<PAGE>
As filed with the Securities and Exchange Commission on December 13, 1996
Registration No. 333-8869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 2 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. Wilmington
Trust Company, the Trustee of the Trust, has delegated to Kenmar Advisory Corp.
("Kenmar"), the managing owner of the Trust, the exclusive management and
control of all aspects of the business of the Trust. Kenmar will manage the
Trust's trading by allocating the Trust's assets to multiple commodity trading
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 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 February 28, 1997 (subject to
extension until May 31, 1997 in Kenmar's discretion), or such earlier date as
Kenmar may determine. 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 and Net Asset Value per Unit are more fully
defined under "Redemptions and Distributions" at page 35.
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 will take place in
volatile markets.
o The Trust is subject to substantial charges. Overall trading profits of
approximately 14.4% of the Trust's average beginning of month 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 33,
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 48.
----------
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 December __, 1996
(Not for use after September __, 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 individual retirement accounts 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. Maine residents
must sign a Subscription Agreement and Power of
-i-
<PAGE>
Notes to Cover Page (cont'd)
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.
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
48 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), 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
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 23 THROUGH
24 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 12.
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) Speculative and 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.......................... 8
(6) Discretionary Trading Strategies
May Incur Substantial Losses.............. 9
(7) Decisions Based Upon Fundamental
Analysis May Not Result in
Profitable Trading........................ 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................... 9
(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)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......................... 14
Access to Global Markets...................... 15
The Initial Advisors.......................... 16
Kenmar Advisory Corp............................. 19
Background and Principals..................... 19
Management of Traders......................... 20
Fiduciary Obligations of Kenmar............... 21
Investment of Kenmar in the Trust............. 22
Use of Proceeds.................................. 22
Charges.......................................... 23
Charges Paid by the Trust...................... 23
Organizational and Initial Offering
Costs.................................. 24
Brokerage Commissions..................... 25
Miscellaneous Execution Costs............. 25
"Bid-ask" Spreads......................... 25
Profit Shares and Incentive Fees.......... 26
Administrative Costs...................... 27
Extraordinary Expenses.................... 27
Charges Paid by Kenmar......................... 28
Selling Commissions; "Trailing
Commissions"........................... 28
Consulting Fees........................... 28
Redemption Charges............................ 28
The Clearing Brokers............................. 28
ING Futures & Options.......................... 28
PaineWebber.................................... 29
-2-
<PAGE>
Table of Contents (cont.)
Conflicts of Interest............................ 33
General................................... 33
Kenmar.................................... 33
The Advisors.............................. 34
The Clearing Brokers and
Executing Brokers...................... 35
Selling Agents............................ 35
Proprietary Trading....................... 35
Redemptions and Distributions.................... 35
The Trust and the Trustee........................ 36
The Futures and Forward Markets.................. 40
Federal Income Tax Consequences.................. 41
Purchases by Employee Benefit Plans.............. 45
Plan of Distribution............................. 48
Subscription Procedure.................... 48
Subscribers' Representations and
Warranties................................ 48
Selling Agents' Compensation.............. 48
Legal Matters.................................... 49
Experts.......................................... 49
Additional Information........................... 49
Recent Financial Information and Annual
Reports....................................... 50
Index of Defined Terms........................... 51
The Initial Advisors............................. 52
Performance of Commodity Pools
Operated by Kenmar ............................ 99
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, 1996......................F-8
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 16 and "Kenmar Advisory Corp." at page
19."
o Access to a wide range of domestic and international markets. See "The
Trust and Its Objectives -- Access to Global Markets" at page 15.
o Diversification among trading strategies. See "The Trust and Its Objectives
-- Investment Philosophy" at page 14.
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 Traditional 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 35.
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)--Speculative and 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 of approximately
14.4% of the Trust's average beginning of month 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," at page 6, "Charges" beginning at page 23 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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<PAGE>
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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 multiple 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 having the ability to deleverage the Trust's market commitment
to below its actual equity during such periods, Kenmar could help preserve
capital while awaiting more favorable market cycles.
Under the Trust's Declaration of Trust, Wilmington Trust Company,
the Trust's Trustee, has delegated to Kenmar the exclusive management and
control of all aspects of the business of the Trust. The Trustee will have no
duty or liability to supervise or monitor the performance of Kenmar, nor will
the Trustee have any liability for the acts or omissions of Kenmar.
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
single-and multi-advisor funds for over a decade. As of November 1, 1996,
Kenmar and its affiliates were acting as trading manager for commodity pools
and accounts with total capital (excluding "notional" funds) of approximately
$312 million, of which approximately $126 million was invested in commodity
pools operated by Kenmar.
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 Commodity Pools Operated by Kenmar"
for the performance of other commodity pools
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. The fact that an
Advisor has traded successfully in the past does not mean that such Advisor will
do so in the future.
As of October 1, 1996, the Advisors were collectively managing
approximately $1.5 billion in managed futures accounts in which their clients
(and in certain cases the Advisors themselves) had invested, and approximately
$1.1 billion in the trading programs initially to be used for the Trust.
See "The Initial 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 41.
-5-
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<PAGE>
- --------------------------------------------------------------------------------
SUMMARY (cont'd)
"Breakeven Table"
The "Breakeven Table" below 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 beginning of month 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
beginning of month Net Assets attributable to an initial investment during the
twelve-month "breakeven" period equals the amount of such initial investment.
This is, in fact, unlikely to be the case.
"Breakeven Table"
<TABLE>
<CAPTION>
=============================================================================================
EXPENSES(1) Percentage Return Dollar Return
WHICH MUST BE OFFSET Required Required
TO "BREAK EVEN" First Twelve Months ($5,000 Initial Investment)
of Investment First Twelve Months
of Investment
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Organizational and Initial Offering Cost
Reimbursement(2) 2.40% $ 120.00
- ---------------------------------------------------------------------------------------------
Brokerage Commissions(3) 11.00% $ 550.00
- ---------------------------------------------------------------------------------------------
Miscellaneous Execution Costs(4) 0.25% $ 12.50
- ---------------------------------------------------------------------------------------------
Advisors' Profit Shares(5) 2.00% $ 100.00
- ---------------------------------------------------------------------------------------------
Kenmar Incentive Fee(5) 0.15% $ 7.50
- ---------------------------------------------------------------------------------------------
Administrative Expenses(6) 0.50% $ 25.00
- ---------------------------------------------------------------------------------------------
Redemption Charge (7) 3.10% $ 155.00
- ---------------------------------------------------------------------------------------------
Interest Income (8) (5.00)% $(250.00)
- ---------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL
INVESTMENT REQUIRED FOR 14.40% $ 720.00
"BREAK EVEN"
=============================================================================================
</TABLE>
Notes to "Breakeven Table"
(1) See "Charges" at page 23 for an explanation of the expenses included in the
"Breakeven Table."
(2) Reimbursed to Kenmar at the rate of 0.2% of beginning of month Net Assets
each month.
(3) Paid to Kenmar each month. Kenmar pays all floor brokerage, exchange,
clearing and NFA fees, 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>
- --------------------------------------------------------------------------------
SUMMARY (cont'd)
that would be payable in a "breakeven" year. Kenmar believes that
2.00% of average beginning of month 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 26. 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 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 of 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-
- --------------------------------------------------------------------------------
<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 managed futures advisors 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 will
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 must earn trading profits equal to
approximately 14.4% per annum of its average beginning of month Net Assets
merely to "break even," assuming that an investor redeemed in the first year.
(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.
(5) Technical, Trend-Following Trading Systems Require Sustained Price Moves in
Order to Trade Profitably
The profitability of trading systems involving technical trend
analysis depends upon the occurrence of significant sustained price moves in
at least some of the markets traded. See "The Initial 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
-8-
<PAGE>
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 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
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 33. 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.
(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 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.
-9-
<PAGE>
(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 market or vice versa.
Furthermore, 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. 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), determined respectively 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
assessed equally to all Units, disparities between a particular Unitholder's
investment experience in the Trust and the Profit Shares and Incentive Fees
to which such Unitholder's Units will be 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, respectively. See "Charges" at page 23.
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 allocations 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 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.
-10-
<PAGE>
(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 interest. See "Conflicts of Interest" at page 33. 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 33 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. As an incentive fee, 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 41.
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 41.
(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 the
bankruptcy of such Clearing Broker. In its forward trading, the Trust will be
dealing with its Clearing Brokers as principals (the Clearing Brokers, in turn,
will trade with its other counterparties in order to execute the Trust's
forward trades) and will be subject to the full risk of such Clearing
Brokers' 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) 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 and has generally allocated and reallocated the
assets of such funds aggressively.
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 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.
----------
-12-
<PAGE>
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.
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
-13-
<PAGE>
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 Trust's potential for aggressive capital growth arises from 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.
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 will continue 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 Kenmar's perception of 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 a willingness to act decisively and a
management style that identifies shifting market trends. Therefore, when
Kenmar's perception of market conditions and/or individual Advisor
performance suggests that an alternative trading style or methodology might
be better suited to Kenmar's perception of the current market environment,
Kenmar may alter the portfolio of Advisors or the allocation of assets among
the Advisors without prior notice to, or the approval of, the Unitholders.
See "Risk Factor (23) -- Regulatory Matters May Alter the Nature of an
Investment in the Trust" at page 12. It is not anticipated that Kenmar will
make frequent adjustments to the group of Advisors for the Trust.
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Prospective investors must recognize that Advisor selections and
allocations require the exercise of judgment and discretion and are not
determined in any precise or systematic manner. There can be no assurance that
Kenmar's selection and monitoring of a limited group of Advisors for the Trust
will, in the future, produce more successful results (in terms of either risk
control or profitability) than would the selection of a single Advisor, a fixed
combination of Advisors or a larger group of Advisors.
Access to Global Markets
The range of markets that the Trust will trade will provide a
significant degree of diversification to a traditional stock/bond portfolio.
Through Kenmar's Advisor selections, the Trust will have the flexibility to
access, and allocate and reallocate capital among, world markets, including but
not limited to:
Currencies
- --------------------------------------------------------------------------------
Australian Dollar European Currency Unit Mexican Peso
Belgian Franc Finnish Markka New Zealand Dollar
British Pound French Franc Norwegian Krone
Canadian Dollar Irish Punt Singapore Dollar
Danish Krone Italian Lira Spanish Peseta
Deutsche Mark Japanese Yen Swedish Krona
Dutch Guilder Malaysian Ringgit Swiss Franc
Financial Instruments
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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.)
Euroswiss Spanish Bonds
Eurotop 100 Index (Europe) Tokyo Stock Price Index (Japan)
Euroyen U.K. Bonds
Financial Times 100 Stock Index (U.K.) U.K. Short Sterling
Financial Times 250 Stock Index (U.K.) U.S. Treasury Bills
French Bonds U.S. Treasury Bonds
German Bonds U.S. Treasury Notes
Italian Bonds Value Line Stock Index (U.S.)
Japanese Bonds
Metals
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Aluminum Lead Platinum Tin
Copper Nickel Silver Zinc
Gold Palladium
Energy Products
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Crude Oil Heavy Fuel Oil No. 2 Heating Oil Residual Fuel Oil
Electricity Natural Gas Propane Unleaded Gasoline
Gas Oil
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Agricultural Products
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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
All direct investment decisions for the Trust will be made by commodity
trading advisors selected by and monitored by Kenmar. See "Risk Factor (23) --
Regulatory Matters May Alter the Nature of an Investment in the Trust" at page
12. Each initial Advisor is, and it is anticipated that any subsequent Advisor,
if any, will be, 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.
Subject to the restrictions inherent in or imposed on
publicly-offered managed futures funds, 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. The following are the
initial Advisors and asset allocations chosen for the 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 $822 million (total)
(25%) Technical, Trend-Following $772 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.
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Advisor Summaries
More complete descriptions and performance summaries for the Advisors
described in this section of the Prospectus are included under "The Initial
Advisors" at page 51. 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 Chesapeake Capital Corporation's trading programs,
traded pursuant to technical analysis emphasizing mathematical and charting
approaches, will depend upon the occurrence in the future, as in the past, of
major trends in some markets. Chesapeake Capital Corporation will trade its
Diversified Trading Program on behalf of the Trust. The Diversified Trading
Program emphasizes a maximum range of diversification, with a global portfolio
of futures, forward and cash markets which includes, but is not limited to,
agricultural products, metals, currencies, financial instruments, and stock,
financial and economic indices. See pages 56 through 62 for performance
information relating to Chesapeake Capital Corporation.
Dreiss Research Corporation
Dreiss Research Corporation utilizes a 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 Corporation 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 63 through 67 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 long-term technical trend-following analysis. 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 68
through 77 for performance information relating to Hyman Beck & Company, Inc.
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<PAGE>
Willowbridge Associates Inc.
Willowbridge Associates Inc. will utilize its XLIM Trading Approach on
behalf of the Trust. The XLIM Trading Approach 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. The XLIM Trading
Approach trades are selected from a wide variety of futures contracts, forwards,
spot and options contracts 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 the XLIM Trading Approach. See pages 78 through 91 for
performance information relating to Willowbridge Associates Inc.
Witter & Lester, Inc.
Witter & Lester, Inc. 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, Inc. market analysis. Witter &
Lester, Inc.'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 92 through 98 for performance information
relating to Witter & Lester, Inc.
The Advisory Agreements
The Advisory Agreements among the Trust, Kenmar and each Advisor
terminate December 31, 1997, subject to renewal on the same terms at Kenmar's
option for up to two additional one-year terms. Kenmar will (when it considers
doing so to be in the best interests 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. Kenmar, however, retains the right to withdraw funds from any
Advisor's trading account at any time (including immediately).
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 nor 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
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<PAGE>
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. Kenmar and its affiliates focus 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 (born 1953), Chairman, was employed by Pasternak,
Baum and Co., Inc. ("Pasternak, Baum"), an international cash commodity firm,
from June 1976 until September 1983. Mr. Shewer created and managed Pasternak,
Baum's Grain Logistics and Administration Department and created its Domestic
Corn and Soybean Trading Department. In 1982, Mr. Shewer became co-manager of
Pasternak, Baum's F.O.B. Corn Department. In 1983, Mr. Shewer was made Vice
President and Director of Pasternak, Baum. Mr. Shewer graduated from Syracuse
University with a B.S. degree in 1975.
Mr. Marc S. Goodman (born 1948), 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 (born 1952), 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 (born 1936), 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
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<PAGE>
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. (born 1956), 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 graduated from New York
University School of Law with a J.D. degree in 1981 and from Yale University
with a B.A. degree in 1977.
Mr. Thomas J. DiVuolo (born 1960), 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 graduated from Wagner College in 1990 with
an M.B.A. degree in Finance in 1990 and from Pace University with a B.B.A.
degree in Public Accounting in 1982.
Mr. Kevin J. Treacy (born 1960), 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 from
University College Dublin with a Bachelor of Commerce in 1981 and received a
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 (born 1957), 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, American International Group
Inc.'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 graduated from Columbia University with an M.B.A. degree in December
1985 and from Cornell University with a B.S. in Computer Science in 1979.
Management of Traders
Kenmar's hallmark is its emphasis on vigilant management of its
portfolios of traders. Kenmar will analyze trading performance on a daily
basis for each trader which it employs. 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 such
trader (including the Trust's Advisors).
Based on Kenmar's perception of market conditions, Advisor
performance and other factors, Kenmar will reallocate assets among Advisors
in an effort to place such assets optimally. Kenmar also will add Advisors
when situations warrant, and replace Advisors if profitability, risk
assumptions or other significant factors indicate that replacement is
advisable. See "Risk Factor (23) -- Regulatory Matters May Alter the Nature
of an Investment in the Trust" at page 12.
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<PAGE>
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 traders around the globe. Added
to these 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 its Amended and Restated
Declaration of Trust and Trust Agreement dated as of December 12, 1996 (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 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 (such as a
Unitholder of the 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 business 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 Securities and Exchange Commission
("SEC"). Beneficial owners who have suffered losses in connection with the
purchase or sale of
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<PAGE>
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
interest 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 33.
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, except that it is anticipated that
Robert L. Cruikshank, a principal of Kenmar, will make an investment of $100,000
in the Trust. Mr. Cruikshank's investment in the Trust will not be included in
the minimum amount required to be raised for the Trust to commence trading.
USE OF PROCEEDS
The proceeds of the offering of the Units will be used by the Trust to
engage in the speculative trading on futures and forward and related markets
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 83% 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.
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<PAGE>
In addition, assets of the Trust not required to margin positions
may be maintained in United States bank accounts opened in the name of the
Trust and may be held by in United States Treasury bills (or other securities
approved by the CFTC for investment of customer funds).
The Trust will receive all of the interest income earned on its assets.
CHARGES
Charges 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 beginning of month
Net Assets.
Kenmar Brokerage commissions Flat-rate monthly
commissions of 0.917% of the
Trust's beginning of month
Net Assets (an 11% annual
rate). Such commissions
cover all floor brokerage,
exchange, clearing and NFA
fees incurred in the
Trust's trading.
Third Parties Miscellaneous execution costs Paid as incurred; not
anticipated to exceed 0.25%
of average beginning of
month 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.
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<PAGE>
Recipient Nature of Payment Amount of Payment
- --------- ----------------- -----------------
Advisors Profit Shares Paid by the Trust as a whole
on a quarterly basis
(although accrued against
Net Asset Value monthly).
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%-7.0%, rather
than at an 11% annual rate,
and execution costs actually
incurred (other than floor
brokerage, exchange,
clearing and NFA fees). New
Trading Profit is not
reduced by administrative
expenses or organizational
and initial offering costs
(or extraordinary expenses).
The Profit Shares are
payable separately to each
Advisor based on its
individual performance, not
overall profits of the
Trust. Units may be subject
to reduction for Profit
Shares attributable to a
particular Advisor even
though the Net Asset Value
per Unit has declined from
the purchase price of such
Units.
Kenmar Incentive Fee 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
beginning of month 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 beginning of month 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 beginning of month Net
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 U.S. 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 floor brokerage, exchange, NFA and clearing fees
relating to the execution of the Trust's trades (other than "bid-ask" spreads).
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 beginning of month 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 will
pay such "spreads" will 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 Advisors will receive Profit Shares based on New Trading
Profit generated by each individual 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, Inc. -- 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. 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"). "Trading Profit" (i)
includes gross realized gains and losses on closed positions and the change in
unrealized gains and losses on open positions from the preceding period, (ii)
does not include interest income, (iii) is reduced by annual brokerage
commissions of 4.5% - 7.0%, not 11%, of average beginning of month Net Assets,
plus execution costs other than floor brokerage, exchange, clearing and NFA fees
and (iv) is not reduced by administrative expenses, organizational and initial
offering cost reimbursements or extraordinary costs (such as taxes or litigation
costs). "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. "New Trading Profit" is the excess, if any, as of any quarter-end by
which cumulative Trading Profit exceeds the highest level of cumulative Trading
Profit as of any previous quarter-end and adjusted as provided below. "New
Overall Appreciation" is the excess, if any, as of any December 31 by which
cumulative Overall Appreciation exceeds the highest level of cumulative Overall
Appreciation as of any previous December 31 and adjusted as provided below.
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 Kenmar withdraws assets from an Advisor's Trust account 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 (and assuming that no additional
Units were issued as of such date of withdrawal), prior to such redemption there
would have existed a Loss Carryforward, for Incentive Fee calculation purposes,
of $100,000 which
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<PAGE>
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.
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 respective Profit Shares and Incentive Fees before generating
New Trading Profits or New Overall Appreciation, as applicable, 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 Fee 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 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 individually
track 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 beginning of month 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.
----------
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<PAGE>
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 Fee and Profit Share accruals
during such month and on a year-to-date basis.
Charges Paid by Kenmar
The following costs relating to the sale of the Units and the
operation of the Trust will be paid by Kenmar.
Selling Commissions; "Trailing Commissions"
Kenmar will pay, from its own funds, the 5% selling commissions due in
respect of the Units. Furthermore, Kenmar will pay 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" will be payable quarterly and will equal
0.2917 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 48.
Consulting Fees
Each initial Advisor will receive a Consulting Fee, monthly in
arrears, payable by Kenmar not the Trust, equal to 0.167% of the beginning of
month assets of the Trust allocated to such Advisor's management (a 2% annual
rate).
Redemption Charges
Units redeemed on or prior to the end of the eighteenth month after
such Units are issued will be 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 will be paid to
Kenmar.
THE CLEARING BROKERS
The Trust's initial clearing broker is ING (U.S.) Securities Futures &
Options Inc. ("ING Futures & Options"). In addition, it is anticipated that
PaineWebber Incorporated ("PaineWebber") will be selected as an additional
clearing broker at or prior to the conclusion of the Initial Offering Period.
ING Futures & Options and, if selected, PaineWebber will each act as a clearing
broker (each, a "Clearing Broker" or together, the "Clearing Brokers") for the
Trust. Neither PaineWebber nor ING Futures & Options has been involved in the
organization of the Trust and neither will take any part in the Trust's ongoing
management. Neither PaineWebber nor ING Futures & Options is affiliated with
Kenmar, and neither is responsible for the activities of Kenmar.
ING Futures & Options
ING (U.S.) Securities, Futures & Options Inc. (formerly known as
Internationale Nederlanden (U.S.) Derivatives Clearing, Inc. and f/k/a Quantum
Financial Services, Inc.) is registered with the CFTC as a futures commission
merchant and is a member of the NFA in such capacity. 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 &
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<PAGE>
Options. ING Futures & Options is also a clearing firm of each of the principal
U.S. futures exchanges and the Chicago Board of Options Exchange. In January of
1994, ING Futures & Options was purchased by Internationale Nederlanden (U.S.)
Capital Holdings Corp. ("ING Capital"), a wholly-owned subsidiary of
Internationale Nederlanden Bank ("ING Bank") in Amsterdam, one of the largest
financial institutions in the world. ING Futures & Options is an Illinois
corporation with a principal place of business at 233 South Wacker Drive, Suite
5200, Chicago, Illinois 60606 and a telephone number of (312) 496-7000.
At any given time, ING Futures & Options may be involved in legal
actions, some of which may seek significant damages. However, during the five
years preceding the date of this Prospectus, there has been no administrative,
civil or criminal proceeding against ING Futures & Options or any of its
principals -- whether pending, on appeal or concluded -- which is material to a
decision to invest in the Trust in light of all the circumstances.
PaineWebber
PaineWebber's principal office is located at 1200 Harbor Boulevard,
Weehawken, New Jersey 07087; telephone: (201) 902-3000. Paine Webber is a
clearing member of all principal U.S. futures exchanges. It is registered
with the CFTC as a futures commission merchant and is a member of the NFA in
such capacity.
Except as set forth below, neither PaineWebber nor any of its
principals have been involved in any administrative, civil or criminal
proceeding -- whether pending, on appeal or concluded -- within the past five
years that is material to a decision whether to invest in the Trust in light of
all the circumstances.
PaineWebber is involved in a number of proceedings concerning matters
arising in connection with the conduct of its business. Certain actions, in
which compensatory damages of $153 million or more appear to be sought, are
described below. PaineWebber is also involved in numerous proceedings in which
compensatory damages of less than $153 million appear to be sought, or in which
punitive or exemplary damages, together with the apparent compensatory damages
alleged, appear to exceed $153 million. PaineWebber has denied, or believes it
has legitimate defenses and will deny, liability in all significant cases
pending against it, including those described below, and intends to defend
actively each such case.
In March 1992, PaineWebber as well as other individuals and entities
including, inter alia, certain former officers and directors of Northview
Corporation ("Northview"), Calmark Holding Corporation and Calmark Financial
Corporation and their respective officers and directors, were named as
defendants in a purported class action filed by Northview in the Superior Court
of the State of California for the County of Los Angeles.
The complaint sought to set aside as fraudulent and illegal certain
transfers of funds and distributions of cash, and to recover damages allegedly
caused by the defendants for breach of contract, impairment of capital, unjust
enrichment, breach of fiduciary duty, gross negligence and looting of corporate
assets.
As to PaineWebber, plaintiff alleged that in November 1987, Northview
retained PaineWebber to render an opinion respecting the fair market value of
the common stock of Calmark Financial Corporation which Northview was to receive
in exchange for issuing its own stock to Calmark Holding Corporation, the parent
corporation of Calmark Financial Corporation. The complaint asserted that
PaineWebber issued a valuation opinion which allegedly overstated the value of
Calmark Financial Corporation's assets, which enabled the transaction at issue
in the form of a self-tender and merger to go forward. Plaintiff contends that
as a result of PaineWebber's allegedly overstating the value of the assets of
Calmark Financial Corporation, Northview's assets were improperly transferred to
Calmark, whose principals depleted the assets subsequent to the merger. On March
16, 1990, Northview filed for protection under Chapter XI of the Bankruptcy Law.
The complaint sought damages in an amount to be proven at trial, the
imposition of a constructive trust of at least $100 million, punitive damages,
interest, costs and attorneys' fees from all the defendants.
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<PAGE>
The complaint was amended three times before January 12, 1994. On
February 8, 1994, plaintiff filed a motion for leave to file a Fourth Amended
Complaint, which motion was granted on March 15, 1994. The Fourth Amended
Complaint added a new cause of action for negligent misrepresentation against
PaineWebber and claims for professional negligence and breach of fiduciary duty
against the law firm of Troy & Gould and certain of its principals who acted as
outside counsel to both Northview and Calmark in connection with their merger.
At the time of the filing of the Fourth Amended Complaint, the caption
of said complaint was amended to reflect that Northview Corporation is now known
as Vagabond Inns Inc. and a new party plaintiff, Thomas Sydorick as Trustee for
the Northview/Vagabond Creditor Trust, was added. On July 13, 1994, the trial
court overruled the demurrer filed by PaineWebber to plaintiff's Fourth Amended
Complaint. On August 29, 1994, PaineWebber served its answer to plaintiffs'
latest pleading. The parties are currently engaged in discovery.
On or about June 10, 1991, PaineWebber was served with a "First
Amended Complaint" in an action captioned Rolo v. City Investing Liquidating
Trust, et al., Civ. Action 90--4420 (D.N.J.), filed on or about May 13, 1991
naming it and other entities and individuals as defendants. The First Amended
Complaint alleges conspiracy and aiding and abetting violations of: (1) one or
more provisions of the Racketeer Influenced and Corrupt Organizations Act
("RICO"); (2) one or more provisions of the Interstate Land Sales Full
Disclosure Act; and (3) the common law, on behalf of all persons (excluding
defendants) who purchased lots and/or houses from General Development
Corporation ("GDC") or one of its affiliates and who are members of an
association known as the North Port Out-of-State Lot Owners Association.
The secondary liability claims in the First Amended Complaint relating
to PaineWebber are premised on allegations that PaineWebber served as (1) the
co-lead underwriter in connection with the April 8, 1988 offering by GDC of
12-7/8% senior subordinated notes pursuant to a Registration Statement and
Prospectus and (2) the underwriter for a 1989 offering of Adjustable Rate
General Development Residential Mortgage Pass-Through Certificates, Series
1989-A, which plaintiffs contend enabled GDC to acquire additional financial
resources for the perpetuation of (and/or aided and abetted) an alleged scheme
to defraud purchasers of GDC lots and/or houses. The First Amended Complaint
requests certain declaratory relief, equitable relief, compensatory damages of
not less than $500 million, punitive damages of not less than three times
compensatory damages, treble damages with respect to the RICO count, prejudgment
and post-judgment interest on all sums awarded, and attorneys' fees, costs,
disbursement and expert witness fees.
On December 27, 1993, the District Court entered an order dismissing
plaintiffs' First Amended Complaint against PaineWebber and the majority of the
other defendants for failure to state a claim upon which relief can be granted.
On November 8, 1994, the United States Court of Appeals for the Third
Circuit affirmed the District Court's order dismissing this action against
PaineWebber. On November 18, 1994, plaintiffs filed a Petition for Rehearing and
Suggestion for Rehearing En Banc with the Third Circuit.
In July 1994, PaineWebber, together with numerous unrelated firms,
were named as defendants in a series of purported class action complaints that
have since been consolidated for pretrial purposes in the United States District
Court for the Southern District of New York under the caption In Re NASDAQ
Market-Maker Antitrust and Securities Litigation. MDL Docket No. 1023. The
amended complaint in these actions alleges that the defendant firms engaged in
activities as market makers on the NASDAQ over-the-counter market that violated
the federal antitrust laws. The plaintiffs seek declaratory and injunctive
relief, damages in an amount to be determined and subject to trebling and
additional relief. On December 18, 1995, PaineWebber filed its answer to
plaintiffs' refiled consolidated complaint. The parties are presently engaged in
pre-trial discovery.
In addition, in November 1994, PaineWebber and another broker-dealer
were named as defendants in a purported class action complaint filed in the
United States District Court for the District of New Jersey under the caption
Newton, et al. v. Merrill Lynch, et al., Civ. No. 94-5343 (DRD). The complaint
alleges that the defendants violated the securities laws in connection with
their actions as market makers on the NASDAQ over-the-counter market. The
plaintiffs seek damages in an unspecified amount and injunctive, declaratory
and other relief. On December 13, 1995, the District Court granted defendants'
motion for summary judgment. On January 19, 1996, the plaintiffs filed a
notice of appeal to the United States Court of Appeals for the Third Circuit.
The matter on appeal is NEWTON, ET. AL. V. MERRILL LYNCH ET. AL., No. 96-5054.
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<PAGE>
A series of purported class actions concerning PaineWebber's sale and
sponsorship of various limited partnership investments have been filed against
PaineWebber and PaineWebber Group Inc. (PaineWebber Group Inc. generally being
included within the definition of PaineWebber for purposes of this paragraph and
the following paragraph among others, by allegedly dissatisfied partnership
investors since November 1994. Several such actions (the "Federal Court Limited
Partnership Actions") were filed in the United States District Court for the
Southern District of New York, one was filed in the United States District Court
for the Southern District of Florida and one complaint (the "New York Limited
Partnership Action") was filed in the Supreme Court of the State of New York.
The time to answer or otherwise move with respect to these complaints has not
yet expired.
The complaints in all these cases make substantially similar
allegations that, in connection with the sale of interests in approximately 50
limited partnerships between 1980 and 1992, PaineWebber: (1) failed to provide
adequate disclosure of the risks involved with each partnership; (2) made false
and misleading representations about the safety of the investments and the
anticipated performance of the partnerships; and (3) marketed the partnerships
to investors for whom such investments were not suitable. The plaintiffs, who
purport to be suing on behalf of all persons who invested in limited
partnerships sold by PaineWebber between 1980 and 1992, also allege that,
following the sale of the partnership units, PaineWebber misrepresented
financial information about the partnerships' value and performance. The Federal
Court Limited Partnership Actions also allege that PaineWebber violated RICO,
and certain of them also claim that PaineWebber violated the federal securities
laws. The plaintiffs seek unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In the
Federal Court Limited Partnership Actions, the plaintiffs also seek treble
damages under RICO.
In addition, PaineWebber and several of its present or former officers
were sued in two other purported class actions (the "Geodyne Limited Partnership
Actions") filed in the state court in Harris County, Texas. Those cases, Nedick
v. Geodyne Resources, Inc., et al. and Wolff v. Geodyne Resources, Inc., et al.,
are similar to the other Limited Partnership Actions except that the plaintiffs
purport to sue only on behalf of those investors who bought interests in the
Geodyne Energy Partnerships, which were a series of oil and gas partnerships
that PaineWebber sold over several years. The plaintiffs in the Geodyne Limited
Partnership Actions allege that PaineWebber committed fraud and
misrepresentation, breached its fiduciary obligations to its investors and
brokerage customers, and breached certain contractual obligations. The
complaints seek unspecified damages, including reimbursement for all sums
invested by them in the partnerships, as well as disgorgement of all fees and
other income derived by PaineWebber from the Geodyne partnerships. PaineWebber
has filed an answer denying the allegations in plaintiffs' complaint.
Another purported class action was filed in the state court in
Brazoria County, Texas on behalf of investors in the Pegasus aircraft leasing
partnerships. In this case, Mallia, et al. v. PaineWebber Incorporated, et al.,
the plaintiffs allege that PaineWebber committed fraud and misrepresentation in
connection with the sale of these limited partnership interests. The complaint
seeks unspecified damages.
In addition to the foregoing private litigation, the following
administrative and exchange proceedings may be considered material.
In June 1991, the NFA East Regional Business Conduct Committee (the
"Committee") issued a complaint against PaineWebber which alleged that it had
violated NFA By-law 1101 by transacting business with nonmembers of the NFA who
were required to be registered with the CFTC; further, that it had failed to
observe high standards of commercial honor and just and equitable principles of
trade, in violation of NFA Compliance Rule 2-4, in that it allegedly knew or in
the exercise of reasonable diligence should have known that it was transacting
customer business with unregistered persons who were required to be registered
but who were not so registered. Without admitting or denying the allegations
contained in the complaint, PaineWebber submitted an offer of settlement. The
settlement was accepted by the Committee on September 25, 1991, and, in
connection therewith, the Committee imposed a $25,000 fine.
On November 15, 1991, based on a hearing by the New York Stock
Exchange ("NYSE"), Panel Decision 91-92, PaineWebber stipulated that during the
period 1984 to 1987 it violated various NYSE rules and federal regulations
relating to solicitations by its investment executives of inauditable
transactions and margins violations. During the period 1984 to 1988 it violated
NYSE rules relating to annual audits of branch offices written tables of
supervisory responsibility, a system of follow-ups and review respecting sales
practice activities. Finally, during the period of 1987
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to 1990, it failed to report certain reportable events to the NYSE on a timely
basis. The NYSE imposed an $800,000 fine on PaineWebber and required a payment
of a contribution of $100,000 towards fines imposed upon the present and former
supervisory personnel also being fined.
In January 1992, PaineWebber, without admitting any of the allegations
against it and solely for the purpose of settling the proceeding, consented to
the issuance by the SEC of an order finding that in connection with
participation in primary distributions of certain unsecured debt securities
issued by certain government sponsored entities, it violated Securities Exchange
Act of 1934 ("Exchange Act") Rules 17a-3 and 17a-4 by not accurately reflecting
transactions in and customer orders for such securities. The SEC's order and
findings were substantially similar to orders and finding by the SEC and other
federal regulations with respect to 97 other financial intermediaries involving
the same conduct. The SEC ordered PaineWebber to: (1) cease and desist from
further such violations; (2) pay a civil penalty of $100,000; and (3) develop,
implement and maintain policies and procedures reasonably designed to ensure its
future compliance with the recordkeeping rules in connection with such
activities.
In March 1992, in connection with the SEC's private investigation into
the government securities market, the SEC proposed a settlement of that part of
the inquiry that related to the sale of securities by government sponsored
enterprises ("GSEs"). In an administrative proceeding brought in January 1992 by
the SEC, together with the Comptroller of the Currency and the Federal Reserve,
ninety-eight government securities dealers consented to the entry of an order
relating to the recordkeeping requirements of the federal securities laws,
without admitting or denying any violations but acknowledging the submission of
inaccurate sales information to the GSEs. The dealers paid an aggregate penalty
of $5,165,000 with the approximately forty largest dealers, including
PaineWebber, each paying $100,000. The overall SEC investigation is still in
progress.
In May 1992, the Chicago Mercantile Exchange ("CME") Probable Cause
Committee issued a Notice of Charge against PaineWebber which alleged that it
accepted contemporaneous buy and sell orders for the same customer account in
S&P 500 Index Futures on trade dates October 3, October 30, and December 5,
1990, in violation of CME Rule 433b (Uncommercial Conduct). Without admitting or
denying the allegations, PaineWebber submitted an offer of settlement. The
settlement was accepted by the Floor Practices Committee of the CME on June 28,
1991, and in connection therewith, the Committee imposed a $7,500 fine.
On November 27, 1992, the CFTC filed a five-count administrative
complaint against PaineWebber and a former employee. Simultaneous with the
filing of the complaint, the CFTC accepted an offer of settlement from
PaineWebber. The complaint alleged that PaineWebber violated provisions of the
Commodity Exchange Act and CFTC regulations by failing to immediately take a
written record of orders placed, entering trades without account identification,
failing to properly time-stamp orders, failing to supervise diligently the
handling of customers' commodity futures accounts and failing to maintain and
produce to CFTC staff certain records relating to orders entered. Without
admitting or denying the allegations on the findings contained in the complaint,
PaineWebber consented to the entry of a CFTC order which: (1) found it violated
the provisions of the Commodity Exchange Act and CFTC regulations; (2) directed
it to cease and desist from further violations of those provisions; and (3)
imposed a civil monetary penalty of $150,000.
On December 11, 1992, based on a hearing by the NYSE, Panel Decision
92-187, the NYSE alleged that PaineWebber exercised conversion rights of
customer securities and exercised customers' expiring rights and warrants
without the customers' authorizations, in violation of Exchange Act Rule 17a-3.
Without admitting or denying the allegations, PaineWebber consented to a
censure, $65,000 fine, and undertakings.
On February 4, 1994, the Alabama Securities Commission issued
Administrative Order CV-93-0020. PaineWebber consented, without admitting or
denying the allegations to findings of violations of the Alabama Securities
Act, to place on the branch order ticket or other record of transactions
before any order for purchase or sale of securities through a block trading
desk is executed, a name or designation of the accounts for which such orders
are to be executed and the number of shares or contracts ordered for each
account for two years from the date of the Alabama order as to trades placed
through its block trading desk by registered representatives in Birmingham,
Alabama. The registered representatives are required to deliver a copy of the
branch order ticket to the branch office manager or to his or her designee
prior to the time the order is placed with a block desk. The Alabama
Securities Commission will be provided with a copy of a consultant's report
concerning respondent's policies, practices and procedures prepared pursuant
to an SEC order on February 18, 1993 and the affidavit of PaineWebber
attesting to the implementation of the recommendations
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contained in such consultant's report. PaineWebber is required to certify that
all supervisory and managerial personnel in its Birmingham office have attended
the two day seminar required by the SEC order. PaineWebber was to pay a fine of
$87,000 as partial reimbursement for the Alabama Security Commission's cost for
examining the matter.
On July 28, 1994, Order File No. AO-94-22, the Missouri Division of
Securities alleged PaineWebber failed to reasonably supervise a former
investment executive. PaineWebber consented, without admitting or denying the
allegations, to maintain and make available to the Division upon request all
customer or regulatory complaints received by PaineWebber concerning any
employee or agent working in a PaineWebber Missouri branch office or concerning
any security sold by such an employee or agent, to annually provide, for a
period of three years from the date of the order, a notice to all Missouri
residents who open securities accounts with PaineWebber and all Missouri
customers detailing procedures for filing a complaint with PaineWebber or the
Division; and to include, for a period beginning thirty days from the date of
the order and continuing for three years, in all new customer account packages
mailed to Missouri residents from any PaineWebber Missouri branch office,
certain public information pieces prepared by the Division. PaineWebber paid a
$75,000 fine and $25,000 as reimbursement for the costs of the investigation.
On September 27, 1995, in matter number 94-078-S, the State of Vermont
Department of Banking, Insurance and Securities entered an Administrative
Consent Order alleging that between 1984 and 1988 PaineWebber did not reasonably
supervise two former investment executives with respect to certain outside
activities and limited partnership investment recommendations. Without admitting
or denying the allegations, PaineWebber agreed, among other things, to pay an
administrative fine of $100,000.
On or about January 18, 1996, PaineWebber consented, without admitting
or denying the findings therein, to the entry of an Order by the SEC which
imposed a censure, a cease and desist order, a $5 million civil penalty and
various remedial sanctions. The SEC alleged that PaineWebber violated the
antifraud and recordkeeping provisions of the federal securities laws in
connection with the offer and sale of certain limited partnership interests
between 1986 and 1992 and failed reasonably to supervise certain registered
representatives and other employees involved in the sale of those interests.
PaineWebber must comply with its representation that it had paid and will pay a
total of $292.5 million to investors, including a payment of $40 million for a
claims fund.
----------
Additional or replacement clearing brokers may be appointed in respect
of the Trust's account in the future.
