The fundamentals of hedge fund management

MATERIAL FROM:
THE FUNDAMENTALS OF HEDGE FUND
MANAGEMENT
1. Onshore Documents
2. Offshore Documents
3. Marketing Presentation Checklist

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For the Exclusive Use of:

Copy No.____________

(COMPANY NAME)FUND, LLC
(A Delaware Limited Liability Company)

CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED, AND HAVE NOT BEEN REGISTERED WITH, OR APPROVED BY, ANY
STATE SECURITIES OR BLUE SKY ADMINISTRATOR OR ANY OTHER
REGULATORY AUTHORITY. NO SUCH AUTHORITY HAS PASSED UPON OR
ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM,
NOR IS IT INTENDED THAT ANY SUCH AUTHORITY WILL DO SO. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
_________________________
EACH INVESTOR IN THE INTERESTS OFFERED HEREBY MUST ACQUIRE SUCH

INTERESTS SOLELY FOR INVESTOR’S OWN ACCOUNT, FOR INVESTMENT
PURPOSES ONLY AND NOT WITH AN INTENTION OF DISTRIBUTION,
TRANSFER OR RESALE, EITHER IN WHOLE OR IN PART.
_________________________

The date of this Confidential Private Placement Memorandum is [DATE]

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GENERAL INFORMATION
THE LIMITED LIABILITY COMPANY INTERESTS (COLLECTIVELY, THE
“INTERESTS”) OF (COMPANY NAME)FUND, LLC (THE “FUND”) OFFERED HEREBY
ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SECTION 4(2) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933
ACT”), RULE 506 THEREUNDER, AND APPLICABLE STATE SECURITIES LAWS.
INTERESTS ARE AVAILABLE ONLY TO INVESTORS WHO ARE WILLING AND ABLE
TO BEAR THE ECONOMIC RISKS OF THIS INVESTMENT. THE INTERESTS ARE
SPECULATIVE AND, BY THEIR NATURE, MAY BE CONSIDERED TO INVOLVE A
HIGH DEGREE OF RISK. INVESTMENT IN THE FUND IS DESIGNED ONLY FOR
SOPHISTICATED INVESTORS WHO ARE ABLE TO BEAR A SUBSTANTIAL LOSS OF
THEIR CAPITAL CONTRIBUTIONS IN THE FUND. SEE “RISK FACTORS.”
THIS
CONFIDENTIAL
PRIVATE
PLACEMENT
MEMORANDUM
(“MEMORANDUM”) CONSTITUTES AN OFFER ONLY IF THE NAME OF AN OFFEREE
APPEARS IN THE APPROPRIATE SPACE PROVIDED ON THE COVER PAGE OF THIS

MEMORANDUM AND ONLY IF DELIVERY OF THIS MEMORANDUM IS PROPERLY
AUTHORIZED BY THE FUND. THIS MEMORANDUM HAS BEEN PREPARED BY THE
FUND SOLELY FOR THE BENEFIT OF INVESTORS INTERESTED IN THE PROPOSED
PURCHASE OF INTERESTS, AND ANY REPRODUCTION OF THIS MEMORANDUM, IN
WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF ITS CONTENTS, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE FUND, IS PROHIBITED.
NOTWITHSTANDING THE FOREGOING, AN OFFEREE MAY, WITHOUT THE
CONSENT OF THE FUND, PROVIDE A COPY OF THIS MEMORANDUM (OR ANY
PORTION THEREOF) TO SUCH OFFEREE’S LEGAL OR TAX ADVISORS OR TO ANY
TAXING AUTHORITY OR OTHERWISE AS SET FORTH UNDER “INCOME TAX
CONSIDERATIONS.”
NO OFFERING LITERATURE OR ADVERTISING IN ANY FORM WHATSOEVER
SHALL BE EMPLOYED IN THE OFFERING OF THE INTERESTS EXCEPT FOR THIS
MEMORANDUM.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY
REPRESENTATION OR WARRANTY OR PROVIDE ANY INFORMATION WITH
RESPECT TO THE INTERESTS EXCEPT SUCH INFORMATION AS IS CONTAINED IN
THIS MEMORANDUM. NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY
SALES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE MATTERS DISCUSSED
HEREIN SINCE THE DATE HEREOF.
( COMPANY NAME) LLC, AS THE MANAGING MEMBER OF THE FUND (THE
“MANAGING MEMBER”), HAS USED ITS BEST EFFORTS TO OBTAIN AND PROVIDE
ACCURATE INFORMATION FOR THIS MEMORANDUM, BUT NO REPRESENTATION
OR WARRANTY IS MADE WITH RESPECT TO THE ACCURACY OF SUCH
INFORMATION.

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i


THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
IN ANY STATE OR OTHER JURISDICTION IN WHICH AN OFFER OR SOLICITATION IS
NOT LAWFUL OR AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO.
THE CONTENTS OF THIS MEMORANDUM SHOULD NOT BE CONSTRUED AS
INVESTMENT, LEGAL OR TAX ADVICE. EACH PROSPECTIVE INVESTOR IS URGED
TO SEEK INDEPENDENT INVESTMENT, LEGAL AND TAX ADVICE CONCERNING
THE CONSEQUENCES OF INVESTING IN THE FUND.
THE INTERESTS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS AND CONDITIONS SET FORTH IN THIS
MEMORANDUM.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
INVESTORS (AND EACH EMPLOYEE, REPRESENTATIVE OR OTHER AGENT
OF INVESTORS) MAY DISCLOSE TO ANY AND ALL PERSONS, WITHOUT
LIMITATIONS OF ANY KIND, THE TAX TREATMENT AND TAX STRUCTURE OF THE
TRANSACTION AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR
OTHER TAX ANALYSIS) THAT ARE PROVIDED TO INVESTORS RELATING TO SUCH
TAX TREATMENT AND TAX STRUCTURE.
THIS AUTHORIZATION OF TAX
DISCLOSURE IS RETROACTIVELY EFFECTIVE TO THE COMMENCEMENT OF THE
FIRST DISCUSSIONS BETWEEN SUCH INVESTOR AND THE FUND REGARDING THE
TRANSACTIONS CONTEMPLATED HEREIN.

DISCUSSIONS IN THIS MEMORANDUM BELOW AS THEY RELATE TO
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES ARE NOT
INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE
OF AVOIDING UNITED STATES FEDERAL TAX PENALTIES. SUCH DISCUSSIONS
WERE WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE
TRANSACTIONS OR MATTERS ADDRESSED IN THIS MEMORANDUM, AND ANY
TAXPAYER TO WHOM THE TRANSACTIONS OR MATTERS ARE BEING PROMOTED,
MARKETED OR RECOMMENDED SHOULD SEEK ADVICE BASED ON ITS
PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

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ii


TABLE OF CONTENTS
Page

GENERAL INFORMATION .......................................................................................................... i
SUMMARY................................................................................................................................... iv
THE MANAGING MEMBER AND THE INVESTMENT MANAGER ......................................1
INVESTMENT OBJECTIVE AND STRATEGY ..........................................................................1
ADMINISTRATOR ........................................................................................................................4
BROKERAGE ARRANGEMENTS; CUSTODIAN ......................................................................5
RISK FACTORS .............................................................................................................................6
CERTAIN ERISA CONSIDERATIONS ......................................................................................18
RESPONSIBILITY OF THE MANAGING MEMBER AND THE
INVESTMENT MANAGER.........................................................................................................21
CONFLICTS OF INTEREST........................................................................................................22

FEES, EXPENSES AND THE PERFORMANCE ALLOCATION.............................................25
VALUATION OF THE FUND’S ASSETS ..................................................................................26
REDEMPTIONS............................................................................................................................28
THE LIMITED LIABILITY COMPANY AGREEMENT ...........................................................30
INCOME TAX CONSIDERATIONS ...........................................................................................32
INVESTMENT REQUIREMENTS ..............................................................................................39
PRIVATE PLACEMENT..............................................................................................................40
ADDITIONAL INFORMATION..................................................................................................41
Exhibits
A - Form of Limited Liability Company Agreement
B - Form of Subscription Documents

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SUMMARY
The following is a summary of this Memorandum. This Memorandum contains more detailed
information under the captions referred to below, and this summary is qualified in its entirety by the
information appearing elsewhere in this Memorandum. Terms which are used but are not defined in this
Memorandum shall have the same meanings set forth in the Limited Liability Company Agreement
attached hereto as Exhibit A (the “LLC Agreement”).
The Fund
Fund

(COMPANY NAME)Fund, LLC (the “Fund”) was organized as a limited
liability company on [DATE] under the Delaware Limited Liability Company
Act. The Fund’s businesses address is [Address and Telephone].

