,220 0 -18,666 6,504 -25,170 9,481 7,494 0 6,393 -14,588 837,283
Feb. 837,283 164,226 0 24,690 7,557 17,133 -17,870 13,198 0 6,084 6,377 1,007,886
Mar. 1,007,886 44,189 0 10,964 8,124 2,840 -11,728 6,511 0 6,791 -9,168 1,042,907
Apr. 1,042,907 44,831 0 -17,532 9,708 -27,240 5,504 6,466 0 6,974 -22,244 1,065,494
May 1,065,494 0 0 11,527 9,848 1,679 -3,676 4,548 0 9,627 -7,076 1,058,418
Jun. 1,058,418 0 0 2,660 10,141 -7,481 6,553 4,565 0 7,730 -4,093 1,054,325
Jul. 1,054,325 0 0 -18,832 10,380 -29,212 25,576 4,686 0 8,884 -6,834 1,047,491
Aug. 1,047,491 0 0 7,900 10,286 -2,386 -20,248 4,527 0 8,825 -26,932 1,020,559
Sep. 1,020,559 0 0 4,051 9,921 -5,870 3,258 4,386 0 7,211 -5,437 1,015,122
Oct. 1,015,122 0 0 23,014 9,951 -32,965 27,768 4,523 0 7,082 -7,756 1,007,366
Nov. 1,007,366 0 -11,891 42,303 9,852 32,451 -40,647 4,228 0 6,968 -10,936 984,629
Dec. 984,629 0 -11,922 -3,246 9,779 -13,025 -5,465 4,470 0 6,972 -20,992 951,715
1997 Performance -12.21
1998
Jan. 951,715 0 0 -14,099 9,394 -23,493 6,544 9,668 0 6,777 -14,058 937,657
Feb. 937,657 0 0 10,289 9,176 1,113 -1,161 -1,836 0 6,704 -8,588 929,069
Mar. 929,069 0 -77,251 -1,164 9,163 10,327 20,025 3,961 0 6,766 6,893 858,711
Apr. 858,711 0 -84,073 -5,762 9,199 -14,961 -13,528 5,301 0 6,514 -29,702 744,936
May 744,936 0 -51,639 1,334 7,761 -6,427 -8,999 3,494 0 5,219 -17,151 676,146
Jun. 676,146 0 0 (23,390) 10,205 (33,595) 1,250 3,059 0 7,138 (36,424) 639,722
Jul. 639,722 0 0 7,645 3,878 3,767 23,400 5,305 0 5,543 26,929 666,651
Aug. 666,651 0 0 32,507 6,449 26,058 (6,247) 2,952 0 10,928 11,835 678,486
Sep. 678,486 0 (1,138) (49,248) 6,463 (55,711) 58,368 2,681 0 4,888 450 677,798
Oct. 677,798 0 0 70,018 6,402 63,616 (57,271) 2,583 0 7,191 1,737 679,535
1998 Performance Y.T.D. -7.24%
</TABLE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7) (13) (14) (15)
Gross Net Change In
Realized Realized Unrealized Total NAV
Period Beginning Capital Capital Trading Broker Trading Trading Outstanding Per %
End Capital Adds W/Ds Profits Comm. Profits Profits Units Unit Chg.
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Init. 0 610,968 0 0 0 0 0 940
Nov. 610,968 93,998 0 0 3,039 -3,039 0 759.64 857 -8.83%
Dec. 651,049 127,360 0 -29 5,502 -5,531 17,861 904.85 877 2.34%
1996 Performance Y.T.D. -6.69%
1997
Jan. 793,651 58,220 0 -18,666 6,504 -25,170 9,481 972.00 861 -1.79%
Feb. 837,283 164,226 0 24,690 7,557 17,133 -17,870 1,161.77 868 0.71%
Mar. 1,007,886 44,189 0 10,964 8,124 2,840 -11,728 1,213.17 860 -0.91%
Apr. 1,042,907 44,831 0 -17,532 9,708 -27,240 5,504 1,266.46 841 -2.13%
May 1,065,494 0 0 11,527 9,848 1,679 -3,676 1,266.46 836 -0.66%
Jun. 1,058,418 0 0 2,660 10,141 -7,481 6,553 1,266.46 832 -0.39%
Jul. 1,054,325 0 0 -18,832 10,380 -29,212 25,576 1,266.46 827 -0.65%
Aug. 1,047,491 0 0 7,900 10,286 -2,386 -20,248 1,266.46 806 -2.57%
Sep. 1,020,559 0 0 4,051 9,921 -5,870 3,258 1,266.46 802 -0.53%
Oct. 1,015,122 0 0 23,014 9,951 -32,965 27,768 1,266.46 795 -0.76%
Nov. 1,007,366 0 -11,891 42,303 9,852 32,451 -40,647 1251.46 787 -1.09%
Dec. 984,629 0 -11,922 -3,246 9,779 -13,025 -5,465 1,235.98 770 -2.13%
1997 Performance -12.21
1998
Jan. 951,715 0 0 -14,099 9,394 -23,493 6,544 1,235.98 759 -1.48%
Feb. 937,657 0 0 10,289 9,176 1,113 -1,161 1,235.98 752 -0.92%
Mar. 929,069 0 -77,251 -1,164 9,163 10,327 20,025 1,133.96 757 0.74%
Apr. 858,711 0 -84,073 -5,762 9,199 -14,961 -13,528 1,018.96 731 -3.46%
Jun. 676,146 0 0 (23,390) 10,205 (33,595) 1,250 946.66 676 -5.39%
Jul. 639,722 0 0 7,645 3,878 3,767 23,400 946.66 704 4.21%
Aug. 666,651 0 0 32,507 6,449 26,058 (6,247) 946.66 717 1.78%
Sep. 678,486 0 (1,138) (49,248) 6,463 (55,711) 58,368 945.09 717 0.07%
Oct. 677,798 0 0 70,018 6,402 63,616 (57,271) 945.08 719 0.26%
1998 Performance Y.T.D. -7.24%
</TABLE>
1
<PAGE>
*******************************************************************************
APPENDIX III
Supplemental Performance Information For Epic Trading
The trading system used was developed entirely by Bradley Jordan ("the
Advisor"). The Advisor thoroughly research the accuracy of the systems buy
and sell signals within his own personal trading account. Implemented in
January of 1997, the system encompassed one year of proprietary trading.
Third party records of these trades are available to clients upon request. All
trades in their entirety were executed with the Advisor fully exposed to real
profits, losses, and trading expenses. Please see "The Commodity Trading
Advisors - EPIC Trading" in the main body of this Supplement for the Business
Background of EPIC Trading and the Description of the Trading Program.
Proprietary Trading Account
This summary represents the Advisor's best effort to accurately represent the
past risk/reward characteristics of the trading system as they apply the
program offered. Performance is shown as a percent return and adjusted to
include the Advisor's 20% incentive fee on new trading profits and the
difference in commissions. The summary does not reflect the difference in
returns based upon the leverage of the accounts. The leverage ratio between
the proprietary account and an account of the system varies as much as 13 to
1. Therefore, an actual account of the trader who will only be trading one
contract would have experienced significantly lower returns than the
proprietary account. The following capsule performance summary does not
reflect rates of return for actual managed accounts. The following capsule
shows the past performance of the Advisor's Proprietary Trading Account since
the inception of trading (in January, 1997) through the close of trading
(December, 1997). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
<TABLE>
Proprietary Trading Account - % Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
MONTH 1997
<S> <C>
January 36.35
February 3.58
March 8.88
April 10.13
May (2.79)
June 18.11
July 13.66
August 5.79
September 1.23
October 3.34
November 6.81
December 4.01
Year 171.00
<FN>
Name of the Commodity Trading Advisor: EPIC Trading
Name of the Trader: Bradley Jordan
Largest Monthly Draw-Down**: 5-97 / 2.79%
Worst Peak-to-Valley Draw-Down***: 5-97 / 2.79% of net assets
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by an account over the specified period.
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
1
<PAGE>
*******************************************************************************
APPENDIX IV
Supplemental Performance Information For
Bell Fundamental Futures, L.L.C.
The following pro forma supplemental performance capsules were compiled based
upon BFF's individual managed account fee schedule, which includes a 2%
management fee and a 20% incentive fee. Please note that Fremont Fund pays a
3% management fee and a 15% incentive fee to the CTAs.
Pro Forma Performance Capsule B - Eagle Fund, L.P.
The following capsule shows the past performance of the Pro Forma Performance
Capsule B - Eagle Fund, L.P. since the inception of trading through the date of
the cessation of trading (December 22, 1997). PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
<TABLE>
Pro Forma Performance Capsule B - Eagle Fund, L.P.
Percentage Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
MONTH 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
January (1.8) 0.2 (1.4) 0.3 (0.6) 0.1
February (12.0) 1.0 (0.3) (0.1) (0.1) (5.1)
March (3.6 (4.1) (3.2) (0.6) (0.1) 2.8
April (1.3) 7.2 (0.2) 5.5 2.7 9.6
May 20.6 1.0 0.1 (0.8) 0.8 (4.7)
June 15.0 3.3 (6.7) (0.7 9.0 0.3
July (0.7) 2.3 (2.8) 31.2 6.5 0.6
August 0.0 (2.6) (9.1) (3.8) (2.3) 0.9
September 1.1 26.0 22.2 27.1 (0.1) (4.4)
October 1.1 28.2 8.9 (4.5) (0.1) 4.7
November 1.1 (1.4) (9.7) (16.4) 4.6 (3.3)
December 2.1 3.9 30.2 4.9 29.5 1.6
Year 19.4 79.4 22.6 39.1 57.4 2.2
<FN>
Name of the Trading Program: Pro Forma Performance Capsule B -
Eagle Fund, L.P.
Date Commodity Trading Advisor Began Trading Client Accounts: January 1983
Date When Client Funds Began Being Traded Pursuant to Trading Program:
January 1992
Largest Monthly Draw-Down**: 16.4% / 11-94
Worst Peak-to-Valley Draw-Down***: 34.4% 9-94 to 8-95
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by an account over the specified period.
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
</TABLE>
The above pro forma performance information for Eagle Fund, L.P. represents
performance history of accounts in which Mr. Bell had limited discretionary
trading authority. No proprietary accounts are included. In his capacity as
the sole
1
<PAGE>
trader employed by Eagle Fund, L.P., Mr. Bell received fixed compensation on a
monthly basis in addition to a bonus based primarily on quarterly investment
performance.
In order to maintain the account level at the actual amount, any fees which
are reflected as being paid are offset by a contribution in an identical
amount. If an incentive fee is reduced, due to losses subsequent to an
incentive fee being accrued, but prior to payment of the fee, the expense
could actually be a negative, reflecting the repayment of the fee. In such a
case, that amount will be offset by a withdrawal from the account. Theses
adjustment would tend to reduce the historical returns attained by the Fund.
Eagle Fund, L. P. ceased trading December 22, 1997. At that time the assets
under management were $3,025,166.
Pro Forma Performance Capsule C - Proprietary Accounts
The following capsule shows the past performance of the Pro Forma Performance
Capsule C - Proprietary Accounts since January 1992 through year-to-date
(October 31, 1998). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
<TABLE>
Pro Forma Performance Capsule C - Proprietary Accounts
Percentage Rate of Return
(Computed on a compounded monthly basis)*
<CAPTION>
MONTH 1998 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
January (3.2) 0.1 (1.3) 3.1 1.2 2.6 3.3
February 3.6 (15.6) (0.5) (2.4) (7.5) (2.2) (7.6)
March 3.1 (3.9) 1.1 (4.9) (3.3) (3.0) 0.4
April 1.8 (3.0) 11.7 (0.4) (3.1) 9.1 11.7
May 4.1 19.8 3.0 (3.1) (8.1) 2.8 (2.8)
June (3.6) 11.5 2.6 (7.8) (2.1) 30.7 0.3
July (3.1) (3.6) 2.4 7.7 21.0 1.7 8.3
August 7.6 (0.2) 3.4 (5.0) (2.3) 2.9 4.0
September (0.4) 0.8 21.5 18.5 20.3 0.9 (7.5)
October (1.2) 6.7 24.5 4.2 (2.8) 0.8 5.9
November 2.0 (0.1) (5.9) (3.8) 12.5 (14.7)
December 5.0 2.6 17.9 3.7 13.6 3.5
Year 8.4 16.5 92.3 19.4 9.0 93.8 1.7
<FN>
Name of the Trading Program: Pro Forma Performance Capsule C - Proprietary
Accounts
Date Commodity Trading Advisor Began Trading Client Accounts: January 1983
Date When Client Funds Began Being Traded Pursuant to Trading Program:
January 1983
Largest Monthly Draw-Down**: 8-95 / 34.9%
Worst Peak-to-Valley Draw-Down***: 2-95 to 8-95 / 46.9%
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by an account over the specified period.
*** Worst Peak-to-Valley Draw-Down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by a pool,
account or trading program during any period in which the initial month-
end net asset value is not equaled or exceeded by a subsequent month-end
net asset value.
2
<PAGE>
*******************************************************************************
EXHIBIT A TO FREMONT FUND DISCLOSURE DOCUMENT
AGREEMENT OF LIMITED PARTNERSHIP OF
FREMONT FUND, LIMITED PARTNERSHIP
THIS LIMITED PARTNERSHIP AGREEMENT, (the "Agreement") dated as of the 12th day
of December, 1994, and amended and restated as of the 15th day of January,
1996, by and among Pacult Asset Management, Incorporated, a Delaware
corporation, as managing general partner (hereinafter referred to as the
"General Partner"), and those who are admitted as partners, (hereinafter
referred to as either "Limited Partners" or "Other General Partners"), pursuant
to the terms of this Agreement, (the General Partner, any Other General
Partners, and the Limited Partners are hereinafter collectively referred to as
the "Partners").
WITNESSETH:
IN CONSIDERATION of good and valuable consideration, the receipt of which is
hereby acknowledged, the General Partner and the initial Limited Partner
entered into and formed a limited partnership (hereinafter called either the
"Partnership" or the "Fund") pursuant and subject to the Indiana Uniform
Limited Partnership Act (the "Act"), as follows:
ARTICLE I
Definitions and Risk Disclosure Statement
Certain terms used in this Agreement shall have the special meaning designated
below:
1.1 The term AFFILIATE means (1) any person controlled by or under common
control with another person, (2) a person owning or controlling 10% or more
of the outstanding voting securities of such other person, (3) any officer
or director of such other person, and (4) if such other person is an
officer or director, any other company for which such person acts as an
officer or director.
1.2 When referring to the capital of the Partnership:
(a) the term CAPITAL shall mean cash invested in the Partnership by any
Partner and placed at risk for the business of the Partnership;
(b) the term CAPITAL CONTRIBUTION shall mean, with respect to any Partner,
the sum of all Capital contributed to the Partnership pursuant to
Article I;
(c) the term CAPITAL SUBSCRIPTION shall mean the amount set forth opposite
the name of such Partner in the schedule of Partners, which amount
shall be the purchase price, less sales commissions, if any, to be paid
or paid by such Partner for the Unit or Units in the Partnership
purchased by such Partner;
(d) the term INITIAL CAPITAL shall mean the sum of all Capital
Subscriptions received by the General Partner prior to commencement of
trading;
(e) the term NET ASSETS OR NET ASSET VALUE means the total assets,
including all cash and cash equivalents (valued at cost plus accrued
interest and earned discount), less total liabilities, of the
Partnership (each determined on the basis of generally accepted
accounting principles, consistently applied under the accrual method
of accounting or as required by applicable laws, regulations and rules
including those of any authorized self regulatory organization),
specifically:
(i) Net Asset Value includes any unrealized profit or loss on open
security and commodity positions subject to reserves for loss
established, from time to time, by the General Partner;
1
<PAGE>
(ii) All open stock, option, and commodity positions are calculated on
the then current market value, which shall be based upon the
settlement price for that particular position on the date with
respect to which Net Asset Value is being determined; provided,
however, that if a position could not be liquidated on such day
due to the operation of the daily limits or other rules of the
exchange upon which that position is traded or otherwise, the
settlement price on the first subsequent day on which the position
could be liquidated shall be the basis for determining the market
value of such position for such day. As used herein, "settlement
price" includes, but is not limited to: (1) in the case of a
futures contract, the settlement price on the commodity exchange
on which such futures contract is traded; and (2) in the case of a
foreign currency forward contract which is not traded on a
commodity exchange, the average between the lowest offered price
and the highest bid price, at the close of business on the day Net
Asset Value is being determined, established by the bank or broker
through which such forward contract was acquired or is then
currently traded;
(iii) Brokerage commissions to close security and commodity positions,
if charged on a round-turn basis, are accrued in full at the time
the position is initiated (i.e., on a round-turn basis) as a
liability of the Partnership;
(iv) Interest earned on all Partnership accounts is accrued at least
monthly;
(v) The amount of any distribution made by the Partnership is a
liability of the Partnership from the day when the distribution is
declared by the General Partner or as provided in this Agreement
and the amount of any redemption is a liability of the Partnership
as of the valuation date; and
(vi) Syndication Costs incurred in organizing and all present and
future costs to increase or maintain the qualification of the
Units available for sale and the cost to present the initial and
future offering of Units for sale shall be capitalized when
incurred and amortized and paid from Capital or Monthly Profit as
required by applicable law.
