As filed with the Securities and Exchange Commission on May 26, 1998
Registration No. 333-8869
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 4
(POST-EFFECTIVE AMENDMENT NO. 2)
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
KENMAR GLOBAL TRUST
(Exact name of registrant as specified in its charter)
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
Item
No. Prospectus Heading
--- ------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus............................ Inside Cover Page;
Table of Contents
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges............. Summary; The Trust and Its
Objectives; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Inside Cover Page; Plan of
Distribution
6. Dilution........................................ Not Applicable
7. Selling Security Holders........................ Not Applicable
8. Plan of Distribution............................ Inside Cover Page; Plan of
Distribution
9. Description of Securities to Be
Registered..................................... Cover Page; The Trust and
Its Objectives; The
Futures and Forward
Markets; Redemptions; The
Trust and the Trustee
10. Interests of Named Experts and
Counsel........................................ Legal Matters; Experts
11. Information with Respect to the
Registrant..................................... Summary; Risk Factors;
Investment Factors; The
Trust and Its Objectives;
Charges; Kenmar Advisory
Corp.; Conflicts of
Interest; The Futures and
Forward Markets; The Trust
and the Trustee; Index to
Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................................ Not Applicable
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
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. The Trust's performance record from inception through
April 30, 1998 is set forth at page 51.
Units of beneficial interest ("Units ") are offered for sale as of
the last day of each month at the then-current Net Asset Value per Unit. 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 36.
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.
---------------
o 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.
o The Trust's trading is highly leveraged and takes place in volatile
markets.
o 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.
o Certain general types of market conditions -- in particular, trendless
periods without major price movements -- significantly reduce the
potential for certain Advisors to trade successfully.
SEE "RISK FACTORS" AND "CONFLICTS OF INTEREST" beginning at pages 9 and 34,
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 49.
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>
======================================================================================================================
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
======================================================================================================================
<S> <C> <C> <C>
</TABLE>
See notes on page (i).
Kenmar Advisory Corp.
Managing Owner
The date of this Prospectus is May 26, 1998
(Not for use after June 26, 1999)
<PAGE>
Notes to Cover Page
(1) The Units are being 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 participate 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 -- "Accredited investors", as defined in Rule 501(a)
under the Securities Act of 1933.
8. Mississippi -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
9. Missouri -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
10. New Hampshire -- Net worth of at least $250,000 or a net worth
of at least $125,000 and an annual income of at least $50,000.
11. North Carolina -- Net worth of at least $225,000 or a net worth
of at least $60,000 and an annual income of at least $60,000.
-i-
<PAGE>
Notes to Cover Page (cont'd)
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 $563,000, was advanced by Kenmar. Such costs may be
reduced by up to $25,000 if the Net Asset Value of the Trust on December 31,
1998 is less than $35,000,000. 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. As of March 31, 1998 the Trust has reimbursed
approximately $267,000 to Kenmar.
(3) See "Plan of Distribution-- Selling Agents' Compensation" at
page 49 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
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 ongoing 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 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 ongoing 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 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 24 THROUGH
26 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
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 9 THROUGH 13.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
-1-
<PAGE>
Table of Contents (cont.)
KENMAR GLOBAL TRUST
Table of Contents
Prospectus Section Page
- ------------------ ----
Summary.................................................. 4
Overview.............................................. 4
Risk Factors.......................................... 4
The Trust and Its Objectives.......................... 5
"Breakeven Table"..................................... 6
Suitability........................................... 8
Risk Factors............................................. 9
(1) Past Performance Not
Necessarily Indicative of Future
Results; All or Substantially All
of an Investment Could Be Lost................... 9
(2) Speculative and Volatile Markets; Highly
Leveraged Trading................................ 9
(3) Substantial Charges ............................. 9
(4) Importance of Market Conditions
to Profitability................................. 9
(5) Technical, Trend-Following
Trading Systems Require
Sustained Price Moves in
Order to Trade Profitably........................ 10
(6) Discretionary Trading Strategies
May Incur Substantial Losses..................... 10
(7) Decisions Based Upon Fundamental
Analysis May Not Result in
Profitable Trading............................... 10
(8) Increasing the Assets Managed by
the Advisors May Diminish
Their Returns.................................... 10
(9) No Assurance of Advisors' Continued
Services......................................... 10
(10) Limited Ability to Liquidate an
Investment in the Units.......................... 11
(11) Possible Illiquid Markets....................... 11
(12) "Zero-Sum" Trading; The Trust
Does Not Acquire Any Asset
with Intrinsic Value............................. 11
(13) Non-Correlated, Not Negatively
Correlated, Performance Objective................ 11
(14) Broad Indices May Perform Quite
Differently From Individual Investments.......... 11
(15) Distortion in Profit Share and Incentive
Fee Calculations................................. 11
(16) Advisors Trading Independently
of Each Other May Reduce
Risk Control Potential........................... 12
(17) Trading on Commodity Exchanges
Outside the United States May
Present Certain Additional Risks................. 12
(18) Conflicts of Interest............................ 12
(19) Unitholders Taxed Currently...................... 12
(20) Limitation on Deductibility
of "Investment Advisory Fees".................... 13
(21) Taxation of Interest Income
Irrespective of Trading Losses................... 13
(22) Possibility of a Tax Audit of Both
the Trust and Unitholders........................ 13
(23) Failure of Brokerage Firms; Default
by Forward Market Participants................... 13
(24) Regulatory Matters May Alter the Nature
of an Investment in the Trust.................... 13
The Trust and Its Objectives............................. 14
Objectives............................................ 14
Investment Philosophy................................. 14
The Advisors.......................................... 17
Kenmar Advisory Corp..................................... 20
Background and Principals............................. 20
Management of Traders................................. 22
Fiduciary Obligations of Kenmar....................... 22
Investment of Kenmar in the Trust..................... 23
Use of Proceeds.......................................... 23
Charges.................................................. 24
Charges Paid by the Trust............................. 24
Organizational and Initial Offering
Costs............................................ 25
Brokerage Commissions............................ 25
Miscellaneous Execution Costs.................... 26
"Bid-ask" Spreads................................ 26
Profit Shares and Incentive Fees................. 26
Ongoing Operating, Selling and
Administrative Costs..................... 28
Extraordinary Expenses........................... 28
Charges Paid by Kenmar................................ 28
Selling Commissions; "Trailing
Commissions"..................................... 28
Consulting Fees.................................. 29
Redemption Charges.................................... 29
The Clearing Brokers..................................... 29
ING BARINGS Futures & Options
Clearing Services..................................... 29
PaineWebber........................................... 29
Conflicts of Interest.................................... 34
General............................................... 34
Kenmar................................................ 34
The Advisors.......................................... 35
The Clearing Brokers and
Executing Brokers.................................... 35
Selling Agents........................................ 36
Proprietary Trading/Other Clients..................... 36
Redemptions and Distributions............................ 36
The Trust and the Trustee................................ 37
Principal Office; Location of Records................. 37
Certain Aspects of the Trust.......................... 38
The Trustee........................................... 38
Management of Trust Affairs; Voting by
Unitholders........................................... 39
Recognition of the Trust in Certain States............ 39
-2-
<PAGE>
Table of Contents (cont.)
Possible Repayment of Distributions Received
by Unitholders; Indemnification of the
Trust by Unitholders
Transfers of Units Restricted......................... 40
Reports to Unitholders................................ 40
General............................................... 40
The Futures and Forward Markets.......................... 40
Futures and Forward Contracts......................... 40
Hedgers and Speculators............................... 41
Commodity Exchanges................................... 41
Speculative Position and Daily Price
Fluctuation Limits.................................... 41
Margins............................................... 42
Federal Income Tax Consequences.......................... 42
The Trust's Partnership Tax Status.................... 42
Taxation of Unitholders on Profits and
Losses of the Trust................................... 42
Limitations on Deductibility of Trust
Losses by Unitholders................................. 43
Treatment of Income and Loss Under the
"Passive Activity Loss Rules"......................... 43
Cash Distribution and Redemption of Units............. 43
Gain or Loss on Section 1256 Contracts................ 43
Gain or Loss on Non-Section 1256 Contracts............ 44
Tax on Capital Gains and Losses....................... 44
Limited Deduction for Certain Expenses................ 44
Interest Income....................................... 45
Syndication Fees...................................... 45
Limitation on Deductibility of
Interest on Investment Indebtedness................... 45
"Unrelated Business Taxable Income"................... 45
IRS Audits of the Trust and Its Unitholders........... 45
State and Other Taxes................................. 46
Purchases by Employee Benefit Plans...................... 46
General............................................... 46
"Plan Assets"......................................... 47
Ineligible Purchasers................................. 48
Plan of Distribution..................................... 48
Subscription Procedure................................ 48
Subscribers' Representations and
Warranties............................................ 49
Selling Agents' Compensation.......................... 49
Legal Matters............................................ 50
Experts.................................................. 50
Additional Information................................... 50
Recent Financial Information and Annual
Reports............................................... 50
Performance of Kenmar Global Trust....................... 51
Selected Financial Data ................................. 52
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 53
Operational Overview; Advisor Selections.............. 53
Liquidity............................................. 53
Results of Operations................................. 54
General............................................... 54
Performance Summary................................... 55
Capital Resources..................................... 55
Index of Defined Terms................................... 56
The Advisors............................................. 57
Performance of Commodity Pools
Operated by Kenmar ....................................102
Investment Factors ......................................106
Index to Financial Statements............................F-1
Kenmar Global Trust Independent
Auditors' Report......................................F-2
Kenmar Global Trust Statements
of Financial Condition as of
December 31, 1997 and 1996............................F-3
Kenmar Global Trust Statement
of Operations for Year Ended December
31, 1997 and for Period July 17, 1996 to
December 31, 1996.....................................F-4
Kenmar Global Trust Statement
of Cash Flows for Year Ended December
31, 1997 and for Period July 17, 1996 to
December 31, 1996.....................................F-5
Kenmar Global Trust Statement of
Changes in Unitholders' Capital
(Net Asset Value) for Year Ended December
31, 1997 and for Period July 17, 1996 to
December 31, 1996....................................F-6
Kenmar Global Trust Notes to Financial
Statements............................................F-7-10
Kenmar Global Trust Statements of Financial
Condition as March 31, 1998 (unaudited)
and December 31, 1997 (audited)...................F-11
Kenmar Global Trust Statements of Operations
for the Three months Ended March 31, 1998
and 1997 (unaudited)............................F-12
Kenmar Global Trust Statements of Cash Flows
for the Three months Ended March 31, 1998
and 1997 (unaudited)............................F-13
Kenmar Global Trust Statements of Changes
in Unitholders' Capital (Net Asset Value)
for the Three months Ended March 31, 1998
and 1997 (unaudited)............................F-14
-3-
<PAGE>
Table of Contents (cont.)
Kenmar Global Trust Notes to Financial
Statements...............................................F-15-20
Kenmar Advisory Corp. Independent
Auditors' Report........................................ F-21
Kenmar Advisory Corp. Statements
of Financial Condition.................................. F-22
Kenmar Advisory Corp. Notes to
Statement of Financial
Condition ...........................................F-23-30
Appendix I - Glossary.....................................APPI-1
Exhibit A--Amended and Restated
Declaration of Trust and
Trust Agreement.......................................... TA-1
Annex--Request for Redemption
Exhibit B--Subscription Requirements....................... SR-1
Exhibit C--Subscription Instructions,
Subscription Agreement and
Power of Attorney...............................SA-(i)
-4-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The nature of an investment in the Trust is complex and must be carefully
reviewed by any person considering purchasing Units. The following summary
is qualified in its entirety by the information set forth elsewhere
in this Prospectus.
--------------------
Overview
o Experienced Managing Owner and Advisors. See "The Trust and Its
Objectives -- The Advisors" at page 17 and "Kenmar Advisory Corp." at page
20.
o Access to a wide range of domestic and international markets. See "The
Trust and Its Objectives -- Diversification" at page 15.
o Diversification among trading strategies. See "The Trust and Its
Objectives -- Investment Philosophy" at page 14.
o Investing in a managed futures fund can be an effective way to globally
diversify a portfolio. See "Investment Factors -- Diversifying into
Managed Futures" at page 107.
o Offering the advantages of (i) limited liability while participating in
highly leveraged trading, (ii) monthly redemption rights (beginning at the
end of the sixth month after purchase), and (iii) administrative
convenience in a fund implementing complex trading strategies in domestic
and international markets See "Investment Factors -- Limited Liability" at
page 111 and "Redemptions and Distributions" at page 36.
Risk Factors
An investment in the Trust is speculative
and involves a high degree of risk.
o Past performance is not necessarily indicative of future results; all or
substantially all of an investment could be lost. See "Commodity Futures
Trading Commission--Risk Disclosure Statement" at page 1 and "Risk Factor
(1)--Past Performance Not Necessarily Indicative of Future Results; All or
Substantially All of an Investment Could Be Lost" at page 9.
o The Trust's trading is highly leveraged and takes place in very volatile
markets. See "The Trust and Its Objectives" at page 14 and "Risk
Factor(2)--Speculative and Volatile Markets; Highly Leveraged Trading" at
page 9.
o 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 7, "Charges" beginning at page
24 and "Risk Factor (3) -- Substantial Charges" at page 9.
o Certain general types of market conditions -- in particular, trendless
periods without major price movements -- significantly reduce the
potential for certain Advisors to trade successfully. See "Risk Factor (4)
-- Importance of Market Conditions to Profitability" at page 9.
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.
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SUMMARY (cont'd)
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 April 1, 1998, Kenmar and its
affiliates were acting as trading manager for commodity pools and accounts with
total capital (excluding "notional" funds) of approximately $565 million, of
which approximately $89 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 May 1, 1998, the Advisors were collectively managing
approximately $1.15 billion in managed futures accounts in which their clients
(and in certain cases the Advisors themselves) had invested, and approximately
$620 million in the trading programs being used for the Trust.
See "The Advisors" below for certain performance
and other information relating to the Advisors.
Tax Status of the Trust
In the opinion of counsel, the Trust is properly classified as a
partnership for federal income tax purposes. Unitholders will pay tax each year
on their allocable share of the Trust's taxable income, if any, whether or not
they receive any distributions from the Trust or redeem any Units. Substantially
all of the Trust's trading gains and losses will be treated as capital gains or
losses for tax purposes; interest income received by the Trust will be treated
as ordinary income. See "Federal Income Tax Consequences " at page 42.
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<PAGE>
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SUMMARY (cont'd)
"Breakeven Table"
The "Breakeven Table" below indicates the approximate percentage and
dollar returns required for the redemption value of an initial $5,000 investment
in the Units to equal the amount originally invested twelve months after
issuance (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"
================================================================================
Dollar Return
EXPENSES(1) Percentage Return Required
WHICH MUST BE OFFSET Required ($5,000 Initial Investment)
TO "BREAK EVEN" First Twelve Months First Twelve Months
of Investment of Investment
- --------------------------------------------------------------------------------
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
INVESTMENT REQUIRED FOR 14.40% $720.00
"BREAK EVEN"
================================================================================
Notes to "Breakeven Table"
(1) See "Charges" at page 24 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.
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<PAGE>
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SUMMARY (cont'd)
(5) Profit Shares are calculated quarterly on the basis of each Advisor's
individual performance, not the overall performance of the Trust.
Consequently, it is not possible to determine the amount of Profit Shares,
if any, that would be payable in a "breakeven" year. Kenmar believes that
2.00% of average beginning of month Net Assets is a reasonable estimate
for such Profit Shares, but the actual Profit Shares paid in a "breakeven"
year could substantially exceed such estimate.
(6) No Incentive Fee might, in fact, be due despite the approximately 3.1% Net
Asset Value gain necessary to offset the redemption charge of $155 (based
on an initial $5,000 investment). See "Charges -- Profit Shares and
Incentive Fees" at page 25. However, for purposes of the "Breakeven
Table," the Incentive Fee has been estimated at 5% of such 3.1% gain.
(7) 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.
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-8-
<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 trades are speculative, highly
leveraged and involve a high degree of risk. Each Advisor's trading considered
individually involves a significant risk of incurring large losses, and there
can be no assurance that the Trust as a whole will not incur such losses.
Futures and forward prices are volatile. Volatility increases risk,
particularly when trading with leverage. Trading on a highly leveraged basis, as
does 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 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.
-9-
<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, 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. For example, Kenmar has been required to replace an Advisor
that resigned from trading the Trust's account under the terms of its Advisory
Agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." In addition, 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 34. Kenmar may not be able to obtain the services of the Advisor group that
Kenmar would otherwise consider to be most advantageous for the Trust.
-10-
<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) Possible 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 necessarily 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 and
EAFE 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.
-11-
<PAGE>
See "Charges" at page 24. Certain investors' Units could be subject to Profit
Shares and Incentive Fees despite having declined in Net Asset Value from their
purchase price. The Trust's 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 34. 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 34 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 42.
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.
-12-
<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
Trust 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 42.
(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 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.
-13-
<PAGE>
THE TRUST AND ITS OBJECTIVES
Objectives
o Significant profits over time
o Controlled performance volatility
o Controlled risk of loss
o A means of diversifying a traditional portfolio out of its typical "all
long" equity and debt bias and dependence on a single nation's economy by
accessing global financial and non-financial futures markets.
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 could also help
reduce the overall volatility, or risk, of a portfolio. By investing in markets
that operate independently from United States stock and bond markets, the Trust
may provide positive returns even when United States stock and bond markets are
experiencing flat to negative performances.
The 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.
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 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 (24) --
Regulatory Matters May Alter the Nature of an Investment in the Trust" at page
13. It is not anticipated that Kenmar will make frequent adjustments to the
group of Advisors for the Trust.
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<PAGE>
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.
Diversification
Trader Diversification
The Trust utilizes a number of Advisors who are allocated varying
amounts of capital. These allocations will vary continually. Multiple Advisors
provide multiple timing parameters and different sector focuses. This produces a
portfolio that is quite different from that of a single-trader fund. See Risk
Factor (16) -- "Advisors Trading Independently of Each Other May Reduce Risk
Control Potential" at page 12.
Market Diversification
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.
Through Kenmar's Advisor selections, the Trust will have the
flexibility to access world markets, including but not limited to:
Currencies
- --------------------------------------------------------------------------------
Australian Dollar
Belgian Franc
British Pound
Canadian Dollar
Danish Krone
Deutsche Mark
Dutch Guilder
European Currency Unit
Finnish Markka
French Franc
Irish Punt
Italian Lira
Japanese Yen
Malaysian Ringgit
Mexican Peso
New Zealand Dollar
Norwegian Krone
Singapore Dollar
Spanish Peseta
Swedish Krona
Swiss Franc
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<PAGE>
Financial Instruments
- --------------------------------------------------------------------------------
Australian Treasury Bills
Australian Treasury Bonds
CAC 40 Stock Index (France)
Canadian Bonds
DAX Stock Index (Germany)
Eurodollars
Euromarks
Euroswiss
Eurotop 100 Index (Europe)
Euroyen
Financial Times 100 Stock Index (U.K.)
Financial Times 250 Stock Index (U.K.)
French Bonds
German Bonds
Italian Bonds
Japanese Bonds
Major Market Stock Index (U.S.)
MEFF&S Stock Index (Spain)
MIBOR
Nikkei Stock Average (Japan)
Nikkei Stock Index 300 (Japan)
PIBOR
S&P 500 Stock Index (U.S.)
Spanish Bonds
Tokyo Stock Price Index (Japan)
U.K. Bonds
U.K. Short Sterling
U.S. Treasury Bills
U.S. Treasury Bonds
U.S. Treasury Notes
Value Line Stock Index (U.S.)
Metals
- --------------------------------------------------------------------------------
Aluminum
Copper
Gold
Lead
Nickel
Palladium
Platinum
Silver
Tin
Zinc
Energy Products
- --------------------------------------------------------------------------------
Crude Oil
Electricity
Gas Oil
Heavy Fuel Oil
Natural Gas
No. 2 Heating Oil
Propane
Residual Fuel Oil
Unleaded Gasoline
Agricultural Products
- --------------------------------------------------------------------------------
Cocoa
Coffee
Corn
Cotton
Feeder Cattle
Live Cattle
Live Hogs
Oats
Orange Juice
Pork Bellies
Soybeans
Soymeal
Soy Oil
Sugar
Wheat
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.
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[PIE CHART OMITTED]
[The following table was depicted as a pie chart in the printed material.]
Curriencies 26%
European Rates 20%
Pacific Rim Rates 5%
U.S. Rates 10%
U.S. Stock Indices 3%
Non-U.S. Stocks 7%
Metals 14%
Grains 7%
Softs 4%
Energies 4%
This represents a snapshot allocation of asset given the portfolio of traders
for July 1, 1998. The percentage exposure to markets will vary substantially
over time as traders assess the various Sectors
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 13. Each initial Advisor is, and it is anticipated that any subsequent
Advisor, if any, will be, registered with and regulated by 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 for
the Trust anticipated to be in effect as of July 1, 1998.
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<TABLE>
<CAPTION>
Approximate Assets
Advisor and General Under Management
% Allocation* Strategy Type May 1, 1998**
------------- ------------- -------------
<S> <C> <C>
Dreiss Research Corporation Pattern-Recognition, Long-Term $14.5 million (total)
(27%) Technical, Trend-Following
Hirst Investment Management Inc. Technical, Non-Discretionary $61.9 million (total)
(9.5%)
Hyman Beck & Company, Inc. Long-Term Technical, $264 million (total)
(27%) Trend-Following $203 million (Global)
Sunrise Capital Partners, LLC Long-Term Technical, $283.5 million (total)
9.5% Trend Following Expanded Diversified
Program
Willowbridge Associates Inc. Discretionary, Fundamental $526.5 million (total)
(27%) and Technical $280.4 million (XLIM)
</TABLE>
- ----------
* The Advisors and asset allocations for the Trust anticipated to be in
effect as of July 1, 1998 are more specifically described under "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
allocations set forth above are approximate, and will be affected by (i) the
profit and loss generated by each Advisor in relation to the performance of the
other Advisors for the Trust and (ii) any subsequent reallocation decision by
Kenmar. The initial allocations to the Advisors at the commencement of the
Trust's trading operations , allocations and reallocations of subsequent
subscription amounts are described under "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
** 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 57. 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 9.
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 61 through 65 for performance
information relating to Dreiss Research Corporation.
Hirst Investment Management Inc.
Hirst Investment Management Inc. trades a diversified portfolio
pursuant to its DSP Trading System (the "System"). The System is a technical
methodology which uses information generated by the market itself, such as
prices, volume and open interest. It ignores "fundamental" data, such as news,
politics, and weather, except as these factors are reflected in the markets. The
methodology and the algorithms used are original work
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<PAGE>
and are not derived from any other known trading methodology. Hirst Investment
Management Inc. may trade futures on any and all U.S. and non-U.S. commodities
including, but not limited to, financials, currencies, interest-rate contracts,
metals, livestock, grains, stock indices, energies, softs, fiber and foods.
Hirst Investment Management Inc. may also trade the interbank foreign exchange
markets and cash commodities and may effect exchanges of futures for physicals
(EFP) transactions. See pages 66 through 68 for performance information relating
to Hirst Investment Management Inc.
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. trades 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 69 through 78 for
performance information relating to Hyman Beck & Company, Inc.
Sunrise Capital Partners, LLC
Sunrise Capital Partners, LLC will trade its Expanded Diversified
Program on behalf of the Trust. Sunrise Capital Partners, LLC utilizes technical
trend-following systems trading a wide continuum of time windows. Relying on
technical analysis Sunrise Capital Partners, LLC believes that future price
movements in all markets may be more accurately anticipated by analyzing
historical price movements within a quantitative framework rather attempting to
predict or forecast changes in price through fundamental economic analysis. The
trading methodologies employed by Sunrise Capital Partners LLC are based on
programs analyzing a large number of interrelated mathematical and statistical
formulas and techniques which are quantitative, proprietary in nature and which
have been either learned or developed by principals of Sunrise Capital Partners,
LLC. Sunrise Capital Partners, LLC's trading system consists of multiple,
independent and parallel systems, each designed and tested to seek out and
extract different market inefficiencies on different time horizons. See pages 79
through 88 for performance information relating to Sunrise Capital Partners,
LLC.
Willowbridge Associates Inc.
Willowbridge Associates Inc. utilizes 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 89 through 101 for
performance information relating to Willowbridge Associates Inc.
The Advisory Agreements
The Advisory Agreements among the Trust, Kenmar and three of the
Trust's initial Advisors (Dreiss Research Corporation, Hyman Beck & Company,
Inc. and Willowbridge Associates Inc.) terminated as of December 31, 1997, but
have been renewed for the first of up to two additional one-year terms. The
Trust and Kenmar have entered into Advisory Agreements with two additional
Advisors, Hirst Investment Management Inc. and Sunrise Capital Partners, LLC
(which will receive allocations of Trust assets as of July 1, 1998). The Hirst
Investment Management Inc. and Sunrise Capital Partners, LLC Advisory Agreements
have an initial term through December 31, 1999, and may be renewed 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
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<PAGE>
retains the right to withdraw funds from any Advisor's trading account at any
time (including immediately).
Each Advisory Agreement provides that the Trust will indemnify the
Advisor and its affiliates, as well as their respective officers, shareholders,
directors, employees, partners and controlling persons for conduct taken as an
Advisor or in connection with the Advisory Agreement, provided that such conduct
does not constitute negligence, misconduct or breach of the Advisory Agreement
or of any fiduciary obligation to the Trust and was done in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Trust. Each Advisory Agreement further provides that this indemnity
provision will not increase the liability of any Unitholder to the Trust beyond
the amount of such Unitholder's capital and profits, if any, in the Trust
(exclusive of previously received distributions or other returns of capital,
including redemptions).
Under the exculpatory provisions of the Advisory Agreements, none of
the Advisors, their affiliates nor their respective officers, directors,
employees, partners, controlling persons or shareholders will be liable to the
Trust or to any of the Unitholders in connection with their management of assets
of the Trust except by reason of acts or omissions in contravention of the
Advisory Agreement, or due to their misconduct or negligence, or by reason of
not having acted in good faith and in the reasonable belief that such actions or
omissions were in, or not opposed to, the best interests of the Trust.
Three of the Trust's initial Advisors (Dreiss Research Corporation,
Hyman Beck & Company, Inc. and Willowbridge Associates Inc.), and/or its
affiliates and principals, purchased 500 Units as of the inception of the
Trust's trading. Each of the foregoing initial Advisors has agreed to maintain
this investment for as long as it continues to act as an Advisor. Hirst
Investment Management Inc and Sunrise Capital Partners, LLC do not currently
intend to purchase Units.
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, any of its principals or 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
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<PAGE>
occupied their present positions with Kenmar since that time.
Ms. Esther Eckerling Goodman (born 1952), Chief Operating Officer
and Senior Executive Vice President, joined Kenmar in July 1986 and has been
involved in the futures industry since 1974. From 1974 through 1976, she was
employed by Conti-Commodity Services, Inc. and ACLI Commodity Services, Inc., in
the areas of hedging, speculative trading and tax arbitrage. In 1976, Ms.
Goodman joined Loeb Rhoades and Company, Inc. where she was responsible for
developing and managing a managed futures program which, in 1979, became the
trading system for Westchester Commodity Management, an independent commodity
trading advisor of which Ms. Goodman was a founder and principal. From 1983
through mid-1986, Ms. Goodman was employed as a marketing executive at
Commodities Corp. (USA) of Princeton, New Jersey. Ms. Goodman was a Director of
the Managed Futures Trade Association from 1987 to 1991 and a Director of its
successor organization, the Managed Futures Association, from 1991 to 1995. She
has written several articles and has spoken before various professional groups
and organizations on the subject of managed futures. Ms. Goodman graduated from
Stanford University in 1974 with a B.A. degree.
Mr. Robert L. Cruikshank (born 1936), Executive Vice President,
joined Kenmar in March 1991. Mr. Cruikshank spent 20 years (1958-1978) at Blyth
Eastman Dillon in New York and was its Executive Vice President in charge of the
Securities Division, which included all domestic and international sales and
branch office activities, all trading departments, and the research areas. In
1979, Mr. Cruikshank jointly formed Neild, Cruikshank & Co., an independent
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 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
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January 1986 through July 1991, he worked for Bankers Trust Company, building
equity trading systems, and marketing and implementing foreign exchange trading
systems at international merchant banks. From September 1981 through June 1985,
Mr. Rothstein was employed as a programmer, project leader and manager by
Digital Equipment Corporation. He was with Hewlett Packard Company from July
1979 through September 1981. Mr. Rothstein graduated from Columbia University
with an M.B.A. degree in December 1985 and from Cornell University with a B.S.
in Computer Science in 1979.
Management of Traders
Kenmar's hallmark is its emphasis on vigilant management of its
portfolios of traders. Kenmar analyzes trading performance on a daily basis for
each trader 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 13
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
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<PAGE>
Guidelines prescribe the maximum permissible extent to which the Trust can
indemnify the Kenmar Related Parties and prohibit the Trust from purchasing
insurance to cover indemnification which the Trust itself could not undertake
directly.
Fiduciary and Regulatory Duties
An investor should be aware that Kenmar has a fiduciary
responsibility to the Unitholders to exercise good faith and fairness in all
dealings affecting the Trust.
Under Delaware law, a beneficial owner of a business trust (such as
a Unitholder of the Trust) may, under certain circumstances, institute legal
action on behalf of himself and all other similarly situated beneficial owners
(a "class action") to recover damages from a managing owner of such business
trust for violations of fiduciary duties, or on behalf of a business trust (a
"derivative action") to recover damages from a third party where a managing
owner has failed or refused to institute proceedings to recover such damages. In
addition, beneficial owners may have the right, subject to applicable procedural
and jurisdictional requirements, to bring class actions in federal court to
enforce their rights under the federal securities laws and the rules and
regulations promulgated thereunder by the Securities and Exchange Commission
("SEC"). Beneficial owners who have suffered losses in connection with the
purchase or sale of their beneficial interests may be able to recover such
losses from a managing owner where the losses result from a violation by the
managing owner of the anti-fraud provisions of the federal securities laws.
Under certain circumstances, Unitholders also have the right to
institute a reparations proceeding before the CFTC against Kenmar (a registered
commodity pool operator), the Clearing Brokers (registered futures commission
merchants) and the Advisors (registered commodity trading advisors), as well as
those of their respective employees who are required to be registered under the
Commodity Exchange Act, as amended, and the rules and regulations promulgated
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 34.
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, has
invested $100,000 in the Trust. Marc S. Goodman, the President of Kenmar, has
invested $5,500 in the Trust through an individual retirement account, and
Kenneth A. Shewer, the Chairman of Kenmar, has invested $5,200 in the Trust
through an individual retirement account.
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.
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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."
Although the percentages set forth below may vary substantially over
time, as of March 31, 1998, the Trust estimates:
(i) up to approximately 84% of the Net Asset Value of the Trust will
be placed with the Clearing Brokers 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;
(ii) up to approximately 8% of the Trust's assets will be used to
margin foreign futures contracts; and
(iii) approximately 8% in bank deposits.
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 approximately
and initial offering costs $563,000, which costs may be reduced by up to
$25,000. The Net Asset Value of the Trust on
December 31, 1998 is less than $35,000,000.
Such advanced costs are being reimbursed to Kenmar
in monthly installments of 0.2% of the Trust's
beginning of month Net Assets. As of March 31,
1998 the remaining balance is approximately
$296,000.
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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Recipient Nature of Payment Amount of Payment
- --------- ----------------- -----------------
Advisors Profit Shares Paid by the Trust on a quarterly basis (although
accrued against Net Asset Value per Unit monthly).
