As Filed with the Securities and Exchange Commission on April 12, 1999
Registration No. 33-96292
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
POST EFFECTIVE AMENDMENT NUMBER SEVEN 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 $621,134.80 (as of Dec 31, 1998), the General Partner
estimates the Partnership must generate a 37.3% return on investment during
its first twelve months of trading to offset expenses and approximately 40.3%
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
Date of this Prospectus us April 12, 1999
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, P.O. Box C, 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 26 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 22.
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]
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
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 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.
[The balance of this page has been intentionally left blank.]
TABLE OF CONTENTS
COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT ii
NOTICE TO RESIDENTS OF ALL STATES iii
VARIOUS SPECIFIC STATE NOTICES iv
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 CTA TO SERVE OTHER COMPETING BUSINESSES 11
PARTNERSHIP HAS LIMITED OPERATING HISTORY 11
CONFLICTS OF INTEREST IN THE PARTNERSHIP STRUCTURE 12
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 13
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
INCREASED TRADING EQUITY TO CTA MAY ADVERSELY AFFECT THEIR PERFORMANCE 13
PARTNERSHIP WILL NOT BE COMPENSATED IF PARTNERSHIP ACTIVITY RESULTS IN
LOWER COMMISSIONS FOR OTHER ACCOUNTS 14
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 CTA's
ABILITY TO TRADE PROFITABLY 15
FAILURE TO MAINTAIN NET WORTH OF THE GENERAL PARTNER MAY RESULT IN
SUSPENSION OF TRADING AND SUSTAINED LOSSES 16
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 17
POSSIBLE ADVERSE DETERMINATION BY THE IRS - PARTNERS MAY BE SUBJECT TO
BACK TAXES AND PENALTIES 17
CONFLICTS OF INTEREST 17
GENERAL PARTNER, THE CTA, AND THEIR PRINCIPALS MAY PREFERENTIALLY
MANAGE EQUITY FOR THEMSELVES AND OTHERS 17
POSSIBLE RETENTION OF VOTING CONTROL BY THE GENERAL PARTNER MAY LIMIT
PARTNERS' 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
THE PARTNERSHIP MAY ENGAGE MULTIPLE CTAs 19
GENERAL PARTNER TO DISCOURAGE REDEMPTIONS 19
CTA 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 20
THE PARTNERSHIP - GENERAL PARTNER - BOOKS AND RECORDS 20
THE COMMODITY TRADING ADVISOR 20
THE ADVISORY CONTRACT AND POWER 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 24
INDEMNIFICATION 24
RELATIONSHIP WITH THE FCM AND THE IB 25
RELATIONSHIP WITH THE CTA 25
RISK CONTROL 26
CHARGES TO THE PARTNERSHIP 26
COMPENSATION OF GENERAL PARTNER 26
MANAGEMENT FEE AND INCENTIVE FEES TO THE CTA 26
FEES TO FUTURES COMMISSION MERCHANT AND INTRODUCING BROKER 27
ALLOCATION OF COMMISSIONS 27
OTHER EXPENSES 28
CHARGES TO THE PARTNERSHIP 28
INVESTOR SUITABILITY 29
POTENTIAL ADVANTAGES 29
EQUITY MANAGEMENT 29
INVESTMENT DIVERSIFICATION 29
LIMITED LIABILITY 29
ADMINISTRATIVE CONVENIENCE 30
ACCESS TO THE CTA 30
USE OF PROCEEDS 30
DETERMINATION OF THE OFFERING PRICE 30
NO MARKET AND LIMITATION OF RIGHT OF TRANSFER 31
THE GENERAL PARTNER 31
IDENTIFICATION 31
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 32
SELECTION OF COMMODITY TRADING ADVISORS AND ALLOCATION OF EQUITY 32
THE ADVISORY CONTRACTS 32
FREQUENCY OF CTA AND EQUITY REALLOCATIONS 32
THE COMMODITY TRADING ADVISORS 33
PERFORMANCE OF FREMONT FUND, LIMITED PARTNERSHIP 36
THE FUTURES COMMISSION MERCHANT 45
FEDERAL INCOME TAX ASPECTS 46
SCOPE OF TAX PRESENTATION 46
NO LEGAL OPINION AS TO CERTAIN MATERIAL TAX ASPECTS 47
PARTNERSHIP TAX STATUS AND NET WORTH OF THE GENERAL PARTNER 47
NO IRS RULING 47
TAX OPINION 47
PASSIVE LOSS AND UNRELATED BUSINESS INCOME TAXES RULES 48
BASIS LOSS LIMITATION 48
AT-RISK LIMITATION 49
INCOME AND LOSSES FROM PASSIVE ACTIVITIES 49
ALLOCATION OF PROFITS AND LOSSES 49
TAXATION OF FUTURES AND FORWARD TRANSACTIONS 49
SECTION 988 FOREIGN CURRENCY TRANSACTIONS 50
CAPITAL GAIN AND LOSS PROVISIONS 50
BUSINESS FOR PROFIT 50
SELF-EMPLOYMENT INCOME AND TAX 50
INDIVIDUAL ALTERNATIVE MINIMUM TAX 50
INTEREST RELATED TO TAX EXEMPT OBLIGATIONS 50
NOT A TAX SHELTER 51
TAXATION OF FOREIGN PARTNERS 51
PARTNERSHIP ENTITY-AUDIT PROVISIONS-PENALTIES 51
EMPLOYEE BENEFIT, RETIREMENT PLANS AND IRA'S 51
THE LIMITED PARTNERSHIP AGREEMENT 52
FORMATION OF THE PARTNERSHIP 52
UNITS 52
MANAGEMENT OF PARTNERSHIP AFFAIRS 52
ADDITIONAL OFFERINGS 52
PARTNERSHIP ACCOUNTING, REPORTS, AND DISTRIBUTIONS 52
FEDERAL TAX ALLOCATIONS 53
TRANSFER OF UNITS ONLY WITH CONSENT OF THE GENERAL PARTNER 53
TERMINATION OF THE PARTNERSHIP 53
MEETINGS 53
REDEMPTIONS 53
PLAN OF DISTRIBUTION 54
SUBSCRIPTION PROCEDURE 54
LEGAL MATTERS 54
LITIGATION AND CLAIMS 54
LEGAL OPINION 55
EXPERTS 55
ADDITIONAL INFORMATION 55
FINANCIAL STATEMENTS
A. FREMONT FUND, LIMITED PARTNERSHIP
Audited Balance Sheets and Income Statements as of December 31, 1996,
1997 and 1998
With Notes to Statement of Financial Condition
Unaudited Balance Sheet and Income Statement as of February 28, 1999
B. PACULT ASSET MANAGEMENT, INC.
Audited Balance Sheets and Income Statements as of December 31, 1996,
1997 and 1998
With Notes to Statement of Financial Condition
Unaudited Balance Sheet and Income Statement as of February 28, 1999
APPENDIX I - Commodity Terms And Definitions; State Regulatory Glossary
APPENDIX II - Performance Record Of The Fund
APPENDIX III - 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 Bell Fundamental Futures, L.L.C.
EXHIBIT F - Form of Advisory Agreement for Hanseatic Corporation
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, P.O. Box C,
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 18 years. In addition, Ms. Pacult is the principal of
another public commodity pool, Atlas Futures Fund, Limited Partnership, which
has not yet commenced business. 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 $25,000; provided, however, the General Partner, in its sole discretion,
may reduce this amount while maintaining regulatory compliance.
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 April, 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 18
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 $290.31 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
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.