(f) the term PROFIT (LOSS) ATTRIBUTABLE TO UNITS means the product of A)
the number of Units divided into B) an amount equal to the Net Profit
(Loss) determined as follows: (1) the net of profits and losses
realized on all trades closed out, plus (2) the net of any unrealized
profits and losses an open positions as of the end of the period, less
(3) the net of any unrealized profits and losses on open positions as
of the end of the preceding period, minus, (4) the Expenses
attributable to Units. Profit (Loss) shall include interest earned on
Partnership assets, realized and unrealized capital gains or losses on
U.S. Treasury bills, and other securities;
(g) the term MANAGEMENT FEE shall mean two percent (2%) of the Net Assets
of the Partnership computed on the close of business on the last day of
each month and payable to the General Partner without regard to the
income or loss of the Partnership for that period;
(h) the term INCENTIVE FEE means a percentage of the profits accrued and
paid to the General Partner, or its Affiliates, of up to fifteen
percent (15%) of New Net Profit earned from inception of trading,
through the date of the computation, based upon total Capital of the
Partnership. The General Partner has the right to both reduce and,
subsequently, increase the Incentive Fee to fifteen percent (15%) and
below; presently, the Incentive Fee paid to the General Partner is paid
to the CTA;
(i) the term GROSS PROFIT OR LOSS means the income or loss from all
sources, including interest income and profit and loss from non-trading
activities, if any.
(j) the term NEW NET PROFIT OR LOSS means the amount of income earned from
trading, less the trading losses and brokerage commissions and fees
paid to clear the trades which are incurred or accrued during the then
current accounting period; and,
(k) the term NET GAINS means net profit from all sources.
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(l) the term UNIT shall mean a partnership interest in the Partnership
requiring an initial Capital Contribution of one thousand dollars
($1,000), less a sales commission, or the Net Asset Value of the
initial Unit, as adjusted to reflect increases and decreases caused by
receipt, accrual, and payment of profit, Expenses, losses, bonuses, and
fees, from time to time.
1.3 When referring to costs and expenses of the Partnership to be allocated and
charged pursuant to this Agreement:
(a) the term EXPENSES shall mean costs allocated, incurred, paid, accrued,
or reserved, including the fixed commissions payable to the Introducing
Broker of twelve percent (12%) of the total equity placed under
management with the commodity trading advisors, which are, in the
opinion of the General Partner, required, necessary or desirable to
establish, manage, continue and promote the business of the Partnership
including, but not limited to, all deferred organization costs,
brokerage commissions, and all management and incentive fees payable to
the General Partner or to independent investment and commodity trading
advisors by the Partnership as negotiated and determined by the General
Partner on behalf of the Partnership on a basis consistently applied in
accordance with generally accepted accounting principals under the
accrual method of accounting or as required by applicable laws,
regulations and rules including those of any authorized self regulatory
organization with proper jurisdiction over the business of the
Partnership; provided, however, Expenses shall not include salaries,
rent, travel, expenses and other items of General Partner overhead and,
provided, further, management fees, advisory fees and all other fees,
except for incentive fees and commodity brokerage commissions, the
actual cost of legal and audit services and extraordinary expenses,
shall not exceed one half of one percent of Net Assets per month (not
to exceed six percent annually). If necessary, the General Partner
shall reimburse the Partnership no less frequently than quarterly, for
the amount by which such aggregate fees and expenses exceed the
limitations provided by NASAA Guideline IVC.1. During the period for
which reimbursement is made up to an amount not exceeding the
aggregate compensation received by the General Partner, including
direct or indirect participations in commodity brokerage commissions
charged to the Partnership. In addition, if reimbursement is required
or ordinary expenses are incurred, the General Partner shall include
in the Partnership's next regular report to the auditors a discussion
of the circumstances or events which resulted in the reimbursement or
extraordinary expenses;
(b) the term NET UNIT VALUE shall mean the Net Asset Value divided, from
time to time, by the total number of Units outstanding;
(c) the term OFFERING PERIOD means the period of time established by the
General Partner after the Partnership begins to offer to sell Units at
the Net Asset Value per Unit; and,
(d) the term SYNDICATION COSTS shall mean the promotion and syndication
costs of the Partnership and the costs of the offering of Units, and to
establish the initial business relationships on behalf of the
Partnership, including all legal and printing costs to prepare the
Disclosure Documents, registrations and filing fees, contract
negotiation, and travel incurred which are deemed necessary or
desirable by the General Partner to form the Partnership, be ready to
engage in business, and to sell the Units.
1.4 The terms DISCLOSURE DOCUMENT, MEMORANDUM, OFFERING CIRCULAR, PROSPECTUS
and REGISTRATION STATEMENT shall mean the document or documents, together
with the exhibits and any subsequent continuations thereof, which describes
this Partnership to persons selected by the General Partner including, but
not limited to, potential purchasers of Units, or the Partners or to any
government or self regulatory agency or to persons selected by the General
Partner to participate in the affairs or provide services to the
Partnership.
1.5 When referring to this Agreement and the Partners of the Partnership:
(a) the term ACT shall refer to the partnership act of Indiana.
(b) the term AGREEMENT refers to this Partnership agreement;
(c) the term GENERAL PARTNER shall refer to Pacult Asset Management,
Incorporated, 5916 N. 300 West, Fremont, IN 46737 (219) 833-1306;
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(d) the term LIMITED PARTNER shall refer to any party listed on the
Schedule of Limited Partners attached to this Agreement as Attachment
I, as amended, from time to time, pursuant to Article VI hereof;
(e) the term MAJORITY IN INTEREST shall refer to that number of Partners
who collectively hold over 50% of all of the outstanding Units held by
all Partners in the Partnership; provided, however, the Units held by
the General Partner cannot be considered to determine a MAJORITY IN
INTEREST or otherwise vote or consent regarding the question of removal
of the General Partner or other matters specifically expressed in
Article V, Section 5.3. In addition, see the rights and duties of the
General Partner in Article IV and of the Limited Partners in Articles
V;
(f) the term OTHER GENERAL PARTNER refers to any General Partner other than
Pacult Asset Management, Incorporated; and
(g) the term PARTNERS refers to the General Partner, any Other General
Partner, and the Limited Partners, collectively.
1.6 RISK DISCLOSURE STATEMENT.
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS
GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE
POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION,
RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR
PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS
TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THE PARTNERSHIP'S
DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE
CHARGED THIS POOL AT PAGE 21 AND A STATEMENT OF THE PERCENTAGE RETURN
NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL
INVESTMENT, AT PAGE 16.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL.
THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU
SHOULD CAREFULLY STUDY THIS AGREEMENT AS WELL AS THE PARTNERSHIP'S
DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS
OF THIS INVESTMENT, AT PAGE 6.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES
OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO
THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY
AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF
REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE
TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
ARTICLE II
Partnership Organization and Purpose
2.1 PARTNERSHIP NAME AND LOCATION OF BOOKS AND RECORDS. The name of the
Partnership shall be Fremont Fund, an Indiana Limited Partnership. The
address where the books and records of the Partnership will be maintained
for inspection by the Partners is 5916 N. 300 West, Fremont, IN 46737 (219)
833-1306 or such other address as the General Partner shall, from time to
time, determine.
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2.2 PARTNERSHIP AFFILIATES.
(a) POOL OPERATOR NAME AND PRINCIPALS. The General Partner shall serve as
the commodity pool operator for the Partnership. Shira Del Pacult is
the sole principal of the General Partner and is solely responsible for
the business decisions of the Partnership, including, but not limited
to, selection of the commodity trading advisors (the "CTAs").
THIS POOL BEGAN TRADING IN NOVEMBER, 1996 AND CONSEQUENTLY HAS ONLY A
LIMITED PERFORMANCE HISTORY.
THE REGULATIONS OF THE CFTC AND NFA PROHIBIT ANY REPRESENTATION BY A
PERSON REGISTERED WITH THE CFTC OR BY ANY MEMBER OF THE NFA,
RESPECTIVELY, THAT SUCH REGISTRATION OR MEMBERSHIP IN ANY RESPECT
INDICATES THAT THE CFTC OR THE NFA, AS THE CASE MAY BE, HAS APPROVED OR
ENDORSED SUCH PERSON OR SUCH PERSON'S TRADING PROGRAMS OR OBJECTIVES.
THE REGISTRATIONS AND MEMBERSHIPS DESCRIBED IN THIS PROSPECTUS MUST NOT
BE CONSIDERED AS CONSTITUTING ANY SUCH APPROVAL OR ENDORSEMENT.
LIKEWISE, NO COMMODITY EXCHANGE HAS GIVEN OR WILL GIVE ANY SUCH
APPROVAL OR ENDORSEMENT.
(b) COMMODITY TRADING ADVISOR NAMES AND PRINCIPALS. The General Partner
has initially selected three independent CTAs to trade the assets of
the Partnership. They are: Michael J. Frischmeyer who does business as
a sole proprietorship; EPIC Trading, a sole proprietorship, and Bell
Fundamental Futures, L.L.C., a Tennessee Limited Liability Company.
Their performance records and business backgrounds are disclosed in the
Partnership's Prospectus under "The Commodity Trading Advisors". The
CTAs will have no ownership in the Partnership and their compensation
is described in 4.6(f). The CTAs will enter trades on behalf of the
Partnership directly with the FCM without the prior knowledge or
approval of the General Partner of the methods used by the CTAs to
select the trades, the number of contracts, or the margin required.
From 5% to 40% of the Net Asset Value on deposit with the FCM is
expected to be committed to margin to hold positions taken by the CTAs
for the account of the Partnership.
(c) INTRODUCING BROKER AND FUTURES COMMISSION MERCHANT NAMES AND
PRINCIPALS. Futures Investment Company, 5916 N. 300 West, Fremont, IN
46737 (219) 833-1306 will server as the Introducing Broker ("IB") for
the Partnership and will be paid a fixed amount for brokerage
commissions of twelve percent (12%) per year, payable monthly by the
Partnership, for introducing trades through The Chicago Corporation,
the futures commission merchant (the "FCM"). The IB will pay the
round-turn brokerage commissions, pit brokerage and other clearing
expenses to the FCM, which will act in the normal capacity as a futures
commission merchant and will hold the equity assigned by the General
Partner for trading and will clear the trades entered by the CTAs
pursuant to the power of attorney granted by the General Partner to the
CTAs to trade on behalf of the Partnership.
2.3 MATERIAL ADMINISTRATIVE AND/OR CIVIL ACTIONS. There have been no material
administrative, civil or criminal actions against the General Partner (who
is the Commodity Pool Operator), the principal of the General Partner, Ms.
Pacult, the Commodity Trading Advisors, the Futures Commission Merchant,
the Introducing Broker, and selling broker or any principal or any
Affiliate of any of them, pending, on appeal, or concluded, threatened or
otherwise known to them, within the five (5) years preceding the date of
this Prospectus.
2.4 CHARACTER OF THE BUSINESS. The Partnership's business purpose is to
increase Capital through the speculative and hedge trading of futures and
options on futures. The General Partner is authorized to do any and all
things on behalf of the Partnership incident thereto or connected therewith
including, but not limited to:
(a) trade, buy, sell or otherwise acquire, hold or dispose of all forms of
investments (including tangibles and intangibles, foreign currencies,
mortgage-backed securities, money market instruments, stock and futures
options, and any other securities or items which are now, or may
hereafter be, the subject of barter or stock or futures trading),
commodity futures, and forward contracts and any rights pertaining
thereto. The Partnership shall carry on the foregoing activities
through the exercise of judgment by its General Partner and/or the
Investment and/or Commodity Trading Advisors and consultants and
brokers selected by the General Partner. The General Partner may serve
as an investment or trading advisor to the Partnership for management
fees, incentive fee,
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reimbursement of costs and other remuneration at the same rates charged
either by independent third parties for similar services to other
partnerships or by the General Partner to others for the same service.
(b) invest and trade, on margin or otherwise, in capital stocks, bonds,
debentures, trust receipts and other obligations, instruments or
evidences of indebtedness, gold, silver, cattle, corn, wheat, soybeans,
or any other asset for which a trading market is maintained or
otherwise paid for by cash or otherwise including, but not limited to,
the right to sell short and to cover such short sales.
(c) possess, sell, exchange, discount, transfer, mortgage, pledge, deal in,
maintain multiple accounts for, and to exercise all rights, powers,
privileges and other rights, incidental to ownership of the assets held
by the Partnership.
(d) borrow or raise monies and, from time to time without limit as to
amount, to issue, accept, endorse and execute promissory notes, draft
bills of exchange, warrants, bonds, debentures and other negotiable or
non-negotiable instruments and evidences of indebtedness, and to secure
the payment of any thereof and the interest thereon by mortgage or
pledge, conveyance or assignment in trust of the whole or any part of
the property of the Partnership, whether at the time owned or
thereafter acquired, and to sell, pledge of otherwise dispose of such
instruments issued by the Partnership for its purposes; form and own
one or more corporations to engage in such businesses as the General
Partner shall deem advisable.
(e) lend any of its properties or funds, either with or without security in
furtherance of the objects and purposes of the Partnership as the
General Partner shall deem advisable and consent.
(f) rent or own and maintain one or more offices staffed as the General
Partner shall determine and to do such other acts attendant thereto as
may be necessary or desirable.
(g) waive the sales commission to acquire investment Capital as the General
Partner, in its sole discretion, may determine.
(h) enter into, make and perform all contracts, surety and guarantees as
may be necessary or advisable or incidental to the carrying out of the
foregoing objects and purposes.
2.5 ADDRESS OF PARTNERS. The General Partner's address is listed in paragraph
1.5(a) hereof and the Limited Partners addresses are on record at the
office of the General Partner to the Partnership.
2.6 TERM OF PARTNERSHIP. The term of the Partnership shall commence on the
date of this Agreement and shall continue until dissolved or terminated
pursuant to Article IX.
2.7 REGISTRATION. The General Partner, on behalf of the Partnership, shall
have the authority, but not the obligation, to cause a Registration
statement to be filed, and such amendments thereto as the General Partner
deems advisable, with the appropriate Federal and state regulatory
agencies, including the United States Securities and Exchange Commission
and the commission of securities for registration under the securities laws
of the various states and any other jurisdiction desirable or proper to the
sale of Units to qualify for public offerings. Each of the Limited
Partners hereby confirm and ratify all action taken and things done by the
General Partner with respect to such filings and public offerings. The
General Partner may make such other arrangements for the sale of Units,
including the private placement of Units, as it deems appropriate.
ARTICLE III
Capital Contributions and Allocation of Profits and Losses
3.1 CAPITAL CONTRIBUTIONS OF LIMITED PARTNERS.
(a) Each Limited Partner has delivered to the Partnership an executed
Subscription which has been accepted by the General Partner on behalf
of the Partnership, an Amended Certificate of Limited Partnership, and
a check in the amount of his Capital Subscription. The Partnership
shall use the funds thus contributed solely to pay, sales commissions,
Expenses, Organization Costs and to otherwise make the payments
required to be made by the
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Partnership to engage in active trading and to pay the management fees,
if any, and, from profits, the incentive fees and distributions to
Partners Capital Accounts.
(b) Until such time as the General Partner elects to qualify the
Partnership Units for public sale, the General Partner will establish,
from time to time, the minimum amount which each Limited Partner will
be required to contribute to Capital of the Partnership. Upon receipt
of notice from the General Partner of such minimum (which will be
equally applicable to all Limited Partners), each Limited Partner will
be required to contribute sufficient Capital to equal or exceed such
minimum or will withdraw and have his Units redeemed as a Limited
Partner pursuant to Article IX, Section 9.4. The failure to contribute
such Capital within ten days after receipt of said notice from the
General Partner shall be a request for redemption by the Limited
Partner. Upon election by the General Partner and qualification of the
Partnership Units for public sale, there will be no further right of
the General Partner to give notice of an increase in the minimum amount
which all Limited Partners will be required to contribute to Capital of
the Partnership other than as provided in Article VIII. Except for the
increase in the minimum amount which all Limited Partners, in the sole
discretion of the General Partner, shall be required to contribute to
Capital or suffer redemption and amendments required by Article VIII,
there will be no required contribution or assessments of the Limited
Partners.
3.2 CAPITAL CONTRIBUTIONS OF GENERAL PARTNER.
(a) The General Partner has not made and shall not be required to make any
capital contribution to the Partnership except for purchases which are
required by law. Currently, the General Partner is required by the
applicable securities and tax laws to purchase (i) one percent (1%) or
(ii) $25,000 of the total Capital paid in by the Limited Partners,
which ever is greater.
(b) The General Partner and the initial Limited Partner have contributed in
excess of $1,000 to the Partnership. Immediately prior to the time the
Partnership commences trading and as may be required, thereafter, as
the result of the admission of additional Limited Partners, the General
Partner shall make such additional contribution to its capital or to
the Partnership so as to be certain that the General Partner has
sufficient Capital at risk to prevent the Partnership from loss of that
element of the Partnership test imposed by the Federal Internal Revenue
Code and the Regulations promulgated thereunder to permit the
Partnership to be taxed as a partnership and not as a corporation. The
General Partner shall not reduce its Capital nor shall it make any
assignment or transfer of its interest or withdrawal of its
contribution while it is the General Partner which would reduce its
percentage interest in the Partnership to less than its percentage
interest at the time the Partnership commences trading. The General
Partner may withdraw any excess above the required percentage without
notice to the Limited Partners.
(c) Partnership interests shall be evidenced by Units. The General
Partner, on behalf of the Partnership, may, in accordance with
applicable law and the Offering Memorandum of the Partnership, issue
Units to persons desiring to become Limited Partners. For each Unit
purchased during the initial Offering Period, a Partner shall
contribute one thousand dollars ($1,000), less the sales commission, to
the Capital of the Partnership. Thereafter, a Partner shall contribute
an amount equal to the Net Asset Value of a Unit, plus the sales
commission, if any, on the valuation date following acceptance of the
purchase. The General Partner and Affiliates of the General Partner
may purchase Limited Partnership Units with the same rights as other
Limited Partners.
