<PAGE>
Filed Pursuant to Rule 424(B)(3)
Registration Statement No. 333-08869
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 domestic and international futures, forward, options 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.
- - PAST PERFORMANCE OF MANAGED FUTURES IN GENERAL AND OF THE TRUST IN
PARTICULAR WILL NOT NECESSARILY BE INDICATIVE OF FUTURE RESULTS. ALL OR
SUBSTANTIALLY ALL OF AN INVESTMENT COULD BE LOST.
- - THE TRUST'S TRADING WILL BE HIGHLY LEVERAGED AND WILL TAKE PLACE IN
VOLATILE MARKETS.
- - 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.
- - 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 32,
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 47.
_______________
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 17, 1996
(NOT FOR USE AFTER SEPTEMBER 17, 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 (the "Escrow Agent"), 1 Chase Manhattan Plaza, New York, New York 10081.
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 ATTORNEY SIGNATURE PAGE SPECIFICALLY
PREPARED FOR MAINE RESIDENTS, A COPY OF WHICH SHALL ACCOMPANY THIS PROSPECTUS AS
DELIVERED TO ALL MAINE RESIDENTS.
-i-
<PAGE>
NOTES TO COVER PAGE (CONT'D)
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 beginning of month Net Assets.
(3) See "Plan of Distribution -- Selling Agents' Compensation" at
page 47 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 will not receive upfront
selling commissions to the extent investors have acquired Units within one month
of redeeming investments in other Kenmar-sponsored investment vehicles.
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.
-ii-
<PAGE>
NOTES TO COVER PAGE (CONT'D)
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 other 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 MARCH 17, 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, AUDITED CERTIFIED
FINANCIAL STATEMENTS AND (IN NO EVENT LATER THAN MARCH 15 OF THE IMMEDIATELY
FOLLOWING YEAR) 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 . . . . . . . . . . . . . . . . . . . 24
MISCELLANEOUS EXECUTION COSTS . . . . . . . . . . . . . . . 24
"BID-ASK" SPREADS . . . . . . . . . . . . . . . . . . . . . 25
PROFIT SHARES AND INCENTIVE FEES. . . . . . . . . . . . . . 25
ADMINISTRATIVE COSTS. . . . . . . . . . . . . . . . . . . . 26
EXTRAORDINARY EXPENSES. . . . . . . . . . . . . . . . . . . 27
CHARGES PAID BY KENMAR. . . . . . . . . . . . . . . . . . . . . . . . . 27
SELLING COMMISSIONS; "TRAILING COMMISSIONS" . . . . . . . . 27
CONSULTING FEES . . . . . . . . . . . . . . . . . . . . . . 27
REDEMPTION CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . 27
THE CLEARING BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ING FUTURES & OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 28
PAINEWEBBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-2-
<PAGE>
TABLE OF CONTENTS (CONT.)
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . 32
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
KENMAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
THE ADVISORS. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
The Clearing Brokers and Executing Brokers. . . . . . . . . . . . 34
SELLING AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 34
PROPRIETARY TRADING . . . . . . . . . . . . . . . . . . . . . . . 34
REDEMPTIONS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 35
THE TRUST AND THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . 36
THE FUTURES AND FORWARD MARKETS . . . . . . . . . . . . . . . . . . . 39
FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . 41
PURCHASES BY EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . 44
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . 47
SUBSCRIPTION PROCEDURE. . . . . . . . . . . . . . . . . . . . . . 47
SUBSCRIBERS' REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . 47
SELLING AGENTS' COMPENSATION. . . . . . . . . . . . . . . . . . . 47
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 48
RECENT FINANCIAL INFORMATION AND ANNUAL REPORTS . . . . . . . . . . . 49
INDEX OF DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . 50
THE INITIAL ADVISORS. . . . . . . . . . . . . . . . . . . . . . . . . 51
PERFORMANCE OF COMMODITY POOLS OPERATED BY KENMAR . . . . . . . . . . 98
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
- - EXPERIENCED MANAGING OWNER AND ADVISORS. SEE "THE TRUST AND ITS OBJECTIVES
-- THE INITIAL ADVISORS" AT PAGE 16 AND "KENMAR ADVISORY CORP." AT PAGE 19.
- - ACCESS TO A WIDE RANGE OF DOMESTIC AND INTERNATIONAL MARKETS. SEE "THE
TRUST AND ITS OBJECTIVES -- ACCESS TO GLOBAL MARKETS" AT PAGE 15.
- - DIVERSIFICATION AMONG TRADING STRATEGIES. SEE "THE TRUST AND ITS
OBJECTIVES -- INVESTMENT PHILOSOPHY" AT PAGE 14.
- - PERFORMANCE NOT DEPENDENT UPON ANY SINGLE NATION'S ECONOMY OR CURRENCY.
SEE "INVESTMENT FACTORS -- MARKET DIVERSIFICATION" AT PAGE 13.
- - THE POTENTIAL, IF SUCCESSFUL, TO PROVIDE A VALUABLE COMPONENT OF
DIVERSIFICATION TO TRADITIONAL PORTFOLIOS. SEE "INVESTMENT FACTORS --
DIVERSIFICATION OF TRADITIONAL PORTFOLIOS" AT PAGE 13.
- - 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.
- - 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.
- - 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.
- - 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.
- - 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-
<PAGE>
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, forward and
options trading with the ability rapidly to deploy and redeploy its capital
across different sectors of the global 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 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 managed futures
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.
-5-
<PAGE>
SUMMARY (CONT'D)
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 40.
"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
"BREAK EVEN" 14.40% $720.00
</TABLE>
NOTES TO "BREAKEVEN TABLE"
(1) See "Charges" at page 23 for an explanation of the expenses included
in the "Breakeven Table."
-6-
<PAGE>
SUMMARY (CONT'D)
(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, 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 25. 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.
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
approximately 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 AND MAY 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 the initial 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 traders, 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 32. 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 and Incentive Fees 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 will 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 32. 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. Kenmar receives 5%, as an incentive fee, 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 40.
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 HAD THEY INVESTED IN CONVENTIONAL STOCKS 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 UNIT COULD NO LONGER BE ECONOMICALLY VIABLE.
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<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 40.
(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 (as defined) 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 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 pools and has generally allocated and
reallocated the assets of such pools aggressively. IT IS NOT ANTICIPATED THAT
KENMAR WILL MAKE FREQUENT ADJUSTMENTS TO THE GROUP OF ADVISORS FOR THE TRUST.
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.
____________________
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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, forward and options 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 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.
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<PAGE>
THE TRUST AND ITS OBJECTIVES
OBJECTIVES
- - SIGNIFICANT PROFITS OVER TIME
- - CONTROLLED PERFORMANCE VOLATILITY
- - CONTROLLED RISK OF LOSS
- - A MEANS OF DIVERSIFYING A TRADITIONAL PORTFOLIO OUT OF ITS TYPICAL "ALL
LONG" EQUITY 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, forward 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 the Trust's futures, forward and options 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 then current
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 and
related 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.
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
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<PAGE>
RESULTS (IN TERMS OF EITHER RISK CONTROL OR PROFITABILITY) THAN WOULD THE
SELECTION OF A SINGLE ADVISOR, A FIXED COMBINATION OF ADVISORS OR A SMALLER
OR 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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
Aluminum Lead Platinum Tin
Copper Nickel Silver Zinc
Gold Palladium
ENERGY PRODUCTS
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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 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 $124 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 a trader 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 a trader
has been instructed to consider itself to be managing in determining the
magnitude of positions taken.
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<PAGE>
ADVISOR SUMMARIES
MORE COMPLETE DESCRIPTIONS AND PERFORMANCE SUMMARIES FOR THE ADVISORS
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 55 THROUGH 61 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 62 THROUGH 66 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 67
THROUGH 76 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 77 THROUGH 90
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 91 THROUGH 97 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 also 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 Advisor. The Units
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<PAGE>
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 United States, 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 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, where he was awarded an Economics and Finance Department
Fellowship from September 1969 through June 1971.
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 trading departments, and the research areas. In
1979, Mr. Cruikshank jointly formed Neild, Cruikshank & Co., an independent
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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 retains. 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.
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.
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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 17, 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 their beneficial interests may be able to recover such
losses from a managing owner where the losses result from a violation by the
managing owner of the anti-fraud provisions of the federal securities laws.
Under certain circumstances, Unitholders also have the right to
institute a reparations proceeding before the CFTC against Kenmar (a registered
commodity pool operator), the Clearing Brokers (registered futures commission
merchants) 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
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thereunder. Private rights of action are conferred by the Commodity Exchange
Act, as amended. 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 32.
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 principals or
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, forward, options 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 Brokers 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, forward, options and
related contracts on markets other than regulated U.S. futures exchanges, funds
deposited to margin positions held on such exchanges will be 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.
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 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.
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CHARGES
CHARGES PAID BY THE TRUST
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
<S> <C> <C>
Kenmar Reimbursement of organizational Kenmar will advance these costs, estimated at
and initial offering costs $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
each receive "bid-ask" spreads on the forward
trades executed on behalf of the Trust.
Advisors Profit Shares Paid by the Trust on a quarterly basis (although
accrued against Net Asset Value per Unit 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 any Incentive Fee, 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 per
Unit 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.
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<PAGE>
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 parties; expected to be
insurance, storage and any negligible.
other extraordinary expenses;
taxes (if any)
</TABLE>
________________________
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.
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 floor brokerage, exchange, clearing and NFA fees with respect to executing
the Trust's trades. NFA transaction fees are 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).
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 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.
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<PAGE>
"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).
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 Incentive Fees, 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
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<PAGE>
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 March 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 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 March 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.
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<PAGE>
EXTRAORDINARY EXPENSES
The Trust will be responsible for any extraordinary charges (such as
taxes) incidental to its trading. In Kenmar's experience such charges have been
negligible.
________________________
Kenmar will send each Unitholder a monthly statement that includes a
description of performance during the prior month and sets forth, among other
things, the brokerage commissions, Incentive 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 other Kenmar-sponsored
investment vehicles). Such "trailing commissions" will be payable quarterly and
will be accrued monthly at 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 47.
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 Net 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 per Unit 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 nor ING Futures & Options nor PaineWebber has been involved in
the organization of the Trust and neither will take any part in the Trust's
ongoing management. Neither ING Futures & Options nor PaineWebber is affiliated
with Kenmar, and neither is responsible for the activities of Kenmar.
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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 & 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 United
States Bankruptcy Code.
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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.
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, pre-judgment 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
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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.
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 non-members 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.
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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 from 1987 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 findings by the SEC and other
federal regulators 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 or 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
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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 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 Securities Commission's
cost for examining the matter.
On July 28, 1994, Order File No. AO-94-22, the Missouri Division of
Securities alleged that 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.
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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 a 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 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 Brokers 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 group 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.
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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.
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 may 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 compete 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.
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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 -- 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 must 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
February 1997 and purchased as of March 1, 1997 will first be redeemable as of
August 31, 1997 and will be subject to a redemption charge through August 31,
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 unless waived by Kenmar) 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.
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THE TRUST AND THE TRUSTEE
THE FOLLOWING SUMMARY DESCRIBES IN BRIEF CERTAIN ASPECTS OF THE
OPERATION OF THE TRUST AND THE TRUSTEE'S AND KENMAR'S RESPECTIVE
RESPONSIBILITIES CONCERNING THE TRUST. PROSPECTIVE INVESTORS SHOULD
CAREFULLY REVIEW THE DECLARATION OF TRUST ATTACHED HERETO AS EXHIBIT A AND
CONSULT WITH THEIR OWN ADVISERS CONCERNING THE IMPLICATIONS TO SUCH
PROSPECTIVE SUBSCRIBERS OF INVESTING IN A DELAWARE BUSINESS TRUST. THE
SECTION REFERENCES BELOW ARE TO SECTIONS IN THE DECLARATION OF TRUST.
PRINCIPAL OFFICE; LOCATION OF RECORDS
The Trust is organized under the Delaware Business Trust Act. The
Trust is administered by Kenmar, whose office is located Two American Lane,
Greenwich, Connecticut 06831-8150 (telephone: (203) 861-1000). The records of
the Trust, including a list of the Unitholders and their addresses, are located
at the foregoing address, and available for inspection and copying (upon payment
of reasonable reproduction costs) by Unitholders or their representatives 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.
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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.
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POSSIBLE REPAYMENT OF DISTRIBUTIONS RECEIVED BY UNITHOLDERS; INDEMNIFICATION OF
THE TRUST BY UNITHOLDERS
The Units are limited liability investments; investors may not lose
more than the amount that they invest plus any profits recognized on their
investment. (Section 8(e)). However, Unitholders could be required, as a
matter of bankruptcy law, to return to the Trust's estate any distribution they
received at a time when the Trust was in fact insolvent or in violation of the
Declaration of Trust. In addition, although Kenmar is not aware of this
provision ever having been invoked in the case of any public futures fund,
Unitholders agree in the Declaration of Trust that they will indemnify the Trust
for any harm suffered by it as a result of (i) Unitholders' actions unrelated to
the business of the Trust, (ii) transfers of their Units in violation of the
Declaration of Trust, or (iii) taxes imposed on the Trust by the states or
municipalities in which such investors reside (Sections 8(d) and 17(c)).
