As filed with the Securities and Exchange Commission on July 25, 1996
Registration No. 33-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KENMAR GLOBAL TRUST
(Exact name of registrant as specified in its charter)
Delaware 6793 Applied For
(State of Organization) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
c/o Kenmar Advisory Corp.
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831-8150
(203) 861-1000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Joshua B. Parker
c/o Kenmar Advisory Corp.
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831-8150
(203) 861-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
David R. Sawyier Michael J. Schmidtberger
Sidley & Austin Sidley & Austin
One First National Plaza 875 Third Avenue
Chicago, Illinois 60603 New York, New York 10022
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
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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 (the "Securities Act") check the following box. |X|
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. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units of Beneficial Interest 500,000 $100 $50,000,000 $17,242
==========================================================================================================================
</TABLE>
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The Registrant hereby amends this Registration Statement on such date or
dates 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 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
KENMAR GLOBAL TRUST
Cross Reference Sheet
Item
No. Prospectus Heading
---- ------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.. Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Cover Page; Table of
Contents
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Summary; The Trust and Its
Objectives; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Inside Cover Page; Plan of
Distribution
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Inside Cover Page; Plan of
Distribution
9. Description of Securities to Be
Registered.............................. Cover Page; The Trust and Its
Objectives; The Futures and
Forward Markets; Redemptions;
The Trust and the Trustee
10. Interests of Named Experts and
Counsel................................. Legal Matters; Experts
11. Information with Respect to the
Registrant.............................. Summary; Risk Factors;
Investment Factors; The Trust
and Its Objectives; Charges;
Kenmar Advisory Corp.;
Conflicts of Interest; The
Futures and Forward Markets;
The Trust and the Trustee;
Index to Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities......................... Not Applicable
<PAGE>
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 supplement and the accompanying 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.
Preliminary -- Subject to Change
KENMAR GLOBAL TRUST
$50,000,000
Units of Beneficial Interest
Kenmar Global Trust (the "Trust") is a Delaware business trust which
will trade in the international futures, forward and related markets under the
direction of Kenmar Advisory Corp. ("Kenmar"). Kenmar will manage the Trust's
trading by allocating its assets to the management of multiple professional
advisors ("Advisors"). The Advisors will trade independently of each other in a
wide range of global markets applying diverse proprietary strategies. The
Trust's objective is to achieve significant profits over time while controlling
performance volatility and the risk of loss, in an investment likely to exhibit
a high degree of non-correlation with the general equity and debt markets. If
the Trust is successful, it can both achieve significant profits over time and
add a potentially valuable element of diversification to a traditional
portfolio.
Units of beneficial interest ("Units") are offered for sale at $100 per
Unit during the Initial Offering Period ending on December 31, 1996 (subject to
extension until February 28, 1997 in Kenmar's discretion). Thereafter, Units
will be offered during the Ongoing Offering Period at Net Asset Value as of the
first day of each month.
The minimum investment is 50 Units (or, if less, $5,000), except for (i)
trustees or custodians of eligible employee benefit plans and individual
retirement accounts and (ii) Unitholders subscribing for additional Units, where
the minimum investment is 20 Units (or, if less, $2,000). Investments in excess
of these minimums are permitted in $100 increments. During the Ongoing Offering
Period, Units will be sold in fractions calculated to three decimal places.
Units may be redeemed, at a Unitholder's option, as of the close of
business on the last day of any month beginning with the end of the sixth month
after their sale. Units are redeemed at Net Asset Value, subject to redemption
charges of 3% and 2%, respectively, for Units redeemed on and after the end of
the sixth month through the end of the twelfth month after sale and from the end
of the twelfth month through the end of the eighteenth month after sale.
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THE UNITS ARE SPECULATIVE SECURITIES.
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o Past performance is not necessarily indicative of future results. All or
substantially all of an investment could be lost.
o The Trust's trading will be highly leveraged and takes place in very
volatile markets.
o The Trust is subject to substantial charges. Overall trading profits and
interest income of approximately 14.5% of the Trust's average month-end Net
Assets must be earned during the first year of trading in order for the Net
Asset Value per Unit not to decline solely due to applicable expenses,
assuming the investor redeemed in the first year and, thus, was assessed a
3% redemption penalty.
o Certain general types of market conditions -- in particular, trendless
periods without major price movements -- significantly reduce the potential
for certain Advisors to trade successfully.
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SEE "RISK FACTORS" beginning at page 8.
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SUBSCRIBERS WILL BE REQUIRED TO MAKE CERTAIN REPRESENTATIONS AND WARRANTIES
IN THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY.
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THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
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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.
<TABLE>
<CAPTION>
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Price to Public (Selling Commissions(2)(3)(4) Proceeds to Trust(1)(2)(3)(4)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Initial Offering Period Per Unit $100 None $100
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Total Minimum Investment $5,000,000 None $5,000,000
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Ongoing Offering Period Per Unit Net Asset Value None Net Asset Value
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Total Maximum Investment $50,000,000 None $50,000,000
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</TABLE>
See notes on page (i).
Kenmar Advisory Corp.
Managing Owner
The date of this Prospectus is __________, 1996
(Not for use after _________, 1997)
<PAGE>
Notes to Cover Page
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(1) The Units will be offered on a "best efforts," minimum/maximum basis
without any firm underwriting commitment through registered broker-dealers (the
"Selling Agents") to be selected by Kenmar. In a "best efforts" offering there
is no assurance that the minimum amount of capital necessary to begin operations
will be raised, so that subscribers during the Initial Offering Period may
commit their subscriptions to escrow without ultimately having an opportunity to
invest.
The $100 offering price per Unit during the Initial Offering Period has
been arbitrarily determined. During the Ongoing Offering Period, Units are
offered at Net Asset Value, which reflects the amount that could be realized
upon redemption (before reduction for the redemption charge, if applicable).
Kenmar must accept or reject subscriptions within five business days of
receipt, and the settlement date for the deposit of subscription funds into
escrow must be within five business days of acceptance. All investors will have
the right to revoke their subscriptions for a period of five business days
following receipt of notice of such subscriptions' acceptance. Rejected or
revoked subscriptions will be returned without interest.
Subscribers whose subscriptions are accepted will be notified of when
their customer securities accounts will be debited in the amount of their
subscriptions or their subscription checks cashed. Subscribers whose
subscriptions are rejected will be notified of when their subscriptions will be
(promptly) returned to them.
The Trust, not individual investors, will receive all interest actually
earned on subscriptions while held in escrow.
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.
The Trust's escrow account will be maintained at The Chase Manhattan
Bank, N.A., 1 Chase Manhattan Plaza, New York, New York 10081 (the "Escrow
Agent").
No Units will be sold unless acceptable subscriptions for at least
50,000 Units ($5,000,000) are received during the Initial Offering Period. After
the Initial Offering Period, there is no minimum number of Units which must be
sold as of the beginning of any month for any Units then to be sold.
(2) The costs of organizing the Trust and the initial offering of the
Units, estimated at $350,000, will be advanced by Kenmar. This prepaid expense
will be reimbursed to Kenmar by the Trust in monthly installments equal to 0.2%
of the Trust's month-end Net Assets.
(3) See "Plan of Distribution -- Selling Agents' Compensation" at page
43 for information relating to indemnification arrangements with respect to the
Selling Agents.
(4) No selling commissions will be paid from the proceeds of
subscriptions. Kenmar, not the Trust, will pay the Selling Agents selling
commissions equal to 5% of the purchase price per Unit at the time of sale.
The Selling Agents will also receive ongoing "trailing commissions" on
Units sold by their registered representatives who are also registered with the
Commodity Futures Trading Commission (the "CFTC"), have satisfied all applicable
proficiency requirements (i.e., have passed either the Series 3 National
Commodity Futures Examination or the Series 31 Futures Managed Fund Examination)
and agree to perform certain ongoing services with respect to such Units. Such
"trailing commissions" will equal 3.5% per annum of the average month-end Net
Asset Value per Unit, beginning with the thirteenth month after sale and
continuing for as long as such Unit remains outstanding. In the case of
registered representatives who are not CFTC-qualified, the "trailing
commissions" paid in respect of outstanding Units sold by such representatives
will be calculated in the same manner as above, but will be limited to 4.5% of
the initial subscription price of such Units. Selling Agents will pass on to
their registered representatives a portion of the foregoing selling compensation
and "trailing commissions," after deduction of "due diligence" and
administrative expenses incurred in connection with this offering, in accordance
with Selling Agents' standard compensation arrangements.
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-i-
<PAGE>
Regulatory Notices
- ------------------
UNTIL __________, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
THE SELLING AGENTS MUST DELIVER ANY SUPPLEMENTED OR AMENDED PROSPECTUS
ISSUED BY THE TRUST DURING BOTH THE INITIAL AND THE ONGOING OFFERING PERIODS.
KENMAR INTENDS FIRST TO USE THIS PROSPECTUS TO SOLICIT PROSPECTIVE
INVESTORS ON OR ABOUT THE DATE SET FORTH ON THE COVER PAGE HEREOF.
THIS PROSPECTUS MUST (AFTER THE TRUST BEGINS OPERATING) BE ACCOMPANIED
BY RECENT SUMMARY FINANCIAL INFORMATION, CURRENT WITHIN 60 CALENDAR DAYS,
RELATING TO THE TRUST.
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, KENMAR, THE SELLING AGENTS, THE
TRADING ADVISORS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
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THE BOOKS AND RECORDS OF THE TRUST WILL BE MAINTAINED AT ITS PRINCIPAL
OFFICE, C/O KENMAR ADVISORY CORP., TWO AMERICAN LANE, GREENWICH, CONNECTICUT
06831-8150; TELEPHONE NUMBER (203) 861-1000. UNITHOLDERS WILL HAVE THE RIGHT,
DURING NORMAL BUSINESS HOURS, TO HAVE ACCESS TO AND COPY (UPON PAYMENT OF
REASONABLE REPRODUCTION COSTS) SUCH BOOKS AND RECORDS IN PERSON OR BY THEIR
AUTHORIZED ATTORNEY OR AGENT. EACH MONTH, KENMAR WILL DISTRIBUTE REPORTS TO ALL
UNITHOLDERS SETTING FORTH SUCH INFORMATION RELATING TO THE TRUST AS THE CFTC AND
THE NATIONAL FUTURES ASSOCIATION (THE "NFA") MAY REQUIRE TO BE GIVEN TO THE
PARTICIPANTS IN FUTURES FUNDS SUCH AS THE TRUST AND ANY SUCH OTHER INFORMATION
AS KENMAR MAY DEEM APPROPRIATE. THERE WILL SIMILARLY BE DISTRIBUTED TO
UNITHOLDERS, NOT MORE THAN 90 DAYS AFTER THE CLOSE OF EACH OF THE TRUST'S FISCAL
YEARS (BUT IN NO EVENT LATER THAN MARCH 15 OF THE IMMEDIATELY FOLLOWING YEAR),
AUDITED CERTIFIED FINANCIAL STATEMENTS AND THE TAX INFORMATION RELATING TO THE
TRUST NECESSARY FOR THE PREPARATION OF UNITHOLDERS' ANNUAL FEDERAL INCOME TAX
RETURNS.
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THE DIVISION OF INVESTMENT MANAGEMENT OF THE SECURITIES AND EXCHANGE
COMMISSION REQUIRES THAT THE FOLLOWING STATEMENT BE PROMINENTLY SET FORTH
HEREIN: "KENMAR GLOBAL TRUST IS NOT A MUTUAL FUND OR ANY OTHER TYPE OF
INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED, AND IS NOT SUBJECT TO REGULATION THEREUNDER."
----------
-ii-
<PAGE>
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 ADVISORY AND 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 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 6.
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 8 THROUGH 13.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL 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
POOL 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 POOL MAY
BE EFFECTED.
-1-
<PAGE>
KENMAR GLOBAL TRUST
Table of Contents
Prospectus Section Page
- ------------------ ----
Summary ............................................................. 4
Overview ......................................................... 4
Risk Factors ..................................................... 4
The Trust and Its Objectives ..................................... 4
"Breakeven Table" ................................................ 5
Suitability ...................................................... 7
Risk Factors ........................................................ 8
(1) Past Performance Not
Necessarily Indicative of Future
Results; All or Substantially All
of an Investment Could Be Lost ............................. 8
(2) Volatile Markets; Highly
Leveraged Trading .......................................... 8
(3) Substantial Charges .......................................... 8
(4) Importance of Market Conditions
to Profitability ........................................... 8
(5) Technical, Trend-Following
Trading Systems ............................................ 9
(6) Discretionary Trading Strategies ............................. 9
(7) Decisions Based Upon Fundamental
Analysis ................................................... 9
(8) Increasing the Assets Managed by
the Advisors May Diminish
Their Returns .............................................. 9
(9) No Assurance of Advisors' Continued
Services ................................................... 9
(10) Limited Ability to Liquidate an
Investment in the Units .................................... 10
(11) Possibly Illiquid Markets .................................... 10
(12) "Zero-Sum" Trading ........................................... 10
(13) Non-Correlated, Not Negatively
Correlated, Performance Objective .......................... 10
(14) Distortion in Profit Share and Incentive
Fee Calculations ........................................... 10
(15) Advisors Trading Independently
of Each Other .............................................. 10
(16) Trading on Commodity Exchanges
Outside the United States .................................. 11
(17) Conflicts of Interest ........................................ 11
(18) Unitholders Taxed Currently .................................. 11
(19) Limitation on Deductibility
of "Investment Advisory Fees" .............................. 11
(20) Taxation of Interest Income
Irrespective of Trading Losses ............................. 12
(21) Possibility of a Tax Audit of Both
the Trust and Unitholders .................................. 12
(22) Failure of Brokerage Firms; Default
by Forward Market Participants ............................. 12
(23) Comparison of the Trust's Performance
with General Securities Market Indices...................... 12
(24) Impact of Graphic Presentation ............................... 12
(25) Regulatory Matters ........................................... 13
Investment Factors .................................................. 13
The Trust and Its Objectives ........................................ 14
Objectives ..................................................... 14
Investment Philosophy .......................................... 15
Access to Global Markets ....................................... 15
The Initial Advisors ........................................... 17
Kenmar Advisory Corp. ............................................... 20
Background and Principals ...................................... 20
Management of Traders .......................................... 22
Fiduciary Obligations of Kenmar ................................ 22
Use of Proceeds ..................................................... 23
Charges ............................................................. 24
Charges Paid by the Trust ......................................... 24
Organizational and Initial Offering
Costs ...................................................... 25
Brokerage Commissions ........................................ 25
Miscellaneous Execution Costs ................................ 26
"Bid-ask" Spreads ............................................ 26
Profit Shares and Incentive Fees ............................. 26
Ongoing Offering Costs ....................................... 28
Extraordinary Expenses ....................................... 28
Charges Paid by Kenmar ............................................ 28
Selling Commissions; "Trailing
Commissions" ............................................... 28
Consulting Fees .............................................. 28
Redemption Charges ............................................... 28
The Clearing Broker ................................................. 29
Conflicts of Interest ............................................... 29
General ...................................................... 29
Kenmar ....................................................... 29
The Advisors ................................................. 30
The Clearing Broker .......................................... 30
Selling Agent ................................................ 31
Proprietary Trading .......................................... 31
-2-
<PAGE>
KENMAR GLOBAL TRUST
Table of Contents (cont'd)
Prospectus Section Page
- ------------------ ----
Redemptions ......................................................... 31
The Trust and the Trustee ........................................... 32
The Futures and Forward Markets ..................................... 35
Federal Income Tax Consequences ..................................... 37
Purchases by Employee Benefit Plans ................................. 41
Plan of Distribution ................................................ 43
Subscription Procedure ....................................... 43
Subscribers' Representations and
Warranties ................................................. 43
Selling Agents' Compensation ................................. 43
Legal Matters ....................................................... 44
Experts ............................................................. 44
Additional Information .............................................. 44
Recent Financial Information and Annual
Reports .......................................................... 45
Index of Defined Terms .............................................. 46
Index to Financial Statements ....................................... F-1
Kenmar Global Trust Independent
Auditors' Report ................................................. F-2
Kenmar Global Trust Statement
of Financial Condition ........................................... F-3
Kenmar Global Trust Notes to Statement
of Financial Condition ........................................... F-4
Kenmar Advisory Corp. Independent
Auditors' Report ................................................. F-6
Kenmar Advisory Corp. Statements
of Financial Condition ........................................... F-7
Kenmar Advisory Corp. Notes to
Statement of Financial Condition
as of September 30, 1995 ......................................... F-8
Kenmar Advisory Corp. Notes to
Statement of Financial Condition
as of March 31, 1996 (unaudited) ................................. F-14
Appendix I--The Initial Trading
Advisors ......................................................... APPI-1
Appendix II--Performance of the Other
Futures Funds Operated
by Kenmar ........................................................ APPII-1
Appendix III--The Selling Agent ..................................... APPIII-1
Appendix IV--Glossary ............................................... APPIV-1
Exhibit A--Amended and Restated
Declaration of Trust and
Trust Agreement ................................................... TA-1
Annex--Request for Redemption
Exhibit B--Subscription Requirements ................................ SR-1
Exhibit C--Subscription Instructions,
Subscription Agreement and
Power of Attorney ............................................... SA-(i)
-3-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The nature of an investment in the Trust is complex and must be carefully
reviewed by any person considering purchasing Units. The following summary is
qualified in its entirety by the information set forth elsewhere
in this Prospectus.
----------
Overview
o Experienced Managing Owner and Advisors.
o Access to a wide range of domestic and international markets.
o Diversification among trading strategies.
o Performance not dependent upon any single nation's economy or currency.
o The potential, if successful, to provide a valuable component of
diversification to traditional portfolios.
o Offering the advantages of (i) limited liability while participating in
highly leveraged trading, (ii) monthly redemption rights (beginning at the
end of the sixth month after purchase) and (iii) administrative convenience
in a fund implementing complex trading strategies in domestic and
international markets.
Risk Factors
An investment in the Trust is speculative
and involves a high degree of risk.
o Past performance is not necessarily indicative of future results; all or
substantially all of an investment could be lost. See "Commodity Futures
Trading Commission--Risk Disclosure Statement" at page 1 and "Risk Factor
(1)--Past Performance Not Necessarily Indicative of Future Results; All or
Substantially All of an Investment Could Be Lost" at page 8.
o The Trust's trading will be highly leveraged and take place in very
volatile markets. See "The Trust and Its Objectives" at page 14 and "Risk
Factor (2)--Volatile Markets; Highly Leveraged Trading" at page 8.
o The Trust is subject to substantial charges and will be successful only if
significant profits are achieved. Overall trading profits and interest
income of approximately 14.5% of the Trust's average month-end Net Assets
must be earned during the first year of trading in order for the Net Asset
Value per Unit not to decline solely due to applicable expenses, assuming
the investor redeemed in the first year and, thus, was assessed a 3%
redemption penalty. See "-- Breakeven Table," below at page 6, "Charges"
beginning at page 24 and "Risk Factor (3) -- Substantial Charges Applicable
to the Trust" at page 8.
o Certain general types of market conditions -- in particular, trendless
periods without major price movements -- significantly reduce the potential
for certain Advisors to trade successfully. See "Risk Factor (4) --
Importance of Market Conditions to Profitability" at page 8.
The Trust and Its Objectives
The Trust is a multi-advisor, multi-strategy managed futures investment.
The Trust will trade under the management of professional Advisors selected from
time to time by Kenmar. Kenmar has substantial experience in managing
multi-advisor portfolios, implementing both quantitative and qualitative methods
of individual Advisor selection and asset allocation, as well as overall
portfolio design. The Advisors will trade entirely independently of each other,
implementing proprietary strategies in the markets of their choice. The Trust
will have access to global futures and forward trading with the ability rapidly
to deploy and redeploy its capital across different sectors of the international
economy.
In addition to selecting, and allocating and reallocating Trust assets
among Advisors, Kenmar will monitor and adjust the overall leverage at which the
Trust trades; provided that, the Trust's commitment to the Advisors will not
exceed 100% of total Trust equity. There are, and recur, periods in the markets
during which it is unlikely that
- --------------------------------------------------------------------------------
-4-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY (cont'd)
any Advisor group will achieve profitability. By deleveraging the Trust's market
commitment to below its actual equity during such periods, Kenmar can help
preserve capital while awaiting more favorable market cycles.
An investment in the Trust may be particularly timely in the current
market environment. There may be good reason to seek to diversify a portion of
one's assets into investments that are likely to be non-correlated with the
traditional debt and equity markets. An investment in the Trust may be
particularly timely given the current stock and bond market environments.
Academic studies have shown that managed futures returns historically have
displayed very low similarity to stock and bond market returns. The Trust has
the ability to generate profits during poor stock and bond markets because of
its ability to go both long and short, and because most of the markets traded by
the Trust are driven by different considerations and factors than stock and bond
markets. Furthermore, managed futures investments have the ability to capitalize
on events unfavorable to stocks and bond markets, such as political instability,
economic uncertainty and inflation. The performance of the Trust is expected to
be largely uncorrelated with that of the general securities markets. In fact,
periods of economic disruption and uncertainty not infrequently present
excellent profit opportunities for managed futures products.
There can be no assurance that the Trust will achieve its rate of return
or diversification objectives or avoid substantial losses.
Kenmar Advisory Corp.
Kenmar, a Connecticut corporation originally formed in 1983 as a New
York corporation, and its affiliates have been sponsoring and managing
multi-advisor funds for over a decade. As of June 1, 1996, Kenmar and its
affiliates were acting as trading manager for futures funds with total capital
in excess of $270 million.
The principal office of the Trust is c/o Kenmar Advisory Corp., Two
American Lane, Greenwich, Connecticut 06831-8150.
See Appendix II for the performance of other futures
funds managed by Kenmar. The Trust is the first
public futures fund sponsored by Kenmar.
The Initial Advisors
The initial Advisors are all well-established in the industry and have,
in the past, demonstrated the ability to make substantial profits in a wide
range of different market conditions and economic cycles. These Advisors,
collectively, represent a range of technical, systematic, fundamental and
discretionary methodologies, with extensive experience trading both proprietary
and client capital. Past performance is not necessarily indicative of future
results.
As of July 1, 1996, the Advisors were collectively managing
approximately $1.5 billion in managed futures accounts in which their clients
(and in certain cases the Advisors themselves) had invested, and over $1.1
billion in the trading programs initially to be used for the Trust.
See Appendix I for certain performance and other information relating to the
initial Advisors.
----------
"Breakeven Table"
The "Breakeven Table" on page 6 indicates the approximate percentage and
dollar returns required for the redemption value of an initial $5,000 investment
in the Units to equal the amount originally invested twelve months after
issuance.
The "Breakeven Table," as presented, is not affected by the size of the
Trust. The Trust's capitalization does not directly affect the level of its
charges as a percentage of Net Asset Value, as the Trust has no fixed dollar
amount, as opposed to (i) percentage of assets, (ii) percentage of profits or
(iii) per-trade costs (each of which will, or should, equal approximately the
same percentage of the Trust's equity, whatever its size), other than
administrative expenses (which are assumed in the "Breakeven Table" to equal the
maximum estimated percentage of the Trust's average month-
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY (cont'd)
end Net Assets). In order for Column II in the "Breakeven Table" to present
absolute dollar amount "breakeven" figures, it has been assumed that the average
month-end Net Assets attributable to an initial investment during the
twelve-month "breakeven" period equals the amount of such initial investment.
This is, in fact, unlikely to be the case.
"Breakeven Table"
<TABLE>
<CAPTION>
==============================================================================================
Column I Column II
EXPENSES(1) Percentage Return Dollar Return
WHICH MUST BE OFFSET Required Required
TO "BREAKEVEN" First Twelve Months ($5,000 Initial Investment)
of Investment First Twelve Months
of Investment
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Organizational and Initial Offering Cost
Reimbursement(2) 2.40% $ 120.00
- ----------------------------------------------------------------------------------------------
Brokerage Commissions 11.00% $ 550.00
- ----------------------------------------------------------------------------------------------
Miscellaneous Execution Costs(3) 0.25% $ 12.50
- ----------------------------------------------------------------------------------------------
Advisors' Profit Shares(4) 2.00% $ 100.00
- ----------------------------------------------------------------------------------------------
Kenmar Incentive Fee(5) 0.15% $ 7.50
- ----------------------------------------------------------------------------------------------
Administrative Expenses 0.50% $ 25.00
- ----------------------------------------------------------------------------------------------
Redemption Charge (6) 3.10% $ 155.00
- ----------------------------------------------------------------------------------------------
Interest Income (Estimated based on (5.00)% $(250.00)
current rates)
- ----------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL
INVESTMENT REQUIRED FOR 14.40% $ 720.00
"BREAKEVEN"
==============================================================================================
</TABLE>
Notes to "Breakeven Table"
(1) See "Charges" at page 24 for an explanation of the expenses included
in the "Breakeven Table."
(2) Reimbursed to Kenmar at the rate of 0.2% of month-end Net Assets each
month.
(3) Estimated; paid on a per-transaction basis. "Bid-ask" spreads are not
included due to the difficulty of determining such spreads, which may
constitute a significant cost to the Trust.
(4) Profit Shares are calculated quarterly on the basis of each Advisor's
individual performance, not the overall performance of the Trust.
Consequently, it is not possible to determine the amount of Profit
Shares which would be payable in a "breakeven" year. Kenmar believes
that 2.00% of average month-end Net Assets is a reasonable estimate
for such Profit Shares, but the actual Profit Shares paid in a
"breakeven" year could substantially exceed such estimate.
(5) No Incentive Fee might, in fact, be due despite the approximately 3.1%
Net Asset Value gain necessary to offset the redemption charge of $155
(based on an initial $5,000 investment). See "Charges -- Profit Shares
and Incentive Fees" at page 26. However, for purposes of the
"Breakeven Table," the Incentive Fee has been estimated at 5% of such
3.1% gain.
(6) Redemption charges for purposes of this "breakeven" analysis only
equal 3.1% of the initial $5,000 investment because these charges
would equal 3% of the $5,155 Net Asset Value required so that after
subtraction of the 3% redemption charge, the investor would receive
net redemption proceeds of $5,000.
- --------------------------------------------------------------------------------
-6-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY (cont'd)
Suitability
The Trust will trade at a high degree of leverage in highly volatile
markets. An investment in the Units is speculative and involves a high degree of
risk. There can be no assurance that the Trust will achieve its objectives.
No subscriber may invest more than 10% of his or her readily marketable
assets in the Trust. Subscribers must be prepared to lose all or substantially
all of their investment.
THE UNITS ARE SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK.
THE TRUST IS THE FIRST PUBLICLY-DISTRIBUTED
FUND THAT KENMAR HAS SPONSORED.
- --------------------------------------------------------------------------------
-7-
<PAGE>
RISK FACTORS
The markets in which the Trust trades are speculative, highly leveraged
and involve a high degree of risk. Each Advisor's trading considered
individually involves a significant risk of incurring large losses, and there
can be no assurance that the Trust as a whole will not incur such losses.
The Trust's multi-advisor structure will not necessarily control the
risk of speculative futures trading. Multi-advisor funds have in the past lost
5% or more of their equity in a single day.
If the Trust itself is not successful, it cannot serve as a useful or
effective diversification for an investor's portfolio.
----------
(1) Past Performance Not Necessarily Indicative of Future Results; All or
Substantially All of an Investment Could Be Lost.
There can be no assurance as to how the Trust will perform. Investors
should not invest in the Trust in reliance on the initial Advisors' performance
to date, and must carefully consider whether a speculative investment such as
the Trust is consistent with their portfolio objectives and risk tolerance
levels.
All Advisor selections are made with the benefit of hindsight, and,
consequently, include only futures managers that have performed well to date (in
hypothetical combination as well as considered on a "stand-alone" basis).
Prospective investors should not place any substantial degree of reliance on the
Advisors' performance summaries included herein. It should not be assumed that
trading decisions made by the Advisors in the future will be profitable or
result in performance for the Trust comparable to such Advisors' past
performance to date.
There can be no assurance that the multi-advisor strategy of the Trust
will achieve its risk control objectives.
Investors must be prepared to lose all or substantially all of their
investment in the Trust.
(2) Volatile Markets; Highly Leveraged Trading
Futures and forward prices are volatile. Volatility increases risk,
particularly when trading with leverage. Trading on a highly leveraged basis, as
will the Trust, even in stable markets involves risk; doing so in volatile
markets necessarily involves a substantial risk of sudden, significant losses.
Market volatility and leverage mean that the Trust could incur substantial
losses, potentially impairing its equity base and ability to achieve its
long-term profit objectives even if favorable market conditions subsequently
develop.
(3) Substantial Charges
The Trust is subject to substantial charges payable irrespective of
profitability as well as Advisors' Profit Shares, payable based on each
individual Advisor's profitability not the overall profitability of the Trust,
and Kenmar's Incentive Fees. The Trust will pay "routine" costs -- not including
Profit Shares or Kenmar's Incentive Fees -- equal to approximately 14% per annum
of its average month-end Net Assets. The Trust must earn significant profits and
interest income merely to "break even."
(4) Importance of Market Conditions to Profitability
Although the initial Advisors appear to be as likely to trade profitably
in declining as in rising markets, there also seems to be a tendency for managed
futures advisors, in general, to be profitable or unprofitable at approx imately
the same times. Overall market or economic conditions -- over which neither
Kenmar nor the Advisors can have any control -- will have a material effect on
performance. Market conditions may be sufficiently adverse to make profitability
highly unlikely for sustained periods of time.
-8-
<PAGE>
(5) Technical, Trend-Following Trading Systems
The profitability of trading systems involving technical trend analysis,
such as those used by certain of the Trust's Advisors, depends upon the
occurrence of significant sustained price moves in at least some of the markets
traded. In the past there have been sustained periods without such price moves
occurring in the markets represented in the programs to be traded by these
Advisors for the Trust, and such periods are expected to recur because it is
only when a variety of usually disparate market forces influence prices in the
same direction that significant trends can occur. Periods without such price
moves are likely to produce losses.
(6) Discretionary Trading Strategies
Traders that implement discretionary trading strategies may be more
prone to subjective judgments having potentially adverse effects on their
performance than are systematic managers, which emphasize eliminating the
effects of "emotionalism" on their trading. Reliance on trading judgment may,
over time, produce less consistent trading results than implementing a
systematic approach. Discretionary traders, like trend-following traders, are
unlikely to be profitable unless major price movements occur. Discretionary
traders are highly unpredictable, and can incur substantial losses even in
apparently favorable markets.
(7) Decisions Based Upon Fundamental Analysis
Traders that utilize fundamental trading strategies attempt to examine
factors external to the trading market that affect the supply and demand for a
particular futures contract in order to predict future prices. Such analysis may
not result in profitable trading because the analyst may not have knowledge of
all factors affecting supply and demand, prices may often be affected by
unrelated factors, and purely fundamental analysis may not enable the trader to
determine quickly that his previous trading decisions were incorrect. In
addition, because of the breadth of fundamental data that exists, a fundamental
trader may not be able to follow developments in all such data, but instead may
specialize in analyzing a narrow set of data, requiring trading in fewer futures
markets. Consequently, a fundamental trader may have less flexibility in adverse
markets to trade other futures markets than traders that do not limit the number
of markets traded as a result of a specialized focus.
(8) Increasing the Assets Managed by the Advisors May Diminish Their Returns
There appears to be a tendency for the rates of return achieved by
managed futures advisors to diminish as assets under management increase.
Increased equity under management requires advisors to enter larger orders,
which can preclude trading in certain less liquid markets, result in worse
trading "fills" and make it difficult to close out positions without incurring
significant additional losses. If the Advisors' returns decline as a result of
the increased equity under the Advisors' management, the profit potential of the
Trust will be correspondingly reduced.
(9) No Assurance of Advisors' Continued Services
There is no assurance that any Advisor will be willing or able to
continue to provide advisory services to the Trust for any length of time. There
is severe competition for the services of qualified Advisors, and the Trust may
not be able to retain satisfactory replacement or additional Advisors on
acceptable terms. Kenmar must allocate Advisor availability among its different
funds, including the Trust, and may, accordingly, allocate to the Trust less
(and perhaps none) of an Advisor's available capacity than Kenmar might
otherwise consider to be in the best interests of the Trust. The timing of
Kenmar's Advisor selections and the amount of assets allocated to an Advisor may
also be affected from time to time by the procedural requirements of maintaining
an ongoing offering of the Units. See "Conflicts of Interest" at page 29. Kenmar
may not be able to obtain the services of the Advisor group that Kenmar would
otherwise consider to be most advantageous for the Trust.
-9-
<PAGE>
(10) Limited Ability to Liquidate an Investment in the Units
Units may be redeemed only as of the close of business on the last day
of a calendar month and only beginning on or after the end of the sixth month
after sale. Through the end of the twelfth and eighteenth full months after
their sale, Units will be subject to redemption charges, payable to Kenmar,
equal to 3% and 2%, respectively, of the Net Asset Value per Unit as of the date
of redemption. Requests for redemption, which are irrevocable, must be received
at least 10 calendar days before the proposed date of redemption. The limited
ability to redeem Units means that investors cannot be confident of what the
redemption value of their Units will be, and may be unable to withdraw capital
committed to the Trust on a timely basis to take advantage of other, more
favorable, investment opportunities.
(11) Possibly Illiquid Markets
The markets to be traded by the Advisors on behalf of the Trust may
become illiquid. Illiquidity could prevent the Advisors from acquiring positions
otherwise indicated by one of the trading systems or make it impossible for the
Trust to liquidate positions against which the market is moving. The Advisors
will, from time to time, trade in illiquid markets. Illiquidity could cause the
Trust to incur significant losses.
(12) "Zero-Sum" Trading
Futures trading is a "zero-sum," risk transfer economic activity. For
every gain there is an equal and offsetting loss rather than an opportunity to
participate over time in general economic growth. Unlike most "alternative
investments," an investment in the Trust does not involve acquiring any asset
with intrinsic value. Overall stock and bond prices could rise significantly and
the economy as a whole prosper while the Trust trades unprofitably.
(13) Non-Correlated, Not Negatively Correlated, Performance Objective
Neither Kenmar nor the Advisors anticipate that the performance of the
Trust will be negatively correlated to that of the general debt and equity
markets. Rather, the Advisors and Kenmar believe only that the Trust's
performance could be generally non-correlated, i.e., unrelated, not opposite, to
the performance of the traditional financial markets. It is by no means the case
that the Trust can be expected to be profitable during unfavorable periods for
the stock and bond markets or vice versa. If the Trust does not perform in a
manner non-correlated with the general financial markets, investors may obtain
no diversification benefits by investing in the Units.
(14) Distortion In Profit Share and Incentive Fee Calculations
The Advisors' Profit Shares and Kenmar's Incentive Fee are calculated on
the basis of New Trading Profit (as defined) and New Overall Appreciation (as
defined), respectively, determined on the basis of the performance of each
Advisor's Trust account and of the Trust as a whole. Because Units are purchased
at different times, but Profit Shares are paid equally, disparities between a
particular Unitholder's investment experience in the Trust and the Profit Shares
and Incentive Fees to which such Unitholder is subject will develop as a result
of the Profit Shares and Incentive Fees being paid by the Trust account managed
by each Advisor and by the Trust, considered as a whole, respectively, despite
Units being acquired at different times and prices. See "Charges" at page 24.
Certain investors' Units could be subject to Profit Shares and Incentive Fees
despite having declined in Net Asset Value from their purchase price. The
Trust's allocation of Profit Shares and Incentive Fees are subject to
distortions as a result of the timing of subscriptions and redemptions. See
"Charges - Profit Shares and Incentive Fees."
(15) Advisors Trading Independently of Each Other
The Advisors trade entirely independently of each other. Consequently,
the Advisors may implement their strategies for their Trust accounts in ways
that could significantly reduce the risk control potential that Kenmar had
analyzed to be an important feature of a particular Advisor combination. Two
Advisors may, from time to time, take opposite positions for the Trust,
eliminating any possibility of the Trust profiting from these positions
considered as a whole. There are substantial opportunity costs to Kenmar's
multi-advisor strategy.
-10-
<PAGE>
(16) Trading on Commodity Exchanges Outside the United States
The Advisors may engage in a significant amount of trading on commodity
exchanges outside the United States on behalf of the Trust. Trading on such
exchanges is not regulated by any United States governmental agency and may
involve certain risks not applicable to trading on United States exchanges. In
trading contracts denominated in currencies other than U.S. dollars, the Trust
will be subject to the risk of adverse exchange-rate movements between the
dollar and the functional currencies of such contracts. See the last paragraph
of the "Commodity Futures Trading Commission -- Risk Disclosure Statement" on
page 1 of this Prospectus. Investors could incur substantial losses from the
Trust's trading on foreign exchanges to which they would not have been subject
had the Advisors limited their trading to U.S. markets.
(17) Conflicts of Interest
The Trust is subject to a number of material actual and potential
conflicts of interests. See "Conflicts of Interest" at page 29. No formal
policies or procedures have been adopted to resolve any of such conflicts. The
conflicts of interest to which the Trust is subject raise the possibility that
investors will be financially disfavored to the benefit of Kenmar, the Advisors
or their respective principals and affiliates.
The fact that Kenmar will receive an annual Incentive Fee equal to 5% of
any New Overall Appreciation (as defined) may lead Kenmar to select Advisors
that trade in a more "risky" or speculative manner than those that Kenmar might
otherwise choose. The Incentive Fee is calculated so that Kenmar receives 5% of
any New Overall Appreciation of the Trust, but not 5% of its losses.
New Overall Appreciation includes both unrealized and realized gains.
(18) Unitholders Taxed Currently
Unitholders are subject to tax each year on their allocable share of the
Trust's income or gains (if any), despite the fact that Kenmar does not intend
to make any distributions to Unitholders. Consequently, Unitholders will be
required either to redeem Units or to make use of other sources of funds to
discharge their tax liabilities in respect of any profits earned by the Trust.
See "Federal Income Tax Consequences" at page 37.
In comparing the Trust's profit objectives with the performance of more
familiar securities in which one might invest, prospective investors must
recognize that if they purchased equity or debt, there probably would be no tax
due on the appreciation in the value of such holdings until disposition. In the
case of the Trust, on the other hand, a significant portion of any appreciation
in the Net Asset Value per Unit must be paid in taxes by the Unitholders every
year, resulting in a substantial cumulative reduction in their net after-tax
returns. Because Unitholders will be taxed currently on their allocable share of
the Trust's income or gains, the Trust may trade successfully, but investors
nevertheless would have recognized significantly greater gains on an after-tax
basis than had they invested in conventional stocks and bonds with comparable
performance.
The performance information included in this Prospectus is presented
exclusively on a pre-tax basis.
(19) Limitation on Deductibility of "Investment Advisory Fees"
Non-corporate Unitholders may be required to treat the amount of any
Profit Shares, Incentive Fees, brokerage commissions and other expenses of the
Trust as "investment advisory fees" which may be subject to substantial
restrictions on deductibility for federal income tax purposes. In the absence of
further regulatory or statutory clarification, Kenmar is not classifying these
expenses as "investment advisory fees," but this is a position to which the
Internal Revenue Service may object. If a substantial portion of the Trust's
fees were characterized as "investment advisory fees," an investment in the
Units may no longer be economically viable.
-11-
<PAGE>
(20) Taxation of Interest Income Irrespective of Trading Losses
The Net Asset Value per Unit reflects the trading profits and losses as
well as the interest income earned and expenses incurred by the Trust. However,
losses on the Trust's trading will be almost exclusively capital losses, and
capital losses are deductible against ordinary income only to the extent of
$3,000 per year in the case of non-corporate taxpayers. Consequently, if a
non-corporate Unitholder had, for example, an allocable trading (i.e., capital)
loss of $10,000 in a given fiscal year and allocable interest income (after
reduction for expenses) of $5,000, the Unitholder would have incurred a net loss
in the Net Asset Value of his or her Units equal to $5,000 but would recognize
taxable income of $2,000. The limited deductibility of capital losses for
non-corporate Unitholders could result in such Unitholders having a tax
liability in respect of their investment in the Trust despite incurring a
financial loss on their Units.
(21) Possibility of a Tax Audit of Both the Trust and Unitholders
There can be no assurance that the Trust's tax returns will not be
audited by the Internal Revenue Service. If such an audit results in an
adjustment, Unitholders could themselves be audited as well as being required to
file amended tax returns and to pay back taxes, additions to such taxes,
interest and penalties.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISERS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF AN
INVESTMENT IN THE TRUST; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF
DIFFERENT INVESTORS. SEE "FEDERAL INCOME TAX CONSEQUENCES" AT PAGE 37.
(22) Failure of Brokerage Firms; Default by Forward Market Participants
The Trust could be unable to recover its assets -- even assets directly
traceable to the Trust -- from the Clearing Broker in the event of a bankruptcy
of the Clearing Broker. In its forward trading, the Trust will be dealing with
the Clearing Broker as a principal (the Clearing Broker, in turn, will trade
with other counterparties in order to execute the Trust's forward trades) and
will be subject to the full risk of the Clearing Broker's default or insolvency.
Investors could incur substantial losses, despite the Trust having been
otherwise highly profitable, in the event of the bankruptcy or default of the
Clearing Broker.
(23) Comparisons of the Trust's Performance with General Securities Market
Indices
The Trust's performance has been compared in this Prospectus, under "The
Trust and Its Objectives," to the S&P 500 Stock Index and the Lehman Brothers
Long-Term Government Bond Index, which reflect the price movements of unmanaged
groups of publicly-traded stocks and bonds, respectively. Although it is common
to evaluate the performance of financial assets against general stock and bond
market indices, there are material differences between passive indices of equity
and debt and managed products like the Trust. The futures markets are
fundamentally different from the securities markets in a number of respects, and
any comparison between them is subject to certain inherent and material
limitations.
(24) Impact of Graphic Presentation
Certain performance information has been presented in this Prospectus
(see "The Trust and Its Objectives") in graphic format. While graphic
presentation facilitates illustrating certain performance characteristics, e.g.,
non-correlation, prospective investors must be aware that different graphic
presentations of the same information can appear materially different. For
example, the use of logarithmic rather than standard scale de-emphasizes both
apparent volatility and rate of return, while the use of a large or standard
scale accentuates both. Kenmar believes that the graph included in this
Prospectus is a reasonable representation of the information intended to be
conveyed, but prospective investors must recognize that such information could
have been depicted in a number of materially different graphic presentations.
-12-
<PAGE>
(25) Regulatory Matters
The Trust is the first public futures fund sponsored by Kenmar. Due to
the publicly-offered character of the Trust, Kenmar will be more restricted in
its ability to allocate assets to certain prospective Advisors than it would be
in the context of a private fund.
Considerable regulatory attention has been focused on "non-traditional"
investment pools, in particular commodity pools such as the Trust, publicly
distributed in the United States. There is a possibility of future regulatory
changes altering, perhaps to a material extent, the nature of an investment in
the Trust.
----------
INVESTMENT FACTORS
The following summarizes certain of the principal potential advantages
- -- described in greater detail elsewhere in this Prospectus -- which Kenmar
believes may be associated with an investment in the Trust. These potential
advantages may never, in fact, result in profits for the Trust, and there are
substantial risks involved in investing in the Units. See "Risk Factors"
beginning at page 8.
----------
Market Diversification
The Trust is designed to add the potential for significant capital
growth to an investment portfolio by investing in a wide array of markets. As
global markets and investing become more complex, professionally managed futures
may increasingly continue to be included in traditional portfolios of stocks and
bonds managed by advisors seeking improved balance and diversification. The
globalization of the world's economy has the potential to offer significant
investment opportunities, as major political and economic events continue to
have an influence, in some cases a dramatic influence, on the world's markets,
creating risk but also providing the potential for profitable trading
opportunities. By allocating a portion of the risk segment of their portfolios
to selected advisors specializing in futures and forward trading, investors have
the potential, if their futures investment is successful, to enhance their
prospects for superior performance as well as to reduce the volatility of their
portfolios over time and the dependence of such portfolios on any single
nation's economy.
Diversification of Traditional Portfolios
Allocating a portion of the risk segment of a portfolio to a managed
futures investment, such as the Trust, can add a potentially valuable element of
diversification to a traditionally-structured portfolio. Historically, the
returns recognized on managed futures investments have exhibited a substantial
degree of non-correlation with the performance of stocks and bonds, suggesting
that a successful managed futures investment can be a valuable complement to a
portfolio. Diversifying assets among different investments that generate
positive but non-correlated returns has the potential to decrease risk without a
corresponding decrease in returns -- enhancing the risk/reward profile and
overall "efficiency" of a portfolio. Non-correlation is not negative
correlation. The performance of the Trust is expected to be generally unrelated,
but may frequently be similar, to the performance of the general equity and debt
markets.
Small Minimum Investment; Smaller Minimum Additional Investment
Each of the initial Advisors is only available to manage individual
accounts of substantial size -ranging from $500,000 to $5,000,000. Investors in
the Trust are able to gain access to each of these Advisors, and to the
diversification benefits of placing assets with all five of them, for a minimum
investment of only 50 Units, or $5,000 if less (20 Units, or $2,000 if less, in
the case of trustees or custodians of eligible employee benefit plans and
individual retirement accounts). Existing Unitholders making additional
investments may do so in minimums of only 20 Units, or $2,000 if less.
-13-
<PAGE>
Limited Liability
A person who opens an individual futures account is generally liable for
all losses suffered in such account, and may lose substantially more than his or
her investment. A subscriber to the Trust, however, cannot lose more than his or
her investment, including any undistributed profits.
Administrative Convenience
The Trust is structured so as substantially to eliminate the
administrative burden that would otherwise be involved in Unitholders engaging
directly in futures transactions. Unitholders, among other things, will receive
directly from Kenmar monthly unaudited financial reports and annual audited
financial statements (setting forth, in addition to certain other information,
the Net Asset Value per Unit, the Trust's trading profits or losses and the
Trust's expenses for the period) as well as all tax information relating to the
Trust necessary for Unitholders to complete their federal income tax returns.
The approximate Net Asset Value per Unit will be available from Kenmar upon
request.
THE TRUST AND ITS OBJECTIVES
Objectives
o Significant profits over time
o Controlled performance volatility
o Controlled risk of loss
o A means of diversifying a traditional portfolio out of its typical "all
long" stock and debt bias and dependence on a single nation's economy
The potential for aggressive capital growth is driven by the profit
possibilities offered by the global futures and options markets and the skills
of the professional trading organizations selected to manage the assets of the
Trust. The fact that the Trust can profit from both rising and falling markets
adds an element of profit potential that long- only strategies cannot access. In
addition to its profit potential, the Trust, if it trades successfully, can also
help reduce the overall volatility, or risk, of your portfolio. By investing in
markets that operate independently from United States stock and bond markets --
and by taking advantage of both "bull" and "bear" trends -- the Trust may
provide positive returns even when United States stock and bond markets are
experiencing flat to negative performances.
<PAGE>
- --------------------------------------------------------------------------------
KENMAR
Bear Bond Market Analysis
Five Worst Bond Drawdowns Since 1961 and
Corresponding Managed Futures Performance
Managed Futures 50.7% 137.2% 70.1% 8.5% 9.8%
US LT Gov't Bonds -18.8% -10.4% -21.0% -13.4% -12.2%
1/67-5/70 12/72-8/74 7/79-9/81 3/87-9/87 2/94-10/94
Source/December 1995: Lehman Brothers LT Gov't Bond Index, BARRA MLM Index
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KENMAR
Bear Stock Market Analysis
Five Worst S&P Drawdowns Since 1961 and
Corresponding Managed Futures Performance
Managed Futures 7.4% 37.1% 143.7% 74.5% 3.1%
S&P 500 -22.3% -29.2% -42.6% -16.6% -29.6%
1/62-6/62 12/68-6/70 1/73-9/74 12/80-7/82 9/87-11/87
Source/December 1995: S&P 500, BARRA/MLM Index
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
-14-
<PAGE>
The Trust is designed to complement, not replace, a traditional
investment portfolio of US and/or international stocks and bonds. In the opinion
of Kenmar, the Trust is best employed as an asset diversification and
performance enhancement tool for a traditional portfolio. Because managed
futures returns historically have shown very little similarity to stock and bond
market returns, the Trust has the potential positive investment performance when
your portfolio needs it most -- that is, when stock and bond markets are in
declines. Timing investment entry, however, to coincide with stock and or bond
market declines is obviously very difficult, if not impossible. For this reason,
and because the diversification and return potential offered by the Trust is
independent of stock and bond performance, there is no "good time" to invest in
the Trust.
Investment Philosophy
The Trust is managed by Kenmar Advisory Corp. Kenmar is one of the
largest and longest-established trading managers in global managed futures
investing.
Kenmar will: (i) select and monitor the Advisors; (ii) allocate and/or
reallocate Trust assets among the Advisors; (iii) determine if an Advisor should
be removed or replaced; (iv) negotiate advisory fees; and (v) perform such other
services as Kenmar believes that the Trust may from time to time require.
Kenmar believes that the most effective means of controlling the risks
of futures trading is through a diversified portfolio of Advisors. An important
part of this strategy focuses on controlling risk by combining Advisors who
employ diverse trading methodologies -- such as technical, fundamental,
systematic, trend-following, discretionary or mathematical -- and who exhibit
diverse performance characteristics. The objective of this strategy is to
construct a portfolio of Advisors whose combined performance best meets the
investment aim of the Trust to achieve superior returns within appropriately
defined parameters of risk.
The process of selecting Advisors is an ongoing one, for, even after
initial selections have been made, Kenmar continues to analyze qualitatively and
quantitatively the performance and trading characteristics of initial and
prospective Advisors in an effort to determine which Advisors are best suited to
the current market environment. Based upon such continuing analysis, Kenmar will
reallocate assets among the initial Advisors or change the portfolio of Advisors
when the trading environment or an Advisor's individual performance indicates to
Kenmar that such change or changes are appropriate.
Kenmar's ability to manage the risks of futures investments successfully
is dependent upon an informed and aggressive management style, one that
identifies and acts quickly and decisively on shifting market trends. Therefore,
when Kenmar's perception of market conditions and/or individual Advisor
performance suggest that an alternative trading style or methodology might be
better suited to the current market environment, Kenmar will alter the portfolio
of Advisors or the allocation of assets among the Advisors without prior notice
to, or the approval of, the Unitholders.
Prospective investors must recognize that Advisor selections and
allocations require the exercise of judgment and discretion and are not
determined in any precise or systematic manner. There can be no assurance that
Kenmar's selection and monitoring of a limited group of Advisors for the Trust
will, in the future, produce more successful results (in terms of either risk
control or profitability) than would the selection of a single Advisor, a fixed
combination of Advisors or a larger group of Advisors.
Access to Global Markets
The range of markets that the Trust will trade will provide a
significant degree of diversification to a traditional stock/bond portfolio.
Through Kenmar's Advisor selections, the Trust will have the flexibility to
access, and allocate and reallocate capital among, world markets, including but
not limited to:
-15-
<PAGE>
Currencies
- --------------------------------------------------------------------------------
Australian Dollar European Currency Unit Mexican Peso
Belgian Franc Finnish Markka New Zealand Dollar
British Pound French Franc Norwegian Krone
Canadian Dollar Irish Punt Singapore Dollar
Danish Krone Italian Lira Spanish Peseta
Deutsche Mark Japanese Yen Swedish Krona
Dutch Guilder Malaysian Ringgit Swiss Franc
Financial Instruments
- --------------------------------------------------------------------------------
Australian Treasury Bills Major Market Stock Index (U.S.)
Australian Treasury Bonds MEFF&S Stock Index (Spain)
CAC 40 Stock Index (France) MIBOR
Canadian Bonds Nikkei Stock Average (Japan)
DAX Stock Index (Germany) Nikkei Stock Index 300 (Japan)
Eurodollars PIBOR
Euromarks S&P 500 Stock Index (U.S.)
Eurotop 100 Index (Europe) Spanish Bonds
Euroyen Tokyo Stock Price Index (Japan)
Financial Times 100 Stock Index (U.K.) U.K. Bonds
Financial Times 250 Stock Index (U.K.) U.K. Short Sterling
French Bonds U.S. Treasury Bills
German Bonds U.S. Treasury Bonds
Italian Bonds U.S. Treasury Notes
Japanese Bonds Value Line Stock Index (U.S.)
Metals
- --------------------------------------------------------------------------------
Aluminum Nickel Platinum Tin
Gold Palladium Silver Zinc
Lead
Energy Products
- --------------------------------------------------------------------------------
Crude Oil Heavy Fuel Oil No. 2 Heating Oil Residual Fuel Oil
Electricity Natural Gas Propane Unleaded Gasoline
Gas Oil
-16-
<PAGE>
Agricultural Products
- --------------------------------------------------------------------------------
Cocoa Feeder Cattle Orange Juice Soy Oil
Coffee Live Cattle Pork Bellies Sugar
Corn Live Hogs Soybeans Wheat
Cotton Oats Soymeal
The Trust will trade in many, but not all, of the foregoing markets as well as
additional Wheat markets. There can be no assurance as to which markets the
Trust will, in fact, trade over time or at any given time. The Advisors
do not each trade in all of the foregoing markets. The Trust's portfolio
exposure may, from time to time, be concentrated in a
limited number of markets.
The Initial Advisors
The Initial Advisors
All direct investment decisions for the Trust will be made by an initial
group of Trading Advisors selected by and monitored by Kenmar. Each Advisor is
registered with and regulated by the Commodity Futures Trading Commission (the
"CFTC"). The registration of the Advisors with the CFTC and their membership in
the NFA must not be taken as an indication that any such agency or
self-regulatory body has recommended or approved the Advisors or the Trust.
Kenmar anticipates varying Advisors from time to time and, with them,
the Trust's market emphasis as Kenmar believes performance and market conditions
indicate that such a change could be advantageous for the Trust. However, Kenmar
also believes that it is necessary to maintain an account with an Advisor for
some length of time (at least unless aberrational trading patterns or apparent
deviations from announced strategy or risk control policies develop) to give the
Advisor a reasonable opportunity to achieve its objectives. Under certain market
conditions, it is very difficult for most managed futures advisors to trade
profitably. The following are the initial Advisors and asset allocations chosen
for the Trust.
KENMAR GLOBAL TRUST
<TABLE>
<CAPTION>
Advisor and Approximate Assets
% Initial General Under Management
Allocation Strategy Type July 1, 1996*
---------- ------------- -------------
<S> <C> <C>
Chesapeake Capital Corporation Multi-System, Multi-Timeframe $807 million (total)
(25%) Technical, Trend-Following $765 million (Diversified)
Dreiss Research Corporation Pattern-Recognition, Long-Term $9 million (total)
(15%) Technical, Trend-Following
Hyman Beck & Company, Inc. Long-Term Technical, $171 million (total)
(25%) Trend-Following $129 million (Global)
Willowbridge Associates Inc. Discretionary, Fundamental $428 million (total)
(25%) and Technical $186 million (XLIM)
Witter and Lester, Inc. Discretionary, Technical, $57 million (total)
(10%) S&P only $16 million (Redstone)
</TABLE>
- ----------
* Excluding "notional funds." "Notional" funds represent the difference
between the level at which an advisor is instructed to trade an account and
the capital actually committed to the account. "Notional" funds do not
represent assets under management, but they do indicate the level of equity
which an advisor has been instructed to consider itself to be managing in
determining the magnitude of positions taken.
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<PAGE>
Advisor Summaries
More complete descriptions and performance summaries for the Advisors
are included in Appendix I to this Prospectus. Read Appendix I carefully before
you decide whether to invest in the Trust. See "Risk Factors -- (1) Past
Performance Not Necessarily Indicative of Future Results; All or Substantially
All of an Investment Could Be Lost" at page 8.
Chesapeake Capital Corporation
Chesapeake Capital Corporation relies primarily on technical analysis,
using multiple systems and timeframes. The trading methodologies employed by
Chesapeake Capital Corporation are based on programs analyzing a large number of
interrelated mathematical and statistical formulas and techniques which are
quantitative and proprietary in nature. In addition to such mathematical
evaluations, Chesapeake Capital Corporation employs a technique of technical
analysis generally known as "charting" in order to attempt to determine optimal
support and resistance levels and entry and exit points in the various markets.
Chesapeake Capital Corporation also makes extensive use of internally-generated
market information, which includes, but is not limited to, price volatility,
open interest, daily price action, volume and market psychology or sentiment.
The profitability of the Trading Programs, traded pursuant to technical
analysis emphasizing mathematical and charting approaches, will depend upon the
occurrence in the future, as in the past, of major trends in some markets.
Chesapeake Capital Corporation will trade its "Diversified Trading Program" on
behalf of the Trust. The Diversified Trading Program emphasizes a maximum range
of diversification with a global portfolio of futures, forward and cash markets
which includes, but is not limited to, agricultural products, metals,
currencies, financial instruments, and stock, financial and economic indices.
See pages APPI-5 through APPI-11 for performance information relating to
Chesapeake Capital Corporation.
Dreiss Research Corporation
Dreiss Research Corporation utilizes a long-term trend-following system,
which is technical in nature and ignores news, weather, politics and other
"fundamental" factors except as they are reflected in the markets.
The technical basis for the trading method is the fractal decomposition
of weekly price patterns. This analysis identifies turning points for
constructing trend lines and determining support and resistance, which are then
combined in a system which generates specific trading signals. Signals are then
screened by a unique Choppiness Index which may then be used to adjust the
proximity of entry and exit signals. Dreiss Research trades a diversified
portfolio of futures contracts representing most major commodity groups (i.e.,
agriculture, currencies, energy, equity indexes, interest rates, livestock,
metals, and softs). See pages APPI-12 through APPI-16 for performance
information relating to Dreiss Research Corporation.
Hyman Beck & Company, Inc.
Hyman Beck & Company, Inc. relies primarily on technical analysis. The
trading methodologies employed by Hyman Beck & Company, Inc. are based on
programs analyzing a large number of interrelated mathematical and statistical
formulas and techniques which are quantitative and proprietary in nature. Hyman
Beck & Company, Inc. will trade its Global Portfolio on behalf of the Trust,
relying on technical trend-following analysis. Long-term, technical
trend-following analysis emphasizes mathematical and charting approaches and
depends upon the occurrence of major price trends in some markets. The Global
Portfolio trades a portfolio of over 30 futures and forward markets worldwide
with a concentration in world interest rate and other financial markets. See
pages APPI-17 through APPI-28 for performance information relating to Hyman Beck
& Company, Inc.
-18-
<PAGE>
Willowbridge Associates Inc.
Willowbridge Associates Inc. will utilize its XLIM Trading Approach
("XLIM") on behalf of the Trust. XLIM is traded on a discretionary basis by
Philip L. Yang. Trading decisions are based primarily on Mr. Yang's analysis of
technical factors, fundamentals and market action. XLIM trades a wide variety of
futures contracts, forwards, spot and options on United States and international
markets, including but not limited to, financial instruments, currencies,
precious and base metals and agricultural commodities. Mr. Yang reserves the
right to add, subtract or otherwise change the portfolio composition of XLIM.
See pages APPI-29 through APPI-41 for performance information relating to
Willowbridge Associates Inc.
Witter & Lester, Inc.
Witter and Lester will trade its Redstone Program on behalf of the
Trust, trading only the S&P 500 Stock Index futures contract. The Redstone
Program stems from a research effort begun in 1993 to automate the
interpretation of traditional Witter & Lester market analysis. Witter & Lester's
stock market model is based on pattern recognition of the following nine
indicators:
1) Candlestick theory 6) Put/Call ratio
2) Climax Indicator 7) Seasonal variable
3) Volume trends 8) TRIN
4) Momentum 9) Valuation/Sentiment
5) New high/lows
Each day the market timing model produces a rating (bullish or bearish).
This daily analysis drives the degree of long or short exposure taken in the
program each day. Positions are built using a combination of stock index futures
and options. See pages APPI-42 through APPI-49 for performance information
relating to Witter & Lester,. Inc.
The Advisory Agreements
The Advisory Agreements among the Trust, Kenmar and each Advisor
terminate December 31, 1997, subject to renewal on the same terms at Kenmar's
option for up to two additional one-year terms. Kenmar will generally attempt to
negotiate advisory agreements with comparable terms (up to a 2% Consulting Fee
and a 25% quarterly Profit Share) for all of the Advisors chosen for the Trust.
Kenmar, but generally not the Advisors, retains the right to terminate any
Advisory Agreement at will and upon short notice to the Advisors.
Each Advisory Agreement provides that the Trust will indemnify the
Advisor and its affiliates, as well as their respective officers, shareholders,
directors, employees, partners and controlling persons for conduct taken as an
Advisor or in connection with the Advisory Agreement, provided that such conduct
does not constitute negligence, misconduct or breach of the Advisory Agreement
or of any fiduciary obligation to the Trust and was done in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Trust. Each Advisory Agreement further provides that this indemnity
provision will not increase the liability of any Unitholder to the Trust beyond
the amount of such Unitholder's capital and profits, if any, in the Trust
(exclusive of previously received distributions or other returns of capital,
including redemptions).
Under the exculpatory provisions of the Advisory Agreements, none of the
Advisors, their affiliates or their respective officers, directors, employees,
partners, controlling persons or shareholders will be liable to the Trust or to
any of the Unitholders in connection with their management of assets of the
Trust except by reason of acts or omissions in contravention of the Advisory
Agreement, or due to their misconduct or negligence, or by reason of not having
acted in good faith and in the reasonable belief that such actions or omissions
were in, or not opposed to, the best interests of the Trust.
Each initial Advisor will purchase a minimum of 500 Units as of the
inception of the Trust's trading. Each initial Advisor has agreed to maintain
this investment for as long as it continues to act as an Advisor.
-19-
<PAGE>
KENMAR ADVISORY CORP.
Background and Principals
Kenmar Advisory Corp. is a Connecticut corporation originally
incorporated as a New York corporation in September 1983. Kenneth A. Shewer is
its Chairman and Marc S. Goodman is its President. Messrs. Shewer and Goodman
are the Kenmar's sole directors and are the only persons responsible for the
selection and retention of Advisors. All of Kenmar's stock is owned, indirectly
and equally, by Messrs. Shewer and Goodman. Kenmar is registered with the CFTC
as a commodity pool operator and is a member in good standing of the NFA in such
capacity. Its principal place of business is Two American Lane, P.O. Box 5150,
Greenwich, CT 06831-8150, telephone number: (203) 861- 1000. The Kenmar group of
companies focuses exclusively on the design and management of leading-edge
investment programs in the managed futures sector. The registration of Kenmar
with the CFTC and its membership in the NFA must not be taken as an indication
that any such agency or self-regulatory body has recommended or approved either
Kenmar or the Trust.
No administrative, civil, or criminal action has ever been brought
against Kenmar or any of its principals.
Mr. Kenneth A. Shewer, 43, Chairman, was employed by Pasternak, Baum and
Co., Inc. ("Pasternak, Baum"), an international cash commodity firm, from June
1976 until September 1983. Mr. Shewer created and managed Pasternak, Baum's
Grain Logistics and Administration Department and created its Domestic Corn and
Soybean Trading Department. In 1982, Mr. Shewer became co-manager of Pasternak,
Baum's F.O.B. Corn Department. In 1983, Mr. Shewer was made Vice President and
Director of Pasternak, Baum. Mr. Shewer graduated from Syracuse University with
a B.S. degree in 1975.
Mr. Marc S. Goodman, 47, President, joined Pasternak, Baum in September
1974 and was a Vice President and Director from July 1981 until September 1983.
While at Pasternak, Baum, Mr. Goodman was largely responsible for business
development outside of the U.S., for investment of its corporate retirement
funds, and for selecting trading personnel. Mr. Goodman has conducted extensive
business in South America, Europe and the Far East. Mr. Goodman was awarded an
Economics and Finance Department Fellowship from September 1969 through June
1971. Mr. Goodman graduated from the Bernard M. Baruch School of Business of the
City University of New York with a B.B.A. in 1969 and an M.B.A. in 1971 in
Finance and Investments.
Messrs. Shewer and Goodman left Pasternak, Baum in September 1983 to
form Kenmar Advisory Corp. They have occupied their present positions with
Kenmar since that time.
Ms. Esther Eckerling Goodman, 42, Chief Operating Officer and Senior
Executive Vice President, joined Kenmar in July 1986 and has been involved in
the futures industry since 1974. From 1974 through 1976, she was employed by
Conti-Commodity Services, Inc. and ACLI Commodity Services, Inc., in the areas
of hedging, speculative trading and tax arbitrage. In 1976, Ms. Goodman joined
Loeb Rhoades and Company, Inc. where she was responsible for the development and
management of a managed futures program which, in 1979, became the trading
system for Westchester Commodity Management, an independent commodity trading
advisor of which Ms. Goodman was a founder and principal. From 1983 through
mid-1986, Ms. Goodman was employed as a marketing executive at Commodities Corp.
(USA) of Princeton, New Jersey. Ms. Goodman was a Director of the Managed
Futures Trade Association from 1987 to 1991 and a Director of its successor
organization, the Managed Futures Association, from 1991 to 1995. She has
written several articles and has spoken before various professional groups and
organizations on the subject of managed futures. Ms. Goodman graduated from
Stanford University in 1974 with a B.A. degree.
Mr. Robert L. Cruikshank, 59, Executive Vice President, joined Kenmar in
March 1991. Mr. Cruikshank spent 20 years (1958-1978) at Blyth Eastman Dillon in
New York and was its Executive Vice President in charge of the Securities
Division, which included all domestic and international sales and branch office
activities, all trading departments, and the research areas. In 1979, Mr.
Cruikshank jointly formed Neild, Cruikshank & Co., an independent market-maker
on the Chicago Board of Options Exchange ("CBOE"), where he remained until 1984
when he formed his own market making firm, Nassau Corporation. From 1982 to 1984
Mr. Cruikshank also served as Director and Vice Chairman of the Board of the
CBOE, during which time he was instrumental in the development of the S&P
-20-
<PAGE>
100 (OEX) option contract. From 1985, when he left Nassau Corporation, until
March 1991, he served as President and CEO of First Capital Financial
Corporation, a national real estate syndication firm owned by Sam Zell. Mr.
Cruikshank graduated cum laude from Princeton University with a B.A. degree in
economics in 1958.
Joshua B. Parker, Esq., 40, Executive Vice President and General
Counsel, has been with Kenmar since October 1988. From January 1986 through
October 1988, Mr. Parker was an independent floor trader on the American Stock
Exchange engaged in trading equity options and related instruments, first in
association with Michael Becker & Co. and later in his own firm, Premium
Investments L.P. From May 1985 through January 1986, Mr. Parker was the
associate general counsel of a company in the over-the-counter drug and personal
care industry. From August 1981 through May 1985, Mr. Parker was associated with
the law firm of Baer Marks & Upham. Mr. Parker is a 1981 graduate of the New
York University School of Law with a J.D. degree and a 1977 graduate of Yale
University with a B.A. degree.
Mr. Thomas J. DiVuolo, 36, Senior Vice President--Fund Administration,
joined Kenmar in March 1989 and is responsible for the administration of the
accounts and funds managed by Kenmar. From 1982 through 1984, Mr. DiVuolo was
employed by Balfour Maclaine International Ltd. working in the commodity
accounting and compliance areas. From 1984 through 1986 he was employed at E.F.
Hutton and Company, Inc. as a manager of commodity regulatory reporting. From
1986 until he joined Kenmar in 1989, Mr. DiVuolo worked for Lloyds International
Trading, a commodity trading division of Lloyds Bank. Mr. DiVuolo is a 1982
graduate of Pace University with a B.B.A. degree in Public Accounting. He
received his M.B.A. in Finance from Wagner College in 1990.
Mr. Kevin J. Treacy, 36, Senior Vice President--Finance, joined Kenmar
in August 1993. From 1982 through 1986, Mr. Treacy was Senior Auditor with
Arthur Young & Company. From 1986 through 1993, Mr. Treacy was employed by E.S.
Jacobs & Company, an investment company with 25 operating subsidiaries and total
sales of $6 billion, where he held a series of positions leading up to Chief
Financial Officer. Mr. Treacy graduated from University College Dublin with a
Bachelor of Commerce in 1981 and Diploma in Professional Accounting in 1983. He
was admitted to membership to the Institute of Chartered Accountants in Ireland
in 1985.
Mr. Kenneth J. Armstead, 42, Vice President--Research, joined Kenmar in
June 1995 and is responsible for the portfolio performance and risk analysis to
support the allocation of funds under management by Kenmar. Mr. Armstead has
been professionally involved in the trading of global fixed income products,
including cash, futures, and related derivatives since 1985. From October 1994
to the present, Mr. Armstead has been engaged in the requisite regulatory and
legal start-up activities associated with the establishment of a sole
proprietorship, Market Intermarket Trading ("MIT"), as a commodity trading
advisor. From January 1991 to September 1994, Mr. Armstead was employed by
Commodities Corporation (USA), a commodity pool operator and responsible for the
research, development, and trading of empirical methodologies for a diverse
group of financial and non-financial commodities. Mr. Armstead was employed by
Citicorp Investment Bank from September 1982 to December 1990 in a variety of
positions, ultimately becoming the Vice President in Portfolio Strategy,
responsible for developing proprietary multi-market quantitative trading
strategies for cash and derivatives in global fixed income, currency, and metals
markets. Mr. Armstead received a B.S. degree in Mechanical Engineering and a
M.S. degree in Nuclear Engineering, both from the Massachusetts Institute of
Technology in 1978. Mr. Armstead received his M.S. degree in Management with
concentrations in finance and applied economics from the Sloan School at the
Massachusetts Institute of Technology in 1982.
Mr. Jeffrey S. Rothstein, 38, Vice President--Management Information
Systems and Analysis, joined Kenmar as a Vice President and the Chief
Information Officer in May of 1996. From August 1991 to April 1996, Mr.
Rothstein was Vice President in charge of Commodity Trading Systems Development
and Support at AIG Trading Group, AIG's commodity trading subsidiary. From
January 1986 through July 1991, he worked for Bankers Trust Company, building
equity trading systems, and marketing and implementing foreign exchange trading
systems at international merchant banks. From September 1981 through June 1985,
Mr. Rothstein was employed as a programmer, project leader and manager by
Digital Equipment Corporation; he was with Hewlett Packard Company from July
1979 through September 1981. Mr. Rothstein received an MBA from Columbia
University in December 1985 and a B.S. in Computer Science from Cornell
University in 1979.
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<PAGE>
Management of Traders
Kenmar's hallmark is its emphasis on active management of portfolios of
traders. Kenmar will analyze trading performance for each Advisor it employs on
a daily basis. This detailed analysis identifies sources of profits and losses
for each trader each day, enabling management to make highly informed decisions
regarding the performance of each Advisor.
Based on market conditions, Advisor performance and other factors,
Kenmar will reallocate assets among Advisors in an effort to ensure that capital
is optimally placed. Kenmar also will add Advisors when situations warrant, and
replace advisors if profitability, risk assumptions or other significant factors
indicate that replacement is advisable.
Naturally, these activities require a strong emphasis on trading and
market research. Kenmar operates and updates continuously a database that tracks
over 850 different trading programs offered by trading advisors around the
globe. Added to this quantitative data are qualitative assessments based on
detailed trader interviews and on-site visits by Kenmar to each trader's
business location.
Traders employed by Kenmar include or have included some of the world's
best-known and most respected trading organizations -- as well as newer traders
that Kenmar believes offer exceptional promise.
Fiduciary Obligations of Kenmar
Nature of Fiduciary Obligations; Conflicts of Interest
As managing owner of the Trust, Kenmar is subject to effectively the
same restrictions imposed on "fiduciaries" under both statutory and common law.
Kenmar has a fiduciary responsibility to the Unitholders to exercise good faith,
fairness and loyalty in all dealings affecting the Trust, consistent with the
terms of the Trust's Declaration of Trust and Trust Agreement (the "Declaration
of Trust"). The general fiduciary duties which would otherwise be imposed on
Kenmar (which would make the operation of the Trust as described herein
impracticable due to the strict prohibition imposed by such duties on, for
example, conflicts of interest on behalf of a fiduciary in its dealings with its
beneficiaries), are defined and limited in scope by the disclosure of the
business terms of the Trust, as set forth herein and in the Declaration of Trust
(to which terms all Unitholders, by subscribing to the Units, are deemed to
consent).
The Trust, as a publicly-offered "commodity pool," is subject to the
Statement of Policy of the North American Securities Administrators Association,
Inc. relating to the registration, for public offering, of commodity pool
interests (the "NASAA Guidelines"). The NASAA Guidelines explicitly prohibit a
managing owner of a commodity pool from "contracting away the fiduciary
obligation owed to [investors] under the common law." Consequently, once the
terms of a given commodity pool, such as the Trust, are established, the
managing owner is effectively precluded from changing such terms in a manner
that disproportionately benefits the managing owner, as any such change could
constitute self-dealing under common law fiduciary standards, and it is
virtually impossible to obtain the consent of existing investors to such
self-dealing (whereas, given adequate disclosure, new investors subscribing to a
pool should be deemed to evidence their consent to the business terms thereof by
the act of subscribing).
The Declaration of Trust provides that Kenmar and its affiliates shall
have no liability to the Trust or to any Unitholder for any loss suffered by the
Trust that arises out of any action or inaction of Kenmar or its affiliates or
their directors, officers, shareholders, partners, members or employees (the
"Kenmar Related Parties") if the Kenmar Related Parties, in good faith,
determined that such course of conduct was in the best interests of the Trust,
and such course of conduct did not constitute negligence or misconduct by the
Kenmar Related Parties. The Trust has agreed to indemnify the Kenmar Related
Parties against claims, losses or liabilities based on their conduct relating to
the Trust, provided that the conduct resulting in the claims, losses or
liabilities for which indemnity is sought did not constitute negligence or
misconduct and was done in good faith and in a manner reasonably believed to be
in the best interests of the Trust. The NASAA Guidelines prescribe the maximum
permissible extent to which the Trust can indemnify the Kenmar Related Parties
and prohibit the Trust from purchasing insurance to cover indemnification which
the Trust itself could not undertake directly.
-22-
<PAGE>
Fiduciary and Regulatory Duties
An investor should be aware that Kenmar has a fiduciary responsibility
to the Unitholders to exercise good faith and fairness in all dealings affecting
the Trust.
Under Delaware law, a beneficial owner of a business trust may, under
certain circumstances, institute legal action on behalf of himself and all other
similarly situated beneficial owners (a "class action") to recover damages from
a managing owner of such business trust for violations of fiduciary duties, or
on behalf of a beneficial trust (a "derivative action") to recover damages from
a third party where a managing owner has failed or refused to institute
proceedings to recover such damages. In addition, beneficial owners may 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 thereunder by the SEC.
Beneficial owners who have suffered losses in connection with the purchase or
sale of their beneficial interests may be able to recover such losses from a
managing owner where the losses result from a violation by the managing owner of
the anti-fraud provisions of the federal securities laws.
Under certain circumstances, Unitholders also have the right to
institute a reparations proceeding before the CFTC against Kenmar (a registered
commodity pool operator), the Clearing Brokers (a registered futures commission
merchant) and the Advisors (registered commodity trading advisors), as well as
those of their respective employees who are required to be registered under the
Commodity Exchange Act, as amended, and the rules and regulations promulgated
thereunder. Private rights of action are conferred by the Commodity Exchange
Act. Investors in commodities and in commodity pools may, therefore, invoke the
protections provided by such legislation.
There are substantial and inherent conflicts of interest in the
structure of the Trust which are, on their face, inconsistent with Kenmar's
fiduciary duties. One of the purposes underlying the disclosures set forth in
this Prospectus is to disclose to all prospective Unitholders these conflicts of
interests so that Kenmar may have the opportunity to obtain investors' informed
consent to such conflicts. Prospective investors who are not willing to consent
to the various conflicts of interest described under "Conflicts of Interest" are
ineligible to invest in the Trust. Kenmar presently intends to raise such
disclosures and consent as a defense in any proceeding brought seeking relief
based on the existence of such conflicts of interest. See "Conflicts of
Interest" at page 29.
The foregoing summary describing in general terms the remedies available
to Unitholders under federal and state law is based on statutes, rules and
decisions as of the date of this Prospectus. This is a rapidly developing and
changing area of the law. Therefore, Unitholders who believe that they may have
a legal cause of action against any of the foregoing parties should consult
their own counsel as to their evaluation of the status of the applicable law at
such time.
USE OF PROCEEDS
The proceeds of the offering of the Units will be used by the Trust to
engage in the speculative trading of futures and forward contracts through
allocating such proceeds to the Advisors.
To the extent the Trust trades in futures contracts on U.S. exchanges,
the assets deposited by the Trust with its Clearing Broker as margin must be
segregated pursuant to the regulations of the CFTC. Such segregated funds may be
invested only in a limited range of instruments -- principally U.S. government
obligations.
To the extent that the Trust trades in futures contracts on markets
other than regulated U.S. futures exchanges, funds deposited to margin positions
held on such exchanges are invested in bank deposits or in instruments of a
credit standing generally comparable to those authorized by the CFTC for
investment of "customer segregated funds," although applicable CFTC rules
prohibit funds employed in trading on foreign exchanges from being deposited in
"customer segregated fund accounts."
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<PAGE>
Although the percentages set forth below may vary substantially over
time, Kenmar estimates that:
(i) up to approximately 25% of the Net Asset Value of the Trust
will be placed with the Clearing Broker in the form of cash or U.S.
Treasury bills to margin positions of all commodities combined. Such
funds will be segregated pursuant to CFTC rules; and
(ii) up to approximately 10% of the Trust's assets will be used to
margin foreign futures contracts.
The remaining approximately 65% of the Trust's assets will be placed in
a custodial account at, and managed by, Brown Brothers Harriman & Co. ("BBH"), a
New York limited partnership established in 1818, chartered as a private bank
and acting as a cash manager and yield enhancer. In its role as cash manager and
yield enhancer, BBH will invest the Trust's assets not used for margin primarily
in U.S. Government Treasury obligations, in an effort to increase the Trust's
interest income earned on these assets. For this service BBH will receive a base
annual fee equal to the greater of $25,000 or 0.10% of the Trust's assets that
it manages plus 25% of any interest income generated by BBH which is in excess
of the 90-day U.S. Treasury bill index as published by Merrill Lynch. The
foregoing fees are deducted from the Trust's interest income on a monthly basis.
The Trust will receive all of the interest income earned on its assets.
CHARGES
The following costs will be paid by the Trust.
Recipient Nature of Payment Amount of Payment
- --------- ----------------- -----------------
Kenmar Reimbursement of organizational Kenmar will advance these
and initial offering costs costs, estimated at $350,000,
which will be reimbursed to
Kenmar in monthly installments
of 0.2% of the Trust's
month-end Net Assets.
Kenmar Brokerage commissions Flat-rate monthly commissions
of 0.917% of the Trust's
month-end assets (an 11% annual
rate). Such commissions cover
all floor brokerage, exchange,
clearing and NFA fees incurred
in the Trust's trading.
Third Parties Miscellaneous execution costs Paid as incurred; not
anticipated to exceed 0.25% of
average month-end Net Assets
per year.
Counterparties "Bid-ask" spreads The counterparties with which
the Trust will trade will each
receive "bid-ask" spreads on
the forward trades executed on
behalf of the Trust with
themselves as counterparties.
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<PAGE>
Recipient Nature of Payment Amount of Payment
- --------- ----------------- -----------------
Advisors Profit Shares Paid by the Trust as a whole on
a quarterly basis and by
reduction of the Net Asset
Value of Units when redeemed.
The initial Advisors'
respective Profit Shares are
determined based on any New
Trading Profit (as defined)
generated by each individual
Advisor. New Trading Profit in
respect of each Advisor's
account is calculated after
reduction for brokerage
commissions at a 4.5% annual
rate, plus execution costs
actually incurred, rather than
at an 11% annual rate. New
Trading Profit is not reduced
by administrative expenses or
organizational and initial
offering cost reimbursements
(or extraordinary costs). The
Profit Shares are payable
separately to each Advisor
based on its individual
performance, not overall
profits of the Trust. Units may
be subject to paying Profit
Shares even though the Net
Asset Value per Unit
attributable to a particular
Advisor has declined from the
purchase price of such Units.
Kenmar Incentive Fees Paid by the Trust as a whole on
an annual basis and by
reduction of the Net Asset
Value of Units when redeemed.
The Incentive Fee equals 5% of
any New Overall Appreciation
(as defined). An Incentive Fee
may be allocated in respect of
Units even though the Net Asset
Value per Unit has declined
from the purchase price of such
Units.
Third Parties Administrative costs Paid as incurred; not
anticipated to exceed 0.50% of
the Trust's average month-end
Net Assets per year.
Third Parties Reimbursement of delivery, Actual payments to third
insurance, storage and any parties; expected to be
other extraordinary expenses; negligible.
taxes (if any)
----------
Organizational and Initial Offering Costs
Kenmar will advance the organizational and initial offering costs of the
Trust. The Trust will reimburse Kenmar for such costs in monthly installments of
0.2% of the Trust's month-end Net Assets, commencing with the first month of
trading operations.
Organizational and initial offering costs (not including selling
commissions) are currently estimated as follows: printing -- $60,000;
registration and filing fees -- $22,742; "Blue Sky" expenses (excluding legal
fees) -- $40,000; accounting fees -- $20,000; counsel fees -- $140,000; and
miscellaneous offering costs -- $67,258; a total of $350,000.
Brokerage Commissions
Commodity brokerage commissions for futures trades are typically paid on
the completion or liquidation of a trade and are referred to as "round-turn
commissions," which cover both the purchase (or sale) of a commodity futures
contract and the subsequent offsetting sale (or purchase). However, the Trust
will not pay commodity brokerage commissions to Kenmar on a per-trade basis but
rather at the monthly flat rate of 0.917% of the Trust's month-end assets
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<PAGE>
(an 11.0% annual rate). Kenmar will receive such brokerage commissions,
irrespective of the number of trades executed on the Trust's behalf, and will
pay all actual costs of executing the Trust's trades.
State securities administrators require Kenmar to represent that the
brokerage commissions paid by the Trust will not be increased during the period
in which early redemption charges are in effect. Due to the ongoing offering
of the Units, this representation entails that Kenmar will likely never be able
to raise brokerage commissions unless Kenmar waives such charges.
Kenmar pays, from the brokerage commissions received by it, all costs of
executing the Trust's futures trades, including the NFA transaction fees
assessed on the Trust's futures trading on United States exchanges. Such NFA
fees currently equal $0.14 per round-turn trade of a futures contract and $0.07
for each trade of a commodity option (a $0.07 fee is charged upon the purchase
and upon the exercise of an option; if an option is exercised, an additional
$0.14 fee is payable upon the liquidation of the futures position acquired upon
such exercise; no fee is assessed upon the expiration of an option).
Kenmar estimates, based on the historical trading frequency of the
initial Advisor group, that the Trust's 11% per annum flat-rate brokerage
commissions would constitute the approximate equivalent of round-turn
commissions of $45. The round-turn equivalent of the Trust's flat-rate
commissions will vary with the frequency with which the Advisors place orders
for the Trust's account managed by each of them. Kenmar will report, in the
annual reports distributed by Kenmar to Unitholders, the approximate round-turn
equivalent rate paid by the Trust on its trading during the previous year.
Miscellaneous Execution Costs
Kenmar will pay all routine costs relating to the execution of the
Trust's trades (other than "bid-ask" spreads, see below). However, certain
incidental costs may be incurred in the course of such trading -- for example,
"give-up" charges when a trade is executed and cleared by brokers other than the
Clearing Broker and subsequently transferred to the Clearing Broker for carrying
or the service fees assessed by certain forward dealing desks -- which the Trust
will pay as incurred. There may, in fact, be virtually no such costs incurred
during certain periods and Kenmar does not anticipate that such costs will, in
any event, exceed 0.25% of the Trust's average month-end Net Assets in any
fiscal year.
"Bid-ask" Spreads
Many of the Trust's currency trades will be executed in the forward
markets, in which participants include a spread between the prices at which they
are prepared to buy and sell a particular currency. The fact that the Trust pays
such "spreads" in no respects results in a reduction in the flat-rate brokerage
commissions paid by the Trust (however, forward trades are not included in the
number of round-turns executed by the Trust in determining the approximate
round-turn equivalent of the Trust's flat-rate commissions).
Profit Shares and Incentive Fees
Calculation of New Trading Profit and New Overall Appreciation
The initial Trading Advisors will receive Profit Shares based on New
Trading Profit generated by each individual Trading Advisor in the following
percentages: Chesapeake Capital Corporation - 20%; Dreiss Research Corporation -
20%; Hyman Beck & Company, Inc. - 20%; Willowbridge Associates Inc. - 25%; and
Witter and Lester - 15%.
New Trading Profit is calculated with respect to each Advisor's Trust
account and New Overall Appreciation is calculated with respect to the Trust as
a whole on the basis of the cumulative performance of such account or the Trust,
respectively, not on a Unit-by-Unit basis. For example, if the Trust loses
$500,000 in its first month of trading and gains $750,000 in the next, accrued
New Overall Appreciation would equal $250,000 as of the end of such second month
- -- irrespective of whether the Net Asset Value per Unit were greater or less
than the initial $100 at such
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<PAGE>
time (if a substantial number of Units were either redeemed or issued as of the
end of the first month, the cumulative gain through the end of the second month
would not be directly reflected in the Net Asset Value per Unit).