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) If a CTA is replaced, the new CTA will receive incentive fees based upon
the date of the allocation of equity to that CTA, regardless of the
profitability of the previous CTA. Also, as incentive fees are paid with
respect to the individual performance of each CTA, it is possible for the
Partnership to experience a net loss and be required to pay out incentive
fees.
(viii) 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.
(ix) 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. In
addition, each CTA will trade independently of the others. Thus, the CTAs may
compete for similar positions or take positions opposite each other, which may
limit the profitability of the Partnership.
(x) 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 following diagram
represents the Partnership structure and summary of commissions received. See
"Charges to the Partnership".
Diagram of Partnership Structure & Commissions
Fremont Fund, Limited Partnership
[Diagram Omitted]
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 40.4% return on equity based on the
current amount of equity invested in the Partnership, or a 26.5% 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 their Capital Contribution.
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 February 28, 1999, there were 910 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 limit
to Capital Contributions 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 Incorporated, 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. 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 it 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
<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
the CTAs
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 Capital 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. The balance is 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 Incorporated, (the
"Futures Commission Merchant"). The Partnership currently relies, pursuant to
the Advisory Agreement and Power of Attorney attached as Exhibit E, upon Bell
Fundamental Futures, LLC ("Bell"), the Commodity Trading Advisor 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. The
first $600,000 of new equity raised pursuant to this offering will be assigned
to Hanseatic Corporation ("Hanseatic") (see Exhibit F); and, thereafter, the
General Partner intends to distribute all future equity among the two CTAs
equally. 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. As each CTA will trade independently of the others,
the CTAs may compete for similar positions or take positions opposite each
other, which may limit the profitability of the Partnership. If a CTA is
replaced, the new CTA will receive incentive fees based upon the date of the
allocation of equity to that CTA, regardless of the profitability of the
previous CTA. As incentive fees are paid with respect to the individual
performance of each CTA, it is possible for the Partnership to experience a
net loss and be required to pay out incentive fees. 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 advisor 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 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 sixth 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 six months; i.e., 7-12 months a Redemption fee of 3%, 13-18 months 2%,
19-24 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 $25,000. The
General Partner may, in its sole discretion, agree to accept investments from
a subscriber of less than $25,000 while maintaining regulatory compliance.
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.
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 April, 1998. However, the principal
of the General Partner has over eighteen years of experience selecting
commodity trading advisors to manage individual investor accounts and
describing to individual investors how individual managed futures accounts
work. In addition, Ms. Pacult is the principal of another public commodity
pool, Atlas Futures Fund, Limited Partnership, which has not yet commenced
business.
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, as well as 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 $290.31 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 February 28, 1999,
was $717.80 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) 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"). As such, 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 $625,000 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. The General
Partner intends to use its best efforts to satisfy the IRS requirements
necessary to cause the Partnership to be taxed as a partnership and not as a
corporation. 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 Bell and Hanseatic as CTAs (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". In addition, the principal of the
General Partner is the principal of another public commodity pool, Atlas
Futures Fund, Limited Partnership, which has not yet commenced business. 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. In addition, the principal of the General
Partner is the principal of another public commodity pool, Atlas Futures Fund,
Limited Partnership, which has not yet commenced business. 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 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 E and F, upon Bell and Hanseatic for the
implementation of trading methods and strategies. 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. In addition, if a CTA is
replaced, the new CTA will receive incentive fees based upon the date of the
allocation of equity to that CTA, regardless of the profitability of the
previous 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 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.
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 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 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 equity to cover the margin call.
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. Additionally, as each CTA will trade independently of the others, the
CTAs may compete for similar positions or take positions opposite each other,
which may limit the profitability of the Partnership.
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,
Bell uses his best efforts to trade every $50,000 the same. In other words,
the Trading Matrix for Bell is $50,000. No assurance can be given that a
CTA's 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 assign equity 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 its 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 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 and 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".
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 advisor 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
and Offering Expenses are not deductible or amortizable by the Partnership or
its Partners.
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 as well as 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.
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.
THE PARTNERSHIP WILL ENGAGE MULTIPLE CTAs
The General Partner has sole and absolute discretion over the selection of the
CTAs. As each CTA will trade independently of the others, the CTAs may
compete for similar positions or take positions opposite each other, which may
limit the profitability of the Partnership. If a CTA is replaced, the new CTA
will receive incentive fees based upon the date of the allocation of equity to
that CTA, regardless of the profitability of the previous CTA. As incentive
fees are paid with respect to the individual performance of each CTA, it is
possible for the Partnership to experience a net loss and be required to pay
out incentive fees.
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, P.O. Box C, 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.
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, Ms. Pacult,
has over eighteen years of experience in the sale of commodity pool interests
for other pool operators and the management of individual managed commodity
accounts. In addition, Ms. Pacult is the principal of another public
commodity pool, Atlas Futures Fund, Limited Partnership, which has not yet
commenced business.
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. As of February, 1999, Frischmeyer
and EPIC were removed as CTAs and Bell was added as a CTA and allocated
trading equity. The first $600,000 of new equity raised pursuant to this
offering will be allocated to Hanseatic Corporation ("Hanseatic"); and,
thereafter, the General Partner intends to allocate substantially all future
trading equity among the two CTAs equally. 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 will assign a substantial portion of the Partnership
assets to the CTAs it has selected to trade. The terms of this assignment of
assets is governed by Advisory Contracts and Powers of Attorney signed by each
CTA. See Exhibits E and F. The Advisory Contracts and Powers of Attorney
granted by the Partnership to the CTAs are 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's Net Assets to conduct this trading with the CTAs. The CTAs have
advised that they have allocated between 20% and 30% of the trading equity
assigned to them 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 40.4% assuming current Net Assets of the Partnership,
or 26.5% assuming Net Assets of the 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 792 Units ($568,176.89) 6,966 Units
Selling Price per Unit (1) $ 717.80 $ 717.80
Selling Commission (1) $ 43.07 $ 43.07
Offering and Organizational Expenses (2) 66.96 7.61
General Partner's Management Fee 14.36 14.36
Partnership Operating Expenses (3) 29.06 3.30
Trading Advisors' Management Fees (4) 28.71 28.71
Trading Advisors' Incentive Fees on New Net Profits (5) 43.55 28.53
Brokerage Commissions and Trading Fees (6) 86.14 86.14
Redemption Fee (7) 21.53 21.53
Less Interest Income (8) (43.07) (43.07)
Amount of Trading Income Required to Redeem Unit
at Selling Price (9) $ 290.31 $ 190.18
Percentage of Initial Selling Price per Unit 40.4% 26.5%
Explanatory Notes:
(1) Investors will purchase Units at the current Net Unit Value which, as of
February 28, 1999, was $717.80 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 it to trade. The $43.55 of
incentive fees shown above is equal to 15% of total trading income of $290.31
which is adjusted to earn sufficient income to return the original investment
amount ($717.80 as of February 28, 1999) to the investor upon Redemption at
the end of the first year without computation of incentive fee upon the
interest earned or the incentive 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 3% is computed upon the assumed $717.80 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) 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.
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 Net Assets of the Partnership is paid to
the Partners in their pro rata share determined by the amount of Capital
Contributions of each Partner, including the General Partner. The current
rate of interest income is approximately 6% per year. The General Partner
estimates that 20% to 30% of total Net Assets 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 their Capital Contribution,
but Limited Partners have limited obligations to pay the debts of the
Partnership in excess of their Capital Contribution 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 on their investment, 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, 1996 and as of February 28, 1999,
there were 910 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 of Units
or Capital Contributions 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.