Managing Member &
Investment Manager

( COMPANY NAME) LLC, the managing member of the Fund, is a Delaware
limited liability company organized on [DATE] (the “Managing Member”).
The Managing Member has unfettered authority to manage the Fund’s
activities. The Managing Member has delegated to ( COMPANY NAME) , a
Delaware limited liability company organized on [DATE] and an affiliate of the
Managing Member, the responsibility as investment manager to manage the
assets of the Fund (the “Investment Manager”) pursuant to an investment
management agreement (the “Investment Management Agreement”). The
Managing Member’s and the Investment Manager’s address and telephone
numbers are the same as those of the Fund.
( Name) and ( Name) are the individuals responsible for management of the
Managing Member and the Investment Manager.

Investment Objective and
Business of the Fund

The Fund’s investment objective is to achieve superior capital appreciation by
investing its assets with investment managers (“Managers”) of registered
investment companies (i.e. mutual funds) and exchange traded funds (“ETFs”),
and by utilizing hedging strategies which the Investment Manager implements
from time to time to protect down side risks and to mitigate volatility of the
portfolio. Initially, the Investment Manager anticipates allocating the Fund’s
assets to approximately 4-6 Managers that employ diversified investment
strategies, including, but not limited to, small cap growth, small cap value,
medium cap growth, medium cap value, large cap growth and large cap value
and trading strategies involving derivatives and hybrid instruments. These

allocations may be made in two ways: directly through brokerage accounts
pursuant to discretionary investment management agreements with Managers
(“Managed Accounts”); and indirectly, by purchasing shares or interests in
registered investment companies, ETFs and other investment funds managed by
Managers (together with the Managed Accounts, the “Investment Vehicles”).
The Investment Manager’s current intention is to invest substantially all of the
Fund’s assets in Investment Vehicles.
Although the Investment Manager intends to achieve the Fund’s investment
objective primarily by investing in Investment Vehicles, the Fund, on occasion,
may trade, buy, sell, and otherwise acquire, hold, dispose of, and deal in,
directly or indirectly through its investment in Investment Vehicles, on margin
or otherwise, (i) U.S. and non-U.S. equity and equity-related securities

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(publicly-traded and privately offered, listed and unlisted), including, but not
limited to, convertible debt securities, preferred stocks and their related
common stocks, “new issues,” U.S. Treasury securities and indices, (ii) U.S.
and non-U.S. bonds and other fixed income securities and debt obligations,
government securities, mortgage-backed securities, bank debts, money market
obligations, distressed equity, high yield securities, (iii) derivatives instruments
such as, without limitation, options, warrants and forward contracts, and (iv)
such other instruments, rights, and interests as determined by the Investment
Manager or the Managers, as applicable (hereinafter referred to collectively as
“Financial Instruments”).
The Fund may maintain assets in cash, short-term securities, money market

instruments and such other similar instruments to meet the expense needs of the
Fund and/or to fund redemptions or for such other reasons as may be
determined by the Managing Member or the Investment Manager.
The foregoing outline of the Fund’s investment strategy represents the
Investment Manager’s present intentions in view of current market conditions
and other factors. The Investment Manager may vary the foregoing investment
objectives and guidelines to the extent it determines that doing so will be in the
best interest of the Fund. There is no assurance that the Fund’s investment
objectives will be achieved, and results may vary substantially over time. Any
investment strategy pursued for the Fund is in the absolute and sole discretion
of the Investment Manager.
Master Fund

The Investment Manager reserves the right to pursue the Fund's investment
objective either by directly investing the Fund's assets or by causing all or part
of the Fund's assets to be invested in a centralized investment vehicle
commonly known as a "master fund" (the Fund being a "feeder fund"). Such
master fund would invest and reinvest assets of the Fund, together with assets of
other similar entities, following the same investment strategy described herein.

Administrator

[NAME] (the “Administrator”) has been retained by the Fund to assist the
Managing Member with the Fund’s administrative matters.
The
Administrator’s [address, telephone number, facsimile number ].

Brokerage Arrangements; The Fund will enter into brokerage arrangements (including prime brokerage
arrangements) with one or more financial institutions, including any brokers,
Custodian

dealers, custodians or other institutions (collectively, the “Brokers”) through
which the Fund effects transactions with regard to any direct investments in
Financial Instruments. The Fund may modify its brokerage arrangements at any
time without notice to or consent from the Members, including, without
limitation, by retaining additional Brokers or terminating its relationship with
current Brokers. Portfolio transactions are executed by Brokers selected on
behalf of the Fund on the basis of their ability to effect prompt and efficient
executions at competitive rates. The Managers generally are responsible for
selecting the Brokers for the portion of the Fund’s assets under their
management. The Managers may select Brokers on the basis that the Brokers
may provide “soft dollar” benefits to the Managers, their affiliates and/or other
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v


investment accounts under their management; however, neither the Managing
Member, the Investment Manager nor their affiliates will receive any “soft
dollar” benefits.
Risks

The Fund is a relatively new entity with a limited operating history. An
investment in the Fund is speculative and involves substantial risks, including
the risk of loss of an investor’s entire investment. These risks also include, but
are not limited to, the speculative nature of trading and investing in Financial
Instruments, the substantial charges which the Fund will incur, regardless of
whether any profits are earned and the actual and potential conflicts of interest
in the structure and operation of the Fund’s business. Past performance of the
Fund, Managing Member, the Investment Manager, their principals, and their

affiliates or of any investment vehicles advised by them is no guarantee of
performance results of the Fund. See “Risk Factors” and “Conflicts of Interest.”

The Offering
Securities Offered

The Fund is offering limited liability company interests (“Interests”) on a
private placement basis to investors who satisfy the suitability standards
described below. Since the Fund may invest in “new issues,” directly or
indirectly, the allocation of “new issue” profits, losses and expenses will be
limited to those Members that are not “restricted persons.” See “Risk Factors-Newly Issued Securities.”
Accepted subscribers will be admitted to the Fund as members (“Members”) as
of the first Business Day following the end of the month in which the Fund
receives and accepts such investor’s capital contributions and executed
subscription documents in the form attached hereto as Exhibit B (the
“Subscription Documents”), or at such other times as the Managing Member,
in its sole discretion, shall determine.
The Managing Member may designate certain Members (including
knowledgeable employees, affiliates and relatives of the principals of the
Investment Manager or the Managing Member) as “Special Members,” having
interests with different rights and obligations from the Interests offered hereby.

Minimum Subscription

The minimum initial subscription is [Amount] per subscriber, or such lesser
amounts as the Managing Member, in its sole discretion, may permit. Existing
Members may subscribe for additional amounts with a minimum subscription of
[Amount], or such lesser amounts as the Managing Member, in its sole
discretion, may permit. Any subscriptions for Interests may be accepted or
rejected, in whole or in part, in the sole discretion of the Managing Member.

All subscriptions for Interests are irrevocable, unless determined otherwise by
the Managing Member.