Each initial Advisor's Profit Share is determined
based on any New Trading Profit (as defined)
generated by such Advisor. New Trading Profit in
respect of each Advisor's account is calculated
after reduction for brokerage commissions at an
annual rate of 4.5% -- 7.0%, rather than at an 11%
annual rate, and execution costs actually incurred
(other than floor brokerage, exchange, clearing
and NFA fees). New Trading Profit is not reduced
by any Incentive Fee, administrative expenses or
organizational and initial offering costs (or
extraordinary expenses). The Profit Shares are
payable separately to each Advisor based on its
individual performance, not overall profits of the
Trust. Units may be subject to reduction for
Profit Shares attributable to a particular Advisor
even though the Net Asset Value per Unit has
declined from the purchase price of such Units.
Kenmar Incentive Fee Paid by the Trust as a whole on an annual basis
(although accrued against Net Asset Value per Unit
monthly). The Incentive Fee equals 5% of any New
Overall Appreciation (as defined). An Incentive
Fee may be allocated even though the Net Asset
Value per Unit has declined from the purchase
price of such Units.
Third
Parties Operating, Paid as incurred; not anticipated to exceed 0.50%
Selling, and of the Trust's average beginning of month Net
Administrative Assets per year.
costs
Third
Parties Reimbursement Actual payments to third parties; expected to be
of delivery, negligible.
insurance,
storage and any
other
extraordinary
expenses; taxes
(if any)
------------------------
Organizational and Initial Offering Costs
Kenmar has advanced the organizational and initial offering costs of
the Trust in a total amount of approximately $563,000. Such costs may be reduced
by up to $25,000 if the Net Asset Value of the Trust on December 31, 1998 is
less tan $35,000,000. 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). As
of March 31, 1998, the remaining balance is approximately $296,000.
Brokerage Commissions
Commodity brokerage commissions for futures trades are typically
paid on the completion or liquidation of a trade and are referred to as
"round-turn commissions," which cover both the purchase (or sale) of a commodity
futures contract and the subsequent offsetting sale (or purchase). However, the
Trust 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 $0.10 fee is
charged upon the purchase and upon the exercise of an option; if an option is
exercised, an additional $0.20 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.
As of December 31, 1997, the Trust's 11% per annum flat-rate
brokerage commissions equated to round-turn commissions of $92. 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 reports, 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
Each Advisor will receive Profit Share equal to 20% of the New
Trading Profit generated by such Advisor.
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
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of any cumulative New Trading Profit generated by such Advisor, as of the
calendar quarter-end of determination, in excess of: (i) the highest level of
cumulative Trading Profit as of any previous calendar quarter-end generated by
such Advisor, or (ii) $0, if higher (the "high water mark"). "Trading Profit"
(i) includes gross realized gains and losses on closed positions and the change
in unrealized gains and losses on open positions from the preceding period, (ii)
does not include interest income, (iii) is reduced by annual brokerage
commissions of 4.5% -- 7.0%, not 11%, of average beginning of month Net Assets,
plus execution costs other than floor brokerage, exchange, clearing and NFA
fees, and (iv) is not reduced by Incentive Fees, administrative expenses,
organizational and initial offering cost reimbursements or extraordinary costs
(such as taxes or litigation costs). "Overall Appreciation" is calculated, not
on a per-Unit basis, but on the basis of the overall trading profits and losses
of the Trust, net of all fees and expenses (including Profit Shares) paid or
accrued other than the Incentive Fee itself and after subtraction of all
interest income received by the Trust. "New Trading Profit" is the excess, if
any, as of any quarter-end by which cumulative Trading Profit exceeds the
highest level of cumulative Trading Profit as of any previous quarter-end and
adjusted as provided below. "New Overall Appreciation" is the excess, if any, as
of any December 31 by which cumulative Overall Appreciation exceeds the highest
level of cumulative Overall Appreciation as of any previous December 31 and
adjusted as provided below.
In the event that losses have been incurred since the currently
effective "high water mark" was reached and assets are withdrawn from an
Advisor's Trust account or from the Trust as a whole (other than to pay
expenses), the shortfall (the "Loss Carryforward") between such "high water
mark" and the level of cumulative Trading Profits or Overall Appreciation at the
time of such withdrawal shall be proportionately reduced (and the "high water
mark" lowered accordingly) for purposes of calculating subsequent Profit Shares
or Incentive Fees. Loss Carryforward reductions, in respect of a particular
Advisor's Trust account, can result from Kenmar reallocating capital away from
an Advisor, as well as from a redemption of Units. Loss Carryforward reductions
will not be restored as a result of subsequent additions of capital offsetting
the withdrawals which resulted in such reductions.
If Kenmar withdraws assets from an Advisor's Trust account at a time
when there is accrued New Trading Profit in respect of an Advisor's Trust
account, the Profit Share attributable to the amount of capital withdrawn (net
of the proceeds of any additional Units issued as of the date of such
withdrawal) will be paid out to the appropriate Advisor. If there are net
redemptions of Units at a time when there is accrued New Overall Appreciation in
respect of the Trust as a 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, 1998 and as
of December 31, 1998 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, 1999, the Trust had incurred a loss of $100,000 for 1999, 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 1999, Overall Appreciation of $100,000
were recognized, New Overall Appreciation as of December 31, 1999 would equal
$25,000, and an 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
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<PAGE>
$1,000,000 loss. If 100,000 more Units were purchased as of January 1, 1998 (at
a Net Asset Value of $90 per Unit), and the Trust earned $1,000,000 during 1998,
as of December 31, 1998 no Incentive Fee would be due, even though the second
tranche of Units had increased in Net Asset Value from $90 to $95. Moreover,
were $1,500,000 to have been earned, the Units initially sold would be subject
to paying their allocable share of the Incentive Fee of $25,000 (5% of $500,000)
which would be due as of December 31, 1998, despite the Net Asset Value of such
Units being below their $100 purchase price.
Profit Shares and Incentive Fee accruals are also subject to
distortions similar to those described above when reversed due to subsequent
losses prior to the date that these costs are finally determined. When Units are
purchased at a Net Asset Value per Unit reduced by accrued Profit Shares and/or
Incentive Fees, such Units effectively receive "full credit" for the amount of
such accruals through the reduction in their purchase price. Consequently, if
the accrual is subsequently reversed, the benefit of the reversal should be
allocated entirely to the Units outstanding when such Profit Share or Incentive
Fees accrued, rather than being evenly divided between such Units and the
newly-purchased Units. However, such reversals are allocated equally among all
outstanding Units in the interests of maintaining a uniform Net Asset Value per
Unit.
The distortions described above are the product of calculating and
allocating incentive compensation in open-end funds among persons investing at
different times while still maintaining a uniform net asset value per share or
unit. This method is the most common method used in retail managed futures funds
in which the large number of investors makes it impracticable to individually
track capital accounts for each investor, but can result in allocations of
Profit Shares and Incentive Fees that are not reflective of particular
investors' individual investment experience.
Ongoing Operating, Selling and 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 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 49.
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Consulting Fees
Each 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 Kenmar-sponsored
investment vehicles will be deemed to have held such Units for the duration of
their participation in such 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 clearing brokers are ING (U.S.) Securities Futures &
Options Inc. ("ING BARINGS Futures & Options Clearing Services") and PaineWebber
Incorporated ("PaineWebber")(each, a "Clearing Broker" or together, the
"Clearing Brokers"). Neither ING BARINGS Futures & Options Clearing Services nor
PaineWebber has been involved in the organization of the Trust and neither takes
any part in the Trust's ongoing management. Neither ING BARINGS Futures &
Options Clearing Services nor PaineWebber is affiliated with Kenmar, and neither
is responsible for the activities of Kenmar.
ING BARINGS Futures & Options Clearing Services
ING (U.S.) Securities, Futures & Options Inc. ("ING BARINGS Futures
& Options Clearing Services") is a duly registered futures commission merchant
and a member of the NFA . ING BARINGS Futures & Options Clearing Services is
also registered as a broker dealer and is a member of the National Association
of Securities Dealers. ING (U.S.) Securities, Futures & Options Inc., which was
formed in 1990, operates under the trade name ING BARINGS Futures & Options
Clearing Services and is a clearing firm of each of the principal U.S. futures
exchanges and the Chicago Board of Options Exchange. ING BARINGS Futures &
Options Clearing Services is a wholly-owned subsidiary of ING Bank N.V. in
Amsterdam, one of the largest financial institutions in the world. ING BARINGS
Futures & Options Clearing Services 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 BARINGS Futures & Options Clearing Services
may be involved in legal actions, some of which may seek significant damages.
During the past five years preceding the date hereof, there have been no
administrative, civil or criminal actions against ING BARINGS Futures & Options
Clearing Services or any of its principals -- whether pending, on appeal or
concluded -- which are material in light of all circumstances.
PaineWebber
PaineWebber's principal office is located at 1000 Harbor Boulevard,
Weehawken, New Jersey 07087; telephone: (201) 902-3000. Paine Webber is a
clearing member of all principal U.S. futures exchanges. It is registered with
the CFTC as a futures commission merchant and is a member of the NFA in such
capacity.
Except as set forth below, neither PaineWebber nor any of its
principals have been involved in any administrative, civil or criminal
proceeding -- whether pending, on appeal or concluded -- within the past five
years that is material to a decision whether to invest in the Trust in light of
all the circumstances.
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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.
On or about June 10, 1991, PaineWebber was served with a "First
Amended Complaint" in an action captioned Rolo v. City Investing Liquidating
Trust, et al., Civ. Action 90--4420 (D.N.J.), filed on or about May 13, 1991
naming it and other entities and individuals as defendants. The First Amended
Complaint alleges conspiracy and aiding and abetting violations of: (1) one or
more provisions of the Racketeer Influenced and Corrupt Organizations Act
("RICO"); (2) one or more provisions of the Interstate Land Sales Full
Disclosure Act; and (3) the common law, on behalf of all persons (excluding
defendants) who purchased lots and/or houses from General Development
Corporation ("GDC") or one of its affiliates and who are members of an
association known as the North Port Out-of-State Lot Owners Association.
The secondary liability claims in the First Amended Complaint
relating to PaineWebber are premised on allegations that PaineWebber served as
(1) the co-lead underwriter in connection with the April 8, 1988 offering by GDC
of 12-7/8% senior subordinated notes pursuant to a Registration Statement and
Prospectus and (2) the underwriter for a 1989 offering of Adjustable Rate
General Development Residential Mortgage Pass-Through Certificates, Series
1989-A, which plaintiffs contend enabled GDC to acquire additional financial
resources for the perpetuation of (and/or aided and abetted) an alleged scheme
to defraud purchasers of GDC lots and/or houses. The First Amended Complaint
requests certain declaratory relief, equitable relief, compensatory damages of
not less than $500 million, punitive damages of not less than three times
compensatory damages, treble damages with respect to the RICO count,
pre-judgment and post-judgment interest on all sums awarded, and attorneys'
fees, costs, disbursement and expert witness fees.
On December 27, 1993, the District Court entered an order dismissing
plaintiffs' First Amended Complaint against PaineWebber and the majority of the
other defendants for failure to state a claim upon which relief can be granted.
On November 8, 1994, the United States Court of Appeals for the
Third Circuit affirmed the District Court's order dismissing this action against
PaineWebber. On November 18, 1994, plaintiffs filed a Petition for Rehearing and
Suggestion for Rehearing En Banc with the Third Circuit.
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, PaineWebber 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
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<PAGE>
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 on June 19, 1997, the Court affirmed the District Court's
grant of defendant's motions for summary judgment. On July 30, 1997, the Third
Circuit Court of Appeals vacated the prior Third Circuit opinion and listed the
case for rehearing en banc. On October 29, 1997, the court held an en banc
rehearing on the appeal from the District Court's grant of defendants' motions
for summary judgment.
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. On April 24, 1997, the United States District
Court for the Southern District of New York approved the Stipulation and Order,
one aspect of which requires the defendants to tape record a certain percentage
of their NASDAQ traders' telephone calls. On May 27, 1997, the Court stayed the
taping provision pending an appeal by certain private parties who objected to
aspects of the taping provision. Notice of Appeal has been filed in the United
States Court of Appeals for the Second Circuit; the parties are scheduled to
file briefs in July and August, and oral argument on the appeal is scheduled for
late September.
A series of purported class actions concerning PaineWebber
Incorporated's sale and sponsorship of various limited partnership investments
have been filed against PaineWebber and PaineWebber Group Inc. (together
hereinafter, "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 RICO, and certain of them also claim that Paine Webber
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, 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
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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. On
July 30, 1997, the United States Court of Appeals for the Second Circuit
affirmed the judgment approving the settlement .
In addition, three actions were filed against PaineWebber 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 PaineWebber'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 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. Paine Webber, Inc., making allegations
substantially similar to the alleged in the Federal Court Limited Partnership
Actions, but limited in subject matter to the sale of 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.
The following items related to matters involving Kidder, Peabody and
Co. Incorporated which was acquired by the Company in August 1997. In connection
with the acquisition, the seller and its parent General Electric Company agreed
to indemnify the company for all losses relating to this matter.
Kidder Peabody & Co. Incorporated ("Kidder, Peabody"), a subsidiary
of the Company, together with other unrelated individuals and firms, has been
named as a defendant in certain actions pending in the United States District
Court of New York for the Southern District of New York brought on behalf of
individuals and two purported classes of investors in three funds (the "Funds")
managed by Askin Capital Management, L.P. and David J. Askin (collectively, the
"Askin Parties"). The actions are Primavera Familienstiftung v. David J. Askin,
et al., Docket No. 95 Civ. 8905; ABF Capital Management, et al., v. Askin
Capital Management, L.P., Docket No. 96 Civ. 2978; Montpellier Resources,
Limited et al., v. Askin Capital Management, L.P., et al., Docket No. 97 Civ.
1856; Richard Johnson as Trustee for the Demeter Trust, et al. v. Askin Capital
Management L.P., et al., Docket No. 97 Civ. 4335. The plaintiffs have alleged,
among other things, that Kidder, Peabody and other brokerage firms aided and
abetted false state securities bylaws, used the Funds as an outlet for otherwise
unmarketable tranches of collateralized mortgage obligations, and violated
various rules of the New York Stock Exchange and National Association of
Securities Dealers. Collectively in the four lawsuits the plaintiffs claim
damages of approximate $650
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million, as well as unspecified punitive damages. As a result of various
decisions by the District Court, the only claim remaining in these cases against
Kidder, Peabody is for aiding and abetting the Askin Parties' fraud on the
investors. The parties are presently engaged in pre-trial discovery. No trial
date has been set.
In separate, but related action now pending in the United States
Bankruptcy Court for the Southern District of New York captioned ABF Capital
Management, et al., v. Kidder, Peabody & Co. Incorporated, a group of investors
in the Funds have sought to equitably subordinate, pursuant to Section 510[c] of
the Bankruptcy code, certain recoveries received by Kidder, Peabody, amounting
to approximate $15.5 million, in connection with the settlement of Kidder,
Peabody's claim in the Funds' bankruptcy proceedings. This action is also at an
early stage; no trial date has been set.
Kidder, Peabody is a defendant, along with other unrelated
individuals and entities, in Richard A. Lippe et. al. v. Bairnco Corp. et al.,
96 Civ. 7600, in the United States District Court for the Southern District of
New York brought by the Trustee of the Keene Creditors' Trust ("KCT"). This
action originally was filed on June 8, 1995 as Adversary Proceeding No. 95/9393A
in the Bankruptcy Court for the Southern District of New York. On April 10,
1997, the District Court ordered the withdrawal of the bankruptcy court. KCT was
established pursuant to the Plan of Reorganization approved in connection with
the bankruptcy proceedings related to Keene Corporation ("Keene"). The KCT
claims against Kidder, Peabody arise from fairness opinions rendered by Kidder,
Peabody's during the 1980's in connection with the sale of various businesses
from Keene. KCT alleges that Kidder Peabody's fairness opinions intentionally or
recklessly undervalued the assets being sold. KCT further alleges that such acts
constituted aiding and abetting breaches of fiduciary duties and self-dealing by
Keene's corporate officers and directors, who are also defendants, in violation
of the New York Business Corporation Law and the Racketeer Influenced and
Corrupt Organizations Act. KCT seeks damages from Kidder, Peabody and other
unrelated individuals and firms in excess of $700 million. On September 15,
1997, Kidder Peabody filed a motion to dismiss the complaint. KCT has not yet
filed its opposition to the motion.
In addition to the foregoing private litigation, the following
administrative and exchange proceedings may be considered material.
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 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
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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 alternative investment 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 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
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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.
An affiliate of Kenmar has a marketing relationship with Hirst
Investment Management Inc., pursuant to which Kenmar receives fees in connection
with certain accounts managed by Hirst Investment Management Inc.. While Kenmar
will not receive any fee, direct or indirect, from Hirst Investment Management
Inc. in respect of the Trust's account, Kenmar may have a conflict of interest
in allocating Trust assets to Hirst Investment Management Inc. in that such
allocation may enhance Kenmar's ability to attract other assets (for which it
will receive fees from Hirst Investment Management Inc.).
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 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
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,
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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, and may also receive substantial ongoing, "trailing
commissions" in respect of Units sold by them. 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.
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,
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Units subscribed for during October 1997 and purchased as of November 1, 1997
were first redeemable as of April 30, 1998 and are subject to a redemption
charge through April 30, 1999.
Investors acquiring Units on the same day as or within seventy-five
(75) days after redeeming investments in Kenmar-sponsored investment vehicles
will be deemed to have held such Units for the duration of their participation
in such 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 generated,
and expected to be generated by the Trust will constitute interest income and
income or gains from commodities, or futures, forwards and options with respect
to commodities 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
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
The maximum tax rate for non-corporate taxpayers on adjusted net
capital gains (as defined below) is 20%. Only 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 (i.e., net gain 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. Adjusted net
capital gain is the excess of net long-term capital gain over net short-term
capital loss reduced by mid-term gain, if any. 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 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
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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 13.
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."
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
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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 BECAUSE 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 45. In addition, because they are
not taxpaying entities, employee benefit plans are not subject to paying annual
tax on their profits (if any) from the Trust.
As a matter of policy, Kenmar will attempt to limit subscriptions to
the Trust from any employee benefit plan to no more than 10% of the value of the
readily marketable assets of such plan (irrespective of the net worth of the
beneficiary or beneficiaries of such plans).
General
The following section sets forth certain consequences under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Code, which a fiduciary of an "employee benefit plan" as defined in and subject
to ERISA or of a "plan" as defined in Section 4975 of the Code who has
investment discretion should consider before deciding to invest the plan's
assets in the Trust (such "employee benefit plans" and "plans" being referred to
herein as "Plans," and such fiduciaries with investment discretion being
referred to herein as "Plan Fiduciaries"). The following summary is not intended
to be complete, but only to address certain questions under ERISA and the Code
which are likely to be raised by the Plan Fiduciary's own counsel.
In general, the terms "employee benefit plan" as defined in ERISA
and "plan" as defined in Section 4975 of the Code together refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Such
plans and accounts include, but are not limited to, corporate pension and profit
sharing plans, "simplified employee pension plans," KEOGH plans for
self-employed individuals (including partners), individual retirement accounts
described in Section 408 of the Code and medical plans.
Each Plan Fiduciary must give appropriate consideration to the facts
and circumstances that are relevant to an investment in the Trust, including the
role that an investment in the Trust would play in the Plan's overall investment
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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. 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.
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<PAGE>
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 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 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.
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<PAGE>
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. 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 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 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 ongoing 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 (9.5% to the extent
investors have acquired Units on the same day as or within seventy-five (75)
days after redeeming investments in Kenmar-sponsored investment vehicles).
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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<PAGE>
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 prepared the section "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. have been selected as the
Trust's independent auditors. The statements of financial condition of the Trust
as of December 31, 1997 and 1996 and the related statements of operations, cash
flows and changes in unitholders' capital (net asset value) for the year ended
December 31, 1997 and for the period July 17, 1996 (inception) to December 31,
1996 included in this Prospectus have been audited by Arthur F. Bell, Jr. &
Associates, L.L.C., independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon such report given upon the
authority of that firm as experts in auditing and accounting.
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, 1997 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 experts
in accounting and auditing.
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.
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<PAGE>
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. Other than estimated information, the
performance information set forth below is current as of March 31, 1998.
Summary Performance Information
Type of fund: multi-advisor; publicly-offered
Inception of trading: May 1997
Aggregate subscriptions: $14,986,214
Current capitalization: $14,714,432
Current Net Asset Value per Unit: $ 104.09
Largest monthly drawdown: (4.79)% (8/97)
Largest peak-to-valley drawdown: (7.07)% (7/97-11/97)
Monthly/Annual Performance Information
================================================
Month 1998(%) 1997(%)
------------------------------------------------
January 3.29 --
------------------------------------------------
February 0.38 --
------------------------------------------------
March 0.30 --
------------------------------------------------
April (6.18)* --
------------------------------------------------
May (0.30)
------------------------------------------------
June (2.30)
------------------------------------------------
July 7.11
------------------------------------------------
August (4.79)
------------------------------------------------
September 0.52
------------------------------------------------
October (2.18)
------------------------------------------------
November (0.74)
------------------------------------------------
December 3.25
------------------------------------------------
Compound Rate of (2.43)* 0.10
Return (4 months) (8 months)
================================================
* Although final data is not yet available, it is estimated that the Monthly
Rate of Return for April 1998 is approximately (6.18)% and the Compound Rate of
Return for 1998, through April, is approximately (2.43)%.
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<PAGE>
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 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 (0.10)% for the partial year
1997 in the Trust's performance record was calculated by multiplying
100 by the quantity(1-.0030)(1-.0230)(1+.0711)(1-.0479)(1+.0052)
(1-.0218 )(1-.0074)(1+.0325) minus 1.
SELECTED FINANCIAL DATA
The following Selected Financial Data is derived from the audited
financial statements of the Trust as of December 31, 1997 and 1996 and for the
year ended December 31, 1997 and for the period July 17, 1996 (inception) to
December 31, 1996 and the unaudited financial statements of the Trust as of and
for the three months ended March 31, 1998. The Trust commenced trading
operations on May 22, 1997. See "Index to Financial Statements" at page F-1.
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998 Year Ended Period Ended
(unaudited) December 31, 1997 December 31, 1996
----------- ----------------- -----------------
<S> <C> <C> <C>
Total Assets $15,214,260 $12,782,763 $2,000
Total Partner's Capital 14,714,432 12,377,321 2,000
Gains from Trading 970,179 675,878
Interest Income 187,294 293,033
Total Expenses 538,721 842,501
Net Income 618,752 126,410
Net Income Per Unit (Based on
weighted average number of
units outstanding) 4.80 1.24
Increase in Net Asset Value Per Unit 3.99 0.10
</TABLE>
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<PAGE>
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.
The Advisors and asset allocations for the Trust anticipated to be in
effect as of July 1, 1998 are set forth below. These allocations are
approximate, and will be affected by (i) the profit and loss generated by each
Advisor in relation to the performance of the other Advisors for the Trust and
(ii) any subsequent reallocation decision by Kenmar. These allocations reflect
the replacement of two of the Trust's initial Advisors, Chesapeake Capital
Corporation and Witter & Lester, effective as of June 30, 1998. Such replacement
reflects a reallocation decision by Kenmar with respect to Trust assets
previously allocated to Witter & Lester and a decision by Chesapeake Capital
Corporation to resign from trading the Trust's account under the terms of its
Advisory Agreement. The Trust and Kenmar have entered into Advisory Agreements
with two replacement Advisors, Hirst Investment Management Inc. and Sunrise
Capital Partners, LLC (each will receive allocations of Trust assets as of July
1, 1998). The Hirst Investment Management Inc. and Sunrise Capital Partners, LLC
Advisory Agreements have an initial term through December 31, 1999, and may be
renewed on the same terms at Kenmar's option for up to two additional one-year
terms.
Advisor May 22, 1997 (inception) July 1, 1998
Chesapeake Capital Corporation 25% 0%
Dreiss Research Corporation 15% 27%
Hirst Investment Management Inc. 0% 9.5%
Hyman Beck & Company, Inc. 25% 27%
Sunrise Capital Partners, LLC 0% 9.5%
Willowbridge Associates Inc. 25% 27%
Witter & Lester 10% 0%
Total 100% 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 17. Kenmar's Advisor selection
procedures are described under "Kenmar -- Management of Traders" at page 22. The
Advisors' trading methods are described under "The Trust and Its Objectives --
The Advisors" at page 17.
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. Kenmar is not required to allocate the proceeds resulting
from subscriptions as a month end during the continuing offering (over any
amounts redeemed as of such date) on a pro rata basis; rather, such allocations
will be based on the factors described under "The Trust and Its Objectives --
The Advisors." Kenmar will notify investors monthly as to month-end allocations.
Liquidity
The Trust's investment in futures , forwards, options and related
markets may, from time to time, be illiquid. See Risk Factors (10) -- "Possible
Illiquid Markets" at page 11. 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 in such futures interests. 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
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<PAGE>
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 35.
Units may be redeemed, at a Unitholder's option, as of the close of
business on the last day of any month beginning with the end of the sixth month
after their sale. Units are redeemed at Net Asset Value, subject to redemption
charges of 3% and 2%, respectively, for Units redeemed on and after the end of
the sixth month through the end of the twelfth month after sale and from the end
of the twelfth month through the end of the eighteenth month after sale.
With respect to the Trust's trading, in general, the Trust's
Advisors will endeavor to trade only futures, forwards and options that have
sufficient liquidity to enable them to enter and close out positions without
causing major price movements. Notwithstanding the foregoing, most United States
commodity exchanges limit the amount by which certain commodities may move
during a single day by regulations referred to as "daily price fluctuation
limits" or "daily limits". Pursuant to such regulations, no trades may be
executed on any given day at prices beyond the daily limits. The price of a
futures contract has occasionally moved the daily limit for several consecutive
days, with little or no trading, thereby effectively preventing a party from
liquidating its position. While the occurrence of such an event may reduce or
effectively eliminate the liquidity of a particular market, it will not limit
ultimate losses and may in fact substantially increase losses because of this
inability to liquidate unfavorable positions. In addition, if there is little or
no trading in a particular futures or forward contract that the Trust is
trading, whether such illiquidity is caused by any of the above reasons or
otherwise, the Trust may be unable to execute trades at favorable prices and/or
may be unable or unwilling to liquidate its position prior to its expiration
date, thereby requiring the Trust to make or take delivery of the underlying
interest of the commodity.
In addition, certain Advisors trade on futures markets outside the
United States on behalf of the Trust. Certain foreign exchanges may be
substantially more prone to periods of illiquidity than United States exchanges.
Further, certain Advisors trade forward contracts which are not traded on
exchanges; rather banks and dealers act as principals in these markets. The CFTC
does not regulate trading on non-U.S. futures markets or in forward contracts.
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.
The Trust incurs substantial charges from the payment of profit
shares to the Advisors, incentive fees to Kenmar, reimbursement to Kenmar for
its advancing the organizational and initial offering costs of the Trust,
brokerage commissions and miscellaneous executions costs and administrative
expenses. Such reimbursement and brokerage commissions are payable based upon
the Net Asset Value of the Trust and are payable without regard to the
profitability of the Trust. As a result, it is possible that the Trust may incur
a net loss when trading profits are not substantial enough to avoid depletion of
the Trust's assets from such fees and expenses. Thus, due to the nature of the
Trust's business, the success of the Trust is dependent upon the ability of the
Advisors to generate trading profits through the speculative trading of futures,
forwards and options sufficient to produce capital appreciation after payment of
all fees and expenses.
It is important to note, however, that (i) the Advisors trade in
various markets at different times and that prior activity in a particular
market does not mean that such markets will be actively traded by an Advisor or
will be profitable in the future and (ii) the Advisors trade independently of
each other using different trading systems and may trade different markets with
various concentrations at various times. Consequently, the results of operations
of the Trust can only be discussed in the context of the overall trading
activities of the Trust, the Advisors' trading activities on behalf of the Trust
as a whole and how the Trust has performed in the past.
The Trust commenced trading operations on May 22, 1997. Set forth
below are the results of operations of the Trust for the period from December
31, 1997 through March 31, 1998.
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<PAGE>
As of the quarter ending March 31, 1998, the Net Asset Value of the
Trust was $14, 714, 432, an increase of approximately 18.88% from its Net Asset
Value of $12,377,321 at December 31, 1997. The Trust's subscriptions and
redemptions for the quarter ended March 31, 1998 totaled $2,136,653 and
$298,977, respectively. For the quarter ended March 31, 1998, the Trust had
income comprised of $1,179,902 in realized trading gains, ($209,723) in change
in unrealized trading losses, and $187,294 in interest income. The Net Asset
Value per Unit at March 31, 1998 increased 3.99% from $100.10 at December 31,
1997 to $104.09 at March 31, 1998. The Trust's positive performance for the
quarter ended March 31, 1998 resulted primarily from gains in global interest
rates, stock indices, energies, metals,
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. During the period May 22, 1997 (inception) through April 30,
1998, the Trust's Net Asset Value per Unit declined from $100.00 to $97.66 and
the Compound Rate of Return for 1998, through April, is approximately (2.43)%,
as set forth on page 51.
Capital Resources
The Trust does not have, nor does it expect to have, any capital
assets. Redemptions and sales of the units of beneficial interest (the "Units")
in the future will affect the amount of funds available for trading futures,
forwards and options in subsequent periods.
There are three primary factors that affect the Trust's capital
resources: (i) the trading profit or loss generated by the Advisors (including
interest income); (ii) the capital invested or redeemed by the unitholders of
the Trust (the "Unitholders"); and (iii) the capital invested or redeemed by the
Trust's managing owner, Kenmar Advisory Corp. ("Kenmar"). Kenmar has maintained,
and has agreed to maintain, at all times a one percent (1%) interest in the
Trust. All capital contributions by Kenmar necessary to maintain such capital
account balance are evidenced by units of beneficial interest, each of which has
an initial value equal to the Net Asset Value per Unit (as defined below) at the
time of such contribution. Kenmar, in its sole discretion, may withdraw any
excess above its required capital contribution without notice to the
Unitholders. Kenmar, in its sole discretion, may also contribute any greater
amount to the Trust, for which it shall receive, at its option, additional Units
at their then-current Net Asset Value (as defined below).
"Net Asset Value" is defined as total assets of the Trust less total
liabilities as determined in accordance with generally accepted accounting
principles as described in the Trust's Amended and Restated Declaration of Trust
and Trust Agreement dated as of December 17, 1996 (the "Declaration of Trust
Agreement"). The term "Net Asset Value Per Unit" is defined in the Declaration
of Trust Agreement to mean the Net Assets of the Trust divided by the number of
Units outstanding as of the date of determination.
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. Kenmar Securities, Inc. acts as a selling agent in respect of
the Trust's Units.
The discussion above contains certain forward-looking statements (as
such term is defined in the rules promulgated under the Securities Exchange Act
of 1934) that are based on the beliefs of the Kenmar, as well as assumptions
made by, and information currently available to, the Kenmar. A number of
important factors should cause the Trust's actual results, performance or
achievements for 1998 and beyond to differ materially from the results,
performance or achievements expressed in, or implied by, such forward-looking
statements. These factors include, without limitation, the factors described
above.
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INDEX OF DEFINED TERMS
A number of defined terms are used in this Prospectus. The respective
definitions or descriptions of such terms may be found on
the following pages of this Prospectus.
Page(s)
-------
Advisors............................................................ Cover page
Aggregate Investment Expenses ...................................... 44
CBOE ............................................................... 20
CFTC................................................................ -ii-
Clearing Brokers ................................................... 28
Code................................................................ 38
Declaration of Trust ............................................... 21
Employee benefit plan............................................... 46
ERISA............................................................... 46
ING BARINGS Futures & Options Clearing House....................... 28
IRS................................................................. 42
Kenmar.............................................................. Cover page
Kenmar Related Parties ............................................. 22
Loss Carryforward................................................... 26
NASAA Guidelines ................................................... 22
New Overall Appreciation............................................ 26
New Trading Profits................................................. 26
NFA................................................................. -iii-
PaineWebber ........................................................ 38
Portfolio Income ................................................... 42
Publicly Offered Security Exception................................. 46
SEC ................................................................ 22
Selling Agents...................................................... -i-
Speculative position limits......................................... 41
Trust............................................................... Cover page
Units............................................................... Cover page
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THE ADVISORS
General
The following description of the 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 Advisors' methods and strategies included
herein may be of interest to prospective investors, such persons must be aware
of the inherent limitations of such description.