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 and its Affiliates
Kenmar sponsors and operates a number of commodity pools, and
affiliates of Kenmar operate, manage and/or sponsor or number of other
commodity pools and 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
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for other accounts sponsored by Kenmar or its affiliates, particularly in cases
where an Advisor is willing to manage only a limited number of additional
accounts or where Kenmar or a principal or an affiliate 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 less frequently an Advisor trades in the
futures markets (Kenmar being required to pay substantially all of the Trust's
futures trading costs from the flat-rate 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 Kenmar 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
Certain material changes in the Advisor line-up used for the Trust
could result in regulatory delay. 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.
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
executing brokers with which such Advisors have ongoing business dealings. Such
Advisors may have a conflict of interest between insisting on the use of such
brokers and using the brokers most advantageous for the Trust.
Certain of the Advisors may execute a number of the trades for their
Trust accounts through affiliated floor brokers or foreign exchange dealers,
which will be compensated for their trading services.
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The Clearing Brokers and Executing Brokers
Any Clearing Broker, including the initial Clearing Broker and
any executing broker selected by an Advisor 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 Brokers and executing brokers from such accounts may
be more or less than the compensation received for brokerage and forward
trading services provided to the Trust. In addition, various accounts traded
through the Clearing Brokers and executing brokers (and over which their
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 Brokers and executing brokers may have a
conflict of interest in their execution of trades for the Trust and for other
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 Brokers and executing brokers will benefit from executing
orders for other clients, whereas the Trust may be harmed to the extent that the
Clearing Brokers and executing brokers have fewer resources to allocate to the
Trust's account due to the existence of such other clients.
Certain officers or employees of the Clearing Brokers and executing
brokers 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 Agents
The Selling Agents to be selected for the Trust 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 paid to the Selling Agents. Consequently, they will have a conflict
of interest both in recommending the purchase of Units by their clients and in
counseling clients as to whether to redeem.
Proprietary Trading/Other Clients
Kenmar, the Advisors, the Clearing Brokers, 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 proprietary trading and trading on behalf of other clients
will not be available for inspection by Unitholders.
Because Kenmar, the Advisors, the Clearing Brokers 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. However, there can be no assurance that the
Trust will meet its objectives, and Unitholders may exacerbate their losses by
"buying and holding" an investment in the Units in the event that the Trust
sustains a prolonged period of losses.
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
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- -- 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 have an
aggregate Net Asset Value of at least $500. Fractional Units may be redeemed
only upon the redemption of an investor's entire interest in the Trust. The 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 equal
to 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.
To redeem Units, Unitholders may contact their respective
Selling Agents (in writing if required by such Selling Agent). Selling Agents
must notify the Trust in writing in order to effectuate redemptions of the
Units. 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. See Section 12 of the Declaration of Trust attached hereto as
Exhibit A for a description of Special Redemption Dates.
Redemption proceeds generally will be 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.
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.
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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 for any purposes reasonably related to the Unitholder's
interest as a beneficial owner of the Trust during regular business hours as
provided in the Declaration of Trust. (Section 10). 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".
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 will have no duty or liability to supervise or monitor the
performance of Kenmar, nor will 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)).
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
beneficial owner. 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
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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. No Units may be transferred where, after the
transfer, either the transferee or the transferor would hold less than the
minimum number of Units equivalent to an initial minimum purchase, except for
transfers by gift, inheritance, intrafamily transfers, family dissolutions, and
transfers to affiliates (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).
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."
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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.
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.
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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 federal income
tax consequences, as of the date hereof, to the Trust and the material federal
income tax consequences, as of the date hereof, to a United States individual
taxpayer who invests in the Trust. This Summary is based on current statutes,
regulations and administrative rulings, any of which could be changed at any
time. This Summary does not address the income tax consequences to
non-individual taxpayers who invest in the Trust, which may vary. Such investors
should consult their own tax advisers.
The Trust's Partnership Tax Status
Kenmar has been advised by its counsel, Sidley & Austin, that, in its
opinion, the Trust is properly classified as a partnership for federal income
tax purposes; consequently, the Unitholders individually, not the Trust itself,
are subject to tax. Kenmar believes that all of the income expected to be
generated in the future by the Trust will constitute "qualifying income" and has
so advised Sidley & Austin. As a result, Kenmar has been advised by Sidley &
Austin that, in its opinion, the Trust is not subject to tax as a corporation
under the provisions applicable to "publicly traded partnerships."
Taxation of Unitholders on Profits and Losses of the Trust
The Trust, as an entity, is not subject to federal income tax in the
opinion of Sidley & Austin as described above. Each Unitholder is required for
federal income tax purposes to take into account, in his taxable year with which
or within which a taxable year of the Trust ends, his allocable share of all
items of Trust income, gain, loss, deduction and other items for such taxable
year of the Trust. A Unitholder must take such items into account even if the
Trust does not make any cash distributions to such Unitholder.
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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).
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.
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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. 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 -- (20) Taxation of Interest Income Irrespective
of Trading Losses" at page 12.
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
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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.
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.)
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"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,
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
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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 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.
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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 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
CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
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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. Existing investors in the Trust must execute
new Subscription Agreement and Power of Attorney Signature Pages to make
additional investments and must receive a current Prospectus for the Trust
and verify their continued suitability. 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 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 has been selected as a Selling Agent for the Trust.
PaineWebber and the Trust's other Selling Agents (collectively, the "Selling
Agents") will receive an upfront selling commission equal to 5% of the
purchase price per Unit at the time that such Unit is sold, and their
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
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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
will begin to receive ongoing "trailing commissions" (payable quarterly) 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, will continue for as long as such
Unit remains outstanding. If such Selling Agent's representative is not so
registered, it will not perform on-going services and on-going selling
commissions that 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 will pay a portion
of such commissions to their eligible representatives. No Selling Agent will
receive upfront selling commissions, trailing commissions or on-going selling
commissions which exceed the amounts set forth above.
Kenmar, not the Trust, will pay 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.
EXPERTS
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, 1996 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.
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
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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................................................ 25
CFTC............................................................. -iii-
Clearinghouse.................................................... 40
Consulting fees.................................................. 28
Daily limits..................................................... 40
Employee benefit plan............................................ 45
Forward contracts................................................ 40
Futures contracts................................................ 40
Incentive Fee.................................................... 26
Investment advisory fees......................................... 43
Kenmar ..................................................... Cover page
Largest monthly drawdown......................................... 55
Largest peak-to-valley drawdown.................................. 55
Maintenance margin............................................... 41
Margin........................................................... 41
Margin call...................................................... 41
Net Assets ..................................................... Cover page
Net Asset Value.................................................. Cover page
New Overall Appreciation......................................... 26
New Trading Profits.............................................. 26
NFA ..................................................... -iv-
Profit Share..................................................... 26
Redemption charges............................................... 28
Round-turn commissions........................................... 25
Selling Agents................................................... -i-
Speculative position limits...................................... 41
Spot contracts................................................... 40
Trust ..................................................... Cover page
Unitholder....................................................... Cover page
Variation margin................................................. 41
"Zero-sum" trading............................................... 10
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THE INITIAL ADVISORS
General
The following description of the initial Advisors and their trading
methods and strategies is general and is not intended to be exhaustive. 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.
TRADING OF FUTURES AND FORWARD CONTRACTS AND RELATED INSTRUMENTS 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
option contact -- 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.
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.
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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.
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.
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.
10. Largest monthly drawdown is the largest monthly loss experienced by any
account of the Advisor in the relevant program in any calendar month
covered by the performance summary. "Loss" for these purposes is calculated
on the basis of the loss experienced by each such account, expressed as a
percentage of the total equity (including "notional" equity) of such
account. Largest monthly drawdown information includes the month and year
of such drawdown, and is through October 1, 1996. In the case of programs
traded by Chesapeake and Willowbridge, the largest drawdown is calculated
on the basis of the largest loss experienced by the program as a whole
rather than any individual account.
11. Largest peak-to-valley drawdown is the largest percentage decline (after
eliminating the effect of additions and withdrawals) experienced by any
account of the Advisor in the relevant program 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 each such account in the relevant program,
expressed as a percentage of the total equity (including "notional" equity)
in such account, and is through October 1, 1996. In the case of programs
traded by Chesapeake and Willowbridge, the largest drawdown is calculated
on the basis of the largest percentage decline experienced by the program
as a whole rather than any individual account.
12. Monthly Rate of Return for any month in the Advisors' performance summaries
is, in general, the net performance of the relevant program divided by the
beginning of the month net assets in such program.
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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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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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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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 $822 million (excluding "notional" equity)
of customer funds in the futures and forwards markets. The performance
information set forth below is current as of September 30, 1996.
CFTC rules require the disclosure of performance information for the
last five full calendar years and year-to-date, and consider older performance
information less material to an investment decision. While generally agreeing
with the CFTC position, Chesapeake believes that investors may be interested in
reviewing information regarding Chesapeake's composite performance (both within
and prior to the last five years) and has therefore chosen to include such
information on a supplemental basis. This section does not include the composite
performance of Parker Commodities Incorporated, an affiliated commodity trading
advisor which has not managed accounts since August 31, 1990.
In the accompanying performance description, Chesapeake has adopted a
method of computing rate of return and performance disclosure, referred to as
the "Fully-Funded Subset" method, pursuant to an Advisory (the "Fully- Funded
Subset Advisory") published in February 1993 by the CFTC. To qualify for the use
of the Fully-Funded Subset method, the Fully-Funded Subset Advisory requires
that certain computations be made in order to arrive at the Fully- Funded Subset
and that the accounts for which performance is so reported meet two tests which
are designed to provide assurance that the Fully-Funded Subset and the resultant
rates of return are representative of the trading program. Chesapeake has
performed these computations for periods subsequent to January 1, 1992. However,
for periods prior to January 1, 1992, due to cost considerations, the
Fully-Funded Subset method has not been used. Instead, the rates of return
reported are based on a computation which uses the Nominal Account Sizes of all
of the accounts included in the composite tables calculated in accordance with
the "OAT" method as described below. Chesapeake believes that this method yields
substantially the same rates of return as would the Fully-Funded Subset method
and that the rates of return presented in the performance records are
representative of the Trading Programs for the periods presented. For the
periods from January 1, 1992 through December 31, 1993, Chesapeake compared the
OAT method and the Fully-Funded Subset method and found that the two methods
yielded substantially the same rates of return. Consequently, Chesapeake
continued to use the OAT method until the end of 1993 (the Fully-Funded Subset
Advisory was released in February 1993). From January 1, 1994 on, Chesapeake is
using the Fully-Funded Subset method.
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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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 September 30, 1996 and supplemental information from
February 1988 (inception) through December 31, 1990 of Chesapeake's Diversified
Program.
Name of CTA: Chesapeake Capital Corporation
Name of program: Diversified Trading Program
Inception of client account trading by CTA: February 1988
Inception of client account trading in program: February 1988
Number of open accounts: 60
Aggregate assets (excluding "notional" equity) overall: $822,243,053
Aggregate assets (including "notional" equity) overall: $962,924,777
Aggregate assets (excluding "notional" equity) in program: $771,807,075
Aggregate assets (including "notional" equity) in program: $912,488,799
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): 101
Number of closed accounts with loss (five-year period): 16
Number of closed accounts with profit (since inception): 112
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 3.27 0.88 7.02 0.98 6.52 (1.25) 1.77 (8.28) 32.42
- ----------------------------------------------------------------------------------------------------------
July (7.64) (3.09) (1.70) 9.49 12.96 (1.75) 6.25 11.66 (9.41)
- ----------------------------------------------------------------------------------------------------------
August 0.57 (2.66) (2.98) 5.88 3.16 (3.32) 15.15 (11.75) 6.85
- ----------------------------------------------------------------------------------------------------------
September 6.32 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 6.35 14.09 15.87 61.82 1.81 12.51 43.12 28.30 49.10
Rate of (9 mos.) (11 mos.)
Return
==========================================================================================================
</TABLE>
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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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: $822,243,053
Aggregate assets (including "notional" equity) overall: $962,924,777
Aggregate assets (excluding "notional" equity) in program: $21,080,521
Aggregate assets (including "notional" equity) in program: $21,080,521
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: 4.19% (9 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: 5
Aggregate assets (excluding "notional" equity) overall: $822,243,053
Aggregate assets (including "notional" equity) overall: $962,924,777
Aggregate assets (excluding "notional" equity) in program: $29,355,457
Aggregate assets (including "notional" equity) in program: $29,355,457
Largest monthly drawdown: (7.86)% (7/96)
Largest peak-to-valley drawdown: (10.36)% (1/94-2/94)
Number of accounts closed with profit: 5
Number of accounts closed with loss: 8
1996 compound rate of return: 2.93% (9 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: $822,243,053
Aggregate assets (including "notional" equity) overall: $962,924,777
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: $822,243,053
Aggregate assets (including "notional" equity) overall: $962,924,777
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 Nevada corporation and a shareholder 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 limited
liability company and a shareholder 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
shareholder 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 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 has continued his research
into innovative approaches to commodity trading, including original research
on artificial intelligence and the development of an expert systems shell
which uses a Holland classifier as the decision engine. He is currently
involved in the refinement of trading methods based on recent breakthroughs
in fractal geometry to market analysis. This work has led to the development
of mechanical systems based on pure pattern recognition and the formation 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 became registered with the CFTC, and in 1987 became
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 speculation in
commodity futures contracts and commodity options. 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 into 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:
o The system trades directly off weekly price charts. These are
constructed by back-adjusting futures contracts of different
expirations and linking them into continuous daily data files,
which are then converted to weekly for use in trading.
o 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.
o 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.
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o A dollar stop loss may be used to limit losses. Such stop loss
reduces the frequency of abnormally large 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.
o 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.
o New accounts are entered into positions as new trading signals
occur or when 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
determined by the trading system and not necessarily adjusted
with respect to positions in new accounts that have been aligned
with positions existing in older accounts.
o 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 price 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, corn, crude oil, DAX
index, eurodollar, euromark, feeder cattle, German bund, gold, Hang Seng
index, heating oil, Italian bond, Japanese yen, live hogs, natural gas, Nikkei
index, or juice, palladium, S&P 500, silver, soybeans, soybean meal, soybean
oil, sugar, Swiss francs, treasury bonds, unleaded gas and wheat. Dreiss
Research reserves the right to add or delete commodities from its portfolio
without prior notice.
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 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 accounts.
An 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
-65-
<PAGE>
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 an account's being charged a "give-up"
fee if the trade is executed through a brokerage firm other than that at
which the 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
The various managed 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 September 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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<PAGE>
Dreiss Research Corporation Trading Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of Dreiss
Research's Trading Program from May 1991 through September 30, 1996.
Name of CTA: Dreiss Research Corporation
Name of program: Dreiss Research Corporation Trading Program
Inception of client account trading by CTA: May 1991
Inception of client account trading in program: May 1991
Number of open accounts: 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: (23.58)% (4/96 - 9/96)
Number of profitable closed accounts: 7
Number of unprofitable closed accounts: 6
<TABLE>
<CAPTION>
====================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
Performance
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1.46 (4.97) (2.62)* 3.79* (5.95)* --
- ------------------------------------------------------------------------------------
February (11.64) 9.33 1.69* 1.96* (8.36)* --
- ------------------------------------------------------------------------------------
March 8.41 13.66 1.80* 0.66* (3.70)* --
- ------------------------------------------------------------------------------------
April 13.30 3.61 (7.23)* 18.14* (5.48)* --
- ------------------------------------------------------------------------------------
May (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 (2.17) 4.72 0.41* (3.65)* 0.72 (7.01)*
- ------------------------------------------------------------------------------------
September 10.04 (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 (1.35) 59.76 38.09 36.12 (8.01) 7.55
of Return (9 mos.) (8 mos.)
====================================================================================
</TABLE>
* Represents periods in which the account whose beneficiary is a principal of
Echelon consisted of 50% or more of the total nominal amount of funds under
management.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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<PAGE>
HYMAN BECK & COMPANY, INC.
Background and Management
Hyman Beck & Company, Inc. ("HB&Co.") was incorporated under the laws
of the State of Delaware in February 1991 to engage in the business of offering
advisory and portfolio management services to both retail and institutional
investors in commodity interest contracts. HB&Co. is registered as a commodity
trading advisor and commodity pool operator with the CFTC and is a member of the
NFA in such capacities. HB&Co.'s principal office is located at 6 Campus Drive,
Parsippany, New Jersey 07054, U.S.A. The registration of HB&Co. with the CFTC
and HB&Co.'s membership in the NFA must not be taken as an indication that any
such agency or self-regulatory body has recommended or approved HB&Co. or the
Trust.
The principals and key personnel of HB&Co. are listed below. HB&Co. is
wholly-owned by Mr. Hyman and Mr. Beck.
Alexander Hyman is the President and a principal of HB&Co. Mr. Hyman
is also a fifty percent shareholder of HB&Co.. Mr. Hyman, along with Mr. Beck,
is directly responsible for all trading and money management decisions made by
HB&Co.. From 1983 through February 1991, Mr. Hyman was employed by Dean Witter
Reynolds Inc. ("Dean Witter"), a registered futures commission merchant, where,
at the time of his departure, he was First Vice President and Associate Director
of the Managed Futures Division and a Director and principal of Dean Witter
Futures & Currency Management Inc., a registered commodity trading advisor. Mr.
Hyman was also a Director of Demeter Management Corporation, the sponsor of all
of Dean Witter's public futures funds. While at Dean Witter, Mr. Hyman was
responsible for the development of managed futures products. Mr. Hyman graduated
from Hofstra University in May 1983 with a B.B.A. degree in International
Business and Economics.
Carl J. Beck is Vice President, Secretary, Treasurer and a principal
of HB&Co.. Mr. Beck is also a fifty percent shareholder of HB&Co.. Mr. Beck,
along with Mr. Hyman, is directly responsible for all trading and money
management decisions made by HB&Co.. From 1985 through February 1991, Mr. Beck
was employed by Dean Witter, a registered futures commission merchant, where, at
the time of his departure, he held the position of Vice President and Senior
Portfolio Manager. Mr. Beck was also a Vice President and principal of Dean
Witter Futures & Currency Management Inc., a registered commodity trading
advisor, where he was responsible for day-to-day management and trading
activities. Prior to joining Dean Witter, Mr. Beck was employed by J. Aron &
Co., a commodity trading firm. As of April 1994, Mr. Beck was appointed to and
serves on the Board of Managers of the Coffee, Sugar & Cocoa Exchange, Inc. Mr.
Beck graduated magna cum laude from Fordham University in May 1983 with a B.A.
degree in Economics and earned an M.B.A. degree in Finance from New York
University in May 1989.
John J. McCormick is a principal of HB&Co.. Mr. McCormick is directly
responsible for the implementation of trading decisions for HB&Co.'s commodity
interest portfolios. Prior to joining HB&Co., Mr. McCormick was employed by Dean
Witter from 1986 through February 1991 where, at the time of his departure, he
held the position of Assistant Vice President and Internal Accounts Manager. Mr.
McCormick is also responsible for generating most of the research reports used
by Messrs. Hyman and Beck in determining their trading decisions. Mr. McCormick
graduated from Fordham University in 1986 with a B.S. degree in Accounting and
earned an M.B.A. degree in Finance from Fordham University in May 1993.
Troy W. Buckner is a principal of HB&Co.. Mr. Buckner is responsible
for research activities at HB&Co.. Prior to joining HB&Co. in June 1995, Mr.
Buckner was a principal at Classic Capital, Inc., an international investment
management firm, where he designed systematic trading programs from January 1994
to June 1995. From December 1989 to January 1994, Mr. Buckner was self-employed
as an independent trader while developing an advanced architecture useful in the
modeling of financial and commodity market prices. From March 1989 to December
1989, Mr. Buckner traded energy futures contracts for George E. Warren Corp., an
energy trading firm. From June 1986 to March 1989, Mr. Buckner was employed by
Salomon Brothers Inc., a securities brokerage and investment firm, where he
specialized in the sale of stock 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.
-68-
<PAGE>
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 transactions.
However, if such trend-following approaches are successful, these losses should
be more than offset by a few large gains.
-69-
<PAGE>
HB&Co. employs risk management techniques which have been developed by
Messrs. Beck and Hyman with the objectives of limiting losses, controlling
market exposure and capturing profits. HB&Co.'s trend-following trading approach
also includes a "neutral mode" which may indicate that no position is
appropriate in a particular contract or contract group in an attempt to preserve
capital in trendless markets.
Technical, Non-Linear Approach
HB&Co. has recently developed a technical, systematic program that
combines conservative risk control principles with non-linear modeling
techniques. This technical approach to the markets does not depend on the
occurrence of major price trends in order to be profitable. Rather, trades are
made under various market conditions and are typically of short duration,
averaging six days in length. Unlike HB&Co.'s other strategies, this program may
buy or sell volatility depending on recent market conditions. A key
distinguishing feature of this approach is its ability to trade correlated
markets differently. It is common, for example, for this portfolio to be long
(buy) soybeans and short (sell) soybean meal or to be long heating oil and short
crude oil. HB&Co. believes that the non-linear models utilized in this approach
should excel at pattern recognition and the detection of conditional
relationships between and among different data inputs.
The process of generating trades begins with the selection of a price
target, with respect to given market conditions, reflecting the likelihood that
short-term reward is substantially in excess of risk. An assortment of time
series variables are calculated as input to be used in the modeling process.
With each variable an attempt is made to depict a different facet of a given
market's historical price movement.
HB&Co. believes that since the timing of trades is significantly
random, diversification and expected returns may be enhanced by adding viable
markets to the portfolio's mix. Positions are established when the models
indicate a high probability of substantial reward relative to anticipated risk.
Positions may be initiated in either trending or choppy markets. Although
positions are established at frequent intervals, there is no position
approximately 60% of the time in any given market. The trading philosophy
assumes that there are many significant short-term moves, but that relatively
few of them offer the desired risk/reward ratio.
Implementation of Trading Approaches
HB&Co., from time to time, may change or refine the trading systems
and methodologies employed to manage its accounts. Additional trading systems
may be developed by the principals of HB&Co. and may be employed in trading
accounts managed by HB&Co., including the Trust's account. The principals of
HB&Co. review and maintain discretion over all computer-generated trading
parameters.
Although technical trading systems normally consist of a series of
fixed rules applied manually or by computer, such systems still require certain
subjective judgments and decisions. For example, with respect to each commodity
interest portfolio, Messrs. Beck and Hyman will select the contracts and markets
which will be followed, the contracts and markets which will be actively traded
and the contract months in which positions will be maintained. Messrs. Beck and
Hyman will also determine when to roll over a position (i.e., when to liquidate
a position which is about to expire and initiate a new position in a more
distant contract month). These types of decisions require consideration of,
among other things, the volatility of a particular market, the pattern of price
movements (both interday and intraday), open interest, trading volume, changes
in spread relationships between various contract months and between various
contracts and overall portfolio balance and risk exposure. With respect to the
timing and execution of trades, Messrs. Beck and Hyman may also rely to some
extent on the judgment of others, such as floor brokers. No assurance can be
made that consideration will be given to any or all of the foregoing factors by
Messrs. Beck and Hyman with respect to every trade or that consideration of any
of such factors in a particular situation will lessen the risk of loss.
Investors should be aware that such decisions may involve a substantial element
of judgment and that such persons' unavailability to make such decisions could
materially impair the operation of HB&Co.'s trading approach.
Along with the subjective decision-making authority reserved for
Messrs. Beck and Hyman, HB&Co. also maintains a procedure for determining the
appropriate quantity of contracts to be traded for an account of a given size
and for all accounts. HB&Co. may continually adjust its trading portfolios and
the position size of an order immediately prior to placement, based on such
factors as past market volatility, prices of commodities, amount of risk,
potential return and margin requirements. The decision not to trade a certain
commodity interest at certain times or to reduce the number of
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<PAGE>
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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<PAGE>
The Diversified Portfolio
HB&Co.'s Diversified Portfolio offers access to international markets
not typically represented in a traditional investment portfolio. The Diversified
Portfolio trades a portfolio of over 40 diverse futures, forward and cash
markets and offers diversification into global financial and tangible assets
including agricultural items, energy products, interest rates and stock indices,
foreign currencies and metals.
The FX Portfolio
HB&Co.'s FX Portfolio trades in the world currency markets. The FX
Portfolio may trade up to a total of 40 non-U.S. crossrates (trading non-U.S.
currencies vs. other non-U.S. currencies) and outrights (trading non-U.S.
currencies vs. the U.S. dollar).
The Short-Term Portfolio
HB&Co.'s Short-Term Portfolio is a systematic program combining money
management principles with non-linear modeling techniques. The Short-Term
Portfolio may buy or sell volatility, and currently trades 44 markets with
positions in an average of 20 futures and forward markets at any point in time.
The Asset Allocation Portfolio
HB&Co.'s Asset Allocation Portfolio commenced trading in 1992,
allocating and reallocating assets among the Global, FX and Diversified
Portfolios in an effort to minimize risk and maximize profit opportunities. The
Asset Allocation Portfolio currently engages, in varying degrees, the Global, FX
and Diversified Portfolios or some subset thereof. The Short-Term Portfolio,
which has only recently been utilized on behalf of HB&Co.'s client accounts, is
not currently included in the Asset Allocation Portfolio, but may be included in
the future.
Past Performance Information
The following information describes the composite actual performance
of all customer accounts managed by Hyman Beck & Company, Inc. As of 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 September 30, 1996.
HB&Co. was organized in February 1991. All performance information
subsequent to March 1, 1991 relates solely to HB&Co.. The performance in respect
of HB&Co.'s Diversified Portfolio and FX Portfolio for the period prior to March
1991 relates to individual and pooled accounts directed by Messrs. Beck and
Hyman while such individuals were principals of Dean Witter Futures & Currency
Management, Inc. ("DWFCM"), a commodity trading advisor. No representation is or
could be made that the performance of Messrs. Beck and Hyman while at DWFCM is
in any way representative of what the performance of Hyman Beck & Company, Inc.
would have been in the past or will be in the future.
When reviewing the information below, investors should be aware that
composite performance results tend to create an "averaging effect" on the
performance of accounts. Further, investors should note that different accounts
(even though they have generally been traded according to the same trading
approach and in the same commodity interest portfolios) have had varying
investment results as described below.
The reasons for varying investment results among accounts trading the
same commodity interest portfolios include: (1) the period during which accounts
were active; (2) changes in HB&Co.'s trading methodology -- although all
accounts were traded in accordance with the same trading approach, such approach
did change periodically as a result of an ongoing program of research and
development; (3) the size of accounts -- which influenced the number of
different markets in which the account participated and the number of contracts
in each market traded; (4) the brokerage commission rates paid by accounts and
when such commissions were charged to accounts; (5) the amount of interest
income earned by accounts; (6) the rates of fees and amount of administrative
costs paid by accounts; (7) the timing of orders to open or close
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<PAGE>
positions; and (8) the market conditions in which accounts were traded, which in
part determine the quality of trade executions. Thus, the results of individual
accounts in the following performance record may be better or worse than the
composite performance results shown, depending upon such factors.
The Asset Allocation Portfolio represents accounts trading a
combination of each of the Global, FX and/or Diversified Portfolios; therefore,
the assets and Rates of Return set forth in the summary performance information
and chart are also reflected in the assets and Rates of Return set forth in the
individual Global, FX and Diversified Portfolio summaries and charts. The first
account traded pursuant to the Asset Allocation Portfolio was established in
April 1992 with all of its assets allocated to HB&Co.'s Diversified Portfolio;
in August 1992 the assets of such account were reallocated to the Global and
Diversified Portfolios; and in January 1993 the assets of such account were
allocated among the Global, FX and Diversified Portfolios. From January 1993
through September 30, 1996, all asset allocation portfolio accounts have at all
times included allocations among the Global, FX and Diversified Portfolios.
[Remainder of page left blank intentionally.]
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<PAGE>
The Global Portfolio
HB&Co. will trade this portfolio on behalf of the Trust. The following
summary performance information and table reflect the composite performance
results of the Global Portfolios directed by HB&Co.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Global Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: April 1991
Number of open accounts: 18
Aggregate assets in all programs: $166,430,329
Aggregate assets in Global Portfolio: $123,276,107
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
<TABLE>
<CAPTION>
===================================================================================
Monthly 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
Performance
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 3.97 (6.35) (0.45) (3.97) (7.45) --
- -----------------------------------------------------------------------------------
February (8.23) 9.02 (7.45) 8.65 (3.44) --
- -----------------------------------------------------------------------------------
March (1.21) 18.71 12.48 2.10 3.15 --
- -----------------------------------------------------------------------------------
April 2.39 6.22 (2.17) 5.65 (3.38) (0.29)
- -----------------------------------------------------------------------------------
May (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)
- -----------------------------------------------------------------------------------
August (1.15) (1.80) (4.40) 0.51 6.40 1.52
- -----------------------------------------------------------------------------------
September 4.36 (2.16) (2.85) (0.80) (6.68) 6.32
- -----------------------------------------------------------------------------------
October (1.08) 4.72 (0.63) 3.39 (1.95)
- -----------------------------------------------------------------------------------
November 1.27 3.43 (2.78) (0.37) 6.07
- -----------------------------------------------------------------------------------
December 0.80 (2.95) 1.34 (1.88) 19.13
- -----------------------------------------------------------------------------------
Compound Rate (0.54) 29.12 3.81 14.63 22.56 36.31
Of Return (9 mos.) (9 mos.)
===================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-74-
<PAGE>
Diversified Portfolio
The following summary performance information and table reflect the
composite performance results of the Diversified Portfolios directed by HB&Co.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Diversified Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: March 1991
Number of open accounts: 9
Aggregate assets in all programs: $166,430,329
Aggregate assets in Diversified Portfolio: $8,571,178
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 of return: (14.95)% (9 months)
1995 compound rate of return: (4.14)
1994 compound rate of return: (7.07)
1993 compound rate of return: 13.96
1992 compound rate of 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: $166,430,329
Aggregate assets in FX Portfolio: $20,878,900
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 of return: (2.85)% (9 months)
1995 compound rate of return: 40.58%
1994 compound rate of return: (20.63)%
1993 compound rate of return: 0.86%
1992 compound rate of return: 34.69%
1991 compound rate of 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: $166,430,329
Aggregate assets in Asset Allocation Portfolio: $20,789,029
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 of return: (7.22)% (9 months)
1995 compound rate of return: 33.35%
1994 compound rate of return: (1.29)%
1993 compound rate of return: 18.58%
1992 compound rate of 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: $166,430,329
Aggregate assets in Short-Term Portfolio: $12,704,142
Largest monthly drawdown: (8.92)% (8/96)
Largest peak-to-valley drawdown: (8.92)% (8/96 - 8/96)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 0
1996 compound rate of return: 4.32% (6 months)
1995 compound rate of return: N/A
1994 compound rate of return: N/A
1993 compound rate of return: N/A
1992 compound rate of return: N/A
1991 compound rate of 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 of return: (4.48)% (2 months)
1990 compound rate of return: 53.55%
1989 compound rate of return: 1.52%
1988 compound rate of 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 of return: (11.80)% (2 months)
1990 compound rate of 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 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 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 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, Mr. Faux was
President of Merrill Lynch Options/Futures Management Inc., a futures fund
subsidiary of Merrill Lynch.
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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. 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. 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.
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. Clients are permitted 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 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
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.
Commencing in February 1995 for XLIM's capsule which includes
"notional" funds, certain accounts include sums clients have instructed
Willowbridge to trade but that are not deposited in those clients' accounts.
These excess sums are deemed to be "notional" funds for which performance
results are reported in accordance with the requirements of
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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.
[Remainder of page left blank intentionally.]
-84-
<PAGE>
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
<TABLE>
<CAPTION>
=====================================================================================
Monthly Performance 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
(Notional Excluded)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 3.38 (4.89) (11.93) 1.04 0.00 (11.07)
- -------------------------------------------------------------------------------------
February (3.22) 0.95 (12.67) 22.24 0.00 5.72
- -------------------------------------------------------------------------------------
March 5.54 33.93 0.04 (5.40) 0.00 32.01
- -------------------------------------------------------------------------------------
April 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 2.56 (1.30) 0.00 (8.79) 0.00 (13.74)
- -------------------------------------------------------------------------------------
September 17.62 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 25.86 34.99 (19.68) 22.30 8.36 3.65
Return
=====================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-85-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================
Monthly Performance 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
(Notional Included)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 2.74 (4.89) (11.93) 1.04 0.00 (11.07)
- ------------------------------------------------------------------------------------
February (2.67) 0.87 (12.67) 22.24 0.00 5.72
- ------------------------------------------------------------------------------------
March 4.63 31.21 0.04 (5.40) 0.00 32.01
- ------------------------------------------------------------------------------------
April 9.48 4.41 0.00 (2.97) 0.00 (2.86)
- ------------------------------------------------------------------------------------
May (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 2.07 (1.28) 0.00 (8.79) 0.00 (13.74)
- ------------------------------------------------------------------------------------
September 14.07 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 20.73 31.28 (19.68) 22.30 8.36 3.65
Return
====================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
-86-
<PAGE>
Vulcan Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Vulcan Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Vulcan Program
Inception of client account trading by CTA: 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 compound rate of return: (2.20)% (9 months)
1995 compound rate of return: 57.62%
1994 compound rate of return: 14.67%
1993 compound rate of return: 33.97%
1992 compound rate of return: 19.30%
1991 compound 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 compound rate of return: 5.62% (9 months)
1995 compound rate of return: 68.10%
1994 compound rate of return: 10.06%
1993 compound rate of return: 23.28%
1992 compound rate of return: 32.16%
1991 compound 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.
-87-
<PAGE>
Rex Program
The following summary information presents the composite performance
record of the Rex Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Rex
Inception of client account trading by CTA: 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: (78.84)% (9/90 - 9/96)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 2
1996 compound rate of return: (37.68)% (9 months)
1995 compound rate of return: (13.07)%
1994 compound rate of return: (12.49)%
1993 compound rate of return: (10.37)%
1992 compound rate of return: (18.54)%
1991 compound 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: (22.72)% (5/96 - 7/96)
Number of profitable closed accounts: 36
Number of unprofitable closed accounts: 11
1996 compound rate of return: (11.66)% (9 months)
1995 compound rate of return: 59.52%
1994 compound rate of return: 20.28%
1993 compound rate of return: 17.10%
1992 compound rate of return: 22.09%
1991 compound 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.
-88-
<PAGE>
Siren Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Siren Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Siren
Inception of client account trading by CTA: 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 compound rate of return: (5.70)% (9 months)
1995 compound rate of return: 25.12%
1994 compound rate of return: 37.88%
1993 compound rate of return: 9.45%
1992 compound rate of return: (1.39)%
1991 compound 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 compound rate of return: 23.62% (9 months)
1995 compound rate of return: 53.22%
1994 compound rate of return: 21.68%
1993 compound rate of return: 32.48%
1992 compound rate of return: 25.13%
1991 compound 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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<PAGE>
CFM Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the CFM
Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: CFM
Inception of client account trading by CTA: 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 compound rate of return: 19.67% (9 months)
1995 compound rate of return: 24.52%
1994 compound rate of return: (10.51)%
1993 compound rate of return: 29.49%
1992 compound rate of return: N/A
1991 compound 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 compound rate of return: (9.06)% (9 months)
1995 compound rate of return: 28.55%
1994 compound rate of return: (10.26)%
1993 compound rate of return: (8.59)%
1992 compound rate of return: 16.96%
1991 compound 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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<PAGE>
Primary Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Primary Program.
Name of CTA: Willowbridge Associates Inc.
Name of program: Primary
Inception of client account trading by CTA: 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 compound rate of return: (4.07)% (9 months)
1995 compound rate of return: 56.76%
1994 compound rate of return: 22.70%
1993 compound rate of return: 16.79%
1992 compound rate of return: N/A
1991 compound 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: $458,728,000
Aggregate assets (including "notional" equity) overall: $535,691,000
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 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
1993 compound rate of return: N/A
1992 compound rate of return: 18.29%
1991 compound 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.
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<PAGE>
WITTER & LESTER, INC.
Background and Management
Witter & Lester, Inc. ("Witter & Lester"), a member of the NFA,
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 CFTC and an investment adviser with the
SEC. The registration of Witter & Lester with the CFTC and the SEC 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:
o 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.
o 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.
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<PAGE>
o 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 Commodity Exchange Act. 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.
-93-
<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. "Compound 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.
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<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: $34,968,621
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: (6.67)% (7/96)
Largest peak-to-valley drawdown: (6.67)% (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 2.24 2.80 --
- -----------------------------------------------------------------------
September 0.92 2.30 2.19
- -----------------------------------------------------------------------
October 0.84 5.29
- -----------------------------------------------------------------------
November 3.32 2.96
- -----------------------------------------------------------------------
December 1.96 1.97
- -----------------------------------------------------------------------
Compound Rate 3.19 23.02 12.96
of Return (9 months) (4 mos.)
======================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-95-
<PAGE>
Stock Index Trading Program
The following summary information presents the composite performance
record of the Stock Index Futures 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: $34,968,621
Aggregate assets (including "notional" equity) overall: $106,391,958
Aggregate assets (excluding "notional" equity) in program: $12,885,814
Aggregate assets (including "notional" equity) in program: $19,492,806
Largest monthly drawdown (20.29)% (3/94)
Largest peak-to-valley drawdown (26.90)% (2/94-4/94)
Number of profitable closed accounts: 71
Number of unprofitable closed accounts: 19
1996 compound rate of return: 16.3% (9 months)
1995 compound rate of return: 44.0%
1994 compound rate of return: (0.5)%
1993 compound rate of return: 18.2%
1992 compound rate of return: 8.6%
1991 compound 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: $34,968,621
Aggregate assets (including "notional" equity) overall: $106,391,958
Aggregate assets (excluding "notional" equity) in program: $8,971,761
Aggregate assets (including "notional" equity) in program: $39,630,055
Largest monthly drawdown: (17.63)% (7/96)
Largest peak-to-valley drawdown: (18.39)% (7/96-8/96)
Number of profitable closed accounts: 31
Number of unprofitable closed accounts: 28
1996 compound rate of return: (9.36)% (9 months)
1995 compound rate of return: 0.60%
1994 compound rate of return: 18.4%
1993 compound rate of return: 14.8%
1992 compound rate of return: 1.52% (10 months)
1991 compound rate of return: N/A
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-96-
<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: $34,968,621
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: (2.11 Delta) (3/95)
Largest peak-to-valley drawdown : (8.30 Delta) (7/94-8/95)
Number of profitable closed accounts: 4
Number of unprofitable closed accounts: 8
1996 compound rate of return: (.59)% (9 months)
1995 compound rate of return: (3.78)%
1994 compound rate of return: 0.96%
1993 compound rate of return: (0.57)%
1992 compound rate of return: 0.19%
1991 compound 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: $34,968,621
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 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: N/A
1993 compound rate of return: N/A
1992 compound rate of return: N/A
1991 compound 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.
-97-
<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: $34,968,621
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 compound rate of return: N/A
1995 compound rate of return: N/A
1994 compound rate of return: 0.15% (10 months)
1993 compound rate of return: 1.20%
1992 compound rate of return: 2.27%
1991 compound 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.
-98-
<PAGE>
PERFORMANCE OF COMMODITY POOLS 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 pools whose performance is included herein. The following sets
forth summary performance information for all pools operated by Kenmar since
January 1, 1991. Kenmar has offered its pools 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.
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 pools also have material differences from one another in terms
of number of advisors, leverage, fee structure and trading programs. The
performance records of these pools may give some general indication of Kenmar's
capabilities in advisor selection by indicating the past performance of the
Kenmar-sponsored pools. However, prospective investors must recognize the
significant differences between the pools whose performance summaries are
included herein and the Trust.
All summary performance information is current as of October 31, 1996
(except in the case of pools dissolved prior to such date). Performance
information is set forth since January 1, 1991, or, if later, the inception of
the pool in question.
INVESTORS SHOULD NOTE THAT AFFILIATES OF KENMAR PERFORM ASSET
ALLOCATION FUNCTIONS SIMILAR TO THOSE PERFORMED BY KENMAR ON BEHALF OF MANAGED
ACCOUNTS AND OTHER COMMODITY POOLS. PURSUANT TO CFTC REGULATIONS, THE
PERFORMANCE OF ACCOUNTS AND OTHER POOLS OPERATED, MANAGED AND/OR SPONSORED
BY AFFILIATES OF KENMAR HAS NOT BEEN INCLUDED HEREIN.