(d) All subscriptions for Units made pursuant to the offering of the Units
must be on the form provided with the Prospectus. A minimum number of
Units must be sold as follows:
(i) If subscriptions for at least 600 Units at an initial Net Asset
Value per Unit of $1,000 have been accepted (the "Minimum") by the
General Partner within the initial Offering Period of up to one year
from the commencement of the offering of sale of Units, including
the Units subscribed for by the General Partner, the General Partner
may, pursuant to Paragraph 12, execute, acknowledge, swear to, file
and record on behalf of the Partnership and each Limited Partner an
amended Limited Partnership Agreement, cause such subscriptions to
be transferred from escrow to the Partnership's trading account and
cause the Partnership to pay its organization costs pursuant to the
agreements negotiated by the General Partner and, thereafter, the
aggregate of all contributions to the Partnership shall be available
to the Partnership to carry on its business; or
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(ii) If the General Partner has not received and accepted subscriptions
for the Minimum Units prior to the close of the Minimum Units
Offering Period, the offering of the Units shall terminate and all
amounts paid by subscribers for Units shall be returned in the
manner provided in the Prospectus. All Units subscribed for shall
be issued to the collection of good funds, and any Units issued to a
Subscriber who has not provided collectible funds (whether in the
form of a bad check or draft, or otherwise) shall be canceled.
3.3 ALLOCATION OF PROFITS AND LOSSES
(a) A distribution account shall be established for each Partner which
shall include, as the initial balance thereof, each Partners' initial
contribution to the Partnership expressed in total dollars and Units
purchased. As of the close of business each month, allocations shall
be made as follows:
(i) The Incentive Fee. The incentive fee upon New Net Profit at the
rate of up to (15%) shall be paid quarterly to the CTA but allocated
to the Partners monthly.
(ii) The Profit (Loss) Attributable to Units shall be added to
(subtracted from) the distribution accounts of the Partners. Items
of income, gain or loss, accrued and paid Expenses shall be added to
(subtracted from) the distribution account of each Partner in
accordance with the ratio that such distribution account bears to
the sum of all of the Partners' distribution accounts.
(iii) The amount of any cash distributions to a Partner during such
month and any amount paid upon Redemption of Units as of the end of
such month shall be subtracted from the distribution account of such
Partner.
(iv) The distribution account of any Unit which was redeemed shall be
reduced by the Redemption Charge per Unit multiplied by the number
of Units which were redeemed by the Partner represented by such
distribution account. The Redemption Charge, if any, shall be first
used to defray expenses and any excess treated as interest earned by
the Fund.
ARTICLE IV
Rights and Obligations of the General Partner
4.1 GENERAL. The General Partner shall have full, exclusive and complete
discretion in the management and control of the affairs of the Partnership
to the best of its ability and shall use its best efforts to carry out the
purposes of the Partnership set forth in Article II. In connection
therewith, it shall have all powers of a general partner under the Act,
including, without limitation, the power to:
(a) enter into, execute and maintain contracts, agreements and any or all
other instruments, and to do and perform all such things, as may be
required or desirable in furtherance of Partnership purposes or
necessary or appropriate to the conduct of Partnership activities
including, but not limited to, contracts with third parties for:
(i) brokerage services on behalf of the Partnership (which brokerage
services may be performed by the General Partner or an Affiliate of
the General Partner), specifically, Futures Investment Company, or
any successor to its business, an Affiliated introducing broker of
the General Partner may clear the trades and pay trailing
commissions to its associated persons, including Affiliates of the
General Partner and the General Partner, in consideration of the
payment of twelve percent (12%) of the total equity placed with the
commodity trading advisor or advisors it selects, will cause and pay
for the trades to be cleared through one or more futures commission
merchants selected by the General Partner;
(ii) trading advisory services relating to the purchase and sale of all
stocks, options, commodity futures contracts, commodity options and
contracts for forward delivery of foreign currencies on behalf of
the Partnership (which advisory services may be performed by the
General Partner or an Affiliate of the General Partner); and
(iii) rent, salaries, computer, accounting, legal and other services
attendant to the maintenance of the Fund.
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(b) open and maintain bank accounts on behalf of the Partnership with
banks and money market funds.
(c) deposit, withdraw, pay, retain and distribute the Partnership's funds
in any manner consistent with the provisions of this Agreement.
(d) supervise the preparation and filing of all documentation required by
law including, but not limited to, Registration Statements to be filed
with Federal and state agencies.
(e) pay or authorize the payment of distributions to the Partners and pay
Expenses of the Partnership.
(f) invest or direct the investment of funds of the Partnership not
involving the purchases or sale of stocks, futures contracts, options,
and contracts for forward delivery of foreign currencies.
(g) purchase, at the expense of the Partnership, liability and other
insurance to protect the Partnership's proprieties and business.
(h) borrow money from banks and other lenders for Partnership purposes,
and may pledge any or all of the Partnership's assets for such loans.
No bank or other lender to which application is made for a loan by
the lender to which application is made for a loan by the General
Partner shall be required to inquire as to the purposes for which such
loan is sought and, as between the Partnership and such bank or other
lender, it shall be conclusively presumed that the proceeds of such
loan are to be and will be used for the purposes authorized under this
Agreement.
(i) confess judgment for and against the Partnership and control any
matters affecting the rights and obligations of the Partnership,
including the employment of attorneys, in the conduct of litigation
and otherwise incur legal expenses and costs of consultation,
settlement of claims, and litigation against or on behalf of the
Partnership.
4.2 LOANS BY GENERAL PARTNER. The General Partner or its Affiliates will be
not be required to advance or loan funds to the Partnership. In the event
the General Partner makes any advance or loan to the Partnership, the
General Partner will not receive interest in excess of its interest
costs, nor will the General Partner receive interest in excess of the
amounts which would be charged the Partnership (without reference to the
General Partner's financial abilities or guarantees) by unrelated banks
on comparable loans for the same purpose and the General Partner shall
not receive points or other financing charges or fees regardless of the
amount.
4.3 TRANSACTION WITH PARTNERSHIP. Notwithstanding anything to the contrary
which may be contained herein, the General Partner shall not:
(a) sell, or otherwise dispose of, any of the Partnership's assets to the
General Partner or its Affiliates.
(b) subject to the provisions regarding and without diminishment of the
right of the General Partner or any Affiliate to compensation for
services provided to the Partnership as set forth in this Agreement,
cause or permit the Partnership to enter into any agreement with the
General Partner or an Affiliate which is not in the best interest of
and for the benefit of the Partnership or which would be in
contravention of the General Partner's fiduciary obligations to the
Partnership or pursuant to which the General Partner or any Affiliate;
(i) would provide or sell any services, equipment, or supplies at other
than rates charged to others; or
(ii) would receive from the Partnership, Units of Partnership interest
in consideration for services rendered.
4.4 OBLIGATIONS OF GENERAL PARTNER. In addition to the obligations provided by
law or this Agreement, the General Partner shall:
(a) Devote such of its time to the business and affairs of the Partnership
as it shall, in its discretion exercised in good faith, determine to be
necessary to conduct the business and affairs of the Partnership for
the benefit of the Partnership and the Limited Partners.
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(b) Execute, file, record and/or publish all certificates, statements and
other documents and do any and all other things as may be appropriate
for the formation , qualification and operation of the Partnership and
for the conduct of its business in all appropriate jurisdictions
including, but not limited to, the compliance, at its expense, with all
laws related to its qualification to serve as the commodity pool
operator of the Fund.
(c) Retain independent public accountants to audit the accounts of the
Partnership.
(d) Employ attorneys to represent the Partnership.
(e) Use its best efforts to maintain the status of the Partnership as a
partnership for United States Federal income tax purposes.
(f) Employ only independent CTAs which are registered pursuant to the
Commodity Exchange Act to conduct trading and to otherwise establish
and monitor the trading policies of the Partnership; and the activities
of the partnership's trading advisor(s) in carrying out those policies.
(g) Review, not less often than annually, the brokerage commission rates
charged to comparable funds to determine that the commission rates paid
by the Partnership are comparable with such other rates.
(h) Have fiduciary responsibility for the safekeeping and use of all funds
and assets of the Partnership, whether or not in the General Partner's
immediate possession or control, and the General Partner will not
employ or permit others to employ such funds or assets in any manner
except for the benefit of the Partnership.
(i) Agree that so long as it remains the sole General Partner of the
Partnership, it will use its best efforts to maintain the Partnership
as a limited partnership as required by all applicable laws including,
but not limited to the requirement of the United States Department of
the Treasury, Internal Revenue Service, for the sole corporate general
partner of a limited partnership to maintain its "Net Worth" (as
defined below) sufficient to establish the sufficient assets test for a
sole corporate general partner to be liable for the debts of the
Partnership. The General Partner is authorized to reach the safe
harbor for that test of an amount equal to no less than (i) the lesser
of $250,000 or 15% of the aggregate capital contributions of any
limited partnerships (including the Partnership, if applicable,) for
which it shall act as general partner and which are capitalized at less
than $2,500,000, and (ii) 10% of the aggregate capital contributions of
any limited partnerships (including the Partnership, if applicable,)
for which it shall act as general partner and which are capitalized at
greater than or equal to $2,500,000 by use of promissory notes (valued
at their fair market value) issued to the General Partner by one or
more of its principals. For the purposes of this subparagraph, "Net
Worth" shall be calculated in accordance with generally accepted
accounting principles, consistently applied, provided that all current
assets shall be based on the lower of cost or the then current market
value. The Units owned by the General Partner in the Partnership and
in other partnerships in which it acts as a general partner shall not
be included in calculating its Net Worth. A letter of credit may be
included. The requirements of this subparagraph (i) may be modified if
the General Partner obtains an opinion of counsel for the Partnership
to effect that a proposed modification will not (1) adversely affect
the classification of the Partnership as a partnership for Federal
income tax purposes; (2) will not adversely affect the status of the
Limited Partners as limited partners under the Act; (3) will not
violate any applicable state securities or Blue Sky law or any rules,
regulations, guidelines or statements of policy promulgated or applied
thereunder including, but not limited to, the net worth required by
Section II.B of the Guidelines for Registration of Commodity Pool
Programs, as adopted in revised form by the North American Securities
Administrators Association, Inc. as are in effect on the date of such
proposed modification. (4) or otherwise adversely affect the Limited
Partners.
(j) Maintain a current list of the name, address, and number of Units owned
by each Limited Partner at the General Partner's principal office.
Such list shall be disclosed to any Partner or their representative at
reasonable times, upon request, either in person or by mail, upon
payment, in advance, of the reasonable cost of reproduction and
mailing. The Partners and their representatives shall be permitted
access to all other records of the Partnership, after adequate notice,
at any reasonable time, at the offices of the Partnership. The
General Partner shall maintain and preserve such records for a period
of not less than six (6)years.
4.5 GENERAL PROHIBITIONS. The Partnership shall not:
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(a) borrow from or loan to any person, except that the foregoing is not
intended to prohibit the incurring of any indebtedness to a Partner or
an Affiliate with respect to the offering of Units for sale,
Registration, or initiation and maintenance of the Partnership's
trading positions.
(b) commingle its assets with those of any other person, except to the
extent permitted under the Securities and Exchange Act or the Commodity
Exchange Act and the regulations promulgated under each.
(c) permit rebates or give-ups to be received by the General Partner or any
Affiliate of the General Partner, or permit the General Partner or any
Affiliate of the General Partner to engage in reciprocal business
arrangements which would circumvent the foregoing prohibition;
provided, however, that an Affiliate or the General Partner may provide
goods or services, including brokerage, at a competitive cost to the
Partnership.
(d) engage in the pyramiding of its positions (i.e., the use of unrealized
profits on existing positions to provide margins for additional
positions in the same or a related stock or commodity); provided,
however, that there may be taken into account the Partnership's open
trade equity on existing positions in determining whether to acquire
additional unrelated stock or commodity positions.
(e) margins of all open positions in all stocks and commodities combined
would exceed 250% of the partnership's Net Asset Value at the time such
position would otherwise be initiated.
(f) permit churning of the Partnership's trading account for the purpose of
generating brokerage commissions to any person.
(g) directly or indirectly pay or award any finder's fees, commissions or
other compensation to any persons engaged by a potential limited
partner for independent investment advice as an inducement to such
advisor to advise the potential limited partner to purchase Units in
the Partnership without the knowledge of such potential limited
partner.
(h) No Partnership funds will be held outside the United States. The
Partnership funds committed to trading will be on deposit with and
under the control of a futures commission merchant regulated pursuant
to the Commodity Exchange Act, as may be amended, from time to time.
The funds not committed to trading will be in investments which are
properly registered under the United States securities or other
financial institution regulations.
4.6 FEES AND EXPENSES.
(a) The Partnership shall pay all Organization Costs and offering Expenses
incurred in the creation of the Partnership and sale of Units. The
foregoing expenses may be paid directly by the Partnership or may be
reimbursed by the Partnership to the General Partner or an Affiliate of
the General Partner. Notwithstanding the foregoing, in no event will
reimbursement by the Partnership to the General Partner for
Organization Costs and offering Expenses charged to the Partnership
exceed an amount equal to 15% of the gross proceeds from the sale of
Units. Organization Costs and Offering Expenses shall mean those
Expenses incurred in connection with the formation, qualification and
Registration of the Partnership and in distributing and processing the
Units under applicable Federal and state law, sales commissions, and
any other expenses such as: (i) registration fees, filing fees and
taxes; (ii) the costs of qualifying, printing, amending, supplementing,
mailing and distributing the Registration Statement and Prospectus;
(iii) the costs of qualifying, printing, amending, supplementing,
mailing and distributing sales materials used in connection with the
issuance of the Units; (iv) salaries of officers and employees of the
General Partner and any Affiliate of the General Partner while directly
engaged in distributing and processing the Units and establishing
records therefor; (v) rent, travel, remuneration of personnel,
telegraph, telephone and other expenses in connection with the offering
of the Units; (vi) accounting, auditing, and legal fees incurred in
connection therewith; and (vii) any extraordinary expenses related
thereto. Organization Costs and Offering Expenses do not include
salaries, rent, travel, expenses and other items of General Partner
overhead.
(b) All operating expenses of the Partnership shall be billed directly to
and paid by the Partnership.
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(c) The General Partner or any Affiliate of the General Partner may be
reimbursed for the actual costs of any Expense including, but not
limited to, legal, accounting and auditing services used for or by the
Partnership, as well as printing and filing fees and extraordinary
expenses incurred for or by the Partnership; provided, however, the
limitations of contained in Article X - Exoneration and Indemnification
contained in this Agreement will apply to restrict the purchase of
certain insurance coverage and the assumption of the defense of certain
claims.
(d) The General Partner may establish its compensation, from time to time,
for its services; provided, however, such charges shall be no more
than:
(i) A sales commission of up to six percent (6%) to be established, from
time to time, by the General Partner, for sales of Units;
(ii) A management fee of one sixth of one percent (1/6 of 1%) per month
(2% per year) of the Net Asset Value of the Partnership, computed
and paid to the General Partner on the close of business on the last
day of each month;
(iii) An incentive fee of up to fifteen percent (15%) of the first one
hundred percent (100%) of New Net Profit, or less earned upon
Capital, and prorated to consider the date of deposit of such
Capital to the Partnership each year. The incentive fee at the rate
of up to fifteen percent (15%) of New Net Profit will be paid
quarterly. Each trading subaccount established by the General
Partner shall be considered separately for purposes of incentive
fee. The incentive fee will be non-refundable; i.e., in the event
that the Partnership earns substantial New Net Profit during the
first month of any year and, thereafter, suffers losses, the General
Partner will not refund any of the profit incentive fee paid for the
prior month or months. However, the Partnership will not pay or
accrue to the General Partner any further incentive fee during that
year until such time as the New Net Profit, when added to Net Asset
Value, after additions, deductions of Redemptions and distributions,
exceeds the highest Net Asset Value, computed for that year; i.e.,
incentive fees will only be earned and paid or accrued upon New Net
Profit for that year; and
(iv) A share of the brokerage commissions paid for trades made by the
Partnership. Such commissions shall not be more than the average
published fixed rate per month or per round-turn charged, from time
to time, to public commodity pools by national brokerage firms for
similar trading size, frequency, and style.
(e) The General Partner is hereby authorized to employ brokers, attorneys,
accountants, consultants, and administrative personnel who may be
Affiliated with the General partner to perform Partnership business at
the expense of the Partnership.
(f) The General Partner is hereby authorized, individually or through an
Affiliate, to employ non-affiliated independent investment and trading
advisors to all or a portion of the Fund to be paid a management fee of
four percent (4%) of the Net Asset Value assigned to such advisor per
year and an incentive fee of fifteen percent (15%) on New Net Profit
earned by such advisor. All incentive fees may be prorated and paid
quarterly.
4.7 ACTIVITIES OF PARTNERS.
(a) The General Partner and its Affiliates shall devote to the Partnership
only such time as shall be reasonably required to fulfill their
responsibilities hereunder.
(b) Any Partner may, notwithstanding the existence of this Agreement,
engage in whatever other activities they may choose, whether the same
be competitive with the Partnership or otherwise, without having or
incurring any obligation or conflict of interest in such activities
with the Partnership or to any party hereto. The Partners are
specifically authorized to deal with other partnerships and to acquire
interests in positions and trading without having to offer
participation therein to the Partnership or the other Partners.
Neither this Agreement nor any activities undertaken pursuant hereto
shall prevent any Partner, including the General Partner and its
Affiliates and their officers, directors and employees, from engaging
in the trading contemplated by this Partnership individually, jointly
with others, or as a part of any other association to which any of them
are or may become parties, in the same trades as the Partnership, or
require any of them to permit the Partnership, the General Partner or
any other Partner to participate in any of the foregoing. As a
material part of the consideration for each party's execution
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hereof, each Partner hereby waives, relinquishes and renounces any such
right or claim of conflict of interest and participation from any other
Partner.
