<PAGE>
As filed with the Securities and Exchange Commission on October 30, 1996
Registration No. 333-8869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
KENMAR GLOBAL TRUST
(Exact name of registrant as specified in its charter)
Applied For
Delaware 6793 -----------
(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)
--------------
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
--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
--------------
================================================================================
<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 ($5,000,000 minimum)
Units of Beneficial Interest
Kenmar Global Trust (the "Trust") is a Delaware business trust that 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. 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 March 31, 1997 (subject to
extension until May 31, 1997 in Kenmar's discretion). Thereafter, Units will be
offered during the Ongoing Offering Period at Net Asset Value as of the last day
of each month. Net Asset Value per Unit is determined in accordance with
generally accepted accounting principles and represents the Net Assets of the
Trust divided by the number of Units outstanding Net Assets are defined under
"Redemptions and Distributions" at page 32.
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.
-------------
THE UNITS ARE SPECULATIVE SECURITIES.
-------------
o Past performance of managed futures in general and the Trust in particular
will not necessarily be 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 volatile
markets.
o The Trust is subject to substantial charges. Overall trading profits and
interest income of approximately 14.4% 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.
-------------
SEE " RISK FACTORS" AND "CONFLICTS OF INTEREST" beginning at
pages 8 and 30, respectively.
-------------
SUBSCRIBERS WILL BE REQUIRED TO MAKE CERTAIN REPRESENTATIONS AND WARRANTIES
IN THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY; SEE "PLAN OF DISTRIBUTION-
SUBSCRIBERS' REPRESENTATIONS AND WARRANTIES" AT PAGE 44.
-------------
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.
-------------
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>
====================================================================================================================
Price to Public(1) Selling Commissions(2)(3)(4) Proceeds to Trust(1)(2)(3)(4)
====================================================================================================================
<S> <C> <C> <C>
Initial Offering Period Per Unit $100 None $100
====================================================================================================================
Total Minimum Investment $5,000,000 None $5,000,000
====================================================================================================================
Ongoing Offering Period Per Unit Net Asset Value None Net Asset Value
====================================================================================================================
Total Maximum Investment $50,000,000 None $50,000,000
====================================================================================================================
</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
(1) The Units will be continuously 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 and receive a refund of their invested
funds for a period of five business days following receipt of this Prospectus.
Rejected or revoked subscriptions will be returned without interest.
Subscription documents must normally be received at least five calendar
days before the end of a month in order to be accepted as of the first day of
the immediately following month.
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,
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.
The purchase of Units may be made only by persons who, at a minimum, have
either (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 exclusive of home, furnishings and
automobiles). In addition, no one may 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. The minimum investment
for IRAs is $2,500.
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
-i-
<PAGE>
Notes to Cover Page (cont'd)
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.
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. 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.
17. 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.
(2) The costs of organizing the Trust and the initial offering of the
Units, estimated at $400,000, 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 45
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 upfront selling commissions
equal to 5% of the purchase price per Unit at the time of sale. Notwithstanding
the foregoing, Selling Agents shall not receive upfront selling commissions to
the extent investors have acquired Units within one month of redeeming
investments in Kenmar-sponsored investment vehicles.
-ii-
<PAGE>
Notes to Cover Page (cont'd)
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 beginning of month Net Asset Value per Unit, beginning with the
thirteenth month after sale (immediately to the extent investors have
acquired Units within one month of redeeming investments in Kenmar-sponsored
investment vehicles) and continuing for as long as such Unit remains
outstanding. In the case of registered representatives who are not
CFTC-qualified (who will not perform on-going services), the on-going selling
commissions will be paid in respect of outstanding Units sold by such
representatives and 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 such Selling Agents' standard compensation
arrangements.
-------------
-iii-
<PAGE>
Regulatory Notices
UNTIL __________, 1997, 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.
-------------
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.
-------------
THE BOOKS AND RECORDS OF THE TRUST WILL BE MAINTAINED AT ITS PRINCIPAL
OFFICE, 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 COMMODITY
POOLS 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.
-------------
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."
-------------
-iv-
<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................. 5
"Breakeven Table"............................ 6
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 Require
Sustained Price Moves in
Order to Trade Profitably............. 9
(6) Discretionary Trading Strategies
May Incur Substantial Losses.......... 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; The Trust
Does Not Acquire Any Asset
with Intrinsic Value.................. 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 May Reduce
Risk Control Potential................ 10
(16) Trading on Commodity Exchanges
Outside the United States May
Present Certain Additional Risks...... 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 Performance of
Managed Futures Investments
with General Securities Market Indices
Does Not Account for Material
Differences Among Markets............. 12
(24) Regulatory Matters May Alter the Nature
of an Investment in the Trust......... 12
Investment Factors............................... 13
The Trust and Its Objectives..................... 14
Objectives................................. 14
Investment Philosophy...................... 16
Access to Global Markets................... 16
The Initial Advisors....................... 17
Kenmar Advisory Corp............................. 20
Background and Principals.................. 20
Management of Traders...................... 22
Fiduciary Obligations of Kenmar............ 22
Investment of Kenmar in the Trust.......... 23
Use of Proceeds.................................. 24
Charges.......................................... 24
Charges Paid by the Trust...................... 24
Organizational and Initial Offering
Costs.................................. 25
Brokerage Commissions.................... 26
Miscellaneous Execution Costs............ 26
"Bid-ask" Spreads........................ 26
Profit Shares and Incentive Fees......... 27
Administrative Costs..................... 28
Extraordinary Expenses................... 28
Charges Paid by Kenmar......................... 29
Selling Commissions; "Trailing
Commissions".......................... 29
Consulting Fees.......................... 29
Redemption Charges............................ 29
-2-
<PAGE>
Table of Contents (cont.)
The Clearing Broker.............................. 29
Conflicts of Interest............................ 30
General.................................. 30
Kenmar................................... 30
The Advisors............................. 31
The Clearing Broker...................... 31
Selling Agent............................ 31
Proprietary Trading...................... 32
Redemptions and Distributions.................... 32
The Trust and the Trustee........................ 33
The Futures and Forward Markets.................. 36
Federal Income Tax Consequences.................. 37
Purchases by Employee Benefit Plans.............. 42
Plan of Distribution............................. 44
Subscription Procedure................... 44
Subscribers' Representations and
Warranties............................. 44
Selling Agents' Compensation............. 45
Legal Matters.................................... 45
Experts.......................................... 45
Additional Information........................... 46
Recent Financial Information and Annual
Reports....................................... 46
Index of Defined Terms........................... 47
The Initial Trading Advisors..................... 48
Performance of the Other
Futures Funds Operated
by Kenmar..................................... 95
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 June 30, 1996 (unaudited)...............F-14
Appendix I--Glossary..........................APPI -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. See "The Trust and Its Objectives
-- the Initial Advisors" at page 14 and "Kenmar Advisory Corp." at page
20."
o Access to a wide range of domestic and international markets. See "The
Trust and Its Objectives -- Access to Global Markets" at page 16.
o Diversification among trading strategies. See "The Trust and Its Objectives
-- Investment Philosophy" at page 16.
o Performance not dependent upon any single nation's economy or currency. See
"Investment Factors -- Market Diversification" at page 13.
o The potential, if successful, to provide a valuable component of
diversification to traditional portfolios. See "Investment Factors --
Diversification of Portfolios" at page 13.
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 See "Investment Factors -- Limited Liability" and "
-- Administrative Convenience" at pages 13 and 14 and "Redemptions and
Distributions" at page 32.
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 14.4% 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.
-4-
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SUMMARY (cont'd)
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 any Advisor or group of Advisors 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.
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 October 1, 1996, Kenmar and its affiliates were
acting as trading manager for futures funds with total capital in excess of $258
million.
The principal office of the Trust is c/o Kenmar Advisory Corp., Two
American Lane, Greenwich, Connecticut 06831-8150. The telephone number of the
Trust and Kenmar is (203) 861-1000.
See "Performance of the Other Futures Funds Operated by Kenmar"
for the performance of other futures
funds managed 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. 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 October 1, 1996, the Advisors were collectively managing over $1.4
billion in managed futures accounts in which their clients (and in certain cases
the Advisors themselves) had invested, and approximately $1.1 billion in the
trading programs initially to be used for the Trust.
See "The Initial Trading Advisors" below for certain performance
and other information relating to the initial Advisors.
Tax Status of the Trust
In the opinion of counsel, the Trust is properly classified as a
partnership for federal income tax purposes. Unitholders will pay tax each year
on their allocable share of the Trust's taxable income, if any, whether or not
they receive any distributions from the Trust or redeem any Units. Substantially
all of the Trust's trading gains and losses will be treated as capital gains or
losses for tax purposes; interest income received by the Trust will be treated
as ordinary income. See "Federal Income Tax Consequences " at page 37.
-5-
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SUMMARY (cont'd)
"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-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"
================================================================================
EXPENSES(1) Percentage Return Dollar Return
WHICH MUST BE OFFSET Required Required
TO "BREAK EVEN" First Twelve Months ($5,000 Initial
of Investment Investment) First
Twelve Months
of Investment
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Organizational and Initial Offering
Cost Reimbursement(2) 2.40% $120.00
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Brokerage Commissions(3) 11.00% $550.00
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Miscellaneous Execution Costs(4) 0.25% $12.50
- --------------------------------------------------------------------------------
Advisors' Profit Shares(5) 2.00% $100.00
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Kenmar Incentive Fee(5) 0.15% $7.50
- --------------------------------------------------------------------------------
Administrative Expenses(6) 0.50% $25.00
- --------------------------------------------------------------------------------
Redemption Charge (7) 3.10% $155.00
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Interest Income (8) (5.00)% $(250.00)
- --------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL 14.40% $720.00
INVESTMENT REQUIRED FOR
"BREAK EVEN"
================================================================================
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) Paid to Kenmar each month. Kenmar pays the fees of the Clearing Broker,
selling compensation, trailing commissions and Consulting Fees from this
amount.
(4) 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.
(5) 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,
if any,
-6-
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<PAGE>
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SUMMARY (cont'd)
that 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.
(6) 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 27. However, for purposes of the "Breakeven Table,"
the Incentive Fee has been estimated at 5% of such 3.1% gain.
(7) 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.
(8) Interest income is estimated based on current rates and is reduced by "cash
management" fees.
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.
See pages i and ii and SR-3 to SR-4 of the Subscription Requirements of the
Trust, set forth in Exhibit B to this Prospectus, for a listing of the specific
suitability requirements applicable to an investment in the Units.
THE UNITS ARE SPECULATIVE AND INVOLVE
A HIGH DEGREE OF RISK.
THIS POOL HAS NOT COMMENCED TRADING
AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
-7-
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<PAGE>
RISK FACTORS
------------
(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 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) Speculative and Volatile Markets; Highly Leveraged Trading
The markets in which the Trust will trade 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.
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 14.4% 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 regardless of the trading strategies employed. 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 Require Sustained Price Moves in
Order to Trade Profitably
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. See "The Initial Trading Advisors -- Futures Trading Methods in General"
for a description of this trading method. 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 May Incur Substantial Losses
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. See "The Initial Trading Advisors -- Futures
Trading Methods in General" for a description of this trading method. 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 May Not Result in Profitable
Trading
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. See "The Initial
Trading Advisors -- Futures Trading Methods in General" for a description of
this trading method. 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 30. 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 the
redemption value of their Units, 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; The Trust Does Not Acquire Any Asset with Intrinsic
Value
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
Kenmar does not anticipate that the performance of the Trust will be
negatively correlated to that of the general equity markets. Rather, Kenmar
believes 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 markets or vice versa. If
the Trust does not perform in a manner non-correlated with the general financial
markets or does not perform successfully, investors will 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 May Reduce Risk Control
Potential
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.
