Risk Factors

Hedge fund investments are suitable only for persons having a substantial net worth and no need for liquidity.

Prospective investors should carefully consider the risk factors associated with an investment in the Fund, including, but no limited to, those listed below, all of which are more fully described in the Fund Documents and should consult their own legal and financial advisors.

  • Business Risks The Fund intends to invest most of its available capital in securities, other intangible investment instruments, short sales of securities and publicly traded and over‑the counter options and may also invest in privately offered securities, including securities which have not been registered under the Securities Act, some or all of which may be of classes for which no public market exists or is expected to exist.  The General Partner will select investments in part on the basis of public information, which may or not be accurate.  The Fund may invest in foreign companies and engage in high portfolio turnover, short sales, hedging, option trading, leverage and other strategies from time to time, each of which may entail greater costs or risks than other types of investments, and may invest on margin, which can increase the risk of loss and portfolio volatility.   Changes in economic conditions, including, for example, interest rates, inflation rates, industry conditions, competition, technological developments, political and diplomatic events and trends, tax laws and innumerable other factors, can adversely affect the business and prospects of the  Fund.
  • Limited Diversification.  The Fund’s portfolio diversification risk management parameters are discussed above. As a result of insufficient initial capitalization or subsequent losses or withdrawals, the Fund may not have sufficient fluids to implement its objectives or to diversify its investments to the extent desired or currently contemplated by the General Partner.
  • No Control Over Portfolio Companies.  The Fund is not likely to obtain representation on the board of directors or any control over the management of any company in which the Fund may invest.  
  • Limited Liquidity of Interests; No Distributions.  No market for Interests can be expected to develop and it may be difficult or impossible to transfer any Interests, even in an emergency.  The General Partner does not intend to make significant distributions to the Limited Partners, but intends instead to reinvest substantially all Fund income and gain.
  • Dependence on Management.  The Fund’s success will depend on the acumen and skill of the General Partner.  The General Partner is dependent on the acumen and expertise of Eric Davis and other individuals who may from time to time be employed by the General Partner as a Portfolio Manager.  The General Partner and its affiliates expect to conduct other business apart from the business of the Fund.
  • Profit Sharing.  The General Partner’s 20% Special Profit Allocation may create an incentive for the General Partner to cause the Fund to make investments that are riskier or more speculative than would be the case in the absence of special allocations to the General Partner based on performance of the Fund.
  • Conflicts of Interest.  The General Partner will have significant conflicts of interest with the Fund, including, among other things, investing for its own benefit and the benefit of accounts of third parties (“Other Accounts”) which may be in competition with the activities of the Funds.  In addition, the General Partner is expected to direct most, if not all, of the Fund’s brokerage transactions to Davis Securities LLC, an affiliate of Mr. Davis and the General Partner.  Davis Securities LLC charges commissions at rates that are expected to be competitive with but which may be higher than are available from other brokers.  In addition, Davis Securities LLC will earn a share of the following fees and interest charged by the Fund’s clearing broker:  Financing charges and interest on margin and other debit balances, interest earned on the Fund’s credit balances, and short interest accrued in connection with short sales.
  • State and Federal Securities Laws.  This offering has not been registered under the Securities Act, in reliance on the exemptive provisions of section 4(2) of the Securities Act and Regulation D promulgated thereunder.  The General Partner is not registered or licensed as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), or under the laws of any state.   The General Partner believes that the Fund should not be deemed to be an “investment company” and, accordingly, should not be required to register as such under the Investment Company Act of 1940, as amended.  From time to time the General Partner may come into possession of non-public information concerning specific companies.  Under applicable securities laws, the possession of such non-public information may limit the General Partner’s flexibility to buy or sell portfolio securities issued by such companies.
  • Fund Termination; Mandatory Retirement.  The Fund Agreement provides that the General Partner may compel a Limited Partner to retire and may dissolve the Fund before its stated expiration date.
  • Tax Aspects.  The tax aspects of an investment in the Fund are complicated and each investor should have them reviewed by professional advisers familiar with such investor’s personal tax situation.  Among other considerations, Limited Partners may have taxable income and tax liability arising from their investments in the Fund in years when no cash is distributed to them by the Fund.
  • Return of Investments.  If the Fund should become insolvent, the Limited Partners may be required by law to return with interest any distributions representing a return of capital, repay any distributions wrongfully made to them and forfeit any undistributed profits.
  • Potential Indemnification Obligations.  Under certain circumstances the Fund might be subject to indemnification obligations with respect to the General Partner and related parties.  The Fund does not carry any insurance to cover such obligations.
  • Risk of Litigation.  The Fund and other affiliates of the General Partner may accumulate substantial positions in the securities of a specific company.  Sometimes the Fund may engage in a proxy fight, become involved in litigation or attempt to influence the management of a company.  Under such circumstances, the Fund may be named as either a plaintiff or a defendant in a lawsuit or regulatory action and be subject to the costs involved.
  • Considerations of Foreign Investors.  Although the General Partner believes that the Fund’s investment activities should not be considered a trade or business for Federal and State Income Tax purposes, there can be no assurance that Foreign Partners (defined below) will not be treated as engaging in a trade or business in the United States as a result of their investment in the Fund.
  • Considerations by Benefits Plans, IRAs and other Tax-Exempt Investors.  Fiduciaries of employee benefit plans should consider whether the assets of the Fund might be considered to be “plan assets” or if the purchase of Interests might be inconsistent with their responsibilities.  Also, since the Fund is permitted to borrow money in order to invest in or trade securities, tax-exempt Limited Partners may incur income tax liability to the extent of their share of the Fund’s “unrelated debt-financed income.”  The General Partner does expect the Fund to generate “unrelated debt-financed income.”