The Date of this Document is 28 November, 2006
ARCADIA FUND
Cayside, 2nd floor, Harbour Drive
George Town
P.O. Box 30592 SMB
Grand Cayman
Cayman Islands, B.W.I.
YOU
SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO
PARTICIPATE IN A COMMODITY FUND. 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 FUND AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE FUND. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
FUND.
FURTHER,
COMMODITY FUNDS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND
ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE FUNDS 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 TO THIS FUND. A CERTAIN PERCENTAGE OF
RETURN MAY BE NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR
INITIAL INVESTMENT.
THIS
BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO
EVALUATE YOUR PARTICIPATION IN THIS COMMODITY FUND. THEREFORE, BEFORE YOU
DECIDE TO PARTICIPATE IN THIS COMMODITY FUND, YOU SHOULD CAREFULLY STUDY THIS
DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF
THIS INVESTMENT.
YOU
SHOULD ALSO BE AWARE THAT THIS COMMODITY FUND MAY TRADE FOREIGN FUTURES OR
OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES,
INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO
REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE FUND AND ITS
PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO
COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN
NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE FUND MAY BE
EFFECTED.
TABLE OF CONTENTS
Arcadia
Fund (the "Fund") is a private investment fund incorporated on 8
March, 1999 in the Cayman Islands.
Registered
Office:
Cayside,
2nd Floor,
Harbour Drive, George Town,
Grand Cayman,
Cayman Islands,
British West Indies.
http://www.arcadiafund.com
Mailing
Address:
P.O.
Box 30592 SMB,
Grand Cayman,
Cayman Islands,
British West Indies.
Fund
Administrator:
From
Inception (1 April 1999) Until September 2005:
ATC
Trustees (Cayman) Limited
Cayside, 2nd floor,
Harbour Drive
George Town
P.O. Box 30592 SMB
Grand Cayman
Cayman Islands, B.W.I.
From
November 2005 to present:
ATC
Fund Services (Curaçao) N.V.
Bon Bini Business Centre,
Schottegatweg Oost 10,
Units 2B2K/2B2L,
Curaçao,
Netherlands Antilles
http://www.atcgroup.info/english/fund-services
The
Investment Manager:
Arcadia
Technologies, Inc.
PO
Box 556, Main Street,
Charlestown,
St. Kitts and Nevis
Futures
Commission Merchants:
Peregrine
Financial Group, Inc,
190 S. LaSalle Street, 7th Floor,
Chicago, Illinois 60603
http://www.peregrinefinancial.com
Man
Financial Inc
717 Fifth Avenue
9th Floor
New York, NY 10022-8101
http://www.manfinancial.com
Interactive
Brokers LLC
209 South LaSalle Street
10th Floor
Chicago, IL 60604
http://www.interactivebrokers.com
The
Fund’s Investment Manager has developed a trading management program pursuant
to which the Fund may trade commodities, commodity futures contracts, commodity
options, forward contracts and other financial instruments on United States and
non-United States exchanges and markets. While the Fund tends to concentrate
its futures trading activities on interest rate sensitive instruments, stock
indices, currencies, metals, industrial commodities and the agricultural complex,
the Fund places no limitations on the exchanges or markets on which it trades.
The
Investment Manager’s trading is based on a set of rules derived from an
extensive, rigorous and quantitative study of a large database of historical
futures and other investment prices and other economic and fundamental data. As
a result of the proprietary trading methods employed, the Investment Manager
believes that its trading will tend to be uncorrelated with various commonly
used trader indices. To create trading rules, the Investment Manager relies
primarily on mathematical and statistical analysis. Before a trading rule is
implemented, it must first meet certain criteria for risk and potential reward
when tested against historical data. Rules are intended to predict short-term
and intermediate price moves.
The
Investment Manager employs similar quantitative methods to create risk control
systems. The risk control system is based on market conditions, volatility and
the correlation of various portfolio elements. In addition, the Investment
Manager intends to diversify the portfolio among a number of different trading
systems and markets. Stop-loss orders may be used against both losing and
winning positions based on technical price levels and money management principles
in order to limit risk or to protect profits on open positions.
The
Investment Manager believes that the use of diverse strategies may enhance
return and reduce risk. Therefore, the Investment Manager allocates its trading
to a portfolio of multiple "computer models", each of which is a
separate computer trading system made up of different types of rules. Each
"computer model" may trade using a different strategy, time horizon,
type of investment, and risk/reward ratio. Performance of each "computer
model" in the multi-model system is tracked in real time. By allocating
assets to these computer models, the Investment Manager attempts to enhance its
risk management and profitability.