Furthermore, the Trust's
-10-
<PAGE>
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.
(16) Trading on Commodity Exchanges Outside the United States May Present
Certain Additional Risks
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 30. No formal policies or
procedures have been adopted to resolve any of such conflicts. Prospective
investors should be aware that Kenmar presently intends to assert that
Unitholders have, by subscribing to the Trust, consented to the conflicts of
interest described commencing at page 30 in the event of any proceeding alleging
that Kenmar violated its duties to investors. 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.
(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 pay
additional taxes, interest and possibly 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 a clearing broker in the event of a bankruptcy of
such clearing broker. In its forward trading, the Trust will be dealing with a
clearing broker as 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 such 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 a
Clearing Broker.
(23) Comparisons of the Performance of Managed Futures Investments with General
Securities Market Indices Does Not Account for Material Differences Among
Markets
The performance of an index of managed futures funds has been compared in
this Prospectus, under "The Trust and Its Objectives," to the S&P 500 Stock
Index, which reflects the price movements of unmanaged groups of publicly-traded
stocks. Although it is common to evaluate the performance of financial assets
against general stock market indices, there are material differences between
passive indices of equity 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. Because the MAR Index and S&P 500 Stock Index have had
substantial negative performance at different times does not mean that a single
investment vehicle, such as the Trust, will either (i) perform successfully, or
(ii) be non-correlated to the S&P 500 Stock Index or to the general equity
markets.
(24) Regulatory Matters May Alter the Nature of an Investment in the Trust
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. To date, Kenmar has operated
only privately-offered funds.
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 has been significant international
governmental concern expressed regarding, for example, (i) the disruptive
effects of speculative trading on the central
-12-
<PAGE>
banks' attempts to influence exchange rates and (ii) the need to regulate the
derivatives markets in general. 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 improved 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, may add a potentially valuable element of
diversification to a traditionally-structured portfolio. Historically over the
long term, the returns recognized on managed futures investments have exhibited
a substantial degree of non- correlation with the performance of stocks,
suggesting that a successful managed futures investment may 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 anticipated to be generally
unrelated, but may frequently be similar, to the performance of the general
equity 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.
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.
-13-
<PAGE>
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, could
also help reduce the overall volatility, or risk, of a portfolio. By investing
in markets that operate independently from United States stock and bond markets
- -- the Trust may provide positive returns even when United States stock and bond
markets are experiencing flat to negative performances.
[The following table was depicted as bar graphs in the printed material]
- --------------------------------------------------------------------------------
Four Worst S&P 500 Declines vs. MAR Index Performance
3/80 12/80-7/82 9/87-11/87 6/90-10/90
MAR Index 4.5% 33.8% 7.8% 15.5%
- --------------------------------------------------------------------------------
S&P 500 -9.7% -16.5% -29.6% -14.8%
January 1980 through September 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Four Worst MAR Index Declines vs. S&P 500 Performance
2/83-11/84 8/85-9/85 4/86-12/86 1/92-5/92
MAR Index -18.9% -11.3% -28.1% -11.8%
- --------------------------------------------------------------------------------
S&P 500 22.2% -4.0% 4.0% 0.8%
January 1980 through September 1996
- --------------------------------------------------------------------------------
Past performance is not necessarily indicative of future results.
-14-
<PAGE>
The charts above depict only the past history of the relative performance
of the S&P 500 Index of common stocks (the "S&P Index") and a dollar-weighted
index (the "MAR Index") of approximately 200 public and private commodity pools
published by Managed Account Reports, a futures industry statistical service.
This relationship may differ significantly in the future.
Although the Trust's portfolio of five Advisors will include a large number
of both short and long positions, during a stock market decline Advisors may
have long positions that directly correlate with the movement in the equity
markets. Other financial futures positions may also correlate with the equity
markets. Given these conditions, during an equity market decline, losses in
these positions would occur. Depending on the relative importance of these
positions to the Trust's entire portfolio, the Trust could be negatively
impacted. On the other hand, if these positions were short rather than long, a
positive impact on the Trust's overall portfolio could occur.
S&P Index vs. MAR Index
From January 1980 through September 1996
Number
of
Months Percentage
Months the S&P & MAR Index both in positive direction 70 34.8%
Months the S&P & MAR Index both in negative direction 27 13.4%
Months the S&P & MAR Index in opposite directions 104 51.8%
Total number of months January 1980 through September 1996 201 100%
Standard Deviation of S&P 500 Returns 4.22%
Standard Deviation of MAR Index Returns 4.79%
Correlation of S&P 500 and MAR Index 0.10
Correlation during S&P Increases 0.22
Correlation during S&P Declines -0.01
- --------------------------------------------------------------------------------
The Trust is designed to complement, not replace, a traditional investment
portfolio of U.S. and/or international stocks and bonds. 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 market returns, the Trust has the potential for
positive investment performance when the stock and bond markets are in declines.
Timing investment entry, however, to coincide with stock 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 performance, in theory, there is no "good time" or "bad time" to invest in
the Trust. Because the MAR Index and S&P Index have had substantial negative
performance at different times does not mean that a single investment vehicle,
such as the Trust, will either (i) perform successfully, or (ii) be
non-correlated to the S&P Index or to the general equity markets. Kenmar does
not anticipate that the performance of the Trust will be negatively correlated
to that of the general equity markets. Rather, Kenmar anticipates only that the
Trust's performance will 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 markets or vice versa. The Net Asset Value per
Unit may increase or decrease during "bear" as well as "bull" markets. There
also can be no assurance that the performance of the Trust will not follow that
of the stock markets for extended periods of time, reducing the diversification
benefits of investing in the Trust. If the Trust does not perform in a manner
non-correlated with the general financial markets, or does not perform
successfully, investors will obtain no diversification benefits by investing in
the Units. Furthermore, because the Trust is expected to be non-correlated, not
negatively correlated, with the general stock markets, even if such expectation
is confirmed it is possible that the Trust could incur substantial losses during
the same period that an investor's traditional portfolio components are also
declining in value.
-15-
<PAGE>
Investment Philosophy
The Trust is managed by Kenmar Advisory Corp. Kenmar will: (i) select the
Fund's clearing brokers and selling agents and 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 successfully the risks of futures investments is
dependent upon an informed management style, one that identifies and is willing
to act 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. It is not anticipated
that Kenmar will make frequent adjustments to the group of Advisors for the
Trust.
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:
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
-16-
<PAGE>
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
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 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 commodity 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.
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<PAGE>
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
such 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 October 1, 1996*
---------- ------------- ----------------
<S> <C> <C>
Chesapeake Capital Corporation Multi-System, Multi-Timeframe $759 million (total)
(25%) Technical, Trend-Following $713 million (Diversified)
Dreiss Research Corporation Pattern-Recognition, Long-Term $16 million (total)
(15%) Technical, Trend-Following
Hyman Beck & Company, Inc. Long-Term Technical, $166 million (total)
(25%) Trend-Following $123 million (Global)
Willowbridge Associates Inc. Discretionary, Fundamental $459 million (total)
(25%) and Technical $212 million (XLIM)
Witter and Lester, Inc. Discretionary, Technical, $35 million (total)
(10%) S&P only $13 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.
Advisor Summaries
More complete descriptions and performance summaries for the Advisors
described in this section of the Prospectus are included under "The Initial
Trading Advisors" at page 48. Read that section of the Prospectus carefully
before deciding 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,
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<PAGE>
and stock, financial and economic indices. See pages 52 through 58 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 59 through 63 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 64 through 73 for performance information relating to Hyman Beck &
Company, Inc.
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 are selected from
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 change the portfolio composition of XLIM. See pages 74
through 87 for performance information relating to Willowbridge Associates Inc.
Witter & Lester, Inc.
Witter & 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 88 through 94 for performance information relating to
Witter & Lester, Inc.
-19-
<PAGE>
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 (when it considers doing so to
be in the best interest of the Trust) generally attempt to negotiate advisory
agreements with comparable terms 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 (and/or its affiliates and principals) will purchase a
minimum of 500 Units as of the inception of the Trust's trading. No Advisor,
including its affiliates and/or principals, is expected to purchase more than
500 Units. Each initial Advisor has agreed to maintain this investment for as
long as it continues to act as an Advisor. The Units purchased by the Advisors,
their principals and/or affiliates will be included in the 50,000 Units required
to be sold for the Trust to commence trading.
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 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 has been registered with the CFTC as a
commodity pool operator since February 7, 1984 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 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 or against the Trust.
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.
-20-
<PAGE>
Mr. Marc S. Goodman, 48, 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 and they have occupied their present positions with Kenmar since that
time.
Ms. Esther Eckerling Goodman, 44, 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 developing and
managing 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, 60, 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 100
(OEX) option contract. From 1985 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 responsible for research,
risk management and account oversight, joined Kenmar in March 1989. 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 and Chief Financial Officer,
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
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<PAGE>
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. Jeffrey S. Rothstein, 38, Vice President and Chief Information Officer,
joined Kenmar in May, 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.
Management of Traders
Kenmar's hallmark is its emphasis on vigilant management of its 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
600 different trading programs offered by trading advisors around the globe.
Added to this quantitative data are qualitative assessments based on detailed
trader interviews and analysis of trades, trading performance and trading
strategies.
Fiduciary Obligations of Kenmar
Nature of Fiduciary Obligations; Conflicts of Interest
As managing owner of the Trust, Kenmar is effectively subject to 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 arising 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
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<PAGE>
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.
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 Broker (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" and
elsewhere 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 30.
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.
Investment of Kenmar in the Trust
Kenmar will purchase a 1% interest in the Trust in its capacity as Managing
Owner. It is not anticipated that Kenmar or any of its affiliates will make any
other investment in the Trust. Robert L. Cruikshank, a principal of Kenmar, is
anticipated to make an investment of $100,000 in the Trust.
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<PAGE>
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."
Although the percentages set forth below may vary substantially over time,
Kenmar estimates that initially:
(i) up to approximately 17% 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 17% of the Trust's assets will be used to
margin foreign futures contracts.
It is anticipated that approximately 66% of the Trust's assets will be
placed in a custodial account at, and managed by, Chase Asset Management, Inc.
("Chase"), a Delaware corporation registered as an investment adviser with the
Securities and Exchange Commission as of September 1995. Chase is a wholly owned
investment subsidiary of The Chase Manhattan Bank. In its role as cash manager
and yield enhancer, Chase invests the Trust's assets not used for margin
primarily in U.S. Government treasury and agency obligations and repurchase
agreements, in an effort to maximize the Trust's interest income earned on these
assets. For this service Chase receives an annual fee of 0.20% of the assets the
Trust places with it. The foregoing fee is deducted from the Trust's interest
income on a monthly basis.
The Trust will receive all of the interest income earned on its assets, net
of fees to Chase.
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 $400,000
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.
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<PAGE>
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.
Advisors Profit Shares Paid by the Trust as a whole
on a quarterly basis although
accrued against Net Asset
Value monthly) and by
reduction of the Net Asset
Value of Units when redeemed.