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 Michael J. Frischmeyer as the sole CTA. Because trading results for
Frischmeyer and the Partnership had been poor, the General Partner allocated
40% of the Partnership's trading equity to another CTA, EPIC Trading, on July
1, 1998 and thereafter adjusted the equity to each CTA to 50% apiece. As of
February, 1999, Frischmeyer and EPIC were removed as CTAs and Bell was added
as a CTA and allocated trading equity. The first $600,000 of new equity
raised pursuant to this offering will be allocated to Hanseatic; and,
thereafter, the General Partner intends to allocate substantially all future
trading equity among the two CTAs equally. 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 office equipment and fees for the preparation of
this Prospectus as well as other expenditures to qualify the Units for sale.
The Partnership allocates all of its Net Assets 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 Incorporated 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, the Introducing Broker or 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, (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 Incorporated provides for indemnification from the Partnership to ABN
AMRO Incorporated, including reasonable outside and in-house attorney's fees,
incurred by ABN AMRO Incorporated 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 Incorporated to act as
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. In addition, Ms. Pacult is the principal of another public
commodity pool, Atlas Futures Fund, Limited Partnership, which has not yet
commenced business. 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 highest price (on both purchases and sales)
allocated to the highest 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. The General Partner will use its best
efforts to monitor the daily Net Unit Value, and 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 pay 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 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 Net Assets, 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, 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 Bell 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 Bell 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 Incorporated
(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. 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 also be reimbursed by the Partnership
for direct expenses (such as delivery charges, statement preparation and
mailing costs, telephone toll charges, and postage).
<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
the CTAs
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>
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 $25,000 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, Shira Del Pacult, has over eighteen years of
experience selecting commodity trading advisors to manage individual investor
accounts and describing how individual managed futures accounts work to
individual investors. In addition, Ms. Pacult is the principal of another
public commodity pool, Atlas Futures Fund, Limited Partnership, which has not
yet commenced business. This experience is expected to benefit the
Partnership in the quality of commodity trading advisors selected, as well as
in 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 $25,000),
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 $25,000 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.
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 accounts 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 Net Assets of the Partnership is
based upon the assumption that between 20% and 40% of the Net Assets 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 April, 1998.
It was registered as a commodity pool operator on January 27, 1995. In
addition, the principal of the General Partner is the principal of another
public commodity pool, Atlas Futures Fund, Limited Partnership, which has not
yet commenced business. The balance sheets of the General Partner as of
December 31, 1996, December 31, 1997, December 31, 1998 and February 28, 1998
and an Income Statement, Statement of 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, P.O. Box C, Fremont, Indiana, 46737, and maintains clearing agreements
with Vision Limited Partnership and ABN AMRO Incorporated. The Partnership
clears its trades through ABN AMRO Incorporated. 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 is also the principal
of Ashley Capital Management, Inc., a registered commodity pool operator which
is the general partner of another public commodity pool, Atlas Futures Fund,
Limited Partnership, which has not yet commenced business. 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 eighteen year personal
experience in the review of disclosure documents of CTAs. The Partnership
relies, pursuant to the Advisory Agreement and Power of Attorney attached as
Exhibit E, upon Bell Fundamental Futures, LLC ("Bell"), the CTA 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. The
first $600,000 of new equity raised pursuant to this offering will be
allocated to Hanseatic (see Exhibit F); and, thereafter, the General Partner
intends to distribute all future equity among the two CTAs equally. 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 the allocation of equity among future CTAs. The
CTA currently selected is not an Affiliate 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 Advisor" for a summary of the CTA's performance
information.
The General Partner periodically reviews the performance of the Partnership to
determine if the CTA selected to trade for the Partnership should be changed
or if other CTAs should be added. If a CTA is replaced, the new CTA will
receive incentive fees based upon the date of the allocation of equity to that
CTA, regardless of the profitability of the previous CTA. Due to the
possibility of allocation of trading assets over multiple CTAs should the
General Partner decide to employ additional CTAs, it would be possible for one
of the CTAs to produce New Net Profit in the account assigned to it 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. As each CTA
will trade independently of any others selected, the CTAs may compete for
similar positions or take positions opposite each other, which may limit the
profitability of the Partnership. From time to time, the General Partner may
use computer generated correlation analysis or other types of automated review
procedures to evaluate the CTAs.
THE ADVISORY CONTRACT
For the purpose of directing and effecting trades, the Partnership has entered
an Advisory Contract and granted a Power of Attorney to the CTA to trade. The
CTA has sole discretion, in the account so assigned, to determine the
commodity futures trades made by the Partnership. The Partnership is bound by
the directions of the CTA given to the FCM under the Power of Attorney. The
Power of Attorney is subject to termination by either the General Partner or
the CTA upon written notice to the other and to the FCM. If the Power of
Attorney is 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 its
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
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
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 III.
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 investor 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 Partnership. The Partnership will,
however, be advised of any material changes in such trading policies.
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). Investors 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.
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
February 28, 1999). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
Capsule A - Bell Fundamental Futures, L.L.C.
Percentage Rate of Return
(Computed on a compounded monthly basis)*
MONTH 1999 1998
January (0.1) N/A
February 16.0 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)
November 0.4
December (0.6)
Year 16.0 5.8
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: 10
Total Assets Under Management: $4,150,086
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: 0
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.
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 III 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 Net Profits. The accounts pay brokerage commission at rates ranging from
$6.64 to $26 per round-turn trade plus exchange and NFA fees except for one
account which pays 1% of Net Asset Value per month to cover commissions, and
exchange and NFA fees.
HANSEATIC CORPORATION
Hanseatic Corporation ("Hanseatic") is a registered Commodity Trading Advisor
("collectively above called the "CTAs" and in this section called the "CTA")
organized as a New Mexico corporation. Its principal office is located at
5600 Wyoming N.E., Suite 220, Albuquerque, New Mexico 87109. Its telephone
number is (505) 828-2824. The books and records of the firm are located at
the same address. Hanseatic was incorporated in 1977 to trade and to advise
on the trading of commodity futures contracts through the use of technical
trading methods. It has been registered with the Commodities Futures Trading
Commission (CFTC) as a Commodity Trading Advisor since 1981 and is a member of
the National Futures Association (NFA). In addition to its officers, Hanseatic
has 2 full time employees.
The principals of Hanseatic are (1) Hanseatic Group, Inc. (Group), (2)
Katherine Burr, President and Chief Executive Officer, (3) Martha Eden, Vice
President, Secretary, and Treasurer, (4) Harry E. Meihaus, Vice President,
and (5) Andrea Manzoni, an Associated Person of the NFA and a Director of
Hanseatic Group, Inc.
BUSINESS BACKGROUND
The business background of the CTA's principals for at least five (5) years is
as follows:
(1) Hanseatic Group, Inc. is a New Mexico corporation which is the sole
shareholder of Hanseatic Corporation.
(2) Katherine Burr, born in 1950, joined Hanseatic in September 1989. Ms.
Burr received a B.A. in Modern Languages from Colorado State University
(1970), an M.A. in Anthropology from the University of New Mexico (1973) and
was a Ph.D. candidate in Anthropology at the University of New Mexico. She
received an M.B.A. in cross-cultural business development from the University
of New Mexico (July, 1989). From 1974 through 1975, Ms. Burr worked on a
Merrill Lynch training project by writing and editing textbooks designed for
Account Executives. From August 1975 through August 1989, Ms. Burr worked as
a business manager and researcher in finance areas ranging from computer
software to health care to the auto industry. Ms. Burr became an officer and
director of Hanseatic Corporation in August 1992. She also acts as an officer
and director of Group. Ms. Burr is an officer and director of the unaffiliated
Hanseatic Advisory Corporation and Hanseatic Management Services, Inc.