The foregoing repayment of distributions and indemnity provisions
(other than the provision for Unitholders indemnifying the Trust for taxes
imposed upon it by the state or municipality in which particular Unitholders
reside, which is included only as a formality due to the fact that many
states do not have business trust statutes so that the tax status of the
Trust in such states might, theoretically, be challenged -- although Kenmar
is unaware of any instance in which this has actually occurred) are
commonplace in publicly-offered commodity pools as well as other trusts and
limited partnerships.
TRANSFERS OF UNITS RESTRICTED
A Unitholder may, subject to compliance with applicable federal and
state securities laws, assign his Units upon notice to the Trust and Kenmar. No
assignment will be effective in respect of the Trust or Kenmar until the first
day of the month succeeding the month in which such notice is received. No
assignee may become a substituted Unitholder except with the consent of Kenmar
and upon execution and delivery of an instrument of transfer in form and
substance satisfactory to Kenmar. 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, not later than March 15 of each year, the tax
information 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) may
participate directly or indirectly in
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any per-trade commodity brokerage commissions generated by the Trust (Section
9); (iv) any agreement between the Trust and Kenmar or any affiliates of
Kenmar must be terminable by the Trust upon no more than 60 days' written
notice (Section 9); (v) the Trust may make no loans, and the funds of the
Trust will not be commingled with the funds of any other person (deposit of
Trust assets with a commodity broker, clearinghouse or currency dealer does
not constitute commingling for these purposes) (Section 9); and (vi) the
Trust will not employ the trading technique commonly known as "pyramiding."
THE FUTURES AND FORWARD MARKETS
FUTURES AND FORWARD CONTRACTS
Commodity futures contracts in the United States are required to be
made on approved commodity exchanges and call for the future delivery of various
commodities at a specified time and place. These contractual obligations,
depending on whether one is a buyer or a seller, may be satisfied either by
taking or making physical delivery of an approved grade of the particular
commodity (or, in the case of some contracts, by cash settlement) or by making
an offsetting sale or purchase of an equivalent commodity futures contract on
the same exchange prior to the designated date of delivery. Certain futures
contracts call for cash settlement rather than settlement by delivery, and the
Trust will, in any event, offset virtually all of its futures contracts prior to
any actual delivery occurring.
Currencies may be purchased or sold for future delivery through
banks or dealers pursuant to what are commonly referred to as "spot" or
"forward" contracts. Spot contracts settle two days after the trade date;
forward contracts have more delayed settlements. Spot and forward contracts
are commonly referred to collectively as "cash" contracts. In trading cash
currency contracts for the Trust, banks or dealers act as principals and
include their anticipated profit and costs in the prices they quote; such
mark-ups are known as "bid-ask" spreads. Brokerage commissions are typically
not charged in cash trading.
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade in commodity
futures are "hedgers" and "speculators." Commercial interests that market or
process commodities use the futures markets to a significant extent for
hedging. Hedging is a protective procedure designed to minimize losses that
may occur because of price fluctuations, for example, between the time a
merchandiser or processor makes a contract to sell a raw or processed
commodity and the time he must perform the contract. The commodity markets
enable the hedger to shift the risk of price fluctuations to the speculator.
The speculator, unlike the hedger, generally expects neither to deliver nor
receive the physical commodity; rather, the speculator risks his capital with
the hope of making profits from price fluctuations in commodity futures
contracts. Speculators, such as the Trust, rarely take or make delivery of
the physical commodity but rather close out their futures positions by
entering into offsetting purchases or sales of futures contracts. The Trust
does not anticipate taking or making delivery of any physical commodities.
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
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exchanges are "principals' markets," where trades remain the liability of the
traders involved and the exchange or clearinghouse does not become substituted
for any party. Many foreign exchanges also have no position limits, with each
dealer establishing the size of the positions it will permit individual traders
to hold.
To the extent that the Trust engages in transactions on foreign
exchanges, it is subject to the risk of fluctuations in the exchange rate
between the currencies in which the contracts traded on such foreign exchanges
are denominated and United States dollars, as well as the possibility that
exchange controls could be imposed in the future.
SPECULATIVE POSITION AND DAILY PRICE FLUCTUATION LIMITS
The CFTC and the United States exchanges have established limits,
referred to as "speculative position limits," on the maximum net long or net
short position that any person (other than a hedger) may hold or control in
futures contracts or options on futures contracts in particular commodities. A
number of financial markets have replaced "position limits" with "position
accountability," and the cash currency markets are not subject to such limits.
However, speculative position limits continue to be applicable in a number of
important markets. These limits may restrict an Advisor's ability to acquire
positions which such Advisor otherwise would acquire on behalf of the Trust.
Most United States exchanges limit by regulations the maximum
permissible fluctuation in commodity futures contract prices during a single
trading day. These regulations establish what are commonly referred to as
"daily limits." Daily limits restrict the maximum amount by which the price of
a futures contract may vary either up or down from the previous day's settlement
price. Because these limits apply on a day-to-day basis, they do not limit
ultimate losses, but may reduce or eliminate liquidity. Daily limits are
generally not applicable to currency futures or to forward contracts.
MARGINS
Margins represent a security deposit to assure futures traders'
performance under their open positions. When a position is established,
"margin" is deposited and at the close of each trading day "variation margin" is
either credited or debited from a trader's account, representing the unrealized
gain or loss on open positions during the day. If "variation margin" payments
cause a trader's "margin" to fall below "maintenance margin" levels, a "margin
call" will be made requiring the trader to deposit additional margin or have his
position closed out.
FEDERAL INCOME TAX CONSEQUENCES
KENMAR HAS BEEN ADVISED BY ITS COUNSEL, SIDLEY & AUSTIN, THAT, IN
ITS OPINION, THE FOLLOWING SUMMARY CORRECTLY DESCRIBES THE MATERIAL 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
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
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and other items for such taxable year of the Trust. A Unitholder must take
such items into account even if the Trust does not make any cash
distributions to such Unitholder.
A Unitholder's share of such items for federal income tax purposes
generally is determined by the allocations made pursuant to the Declaration of
Trust unless such items so allocated do not have "substantial economic effect"
or are not in accordance with the Unitholders' interests in the Trust. Under
the Declaration of Trust, allocations are generally made in proportion to
Unitholders' capital accounts (each Unit sharing equally in the Net Assets of
the Trust), and therefore such allocations should have substantial economic
effect. However, in cases in which a Unitholder redeems part or all of his or
her interest in the Trust, the allocations of capital gain or loss specified in
the Declaration of Trust will not be in proportion to capital accounts. Because
such allocations are consistent with the economic effect of the Declaration of
Trust that bases the amount to be paid to a redeeming Unitholder upon his share
of the realized and unrealized gains and losses at the time his Units are
redeemed, Kenmar intends to file the Trust's tax returns based upon the
allocations specified in the Declaration of Trust. In the opinion of Sidley &
Austin, the foregoing allocations should be upheld if audited by the Internal
Revenue Service (the "IRS"). Nevertheless, a legal opinion is not binding on
the IRS, and it is not certain that such allocation would, in fact, be respected
upon audit. If such allocations were challenged and not sustained, some or all
of a redeeming Unitholder's 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
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taxable to him as gain from the sale or exchange of such Units and, assuming
that the Unitholder has held his Units for more than one year, constitutes
long-term capital gain.
Redemption for cash of the entire interest held by a Unitholder
results in the recognition of gain or loss for federal income tax purposes.
Such gain or loss is equal to the difference, if any, between the amount of the
cash distribution and the Unitholder's adjusted tax basis for his interest.
Assuming that the Unitholder has held his Units for more than one year, any gain
or loss on their redemption constitutes long-term capital gain or loss.
GAIN OR LOSS ON SECTION 1256 CONTRACTS
Under the "mark-to-market" system of taxing futures and certain option
contracts traded on United States exchanges and certain foreign currency forward
contracts ("Section 1256 Contracts"), any unrealized profit or loss on positions
in such Section 1256 Contracts which are open as of the end of a taxpayer's
fiscal year is treated as if such profit or loss had been realized for tax
purposes as of such time. In general, 60% of the net gain or loss which is
generated as a result of the "mark-to-market" system is treated as long-term
capital gain or loss, and the remaining 40% of such net gain or loss is treated
as short-term capital gain or loss.
GAIN OR LOSS ON NON-SECTION 1256 CONTRACTS
Except as described below with respect to Section 988 transactions
entered into by a qualified fund, gain or loss with respect to contracts that
are non-Section 1256 Contracts is taken into account for tax purposes only when
realized.
Foreign currency transactions ("Section 988 transactions") include
entering into or acquiring any forward contract, futures contract or similar
instrument if the amount paid or received is denominated in terms of a foreign
currency other than the taxpayer's functional currency or if the underlying
property to which the contract or instrument ultimately relates is a foreign
currency other than the taxpayer's functional currency. In general, foreign
currency gain or loss on Section 988 transactions is treated as ordinary income
or loss. Under the "qualified fund" election -- which Kenmar intends to make on
behalf of the Trust -- gain or loss with respect to all Section 988
transactions, other than those described in Section 1256 which are taxed as
described above under "-- Gain or Loss on Section 1256 Contracts," constitutes
short-term capital gain or loss. In addition, all such transactions are subject
to the "mark-to-market" rules (see "-- Gain or Loss on Section 1256 Contracts,"
above).
TAX ON CAPITAL GAINS AND LOSSES
Net capital gain (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 Factor -- (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
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Expenses"), and that the aggregate amount of such expenses is deductible only
to the extent that such amount exceeds 2% of a non-corporate taxpayer's
adjusted gross income (the "2% floor"). Aggregate Investment Expenses in
excess of the 2% floor, when combined with a taxpayer's deductions for
certain items, are subject to a reduction equal to, generally, 3% of the
taxpayer's adjusted gross income in excess of a certain threshold amount (the
"3% phase-out"). Moreover, such Aggregate Investment Expenses are
miscellaneous itemized deductions which are not deductible by a non-corporate
taxpayer in calculating its alternative minimum tax liability.
Kenmar will -- barring administrative, regulatory or statutory
clarification to the contrary -- treat the Profit Shares and Incentive Fee, as
well as other ordinary expenses of the Trust, as ordinary business deductions
not subject to the 2% floor. It is the standard practice in the managed futures
industry to treat such charges as not being subject to the 2% floor, and Kenmar
intends, barring contrary clarification by statute, regulation or administrative
statement, to continue to treat them as not being so. Further, based upon the
trading activities of the Trust described in this Prospectus, in the opinion of
Sidley & Austin, the Trust should be treated as engaged in the conduct of a
trade or business for federal income tax purposes, and, as a result, the
ordinary and necessary business expenses incurred by the Trust in conducting its
commodity futures trading business should not be subject to the foregoing 2%
floor. However, 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 Factor -- (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
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elects to make a corresponding reduction in the amount of net capital gain
that is subject to tax at the maximum 28% rate described above. (See "-- Tax
on Capital Gains and Losses," above.)
"UNRELATED BUSINESS TAXABLE INCOME"
In the opinion of Sidley Austin, 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 44. 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).
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GENERAL
The following section sets forth certain consequences under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code, which a fiduciary of an "employee benefit plan" as defined in and subject
to ERISA or of a "plan" as defined in Section 4975 of the Code who has
investment discretion should consider before deciding to invest the plan's
assets in the Trust (such "employee benefit plans" and "plans" being referred to
herein as "Plans," and such fiduciaries with investment discretion being
referred to herein as "Plan Fiduciaries"). The following summary is not
intended to be complete, but only to address certain questions under ERISA and
the Code which are likely to be raised by the Plan Fiduciary's own counsel.
In general, the terms "employee benefit plan" as defined in ERISA
and "plan" as defined in Section 4975 of the Code together refer to any plan
or account of various types which provide retirement benefits or welfare
benefits to an individual or to an employer's employees and their
beneficiaries. Such plans and accounts include, but are not limited to,
corporate pension and profit sharing plans, "simplified employee pension
plans," KEOGH plans for self-employed individuals (including partners),
individual retirement accounts described in Section 408 of the Code and
medical plans.
Each Plan Fiduciary must give appropriate consideration to the facts
and circumstances that are relevant to an investment in the Trust, including the
role that an investment in the Trust would play in the Plan's overall investment
portfolio. Each Plan Fiduciary, before deciding to invest in the Trust, must be
satisfied that such investment is prudent for the Plan, that the investments of
the Plan, including the investment in the Trust, are diversified so as to
minimize the risk of large losses and that an investment in the Trust complies
with the Plan and related trust.
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT
WITH ITS OWN LEGAL AND TAX ADVISERS BEFORE DOING SO. AN
INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES
A HIGH DEGREE OF RISK. THE TRUST IS NOT INTENDED
AS A COMPLETE INVESTMENT PROGRAM.