Each initial Advisor's Profit
Share is determined based on
any New Trading Profit (as
defined) generated by such
Advisor. New Trading Profit in
respect of each Advisor's
account is calculated after
reduction for brokerage
commissions at an annual rate
of 4.5%-5.5%, 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 costs (or
extraordinary costs). The
Profit Shares are pay able
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 (although
accrued against Net Asset
Value monthly). The Incentive
Fee equals 5% of any New
Overall Appreciation (as
defined). An Incentive Fee may
be allocated 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 -- $190,000; and
miscellaneous offering costs -- $67,258; a total of $400,000.
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<PAGE>
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 flat monthly rate of 0.917% of the Trust's month-end assets (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 it receives, 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, including any transaction taxes,
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" does not result 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).
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<PAGE>
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 & 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, and 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 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,
would be generated. Each Advisor will be allocated from the Trust its Profit
Share equal to the percentage described above of any cumulative New Trading
Profit generated by such Advisor, 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 generated by such Advisor; 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% - 5.5%, not
11%, of average month-end assets, plus execution costs actually incurred 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 (if there are net redemptions of Units, in the case
of certain Advisors) at a time when there is accrued New Trading Profit in
respect of an Advisor's Trust account, the Profit Share 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 the appropriate Advisor.
If there are net redemptions of Units at a time when there is accrued New
Overall Appreciation in respect of the Trust as a whole, the 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.
For example, assume that the Trust began trading April 1, 1997 and as of
December 31, 1997 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, 1998, the Trust had incurred a loss of $100,000 for 1998, 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 1998, Overall
Appreciation of $100,000 were recognized, New Overall Appreciation as of
December 31, 1998 would equal $25,000, and an additional Incentive Fee of
$1,250 would be paid.
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<PAGE>
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 100,000 Units were initially sold as of
April 1, 1997 and through December 31, 1997 the Trust incurred a $1,000,000
loss. If 100,000 more Units were purchased as of January 1, 1998 (at a Net Asset
Value of $90 per Unit), and the Trust earned $1,000,000 during 1998, as of
December 31, 1998 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, 1998, 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
individually capital accounts for each investor, but can result in allocations
of Profit Shares and Incentive Fees that are not reflective of particular
investors' individual investment experience.
Administrative Costs
The Trust will be responsible for actual payments to third parties,
estimated at no more than 0.50% 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.
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<PAGE>
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 (immediately to the extent investors have acquired Units within
one month of redeeming investments in Kenmar-sponsored investment vehicles).
Such "trailing commissions" equal .2917 of 1% (a 3.5% annual rate) of the
beginning of month 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 such Selling Agents' standard
compensation arrangements. See "Plan of Distribution -- Selling Agents'
Compensation" at page 45.
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 due to the Advisors. However, such assets are
reduced by a portion of the brokerage commissions paid to Kenmar.
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" or the "Clearing Broker") (formerly known
as Internationale Nederlanden (U.S.) Derivatives Clearing, Inc. and f/k/a
Quantum Financial Services, Inc.). ING Futures & Options is a duly registered
futures commission merchant and a member of the NFA. 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. Additional or replacement clearing brokers may be appointed in respect
of the Trust's account in the future.
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.
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<PAGE>
CONFLICTS OF INTEREST
General
Kenmar has not established any formal procedure to resolve 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
and its principals and affiliates have substantial investments in certain of
such 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 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
will retain any excess fees generated if the actual brokerage commissions paid
by the Trust are less than the flat rate paid to Kenmar and will be responsible
to the Clearing Broker for any deficit if the actual commissions incurred are
greater than the flat rate paid to Kenmar. 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.
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.
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<PAGE>
The Advisors
Other Clients and Business Activities of the Advisors
The Advisors and their principals each devote their business time to
ventures in addition to managing the Trust's accounts.
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 may have financial incentives to favor
certain accounts over 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.
The Clearing Broker
Any Clearing Broker, including 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 has 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/or serve on the governing bodies and
standing committees of such exchanges, their clearinghouses and/or various other
industry organizations. In such capacities, these officers or employees may have
a fiduciary duty to the exchanges, their clearinghouses and/or such various
other industry organizations 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.
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<PAGE>
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 AND DISTRIBUTIONS
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 his purchase 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 equal at
least $500. Fractional Units may be redeemed only upon the redemption of an
investor's entire interest in the Trust. Net Assets of the Trust are its assets
less its liabilities determined in accordance with generally accepted accounting
principles Net Asset Value per Unit is the Net Assets of the Trust divided by
the number of Units outstanding as of the date of determination.
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
March 1997 and purchased as of April 1, 1997 will first be redeemable as of
September 30, 1997 and will be subject to a redemption charge through September
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 fifteen 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.
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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.
Kenmar has no intention of making any distribution from the Trust's profits
or capital to Unitholders.
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 Kenmar'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.
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. See "Exhibit A--Amended and Restated 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. See "Exhibit A--Amended and Restated Declaration of
Trust".
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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).
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). 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)).
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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.
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 will be 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).
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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 reasonable (Section 9), 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
in respect of sales of the Units, 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); (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); (iv) any agreement 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); (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); 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.
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 or make 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 or making delivery of
any physical commodities.
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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 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.
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
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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).
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).
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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.
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.
Foreign currency 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.
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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 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.
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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"
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 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
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,
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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 41. 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.
As a matter of policy, Kenmar will attempt to 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-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
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certain exceptions apply, including an exception applicable if the equity
interest purchased is a "publicly-offered security" (the "Publicly-Offered
Security Exception").
The Publicly-Offered Security Exception applies if the equity interest is a
security that is (1) "freely transferable," (2) part of a class of securities
that is "widely held" and (3) either (a) part of a class of securities
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
or (b) sold to the Plan as part of a public offering pursuant to an effective
registration statement under the Securities Act of 1933 and the class of which
such security is a part is registered under the Securities Exchange Act of 1934
within 120 days (or such later time as may be allowed by the Securities and
Exchange Commission) after the end of the fiscal year of the issuer in which the
offering of such security occurred. The ERISA Regulation states that the
determination of whether a security is "freely transferable" is to be made based
on all relevant facts and circumstances. The ERISA Regulation specifies that, in
the case of a security that is part of an offering in which the minimum
investment is $10,000 or less, the following requirements, alone or in
combination, ordinarily will not affect a finding that the security is freely
transferable: (i) a requirement that no transfer or assignment of the security
or rights in respect thereof be made that would violate any federal or state
law; (ii) a requirement that no transfer or assignment be made without advance
written notice given to the entity that issued the security; and (iii) any
restriction on substitution of an assignee as "a limited partner of a
partnership, including a general partner consent requirement, provided that the
economic benefits of ownership of the assignor may be transferred or assigned
without regard to such restriction or consent" (other than compliance with any
of the foregoing restrictions). Under the ERISA Regulation, a class of
securities is "widely held" only if it is of a class of securities owned by 100
or more investors independent of the issuer and of each other. A class of
securities will not fail to be widely held solely because subsequent to the
initial offering the number of independent investors falls below 100 as a result
of events beyond the issuer's control.
Kenmar expects that the Publicly Offered Security Exception will apply with
respect to the Units. First, the Units are being sold only as part of a public
offering pursuant to an effective registration statement under the Securities
Act of 1933, and the Units will be registered under the Securities Exchange Act
of 1934 within 120 days (or such later time as may be allowed by the Securities
and Exchange Commission) after the end of the fiscal year of the Trust in which
the offering of Units occurred.
Second, it appears that the Units are freely transferable because the
minimum investment is not more than $5,000 and Unitholders may assign their
economic interests in the Trust by giving written notice to Kenmar, provided
such assignment would not violate any federal or state securities laws and would
not adversely affect the tax status of the Trust. As described in the second
preceding paragraph, the ERISA Regulation provides that if a security is part of
an offering in which the minimum investment is $10,000 or less, a restriction on
substitution of a limited partner of a partnership, including a general partner
consent requirement, will not prevent a finding that the security is freely
transferable, provided that the economic benefits of ownership can be
transferred without such consent. Although this provision, read literally,
applies only to partnerships, Kenmar believes that because the determination as
to whether a security is freely transferable is based on the facts and
circumstances, the fact that the Units, which are issued by a trust rather than
a partnership, have an identical restriction should not affect a finding that
the Units are freely transferable.
Third, Kenmar expects that immediately after the initial offering, the
Units will be owned by at least 100 investors independent of the Trust and of
each other.
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, the Escrow Agent,
Chase, any of the brokers through which any Advisor requires the Trust to
trade, the Trust 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
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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.
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. 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) if the Subscription Agreement and Power of Attorney is executed and
delivered at least five business days prior to the end of such month.
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
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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
PaineWebber Incorporated, a Selling Agent, will receive an upfront
selling commission equal to 5% of the purchase price per Unit at the time
that such Unit is sold, and its representatives who sell Units shall receive
a portion of such 5% commission. Notwithstanding the foregoing, no Selling
Agent shall receive upfront selling commissions to the extent investors have
acquired Units within one month of redeeming investments in Kenmar-sponsored
limited partnerships. Beginning with the thirteenth month (immediately to the
extent investors have acquired Units within one month of redeeming
investments in Kenmar-sponsored investment vehicles) 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), the Selling Agent who sold such Unit begins to
receive ongoing "trailing commissions" monthly in the amount of 0.2917 of 1%
(a 3.5% annual rate) of the beginning of month Net Asset Value of such Unit
- --provided, that such Selling Agent's representative is registered with the
CFTC, has satisfied applicable proficiency requirements and agrees to perform
certain ongoing services with respect to such Units. Such ongoing "trailing
commissions," once begun, continue for as long as such Unit remain
outstanding. If such Selling Agent's representative is not so registered, it
will not perform on-going services and on-going selling commissions will be
paid to such Selling Agent in respect of such representative may not exceed a
lifetime total of 4.5% of the initial subscription price of the Units in
question. Selling Agents shall pay a portion of such commissions to their
eligible representatives. No Selling Agent shall receive upfront selling
commissions, trailing commissions or on-going selling commissions which
exceed the amounts set forth above.
Kenmar, not the Trust, pays all upfront selling compensation and "trailing"
commissions. Selling Agents will pass on to their registered representatives a
portion of the foregoing upfront selling compensation and "trailing
commissions," after deduction of "due diligence" and administrative expenses
incurred in connection with this offering, in accordance with such 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.
Arthur F. Bell, Jr. & Associates, L.L.C., independent auditors, have
audited the statement of financial condition of Kenmar Advisory Corp. 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.
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EXPERTS
The statement of financial condition of Kenmar Advisory Corp. as of June
30, 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
September 30, 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.
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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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........................................................... -iii-
Clearinghouse.................................................. 37
Consulting fees................................................ 29
Daily limits................................................... 37
Employee benefit plan.......................................... 42
Forward contracts.............................................. 36
Futures contracts.............................................. 36
Incentive Fee.................................................. 27
Investment advisory fees....................................... 40
Kenmar ................................................... Cover page
Largest monthly drawdown....................................... 51
Largest peak-to-valley drawdown................................ 51
Maintenance margin............................................. 37
Margin......................................................... 37
Margin call.................................................... 37
Net Asset Value................................................ -i-
New Overall Appreciation....................................... 27
New Trading Profits............................................ 28
NFA ................................................... -iv-
Profit Share................................................... 27
Redemption charges............................................. 29
Round-turn commissions......................................... 26
Selling Agents................................................. -i-
Speculative position limits.................................... 37
Spot contracts................................................. 36
Trust ................................................... Cover page
Unitholder..................................................... Cover page
Variation margin............................................... 37
"Zero-sum" trading............................................. 10
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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 section 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 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
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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.
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
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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.
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
October 1, 1996.
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<PAGE>
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 October 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
October 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 October 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 October 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 October 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 October 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.
