Attached files
file | filename |
---|---|
EX-1.01 - FORM OF SOLICITING ADVISOR AGR - Pebble U.S. Market Fund, LLC | pebble_s1-ex0101.htm |
EX-8.01 - OPINION RE FEDERAL INCOME TAX - Pebble U.S. Market Fund, LLC | pebble_s1-ex0801.htm |
EX-23.02 - CONSENT - Pebble U.S. Market Fund, LLC | pebble_s1-ex2302.htm |
EX-5.01 - OPINION - Pebble U.S. Market Fund, LLC | pebble_s1-ex0501.htm |
EX-3.02 - CERTIFICATE AND ARTICLES OF ORGANIZATION - Pebble U.S. Market Fund, LLC | pebble_s1-ex0302.htm |
EX-10.01 - FORM OF CUSTOMER AGREEMENT - Pebble U.S. Market Fund, LLC | pebble_s1-ex1001.htm |
As
filed with the Securities and Exchange Commission on October 20,
2009
Registration
Number 333- _________
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
Pebble
U. S. Market Fund, L.L.C.
(Exact
Name of Registrant as Specified in its Charter)
Louisiana
|
6799
|
27-0743658
|
(State
or Other Jurisdiction of
|
(Primary
Standard Industrial
|
(I.R.S.
Employer
|
Incorporation
or Organization)
|
Classification
Code Number)
|
Identification
No.)
|
3500
N. Causeway Blvd., Ste. 160
Metairie,
LA 70002
(504)
401-0179
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Principal
Executive Offices)
Philippe
J. Langlois
909
Poydras St., Ste 2300
New
Orleans, LA 70112
(504)
569-7144
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent
For Service)
Approximate
date of commencement of proposed sale to the public: December 1, 2009.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. ý
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. o
If this
form is a post-effective amendment filed pursuant to Rule 462(c) 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. o
If this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer”, “large accelerated
filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company ý
|
(Do
not check if smaller reporting company)
|
CALCULATION
OF REGISTRATION FEE
Title
of
Each
Class
Of
Securities To Be
Registered
|
Amount
To
Be Registered
|
Proposed
Maximum
Offering
Price
Per
Unit
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount
Of
Registration
Fee
|
Units,
Series A
|
100,000
|
$1,000.00
|
$100,000,000.00
|
$5,580.00
|
The
registrant hereby amends this registration statement on such date or date(s) 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, as amended, or until the registration statement shall
become effective on such date as the commission acting pursuant to said Section
8(a) may determine.
Part I –
Information Required in Prospectus
Item
1. Forepart of the Registration Statement and Outside Front Cover Page of
Prospectus.
|
Cover
Page, p.1
|
|
Item
2. Inside Front and Outside Back Cover Pages of
Prospectus.
|
Table
of Contents - Inside Cover Page, p.3; Prospectus Delivery Obligation –
Back Outside Cover
|
|
Item
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed
Charges.
|
Summary,
p.7; Address and telephone number, Cover Page, p.2; Risk Factors,
p.13
|
|
Item
4. Use of Proceeds.
|
Use
of Proceeds, p.26;
|
|
Item
5. Determination of Offering Price.
|
Cover
Page, p.1
|
|
Item
6. Dilution.
|
Not
Applicable
|
|
Item
7. Selling Security Holders.
|
Not
Applicable
|
|
Item
8. Plan of Distribution.
|
Cover
Page, p.1; Summary, p.7
|
|
Item
9. Description of Securities to be Registered.
|
Cover
Page, p.1, Summary, p.7
|
|
Item
10. Interests of Named Experts and Counsel.
|
Certain
Legal Matters, p.34; Experts, p.35
|
|
Item
11. Information with Respect to the Registrant.
|
Cover
Page, p.1,2; Summary p.7; Pebble Asset Management, L.L.C., p.16; Reports,
p.11; Other Risks, p.15; Index to Financial Statements, p.36; Management
Discussion and Analysis of Financial Condition, p.18; Quantitative and
Qualitative Disclosures About Market Risk, p19; Fund Charges,
p.9;
|
|
Item
11A. Material Changes.
|
Not
Applicable
|
|
Item
12. Incorporation of Certain Information by Reference.
|
Not
Applicable
|
|
Item
12A. Disclosure of Commission Position on Indemnification for Securities
Act Liabilities.
|
Indemnification
and Standard of Liability,
p.24
|
Information
contained herein is subject to completion or amendment. A registration statement
relating to these securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective. This prospectus
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
ii
Preliminary
Prospectus Dated October 8, 2009 – Subject to Completion
Part II –
Information Not Required in Prospectus
Item 13.
Other Expenses of Issuance and Distribution.
The
following expenses reflect the estimated amounts required to prepare and file
this registration statement.
Securities
and Exchange Commission Filing Fee
|
$ | 5,580 | ||
Blue
Sky (State) Filing Fees
|
$ | 10,000 | ||
Federal
Taxes
|
$ | 0 | ||
State
Taxes
|
$ | 0 | ||
Transfer
Agent Fees
|
$ | 0 | ||
Printing
Expenses
|
$ | 5,000 | ||
Fees
of Counsel
|
$ | 15,000 | ||
Fees
of Certified Public Accountant
|
$ | 10,000 | ||
Total
|
$ | 45,580 |
Item 14.
Indemnification of Directors and Officers.
Indemnification
and Standard of Liability, p.24
Item 15.
Recent Sales of Unregistered Securities.
There
have been no sales of unregistered securities
Item 16.
Exhibits and Financial Statement Schedules.
The
following documents (unless otherwise indicated) are filed herewith and made a
part of this Registration Statement.
(a)
Exhibits
Number Description of
Document
|
1.01
|
Form
of Soliciting Advisor Agreement between the Fund, Pebble Asset Management,
L.L.C., and Pebble Management Group,
L.L.C.
|
|
1.02
|
Form
of Additional Soliciting Advisor Agreement (attached as Exhibit A to Form
of Soliciting Advisor Agreement)
|
|
3.01
|
Pebble
U. S. Market Fund, L.L.C. Subscription Agreement (included as Exhibit A to
the Prospectus and Disclosure
Document)
|
|
3.02
|
Certificate
and Articles of Organization
|
|
5.01
|
Opinion
of Milling, Benson, and Woodward, LLP relating to the legality of the
Units.
|
|
8.01
|
Opinion
of Milling, Benson, and Woodward, LLP relating to the federal income tax
consequences of the Units.
|
|
10.01
|
Form
of Customer Agreement between the Fund and Clearing
Brokers.
|
|
10.02
|
Subscription
Documents (included as Exhibit C to the Prospectus and Disclosure
Document)
|
|
23.01
|
Consents
of Milling, Benson, Woodward, LLP (included as Exhibit
5.01)
|
|
23.02
|
Consents
of McGladrey & Pullen, LLP
|
|
(b)
Financial Statement Schedules
|
|
No
Financial Schedules are required to be filed
herewith.
|
iii
Item 17.
Undertakings.
|
(1)
|
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, as amended;
|
|
(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, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
|
|
(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, provided
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
|
Provided,
however, that:
|
(A)
|
Paragraphs
(a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration
statement is on Form S–8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in reports filed
with or furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement;
and
|
|
(B)
|
Paragraphs
(a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the
registration statement is on Form S–3 or Form F–3 and the information
required to be included in a post-effective amendment by those paragraphs
is contained in reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus filed
pursuant to Rule 424(b) that is part of 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 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.
|
(4)
|
That,
for the purpose of determining liability under the Securities Act of 1933
to any purchaser:
|
(i)
|
If
the registrant is relying on Rule
430B:
|
|
(A)
|
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration statement;
and
|
iv
|
(B)
|
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x)
for the purpose of providing the information required by section 10(a) of
the Securities Act of 1933 shall be deemed to be part of and included in
the registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date shall be
deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part of
the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective date;
or
|
|
(ii)
|
If
the registrant is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of
and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such date of first use.
|
|
(5)
|
That,
for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
|
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
|
(iv)
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
|
(b)
|
Insofar
as indemnification for liabilities under the Securities Act of 1933 may be
permitted to officers, directors or controlling persons of the registrant
pursuant to the provisions described in Item 14 above, or otherwise, the
registrant has 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
an officer, director, or controlling person of the registrant in the
successful defense of any such action, suit or proceeding) is asserted by
such officer, director 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.
|
v
Signatures
Pursuant
to the requirements of the Securities Act of 1933, the Managing Partner of the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Metairie, state of Louisiana, on the 20th day of October, 2009.
Pebble U. S. Market Fund,
L.L.C.
By: Pebble
Asset Management, L.L.C.
Manager
By: /s/ Timothy Skarecky
Title: Manager,
Pebble Asset Management, L.L.C.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons on behalf of the Managing Partner of
the Registrant in the capacities and on the 20th day of October,
2009.
Pebble
Asset Management, L.L.C.
Managing
Partner of the Registrant
/s/ Timothy Skarecky
|
Manager
(Principal Executive Officer)
|
|
/s/ Richard Clement
|
President
(Principal Financial and Accounting
Officer)
|
vi
PRELIMINARY
PROSPECTUS AND DISCLOSURE DOCUMENT
DATED
OCTOBER 8, 2009 – SUBJECT TO COMPLETION
PEBBLE
U.S. MARKET FUND, L.L.C.
$100,000,000
SERIES A
UNITS
OF LIMITED LIABILITY COMPANY INTEREST
The
Offering
Pebble
U.S. Market Fund, L.L.C. (“Fund”), a Louisiana limited liability company, is
offering a series of limited liability company units (“Units”) of up to a
maximum value of $100,000,000. Throughout the initial offering period, the net
asset value of a Unit is $1,000.00. Units will be sold at net asset value
thereafter. Pebble Management Group, L.L.C. (PMG) and additional soliciting
advisors are offering the Fund’s Units at a price of month-end net asset value
per Unit. The offering will be conducted on a continuous basis until all Units
have been sold or the Fund is closed by the commodity pool operator, Pebble
Asset Management, L.L.C. (PAM), who reserves the right to close the fund prior
to all units being sold. No up-front underwriting discount or commissions apply.
The soliciting advisors are not required to sell any specific number of Units or
dollar amount of the Fund but will use their best efforts to sell Units of the
Fund. Subscription proceeds are held in a segregated account at Capital One
(Bank), NA until released to the Fund. There is no minimum number of Units that
must be sold for Units to be issued at the end of each month.
The
Risks
These are
speculative securities. This prospectus is in two parts: a disclosure document
and a statement of additional information. These parts are bound together, and
both contain important information. BEFORE YOU DECIDE WHETHER TO INVEST, READ
THIS ENTIRE PROSPECTUS CAREFULLY AND CONSIDER “RISK FACTORS” BEGINNING ON PAGE
13.
§
|
The
Fund is speculative and highly leveraged. The Fund will acquire positions
with face amounts substantially greater than their total equity. Leverage
magnifies the impact of both gains and
losses.
|
§
|
Performance
can be volatile and the net asset value per Unit may fluctuate
significantly in a single month.
|
§
|
You
could lose all or substantially all of your investment in the
Fund.
|
§
|
PAM
has total trading authority over the Fund. The use of a single advisor
could mean lack of diversification and, consequently, higher
risk.
|
§
|
There
is no secondary market for the Units, and none is expected to develop.
While the Units have redemption rights, there are restrictions. For
example, redemptions can occur only at the end of a month. See
“Distributions and Redemptions” on page 11 or page 26 for details on the
restrictions on the redemption
rights.
|
§
|
Transfers
of interest in the Units are subject to limitations, such as 30 days’
advance written notice of any intent to transfer. Also, PAM may deny a
request to transfer if it determines that the transfer may result in
adverse legal or tax consequences for the Fund. See “Pebble U.S. Market
Fund, L.L.C. Form of Operating Agreement” attached hereto as
Exhibit A
|
§
|
Substantial
expenses must be offset by trading profits and interest income for the
Fund to be profitable.
|
Investors
are required to make representations and warranties in connection with their
investment. Each investor is encouraged to discuss the investment with his/her
individual financial and tax adviser.
THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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.
THIS
PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF ADDITIONAL
INFORMATION. THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN IMPORTANT
INFORMATION. ADDITIONAL DISCLOSURE DOCUMENTS CAN BE DOWNLOADED AT NO CHARGE FROM
THE FUND WEBSITE, WWW.PEBBLEUS.COM.
1
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
ADVISORYAND 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 PAGES 9 AND 10 AND 24
THROUGH 25 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN,
THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE
10.
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 PAGES 13 THROUGH 16.
THIS
PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE
REGISTRATION STATEMENT. YOU CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT
AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SECURITIES AND EXCHANGE
COMMISSION (“SEC”) IN WASHINGTON, D.C. THE FUND FILES QUARTERLY AND ANNUAL
REPORTS WITH THE SEC. YOU CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC
REFERENCE FACILITY IN WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0300 FOR
FURTHER INFORMATION. THE FUND’S FILINGS WILL BE POSTED AT THE SEC WEBSITE AT
HTTP://WWW.SEC.GOV.
The Fund
is a reporting company required to file quarterly 10-Q reports, annual 10-K
reports, 424(b)(3) reports, and other reports as needed describing material
changes in the Fund. The public may read and copy any materials filed with the
SEC at the SEC’s Public Reference Room located at 100 F Street, NE., Washington,
DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Information about the Fund and all filings will be posted, free of charge, as
soon as reasonably practicable after filing on the website (www.pebbleus.com) for
public viewing, copying, and/or downloading.
The books
and records of Pebble U.S. Market Fund, L.L.C. and Pebble Asset Management,
L.L.C. will be kept electronically in compliance with Title 17: Commodity and
Securities Exchanges; Part 1 – General Regulations Under the Commodities
Exchange Act §1-31 and Part 275 – Rules and Regulations, Investment Advisers Act
of 1940 §275.204-2(g). Access to the books and records is available through any
principal of the firm. The main business address of Pebble U.S. Market Fund,
L.L.C. and Pebble Asset Management, L.L.C. is shown below.
PEBBLE
ASSET MANAGEMENT, L.L.C.
Manager
3500
N. Causeway Blvd., Suite 160
Metairie,
LA 70002
504-401-0179
2
TABLE
OF CONTENTS
SUMMARY
|
7
|
General
|
7
|
Minimum
Investment
|
7
|
How
to Subscribe for Units
|
7
|
Suitability
Guidelines
|
8
|
Risk
Factors to Consider Before Investing
|
8
|
Factors
to Consider Before Investing
|
9
|
Pebble
Asset Management
|
9
|
Fund
Charges
|
9
|
Pebble
Asset Management
|
9
|
Pebble
Management Group
|
9
|
Soliciting
Advisors
|
9
|
Brokerage
Fees
|
10
|
Breakeven
Analysis
|
10
|
Distributions
and Redemptions
|
11
|
Federal
Income Tax Aspects
|
11
|
Fees
Paid by the Fund
|
11
|
Reports
|
11
|
Organizational
Chart
|
12
|
RISK
FACTORS
|
13
|
Market
Risks
|
13
|
Possible
Total Loss of an Investment in the Fund
|
13
|
The
Fund is Highly Leveraged
|
13
|
Illiquidity
of Your Investment
|
13
|
Illiquidity
of the Markets
|
13
|
Non-Correlated,
Not Negatively Correlated, Performance Objective
|
13
|
Trading
Risks
|
13
|
Pebble
Asset Management, L.L.C. Analyzes Only Technical Market
Data
|
13
|
Speculative
Position Limits May Alter Trading Decisions for the Fund
|
14
|
Increase
in Assets Under Management May Affect Trading Decisions
|
14
|
Fund
Trading is Not Transparent
|
14
|
Tax
Risks
|
14
|
Investors
are Taxed Based on Their Share of Profits
|
14
|
Tax
Could Be Due From Investors Despite Overall Losses
|
14
|
Deductibility
of Management and Performance Fees
|
14
|
Other
Risks
|
15
|
Fees
and Commissions are Charged Regardless of Profitability and are Subject
to
Change
|
15 |
Failure
of Brokerage Firms; Disciplinary History of Clearing
Brokers
|
15
|
Investors
Must Not Rely on Past Performance of the Fund or Pebble
Asset
|
|
Management
in Deciding Whether to Purchase Units
|
15
|
Conflicts
of Interest
|
15
|
Lack
of Independent Experts Representing Investors
|
15
|
Reliance
on Pebble Asset Management
|
15
|
Possibility
of Fund Closure Prior to the Subscription of All Units
|
15
|
Possibility
of Termination of the Fund Before Fully Subscribed
|
15
|
The
Fund is Not a Regulated Investment Company
|
16
|
Proposed
Regulatory Change is Impossible to Predict
|
16
|
Restrictions
on Transferability
|
16
|
A
Single-Advisor Fund May Be More Volatile Than a Multi-Advisor
Fund
|
16
|
Money
Committed to Margin
|
16
|
PEBBLE
ASSET MANAGEMENT, L.L.C.
|
16
|
Description
|
16
|
The
Trading Advisor
|
17
|
Trading
Systems
|
17
|
Potential
Inability to Trade or Report Due to Systems Failure
|
18
|
Code
of Ethics
|
18
|
3
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
|
18
|
Introduction
|
18
|
Capital
Resources
|
18
|
Liquidity
|
18
|
Off-Balance
Sheet Risk
|
18
|
Off-Balance
Sheet Arrangements
|
19
|
Contractual
Obligations
|
19
|
Critical
Accounting Policies — Valuation of the Fund’s Positions
|
19
|
Disclosure
Controls and Procedures
|
19
|
Internal
Controls Over Financial Reporting
|
19
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
19
|
Introduction
|
19
|
Past
Results Not Necessarily Indicative of Future Performance
|
19
|
Standard
of Materiality
|
20
|
Quantifying
the Fund’s Trading Value at Risk
|
20
|
Quantitative
Forward-Looking Statements
|
20
|
The
Fund’s Trading Value at Risk in Different Market Sectors
|
20
|
Material
Limitations on Value at Risk as an Assessment of Market
Risk
|
21
|
Non-Trading
Risk
|
21
|
Qualitative
Disclosures Regarding Primary Trading Risk Exposures
|
21
|
Stock
Indices
|
21
|
Agricultural
Market
|
21
|
Currencies
|
21
|
Metals
|
22
|
Interest
Rates
|
22
|
Energy
|
22
|
Qualitative
Disclosures Regarding Non-Trading Risk Exposure
|
22
|
General
|
22
|
Treasury
Bill Positions
|
22
|
Qualitative
Disclosures Regarding Means of Managing Risk Exposure
|
22
|
CONFLICTS
OF INTEREST
|
22
|
Pebble
Asset Management, L.L.C.
|
22
|
Introducing
Brokers
|
23
|
The
Clearing Brokers
|
23
|
The
Solicitation Advisors
|
23
|
Fiduciary
Duty and Remedies
|
23
|
Indemnification
and Standard of Liability
|
24
|
CHARGES
|
24
|
Management
Fee
|
25
|
Performance
Fee
|
25
|
Organization
and Offering Expenses
|
25
|
Operating
Expenses
|
25
|
Brokerage
Commissions and Fees
|
25
|
Solicitation
Advisors
|
25
|
Advisory
Fees
|
25
|
USE
OF PROCEEDS
|
26
|
THE
INTRODUCING AND CLEARING BROKERS
|
26
|
TradeStation
Securities, Inc
|
26
|
R J
O’Brien & Associates
|
26
|
DISTRIBUTIONS
AND REDEMPTIONS
|
26
|
Distributions
|
26
|
Redemptions
|
27
|
Net
Asset Value
|
27
|
PEBBLE
U S MARKET FUND, L.L.C. OPERATING AGREEMENT
|
27
|
Organization
and Limited Liabilities
|
27
|
Management
of Fund Affairs
|
27
|
Sharing
of Profits and Losses
|
27
|
Federal
Tax Allocations
|
28
|
Dispositions
|
28
|
4
Dissolution
and Termination of the Fund
|
28
|
Amendments
and Meetings
|
28
|
Indemnification
|
28
|
Reports
to Unit Holders
|
28
|
FEDERAL
INCOME TAX ASPECTS
|
29
|
Unit
Holder Tax Status
|
29
|
Taxation
of Unit Holders on Profits and Losses
|
29
|
Deduction
of Losses by Unit Holders
|
29
|
“Passive-Activity
Loss Rules” and Their Effect on the Treatment of Income and
Loss
|
29
|
Unit
Redemptions
|
29 |
Potential
Consequences of Redemptions and Transfers of Units
|
30
|
Gain
or Loss on Section 1256 Contracts
|
30
|
Tax
on Capital Gains and Losses
|
30
|
Interest
Income
|
30
|
Limited
Deduction for Certain Expenses
|
30
|
Syndication
Fees
|
30
|
Investment
Interest Deductibility Limitations
|
30
|
Unrelated
Business Taxable Income
|
30
|
Taxation
of Foreign Unit Holders
|
31
|
IRS
Audits of the Fund and its Unit Holders
|
31
|
State
and Other Taxes
|
31
|
INVESTMENTS
BY EMPLOYEE BENEFIT PLANS
|
31
|
General
|
31
|
“Plan
Assets”
|
32
|
Ineligible
Purchasers
|
32
|
PLAN
OF DISTRIBUTION
|
33
|
Subscription
Procedure
|
33
|
Representations
and Warranties of Investors in the Subscription Documents
|
33
|
Minimum
Investment
|
34
|
Investor
Suitability
|
34
|
The
Solicitation Advisors
|
34
|
CERTAIN
LEGAL MATTERS
|
34
|
EXPERTS
|
35
|
INDEX
TO FINANCIAL STATEMENTS
|
36
|
PART
TWO —STATEMENT OF ADDITIONAL INFORMATION COVER PAGE
|
41
|
PART
TWO —STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
|
42
|
STRATEGY
|
43
|
Market
Diversification
|
43
|
Technical
Trading Systems
|
43
|
Trend
Following
|
43
|
Money
Management
|
43
|
Additional
Information
|
43
|
Trading
Manager’s Performance
|
43
|
Table
1 – Actual performance with no fees, except brokerage fees, including
interest
|
44
|
Table
2 – Actual performance including maximum fees as would have been charged
according
to the prospectus
|
44 |
Notes
to Trading Manager’s Performance
|
45
|
WHY
A MANAGED FUTURES FUND?
|
46
|
WHY
PEBBLE US MARKET FUND?
|
46
|
WHY
NOW?
|
46
|
HISTORICAL
LOW-CORRELATED PERFORMANCE
|
46
|
THE
FUTURES MARKETS
|
46
|
REGULATION
|
47
|
Margin
|
47
|
POTENTIAL
ADVANTAGES OF FUTURES FUND INVESTMENTS
|
47
|
Profit
Potential
|
47
|
Interest
Credit
|
47
|
Ability
to Profit or Lose in a Rising or Falling Market
Environment
|
47
|
Professional
Trading
|
47
|
5
Convenience
|
48
|
Liquidity
|
48
|
Limited
Liability
|
48
|
POTENTIAL
DISADVANTAGES OF FUTURES FUND INVESTMENTS
|
48
|
Lack
of Diversification
|
48
|
Selection
of Brokers and Clearing Firms
|
48
|
Potentially
Higher Fees
|
48
|
Lack
of Transparency
|
48
|
Performance
History
|
49
|
EXHIBITS
|
|
Exhibit
A: Pebble U S Market Fund, L.L.C. Form of Operating
Agreement
|
A
|
Exhibit
B: Pebble U S Market Fund, L.L.C. Subscription
Representations
|
B
|
Exhibit
C: Pebble U S Market Fund, L.L.C. Subscription Documents
|
C
|
Exhibit
D: Pebble U S Market Fund, L.L.C. Request for Transfer
Form
|
D
|
Exhibit
E: Pebble U S Market Fund, L.L.C. Request for Redemption
|
E
|
Exhibit
F: Pebble U S Market Fund, L.L.C. Delivery Instructions
|
F
|
An
electronic version of this Prospectus is available on a dedicated web site
(http://www.pebbleus.com) being maintained by Pebble Asset Management,
L.L.C.
6
SUMMARY
General
Pebble
U.S. Market Fund, L.L.C. (the “Fund”), a Louisiana limited liability company, is
offering units of ownership in the Fund (“Units”) through an agreement with
Pebble Management Group, L.L.C. (PMG), an affiliate of Pebble Asset Management,
L.L.C. (PAM), the Commodity Pool Operator. The Units trade speculatively in the
U.S. futures, currency, and commodity markets. Specifically, the Fund trades in
a portfolio of futures, currency, and commodity contracts on U.S. exchanges
only. The traded markets include, but are not limited to, Stock Indices, Bonds,
Interest Rates, Currencies, Grains, Energy, Metals, and Agriculture markets. The
trades are placed using proprietary, computerized trading systems. The Fund
trading systems are licensed to PAM. The systems are monitored by PAM, the fund
manager. PAM has the option to manually or automatically initiate purchase and
sell orders based on trading signals. The Fund’s strategy is based on the
consistent implementation of the PAM philosophy of market diversification, money
management, and trend-following based on technical analysis of each market. PAM
is continually formulating and testing new strategies and approaches within the
framework of our philosophy striving to achieve the overall investment objective
of the Fund. PAM reserves the right to trade other pools and/or funds. The
trading methodology and leverage is identical to the systems used since August
2006 by Tim Skarecky, a member and manager of PAM, for his personal account.
Performance information for Mr. Skarecky’s personal account is shown beginning
on page 43.
The Fund
trades in a portfolio of futures, currency, and commodity contracts on U.S.
exchanges only. The traded markets include, but are not limited to, Stock
Indices, Bonds, Interest Rates, Currencies, Grains, Energy, Metals, and
Agriculture markets. The Fund analyzes and trades in markets with low
correlation to each other. The level of liquidity in each market is reviewed for
ease of order execution in opening and closing positions. Although there is an
overriding philosophy of diversification among markets traded, a majority of the
Fund’s market exposure may be concentrated in only one or two market sectors
from time to time. The methodology primarily uses trend following technical
trading strategies. The duration of these trends vary widely and can last from
days to months. The technical trading strategies are designed to identify
recurring market patterns that offer higher than average reward potential to the
risks assumed based on historical data. In addition, each trading strategy
includes a defined stop-loss level to help protect the assets from an unexpected
and catastrophic loss of capital. Although there is no guarantee that a
stop-loss would be effective in preserving assets in all circumstances, it is
generally considered an effective money management tool and a prudent management
technique in the unpredictable and volatile futures, currency, and commodity
markets.
Minimum
Investment
Minimum
initial investment in the Fund is $5,000 for initial membership Units.
Persons/entities that are existing owners of Units in the Fund may make
additional investments of at least $1,000.
How
to Subscribe for Units
§
|
Investors
are required to make representations and warranties regarding their
suitability to purchase the Units in the Subscription Documents. See
Exhibit C – Subscription Documents. Read the Prospectus along with all
exhibits and the Subscription Documents carefully before you decide
whether to invest.
|
§
|
The
Fund is offering subscriptions continuously on a monthly basis. The
offering period can be closed to new investors, existing investors, or
both at the sole discretion of PAM.
|
§
|
Investors
must submit subscriptions at least five business days prior to the
applicable month-end closing date. Approved subscriptions will be accepted
once payments are received. Unit subscriptions will be cleared at the
applicable month-end net asset value. No Units will be issued until the
investor meets the initial investment level or existing Unit holders meet
the additional investment level.
|
§
|
The
Fund is offered through Registered Investment Advisors (RIA) pursuant to a
solicitation agreement between Pebble Management Group, L.L.C. (PMG) and
the RIA. The RIAs will use their best efforts to sell the Units offered,
without any firm commitment as to the number of units or assets placed in
the Fund. PMG is registered as a RIA and offers Units to potential
investors by distributing this Prospectus and making it available on a
dedicated internet website (http://www.pebbleus.com). The fees are charged
to the Unit owners in accordance with the fee structure in the prospectus
and disclosure document regardless of whether the investors subscribe
through a RIA or PMG. PAM intends to engage in marketing efforts through
media including but not limited to third party websites, newspapers,
magazines, other periodicals, television, radio, seminars, conferences,
workshops, and sporting and charity
events.
|
7
Suitability
Guidelines
The
primary objective of the Fund is to achieve capital appreciation over time. An
investment in Units of the Fund may fit within your portfolio allocation
strategy if you are interested in the Units’ potential to produce returns that
are generally uncorrelated to traditional securities investments. An investment
in this Fund is speculative and involves a high degree of risk. The Fund is
intended to be used as a diversification opportunity as part of a complete
investment portfolio. IT IS NOT A COMPLETE INVESTMENT PORTFOLIO BY ITSELF. An
investment in the Fund should be limited to 10% or less of an investor’s overall
portfolio. You must, at a minimum, have:
§
|
net
worth of at least $250,000, exclusive of home, furnishings and
automobiles; or
|
§
|
net
worth, similarly calculated, of at least $70,000 and an annual gross
income of at least $70,000.
|
Institutional
investors, including foundations, trusts, public funds, corporations,
partnerships, limited liability companies, and all other business structures,
must have a minimum net worth of $250,000 to invest in the Fund.
A number of jurisdictions in which the Units are offered or may be offered in the future impose higher minimum suitability standards on prospective investors. The suitability standards are regulatory minimums only. Just because you meet such standards does not mean that an investment in the Units is suitable for you. YOU MAY NOT INVEST MORE THAN 10% OF YOUR NET WORTH, EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES, IN THE FUND. The only exception to the 10% maximum investment applies to the principals and immediate family members of the principals of PAM, the commodity pool operator. Principals and immediate family members may invest more than 10% of their net worth in the Fund without limitation. Immediate family is defined as spouse, siblings, parents, and children of the principal.