The
Investment Manager is a relatively active trader. Consequently, the trading
activities of the Fund may be quite active and the turnover rate of the
portfolios may be substantial. Active trading by the Fund may result in
transaction costs higher than in other funds.
The
Investment Manager reserves the right to change trading methods and strategies
(including technical and fundamental trading factors or analyses, futures
traded, and/or money management principles utilized) at any time without prior
notice to or approval by its investors. There can be no assurance that the
Investment Manager’s approach to trading the futures markets will yield the
same results as it has in the past.
PRINCIPAL RISK FACTORS
Among
the risks of participating in a commodity fund are the following:
General. The
transactions in which the Fund generally will engage involve significant risks.
Because of the nature of the trading activities, the results of the Fund’s
trading activities may fluctuate from month to month and from period to period.
Accordingly, investors should understand that the results of a particular
period will not necessarily be indicative of results in future periods. No
assurance can be given that an investor will realize a profit on his investment
or that it will not lose some or all of its net asset value.
Futures
Trading Is Speculative. Futures prices are highly volatile. Price
movements for futures are influenced by, among other things, government trade,
fiscal, monetary and exchange control programs and policies; weather and
climate conditions; changing supply and demand relationships; national and
international political and economic events; changes in interest rates; and the
psychological emotions of the market place. In addition, governments from time
to time intervene, directly and by regulation, in certain markets, often with
the intent to influence prices directly. The effects of governmental
intervention may be particularly significant at certain times in the financial
instrument and currency markets, and such intervention (as well as other
factors) may cause these markets to move rapidly.
Futures
Trading Can Be Highly Leveraged. The low margin deposits normally required in
futures trading permit an extremely high degree of leverage. Accordingly, a
relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor. Thus, like other leveraged
investments, any futures trade may result in losses in excess of the amount
invested. Any increase in the amount of leverage applied by the Fund in trading
will increase the risk of loss to the investor by the amount of additional
leverage applied.
Futures
Trading May Be Illiquid. Most United States exchanges limit fluctuations in
most futures contract 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. Once the price of a particular futures contract has increased or
decreased to the limit point, positions in the futures contract neither can be
taken nor liquidated unless traders are willing to effect trades at or within
the limit, which would be unlikely if underlying market prices moved beyond the
limit. Futures prices have occasionally moved the daily limit for several
consecutive days with little or no trading. In addition, even if futures prices
have not moved the daily limit, the Fund may not be able to execute trades at
favorable prices if little trading in the contracts it wishes to trade is
taking place. It is also possible that an exchange or the Commodity Futures
Trading Commission ("CFTC") may suspend trading, order the immediate
settlement of a particular contract or order that trading in a particular
contract be conducted for liquidation purposes only.
Non-U.S.
Exchanges and Markets. The Fund may engage in trading on non-U.S.
exchanges and markets. Trading on such exchanges and markets involves certain
risks not applicable to trading on United States exchanges and is frequently
less regulated. For example, certain of such exchanges may not provide the same
assurances of the integrity (financial and otherwise) of the marketplace and
its participants as do United States exchanges. Some non-U.S. exchanges, in
contrast to domestic exchanges, are "principals’ markets" in which
performance is the responsibility only of the individual member with whom the
trader has dealt and is not the responsibility of an exchange or clearing
association. Furthermore, trading on certain non-U.S. exchanges may be
conducted in such a manner that all participants are not afforded an equal
opportunity to execute certain trades and may also be subject to a variety of
political influences and the possibility of direct government intervention.
Certain markets and exchanges in non-U.S. countries have different clearance
and settlement procedures than United States markets for trades and
transactions and in certain markets, there have been times when settlement
procedures have been unable to keep pace with the volume of transactions,
thereby making it difficult to conduct such transactions. Any difficulty with
clearance or settlement procedures may expose the investors to losses. Futures
traded on non-U.S. markets would also be subject to the risk of fluctuations in
the exchange rate between the local currency and the United States dollar and
to the possibility of exchange controls.
Options
on Futures Contracts and Physicals. Options on futures contracts and physicals have
been approved for trading on United States and certain foreign exchanges by the
CFTC. Each such option is a right, purchased for a certain price, to either buy
or sell a futures contract or physical commodity during a certain period of
time for a pre-established price. Although successful options trading probably
requires many of the same skills required for successful futures or forward
trading, the risks involved may be somewhat different. Options trading on
United States exchanges is subject to regulation by both the CFTC and such
exchanges.