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.
----------
-99-
<PAGE>
Assets Under Management
<TABLE>
<CAPTION>
<S> <C>
Kenmar -- Total assets under management as of November 1, 1996: $126 million
Kenmar -- Total assets under multi-advisor management as of November 1, 1996: $123 million
Kenmar and affiliates -- Total assets under management as of November 1, 1996: $312 million
(excluding notional funds)
Kenmar and affiliates -- Total assets under management as of November 1, 1996: $414 million
(including notional funds)
</TABLE>
Multi-Advisor Pools
These are all of the multi-advisor pools (other than pools for the
research and development of advisors) operated by Kenmar since January 1, 1991.
Kenmar has actively allocated and reallocated trading assets among a changing
group of advisors selected by it. As will the Trust, these multi-advisor pools
depend on Kenmar for their asset allocations (and, possibly, leverage
adjustments) and strategy selections, and combine unrelated and independent
advisors.
Single-Advisor Pools
These are all of the pools (other than pools for the research and
development of traders) operated by Kenmar since January 1, 1991 advised by a
single advisor (as opposed to a portfolio of commodity trading advisors).
Investors should note that single-advisor pools do not demonstrate the Managing
Owner's ability to manage a portfolio of commodity trading advisors.
Pools for the Research and Development of Advisors
These are all of the pools operated by Kenmar since January 1, 1991
and advised by one or more traders. These pools were established as a way of
testing, in a limited liability vehicle, commodity trading advisors
relatively untested in managing customer assets.
-100-
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
AGGRE-
TYPE GATE CURRENT CURRENT
OF START CLOSE SUB- TOTAL NAV PER
POOL DATE DATE SCRIPT. NAV UNIT***
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
=====================================-----------------------------------------------------------------------------------------------
Performance Partners L.P. ** 08/85 N/A 256,308,258 117,185,912 14,575.14
=====================================-----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Partners Ltd. * 07/95 N/A 2,029,775 1,679,028 1,017.74
- ------------------------------------------------------------------------------------------------------------------------------------
=====================================-----------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
=====================================-----------------------------------------------------------------------------------------------
The Fund Limited Partnership Single 09/96 N/A 2,920,302 3,040,170 1,126.45
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
International Currency Fund L.P. Single 04/91 12/93 2,312,504 0 903.45
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Limited Partnership ** 10/89 01/92 2,148,138 0 1,044.21
=====================================-----------------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
=====================================-----------------------------------------------------------------------------------------------
Venture Partners L.P. * 03/97 N/A 2,625,000 3,848,058 3,410.30
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Investments L.P. Single 08/93 10/94 1,143,233 0 717.41
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Portfolio L.P. Single 12/90 04/92 122,000 0 92.29
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
<CAPTION>
====================================================================================================================================
% %
WORST WORST PERCENTAGE RATE OF RETURN
MONTHLY PEAK-TO- (COMPUTED ON A COMPOUNDED
DRAW- VALLEY MONTHLY BASIS) YEAR-
DOWN & DRAWDOWN ---------------------------------------------------- TO-
MONTH & PERIOD 1991 1992 1993 1994 1995 DATE
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
=====================================-----------------------------------------------------------------------------------------------
Performance Partners L.P. (15.87) (33.20) (8.61) 0.16 48.30 (9.79) 8.12 2.41
- ------------------------------------------------------------------------------------------------------------------------------------
1/94 11/90-5/92
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Partners Ltd. (5.77) (8.26) -- -- -- -- 2.26 (7.02)
- ------------------------------------------------------------------------------------------------------------------------------------
2/96 2/96-8/96
=====================================-----------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
=====================================-----------------------------------------------------------------------------------------------
The Fund Limited Partnership N/A N/A -- -- -- -- -- 12.6
- ------------------------------------------------------------------------------------------------------------------------------------
International Currency Fund L.P. (5.75) (18.40) 0.50 7.48 (16.37) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
12/93 09/92-12/93
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Limited Partnership (16.32) (24.05) (7.44) (8.68) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
05/90 11/90-04/91
=====================================-----------------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
=====================================-----------------------------------------------------------------------------------------------
Venture Partners L.P. (29.70) (48.75) (7.15) 7.33 57.92 3.27 5.55 17.7
- ------------------------------------------------------------------------------------------------------------------------------------
10/89 11/90-4/92
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Investments L.P. (9.45) (29.41) -- -- (8.09) (21.95) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1/94 9/93-10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Portfolio L.P. (59.84) (90.77) (82.92) (45.95) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1/91 12/90-4/92
====================================================================================================================================
</TABLE>
-101-
<PAGE>
FOOTNOTES TO PERFORMANCE INFORMATION
1. Name of Pool - Because each of the pools operated 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
herein by their exact names.
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 October 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 October 31, 1996. Current
Net Asset Value per Unit is based on the value of hypothetical $1,000 unit
($1,050 for Venture Partners L.P.) of investment over time based upon the
performance of the pool.
*** In the case of liquidated pools, the NAV per unit on the date of
liquidation of the pool.
8. "Current Year-to-Date Return" is the rate of return from January 1, 1996
through October 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 Prospectus
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.
-102-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Kenmar Global Trust Page
----
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
Statement of Financial Condition as of September 30, 1996............. F-7
Notes to Statement of Financial Condition as of September 30, 1996.... F-8
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.
F-4
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
----------
Note 2. MANAGING OWNER (CONTINUED)
The managing owner will be paid annual brokerage commissions equal to
11% of the Trust's average month-end Net Assets. The managing owner
will pay substantially all actual costs of executing the Trust's
trades, selling commissions and trailing commissions to selling
agents, and consulting fees to the trading advisors.
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, 1996. 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, 1996, 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
November 15, 1996
F-6
<PAGE>
KENMAR ADVISORY CORP.
STATEMENT OF FINANCIAL CONDITION
September 30, 1996
----------
ASSETS
Current assets
Cash and cash equivalents $ 21,310
Fees receivable 102,056
----------
Total current assets 123,366
Investments in affiliated commodity pools 766,250
Due from affiliates, net 2,955,598
Property and equipment, net 837,385
Other assets 32,969
----------
Total assets $4,715,568
==========
LIABILITIES
Cash overdraft $ 450,075
Accrued expenses and other liabilities 1,137,953
Obligations under capital leases 525,978
----------
Total liabilities 2,114,006
----------
STOCKHOLDER'S EQUITY Common stock, $1 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares 100
Additional paid-in capital 632,025
Retained earnings 1,969,437
----------
Total stockholder's equity 2,601,562
----------
Total liabilities and stockholder's equity $4,715,568
==========
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, 1996
----------
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, 1996
----------
Note 1. GENERAL DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Property and Equipment
Depreciation of furniture, fixtures and office equipment is
computed using the straight-line method over the estimated useful
lives of the assets which range from five to 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.
During 1996, the Company changed its method of depreciation
from the double-declining balance method to the straight-line
method. The cumulative effect of this change in accounting
principle decreased the net loss before income tax for the year
ended September 30, 1996 by approximately $74,000.
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. State and local taxing jurisdictions also assess
taxes on bases in addition to income.
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. These
temporary differences have resulted principally from the tax
benefit of operating losses and from differences in depreciation
methods and the useful lives of property and equipment.
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 of $766,250 at
September 30, 1996 of which $684,643 is the net asset value of Kenmar
Performance Partners L.P. and $81,607 is other funds.
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, 1996
----------
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
Summarized financial information of Kenmar Performance Partners L.P. as of and
for the year ended September 30, 1996 is as follows:
Assets $112,999,000
Liabilities 8,039,000
------------
Net asset value $104,960,000
============
Income $ 23,932,000
Expenses 25,603,000
------------
Net income (loss) $ (1,671,000)
============
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 and a net worth as required
for the partnership to be treated as a partnership for U.S. federal
income tax purposes. 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. The
Company is currently maintaining a net worth of at least $2,000,000.
For managing the partnerships' businesses, the Company earns 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.
The Company is the managing owner of Kenmar Global Trust (KGT), a fund
in the process of registering to become publicly offered, which has
not yet commenced operations or trading. Upon commencement of
operations, the Company will conduct and manage the business of KGT.
The Company has committed to maintaining an investment in KGT equal to
1% of the total capital accounts of KGT. The Company, as managing
owner, has also agreed to maintain a net worth of not less than
$1,000,000.
As managing owner, the Company will pay KGT's organizational and
initial offering costs estimated to total approximately $400,000. KGT
will reimburse the Company for such costs in monthly installments of
.2% of KGT's month-end net asset value, commencing with the first
month of trading operations. As of September 30, 1996, the Company has
paid $55,607 related to KGT's organizational and initial offering
costs. The Company has incurred an additional $190,000 of such costs
subsequent to September 30, 1996. In the event KGT does not commence
operations or terminates prior to the completion of the reimbursement
of such costs, the Company will not be entitled to any additional
reimbursement from KGT.
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, 1996
----------
Note 3. PROPERTY AND EQUIPMENT
At September 30, 1996, the Company's property and equipment consists
of:
Furniture and fixtures $ 52,721
Office equipment 193,354
Leasehold improvements 10,541
Leased assets 1,065,967
-----------
1,322,583
Less: Accumulated depreciation and
amortization (485,198)
-----------
$ 837,385
===========
During 1996, the Company relocated its primary corporate offices from
New York City to Greenwich, Connecticut. Leased assets are comprised
primarily of furniture, fixtures and office equipment. Accumulated
amortization related to leased assets aggregated $427,804 at September
30, 1996.
Note 4. OBLIGATIONS UNDER LEASES
The Company leases furniture, fixtures and office equipment under
noncancelable capital leases which expire at various dates through
2001. The future minimum lease payments required by these capital
leases are as follows:
Year Ending September 30
------------------------
1997 $154,164
1998 154,164
1999 154,164
2000 150,970
2001 56,502
Total minimum lease payments 669,964
Less: Amount representing interest (143,986)
---------
Present value of obligations under
capital leases $525,978
========
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, 1996
----------
Note 4. OBLIGATIONS UNDER LEASES (CONTINUED)
The Company leases office facilities in Greenwich, Connecticut. The
lease commenced in January 1996 for an initial term of nine years with
one five year option to renew. The future minimum lease payments under
this noncancelable operating lease are as follows:
Year Ending September 30
------------------------
1997 $ 212,799
1998 346,040
1999 379,851
2000 403,719
2001 471,334
Thereafter 1,471,675
-----------
$ 3,285,418
===========
Note 5. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with members
of a group of affiliated companies that result in advances to and from
such affiliates. 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, 1996, the amount of common
expenses related to the Company totaled $6,807,845. The total common
expenses of the group for the year ended September 30, 1996 was
$10,165,436.
The following amounts are due to (from) the Company at
September 30, 1996:
Members of the consolidated group, net $1,911,177
Kenmar Management Limited 240,919
Kenmar Global Strategies, Inc. 0
Kenmar Institutional Investment
Management, L.L.C. 219,721
Kenmar Financial Strategies, Ltd. 0
Receivables from Officers 442,480
Other 141,301
----------
$2,955,598
----------
----------
No specific terms apply to the liquidation of amounts due to (from)
affiliates. The Company exercises its right of offset of
intercompany balances reported in the statement of financial
condition.
As compensation for services provided to affiliated commodity pools,
the Company receives from commodity brokers a portion of the brokerage
commissions 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,
1996, the Company earned management, incentive and other fees of
$1,493,704 from these affiliated commodity pools. At September 30,
1996, the Company is owed fees of $15,567 from these commodity pools.
Note 6. COMMITMENTS AND CONTINGENCIES
The Company and certain of its affiliates have jointly guaranteed a
demand note payable by the Parent. This note had a balance of $625,000
at September 30, 1996.
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, 1996
---------
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, 1996 was
approximately $10,002,000 and the related year-end fair value was
$19,403,000. The fair value of derivatives represents unrealized gains
and losses on open forward and futures contracts and long and short
options at market value.
F-13
<PAGE>
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
----------
At September 30, 1996, the notional amounts of open contracts to
purchase and sell held by the limited partnerships aggregated
$2,786,000,000 and $778,000,000, 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, 1996.
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-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 any, made during
the period decreased by interest or other income,
APPI-1
<PAGE>
not directly related to trading activity, earned on Program assets during
the period, whether the assets are held separately or in a margin account.
"New Trading Profit," as defined on page 26 of the Prospectus,
differs from the above definition of New Trading Profits as follows:
It is calculated separately for each Trading Advisor's Trust Account.
It is equivalent to the excess, if any, of Net Assets as of any
calendar quarter-end over Net Assets at the end of the highest
previous calendar quarter-end or $0, whichever is higher, after Net
Assets in respect of each Advisor's account are adjusted by reducing
the change in Net Assets by the sum of interest income, actual
brokerage commissions (estimated at an annual rate of 4.5% - 7.0% of
average beginning of month assets), plus execution costs actually
incurred (other than floor brokerage, exchange, clearing and NFA
fees).
"New Overall Appreciation," as defined on page 26 of the
Prospectus, is equivalent to the increase, if any, in Net Assets as
of any December 31 from the highest level of Net Assets as of any
previous December 31, after deducting interest income.
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
December 12, 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-13
16. Withdrawal of a Unitholder......................................... TA-14
17. Standard of Liability; Indemnification............................. TA-14
(a) Standard of Liability for the Managing Owner........... TA-14
(b) Indemnification of the Managing Owner by the Trust..... TA-14
(c) Indemnification of the Trust by the Unitholders........ TA-15
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-19
25. Creditors.......................................................... TA-19
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 December 12, 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 contracts, forward contracts, foreign exchange
commitments, swaps, exchange for physicals, spot (cash) commodities, hybrid
instruments and other items, 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 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
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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
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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.
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.
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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 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
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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.
(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
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sentence shall be allocated among all Unitholders described in such
sentence in proportion to their holdings of such Units.
(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.
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(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 the rate of 11% per annum of the average beginning of month
Net Assets of the Trust. 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 selling 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 and in accordance with the Act. 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
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Agreements and the Selling Agreement as described in the Prospectus. The
Managing Owner shall not enter into an Advisory Agreement with any trading
advisor that does not satisfy the relevant experience (i.e., ordinarily a
minimum of three years) requirements under the NASAA Guidelines. The Trust's
brokerage commissions may not be increased (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 without penalty 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."
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The Managing Owner may take such other actions on behalf of the Trust
as the Managing Owner deems necessary or desirable to manage the business of the
Trust.
The Managing Owner shall reimburse the Trust for any advisory fees
paid by the Trust to any trading advisor over the course of any fiscal year, to
the extent that the fees paid during such year exceed the 6% annual management
fees and the 15% quarterly incentive fees (calculating New Trading Profit, as
defined in the Prospectus, 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 a beneficial
owner of the Trust. The Managing Owner shall have the right to keep confidential
from the Unitholders, for such period of time as the Managing Owner deems
reasonable, any information that the Managing Owner reasonably believes that the
Trust is required by law or by agreement with a third party to keep
confidential.
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.
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11. Assignability of Units.
Each Unitholder expressly agrees that he will not voluntarily assign,
transfer or dispose of, by gift or otherwise, any of his Units or any part or
all of his right, title and interest in the capital or profits of the Trust in
violation of any applicable federal or state securities laws or without giving
written notice to the Managing Owner. No assignment, transfer or disposition by
an assignee of Units or of any part of his right, title and interest in the
capital or profits of the Trust shall be effective against the Trust or the
Managing Owner until the Managing Owner receives the written notice of the
assignment; the Managing Owner shall not be required to give any assignee any
rights hereunder prior to receipt of such notice. The Managing Owner may, in its
sole discretion, waive any such notice. No such assignee, except with the
consent of the Managing Owner, 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. No Units may be transferred where, after the transfer, either
the transferee or the transferor would hold less than the minimum number of
Units equivalent to an initial minimum purchase, except for transfers by gift,
inheritance, intrafamily transfers, family dissolutions, and transfers to
Affiliates.
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 to 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
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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. 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
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Trust is appropriately adjusted). No Unitholder shall have any preemptive,
preferential or other rights with respect to the issuance or sale of any
additional Units, other than as set forth in the preceding sentence.
The Trust may offer different series or classes of Units having
different economic terms than previously offered series or classes of Units;
provided that the issuance of such a new series or class of Units shall in no
respect adversely affect the holders of outstanding Units; and provided further
that the assets attributable to each such series or class shall, to the maximum
extent permitted by law, be treated as legally separate and distinct pools of
assets, and the assets attributable to one such series or class be prevented
from being used in any respect to satisfy or discharge any debt or obligation of
any other such series or class.
15. Special Power of Attorney.
Each Unitholder by his execution of this Declaration of Trust and
Trust Agreement does hereby irrevocably constitute and appoint the Managing
Owner and each officer of the Managing Owner, with power of 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. In
the event of the Managing Owner's removal or withdrawal, the Managing Owner
shall be entitled to a redemption of its interest in the Trust at its Net Asset
Value on the next valuation date following the date of removal or 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
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and any right to an audit or examination of the books of the Trust. Nothing in
this Section 16 shall, however, waive any right given elsewhere in this
Declaration of Trust and Trust Agreement for a Unitholder to be informed of the
Net Asset Value of his Units, to receive periodic reports, audited financial
statements and other information from the Managing Owner or the Trust or to
redeem or transfer Units.
17. Standard of Liability; Indemnification.
(a) Standard of Liability for the Managing Owner. The Managing Owner
and its Affiliates, as defined below, shall have no liability to the Trust or to
any Unitholder for any loss suffered by the Trust which arises out of any action
or inaction of the Managing Owner or its Affiliates if the Managing Owner, in
good faith, determined that such course of conduct was in the best interests of
the Trust and such course of conduct did not constitute negligence or misconduct
of the Managing Owner or its Affiliates.
(b) Indemnification of the Managing Owner by the Trust. To the fullest
extent permitted by law, subject to this Section 17, the Managing Owner and its
Affiliates shall be indemnified by the Trust against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims sustained by
them in connection with the 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).
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In no event shall any indemnity or exculpation provided for herein be
more favorable to the Managing Owner or any Affiliate than that contemplated by
the NASAA Guidelines as in effect on the date of this Declaration of Trust and
Trust Agreement.
In no event shall any indemnification permitted by this subsection (b)
of Section 17 be made by the Trust unless all provisions of this Section for the
payment of indemnification have been complied with in all respects. Furthermore,
it shall be a precondition of any such indemnification that the Trust receive a
determination of qualified independent legal counsel in a written opinion that
the party which seeks to be indemnified hereunder has met the applicable
standard of conduct set forth herein. Receipt of any such opinion shall not,
however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Trust hereunder shall be made only as provided in the specific case.
In no event shall any indemnification obligations of the Trust under
this subsection (b) of this Section 17 subject a Unitholder to any liability in
excess of that contemplated by subsection (e) of Section 8 hereof.
(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
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written consent; (ii) the Trust may be dissolved; (iii) the Managing Owner may
be removed and replaced; (iv) a new managing owner or managing owners may be
elected if the Managing Owner withdraws from the Trust; (v) the sale of all or
substantially all of the assets of the Trust may be approved; and (vi) any
contract with the Managing Owner or any affiliate thereof may be disapproved of
and, as a result, terminated upon 60 days' notice.
(c) Meetings; Other Voting Matters. Any Unitholder upon request
addressed to the Managing Owner shall be entitled to obtain from the Managing
Owner, upon payment in advance of reasonable reproduction and mailing costs, a
list of the names and addresses of record of all Unitholders and the number of
Units held by each (which shall be mailed by the Managing Owner to the
Unitholder within ten days of the receipt of the request); provided, that the
Managing Owner may require any Unitholder requesting such information to submit
written confirmation that such information will not be used for commercial
purposes. Upon receipt of a written proposal, signed by Unitholders owning Units
representing at least 10% of the Units then owned by Unitholders, that a meeting
of the Trust be called to vote upon any matter upon which the Unitholders may
vote pursuant to this Declaration of Trust and Trust Agreement, the Managing
Owner shall, by written notice to each Unitholder of record sent by certified
mail within 15 days after such receipt, call 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.
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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, 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 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, 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, con trolled 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.
TA-18
<PAGE>
Cross Reference Sheet. A compilation of the Guidelines sections,
referenced to the page of the prospectus, Program agreement, or other
exhibits, and justification of any deviation from the Guidelines.
Net Assets. The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles.
Net Assets shall include any unrealized profits or losses on open posi
tions, and any fee or expense including Net Asset fees accruing to the
Program.
Net Asset Value Per Program Interest. The Net Assets divided by the
number of Program Interests outstanding.
Net Worth. The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth
shall be determined exclusive of home, home furnishings and
automobiles.
New Trading Profits. The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period
or Net Assets at the date trading commences, whichever is higher, and
as further adjusted to eliminate the effect on Net Assets resulting
from new Capital Contributions, redemptions, or capital distributions,
if any, made during the period decreased by interest or other income,
not directly related to trading activity, earned on Program assets
during the period, whether the assets are held separately or in the
margin account.
Organizational and Offering Expenses. All expenses incurred by the
Program in connection with and in preparing a Program for registration
and subsequently offering and distributing it to the public,
including, but not limited to, total underwriting and brokerage
discounts and commissions (including fees of the underwriters'
attorneys), expenses for printing, engraving, mailing, salaries of
employees while engaged in sales activity, charges of transfer agents,
registrars, trustees, escrow holders, depositories, experts, expenses
of qualification of the sale of its Program Interests under federal
and state law including taxes and fees, accountants' and attorneys'
fees.
Participant. The holder of a Program Interest.
Person. Any natural Person, partnership, corporation, association or
other legal entity.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Program. A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in
Commodity Contracts.
Program Broker. A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
Program Interest. A limited partnership interest or other security
representing ownership in a Program.
Pyramiding. A method of using all or a part of an unrealized profit in
a Commodity Contract position to provide margin for any additional
Commodity Contracts of the same or related commodities.
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
TA-19
<PAGE>
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.
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.
TA-20
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Declaration of Trust and Trust Agreement as of the day and year first above
written.
WILMINGTON TRUST COMPANY
as Trustee
By:______________________________________
Name:
Title:
KENMAR ADVISORY CORP.
as Managing Owner
By:______________________________________
Name:
Title:
KENMAR VENTURE PARTNERS LIMITED PARTNERSHIP
as Initial Unitholder
By: KENMAR ADVISORY CORP., GENERAL PARTNER
By:______________________________________
Name:
Title:
All Unitholders now and hereafter admitted
as Unitholders of the Trust, pursuant to
powers of attorney now and hereafter
executed in favor of, and granted and
delivered to, the Managing Owner.
By:________________________________________
Attorney-in-Fact
TA-21
<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-22
<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, partner (Signature(s) of all Unitholder(s)
or trustee) or 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 December ___,
1996 (the "Prospectus").
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."
The representations and statements set forth herein may be asserted in
the defense of the Trust, Kenmar, the Advisors to the Trust, the Selling Agents
or others in any subsequent litigation or other proceeding.
--------------------
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. 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.
SR-2
<PAGE>
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.
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.
SR-3
<PAGE>
EXHIBIT C
KENMAR GLOBAL TRUST
--------------------
SUBSCRIPTION INSTRUCTIONS
Any person considering purchasing Units should carefully read and
review the Prospectus of the Trust dated December __, 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 should
check item 1(B) and follow the instructions indicated, including initialing and
signing where appropriate, and 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.
--------------------
TYPE OR PRINT USING BLACK INK ONLY, AS FOLLOWS (PRESS FIRMLY):
Item 1 -- Enter appropriate subscriber status (new or existing)
Item 2 -- Enter the subscription amount.
Item 3 -- Check the appropriate category identifying type of Purchaser.
Item 4 -- 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.
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 4 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.
Special Note: Trust agreements, corporate papers and other appropriate
documents will be required for Selling Agent approval.
Item 5 -- The investor(s) must execute the Subscription Agreement and Power of
Attorney Signature Page (Item 5) and review the representation
relating to backup withholding tax underneath the signature and
telephone number lines. The investor(s) must initial each of the six
(6) paragraphs under "Representations and Warranties by Purchaser."
Item 6 -- Selling Agent representatives must complete the information required
and sign in two places.
Instructions to Selling Agent representatives:
The executed Subscription Agreement and Power of Attorney Signature Page must
be retained in the Branch Office. Remaining copies should be forwarded to
Derivatives Portolio Management L.L.C.,
Two Worlds Fair Drive
P.O. Box 6741,
Somerset, New Jersey 08875-6741,
Attn: Fund Administrator--KGT
SA-(i)
<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 (all existing Unitholders are
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 December ___, 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). The settlement date for my purchase of
Units 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. 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. Except as otherwise set forth herein, all subscriptions once
submitted are irrevocable. All Units are offered subject to prior sale.
2. Representations and Warranties of Subscriber. I have received the
Prospectus together with summary financial information relating to the Trust
current within 60 calendar days. I understand that by submitting this
Subscription Agreement and Power of Attorney I am making the representations and
warranties set forth in Exhibit B -- Subscription Requirements in the
Prospectus, including, without limitation, those representations and warranties
relating to my net worth (exclusive of home, furnishings and automobiles) and
annual income.
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
SA-1
<PAGE>
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.
5. ERISA. If the undersigned is acting on behalf of an "employee
benefit plan," as defined in and subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any "plan," as defined in
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code")
(each such employee benefit plan and plan, a "Plan"), the individual signing
this Subscription Agreement and Power of Attorney on behalf of the
undersigned, understands, 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, any Clearing Broker,
the Escrow Agent, 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, any Selling Agent, any
Commodity Broker and any of their respective affiliates, and (iii) is
qualified to make such investment decision. The undersigned understands that
Kenmar may request that the undersigned 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.
6. 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.
SA-2
<PAGE>
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. 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.
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.
SA-3
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE)
1. Subscriber Status (check)
(a) |_| New Subscriber(s) complete items 1 through 5 and have Selling
Agent representative and branch manager complete item 6.
(b) |_| Existing Owner(s) -- complete items 1, 2, 3 and 5 and have
Selling Agent representative and branch manager complete item 6.
2. Subscription Amount
Check Enclosed $__________ min. $5,000 except $2,000 for IRAs/ERISA or
Wire Transfer to Follow $__________
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.
3. Nature of Purchaser.
Taxable Investors (check one):
<TABLE>
<CAPTION>
<S> <C> <C>
|_| Individual Ownership |_| Trust other than a Grantor
or Revocable Trust
|_| Joint Tenants with Right of Survivorship |_| Estate |_| UGMA/UTMA (Minor)
|_| Tenants in Common |_| Partnership |_| Corporation
|_| Grantor or Other Revocable Trust
|_| Community Property
</TABLE>
Non-Taxable Investors (check one):
NOTE: Please indicate name and address of custodian or trustee in 4(c)
below.
|_| IRA |_| Profit Sharing
|_| IRA Rollover |_| Defined Benefit
|_| Pension |_| Other (specify)
|_| SEP
4. Basic Information.
(a) Full name of account as it should appear in our records.
______________________________________________________________________
______________________________________________________________________
Bus. Tel. No: _____________________ Res. Tel. No.: _________________
Social Security No. or Tax I.D. No.: ________________________________
Custodian Taxpayer I.D. No. (for IRAs only): ________________________
(b) Primary Residence: ___________________________________________________
______________________________________________________________________
SA-4
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE -- Continued)
Mailing Address if Different: ________________________________________
______________________________________________________________________
(c) Name and Address of Trustee or Custodian:
______________________________________________________________________
______________________________________________________________________
5. Representations and Warranties by Purchaser
As an inducement to Kenmar to accept this subscription, Purchaser(s),
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.
______ (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 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,
SA-5
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE -- Continued)
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."
Signature of Purchaser
For Use by Investor
X____________________________ X__________________________________________
Signature of Purchaser Date Custodian Authorization Date
and Title, if applicable
( )
______________________________
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 December __, 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:
/ /. 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.
6. Selling Agent Information
Name of Registered Representative: ________________________________________
Name of Selling Agent: ______________________________ Phone: _____________
Address: __________________________________________________________________
I have reasonable grounds to believe, based on information obtained from
the investor concerning his/her investment objectives, other investments,
financial situation and needs and any other information known by me, that
investment in the Trust is suitable for such investor in light of his/her
financial position, net worth and other suitability characteristics. I have
also informed the investor of the unlikelihood of a public trading market
developing for the Units.
The Selling Agent Representatives MUST sign below in order to substantiate
compliance with NASD Conduct Rule 2810.
X__________________________________________________________________________
Selling Agent Representative Signature Date
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE -- Continued)
X__________________________________________________________________________
Office Manager Signature Date
SA-6
<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.
1.01 Form of Selling Agreement.
(Amended)
3.03 Amended and Restated Declaration of Trust and Trust Agreement
(Amended) of the Registrant (included as Exhibit A to the Prospectus).
10.01 Form of Advisory Agreement.
(Amended)
10.04 Subscription Agreement and Power of Attorney (included as
(Amended) Exhibit C to the Prospectus).
10.06 Form of Customer Agreement between the Trust and PaineWebber
Incorporated.
10.07 Form of Customer Agreement between the Trust and ING (U.S.)
Securities, Futures & Options Inc.
23.05 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.
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.
10.02 Form of Customer Agreement between the Trust and the Commodity
Brokers.
10.03 Form of Escrow Agreement
10.05 Form of Discretionary Investment Advisory Agreement (withdrawn).
23.01 Consent of Sidley & Austin.
23.03 Consent of Richards, Layton & Finger (included in Exhibit 5.01(b)).
S-2
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
99.01 Securities and Exchange Commission Release No. 33-6815--
Interpretation and Request for Public Comment--Statement of the
Commission Regarding Disclosure by Issuers of Interests in Publicly
Offered Commodity Pools (54 Fed. Reg. 5600; February 6, 1989).
99.02 Commodity Futures Trading Commission--Interpretative Statement and
Request for Comments --Statement of the Commodity Futures Trading
Commission Regarding Disclosure by Commodity Pool Operators of Past
Performance Records and Pool Expenses and Requests for Comments (54
Fed. Reg. 5597; February 6, 1989).
99.03 North American Security Administrators Association Guidelines for
Registration of Commodity Pool Programs.
(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.
S-3
<PAGE>
(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-4
<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 12th
day of December, 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
- ------------------------- (Principal Executive Officer) December 12, 1996
Kenneth A. Shewer
/s/ MARC S. GOODMAN President December 12, 1996
- -------------------------
Marc S. Goodman
/s/ KEVIN J. TREACY Senior Vice President -- December 12, 1996
- ------------------------- Finance (Principal Financial
Kevin J. Treacy and Accounting Officer)
/s/ ESTHER E. GOODMAN Chief Operating Officer and December 12, 1996
- ------------------------- Senior Executive Vice President
Esther E. Goodman
(Being principal executive officer, the principal financial and
accounting officer and a majority of the di ectors of Kenmar Advisory Corp.)
KENMAR ADVISORY CORP. Managing Owner of Registrant
By: /s/ KENNETH A. SHEWER
--------------------------------
Kenneth A. Shewer
Chairman December 12, 1996
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- ------
1.01 Form of Selling Agreement.
(Amended)
3.03 Amended and Restated Declaration of Trust and Trust Agreement
(Amended) of the Registrant (included as Exhibit A to the Prospectus).
10.01 Form of Advisory Agreement.
(Amended)
10.04 Subscription Agreement and Power of Attorney (included as
(Amended) Exhibit C to the Prospectus).
10.06 Form of Customer Agreement between the Trust and PaineWebber
Incorporated.
10.07 Form of Customer Agreement between the Trust and ING (U.S.)
Securities, Futures & Options Inc.
23.05 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
<PAGE>
Exhibit 1.01
(Amended)
_______________________________________________________________________________
_______________________________________________________________________________
SELLING AGREEMENT
KENMAR GLOBAL TRUST
(A DELAWARE BUSINESS TRUST)
$50,000,000
UNITS OF BENEFICIAL INTEREST
KENMAR ADVISORY CORP.
Managing Owner
DATED DECEMBER __, 1996
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
KENMAR GLOBAL TRUST
SELLING AGREEMENT
TABLE OF CONTENTS
Page
Section 1. Representations and Warranties of the
Managing Owner..................................................2
Section 2. Representations and Warranties of the Trading
Advisors........................................................9
Section 3. Representations and Warranties of each
Commodity Broker...............................................12
Section 4. Offering and Sale of Units........................................14
Section 5. Compliance with NASD Conduct Rule
2810 and General Laws...............................................18
Section 6. Blue Sky Survey...................................................20
Section 7. Covenants of the Managing Owner...................................21
Section 8. Covenants of the Trading Advisor..................................23
Section 9. Payment of Expenses and Fees......................................23
Section 10. Conditions of Closing............................................24
Section 11. Indemnification, Contribution and Exculpation....................31
Section 12. Status of Parties................................................34
Section 13. Representations, Warranties and Agreements to
Survive Delivery................................34
Section 14. Termination......................................................34
Section 15. Survival.........................................................34
Section 16. Notices and Authority to Act.....................................34
Section 17. Parties..........................................................35
Section 18. GOVERNING LAW....................................................35
Section 19. Consent to Jurisdiction..........................................35
Section 20. Counterparts.....................................................35
Exhibit A -- Correspondent Selling Agent Agreement
-i-
<PAGE>
KENMAR GLOBAL TRUST
(A DELAWARE BUSINESS TRUST)
$50,000,000
UNITS OF BENEFICIAL INTEREST
INITIALLY $100 PER UNIT
SELLING AGREEMENT
December _, 1996
[Name of Selling Agent]
[Address of Selling Agent]
Ladies and Gentlemen:
KENMAR ADVISORY CORP., a Connecticut corporation (THE "MANAGING
OWNER"), has caused the formation, on July 17, 1996, of a business trust
pursuant to the Delaware Business Trust Act (the "Delaware Act") under the name,
KENMAR GLOBAL TRUST (THE "TRUST"), for the purposes of engaging in the
speculative trading of commodity futures and forward contracts, commodity
options and other commodity interests, through investments with independent
commodity trading advisors (each, a "Trading Advisor") retained by the Managing
Owner on behalf of the Trust and executed through commodity brokers (each, a
"Commodity Broker"). _____________ (THE "SELLING AGENT") shall be a Selling
Agent for the Trust. In addition, the Selling Agent may, with the consent of
the Managing Owner, distribute units of beneficial interest in the Trust
("Units") through the use of "introducing broker" correspondents
("Correspondents"), provided such Correspondents are duly registered as
broker-dealers or exempt from the requirement of being so registered, pursuant
to the terms of the Correspondent Selling Agent Agreement attached hereto as
Exhibit A.
<PAGE>
The Trust desires to raise capital as herein provided by the sale of
Units, the purchasers of which will become beneficiaries ("Unitholders") of the
Trust, and the Selling Agent hereby agrees to use its best efforts to market the
Units pursuant to the terms hereof. Accordingly, the Selling Agent, the
Managing Owner, the Trading Advisors, and the Trust, intending to be legally
bound, hereby agree as follows.
All agreements, representations and undertakings expressed herein to
be made by the "Trading Advisors" shall be construed to be made by each Trading
Advisor severally and individually, and only in respect of its conduct and
undertakings with respect to this Agreement, not that of the other Trading
Advisors.
Section 1. REPRESENTATIONS AND WARRANTIES OF THE MANAGING OWNER.
The Managing Owner represents and warrants to the Selling Agent and the Trading
Advisors as follows:
(a) The Trust has provided to the Selling Agents and the Trading
Advisors, and filed with the Securities and Exchange Commission
(the "SEC"), a registration statement on Form S-1 (No. 333-8869), as
initially filed with the SEC on July 25, 1996, as amended by Amendment
No. 1 thereto filed with the SEC on October 30, 1996, and Amendment
No. 2 thereto filed with the SEC on December ___, 1996, for the
registration of the Units under the Securities Act of 1933, as amended
(the "1933 Act"), and has filed two copies thereof with the Commodity
Futures Trading Commission (the "CFTC") under the Commodity Exchange
Act, as amended (the "Commodity Act"), and the rules and regulations
thereunder (the "CFTC Regulations"), and one copy with the National
Futures Association (the "NFA") in accordance with NFA Compliance
Rule 2-13. The registration statement as amended and delivered to all
parties hereto at the time it becomes effective and the prospectus
included therein are hereinafter called the "Registration Statement"
and the "Prospectus," respectively, except that (i) if the Trust files
a subsequent post-effective amendment to the registration statement,
then the term "Registration Statement" shall, from and after the
declaration of the effectiveness of such post-effective amendment,
refer to the registration statement as amended by such post-effective
amendment thereto, and the term "Prospectus" shall refer to the
prospectus as most recently issued by the Trust pursuant to the rules
and regulations of the SEC promulgated under the 1933 Act (the "SEC
Regulations").
-2-
<PAGE>
Except as required by law, the Trust will not file any amendment
to the Registration Statement or any amendment and/or supplement to
the Prospectus which shall be reasonably objected to by either the
Selling Agent or any Trading Advisor, upon reasonable prior notice.
The Managing Owner agrees to suspend the offering immediately and
inform the Selling Agent and the Trading Advisors if the Managing
Owner has any reason to believe that it may be necessary or advisable
to amend the Registration Statement or supplement the Prospectus.
The Trust will not utilize any promotional brochure or other
marketing materials (collectively, "Promotional Material"), including
"Tombstone Ads" or other communications qualifying under Rule 134 of
the SEC Regulations, which are reasonably objected to by either the
Selling Agent or any Trading Advisor. No reference to either the
Selling Agent or any Trading Advisor may be made in the Registration
Statement, Prospectus or in any Promotional Material which has not
been approved in writing by the Selling Agent and the applicable
Trading Advisor, which approval each of the Selling Agent and the
applicable Trading Advisor may withhold in its sole and absolute
discretion. The Trust will file all Promotional Material with the
National Association of Securities Dealers, Inc. (the "NASD"), and
will not use any such Promotional Material to which the NASD has not
stated in writing that it has no objections. The Trust will file all
Promotional Material in all state jurisdictions, and will not use any
such Promotional Material in any state which has expressed any
objection thereto (except pursuant to agreed-upon modifications to the
Promotional Material).
All representations, warranties and indemnities set forth herein
will be deemed to be restated in their entirety as of each Closing
Time (as defined in SECTION 4(g) hereof).
(b) The certificate of trust (the "Certificate of Trust")
pursuant to which the Trust has been formed and the Declaration of
Trust and Trust Agreement of the Trust (the "Trust Agreement") provide
for the subscription for and sale of the Units of the Trust; all
action required to be taken by the Managing Owner and the Trust as a
condition to the sale of the Units to qualified subscribers therefor
has been, or prior to the Initial Closing Time (as defined in
SECTION 4(g) hereof) will have been, taken; and, upon payment of the
consideration therefor specified in all accepted Sub-
-3-
<PAGE>
scription Agreements and Powers of Attorney, the Units will
constitute valid units of beneficial interest in the Trust as to
which the subscribers thereto will have the same limitation on
personal liability as stockholders in a private corporation for
profit organized under the laws of the State of Delaware and will
be Unitholders of the Trust entitled to all the applicable benefits
under the Trust Agreement and the Delaware Act.
(c) The Trust is a business trust duly organized pursuant to the
Delaware Act and is validly existing and in good standing under the
laws of the State of Delaware with full power and authority to engage
in the business to be conducted by it, as described in the Prospectus.
The Trust is in good standing and qualified to do business in each
jurisdiction in which such qualification is necessary in order to
protect the limited liability of Unitholders and in which the nature
or conduct of its business as described in the Registration Statement
requires such qualification and the failure to be so qualified would
materially adversely affect its ability to perform its obligations
under this Agreement and the Advisory Agreement (as defined below).
(d) The Managing Owner is, and will continue to be so long as it
is the managing owner of the Trust, a corporation duly organized,
validly existing and in good standing under the laws of the State of
Connecticut and is in good standing and qualified to do business in
each jurisdiction in which the nature or conduct of its business as
described in the Registration Statement and Prospectus requires such
qualification and the failure to be so qualified would materially
adversely affect the Trust's or the Managing Owner's ability to
perform its obligations hereunder.