This section contains brief biographical outlines and performance
summaries of the Trust's 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, 1993 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 THAT 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 CHARGED TO THE TRUST.
TRADING OF FUTURES AND FORWARD CONTRACTS AND RELATED INSTRUMENTS IS
SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. THERE CAN BE NO ASSURANCE THAT
THE ADVISORS WILL TRADE PROFITABLY OR AVOID INCURRING SUBSTANTIAL LOSSES.
Futures Trading Methods in General
Systematic and Discretionary Trading Approaches
Futures traders may generally be classified as either systematic or
discretionary.
A systematic trader will generally rely to some degree on judgmental
decisions concerning, for example, what markets to follow and commodities to
trade, when to liquidate a position in a contract which is about to expire and
how large a position to take in a particular commodity. However, although these
judgmental decisions may have a substantial effect on a systematic trader's
performance, his primary reliance is on trading programs or models that generate
trading signals. The systems utilized to generate trading signals are changed
from time to time (although generally infrequently), but the trading
instructions generated by the systems being used are followed without
significant additional analysis or
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interpretation. Discretionary traders, on the other hand, while they may utilize
market charts, computer programs and compilations of quantifiable fundamental
information to assist them in making trading decisions, make such decisions on
the basis of their own judgment and "trading instinct," not on the basis of
trading signals generated by any program or model.
Each approach involves certain inherent risks. Systematic traders may fail
to capitalize on market trends that 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, 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.
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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, 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
March 31, 1998.
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 March 31, 1998.
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
March 31, 1998.
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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 March 31, 1998.
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 March 31, 1998.
10. Largest monthly drawdown is the largest monthly percentage 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 March 31,
1998. 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 March 31, 1998. 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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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.
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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 co-founded 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:
o The system trades directly off weekly price charts. These are
constructed by back-adjusting futures contracts of different
expirations and linking them into continuous daily data files,
which are then converted to weekly for use in trading.
o Price patterns are identified by the Fractal Wave Algorithm
("FWA"), a unique method of pattern recognition co-developed
by E.W. Dreiss and Arthur von Waldburg. Turning points
identified by the FWA are then used to precisely define
mechanically drawn trend lines and support and resistance
levels, which are then combined to generate trading signals.
While the system may often reverse, it is not a reversal
system as the entry and exit criteria are calculated
independently.
o A unique Choppiness Index derived from fractal geometry is
used to distinguish between thrusting and consolidating
markets. The Index may be used to determine when exit stops
are to be tightened in thrusting markets, or when entry is to
be more stringent in consolidating markets.
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o A dollar stop loss may be used to limit losses. Such stop loss
reduces the frequency of abnormally large losses without
materially 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.
o The number of contracts of each commodity traded is determined
by "risk balancing" which involves trading a number of
contracts such that the expected dollar risk for trading any
particular commodity is roughly the same as that of other
commodities in the portfolio. For smaller accounts, it may be
difficult to achieve an optimal risk balancing due to
mismatches in the sizes of single contracts.
o 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.
o The system does not rely on the optimization of numerical
parameters.
The above features combine into a system with a favorable ratio of
gains over losses and an attractive return relative to the expected maximum
drawdown. Trading accounts are structured to provide for a cash reserve by
establishing a level of trading activity which results in margin requirements
which are usually between 20% and 40% of the account size and seldom greater
than 50%.
The foregoing trading principles are factors upon which Dreiss
Research bases its decisions. Given price trends and prices of sufficient
duration and magnitude, the trading methods employed may be profitable though
more than half of all individual trades may be unprofitable; however, a period
without such trends may result in substantial trading losses. The trading
strategies have been and will be enhanced or revised from time to time.
The trading methods of Dreiss Research are proprietary and
confidential. This description is, of necessity, general and is not intended to
be exhaustive.
Portfolio Selection. Dreiss Research trades a diversified portfolio
of futures contracts representing most major commodity groups (i.e.,
agriculture, currencies, energy, equity indexes, interest rates, livestock,
metals, and softs). The selection process seeks to avoid undue concentration in
any particular futures group and to achieve a balance across all futures groups,
however, on occasion, there may be a heavier concentration of a given commodity
or a commodity complex, which could result in a greater return or risk to the
account.
The commodities currently traded are Australian dollar, British
pound, Canadian dollar, cattle, cocoa, coffee, copper, cotton, corn, crude oil,
DAX index, eurodollar, euromark, feeder cattle, German bund, gold, Hang Seng
index, heating oil, Italian bond, Japanese yen, live hogs, natural gas, Nikkei
index, 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
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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 1993 through March 1998. 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.]
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Dreiss Research Corporation Trading Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of Dreiss
Research's Trading Program from January 1993 through March 31, 1998.
Name of CTA: Dreiss Research Corporation
Name of program: Dreiss Research Corporation Trading Program
Inception of client account trading by CTA: May 1991
Inception of client account trading in program: May 1991
Number of open accounts: 60
Aggregate assets (excluding "notional" equity) overall: $14,472,541
Aggregate assets (including "notional" equity) overall: $28,943,542
Aggregate assets (excluding "notional" equity) in program: $14,472,541
Aggregate assets (including "notional" equity) in program: $28,943,542
Largest monthly drawdown: (28.29)% (6/967
Largest peak-to-valley drawdown: (41.00)% (2/97 - 8/97)
Number of profitable closed accounts: 29
Number of unprofitable closed accounts: 16
<TABLE>
<CAPTION>
================================================================================
Monthly Performance 1998(%) 1997(%) 1996(%) 1995(%) 1994(%) 1993(%)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 7.62 (1.50) 1.46 (4.97) (2.62)* 3.79*
- --------------------------------------------------------------------------------
February 2.08 11.39 (11.64) 9.33 1.69* 1.96*
- --------------------------------------------------------------------------------
March 0.39 (2.66) 8.41 13.66 1.80* 0.66*
- --------------------------------------------------------------------------------
April (9.59) 13.30 3.61 (7.23)* 18.14*
- --------------------------------------------------------------------------------
May (7.40) (8.66) 1.24 13.87* 2.79*
- --------------------------------------------------------------------------------
June (19.13) 10.60 7.45 10.41* 2.19*
- --------------------------------------------------------------------------------
July (1.83) (17.62) (6.00) (2.05)* 1.54*
- --------------------------------------------------------------------------------
August (4.62) (2.17) 4.72 0.41* (3.65)*
- --------------------------------------------------------------------------------
September 3.20 10.09 (0.30) 9.16* (5.62)*
- --------------------------------------------------------------------------------
October 13.61 3.79 2.94 (4.89)* 3.67*
- --------------------------------------------------------------------------------
November (6.70) 15.10 9.17 10.10* (2.41)*
- --------------------------------------------------------------------------------
December 4.35 7.58 8.84 4.46* 10.24*
- --------------------------------------------------------------------------------
Compound Rate 9.60 (22.45) 26.86 59.76 38.09 36.12
of Return (3 months)
================================================================================
</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.
-65-
<PAGE>
HIRST INVESTMENT MANAGEMENT INC.
Background and Management
Hirst Investment Management Inc. ("Hirst") was incorporated under
the laws of the State of Florida in June 1991 for the purpose of holding and
managing assets of the Hirst family. From June 4, 1991 through March 4, 1996,
Hirst Investment Management Inc. was known as Thornley Properties Inc. The
principals of Hirst Investment Management Inc. are Gary Hirst, Nancy Hirst and
Mildred Hirst. Hirst is registered with the CFTC as a Commodity Trading Advisor
and is a member of the NFA in such capacity.
There have never been nor is there pending any material civil,
criminal or administrative actions or proceedings against Hirst or any of its
principals.
Dr. Gary Hirst was born in 1952, and is President, Chief Investment
Officer, and director of Hirst. He is the sole trading principal, and is solely
responsible for operational decisions of Hirst. He has held the above positions
since January 1992, but has been President since October 1995. From January 1992
through October 1995 he held the position of Vice President. Dr. Hirst owns more
than 10% of the stock in Hirst.
Dr. Hirst has been trading and investing on a proprietary basis
since 1974, in commodities, currencies, financial instruments, futures,
equities, real estate, and other asset classes. Dr. Hirst also worked in
engineering management from 1982 to 1985, supervising the development of
technology for animatronics and for military simulators.
Dr. Hirst graduated from University of Texas Health Science Center
San Antonio in 1990 with a M.D. degree, University of Miami School of Law in
1979 with a J.D. degree and from University of Miami in 1975 with a B.S. degree
(Magna cum laude) in Computer Science.
Trading Strategy
Hirst Investment Management Inc. trades a global portfolio pursuant
to its DSP Trading System.
The DSP Trading System (the "System") uses Digital Signal Processing
("DSP") to rectify the advancing and declining waveform of market data into a
continuously advancing function, which becomes the equity curve. DSP is the use
of a set of computation-intensive mathematical operators to analyze a discrete
time-quantized signal.
The methodology and the algorithms used are original work, and are
not derived from any other known trading methodology.
Non-Discretionary:
The System is automated and non-discretionary. Trading signals are
generated by proprietary software. Only under unusual circumstances (see
"Integrated Risk Balancing" below) are the System's signals preempted and
discretion employed.
Technical vs. Fundamental:
The System is a "technical" methodology, which means that it uses
information generated by the market itself, such as prices, volume and open
interest. It ignores "fundamental" data, such as news, politics, and weather,
except as those factors are reflected in the markets.
Parameter-Free:
The System is parameter-free and does not therefore have to be
adjusted for each market or "curve-fitted".
-66-
<PAGE>
Time Frame:
There is no time frame (such as short, medium or long term) built
into the System. The System can be simultaneously traded across an entire
spectrum of wavelengths as measured in days. This characteristic produces a
progressively more linear equity curve as the Account Size, (i.e. an account's
total assets, including cash and cash equivalents, accrued interest and the
market value of all open positions maintained in the account, plus any amount
committed to trading in the account, less total liabilities of the account but
not including any management and incentive fees accrued), and therefore the
number of contracts traded in each market, increases.
Volatility Control:
When individual market volatility becomes high, option trades may be
placed in those markets in an effort to reduce the effects of the volatility on
the account equity and to increase the risk-adjusted return. A similar strategy
may be used to initiate new accounts.
Portfolio Selection:
Hirst may trade futures and options on futures on any and all U.S.
and non-U.S. commodities including, but not limited to, financials, currencies,
interest-rate contracts, metals, livestock, grains, stock indices, energies,
softs, fiber, and foods. At any time, the portfolio generally includes more than
25 different commodities with the position for some of these markets being flat.
Hirst may also trade the interbank foreign exchange markets and cash commodities
and may effect exchanges of futures for physicals (EFP) transactions.
Markets are monitored for possible inclusion in the program based on
several criteria, including the following:
o The market must be sufficiently liquid;
o When two or more markets have a high degree of correlation, in
general, only those markets with the higher signal-to-noise
ratio are traded;
o individual market characteristics, such as slippage, daily
limits, exchange regulatory environment, etc. are also
considered;
o The risk balancing matrix may also reject markets by
generating a zero allocation.
Integrated Risk Balancing:
The entire trading methodology is designed around a top-down
approach to the management of risk. The primary design goal of the System is the
maximization of the ratio of return to drawdown.
The initial risk for each trade is determined by the System, and is
the point at which that position (immediately after being entered) would be
offset. The average initial risk is 0.5% of Account Size. Should the initial
system risk for any one market be greater than 2% of Account Size, the System
requires discretionary approval of the signal before an order is generated.
Margin:
The portfolio is designed to have an average margin requirement of
27% of Account Size. Although margin requirements usually range between 12% and
33%, requirements may be higher or lower. A fixed fractional algorithm is used,
so that the number of contracts traded is increased as equity increases, and
decreased as equity decreases.
-67-
<PAGE>
DSP Global Diversified
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of Hirst's
DSP Global Diversified Program from October 1995 through March 31, 1998.
Name of CTA: Hirst Investment Management Inc.
Name of program: DSP Global Diversified
Inception of client account trading by CTA: October 1995
Inception of client account trading in program: October 1995
Number of open accounts: 47
Aggregate assets (excluding "notional" equity) overall: $26,858,822
Aggregate assets (including "notional" equity) overall: $61,986,299
Aggregate assets (excluding "notional" equity) in program: $ 26,858,822
Aggregate assets (including "notional" equity) in program: $ 61,986,299
Largest monthly drawdown: (7.34)% (2/96)
Largest peak-to-valley drawdown: (8.53)% (2/96 - 3/96)
Number of profitable closed accounts: 7
Number of unprofitable closed accounts: 0
==============================================================
Monthly
Performance 1998(%) 1997(%) 1996(%) 1995(%)
- --------------------------------------------------------------
January 2.11 13.50 6.84 --
- --------------------------------------------------------------
February (0.07) 8.62 (7.84) --
- --------------------------------------------------------------
March 2.76 (2.77) (1.29) --
- --------------------------------------------------------------
April (0.79) 12.54 --
- --------------------------------------------------------------
May 3.99 (4.87) --
- --------------------------------------------------------------
June (3.21) 13.80 --
- --------------------------------------------------------------
July 1.32 3.99 --
- --------------------------------------------------------------
August (4.49) (2.08) --
- --------------------------------------------------------------
September 4.10 15.59 --
- --------------------------------------------------------------
October (3.79) 10.12 14.25
- --------------------------------------------------------------
November 1.20 7.08 8.85
- --------------------------------------------------------------
December 6.24 0.98 16.10
- --------------------------------------------------------------
Compound Rate 4.85 24.74 54.05 44.36
of Return (3 months)
==============================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-68-
<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
100 Campus Drive, Florham, New Jersey 07932. The registration of HB&Co. with the
CFTC and HB&Co.'s membership in NFA must not be taken as an indication that any
such agency or self-regulatory body has recommended or approved HB&Co. or the
Trust.
The principals and key personnel of HB&Co. are listed below. HB&Co.
is wholly-owned by Mr. Hyman and Mr. Beck.
Alexander Hyman is the President and a principal of HB&Co. Mr. Hyman
is also a fifty percent shareholder of HB&Co. Mr. Hyman, along with Mr. Beck, is
directly responsible for all trading and money management decisions made by
HB&Co. From 1983 through February 1991, Mr. Hyman was employed by Dean Witter
Reynolds Inc. ("Dean Witter"), a registered futures commission merchant, where,
at the time of his departure, he was First Vice President and Associate Director
of the Managed Futures Division and a Director and principal of Dean Witter
Futures & Currency Management Inc. ("DWFCM"), a registered commodity trading
advisor. Mr. Hyman was also a Director of Demeter Management Corporation, the
sponsor of all of Dean Witter's public futures funds. While at Dean Witter, Mr.
Hyman was responsible for the development of managed futures products. Mr. Hyman
graduated from Hofstra University in May 1983 with a B.B.A. degree in
International Business and Economics.
Carl J. Beck is Vice President, Secretary, Treasurer and a principal
of HB&Co. Mr. Beck is also a fifty percent shareholder of HB&Co. Mr. Beck, along
with Mr. Hyman, is directly responsible for all trading and money management
decisions made by HB&Co. From 1985 through February 1991, Mr. Beck was employed
by Dean Witter, a registered futures commission merchant, where, at the time of
his departure, he held the position of Vice President and Senior Portfolio
Manager. Mr. Beck was also a Vice President and principal of DWFCM, a registered
commodity trading advisor, where he was responsible for day-to-day management
and trading activities. Prior to joining Dean Witter, Mr. Beck was employed by
J. Aron & Co., a commodity trading firm. As of April 1994, Mr. Beck was
appointed to and serves on the Board of Managers of the Coffee, Sugar & Cocoa
Exchange, Inc. Mr. Beck graduated magna cum laude from Fordham University in May
1983 with a B.A. degree in Economics and earned an M.B.A. degree in Finance from
New York University in May 1989.
John J. McCormick is a principal of HB&Co. Mr. McCormick is directly
responsible for the implementation of trading decisions for HB&Co.'s commodity
interest portfolios. Prior to joining HB&Co., in March 1991 Mr. McCormick was
employed by Dean Witter from 1986 through February 1991 where, at the time of
his departure, he held the position of Assistant Vice President and Internal
Accounts Manager. Mr. McCormick is also responsible for generating most of the
research reports used by Messrs. Hyman and Beck in determining their trading
decisions. Mr. McCormick graduated from Fordham University in 1986 with a B.S.
degree in Accounting and earned an M.B.A. degree in Finance from Fordham
University in May 1993.
Troy W. Buckner is a principal of HB&Co. Mr. Buckner is responsible
for research activities at HB&Co. Prior to joining HB&Co. in June 1995, Mr.
Buckner was a principal at Classic Capital, Inc., an international investment
management firm, where he designed systematic trading programs from January 1994
to June 1995. From December 1989 to January 1994, Mr. Buckner was self-employed
as an independent trader while developing an advanced architecture useful in the
modeling of financial and commodity market prices. From March 1989 to December
1989, Mr. Buckner traded energy futures contracts for George E. Warren Corp., an
energy trading firm. From June 1986 to March 1989, Mr. Buckner was employed by
Salomon Brothers Inc, a securities brokerage and investment firm, where he
specialized in the sale of stock market portfolios as well as futures and option
strategies. Mr. Buckner graduated from the University of Delaware with a B.S.
degree in Finance in 1984 and earned an M.B.A. degree from the University of
Chicago in 1986.
-69-
<PAGE>
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.
Trading Strategy
Technical Trading
HB&Co. relies primarily on technical analysis and believes that
future price movements in all markets may be more accurately anticipated by
analyzing historical price movements within a quantitative framework rather than
attempting to predict or forecast changes in price through fundamental economic
analysis. The trading methodologies employed by HB&Co. are based on programs
analyzing a large number of interrelated mathematical and statistical formulas
and techniques which are quantitative, proprietary in nature and which have been
developed by Mr. Beck and Mr. Hyman.
Technical, Trend-Following Approach
The profitability of HB&Co.'s trading pursuant to technical
trend-following analysis, emphasizing mathematical and charting approaches, will
depend upon the occurrence in the future, as in the past, of major price trends
in some markets. If there are no price trends, HB&Co.'s trend-following trading
methodologies are likely to be unprofitable. There have been trendless periods
in the past which can be expected to recur.
Technical trend-following trading approaches will seldom direct
market entry or exit at the most favorable price in the particular market trend.
Rather, these types of trading styles seek to close out losing positions quickly
and to hold profitable positions, or portions thereof, for as long as the
trading systems determine that the particular market trend continues to exist.
There can be no assurance that profitable positions can be liquidated at the
most favorable price in a particular trend. As a result, the number of losing
transactions can be expected to exceed the number of profitable transactions.
However, if such trend-following approaches are successful, these losses should
be more than offset by a few large gains.
-70-
<PAGE>
HB&Co. employs risk management techniques which have been developed
by Messrs. Beck and Hyman with the objectives of limiting losses, controlling
market exposure and capturing profits. HB&Co.'s trend-following trading approach
also includes a "neutral mode" which may indicate that no position is
appropriate in a particular contract or contract group in an attempt to preserve
capital in trendless markets.
Technical, Non-Linear Approach
HB&Co. also employs a technical, systematic program that combines
conservative risk control principles with non-linear modeling techniques. This
technical approach to the markets does not depend on the occurrence of major
price trends in order to be profitable. Rather, trades are made under various
market conditions and are typically of short duration, averaging six days in
length. Unlike HB&Co.'s other strategies, this program may buy or sell
volatility depending on recent market conditions. A key distinguishing feature
of this approach is its ability to trade correlated markets differently. It is
common, for example, for this portfolio to be long (buy) soybeans and short
(sell) soybean meal or to be long heating oil and short crude oil. HB&Co.
believes that the non-linear models utilized in this approach should excel at
pattern recognition and the detection of conditional relationships between and
among different data inputs.
The process of generating trades begins with the selection of a
price target, with respect to given market conditions, reflecting the likelihood
that short-term reward is substantially in excess of risk. An assortment of time
series variables are calculated as input to be used in the modeling process.
With each variable an attempt is made to depict a different facet of a given
market's historical price movement.
HB&Co. believes that since the timing of trades is significantly
random, diversification and expected returns may be enhanced by adding viable
markets to the portfolio's mix. Positions are established when the models
indicate a high probability of substantial reward relative to anticipated risk.
Positions may be initiated in either trending or choppy markets. Although
positions are established at frequent intervals, there is no position
approximately 60% of the time in any given market. The trading philosophy
assumes that there are many significant short-term moves, but that relatively
few of them offer the desired risk/reward ratio.
Implementation of Trading Approaches
HB&Co., from time to time, may change or refine the trading systems
and methodologies employed to manage its accounts. Additional trading systems
may be developed by the principals of HB&Co. and may be employed in trading
accounts managed by HB&Co., including the Trust's account. The principals of
HB&Co. review and maintain discretion over all computer-generated trading
parameters.
Although technical trading systems normally consist of a series of
fixed rules applied manually or by computer, such systems still require certain
subjective judgments and decisions. For example, with respect to each commodity
interest portfolio, Messrs. Beck and Hyman will select the contracts and markets
which will be followed, the contracts and markets which will be actively traded
and the contract months in which positions will be maintained. Messrs. Beck and
Hyman will also determine when to roll over a position (i.e., when to liquidate
a position which is about to expire and initiate a new position in a more
distant contract month). These types of decisions require consideration of,
among other things, the volatility of a particular market, the pattern of price
movements (both interday and intraday), open interest, trading volume, changes
in spread relationships between various contract months and between various
contracts and overall portfolio balance and risk exposure. With respect to the
timing and execution of trades, Messrs. Beck and Hyman may also rely to some
extent on the judgment of others, such as floor brokers. No assurance can be
made that consideration will be given to any or all of the foregoing factors by
Messrs. Beck and Hyman with respect to every trade or that consideration of any
of such factors in a particular situation will lessen the risk of loss.
Investors should be aware that such decisions may involve a substantial element
of judgment and that such persons' unavailability to make such decisions could
materially impair the operation of HB&Co.'s trading approach.
Along with the subjective decision-making authority reserved for
Messrs. Beck and Hyman, HB&Co. also maintains a procedure for determining the
appropriate quantity of contracts to be traded for an account of a given size
and for all accounts. HB&Co. may continually adjust its trading portfolios and
the position size of an order immediately prior to placement, based on such
factors as past market volatility, prices of commodities, amount of risk,
potential return and margin requirements. The decision not to trade a certain
commodity interest at certain times or to reduce the number of
-71-
<PAGE>
contracts traded in a particular commodity interest may result in missing
significant profit opportunities that otherwise might be captured if HB&Co.
depended solely on the computer-based aspects of its trading strategy or on
different trading strategies altogether.
Leverage
HB&Co. 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 six (6) alternative commodity interest
portfolios in which to participate: a Diversified Portfolio, a foreign currency
FX Portfolio, a Global Portfolio, a Short-Term Original Portfolio, a Short-Term
Portfolio* and an Asset Allocation Portfolio. The following is a list of certain
of the different commodity interests which HB&Co. may trade in its portfolios.
Mr. Beck and Mr. Hyman, at their discretion and according to their research, may
add or delete different types of commodity interests from any of the trading
portfolios.
Interest Rates (U.S. dollar). Treasury Bonds, Treasury Notes,
Eurodollars, Treasury Bills and Municipal Bonds.
Interest Rates (Non-U.S. dollar). British Long Gilts, British Short
Sterling, German Euromarks, German Bonds, Japanese Euroyen, Japanese Government
Bonds, French Notional Bonds, French PIBOR, Italian Government Bonds, Australian
Government Bonds, Australian Bank Bills and Canadian Government Bonds.
Stock Indices (U.S. dollar). NYSE Composite and S&P 500.
Stock Indices (Non-U.S. dollar). British FTSE, Japanese NIKKEI,
French CAC-40 and Australian All Ordinaries.
Metals. Gold, Silver, Platinum, Copper, Aluminum and Zinc.
Currencies. British Pound, German Mark, Japanese Yen, Swiss Franc,
Canadian Dollar, Australian Dollar, French Franc, Italian Lira, Spanish Peseta,
New Zealand Dollar, Swedish Krona, Dutch Guilder, Belgian Franc and Malaysian
Ringgit.
Agricultural Commodities. Corn, Wheat, Soybeans, Soymeal and Soyoil.
Energies. Crude Oil, Heating Oil, Unleaded Gas and Gas Oil.
Other Commodities. Coffee, Sugar, Cocoa, Cotton, Cattle, Hogs and
Porkbellies.
The Global Portfolio
HB&Co. will trade the Global Portfolio on behalf of the Trust.
HB&Co.'s Global Portfolio participates in many of the internationally-traded
futures and forward markets not necessarily represented in the Diversified
Portfolio or the FX Portfolio. The Global Portfolio trades a portfolio of over
30 futures and forward markets worldwide with a concentration in world interest
rate and other financial markets.
- ----------
* The Short-Term Original Portfolio and Short-Term Select Portfolio may be
referenced together as the "Short-Term Portfolio."
-72-
<PAGE>
The Diversified Portfolio
HB&Co.'s Diversified Portfolio offers access to international
markets not typically represented in a traditional investment portfolio. The
Diversified Portfolio trades a portfolio of over 40 diverse futures, forward and
cash markets and offers diversification into global financial and tangible
assets including agricultural items, energy products, interest rates and stock
indices, foreign currencies and metals.
The FX Portfolio
HB&Co.'s FX Portfolio trades in the world currency markets. The FX
Portfolio may trade up to a total of 40 non-U.S. crossrates (trading non-U.S.
currencies vs. other non-U.S. currencies) and outrights (trading non-U.S.
currencies vs. the U.S. dollar).
The Short-Term Original 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 Short-Term Select Portfolio
The Short-Term Portfolio utilizes the same technical, non-linear,
approach currently employed in trading the Short-Term Original Portfolio, but
will concentrate its trading in fewer markets. More specifically, the short-Term
Select Portfolio trades futures and forward contracts in approximately 30 of the
most liquid markets, including but limited to foreign and stock indices, foreign
currencies, foreign and domestic fixed income instruments, precious and base
metals, and energy products. HB&Co. expects, based on its research, that the
risk/reward characteristics of the Short-Term Select Portfolio will not be
materially different than those of its Short-Term Original Portfolio.
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. HB&Co.
believes, based on its research to date, that the performance of the Short-Term
Original Portfolio may exhibit a substantial degree of non-correlation with the
long-term, trend-following strategies utilized in the trading of the Asset
Allocation Portfolio. Such non-correlation may result in additional
opportunities for profit from shorter-term market movements, additional
diversification in HB&Co.'s trading strategies, and reduced volatility in the
Asset Allocation Portfolio's performance over time. The Short-Term Original
Portfolio was added to the Asset Allocation Portfolio in November 1996. As of
February 1998 the Short-Term Select Portfolio replaced the Short-Term Original
Portfolio.
Past Performance Information
The following information describes the composite actual performance
of all customer accounts managed by HB&CO. As of March 31, 1998, HB&Co. was
managing approximately $264 million (excluding "notional" equity) of customer
funds in the futures and forwards markets. The performance information set forth
below is current as of March 31, 1998.
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
-73-
<PAGE>
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; (8) the market conditions in which
accounts were traded, which in part determine the quality of trade executions;
and (9) trading restrictions imposed by clients. 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. 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 Original Portfolio was added to the
Asset Allocation Portfolio in November 1996. In February 1998 the Short-Term
Select Portfolio replaced the Short-Term Original Portfolio.
[Remainder of page left blank intentionally.]
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<PAGE>
The Global Portfolio
HB&Co. will trade this portfolio on behalf of the Trust. The
following summary performance information and chart reflect the composite
performance results of the Global Portfolios directed by HB&Co for the five-year
period from January 1993 through March 1998.
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: 19
Aggregate assets in all programs (excluding "notional" equity): $264,040,531
Aggregate assets in all programs (including "notional" equity): $328,887,024
Aggregate assets in Global Portfolio (excluding "notional" equity): $203,289,928
Aggregate assets in Global Portfolio (including "notional" equity): $224,701,557
Largest monthly drawdown: (12.77%) (12/96)
Largest peak-to-valley drawdown: (13.90%) (7/94 - 2/95)
Number of profitable closed accounts: 24
Number of unprofitable closed accounts: 17
================================================================================
Monthly 1998(%) 1997(%) 1996(%) 1995(%) 1994(%) 1993(%)
Performance
- --------------------------------------------------------------------------------
January (0.15) 8.76 3.97 (6.35) (0.45) (3.97)
- --------------------------------------------------------------------------------
February (0.41) 1.69 (8.23) 9.02 (7.45) 8.65
- --------------------------------------------------------------------------------
March (0.08) (0.23) (1.21) 18.71 12.48 2.10
- --------------------------------------------------------------------------------
April (2.77) 2.39 6.22 (2.17) 5.65
- --------------------------------------------------------------------------------
May 0.20 (3.20) 6.34 4.22 4.55
- --------------------------------------------------------------------------------
June 1.79 1.38 (1.12) 5.14 (4.95)
- --------------------------------------------------------------------------------
July 10.78 1.80 (1.68) (4.30) 5.00
- --------------------------------------------------------------------------------
August (2.78) (1.15) (1.80) (4.40) 0.51
- --------------------------------------------------------------------------------
September 2.13 4.36 (2.16) (2.85) (0.80)
- --------------------------------------------------------------------------------
October (1.06) 11.17 (1.08) 4.72 (0.63)
- --------------------------------------------------------------------------------
November 1.65 9.79 1.27 3.43 (2.78)
- --------------------------------------------------------------------------------
December 2.75 (8.71) 0.80 (2.95) 1.34
- --------------------------------------------------------------------------------
Compound (0.64) 24.38 10.82 29.12 3.81 14.63
Rate of (3 months)
Return
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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<PAGE>
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 1993 through March 1998.
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: 4
Aggregate assets in all programs (excluding "notional" equity): $264,040,531
Aggregate assets in all programs (including "notional" equity): $328,887,024
Aggregate assets in Diversified Program (excluding "notional"
equity): $1,372,380
Aggregate assets in Diversified Program (including "notional"
equity): $5,907,317
Largest monthly drawdown: (15.90%) (2/94)
Largest peak-to-valley drawdown: (30.42%) (8/93-12/95)
Number of profitable closed accounts: 16
Number of unprofitable closed accounts: 25
1998 compound rate of return: (0.49)% (3 months)
1997 compound rate of return: 11.88%
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%
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 1993 through March 1998.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: FX Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: March 1991
Number of open accounts: 8
Aggregate assets in all programs (excluding "notional" equity): $264,040,531
Aggregate assets in all programs (including "notional" equity): $328,887,024
Aggregate assets in FX Program (excluding "notional" equity): $9,747,855
Aggregate assets in FX Program (including "notional" equity): $19,872,667
Largest monthly drawdown: (18.72%) (11/94)
Largest peak-to-valley drawdown: (52.49%) (8/93 - 1/95)
Number of profitable closed accounts: 6
Number of unprofitable closed accounts: 31
1998 compound rate of return (2.49)% (3 months)
1997 compound rate of return: 29.30%
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%
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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<PAGE>
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 preceding performance summaries) directed by HB&Co. from January
1993 through March 1998.