Other
Clients of the Investment Manager. The Fund’s Investment Manager may manage other
trading accounts, and it will remain free to manage additional accounts,
including its own account, in the future. The Investment Manager may vary the
trading strategies applicable to the Fund from those used for its other managed
accounts. No assurance is given that the results of the trading by the Manager
will be similar to that of other accounts concurrently managed by the Manager.
It is possible that such accounts and any additional accounts managed by the
Manager in the future may compete with the client for the same or similar
positions in the futures markets.
Changes
in Strategy. The Investment Manager has the power to expand, revise or alter its
trading strategies without prior approval by, or notice to, the investors. Any
such change could result in exposure of the investor assets to additional risks
which may be substantial.
Concentration
of Positions. The Fund generally will follow a policy of seeking
to diversify its assets among a number of futures positions. The Fund, however,
may depart from such policy from time to time and may hold a few, relatively
large positions in relation to an account’s capital. Consequently, a loss in
any such position could result in a proportionately higher reduction in the net
asset value than if such capital had been spread among a wider number of
positions.
Decisions
Based on Technical Analysis. The Investment Manager primarily employs trading
strategies which utilize mathematical analyses of technical factors relating to
past market performance. The buy and sell signals generated by a technical
trading strategy are based upon a study of actual intraday, daily, weekly, and
monthly price fluctuations, volume and open interest variations, and other
market data and indicators. The profitability of any trading strategy based on
this type of historical analysis is determined by the relationship of future
price movements to historical prices and indicator values, and the ability of
the strategy to adapt to future market conditions. The Investment Manager
attempts to develop strategies which will be successful under many possible
future scenarios. However, there can be no guarantee that the strategies of
the Investment Manager will be effective or applicable to future market
conditions.
Institutional
Risks. Institutions, such as brokerage firms and banks, will have custody of
the investors’ assets. These firms may encounter financial difficulties that
impair the operating capabilities or the capital position of the Fund.
Counterparty
Risk. The investor will be subject to the risk of the inability of
counterparties to perform with respect to transactions, whether due to
insolvency, bankruptcy or other causes, which could subject the client to
substantial losses. In an effort to mitigate such risks, the Fund will attempt
to limit its transactions to counterparties which are established,
well-capitalized and creditworthy.
The
foregoing does not purport to be a complete explanation of the risks involved
in trading futures or participating in a commodity fund. Potential investors
should carefully study the entire Document and commodity trading in general
before determining to invest with the Fund.
Use
of Funds. Fund assets will be used to meet margin requirements for the purposes of
trading commodity and futures. At any time, approximately 90% of Fund assets
will be employed by the Fund through the Futures Commission Merchant
("FCM"). To hold commodity interests on margin, approximately 70 to
80% of these proceeds will be invested in U.S. Treasury Bills for the benefit
of the investors. The other 20 to 30% of these proceeds will remain in cash
held by the FCM. Cash held by the FCM may not earn interest, therefore
investors may receive no income from funds held in cash. The remaining 10% of
funds will be maintained in a segregated interest bearing checking bank
account (FirstCaribbean International Bank in Grand Cayman). These funds will
be used to pay operating and administrative expenses and fees. Custody of the
Fund’s commodity interests will be held by the Futures Commission Merchant
through which commodity interests will be traded. Jurisdiction over the Futures
Commission Merchant is through the United States Commodity Futures Trading
Commission and the National Futures Association, a self-regulatory
organization. Peregrine Financial Group, Man Financial, Inc, and Interactive
Brokers LLC are be the FCMs for this Fund.
Issue
of Shares. Shares in the Fund will be offered for US$1,000.00 each until the
expiry of the Initial Offering Period. After the expiry of the Initial Offering
Period, Shares will be offered at the Offer Price. Shares issued after the
expiry of the Initial Offering Period must be issued on a quarterly Purchase
Date. The Fund may issue fractional Shares where subscription moneys will not
produce an exact number of shares. The Fund may register joint holders of
Shares. In this case any one of such joint holders may give effectual receipts
for moneys payable in respect of the Shares held by them as joint holders. The
Company shall not be bound to register more than two persons as the joint
holders of any Share.
Transfer
of Shares. Shares in the Company shall be transferable by a transfer in any usual
or common form in use in the Islands, but so that each form of transfer shall
state the full name and address of the transferor and of the transferee.
Net
Asset Value of Shares. The initial Net Asset Value of Shares to be made
at the end of the Initial Offering Period is equal to the Subscription Price of
the Shares. Subsequently at the end of each Fiscal period, the Net Asset Value
will be increased by the amount of profits accrued, and by the amount of the
offer price of Shares purchased during the relevant Fiscal Period; and
decreased by the amount of any redemptions of Shares or any dividends declared
to the holder of such Shares, and by the amount of any losses incurred during
the relevant fiscal period.