(e) The Trust and the Managing Owner each have full trust and
corporate power and authority, as the case may be, under applicable
law to perform its respective obligations under the Trust Agreement,
the escrow agreement described in the Prospectus relating to the
offering of the Units (the "Escrow Agreement"), the Customer Agreement
(the "Customer Agreement") by and among the Selling Agent, the Trust
and the Managing Owner, the Advisory Agreements (the "Advisory
Agreements") by and among each Trading Advisor, the Trust and the
Managing Owner (references in the Agreement to the Advisory Agreements
intend, in respect of each Trading Advisor, only the Advisory
-4-
<PAGE>
Agreement to which such Trading Advisor is a party) and this
Agreement, and to conduct its business as described in the
Registration Statement and Prospectus.
(f) The Registration Statement and Prospectus contain all
statements and information required to be included therein by the
Commodity Act and the rules and regulations promulgated thereunder.
When the Registration Statement becomes effective under the 1933 Act
and at all times subsequent thereto up to and including each Closing
Time, the Registration Statement, Prospectus and Promotional Material
will contain all statements which are required to be made therein and
will comply in all material respects with the requirements of the 1933
Act, the SEC Regulations, the Commodity Act, the CFTC Regulations and
the rules of the NFA and will be accurate and complete in all material
respects. The Registration Statement as of its effective date will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and each item of
Promotional Material (considered individually) as of the date of their
issue and at all times subsequent thereto up to and including each
Closing Time will not contain any untrue statement of a material fact
or (considered collectively) omit to state a material fact necessary
to make the statements therein, in the light of the circumstances
under which such statements are made, not misleading.
(g) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there will not have
been any adverse change in the condition (financial or otherwise),
business or prospects of the Managing Owner or the Trust, whether or
not arising in the ordinary course of business.
(h) The Managing Owner has, and will continue to have during the
term of the Trust, a net worth sufficient in amount and satisfactory
in form, as set forth in the opinion of Sidley & Austin, counsel for
the Managing Owner, for classification of the Trust as a partnership
for federal income tax purposes under current interpretations of the
Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder.
(i) Each of the Trust Agreement, the Escrow Agreement, the
Customer Agreement, the Advisory Agreements and this Agreement has
been duly and validly
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authorized, executed and delivered by the Managing Owner on behalf of the
Trust and by the Managing Owner, and each constitutes a valid, binding and
enforceable agreement of the Trust and the Managing Owner in accordance
with its terms.
(j) The execution and delivery of the Trust Agreement, the
Escrow Agreement, the Customer Agreement, the Advisory Agreements and
this Agreement, the incurrence of the obligations set forth therein
and herein and the consummation of the transactions contemplated
therein, herein and in the Prospectus: (i) will not constitute a
breach of, or default under, any instrument or agreement by which the
Managing Owner or the Trust, as the case may be, or any of their
property or assets is bound, or any statute, order, rule or regulation
applicable to the Managing Owner or the Trust, as the case may be, of
any court or any governmental body or administrative agency having
jurisdiction over the Managing Owner or the Trust, as the case may be;
(ii) will not result in the creation or imposition of any lien, charge
or encumbrance on any property or assets of the Managing Owner or the
Trust; (iii) will not give any party a right to terminate its
obligations or result in the acceleration of any obligations under any
material instrument or agreement by which the Managing Owner or the
Trust, as the case may be, or any of their respective property or
assets is bound; and (iv) will not result in any material liability
(other than such as may be contemplated hereby) on the part of either
the Managing Owner or the Trust and under the Agreements enumerated in
this subparagraph.
(k) Except as otherwise disclosed in the Registration Statement
or the Prospectus, there is not pending nor, to the best of the
Managing Owner's knowledge, threatened any action, suit or proceeding
before or by any court or other governmental body to which the
Managing Owner or the Trust is a party, or to which any of the assets
of the Managing Owner or the Trust is subject, which might reasonably
be expected to result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Managing Owner
or the Trust or which is required to be disclosed in the Registration
Statement or Prospectus pursuant to the Commodity Act, the 1933 Act,
the CFTC Regulations or the SEC Regulations. The Managing Owner has
not received any notice of an investigation or warning letter from the
NFA or CFTC regarding non-
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compliance by the Managing Owner with the
Commodity Act or the regulations thereunder.
(l) All authorizations, consents or orders of any court, or of any
federal, state or other governmental or regulatory agency or body required
for the authorization, issuance, offer and sale of the Units have been
obtained. No stop order relating to the Registration Statement has been
issued by any federal or state securities commission, and no proceedings
therefor are pending or, to the best knowledge of the Managing Owner,
threatened.
(m) The Managing Owner and each of its principals and employees
have, and will continue to have so long as it is the managing owner of
the Trust, all federal and state governmental, regulatory,
self-regulatory and commodity exchange approvals and licenses, and the
Managing Owner (either on behalf of itself or its principals and
employees) has effected all filings and registrations with federal and
state governmental, regulatory or self-regulatory agencies required to
conduct its business and to act as described in the Registration
Statement and Prospectus or required to perform its or their
obligations as described under the Trust Agreement (including, without
limitation, registration (i) as a commodity pool operator and
commodity trading advisor under the Commodity Act, (ii) membership in
the NFA as a "commodity pool operator" and "commodity trading
advisor," and (iii) as a "transfer agent" with the Securities and
Exchange Commission, and this Agreement and the performance of such
obligations will not contravene or result in a breach of any provision
of the Managing Owner's certificate of incorporation, by-laws or any
agreement, instrument, order, law or regulation binding upon it or any
of its employees or principals. The principals of the Managing Owner
identified in the Registration Statement are all of the principals of
the Managing Owner, as "principals" is defined by the CFTC
regulations. Such principals are duly registered as such on the
Managing Owner's commodity pool operator Form 7-R registration.
(n) The Trust does not require any federal or state
governmental, regulatory, self-regulatory or commodity exchange
approvals or licenses, and the Trust need not effect any filings or
registrations with any federal or state governmental agencies in order
to conduct its business and to act as contemplated by the Registration
Statement and Prospectus and to issue and sell the Units (other than
filings under the 1933 Act,
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the Commodity Act and state securities
laws relating solely to the offering of the Units).
(o) The Managing Owner has the financial resources necessary to
meet its obligations to the Selling Agent hereunder.
(p) All of the information regarding the actual performance of
the accounts of the Managing Owner and the Managing Owner's principals
set forth in the Prospectus is complete and accurate in all material
respects and, except as disclosed in the Prospectus, is in accordance
and compliance with the disclosure requirements under the Commodity
Act and the CFTC Regulations as well as of the NFA.
(q) The Managing Owner acknowledges that the Selling Agent's
customer and Correspondent lists constitute proprietary data belonging
to the Selling Agent, and the Managing Owner agrees that it will not
disseminate any confidential information regarding any of the
foregoing, except as required by law. The Managing Owner agrees that
(i) it will not, directly or indirectly, solicit a client introduced
to the Managing Owner or the Trust by the Selling Agent or any of its
Correspondents which client does not have a verifiable preexisting
relationship with the Managing Owner (a "Protected Client") to
establish a managed account with the Managing Owner or to invest in
another fund managed by the Managing Owner unless such solicitation is
conducted through the Selling Agent or as otherwise agreed to by the
Selling Agent and (ii) if any Protected Client approaches the Managing
Owner, the Managing Owner will not accept the account or investment
without the Selling Agent's approval. In the event of a breach of the
agreements of the Managing Owner in this section 1(q), the Managing
Owner agrees to compensate the Selling Agent with respect to that
Protected Client in an amount equal to the amount of ongoing
compensation to be paid by the Trust to the Selling Agent with respect
to such a Protected Client. Such payments are deemed to be a
reasonable estimate of the damage to the Selling Agent and shall be
the Selling Agent's exclusive remedy for such breach.
(r) The accountants who certified the Statement of Financial
Position of the Managing Owner and the Statement of Financial
Condition of the Trust included in the Registration Statement are,
with respect to the Managing Owner and the Trust, independent public
accountants as required by the 1933 Act and the SEC
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Regulations. These statements fairly present the financial position
and financial condition of the Managing Owner and the Trust, as the
case may be, as of the date of such Statements. The audited
Statement of Financial Position of the Managing Owner and Statement
of Financial Condition of the Trust are presented in accordance,
and the unaudited Statements of Financial Position of the Managing
Owner substantially in accordance, with Generally Accepted
Accounting Principles (as currently in effect in the United States).
(s) The Trust will not be required to register as an investment
company under the Investment Company Act of 1940 in order to conduct
its operations as described in the Prospectus.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE TRADING ADVISORS.
Each Trading Advisor represents and warrants to the Trust, the Selling Agent and
the Managing Owner as follows:
(a) The Trading Advisor is a corporation duly organized and
validly existing and in good standing under the laws of its state of
incorporation and in good standing as a foreign corporation in each
other jurisdiction in which the nature or conduct of its business
requires such qualification and the failure to be duly qualified would
materially affect the Trading Advisor's ability to perform its
obligations under this Agreement and its Advisory Agreement. The
Trading Advisor has full corporate power and authority to perform its
obligations under this Agreement and its Advisory Agreement as
described in the Registration Statement and Prospectus.
(b) All references to the Trading Advisor and its principals,
and its trading systems, methods and performance in the Registration
Statement and the Prospectus are accurate and complete in all material
respects. As to the Trading Advisor, each of the principals of the
Trading Advisor, the Trading Advisor trading program(s) selected for
the Trust, and the Trading Advisor's trading systems, strategies and
performance, (i) the Registration Statement as of its effective date
and the Prospectus included therein contain all statements and
information required to be included therein under the Commodity Act
and the rules and regulations thereunder, (ii) the Registration
Statement (with respect to the information relating to the Trading
Advisor furnished by the Trading Advisor to
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the Managing Owner for use therein) as of its effective date did
not contain any misleading or untrue statement of a material fact
or omit to state a material fact which is required to be stated
therein or necessary to make the statements therein not misleading
and (iii) the Prospectus (as approved in pertinent part by the
Trading Advisor) at its date of issue and as of the Initial Closing
Time, as supplemented, did not and will not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading, in light
of the circumstances under which such statements were made. Except
as otherwise disclosed in the Prospectus or identified in writing
to the Managing Owner on or prior to the date hereto, the actual
performance of each discretionary account directed by the Trading
Advisor or any principal or affiliate of the Trading Advisor for
the periods covered by the Performance Summaries or Tables set
forth in the Prospectus is disclosed in accordance with the
requirements of the Commodity Act and the rules and regulations
thereunder (or as otherwise permitted by the Staff of the Division
of Trading and Markets). The information and Performance Summaries
or Tables relating to the actual performance of the Trading Advisor
are complete and accurate in all material respects and comply in
all material respects with the disclosure requirements of the rules
and regulations of the CFTC under the Commodity Act, including
those relating to the inclusion of "notional" equity. The
performance records in the Prospectus (as applicable to the Trading
Advisor) have been calculated in the manner set forth in the notes
thereto.
(c) The Advisory Agreement and this Agreement have each been
duly and validly authorized, executed and delivered on behalf of the
Trading Advisor and each constitutes a valid, binding and enforceable
agreement of the Trading Advisor in accordance with its terms.
(d) The Trading Advisor has all Federal and state governmental,
regulatory and commodity exchange licenses and approvals and has
effected all filings and registrations with Federal and state
governmental and regulatory agencies required to act as described in
the Registration Statement and Prospectus or required to perform its
obligations under this Agreement and the Advisory Agreement
(including, without limitation, registration of the Trading Advisor as
a commodity trading advisor under the Commodity Act and membership of
the Trading Advisor as a commodity trading advisor in the NFA), and
the performance of such obligations
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will not violate or result in a breach of any provision of the
Trading Advisor's Certificate of Incorporation By-laws or any
agreement, instrument, order, law or regulation binding on the
Trading Advisor. The principals of the Trading Advisor are duly
listed as such on the Trading Advisor's commodity trading advisor
Form 7-R registration.
(e) Management by the Trading Advisor of an account for the
Trust in accordance with the terms hereof and of the Advisory
Agreement, and as described in the Prospectus, will not require any
registration under, or violate any of the provisions of the Investment
Advisers Act of 1940.
(f) The Trading Advisor's implementation of the trading
program(s) selected by the Managing Owner for the Trust will not
infringe any other person's copyright, trademark or other property
rights.
(g) Neither the Trading Advisor nor any principal of the Trading
Advisor will distribute any preliminary prospectus, Prospectus,
amended or supplemented Prospectus or selling literature nor engage in
any selling activities whatsoever in connection with the offering of
the Units, except as may be requested by the Managing Owner pursuant
to SECTION 8(c) of this Agreement.
(h) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as may
otherwise be stated in or contemplated by the Registration Statement
and the Prospectus, there has not been any material adverse change in
the condition, financial or otherwise, business or prospects of the
Trading Advisor, whether or not arising in the ordinary course of
business.
(i) The execution and delivery of this Agreement and the
Advisory Agreement, the incurrence of the obligations herein and
therein set forth and the consummation of the transactions
contemplated herein and therein and in the Prospectus will not
constitute a breach of, or default under, any instrument by which the
Trading Advisor is bound or any order, rule or regulation applicable
to the Trading Advisor of any court or any governmental body or
administrative agency having jurisdiction over the Trading Advisor.
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(j) There is not pending, or to the best of the Trading
Advisor's knowledge threatened, any action, suit or proceeding before
or by any court or other governmental body to which the Trading
Advisor is a party, or to which any of the assets of the Trading
Advisor is subject, which might reasonably be expected to result in
any material adverse change in the condition, financial or otherwise,
business or prospects of the Trading Advisor. The Trading Advisor has
not received any notice of an investigation or warning letter from the
NFA or the CFTC regarding non-compliance by the Trading Advisor with
the Commodity Act or the regulations thereunder.
(k) Except as otherwise provided in its Advisory Agreement, the
Trading Advisor has not received, and is not entitled to receive,
directly or indirectly, any commission, finder's fee, similar fee or
rebate from any person in connection with the organization or
operation of the Trust.
Section 3. REPRESENTATIONS AND WARRANTIES OF EACH COMMODITY BROKER.
Each Commodity Broker represents and warrants to the Trust, the Managing Owner,
the Trading Advisors and the Selling Agent, as follows:
(a) The Commodity Broker is a corporation duly organized and
validly existing and in good standing under the laws of the state of
its incorporation and in good standing and qualified to do business in
the State of New York and in each other jurisdiction in which the
nature or conduct of its business requires such qualification and the
failure to be duly qualified would materially adversely affect the
Commodity Broker's ability to perform its obligations hereunder or
under the Customer Agreement. The Commodity Broker has full corporate
power and authority to perform its obligations under the Customer
Agreement, and this Agreement and as described in the Registration
Statement and Prospectus.
(b) All references to the Commodity Broker and its principals in
the Registration Statement and Prospectus are accurate and complete in
all material respects, and set forth in all material respects the
information required to be disclosed therein under the Commodity Act
and the rules and regulations thereunder. As to the Commodity Broker
and its principals, (i) the Registration Statement and Prospectus
contain all statements and information required to be included therein
under the Commodity Act and the rules and
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regulations thereunder, (ii) the Registration Statement as of its
effective date did not contain any misleading or untrue statement
of a material fact or omit to state a material fact which is
required to be stated therein or necessary to make the statements
therein not misleading and (iii) the Prospectus at its date of
issue and as of each Additional Closing Time did not and will not
contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not
misleading, in light of the circumstances under which such
statements were made.
(c) The Commodity Broker has all Federal and state governmental,
regulatory and commodity exchange licenses and approvals, and has
effected all filings and registrations with Federal and state
governmental and regulatory agencies required to conduct its business
and to act as described in the Registration Statement and Prospectus
or required to perform its obligations under the Customer Agreement
and this Agreement (including, without limitation, registration of the
Commodity Broker as a futures commission merchant under the Commodity
Act and membership of the Commodity Broker as a futures commission
merchant in the NFA), and the performance of such obligations will not
violate or result in a breach of any provision of the Commodity
Broker's certificate of incorporation, by-laws or any agreement,
instrument, order, law or regulation binding upon the Commodity
Broker.
(d) Each of the Customer Agreement and this Agreement has been
duly authorized, executed and delivered by the Commodity Broker and
constitutes a valid, binding and enforceable agreement of the
Commodity Broker in accordance with its terms.
(e) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, except as may
otherwise be stated in or contemplated by the Registration Statement
and the Prospectus, there has not been any material adverse change in
the condition, financial or otherwise, business or prospects of the
Commodity Broker, whether or not arising in the ordinary course of
business.
(f) In the ordinary course of its business, the Commodity Broker
is engaged in civil litigation and subject to administrative
proceedings. Neither the Commodity Broker nor any of its principals
have been the subject of any administrative, civil, or criminal
actions within the five years preceding the date hereof
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that would be material to an investor's decision to purchase the
Units which are not disclosed in the Prospectus.
(g) The execution and delivery of the Customer Agreement and
this Agreement, the incurrence of the obligations set forth herein and
therein and the consummation of the transactions contemplated herein
and therein and in the Prospectus will not constitute a breach of, or
default under, any instrument by which the Commodity Broker is bound
or any order, rule or regulation applicable to the Commodity Broker of
any court or any governmental body or administrative agency having
jurisdiction over the Commodity Broker.
Section 4. OFFERING AND SALE OF UNITS.
(a) The Selling Agent is hereby appointed as a Selling Agent for
the Trust (it is contemplated that certain additional selling agents
and certain Correspondents may also market Units) during the term
herein specified for the purpose of finding acceptable subscribers for
the Units through a public offering of such Units. The Selling Agent
hereby accepts such agency and agrees on the terms and conditions
herein set forth to use its best efforts to find acceptable
subscribers for the Units.
It is understood that the Selling Agent's agreement to use its
best efforts to find acceptable subscribers for the Units shall not
prevent it from acting as a selling agent or underwriter for the
securities of other issuers, including affiliates, which may be
offered or sold during the term hereof. The agency of the Selling
Agent hereunder shall continue until the expiration or termination of
this Agreement as provided herein, including such additional period as
may be required to effect a final closing of the sale of the Units
subscribed for through the date of such termination.
Each subscriber shall be required to submit a minimum
subscription of at least $5,000 ($2,000 for trustees or custodians of
eligible employee benefit plans and individual retirement accounts and
existing Unitholders making additional investments), subject to the
higher minimum requirements imposed by certain state regulators as set
forth in Exhibit B to the Prospectus. Incremental investments are
permitted in $100 multiples, with Units being sold in fractions
calculated to three decimal places.
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The Managing Owner agrees to pay, from its own funds, to the
Selling Agent a selling commission of $5 per Unit on each Unit sold by
the Selling Agent at the Initial Closing, and 5% of the Net Asset
Value per Unit on each Unit sold by the Selling Agent at each
Additional Closing, each as defined in SECTION 4(g) hereof.
During the period from the commencement of the offering of the
Units to the Initial Closing (as defined in SECTION 4(g) hereof), the
Managing Owner will advance selling commissions within ten (10)
business days of the end of each calendar month based on the
Subscription Agreement and Power of Attorney Signature Pages received
and subscription payments paid into the escrow account of the Trust
during the preceding calendar month. The Selling Agent agrees that it
will promptly return to the Managing Owner, without interest, any
selling commissions advanced by the Managing Owner in respect of
subscriptions ultimately rejected out of the escrow account or in
respect of all subscriptions if no Units are sold.
The Selling Agent agrees that it will promptly pass on to their
Registered Representatives that portion of the selling commissions received
from the Managing Owner to which such Registered Representatives are
entitled pursuant to the Selling Agent's standard compensation procedures,
as determined by the Selling Agent from time to time.
(b) For ongoing services rendered to Unitholders, the Managing
Owner shall pay the Selling Agent, provided the Selling Agent remains
registered with the CFTC as a "futures commission merchant" or
"introducing broker" and a member in good standing of the NFA in such
capacity, ongoing compensation in an amount equal to 0.29166 of 1% (a
3.5% annual rate) of the month-end Net Asset Value of all Units sold
by it remaining outstanding as of the end of each month (including
Units redeemed as of the end of such month). Such ongoing
compensation shall begin to accrue with respect to each Unit only
after the end of the twelfth full month after the sale of such Unit --
which for these purposes occurs when the related subscription proceeds
are released from the escrow account into the Trust, not when the
related subscriptions are received into escrow -- and shall continue
only for as long as such Unit remains outstanding. The Managing Owner
shall pay the ongoing compensation due to the Selling Agent within ten
(10) business days of the end of each calendar quarter.
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Ongoing compensation, which is payable to the Selling Agents only
in respect of Units sold by Registered Representatives who are
themselves registered with the CFTC and who have passed either the
Series 3 National Commodity Futures Examination or the Series 31
Futures Managed Funds Examination, is contingent upon the provision by
such Registered Representatives of ongoing services in connection with
the Units sold by such Registered Representatives, including:
(i) inquiring of the Managing Owner from time to time, at the request
of an owner of Units, as to the Net Asset Value per Unit; (ii)
inquiring of the Managing Owner from time to time, at the request of
an owner of Units, regarding the commodities markets and the Trust;
(iii) assisting, at the request of the Managing Owner, in the
redemption of Units; and (iv) providing such other services to the
owners of Units as the Managing Owner may, from time to time,
reasonably request. The Selling Agent agrees to adopt procedures to
monitor the adequacy of the ongoing services provided by Registered
Representatives. Substitute Registered Representatives who are
appropriately registered may also receive trailing commissions.
In the case of Units sold by Registered Representatives who are not
qualified to receive ongoing compensation as set forth above, the Managing
Owner will pay the Selling Agent installment selling commissions at the
same rate as in the case of ongoing compensation, but limited in amount,
pursuant to applicable NASD policy, to 4.5% of the initial subscription
price of the Units sold by such Registered Representatives; provided, that
no such installment selling commission shall be payable until the Managing
Owner and the Selling Agent determine that the payment of such installment
selling commission is in compliance with NASD Conduct Rule 2810 on
aggregate compensation which may be received by the Selling Agent.
The Selling Agent agrees to adopt procedures to monitor the payment of
installment selling commissions to ensure that such commissions do not
exceed 4.5% of the subscription price of affected Units.
The Selling Agent agrees to pass ongoing compensation and installment
selling commissions on to its Registered Representatives, pursuant to the
Selling Agent's standard compensation procedures, as determined by the
Selling Agent from time to time.
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(c) The Selling Agent will provide the Managing Owner with a
list of prospective Correspondents. Unless the prospective
Corespondent has a verifiable preexisting relationship with the
Managing Owner as notified to the Selling Agent in writing, such
Correspondent shall only be permitted to offer Units as a
Correspondent of the Selling Agent pursuant to a Correspondent Selling
Agreement in a form agreed to by the Selling Agent. The Selling
Agent, with the consent of the Managing Owner, may select
Correspondents, in each case which represent in the Correspondent
Selling Agreement that they are either (i) dealers who are members
in good standing of the NASD or (ii) foreign banks, dealers or
institutions ineligible for membership in a registered security
association (within the meaning of Section 25 of Article III of the
NASD's Rules of Fair Practice) which agree that they will make no
sales of Units within the United States, its territories or
possessions or areas subject to its jurisdiction.
(d) In respect of Correspondents selected by the Selling Agent
with the consent of the Managing Owner, the Managing Owner shall pay
the Selling Agent selling commissions and ongoing compensation as set
forth above, a portion of which (as agreed between the Selling Agent
and each such Correspondent) the Selling Agent shall pass on to each
such Correspondent.
(e) Ongoing compensation will be paid at the end of each
calendar quarter on the basis of the Units outstanding during each
month during such quarter. Net Assets, for purposes of determining
ongoing compensation shall be calculated after reduction of all
expenses of the Trust, including accrued and unpaid expenses.
The Selling Agent otherwise entitled to ongoing compensation will
not be entitled to receipt thereof (but may continue to receive
installment selling commissions) for any month during any portion of
which the Registered Representative who is receiving such ongoing
compensation is at any time not properly registered with the CFTC or
does not provide the ongoing services described above.
(f) If acceptable subscriptions for at least the minimum number
of Units specified on the cover of the Prospectus (the "Minimum
Units") shall not have been received by February 28, 1997 (unless
extended until May 31, 1997 by the Managing Owner),
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all funds received from subscribers shall be promptly returned in
full, together with all interest payable thereon (irrespective of
amount) and without deduction for any escrow or other fee or
expense; and thereupon the Selling Agent's duties under this
Agreement shall terminate without further obligation hereunder on
the part of the Selling Agent, the Managing Owner or the Trust,
except as set forth in SECTION 9 hereof.
(g) If at least the Minimum Units shall have been so subscribed
for, then on February 28, 1997, or (i) at such earlier time after
subscriptions for the Minimum Units shall have been received as
determined by the Managing Owner or (ii) at such later date on or
prior to May 31, 1997, to which the Managing Owner may extend the
initial offering, the Managing Owner shall notify the Selling Agent of
the initial closing of the Trust (the "Initial Closing"), as well as
of the aggregate number of Units for which the Managing Owner has
received acceptable subscriptions. Payment of the purchase price for
the Units shall be made at the office of Sidley & Austin, 875 Third
Avenue, New York, New York 10022, or at such other place as shall be
agreed upon among the Selling Agent and the Managing Owner, at 10:00
A.M., New York time, on such day and time (not later than five (5)
business days after the end of the Offering Period) as shall be agreed
upon among the Selling Agent and the Managing Owner (the "Initial
Closing Time"). Subsequent to the Initial Closing Time, Units may
continue to be sold as of the first day of each calendar month (each
such sale, an "Additional Closing" and each such date a "Closing
Time"), in the discretion of the Trust.
(h) No selling commissions or ongoing compensation shall be paid
on Units sold to the Managing Owner or any of its principals or
affiliates.
(i) The Trust shall not in any respect be responsible for any
selling commissions or ongoing compensation described herein. All
such commissions and ongoing compensation are to be solely the
responsibility of the Managing Owner.
Section 5. Compliance with NASD Conduct Rule
2810 and General Laws.
(a) It is understood that the Selling Agent has no commitment
with regard to the sale of the Units other than to use its best
efforts. In connection with the offer and sale of the Units, the
Selling Agent
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represents that it will comply fully with all applicable
laws, and the rules and interpretations of the NASD, the SEC, the
CFTC, state securities administrators and any other regulatory body.
In particular, and not by way of limitation, the Selling Agent
represents and warrants that it is familiar with NASD Conduct Rule
2810 and that it will comply fully with all the terms thereof in
connection with the offering and sale of the Units. The Selling Agent
will not execute any sales of Units from a discretionary account over
which it has control without prior written approval of the customer in
whose name such discretionary account is maintained.
(b) The Selling Agent agrees not to recommend the purchase of
Units to any subscriber unless the Selling Agent shall have reasonable
grounds to believe, on the basis of information obtained from the
subscriber concerning, among other things, the subscriber's investment
objectives, other investments, financial situation and needs, that (to
the extent relevant for the purposes of Conduct Rule 2810 and giving
due consideration to the fact that the Trust is in no respects a "tax
shelter") the subscriber is or will be in a financial position
appropriate to enable the subscriber to realize to a significant
extent the benefits of the Trust, including the tax benefits (if any)
described in the Prospectus; the subscriber has a fair market net
worth sufficient to sustain the risks inherent in participating in the
Trust; and the Units are otherwise a suitable investment for the
subscriber. The Selling Agent agrees to maintain such records as are
required by the applicable rules of the NASD and the state securities
commissions for purposes of determining investor suitability. In
connection with making the foregoing representations and warranties,
the Selling Agent further represents and warrants that it has, among
other things, examined the following sections in the Prospectus and
obtained such additional information from the Managing Owner regarding
the information set forth thereunder as the Selling Agent has deemed
necessary or appropriate to determine whether the Prospectus
adequately and accurately discloses all material facts relating to an
investment in the Trust and provides an adequate basis to subscribers
for evaluating an investment in the Units:
"Risk Factors"
"The Trust and Its Objectives"
"Kenmar Advisory Corp."
"Charges"
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"Redemptions"
"Conflicts of Interest"
"The Trust and the Trustee"
"Federal Income Tax Aspects"
"The Futures and Forward Markets"
"Appendix II -- Performance of Other Futures Funds Operated by Kenmar"
In connection with making the representations and warranties set forth
in this paragraph, Selling Agent has not relied on inquiries made by
or on behalf of any other parties.
The Selling Agent agrees to inform all prospective purchasers of
Units of all pertinent facts relating to the liquidity and
marketability of the Units as set forth in the Prospectus.
(c) All payments are made by authorization to the Selling Agent
to debit the subscriber's customer securities account maintained with
the Selling Agent. Subscribers who do so must have their subscription
payments in their accounts on the specified settlement date --
subscribers to be notified of such dates by the Selling Agent,
respectively. Settlement of the payment for subscriptions will occur
not later than three (3) business days following notification by the
Managing Owner to the Selling Agent of the acceptance of a particular
subscription and not later than the termination of the offering of the
Units. On each settlement date, subscribers' customer securities
accounts will be debited by the Selling Agent in the amount of their
subscriptions. The amount of the subscription payments so debited
will be transmitted by such Selling Agent directly to the Escrow Agent
in the form of a Selling Agent check or wire transfer made payable to
"___________________, AS ESCROW AGENT FOR KENMAR GLOBAL TRUST ESCROW
ACCOUNT NO. ____________."
The Selling Agent and the Managing Owner may make such other
arrangements regarding the transmission of subscriptions as they may deem
convenient or appropriate; provided that any such arrangement must comply
in all relevant respects with SEC Regulations 10b-9 and 15c2-4.
Section 6. BLUE SKY SURVEY. The Managing Owner shall cause Sidley &
Austin, counsel to the Managing Owner, to prepare and deliver to the Selling
Agent, after having submitted such Blue Sky Survey to counsel for the Selling
Agent for such counsel's review and approval, a Blue Sky Survey which shall set
forth the United States jurisdictions in which the Units may be
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offered and sold. The Managing Owner agrees to use its best efforts to
qualify the Units under the securities or Blue Sky laws of the various state
jurisdictions, and to maintain such qualification during the term of the
offering, provided that the Managing Owner reserves the right to withdraw
application for the Units' registration. It is understood and agreed that
the Selling Agent (and its Correspondents) may rely, in connection with the
offering and sale of Units in any United States jurisdiction, on advice given
by Sidley & Austin as to the legality of the offer or sale of the Units in
such jurisdiction.
Section 7. COVENANTS OF THE MANAGING OWNER.
(a) The Managing Owner will not file any amendment to the
Registration Statement or supplement to the Prospectus without giving
the Selling Agent a reasonable period of time to review such amendment
or supplement prior to filing or to which the Selling Agent reasonably
objects, unless advised by counsel that doing so is required by law.
The Managing Owner will notify the Selling Agent immediately (i) when
any amendment to the Registration Statement shall have become
effective or any supplement to the Prospectus is filed, (ii) of the
receipt of any further comments from the SEC, CFTC, NFA or any other
federal or state regulatory or self-regulatory body with respect to
the Registration Statement, (iii) of any request by the SEC, CFTC, NFA
or any other federal or state regulatory or self-regulatory body for
any further amendment to the Registration Statement or any amendment
or further supplement to the Prospectus or for additional information
relating thereto, (iv) of any material criminal, civil or
administrative or investigative proceedings against or involving the
Managing Owner or the Trust, (v) of the issuance by the SEC, CFTC, NFA
or any other federal or state regulatory or self-regulatory body of
any order suspending the effectiveness of the Registration Statement
under the Securities Act, the registration or NFA membership of the
Managing Owner as a "commodity pool operator," or the registration of
the Units under the Blue Sky or securities laws of any state or other
jurisdiction or any order or decree enjoining the offering or the use
of the then current Prospectus or any Promotional Material or of the
institution, or notice of the intended institution, of any action or
proceeding for that purpose, or (vi) of any threatened action of the
type referred to in clauses (iii) through (v) of which the Managing
Owner is aware. In the event any order of the type referred to in
clause (v) is issued, the Managing Owner agrees to use best efforts to
obtain a lifting or rescinding
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of such order at the earliest feasible
date. The Managing Owner agrees to provide marked copies of the
Registration Statement and all Exhibits thereto to the Selling Agent.
(b) The Managing Owner will deliver to the Selling Agent as many
signed copies of the Registration Statement as originally filed and of
each amendment thereto, together with exhibits, as the Selling Agent
may reasonably request, and will also deliver to the Selling Agent
such number of conformed copies of the Registration Statement as
originally filed and as of each amendment thereto (without exhibits)
as the Selling Agent shall reasonably request.
(c) The Managing Owner will deliver to the Selling Agent as
promptly as practicable from time to time during the period when the
Prospectus is required to be delivered under the 1933 Act, such number
of copies of the Prospectus (as amended or supplemented) and of the
Promotional Material as the Selling Agent (or their Correspondents)
may reasonably request for the purposes contemplated by the 1933 Act
or the SEC Regulations.
(d) During the period when the Prospectus is required to be
delivered pursuant to the 1933 Act, the Managing Owner and the Trust
will comply with all requirements imposed upon them by the 1933 Act,
the SEC Regulations, the Commodity Act and the CFTC Regulations, as
from time to time in force, so far as necessary to permit the
continuance of sales of the Units during such period in accordance
with the provisions hereof and as set forth in the Prospectus.
(e) If any event shall occur as a result of which it is
necessary, in the reasonable opinion of the Managing Owner, to amend
or supplement the Prospectus (i) to make the Prospectus not materially
misleading in the light of the circumstances existing at the time it
is delivered to a subscriber, or (ii) to conform with applicable CFTC
or SEC Regulations, the Managing Owner shall forthwith prepare and
furnish to the Selling Agent, at the expense of the Managing Owner, a
reasonable number of copies of an amendment or amendments of, or a
supplement or supplements to, the Prospectus which will amend or
supplement the Prospectus so as to effect the necessary changes. No
such amendment or supplement shall be filed or used without the
approval of the Selling Agent. Without limiting the generality of the
foregoing, the Managing Owner shall amend or supplement
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the Prospectus to reflect any change in fees (net of rebates, if any) to
be paid to an Advisor by the Trust or the Managing Owner.
Section 8. COVENANTS OF THE TRADING ADVISOR.
(a) Each Trading Advisor agrees to cooperate, to the extent
reasonably requested by the Managing Owner, in the preparation of any
amendments or supplements relating to itself to the Registration
Statement and the Prospectus.
(b) During the period when the Prospectus is required to be
delivered under the 1933 Act, each Trading Advisor agrees to notify
the Managing Owner upon discovery of any material untrue or misleading
statement regarding it, its operations or any of its principals or of
the occurrence of any event or change in circumstances which would
result in there being any material untrue or misleading statement or a
material omission in the Prospectus or Registration Statement
regarding it, its operations or any of its principals or result in the
Prospectus not including all information relating to the Trading
Advisor and its principals required pursuant to CFTC regulations.
During such period, each Trading Advisor shall promptly inform the
Managing Owner if it is necessary to amend or supplement the
Prospectus in order to make the Prospectus not materially misleading
in light of the circumstances existing at the time the Prospectus is
delivered to a subscriber.
(c) Each Trading Advisor agrees to assist, and cause its
principals or agents to assist, in "road show" presentations relating
to the initial and ongoing offering of the Units at the reasonable
request and expense of the Managing Owner, provided that no such
assistance shall result in any action which any such principal or
agent reasonably believes may require registration of such Trading
Advisor or any such principal or agent as a broker-dealer or salesman
or interfere materially with such Trading Advisor's normal daily
business activities.
Section 9. PAYMENT OF EXPENSES AND FEES. The Managing Owner will pay
all expenses incident to the performance of the obligations of the Managing
Owner and the Trust hereunder, including: (i) the printing and delivery to the
Selling Agent in quantities as hereinabove stated of copies of the Registration
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Statement and all amendments thereto, of the Prospectus and any supplements or
amendments thereto, and of any supplemental sales materials; (ii) the
reproduction of this Agreement and the printing and filing of the Registration
Statement and the Prospectus (and, in certain cases, the exhibits thereto) with
the SEC, CFTC and NFA; (iii) the filing fees payable to the SEC and the NASD;
(iv) the qualification of the Units under the securities or "Blue Sky" laws in
the various jurisdictions, including filing fees and the fees and
disbursements of the Managing Owner's counsel incurred in connection
therewith; and (v) the services of Sidley & Austin and accountants for the
Managing Owner and the Trust. The Managing Owner will be reimbursed by the
Trust for the foregoing expenses advanced by it on behalf of the Trust, as
described in the Prospectus.
The Managing Owner and the Selling Agent are each aware of the
limitations imposed by Appendix F of the NASD Rules of Fair Practice on the
aggregate compensation which may be received by the Selling Agent in connection
with the offering and sale of the Units. The Selling Agent will in no event
accept any payments from the Managing Owner which, when added to the selling
commissions (not including ongoing compensation) which the Selling Agent
receives on each sale of a Unit, would exceed 10% of the gross proceeds of the
Units sold to the public based upon reports provided by the Managing Owner.
Section 10. CONDITIONS OF CLOSING. The sale of the Units and the
release of subscription funds from the escrow account are subject to the
accuracy of the representations and warranties of the parties hereto, to the
performance by such parties of their respective obligations hereunder and to the
following further conditions:
(a) The Registration Statement shall have become effective and
at each Closing Time no order suspending the effectiveness thereof
shall have been issued under the 1933 Act or proceeding therefor
initiated or threatened by the SEC, and the CFTC shall have filed the
Prospectus as a Disclosure Document without a finding of further
deficiencies.
(b) At the Initial Closing Time, Sidley & Austin, counsel to the
Managing Owner, shall deliver its opinion, in form and substance
satisfactory to the parties hereto, to the effect that:
(i) The Certificate of Trust pursuant to which the
Trust has been formed and the Trust Agreement of the Trust
each provides for the subscription for and sale of the
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Units; all action required to be taken by the Managing Owner
and the Trust as a condition to the subscription for and
sale of the Units to qualified subscribers therefor has been
taken; and, upon payment of the consideration therefor
specified in the accepted Subscription Agreements and Powers
of Attorney, the Units will constitute valid units of
beneficial interest in the Trust and each subscriber who
purchases Units will become a Unitholder with the same
limitation on personal liability as a stockholder in a
private corporation for profit under the laws of the State
of Delaware, subject to the requirement that each such
purchaser shall have duly completed, executed and delivered
to the Managing Owner a Subscription Agreement and Power of
Attorney relating to the Units purchased by such party, that
such purchaser meets all applicable suitability standards
and that the representations and warranties of such
purchaser in the Subscription Agreement and Power of
Attorney are true and correct.
(ii) The Trust is a business trust duly and validly
organized pursuant to the Certificate of Trust, the Trust
Agreement and the Delaware Act, and is validly existing under the
laws of the State of Delaware with full power and authority to
conduct the business in which it proposes to engage as described
in the Prospectus.
(iii) The Managing Owner is duly organized, validly
existing and in good standing as a corporation under the laws of
the State of Connecticut and is in good standing and qualified to
do business in each other jurisdiction in which the failure to so
qualify might reasonably be expected to result in material
adverse consequences to the Trust. The Managing Owner has full
corporate power and authority to perform its obligations as
described in the Registration Statement, the Prospectus and
herein.
(iv) The Managing Owner (including the Managing
Owner's principals) and the Trust each has all federal and
state governmental and all regulatory and self-regulatory
approvals and licenses, and has received or made all filings
and registrations with
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federal and state governmental and all regulatory and
self-regulatory agencies necessary in order for the Managing Owner
and the Trust, respectively, to conduct their respective businesses
as described in the Registration Statement and Prospectus, and, to
the best of their knowledge, none of such approvals, licenses or
registrations have been rescinded or revoked.
(v) Each of the Trust Agreement, the Escrow Agreement,
the Customer Agreement, the Advisory Agreements and this
Agreement has been duly authorized, executed and delivered
by or on behalf of the Managing Owner and/or the Trust, as
the case may be, and assuming that such agreements are
binding on the other parties thereto and hereto, each of the
Trust Agreement, the Escrow Agreement, the Customer
Agreements, the Advisory Agreements and this Agreement
constitutes a valid, binding and enforceable agreement of
the Managing Owner and/or the Trust, as the case may be, in
each case in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or
similar laws at the time in effect affecting the
enforceability generally of rights of creditors and except
as enforceability of indemnification provisions may be
limited by applicable law and the enforcement of any
specific terms or remedies may be unavailable.