(3) Martha Eden, born in 1945, received a B.A. in Economics from Vassar
College (1967). From 1977 until 1982 she was employed as a commercial loan
officer by First National Bank in Albuquerque, N.M. Prior to 1977, she held
various positions with firms in the securities industry. Ms. Eden joined
Hanseatic in 1982. Ms. Eden also acts as an officer of Group and Financial.
Ms. Eden is an officer and director of the unaffiliated Hanseatic Advisory
Corporation.
(4) Harry E. Meihaus, born in 1946, received a B.S. in Mechanical Engineering
from the University of Louisville (1969) and an M.B.A. in finance from Memphis
State (1975). He was associated with Gibbons Meihaus (a sole proprietorship)
as an Investment Advisor from 1979 until 1985. He joined Hanseatic in 1984.
Mr. Meihaus also acts as an officer and director of Group. Mr. Meihaus is an
officer and director of the unaffiliated Hanseatic Management Services, Inc.
(5) Andrea Manzoni, born in 1955, received an M.B.A. from Bocconi University
in Milan, Italy (1979). In September, 1979 he joined Compagnie pour le
Financement et l'Investissement, a portfolio management firm in Geneva,
Switzerland, as a portfolio manager trainee and executive assistant. In
April, 1981 he was hired by EF Hutton, a U.S. brokerage house, at its branch
in Lugano, Switzerland as a broker. He worked for EF Hutton until the end of
1987. Mr. Manzoni joined Shearson Lehman Brothers, a U.S. brokerage house with
a branch in Lugano, in December, 1987 where, as a broker, he specialized in
research and development of market systems. In April, 1991 Mr. Manzoni
started to work for Cragnotti & Partners Capital Investment, a Dutch-
incorporated merchant bank with a financial services subsidiary in Lugano, as
a trading manager. He continued to work in the same capacity for Sagres
Trading, a Swiss investment management company located in Lugano, in May, 1994
through the end of 1995. As part of its investment management activity,
Sagres Trading manages the offshore Hanseatic Opportunity Fund. Mr. Manzoni
joined Hanseatic in January, 1996. Mr. Manzoni is a director of Group and of
the unaffiliated Hanseatic Advisory Corporation and Hanseatic Management
Services, Inc.
Disclosure of the past performance of all Hanseatic programs can be found in
the Capsule Performance Tables below.
DESCRIPTION OF TRADING PROGRAM
Hanseatic is dedicated to achieving superior risk-adjusted returns by
following a systematic trading strategy governed entirely by proprietary
technical models. Hanseatic's approach to trading melds over eighty years of
combined individual market experience with a uniquely effective pattern
recognition system. As a result, Hanseatic program returns typically
demonstrate low to negative correlation with most other trading programs.
The key to Hanseatic's approach is assuming reality is a series of coevolving
nonlinear systems from the individual human mind to the global economy among
many others. The interlinkage and interaction of these systems creates
markets. Market behavior is better understood not by traditional static linear
modeling but nonlinear dynamical systems approaches such as pattern
recognition. For Hanseatic markets are a never-ending flow of opportunities
and risks whose capacity is so great that an investor's success depends not on
capturing as many opportunities as possible, but on capturing only those with
a highly discernible likelihood of success, those reliably identified through
quantitative patterns.
Hanseatic's approach to trading is to take positions and to assume market risk
only when technical models identify high confidence patterns typically
associated with profitable trades. The times during which any Hanseatic
program has a neutral position are determined by technical models indicating a
lack of opportunity rather than by mechanically predetermined profit and stop
levels. Typically this approach will be "on the sidelines" during several big
moves each year, but intends to provide above average returns with minimal
market exposure, avoiding the catastrophic drawdowns characteristic of trend-
following strategies. So said, Hanseatic is neither a trend-follower nor a
short-term trader. Instead Hanseatic aims to trade in many different market
environments.
Diversification is central to the Hanseatic trading philosophy and the
necessary element that permits Hanseatic to trade in different market
environments. Very specifically, before diversifying across several futures
contracts Hanseatic first synthesizes models and patterns with good
return/risk characteristics for each individual futures contract that
Hanseatic follows. The models and patterns are diversified across time
horizons, trading frequency, and, in the case of pattern recognition
algorithms, the type of market environment in which they are designed to
function. Entry and exit points are independent of one another. The goal is to
create a balanced portfolio of models that will perform effectively in both
trended and trading range markets. In other words, Hanseatic trades a single
future with a portfolio of patterns and models. Hanseatic then combines each
individual already-diversified-across-models-and-patterns futures contract
into a diversified portfolio of futures contracts.
One of the key strengths flowing from Hanseatic's sophisticated, multilayered
approach is the ability to conduct constantly ongoing research and
development. As new effective strategies, which evolve from the basic theme,
are derived, they may be incorporated into the overall methodology. Such
revisions will likely be infrequent and implemented only after rigorous
testing indicates the revision will probably improve the overall return/risk
performance. Because a core platform of models is always the basis of the
portfolio approach used by Hanseatic, evolutionary improvements will be a
matter of augmenting current strategies rather than replacing existing systems
with newly developed systems.
Hanseatic's technical trading approach is designed to be purely mechanical.
This reflects Hanseatic's belief that emotional trading decisions can be
detrimental to performance. It is the intention of Hanseatic to maintain this
philosophy and not to "override" the system. However, since it is impossible
to envision all possible situations, Hanseatic reserves the right to exercise
intervention if deemed prudently necessary or desirable.
In summary, Hanseatic's trading philosophy focuses on selective trading and
diversification across quantitative models as well as futures contracts in an
attempt to achieve high probability return/risk levels and, more important, to
provide its clients with consistently profitable, noncorrelated, results.
PERFORMANCE RECORD OF THE CTA
Hanseatic Corporation - Hanseatic Discretionary Program
The following capsule shows the past performance of Hanseatic Corporation -
Hanseatic Discretionary Program from inception (February, 1996) through the
year-to-date (February 28, 1999). PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
Hanseatic Corporation - Hanseatic Discretionary Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1999 (Jan-Feb) 1998 1997 1996
3.96% 308.94% 3.97% 93.05%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: Hanseatic Discretionary Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program:
February, 1996
Number Of Accounts In Trading Program: 15
Total assets under management (Nominal Value) pursuant to program: $9,981,456
Total assets under management (Actual Funds) pursuant to program: $5,790,447
Total assets under management (Nominal Value) pursuant to all programs:
$17,650,754
Total assets under management (Actual Funds) pursuant to all programs:
$7,818,338
Largest Monthly Draw-Down**: 5-97 / 15.67%
Worst Peak-to-Valley Draw-Down***: 11-96 to 6-97 / 27.32% of net assets
Number of Accounts Closed With Net Profit: 0
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.
Hanseatic Corporation - Hanseatic Global Program
The following capsule shows the past performance of Hanseatic Corporation -
Hanseatic Global Program from inception (November, 1996) through the year-to-
date (February 28, 1999). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF
FUTURE RESULTS.
Hanseatic Corporation - Hanseatic Global Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1999 (Jan-Feb) 1998 1997 1996
2.14% 23.74% -2.12% 1.38%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: Hanseatic Global Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program:
November, 1996
Number Of Accounts In Trading Program: 4 - Offshore Fund
Total assets under management (Nominal Value) pursuant to program: $7,669,298
Total assets under management (Actual Funds) pursuant to program: $2,027,891
Total assets under management (Nominal Value) pursuant to all programs:
$17,650,754
Total assets under management (Actual Funds) pursuant to all programs:
$7,818,338
Largest Monthly Draw-Down**: 6-97 / 6.56%
Worst Peak-to-Valley Draw-Down***: 8-97 to 11-97 / 11.49% of net assets
Number of Accounts Closed With Net Profit: 1
Number of Accounts Closed With Net Loss: 1
* 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.
