<PAGE>
As filed with the Securities and Exchange Commission on August 21, 1997
Registration No. 333-8869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
(POST-EFFECTIVE AMENDMENT NO. 1)
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
KENMAR GLOBAL TRUST
(Exact name of registrant as specified in its charter)
DELAWARE 6793 06-6429854
(State of Organization) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
C/O KENMAR ADVISORY CORP.
TWO AMERICAN LANE
P.O. BOX 5150
GREENWICH, CONNECTICUT 06831-8150
(203) 861-1000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOSHUA B. PARKER
C/O KENMAR ADVISORY CORP.
TWO AMERICAN LANE
P.O. BOX 5150
GREENWICH, CONNECTICUT 06831-8150
(203) 861-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
David R. Sawyier Michael J. Schmidtberger
Sidley & Austin Sidley & Austin
One First National Plaza 875 Third Avenue
Chicago, Illinois 60603 New York, New York 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
================================================================================
<PAGE>
KENMAR GLOBAL TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. PROSPECTUS HEADING
----- ------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.............. Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................................. Inside Cover Page; Table of Contents
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.................. Summary; The Trust and Its Objectives; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Inside Cover Page; Plan of Distribution
6. Dilution.............................................. Not Applicable
7. Selling Security Holders.............................. Not Applicable
8. Plan of Distribution.................................. Inside Cover Page; Plan of Distribution
9. Description of Securities to Be
Registered.......................................... Cover Page; The Trust and Its Objectives; The Futures and
Forward Markets; Redemptions; The Trust and the Trustee
10. Interests of Named Experts and
Counsel............................................. Legal Matters; Experts
11. Information with Respect to the
Registrant.......................................... Summary; Risk Factors; Investment Factors; The Trust and Its
Objectives; Charges; Kenmar Advisory Corp.; Conflicts of
Interest; The Futures and Forward Markets; The Trust and the
Trustee; Index to Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities..................................... Not Applicable
</TABLE>
<PAGE>
PRELIMINARY - SUBJECT TO CHANGE
KENMAR GLOBAL TRUST
$50,000,000
Units of Beneficial Interest
Kenmar Global Trust (the "Trust") is a Delaware business trust that
commenced trading operations on May 22, 1997. The Trust trades 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
manages the Trust's trading by allocating the Trust's assets to multiple
commodity trading advisors ("Advisors"). The Advisors 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 the
then-current Net Asset Value per Unit 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. Units are 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 the then-current Net Asset
Value per Unit, 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 IS HIGHLY LEVERAGED AND WILL TAKE PLACE IN VOLATILE
MARKETS.
- - THE TRUST IS SUBJECT TO SUBSTANTIAL CHARGES. ASSUMING THE INVESTOR
REDEEMS IN THE FIRST YEAR AND, THUS, IS ASSESSED A 3% REDEMPTION PENALTY,
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.
- - CERTAIN GENERAL TYPES OF MARKET CONDITIONS IN PARTICULAR, TRENDLESS PERIODS
WITHOUT MAJOR PRICE MOVEMENTS SIGNIFICANTLY REDUCE THE POTENTIAL FOR CERTAIN
ADVISORS TO TRADE SUCCESSFULLY.
SEE "RISK FACTORS" AND "CONFLICTS OF INTEREST" BEGINNING AT PAGES 8 AND 33,
RESPECTIVELY.
SUBSCRIBERS WILL BE REQUIRED TO MAKE CERTAIN REPRESENTATIONS AND WARRANTIES
IN THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY. SEE "PLAN OF
DISTRIBUTION - SUBSCRIBERS' REPRESENTATIONS AND WARRANTIES" AT PAGE 48.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------- ------------------------------- --------------------------------
<S> <C> <C> <C>
Units of Limited Partnership Interest Price to Public (1) Selling Commissions (2)(3)(4) Proceeds to Trust (1)(2)(3)(4)
- ------------------------------------- ----------------------- ------------------------------- --------------------------------
Ongoing Offering Period - Per Unit Net Asset Value None Net Asset Value
- ------------------------------------- ----------------------- ------------------------------- --------------------------------
See notes on page (i).
</TABLE>
KENMAR ADVISORY CORP.
MANAGING OWNER
THE DATE OF THIS PROSPECTUS IS AUGUST 21, 1997
(NOT FOR USE AFTER APRIL , 1998)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY,
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Notes to Cover Page (cont'd)
Notes to Cover Page
(1) The Units will be continuously offered on a "best efforts" basis
without any firm underwriting commitment through registered broker-dealers
("Selling Agents") selected by Kenmar.
Units are offered at the immediately following month-end Net Asset Value
per Unit, which reflects the amount that could be realized upon redemption
(before reduction for the redemption charge, if applicable).
All Units for which subscriptions are accepted during a month are issued
as of a single closing date as of the beginning of the immediately following
month. Units participate in the profits and losses of the Trust on and after
the date of such closing.
Kenmar must accept or reject subscriptions within five business days of
receipt. 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.
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.
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.
-i-
<PAGE>
NOTES TO COVER PAGE (CONT'D)
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, approximately $578,000, has been advanced by Kenmar. Such costs may
be reduced by up to $50,000 if certain benchmarks are not reached. This
prepaid expense is being 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 48
for information relating to indemnification arrangements with respect to the
Selling Agents.
(4) No selling commissions will be paid from the proceeds of
subscriptions. Kenmar, not the Trust, will pay the Selling Agents upfront
selling commissions equal to 5% of the purchase price per Unit at the time of
sale. Notwithstanding the foregoing, Selling Agents WILL NOT receive upfront
selling commissions to the extent investors have acquired Units on the same
day as or within seventy-five (75) days after redeeming investments in OTHER
Kenmar-sponsored investment vehicles.
The Selling Agents will also receive ongoing "trailing commissions" or
installment selling commissions on Units sold by their registered
representatives. Trailing commissions will be paid to Selling Agents whose
registered representatives agree to perform certain on-going services, are
registered with the Commodity Futures Trading Commission (the "CFTC") and
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). 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 on the same day as or within seventy-five (75)
days after redeeming investments in OTHER Kenmar-sponsored investment
vehicles) and continuing for as long as such Unit remains outstanding.
Installment selling commissions will be paid to Selling Agents in respect of
Units where there is no CFTC-qualified registered representative to perform
on-going services. Installment selling commissions will be calculated in the
same manner as above, but will be limited to 4.5% of the initial subscription
price of such Units (9.5% to the extent investors have acquired Units on the
same day as or within seventy-five (75) days after redeeming investments in
other Kenmar-sponsored investment vehicles). 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.
____________________
-ii-
<PAGE>
Regulatory Notices
THIS PROSPECTUS MUST BE ACCOMPANIED BY: (1) THE PROSPECTUS SUPPLEMENT,
IF ANY, CONTAINING CERTAIN INFORMATION REGARDING THE CURRENT ADVISORS; AND
(2) SUMMARY FINANCIAL INFORMATION FOR THE TRUST CURRENT WITHIN 60 CALENDAR
DAYS.
____________________
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."
____________________
-iii-
<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 22 THROUGH 23 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
<TABLE>
<CAPTION>
Prospectus Section Page Prospectus Section Page
- ------------------ ---- ------------------ ----
<S> <C> <C> <C>
SUMMARY.......................................... 4 THE TRUST AND ITS OBJECTIVES................. 13
Overview...................................... 4 Objectives................................... 13
Risk Factors.................................. 4 Investment Philosophy........................ 13
The Trust and Its Objectives.................. 5 Access to Global Markets..................... 14
"Breakeven Table"............................. 6 The Advisors................................. 15
Suitability................................... 7
KENMAR ADVISORY CORP............................ 18
RISK FACTORS..................................... 8 Background and Principals.................... 18
(1) Past Performance Not Management of Traders........................ 20
Necessarily Indicative of Future Fiduciary Obligations of Kenmar.............. 20
Results; All or Substantially All Investment of Kenmar in the Trust............ 21
of an Investment Could Be Lost............ 8
(2) Speculative and Volatile Markets; Highly USE OF PROCEEDS.................................. 21
Leveraged Trading......................... 8
(3) Substantial Charges ...................... 8 CHARGES.......................................... 22
(4) Importance of Market Conditions Charges Paid by the Trust..................... 22
to Profitability.......................... 8 Organizational and Initial Offering
(5) Technical, Trend-Following Costs.................................. 23
Trading Systems Require Brokerage Commissions..................... 23
Sustained Price Moves in Miscellaneous Execution Costs............. 24
Order to Trade Profitably................. 9 "Bid-ask" Spreads......................... 24
(6) Discretionary Trading Strategies Profit Shares and Incentive Fees.......... 24
May Incur Substantial Losses.............. 9 Administrative Costs...................... 25
(7) Decisions Based Upon Fundamental Extraordinary Expenses.................... 26
Analysis May Not Result in Charges Paid by Kenmar........................ 26
Profitable Trading........................ 9 Selling Commissions; "Trailing
(8) Increasing the Assets Managed by Commissions"........................... 26
the Advisors May Diminish Consulting Fees........................... 27
Their Returns............................. 9 Redemption Charges............................ 27
(9) No Assurance of Advisors' Continued
Services.................................. 9 THE CLEARING BROKERS............................. 27
(10)Limited Ability to Liquidate an ING Futures & Options......................... 27
Investment in the Units................... 10 PaineWebber................................... 27
(11)Possibly Illiquid Markets................. 10
(12)"Zero-Sum" Trading; The Trust CONFLICTS OF INTEREST............................ 33
Does Not Acquire Any Asset General....................................... 33
with Intrinsic Value...................... 10 Kenmar........................................ 33
(13)Non-Correlated, Not Negatively The Advisors.................................. 34
Correlated, Performance Objective......... 10 The Clearing Brokers and
(14)BROAD INDICES MAY PERFORM QUITE Executing Brokers............................ 33
DIFFERENTLY FORM INDIVIDUAL STATEMENTS.... 10 Selling Agents................................ 35
(15)Distortion in Profit Share and Incentive Proprietary Trading........................... 35
Fee Calculations.......................... 11
(16)Advisors Trading Independently Redemptions and Distributions.................... 35
of Each Other May Reduce
Risk Control Potential.................... 10 THE TRUST AND THE TRUSTEE........................ 36
(17)Trading on Commodity Exchanges Principal Office; Location of Records......... 36
Outside the United States May Certain Aspects of the Trust.................. 37
Present Certain Additional Risks.......... 11 The Trustee................................... 37
(18)Conflicts of Interest..................... 11 Management of Trust Affairs; Voting by
(19)Unitholders Taxed Currently............... 11 Unitholders................................... 38
(20)Limitation on Deductibility Recognition of the Trust in Certain States.... 38
of "Investment Advisory Fees"............. 11 Possible Repayment of Distributions Received
(21)Taxation of Interest Income by Unitholders; Indemnification of the
Irrespective of Trading Losses............ 12 Trust by Unitholders.......................... 38
(22)Possibility of a Tax Audit of Both Transfers of Units Restricted................. 39
the Trust and Unitholders................. 12 Reports to Unitholders........................ 39
(23)Failure of Brokerage Firms; Default General....................................... 39
by Forward Market Participants............ 12
(24)Regulatory Matters May Alter the Nature
of an Investment in the Trust............ 12
</TABLE>
-2-
<PAGE>
TABLE OF CONTENTS (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
THE FUTURES AND FORWARD MARKETS.................. 39 INDEX OF DEFINED TERMS........................... 54
Futures and Forward Contracts................. 39
Hedgers and Speculators....................... 40 THE ADVISORS..................................... 55
Commodity Exchanges........................... 40
Speculative Position and Daily Price PERFORMANCE OF COMMODITY POOLS
Fluctuation Limits............................ 40 OPERATED BY KENMAR ............................103
Margins....................................... 40
INVESTMENT FACTORS ..............................107
FEDERAL INCOME TAX CONSEQUENCES.................. 41
The Trust's Partnership Tax Status............ 41 INDEX TO FINANCIAL STATEMENTS....................F-1
Taxation of Unitholders on Profits
and Losses of the Trust....................... 41 KENMAR GLOBAL TRUST INDEPENDENT
Limitations on Deductibility of Trust AUDITORS' REPORT..............................F-2
Losses by Unitholders......................... 42
Treatment of Income and Loss KENMAR GLOBAL TRUST STATEMENT
Under the "Passive Activity Loss OF FINANCIAL CONDITION........................F-3
Rules"........................................ 42
Cash Distribution and Redemption of Units..... 42 KENMAR GLOBAL TRUST
Gain or Loss on Section 1256 Contracts........ 42 STATEMENT OF OPERATIONS.......................F-4
Gain or Loss on Non-Section 1256 Contracts.... 43
Tax on Capital Gains and Losses............... 43 KENMAR GLOBAL TRUST
Limited Deduction for Certain Expenses........ 43 STATEMENT OF CASH FLOWS.......................F-5
Interest Income............................... 44
Syndication Fees.............................. 44 KENMAR GLOBAL TRUST
Limitation on Deductibility of STATEMENT OF CHANGES IN UNITHOLDERS'
Interest on Investment Indebtedness........... 44 CAPITAL (NET ASSET VALUE).....................F-6
"Unrelated Business Taxable Income"........... 44
IRS Audits of the Trust and Its Unitholders... 44 KENMAR GLOBAL TRUST NOTES TO STATEMENT
State and Other Taxes......................... 45 OF FINANCIAL CONDITION........................F-7
PURCHASES BY EMPLOYEE BENEFIT PLANS.............. 45 KENMAR ADVISORY CORP. INDEPENDENT
General....................................... 45 AUDITORS' REPORT..............................F-14
"Plan Assets"................................. 46
Ineligible Purchasers......................... 47 KENMAR ADVISORY CORP. STATEMENTS
OF FINANCIAL CONDITION........................F-15
PLAN OF DISTRIBUTION............................. 47
Subscription Procedure........................ 47 KENMAR ADVISORY CORP. NOTES TO
Subscribers' Representations and STATEMENT OF FINANCIAL CONDITION
Warranties.................................... 48 AS OF SEPTEMBER 30, 1996......................F-16
Selling Agents' Compensation.................. 48
APPENDIX I GLOSSARY...........................APPI -1
LEGAL MATTERS.................................... 49
EXHIBIT A AMENDED AND RESTATED
EXPERTS.......................................... 49 DECLARATION OF TRUST AND
TRUST AGREEMENT.................................A-1
ADDITIONAL INFORMATION........................... 49 ANNEX REQUEST FOR REDEMPTION
EXHIBIT B SUBSCRIPTION REQUIREMENTS..............SR-1
RECENT FINANCIAL INFORMATION AND ANNUAL
REPORTS....................................... 49 EXHIBIT C SUBSCRIPTION INSTRUCTIONS,
SUBSCRIPTION AGREEMENT AND
PERFORMANCE OF KENMAR GLOBAL TRUST.............. 49 POWER OF ATTORNEY..........................SA-(I)
SELECTED FINANCIAL DATA ......................... 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............. 51
Operational Overview; Advisor Selections...... 51
Liquidity..................................... 51
Results of Operations......................... 52
Performance Summary........................... 53
Liquidity and Capital Resources............... 53
</TABLE>
-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 ADVISORS" AT PAGE 15 AND "KENMAR ADVISORY CORP." AT PAGE
18.
- - ACCESS TO A WIDE RANGE OF DOMESTIC AND INTERNATIONAL MARKETS. SEE "THE
TRUST AND ITS OBJECTIVES ACCESS TO GLOBAL MARKETS" AT PAGE 14.
- - DIVERSIFICATION AMONG TRADING STRATEGIES. SEE "THE TRUST AND ITS
OBJECTIVES INVESTMENT PHILOSOPHY" AT PAGE 13.
- - PERFORMANCE NOT DEPENDENT UPON ANY SINGLE NATION'S ECONOMY OR CURRENCY.
SEE "INVESTMENT FACTORS MARKET DIVERSIFICATION" AT PAGE 107
- - THE POTENTIAL, IF SUCCESSFUL, TO PROVIDE A VALUABLE COMPONENT OF
DIVERSIFICATION TO TRADITIONAL PORTFOLIOS. SEE "INVESTMENT FACTORS
DIVERSIFICATION OF TRADITIONAL PORTFOLIOS" AT PAGE 107.
- - 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" AT
PAGE 112 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 is highly leveraged and takes place in very volatile
markets. See "The Trust and Its Objectives" at page 13 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. Assuming the investor redeems in the
first year and, thus, is assessed a 3% redemption penalty, 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. See "Breakeven Table," at page 6, "Charges"
beginning at page 22 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 trades 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 trade entirely independently of
each other, implementing proprietary strategies in the markets of their
choice. The Trust has 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 monitors and adjusts 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 objective 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 [^] July 1, [^] 1997, Kenmar
and its affiliates were acting as trading manager for commodity pools and
accounts with total capital (excluding "notional" funds) of approximately [^]
$458 million, of which approximately [^] $96 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 ADVISORS
The 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 June 1, 1997, the Advisors were collectively managing approximately
$2.0 billion in managed futures accounts in which their clients (and in
certain cases the Advisors themselves) had invested, and approximately $1.5
billion in the trading programs being used for the Trust.
See "The Advisors" below for certain performance
and other information relating to the 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 41.
"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 (and assuming the Units are redeemed during months 7-12 and,
therefore, are subject to a 3% redemption charge).
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>
Brokerage Commissions(2) 11.00% $550.00
- ------------------------------------------------------------------------------------------------------
Administrative Expenses(3) 0.50% $25.00
- ------------------------------------------------------------------------------------------------------
Miscellaneous Execution Costs(4) 0.25% $12.50
- ------------------------------------------------------------------------------------------------------
Advisors' Profit Shares(5) 2.00% $100.00
- ------------------------------------------------------------------------------------------------------
Kenmar Incentive Fee(6) 0.15% $7.50
- ------------------------------------------------------------------------------------------------------
Organizational and Initial Offering Cost
Reimbursement(7) 2.40% $120.00
- ------------------------------------------------------------------------------------------------------
Redemption Charge (8) 3.10% $155.00
- ------------------------------------------------------------------------------------------------------
Interest Income (9) (5.00)% $(250.00)
- ------------------------------------------------------------------------------------------------------
RETURN ON $5,000 INITIAL 14.40% $720.00
INVESTMENT REQUIRED FOR
"BREAK EVEN"
- ------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
SUMMARY (cont'd)
NOTES TO "BREAKEVEN TABLE"
(1) See "Charges" at page 22 for an explanation of the expenses included
in the "Breakeven Table."
(2) 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.
(3) Administrative expenses are paid as incurred, but for this "Breakeven
Table" such expenses are assumed to be the maximum estimated 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 24. However, for purposes
of the "Breakeven Table," the Incentive Fee has been estimated at 5%
of such 3.1% gain.
(7) Reimbursed to Kenmar at the rate of 0.2% of beginning of month Net
Assets each month.
(8) 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.
(9) Interest income is estimated based on current rates.
SUITABILITY
The Trust trades 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 ONLY RECENTLY COMMENCED TRADING
AND HAS A PERFORMANCE HISTORY OF LIMITED DURATION.
-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 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. Assuming that an
investor redeems within one (1) year after his purchase and thus subjects
himself to a 3% redemption charge, the Trust must earn trading profits equal
to approximately 14.4% per annum of its average beginning of month Net Assets
merely for him to "break even."
(4) IMPORTANCE OF MARKET CONDITIONS TO PROFITABILITY
Although the initial Advisors appear to be as likely to
trade profitably in declining as in rising markets, there also seems to be a
tendency for managed futures advisors, in general, to be profitable or
unprofitable at 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.
-8-
<PAGE>
(5) TECHNICAL, TREND-FOLLOWING TRADING SYSTEMS REQUIRE SUSTAINED PRICE MOVES
IN ORDER TO TRADE PROFITABLY
The profitability of trading systems involving technical
trend analysis depends upon the occurrence of significant sustained price
moves in at least some of the markets traded. See "The 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 Advisors for the
Trust, and such periods are expected to recur because it is only when a
variety of usually disparate market forces influence prices in the same
direction that significant trends can occur. Periods without such price
moves are likely to produce losses.
(6) DISCRETIONARY TRADING STRATEGIES MAY INCUR SUBSTANTIAL LOSSES
Traders that implement discretionary trading strategies may
be more prone to subjective judgments having potentially adverse effects on
their performance than are systematic traders, which emphasize eliminating
the effects of "emotionalism" on their trading. See "The 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 Advisors Futures Trading Methods in General" for a description
of this trading method. Such analysis may not result in profitable trading
because the analyst may not have knowledge of all factors affecting supply
and demand, prices may often be affected by unrelated factors, and purely
fundamental analysis may not enable the trader to determine quickly that his
previous trading decisions were incorrect. In addition, because of the
breadth of fundamental data that exists, a fundamental trader may not be able
to follow developments in all such data, but instead may specialize in
analyzing a narrow set of data, requiring trading in fewer futures markets.
Consequently, a fundamental trader may have less flexibility in adverse
markets to trade other futures markets than traders that do not limit the
number of markets traded as a result of a specialized focus.
(8) INCREASING THE ASSETS MANAGED BY THE ADVISORS MAY DIMINISH THEIR RETURNS
There appears to be a tendency for the rates of return
achieved by managed futures advisors to diminish as assets under management
increase. Increased equity under management requires advisors to enter
larger orders, which can preclude trading in certain less liquid markets,
result in worse trading "fills" and make it difficult to close out positions
without incurring significant additional losses. If the Advisors' returns
decline as a result of the increased equity under the Advisors' management,
the profit potential of the Trust will be correspondingly reduced.
(9) NO ASSURANCE OF ADVISORS' CONTINUED SERVICES
There is no assurance that any Advisor will be willing or
able to continue to provide advisory services to the Trust for any length of
time. There is severe competition for the services of qualified Advisors,
and the Trust may not be able to retain satisfactory replacement or
additional Advisors on acceptable terms. Kenmar must allocate Advisor
availability among its different funds, including the Trust, and may,
accordingly, allocate to the Trust less (and perhaps none) of an Advisor's
available capacity than Kenmar might otherwise consider to be in the best
interests of the Trust. The timing of Kenmar's Advisor selections and the
amount of assets allocated to an Advisor may also be affected from time to
time by the procedural requirements of maintaining an ongoing offering of the
Units. See "Conflicts of Interest" at page 33. Kenmar may not be able to
obtain the services of the Advisor group that Kenmar would otherwise consider
to be most advantageous for the Trust.
-9-
<PAGE>
(10) LIMITED ABILITY TO LIQUIDATE AN INVESTMENT IN THE UNITS
Units may be redeemed only as of the close of business on
the last day of a calendar month and only beginning on or after the end of
the sixth month after sale. Through the end of the twelfth and eighteenth
full months after their sale, Units will be subject to redemption charges,
payable to Kenmar, equal to 3% and 2%, respectively, of the Net Asset Value
per Unit as of the date of redemption. Requests for redemption must be
received at least 10 calendar days before the proposed date of redemption.
The limited ability to redeem Units means that investors cannot be confident
of the redemption value of their Units, and may be unable to withdraw capital
committed to the Trust on a timely basis to take advantage of other, more
favorable, investment opportunities.
(11) POSSIBLY ILLIQUID MARKETS
The markets 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
Historically, the performance of managed futures
investments has been generally non-correlated, i.e., unrelated, not opposite,
to the performance of the traditional financial markets. It is by no means
the case, however, that a managed futures investment such as 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) BROAD INDICES MAY PERFORM QUITE DIFFERENTLY FROM INDIVIDUAL INVESTMENTS
In the discussion under "Investment Factors," the concepts
of overall portfolio diversification and non-correlation of asset classes are
discussed and illustrated by the use of a generally accepted index that
represents each asset category. Stocks are represented by the S&P 500 Index,
bonds by the Lehman Long-Term Government Bond Index, and futures funds by the
MAR Fund/Pool Qualified Universe Index. Because each index is a dollar
weighted average of the returns of multiple underlying investments, the
overall index return may be quite different from the return of any individual
investment. For example, the "MAR Fund/Pool Qualified Universe," is a dollar
weighted index of 420 managed futures funds. Accordingly, such index
reflects the volatility and risk of loss characteristics of a very broadly
diversified universe of advisors and not of a single fund or advisor.