(vi) The execution and delivery of this Agreement, the
Trust Agreement, the Escrow Agreement, the Customer
Agreements and the Advisory Agreements, and the incurrence
of the obligations herein, therein and in the Prospectus set
forth and the consummation of the transactions contemplated
herein, therein and in the Prospectus will not be in
contravention of any of the provisions of the Managing
Owner's certificate of incorporation or by-laws and, to the
best of their knowledge, will not constitute a breach of, or
default under, any instrument by which the Managing Owner or
the Trust is bound or any order, rule or regulation
applicable to the Managing Owner or the Trust of any court
or any governmental body or administrative
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agency having jurisdiction over the Managing Owner or the
Trust.
(vii) To the best of their knowledge, there are no
actions, claims or proceedings pending or threatened in any
court or before or by any governmental or administrative
agency or regulatory or self-regulatory body, nor have there
been any such suits, claims or proceedings within the last
five years, to which the Managing Owner (or any principal of
the Managing Owner) or the Trust is or was a party, or to
which any of their assets is or was subject, which are
required to be, but are not, disclosed in the Registration
Statement or Prospectus or which might reasonably be
expected to result in any material adverse change in the
condition (financial or otherwise), business or prospects of
the Managing Owner or the Trust.
(viii) No authorization, approval or consent of any
governmental or self-regulatory authority or agency is
necessary in connection with the subscription for and sale
of the Units, except such as may be required under the 1933
Act, the Commodity Act, NFA compliance rules, NASD rules or
applicable securities or "Blue Sky" laws.
(ix) The information in the Prospectus under the
caption "Federal Income Tax Aspects," to the extent that
such information constitutes matters of law or legal
conclusions, has been reviewed by them and is correct in all
material respects, insofar as it relates to the income tax
consequences to the Trust and to the federal income tax
consequences of an investment in the Trust by U.S.
individual taxpayers.
(x) The Registration Statement is effective under the
1933 Act and no proceeding for a stop order is pending or,
to the best of their knowledge, threatened under
Section 8(d) or Section 8(e) of the 1933 Act or any
applicable state "Blue Sky" laws.
(xi) At the time the Registration Statement and any
post-effective amendment thereto became effective, the
Registration
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Statement, and at the time the Prospectus and
any amendments or supplements thereto were first issued, the
Prospectus, complied as to form in all material respects
with the requirements of the 1933 Act, SEC Regulations, the
Commodity Act, the CFTC regulations and the rules of the
NFA. Nothing has come to their attention that would cause
them to believe that (a) at the time that the Registration
Statement and any post-effective amendment thereto became
effective, the Registration Statement contained any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or (b) the Prospectus as
first issued or as subsequently issued or at Closing Time
contained an untrue statement of a material fact or omitted
to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER,
that such counsel need express no opinion or belief (A) as
to the financial statements, notes thereto and other
financial or statistical data set forth in the Registration
Statement and Prospectus, or (B) as to the performance data
set forth in the Registration Statement.
(xii) Assuming operation in accordance with the
Prospectus, the Trust at a Closing Time will not be an
"investment company" as that term is defined in the
Investment Company Act of 1940, and the Managing Owner need
not be registered as an "investment adviser" under the
Investment Advisers Act of 1940 in respect of its management
of the Trust.
(c) At the Initial Closing Time, counsel for the Selling Agent
(as selected by such Selling Agent) shall, if required by the Managing
Owner, deliver its opinion to the parties, in form and substance
satisfactory to the parties, regarding such pertinent matters as the
Managing Owner may deem appropriate.
(d) At the Initial Closing Time, counsel for the Commodity Broker (as
selected by the Commodity Broker) shall, if required by the Managing Owner,
deliver its opinion to the parties, in form and substance satisfactory
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to the parties, regarding such pertinent matters as the Managing Owner may
deem appropriate.
(e) At the Initial Closing Time, counsel for each Trading Advisor (as
selected by each such Trading Advisor) shall, if required by the Managing
Owner, deliver its opinion to the parties, in form and substance reasonably
satisfactory to the parties, regarding such pertinent matters as the
Managing Owner may deem appropriate.
(f) At the Initial Closing Time, Richards, Layton & Finger, Delaware
counsel to the Managing Owner, shall deliver its opinion, on which Sidley &
Austin may rely, in form and substance satisfactory to the Managing Owner.
(g) At each Closing Time, the Managing Owner shall deliver a
certificate to the effect that: (i) no order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings therefor have been instituted or to the best of their
knowledge upon due and diligent inquiry threatened by the SEC, the
CFTC or other regulatory or self-regulatory body; (ii) the
representations and warranties of the Managing Owner contained herein
are true and correct with the same effect as though expressly made at
such Closing Time and in respect of the Registration Statement as in
effect at such Closing Time; and (iii) the Managing Owner has
performed all covenants and agreements herein contained which are
required to be performed on its part at or prior to such Closing Time.
(h) At or prior to the Initial Closing Time, the Trust shall
have received a capital contribution of the Managing Owner in the
amount required by its Trust Agreement and as described in the
Prospectus.
(i) At or prior to the Initial Closing Time, the Managing Owner's net
worth shall be sufficient in the opinion of Sidley & Austin, counsel to the
Managing Owner, for the Trust to be taxed as a partnership for federal
income tax purposes, not as an association taxable as a corporation.
(j) At the Initial Closing Time, the Selling Agents shall have
received letters from one or more accounting firms describing certain
agreed upon procedures which they have performed in reviewing certain
performance numbers set forth in the Prospectus.
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(k) Each Trading Advisor shall deliver a report dated as of the
Initial Closing Time, which shall present, for the period from the date
after the last day covered by the actual Performance Summaries in the
Prospectus (with respect to the Trading Advisors)to the Managing Owner to
the latest practicable day before the Initial Closing Time, figures which
shall be a continuation of such Summaries and which shall certify that
such figures are accurate in all material respects. The Trading Advisors
shall also certify that such Tables have been calculated in accordance
with the notes to the applicable Summaries in the Prospectus.
(l) At each Additional Closing Time thereafter, the parties hereto
shall have been furnished with such information, opinions and certified
documents as the Managing Owner may deem to be necessary or appropriate.
(m) At each Additional Closing Time, each Trading Advisor shall
deliver a certificate to the effect that (i) the representations and
warranties of such Trading Advisor contained herein are true and correct
with the same effect as though expressly made at such Additional Closing
Time and in respect of the Registration Statement as in effect at such
Additional Closing Time, and (ii) such Trading Advisor has performed all
covenants and agreements herein contained to be performed on its part at
or prior to such Additional Closing Time.
(n) At the Initial Closing Time, executed copies of the Trust
Agreement, the Customer Agreements, the Escrow Agreement, the Advisory
Agreements, and this Agreement shall be delivered to all parties.
(o) The parties hereto shall have been furnished with such
additional information, opinions and documents, including supporting
documents relating to parties described in the Prospectus and
certificates signed by such parties with regard to information
relating to them and included in the Prospectus as they may reasonably
require for the purpose of enabling them to pass upon the sale of the
Units as herein contemplated and related proceedings, in order to
evidence the accuracy or completeness of any of the representations or
warranties or the fulfillment of any of the conditions herein
contained; and all actions taken by the parties hereto in connection
with the sale of the Units as herein contemplated shall be reasonably
satisfactory in form and substance to Sidley & Austin, counsel for the
Managing Owner and to counsel for the Selling Agent.
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If any of the conditions specified in this SECTION 10 shall not have
been fulfilled when and as required by this Agreement to be fulfilled prior to a
Closing Time, this Agreement and all obligations hereunder may be canceled by
any party hereto by notifying the other parties hereto of such cancellation in
writing or by telegram at any time at or prior to such Closing Time, and any
such cancellation or termination shall be without liability of any party to any
other party other than in respect of Units already sold and except as otherwise
provided in Sections 6 and 11 of this Agreement.
Section 11. INDEMNIFICATION, CONTRIBUTION AND EXCULPATION. (a) The
Managing Owner agrees to indemnify and hold harmless the Selling Agent, each
Trading Advisor and each person, if any, who controls the Selling Agent or any
Trading Advisor within the meaning of Section 15 of the 1933 Act, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever arising from any breach of any representation or
warranty of the Managing Owner set forth herein or from any untrue
statement of a material fact or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment
thereto) or in the Promotional Material or any omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary in order to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(ii) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by
any governmental agency or body commenced or threatened, or of any
claim whatsoever based upon any such breach, untrue statement or
omission or any such alleged untrue statement or omission (any
settlement to be subject to indemnity hereunder only if effected with
the written consent of the Managing Owner); and
(iii) against any and all expense whatsoever (including the fees
and disbursements of counsel) reasonably incurred in investigating,
preparing or defending against litigation, or any investigation or
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proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such material
breach, untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under clauses (i) or (ii) above.
(iv) If the indemnification provided for in this SECTION 11 shall for
any reason be unavailable to the Selling Agent (or a controlling person of
the Selling Agent) in respect of any loss, liability, claim, damage or
expense referred to herein, then the Managing Owner shall, in lieu of
indemnifying the Selling Agent (or controlling person) contribute to the
amount paid or payable by such indemnified party as a result of such loss,
liability, claim, damage or expense, (A) in such proportion as shall be
appropriate to reflect the relative benefits received by the Managing Owner
on the one hand and the Selling Agent on the other from the offering of the
Units by the Selling Agent or (B) if the allocation provided by clause (A)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(A ) above but also the relative fault of the Managing Owner on the one
hand and the Selling Agent on the other with respect to the statements or
omissions which resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations. In no event shall
the aggregate contribution or liability of the Selling Agent exceed the
aggregate selling commissions and ongoing compensation paid to the Selling
Agent hereunder. Relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by the Managing Owner on the one hand or the Selling
Agent on the other, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The parties agree that it would not be just and equitable if
contributions pursuant to this SECTION 11 (iv) were to be determined by pro
rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount
paid or payable by the Selling Agent (or controlling person) as a result of
the loss, liability, claim, damage or expense referred to above in this
SECTION 11(iv), shall be deemed to include, for purposes of this Section
11(iv), any legal or other expenses reasonably incurred by such otherwise
indemnified party in connection with investigating or defending any such
action or claim.
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In no case shall the Managing Owner be liable under this indemnity and
contribution agreement with respect to any claim unless the Managing Owner shall
be notified in writing of the nature of the claim within a reasonable time after
the assertion thereof, but failure to so notify the Managing Owner shall not
relieve the Managing Owner from any liability which it may have otherwise than
on account of this indemnity and contribution agreement. The Managing Owner
shall be entitled to participate at its own expense in the defense or, if it so
elects within a reasonable time after receipt of such notice, to assume the
defense of any suit so brought, which defense shall be conducted by counsel
chosen by it and satisfactory to the indemnified party (or party entitled to
contribution hereunder) or parties, defendant or defendants therein.
The Managing Owner agrees to notify the Selling Agent and the Trading
Advisors within a reasonable time of the assertion of any claim in connection
with the sale of the Units against it or any of its officers or directors or any
person who controls the Managing Owner within the meaning of Section 15 of the
1933 Act.
(b) INDEMNIFICATION BY EACH TRADING ADVISOR. Each Trading Advisor
agrees to indemnify and hold harmless the Selling Agent, the Managing Owner, the
Trust and each person, if any, who controls the Selling Agent, the Trust or the
Managing Owner within the meaning of Section 15 of the 1933 Act (and, in the
case of the Managing Owner and the Trust, each person who signed the
Registration Statement or is a director of the Managing Owner), to the same
extent as the indemnity from the Managing Owner set forth in SECTION 11(a)
hereof, but only insofar as the losses, claims, damages, liabilities or expenses
indemnified against arise out of or are based upon any untrue statement or
omission relating or with respect to that Trading Advisor or any principal of
that Trading Advisor, or its operations, trading systems, methods or
performance, which was made in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto and furnished
by or approved by the Trading Advisor in writing for inclusion therein.
(c) Indemnification by Selling Agent. The Selling Agent agrees to
indemnify and hold harmless the Managing Owner, the Trust, each Trading Advisor
and each person, if any, who controls the Managing Owner, the Trust or a Trading
Advisor from and against any and all losses, claims, damages, liabilities or
expenses arising out of or based upon (i) any violation of law or of this
Agreement committed by the Selling Agent in selling the Units to investors or
(ii) any oral representations made to investors the information in which is not
contained in the
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Registration Statement or any other previously approved written
material.
Section 12. STATUS OF PARTIES. In marketing Units pursuant to this
Agreement, the Selling Agent is acting solely as agent for the Trust, and not as
principal. The Selling Agent will use its best efforts to assist the Trust in
obtaining performance by each purchaser solicited by such Selling Agent whose
offer to purchase Units from the Trust has been accepted on behalf of the Trust,
but the Selling Agents shall not have any liability to the Trust in the event
that Subscription Agreements and Powers of Attorney are improperly completed or
any such purchase is not consummated for any reason. Except as specifically
provided herein, the Selling Agent shall in no respect be deemed to be an agent
of the Trust.
Section 13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or contained in certificates of any party hereto submitted pursuant
hereto shall remain operative and in full force and effect, regardless of any
investigation made by, or on behalf of, the Selling Agent, the Managing Owner,
the Trust, any Trading Advisor or any person who controls any of the foregoing,
and shall survive the Closing Times.
Section 14. TERMINATION. The Selling Agent shall have the right to
terminate its participation under this Agreement at any time for cause and at
any time after the end of the Initial Offering Period upon fifteen (15) business
days' prior written notice of such termination to the Managing Owner and the
Trust. This Agreement shall terminate (except as set forth in Section 15 below)
in respect of each Trading Advisor at the time that such Trading Advisor's
Advisory Agreement terminates. The Managing Owner may terminate the offering of
the Units at any time upon fifteen (15) business days' prior written notice to
the Selling Agent.
Section 15. SURVIVAL. Irrespective of the expiration or termination
of this Agreement, SECTIONS 7, 8, 9 and 11 hereof shall survive, and all
applicable provisions of this Agreement with respect to outstanding Units.
Section 16. NOTICES AND AUTHORITY TO ACT. All communications
hereunder shall be in writing and, if sent to the Managing Owner or the Trust,
shall be mailed, delivered or telecopied and confirmed to the Managing Owner at:
Kenmar Advisory Corp., Two American Lane, P.O. Box 5150, Greenwich, Connecticut
06831-8150, Attn: Joshua Parker, Esq.; and Mr. David Sawyier, Sidley & Austin,
One First National Plaza, Chicago, Illinois 60603. If sent to
____________________________, shall
-34-
<PAGE>
be mailed, delivered or telecopied and confirmed to it
at _______________________________________, Attention:
____________. Notices shall be effective when actually received.
Section 17. PARTIES. This Agreement shall inure to the benefit of
and be binding upon the Selling Agent, the Trust, the Managing Owner, the
Trading Advisors and such parties' respective successors to the extent provided
herein. This Agreement and the conditions and provisions hereof are intended to
be and are for the sole and exclusive benefit of the parties hereto and their
respective successors, assigns and controlling persons and parties indemnified
hereunder, and for the benefit of no other person, firm or corporation. No
purchaser of a Unit shall be considered to be a successor or an assignee solely
on the basis of such purchase.
Section 18. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES CREATED HEREBY SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
Section 19. CONSENT TO JURISDICTION. The parties hereto agree that
any action or proceeding arising directly, indirectly, or otherwise in
connection with, out of, related to, or from this Agreement, any breach hereof,
or any transaction covered hereby, shall be resolved, whether by arbitration or
otherwise, within the County of New York, and State of New York. Accordingly,
the parties hereto consent and submit to the jurisdiction of the federal and
state courts and applicable arbitral body located within the County of New York,
and State of New York. The parties further agree that any such action or
proceeding brought by any party to enforce any right, assert any claim, or
obtain any relief whatsoever in connection with this Agreement shall be brought
by such party exclusively in the federal or state courts, or if appropriate,
before any applicable arbitral body, located within the County of Fairfield, and
State of Connecticut.
The Managing Owner and the Trust each agree that, at the request of
the Selling Agent, they will submit any action or proceeding referred to in this
SECTION 19 to NFA arbitration in the County of Fairfield and State of
Connecticut, and agree to execute and deliver to each Selling Agent such Selling
Agent's standard form of arbitration agreement, as required by NFA regulations.
Section 20. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original and both of which together
shall be deemed one and the same instrument.
-35-
<PAGE>
If the foregoing is in accordance with each party's understanding of
their agreement, each party is requested to sign and return to the Managing
Owner and the Trust a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement among them in accordance with
its terms.
Very truly yours,
KENMAR GLOBAL TRUST
By: KENMAR ADVISORY CORP.,
Managing Owner
By:________________________________
Name:
Title:
KENMAR ADVISORY CORP.
By:________________________________
Name:
Title:
CHESAPEAKE CAPITAL CORPORATION
By:___________________________
Name:
Title:
DREISS RESEARCH CORPORATION
By:___________________________
Name:
Title:
HYMAN BECK & COMPANY, INC.
By:___________________________
Name:
Title:
WILLOWBRIDGE ASSOCIATES INC.
By:___________________________
Name:
Title:
-36-
<PAGE>
WITTER & LESTER, INC.
By:___________________________
Name:
Title:
Confirmed and accepted as of
the date first above written
with respect to SECTION 3:
ING (U.S.) SECURITIES, FUTURES &
OPTIONS INC.
By:___________________________
Name:
Title:
Confirmed and accepted as of
the date first above written:
[SELLING AGENT]
By:___________________________
Name:
Title:
PAINEWEBBER INCORPORATED
By:___________________________
Name:
Title:
-37-
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORRESPONDENT SELLING AGENT AGREEMENT
KENMAR GLOBAL TRUST
(A DELAWARE BUSINESS TRUST)
$50,000,000
UNITS OF BENEFICIAL INTEREST
KENMAR ADVISORY CORP.
Managing Owner
DATED _______, 1996
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KENMAR GLOBAL TRUST
TABLE OF CONTENTS
Page
----
Section 1. Representations and Warranties
of the Managing Owner . . . . . . . . . . . . . . . . . . . A-2
Section 2. Offering and Sale of Units. . . . . . . . . . . . . . . . . . A-8
Section 3. Compliance with Conduct Rule 2810 and General Laws . . . . . A-13
Section 4. Blue Sky Survey . . . . . . . . . . . . . . . . . . . . . . . A-15
Section 5. Covenants of the Managing Owner . . . . . . . . . . . . . . . A-16
Section 6. Payment of Expenses and Fees. . . . . . . . . . . . . . . . . A-17
Section 7. Conditions of Closing . . . . . . . . . . . . . . . . . . . . A-18
Section 8. Indemnification, Contribution and
Exculpation . . . . . . . . . . . . . . . . . . . . . . . . A-19
Section 9. Status of Parties . . . . . . . . . . . . . . . . . . . . . . A-21
Section 10. Representations, Warranties and
Agreements to Survive Delivery. . . . . . . . . . . . . . . A-21
Section 11. Termination. . . . . . . . . . . . . . . . . . . . . . . . . A-22
Section 12. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
Section 13. Notices and Authority to Act . . . . . . . . . . . . . . . . A-22
Section 14. Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
Section 15. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . A-22
Section 16. Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . A-22
Section 17. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . A-23
A-i
<PAGE>
KENMAR GLOBAL TRUST
(A DELAWARE BUSINESS TRUST)
$50,000,000
UNITS OF BENEFICIAL INTEREST
INITIALLY $100 PER UNIT
CORRESPONDENT SELLING AGENT AGREEMENT
__________, 1996
[CORRESPONDENT SELLING AGENT]
Dear Sirs:
KENMAR ADVISORY CORP., a Delaware corporation (THE "MANAGING OWNER"),
has caused the formation of a business trust pursuant to the Delaware Business
Trust Act (the "Delaware Act") under the name, KENMAR GLOBAL TRUST (THE
"TRUST"), for the purposes of engaging in the speculative trading of commodity
futures and forward contracts, commodity options and other commodity interests,
through investments with independent commodity trading advisors (each, a
"Trading Advisor") retained by the Managing Owner on behalf of the Trust.
______________ (the "SELLING AGENT") has been appointed pursuant to a Selling
Agreement (the "Selling Agreement") by and among themselves, the Managing Owner,
the Trading Advisors and Trust, as a Selling Agent for the Trust. Other selling
agents (the "Correspondent Selling Agents") may be selected by the Selling Agent
with the consent of the Managing Owner in accordance with the terms of the
Selling Agreement. You have been so selected by the Selling Agent and the
Trust. We understand that you are willing to use your best efforts to market
the Trust's units of beneficial interest ("Units").
Accordingly, the Correspondent Selling Agent, the Managing Owner, the
Trust and the Selling Agent, intending to be legally bound, hereby agree as
follows.
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
Section 1. REPRESENTATIONS AND WARRANTIES OF THE MANAGING OWNER.
The Managing Owner represents and warrants to the Correspondent Selling Agent as
follows -- such representations and warranties to be restated and reaffirmed as
of each Closing Time (as defined in Section 2 hereof):
(a) The Trust has filed with the Securities and Exchange
Commission (the "SEC"), a registration statement on Form S-1 (No.
333-8869), as initially filed with the SEC on July 25, 1996, as
amended by Amendment No. 1 thereto filed with the SEC on October 30,
1996, and Amendment No. 2 thereto filed with the SEC on December __,
1996, for the registration of the Units under the Securities Act of
1933, as amended (the "1933 Act"), and has filed two copies thereof
with the Commodity Futures Trading Commission (the "CFTC") under the
Commodity Exchange Act, as amended (the "Commodity Act"), and the
rules and regulations thereunder (the "CFTC Regulations"), and one
copy with the National Futures Association (the "NFA") in accordance
with NFA Compliance Rule 2-13. The registration statement as amended
and delivered to all parties hereto at the time it becomes effective
and the prospectus included therein are hereinafter called the
"Registration Statement" and the "Prospectus," respectively, except
that (i) if the Trust files a subsequent post-effective amendment to
the registration statement, then the term "Registration Statement"
shall, from and after the declaration of the effectiveness of such
post-effective amendment, refer to the registration statement as
amended by such post-effective amendment thereto, and the term
"Prospectus" shall refer to the prospectus as most recently issued by
the Trust pursuant to the rules and regulations of the SEC promulgated
under the 1933 Act (the "SEC Regulations").
The Managing Owner agrees to suspend the offering immediately and
inform the Selling Agent and Correspondent Selling Agent if the
Managing Owner has any reason to believe that it may be necessary or
advisable to amend the Registration Statement or supplement the
Prospectus.
No references to the Correspondent Selling Agent may be made in
the Registration Statement, Prospectus or in any promotional brochure
or other marketing materials (collectively, "Promotional Material"),
including "Tombstone Ads" or other communications qualifying under
Rule 134 of the SEC Regulations which have not been approved in
writing by the Correspondent
A-2
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
Selling Agent, which approval the Correspondent Selling Agent may withhold
in its sole and absolute discretion. The Trust will file all Promotional
Material with the National Association of Securities Dealers, Inc. (the
"NASD"), and shall not use any such Promotional Material to which the NASD
has not expressed that it has no objections. The Trust will file all
Promotional Material in all state jurisdictions, and shall not use any such
Promotional Material in any state which has expressed any objection thereto
(except pursuant to agreed-upon modification to the Promotional Material).
All representations, warranties and indemnities set forth herein
will be deemed to be restated in their entirety as of each Closing
Time (as defined in SECTION 2(g) hereof).
(b) The certificate of trust (the "Certificate of Trust")
pursuant to which the Trust has been formed and the Declaration of
Trust and Trust Agreement of the Trust (the "Trust Agreement") provide
for the subscription for and sale of the Units of the Trust; all
action required to be taken by the Managing Owner and the Trust as a
condition to the sale of the Units to qualified subscribers therefor
has been, or prior to the Initial Closing Time (as defined in
SECTION 2 hereof) will have been, taken; and, upon payment of the
consideration therefor specified in all accepted Subscription
Agreements and Powers of Attorney, the Units will constitute valid
units of beneficial interest in the Trust as to which the subscribers
thereto will have the same limitation on personal liability as
stockholders in a private corporation for profit organized under the
laws of the State of Delaware, and the subscribers will be Unitholders
of the Trust entitled to all the applicable benefits under the Trust
Agreement and the Delaware Act.
(c) The Trust is a business trust duly organized pursuant to the
Delaware Act and is validly existing and in good standing under the
laws of the State of Delaware with full power and authority to engage
in the business to be conducted by it, as described in the Prospectus.
The Trust is in good standing and qualified to do business in each
jurisdiction in which such qualification is necessary in order to
protect the limited liability of Unitholders and in which the nature
or conduct of its business as described in the
A-3
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
Registration Statement requires such qualification and the failure to be so
qualified would materially adversely affect the Trust.
(d) The Managing Owner is, and will continue to be so long as it
is the managing owner of the Trust, a corporation duly organized,
validly existing and in good standing under the laws of the State of
Connecticut and is in good standing and qualified to do business in
each jurisdiction in which the nature or conduct of its business as
described in the Registration Statement and Prospectus requires such
qualification and the failure to be so qualified would materially
adversely affect the Trust's or the Managing Owner's ability to
perform its obligations hereunder.
(e) The Trust and the Managing Owner each have full trust and
corporate power and authority, as the case may be, under applicable
law to perform its respective obligations under the Trust Agreement,
the escrow agreement described in the Prospectus relating to the
offering of the Units (the "Escrow Agreement"), the Customer Agreement
by and among the Selling Agent, the Trust and the Managing Owner (the
"Customer Agreement"), the Advisory Agreements (the "Advisory
Agreements") by and among each Trading Advisor, the Trust and the
Managing Owner and this Agreement, and to conduct its business as
described in the Registration Statement and Prospectus.
(f) The Registration Statement and Prospectus contain all
statements and information required to be included therein by the
Commodity Act and the rules and regulations promulgated thereunder.
When the Registration Statement becomes effective under the 1933 Act
and at all times subsequent thereto up to and including each Closing
Time, the Registration Statement, Prospectus and Promotional Material
will comply in all material respects with the requirements of the 1933
Act, the Commodity Act, the SEC Regulations and the CFTC Regulations
and will be accurate and complete in all material respects. The
Registration Statement as of its effective date will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and each item of the
Promotional Material (considered individually) as of the date of their
issue and at all
A-4
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
times subsequent thereto up to and including each Closing Time will not
contain any untrue statement of a material fact or (considered
collectively) omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which such
statements are made, not misleading.
(g) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there will not have
been any adverse change in the condition (financial or otherwise),
business or prospects of the Managing Owner or the Trust, whether or
not arising in the ordinary course of business, of which the Selling
Agent shall not be informed by the Managing Owner.
(h) The Managing Owner has, and will continue to have during the
term of the Trust, a net worth sufficient in amount and satisfactory
in form, as set forth in the opinion of Sidley & Austin, counsel for
the Managing Owner, for classification of the Trust as a partnership
for federal income tax purposes under current interpretations of the
Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder.
(i) Each of the Trust Agreement, the Escrow Agreement, the
Selling Agreement, the Customer Agreement, the Advisory Agreements and
this Agreement has been duly and validly authorized, executed and
delivered by the Managing Owner on behalf of the Trust and by the
Managing Owner, and each constitutes a valid, binding and enforceable
agreement of the Trust and the Managing Owner in accordance with its
terms.
(j) The execution and delivery of the Trust Agreement, the
Escrow Agreement, the Selling Agreement, the Customer Agreement, the
Advisory Agreements and this Agreement, the incurrence of the
obligations set forth therein and herein and the consummation of the
transactions contemplated therein, herein and in the Prospectus: (i)
will not constitute a breach of, or default under, any instrument or
agreement by which the Managing Owner or the Trust, as the case may
be, or any of their property or assets is bound, or any statute,
order, rule or regulation applicable to the Managing Owner or the
Trust, as the case may be, of any court or
A-5
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
any governmental body or administrative agency having jurisdiction over
the Managing Owner or the Trust, as the case may be; (ii) will not
result in the creation or imposition of any lien, charge or encumbrance
on any property or assets of the Managing Owner or the Trust; (iii) will
not give any party a right to terminate its obligations or result in the
acceleration of any obligations under any material instrument or
agreement by which the Managing Owner or the Trust, as the case may be,
or any of their respective property or assets is bound; and (iv) will
not result in any material liability (other than such as may be
contemplated hereby) on the part of either the Managing Owner or the
Trust.
(k) Except as otherwise disclosed in the Registration Statement
or the Prospectus, there is not pending nor, to the best of the
Managing Owner's knowledge, threatened any action, suit or proceeding
before or by any court or other governmental body to which the
Managing Owner or the Trust is a party, or to which any of the assets
of the Managing Owner or the Trust is subject, which might reasonably
be expected to result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Managing Owner
or the Trust or which is required to be disclosed in the Registration
Statement or Prospectus pursuant to the Commodity Act, the 1933 Act,
the SEC Regulations or the CFTC Regulations.
(l) No stop order relating to the Registration Statement has been
issued by any federal or state securities commission, and no proceedings
therefor are pending or, to the best knowledge of the Managing Owner,
threatened.
(m) The Managing Owner and each of its principals and employees
have, and will continue to have so long as it is the managing owner of
the Trust, all federal and state governmental, regulatory,
self-regulatory and commodity exchange approvals and licenses, and the
Managing Owner (either on behalf of itself or its principals and
employees) has effected all filings and registrations with federal and
state governmental, regulatory or self-regulatory agencies required to
conduct its business and to act as described in the Registration
Statement and Prospectus or required to perform its or their
obligations as described under the Trust Agreement (including, without
limitation,
A-6
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
registration (i) as a commodity pool operator and commodity trading
advisor under the Commodity Act, (ii) membership in the NFA as a
commodity pool operator and commodity trading advisor, and (iii) as a
"transfer agent" with the Securities and Exchange Commission, and this
Agreement and the performance of such obligations will not contravene or
result in a breach of any provision of the Managing Owner's certificate
of incorporation, by-laws or any agreement, instrument, order, law or
regulation binding upon it or any of its employees or principals.
(n) The Trust does not require any federal or state
governmental, regulatory, self-regulatory or commodity exchange
approvals or licenses, and the Trust need not effect any filings or
registrations with any federal or state governmental agencies in order
to conduct its business and to act as contemplated by the Registration
Statement and Prospectus and to issue and sell the Units (other than
filings under the 1933 Act, the Commodity Act and state securities
laws relating solely to the offering of the Units).
(o) The Managing Owner has the financial resources necessary to
meet its obligations to the Selling Agent hereunder.
(p) The Managing Owner acknowledges that the Correspondent
Selling Agent's customer lists constitute proprietary data belonging
to the Correspondent Selling Agent, and the Managing Owner agrees that
it will not disseminate any confidential information regarding any of
the foregoing, except as required by law. Furthermore, the Managing
Owner agrees that it will not independently solicit any client on the
Correspondent Selling Agent's customer lists, except as requested by
the Correspondent Selling Agent in connection with soliciting
investments in the Trust. The Managing Owner further agrees with the
Selling Agent and the Correspondent Selling Agent that the Managing
Owner will use its best efforts to keep the identity of the
Correspondent Selling Agent, as well as the terms of this Agreement,
confidential, except as otherwise required by law or otherwise made
public by third parties without the negligence, misconduct or breach
of the terms hereof by the Managing Owner.
A-7
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
(q) The accountants who certified the Statement of Financial
Position of the Managing Owner and the Statement of Financial
Condition of the Trust included in the Registration Statement are,
with respect to the Managing Owner and the Trust, independent public
accountants as required by the 1933 Act and the SEC Regulations.
These Statements fairly present the financial position and financial
condition of the Managing Owner and the Trust, as the case may be, as
of the date of such Statements. The audited Statement of Position of
the Managing Owner and Statement of Financial Condition of the Trust
are presented in accordance, and the unaudited Statements of Financial
Position of the Managing Owner substantially in accordance, with
Generally Accepted Accounting Principles (as currently in effect in
the United States).
Section 2. OFFERING AND SALE OF UNITS.
(a) The Correspondent Selling Agent is hereby appointed as a
non-exclusive Correspondent Selling Agent of the Selling Agent during
the term herein specified for the purpose of finding acceptable
subscribers for the Units through a public offering of such Units.
The Correspondent Selling Agent hereby accepts such agency and agrees
on the terms and conditions herein set forth to use its best efforts
to find acceptable subscribers.
It is understood that the Correspondent Selling Agent's agreement
to use its best efforts to find acceptable subscribers for the Units
shall not prevent it from acting as a selling agent or underwriter for
the securities of other issuers which may be offered or sold during
the term hereof. The agency of the Correspondent Selling Agent
hereunder shall continue until the expiration or termination of this
Agreement, as provided herein, including such additional period as may
be required to effect the closing of the sale of the Units subscribed
for through the Correspondent Selling Agent through the date of
termination.
Each subscriber shall be required to submit a minimum
subscription of at least $5,000 ($2,000 for trustees or custodians of
eligible employee benefit plans and individual retirement accounts and
existing Unitholders making additional investments), subject to
A-8
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
higher minimum requirements imposed by certain state regulators as set
forth in Exhibit B to the Prospectus. Incremental investments are
permitted in $100 multiples with Units being sold in fractions
calculated to three decimal places.
The Managing Owner agrees to pay, from its own funds, to the
Selling Agent a selling commission of $5 per Unit on each Unit sold by
the Correspondent Selling Agent at the Initial Closing (5% of the Net
Asset Value per Unit on each Unit sold by the Correspondent Selling
Agent at each Additional Closing).
During the period from the commencement of the offering of the
Units to the Initial Closing (as defined in SECTION 2(f) hereof), the
Managing Owner shall advance selling commissions to the Selling Agent
within ten (10) business days of the end of each calendar month based
on Subscription Agreement and Power of Attorney Signature Pages
received and subscription payments paid into the escrow account of the
Trust during the preceding calendar month. The Selling Agent agrees
that it will promptly return to the Managing Owner, without interest,
any selling commissions advanced by the Managing Owner in respect of
subscriptions ultimately rejected out of the escrow account or in
respect of all subscriptions if no Units are sold to the public by
release of subscriptions from the escrow account to the account of the
Trust.
The Selling Agent agrees that it will promptly pass on to the
Correspondent Selling Agent 4% of the initial 5% selling commission
received by the Selling Agent from the Managing Owner to which the
Correspondent Selling Agent is entitled. The Correspondent Selling
Agent, in turn, agrees that it will promptly pass on to its Registered
Representatives that portion of the selling commissions received by
the Correspondent Selling Agent from the Selling Agent to which such
Registered Representatives are entitled pursuant to the Correspondent
Selling Agent's standard compensation procedures, as determined by the
Correspondent Selling Agent from time to time.
(b) For ongoing services rendered to Unitholders by the Selling
Agent and the Correspondent Selling Agent, the Managing Owner shall
pay the Selling Agent, provided that the Selling Agent remains, and
the
A-9
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
Correspondent Selling Agent is and remains, registered with the
CFTC as a "futures commission merchant" or "introducing broker" and a
member in good standing of the NFA in such capacity, ongoing
compensation in an amount equal to 0.29166 of 1% (a 3.5% annual rate)
of the month-end Net Asset Value of Units sold by the Correspondent
Selling Agent remaining outstanding as of the end of each month
(including Units redeemed as of the end of such month). Such ongoing
compensation shall begin to accrue with respect to each Unit only
after the end of the twelfth full month after the sale of such Unit --
which for these purposes occurs when the related subscription proceeds
are released from the escrow account into the Trust, not when the
related subscriptions are received into escrow -- and shall continue
only for as long as such Unit remains outstanding. The Managing Owner
shall pay the ongoing compensation due to the Selling Agent within
fifteen (15) business days of the end of each calendar quarter.
Ongoing compensation, which is payable to the Selling Agent only
in respect of Units sold by Registered Representatives of the
Correspondent Selling Agent who are themselves registered with the
CFTC and who have passed either the Series 3 National Commodity
Futures Examination or the Series 31 Futures Managed Funds
Examination, is contingent upon the agreement by such Registered
Representatives to provide ongoing services in connection with the
Units sold by such Registered Representatives, including:
(i) inquiring of the Managing Owner (through the Selling Agent) from
time to time, at the request of an owner of Units, as to the Net Asset
Value of a Unit; (ii) inquiring of the Managing Owner (through the
Selling Agent) from time to time, at the request of an owner of Units,
regarding the commodities markets and the Trust; (iii) assisting, at
the request of the Managing Owner (through the Selling Agent), in the
redemption of Units; and (iv) providing such other services to the
owners of Units as the Managing Owner (through the Selling Agent) may,
from time to time, reasonably request. The Correspondent Selling
Agent agrees to adopt procedures to monitor the adequacy of the
ongoing services provided by its Registered Representatives. The
Selling Agent shall not be responsible for determining whether such
Registered Representatives are properly registered with the CFTC.
A-10
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
In the case of Units sold by Registered Representatives who are
not qualified to receive ongoing compensation as set forth above, the
Managing Owner will pay the Selling Agent installment selling
commissions at the same rate as in the case of ongoing compensation,
but limited, pursuant to applicable NASD policy, in amount to 4.5% of
the initial subscription price of the Units sold by such Registered
Representatives; provided, that no such installment selling commission
shall be payable until the Managing Owner and the Selling Agent
determine that the payment of such installment selling commission is
in compliance with Appendix F of the NASD Rules of Fair Practice on
aggregate compensation which may be received by the Selling Agent and
the Correspondent Selling Agent. The Correspondent Selling Agent
agrees to adopt procedures to monitor the payment of installment
selling commissions so as to ensure that such commissions do not
exceed 9.5% of the initial subscription price of affected Units.
The Selling Agent agrees that it will promptly pass on to the
Correspondent Selling Agent 2.75% per annum of the ongoing
compensation and installment selling commissions received by the
Selling Agent from the Managing Owner to which the Correspondent
Selling Agent is entitled. The Correspondent Selling Agent agrees to
pass ongoing compensation and installment selling commissions on to
its Registered Representatives on an ongoing basis, pursuant to the
Correspondent Selling Agent's standard compensation procedures, as
determined by the Correspondent Selling Agent from time to time.
(c) The Correspondent Selling Agent must be either (i) a dealer
who is a member in good standing of the NASD and which agrees, or (ii)
a foreign bank, dealer or institution ineligible for membership in a
registered security association (within the meaning of Section 25 of
Article III of the NASD's Rules of Fair Practice) and agree that it
will make no sales of Units within the United States, its territories
or possessions or areas subject to its jurisdiction.
(d) Ongoing compensation will be paid at the end of each
calendar quarter for which such compensation is payable on the basis
of the Units outstanding during each month during such quarter. Net
Assets, for
A-11
<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
purposes of determining ongoing compensation, shall be calculated after
reduction of all expenses of the Trust, including both accrued and
unpaid expenses.
The Correspondent Selling Agent (unless it is a foreign dealer),
although otherwise entitled to ongoing compensation, will not be
entitled to receipt thereof (but may continue to receive installment
selling commissions) for any month during any portion of which the
Registered Representative who is receiving such ongoing compensation
is at any time not properly registered with the CFTC. Consequently,
the Selling Agent will itself be ineligible to receive any such
ongoing compensation from the Managing Owner in respect of such Units.
(e) If acceptable subscriptions for at least the minimum number
of Units specified on the cover of the Prospectus (the "Minimum
Units") shall not have been received by February 28, 1997 (unless
extended until May 31, 1997 by the Managing Owner), all funds received
from subscribers shall be promptly returned in full, together with all
interest payable thereon (irrespective of amount) and without
deduction for any escrow or other fee or expense; and thereupon the
Selling Agent's and the Correspondent Selling Agent's duties under
this Agreement shall terminate without further obligation hereunder on
the part of the Selling Agent, the Correspondent Selling Agent, the
Managing Owner or the Trust.