Risk
Factors to Consider Before Investing
§
|
Units
of the Fund are a highly volatile and speculative investment. There can be
no assurance that the Fund will achieve its objectives or avoid
substantial losses. You must be prepared to lose all or substantially all
of your investment.
|
§
|
For
every gain made in a futures transaction, the opposing side of that
transaction will have an equal and offsetting loss. The Fund will, from
time to time, likely experience drawdown. Drawdown is a general down
period in the Fund’s value over time shown as the difference between the
high value and low value for the given down
period.
|
§
|
The
Fund trades in futures contracts. The Fund is a party to financial
instruments with elements of off-balance sheet market risk, including
market volatility and possible illiquidity. There is also a credit risk
that counterparties will not be able to meet its obligations to the
Fund.
|
§
|
There
is no secondary market for Units of the Fund and it is not anticipated
that any such market will develop.
|
§
|
PAM
is both the Manager and trading advisor of the Fund and its fees and
services have not been negotiated at arm’s length. PAM has a disincentive
to replace itself as commodity pool operator, even if doing so may be in
the best interests of the Fund.
|
§
|
PAM,
the Fund’s clearing brokers and their respective principals and
affiliates, may trade in futures markets for their own accounts and may
take positions opposite or ahead of those taken for the Fund. Personal
accounts of principals of PAM with knowledge of the trading strategies
used in the Fund will be monitored. Principals of PAM with knowledge of
the trading strategies used and upcoming trades will not be allowed to
take a position in the same market ahead of the Fund
trades.
|
§
|
PAM’s
principals are not obligated to devote any minimum amount of time to the
Fund.
|
§
|
Owners
of Units take no part in the management of the Fund, and the past
performance of PAM, its principals, or the Fund is not necessarily
indicative of future results of the
Fund.
|
§
|
PAM
will be paid a monthly management fee of 1/12th of 1.50% of the
monthly net asset value (1.50% annually) for the Fund, regardless of
profitability. PAM will also be paid monthly performance fees equal to
12.5% of aggregate cumulative net appreciation of the Fund above its
previous highest value, excluding interest income, in net asset value, if
any.
|
§
|
The
Fund is a single-advisor fund which may be more volatile than
multi-advisor managed futures
products.
|
8
§
|
Units
may only be redeemed on a monthly basis on the last day of the month, upon
ten business days’ written notice. You may transfer or assign your Units
after 30 days’ advance written notice. The transfer will be completed only
with the consent of PAM, which may not be given if such transfer may
result in adverse legal or tax consequences for the
Fund.
|
§
|
PAM
does not presently intend to make distributions from the Fund. You will be
liable for taxes on your share of trading profits and other income of the
Fund. For U.S. federal income tax purposes, if the Fund has taxable income
for any year, that income will be taxable to you in accordance with your
allocable share of income from the Fund in which you invest even though
PAM does not presently intend to make distributions from the
Fund.
|
Factors
to Consider Before Investing
§
|
The
Fund is a highly leveraged investment fund managed by PAM, a professional
commodity pool operator, whose principals have extensive futures trading
experience, and it trades in a wide range of futures
markets.
|
§
|
PAM
utilizes proprietary trading systems for the
Fund.
|
§
|
The
Fund has the potential to help diversify traditional securities
portfolios. A diverse portfolio consisting of assets that perform in an
unrelated manner, or non-correlated assets, may increase overall return
and/or reduce the volatility of a portfolio. Non-correlation will not
provide any diversification advantages unless the non-correlated assets
are outperforming other portfolio assets, and there is no guarantee that
the Fund will outperform other sectors of an investor’s portfolio or not
produce losses. The Fund’s profitability also depends on the success of
PAM’s trading strategies.
|
§
|
Investors
in the Fund get the advantage of limited liability in highly leveraged
trading. Investors’ liability is limited to the amount of investment in
the Fund. Investors will not be required to make additional investments in
the Fund. See Exhibit A “Form of Pebble U. S. Market Fund, L.L.C.
Operating Agreement” Section 12(iii) for details on the limited liability
procedures in place to limit investors’
liability.
|
Pebble
Asset Management, L.L.C.
PAM, the
Manager and Commodity Pool Operator for the Fund, is responsible for the trading
of the Fund. PAM, as Manager, has an agreement with PMG, an affiliate of PAM, to
act as the administrator, introducing advisor, compliance officer and record
keeper for the Fund.
Fund
Charges
The Fund
charges and expenses must be offset by trading gains and interest income in
order to avoid depletion of Fund assets. This Fund is designed to be a fee-based
offering through State or SEC registered advisors only. There are no penalties
or charges applied upon the redemption of Units.
Pebble
Asset Management, L.L.C. (PAM)
·
|
1.50%
annual management fee (1/12th of 1.50% payable
monthly) for the Fund.
|
·
|
12.50%
of new appreciation of the Fund’s net assets computed on a monthly basis
and excluding interest income and as adjusted for subscriptions and
redemptions.
|
·
|
Up
to 1% of net assets in the Fund per year for organization and offering
expenses such as accounting, auditing, legal, blue sky expenses, filing
fees and printing in connection with this offering, not to exceed the
amount of actual expenses
incurred.
|
Pebble
Management Group, L.L.C. (PMG)
1.25% of
net assets in the Fund per year (1/12th of
1.25% payable monthly) to Pebble Management Group, L.L.C. for operating expenses
such as wholesaling activities, subscriptions processing, operations, and
compliance for the Fund.
Soliciting
Advisors
The Fund
is offered through an asset-based fee program through state or SEC registered
investment advisors. The Units pay a 1.50% annual advisory fee in connection
with this offering. Investors have the right to negotiate the advisory fee
between the investor and soliciting registered investment advisory firm. The
negotiated fee may be higher or lower than 1.50%. However, the Fund is not a
party to the negotiation or advisory fee charged and has no responsibility to
either party as to billing or refunding fees different than the 1.50% advisory
fee assessed by the Fund. The advisory fee will be paid based on the month-end
net asset value per Unit (1/12th of
1.50% payable monthly). The advisory fee will be paid to PMG, an affiliate of
PAM, for distribution to the appropriate advisory firm or advisor according to
the Additional Soliciting Advisor Agreement. Registered Investment Advisors must
sign an Additional Soliciting Advisor Agreement with PMG prior to soliciting any
investments in the Fund.
9
Brokerage
Fees
Transaction
fees are estimated to be an average of $6.00 per round-turn transaction
including applicable National Futures Association (“NFA”) and exchange fees for
brokerage commissions. The actual transaction fees will vary by market. The Fund
maintains the investment account at R.J. O’Brien (RJO) through TradeStation
Securities, Inc. (TradeStation). TradeStation provides trade execution. RJO
provides custody of assets, trade clearance, trade notification, and monthly
statements for the Fund. Brokerage commissions and transaction fees charged on
round-turn transactions are paid directly to TradeStation as part of the trade
transaction. PAM and PMG do not receive any part of the commission or fee
charged as part of the execution and clearing of trades.
Breakeven
Analysis
The
following table show the fees and expenses that an investor would incur on an
initial investment of $5,000 in the Fund and the amount that such investment
must earn to break even after one year.
Fund
Units
Expenses
|
Percentage
Return Required Initial Twelve Months of
Investment
|
Dollar
Return Required ($5,000 Initial Investment) Initial Twelve Months of
Investment
|
||
Management
Fees
|
1.50%
|
$75.00
|
||
Manager
Performance Fees (1)
|
0.00%
|
$ 0.00
|
||
Advisory
Fees (2)
|
1.50%
|
$75.00
|
||
Offering
Expenses (3)
|
1.00%
|
$50.00
|
||
Operating
Expense (4)
|
1.25%
|
$62.50
|
||
Brokerage
Fees (5)
|
0.27%
|
$13.50
|
||
Less
Interest Income (6)
|
0.50%
|
$25.00
|
||
TWELVE-MONTH
BREAKEVEN
|
5.02%
|
$251.00
|
(1) No
performance fees will be charged until breakeven costs are met. However, because
PAM’s performance fee is payable monthly, it is possible for PAM to earn a
performance fee during a break-even or losing year if, after payment of a
performance fee, the Fund incurs losses resulting in a break-even or losing
year. It is impossible to predict what performance fee, if any, could be paid
during a break-even or losing year, thus none is shown.
(2) The
advisory fee is set at 1.50% per Unit (1/12th of
1.50% per month). The actual dollar return required may be higher or lower than
the estimated amount because fees are payable monthly and it is impossible to
predict the unit value at the end of each month. Investors have the right to
negotiate the advisory fee between the investor and soliciting registered
investment advisory firm. The negotiated fee may be higher or lower than 1.50%.
However, the Fund is not a party to the negotiation or advisory fee charged and
has no responsibility to either party as to billing or refunding fees different
than the 1.50% advisory fee assessed by the Fund.
(3) The
offering expenses are a maximum of 1% per year not to exceed the amount of
actual expenses incurred. This figure includes, but is not limited to,
organizational costs, accounting, auditing, legal, printing, and other expenses
directly related to offering of the product.
(4) The
Fund has contracted with PMG as the introducing RIA. PMG will conduct
wholesaling activities, subscriptions processing, recordkeeping, operations and
compliance oversight for the fund.
(5)
Assumes 450 round-turn transactions for the Fund per million dollars per year at
an average rate of $6 per transaction. The fund will be charged the actual
trading and clearing expenses incurred. All trades for the Fund will be executed
on U.S. exchanges.
(6)
Estimated on the basis of the recent results of the 26-week treasury auction
conducted by the Department of the Treasury. Results are rounded to the nearest
half percentage point. The twelve-month break-even points shown are dependent on
interest income of 0.50% per annum. If interest income earned is less, the Fund
will have to earn trading profits greater than the amounts shown to cover their
costs. Actual interest to be earned by the Fund will be at the prevailing rates
for the period being measured which may be less than or greater than 0.50% over
any twelve month period.
10
Distributions
and Redemptions
The Fund
is intended to be a medium-to-long-term, i.e. 5-year or more minimum, investment
time horizon. Units are transferable, but no market exists for their sale and
none is expected to develop. Monthly redemptions are permitted upon 10 business
days’ written notice to PAM, and will not be denied if submitted in good form
and in a timely manner. However, PAM may deny a request to transfer if it
determines that the transfer may result in adverse legal or tax consequences for
the Fund. PAM does not intend to make any distributions from the
Fund.
Federal
Income Tax Aspects
The Fund
will be organized as a limited liability company and will be classified as a
partnership for federal income tax purposes. As such, you will be taxed each
year on the income attributable to the Fund whether or not you redeem Units or
receive distributions from the Fund.
The Fund
invests in futures contracts. Any gain or loss on such investments will,
depending on the contracts traded, consist of a mixture of: 1) ordinary income
or loss; and/or 2) capital gain or loss. Forty percent (40%) of trading profits,
if any, on U.S. exchange-traded futures contracts are taxed as short-term
capital gains at ordinary income rates and the remaining sixty percent (60%) is
taxed as long-term capital gains at a lower maximum rate for non-corporate
investors. Interest income is taxed at ordinary income rates.
Capital
losses on the Units may be deducted against capital gains but may only be
deducted by non-corporate investors against ordinary income to the extent of
$3,000 per year. Therefore, you could pay tax on the Fund’s interest income even
though your overall investment in the Fund has been unprofitable. Please consult
your tax professional for any questions relating to the tax effects of investing
in the Fund.
In
addition to the federal income tax consequences described above, the Fund and
the Unit holders may be subject to various state, local, and other
taxes.
Fees
Paid by the Fund
Pebble
Asset Management, L.L.C.(PAM)
|
|
Management
Fee
|
1.50%
|
Performance
Fee.
|
12.50%
|
Offering
Expenses
|
1.00%*
|
Pebble
Management Group, L.L.C.(PMG)
|
|
Operating
Expenses
|
1.25%
|
Advisory
Fee
|
1.50%**
|
* Not to
exceed the amount of actual expenses incurred.
** The
advisory fee will be paid by PMG to the soliciting registered investment advisor
or the investment advisor representative if licensed through PMG.
Above
amounts are annualized and paid monthly in arrears at 1/12th the
rates shown except the Performance Fee. The Performance Fee will be charged at
12.50% when applicable.
The Fund
will be charged a brokerage commission for execution and brokerage services
estimated to be $6.00 per round turn transaction per contract plus applicable
NFA and exchange fees. A round turn transaction is the opening and closing
transaction for a futures contract. This figure is an estimate based on
differing cost of execution and clearing in various traded markets. The Fund
will pay actual charges by the brokerage processing and clearing the trades. PAM
and PMG do not receive any brokerage commission related expenses incurred by the
Fund.
Reports
PAM will
distribute a monthly report of the Fund to investors within 30 calendar days
after the end of each month. PAM will also distribute an annual report of the
Fund within 90 calendar days after the end of the Fund’s fiscal year and will
provide investors with federal income tax information for the Fund before April
15 of each year. The financial information distributed to Unit holders of the
Fund will be completed by an independent certified public accountant. The Fund
financial information and systems will be audited and an opinion expressed by an
independent auditor or certified public accountant on an annual basis. Fund
results and financial reports will be posted on the Fund website (www.pebbleus.com)
within 30 calendar days after the end of each month and the annual report will
be posted within 90 calendar days after the end of the fiscal year. Commodity
Futures Trading Commission (“CFTC”) rules require that this Prospectus be
accompanied by summary financial information, which may be a recent monthly
report of the Fund, current within 60 calendar days.
11
Organizational
Chart
The
organizational chart below illustrates the relationships among the various
service providers of the Fund. PAM is both the Manager and Commodity Pool
Operator for the Fund. The soliciting advisors (other than PMG) and clearing
brokers are not affiliated with PAM or the Fund.
Descriptions
of the dealing between PAM and its affiliates and the Fund are set forth under
“General” on page 7 and “Pebble Management Group, L.L.C.” on page
9.
12
RISK
FACTORS
Market
Risks
Possible
Total Loss of an Investment in the Fund
Futures
contracts have a high degree of price variability and are subject to occasional
rapid and substantial changes. Consequently, you could lose all or substantially
all of your investment in the Fund.
The
Fund is Highly Leveraged
The
amount of margin funds necessary to be deposited with a clearing broker in order
to enter into a futures contract position is typically about 1% to 10% of the
total value of the contract. The Fund will be able to hold positions with face
values equal to several times the Fund’s net assets. The target ratio of margin
to equity for the Fund is approximately 25%, but can range from 0% to 50% due to
factors such as market volatility and changes in margin requirements. As a
result of this leveraging, even a small adverse movement in the price of a
contract can cause major losses. PAM will monitor the leverage of the Fund
regularly but is not limited by the amount of leverage it may
employ.
Illiquidity
of Your Investment
There is
no secondary market for the Units. While the Units have redemption rights, there
are restrictions. For example, redemptions can occur only at the end of a month.
If a large number of redemption requests were to be received at one time, the
Fund might have to liquidate positions to satisfy the requests. Such a forced
liquidation could adversely affect the Fund and consequently your investment.
Transfers of the Units are subject to limitations, such as 30 days’ advance
written notice of any intent to transfer. Also, PAM may deny a request to
transfer if it determines that the transfer may result in adverse legal or tax
consequences for the Fund. Notwithstanding the foregoing, PAM will not deny a
redemption request in good form submitted in a timely manner. Because Units
cannot be readily liquidated, it will not be possible for you to limit losses or
realize accrued profits, if any, except at a month-end in accordance with the
Fund’s redemption provisions. See Exhibit A, “Form of Pebble U.S. Market Fund,
L.L.C. Operating Agreement.”
Illiquidity
of the Markets
In
illiquid markets, the Fund could be unable to close out positions to limit
losses or to take positions in order to execute the trading system. There are
too many different factors that can contribute to market illiquidity to predict
when or where illiquid markets may occur. Unexpected market illiquidity has
caused major losses for some traders in recent years in such market sectors as
emerging market currencies. There can be no assurance that the same will not
happen in the markets traded by the Fund. In addition, the large size of the
positions the Fund may take increases the risk of illiquidity by both making its
positions more difficult to liquidate and increasing the losses incurred while
trying to do so. United States commodity exchanges impose limits on the amount
the price of some, but not all, futures contracts may change on a single day.
Once a futures contract has reached its daily limit, it may be impossible for
the Fund to liquidate a position in that contract, if the market has moved
adversely to the Fund, until the limit is either raised by the exchange or the
contract begins to trade away from the limit price.
Non-Correlated,
Not Negatively Correlated, Performance Objective
Historically,
managed futures have been generally non-correlated to the performance of other
asset classes such as stocks and bonds. Non-correlation means that there is no
statistically valid relationship between the past performances of futures
contracts on the one hand and stocks or bonds on the other hand. Non-correlation
should not be confused with negative correlation, where the performance of two
asset classes would be exactly opposite. Because of this non-correlation, the
Fund cannot be expected to be automatically profitable during unfavorable
periods for the stock market, or vice versa. The futures markets are
fundamentally different from the securities markets in that for every gain made
in a futures transaction, the opposing side of that transaction will have an
equal and off-setting loss. If the fund does not perform in a manner
non-correlated with the general financial markets or does not perform
successfully, you will obtain no diversification benefits by investing in the
Units of the Fund and the Fund may have no gains to offset your losses from
other investments.
Trading
Risks
PAM
Analyzes Only Technical Market Data
The
proprietary trading systems used by PAM for the Fund are technical,
trend-following methods involving instruments that are not historically
correlated with each other. The profitability of trading under these systems
depends on, among other things, the occurrence of significant price trends.
Price trends are sustained movements, up or down, in futures prices. Such trends
may not develop; there have been periods in the past without price trends in
certain markets. The likelihood of the Fund being profitable could be materially
diminished during periods when events external to the markets themselves have an
important impact on prices. PAM’s historic price analysis could establish
positions on the wrong side of the price movements caused by such events during
such periods.
13
Speculative
Position Limits May Alter Trading Decisions for the Fund
The CFTC
has established limits on the maximum net long or net short positions which any
person may hold or control in certain futures contracts. Exchanges also have
established such limits. All accounts controlled by PAM, including the account
of the Fund, are combined for speculative position limit purposes. If positions
in those accounts were to approach the level of the particular speculative
position limit, such limits could cause a modification of PAM’s trading
decisions for the Fund or force liquidation of certain futures
positions.
Increase
in Assets Under Management May Affect Trading Decisions
The more
assets PAM manages, the more difficult it may be for PAM to trade profitably
because of the difficulty of trading larger positions without adversely
affecting prices and performance. Accordingly, such increases in equity under
management may require PAM to modify its trading decisions for the Fund which
could have a negative effect on your investment. PAM reserves the right to close
the Fund prior to the stated asset level in the Prospectus for any reason,
including a significant change in strategy due to increased assets under
management.
Fund
Trading is Not Transparent
PAM makes
all trading decisions for the Fund. While PAM receives daily trade confirmations
from the clearing brokers, only the Fund’s net trading results are reported to
Unit holders and only on a monthly basis. An investment in the Fund does not
offer Unit holders the same transparency, i.e., an ability to review all
investment positions daily, that a personal trading account offers.
Tax
Risks
INVESTORS
SHOULD CONSULT THEIR OWN COUNSEL, ACCOUNTANTS, AND BUSINESS ADVISORS AS TO
LEGAL, TAX AND RELATED MATTERS CONCERNING AN INVESTMENT IN THE
SECURITIES. INVESTORS ARE RESPONSIBLE FOR THE RESPECTIVE FEES OF
THEIR OWN COUNSEL, ACCOUNTANTS OR OTHER ADVISORS.
Investors
are Taxed Based on Their Share of Profits
Investors
are taxed each year on their share of the Fund’s profits, if any, irrespective
of whether they redeem any Units or receive any cash distributions from the
Fund. All performance information included in this Prospectus is presented on a
pre-tax basis; investors who experience such performance may have to redeem
Units or pay the related taxes from other sources.
Tax
Could Be Due From Investors Despite Overall Losses
Investors
may be required to pay tax on their allocable share of ordinary income, which in
the case of the Fund is the interest income, even though the Fund incurs overall
losses. Capital losses can be used only to offset capital gains and $3,000 of
ordinary income each year for non-corporate investors. Consequently, if a
non-corporate investor were allocated $5,000 of ordinary income and $10,000 of
capital losses, and such person has no other capital gains or losses, the
investor would owe tax on $2,000 of ordinary income even though the investor
would have a $5,000 loss for the year. The $7,000 capital loss carry forward
could be used in subsequent years to offset capital gain and ordinary income,
but subject to the same annual limitation on its deductibility against ordinary
income.
Deductibility
of Management and Performance Fees
Although
the Fund treats the management fees and performance fees paid and other expenses
as ordinary and necessary business expenses, upon audit the Fund may be required
to treat such fees as “investment advisory fees” if trading activities were
determined to not constitute a trade or business for tax purposes. If the
expenses were investment advisory fees, a Unit holder’s tax liability would
likely increase. In addition, upon audit, a portion of the management and
performance fees might be treated as a non-deductible syndication cost or might
be treated as a reduction in the Fund’s capital gain or as an increase in
capital loss. If the management and performance fees were so treated, a Unit
holder’s tax liability would likely increase.
14
Other
Risks
Fees
and Commissions are Charged Regardless of Profitability and are Subject to
Change
The Fund
is subject to substantial charges payable irrespective of profitability in
addition to performance fees which are payable based on profitability. Included
in these charges are management, organization and offering, and brokerage fees
and operating expenses.
Failure
of Brokerage Firms; Disciplinary History of Clearing Brokers
The
Commodity Exchange Act requires a clearing broker to segregate all funds
received from customers from such broker’s proprietary assets. If any of the
clearing brokers fails to do so, the assets of the Fund might not be fully
protected in the event of the bankruptcy of the clearing broker. Furthermore, in
the event of a clearing broker’s bankruptcy, the Fund could be limited to
recovering only a pro rata share, which may be zero, of all available funds
segregated on behalf of any such clearing broker’s combined customer accounts,
even though certain property specifically traceable to the Fund (for example,
Treasury Bills deposited by the Fund with the clearing broker as margin) was
held by the clearing broker. The clearing brokers have been the subject of
certain regulatory and private causes of action in the past and may be again in
the future. Such actions could affect the ability of a clearing firm to conduct
its business. See “The Introducing and Clearing Brokers” at page
26.
Investors
Must Not Rely on Past Performance of the Fund or PAM in Deciding Whether to
Purchase Units
The
future performance of the Fund is not predictable, and no assurance can be given
that the Fund will perform successfully in the future. Past performance of a trading program
is not necessarily indicative of future results.
Conflicts
of Interest
The Fund
is subject to numerous actual and potential conflicts of interest, including:
(1) PAM will not select any other trading advisor for the Fund even if doing so
would be beneficial to the Fund; (2) the proprietary trading of PAM, its
principals or of the Fund’s clearing brokers and their affiliates and personnel
may increase competition for positions sought to be entered by the Fund making
it more difficult for the Fund to enter positions at favorable prices; and (3)
the compensation that the soliciting advisors, including PMG, receive gives them
an incentive to promote the sale of Units as well as to discourage redemptions.
See “Conflicts of Interest” beginning on page 22.
Because
PAM has not established any formal procedures for resolving conflicts of
interest and because there is no independent control over how conflicts of
interest are resolved, you will be dependent on the good faith of the parties
with conflicts to resolve the conflicts equitably. PAM cannot assure that
conflicts of interest will not result in losses for the Fund.
Lack
of Independent Experts Representing Investors
PAM has
consulted with counsel, accountants and other experts regarding the formation
and operation of the Fund. No counsel has been appointed to represent the Unit
holders in connection with the offering of the Units. Accordingly, each
prospective investor should consult his own legal, tax and financial advisers
regarding the desirability of an investment in the Fund.
Reliance
on Pebble Asset Management, L.L.C.
The
incapacity of PAM’s principals could have a material and adverse effect on PAM’s
ability to discharge its obligations under the Fund Operating Agreement (the
“Operating Agreement”). Neither PAM nor its principals are under any obligation
to devote a minimum amount of time to the Fund, which is the first
publicly-offered fund managed by PAM.
Possibility
of Fund Closure Prior to the Subscription of All Units
PAM
reserves the right to close the Fund to new subscriptions for any reason at any
time. PAM currently has no intention of making distributions from the fund, but
reserves the right to distribute part or all of the assets at any time with no
notice required.
Possibility
of Termination of the Fund Before Fully Subscribed
As
Manager, PAM may withdraw upon 120 days’ notice, which would cause the Fund to
terminate unless a substitute Manager was obtained. Other events, such as a
long-term substantial loss suffered by the Fund, could also cause the Fund to
terminate before the expiration of its stated terms. This could cause you to
liquidate your investments and upset the overall maturity and timing of your
investment portfolio. If the registrations with the CFTC or memberships in the
NFA of PAM or the clearing brokers were revoked or suspended, such entity would
no longer be able to provide services to the Fund.
15
The
Fund is Not a Regulated Investment Company
Although
PAM is subject to regulation by the CFTC, the fund is not an investment company
subject to the Investment Company Act of 1940. You do not have the protections
afforded by the Investment Company Act of 1940 which, for example, require
investment companies to have a majority of disinterested directors and regulate
the relationship between the adviser and the investment company.
Proposed
Regulatory Change is Impossible to Predict
The
futures markets are subject to comprehensive statutes, regulations and margin
requirements. The CFTC and the exchanges are authorized to take extraordinary
actions in the event of a market emergency, including, for example, the
retroactive implementation of speculative position limits or higher margin
requirements, the establishment of daily price limits and the suspension of
trading. The regulation of futures transactions in the United States is a
rapidly changing area of law and is subject to modification by government and
judicial action. In addition, various national governments have expressed
concern regarding the disruptive effects of speculative trading in the currency
markets and the need to regulate the “derivatives” markets in general. The
effect of any future regulatory change on the Fund is impossible to predict, but
could be substantial and adverse.
Restrictions
on Transferability
An
investor may transfer or assign its Units only upon 30 days’ prior written
notice to PAM. If PAM is satisfied that the transfer complies with applicable
laws and would not result in the termination of the Fund for federal income tax
purposes.
A
Single-Advisor Fund May Be More Volatile Than a Multi-Advisor Fund
The Fund
is currently structured as a single-advisor managed futures fund. You should
understand that many managed futures funds are structured as multi-advisor funds
in order to attempt to control risk and reduce volatility through combining
advisors whose historical performance records have exhibited a significant
degree of non-correlation with each other. As a single-advisor managed futures
fund, it is anticipated that the Fund may have a greater profit potential than
investment vehicles employing multiple advisors, but may also have increased
performance volatility and a higher risk of loss. PAM may retain additional
trading advisors on behalf of the Fund in the future.
Money
Committed to Margin
The Fund
may commit up to 50% of its assets as margin for positions held by the clearing
brokers. Because such commitment typically represents only a small percentage of
the total value of such positions, adverse price movements can cause losses in
excess of such commitment and potentially in excess of the total
assets.
PEBBLE
ASSET MANAGEMENT, L.L.C.(PAM)
Description
PAM is
the Manager and commodity pool operator of the Fund. It is a Louisiana limited
liability company with offices located at 3500 N. Causeway Blvd., Suite 160,
Metairie, LA 70002 and its telephone number is (504) 401-0179. The books and
records of the Fund and PAM will be kept electronically in compliance with Title
17: Commodity and Securities Exchanges; Part 1 – General Regulations Under the
Commodities Exchange Act §1-31 and Part 275 – Rules and Regulations, Investment
Advisers Act of 1940 §275.204-2(g). Access to the books and records is available
through any principal of the firm. The main business address of the Fund and PAM
is shown above. Its sole business is the trading and management of commodity
pools and advisory accounts. It has been registered with the CFTC as a commodity
pool operator since August 2009 and has been a member of the NFA in that
capacity since August 2009. Tim Skarecky and Richard Clement own 50% each of PAM
and 50% each of the affiliate, PMG.
The
principals of PAM are Tim Skarecky and Richard Clement. Mr. Skarecky is
responsible for the firm’s trading decisions through the implementation of
proprietary trading systems. The principals of PAM intend to purchase Units. It
is expected that the trading principal will maintain a minimum 10% of his net
worth in the Fund at all times. To date, there have not been any material
administrative, civil or criminal proceedings brought against PAM or its
principals, whether pending, on appeal or concluded. The firm maintains any
required past performance information for itself and its trading principals
electronically and at the address shown above in this section.
16
Tim Skarecky, age 39, is a
founder, 50% owner, and Manager of PAM since its inception in July 2009 and was
registered as a principal with PAM in August 2009. Mr. Skarecky is a member of
the Chicago Board of Trade. He graduated from the University of Alabama in 1992
with a Bachelor’s Degree in Finance. He has been self employed trading futures
in various capacities since graduation in 1992. He developed and has been
trading his proprietary trading program since August 2006.
Richard Clement, age 40, is a
founder and Chief Compliance Officer of PAM since its inception in July 2009 and
was registered as a principal with PAM in August 2009. Mr. Clement has over 14
years experience in the financial industry. He graduated from the University of
Alabama in December of 1992 with Bachelor’s Degree in Statistics. He currently
serves as Manager of PMG, an affiliated registered investment advisory firm, and
PEC Capital Partners, L.L.C., an independent consulting and public speaking
firm. In addition, Mr. Clement is licensed as a registered representative with
National Alliance Securities Corporation, member FINRA, MSRB, and SIPC,
specializing in fixed income and structured product trading for institutional
broker-dealers and registered investment advisory firms. Past experience
includes director of operations and administration with Pan American Financial
Advisers, a FINRA registered broker dealer, with 3 operations offices and over
300 registered representatives across the country. Mr. Clement also serves as an
arbitrator for FINRA Dispute Resolution and the National Futures
Association.
The
Trading Advisor
Pursuant
to the Operating Agreement, PAM has the sole authority and responsibility for
managing the Fund and for directing the investment and reinvestment of Fund
assets. PAM will initially serve as the sole trading advisor of the Fund. PAM
may, in the future, retain other trading advisors to manage a portion of the
assets. Unit holders will receive prior notice, in the monthly report from the
Fund or otherwise, in the event that additional trading advisors are to be
retained on behalf of the Fund.
Trading
Systems
PAM makes
Fund trades using proprietary, computerized trading systems. The systems are
monitored by the fund manager. The fund manager has the option to manually or
automatically initiate purchase and sell orders based on trading signals. PAM is
continually analyzing and testing trading systems in many markets that may or
may not be currently traded as part of the proprietary trading program.
Currently, PAM trades in more than 40 U. S. futures markets and constantly
monitors relevant technical indicators on the traded futures markets in the
U.S., Canada, Europe and Asia. The primary sectors that the Fund may trade are:
currencies, interest rates, bonds, stock indices, metals, energy, grains and
agriculture markets. PAM’s proprietary trading systems emphasize instruments
with low correlation to each other and high liquidity for order
execution.
The
Fund’s strategy is based on the consistent implementation of the PAM philosophy
of market diversification, money management, and trend-following based on
technical analysis of each market. PAM is continually formulating and testing
new strategies and approaches within the framework of our philosophy striving to
achieve the overall investment objective of the Fund. The PAM trading systems
scan more than 40 different futures markets on a daily basis and make the
following decisions: whether to establish new positions (long or short), whether
to adjust or place stop orders, whether to make a change in position size based
on volatility or change in correlation between markets, and whether to exit open
positions. The decision to establish new positions is based on a proprietary
algorithm that seeks to identify market trends at an early stage of formation.
These trends can last from days to months. Trend identification is done by
analyzing technical indicators and parameters. Once potential trades are
identified, the systems alert the trading manager to the potential trade. The
manager has the option to review and place the trade or allow the system to
place the trade automatically upon generation of the order.
With
respect to money management, before entering new positions the PAM trading
systems define the maximum open risk per position based on market correlation
and market volatility. This money management filter is applied after positions
have been established on a daily basis per market and adjusts existing stop
order levels or reduces position size if proprietary pre-defined risk measures
are met or exceeded due to market volatility or changes in market correlation.
Positions are exited either by being stopped out or adjusted as a result of the
changes in volatility or market correlation. Once determined, trade instructions
are transmitted for execution and clearance through the Fund’s executing and
clearing brokers. PAM reserves the right to trade other pools and/or
funds.
The
trading method, systems, and money management techniques employed by PAM are
proprietary and confidential. The foregoing description is general and is not
intended to be complete. There can be no assurance that PAM’s trading systems
will successfully identify trends that the Fund can capitalize on or produce
results similar to those produced in the past by the Fund or PAM.
17
Potential
Inability to Trade or Report Due to Systems Failure
PAM’s
strategies are dependent to a significant degree on the proper functioning of
its internal computer systems. Systems failures, whether due to third party
failures upon which such systems are dependent or the failure of PAM’s hardware
or software, could disrupt trading or make trading impossible until such failure
is remedied. Such failures may result from events including “acts of God” and
domestic or international terrorism. Any such failure, and consequential
inability to trade (even for a short time), could, in certain market conditions,
cause the Fund to experience significant trading losses or to miss opportunities
for profitable trading. Any such failures could cause a temporary delay in
reports to investors.
Code
of Ethics
PAM has
adopted a code of ethics that applies to all principals and associated persons.