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" equity): $264,040,531
Aggregate assets in all programs (including "notional" equity): $328,887,024
Aggregate assets in Asset Allocation program (excluding "notional"
equity): $15,080,729
Aggregate assets in Asset Allocation program (including "notional"
equity): $59,284,567
Largest monthly drawdown: (9.38%) (2/96)
Largest peak-to-valley drawdown: (18.30%) (8/93 - 1/95)
Number of profitable closed accounts: 2
Number of unprofitable closed accounts: 2
1998 compound rate of return (5.23)% (3 months)
1997 compound rate of return: 20.91%
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%
The Short-Term Original Portfolio
HB&Co.'s Short-Term Original 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 through March 31, 1998.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Short-Term Original Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: April 1996
Number of open accounts: 8
Aggregate assets in all programs (excluding "notional" equity): $264,040,531
Aggregate assets in all programs (including "notional" equity): $328,887,024
Aggregate assets in Short-Term program (excluding "notional"
equity): $34,644,959
Aggregate assets in Short-Term program (including "notional"
equity): $45,832,444
Largest monthly drawdown: (8.83)% (8/96)
Largest peak-to-valley drawdown: (12.47%) (11/96 - 12/96)
Number of profitable closed accounts: 9
Number of unprofitable closed accounts: 2
1998 compound rate of return: (4.09)% (3 months)
1997 compound rate of return: 33.30%
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
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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<PAGE>
The Short-Term Select Portfolio
HB&Co.'s Short-Term Select Portfolio has been utilized only since
September, 1997 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 through March 31, 1998.
Name of CTA: Hyman Beck & Company, Inc.
Name of program: Short-Term Original Portfolio
Inception of client account trading by CTA: March 1991
Inception of client account trading in program: April 1996
Number of open accounts: 7
Aggregate assets in all programs (excluding "notional" equity): $264,040,531
Aggregate assets in all programs (including "notional" equity): $328,887,024
Aggregate assets in Short-Term program (excluding "notional"
equity): $14,985,409
Aggregate assets in Short-Term program (including "notional"
equity): $32,573,039
Largest monthly drawdown: (10.15)% (2/98)
Largest peak-to-valley drawdown: (11.08%) (2/98 - 3/98)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
1998 compound rate of return: (7.89)% (3 months)
1997 compound rate of return: 0.73%
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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<PAGE>
SUNRISE CAPITAL PARTNERS, LLC
Background and Management
Sunrise Capital Partners, LLC (the "Sunrise Capital Partners") is a
California limited liability company with offices at 990 Highland Drive, Suite
303, Solana Beach, California 92075-2472. Its main telephone number is (619)
259-8911 and its facsimile number is (619) 259-7645. Sunrise Capital Partners
was organized in January 1995. Sunrise Capital Partners was registered in
February 1995 as a commodity trading advisor ("CTA") and as a commodity pool
operator ("CPO") with the CFTC under the Commodity Exchange Act, as amended, and
is a member of the NFA in both such capacities.
Sunrise Capital Partners is wholly-owned by Sunrise Capital
Management, Inc. ("Sunrise") and Commodity Monitors, Inc. ("CMI").
Sunrise is a California corporation (formerly named Sunrise
Commodities, Inc.) which continues the business of Sunrise Commodities, a
California sole proprietorship organized in 1982, and its predecessor firms.
Sunrise was registered in February 1983 as a CTA and in April 1990 as a CPO with
the CFTC and is a member of the NFA in both such capacities.
CMI is a California corporation organized in October 1977, and is
the successor to the partnership of Harris & Slaughter. CMI was registered in
November 1977 with the CFTC as a CTA and is a member of the NFA in such
capacity.
Martin P. Klitzner is a Managing Director of Sunrise Capital
Partners. Mr. Klitzner is responsible for Sunrise Capital Partners's day-to-day
business and administrative operations. In 1967 and 1968 he received a B.A. and
an M.B.A., respectively, from the University of Michigan. He did post graduate
work in economics at the University of California, Los Angeles, from 1968 to
1971. Mr. Klitzner joined Sunrise on December 1, 1982 and serves as its
President. Prior to joining Sunrise, Mr. Klitzner was a planner in the public
sector, a private businessman, and an investor.
Richard C. Slaughter is a Managing Director of Sunrise Capital
Partners. Mr. Slaughter is responsible for Sunrise Capital Partners's day-to-day
activities regarding research and trading systems development. In 1974, he
received a B.S. in finance from San Diego State University. He has pursued
graduate studies in finance at the State University and in systems management at
the University of Southern California. Mr. Slaughter has been a Professor of
Finance, instructing M.B.A. candidates in securities analysis and portfolio
management. Mr. Slaughter, a co-founder of CMI in 1977, serves as its President.
He was responsible, along with Dr. Forrest, for the development of CMI's trading
systems. Mr. Slaughter began trading commodities on a full- time basis in 1975
for his own account and as a CTA.
Dr. Gary B. Davis concentrates his efforts in research and trading
systems development activities for Sunrise Capital Partners. In 1968 and 1970,
Dr. Davis received a B.S. and a Medical Degree, respectively, from the
University of Michigan. From 1980 to 1990, Dr. Davis served on the faculty of
the University of California, San Diego, as a Professor of Medicine. Dr. Davis,
founder of Sunrise and developer of its trading systems, serves as its Chairman.
Dr. Davis has studied and traded the commodity markets since 1979.
Dr. John V. Forrest engages in research and trading systems
development on behalf of Sunrise Capital Partners. In 1962, he received a B.A.
from Notre Dame and in 1966 received a Medical Degree from the State University
New York -- Downstate Medical Center. Dr. Forrest retired in 1998 as a Professor
of Medicine at the University of California, San Diego, where he has served on
the faculty since 1976. Dr. Forrest joined CMI in September 1991 and is a
co-developer, with Mr. Slaughter, of CMI's trading systems. He was President and
sole shareholder of Cresta Commodities, a CTA, from September 1981 to August
1989. Dr. Forrest began trading the commodity markets in 1975.
Martin M. Ehrlich is Vice President--Marketing of Sunrise Capital
Partners. His academic background includes studies at the University of
Cincinnati where he majored in business administration. Mr. Ehrlich joined
Sunrise in November 1986 after having been a long-time investor with the
company. Prior to assuming responsibilities for marketing and public relations,
Mr. Ehrlich was an independent businessman and investor.
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<PAGE>
Marie Laufik is Vice President -- Trading of Sunrise Capital
Partners. Ms. Laufik is Sunrise Capital Partners's head trader and is
responsible for supervising Sunrise Capital Partners's trading and back-office
operations. In 1973, Ms. Laufik received a Master's Degree in economics from the
University of Prague. Ms. Laufik worked for a Czechoslovakian import/export
company for nine years before immigrating to the United States. She was a
commodity trader for Cresta Commodities from April 1986 until she joined Sunrise
in August 1988.
Elissa Davis is a principal of Sunrise Capital Partners and of
Sunrise by virtue of her role as a trustee of the Davis Family Trust. Mrs. Davis
is not active in the management of either Sunrise Capital Partners or of Sunrise
and has not been involved in any other business activities during the past five
years.
The Davis Family Trust, dated October 12, 1989, is a director and
the sole shareholder of Sunrise; Dr. Gary B. Davis and his wife, Elissa Davis,
are trustees and the sole beneficiaries of this Trust.
Trading Strategy
Sunrise Capital Partners utilizes technical trend-following systems
trading a wide continuum of time windows. Most of these time frames are
decidedly long term by industry standards. Pro-active money management
strategies are designed to protect open profits and to minimize exposure to
non-directional markets.
Relying on technical analysis, Sunrise Capital Partners believes
that future price movements in all markets may be more accurately anticipated by
analyzing historical price movements within a quantitative framework rather than
attempting to predict or forecast changes in price through fundamental economic
analysis. The trading methodologies employed by Sunrise Capital Partners are
based on programs analyzing a large number of interrelated mathematical and
statistical formulas and techniques which are quantitative, proprietary in
nature and which have been either learned or developed by Dr. Davis, Dr. Forrest
and/or Mr. Slaughter. The profitability of the trading programs, traded pursuant
to technical analysis emphasizing mathematical and charting approaches, will
depend upon the occurrence in the future, as in the past, of major trends in
some markets. If there are no trends, the trading programs are likely to be
unprofitable.
Sunrise Capital Partners's trading systems attempt to detect a
trend, or lack of a trend, with respect to a particular Commodity Interest in a
program by analyzing price movement and volatility over time. Sunrise Capital
Partners's trading system consists of multiple, independent and parallel
systems, each designed and tested to seek out and extract different market
inefficiencies on different time horizons. These systems will generate a signal
to sell a "short" contract or purchase a "long" contract based upon their
identification of a price trend in the particular Commodity Interest. If the
systems do not detect a price trend, a "neutral" trading signal will be
generated. While this neutral signal is designed to filter out high-risk
"whipsaw" markets, it is successful on only a limited basis. Successful
speculative commodity trading employing trend-following techniques, such as
Sunrise Capital Partners's system, depends to a large degree upon not trading
non-directional, volatile markets. Accordingly, to the extent that this signal
is not generated during a non-trending market, trading would likely be
unsuccessful because an account would trade such markets.
Trend-following trading systems, such as those employed by Sunrise
Capital Partners, will seldom effect market entry or exit at the most favorable
price in the particular market trend. Rather, this type of trading system seeks
to close out losing positions quickly and to hold portions of profitable
positions for as long as the trading system determines that the particular
market trend continues to offer reasonable profit potential. The number of
losing transactions may exceed substantially the number of profitable
transactions. However, if Sunrise Capital Partners's approach is successful,
these losses should be more than offset by gains.
While Sunrise Capital Partners relies primarily on its mechanical
technical trading systems in making investment decisions, the strategy does
include the latitude to depart from this approach if market conditions are such
that, in the opinion of Sunrise Capital Partners, execution of trades
recommended by the mechanical systems would be difficult or unusually risky to
an account. There may occur the rare instance which Sunrise Capital Partners,
will override the system to decrease market exposure. Any modification of
trading instructions could adversely affect the profitability of an account.
Among the possible consequences of such a modification would be (1) the entrance
of a trade at a price significantly worse than a system's signal price, (2) the
complete negation of a signal which subsequently would have produced a
profitable trade or (3) the premature termination of an existing trade.
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<PAGE>
A technical trading system consists of a series of fixed rules
applied systematically. However, the system still requires that Sunrise Capital
Partners make certain subjective judgments. For example, Sunrise Capital
Partners must select the markets it will follow and Commodity Interests it will
actively trade, along with the contract months in which it will maintain
positions. Sunrise Capital Partners must also subjectively determine when to
liquidate positions in a contract month which is about to expire and initiate a
position in a more distant contract month.
It is anticipated that Sunrise Capital Partners will commit to
margin between 5% -- 40% of assets managed, but margin commitments may from time
to time exceed this range.
Sunrise Capital Partners engages in ongoing research which may lead
to significant modifications from time to time.
While Mr. Slaughter, Dr. Davis and Dr. Forrest have extensive
experience in the development of systems and methods for trading in the futures
and forward markets, prospective investors should understand that no "safe"
trading system has ever been devised and that no one can guarantee profit or
freedom from loss in Commodity Interest trading.
Sunrise Capital Partners currently offers four programs for
investment, all of which are traded in accordance with the trading method
described herein. Markets within the various programs described below are
subject to change at any time without notice. The Fund's account will be traded
pursuant to the Expanded Diversified Program.
Expanded Diversified
The Sunrise Expanded Diversified Program provides further
diversification than in the standard Diversified Program (described below).
Additional Commodity Interests may include, but are not limited to, industrial
metals, foreign financials, and minor currency markets. Given liquidity
constraints in certain of these additional commodity markets, Sunrise Capital
Partners may, in the future, restrict money under management for this program.
Currency
The Sunrise Currency Program follows approximately twelve different
major and minor currency markets, which may include, but are not limited to, the
Japanese yen, British pound, German Deutsche mark, Swiss franc, Canadian dollar,
Australian dollar, Spanish peseta, Italian lira, Swedish krona, New Zealand
dollar, French franc, and South African rand. The Currency Program trades
currency futures contracts on the International Monetary Market (IMM) Division
of the Chicago Mercantile Exchange and forward currency contracts in the
interbank markets. In order to achieve adequate diversification for a Currency
Program, major and minor currencies are traded as crossrates selectively against
each other and/or as outrights against the U.S. Dollar.
CIMCO
The Sunrise CIMCO--Diversified Financial Program was designed by
Sunrise Capital Partners to participate exclusively in the highly liquid
financial markets. This program trades the major currencies as outrights against
the U.S. Dollar and selectively against each other. Interest rate futures, both
long and short term (including U.S. and Foreign Bonds, Notes and Euro products),
stock indices (including S & P 500), precious and industrial metals (including
gold, silver and copper) and crude oil are also traded in this program. These
Commodity Interests are traded on futures exchanges but may also be traded in
the interbank or cash markets when appropriate.
Diversified
The Sunrise Diversified Program may follow approximately twenty
different markets. These markets may include, but are not limited to, precious
and industrial metals, grains, petroleum products, soft commodities, interest
rate futures, stock indices (including S & P 500), currencies and their
crossrates.
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<PAGE>
Sunrise Expanded Diversified Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the performance record of the Sunrise
Expanded Diversified Program from January 1993 through March 1998.
Name of CTA: Sunrise Capital Partners, LLC
Name of program: Sunrise Expanded Diversified Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: October 1989
Number of open accounts: 8
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $60,100,000
Aggregate assets (including "notional" equity) in program: $81,600,000
Largest monthly drawdown: (11.83)% (11/93)
Largest peak-to-valley drawdown: (29.82)% (7/93 - 4/94)
Number of profitable closed accounts: 0
Number of unprofitable closed accounts: 0
Monthly/Annual Rates of Return
================================================================================
Month 1998(%) 1997(%) 1996(%) 1995(%) 1994(%) 1993(%)
- --------------------------------------------------------------------------------
January 1.6 4.6 0.5 (8.5) (1.3) (8.3)
- --------------------------------------------------------------------------------
February 3.9 8.6 (5.8) 4.7 (3.5) 17.4
- --------------------------------------------------------------------------------
March 2.9 1.5 4.5 19.1 0.2 (1.7)
- --------------------------------------------------------------------------------
April (0.5) 9.3 2.4 (7.1) 3.2
- --------------------------------------------------------------------------------
May 4.4 0.1 (3.8) 5.2 4.0
- --------------------------------------------------------------------------------
June (2.9) (0.6) (0.7) 11.8 2.5
- --------------------------------------------------------------------------------
July 6.0 (0.8) (1.9) (4.2) 10.2
- --------------------------------------------------------------------------------
August (3.3) (0.5) (0.4) (11.0) (10.2)
- --------------------------------------------------------------------------------
September (1.65 0.9 (2.7) 2.5 (4.6)
- --------------------------------------------------------------------------------
October (1.02 6.9 0.8 10.8 (11.8)
- --------------------------------------------------------------------------------
November 1.8 1.3 (0.8) 3.9 (6.0)
- --------------------------------------------------------------------------------
December 2.2 2.7 5.2 (3.2) 11.5
- --------------------------------------------------------------------------------
Compound Annual 8.7
Rate of Return (3 months) 20.7 19.3 11.5 1.6 1.5
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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<PAGE>
Sunrise 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 1993 through March 1998.
Name of CTA: Sunrise Capital Partners, LLC
Name of program: Sunrise Currency Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: October 1985
Number of open accounts: 13
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $80,800,000
Aggregate assets (including "notional" equity) in program: $93,000,000
Largest monthly drawdown: (13.68)% (11/93)
Largest peak-to-valley drawdown: (58.60)% (7/93-1/95)
Number of profitable closed accounts: 10
Number of unprofitable closed accounts: 7
1998 compound rate of return: 2.0% (3 months)
1997 compound rate of return: 10.9%
1996 compound rate of return: 20.2%
1995 compound rate of return: 34.0%
1994 compound rate of return: (22.1)%
1993 compound rate of return: (13.6)%
Sunrise CIMCO -- Diversified Financial Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
CIMCO Program for the five-year period from January 1993 through March 1998.
Name of CTA: Sunrise Capital Partners, LLC
Name of program: Sunrise CIMCO Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: October 1990
Number of open accounts: 5
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $101,100,000
Aggregate assets (including "notional" equity) in program: $101,100,000
Largest monthly drawdown: (12.04)% (1/94)
Largest peak-to-valley drawdown: (44.47)% (7/93-1/95)
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 2
1998 compound rate of return: 6.4% (3 months)
1997 compound rate of return: (3.0)%
1996 compound rate of return: 26.1%
1995 compound rate of return: 50.9%
1994 compound rate of return: (28.8)%
1993 compound rate of return: 18.0%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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<PAGE>
Sunrise Diversified Program
The following summary information (determined pursuant to the
Fully-Funded Subset Method) presents the composite performance record of the
Diversified Program for the five-year period from January 1993 through March
1998.
Name of CTA: Sunrise Capital Partners, LLC
Name of program: Sunrise Diversified Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: June 1980
Number of open accounts: 22
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $41,500,000
Aggregate assets (including "notional" equity) in program: $75,300,000
Largest monthly drawdown: (19.69)% (8/93)
Largest peak-to-valley drawdown: (62.77)% (9/90-8/93)
Number of profitable closed accounts: 10
Number of unprofitable closed accounts: 3
1998 compound rate of return: 6.2% (3 months)
1997 compound rate of return: 11.3%
1996 compound rate of return: 21.9%
1995 compound rate of return: 40.0%
1994 compound rate of return: (5.5)%
1993 compound rate of return: 5.9%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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<PAGE>
Sunrise Capital Management, Inc. -- Closed Programs
Limited CIMCO[S] Program
The following summary information presents the composite performance
record of the Limited CIMCO[S] Program.
Name of CTA: Sunrise Capital Management
Na0me of program: Limited CIMCO[S] Program
Inception of client account by CTA: June 1980
Inception of client account trading in program: April 1990 (ceased
trading March 1994)
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown:( 9.17)% 1/1/93 (11/93)
Largest peak-to-valley drawdown: (36.7)% (7/93-3/94)
Number of Profitable Closed Accounts: 1
Number of Unprofitable Closed Accounts: 0
1998 compound rate of return : N/A
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: (15.0%) (3 months)
1993 compound rate of return: (2.0%)
Limited Currency Program
The following summary information presents the composite performance
record of the Limited Currency Program.
Name of CTA: Sunrise Capital Management
Name of program: Limited Currency Program
Inception of client account trading by CTA: June 1980
Inception of client account trading in program: November 1988 (ceased
trading September 1993)
Number of open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (11.54)% ( 8/93)
Largest peak-to-valley drawdown: (20.85%), 2/93-8/93
Number of profitable closed accounts from: 1
Number of unprofitable closed accounts from: 0
1998 compound rate of return : N/A
1997 compound rate of return - 1997: 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: (13.3%) (9 months)
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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Commodity Monitors, Inc. -- Closed Programs
The following summary performance disclosure describes the composite
performance for CMI programs which are no longer open to new investment.
Performance information is set forth for the most recent five full
years for each program or, in the event that a program has been trading for less
than five years, performance information is set forth from the inception of
trading. Performance information prior to January 1, 1993 has been excluded in
accordance with CFTC regulations.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
[Remainder of page left blank intentionally.]
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Diversified Program
CMI suspended trading of its Diversified Program in August 1997. The
program, which commenced trading in September 1991, was composed of 79 accounts,
60 of which closed profitable and 19 unprofitable. Performance information is
calculated based on the fully-funded subset method.
Name of CTA: Commodity Monitors, Inc.
Name of Program: Diversified Program
Inception of client account trading by CTA: June 1976
Inception of client account trading in program: September 1991
Number of Open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (14.3%), 9/93
Largest peak-to-valley drawdown: (31.6%), 7/93-4/93
Number of profitable closed accounts: 60
Number of unprofitable closed accounts: 19
1998 compound rate of return: N/A
1997 compound rate of return: 11.3%
1996 compound rate of return: 24.9%
1995 compound rate of return: 8.8%
1994 compound rate of return: 9.0%
1993 compound rate of return: 6.5%
Financial Program
CMI suspended trading of its Financial Program in September 1997.
The program, which commenced trading in September 1991, was composed of 6
accounts, 5 of which closed profitable and 1 unprofitable. Performance
information is calculated based on the fully-funded subset method.
Name of CTA: Commodity Monitors, Inc.
Name of Program: Financial Program
Inception of client account trading by CTA: June 1976
Inception of client account trading in program: September 1991
Number of Open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (10.6%), 1/94
Largest peak-to-valley drawdown: (22.3%), 8/93-4/94
Number of profitable closed accounts: 5
Number of unprofitable closed accounts: 1
1998 compound rate of return: N/A
1997 compound rate of return: (3.8)%
1996 compound rate of return: 20.9%
1995 compound rate of return: 14.0%
1994 compound rate of return: (5.5)%
1993 compound rate of return: 10.1%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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Global Forex Program
CMI suspended trading of its Global Forex Program in June 1997. The
program which commended trading in March 1992, was composed of 17 accounts, 11
of which closed profitable and 6 unprofitable. Performance information is
calculated based on the fully-funded subset method.
Name of CTA: Commodity Monitors, Inc.
Name of Program: Global Forex Program
Inception of client account trading by CTA: June 1976
Inception of client account trading in program: March 1992
Number of Open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (13.1%), 1/94
Largest peak-to-valley drawdown: (19.5%), 7/93-2/94
Number of profitable closed accounts: 11
Number of unprofitable closed accounts: 6
1998 compound rate of return: N/A
1997 compound rate of return: (3.2)%
1996 compound rate of return: 10.9%
1995 compound rate of return: 6.5%
1994 compound rate of return: 0.9%
1993 compound rate of return: (4.4)%
Sierra Short-Term Program
CMI suspended trading of its Sierra Short-Term Program in February
1995. The program, which commenced trading in June 1992, was composed of 32
accounts, 2 of which closed profitable and 30 unprofitable. Performance
information is calculated based on the fully-funded subset method.
Name of CTA: Commodity Monitors, Inc.
Name of Program: Sierra Short-Term Program
Inception of client account trading by CTA: June 1976
Inception of client account trading in program: June 1992
Number of Open accounts: 0
Aggregate assets (excluding "notional" equity) overall: $283,500,000
Aggregate assets (including "notional" equity) overall: $351,000,000
Aggregate assets (excluding "notional" equity) in program: $0
Aggregate assets (including "notional" equity) in program: $0
Largest monthly drawdown: (21.4%), 10/93
Largest peak-to-valley drawdown: (28.2%), 10/93-12/93
Number of profitable closed accounts: 2
Number of unprofitable closed accounts: 30
1998 compound rate of return: N/A
1997 compound rate of return: N/A
1996 compound rate of return: N/A
1995 compound rate of return: 1.0%
1994 compound rate of return: (1.4)%
1993 compound rate of return: (23.7)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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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") in 1989 and served as its Co-Chief Executive
until April 1995, at which time MC Baldwin was international trading manager
which developed 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
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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 privately held businesses, 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 $2 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 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
$2 million in assets, Willowbridge may not be able to trade the full Primary
portfolio.
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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, swaps, 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 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
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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 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.
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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.
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
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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, 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; (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
but generally do not exceed $25 per Round Turn. 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.
-94-
<PAGE>
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.
-95-
<PAGE>
XLIM Trading Approach
Willowbridge trades 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 1993 through March 1998, of which the
figure for March 1998 is an estimate.
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: 27
Aggregate assets (excluding "notional" equity) overall: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $280,420,229
Aggregate assets (including "notional" equity) in program: $299,033,229
Largest monthly drawdown: (10.73)% (8/97)
Largest peak-to-valley drawdown: (29.10)% (8/93 - 1/95)
Number of profitable closed accounts: 18
Number of unprofitable closed accounts: 7
================================================================================
Monthly
Performance 1998(%) 1997(%) 1996(%) 1995(%) 1994(%) 1993(%)
- --------------------------------------------------------------------------------
January 9.72 (3.41) 2.74 (4.89) (11.93) 1.04
- --------------------------------------------------------------------------------
February (3.82) 7.74 (2.67) 0.87 (12.67) 22.24
- --------------------------------------------------------------------------------
March (1.22) 6.23 4.63 31.21 0.04 (5.40)
- --------------------------------------------------------------------------------
April (6.47) 9.48 4.41 0.00 (2.97)
- --------------------------------------------------------------------------------
May 1.92 (2.70) 0.25 0.00 (1.04)
- --------------------------------------------------------------------------------
June (7.24) (0.22) (7.52) 0.00 4.00
- --------------------------------------------------------------------------------
July 18.90 (6.76) (3.91) 0.00 12.93
- --------------------------------------------------------------------------------
August (9.01) 2.07 (1.28) 0.00 (8.79)
- --------------------------------------------------------------------------------
September (4.27) 14.07 2.55 0.00 (7.02)
- --------------------------------------------------------------------------------
October (6.00) 6.38 1.93 0.00 5.07
- --------------------------------------------------------------------------------
November (1.78) 1.91 2.59 3.23 1.55
- --------------------------------------------------------------------------------
December 8.18 0.13 5.92 1.13 2.56
- --------------------------------------------------------------------------------
Compound 4.24% 1.12 31.06 31.28 (19.68) 22.30
Rate of Return (3 months)
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-96-
<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 1993 through March 1998, of
which the figure for March 1998 is an estimate.
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: 14
Aggregate assets (excluding "notional" equity) overall: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $20,240,007
Aggregate assets (including "notional" equity) in program: $37,046,991
Largest monthly drawdown: (19.39)% (2/96)
Largest peak-to-valley drawdown: (23.95)% (8/97-10/97)
Number of profitable closed accounts: 17
Number of unprofitable closed accounts: 9
1998 compound rate of return: (3.30)% (3 months)
1997 compound rate of return: 14.82%
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%
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 1993 through March 1998, of
which the figure for March 1998 is an estimate.
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: 7
Aggregate assets (excluding "notional" equity) overall: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $10,821,328
Aggregate assets (including "notional" equity) in program: $26,525,718
Largest monthly drawdown: (15.02)% (2/94)
Largest peak-to-valley drawdown: (27.80)% (8/93- 2/94)
Number of profitable closed accounts: 11
Number of unprofitable closed accounts: 1
1998 compound rate of return: (2.05)% (3 months)
1997 compound rate of return: 6.27%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-97-
<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 1993 through March 1998, of which
the figure for March 1998 is an estimate.
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: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: ($69,987)
Aggregate assets (including "notional" equity) in program: $1,103,978
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
1998 compound rate of return: (2.34)% (3 months)
1997 compound rate of return: (1.55)%
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)%
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 1993 through March 1998, of
which the figure for March 1998 is an estimate.
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: 48
Aggregate assets (excluding "notional" equity) overall: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $137,180,045
Aggregate assets (including "notional" equity) in program: $176,060,692
Largest monthly drawdown: (20.49)% (2/96)
Largest peak-to-valley drawdown: (31.13)% (5/96 - 7/96)
Number of profitable closed accounts: 66
Number of unprofitable closed accounts: 15
1998 compound rate of return: 4.90% (3 months)
1997 compound rate of return: 1.97%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-98-
<PAGE>
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 1993 through March 1998, of
which the figure for March 1998 is an estimate.
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: 9
Aggregate assets (excluding "notional" equity) overall: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $6,149,841
Aggregate assets (including "notional" equity) in program: $33,335,564
Largest monthly drawdown: (14.99)% (2/98)
Largest peak-to-valley drawdown: (21.99)% (7/93 - 10/93)
Number of profitable closed accounts: 8
Number of unprofitable closed accounts: 1
1998 compound rate of return: (18.94)% (3 months)
1997 compound rate of return: 21.39%
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%
MTech Approach
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 1993 through March 1998, of
which the figure for March 1998 is an estimate.
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: 5
Aggregate assets (excluding "notional" equity) overall: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $21,610,536
Aggregate assets (including "notional" equity) in program: $43,176,614
Largest monthly drawdown: (17.14)% (2/98)
Largest peak-to-valley drawdown: (28.33%) (4/97 - 2/98)
Number of profitable closed accounts: 1
Number of unprofitable closed accounts: 4
1998 compound rate of return: (7.71)% (3 months)
1997 compound rate of return: (2.95)%
1996 compound rate of return: 45.73%
1995 compound rate of return: 53.22%
1994 compound rate of return: 21.68%
1993 compound rate of return: 32.48%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-99-
<PAGE>
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 1993 through March 1998, of which
the figure for March 1998 is an estimate.
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: 4
Aggregate assets (excluding "notional" equity) overall: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $15,824,443
Aggregate assets (including "notional" equity) in program: $21,291,867
Largest monthly drawdown: (18.08)% (2/94)
Largest peak-to-valley drawdown: (31.83)% (8/93 - 9/94)
Number of profitable closed accounts: 19
Number of unprofitable closed accounts: 25
1998 compound rate of return: 4.76% (3 months)
1997 compound rate of return: 2.09%
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%
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 1993 through March 1998,
of which the figure for March 1998 is an estimate.
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: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $(549,244)
Aggregate assets (including "notional" equity) in program: $12,052,181
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
1998 compound rate of return: (4.42)% (3 months)
1997 compound rate of return: 10.28%
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)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAMS.
-100-
<PAGE>
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 period from January 1993 through March 1998, of which
the figure for March 1998 is an estimate.
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: 19
Aggregate assets (excluding "notional" equity) overall: $526,546,548
Aggregate assets (including "notional" equity) overall: $721,071,991
Aggregate assets (excluding "notional" equity) in program: $34,950,534
Aggregate assets (including "notional" equity) in program: $68,474,341
Largest monthly drawdown: (17.06)% (2/96)
Largest peak-to-valley drawdown: (22.52)% (5/96-7/96)
Number of profitable closed accounts: 4
Number of unprofitable closed accounts: 6
1998 compound rate of return: (4.96)% (3 months)
1997 compound rate of return: 9.70%
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%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE TRUST'S ACCOUNT WILL NOT BE TRADED PURSUANT TO THE FOREGOING PROGRAM.
-101-
<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 (other than the Trust) since January 1, 1992. Kenmar has offered these
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 the performance of which is 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 March 31, 1998
(except in the case of pools dissolved prior to such date). Performance
information is set forth, in accordance with CFTC Regulations, since January 1,
1993 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.
--------------------
-102-
<PAGE>
Assets Under Management
Kenmar -- Total assets under management as of
April 1, 1998: $122 million
Kenmar -- Total assets under multi-advisor management as of
April 1, 1998 $89 million
Kenmar and affiliates -- Total assets under management as of
April 1, 1998 $565 million
(excluding notional
funds)
Kenmar and affiliates -- Total assets under management as of
April 1, 1998 $656 million
(including notional
funds)
Multi-Advisor Pools
These are all of the multi-advisor pools (other than the Trust and
pools for the research and development of traders) operated by Kenmar since
January 1, 1993. 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, 1993 that were, or
are, 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, 1993
that 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.]
