This prospectus provides in detail the information
that a prospective investor should know about an Internet Real
Estate Investment Account
(Account)
before investing.
Investors are advised to read this prospectus carefully and to retain
it for future reference.
OVERVIEW OF THE INVESTMENT ACCOUNT
The following is a summary of key information about
the Account and the risks that apply. You will find additional
information about the Account after this summary. You should carefully
read the more detailed information. For a detailed discussion of risks
of investing in the Account, please refer to "Main Risks of Investing
in the Account," on page 6.
What is an Internet Real Estate Investment
Account?
The Account is a service designed to manage
investments in domain names and domain-name based assets as well
as established websites and web based businesses.
What is the objective of the Investment Account?
The Account seeks to provide value growth over the
long-term and earn income from monetizing traffic, sales of advertisements from an Account?s
domain names and websites as well as the eventual sale of domain
names and established websites in order to achieve an attractive total return
consistent with prudent investment risk.
What does the Account Invest in?
The Account invests in domain names and
domain-name based instruments that, in the Account?s Investment
Manger?s opinion, offer the opportunity to meet the Account?s
Investment Objective.
The Account?s manager exercises a flexible
strategy in the selection of investments that is not limited by
investment style or domain name class. The Account may invest in
the following instruments:
Globally registered domain names under existing generic
top-level domain names (gTLDs), county-code domain names (ccTLDs),
and non-ICANN approved extensions
Domain name pre-registrations under extensions that are
currently unavailable
Domain name leases
Money market accounts
Established websites with a record of profitability over
a period of at least 9 months
Website creation for potential sale or revenue share
with the account owner
■ Bumdo Domain Name Investment Account
Prospectus
? Distressed domain name investments, such as domain name
liquidations ordered by a court
An Account?s Investment Manager may decide to sell
investments given a variety of circumstances, such as when an
investment no longer appears to offer the potential for long-term
growth of capital, when an investment opportunity arises that the
Investment Manager believes is more compelling, or to realize
gains or limit losses.
How is Monetization Revenue Generated?
Details of domain name traffic monetization
management are available at
http://investors.bumdo.com,
and are incorporated by reference into this prospectus in its
entirety.
What are the Main Risks of Investing in the Account?
? Market risk is the risk that general global economic
conditions will affect returns of all assets, including domain
names, in ways that are not anticipated.
? You may lose money by investing in an Account.
? An investment in an Account is not a deposit in a bank and
is not insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any other government agency.
? There is no assurance that the Account will meet its
investment objective.
Who is an Account Designed for?
The Account is designed for investors who wish to
take advantage of investment opportunities in domain names and
domain-name based assets while receiving periodic income.
Who owns Purchased Domain Names?
All purchased domain names for an Account are
registered ? registrant name and administrative contact - to the
name on the Account.
How often does an Investor Receive Performance
Reports?
Online reports on traffic monetization income,
exchange transactions, and fees are updated monthly.
How can an Investor open an Account?
To open an account you must submit the online
form. We will review your request and will notify you when the
account is setup.
■ Bumdo Domain Name Investment
Account Prospectus
How can Investors Increase their Investment in an
Account?
Investors can increase their investment at any
time. See "Investor Qualifications" on page 9.
How can an Investor Change the Monthly Auto
Distribution Amount?
To terminate an account, an investor needs to
submit the termination form available at
http://investors.bumdo.com.
There are no termination penalties or fees.
RETURN ANALYSES
(A) Sources of Return
There are two distinct sources of return to a domain
name owner: price appreciation, the difference between the sale and
the acquisition prices, and traffic monetization revenue. Below is a
decomposition of each of these sources.
1. Price Appreciation
A domain name can be acquired from another entity
and/or secured through pre-registrations of new top-level domain (TLD)
extensions ? such as the newly launched ".eu" - introduced over
time. Above normal returns are generated through acquisitions of
undervalued domain names, those that the acquirer predicts to
possess higher than average pay-per-click (PPC) growth rates, and
those whose current PPC rates are deemed under-priced by the
acquirer.
A simple valuation model helps to clarify these
sources:
Assume that the cash flows (CFs) generated by the
asset to be acquired will grow indefinably at a constant rate g.
