Answer: The whole point of the private offering is to avoid burdensome registration and prospectus delivery requirements of the Federal Securities Laws. A "private offering" is exempted from such compliance. Regulation D provides the "safe harbor" provisions which, if complied with, will have the effect of exempting the private offering from compliance with the registration and prospectus delivery requirements of the Federal Securities Laws. It does not exempt the offering and persons associated therewith from compliance with the fraud provisions of the Federal Securities Laws or compliance with the various State Securities Laws. However, pursuant to recent federal legislation, states are prohibited from imposing their blue sky regulation on securities offered pursuant to Rule 506 of Regulation D except for the filing of the Form D or a substantially similar form and the payment of filing fees.

Answer: Rule 502(C) of Regulation D prohibits any form of a general solicitation or general advertising. Generally the interests in your hedge fund may sold by Registered Broker Dealers or officers of the management (general partner) to those persons with whom there has been a prior relationship.

Answer: No.

Answer: Rule 501 of Regulation D provides the definition "accredited investor" and provides that any person who comes within the following enumerated categories, or who the issuer reasonably believes to come within those categories, at the time of the sale of securities is an "accredited investor." Those categories include, banks or savings and loans association whether acting individually or as a fiduciary; any broker or dealer ; any insurance company, investment company registered under the Investment Company Act; employee benefits plan if the investment decision is made by a plan fiduciary as defined by such Act, which is either a bank, savings and loan association, insurance company, or registered advisor, or if the employee benefit plan has total assets in excess of $5 million or is a self-directed plan, with investment decisions made solely by persons who are accredited investors; any private business development company as defined by the Investment Advisors Act of 1940; any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose not formed for the specific purpose of acquiring securities offered, with total assets in excess of $5 million; any director, executive officer, or general partner of the issuer of the securities being offered or sold or any director, executive officer, or general partner of a general partner of that issue; any natural person whose individual net worth or joint net worth with that person’s spouse at the time of his purchase exceeds $1 million; any natural person who had an individual income in excess of $200,000 for each of the two most recent years or joint income with that person’s spouse in excess of $300,000 for each of those years and has a reasonable expectation of reaching the same income level in the current year; any trust with total assets in excess of $5 million not formed for the specific purpose of acquiring securities offered, whose purchase is directed by a sophisticated person as described in Section 230.506(b)(2)(ii); and, any entity in which all of the equity owners are accredited investors. Under Regulation D, a hedge fund can accept up to 35 non-accredited investors. However, Rule 502(B) requires that hedge funds offered to non-accredited investors have certain adequate financial statements.

Answer: No. Rule 502(C) of Regulation D prohibits any form of a general solicitation or general advertising. However, where the web page is a "secure" page, and access is limited to "accredited investors" and contains other safeguards, it may be possible to craft such a page in such a way so as to comply with the prohibitions against general solicitation or advertising.

Answer: The so called 3(c)(1) Hedge Fund refers to a provision of the Investment Company Act that exempts hedge funds from certain registration and clients’ requirements of the Investment Company Act of 1940 as long as there are less than 100 investors.

Answer: Yes. This is called a fund of funds. However, a fund created specifically for the purpose of investing in another fund and for the purpose of avoiding the limitation requirements on the number of investors, could violate the various provisions of the Federal Securities Law as it relates to numbers of investors and the qualification or status of investors.

Answer: Not under Rule 501(a)(1). Rule 501(a)(1) accredits as ERISA plan that has a fiduciary which is a bank, insurance company or registered investment advisor, or that has total assets in excess of $5 million. The plan, however, may be an accredited investor under a different provision of Rule 501(a).

Answer: If a bank is a trustee and makes the investment on behalf of the trust, the trust will be accredited by virtue of Rule 501(a)(1) that accredits a bank acting in a fiduciary capacity. It may also qualify as an accredited investor under Rule 501(a) because the SEC interprets "person" to include any trust.