The
Net Asset Value of a Share shall be calculated by aggregating the value of the
Securities owned or contracted for by the Company converted into U.S. dollars
in each case; and deducting therefrom the liabilities of the Company (which
shall where appropriate be deemed to accrue from day to day). Accrued
investment management fees, if any, and other fees will be treated as liabilities.
Redemption
of Shares. The Fund shall on receipt by it or its duly authorised agent of 30-days
written notice from a Shareholder for the redemption of all or any such Shares
held by him redeem such shares for the Redemption Price. Redemption requests
may be made to the Company by mail, telegram, or facsimile transmission,
accompanied by delivery to the Company of the original Share certificate or
certificates (if any) evidencing the Share or Shares to be redeemed. The
Redemption Price with respect to each Share to be redeemed shall be calculated
as at the close of business on the next quarterly Redemption Date, and shall be
the Net Asset Value per Share on the Redemption Date in question.
Any
amount payable to the Shareholders in connection with the redemption or
purchase of Shares pursuant to shall be paid as soon as possible, the
Shareholders in question receiving the total of Redemption Price no later than
30 days after the Redemption Date.
Shareholder
Liability. The liability of each shareholder is limited to the amount of their
subscribed investment.
Potential
conflicts of interest include as follows: The Investment Manager may trade for
its own account. This may increase the level of competition experienced by the
Fund’s account with respect to order entry and the allocation of executed
trades. The Investment Manager may also manage other client accounts and on
different terms of compensation. In its proprietary trading, the Investment
Manager will generally follow the same basic trading methods and strategies as
the Fund. It may however elect not to trade its proprietary account in parallel
with the Fund’s account. The Investment Manager may trade a larger number of
futures, employ a higher amount of leverage, test new markets, instruments and
trading methods, utilize a different futures commission merchant
("FCM") and trade a different mix of futures. Accordingly, the
Investment Manager may take positions in proprietary accounts that are ahead
of, the same as or opposite to those taken by the Investment Manager on behalf
of the Fund, and the Investment Manager’s proprietary accounts may produce
trading results that are different from those experienced by the Fund. The
Investment Manager is not affiliated with any FCM or introducing broker and
will not receive any direct compensation based upon the selection of any
broker, or on the amount of commissions generated through its trading
activities.
The
following are a breakdown of fees, commissions, and other expenses which are
expected to be incurred by the Fund.
Incentive
Fee. The "Incentive Fee" for any fiscal quarter shall be an amount
equal to 20% of the net profits of the Company (including net unrealised
gains), if any, during such fiscal quarter. If there is a net loss for the
Company in a fiscal quarter, followed by a net profit in a subsequent quarter
or quarters, no Incentive Fee shall be payable to the Investment Manager after
such net loss has occurred until the amount of such net loss had been recouped
in full with respect to each and every share of Common Stock which experienced
such net loss and which remains outstanding at the time any such net profit
thereafter occurs. Such net loss shall be deemed to have been recouped in full
with respect to a share of Common Stock which experienced such net loss and
which remains outstanding at the time any such net profit thereafter occurs
only if (i) the net asset value per share of such Common Stock (calculated in
the manner prescribed in the Articles of Association of the Company) which is
outstanding at the time of such net profit, plus (ii) any dividends which may
have been declared in respect of such Common Stock following the beginning of
the fiscal quarter in which such net loss shall have occurred, shall equal or
exceed the net asset value per share of such shares of Common Stock at the
beginning of the fiscal quarter in which such net loss shall have occurred. The
Incentive Fee shall be payable to the Investment Manager by the Company within
30 days after the end of the fiscal quarter.
Fixed
Fee. The "Fixed Fee" for any fiscal quarter shall be an amount
payable in arrears equal to 1/4 of 1% of the average net assets of the Fund
during such quarter. The Fund shall pay the Fixed Fee in U.S. dollars promptly
after the last day of such quarter. In the event that the Investment Manager is
not acting as Investment Manager for an entire fiscal quarter, the Fixed Fee
payable by the Fund for such fiscal quarter shall be prorated to reflect the
portion of such fiscal quarter in which the Investment Manager is acting as
such under the Agreement.