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<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 CFTC, and is
also a member in good standing of 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.
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<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
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<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 October 1, 1996, Chesapeake was
managing approximately $759 million (excluding "notional" equity) of customer
funds in the futures and forwards markets. The performance information set forth
below is current as of July 31, 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.
Largest monthly drawdown is the largest monthly loss experienced by the
program on a composite basis in any calendar month expressed as a percentage of
the total equity (including notional equity) in the program and includes the
month and year of such drawdown. A small number of accounts managed by
Chesapeake have experienced monthly
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<PAGE>
drawdowns which are materially larger than the largest composite monthly
drawdown. These variances result from such factors as small account size,
intra-month account opening or closing, significant intra-month additions or
withdrawals and investment restrictions imposed by the client. Small account
sizes refers to accounts of $1 million trading level or less, which is
substantially below the minimum account size now required by Chesapeake for
new accounts.
Largest peak-to-valley drawdown is the largest calendar month to calendar
month loss experienced by the program on a composite basis (regardless of
whether it is continuous) expressed as a percentage of total equity (including
notional equity) in the program and includes the month(s) and year(s) in which
it occurred. For example, a largest peak-to- valley drawdown of (16.62)%
(1/92-5/92) means that the peak-to-valley drawdown lasted from January 1992 to
May 1992 and resulted in a 16.62% drawdown. A small number of accounts managed
by Chesapeake have experienced peak-to-valley drawdowns which are materially
larger than the largest composite peak-to-valley drawdown. These variances
result from such factors as small account size, intra-month account opening or
closing, significant intra-month additions or withdrawals and investment
restrictions imposed by the client.
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 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.
[Remainder of page left blank intentionally.]
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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 July 31, 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: 63
Aggregate assets (excluding "notional" equity) overall: $758,585,614
Aggregate assets (including "notional" equity) overall: $928,511,563
Aggregate assets (excluding "notional" equity) in program: $712,542,881
Aggregate assets (including "notional" equity) in program: $878,414,512
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): 96
Number of closed accounts with loss (five-year period): 16
Number of closed accounts with profit (since inception): 107
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> <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 (3.04) 6.84 9.06 0.40 (3.66) 0.27 (4.61) 22.38 6.93
- -------------------------------------------------------------------------------------------------------------
June 3.26 0.88 7.02 0.98 6.52 (1.25) 1.77 (8.28) 32.42
- -------------------------------------------------------------------------------------------------------------
July (7.14) (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 (0.01) 14.09 15.87 61.82 1.81 12.51 43.12 28.30 49.10
Rate of (7 mos.) (11 mos.)
Return
=============================================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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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: $758,585,614
Aggregate assets (including "notional" equity) overall: $928,511,563
Aggregate assets (excluding "notional" equity) in program: $18,823,608
Aggregate assets (including "notional" equity) in program: $18,823,608
Largest monthly drawdown: (16.40)% (7/96)
Largest peak-to-valley drawdown: (17.59)% (5/96-7/96)
Number of accounts closed with profit: 0
Number of accounts closed with loss: 0
1996 compound rate of return: (8.39)% (7 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: $758,585,614
Aggregate assets (including "notional" equity) overall: $928,511,563
Aggregate assets (excluding "notional" equity) in program: $27,219,125
Aggregate assets (including "notional" equity) in program: $31,273,443
Largest monthly drawdown: (7.86)% (7/96)
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: (4.93)% (7 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)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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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: 0
Aggregate assets (excluding "notional" equity) overall: $758,585,614
Aggregate assets (including "notional" equity) overall: $928,511,563
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)
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: $758,585,614
Aggregate assets (including "notional" equity) overall: $928,511,563
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
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)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
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DREISS RESEARCH CORPORATION
Background and Management
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. The registration of Dreiss Research with the CFTC and Dreiss
Research's membership in NFA must not be taken as an indication that any such
agency or self-regulatory body has recommended or approved Dreiss Research or
the Trust. 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
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.
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 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.
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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 Strategy
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:
i. 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.
ii. 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 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.
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iii. 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.
iv. 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.
v. 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).
vi. 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.
vii. 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 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.
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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.]
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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 July 31, 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: 69
Aggregate assets (excluding "notional" equity) overall: $15,735,000
Aggregate assets (including "notional" equity) overall: $34,075,000
Aggregate assets (excluding "notional" equity) in program: $15,735,000
Aggregate assets (including "notional" equity) in program: $34,075,000
Largest monthly drawdown: (17.60)% (7/96)
Largest peak-to-valley drawdown: (21.54)% (1/92 - 4/92)
Number of profitable closed accounts: 7
Number of unprofitable closed accounts: 6
================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
Performance
- --------------------------------------------------------------------------------
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 (8.66) 1.24 13.87* 2.79* 0.55* 2.92*
- --------------------------------------------------------------------------------
June 10.57 7.45 10.41* 2.19* 3.65* 0.91*
- --------------------------------------------------------------------------------
July (17.60) (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 (8.33) 59.76 38.09 36.12 (8.01) 7.55
of Return (8 mos.)
===============================================================================
* 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.
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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 CFTC and is a member of the
NFA in such capacities. The registration of HB&Co. with the CFTC and HB&Co.'s
membership in 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. 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
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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.
Trading Strategy
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
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transactions. However, if such trend-following approaches are successful, these
losses should be more than offset by a few large gains.
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
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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 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.
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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 October 1, 1996,
HB&Co. was managing approximately $166 million (excluding "notional" equity) of
customer funds in the futures and forwards markets. The performance information
set forth below is current as of July 31, 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
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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.]
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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: 18
Aggregate assets in all programs: $165,937,076
Aggregate assets in Global Portfolio: $123,409,146
Largest monthly drawdown: (12.39)% (2/96)
Largest peak-to-valley drawdown: (19.38)% (7/94 - 2/95)
Number of profitable closed accounts: 21
Number of unprofitable closed accounts: 15
================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
Performance
- --------------------------------------------------------------------------------
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 (3.20) 6.34 4.22 4.55 2.51 1.80
- --------------------------------------------------------------------------------
June 1.38 (1.12) 5.14 (4.95) 13.10 1.29
- --------------------------------------------------------------------------------
July 1.80 (1.68) (4.30) 5.00 18.27 (0.86)
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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)
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November 1.27 3.43 (2.78) (0.37) 6.07
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December 0.80 (2.95) 1.34 (1.88) 19.13
- --------------------------------------------------------------------------------
Compound Rate 3.58 29.12 3.81 14.63 22.56 36.31
Of Return (7 mos.) (9 mos.)
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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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: 9
Aggregate assets in all programs: $165,937,076
Aggregate assets in Diversified Portfolio: $8,567,185
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: 23
1996 compound rate return: (6.76)% (7 months)
1995 compound rate return: (4.14)
1994 compound rate return: (7.07)
1993 compound rate return: 13.96
1992 compound rate return: 20.12
1991 compound rate return: 41.50% (10 months)
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: 8
Aggregate assets in all programs: $165,937,076
Aggregate assets in FX Portfolio: $21,230,383
Largest monthly drawdown: (8.92)% (8/96)
Largest peak-to-valley drawdown: (52.49)% (8/93 - 1/95)
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 29
1996 compound rate return: 7.16% (7 months)
1995 compound rate return: 40.58%
1994 compound rate return: (20.63)%
1993 compound rate return: 0.86%
1992 compound rate return: 34.69%
1991 compound rate return: 47.65% (10 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT INITIALLY BE TRADED
PURSUANT TO THE FOREGOING PROGRAMS
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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: $165,437,076
Aggregate assets in Asset Allocation Portfolio: $30,581,072
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: 2
1996 compound rate return: (2.84)% (7 months)
1995 compound rate return: 33.35%
1994 compound rate return: (1.29)%
1993 compound rate return: 18.58%
1992 compound rate return: 36.07% (9 months)
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 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: 7
Aggregate assets in all programs: $165,437,076
Aggregate assets in Short-Term Portfolio: $12,730,360
Largest monthly drawdown: (8.92)% (8/96)
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: 11.07% (4 months)
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 THE FOREGOING PROGRAMS.
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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 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.
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WILLOWBRIDGE ASSOCIATES INC.
Background and Management
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 and a
commodity trading advisor and has been a commodity pool operator and commodity
trading advisor member of the NFA since May 3, 1988. The registration of
Willowbridge with the CFTC and Willowbridge's membership in NFA must not be
taken as an indication that any such agency or self-regulatory body has
recommended or approved Willowbridge or the Trust. The primary activity of
Willowbridge is to buy, sell (including short sales), spread or otherwise trade
in commodity futures contracts, options on futures contracts, forward contracts,
commodity options, physical commodities, currencies and other commodity
instruments . Willowbridge may, to a limited extent, also trade in other
instruments. In addition, Doublewood, Inc. ("Doublewood") and Union Spring Asset
Management, Inc. ("Union Spring") are registered commodity pool operators and
commodity trading advisors and NFA members affiliated with Willowbridge.
Management of The Commodity Trading Advisor
Philip L. Yang 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 Commodity Exchange Act, as amended as a commodity
pool operator and commodity trading advisor and is a member of the NFA in such
capacities. He is also a principal and an associated person of Doublewood and
Union Spring. 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 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 Commodity Exchange
Act, as amended as a commodity pool operator and commodity trading advisor and
is a member of the NFA in such capacities. He is also a principal and an
associated person of Doublewood 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 is the Senior Vice President of Willowbridge. Ms. Morris
has been employed by Willowbridge since its inception in August 1988 and is
registered as an associated person of Willowbridge. Ms. Morris is also a
principal and an associated person of Doublewood 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. has been Executive Director of Willowbridge since
April 1995. He is registered as an associated person and a principal of
Willowbridge. He is also an associated person of Doublewood and President, a
principal and associated person of Union Spring. Mr Faux co-founded MC
Baldwin Financial Company ("MC Baldwin") in 1989 and served as its Co-Chief
Executive until April 1995. MC Baldwin is an international trading manager
which develops futures funds for its partner, Mitsubishi Corporation, and
other institutional clients. Prior to forming MC Baldwin,
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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 futures funds, 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 is Director of Investment Services. He joined Willowbridge
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.
James J. O'Donnell is Vice President of Willowbridge. He oversees
Willowbridge's computer and information needs, including trading information
systems, accounting information systems and support for ongoing research of new
computerized trading systems and effectiveness testing of existing trading
systems. Mr. O'Donnell has been employed by Willowbridge since September 1,
1992. From June 1987 through August 1992, Mr. O'Donnell was Manager of Computer
Information Systems at Caxton Corporation. From April 1979 through May 1987, Mr.
O'Donnell was manager of Research Information Systems at Commodities
Corporation. Prior to that, he was employed by Penn Mutual from September 1973
through March 1979 as Senior Programmer Analyst. He is a graduate of LaSalle
University with a B.A. in mathematics.
Steven R. Crane is Vice President of Willowbridge. He oversees the
accounting and financial reporting for Willowbridge. Mr. Crane has been employed
by Willowbridge since April 1993. Prior to that, he was employed by Caxton
Corporation from April 1992 to April 1993 as a Senior Accountant. From September
1989 through April 1992, Mr. Crane worked as a Senior Auditor for Deloitte &
Touche LLP. Mr. Crane is a Certified Public Accountant and a member of the
AICPA. He graduated magna cum laude from North Carolina State University with a
B.A. in accounting.