Hanseatic Corporation - The S&P 500 Futures Trading Program
The following capsule shows the past performance of Hanseatic Corporation - The
S&P Futures Trading Program from January, 1993 through the termination of
trading (April, 1997). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF
FUTURE RESULTS.
Hanseatic Corporation - The S&P 500 Futures Trading Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1997 (Jan-Apr) 1996 1995 1994 1993 1992
-26.30% 157.19% -10.46% -6.34% 55.74% 1.69%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: The S&P 500 Futures Trading Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program: July,
1989
Number Of Accounts In Trading Program: 0
Total assets under management pursuant to this program: $0
Total assets under management (Nominal Value) pursuant to all programs:
$10,009,630
Total assets under management (Actual Funds) pursuant to all programs:
$6,125,996
Largest Monthly Draw-Down**: 1-97 / 33.40
Worst Peak-to-Valley Draw-Down***: 9-96 to 1-97 / 40.30 of net assets
Number of Accounts Closed With Net Profit: 1
Number of Accounts Closed With Net Loss: 15
* 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.
Hanseatic Corporation - Hanseatic US Treasury Bond Trading Program
The following capsule shows the past performance of Hanseatic Corporation -
Hanseatic US Treasury Bond Trading Program from inception (January, 1995)
through the termination of trading (April 30, 1997). PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
Hanseatic Corporation - Hanseatic US Treasury Bond Trading Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1997 (Jan-Apr) 1996 1995
-7.39% 28.73% 13.51%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: Hanseatic US Treasury Bond Trading Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program:
January, 1995
Number Of Accounts In Trading Program: 0
Total assets under management pursuant to this program: $0
Total assets under management (Nominal Value) pursuant to all programs:
$10,009,630
Total assets under management (Actual Funds) pursuant to all programs:
$6,125,996
Largest Monthly Draw-Down**: 5-95 / 12.62%
Worst Peak-to-Valley Draw-Down***: 3-95 to 5-95 / 15.62% of net assets
Number of Accounts Closed With Net Profit: 1
Number of Accounts Closed With Net Loss: 8
* 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.
Hanseatic Corporation - Hanseatic US Financials Trading Program
The following capsule shows the past performance of Hanseatic Corporation -
Hanseatic US Financials Trading Program from inception (April, 1995) through
the termination of trading (September, 1997). PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
Hanseatic Corporation - Hanseatic US Financials Trading Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1997 (Jan-Sep) 1996 1995
-29.95% 105.56% 4.83%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: Hanseatic US Financials Trading Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program: April,
1995
Number Of Accounts In Trading Program: 0
Total assets under management pursuant to this program: $0
Total assets under management (Nominal Value) pursuant to all programs:
$10,009,630
Total assets under management (Actual Funds) pursuant to all programs:
$6,125,996
Largest Monthly Draw-Down**: 1-97 / 15.93%
Worst Peak-to-Valley Draw-Down***: 11-96 to 6-97 / 38.64% of net assets
Number of Accounts Closed With Net Profit: 1
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.
Hanseatic Corporation - Hanseatic S&P / Mid Cap Arbitrage Program
The following capsule shows the past performance of Hanseatic Corporation -
Hanseatic S&P / Mid Cap Arbitrage Program from inception (December, 1995)
through the termination of trading (April, 1998). PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
Hanseatic Corporation - Hanseatic S&P / Mid Cap Arbitrage Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1998 (Jan-Apr) 1997 1996 1995
-29.34% 56.00% 23.80% 6.25%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: Hanseatic S&P / Mid Cap Arbitrage Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program:
December, 1995
Number Of Accounts In Trading Program: 0
Total assets under management pursuant to this program: $0
Total assets under management (Nominal Value) pursuant to all programs:
$10,009,630
Total assets under management (Actual Funds) pursuant to all programs:
$6,125,996
Largest Monthly Draw-Down**: 2-96 / 27.79%
Worst Peak-to-Valley Draw-Down***: 1-98 to 4-98 / 39.97% 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.
Hanseatic Corporation - Hanseatic Commodities Program
The following capsule shows the past performance of Hanseatic Corporation -
Hanseatic Commodities Program from January, 1992 through the termination of
trading (August, 1997). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF
FUTURE RESULTS.
Hanseatic Corporation - Hanseatic Commodities Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1997 (Jan-Aug) 1996 1995 1994 1993 1992
66.81% 7.70% 44.81% 4.29% 17.97% -3.05%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: Hanseatic Commodities Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program:
September, 1991
Number Of Accounts In Trading Program: 0
Total assets under management pursuant to this program: $0
Total assets under management (Nominal Value) pursuant to all programs:
$10,009,630
Total assets under management (Actual Funds) pursuant to all programs:
$6,125,996
Largest Monthly Draw-Down**: 6-97 / 14.82%
Worst Peak-to-Valley Draw-Down***: 12-91 to 3-92 / 18.44% of net assets
Number of Accounts Closed With Net Profit: 5
Number of Accounts Closed With Net Loss: 1
* 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.
Hanseatic Corporation - Hanseatic International Bond Program
The following capsule shows the past performance of Hanseatic Corporation -
Hanseatic International Bond Program from inception (June, 1996) through the
termination of trading (July, 1997). PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
Hanseatic Corporation - Hanseatic International Bond Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1997 (Jan-Jul) 1996
10.58% 45.14%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: Hanseatic International Bond Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program: June,
1996
Number Of Accounts In Trading Program: 0
Total assets under management pursuant to this program: $0
Total assets under management (Nominal Value) pursuant to all programs:
$10,009,630
Total assets under management (Actual Funds) pursuant to all programs:
$6,125,996
Largest Monthly Draw-Down**: 3-97 / 10.87%
Worst Peak-to-Valley Draw-Down***: 11-96 to 3-97 / 12.01% of net assets
Number of Accounts Closed With Net Profit: 3
Number of Accounts Closed With Net Loss: 2
* 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.
Hanseatic Corporation - Hanseatic Spyder Program
The following capsule shows the past performance of Hanseatic Corporation -
Hanseatic Spyder Program from inception (Februarys, 1998) through the
termination of trading (August, 1998). PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
Hanseatic Corporation - Hanseatic Spyder Program
Percentage Rate of Return
(Computed on a compounded monthly basis)*
1998 (Feb-Aug)
3.01%
Name of the Commodity Trading Advisor: Hanseatic Corporation
Name of the Trading Program: Hanseatic Spyder Program
Date Commodity Trading Advisor Began Trading Client Accounts: September, 1988
Date When Client Funds Began Being Traded Pursuant to Trading Program:
February, 1998
Number Of Accounts In Trading Program: 0
Total assets under management pursuant to this program: $0
Total assets under management (Nominal Value) pursuant to all programs:
$10,009,630
Total assets under management (Actual Funds) pursuant to all programs:
$6,125,996
Largest Monthly Draw-Down**: 8-98 / 11.81%
Worst Peak-to-Valley Draw-Down***: 7-98 to 8-98 / 13.46% of net assets
Number of Accounts Closed With Net Profit: 0
Number of Accounts Closed With Net Loss: 1
* 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.