-103-
<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> <C>
MULTI-ADVISOR POOLS
=====================================---------------------------------------------------------------------------------------
Kenmar Performance Partners L.P. ** 08/85 N/A 261,800,403 72,363,280 16,487.45 (15.87) (33.20)
- ----------------------------------------------------------------------------------------------------------------------------
1/94 11/90-5/92
- ----------------------------------------------------------------------------------------------------------------------------
Kenmar Capital Partners Ltd. * 07/95 N/A 3,557,775 1,873,909 1,068.06 (5.77) (8.26)
- ----------------------------------------------------------------------------------------------------------------------------
2/96 2/96-8/96
=====================================---------------------------------------------------------------------------------------
SINGLE ADVISOR POOLS
=====================================---------------------------------------------------------------------------------------
The Dennis Fund L.P. "A" single 09/96 N/A 11,233,600 12,398,260 1,644.62 (10.75) (25.63)
- ----------------------------------------------------------------------------------------------------------------------------
8/97 2/97-8/97
- ----------------------------------------------------------------------------------------------------------------------------
The Dennis Fund L.P. "B" single 04/97 N/A 9,398,967 10,267,561 1,594.68 (10.70) (17.63)
- ----------------------------------------------------------------------------------------------------------------------------
8/97 4/97-8/97
- ----------------------------------------------------------------------------------------------------------------------------
GK International Currency Fund L.P. single 04/91 12/93 2,312,504 0 903.45 (5.75) (18.40)
- ----------------------------------------------------------------------------------------------------------------------------
12/93 9/92-12/93
- ----------------------------------------------------------------------------------------------------------------------------
Dennis Friends & Family L.P. single 05/97 N/A 338,437 472,668 1,393.99 (14.97) (19.96)
- ----------------------------------------------------------------------------------------------------------------------------
The Hirst Investment Fund L.P. 2,870,525 2,952,032 1,068.74 (1.68) (1.56)
- ----------------------------------------------------------------------------------------------------------------------------
10/97 10/97
=====================================---------------------------------------------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
=====================================---------------------------------------------------------------------------------------
Kenmar Venture Partners L.P. * 03/87 N/A 2,625,000 4,615,710 4,690.26 (29.70) (48.75)
- ----------------------------------------------------------------------------------------------------------------------------
10/89 11/90-4/92
- ----------------------------------------------------------------------------------------------------------------------------
GLH Strategic Performance L.P. single 08/93 10/94 1,143,233 0 717.41 (9.45) (29.41)
- ----------------------------------------------------------------------------------------------------------------------------
1/94 9/93-10/94
- ----------------------------------------------------------------------------------------------------------------------------
Oberdon Partners L.L.C. single 4/97 N/A 1,607,000 2,296,412 1,465.31 (6.04) (6.96)
- ----------------------------------------------------------------------------------------------------------------------------
8/97 7/97-10/97
============================================================================================================================
<CAPTION>
========================================================================================
------------------------------
YEAR-
TO-
1993 1994 1995 1996 1997 DATE
========================================================================================
<S> <C> <C> <C> <C> <C> <C>
MULTI-ADVISOR POOLS
=====================================---------------------------------------------------
Kenmar Performance Partners L.P. 48.30 (9.79) 8.12 3.04 (2.1) 14.84
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Kenmar Capital Partners Ltd. - - 2.26 (1.87) 3.05 3.28
- ----------------------------------------------------------------------------------------
=====================================---------------------------------------------------
SINGLE ADVISOR POOLS
=====================================---------------------------------------------------
The Dennis Fund L.P. "A" - - - 8.14 18.70 28.12
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
The Dennis Fund L.P. "B" - - - - 18.75 27.17
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
GK International Currency Fund L.P. (16.37) - - - -
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Dennis Friends & Family L.P. - - - - 0.24 39.07
- ----------------------------------------------------------------------------------------
Hirst L.P.
=====================================---------------------------------------------------
POOLS FOR RESEARCH AND DEVELOPMENT
OF TRADERS
=====================================---------------------------------------------------
Kenmar Venture Partners L.P. 57.92 3.27 5.55 14.72 36.00 3.76
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
GLH Strategic Performance L.P. (8.09) (21.95) - - -
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Oberdon Partners L.L.C. - - - - 43.37 2.21
- ----------------------------------------------------------------------------------------
========================================================================================
</TABLE>
-104-
<PAGE>
Footnotes to Performance Information
1. Name of Pool.
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 March 31,
1998.
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 March 31, 1997.
Current NAV per Unit is based on the value of a hypothetical $1,000 unit
($1,050 for Kenmar Venture Partners L.P.) of investment over time.
In the case of liquidated pools (GK International Currency Fund L.P. and
Kenmar GLH Strategic Performance L.P.), the NAV per unit on the date of
liquidation of the pool is set forth.
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 that 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, 1998 or
through March 31, 1998.
-105-
<PAGE>
INVESTMENT FACTORS
Managed Futures is a sector of the futures industry made up of
professionals, or commodity trading advisors ("CTAs"), who on behalf of their
clients manage portfolios made up of futures and forward contracts and related
instruments traded around the world. Utilizing extensive resources, markets can
be accessed and monitored around the world, 24 hours a day.
For over 20 years institutions and individuals have made Managed Futures
part of their well-diversified portfolios. In that time period, the industry has
grown to nearly $35 billion in assets under management.(1)
As the industry has grown, so has the number, liquidity and efficiency of
the futures markets globally. Since 1974 the U.S. futures markets have grown
from consisting primarily of agricultural contracts to include financial
contracts, providing greater diversification and flexibility. The pie charts
below demonstrate this growth of diversity within the futures industry. In 1974
the agricultural sector dominated the trading volume of the industry. By 1997
the agricultural sector represented only 17% of trading while interest rate
contracts represented 55%. These interest rate contracts included contracts on
U.S. debt instruments, European debt instruments, and bonds in Asia and
Australia.
Dramatic Changes in Futures Industry
Volume of futures contracts traded(2)
[GRAPHIC OMITTED]
[The following table was depicted as a pie chart in the printed material.]
1974
Currencies 2%
Metals 15%
Lumber & Energy 1%
Agriculturals 82%
1997
Stock Indices 6%
Metals 4%
Currencies 6%
Energies 12%
Agriculturals 17%
Interest Rates 55%(3)
Source: Futures Industry Association, Washington, D.C.
Managed Futures encompass over 50 markets worldwide, and as a result investors
can gain global market exposure in their portfolios as well as add non-financial
investments. Thus, investing in a managed futures fund can be an effective way
to globally diversify a portfolio
- -----------------------
(1) As of December 31, 1997, Managed Accounts Reports.
(2) Represented by the percentage of the number of contracts traded per year.
(3) Includes: European, Pacific Rim and U. S. rates
<PAGE>
Diversifying into Managed Futures
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-correlations 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 following discussion and charts, which include the MAR Fund/Pool
Qualified Universe Index, are intended to explain managed futures as an asset
category, and to demonstrate the potential value of allocating a small portion
of a portfolio to a managed futures investment, such as the Trust. The MAR Index
is utilized as a broad measure of overall managed futures returns, as compared
to other indices that measure the overall returns of stocks and bonds as
separate asset classes. The MAR Index is not the same as an investment in the
Trust, and the Trust may perform quite differently than the Index, just as an
individual stock may perform quite differently from the S&P 500 Index.
The dark grey area of the chart below shows the benefit of adding 10%
managed futures to a hypothetical portfolio made up of 50% stocks and 50% bonds,
assuming an initial investment of $10,000.
Diversifying into Managing Futures
January 1980-December 1997
[LINE GRAPH OMITTED]
Monthly Monthly
Compounded Standard Standard
Annual ROR Deviation Drawdowns
---------- --------- ---------
14.4% 2.61 -15.3%
14.6% 2.82 -17.4%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The graph
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 Brothers 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 calculates using compounded monthly
returns. A prospective investor is advised that neither the above graph nor the
performance tables in this Prospectus should be interpreted to mean that the
Trust will obtain similar results or generate any profits whatsoever in the
future.
107
<PAGE>
A Managed Futures fund provides three benefits to an investor's overall
portfolio:
o Potential for reduced volatility and/or enhanced returns
o Profit potential in any market environment
o Access to global financial and non-financial futures markets
Potential for both reduced volatility and/or enhanced returns. Futures and
forwards contracts exhibit more risk than stocks or bonds. However, adding a
Managed Futures fund to a stock-and-bond-only portfolio has the potential to
reduce overall portfolio volatility and enhance returns. This potential benefit
was initially demonstrated in two key academic works. First, Modern Portfolio
Theory, developed by the Nobel Prize Laureate economists Drs. Harry M. Markowitz
and William Sharpe, asserts that investments having positive returns and low to
non-correlation with each other can improve the risk/reward characteristics of
the combined holdings. In other words, a portfolio of different investments with
positive returns independent of each other (i.e. non-correlated) can improve the
risk profile of an investor's entire portfolio.
Correlations of Monthly Returns of Various Asset Classes
January 1980-March 1998
U.S. Stocks* U.S. Bonds* Int'l. Stocks* Managed Futures*
U.S. Stocks 1.00
U.S. Bonds 0.32 1.00
Int'l Stocks 0.48 0.21 1.00
Managed Futures 0.11 0.03 0.02 1.00
Correlation is a statistical measure of the degree to which two variables are
related. It is expressed as a number between-1 and 1, with a negative number
implying the variables tend to move in opposite direction, while a positive
number implies the variables move in the same direction.
* See "Notes To Comparative Performance And Correlation Charts" at the end of
this section.
Second, in his landmark study, Dr. John Lintner of Harvard University was
the first of many to demonstrate specifically that adding a Managed Futures
component to a portfolio can enhance returns. Dr. Lintner concluded that a
portfolio of judicious investments in stocks, bonds and Managed Futures ". . .
show[s] substantially less risk at every possible level of expected return than
portfolios of stocks (or stocks and bonds) alone."2
This diversification effect of Managed Futures is demonstrated by looking
at the performance of Managed Futures compared to that of U.S. stocks, U.S.
bonds and international stocks during a major decline. When measured against a
decline in the stock and bond markets, the graph below shows how Managed Futures
would have provided the benefits of portfolio diversification due to its
non-correlation to stocks and bonds. This does not mean that the returns of
Managed Futures are negatively correlated (i.e. perform opposite) to that of
stocks and bonds.
Managed Futures Performances
Versus the Worst Declines of Stocks and Bonds
[GRAPHIC OMITTED]
[These points were represented as a bar graph in the printed material.]
* See "Notes To Comparative Performance And Correlation Charts" at the end of
this section.
- ----------
2 Litner, John, "The Potential Role of Managed Commodity Financial Futures
Accounts (and/or Funds) in Portfolios of Stock and Bonds." Annual
Conference of Financial Analysts Federation, May 1983.
108
<PAGE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Comparative Performance and Correlation Charts: The table below demonstrates the
differences in performance of stocks, bonds and managed future during each year
from 1980 through March 1998. The Chart below the table shows the worst
peak-to-valley losses of the four asset classes for the same period.
Managed
Futures US Stocks Int'l. Stocks US Bonds
1980 46% 33% 31% 10%
1981 20% -5% -1% 7%
1982 23% 22% -1% 31%
1983 -8% 22% 25% 8%
1984 4% 6% 8% 15%
1985 22% 32% 57% 21%
1986 -12% 19% 70% 16%
1987 47% 5% 25% 2%
1988 8% 16% 29% 8%
1989 10% 32% 11% 14%
1990 20% -4% -23% 6%
1991 11% 30% 13% 15%
1992 1% 8% -12% 7%
1993 15% 10% 33% 9%
1994 -2% 1% 8% -2%
1995 10% 38% 12% 15%
1996 12% 23% 6% 4%
1997 8% 34% 2% 8%
YTD 1998 2% 14% 15% 2%
* See "Notes To Comparative Performance And Correlation Charts" at the end
of this section.
109
<PAGE>
Worst Peak-to-Valley Loss from 1980 through March 1998
[The following table was depicted as a bar chart in the printed material.]
Managed Futures
Apr. 86
to
Dec. 86 -28.13%
US Stocks
Sep. 87
to
Nov. 87 -29.56%
Int'l Stocks
Jan. 90
to
Sep. 90 -30.59%
U.S. Bonds
Jan. 80
to
Feb. 80 - 8.53%
Notes to Comparative Performance and Correlation Charts
U.S. Stocks* - Standard & Poor's 500 Stock Index (dividends reinvested) an
unmanaged weighted index of 500 stocks.
International Stocks* - Morgan Stanley's EAFE Index (dividends reinvested).
U.S. Bonds* - Lehman Brothers' Government/Corporate Bond Index (coupons
reinvested).
Managed Futures* - MAR Fund/Pool Qualified Universe Index is the
dollar-weighted, total return of approximately 420 managed futures funds and
pools tracked by Managed Account Reports.
* These indices are representative of equity and debt securities and are not
to be construed as an actively managed portfolio.
Sources: Standard & Poor's, Lehman Brothers, Lipper Analytical Associates and
Managed Account Report
Investors should be aware that stocks, bonds and managed futures are very
different types of investments, each involving different investment
considerations and risks, including but not limited to liquidity, safety,
guarantees, insurance, fluctuation of principal and/or return, tax features,
leverage and volatility. For example, trading in futures, forward and options
may involve a greater degree of risk than investing in stocks and bonds due to,
among other things, a greater degree of leverage and volatility. Also, U.S.
government bonds are guaranteed by the U.S. government and, if held to maturity,
offer both a fixed rate of interest and return of principal.
Profit potential in any market environment. With stocks and bonds, investors
typically buy securities that they believe will increase in value, and they may
have no strategy when markets fall. Futures contracts, on the other hand, can be
easily sold short on the prospect that a market will go down. As a result,
declining markets represent opportunities for Managed Futures.
Access to global financial and non-financial markets: Finally, over the years
the futures markets have expanded globally to include investments in stock
indices and bonds, currencies, precious and base metals, agricultural products
and so forth. Investors can gain access to over 50 financial and non-financial
markets around the globe.
110
<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.
-111-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Kenmar Global Trust
Independent Auditor's Report ......................................... F-2
Statements of Financial Condition as of December 31, 1997 and 1996 ... F-3
Statements of Operations for the Year Ended December 31, 1997 and for
the Period July 17, 1996 (inception) to December 31, 1996 .......... F-4
Statements of Cash Flows for the Year Ended December 31, 1997 and
for the Period July 17, 1996 (inception) to December 31, 1996 ...... F-5
Statements of Changes in Unitholders' Capital (Net Asset Value)
for the Year Ended December 31, 1997 and for the Period
July 17, 1996 (inception) to December 31, 1996 ..................... F-6
Notes to Financial Statements ........................................ F-7-10
Statements of Financial Condition as of March 31, 1998 (unaudited)
and December 31, 1997 (audited) .................................... F-11
Statements of Operations for the Three Months Ended March 31,
1998 and 1997 (unaudited).......................................... F-12
Statements of Cash Flows for the Three Months Ended March 31,
1998 and 1997 (unaudited).......................................... F-13
Statements of Changes in Unitholders' Capital (Net Asset Value)
for the three Months Ended March 31, 1998 and 1997 (unaudited) .... F-14
Notes to Financial Statements ........................................ F-15-20
Kenmar Advisory Corp. ..................................................
Independent Auditor's Report ......................................... F-21
Statements of Financial Condition as of September 30, 1997
(audited) and March 31, 1998 .................................... F-22
Notes to Statements of Financial Condition ........................... F-23-30
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 statements of financial condition of Kenmar
Global Trust as of December 31, 1997 and 1996, and the related statements of
operations, cash flows and changes in unitholders' capital (net asset value) for
the year ended December 31,1997 and for the period July 17, 1996 (inception) to
December 31, 1996. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kenmar Global Trust as of
December 31, 1997 and 1996, and the results of its operations, cash flows and
changes in its net asset values for the year ended December 31, 1997 and for the
period July 17, 1996 (inception) to December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
March 16, 1998
F-2
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
December 31, 1997 and 1996
1997 1996
----------- ---------
ASSETS
Equity in broker trading accounts
Cash $11,166,621 $ 0
Net option premiums paid 12,165 0
Unrealized gain on open contracts 838,321 0
----------- ---------
Deposits with brokers 12,017,107 0
Cash 588,287 2,000
Other assets 177,369 0
----------- ---------
Total assets $12,782,763 $ 2,000
=========== =========
LIABILITIES
Accounts payable $ 24,489 $ 0
Commissions and other trading fees on open contracts 6,831 0
Managing Owner brokerage commissions 89,492 0
Advisor profit shares 54,575 0
Reimbursable offering costs 23,058 0
Redemptions payable 176,774 0
Redemption charges payable to Managing Owner 4,503 0
Subscription deposits 25,720 0
----------- ---------
Total liabilities 405,442 0
----------- ---------
UNITHOLDERS' CAPITAL (Net Asset Value)
Managing Owner - 1,258.4577 and 4.0000 units
outstanding at December 31, 1997 and 1996 125,970 400
Other Unitholders - 122,392.3731 and 16.0000 units
outstanding at December 31, 1997 and 1996 12,251,351 1,600
----------- ---------
Total unitholders' capital 12,377,321 2,000
(Net Asset Value) ----------- ---------
$12,782,763 $ 2,000
=========== =========
See accompanying notes.
F-3
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
Year Ended Period Ended
December 31, December 31,
------------ ------------
1997 1996
---- ----
INCOME
Trading gains (losses)
Realized $(162,443) $ 0
Change in unrealized 838,321 0
--------- ---------
Gain from trading 675,878 0
Interest income 293,033 0
--------- ---------
Total income 968,911 0
--------- ---------
EXPENSES
Brokerage commissions 45,814 0
Managing Owner brokerage commissions 631,403 0
Advisor profit shares 106,886 0
Operating expenses 58,398 0
--------- ---------
Total expenses 842,501 0
--------- ---------
NET INCOME $ 126,410 0
========= =========
NET INCOME PER UNIT
(based on weighted average number of
units outstanding during the period) $ 1.24 $ 0.00
========= =========
INCREASE IN NET ASSET
VALUE PER UNIT $ 0.10 $ 0.00
========= =========
See accompanying notes.
F-4
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from (for) operating activities
Net income $ 126,410 $ 0
Adjustments to reconcile net income to net
cash (for) operating activities:
Net change in unrealized (838,321) 0
Increase in accounts payable and accrued expenses 175,387 0
Net option premiums paid (12,165) 0
Increase in other assets (177,369) 0
------------ ------------
Net cash (for) operating activities (726,058) 0
------------ ------------
Cash flows from (for) financing activities
Addition of units 12,847,562 2,000
Increase in subscription deposits 25,720 0
Offering costs paid (124,706) 0
Redemption of units (269,610) 0
------------ ------------
Net cash from financing activities 12,478,966 2,000
------------ ------------
Net increase in cash 11,752,908 2,000
============ ============
Cash
Beginning of period 2,000 0
------------ ------------
End of period $ 11,754,908 $ 2,000
============ ============
End of period cash consists of:
Cash in broker trading accounts $ 11,166,621 $ 0
Cash 588,287 2,000
------------ ------------
Total end of period cash $ 11,754,908 $ 2,000
============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CHANGES IN
UNITHOLDERS' CAPITAL (NET ASSET
VALUE) For the Year Ended
December 31, 1997 and
For the Period July 17, 1996 (inception) to December 31, 1996
<TABLE>
<CAPTION>
Unitholders' Capital
--------------------
Total
Number of Managing Other
Units Owner Unitholders Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances at
July 17, 1996 (inception) 0.0000 $ 0 $ 0 $ 0
Additions 20.0000 400 1,600 2,000
------------ ------------ ------------ ------------
Balances at
December 31, 1996 20.0000 400 1,600 2,000
Additions 128,219.1639 125,800 12,721,762 12,847,562
Net income for the year
ended December 31, 1997 1,279 125,131 126,410
Redemptions (4,588.3331) 0 (450,887) (450,887)
Offering costs (1,509) (146,255) (147,764)
------------ ------------ ------------ ------------
Balances at
December 31, 1997 123,650.8308 $ 125,970 $ 12,251,351 $ 12,377,321
============ ============ ============ ============
</TABLE>
Net Asset Value Per Unit
---------------------------
December 31,
1997 1996
----------- ------------
$ 100.10 $ 100.00
=========== ============
See accompanying notes.
F-6
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS
----------
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.
The Trust is a multi-advisor, multi-strategy commodity pool
which trades in United States (U.S.) and foreign futures,
options, forwards and related markets. 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 Act of 1933 and the Securities Exchange Act of
1934. As a commodity pool, the Trust is subject to the
regulations of the CFTC, an agency of the 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 (FCMs) and
interbank market makers (collectively, "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.
E. Organizational and Offering Costs
Organizational and initial offering costs (exclusive of
selling commissions) of approximately $580,000 were advanced
to the Trust 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. The total amount of
organizational and initial offering costs to be reimbursed to
the Managing Owner may be reduced by up to $50,000 if the
Trust's Net Asset Value does not reach certain future levels.
Any unreimbursed organizational and initial offering costs as
of the date of the Trust's dissolution will not be reimbursed
to the Managing Owner. Ongoing offering costs are borne by the
Trust and are charged directly to unitholders' capital as
incurred. 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-7
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPALS
(CONTINUED)
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.
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. The amount paid to the Managing Owner is reduced by
brokerage commissions and other trading fees paid directly by the
Trust. For the period May 22, 1997 (commencement of trading) to
December 31, 1997, brokerage commissions equated to an approximate
round- turn equivalent rate of $92. Such approximate round-turn
equivalent brokerage commission rate will vary depending on the
frequency of trading by the Trust's commodity trading advisors.
The Managing Owner is paid an incentive fee equal to 5% of New
Overall Appreciation (which is defined in the Declaration of Trust
and Trust Agreement and excludes interest income) as of each fiscal
year-end and upon redemption of Units. No incentive fee was earned
by the Managing Owner during 1997.
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 Profit (as defined in each advisory
agreement).
Note 4. DEPOSITS WITH BROKERS
The Trust deposits funds with brokers subject to CFTC 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 cash 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. 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. Such redemption charges are included in redemptions of
unitholders' capital and amounted to $12,592 during 1997.
F-8
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
----------
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 FCMs. Additional deposits may be necessary for any loss of
contract value. The Commodity Exchange Act requires an FCM to
segregate all customer transactions and assets from such FCM's
proprietary activities. A customer's cash and other property (for
example, U.S. Treasury bills) deposited with an FCM are considered
commingled with all other customer funds subject to the FCM's
segregation requirements. In the event of an FCM'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 cash on
deposit with interbank market makers and other 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. 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 December 31, 1997 and the
related fair values as of December 31, 1997 are as follows:
For the Period
May 22, 1997 to As of
December 31, December 31,
1997 1997
--------------- ------------
Exchange traded futures and options on
futures contracts $440,000 $847,000
Forward contracts 30,000 3,000
Net trading results from derivatives for the year ended December 31,
1997 is reflected in the statement of operations and consists of the
gain from trading less brokerage commissions and the portion of the
Managing Owner brokerage commissions that is payable to the brokers.
For the year ended December 31, 1997, the net trading gain from
derivatives was approximately $595,000. Such trading results reflect
the net gain arising from the Trust's speculative trading of futures
contracts, options on futures contracts and forward contracts.
F-9
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6. TRADING ACTIVITIES AND RELATED RISKS (Continued)
Open contracts generally mature within one year; the latest maturity
date for open contracts as of December 31, 1997 is June 1998.
However, the Trust intends to close all contracts prior to maturity.
At December 31, 1997, the notional amount of open contracts is as
follows:
Contracts to Contracts to
Purchase Sell
------------ ------------
Exchange traded futures contracts and
written options thereon:
- Financial instruments $44,900,000 $16,300,000
- Metals 1,800,000 3,700,000
- Energy 0 1,100,000
- Agricultural 1,500,000 2,800,000
- Currencies 15,300,000 18,800,000
Forward Contracts:
- Currencies 0 700,000
------------ ------------
$63,500,000 $43,400,000
=========== ===========
Exchange traded purchased options
on futures contracts:
- Financial instruments $ 3,400,000 $ 0
- Currencies 0 1,400,000
------------ ------------
$ 3,400,000 $ 1,400,000
=========== ===========
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-10
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF FINANCIAL CONDITION
March 31, 1998 (Unaudited) and December 31, 1997 (Audited)
----------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Equity in broker trading accounts
Cash $12,888,925 $11,166,621
Net option premiums paid 28,220 12,165
Unrealized gain on open contracts 628,598 838,321
----------- -----------
Deposits with brokers 13,545,743 12,017,107
Cash 1,592,237 588,287
Subscriptions receivable 76,280 0
Other assets 0 177,369
----------- -----------
Total assets $15,214,260 $12,782,763
=========== ===========
LIABILITIES
Accounts payable $ 8,618 $ 24,489
Commissions and other trading fees on open contracts 8,313 6,831
Managing Owner brokerage commissions 99,227 89,492
Advisor profit shares 139,034 54,575
Managing Owner incentive fee 22,840 0
Reimbursable offering costs 52,036 23,058
Redemptions payable 161,135 176,774
Redemption charges payable to Managing Owner 8,625 4,503
Subscription deposits 0 25,720
----------- -----------
Total liabilities 499,828 405,442
----------- -----------
UNITHOLDERS' CAPITAL (Net Asset Value)
Managing Owner - 1,435.7319 and 1,258.4577 units outstanding
at March 31, 1998 and December 31, 1997 149,452 125,970
Other Unitholders - 139,920.2653 and 122,392.3731 units
outstanding at March 31, 1998 and December 31, 1997 14,564,980 12,251,351
----------- -----------
Total unitholders' capital
(Net Asset Value) 14,714,432 12,377,321
----------- -----------
$15,214,260 $12,782,763
=========== ===========
</TABLE>
See accompanying notes.
F-11
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
----------
Three Months
Ended
March 31,
1998 1997
---- ----
INCOME
Trading gains (losses)
Realized $ 1,179,902 $ 0
Change in unrealized (209,723) 0
----------- -----------
Gain from trading 970,179 0
Interest income 187,294 0
----------- -----------
Total income 1,157,473 0
----------- -----------
EXPENSES
Brokerage commissions 25,718 0
Managing Owner brokerage commissions 337,817 0
Advisor profit shares 135,822 0
Managing Owner incentive fee 22,840 0
Operating expenses 16,524 0
----------- -----------
Total expenses 538,721 0
----------- -----------
NET INCOME $ 618,752 $ 0
----------- -----------
NET INCOME PER UNIT
(based on weighted average number of
units outstanding during the period) $ 4.80 $ 0.00
----------- -----------
INCREASE IN NET ASSET
VALUE PER UNIT $ 3.99 $ 0.00
----------- -----------
See accompanying notes.
F-12
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
----------
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from (for) operating activities
Net income $ 618,752 $ 0
Adjustments to reconcile net income to net
cash from operating activities:
Net change in unrealized 209,723 0
Increase in accounts payable and accrued expenses 102,645 0
Increase in net option premiums paid (16,055) 0
Decrease in other assets 177,369 0
------------ ------------
Net cash from operating activities 1,092,434 0
------------ ------------
Cash flows from (for) financing activities
Addition of units 2,060,373 0
Decrease in subscription deposits (25,720) 0
Offering costs paid (90,339) 0
Redemption of units (310,494) 0
------------ ------------
Net cash from financing activities 1,633,820 0
Net increase in cash 2,726,254 0
Cash
Beginning of period 11,754,908 2,000
------------ ------------
End of period $ 14,481,162 $ 2,000
============ ============
End of period cash consists of:
Cash in broker trading accounts $ 12,888,925 $ 0
Cash 1,592,237 2,000
------------ ------------
Total end of period cash $ 14,481,162 $ 2,000
============ ============
</TABLE>
See accompanying notes.
F-13
<PAGE>
KENMAR GLOBAL TRUST
STATEMENTS OF CHANGES IN UNITHOLDERS' CAPITAL (NET ASSET VALUE)
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
----------
<TABLE>
<CAPTION>
Unitholders' Capital
Total --------------------------------------------
Number of Managing Other
Units Owner Unitholders Total
----- ----- ----------- -----
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1998
Balances at
December 31, 1997 123,650.8308 $ 125,970 $ 12,251,351 $ 12,377,321
Net income for the three months
ended March 31, 1998 6,295 612,457 618,752
Additions 20,586.6203 18,400 2,118,253 2,136,653
Redemptions (2,881.4539) 0 (298,977) (298,977)
Offering costs (1,213) (118,104) (119,317)
------------ ------------ ------------
Balances at
March 31, 1998 141,355.9972 $ 149,452 $ 14,564,980 $ 14,714,432
============ ============ ============ ============
Three Months Ended March 31, 1997
Balances at
December 31, 1996 20.0000 $ 400 $ 1,600 $ 2,000
------------ ------------ ------------ ------------
Balances at
March 31, 1997 20.0000 $ 400 $ 1,600 $ 2,000
============ ============ ============ ============
</TABLE>
Net Asset Value Per Unit
March 31, December 31, March 31, December 31,
1998 1997 1997 1996
---- ---- ---- ----
$104.09 $100.10 $100.00 $100.00
======= ======= ======= =======
See accompanying notes.
F-14
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
----------
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.
The Trust is a multi- advisor, multi-strategy commodity pool
which trades in United States (U.S.) and foreign futures,
options, forwards and related markets. 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 Act of 1933 and the Securities Exchange Act of
1934. As a commodity pool, the Trust is subject to the
regulations of the CFTC, an agency of the 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 (FCMs) and
interbank market makers (collectively, "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-15
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. Organizational and Offering Costs
Organizational and initial offering costs (exclusive of
selling commissions) of approximately $580,000 were advanced
to the Trust 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. The total amount of
organizational and initial offering costs to be reimbursed to
the Managing Owner may be reduced by up to $50,000 if the
Trust's Net Asset Value does not reach certain future levels.
Any unreimbursed organizational and initial offering costs as
of the date of the Trust's dissolution will not be reimbursed
to the Managing Owner.
Ongoing offering costs are borne by the Trust and are charged
directly to unitholders' capital as incurred.
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.
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. The amount paid to the Managing Owner is reduced by
brokerage commissions and other trading fees paid directly by the
Trust.
F-16
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 2. MANAGING OWNER (CONTINUED)
The Managing Owner is paid an incentive fee equal to 5% of New
Overall Appreciation (which is defined in the Declaration of Trust
and Trust Agreement and excludes interest income) 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 Profit (as defined in each advisory
agreement).
Note 4. DEPOSITS WITH BROKERS
The Trust deposits funds with brokers subject to CFTC 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 cash 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. 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. Such redemption charges are included in redemptions of
unitholders' capital and amounted to $4,442 during the three months
ended March 31, 1998.
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
F-17
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
Purchases and sales of futures and options on futures contracts
require margin deposits with the FCMs. Additional deposits may be
necessary for any loss of contract value. The Commodity Exchange Act
requires an FCM to segregate all customer transactions and assets
from such FCM's proprietary activities. A customer's cash and other
property (for example, U.S. Treasury bills) deposited with an FCM
are considered commingled with all other customer funds subject to
the FCM's segregation requirements. In the event of an FCM'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 cash on deposit with interbank market makers and other
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.
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 three
months ended March 31, 1998 and the related fair values as of March
31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
For the Three
Months Ended As of As of
March 31, March 31, December 31,
1998 1998 1997
---- ---- ----
<S> <C> <C> <C>
Exchange traded futures and options
on futures contracts $850,000 $656,000 $847,000
Forward contracts 10,000 1,000 3,000
</TABLE>
F-18
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
Net trading results from derivatives for the three months ended
March 31, 1998 are reflected in the statement of operations and
consists of the gain from trading less brokerage commissions and the
portion of the Managing Owner brokerage commissions that is payable
to the brokers. For the three months ended March 31, 1998, the net
trading gain from derivatives was approximately $927,000. Such
trading results reflect the net gain arising from the Trust's
speculative trading of futures contracts, options on futures
contracts and forward contracts.
Open contracts generally mature within one year; the latest maturity
date for open contracts as of March 31, 1998 is March 1999. However,
the Trust intends to close all contracts prior to maturity. At March
31, 1998 and December 31, 1997, the notional amount of open
contracts is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
Contracts to Contracts to Contracts to Contract to
Purchase Sell Purchase Sell
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Exchange traded futures contracts
and written options thereon:
- Financial instruments $ 87,800,000 $ 28,500,000 $44,900,000 $16,300,000
- Metals 3,200,000 4,100,000 1,800,000 3,700,000
- Energy 400,000 800,000 0 1,100,000
- Agricultural 900,000 4,900,000 1,500,000 2,800,000
- Currencies 14,000,000 19,100,000 15,300,000 18,800,000
Forward Contracts:
- Currencies 0 900,000 0 700,000
------------ ------------- ----------- -----------
$106,300,000 $ 58,300,000 $63,500,000 $43,400,000
============ ============= =========== ===========
Exchange traded purchased options
on futures contracts:
- Financial instruments $ 8,400,000 $ 0 $ 3,400,000 $ 0
- Metals 0 300,000 0 0
- Currencies 0 2,300,000 0 1,400,000
------------ ------------- ----------- -----------
$ 8,400,000 $ 2,600,000 $ 3,400,000 $ 1,400,000
============== ============= =========== ===========
</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-19
<PAGE>
KENMAR GLOBAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
----------
Note 7. INTERIM FINANCIAL STATEMENTS
The statement of financial condition as of March 31, 1998, the
statements of operations, cash flows and changes in unitholders'
capital (net asset value) for the three months ended March 31, 1998
and 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 March 31, 1998, the results of operations for the
three months ended March 31, 1998 and 1997 and cash flows for the
three months ended March 31, 1998 and 1997.