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 (see
discussion of licensing agreement in "Description of Willowbridge Trading
Strategies" section below), Willowbridge may only use the currency portion of
the XLIM and MTech trading approaches in its trading of the Currency Investment
Program. For accounts with less than $1 million in assets, Willowbridge may not
be able to trade the full Currency portfolio.
The Primary Investment Program, whereby Willowbridge will have the
discretionary authority, based upon Mr. Yang's periodic evaluation of market
conditions, to determine which Strategy to use for a given market. 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. Typically, changes
in systems used for particular markets are made infrequently. From January
1993 through June 1994, Willowbridge allocated approximately equal portions
of the assets traded pursuant to the Primary Investment Program to the Argo
and Vulcan Systems. Beginning July 1994, approximately one-half of the assets
traded pursuant to Primary were allocated to the Argo System and the
remaining portion was allocated between currencies and financial instruments
traded pursuant to the Vulcan
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System and precious metals, grains, meats, softs and tropicals traded
pursuant to the Siren System. For accounts with less than $1 million in
assets, Willowbridge may not be able to trade the full Primary portfolio.
The Currency, Financial and Metals ("CFM") Investment Program, whereby
Willowbridge will have the discretionary authority, based primarily on analysis
of technical factors, fundamentals and market action, to trade futures, forward,
spot and option contracts in the currency, financial, and metals markets. In the
CFM Program, Mr. Yang utilizes the various Willowbridge Strategies to provide
the disciplined technical and fundamental analysis of the markets and also to
help determine risk management procedures. The CFM Investment Program is offered
only on a limited basis.
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.
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 are selected from 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 change the
portfolio composition of XLIM. The XLIM Trading Approach is offered only on a
limited basis.
It is intended that approximately 15-40% of the assets under management
pursuant to the XLIM Trading Approach normally will 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.
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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, Ten-year Notional,
Bunds, PIBOR, Gilts, Short-Sterling, Australian T-Bills,
Australian T-Bonds, Italian Bonds, Euro-Lira, Euro-Yen
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
Willowbridge removes or adds contracts to the list from time to time. For
accounts with less than $1,000,000 in assets, Willowbridge may not be able to
trade the full Vulcan portfolio.
It is intended that approximately 15-40% of the assets under management
pursuant to the Vulcan System normally will 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 effort 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 15-40% of the assets under management pursuant to
the Titan System normally will be committed as margin for commodity interest
trading, but from time to time the percentage of assets committed may be
substantially more or less. For accounts with less than $1,000,000 in assets,
Willowbridge may not be able to trade the full Titan portfolio.
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 to
30 trading days with approximately 15-40% of assets under management normally
committed as margin for commodity interest trading, but from time to time the
percentage of assets committed may be substantially more or less. For
accounts with less than $1,000,000 in assets, Willowbridge may not be able to
trade the full Argo portfolio.
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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).
Rex currently is applied to trading options on futures contracts in the
following 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
Willowbridge removes or adds contracts to the list from time to time. For
accounts with less than $1,000,000 in assets, Willowbridge may not be able to
trade the full Rex portfolio.
It is intended that approximately 15-40% of the assets under management
pursuant to Rex normally will 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, Australian Treasury Bills, Australian
Treasury Bonds, Italian Bonds, and Euro-Lira
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
Willowbridge removes or adds contracts to the list from time to time. For
accounts with less than $1,000,000 in assets, Willowbridge may not be able to
trade the full Siren portfolio.
It is intended that approximately 15-40% of the assets under management
pursuant to the Siren system normally will be committed as margin for commodity
interest trading, but from time to time, the percentage of assets committed may
be substantially more or less.
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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 change the portfolio composition of MTech.
It is intended that approximately 15-40% of the assets under management
pursuant to the MTech Trading Approach normally will 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
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any single account
represented in the records. An investor should note that in a presentation of
past performance data, different accounts, even though traded according to the
same Strategy or Program, can have varying investment results. The reasons for
this include numerous material differences which can occur among accounts such
as: (a) procedures governing timing for the commencement of trading and means of
moving toward full portfolio commitment of new accounts; (b) the period during
which accounts are active; (c) the Strategy or Program used (although all
accounts may be traded in accordance with the same approach, such approach may
be modified periodically as a result of ongoing research and development by
Willowbridge); (d) leverage employed; (e) the size of the account, which can
influence the size of positions taken and restrict the account from
participating in all markets available to a Strategy or Program; (f) the amount
of interest income earned by an account, which will depend on the rates paid by
a futures commission merchant on equity deposits and/or on the portion of an
account invested in interest-bearing obligations such as U.S. Treasury bills;
(g) the amount of management and incentive fees and the amount of brokerage
commissions; (h) the timing of orders to open or close positions; (i) the market
conditions, which in part determine the quality of trade executions; and (j)
trading instructions and restrictions of the client.
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 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 Vulcan, Titan, Argo, Siren, XLIM, CFM, Currency and
Primary 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, except in the case of capsules
utilizing the Fully-Funded Subset method to compute rate of return.
Additional Notes for Capsules Utilizing the Fully-Funded Subset Method
In the accompanying composite capsules for Vulcan (beginning July 1994),
Titan (beginning July 1995), Siren (beginning April 1995), Primary (beginning
August 1995), CFM (beginning January 1993), and Argo and Currency (beginning
January 1992), Willowbridge has adopted the Fully-Funded Subset Method of
computing rate of return and presenting performance disclosure, pursuant to
an Advisory published by the CFTC. (With respect to these capsules, "notional
funds" were not traded prior to the dates noted.) To qualify for use of the
Fully-Funded Subset Method, the 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. In each capsule using the
Fully-Funded Subset Method, rate of return for the Fully-Funded Subset is
computed by dividing the sum of the net performance, i.e., for each of the
accounts, for the Fully-Funded Subset, by the sum of the actual funds-based
beginning net asset values for the Fully- Funded Subset. The chart on the
following page attempts to illustrate the impact of partially funding an
account on rate of return.
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
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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 exclude "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.
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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: August 1988
Inception of client account trading in program: August 1988
Number of open accounts: 28
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $211,956,000
Aggregate assets (including "notional" equity) in program: $258,658,000
Largest monthly drawdown: 13.74% (8/91)
Largest peak-to-valley drawdown: 29.10% (8/93 - 1/95)
Number of profitable closed accounts: 2
Number of unprofitable closed accounts: 2
================================================================================
Monthly Performance 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
(Notional Excluded)
- --------------------------------------------------------------------------------
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 11.41 4.73 0.00 (2.97) 0.00 (2.86)
- --------------------------------------------------------------------------------
May (3.15) 0.27 0.00 (1.04) 0.00 (4.64)
- --------------------------------------------------------------------------------
June (0.26) (8.12) 0.00 4.00 0.00 7.81
- --------------------------------------------------------------------------------
July (8.19) (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 4.33 34.99 (19.68) 22.30 8.36 3.65
Return
================================================================================
PAST PERFORMANCE INECESSARILY INDICATIVE OF FUTURE RESULTS.
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================================================================================
Monthly Performance 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
(Notional Included)
- --------------------------------------------------------------------------------
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 (2.70) 0.25 0.00 (1.04) 0.00 (4.64)
- --------------------------------------------------------------------------------
June (0.22) (7.52) 0.00 4.00 0.00 7.81
- --------------------------------------------------------------------------------
July (6.76) (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 3.68 31.28 (19.68) 22.30 8.36 3.65
Return
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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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: August 1988
Inception of client account trading in program: August 1988
Number of open accounts: 18
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $19,395,000
Aggregate assets (including "notional" equity) in program: $22,300,000
Largest monthly drawdown: 20.16% (1/91)
Largest peak-to-valley drawdown: 30.19% (11/90-5/91)
Number of profitable closed accounts: 7
Number of unprofitable closed accounts: 2
1996 Period Rate of Return: (11.58)% (7 months)
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: August 1988
Inception of client account trading in program: August 1988
Number of open accounts: 10
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $16,689,000
Aggregate assets (including "notional" equity) in program: $18,077,000
Largest monthly drawdown: 25.07% (7/91)
Largest peak-to-valley drawdown: 39.89% (10/90 - 8/91)
Number of profitable closed accounts: 3
Number of unprofitable closed accounts: 1
1996 Period Rate of Return: (6.00)% (7 months)
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.
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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: August 1988
Inception of client account trading in program: August 1988
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $591,000
Aggregate assets (including "notional" equity) in program: $591,000
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: (23.38)% (7 months)
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: August 1988
Inception of client account trading in program: August 1988
Number of open accounts: 67
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $118,668,000
Aggregate assets (including "notional" equity) in program: $135,575,000
Largest monthly drawdown: 16.70% (2/96)
Largest peak-to-valley drawdown: 21.30% (11/90 - 2/91)
Number of profitable closed accounts: 36
Number of unprofitable closed accounts: 11
1996 Period Rate of Return: (16.80)% (7 months)
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.
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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: August 1988
Inception of client account trading in program: January 1991
Number of open accounts: 12
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $14,988,000
Aggregate assets (including "notional" equity) in program: $16,960,000
Largest monthly drawdown: 14.94% (1/91)
Largest peak-to-valley drawdown: 17.53% (7/93 - 10/93)
Number of profitable closed accounts: 4
Number of unprofitable closed accounts: 0
1996 Period Rate of Return: (3.39)% (7 months)
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: August 1988
Inception of client account trading in program: January 1991
Number of open accounts: 1
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $10,488,000
Aggregate assets (including "notional" equity) in program: $10,488,000
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: 12.04% (7 months)
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.
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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: August 1988
Inception of client account trading in program: January 1993
Number of open accounts: 5
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $26,295,000
Aggregate assets (including "notional" equity) in program: $26,295,000
Largest monthly drawdown: 16.92% (2/94)
Largest peak-to-valley drawdown: 29.04% (8/93 - 9/94)
Number of profitable closed accounts: 17
Number of unprofitable closed accounts: 25
1996 Period Rate of Return: 0.22% (7 months)
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: August 1988
Inception of client account trading in program: May 1991
Number of open accounts: 5
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $6,489,000
Aggregate assets (including "notional" equity) in program: $11,489,000
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: (4.92)% (7 months)
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.
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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: August 1988
Inception of client account trading in program: January 1993
Number of open accounts: 12
Aggregate assets (excluding "notional" equity) overall: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
Aggregate assets (excluding "notional" equity) in program: $33,170,000
Aggregate assets (including "notional" equity) in program: $35,259,000
Largest monthly drawdown: 16.67% (2/96)
Largest peak-to-valley drawdown: 20.28% (5/96-7/96)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 1
1996 Period Rate of Return: (13.01)% (7 months)
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: August 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: 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: 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.
-87-
<PAGE>
WITTER & LESTER, INC.
Background and Management
Witter & Lester, Inc. ("Witter & 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. The
registration of Witter & Lester with the CFTC and Witter & Lester's membership
in NFA must not be taken as an indication that any such agency or
self-regulatory body has recommended or approved Witter & Lester or the Trust.
Witter & 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.
Lon L. Witter, President and co-founder of Witter & 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 &
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 & 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.
Trading Strategy
The Investment Methodology currently used by Witter & 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 & 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 & Lester believes that changes of volume
patterns in the Dow stocks indicate a future change in the
direction of stock prices in general.
-88-
<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 & Lester's methodology was a simple mutual
fund timing strategy. Begun in 1979 while Witter & 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 & Lester judged to
be free of potential weakness. "Cash" positions were held in all other
environments. Since then, Witter & Lester's trading methodology has been applied
to a variety of different strategies.
The RedStone Program
Witter & 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 & 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 & Lester's strong negative
correlation with both stock and bond markets as well as most futures managers.