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Eligible Investors

This offering is designed for sophisticated investors that satisfy the
requirements of Regulation D promulgated under the Securities Act of 1933, as
amended (the “1933 Act”). An investment in the Fund generally is not suitable
for non-U.S. persons or U.S. tax-exempt investors. Only persons who have a
pre-existing relationship with the Managing Member, the Investment Manager
or their principals, employees or representatives, and are (i) “accredited
investors” as defined in Rule 501 of Regulation D under the 1933 Act, (ii)
“qualified clients” as defined in Rule 205-3 adopted under the Advisers Act,
and (iii) knowledgeable and experienced in financial and business matters such
that they are capable of evaluating the merits and risks of an investment in the
Fund, will be permitted to invest in the Fund.
An investment in the Fund should not be made by any investor who (i) cannot
afford a total loss of their investment and (ii) has not (either alone or in
conjunction with a financial advisor) carefully read or does not understand, this
Memorandum and the LLC Agreement.

The Offering

The Fund will accept subscriptions at the end of each month effective for

investment on the first Business Day of the next succeeding month and at such
additional times as the Managing Member, in its sole discretion, may permit
(each a “Closing Date”).
Each capital contribution by a Member will be treated as the acquisition of a
new Interest and will not be aggregated with that Member’s existing Interest(s).
Each Interest therefore will be treated separately for purposes of calculating
fees, allocations and expenses.

Subscription Procedure

In order to purchase an Interest, a subscriber must (i) complete, execute and
deliver the Subscription Documents and (ii) pay the full amount of the
subscription by arranging for a wire transfer, both in accordance with the
instructions in the Subscription Documents.
In general, the Fund must receive the Subscription Documents and the
subscription amount no later than four Business Days prior to the Closing Date
on which the subscription is intended to be accepted by the Fund. If the Fund
receives Subscription Documents or the subscription amount later than four
Business Days prior to the Closing Date, unless the Managing Member, in its
sole discretion, waives the untimeliness of such subscription, such subscription
will be held until the next Closing Date that immediately follows the date of
receipt of such subscription, at which time such subscription will be considered
for acceptance by the Fund. Interest earned on subscriptions will be treated as
interest earned by the Fund on the applicable Closing Date.

Fees, Expenses and the Performance Allocation
Management Fee

The Investment Manager receives a monthly management fee, in arrears, from
the Fund equal to 1/12th of 1% of the month-end Net Asset Value of the Fund

(1% per annum) (the “Management Fee”). Payment of the Management Fee is
due as of the last Business Day of each calendar month and is payable by the

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vii


Fund as soon as practicable thereafter.
For purposes of calculating the Management Fee, Net Asset Value includes (i)
the accrued Performance Allocation (as defined below), if any, (ii) the
Management Fee payable or incurred by the Fund and (iii) any distributions or
redemption amounts paid during the applicable month in which the
Management Fee is calculated. The Management Fee is adjusted for Interests
held by Special Members.
“Net Asset Value” is defined under “Valuation of the Fund’s Assets.”
Performance Allocation

The Managing Member receives a special allocation to its capital account in the
Fund, credited at the end of each calendar year, equal to 20% of the New Net
Profit (as defined under “Fees, Expenses and the Performance Allocation”)
allocable to each Interest (other than Interests held by Special Members) (the
“Performance Allocation”). The Performance Allocation will be calculated
separately for each Interest, will be net of all fees and expenses, including the
Management Fee, and will be subject to a “high water mark” since a
Performance Allocation was last due with respect to that Interest. A
Performance Allocation will be made provisionally at the end of each month
and will be recouped on account of net losses occurring in that same year after
provisional Performance Allocations are made. The Performance Allocation

due to the Managing Member shall not be affected by subsequent losses
experienced by the Fund or any Member.
The Performance Allocation will vest at the end of each calendar year. In the
event that the effective date of a Member’s full or partial redemption is not the
last day of a calendar year, the Performance Allocation attributable to amounts
redeemed from such Member’s capital account will be determined for the
period from the beginning of that year through the Redemption Date (as defined
below).

Managers’ Fees

By virtue of its investments with different Managers, the Fund will pay its share
of all fees and expenses charged by those Managers, which will result in the
layering of fees and expenses.
Managers are compensated or receive allocations on terms that may include
fixed and/or performance-based fees or allocations. Generally, management
fees, if applicable, range from 1% to 2% (annualized) of the average value of
the Fund's investment, and performance fees or allocations, if applicable, range
from 20% to 25% of the capital appreciation in the Fund's investment for the
year.
The Fund may negotiate reduced fees and/or allocations with certain Managers.
Any such reductions will inure to the benefit of the Fund.

Organizational and Initial
Offering Expenses

The Fund’s organizational and initial offering costs and expenses are expected
to total approximately [Amount]. For financial accounting purposes, the Fund
is amortizing those expenses over a 60-month period commencing [Date]. The
Fund believes that amortizing the organizational expenses is more equitable

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viii


Operating Expenses

Placement Fees

than requiring the initial investors in the Fund to bear the initial costs of the
Fund.
The Fund pays all of its ordinary and extraordinary expenses including, but not
limited to, legal, bookkeeping, accounting, auditing, recordkeeping,
administration, and clerical expenses (including expenses incurred in preparing
reports and tax information to Members and regulatory authorities), printing
expenses, brokerage fees and commissions, operational and investment-related
expenses, the expenses of the offering of Interests and filing fees, investmentresearch, travel and marketing expenses, insurance and such other related
expenses and extraordinary expenses (including indemnification) as incurred
and its pro rata share of the Investment Vehicles’ fees and expenses.
Properly registered selling agents engaged on behalf of the Fund may, with the
consent of the applicable subscribing Member introduced to the Fund by that
selling agent, receive a selling agent fee from that Member’s subscription
amount. The Fund will not receive any portion of the selling agents’ fees.
Operation of the Fund

Redemption of Interests

Subject to certain restrictions, a Member may, upon at least 45 days’ prior

written notice to the Managing Member, redeem all or part of its Interest(s) as
of the last Business Day of a calendar quarter, or at such other times and upon
such conditions as the Managing Member, in its sole discretion, shall determine
(each, a “Redemption Date”). A Member that redeems all or any portion of its
Interest(s) prior to having held such Interest(s) for a full twelve months will be
subject to a redemption fee equal to 2% of the actual aggregate redemption
proceeds, which redemption fee will be treated as additional income to the
Fund. Redemption fees and related expenses incurred by the Fund with respect
to its investments in Investment Vehicles will be allocated to the Member that
caused the Fund to incur such redemption fees.
Moreover, some or all of the Investment Vehicles may require maintenance of
investment minimums and/or have holding periods and/or other redemption
provisions more restrictive than those of the Fund. Under such circumstances
and other extraordinary circumstances (e.g., a delay in payments from one or
more Investment Vehicles or Managed Accounts, significant administrative
hardship), the Fund may delay payment of redemption amounts representing the
portion of the Fund’s assets that are the subject of such delay or, at the
Managing Member’s discretion, may distribute assets in-kind in partial or in full
satisfaction of the redemption price or suspend redemption rights or redemption
payments in whole or in part. The Managing Member may expressly waive or
modify any or all redemption restrictions, redemption fees and notice
requirements. See “Valuation of the Fund’s Assets” and “Redemptions.”

Compulsory Redemptions

Freezing Redemptions

The Managing Member, in its sole discretion, may at any time require any
Member to redeem all or a portion of its Interest(s) from the Fund upon at least
48 hours prior written notice. The “Redemption Date” in such event shall be

the date specified in such notice.
If the Fund reasonably believes that a Member is a “prohibited investor” (as

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ix


such term is defined in the Subscription Documents) or has otherwise breached
its representations and warranties, the Fund may be obligated to freeze its
investment, either by prohibiting additional investments, declining or delaying
any requests for redemption and/or segregating the assets constituting the
investment in accordance with applicable regulations, or its investment may
immediately be compulsorily redeemed.
Distributions

Although earnings are normally reinvested, distributions may be made at the
sole discretion of the Managing Member. Each Member nevertheless will be
required to report its share of taxable income for federal income tax purposes.
Any distribution to a Member shall be made in cash to the extent reasonably
practicable but may, in the sole discretion of the Managing Member, be made in
assets in-kind, in whole or in part, pro rata or non-pro rata, in lieu of cash. No
Member shall have the right to receive distributions in property other than cash.