F-20
<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, 1997. 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, 1997, 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.
December 17, 1997
F-21
<PAGE>
KENMAR ADVISORY CORP.
STATEMENTS OF FINANCIAL CONDITION
September 30, 1997 and March 31, 1998 (unaudited)
----------
September 30, March 31,
1997 1998
---- ----
ASSETS
Cash and cash equivalents $2,270,409 $ 109,792
Fees receivable 1,004,678 1,749,470
Investments in affiliated commodity pools 1,211,256 1,527,327
Due from affiliates, net 1,721,108 5,707,746
Property and equipment, net 636,060 550,110
Other assets 10,255 1,781
---------- ----------
Total assets $6,853,766 $9,646,226
========== ==========
LIABILITIES
Accrued expenses and other liabilities $1,867,218 $4,615,084
Obligations under capital leases 426,752 368,240
Commercial loan payable 777,492 826,322
---------- ----------
Total liabilities 3,071,462 5,809,646
========== ==========
STOCKHOLDER'S EQUITY
Common stock, $1 par value:
Authorized - 1,000 shares; issued
and outstanding - 100 shares 100 100
Additional paid-in capital 1,479,584 1,479,584
Retained earnings 2,302,620 2,356,896
---------- ----------
Total stockholder's equity 3,782,304 3,836,580
---------- ----------
Total liabilities and stockholder's equity $6,853,766 $9,646,226
========== ==========
See accompanying notes
F-22
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
September 30, 1997
Note 1. GENERAL DESCRIPTION OF THE COMPANY 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 KAS Commodities, Inc. and MSG
Commodities, Inc., which, in turn, are the sole owners of
Kenmar Investment Associates .
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 include all cash and money market
account balances. The Company maintains its cash and cash
equivalents with primarily one financial institution. At
times, such balances on deposit may be in excess of available
federal deposit insurance.
C. Investments in Affiliated Commodity Pools
The Company's investments in affiliated commodity pools, of
which the Company is General Partner, Managing Owner or
Managing Member, are carried at its share of the underlying
equity in the net assets of the commodity pools. As General
Partner, Managing Owner or Managing Member, the Company has a
fiduciary responsibility to the pools, and potential liability
beyond the amounts recognized as an asset in the statement of
financial condition.
D. Revenue Recognition
F-23
<PAGE>
Commissions are recognized as transactions are placed with
clearing brokers. Management and incentive fees accrue in
accordance with the terms of the respective agreements.
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.
F-24
<PAGE>
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1997
----------
Note 1. GENERAL DESCRIPTION OF THE COMPANY AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
F. Income Taxes
The Company is part of an affiliated group that files
consolidated U.S., state and local income tax returns. The
Company is allocated income tax in an amount equal to its
separate tax liability (or benefit) computed as if it were
filing individually. State and local taxing jurisdictions also
assess taxes on bases in addition to income.
The Company uses an asset and liability approach in 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 limited
partnerships, is the Managing Owner of a trust and is the Managing
Member of a limited liability company, collectively referred to as
commodity pools. These investments are reported in the statement of
financial condition at net asset value.
Summarized activity as of and for the year ended September 30, 1997,
related to these General Partner, Managing Owner or Managing Member
interests is as follows:
<TABLE>
<CAPTION>
Income
Value at (Loss) Value at
September 30, 1996 Additions Allocation September 30, 1997
------------------ --------- ---------- ------------------
<S> <C> <C> <C> <C>
Kenmar Performance Partners L.P. $ 684,643 $ 0 $ 100,563 $ 785,206
Kenmar Venture Partners Limited 74,607 0 38,099 112,706
Partnership 7,000 142,000 19,685 168,685
The Dennis Fund Limited Partnership 0 116,200 (650) 115,550
Kenmar Global Trust 0 25,000 4,109 29,109
----------- ----------- ----------- -----------
Oberdon Partners L.L.C $ 766,250 $ 283,200 $ 161,806 $ 1,211,256
=========== =========== =========== ===========
</TABLE>
In addition, the Company is the General Partner of two new pools,
The Dennis Friends & Family Limited Partnership and The Hirst
Investment Fund Limited Partnership. The Dennis Friends & Family
Limited Partnership commenced trading on June 2, 1997; the Company
made their initial contribution of $25,000 on November 28, 1997. The
Hirst Investment Fund Limited Partnership commenced trading on
October 22, 1997; the Company made their initial contribution of
$25,000 on October 20, 1997.
F-25
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1997
----------
Note 2. INVESTMENTS IN AFFILIATED COMMODITY POOLS (CONTINUED)
As General Partner, Managing Owner or Managing Member of these
commodity pools, the Company conducts and manages the respective
businesses of such commodity pools. Each limited partnership, trust
or operating agreement requires the Company to maintain a specified
investment in the respective commodity pools. The limited
partnership agreements of Kenmar Performance Partners L.P. and The
Dennis Fund Limited Partnership require the Company to maintain an
investment of the lesser of $500,000 or 1% of Net Assets. The
limited partnership agreement of Kenmar Venture Partners Limited
Partnership requires the Company to maintain an investment of 1% of
contributions. The operating agreement of Oberdon Partners L.L.C.
requires the Company, as Managing Member, to maintain a capital
account of no less than $25,000. The Trust Agreement of Kenmar
Global Trust (KGT) requires the Company, as Managing Owner, to
maintain an investment equal to 1% of the total capital accounts of
KGT. Each limited partnership agreement also requires the Company to
maintain a net worth as required for the partnership to be treated
as a partnership for U.S. income tax purposes. The Company, as
Managing Owner of KGT, has also agreed to maintain a net worth of
not less than $1,000,000. The Company is currently maintaining net
worth in excess of $3,000,000.
For managing the business of the commodity pools, the Company earns
fees in accordance with the terms of the respective limited
partnership, trust or operating agreements.
Kenmar Global Trust (KGT) is a public fund which commenced
operations in May 1997. As Managing Owner, the Company has paid
KGT's organizational and initial offering costs. KGT is reimbursing
the Company for such costs in monthly installments of .2% of KGT's
beginning of month net asset value, commencing with the first month
of trading operations. As of September 30, 1997, the Company has
paid $519,000 related to KGT's organizational and initial offering
costs. The Company records an expense when such amounts are incurred
and records the reimbursement from KGT as income when it is
received. In the event KGT terminates prior to the completion of the
reimbursement of such costs, the Company will not be entitled to any
additional reimbursement from KGT.
Summarized financial information for the most significant commodity
pool, Kenmar Performance Partners L.P., as of and for the year ended
September 30, 1997, is as follows:
Assets $ 87,263,000
Liabilities 5,299,000
-------------
Net asset value $ 81,964,000
=============
Income $ 39,537,000
Expenses 25,629,000
-------------
Net income $ 13,908,000
=============
F-26
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1997
----------
Note 3. PROPERTY AND EQUIPMENT
At September 30, 1997, the Company's property and equipment consists of:
Furniture and fixtures $ 55,231
Office equipment 277,161
----------
Leasehold improvements 10,541
Leased assets 585,736
928,669
----------
Less: Accumulated depreciation and
amortization (292,609)
$ 636,060
Leased assets are comprised primarily of furniture, fixtures and
office equipment. Accumulated amortization related to leased assets
aggregated $118,201 at September 30, 1997. During 1996, the Company
relocated its primary corporate offices from New York City to
Greenwich, Connecticut. Leased assets that were left at the New York
City offices were written off in the current year.
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
1998 $154,164
1999 154,164
2000 150,970
2001 56,502
--------
Total minimum lease payments 515,800
Less: Amounts representing interest (89,048)
--------
Present value of obligations under
capital leases $426,752
========
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
1998 $ 346,040
1999 379,851
2000 403,719
2001 471,334
2002 477,300
Thereafter 994,375
----------
$3,072,619
==========
F-27
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1997
----------
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. The Company provides administrative,
accounting, research, marketing and other services to its
affiliates. The Company, in turn, allocates such common charges
among the affiliates.
The following amounts are due (to) from the affiliates at September
30, 1997:
Members of the Parent group, net $ (277,871)
Kenmar Management Limited 1,054,953
Kenmar Investment Partners 102,233
Kenmar Institutional Investment
Management L.L.C. 134,510
Kenmar Investment Management Limited 368,036
Receivables from Officers 131,646
Other 207,601
----------
$1,721,108
==========
No specific terms apply to the liquidation of amounts due (to) from
affiliates. The Company has reflected its right of offset in
reporting intercompany balances 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, in accordance with the
respective agreements. At September 30, 1997, the Company is owed
fees of $972,629 from these commodity pools.
Note 6. COMMERCIAL LOAN PAYABLE AND LINE OF CREDIT AGREEMENT
The Company entered into a line of credit agreement with a financial
institution in April 1997 under which secured notes may be executed
to fund various costs incurred by the Company as Managing Owner of
Kenmar Global Trust. The aggregate borrowings may not exceed
$1,000,000. The notes executed under the agreement are payable in
eighteen equal monthly installments. Interest is payable monthly at
various floating rates based upon the higher of the Federal Funds
Rate plus .5%, or the Prime Rate, as specified in the agreement. The
average interest rate is approximately 8.5% as of September 30,
1997, for all notes outstanding.
Amounts outstanding under the agreement are secured by all personal
property of the Company. The agreement also contains certain
covenants which, if not met, could subject amounts outstanding under
the agreement to accelerated repayment.
At September 30, 1997, $777,492 was outstanding under this line of
credit agreement.
F-28
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION (CONTINUED)
September 30, 1997
----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS
The commodity pools for which the Company is either the General
Partner, Managing Owner or Managing Member 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 commodity pools, and therefore, the
Company, as General Partner, Managing Owner or Managing Member, 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 commodity pools are exposed to market risk equal to the value of
contracts purchased and unlimited liability on contracts sold short.
Written options expose the commodity pools to potentially unlimited
liability and purchased options expose the commodity pools to a risk
of loss limited to the premiums paid. Since forward contracts are
traded in unregulated markets between principals, the commodity
pools also assume the risk of loss from counterparty nonperformance.
The commodity pools 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, trust or company
assets on deposit may be limited to account insurance or other
protection afforded such deposits.
The average fair value of derivatives traded by the commodity pools
during the year ended September 30, 1997, was approximately
$8,550,000 and the related year-end fair value was approximately
$14,307,000. 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, 1997, the notional amount of open contracts is as
follows:
Contracts to Contracts to
Purchase Sell
-------- ----
Derivatives (excluding
purchased options) $2,450,400,000 $1,923,500,000
Purchased options 32,300,000 15,000,000
The Company, as General Partner, Managing Owner or Managing Member,
has established procedures to actively monitor and minimize market
and credit risk.
F-29
<PAGE>
KENMAR ADVISORY CORP.
NOTES TO STATEMENT OF FINANCIAL CONDITION
March 31, 1998 (unaudited)
The interim statement of financial condition as of March 31, 1998 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, 1997, 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 March 31, 1998.
F-30
<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,
APPI-1
<PAGE>
made during the period decreased by interest or other income, not directly
related to trading activity, earned on Program assets during the period, whether
the assets are held separately or in a margin account.
"New Trading Profit," as defined on page 24 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 24 of the Prospectus,
is equivalent to the increase, if any, in Net Assets as of any
December 31 from the highest level of Net Assets as of any previous
December 31, after deducting interest income.
Organizational and Offering Expenses -- All expenses incurred by the
Program in connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program Interest under
federal and state law, including taxes and fees, accountants' and attorneys'
fees.
Participant -- The holder of a Program Interest.
Person -- Any natural Person, partnership, corporation, association
or other legal entity.
Pit Brokerage Fee -- Pit Brokerage Fee shall include floor
brokerage, clearing fees, National Futures Association fees, and exchange fees.
Program -- A limited partnership, joint venture, corporation, trust
or other entity formed and operated for the purpose of investing in Commodity
Contracts.
Program Broker -- A Commodity Broker that effects trades in
Commodity Contracts for the account of a Program.
Program Interest -- A limited partnership interest or other security
representing ownership in a program.
Pyramiding -- A method of using all or a part of an unrealized
profit in a Commodity Contract position to provide margin for any additional
Commodity Contracts of the same or related commodities.
Sponsor -- Any Person directly or indirectly instrumental in
organizing a Program or any Person who will manage or participate in the
management of a Program, including a Commodity Broker who pays any portion of
the Organizational Expenses of the Program, and the general partner(s) and any
other Person who regularly performs or selects the Persons who perform services
for the Program. Sponsor does not include wholly independent third parties such
as attorneys, accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of the units. The
term "Sponsor" shall be deemed to include its Affiliates.
Valuation Date -- The date as of which the Net Assets of the Program
are determined.
Valuation Period -- A regular period of time between Valuation
Dates.
APPI-2
<PAGE>
EXHIBIT A
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
Dated as of
December 17, 1996
KENMAR ADVISORY CORP.
MANAGING OWNER
<PAGE>
KENMAR GLOBAL TRUST
AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
Page
----
1. Declaration of Trust..................................................TA-1
2. The Trustee...........................................................TA-2
(a) Term; Resignation............................................TA-2
(b) Powers.......................................................TA-2
(c) Compensation and Expenses of the Trustee.....................TA-2
(d) Indemnification..............................................TA-2
(e) Successor Trustee............................................TA-3
(f) Liability of the Trustee.....................................TA-3
(g) Reliance by the Trustee and the Managing Owner; Advice of
Counsel....................................................TA-4
(h) Not Part of Trust Estate.....................................TA-4
3. Principal Office......................................................TA-4
4. Business..............................................................TA-4
5. Term, Dissolution, Fiscal Year and Net Asset Value....................TA-5
(a) Term.........................................................TA-5
(b) Dissolution..................................................TA-5
(c) Fiscal Year..................................................TA-5
(d) Net Asset Value; Net Asset Value per Unit....................TA-5
6. Net Worth of Managing Owner...........................................TA-5
7. Capital Contributions; Units..........................................TA-5
8. Allocation of Profits and Losses......................................TA-6
(a) Capital Accounts and Allocations.............................TA-6
(b) Allocation of Profit and Loss for Federal Income Tax
Purposes...................................................TA-6
(c) Incentive Fees; Profit Shares................................TA-8
(d) Expenses.....................................................TA-8
(e) Limited Liability of Unitholders.............................TA-9
(f) Return of Capital Contributions..............................TA-9
9. Management of the Trust...............................................TA-9
10. Audits and Reports to Unitholders.....................................TA-11
11. Assignability of Units................................................TA-11
12. Redemptions...........................................................TA-12
13. Offering of Units.....................................................TA-13
14. Additional Offerings..................................................TA-13
15. Special Power of Attorney.............................................TA-14
16. Withdrawal of a Unitholder............................................TA-14
17. Standard of Liability; Indemnification................................TA-14
(a) Standard of Liability for the Managing Owner.................TA-14
(b) Indemnification of the Managing Owner by the Trust...........TA-15
(c) Indemnification of the Trust by the Unitholders..............TA-16
18. Amendments; Meetings..................................................TA-16
(a) Amendments with Consent of the Managing Owner................TA-16
(b) Amendments and Actions without Consent of the Managing Owner.TA-16
(c) Meetings; Other Voting Matters...............................TA-16
(d) Consent by Trustee............................................TA-17
19. Governing Law.........................................................TA-17
20. Miscellaneous.........................................................TA-17
(a) Notices......................................................TA-17
(b) Binding Effect...............................................TA-17
(c) Captions.....................................................TA-17
21. Benefit Plan Investors................................................TA-17
22. Certain Definitions...................................................TA-18
23. No Legal Title to Trust Estate........................................TA-19
24. Legal Title...........................................................TA-19
25. Creditors.............................................................TA-20
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. ss. 3801, et seq., as amended from time to time
(the "Act"), by filing a Certificate of Trust with the office of the Secretary
of State of the State of Delaware on July 17, 1996, and entering into the
Declaration and Agreement of Trust, dated as of July 17, 1996 (the "Original
Declaration"); and
WHEREAS, the parties hereto desire to continue the Trust for the
business and purpose of issuing Units, the capital of which shall be used to
engage in trading, buying, selling or otherwise acquiring, holding or disposing
of futures contracts, forward contracts, foreign exchange commitments, swaps,
exchange for physicals, spot (cash) commodities, hybrid instruments and other
items, options on and any rights pertaining to the foregoing throughout the
world with the objective of capital appreciation through speculative trading by
allocating Trust Assets to independent professional trading advisors
("Advisors") selected from time to time by the Managing Owner and to amend and
restate the Original Declaration in its entirety.
NOW THEREFORE, the parties hereto agree as follows:
1. Declaration of Trust.
The Managing Owner hereby acknowledges that the Trust has received
the sum of $400 in a bank account opened in the name of the Trust from the
Managing Owner as grantor of the Trust and $1,600 from the initial beneficial
owner (the "Initial Unitholder"), and the Trustee hereby declares that it shall
hold such sums in trust upon and subject to the conditions set forth herein for
the use and benefit of the Unitholders. It is the intention of the parties
hereto that the Trust shall be a business trust under the Act, and that this
Declaration of Trust shall constitute the governing instrument of the Trust. The
Trustee has filed the Certificate of Trust required by Section 3810 of the Act.
Nothing in this Declaration of Trust shall be construed to make the
Unitholders partners or members of a joint stock association except to the
extent that such Unitholders, as constituted from time to time, are deemed to be
partners under the Internal Revenue Code of 1986, as amended (the "Code"), and
applicable state and local tax laws. Notwithstanding the foregoing, it is the
intention of the parties hereto that the Trust be treated as a partnership for
purposes of taxation under the Code and applicable state and local tax laws.
Effective as of the date hereof, the Trustee shall have all of the rights,
powers and duties set forth herein and in the Act with respect to accomplishing
the purposes of the Trust.
TA-1
<PAGE>
2. The Trustee.
(a) Term; Resignation.
(i) Wilmington Trust Company has been appointed and hereby agrees to
serve as the Trustee of the Trust. The Trust shall have only one trustee
unless otherwise determined by the Managing Owner. The Trustee shall serve
until such time as the Managing Owner removes the Trustee or the Trustee
resigns and a successor Trustee is appointed by the Managing Owner in
accordance with the terms of Section 2(e) hereof.
(ii) The Trustee may resign at any time upon the giving of at least
sixty (60) days' advance written notice to the Trust; provided, that such
resignation shall not become effective unless and until a successor
Trustee shall have been appointed by the Managing Owner in accordance with
Section 2(e) hereof. If the Managing Owner does not act within such sixty
(60) day period, the Trustee may apply to the Court of Chancery of the
State of Delaware for the appointment of a successor Trustee.
(b) Powers. Except to the extent expressly set forth in this Section
2, Section 3 and Section 24, the duty and authority of the Trustee to manage the
business and affairs of the Trust are hereby delegated to the Managing Owner.
The Trustee shall have only the rights, obligations or liabilities specifically
provided for herein and in the Act and shall have no implied rights, obligations
or liabilities with respect to the business or affairs of the Trust. The Trustee
shall have the power and authority to execute, deliver, acknowledge and file all
necessary documents, including any amendments to or cancellation of the
Certificate of Trust as required by the Act. The Trustee shall provide prompt
notice to the Managing Owner of its performance of any of the foregoing. The
Managing Owner shall keep the Trustee informed of any actions taken by the
Managing Owner with respect to the Trust that affect the rights, obligations or
liabilities of the Trustee hereunder or under the Act.
(c) Compensation and Expenses of the Trustee. The Trustee shall be
entitled to receive from the Trust or, if the assets of the Trust are
insufficient, from the Managing Owner reasonable compensation for its services
hereunder in accordance with the Trustee's standard fee schedule, and shall be
entitled to be reimbursed by the Trust or, if the assets of the Trust are
insufficient, by the Managing Owner for reasonable out-of-pocket expenses
incurred by the Trustee in the performance of its duties hereunder, including
without limitation, the reasonable compensation, out-of-pocket expenses and
disbursements of counsel and such other agents as the Trustee may employ in
connection with the exercise and performance of its rights and duties hereunder,
to the extent attributable to the Trust.
(d) Indemnification. The Managing Owner agrees, whether or not any
of the transactions contemplated hereby shall be consummated, to assume
liability for, and does hereby indemnify, protect, save and keep harmless the
Trustee and its successors, assigns, legal representatives, officers, directors,
agents and servants (the "Indemnified Parties") from and against any and all
liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes
payable by the Trustee on or measured by any compensation received by the
Trustee for its services hereunder or as indemnity payments pursuant to this
Section 2(d)), claims, actions, suits, costs, expenses or disbursements
(including legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses"), which may be imposed on, incurred by or asserted
against the Indemnified Parties in any way relating to or arising out of the
formation, operation or termination of the Trust, the execution, delivery and
performance of any other agreements to which the Trust is a party or the action
or inaction of the Trustee hereunder or thereunder, except for Expenses
resulting from the gross negligence or willful misconduct of the Indemnified
Parties. The indemnities contained in this Section 2(d) shall survive the
termination of this Declaration of Trust or the removal or resignation of the
Trustee. In addition, the Indemnified Parties shall be entitled to
indemnification from any cash, net equity in any commodity futures, forward and
option contracts, all funds on deposit in the accounts of the Trust, any other
property held by the Trust, and all proceeds therefrom, including any rights of
the Trust pursuant to any agreements to which this Trust is a party (the "Trust
Estate") to the extent such expenses are attributable to the formation,
operation or termination of the Trust as set forth above, and to secure the same
the Trustee shall have a lien against the Trust Estate which shall be prior to
the rights of the Managing Owner and the Unitholders to receive distributions
from the Trust Estate. The Trustee nevertheless agrees that it will, at its own
cost and expense, promptly take all action as may be necessary to discharge any
liens on any part of the Trust Estate which result from claims against the
Trustee personally that are not related to the ownership or the administration
of the Trust Estate or the transactions contemplated by any documents to which
the Trust is a party.
TA-2
<PAGE>
(e) Successor Trustee. Upon the resignation or removal of the
Trustee, the Managing Owner shall appoint a successor Trustee by delivering a
written instrument to the outgoing Trustee. Any successor Trustee must satisfy
the requirements of Section 3807 of the Act. Any resignation or removal of the
Trustee and appointment of a successor Trustee shall not become effective until
a written acceptance of appointment is delivered by the successor Trustee to the
outgoing Trustee and the Managing Owner and any fees and expenses due to the
outgoing Trustee are paid. Following compliance with the preceding sentence, the
successor Trustee shall become fully vested with all of the rights, powers,
duties and obligations of the outgoing Trustee under this Declaration of Trust,
with like effect as if originally named as Trustee, and the outgoing Trustee
shall be discharged of its duties and obligations under this Declaration of
Trust.
(f) Liability of the Trustee. Except as otherwise provided in this
Section 2, in accepting the trust created hereby, Wilmington Trust Company acts
solely as Trustee hereunder and not in its individual capacity, and all persons
having any claim against the Trustee by reason of the transactions contemplated
by this Declaration of Trust and any other agreement to which the Trust is a
party shall look only to the Trust Estate for payment or satisfaction thereof.
The Trustee shall not be liable or accountable hereunder or under any other
agreement to which the Trust is a party, except for the Trustee's own gross
negligence or willful misconduct. In particular, but not by way of limitation:
(i) the Trustee shall have no liability or responsibility for the
validity or sufficiency of this Declaration of Trust or for the form,
character, genuineness, sufficiency, value or validity of the Trust
Estate;
(ii) the Trustee shall not be liable for any actions taken or
omitted to be taken by it in accordance with the instructions of the
Managing Owner or any Unitholder;
(iii) the Trustee shall not have any liability for the acts or
omissions of the Managing Owner;
(iv) the Trustee shall not be liable for its failure to supervise
the performance of any obligations of the Managing Owner, any commodity
broker, any Selling Agents or any additional Selling Agents;
(v) no provision of this Declaration of Trust shall require the
Trustee to expend or risk funds or otherwise incur any financial liability
in the performance of any of its rights or powers hereunder if the Trustee
shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably
assured or provided to it;
(vi) under no circumstances shall the Trustee be liable for
indebtedness evidenced by or other obligations of the Trust arising under
this Declaration of Trust or any other agreements to which the Trust is a
party;
(vii) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Declaration of Trust, or to
institute, conduct or defend any litigation under this Declaration of
Trust or any other agreements to which the Trust is a party, at the
request, order or direction of the Managing Owner or any Unitholders
unless the Managing Owner or such Unitholders have offered to the Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Trustee (including, without
limitation, the reasonable fees and expenses of its counsel) therein or
thereby; and
(viii) notwithstanding anything contained herein to the contrary,
the Trustee shall not be required to take any action in any jurisdiction
other than in the State of Delaware if the taking of such action will (a)
require the consent or approval or authorization or order of or the giving
of notice to, or the registration with or taking of any action in respect
of, any state or other governmental authority or agency of any
jurisdiction other than the State of Delaware, (b) result in any fee, tax
or other governmental charge under the laws of any jurisdiction or any
political subdivision thereof in existence as of the date hereof other
than the State of Delaware becoming payable by the Trustee or (c) subject
the Trustee to personal jurisdiction other than in the State of Delaware
for causes of action arising from personal acts unrelated to the
consummation by the Trustee of the transactions contemplated hereby.
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(g) Reliance by the Trustee and the Managing Owner; Advice of
Counsel.
(i) In the absence of bad faith, the Trustee and the Managing Owner
may conclusively rely upon certificates or opinions furnished to the
Trustee or the Managing Owner and conforming to the requirements of this
Declaration of Trust in determining the truth of the statements and the
correctness of the opinions contained therein, and shall incur no
liability to anyone in acting on any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper which is believed to be genuine and believed to be
signed by the proper party or parties, and need not investigate any fact
or matter pertaining to or in any such document; provided, however, that
the Trustee or the Managing Owner shall have examined any certificates or
opinions so as to determine compliance of the same with the requirements
of this Declaration of Trust. The Trustee or the Managing Owner may accept
a certified copy of a resolution of the board of directors or other
governing body of any corporate party as conclusive evidence that such
resolution has been duly adopted by such body and that the same is in full
force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Trustee or the
Managing Owner may for all purposes hereof rely on a certificate, signed
by the president or any vice president or by the treasurer or other
authorized officers of the relevant party, as to such fact or matter, and
such certificate shall constitute full protection to the Trustee or the
Managing Owner for any action taken or omitted to be taken by either of
them in good faith in reliance thereon.
(ii) In the exercise or administration of the trust hereunder and in
the performance of its duties and obligations under this Declaration of
Trust, the Trustee, at the expense of the Trust, (i) may act directly or
through its agents, attorneys, custodians or nominees pursuant to
agreements entered into with any of them, and the Trustee shall not be
liable for the conduct or misconduct of such agents, attorneys, custodians
or nominees if such agents, attorneys, custodians or nominees shall have
been selected by the Trustee with reasonable care and (ii) may consult
with counsel, accountants and other skilled professionals to be selected
with reasonable care by the Trustee; provided that the Trustee shall not
allocate any of its internal expenses or overhead to the account of the
Trust. The Trustee shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the opinion or advice of
any such counsel, accountant or other such persons.
(h) Not Part of Trust Estate. Amounts paid to the Trustee from the
Trust Estate, if any, pursuant to this Section 2 shall be deemed not to be part
of the Trust Estate immediately after such payment.
3. Principal Office.
The address of the principal office of the Trust shall be c/o the
Managing Owner, Two American Lane, Greenwich, Connecticut 06831-8150; telephone:
(203) 861-1000. The Trustee is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration.
The Trustee shall receive service of process on the Trust in the State of
Delaware at the foregoing address. In the event Wilmington Trust Company resigns
or is removed as the Trustee, the Trustee of the Trust in the State of Delaware
shall be the successor Trustee.
4. Business.
The Trust's business and purpose is to trade, buy sell, swap or
otherwise acquire, hold or dispose of futures and forward contracts for
commodities, financial instruments, stock indices, metals, energy contracts and
currencies, any rights pertaining thereto and any options thereon or on physical
commodities, as well as securities and any rights pertaining thereto and any
options thereon, and to engage in all activities necessary, convenient or
incidental thereto. The Trust may also engage in "hedge," arbitrage and cash
trading of any of the foregoing instruments. The Trust may engage in such
business and purpose either directly or through joint ventures, entities or
partnerships, provided that the Trust's participation in any of the foregoing
has no adverse economic or liability consequences for the Unitholders, which
consequences would not be present had the Trust engaged in that same business or
purpose directly.
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5. Term, Dissolution, Fiscal Year
(a) Term. The term of the Trust commenced on the day on which the
Certificate of Trust was filed with the Secretary of State of the State of
Delaware pursuant to the provisions of the Act and shall end upon the first to
occur of the following: (1) December 31, 2026; (2) receipt by the Managing Owner
of an approval to dissolve the Trust at a specified time by Unitholders owning
Units representing more than fifty percent (50%) of the outstanding Units then
owned by Unitholders, notice of which is sent by certified mail return receipt
requested to the Managing Owner not less than 90 days prior to the effective
date of such dissolution; (3) death, insanity, bankruptcy, retirement,
resignation, expulsion, withdrawal, insolvency or dissolution of the Managing
Owner or any other event that causes the Managing Owner to cease to be a
managing owner unless (i) at the time of such event there is at least one
remaining managing owner of the Trust who carries on the business of the Trust
(and each remaining managing owner of the Trust is hereby authorized to carry on
the business of the Trust in such an event), or (ii) within one hundred twenty
days after such event Unitholders holding a majority of Units agree in writing
to continue the business of the Trust and to the appointment, effective as of
the date of such event, of one or more managing owners of the Trust; (4) a
decline in the aggregate Net Assets of the Trust to less than $250,000; (5)
dissolution of the Trust pursuant hereto; or (6) any other event which shall
make it unlawful for the existence of the Trust to be continued or require
termination of the Trust. In the event that the Managing Owner (or an affiliate
thereof) ceases to be the trust's managing owner, the word "Kenmar" shall be
deleted from the name of the Trust, and any appropriate filings shall be made.
(b) Dissolution. Upon the occurrence of an event causing the
dissolution of the Trust, the Trust shall be dissolved and its affairs wound up.
At any time that the Trust does not have a Managing Owner, the Unitholders by
majority vote may appoint a liquidator.
(c) Fiscal Year. The fiscal year of the Trust shall begin on January
1 of each year and end on the following December 31.
(d) Net Asset Value; Net Asset Value per Unit. Net Assets of the
Trust are its assets less its liabilities determined in accordance with
generally accepted accounting principles. If a contract cannot be liquidated on
the day with respect to which Net Assets are being determined, the settlement
price on the first subsequent day on which the contract can be liquidated shall
be the basis for determining the liquidating value of such contract for such
day, or such other value as the Managing Owner may deem fair and reasonable. The
liquidating value of a commodity futures or option contract not traded on a
commodity exchange shall mean its liquidating value as determined by the
Managing Owner on a basis consistently applied for each different variety of
contract. Accrued Profit Shares and Incentive Fees (as described in the
Prospectus, as defined in Section 9 hereof) shall reduce Net Asset Value, even
though such Profit Shares and Incentive Fees may never, in fact, be paid. Net
Asset Value per Unit is the Net Assets of the Trust divided by the number of
Units outstanding as of the date of determination.
6. Net Worth of Managing Owner.
The Managing Owner agrees that at all times so long as it remains
managing owner of the Trust, it will maintain its Net Worth at an amount not
less than $1,000,000.
The requirements of the preceding paragraph may be modified if the
Managing Owner obtains an opinion of counsel for the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes and if such modification will
reflect or exceed applicable state securities and Blue Sky laws and qualify
under any guidelines or statements of policy promulgated by any body or agency
constituted by the various state securities administrators having jurisdiction
in the premises.