PERFORMANCE OF FREMONT FUND, LIMITED PARTNERSHIP
The Fremont Fund Limited Partnership is currently traded by Bell Fundamental
Futures, LLC. The first $600,000 of additional equity raised pursuant to this
offering will be allocated to Hanseatic; and, thereafter, the General Partner
intends to allocate all future equity among the two CTAs equally. 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 February 28, 1999.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Fremont Fund, Limited Partnership
Percentage Rate of Return
(Computed on a compounded monthly basis)*
Month 1999 1998 1997 1996
January (1.49) (1.48) (1.79) N/A
February 6.74 (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 (3.52) (1.09) (8.83)
December (1.60) (2.13) 2.34
Year 5.15 (11.35) (12.21) (6.69)
Name of Pool: Fremont Fund, LP
How Offered: Publicly offered pursuant to Form S-1 Registration statement
Names of CTAs: Bell Fundamental Futures, LLC****
Principal Protected: No
Date of Inception of trading: November, 1996
Net Asset Value of the pool: $568,176.89 on total Units outstanding: 791.556
NAV Per Unit: $717.80
Largest Monthly Draw-Down**: 12-96/8.83% of net asset value
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.
** "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.
**** Frischmeyer was originally the sole CTA for the Partnership. As of July,
1998, EPIC was added as a CTA and eventually assigned 50% of the
allocated trading equity. Frischmeyer and EPIC were replaced by Bell in
February, 1999. Hanseatic will be allocated the first $600,000 of
available equity raised through this offering.
NOTES TO PERFORMANCE RECORD OF THE FUND
When reviewing the Fund's performance record, prospective investors 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 CTAs may, from time
to time, determine that certain trades may entail greater than ordinary risks,
which may cause them 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, a CTA
will block its 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".
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.
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. After a change in FCM is made, the General
Partner will provide notice to the other Partners within 21 days 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 Incorporated 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 Incorporated, 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 Incorporated, 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 Incorporated. Currently, ABN
AMRO Incorporated 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 Incorporated, 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 December 31, 1998, and is based
upon the express intention of the General Partner to cause the Partnership to
invest only its equity Capital and to not borrow funds 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
to 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
advisor 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 the
"safe harbor" requirements or otherwise to satisfy the IRS requirements
necessary to cause the Partnership to be taxed as a partnership and not as a
corporation. 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, 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 Partners 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, 1998, 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
advisor 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 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 its 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 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.
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 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. 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 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 Capital
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 Net
Assets 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 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 six (6) months; i.e., a redemption during the
next 7 to 12 months will be charged a 3% Redemption fee; 13 to 18 months 2%, 19
to 24 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, P.O. Box C, 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 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 $25,000; provided, however, the General Partner may reduce this
minimum investment while maintaining regulatory compliance; and, investors may
make additional investments above $25,000 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, December
31, 1997 and December 31, 1998 and the financial statements of the General
Partner as of December 31, 1996 and December 31, 1998 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 February 28, 1999, 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
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, P.O. Box C, 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]
*******************************************************************************
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
FOR THE YEARS ENDED
DECEMBER 31, 1998, 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, 1998, 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, 1998 and 1997, and the related
statements of operations, partners' equity and cash flows for each of the
three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting
principles.
Accountants: Frank L. Sassetti & Co.
Certified Public Accountants
Date: March 18, 1999 By: /s/ Frank L. Sassetti & Co.
Frank L. Sassetti & Co.
Certified Public Accountants
F-1
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
-------- --------
Cash (Note 7) $ 9,891 $ 36,029
United States Treasury Obligations (Note 6) 553,832 833,160
Accrued interest receivable 2,061 8,754
Prepaid commissions 1,658
Equity in Commodity Futures Trading Accounts -
Cash (Note 6) 74,443 116,594
Net unrealized gain (loss) on open
commodity futures contracts (Note 8) (2,880)
Organization costs, net of amortization (Note 1) 915
-------- --------
$641,885 $992,572
======== ========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accrued commissions payable $ $ 12,666
Accrued management fees payable 6,314 6,544
Accrued accounting fees payable 1,306 2,023
Accrued auditing fees payable 1,495 3,500
Due to general partner 1,661
Partner redemptions payable 10,262 11,922
-------- --------
Total Liabilities 19,377 38,316
-------- --------
PARTNERS' CAPITAL
Limited partners - (879.78 units and 1207.47
units in 1998 and 1997, respectively) 601,895 932,082
General partner - (30.13 units) 20,613 22,174
-------- --------
Total Partners' Capital 622,508 954,256
-------- --------
$641,885 $992,572
======== ========
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, 1998, 1997 AND 1996
1998 1997 1996
---------- ---------- ----------
REVENUES
Realized gain (loss) from trading in
futures $ 11,037 $ (1,667) $ (57)
Realized gain from trading options 20,482 24,413
Realized gain (loss) on exchange rate
fluctuation (367) 335 28
Changes in unrealized gains (loss) on
open commodity futures contracts 2,880 (20,769) 17,861
Interest income 37,716 49,620 6,259
Redemption penalty income 4,276 236
---------- ---------- ----------
Total Revenues 76,024 52,168 24,091
---------- ---------- ----------
EXPENSES
Commissions 90,478 112,058 8,542
Management fees 46,097 57,264 4,492
Incentive fees 4,390 1,717
Professional accounting and legal fees 26,582 27,137 1,499
Other operating and administrative
expenses 445 1,382 637
Amortization of organization costs 915 1,220 305
---------- ---------- ----------
Total Expenses 168,907 199,061 17,192
NET INCOME (LOSS) $ (92,883) $(146,893) $ 6,899
========== ========== ==========
NET INCOME (LOSS) -
Limited partnership unit $ (91.71) $ (119.19) $ 7.65
========== ========== ==========
General partnership unit $ (51.81) $ (98.90) $ 15.31
========== ========== ==========
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, 1998, 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
904 units 760,827 875 24,000 29 784,827 904
Net income 6,708 191 6,899
----------- ----- --------- ---- ---------- -----
Balance -
December 31, 1996 768,498 876 25,154 30 793,652 906
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 30 954,256 1,237
Withdrawals of
327 units (238,865) (327) (238,865) (327)
Net loss (91,322) (1,561) (92,883)
----------- ----- --------- ---- ---------- -----
Balance -
December 31, 1998 $ 601,895 880 $ 20,613 30 $ 622,508 910
=========== ===== ========= ==== ========== =====
December 31, December 31, December 31,
1998 1997 1996
Value per unit $684.14 $771.05 $875.54
======= ======= =======
Total partnership units 909.91 1,237.60 906.47
======= ======= =======
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, 1998, 1997 AND 1996
1998 1997 1996
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (92,883) $(146,893) $ 6,899
Adjustments to reconcile net income
to net cash provided by operating
activities -
Amortization of organization costs 915 1,220 305
Changes in operating assets and
liabilities -
Equity in Commodity Future
Trading Accounts 39,271 180,590 (294,304)
Accrued interest receivable 6,693 (6,375) (2,379)
U. S. Treasury Obligations 279,328 (470,508) (362,652)
Prepaid commissions (1,658)
Accrued commissions payable (12,666) (1,396) 14,062
Management and incentive
fees payable (230) 2,994 3,550
Accounting fees payable (717) 1,289 734
Auditing fees payable (2,005) 3,500
Due to partners (3,321) 2,723 10,860
---------- ---------- ----------
Net Cash Provided by
(Used in) Operating
Activities 212,727 (432,856) (622,925)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs (2,440)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of units, net
of sales commissions 331,221 830,327
Syndication and registration costs (45,500)
Partner redemptions (238,865) (23,724)
Net Cash Provided by
(Used in) Financing
Activities (238,865) 307,497 784,827
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH (26,138) (125,359) 159,462
CASH -
Beginning of period 36,029 161,388 1,926
---------- ---------- ----------
End of period $ 9,891 $ 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, 1998, 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 advisors (CTAs) are Michael J. Frischmeyer and Epic
Trading, who have the authority to trade so much of the Fund's equity as are
allocated to them 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 $915, $1,220 and $305 was recorded for
the years ended December 31, 1998, 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, 1998, 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, 1998, 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.