"PLAN ASSETS"
A regulation issued under ERISA (the "ERISA Regulation") contains
rules for determining when an investment by a Plan in an equity interest of an
entity will result in the underlying assets of such entity being considered to
constitute assets of the Plan for purposes of ERISA and Section 4975 of the Code
(I.E., "plan assets"). Those rules provide that assets of an entity will not be
considered assets of a Plan which purchases an equity interest in the entity if
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 SEC) 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 SEC 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, 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 a
copy of the Subscription Agreement and Power of Attorney Signature Pages.
EXISTING INVESTORS IN THE TRUST MUST EXECUTE NEW SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY SIGNATURE PAGES AND VERIFY THEIR CONTINUED SUITABILITY TO MAKE
ADDITIONAL INVESTMENTS AND MUST HAVE RECEIVED A CURRENT PROSPECTUS FOR THE
TRUST. Subscription payments may be made either by check or by authorizing a
Selling Agent to debit a subscriber's customer securities account for the amount
of his or her subscription. When a subscriber authorizes such a debit (which
authorization is given in the Subscription Agreement and Power of Attorney), the
subscriber is required to have the amount of his or her subscription payment on
deposit in his or her account as of the settlement date specified by the
relevant Selling Agent -- generally, the fifth business day after the date of
purchase (the first day of the month immediately following the month during
which a subscription is accepted) if the Subscription Agreement and Power of
Attorney is executed and delivered at least five business days prior to the end
of such month.
The Units are sold when, as and if subscriptions therefor are accepted
by Kenmar, subject to the satisfaction of certain conditions set forth in the
Selling Agreement and to the approval by counsel of certain legal matters.
After the conclusion of the Initial Offering Period, there is no
minimum number of Units which must be sold as of the beginning of a given month
for any Units to be sold at such time.
SUBSCRIBERS' REPRESENTATIONS AND WARRANTIES
By executing a Subscription Agreement and Power of Attorney Signature
Page, each subscriber is representing and warranting, among other things, that:
(i) the subscriber is of legal age to execute and deliver such Subscription
Agreement and Power of Attorney and has full power and authority to do so;
(ii) the subscriber has read and 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 other Kenmar-sponsored limited partnerships. Beginning with the thirteenth
month (immediately to the extent investors have acquired Units within one month
of redeeming investments in other 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) to be
accrued monthly at 0.2917 of 1% (a 3.5% annual rate) of the beginning of month
Net Asset Value of such
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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 SEC 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
SEC, 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 SEC in Washington, D.C., and copies of all or part thereof may
be obtained from the Commission upon payment of the prescribed fees. The SEC
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of such site is http://www.sec.gov.
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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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -ii-
Clearinghouse . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Consulting fees . . . . . . . . . . . . . . . . . . . . . . . . . 27
Daily limits. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Employee benefit plan . . . . . . . . . . . . . . . . . . . . . . 45
Forward contracts . . . . . . . . . . . . . . . . . . . . . . . . 39
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . 39
Incentive Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Investment advisory fees. . . . . . . . . . . . . . . . . . . . . 11
Kenmar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover page
Largest monthly drawdown. . . . . . . . . . . . . . . . . . . . . 54
Largest peak-to-valley drawdown . . . . . . . . . . . . . . . . . 54
Maintenance margin. . . . . . . . . . . . . . . . . . . . . . . . 40
Margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Margin call . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover page
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . Cover page
New Overall Appreciation. . . . . . . . . . . . . . . . . . . . . 25
New Trading Profits . . . . . . . . . . . . . . . . . . . . . . . 25
NFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -iv-
Profit Share. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Redemption charges. . . . . . . . . . . . . . . . . . . . . . . . 27
Round-turn commissions. . . . . . . . . . . . . . . . . . . . . . 24
Selling Agents. . . . . . . . . . . . . . . . . . . . . . . . . . -i-
Speculative position limits . . . . . . . . . . . . . . . . . . . 40
Spot contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 39
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover page
Unitholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover page
Variation margin . . . . . . . . . . . . . . . . . . . . . . . . . 40
"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 in respect of the Trust's initial Advisors. The success of the Trust
is dependent upon the success of the Advisors retained by or on behalf of 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 and have not been
audited.
CERTAIN ADVISORS TRADE "NOTIONAL" EQUITY FOR CLIENTS -- I.E., TRADING SUCH
CLIENTS' 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 SUMMARIES 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 trader's
performance, his primary reliance is on trading programs or models which
generate trading signals.
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The systems utilized to generate trading signals are changed from time to
time (although generally infrequently), but the trading instructions
generated by the systems being used are followed without significant
additional analysis or interpretation. Discretionary traders, on the other
hand, while they may utilize market charts, computer programs and
compilations of quantifiable fundamental information to assist them in making
trading decisions, make such decisions on the basis of their own judgment and
"trading instinct," not on the basis of trading signals generated by any
program or model.
Each approach involves certain inherent risks. Systematic traders
may fail to capitalize on market trends which their systems would otherwise
have exploited due to judgmental decisions made by them in the context of
applying their generally mechanical trading systems. Discretionary traders,
on the other hand, may decide to make trades which would not have been
signaled by a trading system and which result in substantial losses.
Furthermore, any trading system or trader may suffer substantial losses by
misjudging the market. Systematic traders tend to rely more on computerized
programs than do discretionary traders, and some consider the prospect of
disciplined trading, which largely removes the emotion of the individual
trader from the trading process, advantageous. In addition, due to their use
of computers, systematic traders are generally able to incorporate more data
into a particular trading decision than are discretionary traders. However,
when fundamental factors dominate the market, trading systems may suffer
rapid and severe losses due to their inability to respond to such factors
until such factors have had a sufficient effect on the market to create a
trend of enough magnitude to generate a reversal of trading signals, by which
time a precipitous price change may already be in progress, preventing
liquidation at anything but substantial losses.
TECHNICAL AND FUNDAMENTAL ANALYSIS
In addition to being distinguished from one another by the criterion
of whether they trade systematically or on the basis of their discretionary
evaluations of the markets, commodity trading advisors are also distinguished as
relying on either "technical" or "fundamental" analysis, or on a combination of
the two. Systematic traders tend to rely on technical analysis, because the
data relevant to such analysis is more susceptible to being isolated and
quantified to the extent necessary to be successfully incorporated into a
program or mathematical model than is most "fundamental" information, but there
is no inconsistency in attempting to trade systematically on the basis of
fundamental analysis. The fundamental information which can be evaluated by a
formalized trading system is, however, limited to some extent in that it
generally must be quantifiable in order to be processed by such a system.
Technical analysis is not based on anticipated supply and demand
factors; instead, it is based on the theory that the study of the commodities
markets themselves will provide a means of anticipating future prices.
Technical analysis operates on the theory that market prices at any given point
in time reflect all known factors affecting the supply and demand for a
particular commodity. Consequently, technical analysis focuses not on
evaluating those factors directly but on an analysis of market prices
themselves, theorizing that a detailed analysis of, among other things, actual
daily, weekly and monthly price fluctuations, volume variations and changes in
open interest is the most effective means of attempting to predict the future
course of price movements.
Fundamental analysis, in contrast, is based on the study of factors
external to the trading markets that affect the supply and demand of a
particular commodity in an attempt to predict future price levels. Such factors
might include weather, the economy of a particular country, government policies,
domestic and foreign political and economic events, and changing trade
prospects. Fundamental analysis theorizes that by monitoring relevant supply
and demand factors for a particular commodity, a state of current or potential
disequilibrium of market conditions may be identified that has yet to be
reflected in the price level of that commodity. Fundamental analysis assumes
that markets are imperfect, that information is not instantaneously assimilated
or disseminated and that econometric models can be constructed that generate
equilibrium prices that may indicate that current prices are inconsistent with
underlying economic conditions and will, accordingly, change in the future.
TREND-FOLLOWING
"Trend-following" traders 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
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unprofitable. Their objective is to make a few large profits, more than
offsetting their more numerous but smaller losses, from capitalizing on major
trends. Consequently, during periods when no major price trends develop in a
market, a "trend-following" trader 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.
Traders 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 or forward contract,
commodity, option or related instrument -- both on United States markets and
abroad -- even if such Advisor has never previously traded in that particular
contract or 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 summary. 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 September 30, 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 September 30, 1996. In the case of
programs traded by Chesapeake and Willowbridge, the largest peak-to-valley
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
size 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.
[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 Trading 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
Rate of
Return 6.35 14.09 15.87 61.82 1.81 12.51 43.12 28.30 49.10
(9 mos.) (11 mos.)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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DIVERSIFIED 2XL PROGRAM
The following summary information presents the composite performance
record of Chesapeake's Diversified 2XL 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 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 Chesapeake's 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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<PAGE>
PACIFIC RIM PROGRAM
The following summary information presents the performance record of
Chesapeake's Pacific Rim Program, which began trading in June 1994 and which
ceased trading in August 1995.
NAME OF CTA: Chesapeake Capital Corporation
NAME OF PROGRAM: Pacific Rim Program
INCEPTION OF CLIENT ACCOUNT TRADING BY CTA: February 1988
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: June 1994 (ceased trading
August 1995)
NUMBER OF OPEN ACCOUNTS: 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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<PAGE>
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 NFA.
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.
The addresses of its offices and their telephone numbers are set forth below.
All 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. San Miguel Associates was formed in 1976 and became registered
with the CFTC as a commodity trading advisor in 1976. 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. Echelon was formed in
1995 and provides management and administrative assistance to Dreiss Research
and to several other commodity trading advisors. Echelon has no control over or
involvement with the trading decisions of Dreiss Research or any other commodity
trading advisor.
Clemson Financial Corporation is a California corporation and a
shareholder of Dreiss Research. 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. Clemson Financial
Corporation has no control over or involvement with trading decisions of Dreiss
Research 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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<PAGE>
Mr. Dreiss is the sole trader of Dreiss Research Corporation, and has
sole authority and control over the trading decisions of Dreiss Research.
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 the capacity of
President of 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 adviser. Mr. Leonard and Clemson
Financial Corporation provide consulting and marketing services to commodity
trading advisors, including Dreiss Research. Mr. Leonard has no control over or
involvement with trading decisions of Dreiss Research 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 be used to adjust
the proximity of entry and exit signals. The following provides a more detailed
description of the system:
- 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.
- 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.
- 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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<PAGE>
- A dollar stop loss may be used to limit losses. Such stop loss
reduces the frequency of abnormally large losses without
materially affecting 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.
- 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.
- Positions are entered for new accounts 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.
- 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, orange 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 clients' 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
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<PAGE>
executing trades, however, on occasion due to certain market conditions,
Dreiss Research may exceed the use of four firms for executing trades.
Dreiss Research reserves the right to establish relationships and enter into
agreements on behalf of the client with one or more executing brokers and to
trade all orders through such executing brokers. Therefore, Dreiss Research
may on behalf of the client 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
________________________________________________________________________________
________________________________________________________________________________
Monthly
Performance 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
________________________________________________________________________________
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.)
________________________________________________________________________________
________________________________________________________________________________
* Represents periods in which the account whose beneficiary is a principal of
Echelon consisted of 50% or more of the total nominal amount of funds under
management.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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HYMAN BECK & COMPANY, INC.
BACKGROUND AND MANAGEMENT
Hyman Beck & Company, Inc. ("HB&Co.") was incorporated under the laws
of the State of Delaware in February 1991 to engage in the business of offering
advisory and portfolio management services to both retail and institutional
investors in commodity interest contracts. HB&Co. is registered as a commodity
trading advisor and commodity pool operator with the CFTC and is a member of the
NFA in such capacities. HB&Co.'s principal office is located at 6 Campus Drive,
Parsippany, New Jersey 07054. THE REGISTRATION OF HB&CO. WITH THE CFTC AND
HB&CO.'S MEMBERSHIP IN NFA MUST NOT BE TAKEN AS AN INDICATION THAT ANY SUCH
AGENCY OR SELF-REGULATORY BODY HAS RECOMMENDED OR APPROVED HB&CO. OR THE TRUST.
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. ("DWFCM"), 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 DWFCM, 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 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.
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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 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.
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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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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. has responsibility for controlling the leverage utilized in its
trading portfolios and may increase or decrease the amount of leverage applied
to assets allocated to one or more of the trading portfolios described herein.
The initial leveraging, and any subsequent "up-" or "de-leveraging," will be
primarily based on subjective evaluations of market conditions, past performance
of particular portfolios, risk exposure and other factors. The use of
additional leverage in commodity interest trading, which is already highly
leveraged, may increase profits (and losses).
OVERVIEW OF COMMODITY INTEREST PORTFOLIOS
HB&Co. currently offers five (5) alternative commodity interest
portfolios in which to participate: a Diversified Portfolio, a foreign currency
FX Portfolio, a Global Portfolio, a Short-Term Portfolio and an Asset Allocation
Portfolio. The following is a list of certain of the different commodity
interests which HB&Co. may trade in its portfolios. Mr. Beck and Mr. Hyman, at
their discretion and according to their research, may add or delete different
types of commodity interests from any of the trading portfolios.