7. Capital Contributions; Units.
The Unitholders' respective capital contributions to the Trust shall
be as shown on the books and records of the Trust. The Initial Unitholder will
withdraw upon the admission of additional Unitholders.
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The Managing Owner, so long as it is generally liable for the
obligations of the Trust, or any substitute managing owner, shall invest in the
Trust, as a general liability interest, sufficient capital so that the Managing
Owner will have at all times a capital account equal to 1% of the total capital
accounts of the Trust (including the Managing Owner's). The Managing Owner may
withdraw any interest it may have in excess of such requirement, and may redeem
as of any month-end any interest which it may acquire on the same terms as any
Unitholder, provided that it must maintain the minimum interest described in the
preceding sentence.
The requirements of the preceding paragraph may be modified if the
Managing Owner obtains an opinion of counsel for the Trust that a proposed
modification will not adversely affect the classification of the Trust as a
partnership for federal income tax purposes and if such modification will
reflect or exceed applicable state securities and Blue Sky laws and qualify
under any guidelines or statements of policy promulgated by any body or agency
constituted by the various state securities administrators having jurisdiction
in the premises.
The Managing Owner may, without the consent of any Unitholders of
the Trust, admit to the Trust purchasers of Units as Unitholders of the Trust.
Any Units acquired by the Managing Owner or any of its affiliates
will be non-voting, and will not be considered outstanding for purposes of
determining whether the majority approval of the outstanding Units has been
obtained. Such Unitholder shall be deemed a beneficial owner within the meaning
of the Act.
8. Allocation of Profits and Losses.
(a) Capital Accounts and Allocations. A capital account shall be
established for each Unit, and for the Managing Owner on a Unit-equivalent
basis. The balance of each Unit's capital account shall be the amount
contributed to the Trust with respect to such Unit, which amount shall be equal
to the Net Asset Value per Unit on the date each Unit is purchased after all
accrued fees and expenses, including Incentive Fee and Profit Share accruals
which may, in fact, never be paid. As of the close of business (as determined by
the Managing Owner) on the last day of each month, any increase or decrease in
the Trust's Net Assets as compared to the last such determination of Net Assets
shall be credited or charged equally to the capital accounts of all Units then
outstanding; provided that for purposes of maintaining such capital accounts,
amounts paid or payable to the Managing Owner for items such as brokerage
commissions and Incentive Fees shall be treated as if paid or payable to a third
party and shall not be credited to the capital account of the interest held by
the Managing Owner.
For purposes of this Section 8, unless specified to the contrary,
Units redeemed as of the end of any month shall be considered outstanding as of
the end of such month.
(b) Allocation of Profit and Loss for Federal Income Tax Purposes.
As of the end of each fiscal year, the Trust's income and expense and capital
gain or loss shall be allocated among the Unitholders pursuant to the following
provisions of this Section 8(b) for federal income tax purposes. For purposes of
this Section 8(b), capital gain and capital loss shall be allocated separately
and not netted.
(1) First, items of ordinary income and expense (other than the
Incentive Fee and Profit Shares which shall be allocated as set forth in Section
8(b)(2)) shall be allocated pro rata among the Units outstanding as of the end
of each month in which the items of ordinary income and expense accrue.
(2) Second, any Incentive Fee or Profit Shares paid to the Managing
Owner or the Advisors shall be allocated among the Units outstanding at any time
during the fiscal year based upon the ratio that each such Unit's Net Incentive
Fee or Net Profit Share (the excess, if any, of the aggregate of all Incentive
Fees or Profit Shares, as the case may be, allocated to the capital account
relating to such Unit over the aggregate of all "reversals" of Incentive Fees or
Profit Shares, as the case may be, allocated to such Unit) bears to the Net
Incentive Fee or Net Profit Share, as the case may be, of all Units; provided
that the Managing Owner may allocate Incentive Fees and Profit Shares first to
Units whose Net Asset Value was reduced by accrued Incentive Fees and Profit
Shares upon redemption, in an amount up to the amount of such reduction.
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(3) Third, capital gain or loss shall be allocated as follows:
(A) There shall be established a tax account with respect to each
outstanding Unit. The balance of each tax account shall be the amount paid to
the Trust for each Unit. As of the end of each fiscal year:
(i) Each tax account shall be increased by the amount of income or
gain allocated to each Unit pursuant to Sections 8(b)(1) and 8(b)(3)(C).
(ii) Each tax account shall be decreased by the amount of expense or
loss allocated to each Unit pursuant to Sections 8(b)(1), 8(b)(2) and
8(b)(3)(E) and by the amount of any distributions paid out with respect to
the Units other than upon redemption.
(iii) When a Unit is redeemed, the tax account attributable to such
Unit (determined after making all allocations described in this Section
8(b)) shall be eliminated.
(B) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal year)
shall be allocated Capital Gain, if any, up to the amount of the excess, if any,
of the amount received in respect of the Units so redeemed (before taking into
account any early redemption charges) over the sum of the tax accounts
(determined after making the allocation described in Sections 8(b)(1) and
8(b)(2), but prior to making the allocations described in this Section
8(b)(3)(B) or Section 8(b)(3)(D)) allocable to such Units (an "Excess"). In the
event the aggregate amount of Capital Gain available to be allocated pursuant to
this Section 8(b)(3)(B) is less than the aggregate amount of Capital Gain
required to be so allocated, the aggregate amount of available Capital Gain
shall be allocated among all such Unitholders in the ratio which each such
Unitholder's Excess bears to the aggregate Excess of all such Unitholders.
(C) Capital Gain remaining after the allocation described in Section
8(b)(3)(B) shall be allocated among all Unitholders who hold Units outstanding
as of the end of the applicable fiscal year (other than Units redeemed as of the
end of the last day of such fiscal year) whose capital accounts with respect to
such Units are in excess of their tax accounts (determined after making the
allocations described in Sections 8(b)(1) and 8(b)(2)) allocable to such Units
in the ratio that each such Unitholder's excess bears to the aggregate excess of
all such Unitholders. Capital Gain remaining after the allocation described in
the preceding sentence shall be allocated among all Unitholders described in
said sentence in proportion to their holdings of such Units.
(D) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal year)
shall be allocated Capital Loss, if any, up to the amount of the sum of the
excess of the tax accounts (determined after making the allocations described in
Sections 8(b)(1) and 8(b)(2), but prior to making the allocations described in
this Section 8(b)(3)(D) or Section 8(b)(3)(B)) allocable to the Units so
redeemed over the amount received in respect of such Units (before taking into
account any early redemption charges) (a "Negative Excess"). In the event the
aggregate amount of available Capital Loss required to be allocated pursuant to
this Section 8(b)(3)(D) is less than the aggregate amount required to be so
allocated, the aggregate amount of available Capital Loss shall be allocated
among all such Unitholders in the ratio that each such Unitholder's Negative
Excess bears to the aggregate Negative Excess of all such Unitholders.
(E) Capital Loss remaining after the allocation described in Section
8(b)(3)(D) shall be allocated among all Unitholders who hold Units outstanding
as of the end of the applicable fiscal year (other than Units redeemed as of the
end of the last day of such fiscal year) whose tax accounts with respect to such
Units are in excess of their capital accounts (determined after making the
allocations described in Sections 8(b)(1) and 8(b)(2)) with respect to such
Units in the ratio that each such Unitholder's negative excess bears to the
aggregate negative excess of all such Unitholders. Capital Loss remaining after
the allocation described in the preceding sentence shall be allocated among all
Unitholders described in such sentence in proportion to their holdings of such
Units.
(F) For purposes of this Section 8(b), "Capital Gain" or "Capital
Loss" shall mean gain or loss characterized as gain or loss from the sale or
exchange of a capital asset, by the Code, including, but not limited to, gain or
loss required to be taken into account pursuant to Section 1256 thereof.
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(4) The allocation of profit and loss for federal income tax
purposes set forth herein is intended to allocate taxable profit and loss among
Unitholders generally in the ratio and to the extent that profit and loss are
allocated to such Unitholders so as to eliminate, to the extent possible, any
disparity between the Unitholder's capital account and his tax account,
consistent with principles set forth in Section 704 of the Code, including
without limitation a "Qualified Income Offset."
(5) The allocations of profit and loss to the Unitholders in respect
of the Units shall not exceed the allocations permitted under Subchapter K of
the Code, as determined by the Managing Owner, whose determination shall be
binding.
(c) Incentive Fees; Profit Shares. Incentive Fees shall be payable
to the Managing Owner as of the end of each calendar year and upon redemption of
Units.
Incentive Fees shall equal 5% of New Overall Appreciation (if any)
calculated as of each fiscal year-end and upon redemption of Units. New Overall
Appreciation shall be calculated, not on a per-Unit basis, but on the basis of
the overall trading profits and losses of the Trust, net of all fees and
expenses (including Profit Shares) paid or accrued other than the Incentive Fee
itself and after subtraction of all interest income received by the Trust.
Incentive Fees shall be paid by the Trust as a whole, irrespective
of whether the Net Asset Value has declined below the purchase price of such
Unit. Accrued Incentive Fees shall reduce the redemption price of Units and
shall be paid to the Managing Owner upon redemption. The amount (if any) of the
accrued Incentive Fee that shall be paid to the Managing Owner upon the
redemption of any Unit shall be determined by dividing the total Incentive Fee
as of such redemption date by the number of Units then outstanding (including
Units redeemed as of such date); the remainder of the accrued Incentive Fee
shall be paid to the Managing Owner on December 31 of each year.
For capital account purposes, accrued Incentive Fees shall, in all
cases, be reflected equally as a reduction in the Net Asset Value per Unit of
all Units outstanding at the time the Incentive Fee accrued, and reversals of
accrued Incentive Fees shall equally increase the Net Asset Value per Unit of
all Units outstanding at the time of the accrual of such reversal, irrespective
of whether a particular Unit was outstanding when a particular Incentive Fee was
accrued.
Early redemption charges shall in no respect reduce New Overall
Appreciation.
The Profit Shares paid to the Advisors pursuant to the Advisory
Agreements among the Managing Owner, the Trust and each such Advisor shall
result in deductions being allocated to the Unitholders. Such allocation shall
apply the same principles as the allocation of Incentive Fee deductions
described above. Profit Shares with respect to any calendar quarter will be paid
to an Advisor as of the last day of such period, except that Profit Shares with
respect to Units redeemed as of the last day of any month that does not end a
calendar quarter shall be paid as of the day such Units are redeemed and Profit
Shares with respect to Units redeemed as of the end of any month that ends a
calendar quarter shall be paid to an Advisor in the same manner and at the same
time as if such Units had not been redeemed.
In the event assets are withdrawn from an Advisor's account or the
Trust as a whole (other than to pay expenses), any loss carryforward shall be
proportionally reduced for purposes of calculating subsequent Profit Shares and
Incentive Fees. Loss carryforward reductions shall not be restored as a result
of subsequent additions of capital.
The Managing Owner may adjust the allocations set forth in this
Section 8(c), in the Managing Owner's discretion, if the Managing Owner believes
that doing so will achieve more equitable allocations or allocations more
consistent with the Code.
(d) Expenses. The Managing Owner shall pay, without reimbursement,
the selling and "trailing commissions" relating to the offering of the Units.
The Trust shall pay the Managing Owner brokerage commissions at the rate of 11%
per annum of the average beginning of month Net Assets of the Trust. The Trust
shall bear all administrative costs, ongoing offering costs and any taxes
applicable to it and any charges incidental to trading, including agency
brokerage commissions (e.g., "bid-ask" spreads). In no event shall
organizational and offering expenses, including selling commissions and
redemption fees, exceed 15% of the capital contributions to the Trust. Any
unreimbursed organizational and initial offering expenses as of the date of the
Trust's dissolution shall not be reimbursed to the Managing Owner from the
proceeds
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resulting from such dissolution. However, none of the Managing Owner's
"overhead" expenses incurred in connection with the administration of the Trust
(including, but not limited to, salaries, rent and travel expenses) shall be
charged to the Trust. Any goods and services provided to the Trust by the
Managing Owner shall be provided at rates and terms at least as favorable as
those which may be obtained from third parties in arm's-length negotiations. All
of the expenses which are for the Trust's account shall be billed directly to
the Trust. Appropriate reserves may be created, accrued and charged against Net
Assets for contingent liabilities, if any, as of the date any such contingent
liability becomes known to the Managing Owner. Such reserves shall reduce Net
Asset Value for all purposes.
(e) Limited Liability of Unitholders. Each Unit, when purchased in
accordance with this Declaration of Trust and Trust Agreement, shall, except as
otherwise provided by law, be fully paid and nonassessable. Any provisions of
this Declaration of Trust and Trust Agreement to the contrary notwithstanding,
except as otherwise provided by law, no Unitholder shall be liable for Trust
obligations in excess of the capital contributed by such Unitholder, plus his
share of undistributed profits and assets.
(f) Return of Capital Contributions. No Unitholder or subsequent
assignee shall have any right to demand the return of his capital contribution
or any profits added thereto, except through redeeming Units or upon dissolution
of the Trust, in each case as provided herein and in accordance with the Act. In
no event shall a Unitholder or subsequent assignee be entitled to demand or
receive property other than cash.
9. Management of the Trust.
The Managing Owner, to the exclusion of all Unitholders, shall
control, conduct and manage the business of the Trust. The Managing Owner shall
have sole discretion in determining what distributions of profits and income, if
any, shall be made to the Unitholders (subject to the allocation provisions
hereof), shall execute various documents on behalf of the Trust and the
Unitholders pursuant to powers of attorney and supervise the liquidation of the
Trust if an event causing dissolution of the Trust occurs.
The Managing Owner may in furtherance of the business of the Trust
cause the Trust to retain Advisors to buy, sell, hold, or otherwise acquire or
dispose of commodities, futures contracts and options traded on exchanges or
otherwise, arbitrage positions, repurchase agreements, interest-bearing
securities, deposit accounts and similar instruments, provided that the Trust
shall not invest in any debt instruments other than Treasury securities,
short-term sovereign debt instruments and other investments authorized by the
Commodity Futures Trading Commission (the "CFTC") for the investment of
"customer funds," and shall not invest in any equity security without prior
notice to Unitholders, all as described in the prospectus relating to the
offering of the Units in effect as of the time that such Unitholder last
purchased Units while in receipt of a current prospectus (the "Prospectus"). The
Managing Owner may engage, and compensate on behalf of the Trust from funds of
the Trust, or agree to share profits and losses with, such persons, firms or
corporations, including (except as described in this Declaration of Trust and
Trust Agreement) the Managing Owner and any affiliated person or entity, as the
Managing Owner in its sole judgment shall deem advisable for the conduct and
operation of the business of the Trust, provided, that no such arrangement shall
allow brokerage commissions paid by the Trust in excess of the amount described
in the Prospectus or as permitted under applicable North American Securities
Administrators Association, Inc. Guidelines for the Registration of Commodity
Pool Programs ("NASAA Guidelines") in effect as of the date of the Prospectus
(i.e., 80% of the published retail rate plus pit brokerage fees, or 14% annually
- -- including pit brokerage and service fees -- of the Trust's average Net
Assets, excluding the assets not directly related to trading activity),
whichever is higher. The Managing Owner shall reimburse the Trust, on an annual
basis, to the extent that the Trust's brokerage commissions paid to the Managing
Owner and the Annual Incentive Fee, as described in the Prospectus, have
exceeded 14% of the Trust's average Net Assets during the preceding year. The
Managing Owner is hereby specifically authorized to enter into, on behalf of the
Trust, the Advisory Agreements and the Selling Agreement as described in the
Prospectus. The Managing Owner shall not enter into an Advisory Agreement with
any trading advisor that does not satisfy the relevant experience (i.e.,
ordinarily a minimum of three years) requirements under the NASAA Guidelines.
The Trust's brokerage commissions may not be increased (i) during any period
when redemption charges are in effect or (ii) without prior written notice to
Unitholders within sufficient time for the exercise of their redemption rights
prior to such increase becoming effective. Such notification shall contain a
description of Unitholder's voting and redemption rights and a description of
any material effect of such increase.
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In addition to any specific contract or agreements described herein,
the Trust may enter into any other contracts or agreements specifically
described in or contemplated by the Prospectus without any further act, approval
or vote of the Unitholders, notwithstanding any other provisions of this
Declaration of Trust and Trust Agreement, the Act or any applicable law, rule or
regulations.
The Managing Owner shall be under a fiduciary duty to conduct the
affairs of the Trust in the best interests of the Trust. The Unitholders will
under no circumstances be deemed to have contracted away the fiduciary
obligations owed them by the Managing Owner under the common law. The Managing
Owner's fiduciary duty includes, among other things, the safekeeping of all
Trust funds and assets and the use thereof for the benefit of the Trust. The
Managing Owner shall at all times act with integrity and good faith and exercise
due diligence in all activities relating to the conduct of the business of the
Trust and in resolving conflicts of interest. The Trust's brokerage arrangements
shall be non-exclusive, and the brokerage commissions paid by the Trust shall be
competitive. The Trust shall seek the best price and services available for its
commodity transactions.
The Managing Owner is hereby authorized to perform all other duties
imposed by Sections 6221 through 6232 of the Code on the Managing Owner as the
"tax matters partner" of the Trust.
The Trust shall make no loans to any party, and the funds of the
Trust will not be commingled with the funds of any other person or entity
(deposit of funds with a commodity broker, clearinghouse or forward dealer or
entering into joint ventures or partnerships shall not be deemed to constitute
"commingling" for these purposes). The Managing Owner shall make no loans to the
Trust unless approved by the Unitholders in accordance with Section 18(a) of
this Declaration of Trust and Trust Agreement. If the Managing Owner makes a
loan to the Trust, the Managing Owner shall not receive interest in excess of
its interest costs, nor may the Managing Owner receive interest in excess of the
amounts which would be charged the Trust (without reference to the Managing
Owner's financial resources or guarantees) by unrelated banks on comparable
loans for the same purpose. The Managing Owner shall not receive "points" or
other financing charges or fees regardless of the amount. Except in respect of
the Incentive Fee, no person or entity may receive, directly or indirectly, any
advisory, management or incentive fees, or any profit-sharing allocation from
joint ventures, partnerships or similar arrangements in which the Trust
participates, for investment advice or management who shares or participates in
any commodity brokerage commissions; no broker may pay, directly or indirectly,
rebates or give-ups to any trading advisor or manager or to the Managing Owner
or any of their respective affiliates in respect of sales of the Units; and such
prohibitions may not be circumvented by any reciprocal business arrangements.
The foregoing prohibition shall not prevent the Trust from executing, at the
direction of any Advisor, transactions with any futures commission merchant or
broker. No trading advisor for the Trust shall be affiliated with the Trust's
commodity broker, the Managing Owner or their affiliates. The maximum period
covered by any contract entered into by the Trust, except for the various
provisions of the Selling Agreement which survive each closing of the sales of
the Units, shall not exceed one year. Any material change in the Trust's basic
investment policies or structure shall require the approval of Unitholders
owning Units representing more than fifty percent (50%) of all Units then owned
by the Unitholders. Any agreements between the Trust and the Managing Owner or
any affiliate of the Managing Owner (as well as any agreements between the
Managing Owner or any affiliate of the Managing Owner and any trading advisor)
shall be terminable without penalty by the Trust upon no more than 60 days'
written notice. All sales of Units in the United States will be conducted by
registered brokers.
The Trust is prohibited from employing the trading technique
commonly known as "pyramiding." A trading manager or advisor of the Trust taking
into account the Trust's open trade equity on existing positions in determining
generally whether to acquire additional commodity positions on behalf of the
Trust will not be considered to be engaging in "pyramiding."
The Managing Owner may take such other actions on behalf of the
Trust as the Managing Owner deems necessary or desirable to manage the business
of the Trust.
The Managing Owner shall reimburse the Trust for any advisory fees
paid by the Trust to any trading advisor over the course of any fiscal year, to
the extent that the fees paid during such year exceed the 6% annual management
fees and the 15% quarterly incentive fees (calculating New Trading Profit, as
defined in the Prospectus, after all expenses and without including interest
income) contemplated by the NASAA Guidelines (as the NASAA Guidelines permit
such limits to be adjusted). Any such reimbursement shall be made on a present
value basis, fully compensating the Trust for
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having made payments at any time during the year which would not otherwise have
been due from it. The Managing Owner shall disclose any such reimbursement in
the Annual Report delivered to Unitholders.
The Managing Owner is engaged, and may in the future engage, in
other business activities and shall not be required to refrain from any other
activity nor forego any profits from any such activity, whether or not in
competition with the Trust. Unitholders may similarly engage in any such other
business activities. The Managing Owner shall devote to the Trust such time as
the Managing Owner may deem advisable to conduct the Trust's business and
affairs.
10. Audits and Reports to Unitholders.
The Trust books shall be audited annually by an independent
certified public accountant. The Trust will use its best efforts to cause each
Unitholder to receive (i) within 90 days after the close of each fiscal year
certified financial statements of the Trust for the fiscal year then ended, (ii)
within 90 days of the end of each fiscal year (but in no event later than March
15 of each year) such tax information as is necessary for a Unitholder to
complete his federal income tax return and (iii) such other annual and monthly
information as the CFTC may by regulation require. The Managing Owner shall
include in the Annual Reports sent to Unitholders an approximate estimate
(calculated as accurately as may be reasonably practicable) of the round-turn
equivalent brokerage commission rate paid by the Trust during the preceding
year. The Trust shall notify Unitholders within seven business days of any
material change (i) in the agreements with the Trust's advisors, including any
modification in the method of calculating the advisory fee and (ii) in the
compensation of any party relating to the Trust. Unitholders or their duly
authorized representatives may inspect the Trust books and records during normal
business hours upon reasonable written notice to the Managing Owner and obtain
copies of such records (including by post upon payment of reasonable mailing
costs); upon payment of reasonable reproduction costs provided, however, upon
request by the Managing Owner, the Unitholder shall represent that the
inspection and/or copies of such records will not be for commercial purposes
unrelated to such Unitholder's interest as a beneficial owner of the Trust. The
Managing Owner shall have the right to keep confidential from the Unitholders,
for such period of time as the Managing Owner deems reasonable, any information
that the Managing Owner reasonably believes that the Trust is required by law or
by agreement with a third party to keep confidential.
The Managing Owner shall calculate the approximate Net Asset Value
per Unit on a daily basis and furnish such information upon request to any
Unitholder.
The Managing Owner shall maintain and preserve all Trust records for
a period of not less than six (6) years.
The Managing Owner will, with the assistance of the Trust's
commodity broker, make an annual review of the commodity brokerage arrangements
applicable to the Trust. In connection with such review, the Managing Owner will
ascertain, to the extent practicable, the commodity brokerage rates charged to
other major commodity pools whose trading and operations are, in the opinion of
the Managing Owner, comparable to those of the Trust in order to assess whether
the rates charged the Trust are competitive in light of the services it
receives. If, as a result of such review, the Managing Owner determines that
such rates are not competitive in light of the services provided to the Trust,
the Managing Owner will notify the Unitholders, setting forth the rates charged
to the Trust and several funds which are, in the Managing Owner's opinion,
comparable to the Trust.
11. Assignability of Units.
Each Unitholder expressly agrees that he will not voluntarily
assign, transfer or dispose of, by gift or otherwise, any of his Units or any
part or all of his right, title and interest in the capital or profits of the
Trust in violation of any applicable federal or state securities laws or without
giving written notice to the Managing Owner. No assignment, transfer or
disposition by an assignee of Units or of any part of his right, title and
interest in the capital or profits of the Trust shall be effective against the
Trust or the Managing Owner until the Managing Owner receives the written notice
of the assignment; the Managing Owner shall not be required to give any assignee
any rights hereunder prior to receipt of such notice. The Managing Owner may, in
its sole discretion, waive any such notice. No such assignee, except with the
consent of the Managing Owner, which consent may be withheld in the absolute
discretion of the Managing Owner, may become a substituted Unitholder, nor will
the estate or any beneficiary of a deceased Unitholder or assignee have any
right to redeem Units from the Trust except by redemption as provided in Section
12 hereof. Each Unitholder agrees that with the consent
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of the Managing Owner any assignee may become a substituted Unitholder without
need of the further act or approval of any Unitholder. If the Managing Owner
withholds consent, an assignee shall not become a substituted Unitholder, and
shall not have any of the rights of a Unitholder, except that the assignee shall
be entitled to receive that share of capital and profits and shall have that
right of redemption to which his assignor would otherwise have been entitled. No
assignment, transfer or disposition of Units shall be effective against the
Trust or the Managing Owner until the first day of the month succeeding the
month in which the Managing Owner receives notice of such assignment, transfer
or disposition. No Units may be transferred where, after the transfer, either
the transferee or the transferor would hold less than the minimum number of
Units equivalent to an initial minimum purchase, except for transfers by gift,
inheritance, intrafamily transfers, family dissolutions, and transfers to
Affiliates.
12. Redemptions.
A Unitholder or any assignee of Units of whom the Managing Owner has
received written notice as described above may redeem all or any of his Units
(such redemption being herein referred to as a "redemption") effective as of the
close of business (as determined by the Managing Owner) on the last day of any
month, beginning with the end of the sixth month after such Units are sold;
provided that: (i) all liabilities, contingent or otherwise, of the Trust
(including the Trust's allocable share of the liabilities, contingent or
otherwise, of any entities in which the Trust invests), except any liability to
Unitholders on account of their capital contributions, have been paid or there
remains property of the Trust sufficient to pay them; and (ii) the Managing
Owner shall have timely received a request for redemption, as provided in the
second following paragraph.
Units redeemed on or before the end of the twelfth full calendar
month and after the end of the twelfth full month but on or before the end of
the eighteenth full calendar month after the date as of which such Units begin
to participate in the profits and losses of the Trust are subject to early
redemption charges of 3% and 2%, respectively, of the Net Asset Value at which
they are redeemed. Such charges will be paid to the Managing Owner. In the event
that a Unitholder acquires Units at more than one month-end, such Units will be
treated on a "first-in, first-out" basis for purposes of determining whether
such Units are redeemable and whether early redemption charges apply.
Requests for redemption must be received by the Managing Owner at
least ten calendar days, or such lesser period as shall be acceptable to the
Managing Owner, in advance of the requested effective date of redemption. The
Managing Owner may declare additional redemption dates upon notice to the
Unitholders as well as to those assignees of whom the Managing Owner has
received notice as described above.
If at the close of business (as determined by the Managing Owner) on
any day, the Net Asset Value per Unit has decreased to less than 50% of the Net
Asset Value per Unit as of the most recent Valuation Date, after adding back all
distributions, the Trust shall notify investors within seven business days and
shall liquidate all open positions as expeditiously as possible and suspend
trading. Within ten business days after the date of suspension of trading, the
Managing Owner (and any other managing owners of the Trust) shall declare a
Special Redemption Date. Such Special Redemption Date shall be a business day
within 30 business days from the date of suspension of trading by the Trust, and
the Managing Owner shall mail notice of such date to each Unitholder and
assignee of Units of whom it has received written notice as described above, by
first-class mail, postage prepaid, not later than ten business days prior to
such Special Redemption Date, together with instructions as to the procedure
such Unitholder or assignee must follow to have his interest (only entire, not
partial, interests may be so redeemed unless otherwise determined by the
Managing Owner) in the Trust redeemed on such date. Upon redemption pursuant to
a Special Redemption Date, a Unitholder or any other assignee of whom the
Managing Owner has received written notice as described above, shall receive
from the Trust an amount equal to the Net Asset Value of his interest in the
Trust, determined as of the close of business (as determined by the Managing
Owner) on such Special Redemption Date. No redemption charges shall be assessed
on any such Special Redemption Date. As in the case of a regular redemption, an
assignee shall not be entitled to redemption until the Managing Owner has
received written notice (as described above) of the assignment, transfer or
disposition under which the assignee claims an interest in the Units to be
redeemed. If, after such Special Redemption Date, the Net Assets of the Trust
are at least $250,000 and the Net Asset Value of a Unit is in excess of $25, the
Trust may, in the discretion of the Managing Owner, resume trading. The Managing
Owner may at any time and in its discretion declare a Special Redemption Date,
should the Managing Owner determine that it is in the best interests of the
Trust to do so. The Managing Owner in its notice of a Special Redemption Date
may, in its discretion, establish the conditions, if any, under which other
Special Redemption Dates must be called, which conditions may be determined in
the sole discretion of the Managing Owner, irrespective of the provisions of
this paragraph. The
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Managing Owner may also, in its discretion, declare additional regular
redemption dates for Units and permit certain Unitholders to redeem at other
than month-end.
Redemption payments will be made within fifteen business days after
the month-end of redemption (and notice that the redemption has occurred will be
provided to Unitholders within ten business days after such month-end), except
that under special circumstances, including, but not limited to, inability to
liquidate commodity positions as of a redemption date or default or delay in
payments due the Trust from commodity brokers, banks or other persons or
entities, the Trust may in turn delay payment to Unitholders or assignees
requesting redemption of their Units of the proportionate part of the Net Asset
Value of such Units equal to that proportionate part of the Trust's aggregate
Net Asset Value represented by the sums which are the subject of such default or
delay.
Only whole Units may be redeemed, except upon complete redemption of
an investor's Units, unless the Managing Owner specifically otherwise consents.
Redemptions may be requested for a minimum of the lesser of $1,000 or ten (10)
Units provided that, for investors redeeming less than all their Units, such
investors remaining units equal at least $500.
The Managing Owner may require a Unitholder to redeem all or a
portion of such Unitholder's Units if the Managing Owner considers doing so to
be desirable for the protection of the Trust, and will use best efforts to do so
to the extent necessary to prevent the Trust from being deemed to hold "plan
assets" under the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the Code, with respect to any "employee benefit
plan" subject to ERISA or with respect to any plan or account subject to Section
4975 of the Code.
13. Offering of Units.
The Managing Owner on behalf of the Trust shall (i) cause to be
filed a Registration Statement or Registration Statements, and such amendments
thereto as the Managing Owner deems advisable, with the Securities and Exchange
Commission for the registration and ongoing public offering of the Units, (ii)
use its best efforts to qualify and to keep qualified Units for sale under the
securities laws of such States of the United States or other jurisdictions as
the Managing Owner shall deem advisable and (iii) take such action with respect
to the matters described in (i) and (ii) as the Managing Owner shall deem
advisable or necessary.
The Managing Owner shall use its best efforts not to accept any
subscriptions for Units if doing so would cause the Trust to hold "plan assets"
under ERISA or the Code with respect to any "employee benefit plan" subject to
ERISA or with respect to any plan or account subject to Section 4975 of the
Code. If such a subscriber has its subscription reduced for such reason, such
subscriber shall be entitled to rescind its subscription in its entirety even
though subscriptions are otherwise irrevocable.
14. Additional Offerings.
The Managing Owner may, in its discretion, make additional public or
private offerings of Units, provided that the net proceeds to the Trust of any
such sales shall in no event be less than the Net Asset Value per Unit (as
defined in Section 5(d) hereof) at the time of sale (unless the new Unit's
participation in the profits and losses of the Trust is appropriately adjusted).
No Unitholder shall have any preemptive, preferential or other rights with
respect to the issuance or sale of any additional Units, other than as set forth
in the preceding sentence.
The Trust may offer different series or classes of Units having
different economic terms than previously offered series or classes of Units;
provided that the issuance of such a new series or class of Units shall in no
respect adversely affect the holders of outstanding Units; and provided further
that the assets attributable to each such series or class shall, to the maximum
extent permitted by law, be treated as legally separate and distinct pools of
assets, and the assets attributable to one such series or class be prevented
from being used in any respect to satisfy or discharge any debt or obligation of
any other such series or class.
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15. Special Power of Attorney.