Regulatory Matters

The Fund is not presently, and does not intend in the future to become,
registered as an investment company under the Investment Company Act of
1940, as amended (the “1940 Act”), in reliance on Section 3(c)(1) thereof and

the Investment Manager is not presently registered as an investment adviser.

Release of Confidential Applicable anti-money laundering rules provide that the Fund, the
Administrator, the Managing Member and/or the Investment Manager may
Information
voluntarily release confidential information about Members and, if applicable,
about the beneficial owners of Members, to regulatory or law enforcement
authorities if they determine to do so in their sole discretion.
Reports

The Fund will provide Members with monthly performance reports, quarterly
Net Asset Value statements and annual audited reports, the latter with audited
financial statements.

Fiscal Year

The Fund’s fiscal year ends on the 31st day of December of each year. The first
fiscal year end for which audited financial statements will be prepared will be
[Date]

Business Day

A “Business Day” is a day (other than a Saturday or Sunday) on which banks
and relevant financial markets are open for business in New York.

Privacy Notice

Any and all nonpublic personal information received by the Fund and/or the
Investment Manager with respect to the Shareholders that are natural persons,
including the information provided to the Fund by a Shareholder in the

subscription documents, will not be shared with nonaffiliated third parties that
are not service providers to the Fund and/or the Investment Manager without
prior notice to such Shareholders. Such service providers include but are not
limited to the auditors, the Administrator and the legal advisors of the Fund.
Additionally, the Fund, the Administrator and/or the Investment Manager may
disclose such nonpublic personal information as required by law. The Privacy
Policy is attached as Appendix I to the Subscription Documents.

Counsel

[NAME] acts as counsel to the Fund, the Managing Member and the Investment

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Manager.
Income Tax
Considerations

A prospective investor is responsible for, and should consider carefully, all of
the potential tax consequences of an investment in the Interests and should
consult with its tax advisor before subscribing for the Interests. Tax-exempt
entities, including those governed by ERISA (as defined herein), that invest in
the Fund may be exposed to unrelated business taxable income, notwithstanding
their otherwise tax-exempt status, depending upon the Fund’s or such investor’s
use of margin or other leverage. For a discussion of certain income tax
consequences of this investment, see “Income Tax Considerations.”

Certain ERISA
Considerations

Investment in the Fund generally will be open to employee benefit plans and
other funds subject to ERISA and/or Section 4975 of the Code (as defined
herein). Except as described below under "Risk Factors - Compliance with
ERISA Transfer Restrictions", the Managing Member intends to use
commercially reasonable efforts to cause "benefit plan investors" not to own a
significant portion of any class of equity interests in the Fund, so that the assets
of the Fund should not be considered "plan assets" for purposes of ERISA and
Section 4975 of the Code, although there can be no assurance that non "plan
asset" status will be obtained or maintained. Prospective purchasers and
subsequent transferees of Interests in the Fund may be required to make certain
representations regarding compliance with ERISA and Section 4975 of the
Code. See "Certain ERISA Considerations".
EACH PROSPECTIVE INVESTOR THAT IS SUBJECT TO ERISA
AND/OR SECTION 4975 OF THE CODE IS ADVISED TO CONSULT
WITH ITS OWN LEGAL, TAX AND ERISA ADVISERS AS TO THE
CONSEQUENCES OF AN INVESTMENT IN THE FUND.

Auditor

The Fund has retained [NAME] as its auditor.

Additional Information

Interested investors are invited to meet with representatives of the Fund for a
further explanation of the terms and conditions of this offering. Upon request,
to the extent that the Fund possesses additional non-proprietary information or

can acquire it without unreasonable effort or expense, the Fund will provide any
such additional non-proprietary information, including prior performance
information. Requests for such information should be directed to the Fund at
the address and telephone number shown above under the caption “The Fund.”
This Memorandum is important and should be read in its entirety, along with all
exhibits, before an investor decides whether to subscribe for an Interest in the
Fund. Each investor should consult with its financial, legal or tax advisors, as
needed, before making an investment decision.

Use of This Memorandum

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xi


THE MANAGING MEMBER AND THE INVESTMENT MANAGER

( COMPANY NAME), LLC, a Delaware limited liability company organized on (DATE) (the
“Managing Member”), is the managing member of the Fund and in such capacity is responsible for the
day-to-day management of the Fund’s affairs. The Managing Member has delegated to ( COMPANY
NAME) , a Delaware limited liability company organized on [DATE]and an affiliate of the Managing
Member, the responsibility as investment manager to manage the assets of the Fund (the “Investment
Manager”) pursuant to an investment management agreement (the “Investment Management
Agreement”).
( COMPANY NAME) is the Managing Member and the Investment Manager. ( Name) and (
Name) are the individuals responsible for management of the Managing Member and the Investment
Manager.
( Name). ( Name) is the founder and Managing Partner of ( COMPANY NAME) which

commenced operations in [DATE]. ( COMPANY NAME) provides money management services to
accredited and institutional investors. ADD BIO
( Name). ( Name) is a Managing Partner of ( COMPANY NAME) ADD BIO
The Investment Management Agreement. Pursuant to the terms of the Investment Management
Agreement, the Investment Manager has agreed, inter alia, to manage and invest the Fund’s assets. The
Investment Management Agreement provides that the Investment Manager shall not be liable to the Fund
or its Members for any error of judgement or for any loss suffered by the Fund or its Members in
connection with its services in the absence of gross negligence, fraud or willful misconduct in the
performance or non-performance of its obligations or duties. The Investment Management Agreement
contains provisions for the indemnification of the Investment Manager by the Fund against liabilities to
third parties arising in connection with the performance of its services, except under certain circumstances
specified as per the Investment Management Agreement.
The Investment Management Agreement has an initial term expiring on [DATE] and thereafter it
will be automatically renewed for successive one-year periods, subject to termination (i) by either party in
the event of the other party's willful default or fraudulent conduct in connection with the performance of
the Investment Management Agreement or (ii) by either party at anytime upon not less than ninety (90)
days' prior written notice.

INVESTMENT OBJECTIVE AND STRATEGY

Investment Strategy

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1


The Fund’s investment objective is to achieve superior capital appreciation by investing its assets
with investment managers (“Managers”) of registered investment companies (i.e., mutual funds) and

exchange traded funds (“ETFs”), and by utilizing hedging strategies which the Investment Manager
implements from time to time to protect down side risks and to mitigate volatility of the portfolio.
Initially, the Investment Manager anticipates allocating the Fund’s assets to approximately 4-6 Managers
that employ diversified investment strategies, including, but not limited to, small cap growth, small cap
value, medium cap growth, medium cap value, large cap growth and large cap value and trading strategies
involving derivatives and hybrid instruments. These allocations may be made in two ways: directly
through brokerage accounts pursuant to discretionary investment management agreements with Managers
(“Managed Accounts”); and indirectly, by purchasing shares or interests in registered investment
companies, ETFs and other investment funds managed by Managers (“Investment Vehicles”). The
Investment Manager’s current intention is to invest substantially all of the Fund’s assets in Investment
Vehicles, although the Fund is also permitted to make direct investments in Financial Instruments as
previously defined.
The Fund aims to:
•
•
•

Seek superior risk-adjusted rate of return, while maintaining a lower volatility by allocating
the Fund’s assets among a variety of different Managers with different investment strategies
and by employing hedging strategies to protect down side risks;
Preserve capital by attempting to achieve consistent returns with a lower level of risk; and
Maintain low correlation with major stock and bond indices.