(c) The General Partner is a corporation which was formed on October 13,
1994, and neither it nor its principals have any prior experience in
the management of a partnership which trades commodity futures or
options, or any other securities. The past and future results of
trading by the principals of the General Partner, both within and
without the partnership, will be confidential and not disclosed to the
other Partners. Such positions taken by the principals may be the same
as or different from any positions taken by the General Partner or any
advisor to the Fund. Nothing in this Section, or elsewhere in the
Partnership Agreement, shall permit the General Partner to violate its
fiduciary or legal obligations to the Partnership.
4.8 CONFLICT OF INTEREST
Significant actual and potential conflicts of interest exist in the
structure and operation of the Partnership. The General Partner has used
its best efforts to identify and describe all potential conflicts of
interest which may be present under this heading and elsewhere in the
Partnership's Prospectus and the Exhibits attached thereto. Prospective
investors should consider that the General Partner intends to assert that
Partners have, by subscribing to the Partnership, consented to the
existence of such potential conflicts of interest as are described in this
Agreement and the Prospectus and its Exhibits, in the event of any claim or
other proceeding against the General Partner, any principal of the General
Partner, the CTAs, any Principal of the CTAs, the Partnership's FCM, or any
principal of the FCM, the Partnership's IB or any principal or any
Affiliate of any of them alleging that such conflicts violated any duty
owed by any of them to said subscriber. Specifically, the Selling Agent is
Affiliated with the principal of the General Partner and, therefore, no
independent due diligence of the Partnership or the General Partner has
been or will be made by a National Association of Securities Dealers, Inc.
member.
(a) MANAGEMENT OF OTHER EQUITY AND FOR THEIR OWN ACCOUNTS BY THE GENERAL
PARTNER, THE CTAs, AND THEIR PRINCIPALS. The right of both Ms. Shira
Del Pacult, the principal of the General Partner, and the General
Partner to manage and the actual management by the CTAs of accounts
they or their Affiliates own or control and other commodity accounts
and pools presents the potential for conflicts of interest. There is
no limitation upon the right of Ms. Pacult, the General Partner, the
CTAs, or any of their Affiliates to engage in trading commodities for
their own account. It is possible for these persons to take their
positions in their personal accounts prior to the orders they know they
are going to place for the money they manage for others. The General
Partner will obtain representations from all of these persons and their
Affiliates that no such prior orders will be entered for their personal
accounts. The Partnership's CTAs will be effecting trades for their
own accounts and for others (including other commodity pools in
competition with this Pool) on a discretionary basis. It is possible
that positions taken by the CTAs for other accounts may be taken ahead
of or opposite positions taken on behalf of the Partnership. The
General Partner and its principal, should they form other commodity
pools, and the CTAs may have financial incentives to favor other
accounts over the Partnership. In the event the General Partner, any
of its principal, or any CTA, or any of their principals trade for
their own account, such trading records shall not be made available for
inspection. The General Partner and its principal do not presently
intend to engage in trading for their own account. The CTAs do intend
to trade for their own account. Any trading for their personal
accounts by the General Partner, any commodity trading advisor selected
to trade for the Partnership or any of their principals could present a
conflict of interest in regard to position limits, timing of the taking
of positions or other similar conflicts. The result to the Partnership
would be a reduction in the potential for profit should the entry or
exit of positions be at unfavorable prices by virtue of position limits
or entry of other trades in front of the Partnership trades by the
General Partner or CTAs responsible for the management of the
Partnership.
(b) POSSIBLE RETENTION OF VOTING CONTROL BY THE GENERAL PARTNER. There is
no limit upon the number of Units in the Partnership the General
Partner and its principal and Affiliates may purchase. It will be
possible for them to vote, individually or as a block, to create a
conflict with the best interests of the Partnership, in regard to the
selection of commodity trading advisors which do not trade frequently
to protect the twelve percent (12%) fixed commission paid by the
Partnership to the General Partner.
(c) GENERAL PARTNER TO REMAIN AGAINST POSSIBLE BEST INTEREST OF
PARTNERSHIP. The General Partner's financial interest in the operation
of the Partnership, creates a disincentive for it to voluntarily
replace itself, even if such replacement would be in the best interest
of the Partnership.
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(d) FEES AND CHARGES TO THE PARTNERSHIP PAID TO GENERAL PARTNER NOT
NEGOTIATED. The two percent (2%) management fee to the General Partner
and the amount of the fixed commission of twelve percent (12%) per year
in lieu of round-turn brokerage commissions, payable to the IB that is
Affiliated with the principal of the General Partner, have not been
negotiated at arm's length. The General Partner has a conflict of
interest between its responsibility to manage the Partnership for the
benefit of the Limited Partners and the General Partner's interest in
receiving the management fee and the IB Affiliated with the principal
of the General Partner receiving the difference between the fixed
commission charged the Partnership and the actual transaction costs
incurred by the FCM as a result of the frequency of trades entered by
the CTAs. See "Charges to the Partnership" in the Partnership's
Prospectus. The General Partner will select the CTAs to manage the
Partnership assets and the CTAs determine the frequency of trading.
Because the IB Affiliated with the General Partner will receive the
difference between the brokerage commissions and other costs which will
be paid on behalf of the Partnership and the fixed commission, the
General Partner's best interests are served if it selects trading
advisors which will trade the Partnership's Net Assets assigned to them
in a way to minimize the frequency of trades to maximize the difference
between the fixed commission and the round-turn commissions and other
costs to trade charged by the FCM; i.e., it is in the best interest of
the General Partner to reduce the frequency of trading rather than
concentrate on the expected profitability of the CTAs without regard to
frequency of trades. This conflict is offset by the fact the General
Partner does not select any of the trades and the CTAs is paid an
incentive of 15% of New Net Profits. The arrangements between the
General Partner and the Partnership with respect to the payment of the
commissions are consistent in cost with arrangements other comparable
commodity pools have made to clear their trades. These arrangements
are fair to the Partnership and its investors because the General
Partner has assumed the risk of frequency of trading, up to a maximum
of three times the normal rate by the CTAs and has assumed all
liability for the payment of trailing commissions.
(e) CONFLICTS OF INTEREST IN THE PARTNERSHIP STRUCTURE. Certain actual and
potential conflicts of interest do exist in the structure and operation
of the Partnership which must be considered by investors before they
purchase Units in the Partnership. See "Risk Factors", and "Conflicts
of Interest" in the Partnership's Prospectus. In addition, the Selling
Agent is Affiliated with the principal of the General Partner and,
therefore, no independent due diligence of the offering will be
conducted for the protection of the investors. The General Partner has
taken steps to insure that the Partnership equity is held in segregated
accounts at the banks and futures commission merchant selected and has
otherwise assured the Selling Agent that all money on deposit is in the
name of and for the beneficial use of the Partnership.
(f) GENERAL PARTNER TO DISCOURAGE REDEMPTIONS. The General Partner has an
incentive to withhold distributions and to discourage Redemption
because the General Partner receives compensation based on the Net
Asset Value of the Partnership assigned to the CTAs to trade.
(g) HIGH RISK TRADING BY THE CTAs TO GENERATE INCENTIVE FEES. As a general
rule, the greater the risk assumed, the greater the potential for
profit. Because the CTAs are compensated by the General Partner based
on 15% of the New Net Profit of the Partnership, it is possible that
the CTAs will select trades which are otherwise too risky for the
Partnership to assume to earn the 15% incentive fee on the profit
should that ill-advised speculative trade prove to be profitable.
(h) IB AFFILIATED WITH THE GENERAL PARTNER TO RETAIN A SHARE OF THE
COMMISSIONS. The Partnership will pay a fixed brokerage commission of
12% per year, payable monthly to Futures Investment Company, an
introducing broker Affiliated with the General Partner. Futures
Investment Company will retain so much of the fixed brokerage
commission as remains after payment of the round turn brokerage
commissions to the Futures Commission Merchant and the 6% per year
trailing commissions to the associated persons who service the
Partners' accounts in the Partnership. Because the principal of the
General Partner, Ms. Shira Pacult, is also a principal in the IB and
the Selling Agent, there is a likelihood that the Partnership will
continue to retain the IB even though other IB's may be available to
provide better service to the Partners and their accounts.
(i) NO RESOLUTION OF CONFLICTS PROCEDURES. As is typical in many futures
partnerships, the General Partner has not established formal
procedures, and none are expected to be established in the future, to
resolve the potential conflicts of interest which may arise. It will
be extremely difficult, if not impossible, for the General Partner to
assure that these and future potential conflicts will not, in fact,
result in adverse consequences to the
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Partnership or the Limited Partners. The foregoing list of risk factors
and conflicts of interest is complete as of the date of this Prospectus,
however, additional risks and conflicts may occur which are not presently
foreseen by the General Partner. Investors are not to construe this
Prospectus as legal or tax advice. Before determining to invest in the
Units, potential investors should read this entire Agreement as well as
the Partnership's Prospectus and the subscription agreement, and consult
with their own personal legal, tax, and other professional advisors as to
the legal, tax, and economic aspects of a purchase of Units and the
suitability of such purchase for them. See "Investor Suitability" in the
Partnership's Prospectus.
(j) INTERESTS OF NAMED EXPERTS AND COUNSEL. The General Partner has
employed The Scott Law Firm, P.A. to prepare this Prospectus, provide
certain tax advice and opine upon the legality of the issuance of the
Units. Neither the Law Firm nor its principal, nor any accountant or
other expert employed by the General Partner to render advice in
connection with the preparation of the Prospectus or any documents
attendant thereto, have been retained on a contingent fee basis nor do
they have any present interest or future expectation of ownership in
the Partnership or its General Partner or the Underwriter or the CTAs
or the IB or the FCM.
4.9 LIMITATION OF POWERS. Without concurrence of a Majority in Interest, the
General Partner may not:
(k) Amend this Agreement except for those amendments which do not
adversely affect the rights of the Limited Partners.
(b) Voluntarily withdraw as a General Partner.
(c) Appoint a new General Partner or additional general partners;
provided, however, additional general partners may be appointed
without obtaining the consent of a Majority in Interest if the
addition of such person is necessary to preserve the tax status of the
Partnership as a partnership and not as a corporation; and such
additional general partner has no authority to manage or control the
Partnership and the admission of such additional general partner does
not materially adversely affect the Limited Partners.
(d) Sell all or substantially all of the Partnership assets other than in
the ordinary course of business.
(e) Cause the merger or other reorganization of the Partnership.
(f) Dissolve the Partnership other than because of an event, which by law,
requires such dissolution.
ARTICLE V
Rights and Obligations of Limited Partners
5.1 LIMITATION OF LIABILITY. No Limited Partner shall be personally liable for
any of the debts of the Partnership or any of the losses thereof. However,
the amount committed by him to the Capital of the Partnership and his
interest in Partnership assets shall be subject to liability for
Partnership debts and obligations. Limited Partners may be liable to repay
any wrongful distribution of profits to them and may be liable for
distributions (with interest thereon) considered to be a return of Capital
if necessary to satisfy creditors of the Partnership.
5.2 NO MANAGEMENT RIGHTS. No Limited Partner shall take part in the management
of the business of the Partnership or transact any business for the
Partnership. No Limited Partner, as such, shall have the power to sign for
or to bind the Partnership.
5.3 CERTAIN RIGHTS. Provided the following, does not either (i) subject the
Limited Partners to unlimited liability or (ii) subject the Partnership to
be taxable as a Corporation for purposes of Federal Income tax laws, the
Partners, by a vote of a Majority in Interest, without the necessity for
concurrence by the General Partner, shall have the following rights in
addition to those granted elsewhere in this Agreement:
(a) Amend the Partnership Agreement; provided, however, any amendment which
modifies the compensation or distributions to the General Partner or
which affects the duties of the General Partner requires the consent of
the General Partner.
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(b) The General Partner may be removed and a new General Partner elected in
accordance with the terms of this Agreement.
(c) Cancel any contract for services with the General Partner, without
penalty, upon 60 days written notice; provided, however, the maximum
period of any contract between the General Partner and the Partnership
is one year; and, provided further, should any amendment to this
Partnership Agreement attempt to modify the compensation or
distributions to which the General Partner is entitled or which
affects the duties of the General Partner, such amendment will become
effective only upon the consent of the General Partner.
(d) The right to approve, prior to sale, the sale or distribution, outside
the ordinary course of business, of all or substantially all of the
assets of the Partnership.
(e) Dissolve the Partnership.
(f) Any material changes in the Partnership's basic investment policies
identified in Article III including, but not limited to, the
speculation and trade in commodity futures, forward futures contracts,
and options upon those contracts both within and without the United
States or the structure of the Partnership as a limited partnership
requires prior written notification of a meetings which identifies the
purpose of the meeting and the approval by a vote of the Majority in
Interest of the Partners.
5.4 GENERAL PARTNER ACTION WITHOUT LIMITED PARTNER APPROVAL. Notwithstanding
anything in this Agreement, particularly section 5.3, to the contrary, the
General Partner may amend this Agreement without any vote, consent, approval,
authorization or other action of any other Partner and without notice to any
other Partner to:
(a) add to the representations, duties or obligations of the General
Partner or its Affiliates or surrender any right or power granted to
the General Partner or its Affiliates in this Agreement for the
benefit of the Limited Partners;
(b) cure any ambiguity, correct or supplement any provision in this
Agreement which may be inconsistent with any other provision in this
Agreement, or make any other provisions with respect to matters or
questions arising under this Agreement which will not be inconsistent
with the intent of this Agreement;
(c) delete or add any provision of this Agreement required to be so
deleted or added by the staff of the Securities and Exchange
Commission, or by a state securities law administrator or similar such
official, which addition or deletion is deemed by such official to be
for the benefit or protection of the Limited Partner or does not have
a material adverse effect on the Limited Partners generally or the
Partnership;
(d) reflect the withdrawal, expulsion, addition or substitution of
Partners;
(e) reflect the proposal, promulgation or amendment of Regulations under
Code section 704, or otherwise, to preserve the uniformity of interest
in the Partnership issued or sold from time to time, if, in the
opinion of the General Partner, the amendment does not have a material
adverse effect on the Limited Partners generally;
(f) elect for the Partnership to be bound by any successor statute to the
Act, if, in the opinion of the General Partner, the amendment does not
have a material adverse effect on the Limited Partners generally;
(g) conform this Agreement to changes in the Act or interpretations
thereof which, in the exclusive desecration of the General Partner, it
believe appropriate, necessary or desirable, if, in the General
Partner's reasonable opinion, such amendment does not have a
materially adverse effect on the Limited Partners generally or the
Partnership;
(h) change the name of the Partnership;
(i) conform the provisions of this Agreement to any applicable
requirements of Federal of state law which, in the exclusive
discretion of the General Partner, it believes appropriate, necessary
or desirable, if, in the General
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Partner's reasonable opinion, such amendment does not have a material
adverse effect on the Limited Partners generally or the Partnership; and
(j) make any change which, in the exclusive discretion of the General
Partner, is advisable to qualify or to continue the qualification of
the Partnership as a limited partnership or a partnership in which the
Limited Partners have limited liability under the laws of any state or
that is necessary or advisable, in the exclusive discretion of the
General Partner, so that the Partnership will not be treated as an
association taxable as a corporation for Federal income tax purposes.
5.5 EXPULSION OF LIMITED PARTNERS. Anything herein to the contrary
notwithstanding,
(a) no Partner, including any corporation, partnership, trust or other
entity may, at any time, have an ownership percentage of ten percent
or more of the aggregate ownership percentages of the Limited
Partners. If, at any time, the General Partner determines that any
Limited Partner has an ownership percentage of ten percent or more,
the Partnership may, in the General Partner's exclusive discretion,
cause a Redemption by that Limited Partner of the number of Units
necessary or advisable to reduce that Limited Partner's ownership
percentage to less than ten percent. The Redemption shall be
effective as of the next Redemption date or such other Redemption
date, at the discretion of the General Partner.
(b) the General Partner has the right, in its sole discretion, to raise
or lower the minimum investment in the Partnership required for the
admission or retention of Units in the Partnership by a Partner. In
the event the General Partner does raise the minimum investment in the
Partnership to an amount in excess of any Partners Capital account,
the Partnership shall provide notice to the Partner of such event and
allow the Partner 30 days to raise the Capital account for that
Partner to such raised amount, or more. In the event the Partner does
not so raise his Capital account to such minimum amount, the Partner
shall be deemed to have elected to withdraw from the Partnership and
all of his Units shall be redeemed at the next redemption date as
provided in this Agreement.
5.6 NOTIFICATION. Notice shall be sent to each Partner within seven business
days from the date of:
(a) any decline in the Net Asset Value Per Unit to less than 50% of the
Net Asset Value on the last Valuation Date;
(b) any material change in contracts with the FCM or CTA including, but
not limited to, any change in CTAs or any modification in connection
with the method of calculating the incentive fee;
(c) any other material change affecting the compensation of the General
Partner, FCM, CTA or any Affiliated party;
5.7 NOTIFICATION CONTENTS.
(a) a material change related to brokerage commissions shall not be made
until notice is given and the Partners, after such notice, have the
opportunity to Redeem pursuant to Article IX;
(b) in addition, in regard to all other changes, the required notification
shall describe the change in detail, include a description of the
Partners' Redemption rights pursuant to Article IX and voting rights
pursuant to this Article V and a description of any material effect
such changes may have on the interests of the Partners.