Both New Trading Profit and New Overall Appreciation are calculated on a
high water mark basis, as described below. It is only if cumulative Trading
Profit or Overall Appreciation as of a quarter-end or a December 31 exceeds the
highest level of such cumulative Trading Profit or Overall Appreciation as of
any previous quarter-end or December 31, as the case may be, that New Trading
Profit or New Overall Appreciation, subject to a Profit Share or Incentive Fee,
will be generated. Each Advisor will be allocated from the Trust a Profit Share
equal to the percentage described above of any cumulative New Trading Profit, as
of the calendar quarter-end of determination, in excess of: (i) the highest
level of cumulative Trading Profit as of any previous calendar quarter-end; or
(ii) $0, if higher (the "high water mark"). "New Trading Profit" (i) includes
both realized and unrealized profits and losses, (ii) does not include interest
income, (iii) is reduced by annual brokerage commissions of 4.5%, plus execution
costs actually incurred, not 11%, of average month-end assets, and (iv) is not
reduced by administrative expenses, organizational and initial offering cost
reimbursements or extraordinary costs (such as taxes or litigation costs). "New
Overall Appreciation" is calculated, not on a per-Unit basis, but on the basis
of the overall trading profits and losses of the Trust, net of all fees and
expenses (including Profit Shares) paid or accrued other than the Incentive Fee
itself and after subtraction of all interest income received by the Trust.
In the event that losses have been incurred since the currently
effective "high water mark" was reached and assets are withdrawn from an
Advisor's Trust account or from the Trust as a whole (other than to pay
expenses), the shortfall (the "Loss Carryforward") between such "high water
mark" and the level of cumulative Trading Profits or Overall Appreciation at the
time of such withdrawal shall be proportionately reduced (and the "high water
mark" lowered accordingly) for purposes of calculating subsequent Profit Shares
or Incentive Fees. Loss Carryforward reductions, in respect of a particular
Advisor's Trust account, can result from Kenmar reallocating capital away from
an Advisor, as well as from a redemption of Units. Loss Carryforward reductions
will not be restored as a result of subsequent additions of capital offsetting
the withdrawals which resulted in such reductions.
If Units are redeemed at a time when there is accrued New Trading Profit
or New Overall Appreciation in respect of an Advisor's Trust account or the
Trust as a whole, the Profit Share and Incentive Fee attributable to the amount
of capital withdrawn (net of the proceeds of any additional Units issued as of
the date of such withdrawal) will be paid out to Kenmar and may be paid out to
the appropriate Advisor as well.
For example, assume that the Trust began trading October 1, 1996 and as
of December 31, 1996 had recognized cumulative Overall Appreciation of $200,000.
An Incentive Fee of 5% of $200,000 or $10,000 would be paid to Kenmar. If
through June 30, 1997, the Trust had incurred a loss of $100,000 for the year,
at which point 25% of the Units were redeemed, prior to such redemption there
would have existed a Loss Carryforward, for Incentive Fee calculation purposes,
of $100,000 which would be reduced to $75,000 upon redemption of 25% of the
Units. If during the second six months of 1997, Overall Appreciation of $100,000
were recognized, New Overall Appreciation as of December 31, 1997 would equal
$25,000, and an additional Incentive Fee of $1,250 would be paid.
Profit Shares do not reduce Trading Profit and Incentive Fees do not
reduce Overall Appreciation. Consequently, the Advisors and Kenmar need not
"earn back" their Profit Shares and Incentive Fees, respectively, before
generating New Trading Profits or New Overall Appreciation potentially subject
to additional Profit Shares and Incentive Fees. (Overall Appreciation is
calculated after reduction for all Profit Shares, but not for Incentive Fees,
paid or accrued.)
Interest income is not included in either Trading Profits or Overall
Appreciation.
Allocations of Profit Shares and Incentive Fees Among Unitholders
Because Profit Shares and Incentive Fees are calculated on the basis of
the Trading Profit, if any, attributable to an Advisor's Trust account as a
whole and the Trust as a whole, respectively, these costs are subject to equal
allocation among investors even though such persons may have purchased their
Units at different times. Such costs, therefore, are not reflective of each
investor's individual investment experience, but of the performance of the Trust
as a whole. For example, assume that 10,000 Units were initially sold as of
October 1, 1996 and through December 31, 1996
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<PAGE>
the Trust incurred a $1,000,000 loss. If 10,000 more Units were purchased as of
January 1, 1997 (at a Net Asset Value of $90 per Unit), and the Trust earned
$1,000,000 during 1997, as of December 31, 1997 no Incentive Fee would be due,
even though the second tranche of Units had increased in Net Asset Value from
$90 to $95. Moreover, were $1,500,000 to have been earned, the Units initially
sold would be subject to paying their allocable share of the Incentive Fee of
$25,000 (5% of $500,000) which would be due as of December 31, 1997, despite the
Net Asset Value of such Units being below their $100 purchase price.
Profit Shares and Incentive Fee accruals are also subject to distortions
similar to those described above when reversed due to subsequent losses prior to
the date that these costs are finally determined. When Units are purchased at a
Net Asset Value per Unit reduced by accrued Profit Shares and/or Incentive Fees,
such Units effectively receive "full credit" for the amount of such accruals
through the reduction in their purchase price. Consequently, if the accrual is
subsequently reversed, the benefit of the reversal should be allocated entirely
to the Units outstanding when such Profit Share or Incentive Fees accrued,
rather than being evenly divided between such Units and the newly-purchased
Units. However, such reversals are allocated equally among all outstanding Units
in the interests of maintaining a uniform Net Asset Value per Unit.
The distortions described above are the product of calculating and
allocating incentive compensation in open-end funds among persons investing at
different times while still maintaining a uniform net asset value per share or
unit. This method is the most common method used in retail managed futures funds
in which the large number of investors makes it impracticable to track
individual capital accounts for each investor, but can result in allocations of
Profit Shares and Incentive Fees which are not reflective of particular
investors' individual investment experience.
Ongoing Offering Costs
The Trust will be responsible for actual payments to third parties;
estimated at no more than 0.25% of the Trust's average month-end Net Assets per
year.
Extraordinary Expenses
The Trust will be responsible for any extraordinary charges (such as
taxes) incidental to its trading. In Kenmar's experience such charges have been
negligible.
Kenmar will send each Unitholder a monthly statement that includes a
description of performance during the prior month and sets forth, among other
things, the brokerage commissions, Incentive Fees and Profit Share accruals
during such month and on a year-to-date basis.
Charges Paid by Kenmar
The following costs relating to the sale of the Units and the operation
of the Trust will be paid by Kenmar.
Selling Commissions; "Trailing Commissions"
Kenmar pays, from its own funds, the 5% selling commissions due in
respect of the Units. Furthermore, Kenmar pays significant "trailing
commissions" to eligible selling agents who sell Units which remain outstanding
for more than twelve months. Such "trailing commissions" equal 3.5% of the
month-end Net Asset Value of such Units for as long as they remain outstanding.
Selling Agents will pass on to their registered representatives a portion of the
foregoing selling compensation and "trailing commissions," after deduction of
"due diligence" and administrative expenses incurred in connection with this
offering, in accordance with Selling Agents' standard compensation arrangements.
See "Plan of Distribution -- Selling Agents' Compensation" at page 43.
Consulting Fees
Each initial Advisor will receive a Consulting Fee, payable by Kenmar
not the Trust, equal to 0.167% of the month-end assets of the Trust allocated to
such Advisor's management (a 2% annual rate). Accrued Profit Shares, Incentive
Fees and month-end redemptions do not reduce month-end assets for purposes of
calculating the Consulting Fees
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due to the Advisors. However, such assets are reduced by a portion of the
brokerage commissions paid to Kenmar. Such reduction has no effect on the
overall costs paid by the Trust.
Redemption Charges
Units redeemed on or prior to the end of the eighteenth month after such
Units are issued are subject to redemption charges of 3% (for Units redeemed on
or after the end of the sixth and on or before the end of the twelfth month
after purchase) and 2% (for Units redeemed from the beginning of the thirteenth
and on or before the end of the eighteenth month after purchase) of the Net
Asset Value at which they are redeemed. Such charges are paid to Kenmar.
THE CLEARING BROKER
The Trust's initial clearing broker is ING (U.S.) Securities, Futures &
Options Inc. ("ING Futures & Options") (f/k/a/ Internationale Nederlanden (U.S.)
Derivatives Clearing, Inc. and formerly known as Quantum Financial Services,
Inc.). ING Futures & Options is a duly registered futures commission merchant
and a member of the National Futures Association. As of November 6, 1995, ING
Futures & Options is also registered as a broker-dealer and a member of the
National Association of Securities Dealers, Inc. ING Securities & Options which
was formed in 1990, operates under the trade names ING Futures & Options and ING
Securities & Options. ING Futures & Options is also a clearing firm of each of
the principle U.S. futures exchanges and the Chicago Board of Options Exchange.
In January of 1994, ING Futures & Options was purchased by Internationale
Nederlanden (U.S.) Capital Holdings Corp. ("ING Capital"), a wholly-owned
subsidiary of Internationale Nederlanden Bank ("ING Bank") in Amsterdam, one of
the largest financial institutions in the world. ING Futures & Options is an
Illinois corporation with a principal place of business at 233 South Wacker
Drive, Suite 5200, Chicago, Illinois 60606 and a telephone number of (312)
496-7000.
At any given time, ING Futures & Options may be involved in legal
actions, some of which may seek significant damages. However, during the five
years preceding the date of this Prospectus, there has been no administrative,
civil or criminal action against ING Futures & Options or any of its principals
- -- whether pending, on appeal or concluded -- which is material in light of all
the circumstances.
CONFLICTS OF INTEREST
General
Kenmar has not established any formal procedures to resolve the
following conflicts of interest. Consequently, investors will be dependent on
the good faith of the respective parties subject to such conflicts to resolve
them equitably. Although Kenmar attempts to monitor these conflicts, it is
extremely difficult, if not impossible, for Kenmar to ensure that these
conflicts do not, in fact, result in adverse consequences to the Trust.
Prospective investors should be aware that Kenmar presently intends to
assert that Unitholders have, by subscribing to the Trust, consented to the
following conflicts of interest in the event of any proceeding alleging that
such conflicts violated any duty owed by Kenmar to investors.
Kenmar
Other Managed Futures Products Sponsored by Kenmar
Kenmar sponsors and operates a number of managed futures products.
Kenmar may have a conflict of interest in selecting Advisors for the Trust and
for other accounts sponsored by Kenmar, particularly in cases where an Advisor
is willing to manage only a limited number of additional accounts sponsored by
Kenmar or where Kenmar has financial incentives to favor another product over
the Trust. Kenmar also has a conflict of interest in allocating its own
resources among different clients.
Kenmar has a conflict of interest in allocating assets among the
Advisors in that Kenmar will receive more net benefit from the brokerage
commissions paid by the Trust the more infrequently an Advisor trades in the
futures
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<PAGE>
markets (Kenmar being required to pay substantially all of the Trust's futures
trading costs from the brokerage commissions received by Kenmar from the Trust).
Kenmar also has a conflict of interest in selecting Advisors due to different
advisory fee structures being more likely than others to result in a greater net
benefit being received by Kenmar from the Trust, and certain Advisors, which it
might otherwise be in the best interests of the Trust to retain, being willing
to accept only certain fee arrangements.
Kenmar has a conflict of interest in "deleveraging" the Trust's market
commitment; i.e. Kenmar has an incentive to "deleverage" the Trust's market
commitment as its brokerage commissions will be calculated on the basis of the
Trust's equity and not on the amount of any reduced commitment.
Kenmar's Incentive to Select More Speculative Advisors
Because of Kenmar's potential receipt of the Incentive Fee, Kenmar may
have an incentive to select Advisors that trade in a more "risky" or speculative
manner than Kenmar would otherwise consider to be desirable. Kenmar's Incentive
Fee is based on annual New Overall Appreciation (if any) and could comprise a
significant component of Kenmar's net overall return from the Trust.
Accordingly, Kenmar has a potential incentive to select Advisors that trade in a
more speculative manner because high risk trading strategies have the potential
to lead to high returns. The Incentive Fee permits Kenmar to share in any New
Overall Appreciation but without having to participate in the same manner in any
losses of the Trust.
The Incentive Fee is calculated on the basis of unrealized as well as
realized gain.
Ongoing Offering of the Units
Kenmar may have a conflict of interest from time to time between
Kenmar's interest in not delaying the continuous offering of the Units and in
selecting those Advisors that Kenmar believes to be most advantageous for the
Trust. Certain material changes in the Advisor line-up used for the Trust could
result in regulatory delay.
The Advisors
Other Clients and Business Activities of the Advisors
The Advisors may have a conflict of interest in rendering advice to the
Trust because of other accounts managed or traded by them or their affiliates,
including accounts owned by their principals, which may be traded differently
from the Trust's account. The Advisors have financial incentives to favor
certain accounts over the Trust.
The Advisors and their principals each devote their business time to
ventures in addition to managing the Trust.
The Advisors have each agreed to treat the Trust equitably. However,
other client accounts may significantly outperform the Trust.
Brokers and Dealers Selected by Advisors
Certain of the Advisors have required, as a condition of their
participation in the Trust, that their Trust accounts trade through specific
brokers with which such Advisors have ongoing business dealings. Such Advisors
may have a conflict of interest between insisting on the use of such brokers and
using the brokers most advantageous for the Trust.
Certain of the Advisors may execute a number of the trades for their
Trust accounts through affiliated floor brokers or foreign exchange dealers,
which will be compensated for their trading services.
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<PAGE>
The Clearing Broker
The initial Clearing Broker may act from time to time as a commodity
broker for other accounts with which it is affiliated or in which it or one of
its affiliates has a financial interest. The compensation received by the
Clearing Broker from such accounts may be more or less than the compensation it
receives for its brokerage and forward trading services to the Trust. In
addition, various accounts traded through the Clearing Broker (and over which
its personnel may have discretionary trading authority) may take positions in
the futures markets opposite to those of the Trust or compete with the Trust for
the same positions. The Clearing Broker may have a conflict of interest in its
execution of trades for the Trust and for other of its customers. Kenmar will,
however, not retain any clearing broker for the Trust which Kenmar has reason to
believe would knowingly or deliberately favor any other customer over the Trust
with respect to the execution of commodity trades.
The Clearing Broker will benefit from executing orders for other
clients, whereas the Trust may be harmed to the extent that the Clearing Broker
have fewer resources to allocate to the Trust's account due to the existence of
such other clients.
Certain officers or employees of the Clearing Broker may be members of
United States commodities exchanges and will serve on the governing bodies and
standing committees of such exchanges and of their clearinghouses and various
other industry organizations. In such capacities, these employees have a
fiduciary duty to the exchanges and their clearinghouses which could compel such
employees to act in the best interests of these entities, perhaps to the
detriment of the Trust.
Selling Agent
The Selling Agents to be selected for the Units will receive substantial
initial as well as substantial ongoing "trailing commissions" in respect of
Units sold by them and Units sold by them which remain outstanding for more than
12 months, respectively. The individual registered representatives of the
Selling Agents will themselves receive a significant portion of the compensation
so paid to the Selling Agents. Consequently, they will have a conflict of
interest both in recommending the purchase of Units by their clients and in
counseling clients as to whether to redeem.
Proprietary Trading
Kenmar, the Advisors, the Clearing Broker, and their respective
principals and affiliates may trade in the commodity markets for their own
accounts and for the accounts of their clients, and in doing so may take
positions opposite to those held by the Trust or may be competing with the Trust
for positions in the marketplace. Such trading may create conflicts of interest
on behalf of one or more such persons in respect of their obligations to the
Trust. Records of this trading are not available for inspection by Unitholders.
Because Kenmar, the Advisors, the Clearing Broker and their respective
principals and affiliates may trade for their own accounts at the same time that
they are managing the Trust's account, prospective investors should be aware
that -- as a result of a neutral allocation system, testing a new trading
system, trading their proprietary accounts more aggressively or other activities
not constituting a breach of fiduciary duty -- such persons may from time to
time take positions in their proprietary accounts which are opposite, or ahead
of, the positions taken for the Trust.
REDEMPTIONS
The Trust is intended as a medium- to long-term, "buy and hold"
investment. The Trust's objective is to achieve significant profits over time
while controlling the risk of loss.
A Unitholder may cause the Trust to redeem any or all of his Units as of
the close of business on the last business day of any calendar month --
beginning with the end of the sixth month following the sale of such Units -- at
Net Asset Value upon ten days' notice to his Selling Agent's representative.
Only whole Units may be redeemed except upon redemption of an investor's entire
holdings in the Trust. Redemptions may be requested for a minimum of the lesser
of $1,000 or ten (10) Units provided that, for investors redeeming less than all
their Units, such investors remaining units
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<PAGE>
equal at least $500. Fractional Units may be redeemed only upon the redemption
of an investor's entire interest in the Trust.
Accrued Profit Shares are reflected as a reduction in the Net Asset
Value at which Units are redeemed and are paid to the appropriate Advisor.
Accrued Incentive Fees are also reflected as a reduction in the redemption price
of Units and are paid to Kenmar.
A Unit that is redeemed on or after the end of the sixth month after
such Unit is sold and on or before the twelfth month after sale will be assessed
a redemption charge of 3% of the Net Asset Value per Unit as of the date of
redemption; a Unit which is redeemed after the beginning of the thirteenth
calendar month and on or before the end of the eighteenth calendar month after
sale will be assessed a redemption charge of 2% of the Net Asset Value per Unit
as of the date of redemption. Such charge is subtracted from the redemption
price of the Unit and paid to Kenmar. For example, Units subscribed for during
December 1996 and purchased as of January 1, 1997 will first be redeemable as of
June 30, 1997 and will be subject to a redemption charge through June 30, 1998.
In the event that an investor acquires Units at more than one time, his
or her Units are treated on a "first-in, first-out" basis for purposes of
determining whether such Units are redeemable as well as whether redemption
charges apply.
In general, redemption requests need not be made in writing. Unitholders
may simply contact their respective Selling Agents. However, a Unitholder who no
longer has a Selling Agent account must request redemption in writing (signature
guaranteed), by corresponding with Kenmar.
Kenmar may declare additional redemption dates, including Special
Redemption Dates which involve a suspension of trading, upon notice to the
Unitholders.
Redemption proceeds are generally paid out within ten business days of
redemption. However, in special circumstances, including, but not limited to,
default or delay in payments due to the Trust from banks or other persons, the
Trust may in turn delay payment to persons requesting redemption of Units of the
proportionate part of the redemption value of their Units equal to the
proportionate part of the Net Assets of the Trust represented by the sums that
are the subject of such default or delay. No such delays have been imposed to
date by any Kenmar-sponsored fund.
Notices of redemption once submitted are irrevocable. The Net Asset
Value per Unit as of the date of redemption may differ substantially from the
Net Asset Value per Unit as of the date by which irrevocable notice of
redemption must be submitted.
Unitholders need not redeem all their Units in order
to redeem some of their Units.
THE TRUST AND THE TRUSTEE
The following summary describes in brief certain aspects of the
operation of the Trust and the Trustee's and Managing Owner's respective
responsibilities concerning the Trust. Prospective investors should carefully
review the Declaration of Trust attached hereto as Exhibit A and consult with
their own advisers concerning the implications to such prospective subscribers
of investing in a Delaware business trust. The section references below are to
sections in the Declaration of Trust.
Principal Office; Location of Records
- -------------------------------------
The Trust is organized under the Delaware Business Trust Act. The Trust
is administered by Kenmar, whose office is located Two American Lane, Greenwich,
Connecticut 06831-8150 (telephone: (203) 861-1000). The records of the Trust,
including a list of the Unitholders and their addresses, are located at the
foregoing address, and available for inspection and copying (upon payment of
reasonable reproduction costs) by Unitholders or their representatives during
regular business hours as provided in the Declaration of Trust. (Section 10).
There is a limitation to non-commercial purposes. Kenmar will maintain and
preserve the books and records of the Trust for a period of not less than six
years.
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Certain Aspects of the Trust
- ----------------------------
The Trust is the functional equivalent of a limited partnership;
prospective investors should not anticipate any legal or practical protections
under the Delaware Business Trust Act greater than those available to limited
partners of a limited partnership.
No special custody arrangements are applicable to the Trust that would
not be applicable to a limited partnership, and the existence of a trustee
should not be taken as an indication of any additional level of management or
supervision over the Trust. To the greatest extent permissible under Delaware
law, the Trustee acts in an entirely passive role, delegating all authority over
the operation of the Trust to Kenmar. Kenmar is the functional equivalent of a
sole general partner in a limited partnership. (Sections 5(a), 9 and 18).
Although units of beneficial interest in a trust need not carry any
voting rights, the Declaration of Trust gives Unitholders voting rights
comparable to those typically extended to limited partners in publicly-offered
futures funds. (Section 18).
The Trustee
- -----------
Wilmington Trust Company, a Delaware banking corporation, is the sole
Trustee of the Trust. The Trustee's principal offices are located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001. The
Trustee is unaffiliated with Kenmar or the Selling Agents. The Trustee's duties
and liabilities with respect to the offering of the Units and the administration
of the Trust are limited to its express obligations under the Declaration of
Trust.
The rights and duties of the Trustee, Kenmar and the Unitholders are
governed by the provisions of the Delaware Business Trust Act and by the
Declaration of Trust.
The Trustee serves as the Trust's sole trustee in the State of Delaware.
The Trustee will accept service of legal process on the Trust in the State of
Delaware and will make certain filings under the Delaware Business Trust Act.
The Trustee does not owe any other duties to the Trust, Kenmar or the
Unitholders. The Trustee is permitted to resign upon at least 60 days' notice to
the Trust, provided, that any such resignation will not be effective until a
successor Trustee is appointed by Kenmar. The Declaration of Trust provides that
the Trustee is compensated by the Trust, and is indemnified by the Trust against
any expenses it incurs relating to or arising out of the formation, operation or
termination of the Trust or the performance of its duties pursuant to the
Declaration of Trust, except to the extent that such expenses result from the
gross negligence or willful misconduct of the Trustee. Kenmar has the discretion
to replace the Trustee.
Only Kenmar has signed the Registration Statement of which this
Prospectus is a part, and only the assets of the Trust and Kenmar 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 such laws, neither the Trustee, either in its
capacity as Trustee or in its individual capacity, nor any director, officer or
controlling person of the Trustee is, or has any liability as, the issuer or a
director, officer or controlling person of the issuer of the Units. The
Trustee's liability in connection with the issuance and sale of the Units is
limited solely to the express obligations of the Trustee set forth in the
Declaration of Trust.
Under the Declaration of Trust, the Trustee has delegated to Kenmar the
exclusive management and control of all aspects of the business of the Trust.
The Trustee has no duty or liability to supervise or monitor the performance of
Kenmar, nor shall the Trustee have any liability for the acts or omissions of
Kenmar. In addition, Kenmar has been designated as the "tax matters partner" of
the Trust for purposes of the Internal Revenue Code of 1986, as amended (the
"Code"). The Unitholders have no voice in the operations of the Trust, other
than certain limited voting rights as set forth in the Declaration of Trust. In
the course of its management, Kenmar may, in its sole and absolute discretion,
appoint an affiliate or affiliates of Kenmar as additional managing owners
(except where Kenmar has been notified by the Unitholders that it is to be
replaced as the managing owner) and retain such persons, including affiliates of
Kenmar, as it deems necessary for the efficient operation of the Trust. (Section
2).
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Because the Trustee has delegated substantially all of its authority
over the operation of the Trust to Kenmar, the Trustee itself is not registered
in any capacity with the CFTC.
Management of Trust Affairs; Voting by Unitholders
- --------------------------------------------------
The Unitholders take no part in the management or control, and have no
voice in the operations of the Trust or its business. (Section 9(a)).
Unitholders may, however, remove and replace Kenmar as the managing owner of the
Trust, and may amend the Declaration of Trust, except in certain limited
respects, by the affirmative vote of a majority of the outstanding Units then
owned by Unitholders (as opposed to by Kenmar and its affiliates). The owners of
a majority of the outstanding Units then owned by Unitholders may also compel
dissolution of the Trust. (Section 18(b)). The owners of 10% of the outstanding
Units then owned by Unitholders have the right to bring a matter before a vote
of the Unitholders. (Section 18(c)). Kenmar has no power under the Declaration
of Trust to restrict any of the Unitholders' voting rights. (Section 18(c)). Any
Units purchased by Kenmar or its affiliates, as well as Kenmar's general
liability interest in the Trust) are non-voting. (Section 7).
Kenmar has the right unilaterally to amend the Declaration of Trust
provided that any such amendment is for the benefit of and not adverse to the
Unitholders or the Trustee and also in certain unusual circumstances -- for
example, if doing so is necessary to effect the intent of the Trust's tax
allocations or to comply with certain regulatory requirements. (Section 18(a)).
In the event that Kenmar or the Unitholders vote to amend the
Declaration of Trust in any material respect, the amendment will not become
effective prior to all Unitholders having an opportunity to redeem their Units.
(Section 18(c)).
Recognition of the Trust in Certain States
- ------------------------------------------
A number of states do not have "business trust" statutes such as that
under which the Trust has been formed in the State of Delaware. It is possible,
although unlikely, that a court in such a state could hold that, due to the
absence of any statutory provision to the contrary in such jurisdiction, the
Unitholders, although entitled under Delaware law to the same limitation on
personal liability as stockholders in a private corporation for profit organized
under the laws of the State of Delaware, are not so entitled in such state. To
protect Unitholders against any loss of limited liability, the Declaration of
Trust provides that no written obligation may be undertaken by the Trust unless
such obligation is explicitly limited so as not to be enforceable against any
Unitholder personally. Furthermore, the Trust itself indemnifies all Unitholders
against any liability that such Unitholders might incur in addition to that of a
limited partner. Kenmar is itself generally liable for all obligations of the
Trust and would use its assets to satisfy any such liability before such
liability would be enforced against any Unitholder individually.
Possible Repayment of Distributions Received
by Unitholders; Indemnification of the Trust by Unitholders
- -----------------------------------------------------------
The Units are limited liability investments; investors may not lose more
than the amount that they invest plus any profits recognized on their
investment. (Section 8(e)). However, Unitholders could be required, as a matter
of bankruptcy law, to return to the Trust's estate any distribution they
received at a time when the Trust was in fact insolvent or in violation of the
Declaration of Trust. In addition, although Kenmar is not aware of this
provision ever having been invoked in the case of any public futures fund,
Unitholders agree in the Declaration of Trust that they will indemnify the Trust
for any harm suffered by it as a result of (i) Unitholders' actions unrelated to
the business of the Trust, (ii) transfers of their Units in violation of the
Declaration of Trust or (iii) taxes imposed on the Trust by the states or
municipalities in which such investors reside (Sections 8(d) and 17(c)).
The foregoing repayment of distributions and indemnity provisions (other
than the provision for Unitholders indemnifying the Trust for taxes imposed upon
it by the state or municipality in which particular Unitholders reside, which is
included only as a formality due to the fact that many states do not have
business trust statutes so that the tax status of the Trust in such states
might, theoretically, be challenged -- although Kenmar is unaware of any
instance in which this has actually occurred) are commonplace in
publicly-offered commodity pools as well as other trusts and limited
partnerships.
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Transfers of Units Restricted
- -----------------------------
A Unitholder may, subject to compliance with applicable federal and
state securities laws, assign his Units upon notice to the Trust and Kenmar. No
assignment will be effective in respect of the Trust or Kenmar until the first
day of the month succeeding the month in which such notice is received. No
assignee may become a substituted Unitholder except with the consent of Kenmar
and upon execution and delivery of an instrument of transfer in form and
substance satisfactory to Kenmar. (Section 11).
There are, and will be, no certificates for the Units. Any transfers of
Units are reflected on the books and records of the Trust. Transferors and
transferees of Units will each receive notification from Kenmar to the effect
that such transfers have been duly reflected as notified to Kenmar. (Section
11).
Reports to Unitholders
- ----------------------
Each month Kenmar reports such information as the CFTC may require to be
given to the participants in "commodity pools" such as the Trust and any such
other information as Kenmar may deem appropriate. There are similarly
distributed to Unitholders, not later than March 30 of each year, certified
financial statements and the tax infor mation related to the Trust necessary for
the preparation of their annual federal income tax returns. (Section 10).
Kenmar will notify Unitholders of any change in the fees paid by the
Trust or of any material changes in the basic investment policies or structure
of the Trust. Any such notification shall include a description of Unitholders'
voting rights. (Section 10).
General
- -------
In compliance with the Statement of Policy of the North American
Securities Administrators Association, Inc. relating to the registration of
commodity pool programs under state securities or "Blue Sky" laws, the
Declaration of Trust provides that: (i) the executing and clearing commissions
paid by the Trust shall be competitive (Section 9(e)), and Kenmar shall include
in the annual reports containing the Trust's certified financial statements
distributed to Unitholders each year the approximate round-turn equivalent rate
paid on the Trust's trades during the preceding year, as well as the actual
amounts paid by Kenmar for the Trust's execution and clearing costs (Section
10); (ii) no rebates or give-ups, among other things, may be received from the
Trust by any of the Selling Agents, and such restriction may not be circumvented
by any reciprocal business arrangements among any Selling Agents or any of their
respective affiliates and the Trust (Section 9(f)); (iii) no trading advisor of
the Trust (including Kenmar Advisory Corp.) may participate directly or
indirectly in any per-trade commodity brokerage commissions generated by the
Trust (Section 9(f)); (iv) any agreements between the Trust and Kenmar or any
affiliates of Kenmar must be terminable by the Trust upon no more than 60 days'
written notice (Section 9(f)); (v) the Trust may make no loans, and the funds of
the Trust will not be commingled with the funds of any other person (deposit of
Trust assets with a commodity broker, clearinghouse or currency dealer does not
constitute commingling for these purposes) (Section 9(f)); and (vi) the Trust
will not employ the trading technique commonly known as "pyramiding."
THE FUTURES AND FORWARD MARKETS
Futures and Forward Contracts
Commodity futures contracts in the United States are required to be made
on approved commodity exchanges and call for the future delivery of various
commodities at a specified time and place. These contractual obligations,
depending on whether one is a buyer or a seller, may be satisfied either by
taking or making physical delivery of an approved grade of the particular
commodity (or, in the case of some contracts, by cash settlement) or by making
an offsetting sale or purchase of an equivalent commodity futures contract on
the same exchange prior to the designated date of delivery. Certain futures
contracts call for cash settlement rather than settlement by delivery, and the
Trust will, in any event, offset virtually all of its futures contracts prior to
any actual delivery occurring.
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Currencies may be purchased or sold for future delivery through banks or
dealers pursuant to what are commonly referred to as "spot" or "forward"
contracts. Spot contracts settle two days after the trade date; forward
contracts have more delayed settlements. Spot and forward contracts are commonly
referred to collectively as "cash" contracts. In trading cash currency contracts
for the Trust, banks or dealers act as principals and include their anticipated
profit and costs in the prices they quote; such mark-ups are known as "bid-ask"
spreads. Brokerage commissions are typically not charged in cash trading.
Hedgers and Speculators
The two broad classifications of persons who trade in commodity futures
are "hedgers" and "speculators." Commercial interests that market or process
commodities use the futures markets to a significant extent for hedging. Hedging
is a protective procedure designed to minimize losses that may occur because of
price fluctuations, for example, between the time a merchandiser or processor
makes a contract to sell a raw or processed commodity and the time he must
perform the contract. The commodity markets enable the hedger to shift the risk
of price fluctuations to the speculator. The speculator, unlike the hedger,
generally expects neither to deliver nor receive the physical commodity; rather,
the speculator risks his capital with the hope of making profits from price
fluctuations in commodity futures contracts. Speculators, such as the Trust,
rarely take delivery of the physical commodity but rather close out their
futures positions by entering into offsetting purchases or sales of futures
contracts. The Trust does not anticipate taking delivery of any physical
commodities.
Commodity Exchanges
Commodity exchanges provide centralized market facilities for trading in
futures contracts relating to specified commodities. Each of the commodity
exchanges in the United States has an associated "clearinghouse." Once trades
made between members of an exchange have been confirmed, the clearinghouse
becomes substituted for the clearing member acting on behalf of each buyer and
each seller of contracts traded on the exchange and in effect becomes the other
party to the trade. Thereafter, each clearing member firm party to the trade
looks only to the clearinghouse for performance. Clearinghouses do not deal with
customers, but only with member firms, and the "guarantee" of performance under
open positions provided by the clearinghouse does not run to customers. If a
customer's commodity broker becomes bankrupt or insolvent, or otherwise defaults
on such broker's obligations to such customer, the customer in question may not
receive all amounts owing to such customer in respect of his trading, despite
the clearinghouse fully discharging all of its obligations.
The initial Advisors retained by the Trust will trade on a number of
foreign commodity exchanges. Foreign commodity exchanges differ in certain
respects from their United States counterparts and are not subject to regulation
by any United States governmental agency. Accordingly, the protections afforded
by such regulation are not available to the Trust to the extent that it trades
on such exchanges. In contrast to United States exchanges, many foreign
exchanges are "principals' markets," where trades remain the liability of the
traders involved and the exchange or clearinghouse does not become substituted
for any party. Many foreign exchanges also have no position limits, with each
dealer establishing the size of the positions it will permit individual traders
to hold.
To the substantial extent that the Trust engages in transactions on
foreign exchanges, it is subject to the risk of fluctuations in the exchange
rate between the currencies in which the contracts traded on such foreign
exchanges are denominated and United States dollars, as well as the possibility
that exchange controls could be imposed in the future.
Speculative Position and Daily Price Fluctuation Limits
The CFTC and the United States exchanges have established limits,
referred to as "speculative position limits," on the maximum net long or net
short position that any person (other than a hedger) may hold or control in
futures contracts or options on futures contracts in particular commodities. A
number of financial markets have replaced "position limits" with "position
accountability," and the cash currency markets are not subject to such limits.
However, speculative position limits continue to be applicable in a number of
important markets. These limits may restrict an Advisor's ability to acquire
positions which such Advisor otherwise would acquire on behalf of the Trust.
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Most United States exchanges limit by regulations the maximum
permissible fluctuation in commodity futures contract prices during a single
trading day. These regulations establish what are commonly referred to as "daily
limits." Daily limits restrict the maximum amount by which the price of a
futures contract may vary either up or down from the previous day's settlement
price. Because these limits apply on a day-to-day basis, they do not limit
ultimate losses, but may reduce or eliminate liquidity. Daily limits are
generally not applicable to currency futures or to forward contracts.
Margins
Margins represent a security deposit to assure futures traders'
performance under their open positions. When a position is established, "margin"
is deposited and at the close of each trading day "variation margin" is either
credited or debited from a trader's account, representing the unrealized gain or
loss on open positions during the day. If "variation margin" payments cause a
trader's "margin" to fall below "maintenance margin" levels, a "margin call"
will be made requiring the trader to deposit additional margin or have his
position closed out.
FEDERAL INCOME TAX CONSEQUENCES
Kenmar has been advised by its counsel, Sidley & Austin, that, in its
opinion, the following Summary correctly describes the material income tax
consequences, as of the date hereof, to the Trust and the material federal
income tax consequences, as of the date hereof, to a United States individual
taxpayer who invests in the Trust. This Summary is based on current statutes,
regulations and administrative rulings, any of which could be changed at any
time. This Summary does not address the income tax consequences to
non-individual taxpayers who invest in the Trust, which may vary. Such investors
should consult their own tax advisers.
The Trust's Partnership Tax Status
Kenmar has been advised by its counsel, Sidley & Austin, that, in its
opinion, the Trust is properly classified as a partnership for federal income
tax purposes; consequently, the Unitholders individually, not the Trust itself,
are subject to tax. Kenmar believes that all of the income expected to be
generated in the future by the Trust will constitute "qualifying income" and has
so advised Sidley & Austin. As a result, Kenmar has been advised by Sidley &
Austin that, in its opinion, the Trust is not subject to tax as a corporation
under the provisions applicable to "publicly traded partnerships."
Taxation of Unitholders on Profits and Losses of the Trust
The Trust, as an entity, is not subject to federal income tax in the
opinion of Sidley & Austin as described above. Each Unitholder is required for
federal income tax purposes to take into account, in his taxable year with which
or within which a taxable year of the Trust ends, his allocable share of all
items of Trust income, gain, loss, deduction and other items for such taxable
year of the Trust. A Unitholder must take such items into account even if the
Trust does not make any cash distributions to such Unitholder.
A Unitholder's share of such items for federal income tax purposes
generally is determined by the allocations made pursuant to the Declaration of
Trust unless such items so allocated do not have "substantial economic effect"
or are not in accordance with the Unitholders' interests in the Trust. Under the
Declaration of Trust, allocations are generally made in proportion to
Unitholders' capital accounts (each Unit sharing equally in the Net Assets of
the Trust), and therefore such allocations should have substantial economic
effect. However, in cases in which a Unitholder redeems part or all of his or
her interest in the Trust, the allocations of capital gain or loss specified in
the Declaration of Trust will not be in proportion to capital accounts. Because
such allocations are consistent with the economic effect of the Declaration of
Trust that bases the amount to be paid to a redeeming Unitholder upon his share
of the realized and unrealized gains and losses at the time his Units are
redeemed, Kenmar intends to file the Trust's tax returns based upon the
allocations specified in the Declaration of Trust. However, it is not certain
that such allocations would be respected for tax purposes. If such tax
allocations were challenged and not sustained, some or all of a redeeming
Unitholder's capital gain or loss could be converted from short-term to
long-term and each remaining Unitholder's share of the capital gain or loss that
is the subject of such allocations would be increased (solely for tax purposes).
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Limitations on Deductibility of Trust Losses by Unitholders
The amount of any Trust loss (including capital loss) that a Unitholder
is entitled to include in his personal income tax return is limited to his tax
basis for his interest in the Trust as of the end of the Trust's taxable year in
which such loss occurred. Generally, a Unitholder's tax basis for his interest
in the Trust is the amount paid for such interest reduced (but not below zero)
by his share of any Trust distributions, realized losses and expenses and
increased by his share of the Trust's realized income, including gains.
A Unitholder that is subject to the "at risk" limitations (generally,
non-corporate taxpayers and closely-held corporations) may not deduct losses of
the Trust (including capital losses) to the extent that they exceed the amount
he has "at risk" with respect to his interest in the Trust at the end of the
year. The amount that a Unitholder has "at risk" is generally the same as his
adjusted basis as described above, except that it does not include any amount
that he has borrowed on a nonrecourse basis or from a person who has an interest
in the Trust or a person related to such person.
Losses denied under the foregoing basis or "at risk" limitations are
suspended and may be deducted in subsequent years, subject to these and other
applicable limitations.
Because of the limitations imposed upon the deductibility of capital
losses (see "-- Tax on Capital Gains and Losses," below), a Unitholder's
distributive share of any capital losses of the Trust will not materially reduce
the federal income tax payable on his ordinary income (including his allocable
share of the Trust's interest income).
Treatment of Income and Loss Under the "Passive Activity Loss Rules"
The Code contains rules (the "Passive Activity Loss Rules") designed to
prevent the deduction of losses from "passive activities" against income not
derived from such activities, including income from investment activities not
constituting a trade or business, such as interest and dividends ("Portfolio
Income"), and salary. The trading activities of the Trust do not constitute a
"passive activity," with the result that income derived from the Trust's trading
activities constitutes Portfolio Income or other income not from a passive
activity. Thus, losses resulting from a Unitholder's "passive activities" cannot
be offset against such income, and net losses from Trust operations are
deductible in computing the taxable income of such Unitholder (subject to other
limitations on the deductibility of such losses, in particular the annual
limitation applicable to non-corporate investors that no more than $3,000 of
capital losses can be deducted against ordinary income).
Cash Distributions and Redemptions of Units
Cash received from the Trust by a Unitholder as a distribution with
respect to his Units or in redemption of less than all of his Units generally is
not reportable as taxable income by a Unitholder, except as described below.
Rather, such distribution or withdrawal reduces (but not below zero) the total
tax basis of all of the Units held by the Unitholder after the distribution or
withdrawal. Any cash distribution in excess of a Unitholder's adjusted tax basis
for all of his Units is taxable to him as gain from the sale or exchange of such
Units and, assuming that the Unitholder has held his Units for more than one
year, constitutes long-term capital gain.
Redemption for cash of the entire interest held by a Unitholder results
in the recognition of gain or loss for federal income tax purposes. Such gain or
loss is equal to the difference, if any, between the amount of the cash
distribution and the Unitholder's adjusted tax basis for his interest. Assuming
that the Unitholder has held his Units for more than one year, any gain or loss
on their redemption constitutes long-term capital gain or loss.
Gain or Loss on Section 1256 Contracts
Under the "mark-to-market" system of taxing futures and certain option
contracts traded on United States exchanges and certain foreign currency forward
contracts ("Section 1256 Contracts"), any unrealized profit or loss on positions
in such Section 1256 Contracts which are open as of the end of a taxpayer's
fiscal year is treated as if such profit or loss had been realized for tax
purposes as of such time. In general, 60% of the net gain or loss which is
generated as a result of the "mark-to-market" system is treated as long-term
capital gain or loss, and the remaining 40% of such net gain or loss is treated
as short-term capital gain or loss.
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Gain or Loss on Non-Section 1256 Contracts
Except as described below with respect to Section 988 transactions
entered into by a qualified fund, gain or loss with respect to contracts that
are non-Section 1256 Contracts is taken into account for tax purposes only when
realized.
Kenmar has been advised by its counsel, Sidley & Austin, of the
requirements for the Trust being treated as a "qualified fund" for purposes of
reporting gain or loss from foreign currency transactions ("Section 988
transactions"). Section 988 transactions include entering into or acquiring any
forward contract, futures contract or similar instrument if the amount paid or
received is denominated in terms of a foreign currency other than the taxpayer's
functional currency or if the underlying property to which the contract or
instrument ultimately relates is a foreign currency other than the taxpayer's
functional currency. In general, foreign currency gain or loss on Section 988
transactions is treated as ordinary income or loss. Under the "qualified fund"
election -- which Kenmar intends to make on behalf of the Trust -- gain or loss
with respect to all Section 988 transactions, other than those described in
Section 1256 which are taxed as described above under "-- Gain or Loss on
Section 1256 Contracts," constitutes short-term capital gain or loss. In
addition, all such transactions are subject to the "mark-to-market" rules (see
"-- Gain or Loss on Section 1256 Contracts," above).
Tax on Capital Gains and Losses
Net capital gains (i.e., the excess of net long-term capital gain over
net short-term capital loss) is taxed for non-corporate taxpayers at a maximum
rate of 28% and for corporate taxpayers at the same rates as other income. See
"-- Limitation on Deductibility of Interest on Investment Indebtedness," below
(for a discussion of the reduction in the amount of a non-corporate taxpayer's
net capital gain for a taxable year to the extent such gain is taken into
account by such taxpayer as investment income). Capital losses are deductible by
non-corporate taxpayers only to the extent of capital gains for the taxable year
plus $3,000. See "Risk Factors -- (19) Taxation of Interest Income Irrespective
of Trading Losses" at page 11.
If a non-corporate taxpayer incurs a net capital loss for a year, the
portion thereof, if any, which consists of a net loss on Section 1256 Contracts
may, at the election of the taxpayer, be carried back three years. Losses so
carried back may be deducted only against net capital gain for such year to the
extent that such gain includes gains on Section 1256 Contracts. Losses so
carried back are deemed to consist of 60% long-term capital loss and 40%
short-term capital loss (see "-- Gain or Loss on Section 1256 Contracts,"
above). To the extent that such losses are not used to offset gains on Section
1256 Contracts in a carryback year, they carry forward indefinitely as losses on
Section 1256 Contracts in future years.
Limited Deduction for Certain Expenses
The Code provides that, for non-corporate taxpayers who itemize
deductions when computing taxable income, expenses of producing income,
including "investment advisory fees," are aggregated with unreimbursed employee
business expenses, other expenses of producing income and certain other
deductions (collectively, "Aggregate Investment Expenses"), and that the
aggregate amount of such expenses is deductible only to the extent that such
amount exceeds 2% of a non-corporate taxpayer's adjusted gross income (the "2%
floor"). Aggregate Investment Expenses in excess of the 2% floor, when combined
with a taxpayer's deductions for certain items, are subject to a reduction equal
to, generally, 3% of the taxpayer's adjusted gross income in excess of a certain
threshold amount (the "3% phase-out"). Moreover, such Aggregate Investment
Expenses are miscellaneous itemized deductions which are not deductible by a
non-corporate taxpayer in calculating its alternative minimum tax liability.
Kenmar will -- barring administrative, regulatory or statutory
clarification to the contrary -- treat the Profit Shares and Incentive Fee, as
well as other ordinary expenses of the Trust, as ordinary business deductions
not subject to the 2% floor. It is the standard practice in the managed futures
industry to treat such charges as not being subject to the 2% floor, and Kenmar
intends, barring contrary clarification by statute, regulation or administrative
statement, to continue to treat them as not being so. However, the Internal
Revenue Service (the "IRS") could contend that some or all of these charges
should be characterized as "investment advisory fees" or brokerage commissions
incurred by the Trust. To the extent the characterization of these payments as
brokerage commissions were to be
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sustained, the amounts recharacterized would reduce the amount of capital gain
(or increase the amount of capital loss) realized with respect to the Trust's
trading activities, rather than the Unitholders' ordinary income. To the extent
the characterization of these payments as investment advisory expenses were to
be sustained, each non-corporate Unitholder's pro rata share of the amounts so
characterized would be deductible only to the extent that such non-corporate
Unitholder's Aggregate Investment Expenses exceeded the 2% floor and, when
combined with certain other itemized deductions, exceeded the 3% phase-out. In
addition, each non-corporate Unitholder's distributive share of income from the
Trust would be increased (solely for tax purposes) by such Unitholder's pro rata
share of the amounts so recharacterized.
Interest Income
Interest received by the Trust is taxed as ordinary income.
The Trust's trading generates almost exclusively capital gain or loss.
Capital losses can be deducted against ordinary income, in the case of
non-corporate taxpayers, only to the extent of $3,000 per year. Accordingly, the
Trust could incur significant capital losses but an investor, nevertheless,
could be required to pay substantial taxes in respect of such investor's
allocable share of the Trust's interest income and other ordinary income. See
"Risk Factors -- (20) Taxation of Interest Income Irrespective of Trading
Losses" at page 12.
Syndication Fees
Neither the Trust nor any Unitholder is entitled to any deduction for
syndication expenses, nor can these expenses be amortized by the Trust or any
Unitholder even though the payment of such expenses reduces Net Asset Value.
The IRS could take the position that a portion of the brokerage
commissions paid by the Trust to Kenmar constitutes non-deductible syndication
expenses.
Limitation on Deductibility of Interest on Investment Indebtedness
Interest paid or accrued on indebtedness properly allocable to property
held for investment constitutes "investment interest." Interest expense incurred
by a Unitholder to acquire or carry his Units (as well as other investments)
constitutes "investment interest." Such interest is generally deductible by
non-corporate taxpayers only to the extent that it does not exceed net
investment income (that is, generally, the excess of (i) gross income from
interest, dividends, rents and royalties, which would include a Unitholder's
share of the Trust's interest income, and (ii) certain gains from the
disposition of investment property, over the expenses directly connected with
the production of such investment income). Any investment interest expense
disallowed as a deduction in a taxable year solely by reason of the above
limitation is treated as investment interest paid or accrued in the succeeding
taxable year. A non-corporate taxpayer's net capital gain from the disposition
of investment property is included in clause (ii) of the second preceding
sentence only to the extent such taxpayer elects to make a corresponding
reduction in the amount of net capital gain that is subject to tax at the
maximum 28% rate described above. (See "-- Tax on Capital Gains and Losses,"
above.)
"Unrelated Business Taxable Income"
Kenmar has been advised by its counsel, Sidley & Austin, that income
earned by the Trust will not constitute "unrelated business taxable income"
under Section 511 of the Code to employee benefit plans and other tax-exempt
entities which purchase Units, provided that the Units held by such plans and
entities are not "debt-financed" within the meaning of Section 514 of the Code.
Kenmar intends that the Trust will continue to trade so as not to generate
"unrelated business taxable income."
IRS Audits of the Trust and Its Unitholders
The tax treatment of Trust-related items is determined at the Trust
level rather than at the Unitholder level. Kenmar acts as "tax matters partner"
with the authority to determine the Trust's responses to an audit, except that
Kenmar does not have the authority to settle tax controversies on behalf of any
Unitholder who files a statement with the IRS stating that Kenmar has no
authority to settle Trust tax controversies on such Unitholder's behalf. The
limitations
-40-
<PAGE>
period for assessment of deficiencies and claims for refunds with respect to
items related to the Trust is three years after the Trust's return for the
taxable year in question is filed, but Kenmar has the authority to, and may,
extend such period with respect to all Unitholders.
If an audit results in an adjustment, all Unitholders may be required to
file amended returns and may themselves also be subject to audits. Unitholders
may, as the result of such an audit, be required to pay additional taxes, plus
interest, and, possibly, tax penalties and additions to tax. There can be no
assurance that the Trust's or a Unitholder's tax return will not be audited by
the IRS or that no adjustments to such returns will be made as a result of such
an audit.
State and Other Taxes
In addition to the federal income tax consequences described above, the
Trust and the Unitholders may be subject to various state and other taxes.
Certain of such taxes could, if applicable, have a significant effect on the
amount of tax payable in respect of an investment in the Trust.
----------
THE FOREGOING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING, PARTICULARLY SINCE CERTAIN OF THE INCOME TAX CONSEQUENCES OF AN
INVESTMENT IN THE TRUST MAY NOT BE THE SAME FOR ALL TAXPAYERS. ACCORDINGLY,
PROSPECTIVE INVESTORS IN THE TRUST ARE URGED TO CONSULT THEIR TAX ADVISERS WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION UNDER FEDERAL LAW AND THE
PROVISIONS OF APPLICABLE STATE AND OTHER LAWS BEFORE DETERMINING WHETHER TO
SUBSCRIBE FOR UNITS.
PURCHASES BY EMPLOYEE BENEFIT PLANS
Although there can be no assurance that an investment in the Trust, or
any other managed futures product, will achieve the investment objectives of an
employee benefit plan in making such investment, futures investments have
certain features which may be of interest to such a plan. For example, the
futures markets are one of the few investment fields in which employee benefit
plans can participate in leveraged strategies without being required to pay tax
on "unrelated business taxable income." See "Federal Income Tax Consequences --
'Unrelated Business Taxable Income'" at page 40. In addition, because they are
not taxpaying entities, employee benefit plans are not subject to paying annual
tax on their profits (if any) from the Trust despite receiving no distributions
from it, as are other Unitholders.
As a matter of policy, Kenmar will limit subscriptions to the Trust from
any employee benefit plan to no more than 10% of the value of the readily
marketable assets of such plan (irrespective of the net worth of the beneficiary
or beneficiaries of such plans).
General
The following section sets forth certain consequences under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code,
which a fiduciary of an "employee benefit plan" as defined in and subject to
ERISA or of a "plan" as defined in Section 4975 of the Code who has investment
discretion should consider before deciding to invest the plan's assets in the
Trust (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 provide 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-
-41-
<PAGE>
employed individuals (including partners), individual retirement accounts
described in Section 408 of the Code and medical plans.
Each Plan Fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in the Trust, including the
role that an investment in the Trust would play in the Plan's overall investment
portfolio. Each Plan Fiduciary, before deciding to invest in the Trust, must be
satisfied that such investment is prudent for the Plan, that the investments of
the Plan, including the investment in the Trust, are diversified so as to
minimize the risk of large losses and that an investment in the Trust complies
with the Plan and related trust.
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT
WITH ITS OWN LEGAL AND TAX ADVISERS BEFORE DOING SO. AN
INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES
A HIGH DEGREE OF RISK. THE TRUST IS NOT INTENDED
AS A COMPLETE INVESTMENT PROGRAM.
"Plan Assets"
A regulation issued under ERISA (the "ERISA Regulation") contains rules
for determining when an investment by a Plan in an equity interest of an entity
will result in the underlying assets of such entity being considered to
constitute assets of the Plan for purposes of ERISA and Section 4975 of the Code
(i.e., "plan assets"). Those rules provide that assets of an entity will not be
considered assets of a Plan which purchases an equity interest in the entity if
certain exceptions apply, including an exception applicable if the equity
interest purchased is a "publicly-offered security" (the "Publicly-Offered
Security Exception"). The Units will qualify as a "publicly-offered security"
pursuant to the foregoing rules.
Ineligible Purchasers
Units may not be purchased with the assets of a Plan if Kenmar, any of
the Advisors, the Selling Agents, any Clearing Broker, or any of their
respective affiliates, any of their respective employees or any employees of
their respective affiliates: (a) has investment discretion with respect to the
investment of such Plan assets; (b) 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 (c)
is an employer maintaining or contributing to such Plan. A party that is
described in clause (a) or (b) 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 Trust 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
will not make the foregoing statements incorrect or incomplete.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY THE TRUST, KENMAR, ANY ADVISOR, ANY CLEARING BROKER, THE
SELLING AGENTS OR ANY OTHER PARTY THAT THIS INVESTMENT MEETS SOME OR ALL OF 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
ADVISERS AS TO THE PROPRIETY OF AN INVESTMENT IN THE UNITS IN LIGHT OF THE
CIRCUM STANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
-42-
<PAGE>
PLAN OF DISTRIBUTION
Subscription Procedure
The Units will be offered to the public -- on a "best-efforts" basis --
at $100 per Unit during the Initial Offering Period and at Net Asset Value
during the Ongoing Offering Period. The minimum investment is 50 Units, or
$5,000 if less except for (i) trustees or custodians of eligible employee
benefit plans and individual retirement accounts and (ii) existing Unitholders
subscribing for additional Units where the minimum investment is 20 Units (or,
if less, $2,000). Investments in excess of such minimums are permitted in $100
increments. Units will be sold in fractions calculated to three decimal places.
Subscription amounts which cannot be invested in whole Units will be retained in
investors' Selling Agents' customer securities accounts.
To purchase Units, an investor must complete, execute and deliver to a
Selling Agent a copy of the Subscription Agreement and Power of Attorney
Signature Page attached hereto. Except as set forth in the Exhibit B --
Subscription Requirements section of this Prospectus in the case of residents of
certain states, it is not necessary for persons who are existing investors in
the Trust to execute new Subscription Agreement and Power of Attorney Signature
Pages to make additional investments, although they must receive a current
Prospectus for the Trust and verify their continued suitability. Selling Agents'
registered representatives are required to reconfirm the suitability of existing
Unitholders to make an additional investment in the Trust. Subscription payments
may be made either by check or by authorizing a Selling Agent to debit a
subscriber's customer securities account for the amount of his or her
subscription. When a subscriber authorizes such a debit (which authorization is
given in the Subscription Agreement and Power of Attorney), the subscriber is
required to have the amount of his or her subscription payment on deposit in his
or her account as of the settlement date specified by the relevant Selling Agent
- -- generally, the fifth business day after the date of purchase (the first day
of the month immediately following the month during which a subscription is
accepted).
The Units are sold when, as and if subscriptions therefor are accepted
by Kenmar, subject to the satisfaction of certain conditions set forth in the
Selling Agreement and to the approval by counsel of certain legal matters.
After the conclusion of the Initial Offering Period, there is no minimum
number of Units which must be sold as of the beginning of a given month for any
Units to be sold at such time.
Subscribers' Representations and Warranties
By executing a Subscription Agreement and Power of Attorney Signature
Page, each subscriber is representing and warranting, among other things, that:
(i) the subscriber is of legal age to execute and deliver such Subscription
Agreement and Power of Attorney and has full power and authority to do so; (ii)
the subscriber has read and understands Exhibit B -- Subscription Requirements
to this Prospectus and meets or exceeds the applicable suitability criteria of
net worth and annual income set forth therein; and (iii) the subscriber has
received a copy of this Prospectus. These representations and warranties might
be used by Kenmar or others against a subscriber in the event that the
subscriber were to take a position inconsistent therewith.
While the foregoing representations and warranties are binding on
subscribers, Kenmar believes that to a large extent such representations and
warranties would be implied from the fact that an investor has subscribed for
Units. Nonetheless, any subscriber who is not prepared to give such
representations and warranties, and to be bound by them, should not consider
investing in the Units.
Selling Agents' Compensation
Each Selling Agent will receive a 5% per Unit selling commission at the
time that each Unit is sold, and the Selling Agents' representatives who sell
the Units a portion of such 5% in cash. Beginning with the thirteenth month
after the subscription proceeds of a particular Unit are invested in the Trust
(i.e., the first day of the month immediately following the month during which
the subscription for such Unit is accepted), each Selling Agent who sold such
Unit begins to receive ongoing "trailing commissions" in the amount of 0.2917 of
1% (a 3.5% annual rate) of the month-end Net Asset Value of such Unit --
provided, that such Selling Agent representative is registered with the CFTC,
has satisfied applicable proficiency requirements and agrees to perform certain
ongoing services with respect to such
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<PAGE>
Units. Such ongoing "trailing commissions," once begun, continue for as long as
such Unit remain outstanding. If such Selling Agent representative is not so
registered, the "trailing commissions" paid to such Selling Agent representative
for such Units may not exceed a lifetime total of 4.5% of the initial
subscription price of the Units in question. A portion of such commissions is
paid in cash to eligible Selling Agents' representatives.
Kenmar, not the Trust, pays all selling and "trailing" commissions.
Selling Agents will pass on to their registered representatives a portion of the
foregoing selling compensation and "trailing commissions," after deduction of
"due diligence" and administrative expenses incurred in connection with this
offering, in accordance with Selling Agents' standard compensation arrangements.
In the Selling Agreement, each Advisor and Kenmar have agreed to
indemnify the Selling Agents against certain liabilities that the Selling Agents
may incur in connection with the offering and sale of the Units, including
liabilities under the Securities Act of 1933 and the Commodity Exchange Act.
LEGAL MATTERS
Sidley & Austin will pass upon legal matters for Kenmar in connection
with the Units being offered hereby. In doing so, Sidley & Austin will rely as
to matters of Delaware law upon the opinion of Richards, Layton & Finger,
Wilmington, Delaware. Sidley & Austin will advise Kenmar with respect to its
responsibilities as managing owner of, and with respect to matters relating to,
the Trust. Sidley & Austin has reviewed the statements under "Federal Income Tax
Consequences." Sidley & Austin has not represented, nor will it represent,
either the Trust or the Unitholders in matters relating to the Trust.
EXPERTS
Arthur F. Bell, Jr. & Associates, L.L.C., independent auditors, have
audited the Kenmar Advisory Corp. statement of financial condition as of
September 30, 1995 included in this Prospectus. Such financial statement is
included herein in reliance on the report of Arthur F. Bell, Jr. & Associates,
L.L.C., independent auditors, given upon the authority of that firm as an expert
in accounting and auditing.
The statement of financial condition of Kenmar Advisory Corp. as of
March 31, 1996 included in this Prospectus is unaudited. In the opinion of
Kenmar Advisory Corp., such unaudited statement reflects all adjustments, which
were of a normal and recurring nature, necessary for a fair presentation of
financial position.
Arthur F. Bell, Jr. & Associates, L.L.C. have been selected as the
Trust's independent auditors. The statement of financial condition of the Trust
as of July 18, 1996 included in this Prospectus has been audited by Arthur F.
Bell, Jr. & Associates, L.L.C., independent auditors, as stated in their report
appearing herein, and has been so included in reliance upon such report given
upon the authority of that firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement filed by
the Trust with the Securities and Exchange Commission in Washington, D.C. This
Prospectus does not contain all of the information set forth in such
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission, including,
without limitation, certain exhibits thereto (for example, the forms of the
Selling Agreement, the Advisory Agreements, and the Customer Agreement). The
descriptions contained herein of agreements included as exhibits to the
Registration Statement are necessarily summaries; the exhibits themselves may be
inspected without charge at the public reference facilities maintained by the
Commission in Washington, D.C., and copies of all or part thereof may be
obtained from the Commission upon payment of the prescribed fees. The Securities
and Exchange Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission. The address of such
site is (http://www.sec.gov.).
-44-
<PAGE>
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS
Pursuant to applicable CFTC regulations, prospective subscribers must
receive recent financial information (current within 60 calendar days) relating
to the Trust, as well as its most recent Annual Report (due by March 30 of each
year, in respect of the prior year), together with this Prospectus, unless the
material that would otherwise be included in such Report or information has been
otherwise included herein.
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<PAGE>
INDEX OF DEFINED TERMS
A number of defined terms are used in this Prospectus. The respective
definitions or descriptions of such terms may be found on the following
pages of this Prospectus.
Page(s)
-------
Advisors.................................................... Cover page
"Bid-ask" spreads........................................... 26
Cash market................................................. 32
CFTC........................................................ -i-
Clearinghouse............................................... 33
Consulting fees............................................. 28
Daily limits................................................ 36
Employee benefit plan....................................... 42
Forward contracts........................................... 35
Futures contracts........................................... 33
Incentive Fee............................................... 25
Investment advisory fees.................................... 40
Kenmar...................................................... Cover page
Largest monthly drawdown.................................... APPI-4
Maintenance margin.......................................... 36
Margin...................................................... 36
Margin call................................................. 36
Net Asset Value............................................. -i-
New Overall Appreciation.................................... 26
New Trading Profits......................................... 26
NFA......................................................... -ii-
Profit Share................................................ 26
Redemption charges.......................................... 28
Round-turn commissions...................................... 25
Selling Agents.............................................. -i-
Speculative position limits................................. 36
Spot contracts.............................................. 35
Trust....................................................... Cover page
Unitholder.................................................. Cover page
Variation margin............................................ 36
Worst peak-to-valley drawdown............................... APPI-43
"Zero-sum" trading.......................................... 10
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Kenmar Global Trust
Independent Auditor's Report.............................. F-2
Statement of Financial Condition as of July 18, 1996...... F-3
Notes to Statement of Financial Condition................. F-4
Kenmar Advisory Corp.
Independent Auditor's Report.............................. F-6
Statements of Financial Condition as of September 30,
1995 and March 31, 1996 (unaudiited) .................... F-7
Notes to Statement of Financial Condition as of September
30, 1995 ................................................ F-8
Notes to Statement of Financial Condition as of March 31,
1996 (unaudited) ........................................ F-14
Schedules are omitted for the reason that they are not required
or are not applicable or that equivalent information has been
included in the financial statements or notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Unitholders
Kenmar Global Trust
We have audited the accompanying statement of financial condition of Kenmar
Global Trust as of July 18, 1996. This financial statement is the responsibility
of the Trust's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Kenmar Global Trust as of July
18, 1996, in conformity with generally accepted accounting principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
July 19, 1996
F-2
<PAGE>
KENMAR GLOBAL TRUST
STATEMENT OF FINANCIAL CONDITION
July 18, 1996
ASSETS
Cash $2,000
======
UNITHOLDERS' CAPITAL (20 units outstanding) $2,000
======
See accompanying notes.
F-3
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO STATEMENT OF FINANCIAL CONDITION
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
A. General Description of the Trust
Kenmar Global Trust (the Trust) is a Delaware business trust
organized on July 17, 1996, which has not yet commenced
operations. The capital contributions to the Trust as of July 18,
1996 total $2,000, comprised of $400 by the Trust's Managing
Owner, Kenmar Advisory Corp., and $1,600 by the initial
Unitholder.
The objective of the Trust is appreciation of assets through the
trading of futures contracts, forward contracts and other
financial instruments.
B. Proposed Public Offering of Units of Beneficial Interest
The Trust anticipates filing a registration statement with the
Securities and Exchange Commission offering to sell up to 500,000
Units of Beneficial Interest. Units will be sold at $100 during
the initial offering period ending on December 31, 1996 (subject
to extension until February 28, 1997 in the Managing Owner's
discretion).
C. Regulation
As a registrant with the Securities and Exchange Commission, the
Trust will be subject to the regulatory requirements under the
Securities Acts of 1933 and 1934. As a commodity pool, the Trust
will be subject to the regulations of the Commodity Futures
Trading Commission, an independent agency of the United States
government, which regulates most aspects of the commodity futures
industry, the rules of the National Futures Association, an
industry self-regulatory organization, and the requirements of
commodity exchanges and brokers through which the Trust will
trade.
D. Method of Reporting
The Trust's statement of financial condition is presented in
accordance with generally accepted accounting principles, which
require the use of certain estimates made by the Trust's
management.
E. Organizational and Initial Offering Costs
Organizational and initial offering costs (exclusive of selling
commissions), estimated to total approximately $350,000, will be
advanced by the Managing Owner and charged to the Trust at a
monthly rate of 0.2% of the Trust's month-end Net Assets until
such amounts are fully reimbursed.
Note 2. MANAGING OWNER
--------------
The Managing Owner of the Trust is Kenmar Advisory Corp., which will
conduct and manage the business of the Trust. The Declaration of Trust
and Trust Agreement requires the Managing Owner to maintain a capital
account equal to 1% of the total capital accounts of the Trust.
The Managing Owner will be paid annual brokerage commissions equal to
11% of the Trust's average month-end Net Assets. The Managing Owner
will pay substantially all actual costs of executing the Trust's
trades, selling commissions and trailing commissions to selling agents,
and consulting fees to the trading advisors.
F-4
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
----------
Note 2. MANAGING OWNER (CONTINUED)
--------------------------
The Managing Owner will also be paid an annual incentive fee equal to
5% of New Overall Appreciation (as defined in the Declaration of Trust
and Trust Agreement).
Note 3. TRADING ADVISORS
----------------
The Trust intends on executing advisory agreements with various trading
advisors, pursuant to which the Trust will initially pay quarterly
profit shares of 15% to 25% of the profit subject to profit share.
Note 4. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Investments in Units of Beneficial Interest will be made by
subscription agreement, subject to acceptance by the Managing Owner.
The Trust is not required to make distributions, but may do so at the
sole discretion of the Managing Owner.
A Unitholder may request and receive redemption of Units owned,
beginning with the end of the sixth month after such Units are sold,
subject to restrictions in the Declaration of Trust and Trust
Agreement. Units redeemed on or before the end of the twelfth full
calendar month and after the end of the twelfth full month but on or
before the end of the eighteenth full calendar month after the date
such Units begin to participate in the profits and losses of the Trust
are subject to early redemption charges of 3% and 2%, respectively.
All redemption charges will be paid to the Managing Owner.
F-5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholder
Kenmar Advisory Corp.
We have audited the accompanying statement of financial condition of Kenmar
Advisory Corp. as of September 30, 1995. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of financial condition is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of financial condition. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of financial
condition presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of financial condition referred to above presents
fairly, in all material respects, the financial position of Kenmar Advisory
Corp. as of September 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in the notes to the statement of financial condition, Kenmar
Advisory Corp. is a wholly-owned subsidiary and a member of a group of
affiliated companies and, as described in the statement of financial condition
and notes thereto, has extensive transactions and relationships with members of
the group.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
December 19, 1995
F-6
<PAGE>
KENMAR ADVISORY CORP.
STATEMENTS OF FINANCIAL CONDITION
September 30, 1995 and March 31,1996 (unaudited)
----------
September 30, March 31,
1995 1996
---------- ----------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 346,466 $ 0
Fees receivable 187,324 298,658
---------- ----------
Total current assets 533,790 298,658
Investments in affiliated commodity pools 739,090 695,075
Due from affiliates, net 2,600,831 3,533,379
Property and equipment, net 358,617 782,198
Other assets 19,623 32,527
---------- ----------
Total assets $4,251,951 $5,341,837
========== ==========
LIABILITIES
Cash deficit $ 0 $ 20,173
Accrued expenses and other liabilities 1,505,650 2,014,712
Obligations under capital leases 79,864 397,036
---------- ----------
Total liabilities 1,585,514 2,431,921
---------- ----------
STOCKHOLDER'S EQUITY
Common stock, $1 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares 100 100
Additional paid-in capital 632,025 632,025
Retained earnings 2,034,312 2,277,791
---------- ----------
Total stockholder's equity 2,666,437 2,909,916
---------- ----------
Total liabilities and stockholder's equity $4,251,951 $5,341,837
========== ==========
See accompanying notes.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY
F-7
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
September 30, 1995
----------
Note 1. GENERAL DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------
A. General
Kenmar Advisory Corp. (the "Company"), a registered commodity
pool operator, organizes and operates commodity pools that engage
in the speculative trading of commodity futures, forwards and
option contracts.
The Company is a wholly-owned subsidiary of Kenmar Holdings Inc.
(the "Parent") which, in turn, is wholly-owned by Kenmar
Investment Associates. Two of the Company's officers are the sole
shareholders of MSG Commodities, Inc. and KAS Commodities, Inc.
which, in turn, own Kenmar Investment Associates equally.
The Company receives a majority of its revenue from the operation
of related entities.
The accompanying statement of financial condition is presented in
accordance with generally accepted accounting principles, which
require the use of certain estimates made by the Company's
management.
B. Cash and Cash Equivalents
Cash and cash equivalents includes all cash and money market
account balances. The Company places its cash and cash
equivalents with primarily one financial institution. At times,
such balances on deposit may be in excess of available insurance.
C. Investments in Affiliated Commodity Pools
The Company's investments in affiliated commodity pools, of which
the Company is General Partner, are carried at its share of the
underlying equity in the net assets of the commodity pools. As
General Partner, the Company has a fiduciary responsibility to
the pools, and as such, has general partner liability.
D. Revenue Recognition
Commissions are recognized as transactions are placed with
clearing brokers. Management and incentive fees accrue monthly
based on the terms of the respective agreements.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-8
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1995
----------
Note 1. GENERAL DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------------------------------
E. Property and Equipment
Depreciation of furniture, fixtures and office equipment is
computed using the double declining balance method over seven
years. Amortization of leasehold improvements is computed using
the straight-line method over the lesser of the term of the
related lease or the estimated useful lives of the assets. Major
renewals and betterments are capitalized and repairs and
maintenance are charged to operations as incurred.
F. Income Taxes
The Company is part of an affiliated group that files
consolidated U.S., state and local income tax returns. The
Company is allocated income tax in an amount equal to its
separate tax liability or benefit computed as if it were filing
individually.
The Company uses an asset and liability approach to financial
accounting for income taxes. No significant differences exist in
the effective income tax rates compared to applicable statutory
rates. Deferred income taxes (benefits) are provided for all
significant temporary differences in the recognition of assets
and liabilities for tax and financial reporting purposes.
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS
-----------------------------------------
The Company has General Partner interests in various commodity pools
organized as limited partnerships. These investments are reported in
the statement of financial condition at net asset value.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-9
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1995
----------
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
-----------------------------------------------------
Summarized financial information with respect to these General Partner
interests is as follows:
Kenmar
Performance
Partners
L.P. Other Total
--------- -------- ---------
Net asset value as of September 30, 1995 $ 673,907 $ 65,183 $ 739,090
========= ======== =========
Income (loss) allocation for the year
ended September 30, 1995 $ (88,570) $ 7,001 $ (81,569)
========= ======== =========
Summarized financial information of Kenmar Performance Partners L.P.
as of and for the year ended September 30, 1995 is as follows:
Assets $ 140,017,000
Liabilities 3,672,000
-------------
Net asset value $ 136,345,000
=============
Income $ 11,812,000
Expenses 30,441,000
--------------
Net income (loss) $ (18,629,000)
=============
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-10
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1995
----------
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
-----------------------------------------------------
As General Partner of these commodity pools, the Company conducts and
manages the respective businesses of the partnerships. Each limited
partnership agreement requires the Company to maintain a specified
investment in the respective partnership. The limited partnership
agreement of Kenmar Performance Partners L.P. requires the Company to
maintain an investment of the lesser of $500,000 or 1% of Net Assets.
Additionally, this limited partnership agreement also requires the
Company to maintain net worth of at least $2,000,000.
For managing the partnerships' businesses, the Company earns management
and incentive fees based on the terms of the respective limited
partnership agreements. The Company also earns administrative fees from
the partnerships as reimbursement for operating costs incurred by the
Company on behalf of the partnerships. The administrative fees are
based on a percentage of the monthly net asset value of the
partnerships.
Note 3. PROPERTY AND EQUIPMENT
----------------------
The Company's property and equipment at September 30, 1995 consists of:
Furniture and fixtures $ 276,364
Office equipment 314,426
Leasehold improvements 625,807
Leased assets 480,233
-----------
1,696,830
Less: Accumulated depreciation and
amortization 1,338,213
-----------
$ 358,617
===========
Note 4. OBLIGATIONS UNDER LEASES
------------------------
The Company leases equipment under noncancelable capital leases which
expire at various dates through 1996. The equipment held under capital
leases cost in the aggregate $480,233 and has accumulated amortization
of $370,493 at September 30, 1995. For the year ending September 30,
1996, the future minimum lease payments required by these capital
leases aggregate $83,279.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-11
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1995
----------
Note 4. OBLIGATIONS UNDER LEASES (CONTINUED)
------------------------------------
Subsequent to September 30, 1995, the Company entered into an operating
lease for office facilities in Greenwich, Connecticut. The lease
commences January 1996 for an initial term of nine years with one five
year option. The fixed annual rental during the initial term increases
from $366,000 to $642,000, payable in equal monthly installments during
each year of the initial term.
Note 5. RELATED PARTY TRANSACTIONS
--------------------------
The Company has extensive transactions and relationships with members
of a group of affiliated companies. Common expenses are allocated among
affiliates based on the percentage of commissions, management,
incentive and other fees earned by the respective companies to the
total consolidated fees of the group.
For the year ended September 30, 1995, the amount of common expenses
related to the Company totalled $6,475,648. The total common expenses
of the group for the year ended September 30, 1995 was $10,055,983.
As compensation for services provided to affiliated commodity pools,
the Company receives from commodity brokers a portion of the brokerage
commission paid to them by the commodity pools and also receives
commissions, management, incentive, organization and other fees
directly from the commodity pools. For the year ended September 30,
1995, the Company earned management, incentive and other fees of
$1,806,305 from these affiliated commodity pools. At September 30,
1995, the Company is owed $6,890 from these commodity pools.
Note 6. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company and certain of its affiliates have jointly guaranteed a
$1,000,000 demand note payable by the Parent.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-12
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1995
----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The limited partnerships for which the Company is the General Partner
engage in the speculative trading of futures contracts, options on
futures contracts and forward contracts (collectively "derivatives") in
U.S. and foreign markets. Theoretically, the limited partnerships, and
therefore, the Company, as General Partner, are exposed to both market
risk, the risk arising from changes in the market value of the
contracts, and credit risk, the risk of failure by another party to
perform according to the terms of a contract. The limited partnerships
are exposed to market risk equal to the value of contracts purchased
and unlimited liability on contracts sold short. Written options expose
the limited partnerships to potentially unlimited liability and
purchased options expose the limited partnerships to a risk of loss
limited to the premiums paid. Since forward contracts are traded in
unregulated markets between principals, the limited partnerships also
assume the risk of loss from counterparty nonperformance.
The limited partnerships have a substantial portion of their assets on
deposit with futures commission merchants, brokers and dealers in
securities and other financial institutions in connection with trading
and cash management activities. In the event of a financial
institution's insolvency, recovery of partnership assets on deposit may
be limited to account insurance or other protection afforded such
deposits.
The average fair value of derivatives traded by the limited
partnerships during the year ended September 30, 1995 was approximately
$13,115,000 and the related year-end fair value was $6,107,000. The
fair value of derivatives represents unrealized gains and losses on
open forward and futures contracts and long and short options at market
value.
At September 30, 1995, the notional amounts of open contracts to
purchase and sell held by the limited partnerships aggregated
$2,302,067,000 and $858,434,000, respectively. The notional amounts do
not represent the limited partnerships' risk of loss due to market and
credit risk, but rather represent the extent of involvement in
derivatives at September 30, 1995.
The Company, as General Partner, has established procedures to actively
monitor and minimize market and credit risk.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-13
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
March 31, 1996 (unaudited)
----------
The interim statement of financial condition at March 31, 1996 is condensed and
does not include all disclosures required by generally accepted accounting
principles. Such interim statement of financial condition should be read in
conjunction with the Company's audited statement of financial condition as of
September 30, 1995 included on the preceding pages.
The interim statement of financial condition as of March 31, 1996 is unaudited.
In the opinion of management, such unaudited statement reflects all adjustments,
which were of a normal and recurring nature, necessary for a fair presentation
of financial position.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-14
<PAGE>
APPENDIX I
THE INITIAL TRADING ADVISORS
General
The following description of the initial Advisors and their trading
methods and strategies is general and is not intended to be exhaustive. Futures
and forward contract trading methods are proprietary and complex, so only the
most general descriptions are possible. Furthermore, certain Advisors may have
chosen to refer to specific aspects of their trading systems, methods and
strategies, which aspects may also be applicable to other Advisors which did not
choose to make explicit reference to these aspects of their own strategies. As a
result, contrasts in the descriptions set forth herein may not, in fact,
indicate a substantive difference between the trading methods and strategies
involved. While Kenmar believes that the description of the initial Advisors'
methods and strategies included herein may be of interest to prospective
investors, such persons must be aware of the inherent limitations of such
description.
This Appendix I contains brief biographical outlines and performance
summaries of the Trust's initial Advisors. The success of the Trust is dependent
upon the success of the Advisors retained by the Trust from time to time to
trade for its account. In terms of attempting to reach an investment decision
regarding the Units, however, it is difficult to know how to assess Advisor
descriptions and performance summaries, as trading methods are proprietary and
confidential and past performance is not necessarily indicative of future
results. Furthermore, the performance summaries provide only a brief overview of
the Advisors' performance histories.
Certain Advisors trade "notional" equity for clients -- i.e., trading such
client's accounts as if more equity were committed to such accounts than is, in
fact, the case. The Trust's accounts will not include any notional equity.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FURTHERMORE, THE RATES OF RETURN EARNED WHEN AN ADVISOR IS MANAGING A LIMITED
AMOUNT OF EQUITY MAY HAVE LITTLE RELATIONSHIP TO THE RATES OF RETURN WHICH SUCH
ADVISOR MAY BE ABLE TO ACHIEVE MANAGING LARGER AMOUNTS OF EQUITY.
THE FOLLOWING FIGURES HAVE IN NO RESPECT BEEN ADJUSTED TO REFLECT THE
CHARGES TO THE TRUST. CERTAIN OF THE ACCOUNTS INCLUDED IN THE FOLLOWING
PERFORMANCE RECORDS PAID FEES MATERIALLY DIFFERENT FROM, AND IN SOME CASES
MATERIALLY LOWER THAN, THOSE TO BE CHARGED TO THE TRUST.
FUTURES AND FORWARD CONTRACT TRADING IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. THERE CAN BE NO ASSURANCE THAT THE ADVISORS WILL TRADE
PROFITABLY OR AVOID INCURRING SUBSTANTIAL LOSSES.
Futures Trading Methods in General
Systematic and Discretionary Trading Approaches
Futures traders may generally be classified as either systematic or
discretionary.
A systematic trader will generally rely to some degree on judgmental
decisions concerning, for example, what markets to follow and commodities to
trade, when to liquidate a position in a contract which is about to expire and
how large a position to take in a particular commodity. However, although these
judgmental decisions may have a substantial effect
APPI-1
<PAGE>
on a systematic trading advisor's performance, his primary reliance is on
trading programs or models which generate trading signals. The systems utilized
to generate trading signals are changed from time to time (although generally
infrequently), but the trading instructions generated by the systems being used
are followed without significant additional analysis or interpretation.
Discretionary traders, on the other hand, while they may utilize market charts,
computer programs and compilations of quantifiable fundamental information to
assist them in making trading decisions, make such decisions on the basis of
their own judgment and "trading instinct," not on the basis of trading signals
generated by any program or model.
Each approach involves certain inherent risks. Systematic traders may
fail to capitalize on market trends which their systems would otherwise have
exploited due to judgmental decisions made by them in the context of applying
their generally mechanical trading systems. Discretionary traders, on the other
hand, may decide to make trades which would not have been signaled by a trading
system and which result in substantial losses. Furthermore, any trading system
or trader may suffer substantial losses by misjudging the market. Systematic
traders tend to rely more on computerized programs than do discretionary
traders, and some consider the prospect of disciplined trading, which largely
removes the emotion of the individual trader from the trading process,
advantageous. In addition, due to their use of computers, systematic traders are
generally able to incorporate more data into a particular trading decision than
are discretionary traders. However, when fundamental factors dominate the
market, trading systems may suffer rapid and severe losses due to their
inability to respond to such factors until such factors have had a sufficient
effect on the market to create a trend of enough magnitude to generate a
reversal of trading signals, by which time a precipitous price change may
already be in progress, preventing liquidation at anything but substantial
losses.
Technical and Fundamental Analysis
In addition to being distinguished from one another by the criterion of
whether they trade systematically or on the basis of their discretionary
evaluations of the markets, commodity trading advisors are also distinguished as
relying on either "technical" or "fundamental" analysis, or on a combination of
the two. Systematic traders tend to rely on technical analysis, because the data
relevant to such analysis is more susceptible to being isolated and quantified
to the extent necessary to be successfully incorporated into a program or
mathematical model than is most "fundamental" information, but there is no
inconsistency in attempting to trade systematically on the basis of fundamental
analysis. The fundamental information which can be evaluated by a formalized
trading system is, however, limited to some extent in that it generally must be
quantifiable in order to be processed by such a system.
Technical analysis is not based on anticipated supply and demand
factors; instead, it is based on the theory that the study of the commodities
markets themselves will provide a means of anticipating future prices. Technical
analysis operates on the theory that market prices at any given point in time
reflect all known factors affecting the supply and demand for a particular
commodity. Consequently, technical analysis focuses not on evaluating those
factors directly but on an analysis of market prices themselves, theorizing that
a detailed analysis of, among other things, actual daily, weekly and monthly
price fluctuations, volume variations and changes in open interest is the most
effective means of attempting to predict the future course of price movements.
Fundamental analysis, in contrast, is based on the study of factors
external to the trading markets that affect the supply and demand of a
particular commodity in an attempt to predict future price levels. Such factors
might include weather, the economy of a particular country, government policies,
domestic and foreign political and economic events, and changing trade
prospects. Fundamental analysis theorizes that by monitoring relevant supply and
demand factors for a particular commodity, a state of current or potential
disequilibrium of market conditions may be identified that has yet to be
reflected in the price level of that commodity. Fundamental analysis assumes
that markets are imperfect, that information is not instantaneously assimilated
or disseminated and that econometric models can be constructed that generate
equilibrium prices that may indicate that current prices are inconsistent with
underlying economic conditions and will, accordingly, change in the future.
APPI-2
<PAGE>
Trend-Following
"Trend-following" advisors gear their trading approaches towards
positioning themselves to take advantage of major price movements, as opposed to
traders who seek to achieve overall profitability by making numerous small
profits on short-term trades, or through arbitrage techniques. "Trend-following"
traders assume that most of their trades will be unprofitable. Their objective
is to make a few large profits, more than offsetting their more numerous but
smaller losses, from capitalizing on major trends. Consequently, during periods
when no major price trends develop in a market, a "trend-following" trading
advisor is likely to incur substantial losses.
Risk Control Techniques
As will be apparent from the following descriptions of the respective
Advisors' trading approaches, an important aspect of any speculative futures
strategy relates to the control of losses, not only the ability to identify
profitable trades. Unless it is possible to avoid major drawdowns, it is very
difficult to achieve long-term profitability.
Trading advisors often adopt fairly rigid "risk management" or "money
management" principles. Such principles typically restrict the size of positions
which will be taken as well as establishing "stop-loss" points at which losing
positions must be liquidated. It is important for prospective investors to
recognize in reading the descriptions of the Advisors' various risk control
techniques that none is "fail safe," and none can, in fact, assure that major
drawdowns will be avoided. Not only do estimates of market volatility themselves
require judgmental input, but also market illiquidity can make it impossible for
an account to liquidate a position against which the market is moving strongly,
whatever risk management principles are utilized. Similarly, irrespective of how
small the initial "probing" positions taken by an Advisor are, unless it trades
profitably, innumerable small losses incurred in the course of such "probing"
can quickly accumulate into a major drawdown. The Advisors' risk management
principles should, accordingly, be seen more as a discipline applied to their
trading in highly speculative markets than as an effective protection against
loss.
Not only are trading methods typically "'black boxes," but they often
are also continually evolving. Prospective investors and Unitholders will
generally not be informed of a change in an Advisor's trading approach, unless
Kenmar is informed of such change and considers such change to be material.
In addition to the continually changing character of trading methods,
the commodity markets themselves are continually changing. Each Advisor may, in
its sole discretion, elect to trade any available futures, forward or commodity
options -- both on United States markets and abroad-- even if such Advisor has
never previously traded in that particular market.
Notes to Performance Information
In reviewing the descriptions of the Advisors' performance, prospective
investors should understand that such performance is "net" of all fees and
charges, and includes interest income applicable to the accounts comprising each
composite performance record. Such composite performance is not necessarily
indicative of any individual account. In addition, particular conventions
adopted by certain Advisors with respect to the calculation of the performance
information set forth herein are described under the "Past Performance
Information" section with respect to each Advisor.
1. Name of CTA is the name of the Advisor which directed the accounts included
in the performance summary.
2. Name of program is the name of the trading program used by the Advisor in
directing the accounts included in the performance summary.
3. Inception of client account trading by CTA is the date on which the
relevant Advisor began directing client accounts.
4. Inception of client account trading in program is the date on which the
relevant Advisor began directing client accounts pursuant to the program
shown in the performance summary.
APPI-3
<PAGE>
5. Number of open accounts is the number of accounts directed by the relevant
Advisor pursuant to the program shown in the performance summary through
July 1, 1996.
6. Aggregate assets (excluding "notional" equity) overall is the aggregate
amount of actual assets under the management of the relevant Advisor in all
programs operated by such Advisor through July 1, 1996 (and may include
estimates).