The Investment Manager’s investment process is a multi-faceted process that involves a number
of steps starting with Manager identification and ending with portfolio construction and implementing
hedging strategies and Manager monitoring. Ultimately, the success of the investment process rests on
the ability to successfully identify superior investment and trading talent as well as to develop efficient
hedging strategies from time to time. The Investment Manager relies on both quantitative and qualitative
factors to source Managers.
On the quantitative side, the Investment Manager uses its own database to analyze Managers’

historical performances, risk profile and other statistical data. On the qualitative side, the Investment
Manager will conduct a thorough due diligence review that considers a potential Manager’s portfolio
management experience, depth of management team, and adherence to compliance. Significant time will
be spent conducting on-site due diligence, attending conferences, and examining a potential Manager’s
organizational infrastructure. Manager performance will be monitored closely following each allocation
by the Fund. Due to the fact that markets change, strategies change, and Manager personnel change, the
Investment Manager believes the continual monitoring and evaluation of Managers is essential.
The Investment Manger conducts research work from time to time to find out and develop
suitable hedging strategies for the Fund by utilize quantitative tools and seeking professional advice if
necessary.
In an effort to create a portfolio that delivers superior capital appreciation while controlling risk,
the Investment Manager believes it is important that no single Manager, style or strategy causes the
Fund’s entire portfolio undue distress. With this in mind, the Investment Manager will attempt to seek
diversification across Managers, styles and strategies. The Investment Manager may liquidate the Fund’s
assets from a particular Manager for many reasons, including: a) style drift; b) unfavorable market
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2


outlook for the strategy; c) performance; d) change in leverage; e) change in personnel; or f) inadequate
disclosure.
The Fund may maintain assets in cash, short-term securities, money market instruments and such
other similar instruments to meet the expense needs of the Fund and/or to fund redemptions or for such
other reasons as may be determined by the Managing Member and the Investment Manager. In addition,
the Investment Manager at times and from time to time may elect to leverage the Fund’s assets through
borrowings and/or derivative instruments. See “Investment Objective and Strategy- Leverage, Borrowing
and Lending” below.
Advantages of the Fund’s Multi-Manager Investment Structure in long side of portfolio. The

Fund’s use of multiple Managers to conduct its trading is designed to provide investors with a diversified
investment portfolio, as well as to enable investors to obtain above-average returns over a market cycle.
In addition, the use of various Managers will afford Members:
•

Investment Diversification. An investor who is not prepared to spend substantial time
investing in and trading various Financial Instruments nevertheless may participate in
these markets through the Fund, thereby obtaining diversification. The Managing
Member believes that the profit potential of the Fund does not depend upon favorable
general economic conditions, and that the Fund is as likely to be profitable during periods
of declining stock, bond, and real estate markets as at any other time; conversely, the
Fund may be unprofitable (as well as profitable) during periods of generally favorable
economic conditions.

•

Limited Liability. Unlike an individual who invests directly in Financial Instruments, a
Member cannot be subjected individually to margin calls and cannot lose more than the
amount of his unredeemed capital contribution, his share of undistributed profits, if any,
and under certain circumstances, any distributions and amounts received upon
redemption of Interests and interest thereon.

•

Professional Investment Management. Investment and trading decisions for the Fund are
made by the Managers, who have different investment styles and philosophies and who
are selected by the Investment Manager. The Investment Manager’s program generally is
not available for investments outside the Fund. The Managers have high investment
minimums and limited access, and are not accessible with the amounts invested by
Members in the Fund.

•

Administrative Convenience. The Fund is structured to provide Members with numerous
services designed to alleviate the administrative details involved in engaging directly in
Financial Instrument trading, including monthly, quarterly and annual reports (showing,
among other things, the Member’s Net Asset Value in the Fund, trading profits or losses,
and expenses) and all tax information relating to the Fund necessary for Members to
complete their income tax returns.
*

*

*

The foregoing outline of the Fund’s investment strategy represents the Investment Manager’s
present intentions in view of current market conditions and other factors. The Investment Manager may
vary the foregoing investment objectives and guidelines to the extent it determines that doing so will be in
the best interest of the Fund. There is no assurance that the Fund’s investment objectives will be
achieved, and results may vary substantially over time. Any investment strategy pursued for the Fund is
in the sole discretion of the Investment Manager.
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3


Prospective investors must not consider the present or proposed allocation of the Fund’s assets
among the Managers to have been, or expect future allocations to be, determined in any scientific or
precise manner. Such decisions will be made in the Investment Manager’s sole discretion, and

prospective investors must not rely on the Investment Manager considering any specific factors in
arriving at any such decision.
Leverage, Borrowing and Lending
The Investment Manager at times and from time to time may elect to leverage the Fund’s assets
through borrowing and/or derivative instruments. In addition, the Fund is authorized to borrow in order to
fund redemption requests and for the payment of fees, expenses and other short term Fund obligations.
Investment Vehicles frequently may borrow in an attempt to enhance returns. There are no restrictions on
the Fund’s borrowing capacity other than limitations imposed by lenders and any applicable credit
regulations. Loans generally may be obtained from securities brokers and dealers or from other financial
institutions; securities or other assets of the Fund pledged to such brokers will be used to secure such
loans. Loans of cash or securities may also be made from or to other investment companies on such terms
as are commercially reasonable, including without limitation, from or to investment companies similar to
the Investment Vehicles.
THERE CAN BE NO ASSURANCE THAT THE FUND’S PERFORMANCE GOALS WILL
BE REALIZED. THE SUCCESS OF THE FUND DEPENDS TO A GREAT EXTENT ON THE
ABILITY OF THE INVESTMENT MANAGER TO SELECT MANAGERS, NOT ON THE SPECIFIC
IDENTITIES OF THE MANAGERS THEMSELVES OR THE PERFORMANCE OF ANY
PARTICULAR MANAGER. THE IDENTITIES OF MANAGERS AND THE PROPORTION OF
ASSETS ALLOCATED TO THEM ARE THE PROPRIETARY INFORMATION OF THE FUND.
MANAGERS SELECTED FOR THE FUND WILL CHANGE FROM TIME TO TIME.

ADMINISTRATOR

“Administrator” has been retained by the Fund to assist the Managing Member with the Fund’s
administrative matters. The Administrator, formed in [DATE], provides accounting/reporting and system
services to investment partnerships and securities broker-dealers. The Administrator services more than
[Number] entities monthly, comprising more than [NUMBER] investment partnerships and offshore
funds, and [NUMBER] securities broker-dealers.
Pursuant to an administration agreement between the Administrator and the Fund (the
“Administration Agreement”), the Administrator is responsible for, among other things, (i) keeping the

accounts of the Fund and such financial books and records as are required by law or otherwise for the
proper conduct of the financial affairs of the Fund; (ii) preparing the monthly and annual financial
statements of the Fund; and (iii) assisting the auditors with preparation of the annual audit of the Fund.
The Administration Agreement provides that, in the absence of the Administrator’s gross negligence,
willful misconduct, breach of fiduciary duty, or reckless disregard of its duties, the Administrator will not
be liable for any act or omission performed or omitted by it in the course of, or in connection with, its
rendering of services to the Fund, and will be appropriately indemnified for any losses it may incur in

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4


doing so. The Administration Agreement may be terminated by the Administrator or by the Fund upon at
least 60 days’ prior written notice. The Administrator is not an organizer or a promoter of the Fund.