The code of ethics adopted is reinforced each year through distribution of the
code of ethics and written acknowledgement of receipt. The code is reasonably
designed to deter wrongdoing and promote honest and ethical conduct, provides
full, fair, accurate, timely, and understandable disclosure, compliance with
applicable governmental laws, promotes the prompts internal reporting of
violations of the code, and provides accountability for adherence to the code.
The code of ethics is posted on the website (www.pebbleasset.com).
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Introduction
The Fund
will commence the initial offering of its Units as soon as practicable once
acceptance by the proper regulatory agencies has been given. The Fund will
commence operations at the end of the initial offering period. The continuing
offering period commences at the termination of the initial offering period and
will continue until all Units are sold or the Fund is closed.
Capital
Resources
The Fund
will raise additional capital only through the sale of Units offered pursuant to
the continuing offering and does not intend to raise any capital through
borrowings. Due to the nature of the Fund’s business, it will make no capital
expenditures and will have no capital assets which are not operating capital or
assets.
Liquidity
Most
United States commodity exchanges limit fluctuations in futures contracts prices
during a single day by regulations referred to as “daily price fluctuation
limits” or “daily limits.” During a single trading day, no trades may be
executed at prices beyond the daily limit. This may affect the Fund’s ability to
initiate new positions or close existing ones or may prevent it from having
orders executed. Futures prices have occasionally moved the daily limit for
several consecutive days with little or no trading. Similar occurrences could
prevent the Fund from promptly liquidating unfavorable positions and subject the
Fund to substantial losses, which could exceed the margin initially committed to
such trades. In addition, even if futures prices have not moved the daily limit,
the Fund may not be able to execute futures trades at favorable prices if little
trading in such contracts is taking place. Other than these limitations on
liquidity, which are inherent in the Fund’s futures trading operations, the
Fund’s assets are expected to be highly liquid.
Off-Balance
Sheet Risk
The term
“off-balance sheet risk” refers to an unrecorded potential liability that, even
though it does not appear on the balance sheet, may result in a future
obligation or loss. The Fund trades in futures contracts and is therefore a
party to financial instruments with elements of off-balance sheet market and
credit risk. In entering into these contracts, there exists a market risk that
such contracts may be significantly influenced by conditions, such as interest
rate volatility, resulting in such contracts being less valuable. If the markets
should move against all of the futures interests positions of the Fund at the
same time, and if PAM was unable to offset such positions, the Fund could
experience substantial losses. PAM attempts to minimize market risk through
real-time monitoring of open positions, diversification of the portfolio and
maintenance of a margin-to-equity ratio in all but extreme instances of not
greater than 50%.
In
addition to market risk, in entering into futures contracts there is a credit
risk that a counterparty will not be able to meet its obligations to the Fund.
The counterparty for futures contracts traded in the United States is the
clearinghouse associated with such exchange. In general, clearinghouses are
backed by the corporate members of the clearinghouse who are required to share
any financial burden resulting from the non-performance by one of their members
and, as such, should significantly reduce this credit risk.
18
Off-Balance
Sheet Arrangements
The Fund
does not engage in off-balance sheet arrangements with other
entities.
Contractual
Obligations
The Fund
does not enter into contractual obligations or commercial commitments to make
future payments of a type that would be typical for an operating company. The
Fund’s sole business is trading futures, both long (contracts to purchase) and
short (contracts to deliver). All such contracts are primarily settled by
offset. There are no immediate plans to settle any contracts by delivery.
However, the Manager reserves the right to settle the contract by cash
settlement or physical delivery when it is beneficial for the Fund.
Substantially all such contracts are for settlement within twelve months of the
trade date and substantially all such contracts are held by the Fund for less
than twelve months before being offset or rolled over into new contracts with
similar terms.
Critical
Accounting Policies —Valuation of the Fund’s Positions
PAM
believes that the accounting policies that will be most critical to the Fund’s
financial condition and results of operations relate to the valuation of the
Fund’s positions. All of the Fund’s positions will be exchange-traded futures
contracts, which will be valued daily at settlement prices published by the
exchanges. PAM expects that under normal circumstances substantially all of the
Fund’s assets will be valued on a daily basis using objective
measures.
Disclosure
Controls and Procedures
The
principals of PAM have reviewed the effectiveness of the controls and procedures
in place to ensure proper disclosure of all material facts. It is believed that
the current controls are effective. Month end calculations are completed by an
independent certified public accountant and reviewed annually by an independent
auditor. This prospectus and disclosure document is reviewed periodically by our
legal counsel to include any law changes or updates. All documents and filings
will be posted within 30 days of completion of the document or filing and are
available through the SEC (www.sec.gov) or the
Fund’s website (www.pebbleus.com).
Internal
Controls over Financial Reporting
The
principals of PAM are responsible for establishing and maintaining adequate
internal control over financial reporting for the Fund. The Fund utilizes an
independent certified public accountant to prepare all financial reports for the
fund. The Fund is audited annually by a second auditor or independent public
accountant to verify that the financial disclosures are true and correct. The
registered public accounting firm that audited the financial statements will
issue an attestation on an annual basis verifying the internal control over
financial reporting. Management believes the controls over financial reporting
are effective.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
Past
Results Not Necessarily Indicative of Future Performance
The Fund
is a speculative commodity pool. The market sensitive instruments held by it are
acquired for speculative trading purposes, and all or a substantial amount of
the Fund’s assets are subject to the risk of trading loss. Unlike an operating
company, the risk of market sensitive instruments is integral, not incidental,
to the Fund’s main line of business. Market movements can produce frequent
changes in the fair market value of the Fund’s open positions and, consequently,
in its earnings and cash flow. The Fund’s market risk is influenced by a wide
variety of factors, including the level and volatility of exchange rates,
interest rates, equity price levels, the market value of financial instruments
and contracts, the diversification effects among the Fund’s open positions and
the liquidity of the markets in which it trades.
The Fund
acquires and liquidates both long and short positions in a wide range of
different markets. It is not possible to predict how a particular future market
scenario will affect performance, and the Fund’s past performance is not
necessarily indicative of its future results. Value at Risk is a measure of the
maximum amount which the Fund could reasonably be expected to lose in a given
market sector. However, the inherent uncertainty of the Fund’s speculative
trading and the recurrence in the markets traded by the Fund of market movements
far exceeding expectations could result in actual trading or non-trading losses
far beyond the indicated Value at Risk or the Fund’s experience to date (i.e.,
“risk of ruin”). In light of this, as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification
included in this section should not be considered to constitute any assurance or
representation that the Fund’s losses in any market sector will be limited to
Value at Risk or by the Fund’s attempts to manage its market risk.
19
Standard
of Materiality
Materiality
as used in this section, “Quantitative and Qualitative Disclosures About Market
Risk,” is based on an assessment of reasonably possible market movements and the
potential losses caused by such movements, taking into account the leverage, and
multiplier features of the Fund’s market sensitive instruments.
Quantifying
the Fund’s Trading Value at Risk
Quantitative
Forward-Looking Statements
The
following quantitative disclosures regarding the Fund’s market risk exposures
contain “forward-looking statements” within the meaning of the safe harbor from
civil liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of
1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of
1934). All quantitative disclosures in this section are deemed to be
forward-looking statements for purposes of the safe harbor, except for
statements of historical fact (such as the dollar amount of maintenance margin
required for market risk sensitive instruments held at the end of the reporting
period).
The
Fund’s risk exposure in the various market sectors traded by PAM is quantified
below in terms of Value at Risk. Due to the Fund’s mark-to-market accounting,
any loss in the fair value of the Fund’s open positions is directly reflected in
the Fund’s earnings (realized or unrealized). Exchange maintenance margin
requirements have been used by the Fund as the measure of its Value at Risk.
Maintenance margin requirements are set by exchanges to equal or exceed the
maximum losses reasonably expected to be incurred in the fair value of any given
contract in 95%-99% of any one-day intervals. The maintenance margin levels are
established by dealers and exchanges using historical price studies as well as
an assessment of current market volatility and economic fundamentals to provide
a probabilistic estimate of the maximum expected near-term one-day price
fluctuation.
In
quantifying the Fund’s Value at Risk, 100% positive correlation in the different
positions held in each market risk category has been assumed. The margin
requirements applicable to the open contracts have simply been aggregated to
determine each trading category’s aggregate Value at Risk. The diversification
effects resulting from the fact that the Fund’s positions are rarely, if ever,
100% positively correlated have not been taken into account.
The
Fund’s Trading Value at Risk in Different Market Sectors
The Fund
has not started trading. Once trading commences, the following tables will
indicate the average, highest and lowest amounts of trading Value at Risk
associated with the Fund’s open positions by market category year to date and
for the previous year end. All open position trading risk exposures of the Fund
have been included in calculating the figures set forth below.
As
of September 30, 2009:
Sector
|
Average
Value
at
Risk
|
%
of Average Capitalization
|
Highest
Value
at
Risk
|
Lowest
Value
at
Risk
|
||||
Stock
Indices
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Financial
Futures
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Currencies
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Agricultural
Products
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Energy
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Metals
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Total
|
N/A
|
N/A
|
||||||
As
of December 31, 2008:
|
||||||||
Sector
|
Average
Value
at
Risk
|
%
of Average Capitalization
|
Highest
Value
at
Risk
|
Lowest
Value
at
Risk
|
||||
Stock
Indices
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Financial
Futures
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Currencies
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Agricultural
Products
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Energy
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Metals
|
N/A
|
N/A
|
N/A
|
N/A
|
||||
Total
|
N/A
|
N/A
|
20
Average,
highest and lowest Value at Risk amounts relate to the quarter-end amounts for
the calendar quarter-ends during the fiscal year. Average capitalization is the
average of the Fund’s capitalization at the end of each calendar quarter during
the fiscal year.
Material
Limitations on Value at Risk as an Assessment of Market Risk
The face
value of the market sector instruments held by the Fund is typically many times
the applicable maintenance margin requirement (maintenance margin requirements
generally ranging between approximately 1% and 10% of contract face value) as
well as many times the capitalization of the Fund. The magnitude of the Fund’s
open positions creates a “risk of ruin” not typically found in most other
investment vehicles. Because of the size of its positions, certain market
conditions — unusual, but historically recurring from time to time —could cause
the Fund to incur severe losses over a short period of time. The foregoing Value
at Risk tables —as well as the past performance of the Fund —gives no indication
of this “risk of ruin.”
Non-Trading
Risk
The Fund
has non-trading market risk as a result of investing a substantial portion of
its available assets in U.S. Treasury Bills. The market risk represented by
these investments is immaterial.
Qualitative
Disclosures Regarding Primary Trading Risk Exposures
The
following qualitative disclosures regarding the Fund’s market risk
exposures—except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Fund manages its primary market risk
exposures—constitute forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934. The Fund’s primary market risk exposures as well as the strategies used
and to be used by PAM for managing such exposures are subject to numerous
uncertainties, contingencies and risks, any one of which could cause the actual
results of the Fund’s risk controls to differ materially from the objectives of
such strategies. Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political upheavals,
changes in historical price relationships, an influx of new market participants,
increased regulation and many other factors could result in material losses as
well as in material changes to the risk exposures and the risk management
strategies of the Fund. There can be no assurance that the Fund’s current market
exposure and/or risk management strategies will not change materially or that
any such strategies will be effective in either the short- or long-term.
Investors must be prepared to lose all or substantially all of their investment
in the Fund.
The
following will be the primary trading risk exposures of the Fund by market
sector upon the commencement of trading.
Stock
Indices
Generally,
the Fund’s primary exposure is to the equity price risk in the indices traded on
the U. S. markets. The Fund is primarily exposed to the risk of adverse price
trends or static markets in these markets. Static markets would not cause major
price changes but would make it difficult for the Fund to avoid being
“whipsawed” into numerous smaller losses.
Agricultural
Market
The
Fund’s agricultural market exposure is to fluctuations in the price of Corn,
Oats, Rice, Soybeans, Wheat, Cattle, Hogs, Cocoa, Coffee, Cotton, Lumber, Sugar,
Milk, Goldman Sachs Commodities Index and the assorted complexes and markets
derived from those commodities. These markets are generally diversified in terms
of correlation to many of the other sectors the Fund trades.
Currencies
The
Fund’s currency exposure is to exchange rate fluctuations, primarily those which
disrupt the historical pricing relationships between different currencies and
currency pairs. These fluctuations are influenced by interest rate changes as
well as political, geopolitical and general economic conditions. PAM does not
anticipate that the risk profile of the Fund’s currency sector will change
significantly in the future.
21
Metals
The
Fund’s metals market exposure derives primarily from fluctuations in the price
of gold, silver, platinum, copper, and palladium. These markets are generally
diversified in terms of correlation to many of the other sectors the Fund
trades.
Interest
Rates
Interest
rate movements directly affect the price of the sovereign bond positions held by
the Fund and indirectly the value of the Fund’s stock index and currency
positions. Interest rate movements in one country as well as relative interest
rate movements between countries could materially impact the Fund’s
profitability. The Fund’s primary interest rate exposure is to interest rate
fluctuations in the United States. The changes in interest rates which have the
most effect on the Fund are changes in long-term as opposed to short-term
rates.
Energy
The
Fund’s primary energy market exposure is to crude oil, heating oil, natural gas
and gasoline. Movements in these markets are often due to geopolitical
developments in the Middle East but can also be caused by increased demand from
the United States and other developed and developing countries as well as supply
shortages due to extreme weather conditions.
Qualitative
Disclosures Regarding Non-Trading Risk Exposure
General
The Fund
is unaware of any (i) anticipated known demands, commitments or capital
expenditures; (ii) material trends, favorable or unfavorable, in 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 futures contracts. Because the Fund generally
will use a small percentage of assets as margin, the Fund does not believe that
any increase in margin requirements, as proposed, will have a material effect on
the Fund’s operations.
Treasury
Bill Positions
The
Fund’s only market exposure in instruments held other than for trading is in its
U.S. Treasury Bill portfolio. The Fund holds U.S. Treasury Bills (interest
bearing and credit risk-free) with durations no longer than six months.
Substantial or sudden fluctuations in prevailing interest rates could cause
immaterial mark-to-market losses on the Fund’s U.S. Treasury Bills, although
substantially all of these short-term investments are held to
maturity.
Qualitative
Disclosures Regarding Means of Managing Risk Exposure
The means
by which PAM attempts to manage the risk of the Fund’s open positions is
essentially the same in all market categories traded. PAM applies risk
management policies to its trading which generally limit the total exposure that
may be taken per “risk unit” of assets under management. In addition, PAM
follows diversification guidelines (often formulated in terms of the balanced
volatility between markets and correlated groups), as well as imposing
“stop-loss” points at which the Fund’s brokers must attempt to close out open
positions.
PAM
controls the risk of the Fund’s non-trading instruments (i.e., U.S. Treasury
Bills held for cash management purposes) by limiting the duration of such
instruments to no more than six months.
CONFLICTS
OF INTEREST
PAM has
not established any formal procedures to resolve the conflicts of interest
described below. You should be aware that no such procedures have been
established, and that, consequently, you will be dependent on the good faith of
the respective parties subject to such conflicts to resolve such conflicts
equitably. Although PAM will attempt to resolve conflicts in good faith, there
can be no assurance that these conflicts will not, in fact, result in losses for
the Fund.
Pebble
Asset Management, L.L.C.(PAM)
Conflicts
exist between PAM’s interests in and its responsibilities to the Fund. The
conflicts are inherent in PAM acting as Manager and as commodity pool operator
to the Fund. These conflicts and the potential detriments to the Unit holders
are described below. PAM’s selection of itself as pool operator was not
objective, since it is also the Manager of the Fund. It has a disincentive to
replace itself as the advisor. The advisory relationship between the Fund and
PAM, including the fee arrangement, was not negotiated at arm’s length.
Investors should note, however, that PAM believes that the fee arrangements are
fair to the Fund and competitive with compensation arrangements in pools
involving independent general partners and advisors. PAM will review its
compensation terms annually to determine whether such terms continue to be
competitive with other pools for similar services and will lower such fees if it
concludes, in good faith, that its fees are no longer competitive.
22
PAM’s
principals do not devote their time exclusively to the Fund. PAM (or its
principals or affiliates) may act as managing or general partner to other
commodity pools to other accounts which may compete with the Fund for PAM’s
services. PAM (or its principals or affiliates) could have a conflict between
its responsibilities to the Fund and to other pools. PAM believes that it has
sufficient resources to discharge its responsibilities in this regard in a fair
manner. PAM (or its principals or affiliates) may receive higher advisory fees
from some of those other accounts than it receives from the Fund. PAM and its
affiliates, however, trade all accounts in a substantially similar manner, given
the differences in size and timing of the capital additions and
withdrawals.
PAM may
find that futures positions established for the benefit of the Fund, when
aggregated with positions in other accounts of PAM (or its principals or
affiliates) approach the speculative position limits in a particular commodity.
PAM may decide to address this situation either by liquidating the Fund’s
positions in that futures contract and reapportioning the portfolio in other
contracts or by trading contracts in other markets which do not have restrictive
limits. Any principal of PAM may trade futures and related contracts for its own
account. Trading records for any proprietary trading are not available for
review by clients or investors. Employees of PAM are prohibited from trading
futures and related contracts for their own accounts.
A
conflict of interest exists if proprietary trades are executed and cleared at
more favorable rates than trades cleared on behalf of the Fund. A potential
conflict also may occur when PAM or its principals trade their proprietary
accounts more aggressively, or take positions in proprietary accounts which are
opposite, or ahead of, the positions taken by the Fund. Personal accounts of the
principals of PAM will be monitored. Principals are not allowed to place trades
ahead of the Fund trades.
Introducing
Brokers
The
introducing brokers, currently TradeStation, and the affiliates and personnel of
such entities, may trade futures contracts for their own accounts. This trading
could give rise to conflicts of interest within the Fund. The introducing
brokers may also serve as brokers for other commodity pools, which could give
rise to conflicts of interest between their responsibility to the Fund and to
the other pools and clients.
The
Clearing Brokers
The
clearing brokers, currently R. J. O’Brien (“RJO”), and the affiliates and
personnel of such entities, may trade futures contracts for their own accounts.
This trading could give rise to conflicts of interest with the Fund. The
clearing brokers also may serve as brokers for other commodity pools, which
could give rise to conflicts of interest between their responsibility to the
Fund and to those pools and clients. Any clearing broker that is also a
soliciting advisor of the Fund could give rise to conflicts of interest because
its compensation in each role is based on the net asset value of Units
outstanding. Further, in making recommendations to redeem or purchase additional
Units, employees of the clearing brokers may have a conflict of interest between
acting in the best interest of their clients and assuring continued compensation
to their employer.
The
Solicitation Advisors
The
solicitation advisors, including PMG, receive substantial advisory fees on the
net asset value of Units. The solicitation advisors have a conflict of interest
in advising their clients whether to invest in the Units. The solicitation
advisors receive ongoing advisory fees based on Units sold by them pursuant to
this Prospectus equal to 1.50% of the net asset value for each Unit. The
solicitation advisors have a disincentive to advise clients to redeem their
Units even if doing so is in such clients’ best interests.
Fiduciary
Duty and Remedies
Subject
to the provisions of the Operating Agreement, a prospective investor should be
aware that PAM, as Manager of the Fund, has a responsibility to Unit holders of
the Fund to exercise good faith and fairness in all dealings affecting the Fund.
The Operating Agreement provisions limiting this responsibility are summarized
below under “Indemnification and Standard of Liability.” The fiduciary
responsibility of a Manager to the Unit holders is a developing and changing
area of the law and Unit holders who have questions concerning the duties of PAM
as Manager should consult with their counsel. In the event that a Unit holder of
the Fund believes that PAM has violated its fiduciary duty to the Unit holders
of the Fund, he may seek legal relief individually or on behalf of the Fund
under applicable laws, including under the Act and under commodities laws, to
recover damages from or require an accounting by PAM. The Solicitation Agreement
is governed by Louisiana law and any breach of PAM’s fiduciary duty under the
Operating Agreement will generally be governed by Louisiana law.
23
The
Operating Agreement does not limit PAM’s fiduciary obligations under Louisiana
law; however, PAM may assert as a defense to claims of breach of fiduciary duty
that the conflicts of interest and fees payable to PAM have been disclosed in
this Prospectus. Unit holders may also have the right, subject to applicable
procedural and jurisdictional requirements, to bring class actions in federal
court to enforce their rights under the federal securities laws and the rules
and regulations promulgated hereunder by the SEC. Unit holders who have suffered
losses in connection with the purchase or sale of the Units may be able to
recover such losses from PAM where the losses result from a violation by PAM of
the federal securities laws. State securities laws may also provide certain
remedies to Unit holders. Unit holders should be aware that performance by PAM
of its fiduciary duty to the Fund is measured by the terms of the Operating
Agreement as well as applicable law. Unit holders are afforded certain rights to
institute reparations proceedings under the Commodity Exchange Act for
violations of the Commodity Exchange Act or of any rule, regulation or order of
the CFTC by PAM.
Indemnification
and Standard of Liability
Absent
any conduct on the part of PAM or its affiliates, in its capacity as manager of
the Fund, the Fund’s Operating Agreement provides PAM and its affiliates
indemnification for any errors, losses, acts or omissions arising out of its
conduct in performing its duties as manager of the Fund. Affiliates
of PAM shall be entitled to indemnification only for losses incurred by such
Affiliates in performing the duties of the Manager with respect to the Fund and
acting wholly within the scope of the authority of the Manager. For further
information, see Section 17 of the Form of Operating Agreement, included as
Exhibit A to this Prospectus.
Notwithstanding
anything to the contrary contained in the preceding two paragraphs, the Manager
and its Affiliates and any persons acting as selling agents for the Units shall
not be indemnified for any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws unless
(1) there
has been a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court approves
indemnification of the litigation costs, or
(2) such
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court approves
indemnification of the litigation costs, or
(3) a
court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement and
related costs should be made. In any claim for indemnification for federal or
state securities law violations, the party seeking indemnification shall place
before the court the position of the Securities and Exchange Commission and any
state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations. The Fund shall not bear the cost
of that portion of any insurance which insures any party against any liability
the indemnification of which is herein prohibited (in accordance with Section 17
of the Form of Operating Agreement).
Notwithstanding,
insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
For the
purposes of this Section, the term “Affiliates” shall mean any person acting on
behalf of or performing services on behalf of the Fund who:
(1)
directly or indirectly controls, is controlled by, or is under common control
with the Manager; or
(2) owns
or controls 10% or more of the outstanding voting securities of the Manager;
or
(3) is an
officer or director of the Manager; or
(4) if
the Manager is an officer, director, partner or trustee, is any entity for which
the Manager acts in any such capacity.
CHARGES
The
following list of fees and expenses includes all compensation, fees, profits and
other benefits (including reimbursement of out-of-pocket expenses) which PAM,
the solicitation advisors, the clearing brokers and the affiliates of those
parties may earn or receive in connection with the offering and operation of the
Fund. Prospective investors should refer to the Breakeven Analysis starting on
page 10 for an estimate of the break-even amount that is required for an
investor to recoup such fees and expenses in the first year of
trading.
24
Management
Fee
The Fund
will pay PAM a monthly management fee equal to one-twelfth of 1.50% (1.50%
annually) of the month-end net asset value of the Fund. This fee will be paid to
PAM for providing ongoing advisory services and is payable notwithstanding PAM’s
actual trading performance.
Performance
Fee
The Fund
will pay PAM a monthly incentive fee equal to 12.5% of the new appreciation (if
any) in the net asset value of the Fund. “New appreciation” means the total
increase in net asset value of the Fund from the end of the last period for
which a performance fee was earned by PAM. The performance fee is not reduced
for extraordinary expenses, if any, and no fee is paid with respect to interest
income. If a performance fee payment is made by the Fund, and the Fund
thereafter incurs a net loss, PAM will retain the amount previously paid. PAM
may be paid a performance fee during a year in which the Fund overall incurred
net losses. Trading losses will be carried forward and no further performance
fees may be paid until the prior losses have been recovered.
Organization
and Offering Expenses
The Fund
will pay a monthly fee up to one-twelfth of 1% (1% annually) of the month-end
net asset value for organization and offering expenses incurred in connection
with this offering of the Units, not to exceed the actual amount of such
expenses. Organization and offering expenses include all fees and expenses
incurred in connection with the formation of the Fund and distribution of the
Units including printing, mailing, filing fees, accounting fees, legal fees and
Blue Sky expenses. Initial organizational and offering expenses are estimated to
be $45,580. The breakdown of expenses are as follows: SEC registration $5,580,
state blue sky registrations $10,000 (estimated), legal expenses $15,000
(estimated), accounting expenses $10,000 (estimated), and printing fees of
$5,000 (estimated). Actual organization and offering expenses may be greater or
less than the estimated amount, but the amount of organization and offering
expenses charged to the Fund will not exceed the amount of the actual expenses
incurred. The Fund is required by certain state securities administrators to
disclose that the “organization and offering expenses” of the Fund, as defined
by the North American Securities Administrators Association, Inc. Guidelines for
the Registration of Commodity Pool Programs (“NASAA Guidelines”), will not
exceed 15% of the total subscriptions accepted.
Operating
Expenses
The Fund
has contracted PMG as the introducing RIA. PMG will be responsible for
wholesaling activities, subscription processing, recordkeeping, operations, and
compliance for the Fund. PMG will be paid at a fixed rate of 1/12th
of 1.25% per month
(1.25% annually) of the month-end net asset value. PAM will be responsible for
any such expenses during any year of operations which exceed 1.25% of the Fund’s
net assets per annum. Indirect expenses in connection with the administration of
the Fund, such as indirect salaries, rent, travel and overhead of PAM, may not
be charged to the Fund.
Brokerage
Commissions and Fees
The Fund
will be charged an estimated $6.00 per round-turn transaction including
applicable NFA and exchange fees per contract for brokerage commissions which
will be paid to the clearing brokers for execution and clearing costs. The
amount is estimated due to the difference in execution and clearance charges
between markets. The amounts charged to the Fund are actual costs. PAM or any
affiliates do not receive any portion of the costs charged.
Solicitation
Advisors
PMG may
only sell Units to investors who participate in registered investment advisers’
asset-based fee investment advisory programs. PMG may hire one or more
individuals or engage one or more registered investment advisors to solicit
other registered investment advisors to become soliciting advisors and to assist
those soliciting advisors with the offering and sale of the Units, that is, to
act as wholesalers. As compensation for services, any such wholesaler will
receive up to .25% of the Operating Expenses paid to PMG.
Advisory
Fees
The Fund
will charge a 1.50% annual advisory fee, payable at a fixed rate of 1/12th of
1.50% per month. The advisory fee will be paid to the registered investment
advisory firm that introduced the client to the Fund. The advisory fee is not
negotiable between the Fund and soliciting advisor. The Fund uses the set
advisory fees as a bookkeeping method to maintain a uniform net asset value
across all Units. Investors have the right to negotiate the advisory fee between
the investor and soliciting registered investment advisory firm. The negotiated
fee may be higher or lower than 1.50%. However, the Fund is not a party to the
negotiation or advisory fee charged and has no responsibility to either party as
to billing or refunding fees different than the 1.50% advisory fee assessed by
the Fund.
25
USE
OF PROCEEDS
The
entire offering proceeds received from subscription for the Fund will be
credited to the Fund’s bank and brokerage accounts for the purpose of engaging
in trading activities and as reserves for that trading. Continuing fees and
expenses such as operating and management will also be paid from funds in these
accounts. The Fund meets its margin requirements by depositing U.S. government
securities and cash, which is held in interest bearing accounts, with the
clearing brokers. In this way, substantially all (i.e., 90% or more) of the
Fund’s assets, whether used as margin for trading purposes or as reserves for
such trading, can be invested in U.S. government securities or interest bearing
accounts. Investors should note that maintenance of the Fund’s assets in U.S.
government securities and banks does not reduce the risk of loss from trading
futures contracts. The Fund receives all interest earned on its assets. Up to
50% of the Fund’s assets will be committed as margin for futures contracts and
held by the clearing broker, although the amount committed may vary
significantly. Such assets are maintained in segregated accounts with the
clearing broker pursuant to the Commodity Exchange Act and regulations
hereunder. The remaining Fund assets will normally be invested in U.S. Treasury
Bills. The Fund’s assets are not and will not be, directly or indirectly,
commingled with the property of any other pool or any other person by PAM nor
invested with or loaned to PAM or any affiliated entities.
THE
INTRODUCING AND CLEARING BROKERS
TradeStation
Securities, Inc.
TradeStation
Securities, Inc. (TradeStation), a member of TradeStation Group, Inc., is a
registered futures commission merchant (“FCM”) registered with the
CFTC and SEC and is a member of the NFA and FINRA. Its main office is located at
8050 S.W. 10th Street, Suite 2000 Plantation, FL 33324. In the normal
course of its business, TradeStation is involved in various legal actions
incidental to its commodities business. None of these actions are expected
either individually or in aggregate to have a material adverse impact on
TradeStation. Neither TradeStation nor any of its principals have been the
subject of any material administrative, civil or criminal actions within the
past five years. A full regulatory history of TradeStation can be found on the
NFA website (www.nfa.futures.org)
through the BASIC system.
R.
J. O’Brien & Associates
R. J.
O’Brien & Associates (RJO) is a privately owned futures commission merchant
and broker dealer registered with the CFTC and the SEC, and is a member of NFA
and FINRA. RJO is a clearing member of all principal futures exchanges located
in the United States. Its main office is located at 222 South Riverside Plaza,
Suite 900, Chicago, Illinois 60606. In the normal course of its business, RJO is
involved in various legal actions incidental to its commodities business.
Neither RJO nor any of its principals have been the subject of any material
administrative, civil, or criminal actions within the past five years. A full
regulatory history of RJO can be found on the NFA website (www.nfa.futures.org)
through the BASIC system.
DISTRIBUTIONS
AND REDEMPTIONS
Distributions
The Fund
is not required to make any distributions to Unit holders. The Fund has the
authority to make such distributions, but PAM does not intend to do so in the
foreseeable future. PAM believes that distributions of Fund assets are not
necessary since Unit holders may redeem any or all of their Units at the then
current net asset value per Unit on a periodic basis. The amount and timing of
future distributions is uncertain. Because of the potential volatility of the
futures markets, especially in the short-term, the Fund is recommended for those
seeking a medium-to long-term investment of a minimum of 5 years. If the Fund
realizes profits for any fiscal year, such profits will constitute taxable
income to the Unit holders in accordance with their respective investments in
the Fund whether or not cash or other property has been distributed to Unit
holders. Any distributions, if made by the Fund, may be inadequate to cover such
taxes payable by the Unit holders.
26
Redemptions
A Unit
holder of the Fund may request any or all of his investment be redeemed by the
Fund at the net asset value per Unit as of the end of the month, subject to a
minimum redemption amount of the then current Net Asset Value of a Unit and
subject further to such Unit holder having an investment in the Fund, after
giving effect to the requested redemption, at least equal to the minimum initial
investment amount of $5,000. Unit holders must transmit a written request of
such redemption to PAM not less than 10 business days prior to the end of the
month (or such shorter period as permitted by PAM) as of which redemption is to
be effective. The Request for Redemption must specify the dollar amount for
which redemption is sought. Redemptions will generally be paid within 20 days
after the date of redemption. However, in special circumstances, including, but
not limited to, inability to liquidate dealers’ positions as of a redemption
date or default or delay in payments due to the Fund from clearing brokers,
banks or other persons or entities, the Fund may in turn delay payment to
persons requesting redemption of the proportionate part of the net assets
represented by the sums that are the subject of such default or delay. No such
delays have been imposed to date by any pool sponsored by PAM. Furthermore, the
Fund has the right to deny a request for redemption if such redemption would
result in adverse legal or tax consequences to the Fund. The federal
income tax aspects of redemptions are described under “Federal Income Tax
Aspects” beginning at page 29.