5.8 EXERCISE OF RIGHTS. Upon receipt of a written request, executed by the
holders of Units aggregating ten percent (10%) or more of the Units, for a
vote upon and to take action with respect to any rights of the Partners
under this Agreement, together with a check for the costs to distribute the
request to all of the Partners, the General Partner shall call a meeting of
all Partners of the Partnership in the time and manner as provided in
Section 8.7 hereof.
5.9 EXAMINATION OF BOOKS AND RECORDS. A Limited Partner shall have the right
to examine the books and records of the Partnership at all reasonable
times, including the right to have such examination conducted at his sole
expense by any reasonable number of representatives. Notwithstanding the
foregoing, the General Partner may keep and withhold the names of the other
Partners, specific trading and other designed information confidential from
the Partners.
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ARTICLE VI
Assignment of Limited Partnership Units;
Admission of Limited Partners
6.1 RESTRICTION ON ASSIGNMENT. A Partner may not assign or transfer some or
all of his Units in the Partnership without the written consent of the
General Partner; provided, however, that in no event may an assignment be
made or permitted until after two years from the date of purchase of such
assigned or transferred Units(s) by said Partner; and, provided, further,
that full Units must be assigned and the assignor, if he is not assigning
all of his Units, will retain more than five Units. Any such assignment
shall be subject to all applicable securities, commodity, and tax laws and
the regulations promulgated under each such law. The General Partner shall
review any proposed assignment and shall withhold its consent in the event
it determines, in its sole discretion, that such assignment could have an
adverse effect on the business activities or the legal or tax status of the
Partnership.
6.2 QUALIFIED PLAN RESTRICTIONS. In no event shall a Partner be entitled to
transfer all or part of a Partnership interest if, under applicable
United States Department of Labor regulations, such transfer would result
in Partnership interests, excluding the interests of the General Partner,
valued at or in excess of twenty-five percent of the value of all
outstanding Partnership interests, excluding the interests of the General
Partner, being held by the following persons or entities:
(a) employee benefit plans (as defined in section 3(3) of the Federal
Employee Treatment Income Security Act of 1974, as amended ("ERISA"),
whether or not such plans are subject to the provisions of Title I of
ERISA,
(b) plans described in section 4975 (e)(1) of the Code, and
(c) entities (such as a common or collective trust funds of a bank) whose
underlying assets include plan assets by reason of a plan's investment
in the entity.
6.3 DOCUMENTATION OF ASSIGNMENT. The General Partner shall furnish to the
assigning Limited partner a proper form to duly effect such assignment.
The General Partner shall not be required to recognize any assignment and
shall not be liable to the assignee for any distributions made to the
assigning Limited Partner until the General Partner has received such form
of assignment, properly executed with signature guaranteed, together with
the Certificate of Ownership originally issued to the Limited Partner (or
an indemnity bond in lieu therefor) and such evidence of authority as the
General Partner may reasonably request and the General Partner shall have
accepted such assignment.
ARTICLE VII
Accounting Records, Reports, and Distributions
7.1 DISTRIBUTIONS. Each Partner will have a Capital account, and its initial
balance will be the amount the Partner paid for the Partner's Units. The
Net Assets of the Partnership will be determined monthly, and any increase
or decrease from the end of the preceding month will be added to or
subtracted from the accounts of the Partners in the ratio that each account
bears to all accounts. Distributions from profits or Capital will be made
solely at the discretion of the General Partner.
7.2 BOOKS OF ACCOUNT. Proper books of account shall be kept and there shall be
entered therein all transactions, matters and things relating to the
Partnership's business as required by applicable law and the regulations
promulgated thereunder and as are usually entered into books of account
kept by persons engaged in business of like character. The books of
account shall be kept at the principal office of the General Partner and
each Limited Partner (or any duly constituted agent of a Limited Partner)
shall have, at all times during reasonable business hours, free access,
subject to rules of confidentiality established by the General Partner, the
right to inspect and copy the same. Such books of account shall be kept on
an accrual basis. A Capital account shall be established and maintained
from each Partner, as set forth above.
(a) Each Partner shall be furnished as of the end of each Fiscal Year with
(1) annual financial statements, audited by a certified public
accountant, within 90 days from the end of such year; together with
such other reports (in such detail) as are required to be given to
Partners by applicable law, specifically, annual and periodic reports
will be
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supplied by the General Partner to the other Partners in conformance
with the provisions of CFTC regulations for Reporting to Pool
Participants, 17 C.F.R. Section 4.22, as amended, from time to time,
and, (2) any other reports or information which the General Partner, in
its sole discretion, determines to be necessary or appropriate.
(b) Appropriate tax information (adequate to enable each Partner to
complete and file his Federal tax return) shall be delivered to such
Partner no later than January 31 following the end of each Calendar
Year.
7.3 CALCULATION OF NET ASSET VALUE. Net Asset Value shall be calculated daily
and reports delivered to Partners as of the last day of each month by the
20th of the following month. Upon request, the General Partner shall make
available to any Partner the Net Asset Value per Unit.
7.4 MAINTENANCE OF RECORDS. The General Partner shall maintain all records as
required by law including, but not limited to, (1) all books of account
required by paragraph 7.1 of this Article VII; and, (2) a record of the
information obtained to indicate that a Partner meets the applicable
investor suitability standards.
7.5 TAX RETURNS The General Partner shall cause tax returns for the
Partnership to be prepared and timely filed with the appropriate
authorities. The General Partner shall cause the Partnership to pay any
taxes payable by the Partnership; provided, however, that the General
Partner shall not be required to cause the Partnership to pay any tax so
long as the General Partner or the Partnership shall be in good faith and
by appropriate means contesting the applicability, validity or amount
thereof and such contest shall not materially endanger any right or
interest of the Partnership.
7.6 TAX ELECTIONS The General Partner shall from time to time, make such tax
elections or allocations deemed necessary or desirable to carry out the
business of the Partnership or the purposes of this Agreement. The General
Partner shall be authorized to perform all duties imposed by Sections 6221
through 6232 of the Internal Revenue Code on the General Partner as "tax
matters partner" of the Partnership, including, but not limited to, the
following: (i) the power to conduct all audits and other administrative
proceedings with respect to Partnership tax items; (ii) the power to extend
the statute of limitations for all Limited Partners with respect to
Partnership tax items; (iii) the power to file a petition with an
appropriate federal court for a review of a final Partnership
administrative adjustment; and, (iv) a power of attorney on behalf of each
Limited Partner having less than a 1% interest in the Partnership to enter
into a settlement with the Internal Revenue Service on behalf of, and
binding upon, those Limited Partners unless any said Limited Partner shall
have notified the Internal Revenue Service and the General Partner, within
30 days of service of the notice of claim up said Limited Partner, that the
General Partner may not act on such Limited Partner's behalf.
ARTICLE VIII
Amendments of Partnership Agreement
8.1 RESTRICTION ON AMENDMENTS. No amendment to this Agreement shall be
effective or binding upon the partners unless the same shall have been
approved by a Majority in Interest of the Partners; provided, however, the
General Partner may adopt amendments without such approval which are, in
the sole judgment of the General Partner, deemed necessary or desirable to
maintain the business or limited partnership or other favorable tax status
of the Partnership, or permit a Public Offering of the Units, or to
maintain the Partnership and the General Partner and its principals in
compliance with the laws which govern the business, including the
requirements of any self regulatory organization, or to substitute or add
persons as Limited Partners.
8.2 ADMISSION OF ADDITIONAL PARTNERS. At any time, the General Partner may, in
its sole discretion and subject to applicable law, admit additional
Partners. Each newly admitted Partner shall contribute cash equal to the
Net Asset Value Per Unit of the Partnership for each Unit to be acquired.
The terms of any additional offering may be different from the terms of the
initial offering. All expenses of any such additional offering shall be
borne by the either the Partnership or the subscribers thereto, as
determined in the sole discretion of the General Partner. Pursuant to
Article VI, the General Partner may consent to and admit any assignee of
Units as a substituted Partner. There is no maximum aggregate amount of
Units which may be offered and sold by the Partnership or on the amount of
contributions which may be received by the Partnership.
8.3 TERMINATION OF OFFERINGS; ADDITIONAL OFFERINGS. Notwithstanding anything
stated herein to the contrary, the General Partner may from time to time,
in its sole discretion, limit the number of Units to be offered,
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terminate any offering of Units, or register additional Units and/or make
additional public or private offerings of Units. No Limited Partner shall
have any preemptive, preferential or other rights with respect to the
issuance or sale of any additional Units. No Limited Partner shall have
the right to consent to the admission of any additional Limited Partners.
8.4 NOTICE OF RESTRICTED TRANSFER. Each certificate of Limited Partnership
shall be subject to and contain the following notice:
THE LIMITED PARTNER MUST DETERMINE IF THE PARTNERSHIP INTERESTS
REPRESENTED BY THIS LIMITED PARTNERSHIP AGREEMENT MAY BE
TRANSFERRED IN ACCORDANCE WITH APPLICABLE FEDERAL AND STATE LAWS
AND REFERENCE MUST BE MADE TO THE OFFERING DOCUMENTATION AND LEGAL
COUNSEL CHOSEN BY THE INVESTOR TO DETERMINE THE RIGHT OF THE
INVESTOR TO RESELL THE UNITS EVIDENCED HEREBY. THESE LIMITED
PARTNERSHIP INTERESTS SHALL NOT BE TRANSFERABLE BY THE REGISTERED
HOLDER EXCEPT BY CONSENT OF THE GENERAL PARTNER AND AS OTHERWISE
PROVIDED IN THE PARTNERSHIP AGREEMENT AND UPON THE ISSUANCE OF A
FAVORABLE OPINION OF COUNSEL FOR THE LIMITED PARTNERSHIP, AND/OR
SUBMISSION TO THE LIMITED PARTNERSHIP OF SUCH OTHER EVIDENCE AS MAY
BE SATISFACTORY TO THE LIMITED PARTNERSHIP, THAT SUCH TRANSFER WILL
NOT BE IN VIOLATION OF THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED, OR ANY RULE OR REGULATION PROMULGATED THEREUNDER, AND
APPLICABLE STATE SECURITIES LAWS.
8.5 MEETINGS OF PARTNERS. Upon receipt of a written request, together with the
costs to distribute such request to all Partners, executed by Partners
holding ten percent (10%) or more of the Units, for the calling of a
meeting of the Partners or should the General Partner desire a meeting for
any purpose, the General Partner shall, within fifteen (15) days
thereafter, provide written notice, either in person or by certified
mail, after the date of receipt of said notice. Such written notice shall
state the purpose of the meeting, specify a reasonable time, place, and
date, which shall be not less than thirty (30) or more than sixty (60) days
thereafter. An Amendment shall be adopted and binding upon all parties
hereto if a Majority in Interest of the Partners vote for the adoption of
such amendment. Partners may vote in person or by written proxy delivered
to any such meeting. Meetings of Partners may also be held by conference
telephone where all Partners can hear one another.
8.6 RIGHT OF GENERAL PARTNER TO RESIGN. The General Partner may resign or
assign any portion of its interest in the Partnership at anytime to a third
party and become a Limited Partner with respect to the balance of its
interest in the Partnership, if any, if it provides one hundred twenty
(120) days prior written notice to all other Partners of its intention to
resign and states in such notice the name of the intended assignee who is
to become substitute General Partner and the information reasonably
appropriate to enable the Partner to decide whether or not to approve the
substitution or, in the alternative, provide that the partners must elect a
successor general partner. In the event of the voluntary withdrawal by the
General Partner, the General Partner shall pay the legal fees, recording
fees and all other expenses incurred as a result of its withdrawal. Upon
resignation, the General Partner shall be paid the items identified in
Section 8.7 below.
8.7 AMENDMENT INVOLVING SUCCESSOR GENERAL PARTNER. Should a resignation or an
amendment to the Agreement provide for a change in the general partner upon
the conditions provided in this Agreement, the election and admission of a
person or persons as a successor or successors to the General Partner,
shall require the following conditions: the General Partner shall retire
and withdraw as General Partner and the Partnership business shall be
continued by the successor general partner or general partners, and such
amendment shall expressly provide that on or before the effective date of
removal.
(a) The General Partner shall be permitted to Redeem 100% of its Units ten
(10) days prior to the effective date of its removal in cash equal to
the Net Asset Value of such General Partner's interest in the
Partnership.
(b) The Partnership shall pay to the removed General Partner an amount
equal to the Appraised Value of such General Partner's assets to be
transferred to the successor General Partner to enable the successor to
continue the business of
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the Partnership. The Appraised Value of the withdrawing General
Partner's interest in the Partnership shall equal such General Partner's
interest in the sum of (1) the Expenses advanced by the General Partner
to the Partnership, (2) all cash items, (3) all prepaid expenses and
accounts receivable less a reasonable discount for doubtful accounts, and
(4) the net book value of all other assets, unless the withdrawing
General Partner of the successor General Partner believes that the net
book value of an asset does not fairly represent its fair market value in
which event such General Partner shall cause, at the expense of the
Partnership, an independent appraisal to be made by a person selected by
the General Partner with approval of a Majority in Interest of the
Partners to determine its value.
(c) The successor General Partner or Partners shall indemnify the former
General Partner for all future activities of the Fund.
ARTICLE IX
Dissolution, Liquidation and Redemption
9.1 DISSOLUTION. The Partnership shall be dissolved, and shall terminate and
wind-up its affairs, upon the first to occur of the following:
(a) the affirmative vote of a Majority in Interest of the Partners adopting
an amendment to this Agreement providing for the dissolution of the
Partnership;
(b) the sale, exchange, forfeiture or other disposition of all or
substantially all the properties of the Partnership out of the ordinary
course of business;
(c) the resignation of the General Partner after one hundred twenty days
notice to the Partners, of the bankruptcy, insolvency or dissolution,
or failure of the General Partner to maintain sufficient Net Worth to
qualify the Partnership as a partnership for Federal Income Tax
purposes or as required by the NASAA Guidelines in effect at the time
the Units were sold, without a successor, promptly after any such
event, but in no event beyond one hundred twenty (120) days after the
effective date of such event;
(d) at 11:59 p.m. on the day which is twenty-one (21) years from the date
of this Agreement; or
(e) any event which legally dissolves the Partnership.
9.2 EFFECT OF LIMITED PARTNER STATUS. The death, legal disability,
bankruptcy, insolvency, dissolution, or withdrawal of any Limited Partner
shall not result in the dissolution or termination of the Partnership,
and such Limited Partner, his estate, custodian or personal
representative shall have no right to withdraw or value such Limited
Partner's interest in the Partnership except as provided in Paragraph
9.3. Each Limited Partner (any assignee thereof) expressly agrees that
the provisions of the Act, as amended, titled "Powers of Legal
Representative or Successor of Deceased, Incompetent, Dissolved or
Terminated Partner", shall not apply to his interest in the Partnership
and expressly waives any rights and benefits thereunder. Each Limited
Partner (and any assignee of such Partner's interest) expressly agrees
that in the event of his death, that he waives on behalf of himself and
his estate, and he directs the legal representative of his estate and any
person interested therein to waive the furnishing of any inventory,
accounting or appraisal of the assets and any right to an audit or
examination of the books of the Partnership. The General Partner may
assign, sell, or otherwise dispose of all or any portion of its shares of
common stock without any legal effect upon the operation of the
Partnership and no Limited Partner may object to any such transfer.
9.3 LIQUIDATION. Upon the termination and dissolution of the Partnership, the
General Partner (or in the event the dissolution is caused by the
dissolution or the cessation to exist as a legal entity of the General
Partner, voluntary withdrawal, bankruptcy or insolvency, such person as
the Majority in Interest of the Partners may select) shall act as
liquidating trustee and shall take full charge of the Partnership assets
and liabilities. Thereafter, the business and affairs of the Partnership
shall be wound up and all assets shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds
therefrom shall be applied and distributed in the following order: (i)
to the expenses of liquidation and termination and to creditors,
including the General Partner, in order or priority
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as provided by law, and (ii) to the Partners pro rata in accordance with
his or its Capital account, less any amount owed by such Partner to the
Partnership.
9.4 RETURN OF CAPITAL CONTRIBUTION SOLELY OUT OF ASSETS. A Partner shall look
solely to the properties and assets of the Partnership for the return of
his Capital Contribution, and if the properties and assets of the
Partnership remaining after the payment or discharge of the debts and
liabilities of the Partnership are insufficient to return his Capital
Contribution, he shall have no recourse against the General Partner or any
other Limited Partner for that purpose.
9.5 REDEMPTION. A Partner (including any approved assignee who becomes a
Limited Partner) may withdraw any part or all of his Capital Contribution
and undistributed profits, if any, by requiring the Partnership to redeem
any or all of his Units at the Net Asset Value thereof (such withdrawal
being herein referred to as "Redemption"). Redemption shall be effective
as of the last day of the period established, from time to time, by the
General Partner for Redemptions. Such Redemptions shall be no less often
than quarterly; provided, however, Redemption may be deferred until after
the lapse of six months from the date of purchase of the Units.
9.6 REDEMPTION PROCEDURES. Redemption shall be after all liabilities,
contingent, accrued, reserved in amounts determined by the General Partner
have been deducted and there remains property of the Partnership sufficient
to pay the Net Unit Value as defined in Paragraph 1.3(b). As used herein,
"request for Redemption: shall mean a letter mailed or delivered by a
Partner and received by the General Partner at least 10 days in advance of
the effective date for which Redemption is requested. Upon Redemption, a
Partner shall receive, on or before the last day of the following month,
an amount equal to the Net Unit Value per Unit redeemed as of the date for
which the request for Redemption was received, less accrued expenses and
any amount owed by such Partner to the Partnership. Redemption is subject
to a Redemption fee to be paid by the Partners as provided below; provided,
however, no Partner other than the initial Limited Partner, may redeem any
Units until the last day of the sixth month after the commencement of
trading. All Redemption requests shall be subject to the following:
(a) Under special circumstances including, but not limited to, the
inability to liquidate positions as of such Redemption date or default
or delay in payments due the Partnership from banks, brokers, or other
persons, the Partnership may in turn delay payment to Partners
requesting Redemption of Units of the proportionate part of the Net
Unit Value represented by the sums which are the subject of such delay
or default.