(f) If at least the Minimum Units shall have been subscribed
for, then on February 28, 1997, or (i) at such earlier time after
subscriptions for the Minimum Units shall have been received as
determined by the Managing Owner, or (ii) at such later date on or
prior to May 31, 1997, to which the Managing Owner may extend the
initial offering, the Managing Owner shall notify the Correspondent
Selling Agent of the initial closing of the Trust (the "Initial
Closing") as well as of the aggregate number of Units for which the
Managing Owner has received acceptable subscriptions and then payment
of the purchase price for the Units shall be made at the office of
Sidley & Austin, 875 Third Avenue, New York, New York 10022, or at
such other place as shall be agreed upon among the Selling Agent and
the Managing Owner, at 10:00 A.M., New York time, on such day and time
(not later than five (5)
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CORRESPONDENT SELLING AGENT AGREEMENT
business days after the end of the Offering Period) as shall be agreed
upon among the Selling Agent and the Managing Owner (the "Initial
Closing Time"). Subsequent to the Initial Closing Time, Units shall
continue to be sold as of the first day of each calendar month (each
such sale, an "Additional Closing" and each such date a "Closing Time"),
in the discretion of the Trust.
(g) No selling commissions or ongoing compensation shall be paid
on Units sold to the Managing Owner or any of its principals or
affiliates.
(h) The Trust shall not in any respect be responsible for any
selling commissions or ongoing compensation described herein. All
such commissions and ongoing compensation are to be solely the
responsibility of the Managing Owner.
Section 3. Compliance with Conduct Rule
2810 and General Laws.
(a) The Correspondent Selling Agent will use its best efforts to
find eligible persons to purchase the Units on the terms stated herein
and in the Registration Statement and Prospectus. It is understood
that the Correspondent Selling Agent has no commitment with regard to
the sale of the Units other than to use its best efforts. In
connection with the offer and sale of the Units, the Selling Agent and
the Correspondent Selling Agent each represents that it will comply
fully with all applicable laws, and the rules and interpretations of
the NASD, the SEC, the CFTC, state securities administrators and any
other regulatory body. In particular, and not by way of limitation,
the Correspondent Selling Agent represents and warrants that it is
familiar with NASD Conduct Rule 2810 and that it will comply fully
with all the terms thereof in connection with the offering and sale of
the Units. The Correspondent Selling Agent will not execute any sales
of Units from a discretionary account over which it has control
without prior written approval of the customer in whose name such
discretionary account is maintained.
(b) The Correspondent Selling Agent agrees not to recommend the
purchase of Units to any subscriber unless the Correspondent Selling
Agent shall have
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<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
reasonable grounds to believe, on the basis of information obtained from
the subscriber concerning, among other things, the subscriber's
investment objectives, other investments, financial situation and needs,
that (to the extent relevant for the purposes of Conduct Rule 2810 and
giving due consideration to the fact that the Trust is in no respects a
"tax shelter") the subscriber is or will be in a financial position
appropriate to enable the subscriber to realize to a significant extent
the benefits of the Trust, including the tax benefits (if any) described
in the Prospectus; the subscriber has a fair market net worth sufficient
to sustain the risks inherent in participating in the Trust; and the
Units are otherwise a suitable investment for the subscriber. The
Correspondent Selling Agent agrees to maintain such records as are
required by the NASD and the state securities commissions for purposes
of determining investor suitability. In connection with making the
foregoing representations and warranties, the Correspondent Selling
Agent further represents and warrants that it has, among other things,
examined the following sections in the Prospectus and obtained such
additional information from the Managing Owner regarding the information
set forth thereunder as the Correspondent Selling Agent has deemed
necessary or appropriate to determine whether the Prospectus adequately
and accurately discloses all material facts relating to an investment in
the Trust and provides an adequate basis to subscribers for evaluating
an investment in the Units:
"Risk Factors"
"The Trust and Its Objectives"
"Kenmar Advisory Corp."
"Charges"
"Redemptions"
"Conflicts of Interest"
"The Trust and the Trustee"
"Federal Income Tax Aspects"
"The Futures and Forward Markets"
"Appendix II -- Performance of Other Futures Funds Operated by Kenmar"
In connection with making the representations and warranties set forth
in this paragraph, the Correspondent Selling Agent has not relied on
inquiries made by or on behalf of any other parties.
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<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
The Correspondent Selling Agent agrees to inform all prospective
purchasers of Units of all pertinent facts relating to the liquidity
and marketability of the Units as set forth in the Prospectus.
(c) All payments are made by authorization to the Correspondent
Selling Agent to debit the subscriber's customer securities account
maintained with the Selling Agent. Subscribers who do so must have
their subscription payments in their accounts on the specified
settlement date, of which subscribers will be notified by the
Correspondent Selling Agent and which will occur not later than three
(3) business days following notification by the Managing Owner to the
Selling Agent of the acceptance of a particular subscription and not
later than the termination of the offering period for the Units. On
each settlement date, subscribers' customer securities accounts will
be debited by the Selling Agent in the amount of their subscriptions.
The amount of the subscription payments so debited will be transmitted
by the Selling Agent directly to the Escrow Agent in the form of a the
Selling Agent check or wire transfer made payable to
"___________________, AS ESCROW AGENT FOR KENMAR GLOBAL TRUST ESCROW
ACCOUNT NO. ____________."
The Correspondent Selling Agent and the Managing Owner may also make
such other arrangements for the transmission of subscriptions as they may
deem convenient and appropriate with the consent of the Selling Agent;
provided that such arrangements comply in all respects with SEC Regulations
10b-9 and 15c2-4. Such arrangements may be made through or using
facilities made available by the Selling Agent.
Section 4. BLUE SKY SURVEY. The Managing Owner shall cause Sidley &
Austin, counsel to the Managing Owner, to prepare and deliver to the
Correspondent Selling Agent, a Blue Sky Survey which shall set forth the United
States jurisdictions in which the Units may be offered and sold. The Managing
Owner agrees to use its best efforts to qualify the Units under the securities
or Blue Sky laws of the various state jurisdictions, and to maintain such
qualification during the term of the offering, provided that the Managing Owner
reserves the right to withdraw application for the Units' registration. It is
understood and agreed that the Correspondent Selling Agent may rely, in
connection with the offering and sale of Units in any United States
jurisdiction, on advice given by Sidley & Austin as
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<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
to the legality of the offer or sale of the Units in such jurisdiction.
Section 5. COVENANTS OF THE MANAGING OWNER.
(a) The Managing Owner will notify the Correspondent Selling
Agent immediately and confirm such notification in writing (i) when
any amendment to the Registration Statement shall have become
effective or any supplement to the Prospectus is filed, (ii) of the
receipt of any further comments from the SEC, CFTC, NFA or any other
federal or state regulatory or self-regulatory body with respect to
the Registration Statement, (iii) of any request by the SEC, CFTC, NFA
or any other federal or state regulatory or self-regulatory body for
any further amendment to the Registration Statement or any amendment
or further supplement to the Prospectus or for additional information
relating thereto, (iv) of any material criminal, civil or
administrative proceedings against or involving the Managing Owner or
the Trust, (v) of the issuance by the SEC, CFTC, NFA or any other
federal or state regulatory or self-regulatory body of any order
suspending the effectiveness of the Registration Statement under the
Securities Act, the registration or NFA membership of the Managing
Owner as a "commodity pool operator," or the registration of Units
under the Blue Sky or securities laws of any state or other
jurisdiction or any order or decree enjoining the offering or the use
of the then current Prospectus or any Promotional Material or of the
institution, or notice of the intended institution, of any action or
proceeding for that purpose, or (vi) of any threatened action of the
type referred to in clauses (iii) through (v) of which the Managing
Owner is aware. In the event any order of the type referred to in
clause (v) is issued, the Managing Owner agrees to use best efforts to
obtain a lifting or rescinding of such order at the earliest feasible
date.
(b) The Managing Owner will deliver to the Selling Agent, for
delivery to the Correspondent Selling Agent, such number of conformed
copies of the Registration Statement as originally filed and as of
each amendment thereto (without exhibits) as the Correspondent Selling
Agent shall reasonably request.
(c) The Managing Owner will deliver to the Selling Agent, for
delivery to the Correspondent
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<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
Selling Agent, as promptly as practicable from time to time during the
period when the Prospectus is required to be delivered under the 1933
Act, such number of copies of the Prospectus (as amended or
supplemented) and of such Promotional Material as the Correspondent
Selling Agent may reasonably request for the purposes contemplated by
the 1933 Act or the SEC Regulations.
(d) During the period when the Prospectus is required to be
delivered pursuant to the 1933 Act, the Managing Owner and the Trust
will comply with all requirements imposed upon them by the 1933 Act
and the Commodity Act, the SEC Regulations and the CFTC Regulations,
as from time to time in force, so far as necessary to permit the
continuance of sales of the Units during such period in accordance
with the provisions hereof and as set forth in the Prospectus.
(e) If any event shall occur as a result of which it is
necessary, in the reasonable opinion of the Managing Owner, to amend
or supplement the Prospectus (i) to make the Prospectus not materially
misleading in the light of the circumstances existing at the time it
is delivered to a subscriber, or (ii) to conform with applicable CFTC
and SEC Regulations, the Managing Owner shall forthwith prepare and
furnish to the Selling Agent, for delivery to the Correspondent
Selling Agent, at the expense of the Managing Owner, a reasonable
number of copies of an amendment or amendments of, or a supplement or
supplements to, the Prospectus which will amend or supplement the
Prospectus so as to effect the necessary changes.
(f) The Managing Owner will deliver to the Correspondent Selling
Agent: (i) copies of all "Blue Sky" and other state securities law
clearances obtained by the Trust; and (ii) copies of all monthly and annual
reports, and of any other communications, sent to the Unitholders.
Section 6. PAYMENT OF EXPENSES AND FEES. The Managing Owner will pay
all expenses incident to the performance of the obligations of the Managing
Owner and the Trust hereunder, including: (i) the printing and delivery to the
Selling Agent, for delivery to the Correspondent Selling Agent, in quantities as
hereinabove stated of copies of the Registration Statement and all amendments
thereto, of the Prospectus and any supplements or
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<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
amendments thereto, and of any supplemental sales materials; (ii) the
reproduction of this Agreement and the printing and filing of the
Registration Statement and the Prospectus (and, in certain cases, the
exhibits thereto) with the SEC, CFTC and NFA; (iii) the filing fees payable
to the SEC and the NASD; (iv) the qualification of the Units under the
securities or "Blue Sky" laws in the various jurisdictions, including filing
fees and the fees and disbursements of the Managing Owner's counsel incurred
in connection therewith; and (v) the services of Sidley & Austin and
accountants for the Managing Owner and the Trust.
The Managing Owner, the Selling Agent and the Correspondent Selling
Agent are each aware of the limitations imposed by NASD Conduct Rule 2810 on the
aggregate compensation which may be received by the selling agents in connection
with the offering and sale of the Units. Neither the Selling Agent nor the
Correspondent Selling Agent will in any event accept any payments from the
Managing Owner which, when added to the selling commissions (not including
ongoing compensation) which the Selling Agent will receive on each sale of a
Unit by the Correspondent Selling Agent, would exceed 10% of the gross proceeds
of the Units sold to the public by the Correspondent Selling Agent.
Section 7. CONDITIONS OF CLOSING. The sale of the Units and the
release of subscription funds from the escrow account are subject to (i) the
accuracy of the representations and warranties of the parties to the Selling
Agreement, to the performance by such parties of their respective obligations
thereunder and the satisfaction of each of the conditions to the sale of the
Units set forth therein, and (ii) the accuracy of the representations and
warranties of the parties hereto and to the performance by such parties of their
respective obligations hereunder.
If any of the conditions specified in this Section 7 shall not have
been fulfilled when and as required by this Agreement to be fulfilled prior to a
Closing Time, this Agreement and all obligations hereunder may be canceled by
any party hereto by notifying the other parties hereto of such cancellation in
writing or by telegram at any time at or prior to such Closing Time, and any
such cancellation or termination shall be without liability of any party to any
other party other than in respect of Units already sold and except as otherwise
provided in Sections 6 and 8 of this Agreement.
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CORRESPONDENT SELLING AGENT AGREEMENT
Section 8. INDEMNIFICATION, CONTRIBUTION AND EXCULPATION. The
Managing Owner agrees to indemnify and hold harmless the Selling Agent and the
Correspondent Selling Agent and each person, if any, who controls the Selling
Agent and the Correspondent Selling Agent within the meaning of Section 15 of
the 1933 Act, as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever arising from any breach of any representation or
warranty of the Managing Owner set forth herein or from any untrue
statement of a material fact or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment
thereto) or in the Promotional Material or any omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary in order to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(b) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by
any governmental agency or body commenced or threatened, or of any
claim whatsoever based upon any such breach, untrue statement or
omission or any such alleged untrue statement or omission (any
settlement to be subject to indemnity hereunder only if effected with
the written consent of the Managing Owner); and
(c) against any and all expense whatsoever (including the fees
and disbursements of counsel, but only of one counsel for the Selling
Agent and one for all correspondent selling agents) reasonably
incurred in investigating, preparing or defending against litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
material breach, untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is
not paid under clauses (a) or (b) above.
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<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
(d) If the indemnification provided for in this SECTION 8 shall for
any reason be unavailable to the Selling Agent or the Correspondent Selling
Agent (or a controlling person of the Correspondent Selling Agent) in
respect of any loss, liability, claim, damage or expense referred to
herein, then the Managing Owner shall, in lieu of indemnifying the Selling
Agent or the Correspondent Selling Agent (or a controlling person)
contribute to the amount paid or payable by the Selling Agent or the
Correspondent Selling Agent (or a controlling person) as a result of such
loss, liability, claim, damage or expense, (i) in such proportion as shall
be appropriate to reflect the relative benefits received by the Managing
Owner on the one hand and by the Selling Agent and the Correspondent
Selling Agent on the other from the offering of the Units by the
Correspondent Selling Agent or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Managing Owner on the one hand
and the Selling Agent and the Correspondent Selling Agent on the other with
respect to the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant
equitable considerations. In no event shall the liability of the Selling
Agent and the Correspondent Selling Agent exceed the aggregate selling
commissions and ongoing compensation paid to the Selling Agent and the
Correspondent Selling Agent hereunder. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Managing Owner on the one hand or
the Selling Agent and the Correspondent Selling Agent on the other, the
intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
parties agree that it would not be just and equitable if contributions
pursuant to this SECTION 8(d) were to be determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to herein. The amount paid or payable by
the Selling Agent and the Correspondent Selling Agent as a result of the
loss, liability, claim, damage or expense referred to above in this SECTION
8(d), shall be deemed to include, for purposes of this SECTION 8(d), any
legal or other expenses reasonably incurred by such otherwise indemnified
party (provided that only the legal costs of one counsel for the Selling
Agent and one for
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<PAGE>
CORRESPONDENT SELLING AGENT AGREEMENT
all correspondent selling agents shall be included) in connection with
investigating or defending any such action or claim.
In no case shall the Managing Owner be liable under this indemnity and
contribution agreement with respect to any claim unless the Managing Owner shall
be notified in writing of the nature of the claim within a reasonable time after
the assertion thereof, but failure to so notify the Managing Owner shall not
relieve the Managing Owner from any liability which it may have otherwise than
on account of this indemnity and contribution agreement. The Managing Owner
shall be entitled to participate at its own expense in the defense or, if it so
elects within a reasonable time after receipt of such notice, to assume the
defense of any suit so brought, which defense shall be conducted by counsel
chosen by it and satisfactory to the indemnified party (or parties entitled to
contribution hereunder) or parties, defendant or defendants therein.
The Managing Owner agrees to notify the Selling Agent within a reasonable
time of the assertion of any claim in connection with the sale of the Units
against it or any of its officers or directors or any person who controls the
Managing Owner within the meaning of Section 15 of the 1933 Act.
Section 9. STATUS OF PARTIES. In marketing Units pursuant to this
Agreement for the Trust, the Selling Agent and the Correspondent Selling Agent
are acting solely as agents for the Trust, and not as principals. The
Correspondent Selling Agent will use its best efforts to assist the Trust in
obtaining performance by each purchaser solicited by the Correspondent Selling
Agent whose offer to purchase Units from the Trust has been accepted on behalf
of the Trust, but neither the Selling Agent nor the Correspondent Selling Agent
shall have any liability to the Trust in the event that Subscription Agreements
and Powers of Attorney are improperly completed or any such purchase is not
consummated for any reason. Except as specifically provided herein, neither the
Selling Agent nor the Correspondent Selling Agent shall in any respect be deemed
to be an agent of the Trust.
Section 10. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or contained in certificates of any party hereto submitted pursuant
hereto shall remain operative and in full force and effect, regardless of any
investigation made by, or on behalf of, the Selling Agent, the Correspondent
Selling Agent, the Managing Owner, the Trust, or
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CORRESPONDENT SELLING AGENT AGREEMENT
any person who controls any of the foregoing, and shall survive the Closing
Times.
Section 11. TERMINATION. The Selling Agent and the Correspondent
Selling Agent shall each have the right to terminate this Agreement at any time
after the end of the Initial Offering Period upon fifteen (15) days' prior
written notice of such termination to the Managing Owner. The Managing Owner
and the Trust may terminate this Agreement at any time upon fifteen (15) days'
prior written notice to the Selling Agent.
Section 12. SURVIVAL. Irrespective of the expiration and termination
of this Agreement, Sections 2, 5 and 8 hereof shall survive and all applicable
provisions of this Agreement with respect to outstanding Units.
Section 13. NOTICES AND AUTHORITY TO ACT. All communications
hereunder shall be in writing and, if sent to the Managing Owner or the
Trust, shall be mailed, delivered or telecopied and confirmed to the Managing
Owner at: Kenmar Advisory Corp., Two American Lane, P.O. Box 5150, Greenwich,
Connecticut 06831-8150, Attn: Joshua Parker, Esq.; and Mr. David Sawyier,
Sidley & Austin, One First National Plaza, Chicago, Illinois 60603. If sent
to the Correspondent Selling Agent, shall be mailed, delivered or telecopied
and confirmed to it at ____________________________, Attention:
_____________, with copies to __________________________________, Attention:
_______________. Notices shall be effective when actually received.
Section 14. PARTIES. This Agreement shall inure to the benefit of
and be binding upon the Correspondent Selling Agent, the Trust, the Managing
Owner and such parties' respective successors to the extent provided herein.
This Agreement and the conditions and provisions hereof are intended to be and
are for the sole and exclusive benefit of the parties hereto and their
respective successors, assigns and controlling persons and parties indemnified
hereunder, and for the benefit of no other person, firm or corporation. No
purchaser of a Unit shall be considered to be a successor or an assignee solely
on the basis of such purchase.
Section 15. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES CREATED HEREBY SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF CONNECTICUT.
Section 16. CONSENT TO JURISDICTION. The parties hereto agree that
any action or proceeding arising directly,
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CORRESPONDENT SELLING AGENT AGREEMENT
indirectly, or otherwise in connection with, out of, related to, or from this
Agreement, any breach hereof, or any transaction covered hereby, shall be
resolved, whether by arbitration or otherwise, within the County of
Fairfield, and State of Connecticut. Accordingly, the parties hereto consent
and submit to the jurisdiction of the federal and state courts and applicable
arbitral body located within the County of Fairfield, and State of
Connecticut. The parties further agree that any such action or proceeding
brought by any party to enforce any right, assert any claim, or obtain any
relief whatsoever in connection with this Agreement shall be brought by such
party exclusively in the federal or state courts, or if appropriate, before
any applicable arbitral body, located within the County of Fairfield, and
State of Connecticut.
The Managing Owner and the Trust each agree that, at the request of
the Selling Agent, they will submit any action or proceeding referred to in this
Section 15 to NFA arbitration in the County of Fairfield and State of
Connecticut, and agree to execute and deliver to the Selling Agent its standard
form of arbitration agreement, as required by NFA regulations.
Section 17. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original and both of which together
shall be deemed one and the same instrument.
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CORRESPONDENT SELLING AGENT AGREEMENT
If the foregoing is in accordance with each party's understanding of
their agreement, each party is requested to sign and return to the Managing
Owner and the Trust a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement among them in accordance with
its terms.
Very truly yours,
KENMAR GLOBAL TRUST
By: KENMAR ADVISORY CORP.,
Managing Owner
By:________________________________
Name:
Title:
KENMAR ADVISORY CORP.
By:________________________________
Name:
Title:
[SELLING AGENT]
By:_________________________________
Title:
Confirmed and accepted as of
the date first above written:
[CORRESPONDENT SELLING AGENT]
By:___________________________
Title: ____________________
<PAGE>
EXHIBIT 10.01
(AMENDED)
ADVISORY AGREEMENT
by and among
KENMAR GLOBAL TRUST
a Delaware business trust
and
[THE ADVISOR]
a ____________ corporation
and
KENMAR ADVISORY CORP.
a Connecticut corporation
Effective as of ___________, 1996
Initial Allocation $____________
<PAGE>
ADVISORY AGREEMENT
Table of Contents
Page
1. Undertakings of the Trading Advisor. . . . . . . . . . . . . . . 1
2. Duties of Trading Advisor. . . . . . . . . . . . . . . . . . . . 3
3. Allocation and Reallocation of Assets;
Designation of Additional Trading Advisors;
Charges to Allocated Assets. . . . . . . . . . . . . . . . . . 6
4. Trading Advisor Independent. . . . . . . . . . . . . . . . . . . 7
5. Commodity Broker; Floor Brokers. . . . . . . . . . . . . . . . . 7
6. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Term and Termination . . . . . . . . . . . . . . . . . . . . . . 8
8. Right to Advise Others; Uniformity of
Acts and Practices . . . . . . . . . . . . . . . . . . . . . . 9
9. Speculative Position Limits. . . . . . . . . . . . . . . . . . . 11
10. Representations and Warranties . . . . . . . . . . . . . . . . . 11
11. Indemnification; Limitation of Liability . . . . . . . . . . . . 15
12. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 19
13. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
14. Amendment; Waiver. . . . . . . . . . . . . . . . . . . . . . . . 19
15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 19
16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
17. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 20
18. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . 20
19. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
20. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 21
21. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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<PAGE>
22. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
24. Third-Party Beneficiary. . . . . . . . . . . . . . . . . . . . . 21
25. "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . 22
26. Multi-Programs . . . . . . . . . . . . . . . . . . . . . . . . . 22
Annex A -- Trading Authorization . . . . . . . . . . . . . . . . . . A-1
Annex B -- Commodity Interests Traded by the Advisor . . . . . . . . B-1
Annex C -- Fee Calculations. . . . . . . . . . . . . . . . . . . . . C-1
Annex D -- Selection of Multiple Programs Offered. . . . . . . . . . D-1
Acknowledgment of Receipt of
Disclosure Document. . . . . . . . . . . . . . . . . . . . . . . . ACK-1
-ii-
<PAGE>
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ("Agreement"), made as of the date set
forth on the cover hereof (the "Effective Date"), by and among KENMAR GLOBAL
TRUST (the "Trust"), [THE ADVISOR] (the "Trading Advisor") and KENMAR
ADVISORY CORP. ("Kenmar").
W I T N E S S E T H:
WHEREAS, the Trust has been formed to engage in the business of
trading, buying, selling or otherwise acquiring, holding or disposing of
futures contracts, forward contracts, foreign exchange commitments, swaps,
exchange for physicals, spot (cash) commodities, hybrid instruments, and
other items, any rights pertaining thereto and any options thereon and
engaging in all activities incident thereto (the foregoing forms of trading
being collectively referred to herein as "commodity interests");
WHEREAS, the Trust anticipates offering its Units of Beneficial
Interest ("Units") for sale to investors, as described in the Trust's
Registration Statement and Prospectus (the "Prospectus");
WHEREAS, from time to time during the Trust's operations, Kenmar,
the Trust's managing owner, may allocate and reallocate the Trust's assets
among the Trust's current or replacement trading advisors for management as
described in the Prospectus;
WHEREAS, the Trading Advisor is engaged in the business of, among
other things, making trading decisions on behalf of investors in the trading
of certain commodity interests; and
WHEREAS, the Trust desires the Trading Advisor, upon the terms and
conditions set forth herein, to act as a trading advisor for the Trust and to
make commodity interest trading decisions for the Trust with respect to the
assets of the Trust allocated to the Trading Advisor for management (the
"Allocated Assets") -- which shall include no "notional equity" -- and the
Trading Advisor desires to act in such capacity.
NOW, THEREFORE, in consideration of the premises and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Undertakings of the Trading Advisor
(a) To Furnish Information. The Trading Advisor agrees to make
all disclosures reasonably requested by Kenmar regarding the Trading Advisor
and its trading performance, strategies and accounts (subject to the need to
preserve the
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secrecy of proprietary information concerinng such strategies and of the
identity of the Trading Advisor's clients), to be included in disclosures
made by the Trust to its investors or for any other purposes relating to the
operation of the Trust.
The Trading Advisor shall cooperate, to the extent that Kenmar may
reasonably request, in preparing offering materials, investor information
reports and regulatory filings relating to the Trust. Any written reference
(other than periodic reports which the Commodity Futures Trading Commission
requires to be distributed to Unitholders) to the Trading Advisor or its
strategies shall be approved by the Trading Advisor prior to general
distribution by the Trust or Kenmar.
(b) To Furnish Updated Performance Information. The Trading
Advisor, at its own expense, shall promptly provide the Trust and Kenmar,
upon request, with a table or tables (in form and substance consistent with
all applicable regulations) reflecting the actual performance, on a monthly
basis, of all customer accounts directed by the Trading Advisor pursuant to
the ___ Program up to the latest practicable month-end date.
(c) To Notify of Changes. If the Trading Advisor shall become
aware of (i) any misleading statement or any untrue statement of a material
fact or any omission to state a material fact necessary to make the
statements contained in the disclosures made by the Trust to its investors
(relating to the Trading Advisor or its strategies), in light of the
circumstances under which such statements were made, not misleading, or (ii)
the occurrence of any event or change in circumstances which shall have
resulted or could reasonably be expected to result in there being any such
misleading or untrue statement or omission, the Trading Advisor shall
promptly notify the Trust in writing and shall cooperate with the Trust and
Kenmar in the preparation of any amended or supplemental disclosures
reasonably requested by Kenmar.
The Trading Advisor will promptly notify the Trust and Kenmar of
any material change in the management, ownership, personnel, organizational
structure or control of the Trading Advisor or a material adverse change in
the financial condition of the Trading Advisor that, in the reasonable
judgment of the Trading Advisor, could adversely impact its ability to
perform hereunder.
(d) Not to Distribute Information Concerning the Trust. None of
the Trading Advisor or any of its directors, shareholders, members, partners,
unitholders, officers, employees, agents and controlling persons ("Related
Parties") shall publish, circulate, or distribute any information relating to
the Trust or Kenmar or any of their respective affiliates, other than in the
context of the preparation of the Trading Advisor's performance tables as
required by applicable law or
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regulation. The Trading Advisor may also circulate performance information
relating to the Trust account managed by the Trading Advisor so long as none
of the Trust, Kenmar, or any of their respective affiliates are named.
(e) Not to Solicit Investors. None of the Trading Advisor or
any Related Party shall: (i) knowingly use or distribute for any purpose
whatsoever any list containing the names and/or residence addresses of and/or
other information relating to the Unitholders or (ii) knowingly contact any
current or former Unitholder for any purpose whatsoever unless such
Unitholder shall have first contacted the Trading Advisor or is an existing
client of the Trading Advisor or a Related Party of the Trading Advisor, or a
prospective client with which the Trading Advisor or a Related Party of the
Trading Advisor has commenced discussions.
(f) To Provide Access to Books and Records. Upon two (2) business
days' notice to the Trading Advisor, the Trust or Kenmar shall have the
right, during normal business hours at the Trading Advisor's offices, to have
access to and to inspect and copy such books and records relating to the
Trading Advisor and its trading as are reasonably necessary to verify the
accuracy and completeness of the data furnished by the Trading Advisor
pursuant to this Section 1 of this Agreement or otherwise to verify
compliance with the terms of this Agreement (subject to the need to preserve
the secrecy of such information and of the identity of the Trading Advisor's
clients). Such right of inspection shall terminate upon the termination of
this Agreement and shall not include any right to access computer programs,
records or other information used in determining trading decisions.
The Trading Advisor shall not be required to disclose the actual
trading results of the proprietary accounts of the Trading Advisor or its
principals except upon the request of the Trust or Kenmar for good cause
given.
(g) To Purchase Units. The Trading Advisor agrees to make (or
cause an affiliate to make) as of the Effective Date and maintain during the
term of this Agreement an investment of 500 Units.
2. Duties of Trading Advisor
(a) Trading the Allocated Assets; Trading Policies. Except as
otherwise provided in this Section 2, the Trading Advisor shall, commencing
on the Effective Date, have sole and exclusive authority and responsibility
for directing the trading of the Allocated Assets in commodity interests
pursuant to and in accordance with the Trading Advisor's best judgment and
its ___ Trading Program as described in the Prospectus and sales brochure,
or, if no such material is furnished by the Trust
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to its investors, as described in the information concerning the Trading
Advisor furnished by it in writing to the Trust, as such strategy may be
refined and modified from time to time in the future in accordance herewith,
for the period and on the terms and conditions set forth herein and in
accordance with the Trust's trading policies as notified to the Trading
Advisor in writing by the Trust from time to time (the "Trading Policies").
Notwithstanding the foregoing, the Trust may override the trading
instructions of the Trading Advisor to the extent that Kenmar deems advisable
for the protection of the Trust or as required by law. Kenmar shall have the
right: (i) to, subject to Section 3(a), increase or decrease (including
decrease to $0) the Allocated Assets as Kenmar and/or the Trust deems
appropriate (in which case the Trading Advisor shall modify accordingly its
positions commensurate with its risk/money management parameters); and/or
(ii) to instruct the Trading Advisor to liquidate all or a portion of the
Trust's positions by a date certain (including immediately) as Kenmar and/or
the Trust deems appropriate; provided, that the Trading Advisor, after
consultation with Kenmar, shall have the right to have instructions pursuant
to clause (ii) effected as a reduction (withdrawal) of Allocated Assets.
Subject to the Trading Advisor's liability for negligence, misconduct or
breach of this Agreement, the Trading Advisor will have no liability merely
by reason of Kenmar's intervention pursuant to this Section 2(a). In the
event that the Trust's Trading Policies are changed, any open positions at
the time of such change shall not be deemed to violate the revised Trading
Policies and shall be closed out by the Trading Advisor in the ordinary
course of trading.
The Trading Advisor, in its discretion, may alter the trading
approach used by the Trading Advisor in managing the Allocated Assets;
provided that the Trading Advisor determines that such alteration is in the
best interest of the Trust and not inconsistent with the Trading Policies;
and provided further that the Trading Advisor gives the Trust twenty (20)
calendar days' prior written notice of any alteration which the Trading
Advisor considers to be material. The Trust may instruct the Trading Advisor
not to make any material alteration in the trading strategy used for the
Allocated Assets, in which case the Trading Advisor may terminate this
Agreement pursuant to Section 7(b)(iii) hereof.
Any notices of material changes in trading approach required
hereunder shall be subject to reasonable assurances of confidentiality and
need not disclose any proprietary information concerning the nature of such
material change. The addition and/or deletion of markets or commodity
interests from the Trust's portfolio managed by the Trading Advisor shall not
be deemed a change in the Trading Advisor's strategy, and prior written
notice to the Trust shall not be required therefor, unless the Trading
Advisor's strategy used for the Trust is
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limited to a specific group of contracts or a market sector in a manner
inconsistent with such addition or deletion.
The Trading Advisor is in no respect making any guaranty to the
Trust of profits or of protection against loss. All purchases and sales of
commodity interests hereunder shall be for the account and risk of the Trust,
and the Trading Advisor shall not incur liability for trading losses
resulting therefrom, except as otherwise provided herein.
The Trading Advisor shall have no liability to the Trust or Kenmar
for any loss, damages, cost or expense arising out of or related to the use
of the Commodity Broker, or for payment of any fees, costs or expenses
associated with the services provided by it, all of which shall be the
responsibility of the Trust. The Trust shall be responsible for assuring the
payment of all margins, premiums, commissions and other amounts due to the
Commodity Brokers (as defined in Section 5 below).
The Trading Advisor and Kenmar may mutually agree in a separate
writing sent by Kenmar to the Trading Advisor and without need of amending
this Agreement to select a different program offered by the Trading Advisor
to be used for the Trust.
(b) Investment of Assets Held in Securities and Cash. The Trust,
and not the Trading Advisor, shall have the sole and exclusive authority and
responsibility with regard to the investment, maintenance and management of
the Trust's assets other than in respect of the Trading Advisor's trading of
the Allocated Assets in commodity interests.
(c) Trading Authorization. Prior to the Trust's acceptance of
trading advice from the Trading Advisor in accordance with this Agreement,
the Trust shall deliver to the Trading Advisor a trading authorization in the
form of Annex A hereto appointing the Trading Advisor as the Trust's agent
and attorney-in-fact for such purpose.
The Trust shall instruct its brokers to furnish to the Trading
Advisor copies of all trade confirmations and monthly statements relating to
the Allocated Assets. The Trading Advisor will maintain a record of all such
statements and monitor the open positions in the Trust's account.
(d) Delivery of Disclosure Document. The Trading Advisor shall,
during the term of this Agreement, deliver to the Trust copies of all
disclosure documents filed by the Trading Advisor with any governmental
authority, promptly following such filing.
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(e) List of Commodity Interests Traded by the Trading Advisor.
All commodity interests other than regulated futures contracts and options on
regulated futures contracts traded on a designated board of trade or exchange
in the United States and foreign futures and options contracts as approved by
the CFTC as stated in the most recent CFTC Backgrounder shall be listed on
Annex B to this Agreement. The addition of commodity interests (other than
forward contracts on foreign currencies) to the Trust's portfolio managed by
the Trading Advisor as set forth in Annex B to this Agreement shall require
prior written notice to the Trust.
The Trading Advisor agrees to trade only in commodity interests
that the Trading Advisor considers to be traded in sufficient volume to
permit the Trading Advisor readily to acquire and liquidate positions on
behalf of the Trust.
The Trading Advisor will not trade any securities (including
without limitation options on securities indices).
(f) Trade Reconciliations. The Trading Advisor acknowledges its
obligation to review the Trust's positions in the account managed by the
Trading Advisor on a daily basis and promptly to notify Kenmar and the Trust
of any errors committed by the Trading Advisor or any trade which the Trading
Advisor believes was not executed in accordance with its instructions.
The Trading Advisor will use its best efforts to send Kenmar copies
of all trades made by the Trading Advisor on behalf of the Trust, by
facsimile or other means, by 5:00 p.m. (New York time) on the day that such
trades are made.
3. Allocation and Reallocation of Assets;
Designation of Additional Trading
Advisors; Charges to Allocated Assets
(a) Allocation and Reallocation of Assets; Designation of
Additional Trading Advisors. The initial amount of the Allocated Assets
shall be the amount set forth on the cover of this Agreement, none of which
shall constitute "notional funds." This initial amount shall be deposited at
the Trust's Commodity Broker (as defined in Section 5 hereof) on the
Effective Date, available for trading by the Trading Advisor. The Trust may
at any time and from time to time in its sole discretion: (i) reallocate the
Trust's assets, including a portion of the Trading Advisor's Allocated
Assets, among the various other trading advisors for the Trust, including the
Trading Advisor; and/or (ii) designate additional trading advisors for the
Trust, and allocate to such additional trading advisors the management of
such portion of the Trust's assets, including a portion of the Allocated
Assets, as the Trust shall determine.
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The Trading Advisor agrees, upon one (1) business day's prior
notice, to accept additional allocations of Trust assets for management, from
time to time, provided that the Net Asset Value of the Allocated Assets may
not exceed $20,000,000 as of any month-end without the Trading Advisor's
prior consent.
Subject to its obligations to its Unitholders, the Trust will
endeavor to make all allocations and re-allocations only as of the beginning
of a month.
(b) Charges to Allocated Assets. The Trading Advisor understands
and agrees that: (i) the full amount of the Profit Share and execution costs
(other than floor brokerage, exchange, clearing and NFA fees ("Brokerage
Commissions")) allocable to the Allocated Assets shall be charged to the
Allocated Assets; (ii) Brokerage Commissions and other expenses (not
including distributions or redemptions) payable by the Trust shall be
allocated to the Allocated Assets pro rata based on the relative month-end
equity of the accounts managed by each of the Trust's trading advisors; and
(iii) interest income earned on the Trust's assets shall be allocated pro
rata among the accounts managed by each of the Trust's trading advisors, as
provided in clause (ii).
4. Trading Advisor Independent
For all purposes of this Agreement, the Trading Advisor shall be
deemed to be an independent contractor and, unless otherwise expressly
provided herein or with the prior written authorization of the Trust, the
Trading Advisor shall have no authority to act for or represent the Trust in
any way and shall not otherwise be deemed to be an agent of the Trust.
Except as otherwise specifically provided herein, nothing in this Agreement
shall be deemed to confer on any of the foregoing any express, implied, or
apparent authority to incur any obligation or liability on behalf of any
other. Nothing contained herein shall create or constitute the Trading
Advisor, any other trading advisor for the Trust, the Trust or Kenmar as
members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity.
The parties acknowledge that the Trading Advisor has not been an
organizer or promoter of the Trust.
5. Commodity Broker; Floor Brokers
(a) Commodity Broker. Except as contemplated by Section 5(c) of
this Agreement, the Trading Advisor shall place orders for all commodity
interest transactions executed by the Trading Advisor for the Trust through
such commodity broker or brokers as the Trust shall designate from time to
time in its sole discretion -- the Trust initially so designating ING (U.S.)
Securities, Futures & Options Inc. (the "Commodity Broker";
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collectively with other commodity brokers which may be selected for the
Trust, the "Commodity Brokers"). The parties acknowledge that the Trading
Advisor has no authority or responsibility for the Trust's selection of the
Commodity Broker or for the negotiation of the Trust's Brokerage Commission
rate, and is not responsible for the execution and clearance of the Trust's
trades once complete orders have been transmitted to the Commodity Broker or
a floor broker approved by Kenmar or the Trust.
(b) Brokers. The Trading Advisor shall place orders for all
forward currency transactions, to be executed by the Trading Advisor for the
Trust, through the Commodity Broker. Notwithstanding Section 5(a) of this
Agreement, the Trading Advisor may place orders for commodity interest
transactions for the Trust through floor brokers selected by the Trading
Advisor, and approved by the Trust, such approval not to be unreasonably
withheld. Such floor brokers shall "give up" all Trust trades to the
Commodity Broker for clearance.
The brokerage and floor commissions, "give-up" fees and other
transaction costs charged by any floor broker, other than the Commodity
Broker, to effect Trust transactions shall be subject to the approval of
Kenmar, such approval not to be unreasonably withheld provided that such fees
and transaction costs are competitive with the Commodity Broker's standard
rates. The Trading Advisor shall use its reasonable best efforts to (i) cause
and (ii) assist Kenmar in causing any broker other than the Commodity Broker
to correct all trading errors or omissions relating to transactions executed
in respect of the Allocated Assets by any such broker.
6. Fees
(a) Profit Share; Consulting Fee. For the advisory services
contemplated by this Agreement, the Trust shall pay to the Trading Advisor a
quarterly Profit Share and Kenmar shall pay to the Trading Advisor a monthly
Consulting Fee, in each case calculated as set forth in Annex C.
(b) No Share in Commissions. Without the express written consent
of the Trust, neither the Trading Advisor nor any related party shall receive
or accept, whether in the form of rebates or otherwise, (i) any share of the
brokerage, floor, or clearinghouse commissions or fees or other transaction
costs paid by the Trust to any commodity broker or floor broker, or (ii) any
form of compensation or remuneration from any executing or clearing broker
used by the Trust.
7. Term and Termination
(a) Term and Renewal. This Agreement shall continue in effect
until the end of the fourth full calendar quarter after the Effective Date.
Thereafter, this Agreement shall be
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renewable, at the option of the Trust, on the same terms for up to two (2)
additional twelve-month periods.
(b) Termination. Notwithstanding Section 7(a) hereof, this
Agreement shall terminate:
(i) immediately if (a) the Trust shall terminate; (b) at the
option of the Trust if ________ shall no longer the employed by the Trading
Advisor, or (c) at the option of the Trust if the performance record of the
Trading Advisor is negatively restated in any material respect.