Witter & Lester started trading client funds in September 1983. From 1983
to March 1988 Witter & 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 & 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 & Lester's demonstrated ability to identify potential
stock market weakness.
-89-
<PAGE>
The Strategic Hedge Overlay Program dynamically combines the yield
enhancement options writing strategies with outright hedging. In environments
judged by Witter & Lester to be free of risk, the program takes no position and
the client's portfolio remains fully invested. In environments deemed bearish,
Witter & 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 & Lester began to explore new
applications for the market timing model. The Intermediate Trading Program
combines the most successful elements of Witter & 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 & 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 & 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 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.
-90-
<PAGE>
RedStone Program
Witter & 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 & 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: 26
Aggregate assets (excluding "notional" equity) overall: $34,971,744
Aggregate assets (including "notional" equity) overall: $106,391,958
Aggregate assets (excluding "notional" equity) in program: $12,868,556
Aggregate assets (including "notional" equity) in program: $34,121.608
Largest monthly drawdown: (5.75)% (7/96)
Largest peak-to-valley drawdown: (5.75)% (7/96-7/96)
Number of profitable closed accounts: 10
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 0.29 1.42 --
- --------------------------------------------------------------------------------
June 4.00 2.05 --
- --------------------------------------------------------------------------------
July (5.75) (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 (0.11) 23.02 12.96
of Return (7 months) (4 mos.)
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-91-
<PAGE>
Stock Index Trading Program
The following summary information presents the composite performance record
of the Stock Index Trading Program.
Name of CTA: Witter & 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: $34,971,744
Aggregate assets (including "notional" equity) overall: $106,391,958
Aggregate assets (excluding "notional" equity) in program: $12,885,081
Aggregate assets (including "notional" equity) in program: $19,492,806
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: 19
1996 Period Rate of Return: 15.4% (7 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 & 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: 27
Aggregate assets (excluding "notional" equity) overall: $34,971,744
Aggregate assets (including "notional" equity) overall: $106,391,958
Aggregate assets (excluding "notional" equity) in program: $8,974,884
Aggregate assets (including "notional" equity) in program: $48,633,178
Largest monthly drawdown: (12.54)% (7/96)
Largest peak-to-valley drawdown: (12.54)% (7/96-7/96)
Number of profitable closed accounts: 31
Number of unprofitable closed accounts: 28
1996 Period Rate of Return: (10.36)% (7 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.
-92-
<PAGE>
Strategic Hedge Overlay Program
The following summary information presents the composite performance record
of the Strategic Hedge Overlay Program.
Name of CTA: Witter & 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: 3
Aggregate assets (excluding "notional" equity) overall: $34,971,744
Aggregate assets (including "notional" equity) overall: $106,391,958
Aggregate assets (excluding "notional" equity) in program: $242,490
Aggregate assets (including "notional" equity) in program: $13,147,489
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: 4
Number of unprofitable closed accounts: 8
1996 Period Rate of Return: (.87) (7 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 & 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: $34,971,744
Aggregate assets (including "notional" equity) overall: $106,391,958
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.
-93-
<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 & 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: $34,971,744
Aggregate assets (including "notional" equity) overall: $106,391,958
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.
-94-
<PAGE>
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 July 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.
-------------
-95-
<PAGE>
Assets Under Management
Kenmar and affiliates -- Total assets under management
as of October 1, 1996: $258 million
Kenmar and affiliates -- Total asset under multi-advisor
management as of October 1, 1996: $258 million
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.
-96-
<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 255,814,258 93,617,927 10,951.37 (15.87)
- -------------------------------------------------------------------------------------------------------------------------------
1/91
- -------------------------------------------------------------------------------------------------------------------------------
Investments Limited * 03/94 N/A 46,879,157 15,829,747 956.48 (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 12,938,956 12,456,652 955.62 (3.60)
- -------------------------------------------------------------------------------------------------------------------------------
5/96
- -------------------------------------------------------------------------------------------------------------------------------
Pension Client IIA * 03/94 N/A 44,000,000 41,563,534 942.17 (6.88)
- -------------------------------------------------------------------------------------------------------------------------------
02/96
- -------------------------------------------------------------------------------------------------------------------------------
Pension Client II B * 05/93 N/A 22,000,000 22,981,692 1,042.71 (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 2,029,775 1,791,156 950.88 (5.77)
- -------------------------------------------------------------------------------------------------------------------------------
2/96
- -------------------------------------------------------------------------------------------------------------------------------
Global Management Limited * 03/86 N/A 48,867,401 1,875,374 11,206.95 (17.08)
- -------------------------------------------------------------------------------------------------------------------------------
8/86
- -------------------------------------------------------------------------------------------------------------------------------
Futures Trading Fund L.P. * 05/91 N/A 9,315,313 3,830,936 732.89 (5.62)
- -------------------------------------------------------------------------------------------------------------------------------
1/92
- -------------------------------------------------------------------------------------------------------------------------------
Futures Trading Fund II, L.P. * 04/92 N/A 9,728,100 10,491,723 1,313.69 (6.42)
- -------------------------------------------------------------------------------------------------------------------------------
2/96
- -------------------------------------------------------------------------------------------------------------------------------
Futures Trading Fund III, L.P. * 05/93 N/A 4,030,610 3,967,731 1,227.71 (5.62)
- -------------------------------------------------------------------------------------------------------------------------------
9/93
- -------------------------------------------------------------------------------------------------------------------------------
DDF Trading Co. * 06/93 - 11,436,723 11,346,823 992.15 (5.78)
- -------------------------------------------------------------------------------------------------------------------------------
2/96
- -------------------------------------------------------------------------------------------------------------------------------
FCGF I Trading Co. * 02/92 - 21,896,985 10,179,447 988.34 (6.23)
- -------------------------------------------------------------------------------------------------------------------------------
2/96
- -------------------------------------------------------------------------------------------------------------------------------
Series One Futures Trading Limited * 05/93 - 4,916,808 2,601,590 675.00 (5.64)
- -------------------------------------------------------------------------------------------------------------------------------
1/96
- -------------------------------------------------------------------------------------------------------------------------------
Series Six Futures Trading Limited * 01/94 - 4,290,807 3,050,148 986.00 (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 (23.1)
- -----------------------------------------------------------------------------------------------------------------
11/90-05/92
- -----------------------------------------------------------------------------------------------------------------
Investments Limited (31.47) - - - (4.73) 12.54 (10.8)
- -----------------------------------------------------------------------------------------------------------------
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 (7.42) - - - - - (4.4)
- -----------------------------------------------------------------------------------------------------------------
5/96-7/96
- -----------------------------------------------------------------------------------------------------------------
Pension Client IIA (12.64) - - - (3.90) 6.57 (8.0)
- -----------------------------------------------------------------------------------------------------------------
5/95-10/95
- -----------------------------------------------------------------------------------------------------------------
Pension Client II B (5.78) - - - 0.39 5.26 (1.3)
- -----------------------------------------------------------------------------------------------------------------
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. (6.77) - - - - 2.26 (7.0)
- -----------------------------------------------------------------------------------------------------------------
6/96-8/96
- -----------------------------------------------------------------------------------------------------------------
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 (8.0)
- -----------------------------------------------------------------------------------------------------------------
12/91-5/92
- -----------------------------------------------------------------------------------------------------------------
Futures Trading Fund II, L.P. (9.45) - 5.73 21.64 0.18 15.10 (11.4)
- -----------------------------------------------------------------------------------------------------------------
5/95-10/95
- -----------------------------------------------------------------------------------------------------------------
Futures Trading Fund III, L.P. (9.85) - - 6.66 3.39 16.39 (4.4)
- -----------------------------------------------------------------------------------------------------------------
12/93-3/94
- -----------------------------------------------------------------------------------------------------------------
DDF Trading Co. (10.43) - - 1.05 (3.06) 12.31 (9.8)
- -----------------------------------------------------------------------------------------------------------------
8/93-3/94
- -----------------------------------------------------------------------------------------------------------------
FCGF I Trading Co. (13.54) - (1.50) 8.62 (4.15) 7.73 (10.5)
- -----------------------------------------------------------------------------------------------------------------
8/93-3/94
- -----------------------------------------------------------------------------------------------------------------
Series One Futures Trading Limited (33.04) - - (11.25) (18.15) (2.78) (4.4)
- -----------------------------------------------------------------------------------------------------------------
7/93-3/96
- -----------------------------------------------------------------------------------------------------------------
Series Six Futures Trading Limited (12.93) - - - 2.75 3.75 (10.4)
- -----------------------------------------------------------------------------------------------------------------
5/95-5/96
=================================================================================================================
</TABLE>
-97-
<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 L.P. * 01/93 - 20,000,000 19,610,587 980.53 (4.67)
- ------------------------------------------------------------------------------------------------------------------------------
7/95
- ------------------------------------------------------------------------------------------------------------------------------
Venture Partners L.P. * 03/97 N/A 2,625,000 3,539,002 2,987.57 (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 III * 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 L.P. 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 L.P. (10.15) - - 19.68 (3.70) 0.81 (4.5)
- -----------------------------------------------------------------------------------------------------------------
9/95-3/96
- -----------------------------------------------------------------------------------------------------------------
Venture Partners L.P. (48.75) (7.15) 7.33 57.92 3.27 5.55 (1.7)
- -----------------------------------------------------------------------------------------------------------------
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 III (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 L.P. 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>
-98-
<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 July 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 July 31, 1996. Current Net
Asset Value per Unit is based on the value of hypothetical $1,000 unit
($2156.07 for International Futures Limited) 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. "Current Year-to-Date Return" is the rate of return from January 1, 1996
through July 31, 1996.
9. "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.
10. "Month" is the month of the Worst Monthly % Drawdown.
11. "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
where the negative returns are larger than the positive ones.
"Peak-to-valley drawdown" 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.
12. "Period" is the period of the Worst Peak-to-Valley Drawdown.
-99-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Kenmar Global Trust
Independent Auditor's Report............................................. F-2
Statement of Financial Condition as of September 30, 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
June 30, 1996 (unaudited).............................................. F-7
Notes to Statement of Financial Condition as of September 30, 1995....... F-8
Notes to Statement of Financial Condition as of June 30, 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 September 30, 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
September 30, 1996, in conformity with generally accepted accounting principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
October 29, 1996
F-2
<PAGE>
KENMAR GLOBAL TRUST
STATEMENT OF FINANCIAL CONDITION
September 30, 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
September 30, 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 March 31, 1997 (subject to
extension until May 31, 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 $400,000, 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,
F-4
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
--------------
selling commissions and trailing commissions to selling agents, and
consulting fees to the trading advisors.
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 June 30, 1996 (unaudited)
--------------
September 30, June 30,
1995 1996
(unaudited)
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 346,466 $ (2,766)
Fees receivable 187,324 389,095
----------- -----------
Total current assets 533,790 386,335
-----------
Investments in affiliated commodity pools 739,090 688,466
Due from affiliates, net 2,600,831 2,672,047
Property and equipment, net 358,617 838,260
Other assets 19,623 43,760
-----------
Total assets $ 4,251,951 $ 4,628,868
=========== ===========
LIABILITIES
Cash deficit $ 0 0
Accrued expenses and other liabilities 1,505,650 2,229,821
Obligations under capital leases 79,864 480,215
----------- -----------
Total liabilities 1,585,514 2,710,036
----------- -----------
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 1,286,707
----------- -----------
Total stockholder's equity 2,666,437 1,918,832
----------- -----------
Total liabilities and stockholder's equity $ 4,251,951 $ 4,628,868
=========== ===========
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 totaled $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
June 30, 1996 (unaudited)
--------------
The interim statement of financial condition at June 30, 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 June 30, 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
GLOSSARY
See "Index of Defined Terms."