INTEREST RATES (U.S. DOLLAR). Treasury Bonds, Treasury Notes,
Eurodollars, Treasury Bills and Municipal Bonds.
INTEREST RATES (NON-U.S. DOLLAR). British Long Gilts, British Short
Sterling, German Euromarks, German Bonds, Japanese Euroyen, Japanese Government
Bonds, French Notional Bonds, French PIBOR, Italian Government Bonds, Australian
Government Bonds, Australian Bank Bills and Canadian Government Bonds.
STOCK INDICES (U.S. DOLLAR). NYSE Composite and S&P 500.
STOCK INDICES (NON-U.S. DOLLAR). British FTSE, Japanese NIKKEI,
French CAC-40 and Australian All Ordinaries.
METALS. Gold, Silver, Platinum, Copper, Aluminum and Zinc.
CURRENCIES. British Pound, German Mark, Japanese Yen, Swiss Franc,
Canadian Dollar, Australian Dollar, French Franc, Italian Lira, Spanish Peseta,
New Zealand Dollar, Swedish Krona, Dutch Guilder, Belgian Franc and Malaysian
Ringgit.
AGRICULTURAL COMMODITIES. Corn, Wheat, Soybeans, Soymeal and Soyoil.
ENERGIES. Crude Oil, Heating Oil, Unleaded Gas and Gas Oil.
OTHER COMMODITIES. Coffee, Sugar, Cocoa, Cotton, Cattle, Hogs and
Porkbellies.
THE GLOBAL PORTFOLIO
HB&Co. will trade the Global Portfolio on behalf of the Trust.
HB&Co.'s Global Portfolio participates in many of the internationally-traded
futures and forward markets not necessarily represented in the Diversified
Portfolio or the FX Portfolio. The Global Portfolio trades a portfolio of over
30 futures and forward markets worldwide with a concentration in world interest
rate and other financial markets.
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THE DIVERSIFIED PORTFOLIO
HB&Co.'s Diversified Portfolio offers access to international markets
not typically represented in a traditional investment portfolio. The
Diversified Portfolio trades a portfolio of over 40 diverse futures, forward and
cash markets and offers diversification into global financial and tangible
assets including agricultural items, energy products, interest rates and stock
indices, foreign currencies and metals.
THE FX PORTFOLIO
HB&Co.'s FX Portfolio trades in the world currency markets. The FX
Portfolio may trade up to a total of 40 non-U.S. crossrates (trading non-U.S.
currencies vs. other non-U.S. currencies) and outrights (trading non-U.S.
currencies vs. the U.S. dollar).
THE SHORT-TERM PORTFOLIO
HB&Co.'s Short-Term Portfolio is a systematic program combining money
management principles with non-linear modeling techniques. The Short-Term
Portfolio may buy or sell volatility, and currently trades 44 markets with
positions in an average of 20 futures and forward markets at any point in time.
THE ASSET ALLOCATION PORTFOLIO
HB&Co.'s Asset Allocation Portfolio commenced trading in 1992,
allocating and reallocating assets among the Global, FX and Diversified
Portfolios in an effort to minimize risk and maximize profit opportunities.
The Asset Allocation Portfolio currently engages, in varying degrees, the
Global, FX, Diversified and Short-Term Portfolios or some subset thereof.
The Short-Term Portfolio has only recently been included in the Asset
Allocation Portfolio.
PAST PERFORMANCE INFORMATION
The following information describes the composite actual performance
of all customer accounts managed by HB&CO. 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 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 HB&CO. 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 positions; and
(8) the market conditions in which accounts were traded, which in part determine
the quality of trade
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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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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: $124,276,107
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
________________________________________________________________________________
________________________________________________________________________________
Monthly
Performance 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
________________________________________________________________________________
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.)
________________________________________________________________________________
________________________________________________________________________________
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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DIVERSIFIED PORTFOLIO
The following summary performance information and table reflect the
composite performance results of the Diversified Portfolios directed by HB&Co.
NAME OF CTA: Hyman Beck & Company, Inc.
NAME OF PROGRAM: Diversified Portfolio
INCEPTION OF CLIENT ACCOUNT TRADING BY CTA: March 1991
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: March 1991
NUMBER OF OPEN ACCOUNTS: 9
AGGREGATE ASSETS IN ALL PROGRAMS: $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 OF RETURN: 41.50% (10 months)
THE FX PORTFOLIO
The following summary performance information and table reflect the
composite performance results of the FX Portfolios 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 CLIENT ACCOUNT TRADING IN PROGRAM: 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 Portfolios 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, THROUGH SEPTEMBER 30, 1996,
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 CLIENT ACCOUNT TRADING 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 CLIENTS: 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 CLIENTS: 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 DWFCM. 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 HB&CO. 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 its 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 of 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 offers clients the opportunity to have their
accounts traded pursuant to one or more of four Willowbridge Investment Programs
("Programs"). Willowbridge, pursuant to its Select Investment Program, will
trade its XLIM Trading Approach on behalf of the Trust.
THE CURRENCY INVESTMENT PROGRAM. Willowbridge has 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 has 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 currently 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 System and precious
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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 has 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.
Vulcan 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, Vulcan 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 million 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 Vulcan 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
Titan initially perceives a low degree of risk, a relatively greater number of
positions are initiated. Likewise, when Titan 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 Titan 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
Titan 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 million 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 million 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 Rex 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 Rex 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 million 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 million 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 Siren 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 MTech 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.]
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XLIM PROGRAM
Willowbridge will trade this program on behalf of the Trust. The
following summary information presents the composite performance record of the
XLIM Program.
NAME OF CTA: Willowbridge Associates Inc.
NAME OF PROGRAM: XLIM
INCEPTION OF CLIENT ACCOUNT TRADING BY CTA: August 1988
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: August 1988
NUMBER OF OPEN ACCOUNTS: 28
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $458,728,000
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $535,691,000
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $211,956,000
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $258,658,000
LARGEST MONTHLY DRAWDOWN: (13.74)% (8/91)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (29.10)% (8/93 - 1/95)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 2
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 2
<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.
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Monthly Performance
(NOTIONAL INCLUDED) 1996(%) 1995(%) 1994(%) 1993(%) 1992(%) 1991(%)
<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
-85-
<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
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.
-86-
<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.
-87-
<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.
-88-
<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.
-89-
<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
(ceased trading December 1992)
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.
-90-
<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:
- 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.
- 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.
-91-
<PAGE>
- 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
marketplace 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 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.
-92-
<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 Performance 1996(%) 1995(%) 1994(%)
---------------------------------------------------
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 of 3.19 23.02 12.96
Return (9 months) (4 mos.)
---------------------------------------------------
---------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-94-
<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.
-95-
<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: (0.59)% (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
(ceased trading December 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 (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.
-96-
<PAGE>
SPECIAL - 2 PROGRAM
The following summary information presents the composite performance record of
the Special - 2 Program.
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
(ceased trading October 1994)
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.
-97-
<PAGE>
PERFORMANCE OF COMMODITY POOLS OPERATED BY KENMAR
GENERAL
THE PERFORMANCE INFORMATION INCLUDED HEREIN IS PRESENTED IN
ACCORDANCE WITH CFTC REGULATIONS. 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
might 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.
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 ON BEHALF OF MANAGED ACCOUNTS AND OTHER COMMODITY POOLS
SIMILAR TO THOSE PERFORMED BY KENMAR. 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.
--------------------------------
-98-
<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 traders) 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 Kenmar'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 which were established as a way of testing, in a limited liability
vehicle, one or more commodity trading advisors relatively untested in the
management of customer assets.
[Remainder of page left blank intentionally.]
-99-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TYPE START CLOSE AGGRE- CURRENT CURRENT % %
OF DATE DATE GATE TOTAL NAV PER WORST WORST
POOL SUB- NAV UNIT*** MONTHLY PEAK-TO-
SCRIPT. DRAW- VALLEY
DOWN & DRAWDOWN
MONTH & PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 (15.87) (33.20)
- -----------------------------------------------------------------------------------------------------------------------------------
1/94 11/90-5/92
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Partners Ltd. * 07/95 N/A 2,029,775 1,679,028 1,017.74 (5.77) (8.26)
- -----------------------------------------------------------------------------------------------------------------------------------
2/96 2/96-8/96
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
- -----------------------------------------------------------------------------------------------------------------------------------
The Fund Limited Partnership Single 09/96 N/A 2,920,302 3,040,170 1,126.45 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
International Currency Fund L.P. Single 04/91 12/93 2,312,504 0 903.45 (5.75) (18.40)
- -----------------------------------------------------------------------------------------------------------------------------------
12/93 9/92-12/93
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Limited Partnership ** 10/89 01/92 2,148,138 0 1,044.21 (16.32) (24.05)
- -----------------------------------------------------------------------------------------------------------------------------------
05/90 11/90-4/91
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
- -----------------------------------------------------------------------------------------------------------------------------------
Venture Partners L.P. * 03/97 N/A 2,625,000 3,848,058 3,410.30 (29.70) (48.75)
- -----------------------------------------------------------------------------------------------------------------------------------
10/89 11/90-4/92
- -----------------------------------------------------------------------------------------------------------------------------------
Strategic Investments L.P. Single 08/93 10/94 1,143,233 0 717.41 (9.45) (29.41)
- -----------------------------------------------------------------------------------------------------------------------------------
1/94 9/93-10/94
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Portfolio L.P. Single 12/90 04/92 122,000 0 92.29 (59.84) (90.77)
- -----------------------------------------------------------------------------------------------------------------------------------
1/91 12/90-4/92
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE RATE OF RETURN
(COMPUTED ON A COMPOUNDED
MONTHLY BASIS)
- -------------------------------------------------------------------------------------------
Year-
1991 1992 1993 1994 1995 to-
Date
- -------------------------------------------------------------------------------------------
MULTI-ADVISOR POOLS
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Performance Partners L.P. (8.61) 0.16 48.30 (9.79) 8.12 2.41
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Capital Partners Ltd. - - - - 2.26 (7.02)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
- -------------------------------------------------------------------------------------------
The Fund Limited Partnership - - - - - 12.6
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
International Currency Fund L.P. 0.50 7.48 (16.37) - - -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Preferred Limited Partnership (7.44) (8.68) - - - -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
- -------------------------------------------------------------------------------------------
Venture Partners L.P. (7.15) 7.33 57.92 3.27 5.55 17.7
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Strategic Investments L.P - - (8.09) (21.95) - -
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Diversified Portfolio L.P. (82.92) (45.95) - - - -
- -------------------------------------------------------------------------------------------
</TABLE>
-100-
<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 Subscript." is the aggregate of all amounts ever contributed to
the pool, including investors who subsequently redeemed their investments.
6. "Current Total NAV" is the Net Asset Value of the pool as of October 31,
1996.
7. "Current NAV Per Unit" is the Current Net Asset Value of the pool divided
by the total number of units (shares) outstanding as of October 31, 1996.
Current NAV per Unit is based on the value of a hypothetical $1,000 unit
($1,050 for Venture Partners L.P.) of investment over time.
*** In the case of liquidated pools, the NAV per unit on the date of
liquidation of the pool.
8. "% 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.
9. "Month" is the month of the % Worst Monthly Drawdown.
10. "% 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 returns. "% Worst
Peak-to-Valley Drawdown" represents the greatest percentage decline from
any month-end Net Asset Value per Unit which occurs without such month-end
Net Asset Value per Unit being equaled or exceeded as of a subsequent
month-end. For example, if the Net Asset Value per Unit of a particular
pool 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 had increased by $2 in March, the January-February drawdown
would have ended as of the end of February at the $2 level.
11. "Period" is the period of the "% Worst Peak-to-Valley Drawdown."
12. "Year-to-Date" is the rate of return of the pool from January 1, 1996
through October 31, 1996.
-101-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
KENMAR GLOBAL TRUST
Independent Auditor's Report . . . . . . . . . . . . . . . . F-2
Statement of Financial Condition as of September 30, 1996 . F-3
Notes to Statement of Financial Condition. . . . . . . . . . F-4
KENMAR ADVISORY CORP.
Independent Auditor's Report . . . . . . . . . . . . . . . . F-6
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
----------
----------
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
___________
Note 5. RELATED PARTY TRANSACTIONS (CONTINUED)
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, organizations 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.
Note 7. TRADING ACTIVITIES AND RELATED RISKS
The limited partnerships for which the Company is the General
Partner engage in the speculative trading of futures contracts,
options on futures contracts and forward contracts (collectively
"derivatives") in U.S. and foreign markets. Theoretically, the
limited partnerships, and therefore, the Company, as General
Partner, are exposed to both market risk, the risk arising from
changes in the market value of the contracts, and credit risk, the
risk of failure by another party to perform according to the terms
of a contract. The limited partnerships are exposed to market risk
equal to the value of contracts purchased and unlimited liability on
contracts sold short. Written options expose the limited
partnerships to potentially unlimited liability and purchased
options expose the limited partnerships to a risk of loss limited to
the premiums paid. Since forward contracts are traded in
unregulated markets between principals, the limited partnerships
also assume the risk of loss from counterparty nonperformance.