7. Aggregate assets (including "notional" equity) overall is the aggregate
amount of total equity, including "notional" equity, under the management
of the relevant Advisor in all programs operated by such Advisor through
July 1, 1996 (and may include estimates)..
8. Aggregate assets (excluding "notional" equity) in program is the aggregate
amount of actual assets under the management of the relevant Advisor in the
program shown in the performance summary through July 1, 1996 (and may
include estimates).
9. Aggregate assets (including "notional" equity) in program is the aggregate
amount of total equity, including "notional" equity, under the management
of the relevant Advisor in the program shown in the performance summary
through July 1, 1996 (and may include estimates).
10. Largest monthly drawdown is the largest monthly loss experienced by the
relevant program on a composite basis in any calendar month covered by the
performance summary. "Loss" for these purposes is calculated on the basis
of the loss experienced by the program as a composite, expressed as a
percentage of the total equity (including "notional" equity) in the
program. Individual accounts of an Advisor may have experienced larger
monthly drawdowns. Largest monthly drawdown information includes the month
and year of such drawdown, and is through July 1, 1996 (and may include
estimates).
11. Largest peak-to-valley drawdown is the largest percentage decline (after
eliminating the effect of additions and withdrawals) during the period
covered by the performance summary from any month-end net asset value,
without such month-end net asset value being equalled or exceeded as of a
subsequent month-end. Largest peak-to-valley drawdown is calculated on the
basis of the loss experienced by the program as a composite, expressed as a
percentage of the total equity (including "notional" equity) in the
program. Individual accounts managed by an Advisor may have experienced
larger peak-to-valley drawdowns, and is through July 1, 1996 (and may
include estimates).
12. Monthly Rates of Return, in accordance with CFTC rules, are shown only for
the specific programs to be traded by the Advisors for the Trust. In the
accompanying performance descriptions, certain Advisors have adopted a
method of computing rate of return and performance disclosure, referred to
as the "Fully-Funded Subset" method, pursuant to an Advisory (the
"Fully-Funded Subset Advisory") published in February 1993 by the CFTC. To
qualify for the use of the Fully-Funded Subset method, the Fully-Funded
Subset Advisory requires that certain computations be made in order to
arrive at the Fully-Funded Subset and that the accounts for which
performance is so reported meet two tests which are designed to provide
assurance that the Fully-Funded Subset and the resultant rates of return
are representative of the particular trading program.
The Monthly Rates of Return for each Advisor, in certain cases, are
calculated on the basis of assets under management including proprietary
capital. However, the Advisors believe that the inclusion of such capital
has had no material effect on their Monthly Rates of Return.
13. Compound Rate of Return is calculated by multiplying on a compound basis
each of the Monthly Rates of Return and not by adding or averaging such
Monthly Rates of Return. For periods of less than one year, the results are
for the period indicated.
APPI-4
<PAGE>
CHESAPEAKE CAPITAL CORPORATION
Background and Management
Chesapeake Capital Corporation ("Chesapeake") was incorporated under
the laws of the Commonwealth of Virginia in February 1988 for the purpose of
offering investment advisory and portfolio management services to both retail
and institutional investors in trading futures and forward contracts. On August
19, 1991, Chesapeake was merged into Chesapeake Capital Corporation, an Illinois
corporation formed on August 13, 1991. References herein to Chesapeake refer to
the Virginia corporation prior to August 19, 1991 and to the Illinois
corporation on and after August 19, 1991. Chesapeake is registered as a
commodity trading advisor and as a commodity pool operator with the United
States Commodity Futures Trading Commission (the "CFTC"), and is also a member
in good standing of the United States National Futures Association (the "NFA").
Chesapeake's principal place of business is located at 500 Forest Avenue,
Richmond, Virginia 23229; telephone (804) 285-5417. The registration of
Chesapeake with the CFTC and Chesapeake's membership in NFA must not be taken as
an indication that any such agency or self-regulatory body has recommended or
approved Chesapeake or the Trust.
R. Jerry Parker, Jr., Chairman, Chief Executive Officer, Director, sole
shareholder and a principal of Chesapeake, received his B.S. in Commerce, with
an emphasis in Accounting, from the University of Virginia in January 1980. Mr.
Parker worked in the accounting field for four years after graduating from
college and became a licensed Certified Public Accountant ("CPA") in Virginia in
1982. From January 1983 until November 1983, Mr. Parker was a CPA at Wilkinson &
Lester, a certified public accounting firm based in Richmond, Virginia. From
November 1983 until January 1987, Mr. Parker was employed as an exempt commodity
trading advisor by Richard J. Dennis, a principal and shareholder of Richard J.
Dennis & Company, a Chicago-based commodity trading advisor and commodity pool
operator registered with the CFTC, in his "Turtle" training program. From
January 1987 until February 1988, Mr. Parker traded for Mr. Thomas Dennis as an
exempt commodity trading advisor. During these periods, Mr. Parker had complete
discretionary trading authority over a futures portfolio of $1 million to $1.5
million. In February 1988, Mr. Parker ceased trading for Mr. Thomas Dennis and
formed Chesapeake, where he serves as the Chairman, Chief Executive Officer and
Chief Trader.
John M. Hoade, President and Secretary, received a B.S. degree in
Business Administration from Lynchburg College in 1978. From 1976 through 1990,
Mr. Hoade was employed by Thurston Metals, Inc., located in Lynchburg, Virginia,
in sales, marketing and general management. Mr. Hoade joined Chesapeake in
December 1990 to direct its operations and marketing efforts.
There have been no material administrative, civil or criminal actions
or proceedings -- whether pending, on appeal or concluded -- against Chesapeake
or its principals during the five years preceding the date of this Prospectus.
Trading Strategy
Chesapeake will trade its "Diversified Trading Program" on behalf of
the Trust. The Diversified Trading Program emphasizes a maximum range of
diversification with a global portfolio of futures, forward and cash markets
which includes, but is not limited to, agricultural products, metals,
currencies, financial instruments, and stock, financial and economic indices.
Chesapeake may trade on any U.S. or non-U.S. exchange.
The investment portfolios currently offered by Chesapeake are the
"Diversified Trading Program," the "Diversified 2XL Program," and the
"Financials and Metals Program" (the "Trading Programs"). While all of the
Trading Programs employ the same general trading methodology, as described
below, they differ in their emphasis of certain markets or market sectors and
exclusion of others.
Relying primarily on technical analysis, Chesapeake believes that
future price movements in all markets may be more accurately anticipated by
analyzing historical price movements within a quantitative framework rather than
attempting to predict or forecast changes in price through fundamental economic
analysis. The trading methodologies employed by Chesapeake are based on programs
analyzing a large number of interrelated mathematical and statistical formulas
and techniques which are quantitative, proprietary in nature and which have been
either learned or developed by Mr. Parker.
APPI-5
<PAGE>
In addition to such mathematical evaluations, Chesapeake employs a
technique of technical analysis generally known as "charting" in order to
attempt to determine optimal support and resistance levels and entry and exit
points in the various markets. Chesapeake also makes extensive use of
internally-generated market information, which includes, but is not limited to,
price volatility, open interest, daily price action, volume and market
psychology or sentiment.
The profitability of the Trading Programs, traded pursuant to technical
analysis emphasizing mathematical and charting approaches, will depend upon the
occurrence in the future, as in the past, of major trends in some markets. If
there are no trends, the Trading Programs are likely to be unprofitable. There
have been trendless periods in the past which can be expected to recur and any
factor which lessens the prospect of trends in the future, such as increased
governmental control, regulation, or participation as a purchaser or seller in
commodity interest markets (including joint governmental control or regulation
of, or participation in, international currency markets), lessens the prospect
that programs utilizing technical analysis, including the Trading Programs, will
be profitable in the future. In addition, the future profitability of the
Trading Programs would also be adversely affected by factors which increase the
number of signals leading to unprofitable trades. For example, a significant
increase in technically-oriented trading (trend-following or otherwise) in a
particular commodity might cause a change in the pattern of price movements in a
manner which might be unfavorable.
Trend-following trading systems, such as those employed by Chesapeake,
will seldom effect market entry or exit at the most favorable price in the
particular market trend. Rather, this type of trading system seeks to close out
losing positions quickly and to hold portions of profitable positions for as
long as the trading system determines that the particular market trend continues
to exist. There can be no assurance, however, that profitable positions can be
liquidated at the most favorable price in a particular trend. As a result, the
number of losing transactions may exceed substantially the number of profitable
transactions. However, if Chesapeake's approach is successful, these losses
should generally be relatively small and may be offset by gains on profitable
transactions.
The Trading Programs are oriented toward the preservation of original
equity. The commencement of trading or a drawdown from starting equity are
considered the situations of highest risk, and risk management techniques at
this point are emphasized over those which invite greater risk in the interest
of enhancing performance. These risk management techniques include
diversification, i.e., commitment of equity to multiple markets and to a number
of trading strategies. Also, the Trading Programs adhere to the requirements of
a money management system which determines and limits the equity committed to
each trade, each market, and each complex (in Trading Programs which trade in
more than one commodity complex) with respect to each account.
Chesapeake believes that a long-term commitment to its Trading Programs
is necessary for profitable trading. Chesapeake attempts to take a limited
number of positions over the long term to capture major price movements while
limiting downside risk on open positions.
Futures contracts which are traded by Chesapeake may include, but are
not limited to, agricultural products, metals, currencies, financial
instruments, and stock, financial and economic indices. Exchanges on which these
transactions take place include, but are not limited to, all exchanges in the
United States, as well as non-U.S. exchanges (e.g., the Belgian Futures and
Options Exchange (BELFOX), the London International Financial Futures and
Options Exchange Ltd. (LIFFE), the International Petroleum Exchange of London
Ltd., the London Metal Exchange, the London Commodity Exchange (LCE), the Marche
a Terme International de France (MATIF), Mercado Espanol de Futuros Financieros
(MEFFSA), the Deutsche Terminborse, the Hong Kong Futures Exchange Ltd., the
Montreal Exchange (ME), the Tokyo Commodity Exchange, the Tokyo International
Financial Futures Exchange (TIFFE), the Tokyo Stock Exchange (TSE), the
Singapore International Monetary Exchange (SIMEX), the Sydney Futures Exchange
Ltd., the Swiss Options and Financial Futures Exchange (SOFFEX), and the
Winnipeg Commodity Exchange). In addition, Chesapeake continually monitors
numerous markets, both U.S. and non-U.S., and will initiate trades at any point
it is determined that a market is sufficiently liquid and tradeable using the
methods employed by Chesapeake.
Chesapeake engages in transactions in physical commodities, including
the exchange of futures for physicals transactions. An exchange of futures for
physicals ("EFP") is a transaction permitted under the rules of many futures
exchanges in which two parties holding futures positions may close out their
positions without making an open, competitive trade on the
APPI-6
<PAGE>
exchange. Generally, the holder of a short futures position buys the physical
commodity, while the holder of a long futures position sells the physical
commodity. The prices at which such transactions are executed are negotiated
between the parties.
Chesapeake generally uses between 15% and 30% of the equity in an
account as original margin for trading in its Diversified Trading Program but at
times the margin-to-equity ratio can be higher.
Decisions concerning the liquidation of positions, the futures interest
contracts to be traded and the size of positions to be taken or maintained
require to some degree the exercise of judgment by Chesapeake. The decision not
to trade futures interest contracts for a certain period, or not to trade
certain futures interest contracts due to lack of discernible price movements
(trends) or lack of liquidity, or excess volatility, may result at times in
clients (such as the Trust) missing significant profit opportunities which might
otherwise have been captured by Chesapeake.
The trading strategy utilized by Chesapeake's Trading Programs,
including the Diversified Trading Program, may be revised from time to time by
Chesapeake as a result of ongoing research and development which seeks to devise
new trading systems, as well as test methods currently employed. The trading
methods used by Chesapeake in the future may differ significantly from those
presently used, due to the changes which may result from this research.
Since the Trading Programs utilized by Chesapeake are proprietary and
confidential, the above discussion is general in nature and is not intended to
be exhaustive.
Past Performance Information
The following information describes the composite actual performance of
all customer accounts managed by Chesapeake. Chesapeake will trade its
Diversified Trading Program on behalf of the Trust. As of April 30, 1996,
Chesapeake was managing approximately $819 million (excluding "notional" equity)
of customer funds in the futures and forwards markets. The performance
information set forth below is current as of April 30, 1996.
CFTC rules require the disclosure of performance information for the
last five full calendar years and year-to-date, and consider older performance
information less material to an investment decision. While generally agreeing
with the CFTC position, Chesapeake believes that investors may be interested in
reviewing information regarding Chesapeake's composite performance (both within
and prior to the last five years) and has therefore chosen to include such
information on a supplemental basis. This section does not include the composite
performance of Parker Commodities Incorporated, an affiliated commodity trading
advisor which has not managed accounts since August 31, 1990.
In the accompanying performance description, Chesapeake has adopted a
method of computing rate of return and performance disclosure, referred to as
the "Fully-Funded Subset" method, pursuant to an Advisory (the "Fully- Funded
Subset Advisory") published in February 1993 by the CFTC. To qualify for the use
of the Fully-Funded Subset method, the Fully-Funded Subset Advisory requires
that certain computations be made in order to arrive at the Fully- Funded Subset
and that the accounts for which performance is so reported meet two tests which
are designed to provide assurance that the Fully-Funded Subset and the resultant
rates of return are representative of the trading program. Chesapeake has
performed these computations for periods subsequent to January 1, 1992. However,
for periods prior to January 1, 1992, due to cost considerations, the
Fully-Funded Subset method has not been used. Instead, the rates of return
reported are based on a computation which uses the Nominal Account Sizes of all
of the accounts included in the composite tables calculated in accordance with
the "OAT" method as described below. Chesapeake believes that this method yields
substantially the same rates of return as would the Fully-Funded Subset method
and that the rates of return presented in the performance records are
representative of the Trading Programs for the periods presented. For the
periods from January 1, 1992 through December 31, 1993, Chesapeake compared the
OAT method and the Fully-Funded Subset method and found that the two methods
yielded substantially the same rates of return. Consequently, Chesapeake
continued to use the OAT method until the end of 1993 (the Fully-Funded Subset
Advisory was released in February 1993). From January 1, 1994 on, Chesapeake is
using the Fully-Funded Subset method.
Monthly Rate of Return for each month beginning January 1994 is
calculated by dividing the net performance of the "Fully-Funded Subset" by the
beginning equity of the Fully-Funded Subset except in periods of significant
APPI-7
<PAGE>
additions or withdrawals to the accounts in the Fully-Funded Subset. In such
instances, the Fully-Funded Subset is adjusted to exclude accounts with
significant additions or withdrawals, whose inclusion would materially distort
the rate of return calculated pursuant to the Fully-Funded Subset method.
The Monthly Rate of Return for each month prior to January 1992 is
calculated using the Only Accounts Traded (OAT) method, which uses net
performance divided by beginning equity, subject to certain adjustments. In this
calculation, accounts are excluded from both net performance and beginning
equity if their inclusion would materially distort the Monthly Rate of Return.
The excluded accounts include (1) accounts for which there has been a material
addition or withdrawal during the month, (2) accounts which were open for only
part of the month or (3) accounts which had no open positions during the month
due to the intention to permanently close the account. Such accounts were not
charged with material nonrecurring costs during the month.
The information presented has not been audited. However, Chesapeake
believes that such information is accurate and fairly presented.
[Remainder of page left blank intentionally.]
APPI-8
<PAGE>
Diversified Trading Program
Chesapeake will trade this program on behalf of the Trust. The chart
below reflects the composite performance results for the five-year period from
January 1991 through April 30, 1996 and supplemental information from February
1988 (inception) through December 31, 1990 of Chesapeake's Diversified Program.
Name of CTA: Chesapeake Capital Corporation
Name of program: Diversified Trading Program
Inception of client account trading by CTA: February 1988
Inception of client account trading in program: February 1988
Number of open accounts: 62
Aggregate assets (excluding "notional" equity) overall: $807,000,000
Aggregate assets (including "notional" equity) overall: $991,000,000
Aggregate assets (excluding "notional" equity) in program: $765,000,000
Aggregate assets (including "notional" equity) in program: $933,000,000
Largest monthly drawdown (five-year period): (10.98)% (1/92)
Largest peak-to-valley drawdown (five-year period): (16.62)% (1/92-5/92)
Largest monthly drawdown (since inception): (11.75)% (8/89)
Largest peak-to-valley drawdown (since inception): (20.58)% (8/89-10/89)
Number of closed accounts with profit (five-year period): 97
Number of closed accounts with loss (five-year period): 16
Number of closed accounts with profit (since inception): 108
Number of closed accounts with loss (since inception): 30
<TABLE>
<CAPTION>
=========================================================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%) 1990(%) 1989(%) 1988(%)
Performance
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1.69 (3.23) (3.33) 0.42 (10.98) (1.29) 0.49 4.93 --
- -------------------------------------------------------------------------------------------------------------------------
February (4.26) (4.39) (4.88) 15.99 (2.86) 4.84 3.37 (5.42) (2.63)
- -------------------------------------------------------------------------------------------------------------------------
March 0.28 8.60 0.09 5.86 0.53 2.32 8.62 6.64 (6.89)
- -------------------------------------------------------------------------------------------------------------------------
April 10.16 1.45 (0.60) 7.38 (0.44) (2.80) 4.37 (8.82) (10.71)
- -------------------------------------------------------------------------------------------------------------------------
May 6.84 9.06 0.40 (3.66) 0.27 (4.61) 22.38 6.93
- -------------------------------------------------------------------------------------------------------------------------
June 0.88 7.02 0.98 6.52 (1.25) 1.77 (8.28) 32.42
- -------------------------------------------------------------------------------------------------------------------------
July (3.09) (1.70) 9.49 12.96 (1.75) 6.25 11.66 (9.41)
- -------------------------------------------------------------------------------------------------------------------------
August (2.66) (2.98) 5.88 3.16 (3.32) 15.15 (11.75) 6.85
- -------------------------------------------------------------------------------------------------------------------------
September 0.20 3.49 (2.63) (6.78) 4.39 0.60 (2.82) 2.03
- -------------------------------------------------------------------------------------------------------------------------
October (1.11) 1.97 (0.06) 5.21 4.21 1.86 (7.40) 10.65
- -------------------------------------------------------------------------------------------------------------------------
November 1.76 4.83 1.03 2.27 (4.68) (0.25) 3.90 11.06
- -------------------------------------------------------------------------------------------------------------------------
December 9.18 2.86 5.77 (1.93) 12.08 0.11 28.56 7.04
- -------------------------------------------------------------------------------------------------------------------------
Compound 7.55 14.09 15.87 61.82 1.81 12.51 43.12 28.30 49.10
Annual Rate (4 mos.) (11 mos.)
of Return
=========================================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
APPI-9
<PAGE>
Diversified 2XL Program
The following summary information presents the composite performance
record of Chesapeake's Diversified 2XL Trading Program.
Name of CTA: Chesapeake Capital Corporation
Name of program: Diversified 2XL Program
Inception of client account trading by CTA: February 1988
Inception of client account and trading in program: April 1994
Number of open accounts: 4
Aggregate assets (excluding "notional" equity) overall: $807,000,000
Aggregate assets (including "notional" equity) overall: $991,000,000
Aggregate assets (excluding "notional" equity) in program: $23,000,000
Aggregate assets (including "notional" equity) in program: $23,000,000
Largest monthly drawdown: (9.38)% (2/96)
Largest peak-to-valley drawdown: (15.07)% (1/95-2/95)
Number of accounts closed with profit: 0
Number of accounts closed with loss: 0
1996 compound rate of return: 11.17% (4 months)
1995 compound rate of return: 18.77%
1994 compound rate of return: 26.88% (9 months)
Financials and Metals Program
The following summary information presents the composite performance
record of the Financials and Metals Program.
Name of CTA: Chesapeake Capital Corporation
Name of program: Financials & Metals Program
Inception of client account trading by CTA: February 1988
Inception of client account trading in program: March 1992
Number of open accounts in program: 6
Aggregate assets (excluding "notional" equity) overall: $807,000,000
Aggregate assets (including "notional" equity) overall: $991,000,000
Aggregate assets (excluding "notional" equity) in program: $30,000,000
Aggregate assets (including "notional" equity) in program: $35,000,000
Largest monthly drawdown: (5.65)% (2/94)
Largest peak-to-valley drawdown: (10.36)% (1/94-2/94)
Number of accounts closed with profit: 3
Number of accounts closed with loss: 8
1996 compound rate of return: 2.79% (4 months)
1995 compound rate of return: 12.61%
1994 compound rate of return: 3.22%
1993 compound rate of return: 68.53%
1992 compound rate of return: 24.19% (10 months)
1991 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-10
<PAGE>
Pacific Rim Program
The following summary information presents the performance record of
Chesapeake's Pacific Rim Program, which began trading in June 1994 and which
ceased trading in August 1995.
Name of CTA: Chesapeake Capital Corporation
Name of program: Pacific Rim Program
Inception of client account trading by CTA: February 1988
Inception of client account trading in program: June 1994 (ceased trading
August 1995)
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $807,000,000
Aggregate assets (including "notional" equity) overall: $991,000,000
Aggregate assets (excluding "notional" equity) in program: N/A
Aggregate assets (including "notional" equity) in program: N/A
Largest monthly drawdown: (3.30)% (7/95)
Largest peak-to-valley drawdown: (3.30)% (7/95)
Number of accounts closed with profit: 1
Number of accounts closed with loss: 0
1995 compound rate of return: 37.04% (8 months)
1994 compound rate of return: (2.76)% (7 months)
1993 compound rate of return: N/A
1992 compound rate of return: N/A
1991 compound rate of return: N/A
Foreign Financials Program
The following summary information presents the composite performance
record of Chesapeake's Foreign Financials Program, which began trading in June
1992 and which ceased trading in June 1994.
Name of CTA: Chesapeake Capital Corporation
Name of program: Foreign Financials Program
Inception of client account trading by CTA: February 1988
Inception of client account trading in program: June 1992 (ceased trading
June 1994)
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $807,000,000
Aggregate assets (including "notional" equity) overall: $991,000,000
Aggregate assets (excluding "notional" equity) in program: N/A
Aggregate assets (including "notional" equity) in program: N/A
Largest monthly drawdown: (5.77)% (9/92)
Largest peak-to-valley drawdown: (5.77)% (9/92)
Number of accounts closed with profit: 5
Number of accounts closed with loss: 0
1995 compound rate of return: N/A
1994 compound rate of return: (1.77)% (6 months)
1993 compound rate of return: 21.90%
1992 compound rate of return: 21.42% (7 months)
1991 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-11
<PAGE>
DREISS RESEARCH CORPORATION
Introduction
Dreiss Research Corporation ("Dreiss Research") is a Delaware
Corporation formed in August 1991. Dreiss Research became registered with the
CFTC as a commodity trading advisor in March 1992, and is a member of the
National Futures Association. Its offices and telephone numbers are below. All
the records are kept and made available for inspection at the administrative
services office, which is also the main business office.
TRADING ADMINISTRATIVE SERVICES
14 Penryn Avenue 1700 Montgomery Street, Suite 250
City Beach 6015, W. Australia San Francisco, California 94111
(61) 93857593 (415) 394-9465
Principals
San Miguel Associates is a California Corporation and a stockholder of
Dreiss Research Corporation. San Miguel Associates was formed in 1976 and became
registered with the CFTC as a Commodity Trading Advisor in 1985. San Miguel
Associates is currently engaged in market research and does not provide
investment advice or management services to the public.
The Echelon Group of Companies, LLC (Echelon) is a Delaware Corporation
and a stockholder of Dreiss Research Corporation. Echelon was formed in 1995 and
provides management and administrative assistance to Dreiss Research Corporation
and to several other commodity trading advisors. Echelon has no control over or
involvement with the trading decisions of Dreiss Research Corporation or any
other commodity trading advisor.
Clemson Financial Corporation is a California Corporation and a
Stockholder of Dreiss Research Corporation. Clemson Financial Corporation was
formed in 1977 and became registered with the CFTC as a commodity trading
advisor in 1978. Clemson Financial Corporation provides consulting and marketing
services to commodity trading advisors, including Dreiss Research Corporation.
Clemson Financial Corporation has no control over or involvement with trading
decisions of Dreiss Research Corporation or any other commodity trading advisor.
Business Background
E. William Dreiss, Director and President. E. William Dreiss graduated
from the Massachusetts Institute of Technology in 1964 with a BS in electrical
engineering. In 1966 he received an MBA from Harvard Business School, with a
concentration in Bayesian decision theory. He worked for several years after
graduation in mathematical and financial modeling, specializing in game theory.
During this time, he became interested in commodity futures, and began to use
pattern recognition and Fourier analysis to explore the markets. In 1973, after
five years of research into technical trading systems for commodities, he took a
position with E.F. Hutton & Co. in San Francisco as a commodity broker. In 1975,
he left to become a principal of and the chief trader for Commodity Consultants,
Inc., one of the first firms to manage large amounts of risk capital using
mechanical trading methods. In 1976, Mr. Dreiss established San Miguel
Associates of which he is President and sole shareholder. From 1976 to 1984, San
Miguel Associates was an active commodity trading advisor managing commodity
interest accounts marketed through major brokerage firms. In 1984, Mr. Dreiss
turned his attention to computer consulting and commercial software development,
while continuing to trade commodities for his own account.
Mr. Dreiss is one of the pioneers of the commodity managed account
industry and is responsible for a number of technological innovations related to
trading managed commodity accounts. He was the first commodity trading advisor
to balance diversified portfolios on the basis of expected risk per trade, and
originated the concept of trading a short term system only in the direction of
the longer term trend. He has continued his research into innovative approaches
to commodity trading, including original research on artificial intelligence and
the development of an expert systems shelf which uses a Holland classifier as
the decision engine. He is currently involved in research on trading methods
based on recent
APPI-12
<PAGE>
breakthroughs in fractal geometry and chaos theory. This work has led to the
development of mechanical systems based on pure pattern recognition and the
discovery of the Choppiness Index, a unique indicator which distinguishes
orderly (trending) from choppy (consolidating) markets without regard to market
direction.
Mr. Dreiss is the sole trader of Dreiss Research Corporation, and has
sole authority and control over the trading decisions of Dreiss Research
Corporation.
John Ward Rotter, Director and Corporate Secretary. John Ward Rotter
graduated from the United States Military Academy in 1979 with a Bachelor of
Science and Engineering Degree. Mr. Rotter cofounded Echelon of which he is a
stockholder and President. Echelon is a diversified holding company which holds
equity stakes in a number of money management concerns. In capacity of President
for Echelon, Mr. Rotter also serves as a board member and officer of entities
owned by Echelon. Mr. Rotter has no control over or involvement with trading
decisions of Dreiss Research Corporation or any other commodity trading advisor.
Bradley N. Rotter, Director. Bradley N. Rotter attended the United
States Military Academy where he studied economics and engineering, and
subsequently continued his education at the Graduate School of Business at the
University of Chicago where he received his MBA in 1983. Mr. Rotter formed
Echelon of which he is a principal stockholder and managing member. Mr. Rotter
also serves as a board member of entities owned by Echelon. Mr. Rotter has no
control over or involvement with trading decisions of Dreiss Research
Corporation.
Allan Leonard, Director. Allan Leonard graduated from Claremont Men's
College in 1962 with a BA in Business Economics. He established Clemson
Financial Corporation in 1977 where he is President and sole shareholder. In
1976 Mr. Leonard registered with the CFTC, and in 1987 registered with the SEC
as a registered investment advisor. Mr. Leonard and Clemson Financial
Corporation provide consulting and marketing services to commodity trading
advisors, including Dreiss Research Corporation. Mr. Leonard has no control over
or involvement with trading decisions of Dreiss Research Corporation or any
other commodity trading advisor.
Trading Program
Objective. Dreiss Research's money management program is designed
primarily for sophisticated investors. The primary objective of Dreiss Research
is the capital appreciation of its clients' assets through the speculation in
commodity futures contracts and commodity options. No assurance can be given
that this objective will be met, and an investment in an account to be traded by
Advisor should only be considered by investors that can assume the significant
risk of commodity futures trading, including losses in excess of their initial
investment. Dreiss Research will attempt to meet the objective of capital
appreciation by making trading decisions based upon a proprietary trading
method.
Methodology. The Fractal Wave System is a trend following system which
is applied to a diversified portfolio of commodity futures contracts. It is
technical in nature and ignores news, weather, politics and other "fundamental"
factors except as they are reflected in the markets.
The technical basis for the trading method is the fractal decomposition
of weekly price patterns. This analysis identifies turning points for
constructing trend lines and determining support and resistance, which are then
combined in a system which generates specific trading signals. Signals are then
screened by a unique Choppiness Index which may then used to adjust the
proximity of entry and exit signals. The following provides a more detailed
description of the system:
1. The system trades directly off weekly price charts. These are
constructed by back-adjusting futures contracts approximately
three to seven months apart and linking them into continuous
daily data files, which are then converted to weekly for use in
trading.
2. Price patterns are identified by the Fractal Wave Algorithm
(FWA), a unique method of pattern recognition co-developed by
E.W. Dreiss and Arthur von Waldburg. Turning points identified by
the FWA are then used to precisely define mechanically drawn
trend lines and support and
APPI-13
<PAGE>
resistance levels, which are then combined to generate trading
signals. While the system may often reverse, it is not a reversal
system as the entry and exit criteria are calculated
independently.
3. A unique Choppiness Index derived from fractal geometry is used
to distinguish between thrusting and consolidating markets. The
Index may be used to determine when exit stops are to be
tightened in thrusting markets, or when entry is to be more
stringent in consolidating markets.
4. A dollar stop loss may be used to limit losses. This limits the
occurrence of catastrophic losses without materially effecting
system performance. Note that such a stop does not eliminate the
risk of gap openings or markets that are locked at the limit
against a position.
5. The number of contracts of each commodity traded is determined by
"risk balancing" which involves trading a number of contracts
such that the expected dollar risk for trading any particular
commodity is roughly the same as that of other commodities in the
portfolio. For smaller accounts, it may be difficult to achieve
an optimal risk balancing due to mismatches in the sizes of
single contracts (see Section V-Account Size and Funding).
6. New accounts are entered into positions as new trading signals
occur or until limited risk opportunities allow alignment of
positions with those existing in the older accounts. Such limited
risk opportunities also allow upgrading or adding to existing
positions for older accounts. Note that the placement of stops is
relative to trading signals and not necessarily adjusted with
respect to positions in new accounts that have been aligned with
positions existing in older accounts.
7. The system does not rely on the optimization of numerical
parameters.
The above features combine into a system with a favorable ratio of
gains over losses and an attractive return relative to the expected maximum
drawdown. Trading accounts are structured to provide for a cash reserve by
establishing a level of trading activity which results in margin requirements
which are usually between 20% and 40% of the account size and seldom greater
than 50%.
The foregoing trading principles are factors upon which Dreiss Research
bases its decisions. Given trends and prices of sufficient duration and
magnitude, the trading methods employed may be profitable though more than half
of all individual trades may be unprofitable; however, a period without such
trends may result in substantial trading losses. The trading strategies have
been and will be enhanced or revised from time to time.
The trading methods of Dreiss Research are proprietary and
confidential. This description is, of necessity, general and is not intended to
be exhaustive.
Portfolio Selection. Dreiss Research trades a diversified portfolio of
futures contracts representing most major commodity groups (i.e., agriculture,
currencies, energy, equity indexes, interest rates, livestock, metals, and
softs). The selection process seeks to avoid undue concentration in any
particular futures group and to achieve a balance across all futures groups,
however, on occasion, there may be a heavier concentration of a given commodity
or a commodity complex, which could result in a greater return or risk to the
account.
The commodities currently traded are Australian dollar, British pound,
Canadian dollar, cattle, cocoa, coffee, copper, cotton, crude oil, eurodollar,
euromark, German bund, gold, Japanese yen, live hogs, natural gas, Nikkei index,
orange juice, palladium, S&P 500, silver, soybean meal, soybean oil, sugar,
Swiss francs, treasury bonds, wheat. Dreiss Research reserves tile right to add
or delete commodities from its portfolio without prior notice to its clients.
Order Entry and Allocations. Dreiss Research employs an order entry
system for client's accounts based upon the size of the account and the
commodities traded. No assurance is given that it will be possible to execute
trades at or near the desired buy or sell point. Further, since both the price
and exact number of commodities contracts filled or
APPI-14
<PAGE>
executed by the broker are subject to prevailing market conditions over which
Dreiss Research has no control, an objective price allocation system is employed
by Dreiss Research. In the opinion of Dreiss Research, this allocation system is
fair and equitable, and is consistently applied among all managed accounts.
In all effort to increase the efficiency and quality of execution of
trades, Dreiss Research directs the orders to specific executing brokers on the
various exchanges. Generally, Dreiss Research does not exceed the use of four
firms for executing trades, however, on occasion due to certain market
conditions, Dreiss Research may exceed the use of four firms for executing
trades. Dreiss Research reserves the right to establish relationships and enter
into agreements on behalf of the client with one or more executing brokers and
to trade all orders through such executing brokers. Therefore, Dreiss Research
may place orders for each account with a bulk order that will include all client
accounts in which the same commodity is being traded. This may result in a
client's account being charged a "give-up" fee if the trade is executed through
a brokerage firm other than that at which the client's account is maintained.
With regard to the timing and manner of execution of trades, Dreiss
Research may rely to some extent on the judgment of others, including floor
brokers. For example, a floor broker may advise that an order to buy or sell 200
contracts of a particular commodity futures be executed 20 or 30 contracts at a
time in an effort to obtain the best price. Dreiss Research may or may not
accept the advice given.
Past Performance Information
All accounts advised by Dreiss Research may not have parallel
performance due to different times of market entry and varying amounts of
capital. For example, account size may have an effect on particular trading
decisions such as relative size of positions taken, degree of diversification,
and particular commodities traded. These factors could result in superior
performance for either the larger or smaller accounts, depending upon the
circumstances.
The data presented reflect the composite actual performance of accounts
managed by Dreiss Research from May 1991 through April 1996. In May 1991, Dreiss
Research began trading one pension account whose beneficiary is a principal of
Echelon. Such account is fully-funded and historically has been, and currently
is, traded in tandem with, and charged comparable fees and commissions as, all
other accounts managed by Dreiss Research. Subsequent to October 31, 1995, such
account has been treated as a proprietary account and has been excluded from the
composite performance disclosures. As of September 30, 1995 the ending net asset
value for such account was $1,138,453.
Dreiss Research has performed the computations for the Fully-Funded
Subset method for periods subsequent to January 1, 1993. However, for periods
prior to January 1, 1993, due to cost considerations, the Fully-Funded Subset
method has not been used. Instead, for such periods, the rates of return
reported are based upon a computation which uses the nominal values of all the
accounts included in the composite table, calculated in accordance with the
time-weighted method as described in a prior Advisory published by the CFTC.
[Remainder of page left blank intentionally.]
APPI-15
<PAGE>
Dreiss Research Corporation Trading Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of Dreiss
Research's Trading Program from May 1991 through April 30, 1996.
Name of CTA: Dreiss Research Corporation
Name of program: Dreiss Research Corporation Trading Program
Inception of client account trading by CTA: May 1991
Inception of client account trading in program: May 1991
Number of open accounts: 60
Aggregate assets (excluding "notional" equity) overall: $9,908,494
Aggregate assets (including "notional" equity) overall: $29,214,107
Aggregate assets (excluding "notional" equity) in program: $9,908,494
Aggregate assets (including "notional" equity) in program: $29,214,107
Largest monthly drawdown: (11.64)% (2/96)
Largest peak-to-valley drawdown: (21.54)% (1/92 - 4/92)
Number of profitable closed accounts: 6
Number of unprofitable closed accounts: 3
<TABLE>
<CAPTION>
=====================================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
Performance
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1.46 (4.97) (2.62)* 3.79* (5.95)* --
- -----------------------------------------------------------------------------------------------------
February (11.64) 9.33 1.69* 1.96* (8.36)* --
- -----------------------------------------------------------------------------------------------------
March 8.41 13.66 1.80* 0.66* (3.70)* --
- -----------------------------------------------------------------------------------------------------
April 13.30 3.61 (7.23)* 18.14* (5.48)* --
- -----------------------------------------------------------------------------------------------------
May 1.24 13.87* 2.79* 0.55* 2.92*
- -----------------------------------------------------------------------------------------------------
June 7.45 10.41* 2.19* 3.65* 0.91*
- -----------------------------------------------------------------------------------------------------
July (6.00) (2.05)* 1.54* 16.60* (0.46)*
- -----------------------------------------------------------------------------------------------------
August 4.72 0.41* (3.65)* 0.72 (7.01)*
- -----------------------------------------------------------------------------------------------------
September (0.30) 9.16* (5.62)* (2.95)* 0.81*
- -----------------------------------------------------------------------------------------------------
October 2.94 (4.89)* 3.67* (5.10)* (1.05)*
- -----------------------------------------------------------------------------------------------------
November 9.17 10.10* (2.41)* 2.52* 2.04*
- -----------------------------------------------------------------------------------------------------
December 8.84 4.46* 10.24* 1.45* 9.90*
- -----------------------------------------------------------------------------------------------------
Compound Rate 10.12 59.76 38.09 36.12 (8.01) 7.55
of Return (8 mos.)
=====================================================================================================
</TABLE>
* Represents periods in which the account whose beneficiary is a principal of
Echelon consisted of 50% or more of the total nominal amount of funds under
management.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
APPI-16
<PAGE>
HYMAN BECK & COMPANY, INC.
Background and Management
Hyman Beck & Company, Inc. ("HB&Co.") was incorporated under the laws
of the State of Delaware in February 1991 to engage in the business of offering
advisory and portfolio management services to both retail and institutional
investors in commodity interest contracts. HB&Co. is registered as a commodity
trading advisor and commodity pool operator with the United States Commodity
Futures Trading Commission ("CFTC") and is a member of the United States
National Futures Association ("NFA") in such capacities. HB&Co.'s principal
office is located at 6 Campus Drive, Parsippany, New Jersey 07054, U.S.A. The
registration of HB&Co. with the CFTC and HB&Co.'s membership in the NFA must not
be taken as an indication that any such agency or self-regulatory body has
recommended or approved HB&Co. or the Trust.
The principals and key personnel of HB&Co. are listed below. HB&Co. is
wholly-owned by Mr. Hyman and Mr. Beck.
Alexander Hyman is the President and a principal of HB&Co. Mr. Hyman is
also a fifty percent shareholder of HB&Co.. Mr. Hyman, along with Mr. Beck, is
directly responsible for all trading and money management decisions made by
HB&Co.. From 1983 through February 1991, Mr. Hyman was employed by Dean Witter
Reynolds Inc. ("Dean Witter"), a registered futures commission merchant, where,
at the time of his departure, he was First Vice President and Associate Director
of the Managed Futures Division and a Director and principal of Dean Witter
Futures & Currency Management Inc., a registered commodity trading advisor. Mr.
Hyman was also a Director of Demeter Management Corporation, the sponsor of all
of Dean Witter's public futures funds. While at Dean Witter, Mr. Hyman was
responsible for the development of managed futures products. Mr. Hyman graduated
from Hofstra University in May 1983 with a B.B.A. degree in International
Business and Economics.
Carl J. Beck is Vice President, Secretary, Treasurer and a principal of
HB&Co.. Mr. Beck is also a fifty percent shareholder of HB&Co.. Mr. Beck, along
with Mr. Hyman, is directly responsible for all trading and money management
decisions made by HB&Co.. From 1985 through February 1991, Mr. Beck was employed
by Dean Witter, a registered futures commission merchant, where, at the time of
his departure, he held the position of Vice President and Senior Portfolio
Manager. Mr. Beck was also a Vice President and principal of Dean Witter Futures
& Currency Management Inc., a registered commodity trading advisor, where he was
responsible for day-to-day management and trading activities. Prior to joining
Dean Witter, Mr. Beck was employed by J. Aron & Co., a commodity trading firm.
As of April 1994, Mr. Beck was appointed to and serves on the Board of Managers
of the Coffee, Sugar & Cocoa Exchange, Inc. Mr. Beck graduated magna cum laude
from Fordham University in May 1983 with a B.A. degree in Economics and earned
an M.B.A. degree in Finance from New York University in May 1989.
John J. McCormick is a principal of HB&Co.. Mr. McCormick is directly
responsible for the implementation of trading decisions for HB&Co.'s commodity
interest portfolios. Prior to joining HB&Co., Mr. McCormick was employed by Dean
Witter from 1986 through February 1991 where, at the time of his departure, he
held the position of Assistant Vice President and Internal Accounts Manager. Mr.
McCormick is also responsible for generating most of the research reports used
by Messrs. Hyman and Beck in determining their trading decisions. Mr. McCormick
graduated from Fordham University in 1986 with a B.S. degree in Accounting and
earned an M.B.A. degree in Finance from Fordham University in May 1993.
Troy W. Buckner is a principal of HB&Co.. Mr. Buckner is responsible
for research activities at HB&Co.. Prior to joining HB&Co. in June 1995, Mr.
Buckner was a principal at Classic Capital, Inc., an international investment
management firm, where he designed systematic trading programs from January 1994
to June 1995. From December 1989 to January 1994, Mr. Buckner was self-employed
as an independent trader while developing an advanced architecture useful in the
modeling of financial and commodity market prices. From March 1989 to December
1989, Mr. Buckner traded energy futures contracts for George E. Warren Corp., an
energy trading firm. From June 1986 to March 1989, Mr. Buckner was employed by
Salomon Brothers Inc., a securities brokerage and investment firm, where he
specialized in the sale of stock
APPI-17
<PAGE>
market portfolios as well as futures and option strategies. Mr. Buckner was
graduated from the University of Delaware with a B.S. degree in Finance in 1984
and earned an M.B.A. degree from the University of Chicago in 1986.
David B. Fuller is responsible for accounting and administration. Prior
to joining HB&Co. in March 1994, Mr. Fuller was employed by Link Strategic
Investors, Inc., an international investment management firm ("Link"), where, at
the time of his departure, he held the position of Senior Financial Officer.
Prior to joining Link in January of 1993, Mr. Fuller was the Senior Financial
Officer for Bearbull Investment Products (U.S.A.), an international investment
management firm. From January 1989 to July 1991, Mr. Fuller was Controller of
Rayner & Stonington, L.P., a registered commodity trading advisor, where he was
responsible for accounting and financial reporting. From October 1984 to
December 1988 Mr. Fuller was Controller and Assistant Treasurer of Gill and
Duffus Inc., members of the Coffee, Sugar & Cocoa Exchange, Inc. Mr. Fuller
began his career in 1978 as a staff accountant for Krieger & Schissel, a public
accounting firm and is a member of the American Institute of Certified Public
Accountants and the New York State Society of Certified Public Accountants. Mr.
Fuller graduated from Lehigh University in May 1978 with a B.S. degree in
Accounting.
John S. Ryan is responsible for systems management and program design
at HB&Co.. Prior to joining HB&Co. in March 1993, Mr. Ryan was employed by
International Business Machines from February 1988 to March 1993, where he held
various positions and, most recently, was responsible for Corporate Networks
Design and Implementation in the New York metropolitan area. Mr. Ryan graduated
from Baruch College in May 1991 with a B.B.A. degree in Computer Information
Systems.
Deirdre P. Murray is responsible for the implementation of all trading
decisions for HB&Co.'s commodity interest portfolios. Prior to becoming a
trader, Ms. Murray held various positions since joining HB&Co. in August 1991,
where, most recently, she was responsible for performance reporting as well as
preparation of daily trading reports. Ms. Murray graduated from Iona College in
May 1991 with a B.B.A. degree in Accounting.
Marcia L. Gaeta is responsible for the implementation of trading
decisions for HB&Co.'s commodity interest portfolios. Prior to joining HB&Co. in
October 1994, Ms. Gaeta held various positions within the Managed Futures
Division at Dean Witter from May 1983 through September 1994, where most
recently, she held the position of Head Trader. Ms. Gaeta graduated from
Waynesburg College in May 1981 with a B.A. degree in Psychology.
Technical Trading
HB&Co. relies primarily on technical analysis and believes that future
price movements in all markets may be more accurately anticipated by analyzing
historical price movements within a quantitative framework rather than
attempting to predict or forecast changes in price through fundamental economic
analysis. The trading methodologies employed by HB&Co. are based on programs
analyzing a large number of interrelated mathematical and statistical formulas
and techniques which are quantitative, proprietary in nature and which have been
developed by Mr. Beck and Mr. Hyman.
Technical, Trend-Following Approach
The profitability of HB&Co.'s trading pursuant to technical
trend-following analysis, emphasizing mathematical and charting approaches, will
depend upon the occurrence in the future, as in the past, of major price trends
in some markets. If there are no price trends, HB&Co.'s trend-following trading
methodologies are likely to be unprofitable. There have been trendless periods
in the past which can be expected to recur.
Technical trend-following trading approaches will seldom direct market
entry or exit at the most favorable price in the particular market trend.
Rather, these types of trading styles seek to close out losing positions quickly
and to hold profitable positions, or portions thereof, for as long as the
trading systems determine that the particular market trend continues to exist.
There can be no assurance that profitable positions can be liquidated at the
most favorable price in a particular trend. As a result, the number of losing
transactions can be expected to exceed the number of profitable transactions.
However, if such trend-following approaches are successful, these losses should
be more than offset by a few large gains.
APPI-18
<PAGE>
HB&Co. employs risk management techniques which have been developed by
Messrs. Beck and Hyman with the objectives of limiting losses, controlling
market exposure and capturing profits. HB&Co.'s trend-following trading approach
also includes a "neutral mode" which may indicate that no position is
appropriate in a particular contract or contract group in an attempt to preserve
capital in trendless markets.
Technical, Non-Linear Approach
HB&Co. has recently developed a technical, systematic program that
combines conservative risk control principles with non-linear modeling
techniques. This technical approach to the markets does not depend on the
occurrence of major price trends in order to be profitable. Rather, trades are
made under various market conditions and are typically of short duration,
averaging six days in length. Unlike HB&Co.'s other strategies, this program may
buy or sell volatility depending on recent market conditions. A key
distinguishing feature of this approach is its ability to trade correlated
markets differently. It is common, for example, for this portfolio to be long
(buy) soybeans and short (sell) soybean meal or to be long heating oil and short
crude oil. HB&Co. believes that the non-linear models utilized in this approach
should excel at pattern recognition and the detection of conditional
relationships between and among different data inputs.
The process of generating trades begins with the selection of a price
target, with respect to given market conditions, reflecting the likelihood that
short-term reward is substantially in excess of risk. An assortment of time
series variables are calculated as input to be used in the modeling process.
With each variable an attempt is made to depict a different facet of a given
market's historical price movement.
HB&Co. believes that since the timing of trades is significantly
random, diversification and expected returns may be enhanced by adding viable
markets to the portfolio's mix. Positions are established when the models
indicate a high probability of substantial reward relative to anticipated risk.
Positions may be initiated in either trending or choppy markets. Although
positions are established at frequent intervals, there is no position
approximately 60% of the time in any given market. The trading philosophy
assumes that there are many significant short-term moves, but that relatively
few of them offer the desired risk/reward ratio.
Implementation of Trading Approaches
HB&Co., from time to time, may change or refine the trading systems and
methodologies employed to manage its accounts. Additional trading systems may be
developed by the principals of HB&Co. and may be employed in trading accounts
managed by HB&Co., including the Trust's account. The principals of HB&Co.
review and maintain discretion over all computer-generated trading parameters.
Although technical trading systems normally consist of a series of
fixed rules applied manually or by computer, such systems still require certain
subjective judgments and decisions. For example, with respect to each commodity
interest portfolio, Messrs. Beck and Hyman will select the contracts and markets
which will be followed, the contracts and markets which will be actively traded
and the contract months in which positions will be maintained. Messrs. Beck and
Hyman will also determine when to roll over a position (i.e., when to liquidate
a position which is about to expire and initiate a new position in a more
distant contract month). These types of decisions require consideration of,
among other things, the volatility of a particular market, the pattern of price
movements (both interday and intraday), open interest, trading volume, changes
in spread relationships between various contract months and between various
contracts and overall portfolio balance and risk exposure. With respect to the
timing and execution of trades, Messrs. Beck and Hyman may also rely to some
extent on the judgment of others, such as floor brokers. No assurance can be
made that consideration will be given to any or all of the foregoing factors by
Messrs. Beck and Hyman with respect to every trade or that consideration of any
of such factors in a particular situation will lessen the risk of loss.
Investors should be aware that such decisions may involve a substantial element
of judgment and that such persons' unavailability to make such decisions could
materially impair the operation of HB&Co.'s trading approach.
Along with the subjective decision-making authority reserved for
Messrs. Beck and Hyman, HB&Co. also maintains a procedure for determining the
appropriate quantity of contracts to be traded for an account of a given size
and for all accounts. HB&Co. may continually adjust its trading portfolios and
the position size of an order immediately prior to placement, based on such
factors as past market volatility, prices of commodities, amount of risk,
potential return and
APPI-19
<PAGE>
margin requirements. The decision not to trade a certain commodity interest at
certain times or to reduce the number of contracts traded in a particular
commodity interest may result in missing significant profit opportunities that
otherwise might be captured if HB&Co. depended solely on the computer-based
aspects of its trading strategy or on different trading strategies altogether.
Leverage
HB&Co. will have responsibility for controlling the leverage utilized
in its trading portfolios and may increase or decrease the amount of leverage
applied to assets allocated to one or more of the trading portfolios described
herein. The initial leveraging, and any subsequent "up-" or "de-leveraging,"
will be primarily based on subjective evaluations of market conditions, past
performance of particular portfolios, risk exposure and other factors. The use
of additional leverage in commodity interest trading, which is already highly
leveraged, may increase profits (and losses).
Overview of Commodity Interest Portfolios
HB&Co. currently offers five (5) alternative commodity interest
portfolios in which to participate: a Diversified Portfolio, a foreign currency
FX Portfolio, a Global Portfolio, a Short-Term Portfolio and an Asset Allocation
Portfolio. The following is a list of certain of the different commodity
interests which HB&Co. may trade in its portfolios. Mr. Beck and Mr. Hyman, at
their discretion and according to their research, may add or delete different
types of commodity interests from any of the trading portfolios.
Interest Rates (U.S. dollar). Treasury Bonds, Treasury Notes,
Eurodollars, Treasury Bills and Municipal Bonds.
Interest Rates (Non-U.S. dollar). British Long Gilts, British Short
Sterling, German Euromarks, German Bonds, Japanese Euroyen, Japanese Government
Bonds, French Notional Bonds, French PIBOR, Italian Government Bonds, Australian
Government Bonds, Australian Bank Bills and Canadian Government Bonds.
Stock Indices (U.S. dollar). NYSE Composite and S&P 500.
Stock Indices (Non-U.S. dollar). British FTSE, Japanese NIKKEI, French
CAC-40 and Australian All Ordinaries.
Metals. Gold, Silver, Platinum, Copper, Aluminum and Zinc.
Currencies. British Pound, German Mark, Japanese Yen, Swiss Franc,
Canadian Dollar, Australian Dollar, French Franc, Italian Lira, Spanish Peseta,
New Zealand Dollar, Swedish Krona, Dutch Guilder, Belgian Franc and Malaysian
Ringgit.
Agricultural Commodities. Corn, Wheat, Soybeans, Soymeal and Soyoil.
Energies. Crude Oil, Heating Oil, Unleaded Gas and Gas Oil.
Other Commodities. Coffee, Sugar, Cocoa, Cotton, Cattle, Hogs and
Porkbellies.
The Global Portfolio
HB&Co. will trade the Global Portfolio on behalf of the Trust. HB&Co.'s
Global Portfolio participates in many of the internationally-traded futures and
forward markets not necessarily represented in the Diversified Portfolio or the
FX Portfolio. The Global Portfolio trades a portfolio of over 30 futures and
forward markets worldwide with a concentration in world interest rate and other
financial markets.
APPI-20
<PAGE>
The Diversified Portfolio
HB&Co.'s Diversified Portfolio offers access to international markets
not typically represented in a traditional investment portfolio. The Diversified
Portfolio trades a portfolio of over 40 diverse futures, forward and cash
markets and offers diversification into global financial and tangible assets
including agricultural items, energy products, interest rates and stock indices,
foreign currencies and metals.
The FX Portfolio
HB&Co.'s FX Portfolio trades in the world currency markets. The FX
Portfolio may trade up to a total of 40 non-U.S. crossrates (trading non-U.S.
currencies vs. other non-U.S. currencies) and outrights (trading non-U.S.
currencies vs. the U.S. dollar).
The Short-Term Portfolio
HB&Co.'s Short-Term Portfolio is a systematic program combining money
management principles with non-linear modeling techniques. The Short-Term
Portfolio may buy or sell volatility, and currently trades 44 markets with
positions in an average of 20 futures and forward markets at any point in time.
The Asset Allocation Portfolio
HB&Co.'s Asset Allocation Portfolio commenced trading in 1992,
allocating and reallocating assets among the Global, FX and Diversified
Portfolios in an effort to minimize risk and maximize profit opportunities. The
Asset Allocation Portfolio currently engages, in varying degrees, the Global, FX
and Diversified Portfolios or some subset thereof. The Short-Term Portfolio,
which has only recently been utilized on behalf of HB&Co.'s client accounts, is
not currently included in the Asset Allocation Portfolio, but may be included in
the future.
Past Performance Information
The Following information describes the composite actual performance of
all customer accounts managed by Hyman Beck & Company, Inc. As of April 30,
1996, HB&Co. was managing approximately $175 million (excluding "notional"
equity) of customer funds in the futures and forwards markets. The performance
information set forth below is current as of April 30, 1996.
HB&Co. was organized in February 1991. All performance information
subsequent to March 1, 1991 relates solely to HB&Co.. The performance in respect
of HB&Co.'s Diversified Portfolio and FX Portfolio for the period prior to March
1991 relates to individual and pooled accounts directed by Messrs. Beck and
Hyman while such individuals were principals of Dean Witter Futures & Currency
Management, Inc. ("DWFCM"), a commodity trading advisor. No representation is or
could be made that the performance of Messrs. Beck and Hyman while at DWFCM is
in any way representative of what the performance of Hyman Beck & Company, Inc.
would have been in the past or will be in the future.
When reviewing the information below, investors should be aware that
composite performance results tend to create an "averaging effect" on the
performance of accounts. Further, investors should note that different accounts
(even though they have generally been traded according to the same trading
approach and in the same commodity interest portfolios) have had varying
investment results as described below.
The reasons for varying investment results among accounts trading the
same commodity interest portfolios include: (1) the period during which accounts
were active; (2) changes in HB&Co.'s trading methodology -- although all
accounts were traded in accordance with the same trading approach, such approach
did change periodically as a result of an ongoing program of research and
development; (3) the size of accounts -- which influenced the number of
different markets in which the account participated and the number of contracts
in each market traded; (4) the brokerage commission rates paid by accounts and
when such commissions were charged to accounts; (5) the amount of interest
income earned by accounts; (6) the rates of fees and amount of administrative
costs paid by accounts; (7) the timing of orders to open or close
APPI-21
<PAGE>
positions; and (8) the market conditions in which accounts were traded, which in
part determine the quality of trade executions. Thus, the results of individual
accounts in the following performance record may be better or worse than the
composite performance results shown, depending upon such factors.
The Asset Allocation Portfolio represents accounts trading a
combination of each of the Global, FX and/or Diversified Portfolios; therefore,
the assets and Rates of Return set forth in the summary performance information
and chart are also reflected in the assets and Rates of Return set forth in the
individual Global, FX and Diversified Portfolio summaries and charts. The first
account traded pursuant to the Asset Allocation Portfolio was established in
April 1992 with all of its assets allocated to HB&Co.'s Diversified Portfolio;
in August 1992 the assets of such account were reallocated to the Global and
Diversified Portfolios; and in January 1993 the assets of such account were
allocated among the Global, FX and Diversified Portfolios. From January 1993
forward, all asset allocation portfolio accounts have at all times included
allocations among the Global, FX and Diversified Portfolios.
HB&Co. believes that its performance information set forth herein is
accurate and fairly presented.
[Remainder of page left blank intentionally.]
APPI-22
<PAGE>
The Global Portfolio
HB&Co. will trade this portfolio on behalf of the Trust. The following
summary performance information and table reflect the composite performance
results of the Global Portfolios directed by HB&Co.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Global Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: April 1991
Number of open accounts: 22
Aggregate assets in all programs: $170,738,798
Aggregate assets in Global Portfolio: $129,262,370
Largest monthly drawdown: (12.39)% (2/96)
Largest peak-to-valley drawdown: (19.38)% (7/94 - 2/95)
Number of profitable closed accounts: 17
Number of unprofitable closed accounts: 15
<TABLE>
<CAPTION>
====================================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
Performance
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 3.97 (6.35) (0.45) (3.97) (7.45) --
- ----------------------------------------------------------------------------------------------------
February (8.23) 9.02 (7.45) 8.65 (3.44) --
- ----------------------------------------------------------------------------------------------------
March (1.21) 18.71 12.48 2.10 3.15 --
- ----------------------------------------------------------------------------------------------------
April 2.39 6.22 (2.17) 5.65 (3.38) (0.29)
- ----------------------------------------------------------------------------------------------------
May 6.34 4.22 4.55 2.51 1.80
- ----------------------------------------------------------------------------------------------------
June (1.12) 5.14 (4.95) 13.10 1.29
- ----------------------------------------------------------------------------------------------------
July (1.68) (4.30) 5.00 18.27 (0.86)
- ----------------------------------------------------------------------------------------------------
August (1.80) (4.40) 0.51 6.40 1.52
- ----------------------------------------------------------------------------------------------------
September (2.16) (2.85) (0.80) (6.68) 6.32
- ----------------------------------------------------------------------------------------------------
October (1.08) 4.72 (0.63) 3.39 (1.95)
- ----------------------------------------------------------------------------------------------------
November 1.27 3.43 (2.78) (0.37) 6.07
- ----------------------------------------------------------------------------------------------------
December 0.80 (2.95) 1.34 (1.88) 19.13
- ----------------------------------------------------------------------------------------------------
Compound Rate (3.49) 29.12 3.81 14.63 22.56 36.31
Of Return (4 mos.) (9 mos.)
====================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
APPI-23
<PAGE>
Diversified Portfolio
The following summary performance information and table reflect the
composite performance results of the Diversified Portfolios directed by HB&Co.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Diversified Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: March 1991
Number of open accounts: 11
Aggregate assets in all programs: $170,738,798
Aggregate assets in Diversified Portfolio: $14,880,712
Largest monthly drawdown: (15.90)% (2/94)
Largest peak-to-valley drawdown: (30.42)% (8/93 - 12/95)
Number of profitable closed accounts: 15
Number of unprofitable closed accounts: 21
<TABLE>
<CAPTION>
====================================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
Performance
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January (3.88) (10.05) (2.82) (2.12) (8.49) --
- ----------------------------------------------------------------------------------------------------
February (11.63) 5.94 (8.86) 5.75 (3.90) --
- ----------------------------------------------------------------------------------------------------
March 3.29 6.27 7.96 2.60 (1.74) 4.60
- ----------------------------------------------------------------------------------------------------
April 14.62 4.80 (6.30) 1.25 2.35 (1.73)
- ----------------------------------------------------------------------------------------------------
May (1.93) 5.73 1.59 0.07 3.59
- ----------------------------------------------------------------------------------------------------
June 2.57 0.38 0.19 14.17 9.05
- ----------------------------------------------------------------------------------------------------
July (6.45) (1.50) 5.49 11.78 (7.60)
- ----------------------------------------------------------------------------------------------------
August (5.43) (9.26) (5.96) 5.81 2.87
- ----------------------------------------------------------------------------------------------------
September (3.36) 0.56 (1.52) (2.55) 4.33
- ----------------------------------------------------------------------------------------------------
October (3.76) 2.34 (4.17) (1.37) 0.37
- ----------------------------------------------------------------------------------------------------
November (1.26) 3.98 (1.91) 6.41 0.80
- ----------------------------------------------------------------------------------------------------
December 10.52 2.28 13.39 (1.73) 21.46
- ----------------------------------------------------------------------------------------------------
Compound Rate 0.56 (4.14) (7.07) 13.96 20.12 41.50
of Return (4 mos.) (10 mos.)
====================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT INITIALLY BE TRADED PURSUANT TO THIS PROGRAM.
APPI-24
<PAGE>
The FX Portfolio
The following summary performance information and table reflect the
composite performance results of the FX Portfolio directed by HB&Co.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: FX Portfolio
Inception of client account trading by CTA: March 1991
Inception of trading on behalf of customers: March 1991
Number of open accounts: 9
Aggregate assets in all programs: $170,738,798
Aggregate assets in FX Portfolio: $26,595,716
Largest monthly drawdown: (18.72)% (11/94)
Largest peak-to-valley drawdown: (52.49)% (8/93 - 1/95)
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 27
<TABLE>
<CAPTION>
====================================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
Performance
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 5.99 (12.55) (0.94) (5.53) (10.31) --
- ----------------------------------------------------------------------------------------------------
February (6.52) 17.53 (3.69) 8.14 (2.42) --
- ----------------------------------------------------------------------------------------------------
March 0.84 40.84 6.98 (3.38) 1.22 13.60
- ----------------------------------------------------------------------------------------------------
April 5.89 (0.20) (6.23) 2.25 (2.11) (0.38)
- ----------------------------------------------------------------------------------------------------
May (7.49) (2.70) 2.76 6.27 (0.73)
- ----------------------------------------------------------------------------------------------------
June (0.56) 2.07 1.67 13.88 4.25
- ----------------------------------------------------------------------------------------------------
July 1.32 (6.37) 9.71 15.65 (4.08)
- ----------------------------------------------------------------------------------------------------
August 6.99 (2.97) (5.59) 17.07 (1.93)
- ----------------------------------------------------------------------------------------------------
September (1.01) 1.35 (0.19) (7.82) 4.02
- ----------------------------------------------------------------------------------------------------
October 2.14 3.78 (6.61) 2.51 (5.86)
- ----------------------------------------------------------------------------------------------------
November (1.75) (8.90) 1.37 1.24 9.13
- ----------------------------------------------------------------------------------------------------
December (1.77) (4.10) (2.27) (0.91) 25.41
- ----------------------------------------------------------------------------------------------------
Compound Rate 5.80 40.58 (20.63) 0.86 34.69 47.65
of Return (4 mos.) (10 mos.)
====================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT INITIALLY BE TRADED PURSUANT TO THIS PROGRAM.
APPI-25
<PAGE>
Asset Allocation Portfolio
The following summary performance information and table reflect the
composite performance results of the Asset Allocation Portfolio directed by
HB&Co.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Asset Allocation Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: April 1992
Number of open accounts: 4
Aggregate assets in all programs: $170,738,798
Aggregate assets in Asset Allocation Portfolio: $27,673,043
Largest monthly drawdown: (9.38)% (2/96)
Largest peak-to-valley drawdown: (18.30)% (8/93 - 1/95)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 1
<TABLE>
<CAPTION>
=====================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%)
Performance
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January 2.09 (9.02) (0.59) (3.76) --
- -------------------------------------------------------------------------------------
February (9.22) 12.51 (5.96) 7.50 --
- -------------------------------------------------------------------------------------
March 0.74 26.39 8.30 0.66 --
- -------------------------------------------------------------------------------------
April 6.09 3.79 (5.05) 3.11 1.49
- -------------------------------------------------------------------------------------
May 1.19 2.69 2.89 0.88
- -------------------------------------------------------------------------------------
June 0.40 3.38 (1.12) 12.42
- -------------------------------------------------------------------------------------
July (2.60) (4.03) 7.72 12.36
- -------------------------------------------------------------------------------------
August 0.42 (2.97) (1.30) 3.69
- -------------------------------------------------------------------------------------
September (2.07) (0.02) 0.52 (2.37)
- -------------------------------------------------------------------------------------
October (0.63) 5.52 (2.64) 1.81
- -------------------------------------------------------------------------------------
November (0.62) (1.42) (0.55) 3.57
- -------------------------------------------------------------------------------------
December 3.34 (0.13) 4.90 (1.44)
- -------------------------------------------------------------------------------------
Compound Rate (0.95) 33.35 (1.29) 18.58 36.07
Of Return (4 mos.) (9 mos.)
=====================================================================================
</TABLE>
The Asset Allocation Portfolio represents accounts trading a
combination of each of the Global, FX and/or Diversified Portfolios; therefore,
the assets and Rates of Return set forth in the summary performance information
and chart are also reflected in the assets and Rates of Return set forth in the
individual Global, FX and Diversified Portfolio summaries and charts.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT INITIALLY BE TRADED PURSUANT TO THIS PROGRAM.
APPI-26
<PAGE>
The Short-Term Portfolio
HB&Co.'s Short-Term Portfolio has been utilized only since April 1,
1996 in the trading of customer funds. The following summary performance
information reflects the composite performance results of the Short-Term
Portfolios directed by HB&Co.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Short-Term Portfolio
Inception of client account trading by CTA: March 1991
Inception of trading customer funds in program: April 1996
Number of open accounts: 3
Aggregate assets in all programs: $170,738,798
Aggregate assets in Short-Term Portfolio (including "notional"
equity): $2,670,297
Largest monthly drawdown: (5.18)% (6/96)
Largest peak-to-valley drawdown: N/A
Number of profitable closed accounts: N/A
Number of unprofitable closed accounts: N/A
1996 compound rate return: 2.63% (1 month)
1995 compound rate return: N/A
1994 compound rate return: N/A
1993 compound rate return: N/A
1992 compound rate return: N/A
1991 compound rate return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT INITIALLY BE TRADED PURSUANT TO THIS PROGRAM.
Performance of the Principals of HB&Co. -- Diversified Portfolios
The following summary sets forth the composite performance of the
diversified portfolios directed by Messrs. Beck and Hyman as principals of DWFCM
from April 1988 through February 1991 for four commodity fund accounts and one
individual account ranging in size from $100,000 to $53 million. Three commodity
fund accounts and the one individual account were profitable and one commodity
fund account was unprofitable as of February 28, 1991.
Inception of program/trading on behalf of customers: April 1988
Number of open accounts: N/A
Aggregate assets (excluding "notional" equity) -- principals' diversified
portfolios: $66,069,298
Aggregate assets (excluding "notional" equity) -- all portfolios: $75,454,380
Largest monthly drawdown: (13.15)% (8/89)
Largest peak-to-valley drawdown: (25.15)% (8/89 - 10/89)
1991 compound rate return: (4.48)% (2 months)
1990 compound rate return: 53.55%
1989 compound rate return: 1.52%
1988 compound rate return: 31.70% (9 months)
Performance of the Principals of HB&Co. -- FX Portfolios
The following summary sets forth the composite performance of the
foreign currency portfolios directed by Messrs. Beck and Hyman as principals of
DWFCM from April 1990 through February 1991 for four commodity fund
APPI-27
<PAGE>
accounts ranging in size from $2 million to $9 million. All such commodity fund
accounts were unprofitable as of February 28, 1991.
Inception of program/trading on behalf of customers: April 1990
Number of open accounts: N/A
Aggregate assets (excluding "notional" equity) -- principals' FX
portfolios: $9,835,082
Aggregate assets (excluding "notional" equity) -- all portfolios: $75,454,380
Largest monthly drawdown: (7.87)% (12/90)
Largest peak-to-valley drawdown: (18.86)% (11/90 - 2/91)
1991 compound rate return: (11.80)% (2 months)
1990 compound rate return: 10.20% (9 months)
The performance in respect of HB&Co.'s Diversified Portfolio and FX
Portfolio for the period prior to March 1991 set forth above relates to
individual and pooled accounts directed by Messrs. Beck and Hyman while such
individuals were principals of Dean Witter Futures & Currency Management, Inc.,
a commodity trading advisor. CFTC rules require disclosure of performance
information for the last five full calendar years and year-to-date, and consider
older performance information less material to an investment decision. The
performance information prior to January 1991 is included as supplemental
information. No representation is or could be made that the performance of
Messrs. Beck and Hyman while at DWFCM is in any way representative of what the
performance of Hyman Beck & Company, Inc. would have been in the past or will be
in the future.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-28
<PAGE>
WILLOWBRIDGE ASSOCIATES INC.
Business Background of The Commodity Trading Advisor
Willowbridge Associates Inc. ("Willowbridge") is a Delaware corporation
organized on January 29, 1988. Willowbridge's main business address is 101
Morgan Lane, Suite 180, Plainsboro, New Jersey 08536 and telephone number is
(609) 936-1100. Willowbridge has been registered pursuant to the Commodity
Exchange Act, as amended (the "CE Act"), as a Commodity Pool Operator ("CPO")
and a Commodity Trading Advisor ("CTA") and has been a CPO and CTA member of the
National Futures Association ("NFA") since May 3, 1988. The primary activity of
Willowbridge is to buy, sell (including short sales), spread or otherwise trade
in commodity futures contracts, forward contract, commodity options, physical
commodities and other commodity instruments . Willowbridge may, to a limited
extent, also trade in other instruments.
Management of The Commodity Trading Advisor
Philip L. Yang, born in 1959, has been the sole shareholder, Director
and President of Willowbridge since September 1, 1992, and also held those
positions from the time he formed Willowbridge in January 1988 through September
1989. Mr. Yang is registered as an associated person of Willowbridge. He is
individually registered pursuant to the CE Act as a CPO and a CTA and is a
member of the NFA in such capacities. He is also a principal and an associated
person of Doublewood, Inc. and Union Spring Asset Management, Inc. ("Union
Spring"), each a registered CPO and CTA, and a NFA member. Mr. Yang has full
responsibility with respect to the trading activities of Willowbridge, except in
the case of MTech, the discretionary approach of Michael Gan. From 1983 through
August 1988 and from October 1989 through August 1992, Mr. Yang was a Senior
Vice President at Caxton Corporation, a commodity trading advisory firm, serving
initially as Director of Research, where his research concentration was in the
development and application of computerized trading models for a broad range of
financial markets, and later as Director of Commodity Trading. Mr. Yang obtained
a bachelor's degree with honors from the University of California at Berkeley,
where he was inducted into Phi Beta Kappa. He received his master's degree from
the Wharton School of the University of Pennsylvania.
Michael Y. Gan, born in 1958, has been the Executive Vice President of
Willowbridge since September 1, 1992. Mr. Gan is registered as an associated
person of Willowbridge. He is individually registered pursuant to the CE Act as
a CPO and a CTA and is a member of the NFA in such capacities. He is also a
principal and an associated person of Doublewood, Inc. and Union Spring. Mr. Gan
was the sole shareholder, Director and President of Willowbridge from October
1989 through August 1992. From 1983 to 1989, he worked in the foreign exchange
trading group at Marine Midland Bank in New York. In this capacity, Mr. Gan was
responsible for research into technical analysis, as well as proprietary trading
for the firm in both currency futures and options. He had been promoted to
Assistant Vice President prior to his resignation. Mr. Gan graduated summa cum
laude from the University of the Philippines with a B.S. in Chemical Engineering
and subsequently graduated with honors from the Wharton School of the University
of Pennsylvania with an M.B.A. in Finance.
Theresa C. Morris, born in 1953, has been employed by Willowbridge
since its inception in August 1988. She has been the Vice President of
Willowbridge since May 1. 1994 and is registered as an associated person of
Willowbridge. Ms. Morris is also a principal and an associated person of
Doublewood, Inc. and Union Spring. Ms. Morris oversees administration,
operations and compliance at Willowbridge. Prior to her current duties, Ms.
Morris was responsible for analyzing and trading the technical signals generated
by the computerized trading models. Ms. Morris has twenty years experience in
the futures and financial industry. She attended Brookdale College, majoring in
international business.
Richard G. Faux, Jr., born in 1937, is Executive Director of
Willowbridge Associates Inc. From April 1995 to the present he has served as a
consultant to Willowbridge. He is registered as an associated person and a
principal of Willowbridge. He is also an associated person of Doublewood, Inc.
and a principal and associated person of Union Spring. He co-founded MC Baldwin
in 1989 and served as its Co-Chief Executive until April 1995. MC Baldwin is an
international trading manager and develops futures funds for its partner,
Mitsubishi Corporation, and other institutional clients. Prior to forming MC
Baldwin, Mr. Faux was President of Merrill Lynch Options/Futures Management
Inc., a futures fund subsidiary of Merrill Lynch. Before Mr. Faux's joining
Merrill Lynch in 1985, it had raised only $13 million in futures funds. When he
left, the company had raised $930 million, including one of the first
multi-advisor futures funds. Previously, he spent four years at Thomson McKinnon
Securities, Inc. where he helped develop some of the earliest futures funds,
APPI-29
<PAGE>
including one of the first financial futures funds. Earlier, Mr. Faux spent ten
years at Kuhn Loeb & Co. (now Lehman Brothers). He is a graduate of Brown
University and the Columbia University Graduate School of Business.
John C. Plimpton, born in 1966, is Director of Investment Services. He
joined Willowbridge Associates Inc. in February 1995 and is responsible for
marketing the firm's various investment strategies as well as maintaining client
service. Mr. Plimpton is registered as an associated person and a principal of
Willowbridge. His prior futures industry experience was with Beacon Management
Corporation (USA), a commodity trading advisor and commodity pool operator,
where he held a marketing position specializing in the Japanese institutional
market from January 1989 to December 1990. From January 1991 to August 1994, as
a representative of Prudential Life Insurance, and from August 1994 to present,
as sole shareholder and President of Plimpton Financial Group, a financial
services company, Mr. Plimpton concentrated on insurance and benefit services
for wealthy families and venture businesses. Since 1985, Mr. Plimpton has been
involved in a number of businesses privately held by his family, as well as
serving as director of Inolex Chemical Company, a specialty chemical company
owned by his family. He earned his B.A. degree in Economics from the University
of Chicago and his M.B.A. in Corporate Finance and Corporate Accounting from the
William E. Simon School of Management at the University of Rochester.
Description of Willowbridge Investment Programs
Willowbridge currently is offering clients the opportunity to have
their accounts traded pursuant to one or more of four Willowbridge Investment
Programs ("Programs").
The Currency Investment Program, whereby Willowbridge will have the
discretionary authority initially to allocate and subsequently reallocate the
client's funds among one or more of the seven Willowbridge Strategies to be
applied exclusively to trading futures, forward, spot and option contracts in
foreign currencies. If Willowbridge's Systems are no longer available to it,
Willowbridge may only use the currency portion of the XLIM and MTech trading
approaches in its trading of the Currency Investment Program.
The Primary Investment Program, whereby Willowbridge will have the
discretionary authority, based upon Mr. Yang's evaluation of market fundamentals
and the particular trading environment, to determine which Strategy to use for a
given market in a specific period. For example, if Mr. Yang believes that we are
in a period in which the grains are likely to perform well, he may apply the
Argo and Titan Systems to the grain markets since these Systems typically have
performed well in similar environments. Also, if Mr. Yang does not believe
market conditions warrant trading a particular market, no positions will be
taken. It is important to note that through to June 30, 1994, Willowbridge
allocated an approximately equal portion of the assets traded by it pursuant to
the Primary Investment Program between both the Argo and Vulcan Systems, and
beginning July 1, 1994, approximately one-half of the assets traded by
Willowbridge pursuant to Primary were allocated to the Argo System and the
remaining portion was allocated between the currencies and financial instruments
traded pursuant to the Vulcan System and precious metals, grains, meats, softs
and tropicals traded pursuant to the Siren System.
The Currency, Financial and Metals ("CFM") Investment Program is an
interactive trading approach which combines the Willowbridge quantitative and
technical Systems (to a greater or lesser degree) with the fundamental market
analysis of Mr. Yang. In the CFM program, Mr. Yang will utilize the various
Willowbridge Strategies to provide the disciplined technical analysis of the
markets and also to help determine risk management procedures for a particular
trade. Then, Mr. Yang will determine whether to accept or reject a particular
technical trading signal and/or to increase position size based upon his
evaluation of market fundamentals and the particular trading environment. For
example, if one of the Systems gives a signal to go short the U.S. dollar versus
the Deutschemark during a period when Mr. Yang is fundamentally bullish on the
dollar, Mr. Yang will reject that System's signal. Similarly, if several Systems
have given signals to go long copper during a period when Mr. Yang is
fundamentally bullish on the metal, Mr. Yang may establish a larger than normal
long position. The CFM Program will trade only the currency, financial and
metals markets, which are the areas of Mr. Yang's particular expertise. If
Willowbridge's technical Systems are no longer available to it, Willowbridge may
only use the currency, financial and metals portion of the XLIM and MTech
trading approaches in its trading of the CFM Investment Program.
The Select Investment Program permits clients to determine the initial
allocation and subsequent reallocations (if any) of such clients' funds among
one or more of the Willowbridge trading strategies described below.
APPI-30
<PAGE>
Description of Willowbridge Trading Strategies
It is the intention of Willowbridge to utilize one or more of its seven
Trading Strategies ("Strategies") to trade pursuant to each of the
aforementioned Programs. The Strategies include the five Willowbridge Trading
Systems ("Systems") and the XLIM and MTech discretionary trading approaches of
Mr. Yang and Mr. Gan, respectively. As the Strategies used by Willowbridge are
proprietary and confidential, the discussion below is necessarily of a general
nature and is not intended to be exhaustive. Willowbridge reserves the right to
alter its Strategies without prior approval by, or notice to, clients.
Pursuant to a licensing agreement between Caxton Corporation ("Caxton")
and Willowbridge, Willowbridge has been granted the sole and exclusive right to
use the Systems (which do not include the XLIM and MTech discretionary trading
approaches) described below. The licensing agreement will continue until
December 31, 1997 and shall be renewed for successive one year terms unless
either Willowbridge or Caxton has given 90 days' notice to the other prior to
such date of its intention not to renew. The licensing agreement may also be
terminated in the case of an uncured material breach or in other extraordinary
situations. Willowbridge pays royalties to Caxton based on fees generated by
Willowbridge's trading.
The XLIM Trading Approach
Willowbridge will utilize this trading approach on behalf of the Trust.
The XLIM Trading Approach ("XLIM") which was first applied in February 1988, is
traded on a discretionary basis by Mr. Yang. Trading decisions are based
primarily on Mr. Yang's analysis of technical factors, fundamentals and market
action. XLIM trades a wide variety of futures contracts, forwards, spot and
options on United States and international markets, including but not limited
to, financial instruments, currencies, precious and base metals and agricultural
commodities. Concentrated positions may be taken in the program to allow for
large positions while controlling risk; the program may employ hedging
strategies utilizing options. Mr. Yang reserves the right to add, subtract or
otherwise change the portfolio composition of XLIM. XLIM's minimum account size
is $3,000,000, and, to the extent that the Trust's account is less than such
minimum amount, Willowbridge may not be able to trade the full XLIM portfolio.
It is intended that approximately fifteen to forty percent (15-40%) of
the assets under management pursuant to the XLIM Trading Approach will normally
be committed as margin for commodity interest trading, but from time to time the
percentage of assets committed may be substantially more or less.
Vulcan Trading System
The Vulcan Trading System ("Vulcan") is a computerized technical
trading system. It is not a trend-following system, but does ride a trend when
the opportunity arises. Vulcan uses the concepts of pattern recognition,
support/resistance levels, and counter-trend liquidations in making trading
decisions. In effect, Vulcan is more akin to a systematic technical charting
system, as opposed to most computer systems which are based on pure
trend-following calculations.
The Vulcan system is based on general technical trading principles that
over time have repeatedly shown their validity as price movement forecasters. It
applies these principles to a diversified portfolio of commodities and
currencies. Given that the system is based on general principles, the system
parameters used are the same for all items in the portfolio and are not
optimized. In this manner, the Vulcan system minimizes the problem of
data-fitting.
Vulcan determines, on a daily basis, whether to be long, short or flat
the various commodities in its portfolio. The Vulcan portfolio includes:
Grains: Corn, Wheat, Soybeans, Soybean Meal, Soybean
Oil
Precious Metals: Gold, Silver
Domestic Financial Instruments: Treasury Bills, Treasury Bonds, Treasury
Notes, Eurodollars
Foreign Financial Instruments: Japanese Bonds, Euro-Marks, Euro-Swiss,
Five-year and Ten-year Notional, Bunds,
PIBOR, Gilts, Short-Sterling, Australian
T-Bills, Australian T- Bonds, Italian Bonds,
Euro-Lira, Euro-Yen
APPI-31
<PAGE>
Currencies: Pound Sterling, Deutschemark, Canadian
Dollar, Swiss Franc, Japanese Yen,
Australian Dollar, Mark-Yen
General: Crude Oil, Heating Oil, Unleaded Gasoline,
Natural Gas, Copper, Sugar, Coffee, Cocoa,
Cotton, Live Cattle, Live Hogs, Pork Bellies
The above list is provided only as an indication of markets traded
since management does remove or add contracts to the list from time to time.
It is intended that approximately fifteen to forty percent (15-40%) of
the assets under management pursuant to the Vulcan system will normally be
committed as margin for commodity interest trading, but from time to time, the
percentage of assets committed may be substantially more or less. Positions are
generally held from 10 to 15 trading days.
Titan Trading System
The Titan Trading System ("Titan"), which commenced trading in 1986, is
a technical trend following system coupled with a mechanism for adding to, or
subtracting from, the initial position on a counter-trend or retracement basis
as described below.
Unlike Vulcan, Titan applies various technical factors in an attempt to
monitor the overall market environment to attempt to recognize major trends. If
the system initially perceives a low degree of risk, a relatively greater number
of positions are initiated. Likewise, when the system initially perceives a high
level of risk, relatively fewer positions will be initiated until a lower degree
of risk is perceived. Thereafter positions may be added or subtracted as a
result of a perceived temporary discontinuance of a trend. This ability to
adjust the number of positions held is Titan's primary risk-control tool.
Through this combination Titan attempts to maximize profits in markets with
strong secular trends running over a six- to twelve-month period of time, while
minimizing the risks which otherwise involve taking a large position at the
start of the perceived move.
Titan's portfolio composition generally is the same as Vulcan's,
although the number of days the system will hold a position based on an average
of the number of days the initial base position would be held combined with the
number of days any additional positions would be held, is generally 15 days. It
is intended that approximately fifteen to forty percent (15-40%) of the assets
under management pursuant to the Titan system will normally be committed as
margin for commodity interest trading, but from time to time the percentage of
assets committed may be substantially more or less.
Argo Trading System
The Argo Trading System ("Argo") commenced trading in 1987. Argo
essentially incorporates Vulcan's concepts of pattern recognition,
support/resistance levels and counter-trend liquidations to trade a portfolio
similar to Vulcan. However, Argo has a relatively slower time horizon than
Vulcan and attempts to capture longer-term price moves in a manner similar to
Titan. It is intended that Argo's positions will generally be held from 20-30
trading days with approximately fifteen to forty percent (15-40%) of assets
under management committed as margin for commodity interest trading, but from
time to time the percentage of assets committed may be substantially more or
less.
Rex Trading System
The Rex Trading System ("Rex"), which commenced trading in 1988, is an
options buying and selling system. Through proprietary statistical analysis of
various technical factors, Rex attempts to determine whether the options for a
particular commodity are intrinsically cheap or expensive. When the system
detects an underpriced option, either a put or a call option will be purchased,
depending upon the signal generated. Likewise, when Rex detects an over-priced
option, either a put or a call option will be sold.
Rex uses a complex set of money-management rules to control its risk.
After a position is established, the position is monitored and, if called for,
liquidated through the application of a variety of rules that are based on
volatility, trends, time-decay and delta levels. The position generally is
carried until the system determines that the option has become intrinsically
cheap (for short positions) or expensive (for long positions).
APPI-32
<PAGE>
Rex currently is applied to trading options on futures contracts in the
following fifteen (15) commodities:
Grains: Soybeans, Corn
Precious Metals: Gold, Silver
Financial Instruments: Treasury Bonds, Treasury Notes, Standard & Poor's
500 Stock Index
Currencies: Deutschemark, Swiss Franc, Pound Sterling, Japanese
Yen
General: Crude Oil, Copper, Sugar, Live Cattle
The above list is provided only as an indication of markets traded
since management does remove or add contracts to the list from time to time.
It is intended that approximately fifteen to forty percent (15-40%) of
the assets under management pursuant to Rex will normally be committed as margin
or applied to premiums on option trades, although from time to time the
percentage of assets so committed may be substantially more or less.
Siren Trading System
The Siren Trading System ("Siren"), which commenced trading January
1991, is a system based on the principles of market profiles and other
techniques that utilize real time price information. Siren can best be
characterized as a top and bottom picking system. Siren tries to determine
acquisition and distribution patterns that often signal the end and reversal of
a major trend bias. When it identifies such a change, it will attempt to
initiate a countervailing position. Similar to Titan, Siren's time frame is
generally 18 to 25 trading days. The Siren portfolio includes:
Grains: Corn, Wheat, Soybeans, Soybean Meal, Soybean Oil
Precious Metals: Gold, Silver
Financial Instruments: Treasury Bills, Treasury Bonds, Treasury Notes,
Eurodollars
Currencies: Pound Sterling, Deutschemark, Canadian Dollar,
Swiss Franc, Japanese Yen
General: Crude Oil, Heating Oil, Unleaded Gasoline, Natural
Gas, Copper, Sugar, Coffee, Cocoa, Cotton, Live
Cattle, Live Hogs, Pork Bellies
The above list is provided only as an indication of markets traded
since management does remove or add contracts to the list from time to time.
It is intended that approximately fifteen to forty percent (15-40%) of
the assets under management pursuant to the Siren system will normally be
committed as margin for commodity interest trading, but from time to time, the
percentage of assets committed may be substantially more or less. Positions are
generally held from 18 to 25 trading days.