Therefore, the Trust's performance will be different than that of the MAR
Fund/Pool Qualified Universe.
(15) 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 22. Certain investors' Units could be subject to
Profit Shares and Incentive Fees
-10-
<PAGE>
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."
(16) ADVISORS TRADING INDEPENDENTLY OF EACH OTHER MAY REDUCE RISK CONTROL
POTENTIAL
The Advisors trade entirely independently of each other.
Consequently, the Advisors may implement their strategies for their Trust
accounts in ways that could significantly reduce the risk control potential
that Kenmar had analyzed to be an important feature of a particular Advisor
combination. Two Advisors may, from time to time, take opposite positions
for the Trust, eliminating any possibility of the Trust profiting from these
positions considered as a whole. There are substantial opportunity costs to
Kenmar's multi-advisor strategy. Furthermore, the Trust's multi-advisor
structure will not necessarily control the risk of speculative futures
trading. Multi-advisor funds have in the past lost 5% or more of their
equity in a single day.
(17) 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.
(18) CONFLICTS OF INTEREST
The Trust is subject to a number of material actual and
potential conflicts of interest. See "Conflicts of Interest" at page 33.
No formal policies or procedures have been adopted to resolve any of such
conflicts. Prospective investors should be aware that Kenmar presently
intends to assert that Unitholders have, by subscribing to the Trust,
consented to the conflicts of interest described commencing at page 33 in
the event of any proceeding alleging that Kenmar violated its duties to
investors. The conflicts of interest to which the Trust is subject raise the
possibility that investors will be financially disfavored to the benefit of
Kenmar, the Advisors or their respective principals and affiliates.
The fact that Kenmar will receive an annual Incentive Fee
equal to 5% of any New Overall Appreciation (as defined) may lead Kenmar to
select Advisors that trade in a more "risky" or speculative manner than those
that Kenmar might otherwise choose. Kenmar receives 5%, AS AN INCENTIVE FEE,
of any New Overall Appreciation of the Trust, but not 5% of its losses.
(19) UNITHOLDERS TAXED CURRENTLY
Unitholders are subject to tax each year on their allocable
share of the Trust's income or gains (if any), despite the fact that Kenmar
does not intend to make any distributions to Unitholders. Consequently,
Unitholders will be required either to redeem Units or to make use of other
sources of funds to discharge their tax liabilities in respect of any profits
earned by the Trust. See "Federal Income Tax Consequences" at page 41.
In comparing the Trust's profit objectives with the
performance of more familiar securities in which one might invest,
prospective investors must recognize that if they purchased equity or debt,
there probably would be no tax due on the appreciation in the value of such
holdings until disposition. In the case of the Trust, on the other hand, a
significant portion of any appreciation in the Net Asset Value per Unit must
be paid in taxes by the Unitholders every year, resulting in a substantial
cumulative reduction in their net after-tax returns. Because Unitholders
will be taxed currently on their allocable share of the Trust's income or
gains, the Trust may trade successfully but investors nevertheless would have
recognized significantly greater gains on an after-tax basis had they
invested in conventional stocks with comparable performance.
-11-
<PAGE>
The performance information included in this Prospectus is
presented exclusively on a pre-tax basis.
(20) 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.
(21) 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.
(22) POSSIBILITY OF A TAX AUDIT OF BOTH THE TRUST AND UNITHOLDERS
There can be no assurance that the Trust's tax returns will
not be audited by the Internal Revenue Service. If such an audit results in
an adjustment, Unitholders could themselves be audited as well as being
required to pay additional taxes, interest and possibly penalties.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR
OWN TAX ADVISERS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO
THEM OF AN INVESTMENT IN THE TRUST; SUCH TAX CONSEQUENCES MAY DIFFER IN
RESPECT OF DIFFERENT INVESTORS. SEE "FEDERAL INCOME TAX CONSEQUENCES" AT
PAGE 41.
(23) 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 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.
(24) REGULATORY MATTERS MAY ALTER THE NATURE OF AN INVESTMENT IN THE TRUST
Due to the publicly-offered character of the Trust, Kenmar
will be more restricted in its ability to allocate assets to certain
prospective Advisors than it would be in the context of a private fund. Other
than the Trust, 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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<PAGE>
____________________
ADMINISTRATIVE CONVENIENCE
The Trust is structured so as substantially to eliminate
the administrative burden that would otherwise be involved in Unitholders
engaging directly in futures transactions. Unitholders, among other things,
will receive directly from Kenmar monthly unaudited financial reports and
annual audited financial statements (setting forth, in addition to certain
other information, the Net Asset Value per Unit, the Trust's trading profits
or losses and the Trust's expenses for the period) as well as all tax
information relating to the Trust necessary for Unitholders to complete their
federal income tax returns. The approximate Net Asset Value per Unit will be
available from Kenmar upon request.
THE TRUST AND ITS OBJECTIVES
OBJECTIVES
- - 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: (i)
selects the Fund's Clearing Brokers and SELLING AGENTS and selects and
monitors the Advisors; (ii) allocates and/or reallocates Trust assets among
the Advisors; (iii) determines if an Advisor should be removed or replaced;
(iv) negotiates advisory fees; and (v) performs 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
- -- Kenmar continuously analyzes qualitatively and quantitatively the
performance and trading characteristics of the 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 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
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<PAGE>
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 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
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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
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 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 [^]
Advisors and asset allocations initially chosen for the Trust (and which
remain current as of the date of this Prospectus).
<TABLE>
<CAPTION>
ADVISOR AND APPROXIMATE ASSETS
% CURRENT GENERAL UNDER MANAGEMENT
ALLOCATION* STRATEGY TYPE JUNE 1, 1997**
---------- ------------- --------------
<S> <C> <C>
Chesapeake Capital Corporation Multi-System, Multi-Timeframe $994 million (total)
(25%) Technical, Trend-Following $894 million (Diversified)
Dreiss Research Corporation Pattern-Recognition, Long-Term $22.4 million (total)
(15%) Technical, Trend-Following
Hyman Beck & Company, Inc. Long-Term Technical, $216.9 million (total)
(25%) Trend-Following $179.6 million (Global)
Willowbridge Associates Inc. Discretionary, Fundamental $727.6 million (total)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(25%) and Technical $363 million (XLIM)
Witter and Lester, Inc. Discretionary, Technical, $22.5 million (total)
(10%) S&P only $8.4 million (Redstone)
_______________
</TABLE>
* Such allocations represent the initial allocations to the Advisors
at the commencement of the Trust's operations on May 22, 1997. Such
allocations are approximate as of the date of this Prospectus, and are
affected by (i) the profit and loss generated by each Advisor in relation to
the performance of the other Advisors for the Trust, (ii) as well as any
reallocation decisions by Kenmar.
** 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.
ADVISOR SUMMARIES
More complete descriptions and performance summaries for
the Advisors described in this section of the Prospectus are included under
"The 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 59 through 65 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 66
through 70 for performance information relating to Dreiss Research
Corporation.
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<PAGE>
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 71 through 81 for performance
information relating to Hyman Beck & Company, Inc.
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 82 through 95 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 96 through 102 for performance
information relating to Witter & Lester, Inc.
THE ADVISORY AGREEMENTS
The Advisory Agreements among the Trust, Kenmar and each
Advisor terminate as of 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).
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<PAGE>
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
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.
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<PAGE>
(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 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. Gary J. Yannazzo (born 1953), Senior Vice President and
Chief Financial Officer, joined Kenmar in August 1997. From March 1992 to
July 1995, he was Senior Vice President and Controller of Metallgesellschaft
Corp., a diversified commodity marketing and trading company, with thirty
worldwide subsidiaries and $5 billion in annual revenues. From January 1990
through February 1992, Mr. Yannazzo was President, Chief Executive Officer
and part owner of Holland Mortgage Corporation. From December 1982 through
November 1989, Mr. Yannazzo was First Vice President of Security Capital
Corporation, a publicly traded financial services company and affiliate of
Smith Barney, Inc. From June 1975 through November 1982, Mr. Yannazzo was
with Arthur Andersen & Co., serving as an Audit Manager from June 1980. From
August 1995 until he joined Kenmar, Mr. Yannazzo was a private consultant,
engaged primarily in projects and ventures in the commodity and derivative
areas. Mr. Yannazzo received his B.S. in Business Administration from Seton
Hall University in 1975 and his CPA certification in 1977.
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.
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<PAGE>
MANAGEMENT OF TRADERS
Kenmar's hallmark is its emphasis on vigilant management of
its portfolios of traders. Kenmar analyzes 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 remove or replace Advisors if profitability,
risk assumptions or other significant factors indicate that replacement is
advisable. See "Risk Factor (24) 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.
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.
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<PAGE>
FIDUCIARY AND REGULATORY DUTIES
An investor should be aware that Kenmar has a fiduciary
responsibility to the Unitholders to exercise good faith and fairness in all
dealings affecting the Trust.
Under Delaware law, a beneficial owner of a business trust
(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 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 33.
The foregoing summary describing in general terms the
remedies available to Unitholders under federal and state law is based on
statutes, rules and decisions as of the date of this Prospectus. This is a
rapidly developing and changing area of the law. Therefore, Unitholders who
believe that they may have a legal cause of action against any of the
foregoing parties should consult their own counsel as to their evaluation of
the status of the applicable law at such time.
INVESTMENT OF KENMAR IN THE TRUST
Kenmar has purchased and will maintain a 1% interest in the
Trust in its capacity as managing owner. Robert L. Cruikshank, a principal
of Kenmar, also invested $100,000 in the Trust.
USE OF PROCEEDS
The proceeds of the offering of the Units are 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 are
invested in bank deposits or in instruments of a credit standing generally
comparable to those authorized by the CFTC for investment of "customer
segregated funds," although applicable CFTC rules prohibit funds employed in
trading on foreign exchanges from being deposited in "customer segregated
fund accounts."
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Although the percentages set forth below may vary
substantially over time, Kenmar estimates that:
(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 receives all of the interest income earned on its
assets.
CHARGES
CHARGES PAID BY THE TRUST
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
<S> <C> <C>
Kenmar Reimbursement of organizational Kenmar has advanced total costs of
and initial offering costs approximately $578,000, which costs may be
reduced by up to $50,000 if certain benchmarks
are not reached. Such advanced costs are being
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 Each counterparty with which the Trust
trades receives "bid-ask" spreads on the forward
trades executed on behalf of the Trust.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
<S> <C> <C>
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[cad 160]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.
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 has advanced the organizational and initial offering
costs of the Trust in a total amount of approximately $578,000. Such costs
may be reduced by up to $50,000 if certain benchmarks are not reached. The
Trust is reimbursing Kenmar for such costs in monthly installments of 0.2% of
the Trust's beginning of month Net Assets, which reimbursements began with
the first month of trading operations (May 1997).
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 does 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
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Net Assets (an 11.0% annual rate). Kenmar receives such brokerage
commissions, irrespective of the number of trades executed on the Trust's
behalf, and PAYS 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 pays all floor brokerage, exchange, NFA and clearing
fees relating to the execution of the Trust's trades (other than "bid-ask"
spreads). However, certain incidental costs may be incurred in the course of
such trading for example, "give-up" charges when a trade is executed and
cleared by brokers other than the Clearing Broker and subsequently
transferred to the Clearing Broker for carrying or the service fees assessed
by certain forward dealing desks which the Trust will pay as incurred. There
may, in fact, be virtually no such costs incurred during certain periods and
Kenmar does not anticipate that such costs will, in any event, exceed 0.25%
of the Trust's average beginning of month Net Assets in any fiscal year.
"BID-ASK" SPREADS
Many of the Trust's currency trades are executed in the
forward markets, in which participants include a spread between the prices at
which they are prepared to buy and sell a particular currency. The fact that
the Trust pays such "spreads" does not result in a reduction in the flat-rate
brokerage commissions paid by the Trust (however, forward trades were 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 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. 20%; 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
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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 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 June
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 June 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),
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<PAGE>
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 is responsible for actual payments to third
parties, estimated at no more than 0.50% of the Trust's average beginning of
month Net Assets per year.
EXTRAORDINARY EXPENSES
The Trust is responsible for any extraordinary charges
(such as taxes) incidental to its trading. In Kenmar's experience such
charges have been negligible.
________________________
Kenmar sends 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 are paid by Kenmar.
SELLING COMMISSIONS; "TRAILING COMMISSIONS"
Kenmar pays, from its own funds, the 5% selling commissions
due in respect of the Units. Furthermore, Kenmar pays significant "trailing
commissions" to eligible selling agents who sell Units which remain
outstanding for more than twelve months (immediately to the extent investors
have acquired Units on the same day as or within seventy-five (75) days after
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 48.
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Consulting Fees
Each initial Advisor receives 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. Investors acquiring Units on the same
day as or within seventy-five (75) days after redeeming investments in other
Kenmar-sponsored investment vehicles will be deemed to have held such Units
for the duration of their participation in such other Kenmar-sponsored
investment vehicles for purposes of calculating the required six-month
holding period following purchases of such Units. Such investor will not be
subject to a Kenmar Global Trust redemption charge but will remain subject to
the redemption charge, if any, of the Kenmar-sponsored investment vehicle
from which he redeemed.
THE CLEARING BROKERS
The Trust's initial clearing brokers are ING (U.S.)
Securities Futures & Options Inc. ("ING Futures & Options") and PaineWebber
Incorporated ("PaineWebber") (each, a "Clearing Broker" or together, the
"Clearing Brokers"). Neither nor ING Futures & Options nor PaineWebber has
been involved in the organization of the Trust and neither takes 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.
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
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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 $168 million or more appear
to be sought, are described below. PaineWebber is also involved in numerous
proceedings in which compensatory damages of less than $168 million appear to
be sought, or in which punitive or exemplary damages, together with the
apparent compensatory damages alleged, appear to exceed $168 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.
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
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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.
On April 4, 1995, the United States Court of Appeals for
the Third Circuit entered an order vacating its order of November 8, 1994,
and granted plaintiffs' application for rehearing and remanded the case to
the District Court for reconsideration. Following the remand by the Third
Circuit Court of Appeals, on August 24, 1995, the District Court entered an
order dismissing the action as to all defendants. On February 20, 1996,
plaintiffs filed a notice of appeal from the District Court's order
dismissing the action. On September 16, 1996, the Third Circuit Court of
Appeals heard arguments on plaintiffs' appeal. The court has not to yet
ruled on the appeal.
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 pre-trial 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 refiled consolidated 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, Paine Webber filed its answer to plaintiffs' refiled consolidated
complaint. The parties are presently engaged in pre-trial discovery. On
November 26, 1996, the Court conditionally certified a class of retail
investors who bought or sold certain NASDAQ securities through defendants
(and in limited cases through non-defendants) during certain periods of time.
The United States District Court for the Southern District of New York
granted plaintiffs' motion for certification of a class that includes
institutional investors, as well as the retail investors previously certified.
PaineWebber and two other broker-dealers were named as
defendants in litigation brought in November 1994 and subsequently styled In
Re Merrill Lynch et. al. Securities Litigation Civ. No. 94-5343 (DRD). The
amended complaint, filed in March 1993, alleged that defendants violated
federal securities laws in connection with the execution of orders to buy and
sell NASDAQ securities. 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 appeal was heard on October 24, 1996, and the Court has not yet
ruled on this appeal.
On July 16, 1996, PaineWebber Incorporated entered into a
Stipulation and Order resolving a civil complaint filed by the United States
Department of Justice, alleging that it and other NASDAQ market makers
violated Section 1 of the Sherman Act in connection with certain market
making practices. In entering into the Stipulation and Order, without
admitting the allegations, the parties agreed that the defendants would not
engage in certain types of market making activities and the defendants
undertook specified steps to assure compliance with their agreement. The
Stipulation and Order among various firms, including PaineWebber
Incorporated, and the United States Department of Justice resolving a civil
compliant filed by the Department of Justice has been approved by the United
States District Court of the Southern District of New York.
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A series of purported class actions concerning PaineWebber
Incorporated's sale and sponsorship of various limited partnership
investments have been filed against PaineWebber and Paine Webber Group Inc.
(together "PaineWebber") among others, by 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 of 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 are 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 the Racketeer Influenced and Corrupt
Organization Act ("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 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 of 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' complaints.
On January 18, 1996, PaineWebber signed and filed with the
federal court a memorandum of understanding with the plaintiffs in both the
Federal Court Limited Partnership Actions and the Geodyne Limited Partnership
Actions outlining the terms under which the parties have agreed to settle
these actions. Pursuant to that memorandum of understanding, PaineWebber
irrevocably deposited $125 million into an escrow fund under the supervision
of the United States District Court for the Southern District of New York to
be used to resolve the Federal Court and Geodyne Limited Partnership Actions
in accordance with the definitive settlement agreement and plan of allocation
which the parties subsequently submitted to the court for its consideration
and approval. The court held hearings on the fairness of the settlement in
October and November 1996. On March 20, 1997, the court issued an order
approving the settlement. A notice of appeal to the Federal Court of Appeals
has been filed from the judgment approving the settlement by the same
investors who objected in the District Court.
In addition, three actions were filed against the Company
in the District Court for Brazoria County, Texas, two captioned Mallia v.
PaineWebber, Inc. ("Mallia I" and "Mallia II") and one captioned Billy
Hamilton v. PaineWebber ("Hamilton"), relating to the Company's sale and
sponsorship of various limited partnership investments. Mallia I was
originally filed as a class action, but was later amended to assert claims
only on behalf of the named plaintiffs. The complaints in Mallia I, Mallia
II, and Hamilton, collectively, make allegations on behalf of approximately
65 named plaintiffs that are substantially similar to those in the Federal
Court Limited Partnership Actions except that the plaintiffs purport to bring
only state law claims, principally for common law fraud, negligent
misrepresentation, breach of fiduciary duty, violations of the Texas
Securities Act, and violations of the Texas Deceptive Trade Practices Act, on
behalf of those investors who bought interests in Pegasus aircraft leasing
partnerships and in unspecified other limited partnerships and investments.
The plaintiffs seek unspecified
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damages. All three actions have been removed to federal court and the two
Mallia actions have been transferred to the United States District Court for
the Southern District of New York. The Hamilton action has been dismissed
with the consent of the parties on the grounds it is duplicative of the two
Mallia actions now before the federal court in New York.
In April 1995, two investors in the Pegasus limited
partnership filed a purported class action in the Circuit Court of the State
of Illinois for Cook County entitled Jacobson v. PaineWebber, Inc., making
allegations substantially similar to those alleged in the Federal Court
Limited Partnership Actions, but limited in subject matter to the sale of the
Pegasus partnerships, and without a RICO claim. The complaint sought
unspecified damages. The plaintiffs in the Jacobson case simultaneously
remained as participants in the Federal Court Limited Partnership Actions,
and subsequently dismissed the Illinois action but objected to the proposed
settlement of the Federal Court Limited Partnership Actions. As noted above,
on March 20, 1997, the court approved the fairness of the settlement.
On January 18, 1996, the Securities and Exchange Commission
commenced, and PaineWebber Incorporated simultaneously settled, civil and
administrative proceedings relating to the firm's sale of public proprietary
limited partnerships in the 1980s and early 1990s. Without admitting or
denying the SEC's allegations or findings, the firm agreed to the entry of an
administrative cease and desist order, created a capped $40 million fund,
paid a $5 million civil penalty, and committed to pay $7.5 million of
additional investor claims relating to the limited partnerships. As part of
the settlement, PaineWebber Incorporated represented that it had previously
paid approximately $120 million to resolve investor claims over a period of
several years prior to the SEC settlement. Additionally, pursuant to the
order an independent consultant has reviewed the firm's policies and
procedures concerning retail brokerage operations and the dissemination of
sales and marketing materials, and has made certain recommendations which the
firm is implementing. On the same date, PaineWebber Incorporated also
announced an agreement to settle with the various state securities regulators
pursuant to which PaineWebber Incorporated has made payments in excess of
$4.5 million.
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.
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
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$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 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
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days from the date of the order and continuing for three years, in all new
customer account packages mailed to Missouri residents from any PaineWebber
Missouri branch office, certain public information pieces prepared by the
Division. PaineWebber paid a $75,000 fine and $25,000 as reimbursement for
the costs of the investigation.
On September 27, 1995, in matter number 94-078-S, the State
of Vermont Department of Banking, Insurance and Securities entered an
Administrative Consent Order alleging that between 1984 and 1988 PaineWebber
did not reasonably supervise two former investment executives with respect to
certain outside activities and limited partnership investment
recommendations. Without admitting or denying the allegations, PaineWebber
agreed, among other things, to pay an administrative fine of $100,000.
On or about January 18, 1996, PaineWebber consented,
without admitting or denying the findings therein, to the entry of an Order
by the SEC which imposed a censure, a cease and desist order, a $5 million
civil penalty and various remedial sanctions. The SEC alleged that
PaineWebber violated the antifraud and recordkeeping provisions of the
federal securities laws in connection with the offer and sale of certain
limited partnership interests between 1986 and 1992 and failed reasonably to
supervise certain registered representatives and other employees involved in
the sale of those interests. PaineWebber must comply with its representation
that it had paid and will pay a total of $292.5 million to investors,
including a payment of $40 million for a claims fund.
____________
Additional or replacement clearing brokers may be appointed
in respect of the Trust's account in the future.
CONFLICTS OF INTEREST
GENERAL
Kenmar has not established any formal procedure to resolve
conflicts of interest. Consequently, investors will be dependent on the good
faith of the respective parties subject to such conflicts to resolve them
equitably. Although Kenmar attempts to monitor these conflicts, it is
extremely difficult, if not impossible, for Kenmar to ensure that these
conflicts do not, in fact, result in adverse consequences to the Trust.
Prospective investors should be aware that Kenmar presently
intends to assert that Unitholders have, by subscribing to the Trust,
consented to the following conflicts of interest in the event of any
proceeding alleging that such conflicts violated any duty owed by Kenmar to
investors.
KENMAR
Other Managed Futures Products Sponsored by Kenmar and its Affiliates
Kenmar sponsors and operates a number of commodity pools,
and affiliates of Kenmar operate, manage and/or sponsor 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 retains any excess fees generated
if the actual brokerage commissions paid by the Trust are less than the flat
rate paid to Kenmar and Kenmar is 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
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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.
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
Brokers, 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
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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.
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 holding 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.
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<PAGE>
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 that 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.
Investors acquiring Units on the same day as or within
seventy-five (75) days after redeeming investments in other Kenmar-sponsored
investment vehicles will be deemed to have held such Units for the duration
of their participation in such other Kenmar-sponsored investment vehicles for
purposes of calculating the required six-month holding period following
purchases of such Units. Such investor will not be subject to a Kenmar
Global Trust redemption charge but will remain subject to the redemption
charge, if any, of the Kenmar-sponsored investment vehicle from which he
redeemed.
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 not made, and has no intention of making, any
distribution from the Trust's profits or capital to Unitholders.
UNITHOLDERS NEED NOT REDEEM ALL THEIR UNITS IN ORDER TO
REDEEM SOME OF THEIR UNITS.
THE TRUST AND THE TRUSTEE
The following summary describes in brief certain aspects of
the operation of the Trust and the Trustee's and Kenmar's respective
responsibilities concerning the Trust. Prospective investors should
carefully review the Declaration of Trust attached hereto as Exhibit A and
consult with their own advisers concerning the implications to such
prospective subscribers of investing in a Delaware business trust. The
section references below are to sections in the Declaration of Trust.