The limited partnerships have a substantial portion of their assets
on deposit with futures commission merchants, brokers and dealers in
securities and other financial institutions in connection with
trading and cash management activities. In the event of a financial
institution's insolvency, recovery of partnership assets on deposit
may be limited to account insurance or other protection afforded
such deposits.
The average fair value of derivatives traded by the limited
partnerships during the year ended September 30, 1996 was
approximately $10,002,000 and the related year-end fair value was
$19,403,000. The fair value of
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY
F-13
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1996
___________
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
derivatives represents unrealized gains and losses on open forward
and futures contracts and long and short options at market value.Note
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, not
directly related
APPI-1
<PAGE>
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 25 of the Prospectus, differs
from the above definition of New Trading Profits as follows: It is
calculated separately for each 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 25 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 17, 1996
KENMAR ADVISORY CORP.
MANAGING OWNER
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
PAGE
----
1. Declaration of Trust. . . . . . . . . . . . . . . . . TA-1
2. The Trustee . . . . . . . . . . . . . . . . . . . . . TA-2
(a) Term; Resignation . . . . . . . . . . . . . . TA-2
(b) Powers. . . . . . . . . . . . . . . . . . . . TA-2
(c) Compensation and Expenses of the Trustee. . . TA-2
(d) Indemnification . . . . . . . . . . . . . . . TA-2
(e) Successor Trustee . . . . . . . . . . . . . . TA-3
(f) Liability of the Trustee. . . . . . . . . . . TA-3
(g) Reliance by the Trustee and the Managing
Owner; Advice of Counsel . . . . . . . . . . TA-4
(h) Not Part of Trust Estate. . . . . . . . . . . TA-4
3. Principal Office. . . . . . . . . . . . . . . . . . . TA-4
4. Business. . . . . . . . . . . . . . . . . . . . . . . TA-4
5. Term, Dissolution, Fiscal Year and Net Asset Value. . TA-5
(a) Term. . . . . . . . . . . . . . . . . . . . . TA-5
(b) Dissolution . . . . . . . . . . . . . . . . . TA-5
(c) Fiscal Year . . . . . . . . . . . . . . . . . TA-5
(d) Net Asset Value; Net Asset Value per Unit . . TA-5
6. Net Worth of Managing Owner . . . . . . . . . . . . . TA-5
7. Capital Contributions; Units. . . . . . . . . . . . . TA-5
8. Allocation of Profits and Losses. . . . . . . . . . . TA-6
(a) Capital Accounts and Allocations. . . . . . . TA-6
(b) Allocation of Profit and Loss for Federal
Income Tax Purposes. . . . . . . . . . . . . TA-6
(c) Incentive Fees; Profit Shares . . . . . . . . TA-8
(d) Expenses. . . . . . . . . . . . . . . . . . . TA-8
(e) Limited Liability of Unitholders. . . . . . . TA-9
(f) Return of Capital Contributions . . . . . . . TA-9
9. Management of the Trust . . . . . . . . . . . . . . . TA-9
10. Audits and Reports to Unitholders . . . . . . . . . . TA-11
11. Assignability of Units. . . . . . . . . . . . . . . . TA-11
12. Redemptions . . . . . . . . . . . . . . . . . . . . . TA-12
13. Offering of Units . . . . . . . . . . . . . . . . . . TA-13
14. Additional Offerings. . . . . . . . . . . . . . . . . TA-13
15. Special Power of Attorney . . . . . . . . . . . . . . TA-14
16. Withdrawal of a Unitholder. . . . . . . . . . . . . . TA-14
17. Standard of Liability; Indemnification. . . . . . . . TA-14
(a) Standard of Liability for the Managing Owner. TA-14
(b) Indemnification of the Managing Owner by
the Trust. . . . . . . . . . . . . . . . . . TA-15
(c) Indemnification of the Trust by the
Unitholders. . . . . . . . . . . . . . . . . TA-16
18. Amendments; Meetings. . . . . . . . . . . . . . . . . TA-16
(a) Amendments with Consent of the Managing
Owner. . . . . . . . . . . . . . . . . . . . TA-16
(b) Amendments and Actions without Consent of
the Managing Owner . . . . . . . . . . . . . TA-16
(c) Meetings; Other Voting Matters. . . . . . . . TA-16
(d) Consent by Trustee . . . . . . . . . . . . . . TA-17
19. Governing Law . . . . . . . . . . . . . . . . . . . . TA-17
20. Miscellaneous . . . . . . . . . . . . . . . . . . . . TA-17
(a) Notices . . . . . . . . . . . . . . . . . . . TA-17
(b) Binding Effect. . . . . . . . . . . . . . . . TA-17
(c) Captions. . . . . . . . . . . . . . . . . . . TA-17
21. Benefit Plan Investors. . . . . . . . . . . . . . . . TA-17
22. Certain Definitions . . . . . . . . . . . . . . . . . TA-18
TA-i
<PAGE>
23. No Legal Title to Trust Estate. . . . . . . . . . . . TA-19
24. Legal Title . . . . . . . . . . . . . . . . . . . . . TA-19
25. Creditors . . . . . . . . . . . . . . . . . . . . . . TA-20
TA-ii
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
This Amended and Restated Declaration of Trust and Trust Agreement
(the "Declaration of Trust Agreement") is made as of December 17, 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. Section 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, options on and any rights pertaining to the foregoing throughout the
world 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.
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(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 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.
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(g) RELIANCE BY THE TRUSTEE AND THE MANAGING OWNER; ADVICE OF COUNSEL.
(i) In the absence of bad faith, the Trustee and the Managing Owner
may conclusively rely upon certificates or opinions furnished to the
Trustee or the Managing Owner and conforming to the requirements of this
Declaration of Trust in determining the truth of the statements and the
correctness of the opinions contained therein, and shall incur no liability
to anyone in acting on any signature, instrument, notice, resolution,
request, consent, order, certificate, report, opinion, bond or other
document or paper which is believed to be genuine and believed to be signed
by the proper party or parties, and need not investigate any fact or matter
pertaining to or in any such document; provided, however, that the Trustee
or the Managing Owner shall have examined any certificates or opinions so
as to determine compliance of the same with the requirements of this
Declaration of Trust. The Trustee or the Managing Owner may accept a
certified copy of a resolution of the board of directors or other governing
body of any corporate party as conclusive evidence that such resolution has
been duly adopted by such body and that the same is in full force and
effect. As to any fact or matter the method of the determination of which
is not specifically prescribed herein, the Trustee or the Managing Owner
may for all purposes hereof rely on a certificate, signed by the president
or any vice president or by the treasurer or other authorized officers of
the relevant party, as to such fact or matter, and such certificate shall
constitute full protection to the Trustee or the Managing Owner for any
action taken or omitted to be taken by either of them in good faith in
reliance thereon.
(ii) In the exercise or administration of the trust hereunder and in
the performance of its duties and obligations under this Declaration of
Trust, the Trustee, at the expense of the Trust, (i) may act directly or
through its agents, attorneys, custodians or nominees pursuant to
agreements entered into with any of them, and the Trustee shall not be
liable for the conduct or misconduct of such agents, attorneys, custodians
or nominees if such agents, attorneys, custodians or nominees shall have
been selected by the Trustee with reasonable care and (ii) may consult with
counsel, accountants and other skilled professionals to be selected with
reasonable care by the Trustee; provided that the Trustee shall not
allocate any of its internal expenses or overhead to the account of the
Trust. The Trustee shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the opinion or advice of any
such counsel, accountant or other such persons.
(h) NOT PART OF TRUST ESTATE. Amounts paid to the Trustee from the
Trust Estate, if any, pursuant to this Section 2 shall be deemed not to be part
of the Trust Estate immediately after such payment.
3. PRINCIPAL OFFICE.
The address of the principal office of the Trust shall be c/o the
Managing Owner, Two American Lane, Greenwich, Connecticut 06831-8150; telephone:
(203) 861-1000. The Trustee is located at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration. The Trustee shall receive service of process on the Trust in
the State of Delaware at the foregoing address. In the event Wilmington Trust
Company resigns or is removed as the Trustee, the Trustee of the Trust in the
State of Delaware shall be the successor Trustee.
4. BUSINESS.
The Trust's business and purpose is to trade, buy sell, swap or
otherwise acquire, hold or dispose of futures and forward contracts for
commodities, financial instruments, stock indices, metals, energy contracts and
currencies, any rights pertaining thereto and any options thereon or on physical
commodities, as well as securities and any rights pertaining thereto and any
options thereon, and to engage in all activities necessary, convenient or
incidental thereto. The Trust may also engage in "hedge," arbitrage and cash
trading of any of the foregoing instruments. The Trust may engage in such
business and purpose either directly or through joint ventures, entities or
partnerships, provided that the Trust's participation in any of the foregoing
has no adverse economic or liability consequences for the Unitholders, which
consequences would not be present had the Trust engaged in that same business or
purpose directly.
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5. TERM, DISSOLUTION, FISCAL YEAR
(a) TERM. The term of the Trust commenced on the day on which the
Certificate of Trust was filed with the Secretary of State of the State of
Delaware pursuant to the provisions of the Act and shall end upon the first to
occur of the following: (1) December 31, 2026; (2) receipt by the Managing
Owner of an approval to dissolve the Trust at a specified time by Unitholders
owning Units representing more than fifty percent (50%) of the outstanding Units
then owned by Unitholders, notice of which is sent by certified mail return
receipt requested to the Managing Owner not less than 90 days prior to the
effective date of such dissolution; (3) death, insanity, bankruptcy, retirement,
resignation, expulsion, withdrawal, insolvency or dissolution of the Managing
Owner or any other event that causes the Managing Owner to cease to be a
managing owner unless (i) at the time of such event there is at least one
remaining managing owner of the Trust who carries on the business of the Trust
(and each remaining managing owner of the Trust is hereby authorized to carry on
the business of the Trust in such an event), or (ii) within one hundred twenty
days after such event Unitholders holding a majority of Units agree in writing
to continue the business of the Trust and to the appointment, effective as of
the date of such event, of one or more managing owners of the Trust; (4) a
decline in the aggregate Net Assets of the Trust to less than $250,000;
(5) dissolution of the Trust pursuant hereto; or (6) any other event which shall
make it unlawful for the existence of the Trust to be continued or require
termination of the Trust. In the event that the Managing Owner (or an affiliate
thereof) ceases to be the trust's managing owner, the word "Kenmar" shall be
deleted from the name of the Trust, and any appropriate filings shall be made.
(b) DISSOLUTION. Upon the occurrence of an event causing the
dissolution of the Trust, the Trust shall be dissolved and its affairs wound up.
At any time that the Trust does not have a Managing Owner, the Unitholders by
majority vote may appoint a liquidator.
(c) FISCAL YEAR. The fiscal year of the Trust shall begin on
January 1 of each year and end on the following December 31.
(d) NET ASSET VALUE; NET ASSET VALUE PER UNIT. Net Assets of the
Trust are its assets less its liabilities determined in accordance with
generally accepted accounting principles. If a contract cannot be liquidated on
the day with respect to which Net Assets are being determined, the settlement
price on the first subsequent day on which the contract can be liquidated shall
be the basis for determining the liquidating value of such contract for such
day, or such other value as the Managing Owner may deem fair and reasonable.
The liquidating value of a commodity futures or option contract not traded on a
commodity exchange shall mean its liquidating value as determined by the
Managing Owner on a basis consistently applied for each different variety of
contract. Accrued Profit Shares and Incentive Fees (as described in the
Prospectus, as defined in Section 9 hereof) shall reduce Net Asset Value, even
though such Profit Shares and Incentive Fees may never, in fact, be paid. Net
Asset Value per Unit is the Net Assets of the Trust divided by the number of
Units outstanding as of the date of determination.
6. NET WORTH OF MANAGING OWNER.
The Managing Owner agrees that at all times so long as it remains
managing owner of the Trust, it will maintain its Net Worth at an amount not
less than $1,000,000.
The requirements of the preceding paragraph may be modified if the
Managing Owner obtains an opinion of counsel for the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes and if such modification will
reflect or exceed applicable state securities and Blue Sky laws and qualify
under any guidelines or statements of policy promulgated by any body or agency
constituted by the various state securities administrators having jurisdiction
in the premises.
7. CAPITAL CONTRIBUTIONS; UNITS.
The Unitholders' respective capital contributions to the Trust shall
be as shown on the books and records of the Trust. The Initial Unitholder will
withdraw upon the admission of additional Unitholders.