Answer: A Purchaser’s Representative is a person who satisfies all of the following conditions or who the issuer reasonably believes satisfies all of the following conditions: is not an affiliate, director, officer or other employee of issuer, or the beneficial owner of 10% or more of any class of equities securities or 10% or more of the equity interest in the issuer except where the purchaser is (i) a relative of Purchaser’s Representative by blood, marriage or adoption and not more remote than a 1^st cousin; (ii) a trust or a state in which the Purchaser’s Representative and any persons related to him have specified in Paragraph h(i) or h(iii) of this section collectively have more than 50% of the beneficial interest (excluding continued interest) or of which the Purchaser’s Representative serves as trustee, executive or in a similar capacity; or, (iii) a corporation or other organization which the Purchaser’s Representative and any persons related to him as specified in Paragraph h(i) or (h)1(ii) of this section collectively are the beneficial owners of more than 50% of the equity securities (excluding directors’ qualifying shares) or equity interest; has such knowledge and experience in financial and business matters that he is capable of evaluating, alone, or together with other Purchaser Representatives of the purchaser, or together with the purchaser, the merits and risks of the prospective investment; is acknowledged by the purchaser in writing, during the course of the transaction, to be his Purchaser Representative in connection with evaluating the merits and risks of the prospective investment; and, discloses to the purchaser in writing a reasonable time prior to the sale of securities to that purchaser any material relationship to himself or his affiliates in the issuer or its affiliates that then exists, that is mutually understood to be contemplated, or that has existed at any time during the previous 2 years, and any compensation received or to be received as a result of such relationship.

Answer: No. However, the whole point of the Private Offering Memorandum is to limit the potential risk of the hedge fund by providing full disclosure to the investor.

Answer: Yes. The manager may use an affiliated broker/dealer to execute trades but is obligated to seek the best execution for the fund and disclose the possibility of the execution of trades by the affiliate. However, the broker dealer may have its own restrictions.

Answer: UBTI, Unrelated Business Taxable Income, is a concern to tax exempt investors in a hedge fund because the receipt of UBTI requires the tax exempt entity to file a tax return that it would not otherwise have to file and pay taxes on income that would otherwise be exempt, at the corporate rate. UBTI includes most business operations income and does not include interest, dividends and gains from the sale or exchange of capital assets. Hedge Funds trade their own securities and therefor the tax exempt investor’s share of such income of the hedge fund is not UBTI and not subject to federal income tax. However, hedge funds may subject tax exempt entities to UBTI under certain circumstances where the hedge fund is borrowing or purchasing securities on margin. Such transactions may subject the tax exempt to UBTI tax.

Answer: An Offshore Fund is located outside the United States. Typically, the offshore fund is created for investments by non-U.S. investors and certain U.S. tax exempt investors. Although the fund’s securities transactions occur on U.S. Securities Exchanges, executed by the U.S. Fund Manager, its administration and audits are conducted offshore. Other than the execution of trades on U.S. Exchanges by U.S. Fund Managers, all other activities are conducted in the offshore jurisdiction. Should the offshore fund conduct activities in the U.S., it would likely incur adverse tax consequences as well as being subject to the United States Federal Securities Laws. The Offshore fund exist to provide an investment vehicle to the foreign investor and the U.S. tax exempt investor. When appropriately structured, the U.S. tax exempt investor in the Offshore fund will not be subject to UBTI.

Answer: Yes. It must comply with state filing requirements.

Answer: You will need to have your Private Offering Memorandum, Limited Partnership Agreement, and Subscription Documents. You will also have to prepare and file your Form D with the U.S. Securities and Exchange Commission as well as comply with filing requirements of the states where each of your investors are located. Then you need to be sure that your securities are sold with out violating the prohibition on general advertising.

Answer:    Being a stock broker at a firm does not prevent the broker from starting a hedge fund. However, NASD Conduct Rule 3040 prohibits associated persons from participating in any manner in a         securities transaction outside their regular course of employment with a member firm, without providing prior written notice to and receiving prior written approval from the member firm.  If the associated     person is to receive selling compensation, he must provide his firm written notice describing in detail the proposed transaction.  If the firm approves the participation, the firm must record the transaction on     its books and records and supervise "as if the transaction were executed on behalf of the member." The SEC has stated, "selling away is a serious violation, and Rule 3040 is designed not only to protect     investors from unmonitored sales, but also to protect securities firms from exposure to loss and litigation in connection with sales made by persons associated with them."  Jim Newcomb, Exchange Act  Rel. No. 44945, 2001 SEC LEXIS 2172 (Oct. 18, 2001).  