(ii) at the discretion of the Trust, upon ten (10) days' notice to
the Trading Advisor, as of the end of any calendar month;
(iii) at the discretion of the Trading Advisor, (a) immediately
should the Trading Advisor notify the Trust pursuant to Section 2(a) of a
proposed material change to the strategies to be used in managing the
Allocated Assets and either (i) the Trust has instructed the Trading Advisor
not to implement such changes or (ii) the twenty (20) day period set forth in
Section 2(a) has lapsed; (b) upon twenty (20) days' notice to the Trust, as
of any month-end if the Trading Advisor has determined to cease managing any
customer accounts pursuant to the same strategy as the Trading Advisor has
been retained to employ on behalf of the Trust; or (c) upon twenty (20) days'
notice to the Trust, as of any month-end should the Allocated Assets have a
Net Asset Value, as of the close of business on any day, of less than
$500,000 (any such termination to be made at the first available month-end
after the event giving rise to the termination right or such right to be
waived); or
(iv) immediately at the discretion of the Trust or the Trading
Advisor, as the case may be, in the event that the Trading Advisor, on the
one hand, or the Trust or Kenmar, on the other, is in material breach of any
provision hereof.
Any non-renewal of this Agreement pursuant to Section 7(a) or any
termination of this Agreement pursuant to clauses 7(b)(i), (b)(ii) or
(b)(iii), above, shall be without penalty or liability to any party.
8. Right to Advise Others; Uniformity of
Acts and Practices
During the term of this Agreement, the Trading Advisor and its
affiliates shall be free to advise other investors as to the purchase and
sale of commodity interests, to manage and trade other investors' commodity
interest accounts, and to trade for and on behalf of their own proprietary
commodity interest accounts. The compensation which the Trading Advisor
receives from other accounts may be more or less than that received from
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the Trust. However, under no circumstances shall the Trading Advisor or any
of its affiliates knowingly or deliberately favor any commodity interest
account directed by any of them over the Trust's account in any way or
manner, provided that trading different portfolios for other accounts,
trading other accounts at different leverage, or charging different fees to
different accounts shall not be considered to constitute favoring such
accounts over the Trust's account. The Trading Advisor and its affiliates
also shall not be deemed to be favoring another commodity interest account
over the Trust's account if the Trading Advisor or his or its affiliates, in
accordance with specific instructions of the owner of such account, shall
trade such account at a degree of leverage or in accordance with trading
policies which shall be different from that which would normally be applied
or if the Trading Advisor or its affiliates, in accordance with the Trading
Advisor's money management principles, shall not trade certain commodity
interest contracts for an account based on the amount of equity in such
account.
The Trading Advisor agrees that in the event the Trading Advisor
determines to trade or is now trading another client commodity interest
account pursuant to a trading approach materially different from the trading
approach utilized by the Trading Advisor in trading on behalf of the Trust,
the Trading Advisor will disclose such trading approach to the Trust, subject
to reasonable assurances of confidentiality, and will, if the Trust so
elects, utilize any such trading approach in trading the Allocated Assets in
the future, provided that the Trading Advisor shall not hereby be required to
use, on behalf of the Trust, any approach used solely in trading,
experimental or proprietary accounts or any approach which the Trading
Advisor reasonably believes to be inappropriate for the Trust's account or
any approach which is trading at full capacity.
At the reasonable request of the Trust and to the extent that they
are available without undue expense or burden, the Trading Advisor shall make
available to the Trust copies of the daily, monthly, quarterly, and annual,
as the case may be, written reports prepared by the Trading Advisor in the
ordinary course, reflecting the performance of all commodity pool accounts
advised, managed, owned or controlled by the Trading Advisor and account
statements reflecting the performance of all other pools and commodity
interest accounts advised, managed, owned, or controlled by the Trading
Advisor, in each case which implement the same strategy used for the Trust
(with the names of clients deleted). At the reasonable request of the Trust,
the Trading Advisor shall provide to the Trust an explanation of the
differences, if any, in the performance between the Trust's account and such
other accounts (subject to the need to preserve the secrecy of proprietary
information concerning the Trading
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Advisor's strategies and the identity of the Trading Advisor's clients).
9. Speculative Position Limits
(a) Limits Applicable to Trading Advisor. The Trading Advisor
agrees that in the event the Trading Advisor exceeds speculative position
limits in respect to the Trading Advisor's commodity interest trading, the
Trading Advisor will liquidate positions as necessary to comply with
applicable speculative position limits in all of the Trading Advisor's
outstanding accounts in such manner as the Trading Advisor deems to be fair
and equitable. The Trading Advisor agrees that in the event that any such
liquidation becomes necessary, the Trading Advisor will so inform the Trust
and will report to the Trust the steps taken by the Trading Advisor in order
to comply with all applicable speculative position limits.
The Trading Advisor represents and warrants that existing
speculative position limits will not materially adversely affect the Trading
Advisor's ability to manage the Trust's account, provided that such account
does not exceed $20,000,000, as contemplated by Section 3(a) hereof.
(b) Notice That Limits Exceeded. If the Trading Advisor at any
time shall become aware that the positions in any commodity interest owned,
held, or controlled by the Trading Advisor exceed the applicable speculative
position limit allocable to the Trading Advisor, the Trading Advisor shall
promptly notify the Trust of that fact in writing.
The Trading Advisor shall promptly notify the Trust if speculative
position limits may reasonably be expected to require material alteration of
the strategies used in managing the Trust's account.
(c) Liquidation of Positions to Comply with Limits. If limits are
exceeded by the Trust, the Trust shall instruct the Trading Advisor as to
whether any liquidation of Trust positions managed by the Trading Advisor is
required.
10. Representations and Warranties
(a) The Trading Advisor represents and warrants to the Trust and
Kenmar as follows:
(i) The Trading Advisor is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. The Trading Advisor
has full corporate power and authority to perform its
obligations and to direct the Trust's trading, as described in
the Prospectus and sales brochure
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and to discharge its obligations under this Agreement and is
qualified to conduct its business as a foreign corporation and
is in good standing in every jurisdiction in which the nature or
conduct of its business requires such qualification and failure
to so qualify would have a material adverse effect on its ability
to comply with, or perform its obligations under this Agreement.
(ii) The references to the Trading Advisor, its
principal(s) and its trading strategies in the Prospectus and
sales brochure do not contain any material misstatements or
omissions. The Trading Advisor's Disclosure Document complies
in all material respects with the Commodity Exchange Act and
the regulations of the Commodity Futures Trading Commission.
(iii) The Prospectus and sales brochure, as to the
Trading Advisor, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
(iv) This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Trading
Advisor and constitutes the binding and enforceable
obligation of the Trading Advisor in accordance with its
terms.
(v) The Trading Advisor and its principals each has all
governmental, regulatory and exchange licenses and approvals
and has effected all filings and registrations with
governmental and regulatory agencies required to conduct its
business and to act as described in the Prospectus and sales
brochure or required to perform its obligations under this
Agreement (including, without limitation, registration of the
Trading Advisor as a commodity trading advisor under the
Commodity Exchange Act and membership of the Trading Advisor
as a commodity trading advisor in the National Futures
Association).
(vi) The execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and the
consummation of the transactions contemplated herein and in
the Prospectus and sales brochure will not constitute a breach
of, or default under, the Articles of
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Incorporation or By-laws or other organizational documents of the
Trading Advisor, or under any instrument by which the Trading
Advisor or any of its principals is bound or under any order, rule
or regulation applicable to the Trading Advisor or any of its
principals, of any court or any governmental body or administrative
agency having jurisdiction over the Trading Advisor or such
principal(s).
(vii) The Trading Advisor's provision of management services
as contemplated hereby will not violate the Investment Advisers Act
of 1940.
(viii) There is not pending nor, to the best of the Trading
Advisor's knowledge threatened, any action, suit or proceeding
before or by any court or other governmental body to which the
Trading Advisor or any of its principals is a party, or to which
any of the assets of the Trading Advisor or any of its principals
is subject, which might reasonably be expected to result in any
material adverse change in the condition, financial or otherwise,
business or prospects of the Trading Advisor or any of its
principals. Neither the Trading Advisor nor any of its principals
has received any notice of an investigation regarding
non-compliance by the Trading Advisor or such principals with
applicable law.
(ix) As a condition precedent to the allocation of the
Allocated Assets to the Trading Advisor, the Trading Advisor agrees
to furnish to the Trust such opinions and certificates as the Trust
may reasonably request.
(b) Kenmar represents and warrants to the Trading Advisor and the
Trust as follows:
(i) Kenmar is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Connecticut. Kenmar has full corporate power and authority to
perform its obligations as described in the information
furnished by Kenmar for distribution to Unitholders and to
discharge its obligations under this Agreement and is
qualified to conduct its business as a foreign corporation and
is in good standing in every jurisdiction in which the nature
or conduct of its business requires such qualification and
failure to so qualify would have a material adverse effect on
its ability to comply with, or perform its obligations under
this Agreement.
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(ii) The references to Kenmar and its principals in the
information furnished by Kenmar to Unitholders do not contain
any material misstatements or omissions.
(iii) This Agreement has been duly and validly
authorized, executed and delivered on behalf of Kenmar and
constitutes the binding and enforceable obligation of Kenmar
in accordance with its terms.
(iv) Kenmar and its principals each has all United
States governmental, regulatory and exchange licenses and
approvals and has effected all filings and registrations with
governmental and regulatory agencies required to conduct its
business and to act as described in the information furnished
by Kenmar for distribution to Unitholders or required to
perform its obligations under this Agreement (including,
without limitation, registration of Kenmar as a commodity pool
operator under the Commodity Exchange Act and membership of
Kenmar as a commodity pool operator in the National Futures
Association).
(v) The execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and the
consummation of the transactions contemplated herein and in
the information furnished by Kenmar for distribution to
Unitholders will not constitute a breach of, or default under,
the organizational documents of Kenmar, or under any
instrument by which Kenmar or any of its principals is bound
or under any order, rule or regulation applicable to Kenmar or
any of its principals, of any court or any governmental body
or administrative agency having jurisdiction over Kenmar or
such principals.
(vi) There is not pending nor, to the best of Kenmar's
knowledge threatened, any action, suit or proceeding before or
by any court or other governmental body to which Kenmar or any
of its principals is a party, or to which any of the assets of
Kenmar or any of its principals is subject, which might
reasonably be expected to result in any material adverse
change in the condition, financial or otherwise, business or
prospects of Kenmar or any of its principals. Neither Kenmar
nor any of its principals has received any notice of an
investigation regarding
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<PAGE>
non-compliance by Kenmar or such principals with applicable law.
(c) The Trust hereby represents and warrants to Kenmar and the
Trading Advisor as follows:
(i) The Trust is duly organized pursuant to and validly
existing under the laws of the State of Delaware, with full
power and authority to engage in the activities as described
in the Prospectus.
(ii) The Trust has full power and authority under
applicable law to perform its obligations under this
Agreement.
(iii) This Agreement has been duly and validly
authorized, executed and delivered by the Trust and
constitutes binding and enforceable obligations of the Trust
in accordance with its terms.
(iv) The execution and delivery of this Agreement, the
incurrence of the obligations set forth herein and the
consummation of the transactions contemplated herein will not
constitute a breach of, or default under, the Certificate of
Trust or the Declaration of Trust and Trust Agreement of the
Trust, or any instrument by which the Trust is bound or any
order, rule or regulation applicable to the Trust of any court
or any governmental body or administrative agency having
jurisdiction over the Trust.
(v) The Trust does not require any governmental,
regulatory or exchange approvals or licenses, nor need it
effect any filings or registrations with any federal, state or
other governmental agencies in order to conduct its business
and to act as contemplated by this Agreement.
(d) The foregoing representations and warranties shall be
continuing, and if any of them shall cease to be true and accurate in all
material respects, the affected party shall promptly give notice to such
effect to all other parties hereto.
11. Indemnification; Limitation of Liability.
The Trust shall indemnify, defend and hold harmless the Trading
Advisor and its Related Parties from and against any and all losses, claims,
damages, liabilities (joint and several), costs and expenses (including any
investigatory, legal and other
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<PAGE>
expenses incurred in connection with, and any amounts paid in, any
settlement; provided that the Trust shall have approved such settlement)
resulting from a demand, claim, lawsuit, action or proceeding relating to (i)
any of such indemnified person's actions or capacities relating to the
business or activities of the Trust, (ii) any activities of the Trust, and
(iii) any Trust-related activities of Kenmar, or any other trading advisor to
the Trust; provided that the conduct (if any) of the Trading Advisor or its
Related Parties which was the subject of the demand, claim, lawsuit, action
or proceeding did not constitute negligence, misconduct or a breach of this
Agreement and was done in good faith and in a manner such person reasonably
believed to be in, or not opposed to, the best interests of the Trust and
provided, further, that the demand, claim, lawsuit or proceeding did not
arise from any untrue statement of a material fact or omission of a material
fact contained in the Prospectus, the sales brochure or any written reference
to the Trading Advisor which was necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading, and which was approved by the Trading Advisor pursuant to Section
1(a) above. The termination of any demand, claim, lawsuit, action or
proceeding by settlement shall not, in itself, create a presumption that the
conduct in question constituted negligence or misconduct or was not
undertaken in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the Trust.
In the event that the Trading Advisor or any related party is made
a party to any claim, dispute or litigation or otherwise incurs any loss or
expense as a result of, or in connection with, the Trust's activities or
claimed activities unrelated to the Trading Advisor, the Trust shall
indemnify, defend and hold harmless the Trading Advisor or such related party
against any loss, liability, damage, cost or expense (including, without
limitation, attorneys' and accountants' fees) incurred in connection
therewith.
The Trading Advisor shall indemnify, defend and hold harmless the
Trust and its Related Parties from and against any and all losses, claims,
damages, liabilities (joint and several), costs and expenses (including any
reasonable investigatory, legal and other expenses incurred in connection
with, and any amounts paid in, any settlement; provided that the Trading
Advisor shall have approved such settlement) resulting from a demand, claim,
lawsuit, action or proceeding relating to any action or omission of the
Trading Advisor relating to the business or activities of the Trading Advisor
under this Agreement or relating to the management by the Trading Advisor of
an account of the Trust if the action or omission of the Trading Advisor
which was the subject of the demand, claim, lawsuit, action or proceeding (i)
constituted negligence, misconduct or a breach of this Agreement, (ii) was an
action or omission taken otherwise than in good faith and in a manner
reasonably believed
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<PAGE>
to be in, or not opposed to, the best interests of the Trust or (iii)
constituted the making of an untrue statement of material fact or omission of
a material fact in the Prospectus, the sales brochure or any written
reference to the Trading Advisor which was necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading, and which was approved by the Trading Advisor pursuant to Section
1(a) above.
In the event that the Trust or any related party is made a party to
any claim, dispute or litigation or otherwise incurs any loss or expense as a
result of, or in connection with, the activities or claimed activities of the
Trading Advisor or any related party unrelated to the Trust's business, the
Trading Advisor shall indemnify, defend and hold harmless the Trust or any of
its affiliates against any loss, liability, damage, cost or expense
(including, without limitation, attorneys' and accountants' fees) incurred in
connection therewith.
Except as otherwise provided in this Section 11, neither the
Trading Advisor nor its Related Parties shall be liable to any other party
hereto or any of the respective Related Parties except for the Trading
Advisor's liability for conduct constituting negligence or misconduct or a
breach of this Agreement or which was taken or omitted other than in good
faith and in the belief that such conduct was in, or not opposed to, the best
interest of the Trust.
In addition to and without limiting the foregoing, ____________
shall have no liability to the Trust or Kenmar or any of their respective
Related Parties under this Agreement or in connection with the transactions
contemplated by this Agreement except in the case of fraud or willful
misconduct by _____________.
No indemnification under this Section 11 shall be made in respect
of any demand, claim, lawsuit, action or proceeding relating to activities of
the person to be indemnified which have been adjudged, by a court, having
jurisdiction with respect to the matter upon entry of a final judgment, not
to have been done in good faith and in the reasonable belief that such
conduct was in, or not opposed to, the best interests of the Trust or to
constitute negligence, misconduct or a breach of this Agreement unless, and
except to the extent that, such court determines that, despite such judgment,
such person is fairly and reasonably entitled to indemnity.
Any indemnification required by this Section 11, unless ordered or
expressly permitted by a court, shall be made by the indemnifying party only
upon a determination by independent legal counsel selected by the
indemnifying party and agreed to by the indemnified party in a written
opinion that the conduct which is the subject of the claim, demand, lawsuit,
action or proceeding
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<PAGE>
with respect to which indemnification is sought meets the applicable standard
set forth in this Section 11; provided, however, that if the indemnified
party shall prevail on the merits and the defense of any demand, claim,
lawsuit or proceeding subject to indemnification hereunder, indemnification
shall be payable hereunder irrespective of the receipt of any such legal
opinion.
In the event that a person entitled to indemnification under this
Section 11, is made a party to an action, suit, or proceeding alleging both
matters for which indemnification may be due hereunder and matters for which
indemnification may not be due hereunder, such person shall be indemnified
only in respect of the former matters.
The Trust or the Trading Advisor, as the case may be, shall advance
indemnification payments reasonably asserted to be due hereunder, provided
that the putatively indemnified party which receives such advances undertakes
in writing to repay the advanced funds, without interest, in the event that
such recipient is determined not to be entitled to indemnification under this
Section 11.
Notwithstanding any provision of this Agreement to the contrary, in
respect of all losses, liabilities, claims, demands, damages, costs, and
expenses described above in this Section 11 (including legal, accounting, and
other expenses incurred in each connection therewith), the Trust's indemnity
obligation shall be limited to the net worth of the Trading Advisor as of the
time that any event giving rise for a claim to indemnity arose.
The foregoing agreements of indemnity shall be in addition to, and
shall in no respect limit or restrict, any other remedies which may be
available to an indemnified party under this Agreement.
Promptly after receipt by any of the indemnified parties under this
Agreement of notice of any demand, claim, lawsuit, action or proceeding, the
indemnified party shall notify the indemnifying party in writing of the
commencement thereof if a claim in respect thereof is to be made under this
Agreement, but the omission so to notify shall not relieve the indemnifying
party from any obligation or liability which it may have to any such
indemnified party otherwise than under this section. In case such demand,
claim, lawsuit, action or proceeding is brought against a person indemnified
under this Agreement, and the indemnifying party is notified of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that the indemnifying party may wish, to assume
the defense thereof, with counsel selected by the indemnifying party and
approved by the indemnified person (provided that approval may not be
unreasonably withheld), and after notice from the indemnifying party to such
indemnified person of the indemnifying
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<PAGE>
party's election so to assume the defense thereof, the indemnifying party
shall not be liable to such person under this section for any legal or other
expenses subsequently incurred by such person in connection with the defense
thereof, unless (i) the indemnifying party approves the employment of
separate counsel by such person, or (ii) the action has been brought against
both such person and the indemnifying party and such person's counsel has
advised it or him that it or he has legal defenses different from or in
addition to those of the indemnifying party (it being understood, however,
that the indemnifying party shall not be liable for legal or other expenses
of more than one separate firm of attorneys for all such persons indemnified
hereunder, which firm shall be designated in writing by the Trading Advisor
or the Trust, as the case may be).
12. Entire Agreement
This Agreement and the agreements referenced herein constitutes the
entire agreement between the parties hereto with respect to the matters
referred to herein, and no other agreement, verbal or otherwise, shall be
binding as between the parties unless it shall be in writing and signed by
the party against whom enforcement is sought.
13. Assignment
This Agreement shall not be assigned by any of the parties hereto
without the prior express written consent of the other parties hereto.
14. Amendment; Waiver
This Agreement shall not be amended except by a writing signed by
the parties hereto. No waiver of any provision of this Agreement shall be
implied from any course of dealing between the parties hereto or from any
failure by either party hereto to assert its rights hereunder on any occasion
or series of occasions.
15. Severability
If any provision of this Agreement, or the application of any
provision to any person or circumstance, shall be held to be inconsistent
with any present or future law, ruling, rule, or regulation of any court or
governmental or regulatory authority having jurisdiction over the subject
matter hereof, such provision shall be deemed to be rescinded or modified in
accordance with such law, ruling, rule, or regulation, and the remainder of
this Agreement, or the application of such provision to persons or
circumstances other than those as to which it shall be held inconsistent,
shall not be affected thereby; provided that alteration of this Agreement in
this manner shall not have a material effect on the terms hereof.
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<PAGE>
16. Notices
Any notice required or desired to be delivered under this Agreement
shall be in writing and shall be delivered by courier service, postage
prepaid mail, telex, facsimile, telegram, or other similar means and shall be
effective upon actual receipt by the party to which such notice shall be
directed, addressed as follows (or to such other address as the party
entitled to notice shall hereafter designate in accordance with the terms
hereof):
if to the Trust or Kenmar:
c/o Kenmar Advisory Corp.
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831-8150
Attn: Joshua B. Parker, Esq.
Telephone: (203) 861-1000
Facsimile: (203) 861-1095
if to the Trading Advisor:
To the address notified in writing to the Trust from time to
time by the Trading Advisor
17. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
18. Consent to Jurisdiction
The parties hereto agree that any action or proceeding arising
directly, indirectly, or otherwise in connection with, out of, related to, or
from this Agreement, any breach hereof, or any transaction covered hereby,
shall be resolved, whether by arbitration or otherwise, within the City of
New York, State of New York. Accordingly, the parties consent and submit to
the jurisdiction of the federal and state courts and any applicable arbitral
body located within the City of New York, State of New York. The parties
further agree that any such action or proceeding brought by either party to
enforce any right, assert any claim, or obtain any relief whatsoever in
connection with this Agreement shall be brought by such party exclusively in
federal or state courts, or if appropriate before any applicable arbitral
body, located within the City of New York, State of New York.
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<PAGE>
19. Remedies
In any action or proceeding arising out of any of the provisions of
this Agreement, the parties hereto agree that they shall not seek any
prejudgment equitable or ancillary relief. Such parties also agree that
their sole remedy in any such action or proceeding shall be to seek actual
monetary damages for any breach of this Agreement; provided, however, that
the parties hereto agree that declaratory judgment may be sought with respect
to the indemnification provisions of this Agreement.
20. Confidentiality
The Trust and Kenmar acknowledge that the Trading Advisor's
strategies and trades constitute proprietary data belonging to the Trading
Advisor and agree that they will not disseminate any confidential information
regarding any of the foregoing, except as required by law, and any such
information as may be acquired by Kenmar or the Trust is to be used solely to
monitor the Trading Advisor's performance on behalf of the Trust.
The obligations of the parties in relation to confidentiality will
not apply to the extent that any information (i) is required to be disclosed
in accordance with any applicable law, rule, regulation or order of any
applicable court, arbitration panel, governmental, regulatory or
self-regulatory authority or any audit requirement or (ii) has entered into
the public domain other than by a breach of duty on the part of any party
hereto.
21. Survival
The provisions of this Agreement shall survive the termination
hereof with respect to any matter arising while this Agreement shall be in
effect.
22. Counterparts
This Agreement may be executed in counterparts, each of which shall
be deemed an original but all of which together shall constitute one and the
same instrument.
23. Headings
Headings to sections and subsections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation hereof.
24. Third-Party Beneficiary.
This Agreement is not intended to and shall not convey any rights
to persons not a party to this Agreement, except as provided in Section 11.
In particular, and not by way of
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ilmitation, no investor in the Trust may assert any rights hereunder.
25. "Business Day." "Business day," as used herein, shall mean a
day on which banks are required or authorized to remain open for business in
New York City.
26. Multi-Programs. If the Trading Advisor offers more than one
trading program to clients, the program(s) to be used for the Trust, and the
additional allocation of the Allocated Assets to, between or among such
program(s), are set forth in Annex D hereto.
IN WITNESS WHEREOF, this Agreement has been executed for and on
behalf of the undersigned as of the Effective Date.
KENMAR GLOBAL TRUST
BY: KENMAR ADVISORY CORP.
Managing Owner
BY: ___________________________________
Name:
Title:
KENMAR ADVISORY CORP.
BY: ___________________________________
Name:
Title:
THE TRADING ADVISOR
BY: ___________________________________
Name:
Title:
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Annex A
TRADING AUTHORIZATION
[TRADING ADVISOR]
To Whom It May Concern:
Kenmar Global Trust, a Delaware business Trust (the "Trust"), does
hereby make, constitute, and appoint [TRADING ADVISOR] as the Trust's
attorney-in-fact to buy and sell commodity interests, in accordance with the
Advisory Agreement among us and certain others.
This authorization shall terminate and be null, void, and of no
further effect simultaneously with the termination of the said Advisory
Agreement.
Very truly yours,
Dated as of _______, 199__
KENMAR GLOBAL TRUST
BY: KENMAR ADVISOR CORP.,
Managing Owner
By: ____________________________
Name:
Title:
ACCEPTED AND AGREED TO:
[TRADING ADVISOR]
By: ____________________________
Name:
Title:
A-1
<PAGE>
Annex B
LIST OF
COMMODITY INTERESTS TRADED BY
[THE TRADING ADVISOR]
The undersigned represents that the following is a complete list of
commodity interests which the undersigned intends to trade on behalf of
KENMAR GLOBAL TRUST other than regulated futures contracts and options on
regulated futures contracts traded on a qualified board of trade or exchange
in the United States and foreign futures and options contracts approved by
the CFTC as stated in the most recent CFTC Backgrounder:
Contract Type
(Futures, Forward,
Options on Futures) Exchange Contract
- -------------------- -------- --------
[TRADING ADVISOR]
By:_________________________
Name:
Title:
Dated as of ____, 199_
B-1
<PAGE>
ANNEX C
FEE CALCULATIONS
Consulting Fee
For the advisory services contemplated by this Agreement, Kenmar
Advisory Corp. ("Kenmar") shall, at no additional cost to the Trust, remit to
the Trading Advisor, monthly in arrears, a Consulting Fee equal to 0.167 of 1%
of the Net Asset Value of the Allocated Assets as of the beginning of such
calendar month (a 2% annual rate).
Kenmar will remit the Consulting Fees due to the Trading Advisor
within fifteen (15) business days of the month-end as of which they are due.
At such time as Kenmar remits each monthly Consulting Fee payment hereunder
to the Trading Advisor, Kenmar shall also submit a reasonably itemized
statement setting forth the calculation of the amount due to the Trading
Advisor in respect of such month. If the Trading Advisor does not object to
such statement within ten (10) business days of the receipt thereof, such
statement shall for all purposes be deemed to be conclusively correct.
The Consulting Fee due to the Trading Advisor hereunder shall be
prorated for any partial month during which this Agreement is in effect, or
for any reallocations during a month, such proration to be made on the basis
of the number of business days during such month that the Trading Advisor
managed assets on which the Consulting Fee is being calculated hereunder,
compared to the total number of business days in such month. Termination of
this Agreement will be treated as if the termination date were a month-end
for purposes calculating the Consulting Fee.
Profit Share
As of the end of each calendar quarter, beginning with the end of
the first full calendar quarter after the Effective Date, the Trust will pay
the Trading Advisor a Profit Share equal to twenty percent (20%) of any
Trading Profit recognized in respect of the Allocated Assets during the
preceding quarter (or, in the case of the first calculation period, since the
Effective Date).
C-1
<PAGE>
Trading Profit for purposes of calculating the Trading Advisor's
Profit Share includes, for any period, (i) the realized trading profit
(loss), plus or minus (ii) the change in unrealized trading profit (loss) on
open positions from the beginning to the end of such period, and is
calculated after reduction for the sum of __% plus execution costs other than
Brokerage Commissions. Trading Profit does not include interest credited on
the Trust's assets. New Trading Profit is generated only to the extent that
the Trading Advisor exceeds its previous calendar quarter-end high in
cumulative Trading Profit.
In the case of withdrawals from the Trading Advisor's Allocated
Assets, as of the end of any month that is not the end of a calendar quarter,
a proportional Profit Share will be deducted, and the amounts so deducted
will be paid to the Trading Advisor. Such amounts will not be subject to
being returned to the Trust, irrespective of subsequent losses during the
quarter.
A withdrawal from the Trading Advisor's Allocated Assets results in
a proportional decrease in any shortfall between the level of cumulative
Trading Profit as of the date of withdrawal and the highest level of
cumulative prior Trading Profit as of any calendar quarter-end (or $0, if
higher) for purposes of subsequent calculations of New Trading Profit, with
the result that redemptions, reallocations or distributions do not reduce the
Profit Shares potentially payable by the Units which remain outstanding.
Early redemption charges, organizational costs reimbursement and
extraordinary costs, such as litigation or taxes, shall not reduce Trading
Profit.
In calculating New Trading Profit, Profit Shares paid at previous
quarter-ends do not reduce cumulative New Trading Profit in subsequent
periods.
Termination of the Trading Advisor's Advisory Agreement will be
treated as if the date of termination were a calendar quarter-end for
purposes of calculating any Profit Shares due to the Trading Advisor.
The Trust will remit the Profit Shares due to the Trading Advisor
within fifteen (15) business days of the quarter-end as of which they are
due. At such time as the Trust remits each Profit Shares payment hereunder
to the Trading Advisor, the Trust shall also submit a reasonably itemized
statement setting forth the calculation of the amount of the Profit Shares
due to the Trading Advisor in respect of such quarter. If the Trading
Advisor does not object to such statement within ten (10) business days of
the receipt thereof,
<PAGE>
such statement shall for all purposes be deemed to be conclusively correct.
C-2
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Annex D
SELECTION OF
MULTIPLE PROGRAMS OFFERED
The Trading Advisor will trade the following programs for the Trust
(need not be completed if the Advisor offers a single program):
Initial % of
Program Allocated Assets
- ------- ----------------
----------
100%
----------
----------
The programs used by the Trading Advisor for the Trust may be changed by
written confirmation from Kenmar of the mutual agreement of Kenmar and the
Trading Advisor to such change.
D-1
<PAGE>
ACKNOWLEDGMENT OF RECEIPT OF DISCLOSURE DOCUMENT
The undersigned hereby acknowledges receipt of the Disclosure
Document dated __________, 19__ of [TRADING ADVISOR] (the "Trading Advisor")
in connection with the Trading Advisor's management of an account for Kenmar
Global Trust.
Dated as of _______ _, 19__
KENMAR GLOBAL TRUST
By: KENMAR ADVISORY CORP.
Managing Owner
By: ___________________________
Name:
Title:
ACK-1
<PAGE>
Exhibit 10.06
APPENDIX A TO CFTC RULE 1.55(C)
This brief statement does not disclose all of the risks and other
significant aspects of trading in futures and options. In light of the risks,
you should undertake such transactions only if you understand the nature of the
contracts (and contractual relationships) into which you are entering and the
extent of your exposure to risk. Trading in futures and options is not suitable
for many members of the public. You should carefully consider whether trading
is appropriate for you in light of your experience, objectives, financial
resources and other relevant circumstances.
FUTURES
1. EFFECT OF "LEVERAGE" OR "GEARING"
Transactions in futures carry a high degree of risk. The amount of
initial margin is small relative to the value of the futures contract so that
transactions are "leveraged" or "geared." A relatively small market movement
will have a proportionately larger impact on the funds you have deposited or
will have to deposit; this may work against you as well as for you. You may
sustain a total loss of initial margin funds and any additional funds deposited
with the firm to maintain your position. If the market moves against your
position or margin levels are increased, you may be called upon to pay
substantial additional funds on short notice to maintain your position. If you
fail to comply with a request for additional funds within the time prescribed,
your position may be liquidated at a loss and you will be liable for any
resulting deficit.
2. RISK-REDUCING ORDERS OR STRATEGIES
The placing of certain orders (e.g., "stop-loss" orders, where
permitted under local law, or "stop-limit" orders) which are intended to limit
losses to certain amounts may not be effective because market conditions may
make it impossible to execute such orders. Strategies using combinations of
positions, such as "spread" and "straddle" positions may be as risky as taking
simple "long" or "short" positions.
OPTIONS
3. VARIABLE DEGREE OF RISK
<PAGE>
Transactions in options carry a high degree of risk. Purchasers and
sellers of options should familiarize themselves with the type of option (i.e.,
put or call) which they contemplate trading and the associated risks. You
should calculate the extent to which the value of the options must increase for
your position to become profitable, taking into account the premium and all
transaction costs.
The purchaser of options may offset or exercise the options or allow
the options to expire. The exercise of an option results either in a cash
settlement or in the purchaser acquiring or delivering the underlying interest.
If the option is on a future, the purchaser will acquire a futures position with
associated liabilities for margin (see the section on Futures above). If the
purchased options expire worthless, you will suffer a total loss of your
investment which will consist of the option premium plus transaction costs. If
you are contemplating purchasing deep-out-of-the-money options, you should be
aware that the chance of such options becoming profitable ordinarily is remote.
Selling ("writing" or "granting") an option generally entails
considerably greater risk than purchasing options. Although the premium
received by the seller is fixed, the seller may sustain a loss well in excess of
that amount. The seller will be liable for additional margin to maintain the
position if the market moves unfavorably. The seller will also be exposed to
the risk of the purchaser exercising the option and the seller will be obligated
to either settle the option in cash or to acquire or deliver the underlying
interest. If the option is on a future, the seller will acquire a position in a
future with associated liabilities for margin (see the section on Futures
above). If the option is "covered" by the seller holding a corresponding
position in the underlying interest or a future or another option, the risk may
be reduced. If the option is not covered, the risk of loss can be unlimited.
Certain exchanges in some jurisdictions permit deferred payment of the
option premium, exposing the purchaser to liability for margin payments not
exceeding the amount of the premium. The purchaser is still subject to the risk
of losing the premium and transaction costs. When the option is exercised or
expires, the purchaser is responsible for any unpaid premium outstanding at that
time.
ADDITIONAL RISKS COMMON TO FUTURES AND OPTIONS
4. TERMS AND CONDITIONS OF CONTRACTS
You should ask the firm with which you deal about the terms and
conditions of the specific futures or options which you are trading and
associated obligations (e.g., the circumstances under which you may become
obligated to make or take delivery of
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<PAGE>
the underlying interest of a futures contract and, in respect of options,
expiration dates and restrictions on time for exercise). Under certain
circumstances the specifications of outstanding contracts (including the
exercise price of an option) may be modified by the exchange or clearing
house to reflect changes in the underlying interest.
5. SUSPENSION OR RESTRICTION OF TRADING AND PRICING RELATIONSHIPS
Market conditions (e.g., illiquidity) and/or the operation of the
rules of certain markets (e.g., the suspension of trading in any contract or
contract month because of price limits or "circuit breakers") may increase the
risk of loss by making it difficult or impossible to effect transactions or
liquidate/offset positions. If you have sold options, this may increase the
risk of loss.
Further, normal pricing relationships between the underlying interest
and the future, and the underlying interest and the option may not exist. This
can occur when, for example, the futures contract underlying the option is
subject to price limits while the option is not. The absence of an underlying
reference price may make it difficult to judge "fair" value.
6. DEPOSITED CASH AND PROPERTY
You should familiarize yourself with the protections accorded money or
other property you deposit for domestic and foreign transactions, particularly
in the event of a firm insolvency or bankruptcy. The extent to which you may
recover your money or property may be governed by specific legislation or local
rules. In some jurisdictions, property which had been specifically identifiable
as your own will be prorated in the same manner as cash for purposes of
distribution in the event of a shortfall.
7. COMMISSIONS AND OTHER CHARGES
Before you begin to trade, you should obtain a clear explanation of
all commissions, fees and other charges for which you will be liable. These
charges will affect your net profit (if any) or increase your loss.
8. TRANSACTIONS IN OTHER JURISDICTIONS
Transactions on markets in other jurisdictions, including markets
formally linked to a domestic market, may expose you to additional risk. Such
markets may be subject to regulation which may offer different or diminished
investor protection.
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<PAGE>
Before you trade you should enquire about any rule relevant to your
particular transactions. Your local regulatory authority will be unable to
compel the enforcement of the rules of regulatory authorities or markets in
other jurisdictions where your transactions have been effected. You should ask
the firm with which you deal for details about the types of redress available in
both your home jurisdiction and other relevant jurisdictions before you start to
trade.
9. CURRENCY RISKS
The profit or loss in transactions in foreign currency-denominated
contracts (whether they are traded in your own or another jurisdiction) will be
affected by fluctuations in currency rates where there is a need to convert from
the currency denomination of the contract to another currency.
10. TRADING FACILITIES
Most open-outcry and electronic trading facilities are supported by
computer-based component systems for the order-routing, execution, matching,
registration or clearing of trades. As with all facilities and systems, they
are vulnerable to temporary disruption or failure. Your ability to recover
certain losses may be subject to limits on liability imposed by the system
provider, the market, the clearing house and/or member firms. Such limits may
vary; you should ask the firm with which you deal for details in this respect.
11. ELECTRONIC TRADING
Trading on an electronic trading system may differ not only from
trading in an open-outcry market but also from trading on other electronic
trading systems. If you undertake transactions on an electronic trading system,
you will be exposed to risks associated with the system including the failure of
hardware and software. The result of any system failure may be that your order
is either not executed according to your instructions or is not executed at all.
12. OFF-EXCHANGE TRANSACTIONS
In some jurisdictions, and only then in restricted circumstances,
firms are permitted to effect off-exchange transactions. The firm with which
you deal may be acting as your counterpart to the transaction. It may be
difficult or impossible to liquidate an existing position, to assess the value,
to determine a fair price or to assess the exposure to risk. For these reasons,
these transactions may involve increased risks. Off-exchange transactions may
be less regulated or subject to a separate regulatory regime. Before you
undertake such transactions, you should familiarize yourself with applicable
rules and attendant risks.
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13. THIS STATEMENT IS FURNISHED TO YOU BECAUSE RULE 190.10(c) OF THE COMMODITY
FUTURES TRADING COMMISSION REQUIRES IT FOR REASONS OF FAIR NOTICE UNRELATED TO
THIS COMPANY'S CURRENT FINANCIAL CONDITION.
1. YOU SHOULD KNOW THAT IN THE UNLIKELY EVENT OF THIS COMPANY'S BANKRUPTCY,
PROPERTY, INCLUDING PROPERTY SPECIFICALLY TRACEABLE TO YOU, WILL BE RETURNED,
TRANSFERRED OR DISTRIBUTED TO YOU, OR ON YOUR BEHALF, ONLY TO THE EXTENT OF YOUR
PRO RATA SHARE OF ALL PROPERTY AVAILABLE FOR DISTRIBUTION TO CUSTOMERS.
2. NOTICE CONCERNING THE TERMS FOR THE RETURN OF SPECIFICALLY IDENTIFIABLE
PROPERTY WILL BE BY PUBLICATION IN A NEWSPAPER OF GENERAL CIRCULATION.
3. THE COMMISSION'S REGULATIONS CONCERNING BANKRUPTCIES OF COMMODITY BROKERS
CAN BE FOUND AT 17 CODE OF FEDERAL REGULATIONS PART 190.
In consideration of PaineWebber opening and maintaining one or more
accounts (whether designated by name, number or otherwise) and acting as broker,
principal and futures commission merchant for the undersigned customer for the
purchase, acquisition, sale (including short sales), exchange, pledge of, or to
otherwise possess, transfer, dispose of, realize upon and generally deal or
invest, individual or in Contracts (as herein defined) and related securities
transactions, the undersigned agrees as follows:
1. DEFINITIONS
In this Agreement, "Customer" means the individual or the entity whose
representative(s) sign below, and that entity's successors, subsidiaries,
correspondents, affiliates and assigns. "PaineWebber" means PaineWebber
Incorporated, its successor firms, subsidiaries, correspondents, affiliates and
assigns. "Account" includes any and all accounts opened and maintained by
PaineWebber on Customer's behalf. "Contracts" include physical commodities
(whether or not traded on a terminal market) and options thereon, commodity
futures and options thereon, forward and leverage contracts, and foreign
exchange contracts and options and futures thereon, whether traded on U.S.
contract markets elsewhere. "Property" means all Contracts and securities,
including but not limited to cash, monies, stocks, options, bonds, notes,
certificates of deposit and other obligations.