(b) The General Partner in its sole discretion may, upon notice to the
Partners, declare additional Redemption dates and may cause the
Partnership to redeem fractions of Units and, prior to registration of
Units for public sale, redeem Units held by Partners who do not hold
the required minimum amount of Units established, from time to time, by
the General Partner.
(c) Redemption of Units shall be charged a redemption fee, payable to the
Partnership, to be applied first to pay organization costs and,
thereafter, to the benefit of the other Partners in proportion to their
Capital accounts, equal to four percent (4%) for all Redemptions
effective during the first six (6) months after commencement of
trading. Thereafter, there will be a reduction of one percent (1%) for
each six (6) months the investment in the Units remained invested in
the Fund after the initial six months; i.e., 7-12 months a Redemption
fee of 3%, 12-18 months 2%, 18-24 months 1%, and, thereafter, no
redemption fee. The initial Limited Partner may withdraw from the
Partnership at the time the Minimum number of Units are sold without
payment of a Redemption fee.
9.7 SPECIAL REDEMPTION. In the event the Net Asset Value per Unit falls to
less than fifty percent (50%) of the Net Asset Value established by the
greater of the initial offering price of one thousand dollars ($1,000),
less commissions and other charges, or such higher value earned after
payment of the incentive fee for the addition of profits, the General
Partner shall immediately suspend all trading, provide immediate notice, in
accordance with the terms of this Agreement, to all Partners of the
reduction in Net Asset Value, and afford all Partners the opportunity for
fifteen (15) days after the date of such notice to Redeem their Units in
accordance with the provisions of Section 9.5 and 9.6, above. No trading
shall commence until after such fifteen day period.
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ARTICLE X
Nature of Partner's Liabilities for Claims
10.1 PROSECUTION OF CLAIMS. The General Partner shall arrange to prosecute,
defend, settle or compromise actions at law or in equity or with any self
regulatory organizations at the expense of the Partnership as such may be
necessary or desirable to enforce, protect, or maintain Partnership
interests.
10.2 SATISFACTION OF CLAIMS. The General Partner shall satisfy any claims
against, errors asserted, or other liability of the Partnership and any
judgment, decree, decision or settlement, first out of any insurance
proceeds available therefor, next, out of Partnership assets and income,
and finally out of the assets and income of the General Partner.
10.3 GENERAL PARTNER DECISION. The decisions made by the General Partner in
regard to the prosecution or settlement of claims, errors, and other
liabilities, will be final and binding without right of appeal or other
legal action by the other Partners or the Partnership.
10.4 EXONERATION, INDEMNIFICATION, AND NO ANTICIPATION OF PAYMENTS. The General
Partner shall not be liable to the Partnership or the Partners for any
failure to comply with its obligations hereunder except for breach of
fiduciary obligation owed to the partnership or negligence on its part in
the management of Partnership affairs or violation of Federal and state
securities laws in connection with the offering of Units for sale. In
addition:
(a) The General Partner will be indemnified for liabilities and expenses
arising from any threatened, pending or completed action or suit in
which it or any affiliate is a party or is threatened to be made a
party by reason of the fact that it is or was the General Partner of
the Partnership (other than an action by the Partnership or a Partner
against the General Partner which is finally resolved in favor of the
Partnership or Partner). The Partnership will indemnify the General
Partner and its affiliates against expenses, including attorney's fees,
judgments and amounts paid in settlement of an action, suit or
proceeding if it has acted in good faith and in a manner it reasonably
believed to be in or not opposed to the best interest of the
Partnership, and provided that its conduct did not constitute
negligence, willful or wanton misconduct or a breach of fiduciary
obligations in the performance of its duty to the Partnership or a
violation of the securities laws. The termination of any action, suit
or proceeding by judgment, order or settlement against the Partnership
shall not of itself create a presumption that the General Partner or
any affiliate did not act in good faith and not in the best interest of
the Partnership; provided, however, any advance of funds to the General
Partner to pay such costs and expenses must be preceded by all of the
following: (i) a determination by the General Partner that, in good
faith, the course of conduct which caused the loss of liability was in
the best interests of the Partnership; and, (ii) the General Partner
was acting on behalf of or performing services for the Partnership;
and, (iii) such asserted claim or liability or loss to the claimant was
not the result of negligence or misconduct by the General Partner; and,
(iv) such indemnification or agreement to hold harmless is recoverable
only out of the assets of the Partnership and not from the Partners.
In any threatened, pending or completed action or suit by or in the
right of the Partnership, to which the General Partner or an Affiliate
was or is a party or is threatened to be made a party, involving an
alleged cause of action by a Partner for damages arising from the
activities of the General Partner in the performance of the sale of
Units or management of the internal affairs of the partnership as
proscribed by this Agreement or by Federal or the State of Indiana or
any other state laws, the Partnership shall indemnify such General
Partner against expenses, including attorneys' fees and costs, actually
and reasonably incurred by such General Partner or Affiliate in
connection with the defense or settlement of such action or suit if it
acted in good faith and in a manner it reasonably believed to be in or
not opposed to the best interests of the Partnership, except that no
indemnification shall be made in respect of any claim, issue or matter
as to which the General Partner shall have been adjudged to be liable
for intentional misconduct, or breach of fiduciary obligations or
violation of securities laws in the performance of its duty to the
Partnership unless and only to the extent that the court in which such
action or suit was brought shall determine upon application, that,
despite the adjudication of liability, in view of all circumstances of
the case, the General Partner or Affiliate is reasonably entitled to
indemnification for such expenses as such court shall deem proper;
provided, however, notwithstanding any other provisions of this
Agreement, the Partnership shall advance or pay the General Partner or
any of its Affiliates for legal expenses and other costs incurred as a
result of any legal action which alleges a breach of the Federal or
state securities laws only if the following conditions are satisfied:
(i) the legal action relates to acts or omissions with respect to the
performance of duties or services on behalf of the
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Partnership; (ii) the legal action is initiated by a third party who is
not a Limited Partner, or the legal action is initiated by a Limited
Partner and an independent arbitration panel, administrative law judge,
or court of competent jurisdiction specifically approves such
advancement; and, (iii) the General Partner or its Affiliates undertake
to repay the advanced funds to the Partnership, together with the
applicable legal rate of interest thereon, in cases which such party is
not entitled to indemnification under NASAA Guideline II.F.
To the extent that a General Partner or an Affiliate has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above or in defense of any claim, issue or other
matter related to the Partnership or any other Partner or person who
applied to be a Partner, the Partnership shall indemnify such General
Partner against the expenses, including attorneys' fees and costs,
actually and reasonably incurred by it in connection therewith.
(a) The indemnification of a General Partner shall be limited to and
recoverable only out of the assets of the Partnership. Notwithstanding
the foregoing, the Partnership's indemnification of the General Partner
shall be limited to the amount of such loss, liability or damage which
is not otherwise compensated for by insurance carried for the benefit
of the Partnership.
Notwithstanding any provision in this Agreement to the contrary, the
Partnership shall not advance the expenses or pay for any insurance to
pay for the costs of the defense or any liability which is prohibited
from being indemnified pursuant to NASAA Guideline II.F. Specifically,
no indemnification which is the result of negligence or misconduct by
the General Partner or for any allegation of a violation of the Federal
or state securities laws by or against the General Partner, any
broker/dealer or any other party unless there has been a successful
adjudication on the merits of each count involving alleged securities
law violation as to the General Partner or broker/dealer or such other
party; or a court of competent jurisdiction approves a settlement of
the claims against the General Partner or any broker/dealer or any
other party and finds, specifically, that the indemnification of the
settlement and related costs should be made after the court of law has
been made aware that the Securities and Exchange Commission opposes
such indemnification and the position of any applicable state
securities regulatory authority where the Partnership Interests were
offered or sold without the compliance with specific conditions upon
such indemnification and the action covered satisfies the provisions of
Section 10.4 (a) of this Agreement. Any change in the requirements
imposed by the Securities and Exchange Commission and the state
securities administrators in regard to indemnification shall cause a
corresponding change in the right of the General Partner to
indemnification.
(b) The indemnification of the General Partner provided in this Article
shall extend to any employee, agent, attorney, certified public
accountant, or Affiliate of the Partnership and the General Partner.
(c) The Partnership shall indemnify, to the extent of the Partnership
assets, each Partner against any claims of liability asserted against a
Partner solely because he is a Partner in the Partnership.
(d) In the event the Partnership or any Partner is made a party to any
claim, dispute or litigation or otherwise incurs any loss or expense,
as a result of or in connection with any Partner's activities unrelated
to the Partnership business or as a result of an unfounded claim
against the Partnership or any other Partner brought as a result of
alleged actions by said Partner, the Partner which was responsible for
the allegations which caused such loss or expense shall indemnify and
reimburse the Partnership and all other Partners for all loss and
expense incurred, including attorneys' fees and costs.
(e) No creditor of a Partner shall have a right to vote Units. Nor may any
Partner or creditor of a Partner anticipate any principal or income
from the Fund prior to the approval of a Redemption Request or the
payment of a distribution from the Fund.
ARTICLE XI
Power of Attorney
11.1 POWER OF ATTORNEY EXECUTED CONCURRENTLY. Concurrent with the written
acceptance and adoption of the provisions of this Agreement, each Partner
shall execute and deliver to the General Partner, a Power of Attorney
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(paragraph 5 of the Subscription Agreement). Said Power of Attorney
irrevocably constitutes and appoints the General Partner as a true and
lawful attorney-in-fact and agent for such Partner with full power and
authority to act in his name and on his behalf in the execution,
acknowledgment and filing of documents, which will include, but shall not
be limited to, the following:
(a) Any certificates and other instruments, including but not limited to, a
Certificate of Limited partnership and amendments thereto and a
certificate of doing business under an assumed name, which the General
Partner deems appropriate to qualify or continue the Partnership as a
limited partnership in the jurisdictions in which the Partnership may
conduct business, so long as such qualifications and continuations are
in accordance with the terms of this Agreement or any amendment hereto,
or which may be required to be filed by the Partnership or the Partners
under the laws of any jurisdiction;
(b) Any other instrument which may be required to be filed by the
Partnership under Federal or any state laws or by any governmental
agency or which the General Partner deems advisable to file; and
(c) Any documents required to effect the continuation of the Partnership,
the admission of the signer of the Power as a Limited Partner or of
others as additional or substituted Partners or Limited Partners, or
the dissolution and termination of the Partnership, provided such
continuation, admission, dissolution or termination is pursuant to the
terms of this Agreement.
11.2 EFFECT OF POWER OF ATTORNEY. The Power of Attorney concurrently granted by
each Partner to the General Partner is a special Power of Attorney coupled
with an interest, is irrevocable, and shall survive the death or legal
incapacity of the Partner; and may be exercised by the General Partner for
each Partner by a facsimile signature of one of its officers or by listing
all of the Partners executing any instrument with a single signature of one
of its officers acting as attorney-in-fact for all of them; and shall
survive the delivery of an assignment by a Partner of the whole or any
portion of his interest in the Partnership; except that where the assignee
thereof has been approved by the General Partner for admission to the
Partnership as a substituted partner, the Power of Attorney shall survive
the delivery of such assignment for the sole purpose of enabling the
General Partner to execute, acknowledge and file an instrument necessary to
effect such substitution.
11.3 FURTHER ASSURANCES. Upon request, each Limited Partner agrees to execute
and deliver to the Partnership, within thirty (30) days after receipt of a
written request from the General Partner, a separate form of power of
attorney granting the same powers described above; and such other further
statements of interest, holdings, designations, powers of attorney and
other instruments as the General Partner deems necessary or desirable.
ARTICLE XII
Miscellaneous Provisions
12.1 NOTICES. Notices, requests, reports, payments or other communications
required to be given or made hereunder shall be in writing and shall be
deemed to be delivered when properly addressed and posted by United States
registered or certified mail or delivered by independent courier which
provides an record of receipt, postage or delivery fees prepaid, properly
addressed to the party being given such notice at its last known address.
Addresses shown on the Schedule of Limited Partners records of the
Partnership shall be considered the last known address of each said party
unless the General Partner is otherwise notified in writing.
12.2 NATURE OF INTEREST OF PARTNERS. The interest of each Partner in the
Partnership is personal property. No Partner may anticipate the
distribution or redemption of principal or income from the Partnership and
no assignment to secure the position of a lender to a Partner shall be
valid without the express written consent of the General Partner.
12.3 GOVERNING LAW. This Agreement shall be construed in accordance with and
governed in all respects by the laws of the State of Indiana. All Partners
agree to consent to the jurisdiction and to bring all actions for claims
related to the Partnership and the sale of the Units in the State and
County of the principal office of the Partnership as it is established,
from time to time, by the General Partner. Currently, the principal office
of the Partnership is located in Steuben County, Indiana.
25
<PAGE>
12.4 SUCCESSORS IN INTEREST. This Agreement shall be binding on and inure to
the benefit of he parties hereto and, to the extent permitted by this
Agreement, their respective heirs, executors, administrators, personal
representatives, successors and assigns.
12.5 INTEGRATION. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior
and contemporaneous agreements and understandings of such parties in
connection herewith. Any amendment or supplement made hereto must be in
writing.
12.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts.
In such event, each counterpart shall constitute an original and all such
counterparts shall constitute one agreement. The addition of Limited
Partners pursuant to the power of attorney granted to the General Partner
shall not be deemed amendments to alter the rights of the other Partners
under this Agreement.
12.7 SEVERABILITY. Any provision of this Agreement which is invalid, illegal,
or unenforceable in any respect in any jurisdiction shall be, as to such
jurisdiction, ineffective to the extent of such invalidity, illegality or
unenforceability. The remaining provisions hereof in such jurisdiction
shall be and remain effective. Any such invalidity, illegality or
unenforceability in any jurisdiction shall not invalidate or in any way
effect the validity, legality or enforceability of such provision or the
remainder of this Agreement in any other jurisdiction.
12.8 WAIVERS. The failure of any Partner to seek redress for violation of or to
insist upon the strict performance of any covenant or condition of this
agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
12.9 HEADINGS. The headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any
provision hereof.
12.10 RIGHTS AND REMEDIES CUMULATIVE. This rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any
Partner shall not preclude or waive his right to use addition to any other
rights such Partner may have by law, statute, ordinance or otherwise.
12.11 WAIVER OF RIGHT TO PARTITION. Each of the Partners irrevocably waives,
during the term of the Partnership, any right that it may have to maintain
any action for partition with respect to the property and assets of the
Partnership.
12.12 INTEREST OF CERTAIN SECURED CREDITORS. No creditor who makes nonrecourse
loan to the Partnership shall have or acquire at any time as a result of
making the loan, any direct or indirect interest in the profits, Capital,
or property of the Partnership other than as a secured creditor.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement the day and year first above written.
General Partner:
PACULT ASSET MANAGEMENT, INCORPORATED
By: s/ Shira Del Pacult
Shira Del Pacult
President
Initial Limited Partner:
By: s/ Shira Del Pacult
Shira Del Pacult
26
<PAGE>
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EXHIBIT B TO FREMONT FUND DISCLOSURE DOCUMENT
FREMONT FUND, LIMITED PARTNERSHIP
REQUEST FOR REDEMPTION
To: Pacult Asset Management, Incorporated
General Partner ____________________________
5916 N. 300 West Our Social Security Number or
P. O. Drawer C Taxpayer ID Number
Fremont, IN 46737
Dear General Partner:
The undersigned hereby requests redemption ("Redemption"), as defined in
and subject to all the terms and conditions disclosed in the Offering Circular
(the "Prospectus") delivered to the undersigned at the time of our purchase of
limited partnership interests (the "Units") in the Fremont Fund, Limited
Partnership, (the "Fund"), of _______________ Units (insert the number of
Units to be Redeemed). This Redemption request, once approved and accepted by
you as General Partner, will be at the Net Asset Value per Unit, as described
in the Prospectus, as of the close of business at the end of the current month
following such approval.
The undersigned hereby represents and warrants that the undersigned is
the true, lawful and beneficial owner of the Units to which this Request
relates with full power and authority to request Redemption of such Units.
Such Units are not subject to any pledge or otherwise encumbered.
United States Taxable Limited Partners Only - Under penalty of perjury, the
undersigned hereby certifies that the Social Security Number or Taxpayer ID
Number indicated on this Request for Redemption is the undersigned's true,
cared and complete Social Security Number or Taxpayer ID Number and that the
undersigned is not subject to backup withholding under the provisions of
section 3406(a)(1)(C) of the Internal Revenue Code.
Non United States Limited Partners Only - Under penalty of perjury, the
undersigned hereby certifies that (a) the undersigned is not a citizen or
resident of the United States or (b) (in the case of an investor which is not
an individual) the investor is not a United States corporation, partnership,
estate or trust.