Blue Sky Glossary
The following definitions are included in this Appendix I 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
APPI-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.
APPI-2
<PAGE>
EXHIBIT A
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
Dated as of
October 30, 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; Net Asset Value per Unit..................... 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-14
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-15
(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
(d) Consent by Trustee............................................. TA-17
19. Governing Law...................................................... TA-17
20. Miscellaneous...................................................... TA-17
(a) Notices....................................................... TA-17
(b) Binding Effect................................................ TA-17
(c) Captions...................................................... TA-17
21. Benefit Plan Investors............................................. TA-17
22. Certain Definitions................................................ TA-18
TA-i
<PAGE>
23. No Legal Title to Trust Estate..................................... TA-19
24. Legal Title........................................................ TA-20
25. Creditors.......................................................... TA-20
TA-ii
<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 October 30, 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 (the "Original
Declaration"); 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 and to amend and restate the Original Declaration in
its entirety.
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, Section 3 and Section 24, 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
(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 one hundred twenty
days after such event Unitholders holding a majority of Units 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.
At any time that the Trust does not have a Managing Owner, the Unitholders by
majority vote may appoint a liquidator.
(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 Asset Value per Unit. 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. Net
Asset Value per Unit is the Net Assets of the Trust divided by the number of
Units outstanding as of the date of determination.
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 $1,000,000.
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 Initial Unitholder will
withdraw upon the admission of additional Unitholders.
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
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will have at all times a capital account equal to 1% of the total capital
accounts of the Trust (including the Managing 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.
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(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
or gain 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). In no event shall organizational and
offering expenses, including commissions and redemption fees, exceed 15% of the
capital contributions to the Trust. 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
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of three years) requirements under the NASAA Guidelines. The Trust's brokerage
commissions may not be increased (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 18(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 in respect of sales of the Units; and such
prohibitions may not be circumvented by any reciprocal business arrangements.
The foregoing prohibition shall not prevent the Trust from executing, at the
direction of any Advisor, transactions with any futures commission merchant or
broker. 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 (as well as any agreements between the
Managing Owner or any affiliate of the Managing Owner and any trading advisor)
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.
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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, 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. The Trust shall notify Unitholders within seven business
days of any material change (i) in the agreements with the Trust's advisors,
including any modification in the method of calculating the advisory fee and
(ii) in the compensation of any party relating to the Trust. 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 (including by post upon payment of
reasonable mailing costs); 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
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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, which
consent may be withheld in the absolute discretion 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. 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 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 less than 50% of the Net
Asset Value per Unit as of the most recent Valuation Date, after adding back all
distributions, the Trust shall notify investors within seven business days and
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
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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 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 fifteen business days after
the month-end of redemption (and notice that the redemption has occurred will be
provided to Unitholders within ten business days after such month-end), 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 5(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.
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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 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.
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(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 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.
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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.
(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 assets of the Trust from being considered for any
purpose of ERISA or Section 4975 of the Code to constitute assets of any
"employee benefit plan" as defined in and subject to ERISA or of any "plan"
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
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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 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.
(d) Consent by Trustee. The Trustee's written consent to any amendment
of this Declaration of Trust and Trust Agreement shall be required, such consent
not to be unreasonably withheld; provided, however, that the Trustee may, in its
sole discretion, withhold its consent to any such amendment that would adversely
affect any right, duty or liability of, or immunity or indemnity in favor of,
the Trustee under this Declaration of Trust and Trust Agreement or any of the
documents contemplated hereby to which the Trustee is a party, or would cause or
result in any conflict with or breach of any terms, conditions or provisions of,
or default under, the charter documents or by-laws of the Trustee or any
document contemplated thereby to which the Trustee is a party.
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, however, that causes
of action for violations of federal or state securities laws shall not be
governed by this Section 19.
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 Sections 2 and 17 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. Benefit Plan Investors.
Each Unitholder that is an "employee benefit plan" as defined in
and subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or a "plan" as defined in Section 4975 of the Code (each
such employee benefit plan and plan, a "Plan"), and each fiduciary thereof
who has caused the Plan to become a Unitholder (a "Plan Fiduciary"),
represents and warrants that: (a) the Plan Fiduciary has considered an
investment in the Trust for such Plan in light of the risks relating thereto;
(b) the Plan Fiduciary has determined that, in view of such considerations,
the investment in the Trust for such Plan is consistent with the Plan
Fiduciary's responsibilities under ERISA; (c) the investment in the Trust by
the Plan 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, any
selling agent, the clearing broker, the escrow agent, The Chase Manhattan
Bank, any broker through which any advisor requires the Trust to trade, the
Trustee, 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 the Units; (ii) has authority or
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responsibility to or regularly gives investment advice with respect to the
assets of the Plan used to purchase the 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 for the Plan 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 the risks of large losses; (ii) is
independent of Kenmar, any advisor to the Trust, any selling agent, the
clearing broker, the escrow agent, The Chase Manhattan Bank., any broker
through which any Advisor requires the Trust to trade, the Trustee and any of
their respective affiliates; and (iii) is qualified to make such investment
decision.
22. 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.
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.
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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.
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.
23. No Legal Title to Trust Estate.
The Unitholders shall not have legal title to any part of the Trust
Estate.
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24. 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.
25. 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.
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
TA-20
<PAGE>
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
TA-21
<PAGE>
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) or
partner or trustee) assignee(s))
<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
initial 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
initial 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
initial made with Purchaser's funds for Purchaser's own account and not as
trustee, custodian or nominee for another.
SR-1
<PAGE>
_______ (d) The subscription, if made as custodian for a minor, is a gift
initial 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,
initial 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
initial 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
initial 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 thereto; (b) the Plan Fiduciary
has determined that, in view of such considerations, the 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 Agents, the Clearing Broker, the
Escrow Agent, The Chase Manhattan Bank, any broker through which any
Advisor requires the Trust to trade, the Trustee, 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. The minimum investment
for IRAs is $2,500.
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. 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.
17. 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 if I have
executed and delivered this Subscription Agreement and Power of Attorney at
least five business days prior to the end of such month. 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. I understand that all
investors will have the right to revoke their subscriptions, and receive a
refund of their invested funds, for a period of five business days following
receipt of the Prospectus. 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 --
SA-1
<PAGE>
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.
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 ________ or 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:
_______________________________________________________________________
_______________________________________________________________________
SA-3
<PAGE>
Date of Birth (if Individual):_________________________________________
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
SA-4
<PAGE>
suitability characteristics. I have also informed the investor of the
unlikelihood of a public trading market developing for the Units.
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................................................. 190,000
Miscellaneous Offering Costs.................................... 67,258
Total........................................................ $400,000
========
-------------
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>
Exhibit
Number Description of Document
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.
3.03 Amended and Restated Declaration of Trust and Trust Agreement of
(Amended) the Registrant (included as Exhibit A to the Prospectus).
10.04 Subscription Agreement and Power of Attorney (included as Exhibit
(Amended) C to the Prospectus).
10.05 Form of Discretionary Investment Advisory Agreement.
23.04 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
The following Exhibits were filed with the Registrant's Form S-1 on
July 25, 1996 and are incorporated by reference herein.
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.
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(a) 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
23.01 Consent of Sidley & Austin.
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).
S-2
<PAGE>
99.03 North American Security Administrators Association Guidelines for
Registration of Commodity Pool Programs.
(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 29th
day of October, 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 October 29, 1996
- -------------------------- (Principal Executive Officer)
Kenneth A. Shewer
/s/ MARC S. GOODMAN
- -------------------------- President October 29, 1996
Marc S. Goodman
/s/ KEVIN J. TREACY Senior Vice President -- October 29, 1996
- -------------------------- Finance (Principal Financial
Kevin J. Treacy and Accounting Officer)
/s/ ESTHER E. GOODMAN Chief Operating Officer and October 29, 1996
- -------------------------- Senior Executive Vice President
Esther E. Goodman
(Being 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 October 29, 1996
-----------------------
Kenneth A. Shewer
Chairman
S-4
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page No.
- ------ ----------------------- --------
<S> <C> <C>
3.03 Amended and Restated Declaration of Trust and Trust Agreement of
(Amended) the Registrant (included as Exhibit A to the Prospectus).
10.04 Subscription Agreement and Power of Attorney (included as Exhibit
(Amended) C to the Prospectus).
10.05 Form of Discretionary Investment Advisory Agreement.
23.04 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
</TABLE>
<PAGE>
Exhibit 10.05
CHASE ASSET MANAGEMENT, INC.
DISCRETIONARY INVESTMENT ADVISORY AGREEMENT
Re: KENMAR GLOBAL TRUST
The undersigned ("Client"), being duly authorized, hereby employs CHASE ASSET
MANAGEMENT, INC. (the "Adviser") as investment manager for the Account referred
to above (the "Account") on the following terms and conditions:
1. ACCOUNT. The Account shall, as of the Effective Date as set forth on the
annexed Schedule of Fees, be maintained in a separate account or accounts
designated for management by the adviser at Chemical Bank in New York, State of
New York, serving as "custodian". Thereafter the Account shall consist of such
funds and securities as shall become a part thereof, whether as a result of
transactions therein, Client additions or withdrawals, or otherwise.
2. AUTHORITY OF THE ADVISER. The Adviser shall have full discretionary
authority to manage the Account from the Effective Date. The Adviser shall
supervise and direct the investments of the Account, subject to such limitations
as Client may impose by notice in writing but without any further Client
approval except as required by law. The Adviser may, in its discretion, provide
such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser under
applicable laws and are under the control of The Chase Manhattan Corporation,
the indirect parent of the Adviser; PROVIDED that (i) all persons, when
providing services hereunder, are functioning as part of an organized group of
persons, and (ii) such organized group of persons is managed at all times by
authorized officers of the Adviser. The Adviser, as Client's agent and
attorney-in-fact with respect to the Account, is duly authorized and empowered,
without prior consultation with Client:
(a) to make and implement all investment decisions;
(b) to buy, sell, exchange, convert and otherwise trade in any stocks,
bonds and other instruments in accordance with the Client's
objectives, as described in Schedule B hereto and as modified from
time to time by agreement between the Client and the Adviser;
(c) to select brokers, dealers and other intermediaries (which may be
affiliates of the Adviser) by or through whom securities transactions
will be executed or carried out on behalf of the Account, and in
connection therewith, open, establish and maintain accounts at,
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<PAGE>
and to place orders for the execution of such securities transactions
with or through, any such brokers (including prime and clearing
brokers), dealers or issuers as the Adviser may select;
(d) to make and execute any and all such documents and to take any action
which the Adviser deems necessary, appropriate or desirable to carry
out is duties hereunder in connection with the management of the
Account;
(e) to apply funds maintained in the undersigned's Account to the payment
of the Adviser's fees upon instruction of the Adviser;
(f) with respect to securities that are underwritten by syndicates of
which an affiliate of the Adviser is a lead underwriter or member, to
purchase such securities on behalf of Client's Account from any other
member of such syndicate; and
(g) if identified as a permitted investment on Schedule B, to invest the
assets in the Account in mutual funds and other collective investments
sponsored, managed or advised by the Advisor or its affiliates.
Client acknowledges that the Adviser and its affiliates may earn fees
from these activities in addition to the fees charged to the Client
for the Adviser's services under this Agreement.