The MTech Trading Approach
The MTech Trading Approach ("MTech"), which commenced trading January
1991, is a highly discretionary and judgmental trading approach relying
primarily on Mr. Gan's subjective analysis of the markets. Trading decisions are
made on technical, as well as fundamental analysis. MTech currently trades the
United States and international futures, forward, spot and options markets. Mr.
Gan reserves the right to add, subtract or otherwise change the portfolio
composition of MTech.
It is intended that approximately fifteen to forty percent (15-40%) of
the assets under management pursuant to the MTech Trading Approach will normally
be committed as margin for commodity interest trading, but from time to time the
percentage of assets committed may be substantially more or less.
Past Performance Information
Brokerage commissions charged to accounts in the capsules may vary
substantially. Not all accounts in the composite capsules earn interest income.
Monthly or quarterly management fees and quarterly or annual incentive fees
APPI-33
<PAGE>
are charged to the accounts in the capsules and may vary. Some of the accounts
included in the capsules are not charged a management fee. Through June 30,
1995, rates of return for each Willowbridge program whose performance is set
forth below except Rex, MTech and Atlas may be understated to the extent that
certain accounts in the capsules paid specified fees unrelated to Willowbridge's
trading (such as selling commissions, distribution expenses, general partner
fees or manager-of-manager fees) that were treated as expenses rather than as
withdrawals of assets under Willowbridge's management. Beginning July 1, 1995,
such expenses are reflected in the capsules as withdrawals. Rate of return is
calculated by dividing net performance by beginning equity adjusted by the value
of additions and withdrawals pursuant to the time-weighted method.
Willowbridge has adopted the Fully-Funded Subset Method of computing
rate-of-return and presenting performance disclosure for Vulcan for periods
beginning July 1994, for Titan for periods beginning in July 1995, for Siren for
periods beginning April 1995, for Primary for period beginning August 1995, for
CFM for periods beginning January 1993 and for Argo and Atlas for periods
beginning January 1992. "Notional" funds were not used prior to the dates noted
above with respect to these programs.
Commencing in February 1995 for XLIM's capsule which includes
"notional" funds, certain accounts include sums clients have instructed
Willowbridge to trade but that are not deposited in those clients' accounts.
These excess sums are deemed to be "notional" funds for which performance
results are reported in accordance with the requirements of an Advisory
published by the CFTC. The computations in XLIM's capsule which excludes
"notional" funds reflect the actual funds deposited in or withdrawn from
clients' brokerage and other accounts rather than the amount of "notional" funds
clients instructed Willowbridge to trade. Willowbridge has included these
"notional" amounts because they more accurately reflect the amount of capital
clients have instructed Willowbridge to trade. Substantial differences may exist
between beginning equity for an account which includes "notional" funds (and
which is reflected in Willowbridge's XLIM capsule which includes "notional"
funds and an account which contains only "actual" funds (and which is reflected
in Willowbridge's capsule which excludes "notional" funds.) Excluding "notional"
funds from the calculations of rates of return accentuates (i.e., increases the
absolute value of) both positive and negative rates of return.
XLIM Program
Willowbridge will trade this program on behalf of the Trust. The
following summary information presents the composite performance record of the
XLIM Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: XLIM
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: August 1988
Number of open accounts: 27
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $185,618,000
Aggregate assets (including "notional" equity) in program: $215,618,000
Largest monthly drawdown: 17.48% (5/90)
Largest peak-to-valley drawdown: 29.10% (8/93 - 1/95)
Number of profitable closed accounts: 2
Number of unprofitable closed accounts: 2
APPI-34
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
Monthly Performance 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
(Notional Excluded)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 3.38 (4.89) (11.93) 1.04 0.00 (11.07)
- ---------------------------------------------------------------------------------------------------
February (3.22) 0.95 (12.67) 22.24 0.00 5.72
- ---------------------------------------------------------------------------------------------------
March 5.54 33.93 0.04 (5.40) 0.00 32.01
- ---------------------------------------------------------------------------------------------------
April 14.41 4.73 0.00 (2.97) 0.00 (2.86)
- ---------------------------------------------------------------------------------------------------
May 0.27 0.00 (1.04) 0.00 (4.64)
- ---------------------------------------------------------------------------------------------------
June (8.12) 0.00 4.00 0.00 7.81
- ---------------------------------------------------------------------------------------------------
July (4.16) 0.00 12.93 0.00 (3.05)
- ---------------------------------------------------------------------------------------------------
August (1.30) 0.00 (8.79) 0.00 (13.74)
- ---------------------------------------------------------------------------------------------------
September 2.56 0.00 (7.02) 0.00 0.00
- ---------------------------------------------------------------------------------------------------
October 1.93 0.00 5.07 2.65 0.00
- ---------------------------------------------------------------------------------------------------
November 2.65 3.23 1.55 (2.63) 0.00
- ---------------------------------------------------------------------------------------------------
December 7.18 1.13 2.56 8.41 0.00
- ---------------------------------------------------------------------------------------------------
Compound Rate of 17.64 34.99 (19.68) 22.30 8.36 3.65
Return
===================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
APPI-35
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================
Monthly Performance 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
(Notional Included)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 2.74 (4.89) (11.93) 1.04 0.00 (11.07)
- ----------------------------------------------------------------------------------------------------
February (2.67) 0.87 (12.67) 22.24 0.00 5.72
- ----------------------------------------------------------------------------------------------------
March 4.63 31.21 0.04 (5.40) 0.00 32.01
- ----------------------------------------------------------------------------------------------------
April 9.48 4.41 0.00 (2.97) 0.00 (2.86)
- ----------------------------------------------------------------------------------------------------
May 0.25 0.00 (1.04) 0.00 (4.64)
- ----------------------------------------------------------------------------------------------------
June (7.52) 0.00 4.00 0.00 7.81
- ----------------------------------------------------------------------------------------------------
July (3.91) 0.00 12.93 0.00 (3.05)
- ----------------------------------------------------------------------------------------------------
August (1.28) 0.00 (8.79) 0.00 (13.74)
- ----------------------------------------------------------------------------------------------------
September 2.55 0.00 (7.02) 0.00 0.00
- ----------------------------------------------------------------------------------------------------
October 1.93 0.00 5.07 2.65 0.00
- ----------------------------------------------------------------------------------------------------
November 2.59 3.23 1.55 (2.63) 0.00
- ----------------------------------------------------------------------------------------------------
December 5.92 1.13 2.56 8.41 0.00
- ----------------------------------------------------------------------------------------------------
Compound Rate of 14.54 31.28 (19.68) 22.30 8.36 3.65
Return
====================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
APPI-36
<PAGE>
Vulcan Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Vulcan Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Vulcan Program
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1988
Number of open accounts: 18
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $18,355,000
Aggregate assets (including "notional" equity) in program: $20,355,000
Largest monthly drawdown: 20.16% (1/91)
Largest peak-to-valley drawdown: 30.19% (11/90-5/91)
Number of profitable closed accounts: 4
Number of unprofitable closed accounts: 2
1996 Period Rate of Return: 3.92%
1995 Annual Rate of Return: 57.62%
1994 Annual Rate of Return: 14.67%
1993 Annual Rate of Return: 33.97%
1992 Annual Rate of Return: 19.30%
1991 Annual Rate of Return: 19.78%
Titan Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Titan Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Titan
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1988
Number of open accounts: 9
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $15,439,000
Aggregate assets (including "notional" equity) in program: $15,539,000
Largest monthly drawdown: 25.07% (7/91)
Largest peak-to-valley drawdown: 39.89% (10/90 - 8/91)
Number of profitable closed accounts: 2
Number of unprofitable closed accounts: 1
1996 Period Rate of Return: 11.61%
1995 Annual Rate of Return: 68.10%
1994 Annual Rate of Return: 10.06%
1993 Annual Rate of Return: 23.28%
1992 Annual Rate of Return: 32.16%
1991 Annual Rate of Return: 24.11%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-37
<PAGE>
Rex Program
The following summary information presents the composite performance
record of the Rex Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Rex
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: March 1988
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $683,000
Aggregate assets (including "notional" equity) in program: $683,000
Largest monthly drawdown: 25.19% (2/96)
Largest peak-to-valley drawdown: 76.19% (9/90 - 3/96)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 2
1996 Period Rate of Return: (19.19)%
1995 Annual Rate of Return: (13.07)%
1994 Annual Rate of Return: (12.49)%
1993 Annual Rate of Return: (10.37)%
1992 Annual Rate of Return: (18.54)%
1991 Annual Rate of Return: (37.94)%
Argo Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Argo Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Argo
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1988
Number of open accounts: 66
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $117,596,000
Aggregate assets (including "notional" equity) in program: $153,596,000
Largest monthly drawdown: 16.70% (2/96)
Largest peak-to-valley drawdown: 21.30% (11/90 - 2/91)
Number of profitable closed accounts: 29
Number of unprofitable closed accounts: 9
1996 Period Rate of Return: 7.65%
1995 Annual Rate of Return: 59.52%
1994 Annual Rate of Return: 20.28%
1993 Annual Rate of Return: 17.10%
1992 Annual Rate of Return: 22.09%
1991 Annual Rate of Return: 36.30%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-38
<PAGE>
Siren Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Siren Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Siren
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1991
Number of open accounts: 12
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $16,338,000
Aggregate assets (including "notional" equity) in program: $18,338,000
Largest monthly drawdown: 14.94% (1/91)
Largest peak-to-valley drawdown: 17.53% (7/93 - 10/93)
Number of profitable closed accounts: 3
Number of unprofitable closed accounts: 0
1996 Period Rate of Return: 7.91%
1995 Annual Rate of Return: 25.12%
1994 Annual Rate of Return: 37.88%
1993 Annual Rate of Return: 9.45%
1992 Annual Rate of Return: (1.39)%
1991 Annual Rate of Return: 16.43%
MTech Program
The following summary information presents the composite performance
record of the MTech Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: MTech
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1991
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $10,453,000
Aggregate assets (including "notional" equity) in program: $10,453,000
Largest monthly drawdown: 13.62% (1/94)
Largest peak-to-valley drawdown: 21.37% (8/93 - 2/94)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1996 Period Rate of Return: 30.55%
1995 Annual Rate of Return: 53.22%
1994 Annual Rate of Return: 21.68%
1993 Annual Rate of Return: 32.48%
1992 Annual Rate of Return: 25.13%
1991 Annual Rate of Return: 19.96%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-39
<PAGE>
CFM Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the CFM
Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: CFM
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1993
Number of open accounts: 5
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $21,798,000
Aggregate assets (including "notional" equity) in program: $21,798,000
Largest monthly drawdown: 16.92% (2/94)
Largest peak-to-valley drawdown: 29.04% (8/93 - 9/94)
Number of profitable closed accounts: 15
Number of unprofitable closed accounts: 24
1996 Period Rate of Return: 0.10%
1995 Annual Rate of Return: 24.52%
1994 Annual Rate of Return: (10.51)%
1993 Annual Rate of Return: 29.49%
1992 Annual Rate of Return: N/A
1991 Annual Rate of Return: N/A
Currency Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Currency Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Currency
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: May 1991
Number of open accounts: 5
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $7,476,000
Aggregate assets (including "notional" equity) in program: $12,476,000
Largest monthly drawdown: 8.14% (2/96)
Largest peak-to-valley drawdown: 25.32% (7/93 - 8/94)
Number of profitable closed accounts: 6
Number of unprofitable closed accounts: 22
1996 Period Rate of Return: (1.18)%
1995 Annual Rate of Return: 28.55%
1994 Annual Rate of Return: (10.26)%
1993 Annual Rate of Return: (8.59)%
1992 Annual Rate of Return: 16.96%
1991 Annual Rate of Return: 12.61% (8 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-40
<PAGE>
Primary Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Primary Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Primary
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1993
Number of open accounts: 10
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $34,386,000
Aggregate assets (including "notional" equity) in program: $35,386,000
Largest monthly drawdown: 16.67% (2/96)
Largest peak-to-valley drawdown: 21.83% (1/94 - 4/94)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1996 Period Rate of Return: 9.12%
1995 Annual Rate of Return: 56.76%
1994 Annual Rate of Return: 22.70%
1993 Annual Rate of Return: 16.79%
1992 Annual Rate of Return: N/A
1991 Annual Rate of Return: N/A
Atlas Program
The following summary information presents the composite performance
record of the Atlas Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Atlas
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: November 1989
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $428,142,000
Aggregate assets (including "notional" equity) overall: $504,242,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (16.6)% (1/91)
Largest peak-to-valley drawdown: 46.7% (10/90 - 5/92)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1996 Period Rate of Return: N/A
1995 Annual Rate of Return: N/A
1994 Annual Rate of Return: N/A
1993 Annual Rate of Return: N/A
1992 Annual Rate of Return: 18.29%
1991 Annual Rate of Return: (5.92)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-41
<PAGE>
WITTER AND LESTER, INC.
Witter and Lester, Inc. ("Witter and Lester"), a member of the National
Futures Association, was founded by Lon Witter and Richard Lester in March 1988
and is incorporated under the laws of the State of Alabama. It is registered as
a commodity trading advisor with the Commodity Futures Trading Commission and as
an investment advisor with the Securities and Exchange Commission. Witter and
Lester's primary office is located at 200 Clinton Avenue, Suite 904, Huntsville,
Alabama, 35801, and the telephone number is (205) 534-4439. The marketing office
is located at 8275 Tournament Drive, Suite 100, Memphis, Tennessee, 38125. The
telephone number is (901) 748-3043.
The Principals and Key Employees
Lon L. Witter, President and co-founder of Witter and Lester, was
employed for ten years (1978-1988) as a Vice-President and Trust Investment
Officer at First Alabama Bank in Huntsville. He holds a B.A. in Education from
Duke University, a M.S. degree in Education from the University of Indiana, and
a J.D. degree from the University of Texas Law School.
Richard L. Lester, Executive Vice-President and co-founder of Witter
and Lester, attended the University of Alabama in Huntsville and holds an
Associate Degree in Business Administration from Calhoun Community College. For
ten years (1978-1988), he was employed by First Alabama Bank as a Vice-President
and Trust Investment Officer.
Frank B. Smith, Executive Vice-President and Director of Marketing
since June 1991, has served as Managing Director of Morgan Keegan in Memphis,
Tennessee (1981-1990) and Equitable Securities in Nashville, Tennessee
(1990-1991). His professional duties have included Institutional Sales, Branch
Management, and National Sales Manager. He holds B.S. degrees in Business
Administration and Economics from Vanderbilt University.
G. Wayne Whaley, Market Analyst for Witter and Lester since 1993, was
employed for five years (1988-1993) as a Systems Analyst by SPARTA, Inc. in
Huntsville, Alabama where he created computerized probability models of nuclear
arsenal exchanges. He holds a B.S. degree in the Science of Mathematics from
Jacksonville State University and a M.S. degree in Operations Research (Applied
Math) from Georgia Technological Institute.
Mr. Witter, Mr. Lester, and Mr. Whaley share the responsibility for
market analysis and trade decisions. Mr. Witter and Mr. Whaley direct market
research and order entry. Mr. Lester is responsible for accounting, compliance
and regulatory issues. Mr. Smith is responsible for business development and
client relationships.
Investment Methodology
The Investment Methodology currently used by Witter and Lester has been
consistently applied since the mid 1970's. As Trust Investment Officers at First
Alabama Bank, Mr. Witter and Mr. Lester recognized that equity investments over
time have provided superior returns. The challenge was to produce consistent
total returns despite the volatility associated with equity investments. With
that in mind, Witter and Lester developed a warning system designed to identify
any potential for a sharp stock market decline. The following criteria proved to
have the highest correlation with changes in market direction:
(1) Momentum - Prior to a short term change in the direction of stock
prices, the momentum of the existing trend will slow perceptibly.
In other words, before a market declines, it must stop going up.
Momentum is measured by mathematical relationships involving the
daily number of stocks that advance and decline, the number of
issues making new highs and new lows, and divergences among the
numerous market indices.
(2) Volume - Price movements in a stock are often preceded by a
change in the daily trading volume of its shares. Using the Dow
30 Stocks as a market proxy, Witter and Lester believes that
changes of volume patterns in the Dow stocks indicate a future
change in the direction of stock prices in general.
APPI-42
<PAGE>
(3) Inventory Accumulation and Liquidation - Inventory control is
essential to any business, and the stock market is no different.
Professional traders are keenly aware of trading conditions and
the supply-demand factors affecting the market place on any given
day. An analysis of each day's trading volume gives information
as to whether this knowledgeable group of investors is
accumulating or distributing shares.
The first application of Witter and Lester's methodology was a simple
mutual fund timing strategy. Begun in 1979 while Witter and Lester were serving
as Trust Investment Officers at First Alabama Bank, this program was designed
for the conservative investor whose risk tolerance is very small. Unleveraged
"long" positions were taken only in market environments that Witter and Lester
judged to be free of potential weakness. "Cash" positions were held in all other
environments. Since then, Witter and Lester's trading methodology has been
applied to a variety of different strategies.
The Redstone Program
Witter and Lester will trade this program on behalf of the Trust. The
Redstone Program stems from a research effort begun in 1993 to automate the
interpretation of traditional Witter & Lester market analysis. This effort was
guided by Lon Witter with the assistance of Wayne Whaley. After the initial
exercise was completed, Mr. Whaley used computer optimization to incorporate
several additional indicators that had been used successfully in his own
personal trading since 1988. The resulting stock market model is based on
pattern recognition of the following nine indicators:
1) Candlestick theory 6) Put/Call ratio
2) Climax Indicator 7) Seasonal variable
3) Volume trends 8) TRIN
4) Momentum 9) Valuation/Sentiment
5) New high / lows
Each day the market timing model produces a rating between 0 and 100
where a rating above 52.5 is bullish and a rating below 47.5 is bearish. This
daily analysis drives the degree of long or short exposure taken in the program
each day. Positions are built using a combination of stock index futures and
options.
Stock Index Futures Trading Program
In 1982, the Stock Index Futures Trading Program was created by
applying Witter and Lester's traditional market analysis to the newly created
Stock Index Futures market. Utilizing the added liquidity of the futures
contract, the program is designed to more aggressively seek above average total
returns. In addition to "long" and "cash" positions, the Stock Index Futures
Trading Program offers the opportunity to profit from market declines. The
prudent use of leverage may also serve to enhance returns.
The Stock Index Futures Trading Program can be used as a stand-alone
speculative investment. It was designed, however, to be a component of an
existing stock or bond portfolio. When used in this manner (typically 10-20% of
a portfolio), the program has increased annual returns, significantly reduced
volatility, and minimized the extent of losses in adverse market conditions. A
key factor in the success of the program is Witter and Lester's strong negative
correlation with both stock and bond markets as well as most futures managers.
Witter and Lester started trading client funds in September 1983. From
1983 to March 1988 Witter and Lester was exempt from registration under Section
4 (m) of the regulations. Registration as a commodity trading advisor was
effective in March of 1988.
Strategic Hedge Overlay
In early 1990, Witter and Lester began looking for additional
applications of the market timing model. Specific client requests for a
traditional hedge led to the development of the Strategic Hedge Overlay Program.
The program is intended to work in conjunction with an existing equity portfolio
by taking advantage of Witter and Lester's demonstrated ability to identify
potential stock market weakness.
APPI-43
<PAGE>
The Strategic Hedge Overlay Program dynamically combines the yield
enhancement options writing strategies with outright hedging. In environments
judged by Witter and Lester to be free of risk, the program takes no position
and the client's portfolio remains fully invested. In environments deemed
bearish, Witter and Lester assumes unleveraged "short" positions, effectively
neutralizing the portfolio against the risk of a market decline. In neutral
environments, call options are sold against the underlying portfolio, reducing
risk and generating additional income for the investor through the capture of
option premiums.
As most investors know, it is not always easy or economical to quickly
liquidate large stock portfolios. The Strategic Hedge Overlay Program, through
the use of futures and options, provides the liquidity and cost efficiency
necessary to effectively enter and exit the market. The program is essentially
self-funding since the underlying stock portfolio serves as the collateral
necessary to administer the account. Execution of the program will in no way
restrict the equity manager's stock selection process.
Participants in the Strategic Hedge Overlay Program generally use their
existing equity portfolio for margin calls; therefore, in the usual cases
customers do not need to convert their equities into cash to participate in the
program. The accompanying tables for the program are prepared on this basis. If
a customer were to choose to participate by using cash margin, he would have to
liquidate approximately 4% of his equity portfolio, and rates of return would be
reduced proportionally.
Intermediate Trading Program
With the Stock Index Futures Program approaching capacity and the
Strategic Hedge Overlay Program fully operational, Witter and Lester began to
explore new applications for the market timing model. The Intermediate Trading
Program combines the most successful elements of Witter and Lester's existing
programs into a single, dynamic strategy.
The Intermediate Trading Program takes both "long" and "short"
positions by focusing on a 2-3 week stock market outlook. Daily indicators aid
in order entry and risk control. Options are used to soften volatility while
providing an element of yield enhancement. Leverage has been adjusted to produce
an optimum risk/reward profile.
Past Performance Information
With respect to the Strategic Hedge Overlay Program:
1. "Largest monthly drawdown" is the worst Delta loss in failing to
meet objectives of the hedge program by an account over a specified period.
2. "Worst peak-to-valley drawdown" is the greatest cumulative Delta
decline in failing to meet the objectives of the hedge program over a specified
period.
3. "Delta" is the difference between the S&P monthly rate of return and
the combined monthly rate of return. A positive percentage indicates the degree
to which Witter and Lester's program successfully diminished loss or enhanced
gain for that month. Delta is presented in lieu of a rate of return for the
program, which by itself would not be a meaningful figure. S&P monthly rate of
return is the increase or decrease in the S&P 500 Index over the prior month
expressed as a percentage. Combined monthly rate of return is the S&P Monthly
rate of return adjusted for participation in Witter and Lester's program. It is
calculated by adding the net performance of the Hedge Program plus a
hypothetical net performance for the underlying portfolio (i.e., the product of
multiplying the designated size of the portfolio by the S&P Stock Index rate of
return) divided by the sum of the Hedged Portfolio size plus the designated
equity portfolio size. If additions and withdrawals in any month exceed ten
percent (10%) of these figures, such figures are adjusted by the time-weighted
value of these additions and withdrawals.
4. "Annual [Period] Rate of Return" is computed using a hypothetical
$1,000 Investment Index. The Index illustrates how a theoretical $1,000
investment, if left untouched, would have appreciated (depreciated) during the
entire length of the performance table. Since the performance table is the
combination of many separate accounts, this is
APPI-44
<PAGE>
a theoretical figure and should not be taken as indicative of any results which
an account may have in the future. The year to date rate of return is the ending
$1,000 Index minus $1,000 divided by $1,000.
[Remainder of page left blank intentionally.]
APPI-45
<PAGE>
Redstone Program
Witter and Lester will trade this program on behalf of the Trust.
The following summary information presents the composite performance record of
the Redstone Program.
Name of CTA: Witter and Lester, Inc.
Name of program: Redstone Program
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: September 1994
Number of open accounts: 29
Aggregate assets (excluding "notional" equity) overall: $57,474,237
Aggregate assets (including "notional" equity) overall: $132,455,077
Aggregate assets (excluding "notional" equity) in program: $16,465,020
Aggregate assets (including "notional" equity) in program: $36,888,073
Largest monthly drawdown: (0.47)% (1/96)
Largest peak-to-valley drawdown: (0.64)% (1/96 - 2/96)
Number of profitable closed accounts: 4
Number of unprofitable closed accounts: 0
================================================================================
Monthly 1996(%) 1995(%) 1994(%)
Performance
- --------------------------------------------------------------------------------
January (0.47) 2.55 --
- --------------------------------------------------------------------------------
February (0.17) 1.29 --
- --------------------------------------------------------------------------------
March 1.21 0.00 --
- --------------------------------------------------------------------------------
April 1.17 2.59 --
- --------------------------------------------------------------------------------
May 1.42 --
- --------------------------------------------------------------------------------
June 2.05 --
- --------------------------------------------------------------------------------
July (0.15) --
- --------------------------------------------------------------------------------
August 2.80 --
- --------------------------------------------------------------------------------
September 2.30 2.19
- --------------------------------------------------------------------------------
October 0.84 5.29
- --------------------------------------------------------------------------------
November 3.32 2.96
- --------------------------------------------------------------------------------
December 1.96 1.97
- --------------------------------------------------------------------------------
Compound Rate 1.72 23.02 12.96
of Return (4 mos.)
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
APPI-46
<PAGE>
Stock Index Trading Program
The following summary information presents the composite performance
record of the Stock Index Trading Program.
Name of CTA: Witter and Lester, Inc.
Name of program: Stock Index Trading Program
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1988
Number of open accounts: 15
Aggregate assets (excluding "notional" equity) overall: $57,474,237
Aggregate assets (including "notional" equity) overall: $132,455,077
Aggregate assets (excluding "notional" equity) in program: $14,385,372
Aggregate assets (including "notional" equity) in program: $17,576,606
Largest monthly drawdown (five-year period): (11.8)% (3/94)
Largest peak-to-valley drawdown (five-year period): (18.2)% (8/91-11/91)
Largest monthly drawdown (since inception): (16.6)% (9/90)
Largest peak-to-valley drawdown (since inception): (25.7)% (8/90 - 9/90)
Number of profitable closed accounts: 71
Number of unprofitable closed accounts: 17
1996 Period Rate of Return: 21.3% (4 months)
1995 Annual Rate of Return: 44.0%
1994 Annual Rate of Return: (0.5)%
1993 Annual Rate of Return: 18.2%
1992 Annual Rate of Return: 8.6%
1991 Annual Rate of Return: (3.9)%
Intermediate Trading Program
The following summary information presents the composite performance
record of the Intermediate Trading Program.
Name of CTA: Witter and Lester, Inc.
Name of program: Intermediate Trading Program
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: March 1992
Number of open accounts: 31
Aggregate assets (excluding "notional" equity) overall: $57,474,237
Aggregate assets (including "notional" equity) overall: $132,455,077
Aggregate assets (excluding "notional" equity) in program: $26,331,064
Aggregate assets (including "notional" equity) in program: $56,476,260
Largest monthly drawdown: (4.20)% (3/95)
Largest peak-to-valley drawdown: (10.41)% (2/95 - 3/96)
Number of profitable closed accounts: 30
Number of unprofitable closed accounts: 23
1996 Period Rate of Return: (5.65)% (4 months)
1995 Annual Rate of Return: 0.60%
1994 Annual Rate of Return: 18.4%
1993 Annual Rate of Return: 14.8%
1992 Annual Rate of Return: 1.52% (10 months)
1991 Annual Rate of Return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-47
<PAGE>
Strategic Equity Hedge Program
The following summary information presents the composite performance
record of the Strategic Equity Hedge Program.
Name of CTA: Witter and Lester, Inc.
Name of program: Strategic Hedge Overlay
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: December 1991
Number of open accounts: 4
Aggregate assets (excluding "notional" equity) overall: $57,474,237
Aggregate assets (including "notional" equity) overall: $132,455,077
Aggregate assets (excluding "notional" equity) in program: $292,781
Aggregate assets (including "notional" equity) in program: $19,892,780
Largest monthly drawdown: (2.02 Delta) (7/92)
Largest peak-to-valley drawdown : (4.85 Delta) (1/95-9/95)
Number of profitable closed accounts: 3
Number of unprofitable closed accounts: 8
1996 Period Rate of Return: (0.41) (4 months)
1995 Annual Rate of Return: (3.78)%
1994 Annual Rate of Return: 0.96%
1993 Annual Rate of Return: (0.57)%
1992 Annual Rate of Return: 0.19%
1991 Annual Rate of Return: (1.82)%
Special - 1 Program
The following summary information presents the composite performance
record of the Special - 1 Program.
Name of CTA: Witter and Lester, Inc.
Name of program: Special - 1
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: January 1990
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $57,474,237
Aggregate assets (including "notional" equity) overall: $132,455,077
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown (five-year period): (8.57)% (6/91)
Largest peak-to-valley drawdown (five-year period): (8.57)% (6/91)
Largest monthly drawdown: (20.87)% (8/90)
Largest peak-to-valley drawdown: (36.31)% (6/90 - 10/90)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 1
1996 Period Rate of Return: N/A
1995 Annual Rate of Return: N/A
1994 Annual Rate of Return: N/A
1993 Annual Rate of Return: N/A
1992 Annual Rate of Return: N/A
1991 Annual Rate of Return: (31.26)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
APPI-48
<PAGE>
Special - 2 Program
The following summary information presents the composite performance
record of the Special - 2 Program. This program was closed as of October 31,
1994.
Name of CTA: Witter and Lester, Inc.
Name of program: Special - 2
Inception of client account trading by CTA: January 1988
Inception of client account trading in program: November 1991
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $57,474,237
Aggregate assets (including "notional" equity) overall: $132,455,077
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (0.95)% (3/94)
Largest peak-to-valley drawdown: (0.95)% (3/94)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1996 Period Rate of Return: N/A
1995 Annual Rate of Return: N/A
1994 Annual Rate of Return: 0.15% (10 months)
1993 Annual Rate of Return: 1.20%
1992 Annual Rate of Return: 2.27%
1991 Annual Rate of Return: 1.25% (2 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
APPI-49
<PAGE>
APPENDIX II
PERFORMANCE OF THE OTHER FUTURES FUNDS OPERATED BY KENMAR
General
The performance information included herein is presented in accordance
with regulations of the CFTC. The Trust differs materially in certain respects
from each of the funds whose performance is included herein. The following sets
forth summary performance information for the funds managed to date by Kenmar
and its affiliates, including offshore funds and accounts that are not available
to U.S. persons.
This section of the Offering Memorandum presents summary performance
information for those multi- advisor and single-advisor funds which Kenmar has
distributed as part of its private placement program. Kenmar has offered its
funds exclusively on a private basis to highly financially sophisticated
investors - either on a private placement basis in the United States or offshore
exclusively to non-U.S. persons. Kenmar has not, to date, sponsored a
publicly-offered commodity pool.
In addition to Kenmar's single-advisor funds, this section of the
Offering Memorandum also contains performance information for the more numerous
multi-advisor funds sponsored or managed to date by Kenmar. In the case of these
funds, Kenmar actively allocates and reallocates trading assets among a changing
group of advisors selected by it. These multi-advisor funds depend on Kenmar for
their asset allocations (and, possibly, leverage adjustments) and strategy
selections, and combine unrelated and independent advisors.
Three of the funds presented are identified as utilizing a "principal
protection" structure. "Principal protection," in this context, refers to an
investment feature whereby investors are guaranteed of receiving back at least
the amount which they originally invested at a date certain in the future --
usually 5 to 7 years after the date of subscription. Kenmar and its affiliates
act as a "trading manager" in respect of the majority of the funds presented. In
acting as a trading manager, Kenmar allocates such funds' assets to one or more
trading advisors. In the event that a portion of a fund's assets are allocated
(by a commodity pool operator unaffiliated with Kenmar) to a guarantee feature,
such fact would not necessarily be known to Kenmar. The Trust has no "principal
protection" feature and will begin trading with 100% of its assets allocated to
trading.
The pools whose performance are summarized herein are materially
different in certain respects from the Trust, and the past performance summaries
of such pools are generally not representative of how the Trust will perform in
the future. These funds also have material differences from one another in
leverage, fee structure and trading programs. The performance records of these
funds may give some general indication of Kenmar's capabilities in advisor
selection by indicating the past performance of the Kenmar-sponsored funds.
However, prospective investors must recognize the significant differences
between the pools whose performance summaries are included herein and the Fund.
All summary performance information is current as of May 31, 1996
(except in the case of funds dissolved prior to such date). Performance
information is set forth since January 1, 1991, or, if later, the inception of
the fund in question.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND
MATERIAL DIFFERENCES EXIST BETWEEN THE POOLS WHOSE PERFORMANCE IS SUMMARIZED
HEREIN AND THE TRUST.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A SIGNIFICANT
PORTION OF A COMMODITY POOL'S INCOME AND, IN CERTAIN INSTANCES, MAY GENERATE
PROFITS WHERE THERE HAVE BEEN REALIZED AND UNREALIZED LOSSES FROM COMMODITY
TRADING.
----------------------------
APPII-1
<PAGE>
Assets Under Management
Kenmar and affiliates -- Total assets under management as of
May 31, 1996: $274,482,184
Kenmar and affiliates -- Total asset under multi-advisor
management as of May 31, 1996: $274,482,184
Kenmar Global Strategies Pools and Accounts
These are all of the multi-advisor pools and accounts operated by
Kenmar or its affiliates since January 1991 pursuant to the Kenmar Global
Strategies Program, which pools and accounts constitute a substantial portion of
the assets currently under the management of Kenmar and its affiliates. These
multi-advisor pools and accounts have been managed with the objective of
achieving a compound annual rate of return in excess of 25% over the long term,
with commensurate risk and volatility.
Moderate Pools and Accounts
These are all of the multi-advisor pools and accounts operated by
Kenmar or its affiliates since January 1991 on behalf of clients seeking
moderate returns with the commensurate risk and volatility. These multi-advisor
pools and accounts have been managed with the objective of achieving a compound
annual rate of return of 15-20% over the long term, with commensurate risk and
volatility. The Managing Owner will manage the Trust with these objectives.
Aggressive Pools and Accounts
These are all of the multi-advisor pools and accounts operated by
Kenmar or its affiliates since January 1991 on behalf of clients willing to
assume significant risk to obtain aggressive returns. These multi-advisor pools
and accounts have been managed with the objective of achieving a compound annual
rate of return in excess of 25% over the long term, with commensurate risk and
volatility. These accounts are generally characterized by high levels of
leverage relative to the net asst value of the trading account.
Single-Advisor Pools
These are all of the pools operated by Kenmar or its affiliates since
January 1991 advised by a single advisor (as opposed to a portfolio of commodity
trading advisors). In most cases, the pools were established as a way of
testing, in a limited liability vehicle, commodity trading advisors relatively
untested in managing customer assets. Investors should note that single-advisor
pools do not demonstrate the Managing Owner's ability to manage a portfolio of
commodity trading advisors.
APPII-2
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
%
WORST
AGGRE- MONTHLY
TYPE GATE CURRENT CURRENT DRAW-
OF START CLOSE SUB- TOTAL NAV PER DOWN &
POOL DATE DATE SCRIPT. NAV UNIT*** MONTH
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
KENMAR GLOBAL STRATEGIES PROGRAM
- -------------------------------------------------------------------------------------------------------------------------------
Performance Partners L.P. ** 08/85 N/A 294,437,322 116,582,531 11,729.68 (15.87)
- -------------------------------------------------------------------------------------------------------------------------------
1/91
- -------------------------------------------------------------------------------------------------------------------------------
Investments Limited * 03/94 N/A 46,240,528 16,628,086 992.00 (10.30)
- -------------------------------------------------------------------------------------------------------------------------------
08/94
- -------------------------------------------------------------------------------------------------------------------------------
Derivative Investments Ltd. * 10/93 1/96 10,445,000 0 1,190.69 (13.46)
- -------------------------------------------------------------------------------------------------------------------------------
01/95
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Investor Partners L.P. * 11/93 01/95 10,000,000 0 895.03 (9.42)
- -------------------------------------------------------------------------------------------------------------------------------
8/94
- -------------------------------------------------------------------------------------------------------------------------------
MODERATE POOLS AND ACCOUNTS
- -------------------------------------------------------------------------------------------------------------------------------
Trends Limited Partnership * 05/96 N/A 10,926,956 10,926,956 983.99 (1.60)
- -------------------------------------------------------------------------------------------------------------------------------
5/96
- -------------------------------------------------------------------------------------------------------------------------------
Pension Client IIA * 03/94 N/A 44,000,000 49,429,337 972.00 (6.88)
- -------------------------------------------------------------------------------------------------------------------------------
02/96
- -------------------------------------------------------------------------------------------------------------------------------
Pension Client II B * 05/93 N/A 22,000,000 23,114,301 1,045.00 (3.72)
- -------------------------------------------------------------------------------------------------------------------------------
7/95
- -------------------------------------------------------------------------------------------------------------------------------
Family Investment Partners L.P. * 06/91 12/93 10,050,000 0 1,230.86 (3.56)
- -------------------------------------------------------------------------------------------------------------------------------
8/93
- -------------------------------------------------------------------------------------------------------------------------------
Pension Client I. * 05/91 08/94 100,800,000 0 1,068.27 (3.81)
- -------------------------------------------------------------------------------------------------------------------------------
1/94
- -------------------------------------------------------------------------------------------------------------------------------
Capital Partners Ltd. * 07/95 N/A 1.989,775 1.846,545 1,001.28 (5.77)
- -------------------------------------------------------------------------------------------------------------------------------
02/96
- -------------------------------------------------------------------------------------------------------------------------------
Global Management Limited * 03/86 N/A 48,865,902 2,289,832 11,199.00 (17.08)
- -------------------------------------------------------------------------------------------------------------------------------
8/86
- -------------------------------------------------------------------------------------------------------------------------------
Futures Trading Fund L.P. * 05/91 N/A 9,315,313 4,432,850 750.00 (5.62)
- -------------------------------------------------------------------------------------------------------------------------------
1/92
- -------------------------------------------------------------------------------------------------------------------------------
Futures Trading Fund II, L.P. * 04/92 N/A 9,728,100 11,234,580 1,361.00 (6.42)
- -------------------------------------------------------------------------------------------------------------------------------
2/96
- -------------------------------------------------------------------------------------------------------------------------------
Futures Trading Fund III, L.P. * 05/93 N/A 4,030,610 4,237,720 1,277.00 (5.62)
- -------------------------------------------------------------------------------------------------------------------------------
9/93
- -------------------------------------------------------------------------------------------------------------------------------
DDF Trading Co. * 06/93 - 11,436,723 11,740,460 1,026.00 (5.78)
- -------------------------------------------------------------------------------------------------------------------------------
2/96
- -------------------------------------------------------------------------------------------------------------------------------
FCGF I Trading Co. * 02/92 - 21,896,985 10,618,353 1,031.00 (6.23)
- -------------------------------------------------------------------------------------------------------------------------------
2/96
- -------------------------------------------------------------------------------------------------------------------------------
Series One Futures Trading Limited * 05/93 - 4,916,808 2,978,569 696.00 (5.64)
- -------------------------------------------------------------------------------------------------------------------------------
1/96
- -------------------------------------------------------------------------------------------------------------------------------
Series Six Futures Trading Limited * 01/94 - 4,290,807 3,465,903 979.00 (5.07)
- -------------------------------------------------------------------------------------------------------------------------------
2/96
===============================================================================================================================
<CAPTION>
=================================================================================================================
%
WORST PERCENTAGE RATE OF RETURN
PEAK-TO- (COMPUTED ON A COMPOUNDED
VALLEY MONTHLY BASIS) YEAR-
DRAWDOWN --------------------------------------- TO-
& PERIOD 1991 1992 1993 1994 1995 DATE
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
KENMAR GLOBAL STRATEGIES PROGRAM
- -----------------------------------------------------------------------------------------------------------------
Performance Partners L.P. (33.20) (8.61) 0.16 48.30 (9.79) 8.12 (17.6)
- -----------------------------------------------------------------------------------------------------------------
11/90-05/92
- -----------------------------------------------------------------------------------------------------------------
Investments Limited (31.47) - - - (4.73) 12.54 (7.5)
- -----------------------------------------------------------------------------------------------------------------
03/94-4/94
- -----------------------------------------------------------------------------------------------------------------
Derivative Investments Ltd. (26.33) - - (1.84) 7.61 6.06 -
- -----------------------------------------------------------------------------------------------------------------
6/94-1/95
- -----------------------------------------------------------------------------------------------------------------
Institutional Investor Partners L.P. (14.55) - - 0.77 (2.87) (8.56) -
- -----------------------------------------------------------------------------------------------------------------
6/94-8/94
- -----------------------------------------------------------------------------------------------------------------
MODERATE POOLS AND ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------
Trends Limited Partnership (1.60) - - - - - (1.6)
- -----------------------------------------------------------------------------------------------------------------
5/96
- -----------------------------------------------------------------------------------------------------------------
Pension Client IIA (12.64) - - - (3.90) 6.57 (5.1)
- -----------------------------------------------------------------------------------------------------------------
5/95-10/95
- -----------------------------------------------------------------------------------------------------------------
Pension Client II B (5.78) - - - 0.39 5.26 (1.1)
- -----------------------------------------------------------------------------------------------------------------
6/95-10/95
- -----------------------------------------------------------------------------------------------------------------
Family Investment Partners L.P. (9.52) 7.51 9.36 4.69 - - -
- -----------------------------------------------------------------------------------------------------------------
7/93-11/93
- -----------------------------------------------------------------------------------------------------------------
Pension Client I. (9.50) 5.79 0.17 14.45 (11.92) - -
- -----------------------------------------------------------------------------------------------------------------
12/93-4/94
- -----------------------------------------------------------------------------------------------------------------
Capital Partners Ltd. (6.30) - - - - 2.26 (2.1)
- -----------------------------------------------------------------------------------------------------------------
02/96-03/96
- -----------------------------------------------------------------------------------------------------------------
Global Management Limited (22.33) (13.12) (8.69) 0.50 2.54 4.71 6.5
- -----------------------------------------------------------------------------------------------------------------
5/86-8/86
- -----------------------------------------------------------------------------------------------------------------
Futures Trading Fund L.P. (15.54) (5.24) (16.94) 4.66 (4.32) 1.04 (5.8)
- -----------------------------------------------------------------------------------------------------------------
12/91-5/92
- -----------------------------------------------------------------------------------------------------------------
Futures Trading Fund II, L.P. (9.45) - 5.73 21.64 0.18 15.10 (8.2)
- -----------------------------------------------------------------------------------------------------------------
5/95-10/95
- -----------------------------------------------------------------------------------------------------------------
Futures Trading Fund III, L.P. (9.85) - - 6.66 3.39 16.39 (0.5)
- -----------------------------------------------------------------------------------------------------------------
12/93-3/94
- -----------------------------------------------------------------------------------------------------------------
DDF Trading Co. (10.43) - - 1.05 (3.06) 12.31 (6.8)
- -----------------------------------------------------------------------------------------------------------------
8/93-3/94
- -----------------------------------------------------------------------------------------------------------------
FCGF I Trading Co. (13.54) - (1.50) 8.62 (4.15) 7.73 (6.7)
- -----------------------------------------------------------------------------------------------------------------
8/93-3/94
- -----------------------------------------------------------------------------------------------------------------
Series One Futures Trading Limited (33.04) - - (11.25) (18.15) (2.78) (1.4)
- -----------------------------------------------------------------------------------------------------------------
7/93-3/96
- -----------------------------------------------------------------------------------------------------------------
Series Six Futures Trading Limited (12.93) - - - 2.75 3.75 (7.5)
- -----------------------------------------------------------------------------------------------------------------
5/95-5/96
=================================================================================================================
</TABLE>
APPII-3
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
%
WORST
AGGRE- MONTHLY
TYPE GATE CURRENT CURRENT DRAW-
OF START CLOSE SUB- TOTAL NAV PER DOWN &
POOL DATE DATE SCRIPT. NAV UNIT*** MONTH
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
MODERATE POOLS AND ACCOUNTS (cont'd)
- -------------------------------------------------------------------------------------------------------------------------------
International Fund Limited * 03/86 08/93 48,025,378 0 9,481.10 (17.08)
- -------------------------------------------------------------------------------------------------------------------------------
08/86
- -------------------------------------------------------------------------------------------------------------------------------
Canadian Fund L.P. * 07/89 2/94 13,148,317 0 796.16 (11.44)
- -------------------------------------------------------------------------------------------------------------------------------
10/89
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Group I * 01/90 6/91 3,041,639 0 904.39 (8.27)
- -------------------------------------------------------------------------------------------------------------------------------
4/91
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Group II. * 02/90 2/91 3,028,146 0 917.90 (6.69)
- -------------------------------------------------------------------------------------------------------------------------------
5/90
- -------------------------------------------------------------------------------------------------------------------------------
The Managed Futures Fund * 06/91 12/92 25,782,022 0 945.66 (7.69)
- -------------------------------------------------------------------------------------------------------------------------------
1/92
- -------------------------------------------------------------------------------------------------------------------------------
Guaranteed Fund Limited * 04/90 12/91 4,948,589 0 886.62 (7.64)
- -------------------------------------------------------------------------------------------------------------------------------
5/90
- -------------------------------------------------------------------------------------------------------------------------------
Futures Fund Limited * 02/92 12/94 55,782,854 0 1,066.89 (3.55)
- -------------------------------------------------------------------------------------------------------------------------------
4/92
- -------------------------------------------------------------------------------------------------------------------------------
Futures Fund Limited II * 04/92 12/94 31,087,859 0 1,122.97 (3.70)
- -------------------------------------------------------------------------------------------------------------------------------
2/94
- -------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE POOLS AND ACCOUNTS
- -------------------------------------------------------------------------------------------------------------------------------
Preferred Fund * 01/93 - 20,000,000 20,061,043 998.00 (4.67)
- -------------------------------------------------------------------------------------------------------------------------------
7/95
- -------------------------------------------------------------------------------------------------------------------------------
Venture Fund * 03/97 N/A 2,625,000 3,833,036 2,970.38 (29.70)
- -------------------------------------------------------------------------------------------------------------------------------
10/89
- -------------------------------------------------------------------------------------------------------------------------------
Guaranteed & L/C Fund * 07/90 7/95 10,758,490 0 7.45 (37.88)
- -------------------------------------------------------------------------------------------------------------------------------
1/95
- -------------------------------------------------------------------------------------------------------------------------------
Guaranteed & L/C Fund II * 10/91 7/95 5,014,793 0 1,117.05 (5.62)
- -------------------------------------------------------------------------------------------------------------------------------
7/95
- -------------------------------------------------------------------------------------------------------------------------------
Futures Fund Limited * 05/90 9/91 5,000,000 0 1,093.39 (9.70)
- -------------------------------------------------------------------------------------------------------------------------------
1/91
- -------------------------------------------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS.
- -------------------------------------------------------------------------------------------------------------------------------
International Currency Fund L.P. Single 04/91 12/93 2,312,504 0 903.45 (5.75)
- -------------------------------------------------------------------------------------------------------------------------------
12/93
- -------------------------------------------------------------------------------------------------------------------------------
Strategic Investments Fund Single 08/93 10/94 1,143,233 0 717.41 9.45
- -------------------------------------------------------------------------------------------------------------------------------
01/94
- -------------------------------------------------------------------------------------------------------------------------------
Preferred Limited Partnership ** 10/89 01/92 2,148,138 0 1,044.21 (16.32)
- -------------------------------------------------------------------------------------------------------------------------------
05/90
- -------------------------------------------------------------------------------------------------------------------------------
Diversified Portfolio L.P. Single 12/90 04/92 122,000 0 92.29 (59.84)
- -------------------------------------------------------------------------------------------------------------------------------
01/91
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
=================================================================================================================
%
WORST PERCENTAGE RATE OF RETURN
PEAK-TO- (COMPUTED ON A COMPOUNDED
VALLEY MONTHLY BASIS) YEAR-
DRAWDOWN --------------------------------------- TO-
& PERIOD 1991 1992 1993 1994 1995 DATE
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
MODERATE POOLS AND ACCOUNTS (cont'd)
- -----------------------------------------------------------------------------------------------------------------
International Fund Limited (22.33) (13.12) (8.69) 0.29 - - -
- -----------------------------------------------------------------------------------------------------------------
06/86-09/86
- -----------------------------------------------------------------------------------------------------------------
Canadian Fund L.P. (41.37) (5.23) (24.57) (10.37) 0.62 - -
- -----------------------------------------------------------------------------------------------------------------
11/90-11/93
- -----------------------------------------------------------------------------------------------------------------
Portfolio Group I (12.44) (2.91) (6.85) - - - -
- -----------------------------------------------------------------------------------------------------------------
10/90-6/91
- -----------------------------------------------------------------------------------------------------------------
Portfolio Group II. (12.74) (1.58) (6.73) - - - -
- -----------------------------------------------------------------------------------------------------------------
10/90-2/91
- -----------------------------------------------------------------------------------------------------------------
The Managed Futures Fund 14.41 8.35 (12.72) - - - -
- -----------------------------------------------------------------------------------------------------------------
12/91-9/92
- -----------------------------------------------------------------------------------------------------------------
Guaranteed Fund Limited (15.35) (10.12) - - - - -
- -----------------------------------------------------------------------------------------------------------------
10/90-12/91
- -----------------------------------------------------------------------------------------------------------------
Futures Fund Limited (7.98) - (0.82) 9.55 (1.81) - -
- -----------------------------------------------------------------------------------------------------------------
8/93-2/94
- -----------------------------------------------------------------------------------------------------------------
Futures Fund Limited II (8.01) - 2.23 11.61 (1.58) - -
- -----------------------------------------------------------------------------------------------------------------
8/93-2/94
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
AGGRESSIVE POOLS AND ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------
Preferred Ltd. (10.15) - - 19.68 (3.70) 0.81 (2.8)
- -----------------------------------------------------------------------------------------------------------------
9/95-3/96
- -----------------------------------------------------------------------------------------------------------------
Venture Fund (48.75) (7.15) 7.33 57.92 3.27 5.55 2.5
- -----------------------------------------------------------------------------------------------------------------
10/90-04/92
- -----------------------------------------------------------------------------------------------------------------
Guaranteed & L/C Fund (49.23) (16.74) (2.07) 98.54 (8.57) (55.86) -
- -----------------------------------------------------------------------------------------------------------------
11/94-1/95
- -----------------------------------------------------------------------------------------------------------------
Guaranteed & L/C Fund II (10.04) (3.55) 3.16 0.56 (1.30) 16.11 -
- -----------------------------------------------------------------------------------------------------------------
5/95-7/95
- -----------------------------------------------------------------------------------------------------------------
Futures Fund Limited (19.89) (16.71) - - - - -
- -----------------------------------------------------------------------------------------------------------------
10/90-8/91
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS.
- -----------------------------------------------------------------------------------------------------------------
International Currency Fund L.P. (18.40) 0.50 7.48 (16.37) - - -
- -----------------------------------------------------------------------------------------------------------------
09/92-12/93
- -----------------------------------------------------------------------------------------------------------------
Strategic Investments Fund 28.26 - - (8.09) (21.95) - -
- -----------------------------------------------------------------------------------------------------------------
09/93-10/94
- -----------------------------------------------------------------------------------------------------------------
Preferred Limited Partnership (24.10) (7.44) (8.68) - - - -
- -----------------------------------------------------------------------------------------------------------------
11/90-04/91
- -----------------------------------------------------------------------------------------------------------------
Diversified Portfolio L.P. (90.77) (82.92) (45.95) - - - -
- -----------------------------------------------------------------------------------------------------------------
12/90-04/92
=================================================================================================================
</TABLE>
APPII-4
<PAGE>
FOOTNOTES TO PERFORMANCE INFORMATION
1. Name of Pool - Because each of the pool previously sponsored or managed
by Kenmar has been offered either on a private placement basis in the
United States or offshore exclusively to non-U.S. persons, such pools
are not identified by their exact names herein.
2. Type of Pool
"Single" means that the assets are managed by one commodity trading
advisor.
* Although multiple commodity trading advisors were used at certain
times during the history of the pool, the pool may not have been a
"multi-advisor pool" as defined by the CFTC due to the fact that one of
those commodity trading advisors may have been allocated in excess of
twenty-five percent of the pool's funds available for trading.
** Commenced trading as a single-advisor pool and assets were
subsequently allocated to multiple trading advisors. The pool is not a
"multi-advisor-pool" as defined by the CFTC for the reason discussed
above.
3. Start Date
4. "Close Date" is the date the pool liquidated its assets and ceased to do
business.
5. "Aggregate Subscriptions" is the aggregate of all amounts ever
contributed to that pool, including investors who subsequently redeemed
their investments.
6. "Current Net Asset Value" is the Net Asset Value as of May 31, 1996.
7. "Current Net Asset Value Per Unit" is the Current Net Asset Value
divided by the total number of Units outstanding as of May 31, 1996.
Current Net Asset Value per Unit is based on the value of hypothetical
$1,000 unit ($2156.07 for Kenmar International Futures Fund "B-Shares")
of investment over time based upon the performance of the pool.
*** In the case of liquidated pools or accounts, the NAV per unit on the
date of liquidation of the pool or account.
8. Annualized Rate of Return Since Inception
9. "Best Calendar Year Rate of Return" is the greatest rate of return
achieved during any full calendar year since inception of trading.
10. "Worst Calendar Year Rate of Return" is the lowest rate of return
sustained during any full calendar year since inception of trading.
11. "Current Year-to-Date Return" is the rate of return from January 1, 1996
through May 31, 1996.
12. "Worst Monthly % Drawdown" is the largest single month loss sustained
since inception of trading. "Drawdown" as used in this section of the
Offering Memorandum means losses experienced by the relevant fund over
the specified period and is calculated on a rate of return basis, i.e.,
dividing net performance by beginning equity. "Drawdown" is measured on
the basis of monthly returns only, and does not reflect intra-month
figures.
13. "Month" is the month of the Worst Monthly % Drawdown.
14. "Worst Peak-to-Valley Drawdown" is the largest percentage decline in the
Net Asset Value per Unit over the history of the pool. This need not be
a continuous decline, but can be a series of positive and negative
returns
APPII-5
<PAGE>
where the negative returns are larger than the positive ones.
"Peak-to-valley drawdown" as used in this section of the Offering
Memorandum represents the greatest percentage decline from any month-end
net asset value per unit (share) which occurs without such month-end net
asset value per unit (share) being equaled or exceeded as of a
subsequent month-end. For example, if the net asset value per unit
(share) of a particular fund declined by $1 in each of January and
February, increased by $1 in March and declined again by $2 in April, a
"peak-to- valley drawdown" analysis conducted as of the end of April
would consider that "drawdown" to be still continuing and to be $3 in
amount, whereas if the net asset value per unit (share) had increased by
$2 in March, the January-February drawdown would have ended as of the
end of February at the $2 level.
15. "Period" is the period of the Worst Peak-to-Valley Drawdown.
APPII-6
<PAGE>
APPENDIX III
THE SELLING AGENT
Kenmar has not selected the principal Selling Agent for the Trust.
APPIII-1
<PAGE>
APPENDIX IV
GLOSSARY
See "Index of Defined Terms."
Blue Sky Glossary
The following definitions are included in this Appendix IV in
compliance with the requirements of various state securities administrators who
review public futures fund offerings for compliance with the "Guidelines for the
Registration of Commodity Pool Programs" Statement of Policy promulgated by the
North American Securities Administrators Association, Inc. The following
definitions are reprinted verbatim from such Guidelines and may, accordingly,
not in all cases be relevant to an investment in the Trust.
Definitions -- As used in the Guidelines, the following terms have the
following meanings:
Administrator -- The official or agency administering the security laws
of a state.
Advisor -- Any person who for any consideration engages in the business
of advising others, either directly or indirectly, as to the value, purchase, or
sale of commodity contracts or commodity options.
Affiliate -- An Affiliate of a Person means: (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of such Person; (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote, by such Person; (c) any Person, directly or
indirectly, controlling, controlled by, or under common control of such Person;
(d) any officer, director or partner of such Person; or (e) if such Person is an
officer, director or partner, any Person for which such Person acts in any such
capacity.
Capital Contributions -- The total investment in a Program by a
Participant or by all Participants, as the case may be.
Commodity Broker -- Any Person who engages in the business of effecting
transactions in commodity contracts for the account of others or for his own
account.
Commodity Contract -- A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of a traded
commodity at a specified price and delivery point.
Cross Reference Sheet -- A compilation of the Guideline sections,
referenced to the page of the prospectus, Program agreement, or other exhibits,
and justification of any deviation from the Guidelines.
Net Assets -- The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles. Net Assets
shall include any unrealized profits or losses on open positions, and any fee or
expense including Net Asset fees accruing to the Program.
Net Asset Value Per Program Interest -- The Net Assets divided by the
number of Program Interests outstanding.
Net Worth -- The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
New Trading Profits -- The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period or Net
Assets at the date trading commences, whichever is higher, and as further
adjusted to eliminate the effect on Net Assets resulting from new Capital
Contributions, redemptions, or capital distributions, if
APPIV-1
<PAGE>
any, made during the period decreased by interest or other income, not directly
related to trading activity, earned on Program assets during the period, whether
the assets are held separately or in a margin account.
Organizational and Offering Expenses -- All expenses incurred by the
Program in connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program Interest under
federal and state law, including taxes and fees, accountants' and attorneys'
fees.
Participant -- The holder of a Program Interest.
Person -- Any natural Person, partnership, corporation, association or
other legal entity.
Pit Brokerage Fee -- Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Program -- A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in Commodity
Contracts.
Program Broker -- A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
Program Interest -- A limited partnership interest or other security
representing ownership in a program.
Pyramiding -- A method of using all or a part of an unrealized profit
in a Commodity Contract position to provide margin for any additional Commodity
Contracts of the same or related commodities.
Sponsor -- Any Person directly or indirectly instrumental in organizing
a Program or any Person who will manage or participate in the management of a
Program, including a Commodity Broker who pays any portion of the Organizational
Expenses of the Program, and the general partner(s) and any other Person who
regularly performs or selects the Persons who perform services for the Program.
Sponsor does not include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for professional
services rendered in connection with the offering of the units. The term
"Sponsor" shall be deemed to include its Affiliates.
Valuation Date -- The date as of which the Net Assets of the Program
are determined.
Valuation Period -- A regular period of time between Valuation Dates.
APPIV-2
<PAGE>
EXHIBIT A
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
Dated as of
July __, 1996
KENMAR ADVISORY CORP.
MANAGING OWNER
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
Page
----
1. Declaration of Trust...................................................TA-1
2. The Trustee............................................................TA-2
(a) Term; Resignation.................................................TA-2
(b) Powers............................................................TA-2
(c) Compensation and Expenses of the Trustee..........................TA-2
(d) Indemnification...................................................TA-2
(e) Successor Trustee.................................................TA-3
(f) Liability of the Trustee..........................................TA-3
(g) Reliance by the Trustee and the Managing Owner; Advice of Counsel.TA-4
(h) Not Part of Trust Estate..........................................TA-4
3. Principal Office.......................................................TA-4
4. Business...............................................................TA-4
5. Term, Dissolution, Fiscal Year and Net Asset Value.....................TA-5
(a) Term..............................................................TA-5
(b) Dissolution.......................................................TA-5
(c) Fiscal Year.......................................................TA-5
(d) Net Asset Value...................................................TA-5
6. Net Worth of Managing Owner............................................TA-5
7. Capital Contributions; Units...........................................TA-5
8. Allocation of Profits and Losses.......................................TA-6
(a) Capital Accounts and Allocations..................................TA-6
(b) Allocation of Profit and Loss for Federal Income Tax Purposes.....TA-6
(c) Incentive Fees; Profit Shares.....................................TA-8
(d) Expenses..........................................................TA-8
(e) Limited Liability of Unitholders..................................TA-9
(f) Return of Capital Contributions...................................TA-9
9. Management of the Trust................................................TA-9
10. Audits and Reports to Unitholders......................................TA-11
11. Assignability of Units.................................................TA-11
12. Redemptions............................................................TA-12
13. Offering of Units......................................................TA-13
14. Additional Offerings...................................................TA-13
15. Special Power of Attorney..............................................TA-13
16. Withdrawal of a Unitholder.............................................TA-14
17. Standard of Liability; Indemnification.................................TA-14
(a) Standard of Liability for the Managing Owner......................TA-14
(b) Indemnification of the Managing Owner by the Trust................TA-14
(c) Indemnification of the Trust by the Unitholders...................TA-16
18. Amendments; Meetings...................................................TA-16
(a) Amendments with Consent of the Managing Owner.....................TA-16
(b) Amendments and Actions without Consent of the Managing Owner......TA-16
(c) Meetings; Other Voting Matters....................................TA-16
19. Governing Law..........................................................TA-17
20. Miscellaneous..........................................................TA-17
(a) Notices...........................................................TA-17
(b) Binding Effect....................................................TA-17
(c) Captions..........................................................TA-17
21. Certain Definitions....................................................TA-17
22. No Legal Title to Trust Estate.........................................TA-19
23. Legal Title............................................................TA-19
24. Creditors..............................................................TA-19
TA-i
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
This Amended and Restated Declaration of Trust and Trust Agreement (the
"Declaration of Trust Agreement") is made as of July __, 1996, by and among
Kenmar Advisory Corp., a Connecticut corporation, (the "Managing Owner"),
Wilmington Trust Company, a Delaware banking corporation, as trustee (the
"Trustee") and each other party who becomes a party to this Declaration of Trust
Agreement as an owner of a unit ("Unit") of beneficial interest of the Trust or
who becomes a party to this Declaration of Trust as a Unitholder by execution of
a Subscription Agreement and Power of Attorney Signature Page or otherwise and
who is shown in the books and records of the Trust as a Unitholder
(individually, a "Unitholder" and, collectively, the "Unitholders").
WITNESSETH:
WHEREAS, the Managing Owner, the Trustee and a private partnership of
which the Managing Owner is a general partner, as the initial beneficial owner,
formed a business trust pursuant to and in accordance with the Delaware Business
Trust Act, 12 Del. C. ss. 3801, et seq., as amended from time to time (the
"Act"), by filing a Certificate of Trust with the office of the Secretary of
State of the State of Delaware on July 17, 1996, and entering into the
Declaration and Agreement of Trust, dated as of July 17, 1996; and
WHEREAS, the parties hereto desire to continue the Trust for the
business and purpose of issuing Units, the capital of which shall be used to
engage in trading, buying, selling or otherwise acquiring, holding or disposing
of futures and forward contracts for commodities, financial instruments and
currencies, hybrid instruments, swaps, any rights pertaining thereto and any
options thereon or on physical commodities, with the objective of capital
appreciation through speculative trading by allocating Trust Assets to
independent professional trading advisors ("Advisors") selected from time to
time by the Managing Owner.
NOW THEREFORE, the parties hereto agree as follows:
1. Declaration of Trust.
The Managing Owner hereby acknowledges that the Trust has received the
sum of $400 in a bank account opened in the name of the Trust from the Managing
Owner as grantor of the Trust and $1,600 from the initial beneficial owner (the
"Initial Unitholder"), and the Trustee hereby declares that it shall hold such
sums in trust upon and subject to the conditions set forth herein for the use
and benefit of the Unitholders. It is the intention of the parties hereto that
the Trust shall be a business trust under the Act, and that this Declaration of
Trust shall constitute the governing instrument of the Trust. The Trustee has
filed the Certificate of Trust required by Section 3810 of the Act.
Nothing in this Declaration of Trust shall be construed to make the
Unitholders partners or members of a joint stock association except to the
extent that such Unitholders, as constituted from time to time, are deemed to be
partners under the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable state and local tax laws. Notwithstanding the foregoing, it is the
intention of the parties hereto that the Trust be treated as a partnership for
purposes of taxation under the Code and applicable state and local tax laws.
Effective as of the date hereof, the Trustee shall have all of the rights,
powers and duties set forth herein and in the Act with respect to accomplishing
the purposes of the Trust.
TA-1
<PAGE>
2. The Trustee.
(a) Term; Resignation.
(i) Wilmington Trust Company has been appointed and
hereby agrees to serve as the Trustee of the Trust. The Trust
shall have only one trustee unless otherwise determined by the
Managing Owner. The Trustee shall serve until such time as the
Managing Owner removes the Trustee or the Trustee resigns and a
successor Trustee is appointed by the Managing Owner in
accordance with the terms of Section 2(e) hereof.
(ii) The Trustee may resign at any time upon the giving
of at least sixty (60) days' advance written notice to the
Trust; provided, that such resignation shall not become
effective unless and until a successor Trustee shall have been
appointed by the Managing Owner in accordance with Section 2(e)
hereof. If the Managing Owner does not act within such sixty
(60) day period, the Trustee may apply to the Court of Chancery
of the State of Delaware for the appointment of a successor
Trustee.
(b) Powers. Except to the extent expressly set forth in this Section 2,
the duty and authority of the Trustee to manage the business and affairs of the
Trust are hereby delegated to the Managing Owner. The Trustee shall have only
the rights, obligations or liabilities specifically provided for herein and in
the Act and shall have no implied rights, obligations or liabilities with
respect to the business or affairs of the Trust. The Trustee shall have the
power and authority to execute, deliver, acknowledge and file all necessary
documents, including any amendments to or cancellation of the Certificate of
Trust, and to maintain all necessary records of the Trust as required by the
Act. The Trustee shall provide prompt notice to the Managing Owner of its
performance of any of the foregoing. The Managing Owner shall keep the Trustee
informed of any actions taken by the Managing Owner with respect to the Trust
that affect the rights, obligations or liabilities of the Trustee hereunder or
under the Act.
(c) Compensation and Expenses of the Trustee. The Trustee shall be
entitled to receive from the Trust or, if the assets of the Trust are
insufficient, from the Managing Owner reasonable compensation for its services
hereunder in accordance with the Trustee's standard fee schedule, and shall be
entitled to be reimbursed by the Trust or, if the assets of the Trust are
insufficient, by the Managing Owner for reasonable out-of-pocket expenses
incurred by the Trustee in the performance of its duties hereunder, including
without limitation, the reasonable compensation, out-of-pocket expenses and
disbursements of counsel and such other agents as the Trustee may employ in
connection with the exercise and performance of its rights and duties hereunder,
to the extent attributable to the Trust.
(d) Indemnification. The Managing Owner agrees, whether or not any of
the transactions contemplated hereby shall be consummated, to assume liability
for, and does hereby indemnify, protect, save and keep harmless the Trustee and
its successors, assigns, legal representatives, officers, directors, agents and
servants (the "Indemnified Parties") from and against any and all liabilities,
obligations, losses, damages, penalties, taxes (excluding any taxes payable by
the Trustee on or measured by any compensation received by the Trustee for its
services hereunder or as indemnity payments pursuant to this Section 2(d)),
claims, actions, suits, costs, expenses or disbursements (including legal fees
and expenses) of any kind and nature whatsoever (collectively, "Expenses"),
which may be imposed on, incurred by or asserted against the Indemnified Parties
in any way relating to or arising out of the formation, operation or termination
of the Trust, the execution, delivery and performance of any other agreements to
which the Trust is a party or the action or inaction of the Trustee hereunder or
thereunder, except for Expenses resulting from the gross negligence or willful
misconduct of the Indemnified Parties. The indemnities contained in this Section
2(d) shall survive the termination of this Declaration of Trust or the removal
or resignation of the Trustee. In addition, the Indemnified Parties shall be
entitled to indemnification from any cash, net equity in any commodity futures,
forward and option contracts, all funds on deposit in the accounts of the Trust,
any other property held by the Trust, and all proceeds therefrom, including any
rights of the Trust pursuant to any agreements to which this Trust is a party
(the "Trust Estate") to the extent such expenses are attributable to the
formation, operation or termination of the Trust as set forth above, and to
secure the same the Trustee shall have a lien against the Trust Estate which
shall be prior to the rights of the Managing Owner and the Unitholders to
receive distributions from the Trust Estate. The Trustee nevertheless agrees
that it will, at its own cost and expense, promptly take all action as may be
necessary to discharge any liens on any part of the Trust Estate which result
from claims against the Trustee personally that are not related to the ownership
or the administration of the Trust Estate or the transactions contemplated by
any documents to which the Trust is a party.
TA-2
<PAGE>
(e) Successor Trustee. Upon the resignation or removal of the Trustee,
the Managing Owner shall appoint a successor Trustee by delivering a written
instrument to the outgoing Trustee. Any successor Trustee must satisfy the
requirements of Section 3807 of the Act. Any resignation or removal of the
Trustee and appointment of a successor Trustee shall not become effective until
a written acceptance of appointment is delivered by the successor Trustee to the
outgoing Trustee and the Managing Owner and any fees and expenses due to the
outgoing Trustee are paid. Following compliance with the preceding sentence, the
successor Trustee shall become fully vested with all of the rights, powers,
duties and obligations of the outgoing Trustee under this Declaration of Trust,
with like effect as if originally named as Trustee, and the outgoing Trustee
shall be discharged of its duties and obligations under this Declaration of
Trust.
(f) Liability of the Trustee. Except as otherwise provided in this
Section 2, in accepting the trust created hereby, Wilmington Trust Company acts
solely as Trustee hereunder and not in its individual capacity, and all persons
having any claim against the Trustee by reason of the transactions contemplated
by this Declaration of Trust and any other agreement to which the Trust is a
party shall look only to the Trust Estate for payment or satisfaction thereof.
The Trustee shall not be liable or accountable hereunder or under any other
agreement to which the Trust is a party, except for the Trustee's own gross
negligence or willful misconduct. In particular, but not by way of limitation:
(i) the Trustee shall have no liability or
responsibility for the validity or sufficiency of this
Declaration of Trust or for the form, character, genuineness,
sufficiency, value or validity of the Trust Estate;
(ii) the Trustee shall not be liable for any actions
taken or omitted to be taken by it in accordance with the
instructions of the Managing Owner or any Unitholder;
(iii) the Trustee shall not have any liability for the
acts or omissions of the Managing Owner;
(iv) the Trustee shall not be liable for its failure to
supervise the performance of any obligations of the Managing
Owner, any commodity broker, any Selling Agents or any
additional Selling Agents;
(v) no provision of this Declaration of Trust shall
require the Trustee to expend or risk funds or otherwise incur
any financial liability in the performance of any of its rights
or powers hereunder if the Trustee shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured or
provided to it;
(vi) under no circumstances shall the Trustee be liable
for indebtedness evidenced by or other obligations of the Trust
arising under this Declaration of Trust or any other agreements
to which the Trust is a party;
(vii) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Declaration of Trust, or to institute, conduct or defend any
litigation under this Declaration of Trust or any other
agreements to which the Trust is a party, at the request, order
or direction of the Managing Owner or any Unitholders unless the
Managing Owner or such Unitholders have offered to the Trustee
security or indemnity satisfactory to it against the costs,
expenses and liabilities that may be incurred by the Trustee
(including, without limitation, the reasonable fees and expenses
of its counsel) therein or thereby; and
(viii) notwithstanding anything contained herein to the
contrary, the Trustee shall not be required to take any action
in any jurisdiction other than in the State of Delaware if the
taking of such action will (a) require the consent or approval
or authorization or order of or the giving of notice to, or the
registration with or taking of any action in respect of, any
state or other governmental authority or agency of any
jurisdiction other than the State of Delaware, (b) result in any
fee, tax or other governmental charge under the laws of any
jurisdiction or any political subdivision thereof in existence
as of the date hereof other than the State of Delaware becoming
payable by the Trustee or (c) subject
TA-3
<PAGE>
the Trustee to personal jurisdiction other than in the State of
Delaware for causes of action arising from personal acts
unrelated to the consummation by the Trustee of the transactions
contemplated hereby.
(g) Reliance by the Trustee and the Managing Owner; Advice of Counsel.
(i) In the absence of bad faith, the Trustee and the
Managing Owner may conclusively rely upon certificates or
opinions furnished to the Trustee or the Managing Owner and
conforming to the requirements of this Declaration of Trust in
determining the truth of the statements and the correctness of
the opinions contained therein, and shall incur no liability to
anyone in acting on any signature, instrument, notice,
resolution, request, consent, order, certificate, report,
opinion, bond or other document or paper which is believed to be
genuine and believed to be signed by the proper party or
parties, and need not investigate any fact or matter pertaining
to or in any such document; provided, however, that the Trustee
or the Managing Owner shall have examined any certificates or
opinions so as to determine compliance of the same with the
requirements of this Declaration of Trust. The Trustee or the
Managing Owner may accept a certified copy of a resolution of
the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and
effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Trustee or
the Managing Owner may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by
the treasurer or other authorized officers of the relevant
party, as to such fact or matter, and such certificate shall
constitute full protection to the Trustee or the Managing Owner
for any action taken or omitted to be taken by either of them in
good faith in reliance thereon.
(ii) In the exercise or administration of the trust
hereunder and in the performance of its duties and obligations
under this Declaration of Trust, the Trustee, at the expense of
the Trust, (i) may act directly or through its agents,
attorneys, custodians or nominees pursuant to agreements entered
into with any of them, and the Trustee shall not be liable for
the conduct or misconduct of such agents, attorneys, custodians
or nominees if such agents, attorneys, custodians or nominees
shall have been selected by the Trustee with reasonable care and
(ii) may consult with counsel, accountants and other skilled
professionals to be selected with reasonable care by the
Trustee; provided that the Trustee shall not allocate any of its
internal expenses or overhead to the account of the Trust. The
Trustee shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the opinion or
advice of any such counsel, accountant or other such persons.
(h) Not Part of Trust Estate. Amounts paid to the Trustee from the
Trust Estate, if any, pursuant to this Section 2 shall be deemed not to be part
of the Trust Estate immediately after such payment.
3. Principal Office.
The address of the principal office of the Trust shall be c/o the
Managing Owner, Two American Lane, Greenwich, Connecticut 06831-8150; telephone:
(203) 861-1000. The Trustee is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration.
The Trustee shall receive service of process on the Trust in the State of
Delaware at the foregoing address. In the event Wilmington Trust Company resigns
or is removed as the Trustee, the Trustee of the Trust in the State of Delaware
shall be the successor Trustee.
4. Business.
The Trust's business and purpose is to trade, buy sell, swap or
otherwise acquire, hold or dispose of futures and forward contracts for
commodities, financial instruments, stock indices, metals, energy contracts and
currencies, any rights pertaining thereto and any options thereon or on physical
commodities, as well as securities and any rights pertaining thereto and any
options thereon, and to engage in all activities necessary, convenient or
incidental thereto. The Trust may also engage in "hedge," arbitrage and cash
trading of any of the foregoing instruments. The Trust may engage in such
business and purpose either directly or through joint ventures, entities or
partnerships, provided that the Trust's participation in any of the foregoing
has no adverse economic or liability consequences for the Unitholders, which
consequences would not be present had the Trust engaged in that same business or
purpose directly.
TA-4
<PAGE>
5. Term, Dissolution, Fiscal Year and Net Asset Value.
(a) Term. The term of the Trust commenced on the day on which the
Certificate of Trust was filed with the Secretary of State of the State of
Delaware pursuant to the provisions of the Act and shall end upon the first to
occur of the following: (1) December 31, 2026; (2) receipt by the Managing Owner
of an approval to dissolve the Trust at a specified time by Unitholders owning
Units representing more than fifty percent (50%) of the outstanding Units then
owned by Unitholders, notice of which is sent by certified mail return receipt
requested to the Managing Owner not less than 90 days prior to the effective
date of such dissolution; (3) death, insanity, bankruptcy, retirement,
resignation, expulsion, withdrawal, insolvency or dissolution of the Managing
Owner or any other event that causes the Managing Owner to cease to be a
managing owner unless (i) at the time of such event there is at least one
remaining managing owner of the Trust who carries on the business of the Trust
(and each remaining managing owner of the Trust is hereby authorized to carry on
the business of the Trust in such an event), or (ii) within ninety days after
such event all Unitholders agree in writing to continue the business of the
Trust and to the appointment, effective as of the date of such event, of one or
more managing owners of the Trust; (4) a decline in the aggregate Net Assets of
the Trust to less than $250,000; (5) dissolution of the Trust pursuant hereto;
or (6) any other event which shall make it unlawful for the existence of the
Trust to be continued or require termination of the Trust. In the event that the
Managing Owner (or an affiliate thereof) ceases to be the trust's managing
owner, the word "Kenmar" shall be deleted from the name of the Trust, and any
appropriate filings shall be made.
(b) Dissolution. Upon the occurrence of an event causing the
dissolution of the Trust, the Trust shall be dissolved and its affairs wound up.
(c) Fiscal Year. The fiscal year of the Trust shall begin on January 1
of each year and end on the following December 31.
(d) Net Asset Value. Net Assets of the Trust are its assets less
its liabilities determined in accordance with generally accepted accounting
principles. 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
Managing Owner may deem fair and reasonable. The liquidating value of a
commodity futures or option contract not traded on a commodity exchange shall
mean its liquidating value as determined by the Managing Owner on a basis
consistently applied for each different variety of contract. Accrued Profit
Shares and Incentive Fees (as described in the Prospectus, as defined in Section
9 hereof) shall reduce Net Asset Value, even though such Profit Shares and
Incentive Fees may never, in fact, be paid.
6. Net Worth of Managing Owner.
The Managing Owner agrees that at all times so long as it remains
managing owner of the Trust, it will maintain its Net Worth at an amount not
less than 10% of the total contributions to the Trust and all other entities of
which it is managing owner or general partner.
The requirements of the preceding paragraph may be modified if the
Managing Owner obtains an opinion of counsel for the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes and if such modification will
reflect or exceed applicable state securities and Blue Sky laws 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 Unitholders' respective capital contributions to the Trust shall be
as shown on the books and records of the Trust.
The Managing Owner, so long as it is generally liable for the
obligations of the Trust, or any substitute managing owner, shall invest in the
Trust, as a general liability interest, sufficient capital so that the Managing
Owner will have at all times a capital account equal to 1% of the total capital
accounts of the Trust (including the Managing
TA-5
<PAGE>
Owner's). The Managing Owner may withdraw any interest it may have 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 Unitholder, provided that it must maintain the
minimum interest described in the preceding sentence.
The requirements of the preceding paragraph may be modified if the
Managing Owner obtains an opinion of counsel for the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes and if such modification will
reflect or exceed applicable state securities and Blue Sky laws 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 Managing Owner may, without the consent of any Unitholders of the
Trust, admit to the Trust purchasers of Units as unitholders of the Trust.
Any Units acquired by the Managing Owner 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 has been
obtained. Such Unitholder shall be deemed a beneficial owner within the meaning
of the Act.
8. Allocation of Profits and Losses.
(a) Capital Accounts and Allocations. A capital account shall be
established for each Unit, and for the Managing Owner on a Unit-equivalent
basis. The balance of each Unit's capital account shall be the amount
contributed to the Trust with respect to such Unit, which amount shall be equal
to the Net Asset Value per Unit on the date each Unit is purchased after all
accrued fees and expenses, including Incentive Fee and Profit Share accruals
which may, in fact, never be paid. As of the close of business (as determined by
the Managing Owner) on the last day of each month, any increase or decrease in
the Trust's Net Assets as compared to the last such determination of Net Assets
shall be credited or charged equally to the capital accounts of all Units then
outstanding; provided that for purposes of maintaining such capital accounts,
amounts paid or payable to the Managing Owner for items such as brokerage
commissions and Incentive Fees shall be treated as if paid or payable to a third
party and shall not be credited to the capital account of the interest held by
the Managing Owner.
For purposes of this Section 8, unless specified to the contrary, Units
redeemed as of the end of any month shall be considered outstanding as of the
end of such month.
(b) Allocation of Profit and Loss for Federal Income Tax Purposes. As
of the end of each fiscal year, the Trust's income and expense and capital gain
or loss shall be allocated among the Unitholders pursuant to the following
provisions of this Section 8(b) for federal income tax purposes. For purposes of
this Section 8(b), capital gain and capital loss shall be allocated separately
and not netted.
(1) First, items of ordinary income and expense (other than the
Incentive Fee and Profit Shares which shall be allocated as set forth in Section
8(b)(2)) shall be allocated pro rata among the Units outstanding as of the end
of each month in which the items of ordinary income and expense accrue.
(2) Second, any Incentive Fee or Profit Shares paid to the Managing
Owner or the Advisors shall be allocated among the Units outstanding at any time
during the fiscal year based upon the ratio that each such Unit's Net Incentive
Fee or Net Profit Share (the excess, if any, of the aggregate of all Incentive
Fees or Profit Shares, as the case may be, allocated to the capital account
relating to such Unit over the aggregate of all "reversals" of Incentive Fees or
Profit Shares, as the case may be, allocated to such Unit) bears to the Net
Incentive Fee or Net Profit Share, as the case may be, of all Units; provided
that the Managing Owner may allocate Incentive Fees and Profit Shares first to
Units whose Net Asset Value was reduced by accrued Incentive Fees and Profit
Shares upon redemption, in an amount up to the amount of such reduction.
TA-6
<PAGE>
(3) Third, capital gain or loss shall be allocated as follows:
(A) There shall be established a tax account with respect to each
outstanding Unit. The balance of each tax account shall be the amount paid to
the Trust for each Unit. As of the end of each fiscal year:
(i) Each tax account shall be increased by the amount of
income allocated to each Unit pursuant to Sections 8(b)(1) and
8(b)(3)(C).
(ii) Each tax account shall be decreased by the amount
of expense or loss allocated to each Unit pursuant to Sections
8(b)(1), 8(b)(2) and 8(b)(3)(E) and by the amount of any
distributions paid out with respect to the Units other than upon
redemption.
(iii) When a Unit is redeemed, the tax account
attributable to such Unit (determined after making all
allocations described in this Section 8(b)) shall be eliminated.
(B) Each Unitholder who redeems a Unit during a fiscal year (including
Units redeemed as of the end of the last day of such fiscal year) shall be
allocated Capital Gain, if any, up to the amount of the excess, if any, of the
amount received in respect of the Units so redeemed (before taking into account
any early redemption charges) over the sum of the tax accounts (determined after
making the allocation described in Sections 8(b)(1) and 8(b)(2), but prior to
making the allocations described in this Section 8(b)(3)(B) or Section
8(b)(3)(D)) allocable to such Units (an "Excess"). In the event the aggregate
amount of Capital Gain available to be allocated pursuant to this Section
8(b)(3)(B) is less than the aggregate amount of Capital Gain required to be so
allocated, the aggregate amount of available Capital Gain shall be allocated
among all such Unitholders in the ratio which each such Unitholder's Excess
bears to the aggregate Excess of all such Unitholders.
(C) Capital Gain remaining after the allocation described in Section
8(b)(3)(B) shall be allocated among all Unitholders who hold Units outstanding
as of the end of the applicable fiscal year (other than Units redeemed as of the
end of the last day of such fiscal year) whose capital accounts with respect to
such Units are in excess of their tax accounts (determined after making the
allocations described in Sections 8(b)(1) and 8(b)(2)) allocable to such Units
in the ratio that each such Unitholder's excess bears to the aggregate excess of
all such Unitholders. Capital Gain remaining after the allocation described in
the preceding sentence shall be allocated among all Unitholders described in
said sentence in proportion to their holdings of such Units.
(D) Each Unitholder who redeems a Unit during a fiscal year (including
Units redeemed as of the end of the last day of such fiscal year) shall be
allocated Capital Loss, if any, up to the amount of the sum of the excess of the
tax accounts (determined after making the allocations described in Sections
8(b)(1) and 8(b)(2), but prior to making the allocations described in this
Section 8(b)(3)(D) or Section 8(b)(3)(B)) allocable to the Units so redeemed
over the amount received in respect of such Units (before taking into account
any early redemption charges) (a "Negative Excess"). In the event the aggregate
amount of available Capital Loss required to be allocated pursuant to this
Section 8(b)(3)(D) is less than the aggregate amount required to be so
allocated, the aggregate amount of available Capital Loss shall be allocated
among all such Unitholders in the ratio that each such Unitholder's Negative
Excess bears to the aggregate Negative Excess of all such Unitholders.
(E) Capital Loss remaining after the allocation described in Section
8(b)(3)(D) shall be allocated among all Unitholders who hold Units outstanding
as of the end of the applicable fiscal year (other than Units redeemed as of the
end of the last day of such fiscal year) whose tax accounts with respect to such
Units are in excess of their capital accounts (determined after making the
allocations described in Sections 8(b)(1) and 8(b)(2)) with respect to such
Units in the ratio that each such Unitholder's negative excess bears to the
aggregate negative excess of all such Unitholders. Capital Loss remaining after
the allocation described in the preceding sentence shall be allocated among all
Unitholders described in such sentence in proportion to their holdings of such
Units.
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(F) For purposes of this Section 8(b), "Capital Gain" or "Capital Loss"
shall mean gain or loss characterized as gain or loss from the sale or exchange
of a capital asset, by the Code, including, but not limited to, gain or loss
required to be taken into account pursuant to Section 1256 thereof.
(4) The allocation of profit and loss for federal income tax purposes
set forth herein is intended to allocate taxable profit and loss among
Unitholders generally in the ratio and to the extent that profit and loss are
allocated to such Unitholders so as to eliminate, to the extent possible, any
disparity between the Unitholder's capital account and his tax account,
consistent with principles set forth in Section 704 of the Code, including
without limitation a "Qualified Income Offset."
(5) The allocations of profit and loss to the Unitholders in respect of
the Units shall not exceed the allocations permitted under Subchapter K of the
Code, as determined by the Managing Owner, whose determination shall be binding.
(c) Incentive Fees; Profit Shares. Incentive Fees shall be payable to
the Managing Owner as of the end of each calendar year and upon redemption of
Units.
Incentive Fees shall equal 5% of New Overall Appreciation (if any)
calculated as of each fiscal year-end and upon redemption of Units. New Overall
Appreciation shall be calculated, not on a per-Unit basis, but on the basis of
the overall trading profits and losses of the Trust, net of all fees and
expenses (including Profit Shares) paid or accrued other than the Incentive Fee
itself and after subtraction of all interest income received by the Trust.
Incentive Fees shall be paid by the Trust as a whole, irrespective of
whether the Net Asset Value has declined below the purchase price of such Unit.
Accrued Incentive Fees shall reduce the redemption price of Units and shall be
paid to the Managing Owner upon redemption. The amount (if any) of the accrued
Incentive Fee that shall be paid to the Managing Owner upon the redemption of
any Unit shall be determined by dividing the total Incentive Fee as of such
redemption date by the number of Units then outstanding (including Units
redeemed as of such date); the remainder of the accrued Incentive Fee shall be
paid to the Managing Owner on December 31 of each year.