Net
Asset Value
The net
asset value of a Unit within the Fund as of any date is (i) the sum of all cash,
plus U.S. Treasury Bills valued at cost plus accrued interest, and other
securities of the Fund valued at market, plus the market value of all open
futures positions maintained by the Fund, less all liabilities and accrued
performance fees payable by the Fund, determined in accordance with the
principles specified in the Operating Agreement, divided by (ii) the number of
Units outstanding as of the date of determination. Where no principle is
specified in the Operating Agreement, the net asset value is calculated in
accordance with accounting principles generally accepted in the United States of
America under the accrual basis of accounting.
PEBBLE
U. S. MARKET FUND, L. L. C. OPERATING AGREEMENT
The
following is a summary of the Operating Agreement, a form of which is attached
as Exhibit A and incorporated by reference.
Organization
and Limited Liabilities
The Fund
was organized as a Louisiana limited liability company on August 6, 2009, and
has been registered under the Securities Act of 1933. The Operating Agreement
provides for the creation of a single series of Units and prohibits the creation
of any additional series. In general, the liability of a unit holder under the
Act is limited to the amount of his capital contribution to the Fund and his
share of any undistributed profits of the Fund. Unit holders could be required,
as a matter of bankruptcy law, to return to the Fund’s estate any distribution
which they received at a time when the Fund was in fact insolvent or in
violation of the Operating Agreement.
Management
of Fund Affairs
The
Operating Agreement gives PAM, as Manager, full control over the management and
operations of the Fund and the Operating Agreement gives no management role to
the Unit holders. To facilitate matters for PAM, the Unit holders must execute
the attached Subscription Documents (Exhibit C). The Unit holders
have no voice in the operations of the Fund, other than certain limited voting
rights as set forth in the Operating Agreement. In the course of its management,
PAM may, in its sole and absolute discretion, appoint an affiliate or affiliates
of PAM as additional Managers (except where PAM has been notified by the Unit
holders that it is to be replaced as the Manager) and retain such persons,
including affiliates of PAM, as it deems necessary for the efficient operation
of the Fund.
Only PAM
has signed the Registration Statement of which this Prospectus is a part, and
only the assets of the Fund are subject to issuer liability under the federal
securities laws for the information contained in this Prospectus and under
federal and state laws with respect to the issuance and sale of the Units. Under
the Operating Agreement, the power and authority to manage, operate and control
all aspects of the business of the Fund are vested in PAM. In addition, PAM has
been designated as the “tax matters partner” of the Fund for purposes of the
Internal Revenue Code of 1986, as amended (the “Code”).
Sharing
of Profits and Losses
Each Unit
holder within the Fund has a capital account. Initially, the Unit holder’s
balance equals the amount paid for the Units in the Fund. The Unit holder’s
balance is then proportionally adjusted monthly to reflect any additions or
withdrawals by each Unit holder and his portion of the Fund’s gains or losses
for the month as reflected by changes in the net asset value for the
Fund.
27
Federal
Tax Allocations
At
year-end, the Fund will determine the total taxable income or loss for the year.
Subject to the special allocation of net capital gain or loss to redeeming Unit
holders, the taxable gain or loss is allocated to each Unit holder within the
Fund in proportion to his capital account therein and each Unit holder is
responsible for his share of taxable income. See Section 8 of the Operating
Agreement, and “Federal Income Tax Aspects” beginning at page 29. For net
capital gain and loss, the gains and losses are first allocated to each Unit
holder who redeemed Units during the year. The remaining net capital gain or
loss is then allocated among all Unit holders whose capital accounts are in
excess of their Units’ allocation accounts. Finally, any excess net capital gain
or loss is allocated to each Unit holder in proportion to his capital account.
Each Unit holder’s tax basis in his Units is increased by the taxable income
allocated to him and reduced by any distributions received and losses allocated
to him. Upon the Fund’s liquidation, each Unit holder within the Fund will
receive his proportionate share of the assets.
Dispositions
A Unit
holder may transfer or assign his Units in the Fund upon 30 days’ prior written
notice to PAM and subject to approval by PAM of the assignee. PAM will provide
consent when it is satisfied that the transfer complies with applicable laws,
and further would not result in the termination of the Fund for federal income
tax purposes. An assignee not admitted to the Fund as a Unit holder will have
only limited rights to share the profits and capital of the Fund and a limited
redemption right. Assignees receive “carry-over” tax basis accounts and capital
accounts from their assignors, irrespective of the amount paid for the assigned
Units.
Dissolution
and Termination of the Fund
The Fund
will be terminated and dissolved upon the happening of the earlier of: 1) Unit
holders owning more than 50% of the outstanding Units of the Fund vote to
dissolve the Fund; 2) PAM withdraws as Manager and no new Manager is appointed;
3) a decline in the aggregate net assets of the Fund to less than $250,000; 4)
the continued existence of the Fund becomes unlawful; or 5) the Fund is
dissolved by operation of law.
Amendments
and Meetings
The
Operating Agreement may be amended with the approval of more than 50% of the
Units then owned by Unit holders of the Fund. PAM may make minor changes to the
Operating Agreement without the approval of the Unit holders. These minor
changes can be for clarifications of inaccuracies or ambiguities, modifications
in response to changes in tax code or regulations or any other changes the
managing owner deems advisable so long as they do not change the basic
investment policy or structure of the Fund. Unit holders owning at least 10% of
the outstanding Units of the Fund can call a meeting of the Fund. At that
meeting, the Unit holders, provided that Unit holders owning a majority of the
outstanding Units of the Fund concur, can vote to: 1) amend the Operating
Agreement with respect to the Fund without the consent of PAM; 2) dissolve the
Fund; 3) terminate contracts with PAM; 4) remove and replace PAM as Manager; and
5) approve the sale of the Fund’s assets.
Indemnification
The Fund
agrees to indemnify PAM, as Manager, for actions taken on behalf of the Fund,
provided that PAM’s conduct was in the best interests of the Fund and the
conduct was not the result of negligence or misconduct. Indemnification by the
Fund for alleged violation of securities laws is only available if the following
conditions are satisfied: 1) a successful adjudication on the merits of each
count alleged has been obtained; or 2) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction; or 3) a court of
competent jurisdiction approves a settlement of the claims and finds
indemnification of the settlement and related costs should be made; and 4) in
the case of 3), the court has been advised of the position of the SEC and
certain states in which the Units were offered and sold as to indemnification
for the violations. For further information, see Section 17 of the
Form of Operating Agreement, included as Exhibit A to this
Prospectus.
Notwithstanding,
insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Reports
to Unit Holders
PAM will
provide various reports and statements to the Unit holders including: 1) within
30 calendar days of the close of each month, PAM will provide a monthly report
of the fund; 2) within 90 days of the close of each fiscal year, PAM will
provide an annual report of the Fund 3) by April 15th of
each year, PAM will provide tax information necessary for the preparation of the
Unit holders’ annual federal income tax returns; and 4) if the net asset value
per Unit within the Fund as of the end of any business day declines by 50% or
more from either the prior year-end or the prior month-end Unit value of the
Fund, PAM will suspend trading activities, notify all Unit holders of the
relevant facts within seven business days and declare a special redemption
period.
28
FEDERAL
INCOME TAX ASPECTS
The
following constitutes the opinion of Milling, Benson, Woodward, LLP and
summarizes the material federal income tax consequences to individual investors
in the Fund. The following is based upon interpretations of existing laws in
effect on the date of this Prospectus, and no assurance can be given that courts
or fiscal authorities responsible for the administration of such laws will agree
with the interpretations or that changes in such laws will not occur. No opinion
has been given on the state or local tax consequences to individual investors in
the Fund. Consult your tax professional about the tax consequences prior to
investing in the Fund.
Unit
Holder Tax Status
PAM
believes that all of the income generated by and expected to be generated by the
Fund will constitute “qualifying income” and has so advised Milling, Benson,
Woodward, LLP. As a result, in the opinion of Milling, Benson, Woodward, LLP,
the Fund will be a limited liability company classified as a partnership for
federal income tax purposes and will not be considered a publicly traded
partnership taxable as a corporation for federal income tax
purposes.
Taxation
of Unit Holders on Profits and Losses
Each Unit
holder must pay tax on his share of the annual income and gains of the Fund, if
any, even if the Fund does not make any cash distributions. The Fund generally
allocates its gains and losses equally to each Unit. However, a Unit holder who
redeems any Units in the Fund will be allocated his share of gains and losses in
order that the amount of cash the Unit holder receives for a redeemed Unit
equals the Unit holder’s adjusted tax basis in the redeemed Unit less any
offering or syndication expenses allocated to such Units. A Unit holder’s
adjusted tax basis in a redeemed Unit equals the amount originally paid for the
Unit, increased by income or gains allocated to the Unit and decreased (but not
below zero) by distributions, deductions or losses allocated to the
Unit.
Deduction
Losses by Unit Holders
A Unit
holder may deduct Fund losses only to the extent of his tax basis in his Units.
Generally, a Unit holder’s tax basis in a Unit is the amount paid for the Unit
reduced (but not below zero) by his share of any distributions, losses and
expenses and increased by his share of income and gains. A Unit holder subject
to “at-risk” limitations (generally, non-corporate taxpayers and closely-held
corporations) can only deduct losses to the extent he is “at-risk.” The
“at-risk” amount is similar to tax basis, except that it does not include
amounts protected against loss through non-recourse financing, guarantees, stop
loss agreements, or other similar arrangements, or from someone with an interest
in the Fund, or for amounts borrowed from a related person.
“Passive-Activity
Loss Rules” and Their Effect on the Treatment of Income and Loss
The
trading activities of the Fund are not a “passive activity.” Accordingly, a Unit
holder can deduct losses from taxable income. However, a Unit holder
cannot offset losses from “passive activities” against Fund gains.
Unit
Redemptions
Cash
received from the Fund as a redemption of less than all of his Units generally
is not reportable as taxable income by a unit holder, except as described below.
Rather, such distribution reduces (but not below zero) the total tax basis of
the remaining Units in the Fund held by the Unit holders after the redemption.
Any cash distribution in excess of a Unit holder’s adjusted tax basis for his
Units in the Fund is taxable to him as gain from the sale or exchange of such
Units. Because a Unit holder’s tax basis in his Units is not increased on
account of his distributive share of income until the end of the taxable year,
distributions during the taxable year could result in taxable gain to a Unit
holder even though no gain would result if the same distributions were made at
the end of the taxable year. Furthermore, the share of the Fund’s income
allocable to a Unit holder at the end of the taxable year would also be
includable in the Unit holder’s taxable income and would increase his tax basis
in his remaining Units as of the end of such taxable year.
Redemption
for cash of all Units held by a Unit holder will result in the recognition of
gain or loss for federal income tax purposes. Such gain or loss will be equal to
the difference, if any, between the amount of the cash distribution and the Unit
holder’s adjusted tax basis for such Units. A Unit holder’s adjusted tax basis
for his Units includes his distributive share of income or loss for the year of
redemption.
29
Potential
Consequences of Redemptions and Transfers of Units
If a Unit
holder receives a distribution of property in liquidation of his Units that
would, if the Fund had a Code Section 754 election in effect, require the Fund
to make a downward adjustment of more than $250,000 to the basis of its
remaining assets, then even if the Fund does not have a Code Section 754
election in effect, the Fund will be required to make a downward adjustment to
the basis of its remaining assets. In addition, if immediately after the
transfer of a Unit, the Fund’s adjusted basis in its property exceeds the fair
market value by more than $250,000 of such property, the Fund generally will be
required to adjust the basis of its property with respect to the transferee Unit
holder.
Gain
or Loss on Section 1256 Contracts
Section
1256 Contracts include 1) regulated futures contracts, 2) foreign currency
contracts, 3) non-equity options, 4) dealer equity options, and 5) dealer
securities futures contracts. For tax purposes, Section 1256
Contracts that remain open at year-end are treated as if the position were
closed at year-end. The gain or loss on Section 1256 Contracts is characterized
as 60% long-term capital gain or loss and 40% short-term capital gain or loss
regardless of how long the position was open.
Tax
on Capital Gains and Losses
Under
current law, long-term capital gains — net gain on capital assets held more than
one year and 60% of the gain on Section 1256 Contracts — are taxed at a maximum
rate of 15%. Short-term capital gains —net gain on capital assets held less than
one year and 40% of the gain on Section 1256 Contracts —are subject to tax at
the same rates as apply to an individual’s ordinary income, with a maximum
current tax rate of 35% for individuals currently. Individual taxpayers can
deduct capital losses only to the extent of their capital gains plus $3,000. The
Fund could suffer significant losses and a Unit holder could still be required
to pay taxes on his share of the Fund’s interest income. An individual taxpayer
can carry back net capital losses on Section 1256 Contracts three years to
offset earlier gains on Section 1256 Contracts. To the extent the taxpayer
cannot offset past Section 1256 Contract gains, he can carry forward such losses
indefinitely as losses on Section 1256 Contracts.
Interest
Income
Interest
received by the Fund is taxed as ordinary income. Net capital losses can offset
ordinary income only to the extent of $3,000 per year. See “Tax on Capital Gains
and Losses” above.
Limited
Deduction for Certain Expenses
PAM does
not consider the management fees and the performance fees, as well as other
ordinary expenses of the Fund, to be investment advisory expenses or other
expenses of producing income. PAM treats these expenses as ordinary business
deductions not subject to the material deductibility limitations which apply to
investment advisory expenses. The IRS could contend otherwise and to the extent
the IRS recharacterizes these expenses, a Unit holder would have the amount of
the ordinary expenses allocated to him reduced accordingly.
Syndication
Fees
Neither
the Fund nor any Unit holder is entitled to any deduction for syndication
expenses, if any, in the year they reduce net asset value. Nor can these
expenses be amortized by the Fund or any Unit holder even though the payment of
such expenses reduces net asset value.
Investment
Interest Deductibility Limitations
Individual
taxpayers can deduct “investment interest” —interest on indebtedness allocable
to property held for investment — only to the extent that it does not exceed net
investment income. Net investment income does not include adjusted net capital
gain.
Unrelated
Business Taxable Income
Tax-exempt
Unit holders will not be required to pay tax on their share of income or gains
of the Fund, provided that such Unit holders do not purchase Units with borrowed
funds and that PAM does not utilize leverage.
30
Taxation
of Foreign Unit Holders
A Unit
holder who is a non-resident alien individual, foreign corporation, foreign
partnership, foreign trust or foreign estate (a “Foreign Unit holder”) generally
is not subject to taxation by the United States on capital gains from commodity
or derivatives trading, provided that such Foreign Unit holder (in the case of
an individual) does not spend more than 182 days in the United States during his
or her taxable year, and provided further, that such Foreign Unit holder is not
engaged in a trade or business within the United States during a taxable year to
which income, gain, or loss is treated as “effectively connected.” An investment
in the Fund should not, by itself, cause a Foreign Unit holder to be engaged in
a trade or business within the United States for the foregoing purposes,
assuming that the trading activities will be conducted as described in this
Prospectus. Pursuant to a “safe harbor” in the Code, an investment fund whose
U.S. business activities consist solely of trading commodities and derivatives
for its own account should not be treated as engaged in a trade or business
within the United States provided that such investment fund is not a dealer in
commodities or derivatives and that the commodities traded are of a kind
customarily dealt in on an organized commodity exchange. PAM has advised
Milling, Benson, Woodward, LLP of the contracts that the Fund will trade. Based
on a review of such contracts as of the date of this Prospectus, PAM has been
advised by its counsel, Milling, Benson, Woodward, LLP, that such contracts
should satisfy the safe harbor. If the contracts traded by the Fund in the
future were not covered by the safe harbor, there is a risk that the Fund would
be treated as engaged in a trade or business within the United States. In the
event that the Fund was found to be engaged in a United States trade or
business, a Foreign Unit holder would be required to file a United States
federal income tax return for such year and pay tax at full United States rates.
In the case of a Foreign Unit holder which is a foreign corporation, an
additional 30% “branch profits” tax might be imposed. Furthermore, in such event
the Fund would be required to withhold taxes from the income or gain allocable
to such a Foreign Unit holder under Section 1446 of the Code.
A Foreign
Unit holder is not subject to United States tax on certain interest income,
including income attributable to (i) original issue discount on Treasury bills
having a maturity of 183 days or less or (ii) commercial bank deposits,
provided, in either case, that such Foreign Unit holder is not engaged in a
trade or business within the United States during a taxable year. Additionally,
a Foreign Unit holder not engaged in a trade or business within the United
States is not subject to United States tax on interest income (other than
certain so-called “contingent interest”) attributable to obligations issued
after July 18, 1984 that are in registered form if the Foreign Unit holder
provides the Fund in which such Unit holder invests with the appropriate Form
W-8.
IRS
Audits of the Fund and its Unit Holders
The IRS
audits partnership-related items at the entity level rather than at the Unit
holder level. PAM acts as “tax matters partner” for the Fund, and has the
authority to determine the Fund’s responses to an audit. If an audit results in
an adjustment, all Unit holders may be required to pay additional taxes,
interest and penalties.
State
and Other Taxes
In
addition to the federal income tax consequences described above, the Fund and
the Unit holders may be subject to various state, local, and other
taxes.
PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS BEFORE DECIDING WHETHER TO
INVEST.
INVESTMENTS
BY EMPLOYEE BENEFIT PLANS
General
This
section sets forth certain consequences under the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), and the Internal Revenue Code of
1986, as amended, (the “Code”), which a fiduciary of an “employee benefit plan”
as defined in, and subject to the fiduciary responsibility provisions of, ERISA
or of a “plan” as defined in and subject to Section 4975 of the Code who has
investment discretion should consider before deciding to invest the plan’s
assets in the Fund (such “employee benefit plans” and “plans” being referred to
herein as “Plans,” and such fiduciaries with investment discretion being
referred to herein as “Plan Fiduciaries”). The following summary is not intended
to be complete, but only to address certain questions under ERISA and the Code
which are likely to be raised by the Plan Fiduciary’s own counsel.
In
general, the terms “employee benefit plan” as defined in ERISA and “plan” as
defined in Section 4975 of the Code together refer to any plan or account of
various types which provides retirement benefits or welfare benefits to an
individual or to an employer’s employees and their beneficiaries. Such plans and
accounts include, but are not limited to, corporate pension and profit-sharing
plans, “simplified employee pension plans,” Keogh plans for self-employed
individuals (including partners), individual retirement accounts described in
Section 408 of the Code and medical benefit plans.
31
Each Plan
Fiduciary must give appropriate consideration to the facts and circumstances
that are relevant to an investment in the Fund, including the role that an
investment in the Fund plays in the Plan’s overall investment portfolio. Each
Plan Fiduciary, before deciding to invest in the Fund, must be satisfied that
the investment in the Fund is a prudent investment for the Plan, that the
investments of the Plan, including the investment in the Fund, are diversified
so as to minimize the risk of large losses and that an investment in the Fund
complies with the terms of the Plan and related trust.
EACH PLAN
FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT ITS OWN LEGAL AND TAX
ADVISERS BEFORE DOING SO.
“Plan
Assets”
ERISA and
regulations issued thereunder (the “ERISA Regulation”) contain rules for
determining when an investment by a Plan in an equity interest of an entity will
result in the underlying assets of the entity being assets of the Plan for
purposes of ERISA and Section 4975 of the Code (i.e., “plan assets”). Those
rules provide in pertinent part that assets of an entity will not be plan assets
of a Plan which purchases an equity interest in the entity if the equity
interest purchased is a “publicly-offered security” (the “Publicly-Offered
Security Exception”). If the underlying assets of an entity are considered to be
assets of any Plan for purposes of ERISA or Section 4975 of the Code, the
operations of such entity would be subject to and, in some cases, limited by,
the provisions of ERISA and Section 4975 of the Code.
The
Publicly-Offered Security Exception applies if the equity interest acquired by
Plans is a security that is: 1) “freely transferable” (as described below); 2)
part of a class of securities that is “widely held” (meaning that the class of
securities is owned by 100 or more investors independent of the issuer and of
each other); and 3) either (a) part of a class of securities registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, or (b) sold to
the Plan as part of a public offering pursuant to an effective registration
statement under the Securities Act and the class of which such security is a
part is registered under the Securities Exchange Act of 1934 within 120 days (or
such later time as may be allowed by the SEC) after the end of the fiscal year
of the issuer in which the offering of such security occurred. The ERISA
Regulation states that the determination of whether a security is “freely
transferable” is to be made based on all relevant facts and circumstances. The
ERISA Regulation specifies that, in the case of a security that is part of an
offering in which the minimum investment is $10,000 or less, the following
requirements, alone or in combination, ordinarily will not affect a finding that
the security is freely transferable: (i) a requirement that no transfer or
assignment of the security or rights in respect thereof be made that would
violate any federal or state law; (ii) a requirement that no transfer or
assignment be made without advance written notice given to the entity that
issued the security; and (iii) “any restriction on substitution of an assignee
as a limited partner of a partnership, including a general partner consent
requirement, provided that the economic benefit of ownership of the assignor may
be transferred or assigned without regard to such restriction or consent” (other
than compliance with any of the foregoing restrictions).
PAM
believes that the Publicly-Offered Security Exception applies to the Fund for
the following reasons. The Units will be held by 100 or more investors that PAM
believes are independent of the Fund and of each other. PAM believes that the
Units should be considered to be “freely transferable” because the minimum
investment for investors is $5,000 and Unit holders may transfer their Units by
giving notice to PAM, provided that the transfer would not violate applicable
federal or state securities laws. In addition, if PAM does not consent to
substitution of an assignee as a Unit holder, the economic benefits of ownership
can be transferred by the assignor without regard to such consent. Therefore,
PAM believes that it is reasonable to take the position that the Units are
freely transferable within the meaning of the ERISA Regulation. Accordingly, PAM
believes that the underlying assets of the Fund should not be considered to
constitute assets of any Plan which purchases Units. This position has not been
confirmed by, and is not binding on, the Department of Labor, which issued the
ERISA Regulation and which has authority to issue opinion and information
letters thereunder. Therefore, the Plan Fiduciary and each other potential
investor should consult with his or her attorney on this matter.
Ineligible
Purchasers
In
general, Units may not be purchased with the assets of a Plan if PAM, Capital
One (Bank), N.A., TradeStation, RJO, PMG, any other selling agent, any of their
respective affiliates or any of their respective employees either: 1) has
investment discretion with respect to the investment of such plan assets; 2) has
authority or responsibility to give or regularly gives investment advice with
respect to such plan assets, for a fee, and pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such plan assets and that such advice will be based on
the particular investment needs of the Plan; or 3) is an employer maintaining or
contributing to such Plan. A party that is described in clause 1) or 2) of the
preceding sentence is a fiduciary under ERISA and the Code with respect to the
Plan, and any such purchase might result in a “prohibited transaction” under
ERISA and the Code.
Except as
otherwise set forth, the foregoing statements regarding the consequences under
ERISA and the Code of an investment in the Fund are based on the provisions of
the Code and ERISA as currently in effect, and the existing administrative and
judicial interpretations thereunder. No assurance can be given that
administrative, judicial, or legislative changes will not occur that may make
the foregoing statements incorrect or incomplete.
32
ACCEPTANCE
OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A REPRESENTATION BY PAM OR
ANY OTHER PARTY RELATED TO THE FUND THAT THIS INVESTMENT MEETS THE RELEVANT
LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT
THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. THE PERSON WITH
INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL
ADVISORS AS TO THE PROPRIETY OF AN INVESTMENT IN THE FUND IN LIGHT OF THE
CIRCUMSTANCES OF THE PARTICULAR PLAN.
PLAN
OF DISTRIBUTION
Subscription
Procedure
The Fund
will offer the Units to the public during the continuing offering at the net
asset value per Unit as of each month-end closing date on which subscriptions
are accepted, subject to calculation of such month-end net asset value by the
Independent Certified Public Accountant retained to calculate the monthly
financial results of the Fund. Investors must submit subscriptions at least five
(5) business days prior to the applicable month-end closing date and they will
be accepted once payments are received and cleared. Investors may rescind their
subscription agreement within five (5) business days of receipt of the
Prospectus. PAM may suspend, limit or terminate the continuing offering period
at any time. The Units are offered on a “best efforts” basis without any firm
underwriting commitment through solicitation advisors which are either state or
SEC registered investment advisors. PAM is also offering Units, through PMG, to
potential investors by distributing this Prospectus and making it available on a
special internet website (http://www.pebbleus.com). PAM intends to engage in
marketing efforts through media including but not limited to third party
websites, newspapers, magazines, other periodicals, television, radio, seminars,
conferences, workshops, and sporting and charity events. Units are offered until
such time as PAM terminates the continuing offering. Subscriptions received
during the continuing offering period can be accepted on a monthly basis.
Subscribers whose subscriptions are canceled or rejected will be notified of
when their subscriptions will be returned, which shall be promptly after
rejection. Subscribers whose subscriptions are accepted will be issued
fractional Units, calculated to three decimal places. The Fund’s segregated
subscription account is maintained at Capital One Bank, NA, 5400 Mounes St.,
Harahan, LA 70123. All subscription funds are required to be promptly
transmitted to the subscription account at Capital One Bank, NA. Subscriptions
must be accepted or rejected by PAM within five business days of receipt, and
the settlement date for the deposit of subscription funds in escrow must be
within five business days of acceptance. No fees or costs will be assessed on
any subscription while held in the subscription account, irrespective of whether
the subscription is accepted or subscription funds returned. Subscriptions from
customers of any of the solicitation advisors may also be made by authorizing
such solicitation advisor to debit the Unit holder’s customer securities account
at the solicitation advisor. Promptly after debiting the customer’s securities
account, the solicitation advisor shall send payment to the subscription account
as described above, in the amount of the subscription so debited. Subscribers
must purchase Units for investment purposes only and not with a view toward
resale. An investor who meets the suitability standards given below must
complete, execute and deliver to the relevant solicitation agent a copy of the
Subscription Documents attached as Exhibit C. A Unit holder can pay either by a
check made payable to “Pebble U. S. Market Fund, L.L.C. Subscription Account” or
by authorizing his solicitation advisor to debit his customer securities
account. PAM will then accept or reject the subscription within five business
days of receipt of the subscription. All subscriptions are irrevocable once
subscription payments are deposited in the subscription account. No Units will
be issued until such Units have been fully paid for by the
investor.
Representations
and Warranties of Investors in the Subscription Documents
Investors
are required to make representations and warranties in the Subscription
Documents. The Fund’s primary intention in requiring the investors to make
representations and warranties is to ensure that only persons for whom an
investment is suitable invest in the Fund. The Fund is most likely to assert
representations and warranties if it has reason to believe that the related
investor may not be qualified to invest or remain invested. The representations
and warranties made by investors in the Subscription Documents may be summarized
as relating to: 1) eligibility of investors to invest in the fund, including
legal age, net worth and annual income; 2) representative capacity of investors;
3) information provided by investors; 4) information received by investors; and
5) investments made on behalf of employee benefit plans. See the Subscription
Documents attached as Exhibit C for further detail.
33
Minimum
Investment
The
minimum investment is $5,000 in the Fund. Unit holders may increase their
investment with an additional investment of $1,000 or more. Prospective
investors must be aware that the price per Unit during the continuing offering
period will vary depending upon the month-end net asset value per Unit of the
fund. Under the federal securities laws and those of certain states, investors
may be subject to special minimum purchase and/or investor suitability
requirements.
Investor
Suitability
There can
be no assurance that the Fund will achieve its objectives or avoid substantial
losses. An investment in the Fund is suitable only for a limited segment of the
risk portion of an investor’s portfolio and no one should invest more in the
Fund than he can afford to lose. The Unit holder’s solicitation advisor is
responsible for determining if the Units are a suitable investment for the
investor. At an absolute minimum, investors must have (i) a net worth of at
least $250,000 (exclusive of home, furnishings and automobiles) or (ii) an
annual gross income of at least $70,000 and a net worth (as calculated above) of
at least $70,000. No one may invest more than 10% of his net worth (as
calculated above) in the Fund.
THESE
STANDARDS ARE REGULATORY MINIMUMS ONLY. QUALIFICATION UNDER SUCH STANDARDS DOES
NOT NECESSARILY IMPLY THAT AN INVESTMENT IN THE FUND IS SUITABLE FOR A
PARTICULAR INVESTOR. PROSPECTIVE UNIT HOLDERS SHOULD REVIEW THE PROPECTUS AND
EXHIBITS AND CONSIDER THE HIGHLY SPECULATIVE AND LIMITED LIQUIDITY OF AN
INVESTMENT IN THE FUND AS WELL AS THE HIGH RISK AND HIGHLY LEVERAGED NATURE OF
THE FUTURES AND RELATED MARKETS IN DETERMINING WHETHER AN INVESTMENT IN THE FUND
IS CONSISTENT WITH THEIR OVERALL PORTFOLIO OBJECTIVES.
The
Solicitation Advisors
The
solicitation advisors, the registered investment advisors who offer the Units,
offer the Units on a best efforts basis without any firm underwriting
commitment. The Fund and PAM may retain additional solicitation advisors. The
solicitation advisors, including PMG, an affiliate of PAM, are bound by their
respective Solicitation Agreements with the Fund. PMG and any additional
solicitation advisors will receive collectively an annual 1.50% advisory fee
(1/12th of
1.50% per month) of the month-end net asset value per Unit with respect to any
Units they sell. PAM may also engage one or more registered investment advisors
to solicit other registered investment advisors to become solicitation advisors
and to assist those solicitation advisors with the offering and sale of Units,
that is, to act as wholesalers. As compensation for its services, any such
wholesaler will receive up to .25% of the Operating Expenses paid to PMG. Other
than as described above, PAM will pay no person any commissions or other fees in
connection with the solicitation of purchases for Units. In the Solicitation
Agreement with each soliciting advisor, PAM has agreed to indemnify the
soliciting advisors against certain liabilities that the soliciting advisors may
incur in connection with the offering and sale of the Units, including
liabilities under the Securities Act. Units will be sold on a continuing basis
at the net asset value per Unit as of the end of each month.
CERTAIN
LEGAL MATTERS
Milling,
Benson, Woodward LLP, New Orleans, Louisiana, served as legal counsel to PAM in
connection with the preparation of this Prospectus. Milling, Benson, Woodward
LLP may continue to serve in such capacity in the future, but has not assumed
any obligation to update this Prospectus. Milling, Benson, Woodward LLP may
advise PAM in matters relating to the operation of the Fund on an ongoing basis.
To its knowledge, Milling, Benson, Woodward LLP does not represent and has not
represented the prospective investors or the Fund in the course of the
organization of the Fund, the negotiation of its business terms, the offering of
the Units or in respect of its ongoing operations. Prospective investors must
recognize that, as they have had no representation in the organization process,
the terms of the Fund relating to themselves and the Units have not been
negotiated at arm’s length.
Milling,
Benson, Woodward LLP’s engagement by PAM in respect of the Fund is limited to
the specific matters as to which it is consulted by PAM and, therefore, there
may exist facts or circumstances which could have a bearing on the Fund’s (or
PAM’s) financial condition or operations with respect to which Milling, Benson,
Woodward LLP has not been consulted and for which Milling, Benson, Woodward LLP
expressly disclaims any responsibility. More specifically, Milling, Benson,
Woodward LLP does not undertake to monitor the compliance of PAM and its
affiliates with the investment program, valuation procedures and other
guidelines set forth herein, nor does it monitor compliance with applicable
laws. In reviewing this Prospectus, Milling, Benson, Woodward LLP relied upon
information furnished to it by the Fund and/or PAM, and did not investigate or
verify the accuracy and completeness of information set forth herein concerning
PAM, the Fund’s service providers and their affiliates and
personnel.