It is understood and agreed that the Adviser may from time to time employ
or associate with such other entities or persons as the Adviser believes
appropriate to assist in the performance of this Agreement, and that any
such Sub-Adviser shall have all of the rights and powers of the Adviser set
forth in this Agreement; provided that a Client shall not pay any
additional compensation for any Sub-Adviser and the Adviser be as fully
responsible to the Account for the acts and omissions of the Sub-Adviser as
it is for its own acts and omissions. A Sub-Adviser may be an affiliate of
the Adviser.
3. SERVICES AND FEE OF ADVISER. Adviser accepts its appointment as investment
adviser and agrees to supervise and direct the investment of the Account in
accordance with the investment objectives of Client. The Adviser will
render to Client at least quarterly a written statement of the status of
the Account. The compensation of the Adviser for its services under this
Agreement shall be calculated and paid in accordance with the attached
Schedule of Fees which may be amended from time to time by the Adviser upon
thirty (30) days' written notice to Client.
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<PAGE>
4. TRANSACTION PROCEDURES. All transactions will be consummated by payment
to, or delivery by, Client, or such other party as Client may designate in
writing (the "Custodian"), of all cash and/or securities due to or from the
Account. The Adviser shall not act as custodian for the Account, but may
issue such instructions to the Custodian as may be appropriate in
connection with the settlement of transactions initiated by the Adviser
pursuant to Paragraph 2 hereof. Instructions of the Adviser to Client
and/or the Custodian shall be made in writing sent by first-class mail or
telefax or, at the option of the Adviser, orally and confirmed in writing
as soon as practicable thereafter, and the Adviser shall instruct all
brokers and dealers executing orders on behalf of the Account to forward to
Client and/or the Custodian copies of all confirmations promptly after
execution of transactions. The Adviser shall not be responsible for any
loss incurred by reason of any act or omission of any broker or dealer or
the Custodian; provided, however, that the Adviser will make reasonable
efforts to require that brokers and dealers selected by the Adviser perform
their obligations with respect to the Account.
5. REPORTS TO ADVISER. Client affirms that it receives, or will make
arrangements to receive, monthly statements from the Custodian. Client
hereby agrees to provide, or instruct the Custodian to provide, the Adviser
with copies of monthly custodian statements concerning the status of the
Account.
6. CONFIDENTIALITY RELATIONSHIP. All information and advice furnished by
either party to the other hereunder, including their respective agents and
employees, shall be treated as confidential and shall not be disclosed to
third parties except as required by law or in response to inquiries by
governmental entities and self-regulatory organizations having jurisdiction
over the business of the Adviser.
7. SERVICES TO OTHER CLIENTS. It is understood that the Adviser and its
affiliates perform investment advisory services for various clients.
Client agrees that the Adviser may give advice and take action with respect
to any of its other clients which may differ from advice given or the
timing or nature of action taken with respect to the Account. It is the
Adviser's policy, to the extent practicable, to allocate investment
opportunities among clients over a period of time on a fair and equitable
basis. It is understood that the Adviser shall not have any obligations to
purchase or sell, or to recommend for purchase or sale, for the Account any
security which the Adviser, its principals, affiliates or employees may
purchase or sell for its or their own accounts or for the account of any
other client, if in the opinion of the Adviser such transaction or
investment appears unsuitable,
-3-
<PAGE>
impractical or undesirable for the account, except as required by law.
8. BROKERAGE/BLOCK TRADES. When the Adviser places orders for the purchase or
sale of securities for the Account, the Adviser shall use reasonable
efforts in seeking the best combination of price and execution for the
Account, but is not obligated to solicit competitive bids or to execute
transactions at the lowest commission rates available. In selecting
brokers or dealers to execute orders, the Adviser will take into account
such relevant factors as price, the broker's facilities, reliability,
financial responsibility, execution capabilities and the statistical,
research or other information or services which may enhance Advisers
investment research and portfolio management capability generally. Client
acknowledges that such information or services may not directly or
exclusively benefit the Account and that certain of such information or
services may be available to the Adviser on a cash payment basis.
Transactions effected on behalf of Client's Account may be executed in an
aggregate or "block" with trades effected on behalf of other accounts
managed by the Adviser.
9. INSIDE INFORMATION. The Adviser shall have no obligation to seek to obtain
any material non-public ("inside") information about any issuer of
securities or, to purchase or sell for the Account the securities of any
issuer on the basis of any such information as may come into its
possession.
10. PROXIES. Client desires that the Adviser vote the shares in the Account
and hereby warrants and represents that the Adviser, as a fiduciary of the
Client, has been duly authorized to take such action as it deems
appropriate with respect to all proxies received by it that are solicited
with respect to securities which are then in the Account. Client may at
any time terminate in writing in whole or in part this authority.
11. VALUATION. The Adviser may use such standard third party pricing services
as it deems appropriate in calculating the market value of securities and
instruments in the Account. In computing the market value of any
investment of the Account, each security listed on any national securities
exchange shall be valued at the last quoted sale price on the valuation
date on the principal exchange on which such security is traded. Any other
security or asset shall be valued in a manner determined in good faith by
the Adviser to reflect its fair market value.
12. INVESTMENT OBJECTIVES AND RESTRICTIONS. The Client's written statement of
the investment objectives of the Account are attached hereto as Schedule B,
and the Client
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<PAGE>
will promptly notify the Adviser in writing of any changes or modifications
therein as well as any specific investment restrictions applicable thereto,
which shall become effective upon the Adviser's written acceptance thereof.
The Adviser shall seek to achieve the investment objectives of the Account,
but except for gross negligence or malfeasance, neither the Adviser nor any
of its affiliates, directors or employees shall be liable for any action
performed or omitted to be performed, or for any errors of judgment in
managing the assets of the Account. Unless Client notifies the Adviser in
writing of specific restrictions, the investments made on behalf of the
Account shall be deemed not to be restricted under the current or future
laws of any state or by virtue of the terms of any other contract or
instrument purporting to bind Client.
13. TERMINATION; ASSIGNMENT. This Agreement may be terminated at any time by
either party giving to the other written notice of such termination. No
assignment, as the term is defined in the Investment Advisers Act of 1940,
of this Agreement shall be made by the Adviser without the written consent
of Client.
14. NOTICES. Unless otherwise specified herein, all notices, instructions and
advices with respect to securities transactions or any other matters
contemplated by this Agreement shall be deemed duly given when received in
writing sent by first class mail by the Adviser or the Client at their
respective addresses appearing below and to the Custodian at such address
as it may specify to the Adviser in writing, or at such other address or
addresses as shall be specified, in each case, in a notice similarly given.
The Adviser may rely upon any notice from Client (or Custodian) or other
communication reasonably believed by it to be genuine.
15. STATE LAW; CHOICE OF LAW. In certain instances, state or local law in the
jurisdiction in which the Client resides or which otherwise governs this
Agreement requires that the Adviser include in this Agreement a provision
or provisions mandated by such law. Any such required provision or
provisions are included on Schedule B to and incorporated in this
Agreement. This Agreement shall be governed and construed in accordance
with the internal laws of the State of Now York, without regard to conflict
of law doctrines.
16. REPRESENTATIONS BY CLIENT. Client and each person signing this Agreement
on behalf of Client represent and confirm that the appointment of the
Adviser is authorized by the governing documents relating to the Account
and that the terms hereof do not violate obligations by which Client is
bound, whether arising by contract, operation of law or otherwise, and, if
Client is a corporation, partnership,
-5-
<PAGE>
trust or other form of organization, that (a) this Agreement has been duly
authorized by appropriate action and when so executed and delivered will be
binding upon Client in accordance with its terms, and (b) Client will deliver to
the Adviser such evidence of such authority as the Adviser may reasonably
require, whether by way of a certified resolution or otherwise. Client
acknowledges either (i) it has received Part II of Adviser's Form ADV or
Adviser's ADV Brochure at least 48 hours prior to the execution of this
Agreement, or (ii) it is aware that this Agreement may be canceled within five
(5) days from the date of execution, if it has not so received such Form ADV or
Brochure. Client (or its duly appointed trustee or other fiduciary) is the sole
owner of all the securities and funds in the Account and there are not, and
shall not be, any restrictions on funds in the Account and there are not, and
shall not be, any restrictions on the public sale, distribution or ownership of
such securities by Client or the Account.
17. REPRESENTATIONS BY ADVISER. By execution of this Agreement, the Adviser
represents and confirms that it is registered as an investment adviser
under the Investment Advisers Act of 1940. The Adviser, in the management
of the Account and in the maintenance of its records, does not assume
responsibility for the accuracy of information furnished by Client or by
any broker, custodian or other
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<PAGE>
person or for any such person's actions or omissions with respect to the Account
except as expressly provided herein.
--------------------------------
(Client)
--------------------------------
(Name) (Position)
Address for notices:
Two American Lane
P.O. Box 5150
Greenwich, CT 06831
Agreed and accepted:
Date:
--------------------
CHASE ASSET MANAGEMENT, INC.
By
----------------------------
Address for notices:
Chase Asset Management, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn:
----------------------
Fax:
-----------------------
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<PAGE>
Re: Kenmar Global Trust
(Name of Client)
This is to confirm the appointment of Chase Asset Management, Inc. ("Adviser")
as investment adviser for the above captioned account ("Account") with authority
as agent and attorney-in-fact on behalf of the Account (a) to make and implement
all investment decisions; (b) to buy, sell, exchange, convert and otherwise
trade in any and all stocks, bonds and other securities including money market
instruments; (c) to select brokers, dealers and other intermediaries by or
through whom securities transactions will be executed or carried out on behalf
of the Account, and in connection therewith, open, establish and maintain
accounts at, and to place orders for the execution of such securities
transactions with or through, any such brokers (including prime and clearing
brokers), dealers or issuers as the Adviser may select; (d) to make and execute
any and all such documents and to take any action which the Adviser deems
necessary, appropriate or desirable to carry out his duties hereunder in
connection with the management of the Account; and (e) to apply funds maintained
in the undersigned's Account to the payment of the Adviser's fees upon
instruction of the Adviser.
It is further understood that Adviser may deliver to any securities brokerage
firm executing transactions on behalf of the Account a copy of this document as
evidence of the authority of Adviser to act for and on behalf of the Account.
In the event this authority is terminated, by death or otherwise, any party to
whom a copy of this document has been delivered as evidence of the Adviser's
authority, shall be held harmless for any loss or liability incurred as a result
of any action taken in reliance thereon after such termination but before notice
of such termination has been received by such party.
Date: ______________, 1997
Kenmar Global Trust
By: Thomas J. DiVuolo
Thomas J. DiVuolo
Senior Vice President-Kenmar Advisory Corp., Managing Owner
(Position)
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<PAGE>
SCHEDULE OF FEES
Kenmar Global Trust
(Client)
Effective Date: _____________,
The Adviser's fee shall be computed and payable quarterly in arrears, based upon
the Account's market value, including accrued income, as of the last day of the
preceding quarter. Fees will be 0.20% per annum of the Account's market value.
Fees for each calendar quarter shall be computed based on one-quarter (1/4) of
the annual rate and taken by the Custodian in quarterly installments by charging
the custody account. Cash Management fees are calculated based on the average
daily balance for the preceding quarter.
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<PAGE>
[ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C. LETTERHEAD]
EXHIBIT 23.04
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 October 29, 1996 on the statement of
financial condition of Kenmar Global Trust as of September 30, 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.
Lutherville, Maryland
October 29, 1996