PRINCIPAL OFFICE; LOCATION OF RECORDS
The Trust is organized under the Delaware Business Trust
Act. The Trust is administered by Kenmar, whose office is located Two
American Lane, Greenwich, Connecticut 06831-8150 (telephone: (203) 861-1000).
The records of the Trust, including a list of the Unitholders and their
addresses, are located at the foregoing address, and available for inspection
and copying (upon payment of reasonable reproduction costs) by Unitholders or
their representatives 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.
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CERTAIN ASPECTS OF THE TRUST
THE TRUST IS THE FUNCTIONAL EQUIVALENT OF A LIMITED
PARTNERSHIP; PROSPECTIVE INVESTORS SHOULD NOT ANTICIPATE ANY LEGAL OR
PRACTICAL PROTECTIONS UNDER THE DELAWARE BUSINESS TRUST ACT GREATER THAN
THOSE AVAILABLE TO LIMITED PARTNERS OF A LIMITED PARTNERSHIP.
No special custody arrangements are applicable to the Trust
that would not be applicable to a limited partnership, and the existence of a
trustee should not be taken as an indication of any additional level of
management or supervision over the Trust. To the greatest extent permissible
under Delaware law, the Trustee acts in an entirely passive role, delegating
all authority over the operation of the Trust to Kenmar. Kenmar is the
functional equivalent of a sole general partner in a limited partnership.
(Sections 5(a), 9 and 18).
Although units of beneficial interest in a trust need not
carry any voting rights, the Declaration of Trust gives Unitholders voting
rights comparable to those typically extended to limited partners in
publicly-offered futures funds. (Section 18).
THE TRUSTEE
Wilmington Trust Company, a Delaware banking corporation,
is the sole Trustee of the Trust. The Trustee's principal offices are
located at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001. The Trustee is unaffiliated with Kenmar or the Selling
Agents. The Trustee's duties and liabilities with respect to the offering of
the Units and the administration of the Trust are limited to its express
obligations under the Declaration of Trust. See "Exhibit A -- Amended and
Restated Declaration of Trust."
The rights and duties of the Trustee, Kenmar and the
Unitholders are governed by the provisions of the Delaware Business Trust Act
and by the Declaration of Trust. See "Exhibit A --Amended and Restated
Declaration of Trust".
The Trustee serves as the Trust's sole trustee in the State
of Delaware. The Trustee will accept service of legal process on the Trust
in the State of Delaware and will make certain filings under the Delaware
Business Trust Act. The Trustee does not owe any other duties to the Trust,
Kenmar or the Unitholders. The Trustee is permitted to resign upon at least
60 days' notice to the Trust, provided, that any such resignation will not be
effective until a successor Trustee is appointed by Kenmar. The Declaration
of Trust provides that the Trustee is compensated by the Trust, and is
indemnified by the Trust against any expenses it incurs relating to or
arising out of the formation, operation or termination of the Trust or the
performance of its duties pursuant to the Declaration of Trust, except to the
extent that such expenses result from the gross negligence or willful
misconduct of the Trustee. Kenmar has the discretion to replace the Trustee.
Only Kenmar has signed the Registration Statement of which
this Prospectus is a part, and only the assets of the Trust and Kenmar are
subject to issuer liability under the federal securities laws for the
information contained in this Prospectus and under federal and state laws
with respect to the issuance and sale of the Units. Under such laws, neither
the Trustee, either in its capacity as Trustee or in its individual capacity,
nor any director, officer or controlling person of the Trustee is, or has any
liability as, the issuer or a director, officer or controlling person of the
issuer of the Units. The Trustee's liability in connection with the issuance
and sale of the Units is limited solely to the express obligations of the
Trustee set forth in the Declaration of Trust.
Under the Declaration of Trust, the Trustee has delegated
to Kenmar the exclusive management and control of all aspects of the business
of the Trust. The Trustee will have no duty or liability to supervise or
monitor the performance of Kenmar, nor will the Trustee have any liability
for the acts or omissions of Kenmar. In addition, Kenmar has been designated
as the "tax matters partner" of the Trust for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"). The Unitholders have no voice
in the operations of the Trust, other than certain limited voting rights as
set forth in the Declaration of Trust. In the course of its management,
Kenmar may, in its sole and absolute discretion, appoint an affiliate or
affiliates of Kenmar as additional managing owners (except where Kenmar has
been notified by the Unitholders that it is to be replaced as the managing
owner) and retain such persons, including affiliates of Kenmar, as it deems
necessary for the efficient operation of the Trust. (Section 2).
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Because the Trustee has delegated substantially all of its
authority over the operation of the Trust to Kenmar, the Trustee itself is
not registered in any capacity with the CFTC.
MANAGEMENT OF TRUST AFFAIRS; VOTING BY UNITHOLDERS
The Unitholders take no part in the management or control,
and have no voice in the operations of the Trust or its business. (Section
9). Unitholders may, however, remove and replace Kenmar as the managing
owner of the Trust, and may amend the Declaration of Trust, except in certain
limited respects, by the affirmative vote of a majority of the outstanding
Units then owned by Unitholders (as opposed to by Kenmar and its affiliates).
The owners of a majority of the outstanding Units then owned by Unitholders
may also compel dissolution of the Trust. (Section 18(b)). The owners of
10% of the outstanding Units then owned by Unitholders have the right to
bring a matter before a vote of the Unitholders. (Section 18(c)). Kenmar has
no power under the Declaration of Trust to restrict any of the Unitholders'
voting rights. (Section 18(c)). Any Units purchased by Kenmar or its
affiliates, as well as Kenmar's general liability interest in the Trust, are
non-voting. (Section 7).
Kenmar has the right unilaterally to amend the Declaration
of Trust provided that any such amendment is for the benefit of and not
adverse to the Unitholders or the Trustee and also in certain unusual
circumstances -- for example, if doing so is necessary to effect the intent of
the Trust's tax allocations or to comply with certain regulatory
requirements. (Section 18(a)).
In the event that Kenmar or the Unitholders vote to amend
the Declaration of Trust in any material respect, the amendment will not
become effective prior to all UNITHOLDERS' having an opportunity to redeem
their Units. (Section 18(c)).
RECOGNITION OF THE TRUST IN CERTAIN STATES
A number of states do not have "business trust" statutes
such as that under which the Trust has been formed in the State of Delaware.
It is possible, although unlikely, that a court in such a state could hold
that, due to the absence of any statutory provision to the contrary in such
jurisdiction, the Unitholders, although entitled under Delaware law to the
same limitation on personal liability as stockholders in a private
corporation for profit organized under the laws of the State of Delaware, are
not so entitled in such state. To protect Unitholders against any loss of
limited liability, the Declaration of Trust provides that no written
obligation may be undertaken by the Trust unless such obligation is
explicitly limited so as not to be enforceable against any Unitholder
personally. Furthermore, the Trust itself indemnifies all Unitholders
against any liability that such Unitholders might incur in addition to that
of a beneficial owner. Kenmar is itself generally liable for all obligations
of the Trust and would use its assets to satisfy any such liability before
such liability would be enforced against any Unitholder individually.
POSSIBLE REPAYMENT OF DISTRIBUTIONS RECEIVED BY UNITHOLDERS; INDEMNIFICATION
OF THE TRUST BY UNITHOLDERS
The Units are limited liability investments; investors may
not lose more than the amount that they invest plus any profits recognized on
their investment. (Section 8(e)). However, Unitholders could be required,
as a matter of bankruptcy law, to return to the Trust's estate any
distribution they received at a time when the Trust was in fact insolvent or
in violation of the Declaration of Trust. In addition, although Kenmar is
not aware of this provision ever having been invoked in the case of any
public futures fund, Unitholders agree in the Declaration of Trust that they
will indemnify the Trust for any harm suffered by it as a result of
(i) Unitholders' actions unrelated to the business of the Trust,
(ii) transfers of their Units in violation of the Declaration of Trust, or
(iii) taxes imposed on the Trust by the states or municipalities in which
such investors reside (Sections 8(d) and 17(c)).
The foregoing repayment of distributions and indemnity
provisions (other than the provision for Unitholders indemnifying the Trust
for taxes imposed upon it by the state or municipality in which particular
Unitholders reside, which is included only as a formality due to the fact
that many states do not have business trust statutes so that the tax status
of the Trust in such states might, theoretically, be challenged -- although
Kenmar is unaware of any instance in which this has actually occurred) are
commonplace in publicly-offered commodity pools as well as other trusts and
limited partnerships.
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TRANSFERS OF UNITS RESTRICTED
A Unitholder may, subject to compliance with applicable
federal and state securities laws, assign his Units upon notice to the Trust
and Kenmar. No assignment will be effective in respect of the Trust or
Kenmar until the first day of the month succeeding the month in which such
notice is received. No assignee may become a substituted Unitholder except
with the consent of Kenmar and upon execution and delivery of an instrument
of transfer in form and substance satisfactory to Kenmar. 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 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.
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Currencies may be purchased or sold for future delivery
through banks or dealers pursuant to what are commonly referred to as "spot"
or "forward" contracts. Spot contracts settle two days after the trade date;
forward contracts have more delayed settlements. Spot and forward contracts
are commonly referred to collectively as "cash" contracts. In trading cash
currency contracts for the Trust, banks or dealers act as principals and
include their anticipated profit and costs in the prices they quote; such
mark-ups are known as "bid-ask" spreads. Brokerage commissions are typically
not charged in cash trading.
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade in
commodity futures are "hedgers" and "speculators." Commercial interests that
market or process commodities use the futures markets to a significant extent
for hedging. Hedging is a protective procedure designed to minimize losses
that may occur because of price fluctuations, for example, between the time a
merchandiser or processor makes a contract to sell a raw or processed
commodity and the time he must perform the contract. The commodity markets
enable the hedger to shift the risk of price fluctuations to the speculator.
The speculator, unlike the hedger, generally expects neither to deliver nor
receive the physical commodity; rather, the speculator risks his capital with
the hope of making profits from price fluctuations in commodity futures
contracts. Speculators, such as the Trust, rarely take 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 Advisors retained by the Trust trade on a number of
foreign commodity exchanges. Foreign commodity exchanges differ in certain
respects from their United States counterparts and are not subject to
regulation by any United States governmental agency. Accordingly, the
protections afforded by such regulation are not available to the Trust to the
extent that it trades on such exchanges. In contrast to United States
exchanges, many foreign exchanges are "principals' markets," where trades
remain the liability of the traders involved and the exchange or
clearinghouse does not become substituted for any party. Many foreign
exchanges also have no position limits, with each dealer establishing the
size of the positions it will permit individual traders to hold.
To the extent that the Trust engages in transactions on
foreign exchanges, it is subject to the risk of fluctuations in the exchange
rate between the currencies in which the contracts traded on such foreign
exchanges are denominated and United States dollars, as well as the
possibility that exchange controls could be imposed in the future.
SPECULATIVE POSITION AND DAILY PRICE FLUCTUATION LIMITS
The CFTC and the United States exchanges have established
limits, referred to as "speculative position limits," on the maximum net long
or net short position that any person (other than a hedger) may hold or
control in futures contracts or options on futures contracts in particular
commodities. A number of financial markets have replaced "position limits"
with "position accountability," and the cash currency markets are not subject
to such limits. However, speculative position limits continue to be
applicable in a number of important markets. These limits may restrict an
Advisor's ability to acquire positions which such Advisor otherwise would
acquire on behalf of the Trust.
Most United States exchanges limit by regulations the
maximum permissible fluctuation in commodity futures contract prices during a
single trading day. These regulations establish what are commonly referred
to as "daily
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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 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 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).
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LIMITATIONS ON DEDUCTIBILITY OF TRUST LOSSES BY UNITHOLDERS
The amount of any Trust loss (including capital loss) that
a Unitholder is entitled to include in his personal income tax return is
limited to his tax basis for his interest in the Trust as of the end of the
Trust's taxable year in which such loss occurred. Generally, a Unitholder's
tax basis for his interest in the Trust is the amount paid for such interest
reduced (but not below zero) by his share of any Trust distributions,
realized losses and expenses and increased by his share of the Trust's
realized income, including gains.
A Unitholder that is subject to the "at risk" limitations
(generally, non-corporate taxpayers and closely-held corporations) may not
deduct losses of the Trust (including capital losses) to the extent that they
exceed the amount he has "at risk" with respect to his interest in the Trust
at the end of the year. The amount that a Unitholder has "at risk" is
generally the same as his adjusted basis as described above, except that it
does not include any amount that he has borrowed on a nonrecourse basis or
from a person who has an interest in the Trust or a person related to such
person.
Losses denied under the foregoing basis or "at risk"
limitations are suspended and may be deducted in subsequent years, subject to
these and other applicable limitations.
Because of the limitations imposed upon the deductibility
of capital losses (see "Tax on Capital Gains and Losses," below), a
Unitholder's distributive share of any capital losses of the Trust will not
materially reduce the federal income tax payable on his ordinary income
(including his allocable share of the Trust's interest income).
TREATMENT OF INCOME AND LOSS UNDER THE "PASSIVE ACTIVITY LOSS RULES"
The Code contains rules (the "Passive Activity Loss Rules")
designed to prevent the deduction of losses from "passive activities" against
income not derived from such activities, including income from investment
activities not constituting a trade or business, such as interest and
dividends ("Portfolio Income"), and salary. The trading activities of the
Trust do not constitute a "passive activity," with the result that income
derived from the Trust's trading activities constitutes Portfolio Income or
other income not from a passive activity. Thus, losses resulting from a
Unitholder's "passive activities" cannot be offset against such income, and
net losses from Trust operations are deductible in computing the taxable
income of such Unitholder (subject to other limitations on the deductibility
of such losses, in particular the annual limitation applicable to
non-corporate investors that no more than $3,000 of capital losses can be
deducted against ordinary income).
CASH DISTRIBUTIONS AND REDEMPTIONS OF UNITS
Cash received from the Trust by a Unitholder as a
distribution with respect to his Units or in redemption of less than all of
his Units generally is not reportable as taxable income by a Unitholder,
except as described below. Rather, such distribution or withdrawal reduces
(but not below zero) the total tax basis of all of the Units held by the
Unitholder after the distribution or withdrawal. Any cash distribution in
excess of a Unitholder's adjusted tax basis for all of his Units is taxable
to him as gain from the sale or exchange of such Units.
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.
GAIN OR LOSS ON SECTION 1256 CONTRACTS
Under the "mark-to-market" system of taxing futures and
certain option contracts traded on United States exchanges and certain
foreign currency forward contracts ("Section 1256 Contracts"), any unrealized
profit or loss on positions in such Section 1256 Contracts which are open as
of the end of a taxpayer's fiscal year is treated as if such profit or loss
had been realized for tax purposes as of such time. In general, 60% of the
net gain or loss which is generated as a result of the "mark-to-market"
system is treated as long-term capital gain or loss, and the remaining 40% of
such net gain or loss is treated as short-term capital gain or loss.
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GAIN OR LOSS ON NON-SECTION 1256 CONTRACTS
Except as described below with respect to Section 988
transactions entered into by a qualified fund, gain or loss with respect to
contracts that are non-Section 1256 Contracts is taken into account for tax
purposes only when realized.
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 unless the Trust is qualified to make an election
(and so elects) to treat any such foreign currency gain or loss as capital
gain or loss.
TAX ON CAPITAL GAINS AND LOSSES
On August 5, 1997, the Taxpayer Relief Act of 1997 (the
"1997 Act") was enacted which made substantial changes to the taxation of
capital gains for non-corporate taxpayers. For sales of capital assets
occurring after May 6, 1997, the maximum tax rate for non-corporate taxpayers
on net adjusted capital gains (as defined below) is 20%. Under the 1997 Act,
capital assets held for more than 18 months) are eligible for the 20% tax
rate. In addition, 60% of the gain on Section 1256 Contracts is also
eligible for the 20% tax rate, regardless of the period for which such
contract is held. Net gain on capital assets held more than 12 months and
not more than 18 months ("mid-term gain") is subject to a maximum tax rate of
28%. Net short-term capital gain or loss (i.e., net gain or loss on assets
held for 12 months or less, including 40% of gain or loss on Section 1256
Contracts) is subject to tax at the same rates as ordinary income. Net
adjusted capital gain is the excess of net long-term capital gain over net
short-term capital loss reduced by mid-term gain, if any. In addition, the
1997 Act provides a temporary reduction in the tax rate from 28% to 20% for
net gains on capital assets held more than one year that were sold after May
6, 1997 and before July 29, 1997. Net capital losses are deductible by
non-corporate taxpayers only to the extent of capital gains for the taxable
year plus $3,000.
If a non-corporate taxpayer incurs a net capital loss for a
year, the portion thereof, if any, which consists of a net loss on
Section 1256 Contracts may, at the election of the taxpayer, be carried back
three years. Losses so carried back may be deducted only against net capital
gain for such year to the extent that such gain includes gains on Section
1256 Contracts. Losses so carried back are deemed to consist of 60%
long-term capital loss and 40% short-term capital loss (see "-- Gain or Loss
on Section 1256 Contracts," above). To the extent that such losses are not
used to offset gains on Section 1256 Contracts in a carryback year, they
carry forward indefinitely as losses on Section 1256 Contracts in future
years.
LIMITED DEDUCTION FOR CERTAIN EXPENSES
The Code provides that, for non-corporate taxpayers who
itemize deductions when computing taxable income, expenses of producing
income, including "investment advisory fees," are aggregated with
unreimbursed employee business expenses, other expenses of producing income
and certain other deductions (collectively, "Aggregate Investment Expenses"),
and that the aggregate amount of such expenses is deductible only to the
extent that such amount exceeds 2% of a non-corporate taxpayer's adjusted
gross income (the "2% floor"). Aggregate Investment Expenses in excess of
the 2% floor, when combined with a taxpayer's deductions for certain items,
are subject to a reduction equal to, generally, 3% of the taxpayer's adjusted
gross income in excess of a certain threshold amount (the "3% phase-out").
Moreover, such Aggregate Investment Expenses are miscellaneous itemized
deductions which are not deductible by a non-corporate taxpayer in
calculating its alternative minimum tax liability.
Kenmar will -- barring administrative, regulatory or
statutory clarification to the contrary -- treat the Profit Shares and
Incentive Fee, as well as other ordinary expenses of the Trust, as ordinary
business deductions not subject to the 2% floor. It is the standard practice
in the managed futures industry to treat such charges as not being subject to
the 2% floor, and Kenmar intends, barring contrary clarification by statute,
regulation or administrative statement, to continue to treat them as not
being so. FURTHER, BASED UPON THE TRADING ACTIVITIES OF THE TRUST DESCRIBED
in this Prospectus, in the
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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 elects to make a
corresponding reduction in the amount of net capital gain that is subject to
tax at the lower capital gain rates 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."
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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).
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.
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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.
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.
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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.
PLAN OF DISTRIBUTION
SUBSCRIPTION PROCEDURE
Units are continuously being offered to the public -- on a
"best-efforts" basis -- at their then-current month-end Net Asset Value per
Unit. 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.
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 a 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
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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.
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 invest 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 on the same
day as or within seventy-five (75) days after redeeming investments in other
Kenmar-sponsored limited partnerships. Beginning with the thirteenth month
(immediately to the extent investors have acquired Units on the same day as
or within seventy-five (75) days after 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 Unit -- provided, that CFTC-qualified registered representatives of
the Selling Agent have satisfied applicable proficiency requirements and [^]
agree 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 there is no CFTC-qualified registered
representative to perform on-going services, then the Selling Agent will be
paid installment selling commissions that 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, pays all upfront selling
compensation and "trailing" commissions. Selling Agents will pass on to
their registered representatives a portion of the foregoing upfront selling
compensation and "trailing commissions," after deduction of "due diligence"
and administrative expenses incurred in connection with this offering, in
accordance with such Selling Agents' standard compensation arrangements.
In the Selling Agreement, each Advisor and Kenmar have
agreed to indemnify the Selling Agents against certain liabilities that the
Selling Agents may incur in connection with the offering and sale of the
Units, including liabilities under the Securities Act of 1933 and the
Commodity Exchange Act.
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LEGAL MATTERS
Sidley & Austin has passed upon legal matters for Kenmar in
connection with the Units being offered hereby. In doing so, Sidley & Austin
has relied as to matters of Delaware law upon the opinion of Richards,
Layton & Finger, Wilmington, Delaware. Sidley & Austin also advises 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 December 31, 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.
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.
PERFORMANCE OF KENMAR GLOBAL TRUST
The performance of the Trust is dependent upon the
performance of its Advisors. The Advisors' results are affected by general
market conditions as well as numerous other factors. Because the Advisors'
strategies are proprietary and confidential, it is difficult to provide any
meaningful description of the Trust's operations since the inception of
trading operations (May 22, 1997) other than simply by presenting its
performance record. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS. The performance information set forth below is current as of June
30, 1997.
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SUMMARY PERFORMANCE INFORMATION
Type of fund: single advisor; publicly-offered
Inception of trading: May 1997
Aggregate subscriptions: $8,472,000
Current capitalization: $ 8,275,357
Current Net Asset Value per Unit: $ 97.40
Largest monthly drawdown: ( 2.30 )% (6/97)
Largest peak-to-valley drawdown: (2.60)% (5/97-6/97)
MONTHLY/ANNUAL PERFORMANCE INFORMATION
=========================== ==========================
Month 1997(%)
--------------------------- --------------------------
January -
--------------------------- --------------------------
February -
--------------------------- --------------------------
March -
--------------------------- --------------------------
April -
--------------------------- --------------------------
May (0.30)
--------------------------- --------------------------
June (2.30)
--------------------------- --------------------------
July
--------------------------- --------------------------
August
--------------------------- --------------------------
September
--------------------------- --------------------------
October
--------------------------- --------------------------
November
--------------------------- --------------------------
December
--------------------------- --------------------------
Compound Rate of (2.60)
--------------------------- --------------------------
Return (2 months)
=========================== ==========================
Notes to Performance Information
In reviewing the foregoing description of the Trust's
performance, prospective investors should understand that such performance is
"net" of all fees and charges and includes interest income. The Trust's fees
and charges are more fully described under "Charges."
In addition, the following terms used in describing the
Trust's performance are defined as follows:
"Drawdown" means losses experienced by the Trust over a
specified period.
"Largest peak-to-valley drawdown" means the greatest
percentage decline from any month-end Net Asset Value per
Unit, due to overall loss sustained by the Trust during any
period, which occurs without such month-end Net Asset Value
per Unit being equaled or exceeded as of a subsequent
month-end. In dollar terms, for example, if the Net Asset
Value per Unit 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 of a
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Unit had increased by $2 in March, the January-February
drawdown would have ended as of the end of February at
the $2 level.
"Compound Rate of Return" is calculated by multiplying on a
compound basis each of the monthly rates of return set
forth in the chart above and not by adding or averaging
such monthly rates of return. For periods of less than one
year, the results are year-to-date. For example, the
compound rate of return of (2.60)% for the partial year
1997 in the Trust's performance record was calculated by
multiplying 100 by the quantity
[[(1-.0030)(1-.0230) minus 1].
SELECTED FINANCIAL DATA
The following Selected Financial Data is derived from the
statement of financial condition of the Trust as of December 31, 1996
(audited) and the financial statements of the Trust for the period from
January 1, 1997 to June 30, 1997 (unaudited). The statement of financial
condition of the Trust as of December 31, 1996 (audited) is included herein
in reliance upon the authority of Arthur F. Bell, Jr. & Associates, L.L.C. as
experts in auditing and accounting. The Trust commenced trading operations
on May 22, 1997. See "Index to Financial Statements" at page F-1.