34
EXPERTS
McGladrey
and Pullen, LLP, an independent registered public accounting firm, has been
retained to conduct the required annual independent audit of the
Fund.
35
INDEX
TO FINANCIAL STATEMENTS
FINANCIAL
STATEMENTS
|
37
|
Pebble
U. S. Market Fund, L.L.C.
|
37
|
Notes
to Statement of Financial Condition of Pebble U. S. Market Fund,
L.L.C.
|
37
|
Pebble
Asset Management, L.L.C.
|
39
|
Notes
to Statement of Financial Condition of Pebble Asset Management,
L.L.C.
|
39
|
36
FINANCIAL
STATEMENTS
Pebble
U. S. Market Fund, L.L.C.
THIS POOL
HAS NOT COMMENCED TRADING AND HAS NO PERFORMANCE HISTORY. Since the Fund has not
begun to trade, there is no financial history to display. The financial
information will be displayed and updated periodically as prescribed in the
governing regulations once trading has commenced. All financials will be
compiled by an independent certified public accountant and audited annually by a
second independent certified public accountant.
Notes
to Statement of Financial Condition of Pebble U. S. Market Fund,
L.L.C.
(1)
Nature of Operations
Organization
and Business
Pebble U.
S. Market Fund, L.L.C. (the “Fund”), a Louisiana Limited Liability Company,
commences operations on January 4, 2010. The Fund was organized to trade
speculatively in the United States futures markets using technical computerized
trading systems that may be fully automated at the trading manager’s discretion.
The Fund has issued one class of Units, Series A. The term of the Fund shall
continue indefinitely, unless terminated earlier by the Manager or by operation
of law or a decline in the aggregate net assets of such Series to less than
$250,000.
(2)
Significant Accounting Policies
(a)
Valuation of Investments in Futures Contracts and U.S. Treasury
Bills
All
commodity interests (including derivative financial instruments and derivative
commodity instruments) are used for trading purposes. The commodity interests
are recorded on trade date basis and open contracts are recorded in the
statements of assets and liabilities at fair value on the last business day of
the period, which represents market value for those commodity interests for
which market quotes are readily available. Exchange-traded futures contracts are
valued at settlement prices published by recognized exchange. The Fund uses the
amortized cost method for valuing the U.S. Treasury Bills due to the short-term
nature of such instrument; accordingly, the cost of securities plus accreted
discount, or minus amortized premium approximates fair value.
(b)
Investment Transactions, Investment Income, and Expenses
Investment
transactions are accounted for on a trade-date basis. Interest income and
expenses are recognized on the accrual basis.
(c)
Income Taxes
The Fund
does not record a provision for U.S. income taxes because the partners report
their share of the Fund’s income or loss on their returns. The financial
statements reflect the Fund’s transactions without adjustment, if any, required
for income tax purposes.
(d)
Use of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires PAM to make
estimates and assumptions that affect the amounts disclosed in the financial
statements. Actual results could differ from those estimates.
(3)
Due from/to Brokers
Due from
brokers consist of proceeds from securities sold. Amounts due from brokers may
be restricted to the extent that they serve as deposits for securities sold
short. Amounts due to brokers represent margin borrowings that are
collateralized by certain securities. In the normal course of business, all of
the Fund’s marketable securities transactions, money balances, and marketable
security positions are transacted with brokers. The Fund is subject to credit
risk to the extent any broker with which it conducts business is unable to
fulfill contractual obligations on its behalf. PAM monitors the financial
condition of such brokers and does not anticipate any losses from these
counterparties.
(4)
Allocation of Net Profits and Losses
In
accordance with the Subscription Documents, net profits and losses of the Fund
are allocated to Unit holders according to their respective interests in the
Fund as of the beginning of each month. Advance subscriptions represent cash
received prior to December 31 for contributions of the subsequent month and do
not participate in the earnings of the Fund until the following
January.
37
(5)
Related Party Transactions
Pebble
Asset Management, L.L.C. shall be paid a management fee equal to one-twelfth of
1.50% of month end net assets (1.50% per annum) of net assets, the organization
and offering expenses equal to one-twelfth of 1% of month end net assets (1% per
annum), not to exceed the amount of actual expenses incurred, and monthly
operating expenses equal to one-twelfth of 1.25% of month end net assets (1.25%
per annum). In accordance with the Prospectus dated October 8, 2009,
included within the Registration Statement on Form S-1, Pebble Management Group,
L.L.C., an entity related to PAM by common ownership, shall be paid monthly
advisory fees equal to one-twelfth of 1.50% (1.50% per annum) of the month end
net asset value of the Fund. PAM will also be paid a monthly
performance/incentive fee equal to 12.5% of the new appreciation without respect
to interest income. Trading losses will be carried forward and no further
performance/incentive fee may be paid until the prior losses have been
recovered.
(6)
Financial Instrument Risk
In the
normal course of its business, the Fund is party to financial instruments with
off-balance sheet risk, including derivative financial instruments and
derivative commodity instruments. The term “off balance sheet risk” refers to an
unrecorded potential liability that, even though it does not appear on the
balance sheet, may result in a future obligation or loss. These financial
instruments may include futures, whose values are based upon an underlying
asset, index, or reference rate, and generally represent future commitments to
exchange currencies or cash flows, to purchase or sell other financial
instruments at specific terms at specific future dates, or, in the case of
derivative commodity instruments, to have a reasonable possibility to be settled
in cash, through physical delivery or with another financial instrument. These
instruments are traded on an exchange. Exchange traded futures instruments are
standardized contracts. Each of these instruments is subject to various risks
similar to those related to the underlying financial instruments including
market and credit risk.
Market
risk is the potential for changes in the value of financial instruments traded
by the Fund due to market changes, including interest and foreign exchange rate
movements and fluctuations in commodity of security prices. In entering into
these contracts, there exists a market risk that such contracts may be
significantly influenced by conditions, such as interest rate volatility,
resulting in such contracts being less valuable. If the markets should move
against all of the futures interest positions at the same time, and PAM was
unable to offset such positions, the Fund could experience substantial
losses.
Credit
risk is the possibility that a loss may occur due to the failure of a counter
party to perform according to the terms of a contract. Credit risk with respect
to exchange-traded instruments is reduced to the extent that an exchange or
clearing organization acts as a counter party to the transactions. The Fund’s
risk of loss in the event of counter party default is typically limited to the
amounts recognized in the statements of assets and liabilities and not
represented by the contract or notional amounts of the instruments. The Fund has
credit risk and concentration risk because the brokers with respect to the
Fund’s assets are TradeStation Securities, Inc. and R. J. O’Brien &
Associates. PAM monitors and controls the Fund’s risk exposure on a daily basis
through financial, credit and risk management monitoring systems, and
accordingly believes that it has effective procedures for evaluating and
limiting the credit and market risks to which the Fund is subject. These
monitoring systems allow PAM to statistically analyze actual trading results
with risk adjusted performance indicators and correlation statistics. In
addition, on-line monitoring systems provide account analysis of futures and
forward positions by sector, margin requirements, gain and loss transactions,
and collateral positions. The majority of these instruments mature within one
year of initial trade date. However, due to the nature of the Fund’s business,
these instruments may not be held to maturity.
(7)
Subscriptions and Redemptions
Investors
must submit subscriptions at least five business days prior to the applicable
month-end closing date and they will be accepted once payments are received and
cleared. All subscriptions funds are required to be promptly transmitted to the
Subscription Account at Capital One Bank, NA. Subscriptions must be accepted or
rejected by PAM within five business days of receipt, and the settlement date
for the deposit of subscription funds in the Subscription Account must be within
five business days of acceptance. No fees or costs will be assessed on any
subscription while held in escrow, irrespective of whether the subscription is
accepted or subscription funds returned. Capital One, NA will not invest the
subscription funds in interest bearing instruments while held in the
Subscription Account.
38
A Unit
holder of the Fund may request any or all of his investment be redeemed at the
net asset value of a Unit as of the end of the month, subject to a minimum
redemption amount equal to the then current Net Asset Value of a Unit and
subject further to such Unit holder having an investment, after giving effect to
the requested redemption, at least equal to the minimum initial investment
amount of $5,000. Unit holders must transmit a written request of such
withdrawal to PAM not less than ten business days prior to the end of the month
(or such shorter period as permitted by PAM) as of which redemption is to be
effective. Redemptions will generally be paid within 20 days after the date of
redemption. However, in special circumstances, including, but not limited to,
inability to liquidate dealers’ positions as of a redemption date or default or
delay in payments due to the Fund from clearing brokers, banks or other persons
or entities, the Fund may in turn delay payment to persons requesting redemption
of the proportionate part of the net assets represented by the sums that are
subject of such default or delay. Furthermore, the Fund has the right
to deny a request for redemption if such redemption would result in adverse
legal or tax consequences to the Fund.
Pebble
Asset Management, L.L.C.
Pebble
Asset Management, L.L.C. is a newly formed Commodity Pool Operator and has no
past financial history to display. The financials information will be displayed
and updated quarterly. All financials will be compiled by an independent
certified public accountant and audited annually by a second independent
certified public accountant. PURCHASERS OF UNITS WILL NOT RECEIVE ANY INTEREST
IN THIS ENTITY.
Notes
to Statement of Financial Condition of Pebble Asset Management,
L.L.C.
(1)
General Information and Summary of Significant Accounting Policies
Nature
of Business
Pebble
Asset Management, L.L.C. (the “Company”), was organized pursuant to Louisiana
law effective July 13, 2009. The Company’s business is the trading and
management of discretionary commodity pools which are domiciled in the United
States of America. The Company presently serves as commodity pool operator for
Pebble U. S. Market Fund, L.L.C. (“Fund”). Upon acceptance of registration, the
Company became Manager of the Fund. The Company is wholly owned by two
members.
A summary
of the significant accounting policies which have been followed in preparing the
accompanying financial statements is set forth below:
Cash
Cash
consists of cash on hand and balances held at banks.
Investment
in Affiliated Limited Liability Companies
The
Company and/or its principals have invested in the Fund, a Louisiana limited
liability company, organized to trade speculatively in the United States of
America markets using a strategy developed by the Company. The Company’s
investment in the Fund is recorded based upon the equity method of
accounting.
Revenue
Recognition
The
Company earns management fees and incentive fees for trading and management
services provided to the Fund. Management fees and incentive fees are accrued as
earned. Investment income includes interest income earned on investments in
money market funds which is recognized when earned, based upon the accrual
method.
Expenses
The
Company incurs operating expenses relating to normal activities in connection
with managing the business. Expenses are recorded as incurred, based upon the
accrual method.
Fixed
Assets
Fixed
assets are stated net of accumulated depreciation. Depreciation is calculated
utilizing the straight-line
method
over the estimated useful lives of the assets, ranging from 1–3
years.
Use
of Estimates
The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual amounts could
differ from such estimates.
39
Income
Taxes
The
Company was established and operates in Louisiana. The Company will file and pay
all taxes as required by tax code.
Functional
Currency
The
Company’s functional currency is the U.S. Dollar.
Recently
Issued Accounting Standards
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, (“SFAS 157”), “Fair Value Measurements”, which clarifies the definition of
fair value and requires companies to expand their disclosure about the use of
fair value to measure assets and liabilities in interim and annual periods
subsequent to initial recognition. Adoption of SFAS 157 requires the use of the
price that would be received to liquidate an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. Although still in the process of evaluating the impact, if any,
upon adoption of the standard, management believes there will be no material
impact other than enhanced disclosures.
(2)
Related Parties
The
Company is the Manager and is responsible for the trading and management of the
Fund. As Manager, the Company receives a 1.50% annual management fee (1/12 of
1.50% payable monthly) for the Fund. In addition, the Company receives an
incentive fee of 12.5% of new appreciation in the Fund’s net assets computed on
a monthly basis and excluding interest income and as adjusted for subscriptions
and redemptions and one-twelfth of 1% of month end net assets (1% per annum),
not to exceed the amount of actual expenses incurred, for ongoing organization
and offering expenses. Any organization and offering costs above 1% of net
assets per year will be borne by PAM.
The
Company has the option to utilize an automated trading system provided by
TradeStation at the discretion of PAM. This trading system executes its
commodity trades on behalf of the Fund, on a non-exclusive basis and at no cost.
The Company executes its trades through TradeStation. Brokerage costs are
recognized in the account for which the Company is trading. No brokerage costs
are incurred directly by the Company.
The
accompanying financial statements have been prepared from the separate records
maintained by the Company and may not necessarily be indicative of the
conditions that would have existed if the Company had been operated as an
unaffiliated company.
* * * * *
*
PURCHASERS
OF UNITS WILL NOT RECEIVE ANY INTEREST IN PEBBLE ASSET MANAGEMENT,
L.L.C.
40
PART
TWO — STATEMENT OF ADDITIONAL INFORMATION
October
8, 2009
Pebble
U. S. Market Fund, L.L.C.
$100,000,000
SERIES A
UNITS
OF LIMITED LIABILITY INTEREST
THIS IS A
SPECULATIVE, LEVERAGED INVESTMENT WHICH INVOLVES THE RISK OF LOSS. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. SEE “RISK FACTORS”
BEGINNING AT PAGE 13 IN PART ONE OF THE PROSPECTUS.
THIS
PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF ADDITIONAL
INFORMATION. THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN IMPORTANT
INFORMATION. ADDITIONAL DISCLOSURE DOCUMENTS CAN BE DOWNLOADED AT NO CHARGE FROM
THE FUND WEBSITE, WWW.PEBBLEUS.COM.
THE DATE
OF THE MOST RECENT DISCLOSURE DOCUMENT IS DATED OCTOBER 8, 2009.
Pebble
Asset Management, L.L.C.
Manager
3500 N
Causeway Blvd, Suite 160
Metairie,
LA 70002
(504)
401-0179
41
PART
TWO
STATEMENT
OF ADDITIONAL INFORMATION
TABLE
OF CONTENTS
Page
|
|
STRATEGY
|
43
|
Market
Diversification
|
43
|
Technical
Trading Systems
|
43
|
Trend
Following
|
43
|
Money
Management
|
43
|
Additional
Information
|
43
|
Trading
Manager’s Performance
|
43
|
Notes
to Trading Manager’s Performance
|
45
|
WHY
A MANAGED FUTURES FUND?
|
46
|
WHY
PEBBLE U S MARKET FUND, L.L.C.?
|
46
|
WHY
NOW?
|
46
|
HISTORICAL
LOW-CORRELATED PERFORMANCE
|
46
|
THE
FUTURES MARKETS
|
46
|
REGULATION
|
47
|
Margin
|
47
|
POTENTIAL
ADVANTAGES OF FUTURES FUND INVESTMENTS
|
47
|
POTENTIAL
DISADVANTAGES OF FUTURES FUND INVESTMENTS
|
48
|
EXHIBITS
|
|
Exhibit
A: Pebble U S Market Fund, L.L.C. Form of Operating
Agreement
|
A
|
Exhibit
B: Pebble U S Market Fund, L.L.C. Subscription
Representations
|
B
|
Exhibit
C: Pebble U S Market Fund, L.L.C. Subscription Documents
|
C
|
Exhibit
D: Pebble U S Market Fund, L.L.C. Request for Transfer
Form
|
D
|
Exhibit
E: Pebble U S Market Fund, L.L.C. Request for Redemption
|
E
|
Exhibit
F: Pebble U S Market Fund, L.L.C. Delivery Instructions
|
F
|
42
STRATEGY
Market
Diversification
PAM and
its affiliates use proprietary trading systems designed to ensure minimal
correlation to traditional investments. The traded contracts in the U. S.
markets consists of more than 40 futures markets in commodity, currency and
financial futures. The Fund’s strategy is based on the consistent implementation
of the PAM philosophy of market diversification, money management, and
trend-following based on technical analysis of each market. PAM is continually
formulating and testing new strategies and approaches within the framework of
our philosophy striving to achieve the overall investment objective of the
Fund.
PAM
monitors and trades over 40 markets in the U. S. only including Indices,
Currencies, Interest Rates, Agricultural Markets, Metals, and Energy. The list
of markets is a representation of the variety of markets traded or that may be
traded by PAM and is not an indication of relative allocations among these
markets. The actual allocations among these markets change over time due to
liquidity, volatility and risk considerations.
Technical
Trading Systems
Positions
are initiated using proprietary technical systems that attempt to identify price
trends at their early stages. Most systematic trend following systems employ
technical indicators to identify trending markets. PAM believes the key to using
such indicators successfully lies in the way they are correlated and applied in
an overall strategy.
Trend
Following
PAM’s
trading strategy is based on intermediate time horizons. One of the keys to
success is money management. PAM uses daily stop orders to limit drawdown. In
this way, if a trend reverses the Fund’s loss is theoretically limited, while if
a trend continues the Fund’s profits are theoretically protected. The stop-loss
strategy is used to theoretically limit losses or protect and open profit while
maximizing the return of winning trades. Past performance is not necessarily
indicative of future results.
Money
Management
Risk
management plays a key role in the PAM investment strategy. The proprietary
system limits initial risk per trade to a theoretical maximum of 1.25 percent of
total fund assets. In addition, PAM continuously screens the systems and
volatility and adjusts the portfolio exposure accordingly.
Additional
Information
The Fund
is offered through an asset-based fee program through a state or SEC registered
investment advisor. The Units pay a 1.50% annual advisory fee in connection with
this offering. The advisory fee will be paid based on the month-end net asset
value per Unit (1/12th of
1.50% payable monthly). Investors have the right to negotiate the advisory fee
between the investor and soliciting registered investment advisory firm. The
negotiated fee may be higher or lower than 1.50%. However, the Fund is not a
party to the negotiation or advisory fee charged and has no responsibility to
either party as to billing or refunding fees different than the 1.50% advisory
fee assessed by the Fund. The Fund will use this bookkeeping procedure to
maintain a uniform net asset value across all Units.
Trading
Manager’s Performance
THE POOL
HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE HISTORY. PAM will
trade the Fund in accordance with the proprietary system developed by Tim
Skarecky and used by him in trading for his account since August 2006. The
results shown are the results of actual trades placed in the account of Mr.
Skarecky beginning in August 2006. The value of the account was indexed to a
base share price of $1,000 at the beginning of trading in the proprietary system
for ease of understanding and display. Records of the Fund manager’s account,
account statements and confirmations, are on file at PAM. The results are
unaudited by an independent certified public accountant.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Table 1
contains the results of trading the proprietary systems from August 2006 to the
present. These results include brokerage fees and interest credited from U.S.
treasury bills. The results do not include any fees, except brokerage fees, that
will be charged in the Fund.
43
Table
1 – Actual performance with no fees, except brokerage fees, including
interest.
INDEX
|
||||||||||
2006
|
2007
|
2008
|
2009
|
|||||||
Jan
|
----
|
1046.65
|
1380.42
|
3200.28
|
||||||
Feb
|
----
|
1027.91
|
2045.34
|
3234.03
|
||||||
Mar
|
----
|
974.24
|
1909.04
|
2824.10
|
||||||
Apr
|
----
|
1071.56
|
1734.58
|
2707.10
|
||||||
May
|
----
|
1078.08
|
1777.24
|
2620.93
|
||||||
June
|
----
|
1049.62
|
1918.07
|
2605.37
|
||||||
July
|
1000.00
|
911.75
|
1674.47
|
2528.30
|
||||||
Aug
|
988.30
|
912.03
|
1677.27
|
2736.47
|
||||||
Sep
|
927.45
|
1131.23
|
1978.29
|
2815.51
|
||||||
Oct
|
947.45
|
1204.39
|
2805.09
|
|||||||
Nov
|
1051.06
|
1173.52
|
3115.25
|
|||||||
Dec
|
1000.92
|
1192.35
|
3189.88
|
|||||||
PERFORMANCE
|
||||||||||
2006
|
2007
|
2008
|
2009
|
|||||||
Jan
|
----
|
4.57%
|
15.77%
|
0.33%
|
||||||
Feb
|
----
|
-1.79%
|
48.17%
|
1.05%
|
||||||
Mar
|
----
|
-5.22%
|
-6.66%
|
-12.68%
|
||||||
Apr
|
----
|
9.99%
|
-9.14%
|
-4.12%
|
||||||
May
|
----
|
0.61%
|
2.46%
|
-3.20%
|
||||||
June
|
----
|
-2.64%
|
7.92%
|
-0.59%
|
||||||
July
|
----
|
-13.14%
|
-12.70%
|
-2.96%
|
||||||
Aug
|
-1.17%
|
0.03%
|
0.17%
|
8.23%
|
||||||
Sep
|
-6.16%
|
24.03%
|
17.95%
|
2.89%
|
||||||
Oct
|
2.16%
|
6.47%
|
41.79%
|
|||||||
Nov
|
10.94%
|
-2.56%
|
11.06%
|
|||||||
Dec
|
-4.77%
|
1.60%
|
2.40%
|
|||||||
2006
|
2007
|
2008
|
2009
(YTD)
|
|||||||
Annual
Rate of Return
|
0.09%
|
19.12%
|
167.53%
|
-11.74%
|
Months
Traded
|
38
|
Ending
Balance
|
$2815.51
|
Total
Return Since Inception
|
181.55%
|
Annualized
Rate of Return
|
38.66%
|
Monthly
Rate of Return
|
2.76%
|
1
Year Rolling Return
|
42.32%
|
3
Year Rolling Return
|
44.80%
|
Annualized
Std Deviation
|
44.45%
|
Annual
Downside Std Deviation
|
14.54%
|
Maximum
Drawdown
|
22.01%
|
Target
Margin to Equity
|
25%
|
Max.
Initial Risk per trade
|
1.25%
|
Sharpe
Ratio*
|
.87
|
Sortino
Ratio*
|
2.66
|
* Risk
Free Performance = 0%
44
Table
2 – Actual performance including maximum fees as would have been charged
according to the prospectus.
INDEX
|
||||||||||
2006
|
2007
|
2008
|
2009
|
|||||||
Jan
|
----
|
1016.67
|
1254.27
|
2571.84
|
||||||
Feb
|
----
|
994.11
|
1777.76
|
2586.46
|
||||||
Mar
|
----
|
938.07
|
1652.04
|
2248.73
|
||||||
Apr
|
----
|
1027.27
|
1494.50
|
2146.61
|
||||||
May
|
----
|
1034.76
|
1530.84
|
2068.73
|
||||||
June
|
----
|
1003.03
|
1644.92
|
2047.46
|
||||||
July
|
1000.00
|
867.47
|
1429.73
|
1978.20
|
||||||
Aug
|
983.98
|
864.26
|
1428.53
|
2131.70
|
||||||
Sep
|
919.36
|
1062.96
|
1677.55
|
2183.68
|
||||||
Oct
|
935.07
|
1119.29
|
2304.59
|
|||||||
Nov
|
1029.95
|
1091.37
|
2529.29
|
|||||||
Dec
|
976.52
|
1104.03
|
2574.75
|
|||||||
PERFORMANCE
|
||||||||||
2006
|
2007
|
2008
|
2009
|
|||||||
Jan
|
----
|
4.11%
|
13.61%
|
-0.11%
|
||||||
Feb
|
----
|
-2.22%
|
41.74%
|
0.57%
|
||||||
Mar
|
----
|
-5.64%
|
-7.07%
|
-13.06%
|
||||||
Apr
|
----
|
9.51%
|
-9.54%
|
-4.54%
|
||||||
May
|
----
|
0.73%
|
2.43%
|
-3.63%
|
||||||
June
|
----
|
-3.07%
|
7.45%
|
-1.03%
|
||||||
July
|
----
|
-13.52%
|
-13.08%
|
-3.38%
|
||||||
Aug
|
-1.60%
|
-0.37%
|
-0.08%
|
7.76%
|
||||||
Sep
|
-6.57%
|
22.99%
|
17.43%
|
2.44%
|
||||||
Oct
|
1.71%
|
5.30%
|
37.38%
|
|||||||
Nov
|
10.15%
|
-2.49%
|
9.75%
|
|||||||
Dec
|
-5.19%
|
1.16%
|
1.80%
|
|||||||
2006
|
2007
|
2008
|
2009
(YTD)
|
|||||||
Annual
Rate of Return
|
-2.35%
|
13.06%
|
133.21%
|
-15.19%
|
Months
Traded
|
38
|
Ending
Balance
|
$2,183.68
|
Total
Return Since Inception
|
118.37%
|
Annualized
Rate of Return
|
27.97%
|
Monthly
Rate of Return
|
2.08%
|
1
Year Rolling Return
|
30.17%
|
3
Year Rolling Return
|
33.42%
|
Annualized
Std Deviation
|
41.03%
|
Annual
Downside Std Deviation
|
15.27%
|
Maximum
Drawdown
|
23.52%
|
Target
Margin to Equity
|
25%
|
Max.
Initial Risk per trade
|
1.25%
|
Sharpe
Ratio*
|
.68
|
Sortino
Ratio*
|
1.83
|
* Risk
Free Performance = 0%
Notes to Trading Manager’s Performance
The
purpose of the pro-forma presentation is to provide an approximation of the
rates of return Units would have achieved had they been traded according to the
trading system used by Mr. Skarecky in his account since the first use of the
trading system in August 2006. The actual trading results in Mr. Skarecky’s
personal account and pro-forma results including the maximum fund fees according
to the prospectus are shown. However, there are material limitations inherent in
pro-forma comparisons. It is not feasible to make all the pro-forma adjustments
necessary to reflect the effect of some variables on the actual performance of
Units prior to their commencement of trading. The pro-forma performance
presented should not be considered indicative of how such Units would have
actually performed had they been traded in the Fund.
The
pro-forma calculations in Table 2 were made taking into account the adjustments
of fees and income from month to month. The pro-forma performance does reflect
on a cumulative basis the effect of fees and interest that would have been
charged and credited respectively. The Sharpe Ratio is a formula used to measure
risk-adjusted performance. The Sharpe Ratio is calculated by subtracting the
risk-free rate from the rate of return for a portfolio and dividing the result
by the standard deviation of the portfolio. The Sortino Ratio measures the
risk-adjusted return of an investment portfolio or strategy. The formula is the
portfolio's realized return minus the target rate of return divided by downside
risk.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
45
WHY
A MANAGED FUTURES FUND?
Managed
futures investments are intended to generate long-term capital growth and
provide portfolio diversification. A primary reason to invest in a managed
futures product, such as Pebble U. S. Markets Fund, L.L.C., is to provide a
non-correlated or low-correlated investment to a portfolio of traditional stock
and bond investments that has the potential to improve returns and lower the
portfolio’s volatility. This is possible because managed futures products
historically have not been correlated to traditional markets, such as stocks and
bonds.
WHY
PEBBLE U.S. MARKET FUND, L.L.C.?
Mr.
Skarecky has a proven track record of performance. The Fund trades more than 40
futures markets using proprietary trading systems. The Fund manager has produced
double-digit returns, even during down markets, due to trades in widely
diversified markets. This is due to the proprietary systems ability to identify
trends early in the cycle and being diligent in the application of sound risk
and money management principles. The past performance is not necessarily
indicative of the future results. There can be no assurance that an investment
in the Fund will be profitable or will not incur losses.
Our focus
on fees sets us apart. Our fees are currently among the lowest in the managed
futures product category. It is not uncommon to find managed futures funds
charging a 2% management fee along with a 20% performance fee or higher. We keep
our fees lower which, in turn, improves results to the Unit
holders.
The Fund
is located and traded in the United States. It is registered with the SEC, CFTC
and NFA. Unlike unregistered hedge funds that intentionally take advantage of
loopholes in current registration laws, the Fund is fully registered through the
SEC, CFTC and NFA and falls under dual oversight.
WHY
NOW?
The
recent turmoil in the equity markets demonstrate that long-only equity
portfolios generally do not make money during downward cycles. Managed futures
funds are an uncorrelated asset class that has the potential to provide
appreciation in any economic climate. Adding a small percentage of a managed
futures fund to a portfolio can potentially lower volatility providing more
consistent results for your clients.
HISTORICAL
LOW-CORRELATED PERFORMANCE
Historically,
managed futures investments have had very little correlation to the stock and
bond markets. While there is no guarantee of positive performance in a managed
futures component of a portfolio, the low-correlation characteristic of managed
futures can improve risk adjusted returns in a traditional investment portfolio
of stocks and bonds. Having the ability to go long and short gives managed
futures the opportunity to profit in both up and down markets. In other words,
profit or loss in managed future funds is not dependent on economic cycles.
There can be no assurance that the Fund will trade profitably or not incur
losses.
THE
FUTURES MARKETS
Futures
contracts are standardized agreements traded on commodity exchanges that call
for the future delivery of the commodity, currency or financial instrument at a
specified time and place. A futures trader that enters into a contract to take
delivery of the underlying commodity is “long” the contract, or has “bought” the
contract. A trader that is obligated to make delivery is “short” the contract or
has “sold” the contract. Actual delivery on the contract rarely occurs. Futures
traders usually offset (liquidate) their contract obligations by entering into
equal but offsetting futures positions. For example, a trader who is long one
September Treasury bond contract on the Chicago Board of Trade can offset the
obligation by entering into a short position in a September Treasury bond
contract on that exchange. Futures positions that have not yet been liquidated
are known as “open” contracts or positions. Futures contracts are traded on a
wide variety of commodities, including agricultural products, metals, livestock
products, government securities, currencies and stock market indices. Options on
futures contracts are also traded on U.S. commodity exchanges. The Fund trades
futures contracts in the U.S. markets.
46
REGULATION
The U.S.
futures markets are regulated under the Commodity Exchange Act, which is
administered by the CFTC, a federal agency created in 1974. The CFTC licenses
and regulates commodity exchanges, commodity pool operators, commodity trading
advisors and clearing firms which are referred to in the futures industry as
“futures commission merchants.” PAM is registered with the CFTC as a commodity
pool operator. Futures professionals are also regulated by the NFA, a
self-regulatory organization for the futures industry that supervises the
dealings between futures professionals and their customers. If the pertinent
CFTC licenses or NFA memberships were to lapse, be suspended or be revoked, PAM
would be unable to act as the Fund’s commodity pool operator and commodity
trading advisor. The CFTC has adopted disclosure, reporting and recordkeeping
requirements for commodity pool operators and disclosure and recordkeeping
requirements for commodity trading advisors. The reporting rules require pool
operators to furnish to the participants in their pools a monthly statement of
account, showing the pool’s income or loss and change in net asset value, and an
annual financial report, audited by an independent certified public accountant.
The CFTC and the exchanges have pervasive powers over the futures markets,
including the emergency power to suspend trading and order trading for
liquidation of existing positions only. The exercise of such powers could
adversely affect the Fund’s trading.
Margin
In order
to establish and maintain a futures position, a trader must make a type of
good-faith deposit with its broker, known as “margin,” of approximately 1%-10%
of contract value. Minimum margins are established for each futures contract by
the exchange on which the contract is traded. The exchanges alter their margin
requirements from time to time, sometimes significantly. For their protection,
clearing brokers may require higher margins from their customers than the
exchange minimums. There are two types of margin. “Initial” margin is the amount
a trader is required to deposit with its broker to open a futures position. The
other type of margin is “maintenance” margin. When the contract value of a
trader’s futures position falls below a certain percentage, typically about 75%,
of its value when the trader established the position, the trader is required to
deposit additional margin in an amount equal to the loss in value.