The value of such an asset can be mathematically captured by the
simple formula, where
k is the required discount rate to adjust
the value of the CFs to reflect their risk.
Thus, using the above formula, an under-valued
domain name would have a price less than Value. The acquisition of
such an asset leads to excess returns over a
■ Bumdo Domain Name Investment Account Prospectus 5
fairly priced domain name. Nevertheless, an
investor can also generate above normal returns from the
acquisition of a fairly priced domain name if the investor
believes that the current market value of PPC, i.e., the CF, is
under-priced and/or forecasts the growth rate to be higher than
the figure used for g that is used in the valuation of the asset?s
fair market price.
Applying the formula for a parked domain name, the
CF is the current PPC rate for the keyword. The PPC rates are
publicly available through Google and Yahoo?s Overture.com. There
are also well developed financial models to estimate k. Using the
above formula, the acquirer needs to predict g.1
Undervalued domain names arise, for example, when
the owner needs immediate liquidity or the domain name is being
liquidated under a court order. Undervalued domain names provide
an additional source of price appreciation in addition to the
asset?s normal required return.
Pre-registrations can provide tremendous return
opportunities, as pre-registration fees have been set low,
typically less than $30. Thus, the successful ownership of domain
names associated with high-value keywords can lead to returns in
the thousands of percent over a relatively short period of time.
2. Enhanced Traffic Monetization
Allocating the domain names to the highest revenue
generating service provider can result in tremendous returns.
Moreover, moving the acquired domain name from parking
monetization to developing a customized mini-website can increase
revenue multi-fold.
(B) Expected Return Estimate
In addition to the benchmark performance, the size of
the additional sources of return is outlined below.
1. Benchmark Return
Empirical studies show that the average annual
price appreciation is in excess of 300%. This represents
benchmark annual return.
2. Investment Monetization
The additional return that can be generated by
moving a parked domain name to a superior service provider can
generate returns in excess of 50%.
3. Custom Mini-Website
A customized mini-website can generate higher
returns than parking, stemming from increased chance of
link-click due to the customized landing-page design, higher PPC
rates from direct negotiations with advertisers, increased
traffic due to better
1 Bumdo is constantly refining their estimation models for g
for the various keyword industry segments.
■ Bumdo Domain Name Investment Account Prospectus 6
chance of being indexed by a major search
engine, and increased number of repeat customers due to
increased customer stickiness.
4. Investment in Future Extensions
Investments in future extensions provide
tremendous windfall profit opportunities. In addition to being
lucrative for the average investor, proprietary information that
we collect from our investments yields additional returns
through concentrations of pre-registration on superior
performing keywords.
MAIN RISKS OF INVESTING IN THE ACCOUNT
All investments carry risks. An investment in the
Account involves substantial risks.
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved these Accounts
or passed upon the adequacy of this prospectus.
Investment-Related Risks
? General Economic and Market Conditions
General economic and market conditions, such as
interest rates, inflation rates, global economic uncertainty,
changes in laws, and national and international political
circumstances may affect the success of the Account?s investment
objective. These factors may affect domain name prices and the
liquidity of investments held by the Account. Unexpected
illiquidity could impair the Account?s profitability or result in
losses.
? Risks of Securities Activities
All investing and trading activities involve the
risk of loss of capital.
? Illiquid Portfolio Investments
Domain name markets are not liquid. The market
prices, if any, for such securities tend to be volatile and the
Account Investment Manager may not be able to sell them when it
desires to do so or to realize what it perceives to be their fair
value in the event of a sale. The sale of restricted and illiquid
securities often requires more time.
? Non-Diversified Status
The Account is "non-diversified" under the
Investment Company Act. That means that the Account can invest in
a single instrument without limit.
To the extent the Account invests a relatively
high percentage of its assets in a single instrument the Account
is subject to additional risk of loss if those obligations lose
market value.
■ Bumdo Domain Name Investment Account Prospectus 7
In view of the risks noted above, the Account
should be considered a speculative investment and investors should
invest in the Account only if they can sustain a considerable loss
of their investment. No guarantee or representation is made that
the investment program of the Account or that the various domain
names selected by the Account will produce positive returns or
that the Account will achieve its investment objective.