2. APPLICABLE RULES
All transactions for the Account of Customer shall be subject to all
applicable foreign, federal and state laws, and accepted international
conventions, the regulations of all applicable foreign, federal, state and
self-regulatory agencies,
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as well as the constitution, by-laws, rules regulations, customs and usages
of the commodity exchange or market, and its clearing house, if any, where
the transactions are executed.
3. CREDIT INQUIRY
Customer understands that inquiries may be made from time to time
pertaining to Customer's credit-standing and hereby authorizes such inquiries.
If such inquiries are made, Customer has the right to make a written request for
a complete disclosure of their nature and scope. Customer agrees to notify
PaineWebber in writing in the event of any material change in circumstances
pertaining to the matters represented herein or in Customer's financial
statement.
4. TRADING SESSION
Customer understands and acknowledges that PaineWebber may provide
brokerage services for the trading of Contracts on various exchanges and at
various times in accordance with PaineWebber policy. Customer further
acknowledges that this Agreement does not entitle Customer to participate in any
particular trading session unless qualified in accordance with PaineWebber
policy and in PaineWebber's sole discretion.
5. TRADING RECOMMENDATIONS
Customer acknowledges that any trading recommendation or information
furnished by PaineWebber is provided without any warranty, representation or
guaranty as to accuracy, completeness, profitability or timeliness and Customer
shall in no way hold PaineWebber responsible for any loss incurred as a result
of PaineWebber's recommendations or suggestions. PaineWebber and its officers,
directors, affiliates, stockholders or employees may take or hold positions in,
or advise other customers concerning, Contracts which are the subject of
recommendations or information provided to Customer, which positions or advice
may be inconsistent with recommendations given to, or positions established by,
Customer.
6. POSITION LIMITS
Customer hereby agrees not to exceed the position limits as
established by any foreign or federal agency or exchange, either acting alone or
with others, and shall notify PaineWebber promptly of any position for which
Customer is required to file reports with the Commodity Futures Trading
Commission or any exchange. Customer hereby acknowledges PaineWebber's
discretionary right to limit the number and type (long, short and/or spread) of
positions in Customer's Account, to decline to accept any order, to require that
Customer's positions be transferred to another firm and PaineWebber's right to
liquidate such positions if they are not promptly transferred.
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7. MARGIN, COMMISSION AND FEES
Customer will pay on demand, meet promptly all calls for, and maintain
such original and variation margin and/or collateral for the Account as
PaineWebber may require in its discretion from time to time. PaineWebber shall
have the right to raise or lower such margin requirements for any new or
existing position carried or to be carried for Customer. Customer may be
required to meet all variation margin calls, and all original margin calls not
satisfied by the deposit of U.S. Treasury Bills, by federal funds wire transfer
to PaineWebber. Customer agrees to pay PaineWebber's brokerage commissions,
exchange fees and all other transaction charges at PaineWebber's rates in effect
from time to time. PaineWebber retains as its own any interest or increment,
direct or indirect, resulting from or relating to the investment of funds
deposited in Customer's Account.
8. SECURITY INTEREST
All Property which PaineWebber may at any time be carrying, holding or
controlling for Customer (whether held as margin, or for safekeeping or
otherwise) has been pledged and shall be subject to a security interest and
general lien for the discharge of all obligations to PaineWebber, irrespective
of whether PaineWebber has made advances in connection with such Property, and
may be applied and/or transferred between any and all of Customer's accounts
held at PaineWebber. Customer shall take such actions to perfect this lien and
security interest as PaineWebber reasonably requires.
9. DELIVERY OF EXERCISE
In the event Customer undertakes to exercise an option or to accept an
option assignment, or PaineWebber undertakes to sell or deliver, or buy or take
delivery of any Property on behalf of Customer. Customer shall supply
PaineWebber with the documents, instructions and/or Property at the time, in the
manner and under the terms and conditions reasonably established by PaineWebber
as necessary for PaineWebber to effect such exercise or delivery. If such
documents, instructions and/or Property are not received by the time specified,
PaineWebber may, without notice to Customer and upon such terms and by such
methods as PaineWebber may determine in its discretion, (i) exercise or
liquidate the positions of Customer; (ii) purchase or borrow for the account of
Customer any Property necessary to make or receive delivery; (iii) make or
receive delivery of the positions of Customer; (iv) make or receive delivery on
behalf of Customer; or (v) allow Contracts to expire, all for the account and
risk of Customer. Customer agrees to pay storage and delivery charges and
service fees incurred in connection with such exercise or delivery, as well as
all premiums, losses or fines incurred as a result of Customer's failure to
deliver
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documents instructions and/or Property or as a result of PaineWebber's
inability to purchase or borrow Property necessary to meet the delivery
obligation attendant to Property sold by Customer.
10. CURRENCY EXCHANGE RATES
In the event Customer engages in any transaction effected in a foreign
currency, Customer acknowledges and agrees that any profit or loss incurred from
the fluctuation in the exchange rate of such currency shall be for the Account
and risk of Customer. Margin deposits shall be made in U.S. currency, unless
otherwise required by the exchange and/or PaineWebber, and debits or credits
which may arise upon liquidation of any position will be credited to Customer's
Account in U.S. currency at the rate of exchange determined in good faith by
PaineWebber, unless Customer requests that the debit or credit be made in that
foreign currency. Certain transactions in foreign currencies shall also be
subject to the Subordination Agreement attached hereto.
11. LIQUIDATION
It is agreed that (i) should Customer default in any payment; (ii)
should Customer fail to comply fully and timely with any obligation under this
Agreement; (iii) in the event that an attachment is levied against any Account,
a petition in bankruptcy, or for the appointment of a receiver, is filed by or
against Customer, or any similar event occurs; (iv) in the event of Customer's
death, incompetency, disability, merger, consolidation, dissolution or any
similar event; or (v) should PaineWebber for any reason reasonably deem it
necessary for its protection, PaineWebber is authorized in its sole discretion
to:
A. sell, exercise, offset, deliver or otherwise liquidate any or all
Property long;
B. buy in, offset, take delivery of or otherwise liquidate any or all
Property short;
C. buy or sell Property, or enter into and/or liquidate straddle or
spread positions, in order to liquidate or reduce the risk associated with
carrying any Property long or short; and/or
D. cancel any outstanding order, close out any or all outstanding
Contracts, close the Account, sell, set off against or otherwise dispose of any
Property (whether held as margin or otherwise) and satisfy any obligation
Customer may have to PaineWebber out of such Property or the proceeds from its
sale or other disposition.
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<PAGE>
Such sale, purchase or other action may be taken according to
PaineWebber's judgement and at PaineWebber's discretion, on the exchange or
other market where such business is then usually transacted, or at a public
auction or private sale, without advertising same and without prior tender,
demand, call or notice to Customer and PaineWebber may purchase the whole or any
part thereof free from any right of redemption, and Customer shall remain liable
for any deficiency and all costs and fees incurred in collecting such
deficiency; it being understood that a prior tender, demand, call or other
notice of any kind by PaineWebber shall not be considered a waiver of
PaineWebber's rights as provided herein or other rights and remedies to which
PaineWebber may be entitled.
12. DEBIT BALANCES
Customer shall at all times be liable for the payment upon demand of
any debit balance owing and any deficiency remaining in the Account in the event
of the liquidation thereof in whole or in part by PaineWebber or by Customer.
Debit balances in the Account shall be charged with interest, in accordance with
PaineWebber's usual custom; any increase in rates caused by money market
conditions; such other costs, fees or charges incurred with respect to
PaineWebber's facilities and extra services; as well as any cost of collection,
including reasonable attorneys' fees.
13. FINES, PENALTIES
Customer agrees to indemnify PaineWebber and its shareholders,
directors, officers, employees and agents against any liability, cost or
expense, including without limitation, legal fees and expenses, and any fine or
penalty imposed by any governmental agency, contract market, exchange, clearing
organization or self-regulatory body, which PaineWebber may incur or be subject
to with respect to Customer's Account or any transaction or position therein.
14. REPORTS CONCLUSIVE
Confirmations of orders and monthly account statements shall be
conclusive and binding on Customer ten calendar days after dispatch if Customer
does not object in writing by notifying PaineWebber Commodity Operations at 100
Harbor Boulevard, Weehawken, New Jersey 07087. Communications mailed to
Customer at the address specified hereon or such other address as Customer shall
indicate to PaineWebber in writing shall be deemed to have been personally
delivered to Customer.
15. COMMUNICATIONS
PaineWebber will not be liable for delays or errors in the
transmission or execution of orders or for any loss incurred
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<PAGE>
due to the breakdown or failure of transmission or communication facilities;
government, market, exchange or clearing house restrictions; suspension of
trading; wars, strikes or natural disasters; or any other cause beyond
PaineWebber's control.
16. FOREIGN CUSTOMERS
Customer, if not a U.S. citizen or a domestic entity, hereby
acknowledges being informed by PaineWebber that the following regulations have
been promulgated by the Commodity Futures Trading Commission: (i) regulation
15.05, which designates a futures commission merchant as the agent of foreign
brokers, customers of foreign brokers and foreign traders for certain purposes;
and (ii)regulation 21.03, which authorizes the CFTC to request when unusual
market circumstances exist, certain account information from domestic futures
commission merchants, as well as foreign brokers and traders.
17. SEVERABILITY, WAIVER
The invalidity of any provision of this Agreement shall not invalidate
or otherwise affect any other provision of this Agreement, provided the basic
intent and purposes of this Agreement, viewed in its entirety, are not subverted
thereby. No waiver or amendment of this Agreement may be implied from any
course of dealing between PaineWebber and Customer or from any failure or delay
by PaineWebber to exercise or assert its rights under this Agreement.
18. REVOCATION, MODIFICATION
This Agreement shall continue until notice of revocation is received
by or from PaineWebber. Customer agrees that PaineWebber may change the terms
of this agreement at anytime upon prior written notice to Customer. By
continuing to accept the services offered by PaineWebber, Customer indicates to
PaineWebber Customer's acceptance of these changes. If Customer does not accept
the changes, Customer must notify PaineWebber in writing of Customer's refusal
and Customer's Account will be closed. However, Customer will remain liable for
any outstanding obligations and/or charges in the Account. Any modification to
this Agreement made by Customer must be in writing and accepted by PaineWebber
in writing and no employee of PaineWebber is authorized to make any
representation contrary to the terms of this Agreement.
19. CONTROLLING LAW
THIS AGREEMENT AND ITS ENFORCEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF
LAWS. Its provisions shall be continuous, and shall cover individually and
collectively each Account which Customer may open or reopen with PaineWebber,
and
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<PAGE>
PaineWebber may transfer such Account to its successors or assigns without
Customer's prior approval.
20. CUSTOMER REPRESENTATIONS
Customer represents and warrants, if applicable, that (i) it is
authorized to enter into transactions in Contracts and to execute this Agreement
and perform its obligations, and has taken all action necessary to authorize
such execution and performance; (ii) it shall enter into such transactions as
principal; (iii) each person signing this Agreement is duly authorized to do so
on Customer's behalf and to bind Customer to the obligations, representations
and warranties under this Agreement; (iv) Customer has obtained all
authorizations of any governmental body required in connection with this
Agreement including but not limited to registrations with CFTC, and such
authorizations are in full force and effect; and (v) the execution, delivery and
performance of this Agreement and any transaction in Contracts entered into by
Customer will not violate any law, ordinance, charter, by-law or rule applicable
to it or any agreement by which it is bound or by which any of its assets are
affected.
21. DISCLOSURE ACKNOWLEDGMENT
Customer hereby acknowledges that it has received and understands the
Risk Disclosure Statement for Futures and Options (CFTC Rule 1.55c).
Customer agrees to the terms and conditions of the Commodity Futures
Client Agreement and authorizes PaineWebber to open an Account in the name of
the customer.
IF A CORPORATE CLIENT OR OTHER ENTITY:
X Date:
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SIGNATURE PRINT NAME AND TITLE OF SIGNATORY
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<PAGE>
AUTHORIZATION TO TRANSFER FUNDS
Without limiting or modifying the foregoing agreement, PaineWebber is
hereby authorized, at any time and from time to time without prior notice to
Customer, to transfer to or from the Customer's commodity futures account(s) to
or from any other account Customer maintains with PaineWebber such amount of
excess funds which in PaineWebber's judgment may reasonably be required to avoid
margin calls or to reduce a debit balance in such accounts. This can and may
include the PaineWebber Cash Fund or Resource Management Account. PaineWebber
agrees to inform Customer in writing of any and all transfers of funds made
pursuant hereto within a reasonable time after making such transfer.
IF A CORPORATE CLIENT OR OTHER ENTITY:
X Date:
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SIGNATURE PRINT NAME AND TITLE OF SIGNATORY
CONSENT TO CROSS TRANSACTIONS
Without prior notice, Customer authorizes PaineWebber, its directors,
officers, employees or agents and any floor broker acting on Customer's behalf
in any transaction for the Account to take the other side of Customer's
transactions through an account of such person, subject to any condition imposed
by applicable exchange or CFTC regulations.
IF A CORPORATE CLIENT OR OTHER ENTITY:
X Date:
---------------------- --------------- ---------------------------------
SIGNATURE PRINT NAME AND TITLE OF SIGNATORY
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<PAGE>
Funds of customers trading on United States contract markets may be
held in accounts denominated in a foreign currency with depositories located
outside the United States or its territories if Customer is domiciled in a
foreign country or if the funds are held in connection with contracts priced and
settled in a foreign currency. Such accounts are subject to the risk that
events could occur which would hinder or prevent the availability of these funds
for distribution to customers. Such accounts also may be subject to foreign
currency exchange rate risks.
By signing the accompanying acknowledgment, Customer authorizes the
deposit of funds into such foreign depositories. For customers domiciled in the
United States, this authorization permits the holding of funds in regulated
accounts off-shore only if such funds are used to margin, guarantee, or secure
positions in such contracts or accrue as a result of such positions.
In order to avoid the possible dilution of other customer funds, a
customer who has funds held outside the United States must further agree that
Customer's claims based on such funds will be subordinated as described below in
the unlikely event both of the following conditions are met: (1) Customer's
futures commission merchant is placed in receivership or bankruptcy, and (2)
there are insufficient funds available for distribution denominated in the
foreign currency as to which Customer has a claim to satisfy all claims against
those funds.
By signing the accompanying acknowledgment, Customer agrees that if
both of the conditions listed above occur, Customer's claim against the futures
commission merchant's assets attributable to funds held overseas in a particular
foreign currency may be satisfied out of segregated customer funds held in
accounts denominated in dollars or other foreign currencies only after each
customer whose funds are held in dollars or in such other foreign currencies
receives its pro-rata portion of such funds. It is further agreed that, in no
event may a customer whose funds are held overseas receive more than its
pro-rata share of the aggregate pool consisting of funds held in dollars, funds
held in the particular foreign currency and non-segregated assets of the futures
commission merchant.
Customer hereby acknowledges receipt of and agrees to the terms of the
foregoing Subordination Agreement.
IF A CORPORATE CLIENT OR OTHER ENTITY:
X Date:
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SIGNATURE PRINT NAME AND TITLE OF SIGNATORY
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It is agreed that any controversy between us arising out of Customer's
Account, transactions with PaineWebber and/or its officers, directors, employees
and/or agents, or this Agreement shall be submitted to arbitration conducted by
the contract market upon which the transaction giving rise to the dispute was
executed, the National Futures Association or the New York Stock Exchange, as
Customer may elect. Within ten (10) days of receipt of Customer's notice of its
intention to arbitrate, PaineWebber will provide Customer with a list of two or
more of the organizations listed above. If PaineWebber notifies Customer of its
intention to arbitrate, PaineWebber shall simultaneously provide Customer with a
list of two or more of the above organizations and a copy of their rules.
Customer will then have 45 days after receipt of the list to choose a forum. If
Customer fails to make such an election, PaineWebber will have the right to
select the arbitration forum. Any incremental fees which may be assessed for
provision of a mixed panel will be paid by PaineWebber, unless the arbitrators
determine that Customer has acted in bad faith in initiating or conducting the
proceeding.
THREE FORUMS EXIST FOR THE RESOLUTION OF COMMODITY DISPUTES: CIVIL
COURT LITIGATION, REPARATIONS AT THE COMMODITY FUTURES TRADING COMMISSION (CFTC)
AND ARBITRATION CONDUCTED BY A SELF-REGULATORY OR OTHER PRIVATE ORGANIZATION.
THE CFTC RECOGNIZES THAT THE OPPORTUNITY TO SETTLE DISPUTES BY ARBITRATION
MAY IN SOME CASES PROVIDE MANY BENEFITS TO CUSTOMERS, INCLUDING THE ABILITY TO
OBTAIN AN EXPEDITIOUS AND FINAL RESOLUTION OF DISPUTES WITHOUT INCURRING
SUBSTANTIAL COSTS, THE CFTC REQUIRES, HOWEVER, THAT EACH CUSTOMER INDIVIDUALLY
EXAMINE THE RELATIVE MERITS OF ARBITRATION AND THAT YOUR CONSENT TO THIS
ARBITRATION AGREEMENT BE VOLUNTARY.
BY SIGNING THIS AGREEMENT, CUSTOMER (1) MAY BE WAIVING ITS RIGHT TO
SUE IN A COURT OF LAW, AND (2) IS AGREEING TO BE BOUND BY ARBITRATION OF ANY
CLAIMS OR COUNTERCLAIMS WHICH CUSTOMER OR PAINEWEBBER MAY SUBMIT TO ARBITRATION
UNDER THIS AGREEMENT. CUSTOMER IS NOT, HOWEVER, WAIVING ITS RIGHT TO ELECT
INSTEAD TO PETITION THE CFTC TO INSTITUTE REPARATIONS PROCEEDINGS UNDER SECTION
14 OF THE COMMODITY EXCHANGE ACT WITH RESPECT TO ANY DISPUTE WHICH MAY BE
ARBITRATED PURSUANT TO THIS AGREEMENT. IN THE EVENT A DISPUTE ARISES, CUSTOMER
WILL BE NOTIFIED IF PAINEWEBBER INTENDS TO SUBMIT THE DISPUTE TO ARBITRATION.
IF CUSTOMER BELIEVES A VIOLATION OF THE COMMODITY EXCHANGE ACT IS INVOLVED, AND
IF CUSTOMER PREFERS TO REQUEST A SECTION 14 "REPARATIONS" PROCEEDING BEFORE THE
CFTC, CUSTOMER WILL HAVE 45 DAYS FROM THE DATE OF SUCH NOTICE IN WHICH TO MAKE
THAT ELECTION.
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CUSTOMER NEED NOT SIGN THIS AGREEMENT TO OPEN AN ACCOUNT WITH
PAINEWEBBER (SEE 17 CFR 180.1-180.5).
IF A CORPORATE CLIENT OR OTHER ENTITY:
X Date:
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SIGNATURE PRINT NAME AND TITLE OF SIGNATORY
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/ / General / / Limited (please check one)
To whom it may concern:
In consideration of Paine Webber carrying a partnership account in the
name of _______________ a duly organized partnership of which each of the
undersigned is a general partner, the undersigned jointly and severally agree
that each of the following persons, to wit:
- ----------------------------------
- ----------------------------------
- ----------------------------------
shall have authority on behalf of the partnership Account to buy, sell and
otherwise deal in, through PaineWebber as broker, principal and/or futures
commission merchant, Contracts (as defined in the Commodity Futures Client
Agreement) and other securities and commodities, on margin (including short
sales); to receive on behalf of the partnership Account demands, notices,
confirmations, reports, statements of account, and communications of every kind;
to receive on behalf of the partnership Account money, securities and Property
of every kind, and to dispose of same; to make on behalf of the partnership
Account agreements relating to any of the foregoing matters and to terminate or
modify same or waive any of the provisions thereof; and generally to deal with
PaineWebber on behalf of the partnership Account as fully and completely as if
he alone were interested in said Account. The authority hereby conferred shall
remain in force until a written notice of its revocation addressed to
PaineWebber is received at its office at PaineWebber Incorporated, 1000 Harbor
Boulevard, Weehawken, NJ 07087.
The undersigned hereby certify that the general and limited partners
of said partnership are as follows: (List the name, address, occupation or
business connection of all of the general partners and all of the limited
partners. If additional space is required, attach a separate sheet. Specify
whether the person listed is a general or limited partner.
Names Addresses
- ----------------------------------- ------------------------------
- ----------------------------------- ------------------------------
- ----------------------------------- ------------------------------
- ----------------------------------- ------------------------------
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(cont.)
Names Addresses
- ----------------------------------- ------------------------------
- ----------------------------------- ------------------------------
(Must supply a copy of current Limited Partnership Agreement)
IF A CORPORATE CLIENT OR OTHER ENTITY:
X Date:
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SIGNATURE PRINT NAME AND TITLE OF SIGNATORY
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Exhibit 10.07
PLEASE READ THIS COMMODITY CUSTOMER AGREEMENT CAREFULLY
ING (U.S.) Securities, Futures & Options Inc. 209 South LaSalle Street, Suite
300, Chicago, Illinois 60604
Ladies and Gentlemen:
In consideration of your accepting its account and your agreement to
act as its broker, Customer agrees to the following with respect to any and
all of its accounts with ING (U.S.) Securities, Futures & Options Inc.
("ING") for the purchase and sale of securities, monies, physical
commodities, futures contracts, options on futures, foreign futures
contracts, options on foreign futures, forward contracts, exchange for
physical and foreign exchange contracts (collectively referred to as
"commodities" or "property"):
1. Customer represents that it is the sole owner of its accounts
and that no person or entity, except as disclosed to you, has any interest
therein. The Customer agrees to notify you of the identity of any other
person or entity who controls the trading of the account, has a financial
interest of 10% or more in the account or the identity of any other account
in which the Customer controls or has a 10% or more ownership interest. The
Customer shall maintain its account(s) in accordance with and shall be solely
responsible for compliance with the rules, regulations and/or guidelines
issued by any federal, state or administrative bodies having oversight or
regulatory authority over its activities, and any statutes governing its
activities.
2. All transactions for Customer's account(s) shall be subject to
the regulations of all applicable federal, state and self-regulatory agencies
including the constitution, rules and customs, as the same may be constituted
from time to time, of the exchanges, market or place (and the clearing
associations, if any) where executed or, if different, your house rules. This
paragraph is solely for your protection and your failure to comply with any
such regulations, constitutions, rules and/or customs shall not be a breach
of this Agreement and shall not relieve Customer of any of its obligations
under this Agreement.
3. Customer agrees not to exceed the position limits of any federal
agency or exchange for its account(s), acting alone or in concert with
others. Customer will promptly notify you of positions for which Customer is
required to file reports with the Commodity Futures Trading Commission
("CFTC") or any exchange.
4. Customer understands that you have at your sole and absolute
discretion the right to limit positions in its account(s), to decline to
accept any orders and to require that its account(s) be transferred to
another firm. Customer understands that if Customer does not promptly
transfer its positions upon your demand you reserve the right to liquidate
positions in its account(s) at your sole and absolute discretion. Customer
also understands that you may
<PAGE>
transfer its account to another firm upon written notice unless Customer
objects to the proposed transfer within a reasonable period of time after the
receipt of such notice.
5. Customer understands that you act as agent and not as principal
for your clients' commodity futures and commodity options transactions which
are effected on exchanges. Consequently, you do not guarantee the
performance of the obligations of any party to the futures or options
contracts purchased and/or sold by your clients. Customer understands you
may act as principal in certain cash, forward, foreign commodity and foreign
exchange transactions.
6. Any property belonging to Customer or in which Customer has an
interest, either individually or jointly with others, held by you or any of
your subsidiaries or affiliates or carried in any account(s) shall be subject
to a general lien and security interest for the discharge of Customer's
obligations to you, wherever or however arising and without regard to whether
or not you have made advances with respect to such property, and you are
hereby authorized to sell and/or purchase any and all such property without
notice to satisfy such general lien and security interest. Customer
irrevocably appoints you as its attorney-in-fact with power of substitution
to execute any documents for the perfection or registration of such general
lien and security interest.
7. Customer agrees to maintain such collateral and/or margin as you
may from time to time, in your sole and absolute discretion, require and
agrees to pay immediately on demand any amount owing with respect to any of
Customer's accounts. Margin requirements may be increased at ING's sole and
absolute discretion and may differ from those established by the exchange on
which the transaction is executed. Margin requirements are subject to change
without notice and will be enforced retroactively and prospectively. Customer
shall make deposits of margin as ING requests within a reasonable time after
such request. It is agreed and understood that one hour may be deemed to be
a reasonable time; provided, however, that ING, in its sole and absolute
discretion, may request that deposits be made in a lesser period of time.
ING's failure to require satisfaction of a margin call within one hour, or
any shorter time period, on any occasion shall not be deemed to be a waiver
of its right to do so in the future. Customer shall provide ING with the
names of bank officers and information necessary for immediate verification
of wire transfers.
8. In the event Customer fails to deposit sufficient funds to pay
for any commodities and/or to satisfy any demands for original and/or
variation margin, or whenever in your sole and absolute discretion you
consider it necessary, you may, without prior demand or notice, when and if
you deem appropriate, notwithstanding any rule of any exchange, liquidate the
positions in Customer's account(s), hedge and/or offset those positions in
the case market or otherwise, sell any property belonging to Customer or in
which Customer has an interest, cancel any open orders for the purchase and
sale of any property, or borrow or buy any property required to make delivery
against any sales, including a short sale, effected for Customer, all for
Customer's sole account and risk. Such sale or purchase may be public or
private and may be made without advertising or notice to Customer and in such
manner as you may, in your sole and absolute discretion, determine, and no
demands, tenders or notices which you may make or give shall invalidate
Customer's aforesaid waiver. Customer agrees that ING has no duty and is not
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required to liquidate positions in Customer's account(s) and that the
provisions of this paragraph are solely for the protection of ING. The
proceeds of such transactions, if any, are to be applied to reduce any
indebtedness owing by Customer to you.
9. Customer acknowledges that Customer shall be liable for all
losses in its account(s) whether or not its account(s) is liquidated and for
any debts and deficiencies, including, but not limited to, interest, costs,
expense and attorneys' fees, including all debts and deficiencies resulting
from a liquidation of Customer's account(s). Customer further agrees that
ING shall have full authority to set off all debts owned to ING by Customer
against any and all accounts which Customer has or in which Customer has an
interest at ING.
10. Customer agrees to pay storage and delivery charges and service
fees charged to its account(s). Customer authorizes you to pay and charge
its account(s) any give-up or give-in fee that may be charged by any
executing firm or broker whom Customer or its agents have authorized to
execute transactions for its account(s). Customer agrees to pay such fees,
brokerage and commission charges as you may impose or which may be imposed by
any exchange or regulatory organization. Unless otherwise agreed, you may
charge exchange, clearing, brokerage and NFA fees as separate items for each
transaction in its account(s). Customer understands that current NFA fees
are $.14 per each futures round turn and $.07 per each option side and are
charged pro-rata for Mid America Commodity Exchange contracts and such fees
are subject to change without notice. Customer acknowledges that
transactions on the Mid America Commodity Exchange may include a "changer
fee" and the amount of such fee, if any, included in a transaction price will
be provided upon request. In the event a debit balance occurs in Customer's
account(s), you shall be entitled to receive and charge to its account(s)
interest at the greater of the following rates: twelve (12) percent per year,
or at the rate determined by adding one (1) percent to the rate announced
from time to time by Harris Trust and Savings Bank of Chicago as its prime
commercial rate for the entire period that such debit shall exist. Customer
agrees that any and all interest earned on any available cash balances in
Customer's account(s) may accrue to, and may be retained by ING. In the
event that Customer's account(s) is transferred to another futures commission
merchant, a reasonable transfer charge may be imposed and charged against
Customer's account(s).
11. This agreement shall be binding upon Customer, its successors
and assigns and in the event of dissolution, liquidation, bankruptcy or any
similar act, you may cancel or complete any open orders for the purchase or
sale of any property; you may place orders for the sale of property which you
may be carrying for it, or buy any property of which its account(s) may be
short, or any part thereof, under the same terms and conditions as
hereinabove stated, as though Customer was still in existence, without prior
notice to its trustees, successors or assigns and without prior demand upon
any of them.
12. Written confirmation of actual transactions and/or orders,
purchase and sales notices, correction notices and statements of Customer's
account(s) (collectively "statements") shall be conclusive and deemed
ratified by Customer unless ING shall receive oral notice from Customer to
the contrary IMMEDIATELY upon Customer's receipt thereof and thereafter
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confirmed by Customer in writing. Oral notice shall be given to ING by
telephoning ING at (312) 578-7000, Attention: Compliance Department. In any
event, such statements shall be conclusive and deemed ratified by Customer if
not objected to in writing with SEVEN days after mailing by you to it. In
the event Customer fails to receive statements for its account within SEVEN
days from the date of a transaction in its account, such transaction shall be
conclusive and deemed ratified by Customer unless Customer notifies you
IMMEDIATELY in writing of its failure to receive such statements.
Communications mailed to Customer at the address specified hereon shall,
until you have received notice in writing of a different address, be deemed
to have been personally delivered to Customer and Customer agrees to waive
all claims resulting from failure to receive such communications. Written
notice to ING under this paragraph shall be sent to: ING (U.S.) Securities,
Futures & Options Inc., 209 South LaSalle Street, Suite 300, Chicago, IL.,
60604 Attention: Compliance Department.
13. Customer understands they you are not responsible for any
losses resulting directly or indirectly from any government restriction,
exchange ruling, suspension of trading, actions of independent floor brokers,
or other persons beyond your control, war, strike, national disaster or wire
malfunction, delay in mails or any other delay or inaccuracy in the
transmission of orders or the information because of a breakdown or failure
of transmission or communication facilities. All price quotations, commodity
information, or trade reports given to Customer are also subject to change
and errors, as well as delays in reporting and Customer acknowledges that
reliance upon such information is at its own risk. Customer understands that
Customer is bound to the actual executions of transactions on the exchange(s)
and that you are not bound by erroneous reports of executions transmitted to
it.
14. Customer acknowledges that you are hereby specifically
authorized for your account and benefit, from time to time and without notice
to Customer, either separately or with other, to lend, pledge, repledge,
hypothecate or rehypothecate, either to yourself or to others, any and all
property (including, but not limited to, metals, warehouse receipts or other
negotiable instruments) held by you in any of its accounts and you shall not
at any time be required to deliver to Customer identical property, but may
fulfill your obligations to Customer by delivery of property of the same kind
and amount.
15. If Customer initiates a transaction on an exchange or in a
market which margins or settles the position(s) in a currency different than
the type held or deposited in its account(s), you shall have the right to
convert such currency from one type to another (e.g. U.S. to foreign
currency, foreign currency to U.S. currency, or foreign currency to other
foreign currency) as you in your sole and absolute discretion may determine
at an exchange rate determined by you in your discretion based on prevailing
money markets. Any profit or loss from a fluctuation in the exchange rate of
such currency will be for Customer's sole account and risk. Unless Customer
instructs you otherwise, monies Customer deposits with you in currency other
than U.S. dollars and unrealized profits in currency other than U.S. dollars
are not intended to margin, guarantee or secure transactions on United States
contract markets.
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16. No provision of this Agreement can be amended or waived except
in writing signed by a Principal of ING. No oral agreements or instructions
contrary to any provisions of this Agreement shall be recognized or
enforceable. Customer agrees to be bound by any amendments to this Agreement
to which Customer has not objected in writing within three business days
after receipt thereof. The failure of ING to enforce, at any time, any
provision of this Agreement shall not be construed to be a waiver of such
provision and shall not in any way affect the validity of this Agreement or
the right of ING thereafter to enforce each and every provision of this
Agreement. No waiver or amendment shall be implied from your conduct, action
or inaction.
17. NOTICE OF CFTC Reg. Section 15.05 and Reg. Section 21.03,
relating to Foreign Brokers and Foreign Traders. A Foreign Broker is any
non-U.S. resident who carries an account in commodities for any other person.
A Foreign Trader is any non-U.S. resident who owns or controls an account in
commodities. If Customer is a foreign trader or foreign broker Customer
understands that pursuant to CFTC Regulation 15.05, you are its agent or the
agent of its customers for purposes of accepting delivery and service of any
communications issued by the CFTC with respect to any futures or options
contracts which are or have been maintained in accounts carried by you.
Customer understands that ING will transmit the communication promptly to it
in a manner which is reasonable under the circumstances or as specified by
the CFTC. Customer also understands CFTC Regulation 21.03 requires it to
provide to the CFTC upon special call, market information concerning it or
its customers' options and futures trading. If Customer fails to respond to
the special call, the CFTC may direct the appropriate contract market and all
brokers to prohibit or restrict further trades for or on its or its customers
behalf. (Customer understands that copies of Reg. Section 15.05 and Section
21.03 are available from ING upon its written request.)
18. Customer understands that some exchanges and clearing houses
have established cut-off times for the tender of exercise instructions and
that an option will become worthless if instructions are not received by ING
before such expiration time. Customer also understands that certain
exchanges and clearing houses automatically exercise some "in-the-money"
options unless instructed otherwise. Customer acknowledges full
responsibility for taking action either to exercise or to prevent the
automatic exercise of an option contract, as the case may be, and you are not
required to take any action with respect to an option contract, including
without limitation, any action to exercise an option prior to its expiration
date or to prevent its automatic exercise, except upon Customer's express
instructions. Customer further understands that you may establish exercise
cut-off times which may be different from the times established by exchanges
and clearing houses. Customer understands that all short option positions are
subject to assignment at any time including positions established on the same
day that exercises are assigned, and assignment notices are allocated
randomly from among all your customers' short options positions which are
subject to assignment.
19. This Agreement shall enure to the benefit of ING's present
organization, and any successor organization, irrespective of any change or
changes at any time in the personnel thereof for any cause whatsoever, and to
any of ING's assigns. Customer agrees that all of its
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rights and obligations under this Agreement shall not be assigned,
transferred, sold or otherwise conveyed, and any such attempted assignment,
transfer, sale or conveyance shall be null and void and of no force or
effect. In any event, ING may, subject to the applicable rules and
regulations of the CFTC and the National Futures Association ("NFA"), assign
this Agreement and transfer Customer's account(s) to another duly registered
futures commission merchant.
20. You are authorized to accept oral or telephonic orders as
Customer or its authorized agent may give for transactions in its account(s).
Customer hereby waives any defense that such order was not in writing or
evidenced by a memorandum in writing as required by the Statute of Frauds or
any other statute. Although authorized, you are not required to accept oral
or telephonic orders. You are further authorized to record whether by tape,
wire or other method, with or without a periodic tone signal, any and all
telephonic or other oral communications between us, with or without notice
thereof.
21. Should you become a party, without fault on your part, to any
action or proceeding arising out of Customer's account(s) or orders given to
you, Customer agrees to indemnify and hold you harmless therefrom and to pay
you such attorneys' fees and costs incurred by you as the court or
arbitration panel may determine. Customer shall further indemnify you and
hold you harmless from and against any and all liabilities, losses, damages,
costs and expenses, including attorneys' fees, which arise out of, or which
in any manner or way whatsoever are related to any representation made by
Customer in this Agreement, or by its failure to perform any of its
agreements made herein, including, but not limited to, the failure to
immediately pay any deficit balances which may arise in its account(s).
22. I agree that this account documentation and any and all
subparts contained herein, or any other documentation delivered in connection
with the maintenance of the undersigned account, may be delivered by
facsimile and such delivery shall have the same effect as the delivery of
originally executed account documentation. I authorize you to rely on and
release you from any and all claims arising out of your reliance on such
facsimiles. I agree to indemnify and save you harmless from and against any
and all liabilities, losses, damages, costs and expenses, including attorneys
fees which may arise out of, or which in any manner or way whatsoever are
related to your acceptance of the facsimiles referenced herein.
23. This Agreement has been made and delivered at Chicago,
Illinois. Its validity, construction and enforcement shall be governed by
and construed with the substantive laws of the State of Illinois, without
reference to its principal of conflicts of laws. This Agreement constitutes
the entire understandings among the parties with respect to the subject
matter hereof. Wherever possible, each portion of this Agreement shall be
interpreted in such a manner to be valid and effective under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid
under such law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such
provisions or the remaining provisions of this Agreement. CUSTOMER AGREES
NOT TO COMMENCE ANY LEGAL OR ADMINISTRATIVE PROCEEDING AGAINST ING UNTIL ANY
DEFICIT BALANCE IN THE ACCOUNT(S) IS SATISFIED.
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CONSENT TO JURISDICTION
ALL ACTIONS, DISPUTES, CLAIMS OR PROCEEDINGS, INCLUDING, BUT NOT
LIMITED TO, ANY ARBITRATION PROCEEDING, INCLUDING NFA ARBITRATIONS, ARISING
DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THE
CUSTOMER AGREEMENT, ANY OTHER AGREEMENT BETWEEN THE CUSTOMER AND ING (U.S.)
SECURITIES, FUTURES & OPTIONS INC. OR ANY ORDERS ENTERED OR TRANSACTIONS
EFFECTED FOR CUSTOMER'S ACCOUNT(S), WHETHER OR NOT INITIATED BY ING, SHALL BE
ADJUDICATED ONLY IN COURTS OR OTHER DISPUTE RESOLUTION FORUMS WHOSE SITUS IS
WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS, AND CUSTOMER HEREBY
SPECIFICALLY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT OR ARBITRATION PROCEEDINGS LOCATED WITHIN THE CITY OF CHICAGO, STATE OF
ILLINOIS.
CUSTOMER WAIVES ANY CLAIM CUSTOMER MAY HAVE THAT (A) CUSTOMER IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT OR
ARBITRATION PROCEEDING LOCATED WITHIN THE STATE OF ILLINOIS, (B) CUSTOMER IS
IMMUNE FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE)
WITH RESPECT TO CUSTOMER OR CUSTOMER'S PROPERTY, (C) ANY SUCH SUIT, ACTION OR
PROCEEDINGS IS BROUGHT IN AN INCONVENIENT FORUM, (D) THE VENUE OF AN SUCH
SUIT, ACTION OR PROCEEDING IS IMPROPER OR (E) THIS CONSENT OR THE CUSTOMER
AGREEMENT BETWEEN CUSTOMER AND ING MAY NOT BE ENFORCED IN OR BY SUCH COURT OR
ARBITRATION PROCEEDING.
BY SIGNING THE CONTRACT CONTAINING THIS CONSENT TO JURISDICTION,
CUSTOMER ASSENTS TO JURISDICTION AS SET FORTH ABOVE, AND ACKNOWLEDGES THAT
THESE CLAUSES WERE FREELY AND KNOWINGLY NEGOTIATED BETWEEN THE PARTIES.
THIS COMMODITY CUSTOMER AGREEMENT IS A CONTRACTUAL AGREEMENT, DO NOT
SIGN IT UNTIL YOU HAVE READ IT CAREFULLY, BY SIGNING BELOW, THE UNDERSIGNED
REPRESENTS AND WARRANTS TO YOU THAT ALL INFORMATION CONTAINED HEREIN, OR IN
ANY OTHER ACCOUNT FORM OR OTHER DOCUMENT FROM THE UNDERSIGNED IS TRUE AND
CORRECT AND THAT IF ANY CHANGE TO SUCH INFORMATION OCCURS, THE UNDERSIGNED
WILL IMMEDIATELY INFORM YOU, IN WRITING, OF SUCH CHANGE. BY SIGNING BELOW,
THE UNDERSIGNED ACKNOWLEDGES THAT (S)HE HAS READ AND UNDERSTANDS ALL OF THE
TERMS AND CONDITIONS OF THE COMMODITY CUSTOMER AGREEMENT AND AGREES TO BE
BOUND BY THEM.
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X_________________________________
President, Secretary, Chairman or
CEO's Signature Required
(If a Partnership Account, General
Partner's Signature Required)
(If a Trust Account, Trustee(s)
Signature Required)
Date:____________ Time:___________
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EXHIBIT 23.05
-------------
[ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C. LETTERHEAD]
Certified Public Accountants
(410) 521-8000
FAX (410) 321-8359
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 November 15, 1996 on the statement of financial condition of
Kenmar Advisory Corp. as of September 30, 1996 which appear in such
Prospectus. We also consent to the statements with respect to us as appearing
under the heading "Experts" in the Prospectus.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
Lutherville, Maryland
December 12, 1996