POTENTIAL
ADVANTAGES OF FUTURES FUND INVESTMENTS
The
futures markets and funds investing in those markets offer many potential
structural advantages that make managed futures an efficient way to participate
in commodity markets.
Profit
Potential
Futures
contracts can easily be leveraged. Leverage magnifies profits but also magnifies
losses.
Interest
Credit
Unlike
some alternative investment funds, the Fund does not borrow money in order to
obtain leverage, so the Fund does not incur any interest expense. Rather, margin
deposits are maintained in cash equivalents, such as U.S. Treasury Bills, and
interest is earned on up to 100% of the Fund’s available assets, which include
unrealized profits credited to the Fund’s accounts.
Ability
to Profit or Lose in a Rising or Falling Market Environment
The Fund
can establish short positions and thereby profit from declining markets as
easily as it can establish long positions. This potential to make money, whether
markets are rising or falling makes managed futures particularly attractive to
sophisticated investors. Of course, if markets go higher while an investor has a
short position, that investor will lose money until the short position is
exited.
Professional
Trading
PAM’s
approach includes the following elements:
Disciplined Money
Management
PAM
generally allocates 0.6% to 0.8% of portfolio equity to the initial entry of any
single market position with a target maximum risk of 1% to 1.25% from initial
risk. No guarantee is provided that losses will be limited to these
percentages.
47
Balanced
Risk
PAM will
allocate the Fund’s capital from among more than 40 markets in the United States
during market hours Among the factors considered to determine the portfolio mix
are market volatility, liquidity and trending characteristics.
Ongoing
Capital Management
PAM may
increase or decrease commitments in certain markets in an attempt to reduce
performance volatility when the proprietary systems indicate a change is
necessary.
Multiple
Systems
While
PAM’s approach is to identify emerging trends and follow them to conclusion, no
one system is correct all of the time. PAM utilizes a multi-system strategy on
behalf of the Fund that divides capital among different markets in an attempt to
allocate risk and increase the profitability of correctly identifying and
capitalizing on trending markets.
Convenience
Through
the Fund, investors can participate in U. S. markets and opportunities without
needing to master complex trading strategies and monitor multiple
markets.
Liquidity
In most
cases the underlying markets have sufficient liquidity. Some markets trade 24
hours on business days. While there can be cases where there may be no purchaser
or seller for a particular market, PAM attempts to select markets for investment
based upon, among other things, their perceived liquidity. Exchanges impose
limits on the amount that a futures price can move in one day. Situations in
which markets have moved the limit for several days in a row have not been
common, but do occur. See “Risk Factors — Illiquidity of Your Investment” at
page 13. Also, investors may redeem all or a portion of their Units on a monthly
basis. See “Distributions and Redemptions” at page 26.
Limited
Liability
Investors’
liability is limited to the amount of their investment in the Fund. Investors
will not be required to contribute additional capital to the Fund.
POTENTIAL
DISADVANTAGES OF FUTURES FUND INVESTMENTS
Some
potential disadvantages of investing in futures markets and funds investing in
those markets include the following:
Lack
of Diversification
Because a
single advisor fund does not allocate its assets among a group of advisors, such
fund is less likely to achieve the potential benefits derived from
diversification in trading strategies and markets associated with a
multi-advisor fund or available to an investor that makes its own allocation
decisions.
Selection
of Brokers and Clearing Firms
The
manager of a futures fund typically selects the brokers and clearing firm or
firms whose services the fund will utilize and investors in the fund are not
consulted in such decision. As a result, investors are not able to evaluate
competing brokers and clearing firms and select those they feel most
satisfactorily suit their requirements.
Potentially
Higher Fees
A futures
fund typically incurs various fees and expenses not associated with separate
managed accounts. Organization and offering expenses and solicitation expenses
are not generally incurred in managed accounts. As a result, investors in such
funds must realize a greater gross return from the fund in order to net the same
effective return after allowing for such expenses.
Lack
of Transparency
Clearing
brokers produce daily and monthly statements for accounts they carry. Such
information is not directly available to investors in a futures fund and,
consequently, such investors do not have access to the same degree of
information regarding trading activity that holders of separately managed
accounts do.
48
Performance
History
Although
the Manager has experience in trading futures in a proprietary account, the
Manager has no performance history operating a commodity pool. The Fund has not
commenced trading and has no operating history.
49
EXHIBIT
A
Pebble
U. S. Market Fund, L.L.C.
Form
of Operating Agreement
This
Operating Agreement (the “Agreement”) is made as of October 8, 2009, by and
among Pebble U.S. Market Fund, L.L.C. (the “Company”), a Louisiana limited
liability company, and each other party who becomes a member of the Company by
executing this Agreement as an owner of a unit (“Unit”) of beneficial
interest created hereunder and who is shown on the books and records as a Member
(individually, a “Member” and collectively, the “Members”).
1. Formation. The Company was
organized as a Louisiana limited liability company effective August 6, 2009
pursuant to and in compliance with the Louisiana Revised Statutes Annotated
12:1300, et seq., and
for the purposes as set forth therein and pursuant to the Articles of
Organization. The manager of the Company is Pebble Asset Management, L.L.C. (the
“Manager”).
2. (a)
Units of Limited Liability
Company. The beneficial interest in the Fund shall be divided initially
into 100,000 Units. All Units issued hereunder shall be fully paid and non
assessable. The Manager in its discretion may, from time to time, without vote
of the Unit holders, issue Units, in addition to the then issued and outstanding
Units, to such party or parties and for such amount and type of consideration,
subject to applicable law, including cash or securities, at such time or times
and on such terms as the Manager may deem appropriate, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with, the assumption of liabilities) and businesses. In connection
with any issuance of Units, the Manager may issue fractional Units. The Manager
may from time to time divide or combine the Units into a greater or lesser
number without thereby changing the proportionate beneficial interests in the
Fund. Contributions to the Fund may be accepted for, and Units shall be redeemed
as, whole Units and/or 1/1,000 of a Unit or integral multiples
thereof.
(b) Creation of Series. The Fund
shall consist of one series of Units as designated by the Manager as: “Pebble U.
S. Market Fund, L.L.C. Series A”. No additional series may be created under the
Fund. Each Unit of the Fund shall represent an equal beneficial interest in the
net assets belonging to the Fund. Unless the establishing resolution or any
other resolution adopted pursuant to this Section 2(b) otherwise provides, Units
of the Fund established hereunder shall have the following relative rights and
preferences:
(i) Unit
holders of the Fund shall have no preemptive or other right to subscribe to any
additional Units in the Fund or other securities issued by the
Fund.
(ii) All
consideration received by the Fund for the issue or sale of the Units within the
Fund, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived form the sale, exchange, or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held and accounted for separately from the other
assets of the Fund and may be referred to herein as “assets belonging to” the
Fund or the “Fund Estate”. The assets belonging to the Fund for all purposes
subject only to the rights of creditors of the Fund.
(c) Creation of Accounts. For the
benefit of the Unit holders, the Manager shall establish and maintain a
segregated account entitled “Pebble U. S. Market Fund, L.L.C. Series A Account”
(the “Series A Account”). The Manager hereby acknowledges that it has deposited
the sum of $1,000 in the Series A Account. The sums held in the Series A Account
shall be held for the benefit of the Series A Unit holders and such account
shall be segregated and separate records with respect thereto shall be kept. The
Manager shall hold, invest and disburse the funds held in the account at its
discretion.
(d) Creation of Additional Accounts.
The Manager is authorized to establish and maintain one or more separate
accounts for the Fund (the “Additional Accounts”) with such institutions as the
Manager shall select for the following purposes:
(i) to
receive and deposit subscriptions for the fund; and
(ii) to
pay Unit holders for redemptions of all or a portion of their Units. The Manager
acknowledges that the funds held in any such Additional Accounts should be
segregated from other Additional Accounts and that separate records shall be
maintained with respect to each Additional Account.
(e) Limited Liability of Unit holders.
Each Unit, when purchased by a Unit holder in accordance with the terms
of this Agreement, will be fully paid and non assessable. No Unit holder will be
liable for the Fund’s obligations in excess of that Unit holder’s unredeemed
capital contribution, undistributed profits, if any, and any distributions and
amounts received upon redemption of Units. The Fund will not make a claim
against a Unit holder with respect to amounts distributed to that Unit holder or
amounts received by that Unit holder upon redemption of Units unless the Net
Assets of the Fund (which will not include any right of contribution from the
Manager except to the extent previously made by it under this Agreement) are
insufficient to discharge the liabilities of the Fund which have arisen before
the payment of these amounts.
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3. Principal Office. The address
of the principal office of the Fund shall be c/o Pebble Asset Management,
L.L.C., 3500 N. Causeway Blvd., Suite 160, Metairie, LA 70002; telephone (504)
401-0179. The Manager is located at the same address.
4. Business. The Fund’s business
and purpose is to trade, buy, sell, swap or otherwise acquire, hold or dispose
of commodities (including, but not limited to, foreign currencies,
mortgage-backed securities, money market instruments, financial instruments, and
any other securities or items which are now, or may hereafter be, the subject of
futures contract trading), domestic commodity futures contracts, spot (cash)
commodities and currencies, securities (such as United States Treasury
securities) approved by the Commodity Futures Trading Commission (“CFTC”) for
investment of customer funds and other securities on a limited basis, and any
rights pertaining thereto and any options thereon, traded on an organized
exchange, and to engage in all activities necessary, convenient or incidental
thereto. The Fund may also engage in “hedge,” arbitrage and cash trading of any
of the foregoing instruments. The Fund may engage in such business and purpose
either directly or through joint ventures, entities or Funds, provided that the
Fund’s participation in any of the foregoing has no adverse economic or
liability consequences for the Unit holders, which consequences would not be
present had the Fund engaged in that same business or purpose directly. The
objective of the Fund’s business is appreciation of its assets through
speculative trading by the Manager and independent professional trading advisors
(“Advisors”) selected from time to time by the Manager.
5. Term,
Dissolution, Fiscal Year. (a) Term. The term of the Fund
commenced on __________ and shall continue until the first to occur of the
following:
(1)
receipt by the Manager of an approval to dissolve the Fund at a specified time
by Unit holders owning Units representing more than fifty percent (50%) of the
outstanding Units of the Fund then owned by Unit holders, notice of which is
sent by certified mail return receipt requested to the Manager not less than 90
days prior to the effective date of such dissolution;
(2)
withdrawal, insolvency or dissolution of the Manager or any other event that
causes the Manager to cease to be the Manager of the Fund, unless (i) at the
time of such event there is at least one remaining Manager of the Fund who
carries on the business of the Fund (and each remaining Manager of the Fund is
hereby authorized to carry on the business of Manager of the Fund in such an
event), or (ii) within 120 days after such event Unit holders holding a majority
of Units of the Fund agree in writing to continue the business of the Fund and
to the appointment, effective as of the date of such event, of one or more
Managers of the Fund;
(3) a
decline in the aggregate Net Assets of the Fund to less than $250,000 at any
time following commencement of trading in the Fund;
(4)
dissolution of the Fund pursuant hereto; or
(5) any
other event which shall make it unlawful for the existence of the Fund to be
continued or require termination of the Fund.
(b) Dissolution. Upon the
occurrence of an event causing the dissolution of the Fund, the Fund shall be
dissolved and its affairs wound up. Upon dissolution of the Fund, the Manager,
or another person approved by a majority of the Units of the Fund, shall act as
liquidator trustee.
(c) Fiscal Year. The fiscal year
of the Fund shall begin on January 1 of each year and end on the following
December 31.
(d) Net Asset Value; Net Asset Value per
Unit. The “Net Assets” are the Fund’s assets less the Fund’s liabilities
determined in accordance with generally accepted accounting principles in the
United States. If a contract cannot be liquidated on the day with respect to
which Net Assets are being determined, the settlement price on the first
subsequent day on which the contract can be liquidated shall be the basis for
determining the liquidating value of such contract for such day, or such other
value as the Manager may deem fair and reasonable. Net Asset Value may be
further reduced as a result of any charges that may be incurred but not paid by
the Fund, including but not limited to any performance fees. The “Net Asset
Value per Unit” of the Fund is the Net Assets of the Fund divided by the number
of Units outstanding as of the date of determination. The Fund may issue 100,000
Units at the Net Asset Value per Unit.
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6. Net Worth of the Manager. The
Manager, including the principals of PAM, agrees that at all times so long as it
remains Manager of the Fund, it will maintain an aggregate net worth in the Fund
at the lesser of an amount not less than 1% or $250,000 of the total
contributions to the Fund by all Unit holders and to any other Commodity Pool
for which it acts as a Manager by all Unit holders; provided, however, that in
no event may the Manager’s, inclusive of principal’s, aggregate net worth in the
Fund be less than $250,000 nor will it be required to be more than $1,000,000.
The requirements of the preceding sentence may be modified if the Manager
obtains an opinion of counsel that a proposed modification will not adversely
affect the treatment of the Fund for federal income tax purposes and if such
modification will reflect or exceed applicable state securities and Blue Sky
laws limitations and qualify under any guidelines or statements of policy
promulgated by any body or agency constituted by the various state securities
administrators having jurisdiction in the premises.
7. Capital Contributions; Units.
The Unit holders’ respective capital contributions to the Fund shall be
as shown on the books and records. The Manager, so long as it is Manager of the
Fund and so long as it is required to characterize such Fund as a Fund for
federal income tax purposes, shall invest in such Fund, sufficient capital so
that the Manager will have at all times a capital account equal to at least 1%
of the total capital accounts of the Fund (including the Manager’s). The Manager
may withdraw any interest it may have in the Fund in excess of such requirement,
and may redeem as of any month end any interest which it may acquire on the same
terms as any Unit holder of the Fund, provided that it must maintain the minimum
interest described in the preceding sentence. The requirements of this Section 7
may be modified if the Manager obtains an opinion of counsel that a proposed
modification will not adversely affect the classification of the Fund as a Fund
for federal income tax purposes and if such modification will reflect or exceed
applicable state securities and Blue Sky laws limitations and qualify under any
guidelines or statements of policy promulgated by any body or agency constituted
by the various state securities administrators having jurisdiction in the
premises.
The
Manager may, without the consent of any Unit holders, admit to the Fund
purchasers of Units as Unit holders. All Units subscribed for in the Fund upon
receipt of a check or draft of the Unit holder are issued subject to the
collection of the funds represented by such check or draft. In the event a check
or draft of a Unit holder for Units representing payment for Units is returned
unpaid, the Fund shall cancel the Units issued to such Unit holder represented
by such returned check or draft. Any losses or profits sustained by the Fund in
connection with the Fund’s commodity trading allocable to such cancelled Units
shall be deemed an increase or decrease in Net Assets of the Fund and allocated
among the remaining Unit holders as described in Section 8. The Fund may require
a Unit holder to reimburse the Fund for any expense or loss (including any
trading loss) incurred in connection with the issuance and cancellation of any
Units issued to him or her. Any Units acquired by the Manager or any of its
affiliates will be non-voting, and will not be considered “outstanding” for
purposes of determining whether the majority approval of the outstanding Units
of the Fund has been obtained. Each Unit holder of a Unit in the Fund shall be
deemed a beneficial owner.
8. Allocation of Profits and Losses.
(a) Capital Accounts
and Allocations. A capital account will be established for each Unit
holder. The initial balance of each Unit holder’s capital account will be the
amount of a Unit holder’s initial capital contribution to the Fund less, in the
case of a Unit holder, the amount of offering expenses allocable to the Unit
holder’s Units, if any. As of the close of business (as determined by the
Manager) on the last day of each calendar month (“Determination Date”) during
each fiscal year of the Fund, the following determinations and allocations will
be made subsequently with respect to the Fund:
(i) Net
Assets will be determined.
(ii)
Accrued monthly management, organization and offering, operating fees and
advisory fees will then be charged against Net Assets.
(iii)
Accrued monthly performance fees, if any, will then be charged against Net
Assets, and the amounts credited to the Manager as provided above as of the end
of any month shall be charged the performance fee if there is an accrued
performance fee in respect of the Net Assets as of the month-end that such
amounts are so credited.
(iv) Any
increase or decrease in Net Assets (after the adjustments in subparagraphs (ii)
and (iii) above), over those of the immediately preceding Determination Date
(or, in the case of the first Determination Date, the first closing of the sale
of Units to the public), will then be credited or charged to the capital account
of each Unit holder in the ratio that the balance of each account bears to the
balance of all accounts.
(v) Any
accrued interest will be credited to the capital account of each Unit holder on
a pro rata basis.
(vi) The
amount of any distribution to a Unit holder, any amount paid to a Unit holder on
redemption of Units and any redemption fee paid to the Manager upon the
redemption of Units will be charged to that Partner’s capital
account.
(b) Allocation of Profit and Loss for
Federal Income Tax Purposes. As of the end of each fiscal year, the
realized profit or loss attributable to the Fund will be allocated among the
Unit holders under the following subparagraphs for federal income tax purposes.
These allocations of profit and loss will be pro rata from net capital gain or
loss and net operating income or loss realized by the Fund. For United States
federal income tax purposes, a distinction will be made between net short-term
gain or loss and net long-term gain or loss.
A-3
(i) Items
of ordinary income (such as interest or credits in lieu of interest) and expense
(such as the management fees, performance fees, brokerage fees and extraordinary
expenses) will be allocated pro rata among the Unit holders based on their
capital accounts (exclusive of these items of ordinary income or expense) as of
the end of each month in which the items of ordinary income or expense
accrued.
(ii) Net
realized capital gain or loss from the Fund’s trading activities will be
allocated as follows:
(A) For
the purpose of allocating the Fund’s net realized capital gain or loss among the
Unit holders, the Manager will establish an allocation account with respect to
each outstanding Unit. The initial balance of each allocation account will be
the amount paid by the Unit holder for the Unit. Allocation accounts will be
adjusted as of the end of each fiscal year and as of the date a Unit holder
completely redeems his Units as follows:
(1) Each
allocation account will be increased by the amount of income allocated to the
holder of the Unit under subparagraph (b)(i) above and subparagraph (b)(ii)(C)
below.
(2) Each
allocation account will be decreased by the amount of expense or loss allocated
to the holder of the Unit under subparagraph (b)(i) above and subparagraph
(b)(ii)(E) below and by the amount of any distribution the holder of the Unit
has received with respect to the Unit (other than on redemption of the
Unit).
(3) When
a Unit is redeemed, the allocation account with respect to that Unit will be
eliminated.
(B) Net
realized capital gain will be allocated first to each Unit holder who has
partially redeemed his Units during the fiscal year up to the excess, if any, of
the amount received upon redemption of the Units over the allocation account
attributable to the redeemed Units.
(C) Net
realized capital gain remaining after the allocation of that capital gain under
subparagraph (b)(ii)(B) above will be allocated next among all Unit holders
whose capital accounts are in excess of their Units’ allocation accounts (after
the adjustments in subparagraph (b)(ii)(B) above) in the ratio that each such
Unit holder’s excess bears to all such Unit holders’ excesses. If gain to be
allocated under this subparagraph (b)(ii)(C) is greater than the excess of all
such Unit holders’ capital accounts over all such allocation accounts, the
excess will be allocated among all Unit holders in the ratio that each Unit
holder’s capital account bears to all Unit holders’ capital
accounts.
(D) Net
realized capital loss will be allocated first to each Unit holder who has
partially redeemed his Units during the fiscal year up to the excess, if any, of
the allocation account attributable to the redeemed Units over the amount
received upon redemption of the Units.
(E) Net
realized capital loss remaining after the allocation of such capital loss under
subparagraph (b)(ii)(D) above will be allocated next among all Unit holders
whose Units’ allocation accounts are in excess of their capital accounts (after
the adjustments in subparagraph (b)(ii)(D) above) in the ratio that each such
Unit holder’s excess bears to all such Unit holders’ excesses. If loss to be
allocated under this subparagraph (b)(ii)(E) is greater than the excess of all
of these allocation accounts over all such Unit holders’ capital accounts, the
excess loss will be allocated among all Unit holders in the ratio that each Unit
holder’s capital account bears to all Unit holders’ capital
accounts.
(iii) The
tax allocations prescribed by this Section 8(b) will be made to each holder of a
Unit whether or not the holder is a substituted Unit holder. If a Unit has been
transferred or assigned, the allocations prescribed by this Section 8(b) will be
made with respect to such Unit without regard to the transfer or assignment,
except that in the year of transfer or assignment the allocations prescribed by
this Section 8(b) will be divided between the transferor or assignor and the
transferee or assignee based on the number of months each held the transferred
or assigned Unit. For purposes of this Section 8(b), tax allocations will be
made to the Manager’s Units of Managing Fund Interest in the Fund on a
Unit-equivalent basis.
(iv) The
allocation of profit and loss for federal income tax purposes set forth in this
Agreement is intended to allocate taxable profits and loss among Unit holders
generally in the ratio and to the extent that net profit and net loss are
allocated to the Unit holders under Section 8(a) of this Agreement so as to
eliminate, to the extent possible, any disparity between a Unit holder’s capital
account and his allocation account with respect to each Unit then outstanding,
consistent with the principles set forth in Section 704(c)(2) of the Internal
Revenue Code of 1986, as amended (the “Code”).
A-4
(c) Performance Fees. Performance
Fees shall be payable by the Fund to the Manager as of the end of each month and
upon redemption of Units. Performance Fees shall equal a percentage, in respect
of the Units of New Appreciation (if any) calculated as of the end of each month
and upon redemption of Units. “New Appreciation” shall be the total increase, if
any, in Net Asset Value of the Fund from the end of the last period for which a
performance fee was earned by the Manager, net of all fees and expenses paid or
accrued other than the Performance Fee itself and after subtraction of all
interest income received by the Fund. The Fund will initially pay the Manger a
monthly Performance fee equal to 12.5% of New
Appreciation. Performance Fees shall be paid by the Fund as a whole,
irrespective of whether the Net Asset Value has declined below the purchase
price of a Unit of the Fund. Accrued Performance Fees payable by the Fund shall
reduce the redemption price of Units and shall be paid to the Manager upon
redemptions within the Fund. The amount (if any) of the accrued Performance Fee
that shall be paid to the Manager upon the redemption of any Unit within the
Fund shall be determined by dividing the total Performance Fee as of such
redemption date payable by the number of Units within the Fund then outstanding
(including Units redeemed as of such date); the remainder of the accrued
Performance Fee payable by the Fund shall be paid to the Manager on the last day
of each month. In the event assets are withdrawn from a Unit holder’s account or
the Fund as a whole (other than to pay expenses), any loss carry forward shall
be proportionally reduced for purposes of calculating subsequent Performance
Fees. Loss carry forward reductions shall not be restored as a result of
subsequent additions of capital. The Manager may adjust the allocations set
forth in this Section 8(c), in the Manager’s discretion, if the Manager believes
that doing so will achieve more equitable allocations.
(d) Expenses. (1) The Manager
shall advance the organization and offering expenses of the initial and
continuous offerings of the Units of the Fund, and no such expenses shall be
deducted from the proceeds of the offering. The Manager shall be reimbursed such
amounts advanced on behalf of the Fund by the Fund via payments equal to
1/12th of
1% per month (1% per annum) of the Fund’s month-end Net Asset Value. The Manager
shall have discretion to adopt reasonable procedures to implement the
authorization of such expenses, including grouping expenses related to the same
offering period and expensing de minimus amounts as they are incurred. In the
event the Fund terminates prior to completion of its reimbursement of advanced
expenses, the Manager will not be entitled to receive additional reimbursement
from the Fund and the Fund will have no obligation to make further reimbursement
payments to the Manager. For purposes of this Agreement, organization and
offering expenses shall mean all costs paid or incurred by the Manager or the
Fund in organizing the Fund and offering the Units of the Fund, including legal
and accounting fees incurred, bank account charges, all Blue Sky filing fees,
filing fees payable upon formation and activation of the Fund, execution and
research costs, and expenses of preparing, printing and distributing the
prospectus and registration statement, but in no event shall exceed limits set
forth in Section 9 herein or guidelines imposed by appropriate regulatory
bodies.
(2) The
Fund shall be obligated to pay all liabilities incurred by the Fund, including
without limitation,
(i)
brokerage fees;
(ii)
operating expenses (whether direct or indirect) in an amount equal to 1/12th of
1.25% of the Fund’s month-end Net Asset Value (1.25% per annum), offering
expenses in an amount equal to 1/12th of
1.00% of the Fund’s month-end Net Asset Value not to exceed the actual costs
incurred (1.00% per annum), management fees equal to 1/12th of
1.50% of the Fund’s month-end Net Asset Value (1.50% per annum), and performance
fees;
(iii)
subject to an advisory fee of 1/12th of
1.50% of the initial public offering price of a Unit payable monthly (1.50% per
annum);
(iv)
legal and accounting fees; and
(v) taxes
and other extraordinary expenses incurred by the Fund. During any year of
operations, the Manager shall be responsible for payment of offering expenses of
the Fund in excess of 1.00% of the Fund’s month-end Net Asset Value during that
year. Indirect expenses of the Manager, such as indirect salaries, rent and
other overhead expenses shall not be liabilities of the Fund. The Fund shall
receive all interest earned on its assets.
(3)
Compensation to any party, including the Manager (or any Advisor which may be
retained in the future), shall not exceed the limitations, if any, imposed by
the North American Securities Administrators Association (“NASAA”) currently in
effect. In the event the compensation exceeds such limitations, the Manager
shall promptly reimburse the Fund for such excess.
(4) The
Fund shall also be obligated to pay any costs of indemnification payable by the
Fund to the extent permitted under Section 17 of this Agreement.
(e) Limited Liability of Unit holders.
Each Unit, when purchased in accordance with this Agreement, shall,
except as otherwise provided by law, be fully paid and non-assessable. Any
provisions of this Agreement to the contrary notwithstanding, except as
otherwise provided by law, no Unit holder of the Fund shall be liable for the
Fund’s obligations in excess of the capital contributed by such Unit holder,
plus his share of undistributed profits and assets of the Fund. Each Unit holder
will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit.
A-5
(f) Return of Capital Contributions.
No Unit holder or subsequent assignee shall have any right to demand the
return of his capital contribution or any profits added thereto, except through
redeeming Units or upon dissolution of the Fund, in each case as provided herein
and in accordance with the Act. In no event shall a Unit holder or subsequent
assignee be entitled to demand or receive property other than cash.
9. Management of the Fund and the Unit
holders. The Manager, to the exclusion of all Unit holders, shall have
the power to control, conduct and manage the business of the Fund. The Manager
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that it may consider necessary or
appropriate in connection with the management of the Fund. The Manager shall
have sole discretion in determining what distributions of profits and income, if
any, shall be made to the Unit holders (subject to the allocation provisions
hereof), shall execute various documents on behalf of the Fund and the Unit
holders pursuant to powers of attorney and supervise the liquidation of the Fund
if an event causing dissolution of the Fund occurs.
The
Manager may, in furtherance of the business of the Fund, cause the Fund to
retain Advisors, including, but not limited to, the Manager, to act in
furtherance of the Fund’s purposes set forth in Section 4. The Manager may
engage, and compensate on behalf of the Fund from funds of the Fund, or agree to
share profits and losses with, such persons, firms or corporations, including
(except as described in Section 8(d) of this Agreement) the Manager and any
affiliated person or entity, as the Manager in its sole judgment shall deem
advisable for the conduct and operation of the business of the Fund, provided,
that no such arrangement shall allow advisory fees paid by the Fund in excess of
1.50%, or as permitted under applicable North American Securities Administrators
Association, Inc. Guidelines for the Registration of Commodity Pool Programs
(“NASAAGuidelines”) currently in effect, whichever is higher (the “Cap Amount”).
The Manager shall reimburse the Fund, on an annual basis, to the extent that the
Fund’s expenses paid to the Manager and the Performance Fee, exceed the Cap
Amount.
The
Manager is hereby specifically authorized to enter into, on behalf of the Fund,
the initial subscription banking agreements, any advisory agreements and
solicitation agreements and any related documents necessary to operate and
manage the Fund. The Manager shall not enter into an advisory agreement with any
advisor that does not satisfy the relevant experience (i.e., ordinarily a
minimum of three years) requirements under the NASAA Guidelines. The Fund’s
advisory fees may not be increased without prior written notice to Unit holders
(60 days minimum written notice) allowing sufficient time for the exercise of
their redemption rights prior to such increase becoming effective. Such
notification shall contain a description of such Unit holder’s voting and
redemption rights and a description of any material effect of such increase. In
addition to any specific contract or agreements described herein, the Manager on
behalf of the Fund may enter into any other contracts or agreements necessary to
operate and manage the Fund without any further act, approval or vote of the
Unit holders of the Fund notwithstanding any other provisions of this Agreement,
the Act or any applicable law, rule or regulations.
The
Manager shall be under a fiduciary duty to conduct the affairs of the Fund in
the best interests of the Fund. The Unit holders of the Fund will under no
circumstances is deemed to have contracted away the fiduciary obligations owed
them by the Manager. The Manager’s fiduciary duty includes, among other things,
the safekeeping of all funds and assets and the use thereof for the benefit of
the Fund. The Manager shall at all times act with integrity and good faith and
exercise due diligence in all activities relating to the conduct of the business
of the Fund and in resolving conflicts of interest. The Fund’s brokerage
arrangements shall be non-exclusive, and the brokerage commissions paid by the
Fund shall be competitive. The Fund shall seek the best price and services
available for its commodity transactions. The Manager is hereby authorized to
perform all other duties as the “tax matters partner” of the Fund.
The Fund
shall make no loans to any party, and the funds of the Fund will not be
commingled with the funds of any other person or entity (deposit of funds with a
clearing broker or clearinghouse or entering into joint ventures or Funds shall
not be deemed to constitute “commingling” for these purposes). Except in respect
of the Performance Fee, no person or entity may receive, directly or indirectly,
any advisory, management or performance fees, or any profit-sharing allocation
from joint ventures, Funds or similar arrangements in which the Fund
participates, for investment advice or management, who shares or participates in
any clearing brokerage commissions; no broker may pay, directly or indirectly,
rebates or give ups to any trading manager or Advisor or to the Manager or any
of their respective affiliates in respect of sales of the Units within the Fund;
and such prohibitions may not be circumvented by any reciprocal business
arrangements. The foregoing prohibition shall not prevent the Fund from
executing, at the direction of any Advisor, transactions with any futures
commission merchant, broker or dealer. The maximum period covered by any
contract entered into by the Fund, except for the various provisions of the
Solicitation Agreement which survive each closing of the sales of the Fund,
shall not exceed one year.
A-6
Any
material change in the Fund’s basic investment policies or structure shall
require the approval of Unit holders of the Fund owning Units representing more
than fifty percent (50%) of all Units within the Fund then owned by the Unit
holders. Any agreements between the Fund and the Manager or any affiliate of the
Manager (as well as any agreements between the Manager or any affiliate of the
Manager and any Advisor) shall be terminable without penalty by the Fund upon no
more than 60 days’ written notice. All sales of Units in the United States will
be conducted by registered investment advisors. The Fund is prohibited from
employing the trading technique commonly known as “pyramiding” as such term is
defined in Section I.B. of the NASAA Guidelines. A trading manager or Advisor of
the Fund taking into account the Fund’s open trade equity on existing positions
in determining generally whether to acquire additional commodity positions on
behalf of the Fund will not be considered to be engaging in “pyramiding.” The
Manager may take such other actions on behalf of the Fund as the Manager deems
necessary or desirable to manage the business of the Fund.