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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 may be, of all Units; provided
that the Managing Owner may allocate Incentive Fees and Profit Shares first to
Units whose Net Asset Value was reduced by accrued Incentive Fees and Profit
Shares upon redemption, in an amount up to the amount of such reduction.
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(3) Third, capital gain or loss shall be allocated as follows:
(A) There shall be established a tax account with respect to each
outstanding Unit. The balance of each tax account shall be the amount paid
to the Trust for each Unit. As of the end of each fiscal year:
(i) Each tax account shall be increased by the amount of income
or gain allocated to each Unit pursuant to Sections 8(b)(1) and
8(b)(3)(C).
(ii) Each tax account shall be decreased by the amount of expense
or loss allocated to each Unit pursuant to Sections 8(b)(1), 8(b)(2)
and 8(b)(3)(E) and by the amount of any distributions paid out with
respect to the Units other than upon redemption.
(iii) When a Unit is redeemed, the tax account attributable
to such Unit (determined after making all allocations described in
this Section 8(b)) shall be eliminated.
(B) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal
year) shall be allocated Capital Gain, if any, up to the amount of the
excess, if any, of the amount received in respect of the Units so redeemed
(before taking into account any early redemption charges) over the sum of
the tax accounts (determined after making the allocation described in
Sections 8(b)(1) and 8(b)(2), but prior to making the allocations described
in this Section 8(b)(3)(B) or Section 8(b)(3)(D)) allocable to such Units
(an "Excess"). In the event the aggregate amount of Capital Gain available
to be allocated pursuant to this Section 8(b)(3)(B) is less than the
aggregate amount of Capital Gain required to be so allocated, the aggregate
amount of available Capital Gain shall be allocated among all such
Unitholders in the ratio which each such Unitholder's Excess bears to the
aggregate Excess of all such Unitholders.
(C) Capital Gain remaining after the allocation described in Section
8(b)(3)(B) shall be allocated among all Unitholders who hold Units
outstanding as of the end of the applicable fiscal year (other than Units
redeemed as of the end of the last day of such fiscal year) whose capital
accounts with respect to such Units are in excess of their tax accounts
(determined after making the allocations described in Sections 8(b)(1) and
8(b)(2)) allocable to such Units in the ratio that each such Unitholder's
excess bears to the aggregate excess of all such Unitholders. Capital Gain
remaining after the allocation described in the preceding sentence shall be
allocated among all Unitholders described in said sentence in proportion to
their holdings of such Units.
(D) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal
year) shall be allocated Capital Loss, if any, up to the amount of the sum
of the excess of the tax accounts (determined after making the allocations
described in Sections 8(b)(1) and 8(b)(2), but prior to making the
allocations described in this Section 8(b)(3)(D) or Section 8(b)(3)(B))
allocable to the Units so redeemed over the amount received in respect of
such Units (before taking into account any early redemption charges) (a
"Negative Excess"). In the event the aggregate amount of available Capital
Loss required to be allocated pursuant to this Section 8(b)(3)(D) is less
than the aggregate amount required to be so allocated, the aggregate amount
of available Capital Loss shall be allocated among all such Unitholders in
the ratio that each such Unitholder's Negative Excess bears to the
aggregate Negative Excess of all such Unitholders.
(E) Capital Loss remaining after the allocation described in Section
8(b)(3)(D) shall be allocated among all Unitholders who hold Units
outstanding as of the end of the applicable fiscal year (other than Units
redeemed as of the end of the last day of such fiscal year) whose tax
accounts with respect to such Units are in excess of their capital accounts
(determined after making the allocations described in Sections 8(b)(1) and
8(b)(2)) with respect to such Units in the ratio that each such
Unitholder's negative excess bears to the aggregate negative excess of all
such Unitholders. Capital Loss remaining after the allocation described in
the preceding sentence shall be allocated among all Unitholders described
in such sentence in proportion to their holdings of such Units.
(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.
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(4) The allocation of profit and loss for federal income tax
purposes set forth herein is intended to allocate taxable profit and loss
among Unitholders generally in the ratio and to the extent that profit and
loss are allocated to such Unitholders so as to eliminate, to the extent
possible, any disparity between the Unitholder's capital account and his tax
account, consistent with principles set forth in Section 704 of the Code,
including without limitation a "Qualified Income Offset."
(5) The allocations of profit and loss to the Unitholders in respect
of the Units shall not exceed the allocations permitted under Subchapter K of
the Code, as determined by the Managing Owner, whose determination shall be
binding.
(c) INCENTIVE FEES; PROFIT SHARES. Incentive Fees shall be payable
to the Managing Owner as of the end of each calendar year and upon redemption of
Units.
Incentive Fees shall equal 5% of New Overall Appreciation (if any)
calculated as of each fiscal year-end and upon redemption of Units. New Overall
Appreciation shall be calculated, not on a per-Unit basis, but on the basis of
the overall trading profits and losses of the Trust, net of all fees and
expenses (including Profit Shares) paid or accrued other than the Incentive Fee
itself and after subtraction of all interest income received by the Trust.
Incentive Fees shall be paid by the Trust as a whole, irrespective of
whether the Net Asset Value has declined below the purchase price of such Unit.
Accrued Incentive Fees shall reduce the redemption price of Units and shall be
paid to the Managing Owner upon redemption. The amount (if any) of the accrued
Incentive Fee that shall be paid to the Managing Owner upon the redemption of
any Unit shall be determined by dividing the total Incentive Fee as of such
redemption date by the number of Units then outstanding (including Units
redeemed as of such date); the remainder of the accrued Incentive Fee shall be
paid to the Managing Owner on December 31 of each year.
For capital account purposes, accrued Incentive Fees shall, in all
cases, be reflected equally as a reduction in the Net Asset Value per Unit of
all Units outstanding at the time the Incentive Fee accrued, and reversals of
accrued Incentive Fees shall equally increase the Net Asset Value per Unit of
all Units outstanding at the time of the accrual of such reversal, irrespective
of whether a particular Unit was outstanding when a particular Incentive Fee was
accrued.
Early redemption charges shall in no respect reduce New Overall
Appreciation.
The Profit Shares paid to the Advisors pursuant to the Advisory
Agreements among the Managing Owner, the Trust and each such Advisor shall
result in deductions being allocated to the Unitholders. Such allocation shall
apply the same principles as the allocation of Incentive Fee deductions
described above. Profit Shares with respect to any calendar quarter will be
paid to an Advisor as of the last day of such period, except that Profit Shares
with respect to Units redeemed as of the last day of any month that does not end
a calendar quarter shall be paid as of the day such Units are redeemed and
Profit Shares with respect to Units redeemed as of the end of any month that
ends a calendar quarter shall be paid to an Advisor in the same manner and at
the same time as if such Units had not been redeemed.
In the event assets are withdrawn from an Advisor's account or the
Trust as a whole (other than to pay expenses), any loss carryforward shall be
proportionally reduced for purposes of calculating subsequent Profit Shares and
Incentive Fees. Loss carryforward reductions shall not be restored as a result
of subsequent additions of capital.
The Managing Owner may adjust the allocations set forth in this
Section 8(c), in the Managing Owner's discretion, if the Managing Owner believes
that doing so will achieve more equitable allocations or allocations more
consistent with the Code.
(d) EXPENSES. The Managing Owner shall pay, without reimbursement,
the selling and "trailing commissions" relating to the offering of the Units.
The Trust shall pay the Managing Owner brokerage commissions at 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
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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 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.
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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."
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 (as the NASAA Guidelines permit
such limits to be adjusted). Any such reimbursement shall be made on a present
value basis, fully compensating the Trust for
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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 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 15 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.
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
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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 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
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Managing Owner may also, in its discretion, declare additional regular
redemption dates for Units and permit certain Unitholders to redeem at other
than month-end.
Redemption payments will be made within fifteen business days after
the month-end of redemption (and notice that the redemption has occurred will
be provided to Unitholders within ten business days after such month-end),
except that under special circumstances, including, but not limited to,
inability to liquidate commodity positions as of a redemption date or default
or delay in payments due the Trust from commodity brokers, banks or other
persons or entities, the Trust may in turn delay payment to Unitholders or
assignees requesting redemption of their Units of the proportionate part of
the Net Asset Value of such Units equal to that proportionate part of the
Trust's aggregate Net Asset Value represented by the sums which are the
subject of such default or delay.
Only whole Units may be redeemed, except upon complete redemption of
an investor's Units, unless the Managing Owner specifically otherwise
consents. Redemptions may be requested for a minimum of the lesser of $1,000
or ten (10) Units provided that, for investors redeeming less than all their
Units, such investors remaining units equal at least $500.
The Managing Owner may require a Unitholder to redeem all or a
portion of such Unitholder's Units if the Managing Owner considers doing so
to be desirable for the protection of the Trust, and will use best efforts to
do so to the extent necessary to prevent the Trust from being deemed to hold
"plan assets" under the provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or the Code, with respect to any "employee
benefit plan" subject to ERISA or with respect to any plan or account subject
to Section 4975 of the Code.
13. OFFERING OF UNITS.
The Managing Owner on behalf of the Trust shall (i) cause to be
filed a Registration Statement or Registration Statements, and such
amendments thereto as the Managing Owner deems advisable, with the Securities
and Exchange Commission for the registration and ongoing public offering of
the Units, (ii) use its best efforts to qualify and to keep qualified Units
for sale under the securities laws of such States of the United States or
other jurisdictions as the Managing Owner shall deem advisable and (iii) take
such action with respect to the matters described in (i) and (ii) as the
Managing Owner shall deem advisable or necessary.
The Managing Owner shall use its best efforts not to accept any
subscriptions for Units if doing so would cause the Trust to hold "plan
assets" under ERISA or the Code with respect to any "employee benefit plan"
subject to ERISA or with respect to any plan or account subject to Section
4975 of the Code. If such a subscriber has its subscription reduced for such
reason, such subscriber shall be entitled to rescind its subscription in its
entirety even though subscriptions are otherwise irrevocable.
14. ADDITIONAL OFFERINGS.
The Managing Owner may, in its discretion, make additional public or
private offerings of Units, provided that the net proceeds to the Trust of any
such sales shall in no event be less than the Net Asset Value per Unit (as
defined in Section 5(d) hereof) at the time of sale (unless the new Unit's
participation in the profits and losses of the Trust is appropriately adjusted).
No Unitholder shall have any preemptive, preferential or other rights with
respect to the issuance or sale of any additional Units, other than as set forth
in the preceding sentence.
The Trust may offer different series or classes of Units having
different economic terms than previously offered series or classes of Units;
provided that the issuance of such a new series or class of Units shall in no
respect adversely affect the holders of outstanding Units; and provided further
that the assets attributable to each such series or class shall, to the maximum
extent permitted by law, be treated as legally separate and distinct pools of
assets, and the assets attributable to one such series or class be prevented
from being used in any respect to satisfy or discharge any debt or obligation of
any other such series or class.
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15. SPECIAL POWER OF ATTORNEY.
Each Unitholder by his execution of this Declaration of Trust and
Trust Agreement does hereby irrevocably constitute and appoint the Managing
Owner and each officer of the Managing Owner, with power of substitution, as
his true and lawful attorney-in-fact, in his name, place and stead, to
execute, acknowledge, swear to (and deliver as may be appropriate) on his
behalf and file and record in the appropriate public offices and publish (as
may in the reasonable judgment of the Managing Owner be required by law):
(i) this Declaration of Trust and Trust Agreement, including any amendments
and/or restatements hereto duly adopted as provided herein; (ii) certificates
in various jurisdictions, and amendments and/or restatements thereto, and of
assumed name or of doing business under a fictitious name with respect to the
Trust; (iii) all conveyances and other instruments which the Managing Owner
deems appropriate to qualify or continue the Trust in the State of Delaware
and the jurisdictions in which the Trust may conduct business, or which may
be required to be filed by the Trust or the Unitholders under the laws of any
jurisdiction or under any amendments or successor statutes to the Act, to
reflect the dissolution or termination of the Trust or the Trust being
governed by any amendments or successor statutes to the Act or to reorganize
or refile the Trust in a different jurisdiction; and (iv) to file, prosecute,
defend, settle or compromise litigation, claims or arbitrations on behalf of
the Trust. The Power of Attorney granted herein shall be irrevocable and
deemed to be a power coupled with an interest (including, without limitation,
the interest of the other Unitholders in the Managing Owner being able to
rely on the Managing Owner's authority to act as contemplated by this Section
14) and shall survive and shall not be affected by the subsequent incapacity,
disability or death of a Unitholder.