SIX MONTHS ENDED
JUNE 30, 1997 AS OF
(UNAUDITED) DECEMBER 31, 1996
Total Assets $8,370,165 $2,000
Total Partner's Capital 8,275,357 2,000
(Loss) from Trading (143,412)
Interest Income 44,960
Total Expenses 96,586
Net (Loss) (195,038)
Net (Loss) Per Unit (Based on
weighted average number of
units outstanding) (2.67)
Decrease in Net Asset Value Per (2.60)
Unit
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATIONAL OVERVIEW; ADVISOR SELECTIONS
The Trust's results of operations depend on Kenmar's ability to
select Advisors and the Advisors' ability to trade profitably. Because of
the speculative nature of its trading, the Trust's past performance is not
necessarily indicative of its future results.
Since the commencement of trading operations in May 1997, Kenmar has
made no change in the Trust's Advisors or in the allocation of the Trust's
assets among them. The allocations below represent the initial
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allocations to the Advisors at the commencement of the Trust's operations on
May 22, 1997. Such allocations are approximate as of the date of this
Prospectus, and are affected by the profit and loss generated by each Advisor
in relation to the performance of the other Advisors for the Trust.
Chesapeake Capital Corporation 25%
Dreiss Research Corporation 15%
Hyman Beck & Company, Inc. 25%
Willowbridge Associates Inc. 25%
Witter and Lester, Inc. 10%
Total 100%
Any decision to terminate or reallocate assets among Trading
Advisors is based on a combination of numerous factors, as described under
"The Trust and Its Objectives -- The Advisors" at page 15. Kenmar's Advisor
selection procedures are described under "Kenmar -- Management of Traders" at
page 19. The Advisors' trading methods are described under "The Advisors" at
page 15.
Kenmar has no timetable or schedule for making Advisor changes or
reallocations, and generally makes a medium- to long-term commitment to all
Advisors selected.
LIQUIDITY
The Trust's investment in futures, forwards, options and related
markets may, from time to time, be illiquid. See "Risk Factors -- Possibly
Illiquid Markets" at page 10. Most United States exchanges limit
fluctuations in certain futures interest prices during a single day by
regulations referred to as "daily price fluctuations limits" or "daily
limits." Pursuant to such regulations, during a single trading day no trades
may be executed at prices beyond the daily limit. If the price for a
particular contract has increased or decreased by an amount equal to the
"daily limit," positions in such futures contract can neither be taken nor
liquidated unless traders are willing to effect trades at or within the
limit. Futures contract prices have occasionally moved the daily limit for
several consecutive days with little or no trading. Such market conditions
could prevent the Trust from promptly liquidating its positions and result in
restrictions on redemptions. Since commencement of trading by the Trust,
there has never been a time when illiquidity has affected a material portion
of any Trust assets. See "Redemptions and Distributions" at page 34.
RESULTS OF OPERATIONS
General
Kenmar believes that multi-advisor futures funds should be regarded
as medium- to long-term (i.e., three to five year) investments, but it is
difficult to identify trends in the Trust's operations and virtually
impossible to make any predictions regarding future results based on the
limited results to date.
Kenmar has not made, and has no intention of making, any
distributions of the Trust's profits or capital to Unitholders.
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PERFORMANCE SUMMARY
The most directly relevant information relating to the results of
operations of a managed futures fund, such as the Trust, is the actual
performance record. However, as the Trust has only recently commenced
operations, its performance record is of limited duration. The Trust
commenced operations on May 22, 1997. During the period May 22, 1997
(inception) through June 30, 1997, and as of June 30, 1997, the Trust's Net
Asset Value per Unit declined from $100.00 to $97.40.
LIQUIDITY AND CAPITAL RESOURCES
The amount of capital raised for the Trust should not, except at
extremely high levels of capitalization, have a significant impact on its
operations. The Trust's costs are generally proportional to its asset base
and, within broad ranges of capitalization, the Advisors' trading positions
(and the resulting gains and losses) should increase or decrease in
approximate proportion to the size of the Trust account managed by each of
them, respectively.
The Trust raises additional capital only through the continuous
offering of its Units. The Trust does not borrow, and sells no securities
other than the Units.
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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.
<TABLE>
<CAPTION>
PAGE(S)
------
<S> <C>
Advisors............................................................................. Cover page
Aggregate Investment Expenses ....................................................... 42
"Bid-ask" spreads.................................................................... 25
CBOE ......................................................................... 19
CFTC................................................................................. -ii-
Clearing Brokers .................................................................... 26
Clearinghouse........................................................................ 39
CME ......................................................................... 30
Consulting fees...................................................................... 27
Daily limits......................................................................... 40
Declaration of Trust ................................................................ 20
Employee benefit plan................................................................ 45
Escrow Agents ....................................................................... -i-
Exchange Act ........................................................................ 30
ERISA ......................................................................... 44
Forward contracts.................................................................... 39
Futures contracts.................................................................... 39
Incentive Fee........................................................................ 25
ING Bank ............................................................................ 27
ING Capital ......................................................................... 27
ING Futures & Options ............................................................... 26
Investment advisory fees............................................................. 11
Kenmar ......................................................................... Cover page
Kenmar Related Parties .............................................................. 20
Largest monthly drawdown............................................................. 54
Largest peak-to-valley drawdown...................................................... 54
[^] NASAA Guidelines ................................................................ 20
Net Assets ......................................................................... Cover page
Net Asset Value...................................................................... Cover page
New Overall Appreciation............................................................. 25
New Trading Profits.................................................................. 25
NFA ......................................................................... -iv-
PaineWebber ......................................................................... 26
Portfolio Income .................................................................... 40
Profit Share......................................................................... 25
Redemption charges................................................................... 27
Round-turn commissions............................................................... 24
SEC ......................................................................... 20
Selling Agents....................................................................... -i-
Speculative position limits.......................................................... 40
Spot contracts....................................................................... 39
Trust ......................................................................... Cover page
Units ......................................................................... Cover page
Unitholder........................................................................... Cover page
Variation margin..................................................................... 40
"Zero-sum" trading................................................................... 10
</TABLE>
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THE 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.
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. ACCORDINGLY, ADVISOR
PERFORMANCE PRIOR TO JANUARY 1, 1992 HAS NOT BEEN INCLUDED IN THE PERFORMANCE
SUMMARIES SET FORTH IN THIS PROSPECTUS.
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
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effect on a systematic trader's performance, his primary reliance is on trading
programs or models which generate trading signals. The systems utilized to
generate trading signals are changed from time to time (although generally
infrequently), but the trading instructions generated by the systems being used
are followed without significant additional analysis or interpretation.
Discretionary traders, on the other hand, while they may utilize market charts,
computer programs and compilations of quantifiable fundamental information to
assist them in making trading decisions, make such decisions on the basis of
their own judgment and "trading instinct," not on the basis of trading signals
generated by any program or model.
Each approach involves certain inherent risks. Systematic traders may
fail to capitalize on market trends which their systems would otherwise have
exploited due to judgmental decisions made by them in the context of applying
their generally mechanical trading systems. Discretionary traders, on the other
hand, may decide to make trades which would not have been signaled by a trading
system and which result in substantial losses. Furthermore, any trading system
or trader may suffer substantial losses by misjudging the market. Systematic
traders tend to rely more on computerized programs than do discretionary
traders, and some consider the prospect of disciplined trading, which largely
removes the emotion of the individual trader from the trading process,
advantageous. In addition, due to their use of computers, systematic traders
are generally able to incorporate more data into a particular trading decision
than are discretionary traders. However, when fundamental factors dominate the
market, trading systems may suffer rapid and severe losses due to their
inability to respond to such factors until such factors have had a sufficient
effect on the market to create a trend of enough magnitude to generate a
reversal of trading signals, by which time a precipitous price change may
already be in progress, preventing liquidation at anything but substantial
losses.
TECHNICAL AND FUNDAMENTAL ANALYSIS
In addition to being distinguished from one another by the criterion
of whether they trade systematically or on the basis of their discretionary
evaluations of the markets, commodity trading advisors are also distinguished as
relying on either "technical" or "fundamental" analysis, or on a combination of
the two. Systematic traders tend to rely on technical analysis, because the
data relevant to such analysis is more susceptible to being isolated and
quantified to the extent necessary to be successfully incorporated into a
program or mathematical model than is most "fundamental" information, but there
is no inconsistency in attempting to trade systematically on the basis of
fundamental analysis. The fundamental information which can be evaluated by a
formalized trading system is, however, limited to some extent in that it
generally must be quantifiable in order to be processed by such a system.
Technical analysis is not based on anticipated supply and demand
factors; instead, it is based on the theory that the study of the commodities
markets themselves will provide a means of anticipating future prices.
Technical analysis operates on the theory that market prices at any given point
in time reflect all known factors affecting the supply and demand for a
particular commodity. Consequently, technical analysis focuses not on
evaluating those factors directly but on an analysis of market prices
themselves, theorizing that a detailed analysis of, among other things, actual
daily, weekly and monthly price fluctuations, volume variations and changes in
open interest is the most effective means of attempting to predict the future
course of price movements.
Fundamental analysis, in contrast, is based on the study of factors
external to the trading markets that affect the supply and demand of a
particular commodity in an attempt to predict future price levels. Such factors
might include weather, the economy of a particular country, government policies,
domestic and foreign political and economic events, and changing trade
prospects. Fundamental analysis theorizes that by monitoring relevant supply
and demand factors for a particular commodity, a state of current or potential
disequilibrium of market conditions may be identified that has yet to be
reflected in the price level of that commodity. Fundamental analysis assumes
that markets are imperfect, that information is not instantaneously assimilated
or disseminated and that econometric models can be constructed that generate
equilibrium prices that may indicate that current prices are inconsistent with
underlying economic conditions and will, accordingly, change in the future.
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 unprofitable.
Their objective is to make a few large profits, more than offsetting their more
numerous but smaller losses,
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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 MAY 31, 1997.
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 MAY 31, 1997.
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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
MAY 31, 1997.
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 MAY 31, 1997.
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 MAY 31, 1997.
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 MAY 31, 1997. 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 EQUALED 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 MAY 31, 1997. 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.
CHESAPEAKE'S PRINCIPALS ARE R. JERRY PARKER AND JOHN M. HOADE.
R. JERRY PARKER, JR., 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
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. FROM NOVEMBER 1983 THROUGH FEBRUARY 1988,
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 OF THE
BOARD OF DIRECTORS, Chief Executive Officer and A PRINCIPAL.
JOHN M. HOADE 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. MR. HOADE IS PRESIDENT, SECRETARY AND A
PRINCIPAL OF CHESAPEAKE.
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"). THE DIVERSIFIED
PROGRAM IS CHESAPEAKE'S LONGEST OPERATING INVESTMENT PORTFOLIO WITH A
PERFORMANCE RECORD BEGINNING IN FEBRUARY 1988. 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. THE FOLLOWING OVERVIEW IS NOT INTENDED AS A DETAILED AND EXHAUSTIVE
REVIEW OF THE TRADING METHODOLOGY OR STRATEGIES EMPLOYED BY CHESAPEAKE, AS THE
EXACT NATURE OF THE METHODS AND THESE SYSTEMS IS PROPRIETARY AND CONFIDENTIAL.
Chesapeake believes that future price movements in all markets may be
more accurately anticipated by historical price movements within a
quantitative OR TECHNICAL ANALYSIS THAN BY fundamental economic analysis.
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The trading methodologies employed by Chesapeake are based on PROPRIETARY
programs analyzing a large number of interrelated mathematical and statistical
formulas and techniques which are quantitative IN NATURE.
In addition to such mathematical evaluations, Chesapeake employs a
technique of technical analysis generally known as "charting" 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 AND VOLUME.
THE RESULTS 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, A TREND-FOLLOWING 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.
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 March
Terme International de France (MATIF), Mercado Espatol de Futuros Financieros
(MEFFSA), the Deutsche Terminbrse, 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 EXCHANGE A CASH MARKET POSITION FOR A FUTURES
MARKET POSITION (OR VICE
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VERSA) without making an open, competitive trade on the exchange. The prices
at which such transactions are executed are negotiated between the parties.
Chesapeake generally uses between 10% 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. A
decision not to trade futures interest contracts OR ANY OTHER REASON DUE TO
LACK OF LIQUIDITY, EXCESS VOLATILITY, OR ANY OTHER REASON may result at times
in clients (such as the Trust) missing significant profit opportunities which
might otherwise have been captured by Chesapeake.
The trading STRATEGIES AND SYSTEMS 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 STRATEGIES AND systems, as well as test methods currently
employed. The trading STRATEGIES AND SYSTEMS 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 31, 1997,
Chesapeake was managing approximately $1.0 BILLION (excluding "notional"
equity) of customer funds in the futures and forwards markets. The performance
information set forth below is current as of MAY 31, 1997.
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. THIS SECTION LIKEWISE DOES NOT INCLUDE
THE PERFORMANCE OF PROPRIETARY ACCOUNTS TRADED PURSUANT TO OTHER PROGRAMS OR
CLIENT ACCOUNTS THAT UTILIZE ONLY SPOT AND FORWARD CURRENCY CONTRACTS (AND NO
FUTURES CONTRACTS OR OPTIONS THEREON).
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. SINCE JANUARY 1, 1994,
CHESAPEAKE HAS USED ONLY THE FULLY-FUNDED SUBSET METHOD.
BEGINNING IN MARCH 1995 IN THE DIVERSIFIED PROGRAM, THE MEAN COMPOUND
RATE OF RETURN IS MATERIALLY LOWER THAN THE COMPOSITE COMPOUND RATE OF RETURN.
THIS IS DUE TO THE MONTHLY COMPOUNDING EFFECT OF A LARGE ACCOUNT WITH A RATE OF
RETURN WHICH IS, ON A MONTHLY BASIS, IMMATERIALLY HIGHER THAN MOST ACCOUNTS IN
THE PROGRAM. THIS DIFFERENCE IN THE MONTHLY RATE OF RETURN IS DUE TO A
DIFFERENT COST AND INTEREST INCOME STRUCTURE IN
<PAGE>
THIS ACCOUNT. WHEN COMPARED ON A GROSS BASIS, MOST ACCOUNTS IN THE DIVERSIFIED
PROGRAM, INCLUDING THE LARGEST ACCOUNT, HAVE RATES OF RETURN which are
materially THE SAME DURING THE PERIOD.
IN THE FINANCIALS AND METALS PROGRAM, CERTAIN ACCOUNTS WITH CLIENT
IMPOSED TRADING RESTRICTIONS EARNED DIFFERENT RATES OF RETURN THAN THE COMPOSITE
INDICATES. IN ANY MONTH, THESE RESTRICTIONS DID NOT HAVE A MATERIAL IMPACT ON
THE MONTHLY RATE OF RETURN. HOWEVER, DUE TO THE COMPOUNDING EFFECT OF THESE
DIFFERENCES, THE COMPOUND RATE OF RETURN IS MATERIALLY DIFFERENT FROM THE
COMPOSITE COMPOUND RATE OF RETURN FOR THE ACCOUNTS WITH NO CLIENT IMPOSED
TRADING RESTRICTIONS.
[Remainder of page left blank intentionally.]
-62-
<PAGE>
DIVERSIFIED Program
Chesapeake will trade this program on behalf of the Trust. The FOLLOWING
SUMMARY PERFORMANCE INFORMATION AND CHART REFLECT the composite performance
results for the five-year period from January 1992 THROUGH MAY 31, 1997 of
Chesapeake's Diversified Program.
NAME OF CTA: Chesapeake Capital Corporation
NAME OF PROGRAM: Diversified Trading Program
INCEPTION OF CLIENT ACCOUNT TRADING BY CTA: February 1988
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: February 1988
NUMBER OF OPEN ACCOUNTS: 48
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $994,028,884
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,375,032,874
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $894,122,388
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $1,118,414,151
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): 120
NUMBER OF CLOSED ACCOUNTS WITH LOSS (FIVE-YEAR PERIOD): 16
NUMBER OF CLOSED ACCOUNTS WITH PROFIT (SINCE INCEPTION): 133
Number of closed accounts with loss (since inception): 28
<TABLE>
<CAPTION>
=========================================================================================
Monthly 1997(%) 1996(%) 1995(%) 1994(%) 1993(%) 1992(%)
Performance
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
January 1.86 1.69 (3.23) (3.33) 0.42 (10.98)
- -----------------------------------------------------------------------------------------
February 5.48 (4.26) (4.39) (4.88) 15.99 (2.86)
- -----------------------------------------------------------------------------------------
March (1.24) 0.28 8.60 0.09 5.86 0.53
- -----------------------------------------------------------------------------------------
April (2.41) 10.16 1.45 (0.60) 7.38 (0.44)
- -----------------------------------------------------------------------------------------
May (2.28) (3.04) 6.84 9.06 0.40 (3.66)
- -----------------------------------------------------------------------------------------
June 3.27 0.88 7.02 0.98 6.52
- -----------------------------------------------------------------------------------------
July (7.64) (3.09) (1.70) 9.49 12.96
- -----------------------------------------------------------------------------------------
August 0.57 (2.66) (2.98) 5.88 3.16
- -----------------------------------------------------------------------------------------
September 6.47 0.20 3.49 (2.63) (6.78)
- -----------------------------------------------------------------------------------------
October 5.92 (1.11) 1.97 (0.06) 5.21
- -----------------------------------------------------------------------------------------
November 6.57 1.76 4.83 1.03 2.27
- -----------------------------------------------------------------------------------------
December (4.30) 9.18 2.86 5.77 (1.93)
- -----------------------------------------------------------------------------------------
Compound 1.19 15.05 14.09 15.87 61.82 1.81
Rate of (5 months)
Return
=========================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-63-
<PAGE>
Diversified 2XL Program
The following summary PERFORMANCE information REFLECTS the composite
performance RESULTS FROM APRIL 1994 THROUGH MAY 31, 1997 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: $994,028,884
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,375,032,874
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $23,311,392
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $23,311,392
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
1997 COMPOUND RATE OF RETURN: 0.98% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 18.18%
1995 COMPOUND RATE OF RETURN: 18.77%
1994 COMPOUND RATE OF RETURN: 26.88% (9 MONTHS)
. . . . . . . . . . . . . . . . . . . . .
FINANCIALS & Metals Program
The following summary PERFORMANCE information REFLECTS the composite
performance RESULTS FROM MARCH 1992 THROUGH MAY 31, 1997 of Chesapeake's
Financials & 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: 3
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $994,028,884
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,375,032,874
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $76,595,154
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $233,307,331
LARGEST MONTHLY DRAWDOWN (SINCE INCEPTION): (7.86)% (7/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN (SINCE INCEPTION): (10.36)% (1/94-2/94)
NUMBER OF ACCOUNTS CLOSED WITH PROFIT: 8
NUMBER OF ACCOUNTS CLOSED WITH LOSS: 8
1997 COMPOUND RATE OF RETURN: (8.12)% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 10.35%
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.
-64-
<PAGE>
PACIFIC RIM PROGRAM
The following summary PERFORMANCE information REFLECTS the COMPOSITE
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 IN
AUGUST 1995)
NUMBER OF OPEN ACCOUNTS: 0
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $994,028,884
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,375,032,874
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 REFLECTS 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: $994,028,884
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,375,032,874
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: 4
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.
-65-
<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.
Mr. Dreiss is the sole trader of Dreiss Research Corporation, and has
sole authority and control over the trading decisions of Dreiss Research.
-66
<PAGE>
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.
-67-
<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 executing trades, however, on occasion due to certain market
conditions, Dreiss Research may exceed the use of four
-68-
<PAGE>
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 JANUARY 1992 through MAY 1997. 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 OCTOBER 31,
1995 the ending net asset value for such account was $1,176,816.
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.]
-69-
<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 JANUARY 1992 through MAY 31, 1997.
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: 61
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $22,480,666
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $39,717,472
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $22,480,666
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $39,717,472
LARGEST MONTHLY DRAWDOWN: (21.51)% (7/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (23.58)% (5/96 - 8/96)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 14
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 7
<TABLE>
<CAPTION>
=========================================================================================
Monthly 1997(%) 1996(%) 1995(%) 1994(%) 1993(%) 1992(%)
Performance
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
January (1.50) 1.46 (4.97) (2.62)* 3.79* (5.95)*
- -----------------------------------------------------------------------------------------
February 11.39 (11.64) 9.33 1.69* 1.96* (8.36)*
- -----------------------------------------------------------------------------------------
March (2.56) 8.41 13.66 1.80* 0.66* (3.70)*
- -----------------------------------------------------------------------------------------
April (9.59) 13.30 3.61 (7.23)* 18.14* (5.48)*
- -----------------------------------------------------------------------------------------
May (7.70) (8.66) 1.24 13.87* 2.79* 0.55*
- -----------------------------------------------------------------------------------------
June 10.60 7.45 10.41* 2.19* 3.65*
- -----------------------------------------------------------------------------------------
July (17.62) (6.00) (2.05)* 1.54* 16.60*
- -----------------------------------------------------------------------------------------
August (2.17) 4.72 0.41* (3.65)* 0.72
- -----------------------------------------------------------------------------------------
September 10.09 (0.30) 9.16* (5.62)* (2.95)*
- -----------------------------------------------------------------------------------------
October 3.79 2.94 (4.89)* 3.67* (5.10)*
- -----------------------------------------------------------------------------------------
November 15.10 9.17 10.10* (2.41)* 2.52*
- -----------------------------------------------------------------------------------------
December 7.58 8.84 4.46* 10.24* 1.45*
- -----------------------------------------------------------------------------------------
Compound (10.78) 26.86 59.76 38.09* 36.12* (8.01)*
Rate of (5 months)
Return
=========================================================================================
</TABLE>
* Represents periods in which the account whose beneficiary is a principal of
Echelon consisted of 50% or more of the total nominal amount of funds under
management.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-70-
<PAGE>
HYMAN BECK & COMPANY, INC.
BACKGROUND AND MANAGEMENT
Hyman Beck & Company, Inc. ("HB&Co.") was incorporated under the laws
of the State of Delaware in February 1991 to engage in the business of offering
advisory and portfolio management services to both retail and institutional
investors in commodity interest contracts. HB&Co. is registered as a commodity
trading advisor and commodity pool operator with the CFTC and is a member of the
NFA in such capacities. HB&Co.'s principal office is located at 6 Campus Drive,
Parsippany, New Jersey 07054. 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.
CHRIS J. GARAVENTE IS A PRINCIPAL OF HB & CO. MR. GARAVENTE IS
RESPONSIBLE FOR STRATEGIC PLANNING, BUSINESS MANAGEMENT, PRODUCT DEVELOPMENT AND
NEW CLIENT RELATIONSHIPS. PRIOR TO JOINING HB & CO. IN APRIL 1997, MR.
GARAVENTE WAS EMPLOYED BY PAINEWEBBER, INC. FROM FEBRUARY 1990 THROUGH FEBRUARY
1996. HE HAD CAPITAL COMMITMENT RESPONSIBILITY FOR U.S. TREASURIES, FEDERAL
AGENCY SECURITIES, FUTURES, OPTIONS, DERIVATIVES, AND FIXED INCOME DERIVATIVES.
HIS MANAGEMENT RESPONSIBILITIES INCLUDED TAXABLE FIXED INCOME TRADING, STRATEGIC
PLANNING, BALANCE SHEET ALLOCATION, FINANCING, ECONOMIC AND QUANTITATIVE
RESEARCH. AT THE TIME OF HIS DEPARTURE HE HELD THE TITLE OF MANAGING DIRECTOR
AND GLOBAL RISK MANAGER SUPERVISING OVER 500 PROFESSIONALS GLOBALLY. HE ALSO
SERVED ON THE ASSET/LIABILITY COMMITTEE AND FIRM'S OPERATING COMMITTEE. FROM
1984 TO 1990, MR. GARAVENTE WAS EMPLOYED BY MERRILL LYNCH & CO., INC. WHERE HE
HELD THE TITLE OF MANAGING DIRECTOR. AT THE TIME OF HIS DEPARTURE, HE WAS
RESPONSIBLE FOR U.S. GOVERNMENT BOND TRADING, FINANCING, YIELD CURVE ARBITRAGE
AND PROPRIETARY TRADING. MR. GARAVENTE GRADUATED FROM CORNELL UNIVERSITY IN
1977 WITH A B.S. DEGREE IN BUSINESS.
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
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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.