In addition, as the Account?s investment program
develops and changes over time, an investment in the Account may
in the future be subject to additional and different risk factors.
Sources of Potential Risk
? Foreign Exchange Risk: This risk is associated with foreign
exchange fluctuations vis-à-vis the United States Dollar (USD). As
domain name traffic monetization payments are made in USD, investors
outside the US will be exposed to this risk. The amount of risk
exposure depends on the domain name owner?s home currency volatility
and the size of monetization revenue.
? Credit Risk: In general, credit risk is due to uncertainty in
a counterparty's ability to meet its obligations. This risk arises
when a monetization service provider is unable to make obligations
in full or on time.
? Operational Risk: This is the risk of monetary losses
resulting from inadequate or failed internal processes, people, or
systems.
? Legal Risk: The legal risk is from uncertainty due to legal
actions or uncertainty in the applicability or interpretation of
contracts, laws, or regulations.
? Regulatory Risk: This risk arises when governments change the
law in a way that adversely affects assets in the Account.
While the Investment Manager will attempt to moderate
these risks, there can be no assurance that the Account?s investment
activities will be successful or that an Account owner will not suffer
losses.
■ Bumdo Domain Name Investment Account Prospectus 8
INVESTMENT MANAGER
Alex Tajirian (the "Investment Manager") serves as the
Account?s manager and provides day-to-day investment management
services to the Account.
After completing his Ph.D. course work in Economics at
U. C. Berkeley, Tajirian joined Bank of America as a visiting scholar
responsible for providing quantitative support to the trading floor.
Tajirian has seventeen years of academic and practical experience. He
has taught finance at the Graduate School of Business (Haas School) at
U. C. Berkeley, and Business Policy and Strategy at U.C. Berkeley's
Worldwide Programs. His nonacademic experience includes consulting
experience with Morgan Stanley, Treynor-Arbit Associates, and BARRA on
financial risk monitoring and valuation. He has also been engaged in
the following industry activities: an expert witness in a number of
lawsuits; and a panelist at the Domain Roundtable Conference in 2005
and 2006. A sample of his industry studies and opinions are available
at http://investors.bumdo.com
FEES AND EXPENSES OF THE ACCOUNT
There are three categories of non-refundable
management fees:
1. An upfront fee of 2% of the initial investment and any
subsequent increases in investments in the Account.
2. A 5% commission on the monthly income generated by the
Account.
3. A 1.5% of the initial investment annual management fee.
Domain name registrations, renewals, and other
registrar
and registry services deemed valuable by the
Investment Manager are expensed at cost.
■ Bumdo Domain Name Investment Account Prospectus 9
DISTRIBUTION PLAN
The Auto Distribution Plan enables you, as the owner
of an Account, to make regular monthly redemptions of monthly
monetization income (MMI). With your authorization, we will
automatically payout MMI and have it automatically deposited into your
bank account or a check in the amount specified mailed to you. The
required minimum distribution to participate is $100.
To participate in the Auto Distribution Plan, you
should select the option in your Application Form or submit an Account
Maintenance Modification form.
If you elect to receive distributions in cash, and
checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your cash election will be changed
automatically and your future MMI will be fully reinvested in the
Account at face value determined as of the date of payment of the
distribution. In addition, any undeliverable checks or checks that
remain uncashed for six months will be canceled and will be reinvested
in the Account at face value determined as of the date of
cancellation.
Distributions from all of the Account may be subject
to federal, state, and local taxes.
INVESTOR QUALIFICATIONS
Accounts are being offered only to investors who
represent that they are companies and individuals with a net worth of
more than three times their total investment in all their Accounts.
The minimum initial investment in the Account by any
investor is $50,000 and the minimum additional investment in the
Account by any investor is $10,000.
You should rely only on the information contained in
this prospectus. The Account has not authorized anyone to provide you
with different information. In addition, you should not assume that
the information provided by this prospectus is accurate as of any date
other than the date on the front of this prospectus.
MORE INFORMATION ABOUT THE ACCOUNT
For additional information on the Account, contact us
online at
http://investors.bumdo.com or call us at +1.443.717.4699. ■