For capital account purposes, accrued Incentive Fees shall, in all
cases, be reflected equally as a reduction in the Net Asset Value per Unit of
all Units outstanding at the time the Incentive Fee accrued, and reversals of
accrued Incentive Fees shall equally increase the Net Asset Value per Unit of
all Units outstanding at the time of the accrual of such reversal, irrespective
of whether a particular Unit was outstanding when a particular Incentive Fee was
accrued.
Early redemption charges shall in no respect reduce New Overall
Appreciation.
The Profit Shares paid to the Advisors pursuant to the Advisory
Agreements among the Managing Owner, the Trust and each such Advisor shall
result in deductions being allocated to the Unitholders. Such allocation shall
apply the same principles as the allocation of Incentive Fee deductions
described above. Profit Shares with respect to any calendar quarter will be paid
to an Advisor as of the last day of such period, except that Profit Shares with
respect to Units redeemed as of the last day of any month that does not end a
calendar quarter shall be paid as of the day such Units are redeemed and Profit
Shares with respect to Units redeemed as of the end of any month that ends a
calendar quarter shall be paid to an Advisor in the same manner and at the same
time as if such Units had not been redeemed.
In the event assets are withdrawn from an Advisor's account or the
Trust as a whole (other than to pay expenses), any loss carryforward shall be
proportionally reduced for purposes of calculating subsequent Profit Shares and
Incentive Fees. Loss carryforward reductions shall not be restored as a result
of subsequent additions of capital.
The Managing Owner may adjust the allocations set forth in this Section
8(c), in the Managing Owner's discretion, if the Managing Owner believes that
doing so will achieve more equitable allocations or allocations more consistent
with the Code.
(d) Expenses. The Managing Owner shall pay, without reimbursement, the
selling and "trailing commissions" relating to the offering of the Units. The
Trust shall pay the Managing Owner brokerage commissions at
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the rate of 11% per annum of the average month-end Net Assets of the Trust,
prior to reduction for any accrued but unpaid fees or expenses. The Trust shall
bear all administrative costs, ongoing offering costs and any taxes applicable
to it and any charges incidental to trading, including agency brokerage
commissions (e.g., "bid-ask" spreads). Any unreimbursed organizational and
initial offering expenses as of the date of the Trust's dissolution shall not be
reimbursed to the Managing Owner from the proceeds resulting from such
dissolution. However, none of the Managing Owner's "overhead" expenses incurred
in connection with the administration of the Trust (including, but not limited
to, salaries, rent and travel expenses) shall be charged to the Trust. Any goods
and services provided to the Trust by the Managing Owner shall be provided at
rates and terms at least as favorable as those which may be obtained from third
parties in arm's-length negotiations. All of the expenses which are for the
Trust's account shall be billed directly to the Trust. Appropriate reserves may
be created, accrued and charged against Net Assets for contingent liabilities,
if any, as of the date any such contingent liability becomes known to the
Managing Owner. Such reserves shall reduce Net Asset Value for all purposes.
(e) Limited Liability of Unitholders. Each Unit, when purchased in
accordance with this Declaration of Trust and Trust Agreement, shall, except as
otherwise provided by law, be fully paid and nonassessable. Any provisions of
this Declaration of Trust and Trust Agreement to the contrary notwithstanding,
except as otherwise provided by law, no Unitholder shall be liable for Trust
obligations in excess of the capital contributed by such Unitholder, plus his
share of undistributed profits and assets.
(f) Return of Capital Contributions. No Unitholder 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 Trust, in each case as provided herein. In no event shall a Unitholder or
subsequent assignee be entitled to demand or receive property other than cash.
9. Management of the Trust.
The Managing Owner, to the exclusion of all Unitholders, shall control,
conduct and manage the business of the Trust. The Managing Owner shall have sole
discretion in determining what distributions of profits and income, if any,
shall be made to the Unitholders (subject to the allocation provisions hereof),
shall execute various documents on behalf of the Trust and the Unitholders
pursuant to powers of attorney and supervise the liquidation of the Trust if an
event causing dissolution of the Trust occurs.
The Managing Owner may in furtherance of the business of the Trust
cause the Trust to retain Advisors to buy, sell, hold, or otherwise acquire or
dispose of commodities, futures contracts and options traded on exchanges or
otherwise, arbitrage positions, repurchase agreements, interest-bearing
securities, deposit accounts and similar instruments, provided that the Trust
shall not invest in any debt instruments other than Treasury securities,
short-term sovereign debt instruments and other investments authorized by the
Commodity Futures Trading Commission (the "CFTC") for the investment of
"customer funds," and shall not invest in any equity security without prior
notice to Unitholders, all as described in the prospectus relating to the
offering of the Units in effect as of the time that such Unitholder last
purchased Units while in receipt of a current prospectus (the "Prospectus"). The
Managing Owner may engage, and compensate on behalf of the Trust from funds of
the Trust, or agree to share profits and losses with, such persons, firms or
corporations, including (except as described in this Declaration of Trust and
Trust Agreement) the Managing Owner and any affiliated person or entity, as the
Managing Owner in its sole judgment shall deem advisable for the conduct and
operation of the business of the Trust, provided, that no such arrangement shall
allow brokerage commissions paid by the Trust in excess of the amount described
in the Prospectus or as permitted under applicable North American Securities
Administrators Association, Inc. Guidelines for the Registration of Commodity
Pool Programs ("NASAA Guidelines") in effect as of the date of the Prospectus
(i.e., 80% of the published retail rate plus pit brokerage fees, or 14% annually
- -- including pit brokerage and service fees -- of the Trust's average Net
Assets, excluding the assets not directly related to trading activity),
whichever is higher. The Managing Owner shall reimburse the Trust, on an annual
basis, to the extent that the Trust's brokerage commissions paid to the Managing
Owner and the Annual Incentive Fee, as described in the Prospectus, have
exceeded 14% of the Trust's average Net Assets during the preceding year. The
Managing Owner is hereby specifically authorized to enter into, on behalf of the
Trust, the Advisory Agreements and the Selling Agreement as described in the
Prospectus. The Managing Owner shall not enter into an Advisory Agreement with
any trading advisor that does not satisfy the relevant experience (i.e.,
ordinarily a minimum of three years) requirements under the NASAA Guidelines.
The Trust's brokerage commissions may not be increased
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(i) during any period when redemption charges are in effect or (ii) without
prior written notice to Unitholders within sufficient time for the exercise of
their redemption rights prior to such increase becoming effective. Such
notification shall contain a description of Unitholder'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 Trust may enter into any other contracts or agreements specifically
described in or contemplated by the Prospectus without any further act, approval
or vote of the Unitholders, notwithstanding any other provisions of this
Declaration of Trust and Trust Agreement, the Act or any applicable law, rule or
regulations.
The Managing Owner shall be under a fiduciary duty to conduct the
affairs of the Trust in the best interests of the Trust. The Unitholders will
under no circumstances be deemed to have contracted away the fiduciary
obligations owed them by the Managing Owner under the common law. The Managing
Owner's fiduciary duty includes, among other things, the safekeeping of all
Trust funds and assets and the use thereof for the benefit of the Trust. The
Managing Owner 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
Trust and in resolving conflicts of interest. The Trust's brokerage arrangements
shall be non-exclusive, and the brokerage commissions paid by the Trust shall be
competitive. The Trust shall seek the best price and services available for its
commodity transactions.
The Managing Owner is hereby authorized to perform all other duties
imposed by Sections 6221 through 6232 of the Code on the Managing Owner as the
"tax matters partner" of the Trust.
The Trust shall make no loans to any party, and the funds of the Trust
will not be commingled with the funds of any other person or entity (deposit of
funds with a commodity broker, clearinghouse or forward dealer or entering into
joint ventures or partnerships shall not be deemed to constitute "commingling"
for these purposes). The Managing Owner shall make no loans to the Trust unless
approved by the Unitholders in accordance with Section 17(a) of this Declaration
of Trust and Trust Agreement. If the Managing Owner makes a loan to the Trust,
the Managing Owner shall not receive interest in excess of its interest costs,
nor may the Managing Owner receive interest in excess of the amounts which would
be charged the Trust (without reference to the Managing Owner's financial
resources or guarantees) by unrelated banks on comparable loans for the same
purpose. The Managing Owner shall not receive "points" or other financing
charges or fees regardless of the amount. Except in respect of the Incentive
Fee, no person or entity may receive, directly or indirectly, any advisory,
management or incentive fees, or any profit-sharing allocation from joint
ventures, partnerships or similar arrangements in which the Trust participates,
for investment advice or management who shares or participates in any commodity
brokerage commissions; no broker may pay, directly or indirectly, rebates or
give-ups to any trading advisor or manager or to the Managing Owner or any of
their respective affiliates; and such prohibitions may not be circumvented by
any reciprocal business arrangements. No trading advisor for the Trust shall be
affiliated with the Trust's commodity broker, the Managing Owner or their
affiliates. The maximum period covered by any contract entered into by the
Trust, except for the various provisions of the Selling Agreement which survive
each closing of the sales of the Units, shall not exceed one year. Any material
change in the Trust's basic investment policies or structure shall require the
approval of Unitholders owning Units representing more than fifty percent (50%)
of all Units then owned by the Unitholders. Any agreements between the Trust and
the Managing Owner or any affiliate of the Managing Owner shall be terminable by
the Trust upon no more than 60 days' written notice. All sales of Units in the
United States will be conducted by registered brokers.
The Trust is prohibited from employing the trading technique commonly
known as "pyramiding." A trading manager or advisor of the Trust taking into
account the Trust's open trade equity on existing positions in determining
generally whether to acquire additional commodity positions on behalf of the
Trust will not be considered to be engaging in "pyramiding."
The Managing Owner may take such other actions on behalf of the Trust
as the Managing Owner deems necessary or desirable to manage the business of the
Trust.
The Managing Owner shall reimburse the Trust for any advisory fees paid
by the Trust to any trading advisor over the course of any fiscal year, to the
extent that the fees paid during such year exceed the 6% annual management fees
and the 15% quarterly incentive fees (calculating New Trading Profit, as defined
in the Prospectus,
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after all expenses and without including interest income) contemplated by the
NASAA Guidelines. Any such reimbursement shall be made on a present value basis,
fully compensating the Trust for having made payments at any time during the
year which would not otherwise have been due from it. The Managing Owner shall
disclose any such reimbursement in the Annual Report delivered to Unitholders.
The Managing Owner 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 Trust. Unitholders may similarly engage in any such other business
activities. The Managing Owner shall devote to the Trust such time as the
Managing Owner may deem advisable to conduct the Trust's business and affairs.
10. Audits and Reports to Unitholders.
The Trust books shall be audited annually by an independent certified
public accountant. The Trust will use its best efforts to cause each Unitholder
to receive (i) within 90, but in no event later than 120 days, after the close
of each fiscal year certified financial statements of the Trust for the fiscal
year then ended, (ii) within 90 days of the end of each fiscal year (but in no
event later than March 30 of each year) such tax information as is necessary for
a Unitholder to complete his federal income tax return and (iii) such other
annual and monthly information as the CFTC may by regulation require. The
Managing Owner shall include in the Annual Reports sent to Unitholders an
approximate estimate (calculated as accurately as may be reasonably practicable)
of the round-turn equivalent brokerage commission rate paid by the Trust during
the preceding year. Unitholders or their duly authorized representatives may
inspect the Trust books and records during normal business hours upon reasonable
written notice to the Managing Owner and obtain copies of such records upon
payment of reasonable reproduction costs; provided, however, upon request by the
Managing Owner, the Unitholder shall represent that the inspection and/or copies
of such records will not be for commercial purposes unrelated to such
Unitholder's interest as an investor in the Trust.
The Managing Owner shall calculate the approximate Net Asset Value per
Unit on a daily basis and furnish such information upon request to any
Unitholder.
The Managing Owner shall maintain and preserve all Trust records for a
period of not less than six (6) years.
The Managing Owner will, with the assistance of the Trust's commodity
broker, make an annual review of the commodity brokerage arrangements applicable
to the Trust. In connection with such review, the Managing Owner will ascertain,
to the extent practicable, the commodity brokerage rates charged to other major
commodity pools whose trading and operations are, in the opinion of the Managing
Owner, comparable to those of the Trust in order to assess whether the rates
charged the Trust are competitive in light of the services it receives. If, as a
result of such review, the Managing Owner determines that such rates are not
competitive in light of the services provided to the Trust, the Managing Owner
will notify the Unitholders, setting forth the rates charged to the Trust and
several funds which are, in the Managing Owner's opinion, comparable to the
Trust.
11. Assignability of Units.
Each Unitholder 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 the Trust in
violation of any applicable federal or state securities laws or without giving
written notice to the Managing Owner. No assignment, transfer or disposition by
an assignee of Units or of any part of his right, title and interest in the
capital or profits of the Trust shall be effective against the Trust or the
Managing Owner until the Managing Owner receives the written notice of the
assignment; the Managing Owner shall not be required to give any assignee any
rights hereunder prior to receipt of such notice. The Managing Owner may, in its
sole discretion, waive any such notice. No such assignee, except with the
consent of the Managing Owner, may become a substituted Unitholder, nor will the
estate or any beneficiary of a deceased Unitholder or assignee have any right to
redeem Units from the Trust except by redemption as provided in Section 12
hereof. The Managing Owner's consent is required for the admission of a
substituted Unitholder, and the Managing Owner intends to so consent, provided
the Managing Owner and the Trust receive an opinion of counsel to the Managing
Owner that such admission will not adversely affect the classification of the
Trust as a partnership for federal
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income tax purposes. Each Unitholder agrees that with the consent of the
Managing Owner any assignee may become a substituted Unitholder without need of
the further act or approval of any Unitholder. If the Managing Owner withholds
consent, an assignee shall not become a substituted Unitholder, and shall not
have any of the rights of a Unitholder, 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 shall be effective against the
Trust or the Managing Owner until the first day of the month succeeding the
month in which the Managing Owner receives notice of such assignment, transfer
or disposition.
12. Redemptions.
A Unitholder, the Managing Owner or any assignee of Units of whom the
Managing Owner has received written notice as described above may redeem all or
any of his Units (such redemption being herein referred to as a "redemption")
effective as of the close of business (as determined by the Managing Owner) on
the last day of any month, beginning with the end of the sixth month after such
Units are sold; provided that: (i) all liabilities, contingent or otherwise, of
the Trust (including the Trust's allocable share of the liabilities, contingent
or otherwise, of any entities in which the Trust invests), except any liability
to Unitholders on account of their capital contributions, have been paid or
there remains property of the Trust sufficient to pay them; and (ii) the
Managing Owner shall have timely received a request for redemption, as provided
in the second following paragraph.
Units redeemed on or before the end of the twelfth full calendar month
and after the end of the twelfth full month but on or before the end of the
eighteenth full calendar month after the date as of which such Units begin to
participate in the profits and losses of the Trust are subject to early
redemption charges of 3% and 2%, respectively, of the Net Asset Value at which
they are redeemed. Such charges will be paid to the Managing Owner. In the event
that a Unitholder acquires Units at more than one month-end, such Units will be
treated on a "first-in, first-out" basis for purposes of determining whether
such Units are redeemable and whether early redemption charges apply.
Requests for redemption must be received by the Managing Owner at least
ten calendar days, or such lesser period as shall be acceptable to the Managing
Owner, in advance of the requested effective date of redemption. The Managing
Owner may declare additional redemption dates upon notice to the Unitholders as
well as to those assignees of whom the Managing Owner has received notice as
described above.
If at the close of business (as determined by the Managing Owner) on
any day, the Net Asset Value per Unit has decreased to $50 or less, after adding
back all distributions, the Trust shall liquidate all open positions as
expeditiously as possible and suspend trading. Within ten business days after
the date of suspension of trading, the Managing Owner (and any other managing
owners of the Trust) shall declare a Special Redemption Date. Such Special
Redemption Date shall be a business day within 30 business days from the date of
suspension of trading by the Trust, and the Managing Owner shall mail notice of
such date to each Unitholder and assignee of Units of whom it has received
written notice as described above, 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 Unitholder or assignee must follow to
have his interest (only entire, not partial, interests may be so redeemed unless
otherwise determined by the Managing Owner) in the Trust redeemed on such date.
Upon redemption pursuant to a Special Redemption Date, a Unitholder or any other
assignee of whom the Managing Owner has received written notice as described
above, shall receive from the Trust an amount equal to the Net Asset Value of
his interest in the Trust, determined as of the close of business (as determined
by the Managing Owner) 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
Managing Owner 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 Trust are at least $250,000 and the Net Asset Value of a Unit is
in excess of $25, the Trust may, in the discretion of the Managing Owner, resume
trading. The Managing Owner may at any time and in its discretion declare a
Special Redemption Date, should the Managing Owner determine that it is in the
best interests of the Trust to do so. If the Managing Owner declares a Special
Redemption Date, the Managing Owner need not again call a Special Redemption
Date (whether or not a Special Redemption Date would be required to be called as
described above); and the Managing Owner 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 Managing
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Owner, irrespective of the provisions of this paragraph. The Managing Owner may
also, in its discretion, declare additional regular redemption dates for Units
and permit certain Unitholders to redeem at other than month-end.
Redemption payments will be made within ten business days after the
month-end of redemption, except that under special circumstances, including, but
not limited to, inability to liquidate commodity positions as of a redemption
date or default or delay in payments due the Trust from commodity brokers, banks
or other persons or entities, the Trust may in turn delay payment to Unitholders
or assignees requesting redemption of their Units of the proportionate part of
the Net Asset Value of such Units equal to that proportionate part of the
Trust's aggregate Net Asset Value represented by the sums which are the subject
of such default or delay.
Only whole Units may be redeemed, except upon complete redemption of an
investor's Units, unless the Managing Owner specifically otherwise consents.
Redemptions may be requested for a minimum of the lesser of $1,000 or ten (10)
Units provided that, for investors redeeming less than all their Units, such
investors remaining units equal at least $500.
The Managing Owner may require a Unitholder to redeem all or a portion
of such Unitholder's Units if the Managing Owner considers doing so to be
desirable for the protection of the Trust, and will use best efforts to do so to
the extent necessary to prevent the Trust 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.
13. Offering of Units.
The Managing Owner on behalf of the Trust shall (i) cause to be filed a
Registration Statement or Registration Statements, and such amendments thereto
as the Managing Owner 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 Managing Owner shall deem advisable and (iii) take such action with respect
to the matters described in (i) and (ii) as the Managing Owner shall deem
advisable or necessary.
The Managing Owner shall use its best efforts not to accept any
subscriptions for Units if doing so would cause the Trust to hold "plan assets"
under 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. If such a subscriber has its subscription reduced for such reason, such
subscriber shall be entitled to rescind its subscription in its entirety even
though subscriptions are otherwise irrevocable.
14. Additional Offerings.
The Managing Owner may, in its discretion, make additional public or
private offerings of Units, provided that the net proceeds to the Trust of any
such sales shall in no event be less than the Net Asset Value per Unit (as
defined in Section 4(d) hereof) at the time of sale (unless the new Unit's
participation in the profits and losses of the Trust is appropriately adjusted).
No Unitholder 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.
The Trust may offer different series or classes of Units having
different economic terms than previously offered series or classes of Units;
provided that the issuance of such a new series or class of Units shall in no
respect adversely affect the holders of outstanding Units; and provided further
that the assets attributable to each such series or class shall, to the maximum
extent permitted by law, be treated as legally separate and distinct pools of
assets, and the assets attributable to one such series or class be prevented
from being used in any respect to satisfy or discharge any debt or obligation of
any other such series or class.
15. Special Power of Attorney.
Each Unitholder by his execution of this Declaration of Trust and Trust
Agreement does hereby irrevocably constitute and appoint the Managing Owner and
each officer of the Managing Owner, with power of
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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 Managing Owner be required by law): (i)
this Declaration of Trust and Trust 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
Trust; (iii) all conveyances and other instruments which the Managing Owner
deems appropriate to qualify or continue the Trust in the State of Delaware and
the jurisdictions in which the Trust may conduct business, or which may be
required to be filed by the Trust or the Unitholders under the laws of any
jurisdiction or under any amendments or successor statutes to the Act, to
reflect the dissolution or termination of the Trust or the Trust being governed
by any amendments or successor statutes to the Act or to reorganize or refile
the Trust in a different jurisdiction; and (iv) to file, prosecute, defend,
settle or compromise litigation, claims or arbitrations on behalf of the Trust.
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 Unitholders in the Managing Owner being able to rely on the Managing
Owner's authority to act as contemplated by this Section 14) and shall survive
and shall not be affected by the subsequent incapacity, disability or death of a
Unitholder.
16. Withdrawal of a Unitholder.
The Trust shall be dissolved upon the death, insanity, bankruptcy,
retirement, resignation, expulsion, withdrawal, dissolution, admitted or
court-decreed insolvency or the removal of the Managing Owner, or any other
event that causes the Managing Owner to cease to be a managing owner under the
Act, unless the Trust is continued pursuant to the terms of Section 5(a)(3). In
addition, the Managing Owner may withdraw from the Trust, without any breach of
this Declaration of Trust and Trust Agreement, at any time upon 120 days'
written notice by first class mail, postage prepaid, to each Unitholder and
assignee of whom the Managing Owner has notice. If the Managing Owner withdraws
as managing owner and the Trust's business is continued, the withdrawing
Managing Owner shall pay all expenses incurred as a result of its withdrawal.
The Managing Owner may not assign its general liability interest or its
obligation to direct the trading of the Trust assets without the consent of each
Unitholder. The Managing Owner will notify all Unitholders of any change in the
principals of the Managing Owner. No provision of this Declaration of Trust and
Trust Agreement shall be deemed, nor does any such provision purport, to waive
compliance with the Investment Advisers Act of 1940, as amended.
The death, incompetency, withdrawal, insolvency or dissolution of a
Unitholder or any other event that causes a Unitholder to cease to be a
Unitholder (within the meaning of the Act) in the Trust shall not terminate or
dissolve the Trust, and a Unitholder, his estate, custodian or personal
representative shall have no right to redeem or value such Unitholder's interest
in the Trust except as provided in Section 12 hereof. Each Unitholder expressly
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 Trust and any right to an audit or examination of
the books of the Trust. Nothing in this Section 16 shall, however, waive any
right given elsewhere in this Declaration of Trust and Trust Agreement for a
Unitholder to be informed of the Net Asset Value of his Units, to receive
periodic reports, audited financial statements and other information from the
Managing Owner or the Trust or to redeem or transfer Units.
17. Standard of Liability; Indemnification.
(a) Standard of Liability for the Managing Owner. The Managing Owner
and its Affiliates, as defined below, shall have no liability to the Trust or to
any Unitholder for any loss suffered by the Trust which arises out of any action
or inaction of the Managing Owner or its Affiliates if the Managing Owner, in
good faith, determined that such course of conduct was in the best interests of
the Trust and such course of conduct did not constitute negligence or misconduct
of the Managing Owner or its Affiliates.
(b) Indemnification of the Managing Owner by the Trust. To the fullest
extent permitted by law, subject to this Section 17, the Managing Owner and its
Affiliates shall be indemnified by the Trust against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims sustained by
them in connection with the
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Trust; provided that such claims were not the result of negligence or misconduct
on the part of the Managing Owner or its Affiliates, and the Managing Owner, in
good faith, determined that such conduct was in the best interests of the Trust;
and provided further that Affiliates of the Managing Owner shall be entitled to
indemnification only for losses incurred by such Affiliates in performing the
duties of the Managing Owner and acting wholly within the scope of the authority
of the Managing Owner.
Notwithstanding anything to the contrary contained in the preceding two
paragraphs, the Managing Owner 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, the California Department of
Corporations, the Massachusetts Securities Division, the Pennsylvania Securities
Commission, the Tennessee Securities Division, the Texas Securities Board and
any other state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations.
The Trust 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 Trust
who: (1) directly or indirectly controls, is controlled by, or is under common
control with the Managing Owner; or (2) owns or controls 10% or more of the
outstanding voting securities of the Managing Owner; or (3) is an officer or
director of the Managing Owner; or (4) if the Managing Owner is an officer,
director, partner or trustee, is any entity for which the Managing Owner acts in
any such capacity.
Advances from Trust funds to the Managing Owner and its Affiliates for
legal expenses and other costs incurred as a result of any legal action
initiated against the Managing Owner by a Unitholder are prohibited.
Advances from Trust funds to the Managing Owner 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 Managing Owner or its
Affiliates on behalf of the Trust; (2) the legal action is initiated by a third
party who is not a Unitholder; and (3) the Managing Owner or its Affiliates
undertake to repay the advanced funds, with interest from the date of such
advance, to the Trust 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 Managing Owner or any Affiliate than that contemplated by
the NASAA Guidelines as in effect on the date of this Declaration of Trust and
Trust Agreement.
In no event shall any indemnification permitted by this subsection (b)
of Section 17 be made by the Trust 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 Trust 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 Trust hereunder shall be made only as provided in the specific case.
In no event shall any indemnification obligations of the Trust under
this subsection (b) of this Section 17 subject a Unitholder to any liability in
excess of that contemplated by subsection (e) of Section 8 hereof.
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(c) Indemnification of the Trust by the Unitholders. In the event the
Trust 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 Unitholder's
activities, obligations or liabilities unrelated to the Trust's business, such
Unitholder shall indemnify and reimburse the Trust for all loss and expense
incurred, including reasonable attorneys' fees.
18. Amendments; Meetings.
(a) Amendments with Consent of the Managing Owner. If at any time
during the term of the Trust the Managing Owner shall deem it necessary or
desirable to amend this Declaration of Trust and Trust Agreement, the Managing
Owner may proceed to do so, provided that such amendment shall be effective only
if embodied in an instrument approved by the Managing Owner and, subject to the
immediately following sentence, by the holders of Units representing a majority
of the outstanding Units. No meeting procedure or specified notice period is
required in the case of amendments made with the consent of the Managing Owner,
mere receipt of an adequate number of unrevoked written consents being
sufficient. The Managing Owner may amend this Declaration of Trust and Trust
Agreement without the consent of the Unitholders in order (i) to clarify any
clerical inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Declaration of Trust and Trust 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 Trust is not treated as an association taxable as a corporation for
federal income tax purposes, (iv) to qualify or maintain the qualification of
the Trust as a trust in any jurisdiction, (v) to delete or add any provision of
or to this Declaration of Trust and Trust 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 Declaration of Trust and Trust Agreement which the
Managing Owner deems advisable, including amendments that reflect the offering
and issuance of additional Units, whether or not issued through a series or
class, provided that such amendment is not adverse to the Unitholders, or that
is required by law, and (vii) to make any amendment that is appropriate or
necessary, in the opinion of the Managing Owner, to prevent the Trust or the
Managing Owner 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 Trust from holding "plan assets" under 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.
(b) Amendments and Actions without Consent of the Managing Owner. In
any vote called by the Managing Owner 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 Unitholders, the following
actions may be taken, irrespective of whether the Managing Owner concurs: (i)
this Declaration of Trust and Trust Agreement may be amended, provided, however,
that approval of all Unitholders shall be required in the case of amendments
changing or altering this Section 18, extending the term of the Trust, or
materially changing the Trust's basic investment policies or structure; in
addition, reduction of the capital account of any Unitholder or assignee or
modification of the percentage of profits, losses or distributions to which a
Unitholder or an assignee is entitled hereunder shall not be effected by any
amendment or supplement to this Declaration of Trust and Trust Agreement without
such Unitholder's or assignee's written consent; (ii) the Trust may be
dissolved; (iii) the Managing Owner may be removed and replaced; (iv) a new
managing owner or managing owners may be elected if the Managing Owner withdraws
from the Trust; (v) the sale of all or substantially all of the assets of the
Trust may be approved; and (vi) any contract with the Managing Owner or any
affiliate thereof may be disapproved of and, as a result, terminated upon 60
days' notice.
(c) Meetings; Other Voting Matters. Any Unitholder upon request
addressed to the Managing Owner shall be entitled to obtain from the Managing
Owner, upon payment in advance of reasonable reproduction and mailing costs, a
list of the names and addresses of record of all Unitholders and the number of
Units held by each (which shall be mailed by the Managing Owner to the
Unitholder within ten days of the receipt of the request); provided, that the
Managing Owner may require any Unitholder requesting such information to submit
written confirmation that such information will not be used for commercial
purposes. Upon receipt of a written proposal, signed by Unitholders owning Units
representing at least 10% of the Units then owned by Unitholders, that a meeting
of the Trust be called to vote upon any matter upon which the Unitholders may
vote pursuant to this Declaration of Trust and Trust Agreement, the Managing
Owner shall, by written notice to each Unitholder of record sent by certified
mail within 15 days after such receipt, call
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a meeting of the Trust. 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 Managing Owner may not restrict the voting rights of Unitholders as
set forth herein.
In the event that the Managing Owner or the Unitholders vote to amend
this Declaration of Trust and Trust Agreement in any material respect, the
amendment will not become effective prior to all Unitholders having an
opportunity to redeem their Units.
19. Governing Law.
The validity and construction of this Declaration of Trust and Trust
Agreement shall be determined and governed by the laws of the State of Delaware
without regard to principles of conflicts of law; provided, that the foregoing
choice of law shall not restrict the application of any state's securities laws
to the sale of Units to its residents or within such state.
20. Miscellaneous.
(a) Notices. All notices under this Declaration of Trust and Trust
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 Declaration of Trust and Trust Agreement shall
inure to and be binding upon all of the parties, all parties indemnified under
Section 18 hereof, and their respective successors and assigns, custodians,
estates, heirs and personal representatives. For purposes of determining the
rights of any Unitholder or assignee hereunder, the Trust and the Managing Owner
may rely upon the Trust records as to who are Unitholders and assignees, and all
Unitholders 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 the
scope of this Declaration of Trust and Trust Agreement nor the effect of any of
its provisions. Any reference to "persons" in this Declaration of Trust and
Trust Agreement shall also be deemed to include entities, unless the context
otherwise requires.
21. Certain Definitions.
This Declaration of Trust and Trust Agreement contains certain
provisions required by the NASAA Guidelines. The terms used in such provisions
are defined as follows (the following definitions are included verbatim from the
NASAA Guidelines and, accordingly, may not in all cases be relevant to this
Declaration of Trust and Trust Agreement):
Administrator. The official or agency administering the securities laws
of a state.
Advisor. Any Person who for any consideration engages in the business
of advising others, either directly or indirectly, as to the value,
purchase, or sale of Commodity Contracts or commodity options.
Affiliate. An Affiliate of a Person means: (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities of such Person; (b) any
Person 10% or more of whose outstanding voting securities are directly
or indirectly owned, controlled or held with power to vote, by such
Person; (c) any Person, directly or indirectly, controlling, controlled
by, or under common control with such Person; (d) any officer, director
or partner of such Person; or (e) if such Person is an officer,
director or partner, any Person for which such Person acts in any such
capacity.
Capital Contributions. The total investment in a Program by a
Participant or by all Participants, as the case may be.
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Commodity Broker. Any Person who engages in the business of effecting
transactions in Commodity Contracts for the account of others or for
his own account.
Commodity Contract. A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of
a traded commodity at a specified price and delivery point.
Cross Reference Sheet. A compilation of the Guidelines sections,
referenced to the page of the prospectus, Program agreement, or other
exhibits, and justification of any deviation from the Guidelines.
Net Assets. The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles.
Net Assets shall include any unrealized profits or losses on open posi
tions, and any fee or expense including Net Asset fees accruing to the
Program.
Net Asset Value Per Program Interest. The Net Assets divided by the
number of Program Interests outstanding.
Net Worth. The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall
be determined exclusive of home, home furnishings and automobiles.
New Trading Profits. The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period or
Net Assets at the date trading commences, whichever is higher, and as
further adjusted to eliminate the effect on Net Assets resulting from
new Capital Contributions, redemptions, or capital distributions, if
any, made during the period decreased by interest or other income, not
directly related to trading activity, earned on Program assets during
the period, whether the assets are held separately or in the margin
account.
Organizational and Offering Expenses. All expenses incurred by the
Program in connection with and in preparing a Program for registration
and subsequently offering and distributing it to the public, including,
but not limited to, total underwriting and brokerage discounts and
commissions (including fees of the underwriters' attorneys), expenses
for printing, engraving, mailing, salaries of employees while engaged
in sales activity, charges of transfer agents, registrars, trustees,
escrow holders, depositories, experts, expenses of qualification of the
sale of its Program Interests under federal and state law including
taxes and fees, accountants' and attorneys' fees.
Participant. The holder of a Program Interest.
Person. Any natural Person, partnership, corporation, association or
other legal entity.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Program. A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in
Commodity Contracts.
Program Broker. A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
Program Interest. A limited partnership interest or other security
representing ownership in a Program.
Pyramiding. A method of using all or a part of an unrealized profit in
a Commodity Contract position to provide margin for any additional
Commodity Contracts of the same or related commodities.
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Sponsor. Any Person directly or indirectly instrumental in organizing a
Program or any Person who will manage or participate in the management
of a Program, including a Commodity Broker who pays any portion of the
Organizational Expenses of the Program, and the general partner(s) and
any other Person who regularly performs or selects the Persons who
perform services for the Program. Sponsor does not include wholly
independent third parties such as attorneys, accountants, and
underwriters whose only compensation is for professional services
rendered in connection with the offering of the units. The term
"Sponsor" shall be deemed to include its Affiliates.
Valuation Date. The date as of which the Net Assets of the Program are
determined.
Valuation Period. A regular period of time between Valuation Dates.
22. No Legal Title to Trust Estate.
The Unitholders shall not have legal title to any part of the Trust
Estate.
23. Legal Title.
Legal title to all the Trust Estate shall be vested in the Trust as a
separate legal entity; except where applicable law in any jurisdiction requires
any part of the Trust Estate to be vested otherwise, the Managing Owner (or the
Trustee, if required by law) may cause legal title to the Trust Estate of any
portion thereof to be held by or in the name of the Managing Owner or any other
person as nominee.
24. Creditors.
No creditors of any Unitholders shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect
to, the Trust Estate.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Declaration
of Trust and Trust Agreement as of the day and year first above written.
WILMINGTON TRUST COMPANY
as Trustee
By: ________________________________
Name:
Title:
KENMAR ADVISORY CORP.
as Managing Owner
By: __________________________________________
Name:
Title:
KENMAR VENTURE PARTNERS LIMITED PARTNERSHIP
as Initial Unitholder
By: KENMAR ADVISORY CORP., GENERAL PARTNER
By: __________________________________________
Name:
Title:
All Unitholders now and hereafter
admitted as Unitholders of the
Trust, pursuant to powers of
attorney now and hereafter executed
in favor of, and granted and
delivered to, the Managing Owner.
By: __________________________________________
Attorney-in-Fact
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Schedule A
FORM
OF
CERTIFICATE OF TRUST
OF
KENMAR GLOBAL TRUST
-------------------
THIS Certificate of Trust of KENMAR GLOBAL TRUST (the "Trust"), dated
July 17, 1996, is being duly executed and filed by Wilmington Trust Company, a
Delaware banking corporation, as trustee, to form a business trust under the
Delaware Business Trust Act (12 Del.C. 3801 et seq.)
1. Name. The name of the business trust formed hereby is Kenmar Global
Trust.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, 1100 North
Market Street, Rodney Square North, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon
the date and time of filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ W. Chris Sponenberg
------------------------------------
Name: W. Chris Sponenberg
Title: Financial Services Officer
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ANNEX
KENMAR GLOBAL TRUST
REQUEST FOR REDEMPTION
KENMAR GLOBAL TRUST ___________________
c/o Kenmar Advisory Corp. Date
Managing Owner
Two American Lane
P.O. Box 5150
Greenwich, CT 06831-8150
Dear Sirs:
The undersigned (trust account number ________ hereby requests
redemption subject to all terms and conditions of the Declaration of Trust and
Trust Agreement (the "Declaration of Trust") of KENMAR GLOBAL TRUST (the
"Trust"), of _____ Units of Beneficial Interest ("Units") in the Trust. (Insert
the number of whole Units to be redeemed; subscribers may redeem any number of
whole Units, they need not redeem all or any minimum number of their Units in
order to redeem certain of their Units; however, if no number is indicated, all
Units held of record by the undersigned will be redeemed; fractional Units may
only be redeemed upon complete redemption of undersigned's interest in the
Trust.) Units are redeemed at the Net Asset Value per Unit, as defined in the
Declaration of Trust, less any applicable redemption charge (see below).
Redemption shall be effective as of the end of the current calendar month;
provided that this Request for Redemption is received at least ten (10) business
days prior to the end of such month. Payment of the redemption price of Units
will generally be made within ten (10) business days of the date of redemption.
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.
Redemption charges of 3% and 2% of the Net Asset Value of Units
redeemed on or before the end of the 6th month through the end of the 12th month
after sale and from the end of the 12th full calendar month through the end of
the 18th month after sale will be deducted from the redemption price of all such
Units paid to the Managing Owner.
----------
United States Taxable Unitholders Only
Under penalty of perjury, the undersigned hereby certifies that the
Social Security Number or Taxpayer ID Number indicated on this Request for
Redemption is the undersigned's true, correct and complete Social Security
Number or Taxpayer ID Number and that the undersigned is not subject to backup
withholding under the provisions of Section 3406(a)(1)(C) of the Internal
Revenue Code.
Non-United States Unitholders Only
Under penalty of perjury, the undersigned hereby certifies that (a) the
undersigned is not a citizen or resident of the United States or (b) (in the
case of an investor which is not an individual) the investor is not a United
States corporation, partnership, estate or trust.
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
|_| Credit my brokerage account |_| Send to the address below
- --------------------------------------------------------------------------------
Name Street City, State and Zip Code
Entity Unitholder Individual Unitholder(s)
(or assignee) (or assignee(s))
- ----------------------------------------- ------------------------------------
(Name of Entity)
------------------------------------
By:______________________________________ ____________________________________
(Authorized corporate officer, (Signature(s) of all Unitholder(s)
partner or trustee) or assignee(s))
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<PAGE>
EXHIBIT B
KENMAR GLOBAL TRUST
----------
SUBSCRIPTION REQUIREMENTS
By executing a Subscription Agreement and Power of Attorney Signature
Page for Units of Beneficial Interest ("Units") of Kenmar Global Trust (the
"Trust"), each purchaser ("Purchaser") of Units irrevocably subscribes for Units
at Net Asset Value, as described in the Trust's Prospectus dated _____________,
1996 (the "Prospectus"). Except as set forth below in the case of Maine and
Michigan residents, investors who are currently Unitholders in the Trust need
not execute an additional Subscription Agreement and Power of Attorney Signature
Page in order to purchase additional Units. However, such persons must receive a
current Prospectus for the Trust and carefully review this Exhibit B --
Subscription Requirements as well as the Subscription Agreement and Power of
Attorney. Such persons' Selling Agent representatives are required to reconfirm
that such persons continue to meet the suitability requirements set forth both
herein and therein in order for such persons to be able to purchase additional
Units.
By executing a Subscription Agreement and Power of Attorney Signature
Page, Purchaser has thereby authorized _____________________________ or one of
its affiliates (the "Selling Agent") to debit Purchaser's customer securities
account in the full amount of his subscription. If Purchaser's Subscription
Agreement and Power of Attorney Signature Page is accepted, Purchaser agrees to
contribute Purchaser's subscription to the Trust and to be bound by the terms of
the Trust's Declaration of Trust and Trust Agreement, which will be in
substantially the form of the Declaration of Trust and Trust Agreement included
in the Prospectus as Exhibit A. Purchaser agrees to reimburse the Trust and
Kenmar Advisory Corp. ("Kenmar"), the managing owner of the Trust, for any
expense or loss incurred by either as a result of the cancellation of
Purchaser's Units due to a failure of the Purchaser to deliver good funds in the
full amount of the subscription price of the Units subscribed for by Purchaser.
Representations and Warranties
As an inducement to Kenmar to accept this subscription, Purchaser, by
executing and delivering Purchaser's Subscription Agreement and Power of
Attorney Signature Page, represents and warrants to the Trust, Kenmar, and the
Selling Agent as follows:
(a) Purchaser is of legal age to execute the Subscription Agreement
and Power of Attorney Signature Page and is legally competent to do so.
Purchaser acknowledges that Purchaser has received (prior to any
solicitation of Purchaser's investment) a copy of the Prospectus --
including the Appendices, the Declaration of Trust and Trust Agreement and
summary financial information relating to the Trust current within 60
calendar days -- dated within nine months of the date as of which Purchaser
has subscribed to purchase Units.
(b) All information that Purchaser has heretofore furnished to Kenmar
or that is set forth in the Subscription Agreement and Power of Attorney
submitted by Purchaser is correct and complete as of the date of such
Subscription Agreement and Power of Attorney, 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
Kenmar.
(c) Unless (d) 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.
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<PAGE>
(d) 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.
(e) 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 Agreement and Power of Attorney 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 Agreement and Power of Attorney and to become a Unitholder
pursuant to the Declaration of Trust and Trust Agreement.
(f) 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, is duly
registered with the CFTC and is a member in good standing of the NFA. It is
an NFA requirement that Kenmar attempt to verify that any entity which
seeks to purchase Units be duly registered with the CFTC and a member of
the NFA, if required. Purchaser agrees to supply Kenmar with such
information as Kenmar may reasonably request in order to attempt such
verification. Most entities which acquire Units will, as a result,
themselves become "commodity pools" within the intent of applicable CFTC
and NFA rules, and their sponsors, accordingly, will be required to
register as "commodity pool operators."
(g) If the undersigned 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"), or any "plan," as defined in Section
4975 of the Internal Revenue Code of 1986, as amended (the "Code") (each
such employee benefit plan and plan, a "Plan"), the individual signing this
Subscription Agreement and Power of Attorney on behalf of the undersigned,
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 the Units (the "Plan Fiduciary") that: (a)
the Plan Fiduciary has considered an investment in the Trust for such Plan
in light of the risks relating to the Trust; (b) the Plan Fiduciary has
determined that an investment in the Trust for such Plan is consistent with
the Plan Fiduciary's responsibilities under ERISA; (c) the Plan's
investment in the Trust does not violate and is not otherwise inconsistent
with the terms of any legal document constituting the Plan or any trust
agreement thereunder; (d) the Plan's investment in the Trust has been duly
authorized and approved by all necessary parties; (e) none of Kenmar, any
Advisor to the Trust, the Selling Agent, the Commodity Broker, any of their
respective affiliates or any of their respective agents or employees (i)
has investment discretion with respect to the investment of assets of the
Plan used to purchase Units, (ii) 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 (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 to invest in the
Trust, 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 risk of large losses, (ii) is independent
of Kenmar, any Advisor to the Trust, the Selling Agent, the Commodity
Broker and any of their respective affiliates, and (iii) is qualified to
make such investment decision. The undersigned will, at the request of
Kenmar, furnish Kenmar with such information as Kenmar may reasonably
require to establish that the purchase of 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.
The representations and statements set forth herein may be asserted in
the defense of the Trust, Kenmar, the Advisors to the Trust, the Selling Agent
or others in any subsequent litigation or other proceeding.
----------
SR-2
<PAGE>
Investor Suitability
Purchaser understands that the purchase of Units may be made only by
persons who, at a minimum, have (i) a net worth of at least $150,000 (exclusive
of home, furnishings and automobiles) or (ii) an annual gross income of at least
$45,000 and a net worth of at least $45,000 (exclusive of home, furnishings and
automobiles). Residents of the following states must meet the requirements set
forth below ("net worth" for such purposes is in all cases is exclusive of home,
furnishings and automobiles). In addition, Purchaser may not invest more than
10% of his or her readily marketable assets in the Trust.
1. Arizona -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual income of at least $60,000.
2. California -- Net worth of at least $250,000 and an annual income of
at least $65,000 or, in the alternative, a net worth of at least $500,000.
3. Iowa -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
4. Maine -- Minimum subscription per investment, both initial and
subsequent, of $5,000; net worth of at least $200,000 or a net worth of at least
$50,000 and an annual income of at least $50,000. All Maine residents, including
existing Unitholders in the Trust subscribing for additional Units, must execute
a Subscription Agreement and Power of Attorney Signature Page. Maine residents
must sign a Subscription Agreement and Power of Attorney Signature Page
specifically prepared for Maine residents, a copy of which shall accompany this
Prospectus as delivered to all Maine residents.
5. Massachusetts -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
6. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and taxable income in 1995 of at least $60,000. All Michigan
residents, including existing Unitholders in the Trust subscribing for
additional Units, must execute a Subscription Agreement and Power of Attorney
Signature Page.
7. Minnesota -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
8. Mississippi -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
9. Missouri -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
10. New Hampshire -- Net worth of at least $250,000 or a net worth of
at least $125,000 and an annual income of at least $50,000.
11. North Carolina -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
12. Oklahoma-- Net worth of at least $225,000 or a net worth of $60,000
and an annual income of at least $60,000.
13. Oregon -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
14. Pennsylvania -- Net worth of a least $175,000 or a net worth of at
least $100,000 and an annual taxable income of at least $50,000.
SR-3
<PAGE>
15. South Carolina -- Net worth of at least $100,000 or a net income in
1995 some portion of which was subject to maximum federal and state income tax.
16. South Dakota -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
17. Tennessee -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
18. Texas -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000.
SR-4
<PAGE>
EXHIBIT C
KENMAR GLOBAL TRUST
----------
SUBSCRIPTION INSTRUCTIONS
Any person considering purchasing Units should carefully read and
review the Prospectus of the Trust dated __________, 1996, together with the
summary financial information relating to the Trust current within 60 calendar
days which accompanied the Prospectus.
The Units are speculative and involve a high degree of risk. No person
may invest more than 10% of his or her readily marketable assets in the Trust.
Existing Unitholders who are subscribing for additional Units (except
Maine and Michigan residents) need not complete an additional Subscription
Agreement and Power of Attorney Signature Page but must receive a current
Prospectus for the Trust and carefully review the Subscription Agreement and
Power of Attorney as well as Exhibit B -- Subscription Requirements. Such
Unitholders' Selling Agent representatives must reconfirm that such Unitholders
continue to meet the standards and requirements set forth herein and in Exhibit
B -- Subscription Requirements in order for such Unitholders to be eligible to
purchase additional Units.
----------
FILL IN ALL OF THE BLANKS ON PAGES SA-__ through SA-__; TYPE OR PRINT USING
BLACK INK ONLY, AS FOLLOWS:
Item 1 -- Name of Purchaser
Item 2 -- Enter the subscription amount (number of Units to be purchased
at $100 per Unit).
Item 3 -- Enter customer's Selling Agent Information and Account Number.
Item 4 -- Check the appropriate category identifying type of Purchaser.
Item 5 -- Enter the exact name in which the Units are to be held. Enter
basic Purchaser information, including the Social Security
Number or Taxpayer ID Number. In case of joint ownership, either
Social Security Number may be used.
The Signature Page is self-explanatory for most types of investors;
however, we have provided specific instructions for the following types of
investors:
Trust -- Enter the Trust name and the trustee's name, followed by
"Trustee." If applicable, enter the custodian's name, followed by "Custodian."
Be sure to furnish the Taxpayer ID Number of the Trust.
Custodian Under Uniform Gifts to Minors Act -- Complete Item 5 with the
name of minor followed by "UGMA." Enter the custodian's name, followed by
"Custodian." Be sure to furnish the minor's Social Security Number.
Partnership or Corporation -- The Partnership or Corporation name is
required. Also, enter an officer's or partner's name. Be sure to furnish the
Taxpayer ID Number of the Trust or Corporation.
SA-(i)
<PAGE>
Item 6 -- The investor(s) (except current Unitholders in the Trust other
than residents of Maine or Michigan) must execute the
Subscription Agreement and Power of Attorney Signature Page
(Item 6, Page SA-__) and review the representation relating to
backup withholding tax underneath the signature and telephone
number lines in Item 10.
Item 7 -- Selling Agent representatives must complete the information
required.
The Specimen Copy of the Subscription Agreement and Power of Attorney
Signature Page (Pages SA-__ through SA-__) should not be executed.
Instructions to Selling Agent representatives:
The executed Subscription Agreement and Power of Attorney Signature
Page must be retained in the Branch Office.
Reconfirmations (i.e., Subscription Agreement and Power of Attorney
Signature Pages executed by Selling Agent representatives) or another form of
written reconfirmation approved by the Branch Office regarding the continuing
suitability of existing Unitholders subscribing for additional Units must also
be retained in the Branch Office.
SA-(ii)
<PAGE>
KENMAR GLOBAL TRUST
UNITS OF BENEFICIAL INTEREST
----------
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
----------
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
Kenmar Global Trust
c/o Kenmar Advisory Corp.
Managing Owner
Two American Lane
Greenwich, Connecticut 06831-8150
Dear Sirs:
1. Subscription for Units. I hereby subscribe for the number of units
of beneficial interest ("Units") in Kenmar Global Trust (the "Trust") set forth
in the Subscription Agreement and Power of Attorney Signature Page attached
hereto; a minimum of 50 Units (or, if less, $5,000) must be purchased -- 20
Units (or, if less, $2,000) for both: (i) trustees or custodians of eligible
employee benefit plans and individual retirement accounts; and (ii) existing
Unitholders (who are not, except in the case of Maine or Michigan residents,
required to submit a new Subscription Agreement and Power of Attorney in order
to acquire additional Units). Any greater number of whole Units may be purchased
in single-Unit increments. The purchase price is $100 per Unit during the
Initial Offering Period (Net Asset Value per Unit during the Ongoing Offering
Period). The terms of the offering of the Units are described in the Prospectus
of the Trust dated___________, 1996 (the "Prospectus"), as the same may be from
time to time supplemented and amended. Units are offered as of the beginning of
each calendar month (until such time as the offering is discontinued).
Concurrently with or prior to the delivery of this Subscription Agreement and
Power of Attorney, I have authorized _______________________ (the "Selling
Agent") to debit my customer securities account in the amount of my
subscription. I acknowledge that I must have my subscription payment in such
account on but not before the settlement date for my purchase of Units. Such
settlement date will be not more than five business days after the purchase date
of my Units, which will occur as of the first day of the calendar month
immediately following the month during which my subscription is accepted. My
Selling Agent representative will inform me of such settlement date, on which my
account will be debited and the amount so debited transmitted directly to the
Trust, as described in the Prospectus. Kenmar Advisory Corp. ("Kenmar"), the
Managing Owner of the Trust, may, in its sole and absolute discretion, accept or
reject this subscription in whole or in part, except that, if this subscription
is to be accepted in part only, it shall not be reduced to an amount less than
50 Units (or, if less, $5,000); 20 Units (or, if less, $2,000) in the case of
persons permitted to purchase such lesser minimum, as described above. All
subscriptions once submitted are irrevocable. All Units are offered subject to
prior sale.
Foreign persons and entities which are not otherwise subject to U.S.
federal income tax may not invest in the Trust.
2. Representations and Warranties of Subscriber. I have received the
Prospectus together with summary financial information relating to the Trust
current within 60 calendar days. I understand that by submitting this
Subscription Agreement and Power of Attorney I am making the representations and
warranties set forth in Exhibit B -- Subscription Requirements in the
Prospectus, including, without limitation, those representations and warranties
relating to my net worth (exclusive of home, furnishings and automobiles) and
annual income.
SA-1
<PAGE>
3. Power of Attorney. In connection with my subscription for Units, I
do hereby irrevocably constitute and appoint Kenmar, and its successors and
assigns, as my true and lawful Attorney-in-Fact, with full power of
substitution, in my name, place and stead, to (i) file, prosecute, defend,
settle or compromise litigation, claims or arbitrations on behalf of the Trust
and (ii) make, execute, sign, acknowledge, swear to, deliver, record and file
any documents or instruments which may be considered necessary or desirable by
Kenmar to carry out fully the provisions of the Declaration of Trust and Trust
Agreement of the Trust, including, without limitation, by executing said
Declaration of Trust and Trust Agreement itself, and by effecting all amendments
permitted by the terms thereof. I acknowledge that the other investors in the
Trust are relying on Kenmar's authority to act pursuant to the Power of Attorney
granted hereby. 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.
4. Irrevocability; Governing Law. 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 Agreement and Power of Attorney
Signature Page attached hereto has been submitted (and not rejected), and that
this subscription and such agreements shall survive my death or disability. This
Subscription Agreement and Power of Attorney shall be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to principles of conflicts of law.
SA-2
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE)
1. Name of Purchaser: _________________________________________________________
(Please Print)
2. SUBSCRIPTION AMOUNT $_______________ (Please make payment in this amount)
($100 per Unit)
Check Enclosed ________ Wire Transfer to Follow ________
3. Name of Agent: ____________________________
Name of Firm: _____________________________ Phone: _______________________
Address: ___________________________________________________________________
Selling Agent Account No.: _________________________________________________
|_| The Purchaser hereby authorizes the Selling Agent shown above to debit
its customer account in the full amount of its subscription five (5)
business days prior to the Monthly Closing.
4. Nature of Purchaser.
(a) ______ Individual
(b) ______ Joint tenants with right of survivorship
(both parties must sign)
(c) ______ Tenants in common
(both parties must sign)
(d) ______ Community Property
(one signature required)
(e) ______ Individual Retirement Account
(f) ______ Your Self-Directed Account
in a Retirement Plan
(g) ______ Revocable Trust
(h) ______ S-Corporation
(i) ______ Other Corporation
(j) ______ Irrevocable Trust
(k) ______ Estate
(l) ______ Retirement Plans
(The PLAN is the Subscriber)
(m) ______ General Partnership
(n) ______ Limited Partnership
(o) ______ Limited Liability Company
(p) ______ Other Entity (Please Specify):
- ------------------------------------
- ------------------------------------
5. Basic Information.
(a) Name of Purchaser as it should appear in our records:
------------------------------------------------------------------------
------------------------------------------------------------------------
Date of Birth (if Individual): _________________________________________
SA-3
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE -- Continued)
Social Security No. or Tax I.D. No.: ___________________________________
Custodian Taxpayer I.D. No. (for IRAs only): ___________________________
(b) Name of Co-Subscriber (if any): ________________________________________
Date of Birth: ____________________ Social Security No: _______________
(c) Primary Residence or Principal Place of Business: ______________________
------------------------------------------------------------------------
Mailing Address if Different: __________________________________________
------------------------------------------------------------------------
(d) Bus. Tel. No: _____________________ Res. Tel. No.: ____________________
6. Signature of Purchaser
For Use by Investor
X_____________________________ X__________________________________________
Signature of Purchaser Date Signature of Joint Purchaser (if any Date
( )
------------------------------
Telephone Number of Purchaser
Executing and delivering this Subscription Agreement and Power of Attorney
Signature Page 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. I acknowledge that I have received, in addition to the Prospectus
dated ________, 1996, summary financial information relating to the Trust
current within 60 calendar days (after the Fund begins operating).
I have checked the following box if I am subject to backup withholding under
the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: o.
Under the penalties of perjury, by signature above I hereby certify that the
Social Security Number or Taxpayer ID Number shown on the front of this
Subscription Agreement and Power of Attorney Signature Page next to my name
is my true, correct and complete Social Security Number or Taxpayer ID
Number and that the information given in the immediately preceding sentence
is true, correct and complete.
7. Selling Agent Information
Selling Agent Representatives MUST SIGN
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments,
financial situation and needs and any other information known by me, that
investment in the Trust is suitable for such investor in light of his/her
financial position, net worth and other suitability characteristics. I have
also informed the investor of the unlikelihood of a public trading market
developing for the Units.
SA-4
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE -- Continued)
The Selling Agent Representatives MUST sign below in order to substantiate
compliance with Appendix F to Article 3, section 34 of the NASD's Rules of
Fair Practice.
X___________________________________________________________________________
Selling Agent Representative Signature Date
Office Manager approval of retirement account purchases.
X___________________________________________________________________________
Office Manager Signature Date
SA-5
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
Approximate
Amount
-----------
Securities and Exchange Commission Registration Fee............. $ 17,242
National Association of Securities Dealers, Inc. Filing Fee..... 5,500
Printing Expenses............................................... 60,000
Fees of Certified Public Accountants............................ 20,000
Blue Sky Expenses (Excluding Legal Fees)........................ 40,000
Fees of Counsel................................................. 140,000
Miscellaneous Offering Costs.................................... 67,258
---------
Total........................................................ $ 350,000
=========
----------
Item 14. Indemnification of Directors and Officers.
Section 17 of the Declaration of Trust and Trust Agreement (attached as
Exhibit A to the prospectus which forms a part of this Registration Statement)
provides for the indemnification of the Managing Owner and certain of its
affiliates by the Registrant. "Affiliates" shall mean any person performing
services on behalf of the Trust who: (1) directly or indirectly controls, is
controlled by, or is under common control with the Managing Owner; or (2) owns
or controls 10% or more of the outstanding voting securities of the Managing
Owner; or (3) is an officer or director of the Managing Owner; or (4) if the
Managing Owner is an officer, director, partner or trustee, is any entity for
which the Managing Owner acts in any such capacity. Indemnification is to be
provided for any loss suffered by the Registrant which arises out of any action
or inaction, if the party, in good faith, determined that such course of conduct
was in the best interest of the Registrant and such conduct did not constitute
negligence or misconduct. The Managing Owner and its affiliates will only be
entitled to indemnification for losses incurred by such affiliates in performing
the duties of the Managing Owner and acting wholly within the scope of the
authority of the Managing Owner.
In the Selling Agreement, the Trading Advisors ("Advisors") have agreed
to indemnify each person who controls Kenmar within the meaning of Section 15 of
the Securities Act of 1933 and each person who signed this Registration
Statement or is a director of Kenmar against losses, claims, damages,
liabilities or expenses arising out of or based upon any untrue statement or
omission or alleged untrue statement or omission relating or with respect to the
Advisors or any principal of the Advisors or their operations, trading systems,
methods or performance, which was made in any preliminary prospectus, this
Registration Statement as declared effective, the Prospectus included in this
Registration Statement when declared effective, or in any amendment or
supplement thereto and furnished by or approved by the Advisors for inclusion
therein. The Advisors have also agreed to contribute to the amounts paid by such
controlling persons, signatees or directors in respect of any such losses,
claims, damages, liabilities or expenses in the event that the foregoing
indemnity is unavailable or insufficient.
Item 15. Recent Sales of Unregistered Securities.
On July 17, 1996 the Registrant sold sixteen Units of Beneficial
Interest to an affiliated futures fund and four Units to Kenmar in order to
permit the formation of the Registrant in preparation for the filing of this
Registration Statement. This transaction was exempt under Section 4(2) of the
Securities Act of 1933, and no selling compensation was paid.
S-1
<PAGE>
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.
Exhibit
Number Description of Document
- ------ -----------------------
The following exhibits are filed herewith.
1.01 Form of Selling Agreement.
3.01 Certificate of Formation of the Registrant.
3.02 Declaration of Trust and Trust Agreement of the Registrant.
3.03 Amended and Restated Declaration of Trust and Trust Agreement of
the Registrant (included as Exhibit A to the Prospectus).
5.01(a) Opinion of Sidley & Austin relating to the legality of the Units.
5.01(b) Opinion of Richards, Layton & Finger relating to the legality of
Units.
8.01 Opinion of Sidley & Austin with respect to federal income tax
consequences.
10.01 Form of Advisory Agreement.
10.02 Form of Customer Agreement between the Trust and the Commodity
Brokers.
10.03 Form of Escrow Agreement
10.04 Subscription Agreement and Power of Attorney (included as
Exhibit C to the Prospectus).
23.01 Consent of Sidley & Austin.
23.02 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
23.03 Consent of Richards, Layton & Finger (included in Exhibit
5.01(b)).
99.01 Securities and Exchange Commission Release No. 33-6815--
Interpretation and Request for Public Comment--Statement of the
Commission Regarding Disclosure by Issuers of Interests in
Publicly Offered Commodity Pools (54 Fed. Reg. 5600; February 6,
1989).
99.02 Commodity Futures Trading Commission--Interpretative Statement
and Request for Comments --Statement of the Commodity Futures
Trading Commission Regarding Disclosure by Commodity Pool
Operators of Past Performance Records and Pool Expenses and
Requests for Comments (54 Fed. Reg. 5597; February 6, 1989).
99.03 North American Security Administrators Association Guidelines
for Registration of Commodity Pool Programs.
----------
S-2
<PAGE>
(b) Financial Statement Schedules.
No Financial Schedules are required to be filed herewith.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(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;
(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) (ss.230.424(b) of this
chapter) 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.
(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.
(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.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Managing Owner of the Registrant has duly caused this Registration Statement
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in The County of Fairfield in the State of Connecticut on the 24th
day of July, 1996.
KENMAR GLOBAL TRUST
By: Kenmar Advisory Corp.
Managing Owner
By: /s/ KENNETH A. SHEWER
------------------------------------
Kenneth A. Shewer
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following persons on behalf of the Managing Owner of the Registrant in
the capacities and on the date indicated.
Signature Title With Registrant Date
/s/ KENNETH A. SHEWER Chairman July 24, 1996
- ---------------------------
Kenneth A. Shewer
/s/ MARC S. GOODMAN President July 24, 1996
- ---------------------------
Marc S. Goodman
/s/ KEVIN J. TREACY Senior Vice President -- July 24, 1996
- --------------------------- Finance
Kevin J. Treacy
/s/ ESTHER E. GOODMAN Chief Operating Officer and July 24, 1996
- --------------------------- Senior Executive Vice
Esther E. Goodman President
(Begin principal executive officer, the principal financial and
accounting officer and a majority of the directors of Kenmar Advisory Corp.)
KENMAR ADVISORY CORP. Managing Owner of Registrant
By: /s/ KENNETH A. SHEWER July 24, 1996
- ---------------------------
Kenneth A. Shewer
Chairman
S-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
1.01 Form of Selling Agreement.
3.01 Certificate of Formation of the Registrant.
3.02 Declaration of Trust and Trust Agreement of the Registrant.
3.03 Amended and Restated Declaration of Trust and Trust Agreement of
the Registrant (included as Exhibit A to the Prospectus).
5.01(a) Opinion of Sidley & Austin relating to the legality of the Units.
5.01(b) Opinion of Richards, Layton & Finger relating to the legality of
Units.
8.01 Opinion of Sidley & Austin with respect to federal income tax
consequences.
10.01 Form of Advisory Agreement.
10.02 Form of Customer Agreement between the Trust and the Commodity
Brokers.
10.03 Form of Escrow Agreement
10.04 Subscription Agreement and Power of Attorney (included as Exhibit
C to the Prospectus).
23.01 Consent of Sidley & Austin.
23.02 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
23.03 Consent of Richards, Layton & Finger (included in Exhibit
5.01(b)).
99.01 Securities and Exchange Commission Release No. 33-6815--
Interpretation and Request for Public Comment--Statement of the
Commission Regarding Disclosure by Issuers of Interests in
Publicly Offered Commodity Pools (54 Fed. Reg. 5600; February 6,
1989).
99.02 Commodity Futures Trading Commission--Interpretative Statement
and Request for Comments--Statement of the Commodity Futures
Trading Commission Regarding Disclosure by Commodity Pool
Operators of Past Performance Records and Pool Expenses and
Requests for Comments (54 Fed. Reg. 5597; February 6, 1989).
99.03 North American Security Administrators Association Guidelines for
Registration of Commodity Pool Programs.
EXHIBIT 1.01
================================================================================
SELLING AGREEMENT
Kenmar Global Trust
(A Delaware Business Trust)
$50,000,000
Units of Beneficial Interest
Kenmar Advisory Corp.
Managing Owner
Dated ____________, 1996
================================================================================
<PAGE>
Kenmar Global Trust
Selling Agreement
TABLE OF CONTENTS
Page
----
Section 1. Representations and Warranties
of the Managing Owner........................................2
Section 2. Representations and Warranties of
the Trading Advisors.........................................8
Section 3. Representations and Warranties of
the Commodity Broker........................................11
Section 4. Offering and Sale of Units......................................13
Section 5. Compliance with Appendix F and General Laws.....................17
Section 6. Blue Sky Survey.................................................20
Section 7. Covenants of the Managing Owner.................................20
Section 8. Covenants of the Trading Advisor................................22
Section 9. Payment of Expenses and Fees....................................23
Section 10. Conditions of Closing...........................................23
Section 11. Indemnification, Contribution and Exculpation...................30
Section 12. Status of Parties...............................................33
Section 13. Representations, Warranties and
Agreements to Survive Delivery..............................33
Section 14. Termination.....................................................33
Section 15. Survival........................................................34
Section 16. Notices and Authority to Act....................................34
Section 17. Parties.........................................................34
Section 18. Governing Law...................................................34
Section 19. Consent to Jurisdiction.........................................34
Section 20. Counterparts....................................................35
Exhibit A -- Correspondent Selling Agent Agreement
-i-
<PAGE>
Kenmar Global Trust
(A Delaware Business Trust)
$50,000,000
Units of Beneficial Interest
Initially $100 per Unit
SELLING AGREEMENT
_______________, 1996
[Name of Selling Agent]
[Address of Selling Agent]
Ladies and Gentlemen:
Kenmar Advisory Corp., a Connecticut corporation (the "Managing
Owner"), has caused the formation, on ____________, 1996, of a business trust
pursuant to the Delaware Business Trust Act (the "Delaware Act") under the name,
Kenmar Global Trust (the "Trust"), for the purposes of engaging in the
speculative trading of commodity futures and forward contracts, commodity
options and other commodity interests, through investments with independent
commodity trading advisors (each, a "Trading Advisor") retained by the Managing
Owner on behalf of the Trust. ____________ (the "Selling Agent") shall be a
Selling Agent for the Trust. In addition, the Selling Agent may, with the
consent of the Managing Owner, distribute units of beneficial interest in the
Trust ("Units") through the use of "introducing broker" correspondents
("Correspondents"), provided such Correspondents are duly registered as
broker-dealers or exempt from the requirement of being so registered, pursuant
to the terms of the Correspondent Selling Agent Agreement attached hereto as
Exhibit A.
The Trust desires to raise capital as herein provided by the sale of
Units, the purchasers of which will become beneficiaries ("Unitholders")
of the Trust, and the Selling Agent
<PAGE>
hereby agrees to use its best efforts to market the Units pursuant to the terms
hereof. Accordingly, the Selling Agent, the Managing Owner, the Trading
Advisors, and the Trust, intending to be legally bound, hereby agree as follows.
All agreements, representations and undertakings expressed herein to
be made by the "Trading Advisors" shall be construed to be made by each Trading
Advisor severally and individually, and only in respect of its conduct and
undertakings with respect to this Agreement, not that of the other Trading
Advisors.
Section 1. Representations and Warranties of the Managing Owner. The
Managing Owner represents and warrants to the Selling Agent and the Trading
Advisors as follows:
(a) The Trust has provided to the Selling Agents and the Trading
Advisors, and filed with the Securities and Exchange Commission (the
"SEC"), a registration statement on Form S-1 (No. 33-_________), as
initially filed with the SEC on ____________, 1996, as amended by
Amendment No. 1 thereto filed with the SEC on ____________, 1996, and
Amendment No. 2 thereto filed with the SEC on _____________, 1996, for the
registration of the Units under the Securities Act of 1933, as amended
(the "1933 Act"), and has filed two copies thereof with the Commodity
Futures Trading Commission (the "CFTC") under the Commodity Exchange Act,
as amended (the "Commodity Act"), and the rules and regulations thereunder
(the "CFTC Regulations"), and one copy with the National Futures
Association (the "NFA") in accordance with NFA Compliance Rule 2-13. The
registration statement as amended and delivered to all parties hereto at
the time it becomes effective and the prospectus included therein are
hereinafter called the "Registration Statement" and the "Prospectus,"
respectively, except that (i) if the Trust files a subsequent
post-effective amendment to the registration statement, then the term
"Registration Statement" shall, from and after the declaration of the
effectiveness of such post-effective amendment, refer to the registration
statement as amended by such post-effective amendment thereto, and the
term "Prospectus" shall refer to the prospectus as most recently issued by
the Trust pursuant to the rules and regulations of the SEC promulgated
under the 1933 Act (the "SEC Regulations").
Except as required by law, the Trust will not file any amendment to
the Registration Statement or any amendment and/or supplement to the
Prospectus which
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shall be reasonably objected to by either the Selling Agent or any Trading
Advisor. The Managing Owner agrees to suspend the offering immediately and
inform the Selling Agent and the Trading Advisors if the Managing Owner
has any reason to believe that it may be necessary or advisable to amend
the Registration Statement or supplement the Prospectus.
The Trust will not utilize any promotional brochure or other
marketing materials (collectively, "Promotional Material"), including
"Tombstone Ads" or other communications qualifying under Rule 134 of the
SEC Regulations, which are reasonably objected to by either the Selling
Agent or any Trading Advisor. No reference to either the Selling Agent or
any Trading Advisor may be made in the Registration Statement, Prospectus
or in any Promotional Material which has not been approved in writing by
the Selling Agent and the applicable Trading Advisor, which approval each
of the Selling Agent and the applicable Trading Advisor may withhold in
its sole and absolute discretion. The Trust will file all Promotional
Material with the National Association of Securities Dealers, Inc. (the
"NASD"), and will not use any such Promotional Material to which the NASD
has not stated in writing that it has no objections. The Trust will file
all Promotional Material in all state jurisdictions, and will not use any
such Promotional Material in any state which has
expressed any objection thereto (except pursuant to agreed-upon
modifications to the Promotional Material).
All representations, warranties and indemnities set forth herein
will be deemed to be restated in their entirety as of each Closing Time
(as defined in Section 4(g) hereof).
(b) The certificate of trust (the "Certificate of Trust") pursuant
to which the Trust has been formed and the Declaration of Trust and Trust
Agreement of the Trust (the "Trust Agreement") provide for the
subscription for and sale of the Units of the Trust; all action required
to be taken by the Managing Owner and the Trust as a condition to the sale
of the Units to qualified subscribers therefor has been, or prior to the
Initial Closing Time (as defined in Section 4(g) hereof) will have been,
taken; and, upon payment of the consideration therefor specified in all
accepted Subscription Agreements and Powers of Attorney, the Units will
constitute valid units of beneficial interest in the Trust as to which the
subscribers thereto will have the same limitation on personal liability as
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<PAGE>
stockholders in a private corporation for profit organized under the laws
of the State of Delaware and will be Unitholders of the Trust entitled to
all the applicable benefits under the Trust Agreement and the Delaware
Act.
(c) The Trust is a business trust duly organized pursuant to the
Delaware Act and is validly existing and in good standing under the laws
of the State of Delaware with full power and authority to engage in the
business to be conducted by it, as described in the Prospectus. The Trust
is in good standing and qualified to do business in each jurisdiction in
which such qualification is necessary in order to protect the limited
liability of Unitholders and in which the nature or conduct of its
business as described in the Registration Statement requires such
qualification and the failure to be so qualified would materially
adversely affect the Trust.
(d) The Managing Owner is, and will continue to be so long as it is
the managing owner of the Trust, a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut
and is in good standing and qualified to do business in each jurisdiction
in which the nature or conduct of its business as described in the
Registration Statement and Prospectus requires such qualification and the
failure to be so qualified would materially adversely affect the Trust's
or the Managing Owner's ability to perform its obligations hereunder.
(e) The Trust and the Managing Owner each have full trust and
corporate power and authority, as the case may be, under applicable law to
perform its respective obligations under the Trust Agreement, the escrow
agreement described in the Prospectus relating to the offering of the
Units (the "Escrow Agreement"), the Customer Agreement (the "Customer
Agreement") by and among the Selling Agent, the Trust and the Managing
Owner, the Consulting Agreements (the "Consulting Agreements") by and
among each Trading Advisor, the Trust and the Managing Owner (references
in the Agreement to the Consulting Agreements intend, in respect of each
Trading Advisor, only the Consulting Agreement to which such Trading
Advisor is a party) and this Agreement, and to conduct its business as
described in the Registration Statement and Prospectus.
(f) The Registration Statement and Prospectus contain all statements
and information required to be
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<PAGE>
included therein by the Commodity Act and the rules and regulations
promulgated thereunder. When the Registration Statement becomes effective
under the 1933 Act and at all times subsequent thereto up to and including
each Closing Time, the Registration Statement, Prospectus and Promotional
Material will comply in all material respects with the requirements of the
1933 Act, the SEC Regulations, the Commodity Act and the CFTC Regulations
and will be accurate and complete in all material respects. The
Registration Statement as of its effective date will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading. The Prospectus and each item of Promotional Material
(considered individually) as of the date of their issue and at all times
subsequent thereto up to and including each Closing Time will not contain
any untrue statement of a material fact or (considered collectively) omit
to state a material fact necessary to make the statements therein, in the
light of the circumstances under which such statements are made, not
misleading.
(g) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there will not have been
any adverse change in the condition (financial or otherwise), business or
prospects of the Managing Owner or the Trust, whether or not arising in
the ordinary course of business, of which the Selling Agent shall not be
informed by the Managing Owner.
(h) The Managing Owner has, and will continue to have during the
term of the Trust, a net worth sufficient in amount and satisfactory in
form, as set forth in the opinion of Sidley & Austin, counsel for the
Managing Owner, for classification of the Trust as a partnership for
federal income tax purposes under current interpretations of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder.
(i) Each of the Trust Agreement, the Escrow Agreement, the Customer
Agreement, the Consulting Agreements and this Agreement has been duly and
validly authorized, executed and delivered by the Managing Owner on behalf
of the Trust and by the Managing Owner, and each constitutes a valid,
binding and enforceable agreement of the Trust and the Managing Owner in
accordance with its terms.
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<PAGE>
(j) The execution and delivery of the Trust Agreement, the Escrow
Agreement, the Customer Agreement, the Consulting Agreements and this
Agreement, the incurrence of the obligations set forth therein and herein
and the consummation of the transactions contemplated therein, herein and
in the Prospectus: (i) will not constitute a breach of, or default under,
any instrument or agreement by which the Managing Owner or the Trust, as
the case may be, or any of their property or assets is bound, or any
statute, order, rule or regulation applicable to the Managing Owner or the
Trust, as the case may be, of any court or any governmental body or
administrative agency having jurisdiction over the Managing Owner or the
Trust, as the case may be; (ii) will not result in the creation or
imposition of any lien, charge or encumbrance on any property or assets of
the Managing Owner or the Trust; (iii) will not give any party a right to
terminate its obligations or result in the acceleration of any obligations
under any material instrument or agreement by which the Managing Owner or
the Trust, as the case may be, or any of their respective property or
assets is bound; and (iv) will not result in any material liability (other
than such as may be contemplated hereby) on the part of either the
Managing Owner or the Trust.
(k) Except as otherwise disclosed in the Registration Statement or
the Prospectus, there is not pending nor, to the best of the Managing
Owner's knowledge, threatened any action, suit or proceeding before or by
any court or other governmental body to which the Managing Owner or the
Trust is a party, or to which any of the assets of the Managing Owner or
the Trust is subject, which might reasonably be expected to result in any
material adverse change in the condition (financial or otherwise),
business or prospects of the Managing Owner or the Trust or which is
required to be disclosed in the Registration Statement or Prospectus
pursuant to the Commodity Act, the 1933 Act, the CFTC Regulations or the
SEC Regulations.
(l) No stop order relating to the Registration Statement has been
issued by any federal or state securities commission, and no proceedings
therefor are pending or, to the best knowledge of the Managing Owner,
threatened.
(m) The Managing Owner and each of its principals and employees
have, and will continue to have so long as it is the managing owner of the
Trust, all federal and state governmental, regulatory, self-regulatory and
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<PAGE>
commodity exchange approvals and licenses, and the Managing Owner (either
on behalf of itself or its principals and employees) has effected all
filings and registrations with federal and state governmental, regulatory
or self-regulatory agencies required to conduct its business and to act as
described in the Registration Statement and Prospectus or required to
perform its or their obligations as described under the Trust Agreement
(including, without limitation, registration (i) as a commodity pool
operator and commodity trading advisor under the Commodity Act, (ii)
membership in the NFA as a "commodity pool operator" and "commodity
trading advisor," and (iii) as a "transfer agent" with the Securities and
Exchange Commission, and this Agreement and the performance of such
obligations will not contravene or result in a breach of any provision of
the Managing Owner's certificate of incorporation, by-laws or any
agreement, instrument, order, law or regulation binding upon it or any of
its employees or principals.
(n) The Trust does not require any federal or state governmental,
regulatory, self-regulatory or commodity exchange approvals or licenses,
and the Trust need not effect any filings or registrations with any
federal or state governmental agencies in order to conduct its business
and to act as contemplated by the Registration Statement and Prospectus
and to issue and sell the Units (other than filings under the 1933 Act,
the Commodity Act and state securities laws relating solely to the
offering of the Units).
(o) The Managing Owner has the financial resources necessary to meet
its obligations to the Selling Agent hereunder.
(p) All of the information regarding the actual performance of the
accounts of the Managing Owner and the Managing Owner's principals set
forth in the Prospectus is complete and accurate in all material respects
and, except as disclosed in the Prospectus, is in accordance and
compliance with the disclosure requirements under the Commodity Act and
the CFTC Regulations as well as of the NFA.
(q) The Managing Owner acknowledges that the Selling Agent's
customer and Correspondent lists constitute proprietary data belonging to
the Selling Agent, and the Managing Owner agrees that it will not
disseminate any confidential information regarding any of the foregoing,
except as required by law.
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<PAGE>
Furthermore, the Managing Owner agrees that it will not independently
solicit any client on the Selling Agent's or any of its Correspondents'
customer lists, except as requested by the Selling Agent in connection
with soliciting investments in the Trust.
(r) The accountants who certified the Statement of Financial
Position of the Managing Owner and the Statement of Financial Condition of
the Trust included in the Registration Statement are, with respect to the
Managing Owner and the Trust, independent public accountants as required
by the 1933 Act and the SEC Regulations. These Statements fairly present
the financial position and financial condition of the Managing Owner and
the Trust, as the case may be, as of the date of such Statements. The
audited Statement of Financial Position of the Managing Owner and
Statement of Financial Condition of the Trust are presented in accordance,
and the unaudited Statements of Financial Position of the Managing Owner
substantially in accordance, with Generally Accepted Accounting Principles
(as currently in effect in the United States).
Section 2. Representations and Warranties of the Trading
Advisors. Each Trading Advisor represents and warrants to the Trust, the
Selling Agent and the Managing Owner as follows:
(a) The Trading Advisor is a corporation duly organized and validly
existing and in good standing under the laws of its state of incorporation
and in good standing as a foreign corporation in each other jurisdiction
in which the nature or conduct of its business requires such qualification
and the failure to be duly qualified would materially affect the Trading
Advisor's ability to perform its obligations under this Agreement and the
Consulting Agreement. The Trading Advisor has full corporate power and
authority to perform its obligations under this Agreement and the
Consulting Agreement as described in the Registration Statement and
Prospectus.
(b) All references to the Trading Advisor and its principals, and
its trading systems, methods and performance in the Registration Statement
and the Prospectus are accurate and complete in all material respects. As
to the Trading Advisor, each of the principals of the Trading Advisor, the
Trading Advisor trading program(s) selected for the Trust, and the Trading
Advisor's trading systems, strategies and
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<PAGE>
performance, (i) the Registration Statement and Prospectus contain all
statements and information required to be included therein under the
Commodity Act and the rules and regulations thereunder, (ii) the
Registration Statement (with respect to the information relating to the
Trading Advisor furnished to the Managing Owner) as of its effective date
did not contain any misleading or untrue statement of a material fact or
omit to state a material fact which is required to be stated therein or
necessary to make the statements therein not misleading and (iii) the
Prospectus (as approved in pertinent part by the Trading Advisor) at its
date of issue and as of the Initial Closing Time, as supplemented, did not
and will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading, in light of the circumstances under which such statements were
made. Except as otherwise disclosed in the Prospectus or identified in
writing to the Managing Owner on or prior to the date hereto, the actual
performance of each discretionary account directed by the Trading Advisor
or any principal or affiliate of the Trading Advisor for the periods
covered by the Performance Summaries or Tables set forth in the Prospectus
is disclosed in accordance with the requirements of the Commodity Act and
the rules and regulations thereunder (or as otherwise permitted by the
Staff of the Division of Trading and Markets). The information and
Performance Summaries or Tables relating to the actual performance of the
Trading Advisor are complete and accurate in all material respects and
comply in all material respects with the disclosure requirements of the
rules and regulations of the CFTC under the Commodity Act, including those
relating to the inclusion of "notional" equity. The performance records in
the Prospectus (as applicable to the Trading Advisor) have been calculated
in the manner set forth in the notes thereto.
(c) The Consulting Agreement and this Agreement have each been duly
and validly authorized, executed and delivered on behalf of the Trading
Advisor and each constitutes a valid, binding and enforceable agreement of
the Trading Advisor in accordance with its terms.
(d) The Trading Advisor has all Federal and state governmental,
regulatory and commodity exchange licenses and approvals and has effected
all filings and registrations with Federal and state governmental and
regulatory agencies required to conduct its business and to act as
described in the Registration Statement and Prospectus or required to
perform its obligations
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<PAGE>
under this Agreement and the Consulting Agreement (including, without
limitation, registration of the Trading Advisor as a commodity trading
advisor under the Commodity Act and membership of the Trading Advisor as a
commodity trading advisor in the NFA), and the performance of such
obligations will not violate or result in a breach of any provision of the
Trading Advisor's Certificate of Incorporation By-laws or any agreement,
instrument, order, law or regulation binding on the Trading Advisor. The
principals of the Trading Advisor are duly listed as such on the Trading
Advisor's commodity trading advisor Form 7-R registration.
(e) Management by the Trading Advisor of an account for the Trust in
accordance with the terms hereof and of the Consulting Agreement, and as
described in the Prospectus, will not require any registration under, or
violate any of the provisions of, the Investment Advisers Act of 1940.
(f) The Trading Advisor's implementation of the trading program(s)
selected for the Trust will not infringe any other person's copyright,
trademark or other property rights.
Neither the Trading Advisor nor any principal of the Trading Advisor
will use or distribute any preliminary prospectus, Prospectus, amended or
supplemented Prospectus or selling literature nor engage in any selling
activities whatsoever in connection with the offering of the Units, except
as may be requested by the Managing Owner pursuant to Section 8(c) of this
Agreement.
(g) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as may otherwise be
stated in or contemplated by the Registration Statement and the
Prospectus, there has not been any material adverse change in the
condition, financial or otherwise, business or prospects of the Trading
Advisor, whether or not arising in the ordinary course of business.
(h) The execution and delivery of this Agreement and the Consulting
Agreement, the incurrence of the obligations herein and
therein set forth and the consummation of the transactions contemplated
herein and therein and in the Prospectus will not constitute a breach of,
or default under, any instrument by which the Trading Advisor is bound or
any order, rule or
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<PAGE>
regulation applicable to the Trading Advisor of any court or any
governmental body or administrative agency having jurisdiction over the
Trading Advisor.
(i) There is not pending, or to the best of the Trading Advisor's
knowledge threatened, any action, suit or proceeding before or by any
court or other governmental body to which the Trading Advisor is a party,
or to which any of the assets of the Trading Advisor is subject, which
might reasonably be expected to result in any material adverse change in
the condition, financial or otherwise, business or prospects of the
Trading Advisor. The Trading Advisor has not received any notice of an
investigation or warning letter from the NFA or the CFTC regarding
non-compliance by the Trading Advisor with the Commodity Act or the
regulations thereunder.
(j) The Trading Advisor has not received, and is not entitled to
receive, directly or indirectly, any commission, finder's fee, similar fee
or rebate from any person in connection with the organization or operation
of the Trust.
(k) The unaudited financial statements of the Trading Advisor as of
_______, 1996 delivered to the Managing Owner and the Selling Agent by the
Trading Advisor are accurate and complete in all material respects and in
substantial compliance with generally accepted accounting principles.
Section 3. Representations and Warranties of the Commodity Broker.
The Commodity Broker represents and warrants to the Trust, the Managing Owner,
the Trading Advisors and the Selling Agent, as follows:
(a) The Commodity Broker is a corporation duly organized and validly
existing and in good standing under the laws of the state of its
incorporation and in good standing and qualified to do business in the
State of New York and in each other jurisdiction in which the nature or
conduct of its business requires such qualification and the failure to be
duly qualified would materially adversely affect the Commodity Broker's
ability to perform its obligations hereunder or under the Customer
Agreement. The Commodity Broker has full corporate power and authority to
perform its obligations under the Customer Agreement, and this Agreement
and as described in the Registration Statement and Prospectus.
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<PAGE>
(b) All references to the Commodity Broker and its principals in the
Registration Statement and Prospectus are accurate and complete in all
material respects, and set forth in all material respects the information
required to be disclosed therein under the Commodity Act and the rules and
regulations thereunder. As to the Commodity Broker and its principals, (i)
the Registration Statement and Prospectus contain all statements and
information required to be included therein under the Commodity Act and
the rules and regulations thereunder, (ii) the Registration Statement as
of its effective date did not contain any misleading or untrue statement
of a material fact or omit to state a material fact which is required to
be stated therein or necessary to make the statements therein not
misleading and (iii) the Prospectus at its date of issue and as of each
Additional Closing Time did not and will not contain an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein not misleading, in light of the circumstances under
which such statements were made.
(c) The Commodity Broker has all Federal and state governmental,
regulatory and commodity exchange licenses and approvals, and has effected
all filings and registrations with Federal and state governmental and
regulatory agencies required to conduct its business and to act as
described in the Registration Statement and Prospectus or required to
perform its obligations under the Customer Agreement and this Agreement
(including, without limitation, registration of the Commodity Broker as a
futures commission merchant under the Commodity Act and membership of the
Commodity Broker as a futures commission merchant in the NFA), and the
performance of such obligations will not violate or result in a breach of
any provision of the Commodity Broker's certificate of incorporation, by-
laws or any agreement, instrument, order, law or regulation binding upon
the Commodity Broker.