DAVID B. FULLER is CHIEF FINANCIAL OFFICER AND A PRINCIPAL OF HB&CO.
MR. 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.
RICHARD A. DEFALCO IS VICE PRESIDENT, DIRECTOR OF MARKETING AND A
PRINCIPAL OF HB & CO. MR. DEFALCO IS RESPONSIBLE FOR MARKETING, CLIENT SERVICES
AND SUPPORT FOR THE FIRM. PRIOR TO JOINING HB & CO. IN APRIL 1997, MR. DEFALCO
WAS EMPLOYED BY PAINEWEBBER, INC. FROM MAY 1989 THROUGH MARCH 1997, WHERE AT THE
TIME OF HIS DEPARTURE, HE HELD THE POSITION OF NATIONAL MARKETING MANAGER. MR.
DEFALCO'S RESPONSIBILITIES INCLUDED THE MARKETING OF MANAGED FUTURES AND HEDGE
FUND PRODUCTS IN ADDITION TO BEING A MEMBER OF PAINEWEBBER'S MANAGED FUTURES
PRODUCT SELECTION COMMITTEE. MR. DEFALCO WAS ALSO AN ADVISORY OFFICER TO
PAINEWEBBER FUTURES MANAGEMENT CORPORATION, A REGISTERED COMMODITY POOL
OPERATOR. MR. DEFALCO BEGAN HIS CAREER AT PAINEWEBBER IN THE FUTURES CREDIT
DEPARTMENT.
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
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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.
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
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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 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
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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.
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 MAY 31, 1997, HB&Co. was
managing approximately $216 million (excluding "notional" equity) of customer
funds in the futures and forwards markets. The performance information set
forth below is current as of MAY 31, 1997.
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
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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 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 , Diversified, AND/OR SHORT-TERM
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 , Diversified, AND SHORT-TERM
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 NOVEMBER 1996, all asset
allocation portfolio accounts have at all times included allocations among the
Global, FX and Diversified Portfolios. THE SHORT-TERM PORTFOLIO WAS ADDED TO
THE ASSET ALLOCATION PORTFOLIO IN NOVEMBER 1996.
[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 CHART reflect the composite
performance results of the Global Portfolios directed by HB&Co FOR THE FIVE-YEAR
PERIOD FROM JANUARY 1992 THROUGH MAY 1997
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: 23
AGGREGATE ASSETS IN ALL PROGRAMS (EXCLUDING NOTIONAL FUNDS): $216,920,413
AGGREGATE ASSETS IN ALL PROGRAMS (INCLUDING NOTIONAL FUNDS): $239,651,099
AGGREGATE ASSETS IN GLOBAL PORTFOLIO (EXCLUDING NOTIONAL FUNDS): $179,645,386
AGGREGATE ASSETS IN GLOBAL PORTFOLIO (INCLUDING NOTIONAL FUNDS): $188,395,599
LARGEST MONTHLY ACCOUNT DRAWDOWN (FIVE YEAR PERIOD): (12.77%); 12/96
LARGEST MONTHLY ACCOUNT DRAWDOWN (INCEPTION TO DATE): (12.77%); 12/96
LARGEST PEAK-TO-VALLEY ACCOUNT DRAWDOWN (FIVE YEAR PERIOD): (13.90%);
7/94 -2/95
LARGEST PEAK-TO-VALLEY ACCOUNT DRAWDOWN (INCEPTION TO DATE): (13.90%); 7/94 -
2/95
NUMBER OF PROFITABLE CLOSED ACCOUNTS (FIVE YEAR PERIOD): 22
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS (FIVE YEAR PERIOD): 16
NUMBER OF PROFITABLE CLOSED ACCOUNTS (INCEPTION TO DATE): 22
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS (INCEPTION TO DATE): 16
<TABLE>
<CAPTION>
=========================================================================================
Monthly 1997(%) 1996(%) 1995(%) 1994(%) 1993(%) 1992(%)
Performance
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
January 8.76 3.97 (6.35) (0.45) (3.97) (7.45)
- -----------------------------------------------------------------------------------------
February 1.69 (8.23) 9.02 (7.45) 8.65 (3.44)
- -----------------------------------------------------------------------------------------
March (0.23) (1.21) 18.71 12.48 2.10 3.15
- -----------------------------------------------------------------------------------------
April (2.77) 2.39 6.22 (2.17) 5.65 (3.38)
- -----------------------------------------------------------------------------------------
May 0.20 (3.20) 6.34 4.22 4.55 2.51
- -----------------------------------------------------------------------------------------
June 1.38 (1.12) 5.14 (4.95) 13.10
- -----------------------------------------------------------------------------------------
July 1.80 (1.68) (4.30) 5.00 18.27
- -----------------------------------------------------------------------------------------
August (1.15) (1.80) (4.40) 0.51 6.40
- -----------------------------------------------------------------------------------------
September 4.36 (2.16) (2.85) (0.80) (6.68)
- -----------------------------------------------------------------------------------------
October 11.17 (1.08) 4.72 (0.63) 3.39
- -----------------------------------------------------------------------------------------
November 9.79 1.27 3.43 (2.78) (0.37)
- -----------------------------------------------------------------------------------------
December (8.71) 0.80 (2.95) 1.34 (1.88)
- -----------------------------------------------------------------------------------------
Compound 7.50 10.82 29.12 3.81 14.63 22.56
Rate Of (5 months)
Return
=========================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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DIVERSIFIED PORTFOLIO
The following summary performance information REFLECTS the composite
performance results of the Diversified Portfolios directed by HB&Co. FOR THE
FIVE-YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 6
AGGREGATE ASSETS IN ALL PROGRAMS (EXCLUDING NOTIONAL FUNDS): $212,919,353
AGGREGATE ASSETS IN ALL PROGRAMS (INCLUDING NOTIONAL FUNDS): $239,650,039
AGGREGATE ASSETS IN DIVERSIFIED PROGRAM (EXCLUDING NOTIONAL FUNDS): $1,525,171
AGGREGATE ASSETS IN DIVERSIFIED PROGRAM (INCLUDING NOTIONAL FUNDS): $4,972,538
LARGEST MONTHLY ACCOUNT DRAWDOWN (FIVE YEAR PERIOD): (15.90% ); 2/94
LARGEST MONTHLY ACCOUNT DRAWDOWN (INCEPTION TO DATE): (15.90% ); 2/94
LARGEST PEAK-TO-VALLEY ACCOUNT DRAWDOWN (FIVE YEAR PERIOD): (30.42% ); 8/93 -
12/95
LARGEST PEAK-TO-VALLEY ACCOUNT DRAWDOWN (INCEPTION TO DATE): (30.42% ); 8/93 -
12/95
NUMBER OF PROFITABLE CLOSED ACCOUNTS (FIVE YEAR PERIOD): 18
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS (FIVE YEAR PERIOD): 23
NUMBER OF PROFITABLE CLOSED ACCOUNTS (INCEPTION TO DATE): 18
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS (INCEPTION TO DATE): 23
1997 COMPOUND RATE OF RETURN: 8.57% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: (8.33)%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT IS NOT CURRENTLY TRADED
PURSUANT TO THE FOREGOING PROGRAM.
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THE FX PORTFOLIO
The following summary performance information REFLECTS the composite
performance results of the FX Portfolios directed by HB&Co. FOR THE FIVE-YEAR
PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 7
AGGREGATE ASSETS IN ALL PROGRAMS (EXCLUDING NOTIONAL FUNDS): $212,919,353
AGGREGATE ASSETS IN ALL PROGRAMS (INCLUDING NOTIONAL FUNDS): $239,650,039
AGGREGATE ASSETS IN FX PROGRAM (EXCLUDING NOTIONAL FUNDS): $16,846,399
AGGREGATE ASSETS IN FX PROGRAM (INCLUDING NOTIONAL FUNDS): $18,465,496
LARGEST MONTHLY ACCOUNT DRAWDOWN (FIVE YEAR PERIOD): (18.72% ); 11/94
LARGEST MONTHLY ACCOUNT DRAWDOWN (INCEPTION TO DATE): (18.72% ); 11/94
LARGEST PEAK-TO-VALLEY ACCOUNT DRAWDOWN (FIVE YEAR PERIOD): (52.49% ); 8/93 -
1/95
LARGEST PEAK-TO-VALLEY ACCOUNT DRAWDOWN (INCEPTION TO DATE): (52.49% ); 8/93 -
1/95
NUMBER OF PROFITABLE CLOSED ACCOUNTS (FIVE YEAR PERIOD): 6
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS (FIVE YEAR PERIOD): 31
NUMBER OF PROFITABLE CLOSED ACCOUNTS (INCEPTION TO DATE): 6
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS (INCEPTION TO DATE): 31
1997 COMPOUND RATE OF RETURN: 19.24% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 6.65%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT IS NOT CURRENTLY TRADED
PURSUANT TO THE FOREGOING PROGRAM.
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ASSET ALLOCATION PORTFOLIO
The following summary performance information and table reflect the
composite performance results of the Asset Allocation Portfolios (WHICH IS
INCLUDED IN THE THREE PRECEDING TABLES) directed by HB&Co. FROM APRIL 1992
THROUGH MAY 1997.
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 (EXCLUDING NOTIONAL FUNDS): $212,919,353
AGGREGATE ASSETS IN ALL PROGRAMS (INCLUDING NOTIONAL FUNDS): $239,650,039
AGGREGATE ASSETS IN ASSET ALLOCATION PROGRAM (EXCLUDING NOTIONAL FUNDS):
$11,024,416
AGGREGATE ASSETS IN ASSET ALLOCATION PROGRAM (INCLUDING NOTIONAL FUNDS):
$23,463,697
LARGEST MONTHLY ACCOUNT DRAWDOWN: (9.38% ); 2/96
LARGEST PEAK-TO-VALLEY ACCOUNT DRAWDOWN: (18.30% ); 8/93 - 1/95
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 1
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 2
1997 COMPOUND RATE OF RETURN: 14.78% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 1.67%
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)
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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: 12
AGGREGATE ASSETS IN ALL PROGRAMS (EXCLUDING NOTIONAL FUNDS): $212,919,353
AGGREGATE ASSETS IN ALL PROGRAMS (INCLUDING NOTIONAL FUNDS): $239,650,039
AGGREGATE ASSETS IN SHORT-TERM PROGRAM (EXCLUDING NOTIONAL FUNDS): $18,907,217
AGGREGATE ASSETS IN SHORT-TERM PROGRAM (INCLUDING NOTIONAL FUNDS): $27,821,226
LARGEST MONTHLY DRAWDOWN: (8.83)% (8/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (12.47%); 11/96 - 12/96)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 1
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 1
1997 COMPOUND RATE OF RETURN: 26.95% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 0.58% (9 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
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT IS NOT CURRENTLY 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.
THE TRADING PRINCIPALS OF WILLOWBRIDGE ARE PHILIP L. YANG AND MICHAEL Y. GAN.
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. 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. HE CO-AUTHORED
WITH RICHARD G. FAUX, JR. "MANAGED FUTURES: THE CONVERGENCE WITH HEDGE FUNDS
" A CHAPTER IN EVALUATING AND IMPLEMENTING HEDGE FUND STRATEGIES, A BOOK
PUBLISHED IN 1996 BY EUROMONEY PUBLICATIONS.
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")
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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. 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 ITS periodic evaluation of market conditions, to
determine which Strategy to use for a given market. For example, if
WILLOWBRIDGE believes that currently the grains are likely to perform well, IT
may apply the Argo and Titan Systems to the grain markets since these Systems
typically have performed well in similar environments. Also, if WILLOWBRIDGE
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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 metals, grains, meats, softs and tropicals traded
pursuant to the Siren System. For accounts with less than $1 million in assets,
Willowbridge may not be able to trade the full Primary portfolio.
The Currency, Financial and Metals ("CFM") Investment Program.
WILLOWBRIDGE WILL APPLY THE XLIM TRADING APPROACH TO THE CURRENCY, FINANCIAL AND
METALS MARKETS. UNDER THE 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. 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
SELECT, CURRENCY AND PRIMARY INVESTMENT 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.
FOR EACH STRATEGY, RISK IS MANAGED ON A MARKET-BY-MARKET LEVEL AS WELL
AS ON AN OVERALL PORTFOLIO LEVEL. ON THE MARKET LEVEL, RISK IS MANAGED
PRIMARILY BY UTILIZING PROPRIETARY VOLATILITY FILTERS. WHEN THESE FILTERS
DETECT A CERTAIN EXCESSIVE LEVEL OF VOLATILITY IN A MARKET, THEY WILL SIGNAL
THAT THE SYSTEMS SHOULD NO LONGER BE TRADING IN THAT MARKET. IN THIS WAY, THE
SYSTEMS DO NOT PARTICIPATE IN MARKETS IN WHICH THERE ARE EXTREMES IN MARKET
ACTION. ON THE PORTFOLIO LEVEL, RISK IS MANAGED BY UTILIZING A PROPRIETARY
PORTFOLIO CUTBACK RULE. WHEN CUMULATIVE PROFITS HAVE REACHED A CERTAIN LEVEL,
THIS RULE DETERMINES THAT POSITIONS SHOULD BE HALVED ACROSS THE ENTIRE
PORTFOLIO. IN THIS WAY, RISK IS REDUCED WHILE ALLOWING THE SYSTEM TO CONTINUE
TO PARTICIPATE IN THE MARKETS, ALBEIT A REDUCED LEVEL. AFTER THE PORTFOLIO HAS
BEEN TRADED AT HALF, THE RULE WILL THEN DETERMINE WHEN TO INCREASE POSITIONS TO
AGAIN TRADE AT THE FULL LEVEL.
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, 2001 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. WHILE TRADING DECISIONS ARE BASED ON
FUNDAMENTAL AND TECHNICAL MARKET ANALYSIS, OF EQUAL IMPORTANCE IS THE ANECDOTAL
INFORMATION MR. YANG PIECES TOGETHER ABOUT SPECIFIC MARKET OPPORTUNITIES. MR.
YANG EMPHASIZES ONLY A SMALL NUMBER OF CORE POSITIONS AT ANY TIME, SELECTING
THOSE FOR WHICH THE REWARD-TO-RISK IS THE MOST FAVORABLE AND FOR WHICH HE
BELIEVES HE HAS AN ADVANTAGE OVER CONVENTIONAL MARKET EXPECTATIONS. ONLY A
SMALL AMOUNT OF CAPITAL IS
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INITIALLY RISKED; INCREMENTAL POSITIONS ARE THEN ADDED AS OPEN EQUITY PROFITS
ARE BUILT UP. LIKEWISE THE ADDITIONAL POSITIONS ARE LIQUIDATED POSITIONS ARE
LIQUIDATED IF THE MARKET MOVES AGAINST THEM.
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.
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, OATS, ROUGH RICE
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
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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.
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, OATS
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.
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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, OATS,
ROUGH RICE
PRECIOUS METALS: Gold, Silver
FINANCIAL INSTRUMENTS: Treasury Bills, Treasury Bonds, Treasury Notes,
Eurodollars, AUSTRALIAN TREASURY BILLS, AUSTRALIAN
TREASURY BONDS, ITALIAN BONDS, EURO-LIRA
CURRENCIES: Pound Sterling, Deutschemark, Canadian Dollar, Swiss
Franc, Japanese Yen
GENERAL: Crude Oil, Heating Oil, Unleaded Gasoline, Natural Gas,
Copper, Sugar, Coffee, Cocoa, Cotton, Live Cattle, Live
Hogs, Pork Bellies
The above list is provided only as an indication of markets traded
since Willowbridge removes or adds contracts to the list from time to time. For
accounts with less than $1 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.
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.
MTECH'S MINIMUM ACCOUNT SIZE IS U.S. $2,000,000 ON JANUARY 1 OF EACH
CALENDAR YEAR, AND ACCOUNTS MAY BE OPENED ON THAT DATE IN INCREMENTS OF U.S.
$2,000,000, WITH EACH INCREMENT OF U.S. $2,000,000 CONSIDERED A UNIT OF
INVESTMENT. THEREAFTER, ACCOUNTS MAY BE OPENED AT THE CURRENT NET ASSET VALUE
OF A UNIT OF INVESTMENT. THEREAFTER, ACCOUNTS MAY BE OPENED AT THE CURRENT NET
ASSET VALUE OF A UNIT OF INVESTMENT. THEREAFTER, ACCOUNTS MAY BE OPENED AT THE
CURRENT NET ASSET VALUE OF A UNIT, OR MULTIPLE THEREOF, AS OF THE CLOSE OF
BUSINESS ON THE PRECEDING BUSINESS DAY, AND ACCOUNT SIZES MAY BE INCREASED OR
DECREASED BY THE CURRENT NET ASSET VALUE OF A UNIT, OR MULTIPLE THEREOF.
SUBSEQUENT ADDITIONS AND WITHDRAWALS MUST BE MADE AT THE THEN CURRENT NET ASSET
VALUE OF A UNIT. IF, AT THE BEGINNING OF THE YEAR, THE ACCOUNT SIZE IS NOT
EQUAL TO THE UNIT SIZE OR MULTIPLE THEREOF, THE CLIENT WILL BE SO ADVISED AND
MAY CHOOSE AT THAT TIME TO INCREASE OR DECREASE ALLOCATED ASSETS IN ORDER TO
TRADE A UNIT OR MULTIPLES THEREOF. MTECH WILL TERMINATE ANY ACCOUNT WHICH HAS
EXPERIENCED A DRAWDOWN OF GREATER THAN 35% AT THE CLOSE OF BUSINESS ON THE LAST
BUSINESS DAY OF ANY MONTH, MEASURED FROM THE START OF THE THEN-CURRENT CALENDER
YEAR (OR INCEPTION OF TRADING IN THE FIRST YEAR).
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;
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(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. IN
REVIEWING ITS ACCOUNTS TO DETERMINE THE WORST DRAWDOWN FIGURES FOR ANY
ACCOUNT INCLUDED IN THE COMPOSITE CAPSULES, WILLOWBRIDGE HAS EXCLUDED
ACCOUNTS IN ANY MONTH IN WHICH THE ACCOUNT HAS (A) BEEN OPENED OR CLOSED, (B)
EXPERIENCED MATERIAL ADDITIONS OR WITHDRAWALS, OR (C) BEEN PHASED IN OR OUT
OF TRADING A FULL PORTFOLIO, IN ORDER TO OBTAIN REPRESENTATIVE FIGURES. 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), MTECH AND REX (BEGINNING
JANUARY 1997), Argo and Currency (beginning January 1992), AND XLIM (BEGINNING
FEBRUARY 1995), 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.
[Remainder of page left blank intentionally.]
-88-
<PAGE>
XLIM TRADING APPROACH
Willowbridge will trade this APPROACH on behalf of the Trust. The
following summary information (DETERMINED PURSUANT TO THE FULLY-FUNDED SUBSET
METHOD) presents the composite performance record of the XLIM TRADING APPROACH
FOR THE FIVE-YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 42
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $465,053,125
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $536,601,119
LARGEST MONTHLY DRAWDOWN: (7.51)% (7/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (29.10)% (8/93 - 1/95)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 5
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 2
<TABLE>
<CAPTION>
=========================================================================================
Monthly 1997(%) 1996(%) 1995(%) 1994(%) 1993(%) 1992(%)
Performance
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
January (3.41) 2.74 (4.89) (11.93) 1.04 0.00
- -----------------------------------------------------------------------------------------
February 7.74 (2.67) 0.87 (12.67) 22.24 0.00
- -----------------------------------------------------------------------------------------
March 6.23 4.63 31.21 0.04 (5.40) 0.00
- -----------------------------------------------------------------------------------------
April (6.47) 9.48 4.41 0.00 (2.97) 0.00
- -----------------------------------------------------------------------------------------
May 1.92 (2.70) 0.25 0.00 (1.04) 0.00
- -----------------------------------------------------------------------------------------
June (0.20) (7.52) 0.00 4.00 0.00
- -----------------------------------------------------------------------------------------
July (6.76) (3.91) 0.00 12.93 0.00
- -----------------------------------------------------------------------------------------
August 2.07 (1.28) 0.00 (8.79) 0.00
- -----------------------------------------------------------------------------------------
September 14.07 2.55 0.00 (7.02) 0.00
- -----------------------------------------------------------------------------------------
October 6.38 1.93 0.00 5.07 2.65
- -----------------------------------------------------------------------------------------
November 1.91 2.59 3.23 1.55 (2.63)
- -----------------------------------------------------------------------------------------
December 0.13 5.92 1.13 2.56 8.41
- -----------------------------------------------------------------------------------------
Compound 5.38 31.06 31.28 (19.68) 22.30 8.36
Rate of (5 months)
Return
=========================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-89-
<PAGE>
VULCAN SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Vulcan SYSTEM FOR THE FIVE-YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 26
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $48,285,888
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $66,746,736
LARGEST MONTHLY DRAWDOWN: (19.36)% (2/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (19.03)% (1/92-6/92)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 8
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 0
1997 COMPOUND RATE OF RETURN: 27.54% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 12.96%
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%
TITAN SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Titan SYSTEM FOR THE FIVE YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 12
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $19,477,569
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $34,128,219
LARGEST MONTHLY DRAWDOWN: (15.02)% (2/94)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (27.80)% (8/93-5/94)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 5
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 1
1997 COMPOUND RATE OF RETURN: 6.33% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 31.91%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-90-
<PAGE>
REX SYSTEM
The following summary information (DETERMINED PURSUANT TO THE
FULLY-FUNDED SUBSET METHOD) presents the composite performance record of the Rex
SYSTEM FOR THE FIVE-YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $109,822
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $1,509,004
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
1997 COMPOUND RATE OF RETURN: (1.64)% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: (27.37)%
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)%
ARGO SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Argo SYSTEM FOR THE FIVE-YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
-91-
<PAGE>
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: 64
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $218,169,694
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $255,009,827
LARGEST MONTHLY DRAWDOWN: (20.49)% (2/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (31.13)% (5/96 - 7/96)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 50
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 12
1997 COMPOUND RATE OF RETURN: 13.43% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 12.46%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
SIREN SYSTEM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Siren SYSTEM FOR THE FIVE YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 13
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $25,522,211
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $46,126,194
LARGEST MONTHLY DRAWDOWN: (12.39)% (8/93)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (21.99)% (7/93 - 10/93)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 4
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 1
1997 COMPOUND RATE OF RETURN: 16.26% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 1.41%
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)%
MTECH APPROACH
-92-
<PAGE>
The following summary information (DETERMINED PURSUANT TO THE
FULLY-FUNDED SUBSET METHOD) presents the composite performance record of the
MTech APPROACH FOR THE FIVE YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 8
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $51,735,446
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $95,675,486
LARGEST MONTHLY DRAWDOWN: (12.44)% (2/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (21.37)% (8/93 - 2/94)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 1
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 0
1997 COMPOUND RATE OF RETURN: 9.96% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 43.73%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
CFM PROGRAM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the CFM
Program FOR THE FIVE YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $31,257,369
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $31,257,369
LARGEST MONTHLY DRAWDOWN: (18.08)% (2/94)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (31.83)% (8/93 - 9/94)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 18
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 25
1997 COMPOUND RATE OF RETURN: (2.22)% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 31.66%
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
-93-
<PAGE>
CURRENCY PROGRAM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Currency Program FOR THE FIVE YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 2
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $1,376,867
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $13,214,280
LARGEST MONTHLY DRAWDOWN: (10.31)% (8/93)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (25.32)% (7/93 - 8/94)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 6
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 25
1997 COMPOUND RATE OF RETURN: 8.31% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: (0.37)%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
PRIMARY PROGRAM
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Primary Program FOR THE FIVE YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 21
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $50,504,612
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $84,834,697
LARGEST MONTHLY DRAWDOWN: (17.06)% (2/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (22.52)% (5/96-7/96)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 3
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 1
1997 COMPOUND RATE OF RETURN: 16.05 % (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 14.45%
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
-94-
<PAGE>
ATLAS SYSTEM
The following summary information presents the composite performance
record of the Atlas SYSTEM.