BROKERAGE ARRANGEMENTS; CUSTODIAN

The Fund will enter into brokerage arrangements with Brokers with regard to any direct
investments in Financial Instruments. The Fund may modify its brokerage arrangements at any time
without notice to or consent from the Members. Portfolio transactions are executed by brokers and
dealers selected on behalf of the Fund on the basis of their ability to effect prompt and efficient
executions at competitive rates.
With respect to investments in Investment Vehicles, in general, each Manager is responsible for
selecting a Broker or Brokers for the portion of the Fund’s assets under its management. The Managers,
and their affiliates and any of its or their partners, members, managers, officers, directors, employees, or
other applicable representatives and their respective successors, transferees and assigns (collectively, the
“Managers Group”), are each authorized to utilize different Brokers for each Financial Instrument
transaction. In selecting Brokers to execute transactions, the members of the Managers Group need not

solicit competitive bids and do not have an obligation to seek the lowest available commission cost. It is
not the Managers Group practice to negotiate “execution only” commission rates; thus, the Fund may be
deemed to be paying for other products and services provided by the Broker which are included in the
commission rate. Brokers will be selected generally on the basis of best execution, which will be
determined by taking into account, among other things, commission rates (and other transactional
charges), the Broker’s financial strength, stability and responsibility, reputation, reliability,
responsiveness to the members of the Managers Group, and accuracy of recommendations on particular
Financial Instruments, ability to execute trades, block trading and block positioning capabilities, nature
and frequency of sales coverage, net price, depth of available services, arbitrage operations, bond
capability and option operations, the availability of stocks to borrow for short trades, willingness to
execute related or unrelated difficult transactions in the future, order of call, back office, processing and
special execution capabilities, efficiency of execution and error resolution.
In selecting Brokers, the members of the Managers Group (other than the Investment Manager)
may also take into account the value of the following products and/or services (whether or not for
research purposes, in whole or in part), either provided by the Broker, or paid for by the Broker (either by
direct or reimbursement payments (in whatever form) or by commissions, mark-ups or credits or by any
other means) to be provided by others (collectively, “Products and Services”). Products or Services may
be in any form (e.g., written, oral or on-line) and may include research products or services; clearance;
settlement; on-line pricing and financial information; access to computerized data regarding clients’
accounts; performance measurement data and services; consultations; economic and market information;
portfolio strategy advice; market, economic and financial data; statistical information; data on pricing and
availability of securities; publications (including periodicals, magazines and newspapers); electronic
market quotations; charges on borrowed funds; travel expenses; internet service; printing and duplicating
services; conferences; document retrieval services; marketing services; analyses concerning specific
securities, companies, governments or sectors; market, economic, political and financial studies and
forecasts; industry and company comments; technical data, recommendations and general reports;
quotation services; referrals of prospective investors and any related finder’s fees; custody; brokerage;
recordkeeping, bookkeeping and similar services; office space, furniture, utilities, and facilities; computer
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5


databases; newswire and data processing equipment, quotation equipment, accounting, auditing and legal
services, and, to the extent related in any way to any of the foregoing: service contracts, repairs,
replacement parts, consultants, connections, and software.
The members of the Mangers Group will not adhere to any rigid formulae in making the selection
of Brokers, but will weigh a combination of the preceding criteria. The members of the Managers Group
may use Products and Services in servicing some or all of their clients and the clients of their affiliates. In
addition, some Products and Services may not necessarily be used by the Fund, but may benefit other
clients of the Managing Member, the Investment Manager or any Manager) even though its commission
dollars may have provided for the Products and Services. The Fund, therefore, may not, in a particular
instance, be the direct or indirect beneficiary of the Products or Services provided.
Each Member will acknowledge and agree to the use of Products and Services by the Managers
Group as set forth above (even if such use does not meet the “safe harbor” of Section 28(e) under the
Securities Exchange Act of 1934, as amended) by signing the Subscription Documents.
The members of the Managers Group may, but are not required to, aggregate sale and purchase
orders of Financial Instruments with similar orders being made simultaneously for other accounts or
entities, including affiliates, if, in their reasonable judgment, such aggregation is reasonably likely to
result in an overall economic benefit to the specific account under management based on an evaluation
that the account will be benefited by relatively better purchase or sale prices, lower commission expenses
or beneficial timing of transactions, or a combination of these and other factors. In many instances, the
purchase or sale of Financial Instruments will be effected simultaneously with the purchase or sale of like
Financial Instruments for other accounts or entities. Such transactions may be made at slightly different
prices, due to the volume of Financial Instruments purchased or sold. In such event, the average price of
all Financial Instruments purchased or sold in such transactions may be determined by the members of the
Managers Group in their sole discretion.

RISK FACTORS

There is a high degree of risk associated with the purchase of Interests of the Fund, and any
such purchase should only be made after consultation with independent qualified sources of
investment, legal and tax advice. No one should consider subscribing for more than it can comfortably
afford to lose.
The identification of attractive investment opportunities is difficult and involves a significant
degree of uncertainty. Returns generated from the Fund’s investments may not adequately compensate
Members for the business and financial risks assumed. Although the Investment Manager’s allocation
methodology seeks to minimize some of the risks and volatility associated with investing in Financial
Instruments, there can be no assurance that the Investment Manager will be successful in doing so and,
accordingly, the Fund will be subject to those market risks common to investing in all types of Financial
Instruments, including market volatility. Prospective subscribers should consider the following risks
before subscribing for an Interest.
Business and Trading Risks
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6


Dependence on the Investment Manager. Although the Investment Manager may make direct
investments, by primarily investing in Investment Vehicles the Investment Manager will be relying on the
Managers to make most of the trading decisions on behalf of the Fund. Members will not have the
opportunity to evaluate fully for themselves the relevant economic, financial and other information
regarding the Investment Vehicles’ investments. Members will be dependent on the Investment
Manager’s judgment and ability to allocate the Fund’s assets among the Managers. There is no assurance
that the Investment Manager will be successful. Accordingly, no person should purchase an Interest
unless it is willing to entrust all aspects of the investment management activities of the Fund to the
Investment Manager.
Investment and Trading Risks; In General. Whether acquired directly by the Investment

Manager or by the Managers, all Financial Instrument investments present a risk of loss of capital. Such
investments are subject to investment-specific price fluctuations as well as to macro-economic, market
and industry-specific conditions, including but not limited to national and international economic
conditions, domestic and international financial policies and performance, conditions affecting particular
investments such as the financial viability, sales and product lines of corporate issuers, national and
international politics and governmental events, and changes in income tax laws. Moreover, the
Investment Manager and/or the Managers may have only a limited ability to vary their investment
portfolios in response to changing economic, financial and investment conditions. The Investment
Manager’s and/or the Managers’ respective investment programs may utilize a wide variety of investment
techniques, including limited diversification, margin transactions, short sales, and forward contracts and
other derivative transactions, which practices can, in certain circumstances, substantially increase the
adverse impact to which the Fund directly, or through its investment in Investment Vehicles, may be
subject. No guarantee or representation is made that the Investment Vehicles, the Managers or the
Investment Manager will be successful. The market price of Financial Instruments may go up or down,
sometimes unpredictably.
Trading is Speculative and Volatile. Financial Instrument prices are highly volatile. Price
movements for Financial Instruments are influenced by, among other things, changing supply and demand
relationships, weather, agricultural, trade, fiscal, monetary, and exchange control programs and policies of
governments, U.S. and foreign political and economic events and policies, changes in national and
international interest rates and rates of inflation, currency devaluations and revaluations, and sentiments
of the marketplace. No assurance can be given that the Investment Vehicles or the Fund will be profitable
or that they will not incur substantial losses.
Derivative Instruments in General. The Investment Manager, directly or through its investment
with Managers, may use various derivative instruments, including options, forward contracts, swaps and
other derivatives which may be volatile and speculative. Certain positions may be subject to wide and
sudden fluctuations in market value, with a resulting fluctuation in the amount of profits and losses. Use
of derivative instruments presents various risks, including the following:
Tracking — When used for hedging purposes, an imperfect or variable degree of
correlation between price movements of the derivative instrument and the underlying
investment sought to be hedged may prevent a Manager or the Investment Manager from

achieving the intended hedging effect or expose the Investment Vehicle and/or the Fund
to the risk of loss.