Answer:    Some hedge fund mangers will be required to register with the SEC as Investment Advisers. On October 26, 2004, the Securities and Exchange Commission, in a split decision, passed rules that will require managers of hedge funds with assets of $25 million or more and having 15 or more investors to register as Investment Advisers with the SEC.

Answer:    Since each state has its own registration requirements which are also interpreted in conjunction with the National Securities Market Improvement Act of 1996 and other Federal Statutes and Rules. In some instances, where the Investment Adviser services a particular kind of defined client; has had fewer than a certain number of clients within a 12 month consecutive period; and does not hold itself out to the public as an "Investment Adviser;" such an Investment Adviser may be exempt from that states registration requirement. In each instance, it is important that the law of the state in question must be reviewed for compliance. The impact on state registration of the recent changes at the Federal level in registration requirements for Hedge Fund mangers is yet unknown.

Answer:    Here too, each state has its own registration requirements, generally the registration requirements are dependent upon the number of advisory clients located in the particular state and whether the Investment Adviser is located in the state in question. Since the Investment Adviser or investment manager of the hedge fund has as its client, the hedge fund itself, generally, it does not seem appropriate for it to register in the various states where the fund’s investors are located. Again, it is important that the law of the state in question be reviewed for compliance.

Answer: Section 4.7 of Commodity Future Trading Commission Rules provides for certain exemptions from certain requirements with respect to commodity pool operators making offerings to qualified eligible persons or commodity trading advisors with respect to advising qualified eligible persons. Under Section 4.7, the pool operator is exempted from certain disclosure compliance requirements. Specifically, Section 4.21 with respect to required delivery of a pool disclosure document, Section 4.24 with respect to the contents of the disclosure document in general, Section 4.25 with respect to requirements relating to the disclosure of past performance and Section 4.26 with regard to use amendment and filing of a disclosure document. The Section 4.7 exemption is not an exemption from registration as a commodity pool operator or commodity trading advisor.

Section 4.13 provides for exemption from registration as a commodity pool operator. Before its amendment in August of 2003, a person was not required to register as a commodity pool operator if the person did not receive any compensation or payment directly or indirectly; operated only one commodity pool at a time; was not otherwise required to register with the commission; and either the person or other person involved with the pools does any advertising in connection with the pool or to the total gross capital contributions for participation units in all pools that are operated, or intends to operate, do not in the aggregate exceed $200,000 and none of the pools operated have more than 15 participants. This is referred to as the "small pool exemption."

In August 2003 CFTC Rule 4.13 was amended, increasing the total gross capital contributions for the small pool exemption from $200,000 to $400,000 and broadened the class of persons that need not be counted towards the exemptions limited on investors per pool.

Answer:    As a Fund of Funds you must be aware of each particular states Investment Advisor rules. Many states have exemptions from registration. Also if you intend to invest in futures or commodity funds, you should register with the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC) as a Commodity Pool Operator (CPO). This CPO's associated person must successfully complete the NASD Series 3 examination.

Answer: Generally, No. Generally a finder does not have to be registered as a broker-dealer if its finder’s activities are limited. A "broker" under the Securities Exchange Act of 1934 is "any person engaged in the business of effecting transactions in securities for the account of others." The SEC staff has found activities such as (a) participating in presentations or negotiations, (b) making any recommendations concerning securities, (c) receiving transaction-based compensation, (d) structuring a transaction or making recommendations regarding the nature of the securities, whether to issue securities or to assess the value of securities sold, and (e) continuing involvement in sales of securities to trigger broker-dealer registration obligations.  However, a number of states, Texas and California for example,  take the position that only a registered representative (broker) may receive kind of compensation.