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: $911,462,603
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $1,165,102,931
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $0
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $0
LARGEST MONTHLY DRAWDOWN: (16.57)% (1/92)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (46.67)% (10/90 - 5/92)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 0
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 1
1997 COMPOUND RATE OF RETURN: N/A
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-95-
<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 . 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.
-96
<PAGE>
- 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.
- 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.
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<PAGE>
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.
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.
SPECIAL - 1 PROGRAM
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. Accordingly, the
performance of Witter & Lester's Special - 1 Program, which terminated in 1991,
is not set forth herein.
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
-98-
<PAGE>
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.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY.]
-99-
<PAGE>
REDSTONE Program
Witter & Lester will trade this program on behalf of the Trust. The
following summary information AND CHART (DETERMINED PURSUANT TO THE FULLY-FUNDED
SUBSET METHOD) 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: 18
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $22,559,048
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $66,977,166
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $8,441,277
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $22,691,333
LARGEST MONTHLY DRAWDOWN: (7.39%) (12/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (8.49)% (12/96-1/97)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 21
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 3
<TABLE>
<CAPTION>
=========================================================================================
Monthly 1997(%) 1996(%) 1995(%) 1994(%)
Performance
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
January (1.12) (0.47) 2.55 -
- -----------------------------------------------------------------------------------------
February 1.10 (0.17) 1.29 -
- -----------------------------------------------------------------------------------------
March 2.83 1.21 0.00 -
- -----------------------------------------------------------------------------------------
April (0.02) 1.17 2.59 -
- -----------------------------------------------------------------------------------------
May (2.28) 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 2.5 0.84 5.29
- -----------------------------------------------------------------------------------------
November (0.8) 3.32 2.96
- -----------------------------------------------------------------------------------------
December (0.1) 1.96 1.97
- -----------------------------------------------------------------------------------------
Compound
Rate of 0.43 18.2 23.02 12.96
Return (5 months) (4 months)
=========================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-100-
<PAGE>
STOCK INDEX TRADING PROGRAM
The following summary information (DETERMINED PURSUANT TO THE
FULLY-FUNDED SUBSET METHOD) presents the composite performance record of the
Stock Index Futures Trading Program FOR THE FIVE YEAR PERIOD FROM JANUARY 1992
THROUGH MAY 1997.
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: 20
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $22,559,048
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $66,977,166
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $14,082,337
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $24,389,327
LARGEST MONTHLY DRAWDOWN (20.29)% (3/94)
LARGEST PEAK-TO-VALLEY DRAWDOWN (26.90)% (2/94-4/94)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 73
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 21
1997 COMPOUND RATE OF RETURN: 1.9% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 18.2%
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%
INTERMEDIATE TRADING PROGRAM
The following summary information presents (DETERMINED PURSUANT TO THE
FULLY-FUNDED SUBSET METHOD) the composite performance record of the Intermediate
Trading Program FOR THE FIVE YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997.
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: 9
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) OVERALL: $22,559,048
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $66,977,166
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $221,147
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $13,252,220
LARGEST MONTHLY DRAWDOWN: (17.63)% (7/96)
LARGEST PEAK-TO-VALLEY DRAWDOWN: (18.39)% (7/96-8/96)
NUMBER OF PROFITABLE CLOSED ACCOUNTS: 38
NUMBER OF UNPROFITABLE CLOSED ACCOUNTS: 40
1997 COMPOUND RATE OF RETURN: 0.57% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: (10.03%)
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)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-101-
<PAGE>
STRATEGIC HEDGE OVERLAY PROGRAM
The following summary information (DETERMINED PURSUANT TO THE DELTA
METHOD) presents the composite performance record of the Strategic Hedge Overlay
Program FOR THE FIVE YEAR PERIOD FROM JANUARY 1992 THROUGH MAY 1997
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: $22,559,166
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) OVERALL: $66,977,166
AGGREGATE ASSETS (EXCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $(185,713)
AGGREGATE ASSETS (INCLUDING "NOTIONAL" EQUITY) IN PROGRAM: $6,644,286
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
1997 COMPOUND RATE OF RETURN: 1.9% (5 MONTHS)
1996 COMPOUND RATE OF RETURN: 18.2%
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%
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 PROGRAMS.
-102-
<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, 1992. Kenmar has offered its pools exclusively on a private basis
to financially sophisticated investors-- either on a private placement
basis in the United States or offshore exclusively to non-U.S. persons.
Other than the Trust, 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 JULY 1, 1997
(except in the case of pools dissolved prior to such date). Performance
information is set forth, IN ACCORDANCE WITH CFTC REGULATIONS, since January 1,
1992, 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.
____________________________
-103-
<PAGE>
ASSETS UNDER MANAGEMENT
<TABLE>
<CAPTION>
<S> <C> <C>
Kenmar -- Total assets under management as of JULY 1, 1997: $110 million
Kenmar -- Total assets under multi-advisor management as of JULY 1, 1997: $96 million
Kenmar and affiliates -- Total assets under
management as of JULY 1, 1997: $458 million (excluding notional funds)
Kenmar and affiliates -- Total assets under
management as of JULY 1, 1997: $557 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, 1992.
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, 1992 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, 1992
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.]
-104-
<PAGE>
<TABLE>
<CAPTION>
% %
WORST WORST
AGGRE- MONTHLY PEAK-TO-
TYPE GATE CURRENT CURRENT DRAW- VALLEY
OF START CLOSE SUB- TOTAL NAV PER DOWN & DRAWDOWN
POOL DATE DATE SCRIPT NAV UNIT ** MONTH & PERIOD
- ------------------------ ------- -------- ------ ---------- --------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
- ------------------------
Kenmar Performance
Partners L.P. 08/85 N/A 260,125,222 117,185,912 14,575.14 (15.87) (33.20)
1/94 11/90-5/92
Capital Partners Ltd. 07/95 N/A 2,029,775 1,733,485 966.18 (5.77) (8.26)
2/96-8/96
- ------------------------
SINGLE ADVISOR POOLS
- ------------------------
The Dennis Fund L.P. "A" 09/96 N/A 11,233,600 9,135,837 1,055.92 (5.16) (15.83)
6/97 3/96-6/96
The Dennis Fund L.P. "B" 04/97 N/A 2,556,712 2,429,485 983.45 (4.80) (6.86)
6/97 5/97-6/97
GK International 04/91 12/93 2,312,504 0 903.45 (5.75) (18.40)
Currency Fund L.P. 12/93 9/92-12/93
Kenmar Preferred L.P. 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
- -----------------------
Kenmar Venture 03/87 N/A 2,625,000 3,848,058 3,410.30 (29.70) (48.75)
Partners L.P. 10/89 11/90-4/92
GLH Strategic 08/93 10/94 1,143,233 0 717.41 (9.45) (29.41)
Performance L.P. 1/94 9/93-10/94
Quaestus Portfolio L.P. 12/90 04/92 122,000 0 92.29 (59.84) (90.77)
1/91 12/90-4/92
<CAPTION>
PERCENTAGE RATE OF RETURN
(COMPUTED ON A COMPOUNDED
MONTHLY BASIS)
----------------------------------------- YEAR
TO
1992 1993 1994 1995 1996 DATE
- ------------------------ ------ ------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
- ------------------------
Kenmar Performance
Partners L.P. 0.16 48.30 (9.79) 8.12 3.04 -12.67
Capital Partners Ltd. - - - 2.26 1.87 0.73
- ------------------------
SINGLE ADVISOR POOLS
- ------------------------
The Dennis Fund L.P. "A" - - - - 8.14 9.3
The Dennis Fund L.P. "B" (6.9)
GK International 7.48 16.37 - - - -
Currency Fund L.P.
Kenmar Preferred L.P. (8.68) - - - - -
- -----------------------
POOLS FOR RESEARCH AND
DEVELOPMENT OF TRADERS
- -----------------------
Kenmar Venture 7.33 57.92 3.27 5.55 14.72 26.5
Partners L.P.
GLH Strategic - (8.09) (21.95) - - -
Performance L.P.
Quaestus Portfolio L.P. (45.95) - - - - -
</TABLE>
-105-
<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 JULY 1, 1997.
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 JULY 1, 1997.
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, 1997
THROUGH JULY 1, 1997.
-106-
<PAGE>
INVESTMENT FACTORS
THE FOLLOWING SUMMARIZES CERTAIN OF THE PRINCIPAL POTENTIAL ADVANTAGES
- -- DESCRIBED IN GREATER DETAIL ELSEWHERE IN THIS PROSPECTUS -- THAT 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.
____________________
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 been
non-correlated with the performance of stocks and bonds, suggesting that a
successful managed futures investment may be a valuable complement to a
portfolio of stocks and bonds. 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.
The Advisors' speculative trading techniques will be the primary
factor in the Trust's success or failure. Investors should note that there are
always two parties to a futures contract; consequently, for any gain achieved by
one party on a contract, a corresponding loss is suffered by the other.
Therefore, due to the nature of futures contracts trading, only 50% of futures
contracts held by all market participants can experience gain at any one time,
without reference to brokerage commissions and other costs of trading, which may
reduce or eliminate any gain that would otherwise be achieved.
The table below is an empirical example of how different assets can
react to business cycles. In each case, the asset class is represented by a
recognized industry index for that asset.
ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME
<TABLE>
<CAPTION>
Int'l Managed
Stock Stocks Futures
(S&P Bonds (EAFE (MAR
500) (LT BOND) INDEX) F/P)
---------------- ----------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
1981 -5.0% 1.9% -1.0% 1.1%
1982 21.6% 40.4% -0.9% 5.1%
1983 22.5% 0.7% 24.6% 8.3%
1984 6.2% 15.5% 7.9% 18.1%
1985 31.7% 31.0% 56.7% 27.1%
1986 18.6% 24.5% 69.9% 3.1%
1987 5.2% -2.7% 24.9% 57.8%
1988 16.5% 9.7% 28.6% 14.6%
1989 31.6% 18.1% 10.8% 7.2%
1990 -3.5% 6.2% -23.2% 27.3%
1991 30.3% 19.3% 12.5% 16.8%
</TABLE>
-107-
<PAGE>
<TABLE>
<CAPTION>
Int'l Managed
Stock Stocks Futures
(S&P Bonds (EAFE (MAR
500) (LT BOND) INDEX) F/P)
---------------- ----------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
1992 7.7% 8.1% -11.9% 9.9%
1993 10.0% 18.2% 32.9% 19.9%
1994 1.4% -8.1% 8.0% -3.1%
1995 37.5% 28.7% 11.6% 14.1%
1996 22.7% -0.9% 5.9% 15.0%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATE OF FUTURE RESULTS. THE
CHART ABOVE DEPICTS THE ACTUAL PERFORMANCE OF THE MAR FUND/POOL QUALIFIED
UNIVERSE, IN COMBINATION WITH STOCKS AND BONDS. THE "STOCKS" PORTION IS
REPRESENTED BY THE S&P 500 INDEX AND THE "BONDS" PORTION BY THE LEHMAN LONG-TERM
GOVERNMENT BOND INDEX. THESE ARE PASSIVE INDICES OF EQUITY AND DEBT SECURITIES
WHICH ARE GENERALLY PURCHASED BY INVESTORS WITH AN INVESTMENT OBJECTIVE OF
CAPITAL PRESERVATION, GROWTH OR INCOME. THE MAR FUND/POOL QUALIFIED UNIVERSE
INDEX IS A DOLLAR-WEIGHTED INDEX OF 420 MANAGED FUTURES FUNDS, INCLUDING THE
PERFORMANCE OF CURRENT AS WELL AS RETIRED FUNDS, WHOSE OBJECTIVE IS SPECULATIVE
TRADING PROFITS. THE PERFORMANCE FOR ALL INDICES WAS CALCULATED USING
COMPOUNDED MONTHLY RETURNS. A PROSPECTIVE INVESTOR IS ADVISED THAT NEITHER THE
ABOVE CHART NOR THE PERFORMANCE TABLES IN THIS PROSPECTUS SHOULD BE INTERPRETED
TO MEAN THE TRUST WILL OBTAIN SIMILAR RESULTS OR GENERATE ANY PROFITS WHATSOEVER
IN THE FUTURE. PERFORMANCE DATE FOR STOCKS, BONDS AND INTERNATIONAL STOCKS IS
PROVIDED BY THOMSON INVESTMENT SOFTWARE, ROCKVILLE, MD. THE LEHMAN LONG-TERM
GOVERNMENT BOND INDEX REPRESENTS ALL PUBLICLY-ISSUED LONG-TERM GOVERNMENT DEBT
SECURITIES (AVERAGE MATURITY IS 23.4 YEARS).
THE PERFORMANCE INFORMATION OF THE ASSET CLASSES ABOVE DOES NOT
REFLECT THE EFFECT OF FEES IDENTICAL TO THOSE TO BE PAID BY THE TRUST, INCLUDING
MANAGEMENT, INCENTIVE AND BROKERAGE FEES. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. NOTE THAT WHILE THE MAR FUND/POOL QUALIFIED UNIVERSE INDEX
REFLECTS RESULTS NET OF ACTUAL FEES AND EXPENSES, IT INCLUDES ACCOUNTS WITH
TRADING ADVISORS AND FEE STRUCTURES THAT DIFFER FROM PUBLIC MANAGED FUTURES
FUNDS (SUCH AS THE TRUST). ACCORDINGLY, WHILE THE MAR FUND/POOL QUALIFIED
UNIVERSE INDEX IS BELIEVED TO BE REPRESENTATIVE OF MANAGED FUTURES IN GENERAL,
THE PERFORMANCE OF PUBLIC MANAGED FUTURES FUNDS AS A SUBCLASS MAY DIFFER. SEE
"THE INITIAL ADVISORS" ON PAGES 58-102, FOR PERFORMANCE INFORMATION RELATING TO
THE ADVISORS.
CORRELATIONS ANALYSIS
EAFE MAR F/P S&P 500 LT Bond
------- ----------- ---------- ----------
EAFE 1 0.00 0.45 0.22
MAR F/P 1 0.08 0.16
S&P 500 1 0.41
LT Bond 1
THE ABOVE CORRELATION ANALYSIS REFLECTS THE CORRELATION OF MONTHLY
RETURNS OF THE INDICES SET FORTH IN THE CHART ON PAGE 105 OVER THE FIFTEEN YEARS
ENDING DECEMBER 31, 1996. HOWEVER, LOW- OR NON-CORRELATION IS NOT NEGATIVE
CORRELATION. NON-CORRELATION MEANS ONLY THAT THE PERFORMANCE OF AN ASSET CLASS
MAY OR MAY NOT BE SIMILAR
-108-
<PAGE>
TO THAT OF THE GENERAL FINANCIAL MARKETS, NOT THAT THERE SHOULD BE AN INVERSE
RELATIONSHIP BETWEEN THEM. SEE "RISK FACTORS -- (13) NON-CORRELATED, NOT
NEGATIVELY CORRELATED, PERFORMANCE OBJECTIVE" AND "-- (14) BROAD INDICES MAY
PERFORM QUITE DIFFERENTLY FROM INDIVIDUAL INVESTMENTS" AT PAGE 10.
COMPARISONS AMONG VARIOUS ASSET CLASSES DO NOT REFLECT THE DIFFERENT
TAX TREATMENT OR RISK CHARACTERISTICS OF SUCH ASSET CLASSES, OR OF ANY
PARTICULAR INVESTMENT. SEE "RISK FACTORS -- (19) UNITHOLDERS ARE TAXED
CURRENTLY" AT PAGE 11. FURTHERMORE, MANAGED FUTURES FUNDS, SUCH AS THE TRUST,
REPRESENT A COMMITMENT TO TRADING RATHER THAN INVESTING. MANAGED FUTURES FUNDS
UNLIKE MANY OTHER "ALTERNATIVE" INVESTMENT CLASSES, DO NOT INVOLVE THE
ACQUISITION OF ANY ASSETS WITH AN INTRINSIC VALUE. ALTHOUGH THE COMMODITIES AND
INSTRUMENTS WHICH UNDERLIE THE TRUST'S FUTURES, FORWARD AND RELATED CONTRACTS
HAVE INTRINSIC VALUE, THE SUCCESS OF THE TRUST DEPENDS ENTIRELY ON THE RESULTS
OF SPECULATIVE TRADING. THE TRUST WILL ACQUIRE MARKET EXPOSURES SEEKING TO
PROFIT FROM PRICE MOVEMENTS IN COMMODITIES AND FINANCIAL INSTRUMENTS WHICH THE
TRUST, IN FACT, WILL NEVER OWN.
-109-
<PAGE>
[CHART -- MANAGED FUTURES VS. STOCKS]
110
<PAGE>
NOTES TO "MANAGED FUTURES VS. STOCKS" TABLE:
MANAGED FUTURES INVESTMENTS CAN SERVE TO DIVERSIFY A PORTFOLIO AND
SMOOTH OVERALL PORTFOLIO VOLATILITY. SEVERAL ACADEMIC STUDIES, SUCH AS THAT OF
THE LATE PROF. JOHN LINTNER OF HARVARD UNIVERSITY, INDICATE THAT THE NATURE OF
THE FUTURES MARKETS TRADED, COMBINED WITH THE ABILITY TO PROFIT IN RISING OR
DECLINING MARKETS AS WELL AS IN BULL OR BEAR MARKET CYCLES, HAVE CONTRIBUTED TO
THE NON-CORRELATED NATURE OF RETURNS EXPERIENCED BY MANAGED FUTURES INVESTMENTS.
THE CHART ABOVE ILLUSTRATES THE PERFORMANCE OF MANAGED FUTURES AGAINST
THAT OF STOCKS FROM 1981 THROUGH 1996, USING THE RECOGNIZED MARKET INDICES OF
EACH ASSET. EACH BAR REPRESENTS THE ASSET CLASS PERFORMANCE DERIVED FROM
SUCCESSIVE 12-MONTH HOLDING PERIODS OR WINDOWS. (A 12-MONTH HOLDING PERIOD IS
DEFINED AS A PERIOD OF 12 CONSECUTIVE MONTHS, I.E., FROM JANUARY 1989 TO
DECEMBER 1989; THE NEXT WOULD BE FROM FEBRUARY 1989 TO JANUARY 1990, ETC.)
BY OVERLAYING RETURNS, INVESTORS CAN SEE THE POTENTIAL BENEFITS OF A
DIVERSIFIED PORTFOLIO THAT INCLUDES BOTH TRADITIONAL ASSET CLASSES AS WELL AS
ASSETS THAT ARE NON-TRADITIONAL AND NON-CORRELATED. THERE ARE MAY TIMES WHEN
BOTH THE MANAGED FUTURES AND STOCK INDICES SHOWED POSITIVE PERFORMANCE.
OBVIOUSLY, THOUGH, THERE IS NO INVESTMENT THAT ONLY APPRECIATES. THERE ARE 19
PERIODS WHEN MANAGED FUTURES SHOWED NEGATIVE RETURNS, WHILE STOCKS EXPERIENCED
26 PERIODS OF NEGATIVE RETURNS DURING THE STUDIED TIME FRAME. WHILE NOT A
GUARANTEE OF FUTURES RESULTS, THIS CHART PROVIDES CLEAR INDICATION OF THE
NON-CORRELATED ASPECT OF MANAGED FUTURES. THIS NON-CORRELATION ENABLES
INVESTORS WITH MANAGED FUTURES TO POTENTIALLY LOWER THE OVERALL VOLATILITY OF
THEIR PORTFOLIOS.
THE PERFORMANCE INFORMATION OF THE ASSET CLASSES ABOVE DOES NOT
REFLECT THE EFFECT OF FEES IDENTICAL TO THOSE TO BE PAID BY THE TRUST, INCLUDING
MANAGEMENT, INCENTIVE AND BROKERAGE FEES. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. NOTE THAT WHILE THE MAR FUND/POOL QUALIFIED FUND UNIVERSE INDEX
REFLECTS RESULTS NET OF ACTUAL FEES AND EXPENSES, IT INCLUDES ACCOUNTS WITH
TRADING ADVISORS AND FEE STRUCTURES THAT DIFFER FROM PUBLIC MANAGED FUTURES
FUNDS (SUCH AS THE TRUST). ACCORDINGLY, WHILE THE MAR FUND/POOL QUALIFIED FUND
UNIVERSE INDEX IS BELIEVED TO BE REPRESENTATIVE OF MANAGED FUTURES IN GENERAL,
THE PERFORMANCE OF PUBLIC MANAGED FUTURES FUNDS AS A SUBCLASS MAY DIFFER. SEE
"THE INITIAL ADVISORS" ON PAGES 55-100, FOR PERFORMANCE INFORMATION RELATING TO
THE ADVISORS.
THE TRUST'S COMBINED BENEFITS OF AGGRESSIVE GROWTH POTENTIAL (WITH
COMMENSURATE RISK) AND DIVERSIFICATION CAN POTENTIALLY REDUCE OVERALL PORTFOLIO
VOLATILITY WHILE MAXIMIZING PROFITS. BY COMBINING ASSET CLASSES, INVESTORS
STRIVE TO CREATE A PORTFOLIO MIX THAT PROVIDES THE POTENTIAL TO OFFER THE
GREATEST POSSIBLE RETURN WITHIN ACCEPTABLE LEVELS OF VOLATILITY. WHILE PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, A MANAGED FUTURES INVESTMENT SUCH
AS THE TRUST MAY PROFIT (WITH COMMENSURATE RISK) IN SUSTAINED FUTURES AND
FORWARD MARKET MOVES, REGARDLESS OF THEIR DIRECTION, A POTENTIAL ENHANCEMENT TO
AN INVESTOR'S OVERALL PORTFOLIO.
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.
-111-
<PAGE>
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
Unlike a person who opens an individual futures account, a subscriber
to the Trust cannot lose more than his or her investment.
-112-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
KENMAR GLOBAL TRUST
<S> <C>
Independent Auditor's Report................................................................. F-2
Statements of Financial Condition as of [^] June 30, 1997 (unaudited)
and December 31, 1996 (audited)........................................................... F-3
Statement of Operations for the Six Months Ended June 30, 1997 (unaudited)................... F-4
Statement of Cash Flows for the Six Months Ended June 30, 1997 (unaudited)................... F-5
Statement of Changes in Unitholders' Capital (Net Asset Value) for
the Six Months Ended June 30, 1997 (unaudited)............................................ F-6
Notes to Financial Statements................................................................ F-7
KENMAR ADVISORY CORP.