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Liquidity — Derivative instruments, especially when traded in large amounts, may not be
liquid in all circumstances, so that in volatile markets the Investment Manager and/or a
Manager may not be able to close out a position without incurring a loss.
Leverage — Trading in derivative instruments can result in large amounts of leverage.
Thus, the leverage offered by trading in derivative instruments may magnify the gains
and losses experienced by the Fund, directly or through its investment in an Investment
Vehicle, and could cause the Fund’s assets to be subject to wider fluctuations than would
be the case if either the Fund or the Investment Vehicle did not use the leverage feature in
derivative instruments.
Default and Counterparty Risk. Some of the markets in which the Fund and/or the Investment
Vehicles may effect transactions are “over-the-counter” or “interdealer” markets. The participants in such
markets are typically not subject to credit evaluation and regulatory oversight as are members of
“exchange based” markets. This exposes the Fund, directly or through its investment in Investment
Vehicles, to the risk that a counterparty will not settle a transaction in accordance with its terms and
conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a
credit or liquidity problem, thus causing the Fund, directly or through is investment in Investment
Vehicles, to suffer a loss. In addition, in the case of a default, the Fund and/or the Investment Vehicles
may become subject to adverse market movements while replacement transactions are executed. Such
“counterparty risk” is accentuated for contracts with longer maturities where events may intervene to
prevent settlement, or where the Fund or an Investment Vehicle has concentrated their transactions with a
single or small group of counterparties. The Investment Vehicles may not have an internal credit function

which evaluates the creditworthiness of their counterparties. Furthermore, the ability of the Investment
Vehicles to transact business with any one or number of counterparties, the lack of any meaningful and
independent evaluation of such counterparties’ financial capabilities and the absence of a regulated
market to facilitate settlement may increase the potential for losses by the Investment Vehicles.
Use of Leverage. A relatively small price movement in a Financial Instrument may result in
immediate and substantial losses to the investor. Thus, like other leveraged investments, any trade may
result in losses in excess of the amount invested. An Investment Vehicle may lose more than its initial
margin deposit on a trade. Also, if an Investment Vehicle is in a leveraged position, any losses would be
more pronounced than if leverage were not used and, under particularly adverse circumstances, could
exceed its respective capital.
Short Sales. A short sale involves the sale of a Financial Instrument that an Investment Vehicle
or the Fund does not own in the expectation of purchasing the same Financial Instrument (or a Financial
Instrument exchangeable therefor) at a later date at a lower price. To make delivery to the buyer, the
Investment Vehicle and/or the Fund often must borrow the Financial Instrument, and will be obligated to
return the Financial Instrument to the lender, which is accomplished by a later purchase of the Financial
Instrument by the Investment Vehicle. When an Investment Vehicle and/or the Fund makes a short sale
of a Financial Instrument on a U.S. exchange, it must leave the proceeds thereof with a Broker and it must
also deposit with a Broker an amount of cash or U.S. Government or other securities sufficient under
current margin regulations to collateralize its obligation to replace the borrowed securities that have been
sold. If short sales are effected on a foreign exchange, such transactions will be governed by local law. A
short sale involves the risk of a theoretically unlimited increase in the market price of the Financial
Instrument. The extent to which a Manager or the Investment Manager engages in short sales depends
upon its investment strategy and perception of market direction. Furthermore, an Investment Vehicle
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8


does not necessarily have a policy limiting the amount of the capital it may deposit to collateralize its

obligations to replace borrowed Financial Instruments sold short.
Spread Trading. A part of the Investment Vehicles’ strategies may involve spread positions
between two or more Financial Instrument positions. To the extent the price relationships between such
positions remain constant, no gain or loss on the positions will occur. Such positions, however, do entail
a substantial risk that the price differential could change unfavorably causing a loss to the spread position.
The Investment Vehicles’ strategies also may involve arbitraging among two or more Financial
Instruments. This means, for example, that an Investment Vehicle may purchase (or sell) Financial
Instruments (i.e., on a current basis) and take offsetting positions in the same or related Financial
Instruments. To the extent the price relationships between such positions remain constant, no gain or loss
on the positions will occur. These offsetting positions entail substantial risk that the price differential
could change unfavorably causing a loss to the position. Moreover, the arbitrage business is extremely
competitive, and many of the major participants in the business are large investment banking firms with
substantially greater financial resources, larger research staffs and more securities traders than will be
available to the Managers. Arbitrage activity by other larger firms may tend to narrow the spread
between the price at which a Financial Instrument may be purchased by an Investment Vehicle and the
price it expects to receive upon consummation of a transaction.
Technical Trading Systems. The Managers may rely on technical trading systems. For any
technical trading system to be profitable, there must be price moves or “trends” – either upward or
downward – in some Financial Instrument that the system can track and those trends must be significant
enough to dictate entry or exit decisions. Trendless markets have occurred in the past and are likely to
recur. In addition, technical systems may be profitable for a period of time, after which the system fails to
detect correctly any future price movements. Accordingly, technical traders often modify or replace their
systems on a periodic basis. Any factor (such as increased governmental control of, or participation in,
the markets traded) that lessens the prospect of sustained price moves in the future may reduce the
likelihood that a Manager’s technical systems will be profitable.
Investments in Registered Investment Companies. The Fund anticipates making significant
investments with Managers of registered investment companies (i.e. mutual funds). The Fund will have
the right to buy or sell such investments in compliance with each such Investment Vehicle’s terms. There
is a significant possibility that a registered investment company may refuse purchases or exchanges of
securities held by the Fund in a specific fund family. Generally, registered investment companies take the

position that trading activity increases volatility in the market price of their portfolios, complicates rate of
return computations and creates other paperwork and administrative problems. In addition, in the event a
registered investment company refuses exchanges or purchases of securities held by the Fund, such
Investment Vehicle may impose a deferred sales charge and other termination charges. Such charges
would be an expense of the Fund. Additionally, a registered investment company may impose a minimum
investment period. The imposition of such period may cause the Fund to be invested in such registered
investment company during a time when the company is not performing well. All of these limitations may
have an adverse effect on the ability of the Fund to achieve its investment objective. Notwithstanding the
foregoing, in the event a registered investment company permits trading of its securities, the Fund may do
so in accordance with such registered investment company’s mandates.
Risks of Exchange Traded Funds. ETF securities are traded on an exchange like shares of
common stock, and the value of ETF securities fluctuates in relation to changes in the value of the
underlying portfolio of securities. However, the market price of ETF securities may not be equivalent to
the pro rata value of the underlying portfolio of securities. ETF securities may be used to seek to increase
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9


total return and/or to manage the Investment Vehicles’ exposure to market fluctuation instead of, or in
addition to, buying and selling stock. ETF securities may also be subject to the risks of an investment in a
broad-based portfolio of common stocks or to the risks of a concentrated, industry-specific investment in
common stocks, depending on the ETF. ETF securities are considered investments in registered
investment companies.
Investments in Undervalued Equity and Equity-Related Securities. The Fund, directly or
through its investment in Investment Vehicles, may invest in undervalued equity and equity-related
securities. The identification of investment opportunities in undervalued securities is a difficult task.
While investments in undervalued securities offer the opportunities for above-average capital
appreciation, these investments involve a high degree of financial risk and can result in substantial losses.