16. WITHDRAWAL OF A UNITHOLDER.
The Trust shall be dissolved upon the death, insanity, bankruptcy,
retirement, resignation, expulsion, withdrawal, dissolution, admitted or
court-decreed insolvency or the removal of the Managing Owner, or any other
event that causes the Managing Owner to cease to be a managing owner under
the Act, unless the Trust is continued pursuant to the terms of Section
5(a)(3). In addition, the Managing Owner may withdraw from the Trust,
without any breach of this Declaration of Trust and Trust Agreement, at any
time upon 120 days' written notice by first class mail, postage prepaid, to
each Unitholder and assignee of whom the Managing Owner has notice. If the
Managing Owner withdraws as managing owner and the Trust's business is
continued, the withdrawing Managing Owner shall pay all expenses incurred as
a result of its withdrawal. 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 and any right
to an audit or examination of the books of the Trust. Nothing in this
Section 16 shall, however, waive any right given elsewhere in this
Declaration of Trust and Trust Agreement for a Unitholder to be informed of
the Net Asset Value of his Units, to receive periodic reports, audited
financial statements and other information from the Managing Owner or the
Trust or to redeem or transfer Units.
17. STANDARD OF LIABILITY; INDEMNIFICATION.
(a) STANDARD OF LIABILITY FOR THE MANAGING OWNER. The Managing Owner
and its Affiliates, as defined below, shall have no liability to the Trust or to
any Unitholder for any loss suffered by the Trust which arises out of any action
or inaction of the Managing Owner or its Affiliates if the Managing Owner, in
good faith, determined that such course of conduct was in the best interests of
the Trust and such course of conduct did not constitute negligence or misconduct
of the Managing Owner or its Affiliates.
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(b) INDEMNIFICATION OF THE MANAGING OWNER BY THE TRUST. To the
fullest extent permitted by law, subject to this Section 17, the Managing
Owner and its Affiliates shall be indemnified by the Trust against any
losses, judgments, liabilities, expenses and amounts paid in settlement of
any claims sustained by them in connection with the Trust; provided that such
claims were not the result of negligence or misconduct on the part of the
Managing Owner or its Affiliates, and the Managing Owner, in good faith,
determined that such conduct was in the best interests of the Trust; and
provided further that Affiliates of the Managing Owner shall be entitled to
indemnification only for losses incurred by such Affiliates in performing the
duties of the Managing Owner and acting wholly within the scope of the
authority of the Managing Owner.
Notwithstanding anything to the contrary contained in the preceding
two paragraphs, the Managing Owner and its Affiliates and any persons acting
as Selling Agents for the Units shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws unless (1) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee and the court approves
indemnification of the litigation costs, or (2) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular indemnitee and the court approves indemnification of the
litigation costs, or (3) a court of competent jurisdiction approves a
settlement of the claims against a particular indemnitee and finds that
indemnification of the settlement and related costs should be made.
In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court
the position of the Securities and Exchange Commission, the California
Department of Corporations, the Massachusetts Securities Division, the
Pennsylvania Securities Commission, the Tennessee Securities Division, the
Texas Securities Board and any other state or applicable regulatory authority
with respect to the issue of indemnification for securities law violations.
The Trust shall not bear the cost of that portion of any insurance
which insures any party against any liability the indemnification of which is
herein prohibited.
For the purposes of this Section 17, the term "Affiliates" shall mean
any person acting on behalf of or performing services on behalf of the Trust
who: (1) directly or indirectly controls, is controlled by, or is under common
control with the Managing Owner; or (2) owns or controls 10% or more of the
outstanding voting securities of the Managing Owner; or (3) is an officer or
director of the Managing Owner; or (4) if the Managing Owner is an officer,
director, partner or trustee, is any entity for which the Managing Owner acts in
any such capacity.
Advances from Trust funds to the Managing Owner and its Affiliates for
legal expenses and other costs incurred as a result of any legal action
initiated against the Managing Owner by a Unitholder are prohibited.
Advances from Trust funds to the Managing Owner and its Affiliates for
legal expenses and other costs incurred as a result of a legal action will be
made only if the following three conditions are satisfied: (1) the legal action
relates to the performance of duties or services by the Managing Owner or its
Affiliates on behalf of the Trust; (2) the legal action is initiated by a third
party who is not a Unitholder; and (3) the Managing Owner or its Affiliates
undertake to repay the advanced funds, with interest from the date of such
advance, to the Trust in cases in which they would not be entitled to
indemnification under the standard of liability set forth in Section 17(a).
In no event shall any indemnity or exculpation provided for herein be
more favorable to the Managing Owner or any Affiliate than that contemplated by
the NASAA Guidelines as in effect on the date of this Declaration of Trust and
Trust Agreement.
In no event shall any indemnification permitted by this subsection
(b) of Section 17 be made by the Trust unless all provisions of this Section for
the payment of indemnification have been complied with in all respects.
Furthermore, it shall be a precondition of any such indemnification that the
Trust receive a determination of qualified independent legal counsel in a
written opinion that the party which seeks to be indemnified hereunder has met
the applicable standard of conduct set forth herein. Receipt of any such
opinion shall not, however, in itself, entitle any such party to indemnification
unless indemnification is otherwise proper hereunder. Any indemnification
payable by the Trust hereunder shall be made only as provided in the specific
case.
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In no event shall any indemnification obligations of the Trust under
this subsection (b) of this Section 17 subject a Unitholder to any liability in
excess of that contemplated by subsection (e) of Section 8 hereof.
(c) INDEMNIFICATION OF THE TRUST BY THE UNITHOLDERS. In the event
the Trust is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of or in connection with any Unitholder's
activities, obligations or liabilities unrelated to the Trust's business, such
Unitholder shall indemnify and reimburse the Trust for all loss and expense
incurred, including reasonable attorneys' fees.
18. AMENDMENTS; MEETINGS.
(a) AMENDMENTS WITH CONSENT OF THE MANAGING OWNER. If at any time
during the term of the Trust the Managing Owner shall deem it necessary or
desirable to amend this Declaration of Trust and Trust Agreement, the Managing
Owner may proceed to do so, provided that such amendment shall be effective only
if embodied in an instrument approved by the Managing Owner and, subject to the
immediately following sentence, by the holders of Units representing a majority
of the outstanding Units. No meeting procedure or specified notice period is
required in the case of amendments made with the consent of the Managing Owner,
mere receipt of an adequate number of unrevoked written consents being
sufficient. The Managing Owner may amend this Declaration of Trust and Trust
Agreement without the consent of the Unitholders in order (i) to clarify any
clerical inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Declaration of Trust and Trust Agreement and the
Prospectus), (ii) to effect the intent of the tax allocations proposed herein to
the maximum extent possible in the event of a change in the Code or the
interpretations thereof affecting such allocations, (iii) to attempt to ensure
that the Trust is not treated as an association taxable as a corporation for
federal income tax purposes, (iv) to qualify or maintain the qualification of
the Trust as a trust in any jurisdiction, (v) to delete or add any provision of
or to this Declaration of Trust and Trust Agreement required to be deleted or
added by the Staff of the Securities and Exchange Commission or any other
federal agency or any state "Blue Sky" official or similar official or in order
to opt to be governed by any amendment or successor statute to the Act, (vi) to
make any amendment to this Declaration of Trust and Trust Agreement which the
Managing Owner deems advisable, including amendments that reflect the offering
and issuance of additional Units, whether or not issued through a series or
class, provided that such amendment is not adverse to the Unitholders, or that
is required by law, and (vii) to make any amendment that is appropriate or
necessary, in the opinion of the Managing Owner, to prevent the Trust or the
Managing Owner or its directors, officers or controlling persons from in any
manner being subjected to the provisions of the Investment Company Act of 1940,
as amended, or to prevent the assets of the Trust from being considered for any
purpose of ERISA or Section 4975 of the Code to constitute assets of any
"employee benefit plan" as defined in and subject to ERISA or of any "plan"
subject to Section 4975 of the Code.
(b) AMENDMENTS AND ACTIONS WITHOUT CONSENT OF THE MANAGING OWNER. In
any vote called by the Managing Owner or pursuant to section (c) of this Section
18, upon the affirmative vote (which may be in person or by proxy) of more than
fifty percent (50%) of the Units then owned by Unitholders, the following
actions may be taken, irrespective of whether the Managing Owner concurs:
(i) this Declaration of Trust and Trust Agreement may be amended, provided,
however, that approval of all Unitholders shall be required in the case of
amendments changing or altering this Section 18, extending the term of the
Trust, or materially changing the Trust's basic investment policies or
structure; in addition, reduction of the capital account of any Unitholder or
assignee or modification of the percentage of profits, losses or distributions
to which a Unitholder or an assignee is entitled hereunder shall not be effected
by any amendment or supplement to this Declaration of Trust and Trust Agreement
without such Unitholder's or assignee's written consent; (ii) the Trust may be
dissolved; (iii) the Managing Owner may be removed and replaced; (iv) a new
managing owner or managing owners may be elected if the Managing Owner withdraws
from the Trust; (v) the sale of all or substantially all of the assets of the
Trust may be approved; and (vi) any contract with the Managing Owner or any
affiliate thereof may be disapproved of and, as a result, terminated upon 60
days' notice.
(c) MEETINGS; OTHER VOTING MATTERS. Any Unitholder upon request
addressed to the Managing Owner shall be entitled to obtain from the Managing
Owner, upon payment in advance of reasonable reproduction and mailing costs, a
list of the names and addresses of record of all Unitholders and the number of
Units held by each (which shall be mailed by the Managing Owner to the
Unitholder within ten days of the receipt of the request); provided, that the
Managing Owner may require any Unitholder requesting such information to submit
written confirmation that such information will not be used for commercial
purposes. Upon receipt of a written proposal, signed by Unitholders owning
Units representing at least 10% of the Units then owned by Unitholders, that a
meeting of the Trust be called to vote upon
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<PAGE>
any matter upon which the Unitholders may vote pursuant to this Declaration
of Trust and Trust Agreement, the Managing Owner shall, by written notice to
each Unitholder of record sent by certified mail within 15 days after such
receipt, call a meeting of the Trust. Such meeting shall be held at least 30
but not more than 60 days after the mailing of such notice, and such notice
shall specify the date of, a reasonable place and time for, and the purpose
of such meeting.
The Managing Owner may not restrict the voting rights of Unitholders
as set forth herein.
In the event that the Managing Owner or the Unitholders vote to amend
this Declaration of Trust and Trust Agreement in any material respect, the
amendment will not become effective prior to all Unitholders having an
opportunity to redeem their Units.
(d) CONSENT BY TRUSTEE. The Trustee's written consent to any
amendment of this Declaration of Trust and Trust Agreement shall be required,
such consent not to be unreasonably withheld; provided, however, that the
Trustee may, in its sole discretion, withhold its consent to any such amendment
that would adversely affect any right, duty or liability of, or immunity or
indemnity in favor of, the Trustee under this Declaration of Trust and Trust
Agreement or any of the documents contemplated hereby to which the Trustee is a
party, or would cause or result in any conflict with or breach of any terms,
conditions or provisions of, or default under, the charter documents or by-laws
of the Trustee or any document contemplated thereby to which the Trustee is a
party.
19. GOVERNING LAW.
The validity and construction of this Declaration of Trust and Trust
Agreement shall be determined and governed by the laws of the State of Delaware
without regard to principles of conflicts of law; provided, however, that causes
of action for violations of federal or state securities laws shall not be
governed by this Section 19.
20. MISCELLANEOUS.
(a) NOTICES. All notices under this Declaration of Trust and Trust
Agreement shall be in writing and shall be effective upon personal delivery, or
if sent by first class mail, postage prepaid, addressed to the last known
address of the party to whom such notice is to be given, upon the deposit of
such notice in the United States mail.
(b) BINDING EFFECT. This Declaration of Trust and Trust Agreement
shall inure to and be binding upon all of the parties, all parties indemnified
under Sections 2 and 17 hereof, and their respective successors and assigns,
custodians, estates, heirs and personal representatives. For purposes of
determining the rights of any Unitholder or assignee hereunder, the Trust and
the Managing Owner may rely upon the Trust records as to who are Unitholders and
assignees, and all Unitholders and assignees agree that their rights shall be
determined and they shall be bound thereby.
(c) CAPTIONS. Captions in no way define, limit, extend or describe
the scope of this Declaration of Trust and Trust Agreement nor the effect of any
of its provisions. Any reference to "persons" in this Declaration of Trust and
Trust Agreement shall also be deemed to include entities, unless the context
otherwise requires.
21. BENEFIT PLAN INVESTORS.
Each Unitholder that is an "employee benefit plan" as defined in and
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or a "plan" as defined in Section 4975 of the Code (each such
employee benefit plan and plan, a "Plan"), and each fiduciary thereof who has
caused the Plan to become a Unitholder (a "Plan Fiduciary"), represents and
warrants that: (a) the Plan Fiduciary has considered an investment in the Trust
for such Plan in light of the risks relating thereto; (b) the Plan Fiduciary has
determined that, in view of such considerations, the investment in the Trust for
such Plan is consistent with the Plan Fiduciary's responsibilities under ERISA;
(c) the investment in the Trust by the Plan does not violate and is not
otherwise inconsistent with the terms of any legal document constituting the
Plan or any trust agreement thereunder; (d) the Plan's investment in the Trust
has been duly authorized and approved by all necessary parties; (e) none of
Kenmar, any advisor to the Trust, any selling agent, the clearing broker, the
escrow agent, 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
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<PAGE>
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, controlled or held with power to vote, by such
Person; (c) any Person, directly or indirectly, controlling,
controlled by, or under common control with such Person; (d) any
officer, director or partner of such Person; or (e) if such Person is
an officer, director or partner, any Person for which such Person acts
in any such capacity.