The
Manager is engaged, and may in the future engage, in other business activities
and shall not be required to refrain from any other activity nor forego any
profits from any such activity, whether or not in competition with the Fund.
Unit holders may similarly engage in any such other business activities. The
Manager shall devote to the Fund such time as the Manager may deem advisable to
conduct the Fund’s business and affairs.
10. Audits and Reports to Unit holders.
The Fund’s books shall be audited annually by an independent certified
public accountant. PAM will distribute a monthly report of the Fund to investors
within 30 calendar days after the end of each month. PAM will also distribute an
annual report of the Fund within 90 calendar days after the end of the Fund’s
fiscal year and will provide investors with federal income tax information for
the Fund before April 15 of each year. The financial information distributed to
Unit holders of the Fund will be completed by an independent certified public
accountant. The Fund financial information and systems will be audited and an
opinion expressed by an independent auditor or certified public accountant on an
annual basis. Fund results and financial reports will be posted on the Fund
website (www.pebbleus.com)
within 30 calendar days after the end of each month and the annual report will
be posted within 90 calendar days after the end of the fiscal year.
The
Manager of the Fund shall notify its Unit holders within seven business days of
any material change (i) in the agreements with the Fund’s Advisors, including
any modification in the method of calculating the Performance Fee and (ii) in
the compensation of any party relating to the Fund.
Unit
holders of the Fund or their duly authorized representatives may inspect the
Fund’s books and records during normal business hours upon reasonable written
notice to the Manager and obtain copies of such records (including by post upon
payment of reasonable mailing costs), upon payment of reasonable reproduction
costs; provided, however, upon request by the Manager, the Unit holder shall
represent that the inspection and/or copies of such records will not be for
commercial purposes unrelated to such Unit holder’s interest as a beneficial
owner of the Fund. The Manager shall have the right to keep confidential from
the Unit holders of the Fund, for such period of time as the Manager deems
reasonable, any information that the Manager reasonably believes that the Fund
is required by law or by agreement with a third party to keep confidential,
provided that such information may not be kept confidential if it involved a
transaction between the Fund and an affiliate of the Manager. The Manager shall
calculate the approximate Net Asset Value per Unit of the Fund on a daily basis
and furnish such information upon request to any Unit holder of the Fund. The
Manager shall maintain and preserve all Fund records for a period of not less
than six years. The Manager will, with the assistance of the Fund’s clearing
brokers, make an annual review of the clearing brokerage arrangements applicable
to the Fund. In connection with such review, the Manager will ascertain, to the
extent practicable, the clearing brokerage rates charged to other major
commodity pools whose trading and operations are, in the opinion of the Manager,
comparable to those of the Fund in order to assess whether the rates charged the
Fund are competitive in light of the services it receives. If, as a result of
such review, the Manager determines that such rates are not competitive in light
of the services provided to the Fund, the Manager will notify the Unit holders,
setting forth the rates charged to the Fund and several funds which are, in the
Manager’s opinion, comparable to the Fund.
11. Assignability of Units. Each
Unit holder expressly agrees that he will not voluntarily assign, transfer or
dispose of, by gift or otherwise, any of his Units or any part or all of his
right, title and interest in the capital or profits of a Unit in violation of
any applicable federal or state securities laws or without giving written notice
to the Manager at least 30 days prior to the date of such assignment, transfer
or disposition. No assignment, transfer or disposition by an assignee of Units
of the Fund or of any part of his right, title and interest in the capital or
profits of such Units shall be effective against the Fund or the Manager until
the Manager receives the written notice of the assignment; the Manager shall not
be required to give any assignee any rights hereunder prior to receipt of such
notice. The Manager may, in its sole discretion, waive any such notice. No such
assignee, except with the consent of the Manager, which consent may be withheld
only to prevent or minimize potential adverse legal or tax consequences to the
Fund, may become a substituted Unit holder of the Fund, nor will the estate or
any beneficiary of a deceased Unit holder or assignee have any right to redeem
Units from the Fund except by redemption as provided in Section 12 hereof. Each
Unit holder agrees that with the consent of the Manager any assignee may become
a substituted Unit holder without need of the further act or approval of any
Unit holder. If the Manager withholds consent, an assignee shall not become a
substituted Unit holder, and shall not have any of the rights of a Unit holder,
except that the assignee shall be entitled to receive that share of capital and
profits and shall have that right of redemption to which his assignor would
otherwise have been entitled. No assignment, transfer or disposition of Units of
the Fund shall be effective against the Fund or the Manager until the first day
of the month succeeding the month in which the Manager consents to such
assignment, transfer or disposition. No Units of the Fund may be transferred
where, after the transfer, either the transferee or the transferor would hold
less than the minimum number of Units of the Fund equivalent to an initial
minimum purchase, except for transfers by gift, inheritance, intra family
transfers, family dissolutions, and transfers to Affiliates.
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12. Redemptions. Upon receipt of
written notice to the Manager at least ten business days prior to the end of the
month, a Unit holder or any assignee of Units may redeem all or, subject to the
provisions of this Section 12, a portion of his Units, in an amount not less
than the then current net asset value of a Unit within the Fund (such redemption
being herein referred to as a “redemption”) effective as of the close of
business (as determined by the Manager) on the last day of any month; provided
that:
(i) all
liabilities, contingent or otherwise, of the Fund (including the Fund’s
allocable share of the liabilities, contingent or otherwise, of any entities in
which the Fund invests), except any liability to Unit holders within the Fund on
account of their capital contributions, have been paid or there remains property
of the Fund sufficient to pay them;
(ii) the
Manager shall have timely received a request for redemption, as provided in the
following paragraph, and
(iii)
with respect to a partial redemption, such Unit holder shall have a remaining
investment in the Fund after giving effect to the requested redemption at least
equal to the minimum initial investment amount of $5,000. Requests for
redemption must be received by the Manager at least ten business days, or such
lesser period as shall be acceptable to the Manager, in advance of the requested
effective date of redemption. The Manager may declare additional redemption
dates upon notice to the Unit holders of the Fund as well as to those assignees
of which the Manager has received notice as described above. Requests for
redemption accepted by the Manager are payable at the applicable month-end Net
Asset Value per Unit being redeemed. The Manager is authorized to liquidate
positions to the extent it deems necessary or appropriate to honor any such
redemption requests.
If at the
close of business (as determined by the Manager) on any day, the Net Asset Value
per Unit of the Fund has decreased to less than 50% of the Net Asset Value per
Unit of the Fund as of the most recent month end, after adding back all
distributions, the Manager shall notify Unit holders within the Fund within
seven business days thereafter and shall liquidate all open positions with
respect to the Fund as expeditiously as possible and suspend trading. Within ten
business days after the date of suspension of trading, the Manager (and any
other Managers of the Fund) shall declare a Special Redemption Date with respect
to the Fund. Such Special Redemption Date shall be a business day within 30
business days from the date of suspension of trading by the Fund, and the
Manager shall mail notice of such date to each Unit holder of the Fund and
assignee of Units within the Fund of whom it has received written notice, by
first-class mail, postage prepaid, not later than ten business days prior to
such Special Redemption Date, together with instructions as to the procedure
such Unit holder or assignee must follow to have his interest in the Fund
redeemed on such date (only entire, not partial, interests may be so redeemed
unless otherwise determined by the Manager). Upon redemption pursuant to a
Special Redemption Date, a Unit holder or any other assignee of whom the Manager
has received written notice as described above, shall receive an amount equal to
the Net Asset Value of his interest in the Fund, determined as of the close of
business (as determined by the Manager) on such Special Redemption Date. No
redemption charges shall be assessed on any such Special Redemption Date. As in
the case of a regular redemption, an assignee shall not be entitled to
redemption until the Manager has received written notice (as described above) of
the assignment, transfer or disposition under which the assignee claims an
interest in the Units to be redeemed. If, after such Special Redemption Date,
the Net Assets of the Fund are at least $500,000 and the Net Asset Value of a
Unit within the Fund is in excess of $250, the Fund may, in the discretion of
the Manager, resume trading. The Manager may at any time and in its discretion
declare a Special Redemption Date, should the Manager determine that it is in
the best interests of the Fund to do so. The Manager in its notice of a Special
Redemption Date may, in its discretion, establish the conditions, if any, under
which other Special Redemption Dates must be called, which conditions may be
determined in the sole discretion of the Manager, irrespective of the provisions
of this paragraph. The Manager may also, in its discretion, declare additional
regular redemption dates for Units within the Fund and permit certain Unit
holders to redeem at other than month-end.
Except as
otherwise set forth above, redemption payments will be made within 20 business
days after the month-end of redemption, except that under special circumstances,
including, but not limited to, inability to liquidate dealers’ positions as of a
redemption date or default or delay in payments due the Fund from clearing
brokers, banks or other persons or entities, the Fund may in turn delay payment
to Unit holders or assignees requesting redemption of their Units of the
proportionate part of the Net Asset Value of such Units within the Fund equal to
that proportionate part of the Fund’s aggregate Net Asset Value represented by
the sums which are the subject of such default or delay. Furthermore,
the Fund has the right to deny a request for redemption if such redemption would
result in adverse legal or tax consequences to the Fund. The Manager
shall cause redemption payments to be sent from the Additional Accounts to the
last known addresses of the Unit holder requesting redemption; provided,
however, that such Unit holders shall cease to be Unit holders upon payment of
the redemption amounts and such Unit holders shall have no claim against the
assets of the Fund in which they were Unit holders except for such redemption
payments. The Manager may require a Unit holder to redeem all or a portion of
such Unit holder’s Units within the Fund if the Manager considers doing so to be
desirable for the protection of the Fund, and will use best efforts to do so to
the extent necessary to prevent the Fund from being deemed to hold “plan assets”
under the provisions of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), or the Code, with respect to any “employee benefit plan”
subject to ERISA or with respect to any plan or account subject to Section 4975
of the Code.
A-8
(iv) The
Fund shall not be required to make a Code Section 754
election. However, should a Unit holder receive a distribution of
property in liquidation of his Units which results in substantial built in loss
pursuant to Section 743(d) of the Code, then the Fund shall be required to make
a downward adjustment to the basis of its remaining assets. A
substantial built in loss will be deemed to occur if the Fund’s adjusted basis
in its property exceeds the fair market value by more than $250,000 of such
property, the Fund generally will be required to adjust the basis of its
property with respect to the transferee.
13. Offering of Units. The
Manager on behalf of the Fund shall
(i) cause
to be filed a Registration Statement or Registration Statements, and such
amendments thereto as the Manager deems advisable, with the Securities and
Exchange Commission for the registration and ongoing public offering of the
Units,
(ii) use
its best efforts to qualify and to keep qualified Units for sale under the
securities laws of such States of the United States or other jurisdictions as
the Manager shall deem advisable and
(iii)
take such action with respect to the matters described in (i) and (ii) as the
Manager shall deem advisable or necessary.
14. Additional Offerings. The
Manager may, in its discretion, make additional public or private offerings of
Units, provided that the net proceeds to the Fund of any such sales of
additional Units of the Fund shall in no event be less than the Net Asset Value
per Unit within the Fund (as defined in Section 5(d) hereof) at the time of sale
(unless the new Unit’s participation in the profits and losses of the Fund is
appropriately adjusted). No Unit holder shall have any preemptive, preferential
or other rights with respect to the issuance or sale of any additional Units,
other than as set forth in the preceding sentence.
15. Special Power of Attorney.
Each Unit holder by his execution of this Agreement does hereby
irrevocably constitute and appoint the Manager and each officer of the Manager,
with power of substitution, as his true and lawful attorney-in-fact, in his
name, place and stead, to execute, acknowledge, swear to (and deliver as may be
appropriate) on his behalf and file and record in the appropriate public offices
and publish (as may in the reasonable judgment of the Manager be required by
law):
(i) this
Agreement, including any amendments and/or restatements hereto duly adopted as
provided herein;
(ii)
certificates in various jurisdictions, and amendments and/or restatements
thereto, and of assumed name or of doing business under a fictitious name with
respect to the Fund;
(iii) all
conveyances and other instruments which the Manager deems appropriate to qualify
or continue the Fund in the State of Louisiana and the jurisdictions in which
the Fund may conduct business, or which may be required to be filed by the Fund
or the Unit holders under the laws of any jurisdiction or under any amendments
or successor statutes to the Act, to reflect the dissolution or termination of
the Fund, or the Fund being governed by any amendments or successor statutes to
the Act or to reorganize or re-file the Fund in a different jurisdiction;
and
(iv) to
file, prosecute, defend, settle or compromise litigation, claims or arbitrations
on behalf of the Fund. The Power of Attorney granted herein shall be irrevocable
and deemed to be a power coupled with an interest (including, without
limitation, the interest of the other Unit holders in the Manager being able to
rely on the Manager’s authority to act as contemplated by this Section 15) and
shall survive and shall not be affected by the subsequent incapacity, disability
or death of a Unit holder.
A-9
16. Withdrawal of the Manager or a Unit
holder. The Fund shall be dissolved upon the final dissolution of the
Fund created hereunder. The Fund shall be dissolved upon the withdrawal,
dissolution, insolvency or removal of the Manager with respect to the Fund, or
any other event that causes the Manager to cease to be a Manager with respect to
the Fund under the Act, unless the Fund is continued pursuant to the terms of
Section 5(a)(3). In addition, the Manager may withdraw from the Fund, without
any breach of this Agreement, at any time upon 120 days’ written notice by first
class mail, postage prepaid, to each Unit holder of the Fund and assignee of
whom the Manager has notice; provided, that such resignation shall not become
effective unless and until a successor Manager is in place. If the Manager
withdraws as Manager with respect to the Fund and the Fund’s business is
continued, the withdrawing Manager shall pay all expenses incurred directly as a
result of its withdrawal. In the event of the Manager’s removal or withdrawal,
with respect to the Fund, the Manager shall be entitled to redemption of its
interest in the Fund at its Net Asset Value with respect to the Fund on the next
closing date following the date of removal or withdrawal. The Manager may not
assign its interest in the Fund or its obligation to direct the trading of the
Fund’s assets without the consent of each Unit holder. The death, incompetency,
withdrawal, insolvency or dissolution of a Unit holder or any other event that
causes a Unit holder to cease to be a Unit holder (within the meaning of the
Act) in the Fund shall not terminate or dissolve the Fund, and a Unit holder,
his estate, custodian or personal representative shall have no right to redeem
or value such Unit holder’s interest in the Fund except as provided in Section
12 hereof. Each Unit holder within the Fund agrees that in the event of his
death, he waives on behalf of himself and his estate, and directs the legal
representatives of his estate and any person interested therein to waive, the
furnishing of any inventory, accounting or appraisal of the assets of the Fund
or the Fund and any right to an audit or examination of the books of the Fund.
Nothing in this Section 16 shall, however, waive any right given elsewhere in
this Agreement for a Unit holder to be informed of the Net Asset Value of his
Units, to receive periodic reports, audited financial statements and other
information from the Manager or to redeem or transfer Units.
17. Standard of Liability;
Indemnification. (a) Standard of Liability for the
Manager. The Manager and its Affiliates, as defined below, shall have no
liability to the Fund or to any Unit holder of the Fund for any loss suffered by
the Fund or such Unit holder which arises out of any action or inaction of the
Manager or its Affiliates if the Manager, in good faith, determined that such
course of conduct was in the best interests of the Fund and such course of
conduct did not constitute negligence or misconduct of the Manager or its
Affiliates.
(b) Indemnification of the Manager by
the Fund. To the fullest extent permitted by law, subject to this Section
17, the Manager and its Affiliates shall be indemnified by the Fund against any
claims, losses, judgments, liabilities, expenses and amounts paid in settlement
of any claims sustained by them in connection with the Fund; provided that such
claims were not the result of negligence or misconduct on the part of the
Manager or its Affiliates and the Manager, in good faith, determined that such
conduct was in the best interests of the Fund; and provided further that
Affiliates of the Manager shall be entitled to indemnification only for losses
incurred by such Affiliates in performing the duties of the Manager with respect
to the Fund and acting wholly within the scope of the authority of the Manager.
Notwithstanding anything to the contrary contained in the preceding two
paragraphs, the Manager and its Affiliates and any persons acting as selling
agents for the Units shall not be indemnified for any losses, liabilities or
expenses arising from or out of an alleged violation of federal or state
securities laws unless
(1) there
has been a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court approves
indemnification of the litigation costs, or
(2) such
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court approves
indemnification of the litigation costs, or
(3) a
court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement and
related costs should be made. In any claim for indemnification for federal or
state securities law violations, the party seeking indemnification shall place
before the court the position of the Securities and Exchange Commission and any
state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations. The Fund shall not bear the cost
of that portion of any insurance which insures any party against any liability
the indemnification of which is herein prohibited.
For the
purposes of this Section 17, the term “Affiliates” shall mean any person acting
on behalf of or performing services on behalf of the Fund who:
(1)
directly or indirectly controls, is controlled by, or is under common control
with the Manager; or
(2) owns
or controls 10% or more of the outstanding voting securities of the Manager;
or
(3) is an
officer or director of the Manager; or
(4) if
the Manager is an officer, director, partner or trustee, is any entity for which
the Manager acts in any such capacity.
Advances
from the Fund Estate to the Manager and its Affiliates for legal expenses and
other costs incurred as a result of any legal action initiated against the
Manager by a Unit holder are prohibited. Advances from the Fund’s Estate to the
Manager and its Affiliates for legal expenses and other costs incurred as a
result of a legal action will be made only if the following three conditions are
satisfied:
(1) the
legal action relates to the performance of duties or services by the Manager or
its Affiliates on behalf of the Fund;
(2) the
legal action is initiated by a third party who is not a Unit holder;
and
A-10
(3) the
Manager or its Affiliates undertake to repay the advanced funds, with interest
from the date of such advance, to the Fund in cases in which they would not be
entitled to indemnification under the standard of liability set forth in Section
17(a).
In no
event shall any indemnity or exculpation provided for herein be more favorable
to the Manager or any Affiliate than that contemplated by the NASAA Guidelines
as currently in effect. In no event shall any indemnification permitted by this
subsection (b) of Section 17 be made by the Fund unless all provisions of this
Section for the payment of indemnification have been complied with in all
respects. Furthermore, it shall be a precondition of any such indemnification
that the Fund receive a determination of qualified independent legal counsel in
a written opinion that the party which seeks to be indemnified hereunder has met
the applicable standard of conduct set forth herein. Receipt of any such opinion
shall not, however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Fund hereunder shall be made only as provided in the specific case. In no
event shall any indemnification obligations of the Fund under this subsection
(b) of this Section 17 subject a Unit holder to any liability in excess of that
contemplated by subsection (e) of Section 8 hereof.
(c) Indemnification of the Fund by the
Unit holders. In the event the Fund is made a party to any claim, dispute
or litigation or otherwise incurs any loss or expense as a result of or in
connection with any of the Fund’s Unit holder’s activities, obligations or
liabilities unrelated to the Fund’s business, such Unit holder shall indemnify
and reimburse the Fund for all loss and expense incurred, including reasonable
attorneys’ fees.
18. Amendments; Meetings. (a)
Amendments with Consent of the
Manager. The Manager may amend this Agreement with the approval of more
than fifty percent (50%) of the Units then owned by Unit holders of the Fund. No
meeting procedure or specified notice period is required in the case of
amendments made with the consent of the Manager, mere receipt of an adequate
number of unrevoked written consents from Unit holders of the Fund being
sufficient. The Manager may amend this Agreement without the consent of the Unit
holders of the Fund in order
(i) to
clarify any clerical inaccuracy or ambiguity or reconcile any inconsistency
(including any inconsistency between this Agreement and the
prospectus),
(ii) to
effect the intent of the tax allocations proposed herein to the maximum extent
possible in the event of a change in the Code or the interpretations thereof
affecting such allocations,
(iii) to
attempt to ensure that the Fund is not treated as an association taxable as a
corporation for federal income tax purposes,
(iv) to
qualify or maintain the qualification of the Fund as a limited liability company
in any jurisdiction,
(v) to
delete or add any provision of or to this Agreement required to be deleted or
added by the Staff of the Securities and Exchange Commission or any other
federal agency or any state “Blue Sky” official or similar official or in order
to opt to be governed by any amendment or successor statute to the
Act,
(vi) to
make any amendment to this Agreement which the Manager deems advisable,
including
amendments
that reflect the offering and issuance of additional Units, whether or not
issued through the Fund, provided that such amendment is not adverse to the Unit
holders, or that is required by law, and
(vii) to
make any amendment that is appropriate or necessary, in the opinion of the
Manager, to prevent the Fund or the Manager or its directors, officers or
controlling persons from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, or to prevent the assets of the Fund
from being considered for any purpose of ERISA to constitute assets of any
“employee benefit plan” as defined in and subject to ERISA.
(b) Amendments and Actions without
Consent of the Manager. In any vote called by the Manager or pursuant to
section (c) of this Section 18, upon the affirmative vote (which may be in
person or by proxy) of more than fifty percent (50%) of the Units then owned by
Unit holders of the Fund, the following actions may be taken, irrespective of
whether the Manager concurs:
(i) this
Agreement may be amended, provided, however, that approval of all Unit holders
of the Fund shall be required in the case of amendments changing or altering
this Section 18, extending the term of the Fund, or materially changing the
Fund’s basic investment policies or structure; in addition, reduction of the
capital account of any Unit holder or assignee or modification of the percentage
of profits, losses or distributions to which a Unit holder or an assignee is
entitled hereunder shall not be effected by any amendment or supplement to this
Agreement without such Unit holder’s or assignee’s written consent;
(ii) The
Fund may be dissolved;
A-11
(iii) the
Manager may be removed and replaced;
(iv) a
new Manager or Managers may be elected if the Manager withdraws from the
Fund;
(v) the
sale of all or substantially all of the assets of the Fund may be approved;
and
(vi) any
contract with the Manager or any affiliate thereof may be disapproved of and, as
a result, terminated upon 60 days’ notice.
(c) Meetings; Other Voting Matters.
A Unit holder in the Fund upon request addressed to the Manager shall be
entitled to obtain from the Manager, upon payment in advance of reasonable
reproduction and mailing costs, a list of the names and addresses of record of
all Unit holders within the Fund and the number of Units held by each (which
shall be mailed by the Manager to the Unit holder within ten days of the receipt
of the request); provided, that the Manager may require any Unit holder
requesting such information to submit written confirmation that such information
will not be used for commercial purposes and will only be used for a legitimate
purpose related to such person being a Unit holder.
Upon
receipt of a written proposal, signed by Unit holders owning Units representing
at least 10% of the Units then owned by Unit holders, a meeting of the Fund
shall be called to vote upon any matter upon which the Unit holders may vote
pursuant to this Agreement. The Manager shall, by written notice to each Unit
holder of record sent by certified mail within 15 days after such receipt, call
a meeting of the Fund. Such meeting shall be held at least 30 but not more than
60 days after the mailing of such notice, and such notice shall specify the date
of, a reasonable place and time for, and the purpose of such meeting. The
Manager may not restrict the voting rights of Unit holders as set forth herein.
In the event that the Manager or the Unit holders vote to amend this Agreement
in any material respect, the amendment will not become effective prior to all
Unit holders having an opportunity to redeem their Units. At that meeting, the
Unit holders, provided that Unit holders owning a majority of the outstanding
Units of the Fund concur, can vote to: 1) amend the Operating Agreement with
respect to the Fund without the consent of PAM; 2) dissolve the Fund; 3)
terminate contracts with PAM; 4) remove and replace PAM as Manager; and 5)
approve the sale of the Fund’s assets.
19. Miscellaneous. (a) Notices. All notices under
this Agreement shall be in writing and shall be effective upon personal
delivery, or if sent by first class mail, postage prepaid, addressed to the last
known address of the party to whom such notice is to be given, upon the deposit
of such notice in the United States mail.
(b) Binding Effect. This
Agreement shall inure to and be binding upon all of the parties, all parties
indemnified under Section 17 hereof, and their respective successors and
assigns, custodians, estates, heirs and personal representatives. For purposes
of determining the rights of any Unit holder or assignee hereunder, the Fund and
the Manager may rely upon the Fund records as to who are Unit holders and
assignees of the Fund, and all Unit holders and assignees agree that their
rights shall be determined and they shall be bound thereby.
(c) Captions. Captions in no way
define, limit, extend or describe neither the scope of this Agreement nor the
effect of any of its provisions. Any reference to “persons” in this Agreement
shall also be deemed to include entities, unless the context otherwise
requires.
20. Benefit Plan Investors. Each
Unit holder that is an “employee benefit plan” as defined in and subject to
ERISA (a “Plan”, as defined in and subject to Section 4975 of the Internal
Revenue Code of 1986, as amended), and each fiduciary thereof who has caused the
Plan to become a Unit holder (a “Plan Fiduciary”), represents and warrants
that:
(a) the
Plan Fiduciary has considered an investment in the Fund for such Plan in light
of the risks relating thereto;
(b) the
Plan Fiduciary has determined that, in view of such considerations, the
investment in the Fund for such Plan is consistent with the Plan Fiduciary’s
responsibilities under ERISA;
(c) the
investment in the Fund by the Plan does not violate and is not otherwise
inconsistent with the terms of any legal document constituting the Plan or any
trust agreement hereunder;
(d) the
Plan’s investment in the Fund has been duly authorized and approved by all
necessary parties;
(e) none
of the Manager, any Advisor to the Fund, any soliciting advisor, the clearing
broker, the banking agent, any broker or dealer through which any Advisor
requires the Fund to trade, any of their respective affiliates or any of their
respective agents or employees:
A-12
(i) has
investment discretion with respect to the investment of assets of the Plan used
to purchase the Units;
(ii) has
authority or responsibility to or regularly gives investment advice with respect
to the assets of the Plan used to purchase the Units for a fee and pursuant to
an agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to the Plan and that such advice will be based
on the particular investment needs of the Plan; or
(iii) is
an employer maintaining or contributing to the Plan; and
(f) the
Plan Fiduciary:
(i) is
authorized to make, and is responsible for, the decision for the Plan to invest
in the Fund, including the determination that such investment is consistent with
the requirement imposed by Section 404 of ERISA that Plan investments be
diversified so as to the risks of large losses;
(ii) is
independent of the Manager, any Advisor to the Fund, any soliciting advisor, the
clearing broker, the escrow agent, any broker or dealer through which any
Advisor requires the Fund to trade, and any of their respective affiliates;
and
(iii) is
qualified to make such investment decision.
21. No Legal Title to Fund Estate.
The Unit holders within the Fund shall not have legal title to any part
of the Fund Estate.
22. Legal Title. Legal title to
all Fund Estate shall be vested in the Fund; except where applicable law in any
jurisdiction requires any part of the Fund Estate to be vested otherwise, the
Manager may cause legal title to the Fund Estate or any portion thereof to be
held by or in the name of the Manager or any other person as nominee for and on
behalf of the Fund.
23. Creditors. No creditors of
any Unit holders within the Fund shall have any right to obtain possession of,
or otherwise exercise legal or equitable remedies with respect to, the Fund
Estate.
IN
WITNESS WHEREOF, the undersigned have duly executed this Operating Agreement as
of the day and year first above written.
Pebble
Asset Management, L.L.C.
as
Manager
By:
_____________________________________
Name:
Richard Clement
Title: President,
Pebble Asset Management, L.L.C.
All Unit
holders now and hereafter admitted as Unit holders of the Fund, pursuant to
powers of attorney now and hereafter executed in favor of, and granted and
delivered to, the Manager.
By:
Pebble Asset Management, L.L.C.
as
Attorney-in-Fact
By:
______________________________________
Name:
Richard Clement
Title: President,
Pebble Asset Management, L.L.C.
A-13
EXHIBIT
B
Pebble
U. S. Market Fund, L.L.C.
SUBSCRIPTION
REPRESENTATIONS
By
executing the Subscription Agreement and Power of Attorney for Pebble U. S.
Market Fund, L.L.C. (the “Fund”), each purchaser (“Purchaser”) of units
(“Units”) of beneficial interest in the Fund irrevocably subscribes for Units at
a price equal to the net asset value per Unit as of the end of the month in
which the subscription is accepted, provided such subscription is received at
least five business days prior to such month-end, as described in the prospectus
dated October 8, 2009 (the “Prospectus”). The minimum subscription is $5,000;
additional Units may be purchased with a minimum investment of $1,000 for the
Fund in which the investor has made the minimum investment. Subscriptions must
be accompanied by a check in the full amount of the subscription and made
payable to “Pebble U. S. Market Fund, L.L.C. Subscription Account” unless the
Purchaser’s payment will be made by debiting their brokerage account maintained
with their soliciting advisor. Purchaser is also delivering to the soliciting
advisor executed Subscription Documents (Exhibit C to the Prospectus) and any
other documents needed (i.e., Trust, Pension, Corporate). If Purchaser’s
Subscription Documents are accepted, Purchaser agrees to contribute Purchaser’s
subscription to the Fund and to be bound by the terms of the Operating Agreement
of the Fund (the “Operating Agreement”) attached as Exhibit A to the Prospectus.
Purchaser agrees to reimburse the Fund and Pebble Asset Management, L.L.C.
(“PAM”), as Manager of the Fund, for any expense or loss incurred as a result of
the cancellation of Purchaser’s Units due to a failure of Purchaser to deliver
good funds in the amount of the subscription price. By execution of the
Subscription Documents, Purchaser shall be deemed to have executed the Operating
Agreement.