(d) Each of the Customer Agreement and this Agreement has been duly
authorized, executed and delivered by the Commodity Broker and constitutes
a valid, binding and enforceable agreement of the Commodity Broker in
accordance with its terms.
(e) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as may otherwise be
stated in or contemplated by the Registration Statement and the
Prospectus, there has not been any material adverse
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change in the condition, financial or otherwise, business or prospects of
the Commodity Broker, whether or not arising in the ordinary course of
business.
(f) In the ordinary course of its business, the Commodity Broker is
engaged in civil litigation and subject to administrative proceedings.
Neither the Commodity Broker nor any of its principals have been the
subject of any administrative, civil, or criminal actions within the five
years preceding the date hereof that would be material to an investor's
decision to purchase the Units which are not disclosed in the Prospectus.
(g) The execution and delivery of the Customer Agreement and this
Agreement, the incurrence of the obligations set forth herein and therein
and the consummation of the transactions contemplated herein and therein
and in the Prospectus will not constitute a breach of, or default under,
any instrument by which the Commodity Broker is bound or any order, rule
or regulation applicable to the Commodity Broker of any court or any
governmental body or administrative agency having jurisdiction over the
Commodity Broker.
Section 4. Offering and Sale of Units.
(a) The Selling Agent is hereby appointed as a Selling Agent for the
Trust (it is contemplated that certain additional selling agents and
certain Correspondents may also market Units) during the term herein
specified for the purpose of finding acceptable subscribers for the Units
through a public offering of such Units. The Selling Agent hereby accepts
such agency and agrees on the terms and conditions herein set forth to use
its best efforts to find acceptable subscribers for the Units.
It is understood that the Selling Agent's agreement to use its best
efforts to find acceptable subscribers for the Units shall not prevent it
from acting as a selling agent or underwriter for the securities of other
issuers, including affiliates, which may be offered or sold during the
term hereof. The agency of the Selling Agent hereunder shall continue
until the expiration or termination of this Agreement as provided herein,
including such additional period as may be required to effect a final
closing of the sale of the Units subscribed for through the date of such
termination.
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Each subscriber shall be required to submit a minimum subscription
of at least $5,000 ($2,000 for trustees or custodians of eligible employee
benefit plans and individual retirement accounts and existing Unitholders
making additional investments), subject to the higher minimum requirements
imposed by certain state regulators as set forth in Exhibit B to the
Prospectus. Incremental investments are permitted in $100 multiples, with
Units being sold in fractions calculated to three decimal places.
The Managing Owner agrees to pay, from its own funds, to the Selling
Agent a selling commission of $5 per Unit on each Unit sold by the Selling
Agent at the Initial Closing, and 5% of the Net Asset Value per Unit on
each Unit sold by the Selling Agent at each Additional Closing, each as
defined in Section 4(g) hereof.
During the period from the commencement of the offering of the Units
to the Initial Closing (as defined in Section 4(g) hereof), the Managing
Owner will advance selling commissions within ten (10) business days of
the end of each calendar month based on the Subscription Agreement and
Power of Attorney Signature Pages received and subscription payments paid
into the escrow account of the Trust during the preceding calendar month.
The Selling Agent agrees that it will promptly return to the Managing
Owner, without interest, any selling commissions advanced by the Managing
Owner in respect of subscriptions ultimately rejected out of the escrow
account or in respect of all subscriptions if no Units are sold.
The Selling Agent agrees that it will promptly pass on to their
Registered Representatives that portion of the selling commissions
received from the Managing Owner to which such Registered Representatives
are entitled pursuant to the Selling Agent's standard compensation
procedures, as determined by the Selling Agent from time to time.
(b) For ongoing services rendered to Unitholders, the Managing Owner
shall pay the Selling Agent, provided the Selling Agent remains registered
with the CFTC as a "futures commission merchant" or "introducing broker"
and a member in good standing of the NFA in such capacity, ongoing
compensation in an amount equal to 0.29166 of 1% (a 3.5% annual rate) of
the month-end Net Asset Value of all Units sold by them remaining
outstanding as of the end of each month (including Units redeemed as of
the end of such month). Such
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ongoing compensation shall begin to accrue with respect to each Unit only
after the end of the twelfth full month after the sale of such Unit --
which for these purposes occurs when the related subscription proceeds are
released from the escrow account into the Trust, not when the related
subscriptions are received into escrow -- and shall continue only for as
long as such Unit remains outstanding. The Managing Owner shall pay the
ongoing compensation due to the Selling Agent within fifteen (15) business
days of the end of each calendar quarter.
Ongoing compensation, which is payable to the Selling Agents only in
respect of Units sold by Registered Representatives who are themselves
registered with the CFTC and who have passed either the Series 3 National
Commodity Futures Examination or the Series 31 Futures Managed Funds
Examination, is contingent upon the provision by such Registered
Representatives of ongoing services in connection with the Units sold by
such Registered Representatives, including: (i) inquiring of the Managing
Owner from time to time, at the request of an owner of Units, as to the
Net Asset Value per Unit; (ii) inquiring of the Managing Owner from time
to time, at the request of an owner of Units, regarding the commodities
markets and the Trust; (iii) assisting, at the request of the Managing
Owner, in the redemption of Units; and (iv) providing such other services
to the owners of Units as the Managing Owner may, from time to time,
reasonably request. The Selling Agent agrees to adopt procedures to
monitor the adequacy of the ongoing services provided by Registered
Representatives.
In the case of Units sold by Registered Representatives who are not
qualified to receive ongoing compensation as set forth above, the Managing
Owner will pay the Selling Agent installment selling commissions at the
same rate as in the case of ongoing compensation, but limited in amount,
pursuant to applicable NASD policy, to 4.5% of the initial subscription
price of the Units sold by such Registered Representatives; provided, that
no such installment selling commission shall be payable until the Managing
Owner and the Selling Agent determine that the payment of such installment
selling commission is in compliance with Appendix F of the NASD Rules of
Fair Practice on aggregate compensation which may be received by the
Selling Agent.
The Selling Agent agrees to adopt procedures to monitor the payment
of installment selling commissions to ensure
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that such commissions do not exceed 4.5% of the subscription price of
affected Units.
The Selling Agent agrees to pass ongoing compensation and
installment selling commissions on to its Registered Representatives,
pursuant to the Selling Agent's standard compensation procedures, as
determined by the Selling Agent from time to time.
(c) The Selling Agent, with the consent of the Managing Owner, may
select Correspondents, in each case which are either (i) dealers who are
members in good standing of the NASD or (ii) foreign banks, dealers or
institutions ineligible for membership in a registered security
association (within the meaning of Section 25 of Article III of the NASD's
Rules of Fair Practice) which agree that they will make no sales of Units
within the United States, its territories or possessions or areas subject
to its jurisdiction.
(d) In respect of Correspondents selected by the Selling Agent with
the consent of the Managing Owner, the Managing Owner shall pay the
Selling Agent selling commissions and ongoing compensation as set forth
above, a portion of which (as agreed between the Selling Agent and each
such Correspondent) the Selling Agent shall pass on to each such
Correspondent.
(e) Ongoing compensation will be paid at the end of each calendar
quarter on the basis of the Units outstanding during each month during
such quarter. Net Assets, for purposes of determining ongoing compensation
shall be calculated after reduction of all expenses of the Trust,
including accrued and unpaid expenses.
The Selling Agent otherwise entitled to ongoing compensation will
not be entitled to receipt thereof (but may continue to receive
installment selling commissions) for any month during any portion of which
the Registered Representative who is receiving such ongoing compensation
is at any time not properly registered with the CFTC or does not provide
the ongoing services described above.
(f) If acceptable subscriptions for at least the minimum number of
Units specified on the cover of the Prospectus (the "Minimum Units") shall
not have been received by December 31, 1996 (unless extended until
February 28, 1997 by the Managing Owner), all funds received from
subscribers shall be promptly returned in
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full, together with all interest payable thereon (irrespective of amount)
and without deduction for any escrow or other fee or expense; and
thereupon the Selling Agent's duties under this Agreement shall terminate
without further obligation hereunder on the part of the Selling Agent, the
Managing Owner or the Trust, except as set forth in Section 9 hereof.
(g) If at least the Minimum Units shall have been so subscribed for,
then on December 31, 1996, or (i) at such earlier time after subscriptions
for the Minimum Units shall have been received as determined by the
Managing Owner or (ii) at such later date on or prior to February 28,
1997, to which the Managing Owner may extend the initial offering, the
Managing Owner shall notify the Selling Agent of the initial closing of
the Trust (the "Initial Closing"), as well as of the aggregate number of
Units for which the Managing Owner has received acceptable subscriptions.
Payment of the purchase price for the Units shall be made at the office of
Sidley & Austin, 875 Third Avenue, New York, New York 10022, or at such
other place as shall be agreed upon among the Selling Agent and the
Managing Owner, at 10:00 A.M., New York time, on such day and time (not
later than five (5) business days after the end of the Offering Period) as
shall be agreed upon among the Selling Agent and the Managing Owner (the
"Initial Closing Time"). Subsequent to the Initial Closing Time, Units may
continue to be sold as of the first day of each calendar month (each such
sale, an "Additional Closing" and each such date a "Closing Time"), in the
discretion of the Trust.
(h) No selling commissions or ongoing compensation shall be paid on
Units sold to the Managing Owner or any of its principals or affiliates.
(i) The Trust shall not in any respect be responsible for any
selling commissions or ongoing compensation described herein. All such
commissions and ongoing compensation are to be solely the responsibility
of the Managing Owner.
Section 5. Compliance with Appendix F
and General Laws.
(a) It is understood that the Selling Agent has no commitment with
regard to the sale of the Units other than to use its best efforts. In
connection with the offer and sale of the Units, the Selling Agent
represents that it will comply fully with all
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applicable laws, and the rules and interpretations of the NASD, the SEC,
the CFTC, state securities administrators and any other regulatory body.
In particular, and not by way of limitation, the Selling Agent represents
and warrants that it is familiar with Appendix F of the NASD Rules of Fair
Practice and that it will comply fully with all the terms thereof in
connection with the offering and sale of the Units. The Selling Agent will
not execute any sales of Units from a discretionary account over which it
has control without prior written approval of the customer in whose name
such discretionary account is maintained.
(b) The Selling Agent agrees not to recommend the purchase of Units
to any subscriber unless the Selling Agent shall have reasonable grounds
to believe, on the basis of information obtained from the subscriber
concerning, among other things, the subscriber's investment objectives,
other investments, financial situation and needs, that (to the extent
relevant for the purposes of Appendix F and giving due consideration to
the fact that the Trust is in no respects a "tax shelter") the subscriber
is or will be in a financial position appropriate to enable the subscriber
to realize to a significant extent the benefits of the Trust, including
the tax benefits (if any) described in the Prospectus; the subscriber has
a fair market net worth sufficient to sustain the risks inherent in
participating in the Trust; and the Units are otherwise a suitable
investment for the subscriber. The Selling Agent agrees to maintain such
records as are required by the applicable rules of the NASD and the state
securities commissions for purposes of determining investor suitability.
In connection with making the foregoing representations and warranties,
the Selling Agent further represents and warrants that it has, among other
things, examined the following sections in the Prospectus and obtained
such additional information from the Managing Owner regarding the
information set forth thereunder as the Selling Agent has deemed necessary
or appropriate to determine whether the Prospectus adequately and
accurately discloses all material facts relating to an investment in the
Trust and provides an adequate basis to subscribers for evaluating an
investment in the Units:
"Risk Factors"
"The Trust and Its Objectives"
"Kenmar Advisory Corp."
"Charges"
"Redemptions"
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"Conflicts of Interest"
"The Trust and the Trustee"
"Federal Income Tax Aspects"
"The Futures and Forward Markets"
"Appendix II -- Performance of Other Futures Funds
Operated by Kenmar"
In connection with making the representations and warranties set forth in
this paragraph, Selling Agent has not relied on inquiries made by or on
behalf of any other parties.
The Selling Agent agrees to inform all prospective purchasers of
Units of all pertinent facts relating to the liquidity and marketability
of the Units as set forth in the Prospectus.
(c) All payments for subscriptions may be made by subscriber check
payable to "___________________ as Escrow Agent for Kenmar Global Trust
Escrow Account No. ____________" maintained at ___________________, New
York, New York (the "Escrow Agent"), and submitted to the Selling Agent.
Such payments will be transmitted to the Escrow Agent by Noon, New York
time, on the business day (in the case of foreign dealers, as soon as
practicable) following receipt thereof in accordance with the procedures
set forth in the Prospectus and the Subscription Agreement and Power of
Attorney.
(d) As an alternative to submitting subscription checks, a
subscriber may instead authorize the Selling Agent to debit the
subscriber's customer securities account maintained with the Selling
Agent. Subscribers who do so must have their subscription payments in
their accounts on the specified settlement date -- subscribers to be
notified of such dates by the Selling Agent, respectively. Settlement of
the payment for subscriptions will occur not later than three (3) business
days following notification by the Managing Owner to the Selling Agent of
the acceptance of a particular subscription and not later than the
termination of the offering of the Units. On each settlement date,
subscribers' customer securities accounts will be debited by the Selling
Agent in the amount of their subscriptions. The amount of the subscription
payments so debited will be transmitted by such Selling Agent directly to
the Escrow Agent in the form of a Selling Agent check or wire transfer
made payable to "___________________, as Escrow Agent for Kenmar Global
Trust Escrow Account No. ____________."
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The Selling Agent and the Managing Owner may make such other
arrangements regarding the transmission of subscriptions as they may deem
convenient or appropriate; provided that any such arrangement must comply
in all relevant respects with SEC Regulations 10b-9 and 15c2-4.
Section 6. Blue Sky Survey. The Managing Owner shall cause Sidley &
Austin, counsel to the Managing Owner, to prepare and deliver to the Selling
Agent, after having submitted such Blue Sky Survey to counsel for the Selling
Agent for such counsel's review and approval, a Blue Sky Survey which shall set
forth the United States jurisdictions in which the Units may be offered and
sold. The Managing Owner agrees to use its best efforts to qualify the Units
under the securities or Blue Sky laws of the various state jurisdictions, and to
maintain such qualification during the term of the offering, provided that the
Managing Owner reserves the right to withdraw application for the Units'
registration. It is understood and agreed that the Selling Agent (and its
Correspondents) may rely, in connection with the offering and sale of Units in
any United States jurisdiction, on advice given by Sidley & Austin as to the
legality of the offer or sale of the Units in such jurisdiction.
Section 7. Covenants of the Managing Owner.
(a) The Managing Owner will not file any amendment to the
Registration Statement or supplement to the Prospectus without giving the
Selling Agent a reasonable period of time to review such amendment or
supplement prior to filing or to which the Selling Agent reasonably
objects, unless advised by counsel that doing so is required by law. The
Managing Owner will notify the Selling Agent immediately (i) when any
amendment to the Registration Statement shall have become effective or any
supplement to the Prospectus is filed, (ii) of the receipt of any further
comments from the SEC, CFTC, NFA or any other federal or state regulatory
or self-regulatory body with respect to the Registration Statement, (iii)
of any request by the SEC, CFTC, NFA or any other federal or state
regulatory or self-regulatory body for any further amendment to the
Registration Statement or any amendment or further supplement to the
Prospectus or for additional information relating thereto, (iv) of any
material criminal, civil or administrative proceedings against or
involving the Managing Owner or the Trust, (v) of the issuance by the SEC,
CFTC, NFA or any other federal or state regulatory or self-regulatory body
of any order suspending the effectiveness of the Registration Statement
under the Securities Act, the registration or NFA membership of the
Managing Owner as a "commodity pool
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operator," or the registration of the Units under the Blue Sky or
securities laws of any state or other jurisdiction or any order or decree
enjoining the offering or the use of the then current Prospectus or any
Promotional Material or of the institution, or notice of the intended
institution, of any action or proceeding for that purpose, or (vi) of any
threatened action of the type referred to in clauses (iii) through (v) of
which the Managing Owner is aware. In the event any order of the type
referred to in clause (v) is issued, the Managing Owner agrees to use best
efforts to obtain a lifting or rescinding of such order at the earliest
feasible date.
(b) The Managing Owner will deliver to the Selling Agent as many
signed copies of the Registration Statement as originally filed and of
each amendment thereto, together with exhibits, as the Selling Agent may
reasonably request, and will also deliver to the Selling Agent such number
of conformed copies of the Registration Statement as originally filed and
as of each amendment thereto (without exhibits) as the Selling Agent shall
reasonably request.
(c) The Managing Owner will deliver to the Selling Agent as promptly
as practicable from time to time during the period when the Prospectus is
required to be delivered under the 1933 Act, such number of copies of the
Prospectus (as amended or supplemented) and of the Promotional Material as
the Selling Agent (or their Correspondents) may reasonably request for the
purposes contemplated by the 1933 Act or the SEC Regulations.
(d) The Managing Owner will deliver to the Selling Agent: (i) copies
of all "Blue Sky" and other state securities law clearances obtained by
the Trust; and (ii) copies of all monthly and annual reports, and of any
other communications, sent to the Unitholders.
(e) During the period when the Prospectus is required to be
delivered pursuant to the 1933 Act, the Managing Owner and the Trust will
comply with all requirements imposed upon them by the 1933 Act, the SEC
Regulations, the Commodity Act and the CFTC Regulations, as from time to
time in force, so far as necessary to permit the continuance of sales of
the Units during such period in accordance with the provisions hereof and
as set forth in the Prospectus.
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(f) If any event shall occur as a result of which it is necessary,
in the reasonable opinion of the Managing Owner, to amend or supplement
the Prospectus (i) to make the Prospectus not materially misleading in the
light of the circumstances existing at the time it is delivered to a
subscriber, or (ii) to conform with applicable CFTC or SEC Regulations,
the Managing Owner shall forthwith prepare and furnish to the Selling
Agent, at the expense of the Managing Owner, a reasonable number of copies
of an amendment or amendments of, or a supplement or supplements to, the
Prospectus which will amend or supplement the Prospectus so as to effect
the necessary changes. No such amendment or supplement shall be filed or
used without the approval of the Selling Agent.
Section 8. Covenants of the Trading Advisor.
(a) Each Trading Advisor agrees to cooperate, to the extent
reasonably requested by the Managing Owner, in the preparation of any
amendments or supplements relating to itself to the Registration Statement
and the Prospectus.
(b) During the period when the Prospectus is required to be
delivered under the 1933 Act, each Trading Advisor agrees to notify the
Managing Owner upon discovery of any untrue or misleading statement
regarding it, its operations or any of its principals or of the occurrence
of any event or change in circumstances which would result in there being
any untrue or misleading statement or an omission in the Prospectus or
Registration Statement regarding it, its operations or any of its
principals or result in the Prospectus not including all information
relating to the Trading Advisor and its principals required pursuant to
CFTC regulations. During such period, each Trading Advisor shall promptly
inform the Managing Owner if it is necessary to amend or supplement the
Prospectus in order to make the Prospectus not materially misleading in
light of the circumstances existing at the time the Prospectus is
delivered to a subscriber.
(c) Each Trading Advisor agrees to assist, and cause its principals
or agents to assist, in "road show" presentations relating to the initial
and ongoing offering of the Units at the reasonable request and expense of
the Managing Owner, provided that no such assistance shall result in any
action which any such principal or agent reasonably believes may require
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<PAGE>
registration of such Trading Advisor or any such principal or agent as a
broker-dealer or salesman or interfere materially with such Trading
Advisor's normal daily business activities.
(d) Each Trading Advisor will make available, at its expense, its
independent auditors to discuss with representatives of the Managing Owner
the "back-testing" and ongoing accounting procedures implemented by such
Trading Advisor.
(e) Each Trading Advisor shall, during the term of this Agreement,
deliver annual unaudited financial statements to the Managing Owner, as
well as inform the Managing Owner of any litigation, proceeding against it
or other adverse development in its business or business prospects.
Section 9. Payment of Expenses and Fees. The Managing Owner will pay
all expenses incident to the performance of the obligations of the Managing
Owner and the Trust hereunder, including: (i) the printing and delivery to the
Selling Agent in quantities as hereinabove stated of copies of the Registration
Statement and all amendments thereto, of the Prospectus and any supplements or
amendments thereto, and of any supplemental sales materials; (ii) the
reproduction of this Agreement and the printing and filing of the Registration
Statement and the Prospectus (and, in certain cases, the exhibits thereto) with
the SEC, CFTC and NFA; (iii) the filing fees payable to the SEC and the NASD;
(iv) the qualification of the Units under the securities or "Blue Sky" laws in
the various jurisdictions, including filing fees and the fees and disbursements
of the Managing Owner's counsel incurred in connection therewith; and (v) the
services of Sidley & Austin and accountants for the Managing Owner and the
Trust. The Managing Owner will be reimbursed by the Trust for the foregoing
expenses advanced by it on behalf of the Trust, as described in the Prospectus.
The Managing Owner and the Selling Agent are each aware of the
limitations imposed by Appendix F of the NASD Rules of Fair Practice on the
aggregate compensation which may be received by the Selling Agent in connection
with the offering and sale of the Units. The Selling Agent will in no event
accept any payments from the Managing Owner which, when added to the selling
commissions (not including ongoing compensation) which the Selling Agent
receives on each sale of a Unit, would exceed 10% of the gross proceeds of the
Units sold to the public.
Section 10. Conditions of Closing. The sale of the Units and the
release of subscription funds from the escrow account are subject to the
accuracy of the representations and
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warranties of the parties hereto, to the performance by such parties of their
respective obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective and at
each Closing Time no order suspending the effectiveness thereof shall have
been issued under the 1933 Act or proceeding therefor initiated or
threatened by the SEC, and the CFTC shall have filed the Prospectus as a
Disclosure Document without a finding of further deficiencies.
(b) At the Initial Closing Time, Sidley & Austin, counsel to the
Managing Owner, shall deliver its opinion, in form and substance
satisfactory to the parties hereto, to the effect that:
(i) The Certificate of Trust pursuant to which the Trust has
been formed and the Trust Agreement of the Trust each provides for
the subscription for and sale of the Units; all action required to
be taken by the Managing Owner and the Trust as a condition to the
subscription for and sale of the Units to qualified subscribers
therefor has been taken; and, upon payment of the consideration
therefor specified in the accepted Subscription Agreements and
Powers of Attorney, the Units will constitute valid units of
beneficial interest in the Trust and each subscriber who purchases
Units will become a Unitholder with the same limitation on personal
liability as a stockholder in a private corporation for profit under
the laws of the State of Delaware, subject to the requirement that
each such purchaser shall have duly completed, executed and
delivered to the Managing Owner a Subscription Agreement and Power
of Attorney relating to the Units purchased by such party, that such
purchaser meets all applicable suitability standards and that the
representations and warranties of such purchaser in the Subscription
Agreement and Power of Attorney are true and correct.
(ii) The Trust is a business trust duly and validly organized
pursuant to the Certificate of Trust, the Trust Agreement and the
Delaware Act, and is validly existing under the laws of the State of
Delaware with full power and authority to
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conduct the business in which it proposes to engage as described in
the Prospectus.
(iii) The Managing Owner is duly organized, validly existing
and in good standing as a corporation under the laws of the State of
Connecticut and is in good standing and qualified to do business in
each other jurisdiction in which the failure to so qualify might
reasonably be expected to result in material adverse consequences to
the Trust. The Managing Owner has full corporate power and authority
to perform its obligations as described in the Registration
Statement, the Prospectus and herein.
(iv) The Managing Owner (including the Managing Owner's
principals) and the Trust each has all federal and state
governmental and all regulatory and self-regulatory approvals and
licenses, and has received or made all filings and registrations
with federal and state governmental and all regulatory and
self-regulatory agencies necessary in order for the Managing Owner
and the Trust, respectively, to conduct their respective businesses
as described in the Registration Statement and Prospectus, and, to
the best of their knowledge, none of such approvals, licenses or
registrations have been rescinded or revoked.
(v) Each of the Trust Agreement, the Escrow Agreement, the
Customer Agreement, the Consulting Agreements and this Agreement has
been duly authorized, executed and delivered by or on behalf of the
Managing Owner and/or the Trust, as the case may be, and assuming
that such agreements are binding on the other parties thereto and
hereto, each of the Trust Agreement, the Escrow Agreement, the
Customer Agreements, the Consulting Agreements and this Agreement
constitutes a valid, binding and enforceable agreement of the
Managing Owner and/or the Trust, as the case may be, in each case in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws at the time in effect
affecting the enforceability generally of rights of creditors and
except as enforceability of indemnification provisions may be
limited by applicable law
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and the enforcement of any specific terms or remedies may be
unavailable.
(vi) The execution and delivery of this Agreement, the Trust
Agreement, the Escrow Agreement, the Customer Agreements and the
Consulting Agreements, and the incurrence of the obligations herein,
therein and in the Prospectus set forth and the consummation of the
transactions contemplated herein, therein and in the Prospectus will
not be in contravention of any of the provisions of the Managing
Owner's certificate of incorporation or by-laws and, to the best of
their knowledge, will not constitute a breach of, or default under,
any instrument by which the Managing Owner or the Trust is bound or
any order, rule or regulation applicable to the Managing Owner or
the Trust of any court or any governmental body or administrative
agency having jurisdiction over the Managing Owner or the Trust.
(vii) To the best of their knowledge, there are no actions,
claims or proceedings pending or threatened in any court or before
or by any governmental or administrative agency or regulatory or
self-regulatory body, nor have there been any such suits, claims or
proceedings within the last five years, to which the Managing Owner
(or any principal of the Managing Owner) or the Trust is or was a
party, or to which any of their assets is or was subject, which are
required to be, but are not, disclosed in the Registration Statement
or Prospectus or which might reasonably be expected to result in any
material adverse change in the condition (financial or otherwise),
business or prospects of the Managing Owner or the Trust.
(viii) No authorization, approval or consent of any
governmental or self-regulatory authority or agency is necessary in
connection with the subscription for and sale of the Units, except
such as may be required under the 1933 Act, the Commodity Act, NFA
compliance rules, NASD rules or applicable securities or "Blue Sky"
laws.
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(ix) The information in the Prospectus under the caption
"Federal Income Tax Aspects," to the extent that such information
constitutes matters of law or legal conclusions, has been reviewed
by them and is correct in all material respects, insofar as it
relates to the income tax consequences to the Trust and to the
federal income tax consequences of an investment in the Trust by
U.S. individual taxpayers.
(x) The Registration Statement is effective under the 1933 Act
and no proceeding for a stop order is pending or, to the best of
their knowledge, threatened under Section 8(d) or Section 8(e) of
the 1933 Act or any applicable state "Blue Sky" laws.
(xi) At the time the Registration Statement and any
post-effective amendment thereto became effective, the Registration
Statement, and at the time the Prospectus and any amendments or
supplements thereto were first issued, the Prospectus, complied as
to form in all material respects with the requirements of the 1933
Act, SEC Regulations, the Commodity Act, the CFTC regulations and
the rules of the NFA. Nothing has come to their attention that would
cause them to believe that (a) at the time that the Registration
Statement and any post-effective amendment thereto became effective,
the Registration Statement contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or (b) the Prospectus as first issued or as subsequently
issued or at Closing Time contained an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that
such counsel need express no opinion or belief (A) as to the
financial statements, notes thereto and other financial or
statistical data set forth in the Registration Statement and
Prospectus, or (B) as to the performance data set forth in the
Registration Statement.
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(xii) Assuming operation in accordance with the Prospectus,
the Trust at a Closing Time will not be an "investment company" as
that term is defined in the Investment Company Act of 1940, and the
Managing Owner need not be registered as an "investment adviser"
under the Investment Advisers Act of 1940 in respect of its
management of the Trust.
(c) At the Initial Closing Time, counsel for the Selling Agent (as
selected by such Selling Agent) shall, if required by the Managing Owner,
deliver its opinion to the parties, in form and substance satisfactory to
the parties, regarding such pertinent matters as the Managing Owner may
deem appropriate.
(d) At the Initial Closing Time, counsel for the Commodity Broker
(as selected by the Commodity Broker) shall, if required by the Managing
Owner, deliver its opinion to the parties, in form and substance
satisfactory to the parties, regarding such pertinent matters as the
Managing Owner may deem appropriate.
(e) At the Initial Closing Time, counsel for each Trading Advisor
(as selected by each such Trading Advisor) shall, if required by the
Managing Owner, deliver its opinion to the parties, in form and substance
satisfactory to the parties, regarding such pertinent matters as the
Managing Owner may deem appropriate.
(f) At the Initial Closing Time, Richards, Layton & Finger, Delaware
counsel to the Managing Owner, shall
deliver its opinion, on which Sidley & Austin may rely, in form and
substance satisfactory to the Managing Owner.
(g) At each Closing Time, the Managing Owner shall deliver a
certificate to the effect that: (i) no order suspending the effectiveness
of the Registration Statement has been issued and no proceedings therefor
have been instituted or to the best of their knowledge upon due and
diligent inquiry threatened by the SEC, the CFTC or other regulatory or
self-regulatory body; (ii) the representations and warranties of the
Managing Owner contained herein are true and correct with the same effect
as though expressly made at such Closing Time and in respect of the
Registration Statement as in effect at such Closing Time; and (iii) the
Managing Owner has performed all covenants and agreements herein contained
which are required to be performed on its part at or prior to such Closing
Time.
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(h) At or prior to the Initial Closing Time, the Trust shall have
received a capital contribution of the Managing Owner in the amount
required by its Trust Agreement and as described in the Prospectus.
(i) At or prior to the Initial Closing Time, the Managing Owner's
net worth shall be sufficient in the opinion of Sidley & Austin, counsel
to the Managing Owner, for the Trust to be taxed as a partnership for
federal income tax purposes, not as an association taxable as a
corporation.
(j) At the Initial Closing Time, the Selling Agents shall have
received letters from one or more accounting firms describing certain
agreed upon procedures which they have performed in reviewing certain
performance numbers set forth in the Prospectus.
(k) Each Trading Advisor shall deliver a report dated as of the
Initial Closing Time, which shall present, for the period from the date
after the last day covered by the actual Performance Summaries in the
Prospectus (with respect to the Trading Advisors)to the Managing Owner to
the latest practicable day before the Initial Closing Time, figures which
shall be a continuation of such Summaries and which shall certify that
such figures are accurate in all material respects. The Trading Advisors
shall also certify that such Tables have been calculated in accordance
with the notes to the applicable Summaries in the Prospectus.
(l) At each Additional Closing Time thereafter, the parties hereto
shall have been furnished with such information, opinions and certified
documents as the Managing Owner may deem to be necessary or appropriate.
(m) At each Additional Closing Time, each Trading Advisor shall
deliver a certificate to the effect that (i) the representations and
warranties of such Trading Advisor contained herein are true and correct
with the same effect as though expressly made at such Additional Closing
Time and in respect of the Registration Statement as in effect at such
Additional Closing Time, and (ii) such Trading Advisor has performed all
covenants and agreements herein contained to be performed on its part at
or prior to such Additional Closing Time.
(n) At the Initial Closing Time, executed copies of the Trust
Agreement, the Customer Agreements, the Escrow Agreement, the Consulting
Agreements, and this Agreement shall be delivered to all parties.
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(o) The parties hereto shall have been furnished with such
additional information, opinions and documents, including supporting
documents relating to parties described in the Prospectus and certificates
signed by such parties with regard to information relating to them and
included in the Prospectus as they may reasonably require for the purpose
of enabling them to pass upon the sale of the Units as herein contemplated
and related proceedings, in order to evidence the accuracy or completeness
of any of the representations or warranties or the fulfillment of any of
the conditions herein contained; and all actions taken by the parties
hereto in connection with the sale of the Units as herein contemplated
shall be reasonably satisfactory in form and substance to Sidley & Austin,
counsel for the Managing Owner and to counsel for the Selling Agent.
If any of the conditions specified in this Section 10 shall not have
been fulfilled when and as required by this Agreement to be fulfilled prior to a
Closing Time, this Agreement and all obligations hereunder may be canceled by
any party hereto by notifying the other parties hereto of such cancellation in
writing or by telegram at any time at or prior to such Closing Time, and any
such cancellation or termination shall be without liability of any party to any
other party other than in respect of Units already sold and except as otherwise
provided in Sections 6 and 11 of this Agreement.
Section 11. Indemnification, Contribution and Exculpation. (a) The
Managing Owner agrees to indemnify and hold harmless the Selling Agent, each
Trading Advisor and each person, if any, who controls the Selling Agent or any
Trading Advisor within the meaning of Section 15 of the 1933 Act, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever arising from any breach of any representation or warranty of
the Managing Owner set forth herein or from any untrue statement of a
material fact or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto) or in the
Promotional Material or any omission or alleged omission therefrom of a
material fact required to be stated therein or necessary in order to make
the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the
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statements therein, in the light of the circumstances under which they
were made, not misleading.
(ii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, or any investigation or proceeding by any governmental agency
or body commenced or threatened, or of any claim whatsoever based upon any
such breach, untrue statement or omission or any such alleged untrue
statement or omission (any settlement to be subject to indemnity hereunder
only if effected with the written consent of the Managing Owner); and
(iii) against any and all expense whatsoever (including the fees and
disbursements of counsel) reasonably incurred in investigating, preparing
or defending against litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such material breach, untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under clauses (i) or (ii) above.
(iv) If the indemnification provided for in this Section 11 shall
for any reason be unavailable to the Selling Agent (or a controlling
person of the Selling Agent) in respect of any loss, liability, claim,
damage or expense referred to herein, then the Managing Owner shall, in
lieu of indemnifying the Selling Agent (or controlling person) contribute
to the amount paid or payable by such indemnified party as a result of
such loss, liability, claim, damage or expense, (A) in such proportion as
shall be appropriate to reflect the relative benefits received by the
Managing Owner on the one hand and the Selling Agent on the other from the
offering of the Units by the Selling Agent or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A ) above but also the relative fault of the
Managing Owner on the one hand and the Selling Agent on the other with
respect to the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant
equitable considerations. In no event shall the aggregate contribution or
liability of the Selling Agent exceed the aggregate selling commissions
and ongoing compensation paid to the Selling Agent hereunder. Relative
fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact relates to
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<PAGE>
information supplied by the Managing Owner on the one hand or the Selling
Agent on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties agree that it would not be just
and equitable if contributions pursuant to this Section 11 (iv) were to be
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. The amount paid or payable by the Selling Agent (or controlling
person) as a result of the loss, liability, claim, damage or expense
referred to above in this Section 11(iv), shall be deemed to include, for
purposes of this Section 11(iv), any legal or other expenses reasonably
incurred by such otherwise indemnified party in connection with
investigating or defending any such action or claim.
In no case shall the Managing Owner be liable under this indemnity
and contribution agreement with respect to any claim unless the Managing Owner
shall be notified in writing of the nature of the claim within a reasonable time
after the assertion thereof, but failure to so notify the Managing Owner shall
not relieve the Managing Owner from any liability which it may have otherwise
than on account of this indemnity and contribution agreement. The Managing Owner
shall be entitled to participate at its own expense in the defense or, if it so
elects within a reasonable time after receipt of such notice, to assume the
defense of any suit so brought, which defense shall be conducted by counsel
chosen by it and satisfactory to the indemnified party (or party entitled to
contribution hereunder) or parties, defendant or defendants therein.
The Managing Owner agrees to notify the Selling Agent and the
Trading Advisors within a reasonable time of the assertion of any claim in
connection with the sale of the Units against it or any of its officers or
directors or any person who controls the Managing Owner within the meaning of
Section 15 of the 1933 Act.
(b) Indemnification by Each Trading Advisor. Each Trading Advisor
agrees to indemnify and hold harmless the Selling Agent, the Managing Owner, the
Trust and each person, if any, who controls the Selling Agent, the Trust or the
Managing Owner within the meaning of Section 15 of the 1933 Act (and, in the
case of the Managing Owner and the Trust, each person who signed the
Registration Statement or is a director of the Managing Owner), to the same
extent as the indemnity from the Managing Owner set forth in Section 11(a)
hereof, but only insofar as the losses, claims, damages, liabilities or expenses
indemnified against arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission relating or with
-32-
<PAGE>
respect to that Trading Advisor or any principal of that Trading Advisor, or its
operations, trading systems, methods or performance, which was made in any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto and furnished by or approved by the Trading
Advisor for inclusion therein.
(c) If the indemnification provided for in this Section 11 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by that Trading Advisor, on the one hand, and the
Managing Owner, on the other, from the offering of the Units.
Section 12. Status of Parties. In marketing Units pursuant to this
Agreement, the Selling Agent is acting solely as agent for the Trust, and not as
principal. The Selling Agent will use its best efforts to assist the Trust in
obtaining performance by each purchaser solicited by such Selling Agent whose
offer to purchase Units from the Trust has been accepted on behalf of the Trust,
but the Selling Agents shall not have any liability to the Trust in the event
that Subscription Agreements and Powers of Attorney are improperly completed or
any such purchase is not consummated for any reason. Except as specifically
provided herein, the Selling Agent shall in no respect be deemed to be an agent
of the Trust.
Section 13. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or contained in certificates of any party hereto submitted pursuant
hereto shall remain operative and in full force and effect, regardless of any
investigation made by, or on behalf of, the Selling Agent, the Managing Owner,
the Trust, any Trading Advisor or any person who controls any of the foregoing,
and shall survive the Closing Times.
Section 14. Termination. The Selling Agent shall have the right to
terminate its participation under this Agreement at any time for cause and at
any time after the end of the Initial Offering Period upon fifteen (15) business
days' prior written notice of such termination to the Managing Owner and the
Trust. The Managing Owner may terminate the offering of the Units at any time
upon fifteen (15) business days' prior written notice to the Selling Agent.
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<PAGE>
Section 15. Survival. Irrespective of the expiration or termination
of this Agreement, Sections 7, 8, 9 and 11 hereof shall survive, and all
applicable provisions of this Agreement with respect to outstanding Units.
Section 16. Notices and Authority to Act. All communications
hereunder shall be in writing and, if sent to the Managing Owner or the Trust,
shall be mailed, delivered or telecopied and confirmed to the Managing Owner at:
Kenmar Advisory Corp., Two American Lane, P.O. Box 5150, Greenwich, Connecticut
06831-8150, Attn: Joshua Parker, Esq.; and Mr. David Sawyier, Sidley & Austin,
One First National Plaza, Chicago, Illinois 60603. If sent to
____________________________, shall be mailed, delivered or telecopied and
confirmed to it at _______________________________________, Attention:
____________. Notices shall be effective when actually received.
Section 17. Parties. This Agreement shall inure to the benefit of
and be binding upon the Selling Agent, the Trust, the Managing Owner, the
Trading Advisors and such parties' respective successors to the extent provided
herein. This Agreement and the conditions and provisions hereof are intended to
be and are for the sole and exclusive benefit of the parties hereto and their
respective successors, assigns and controlling persons and parties indemnified
hereunder, and for the benefit of no other person, firm or corporation. No
purchaser of a Unit shall be considered to be a successor or an assignee solely
on the basis of such purchase.
Section 18. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES CREATED HEREBY SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF CONNECTICUT.
Section 19. Consent to Jurisdiction. The parties hereto agree that
any action or proceeding arising directly, indirectly, or otherwise in
connection with, out of, related to, or from this Agreement, any breach hereof,
or any transaction covered hereby, shall be resolved, whether by arbitration or
otherwise, within the County of Fairfield, and State of Connecticut.
Accordingly, the parties hereto consent and submit to the jurisdiction of the
federal and state courts and applicable arbitral body located within the County
of Fairfield, and State of Connecticut. The parties further agree that any such
action or proceeding brought by any party to enforce any right, assert any
claim, or obtain any relief whatsoever in connection with this Agreement shall
be brought by such party exclusively in the federal or state courts, or if
appropriate, before any applicable arbitral body, located within the County of
Fairfield, and State of Connecticut.
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<PAGE>
The Managing Owner and the Trust each agree that, at the request of
the Selling Agent, they will submit any action or proceeding referred to in this
Section 19 to NFA arbitration in the County of Fairfield and State of
Connecticut, and agree to execute and deliver to each Selling Agent such Selling
Agent's standard form of arbitration agreement, as required by NFA regulations.
Section 20. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original and both of which together
shall be deemed one and the same instrument.
-35-
<PAGE>
If the foregoing is in accordance with each party's understanding of
their agreement, each party is requested to sign and return to the Managing
Owner and the Trust a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement among them in accordance with
its terms.
Very truly yours,
KENMAR GLOBAL TRUST
By: KENMAR ADVISORY CORP.,
Managing Owner
By:________________________________
Name:
Title:
KENMAR ADVISORY CORP.
By:________________________________
Name:
Title:
CHESAPEAKE CAPITAL CORPORATION
By:___________________________
Name:
Title:
DREISS RESEARCH CORPORATION
By:___________________________
Name:
Title:
HYMAN BECK & COMPANY, INC.
By:___________________________
Name:
Title:
WILLOWBRIDGE ASSOCIATES, INC.
By:___________________________
Name:
Title:
-36-
<PAGE>
WITTER & LESTER, INC.
By:___________________________
Name:
Title:
Confirmed and accepted as of
the date first above written
with respect to Section 3:
ING (U.S.) SECURITIES, FUTURES &
OPTIONS INC.
By:___________________________
Name:
Title:
Confirmed and accepted as of the date first above written:
[SELLING AGENT]
By:___________________________
Name:
Title:
-37-
<PAGE>
Exhibit A
================================================================================
CORRESPONDENT SELLING AGENT AGREEMENT
Kenmar Global Trust
(A Delaware Business Trust)
$50,000,000
Units of Beneficial Interest
Kenmar Advisory Corp.
Managing Owner
Dated _______, 1996
================================================================================
<PAGE>
Kenmar Global Trust
TABLE OF CONTENTS
Page
----
Section 1. Representations and Warranties
of the Managing Owner................................. A-2
Section 2. Offering and Sale of Units................................ A-8
Section 3. Compliance with Appendix F and General Laws...............A-13
Section 4. Blue Sky Survey...........................................A-15
Section 5. Covenants of the Managing Owner...........................A-16
Section 6. Payment of Expenses and Fees..............................A-17
Section 7. Conditions of Closing.....................................A-18
Section 8. Indemnification, Contribution and
Exculpation...........................................A-19
Section 9. Status of Parties.........................................A-21
Section 10. Representations, Warranties and
Agreements to Survive Delivery........................A-21
Section 11. Termination...............................................A-22
Section 12. Survival..................................................A-22
Section 13. Notices and Authority to Act.............................. A-22
Section 14. Parties...................................................A-22
Section 15. Governing Law.............................................A-22
Section 16. Consent to Jurisdiction...................................A-22
Section 17. Counterparts..............................................A-23
A-i
<PAGE>
Kenmar Global Trust
(A Delaware Business Trust)
$50,000,000
Units of Beneficial Interest
Initially $100 per Unit
CORRESPONDENT SELLING AGENT AGREEMENT
__________, 1996
[Correspondent Selling Agent]
Dear Sirs:
Kenmar Advisory Corp., a Delaware corporation (the "Managing
Owner"), has caused the formation of a business trust pursuant to the Delaware
Business Trust Act (the "Delaware Act") under the name, Kenmar Global Trust (the
"Trust"), for the purposes of engaging in the speculative trading of commodity
futures and forward contracts, commodity options and other commodity interests,
through investments with independent commodity trading advisors (each, a
"Trading Advisor") retained by the Managing Owner on behalf of the Trust.
______________ (the "Selling Agent") has been appointed pursuant to a Selling
Agreement (the "Selling Agreement") by and among themselves, the Managing Owner,
the Trading Advisors and Trust, as a Selling Agent for the Trust. Other selling
agents (the "Correspondent Selling Agents") may be selected by the Selling Agent
with the consent of the Managing Owner in accordance with the terms of the
Selling Agreement. You have been so selected by the Selling Agent and the Trust.
We understand that you are willing to use your best efforts to market the
Trust's units of beneficial interest ("Units").
Accordingly, the Correspondent Selling Agent, the Managing Owner,
the Trust and the Selling Agent, intending to be legally bound, hereby agree as
follows.
<PAGE>
Correspondent Selling Agent Agreement
Section 1. Representations and Warranties of the Managing Owner. The
Managing Owner represents and warrants to the Correspondent Selling Agent as
follows -- such representations and warranties to be restated and reaffirmed as
of each Closing Time (as defined in Section 2 hereof):
(a) The Trust has filed with the Securities and Exchange Commission
(the "SEC"), a registration statement on Form S-1 (No. 33-______), as
initially filed with the SEC on ____________, 1996, as amended by
Amendment No. 1 thereto filed with the SEC on _________, 1996, and
Amendment No. 2 thereto filed with the SEC on _____________, 1996, for the
registration of the Units under the Securities Act of 1933, as amended
(the "1933 Act"), and has filed two copies thereof with the Commodity
Futures Trading Commission (the "CFTC") under the Commodity Exchange Act,
as amended (the "Commodity Act"), and the rules and regulations thereunder
(the "CFTC Regulations"), and one copy with the National Futures
Association (the "NFA") in accordance with NFA Compliance Rule 2-13. The
registration statement as amended and delivered to all parties hereto at
the time it becomes effective and the prospectus included therein are
hereinafter called the "Registration Statement" and the "Prospectus,"
respectively, except that (i) if the Trust files a subsequent
post-effective amendment to the registration statement, then the term
"Registration Statement" shall, from and after the declaration of the
effectiveness of such post-effective amendment, refer to the registration
statement as amended by such post-effective amendment thereto, and the
term "Prospectus" shall refer to the prospectus as most recently issued by
the Trust pursuant to the rules and regulations of the SEC promulgated
under the 1933 Act (the "SEC Regulations").
The Managing Owner agrees to suspend the offering immediately and
inform the Selling Agent, which shall inform the Correspondent Selling
Agent, if the Managing Owner has any reason to believe that it may be
necessary or advisable to amend the Registration Statement or supplement
the Prospectus.
No references to the Correspondent Selling Agent may be made in the
Registration Statement, Prospectus or in any promotional brochure or other
marketing materials (collectively, "Promotional Material"), including
"Tombstone Ads" or other communications qualifying under Rule 134 of the
SEC Regulations which have not been approved in writing by the
Correspondent Selling Agent, which approval the Correspondent Selling
A-2
<PAGE>
Correspondent Selling Agent Agreement
Agent may withhold in its sole and absolute discretion. The Trust will
file all Promotional Material with the National Association of Securities
Dealers, Inc. (the "NASD"), and shall not use any such Promotional
Material to which the NASD has not expressed that it has no objections.
The Trust will file all Promotional Material in all state jurisdictions,
and shall not use any such Promotional Material in any state which has
expressed any objection thereto (except pursuant to agreed-upon
modification to the Promotional Material).
All representations, warranties and indemnities set forth herein
will be deemed to be restated in their entirety as of each Closing Time
(as defined in Section 2(g) hereof).
(b) The certificate of trust (the "Certificate of Trust") pursuant
to which the Trust has been formed and the Declaration of Trust and Trust
Agreement of the Trust (the "Trust Agreement") provide for the
subscription for and sale of the Units of the Trust; all action required
to be taken by the Managing Owner and the Trust as a condition to the sale
of the Units to qualified subscribers therefor has been, or prior to the
Initial Closing Time (as defined in Section 2 hereof) will have been,
taken; and, upon payment of the consideration therefor specified in all
accepted Subscription Agreements and Powers of Attorney, the Units will
constitute valid units of beneficial interest in the Trust as to which the
subscribers thereto will have the same limitation on personal liability as
stockholders in a private corporation for profit organized under the laws
of the State of Delaware, and the subscribers will be Unitholders of the
Trust entitled to all the applicable benefits under the Trust Agreement
and the Delaware Act.
(c) The Trust is a business trust duly organized pursuant to the
Delaware Act and is validly existing and in good standing under the laws
of the State of Delaware with full power and authority to engage in the
business to be conducted by it, as described in the Prospectus. The Trust
is in good standing and qualified to do business in each jurisdiction in
which such qualification is necessary in order to protect the limited
liability of Unitholders and in which the nature or conduct of its
business as described in the Registration Statement requires such
qualification and
A-3
<PAGE>
Correspondent Selling Agent Agreement
the failure to be so qualified would materially adversely affect the
Trust.
(d) The Managing Owner is, and will continue to be so long as it is
the managing owner of the Trust, a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut
and is in good standing and qualified to do business in each jurisdiction
in which the nature or conduct of its business as described in the
Registration Statement and Prospectus requires such qualification and the
failure to be so qualified would materially adversely affect the Trust's
or the Managing Owner's ability to perform its obligations hereunder.
(e) The Trust and the Managing Owner each have full trust and
corporate power and authority, as the case may be, under applicable law to
perform its respective obligations under the Trust Agreement, the escrow
agreement described in the Prospectus relating to the offering of the
Units (the "Escrow Agreement"), the Customer Agreement by and among the
Selling Agent, the Trust and the Managing Owner (the "Customer
Agreement"), the Consulting Agreements (the "Consulting Agreements") by
and among each Trading Advisor, the Trust and the Managing Owner and this
Agreement, and to conduct its business as described in the Registration
Statement and Prospectus.
(f) The Registration Statement and Prospectus contain all statements
and information required to be included therein by the Commodity Act and
the rules and regulations promulgated thereunder. When the Registration
Statement becomes effective under the 1933 Act and at all times subsequent
thereto up to and including each Closing Time, the Registration Statement,
Prospectus and Promotional Material will comply in all material respects
with the requirements of the 1933 Act, the Commodity Act, the SEC
Regulations and the CFTC Regulations and will be accurate and complete in
all material respects. The Registration Statement as of its effective date
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and each item of the
Promotional Material (considered individually) as of the date of their
issue and at all times subsequent thereto up to and including each
A-4
<PAGE>
Correspondent Selling Agent Agreement
Closing Time will not contain any untrue statement of a material fact or
(considered collectively) omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which such
statements are made, not misleading.
(g) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there will not have been
any adverse change in the condition (financial or otherwise), business or
prospects of the Managing Owner or the Trust, whether or not arising in
the ordinary course of business, of which the Selling Agent shall not be
informed by the Managing Owner.
(h) The Managing Owner has, and will continue to have during the
term of the Trust, a net worth sufficient in amount and satisfactory in
form, as set forth in the opinion of Sidley & Austin, counsel for the
Managing Owner, for classification of the Trust as a partnership for
federal income tax purposes under current interpretations of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder.
(i) Each of the Trust Agreement, the Escrow Agreement, the Selling
Agreement, the Customer Agreement, the Consulting Agreements and this
Agreement has been duly and validly authorized, executed and delivered by
the Managing Owner on behalf of the Trust and by the Managing Owner, and
each constitutes a valid, binding and enforceable agreement of the Trust
and the Managing Owner in accordance with its terms.
(j) The execution and delivery of the Trust Agreement, the Escrow
Agreement, the Selling Agreement, the Customer Agreement, the Consulting
Agreements and this Agreement, the incurrence of the obligations set forth
therein and herein and the consummation of the transactions contemplated
therein, herein and in the Prospectus: (i) will not constitute a breach
of, or default under, any instrument or agreement by which the Managing
Owner or the Trust, as the case may be, or any of their property or assets
is bound, or any statute, order, rule or regulation applicable to the
Managing Owner or the Trust, as
A-5
<PAGE>
Correspondent Selling Agent Agreement
the case may be, of any court or any governmental body or administrative
agency having jurisdiction over the Managing Owner or the Trust, as the
case may be; (ii) will not result in the creation or imposition of any
lien, charge or encumbrance on any property or assets of the Managing
Owner or the Trust; (iii) will not give any party a right to terminate its
obligations or result in the acceleration of any obligations under any
material instrument or agreement by which the Managing Owner or the Trust,
as the case may be, or any of their respective property or assets is
bound; and (iv) will not result in any material liability (other than such
as may be contemplated hereby) on the part of either the Managing Owner or
the Trust.
(k) Except as otherwise disclosed in the Registration Statement or
the Prospectus, there is not pending nor, to the best of the Managing
Owner's knowledge, threatened any action, suit or proceeding before or by
any court or other governmental body to which the Managing Owner or the
Trust is a party, or to which any of the assets of the Managing Owner or
the Trust is subject, which might reasonably be expected to result in any
material adverse change in the condition (financial or otherwise),
business or prospects of the Managing Owner or the Trust or which is
required to be disclosed in the Registration Statement or Prospectus
pursuant to the Commodity Act, the 1933 Act, the SEC Regulations or the
CFTC Regulations.
(l) No stop order relating to the Registration Statement has been
issued by any federal or state securities commission, and no proceedings
therefor are pending or, to the best knowledge of the Managing Owner,
threatened.
(m) The Managing Owner and each of its principals and employees
have, and will continue to have so long as it is the managing owner of the
Trust, all federal and state governmental, regulatory, self-regulatory and
commodity exchange approvals and licenses, and the Managing Owner (either
on behalf of itself or its principals and employees) has effected all
filings and registrations with federal and state governmental, regulatory
or self-regulatory agencies required to conduct its business and to act as
described in the Registration Statement and Prospectus or required to
perform its or their obligations as described under the Trust Agreement
(including, without limitation, registration (i) as a commodity pool
operator and commodity trading advisor under the Commodity Act, (ii)
A-6
<PAGE>
Correspondent Selling Agent Agreement
membership in the NFA as a commodity pool operator and commodity trading
advisor, and (iii) as a "transfer agent" with the Securities and Exchange
Commission, and this Agreement and the performance of such obligations
will not contravene or result in a breach of any provision of the Managing
Owner's certificate of incorporation, by-laws or any agreement,
instrument, order, law or regulation binding upon it or any of its
employees or principals.
(n) The Trust does not require any federal or state governmental,
regulatory, self-regulatory or commodity exchange approvals or licenses,
and the Trust need not effect any filings or registrations with any
federal or state governmental agencies in order to conduct its business
and to act as contemplated by the Registration Statement and Prospectus
and to issue and sell the Units (other than filings under the 1933 Act,
the Commodity Act and state securities laws relating solely to the
offering of the Units).
(o) The Managing Owner has the financial resources necessary to meet
its obligations to the Selling Agent hereunder.
(p) The Managing Owner acknowledges that the Correspondent Selling
Agent's customer lists constitute proprietary data belonging to the
Correspondent Selling Agent, and the Managing Owner agrees that it will
not disseminate any confidential information regarding any of the
foregoing, except as required by law. Furthermore, the Managing Owner
agrees that it will not independently solicit any client on the
Correspondent Selling Agent's customer lists, except as requested by the
Correspondent Selling Agent in connection with soliciting investments in
the Trust. The Managing Owner further agrees with the Selling Agent and
the Correspondent Selling Agent that the Managing Owner will use its best
efforts to keep the identity of the Correspondent Selling Agent, as well
as the terms of this Agreement, confidential, except as otherwise required
by law or otherwise made public by third parties without the negligence,
misconduct or breach of the terms hereof by the Managing Owner.
(q) The accountants who certified the Statement of Financial
Position of the Managing Owner and the Statement of Financial Condition of
the Trust included
A-7
<PAGE>
Correspondent Selling Agent Agreement
in the Registration Statement are, with respect to the Managing Owner and
the Trust, independent public accountants as required by the 1933 Act and
the SEC Regulations. These Statements fairly present the financial
position and financial condition of the Managing Owner and the Trust, as
the case may be, as of the date of such Statements. The audited Statement
of Position of the Managing Owner and Statement of Financial Condition of
the Trust are presented in accordance, and the unaudited Statements of
Financial Position of the Managing Owner substantially in accordance, with
Generally Accepted Accounting Principles (as currently in effect in the
United States).
Section 2. Offering and Sale of Units.
(a) The Correspondent Selling Agent is hereby appointed as a
non-exclusive Correspondent Selling Agent of the Selling Agent during the
term herein specified for the purpose of finding acceptable subscribers
for the Units through a public offering of such Units. The Correspondent
Selling Agent hereby accepts such agency and agrees on the terms and
conditions herein set forth to use its best efforts to find acceptable
subscribers.
It is understood that the Correspondent Selling Agent's agreement to
use its best efforts to find acceptable subscribers for the Units shall
not prevent it from acting as a selling agent or underwriter for the
securities of other issuers which may be offered or sold during the term
hereof. The agency of the Correspondent Selling Agent hereunder shall
continue until the expiration or termination of this Agreement, as
provided herein, including such additional period as may be required to
effect the closing of the sale of the Units subscribed for through the
Correspondent Selling Agent through the date of termination.
Each subscriber shall be required to submit a minimum subscription
of at least $5,000 ($2,000 for trustees or custodians of eligible employee
benefit plans and individual retirement accounts and existing Unitholders
making additional investments), subject to higher minimum requirements
imposed by certain state regulators as set forth in Exhibit B to the
Prospectus. Incremental investments are permitted in $100 multiples
A-8
<PAGE>
Correspondent Selling Agent Agreement
with Units being sold in fractions calculated to three decimal places.
The Managing Owner agrees to pay, from its own funds, to the Selling
Agent a selling commission of $5 per Unit on each Unit sold by the
Correspondent Selling Agent at the Initial Closing (5% of the Net Asset
Value per Unit on each Unit sold by the Correspondent Selling Agent at
each Additional Closing).
During the period from the commencement of the offering of the Units
to the Initial Closing (as defined in Section 2(f) hereof), the Managing
Owner shall advance selling commissions to the Selling Agent within ten
(10) business days of the end of each calendar month based on Subscription
Agreement and Power of Attorney Signature Pages received and subscription
payments paid into the escrow account of the Trust during the preceding
calendar month. The Selling Agent agrees that it will promptly return to
the Managing Owner, without interest, any selling commissions advanced by
the Managing Owner in respect of subscriptions ultimately rejected out of
the escrow account or in respect of all subscriptions if no Units are sold
to the public by release of subscriptions from the escrow account to the
account of the Trust.
The Selling Agent agrees that it will promptly pass on to the
Correspondent Selling Agent __% of the initial 5% selling commission
received by the Selling Agent from the Managing Owner to which the
Correspondent Selling Agent is entitled. The Correspondent Selling Agent,
in turn, agrees that it will promptly pass on to its Registered
Representatives that portion of the selling commissions received by the
Correspondent Selling Agent from the Selling Agent to which such
Registered Representatives are entitled pursuant to the Correspondent
Selling Agent's standard compensation procedures, as determined by the
Correspondent Selling Agent from time to time.
(b) For ongoing services rendered to Unitholders by the Selling
Agent and the Correspondent Selling Agent, the Managing Owner shall pay
the Selling Agent, provided that the Selling Agent remains, and the
Correspondent Selling Agent is and remains, registered with the CFTC as a
"futures commission merchant" or "introducing broker" and a member in good
standing of
A-9
<PAGE>
Correspondent Selling Agent Agreement
the NFA in such capacity, ongoing compensation in an amount equal to
0.29166 of 1% (a 3.5% annual rate) of the month-end Net Asset Value of
Units sold by the Correspondent Selling Agent remaining outstanding as of
the end of each month (including Units redeemed as of the end of such
month). Such ongoing compensation shall begin to accrue with respect to
each Unit only after the end of the twelfth full month after the sale of
such Unit -- which for these purposes occurs when the related subscription
proceeds are released from the escrow account into the Trust, not when the
related subscriptions are received into escrow -- and shall continue only
for as long as such Unit remains outstanding. The Managing Owner shall pay
the ongoing compensation due to the Selling Agent within fifteen (15)
business days of the end of each calendar quarter.
Ongoing compensation, which is payable to the Selling Agent only in
respect of Units sold by Registered Representatives of the Correspondent
Selling Agent who are themselves registered with the CFTC and who have
passed either the Series 3 National Commodity Futures Examination or the
Series 31 Futures Managed Funds Examination, is contingent upon the
agreement by such Registered Representatives to provide ongoing services
in connection with the Units sold by such Registered Representatives,
including: (i) inquiring of the Managing Owner (through the Selling Agent)
from time to time, at the request of an owner of Units, as to the Net
Asset Value of a Unit; (ii) inquiring of the Managing Owner (through the
Selling Agent) from time to time, at the request of an owner of Units,
regarding the commodities markets and the Trust; (iii) assisting, at the
request of the Managing Owner (through the Selling Agent), in the
redemption of Units; and (iv) providing such other services to the owners
of Units as the Managing Owner (through the Selling Agent) may, from time
to time, reasonably request. The Correspondent Selling Agent agrees to
adopt procedures to monitor the adequacy of the ongoing services provided
by its Registered Representatives.
In the case of Units sold by Registered Representatives who are not
qualified to receive ongoing compensation as set forth above, the Managing
Owner will pay the Selling Agent installment selling commissions at the
same rate as in the case of ongoing compensation, but limited, pursuant to
applicable NASD
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Correspondent Selling Agent Agreement
policy, in amount to 4.5% of the initial subscription price of the Units
sold by such Registered Representatives; provided, that no such
installment selling commission shall be payable until the Managing Owner
and the Selling Agent determine that the payment of such installment
selling commission is in compliance with Appendix F of the NASD Rules of
Fair Practice on aggregate compensation which may be received by the
Selling Agent and the Correspondent Selling Agent. The Correspondent
Selling Agent agrees to adopt procedures to monitor the payment of
installment selling commissions so as to ensure that such commissions do
not exceed 9.5% of the initial subscription price of affected Units.
The Selling Agent agrees that it will promptly pass on to the
Correspondent Selling Agent __% per annum of the ongoing compensation and
installment selling commissions received by the Selling Agent from the
Managing Owner to which the Correspondent Selling Agent is entitled. The
Correspondent Selling Agent agrees to pass ongoing compensation and
installment selling commissions on to its Registered Representatives on an
ongoing basis, pursuant to the Correspondent Selling Agent's standard
compensation procedures, as determined by the Correspondent Selling Agent
from time to time.
(c) The Correspondent Selling Agent must be either (i) a dealer who
is a member in good standing of the NASD and which agrees, or (ii) a
foreign bank, dealer or institution ineligible for membership in a
registered security association (within the meaning of Section 25 of
Article III of the NASD's Rules of Fair Practice) and agree that it will
make no sales of Units within the United States, its territories or
possessions or areas subject to its jurisdiction.
(d) Ongoing compensation will be paid at the end of each calendar
quarter for which such compensation is payable on the basis of the Units
outstanding during each month during such quarter. Net Assets, for
purposes of determining ongoing compensation, shall be calculated after
reduction of all expenses of the Trust, including both accrued and unpaid
expenses.
The Correspondent Selling Agent (unless it is a foreign dealer),
although otherwise entitled to ongoing
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Correspondent Selling Agent Agreement
compensation, will not be entitled to receipt thereof (but may continue to
receive installment selling commissions) for any month during any portion
of which the Registered Representative who is receiving such ongoing
compensation is at any time not properly registered with the CFTC.
Consequently, the Selling Agent will itself be ineligible to receive any
such ongoing compensation from the Managing Owner in respect of such
Units.
(e) If acceptable subscriptions for at least the minimum number of
Units specified on the cover of the Prospectus (the "Minimum Units") shall
not have been received by December 31, 1996 (unless extended until
February 28, 1997 by the Managing Owner), all funds received from
subscribers shall be promptly returned in full, together with all interest
payable thereon (irrespective of amount) and without deduction for any
escrow or other fee or expense; and thereupon the Selling Agent's and the
Correspondent Selling Agent's duties under this Agreement shall terminate
without further obligation hereunder on the part of the Selling Agent, the
Correspondent Selling Agent, the Managing Owner or the Trust.
(f) If at least the Minimum Units shall have been subscribed for,
then on December 31, 1996, or (i) at such earlier time after subscriptions
for the Minimum Units shall have been received as determined by the
Managing Owner, or (ii) at such later date on or prior to February 28,
1997, to which the Managing Owner may extend the initial offering, the
Managing Owner shall notify the Correspondent Selling Agent of the initial
closing of the Trust (the "Initial Closing") as well as of the aggregate
number of Units for which the Managing Owner has received acceptable
subscriptions and then payment of the purchase price for the Units shall
be made at the office of Sidley & Austin, 875 Third Avenue, New York, New
York 10022, or at such other place as shall be agreed upon among the
Selling Agent and the Managing Owner, at 10:00 A.M., New York time, on
such day and time (not later than five (5) business days after the end of
the Offering Period) as shall be agreed upon among the Selling Agent and
the Managing Owner (the "Initial Closing Time"). Subsequent to the Initial
Closing Time, Units shall continue to be sold as of the first day of each
calendar month (each such
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Correspondent Selling Agent Agreement
sale, an "Additional Closing" and each such date a "Closing Time"), in the
discretion of the Trust.
(g) No selling commissions or ongoing compensation shall be paid on
Units sold to the Managing Owner or any of its principals or affiliates.
(h) The Trust shall not in any respect be responsible for any
selling commissions or ongoing compensation described herein. All such
commissions and ongoing compensation are to be solely the responsibility
of the Managing Owner.
Section 3. Compliance with Appendix F
and General Laws.
(a) The Correspondent Selling Agent will use its best efforts to
find eligible persons to purchase the Units on the terms stated herein and
in the Registration Statement and Prospectus. It is understood that the
Correspondent Selling Agent has no commitment with regard to the sale of
the Units other than to use its best efforts. In connection with the offer
and sale of the Units, the Selling Agent and the Correspondent Selling
Agent each represents that it will comply fully with all applicable laws,
and the rules and interpretations of the NASD, the SEC, the CFTC, state
securities administrators and any other regulatory body. In particular,
and not by way of limitation, the Correspondent Selling Agent represents
and warrants that it is familiar with Appendix F of the NASD Rules of Fair
Practice and that it will comply fully with all the terms thereof in
connection with the offering and sale of the Units. The Correspondent
Selling Agent will not execute any sales of Units from a discretionary
account over which it has control without prior written approval of the
customer in whose name such discretionary account is maintained.
(b) The Correspondent Selling Agent agrees not to recommend the
purchase of Units to any subscriber unless the Correspondent Selling Agent
shall have reasonable grounds to believe, on the basis of information
obtained from the subscriber concerning, among other things, the
subscriber's investment objectives, other investments, financial situation
and needs, that (to the extent relevant for the purposes of Appendix F and
giving due consideration to the fact that the Trust
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Correspondent Selling Agent Agreement
is in no respects a "tax shelter") the subscriber is or will be in a
financial position appropriate to enable the subscriber to realize to a
significant extent the benefits of the Trust, including the tax benefits
(if any) described in the Prospectus; the subscriber has a fair market net
worth sufficient to sustain the risks inherent in participating in the
Trust; and the Units are otherwise a suitable investment for the
subscriber. The Correspondent Selling Agent agrees to maintain such
records as are required by the NASD and the state securities commissions
for purposes of determining investor suitability. In connection with
making the foregoing representations and warranties, the Correspondent
Selling Agent further represents and warrants that it has, among other
things, examined the following sections in the Prospectus and obtained
such additional information from the Managing Owner regarding the
information set forth thereunder as the Correspondent Selling Agent has
deemed necessary or appropriate to determine whether the Prospectus
adequately and accurately discloses all material facts relating to an
investment in the Trust and provides an adequate basis to subscribers for
evaluating an investment in the Units:
"Risk Factors"
"The Trust and Its Objectives"
"Kenmar Advisory Corp."
"Charges"
"Redemptions"
"Conflicts of Interest"
"The Trust and the Trustee"
"Federal Income Tax Aspects"
"The Futures and Forward Markets"
"Appendix II -- Performance of Other Futures Funds
Operated by Kenmar"
In connection with making the representations and warranties set forth in
this paragraph, the Correspondent Selling Agent has not relied on
inquiries made by or on behalf of any other parties.
The Correspondent Selling Agent agrees to inform all prospective
purchasers of Units of all pertinent facts relating to the liquidity and
marketability of the Units as set forth in the Prospectus.
(c) All payments for subscriptions will be made by subscriber check
payable to "___________________ as
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Correspondent Selling Agent Agreement
Escrow Agent for Kenmar Global Trust Escrow Account No. ____________"
maintained at ___________________, New York, New York (the "Escrow
Agent"), and submitted to the Correspondent Selling Agent. Such payments
will be transmitted to the Escrow Agent by Noon, New York time, on the
business day (in the case of foreign dealers, as soon as practicable)
following receipt thereof in accordance with the procedures set forth in
the Prospectus and the Subscription Agreement and Power of Attorney.
(d) As an alternative to submitting subscription checks, a
subscriber may instead authorize the Correspondent Selling Agent to debit
the subscriber's customer securities account maintained with the Selling
Agent. Subscribers who do so must have their subscription payments in
their accounts on the specified settlement date, of which subscribers will
be notified by the Correspondent Selling Agent and which will occur not
later than three (3) business days following notification by the Managing
Owner to the Selling Agent of the acceptance of a particular subscription
and not later than the termination of the offering period for the Units.
On each settlement date, subscribers' customer securities accounts will be
debited by the Selling Agent in the amount of their subscriptions. The
amount of the subscription payments so debited will be transmitted by the
Selling Agent directly to the Escrow Agent in the form of a the Selling
Agent check or wire transfer made payable to "___________________, as
Escrow Agent for Kenmar Global Trust Escrow Account No. ____________."
The Correspondent Selling Agent and the Managing Owner may also make
such other arrangements for the transmission of subscriptions as they may
deem convenient and appropriate; provided that such arrangements comply in
all respects with SEC Regulations 10b-9 and 15c2-4. Such arrangements may
be made through or using facilities made available by the Selling Agent.
Section 4. Blue Sky Survey. The Managing Owner shall cause Sidley &
Austin, counsel to the Managing Owner, to prepare and deliver to the Selling
Agent, which is authorized to redeliver same to the Correspondent Selling Agent,
a Blue Sky Survey which shall set forth the United States jurisdictions in which
the Units may be offered and sold. The Managing Owner agrees to use its best
efforts to qualify the Units under the
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Correspondent Selling Agent Agreement
securities or Blue Sky laws of the various state jurisdictions, and to maintain
such qualification during the term of the offering, provided that the Managing
Owner reserves the right to withdraw application for the Units' registration. It
is understood and agreed that the Correspondent Selling Agent may rely, in
connection with the offering and sale of Units in any United States
jurisdiction, on advice given by Sidley & Austin as to the legality of the offer
or sale of the Units in such jurisdiction.
Section 5. Covenants of the Managing Owner.
(a) The Managing Owner will notify the Correspondent Selling Agent
immediately and confirm such notification in writing (i) when any
amendment to the Registration Statement shall have become effective or any
supplement to the Prospectus is filed, (ii) of the receipt of any further
comments from the SEC, CFTC, NFA or any other federal or state regulatory
or self-regulatory body with respect to the Registration Statement, (iii)
of any request by the SEC, CFTC, NFA or any other federal or state
regulatory or self-regulatory body for any further amendment to the
Registration Statement or any amendment or further supplement to the
Prospectus or for additional information relating thereto, (iv) of any
material criminal, civil or administrative proceedings against or
involving the Managing Owner or the Trust, (v) of the issuance by the SEC,
CFTC, NFA or any other federal or state regulatory or self-regulatory body
of any order suspending the effectiveness of the Registration Statement
under the Securities Act, the registration or NFA membership of the
Managing Owner as a "commodity pool operator," or the registration of
Units under the Blue Sky or securities laws of any state or other
jurisdiction or any order or decree enjoining the offering or the use of
the then current Prospectus or any Promotional Material or of the
institution, or notice of the intended institution, of any action or
proceeding for that purpose, or (vi) of any threatened action of the type
referred to in clauses (iii) through (v) of which the Managing Owner is
aware. In the event any order of the type referred to in clause (v) is
issued, the Managing Owner agrees to use best efforts to obtain a lifting
or rescinding of such order at the earliest feasible date.
(b) The Managing Owner will deliver to the Selling Agent, for
delivery to the Correspondent
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Correspondent Selling Agent Agreement
Selling Agent, such number of conformed copies of the Registration
Statement as originally filed and as of each amendment thereto (without
exhibits) as the Correspondent Selling Agent shall reasonably request.
(c) The Managing Owner will deliver to the Selling Agent, for
delivery to the Correspondent Selling Agent, as promptly as practicable
from time to time during the period when the Prospectus is required to be
delivered under the 1933 Act, such number of copies of the Prospectus (as
amended or supplemented) and of such Promotional Material as the
Correspondent Selling Agent may reasonably request for the purposes
contemplated by the 1933 Act or the SEC Regulations.
(d) During the period when the Prospectus is required to be
delivered pursuant to the 1933 Act, the Managing Owner and the Trust will
comply with all requirements imposed upon them by the 1933 Act and the
Commodity Act, the SEC Regulations and the CFTC Regulations, as from time
to time in force, so far as necessary to permit the continuance of sales
of the Units during such period in accordance with the provisions hereof
and as set forth in the Prospectus.
(e) If any event shall occur as a result of which it is necessary,
in the reasonable opinion of the Managing Owner, to amend or supplement
the Prospectus (i) to make the Prospectus not materially misleading in the
light of the circumstances existing at the time it is delivered to a
subscriber, or (ii) to conform with applicable CFTC and SEC Regulations,
the Managing Owner shall forthwith prepare and furnish to the Selling
Agent, for delivery to the Correspondent Selling Agent, at the expense of
the Managing Owner, a reasonable number of copies of an amendment or
amendments of, or a supplement or supplements to, the Prospectus which
will amend or supplement the Prospectus so as to effect the necessary
changes.
Section 6. Payment of Expenses and Fees. The Managing Owner will pay
all expenses incident to the performance of the obligations of the Managing
Owner and the Trust hereunder, including: (i) the printing and delivery to the
Selling Agent, for delivery to the Correspondent Selling Agent, in quantities as
hereinabove stated of copies of the Registration Statement and all amendments
thereto, of the Prospectus and any supplements or amendments thereto, and of any
supplemental sales materials;
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Correspondent Selling Agent Agreement
(ii) the reproduction of this Agreement and the printing and filing of the
Registration Statement and the Prospectus (and, in certain cases, the exhibits
thereto) with the SEC, CFTC and NFA; (iii) the filing fees payable to the SEC
and the NASD; (iv) the qualification of the Units under the securities or "Blue
Sky" laws in the various jurisdictions, including filing fees and the fees and
disbursements of the Managing Owner's counsel incurred in connection therewith;
and (v) the services of Sidley & Austin and accountants for the Managing Owner
and the Trust.
The Managing Owner, the Selling Agent and the Correspondent Selling
Agent are each aware of the limitations imposed by Appendix F of the NASD Rules
of Fair Practice on the aggregate compensation which may be received by the
selling agents in connection with the offering and sale of the Units. Neither
the Selling Agent nor the Correspondent Selling Agent will in any event accept
any payments from the Managing Owner which, when added to the selling
commissions (not including ongoing compensation) which the Selling Agent will
receive on each sale of a Unit by the Correspondent Selling Agent, would exceed
10% of the gross proceeds of the Units sold to the public by the Correspondent
Selling Agent.
Section 7. Conditions of Closing. The sale of the Units and the
release of subscription funds from the escrow account are subject to (i) the
accuracy of the representations and warranties of the parties to the Selling
Agreement, to the performance by such parties of their respective obligations
thereunder and the satisfaction of each of the conditions to the sale of the
Units set forth therein, and (ii) the accuracy of the representations and
warranties of the parties hereto and to the performance by such parties of their
respective obligations hereunder.
If any of the conditions specified in this Section 7 shall not have
been fulfilled when and as required by this Agreement to be fulfilled prior to a
Closing Time, this Agreement and all obligations hereunder may be cancelled by
any party hereto by notifying the other parties hereto of such cancellation in
writing or by telegram at any time at or prior to such Closing Time, and any
such cancellation or termination shall be without liability of any party to any
other party other than in respect of Units already sold and except as otherwise
provided in Sections 6 and 8 of this Agreement.
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Correspondent Selling Agent Agreement
Section 8. Indemnification, Contribution and Exculpation. The
Managing Owner agrees to indemnify and hold harmless the Selling Agent and the
Correspondent Selling Agent and each person, if any, who controls the Selling
Agent and the Correspondent Selling Agent within the meaning of Section 15 of
the 1933 Act, as follows:
(a) against any and all loss, liability, claim, damage and expense
whatsoever arising from any breach of any representation or warranty of
the Managing Owner set forth herein or from any untrue statement of a
material fact or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto) or in the
Promotional Material or any omission or alleged omission therefrom of a
material fact required to be stated therein or necessary in order to make
the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
(b) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, or any investigation or proceeding by any governmental agency
or body commenced or threatened, or of any claim whatsoever based upon any
such breach, untrue statement or omission or any such alleged untrue
statement or omission (any settlement to be subject to indemnity hereunder
only if effected with the written consent of the Managing Owner); and
(c) against any and all expense whatsoever (including the fees and
disbursements of counsel, but only of one counsel for the Selling Agent
and one for all correspondent selling agents) reasonably incurred in
investigating, preparing or defending against litigation, or any
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such material
breach, untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under clauses
(a) or (b) above.
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Correspondent Selling Agent Agreement
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to the Selling Agent or the Correspondent
Selling Agent (or a controlling person of the Correspondent Selling Agent)
in respect of any loss, liability, claim, damage or expense referred to
herein, then the Managing Owner shall, in lieu of indemnifying the Selling
Agent or the Correspondent Selling Agent (or a controlling person)
contribute to the amount paid or payable by the Selling Agent or the
Correspondent Selling Agent (or a controlling person) as a result of such
loss, liability, claim, damage or expense, (i) in such proportion as shall
be appropriate to reflect the relative benefits received by the Managing
Owner on the one hand and by the Selling Agent and the Correspondent
Selling Agent on the other from the offering of the Units by the
Correspondent Selling Agent or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Managing Owner on the
one hand and the Selling Agent and the Correspondent Selling Agent on the
other with respect to the statements or omissions which resulted in such
loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations. In no event shall the liability of the Selling
Agent and the Correspondent Selling Agent exceed the aggregate selling
commissions and ongoing compensation paid to the Selling Agent and the
Correspondent Selling Agent hereunder. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Managing Owner on the one hand
or the Selling Agent and the Correspondent Selling Agent on the other, the
intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
parties agree that it would not be just and equitable if contributions
pursuant to this Section 8(d) were to be determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to herein. The amount paid or payable by
the Selling Agent and the Correspondent Selling Agent as a result of the
loss, liability, claim, damage or expense referred to above in this
Section 8(d), shall be deemed to include, for purposes of this Section
8(d), any legal or other expenses reasonably incurred by such otherwise
indemnified party (provided that only the legal costs of one counsel for
the Selling Agent and one for
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Correspondent Selling Agent Agreement
all correspondent selling agents shall be included) in connection with
investigating or defending any such action or claim.
In no case shall the Managing Owner be liable under this indemnity and
contribution agreement with respect to any claim unless the Managing Owner shall
be notified in writing of the nature of the claim within a reasonable time after
the assertion thereof, but failure to so notify the Managing Owner shall not
relieve the Managing Owner from any liability which it may have otherwise than
on account of this indemnity and contribution agreement. The Managing Owner
shall be entitled to participate at its own expense in the defense or, if it so
elects within a reasonable time after receipt of such notice, to assume the
defense of any suit so brought, which defense shall be conducted by counsel
chosen by it and satisfactory to the indemnified party (or parties entitled to
contribution hereunder) or parties, defendant or defendants therein.
The Managing Owner agrees to notify the Selling Agent within a reasonable
time of the assertion of any claim in connection with the sale of the Units
against it or any of its officers or directors or any person who controls the
Managing Owner within the meaning of Section 15 of the 1933 Act.
Section 9. Status of Parties. In marketing Units pursuant to this
Agreement for the Trust, the Selling Agent and the Correspondent Selling Agent
are acting solely as agents for the Trust, and not as principals. The
Correspondent Selling Agent will use its best efforts to assist the Trust in
obtaining performance by each purchaser solicited by the Correspondent Selling
Agent whose offer to purchase Units from the Trust has been accepted on behalf
of the Trust, but neither the Selling Agent nor the Correspondent Selling Agent
shall have any liability to the Trust in the event that Subscription Agreements
and Powers of Attorney are improperly completed or any such purchase is not
consummated for any reason. Except as specifically provided herein, neither the
Selling Agent nor the Correspondent Selling Agent shall in any respect be deemed
to be an agent of the Trust.
Section 10. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or contained in certificates of any party hereto submitted pursuant
hereto shall remain operative and in full force and effect, regardless of any
investigation made by, or on behalf of, the Selling Agent, the Correspondent
Selling Agent, the Managing Owner, the Trust, or
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Correspondent Selling Agent Agreement
any person who controls any of the foregoing, and shall survive the Closing
Times.
Section 11. Termination. The Selling Agent and the Correspondent
Selling Agent shall each have the right to terminate this Agreement at any time
after the end of the Initial Offering Period upon fifteen (15) days' prior
written notice of such termination to the Managing Owner. The Managing Owner and
the Trust may terminate this Agreement at any time upon fifteen (15) days' prior
written notice to the Selling Agent.
Section 12. Survival. Irrespective of the expiration and termination
of this Agreement, Sections 2, 5 and 8 hereof shall survive and all applicable
provisions of this Agreement with respect to outstanding Units.
Section 13. Notices and Authority to Act. All communications
hereunder shall be in writing and, if sent to the Managing Owner or the Trust,
shall be mailed, delivered or telecopied and confirmed to the Managing Owner at:
Kenmar Advisory Corp., Two American Lane, P.O. Box 5150, Greenwich, Connecticut
06831-8150, Attn: Joshua Parker, Esq.; and Mr. David Sawyier, Sidley & Austin,
One First National Plaza, Chicago, Illinois 60603. If sent to the Correspondent
Selling Agent, shall be mailed, delivered or telecopied and confirmed to it at
____________________________, Attention: _____________, with copies to
__________________________________, Attention: _______________. Notices shall be
effective when actually received.
Section 14. Parties. This Agreement shall inure to the benefit of
and be binding upon the Correspondent Selling Agent, the Trust, the Managing
Owner and such parties' respective successors to the extent provided herein.
This Agreement and the conditions and provisions hereof are intended to be and
are for the sole and exclusive benefit of the parties hereto and their
respective successors, assigns and controlling persons and parties indemnified
hereunder, and for the benefit of no other person, firm or corporation. No
purchaser of a Unit shall be considered to be a successor or an assignee solely
on the basis of such purchase.
Section 15. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES CREATED HEREBY SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF CONNECTICUT.
Section 16. Consent to Jurisdiction. The parties hereto agree that
any action or proceeding arising directly,
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Correspondent Selling Agent Agreement
indirectly, or otherwise in connection with, out of, related to, or from this
Agreement, any breach hereof, or any transaction covered hereby, shall be
resolved, whether by arbitration or otherwise, within the County of Fairfield,
and State of Connecticut. Accordingly, the parties hereto consent and submit to
the jurisdiction of the federal and state courts and applicable arbitral body
located within the County of Fairfield, and State of Connecticut. The parties
further agree that any such action or proceeding brought by any party to enforce
any right, assert any claim, or obtain any relief whatsoever in connection with
this Agreement shall be brought by such party exclusively in the federal or
state courts, or if appropriate, before any applicable arbitral body, located
within the County of Fairfield, and State of Connecticut.
The Managing Owner and the Trust each agree that, at the request of
the Selling Agent, they will submit any action or proceeding referred to in this
Section 15 to NFA arbitration in the County of Fairfield and State of
Connecticut, and agree to execute and deliver to the Selling Agent its standard
form of arbitration agreement, as required by NFA regulations.
Section 17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original and both of which together
shall be deemed one and the same instrument.
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Correspondent Selling Agent Agreement
If the foregoing is in accordance with each party's understanding of
their agreement, each party is requested to sign and return to the Managing
Owner and the Trust a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement among them in accordance with
its terms.
Very truly yours,
KENMAR GLOBAL TRUST
By: KENMAR ADVISORY CORP.,
Managing Owner
By:________________________________
Name:
Title:
KENMAR ADVISORY CORP.
By:________________________________
Name:
Title:
[SELLING AGENT]
By:_________________________________
Title:
Confirmed and accepted as of
the date first above written:
[CORRESPONDENT SELLING AGENT]
By:___________________________
Title: ____________________
EXHIBIT 3.01
CERTIFICATE OF TRUST OF KENMAR GLOBAL TRUST
THIS Certificate of Trust of Kenmar Global Trust (the "Trust"), dated July
17, 1996, is being duly executed and filed by Wilmington Trust Company, a
Delaware banking corporation, as trustee, to form a business trust under the
Delaware Business Trust Act (12 Del. C. ss.3801 et seq.).
1. Name. The name of the business trust formed hereby is Kenmar Global
Trust.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware is Wilmington Trust Company, 1100 North Market
Street, Rodney Square North, Wilmington, DE 19890-0001, Attention: Corporate
Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon the
date and time of filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust,
has executed this Certificate of Trust as of the date first-above written.
WILMINGTON TRUST COMPANY
By:/s/ W. Chris Spanenberg
--------------------------
Name: W. Chris Spanenberg
Title: Financial Services Officer
EXHIBIT 3.02
DECLARATION AND AGREEMENT OF TRUST
OF
KENMAR GLOBAL TRUST
THIS Declaration and Agreement of Trust of Kenmar Global Trust, dated as
of July 17, 1996 (this "Agreement"), is entered into by and among Kenmar
Advisory Corp., a Connecticut corporation, as managing owner (the "Managing
Owner"), Wilmington Trust Company, a Delaware banking corporation, as trustee
(the "Trustee") and Kenmar Venture Partners Limited Partnership, a Delaware
limited partnership, as initial beneficial owner (the "Initial Beneficial
Owner"). The Managing Owner, the Trustee and the Initial Beneficial Owner hereby
agree as follows:
1. Name. The name of the trust formed hereby is Kenmar Global Trust (the
"Trust").