CAPITAL CONTRIBUTIONS. The total investment in a Program by a
Participant or by all Participants, as the case may be.
COMMODITY BROKER. Any Person who engages in the business of
effecting transactions in Commodity Contracts for the account of
others or for his own account.
COMMODITY CONTRACT. A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade
of a traded commodity at a specified price and delivery point.
CROSS REFERENCE SHEET. A compilation of the Guidelines sections,
referenced to the page of the prospectus, Program agreement, or other
exhibits, and justification of any deviation from the Guidelines.
NET ASSETS. The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles.
Net Assets shall include any unrealized profits or losses on open
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,
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<PAGE>
redemptions, or capital distributions, if any, made during the
period decreased by interest or other income, not directly related
to trading activity, earned on Program assets during the period,
whether the assets are held separately or in the margin account.
ORGANIZATIONAL AND OFFERING EXPENSES. All expenses incurred by the
Program in connection with and in preparing a Program for registration
and subsequently offering and distributing it to the public,
including, but not limited to, total underwriting and brokerage
discounts and commissions (including fees of the underwriters'
attorneys), expenses for printing, engraving, mailing, salaries of
employees while engaged in sales activity, charges of transfer agents,
registrars, trustees, escrow holders, depositories, experts, expenses
of qualification of the sale of its Program Interests under federal
and state law including taxes and fees, accountants' and attorneys'
fees.
PARTICIPANT. The holder of a Program Interest.
PERSON. Any natural Person, partnership, corporation, association or
other legal entity.
PIT BROKERAGE FEE. Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
PROGRAM. A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in
Commodity Contracts.
PROGRAM BROKER. A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
PROGRAM INTEREST. A limited partnership interest or other security
representing ownership in a Program.
PYRAMIDING. A method of using all or a part of an unrealized profit
in a Commodity Contract position to provide margin for any additional
Commodity Contracts of the same or related commodities.
SPONSOR. Any Person directly or indirectly instrumental in
organizing a Program or any Person who will manage or participate in
the management of a Program, including a Commodity Broker who pays any
portion of the Organizational Expenses of the Program, and the general
partner(s) and any other Person who regularly performs or selects the
Persons who perform services for the Program. Sponsor does not
include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of the
units. The term "Sponsor" shall be deemed to include its Affiliates.
VALUATION DATE. The date as of which the Net Assets of the Program
are determined.
VALUATION PERIOD. A regular period of time between Valuation Dates.
23. NO LEGAL TITLE TO TRUST ESTATE.
The Unitholders shall not have legal title to any part of the Trust
Estate.
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.
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<PAGE>
25. CREDITORS.
No creditors of any Unitholders shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect
to, the Trust Estate.
IN WITNESS WHEREOF, the undersigned have duly executed this
Declaration of Trust and Trust Agreement as of the day and year first above
written.
WILMINGTON TRUST COMPANY
as Trustee
By: /S/ EMMETT R. HARMON
------------------------------------------
Name: Emmett R. Harmon
Title: Vice President
KENMAR ADVISORY CORP.
as Managing Owner
By: /S/ ESTHER E. GOODMAN
------------------------------------------
Name: Esther E. Goodman
Title: Chief Operating Officer and
Senior Executive Vice President
KENMAR VENTURE PARTNERS LIMITED PARTNERSHIP
-------------------------------------------
as Initial Unitholder
By: KENMAR ADVISORY CORP., GENERAL PARTNER
------------------------------------------
By: /S/ ESTHER E. GOODMAN
------------------------------------------
Name: Esther E. Goodman
Title: Chief Operating Officer and
Senior Executive Vice President
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: KENMAR ADVISORY CORP.,
ATTORNEY-IN-FACT
By: /S/ ESTHER E. GOODMAN
------------------------------------------
Name: Esther E. Goodman
Title: Chief Operating Officer and
Senior Executive Vice President
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<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
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<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) calendar
days prior to the end of such month. Payment of the redemption price of Units
will generally be made within fifteen (15) 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 month through the end of the 18th month
after sale will be deducted from the redemption price of all such Units paid to
Kenmar.
__________________________
UNITED STATES TAXABLE UNITHOLDERS ONLY
Under penalty of perjury, the undersigned hereby certifies that the
Social Security Number or Taxpayer ID Number indicated on this Request for
Redemption is the undersigned's true, correct and complete Social Security
Number or Taxpayer ID Number and that the undersigned is not subject to backup
withholding under the provisions of Section 3406(a)(1)(C) of the Internal
Revenue Code.
NON-UNITED STATES UNITHOLDERS ONLY
Under penalty of perjury, the undersigned hereby certifies that (a)
the undersigned is not a citizen or resident of the United States or (b) (in the
case of an investor which is not an individual) the investor is not a United
States corporation, partnership, estate or trust.
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
/ / Credit my brokerage account / / Send to the address below
_______________________________________________________________________________
Name Street City, State and Zip Code
Entity Unitholder Individual Unitholder(s)
(or assignee) (or assignee(s))
______________________________________ ______________________________________
(Name of Entity)
______________________________________
By: _________________________________ ______________________________________
(Authorized corporate officer, (Signature(s) of all Unitholder(s)
partner or trustee) or assignee(s))
<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 17,
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
initial furnished to Kenmar or that is set forth in the
Subscription Agreement and Power of Attorney submitted by Purchaser
is correct and complete as of the date of such Subscription
Agreement and Power of Attorney, and if there should be any change
in such information prior to acceptance of Purchaser's subscription,
Purchaser will immediately furnish such revised or corrected
information to Kenmar.
______ (c) Unless (d) below is applicable, Purchaser's subscription is
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
initial gift Purchaser has made to such minor and is not made with
such minor's funds or, if not a gift, the representations as to net
worth and annual income set forth below apply only to such minor.
______ (e) If Purchaser is subscribing in a representative capacity,
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.
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<PAGE>
______ (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.
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.
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<PAGE>
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.
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<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 17, 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. SUCH UNITHOLDERS' SELLING AGENT
REPRESENTATIVES MUST RECONFIRM BY COMPLETING ITEM 6 THAT SUCH UNITHOLDERS
CONTINUE TO MEET THE STANDARDS AND REQUIREMENTS SET FORTH HEREIN AND IN EXHIBIT
B -- SUBSCRIPTION REQUIREMENTS IN ORDER FOR SUCH UNITHOLDERS TO BE ELIGIBLE TO
PURCHASE ADDITIONAL UNITS.
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 PARTNERSHIP OR CORPORATION.
Special Note: Trust agreements, corporate papers and other appropriate
documents may 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"
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 A) THE
APPROPRIATE DEPARTMENT OF THE SELLING AGENT IF REQUIRED OR B) DERIVATIVES
PORTFOLIO MANAGEMENT L.L.C., TWO WORLDS FAIR DRIVE, P.O. BOX 6741, SOMERSET, NEW
JERSEY 08875-6741, ATTN: FUND ADMINISTRATOR-KGT.
SA-(i)
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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 Units may be purchased in $100
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 17, 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 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
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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.
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
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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.
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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 or branch manager
complete item 6.
(b) / / Existing Owner(s) -- complete items 1, 2, 3 and 5 and have Selling
Agent representative or 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):
/ / Individual Ownership / / Trust other than a Grantor or
/ / Joint Tenants with Right Revocable Trust
of Survivorship / / Estate / / UGMA/UTMA (Minor)
/ / Tenants in Common / / Partnership / / Corporation
/ / Grantor or Other Revocable
Trust
/ / Community Property
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): __________________________
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SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE -- CONTINUED)
(b) Primary Residence: ____________________________________________________
_______________________________________________________________________
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
initial gift Purchaser has made to such minor and is not made with
such minor's funds or, if not a gift, the representations as to net
worth and annual income set forth below apply only to such minor.
______ (e) If Purchaser is subscribing in a representative capacity,
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
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SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE -- CONTINUED)
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, MAY 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
__________________________________
Signature of Joint Purchaser Date
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 17, 1996, SUMMARY
FINANCIAL INFORMATION RELATING TO THE TRUST CURRENT WITHIN 60 CALENDAR
DAYS (AFTER THE TRUST 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's Conduct Rule 2810.
X______________________________________________________________________
Selling Agent Representative Signature Date
X______________________________________________________________________
Office Manager Signature Date
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[LETTERHEAD OF SIDLEY & AUSTIN]
EXHIBIT 8.01(a)
December 17, 1996
Kenmar Global Trust
c/o Kenmar Advisory Corp.
Managing Owner
Two American Lane
P.O. Box 5150
Greenwich, Connecticut 06831-8150
Re: Registration Statement on Form S-1
----------------------------------
Dear Madam or Sir:
We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933 of the Registration Statement on Form S-1, filed with
the SEC on July 25, 1996, as amended by Amendment No. 1 thereto filed with
the SEC on October 30, 1996, and by Amendment No. 2 thereto filed with the
SEC on December 13, 1996, (the "Registration Statement") relating to Units of
beneficial interest ("Units") of Kenmar Global Trust (the "Trust"), a
business trust organized under the Delaware Business Trust Act.
We have reviewed such data, documents, questions of law and fact and
other matters as we have deemed pertinent for the purpose of this opinion.
Based upon the foregoing, we hereby confirm our opinion expressed under the
caption "Federal Income Tax Consequences" in the Prospectus (the
"Prospectus") constituting a part of the Registration Statement that: (i) the
Trust will be treated as a partnership for federal income tax purposes
(assuming that (x) Kenmar Advisory Corp. maintains a net worth at an amount
not less than 10% of the total contributions to the Trust and all other
entities of which it is managing owner or general partner, (y) Kenmar
Advisory Corp. makes capital contributions to the Trust not less than those
required by the Trust's Amended and Restated Declaration of Trust and Trust
Agreement ("Declaration of Trust"), and (z) substantially all of the gross
income of the Trust will constitute "qualifying income" within the meaning of
section 7704(d) of the Internal Revenue Code of 1986, as amended (the
"Code")); (ii) the allocations of profits and losses made when Unitholders
redeem their Units are permissible for federal income tax purposes; and (iii)
based upon the trading activities of the Trust described in the Prospectus,
the Trust should be treated as engaged in the conduct of a trade or business
for federal income tax purposes, and, as a result, the ordinary and necessary
business expenses incurred by the Trust in conducting its commodity futures
trading business should not be subject to limitation under section 67 of the
Code or under section 68 of the Code.
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.
We also advise you that in our opinion the description set forth under
the caption "Federal Income Tax Consequences" in the Prospectus correctly
describes (subject to the uncertainties referred to therein) the material
aspects of the United States federal income tax treatment to United States
individual investors, as of the date hereof, of an investment in the Trust.
This opinion speaks as of the date hereof, and we assume no obligation
to update this opinion as of any future date. This opinion shall not be used
for any purpose without our written consent. We hereby consent to the filing
of this opinion as an Exhibit to the Registration Statement and to all
references to our firm included in or made a part of the Registration
Statement.
Very truly yours,
/s/ Sidley & Austin
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Exhibit 99
S I D L E Y & A U S T I N
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
875 THIRD AVENUE
CHICAGO NEW YORK, NEW YORK 10022 WASHINGTON, D.C.
---- TELEHPHONE 212 906 8000 ----
DALLAS FACSIMILE 212 906 2021 LONDON
---- ----
LOS ANGELES SINGAPORE
FOUNDED 1866 ----
TOKYO
WRITER'S DIRECT NUMBER
(212) 905-2348 December 17, 1996
By Telecopy and Federal Express
- -------------------------------
Joshua Wechsler
Securities and Exchange Commission
450 Fifth Street, N.W.
Mail Stop 7-2
Washington, D.C. 20549
Re: Kenmar Global Trust (the "Trust") (File No. 333-8869)
-----------------------------------------------------
Dear Mr. Wechsler:
Further to our telephone conversation of this morning:
1. I hereby confirm that the statement relating to unrelated
business taxable income ("UBTI") set forth in the Registration Statement
under the caption "Federal Income Tax Consequences" constituted the
unqualified opinion of this firm; and
2. Although not explicitly covered by the tax opinion of this firm
filed as Exhibit 8.01 to the Registration Statement, the discussion in the
Registration Statement relating to UBTI was intended to be covered by the
opinion.
Based on the foregoing, we respectfully request effectiveness. The
changes to the disclosure attached to my letter of December 16, 1996 will be
incorporated in the final prospectus and filed under Rule 424(b).
Furthermore, the revised tax opinion attached hereto will be filed
simultaneously by EDGAR.
If we can be of any further assistance, please do not hesitate to
telephone the undersigned at (212/906-2348).
Very truly yours,
/s/ Michael J. Schmidtberger
Michael J. Schmidtberger