Each Unitholder by his execution of this Declaration of Trust and
Trust Agreement does hereby irrevocably constitute and appoint the Managing
Owner and each officer of the Managing Owner, with power of substitution, as his
true and lawful attorney-in-fact, in his name, place and stead, to execute,
acknowledge, swear to (and deliver as may be appropriate) on his behalf and file
and record in the appropriate public offices and publish (as may in the
reasonable judgment of the Managing Owner be required by law): (i) this
Declaration of Trust and Trust Agreement, including any amendments and/or
restatements hereto duly adopted as provided herein; (ii) certificates in
various jurisdictions, and amendments and/or restatements thereto, and of
assumed name or of doing business under a fictitious name with respect to the
Trust; (iii) all conveyances and other instruments which the Managing Owner
deems appropriate to qualify or continue the Trust in the State of Delaware and
the jurisdictions in which the Trust may conduct business, or which may be
required to be filed by the Trust or the Unitholders under the laws of any
jurisdiction or under any amendments or successor statutes to the Act, to
reflect the dissolution or termination of the Trust or the Trust being governed
by any amendments or successor statutes to the Act or to reorganize or refile
the Trust in a different jurisdiction; and (iv) to file, prosecute, defend,
settle or compromise litigation, claims or arbitrations on behalf of the Trust.
The Power of Attorney granted herein shall be irrevocable and deemed to be a
power coupled with an interest (including, without limitation, the interest of
the other Unitholders in the Managing Owner being able to rely on the Managing
Owner's authority to act as contemplated by this Section 14) and shall survive
and shall not be affected by the subsequent incapacity, disability or death of a
Unitholder.
16. Withdrawal of a Unitholder.
The Trust shall be dissolved upon the death, insanity, bankruptcy,
retirement, resignation, expulsion, withdrawal, dissolution, admitted or
court-decreed insolvency or the removal of the Managing Owner, or any other
event that causes the Managing Owner to cease to be a managing owner under the
Act, unless the Trust is continued pursuant to the terms of Section 5(a)(3). In
addition, the Managing Owner may withdraw from the Trust, without any breach of
this Declaration of Trust and Trust Agreement, at any time upon 120 days'
written notice by first class mail, postage prepaid, to each Unitholder and
assignee of whom the Managing Owner has notice. If the Managing Owner withdraws
as managing owner and the Trust's business is continued, the withdrawing
Managing Owner shall pay all expenses incurred as a result of its withdrawal. In
the event of the Managing Owner's removal or withdrawal, the Managing Owner
shall be entitled to a redemption of its interest in the Trust at its Net Asset
Value on the next valuation date following the date of removal or withdrawal.
The Managing Owner may not assign its general liability interest or
its obligation to direct the trading of the Trust assets without the consent of
each Unitholder. The Managing Owner will notify all Unitholders of any change in
the principals of the Managing Owner. No provision of this Declaration of Trust
and Trust Agreement shall be deemed, nor does any such provision purport, to
waive compliance with the Investment Advisers Act of 1940, as amended.
The death, incompetency, withdrawal, insolvency or dissolution of a
Unitholder or any other event that causes a Unitholder to cease to be a
Unitholder (within the meaning of the Act) in the Trust shall not terminate or
dissolve the Trust, and a Unitholder, his estate, custodian or personal
representative shall have no right to redeem or value such Unitholder's interest
in the Trust except as provided in Section 12 hereof. Each Unitholder expressly
agrees that in the event of his death, he waives on behalf of himself and his
estate, and directs the legal representatives of his estate and any person
interested therein to waive, the furnishing of any inventory, accounting or
appraisal of the assets of the Trust and any right to an audit or examination of
the books of the Trust. Nothing in this Section 16 shall, however, waive any
right given elsewhere in this Declaration of Trust and Trust Agreement for a
Unitholder to be informed of the Net Asset Value of his Units, to receive
periodic reports, audited financial statements and other information from the
Managing Owner or the Trust or to redeem or transfer Units.
17. Standard of Liability; Indemnification.
(a) Standard of Liability for the Managing Owner. The Managing Owner
and its Affiliates, as defined below, shall have no liability to the Trust or to
any Unitholder for any loss suffered by the Trust which arises out of any action
or inaction of the Managing Owner or its Affiliates if the Managing Owner, in
good faith, determined that such course of conduct was in the best interests of
the Trust and such course of conduct did not constitute negligence or misconduct
of the Managing Owner or its Affiliates.
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(b) Indemnification of the Managing Owner by the Trust. To the
fullest extent permitted by law, subject to this Section 17, the Managing Owner
and its Affiliates shall be indemnified by the Trust against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the Trust; provided that such claims were
not the result of negligence or misconduct on the part of the Managing Owner or
its Affiliates, and the Managing Owner, in good faith, determined that such
conduct was in the best interests of the Trust; and provided further that
Affiliates of the Managing Owner shall be entitled to indemnification only for
losses incurred by such Affiliates in performing the duties of the Managing
Owner and acting wholly within the scope of the authority of the Managing Owner.
Notwithstanding anything to the contrary contained in the preceding
two paragraphs, the Managing Owner and its Affiliates and any persons acting as
Selling Agents for the Units shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves indemnification of the litigation
costs, or (2) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee and the court
approves indemnification of the litigation costs, or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission, the California Department of
Corporations, the Massachusetts Securities Division, the Pennsylvania Securities
Commission, the Tennessee Securities Division, the Texas Securities Board and
any other state or applicable regulatory authority with respect to the issue of
indemnification for securities law violations.
The Trust shall not bear the cost of that portion of any insurance
which insures any party against any liability the indemnification of which is
herein prohibited.
For the purposes of this Section 17, the term "Affiliates" shall
mean any person acting on behalf of or performing services on behalf of the
Trust who: (1) directly or indirectly controls, is controlled by, or is under
common control with the Managing Owner; or (2) owns or controls 10% or more of
the outstanding voting securities of the Managing Owner; or (3) is an officer or
director of the Managing Owner; or (4) if the Managing Owner is an officer,
director, partner or trustee, is any entity for which the Managing Owner acts in
any such capacity.
Advances from Trust funds to the Managing Owner and its Affiliates
for legal expenses and other costs incurred as a result of any legal action
initiated against the Managing Owner by a Unitholder are prohibited.
Advances from Trust funds to the Managing Owner and its Affiliates
for legal expenses and other costs incurred as a result of a legal action will
be made only if the following three conditions are satisfied: (1) the legal
action relates to the performance of duties or services by the Managing Owner or
its Affiliates on behalf of the Trust; (2) the legal action is initiated by a
third party who is not a Unitholder; and (3) the Managing Owner or its
Affiliates undertake to repay the advanced funds, with interest from the date of
such advance, to the Trust in cases in which they would not be entitled to
indemnification under the standard of liability set forth in Section 17(a).
In no event shall any indemnity or exculpation provided for herein
be more favorable to the Managing Owner or any Affiliate than that contemplated
by the NASAA Guidelines as in effect on the date of this Declaration of Trust
and Trust Agreement.
In no event shall any indemnification permitted by this subsection
(b) of Section 17 be made by the Trust unless all provisions of this Section for
the payment of indemnification have been complied with in all respects.
Furthermore, it shall be a precondition of any such indemnification that the
Trust receive a determination of qualified independent legal counsel in a
written opinion that the party which seeks to be indemnified hereunder has met
the applicable standard of conduct set forth herein. Receipt of any such opinion
shall not, however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Trust hereunder shall be made only as provided in the specific case.
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In no event shall any indemnification obligations of the Trust under
this subsection (b) of this Section 17 subject a Unitholder to any liability in
excess of that contemplated by subsection (e) of Section 8 hereof.
(c) Indemnification of the Trust by the Unitholders. In the event
the Trust is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of or in connection with any Unitholder's
activities, obligations or liabilities unrelated to the Trust's business, such
Unitholder shall indemnify and reimburse the Trust for all loss and expense
incurred, including reasonable attorneys' fees.
18. Amendments; Meetings.
(a) Amendments with Consent of the Managing Owner. If at any time
during the term of the Trust the Managing Owner shall deem it necessary or
desirable to amend this Declaration of Trust and Trust Agreement, the Managing
Owner may proceed to do so, provided that such amendment shall be effective only
if embodied in an instrument approved by the Managing Owner and, subject to the
immediately following sentence, by the holders of Units representing a majority
of the outstanding Units. No meeting procedure or specified notice period is
required in the case of amendments made with the consent of the Managing Owner,
mere receipt of an adequate number of unrevoked written consents being
sufficient. The Managing Owner may amend this Declaration of Trust and Trust
Agreement without the consent of the Unitholders in order (i) to clarify any
clerical inaccuracy or ambiguity or reconcile any inconsistency (including any
inconsistency between this Declaration of Trust and Trust Agreement and the
Prospectus), (ii) to effect the intent of the tax allocations proposed herein to
the maximum extent possible in the event of a change in the Code or the
interpretations thereof affecting such allocations, (iii) to attempt to ensure
that the Trust is not treated as an association taxable as a corporation for
federal income tax purposes, (iv) to qualify or maintain the qualification of
the Trust as a trust in any jurisdiction, (v) to delete or add any provision of
or to this Declaration of Trust and Trust Agreement required to be deleted or
added by the Staff of the Securities and Exchange Commission or any other
federal agency or any state "Blue Sky" official or similar official or in order
to opt to be governed by any amendment or successor statute to the Act, (vi) to
make any amendment to this Declaration of Trust and Trust Agreement which the
Managing Owner deems advisable, including amendments that reflect the offering
and issuance of additional Units, whether or not issued through a series or
class, provided that such amendment is not adverse to the Unitholders, or that
is required by law, and (vii) to make any amendment that is appropriate or
necessary, in the opinion of the Managing Owner, to prevent the Trust or the
Managing Owner or its directors, officers or controlling persons from in any
manner being subjected to the provisions of the Investment Company Act of 1940,
as amended, or to prevent the assets of the Trust from being considered for any
purpose of ERISA or Section 4975 of the Code to constitute assets of any
"employee benefit plan" as defined in and subject to ERISA or of any "plan"
subject to Section 4975 of the Code.
(b) Amendments and Actions without Consent of the Managing Owner. In
any vote called by the Managing Owner or pursuant to section (c) of this Section
18, upon the affirmative vote (which may be in person or by proxy) of more than
fifty percent (50%) of the Units then owned by Unitholders, the following
actions may be taken, irrespective of whether the Managing Owner concurs: (i)
this Declaration of Trust and Trust Agreement may be amended, provided, however,
that approval of all Unitholders shall be required in the case of amendments
changing or altering this Section 18, extending the term of the Trust, or
materially changing the Trust's basic investment policies or structure; in
addition, reduction of the capital account of any Unitholder or assignee or
modification of the percentage of profits, losses or distributions to which a
Unitholder or an assignee is entitled hereunder shall not be effected by any
amendment or supplement to this Declaration of Trust and Trust Agreement without
such Unitholder's or assignee's written consent; (ii) the Trust may be
dissolved; (iii) the Managing Owner may be removed and replaced; (iv) a new
managing owner or managing owners may be elected if the Managing Owner withdraws
from the Trust; (v) the sale of all or substantially all of the assets of the
Trust may be approved; and (vi) any contract with the Managing Owner or any
affiliate thereof may be disapproved of and, as a result, terminated upon 60
days' notice.
(c) Meetings; Other Voting Matters. Any Unitholder upon request
addressed to the Managing Owner shall be entitled to obtain from the Managing
Owner, upon payment in advance of reasonable reproduction and mailing costs, a
list of the names and addresses of record of all Unitholders and the number of
Units held by each (which shall be mailed by the Managing Owner to the
Unitholder within ten days of the receipt of the request); provided, that the
Managing Owner may require any Unitholder requesting such information to submit
written confirmation that such information will not be used for commercial
purposes. Upon receipt of a written proposal, signed by Unitholders owning Units
representing at least 10% of the Units then owned by Unitholders, that a meeting
of the Trust be called to vote upon
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any matter upon which the Unitholders may vote pursuant to this Declaration of
Trust and Trust Agreement, the Managing Owner shall, by written notice to each
Unitholder of record sent by certified mail within 15 days after such receipt,
call a meeting of the Trust. Such meeting shall be held at least 30 but not more
than 60 days after the mailing of such notice, and such notice shall specify the
date of, a reasonable place and time for, and the purpose of such meeting.
The Managing Owner may not restrict the voting rights of Unitholders
as set forth herein.
In the event that the Managing Owner or the Unitholders vote to
amend this Declaration of Trust and Trust Agreement in any material respect, the
amendment will not become effective prior to all Unitholders having an
opportunity to redeem their Units.
(d) Consent by Trustee. The Trustee's written consent to any
amendment of this Declaration of Trust and Trust Agreement shall be required,
such consent not to be unreasonably withheld; provided, however, that the
Trustee may, in its sole discretion, withhold its consent to any such amendment
that would adversely affect any right, duty or liability of, or immunity or
indemnity in favor of, the Trustee under this Declaration of Trust and Trust
Agreement or any of the documents contemplated hereby to which the Trustee is a
party, or would cause or result in any conflict with or breach of any terms,
conditions or provisions of, or default under, the charter documents or by-laws
of the Trustee or any document contemplated thereby to which the Trustee is a
party.
19. Governing Law.
The validity and construction of this Declaration of Trust and Trust
Agreement shall be determined and governed by the laws of the State of Delaware
without regard to principles of conflicts of law; provided, however, that causes
of action for violations of federal or state securities laws shall not be
governed by this Section 19.
20. Miscellaneous.
(a) Notices. All notices under this Declaration of Trust and Trust
Agreement shall be in writing and shall be effective upon personal delivery, or
if sent by first class mail, postage prepaid, addressed to the last known
address of the party to whom such notice is to be given, upon the deposit of
such notice in the United States mail.
(b) Binding Effect. This Declaration of Trust and Trust Agreement
shall inure to and be binding upon all of the parties, all parties indemnified
under Sections 2 and 17 hereof, and their respective successors and assigns,
custodians, estates, heirs and personal representatives. For purposes of
determining the rights of any Unitholder or assignee hereunder, the Trust and
the Managing Owner may rely upon the Trust records as to who are Unitholders and
assignees, and all Unitholders and assignees agree that their rights shall be
determined and they shall be bound thereby.
(c) Captions. Captions in no way define, limit, extend or describe
the scope of this Declaration of Trust and Trust Agreement nor the effect of any
of its provisions. Any reference to "persons" in this Declaration of Trust and
Trust Agreement shall also be deemed to include entities, unless the context
otherwise requires.
21. Benefit Plan Investors.
Each Unitholder that is an "employee benefit plan" as defined in and
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or a "plan" as defined in Section 4975 of the Code (each such
employee benefit plan and plan, a "Plan"), and each fiduciary thereof who has
caused the Plan to become a Unitholder (a "Plan Fiduciary"), represents and
warrants that: (a) the Plan Fiduciary has considered an investment in the Trust
for such Plan in light of the risks relating thereto; (b) the Plan Fiduciary has
determined that, in view of such considerations, the investment in the Trust for
such Plan is consistent with the Plan Fiduciary's responsibilities under ERISA;
(c) the investment in the Trust by the Plan does not violate and is not
otherwise inconsistent with the terms of any legal document constituting the
Plan or any trust agreement thereunder; (d) the Plan's investment in the Trust
has been duly authorized and approved by all necessary parties; (e) none of
Kenmar, any advisor to the Trust, any selling agent, the clearing broker, the
escrow agent, any broker through which any advisor requires the Trust to trade,
the Trustee, any of their respective affiliates or any of their respective
agents or employees: (i) has investment discretion with respect to the
investment of assets of the Plan used to
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purchase the Units; (ii) has authority or responsibility to or regularly gives
investment advice with respect to the assets of the Plan used to purchase the
Units for a fee and pursuant to an agreement or understanding that such advice
will serve as a primary basis for investment decisions with respect to the Plan
and that such advice will be based on the particular investment needs of the
Plan; or (iii) is an employer maintaining or contributing to the Plan; and (f)
the Plan Fiduciary: (i) is authorized to make, and is responsible for, the
decision for the Plan to invest in the Trust, including the determination that
such investment is consistent with the requirement imposed by Section 404 of
ERISA that Plan investments be diversified so as to the risks of large losses;
(ii) is independent of Kenmar, any advisor to the Trust, any selling agent, the
clearing broker, the escrow agent, any broker through which any Advisor requires
the Trust to trade, the Trustee and any of their respective affiliates; and
(iii) is qualified to make such investment decision.
22. Certain Definitions.
This Declaration of Trust and Trust Agreement contains certain
provisions required by the NASAA Guidelines. The terms used in such provisions
are defined as follows (the following definitions are included verbatim from the
NASAA Guidelines and, accordingly, may not in all cases be relevant to this
Declaration of Trust and Trust Agreement):
Administrator. The official or agency administering the securities
laws of a state.
Advisor. Any Person who for any consideration engages in the
business of advising others, either directly or indirectly, as to
the value, purchase, or sale of Commodity Contracts or commodity
options.
Affiliate. An Affiliate of a Person means: (a) any Person directly
or indirectly owning, controlling or holding with power to vote 10%
or more of the outstanding voting securities of such Person; (b) any
Person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power to vote,
by such Person; (c) any Person, directly or indirectly, controlling,
controlled by, or under common control with such Person; (d) any
officer, director or partner of such Person; or (e) if such Person
is an officer, director or partner, any Person for which such Person
acts in any such capacity.
Capital Contributions. The total investment in a Program by a
Participant or by all Participants, as the case may be.
Commodity Broker. Any Person who engages in the business of
effecting transactions in Commodity Contracts for the account of
others or for his own account.
Commodity Contract. A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade
of a traded commodity at a specified price and delivery point.
Cross Reference Sheet. A compilation of the Guidelines sections,
referenced to the page of the prospectus, Program agreement, or
other exhibits, and justification of any deviation from the
Guidelines.
Net Assets. The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles.
Net Assets shall include any unrealized profits or losses on open
positions, and any fee or expense including Net Asset fees accruing
to the Program.
Net Asset Value Per Program Interest. The Net Assets divided by the
number of Program Interests outstanding.
Net Worth. The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth
shall be determined exclusive of home, home furnishings and
automobiles.
New Trading Profits. The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period
or Net Assets at the date trading commences, whichever is higher,
and as further adjusted to eliminate the effect on Net Assets
resulting from new Capital Contributions,
TA-18
<PAGE>
redemptions, or capital distributions, if any, made during the
period decreased by interest or other income, not directly related
to trading activity, earned on Program assets during the period,
whether the assets are held separately or in the margin account.
Organizational and Offering Expenses. All expenses incurred by the
Program in connection with and in preparing a Program for
registration and subsequently offering and distributing it to the
public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the
underwriters' attorneys), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of
transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program
Interests under federal and state law including taxes and fees,
accountants' and attorneys' fees.
Participant. The holder of a Program Interest.
Person. Any natural Person, partnership, corporation, association or
other legal entity.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Program. A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in
Commodity Contracts.
Program Broker. A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
Program Interest. A limited partnership interest or other security
representing ownership in a Program.
Pyramiding. A method of using all or a part of an unrealized profit
in a Commodity Contract position to provide margin for any
additional Commodity Contracts of the same or related commodities.
Sponsor. Any Person directly or indirectly instrumental in
organizing a Program or any Person who will manage or participate in
the management of a Program, including a Commodity Broker who pays
any portion of the Organizational Expenses of the Program, and the
general partner(s) and any other Person who regularly performs or
selects the Persons who perform services for the Program. Sponsor
does not include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of
the units. The term "Sponsor" shall be deemed to include its
Affiliates.
Valuation Date. The date as of which the Net Assets of the Program
are determined.
Valuation Period. A regular period of time between Valuation Dates.
23. No Legal Title to Trust Estate.
The Unitholders shall not have legal title to any part of the Trust
Estate.
24. Legal Title.
Legal title to all the Trust Estate shall be vested in the Trust as
a separate legal entity; except where applicable law in any jurisdiction
requires any part of the Trust Estate to be vested otherwise, the Managing Owner
(or the Trustee, if required by law) may cause legal title to the Trust Estate
of any portion thereof to be held by or in the name of the Managing Owner or any
other person as nominee.
TA-19
<PAGE>
25. Creditors.
No creditors of any Unitholders shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect
to, the Trust Estate.
IN WITNESS WHEREOF, the undersigned have duly executed this
Declaration of Trust and Trust Agreement as of the day and year first above
written.
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ Emmett R. Harmon
-------------------------------
Name: Emmett R. Harmon
Title Vice President
KENMAR ADVISORY CORP.
as Managing Owner
By: /s/ Esther E. Goodman
-------------------------------
Name: Esther E. Goodman
Title: Chief Operating Officer and
Senior Executive Vice President
KENMAR VENTURE PARTNERS LIMITED PARTNERSHIP
as Initial Unitholder
By: KENMAR ADVISORY CORP., GENERAL PARTNER
By: /s/ Esther E. Goodman
-------------------------------
Name: Esther E. Goodman
Title: Chief Operating Officer and
Senior Executive Vice President
All Unitholders now and hereafter admitted
as Unitholders of the Trust, pursuant to
powers of attorney now and hereafter
executed in favor of, and granted and
delivered to, the Managing Owner.
By: KENMAR ADVISORY CORP.,
ATTORNEY-IN-FACT
By: /s/ Esther E. Goodman
-------------------------------
Name: Esther E. Goodman
Title: Chief Operating Officer and
Senior Executive Vice President
TA-20
<PAGE>
Schedule A
FORM
OF
CERTIFICATE OF TRUST
OF
KENMAR GLOBAL TRUST
THIS Certificate of Trust of KENMAR GLOBAL TRUST (the "Trust"),
dated July 17, 1996, is being duly executed and filed by Wilmington Trust
Company, a Delaware banking corporation, as trustee, to form a business trust
under the Delaware Business Trust Act (12 Del.C. 3801 et seq.)
1. Name. The name of the business trust formed hereby is Kenmar
Global Trust.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is Wilmington Trust Company, 1100 North
Market Street, Rodney Square North, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective upon
the date and time of filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ W. Chris Sponenberg
-------------------------------
Name: W. Chris Sponenberg
Title: Financial Services Officer
TA-21
<PAGE>
ANNEX
KENMAR GLOBAL TRUST
REQUEST FOR REDEMPTION
KENMAR GLOBAL TRUST ___________________________
c/o Kenmar Advisory Corp. Date
Managing Owner
Two American Lane
P.O. Box 5150
Greenwich, CT 06831-8150
Dear Sirs:
The undersigned (trust account number ________) hereby requests
redemption subject to all terms and conditions of the Declaration of Trust and
Trust Agreement (the "Declaration of Trust") of KENMAR GLOBAL TRUST (the
"Trust"), of _____ Units of Beneficial Interest ("Units") in the Trust. (Insert
the number of whole Units to be redeemed; subscribers may redeem any number of
whole Units, they need not redeem all or any minimum number of their Units in
order to redeem certain of their Units; however, if no number is indicated, all
Units held of record by the undersigned will be redeemed; fractional Units may
only be redeemed upon complete redemption of undersigned's interest in the
Trust.) Units are redeemed at the Net Asset Value per Unit, as defined in the
Declaration of Trust, less any applicable redemption charge (see below).
Redemption shall be effective as of the end of the current calendar month;
provided that this Request for Redemption is received at least ten (10) calendar
days prior to the end of such month. Payment of the redemption price of Units
will generally be made within fifteen (15) business days of the date of
redemption.
The undersigned hereby represents and warrants that the undersigned
is the true, lawful and beneficial owner of the Units to which this Request for
Redemption relates with full power and authority to request redemption of such
Units. Such Units are not subject to any pledge or otherwise encumbered in any
fashion.
Redemption charges of 3% and 2% of the Net Asset Value of Units
redeemed on or before the end of the 6th month through the end of the 12th month
after sale and from the end of the 12th month through the end of the 18th month
after sale will be deducted from the redemption price of all such Units paid to
Kenmar.
----------
United States Taxable Unitholders Only
Under penalty of perjury, the undersigned hereby certifies that the
Social Security Number or Taxpayer ID Number indicated on this Request for
Redemption is the undersigned's true, correct and complete Social Security
Number or Taxpayer ID Number and that the undersigned is not subject to backup
withholding under the provisions of Section 3406(a)(1)(C) of the Internal
Revenue Code.
Non-United States Unitholders Only
Under penalty of perjury, the undersigned hereby certifies that (a)
the undersigned is not a citizen or resident of the United States or (b) (in the
case of an investor which is not an individual) the investor is not a United
States corporation, partnership, estate or trust.
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
|_| Credit my brokerage account |_| Send to the address below
________________________________________________________________________________
Name Street City, State and Zip Code
Entity Unitholder Individual Unitholder(s)
(or assignee) (or assignee(s))
_________________________________ ______________________________________
(Name of Entity)
______________________________________
By:______________________________ ______________________________________
(Authorized corporate officer, (Signature(s) of all Unitholder(s)
partner or trustee) or assignee(s))
SR-1
<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 May 22,
1998 (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 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.
SR-1
<PAGE>
(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, furnishings and automobiles) or (ii) an annual gross income of at least
$45,000 and a net worth of at least $45,000 (exclusive of home, furnishings and
automobiles). Residents of the following states must meet the requirements set
forth below ("net worth" for such purposes is in all cases is exclusive of home,
furnishings and automobiles). In addition, Purchaser may not invest more than
10% of his or her readily marketable assets in the Trust.
1. Arizona -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
2. California -- Net worth of at least $250,000 and an annual income
of at least $65,000 or, in the alternative, a net worth of at least $500,000.
3. Iowa -- Net worth of at least $225,000 or a net worth of at least
$60,000 and an annual taxable income of at least $60,000. The minimum investment
for IRAs is $2,500.
4. Maine -- Minimum subscription per investment, both initial and
subsequent, of $5,000; net worth of at least $200,000 or a net worth of at least
$50,000 and an annual income of at least $50,000. Maine residents must sign a
Subscription Agreement and Power of Attorney Signature Page specifically
prepared for Maine residents, a copy of which shall accompany this Prospectus as
delivered to all Maine residents.
5. Massachusetts -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
6. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and taxable income in 1995 of at least $60,000.
7. Minnesota -- "Accredited investors", as defined in Rule 501(a)
under the Securities Act of 1933.
8. Mississippi -- Net worth of at least $225,000 or a net worth of
at least $60,000 and an annual income of at least $60,000.
9. Missouri -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
10. New Hampshire -- Net worth of at least $250,000 or a net worth
of at least $125,000 and an annual income of at least $50,000.
SR-2
<PAGE>
11. North Carolina -- Net worth of at least $225,000 or a net worth
of at least $60,000 and an annual income of at least $60,000.
12. Oklahoma-- Net worth of at least $225,000 or a net worth of
$60,000 and an annual income of at least $60,000.
13. Oregon -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
14. Pennsylvania -- Net worth of a least $175,000 or a net worth of
at least $100,000 and an annual taxable income of at least $50,000.
15. South Carolina -- Net worth of at least $100,000 or a net income
in 1995 some portion of which was subject to maximum federal and state income
tax.
16. Tennessee -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
17. Texas -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000.
For Entities Only:
Kenmar attempts to verify that any entity that seeks to purchase
Units is 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 that 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."
SR-3
<PAGE>
EXHIBIT C
KENMAR GLOBAL TRUST
----------
SUBSCRIPTION INSTRUCTIONS
Any person considering purchasing Units should carefully read and
review the Prospectus of the Trust dated September 26, 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 typeof 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 four (4) paragraphs
under "Acknowledgments by Purchaser."
Item 6 - Selling Agent representatives must complete the information required
and sign in two places.
Instructions to Selling Agent representatives:
The Branch Manager/Representative Copy 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. The terms of the offering of the Units
are described in the Prospectus of the Trust dated September 26, 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 in the
Trust are relying on Kenmar's authority to act pursuant to the Power of Attorney
granted hereby. The Power of
SA-1
<PAGE>
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>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(SIGNATURE PAGE)
1. Subscriber Status (check)
(a) |_| New Subscriber(s) - complete items 1 through 5 and have Selling
Agent representative or branch manager
complete item 6.
(b) |_| Existing Owner(s) - complete items 1, 2, 3, 4(a) and 5 and have
Selling Agent representative or branch manager
complete item 6.
2. Subscription Amount
Check Enclosed Payable to Kenmar Global Trust $_________, min. $5,000
except $2,000 for IRAs/ERISA or Existing Investors
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.: _________________
Social Security No. or Tax I.D. No.: ________________________________
SA-3
<PAGE>
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 ________, 1998 (the
initial "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
initial 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
initial 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 will attempt to verify that any entity which seeks to purchase Units is
duly registered with the CFTC and a member of the NFA, if required. Purchaser
agrees to supply Kenmar with such information as Kenmar may reasonably request
in order to attempt such verification. Most entities which acquire Units will,
as a result, themselves become "commodity pools" within the intent of applicable
CFTC and NFA rules, and their sponsors, accordingly, may be required to register
as "commodity pool operators."
Signature of Purchaser
For Use by Investor
X___________________________________ X___________________________________
Signature of Purchaser Date Custodian Authorization Date
and Title, if applicable (if applicable)
X___________________________________
Signature of Joint Purchaser Date
Executing and delivering this Subscription Agreement and Power of Attorney
Signature Page shall in no respect be deemed to constitute a waiver of any
rights under the Securities Act of 1933 or under the Securities Exchange
Act of 1934. I acknowledge that I have received, in addition to the
Prospectus dated ______, 1998, 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: o. Under the penalties of perjury, by signature above I hereby
certify that the Social Security Number or Taxpayer ID Number shown on the
front of this Subscription Agreement and Power of Attorney Signature Page
next to my name is my true, correct and complete Social Security Number or
Taxpayer ID Number and that the information given in the immediately
preceding sentence is true, correct and complete.
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
X_______________________________________________________________________________
Office Manager Signature Date
SA-5
<PAGE>
The representations and statements set forth herein may be asserted in the
defense of the Trust, Kenmar, the Advisors to the Trust, the Selling Agent or
others in any subsequent litigation or other proceeding.
The Branch Manager/Representative Copy Page must be retained in the
Branch Office.Remaining copies should be forwarded to a) 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. DPM's phone number is 732-560-6221.
KENMAR COPY
SA-6
<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 26th
day of May, 1998.
KENMAR GLOBAL TRUST
By: Kenmar Advisory Corp.
Managing Owner
By: /s/ KENNETH A. SHEWER
-----------------------
Kenneth A. Shewer
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following persons on behalf of the Managing Owner of the Registrant in
the capacities and on the date indicated.
Signature Title With Registrant Date
/s/ KENNETH A. SHEWER Chairman May 26, 1998
- ---------------------- (Principal Executive Officer)
Kenneth A. Shewer
/s/ MARC S. GOODMAN President May 26, 1998
- ----------------------
Marc S. Goodman
/s/ GARY J. YANNAZZO Senior Vice President - May 26, 1998
- ---------------------- Finance (Principal Financial
Gary J. Yannazzo and Accounting Officer)
/s/ ESTHER E. GOODMAN Chief Operating Officer and May 26, 1998
- ---------------------- Senior Executive Vice President
Ester E. Goodman
(Being principal executive officer, the principal financial and
accounting officer and a majority of the directors of Kenmar Advisory Corp.)
KENMAR ADVISORY CORP. Managing Owner of Registrant
By: /s/ KENNETH A. SHEWER May 26, 1998
- -------------------------
Kenneth A. Shewer
Chairman
SA-7
<PAGE>
As Filed with the Securities and Exchange Commission on May 26, 1998
Registration No. 333-8869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
EXHIBITS
To
AMENDMENT NO. 4
(POST-EFFECTIVE AMENDMENT NO. 2)
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1993
-------------
KENMAR GLOBAL TRUST
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
Exhibit
Number Description of Document
23.05 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
SA-9
Exhibit 23.05
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 March 16, 1998 on the financial
statements of Kenmar Global Trust as of December 31, 1997 and 1996 and for the
year ended December 31, 1997 and for the period July 17, 1996 (inception) to
December 31, 1996 and our report dated December 17, 1997 on the statement of
financial condition of Kenmar Advisory Corp. as of September 30, 1997, 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
May 26, 1998
SA-10