2. Creation of Trust. The Initial Beneficial Owner hereby assigns,
transfers, conveys and sets over to the Trustee the sum of $1,600. The Managing
Owner hereby assigns, transfers, conveys and sets over to the Trustee the sum of
$400. The Trustee hereby acknowledges receipt of such amounts in trust from the
Initial Beneficial Owner and the Managing Owner, which amounts shall constitute
the initial trust estate. The Trustee hereby declares that it will hold the
trust estate in trust for the Initial Beneficial Owner and the Managing Owner.
It is the intention of the parties hereto that the Trust created hereby
constitute a business trust under Chapter 38 of Title 12 of the Delaware Code,
12 Del. C. ss.3801, et seq. (the "Act"), and that this document constitute the
governing instrument of the Trust. The Trustee is hereby authorized and directed
to file a certificate of trust with the Delaware Secretary of State.
3. Powers of the Managing Owner and the Trustee. The duty and authority of
the Trustee to manage the business and affairs of the Trust is hereby delegated
to the Managing Owner. The Trustee shall have only the rights, obligations and
liabilities specifically provided for herein and in the Act and shall have no
implied rights, obligations and liabilities with respect to the business or
affairs of the Trust. The Trustee shall not have any duty or obligation
hereunder or with respect to the trust estate, except as otherwise required by
applicable law.
4. Power to Resign. The Trustee may resign at any time by notice in
writing delivered to the Trust.
5. Indemnification. The Managing Owner and the Initial Beneficial Owner
shall indemnify and hold harmless the Trustee, its affiliates and all officers,
directors, stockholders, employees, representatives and agents of the Trustee
(each, a "Covered Person"), from and against any loss, damage or claim imposed
on, incurred by or asserted at any time against such Covered Person in any way
relating to or arising out of this Agreement, the administration of the trust
estate or the action or inaction of such Covered Person hereunder, except that
no such Covered Person shall be entitled to indemnification for losses, damages
or claims arising or
<PAGE>
resulting from its own bad faith, willful misconduct, gross negligence or
reckless disregard of its duties and obligations hereunder.
6. Economic Interests. The economic interests of the Managing Owner and
the Initial Beneficial Owner in the Trust shall be in proportion to their
contributions to the Trust.
7. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all which shall constitute one in the
same instrument.
8. Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of Delaware, all rights and remedies
being governed by such laws.
IN WITNESS WHEREOF, the parties hereto have executed this Declaration and
Agreement of Trust as of the day and year first above written.
KENMAR ADVISORY CORP., as Managing
Owner
By: /s/ Marc S. Goodman
--------------------------------
Name: Marc S. Goodman
Title: President
WILMINGTON TRUST COMPANY, as Trustee
By: /s/ W. Chris Sponenberg
--------------------------------
Name: W. Chris Sponenberg
Title: Financial Services Officer
KENMAR VENTURE PARTNERS LIMITED
PARTNERSHIP, as Initial Beneficial
Owner
By: KENMAR ADVISORY CORP., as General
Partner
By: /s/ Kenneth A. Shewer
--------------------------------
Name: Kenneth A. Shewer
Title: Chairman
EXHIBIT 5.01(a)
[Letterhead of Sidley & Austin]
July 25, 1996
Kenmar Global Trust
c/o Kenmar Advisory Corp.
Managing Owner
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831-8150
Dear Madam or Sir:
We refer to the Registration Statement on Form S-1, filed by Kenmar
Global Trust, a Delaware business trust (the "Trust"), with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "1933
Act"), filed with the Securities and Exchange Commission on or about July 25,
1996 (the "Registration Statement"), relating to the registration under the 1933
Act of 500,000 Units of Beneficial Interest in the Trust ("Units").
We are familiar with the proceedings to date with respect to the
proposed issuance and sale of the Units and have examined such records,
documents and questions of law, and satisfied ourselves as to such matters of
fact, as we have considered relevant and necessary as a basis for this opinion.
For purposes of rendering this opinion, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as certified or photostatic copies,
and the authenticity of the originals of such copies.
Based upon the foregoing, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act.
2. The Units being offered for sale as described in the Registration
Statement, when sold in the manner and under the conditions set forth therein,
will be validly issued and, subject to the qualifications set forth herein, will
be fully paid and nonassessable
<PAGE>
Kenmar Advisory Corp.
July 25, 1996
Page 2
beneficial interests in the Trust, as to which the Unitholders, as beneficial
owners of the Trust, will be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit, subject
to the obligation of a Unitholder to make payments provided for in Section 17(c)
of the Declaration of Trust and Trust Agreement of the Trust and to repay any
funds wrongfully distributed to it from the Trust.
We do not find it necessary for the purposes of this opinion to
cover, and accordingly we express no opinion as to, the application of the
securities or blue sky laws of the various states (including the state of
Delaware) to the sale of the Units.
We are not authorized, and do no purport, to practice law in the
State of Delaware. In giving this opinion, we have relied exclusively on the
opinion dated July 25, 1996 of Messrs. Richards, Layton & Finger, Wilmington,
Delaware, a copy of which is attached hereto.
This opinion speaks as of the date hereof, and we assume no
obligation to update this opinion as of any future date. We hereby consent to
the filing of this opinion as an Exhibit to the Registration Statement and to
all references to our firm included in or made a part of the Registration
Statement. This opinion shall not be used by any other person for any purpose
without our written consent.
Very truly yours,
/s/ Sidley & Austin
EXHIBIT 5.01(b)
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
July 25, 1996
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Re: Kenmar Global Trust
Gentlemen:
We have acted as special Delaware counsel for Kenmar Global Trust, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our examination
of documents has been limited to the examination of executed or conformed
counterparts, or copies otherwise proved to our satisfaction, of the following:
(a) The Certificate of Trust of the Trust, dated July 17, 1996 (the
"Certificate"), as filed in the office of the Secretary of State of the State of
Delaware (the "Secretary of State") on July 17, 1996;
<PAGE>
Sidley & Austin
July 25, 1996
Page 2
(b) The Declaration and Agreement of Trust of the Trust, dated as of July
17, 1996;
(c) A registration statement (the "Registration Statement") on Form S-1,
to be filed by the Trust with the Securities and Exchange Commission on or about
July 25, 1996;
(d) A form of Amended and Restated Declaration of Trust and Trust
Agreement of the Trust (the "Agreement"), attached to the Registration Statement
as Exhibit "A";
(e) A form of Subscription Agreement and Power of Attorney, including a
Subscription Agreement and Power of Attorney Signature Page of the Trust (the
"Subscription Agreement"), attached to the Registration Statement as Exhibit
"C"; and
(f) A Certificate of Good Standing for the Trust, dated July 25, 1996,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are used
as defined in the Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed above, and we have assumed that there exists no
provision in any document not listed above that bears upon or is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own, but rather have relied solely upon the foregoing
documents, the statements and information set forth
<PAGE>
Sidley & Austin
July 25, 1996
Page 3
therein and the additional matters recited or assumed herein, all of which we
have assumed to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed that (i) all
signatures on documents examined by us are genuine, (ii) all documents submitted
to us as originals are authentic, and (iii) all documents submitted to us as
copies conform with the original copies of those documents.
For purposes of this opinion, we have assumed (i) the due authorization,
execution and delivery by all parties thereto of all documents examined by us,
including, without limitation, the Agreement by each beneficial owner of the
Trust and the Trustee, the Certificate by the Trustee and the Subscription
Agreement by each Unitholder (as defined below), (ii) that after the issuance
and sale of beneficial interests of the Trust (the "Units") under the
Registration Statement and the Agreement, the dollar amount of the Units issued
by the Trust will equal or exceed the minimum, and the dollar amount of the
Units issued and reserved for issuance by the Trust will not exceed the maximum,
dollar amount of the Units which may be issued by the Trust under the
Registration Statement and the Agreement, (iii) that the Agreement constitutes
the entire agreement among the parties thereto with respect to the subject
matter thereof, including with respect to the admission of beneficial owners to,
and the creation, operation and termination of, the Trust and that the Agreement
and the Certificate are in full force and effect, have not been amended and no
amendment of the Agreement or the Certificate is pending or has been
<PAGE>
Sidley & Austin
July 25, 1996
Page 4
proposed, and (iv) except for the due
creation and valid existence in good standing of the Trust as a business trust
under the Delaware Business Trust Act (12 Del.C. ss. 3801, et seq.) (the "Act"),
the due creation, organization or formation, as the case may be, and valid
existence in good standing of each party to the documents examined by us under
the laws of the jurisdiction governing its creation, organization or formation
and the capacity of persons and entities who are parties to the documents
examined by us. Insofar as the opinions expressed herein relate to the Units and
persons and entities to be admitted to the Trust as beneficial owners of the
Trust in connection with the Registration Statement (the "Unitholders"), the
opinions expressed herein relate solely to the Unitholders and the Units to be
issued in connection with the Registration Statement. We have not participated
in the preparation of the Registration Statement and assume no responsibility
for its contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
<PAGE>
Sidley & Austin
July 25, 1996
Page 5
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Act.
2. Assuming (i) that the Managing Owner has taken all corporate action
required to be taken by it to authorize the issuance and sale of Units to the
Unitholders and to authorize the admission to the Trust of the Unitholders as
beneficial owners of the Trust, (ii) the due authorization, execution and
delivery to the Managing Owner of a Subscription Agreement by each Unitholder,
(iii) the due acceptance by the Managing Owner of each Subscription Agreement
and the due acceptance by the Managing Owner of the admission of the Unitholders
as beneficial owners of the Trust to the Trust, (iv) the payment by each
Unitholder to the Trust of the full consideration due from it for the Units
subscribed to by it, (v) the due authorization, execution and delivery by all
parties thereto, including the Unitholders as beneficial owners of the Trust, of
the Agreement, (vi) that the books and records of the Trust set forth all
information required by the Agreement and the Act, including all information
with respect to all persons and entities to be admitted as Unitholders and their
contributions to the Trust, and (vii) that the Units are offered and sold as
described in the Registration Statement and the Agreement, the Units to be
issued to the Unitholders will be validly issued and, subject to the
qualifications set forth herein, will be fully paid and nonassessable beneficial
interests in the Trust, as to which the Unitholders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit,
<PAGE>
Sidley & Austin
July 25, 1996
Page 6
subject to the obligation of a Unitholder to make contributions required to be
made by it to the Trust, to make other payments provided for in the Agreement
and to repay any funds wrongfully distributed to it from the Trust.
We understand that you will rely as to matters of Delaware law upon this
opinion in connection with an opinion to be submitted by you to the Trust and
filed by it with the Securities and Exchange Commission as an exhibit to the
Registration Statement in connection with the filing by the Trust of the
Registration Statement under the Securities Act of 1933, as amended. In
connection with such opinion, we hereby consent to your relying as to matters of
Delaware law upon this opinion. This opinion is rendered solely for your benefit
in connection with the foregoing. We hereby consent to the use of this opinion
as an exhibit to the Registration Statement and to the use of our name under the
heading "Legal Matters" in the Prospectus. In giving the foregoing consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
stated above, without our prior consent, this opinion may not be furnished or
quoted to, or relied upon by, any other person or entity for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
EXHIBIT 8.01
July 25, 1996
Kenmar Global Trust
c/o Kenmar Advisory Corp.
Managing Owner
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831-8150
Re: Registration Statement on Form S-1
Dear Madam or Sir:
We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933 of the Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on or about July 25, 1996, (the "Registration Statement")
relating to Units of beneficial interest ("Units") of Kenmar Global Trust (the
"Trust"), a business trust organized under the Delaware Business Trust Act.
We have reviewed such data, documents, questions of law and fact and other
matters as we have deemed pertinent for the purpose of this opinion. Based upon
the foregoing, we hereby confirm our opinion expressed under the caption
"Federal Income Tax Consequences" in the Prospectus (the "Prospectus")
constituting a part of the Registration Statement that: (i) the Trust will be
treated as a partnership for federal income tax purposes (assuming that (x)
Kenmar Advisory Corp. maintains a net worth at an amount not less than 10% of
the total contributions to the Trust and all other entities of which it is
managing owner or general partner, (y) Kenmar Advisory Corp. makes capital
contributions to the Trust not less than those required by the Trust's Amended
and Restated Declaration of Trust and Trust Agreement ("Declaration of Trust"),
and (z) substantially all of the gross income of the Trust will constitute
"qualifying income" within the meaning of section 7704(d) of the Internal
Revenue Code of 1986, as amended (the "Code")); (ii) the allocations of
<PAGE>
Kenmar Global Trust
July 25, 1996
Page 2
profits and losses made when Unitholders redeem their Units are permissible for
federal income tax purposes; and (iii) based upon the trading activities of the
Trust described in the Prospectus, the Trust should be treated as engaged in the
conduct of a trade or business for federal income tax purposes, and, as a
result, the ordinary and necessary business expenses incurred by the Trust in
conducting its commodity futures trading business should not be subject to
limitation under section 67 of the Code or under section 68 of the Code.
We also advise you that in our opinion the description set forth under the
caption "Federal Income Tax Consequences" in the Prospectus correctly describes
(subject to the uncertainties referred to therein) the material aspects of the
United States federal income tax treatment to United States individual
investors, as of the date hereof, of an investment in the Trust.
This opinion speaks as of the date hereof, and we assume no obligation to
update this opinion as of any future date. This opinion shall not be used for
any purpose without our written consent. We hereby consent to the filing of this
opinion as an Exhibit to the Registration Statement and to all references to our
firm included in or made a part of the Registration Statement.
Very truly yours,
/s/ Sidley & Austin
EXHIBIT 10.01
ADVISORY AGREEMENT
by and among
KENMAR GLOBAL TRUST
a Delaware business trust
and
[THE ADVISOR]
a ____________ corporation
and
KENMAR ADVISORY CORP.
a Connecticut corporation
Effective as of ___________, 1996
Initial Allocation $____________
<PAGE>
ADVISORY AGREEMENT
Table of Contents
Page
----
1. Undertakings of the Trading Advisor...................... 1
2. Duties of Trading Advisor................................ 3
3. Allocation and Reallocation of Assets;
Designation of Additional Trading Advisors;
Charges to Allocated Assets............................ 6
4. Trading Advisor Independent.............................. 7
5. Commodity Broker; Floor Brokers.......................... 7
6. Fees..................................................... 8
7. Term and Termination..................................... 8
8. Right to Advise Others; Uniformity of
Acts and Practices..................................... 9
9. Speculative Position Limits.............................. 10
10. Representations and Warranties........................... 11
11. Indemnification.......................................... 15
12. Entire Agreement......................................... 18
13. Assignment............................................... 18
14. Amendment; Waiver........................................ 18
15. Severability............................................. 19
16. Notices ................................................. 19
17. Governing Law ........................................... 19
18. Consent to Jurisdiction ................................. 19
19. Remedies................................................. 20
20. Confidentiality.......................................... 20
21. Survival................................................. 20
-i-
<PAGE>
22. Counterparts............................................. 20
23. Headings................................................. 21
24. Third-Party Beneficiary.................................. 21
25. "Business Day"........................................... 21
26. Multi-Programs........................................... 21
Annex A -- Trading Authorization............................... A-1
Annex B -- Commodity Interests Traded by the Advisor........... B-1
Annex C -- Fee Calculations.................................... C-1
Annex D -- Selection of Multiple Programs Offered.............. D-1
Acknowledgment of Receipt of
Disclosure Document.......................................... ACK-1
-ii-
<PAGE>
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ("Agreement"), made as of the date set forth
on the cover hereof (the "Effective Date"), by and among KENMAR GLOBAL TRUST
(the "Trust"), [THE ADVISOR] (the "Trading Advisor") and KENMAR ADVISORY CORP.
("Kenmar").
W I T N E S E T H:
WHEREAS, the Trust has been formed engage in the business of
trading, buying, selling or otherwise acquiring, holding or disposing of forward
and futures contracts, any rights pertaining thereto and any options thereon or
on physical commodities and engaging in all activities incident thereto (the
foregoing forms of trading being collectively referred to herein as "commodity
interests");
WHEREAS, the Trust anticipates offering its Units of Beneficial
Interest ("Units") for sale to investors, as described in the Trust's
Registration Statement and Prospectus (the "Prospectus");
WHEREAS, from time to time during the Trust's operations, Kenmar,
the Trust's managing owner, may allocate and reallocate the Trust's assets among
the Trust's current or replacement trading advisors for management as described
in the Prospectus;
WHEREAS, the Trading Advisor is engaged in the business of, among
other things, making trading decisions on behalf of investors in the trading of
certain commodity interests; and
WHEREAS, the Trust desires the Trading Advisor, upon the terms and
conditions set forth herein, to act as a trading advisor for the Trust and to
make commodity interest trading decisions for the Trust with respect to the
assets of the Trust allocated to the Trading Advisor for management (the
"Allocated Assets") -- which shall include no "notional equity" -- and the
Trading Advisor desires to act in such capacity.
NOW, THEREFORE, in consideration of the premises and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Undertakings of the Trading Advisor
(a) To Furnish Information. The Trading Advisor agrees to make all
disclosures reasonably requested by Kenmar regarding the Trading Advisor and its
trading performance, strategies and accounts (subject to the need to preserve
the
<PAGE>
secrecy of proprietary information concerning such strategies and of the
identity of the Trading Advisor's clients), to be included in disclosures made
by the Trust to its investors or for any other purposes relating to the
operation of the Trust.
The Trading Advisor shall cooperate, to the extent that Kenmar may
reasonably request, in preparing offering materials, investor information
reports and regulatory filings relating to the Trust.
Any written reference to the Trading Advisor or its strategies shall
be approved by the Trading Advisor prior to general distribution by the Trust or
Kenmar.
(b) To Furnish Updated Performance Information. The Trading Advisor,
at its own expense, shall promptly provide the Trust and Kenmar, upon request,
with a table or tables (in form and substance consistent with all applicable
regulations) reflecting the actual performance, on a monthly basis, of all
customer accounts directed by the Trading Advisor up to the latest practicable
month-end date.
(c) To Notify of Changes. If the Trading Advisor shall become aware
of (i) any misleading statement, (ii) any untrue statement of a material fact or
any omission to state a material fact necessary to make the statements contained
in the disclosures made by the Trust to its investors (relating to the Trading
Advisor, as approved in writing by the Trading Advisor), in light of the
circumstances under which such statements were made, not misleading, or (iii)
the occurrence of any event or change in circumstances which shall have resulted
or could reasonably be expected to result in there being any such misleading or
untrue statement or omission, the Trading Advisor shall promptly notify the
Trust in writing and shall cooperate with the Trust and Kenmar in the
preparation of any amended or supplemental disclosures reasonably requested by
Kenmar.
The Trading Advisor will promptly notify the Trust and Kenmar of any
proposed material change in the management, ownership, personnel, organizational
structure, control or financial condition of the Trading Advisor.
(d) Not to Distribute Information Concerning the Trust. None of the
Trading Advisor or any of its employees, agents, stockholders, directors,
officers, employees, principals, affiliates, or agents of such affiliates, or
their respective successors or assigns (collectively, "related parties"), shall
publish, circulate, or distribute any information relating to the Trust or
Kenmar or any of their respective affiliates, other than, in the case of the
Trust, in the context of the preparation of the Trading Advisor's performance
tables as required by applicable law or regulation. The Trading Advisor may also
circulate performance information relating to the Trust account
-2-
<PAGE>
managed by the Trading Advisor so long as none of the Trust, Kenmar, or any of
their respective affiliates are named.
(e) Not to Solicit Investors. None of the Trading Advisor or any
related party shall: (i) use or distribute for any purpose whatsoever any list
containing the names and/or residence addresses of and/or other information
relating to the Unitholders or (ii) knowingly contact any current or former
Unitholder for any purpose whatsoever unless such Unitholder shall have first
contacted the Trading Advisor.
(f) To Provide Access to Books and Records. Upon twenty-four (24)
hours' notice to the Trading Advisor, the Trust or Kenmar shall have the right,
during normal business hours at the Trading Advisor's offices, to have access to
and to inspect and copy such books and records relating to the Trading Advisor
and its trading, including, without limitation, to verify the accuracy and
completeness of the data furnished by the Trading Advisor pursuant to this
Section 1 of this Agreement or otherwise to verify compliance with the terms of
this Agreement (subject to the need to preserve the secrecy of proprietary
information and of the identity of the Trading Advisor's clients). Such right of
inspection shall terminate upon the termination of this Agreement and shall not
include any right to access computer programs, records or other information used
in determining trading decisions.
The Trading Advisor shall not be required to disclose the actual
trading results of the proprietary accounts of the Trading Advisor or its
principals except upon the request of the Trust or Kenmar for good cause given.
(g) To Purchase Units. The Trading Advisor agrees to
make as of the Effective Date and maintain during the term of
this Agreement an investment of 500 Units.
2. Duties of Trading Advisor
(a) Trading the Allocated Assets; Trading Policies. Except as
otherwise provided in this Section 2, the Trading Advisor shall, commencing on
the Effective Date, have sole and exclusive authority and responsibility for
directing the trading of the Allocated Assets in commodity interests pursuant to
and in accordance with the Trading Advisor's best judgment and its trading
strategy as described in the information furnished, with the written approval of
the Trading Advisor, by the Trust to its investors, or, if no such information
is furnished by the Trust to its investors, as described in the information
concerning the Trading Advisor furnished by it in writing to the Trust, as such
strategy may be refined and modified from time to time in the future in
accordance herewith, for the period and on the terms and conditions set forth
herein and in accordance with the Trust's trading policies as notified to the
Trading Advisor in
-3-
<PAGE>
writing by the Trust from time to time (the "Trading Policies"). Notwithstanding
the foregoing, the Trust may override the trading instructions of the Trading
Advisor to the extent that Kenmar deems advisable for the protection of the
Trust or as required by law. Kenmar shall have the right: (i) to, subject to
Section 3(a), increase or decrease (including decrease to $0) the Allocated
Assets as Kenmar and/or the Trust deems appropriate (in which case the Trading
Advisor shall modify accordingly its positions commensurate with its risk/money
management parameters); and/or (ii) to instruct the Trading Advisor to liquidate
all or a portion of the Trust's positions by a date certain (including
immediately) as Kenmar and/or the Trust deems appropriate; provided, that the
Trading Advisor, after consultation with Kenmar, shall have the right to have
instructions pursuant to clause (ii) effected as a reduction (withdrawal) of
Allocated Assets. In the event that the Trust's Trading Policies are changed,
any open positions at the time of such change shall not be deemed to violate the
revised Trading Policies and shall be closed out by the Trading Advisor in the
ordinary course of trading.
The Trading Advisor, in its discretion, may alter the trading
approach used by the Trading Advisor in managing the Allocated Assets; provided
that the Trading Advisor determines that such alteration is in the best interest
of the Trust and not inconsistent with the Trading Policies; and provided
further that the Trading Advisor gives the Trust thirty (30) calendar days'
prior written notice of any alteration which the Trading Advisor considers to be
material. The Trust may instruct the Trading Advisor not to make any material
alteration in the trading strategy used for the Allocated Assets, in which case
the Trading Advisor may terminate this Agreement pursuant to Section 7(b)(iii)
hereof.
Any notices of material changes in trading approach required
hereunder shall be subject to reasonable assurances of confidentiality and need
not disclose any proprietary information concerning the nature of such material
change. The addition and/or deletion of commodity interests from the Trust's
portfolio managed by the Trading Advisor shall not be deemed a change in the
Trading Advisor's strategy, and prior written notice to the Trust shall not be
required therefor, unless the Trading Advisor's strategy used for the Trust is
limited to a specific group of contracts or a market sector in a manner
inconsistent with such addition or deletion.
The Trading Advisor is in no respect making any guaranty to the
Trust of profits or of protection against loss. All purchases and sales of
commodity interests shall be for the account and risk of the Trust, and the
Trading Advisor shall not incur liability for trading losses resulting
therefrom, except as otherwise provided herein.
-4-
<PAGE>
The Trading Advisor and Kenmar may mutually agree in a separate
writing sent by Kenmar to the Trading Advisor and without need of amending this
Agreement to alter the programs used by the Trading Advisor for the Trust.
(b) Investment of Assets Held in Securities and Cash. The Trust, and
not the Trading Advisor, shall have the sole and exclusive authority and
responsibility with regard to the investment, maintenance and management of the
Trust's assets other than in respect of the Trading Advisor's trading of the
Allocated Assets in commodity interests.
(c) Trading Authorization. Prior to the Trust's acceptance of
trading advice from the Trading Advisor in accord ance with this Agreement, the
Trust shall deliver to the Trading Advisor a trading authorization in the form
of Annex A hereto appointing the Trading Advisor as the Trust's agent and
attorney-in-fact for such purpose.
The Trust shall instruct its brokers to furnish to the Trading
Advisor copies of all trade confirmations and monthly statements relating to the
Allocated Assets. The Trading Advisor will maintain a record of all such
statements and monitor the open positions in the Trust's account.
(d) Delivery of Disclosure Document; Proposed Changes. The Trading
Advisor shall, during the term of this Agreement, deliver to the Trust copies of
all disclosure documents filed by the Trading Advisor with any governmental
authority, promptly following such filing.
The Trading Advisor agrees, during the term of this Agreement, to
discuss with the Trust and Kenmar any changes which the Trading Advisor proposes
to make in the disclosures concerning itself or in its performance tables -- as
included in any other disclosure documents or as filed with any governmental
authority -- prior to implementing any such changes, and to use best efforts not
to make any such changes within a period of six (6) full calendar months
subsequent to having furnished the Trust with information concerning the Trading
Advisor for distribution to the Trust's investors.
(e) List of Commodity Interests Traded by the Trading Advisor. The
Trading Advisor shall provide the Trust -- in order for the Trust to ensure that
non-United States investors will not be subject to federal income tax on their
investment in the Trust -- with a complete list of the commodity interests which
the Trading Advisor intends to trade on the Trust's behalf. All commodity
interests other than regulated futures contracts and options on regulated
futures contracts traded on a designated board of trade or exchange in the
United States and foreign futures and options contracts as approved by the CFTC
as stated in the most recent CFTC Backgrounder shall be listed on Annex B
-5-
<PAGE>
to this Agreement. The addition of commodity interests (other than forward
contracts on foreign currencies) to the Trust's portfolio managed by the Trading
Advisor as set forth in Annex B to this Agreement shall require prior written
notice to the Trust.
The Trading Advisor agrees to trade only in commodity interests that
the Trading Advisor considers to be traded in sufficient volume to permit the
Trading Advisor readily to acquire and liquidate positions on behalf of the
Trust.
The Trading Advisor will not trade any securities (including without
limitation options on securities indices).
(f) Trade Reconciliations. The Trading Advisor acknowledges its
obligation to review the Trust's positions in the account managed by the Trading
Advisor on a daily basis and promptly to notify Kenmar and the Trust of any
errors committed by the Trading Advisor or any trade which the Trading Advisor
believes was not executed in accordance with its instructions.
The Trading Advisor will send Kenmar copies of all trades made by
the Trading Advisor on behalf of the Trust, by facsimile or other means, by 4:30
p.m. (New York time) on the day that such trades are made.
3. Allocation and Reallocation of Assets;
Designation of Additional Trading
Advisors; Charges to Allocated Assets
(a) Allocation and Reallocation of Assets; Designation of Additional
Trading Advisors. The initial amount of the Allocated Assets shall be the amount
set forth on the cover of this Agreement, none of which shall constitute
"notional funds." This initial amount shall be deposited at the Trust' Commodity
Broker (as defined in Section 5 hereof) on the Effective Date, available for
trading by the Trading Advisor. The Trust may at any time and from time to time
in its sole discretion: (i) reallocate the Trust's assets, including a portion
of the Trading Advisor's Allocated Assets, among the various other trading
advisors for the Trust, including the Trading Advisor; and/or (ii) designate
additional trading advisors for the Trust, and allocate to such additional
trading advisors the management of such portion of the Trust's assets, including
a portion of the Allocated Assets, as the Trust shall determine. Any
reallocation from the Trading Advisor shall be preceded by twenty-four (24)
hours' notice, and the Trust will use best efforts to make reallocations only at
month-end.
The Trading Advisor agrees to accept additional allocations of Trust
assets for management, from time to time, provided that the Net Asset Value of
the Allocated Assets may not exceed $20,000,000 as of any month-end without the
Trading
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Advisor's prior consent, and provided further that the Trust will use its best
efforts to make additional allocations only as of the beginning of a month.
(b) Charges to Allocated Assets. The Trading Advisor understands and
agrees that: (i) the full amount of the Profit Share and Brokerage Commissions
allocable to the Allocated Assets shall be charged to the Allocated Assets; (ii)
other expenses (not including distributions or redemptions) payable by the Trust
shall be allocated to the Allocated Assets pro rata based on the relative
month-end equity of the accounts managed by each of the Trust's trading
advisors; and (iii) interest income earned on the Trust's assets shall be
allocated pro rata among the accounts managed by each of the Trust's trading
advisors, as provided in clause (ii).
4. Trading Advisor Independent
For all purposes of this Agreement, the Trading Advisor shall be
deemed to be an independent contractor and, unless otherwise expressly provided
herein or with the prior written authorization of the Trust, the Trading Advisor
shall have no authority to act for or represent the Trust in any way and shall
not otherwise be deemed to be an agent of the Trust. Except as otherwise
specifically provided herein, nothing in this Agreement shall be deemed to
confer on any of the foregoing any express, implied, or apparent authority to
incur any obligation or liability on behalf of any other. Nothing contained
herein shall create or constitute the Trading Advisor, any other trading advisor
for the Trust, the Trust or Kenmar as members of any partnership, joint venture,
association, syndicate, unincor porated business or other separate entity.
The parties acknowledge that the Trading Advisor has not been an
organizer or promoter of the Trust.
5. Commodity Broker; Floor Brokers
(a) Commodity Broker. Except as contemplated by Section 5(c) of this
Agreement, the Trading Advisor shall place orders for all commodity interest
transactions executed by the Trading Advisor for the Trust through such
commodity broker or brokers as the Trust shall designate from time to time in
its sole discretion -- the Trust initially so designating ING (U.S.) Securities,
Futures & Options Inc. (the "Commodity Broker"). The parties acknowledge that
the Trading Advisor has no authority or responsibility for the Trust's selection
of the Commodity Broker or for the negotiation of the Trust's Brokerage
Commission rate, and is not responsible for the execution and clearance of the
Trust's trades once complete orders have been transmitted to the Commodity
Broker.
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<PAGE>
(b) The Trading Advisor shall place orders for all forward currency
transactions, to be executed by the Trading Advisor for the Trust, through the
Commodity Broker.
(c) Floor Brokers. Notwithstanding Section 5(a) of this Agreement,
the Trading Advisor may place orders for commodity interest transactions for
the Trust through floor brokers selected by the Trading Advisor, and approved by
the Trust, such approval not to be unreasonably withheld. Such floor brokers
shall "give up" all Trust trades to the Commodity Broker for clearance.
The brokerage and floor commissions, "give-up" fees and other
transaction costs charged by any floor broker, other than the Commodity Broker,
to effect Trust transactions shall be subject to the approval of Kenmar, such
approval not to be unreasonably withheld provided that such fees and transaction
costs are competitive with the Commodity Broker's standard rates.
The Trading Advisor shall be responsible for correcting all trading
errors or omissions relating to transactions executed in respect of the
Allocated Assets by any broker other than the Commodity Broker.
6. Fees
(a) Profit Share; Consulting Fee. For the advisory services
contemplated by this Agreement, the Trust shall pay to the Trading Advisor a
quarterly Profit Share and Kenmar shall pay to the Trading Advisor a monthly
Consulting Fee, in each case calculated as set forth in Annex C.
(b) No Share in Commissions. Without the express written consent of
the Trust, neither the Trading Advisor nor any related party shall receive or
accept, whether in the form of rebates or otherwise, (i) any share of the
brokerage, floor, or clearinghouse commissions or fees or other transaction
costs paid by the Trust to any commodity broker or floor broker, or (ii) any
form of compensation or remuneration from any executing or clearing broker used
by the Trust.
7. Term and Termination
(a) Term and Renewal. This Agreement shall continue in effect until
the end of the fourth full calendar quarter after the Effective Date.
Thereafter, this Agreement shall be renewable, at the option of the Trust, on
the same terms for up to two (2) additional twelve-month periods.
(b) Termination. Notwithstanding Section 7(a) hereof, this Agreement
shall terminate:
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(i) immediately if the Trust shall terminate;
(ii) at the discretion of the Trust as of the end of any calendar
month;
(iii) at the discretion of the Trading Advisor, upon twenty (20)
days' notice to the Trust, as of any month-end should (a) the Trading Advisor
notify the Trust of a proposed material change to the strategies to be used in
managing the Allocated Assets and the Trust has instructed the Trading Advisor
not to implement such changes; (b) if the Trading Advisor has determined to
cease managing any customer accounts pursuant to the same strategy as the
Trading Advisor has been retained to employ on behalf of the Trust; or (c)
should the Allocated Assets have a Net Asset Value, as of the close of business
on any day, of less than $250,000 (any such termination to be made at the first
available month-end after the event giving rise to the termination right or such
right to be waived); or
(iv) immediately at the discretion of the Trust or the Trading
Advisor, as the case may be, in the event that the Trading Advisor, on the one
hand, or the Trust or Kenmar, on the other, is in material breach of any
provision hereof.
Any non-renewal of this Agreement pursuant to Section 7(a) or any
termination of this Agreement pursuant to clauses 7(b)(i), (b)(ii) or (b)(iii),
above, shall be without penalty or liability to any party.
8. Right to Advise Others; Uniformity of
Acts and Practices
During the term of this Agreement, the Trading Advisor and its
affiliates shall be free to advise other investors as to the purchase and sale
of commodity interests, to manage and trade other investors' commodity interest
accounts, and to trade for and on behalf of their own proprietary commodity
interest accounts. The compensation which the Trading Advisor receives from
other accounts may be more or less than that received from the Trust. However,
under no circumstances shall the Trading Advisor or any of its affiliates
knowingly or deliberately favor any commodity interest account directed by any
of them over the Trust's account in any way or manner, provided that trading
different portfolios for other accounts, trading other accounts at different
leverage, or charging different fees to different accounts shall not be
considered to constitute favoring such accounts over the Trust's account. The
Trading Advisor and its affiliates also shall not be deemed to be favoring
another commodity interest account over the Trust's account if the Trading
Advisor or his or its affiliates, in accordance with specific instructions of
the owner of such account, shall trade such account at a degree of leverage or
in accordance with trading policies which shall be different from that which
would
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normally be applied or if the Trading Advisor or its affiliates, in
accordance with the Trading Advisor's money management principles, shall not
trade certain commodity interest contracts for an account based on the amount of
equity in such account.
The Trading Advisor agrees that it will not accept additional client
accounts for management if doing so might reasonably be expected to require
material changes to the trading strategies used by the Trading Advisor for the
Trust or materially adversely affect the Trading Advisor's ability to perform
services hereunder.
The Trading Advisor agrees that in the event the Trading Advisor
determines to trade or is now trading another commodity interest account
pursuant to a trading approach materially different from the trading approach
utilized by the Trading Advisor in trading on behalf of the Trust, the Trading
Advisor will disclose such trading approach to the Trust, subject to reasonable
assurances of confidentiality, and will, if the Trust so elects, utilize any
such trading approach in trading the Allocated Assets in the future, provided
that the Trading Advisor shall not hereby be required to use, on behalf of the
Trust, any approach used solely in trading, experimental or proprietary accounts
or any approach which the Trading Advisor reasonably believes to be
inappropriate for the Trust's account.
At the reasonable request of the Trust and to the extent that they
are available without undue expense or burden, the Trading Advisor shall make
available to the Trust copies of the daily, monthly, quarterly, and annual, as
the case may be, written reports prepared by the Trading Advisor in the ordinary
course, reflecting the performance of all commodity pool accounts advised,
managed, owned or controlled by the Trading Advisor and account statements
reflecting the performance of all other pools and (with the names of clients
deleted) commodity interest accounts advised, managed, owned, or controlled by
the Trading Advisor, in each case which implement the same strategy or
strategies used for the Trust. At the reasonable request of the Trust, the
Trading Advisor shall provide to the Trust an explanation of the differences, if
any, in the performance between the Trust's account and such other accounts
(subject to the need to preserve the secrecy of proprietary information
concerning the Trading Advisor's strategies and the identity of the Trading
Advisor's clients).
9. Speculative Position Limits
(a) Limits Applicable to Trading Advisor. The Trading Advisor agrees
that in the event the Trading Advisor exceeds speculative position limits in
respect to the Trading Advisor's commodity interest trading, the Trading Advisor
will liquidate positions as necessary to comply with applicable speculative
position limits in all of the Trading Advisor's outstanding
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accounts in such manner as the Trading Advisor deems to be fair and equitable.
The Trading Advisor agrees that in the event that any such liquidation becomes
necessary, the Trading Advisor will so inform the Trust and will report to the
Trust the steps taken by the Trading Advisor in order to comply with all
applicable speculative position limits.
The Trading Advisor represents and warrants that existing
speculative position limits will not materially adversely affect the Trading
Advisor's ability to manage the Trust's account, provided that such account does
not exceed $20,000,000, as contemplated by Section 3(a) hereof.
(b) Notice That Limits Exceeded. If the Trading Advisor at any time
shall become aware that the positions in any commodity interest owned, held, or
controlled by the Trading Advisor exceed 90% of the applicable speculative
position limit allocable to the Trading Advisor, the Trading Advisor shall
promptly notify the Trust of that fact in writing.
The Trading Advisor shall promptly notify the Trust if speculative
position limits may reasonably be expected to require alteration of the
strategies used in managing the Trust's account.
(c) Liquidation of Positions to Comply with Limits. If limits are
exceeded by the Trust, the Trust shall instruct the Trading Advisor as to
whether any liquidation of Trust positions managed by the Trading Advisor is
required.
10. Representations and Warranties
(a) The Trading Advisor represents and warrants to the
Trust and Kenmar as follows:
(i) The Trading Advisor is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. The Trading Advisor has
full corporate power and authority to perform its obligations and to
direct the Trust's trading, as described in the information
furnished in writing by the Trading Advisor to the Trust or Kenmar
for distribution to prospective or existing investors and to
discharge its obligations under this Agreement and is qualified to
conduct its business as a foreign corporation and is in good
standing in every jurisdiction in which the nature or conduct of its
business requires such qualification and failure to so qualify would
have a material adverse effect on its ability to comply with, or
perform its obligations under this Agreement.
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(ii) The references to the Trading Advisor, its principal(s)
and its trading strategies in the information furnished in writing
by the Trading Advisor to Kenmar for distribution to Unitholders do
not contain any material misstatements or omissions. The Trading
Advisor's Disclosure Document complies in all material respects with
the Commodity Exchange Act and the regulations of the Commodity
Futures Trading Commission.
(iii) The disclosures made by the Trust to its investors
relating to the Trading Advisor, as approved in writing by the
Trading Advisor, do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under
which they were made, not misleading.
(iv) This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Trading Advisor and
constitutes the binding and enforceable obligation of the Trading
Advisor in accordance with its terms.
(v) The Trading Advisor and its principals each has all
governmental, regulatory and exchange licenses and approvals and has
effected all filings and registrations with governmental and
regulatory agencies required to conduct its business and to act as
described in the information furnished in writing by the Trading
Advisor to the Trust or Kenmar for distribution to prospective or
existing investors or required to perform its obligations under this
Agreement (including, without limitation, registration of the
Trading Advisor as a commodity trading advisor under the Commodity
Exchange Act and membership of the Trading Advisor as a commodity
trading advisor in the National Futures Association).
(vi) The execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and the consummation
of the transactions contemplated herein and in the information
furnished in writing by the Trading Advisor to Kenmar for
distribution to Unitholders, will not constitute a breach of, or
default under, the Articles of Incorporation or By-laws or other
organizational documents of the Trading Advisor, or under any
instrument by which the Trading Advisor or any of its principals is
bound or under any order, rule or regulation applicable to the
Trading Advisor or any of its principals, of any
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<PAGE>
court or any governmental body or administrative agency having
jurisdiction over the Trading Advisor or such principal(s).
(vii) The Trading Advisor's provision of management services
as contemplated hereby will not violate the Investment Advisers Act
of 1940.
(viii) There is not pending, or to the best of the Trading
Advisor's knowledge threatened, any action, suit or proceeding
before or by any court or other governmental body to which the
Trading Advisor or any of its principals is a party, or to which any
of the assets of the Trading Advisor or any of its principals is
subject, which might reasonably be expected to result in any
material adverse change in the condition, financial or otherwise,
business or prospects of the Trading Advisor or any of its
principals. Neither the Trading Advisor nor any of its principals
has received any notice of an investigation regarding non-compliance
by the Trading Advisor or such principals with applicable law.
(ix) As a condition precedent to the allocation of the
Allocated Assets to the Trading Advisor, the Trading Advisor agrees
to furnish to the Trust such opinions and certificates as the Trust
may reasonably request.
(b) Kenmar represents and warrants to the Trading Advisor and the
Trust as follows:
(i) Kenmar is a corporation duly organized, validly existing
and in good standing under the laws of the State of Connecticut.
Kenmar has full corporate power and authority to perform its
obligations as described in the information furnished by Kenmar for
distribution to Unitholders and to discharge its obligations under
this Agreement and is qualified to conduct its business as a foreign
corporation and is in good standing in every jurisdiction in which
the nature or conduct of its business requires such qualification
and failure to so qualify would have a material adverse effect on
its ability to comply with, or perform its obligations under this
Agreement.
(ii) The references to Kenmar and its principals in the
information furnished by Kenmar for distribution to Unitholders do
not contain any material misstatements or omissions.
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<PAGE>
(iii) This Agreement has been duly and validly authorized,
executed and delivered on behalf of Kenmar and constitutes the
binding and enforceable obligation of Kenmar in accordance with its
terms.
(iv) Kenmar and its principals each has all United States
governmental, regulatory and exchange licenses and approvals and has
effected all filings and registrations with governmental and
regulatory agencies required to conduct its business and to act as
described in the information furnished by Kenmar for distribution to
Unitholders or required to perform its obligations under this
Agreement (including, without limitation, registration of Kenmar as
a commodity pool operator under the Commodity Exchange Act and
membership of Kenmar as a commodity pool operator in the National
Futures Association).
(v) The execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and the consummation
of the transactions contemplated herein and in the information
furnished by Kenmar for distribution to Unitholders will not
constitute a breach of, or default under, the organizational
documents of Kenmar, or under any instrument by which Kenmar or any
of its principals is bound or under any order, rule or regulation
applicable to Kenmar or any of its principals, of any court or any
governmental body or administrative agency having jurisdiction over
Kenmar or such principals.
(vi) There is not pending, or to the best of Kenmar's
knowledge threatened, any action, suit or proceeding before or by
any court or other governmental body to which Kenmar or any of its
principals is a party, or to which any of the assets of Kenmar or
any of its principals is subject, which might reasonably be expected
to result in any material adverse change in the condition, financial
or otherwise, business or prospects of Kenmar or any of its
principals. Neither Kenmar nor any of its principals has received
any notice of an investigation regarding non-compliance by Kenmar or
such principals with applicable law.
(c) The Trust hereby represents and warrants to Kenmar and the
Trading Advisor as follows:
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(i) The Trust is duly organized pursuant to and validly
existing under the laws of the State
of Delaware, with full power and authority to engage in the
activities as described in the Prospectus.
(ii) The Trust has full power and authority under applicable
law to perform its obligations under this Agreement.
(iii) This Agreement has been duly and validly authorized,
executed and delivered by the Trust and constitutes binding and
enforceable obligations of the Trust in accordance with its terms.
(iv) The execution and delivery of this Agreement, the
incurrence of the obligations set forth herein and the consummation
of the transactions contemplated herein will not constitute a
breach of, or default under, the Certificate of Trust or the
Declaration of Trust and Trust Agreement of the Trust, or any
instrument by which the Trust is bound or any order, rule or
regulation applicable to the Trust of any court or any governmental
body or administrative agency having jurisdiction over the Trust.
(v) The Trust does not require any governmental, regulatory or
exchange approvals or licenses, nor need it effect any filings or
registrations with any federal, state or other governmental agencies
in order to conduct its business and to act as contemplated by this
Agreement.
(d) The foregoing representations and warranties shall be
continuing, and if any of them shall cease to be true and accurate in all
material respects, the affected party shall promptly give notice to such effect
to all other parties hereto.
11. Indemnification.
The Trust shall indemnify, defend and hold harmless the Trading
Advisor and its related parties from and against any and all losses, claims,
damages, liabilities (joint and several), costs and expenses (including any
investigatory, legal and other expenses incurred in connection with, and any
amounts paid in, any settlement; provided that the Trust shall have approved
such settlement) resulting from a demand, claim, lawsuit, action or proceeding
relating to (i) any of such indemnified person's actions or capacities relating
to the business or activities of the Trust, (ii) any activities of the Trust,
and (iii) any Trust-
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related activities of Kenmar, or any other trading advisor to the Trust;
provided that the conduct of such person which was the subject of the demand,
claim, lawsuit, action or proceeding did not constitute negligence, misconduct
or a breach of this Agreement and was done in good faith and in a manner such
person reasonably believed to be in, or not opposed to, the best interests of
the Trust. The termination of any demand, claim, lawsuit, action or proceeding
by settlement shall not, in itself, create a presumption that the conduct in
question constituted negligence or misconduct or was not undertaken in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Trust.
In the event that the Trading Advisor or any related party 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, the Trust's activities or claimed
activities unrelated to the Trading Advisor, the Trust shall indemnify, defend
and hold harmless the Trading Advisor or such related party against any loss,
liability, damage, cost or expense (including, without limitation, attorneys'
and accountants' fees) incurred in connection therewith.
The Trading Advisor shall indemnify, defend and hold harmless the
Trust and its related parties from and against any and all losses, claims,
damages, liabilities (joint and several), costs and expenses (including any
reasonable investigatory, legal and other expenses incurred in connection with,
and any amounts paid in, any settlement; provided that the Trading Advisor shall
have approved such settlement) resulting from a demand, claim, lawsuit, action
or proceeding relating to any action or omission of the Trading Advisor relating
to the business or activities of the Trading Advisor under this Agreement or
relating to the management by the Trading Advisor of an account of the Trust if
the action or omission of the Trading Advisor which was the subject of the
demand, claim, lawsuit, action or proceeding constituted negligence, misconduct
or a breach of this Agreement, or was an action or omission taken otherwise than
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the Trust.
In the event that the Trust or any related party 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, the activities or claimed activities of the
Trading Advisor or any related party unrelated to the Trust's business, the
Trading Advisor shall indemnify, defend and hold harmless the Trust or any of
its affiliates against any loss, liability, damage, cost or expense (including,
without limitation, attorneys' and accountants' fees) incurred in connection
therewith.
No indemnification under this Section 11 shall be made in respect of
any demand, claim, lawsuit, action or proceeding
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relating to activities of the person to be indemnified which have been adjudged,
by a court, having jurisdiction with respect to the matter upon entry of a final
judgment, not to have been done in good faith and in the reasonable belief that
such conduct was in, or not opposed to, the best interests of the Trust or to
constitute negligence, misconduct or a breach of this Agreement unless, and
except to the extent that, such court determines that, despite such judgment,
such person is fairly and reasonably entitled to indemnity.
Any indemnification required by this Section 11, unless ordered or
expressly permitted by a court, shall be made by the indemnifying party only
upon a determination by independent legal counsel in a written opinion that the
conduct which is the subject of the claim, demand, lawsuit, action or proceeding
with respect to which indemnification is sought meets the applicable standard
set forth in this Section 11; provided, however, that if the indemnified party
shall prevail on the merits and the defense of any demand, claim, lawsuit or
proceeding subject to indemnification hereunder, indemnification shall be
payable hereunder irrespective of the receipt of any such legal opinion.
In the event that a person entitled to indemnification under this
Section 11, is made a party to an action, suit, or proceeding alleging both
matters for which indemnification may be due hereunder and matters for which
indemnification may not be due hereunder, such person shall be indemnified only
in respect of the former matters.
The Trust or the Trading Advisor, as the case may be, shall advance
indemnification payments reasonably asserted to be due hereunder, provided that
the putatively indemnified party which receives such advances undertakes in
writing to repay the advanced funds, without interest, in the event that such
recipient is determined not to be entitled to indemnification under this Section
11.
Notwithstanding any provision of this Agreement to the contrary, in
respect of all losses, liabilities, claims, demands, damages, costs, and
expenses described above in this Section 11 (including legal, accounting, and
other expenses incurred in each connection therewith), the Trust's indemnity
obligation shall be limited to the net worth of the Trading Advisor as of the
time that any event giving rise for a claim to indemnity arose.
The foregoing agreements of indemnity shall be in addition to, and
shall in no respect limit or restrict, any other remedies which may be available
to an indemnified party under this Agreement.
Promptly after receipt by any of the indemnified parties under this
Agreement of notice of any demand, claim, lawsuit, action or proceeding, the
indemnified party shall notify
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the indemnifying party in writing of the commencement thereof if a claim in
respect thereof is to be made under this Agreement, but the omission so to
notify shall not relieve the indemnifying party from any obligation or liability
which it may have to any such indemnified party otherwise than under this
section. In case such demand, claim, lawsuit, action or proceeding is brought
against a person indemnified under this Agreement, and the indemnifying party is
notified of the commencement thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that the indemnifying party may wish,
to assume the defense thereof, with counsel selected by the indemnifying party
and approved by the indemnified person (provided that approval may not be
unreasonably withheld), and after notice from the indemnifying party to such
indemnified person of the indemnifying party's election so to assume the defense
thereof, the indem nifying party shall not be liable to such person under this
section for any legal or other expenses subsequently incurred by such person in
connection with the defense thereof, unless (i) the indemnifying party approves
the employment of separate counsel by such person, or (ii) the action has been
brought against both such person and the indemnifying party and such person's
counsel has advised it or him that it or he has legal defenses different from or
in addition to those of the indemnifying party (it being understood, however,
that the indemnifying party shall not be liable for legal or other expenses of
more than one separate firm of attorneys for all such persons indemnified
hereunder, which firm shall be designated in writing by the Trading Advisor or
the Trust, as the case may be).
12. Entire Agreement
This Agreement and the agreements referenced herein constitutes the
entire agreement between the parties hereto with respect to the matters referred
to herein, and no other agreement, verbal or otherwise, shall be binding as
between the parties unless it shall be in writing and signed by the party
against whom enforcement is sought.
13. Assignment
This Agreement shall not be assigned by any of the parties hereto
without the prior express written consent of the other parties hereto.
14. Amendment; Waiver
This Agreement shall not be amended except by a writing signed by
the parties hereto. No waiver of any provision of this Agreement shall be
implied from any course of dealing between the parties hereto or from any
failure by either party hereto to assert its rights hereunder on any occasion or
series of occasions.
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15. Severability
If any provision of this Agreement, or the application of any
provision to any person or circumstance, shall be held to be inconsistent with
any present or future law, ruling, rule, or regulation of any court or
governmental or regulatory authority having jurisdiction over the subject matter
hereof, such provision shall be deemed to be rescinded or modified in
accordance with such law, ruling, rule, or regulation, and the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those as to which it shall be held inconsistent, shall not be
affected thereby; provided that alteration of this Agreement in this manner
shall not have a material effect on the terms hereof.
16. Notices
Any notice required or desired to be delivered under this Agreement
shall be in writing and shall be delivered by courier service, postage prepaid
mail, telex, facsimile, telegram, or other similar means and shall be effective
upon actual receipt by the party to which such notice shall be directed,
addressed as follows (or to such other address as the party entitled to notice
shall hereafter designate in accordance with the terms hereof):
if to the Trust or Kenmar:
c/o Kenmar Advisory Corp.
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831-8150
Attn: Joshua B. Parker
if to the Trading Advisor:
To the address notified in writing to the Trust
from time to time by the Trading Advisor
17. Governing Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CONNECTICUT WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW.
18. Consent to Jurisdiction
The parties hereto agree that any action or proceeding arising
directly, indirectly, or otherwise in connection with, out of, related to, or
from this Agreement, any breach hereof, or any transaction covered hereby, shall
be resolved, whether by arbitration or otherwise, within the County of
Fairfield, State of Connecticut. Accordingly, the parties consent and submit to
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the jurisdiction of the federal and state courts and any applicable arbitral
body located within the County of Fairfield, State of Connecticut. The parties
further agree that any such action or proceeding brought by either party to
enforce any right, assert any claim, or obtain any relief whatsoever in
connection with this Agreement shall be brought by such party exclusively in
federal or state courts, or if appropriate before any applicable arbitral body,
located within the County of Fairfield, State of Connecticut.
19. Remedies
In any action or proceeding arising out of any of the provisions of
this Agreement, the parties hereto agree that they shall not seek any
prejudgment equitable or ancillary relief. Such parties also agree that their
sole remedy in any such action or proceeding shall be to seek actual monetary
damages for any breach of this Agreement; provided, however, that the parties
hereto agree that declaratory judgment may be sought with respect to the
indemnification provisions of this Agreement.
20. Confidentiality
The Trust and Kenmar acknowledge that the Trading Advisor's
strategies and trades constitute proprietary data belonging to the Trading
Advisor and agree that they will not disseminate any confidential information
regarding any of the foregoing, except as required by law, and any such
information as may be acquired by Kenmar or the Trust is to be used solely to
monitor the Trading Advisor's performance on behalf of the Trust.
The obligations of the parties in relation to confidentiality will
not apply to the extent that any information (i) is required t o be disclosed in
accordance with any applicable law, rule, regulation or order of any applicable
court, arbitration panel, governmental, regulatory or self-regulatory authority
or any audit requirement or (ii) has entered into the public domain other than
by a breach of duty on the past of any party hereto.
21. Survival
The provisions of this Agreement shall survive the termination
hereof with respect to any matter arising while this Agreement shall be in
effect.
22. Counterparts
This Agreement may be executed in counterparts, each of which shall
be deemed an original but all of which together shall constitute one and the
same instrument.
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23. Headings
Headings to sections and subsections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation hereof.
24. Third-Party Beneficiary.
This Agreement is not intended to and shall not convey any rights to
persons not a party to this Agreement. In particular, and not by way of
limitation, no investor in the Trust may assert any rights hereunder.
25. "Business Day." "Business day," as used herein, shall mean a day
on which banks are required or authorized to remain open for business in New
York City.
26. Multi-Programs. If the Trading Advisor offers more than one
trading program to clients, the program(s) to be used for the Trust, and the
additional allocation of the Allocated Assets to, between or among such
program(s), are set forth in Annex D hereto.
IN WITNESS WHEREOF, this Agreement has been executed for and on
behalf of the undersigned as of the Effective Date.
KENMAR GLOBAL TRUST
BY: KENMAR ADVISORY CORP.
Managing Owner
BY: ___________________________________
Name:
Title:
KENMAR ADVISORY CORP.
BY: ___________________________________
Name:
Title:
THE TRADING ADVISOR
BY: ___________________________________
Name:
Title:
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<PAGE>
Annex A
TRADING AUTHORIZATION
[TRADING ADVISOR]
To Whom It May Concern:
Kenmar Global Trust, a Delaware business Trust (the "Trust"), does
hereby make, constitute, and appoint [TRADING ADVISOR] as the Trust's
attorney-in-fact to buy and sell commodity interests, in accordance with the
Advisory Agreement among us and certain others.
This authorization shall terminate and be null, void, and of no
further effect simultaneously with the termination of the said Advisory
Agreement.
Very truly yours,
Dated as of _______, 199__
KENMAR GLOBAL TRUST
BY: KENMAR ADVISOR CORP.,
Managing Owner
By: __________________________________
Name:
Title:
ACCEPTED AND AGREED TO:
[TRADING ADVISOR]
By: ___________________________________
Name:
Title:
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<PAGE>
Annex B
LIST OF
COMMODITY INTERESTS TRADED BY
[THE TRADING ADVISOR]
The undersigned represents that the following is a complete list of
commodity interests which the undersigned intends to trade on behalf of KENMAR
GLOBAL TRUST other than regulated futures contracts and options on regulated
futures contracts traded on a qualified board of trade or exchange in the United
States and foreign futures and options contracts approved by the CFTC as stated
in the most recent CFTC Backgrounder:
Contract Type
(Futures, Forward,
Options on Futures) Exchange Contract
- ------------------- -------- --------
[TRADING ADVISOR]
By:_________________________
Name:
Title:
Dated as of ____, 199_
B-1
<PAGE>
ANNEX C
FEE CALCULATIONS
Consulting Fee
For the advisory services contemplated by this Agreement, Kenmar
Advisory Corp. ("Kenmar") shall, at no additional cost to the Trust, remit to
the Trading Advisor a Consulting Fee equal to 0.167 of 1% of the Net Asset Value
of the Allocated Assets, as of the end of each calendar month (a 2% annual
rate), after reduction of such Net Asset Value by the sum of the Brokerage
Commissions due Kenmar and the Administrative Expenses in respect of such month
but without reduction for any withdrawals as of such month-end or for any
accrued profit shares or Incentive Fees as of such month-end, and after
including any month-end interest credits.
Kenmar will remit the Consulting Fees due to the Trading Advisor
within ten (10) business days of the month-end as of which they are due. At such
time as Kenmar remits each monthly Consulting Fee payment hereunder to the
Trading Advisor, Kenmar shall also submit a reasonably itemized statement
setting forth the calculation of the amount due to the Trading Advisor in
respect of such month. If the Trading Advisor does not object to such statement
within ten (10) business days of the receipt thereof, such statement shall for
all purposes be deemed to be conclusively correct.
The Consulting Fee due to the Trading Advisor hereunder shall be
prorated for any partial month during which this Agreement is in effect, or for
any reallocations during a month, such proration to be made on the basis of the
number of business days during such month that the Trading Advisor managed
assets on which the Consulting Fee is being calculated hereunder, compared to
the total number of business days in such month.
Profit Share
As of the end of each calendar quarter, beginning with the end of
the first full calendar quarter after the Effective Date, the Trust will pay the
Trading Advisor a Profit Share equal to twenty percent (20%) of any New Trading
Profit recognized in respect of the Allocated Assets during the preceding
quarter (or, in the case of the first calculation period, since the Effective
Date).
Trading Profit for purposes of calculating the Trading Advisor's
Profit Share includes, for any period, (i) the realized trading profit (loss),
plus or minus (ii) the change in unrealized trading profit (loss) on open
positions from the
C-1
<PAGE>
beginning to the end of such period, and is calculated after reduction for
Brokerage Commissions payable to Kenmar at a 4.5% annual rate, plus actual
execution costs. Trading Profit does not include interest credited on the
Trust's assets (which, like the Brokerage Commissions, will be allocated pro
rata to the Trust account managed by each of the Trust's advisors, including the
Trading Advisor, based on the month-end equity in each such account). New
Trading Profit is only generated to the extent that the Trading Advisor exceeds
its previous calendar quarter-end high in cumulative Trading Profit.
In the case of redemptions, reallocations or distributions as of the
end of any month that is not the end of a calendar quarter, a proportional
Profit Share will be deducted (and the Net Asset Value at which Units are
redeemed correspondingly reduced), and the amounts so deducted will be paid to
the Trading Advisor. Such amounts will not be subject to being returned to the
Trust (or to any redeeming Unitholders), irrespective of subsequent losses
during the quarter.
Redemption of Units, reallocations or distributions result in a
proportional decrease in any shortfall between the level of cumulative Trading
Profit as of the date of withdrawal and the highest level of cumulative prior
Trading Profit as of any calendar quarter-end (or $0, if higher) for purposes of
subsequent calculations of New Trading Profit, with the result that redemptions,
reallocations or distributions do not reduce the Profit Shares potentially
payable by the Units which remain outstanding.
Early redemption charges and extraordinary costs, such as litigation
or taxes, shall not reduce Trading Profit.
In calculating New Trading Profit, Profit Shares paid at previous
quarter-ends do not reduce cumulative New Trading Profit in subsequent periods.
Termination of the Trading Advisor's Advisory Agreement will be
treated as if the date of termination were a calendar quarter-end for purposes
of calculating any Profit Shares due to the Trading Advisor.
The Trust will remit the Profit Shares due to the Trading Advisor
within ten (10) business days of the quarter-end as of which they are due. At
such time as the Trust remits each Profit Shares payment hereunder to the
Trading Advisor, the Trust shall also submit a reasonably itemized statement
setting forth the calculation of the amount of the Profit Shares due to the
Trading Advisor in respect of such quarter. If the Trading Advisor does not
object to such statement within ten (10) business days of the receipt thereof,
such statement shall for all purposes be deemed to be conclusively correct.
C-2
<PAGE>
Annex D
SELECTION OF
MULTIPLE PROGRAMS OFFERED
The Trading Advisor will trade the following programs for the Trust
(need not be completed if the Advisor offers a single program):
Initial % of
Program Allocated Assets
- ------- ----------------
----------
100%
==========
The programs used by the Trading Advisor for the Trust may be changed by written
confirmation from Kenmar of the mutual agreement of Kenmar and the Trading
Advisor to such change.
D-1
<PAGE>
ACKNOWLEDGMENT OF RECEIPT OF DISCLOSURE DOCUMENT
The undersigned hereby acknowledges receipt of the Disclosure
Document dated __________, 19__ of [TRADING ADVISOR] (the "Trading Advisor") in
connection with the Trading Advisor's management of an account for Kenmar Global
Trust.
Dated as of _______ _, 19__
KENMAR GLOBAL TRUST
By: KENMAR ADVISORY CORP.
Managing Owner
By: ___________________________________
Name:
Title:
ACK-1
Exhibit 10.02
CUSTOMER AGREEMENT
Among
KENMAR GLOBAL TRUST
ING (U.S.) SECURITIES, FUTURES & OPTIONS INC.
Dated as of __________, 1996
<PAGE>
KENMAR GLOBAL TRUST
CUSTOMER AGREEMENT
In consideration of the acceptance by ING (U.S.) Securities, Futures
& Options Inc. ("ING Futures & Options") of one or more accounts of Kenmar
Global Trust ("Customer") to be managed by certain trading advisors (each, a
"Trading Advisor", collectively, the "Trading Advisors"), it is agreed as
follows:
1. Customer acknowledges that the purchase and sale of commodity
futures and forward contracts and commodity options is speculative, involves a
high degree of risk and is suitable only for persons who can assume the risk of
losses in excess of their margin deposits and option premiums. Customer
understands that because of the low margin normally required in commodity
futures and forward trading, small price changes in commodity futures and
forward contracts may result in significant Customer losses, which losses may
substantially exceed Customer's margin deposits and any other deposits Customer
may make. ING Futures & Options has disclosed all the foregoing risks and
information, as well as the fact that the proposed brokerage commissions of
$_________ per round-turn may constitute significantly higher brokerage costs
than those charged by ING Futures & Options to other customers, including other
commodity pools such as Customer.
Kenmar Advisory Corp. agrees to pay all floor brokerage charges
relating to Customer's trading.
2. Customer authorizes ING Futures & Options, as Customer's
commodity broker and as Customer's principal, to purchase and sell commodity
futures and forward con tracts, respectively, (and to use the services of other
persons designated by Customer in writing from time to time, in doing so) and to
purchase, sell and exercise commodity options for Customer's account in
accordance with the written or oral instructions of each Trading Advisor as
described in the Prospectus of the Customer dated ___________, 1996 (as may be
amended from time to time, the "Prospectus"), pursuant to which each Trading
Advisor has been granted full discretionary trading authority with respect to
Customer's assets, or such other person or persons as Customer may designate to
ING Futures & Options in writing from time to time. Customer acknowledges and
agrees that ING Futures & Options shall have no discretion with respect to the
trading decisions to be made for the account of Customer except as may otherwise
be agreed upon in writing between Customer and ING Futures & Options. Customer
has delivered to ING Futures & Options a true copy of the Advisory Agreement
between Customer and each Trading Advisor (the "Advisory Agreement"). Customer
may override the authority of each Trading Advisor only in certain limited
circumstances as described in such Advisory Agreements. ING Futures & Options
shall be in no respect responsible for any actions taken in compliance with
instructions from each Trading Advisor or from Customer.
3. ING Futures & Options shall act as custodian for all assets of
Customer except for those assets of Customer which are held by Brown Brothers
Harriman & Co.
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<PAGE>
("BBH") pursuant to the __________ Agreement dated as of ________, 1996 between
BBH and the Customer. In such capacity, ING Futures & Options may cause to be
held cash and other assets of Customer by such bank or banks as ING Futures &
Options may select from time to time, in its sole discretion, subject to the
approval of Customer, and may transmit funds to exchanges as margin. ING Futures
& Options will credit Customer with interest as if the daily cash balance in
Customer's account held in ING Futures & Options' customer segregated funds were
continuously invested in 91-day Treasury Bills at prevailing rates auctioned
during each month. ING Futures & Options will, in turn, deposit such cash assets
in a non-interest bearing, demand deposit "customer segregated funds account"
maintained at a major money center or foreign bank. ING Futures & Options or any
of its affiliates may make such "offset account" or similar arrangements with
respect to such "customer segregated funds account" and may retain all benefit
therefrom, provided that no such arrangements shall subject the assets of the
Customer to any liability in respect of any debt or obligation of any affiliate
of ING Futures & Options. Such "customer segregated funds account" will be
maintained in full compliance with applicable CFTC rules governing maintenance
of "customer funds."
In respect of certain "unregulated" trading and trading on certain
foreign exchanges, ING Futures & Options shall invest Customer assets, to the
maximum extent reasonably practicable, in short-term, interest-bearing
instruments and the return thereon, net of any currency conversion effects, will
inure solely to Customer's behalf.
4. Customer shall pay ING Futures & Options: (a) the applicable
initial, maintenance and variation margin requirements in effect from time to
time; and (b) service charges on any Customer deficit balance at the rates
customarily charged by ING Futures & Options and interest on any such deficit
balance at the rate of one percent (1%) over the average prime rate announced
from time to time by _________________________, with interest to be computed and
charged by ING Futures & Options on a monthly basis, or the maximum rate allowed
by law, whichever is less. Brokerage commissions per round turn of $________
plus all routine charges, including without limitation, exchange fees, National
Futures Association transaction fees and clearing fees and floor brokerage due
in respect of Customer's trading shall be paid to ING Futures & Options by
Kenmar Advisory Corp. ("KAC") from the monthly flat-rate commission received by
KAC from Customer. ING Futures & Options shall pay all "pit brokerage" incurred
in respect of Customer's trading without reimbursement therefor by Customer.
5. Customer acknowledges that ING Futures & Options has the right,
but no responsibility or obligation, to limit the number of commodity futures,
forward and commodity options which Customer may maintain or acquire through ING
Futures & Options at any time. ING Futures & Options shall give Customer prior
notice of any such limitation.
6. Customer shall maintain at all times all of its assets, except
such assets as may be held by banks, with ING Futures & Options to be used to
provide, and subject to be transmitted to exchanges in respect of, margins for
Customer's account as required from time
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<PAGE>
to time by ING Futures & Options in its sole and absolute discretion. Margin
requirements established by ING Futures & Options may exceed or differ from the
requirements set by any commodity exchange or third party and may be changed by
ING Futures & Options without notice to Customer, such changes to apply to
existing as well as future positions, should ING Futures & Options so elect. If
at any time Customer's account does not contain the amount of margin and/or
premium required by ING Futures & Options, ING Futures & Options may, at any
time, close out Customer's open positions in whole or in part and take any
action described in Section 11 hereof, after giving notice thereof to each
Trading Advisor and the Customer. While ING Futures & Options has the right to
close out Customer's open positions in whole or in part for failure to maintain
the amount of margin required by ING Futures & Options or pay premiums due to
ING Futures & Options, Customer understands and agrees that ING Futures &
Options has no obligation to Customer to do so in the absence of specific
instructions from Customer or a Trading Advisor.
7. All transactions by ING Futures & Options on Customer's behalf
shall be subject to the applicable constitutional provision, by-laws, rules,
regulations, rulings and interpretations of the contract market on which such
transactions are executed or cleared by ING Futures & Options or its agents for
Customer's account, and to all applicable governmental acts and statutes (such
as the Commodity Exchange Act) and the rules and regulations made thereunder;
ING Futures & Options shall not be liable to Customer as a result of any action
taken by ING Futures & Options or its agents that is considered in good faith by
ING Futures & Options to be required by any such constitutional provision, rule,
regulation, ruling, interpretation, act, statute or regulation. The foregoing
provision is solely for the protection and benefit of ING Futures & Options, and
any failure by ING Futures & Options or its agents to comply with any such
constitution, rule, regulation, ruling, interpretation, act, statute or other
regulation shall not relieve Customer of any obligations under this Agreement
nor be construed to create rights hereunder in favor of Customer against ING
Futures & Options.
8. All monies, securities, commodities, commodity futures contracts,
commodity options or other property, including any property held by banks, now
or at any future time in Customer's account or held by ING Futures & Options for
Customer are hereby pledged with ING Futures & Options and shall be subject to a
security interest in ING Futures & Options's favor to secure any indebtedness at
any time owing from Customer to ING Futures & Options.
9. All transactions for or on Customer's behalf shall be deemed to
be included in a single account whether or not such transactions are segregated
on ING Futures & Options's records into separate accounts, either severally or
jointly with others -- the foregoing provision being solely for ING Futures &
Options's protection.
ING Futures & Options's rights with respect to Customer's property
shall be qualified by applicable requirements for the segregation of customer
property under the
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<PAGE>
Commodity Exchange Act and the regulations of the Commodity Futures Trading
Commission.
10. ING Futures & Options shall not be responsible for: (1) delays
in the transmission of orders due to breakdown or failure of transmission or
communication facilities or to any other cause beyond ING Futures & Options's
reasonable control or not resulting from ING Futures & Options's negligence or
misconduct; or (2) any gain or loss to Customer from fluctuations in currency
exchange rates in any foreign currency in which any commodity futures, forward
or commodity option contract or deposited property is held, except to the extent
that any amount may be owing from ING Futures & Options to Customer pursuant to
any transaction in a foreign currency between ING Futures & Options and
Customer, provided that there is no negligence or misconduct on the part of ING
Futures & Options in respect of such loss.
11. In the event that: (a) Customer shall terminate or be dissolved;
(b) a proceeding under the Bankruptcy Code, an assignment for the benefit of
creditors or an application for a receiver, custodian or trustee shall be filed
or applied for by or against Customer; (c) any property in Customer's account
shall be garnished or attached; (d) the property held in Customer's account
shall be determined by ING Futures & Options in its sole and absolute
discretion, and regardless of current market quotations, to be inadequate to
secure Customer's account; (e) Customer's account shall incur a deficit balance;
or (f) Customer shall acquire or maintain open positions with ING Futures &
Options in excess of the limits imposed from time to time by ING Futures &
Options pursuant to Section 5 hereof, ING Futures & Options may close out
Customer's account in whole or in part, sell any or all of Customer's property
held by ING Futures & Options, buy or sell any securities, commodities,
commodity futures, forward or commodity options, or any other property, for
Customer's account, or cancel any outstanding orders to close out any account of
Customer or to close out any commitment made by ING Futures & Options on behalf
of Customer. Such sale, purchase or cancellation may be made at ING Futures &
Options's discretion on a contract market or at public auction or at private
sale. No prior tender, demand, call or prior notice from ING Futures & Options
of the time and place of such sale or purchase shall be deemed to be a waiver of
ING Futures & Options's right to sell or buy any property held by ING Futures &
Options, or owed to ING Futures & Options by Customer. ING Futures & Options
may, to the extent permitted by law, purchase the whole or any part of any such
Customer property, free from any right of redemption, and Customer shall remain
liable for and shall pay to ING Futures & Options the amount of any deficiency
resulting from any such transactions.
12. If at any time Customer shall be unable to deliver to ING
Futures & Options any property previously sold by ING Futures & Options on
Customer's behalf, Customer authorizes ING Futures & Options in its discretion
to borrow or to buy any property necessary to make delivery thereof, and
Customer shall pay and reimburse ING Futures & Options for any cost, loss and
damage (including consequential costs, losses, penalties, fines and damages)
which ING Futures & Options may sustain thereby and any premiums which ING
Futures & Options may be required to pay thereon, and for any cost, loss and
damage
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<PAGE>
(including consequential costs, losses, penalties, fines and damages) which ING
Futures & Options may sustain from its inability to borrow or buy any such
property.
13. In the event ING Futures & Options does not receive timely
instructions with respect to outstanding options held in Customer's account to
liquidate, exercise or permit such options to expire, ING Futures & Options
shall permit such options in Customer's account to expire.
Customer shall give liquidating instructions to ING Futures &
Options concerning Customer's open futures and forward positions maturing in a
current month at least five (5) business days prior to the first notice day, in
the case of long positions, and at least five (5) business days prior to the
last trading day, in the case of short positions. Alternatively, Customer shall
deliver to ING Futures & Options sufficient funds to take delivery or sufficient
funds and/or the necessary documents to make delivery within the time period
hereinabove specified. If Customer does not either give instructions or deliver
the funds and/or documents hereby required to ING Futures & Options within such
period, ING Futures & Options may, without notice, either liquidate Customer's
positions pursuant to Section 11 or take or make delivery on behalf of Customer
upon such terms and in such manner as ING Futures & Options determines in its
sole and absolute discretion.
14. Customer agrees and acknowledges that with respect to its
forward trading, Customer shall trade through ING Futures & Options and such
trading shall be subject to ING Futures & Options's standard netting provisions.
15. Customer agrees that ING Futures & Options may, from time to
time, change the account number assigned to any account covered by this
Agreement, and that this Agreement shall remain in full force and effect as to
any such renumbered account.
16. Subject to Section 7 hereof, no provision of this Agreement
shall in any respects be waived, altered, modified or amended unless such
waiver, alteration, modification or amendment be committed to writing and signed
by Customer and an officer of ING Futures & Options.
17. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO, AND THE RIGHTS
AND LIABILITIES OF THE PARTIES HERETO SHALL BE GOV ERNED BY, THE LAWS OF THE
STATE OF NEW YORK.
18. This Agreement shall be binding upon Customer and Customer's
assigns.
19. Customer acknowledges that it is an affiliate of ING Futures &
Options. However, Customer acknowledges and agrees that this Agreement may be
enforced against Customer in accordance with its terms, irrespective of such
affiliation.
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<PAGE>
20. If any term or provision hereof, or the application thereof to
any person or circumstance, shall to any extent be contrary to any exchange or
government regulation or otherwise invalid or unenforceable, the remainder of
this Agreement, or the application of such provision to persons or circumstances
other than those as to which it is contrary, invalid or enforceable, shall not
be affected thereby, and shall be enforced to the fullest extent permitted by
regulation and law, provided such enforcement does not materially alter the
intent of this Agreement or reduce the security, or increase the obligations, of
ING Futures & Options hereunder.
21. The rights and remedies conferred upon the parties hereto shall
be cumulative, and the exercise or waiver of any thereof shall not preclude or
inhibit the exercise of additional rights or remedies.
22. ING Futures & Options shall be free to render services of the
nature to be rendered to Customer hereunder to persons or parties in addition to
Customer, and the parties acknowledge that ING Futures & Options does and will
render such services, including to commodity pools similar in nature to
Customer, and may do so on terms more favorable than those granted to Customer
hereunder. However, ING Futures & Options shall not knowingly or deliberately
favor any account over Customer with respect to the execution of commodity
trades.
23. This Agreement shall be cancellable, without penalty, upon sixty
(60) days' notice to the parties hereto by ING Futures & Options or Customer.
24. Any notices under this Agreement shall be given or confirmed in
writing, delivered personally or sent by mail, as follows:
if to Customer:
KENMAR GLOBAL TRUST
c/o Kenmar Advisory Corp.
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831-8150
Attn: Joshua B. Parker
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<PAGE>
with a copy to:
KENMAR ADVISORY CORP.
Two American Lane
P.O. Box 5150
Greenwich, CT 06831-8150
Attn: Joshua B. Parker
if to ING Futures & Options:
ING (U.S.) SECURITIES, FUTURES & OPTIONS, INC.
233 S. Wacker Drive, Suite 5200
Chicago, Illinois 60606
Attn: ________________________
Notices hereunder shall be effective only when actually received.
25. Customer understands that any of its assets held by the parties
with which Customer trades in the forward markets will not be subject to
Commodity Futures Trading Commission segregation requirements.
26. This Agreement shall inure to the benefit of ING Futures &
Options. This Agreement shall also inure to the benefit of any of ING Futures &
Options's affiliates through which Customer may trade and to that of the
respective successors (by merger, consolidation or otherwise) and assigns of
each of the foregoing parties, each of which may transfer Customer's account to
any such successors or assigns.
27. ING Futures & Options and Customer each agree that in the event
of inconsistencies between the terms of this Agreement and the Prospectus, the
latter shall control as if set forth verbatim herein.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed for and on
behalf of the undersigned on the day and year first written above.
KENMAR GLOBAL TRUST
By: Kenmar Advisory Corp.,
Managing Owner
By:___________________________________
Name:
Title:
Accepted and Confirmed
ING (U.S.) SECURITIES,
FUTURES & OPTIONS INC.
By:____________________________
Name:
Title:
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EXHIBIT 10.03
ESCROW AGREEMENT
Escrow Agreement, dated as of _______________, 1996 by and among THE
CHASE MANHATTAN BANK, a New York banking corporation (the "Escrow Agent"),
KENMAR ADVISORY CORP., a Connecticut corporation (the "Managing Owner") and
KENMAR GLOBAL TRUST, a Delaware business trust (the "Trust").
WHEREAS, the Trust proposes to sell up to 500,000 units of
beneficial interest ("Units") in the Trust, at a price of $100 per Unit during
the initial offering period and at net asset value thereafter;
WHEREAS, in connection with the proposed offering of Units, the
Trust and the Managing Owner have entered (or will enter) into agreements with
the selling agents (the "Selling Agents"), and who have agreed to abide by the
terms of this Agreement, for the offer and sale of Units on a "best efforts"
basis;
WHEREAS, the initial offering of Units will terminate as of December
31, 1996, subject to extension until February 28, 1997 and to prior sale of all
available Units (the "Offering Termination Date"), and if subscriptions for at
least 50,000
<PAGE>
Units have not been accepted by the Managing Owner on or before the Offering
Termination Date, no Units will be sold;
WHEREAS, Units will be initially sold to the public on the Offering
Termination Date, or at such earlier date designated by the Managing Owner after
it has accepted subscriptions for 50,000 Units (the "Initial Closing Date"), and
thereafter Units will continue to be sold monthly as of the first day of each
calendar month (each date of the sale of Units is hereinafter referred to as a
"Closing Date");
WHEREAS, the Trust proposes to establish an escrow fund with the
Escrow Agent; and
WHEREAS, the Escrow Agent has agreed to act as escrow agent in
connection with the proposed fund;
NOW, THEREFORE, it is agreed as follows:
1. Commencing upon the execution of this Agreement, the Escrow Agent
shall act as escrow agent and agrees to receive, hold, deal with and disburse
the proceeds from the sale of Units in accordance herewith. The Managing Owner
agrees to notify the Escrow Agent promptly (a) if the proposed offering of Units
is extended by the Managing Owner as provided in the Trust's
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<PAGE>
Prospectus (the "Prospectus"), and (b) of the date of the Initial Closing Date
and each subsequent Closing Date.
2. All funds received by the Selling Agents in connection with the
sale of Units shall be deposited in an escrow account to be established for this
purpose by the Escrow Agent. The Selling Agents shall furnish to the Escrow
Agent at the time of delivery of the above mentioned funds, the name, address
and federal tax identification number of, the number of Units subscribed for by,
and the amount received from each investor. Such subscriptions may be deposited
in this escrow only by check or Federal Funds wire transfer duly made out to the
Escrow Agent in the following form: "THE CHASE MANHATTAN BANK, AS ESCROW AGENT
FOR THE KENMAR GLOBAL TRUST, ESCROW ACCOUNT NO. __________." The Managing Owner
shall deliver to all subscribers interim receipts for the amount of their funds
deposited in this escrow together with a copy of this Agreement.
3. The Escrow Agent shall upon availability invest funds deposited
with it pursuant to Section 2 hereof in accord ance with the written
instructions from the Managing Owner in an interest bearing bank account, a bank
money-market account, securities of or guaranteed by the United States
Government or bank certificates of deposit, as permitted by law (and in
particular Rule 15c2-4 under the Securities Exchange Act of 1934) and such that
the interest on such securities shall not subject
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<PAGE>
foreign subscribers to the United States taxation or tax reporting requirements.
Provided that they conform to Rule 15c2-4 under the Securities Exchange Act of
1934, investments may also be made into one or more portfolios offered by the
Vista Fund for which affiliates of the Escrow Agent provide investment advisory
and shareholder services. If the deposit into the Escrow Account is made by
Federal Funds wire transfer, the Escrow Agent shall invest the funds deposited
on the same day as deposited, provided such deposit is received by the Escrow
Agent by 10:00 a.m. New York City Time. If the deposit into the Escrow Account
is made by Federal Funds wire transfer and received by the Escrow Agent after
10:00 a.m. New York City Time, the Escrow Agent shall invest the funds deposited
on the next business day. If the deposit into the Escrow Account is made by
clearinghouse or certified check, the Escrow Agent shall invest the funds
deposited on the next business day following the receipt of the check. The
Managing Owner shall instruct the Escrow Agent as to in which securities the
funds in the Escrow Account shall be invested prior to 10:00 a.m. New York City
Time on any date on which funds shall be invested. In the absence of such
instruction the Escrow Agent is authorized to invest such funds in securities
which have the same maturity as the last set of instructions received.
4. (a) On the Initial Closing Date the Escrow Agent shall, upon (i)
written instructions from the Managing Owner,
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<PAGE>
(ii) receipt of an affidavit signed by the Managing Owner that acceptable
subscriptions for at least 50,000 Units have been received and that the other
closing conditions specified in the Prospectus (the "Closing Conditions") have
been satisfied, and (iii) possession in the escrow account of at least
$5,000,000 in collected funds in payment of such subscriptions, (as specified in
such instructions) pay to, credit to the account of, or otherwise transfer to
the Trust (as specified in such instructions), the collected funds then held in
escrow with interest earned on such funds accrued from the date of deposit until
the Initial Closing Date.
(b) On each Closing Date after the Initial Closing Date the Escrow
Agent shall follow the procedure in paragraph 4(a) with respect to all collected
funds held in the escrow on such date as to which it receives instructions from
the Managing Owner and an affidavit signed by the Managing Owner that acceptable
subscriptions have been received.
(c) Prior to the delivery to it as described above, the Trust shall
have neither title to nor interest in the funds on deposit, and such funds shall
under no circumstances be subject to the liabilities or indebtedness of the
Trust.
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<PAGE>
5. If at least 50,000 Units have not been subscribed for by the
Offering Termination Date or if the other Closing Conditions are not satisfied,
then the Managing Owner shall promptly so advise the Escrow Agent and shall
furnish to the Escrow Agent a list containing the name, address and federal tax
identification number of, and the amount received from, each subscriber whose
funds have been deposited, the pro rata share of interest earned on such
deposited funds from the date of investment to be paid to such subscriber and
indicate if such funds are to be paid directly to the subscriber or returned to
the Selling Agents, and the Escrow Agent shall so return such funds to the
subscriber or the appropriate Selling Agent for the benefit of the subscriber,
if so directed, within 5 business days of receipt from the Managing Owner of the
advice described above.
6. In the event of the occurrence of all of the events and the due
taking of all action contemplated by Section 4 or 5 hereof, the Escrow Agent
shall be relieved of all liabilities in connection with the escrow deposits
provided for herein, except for liabilities which are occasioned by its lack of
good faith, negligence or misconduct.
7. (a) At any time prior to the release of a subscriber's funds
from this escrow, the Managing Owner is authorized to notify the Escrow Agent
that a subscription has not been accepted (irrespective of how long such
subscription has been held in the escrow or of whether the Managing Owner had
previously indicated its willingness to accept the subscription).
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<PAGE>
In the event that a subscriber is rejected for any reason by the Managing Owner
(or in the event that the subscription of a subscriber is rejected by the
Managing Owner in part only, as provided in the Prospectus), the Escrow Agent
shall upon the written direction of the Managing Owner, return the amount
received from such subscriber (or the appropriate portion thereof, in the case
of a subscription rejected in part only, as provided above) and the amount of
his pro rata share of interest, as determined by the Managing Owner, if any, to
the subscriber or the appropriate Selling Agent for the benefit of the
subscriber, if so directed.
(b) Interest earned on funds attributable to accepted subscriptions
while held in the Escrow Account shall be allocated to the Trust and not to any
individual subscriber.
(c) The Selling Agents acknowledge and agree that the method
established pursuant to this Escrow Agreement for the refund of rejected
subscriptions and of interest earned on rejected subscriptions is only
acceptable under Rule 15c2-4 of the Securities and Exchange Commission provided
that the Selling Agents inform subscribers of when their customer securities
accounts at the Selling Agents will be credited with such refunded subscription
payments and/or interest income. Accordingly, the Selling Agents undertake that
they will (a) credit the rejected subscribers' customer securities accounts as
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<PAGE>
promptly as practicable (and in no event more than 5 business days) after
receipt of the necessary funds from the Escrow Agent and information indicating
the amounts so due, and (b) inform rejected subscribers as soon as practicable
of the date that the amounts to be credited will be available in their
respective customer accounts.