Independent Auditor's Report................................................................. F-14
Statements of Financial Condition as of June 30, 1997 (unaudited)
and September 30, 1996 (audited).......................................................... F-15
Notes to Statements of Financial Condition................................................... F-16
</TABLE>
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 December 31, 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
December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
August 6, 1997
F-2
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
June 30, 1997 (Unaudited) and December 31, 1996 (Audited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Equity in broker trading accounts
Cash $ 5,586,644 $ 0
Net option premiums (received) (32,861) 0
Unrealized gain on open contracts 28,959 0
Deposits with brokers 5,582,742 0
Cash 2,787,423 2,000
Total assets $8,370,165 $ 2,000
LIABILITIES
Accounts payable $ 4,013 $ 0
Commissions and other trading fees on open contracts 694 0
Managing Owner brokerage commissions 84,205 0
Advisor profit shares 4,291 0
Reimbursable offering costs 1,605 0
Total liabilities 94,808 0
UNITHOLDERS' CAPITAL (Net Asset Value)
Managing Owner - 872.2321 and 4.0000 units outstanding at
June 30, 1997 and December 31, 1996, respectively 84,958 400
Other Unitholders - 84,088.1842 and 16.0000 units outstanding
at June 30, 1997 and December 31, 1996, respectively 8,190,399 1,600
Total Unitholders' capital
(Net Asset Value) 8,275,357 2,000
----------- -----------
$ 8,370,165 $ 2,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
KENMAR GLOBAL TRUST
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997
(Unaudited)
INCOME
Trading gains (losses)
Realized $(172,371)
Change in unrealized 28,959
(Loss) from trading (143,412)
Interest income 44,960
Total (loss) (98,452)
EXPENSES
Brokerage commissions 4,077
Managing Owner brokerage commissions 84,205
Advisor profit shares 4,291
Operating expenses 4,013
Total expenses 96,586
NET (LOSS) $(195,038)
NET (LOSS) PER UNIT
(based on weighted average number of
units outstanding during the period) $ (2.67)
(DECREASE) IN NET ASSET $ (2.60)
VALUE PER UNIT
See accompanying notes.
F-4
<PAGE>
KENMAR GLOBAL TRUST
STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1997
(Unaudited)
Cash flows from (for) operating activities
Net (loss) $ (195,038)
Adjustments to reconcile net (loss) to net
cash (for) operating activities:
Net change in unrealized (28,959)
Increase in accounts payable and accrued expenses 93,203
Net option premiums received 32,861
Net cash (for) operating activities (97,933)
Cash flows from financing activities
Addition of units 8,470,000
Net increase in cash 8,372,067
Cash
Beginning - December 31, 1996 2,000
Ending - June 30, 1997 $8,374,067
See accompanying notes.
F-5
<PAGE>
KENMAR GLOBAL TRUST
STATEMENT OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
UNITHOLDERS' CAPITAL
-----------------------------------------------
TOTAL NUMBER MANAGING OTHER
OF UNITS OWNER UNITHOLDERS TOTAL
------------ -------- ----------- -----
<S> <C> <C> <C> <C>
Balances at
December 31, 1996 20.0000 $400 $1,600 $2,000
Additions 84,940.4163 86,600 8,383,400 8,470,000
Net (loss) for the six months
ended June 30, 1997 (2,025) (193,013) (195,038)
Offering costs __________ (17) (1,588) (1,605)
Balances at
June 30, 1997 84,960.4163 $84,958 $8,190,399 $8,275,357
Net Asset Value Per Unit
-----------------------------------------
June 30, December 31,
1997 1996
$97.40 $100.00
</TABLE>
See accompanying notes.
F-6
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS
For the six months ended June 30, 1997 (unaudited)
December 31, 1996 (audited)
_________
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 which operates as a commodity investment pool.
The Trust was formed on July 17, 1996 and commenced trading
on May 22, 1997.
B. Regulation
As a registrant with the Securities and Exchange
Commission, the Trust is subject to the regulatory
requirements under the Securities Acts of 1933 and 1934.
As a commodity investment pool, the Trust is subject to
the regulations of the Commodity Futures Trading
Commission, an agency of the United States (U.S.)
government which regulates most aspects of the commodity
futures industry, rules of the National Futures
Association, an industry self-regulatory organization, and
the requirements of the various commodity exchanges
where the Trust executes transactions. Additionally, the
Trust is subject to the requirements of the Futures
Commission Merchants and interbank market makers (brokers)
through which the Trust trades.
C. Method of Reporting
The Trust's financial statements are presented in
accordance with generally accepted accounting principles,
which require the use of certain estimates made by the
Trust's management. Gains or losses are realized when
contracts are liquidated. Net unrealized gain or loss on
open contracts (the difference between contract purchase
prices and market prices) is reported in the statement of
financial condition in accordance with Financial Accounting
Standards Board Interpretation No. 39 - "Offsetting of
Amounts Related to Certain Contracts." Any change in net
unrealized gain or loss from the preceding period is
reported in the statement of operations. Brokerage
commissions paid directly to brokers include other trading
fees and are charged to expense when contracts are opened.
D. Income Taxes
The Trust prepares calendar year U.S. and state information
tax returns and reports to the Unitholders their allocable
shares of the Trust's income, expenses and trading gains or
losses.
F-7
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the six months ended June 30, 1997 (unaudited)
December 31, 1996 (audited)
_________
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. Organizational and Initial Offering Costs
Organizational and initial offering costs (exclusive of
selling commissions) of approximately $578,000 were
advanced by the Managing Owner. Such costs are charged to
the Trust and reimbursed to the Managing Owner at a monthly
rate of 0.2% of the Trust's beginning of month Net Asset
Value until such amounts are fully reimbursed. Any
unreimbursed organizational and initial offering costs as
of the date of the Trust's dissolution will not be
reimbursed to the Managing Owner.
The Declaration of Trust and Trust Agreement limits
organizational and offering costs, including selling
commissions and redemption fees, to 15% of the capital
contributions to the Trust.
F. Foreign Currency Transactions
The Trust's functional currency is the U.S. dollar;
however, it transacts business in currencies other than the
U.S. dollar. Assets and liabilities denominated in
currencies other than the U.S. dollar are translated into
U.S. dollars at the rates in effect at the date of the
statement of financial condition. Income and expense items
denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect during
the period. Gains and losses resulting from the
translation to U.S. dollars are reported in income
currently.
Note 2. MANAGING OWNER
The Managing Owner of the Trust is Kenmar Advisory Corp., which
conducts and manages 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-8
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the six months ended June 30, 1997 (unaudited)
December 31, 1996 (audited)
_________
Note 2. MANAGING OWNER (CONTINUED)
The Managing Owner is paid monthly brokerage commissions equal to
1/12 of 11% (11% annually) of the Trust's beginning of month Net
Asset Value. The Managing Owner, in turn, pays substantially all
actual costs of executing the Trust's trades, selling commissions
and trailing commissions to selling agents, and consulting fees to
the Advisors. To the extent that certain costs of executing the
Trust's trades are paid directly by the Trust, the amount paid to
the Managing Owner will be reduced.
The Managing Owner is paid an incentive fee equal to 5% of New
Overall Appreciation (as defined in the Declaration of Trust and
Trust Agreement) as of each fiscal year-end and upon redemption of
Units.
Note 3. COMMODITY TRADING ADVISORS
The Trust has advisory agreements with various commodity trading
advisors, pursuant to which the Trust pays quarterly profit shares
of 15% to 20% of Trading Profits (as defined in each Advisory
Agreement).
Note 4. DEPOSITS WITH BROKERS
The Trust deposits funds with brokers subject to Commodity Futures
Trading Commission regulations and various exchange and broker
requirements. Margin requirements are satisfied by the deposit of
cash with such brokers. The Trust earns interest income on its
assets deposited with the brokers.
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in Units of Beneficial Interest are 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.
F-9
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the six months ended June 30, 1997 (unaudited)
December 31, 1996 (audited)
__________
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS (CONTINUED)
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, of the Net Asset Value
redeemed. All redemption charges are paid to the Managing Owner.
Note 6. TRADING ACTIVITIES AND RELATED RISKS
The Trust engages in the speculative trading of U.S. and foreign
futures contracts, options on U.S. and foreign futures contracts
and forward contracts (collectively, "derivatives"). These
derivatives include both financial and non-financial contracts
held as part of a diversified trading strategy. The Trust is
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.
Purchases and sales of futures and options on futures contracts
require margin deposits with the brokers. Additional deposits may
be necessary for any loss of contract value. The Commodity
Exchange Act requires a commodity broker to segregate all customer
transactions and assets from such broker's proprietary activities.
A customer's cash and other property (for example, U.S. Treasury
bills) deposited with a commodity broker are considered commingled
with all other customer funds subject to the broker's segregation
requirements. In the event of a commodity broker's insolvency,
recovery may be limited to a pro rata share of segregated funds
available. It is possible that the recovered amount could be less
than total cash and other property deposited.
The Trust has a substantial portion of its assets on deposit with
financial institutions in connection with its trading of forward
contracts and its cash management activities. In the event of a
financial institution's insolvency, recovery of Trust assets on
deposit may be limited to account insurance or other protection
afforded such deposits. In the normal course of business, the
Trust does not require collateral from such financial
institutions. Since forward contracts are traded in unregulated
markets between principals, the Trust also assumes the risk of
loss from counterparty nonperformance.
F-10
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the six months ended June 30, 1997 (unaudited)
December 31, 1996 (audited)
________
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
For derivatives, risks arise from changes in the market value of
the contracts. Theoretically, the Trust is exposed to a market
risk equal to the value of futures and forward contracts purchased
and unlimited liability on such contracts sold short. As both a
buyer and seller of options, the Trust pays or receives a premium
at the outset and then bears the risk of unfavorable changes in
the price of the contract underlying the option. Written options
expose the Trust to potentially unlimited liability, and purchased
options expose the Trust to a risk of loss limited to the premiums
paid.
The fair value of derivatives represents unrealized gains and
losses on open futures and forward contracts and long and short
options at market value. The average fair value of derivatives
for the period May 22, 1997 (commencement of trading) to June 30,
1997 and the related fair values as of June 30, 1997 are as
follows:
For the Period
May 22, 1997
to As of
June 30, 1997 June 30, 1997
-------------- -------------
Exchange traded futures and options
on futures contracts $(10,000) $(7,000)
Forward Contracts 4,000 3,000
Net trading results from derivatives for the six months ended June
30, 1997 are reflected in the statement of operations and consist
of the (loss) from trading less brokerage commissions and the
portion of the Managing Owner brokerage commissions that is
payable to the brokers. For the six months ended June 30, 1997,
the portion of the Managing Owner brokerage commissions that is
payable to the brokers was approximately $5,000. Such trading
results reflect the net (loss) arising from the Trust's
speculative trading of futures contracts, options on futures
contracts and forward contracts.
F-11
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the six months ended June 30, 1997 (unaudited)
December 31, 1996 (audited)
________
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
Open contracts generally mature within one year; the latest
maturity date for open contracts as of June 30, 1997 is June 1998.
However, the Trust intends to close all contracts prior to
maturity. At June 30, 1997, the notional amount of open contracts
is as follows:
<TABLE>
<CAPTION>
Contracts to Contracts to
Purchase Sell
------------ ------------
<S> <C> <C>
Exchange traded futures contracts and
written options thereon:
- Financial instruments $ 35,800,000 $ 9,300,000
- Metals 3,500,000 1,800,000
- Energy 0 200,000
- Agricultural 1,200,000 600,000
- Currencies 8,200,000 7,400,000
Forward Contracts:
- Currencies 1,400,000 2,400,000
$ 50,100,000 $ 21,700,000
Exchange traded purchased options
on futures contracts:
- Financial instruments $ 500,000 $ 0
- Metals 400,000 400,000
- Currencies 200,000 800,000
$ 1,100,000 $ 1,200,000
</TABLE>
The above amounts do not represent the Trust's risk of loss due to
market and credit risk, but rather represent the Trust's extent of
involvement in derivatives at the date of the statement of
financial condition.
The Managing Owner has established procedures to actively monitor
and minimize market and credit risk. The Unitholders bear the risk
of loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions
and redemptions received.
F-12
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the six months ended June 30, 1997 (unaudited)
December 31, 1996 (audited)
_______
Note 7. INTERIM FINANCIAL STATEMENTS
The statement of financial condition as of June 30, 1997 and the
statements of operations, cash flows and changes in Unitholders'
capital (net asset value) for the six months ended June 30, 1997
are unaudited. In the opinion of management, such financial
statements reflect all adjustments, which were of a normal and
recurring nature, necessary for a fair presentation of financial
position as of June 30, 1997 and the results of operations and
cash flows for the six months ended June 30, 1997.
F-13
<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-14
<PAGE>
KENMAR ADVISORY CORP.
STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and June 30,1997 (unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
(unaudited)
------------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 21,310 $1,895,163
Fees receivable 102,056 498,973
Total current assets 123,366 2,394,136
Investments in affiliated commodity pools 766,250 1,032,482
Due from affiliates, net 2,955,598 4,775,174
Property and equipment, net 837,385 697,881
Other assets 32,969 45,496
Total assets $4,715,568 $8,945,169
LIABILITIES
Cash overdraft $ 450,075 $ 0
Bank loan payable 0 544,916
Accrued expenses and other liabilities 1,137,953 4,423,035
Obligations under capital leases 525,978 453,315
Total liabilities 2,114,006 5,421,266
STOCKHOLDER'S EQUITY
Common stock, $1 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares 100 100
Additional paid-in capital 632,025 632,025
Retained earnings 1,969,437 2,891,778
Total stockholder's equity 2,601,562 3,523,903
Total liabilities and stockholder's equity $4,715,568 $8,945,169
</TABLE>
See accompanying notes.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-15
<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-16
<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 5 to 7 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 their 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. The cumulative effect of this
change was recorded in the current year statement of
operations since the effect is not significant to the
financial statements taken as a whole.
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, for which
amounts are reported as general and administrative expense.
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 .
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-17
<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 with respect to these General
Partner interests is as follows:
Kenmar
Performance
Partners
L.P. Other Total
------------ ----- -----
Net asset value as of September 30, 1996 $ 684,643 $ 81,607 $ 766,250
Income allocation for the year $ 10,736 $ 9,424 $ 20,160
ended September 30, 1996
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)
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-18
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1996
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
As General Partner of these commodity pools, the Company conducts
and manages the respective businesses of the partnerships. Each
limited partnership agreement requires the Company to maintain a
specified investment in the respective partnership and a net worth
as required for the partnership to be treated as a partnership for
U.S. 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 as of September
30, 1996. 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-19
<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, New York 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-20
<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
-----------
-----------
Rent expense under noncancelable leasing arrangements was
approximately $552,482 for the year ended September 30, 1996.
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.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-21
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1996
Note 5. RELATED PARTY TRANSACTIONS (CONTINUED)
The following amounts are due to the Company at September 30, 1996:
Members of the consolidated group, net $1,911,177
Kenmar Management Limited 240,919
Kenmar Institutional Investment
Management L.L.C. 219,721
Receivables from Officers 442,480
Other 141,301
----------
$2,955,598
----------
----------
No specific terms apply to the liquidation of amounts due from
affiliates. The Company exercises its right of offset of
intercompany balances reported in the statement of financial
condition.
As compensation for services provided to affiliated commodity
pools, the Company receives from commodity brokers a portion of
the brokerage commissions paid to them by the commodity pools and
also receives commissions, management, incentive, organization and
other fees directly from the commodity pools. For the year ended
September 30, 1996, the Company earned management, incentive and
other fees of $1,493,704 from these affiliated commodity pools.
At September 30, 1996, the Company is owed fees of $15,567 from
these commodity pools.
Note 6. COMMITMENTS AND CONTINGENCIES
The Company and certain of its affiliates have jointly guaranteed
a demand note payable by the Parent. This note had a balance of
$625,000 at September 30, 1996.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-22
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
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
approximately $19,403,000. The fair value of derivatives
represents unrealized gains and losses on open forward and futures
contracts and long and short options at market value.
At September 30, 1996, the notional amounts of open contracts to
purchase and sell held by the limited partnerships aggregated
approximately $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-23
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
June 30, 1997 (unaudited)
__________
The interim statement of financial condition as of June 30, 1997 is unaudited
and does not include all disclosures required by generally accepted
accounting principles. Such interim statement of financial condition should
be read in conjunction with the Company's audited statement of financial
condition as of September 30, 1996, included on the preceding pages. In the
opinion of management, such unaudited statement reflects all adjustments of a
normal and recurring nature which are necessary for a fair presentation of
financial position as of June 30,1997.
In April, 1997, the Company entered into a line of credit agreement with a
financial institution that secured financing for certain organizational,
initial offering and selling costs paid by the Company on behalf of KGT.
Total credit available under this facility is $1,000,000, with $544,916
outstanding as of June 30, 1997. This line of credit is to be repaid
principally from the proceeds of the monthly reimbursement of organizational
and initial offering costs, as well as the monthly brokerage commissions paid
to the Company by KGT .
Subsequent to the release of the Company's accompanying audited statement of
financial condition as of September 30, 1996 and the notes thereto, KGT
completed registration with the Securities and Exchange Commission and
commenced operations and trading. KGT's assets as of June 30,1997 were
approximately $8,400,000.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY.
F-24
<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
APPI-1
<PAGE>
during the period decreased by interest or other income, not directly related
to trading activity, earned on Program assets during the period, whether the
assets are held separately or in a margin account.
"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
<TABLE>
<CAPTION>
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
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
23. No Legal Title to Trust Estate.....................................................................TA-19
24. Legal Title........................................................................................TA-19
25. Creditors..........................................................................................TA-20
</TABLE>
TA-i
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
This Amended and Restated Declaration of Trust and Trust
Agreement (the "Declaration of Trust Agreement") is made as of 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.
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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.
(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
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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.
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
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(i) at the time of such event there is at least one remaining managing owner
of the Trust who carries on the business of the Trust (and each remaining
managing owner of the Trust is hereby authorized to carry on the business of
the Trust in such an event), or (ii) within one hundred twenty days after
such event Unitholders holding a majority of Units agree in writing to
continue the business of the Trust and to the appointment, effective as of
the date of such event, of one or more managing owners of the Trust; (4) a
decline in the aggregate Net Assets of the Trust to less than $250,000; (5)
dissolution of the Trust pursuant hereto; or (6) any other event which shall
make it unlawful for the existence of the Trust to be continued or require
termination of the Trust. In the event that the Managing Owner (or an
affiliate thereof) ceases to be the trust's managing owner, the word "Kenmar"
shall be deleted from the name of the Trust, and any appropriate filings
shall be made.
(b) Dissolution. Upon the occurrence of an event causing
the dissolution of the Trust, the Trust shall be dissolved and its affairs
wound up. At any time that the Trust does not have a Managing Owner, the
Unitholders by majority vote may appoint a liquidator.
(c) Fiscal Year. The fiscal year of the Trust shall begin
on January 1 of each year and end on the following December 31.
(d) Net Asset Value; Net Asset Value per Unit. Net Assets
of the Trust are its assets less its liabilities determined in accordance
with generally accepted accounting principles. If a contract cannot be
liquidated on the day with respect to which Net Assets are being determined,
the settlement price on the first subsequent day on which the contract can be
liquidated shall be the basis for determining the liquidating value of such
contract for such day, or such other value as the Managing Owner may deem
fair and reasonable. The liquidating value of a commodity futures or option
contract not traded on a commodity exchange shall mean its liquidating value
as determined by the Managing Owner on a basis consistently applied for each
different variety of contract. Accrued Profit Shares and Incentive Fees (as
described in the Prospectus, as defined in Section 9 hereof) shall reduce Net
Asset Value, even though such Profit Shares and Incentive Fees may never, in
fact, be paid. Net Asset Value per Unit is the Net Assets of the Trust
divided by the number of Units outstanding as of the date of determination.
6. Net Worth of Managing Owner.
The Managing Owner agrees that at all times so long as it
remains managing owner of the Trust, it will maintain its Net Worth at an
amount not less than $1,000,000.
The requirements of the preceding paragraph may be modified if
the Managing Owner obtains an opinion of counsel for the Trust that a
proposed modification will not adversely affect the classification of the
Trust as a partnership for federal income tax purposes and if such
modification will reflect or exceed applicable state securities and Blue Sky
laws and qualify under any guidelines or statements of policy promulgated by
any body or agency constituted by the various state securities administrators
having jurisdiction in the premises.
7. Capital Contributions; Units.
The Unitholders' respective capital contributions to the Trust
shall be as shown on the books and records of the Trust. The Initial
Unitholder will withdraw upon the admission of additional Unitholders.
The Managing Owner, so long as it is generally liable for the
obligations of the Trust, or any substitute managing owner, shall invest in
the Trust, as a general liability interest, sufficient capital so that
the Managing Owner 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.
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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.
(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.
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(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.
(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.
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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 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.
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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.
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
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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 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,
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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 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.
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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 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.
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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.
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
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of the Managing Owner. No provision of this Declaration of Trust and Trust
Agreement shall be deemed, nor does any such provision purport, to waive
compliance with the Investment Advisers Act of 1940, as amended.
The death, incompetency, withdrawal, insolvency or dissolution
of a Unitholder or any other event that causes a Unitholder to cease to be a
Unitholder (within the meaning of the Act) in the Trust shall not terminate
or dissolve the Trust, and a Unitholder, his estate, custodian or personal
representative shall have no right to redeem or value such Unitholder's
interest in the Trust except as provided in Section 12 hereof. Each
Unitholder expressly agrees that in the event of his death, he waives on
behalf of himself and his estate, and directs the legal representatives of
his estate and any person interested therein to waive, the furnishing of any
inventory, accounting or appraisal of the assets of the Trust and any right
to an audit or examination of the books of the Trust. Nothing in this
Section 16 shall, however, waive any right given elsewhere in this
Declaration of Trust and Trust Agreement for a Unitholder to be informed of
the Net Asset Value of his Units, to receive periodic reports, audited
financial statements and other information from the Managing Owner or the
Trust or to redeem or transfer Units.
17. Standard of Liability; Indemnification.
(a) Standard of Liability for the Managing Owner. The
Managing Owner and its Affiliates, as defined below, shall have no liability
to the Trust or to any Unitholder for any loss suffered by the Trust which
arises out of any action or inaction of the Managing Owner or its Affiliates
if the Managing Owner, in good faith, determined that such course of conduct
was in the best interests of the Trust and such course of conduct did not
constitute negligence or misconduct of the Managing Owner or its Affiliates.
(b) Indemnification of the Managing Owner by the Trust. To
the fullest extent permitted by law, subject to this Section 17, the Managing
Owner and its Affiliates shall be indemnified by the Trust against any
losses, judgments, liabilities, expenses and amounts paid in settlement of
any claims sustained by them in connection with the 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.
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Advances from Trust funds to the Managing Owner and its
Affiliates for legal expenses and other costs incurred as a result of a legal
action will be made only if the following three conditions are satisfied:
(1) the legal action relates to the performance of duties or services by the
Managing Owner or its Affiliates on behalf of the Trust; (2) the legal action
is initiated by a third party who is not a Unitholder; and (3) the Managing
Owner or its Affiliates undertake to repay the advanced funds, with interest
from the date of such advance, to the Trust in cases in which they would not
be entitled to indemnification under the standard of liability set forth in
Section 17(a).
In no event shall any indemnity or exculpation provided for
herein be more favorable to the Managing Owner or any Affiliate than that
contemplated by the NASAA Guidelines as in effect on the date of this
Declaration of Trust and Trust Agreement.
In no event shall any indemnification permitted by this
subsection (b) of Section 17 be made by the Trust unless all provisions of
this Section for the payment of indemnification have been complied with in
all respects. Furthermore, it shall be a precondition of any such
indemnification that the Trust receive a determination of qualified
independent legal counsel in a written opinion that the party which seeks to
be indemnified hereunder has met the applicable standard of conduct set forth
herein. Receipt of any such opinion shall not, however, in itself, entitle
any such party to indemnification unless indemnification is otherwise proper
hereunder. Any indemnification payable by the Trust hereunder shall be made
only as provided in the specific case.
In no event shall any indemnification obligations of the Trust
under this subsection (b) of this Section 17 subject a Unitholder to any
liability in excess of that contemplated by subsection (e) of Section 8
hereof.