Reclassifications - Certain items of the prior years financial
statements have been reclassified to conform to current year presentation.
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, 1998, 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 Advisors 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. This
fee is to be applied first to pay organization and initial registration costs
of the Partnership and, thereafter, to the benefit of the other Partners in
proportion to their capital accounts.
* 4% if such request is received prior to the end of the
sixth month after the commencement of trading.
* 3% if such request is received during the seventh to
twelfth months.
* 2% if such request is received during the thirteenth to
eighteenth months.
* 1% if such request is received during the nineteenth to
twenty-fourth months.
* 0% thereafter.
F-8
<PAGE>
FREMONT FUND, LIMITED PARTNERSHIP
(An Indiana Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 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 each CTA to trade will be paid to each CTA and 2% of
equity to the Fund's General Partner.
* An incentive fee of 15% of "new trading profits" will be
paid to each CTA. "New trading profits" includes all income earned by each
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
Certain trades executed by the Fund are denominated
in foreign currencies. Gains and losses on these transactions are recorded
as futures trading gains or losses at the U. S. dollar equivalent on the date
the trade is settled. Exchange rate fluctuation gain or loss is reflected
when residual amounts of foreign currencies are reconverted to U. S. dollars.
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, 1998, 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. There were no open commodity
contracts as of December 31, 1998. 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, 1998, 1997 and 1996 was $0, $(2,880) and $17,889,
respectively.
F-10
<PAGE>
*******************************************************************************
Fremont Fund, Ltd. Partnership
(An Indiana Limited Partnership)
Unaudited Statement of Financial Condition
as of February 28, 1999
ASSETS
2/28/99
Cash in Checking - Star Financial Bank 47,393
Equity in Commodity Futures Trading Accounts -
Cash 239,437
Federal Securities at Cost (Plus: Accrued Interest) 328,101
Unrealized Gain (Loss) on Open Futures & Options Contracts 59,022
Interest Receivable From Broker 522
Cost of Options Held Long 3,585
Capitalized Organization Costs (Less: Amortized Portion) 1,220
-------
Total Assets 679,280
=======
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Management Fees Payable to CTAs 8,195
Incentive Fees Payable to GP 7,500
Management Fees Payable to GP 963
Reporting Costs Payable 2,624
Audit Fees Accrued 6,140
Commissions Payable to IB 3,028
Partner Redemptions Payable 82,653
-------
Total Liabilities 111,103
Partners' Capital:
General Partner 30.13 Units at Per Unit of 717.798053 21,628
Limited Partners 761.43 Units at Per Unit of 717.798053 546,549
Total Partners' Capital 568,177
-------
Total Liabilities And Partners' Capital 679,280
=======
<PAGE>
Fremont Fund, Ltd. Partnership
(An Indiana Limited Partnership)
Unaudited Statement of Operations
For the Period Ended
February 28, 1999
Current Year to
Month Date
INCOME:
Interest Paid by Brokers 521.59 651.82
Realized Gain Federal Securities 1,423.41 3,535.72
Realized Gain (Loss) from Futures Trading (6,075.00) (4,007.50)
Change in Open Trade Equity Futures Positions 52,827.00 50,277.00
Realized Gain (Loss) from Options Trading 0.00 0.00
Change in Unrealized Gain (Loss) Option Positions 8,745.00 8,745.00
Gain (Loss) Due to Currency Conversions FX (67.45) 30.51
Redemption Penalty Income 0.00 0.00
----------------------
Total Income from Operations 57,374.55 59,232.55
EXPENSES:
Org. & Syndication Costs Expensed 40.65 81.30
Brokerage Commissions Paid 5,660.64 11,422.74
CTA Management Fees 1,944.70 3,865.44
GP Incentive Fees 7,500.44 7,500.44
GP Management Fees 963.07 1,998.50
Operating & Administrative Expenses 0.00 0.00
Reporting Costs 1,300.00 2,600.00
Audit Fees 1,000.00 2,000.00
Legal Fees 45.00 45.00
----------------------
Total Expenses from Operations 18,454.50 29,537.42
Net Income from Operations 38,920.05 29,695.13
======================
End of Period Net Asset Value Per Unit 717.80 717.80
% Increase (Decrease) in N.A.V. Per Unit -1.49% 5.15%
To the best of the knowledge and belief of the undersigned,
the information contained in this account statement is
accurate and complete as of the dates indicated
/s/ Shira Del Pacult
Ms. Shira Del Pacult, President
Pacult Asset Management
General Partner
*******************************************************************************
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-7
<PAGE>
*******************************************************************************
PACULT ASSET MANAGEMENT, INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Financial Statements -
Balance Sheet 2
Statement of Income and Accumulated Deficit 3
Statement of Cash Flows 4
Notes to Financial Statements 5 - 6
<PAGE>
To The Shareholders
Pacult Asset Management, Inc.
Fremont, Indiana
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of PACULT ASSET
MANAGEMENT, INC. as of December 31, 1998, and the related statement of income
and accumulated deficit and cash flows for the year 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 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, 1998, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Frank L. Sassetti & Co.
March 24, 1999
Oak Park, Illinois
<PAGE>
PACULT ASSET MANAGEMENT, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 57,947
Due from Auburn Fund (Note 2) 5,294
Due from Fremont Fund (Note 2) 1,017
Total Current Assets 64,258
Investment in Auburn Fund,
Limited Partnership (Note 3) 23,712
Investment in Fremont Fund,
Limited Partnership (Note 3) 20,613
Total Investments 44,325
$108,583
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
LIABILITIES
Current Liabilities
Accrued interest payable $ 30,500
Subordinated long-term debt (Note 4) 100,000
STOCKHOLDER'S EQUITY (DEFICIT)
Capital stock, no par value (1,500 shares
authorized; 1,000 issued and outstanding) 1,000
Accumulated deficit (22,917)
Total Stockholder's
Equity (Deficit) (21,917)
$108,583
<PAGE>
PACULT ASSET MANAGEMENT, INC.
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1998
REVENUES
Management fees $ 58,495
Interest income 2,617
Total Revenues 61,112
EXPENSES
Registration and dues 4,530
Professional accounting, legal and
audit fees 5,127
Other administrative expenses 554
Interest expenses 12,000
Total Expenses 22,211
INCOME BEFORE LOSS ON EQUITY
IN LIMITED PARTNERSHIPS 38,901
LOSS ON EQUITY IN LIMITED PARTNERSHIPS (2,849)
NET INCOME 36,052
ACCUMULATED DEFICIT
Beginning of year (6,687)
Less: dividends (52,282)
End of year $(22,917)
<PAGE>
PACULT ASSET MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 36,052
Adjustments to reconcile net income to net
cash provided by operating activities -
Loss on equity in limited partnerships 2,849
Changes in operating assets and liabilities -
Decrease in accrued interest receivable 215
Increase in due from Auburn Fund (5,294)
Decrease in due from Fremont Fund 644
Increase in accrued interest payable 12,000
Net Cash Provided By
Operating Activities 46,466
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment in Auburn Fund (25,000)
Net Cash (Used In)
Investing Activities (25,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholder (52,282)
Net Cash (Used In)
Financial Activities (52,282)
NET DECREASE IN CASH (30,816)
CASH -
Beginning of year 88,763
End of year $ 57,947
<PAGE>
PACULT ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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. In 1998, the Company became the
general partner of Auburn Fund, Limited Partnership (the Fund), which is a
private placement commodity pool. Both partnerships are currently operating.