SIGNATURE(S) MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
Please forward redemption funds by mail to the undersigned at:
______________________________________________________________________________
Name Street City, State and Zip Code
Entity Limited Partner Individual Limited Partners(s)
__________________________ ________________________________
(Name of Entity) (Signature of Limited Partner)
By: _______________________________________ ______________________________
(Authorized corporate officer, partner, (Signature of Limited Partner)
custodian or trustee)
_______________________________________
(Title)
<PAGE>
*******************************************************************************
EXHIBIT C TO FREMONT FUND DISCLOSURE DOCUMENT
FREMONT FUND, LIMITED PARTNERSHIP
SUBSCRIPTION REQUIREMENTS
By executing the Subscription Agreement and Power of Attorney for
Fremont Fund Limited Partnership (the "Fund"), each purchaser ("Purchaser") of
Limited Partnership Interests (the "Units") in the Partnership irrevocably
subscribes for Units at a price equal to the Net Unit Value as of the end of
the month in which the subscription is accepted as described in the
Partnership's Offering Circular dated _______________, 1998, (the
"Prospectus"). The minimum subscription is $15,000; additional Units may be
purchased in multiples of $1,000. Subscriptions must be accompanied by a
check in the full amount of the subscription and made payable to "Fremont
Fund, Limited Partnership". Purchaser is also delivering to the Selling Agent
an executed Subscription Agreement and Power of Attorney (Exhibit D to the
Prospectus). Upon acceptance of Purchaser's Subscription Agreement and Power
of Attorney, Purchaser agrees to contribute Purchaser's subscription to the
Partnership and to be bound by the terms of the Partnership's Limited
Partnership Agreement, attached as Exhibit A to the Prospectus. Purchaser
agrees to reimburse the Partnership and Pacult Asset Management, Incorporated
(the "General Partner") for any expense or loss incurred as a result of the
cancellation of Purchaser's Units due to a failure of Purchaser to deliver
good funds in the amount of the subscription price. By execution of the
Subscription Agreement and Power of Attorney, Purchaser shall be deemed to
have executed the Limited Partnership Agreement.
As an inducement to the General Partner to accept this subscription,
Purchaser (for the Purchaser and, if Purchaser is an entity, on behalf of and
with respect to each of Purchaser's shareholders, partners or beneficiaries),
by executing and delivering Purchaser's Subscription Agreement and Power of
Attorney, represents and warrants to the General Partner, the Commodity Broker
and the Selling Agent who solicited Purchaser's subscription and the Fund, as
follows:
(a) Purchaser is of legal age to execute the Subscription Agreement
and Power of Attorney and is legally competent to do so. Purchaser
acknowledges that Purchaser has received a copy of the Prospectus,
including the Limited Partnership Agreement, prior to subscribing for
Units.
(b) All information that Purchaser has heretofore furnished to the
General Partner or that is set forth in the Subscription Agreement and
Power of Attorney submitted by Purchaser is correct and complete as of
the date of such Subscription Agreement and Power of Attorney, and if
there should be any change in such information prior to acceptance of
Purchaser's subscription, Purchaser will immediately furnish such
revised or corrected information to the General Partner.
(c) Unless (d) or (e) below is applicable, Purchaser's subscription
is made with Purchaser's funds for Purchaser's own account and not as
trustee, custodian or nominee for another.
(d) The subscription, if made as custodian for a minor, is a gift
Purchaser and has been made to such minor and is not made with such
minor's funds or, if not a gift, the representations as to net worth
and annual income set forth below apply only to such minor.
(e) If Purchaser is subscribing in a representative capacity,
Purchaser has full power and authority to purchase the Units and enter
and be bound by the Subscription Agreement and Power of Attorney on
behalf of the entity for which he is purchasing the Units, and such
entity has full right and power to purchase such Units and enter and
be bound by the Subscription Agreement and Power of Attorney and
become a Limited Partner pursuant to the Limited Partnership Agreement
which is attached to the Prospectus as Exhibit A.
<PAGE>
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FREMONT FUND, LIMITED PARTNERSHIP EXHIBIT D
UNITS OF LIMITED PARTNERSHIP INTEREST
SUBSCRIPTION INSTRUCTIONS
Any person considering subscribing for
Units should carefully read and review the Prospectus.
The Units are speculative and involve a high degree of risk. No person
may invest more than 10% of his or her liquid net worth (exclusive of home,
furnishings and automobiles) in the Partnership. No entity-and, in particular,
no ERISA plan-may invest more than 10% of its liquid net worth (readily
marketable securities) in the Partnership.
A Subscription Agreement and Power of Attorney Signature Page (the
"Signature Page") is attached to these Subscription Instructions and the
following Subscription Agreement and Power of Attorney. The Signature Page is
the document which you must execute if you wish to subscribe for Units. One
copy of such Signature Page should be retained by you for your records and the
others delivered to your Registered Representative.
FILL IN ALL OF THE INFORMATION ON THE ATTACHED SIGNATURE PAGE, USING
BLACK INK ONLY, AS FOLLOWS
Item 1 - Enter the dollar amount (no cents) of the purchase.
Items 2 - Enter the Social Security Number or Taxpayer ID Number
and check the appropriate box to indicate the type of
individual ownership desired or of the entity that is
subscribing. In the case of joint ownership, either
Social Security Number may be used.
The Signature Page is self-explanatory for most ownership types;
however, the following specific instructions are provided for certain of the
ownership types identified on the Signature Page:
Trusts-Enter the trust's name on Line 3 and the trustee's name on Line
4, followed by "Ttee." If applicable, use Line 7 also for the custodian's
name. Be sure to furnish the Taxpayer ID Number of the trust.
Custodian Under Uniform Gifts to Minors Act-Complete Line 3 with the
name of minor followed by "UGMA." On Line 7, after the custodian's name
followed by "Custodian." Be sure to furnish the minor's Social Security Number.
Partnership or Corporation-The partnership's or corporation's name is
required on Line 3. Enter a partner's or officer's name on Line 4. Be sure to
furnish the Taxpayer ID Number of the partnership or corporation. A subscriber
who is not an individual must provide a copy of documents evidencing the
authority of such entity to invest in the Partnership.
Item 8 - The investor(s) must execute the Subscription Agreement
and Power of Attorney Signature Page and review the
representations relating to backup withholding tax or
non-resident alien status underneath the signature and
telephone number lines in Item 9.
Item 9 - Registered Representative must complete.
The Selling Agent's copy of the Subscription Agreement and Power of Attorney
Signature Page may be required to be retained in the Branch Office.
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
UNITS OF LIMITED PARTNERSHIP INTEREST
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
Pacult Asset Management, Incorporated
General Partner ____________________________
5916 N. 300 West Social Security Number or
P. O. Drawer C Taxpayer ID Number
Fremont, IN 46737
Dear General Partner:
1. Subscription For Units. I hereby subscribe for the number of Limited
Partnership Units ("Units") in Fremont Fund, Limited Partnership (the
"Fund") set forth below (minimum $15,000) in the Subscription Agreement and
Power of Attorney Signature Page, at the Net Unit Value as set forth in the
Prospectus (the "Prospectus") of the Partnership dated _________________,
1998. I have completed and executed a Subscription Agreement and Power of
Attorney Signature Page in the form attached hereto as Exhibit "D", and
delivered the executed Subscription Documents to the Sales Agent and executed
a check made payable to "Fremont Fund, Limited Partnership" to be delivered
by the Sales Agent to the Partnership within 24 hours after receipt. The
General Partner may, in its sole and absolute discretion, accept or reject
this subscription, in whole or in part. If this subscription is accepted, I
understand subscribers will earn additional Units in lieu of interest earned
on the undersigned's subscription during any period of time, if any, such
subscription is held in escrow. If this subscription is rejected, all funds
remitted by the undersigned will be returned. All subscriptions once
submitted are irrevocable.
2. Representations and Warranties of Subscriber. I have received a copy of
the Prospectus no less than five days prior to the effective date of my
purchase. I understand that by submitting this Subscription Agreement and
Power of Attorney I am making the representations and warranties set forth in
"Exhibit C - Subscription Requirements" contained in the Prospectus,
including, without limitation, representations and warranties relating to my
net worth and annual income.
3. Power of Attorney. In connection with my acceptance of an Interest in the
Partnership, I do hereby irrevocably constitute and appoint the General
Partner, and its successors and assigns, as my true and lawful Attorney-in-
Fact, with full power of substitution, in my name, place and stead, to (i)
file, prosecute, defend, settle or compromise litigation, claims or
arbitration on behalf of the Partnership; and, (ii) make, execute, sign,
acknowledge, swear to, deliver, record and file any documents or instruments
which may be considered necessary or desirable by the General Partner to
carry out fully the provisions of the Limited Partnership Agreement of the
Partnership, which is attached as Exhibit A to the Prospectus, including,
without limitation, the execution of the said Agreement itself and by
effecting all amendments permitted by the terms thereof. The Power of
Attorney granted hereby shall be deemed to be coupled with an interest and
shall be irrevocable and shall survive, and shall not be affected by, my
subsequent death, incapacity, disability, insolvency or dissolution or any
delivery by me of an assignment of the whole or any portion of my interest in
the Partnership.
4. Irrevocability; Governing Law. I hereby acknowledge and agree that I am
not entitled to cancel, terminate or revoke this subscription or any of my
agreements hereunder after the Subscription Agreement and Power of Attorney
have been submitted (and not rejected) and that this subscription and such
agreements shall survive my death or disability. This Subscription Agreement
and Power of Attorney shall be governed by and interpreted in accordance with
the laws of the State of Indiana.
5. Suitability and Acceptance of Risks. In addition to the suitability
requirements set forth in Exhibit C, I represent and warrant to the General
Partner and Selling Agent that (i) I have the capacity of understanding the
fundamental aspects of the Partnership (or, if I do not have such fundamental
understanding, I have so advised the Selling Agent of such fact); and, (ii) I
understand the fundamental risks and possible financial hazards of an
investment in the Partnership (disclosed in the Prospectus under "Risk
Factors" identified on the face page, in the Summary, and described in the
Prospectus at page 11), including, but not limited to, the lack of liquidity
of my investment in the Partnership, the management and control by the
General Partner, and the tax consequences of the investment.
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
Units of Limited Partnership Interests
Subscription Agreement and Power of Attorney
Signature Page
The investor named below, by execution and delivery of this Subscription
Agreement and Power of Attorney, by payment of the purchase price for Limited
Partnership Interests (the "Units") in Fremont Fund, Limited Partnership (the
"Partnership"), and by enclosing a check payable to "Fremont Fund, Limited
Partnership", hereby subscribes for the purchase of Units, at the next month
end Net Asset Value per Unit.
The named investor further, by signature below, acknowledges receipt of the
Prospectus of the Partnership dated ________________, 1998 no less than five
(5) days prior to the acceptance of the subscription by the General Partner or
the purchase of Units in the Partnership and that such Prospectus includes the
Partnership's Limited Partnership Agreement, and the Subscription Requirements
and the Subscription Agreement and Power of Attorney set forth therein, the
terms of which govern the investment in the Units being subscribed for hereby.
By my signature below, I represent that I satisfy the requirements relating to
net worth and annual income as set forth in Exhibit C to the Prospectus.
1) Total $ Amount _________ (minimum of $15,000, unless lowered to less than
$15,000 but not less than $5,000 by the General Partner; $1,000 minimum
for investors making an additional investment)
2) Social Security Number _____-___-_____ Taxpayer ID # ___________________
Taxable Investors (check one):
__ Individual Ownership __ Trust other than a Grantor or Revocable Trust
__ Joint Tenants with Right of Survivorship __Estate __UGMA/UTMA (Minor)
__ Tenants in Common __Community Property __Partnership __Corporation
__ Grantor or Other Revocable Trust
Non-Taxable Investors (check one):
__ IRA __ Profit Sharing __ IRA Rollover __Defined Benefit
__ Pension __ Other (specify) __ SEP
3) Investor's Name __________________________________________________________
4) __________________________________________________________________________
Additional Information (for Estates, Trusts, Partnerships and Corporations)
5) Resident Address
of Investor _________________________________________________________
Street (P.O. Box not acceptable) City State Zip Code
6) Mailing Address
(if different) _________________________________________________________
Street City State Zip Code
7) Custodian Name
& Mailing Address_________________________________________________________
Name Street (P.O. Box not acceptable) City State Zip Code
SIGNATURE(S) - DO NOT SIGN WITHOUT FAMILIARIZING YOURSELF WITH THE INFORMATION
IN THE PROSPECTUS AND AMENDMENT, INCLUDING: (I) THE FUNDAMENTAL RISKS AND
FINANCIAL HAZARDS OF THIS INVESTMENT, INCLUDING THE RISK OF LOSING YOUR ENTIRE
INVESTMENT; (II) THAT THE PARTNERSHIP IS THE FIRST CLIENT ACCOUNT TO TRADE IN
THE FREMONT FUND PORTFOLIO; (III) THE PARTNERSHIP'S SUBSTANTIAL CHARGES; (IV)
THE PARTNERSHIP'S HIGHLY LEVERAGED TRADING ACTIVITIES; (V) THE LACK OF
LIQUIDITY OF THE UNITS; (VI) THE EXISTENCE OF ACTUAL AND POTENTIAL CONFLICTS
OF INTEREST IN THE STRUCTURE AND OPERATION OF THE PARTNERSHIP; (VII) THAT
UNITHOLDERS MAY NOT TAKE PART IN THE MANAGEMENT OF THE PARTNERSHIP; AND (VIII)
THE TAX CONSEQUENCES OF THE PARTNERSHIP.
8) INVESTOR(S) MUST SIGN
X_______________________________________________________
Signature of Investor Date Telephone No.
X_______________________________________________________
Signature of Investor Date
Investor must sign individually, or pursuant to a power of attorney; provided,
however, that such power of attorney has not been granted to a registered
representative of a Selling Agent.
Executing and delivering this Subscription Agreement and Power of Attorney
shall in no respect be deemed to constitute a waiver of any rights under the
Securities Act of 1933 or under the Securities Exchange Act of 1934.
UNITED STATES INVESTORS ONLY
I have checked the following box if I am subject to backup withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: [ ].
Under the penalties of perjury, by signature above I hereby certify that the
Social Security Number or Taxpayer ID Number set forth in Item 2 above is my
true, correct and complete Social Security Number of Taxpayer ID Number and
that the information given in the immediately preceding sentence is true,
correct and complete.
NON-UNITED STATES INVESTORS ONLY
Under the penalties of perjury, by signature above, I hereby certify that (a)
I am not a citizen or resident of the United States or (b) (in the case of an
investor which is not an individual) the investor is not a United States
corporation, partnership, estate or trust: [ ].
9) REGISTERED REPRESENTATIVE MUST SIGN
I hereby certify that I have informed the investor of all pertinent facts
relating to the: risks; tax consequences; liquidity and marketability;
management; and control of the Managing Owner with respect to an investment
in the Units, as set forth in the Prospectus and Amendment. I have also
informed the investor of the unlikelihood of a public trading market
developing for the Units. I do not have discretionary authority over the
account of the investor.
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments,
financial situation and needs and any other information known by me, that an
investment in the Partnership is suitable for such investor in light of
his/her financial position, net worth and other suitability characteristics.
The Registered Representative MUST sign below in order to substantiate
compliance with Article III, Section 34 of the NASD's Rules of Fair
Practice.
X_______________________________________________________
Registered Representative Signature Date
X_______________________________________________________
Office Manager Signature Date
(if required by Selling Agent procedures)
10) REGISTERED REPRESENTATIVE 11) SELLING AGENT
Name: Shira Del Pacult Name: Futures Investment Company
Address: 5916 N. 300 West Address: 5916 N. 300 West
Fremont, IN 46737 Fremont, IN 46737
Tel. Number: (219) 833-1306 Tel. Number: (219) 833-1306
<PAGE>
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EXHIBIT E TO FREMONT FUND DISCLOSURE DOCUMENT
INVESTMENT ADVISORY CONTRACT
MICHAEL J. FRISCHMEYER
THIS AGREEMENT is made and entered as of this __________ day of August,
1995 between Fremont Fund, Limited Partnership, (the "Fund") and Michael J.
Frischmeyer, (the "CTA").
WITNESSETH:
In consideration of the deposit by the Fund of equity to ABN AMRO
Incorporated account number _________________ (the "Account") and the grant of
the power of attorney on the standard form of the FCM to the CTA to permit the
CTA to enter trades for the Fund in the Account, the parties hereto agree as
follows:
1. The Fund shall initially deposit in the Account with the FCM, U.S. funds
in the amount of $ _______________. Subsequent deposits and accumulation of
profits in the Account, less withdrawals and losses, shall be subject to this
Agreement. At its sole discretion, the Fund may add or withdraw funds at any
time from the Account by written request to the FCM with a copy to the CTA.
2. CTA will cause futures contracts, and when deemed advisable, options on
futures and forward contracts, to be bought and sold on behalf of the Fund in
the Account. CTA will have the sole authority to issue all necessary
instructions to effect trading with the FCM for the Account. All such
transactions shall be for the account and risk of the Fund. During the term
of this agreement, the Fund agrees that they will not place orders in the
Account without prior written consent of the Adviser.
3. The CTA's services are not rendered exclusively for the Fund and CTA shall
be free to render similar services to others. The General Partner may change
the FCM for the account assigned to the CTA at anytime upon written direction
to the FCM and the CTA and CTA agrees to effect the transfer and sign the
forms necessary to complete such change.
4. The IB shall charge the Fund a fixed commission of 12% of the Net Equity
in the account assigned to the CTA payable at the rate of 1% per month. This
payment to the IB will be for all round turns, pit brokerage, exchange, NFA
fees and other clearing expenses arising from the trades placed by the CTA in
the account for domestic trades. This does not include delivery or other
exchange for physicals or trades made on foreign exchanges or forward markets.
Those costs will be at rates to be negotiated by the General Partner with the
IB or other party, as the facts determine, and charged to the Fund.