(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
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Managing Owner concurs: (i) this Declaration of Trust and Trust Agreement
may be amended, provided, however, that approval of all Unitholders shall be
required in the case of amendments changing or altering this Section 18,
extending the term of the Trust, or materially changing the Trust's basic
investment policies or structure; in addition, reduction of the capital
account of any Unitholder or assignee or modification of the percentage of
profits, losses or distributions to which a Unitholder or an assignee is
entitled hereunder shall not be effected by any amendment or supplement to
this Declaration of Trust and Trust Agreement without such Unitholder's or
assignee's written consent; (ii) the Trust may be dissolved; (iii) the
Managing Owner may be removed and replaced; (iv) a new managing owner or
managing owners may be elected if the Managing Owner withdraws from the
Trust; (v) the sale of all or substantially all of the assets of the Trust
may be approved; and (vi) any contract with the Managing Owner or any
affiliate thereof may be disapproved of and, as a result, terminated upon 60
days' notice.
(c) Meetings; Other Voting Matters. Any Unitholder upon
request addressed to the Managing Owner shall be entitled to obtain from the
Managing Owner, upon payment in advance of reasonable reproduction and
mailing costs, a list of the names and addresses of record of all Unitholders
and the number of Units held by each (which shall be mailed by the Managing
Owner to the Unitholder within ten days of the receipt of the request);
provided, that the Managing Owner may require any Unitholder requesting such
information to submit written confirmation that such information will not be
used for commercial purposes. Upon receipt of a written proposal, signed by
Unitholders owning Units representing at least 10% of the Units then owned by
Unitholders, that a meeting of the Trust be called to vote upon any matter
upon which the Unitholders may vote pursuant to this Declaration of Trust and
Trust Agreement, the Managing Owner shall, by written notice to each
Unitholder of record sent by certified mail within 15 days after such
receipt, call 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.
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<PAGE>
(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 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.
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<PAGE>
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 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.
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<PAGE>
23. No Legal Title to Trust Estate.
The Unitholders shall not have legal title to any part of the
Trust Estate.
24. Legal Title.
Legal title to all the Trust Estate shall be vested in the Trust
as a separate legal entity; except where applicable law in any jurisdiction
requires any part of the Trust Estate to be vested otherwise, the Managing
Owner (or the Trustee, if required by law) may cause legal title to the Trust
Estate of any portion thereof to be held by or in the name of the Managing
Owner or any other person as nominee.
25. Creditors.
No creditors of any Unitholders shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect
to, the Trust Estate.
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.
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<PAGE>
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
<TABLE>
<CAPTION>
<S> <C>
|_| Credit my brokerage account |_| Send to the address below
__________________________________________________________________________________________________
Name Street City, State and Zip Code
Entity Unitholder Individual Unitholder(s)
(or assignee) (or assignee(s))
________________________________________________ ________________________________________________
(Name of Entity)
________________________________________________
By: ____________________________________________ ________________________________________________
(Authorized corporate officer, partner or trustee) (Signature(s) of all Unitholder(s) or assignee(s))
</TABLE>
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<PAGE>
EXHIBIT B
KENMAR GLOBAL TRUST
____________________
SUBSCRIPTION REQUIREMENTS
By executing a Subscription Agreement and Power of Attorney
Signature Page for Units of Beneficial Interest ("Units") of KENMAR GLOBAL
TRUST (the "Trust"), each purchaser ("Purchaser") of Units irrevocably
subscribes for Units at Net Asset Value, as described in the Trust's
Prospectus dated September __, 1997 (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
Agreement and Power of Attorney Signature Page and is legally competent
to do so. Purchaser acknowledges that Purchaser has received (prior to
any solicitation of Purchaser's investment) a copy of the Prospectus --
including the Appendices, the Declaration of Trust and Trust Agreement
and summary financial information relating to the Trust current within
60 calendar days -- dated within nine months of the date as of which
Purchaser has subscribed to purchase Units.
(b) All information that Purchaser has heretofore furnished to
Kenmar or that is set forth in [^] the Subscription Agreement and Power
of Attorney submitted by Purchaser is correct and complete as of the
date of such Subscription Agreement and Power of Attorney, and if there
should be any change in such information prior to acceptance of
Purchaser's subscription, Purchaser will immediately furnish such
revised or corrected information to Kenmar.
(c) Unless (d) below is applicable, Purchaser's subscription
is made with Purchaser's funds [^] for Purchaser's own account and not
as trustee, custodian or nominee for another.
(d) The subscription, if made as custodian for a minor, is a
gift Purchaser has made to such [^]minor and is not made with such
minor's funds or, if not a gift, the representations as to net worth
and annual income set forth below apply only to such minor.
(e) If Purchaser is subscribing in a representative capacity,
Purchaser has full power and authority to purchase the Units and enter
into and be bound by the Subscription Agreement and Power of Attorney
on behalf of the entity for which he is purchasing the Units, and such
entity has full right and
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<PAGE>
power to purchase such Units and enter into and be bound by the
Subscription Agreement and Power of Attorney and to become a Unitholder
pursuant to the Declaration of Trust and Trust Agreement.
(f) Purchaser either is not required to be registered with the
Commodity Futures Trading Commission ("CFTC") or to be a member of the
National Futures Association ("NFA"), or, if required to be so, is duly
registered with the CFTC and is a member in good standing of the NFA.
It is an NFA requirement that Kenmar attempt to verify that any entity
which seeks to purchase Units be duly registered with the CFTC and a
member of the NFA, if required. Purchaser agrees to supply Kenmar with
such information as Kenmar may reasonably request in order to attempt
such verification. Most entities which acquire Units will, as a
result, themselves become "commodity pools" within the intent of
applicable CFTC and NFA rules, and their sponsors, accordingly, will be
required to register as "commodity pool operators."
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, urnishings 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.
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<PAGE>
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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<PAGE>
EXHIBIT C
KENMAR GLOBAL TRUST
------------------
SUBSCRIPTION INSTRUCTIONS
ANY PERSON CONSIDERING PURCHASING UNITS SHOULD CAREFULLY READ
AND REVIEW THE PROSPECTUS OF THE TRUST DATED SEPTEMBER __, 1997, 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. PHONE -- (732) 560-6221.
SA-(i)
<PAGE>
KENMAR GLOBAL TRUST
UNITS OF BENEFICIAL INTEREST
------------------
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT
OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
------------------
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
KENMAR GLOBAL TRUST
c/o Kenmar Advisory Corp.
Managing Owner
Two American Lane
Greenwich, Connecticut 06831-8150
Dear Sirs:
1. Subscription for Units. I hereby subscribe for the
number of units of beneficial interest ("Units") in Kenmar Global Trust (the
"Trust") set forth in the Subscription Agreement and Power of Attorney
Signature Page attached hereto; a minimum of 50 Units (or, if less, $5,000)
must be purchased -- 20 Units (or, if less, $2,000) for both: (i) trustees
or custodians of eligible employee benefit plans and individual retirement
accounts; and (ii) existing Unitholders (all existing Unitholders are
required to submit a new Subscription Agreement and Power of Attorney in
order to acquire additional Units). Any greater number of Units may be
purchased in $100 increments. The purchase price is 100% of the Net Asset
Value per Unit during the Offering Period. The terms of the offering of the
Units are described in the Prospectus of the Trust dated September __, 1997
(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
SA-1
<PAGE>
in the Trust are relying on Kenmar's authority to act pursuant to the Power
of Attorney granted hereby. The Power of Attorney granted hereby shall be
deemed to be coupled with an interest and shall be irrevocable and shall
survive, and shall not be affected by, my subsequent death, incapacity,
disability, insolvency or dissolution or any delivery by me of an assignment
of the whole or any portion of my Units.
4. Irrevocability; Governing Law. I hereby acknowledge and
agree that I am not entitled to cancel, terminate or revoke this subscription
or any of my agreements hereunder after the Subscription Agreement and Power
of Attorney Signature Page attached hereto has been submitted (and not
rejected), and that this subscription and such agreements shall survive my
death or disability. This Subscription Agreement and Power of Attorney shall
be governed by and interpreted in accordance with the laws of the State of
Delaware without regard to principles of conflicts of law.
5. ERISA. If the undersigned is acting on behalf of an
"employee benefit plan," as defined in and subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or any "plan," as defined
in Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code")
(each such employee benefit plan and plan, a "Plan"), the individual signing
this Subscription Agreement and Power of Attorney on behalf of the
undersigned, understands, as or on behalf of the fiduciary of the Plan
responsible for purchasing the Units (the "Plan Fiduciary") that: (a) the
Plan Fiduciary has considered an investment in the Trust for such Plan in
light of the risks relating thereto; (b) the Plan Fiduciary has determined
that, in view of such considerations, the investment in the Trust for such
Plan is consistent with the Plan Fiduciary's responsibilities under ERISA;
(c) the Plan's investment in the Trust does not violate and is not otherwise
inconsistent with the terms of any legal document constituting the Plan or
any trust agreement thereunder; (d) the Plan's investment in the Trust has
been duly authorized and approved by all necessary parties; (e) none of
Kenmar, any Advisor to the Trust, the Selling Agents, any Clearing Broker,
the Escrow Agent, any broker through which any Advisor requires the Trust to
trade, the Trustee, any of their respective affiliates or any of their
respective agents or employees (i) has investment discretion with respect to
the investment of assets of the Plan used to purchase Units, (ii) has
authority or responsibility to or regularly gives investment advice with
respect to the assets of the Plan used to purchase Units for a fee and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to the Plan and that such
advice will be based on the particular investment needs of the Plan, or (iii)
is an employer maintaining or contributing to the Plan; and (f) the Plan
Fiduciary (i) is authorized to make, and is responsible for, the decision to
invest in the Trust, including the determination that such investment is
consistent with the requirement imposed by Section 404 of ERISA that Plan
investments be diversified so as to minimize the risk of large losses, (ii)
is independent of Kenmar, any Advisor to the Trust, any Selling Agent, any
Commodity Broker and any of their respective affiliates, and (iii) is
qualified to make such investment decision. The undersigned understands that
Kenmar may request that the undersigned furnish Kenmar with such information
as Kenmar may reasonably require to establish that the purchase of Units by
the Plan does not violate any provision of ERISA or the Code, including,
without limitation, those provisions relating to "prohibited transactions" by
"parties in interest" or "disqualified persons," as defined therein.
SA-2
<PAGE>
<TABLE>
<CAPTION>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE)
<S> <C>
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 Revocable Trust
|_| Joint Tenants with Right 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.: ________________________
</TABLE>
SA-3
<PAGE>
Social Security No. or Tax I.D. No.: _______________________________
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE--Continued)
Custodian Taxpayer I.D. No. (for IRAs only): _______________________
(b) Primary Residence: _________________________________________________
_____________________________________________________________________
Mailing Address if Different: ______________________________________
_____________________________________________________________________
(c) Name and Address of Trustee or Custodian:
_____________________________________________________________________
_____________________________________________________________________
5. Acknowledgments by Purchaser [Please Initial, as applicable.]
______ I/(We) have received the Prospectus dated September __, 1997 (the
"Prospectus"), including the Declaration and
initial Agreement of Trust, the Subscription Requirements and the Subscription
Agreement and Power of Attorney set forth therein, the terms of which
govern the investment in the Units being subscribed for hereby,
together with, if applicable, recent Account Statements relating to the
Trust (current within 60 calendar days) and the Trust's most recent
Annual Report (unless the information in such Annual Report has been
included in this Prospectus by amendment or supplement).
______ I(We) meet the minimum income and net worth standards established for
the Trust as set forth in Exhibit B to the
initial Prospectus.
______ I(We) am (are) purchasing Units for my (our) own account.
initial
______ If this investment is for a qualified employee benefit plan, an
individual retirement account or other tax-exempt
initial investor, in making this investment on behalf of each entity, I(we)
have satisfied myself (ourselves) as to the potential tax consequences
of this investment.
SA-4
<PAGE>
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."
<TABLE>
<CAPTION>
Signature of Purchaser
FOR USE BY INVESTOR
<S> <C>
X_________________________________________________________ X___________________________________________________
Signature of Purchaser and Title, if applicable Date Custodian Authorization Date
(if applicable)
X_________________________________________________________
Signature of Joint Purchaser Date
</TABLE>
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 September __,
1997, 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:____________________ CITY:____________ STATE:___ ZIP CODE:_____
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
SA-5
<PAGE>
X_______________________________________________________________________________
Office Manager Signature Date
SA-6
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
Approximate
Amount
-----------
<S> <C>
Securities and Exchange Commission Registration Fee.................................. $ 17,242
National Association of Securities Dealers, Inc. Filing Fee.......................... 5,500
Printing Expenses.................................................................... 140,000
Fees of Certified Public Accountants................................................. 14,585
Blue Sky Expenses (Excluding Legal Fees)............................................. 38,365
Fees of Counsel...................................................................... 250,000
Miscellaneous Offering Costs......................................................... 112,308
Total............................................................................. 578,000
</TABLE>
____________________
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 17 of the Declaration of Trust and Trust Agreement
(attached as Exhibit A to the prospectus which forms a part of this
Registration Statement) provides for the indemnification of the Managing
Owner and certain of its affiliates by the Registrant. "Affiliates" shall
mean any person performing services on behalf of the Trust who: (1) directly
or indirectly controls, is controlled by, or is under common control with the
Managing Owner; or (2) owns or controls 10% or more of the outstanding voting
securities of the Managing Owner; or (3) is an officer or director of the
Managing Owner; or (4) if the Managing Owner is an officer, director, partner
or trustee, is any entity for which the Managing Owner acts in any such
capacity. Indemnification is to be provided for any loss suffered by the
Registrant which arises out of any action or inaction, if the party, in good
faith, determined that such course of conduct was in the best interest of the
Registrant and such conduct did not constitute negligence or misconduct. The
Managing Owner and its affiliates will only be entitled to indemnification
for losses incurred by such affiliates in performing the duties of the
Managing Owner and acting wholly within the scope of the authority of the
Managing Owner.
In the Selling Agreement, the Trading Advisors ("Advisors") have
agreed to indemnify each person who controls Kenmar within the meaning of
Section 15 of the Securities Act of 1933 and each person who signed this
Registration Statement or is a director of Kenmar against losses, claims,
damages, liabilities or expenses arising out of or based upon any untrue
statement or omission or alleged untrue statement or omission relating or
with respect to the Advisors or any principal of the Advisors or their
operations, trading systems, methods or performance, which was made in any
preliminary prospectus, this Registration Statement as declared effective,
the Prospectus included in this Registration Statement when declared
effective, or in any amendment or supplement thereto and furnished by or
approved by the Advisors for inclusion therein. The Advisors have also
agreed to contribute to the amounts paid by such controlling persons,
signatories or directors in respect of any such losses, claims, damages,
liabilities or expenses in the event that the foregoing indemnity is
unavailable or insufficient.
S-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
On July 17, 1996 the Registrant sold sixteen Units of Beneficial
Interest to an affiliated futures fund and four Units to Kenmar in order to
permit the formation of the Registrant in preparation for the filing of this
Registration Statement. This transaction was exempt under Section 4(2) of the
Securities Act of 1933, and no selling compensation was paid.
Item 16. Exhibits and Financial Statement Schedules.
The following documents (unless otherwise indicated) are filed
herewith and made a part of this Registration Statement:
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
The following exhibits are filed herewith.
1.02 Form of Amendment No. 1 to Selling Agreement.
3.03 Amended and Restated Declaration of Trust and Trust Agreement of the Registrant (included as
(Amended) Exhibit A to the Prospectus).
10.04 Subscription Agreement and Power of Attorney (included as Exhibit C to the Prospectus).
(Amended)
23.05 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
The following Exhibits were filed previously with the
Registrant's Form S-1 and are incorporated by reference herein.
1.01 Form of Selling Agreement.
(Amended)
3.01 Certificate of Formation of the Registrant.
3.02 Declaration of Trust and Trust Agreement of the Registrant.
5.01(a) Opinion of Sidley & Austin relating to the legality of the Units.
5.01(b) Opinion of Richards, Layton & Finger relating to the legality of Units.
8.01(a) Opinion of Sidley & Austin with respect to federal income tax consequences.
10.01 Form of Advisory Agreement.
(Amended)
10.02 Form of Customer Agreement between the Trust and the Commodity Brokers.
10.03 Form of Escrow Agreement
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- -------- -----------------------
<S> <C>
10.05 Form of Discretionary Investment Advisory Agreement (withdrawn).
10.06 Form of Customer Agreement between the Trust and PaineWebber Incorporated.
10.07 Form of Customer Agreement between the Trust and ING (U.S.) Securities, Futures & Options
Inc.
23.01 Consent of Sidley & Austin.
23.03 Consent of Richards, Layton & Finger (included in Exhibit 5.01(b)).
99.01 Securities and Exchange Commission Release No. 33-6815 -- Interpretation and Request for Public
Comment -- Statement of the Commission Regarding Disclosure by Issuers of Interests in Publicly
Offered Commodity Pools (54 Fed. Reg. 5600; February 6, 1989).
99.02 Commodity Futures Trading Commission -- Interpretative Statement and Request for Comments
-- Statement of the Commodity Futures Trading Commission Regarding Disclosure by Commodity Pool
Operators of Past Performance Records and Pool Expenses and Requests for Comments (54 Fed. Reg.
5597; February 6, 1989).
99.03 North American Security Administrators Association Guidelines for Registration of Commodity Pool
Programs.
</TABLE>
(b) Financial Statement Schedules.
No Financial Schedules are required to be filed herewith.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (Section 230.424(b) of
this chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
S-3
<PAGE>
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities under the
Securities Act of 1933 may be permitted to officers, directors or controlling
persons of the registrant pursuant to the provisions described in Item 14
above, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by an officer, director, or controlling person of the registrant in the
successful defense of any such action, suit or proceeding) is asserted by
such officer, director or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
S-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Managing Owner of the Registrant has duly caused this Registration Statement
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in The County of Fairfield in the State of Connecticut on the
21st day of August, 1997.
KENMAR GLOBAL TRUST
By: Kenmar Advisory Corp.
Managing Owner
By: /s/ Kenneth A. Shewer
-----------------------------
Kenneth A. Shewer
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed
below by the following persons on behalf of the Managing Owner of the
Registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title With Registrant Date
--------- --------------------- ----
<S> <C> <C>
/s/ Kenneth A. Shewer Chairman August 21, 1997
- --------------------------- (Principal Executive Officer)
Kenneth A. Shewer
/s/ Marc S. Goodman President August 21, 1997
- ---------------------------
Marc S. Goodman
/s/ Gary J. Yannazzo Senior Vice President -- August 21, 1997
- --------------------------- Finance (Principal Financial
Gary J. Yannazzo and Accounting Officer)
/s/ Esther E. Goodman Chief Operating Officer and August 21, 1997
- --------------------------- Senior Executive Vice President
Esther E. Goodman
</TABLE>
(Being principal executive officer, the principal financial and
accounting officer and a majority of the directors of Kenmar Advisory Corp.)
Kenmar Advisory Corp. Managing Owner of Registrant
By: /s/ Kenneth A. Shewer
-------------------------------------- August 21, 1997
Kenneth A. Shewer
Chairman
S-5
<PAGE>
As Filed with the Securities and Exchange Commission on August 21, 1997.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
EXHIBITS
To
AMENDMENT NO. 3
(POST-EFFECTIVE NO. 1)
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------
KENMAR GLOBAL TRUST
(Exact name of registrant as specified in its charter)
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
1.02 Form of Amendment No. 1 to Selling Agreement.
23.05 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
<PAGE>
Exhibit 1.02
AMENDMENT NO. 1
to
SELLING AGREEMENT
THIS AMENDMENT NO. 1 To SELLING AGREEMENT between Kenmar Advisory
Corp., (the "Managing Owner") and PaineWebber Incorporated (the "Selling
Agent"), is made and entered into as of August , 1997.
WHEREAS, the Managing Owner and the Selling Agent entered into a
Selling Agreement dated as of December 17, 1996;
WHEREAS, the Managing Onwer and the Selling Agent desire to amend
the Selling Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of all of which are hereby acknowledged, the Managing Owner
and the Selling Agent agree as follows:
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meanings set forth in the Selling Agreement.
2. Paragraph 2 of Section 4(b) of the Selling Agreement is amended
and restated in its entirety to read as follows:
Ongoing compensation, which is payable to the Selling Agents only
in respect of Units sold by Registered Representatives who are
themselves registered with the CFTC and who have passed either the
Series 3 National Commodity Futures Examination or who have been
grandfathered from having to do so (a "Qualified Registered
Representative"), is contingent upon the provision by such
Qualified Registered Representatives of ongoing services in
connection with the Units sold by such Qualified Registered
Representatives, including: (i) inquiring of the Managing Owner
from time to time, at the request of an owner of Units, as to the
Net Asset. Value per Unit; (ii) inquiring of the Managing Owner
from time to time, at the request of an owner of Units, regarding
the commodities markets and the Trust; (iii) assisting, at the
request of the Managing Owner, in the redemption of Units and (iv)
providing such other services to the owners of Units as the
Managing Owner may, from time to time, reasonably request. The
Selling Agent agrees to adopt procedures to monitor the adequacy of
the ongoing services provided by Qualified Registered
Representatives. Substitute Qualified Registered Representatives
who are appropriately registered may also receive trailing
commissions.
3. A new paragraph 3 is hereby added immediately following
paragraph 2 of Section 4(b), which paragraph shall read in its entirety as
follows:
<PAGE>
At any time during the course of this Agreement the Selling Agent
may assign one or more Qualified Registered Representatives to
provide the additional services described in the immediately
preceding paragraph to owners of Units sold by registered
representatives who are not Qualified Registered Representatives.
The Selling Agent will be entitled to the ongoing compensation
described in this subsection 4(b) with respect to such Units and
will apportion the ongoing compensation related to the provision of
such additional services among its registered representatives.
However, the aggregate ongoing compensation paid to any non-
Qualified Registered Representative will not exceed 4.5% of the
initial subscription price of such Units.
4. Old paragraph 3, which is now the new paragraph 4, is hereby
amended and restated in its entirety to read as follows:
In the case of Units with respect to which there is no Qualified
Registered Representative the Managing Owner will pay the Selling
Agent installment selling commissions at the same rate as in the
case of ongoing compensation, but limited in amount, pursuant to
applicable NASD policy, to 4.5% of the initial subscription price
of such Units; provided, that no such installment selling
commission shall be payable until the Managing Owner and the
Selling Agent determine that the payment of such installment
selling commission is in compliance with NASD Conduct Rule 2810 on
aggregate compensation which may be received by the Selling Agent.
5. This Amendment may be Executed in any number of counterparts,
each of which shall be considered an original.
2
<PAGE>
WITNESS WHEREOF, the undersigned have duly executed this AMENDMENT
as of the day and year first above written.
KENMAR GLOBAL TRUST
By: KENMAR ADVISORY CORP.,
Managing Owner
By:
-----------------------------------
Name:
Title:
By: KENMAR ADVISORY CORP.,
By:
-----------------------------------
Name:
Title:
PAINEWEBBER INCORPORATED
By:
-----------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
[CORRESPONDENT SELLING AGENT]
By:
--------------------------
Title:
3
<PAGE>
Exhibit 23.05
[Letterhead of Arthur F. Bell, Jr. & Associates, L.L.C.]
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
We consent to the use in the Prospectus constituting part of this Registration
Statement on Form S-1 of our report dated August 6, 1997 on the statement of
financial condition of Kenmar Global Trust as of December 31, 1996 and our
report dated November 15, 1996 on the statement of financial condition of
Kenmar Advisory Corp. as of September 30, 1996, which appear in such
Prospectus. We also consent to the statements with respect to us as
appearing under the heading "Experts" in the Prospectus.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
Lutherville, Maryland
August 15, 1997