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 each Fund,
retaining independent public accountants to audit each Fund, employing
attorneys to represent each Fund, reviewing the brokerage commission rates to
determine reasonableness, maintaining the tax status of each Fund as 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 effect the disclosure of contingent assets and
liabilities at the date of the financial statements, and effect reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Statement of Cash Flows - There have not been cash payments for
interest for the year ended December 31, 1998. 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
<PAGE>
PACULT ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. CORPORATE AFFILIATION - CONTINUED
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.
The Company, at times, has advanced to both intended partnerships
monies for various expenses. In addition, the Company receives management
fees of 2% of the equity of the Fremont Fund, Limited Partnership and 3% of
the equity of The Auburn Fund, Limited Partnership. As a result of these
transactions, the Fremont Fund, Limited Partnership and The Auburn Fund,
Limited Partnership owed the Company $5,294 and $1,017 at December 31, 1998.
3. INVESTMENTS
During 1995 and 1996, the Company purchased its interest in the
Fremont Fund, Limited Partnership with an initial investment of $1,000 and an
additional $24,000 investment as its General Partner. In 1998, the Company
purchased its interest in The Auburn Fund, Limited Partnership with an
initial investment of $25,000 as its General Partner. These investments are
being accounted for under the equity method. The Company reported its share
of the Funds equity losses of $2,828 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 27, 1997. The underlying promissory note
bears interest at the 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.
*******************************************************************************
PACULT ASSET MANAGEMENT, INC.
UNAUDITED BALANCE SHEET
AS OF FEBRUARY 28, 1999
YTD TOTAL
BALANCE YTD BALANCE
ASSETS
CURRENT ASSETS
COUNTY NATIONAL BANK CHECKING 54,439.77
AUBURN FUND G.P. INTEREST 25,000.00
FREMONT FUND G.P. INTEREST 23,183.00
============
TOTAL CURRENT ASSETS $ 102,622.77
FIXED ASSETS
==============
TOTAL FIXED ASSETS $ .00
OTHER ASSETS
==============
TOTAL OTHER ASSETS $ .00
==============
TOTAL ASSETS $ 102,622.77
==============
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) 5,129.35
============
TOTAL CAPITAL $ 102,622.77
==============
TOTAL LIABILITIES AND CAPITAL $ 102,622.77
==============
<PAGE>
PACULT ASSET MANAGEMENT, INC.
UNAUDITED INCOME STATEMENT
AS OF FEBRUARY 28, 1999
FEBRUARY YTD
1999 RATIO BALANCE RATIO
SALES
MANAGEMENT FEES-FREMONT FUND 1,035.43 17.62% 1,035.43 17.62%
MANAGEMENT FEES-AUBURN FUND 4,842.17 82.38% 4,842.17 82.38%
============ ============
TOTAL SALES $ 5,877.60 100.00% 5,877.60 100.00%
OPERATING EXPENSES
LICENSES & FEES 735.00 12.51% 735.00 12.51%
SHIPPING EXPENSE 13.25 0.23% 13.25 0.23%
============ ============
TOTAL OPERATING EXPENSES $ 748.25 12.73% $ 748.25 12.73%
============ ============
NET INCOME FROM OPERATIONS $ 5,129.35 87.27% $ 5,129.35 87.27%
OTHER REVENUE
OTHER EXPENSES
============ ============
NET INCOME (LOSS) $ 5,129.35 87.27% $ 5,129.35 87.27%
============ ============
<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". Bell Fundamental Futures, L.L.C., 889
Ridge Lake Boulevard, Suite 233, Memphis, Tennessee 38120; and, Hanseatic
Corporation, 5600 Wyoming N.E., Suite 220, Albuquerque, New Mexico 87109. 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 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 Incorporated, 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, P.O. Box C, 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, P.O. Box C, 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.
"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.
"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, P.O. Box C, 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, P.O. Box C, 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 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 $50,000 in every account is traded the same by Bell. This
is Bell's 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", 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.
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.
*******************************************************************************
APPENDIX II
Performance Record of the Fund
Traders: Bell Fundamental Futures, LLC (as of February, 1999)
[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
Nov. 665,035 0 0 4,291 6,455 (2,164) (19,499) 2,552 0 4,191 (23,412) 641,623
Dec. 641,623 0 (10,239) (1,271) 5,967 (7,238) 0 2,378 0 5,390 (10,250) 621,134
1998 Performance Y.T.D. -11.35%
1999
Jan. 621,134 0 (34,181) 2,165 5,762 (3,597) (2,550) 2,242 0 5,320 (9,225) 577,728
Feb. 577,728 0 (48,471)(6,142) 5,660 (11,802) 61,572 1,945 0 12,795 38,920 568,177
1999 Performance Y.T.D. 5.15%
</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%
Nov. 665,035 0 0 4,291 6,455 (2,164) (19,499) 924.91 694 (3.52%)
Dec. 641,623 0 (10,239) (1,271) 5,967 (7,238) 0 909.91 683 (1.60%)
1998 Performance Y.T.D. -11.35%
1999
Jan. 621,134 0 (34,181) 2,165 5,762 (3,597) (2,550) 859.08 672 (1.49%)
Feb. 577,728 0 (48,471)(6,142) 5,660 (11,802) 61,572 791.56 718 6.74%
1999 Performance Y.T.D. 5.15%
</TABLE>
*******************************************************************************
APPENDIX III
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
4% 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.
Pro Forma Performance Capsule B - Eagle Fund, L.P.
Percentage Rate of Return
(Computed on a compounded monthly basis)*
MONTH 1997 1996 1995 1994 1993 1992
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
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.
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 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
(February 28, 1999). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
Pro Forma Performance Capsule C - Proprietary Accounts
Percentage Rate of Return
(Computed on a compounded monthly basis)*
MONTH 1999 1998 1997 1996 1995 1994 1993
January (0.1) (3.2) 0.1 (1.3) 3.3 1.2 2.6
February 21.4 3.6 (15.9) (0.5) (2.5) (7.6) (2.2)
March 3.1 (3.9) 1.0 (5.0) (3.2) (3.0)
April 1.8 (3.0) 12.0 (0.4) (3.1) 9.1
May 4.1 19.8 2.9 (3.1) (7.6) 2.8
June (3.6) 11.7 2.6 (7.8) (2.1) 33.0
July (3.1) (3.6) 2.4 7.7 21.2 1.7
August 7.6 (0.2) 3.3 (5.0) (2.2) 2.9
September (0.4) 0.8 22.4 18.9 21.1 0.9
October (1.2) 6.5 25.9 4.2 (2.7) 0.8
November 0.5 2.0 0.0 (5.8) (3.8) 12.9
December (0.7) 5.0 2.6 18.7 3.7 14.0
Year 21.3 8.2 15.4 96.5 20.7 10.4 98.8
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.
*******************************************************************************
POST EFFECTIVE AMENDMENT NUMBER SEVEN 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>
<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 April 12, 1999
(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 Seven 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 12th day of April, 1999.
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 Seven 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: April 12, 1999
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,
December 31, 1997 and December 31, 1998 for Fremont Fund, Limited Partnership
and to the use of the audit reports and certifications for the periods
ended December 31, 1996 and December 31, 1998 for Pacult Asset Management,
Inc. in the Post Effective Amendment Number Seven 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 Seven 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: April 5, 1999