Returns generated from such investments may not adequately compensate the Fund for the business and
financial risks assumed. The Fund or an Investment Vehicle may take certain speculative investments in
securities which it believes to be undervalued; however, there are no assurances that the securities
purchased will in fact be undervalued. In addition, the Fund or an Investment Vehicle may be required to
hold such securities for a substantial period of time before realizing their anticipated value. During this
period, a portion of the Fund’s or an Investment Vehicle’s assets may be committed to the securities
purchased, thus possibly preventing an Investment Vehicle from investing in other opportunities. In
addition, the Fund or an Investment Vehicle may finance such purchases with borrowed funds and thus
will have to pay interest on such funds during such waiting period. If the Fund or an Investment Vehicle
takes long positions in stocks that decline and short positions in stocks that increase in value, then the
losses may exceed those of other portfolios that hold long positions only.
High Yield Securities. The Fund, directly or through its investment in Investment Vehicles, may
invest in “high yield” bonds and preferred securities which are rated in the lower rating categories by the
various credit rating agencies (or in comparable non-rated securities). Financial Instruments in the lower
rating categories are subject to greater risk of loss of principal and interest than higher-rated Financial
Instruments and are generally considered to be predominately speculative with respect to the issuer’s
capacity to pay interest and repay principal. They also are generally considered to be subject to greater
risk than Financial Instruments with higher ratings in the case of deterioration of general economic
conditions. Because investors generally perceive that there are greater risks associated with the lowerrated Financial Instruments, the yields and prices of such Financial Instruments may tend to fluctuate
more than those of higher-rated Financial Instruments. The market for lower-rated Financial Instruments
is thinner and less active than that for higher-rated Financial Instruments, which can adversely affect the
prices at which these Financial Instruments can be sold. In addition, adverse publicity and investor
perceptions about lower rated Financial Instruments, whether or not based on fundamental analysis, may
be a contributing factor in a decrease in the value and liquidity of such lower-rated Financial Instruments.
Investments in sovereign debt involve special risks in that in the event of default, the Fund’s or an
Investment Vehicle’s recourse against the issuer may be limited.
The Markets and Financial Instruments Traded by the Fund or the Investment Vehicles
May be Illiquid. At various times, the markets for Financial Instruments purchased or sold by the Fund
directly or through its investment in Investment Vehicles may be “thin” or illiquid, making purchase or
sale at desired prices or in desired quantities difficult or impossible. As part of its emergency powers, an

exchange or regulatory authority can suspend or limit trading in a particular instrument, order immediate
liquidation and settlement of a particular contract, or order that trading in a particular contract be
conducted for liquidation only. The possibility also exists that governments may intervene to stabilize or
fix exchange rates, restricting or substantially eliminating trading in the affected currencies.

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Options Trading. An option on a Financial Instrument is a right, purchased for a certain price,
to either buy or sell the underlying Financial Instrument during or at the end of a certain period of time for
a fixed price. Although successful option trading requires many of the same skills as does successful
securities trading, the risks involved are somewhat different. For example, if the Fund or an Investment
Vehicle buys an option (either to sell or buy an underlying Financial Instrument), it will be required to
pay a “premium” representing the market value of the option. Unless the price of the underlying
Financial Instrument changes and it becomes profitable to exercise or offset the option before it expires,
the Fund or the Investment Vehicle may lose the entire amount of the premium. Conversely, if the Fund
or an Investment Vehicle sells an option (either to sell or buy an underlying Financial Instrument), it will
be credited with the premium but will have to deposit margin with the Fund or such Investment Vehicle’s
futures commission merchants due to its contingent liability to deliver or accept the underlying Financial
Instrument in the event the option is exercised. Managers who sell options are subject to the entire loss
that occurs in the underlying Financial Instrument (less any premium received). The ability to trade in or
exercise options may be restricted in the event that trading in the underlying Financial Instrument
becomes restricted.
Newly-Issued Securities. The purchase of newly issued securities involves greater risk than
securities trading in general. The prices of newly issued securities may not increase as expected and, in
fact, may decline more rapidly. Newly issued securities are sometimes referred to as “new issues.” A
“new issue” is a category of public offering of a security at a price which initially trades at a premium

(that is, higher than the public offering price) in the secondary market. While most people assume that
newly issued securities will continue to trade at a premium until they are liquidated, there is no guarantee
that this will occur. In order for the Fund to trade “new issues,” each investor must represent and warrant
in the Subscription Documents that it either is or is not a “restricted person” within the meaning of the
Conduct Rules of the NASD Inc. (“NASD”), and the Fund will be relying on such representations and
warranties in engaging in its business activities. Those Members who are “restricted persons” will not be
allocated any of the gains, losses or expenses of the Fund related to “new issues.”
Special Situation Investments/Distressed Companies. Certain of the Investment Vehicles’
investments may involve start-up companies, companies developing new products or companies seeking
to raise additional capital for expansion. In addition, the Investment Vehicles may invest in companies
involved in bankruptcy or other reorganization and liquidation proceedings. Although such investments
may result in significant returns to an Investment Vehicle, they involve a substantial degree of risk. Any
one or all of the issuers of the Financial Instruments in which an Investment Vehicle may invest may be
unsuccessful or not show any return for a considerable period of time. The level of analytical
sophistication, both financial and legal, necessary for successful investment in companies experiencing
significant business and financial difficulties is unusually high. There is no assurance that the Managers
will correctly evaluate the nature and magnitude of the various factors that could affect the prospects for a
successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a
company in which an Investment Vehicle invests, an Investment Vehicle may lose its entire investment or
may be required to accept cash or Financial Instruments with a value less than an Investment Vehicle’s
original investment.
Illiquid Investments. The Financial Instruments and other assets in which the Investment
Manager or the Managers may invest include assets that are subject to legal or contractual restrictions on
their resale (e.g., Financial Instruments of privately-held entities) or for which there is a relatively inactive
trading market. The sale of such assets often requires more time and results in higher brokerage charges
or dealer discounts and other selling expenses than does the sale of Financial Instruments eligible for
trading on national securities exchanges or for which there is an active over-the-counter market.
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Therefore, the Fund or an Investment Vehicle’s investments in illiquid Financial Instruments may reduce
the returns of an Investment Vehicle because it may be unable to sell the illiquid Financial Instruments at
an advantageous time or price.
Effectiveness of Risk Reduction Techniques. The Investment Manager and the Managers may
employ various risk reduction strategies designed to minimize the risk of their trading positions. A
substantial risk remains, nonetheless, that such strategies will not always be possible to implement and
when possible will not always be effective in limiting losses. If the Investment Manager or a Manager
analyzes market conditions incorrectly, or employs a risk reduction strategy that does not correlate well
with the Investment Manager or a Manager’s investments, such risk reduction techniques could result in a
loss, regardless of whether the intent was to reduce risk or increase return. These risk reduction
techniques may also increase the volatility of an Investment Vehicle and/or result in a loss if the
counterparty to the transaction does not perform as promised.
The Markets in which the Fund and the Investment Vehicles will Compete are Highly
Competitive. The investment industry is extremely competitive. In pursuing its investment and trading
methods and strategies, the Fund and an Investment Vehicle may compete with securities firms, including
many of the larger investment advisory and private investment firms, as well as institutional investors
and, in certain circumstances, market-makers, banks and Brokers. In relative terms, the Fund and the
Investment Vehicle may have little capital and may have difficulty in competing in markets in which its
competitors have substantially greater financial resources, larger research staffs, and more traders than the
Fund or an Investment Vehicle or a Manager has or expects to have in the future. In any given
transaction, investment and trading activity by other firms will tend to narrow the spread between the
price at which a Financial Instrument may be purchased by the Fund or an Investment Vehicle and the
price it expects to receive upon consummation of the transaction.
Non-U.S. Exchanges. The Fund and the Investment Vehicles may trade Financial Instruments on
exchanges located outside the U.S., where protections provided by U.S. securities regulations do not
apply. In the case of trading on foreign exchanges, an investment will be subject to the risk of the inability
of or refusal by the counterparty to perform with respect to contracts.

Currency and Exchange Rate Risks. The Fund and the Investment Vehicles may trade and
invest in Financial Instruments denominated or quoted in currencies other than the U.S. Dollar. Changes
in currency exchange rates therefore may affect the value of the Fund’s or an Investment Vehicle’s
portfolios and the unrealized appreciation or depreciation of investments. Further, an Investment Vehicle
may incur higher brokerage commissions in connection with conversions between currencies as Brokers
are subject to risks during the conversion process.
Turnover. An Investment Vehicle’s capital may be invested on the basis of short-term market
considerations. The portfolio turnover rate of those investments may be significant, potentially involving
substantial brokerage commissions, mark-ups and fees. These commissions and fees will, of course,
reduce an Investment Vehicle’s profits.
Fund Risks
THE FUND AND THE MANAGING MEMBER ARE RELATIVELY NEW ENTITIES
WITH LIMITED OPERATING HISTORIES.

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