5. CTA will use its best efforts to obtain an equity run from the FCM before
the opening of business the next trading day. Unless authorized in writing
by the General Partner, the CTA will use only the equity in the Account or
Accounts assigned to the CTA by the General Partner for margins to hold the
positions taken by the CTA. No equity in the Account assigned to the CTA will
be commingled or margined, for any purpose, with any other account at the FCM.
The General Partner, upon written instruction to the FCM may terminate, for
any reason, the power of attorney and suspend the trading authority of the CTA
to enter trades with the FCM. In the event of a termination of the power of
attorney, the CTA agrees that the FCM shall accept no further instructions
from the CTA but shall place the Account upon liquidation only to be handled
in written instructions from the General Partner to the FCM.
6. Fund agrees to execute, from time to time, the Acknowledgment of Receipt
of Disclosure Document from the CTA. By signing, the Fund agrees that it has
received and understands the most recent copy of the Adviser's Risk Disclosure
Document.
7. The Fund agrees to execute the Advisers Managed Account Compensation
Agreement authorizing the CTA to be paid its management fee from the Account.
The CTA will be paid an annual management fee of four percent (4%) of the
equity on deposit in the Account payable on the first of each month computed
upon the equity on deposit on the last day of the preceding month. In
addition, the CTA will be paid an incentive fee of fifteen percent (15%), of
the New Net Profit earned each quarter, which shall not be deducted from the
Account, but will be paid upon submission of an invoice by the CTA to the
General Partner of the Fund.
8. Fund and CTA agree that they have properly executed all the necessary
account forms for opening the Account with the FCM; provided, however, any
disputes will be submitted to arbitration only upon written agreement of the
parties at the time such dispute arises and the terms of this Agreement will
supersede any terms contained in any other agreement between the parties
hereto and, in the event of any conflicts, the terms of this Agreement shall
control. This Agreement will be governed by the laws of the State of Illinois
and any dispute will be resolved by a court of competent jurisdiction located
in Chicago, Illinois.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement the day and year first above written.
Fremont Investment, Limited Partnership Mr. Michael J. Frischmeyer
By: Pacult Asset Management, Inc.
__________________________________ ________________________________
Ms. Shira Del Pacult Michael J. Frischmeyer
President
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EXHIBIT F TO FREMONT FUND DISCLOSURE DOCUMENT
INVESTMENT ADVISORY CONTRACT
EPIC TRADING
THIS AGREEMENT is made and entered as of this __________ day of July,
1998 between Fremont Fund, Limited Partnership, (the "Fund") and EPIC
Trading, (the "CTA"), a sole proprietorship with Bradley P. Jordan, Commodity
Trading Advisor as principal.
WITNESSETH:
In consideration of the deposit by the Fund of equity to ABN AMRO
Incorporated account number _________________ (the "Account") and the grant of
the power of attorney on the standard form of the FCM to the CTA to permit the
CTA to enter trades for the Fund in the Account, the parties hereto agree as
follows:
1. The Fund shall initially deposit in the Account with the FCM, U.S. funds
in the amount of $ _______________. Subsequent deposits and accumulation of
profits in the Account, less withdrawals and losses, shall be subject to this
Agreement. At its sole discretion, the Fund may add or withdraw funds at any
time from the Account by written request to the FCM with a copy to the CTA.
2. CTA will cause futures contracts, and when deemed advisable, options on
futures and forward contracts, to be bought and sold on behalf of the Fund in
the Account. CTA will have the sole authority to issue all necessary
instructions to effect trading with the FCM for the Account. All such
transactions shall be for the account and risk of the Fund. During the term
of this agreement, the Fund agrees that they will not place orders in the
Account without prior written consent of the Adviser.
3. The CTA's services are not rendered exclusively for the Fund and CTA shall
be free to render similar services to others. The General Partner may change
the FCM for the account assigned to the CTA at anytime upon written direction
to the FCM and the CTA and CTA agrees to effect the transfer and sign the
forms necessary to complete such change.
4. The IB shall charge the Fund a fixed commission of 12% of the Net Equity
in the account assigned to the CTA payable at the rate of 1% per month. This
payment to the IB will be for all round turns, pit brokerage, exchange, NFA
fees and other clearing expenses arising from the trades placed by the CTA in
the account for domestic trades. This does not include delivery or other
exchange for physicals or trades made on foreign exchanges or forward markets.
Those costs will be at rates to be negotiated by the General Partner with the
IB or other party, as the facts determine, and charged to the Fund.
5. CTA will use its best efforts to obtain an equity run from the FCM before
the opening of business the next trading day. Unless authorized in writing
by the General Partner, the CTA will use only the equity in the Account or
Accounts assigned to the CTA by the General Partner for margins to hold the
positions taken by the CTA. No equity in the Account assigned to the CTA will
be commingled or margined, for any purpose, with any other account at the FCM.
The General Partner, upon written instruction to the FCM may terminate, for
any reason, the power of attorney and suspend the trading authority of the CTA
to enter trades with the FCM. In the event of a termination of the power of
attorney, the CTA agrees that the FCM shall accept no further instructions
from the CTA but shall place the Account upon liquidation only to be handled
in written instructions from the General Partner to the FCM.
6. Fund agrees to execute, from time to time, the Acknowledgment of Receipt
of Disclosure Document from the CTA. By signing, the Fund agrees that it has
received and understands the most recent copy of the Adviser's Risk Disclosure
Document.
7. The Fund agrees to execute the Advisers Managed Account Compensation
Agreement authorizing the CTA to be paid its management fee from the Account.
The CTA will be paid an annual management fee of four percent (4%) of the
equity on deposit in the Account payable on the first of each month computed
upon the equity on deposit on the last day of the preceding month. In
addition, the CTA will be paid an incentive fee of fifteen percent (15%), of
the New Net Profit earned each quarter, which shall not be deducted from the
Account, but will be paid upon submission of an invoice by the CTA to the
General Partner of the Fund.
8. Fund and CTA agree that they have properly executed all the necessary
account forms for opening the Account with the FCM; provided, however, any
disputes will be submitted to arbitration only upon written agreement of the
parties at the time such dispute arises and the terms of this Agreement will
supersede any terms contained in any other agreement between the parties
hereto and, in the event of any conflicts, the terms of this Agreement shall
control. This Agreement will be governed by the laws of the State of Illinois
and any dispute will be resolved by a court of competent jurisdiction located
in Chicago, Illinois.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement the day and year first above written.
Fremont Investment, Limited Partnership EPIC Trading
By: Pacult Asset Management, Inc.
__________________________________ ________________________________
Ms. Shira Del Pacult Bradley P. Jordan
President
*******************************************************************************
EXHIBIT G TO FREMONT FUND DISCLOSURE DOCUMENT
INVESTMENT ADVISORY CONTRACT
BELL FUNDAMENTAL FUTURES, L.L.C.
THIS AGREEMENT is made and entered as of this __________ day of July,
1998 between Fremont Fund, Limited Partnership, (the "Fund") and Bell
Fundamental Futures, L.L.C. (the "CTA"), a Tennessee Limited Liability
Corporation.
WITNESSETH:
In consideration of the deposit by the Fund of equity to ABN AMRO
Incorporated account number _________________ (the "Account") and the grant of
the power of attorney on the standard form of the FCM to the CTA to permit the
CTA to enter trades for the Fund in the Account, the parties hereto agree as
follows:
1. The Fund shall initially deposit in the Account with the FCM, U.S. funds
in the amount of $ _______________. Subsequent deposits and accumulation of
profits in the Account, less withdrawals and losses, shall be subject to this
Agreement. At its sole discretion, the Fund may add or withdraw funds at any
time from the Account by written request to the FCM with a copy to the CTA.
2. CTA will cause futures contracts, and when deemed advisable, options on
futures and forward contracts, to be bought and sold on behalf of the Fund in
the Account. CTA will have the sole authority to issue all necessary
instructions to effect trading with the FCM for the Account. All such
transactions shall be for the account and risk of the Fund. During the term
of this agreement, the Fund agrees that they will not place orders in the
Account without prior written consent of the Adviser.
3. The CTA's services are not rendered exclusively for the Fund and CTA shall
be free to render similar services to others. The General Partner may change
the FCM for the account assigned to the CTA at anytime upon written direction
to the FCM and the CTA and CTA agrees to effect the transfer and sign the
forms necessary to complete such change.
4. The IB shall charge the Fund a fixed commission of 12% of the Net Equity
in the account assigned to the CTA payable at the rate of 1% per month. This
payment to the IB will be for all round turns, pit brokerage, exchange, NFA
fees and other clearing expenses arising from the trades placed by the CTA in
the account for domestic trades. This does not include delivery or other
exchange for physicals or trades made on foreign exchanges or forward markets.
Those costs will be at rates to be negotiated by the General Partner with the
IB or other party, as the facts determine, and charged to the Fund.
5. CTA will use its best efforts to obtain an equity run from the FCM before
the opening of business the next trading day. Unless authorized in writing
by the General Partner, the CTA will use only the equity in the Account or
Accounts assigned to the CTA by the General Partner for margins to hold the
positions taken by the CTA. No equity in the Account assigned to the CTA will
be commingled or margined, for any purpose, with any other account at the FCM.
The General Partner, upon written instruction to the FCM may terminate, for
any reason, the power of attorney and suspend the trading authority of the CTA
to enter trades with the FCM. In the event of a termination of the power of
attorney, the CTA agrees that the FCM shall accept no further instructions
from the CTA but shall place the Account upon liquidation only to be handled
in written instructions from the General Partner to the FCM.
6. Fund agrees to execute, from time to time, the Acknowledgment of Receipt
of Disclosure Document from the CTA. By signing, the Fund agrees that it has
received and understands the most recent copy of the Adviser's Risk Disclosure
Document.
7. The Fund agrees to execute the Advisers Managed Account Compensation
Agreement authorizing the CTA to be paid its management fee from the Account.
The CTA will be paid an annual management fee of four percent (4%) of the
equity on deposit in the Account payable on the first of each month computed
upon the equity on deposit on the last day of the preceding month. In
addition, the CTA will be paid an incentive fee of fifteen percent (15%), of
the New Net Profit earned each quarter, which shall not be deducted from the
Account, but will be paid upon submission of an invoice by the CTA to the
General Partner of the Fund.
8. Fund and CTA agree that they have properly executed all the necessary
account forms for opening the Account with the FCM; provided, however, any
disputes will be submitted to arbitration only upon written agreement of the
parties at the time such dispute arises and the terms of this Agreement will
supersede any terms contained in any other agreement between the parties
hereto and, in the event of any conflicts, the terms of this Agreement shall
control. This Agreement will be governed by the laws of the State of Illinois
and any dispute will be resolved by a court of competent jurisdiction located
in Chicago, Illinois.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement the day and year first above written.
Fremont Investment, Limited Partnership Bell Fundamental Futures, L.L.C.
By: Pacult Asset Management, Inc.
__________________________________ ________________________________
Ms. Shira Del Pacult David M. Bell
President President
<F9>**************************************************************************
POST EFFECTIVE AMENDMENT NUMBER FIVE TO FORM S-1
Registration No. 33-96292
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
(b) The Selling Agreement between Futures Investment Company and the
Registrant contains an indemnification from the General Partner to the
effect that the disclosures in the Prospectus and this Amendment are in
compliance with Rule 10b5 and otherwise true and complete. This
indemnification speaks from the date of the first offering of the Units
through the end of the applicable statute of limitations. The
Partnership has assumed no responsibility for any indemnification to
Futures Investment Company and the General Partner is prohibited by the
Partnership Agreement from receiving indemnification for breach of any
securities laws or for reimbursement for insurance for coverage for any
such claims. See Article X, Section 10.4 (b) and (e).
(d) There are no indemnification agreements which are not contained in the
Limited Partnership Agreement attached as Exhibit A, the Selling
Agreement or the Clearing Agreement.
Item 16. Exhibits and Financial Statement Schedules.
The following documents (unless indicated) are filed herewith and made a
part of this Registration Statement:
(a) Exhibits.
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Date Filed
<S> <C> <C>
(1) - 01 Selling Agreement dated March 12, 1996, among the Partnership, the
General Partner, and World Invest Corporation, the Broker/Dealer. March 12, 1996
(1) - 02 Selling Agreement dated July 22, 1997, among the Partnership, the July 30, 1997
General Partner, and Futures Investment Company, the Broker/Dealer.
(2) None
(3) - 01 Articles of Incorporation of the General Partner August 28, 1995
(3) - 02 By-Laws of the General Partner August 28, 1995
(3) - 03 Board Resolution of General Partner to authorize formation of
Indiana Limited Partnership August 28, 1995
(3) - 04 Amended and Restated Agreement of Limited Partnership of the
Registrant dated January 15, 1996
(included as Exhibit A to the Prospectus). July 17, 1996
(3) - 05 Indiana Secretary of State acknowledgment of filing of Certificate
of Limited Partnership April 11, 1996
(3) - 06 Certificate of Limited Partnership, Designation of Registered Agent
and Certificate of Initial Capital filed with the Indiana Secretary
of State on January 12, 1996 April 11, 1996
(4) - 01 Amended and Restated Agreement of Limited Partnership of the
Registrant dated January 15, 1996
(included as Exhibit A to the Prospectus). July 17, 1996
(5) - 01 Opinion of The Scott Law Firm relating to the legality of the
Partnership Units. August 28, 1995
(6) Not Applicable
(7) Not Applicable
(8) - 01 Opinion of The Scott Law Firm with respect to Federal income tax
consequences. March 12, 1996
(9) None
1
<PAGE>
(10) - 01 Form of Advisory Agreement between the Partnership and the CTA
(included as Exhibit F to the Prospectus) August 28, 1995
(10) - 02 Form of New Account Agreement between the Partnership and the FCM March 12, 1996
(10) - 03 Form of Subscription Agreement and Power of Attorney
(included as Exhibit D to the Prospectus). August 7, 1998
(10) - 04 Escrow Agreement among Escrow Agent, Underwriter, and the
Partnership. (included as Exhibit E to the Prospectus). August 28, 1995
(10) - 05 Introducing Broker Clearing Agreement dated the 19th day of October,
1995, by and between The Chicago Corporation as futures commission
merchant (the "FCM") and Futures Investment Co. as introducing
broker (the "IB") April 11, 1996
(11) Not Applicable - start-up business
(12) Not Applicable
(13) Not Required
(14) None
(15) None
(16) Not Applicable
(17) Not Required
(18) Not Required
(19) Not Required
(20) Not Required
(21) None
(22) Not Required
(23) - 01 Consent of Frank L. Sassetti & Co., Certified Public Accountants December 14, 1998
(23) - 02 Consent of James Hepner, Certified Public Accountant August 28, 1995
(23) - 03 Consent of The Scott Law Firm. December 8, 1997
(23) - 04 Consent of Michael J. Frischmeyer, CTA December 8, 1997
(23) - 05 Consent of World Invest Corporation August 5, 1996
(23) - 06 Consent of Escrow Agent August 28, 1995
(23) - 07 Consent of The Chicago Corporation June 7, 1996
(23) - 08 Consent of Futures Investment Company December 8, 1997
(24) None
(25) None
(26) None
(27) Not Applicable
(28) Not Applicable
(99) - 01 Subordinated Loan Agreement for Equity Capital April 11, 1996
(99) - 02 Representative's Agreement between World Invest Corporation and
Shira Del Pacult dated December 10, 1992 June 7, 1996
(99) - 03 Representative's Agreement between Futures Investment Company and
Shira Del Pacult dated July 28, 1997 June 7, 1996
</TABLE>
(b) Financial Statement Schedules.
No Financial Schedules are required to be filed herewith.
Item 17. Undertakings.
(a) (1) The undersigned registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental: change in the information set forth in the
registration statement;
2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) The General Partner has provided an indemnification to Futures
Investment Company, the best efforts selling agent. The Partnership (issuer)
has not made any indemnification to Futures Investment Company.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant including, but not limited to, the General Partner pursuant to the
provisions described in Item 14 above, or otherwise, the Registrant had been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any such action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
3
<PAGE>
******************************************************************************
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the General
Partner of the Registrant has duly caused this Post Effective Amendment
Number Five to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont in the State
of Indiana on the 4th day of December, 1998.
PACULT ASSET MANAGEMENT, INC. FREMONT FUND
BY PACULT ASSET MANAGEMENT, INC.
GENERAL PARTNER
By: /s/ MS. SHIRA PACULT By: /s/ MS. SHIRA PACULT
MS. SHIRA PACULT MS. SHIRA PACULT
PRESIDENT PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Post Effective Amendment Number Five has been signed
below by the following person on behalf of Pacult Asset Management, Inc.,
General Partner of the Registrant in the capacities and on the date indicated.
/s/ MS. SHIRA PACULT
MS. SHIRA PACULT Date: December 4, 1998
PRESIDENT
(Being the principal executive officer, the principal financial and
accounting officer and the sole director of Pacult Asset Management, Inc.,
General Partner of the Fund)
CONSENT OF ROBERT W. KRONE, CPA
and FRANK L. SASSETTI & CO.
The undersigned, Frank L. Sassetti & Co., hereby consents to the use of the
audit reports and certifications for the periods ended December 31, 1996,
and December 31, 1997 for Fremont Fund, Limited Partnership and to the use
of the audit reports and certifications for the period ended December 31,
1996 for Pacult Asset Management, Inc. in the Post Effective Amendment
Number Five to Form S-1.
The undersigned hereby further consents to the inclusion of its name and the
other information under the section "Experts" in the Post Effective
Amendment Number Five to Form S-1 registration statement to be filed with the
Securities and Exchange commission and the states to be selected by the
General Partner.
/s/ Frank L. Sassetti & Co.
Frank L. Sassetti & Co.
6611 West North Avenue
Oak Park, Illinois 60302
(708) 386-1433
Date: November 30, 1998