As an
inducement to PAM to accept this subscription, Purchaser (for the Purchaser and,
if Purchaser is an entity, on behalf of and with respect to each of purchaser’s
shareholders, partners, members or beneficiaries), by executing and delivering
Purchaser’s Subscription Documents, represents and warrants to PAM, the clearing
brokers, the soliciting advisor who solicited Purchaser’s subscription and the
Fund, as follows:
(a)
Purchaser is of legal age to execute the Subscription Documents and is legally
competent to do so;
(b)
Purchaser acknowledges that Purchaser has received a copy of the Prospectus,
including the Operating Agreement;
(c) All
information that Purchaser has furnished to PAM or that is set forth in the
Subscription Documents submitted by Purchaser is correct and complete as of the
date of such Subscription Documents, and if there should be any change in such
information prior to acceptance of Purchaser’s subscription, purchaser will
immediately furnish such revised or corrected information to PAM;
(d)
Unless (e) or (f) below is applicable, Purchaser’s subscription is made with
Purchaser’s funds for Purchaser’s own account and not as trustee, custodian or
nominee for another;
(e) The
subscription, if made as custodian for a minor, is a gift purchaser has made to
such minor and is not made with such minor’s funds or, if not a gift, the
representations as to net worth and annual income set forth below apply only to
such minor;
(f) If
Purchaser is subscribing in a representative capacity, purchaser has full power
and authority to purchase the Units and enter into and be bound by the
Subscription Documents on behalf of the entity for which he is purchasing the
Units, and such entity has full right and power to purchase such Units and enter
into and be bound by the Subscription Documents and become a Unit holder of the
Fund pursuant to the Operating Agreement;
(g)
Purchaser either is not required to be registered with the Commodity Futures
Trading Commission (“CFTC”) or to be a member of the National Futures
Association (“NFA”) or if required to be so registered is duly registered with
the CFTC and is a member in good standing of the NFA;
(h)
Purchaser represents and warrants that Purchaser has (i) a net worth of at least
$250,000 (exclusive of home, furnishings and automobiles) or (ii) an annual
gross income of at least $70,000 and a net worth (similarly calculated) of at
least $70,000. In addition, Purchaser may not invest more than 10% of his net
worth (exclusive of home, furnishings and automobiles) in the Fund;
B-1
(i) If
the Purchaser is, or is acting on behalf of, an “employee benefit plan,” as
defined in and subject to the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), a “plan” as defined in and subject to Section 4975 of the
Internal Revenue Code of 1986, as amended (the “Code”) (a “Plan”) or an entity
(“Plan Assets Entity”) deemed for any purposes of ERISA or Section 4975 of the
Code to hold assets of any Plan due to investments made in such entity by
benefit plan investors (in which case, the following representations and
warranties are made with respect to each Plan holding an investment in such Plan
Assets Entity), the individual signing the Subscription Documents on behalf of
the Purchaser, in addition to the representations and warranties set forth
above, hereby further represents and warrants as, or on behalf of, the fiduciary
of the Plan responsible for purchasing Units (the “Plan Fiduciary”) that: (i)
the Plan Fiduciary has considered an investment in the Fund for such plan in
light of the risks relating thereto; (ii) the Plan Fiduciary has determined
that, in view of such considerations, the investment in the Fund is consistent
with the Plan Fiduciary’s responsibilities under ERISA; (iii) the Plan’s
investment in the Fund does not violate and is not otherwise inconsistent with
the terms of any legal document constituting the Plan or any trust agreement
hereunder; (iv) the Plan’s investment in the Fund has been duly authorized and
approved by all necessary parties; (v) none of PAM, Pebble Management Group,
L.L.C., Capital One Bank, NA, TradeStation Securities, Inc., and R.J. O’Brien,
any other soliciting advisor, any of their respective affiliates or any of their
respective agents or employees: (a) has investment discretion with respect to
the investment of assets of the Plan used to purchase Units; (b) has authority
or responsibility to or regularly gives investment advice with respect to the
assets of the Plan used to purchase Units for a fee and pursuant to an agreement
or understanding that such advice will serve as a primary basis for investment
decisions with respect to the Plan and that such advice will be based on the
particular investment needs of the Plan; or (c) is an employer maintaining or
contributing to the Plan; and (vi) the Plan Fiduciary (a) is authorized to make,
and is responsible for, the decision to invest in the Fund, including the
determination that such investment is consistent with the requirement imposed by
Section 404 of ERISA that Plan investments be diversified so as to minimize the
risks of large losses, (b) is independent of PAM, Pebble Management Group,
L.L.C., Capital One Bank, NA, TradeStation Securities, Inc., and R.J. O’Brien,
each other soliciting advisor, and each of their respective affiliates, and (c)
is qualified to make such investment decision. The Purchaser will, at the
request of PAM, furnish PAM with such information as PAM may reasonably require
to establish that the purchase of the Units by the Plan does not violate any
provision of ERISA or the Code, including without limitation, those provisions
relating to “prohibited transactions” by “parties in interest” or “disqualified
persons” as defined therein; and
(j) If
the Purchaser is acting on behalf of a trust (a “Limited Partner Trust”), the
individual signing the Subscription Documents on behalf of the Limited Partner
Trust hereby further represents and warrants that an investment is permitted
under the trust agreement of the Limited Partner Trust, and that the undersigned
is authorized to act on behalf of the Limited Partner Trust under the trust
agreement thereof.
B-2
EXHIBIT
C
Pebble
U. S. Market Fund, L.L.C.
Instructions
to Subscription Documents
Dated:
October 8, 2009
Any
person considering subscribing for limited liability company units (“Units”) in
Pebble U. S. Market Fund, L.L.C. (the “Fund”) should carefully read and review a
current prospectus. The Fund’s prospectus (the “Prospectus”) should be
accompanied by the most recent monthly report of the Fund.
The
date on the front of the prospectus can be no later than 9 months old. If the
date is more than 9 months old, new materials are available and must be
utilized.
All
current materials, including the current prospectus and disclosure document, can
be found on the Fund’s website, www.pebbleus.com.
The
Subscription Documents must include a completed and executed Power of Attorney,
Operating Agreement, and Suitability Acknowledgement. Incomplete or unsigned
documents will result in the denial of subscription until the missing
information is provided.
Power
of Attorney
Power of
Attorney must be signed and dated by all appropriate parties.
Subscription
Agreement
1)
|
(a)
Complete the investment amount AND (b) fill in the Investor ID # if this
is an additional investment.
|
|
2)
|
(a)
Check the appropriate Account Type. (b) Initial the paragraph if the
account type is marked with an “*”. (c) Provide the beneficiary
information if the account type is marked with an “**”.
|
|
3)
|
Enter
the Social Security number OR the Tax Identification Number of the
investor, as applicable. If the investor qualifies as a non-US citizen,
this form must be accompanied by Form W-8BEN.
|
|
4)
|
Enter
the investor name or account title.
|
|
5)
|
List
any authorized individual(s) authorized to act on behalf of the account;
anyone listed must sign the Subscription Documents.
|
|
6)
|
Enter
the legal address. It can not be a Post Office Box.
|
|
7)
|
Enter
the mailing address where any mailings should be sent.
|
|
8)
|
Enter
the Email account where you would like to receive monthly statements,
annual statements, updated factsheets, manager commentary, and important
communications. Investors may opt out of email delivery by checking the
box. Pebble U. S. Market Fund, L.L.C., Pebble Asset Management, L.L.C., or
any affiliates will not disclose the email addresses unless specifically
authorized by the investor.
|
|
9)
|
Enter
your telephone number and birthdate.
|
|
10)
|
Lists
the option for payment of the subscription. Specific delivery instructions
can be found in Section 16.
|
|
11)
|
Enter
the date of the prospectus and disclosure document given prior to your
investment in the Fund. If the prospectus is dated more than 9 months from
today, please obtain a current copy from your advisor or www.pebbleus.com.
|
|
12)
|
Investors
must sign acknowledging that no backup withholding is required for this
investment. Non-US citizens must submit a completed W-8BEN with the
Subscription Documents.
|
|
13)
|
Enter
the legal address for the Custodian for the account, if
applicable.
|
|
14)
|
Signature
requesting a subscription in the Pebble U. S. Market Fund,
L.L.C.
|
|
15)
|
To
be completed by the Financial Advisor.
|
|
16)
|
Delivery
Instructions
|
Suitability
Acknowledgement
The
Suitability Acknowledgement must be competed and signed. The appropriate
Representations and Warranties must be initialed by all executing
investors.
Investors
should return these Subscription Documents and payment to their Financial
Advisor’s office address.
Subscription
documents, payment, and any other required documents should be sent by the
Financial Advisor to either:
|
1)
|
The
appropriate person or office of the named Soliciting Advisor, if
appropriate; or
|
|
2)
|
The
custodial firm if one is required (sending document early in the month is
best if it is to reach the Manager before month end);
or
|
|
3)
|
Pebble
U. S. Market Fund, L.L.C., c/o Pebble Asset Management, L.L.C., 3500 N
Causeway Blvd., Suite 160, Metairie, LA 70002. Please check your firm’s
procedures prior to sending paperwork directly to the
Fund.
|
Payments
and Subscription Documents must be received by the Manager of the Fund at least
5 business days prior to the end of the month.
C-1
Pebble
U. S. Market Fund, L.L.C.
Power
of Attorney
Pebble U.
S. Market Fund, L.L.C.
c/o
Pebble Asset Management, L.L.C.
3500 N
Causeway Blvd, Suite 160
Metairie,
LA 70002
Dear
Sir/Madam:
Subscription
for Units: I hereby subscribe for the number of Units of the Fund set forth on
the completed and executed Subscription Agreement (minimum $5,000 for initial
purchases, $1,000 for additions as described in the prospectus) page of the
Subscription Documents at net asset value per Unit as set forth in the
Subscription Agreement. I have (i) enclosed a check made payable to “Pebble U.
S. Market Fund, L.L.C. Subscription Account”, in the full amount of my
subscription, (ii) authorized a wire transfer to the Fund’s subscription account
in the full amount of my subscription, or (iii) authorized my soliciting advisor
to debit my customer securities account in the full amount of my subscription.
If this subscription is rejected, all funds remitted by the undersigned herewith
shall be returned without interest. Pebble Asset Management, L.L.C. may, in its
sole discretion, accept or reject this subscription in whole or in part. If
notice of revocation of a subscription is not received by Pebble Asset
Management, L.L.C. at least 10 days before the end of the month, such attempted
revocation is void and will not be deemed a written request for redemption. All
Units are subject to prior sale.
Representations
and Warranties of Subscriber: I have received the Prospectus. By submitting the
Subscription Documents I am making the representations and warranties set forth
in “Exhibit B – Subscription Representations” contained in the Prospectus,
including, without limitation, those representations and warranties relating to
my net worth and annual income set forth therein. If subscriber is not an
individual, the person signing the Subscription Documents on the behalf of the
subscriber is duly authorized to execute such documents. By signing the
subscription documents, I am not waiving any rights under the federal or state
securities laws.
Power of
Attorney: In connection with my acceptance of Units in the Fund, I do hereby
irrevocably constitute and appoint Pebble Asset Management, L.L.C., and its
successors and assignees, as my true and lawful Attorney-in-Fact, with full
power of substitution, in my name, place and stead, to file, prosecute, defend,
settle, or compromise litigation, claims, or arbitrations on behalf of the Fund
and make, execute, sign, acknowledge, swear to, deliver, record, and file any
documents or instruments which may be considered necessary or desirable by
Pebble Asset Management, L.L.C. to carry out fully the provisions of the
Operating Agreement , which is attached as Exhibit A to the Prospectus,
including, without limitation, the execution of the said Operating Agreement
itself and by effecting all amendments permitted by the terms thereof. The Power
of Attorney granted hereby shall be deemed to be coupled with an interest and
shall be irrevocable and shall survive, and shall not be affected by, my
subsequent death, incapacity, disability, insolvency, or dissolution or any
delivery by me of an assignment of the whole or any portion of my units in the
Fund.
Irrevocability;
Governing Law: Except as provided above, I hereby acknowledge and agree that I
am not entitled to cancel, terminate, or revoke this subscription or any of my
agreements hereunder after the Subscription Documents have been submitted (and
not rejected) and that this subscription and such agreements shall survive my
death or disability, but shall terminate with the full redemption of all my
Units in the Fund. Except as to matters of state or federal securities laws,
these Subscription Documents shall be governed by and interpreted in accordance
with the laws of the State of Louisiana.
Date
|
Signature
|
Printed
Name
|
||
Date
|
Joint
Signature (if any)
|
Printed
Name
|
C-2
Pebble
U. S. Market Fund, L.L.C.
Subscription
Agreement
Any
person considering subscribing for limited liability company units (“Units”) in
Pebble U. S. Market Fund, L.L.C. (the “Fund”) should carefully read and review a
current prospectus. The Fund’s prospectus and disclosure document (the
“Prospectus”) should be accompanied by the most recent monthly report of the
Fund. The date on the front of the prospectus can be no later than 9 months old.
If the date is more than 9 months old, new materials are available and must be
utilized.
1) (a)
Investment Amount: $_______________________
(b) Is
this an addition to an existing account? Investor ID Number:
_____________________
(Additions
to existing accounts should complete sections 11-15. Sections 2-10 and the
Suitability Acknowledgement should be completed only if information has changed.
By skipping Sections 2-10 and the Suitability Agreement, my signature below
affirms that the information and acknowledgements from the original subscription
are true and correct and apply to this additional investment.)
2) (a)
Account Type (choose one):
o Individual
|
o UGMA/UTMA
|
o Trust*
|
o Pension*
|
o Joint Tenants with
|
(Minor)
|
o Corporation*
|
o Defined Benefit*
|
Rights
of Survivorship
|
o IRA **
|
o Partnership*
|
o Other*
|
o Tenants in Common
|
o IRA Rollover**
|
o Estate*
|
_____________
|
o Community Property
|
o Roth IRA**
|
o Foreign*
|
|
o SEP**
|
o Profit Sharing*
|
(b) For
each account type indicated with “*” above, each account owner should read and
initial the following paragraph:
__________
Initial
|
The
undersigned investor(s) hereby certifies by signing below that the
investor(s) subscribing to purchase units in the Fund has the power, under
its applicable charter or organizational documents, to enter into
transactions in each of the following types of securities: (1) units of
beneficial interest in a limited liability company; (2) U.S. government
securities; and (3) managed futures (i.e. futures, forward, spot, and swap
contracts). Additionally, the undersigned investor(s) acknowledges that
the Fund’s Manager, Pebble Asset Management, L.L.C., has not been provided
the investor’s charter or organizational documents as part of the
Subscription Documents, and that, accordingly, neither the Fund nor the
Manager will make a review or interpretation of such documents.
Appropriate authorization documents, i.e. corporate resolution, must
accompany the Subscription Documents, if
applicable.
|
(c) For each account type indicated with
“**” above, the account owner should provide a beneficiary designation statement
or form listing all primary and contingent beneficiaries. Information should
include marital status, name, gender, relationship, date of birth, social
security number, address, and percentage. Any firm’s beneficiary form is
acceptable as long as the required information is included. The statement or
form must be signed by the account holder. Accounts submitted with an incomplete
or no beneficiary statement or form will be accepted with the beneficiary
designated as the estate of the account holder.
3) Social
Security or Tax ID: __________________________________
4) Account
Title: _______________________________________________________________________________
5) Authorized
Individuals: ___________________________________________________________________________________
(List individual(s) authorized to act
on behalf of the account for UGMA, Trust, Corporation, Partnership, Estate,
Profit Sharing, Pension, Defined Benefit, and Other)
6) Legal
Address: _______________________________________________________________________________
Street (No PO
Boxes) City StateZip Code
7) Mailing
Address: _______________________________________________________________________________
(if
different) Street
(No PO
Boxes) CityStateZip Code
8) Investor
Email
Address: ________________________________________________________________________
(Important communications, monthly
statements, annual statements, performance factsheets, manager commentaries will
be send through this address)
o
|
Check
box to opt out of electronic statement
delivery
|
9) Telephone/Date(s)
of Birth (_____) ________________
/____________________________________
(MMDDYY)
10)
|
The
investor(s) named above, by execution and delivery of the Subscription
Documents and by either (i) enclosing a check payable to “Pebble U. S.
Market Fund, L.L.C. Subscription Account”; (ii) authorizing a wire
transfer in the investor’s name to “Pebble U. S. Market Fund, L.L.C.
Subscription Account” at Capital One Bank, NA; or (iii) authorizing the
soliciting advisor to debit investor’s customer securities account in the
amount set forth above, hereby subscribes for the purchase of Pebble U. S.
Market Fund, L.L.C. Units at Net Asset Value per
Unit.
|
C-3
11)
|
The
named investor(s) further acknowledges receipt of the Fund’s Prospectus
and Disclosure Document, including all exhibits, dated October 8, 2009,
the terms of which govern the investment in the Units being subscribed for
hereby.
|
12)
|
Investor
Information and Signature Required
|
(a)
United States Investors Only
Under
penalties of perjury, I certify that: (1) The number shown on this form is my
true, correct and complete social security number or taxpayer identification
number; (2) I am not subject to backup withholding under the provisions of
Sections 3406(a)(1)(c) of the Internal Revenue Code; and (3) I am a U. S.
person.
(b)
Non-United States Investors Only
Under
penalties of perjury, by signature below I hereby certify that (1) I am not a
citizen or resident of the United States or (2) (in the case of an investor
which is not an individual) the investor is not a United States corporation,
partnership, estate, or trust. If either (1) or (2) are true, I have included
Form W-8 BEN with the Subscription Documents. I certify that the Passport Number
or Government ID Number provided is true, correct, and complete.
Date
|
Signature
|
Printed
Name
|
||
Date
|
Joint
Signature (if any)
|
Printed
Name
|
13)
|
Custodian
Name:
|
______________________________
|
____________________________________
|
(For
Account Types: IRA, IRA Rollover, Roth, SEP)
|
Signature
of Custodian (if applicable)
|
Custodian
Legal Address:
|
________________________________________________________________________
|
Street (No PO
Boxes) City StateZip Code
14)
|
Investor(s)
must sign (Executing and delivering the Subscription Documents shall in no
respect be deemed to constitute a waiver of any rights under the
Securities Act of 1933, or under the Securities Exchange Act of 1934.) The
Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding. The signature(s) on the Subscription Documents authorize
Pebble U. S. Market Fund, L.L.C. to send copies of the monthly reports,
annual reports, and K-1 correspondence to my investment advisor named
below.
|
Date
|
Signature
|
Printed
Name
|
||
Date
|
Joint
Signature (if any)
|
Printed
Name
|
15) To Be Completed by Registered Investment Advisor
I hereby
certify that I have delivered a current copy of the complete and current
Prospectus and Disclosure Document, discussed the pertinent facts including the
fees, expenses and risks relating to an investment in Pebble U. S. Market Fund,
L.L.C. with the above named client and that an investment in Pebble U. S. Market
Fund, L.L.C. of not more than $___________________ is suitable for such client
in light of such client’s needs, financial circumstances and investment
objectives.
Investment
Advisor Firm
Name: __________________________________________________________________________________________
Investment
Advisor Representative
Name: __________________________________________________________________________________
Firm ID
#: _______________
Address: ___________________________________________________________________________________________________________
Street City State Zip
Phone: _________________ Fax: ________________ E-mail
Address __________________________
Investment
Advisor
Signature ___________________________________ Date
________________________
C-4
Pebble
U. S. Market Fund, L.L.C.
Suitability
Acknowledgement
Completion
in its entirety of the Suitability Acknowledgement is required by all
investors.
Investor
Name: _____________________________ Joint
Investor Name: _________________________________
Employer
Name: ____________________________
Position: __________________________________________
Employer’s
Address:
____________________________________________________________________________________
Street City
State
Zip
Code
Family
Status:
o Married
o Divorced
o Single
o Widowed
Annual
Income: $___________________________
Net
Worth: $_______________________________
(excludes
residence and automobiles)
Investment
Objective (Check all that apply for this investment):
o Income
o Speculation
o Aggressive
Growth
o Growth
o Preservation
of Capital
Preservation of Capital: Focus is protecting current level of assets (Very Conservative).
Income:
Focus is on income and preservation of principal (Conservative)
Growth:
Focus is on generating long-term growth of capital
(Conservative/Moderate).
Aggressive
Growth: Focus is on generating growth and/or income with a willingness to assume
a high level of risk (Aggressive).
Speculation:
Focus is on generating highest potential for growth and/or income with a
willingness to assume highest level of risk (Very Aggressive).
Note:
Investors who choose Income or Preservation of Capital are not deemed to be
suitable for investment in the Pebble U. S. Market Fund, L.L.C.
Risk
Tolerance:
o Risk
Adverse
o Aggressive
o Above
Average
o Average
o Below
Average
Note:
Investors who are Risk Adverse should not invest in Pebble U. S. Market Fund,
L.L.C.
Investment
Horizon:
o Less than
1
year
o 3-5
years
o More than
10 years
o 1-3
years
o 5-10
years
Investment
Experience (Please check all that apply):
Years of
Investment Experience: _____
o Equities/Stocks
o Exchange
Traded
o Municipal
Bonds
o Futures
o Mutual
Funds
Funds
(ETF) o Options
o Private
Placements
o Real
Estate
o Real
Estate
o Insurance
Products
o Corporate
Bonds
Investment Trusts
(REIT)
o Commodities
US
Patriot Act Requirements
Please
provide a copy of the Driver’s License or valid government identification
card.
Investor
ID
Type: ______________ Issuer: ______________ ID# ______________ Expiration
Date: _____________
Joint
Investor
ID
Type: ______________ Issuer: ______________ ID# ______________ Expiration
Date: _____________
Admission
to the Fund: Please be informed that you will not receive a certificate
evidencing the Units that you are purchasing, but you will receive a written
confirmation of the purchase in Pebble Asset Management, L.L.C.’s customary
form.
C-5
Entities
that acquire Units must indicate whether they are registered with the CFTC as
commodity pools, whether they are exempt from registration as a commodity pool,
or whether they are not a commodity pool.
o
|
The
entity subscribing for units is a commodity pool and its sponsor and/or
principals are registered as commodity pool operators (“CPOs”) and members
of the NFA. Provide NFA ID:
___________________
|
o
|
The
entity subscribing for Units is a commodity pool but its sponsors and/or
principals are not required to be registered CPOs because of an exemption
under the Commodity Exchange Act or CFTC Regulations. State the exemption
claimed ____________________________________. Such entities must also
provide a copy of the exemption letter filed with NFA by its sponsor
and/or principals.
|
o
|
Does
not fall within the definition of Commodity Pool Operator as defined by
the CFTC and membership in the NFA is not
required.
|
Representations
and Warranties
By
executing the Subscription Documents, the investor (for itself and any
co-subscriber, and, if the undersigned is signing on behalf of an entity, on
behalf of and with respect to that entity and its shareholders, partners,
beneficiaries or members), represent and warrant to Pebble Asset Management,
L.L.C. and the Fund as follows (As used below, the terms “you and your” refer to
you and your co-subscriber, if any, or if you are signing on behalf of an
entity, that entity): Please initial each item to indicate your acknowledgement
or representation. All investors must initial numbers 1-6 and any others that
pertain to their situation.
______
|
1.
|
I
am of legal age to execute the Subscription Agreement and am legally
competent to do so.
|
______
|
2.
|
I
understand that the investment objective of the Fund is to generate
long-term capital growth while providing an element of diversification to
a portfolio of stock and bond investments, which is consistent with my
objective in making an investment in the
Fund.
|
______
|
3.
|
The
address on the Subscription Documents is true and correct residence, and I
have no present intention of becoming a resident of any other state or
country. All the information that I have provided on the Subscription
Documents is correct and complete as of the date indicated thereon and, if
there is any material change in that information before my admission as a
Unit holder, I will immediately furnish such revised or corrected
information to Pebble Asset Management,
L.L.C.
|
______
|
4.
|
Unless
representation (9-12) below is applicable, my subscription is made with my
funds for my own account and not as trustee, custodian, or nominee for
another.
|
______
|
5.
|
I
am either: (a) not required to be registered with the CFTC or to be a
member of the National Futures Association (“NFA”); or (b) if so required,
I am duly registered with the CFTC and am a member in good standing of the
NFA.
|
______
|
6.
|
I
understand that the Subscription Agreement imposes substantial
restrictions on the transferability of my Units and that my investment is
not liquid except for limited redemption provisions, as set forth in the
Prospectus and Subscription
Documents.
|
Retirement
Accounts
______
|
7.
|
If
I am representing an employee benefit plan, to the best of my knowledge,
neither Pebble Asset Management, L.L.C., nor any of its affiliates: (a)
has investment discretion with respect to the investment of my plan; (b)
has authority or responsibility to give or regularly gives investment
advice with respect to such plan assets for a fee and under an agreement
or understanding that such advice (i) will serve as a primary basis for
investment decisions with respect to such plan assets and (ii) will be
based on the particular investment needs of the plan; or (c) is an
employer maintaining or contributing to that plan. For purposes of this
representation (9), an “employee benefit plan” includes plans and accounts
of various types (including their related trusts) which provide for the
accumulation of a portion of an individual’s earnings or compensation, as
well as investment income earned thereon, free from federal income tax
until such time as funds are distributed from the plan, and include
corporate “pension” and profit-sharing plans, “simplified employee pension
plans”, “Keogh” plans for self-employed individuals and individual
retirement accounts (“IRAs”).
|
______
|
8.
|
If
I am subscribing as a trustee or custodian of an employee benefit plan, or
of an IRA, at the direction of the beneficiary of that plan or IRA, all
representations in the Subscription Documents apply only to the
beneficiary of that plan or IRA.
|
C-6
|
UGMA/UTMA
Accounts
|
______
|
9.
|
If
I am subscribing as a custodian for a minor, either (a) the subscription
is a gift I have made to that minor and is not made with that minor’s
funds, in which case the representations as to net worth and annual income
below apply only to myself, acting as custodian, or (b) if the
subscription is not a gift, the representations as to net worth and annual
income below apply only to that
minor.
|
|
All
Trusts or Corporations
|
______
|
10.
|
If
I am subscribing in a representative capacity, I have full power and
authority to purchase Units and enter into and be bound by these
Subscription Documents on behalf of the entity for which I am purchasing
the Units, and that entity has full right and power to purchase Units and
enter into and be bound by the Subscription Agreement, and become a Unit
holder under the Subscription
Agreement.
|
By making
the representations and warranties set forth above, investors should be aware
that they have not waived any rights of action which they may have under
applicable federal or state securities laws. Federal and state securities laws
provide that any such waiver would be unenforceable. Investors should be aware,
however, that the representations and warranties set forth above may be asserted
in the defense of the Fund, Pebble Asset Management, or others in any subsequent
litigation or other proceedings.
By
signing below, the investor(s) are confirming that they comply with minimum net
worth standards set forth in Exhibit B – “Pebble U. S. Market Fund, L.L.C.
Subscription Representations” of the prospectus. All information contained in
the Subscription Documents is true, complete, and correct. The investor will
report any material changes in the information contained in the Subscription
Documents to Pebble Asset Management, L.L.C. immediately.
Date
|
Signature
|
Printed
Name
|
||
Date
|
Joint
Signature (if any)
|
Printed
Name
|
C-7
Exhibit
D
Pebble
U. S. Market Fund, L.L.C.
Request
for Transfer Form
Please
send original to:
Pebble U.
S. Market Fund, L.L.C.
c/o
Pebble Asset Management, L.L.C.
3500 N
Causeway Blvd., Suite 160
Metairie,
LA 70002
Dear
Sir/Madam:
The
undersigned hereby requests a transfer of ____________ units (“Units”) in the
Pebble U. S. Market Fund, L.L.C. Series A (“Fund”). The undersigned hereby
represents and warrants that the undersigned is the true, lawful, and beneficial
owner of the Units to which this request for transfer relates with full power
and authority to request transfer of such Units. Such Units are not subject to
any pledge or otherwise encumbered in any fashion. The undersigned represents
that the signature(s) appearing below is/are true and correct.
Transfer
Details:
Current
Unit Holder
Investor
ID#: ___________________________
Account
Title: ________________________________________________________________
Address: ________________________________________________________________
Street City State Zip
Code
SS# or Tax
ID#: ___________________________
Account
Type: ___________________________
Transfer
to the Account of:
Investor
ID# ___________________________
(if applicable)
Account
Title: ________________________________________________________________
Address: ________________________________________________________________
Street City State Zip
Code
SS# or Tax
ID#: ___________________________
Account
Type: ___________________________
Signatures (Must be identical to
name(s) in which Units are registered)
Date
|
Authorized
Signature of Unit Holder
|
Printed
Name
|
||
Date
|
Joint
Signature (if any)
|
Printed
Name
|
The undersigned, as Transferee, represents that all information provided to the Fund in the form of executed Subscription Documents is true and correct as of the date of submission of the request for transfer. The undersigned further consents to the transfer of Units in the Fund as described above and agree to accept such transferred Units for its account and risk.
Date
|
Authorized
Signature of Unit Holder
|
Printed
Name
|
||
Date
|
Joint
Signature (if any)
|
Printed
Name
|
Transfer
requests must be accompanied by executed Subscription Documents in order to be
considered for acceptance.
D-1
Exhibit
E
Pebble
U. S. Market Fund, L.L.C.
Request
for Redemption
Please
send original to:
Pebble U.
S. Market Fund, L.L.C.
c/o
Pebble Asset Management, L.L.C.
3500 N
Causeway Blvd., Suite 160
Metairie,
LA 70002
The
undersigned hereby requests redemption, as defined in and subject to all the
terms and conditions of the Subscription Documents of Pebble U. S. Market Fund,
L.L.C. Units will be redeemed at the month-end net asset value, as described in
the Subscription Documents, as of the close of business at the end of the
current month. Redemption shall be effective as of the month-end immediately
following receipt by Pebble Asset Management, L.L.C. of the redemption request,
provided that this request for redemption is received ten (10) business days
prior to the end of such month.
Amount of
Redemption: $________________________ or o Full
Redemption
(Minimum
redemption amount of $the then current Net Asset Value of a Unit is required if
less than all Units, subject to remaining investment of $5,000. Check the box if
it is a full redemption)
Delivery
Method: o Check or o Bank
Wire Transfer (Bank wire transfer fees apply)
Investor
ID#: ___________________________
Account
Title: ____________________________________________________________________________________________
Address: ________________________________________________________________________________________________
Street City State Zip
Code
SS# or
Tax ID#: ___________________________
Account
Type: ___________________________
Name of
Custodian (if
applicable): _____________________________________________________________________________
Custodian
Address: _______________________________________________________________________________________
Street City State Zip
Code
Bank
Name: ______________________________________________________________________________________________
Bank
Address: ___________________________________________________________________________________________
Street City State Zip
Code
ABA
Number: ___________________________
Account
Name: ___________________________________________________________________________________________
Account
Number: ____________________________________
Additional
Information: _____________________________________________________________________________________
The
undersigned hereby represents and warrants that the undersigned is the true,
lawful, and beneficial owner of the Units to which this request for redemption
relates with full power and authority to request redemption of such Units. Such
Units are not subject to any pledge or otherwise encumbered in any fashion. The
undersigned represents that the signature(s) appearing below is/are true and
correct. Signatures must be identical to name(s) in which Units are
registered.
United
States Investors Only
Under
penalties of perjury, I certify that: (1) The number shown on this form is my
true, correct and complete social security number or taxpayer identification
number; (2) I am not subject to backup withholding under the provisions of
Sections 3406(a)(1)(c) of the Internal Revenue Code; and (3) I am a U. S.
person.
Non-United
States Investors Only
Under
penalties of perjury, by signature below I hereby certify that (1) I am not a
citizen or resident of the United States or (2) (in the case of an investor
which is not an individual) the investor is not a United States corporation,
partnership, estate, or trust.
Date
|
Authorized
Signature of Unit Holder
|
Printed
Name
|
||
Date
|
Joint
Signature (if any)
|
Printed
Name
|
E-1
Exhibit
F
Pebble
U. S. Market Fund, L.L.C.
Delivery
Instructions
Bank
Wire Transfer
Wire
subscription amount to:
Capital One Bank, NA
ABA# xxxxxxxxx
Account
Name: Pebble
U. S. Market Fund, L.L.C. Subscription Account
Account
Number: xxxxxxxxxx
FBO:
Unit holder’s name
Capital
One Bank, NA is the banking institution for Pebble U. S. Market Fund, L.L.C.
Capital One will hold your investment until the cut-off date, the date of your
effective investment. Please note the Capital One Subscription Account is
non-interest bearing. Please make sure the amount of money received by the Fund
is net and equals the amount shown on the Subscription Documents.
Check
If you
choose to submit the subscription amount by check, please mail the check
to:
Pebble U. S. Market Fund,
L.L.C.
c/o Pebble Asset Management,
L.L.C.
3500 N Causeway Blvd., Suite
160
Metairie,
LA 70002
Make sure
the check is made payable to “Pebble U. S. Market Fund, L.L.C.
Subscription Account”.
Please
mail subscription checks so they will be received more than 5 business days
prior to the end of the month. Pebble Asset Management, L.L.C. reserves the
right to reject subscription checks received later than 5 business days prior to
the end of the month.
Dealer
Prospectus Delivery Obligation
F-1
This is a
continuous offering. All dealers or advisors that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers’ obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions. The current prospectus can be printed or downloaded
from the Fund website at www.pebbleus.com.