8. The Managing Owner agrees to (i) pay the Escrow Agent upon
execution of this Agreement reasonable compensation for the services to be
rendered hereunder, as described in Schedule I attached hereto including all
expenses, disbursements and advances, and (ii) pay or reimburse the Escrow Agent
upon request for reasonable attorney's fees, incurred by it as a result of
events not contemplated by this Agreement.
9. It is understood and agreed, further, that the Escrow Agent
shall:
(a) be under no duty to enforce payment of any subscription which is
to be paid to and held by it hereunder;
(b) be under no duty to accept funds, checks, drafts or instruments
for the payment of money from anyone other than the Selling Agents or
customers of
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<PAGE>
the Selling Agents or to give any receipt therefor except to the Selling
Agents;
(c) be protected in acting or refraining upon any notice, request,
certificate, approval, consent or other paper believed by it to be
genuine, and to have been signed by the proper party or parties and
delivered in accordance with the terms of this Agreement;
(d) be deemed conclusively to have given and delivered any notice
required to be given or delivered hereunder if the same is in writing,
signed by any one of its authorized officers, and mailed, by registered or
certified mail and received by, or delivered by hand to, the Kenmar Global
Trust, c/o Kenmar Advisory Corp., Two American Lane, P.O. Box 5150,
Greenwich, Connecticut 06831-8150, and be deemed conclusively to have
received any notice required to be given or delivered hereunder if the
same is in writing, signed by any one of the authorized partners,
employees or officers of the Managing Owner or of the Selling Agents, and
mailed, by registered or certified mail and received by, or delivered by
hand to, the Escrow Agent's Corporate Trust Department, 450 West 33rd
Street, New York, NY, Attention: Escrow Agent, 15th Floor, or such
-9-
<PAGE>
other addresses as any party may designate in writing by certified or
registered mail;
(e) The Managing Owner hereby agrees to indemnify the Escrow Agent
for, and to hold it harmless against any loss, liability or expenses
arising out of or in connection with this Agreement and carrying out its
duties hereunder, including the costs and expenses of defending itself
against any claim or liability, except in those cases where the Escrow
Agent has been guilty of negligence or misconduct. Anything in this
agreement to the contrary notwithstanding, in no event shall the Escrow
Agent be liable for special, indirect or consequential loss or damage of
any kind whatsoever (including but not limited to loss of profits), even
if the Escrow Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action.
(f) promptly notify the Selling Agents of any discrepancy between
the amounts set forth on any statement delivered by the Selling Agents and
the sum or sums delivered to it therewith;
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<PAGE>
(g) have no duty to inquire into the terms and conditions of this
Agreement, its duties hereunder being purely ministerial in nature;
(h) be permitted to consult with counsel of its choice, including
in-house counsel, and shall not be liable for any action taken, suffered
or omitted by it in accordance with the advice of such counsel, provided,
however, that nothing in this subsection 9(h), nor any action taken by the
Escrow Agent, or suffered or omitted by it in accordance with the advice
of any counsel, shall relieve the Escrow Agent from liability for any
claims that are occasioned by its bad faith, negligence or misconduct, all
as provided in subsection 9(e) above;
(i) not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Agreement, unless the
same shall be in writing and signed by all parties hereto;
(j) have no liability for following the instruc tions herein or
expressly provided for, or written instructions given by the Managing
Owner; and
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<PAGE>
(k) have the right, at any time, to resign hereunder by giving
written notice of its resignation to all other parties hereto at their
addresses set forth above, at least 15 business days prior to the date
specified for such resignation to take effect, and upon the effective date
of such resignation all cash and other payments and all other property
then held by the Escrow Agent hereunder shall be delivered by it to such
person as may be designated in writing by the other parties executing this
Agreement, whereupon the Escrow Agent's obligations hereunder shall cease
and terminate. If no such person has been designated within thirty days
after mailing such notice, the Escrow Agent is unconditionally and
irrevocably authorized and empowered to send any and all property in the
Escrow Account by registered mail to the Managing Owner (irrespective of
whether the Escrow Agent shall have received any certificate regarding, or
funds in respect of, additional interest from the Managing Owner), all
obligations of the Escrow Agent hereunder shall, nevertheless, cease and
terminate. In the event that the Escrow Agent terminates this Agreement
under the terms of this Section 9(k), the Escrow Agent's Compensation
under Section 8 of this Agreement shall be prorated for partial years,
notwithstanding any language in this Agreement to the contrary.
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<PAGE>
10. The Managing Owner may remove the Escrow Agent at any time (with
or without cause) by giving at least 10 days written notice thereof. Within 5
days after receiving such notice, the Managing Owner shall appoint a successor
escrow agent at which time the Escrow Agent shall either distribute the funds
held in the Escrow Account, its fees, costs and expenses or other obligations
owed to the Escrow Agent having been paid by the Managing Owner, as directed by
the instructions of the Managing Owner or hold such funds, pending distribution,
until all such fees, costs and expenses or other obligations are paid by the
Managing Owner. If a successor escrow agent has not been appointed or has not
accepted such appointment by the end of the 5-day period, the Escrow Agent may
appeal to a court of competent jurisdiction for the appointment of a successor
escrow agent, or for other appropriate relief and the costs, expenses and
reasonable attorneys fees which the Escrow Agent incurs in connection with such
a proceeding shall be paid by the Managing Owner.
11. In the event that any checks or other instruments deposited in
the escrow account established hereunder prove uncollectible the Trust shall
promptly reimburse the Escrow Agent therefor upon request and the Escrow Agent
shall deliver the returned checks or other instruments to the Trust.
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<PAGE>
12. This Agreement has been entered into by the Trust, and the
obligations of this Agreement with respect to the Trust are binding only upon
the assets and property of the Trust. The obligations of this Agreement are not
binding on the Unitholders of the Trust individually, and no resort shall be had
to the Unitholders' personal property for satisfaction of any obligation or
claim hereunder.
13. Each party hereto, except the Escrow Agent, shall provide the
Escrow Agent with its Tax Identification Number (TIN) as assigned by the
Internal Revenue Service. All interest or other income earned under the Escrow
Agreement shall be allocated and paid as provided herein and reported by the
recipient to the Internal Revenue Service as having been so allocated and paid.
14. The duties and responsibilities of the Escrow Agreement
hereunder shall be determined solely by the express provisions of this Escrow
Agreement, and no other or further duties or responsibilities shall be implied.
The Escrow Agent shall not have any liability under, nor duty to inquire into
the terms and provisions of any agreement or instructions, other than outlined
on the Agreement.
15. (a) In the event funds transfer instructions are given (other
than in writing at the time of execution of the Agreement), whether in writing,
by telecopier or otherwise, the
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<PAGE>
Escrow Agent is authorized to seek confirmation of such instructions by
telephone call-back to the person or persons designated on Schedule 2 hereto,
and the Escrow Agent may rely upon the confirmations of anyone purporting to be
the person or persons so designated. The persons and telephone numbers for
call-backs may be changed only in a writing actually received and acknowledged
by the Escrow Agent. The parties to this Agreement acknowledge that such
security procedure is commercially reasonable.
(b) It is understood that the Escrow Agent and the beneficiary's
bank in any funds transfer may rely solely upon any account numbers or similar
identifying number provided by either of the other parties hereto to identify
(i) the beneficiary, (ii) the beneficiary's bank, or (iii) an intermediary bank.
The Escrow Agent may apply any of the escrowed funds for any payment order it
executes using any such identifying number, even where its use may result in a
person other than the beneficiary being paid, or the transfer of funds to a bank
other than the beneficiary's bank, or an intermediary bank designated.
16. Neither the Escrow Agreement nor any right or interest hereunder
may be assigned in whole or in part without the prior consent of the other
parties.
17. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but
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<PAGE>
all of which together shall constitute one and the same instrument.
18. The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instructions
given by the parties hereto.
19. In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions, claims or demands from
any party hereto which, in its opinion, conflict with any of the provisions of
this Agreement, it shall be entitled to refrain from taking any action and its
sole obligation shall be to keep safely all property held in escrow until it
shall be directed otherwise in writing by all of the other parties hereto or by
a final order or judgment of a court of competent jurisdiction.
20. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to its principals of
conflicts of laws and any action brought hereunder shall be brought in the
courts of the State of New York, located in the County of New York. Each party
hereto irrevocably waives any objection on the grounds of venue, forum
non-conveniens or any similar grounds and irrevocably consents to service of
process by mail or in any other manner permitted by applicable law and consents
to the jurisdiction of said courts.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of _______________, 1996.
THE CHASE MANHATTAN BANK, the Escrow
Agent
By:________________________________
Name:
Title:
[[SELLING AGENT]]
By:________________________________
Name:
Title:
KENMAR ADVISORY CORP.
the Managing Owner
By:________________________________
Name:
Title:
KENMAR GLOBAL TRUST,
the Trust
By: KENMAR ADVISORY CORP.,
Managing Owner
By:________________________________
Name:
Title:
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<PAGE>
SCHEDULE 1
$10,000 for each year or any part thereof in which this Agreement is
in effect without proration for partial years; provided that, if subscriptions
for at least 50,000 Units have not been accepted as of the Offering Termination
Date, the Escrow Agent's sole remuneration shall consist of a one-time fee of
$5,000.
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<PAGE>
SCHEDULE 2
Telephone Number(s) for Call-Backs and
Person(s) Designated to Confirm Funds Transfer Instructions
If to the Managing Owner:
Name: Telephone Number
1. _____________________ _________________
2. _____________________ _________________
3. _____________________ _________________
If to Selling Agent:
Name: Telephone Number
1. _____________________ _________________
2. _____________________ _________________
3. _____________________ _________________
Telephone call-backs shall be made to each of the Managing Owner and the
Selling Agents if joint instructions are required pursuant to the
Agreement.
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EXHIBIT 23.01
CONSENT
OF
SIDLEY & AUSTIN
Sidley & Austin hereby consents to all references made to it in the
Registration Statement on Form S-1 of Kenmar Global Trust, as filed with the
Securities and Exchange Commission on July 25, 1996.
Date: July 25, 1996
Very truly yours,
Sidley & Austin
EXHIBIT 23.02
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Prospectus constituting part of this Registration
Statement on Form S-1 of our report dated July 19, 1996 on the statement of
financial condition of Kenmar Global Trust as of July 18, 1996 and our report
dated December 19, 1995 on the statement of financial condition of Kenmar
Advisory Corp. as of September 30, 1995, which appear in such Prospectus. We
also consent to the statements with respect to us as appearing under the heading
"Experts" in the Prospectus.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
July 19, 1996
Lutherville, Maryland
EXHIBIT 99.01
SECURITIES AND EXCHANGE COMMISSION
AGENCY: Securities and Exchange Commission.
17 CFR Parts 231 and 241
Statement of the Commission Regarding Disclosure by Issuers
of Interests in Publicly Offered Commodity Pools
[Release Nos. 33-6815; 34-26508 [S7-1-89]]
54 FR 5600
February 6, 1989
ACTION: Interpretation and Request for Comment.
SUMMARY: The Securities and Exchange Commission ("Commission") is publishing
this release and request for comments regarding disclosure by issuers of
interests in publicly offered commodity pools simultaneously with an
interpretive statement and request for comments by the Commodity Futures Trading
Commission ("CFTC"). In this statement, the Commission to the extent applicable,
incorporates by reference the views expressed by the CFTC in its interpretive
statement, and reminds issuers of interests in publicly offered pools of their
disclosure obligations under the federal securities laws. In addition, the
Commission in requesting comment on several matters related to the presentation
of prior performance by commodity pool operators and commodity trading advisors,
and the presentation of fees, commissions and expenses to be incurred by the
typical professionally managed commodity pool. The companion statements reflect
a continuing effort on behalf of the CFTC and the Commission to maintain
consistent coordinated requirements for publicly offered commodity pools.
DATE: Comments should be received on or before April 7, 1989.
ADDRESS: Comments should be submitted in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street NW., Washington,
DC 20549. Comment letters should refer to File No. S7-1-89. All comment letters
will be available for public inspection and copying in the Commission's Public
Reference Room 450 Fifth Street NW., Washington, DC 20549. FOR FURTHER
INFORMATION CONTACT: John C. Roycroft, Assistant Director, or Daniel W. Rumsey,
Attorney, at (202) 272-7628, Division of Corporation Finance, Securities and
Exchange Commission, 450 Fifth Street, Washington, DC 20549.
<PAGE>
TEXT: SUPPLEMENTARY INFORMATION: The Commission today is reminding issuers of
interests in publicly offered commodity pools registered under the Securities
Act of 1933 ("Securities Act") n1 or the Securities Exchange Act of 1934
("Exchange Act") n2 of their disclosure obligations under those Acts. In
connection herewith, and to the extent applicable, the Commission incorporates
by reference the views expressed by the CFTC regarding the disclosure
requirements under the Commodity Exchange Act ("CEA") n3 and CFTC regulations.
n4 The CFTC's views are set forth in an interpretive statement and request for
comments being published simultaneously herewith.
The views expressed in this interpretive statement should be considered in
connection with a registrant's obligation to disclose, in registration
statements and other filings with the Commission, material information to
investors that is necessary to make the required disclosure not misleading. n5
In addition, the Commission is requesting comment on several matters related to
the presentation of prior performance by commodity pool operators and commodity
trading advisors, and the presentation of fees, commissions and expenses to be
incurred by the typical professionally managed commodity pool.
Registrants also are reminded of their obligation to present information
in a clear, concise and understandable manner. Securities Act Rule 421(b), 17
CFR @ 230.421(b). Cf. Gould v. American-Hawaiian Steamship Co., 535 F. 2d 761
(3d Cir. 1976); Kohn v. American Metal Climax, Inc., 322 F. Supp. 1331 (E.D. Pa.
1970).
I. Background
Issuers of interests in commodity pools must comply with applicable
registration, disclosure, antifraud and other requirements of the federal
securities laws. n6 In view of the CFTC's jurisdiction over commodity interest
trading, commodity pool offerings also must comply with the regulations
promulgated by the CFTC regarding commodity pool operators and
n1 15 U.S.C. 77a et seq.
n2 15 U.S.C. 78a et seq.
n3 7 U.S.C. 1 et seq.
n4 E.g., 17 CFR Part 4.
n5 See Securities Act section 17(a), 15 U.S.C. 77q(a); Securities Act Rule
408, 17 CFR 230.408; Exchange Act section 10(b), 15 U.S.C. 78j(b); Exchange Act
Rule 10b-5, 17 CFR 240.10b-5; Exchange Act Rule 12b-20, 17 CFR 240.12b-20. See
also Basic Inc. v. Levinson, 108 S. Ct. 978 (1988).
n6 See Securities Act section 2(1), 15 U.S.C. 77b(1); Exchange Act section
3(a)(10), 15 U.S.C. 78c(a)(10).
<PAGE>
commodity trading advisors and their associated persons as particularly set
forth in the CFTC's interpretive statement. Accordingly, where interests in a
commodity pool are registered with the Commission, the disclosure document
provided to investors must comply with the disclosure and other requirements of
both the federal commodity and securities laws. n7
The Commission's staff has historically referred to the CFTC's
requirements as a starting place in formulating its own disclosure standards
applicable to offerings of commodity pools registered with the Commission. The
companion statements reflect a continuing effort on behalf of the CFTC and the
Commission to maintain consistent coordinated requirements for publicly offered
commodity pools. Registrants should nevertheless independently review their
disclosure responsibilities and potential liabilities under both the federal
commodity and securities laws in the offer and sale of these securities.
Certain recently published studies suggest that the actual performance of
publicly held commodity pools was significantly lower than the performance
disclosed in the prior performance tables included in commodity pool disclosure
documents. n8 While the findings and issues raised in these studies are
currently being reviewed by the staff of the CFTC, the Commission believes that
it should provide guidance to issuers of publicly offered commodity pools at
this time. Although the positions expressed in this release and the CFTC's
interpretive statement currently reflect the respective agencies' views
regarding appropriate disclosure in commodity pool disclosure documents, the
Commission is interested in receiving views on the interpretive positions
expressed in those statements. Commentators may wish to make the same submission
to both agencies. The Commission expects to consult with the CFTC concerning the
comments received in response to their respective statements with a view toward
determining whether further action is necessary or appropriate.
n7 See, e.g., Securities Act section 10(a)(3), 15 U.S.C. 77j(a)(3), which
specifies the information required to be in a prospectus used in connection with
a registered offering of securities.
n8 See Elton, Gruber & Rentzler, New Public Offerings, Information and
Investor Rationality: The Case of Publicly Offered Funds, 62 J. Bus. 1-15
(January 1989). The authors hypothesized that the findings of the study were at
least in part due to the following factors: (1) Public commodity pools have
larger transaction costs and management fees than private commodity accounts;
(2) only trading advisers with recent successful track records are likely to go
public; and (3) trading advisers can select the period of time for disclosing
their prior performance, resulting in an upward bias in performance results. See
also Edwards & Ma, Commodity Pool Performance: Is the Information Contained in
Pool Prospectuses Useful? Working Paper Series No. 16, Center for the Study of
Futures Markets, Columbia Business School (January 1988).
<PAGE>
II. Disclosure of Prior Performance Tables
Section 4.21 of the CFTC's regulations requires that the disclosure
document provided to prospective investors include, among other things,
information with respect to the actual performance of previously operated
commodity pools and trading accounts of the commodity pool operator, the
commodity trading advisor, and their respective principals (the "performance
history"). n9 In this connection, the CFTC's rules require that the disclosure
document include performance history for at least the lesser of three years or
the life of the commodity pool or trading account. n10 Beyond the required three
years, registrants have discretion, subject to the risk of liability under the
antifraud provisions of the federal commodity n11 and securities laws, n12 to
present performance history for any additional time periods. Where performance
history is provided in excess of three years, however, the additional
performance data should not be selected in such a way so as to misrepresent the
overall performance history of the commodity pool operator or commodity trading
advisor. Thus, where performance history for periods greater than the required
three years is presented, the additional performance history should not differ
materially from the commodity pool operator's or commodity trading advisor's
overall historical performance. n13
Comment is requested as to whether the presentation of prior performance
data beyond the required three years is useful to investors in making their
investment decision. If so, further comment is requested as to whether
registrants should be required to present the entire performance history of the
commodity pool operator and commodity trading advisor, or alternatively, whether
registrants should be required to present performance history for some period
greater than three years, such as five, seven or ten years where such
performance data is available. n14 In addressing these issues, commentators
should discuss specifically those factors
n9 CFTC Regulation section 4.21, 17 CFR 4.21.
n10 CFTC Regulation @@ 4.21(a)(4) and (a)(5), 17 CFR 4.21(a)(4), (a)(5).
n11 Section 4o of the Commodity Exchange Act, 7 U.S.C. 6o.
n12 See, e.g., Securities Act Section 17(a), 15 U.S.C. 77q(a); Exchange Act
section 10(b), 15 U.S.C. 78j(b), and Exchange Act Rule 10b-5, 17 CFR 240.10b-5.
n13 Registrants should be prepared to provide the Commission or its staff
with information concerning the presentation of additional performance history.
See Securities Act Rule 418, 17 CFR 230.418.
n14 The Commission notes that the CFTC currently requires that registrants
maintain all commodity pool and trading account records for at least five years.
CFTC Regulation @@ 4.23 and 1.31, 17 CFR 4.23 and 1.31.
<PAGE>
that would cause a presentation covering more than three years to be useful or
relevant to an investment decision in the currently offered commodity pool. The
Commission also requests comment as to whether any presentation of prior
performance is useful to investors in view of the general nonpredictability of
trading results.
The CFTC's regulations require that the prior performance of the commodity
pool operator and trading advisor be presented on at least a quarterly basis.
n15 In the Commission's view, performance disclosure on a monthly basis is
generally more appropriate, particularly when such monthly performance is
volatile. Moreover, to facilitate investor review and analysis of the prior
performance presentations, a registrant, to the extent practicable, should
present the prior performance tables for the commodity pool operator and the
commodity trading advisor on a consistent periodic basis.
The CFTC's regulations permit prior performance disclosure on an
individual or composite basis. n16 Where a composite presentation is elected,
separately captioned composites of previously traded public pools of the
commodity pool operator and commodity trading advisor may be necessary to
prevent the prospectus from being misleading, where the differences between the
prior public pools' and private accounts' performance are material and are not
otherwise clearly and concisely disclosed and explained in the text. Comment is
requested as to whether there should be a separate presentation of prior public
pools of the commodity pool operator and commodity trading advisor under all
circumstances or whether an explanation of such differences in the text would be
sufficient.
To enable an investor to evaluate prior performance presentations, the
prior performance tables should be accompanied by appropriate textual disclosure
regarding any material differences in investment objectives or structures
between the commodity pools or trading accounts displayed in the prior
performance tables and the commodity pool being registered. For example,
specific disclosure should be considered where the margin-to-equity ratio of
historical commodity pools or trading accounts is materially different from the
margin-to-equity ratio permitted in the currently offered commodity pool, or
where there are material differences in money management strategies.
Similarly, to the extent an investor's understanding of the performance
history would be enhanced by an explanation of significant factors that may have
contributed to a materially favorable or unfavorable result during any quarterly
or monthly measuring period, registrants should consider appropriate narrative
disclosure. Such discussion could address, by way of example, the extent to
which such prior performance was attributable to: (1) a particular
n15 CFTC Regulation @@ 4.21(a)(4)(ii) and (a)(5)(ii), 17 CFR 4.21(a)(4)(ii)
and (a)(5)(ii).
n16 CFTC Regulation @ 4.21(a)(4)(iv) and (a)(5)(iii), 17 CFR 4.21(a)(4)(iv)
and (a)(5)(iii).
<PAGE>
successful or unsuccessful position or series of positions in one or a limited
number of commodities, or was broadly based; (2) the movements of the commodity
markets generally as measured by a broad based commonly used industry index; or
(3) any material change in investment strategy or objectives. Commentators are
requested to discuss any other factors that may be relevant to an understanding
of the information contained in the prior performance tables.
III. Disclosure of Fees, Commission and Expenses
Consistent with the Commission's view, the practice is to supplement the
prior performance disclosure for publicly offered commodity pools with a pro
forma presentation of the performance history reflecting the brokerage
commissions, incentive and management fees that would have been incurred if the
commodity pools and trading accounts presented in the prior performance tables
were subject to the same fees, and expenses as the commodity pool being
registered instead of those fees and expenses actually paid by the commodity
pools and trading accounts presented. When included, the pro forma presentation
should disclose the actual and pro forma net return achieved by the commodity
pool operator and commodity trading advisor for the last three years. Comment is
requested as to whether this presentation and any other pro forma presentation
based on the actual prior results may cause investors to place undue reliance on
prior performance results as an accurate indicator of future performance.
Registrants also should include, in addition to a narrative description, a
tabular presentation located in the forepart of the prospectus that details the
brokerage commissions, incentive, management and transactional fees, as well as
any other expenses attributable to the commodity pool that will be paid directly
or indirectly by investors. n17 If any affiliate of the commodity pool operator
will receive compensation in connection with the operation of the commodity
pool, such affiliation and the amount of compensation should be clearly
disclosed.
n17 See also Regulation S-K, Item 501, 17 CFR 229.501, which requires the
disclosure of the net proceeds to the issuer after deducting selling
commissions; and Instruction 5 thereto, which requires footnote disclosure
regarding other expenses of issuance and distribution, including organizational
costs. 17 CFR 229.501, Instruction 5.
<PAGE>
In order to facilitate analysis of the fees, brokerage commissions and
other expenses to be charged to the commodity pool, registrants should consider
additional disclosure regarding how much each unit's net aset value would have
to increase in the first year, for the redemption value per unit, net of
expenses attributable to the commodity pool, to equal the purchase price paid by
investors for such unit, as well as a calculation of the redemption value per
unit estimated prior to the commencement of operations. Comments are requested
as to whether alternative disclosures would better enable prospective investors
to assess the impact on their investment of the expenses to be charged to the
commodity pool.
IV. Conclusion
While this release and the interpretive statement published simultaneously
herewith by the CFTC represent the views of the respective agencies as to the
preparation and disclosure of material information concerning commodity pools,
nothing in the statements should be construed to alleviate the requirement of
registrants to comply with all applicable disclosure requirements under the
Securities Act, the Exchange Act, and the CEA. n18 Attention also is directed to
the antifraud provisions under both the Securities Act and the Exchange Act,
which apply not only to statements made in filings with the Commission, but also
to those made outside Commission filings. n19 Registrants also are reminded of
the disclosure obligations promulgated by the CFTC.
n18 Registrants are specifically reminded of their obligation to include, in
annual and quarterly reports filed under the Exchange Act, an analysis of the
financial condition and results of operation for the commodity pool. See Item
303 of Regulation S-K, 17 CFR 229.303.
n19 See supra note 12.
<PAGE>
* * * * *
List of Subjects in 17 Parts 231 and 241
Reporting and record keeping requirements, securities.
Parts 231 and 241 of Title 17, Chapter II of the Code of Federal Regulations
are amended by adding this Release No. 33-6815, and 34-26508 (February 1, 1989)
to the list of interpretive releases.
By the Commission.
Jonathan G. Katz,
Secretary.
Dated: February 1, 1989.
[FR Doc. 89-2659 Filed 2-3-89; 8:45 am]
BILLING CODE 8010-01-M
EXHIBIT 99.02
COMMODITY FUTURES TRADING COMMISSION
AGENCY: Commodity Futures Trading Commission.
17 CFR Part 4
Statement of the Commodity Futures Trading Commission
Regarding Disclosure by Commodity Pool Operators of Past
Performance Records and Pool Expenses and Request for
Comments
54 FR 5597
February 6, 1989
ACTION: Interpretive Statement and Request for Comments.
SUMMARY: The Commodity Futures Trading Commission is publishing this
interpretive statement and request for comments in order to assist commodity
pool operators in complying with requirements concerning the disclosure of past
performance records and pool expenses.
DATE: Comments should be received on or before April 7, 1989.
ADDRESS: Please submit written comments to the Office of the Secretariat,
Commodity Futures Trading Commission, 2033 K Street NW., Washington, DC 20581.
FOR FURTHER INFORMATION CONTACT: Tobey W. Kaczensky, Associate Director,
Division of Trading and Markets, Commodity Futures Trading Commission, 2033 K
Street NW., Washington, DC 20581. Telephone: (202) 254-8955.
TEXT: SUPPLEMENTARY INFORMATION: The Commodity Futures Trading Commission
("CFTC" or "Commission") is today reminding commodity pool operators ("CPOs")
who solicit participations, or accept or receive funds, securities or other
property in respect of participations, in publicly offered commodity pools
registered under the Securities Act of 1933 (the "Securities Act") n1 or the
Securities Exchange Act of 1934 ("Exchange Act") n2 of certain disclosure
obligations under the Commodity Exchange Act (the "CEA"), n3 as more
particularly set forth in
n1 15 U.S.C. 77a.
n2 15 U.S.C. 78a.
n3 7 U.S.C. 1.
<PAGE>
Part 4 of the CFTC's regulations. n4 This interpretive statement and request for
comments is being issued simultaneously with a companion release of the
Securities and Exchange Commission ("SEC") generally addressing the same issues.
n5 The CFTC, to the extent applicable, incorporates by reference the views
expressed by the SEC in its interpretive statement. Commenters may wish to make
the same submission to both agencies. The companion statements reflect a
continuing effort on behalf of the CFTC and the SEC to maintain consistent,
coordinated requirements for publicly offered commodity pools.
I. Background
Part 4 of the CFTC's regulations contains comprehensive disclosure
requirements for CPOs. n6 Among other things, Part 4 requires that a current
"Disclosure Document" be delivered to each prospective pool participant prior to
the solicitation of the participant or the participant's commitment of funds to
a pool. n7 This Disclosure Document also must be filed with the CFTC twenty-one
days prior to its first use. n8 Under Commission rules, pool disclosure
documents must address specifically the management policies of the pool and how
the pool will be traded and
n4 17 CFR Part 4 (hereinafter, all references to CFTC regulations will use
the appropriate CFR citation).
n5 This release principally addresses issues raised in the context of public
pools. However, given the fact that the CEA and CFTC regulations thereunder
generally apply equally to private pools and to public pools, the views
expressed herein, unless otherwise specified, also apply to private pools.
n6 The CEA defines a "commodity pool operator" as "any person engaged in a
business which is of the nature of an investment trust, syndicate, or similar
form of enterprise, and who, in connection therewith, solicits, accepts, or
receives from others, funds, securities, or property, either directly or through
capital contributions, the sale of stock or other forms of securities, or
otherwise, for the purpose of trading in any commodity for future delivery on or
subject to the rules of a contract market . . ." 7 U.S.C. 2. The CEA defines a
"commodity trading advisor" ("CTA") as "any person who, for compensation or
profit, engages in the business of advising others . . . as to the value of or
the advisability of trading in any contract of sale of a commodity for future
delivery made or to be made on or subject to the rule of a contract market..." 7
U.S.C. 2.
n7 17 CFR 4.21(a). A "pool" is defined as "any investment trust, syndicate,
or similar form of enterprise operated for the purpose of trading commodity
interests." 17 CFR 4.10(d).
n8 17 CFR 4.21(g).
<PAGE>
operated including, without limitation: the five-year business background of its
CPOs, CTAs and their respective principals; the financial interests of such
persons in the specific pool being offered; and any actual or potential conflict
of interest involving, or any material civil, criminal or administrative action
against, any CPO, CTA or the principals of either within the preceding five
years. Additionally, the document must indicate: the minimum aggregate amount of
funds that must be received before the pool will commence trading; the
responsibility, if any, of participants to contribute additional capital; and
the pool's policies concerning distributions from profits or capital. n9
Part 4 of the CFTC's regulations also specifically requires disclosure of
the actual performance record (i.e., the past performance history) of the pool's
CPO, CTAs and their respective principals. n10 Such disclosures must include the
past performance history of all pools, public or private, as well as that of
individual accounts operated or traded by the CPO and its CTAs. Part 4
separately requires a complete description of each kind of expense that may be
charged to a pool or its participants which specifies whether such expenses are
actual or estimated. n11 Part 4 also contains a specified risk disclosure
statement which warns that a pool participant may lose his or her entire
interest in the pool and that pools may be subject to significant charges so
that substantial trading profits may be required to avoid the depletion or
exhaustion of pool assets. n12
n9 17 CFR 4.21(a)(8) and 4.21(a)(12).
n10 17 CFR 4.21(a)(4) and 4.21(a)(5).
n11 17 CFR 4.21(a)(7). This requirement includes, without limitation, an
itemization of fees for management, trading advice, brokerage commissions, legal
advice, accounting services and organizational services. That Regulation also
requires the disclosure of any expense which has been or is to be paid by a
person other than the CPO. 17 CFR 4.21(a)(17)(iv). When any expense is
determined by reference to "net assets," "gross profits," "net profits" or "net
gains", the CPO must define that term. 17 CFR 4.21(a)(7)(ii).
n12 17 CFR 4.21(a)(17). The Risk Disclosure Statement must appear as the only
language on the page immediately following the cover page and must contain
specified language including, in part, the following statements:
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO
PARTICIPATE IN A COMMODITY POOL. YOU MAY LOSE A SUBSTANTIAL PORTION OR EVEN ALL
OF THE MONEY YOU PLACE IN THE POOL.
IN CONSIDERING WHETHER TO PARTICIPATE IN A COMMODITY POOL, YOU SHOULD BE
AWARE THAT TRADING COMMODITIES 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. ALSO, MARKET CONDITIONS
MAY MAKE IT DIFFICULT OR IMPOSSIBLE FOR THE POOL TO LIQUIDATE A POSITION.
<PAGE>
The National Futures Association ("NFA"), which is the self-regulatory
organization ("SRO") responsible, under CFTC oversight, for CPO and CTA
compliance with the CFTC's disclosure requirements, has adopted additional rules
approved by the CFTC that pertain to pool disclosures. For example, NFA rules
prohibit the use of promotional material which includes any reference to actual
past trading profits without a statement that "past results are not necessarily
indicative of future results * * * ." n13 NFA generally requires that this
statement be included in the disclosure document adjacent to the performance
table and the Commission believes that it should appear in bold face print and
in a prominent place immediately preceding the past performance tables required
by Part 4.
In any event, CFTC regulations expressly require that a CPO make all
material disclosures when offering pool participations. n14 As a consequence, to
assist CPOs, the CFTC is publishing these views on certain types of disclosures
which should be considered material in connection with past performance and pool
expense information required to be disclosed to pool participants in order that
such required disclosures are not misleading. Additionally, the CFTC is
requesting comment on matters related to the presentation of prior performance
data by CPOs and CTAs and the presentation of the fees, commissions and expenses
incurred by pools. Although the positions expressed in this release reflect the
CFTC's views regarding appropriate disclosure in pool disclosure documents, the
CFTC is interested in receiving comments on the interpretive positions and other
issues set forth herein. The CFTC, in consultation with the SEC, will review the
comments received in response to this release with a view toward determining
whether further action in addition to this statement is appropriate.
II. Commodity Pool Participation and Performance
In recent years, the futures markets have grown both in volume and in the
diversity of products traded thereon, especially the financial, foreign currency
and equity-related products. The commodity pool is an increasingly popular means
of participation in these markets by the individual customer. In a typical
commodity pool, the promoter or CPO pools particpants' funds and uses a portion
thereof to margin futures positions held by the pool. n15 Trading decisions for
the commodity pool generally are made by one or more CTAs selected by the CPO.
n13 NFA Compliance Rule 2-29(b)(5). Further, NFA Compliance Rule 2-29(g)
includes disclosure documents within the definition of promotional material.
Moreover, NFA Compliance Rule 2-13 adopts the CFTC's Part 4 regulations by
reference.
n14 A CPO is required to disclose all material information to existing or
prospective pool participants even if such information is not otherwise
specifically required by Part 4. 17 CFR 4.21(h).
n15 See 1 P. Johnson, Commodities Regulation @ 1.15, at 52 (1982).
<PAGE>
The disclosure document provided to pool participants must meet applicable
registration, disclosure, antifraud and other requirements of the federal
securities laws as well as comply with the CEA and all applicable CFTC
regulations. n16 Persons who propose to offer participations in public commodity
pools should carefully review the requirement that, in addition to the specific
disclosures required by Part 4 of the CFTC's regulations, CPOs must disclose all
material information to existing and prospective pool participants. n17
Certain recently published studies suggest that the actual performance of
CTAs employed by publicly held commodity pools was significantly poorer than
their previous performance as disclosed in the prior performance tables included
in those pools' disclosure documents. 1 n8 CFTC staff is currently reviewing the
study results and will investigate possible reasons for the differences in
performance reported by the authors if available data permits. To the extent
that significant differences exist between the past performance records required
to be disclosed in a particular pool disclosure document and the actual
subsequent performance of that pool, such differences may be the result of
differences between the trading and money management strategies of the current
pool and those of the pool or pools previously offered by the relevant CPO or
CTAs. For example, it would not be uncommon for significant differences to exist
in the proportion of funds committed to margin futures positions and, thus, in
the ratio of trading margin to overall equity. n19
Pending completion of its review of the recently published studies, the
CFTC recommends that special attention be given to disclosures in the following
areas.
III. Performance Reporting
A. Length of Period Covered by Performance Tables
As mentioned above, CFTC Regulation 4.21 requires that the disclosure
document provided to prospective pool participants include, among other things,
information with respect to the actual performance of previously operated
commodity pools and trading accounts of the CPO,
n16 See 7 U.S.C. 6m(2), 15 U.S.C. 77b(1) and 15 U.S.C. 78c(a)(10).
n17 See n.14, supra.
n18 See Elton, Gruber and Rentzler, New Public Offerings, Information and
Investor Rationality: The Case of Publicly Offered Funds, 62 J. Bus. L. 1-15
(January 1988); see also Edwards, Commodity Pool Performance: Is the Information
Contained in Pool Prospectuses Useful?, Working Paper Series No. 16, Center for
the Study of Futures Markets, Columbia Business School (January 1988).
n19 Id.
<PAGE>
the CTA, and their respective principals. Such prior performance tables must be
provided for at least the lesser of three years or the life of the commodity
pool or individual trading account for which the performance data are provided.
n20 Beyond the required three years, CPOs have discretion to elect to provide
historical performance data for additional time periods subject to the
obligation to disclose all material information and to the antifraud provisions
of the CEA. n21 Where performance history in excess of the required three years
is provided for either the CPO or CTA, the CPO must ensure that the additional
performance data is not selected in such a way as to misrepresent the overall
performance history of the CPO or CTA. n22 In addition, where performance
history for periods greater than three years is shown, the CFTC staff generally
has advised that at least five years' performance or the entire performance
history, if it is available, should be presented. In this connection, the CFTC
notes that a CPO is required to maintain all pool records for at least five
years. n23
Comment is requested as to whether the presentation of prior performance
data in excess of the currently required three years is useful to participants
in making the decision to purchase a pool participation. If so, further comment
is requested as to whether the CPO should be required to present the performance
history of the CPO and CTA for a longer period such as five years or more, if
such performance history is available. In addressing this issue, commenters
should discuss specifically those factors that would cause a presentation
covering more than three years to be relevant to potential participants in a
currently offered pool. The CFTC also requests comment generally on the extent
to which the presentation of prior performance may be useful to persons in
deciding whether to purchase an interest in a given pool offering in view of the
general nonpredictability of trading results.
B. Periodic Reporting
CFTC regulations require that the prior performance of a pool's CPO and
CTA be presented on at least a quarterly basis. n24 However, in the CFTC's view,
performance disclosure on a monthly basis may be more appropriate, particularly
when such monthly performance is volatile.
n20 17 CFR 4.21(a)(4)(i) and 4.21(a)(5)(i).
n21 See 17 CFR 4.21(a)(4), 17 CFR 4.21(h) and 7 U.S.C. 6o.
n22 17 CFR 4.21(a)(4), 4.21(a)(5) and 4.21(h).
n23 17 CFR 4.23 and 1.31.
n24 17 CFR 4.21(a)(4)(ii) and 4.21(a)(5)(ii).
<PAGE>
The CFTC believes that a majority of CPOs and CTAs affiliated with
publicly offered commodity pools currently maintain records and present
performance history in their disclosure documents on a monthly basis. The CFTC
recommends that all CPOs and CTAs affiliated with, or contemplating an
affiliation with, a publicly offered commodity pool should, if not currently
doing so, consider maintaining records of past performance and presenting such
performance on a monthly basis. Moreover, to facilitate a pool participant's
review and analysis of prior performance presentations, all prior performance
tables for the CPO and its CTAs should be shown, to the extent possible, in a
consistent format. Comment is requested as to whether monthly performance
reporting should be required in all cases.
C. Composite Performance
CFTC regulations permit prior performance disclosure to be made on either
an individual or a composite basis. n25 If a composite presentation is elected,
separately captioned composites of previously traded public pools of the CPO and
its CTAs may be appropriate when differences between the performance of such
public pools and any private accounts are material. n26 Comment is requested as
to whether there should be a separate presentation of prior public pool
performance of the CPO and its CTAs in all cases or whether a textual
explanation of the differences in such account performance may be sufficient in
some circumstances. Specifically, the CFTC requests comment on whether
performance disclosure in public pool disclosure documents should be limited to
the prior performance of publicly offered pools or whether the performance of
publicly offered pools should be highlighted.
To enable a participant better to evaluate prior performance
presentations, prior performance tables in a public pool disclosure document
should be accompanied by textual disclosure regarding any material differences
in trading objectives for the pools or trading accounts displayed in the prior
performance tables and those objectives for the pool for which the disclosure
document is being distributed. n27 For example, specific disclosure should be
considered where the margin-to-equity ratio of the commodity pools of trading
accounts on which historical performance data are based is materially different
from that which will be permitted in the currently offered commodity pool or
where there are other material differences in how the current pool will be
traded.
n25 17 CFR 4.21(a)(4)(iv) and 4.21(a)(5)(iii).
n26 The CFTC has been advised that such differences are likely if the private
account performance reflected proprietary trading. See also 17 CFR
4.21(a)(4)(iv)(B).
n27 17 CFR 4.21(a)(4)(iii) and 4.21(a)(5)(iii)(A).
<PAGE>
Comments are requested concerning what other factors may be relevant to
properly interpreting the information contained in the prior performance tables.
Comments are also requested as to whether requiring monthly performance
disclosure and improving the rate of return calculations as discussed below
would be sufficient to address the issues raised above.
D. Additions and Withdrawals and the Rate-of-Return Calculation
The CFTC's regulations require that CPOs and CTAs also present performance
in terms of the rate of return for the period contained in the performance table
by dividing net performance for the period by the beginning net asset value
("BNAV") for that period. n28 The CFTC chose this formula over more complex
measures in order to minimize computational and reporting burdens upon CPOs.
This approach assumes that additions or withdrawals are ordinarily made at the
beginning of a reporting period. However, as that may not be the case in
practice, this method may result in unjustifiably high or low rates of return.
If average daily equity ("ADE") were used as a divisor, or adjustments were made
to BNAV to achieve a closely equivalent result, the rate of return may be
affected less by the timing of additions and withdrawals. The CFTC staff has
accepted such alternate presentations where it has been demonstrated that timing
differences with respect to additions and withdrawals would materially distort
performance.
The CFTC requests comment on the feasibility of requiring that rates of
return be computed by dividing net performance by ADE. The CFTC also requests
comment as to whether the use of BNAV still should be permitted when the effects
of using one measure in preference to the other would not materially affect the
rate of return. In this connection, comment is sought specifically on the
feasibility of establishing a standard which would provide guidance as to when
the use of BNAV would be permitted.
IV. Disclosure of Fees, Commissions and Expenses
CFTC regulations require a complete description on all expenses to be
charged to or incurred by a pool, including any interest paid with respect to
pool assets to a person other than the pool itself. n29 In order to facilitate
analysis of the fees and other expenses to be charged to a publicly offered
commodity pool, the CFTC believes that in addition to a narrative description,
CPOs should include a tabular presentation prior to the performance tables that
details the brokerage commissions, incentive, management and transaction fees,
as well as any other expenses attributable to the commodity pool that will be
paid directly or indirectly by participants.
n28 17 CFR 4.21(a)(4)(ii) and 4.21(a)(5)(ii).
n29 17 CFR 4.21(a)(7) and 4.21(a)(9). See also 17 CFR 4.22(a).
<PAGE>
The CFTC requests comment on whether it should require that this
discussion of expenses be supplemented with a pro forma presentation of prior
performance history which reflects the brokerage commissions and incentive and
management fees that would have been incurred if the fees and expenses charged
by commodity pools and trading accounts presented in the prior performance
tables were the same as those to be charged to the current pool. Such a pro
forma presentation should disclose the actual and pro forma net return achieved
for the last three years. Notwithstanding the foregoing, comment is also
requested as to whether this type of presentation, or other pro forma
presentations based on actual prior results, may cause participants to rely
unduly upon prior performance as an indicator of future performance.
Further, comments are solicited as to whether additional disclosure would
assist prospective participants in assessing the extent to which expenses
charged to a pool could influence the pool's prospective performance. For
example, it may be useful to include in the disclosure document the amount by
which each unit of participant's net asset value must increase in the first year
of trading for the redemption value of that unit to equal the gross purchase
price paid to purchase it. Alternatively, the disclosure statement could include
a calculation of the net asset value per unit, net of sales commissions and
other expenses which will be deducted prior to the funds generated by the sale
of such participation unit being pooled for futures trading. In this connection,
commenters should address the problem of assessing prospectively the effect of
incentive fees.
Commenters also are invited to address whether other disclosure
modifications are needed to make uniform the presentation of fees and expenses,
particularly because the rate of return formula is especially sensitive to the
timing of the deduction of such expenses.
V. Conclusion
Although this interpretive statement and the interpretive statement
published simultaneously herewith by the SEC represent the views of the
respective agencies with respect to certain information which may be material in
connection with disclosure documents filed with the CFTC for the offering of
participations in commodity pools, nothing in the statements should be construed
to diminish the obligation of CPOs and other CFTC registrants to comply with all
applicable disclosure requirements of the CEA and the CFTC's regulations
thereunder. Attention particularly is directed to the antifraud provisions of
the CEA which apply not only to statements made in documents filed with the
CFTC, but also to all statements or omissions made in connection with any pool
offering. n30 The CFTC expects to provide further guidance following review of
the comments received in response to this release and completion of the CFTC's
staff study. In this regard, the agency expects to consult with the SEC
concerning the comments to its companion release.
n30 CPOs are specifically reminded of the quarterly and annual reporting
obligations set forth in 17 CFR 4.22.
<PAGE>
* * * * *
List of Subjects in 17 Part 4
General Provisions, Definitions and Exemption, Commodity Pool Operators,
Commodity Trading Advisors, Advertising.
Issued this 1st day of February 1989.
Jean A. Webb,
Secretary to the Commission.
[FR Doc. 89-2681 Filed 2-3-89; 8:45 am]
BILLING CODE 6351-01-M
EXHIBIT 99.03
REGISTRATION OF COMMODITY POOL PROGRAMS
Adopted on September 21, 1983, effective January 1, 1984; amended and adopted
August 30, 1990
I. INTRODUCTION
A. Application
1. The standards contained in these Guidelines pertain to the offer and
sale of securities by commodity pool limited partnerships or
analogous corporate entities and are designed to establish uniform
and consistent standards to be applied by the various state
securities ADMINISTRATORS. The primary focus of the Guidelines is on
the securities related aspects of commodity pool limited
partnerships or analogous corporate entities rather than the
technical aspects of futures trading. The Guidelines do not purport
to supplant existing or future rules and regulations promulgated by
the Commodity Futures Trading Commission or the National Futures
Association.
2. The ADMINISTRATOR may modify or waive such Guidelines if the object
sought to be achieved thereby is accomplished by other means. Where
the individual characteristics of specific PROGRAMS warrant
modification from these standards, they will be accommodated,
insofar as possible, while still being consistent with the spirit of
these Guidelines.
COMMENT: In granting modifications or waivers from these Guidelines, the
ADMINISTRATOR may take into consideration such factors as: (i) the
experience and prior performance of the SPONSOR and/or ADVISOR: (ii)
reduction of ORGANIZATIONAL AND OFFERING EXPENSES, management, advisory or
incentive fees, brokerage commissions, other fees, costs and expenses
below the limits set forth in Section IV: and (iii) more favorable
redemption rights.
3. Where applicable, the ADMINISTRATOR may require compliance with the
jurisdiction's guidelines for corporate securities and may not allow
a security with different rights and privileges to be issued unless
there is justification therefor.
4. When required by the ADMINISTRATOR, a CROSS REFERENCE SHEET shall
be furnished with the application.
B. Definitions. As used in these Guidelines, the following terms shall mean:
1. ADMINISTRATOR--The official or agency administering the securities
laws of a state.
<PAGE>
2. ADVISOR--Any PERSON who for any consideration engages in the
business of advising others, either directly or indirectly, as to
the value, purchase, or sale of COMMODITY CONTRACTS or commodity
options.
3. AFFILIATE--An AFFILIATE of a PERSON means (a) any PERSON directly or
indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities of such PERSON; (b) any
PERSON 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power to vote,
by such PERSON; (c) any PERSON, directly or indirectly, controlling,
controlled by, or under common control of such PERSON; (d) any
officer, director or partner of such PERSON; or (e) if such PERSON
is an officer, director or partner, any PERSON for which such PERSON
acts in any such capacity.
4. CAPITAL CONTRIBUTIONS--The total investment in a PROGRAM by a
PARTICIPANT or by all PARTICIPANTS, as the case may be.
5. COMMODITY BROKER--Any PERSON who engages in the business of
effecting transactions in COMMODITY CONTRACTS for the account of
others or for his own account.
6. COMMODITY CONTRACT--A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade
of a traded commodity at a specified price and delivery point.
7. CROSS REFERENCE SHEET--A compilation of the Guideline sections,
referenced to the page of the prospectus, PROGRAM agreement, or
other exhibits, and justification of any deviation from the
Guidelines.
8. NET ASSETS--The total assets, less total liabilities, of the PROGRAM
determined on the basis of generally accepted accounting principles.
NET ASSETS shall include any unrealized profits or losses on open
positions, and any fee or expense including NET ASSET fees accruing
to the PROGRAM.
9. NET ASSET VALUE PER PROGRAM INTEREST--The NET ASSETS divided
by the number of PROGRAM INTERESTS outstanding.
10. NET WORTH--The excess of total assets over total liabilities as
determined by generally accepted accounting principles. NET WORTH
shall be determined exclusive of home, home furnishings and
automobiles.
11. NEW TRADING PROFITS--The excess, if any, of NET ASSETS at the end of
<PAGE>
the period over NET ASSETS at the end of the highest previous period
or NET ASSETS at the date trading commences, whichever is higher,
and as further adjusted to eliminate the effect on NET ASSETS
resulting from new CAPITAL CONTRIBUTIONS, redemptions, or capital
distributions, if any, made during the period decreased by interest
or other income, not directly related to trading activity, earned on
PROGRAM assets during the period, whether the assets are held
separately or in margin account.
12. ORGANIZATIONAL AND OFFERING EXPENSES--All expenses incurred by the
PROGRAM in connection with and in preparing a PROGRAM for
registration and subsequently offering and distributing it to the
public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the
underwriter's attorneys), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of
transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its PROGRAM
INTEREST under federal and state law, including taxes and fees,
accountants' and attorneys' fees.
13. PARTICIPANT--The holder of a PROGRAM INTEREST.
14. PERSON--Any natural PERSON, partnership, corporation, association or
other legal entity.
15. PIT BROKERAGE FEE. PIT BROKERAGE FEE shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
16. PROGRAM--A Limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in
COMMODITY CONTRACTS.
17. PROGRAM BROKER--A COMMODITY BROKER that effects trades in
COMMODITY CONTRACTS for the account of a PROGRAM.
18. PROGRAM INTEREST--A limited partnership interest or other security
representing ownership in a PROGRAM.
19. PYRAMIDING--A method of using all or a part of an unrealized profit
in a COMMODITY CONTRACT position to provide margin for any
additional COMMODITY CONTRACTS of the same or related commodities.
20. SPONSOR--Any PERSON directly or indirectly instrumental in
organizing a PROGRAM or any PERSON who will manage or participate in
the management of a PROGRAM, including a COMMODITY BROKER who pays
any portion of the ORGANIZATIONAL EXPENSES of the PROGRAM, and the
general partner(s) and any other PERSON who regularly performs or
selects
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the PERSONS who perform services for the PROGRAM. SPONSOR does not
include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of
the units. The term "SPONSOR" shall be deemed to include its
AFFILIATES.
21. VALUATION DATE--The date as of which the NET ASSETS of the PROGRAM
are determined.
22. VALUATION PERIOD--A regular period of time between VALUATION
DATES.
II. REQUIREMENTS OF THE SPONSOR.
A. Experience. Both the SPONSOR and the ADVISOR must be able to demonstrate
sufficient knowledge and experience to carry out the PROGRAM policies and
objectives and to manage PROGRAM operations. Ordinarily a minimum of
three years of relevant experience will be deemed sufficient.
B. Financial Condition. The financial condition of the Sponsor must be
commensurate with any financial obligations assumed in the operation of
the PROGRAM. At a minimum, the NET WORTH of the general partner shall be:
1. An amount equal to 5% of CAPITAL CONTRIBUTIONS in all existing
PROGRAMS in which the SPONSOR has potential liability as a general
partner plus 5% of the PROGRAM INTERESTS being offered.
2. For this section, the minimum required NET WORTH shall in no case be
less than $50,000 nor shall NET WORTH in excess of $1,000,000 be
required.
3. Evaluation will be made of contingent liabilities and the use of
promissory notes to determine the appropriateness of their treatment
in the computation of NET WORTH. If stock subscriptions or
promissory notes are used, the ADMINISTRATOR may request that the
SPONSOR demonstrate that the prospective subscriber or maker have
sufficient NET WORTH to fund its obligation for the maximum amount
of PROGRAM INTERESTS being offered. A currently enforceable contract
shall exist that will require the prospective subscriber or maker to
honor its obligation upon CAPITAL CONTRIBUTION to the PROGRAM.
COMMENT: See Section VI.C.4.(b) for specific requirements relating to the
balance sheet of the SPONSOR.
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C. Investment in the PROGRAM. The SPONSOR must make a permanent investment
in the PROGRAM equal to the greater of 1% of CAPITAL CONTRIBUTIONS or
$25,000. The SPONSOR'S investment should be made prior to the
commencement of trading and shall be maintained throughout the existence
of the PROGRAM. In appropriate cases, the ADMINISTRATOR may require the
SPONSOR to purchase for cash additional interests in the PROGRAM.
D. Reports. The SPONSOR shall submit to the ADMINISTRATOR any information
required to be filed with the ADMINISTRATOR, including, but not limited
to, reports and statements required to be distributed to PARTICIPANTS.
E. Tax Ruling or Opinion. If the PROGRAM is organized as a limited
partnership, the SPONSOR must obtain a favorable tax ruling from the
Internal Revenue Service or an opinion of qualified tax counsel in a form
acceptable to the ADMINISTRATOR concerning the tax status of a limited
partnership.
F. Liability and Indemnification.
1. The PROGRAM shall not provide for indemnification of the SPONSOR
(which shall include AFFILIATES only if such AFFILIATES are
performing services on behalf of the PROGRAM) for any liability or
loss suffered by the SPONSOR, nor shall it provide that the SPONSOR
be held harmless for any loss or liability suffered by the PROGRAM,
unless all of the following conditions are met:
(a) The SPONSOR has determined, in good faith, that the course of
conduct which caused the loss or liability was in the best
interests of the PROGRAM, and
(b) The SPONSOR was acting on behalf of or performing services for
the PROGRAM, and
(c) such liability or loss was not the result of negligence or
misconduct by the SPONSOR, and
(d) such indemnification or agreement to hold harmless is
recoverable only out of the assets of the PROGRAM and not from
the PARTICIPANTS.
2. Notwithstanding anything to the contrary contained in Section
II.F.1., the SPONSOR and any PERSON acting as a broker-dealer 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 the following conditions are met:
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(a) There has been a successful adjudication on the merits of each
count involving alleged securities law violations as to the
particular indemnitee, or
(b) such claims have been dismissed with prejudice on the merits
by a court of competent jurisdiction as to the particular
indemnitee, or
(c) 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, and
(d) in the case of subparagraph (c), the court of law considering
the request for indemnification has been advised of the
position of the Securities and Exchange Commission and the
position of any state securities regulatory authority where
PROGRAM INTERESTS were offered or sold as to indemnification
for violations of securities laws; provided that the court
need only be advised and consider the positions of the
securities regulatory authorities of those states (i) which
are specifically set forth in the PROGRAM agreement and (ii)
in which plaintiffs claim they were offered or sold PROGRAM
INTERESTS.
3. The PROGRAM may not incur the cost of that portion of liability
insurance which insures the SPONSOR for any liability as to which
the SPONSOR is prohibited from being indemnified under this section.
4. The provision of advancement from PROGRAM funds to a SPONSOR or its
AFFILIATES for legal expenses and other costs incurred as a result
of any legal action is permissible if the following conditions are
satisfied:
(a) the legal action relates to acts or omissions with respect to
the performance of duties or services on behalf of the
PROGRAM;
(b) the legal action is initiated by a third party who is not a
PARTICIPANT, or the legal action is initiated by a PARTICIPANT
and a court of competent jurisdiction specifically approves
such advancement; and
(c) the SPONSOR or its AFFILIATES undertake to repay the advanced
funds to the PROGRAM, together with the applicable legal rate
of interest thereon, in cases in which such PERSON is not
entitled to indemnification under Section II.F.1.
G. Removal or Withdrawal of General Partner(s). In PROGRAMS organized as
limited partnerships, the general partner(s) may not voluntarily withdraw
from the partnership without 120 days prior written notice thereof to the
limited partners.
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If a general partner withdraws as general partner and the limited
partners or remaining general partners elect to continue the partnership,
the withdrawing general partner shall pay all expenses incurred as a
result of its withdrawal. In the event of removal or withdrawal, the
general partner shall be entitled to a redemption of its interest in the
partnership at its NET ASSET value on the next VALUATION DATE following
the date of removal or withdrawal.
H. Proper Registration. A SPONSOR and ADVISOR must be in compliance with
applicable registration requirements under the COMMODITY EXCHANGE ACT as
amended.
III. SUITABILITY OF PARTICIPANTS
A. General Policy.
1. The SPONSOR shall establish minimum income and net worth standards
for PERSONS who purchase PROGRAM INTERESTS.
2. The SPONSOR shall propose minimum income and net worth standards
which are reasonable given the type of PROGRAM and the risks
associated with the purchase of PROGRAM INTERESTS. PROGRAMS with
greater investor risk shall have minimum standards with a
substantial NET WORTH requirement. The ADMINISTRATOR shall evaluate
the standards proposed by the SPONSOR when the PROGRAM'S application
for registration is reviewed. In evaluating the proposed standards,
the ADMINISTRATOR may consider the following:
(a) potential volatility in net asset value;
(b) potential PARTICIPANTS;
(c) relationships among potential PARTICIPANTS, SPONSOR, and
ADVISOR;
(d) liquidity of PROGRAM INTERESTS;
(e) prior performance of SPONSOR, ADVISOR, and, if applicable,
PROGRAM;
(f) financial condition of the SPONSOR;
(g) potential transactions between the PROGRAM and the SPONSOR;
and
(h) any other relevant factors.
<PAGE>
B. Income and Net Worth Standards.
1. Unless the ADMINISTRATOR determines that the risks associated with
the PROGRAM would require lower or higher standards, each
PARTICIPANT shall have:
(a) a minimum annual gross income of $45,000 and a minimum NET
WORTH of $45,000; or
(b) a minimum NET WORTH of $150,000.
2. NET WORTH shall be determined exclusive of home, home furnishings,
and automobiles.
3. In the case of sales to fiduciary accounts, these minimum standards
shall be met by the beneficiary, the fiduciary account, or by the
donor or grantor who directly or indirectly supplies the funds to
purchase the PROGRAM INTERESTS if the donor or grantor is the
fiduciary.
4. The SPONSOR shall set forth in the final prospectus:
(a) the investment objectives of the PROGRAM;
(b) a description of the type of PERSON who might benefit from an
investment in the PROGRAM; and
(c) the minimum standards imposed on each PARTICIPANT in the
PROGRAM.
C. Determination that Sale to PARTICIPANT is Suitable and Appropriate.
1. The SPONSOR and each PERSON selling PROGRAM INTERESTS on behalf of
the SPONSOR or PROGRAM shall make every reasonable effort to
determine that the purchase of PROGRAM INTERESTS is a suitable and
appropriate investment for each PARTICIPANT.
2. In making this determination, the SPONSOR and each PERSON selling
PROGRAM INTERESTS on behalf of the SPONSOR or PROGRAM shall
ascertain that the prospective PARTICIPANT:
(a) meets the minimum income and net worth standards established
for the PROGRAM;
(b) can reasonably benefit from the PROGRAM based on the
prospective
<PAGE>
PARTICIPANT'S overall investment objectives and portfolio
structure;
(c) is able to bear the economic risk of the investment based on
the prospective PARTICIPANT'S overall financial situation; and
(d) has apparent understanding of:
(1) the fundamental risks of the investment;
(2) the risk that the PARTICIPANT may lose the entire
investment;
(3) the restrictions on the liquidity of PROGRAM INTERESTS;
(4) the restrictions on transferability of PROGRAM
INTERESTS;
(5) the background and qualifications of the SPONSOR and
ADVISOR; and
(6) the tax consequences of the investment.
3. The SPONSOR or each PERSON selling PROGRAM INTERESTS on behalf of
the SPONSOR or PROGRAM will make this determination on the basis of
information it has obtained from a prospective PARTICIPANT. Relevant
information for this purpose will include at least the age,
investment objectives, investment experience, income, NET WORTH,
financial situation, and other investments of the prospective
PARTICIPANT, as well as any other pertinent factors.
4. The SPONSOR or each PERSON selling PROGRAM INTERESTS on behalf of
the SPONSOR or PROGRAM shall maintain records of the information
used to determine that an investment in PROGRAM INTERESTS is
suitable and appropriate for each PARTICIPANT. The SPONSOR or each
PERSON selling PROGRAM INTERESTS on behalf of the SPONSOR or PROGRAM
shall maintain these records for at least six years.
5. The SPONSOR shall disclose in the final prospectus the
responsibility of the SPONSOR and each PERSON selling PROGRAM
INTERESTS on behalf of the SPONSOR or PROGRAM to make every
reasonable effort to determine that the purchase of PROGRAM
INTERESTS is a suitable and appropriate investment for each
PARTICIPANT, based on information provided by the PARTICIPANT
regarding the PARTICIPANT'S financial situation and investment
objectives.
D. Subscription Agreements.
<PAGE>
1. The ADMINISTRATOR may require that each PARTICIPANT complete and
sign a written subscription agreement.
2. The SPONSOR may require that each PARTICIPANT make certain factual
representations in the subscription agreement, including the
following:
(a) The PARTICIPANT meets the minimum income and net worth
standards established for the PROGRAM.
(b) The PARTICIPANT is purchasing the PROGRAM INTERESTS for his or
her own account.
(c) The PARTICIPANT has received a copy of the prospectus.
(d) The PARTICIPANT acknowledges that the investment is not liquid
except for limited redemption provisions.
3. The PARTICIPANT must separately sign or initial each representation
made in the subscription agreement. Except in the case of fiduciary
accounts, the PARTICIPANT may not grant any PERSON a power of
attorney to make such representations on his or her behalf.
4. The SPONSOR and each PERSON selling PROGRAM INTERESTS on behalf of
the SPONSOR or PROGRAM shall not require a PARTICIPANT to make
representations in the subscription agreement which are subjective
or unreasonable and which:
(a) might cause the PARTICIPANT to believe that he or she has
surrendered rights to which he or she is entitled under
federal or state law; or
(b) would have the effect of shifting the duties regarding
suitability, imposed by law on broker-dealers, to the
PARTICIPANT.
5. Prohibited representations include, but are not limited to the
following:
(a) The PARTICIPANT understands or comprehends the risks
associated with an investment in the PROGRAM.
(b) The investment is a suitable one for the PARTICIPANT.
(c) The PARTICIPANT has read the prospectus.
(d) In deciding to invest in the PROGRAM, the PARTICIPANT has
relied solely on the prospectus, and not on any other
information or representations from other PERSONS or sources.
<PAGE>
6. The SPONSOR may place the content of the prohibited representations
in the subscription agreement in the form of disclosures to the
PARTICIPANT. The SPONSOR may not place these disclosures in the
PARTICIPANT representation section of the subscription agreement.
E. Completion of Sale.
1. The SPONSOR or any person selling PROGRAM INTERESTS ON behalf of the
SPONSOR or PROGRAM may not complete a sale of PROGRAM INTERESTS to a
PARTICIPANT until at least five business days after the date the
PARTICIPANT receives a final prospectus.
2. The SPONSOR or the PERSON designated by the SPONSOR shall send each
PARTICIPANT a confirmation of his or her purchase.
F. Minimum Investment. The ADMINISTRATOR may require a minimum initial and
subsequent cash investment amount.
IV. FEES, COMPENSATION AND EXPENSES.
A. Organizational and Offering Expenses.
1. All ORGANIZATIONAL AND OFFERING EXPENSES, including commissions, and
any other compensation for sales of PROGRAM INTERESTS shall be
reasonable. In no event shall these expenses exceed 15% of the
CAPITAL CONTRIBUTIONS of the offering, regardless of the source of
payment. Any interest paid by the PROGRAM on deferred ORGANIZATIONAL
AND OFFERING EXPENSES shall comply with Section VI.C.2.(e). Included
in ORGANIZATIONAL AND OFFERING EXPENSES shall be the redemption fees
as set forth in Section VII.B.
2. No SPONSOR shall directly or indirectly pay or award any commissions
or other compensation to any PERSON engaged to sell PROGRAM
INTERESTS or give investment advice to a potential PARTICIPANT;
provided, however, that this clause shall not prohibit the payment
to a registered broker-dealer or other properly licensed PERSON of
normal sales commissions for selling PROGRAM INTERESTS.
COMMENT: Compensation paid to sales agents from a percentage of commodity
brokerage commissions (trail commissions) will not be considered
objectionable offering expenses under Section IV.A.
B. Expenses of the PROGRAM. All expenses of the PROGRAM shall be billed
<PAGE>
directly to and paid by the PROGRAM. The SPONSOR shall not be allowed
(other than for ORGANIZATIONAL AND OFFERING EXPENSES) to allocate to the
PROGRAM any portion of its indirect expenses incurred in connection with
the administration of the PROGRAM, including but not limited to salaries,
rent, travel expenses and such other items generally falling under the
category of SPONSOR overhead expense. All customary and routine
administrative expenses of the PROGRAM, except for the actual cost of
legal and audit services provided by third parties, shall be subject to
the limitations imposed by Section IV.C.1. of these Guidelines. The
prospectus shall contain a separate estimate of the amount of legal and
audit fees to be charged to the PROGRAM during the first full year of its
operations based on minimum and maximum offering sizes.
C. Compensation.
1. NET ASSET Fee--Management fees, advisory fees and all other fees,
except for incentive fees and commodity brokerage commissions, when
added to the customary and routine administrative expenses of the
PROGRAM shall not exceed 1/2 of 1% of NET ASSETS per month (not to
exceed 6% annually). For the purpose of this limitation, customary
and routine administrative expenses shall include all expenses of
the PROGRAM other than commodity brokerage commissions, incentive
fees, the actual cost of legal and audit services and extraordinary
expenses. The SPONSOR shall not receive a NET ASSET fee if it
receives, directly or indirectly, any portion of the brokerage
commissions under Section IV.C.3. If necessary, the SPONSOR shall
reimburse the PROGRAM, no less frequently than quarterly, for the
amount by which such aggregate fees and expenses exceed the
limitations herein provided during the period for which
reimbursement is made up to an amount not exceeding the aggregate
compensation received by the SPONSOR, including direct or indirect
participations in commodity brokerage commissions charged to the
PROGRAM. If reimbursement is required or extraordinary expenses are
incurred, the SPONSOR shall include in the PROGRAM'S next regular
report to the PARTICIPANTS a discussion of the circumstances or
events which resulted in the reimbursement or extraordinary
expenses.
2. Incentive Fees.
(a) The aggregate incentive fee paid by the PROGRAM shall not
exceed 15% of the NEW TRADING PROFITS of the PROGRAM,
calculated not more often than quarterly on the VALUATION
DATE, over the highest previous VALUATION DATE. For purposes
of this calculation, PROGRAM losses shall be carried forward
but shall not be carried back. In no event may a modification
of ADVISOR compensation result in such compensation exceeding
the limitations provided herein. Furthermore, any new contract
with an existing ADVISOR must carry
<PAGE>
foward all losses attributable to that ADVISOR.
(b) The SPONSOR or ADVISOR will be entitled to an additional 2%
incentive fee for each 1% by which the PROGRAM'S NET ASSET fee
as set forth in IV.C.1. is reduced below 6% annually.
(c) Multi-ADVISOR PROGRAMS. The prospectus must clearly disclose,
in both the prospectus summary and text of the prospectus,
that incentive fees may be paid to an ADVISOR for a given
period despite aggregate PROGRAM losses for such period.
(d) The prospectus shall contain a sample calculation of how
incentive fees will be determined.
3. Brokerage Commissions:
(a) The round turn commission to be initially charged to the
PROGRAM for each commodity on each exchange on which the
PROGRAM is expected to trade shall be disclosed immediately
following the compensation table in the prospectus. An
estimated range of such round turn commission shall be
included in the prospectus summary section. Such round turn
commission shall include all fees charged for each brokerage
transaction; including, but not limited to, PIT BROKERAGE
FEES. An estimate of the round turn commission should be
included where a flat rate or asset based commission will be
utilized.
(b) The prospectus must clearly disclose, in both the prospectus
summary and the text of the prospectus, an estimate of what
the brokerage rate will equal as a percentage of average NET
ASSETS annually.
(c) The PROGRAM shall seek the best price and services available
in its commodity futures brokerage transactions. A SPONSOR
shall not effect any transactions in COMMODITY CONTRACTS with
any COMMODITY BROKER affiliated directly or indirectly with
the SPONSOR or with any ADVISOR providing the SPONSOR with
research information, recommendations or other services which
might be of value to the SPONSOR, unless such transactions are
effected at competitive rates. In no event will the PROGRAM be
allowed to enter into any exclusive brokerage contract.
Brokerage commission charges will be presumptively reasonable
if they satisfy one of the following maximum rates:
i. 80% of the published retail rate plus PIT BROKERAGE
FEEs, or
ii. 14% annually of the average NET ASSETS excluding the
<PAGE>
PROGRAM assets not directly related to trading activity.
This 14% limitation shall include PIT BROKERAGE FEEs.
The prospectus must state that the brokerage commissions
to be charged will not exceed the limitations set forth
herein. The ADMINISTRATOR may require the PROGRAM to
file periodic reports concerning all brokerage
transactions.
4. Other income.
a. Any interest or other income derived from any portion of the
PROGRAM assets whether held in the PROGRAM'S margin account or
otherwise shall accrue solely to the benefit of the PROGRAM
except as set forth below:
(1) Interest income may be used to reimburse the SPONSOR for
"deferred" ORGANIZATIONAL AND OFFERING EXPENSES. Such
compensation must be within the overall limits set by
Section IV.A.1.
(2) Not more than 20% of interest income derived from
PROGRAM assets may be allocated to the PROGRAM BROKER.
However, any interest income allocated to the PROGRAM
BROKER must be included in determining whether the
limitations imposed by Section IV.C.3.(c) have been
satisfied.
Any interest or other income derived from any portion of the
PROGRAM assets accruing to the benefit of the SPONSOR or
PROGRAM BROKER pursuant to Sections (1) or (2) herein, must be
clearly disclosed as compensation. The prospectus must include
a statement regarding the disposition of any interest or other
income earned by any portion of the PROGRAM assets.
b. A SPONSOR shall not take any action with respect to the assets
or property of the PROGRAM which does not benefit the PROGRAM.
Such a prohibited action, among others, would be the
utilization of PROGRAM funds as compensating balances for the
SPONSOR'S exclusive benefit.
(Ed. Note: Former IV.B.5. is replaced by IV.B.)
5. Only those items of compensation permitted herein will be allowed.
Any variance must be adequately justified to the ADMINISTRATOR.
<PAGE>
V. RIGHTS AND OBLIGATIONS OF PARTICIPANTS.
A. Meetings. Meetings of the PARTICIPANTS may be called by the general
partner or by PARTICIPANTS holding more than 10% of the then outstanding
PROGRAM INTERESTS for any matters for which the PARTICIPANTS may vote as
set forth in a limited partnership agreement or charter document. Such
call for a meeting shall be deemed to have been made upon receipt by the
general partner of a written request, either in PERSON or by certified
mail, from holders of the requisite percentage of PROGRAM INTERESTS
stating the purpose of the meeting. The general partner shall, within 15
days after receipt of said request, provide written notice, either in
PERSON or by certified mail, to all PARTICIPANTS of the meeting and the
purpose of such meeting, which shall be held on a date not less than 30
or more than 60 days after the date of receipt of said notice at a
reasonable time and place.
B. Voting Rights of Limited Partners. To the extent permitted by the law of
the state of formation, the PROGRAM agreement shall provide that a
majority of the outstanding PROGRAM INTERESTS may, without necessity for
concurrence by the general partner, vote to (1) amend the PROGRAM
agreement, (2) remove the general partner(s), (3) elect a new general
partner(s), (4) cancel any contract for services with the SPONSOR without
penalty upon 60 days written notice, and (5) dissolve the PROGRAM.
Without concurrence of a majority of the outstanding PROGRAM INTERESTS,
the general partner(s) may not (i) amend the PROGRAM agreement except for
amendments which do not adversely affect the rights of PARTICIPANTS, (ii)
appoint a new general partner(s), or (iii) dissolve the PROGRAM. Any
amendment to the PROGRAM agreement which modifies the compensation or
distributions to which a general partner is entitled or which affects the
duties of a general partner may be conditioned upon the consent of the
general partner. If the law of the state of formation provides that the
PROGRAM will dissolve upon termination of a general partner(s) unless the
remaining general partner(s) continues the existence of the PROGRAM, the
PROGRAM agreement shall obligate the remaining general partner(s) to
continue the PROGRAM'S existence; and if there will be no remaining
general partner(s), the termination of the last general partner shall not
be effective for a period of at least 120 days during which time a
majority of the outstanding PROGRAM INTERESTS shall have the right to
elect a general partner who shall agree to continue the existence of the
PROGRAM. The PROGRAM agreement shall provide for a successor general
partner where the only general partner of the PROGRAM is an individual.
C. (Formerly Section VI.C.4.) Material Changes. Any material changes in the
<PAGE>
PROGRAM'S basic investment policies or structure shall require prior
written approval by a majority of PROGRAM INTERESTS held by PARTICIPANTS.
D. Access to PROGRAM Records.
1. The SPONSOR shall maintain at the principal office of the PROGRAM a
list of the names and addresses of an PROGRAM INTERESTS owned by all
PARTICIPANTS. Such list shall be made available for the review by
any PARTICIPANT or his representative at reasonable times, and upon
request, either in PERSON or by mail the SPONSOR shall furnish a
copy of such list to any PARTICIPANT or his representative upon
payment, in advance, of the reasonable cost of reproduction and
mailing.
2. The PARTICIPANTS and their representatives shall be permitted access
to all records of the PROGRAM, after adequate notice, at any
reasonable time. The SPONSOR shall maintain and preserve such
records for a period of not less than five years.
E. Annual and Periodic Reports. [Compliance with the provisions of CFTC
regulations for Reporting to Pool PARTICIPANTS, 17 C.F.R. ss.4.22 will be
considered sufficient to comply with this Section E.]
1. The partnership agreement shall provide for the transmittal to each
PARTICIPANT of an annual report within 120 days after the close of
the fiscal year containing at least the following information:
(a) A balance sheet as of the end of the PROGRAM'S fiscal year and
statements of income, partners' equity, and cash flows for the
year then ended, all of which shall be prepared in accordance
with generally accepted accounting principles and accompanied
by an auditor's report containing an opinion of an independent
certified public accountant or independent public accountant.
(b) A statement showing the total fees, compensation, brokerage
commissions and expenses paid by the PROGRAM, segregated as to
type, and stated both in aggregate dollar terms and as a
percentage of NET ASSETS.
(c) The average round turn rate for the fiscal year shall be
computed within the scope of the annual audit. Such rate shall
be disclosed in the annual report.
2. A SPONSOR shall be required to furnish PARTICIPANTS with quarterly
reports, which may be unaudited, containing the same information as
in (a) and (b) above within 60 days after the end of the quarter.
<PAGE>
3. A SPONSOR shall provide to all PARTICIPANTS, not later than March
15th of each year, all information necessary for the preparation of
the PARTICIPANT'S income tax returns.
4. The SPONSOR shall calculate the NET ASSETS of the fund daily and
shall make available upon the request of a PARTICIPANT, the NET
ASSET VALUE PER PROGRAM INTEREST.
F. Transferability of PROGRAM INTERESTS.
1. Restrictions on assignment of PROGRAM INTERESTS or on the
substitution of a limited partner are generally disfavored and such
restrictions will be allowed only if (1) they are necessary to
comply with the safe harbor provisions of Internal Revenue Service
Notice 88-75 (or other safe harbors adopted by the Internal Revenue
Service that protect against treatment as a publicly traded
partnership) or (2) they are necessary to preserve the tax status of
the partnership or the characterization or treatment of income or
loss. In the case of (2), any restriction must be affirmatively
supported by an opinion of counsel. The PROGRAM agreement shall
require the SPONSOR to eliminate or modify any restriction on
substitution or assignment at such time as the restriction is no
longer necessary.
2. No transfers may be made where, after the transfer, either the
transferee or the transferor would hold less than the minimum number
of PROGRAM INTERESTS equivalent to an initial minimum purchase,
except for transfers by gift, inheritance, intrafamily transfers,
family dissolutions, and transfers to AFFILIATES.
G. PARTICIPANT Liability. A PROGRAM shall be structured so that a public
investor cannot be exposed to liability in excess of the amount of the
remaining balance of his capital account excluding partial redemptions,
distributions consisting of a return of capital and accumulated profits.
H. ASSESSMENTS. Assessments of any kind shall be prohibited.
VI. DISCLOSURE AND MARKETING REQUIREMENTS.
A. Minimum PROGRAM Capital. The minimum amount of funds to activate a
PROGRAM shall be sufficient to accomplish the objectives of the PROGRAM,
including "spreading the risk." Any minimum less than $500,000, after
deduction of all front end charges, will be presumed to be inadequate to
<PAGE>
spread the risk of the public investors. Provision must be made for the
return of 100% of paid subscriptions in the event that the established
minimum to activate the PROGRAM is not reached. All funds received prior
to activation of the PROGRAM must be deposited with an independent
custodian, trustee or escrow agent whose name and address shall be
disclosed in the prospectus.
COMMENT: The purpose of this requirement is to assure the adequate
diversification of the investments of the PROGRAM.
B. Sales Literature. Sales literature, sales presentation (including
prepared presentations to prospective investors at group meetings) and
advertising used in the offer or sale of PROGRAM INTERESTS shall conform
in all applicable respects to requirements of filing, disclosure and
adequacy currently imposed on sales literature, sales presentations and
advertising used in the sale of corporate securities.
C. Contents of the Prospectus.
1. Prospectus. A prospectus which is not part of a registration
statement declared effective by the Securities and Exchange
Commission pursuant to the Securities Act of 1933 shall generally
conform to the disclosure requirements which would apply if the
offering were so registered.
2. Conflicts of Interest and Transactions with AFFILIATES.
(a) Any conflicts of interest between the PROGRAM and any SPONSOR,
ADVISOR, COMMODITY BROKER or any AFFILIATE thereof, must be
fully disclosed.
(b) Unless specifically provided by these Guidelines the SPONSOR
shall not receive compensation or reimbursements for providing
goods and services to the PROGRAM.
(c) The SPONSOR shall also be required to disclose the steps that
will be taken to alleviate any real or potential conflict of
interest.
(d) Prohibitions. Certain conflicts of interest are presumed to be
materially sufficient to render the proposed PROGRAM incapable
of accomplishing its stated objectives in the best interest of
the PARTICIPANTS and shall be controlled as follows:
(1) It shall be presumptively unreasonable for the ADVISOR
to be affiliated with the PROGRAM BROKER.
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(2) It shall be presumptively unreasonable for the ADVISOR
to be affiliated with the SPONSOR if the SPONSOR
receives, directly or indirectly, any portion of the
brokerage commissions, including trail commissions, from
PROGRAM operations.
(3) Unless the issuer can overcome the presumptions outlined
in (1) and (2) above, the prospectus shall state that at
no time will the above affiliations exist.
(4) No loans may be made by the PROGRAM to the SPONSOR or
any other PERSON.
(5) The funds of a PROGRAM shall not be commingled with the
funds of any other PERSON. Funds used to satisfy margin
requirements will not be considered commingled.
(6) No rebates or giveups may be received by the SPONSOR nor
may the SPONSOR participate in any reciprocal business
arrangements which could circumvent these guidelines.
Furthermore, the prospectus and PROGRAM charter
documents shall contain language prohibiting the above
as well as language prohibiting reciprocal business
arrangements which would circumvent the restrictions
against dealing with AFFILIATES or other interested
parties.
(7) A PROGRAM'S charter document shall prohibit the
commodity trading ADVISOR or any other PERSON acting in
such capacity from receiving a NET ASSET fee under
Section IV.C.1. if he shares or participates, directly
or indirectly, in any commodity brokerage commissions
generated by the PROGRAM.
(8) The maximum period covered by any contract of the
partnership with the ADVISOR or SPONSOR shall not exceed
one year. The agreement must be terminable without
penalty upon 60 days' written notice by the PROGRAM.
(9) Any other agreement, arrangement or transactions,
proposed or contemplated, may be restricted in the
discretion of the ADMINISTRATOR if it would be
considered unfair to the PARTICIPANTS in the PROGRAM.
(10) A PROGRAM shall not engage in PYRAMIDING.
(11) All of the foregoing restrictions shall be disclosed in
the
<PAGE>
prospectus and contained in the partnership agreement or
charter document.
(e) On loans made available to the PROGRAM by the SPONSOR, the
SPONSOR may not receive interest in excess of its interest
costs, nor may the SPONSOR receive interest in excess of the
amounts which would be charged the PROGRAM (without reference
to the SPONSOR'S financial abilities or guarantees) by
unrelated banks on comparable loans for the same purpose and
the SPONSOR shall not receive points or other financing
charges or fees regardless of the amount.
3. Notification.
(a) Notice shall be sent to each PARTICIPANT within seven business
days from the date of:
(i) any decline in the NET ASSET VALUE PER UNIT to less than
50% of the NET ASSET VALUE on the last VALUATION DATE;
(ii) any material change in contracts with ADVISORS,
including any change in ADVISORS or any modification in
connection with the method of calculating the incentive
fee;
(iii) any other material change affecting the compensation of
any party.
(b) No material change related to brokerage commissions shall be
made until notice is given and PARTICIPANTS, based on such
notice, have the opportunity to redeem pursuant to Section
VII.B.
(c) Included in the required notification shall be a description
of the PARTICIPANT'S redemption rights pursuant to VII.B. and
C. and voting rights pursuant to V.B. and a description of any
material effect such changes may have on the interests of
PARTICIPANTS.
4. Financial Information Required on Application. The SPONSOR or the
PROGRAM shall provide as an exhibit to the application or where
indicated below shall provide as part of the prospectus, the
following financial statements:
(a) Balance Sheet of the PROGRAM. A balance sheet of the PROGRAM
as of the end of its most recent fiscal year, prepared in
accordance with generally accepted accounting principles and
accompanied by an independent auditor's report containing no
material qualification or explanatory paragraph relating to
material uncertainties or going concern
<PAGE>
issues, and an unaudited balance sheet as of a date not more
than 135 days prior to the date of filing. Such balance sheets
shall be included in the prospectus. (b) Balance Sheet of the
SPONSOR.
(1) Corporate SPONSOR. A balance sheet of any corporate
SPONSOR as of the end of its most recent fiscal year,
prepared in accordance with generally accepted
accounting principles and accompanied by an independent
auditor's report containing no material qualification or
explanatory paragraph relating to material uncertainties
or going concern issues, and an unaudited balance sheet
as of a date not more than 135 days prior to the date of
filing. Such balance sheets shall be included in the
prospectus.
(2) Individual SPONSOR. A statement of financial condition
as of a time not more than 135 days prior to the date of
filing an application. Such statement of financial
condition shall be prepared in accordance with generally
accepted accounting principles and reviewed and reported
upon by an independent certified public accountant or
independent public accountant under the review standards
as set forth by the American Institute of Certified
Public Accountants. A representation of the amount of
such NET WORTH must be included in the prospectus.
(c) Filing of Other Statements. The ADMINISTRATOR may, where
consistent with the protection of investors, request
additional financial statements of the SPONSOR, ADVISOR,
PROGRAM BROKER or any AFFILIATE thereof, or permit the
omission of one or more of the statements required under this
section and the filing, and substitution thereof, of
appropriate statements verifying financial information having
comparable relevance to an investor in determining whether he
should invest in the PROGRAM.
VII. MISCELLANEOUS PROVISIONS.
A. Fiduciary Duty. The PROGRAM agreement shall provide that the SPONSOR
shall have fiduciary responsibility for the safekeeping and use of all
funds and assets of the PROGRAM, whether or not in his immediate
possession or control, and that he shall not employ, or permit another to
employ such funds or assets in any manner except for the exclusive
benefit of the PROGRAM.
<PAGE>
In addition, the PROGRAM shall not permit the PARTICIPANT to contract
away the fiduciary obligation owed to the PARTICIPANT by the SPONSOR
under common law.
B. Redemptions. The PROGRAM shall provide for the redemption of PROGRAM
interests at least quarterly except that redemption need not be offered
until six months after the commencement of trading. Redemption charges
for units redeemed during the first, second, third, and fourth, six month
periods following the commencement of trading, shall not exceed 4%, 3%,
2%, and 1% of the NET ASSET OF VALUE PER PROGRAM INTEREST respectively.
The SPONSOR shall state the VALUATION DATE in the prospectus. A
PARTICIPANT must notify the SPONSOR in writing at least 10 days prior to
the VALUATION DATE of his wish to redeem his PROGRAM INTERESTS. The
SPONSOR must redeem such PROGRAM INTERESTS at the NET ASSET value on the
VALUATION DATE unless the number of redemptions would be detrimental to
the tax status of the PROGRAM; in which case, the SPONSOR shall select by
lot so many redemptions as will, in its judgment, not impair the
PROGRAM'S status. PARTICIPANTS shall be notified in writing within 10
days after the VALUATION DATE whether or not their PROGRAM INTERESTS have
been redeemed. Payment for the redeemed PROGRAM INTERESTS shall be made
within 30 days after the VALUATION DATE. The SPONSOR may provide that
redemptions may be temporarily suspended if, in the SPONSOR'S judgment,
additional redemptions would impair the ability of the PROGRAM to meet
its objectives.
C. Special Redemption. A Special Redemption period shall be established
whenever a PROGRAM experiences a decline in the NET ASSET VALUE PER
PROGRAM INTEREST as of the close of business on any business day to less
than 50% of the NET ASSET VALUE PER PROGRAM INTEREST on the last
VALUATION DATE. PROGRAM trading shall be temporarily suspended during
such special redemption period.