Administrative
Fees. For the ongoing services of fund administration – including
establishing and maintaining of a bank, brokerage, and other accounts;
collecting subscription payments in connection with the sale of the company’s
shares, disbursing payments in connection with the redemption or repurchase of
the Company’s shares; acting as registrar and transfer agent with respect to
the Company’s shares and processing the issuance, transfer, conversion,
redemption and cancellation of shares and share certificates and maintaining
all appropriate shareholder registers and ledgers; responding to inquiries from
time to time received by the Company from shareholders, prospective investors
or others; preparing and maintaining all customary financial and accounting
books and records in appropriate form and in sufficient detail to support the
financial condition of the Company, and the administration thereof; computing
the Net Asset Value of the Company’s shares as of the close of business on the
last day of each month; publishing and disseminating monthly quotations of the
estimated Net Asset Value of the Company’s shares; maintaining the principal
corporate records; convening meetings of the Board of Directors; disbursing
payments of directors and officers fees, salaries and expenses, legal and
accounting fees and expenses, taxes, government license and filing fees and all
other costs and expenses incurred for the account of the Company – the Fund
will pay the Administrator an annual fee based on the following schedule (all
amounts in US dollars) subject to a minimum fee of $10,000:
|
Net Assets (USD) |
Basis Points |
|
0 to 50,000,000 |
10 |
|
50,000,000 to 100,000,000 |
7 |
|
100,000,000 to 200,000,000 |
5 |
|
> 200,000,000 |
3 |
The fees do not include out-of-pocket expenses. These are courier, fax,
photocopies, telephone and mailing costs, government (license) fees
(approximately $1,000 annually) and any third-party disbursements incurred by
the Company. Any invoices received for the Company’s own account, in as far as
the Company uses its own resources in Cayman, are charged directly to the
Company.
Brokerage
Commission and Exchange Fees. In addition, the Fund will incur brokerage and
exchange fees and commissions which are associated with its day-to-day trading
activities. Brokerage commissions will be paid directly by the Fund’s margin
pool to the brokerage or clearing member. The Fund may use several different
brokerage firms to ensure best possible execution and price. The highest
commission the Fund will pay is $13 total per round-turn contract traded,
however most U.S. based contracts will be transacted at an average commission
rate of less than $10 per round-turn. The Investment Manager will not receive
any portion of commissions paid to the broker.
The
performance tables represent the past performance of the Fund, based upon
actual trading activity.
Performance
Table for Arcadia Fund
(Net
Monthly/Annual Rates of Return, from April 1999 to Oct 31, 2006)
|
|
Rate of Return |
|||||||
|
Month |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
|
January |
|
5.82% |
1.75% |
-1.09% |
1.23% |
-5.69% |
-0.31% |
2.48% |
|
February |
|
2.33% |
-6.89% |
-3.94% |
5.04% |
4.74% |
-5.56% |
-4.19% |
|
March |
|
-1.77% |
-1.04% |
-4.09% |
-0.93% |
0.58% |
2.17% |
5.60% |
|
April |
3.08% |
3.22% |
7.11% |
2.98% |
-0.41% |
2.82% |
5.02% |
5.09% |
|
May |
-1.40% |
4.08% |
4.48% |
-1.63% |
1.30% |
-0.44% |
-2.20% |
2.14% |
|
June |
-1.39% |
2.20% |
-1.22% |
7.00% |
-0.88% |
0.20% |
5.01% |
5.12% |
|
July |
1.18% |
-0.91% |
0.86% |
4.00% |
-1.10% |
-3.56% |
-3.83% |
-1.78% |
|
August |
-0.42% |
0.11% |
-1.54% |
3.11% |
-3.51% |
-0.79% |
2.79% |
-0.21% |
|
September |
-0.88% |
1.86% |
-1.97% |
5.20% |
8.49% |
-1.00% |
-3.06% |
5.64% |
|
October |
0.66% |
-0.36% |
2.92% |
-0.36% |
3.75% |
-0.47% |
-2.92% |
0.46% |
|
November |
1.42% |
-0.76% |
-2.67% |
0.32% |
1.82% |
7.08% |
-2.28% |
|
|
December |
-0.22% |
4.91% |
10.35% |
2.57% |
-0.19% |
3.09% |
-3.49% |
|
|
Year |
1.97% |
22.42% |
11.52% |
14.23% |
15.22% |
6.05% |
-9.00% |
21.70% |
Inception of
Trading: |
1 April, 1999 |
|
Current Net Asset
Value: |
$3,091,493 |
|
Worst Monthly
Percentage Drawdown: |
Feb 2001 (-6.89%) |
|
Worst
Peak-to-Valley Drawdown: |
Feb 2006 (-13.87%) |
|
Return Since
Inception: |
114.79% |
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
I
have received a copy of the Disclosure Document for Arcadia Fund dated 28
November, 2006, have read and understand it.
Signature:
_______________________ Date: __________________
Name:
_______________________